Cirrus Logic Inc (CRUS) 2014 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Cirrus Logic first-quarter fiscal-year 2014 financial results Q&A session. At this time, all participants are in a listen-only mode. After a brief statement, we will open up the call for questions from analysts. Instructions for queueing up will be provided at that time.

As a reminder, this conference call is being recorded for replay purposes.

I would now like to turn the call over to Mr. Thurman Case, Chief Financial Officer. Mr. Case, you may begin.

Thank you, and good afternoon. Joining me on today's call is Jason Rhode, Cirrus Logic's President and Chief Executive Officer; and Chelsea Heffernan from Investor Relations.

Today we announced our financial results for the first-quarter fiscal-year 2014 at approximately 4 PM Eastern. The shareholder letter discussing our financial results, the earnings press release, including a reconciliation of non-GAAP financial information to the most directly comparable GAAP information, along with the website -- a webcast of this Q&A session, are all available at the Company investor relations website at investor. Cirrus.com. This call will feature questions from the analysts covering our Company, as well as questions submitted to us via e-mail at investor.relations@cirrus.com

Please note that during this session, we may make projections and other forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially from projections. By providing this information, the Company undertakes no obligation to update or revise any projections or forward-looking statements, whether as a result of new developments or otherwise. Please refer to the press release issued today, which is available on the Cirrus Logic website, the latest Form 10-K and 10-Q, as well as other corporate filings made with the Securities and Exchange Commission, for additional discussion of risk factors that could cause actual results to differ materially from current expectations.

Now I'd like to turn the call over to Jason Rhode, our President and Chief Executive Officer. Jason?

Thank you, Thurman. Before we begin taking questions, I'd like to highlight a few of the things we discussed in our shareholder letter. In Q1, we delivered strong GAAP and non-GAAP operating profit of 20% and 24%, respectively, on revenue of $155.1 million. We believe these results position Cirrus Logic at the high end of our peer group's performance, highlighting our ability to efficiently manage expenses while investing in critical R&D initiatives.

Additionally, we are increasing our investment in technical marketing, as we evaluate and identify future product opportunities. We continued to generate cash in Q1, exiting the quarter with approximately $272 million in cash, or $4.11 of cash per share. Cirrus Logic's ability to leverage our core engineering competencies in exciting markets, where our innovative solutions are valued and help differentiate our customers' products, has been a key element of our success.

Over the past year, we have concentrated on broadening our custom and general market product portfolios in portable audio and LED lighting. We are pleased with our progress in the June quarter, as we continue to see strong customer interest in our innovative products designed to enhance the audio and voice experience for mobile phones. We are presently selling products into several additional mobile phone manufacturers, and are in discussions with multiple others. Design activity remains healthy in LED lighting, particularly with our new single-stage LED controller, as we continue to ramp with our existing customers, and engage other OEMs. We believe innovation in these target markets is in the early stages, and we continue to work with an expanding list of market leaders in order to capitalize on our revenue growth opportunities.

Also, I'd just like to note that while we understand there is intense interest related to our largest customer, in accordance with our policy, we do not discuss specifics about our business relationship.

Operator, we're now ready to take questions.

(Operator Instructions)

Our first question comes from Vernon Essi from Needham & Company. Your line is open.

Listen, Jason, I was wondering if you could give us a sense in the composition of sequential growth in the audio revenue outside of your largest customer. It looked like it was up nicely, and you've mentioned in your letter shipping some catalog parts to smartphones at a major leading vendor. As well as, it looks like you're getting some interest on the Chinese front. Was this the reason for that growth? And can you give us a sense for what were the mechanics behind the revenue outside your largest customer in audio?

Yes. That's a significant part of it is the additional mobile phone stuff with this new catalog product. Actually, it's a couple of catalog products. The one that we had been alluding to on the last couple quarters' earnings calls is a new ultra-low-power A-to-D converter, four-channel device that's optimized for a variety of multi-mic applications. That was a pretty good bit of it. And then there was some other devices we -- that were brought online a little more rapidly than we had expected that are in some of these emerging market, a little more nimble, opportunistic suppliers, I guess I would say, for some of our other catalog devices that have been around for a little longer.

And then on top of those, I think we had some strength in automotive, which is always nice to see because it's a business that's near and dear to our hearts. We think that that's a good sign over the long term as higher-end entertainment devices and systems proliferate their way down our customers' product lines. So what used to be available only in the real flagship model cars is now moving down to the entry-level models. We think entertainment, and audio in particular, in automotive is something that for the long term is a good growth opportunity. Albeit, it's nothing flashy or real dynamic, but it's a good investment over the long haul. Those are some of the bigger items.

If we were to go back, though, and say, rinse out these newer parts that are going into incremental smartphones, would that other audio have actually grown, or would it have been flattish?

Yes, so let's see. So if I look at non-portable audio in total, automotive would have caused that to go up a bit.

Okay.

But the new mobile phone stuff was definitely a significant portion of that growth.

Okay. We're obviously trying to track anything incremental here, so I appreciate getting into that level of detail.

Sure.

Then, Thurman, the guide on the OpEx seems somewhat low. And how should we think about -- and I think R&D is probably the biggest swing factor there. How should we think about that going forward? You guys have had to stay at objective spend, increasing amounts there. Are you struggling to spend more? Or is there a little bit of a change going on there at the OpEx level?

No. I think that we've talked historically that OpEx for us can move around, and particularly on the R&D side, based on product development expenses and the timing of those expenses and so forth. So I wouldn't take the -- you can't look at the guidance for this quarter and then assume that we're not able to spend enough. We'll continue to invest in R&D, and we would expect that to grow. And our product development expenses can be higher in future quarters as we -- as projects come to fruition and other things happen. So I think we're just -- we were down in the last quarter, and our guidance is a little bit lower than it has been. We are managing our expenses, and particularly on the G&A side, but we would expect that R&D will continue to increase.

Okay. All right. Thank you a lot. I'll go back in the queue.

Sure.

Just to add one bit of color on that, an increasing percentage of our expected tape-outs going forward are in a lot more advanced geometries. So those can be a pretty significant pop individually on the expense line. So as Thurman said, it can move around quite a lot quarter to quarter, just depending on what level of tape-outs we happen to have in a particular quarter.

Our next question comes from Andrew Huang from Sterne, Agee. Your line is open.

This is John Chen in for Andrew. Can you talk about inventory management in the back half of the year?

Well, in real generic terms, we expect inventory over the course of this quarter to be flat to down a bit. We had quite a lot of moving parts, so to speak, within this quarter. And so that makes it hard, I think, for anybody externally to really extrapolate and look and see what's really going on underneath that top-level number. But as some of that settles out over the course of this quarter, we would expect to make progress towards a little more normal turns for us, which would be a bit lower inventory than what we had coming into the quarter.

Our next question comes from Christopher Longiaru from Sidoti & Company. Your line is open.

Congratulations on the guidance.

Thank you, Chris.

So my question actually has to do with your other business segment, industrial. Seems like it was up about 10% sequentially. Is that some of the core industrial [business] that you always had coming back after a couple years of weakness? Or is there some initial LED stuff on there? Can you give us a little guidance on how that's going?

We don't want to break out details, but definitely we're seeing good progress on the LED side. And then there is definitely some -- a little more -- a bit of the older stuff, as well that had a good quarter. So that's good news from -- the older stuff is good news from a cash-generation point of view and an operating-profit point of view, and the LED stuff is great news from an indication of continued traction in that product line. The LED product line is a lot more of a base-hit business than I think people expect it to be, because there are -- it's a pretty small number of suppliers of light bulbs out there that really make up the total volume. But if you dig underneath that, it's a really large number of SKUs at each of these vendors. Even though we feel like we've got the premium product on the market, it takes quite a while to penetrate a significant fraction of some of these product lines. And it really is a business where you've got to win them product by product. So it's good, steady progress on that. And we continue to add in new business, and we expect good things for that over the coming year. And heading into next year, the volumes are really expected to start to take off. So it was a good quarter on a lot of fronts in LED.

And to remind us, too, the gross margins on both those businesses are much higher than the corporate average, if I remember correctly. Is that still the case?

Well, LED is -- our expectation, and it's a good question over the long term. LED we expect to be supportive of the Company average as that turns into a real business, but that is a significant area that we spend a lot of time working on, making sure that we're adding enough value, taking enough passive components out of the board, making our system cost competitive. There's no question we have the best solution on the market today in my mind. The question is how far down the cost-benefit curve can we push that solution by making our device be part of the lowest bill of materials cost as well. So that's a question that, in my mind, remains over the long term. Certainly, the older industrial products, such as seismic, for example, seismic is much higher than the corporate average, but it's also a pretty sleepy market.

Right. Thank you for that. I'll jump out.

Our next question comes from Tore Svanberg with Stifel. Your line is open

This is Eric Rasmussen calling in for Tore. I wanted to follow up. I apologize if this was mentioned earlier, but one of the early questions, though, was on R&D. And it seemed like some spending levels seemed to be a little bit lower, but you feel pretty comfortable with supporting future design activity. It seems to be accurate, correct? And then, wanted to clarify that. And then, you mention that there could be some step-up in R&D in future quarters for potentially tape-outs. How big could those step-ups be? And then I have a follow-on.

We don't want to get too far ahead of ourselves. Our main goal is managing to our model, which is to deliver 20% operating. We don't get too hung up on how the expense breakout lands on a particular quarter, because it's not a good way to manage the business. But I think you can expect it to go up a bit during the course of the year. We're continuing to hire and having great success in adding some truly exceptional talent over the last quarter, and we expect to continue to do that. But we're trying to make sure that remains heavily concentrated in the product-development functions. Our team has done an amazing job over the past couple years as our revenue grew much more quickly than we could keep up with. From the hiring point of view, they've done a good job in filling in behind that and getting our staffing needs shored up, because we've got some really compelling investment opportunities in front of us. And we're just trying to make sure that we've got all the right people on board to be able to execute on those. And I think the team has done a great job of doing that.

In terms of in a particular quarter, a full 55-nanometer tape-out is -- it's a pretty significant expense relative to our total OpEx, I think on the order of $1 million. So you can definitely have some -- if you have a couple tape-outs within a particular quarter and another like that, it can definitely move the needle, versus some of our older stuff where it was in the noise. You have a couple tape-outs in 180-nanometer or quarter-micron. And from a total expense point of view, it really wouldn't even be noticeable. So it's just something that we have to account for. We certainly have a good view of what will land in the upcoming quarters. We have a pretty good track record of taping out stuff when we expect to, and it's something we take into account, of course, when we're formulating guidance.

Thank you, Jason, for that and one other question. Can you just comment, in your shareholder letter, you had talked about your general market devices and momentum in design activity picking up there. Can you give us a little more color in what to expect the remainder of the year?

Sure. We're excited to be ramping with another supplier of high quality phones. Like I said, it was a general market product that that product in particular is -- provides a pretty ubiquitous function. And it's really part of an effort where we're targeting not only high-fidelity audio, which has, of course, always been a strength of the Company, but also trying to broaden out our appeal to folks that are trying to differentiate on the voice experience in some way or another. So this particular product that we've launched yesterday publicly, but obviously, we've been working with various folks on it for longer than that, is a four-channel A-to-D that's optimized for voice-microphone applications. And I think the team did really a remarkable job of sifting through all the various feedback that you get from the market, putting a compelling product definition together. And then the engineering team executing to perfection on it and getting it on market in a timely fashion. So we're shipping that with one customer today. We expect to be shipping it with it others in the not-too-distant future.

And then one of the more interesting trends has really been this emergence of interest from the so-called white-box phone manufacturers who, I think, approach the market in a little more opportunistic way than others may. They're not so worried about making everything perfect, but they'll have a neat idea for a feature or a function and find a way to implement it with existing parts and get it done in a hurry and get it on the market and see who salutes. So as long as we're able to maintain an interesting, compelling portfolio of catalog devices, that's a good way to support that market. Because frankly, the volumes in a lot of those cases wouldn't justify a custom product. So it's really an area we have to approach it with more catalog devices.

And then longer term, we're certainly hoping to add more significant functionality in these -- in some of our catalog devices, the areas where we can add a lot of value with our signal processing capabilities, doing smart things with voices and background noise, echo cancellation, and all sorts of these noise-type functions that enhance a voice experience in some way or another. Making the speaker phone louder is another good example. Those are areas where somebody making any phone, actually, can find a way to differentiate on those advantages. It doesn't have to be a media-consumption-centric device.

Thank you, and adding to that, on the white-box side, how competitive is that market? And are those design cycles -- what do they look like in terms of what you're used to currently?

Well, they're very quick, but the great thing for us is that we've either got an interesting device for whoever it is that's looking at them on the market and ready to go. And they designed it in, and their design cycle is theirs to manage. We don't have to get anywhere near as involved as when we're doing a custom device for somebody. So the design cycles can be quite quick. It's an interesting approach. I certainly think that better results can be achieved if you're really spending a long time, three years ahead of time, we're plotting things out and making sure everything is just so and perfect. But there's certain markets that aren't willing to pay for that. And it seems that certainly, some of these white-box guys have found a handle on how to get a product out quickly, ship a bunch of them, and then move on to the next item.

Great. And maybe if I could sneak one more in here, how is your visibility? Normally, you have long-term visibility based on the road maps at your largest customer, but has any of that changed? What is your visibility now? Has it stretched or has it stayed the same?

Well, any time -- again, not getting into our largest customer, but any time we're doing a custom device, it takes us a year to design a new chip. It takes a customer a year to design the chip into their product, because everything we do is propriety. We don't do pin-compatible devices. So and our customers, if we're in that kind of a relationship, end up having to spend quite a lot of time with us back and forth. So I think we get quite the visibility about what design activity we are getting in the custom space. Certainly in the areas where somebody is designing in a catalog device, it's a shorter amount of visibility, but it's still pretty reasonable given the nature of the fact that it's a proprietary -- that we provide proprietary products. Again, it's not like we participate in a lot of markets where we've got an pin-compatible device with three other guys. And whoever convinces the purchasing guy they got the lowest price wins. We try to stay out of that market. We try to find places where we can add meaningful value for our customers to differentiate on. And to some extent, that limits the markets we can participate in, but again, we're focused on finding revenue growth opportunities that contribute to a 20% operating business. So not everything fits that bill.

Our next question comes from Frank Keller with Barclays. Your line is open.

Wanted to dig a little deeper into the catalog parts. (Inaudible) enhanced [at OEMs], could you maybe give us an idea as to the gross margin on these products? Clearly, it mustn't be such a bad proposition, since you described better-than-expected growth from this customer in this quarter. But your gross margins were around the midpoint of your range. Trying to gauge how you guys are thinking about all of that. Thank you.

Yes. We don't break out the margins of any of the products specifically. Like I say, we're looking for revenue growth opportunities that contribute to a 20% operating business. And there's a number of ways to get there, either with scale or high gross margin on a low volume business works, too. Mobile phones usually, if it's -- I think as I've said in the past, with mobile devices, if you're making any investment at all, you better pick your customers carefully. Because you can certainly go broke supporting the wrong ones if it involves a lot of them. But in particular, the new device that we're ramping is with what we regard as a great company and a great supplier of products. So we're excited about that. Again, I'm not going to get into the details on a device-by-device margin, but it's certainly good for us. And it's a good sign that our guys are targeting the right opportunities.

Thank you, Jason. So another question, the shift to 59-nanometer is an effort to improve gross margins. Do you reduce any cost for your customers? Presumably so. Could you maybe highlight some areas, you've talked about some of them on the voice side, where you guys can add some more functionality in your solutions to try to maintain the dollar content that you guys have become accustomed to? Thank you.

Sure. Yes, I think actually, your second point really hits it on the head. Really, I don't look at 55-nanometer as a margin play per se, because wafer pricing primarily, is set by the big chip digital folks. And it's all, in a lot of ways, it's on a relative basis. And the assumptions that drive wafer prices are usually based on the shrink that you get relative to an all-digital product. When it comes to a device like ours, which is typically more than 50% analog, or around 50% analog, the analog doesn't shrink. In some cases, it gets bigger. And so it actually, if you were just building the very same product in 180-nanometer and 55-nanometer, you probably get some benefits like building it lower power, but actually the device cost would in a lot of cases, would actually go up. So for us to move something to 55-nanometer, there really needs to be a value proposition, either a size constrain, a power constraint, or hopefully, the right answer is both of those plus the opportunity to add a ton of signal-processing capabilities that we wouldn't be able to do in an older node.

So that's really the focus of our efforts in 55-nanometer, is much more smart products, products that are differentiated on doing a lot of voice-type signal processing, a lot more heavy-lifting than we've done in the past on some of these low-power devices. And I think it's indicative of the era that we're moving into, the products that we've seen all our lives on The Jetsons and what not, where you can talk to your stuff and have it respond in some way. The Internet of things is going to be composed of a great many different things, and some of them are going to be really small. Voice is a good way to interact with different stuff. So it's an area that we're looking at, and certainly more of the same in terms of being able to do great noise cancellation, echo cancellation, making speaker phones louder. These are all areas where our signal processing can add a lot of value. And if we can do the same device in 55-nanometer but add a lot more signal processing power or a lot more memory, that gives us capabilities we wouldn't have otherwise. So that's really the thrust of it is trying to add more value in the same kinds of sockets.

Thank you, Jason. One last one for Thurman, if I could. So wondering about how you guys are going to be managing your tax profile going forward once you guys have run out of your deferred tax assets going forward. Thank you.

Well, as we've said previously that for us, we would really expect as we become taxpayers, for that to be in the 35% range. We are looking at various opportunities or alternatives, but drastic measures in order to reduce our tax rate, which would upset the business model has to be considered, also. So we continue to look at different alternatives, and we'll manage that down the best we can and still maintain integrity in what we're doing trying to run the business. So all that said, again, probably be looking when we initially become taxpayers, at a 35% tax rate. And we'll be looking at as many alternatives as we can to get that down.

Your next question comes from Robert Burleson with Canaccord. Your line is open.

A couple quick ones, can you talk about what you think the SmartPhone dollar content trends might be for Cirrus from here? I know that's moved around a lot depending on which wins you get. What's your best sense of what the trend might be going forward?

Well, with respect to things that we're in today, I'm not going to actually speculate on that for a bunch of reasons. But there's a number of -- it's hard to put any color on it that's going to be helpful, in the sense that we ship multiple devices and it's quite a wide range of content depending on what phone it is. But we think over time, there's a lot of opportunity to continue to add more value as we're able to bring a lot more of the signal-processing capabilities that we were just talking about with respect to 55-nanometer. We think there's a lot of opportunity to add more value over time, and so that's why we're focused on the 55-nanometer so heavily. There's additional functionality that we hope to be able to bring to bear over the long term.

Great. It sounds like gross margin expansion on the 55-nanometer ramp isn't necessarily something we should conclude. Could you give a sense for when the tape-outs hit you guys, hit R&D? And when you expect volume shipments on the advanced node?

Well, we'll be taping out devices over the course of the rest of the year. It takes on the order, like I said earlier, it takes on the order of a year, best case. If the customer is moving at a high rate of speed, it takes on the order of a year for a customer to design something new in and then get their product on the market. So these are things we are working on that are on horizon there, but they're very, very important for us.

(Operator Instructions)

Our next question comes from Jeff Schreiner with Feltl & Company. Your line is open.

I was wondering if we could talk a little bit about the current visibility into voice-enabled opportunities as it relates to Cirrus during fiscal-year '14. And also trying to look at maybe if we can get any color about what's the potential voice-enabled revenue mix between new customers or design -- new design opportunities within existing customers. Any color, Jason, you can give there?

Well, we don't want to get into too much into the specifics of things that are coming. But and there's an element of it, too, that is a definition question. So, for example, the socket that we're ramping today is this multi-channel voice-aided e-converter, and it is obviously part of a voice system. So if you consider that in the category of the question you asked, or do we constrain ourselves more to thinking about where we, Cirrus, are doing more of the voice processing and the voice cancellation or whatever, what have you? But noise cancellation is today a pretty significant piece of revenue. We expect that other technologies that we're able to bring to bear that are along those same lines will continue to be a significant part of the value proposition that we offer going forward. And then as well, like this new A-to-D converter we've been talking about, supporting those type of functions and those type of algorithms in a very low-power analog way is a great opportunity as well. A lot of our customers have their own algorithms and own ways of doing things. And but, for example, if you want a microphone in a battery-powered product to be on 24/7, that requires very, very low-power analog signal processing up front of any type of DSP that might take place later. And that's a great opportunity for us as well.

So as the number of microphone channels in the world explodes, we see additional microphones going in -- anything that already had a microphone or two it in over the next few years probably ends up with quite a few more in it. And plenty of devices that have never had one start to gain microphones over the next few years. And that's a lot more analog input channels; that's a lot more signal processing to be done, and we think it's a big -- it's quite an important vector for us going forward. I'd really rather not give you any specifics on numbers, but it's a big investment for us. It's quite important.

Do you think you will have some? With those catalog products, you recognize what maybe considered voice in this quarter?

Oh, yes. We shipped, again it's a bit of a definition question. If we're in a mobile phone most of the time, all of the voice and all of the audio goes through our device in some fashion or another. So we've added additional customers. That's really good. We've got a catalog -- we've got a number of catalog products that can be used in that kind of application. That's good. And we're investing heavily in doing more of the heavy-lifting signal processing over the next several years. So that's, from a long-term vector point of view, that's extremely important

Very helpful, thank you.

Sure.

And then can you talk about how many new customers were shipping products during the June quarter company-wide?

I don't have a good number for that. Our total -- I guess I could probably hazard a guess at the level that you would care about. In total, we ship to hundreds of customers every quarter. And so, I'm going down and looking at everybody that's new. Of the significant ones, there were multiple significant new customers that we count and track. And we're paying attention to design wins, et cetera. So it was a very good quarter from a customer-expansion point of view, in my opinion.

Final question for me is when we look at R&D and the commentary, obviously, has focused around what tape-outs were going to be. But, Jason, how are you thinking about allocating R&D at this point right now, between audio and industrial energy, given you do have the [brush motor], the LED in industrial energy, but it sounds like there's a lot of investment being focused upon for the long term with processing capabilities and what have you in the audio/voice segment. Can you help us out there?

Well in, terms of process, we have a strategic process that runs in the background where we evaluate markets and areas that we want to allocate spending. And then at a more day-to-day level, the divisions have quite a lot of freedom to go do what they need to do. We're not such a big Company, the general managers and I, Thurman, the marketing folks, discuss this stuff all the time. And our goal is always to make sure that we're putting our R&D dollars on the best opportunity at any given time. Which is, if you manage a bunch of engineering folks as smart as what we've got, you'll always have more opportunities than you can possibly staff, no matter how many people you have around. So the goal is really in staffing. The best opportunity is not ones that are merely good. We've got a couple processes that play into that, but really it's a lot of -- it's just a lot of time where we all spend talking about it, thinking about it, and looking at the latest data we're getting back from sales, and what our engineering guys can dream up, and what business propositions marketing folks can wrap around them.

So it's complicated, but that's really the fun part. That's the thing that keeps us all motivated and going is the opportunity to participate in some of these new emerging areas, work with really smart people, and bring new products to production. That's the fun part of what we do.

Our next question comes from Vernon Essi with Needham & Company. Your line is open.

Thurman, I want to go back to the tax question, technically I wanted to double-check. What is the deferred amount that's remaining right now?

We have about $71 million.

Okay. And then on the -- I noticed, this is very small detail, but you've forecasted a non-GAAP tax of 4%. Should we be taking that forward till the deferred asset is complete?

Right, if you take the deferred [ex-asset] and look at it as at a 35% rate, that's going to hit our GAAP P&L. And when that runs, when we burn that off, that will become a real cash tax. Between then, that 4% is probably going to be pretty consistent.

Okay. And then totally switching gears here, Jason, just to go back to LED, a lot of suppliers into the market have -- they're indicating that there is and I'm going to knock on wood when I say it, but an inflexion point in demand. We've been fooled several times in this market in the past handful of years. I'm wondering if you're seeing any signs of that. I know that you characterized it as a base-hit market environment, but can you give us any more color as to what, perhaps, you're seeing in the dialogue with the end customers?

Yes. We did see the total market growing rapidly as incandescents get phased out, and people finally have a decent alternative to CFLs, which are pretty much universally reviled. So but it turns out that the individual bulbs themselves are -- it's a very complicated design challenge. Obviously one of the goals of our chips is to try to make that design challenge easier than the other folks. But fitting all that power electronics stuff in the base of a light bulb that was never meant to have electronics in it at all is a pretty neat trick. So for any one company you're winning these light bulb sockets one at a time, and so that does put a cap on how quickly you can grow the business with any one customer. Obviously, we try to do things like have reference designs and scale our support and everything else, but it is a business we feel like we're doing quite well in. We're adding customers. We're shipping more volume, quite a bit more volume this quarter. We're excited about that, but it is an area where it is a lot of blocking and tackling.

But you are right. I do think that there's an element where, especially as our customers are in a position to get lower cost products on the market that actually work better, so that they don't get a bunch of returns. They satisfy the customer from a color, temperature, from a dimming point of view, that we've seen individual models do better and better. I would say prior to about a year ago, the vast majority of the light bulbs, the LED light bulbs on the market were really pretty awful. It wasn't a very good experience for consumers. So you buy one of those, and they were expensive. So you go -- it's not like you're going to go running right back to the hardware store and buy a couple more. Now there's products on the market that are starting to be pretty good. We think it's the most reasonable proposition is to design, though using our device. Obviously everybody's got their opinions, but we feel very good about having a very good solution to some of the problems that have really plagued that market, in particular the dimmer compatibility one. And then as other economies of scale with the LEDs, the housings and what have you, people get a little bit bitter at figuring out all the things that go bump in the night in ramping new products. We definitely see opportunities for that market to take off.

Okay. Thank you for the color on that.

Sure. Thank you, Vern.

This ends our question-and-answer session. I will turn it back to management for closing remarks.

Thank you, operator. The questions submitted via e-mail this afternoon were answered during the Q&A. I will now turn it back to Jason.

Thank you, Chelsea. In summary, we delivered strong operating profit and earnings per share in Q1, as we invested in compelling R&D projects and carefully managed our SG&A expenses. During the quarter, we continue to gain traction in portable audio and LED lighting, as design activity was robust and we added new customers and expanded into more SKUs. In FY '14, we will continue to invest in innovative products and strengthen important customer relationships in both audio and energy. They're expected to drive revenue in the next few years. If you have any questions that were not addressed, you can submit them to us via the Ask the CEO section of our investor website. I'd like to thank everyone for participating today. Good bye.

Ladies and gentlemen, Thank you for participating in today's call. This concludes the call. You may all disconnect.