Good day, ladies and gentlemen and welcome to the Akoustis Technologies Third Quarter Fiscal 2019 Business Update Conference Call. As a reminder, this conference call is being recorded. At the conclusion of the company's presentation, Akoustis management will take questions. [Operator Instructions].

A replay of the call will be available on the Investor Relations section of the Akoustis website. I would now like to turn the call over to Tom Sepenzis, Vice President of Corporate Development and Investor Relations. Please go ahead, sir..

Thank you, operator and good morning to everyone on the call. Welcome to Akoustis third quarter fiscal 2019 business update conference call. We are joined today by our Founder and CEO, Jeff Shealy; Interim CFO, Ken Boller and VP of Business Development, Dave Aichele.

Before we begin, please note that today's presentation includes forward-looking statements about our business outlook.

All statements other than statements of historical facts included during this conference call including statements regarding our strategies, operations, cost, plans, and objectives, estimates of market size, and guidance regarding expected revenue for the current fiscal quarter are forward-looking statements.

Such forward-looking statements are predictions based on the company's expectations as of today and are subject to numerous risks and uncertainties. The company and our management team assume no obligations to update any forward-looking statements, made on today’s call.

Our SEC filings mentioned important factors that could cause actual results to differ materially. Please refer to our Form 10-K for the 2018 fiscal year, filed with the SEC to get a better understanding of those risks and uncertainties. I would now like to turn the call over to Jeff Shealy, Founder and CEO of Akoustis..

Thank you, Tom, and welcome everyone to our third fiscal quarter business update call. I believe I can say that the past month has been arguably the most exciting time for all of us at Akoustis since the founding of the company.

Quite a bit of this excitement has related to the two announcements we made over the past week regarding our first 5G mobile handset development order with a Tier 1 wireless company and our first preproduction order for our new second iteration 5.6 GHz WiFi filter. I will speak more about each of these market opportunities later in the call.

With respect to the call today I have organized my comments into five sections. First, technology overview and market focus; second, a brief recap of the highlights of the second half of calendar 2018; third, March quarter achievements and commentary; fourth, June quarter milestones; and finally milestones beyond the June quarter.

I will start with a technology overview and market focus.

Akoustis was founded in 2014 on the premise that by utilizing advanced single crystal piezo materials we could create a unique manufacturing process to produce a new class of high performance BAW RF filters that would exhibit differentiated and superior performance in the high frequency spectrum.

What differentiates Akoustis is our high power handling, wide bandwidth BAW RF filter technology which we have branded and trademarked XBAW. Our products currently target applications operating in the 1 to 7 GHz frequency spectrum in the growing WiFi wireless network infrastructure, mobile handset and defense market.

Each application requiring characteristics that could include high power handling, wide bandwidth, reduced form factor, or any combination of all three when compared to existing incumbents of filter technologies.

Since the very early days at Akoustis we have been amassing what we believe is both a substantial and valuable portfolio of intellectual property which as of April 30th includes 21 patents granted to the company, a license or option for three more third party patents, 41 patents pending, and numerous proprietary unpublished trade secrets and knowhow based on a novel combination of high purity piezoelectric materials combined with a MEMS based wafer manufacturing flow.

Next I'd like to briefly summarize highlights pertaining to our XBAW technology. First XBAW is a unique and flexible RF filter wafer process which can address a broad range of applications and frequencies.

Our XBAW resonator process delivers wide bandwidth and low loss supporting true coexistence performance at the high frequencies required for WiFi and 5G. Second, our single crystal XBAW exhibits up to 2.3 times higher power handling capability over the same filters constructed using polycrystal and piezo material.

Higher power handling is important because it translates into higher reliability and it can enable new applications for micro filter technology.

Third, XBAW is compatible with various package technologies including conventional [dye on] [ph] laminate for WiFi CPE application, [dye in] [ph] ceramic for military applications, and wafer level package or WLP which is required for small form factor applications such as mobile handsets and other devices.

Akoustis operates an integrated device manufacturing or so-called IDM business model. Our model allows cost effective turnkey integrated RF BAW filter solutions to be developed quickly, without margin stacking or risky supply chain delays. Our ability to deliver product with short cycle time is a key attribute in our business model.

Our products are sold both directly and through distribution channels. Next I will summarize our end market focus. As I noted earlier we are currently targeting applications in the growing WiFi customer premise equipment, wireless network infrastructure, 5G mobile device, and defense market.

Our product focus resides in the sub 7 GHz band where we can provide superior performance using our RF filter solution.

Our market model has not changed since last quarter where we estimated our total addressable market was approximately $3.7 billion in 2018 and is expected to grow to $5.4 billion dollars by 2021 per Mobile Expert’s 2018 report, ABI’s 2018 report, and Akoustis internal estimate.

The BAW filter market remains dominated by two multi-billion dollar RF module companies which together have controlled 4G LTE wireless. However it is worth noting that we are currently the only company in the world which is providing BAW RF filter solutions in several of the challenging 3 to 7 GHz band.

Next I would like to take a moment to recap some of the important milestones achieved during the second half of calendar 2018 as we continue our transition from an R&D company to a commercial stage product company with multiple attractive markets requiring premium performance RF filters.

In August of last year we received an order to develop 3.6 GHz infrastructure filters for the unlicensed citizens band radio service or CBRS spectrum. CBRS is expected to play a significant role in the U.S. for last mile connectivity for the emerging 5G wireless network.

One of our most important milestone was achieved in September when the company generated its first commercial revenue from the sale of its 3.8 GHz filters for a military radar application. Also in September we received our first preproduction order for our 5.2 GHz WiFi filter from a global distribution customer.

In November we received a second order for our 5.2 GHz filters from a multi-billion dollar global SoC vendor for the development of 4x4 and 8x8 multi-user MIMO reference design. Last December we started sampling our first iteration of our 5.6 GHz WiFi filter which works in tandem with our existing 5.2 GHz WiFi commercial filter product.

I will discuss the progress we have made with the 5.6 GHz filter in a moment. Overall as of today we are tracking 10 priority filters through our new product introduction system which is an increase from 7 priority filters last quarter. Next I would like to move on to achievement during the March quarter.

For the March 2019 quarter we previously highlighted the following five milestone. First, for our WiFi coexistence filters we stated that we would expand beyond our first Tier 1 SoC customer and deliver an additional SoC RF front end manufacturer OEM or ODM customer in the March quarter.

We were able to complete this milestone early in January with an additional leading SoC vendor choosing our 5.2 GHz WiFi filter for possible inclusion in a 4x4 and 8x8 reference design for customer premise equipment.

Second, we stated that we would ship our 5.2 GHz XBAW filters in the March quarter to both an SoC customer and our distributor after supply chain issues kept us from delivering the product in the December quarter.

I'm happy to report that we were able to deliver 5.2 GHz XBAW filters to our first Tier 1 SoC maker during the March quarter for possible inclusion in a 4x4 and 8x8 WiFi multi-user MIMO reference design. We were also able to fulfill our distributor order for 5.2 GHz filters.

In addition to hitting these 5.2 GHz WiFi filters milestone I am pleased that we were able to ship preproduction XBAW filters to a second leading SoC WiFi customer for inclusion in a 4x4 and 8x8 multi-user MIMO reference design as well as a major new supply chain partner to whom we delivered over 80,000 filters in the March quarter.

Our third objective was to expand sampling of our 5.6 GHz WiFi filter product to a broader set of customers.

The 5.6 GHz filter is a key component of our WiFi opportunity because when paired with our 5.2 GHz filter we will provide the industry's first tri-band WiFi coexistence BAW micro filter solution at 5 GHz offering a significant advantage of up to 23 times smaller footprint over incumbent dielectric resonator filters.

During the March quarter we provided a live demo of the first iteration of our 5.6 GHz filter to multiple target customers during the 2019 Mobile World Congress held in Barcelona, Spain. Since then our engineering team has developed a second iteration of the 5.6 GHz architecture which has multiple advantages over our first iteration design.

These advantages include superior performance, reduced die size, and complexity, and offers the identical footprint and package as our 5.2 GHz WiFi filter. As outlined in the press release last Tuesday we have received our first preproduction order for our 5.6 GHz WiFi filter.

Our fourth milestone for the March quarter was the delivery of our 3.8 GHz filters against two production orders from our military customer. As we announced last quarter we have been working with a new outsource packaging supplier to improve the speed and scale at which we can deliver the 3.8 GHz filter product to the customer.

The timeline to transfer our packaging, supply chain, and complete the design, push the delivery of our 3.8 GHz filters into the June quarter. Our last milestone for the March quarter involved receiving a new order from our military customer for a new band.

As commercial shipments of our 3.8 GHz filter were pushed into the June quarter we did not receive any additional orders from our military customer. The relationship with our customer remains very positive and we expect a new order for at least one new band in the current quarter.

In addition to the five milestones for the March quarter the company delivered an important infrastructure milestone related to 5G as we shipped our first CBRS filters for 5G last mile application.

In addition Akoustis continued R&D to develop its first massive MIMO filters for emerging 5G network infrastructure with a Tier 1 multi-billion dollar base station OEM. I would now like to touch on our new investor milestones for the June quarter. At the beginning of each quarter our management team assembles key objectives for the current quarter.

Here are the top five objectives for the June quarter. First, we plan to deliver fully qualifiable 5.6 GHz WiFi filters by the end of the June quarter. The 5.6 GHz filter remains the most important near-term product to position us to penetrate the WiFi CPE market as the 5.6 GHz filter works in tandem with our existing 5.2 GHz WiFi product.

We have significant interest in our tandem WiFi BAW filter solutions from multiple OEMs to ODMs and SoC companies. Second, we expect to ship our first preproduction order for our 5.6 GHz WiFi filters by the end of the June quarter.

As the release last Tuesday indicates we have already received an order from our global RF customer which marks the transition from sample phase to preproduction phase and positions us for design wins with our WiFi customer base.

It is worth noting that we have been communicating progress with our customers regarding 5.6 GHz performance and mechanical requirements to minimize our time to market. Third, we expect to fulfill all outstanding 3.8 GHz filter orders and book a new order with our existing military customer for at least one additional frequency band.

Fourth, we expect to sample our first wafer level packaging or WLP design using our 5.2 GHz mobile WiFi filter chip. This filter is expected to be the first 5.2 GHz coexistence micro filter on the market that would meet the size requirements necessary for mobile handsets and other wireless devices.

This wafer level packaging design will provide the blueprint for future design across the full operating range of our XBAW technology for 5G mobile and future WiFi filters. Finally, we expected to receive a sub 6 GHz RF filter development order for 5G mobile handsets and other wireless devices by the end of this quarter.

We are extremely excited to have already achieved this milestone as we announced last week that we received a purchase order from a new multi-billion dollar Tier 1 wireless telecommunications customer to develop a coexistent BAW RF filter for 5G spectrum bands for mobile handset and other wireless devices.

This is the first purchase order the company has received for 5G mobile RF BAW filters and the 5G mobile market represents the largest future opportunity for Akoustis both unit sales and revenue. Akoustis was chosen by this new Tier 1 customer due to our unique ability to provide BAW filter solutions up to 7 GHz.

We expect to deliver first samples to the customer by the end of the current quarter. As the mid bands 5G new radio bands reside between 3.3 GHz and 5 GHz future filter solutions to resolve coexistence issues in 5G mobile handsets are right in our sweet spot.

We have already developed commercial filter products at 3.8 GHz, 5.2 GHz, and 5.6 GHz proving that we can produce BAW RF filters at the higher frequencies associated with 5G. As a result we are in discussion with multiple large mobile handset companies seeking access to high frequency coexistence filter technology.

Next I will touch on our long range milestone. We are focused on initially ramping and achieving substantial revenue growth in WiFi and network infrastructure filters with future revenue opportunities from 5G mobile handset application in 2020 and beyond.

First, we expect success in WiFi by completing commercialization of our 5.2 GHz and 5.6 GHz filter solution which positions us to address the tri band WiFi CPE market. We believe this will be the first tandem BAW micro filter solution available in the market.

We plan to leverage our existing sales and marketing groundwork to secure one or more OEM product design wins later in 2019 and beyond. Second, our path to succeeding in the 4G and 5G network infrastructure market begins with execution of the ongoing customer funded filter development program.

We have demonstrated success in small cell with the shipment of our first 5G CBRS filter samples in March. In addition we expect to ship new small cell RF filters for other 5G bands later this calendar year. Beyond small cells we are pursuing massive MIMO 5G base station in the sub 6 GHz spectrum.

Filters for these applications require high power handling performance and feature high average selling prices. Overall we plan to leverage our product catalog and pursue a one too many strategy with Tier 1 and Tier 2 companies.

Thereafter we plan to expand into mobile handsets upon successful demonstration of our wafer level packaging or WLP which is a micro package technology that addresses size constraints for mobile devices.

We have several ongoing discussions Tier 1 mobile handset OEMs for new and difficult 5G bands which require high frequency wide bandwidth and high power handling all which align well with our XBAW technology and which we believe may be challenging for incumbent filter technologies.

To summarize we continue to focus primarily on winning in WiFi and network infrastructure while positioning the company to compete in mobile handsets and other wireless devices longer term. Next I'd like to mention select financials from the March quarter. Last Friday we filed our 10-Q with the SEC for the third fiscal quarter ending on March 31st.

You can access the 10-Q from our website or at SEC.gov. From management's perspective we continue to control costs while investing in key RF filter product development and wafer fab capacity expansion to support expected future WiFi and network infrastructure revenue ramps.

During the March quarter we reported net sales of 237,000 and used approximately 7.5 million in cash including 2.7 million of CapEx primarily focused on capacity expansion in our New York wafer fab. We ended the quarter with approximately 34.6 million of cash on the balance sheet.

While we have not previously provided guidance we would like to provide a revenue range of 500,000 to 600,000 for the June quarter given our current visibility. We believe the packaging challenges that pushed out shipments are now behind us.

We are confident with our growing product portfolio as highlighted by our most recent press releases and our mid to long-term outlook remains unchanged.

As we discussed in our previous conference calls in order to support other current engagements and emerging sales opportunities, we plan to increase manufacturing capacity by up to fivefold over the next 18 months.

In conclusion we are working diligently to achieve our stated objective and we expect to update you on our execution against our objectives each quarter going forward. I would like to thank all of you who have joined us on the call today. This month marks the five year anniversary of the founding of Akoustis.

We have built the company on four solid pillars including strong management, patented XBAW technology, large and growing markets with limited historical competition in the higher bands, and our qualified wafer manufacturing operations which is expanding to address high growth opportunities in our target end markets.

Now we are positioned favorably to penetrate the WiFi market with the world's first tandem 5.2 and 5.6 GHz high band micro filter chipset. Beyond we have 5G engagements in network infrastructure and mobile handsets with global market leaders providing our company with the tremendous growth opportunities in high performance coexistent BAW RF filters.

We recorded our first filter revenue during the most recent September quarter and now expect to continue delivering market leading products to our current and potential customers as we continue through calendar year 2019 and beyond.

Before ending my remarks I would like to take a moment to thank our employees for their hard work and commitment to our mission and to our investors who have continued to support the company. And with that I would like to open the call for questions from the investment community. Operator please go ahead with the first question. .

Thank you. Our first question is from the line of Cody Acree with Loop Capital. Please proceed with your question. .

Thanks guys for taking my question and congrats on the progress. For the -- I guess as far as progress latest surprise being the mobile handset order, the firm has been largely focused through 2018 on WiFi obviously.

How did the WiFi for the cellular progression come to bear and then is this really a splitting of your focus and do you have the current bandwidth to manage both tracks?.

Hey Cody, thank you for the question and this is Jeff Shealy. Regarding the mobile handset, in the past we've stated that the designs we've been doing in these very high frequencies we've had a significant amount of interest across the Board from multiple markets in these designs.

In terms of how this led up we have sampled and have been vocal about sampling to a broad range of markets for our 5 GHz high frequency product. In terms of so how this came about was through sampling of current products.

We have stated in the past that we expected -- how we expected mobile to play out was we're going to have to continue to expand capacity which we're already doing for the WiFi and infrastructure markets and we expected a relationship to have to develop in order for us to get into the handset market.

So I would view this as really technical due diligence by potential mobile handset partner. And then leading up to a potential relationship with that partner to pursue the mobile market. So no change in strategy. We've been very bullish on WiFi.

I think the announcements that we've made and the execution over through the March quarter and what we've announced publicly since are evidence of that. We shift all of the orders that we had open for the 5.2. We stated that publicly and we made really nice announcement on the 5.6. So that's in terms of split of resources.

I don't view this as a dilution of resources for the 5.6. I would actually argue that we're on track on the 5.6 where we plan to be. And we also delivered on the infrastructure, we delivered a CBRS solution into the market.

We did not even put into the model so I think we've executed on the developments and this engagement has been in the making for some time and materialized into an order. I will let Dave add anything further to that. .

Hey Cody, it is Dave. I do not have a lot more to add other than I guess re-emphasize that the technology efforts here were non-dilutive in some respects that we are utilizing the core resonator technology, XBAW technology up at 5 GHz to do the due diligence with the end customer.

And I think what Jeff commented on is that market is more strategic longer term for us and we've got to be engaging now but without obviously distracting from the focus on the WiFi and upcoming 5G infrastructure as well.

I think the main thing that you're seeing in the 5G handset market is that products are coming out as far as requiring high performance sub 6 GHz co-exist filters really won't I think be utilized in the market until 2020-2021 and that's what we're focused on..

And then just as a follow-up to the capacity you mentioned Jeff the expansion of New York fab.

Where is your capacity footprint today? Are you still running a single shift? If so, when do you expect you need to be bringing on a second shift or is it more about tool purchases? And then lastly along that line maybe for Ken as you add a second shift or more equipment what does that do to your operating or your CapEx budgets going forward?.

Ken, so I'll address the first part of that Cody. Again this is Jeff, in terms of capacity it is still a single shift. As we've also stated publicly on some long lead CapEx items we've already ordered those. So there is tooling orders in progress. And so those tools will come in over the course of this year.

In terms of -- so we're currently running a single shift. As I mentioned that we're in a transition point from tens of millions of filters a year to hundreds of millions of filters a year. We've stated that publicly and in terms of the Opex I will hand it over to Ken. .

Hey Cody, this is Ken Boller. Just to follow-up on --, so the headcount adds we’re going to time with our revenue growth projection. However, I would like to add to that similar to the CapEx run rate there is a three or four month run rate for headcount where we have to train our employees before we actually see that capacity come on board.

So we are certainly going to time any increase in headcount to also increases in revenue which therefore also has a marginal decrease in our operating cash flow spend. So the operating cash flow spend we certainly are managing being good stewards of our cash.

And we are holding our operating cash flow spend relatively constant from what we're seeing currently which if you look at the average there is some quarter-to-quarter variations depending on onetime items of cash. But on average it's been about a $4.4 million to $4.5 million operating cash flow spend.

And we hope to hold through that relative level with some small increases over the next time period and until we see that revenue need grow we’ll add headcount [indiscernible] [ph] CapEx accordingly. .

Great, thank you guys. .

The next question comes from the line of Anthony Stoss from Craig-Hallum. Please proceed with your question. .

Good morning Jeff and crew. Congrats on the announcements last week on the 5.6 in the Tier 1.

Jeff can you help us a little more on the Tier 1 announcement, is that just one frequency band or could there be more than one frequency band? Also longer term what kind of quantities do you expect this customer to potentially need? Then the second part of the question is on the $6 million in CapEx plan for this year, how much of that would go for wafer little packaging and have any of your potential customers approached you for guaranteed quantities and are paying for that CapEx? And I have a follow-up after that..

Okay, good morning Tony. I'm going to attempt to address all of everything you said. If I miss some please follow-up. In terms of the Tier 1 customer I want to be explicitly clear they're using our standard, what we call XB1 which is our first generation XBAW process. So it is our standard process.

In terms of what we've been contracted for was a development of -- it was one filter band in terms of while there's been some discussions regarding potential quantities we're not going to go on record with those quantities until we get more firm -- any firm forecast going forward.

You can imagine for that market the quantities would be consistent with what you would expect for that market. But right now the discussion has been really around I would characterize the development as a -- number one, as we have said a sub 6 GHz coexistence filter.

It is -- I would also add that I would also view this as the customer taking us for a test drive and doing technical due diligence on the technology as well as our ability to meet their specification.

And as also what I’ll reiterate there is what I mentioned in the prepared comments was we're expecting to deliver the first filters for this customer against that order this quarter. So I want to leave that there.

In terms of WLP we have -- the way we're looking at CapEx for the company is where do we add value and where we believe our value add is in the XBAW core resonator and filter process. We're looking at WLP as I did mention before through a third party Asia packaging house that has standard MEMS based WLP processes.

And quite frankly we're evaluating that and we're also looking at a combination with that partner where we do a portion of it -- a portion of the process before sending it to them. There's reasons -- technical reasons why we do that. So in terms of the WLP we will try to stay as asset light as we can on that process.

If we have the opportunity to outsource that we will. And I would say the bulk majority of the CapEx we've given no breakout but again the management mentality is we're going to add, we're going to invest that CapEx where we value add which is going to be really at the core resonator filter wafer process. In terms of and I think that's all I have.

And you're welcome to follow up. I'm sorry if I've missed something. .

Just on whether or not you've had any interested customers willing to do I guess pay for guaranteed production or their own production line and then my last question would be in your Tier 1 press release from last week you talked about talking with several handset makers, when will you be sampling to those other handset makers?.

Well we're going through -- okay, in terms of customers which are paying for production capacity I think was one aspect of your question. We have not announced anything there. I think there's a process which you can appreciate we would go through in an engagement of a partner.

As I have stated publicly in the past we have been asked to model our factory for what capacity limits our facility in New York would be able to produce and we have -- and we've been public with those estimates and I'll be happy to reiterate those or point you to where we publish those.

So nothing that we were saying publicly regarding customer pay for production capacity there. Whenever you're talking about mobile capacity it is always a subject and we've also been quite forthcoming where we're investing in capacity and where we think that takes us and where we believe a partner would need to engage us to step in.

So in terms of -- so that's -- did I answer your question there. I think you had one other piece there which I didn’t catch. Please go ahead with the other piece. .

Just regarding the comment in the press release, other handset maker you are engage with when will you be sampling?.

So we have -- we've been doing technical due diligence. We have announced previously four customer engagements in the mobile space. So I think it would be natural to draw from that that we've already been sampling. We continue to sample I think with the 5.6.

We're extremely excited about that product and because of its ultra wide bandwidth at very high frequency, that is very difficult to obtain. And we believe we are first in that market so we will continue to expand sampling where it makes sense and Dave if you have got anything you want to add to that, I think about samples. .

Yeah, I think the other thing I will comment on Anthony is that lot of our previous customer engaged with sampling were in the 5 GHz demonstrating the technology above 3 GHz so sampling the 5.2 and now the 5.6.

In addition too we commented that we will be sampling a WLP version of the 5.2 which is shown in the form factor reduction which is critical for the handset market. So that's a technical milestone that they've been driving us to hit.

So that milestone we expect to get complete and then what you can see obviously is focusing on some of the other difficult 5G spectrum that has coexist requirement above 3 GHz and that's an area that we're focused on as well..

Thanks. Congrats on the progress guys..

The next question is from the line of Harsh Kumar with Piper Jaffray. Please proceed with your question..

Yeah, hey guys. You had a lot of stuff, exciting stuff going on last week Jeff and team.

I just wanted to ask about the 5.6, the significance of getting that out in your opinion towards the future of the company, how important is this for your second half end numbers and financials and where are you exactly do you think relative to your long-term goals, call it mid-term goals for the back half of this year, getting this out and getting to the next stage with this particular product?.

Okay, good morning Harsh and thank you for the question on 5.6.

In terms of the significance of getting this out what we stated previously is that the 5.2 was already a preproduction that's we -- and I just want to recap for everybody we've talked about being moving from sampling to pre-production to production, that is it is the sales cycle for our company.

Just to kind of recap where we were a quarter ago we had announced a sampling of a first iteration of our 5.6 and we had announced a shipment of preproduction units of the 5.2. So the significance of the 5.6 order last week is really it marks two things.

We describe in the release a second iteration design which is higher performance, smaller form factor, and uses the same supply chain and exact packaged footprint as a 5.2. So that makes some things easy on our supply chain.

So the significance is we have now moved from sampling to pre-production of the 5.6 and that matches the preproduction of the 5.2. And so we have now positioned ourselves to be able to supply both those parts in tandem to the market. And if you look at how important for the second half as we will reiterate once again is WiFi is where we're focused.

We think we're first into this market.

We think having both those parts in pre-production is going to allow us to accelerate our penetration into the WiFi and in terms of changing of mid-term or long-term goals we don't see any change to -- we don't see anything in the market that makes us think that our strategy or our goals mid-term or long-term are going to slip with respect to the WiFi because ultimately we targeted having a 5.6 ready to go by the end of Q2.

So the 5.6 that came on we put a significant amount of emphasis on getting that put into place and we feel we're on track with the 5.6 having that available with the 5.2 and I would like Dave to just comment on in terms of how he sees the customer engagements there moving with the WiFi now..

Yeah, hi Harsh. So, couple of comments I'll make. The adoption [ph] rate of the 5.2 by itself and I think we have highlighted that on the past. Almost every client that I talk to they want to tandem and the news of the recent data I have been sharing has been well received.

The advancements that we have highlighted from first generation to second generation and planning to lock down by the end of this quarter will accelerate the adoption rate and I think our midterm goal is to highlight second half of this year.

I think we're positive on seeing the increase in design activity both with the SoC providers and also with the OEM's. So as you can imagine we're going to be doing everything that we can to support that adoption rate with pre-production parts and hopefully ramping production in the second half of the year.

The other thing I will highlight is longer-term this development of 5.6 in the wider band design showed some significant technical milestones to our client base that are looking at the new 5 GHz and 6 GHz spectrum which they're starting to work on chipset and that is even more difficult from a coexist filtering requirement and we think that the competitive technology out there LTE and the RF filters will struggle.

So obviously our advances on 5.6 shows that we can do this and increase the bandwidth of the filter, the BAW filters. So we're looking forward to that long-term as well..

Got it, thanks. Thanks guys.

And then my second question was a more general question, in your view do you guys know this market better than most of us analysts, in your opinion how much -- how long of a lead do you have technologically and do -- just kind of in the hunt for greater than 3 GHz filters?.

Okay, so Harsh this is Jeff. Regarding in terms of lead, most companies don’t publish their technology roadmap and so I think it wouldn’t be appropriate for us to speculate that.

What I'd like to really comment on there is at this point in the customer accounts we're not seeing any competition at all for 5.6 and also 5.2 in terms of product available to the customer. I think we are -- our intelligence is pretty good there.

Regarding -- so in terms of what technology lead, it is -- I'm not going to speculate just because it is not appropriate for us to comment on other companies.

In terms of other companies that would be pursuing greater than 3 GHz, I would say this more speculative but I would expect that the two incumbents in the LTE market for BAW are certainly going to do everything they can to push their technology above 3 GHz and I would expect those efforts are on goal.

So in terms of new interests beyond that I'm just not going to comment on who may be doing R&D in the background. Certainly there is other public announcements. I'm going to focus my comments on where our company is, our technology, what we've demonstrated, where our products are, and how our engagements are looking.

So I am just going to stay off of what other companies are doing is I think the best position for us to take..

Fair enough, thanks guys. Congratulations on institution [ph]. .

Thank you Harsh.

The next question is from the line of Suji Desilva with ROTH Capital. Please proceed with your question..

Hi Jeff, Dave, congratulations on the progress here.

Maybe following up on the WiFi questions for the pipeline customers in WiFi that are, what's the ratio there moving forward to 5.2 GHz versus waiting, the ones that waited for the tandem, what's your sense there and towards the end of 2019 how many WiFi customers do you think could be ramping you know range wise just to get a sense of what your expectation is?.

Good morning Suji, I will let Dave address that and I will follow-up with anything. .

Just so Suji the clients that we've been engaging with are -- I think we've talked about this in the past, this is the chipset providers and then enterprise and the retail clients. We also have some adoption outside and other affectations that are not tried in related that use the unlicensed spectrum.

So the adoption rate on the 5.2 is less than 20% by itself. And it's something that I think we've commented on in the past. And obviously you have to get those to transition into a design win and into a product. So we have some line of sight of several activities going in that direction.

And then with the -- having the tandem part that definitely is going to increase significantly as part of the number of vendors that are interested in obviously utilizing this have tried to end up in occasions.

I think right now we've got greater than 20 customers that we have been sampling to so you can estimate that if you can increase that to a percentage above that 20% -- obviously the number of clients are going to increase significantly. So as far as estimates right now we can give guidance in next calls as to what that adoption rate looks like.

We have success with the 5.2 and 5.6 tandem in the market. .

Fair enough. .

And Suji this is Jeff. I will just follow-up, just to reiterate what we have said in the prepared comments which was we expect to deliver a fully qualifiable 5.6 WiFi filters by the end of the quarter and also ship our first preproduction order for 5.6.

So I would say the interest -- there's new interest, there is existing interest, and it is significantly larger end solution than it is out in the market which also generates interest from other companies whether it be in the handset or other that's looking for wideband filter technology.

We've got a product they can sample and evaluate the technology.

So I think the answer is it is not only a WiFi and we're going to continue focusing our efforts I think, Dave quoted a number of engagements that is growing but also see some of this bleeding over into some of these other markets of interest because of the wide bandwidth nature of the filter. .

Okay, great, helpful color Jeff.

And then on the switching over to the infrastructure side for 5G in particular in the base station market, is it just one customer that you're engaged with for now or is there a pipeline you have multiple customers, multiple Tier 1 you might be engaged with through your pipeline or is there one you're focusing on for right now?.

So Suji, it is Dave. We have got I think publicly we have stated we have got three customers on the infrastructure side that we've engaged with and one of them is on the 4G LTE and then the other two are in the 5G spectrum. So we're more focused on the 5G from an infrastructure standpoint both in the small cell and MIMO.

I think we have got an unique opportunity ahead of us right now in the 5G small cell right now particularly with the 5G rollout and looking at the spectrum there depending on which network provider you look at in China with 2.6, 3.5, and 4.9.

All these slots are looking for small form factor high performance coexist filters that can handle the higher power for small cell. And particularly if you look at the 4.9 spectrum that lines right up with the work that we've done a 5.2.

So there is a huge pull in that market over there and that obviously is going to be with Tier 1 providers focused on that market segment. So, I think the opportunity ahead of us is in some respects Greenfield because there's not much competitive technology out there that's going to meet the performance.

And then on the massive MIMO it is pushing the technology to handle higher power which again is a very unique position for us. So we are going to continue to stay engaged with the one Tier 1 guy that we've announced in the past and as we have success there expect that to expand with others..

Okay, thanks guys..

Thanks Suji..

The next question is from the line of Jaeson Schmidt with Lake Street Capital. Please proceed with your question. .

Hey guys, thanks for taking my questions.

I know Jeff you've outlined sort of the sampling preproduction production timeline but just wondering if you've seen that timeline condense at all over the past few months here?.

Good morning Jaeson. In terms of the timeline condensing I don't view it as anything condensing.

I guess I would -- what I would state is that -- what I believe is that Dave and team have done a really fantastic job on the WiFi front of doing everything we can with what we had in the 5.2 with customers being in a position to where we hit the ground running with a 5.6.

But in terms of anything condensing, any poll in we're not providing comments to that extent. What we have done is the fact that we have been able to provide customers the mechanical footprints so they can accelerate their valuation of the 5.6. And we think that's going to help us overall.

Right now we're focused on getting the 5.2 and the 5.6 samples to the market together and we're very comfortable with where we are in that. And we'll continue updating as we go forward here. We've got some very important milestones for this quarter with the 5.6 which I've mentioned previously..

And Jaeson just to add on what Jeff said about mechanical footprints, some of the customers we've actually given the layout of the 5.6 to them and they have laid out on the Board so that when we do have the parts available they can drop it in.

So, there may be an interest on their side without knowing their product development cycle of trying to accelerate. There is a strong interest in these smaller form factors BAW filters for the new 802.11ax chipsets when they're going to the 4x4 away from the 2x2 and the 802.11ax.

And there is even some architectures that I have seen on the 8x8 as well so, a strong desire and interest for the smaller form factor but also in the performance and the robustness reminiscent of the assembly in the semiconductor side.

So, we can't really comment on their accelerating their product development cycle but I can tell you there is a strong interest..

Okay, and then lastly did I hear correctly that you indicated OPEX should remain relatively stable as this criteria is going forward?.

Correct Jaeson. Operating cash flow and OPEX should remain relatively stable but as we see the revenue come on board, the operating cash burn come down to certain extent. With the recognition that we have to hire certain people three or four months before actually developing certain chipset [ph]..

Okay, thanks a lot. [Multiple Speaker].

Thank you. Our next question is from the line of Rick Schafer with Oppenheimer. Please proceed with your question. .

Hi, good morning. This is Wayne Mark [ph] speaking on behalf of Rick Schafer. Congrats on the mobile handset. So in prior calls you guys have indicated engagements with multiple handset OEMs, and mentioned the potential win for second half of this year.

So the timing of this announcement comes a bit as a surprise so is this customer the same that you've expected to win before the year-end and if so can you tell us what the customer thought in your filters that you allowed you guys to secure this win earlier than expected?.

Yeah, hi good morning Wayne, this is Jeff. In terms of mobile customer we previously stated we had four engagements.

This would be -- this would represent a customer we've previously sampled but has identified a specific opportunity and so we have had other customers that have taken product on technical due diligence and we believe have satisfied their technical due diligence.

Oftentimes it can go beyond technical due diligence in terms of boxes they need to check before they engage but the technical detail is obviously a key one. So, this customer would represent the first quarter from this customer and from that that vantage point there are new customer. Dave, anything you want to add to that. .

No, I think the way this -- the guidance that we've given in the past is focusing on aligning with one of the four with specific products towards the end of this year. But this one did come in as a new opportunity and it's something that again is leveraging the technology that we've developed for the WiFi market.

So, it is a technical due diligence is just highlighted. That could expand and fully expect expand because again the lack of high performance BAW technology about 3 GHz is obviously enabling us to engage with these other clients. And then we just have to align our technology with their specific specifications and needs..

Okay, great. So, for my follow up can we revisit the New York facility with the recent design wins in WiFi and mobile. How does this affect your revenue capacity at the New York facility and what will it be at the end of the year? Thanks..

So I'll start, I'll see if Ken wants to add anything. From what we said and what we said in the prepared comments, what we've been saying all along is we've been on a -- we've been operating to a plan of increasing capacity from tens of millions of filters a year to hundreds of millions of filters per year.

So in terms of any one event how that impacts it, we can't instantaneously add capacity. That takes 9 to 12 months and it can put some color on what we have to do in terms of the hiring assist and that sort of thing a quarter ahead. So there's no there's no change in the strategy.

We've been ordering capacity, we've been ordering long lead items to add to that capacity and those items are coming in. What would potentially change with an agreement on mobile front is we would have to expand capacity more rapidly.

We've not announced anything there and we will not announce anything there until such time we're announcing an engagement and that's -- that would be -- that's premature to insinuate anything as imminent. But in terms of capacity or in the New York, do you want to add to that Ken. .

I will just reiterate what we stated in our last call in relation to the timing to get to the hundreds of millions of filters. We had stated that it will take approximately $20 million and over 18 to 24 months.

We're still going through that model that we do plan on increasing from the tens of millions to hundreds of millions and that is two years and the time will be accordingly to when the lead time of that equipment is..

Thanks guys, it is great, thanks. .

Thank you. I will turn the floor back to management for closing remarks. .

Okay. Thank you all for your time today. We are progressing towards the objectives we have announced for the June quarter and we plan to update you on further progress as the quarter moves forward. We look forward to speaking with you during our next quarter update to discuss the current quarter execution against our models and future expectations.

With that we would like to close the call. .

Thank you. Today's conference has concluded. You may disconnect your lines at this time. Thank you for your participation..