If you are new to Resonant I would strongly suggest that you check out my earlier articles before reading this one as I will not be giving a detailed rundown of the company in this post. Please see the end of the article for more information.
With 2018 behind us and their yearly report out, Resonant has just begun to reap the rewards of their diligent work over the past year. Do not let those revenue numbers fool you. I believe that the accomplishments management and team have made throughout the year have paid off. These strategic moves have positioned Resonant at the forefront of an explosively growing industry and will lead to substantial revenue growth in the not so distant future.
Key Performance Indicators (KPIs):
There are various metrics that can be used to gauge how well Resonant’s management and the team are performing. Today we’ll be discussing customers, designs contracted, designs in qualification, and designs shipping for royalty revenues.
It goes without saying that there would be no growth without customers interested in Resonant’s designs. Resonant has done a fantastic job at customer acquisition over the past few years. As you can see from the graph below, Resonant has seen consistent growth in the number of customers jumping onto the ISN bandwagon. This continued growth, along with consistent growth in design wins, show that these customers are increasingly confident in Resonant’s ability to get complex designs finished quickly and at a fraction of the cost.
Designs Under Contract:
This metric represents the designs that Resonant has under contract with customers. Since these designs take an average of 9 to over 36 months from signing to shipping for royalty revenues, there are quite a few designs which have yet to hit the market.
Cumulative Design Contracts (1 year)
Cumulative Design Contracts (~2 years)
As you can see, the cumulative amount of designs show us that Resonant remains successful in signing design contracts. I expect this trend to continue and/or accelerate throughout the remainder of 2019. I believe this growth will come from the substantial interest current and potential customers showed with regards to Resonant’s prototype XBAR resonators which were demonstrated at Mobile World Congress (MWC) 2019. In addition to achieving approximately three times the bandwidth at 5GHz, these resonators, designed using ISN, are significantly smaller than resonators designed using conventional methods. With Resonant’s focus being aimed at bringing complex filter designs to market faster at a lower cost, they have positioned themselves to be at the very forefront of 5G.
Designs In Qualification:
This count represents designs that have been completed by Resonant and submitted to their customers for qualification. These designs in qualification, on average, are much closer to generating royalty revenues than simply designs contracted. It is at this point in the development timeline where Resonant’s customers begin testing the designs and sampling to handset OEMs. This process takes 3 to 6 months on average.
Though the data is on a yearly basis, we can still observe designs in qualification doubling year over year. I believe that this number could double again in 2019 due to the staggering buildup of contracted designs which are approaching the qualification period. I expect that, due to the quality of these designs, Resonant will achieve the upper end of their projected acceptance rate (30%-70% of devices in qualification).
Designs Earning Royalty Revenues:
This metric is, obviously, the most important because it gives us a great idea of when to expect revenues for a certain design. Once shipping there can likely be a short period before we see a meaningful impact on revenues, but as you can see from the charts below, the trend is real and it’s absolutely breathtaking.
Cumulative Designs Shipping (1 year)
Cumulative Designs Shipping (~2 years)
As you can see from the two-year chart, and as I have explained in previous articles, 2017 was Resonant’s “validation year” meaning 4 devices were sampled and shipped as a preemptive trial. Once Resonant’s customers gained confidence in the filter designs, they naturally invested heavily in more. These designs are just now starting to show due to the development timelines for each. If you remember the graph from before labeled “Designs in Qualification” there are over 20 additional devices that, if accepted by the OEMs, would be added to this graph in the coming quarters.
From these indicators, it is undeniable that these wins and devices shipping will translate to substantial revenues. Keep in mind that Resonant’s earlier designs which are shipping represented filters with lower ASPs. With higher margin filters now hitting the market this royalty rate has already started to increase. In addition to higher margins, it’s vitally important that we consider how long these devices can generate royalties. For example, a single device shipping can generate Resonant a per-unit royalty for a duration of up to two years and royalties can be calculated as such ((Filter ASP) x (Filters Per Device) x (Devices Sold)). That’s two years of recurring royalty revenues and as they add up so will revenues.
Where does that leave us?
Many investors thought that this quarter would be a make or break inflection point for the company. In my opinion, it was an inflection point with regards to designs generating royalties. Keep in mind that many of these designs started shipping very late in Q4 and would not have impacted the quarter's revenues. With this being said, I believe that the first half of 2019 will show us a jump in revenues, but this will be nothing compared to the second half of the year. I remain as long as ever on Resonant and look forward to posting more as the year progresses.
More Info on Resonant:
My other blog posts: https://seekingalpha.com/user/48665519/instablogs#instablogs
My Twitter: https://twitter.com/MichaelSWolman
Lou has some of the most thorough articles I’ve read on Resonant, key players, and the state of 5G. Simply put, you cannot do DD on this company without reading Lou’s work at https://disruptivetr.com/research/
Lou’s Twitter: https://twitter.com/LouBasenese
This material is intended for informational purposes only and is not intended as a recommendation or an offer or solicitation for the purchase or sale of any security or financial instrument. Michael S. Wolman is not a licensed broker, broker-dealer, market maker, investment banker, investment advisor, analyst or underwriter. I cannot and do not provide personalized financial or investment advice for any individual. Readers should be aware that investment markets have inherent risks and our past performance does not assure the same future results. Use of our research is at your own risk. You should do your own due diligence before making any investment decision with respect to securities covered herein.
Disclosure: I am/we are long RESN.