On September 6-9, the IEEE International Ultrasonics Symposium was held in Washington DC. At that meeting there was a poster presented that was co-authored by Resonant Inc. of the US and Wisol Co. from Korea. The abstract of the poster is below.
While the topic of the poster, “Design and Characterization of SAW filters for High Power Performance”, doesn’t sound too exciting for us non-techies, the existence of the poster itself contains significant meaning for Resonant (RESN) investors.
Who is Wisol?
I assume you know who Resonant is. Most likely your awareness of RESN is why you’re reading this blog. But, who is the co-author of the poster, Wisol?
On their most recent conference call, Resonant announced they were up to 8 customers. We believe that Wisol is one of the eight customers. The poster is certainly a strong indication thereof. Adding to this is a recent piece by Lou Basenese, in which he had the results of a teardown of the Galaxy XCover 4; in the teardown, Basenese confirmed that the RF Filter was a Wisol chip designed on the Resonant platform.
Wisol, the manufacturer of the filter, is a Korean company. From a review of a recent annual report, it becomes clear that, with $400M in annual revenue, they are a fairly large concern. The bulk of this revenue comes from their main product lines of “SAW Filter / RF Filter”.
As one might surmise for a Korean company generating a lot of business from the RF Filter space, they are connected with Samsung. Per the pic below (also from their annual report), their tech was orignally acquired from Samsung, they became a partner company of Samsung and, more recently, they became an affiliated company of Samsung.
The end of result of all this is that we know Wisol is a serious player in the RF industry, we know that they are an important partner for Samsung and we know that they are one of Resonant’s 8 customers.
Thus, the poster presented at IEEE is very telling.
There have been a lot of investor questions surrounding RESN. They typically relate to the timeline from customer to revenues, their ability to penetrate meaningful customers, and their timeline to cash flow positive.
Based on a model I put together at the time of my first piece on RESN, I could see them achieving over $4M in revenue as early as Q2 2018. This level would take them to roughly a break even level around the middle of next year. And, these numbers are wildly above what Wall Street is modeling for the Company.
At this time we don’t know if Resonant will hit my model, but we do know several things. Six months into coverage of RESN, they are still tracking to the model. And, with Wisol as a client, they are now penetrating Samsung, the 500 pound gorilla in the cell phone industry.
Will they be in more Samsung designs? It is perfectly logical to make that leap of faith based on Wisol’s relationship with Samsung and, from the IEEE poster, Resonant’s working closely with Wisol.
The bottom line here is that I believe Resonant continues to track to or exceed my optimistic revenue model.
Questions still surround financing, but don’t bother me.
The other concern that investors correctly have about RESN is their need for additional financing. This is a valid concern as, even in my optimistic model, they will need additional capital within a couple quarters.
However, while the concern about financing is justified, I don’t believe it should stop investors from looking at RESN. The reason behind this is quite simple. Even if the Company were to take $10M in dilution today, at a 20% discount to the last sale, shares are still way below fair market value at current levels.
Looking at my model, when I increase the shares outstanding by 2.5M ($10M raised at $4 per share), my FMV based on 2020 numbers is between $8.33 and $16.67 depending upon what multiple I put upon the company’s trading. This is using a 20% discount rate for FMV, which I think this more than reasonable.
Frankly, I believe the above analysis of potential financing is a worst case scenario. The Company has other means of raising capital, including warrant exercises, strategic investors, pre-payments by customers, etc. If they can get funding through less dilutive means, it just makes shares that much more attractive.
RESN’s weighting in the Tailwinds Select Portfolio was increased recently. I followed this three days later with a purchase in my own account. I believe that the recent Samsung teardown, followed by the poster authored by Resonant and Wisol demonstrate the incredible market position in which RESN has managed to place themselves.
Business at RESN is strong and ramping to my model. They have the ability to finance the Company through cash flow positive. And, the valuation doesn’t reflect where things stand much less where they are headed.