Stifel Financial Corp. (SF) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the virtual fireside with Resonant management conference call hosted by Stifel. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Senior Analyst, Tore Svanberg. Sir, the floor is yours.

Thank you very much, Holly, and good afternoon to you on the East Coast and perhaps in Europe, and good morning to us here on the West Coast. Thank you all for joining the Resonant virtual fireside hosted by Stifel. My name is Tore Svanberg. I'm a senior analyst for analog connectivity and processor semiconductors at Stifel. It is my pleasure to introduce members from Resonant's management team on the call today, including Chairman and Chief Executive Officer, George Holmes; Chief Operating Officer, Dylan Kelly; and also a member of the Advisory Board, Mike Eddy. Before I move to questions, let me also say that during these extraordinary times, and I'm no expert on the virus or anything like that, but clearly, technology and especially broadband technology is becoming more important than ever before. RF technology, I think, is critical for what's to come. And certainly, Resonant is offering some very exciting design tools for next-generation RF technologies. Also as far as the main topics of this call, basically, we'll have 3. I will give a very -- I will have a very general business update-type questions for George kind of around how the company is managing through this era of COVID-19. The second topic will give us a few insights into Resonant's capital structure. And then lastly, and most importantly, and this would really be the bulk of the call, is recent important announcements, industry trends, obviously, any updates on XBAR or customers. So that will again be the bulk of the call. I do expect the call to take about 40 to 45 minutes. We'll do about 30 minutes or so Q&A, and then we will open it up to questions from the audience. So with that, let's get started. And George, Dylan and Mike, thank you so much for joining us on the call. And George, I don't know if you wanted to give your company disclosure before I start my questions.

Yes. I think that's probably a good idea for everybody on the call today. Obviously, looking for specific data as it relates to our quarterly performance and annual performance, I'll point you to our website and our Ks and Qs that are published there. For today, we're going to be talking in general terms about the state of the market. We will not be providing any updates on Q1. That will be happening here on our quarterly call that will happen in the first week of May. You can look it -- look for a press release coming out when that is actually going to be scheduled here in the coming week. Again, thank you, Tore, for putting on this fireside chat. We're excited to talk to you all about what we see is going on in the market and how we're going to take advantage of it. So Tore, back to you.

Very good. Thank you, George. And I'll start with perhaps an easy question, I don't know if it is. But just in general, how is the company doing during this COVID-19 era, especially when we start thinking about designs and how your engineers are working with customers' engineers. Obviously, you're offering software tools, so that's a great thing. You probably don't have to be in somebody's lab designing products. But help us understand a little bit how the day-to-day is going for Resonant during this unusual era?

Okay. Well, I think in -- kind of from a general perspective, I think we are very well suited just from the nature of our business. If you look at kind of how we operated prior to this event, our team has been operating with -- it's kind of interesting. We use video conferencing very, very regularly. And being a design company and providing designs to third parties to build and actually test, we are not actually impacted by this in a great deal in a major fashion at this point in time. Clearly, as the market has an overall dampening effect, that will affect everyone. But what we're seeing right now from an operating perspective, our team is operating and functioning well. We were able to -- at the beginning of the crisis, we were able to mobilize very, very quickly, and our team has been running at full tilt since then. Dylan, do you want to kind of -- as you run the majority of the engineering guys, you want to talk a little bit about what your guys are doing to keep the business running?

Yes. It's a -- really, the company is built upon the idea of doing very accurate simulations of these acoustic wave filters. And we built the ISN platform to do that, which puts us in a much better position than those that are having to do lots of iterations with manufacturing samples and evaluating them. So we can do it in CAD. And basically, once the work from home edict took place, they went -- scrubbed their workstations, went home, thanks to VPN and basically no disruption. I mean probably just a few hours of relocating stuff. And then we're collaborating, as we have for years, with our customers largely overseas, many in Asia, so using various video conferencing tools to continue with moving the designs forward into their lines.

I think as we've -- Tore, in our last quarterly call, we had noted that China had already come back online. Our activities there were ahead of schedule as were the activities with our largest customer. So as of that point in time, things were ahead of schedule. I think what we have seen is that, so far, no major disruptions.

Very good. And perhaps on that topic on China ramping back up, there's also been some recent positive news on China smartphone sales. Well, at least, they're moving in the right direction, right? So the March sales drop there was significantly less than February. Maybe you can elaborate a little bit on what customers are telling you, especially with China ramping back up?

Yes. Well, there's 2 things. Let me just kind of talk and reiterate some of the things we talked about on the last quarterly call. It sort of leads to -- as we were evaluating our customer base and looking what we had done in the first part of January with the announcement with our Tier 1 foundry partner and the work that we're doing there, I think that this is putting us in a very good position as we come out of this and on the other side of the COVID-19 crisis to be very well positioned as we're ramping new designs with new partners and targeting specifically the China handset market with major foundry partners in that part of the world that are targeting specifically that segment of the market. As the edicts come down to have more indigenous suppliers, we're going to be well positioned, as Dylan said, with the design work that we're doing and the designs that we're providing to those companies. Mike, do you want to spend a second talking a little bit about our view of what's happening in the marketplace, and in particular, the handset manufacturers right now?

Yes. Sure, George. And I think, Tore, you kind of hit it that the February numbers out of China were particularly bad in that the data from the China Academy of Information and Communications Technology showed a 55% drop year-over-year in February, but that bounced back pretty strongly in March with a year-over-year drop just over 20%. And so you can kind of see a quick bounce back in that China market on smartphone shipments. And you're seeing it kind of everywhere. Xiaomi is ramping back up in their capacity. They're claiming they're up around 80%, 90% of capacity on their manufacturing SIM with Huawei. And you can see it also with the different components that go into the handsets. They're all running now, bringing back their capacity up around 80%, 90% and ramping back up. And so as China is coming back, which is obviously a huge part of the smartphone market, we see this as a real positive sign. And the fact that we are -- we've licensed designs. We're a licensing company, we can very effectively communicate throughout the company and with our customers since we've done this throughout the life of Resonant and take advantage of the quick bounce-back that we see happening right now in the market. Obviously, COVID-19 is going to have effects. But hopefully, as the Asian China market comes back strongly, we believe that we're well positioned to take advantage of it.

Well, I think there's another thing, too, Mike. I mean Dylan hit on it. I want to make sure I continue to emphasize it. The fact that our design approach is significantly different than all of the other vertically integrated leverage our ISN platform to do design work in software. And we're not requiring these companies when they're design-constrained or manufacturing-constrained as they're kind of coming back online to be running multiple iterations of designs. We can deliver designs to them that they can be confident in with a single turn is something that is going to be, I think, significantly advantageous for our customers because we're not putting a lot of burden on their factories as they're trying to ramp them back up.

Good point. And George, on that particular topic, I mean, are you seeing some pull in activity? Are you seeing an acceleration of interaction with customers? Because, yes, I mean, I absolutely agree with you. I think the fact that you have a software tool is a great advantage in this environment. And I'm sure that will actually cause some pull in or maybe even some reacceleration in activity. I'm just wondering if you've already started to see it so far.

Well, here's what I'll say about that, Tore. I mean we're going to talk a little bit more about it here in a couple of weeks and we'd give some real insights on to the things that have happened in the quarter. But I think from a macro perspective, and we talked about this on our last call, the activity is high. I think companies were already at this point in time starting to see that there was a potential impact, and we had very solid engagement at the time of our last quarterly call. And we'll give an update on that here in a couple of weeks. But I can tell you that our design approach, which has historically gotten a lot of looks from the major players in the marketplace, I think the potential clearly is that, that's going to be something that they look at as a way to really make them much more efficient from a design approach perspective. And I think that if that happens, that should bode very well for us.

Very good. And George, the interesting thing about your business model, and perhaps this question is more for those investors that may not be that familiar with Resonant, but I think the market, meaning the investors, they're always looking for predictability, right? And this is probably one of the most uncertain times we've seen in recent history. And if you look at Resonant's business model, obviously, it's prepaid royalties. So maybe you can just elaborate a little bit on that for those that may not be that familiar with Resonant's business model?

Yes. Thanks, Tore. I think one thing we recognized is the, and this was really probably starting about a little over a year ago, is that we had stacked up and really had done -- I think the guys have done a really good job of creating a nice footprint with a large number of customers, a lot of designs under contract. But I think one of the things that is often lost not only on investors but the market as a whole is when you're in a pure-play royalty business, it takes a very long time for those things to convert and start delivering predictable revenues. We recognized that fact and started working towards a new model that was more of a hybrid model that would include prepaid royalties, deals like we did with the world's largest filter manufacturer, deals like the ones we did here in January with a Tier 1 foundry partner. And the reason we went to that route was to do just exactly what you described, add some predictability into the royalty model. And with that, we get a good line of sight as to kind of what the potential for where revenues is going to be. And clearly, we get good line of sight of what the cash component will be. I think we're always going to have this rev rec component that we're going to be working through as we determine how much energy and effort is put into each of these designs and go and work with our auditors to convert billings into revenue. But for us, having predictability on bringing in cash is key, and that's one of the things that these prepaid deals have done for us. The fact that a majority of our billings and revenue in 2020 are going to be based on those prepaid deals that we have, I think, is going to be very, very significant for us. I think as we said in Q4, we felt good about our -- on our Q3 call, we felt good about the Q4 revenues, and as Marty indicated on our Q4 call, he felt good about the Q1 revenues. And I think that you get that ramping up of predictability with the kind of model that we've transitioned to, which is this prepaid royalties, where now our Street royalty business is just gravy. So as those things come on -- come in and start ramping, they become additive and not be the single largest dependents that we have on the business.

Great. Great. Moving on to a topic that's always on investor's mind, which is 5G. And I was hoping that you could give us your view of 5G. There's sort of 2 camps out there, right? I mean there's some that are saying this COVID-19 era is going to push out 5G deployments, certainly, devices, right, because we're going to -- potentially going through a consumer recession. But then on the other hand, there's a camp out there that actually believes 5G is only going to accelerate or maybe even get pulled in so that the world can take advantage of better broadband. Where do you guys stand on the 5G right now?

Great question. So I'm going to hand this off to both Dylan and Mike. I'd like Dylan to kind of give an overview of what we see as the kind of 3 major waves of 5G deployment. And then I'll have Mike add some color about what we're seeing happening right now in the market today. Dylan?

Thanks, George. Yes. Kind of an interesting thing about the initial 5G launch, which has been pretty aggressively advertised in the U.S., is that it's a major cost reduction for operators by applying technologies such as massive MIMO and the refarming of existing frequency bands. Expectations are that cost of data delivery to the user will drop by something like 60%. And so the operators are really wanting to see this go out quickly. And so from that perspective, we expect this will continue to move fast. However, as the refarming advance is happening like in 700 megahertz band with T-Mobile, it actually does not really create a different user experience. And so you're seeing kind of the same throughputs as you would see with LTE. So it's not delivering on that expanded broadband promise. That's why we're going to file what we're calling wave 2, which is moving up in the 3 to 5 gigahertz range. So some of those bands are available globally today. And the FCC is working really aggressively to open up some of those frequency bands here in the U.S. And so we see that really getting broadly deployed in, say, the 2022, '23 time frame. And that's where we have our XBAR focus, so we can enable those wide operating bandwidths to allow the really high data rates to flourish. And then there's also -- there's been quite a bit of talk in the past 2 years about the move-up to millimeter wave in the 24 to 28 gigahertz range. There's been some technology demonstrations, and there's been some difficulties with those. So it's really challenging engineering problems. But the data demand will keep rising. And so we expect that to be the third wave where you get to -- multi gigabits per second delivered to your phone. But that's probably 2025 kind of time frame for our deployment. And with that, Mike, why don't you add some -- your thoughts there?

Yes. Thank you, Dylan. And just coming back to what Dylan was saying on these multiple waves of 5G. We see this wave 1 of 5G that is happening now is really about the competitive environment that the carriers have and the need to get 5G coverage as quick as possible. So if you look at the announcements that you hear from T-Mobile at 700 megahertz spectrum, that spectrum is still relatively narrow bandwidth. And so the user experience is very similar to LTE. It's not showing the kind of performance that is the 5G promise of massively increased data rates and data speeds. You also see, even just in the past week, the announcement of Verizon Wireless and Qualcomm talking about the collaboration to do dynamic spectrum sharing, which is a powerful tool. And it will allow Verizon Wireless to run 5G the exact same frequencies as 4G. However, it's not providing new bandwidth. It's allowing them to get good coverage because of the lower frequency 4G spectrum. So again, it's all about coverage in this wave 1. Wave 2, as Dylan was saying, to increase capacity and data rates, you have 3 kind of technical knobs you can turn. You can increase the spectrum bandwidth, which is the new frequencies, the higher frequencies, where those kind of hundreds of megahertz of bandwidth is available. You can increase the number of RF paths, which is the number of antennas, which will require you hear about MIMO, which is the number of antennas in the phone. And you can increase the signal strength of your signal relative to the interference and noise war. And again, that's about densifying the network, small cells bringing the RF presence closer to the user. And the one thing you don't want to do is increase that interference war on your signal. And that's why filters are incredibly important for this wave 2, and it's why XBAR is important, and what Resonant has designed and optimized, this new resonating structure, new filter, so that we can make sure you get the full advantage of this wave 2 and the hundreds of megahertz gigabits per second as opposed to the tens of megabits per second.

Very good. So obviously, you mentioned XBAR there. And I know you've had a few announcements recently on XBAR. First of all, obviously, the Murata agreement is focused on mobile. I was just wondering what else is available. And then also you recently talked about expanding the performance of XBAR. Just wondering what that means for nonmobile applications. And then lastly, I believe as early as today, you had a patent announcement on XBAR. So if you could just talk a little bit about those three, that'd be great.

Okay. So why don't I give a quick overview of kind of where we are with our agreement with our Tier 1 as it relates to exclusivity. I'll talk a little bit about that, then I'll hand it over to Dylan to talk a little bit about kind of what the performance is of these new devices that we are so excited about and what that means for some of these other markets. And then I'll let Mike talk about the announcements that went out this morning about the IP. So to start, as it looks at our deal with our Tier 1 filter partner, we did an exclusive deal for 30 months in the field of mobile. And that left for us all other areas, application areas, as wide open for us to engage with other partners. As we noted as far back as October of last year, we were going to aggressively pursue those areas for engagement, with the idea that we would be sampling devices into the nonmobile areas of 5G with our XBAR technology before June of this year. And we stated on our last quarterly call that we were on track to do that. I think that as you look at where we stand right now, we're at less than 24 months of exclusivity remaining. Our exclusivity ends at the end of March in 2022. And so that's tomorrow in the designing of mobile devices from where we sit today. Because if you look at where mobile devices are, you're looking at already the 2021 devices are locked down. We're already starting on architectures for 2022. So I think we're going to be very well positioned with XBAR coming out of the shoot when we come out on the other side. That said, we're excited about what we're doing right now in the nonmobile space. We've had -- we had a webinar on that front. We've had a number of announcements in this area. And Dylan, do you want to spend a little bit about -- talking about what we're doing in that area?

Yes. And just for those who aren't too familiar, quick primer on acoustic wave filters. There's 2 main categories: surface acoustic or SAW filters and then bulk acoustic or BAW filters. Most of the world's supply of acoustic filters are made with SAW because they're more cost effective. But for very high-performance applications, BAW filters are used, and that's the like of FBAR from -- for Broadcom. And all researchers said about was how to develop a very high-performance filter in SAW technology. And the XBAR structure we came up with is actually -- realizes this bulk acoustic wave approach in a SAW process, so we're getting the performance of BAW technology with the cost and ease of process integration in existing SAW manufacturing lines. And on top of that, we worked on how to extend the resonator bandwidth by 4x, which is pretty unprecedented. So it's really aligned to these larger frequency bands, and on the same line is also enabling the high-frequency support. So high-frequency, wide bandwidth is really the strength of the XBAR technology. And so we talked about where it's obvious, applicability in mobile, and that has resulted in the partnership with the world's largest filter manufacturer. But now with the advent of Wi-Fi 6E, we see that there's another gigahertz of spectrum coming in the 6 to 7 gigahertz range for Wi-Fi. It's going to create interoperability problems and interference that require high-performance filtering. And that's also book ended, on the other side, with the n79 band coming into play interfering with 5 gigahertz Wi-Fi, so we see that as a market that traditionally is not needed with these kind of acoustic filters, and Wi-Fi will broadly need it. And yes, those volumes are enormous and even larger than smartphone volumes. Mike, do you want to add anything?

Yes. Thanks, Dylan. I think it's probably worth pointing out historically what has happened with filter technology. There are -- if you look at what happened when 3G was moving to 4G, there was a move from 30, 40 megahertz of bandwidth at 1 gigahertz to 60 to 70 megahertz of bandwidth at 2 gigahertz. And the structure, the filter structure that was required was different. Each filter structure is optimized for a certain bandwidth and certain frequency and certain interference protection. And that moves up from 3G to 4G. Avago Broadcom really took advantage of that with the technology they developed. This FBAR technology, a bulk acoustic wave technology, was optimized for those frequencies. What Resonant has done is leverage its ISN platform to really focus on what is the optimum resonating structure for these much larger bandwidths and much higher frequencies. And that's what XBAR is. It's designed for 600 megahertz, 900 megahertz of gigahertz of bandwidth at 3 to 7 gigahertz. It's really the optimal structure. And that's really what is required in order to take advantage of 5G, and it's obviously what we're working on with the largest filter manufacturer in the world for mobile who really recognize that fact. And so I just wanted to highlight the historical nature of this and also the fact that as, Tore, as you mentioned, we had a press release this morning that the first 3 patents associated with this XBAR technology is huge. And so this is, again, obviously, we think this technology is critical for 5G. And so as a licensing company, we made sure that we are providing protection around this intellectual property. And the USPTO obviously recognized that and started their first issuance of these first 3 patents in a series of patents they will be issuing over the next several years. I think with that, I'd give it back to you, Tore .

Yes. No, great. And congratulations on those 3 patents. Maybe we can move on to the other topic, which is kind of the capital structure. And George, I don't -- I'm not expecting you to talk about financials here by no means. But there's 2 recent developments that I think are important to maybe update us on. First is the advisory board that you put together with some very impressive members. And then obviously, you also had your February financing. So maybe you could just give us an update on those 2.

Okay. Well, great. Let me see what I can do about that. Obviously, we had a very successful financing in February. Our target was to bring on an institutional round, and we were successful in doing that. Timing-wise, looking good. It's good to be lucky. Obviously, we had noted back in December that we were looking at all alternatives to bring in cash to the company whether it be additional strategic deals, other prepaid royalty agreements and things of that nature. Kind of last on our list was a capital raise. We went into CES, very bullish. And unfortunately, there was a lot of things that were happening in the global markets at that point in time. Obviously, COVID-19 had started to -- really started to ramp. There were some activity that was going on kind of the global front with military actions happening in the Middle East that we decided that it made sense to move ahead with a capital raise. And we got lucky. We got it done just before things shut down, and that put us in a position where we had roughly $37 million in the bank on a pro forma basis at the end of the period, as Marty reported on our last quarterly call. Subsequent to that, we made -- we filed an 8-K that we took some additional costs out of the business as we look to streamline the business to make it focused on areas of the business that we're performing. And we took roughly of $5 million worth of costs on an annualized basis out of the business. It was just under that as we reported on the 8-K. And then as we sit back and kind of look at where we are now and how we're positioned, I think that puts us in a good spot from a capital perspective. We've got cash through the end of next year, and so we're -- we feel like we're in pretty good shape from that perspective.

Very good. And on the advisory board?

Yes. So let's talk about that. Obviously, we felt pretty good about the advisers we had in the company already. Obviously, with Ruben Caballero joining our Board and as a technical adviser, we already had a couple of gentlemen that were advising for us, but we decided to formalize an advisory board, which gave us Ruben; and Brian Crutcher, ex-CEO of Texas Instruments; Jeff Ball, who was the ex-Head of Investment Bank -- Semiconductor Investment Banking at JPMorgan. We had Clint Brown, who joined us. He's retiree from Broadcom, where his last role, he was the Vice Chair of the Wi-Fi Alliance. Louis Pineda, who also joined us at Qualcomm. And Louis was responsible for the last 15 years growing their wireless communications business. So I mean a great group of guys that came in, joined, helped us and are currently very active in working with us when it comes to validating our position in the market, validating our strategy from a go-to-market perspective, helping us grow our customer base with working on different relationships that we already had and expanding those at the executive levels as we look to get additional strategic engagements on a -- with our group on our XBAR technology. So I think if you look at the work that we're doing, the people that we brought to this team, it started with getting folks like Ruben on the team. Dylan joined us in December, really formalizing this advisory board in the early part of January. And this is -- really has got us laser-focused on the market opportunity that we're focused on today. And we have too big of opportunity to not have the best and the brightest working with us. And the good news is we've been able to attract them. As you know, Tore, we've got a company that is -- has got -- we're like the best kept secret out there in the market today with roughly a $90 million market cap, and yet we're enabling a massive market opportunity. If we just use the numbers that our friends at Broadcom were using to value their business and look at the kind of enterprise value that we're creating and we're enabling for the largest filter manufacturer, we just focus on what we're doing to support them, somewhere north of $20 billion worth of opportunity from an enterprise value perspective, which will result in somewhere between $5 billion and $10 billion worth of revenue for them if they continue to use our technology to support 5G as they have stated they plan to. That opportunity in and of itself, if we did nothing else, suggests that we are the best-kept secret in the market. And we're excited about it. I tell you, I'm glad to see that we've been able to bring other folks to the party that are excited about it as well. And clearly, the work that was done by the Stifel Banking team to help us with an institutional round in a very tough market, it was fantastic. And we increased the number of institutional investors significantly. And I think that's really boded well for us during this downturn.

Very good. And I got one more question before I open up to the audience. I do have many questions, but I also want to give the audience an opportunity to ask questions. But when we look at all the recent announcements, and you talked quite a bit about it, right, so I mean you strengthened the management team. You had this advisory board in place. You did a recent financing. And obviously, you've had some very important design wins lately. What else are you working at this point? Or what else does the business need to sort of get to an inflection point here? Because it seems like everything is kind of aligned now. It's just a matter of executing. But if there's anything else that you feel like the business needs at this point, what would that be?

Well, I mean, clearly, as we sit back and look at where we are, execute, execute, execute as it relates to our deals with XBAR, whether it be with the world's largest filter manufacturer or with capturing new opportunities in these other markets that we've identified, I mean, that is the focus. But I think that the key here is going to be coming out of Dylan's team, which is he's basically taken this team of folks that we've built over the last 4 years, and he's basically putting his foot on the gas and enabling them to do things that they may -- we thought they were doing some pretty exciting stuff already. I think he's giving them new opportunities to go through and engage and capitalize on the work that has been done. Dylan, do you want to kind of touch on some of the things that you're working on here that position us well to capitalize on these opportunities?

Yes. And we spent a lot of time talking about XBAR as our new big innovation is really tangible and aligned to the market need. But where it came about is, again, our ISN development platform that has a multi physics simulation engine that lets us predict how these acoustic piezoelectric structures are going to behave. And so if we got to XBAR, by looking at what was the market going to need in 5G and our scientists sorting out how to build a resonator that will align to that. Now taking that same methodology, we see opportunities in infrastructure, which traditionally do not use acoustic filters; the extension to higher frequencies like millimeter wave and also down to potentially lower frequencies. So we do see many new opportunities for innovation in the basic resonator structures that can create new filtering capabilities.

Very good. So with that, I'm going to open it up to questions from the audience. Holly, could you please check with the audience if they have any questions?

Ladies and gentlemen, the floor is now open for questions. [Operator Instructions] Your first question for today is coming from [ Don DeAtila ].

My name is [ Donald Decore ]. I'm a private investor. I've been following sort of what's going on with 5G and stumbled across your platform here, your company. Very excited about it. I was wondering, is there any competitors out there that you know of that is in the same market as far as your filtering is concerned?

[ Don ], it's George Holmes. It's a great question. We get asked quite a bit who are the competitors doing what we do. Not -- there really aren't any direct competitors for what it is that we do, there's competitors for investor mindshare, i.e., small -- there's a couple of small start-up companies that are out there trying to get into the filter space. But if you look at our customers, I mean, we're an enabler, and Dylan touched on it with our ISN platform. We have a very large IP portfolio. We take our IP -- leverage our software tools and do designs for the biggest and the most successful RF filter manufacturers. There's nobody that does what we do specifically. If it comes to competitors, really, the closest thing to a competitor is our customers' engineering team. And so the biggest challenge that we have is working with them so they understand what it is that we do and how we can complement what they do to make them faster, better and more effective at what they do to capture share in the marketplace.

I got you. Okay. Mind if I ask another question?

Sure. Go ahead.

I don't know if there was anybody else waiting. I didn't want to hog your time. But I've been reading that 5G is going to be implementing at different stages. And listening to the conversation today, it appears that, that's the case. You'll be implementing different stages along the way. When do you foresee first kickoff of what products? Or what's out there that you can be implementing these filters?

It's a great question. Obviously, when we do design work for major filter manufacturers, that question is usually posed to them because they're the ones who determine when these things go into the market. And that is obviously the challenge when all you do is build a business based on pure-play royalties. Now we do prepay so that we get paid for our work in advance of them actually selling product. But if you go back and look at the Tier 1 filter manufacturer that we did an agreement with for 4 devices back in October, their press releases said that they expected to be in the market with ramping volumes at the end of 2021 with volume production in 2022. They've had multiple press releases that suggest that ramping in 2022, and really coming to full volume in '23 is kind of what they expect. We expect to be quicker than that on some of the work that we're doing in the nonmobile space, and that's going to start with sampling of devices here before midyear of this year. We expect to have engineering samples coming out for these other applications that are nonmobile.

I see. And can you name any of them specifically what type, I should say, or is that a private conversation?

When -- are you talking about customers specifically or applications?

Yes. What type of devices would you be implementing as -- into first go-around type of deal?

Dylan, do you want to touch on that?

Yes. It's pursuing flagship smartphones that are going to be deploying 5G first.

Right. Okay. That's what I figured. So I don't know if there's some 5Gs out there already. Isn't it Samsung that's already out there, but obviously, it's got problems, right, where it's not working? It switches back to 4G. Would that be like...

Yes. There's 2 things. There's sub-6 gigahertz 5G and then there's millimeter wave 5G. The latter has really had technical difficulties. T-Mobile has very, I'd say, successfully launched at 600 megahertz. And so there's devices for multiple people -- multiple suppliers that support that frequency band. And that is what they're now going -- rolling over to 5G this year.

Holly, do you have another question, please?

Your next question comes from Nirav Parak (sic) [ Nirav Parikh ] from Mutual of America.

Nirav Parikh from Mutual. A question for Dylan. Can you go over sort of the thinking -- your thinking and sort of leaving Murata and then joining Resonant? And then second question or maybe before that, first question would be, were you spearheading the agreement between the 2 companies when you were at Murata?

So good homework. Yes. So my past life with Peregrine Semiconductor, another company, a start-up up in the RF front-end space that had a public offering and then eventually sold to Murata as the semi -- components became very strategic to support their acoustic filter business. So I just spent 3 years of post-merger integration there and then left the company late 2018 to pursue other interests after spending 20 years in the smartphone front-end space. So I was not part at all with the work -- the good work that Resonant did to land that deal. Certainly, when I saw the news of the strategic investment in the company and the joint development, that got my attention. And so at that point, I really seriously began discussing with George how I might be able to help. And I've always had really an interest in this space. There's really high barrier to entry in acoustic filters. The material science is hard. The manufacturing is hard. There's very few players. So the fact that Resonant could land that sort of deal in a really high-value segment, it was just an opportunity I had to say yes to.

And then maybe just a quick follow-up. So if I recall correctly, at Peregrine, you were heading up the mobile phone side of things. But I guess, in your current role, you're going to be wanting to pursue nonmobile areas as well. I guess, what do you -- what experience do you have on that side? And do you have some key person underneath you to -- in your team to pursue the other side, nonmobile?

Yes. No. For about 10 years at Peregrine, I was the GM for the mobile side. But prior to that, I've done a lot of design and business development work in the nonmobile space, so I have a lot of experience there as well in infrastructure. And I finished my job there as COO covering all products and manufacturing. So I do have a lot of experience on both sides. And we also have staff at Resonant dedicated to focusing on the nonmobile space.

Your next question is coming from Fraser Elms.

Fraser Elms, Herald Investment Management in the U.K. The patents you just were successful in achieving today, could you just talk about where the defensibility comes from? And is it actually in the physical design? Or is it the way that the design is created in the software? And what particular barriers do they introduce that make it difficult for competitors to copy?

Mike, do you want to take that?

Yes. I'll take that. Okay, good question. And really, the defensibility of these patents and the IP around XBAR is around the physical structure initially. It's a very unique structure that was developed using our ISN tool. So that, as Dylan mentioned, it's a bulk acoustic wave device, acoustic wave device, but uses surface acoustic wave-type technology to do the manufacturing. It's a structure that basically was developed just for these high-frequency, wide-bandwidth -- particularly the wide-bandwidth and high-frequency component here. And so it's very different from, say, an FBAR from Avago or an SMR BAW from Qorvo, which uses bulk acoustic wave, but it's a very different structure. This structure is unique and was developed using ISN. And so it's the structure itself that is the defensibility around these initial patents. Obviously, as we move forward with some of the other patents that are filed, there'll be other pieces of the structure and how it is used and how it is manufactured that will be also patentable as we move down this path with this particular structure. Does that answer your question?

Yes. I was just reading through the patents. And I mean I was reading things about sheer deformations and the transversal excitement of the structure, but I wasn't sure if there was any particular feature within the patent that made it particularly strong or a particular feature that made it unique, and therefore, that was an element that was not copyable.

I think, Fraser, I think one of the things that really makes what we do unique is the ISN platform that Dylan spoke of. We do have a number of patents in and around the software tool that we've developed. But in large part, there's a fairly significant trade secret program that we have in place. If you look at the capabilities of the ISN tools, we've been working on that tool set for about 10 years, got well over 100 man-years of work done to develop that tool and that platform. Originally, it was a SAW-only tool. We extended that and -- from a single-dimensional tool to a 2-dimensional tool so that we could do SAW and TC-SAW. And about 1.5 years ago, almost 2 years ago now, we made the decision and investment to add bulk acoustic capability to the tool with 3D capability as well. And it was through those investments that we were able to have the breakthrough that we had in a relatively short order, about 6 months, that allowed us to develop the XBAR structure, and then to, very quickly, within another 6 months, demonstrate those high-frequency resonators from 34 to 50 gigahertz that allowed us last year to demonstrate fully functioning n79 filters in Mobile World Congress, and ultimately, and ultimately, put us in a position to do the deal with the Tier 1 filter manufacturer. I think that we are very well positioned with that technology and have good coverage against -- and freedom to operate against the other players that are in the bulk acoustic arena, both with FBAR and BAW. But I think that what you'll find is that we're in pretty good shape. And we had lots of folks look over our shoulder in that regard, as you might imagine.

Your next question is coming from Robert Cleary.

Robert Cleary, Stifel. Good to hear you again, George and Dylan. I had a question on the -- on your -- the prepaid deals. When you structure a prepaid deal, are you missing out on royalties and revenue down the road if the products actually do really grow into something very, very large? And now that you are in a better cash -- if so, now that you're in a better cash position, would you be less inclined to get into those deals, if, in fact, they're not as lucrative long term?

Well, 2 things, right? We have 2 types of prepaid deals we've entered into. One is a fully paid-up royalty, which is like the Tier 1 deal that we did in October. And when we structured that deal, we looked at the market positioning of the company we're doing the deal with. We were looking at the expected volume of those types of devices in the marketplace in the first 2.5, 3 years of their deployment. And we made a calculation on what that would mean to us if they were at least as successful as they were with their current devices into the market. And that -- and we made that determination, and that's how we set the price for the prepay. That was a fully paid-up prepay, and so they got a very good discount off of our standard royalty rate. But if you recall, our standard royalty rates are 7 to 10x higher than typical royalty rates out there in the marketplace when we see for companies like [ ARM and FIBA ] and others that are getting 1% to 3% royalty, so we were already significantly higher than most folks. And this is all about predictability. So from our perspective, the trade-off when we were still going to get to at least 2x greater royalty rates on a prepaid deal was worth it from a cash flow and predictability perspective. And as I've noted on previous calls, the nice thing about that deal is that 12 concurrent deals with that customer cash flows his business. So under a similar structure, we've already got 4, so I tend to think that, that deal in and of itself was good. We have structured other prepaid royalty deals like the one we did in January. Little bit different, it's not fully paid up. It was a buy-down of royalty rate. So basically, with that customer, we did the same type of calculation, determined their positioning in the marketplace, what their opportunity would be to go capture share. And they wanted to buy down their rate. They didn't have the wherewithal -- on the multitude of devices that they signed with us, they didn't have the wherewithal to actually do $2.25 million per device. They did a smaller number than that, but they did a significant number in and of itself such that with that prepay, those devices, we believe, are fully paid for. And as they go through the minimum unit volume that allow them to buy down as they capture additional share, we get paid additional royalty. So our belief is with the combination of those 2 types of deals, we'll have a nice blend. Couple that with some of the work that we're doing, as we've discussed historically, on white label products, which we believe XBAR is going to be ideally suited for in the nonmobile space, couple those 2 things together with our historical legacy royalty-only business, we now have a nice complement of revenue streams coming in such that we'll have a blended royalty rate that still is 2 to 3x higher than anybody else in the marketplace. So from our perspective, predictability, we don't want to wait 10-plus years to see a straight royalty business mature because that's what they take. I mean the biggest guys and most successful guys in the space took 10 to 15 years to make their royalty business sing, and we don't want to wait that long, which I think we've demonstrated we can go get these kinds of deals, which I think is good. We have the ability with the biggest player in the space to expand our footprint and cash flow our business, if we're successful. And we're focused on doing that. And then we're focused on adding to our portfolio of customers other prepaid deals that may not be fully paid up but would be buy-downs to give us a offset to cost and an upside opportunity, and then obviously, the white label components, which takes us north of 50% to 70% of the ASP value that we will get through those white label deals. So I think it's a nice blend. It's something that we wouldn't have been able to do without the validation of the largest filter manufacturer signing off on our ability to deliver. And so we're poised to go execute and deliver against those. Does that help, Robert?

There are no more questions in queue.

Great. Thank you, Holly. And yes, the call has lasted about an hour now. I did have a few more questions, but in the interest of time, I think we're going to end it there. So thank you, everyone, for participating on today's Resonant call. And I also wanted to thank George, Dylan and Mike for joining us. Have a good day, everybody. Thank you.

Great. Thank you, Tore. Thank you, everyone. Bye-bye.

Bye-bye.

Bye-bye.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.