How Resonant Reached $3M in Royalty Revenue Licensing Its RF Filter Designs (Interview with CEO George Holmes)

Introduction and Guest Background

Nathan Latka

00:00Hey, folks. My guest today is mister George Holmes who joined Resonant in 2016 as the CEO. Prior to joining the company, he served as chief commercial officer for Tigo Energy where he was responsible for expanding the company's demand creation activities. Resonant is focused on solving the 5G traffic jam. Mr. George Holmes, ready to take the top?

George Holmes

00:18>> Yeah. Fire away.

What Is the 5G Traffic Jam?

Nathan Latka

00:19All right. So what does it mean when you say solving the 5G traffic jam? For

00:24folks that don't understand what 5G is, why is there a traffic jam right now?

George Holmes

00:27>> Oh gosh, that's a great question. So traffic jam is probably an interesting way to put it. I mean, we look at 5G is right now the promise of what is to come, right? The world today, we're talking about all the things that will be enabled by 5G, yet we're a long way from it. So, you know, the operators today are trying to get the infrastructure in place. They're trying to create the footprint. We hear

00:53>> all of the commercials around what T Mobile is doing, what AT and T do, what Verizon is doing. Yet today, we as consumers don't get access to it. We're looking for that thirty second download of a high def movie is for jumping on an airplane. Just doesn't happen today and won't happen for a couple of years. So we've got a real good idea of what's coming, but the roadmap is not quite materialized yet.

Royalty Revenue and GMV Explained

Nathan Latka

01:19Now I could talk about pre show. Most of our founders we have on our SaaS founders, you're more focused on sort of IoT and that's 5G problem. You're also publicly traded. So let me not bury the lead here. What was trailing 12 revenue and what percent was hardware or software?

George Holmes

01:33>> So if you look at our business, we were

01:38>> a public venture backed startup. So that means we're a publicly traded startup company. We did $3,000,000 in revenue last year, rough numbers, and that is royalty revenue. So we get paid on the shipment of products on a per unit royalty basis and we get about 10% royalty. So we enable about $30,000,000 worth of revenue last year. And we haven't really given guidance on what this year will look like other than the fact that we're doing better quarter

02:06>> over quarter every quarter.

Nathan Latka

02:08Yeah, I don't want to get you in trouble here with the SEC, so let's only talk about historical numbers here for a second.

George Holmes

02:12>> We used to

Nathan Latka

02:12empower $30,000,000 of GMV of which you took 10%, which is 3,000,000. What is that 30,000,000? What is that money flow that you're empowering?

George Holmes

02:19>> Yeah, we're, you know, we do filters for mobile devices. In particular, we are in that RF front end that enables the communication between two different devices. A filter is that physical fence between frequencies. You've got a lot of different things coming into your mobile device. If you look at kind of the first handsets that were enabled back in 2007 when the first iPhone came out, it had about half a dozen filters in it. Today, the current

02:50>> 5G iPhone has about 100 filters in it. Just a lot more data pathways going back and forth as we're trying to push more and more data to the mobile handset. And we are the little fences between those frequency paths.

Nathan Latka

03:02Okay, so it's a pure hardware play. There is no software upsell here.

EDA Software Platform and IP Portfolio

George Holmes

03:05>> Ah, so the interesting thing about that is what we do for a living is completely enabled by our software platform. We have an EDA software development tool that allows us to design these RF filters. We are the only ones that have a tool like this that allows us to do three-dimensional modeling of acoustic wave filters. And so it's that software tool that has allowed us to create the devices that we actually license to other people. So

03:34>> our business is made up of three fundamental components, a software component, an IP component and an integration component. We put those three things together and we license technology to third parties.

Nathan Latka

03:45Who was a third party you might license to?

George Holmes

03:48>> Broadcom, Qorvo, Skyworks, you name it, anybody that's an IDM, an original device, integrated device manufacturer targeted in the RF front end. You know, there are seven companies that represent 98% of the market starting at the top with Murata, Qorvo, Skyworks, Broadcom, Qualcomm, Wisol and Taiyo Yuden. Those are the big kahunas in this space and they're the ones that really enable everything we do from an RF pathway perspective.

Nathan Latka

04:20Now, George, can Skyworks and Broadcom pay to directly use your EDA software tool themselves or do they have to go through you? They have to buy the hardware from you, they can't use the software.

George Holmes

04:30>> They have to come through us. We do not license our software to third parties today. We've designed it so that we could, But technically what we're doing today is we take our software tools, we leverage our IP portfolio, which is well over 300 patents filed and issued. And we put those two things together to develop designs for our customers.

Nathan Latka

04:51I see. Okay. So let's talk about the $30,000,000 in GMV and I want to try and make this relatable to our listeners. So I'm holding up my phone right now. Like, can you point to the piece? Like, if I open the back of my phone that like you would make, that you're making a 10% cut on?

George Holmes

05:05>> Know, no, it's a grain of, they're size of a grain of sand. Very, very small devices and they are physical hardware devices. They are actual physical things that you actually go and touch, but they're very, very small. And they're like I said, if you've got a brand new iPhone, it's got a 100 of them in that phone. Oh wow. They're integrated into modules typically. And those modules are provided by those big players we just described.

Nathan Latka

05:31Okay, so let's just use an iPhone because everyone listening understands an iPhone. What is Apple or Skyworks or Broadcom or whatever paying you to get those 100 little sand sized devices into one phone?

George Holmes

05:45>> Well, that's a great question. So a company like us gets paid a royalty on a per unit royalty basis, and we get somewhere between seven and fifteen percent of the ASP, the average selling price of the devices that we're designing. As I told you, we made $3,000,000 in revenue ourselves last year. We enabled roughly $30,000,000 worth of devices to be sold into the marketplace to earn that $3,000,000 If you look at the devices that go into

06:14>> that iPhone and you look at the kind of the components that go into that, you know,

06:21>> 20 to 25% of the total material cost of the phone is the RF front end, and it's that RF front end that has all of those components in it.

Nathan Latka

06:32Got it. So in this phone, what, there's a 100 or $200 worth of hardware that one of these folks had to pay you to get access to?

George Holmes

06:39>> No, it's about if you look at the actual hardware cost of the phone, depending on which phone you're looking at, you know, you're talking in about a $30 range. It's what the cost of RF filters.

Nathan Latka

06:50Okay. So anyone listening right now should think of you like you sold a $30 component that made their iPhone work. They made it possible. And of that $30 thing that you sold, you made about $3.

George Holmes

07:01>> You know, if we sold every single device that went into it, that would be about 70% of the total RF front end cost. So $30 and 70% is 21. That's about the filter cost that goes into that. Of that $30, that's about a 100 devices, you know, so a 100 devices, you know, you're about, you know, 21 divided by 100. That's the number of types of sizes of components on an ASP perspective. We might get two

07:29>> or three of those devices depending on who the customer is that actually is supplying that are a front end component to that phone manufacturer. So we've sold right now over 60,000,000 devices into the marketplace. So customers, our customers have sold those to phone manufacturers today.

Nathan Latka

07:49And how many of the little sand sized things have you guys manufactured in the past year? Is that a is that a good question?

George Holmes

07:56>> Well, except that we don't manufacture. Remember, we license technology to folks that they in turn manufacture.

Nathan Latka

08:02Okay. I didn't know that. So you don't have hardware. You don't have cost of goods sold for physical.

George Holmes

08:05>> We don't make anything, which is why that $3,000,000 that we made last year from a royalty perspective is so important. We have no below the line costs associated with the development of that revenue.

Nathan Latka

08:18All is certified. You wouldn't report in your revenue then as a public traded company, you wouldn't report the 30,000,000, Jim. You'd report the 3,000,000.

George Holmes

08:26>> You'd report 3,000,000. Correct.

Nathan Latka

08:27So how the heck are you it's gotta be patent portfolio. Your market cap right now is up $227,000,000. That's a ridiculous valuation for anyone thinking about that compared to private SaaS or private hardware companies. Why so big?

George Holmes

08:39>> Well, and we think it's small, actually, we think there's a lot of room to run with that number right now. I'll tell you why. As you look at what we're doing as a publicly traded micro cap company that is truly a startup company in the early stages of revenue, we are delivering on the promises that we made two or three years ago, and we continue to deliver on those promises as we continue to grow quarter over

09:08>> quarter, is the opportunity that we enable. If you look at the opportunities that we enable, for example, with our most recent deal for 5G filters, we are going to enable several billion dollars worth of revenue for our customer. So it's that opportunity that I think investors look at. It's the enabled revenue opportunity that we're creating and us continuing to deliver on the promise against those targets that will make that happen. Are you pricing too cheap?

09:39>> I think we're cheap.

Nathan Latka

09:41Why haven't you increased pricing?

George Holmes

09:42>> That's my view. I think it's a great value today for sure.

Nathan Latka

09:46Why Why haven't you increased prices?

George Holmes

09:48>> Well, we don't oh, you two different two different questions. I think my stock price is too cheap. You're talking about of our of our prices of what we sell for too cheap.

Nathan Latka

09:57Yeah. If you're if you're enabling these folks to sell so much GMV, maybe your pricing I mean, maybe you're too cheap.

Royalty Rates and Pricing vs. Competitors

George Holmes

10:03>> Yeah. You know, it's a great question. I would tell you that if you look at the largest licenses, licensors of technology, companies like ARM, Tessera, CEVA and whatnot, they're very happy to get one to 2% royalty. We're getting on average 7% to 15% royalty. So we think we're in pretty good shape from that perspective. The other thing that we're doing as we go forward, we're selling our technology

Prepaid Royalties and Revenue Growth Outlook

George Holmes

10:32>> on a prepaid royalty basis. So now we're actually getting paid before our customers actually deliver our product into the market. So we're doing that to really to make it more predictable for our royalty revenues going forward. I think as we see the opportunities continue to expand and the work that we're doing today, I think we'll see that our revenue numbers will grow and they'll grow exponentially over the course of the next three or four years. And

11:01>> as a result, investors that invest in what we're doing will see a tremendous uplift in the opportunity set.

Nathan Latka

11:09Yeah, your reported revenue back in 2018 was $524,000,000. And I believe you joined the when sorry. Five five hundred twenty four thousand. When did you join the company? What year? 2016. Okay. Yeah. So that was that was two years after you joined. You've since grown from 500,000 in revenue to 3,200,000 in trailing twelve months revenue according to public traded issues here. Yep. But the flip side of that is you spent your operating expense. Your OpEx is

11:30about 32,000,000 to generate 3,200,000 revenue. A lot of that is 19,000,000 on r and d. How much of that is subsidized by the government? None. Okay. So you don't get any subsidies. So how are you funding the business? I mean, you're burning capital like crazy, 30,000,000 a year.

George Holmes

11:44>> Yeah, well, we raised money in the public markets. So, you know, we did that through public offerings. We have some tremendous investors that believe in what we're doing. They believe in the opportunity set. You know, as we noted on our last quarterly call, you know, we've continued over the last seven to eight quarters to meet or exceed our projections on unit volume and revenue growth of our legacy business and on our future business, which is all

Largest Customer and $100M Revenue Potential

George Holmes

12:14>> the 5G and WiFi 6E business that we're working on. We continue to exceed expectation there as well, beating our internal and external reported milestones. And our largest customer happens to be the world's largest filter manufacturer. They've in turn reported to their shareholders that the most important technologies that they have going forward for the RF front end include Resonant's technology. So we're pretty excited about that. And I think it's going to ultimately yield pretty significant dividends.

12:50>> We noted on our last quarterly call, we believe that customer has the potential to generate over 100,000,000 annually for Resonant as they get to full volume on delivering filters into the 5G space. And that's one of seven tier one companies. So we think the opportunity here is very large. And Resonant at a north of $100,000,000 in revenue is going to be a very significant company in the marketplace.

Nathan Latka

13:19How long does it take you to get to $100,000,000 in revenue?

George Holmes

13:22>> We're thinking that the opportunity set is in the 2025, 2026 range is where those opportunities will present themselves as the unit volumes continue to expand and the number of devices continue to expand over the course of the next several years.

Nathan Latka

13:39Yeah, it's obviously exciting. When you take 28,800,000 back in February of last year in post IPO equity, help us understand what that means.

Quarterly Burn and R&D Investment

George Holmes

13:49>> Oh, okay. That's a great question. So if you look at cash that we've raised over the course of the last several years, we're burning right now about rough numbers, 6,500,000 to 7,000,000 a quarter. And that is all in R and D for the most part. I mean, the biggest chunk of it's in R and D, which is largely what drives this massive IP engine that we're creating. I mean, well over 300 patents filed and issued over 150 are

14:24>> in the 5G space. We are arguably in the top six from an IP generator perspective in the BAW filter space. I believe we'll be number one or number two, definitely in the top two or three by the end of this year. Makes us a very significant company from a technology asset base perspective. And that's what we're gonna go create new designs against, which will allow us to get and maintain these high royalty rates.

Nathan Latka

14:56So 28,800,000 last year.

George Holmes

14:59>> Excuse me?

Nathan Latka

15:00Who put in the 28,800,000 last year?

George Holmes

15:02>> It's in the public markets. It's hundreds of investors. Sold public, we sold shares in the public market. Oh, see.

Nathan Latka

15:08Got it. Got Got it. Okay. Will you do that again this year?

George Holmes

15:12>> No, that's We've noted in the last our last quarterly call that we have cash into early part of next year, assuming no additional revenues.

Patent Portfolio and Defensibility

Nathan Latka

15:23Yeah. Okay. Interesting. Many people would argue that a patent portfolio is only as viable as how you've defended it and won in court. So of the 158 patents you have issued in 5G, how many have you defended in court and won? None. Okay, so like are they worth anything?

George Holmes

15:38>> Well, that's a great question. And yeah, I think you're absolutely correct. Your patent portfolio, the value of your patent portfolio is based on the number of defenses that you've had and what you've won. And ultimately, as we look at our portfolio, we have not defended it yet. But we're on the front end of developing a portfolio and it still is larger than most of our potential customers. And I think where we're at today as we go

16:09>> through and work to build this portfolio out, defense is really not the position we're looking at. Clearly, the people that we partner with have the opportunity to take this technology and leverage it. And as we sit back and see what happens, I think there's going to be some opportunities for that to materialize into some real royalty streams for us in the future.

Future EDA Software Licensing Option

Nathan Latka

16:33Last question, why not sell the EDA software direct to Skyworks? Let them pay you a $100,000 per year contract value, super high margin, and then you can still take the royalty revenue too for folks that don't wanna buy the software direct.

George Holmes

16:47>> Yeah, that's a great question. It's one of the things when we created the software platform, we created with that in mind. We aren't doing that today. Today we've validated the technology against a multitude of different foundries. I think we have over 12 foundries that we've actually qualified the platform against, over six that we've qualified our 5G technologies against. And for us, right now, we're thinking we're getting better value out of the go to market model

17:18>> that we have. But we have that in the goody bag that if we want to extend the platform and start licensing that software platform on a go forward basis, we have the ability to do so.

Nathan Latka

17:28Last question, why is a guy like you do this? 2016, it sounds like you probably had a cushy job at the energy company. Why decide to jump into this?

Why George Joined Resonant

George Holmes

17:36>> You know, I'm a startup and turnaround guy. I've been doing this for thirty five, almost thirty five years now. You know, spent the first half of my career, you know, working in companies that were in need of turnaround or rapid growth and been doing startups for the last ten, fifteen years. This is fun. We're having a ball. I mean, I work with a great group of scientists right now, probably the best group I've ever worked with.

17:59>> I've got roughly 70 employees, better part of 50 of them are in the technical side. I walk into a room. I'm clearly the guy that's got the fewest number of digits behind his name. It's just a lot of fun working with a lot of really smart young people that are doing really exciting things and we think we're in a position to kind of change the overall market.

Nathan Latka

18:18And how many customers in the last twelve months made up this 3,300,000 revenue?

George Holmes

18:24>> It's a couple of customers last year.

Nathan Latka

18:25Got it, so yeah, it's very much an enterprise sales motion, it's four or five.

George Holmes

18:29>> Yeah. Yeah. Interesting. Well, you're in a hot space.

Famous Five Rapid Fire Questions

Nathan Latka

18:32It'll be fun to see what happens next, George. I appreciate you doing this. Let's wrap up with the famous five. Number one, what's your favorite business book?

George Holmes

18:39>> Oh, my favorite business book. Oh, goodness gracious. You know what? I'm not a guy who goes out and reads business books. It's an unfair question to me. I spend all my time reading email every day.

Nathan Latka

18:50All right. Number two, is there a founder you're following or studying? Who? Excuse me. A founder.

George Holmes

18:56>> A founder. Well, I mean, I think we all watch what's happening with Elon Musk just because he's an interesting guy to watch and follow. And for those of us who live in Austin, we've to see what he's going to do to our town.

Nathan Latka

19:07Well, he's increased property values. That's for sure. Number number three, what's your favorite online tool for building a business?

George Holmes

19:15>> Favorite online tool? Well, you know, I'm it's sad to say I'm a Salesforce junkie. So what can I tell you?

Nathan Latka

19:21Alright. Number four, how many hours of sleep do get every night, George?

George Holmes

19:25>> Four.

Nathan Latka

19:26That's not healthy.

George Holmes

19:26>> Four hours.

19:27>> You know, we were just talking about that. That's the only reason I know that. It's three to four if I'm lucky. I'm getting old, you don't sleep much.

Nathan Latka

19:35Really? How do you survive? I mean, I would die on four hours of sleep. I'm 31 and healthy.

George Holmes

19:39>> Well, again, and I would say I'm not 31 and I would say I'm kind of healthy. How's that?

Nathan Latka

19:44But why don't you get more sleep?

19:45I mean, seriously, that's like you can't go four hours every night without serious

George Holmes

19:49>> I get to bed at night and I wake up in the middle of the night and I start thinking about what we have to do and I get up and I start working on I'm having a ton of fun. Guess when I guess, you know, it'll come a time when I don't have this kind of fun stuff to work on and maybe I won't be thinking about it 24/7 and I'll get a little more sleep.

20:08>> But as it stands right now, that's why that's the way it works.

Nathan Latka

20:11BlackRock owns 5.4% of your outstanding shares. When they listen to something like that, do you think that that's an advantage? They hear that and go, we love it. George is working hard. He's only sleeping four hours.

George Holmes

20:21>> That's a great question. I don't know. I mean, as I sit back and look at it, those weren't the things that they were worried about when I last talked to them. They're more worried about some other things as it relates to what our business is doing. And I think we're doing a great job at creating value for folks like that. So at this juncture, I think they're probably pretty happy.

Nathan Latka

20:42Alright, George. And what's the situation? Married, single kids?

George Holmes

20:45>> Oh, I'm married with two kids. I've got two daughters that are just out there having a ball, doing great things.

Nathan Latka

20:50How old are you?

George Holmes

20:51>> How am I? I'll be 59 this year.

Nathan Latka

20:5459, last question. What's something you wish you knew when you were 20?

George Holmes

20:58>> Oh, what I wish I knew when I was 20. You know, I think if I was 20 and doing it all over again,

21:08>> I really would have liked to know that, you know, it's there are a lot easier ways to make money. I'd have probably done software fully from the the get go. Hardware is hard. They call it hardware for a reason.

Nathan Latka

21:20There you go. George Holmes with resonant.com, publicly traded SaaS company, did 3,000,000 in trailing twelve month revenue, spent about 30,000,000 to make that revenue though. So reinvesting mainly in their patent portfolio and R and D team, 75 people on the team, 50 in engineering and 300 patents, 150 in the 5G space. They're purely a company focused on licensing this piece of hardware at $30,000,000 in GMV last year, again, make about 10% of that. They built

21:42an internal software. They haven't started selling that externally yet, but we'll see what happens there as we look to continue to grow. Again, 75 people, $227,000,000 market cap today. We'll see what happens next. George, thanks for taking us to the top.

George Holmes

21:53>> Thank you.

Nathan Latka

21:56One more thing before you go. We have a

21:58brand new show every Thursday at 1PM Central. It's called Shark Tank for SaaS. We call it deal or bust. One founder comes on, three hungry buyers, they try and do a deal live and the founder shares back end dashboards, their expenses, their revenue, ARPU, CAC, LTV, you name it, they share it. And the buyers try and make a deal live. It is fun to watch every Thursday, one p. M. Central. Additionally, remember these recorded founder interviews

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