Resonant Inc. (RESN) CEO George Holmes on Q1 2020 Results - Earnings Call Transcript

Resonant Inc. (NASDAQ:RESN) Q1 2020 Earnings Conference Call May 6, 2020 4:30 PM ET

Company Participants

Moriah Shilton - SVP, LHA IR

George Holmes - Chairman & CEO

Marty McDermut - CFO

Dylan Kelly - COO

Conference Call Participants

Cody Acree - Drexel Hamilton

Tore Svanberg - Stifel

Ari Shusterman - Needham & Company

Kevin Dede - H.C. Wainwright

Operator

Greetings, and welcome to the Resonant First Quarter 2020 Corporate Update Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I'd now like to turn the conference over to Moriah Shilton, Senior Vice President of LHA Investor Relations, Resonant's Investor Relations firm. Thank you. Moriah, you may begin.

Moriah Shilton

Thank you, operator. Please note we will be using a presentation during today's call which is available on the Events page of Resonant's IR website. If you are with us today via the phone please go to the events page try to view or download the presentation to follow along.

Turning to Slide 2. Earlier this afternoon, Resonant released financial results for the first quarter of 2020. The earnings release that accompanies this call is available on the Investors section of the company's website at www.ir.resonant.com. Additionally, some of the information in this conference call contain forward-looking statements that involve risks, uncertainties and assumptions. They are difficult to predict. Words of expression reflecting optimism, satisfaction with current prospects as well as words such as believe, intend, expect, plan and anticipate or similar variations identify forward-looking statements. Their absence does not mean that the statements are not forward-looking. Such forward-looking statements are not a guarantee of performance and the company's actual results could differ materially from those contained in such statement. Several factors that could cause or contribute to such differences are described in detail in Resonant's most recent Form 10-Q and 10-K and subsequent filings with the SEC. These forward-looking statements speak only as of the date of this call and the company undertakes no obligation to publicly update any forward-looking statements or supply new information regarding the circumstances after the date of this call.

With that, it is my pleasure to turn the call over to the Chairman and CEO of Resonant, George Holmes.

George Holmes

Thanks, Moriah. Good afternoon and thank you for joining today's call. Joining me today is Marty McDermut, our CFO. As Moriah noted, we are using a slide presentation for today's call, which can be accessed on the IR section of our website.

Turning to Slide 3. First a quick overview for those who may be new to our story. Our revolutionary and proprietary Infinite Synthesized Networks or ISN software platform different to Resonant as a pure-play solution supplier to the RF Front-End market and is the foundation for everything we do here at Resonant. Our ISM solution enables the development of high-performance, low-cost designs and in many cases results in fewer design turns, creating designs and software rather than an empirically with multiple iterations through a fab, which is even more precious in times such as these from production capacity is either at a premium or constrained.

ISN is the backbone of our 4G and 5G filter technology innovations. It is our ISM platform that has allowed us to build our filter IP standard library and a fabless ecosystem supported by our foundry program. The current focus of our foundry program is to directly enable new entrance to rapidly address the changing needs of the China market. In particular, to move for more Chinese source content. Through ISN Resonant delivers solutions across Surface Acoustic Wave or SAW, temperature-compensated SAW or TCSAW, Bulk Acoustic Wave or BAW and provides a path for straightforward integration in the modules. Today our IP portfolio numbers over 225 filed or issued patents with greater than 60 specifically focused on 5G. Our XBAR technology is poised to revolutionize the RF Front-End for 5G mobile and non-mobile applications by delivering the instantaneous bandwidth and protection from harmful interference needed to deliver to consumers the rich user experience demanded by 5G.

Turning to Slide 4. We are building momentum in 2020 which is demonstrated by our successes with our XBAR based technologies underpinned by our business model that is delivering, ramping and more predictable royalty revenues. We recently demonstrated enhanced performance of our XBAR high-frequency Resonant technology, it could be used to manage the coexistence of 5G and Wi-Fi 6 and 6E networks protecting each from co-interference and the resulting degradation in network performance.

We have also demonstrated 1.1 gigahertz of bandwidth at 6.5 gigahertz protected by high rejection to other frequencies which delivers the full promise of broadband video to phones. This cannot be done with traditional acoustic wave filters. I'll discuss that in more detail later. Our customer shipped over 1.6 million units in the first quarter of 2020 in line with seasonal softness, typical of the first calendar quarter. Revenues grew sequentially, approximately 20% as forecasted highlighting the power of the enhanced prepaid royalty model. We signed multiple license agreements with a Tier 1 Chinese foundry for products targeted at the high-volume, high value, Tier 1 China mobile market. These agreements include prepaid royalties and upfront payments and also specify additional royalties ones minimum volumes are exceeded. While COVID-19 has dampened many markets, first half projections at Resonant we have observed only minimal impact to our operations.

In March, we did proactively reallocate resources and cut almost $5 million in GAAP expenses out of our annualized spend as part of our focus on high performing customers and the transition of current fabless customers to new Chinese high volume foundries, such as this Tier 1. We believe we will be well-positioned post-COVID-19 crisis with this focus on high performers and ramping new designs with our new partners targeting specifically the China handset market, which comprises roughly 38% of the global handset market. We have a number of foundry partners in China already moving very aggressively to enter the marketplace and supply large Chinese handset manufacturers. We want to take this time to thank institutional investors who let our latest round of financing in February where we raised $26.5 million in net proceeds strengthening our balance sheet.

Turning to Slide 5. As many of you have heard from advertising in this coverage, the first wave of 5G is here. It is all about coverage achieved by carriers, refarming or sharing existing frequent stands. However, refarming and sharing of bands, for example, the 600-megahertz band with T-Mobile does not create differentiated user experiences. It's not delivering the enhanced mobile broadband promised that provides consumers significantly higher wireless speeds. That promise will be realized in what we're calling Wave 2 which will have adequate global coverage in the higher 3.3 to 5 gigahertz range after 2021. This is targeted to deliver on the promise of 5G, which includes massively increased mobile data rates and speeds. We believe that XBAR's unique structure is the technology that can deliver the much larger bandwidth and a much higher frequency is needed for the increased data rates and speeds.

We are collaborating with the world's largest RF filter manufacturer who is using our XBAR technology for mobile 5G filters. They are targeting ramping volume production to coincide with their end of exclusivity in the first quarter of 2022 which in device development cycles is just around the corner. Looking further out is Wave 3 that move up to millimeter-wave to the 24 gigahertz to 28 gigahertz range but there are some real engineering problems to be solved at this frequency range. Data demand will keep rising. We expect there will be a third wave reaching multi-gigabits per second delivered to your phone resulting in faster video streaming to phones. We don't expect broad deployments outside of the U.S. in this frequency range until 2025.

It is not just happening in the mobile license cellular space. New frequency bands around the world are opening up. A great example being the six gigahertz spectrum for Wi-Fi use. In fact, on April 23, the Federal Communications Commission adopted a proposal that opened for six gigahertz band for unlicensed Wi-Fi use. Doing so increases the amount of spectrum available for Wi-Fi by almost a factor of five for Next-Gen Wi-Fi 6E devices within [indiscernible] capable of tapping into the extra spectrum.

To capitalize on these developments in April, we announced expanded XBAR performance that can manage the coexistence of 5G and Wi-Fi 6 and 6E networks protecting each from co-interference and resulting degradation in network performance caused by nearby bands. These new developments further accelerate the potential for additional Tier 1 non-mobile engagements. While the pandemic prevented us from beating our commitment and sampling non-mobile devices, utilizing our XBAR technology in Q1, we were able to share the data in a webinar we conducted in late February. Depending on the ongoing impact of the pandemic, we expect to sample non-mobile engineering samples before the end of the second quarter so stay tuned.

Turning to Slide 6. As the 5G market continues to evolve, we believe the challenges that existing BAW and XBAR solutions face in meeting the technical requirements of 5G applications will create even greater opportunities for our partners. 5G applications for a minimum of 10% RF bandwidth to deliver on the consumer's expectation of application performance. Typical bond FR resistors use aluminum nitrate that has a native bandwidth of 3% to 4%.

Filters can be created with approximately twice resonator bandwidth. Many companies use Scandium doping to increase resonator bandwidth to 6% or 7%. This change negatively affects performance and this still doesn't meet the bandwidth requirements and doctors are implied which further hurt performance. The solution to meet low loss high rejection is to use two filters combined with RS switches to meet these requirements. These approaches using standard BAW based solutions to create performance and increase costs.

Turning to Slide 7. XBAR based filters meet the requirements for 5G natively. XBAR is a revolutionary BAW resonator structure developed and designed using our ISN platform. It can be manufactured using standard fabrication steps making XBAR solutions extremely competitive and cost-effective and the process is repeatable at foundries across the globe with minimal additional CapEx. As I just discussed, XBAR is capable of higher native operating frequencies of 3 to 7 gigahertz and delivers up 17% resonator bandwidth, 4x wider operating bandwidth without the gimmicks that limit other critical performance metrics. Current XBAR solutions deliver RF filter bandwidth of up to 24% which can deliver on the promise of the richer user experience including HD video and virtual reality. We announced last month that we have strengthened our IP portfolio with the first three patents issued for our XBAR technology.

Turning to Slide 8. Let's take a deeper dive into XBAR's performance for non-mobile. In February of this year, we demonstrated XBAR based filters capable of 17% bandwidth nearly double what we showed in 2019. We achieved minimum loss of less than 1dB and achieved rejection of greater than 40dB across neighboring Wi-Fi spectrum. When you compare traditional BAW solutions for wide bandwidth with the XBAR based solutions for wide bandwidth, it should be clear that XBAR solutions are less complex, lower cost and easier to implement. We believe it will make the OEMs that utilize XBAR devices more competitive. To sum it up, we believe XBAR is the first acoustic Wi-Fi band filter demonstrating greater than one gigahertz of bandwidth. Why does this matter? For consumers and investors alike, XBAR technologies enable the user experience expected from 5G.

Turning to Slide 9. Amidst all the talk about 5G, it's important not to lose sight of 4G, the dominant filter market today that is not going away anytime soon. In fact, the 4G market will continue to grow as 4G frequencies are refarmed for 5G and the 4G network will provide a backstop for 5G coverage holes. As the 4G market continues to commoditize, this is driving big interest from our new customers and existing customers for standard products based on our filter IP standard library which capitalizes on the strength of our ISN platform and our ability to design standard products that can easily be ported between foundries. In January we signed Filter IP standard library based contracts from multiple devices on the new Tier 1 foundry which include prepaid royalties, which by their nature, improve the predictability of our revenue.

Turning to Slide 10. Before I turn the call over to Marty, I'd like to discuss our advisory board. While we already had industry and technical experts advising the company in February, we decided to formalize an advisory board whose members you see on this slide. They are actively working with us on validating our position in the marketplace. Validating our strategy from a go-to-market perspective and helping us grow our customer base through the ability to leverage and expand our existing customer and strategic relationships. As we look to secure additional strategic with our XBAR technology.

Now, I'd like to turn the call over to Marty for a discussion of our financials and how Resonant is capitalizing position to deliver for shareholders.

Marty?

Marty McDermut

Thank you, George. And good afternoon, everyone. Turning to Slide 11, a format we use to assist our investors with keeping track of our two of our most important metrics, cash and customer progress. The amounts I talk about are GAAP except where noted.

For the first quarter of 2020 as compared to the fourth quarter of 2019, billings were $280,000 as compared to $100,000 last quarter. Revenues totaled $544,000 compared to $459,000 last quarter. At the end of the first quarter, deferred revenues totaled $1.5 million; we estimate that amount will be recognized as revenue in the coming quarters. Research and development expenses of $5.5 million, up from $5.2 million last quarter due to the restructuring George talked about. Sales, marketing and administration expenses of $3.1 million comparable to last quarter. Operating loss of $8.1 million compared to an operating loss of $7.9 million last quarter.

Net loss of $8 million or a loss of $0.18 per share based on $43.8 million weighted average shares outstanding compared to a net loss of $7.8 million or a net loss of $0.24 per share based on $32.7 million weighted average shares outstanding for the fourth quarter. As a reminder, we did a public offering in February, which raised the shares outstanding. Non-GAAP adjusted negative EBITDA of $6.4 million or negative $0.15 per share compared to negative $6 million or negative $0.18 per share last quarter.

Cash and cash equivalents of $29.6 million at March 31, 2020, with no debt included $26.5 million in net proceeds from our public offering in February. Last quarter we said with the opportunities we see, we believe we're well positioned to be cash flow breakeven by the fourth quarter of 2021; we're hoping that COVID-19 does not negatively impact our projections. As George noted, in March we took steps to reduce our burn rate and extend our runway by focusing our efforts on performing customers and expiry related activities, as well as reduce our annual burn rate by almost $5 million. On March 31, 2020, we had a total of 64 employees, 18 of whom had a PhD and 48 of whom are part of the technical staff.

Finally, we believe revenues in the second quarter will be comparable to revenues in the first quarter with growth accelerating in the third quarter. We expect GAAP operating expenses for the second quarter of 2020 to be down about 5% to 10% compared to the first quarter.

I'd now like to turn the call back to George.

George Holmes

Thank you, Marty. Turning to Slide 12. In summary, I believe Resonant is one of the best-kept secrets in the capital markets today. Clearly, we have established credibility with major players in the RF market having validated our technology with over 40 million devices shipped, tier downs by industry leading tier down companies, identifying our technology and multiple Tier 1 OEM handsets as having over of a dozen customers.

Even more exciting, in the middle of last year we enhanced our engagement model on the back of our cutting-edge XBAR technology. Beyond just royalties from products are shipped to include prepaid royalties adding a level of predictability to the revenue model. We do believe that as we continue to enable market disruptors like our Tier 1 foundry partners, and deliver XBAR-based solutions, the world's largest RF filter manufacturer, and other Tier 1 RF filter companies, we will significantly enable our customers revenue potential. Given their current respective market shares, this could be greater than $5 billion in RF front-end solution sales.

Given how the market views enterprise values for the RF filter companies, this could represent 2 times to 4 times revenues and Resonant technologies have the ability to generate of upwards of $20 billion in enterprise value for our customers. While this provides no guarantees for Resonant, this is clearly a mismatch between where we are, what the technology and customer engagements represent.

If I circle back to my hypothesis, if we did nothing else but deliver on what we discussed today and added nothing new suggest that we may be one of the best-kept secrets in the market. And I can tell you, there is a lot more coming from Resonant, stay tuned.

Now, let me turn it over to the operator for Q&A. Operator?

Question-and-Answer Session

Operator

Thank you. And we're pleased to have Dylan Kelly, Chief Operating Officer of Resonant join us for the question-and-answer session. [Operator Instructions] And we will take our first question from Cody Acree with Loop Capital.

Cody Acree

Thank you for taking my questions and congrats on the progress. George, Marty and Dylan. Could you just talk a little bit about to make up of revenue in Q2 whether it being comparable to Q1, what does that - what does that mean in terms of the unit shipments? Are you expecting those to be flat or just how are things changing Q1 to Q2?

George Holmes

Well, as we noted on our last call Cody, we look at the revenue number as a blend now of a combination of unit shipments in prepaid royalties and upfront payments. And so we aren't really looking at it from the perspective on a unit-to-unit basis on a quarter-to-quarter basis, more of a blend. But as we sit back and look at how unit volumes progressed in Q3 and Q4, we had solid volumes in Q1; I think we'll see that we're going to be in pretty good shape going into Q2 as well from a unit volume perspective. But keep in mind, it's going to be a blend as we go forward.

Marty anything, else to say on that front?

Marty McDermut

No, George, I think you brought out. We've talked about the royalties being a source to design services, and then big piece now impacting us is a lot of those are the three things that are going to drive the company forward.

Cody Acree

Okay, thank you very much for that. The Wi-Fi market - Wi-Fi 6E market, can you put some numbers around that as far as what size of the market are you targeting? And then, any pricing - just any specifics quantification around that market?

George Holmes

I think a good thing to start with is just kind of what fundamentally makes it different for that segment of the market. And with that I'm going to hand it over to Dylan, let him talk about that a little bit because I think the real thing, that's the stepping off point is what makes our technology so much different and so exciting for the OEMs.

So Dylan, you want to touch on that real quick?

Dylan Kelly

Yes. So, it was really shifting [ph], today, especially on the infrastructure side of the market filtering requirements have been serviced by a lower performing ceramic solutions. This new addition bands in 79 on one side of 5 gigahertz and this new 6E band on the other side, sure going to require the performance of the acoustic wave filters. So now that's basically a whole new market for the acoustics that we're going after. And then, similarly on the handset side, because it's already been present but this represents at least doubling of the content on the WiFi side.

Cody Acree

Thank you, Dylan. And then, lastly for Marty. Excuse me; Marty, could you just give us some details around how you're getting to that $5 million? What steps did you have to take and when do we see those invoice [ph]?

Marty McDermut

Well, as we talked about, as George talked about, we also filed an 8-K in March when we took the steps and that was primarily headcount related cost that that we took out, I mean the exact total was about $4.5 million. And that gave - that's why I said, for Q2 the expenses should go down between 5% and 10%.

Cody Acree

All right. Thank you very much, guys. I appreciate it.

George Holmes

Thanks, Kelly.

Operator

And we'll now take a question from Tore Svanberg with Stifel.

Tore Svanberg

Yes, thank you. First of all, George or Dylan, could you elaborate a little bit more on the foundry program? Obviously, this is a fairly new initiative from you; any update you can give us, especially when thinking about some potential ramps in the second half of this year?

George Holmes

So, I'm sorry, Tore, I didn't catch that first thing; the what program?

Tore Svanberg

The foundry program.

George Holmes

Okay. I'm sorry, I'm sorry, I got a little bit of background noise here and I didn't catch that. So as we noted last quarter, we are transitioning a number of our foundry program customers from our initial foundry partners to some of the larger Tier 1 foundry partners that we've established in China, in large part because we're going to more broad-based foundries that have a broader applications set, greater ability to ramp greater predictability in the manufacturing. As we look at it, it's something that we believe will come online in the latter part of the second half of this year. But the nice thing about it is, I think from our perspective, I'll let Dylan touch on it briefly here as we've been very excited to see the progress these Chinese foundry partners had made even in light of early shutdowns that happened around Chinese New Year to kind of where we see they are today. Significantly, ahead of schedule.

Dylan, you want to touch on that real quickly?

Dylan Kelly

Yes, sure George. It's pretty amazing that even during the disruption from COVID-19 but they've still got equipment installed in the factories, and have been running wafers. When the real advantages that we have is that we're providing designs and this is all computer-based work, we've seen them overseas for them to manufacture and facilities. And that has really just kept going unchecked through the shutdown that we're facing in the US. So, I think we are right on-track where we wanted to be.

Tore Svanberg

Very good. As a follow-up, could you talk a little bit more about the non-mobile opportunities for XBAR? Could we - when could we potentially start to see some wins there?

George Holmes

Okay. So let me touch on that first and I'll hand over to Dylan to talk about a little bit further detail. We had initially said late last year that we thought we'd have samples available for the end of the first half of this year, we actually had those available in Q1. As I noted during the prepared remarks, that's why we were able to do the webinar we did in February and demonstrate actual performance. We have been reticent to actually sending samples to customers, that's not something that we like to do with this cutting-edge technology, it's something we like to hand-curate, work with them in the lab, do the evaluation; much like we did last year when we engage with the multitude of different Tier 1's prior to sign in the contract with the world's largest filter manufacturer.

So, we are right now poised and ready to go, waiting for kind of the okay to go out and start taking these parts directly to customers so they can evaluate them. And I think we've got a number of customers that are teed up and ready to go. Dylan, do you want to touch a little bit more on the application set and the feedback that we're getting on the performance of these devices?

Dylan Kelly

Yes, George. I think one thing to add is just - I was certainly a little bit surprised by the speed with which the FCC has moved and the announcement of the opening of the 6E-band and that's creating a tremendous activity and pull for solutions like XBAR to address these new gigantic bandwidth, have the interoperability between 5 gigahertz and 6 gigahertz band. So we have many engagements at the moment, we're discussing architecture and specification trade-offs. And we have engineers developing new filters right now to address these emerging needs.

Tore Svanberg

Great. Just one last question, George, you tend to have a pretty good tuned for what's going on in the filter market; and at the beginning of the year, obviously there were some announcements from one of the big filter manufacturers. Just wondering if - what are some of the latest things that you've heard as far as dynamics in the filter market?

George Holmes

Well, I assume you're talking about the, what was the impending sale of Broadcom's business unit and obviously that created lots of turmoil in the market and their pullback has created some additional turmoil, I think, but I think for us, the thing that we like about it quite frankly is it just put a focus, keen focus on what's happening, where they actually dominated historically and what the opportunity is for companies that operate on both sides of their dominant. I mean clearly, they have technology that came out and took 4G by storm. There are challenges with that technology. When it comes to 5G, as both Dylan and I have spoken on a number of occasions, and I think it just further highlights what the opportunity set is.

There's latest announcement of the SEC opening up the new Wi-Fi 6 E bands, I think is another thing that's put another amplifier on that segment of the market and why we're seeing lots of activity right now. Dylan, do you want to touch on that a little further?

Dylan Kelly

Hi George, I think if we looked at what Broadcom has done with the aluminum nitride technology, it was extremely innovative and all the other players followed suit. In fact, I think everyone, has been doing BAW to chase high performance using aluminum nitride. But the limit there is the scalability to 5G and going beyond, 10% bandwidth, and that's a lot of what the emerging need is. So we're so excited to have the XBAR technology at the right time with a wider bandwidth as [indiscernible].

Tore Svanberg

Very helpful. Thank you.

George Holmes

Thanks, Tore.

Operator

Next, we'll take a question from our Ari Shusterman with Needham & Company.

Ari Shusterman

Hey, this is, Ari, taking the question for Raji Gill. And yes, so I want to start off with talking about - so outside of mobile where do you see the biggest applications for XBAR technology, and yes, you talked about Wi-Fi 6 opportunity. Can you provide a bit more color on that? Thank you.

George Holmes

Dylan, do you want to take that first?

Dylan Kelly

Yes. I think it really is in the Wi-Fi side of the world. You look at CPE and people's homes you have all the enterprise applications. We see the scaling up in MIMO, a few years ago from 2 to 4, now 8 on the enterprise side. And those are slots that have not used acoustic filters before. So you're or it's maybe in the turns of hundreds of millions of units when you multiply that by paid in a box, they become very significant volumes relative to model. So that's - will be a very clear need and a good market opportunity, we're focused on.

We've also been looking at in the cellular infrastructure side, with the shift to technologies like Massive MIMO the power per transmitting element has been dropping. And those have been serviced by technologies like cavity filters or ceramics. But the door of may be opening now for acoustics to play in that space, bring in major advantages in size and weight. And that's a huge factor now on the economics of boxes on towers and our operators work. So that's another area where we're putting a lot of focus.

George Holmes

I think I would - I want to also add to that, to keep in mind that our focus for our XBAR technology is one on non-mobile is with new customers, anything as it relates to mobile is locked up for us through our exclusivity arrangement through March 2022. And while we're doing a lot of investigatory work in that area, obviously we're not marketing that technology today to potential new partners. The only thing we're marketing to potential partners are devices for non-mobile applications which in particular are Wi-Fi CPE and infrastructure.

Ari Shusterman

Got it. Yes, that's a very helpful. Moving to the foundry supply chain. Can you talk about your relationship with Teledyne Scientific? How that's been progressing? And with regards to branded products, can you paint a picture of the opportunity, we should expect from this in 2020 and 2021? That would be very helpful, thanks.

George Holmes

Great. Dylan, why don't you take the first part of that question? I'll jump in for the second.

Dylan Kelly

Okay. And that's who we're working with. As we prepare our own samples, so that's why we're doing the preponderance of work going to higher frequency. So we just put the hardware in place and the 5 and 6 gigahertz bands. So I'd say schedule is on track for the enablement of near term samples which we've been signed up to and they've been a very good partner, well so far.

George Holmes

As it relates to when we see for our traditional foundry partners and where we see that starting to have an impact in the ramping revenues. Clearly as we transition the existing foundry partners to our new larger Tier-1 Chinese foundry partners, we expect that transition to continue through the balance of this year, seeing early devices available at the end of this year, and really seeing those devices ramp in the next year and that's consistent with their schedule.

Ari Shusterman

Got it. That makes sense. And one more question. With regard to minimum volumes, you previously voted to, can you help quantify the minimum volumes that you're referring to as well as the - as part of these agreements.

George Holmes

Okay. So we, on the prepaid - on the prepaid agreements, we have not disclosed what the royalty rates are. What we have noted is that, for example, the deal we have with the largest Tier 1 our filter manufacturer. That deal is a paid upfront royalty for four devices and they paid significantly to get access to the technology early, but we did not disclose what that converted to from a royalty rate. Other than the fact we said it was significantly higher in the orders of 2 to 3 times higher than what you would expect from typical royalty businesses which are in the 1% to 1.5% range. When it comes to the foundry agreement that have prepaid, those are a little bit different. They are not fully paid up there buydowns of royalty rate. Again putting the buydown royalty rate still significantly 3 to 4 times higher than your traditional, in some cases 5 times higher than those traditional rates I talked about earlier in the 1% to 1.5% range. And that buy down allows them - allows us to get the prepayment upfront that pays for the development of those devices, but also allows us to enjoy ramping volumes from them once they hit minimum hurdle rates.

And as we discussed before, we have not disclosed what those minimum hurdle rates are, suffice to say that we expect that these companies will have the ability to get significant share in China based on their relationships with the major OEMs that currently exist. Hope that helps.

Ari Shusterman

Thank you.

Operator

[Operator Instructions]. We'll take our next question from Kevin Dede with HCW.

Kevin Dede

Hi George, Dylan, Marty, how are you?

Dylan Kelly

Good. How are you doing?

George Holmes

Hey, how are you doing, Kevin?

Kevin Dede

Good. Good. Good. And Marty, a couple of things. First real quick, you talked about $1.5 million deferred coming in the future, how many quarters you're looking out for that?

Marty McDermut

That will vary. Last quarter we said three quarters. This quarter what happens is we have our contracts that are burning off that deferred. Yes, we're adding to it. So it will be over at least three or four quarters going forward.

Kevin Dede

Okay.

George Holmes

Isn't it? Hold on a second Kevin. Let me add that real quick. I just want to ask Marty a question. Is it safe to say if you look at deferred revenue? Right now, we've got a deferred revenue number of, a little over $1.5 million that is currently on the books. As we go forward, we expect that to peak and valley as we had new contracts, I'm afraid that had prepay and then it will also come down to ultimately at the end of day, how we see that peanut butter into topline revenues based on revenue recognition. Is that fair to think?

Marty McDermut

Exactly right George. New prepaid come in, they get deferred. And then, we're still working on the other projects where we take that in the income sort of bring it off. Our objective is to keep growing that number and build - as we build the business.

Kevin Dede

I just want a little color. Thanks, George. I just want a little color on what you were looking at in terms of your horizon. One more financial question, you talked about our cash flow breakeven, Fourth Quarter 2021, what's the revenue number using there?

Marty McDermut

Well, we haven't given out a number of that, I think, when we talk cash flow breakeven. Let's just talk about where we are this last quarter, so that's a little bit higher take - I said it's going to decrease by 5% to 10%. So our cash flow breakeven is going to be somewhere between 6% around 6.5% to 7% something like that.

Kevin Dede

Okay. George?

George Holmes

You can do the math.

Kevin Dede

Yes, well I know I can do it, but sometimes I do it wrong, Marty. That's why I asked. So, George, Slide 6, you've got a bunch of your competitors in there, on the scandium acoustics side for BAW solutions including acoustics. And I'm wondering how you see them positioned in that technology? And how you're going to be able to differentiate XBAR from them?

George Holmes

Okay. Couple of things, that's a great question, Kevin, but what I would say there is none of those companies are competitors. They're all potential customers. So we sit back and look at this, they are companies that have solutions that are going into the market based on their BAW technology, which has challenges as we've described. And so, when we sit back and look at these companies, we say, hey, there is a, there is a company at the top of the list that has got 20% market share, that's a real opportunity and there is company at the bottom of the list that has got no market share and is working to try to get in. It's a different kind of opportunity for a company like us to basically create design that enables guys to go and get after the market.

We tend to look at the players that are in - currently in the market that are the vertically integrated companies or companies we want to partner with, and we think we've got a great technology that will allow them to do what they need to do better, faster, cheaper. And in this case deliver on the promise of what their customers are looking for. Does that help?

Kevin Dede

A little bit. I was hoping maybe you could talk a little about I guess device structure and component. Now, come on George, give me a break. Dylan dug in on Avago's aluminum, but you haven't really gone into the scandium side on BAW. And so, I'd just like to understand, from a technology perspective, [indiscernible] able to help each of those is different.

George Holmes

Yes, well. So, I think let's back up and you know we can talk about the fundamental structures of BAW and FBAR first. And then what those companies do to try to get wider bandwidth, and in some cases, it's scandium doping, in some cases inductors, in some cases it's actually creating a hybrid filter which uses a combination of an acoustic filter and LTCC filter. And both of those things come together in a single package to try to deliver the performance. But you can imagine, once you start doing all of these exotic things to try to solve for the problem, it would just be easier to have a filter that does it natively and that's what we do. And so when we go in and talk to these companies. That's what we're talking to them about. We're talking about. Hey, we can go help you get into the marketplace with a filter that can actually do cover the entire bandwidth required, have great rejection and do it very cost-effectively, leveraging a process that's not exotic.

Dylan, do you want to touch on that a little bit further to add a little bit more color for Kevin here.

Dylan Kelly

Yes, I'd say, as a technologist, my hat’s really off to the guys back at HP Labs, 30 years ago that look at doing this thin film aluminum nitride to make the bulk acoustic resonance to get more performance, and they chipped away at it, and they got to work. And that's the revolution of every else trying to do the same thing and I got at least five players that are doing aluminum nitride.

I'd say what shifted was the pursuit of thin-film piezoelectric-on-silicon to enable things like HP, or ultraSAW that Qualcomm's recently announced. And we were able to do using our ISM was recognized. Okay, we can use this lithium niobate thin film and lay it out, such that we can make a BAR and that would fit in to a SAW line. And the advantage of lithium niobate is there's radically more bandwidth, a larger bandwidth than aluminum nitride is capable of. With all these insights combined within, I assume they got us in a position to offer 3 to 4 times the bandwidth of aluminum nitride.

Kevin Dede

That was awesome, Dylan. Thank you. Yes, that's kind of what I was looking for, just a little - the substance difference - the component difference. Thank you very much. Oh. Yes, yes. Yes, obviously and I'm just not privy to - I guess all the ingredients to go in the recipe. So thank you very much, gentlemen. Appreciate you entertaining my questions, as always.

George Holmes

That was a good one, Kevin.

Operator

And there are no further questions signaled at this time. I will turn things back over to George Holmes for any additional or closing remarks.

George Holmes

Great, thank you operator. Let me close by leaving you with a couple of thoughts. I was recently asked if looking back at the end of 2020, how we'd define a great year. I think there is a pretty simple answer. First, what we've already done, strengthen our balance sheet with an institutionally led equity raise. Second, we continue to execute against our agreement with the world's largest filter manufacturer, putting them in a position to dominate the 5G market. That execution allows us to reach the second major contract milestone.

Third, we enable our Chinese foundry, IDM partners to begin to deliver on a path to dominate the 4G market in China. And if we're really doing well, executing on agreement with one or two more Tier 1 customers for XBAR in the non-mobile space, expanding our XBAR footprint across multiple Tier 1 suppliers.

We've laid the groundwork for our XBAR being the technology capable of delivering the full 5G potential, to recognize 5G's capabilities in both mobile and non-mobile markets.

With that, I'd like to thank everybody again today, for joining today's call. Be safe and stay healthy. Thank you.

Operator

And that does conclude today's conference. Thanks again everyone for joining us. You may now disconnect.