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Resonant goes pre-production +4

11:42 09-Feb-17

The Resonant conference call has just concluded.  Management doesn't seem to know which phones makers the equipment manufacturers could ultimately sell parts to, and thus which phones its filter could wind up in.  That makes it very difficult to project the number of parts that will be sold and to quantify the opportunity at this point.

What we do know is that the current announcement applies to three relatively low-margin designs, with 4 additional higher-margin parts still in process with that customer.  I note that these parts are clearly from the SECOND license agreement that Resonant executed, which was for SAW filters.  The first agreement occurred about 3 weeks earlier, but was for BAW filters, which are somewhat more complex.  That probably accounts for the longer time to market, and management commented that it doesn't see any issues with the other 23 other opportunities that are in process with 5 other customers.

Resonant can also replicate an already done design for new customers, thereby reducing the internal effort and shortening the time to market.  We still need to get confirmation from the market, but I would expect similar announcements to follow in the coming months, and revenue to gradually increase near the end of this year and going into next.  In the meantime, this does look like the beginning of a game-changing transition, and I am inclined to buy dips in RESN below $5 in the meantime.  I doubt shares would approach the $4.20 institutional placement level again, but of course I don't have a crystal ball.

RESN shares have risen about 10% since I noted the opportunity a little over a week ago.  That may be just the beginning as Resonant just announced that one of its licensees has shipped over 1M pre-production parts resulting from a design contract in May 2016 to 4 different handset makers.  As the CEO comments,

Shipping these pre-production parts represents one of the last steps before commercial acceptance of our designs as we transition from a development-stage company into a product-focused licensor with recurring royalty revenue

That's a big deal, but there has been no opportunity that looks especially good to me in the after hours market, which is one reason why I've taken the time to try to write this event up as fully as possible now.  I would also not be inclined to chase shares before hearing details from the conference call at 11am EST tomorrow.  All we know at this point is that, even when/if these parts enter mass-production, later this year, the initial revenue from them is expected to be "modest".  If memory serves, though, there are about a dozen other designs in various stages of development.  The first of those contracts was actually from the end of April 2016, so it would be interesting to hear if that is expected soon, or if there was some problem.

Lack of options trading, liquidity, and an 8% rebate rate all make RESN especially volatile and difficult to trade effectively.  My opinion is that, with stocks like this, it is often best to be very patient both in picking a good entry point and then managing the position.  I'm also often a fan of staggered buying and selling.  Tomorrow is going to be a very busy day for earnings and calls; unless something truly surprising pops up with BGC or Patterson, I will probably prioritize the Resonant call due to the potential importance of this event and the company's technology. 

For those needing some background, here is a quick summary.  Using your browser to search for "Resonant" in the picks section will find about a dozen other notes on the company, and filtering by rank, on the right, may make that process easier/shorter.

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