CEVA Inc (CEVA) 2003 Q1 法說會逐字稿

Thank you for standing by and welcome to the ParthusCeva First Quarter Results Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation, followed by a question and answer session, at which time if you wish to ask a question, you will need to press star, one, on your telephone. I must advise you this conference is being recorded today, Tuesday the 29th of April 2003. I would now like to hand you over to the conference. Please go ahead Mr. Nolan.

(Technical Difficulties) introductory remarks. Secondly, Brian Long, our Chief Executive will talk about some of the highlights in the quarters, in particular, our business wins and new technologies and finally Elaine will wrap up with an overview of Q-1 financials and conclude with outlook before we commence the Q&A.

Before I start, I need to say that various statements in this conference call concerning ParthusCeva's future expectations, plans and prospects are forward-looking statements, which are subject to certain risks and uncertainties that could cause actual results to differ materially from those stated. Any statements that are not statement of historical facts, including without limitation, statements the effect that the company or its management believes, expects, anticipates, plans and similar expressions should be considered forward-looking statements.

These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described, including that the industry in which (inaudible) our technology are experiencing a challenging period of slow growth that has negatively impacted and could continue to negatively impact on our business and operating results, that the markets in which we operate are highly competitive and as a result we could experience a loss of sales, lower prices and lower revenues, that our operating results fluctuates from quarter to quarter due to a variety of factors including our (inaudible) sales cycle and are not a meaningful indicator of future performance and not be relied significantly on. The revenue derived from a number of limited licenses and other risks discussed in management's discussion and analysis of financial conditions and results of operation--f actors that could affect our operating results are in our annual report of form 10-K for the year 2002, which is on file with the US Securities and Exchange Commission. With that, I'd like to hand over the conference call to Elli.

Thank you Barry and thank you all for joining us today. As I am traveling, I'm calling from my cell phone. I apologize if you'll have any disturbances in hearing me. Brian and Elaine will shortly discuss our results of the first quarter of '03 and the projections for the second quarter and the rest of 2003. I would like in my short introduction, to re-emphasize the importance of the move announced by (inaudible) a few weeks ago. Regarding the relocation of our management functions in the US.

The United States represents the largest markets for ParthusCeva. (Technical Difficulties) -- the majority of our shareholders. I believe that the move announced by us will strengthen our presence in the US markets, which will continue to be very critical for the company's success in the future. It does not mean at all, that we plan to neglect in any way, Europe or South East Asia where we already are very strong with R&D activity, sales and marketing and support functions in Ireland, in the UK, in Israel, Japan and in France.

This move was suggested to the Board by Brian and myself and was unanimously approved and by this, the company will enter into a new phase which I believe will improve our chances to meet our goals and grow the company on a profitable basis. With that, I'll hand it over to Brian.

Thank you Eli. Over the next few minutes, I'd like to comment on (technical difficulties) market environments and our competitive position, discuss some of the highlights from our Q-1 performance, and finally talk about our new product strategy guiding our future growth.

While the overall sense of the industry positions remain weak, we have seen some improvements in short-term visibility, which gives us confidence as we enter Q-2. Despite this improvement however, we continue to prudently manage the business on the base of the weak (Inaudible) market system. Industry growth forecasts for some of our key technologies however, in particular our DSP Cores, our GPS and our (inaudible) remains strong and our market share leadership should allow us to benefit greatly from this anticipated industry growth.

Overall, emerging from this (inaudible) industry down turn, we believe ParthusCeva will be in a very strong competitive position in our key DSP technology markets with an enhanced market share as industry consolidation continues. I'll just take us a few moments to comment on some of the highlights from our Q1 performance. Against the backdrop of the continued weakness in the market and following a difficult licensing environment in Q4, I'm very pleased that ParthusCeva has returned to operating profitability on a pro forma basis this quarter, primarily resulting from strong licensing performance and the full impact of the cost setting program we introduced last November. We had robust sales activities in the quarter, with strong growth recovery in licensing revenues in particular; revenues up 66% sequentially.

In the quarter we find six new licensees spanning our DSP, our GPS and our wireless LAN technology through a mix of new and existing ParthusCeva customers. We successfully closed one of the two multimillion dollar deals that we previously announced at fiscal Q4 and our remaining deal expects to close in the near future. Of particular note in the quarter, we were very pleased to find a leading US cellular customer to our DSP (ph.) (inaudible) architecture. This company chose to license to ParthusCeva architecture because it enables them to design their own differentiated silicon products, optimized to their specification rather than relying on conventional off the shelf devises which is designed for generic wireless applications. Additionally this license approach provided them with the advantage of access to low cost silicon sound remodels for manufacture.

Our NAP and GPS technology also continued to perform strongly. In the quarter, as well as extending our defense contract with the US Department of Defense, we closed a major Asian cellular customer through the integrated GPS for the cell phone market. This customer was a previous licensee of DSP Cedar. So overall in Q1, it was a good quarter showing strong growth in the business where we signed some additional key strategic customers and licensed across the full portfolio of our technology. With deals already closed in April and a strong sales pipeline going into the quarter, we expect to maintain this momentum into Q2.

Finally, let me talk for a few moments about our new product announcement in the quarter and our new product strategy going forward. Underpinning our sales pipeline is a number of new technology introductions during Q1. Firstly, we announced our new 802.11 products offering as part of a strategic alliance with Interstill, the market leaders in wireless LAN.

This agreement gives us exclusive access to their technology for licensing comps growth 802.11 marketplace. Our solution, which is proven in Silicon and tested in the field, covers all of the 802.11 AB&G standards, and also uniquely includes a range of radio front ends, reference designs and standards to support our customers. We have had an excellent customer reaction to this product and have built a strong sales pipelines with initial deals expected to close in the coming weeks.

In the quarter we also launched a major upgrade through our PLL online compiler technology, PLL expert. This is a very unique technology enabling us to leverage and license analog technology into the intellectual property model. We expect PLL experts to deliver between 5% and 8% of total licensing revenues in 2003. Now looking forward to some of our new product strategy in attempting to exploit our position as the leading licensor of DSP technology to platform level IP's in three key ways.

Firstly, we continue to develop and release new generations of high performance DSP cores and support tools.

Second, we continue to focus on building platform level IP around cluster core for wireless and wire line applications.

And thirdly, we continue to build the community of Parthus to enhance our DSP architecture franchise and maintain our leadership position in the industry.

Let me deal with each of these three in turn, firstly starting with our DSP developments.

In the second half of this year, we will be releasing our latest generation DSP architecture the Cedar to early software customers. We are getting excellent customer reaction to Cedar, attracted by its ability to deliver a highly scalable and extendable DSP architecture. R & D product development remains on schedule.

The second element of our strategy exploits our unique capabilities to offer integrated application solutions built around DSP cluster cores. Today, you'll have seen we have launched the first of these integrated application solutions, targeting the high growth digital audio market and built around our Xpert Teak DSP core. This product includes application such as voice coding, polytonic (ph) ring tone, CD (ph.) surround, an audio effect for portal consumer devices. The next leap for this product, targeted for later this year, will include video processing capability.

And finally the third element to our strategy is our partnership program, which is essential to establishing our architecture as the de facto industry standard for licensable DSP cores.

During the quarter, we announced with ARM Holding the development of architecture standard for hybrid DSP plus (ph.) risk system chips. This initiative builds on our area work with ARM on a common development tools environment also included in today's product announcements. These two initiatives will enable our customers to combine (inaudible) with DSP cores and ARM risk cores, the two leading licensed cores in the industry in multicore silicone chips, significantly reducing the development complexity, time and cost of such system or chip design.

In the quarter, we also announced our partnership deals, showing growing third part support for our architecture. IDM, the leading ASICS supplier in the industry announced that they have adopted our Cedar into their IP foundry program. Omphis (ph) a 2.5 TG portable (inaudible) supplier to the cell phone market announced that they will portal their stacks, through ParthusCeva DSP architecture. Such partnership agreements are key in enhancing ParthusCeva architectural franchise. With that I will now hand over to Elaine Coughlan - who will review financial performance.

Thank you Brian. Good morning and good afternoon to everybody, thanks for joining us on our conference call. I would like to discuss the results for Q1 and the outlook for Q2 and the full year 2003. So firstly, I will review in a little more detail the Q1 performance.

As Brian said, we saw much better licensing performance and interest rate of activity across all of our product lines in Q1 but are particular in our DSP core of business. And really with this combines with a tight cost control that has resulted in a return kick off of the business in the quarter on the pro forma basis. I think the licensing performance is particularly encouraging as licensing is the growth driver for our business and also Q1 is specifically the most seasonally weak quarter of the year.

Total revenue for the first quarter have been to a $8.8m which is up sequentially 56% from Q4. Licensing and royalty revenues were $6.9m or, 79% of total revenue with six new deals signed in the quarter.

Other revenues, consisting of hard IP and design services remains relatively constant sequentially. Repeat business continues to show the pension that's inherent in our model with the 75% of the revenues within the quarter coming from existing customers.

Looking at royalties, you know, royalties have paid one quarter in arrears, so for Q1 we reported the Q4 '02 shipments of our customer. We had 19 per unit royalty customers shipping products in Q4 as what we've reported obviously in the Q1 number. Thus an increase from the 15 the previous quarter four new products started shipping and although volumes are small at this point in time they're heading in the right direction.

Royalties amounted to a little over $600,000, which was down by 10% on the $673,000 reported in Q4. Royalties were principally impacted by the reduced 2G shipments, by one customer in particular who is currently moving to shipping and paying royalties on 2.5G, as shipments. So, there is however a time delay obviously because the wind down in 2G shipments and the commencement on the ramp up of their 2.5G royalties. Now this particular customer historically pay for a low royalty rate, so there is obviously is smaller than anticipated impact on our reported royalty amount.

Total product shipped in the quarter amounted to 8m units which is a decrease in the 13m units shipped in Q3. And this did decrease principally accounted for buy that 2G product shipped. We do expect volume to pick up as the 2.5G products begin to ramp, and we have a further seven licensees in prepaid shipment volumes and we expect at least one of the seven to contribute to revenues in the next quarter or two.

One customer moved from prepaid to per units royalties in the quarter and in addition we're aware of the successful new products by two customers as of last quarter--one for DVD server and the other cellular shipments and these have not yet commenced royalty payments but we expect to see that in the next quarter.

Gross margins in the first quarter were 81% as the better licensing performance obviously in Q1 as increased growth margins of 78% in Q4. And we've seen a full quarter benefit from the new structuring that we implemented late in Q4 and we continue to manage cost progressively. As a result I think the significant amount of risk has been taken out of our business model, with the break-even point now lower to $8.5m approximately on a quarterly base.

Pro forma operating expenses for the first quarter was $6.9m compared with $8.4m in Q4. That's an 18% decrease sequentially and a 39% decrease in the cost pay base that was in place at the time the merger was completed. So pro forma operating profit amounted to $346,000, resulting in earnings per share of two cents per share. After the cost associated with the restructuring and reorganization the net loss amounted to $1.3m for Q1 on a full GAAP basis, compared with a net loss of $24m in the fourth quarter 2002 and net loss per share on a full U.S GAAP basis amounted to seven cents per share.

Looking now at the balance sheet and head count. Cash on hand at the end of the quarter was $68.5m. Cash out flow from operations in the quarter amounted to $1.8m. The Q1 operating cash performance was very much impacted by the timing of signing of new business in the quarter which was a (inaudible). So despite signing an increased amount of business it didn't have a significant impact on cash generated within the quarter, where we obviously take that forward into Q2.

As guided on our last conference call we anticipate the cash outflow in Q1 of approximately 4m associated with the merger cost in the tail end of the Q4 restructuring and substantially all of these were paid in the quarter. And head count at quarter end amounted to 237 globally which is slightly down sequentially but largely went unchanged.

Looking forward now to quarter two as the increased activity level in Q1 means that we've started the second quarter well and we have a number of deals in progress at an advanced stage and we've also signed a number of deals already in the fourth week of the quarter so some short term visibility is very good.

We anticipate thus the second quarter 2003 revenues will be between $8.5m and $9.5m, with growth margins in the region of 81% to 83%.

We estimate that operating expenses for the fourth quarter on the full U.S. GAAP basis and including amortization of intangibles will be between approximately $7.3m and $7.8m.

I'm looking now at the full year 2003 guidance. As I said, short term visibility has improved and it's good, however, longer term we've not yet seen, I think as visible evidence of the sustained semiconductor recovery. So I think we remain vigilant on costs and on outlook, but we still anticipate the 2003 revenues will be within - in the range of guidance previously issued and we expect that to be at the lower end of that guidance, which is $40m, with gross margins in the region of 81% to 83%.

And again as previously guided, we estimate that operating expenses for 2003 on the U.S GAAP basis including amortization of intangibles, will be between approximately $29m and $31m. Included those numbers is obviously that amortization of intangibles, which is $1.2m. And this would result of net operating margins of approximately 5% to 10%. We'd expect the business to be cash flow positive at the operating line, obviously within these parameters. And with that I'd like to hand back to Brian to wrap up and to open for any questions that you may have.

Thank you Elaine, Phillip just summarize very briefly, I think Q1 was a strong quarter for the company, with good licensing growth and more importantly, improved visibility of Q2. (inaudible) from new products innovation plans this year and the benefits of a lower cost safe, we believe we are well on target to deliver customers growth in 2003. With that I'd like to open for q and a.

Thank you, we will now begin the question and answer session. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. Your first, question comes from Matt Robison, please go ahead Mr. Robison.

First of all congratulations on what some may view as a stark comparison to three months ago. I've got a few questions, a couple on the pipeline and industry dynamics. And then-I want to finish with a balance sheet question. First of the 16 licensees, how many involved expert solutions or combinations of the platform and core?

Okay, I think.

One deal is that actually, one of the deals that we closed Matt, is actually the first time that we've executed a follow-on deal from a core deal. So, they were originally a core licensees, which I think we signed in Q3 and we've now licensed them and GPS 2 put on top that DSP core.

Okay and can you comment on deal size and the direction of the - in your pipeline in terms of technology and applications? Also whether you've seen changes in the flavor of demand that might have resulted from private company attrition or incumbent -- incumbent competitive vulnerability?

Well, one of the changes we've seen is the emergence of single use licenses for some of the DSP cores. I think we mentioned that on the previous call, that the larger multi-used license deals, which were multimillion dollar deals, have to some extent, been replaced by single use license deals. And that's kind of the phenomena that you're seeing with ARM in marketplace.

Looking at the competition at Matt, we've certainly seen as you know Phillips take back in both Itope(ph.), Adolante (ph) and TriMedia (ph.). So that certainly has reduced some of the competitive threat. Although I think really, we would up --- certainly in this quarter, have felt that we were seeing less competition I guess and than previously, but we do have market share in the region of 70%, whereas someone like Adolante is probably at the level of 5% to 10%. So and we certainly did see that during the quarter and we remain focused on increasing market share and being the leading licenser of DSP and Platforms to the industry albeit at the moment the industry is obviously still having a tough time with it.

Are you seeing a shift from merchant semiconductor ship suppliers towards licensing deals with companies becoming perhaps captively (ph) oriented in their designs?

Yes we're seeing an increase in the number of non-semiconductor customers, OEM customers and we did claim one big win this quarter, which was to non-semiconductor electric company and that trend is taking up a little bit of quarter on quarter.

Lastly on the balance sheet, can you comment on the increase in property, plant and equipment. Also the combination of accounts payable and accrued liabilities was - if you combine the two of those - pretty flat sequentially, which seems a little at odds with -- your mention of having paid down some of your accruals for the merger expenses?

That's right Matt and basically what we did in Q1, we took the opportunity to consolidate all our cash and tooling requirements with one of the EDA companies. And we had previously had a mix model and in one company we were on a rental basis, where we went to the software and the other company we bought the software and it was that cap tooling of a long-term nature, tools that, you know we would use constantly for say, the DSP Cores.

So we were able to consolidate a move to a purchase model, where we would purchase the software, but it has had no - - we maintained the existing cash flow, so what you see is successes going up and accruals is going up, which is what is masking accruals going down. If we hadn't done the (inaudible) you would actually see accruals going down because of the restructuring occurring in the quarter.

So that field was an opportunity to get a much better commercial deal which the EDA companies who were offering very good opportunities for companies like ourselves at the moment. And at the same time, I think we got a slightly better deal from a P&L point of view, but nothing of significant in terms of overall numbers.

Lastly, I couldn't keep up with your comps (ph.), your two new royalty apps, you mentioned a servo (ph.), application and one other, was that like a disk drive type of an application?

One is actually a DVD servo - - up - - -product that customer started shipping, and the other one is actually cellular, just an ordinary modem chip set.

Okay, thank you very much.

Thank you. Your next question comes from Barry Dixon, please go-ahead sir.

Good afternoon. Couple of questions. Elaine, on the royalty revenue on the 8m units, can you give split, as to what those units were or at least the kind - - the kind of application might be that's involved Bluetooth or Media Stream?

I still think I wouldn't get into maybe those specific percentages, but I'll give you a flavor for what is there. And on the platform side, there's approximately five customers with platform type applications, so that's a combination of Bluetooth, Mediastream, Infostream and some of the MP3 products as well, shipping. And obviously there's Xbox in there, shipping also.

On the core side, it is principally cellular, although beginning to move in things like DSL. We actually had a customer who started shipping small volumes of DSL. Another customer this quarter started shipping, again, small volumes for PDNA chip-sets in the U.S. And very small amounts of hard disk drives, not particularly big, but if you look at the customers that are in prepaid, it's a little more varied. We have some application processor type products so - - for cell phones that are, you know, high multi media content type phones, and a little bit more DSL.

Okay, and just in terms of the GPS platform - - are we likely to see royalties kicking in there from those products soon or no?

I think—we have one customer is expected to ship towards the second half of this year. I would say more like Q4 before we will see any royalty shipments. But that's a big cellular customer in Asia that we're expected to see volumes from. The customer that we signed in Asia on GPS this quarter, probably we would need to allow another year before we would see GPS royalties from that particular deal. So I think we could see some small GPS royalty payments by the end of fiscal '03.

Okay, and just a second question in terms of product announcement today. Just give a rough sense in terms of the proportion if you'd like of the technology that is DSP, and the proportion which is Parthus, if you like, or an application platform type IP. It seems to be that it is a DSP product with a lot of the applications coming from partners rather than proprietary ParthusCeva technology.

No, it's a combined technology, so it's not the truth to say really it's DSP or ParthusaCeva - - Parthus technology. We really put the combination together as the first product since the merger, but we have brought the technologies together in this offering. And really what it's doing is it's extending, first of all the value we can contribute or deliver to our existing customers of DSP and for people who already have DSP license can now take our audio solutions into their applications.

So we can add additional value in there, and secondly we can win a whole set of new customers, because that audio as you know will force us to grow out of our 22% this year, and you know is a very fast growth market, $6b to $20b by '07. So that's the first point, second point is that, you know, part of this activity, you know, it also includes integrating etechnologies with ARM technologies. And we have, as you know, announced a number of developments with ARM, first we developed a common tool set, which is kind of unique in the industry because the amount of new applications will require DSP floss-ARM course. And for the first time we have launched a common tool set to allow developers to develop software for both the DSP and the risk cost are unparalleled. And so that's crucial to this, as is the announcement we made with our ARM, where we have designed a common interface for both the DSP and the ARM risk. So we think those combinations make this a very important announcement.

Yeah, could I just add to that, I think Barry, the fact that there are a number of third parties involved is important, because that is required in order to drive our DSP products into the market as a de facto standard. It really does require building up a community and a culture of - - adoption of this technology. And we're going to achieve that by partnering with software houses, design houses and other technology companies to take the product and to use it as a basis for writing their software code on.

Okay, thanks very much, great.

Thank you. Your next question comes from Gerry Hennigan. Please go ahead.

Can you discuss a bit about the activity level you are seeing which are customer base and in particular the linearity. It appears that you know, you close all deals at the turning of the quarter, that led momentum is it maintained going into the current quarter. What are the dynamics here at the moment, what do you see?

What are the, sorry, Gerry?

Dynamics that would regard that?

Yes I think it certainly has been a phenomenon of the last four to six quarters that it has been back end loaded and Q1 was no different. Although there certainly was a lot more deals worked on in Q1 and we obviously closed that deal from Q4 that fell--that we didn't close at the end of the year. So I think looking now to Q2 I think we have a little bit more linearity which is good, as I say we closed a couple of deals already this month, and we are also working on deals, which are more further advanced because we were working on some tail end of Q1 to contract level.

So I actually think the linearity has improved and hopefully we can take some of the back end loads out of Q2. Because as you can see in Q1 we've got performance but because a lot of it was towards the end of the quarter we then don't get the ability to improve cash collections by signing the business early enough within the quarter.

So, I think it has improved, I think the overall environment still is challenging that we are working against and we have to remain very focused on trying to close as much business as soon as we can. But the dynamic of still having deals go through tortuous sign-off levels right up to the CEO, that is still in place.

Okay. With regard to the head count Elaine are we right in assuming that basically in the short term anywhere that your head count is going to be stable?

Yes I think we have currently 237, which is just slightly down for normal attrition in the quarter. And at this point in time we don't see any need to change our cost base. I think the revenue outlook in the short term is good and the cost base is at a level where, as they say, where we are able to grow the business and it's adequate for our needs. And I would think that's really a challenge for us now is the same as in Q1 to continue the licensing momentum. It's really not a cost issue.

Okay. One other question if I could. Geographically, do you see any improvement among one segment of the market vis-à-vis another?

Well I think if you look at the analysis we have done more business this quarter in the US. I think that's fair to say about 65% of the business this quarter was in the US and that's up about 40% for a normal quarter, which has fluctuation for 2002.

So we'd obviously like to capitalize and build on that and I would think there is a big opportunity there. And obviously Asia is one place in the past that we have spoken about where we are doing about 16% of our business and we would like to obviously try and grow that advantage because we there is a lot of opportunity in Asia.

Okay, thanks very much.

Thank you. Your next question comes from Sean Murphy. Please go-ahead sir.

Hello there from London. Could I check on what your CapEx might be this year? And just a few more questions then.

Well I think we changed our tools requirement from a rental to a CapEx and that's probably a once off CapEx of approximately $1.5m to $2m. But normally I would say, and that would be amortized over the life of the tools and would be broadly similar to the rental model. Other than that really its IT and normal facility type CapEx, and I think for this year we put it at approximately $1m I think in CapEx and that would be somewhere between $0.5m and $1m.

Okay. And just to check on the specific amounts again. A number of customers shipping per unit 19, I think you quoted 15 at year-end while obviously in some of the other documents are there 10 or 12 at year-end? I'm just wondering if there is a good reason and?

The difference is basically some of the combination of some of the Parthus products shipping some of the application which wasn't included. I think the 12 is purely a core number. And also when people move from per use into unit. You could really it was 19 plus we have another 7 who aren't paying per units royalties. And that's also how you classify those 7.

Okay thank you.

Thank you. Your next question comes from Doug Whitman. Please go ahead Mr. Whitman.

Just kind of a quick follow-up. Elaine, the earlier question about linearity, what's a reasonable—I’m looking for the cash you might be able to generate--target you might be able to get receivable days down to in the future?

Well, traditionally we've kept this comfortably between you know 35 and 45 days and I'd like to think. Obviously when you have an environment like we've had in the last year we have seen a change in payment terms. We haven't seen a lengthening in DSL but we have agreed, for instance in the past we traditionally would have seen a lot of cash upfront on deals and that is not possible in this environment. Nobody is doing that in this environment and no customer is willing to pay upfront.

So that has lengthened DSO, but it hasn't meant that the quality of the receivables has changed in any way. And so other than that factor I think, you know we haven't had any bad debts and we typically are licensing to blue chip. And I wouldn't have any concerns on the collectability of the receivables. But I think if we could get us down to that level, keep it within that level, we would be doing very well. Now we've got about $9.5m in receivables going into Q2 which is substantially up on the receivables coming in. But that's purely a reflection of the amount of business that we signed late in the quarter in Q1.

Okay so you figured you could get some with linearity increasing you would be able to get some reasonable drop in receivables to increase your cash?

Well I would think that we should be able to as we find more business, if we haven't, looking at the Q1 performance, it obviously means that it's going to be higher cash received than Q2 and that's obviously going to benefit underlying cash flow. We wouldn't necessarily have - we don't have a bad DSO. We have good debtors and good DSO.

Really if you have a weak Q4 performance, that will hurt your cash received in Q1, which it did do. We've had a good Q1 performance, which is going to help Q2 cash received.

Yeah I hadn't thought about that too. Thank you.

Okay thank you.

Thanks for the good quarter.

Thank you, your next question comes from David Levy, please go ahead Mr. Levy.

Hi, a few questions. One, should we expect that more restructuring charges in the end of the year? And two, do you have a target cash firm level or target end of year cash positions?

I think David, Elaine here, on restructuring though; I think really what I said earlier. We feel we have the cost safe in place to be able to grow the business and I think we have shown that in Q1. And our objective with the guidance that we have issued for Q2 is to do the same again in Q2.

So we really don't see a situation right now in terms of the visibility that we have, where any further restructuring is required. We are very much hope of some driving top line licensing growth. And the second question you had David, sorry which was target cash (inaudible).

I think with in the perimeters that I have outlined $40m on the top line and with the 5% to 10% margin, all of which looks I think very attainable based on the type of run rate we've shown now in Q1. And within those perimeters we would expect the business to be cash flow positive for the full year.

Now that's, obviously there very well might be peaks and troughs and that in some quarters we could have stronger cash generation, and then in another quarter cash (inaudible). But over all for the year we feel $40m with a cost base of $29m to $31m, with margins between 81% and 83%. That delivers approximately 5% to 10% in net margin and that would be - our aim would be for that - would be to be at worst, cash neutral for the year.

And that's free cash flow or free cash in use?

Correct.

Thanks.

Thank you your next question comes from Matthew Robison, please go ahead sir.

Yeah just a quick follow up on G&A was there any thing in the first quarter that was perhaps a little bit anomalous or anything related to the restructuring? I guess not, that would be in that line. But should we expect that level going forward, I guess is the question?

Yes I think so. I think G&A really we don't, you know I wouldn't - I can't think of anything off hand that is causing any slight or trough in the run rate. I think that's probably representative of where it will be in the year. I think looking forward on operating expenses for Q2 I think may be R&D might be up a slight tick on the Q1 run rate, which really just reflects the products roll out. And the work that we are doing there and trying to accelerate the Cedar development at the moment and putting more resources there. So there might be a slight up take in R&D.

And obviously sales and marketing a slight up take again. And really just reflecting the product marketing effort that we are putting in and getting that software development community and partners etc. around the architecture. But in the overall scheme of things I think, max, expenses might be $300,000 to $500,000 higher. They very well may come in flat. It really depends on revenue out look. There are things within our control to accelerate or decelerate depending on what the outlook is like. And that's something that we keep the finger on the pulse very tightly on just so that we are able to calibrate the cost rate within those parameters.

Thank you.

Thank you your next question comes from Sean Murphy. Please go ahead sir.

Hi speaking of cost base do you think the cost space of the new managers might be lower or higher than the old managers?

I don't expect to see any significant change in the cost base with the new management team.

Okay I did - I wonder if there is a tighter approach to share options coming as well?

No significant change to the share option program in the company and, none planned.

Okay thank you.

I mean we try to keep very much in line with market and what ever market sources, what ever norms are out there.

Thank you.

Thank you I would like to remind everybody at this time if any one wishes to ask any further questions please press star 1 on your telephone keypad and wait for your name to be announced.

Okay if there are no further questions let me just quickly summarize. We are just now 5 months into the integration of the company, and period of evidence of the full potential of the merger being realized right now we think, with increased licensing activity, with some revenue growth and improved visibility and backlog.

New product innovation combined with platform IP and our own DSP architecture is driving future licensing growth. And these benefits now being realized from reduced cost base plus the new product plans in '03 give us confidence of our profitability and growth for this year. Thank you very much for joining the call.

Thank you that does conclude our conference for today. For those of you wishing to review this conference the replay facility can be access by dialing the UK county code 44-14-5255-0000. Or if you are calling from the UK 0845-245-5205 and the UK access number is 106188. And if you are dialing from the US 706-645-9291 and the US access code is 974-1212. You may all disconnect and thank you for participating.