Immersion Corp (IMMR) 2010 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Immersion Second Quarter Fiscal 2010 Earnings Conference Call. During today's presentation, all parties will be placed in a listen-only mode. Following the presentation the conference will be opened for questions (Operator instructions).

This conference is being recorded today, Thursday, August 5, 2010, and then now I'd like to turn the conference over to Alex Wellins of The Blue Shirt Group. Please go ahead sir.

Good afternoon and thanks for joining us today on Immersion second quarter 2010 conference call. This call is also being broadcast live over the web and can be accessed from the Investor Relations section of the Company's website at immersion.com.

With me on today's call is the Company's president and CEO, Vic Viegas and Shum Mukherjee the Company's CFO.

During this call, we may make forward-looking statements, which may include projected financial results or operating metrics, business strategies, anticipated future products, anticipated market demand or opportunities and other forward-looking topics. These statements are subject to risks, uncertainties and assumptions. Accordingly, actual results could differ materially. For a listing of the risks that could cause this, please see our latest Form 10-K and Form 10-Q filed with the SEC as well as the factors identified in today's press release.

Additionally, please note that during this call we may discuss non-GAAP financial measures. For each non-GAAP financial measure discussed, a presentation of the most directly comparable GAAP financial measure and the reconciliation of the differences between the non-GAAP financial measure discussed and the most directly comparable GAAP financial measure is available in the Investor Relations section of the Company's website, in the shareholder presentation section of the Investor Relation section.

With that said, I'll turn the call over to Chief Executive Officer, Vic Viegas. Vic?

Thanks Alex, and thanks everyone for joining us this afternoon. I'll start by providing a high level summary of our performance for the second quarter. Then I'll turn the call over to Shum for a more detailed review of our Q2 results. I'll then discuss recent developments and our thoughts on the current business environment before opening up the call to your questions.

Total revenues of $8.5 million for the second quarter were greater than anticipated. We achieved strong growth in our royalty and license revenue, driven by continued traction for our haptic solutions across a variety of end markets. In addition, we benefited from a reconciliation of certain customer's royalty reports in the gaming market and from non-recurring gains in the medical business of approximately $1.1 million.

Net income for the second quarter totaled $180,000 or $0.01 per share as compared to a net loss of $8.9 million or $0.32 per share in the same period last year. And we generated positive adjusted EBITDA of $2 million. Stepping back for a moment, Immersion has had a busy first half of the year. We completed the independent financial investigation and successfully transitioned the medical products group to CAE, thereby shifting the Company to a predominantly licensing model. We have signed new licensees, launched new products, significantly reduced expenses and achieved a very favorable outcome in a piece of litigation in the medical simulation area.

We now have a dedicated CEO and CFO in place, but the prior headwinds largely behind us, our ability to focus on execution coupled with a strong value proposition and favorable industry trends are allowing us to pose strong growth in our ongoing business.

I'll now turn the call over to Shum for a more detailed review of our financial results.

Thank you Vic. Revenues in the second quarter of 2010 were $8.5 million, up 27% over revenues of $6.7 million in the second quarter of 2009, reflecting growth of 76% in royalty and license revenues, partially offset by a decline of 33% in product revenues, primarily the result of the recent transition of certain medical products to CAE. Growth in royalty and license revenues was strong across our various market segments. Mobile and gaming comprised more than two thirds of total royalty and license revenues, due to increase in touch screen phone sales and reconciliation of our customers gaining royalties as Vic mentioned. In addition, we saw strong results in royalties from the automotive and consumer market segments.

Product revenues in the second quarter were $1.9 million, including approximately $900,000 of revenues from the three medical product lines that was sold to CAE Healthcare in the March quarter. We do not expect to generate any additional product revenue from these three product lines in the future. Revenues generated from development contracts were $321,000 in the second quarter of 2010, in line with revenues of $330,000 generated from development contracts in the year ago quarter.

Gross profit was $7.7 million in the second quarter of 2010, 91% of revenues compared to gross profit of $4.4 million, 65% of revenues in the second quarter of 2009. The increase in gross profit reflects higher revenues and also the mix shift in business to licensing revenues, which accounted for 74% of total revenues in the second quarter of 2010 compared to 54% of total revenues in the same period last year.

As we look at our long-term model, we expect licensing revenues to grow as a percentage of our overall mix, driving gross margins higher. Cost of product sales in the second quarter of 2010 were $761,000 compared to $2.3 million in the second quarter of 2009. Excluding cost of product sales, total operating expenses were $7.2 million in the second quarter of 2010 compared to $13.2 million in the second quarter of 2009, primarily reflecting the divestiture of the medical product business, reduction of head count from 157 to 96 employees and various cost saving actions.

The operating expenses of $7.2 million include non-cash charges related to depreciation of $285,000, amortization of $204,000 and stock base compensation of $938,000. Excluding these non-cash charges, operating expenses were $5.8 million during the quarter and is expected to trend in the $6 million to $7 million range per quarter over the near term. We have lowered our expenses related to corporate, admin and legal, but plan to continue to invest in sales and marketing and R&D, in line with revenue growth.

Net income in the second quarter of 2010 was $180,000, $0.01 a share compared to a net loss of $8.9 million, $0.32 a share in the second quarter of 2009. As you know, in addition to normal GAAP metrics we use a metric called adjusted EBITDA to track our business. We define adjusted EBITDA as earnings before interest, taxes, depreciation, amortization and share based compensation, less non-recurring items such as internal investigation and restatement costs, re-structuring costs and discontinued operations.

In 2009, adjusted EBITDA also excluded change in fair value of warrant liability. Adjusted EBITDA in the second quarter of 2010 was $2 million compared to a loss of $5.5 million in the second quarter of 2009. Revenues for the first half of 2010 were $18.2 million, 28% over revenues of $14.2 million in the first half of the 2009, once again reflecting strength in royalty and license revenues, which grew 73% compared to the first half of 2009, partially offset by a decline of 20% in product revenues.

Gross profit for the first half of 2010 was $16.1 million or 88% of revenues compared to gross profit of $10.6 million or 75% of revenues in the first half of 2009. Operating expenses excluding cost of product sales in the first half of 2010 were $18 million compared to operating expenses in the first half of 2009 of $26.7 million, which is a reduction of $8.7 million primarily reflecting the closure of the medical production business, head count reduction and other cost saving actions.

Interest and other income was $142,000 in the first half of 2010 compared to $854,000 in the first half of 2009, which included $256,000 of interest income attributable to the enforced judgment with Sony. The interest income related to the Sony arrangement was fully amortized by Q4 2009. Provision for income taxes was $762,000 in the first six months of 2010 compared to $391,000 in the first six months of 2009. These taxes are primarily related to withholding taxes payable in Asian countries and tend to rise in conjunction with the increase in business in these countries.

Net loss in the first six months of 2010 was $2.5 million compared to a net loss of $15 million in the first six months of 2009. Adjusted EBITDA in the first six months of 2010 was $2.3 million compared to a loss of $10.1 million in the first half of 2009, an improvement of $12.4 million.

During the first six months of 2010, the Company generated $150,000 of positive cash flow from operations compared to cash usage of $9.4 million from operations in the first six months of 2009. Our cash portfolio, including cash and investments was $63.9 million as of June 30 2010, compared to $64.6 million on March 31 2010.

In terms of guidance, we remain on track to meet or exceed the high end of the $25 million to $30 million annual revenue outlook that we have provided and to generate adjusted EBITDA for full year 2010. And for Q3, given our current visibility, we see revenues coming in between $6 million and $6.5 million, which is consistent with our historical seasonal trends.

And with that I'll hand it back to Vic.

Thanks Shum. Turning to a discussion of our progress over the past few months, we are pleased to announce that Toshiba is the new licensee using Immersion's haptic technology in the new Toshiba Libretto W100, a dual touch screen Windows Mini Notebook PC.

The recently announced ultra portable features two multi touch screens that work independently or together, giving users flexibility in how to use them. Its UI design includes six virtual keyboard modes and a virtual keypad leveraging Immersion's haptics to provide touch feedback when keys are selected making typing fast, accurate and easy.

Industry reviews have been very positive including the Engadget reviewer stating and I quote, `We're big fans of the haptic feedback.`

We recently announced our new TouchSense 2100 solution to power touch feedback effects in user-experienced design from mass-market touch screen-enabled applications.

This solution broadens our offerings for chip vendors and its design for custom ICs provide a rich array of haptics effects to inject feel into touch screen. The TouchSense 2100 solution is tailor-made for a broad range of applications and supports integrated and advanced UIs and touch gesture based interactions. It may be implemented to provide feedback in touchpads, capacitive buttons, touch screens and virtual keyboards.

As we've indicated in the past, integrated offerings are one of the best ways for Immersion to cast a larger shadow and quickly address the growing demand for our haptics technology in a broad range of markets. Additionally, it's a highly leverageable model providing us with access to thousands of FAEs while minimizing our own sales and marketing spend. We are working diligently to support our chip partners with solutions like TouchSense 2100 and we are starting to see evidence of our technology at work within the larger ecosystem. For example, in May, our partner Cypress Semiconductor launched their first haptic product.

Immersion also continues to make headway in the medical market recently adding two new licensees. The first reflects continuing momentum for our Company in the growing robotics surgery market through partner SOFAR, a leading Italian manufacturer of medical devices for minimally invasive surgery.

SOFAR will use our TouchSense technology in its ALF-X telesurgical robot system. Immersion solution will provide haptic feedback in the cockpit and console from which surgeons control and manipulate the system engaging the sense of touch to assist and device navigation and laparoscopic procedures. The system is intended for use in hospitals, universities, medical training centers, and research organizations worldwide.

SOFAR joins MAKO Surgical as a key licensing partner of Immersion in the surgical robotics equipment market, which is forecasted to reach $14 billion by the year 2014, according to market researcher Piribo. We view the medical segment as a key long-term growth area for our Company moving forward. In addition, we have achieved the positive outcome to our litigation with Simbionix.

As you may recall, Immersion initiated a patent infringement suit against the Company in April of 2008 related to medical simulation products. While the details of the agreement were not disclosed, the settlement resulted in a non-exclusive worldwide license for Immersion's extensive patent portfolio for medical training and simulation, which is expected to be used across a number of Simbionix's product line.

Along those lines, during the quarter, Immersion was also recognized for our extensive IP portfolio as the recipient of the Clarus Innovation Award from MDB Capital Group, an investment research firm focusing exclusively on companies that possess market changing, disruptive intellectual property. We were selected out of a pool of thousands of companies including over 75 nominees to receive the award, which recognizes technology leadership and was presented to the top Company in each industry with the highest tax score within their proprietary models and number of patent grants. As a Company, we remain committed to continued innovation and unlocking the full potential of our patent portfolio.

Relative to corporate updates, on July 15, we filed a motion to dismiss the consolidated securities class action against the Company. A hearing on this motion is currently scheduled for October 29.

To conclude my formal remarks, we continue to make steady progress across our growth initiatives targeting increased volumes from existing and new licensees, increased penetration of our haptic solution across a wide range of end markets through both our in house effort and network of ecosystem partners, and continued innovation and technology leadership through product development.

As evidenced in our results, we have made significant progress in reducing our operational expenses and have set the stage for a more normalized run rate relative to our ongoing business moving forward. The industry clearly is in the midst of a very favorable technology trend that are expected to drive strong adoption of haptics. As we move to the back half of the year and complete our three-year strategic plan, the opportunities in these large and rapidly growing markets provide a level of excitement we've never experienced before.

We are focused on effective and efficient execution with strategic focus in a few key areas: one, being driving the adoption of high definition haptics into the market; two, refining our IP strategy; three, scaling our chip partner market penetration; and four, growing our design pipeline.

I'd like to thank you for your continued interest and support of Immersion. We'll now open up the call to your questions. [Akela]?

Thank you, sir. We will now begin the question and answer session. (Operator Instructions). And our first question comes from the line of Jeff Schreiner with Capstone Investments. Please go ahead.

Hey good afternoon guys, thanks for taking my questions. Great job on the quarter, Shum and Vic.

Thanks, Jeff.

Thanks.

Just to kind of stick with some of your comments at the end, Vic, I noticed that in my model at least in the way we track EBITDA which is just restructuring, stock comp, amortization, one-time tax impact, exactly -- excuse me, amortization, depreciation and stock comp, correct me. It's a first time that EBITDA is in positive since March '07. Is this now maybe a little bit of a change in term of what you said in terms of a norm that we should start seeing this adjusted EBITDA number start to trying to a little bit more positive?

Well, clearly, that's our focus and we're excited to be through that hurdle for the first half of the year as we've committed will be positive adjusted EBITDA for the full year. I think you're seeing not only great revenue growth in all our markets, you're seeing new customer, new products, new programs, so we're capitalizing on the tremendous growth in the touch transition in the marketplace. We're also I think being quite prudent and efficiently operating the business reducing expenses, adopting what we think is a more appropriate business model. So, the combination of revenue growth, cost controls is one that portends great for our profitable future.

Okay. Obviously guidance was a little bit, I think flatter than what some of us expected, but it seems like you still feel that you can reach your targeted goal that you laid out before of $25 million to $30 million. And I think maybe correct me if I am wrong the language changed a little bit where you think you can hit the high end of that. And In fact to do that to hit the high end or great as I believe it says in the earnings release, you likely need a large step up in the December quarter. What gives you the confidence sitting here today to make that kind of assumption?

Well, yes, we are comfortable at the high end of the range even higher. I think recently we've signed a number of new licensees. As you're probably well aware we've mentioned that CAE, Simbionix and SOFAR just to name a few. We've got new products with the Immersion haptic technology launching the Toshiba Libretto is one. There is quite a strong line up of phones coming from Nokia, Samsung and LG. So, that gives us a lot of confidence.

We've got chip partners launching their touch controllers with Immersion haptics. We hope to have solutions in the market this year from Renaissance and Cypress and possibly even Atmel, so that's also positive. Auto design wins that we believe were in the pipeline from our ecosystem partner should also contribute. So, when you add up the line up of customers' products and programs, we believe revenue is looking pretty healthy.

Okay. And then there's a new kind of form factor coming out within the PC market that incorporates very large touch screens, tablet-based designs when we've seen products such as the Apple iPad. Has Immersion secured any tablet based design wins either direct or maybe though chip competitors? And is there any timeline in which over the next 6, 9, 12 months we might be able to expect royalties from this new segment?

So the first one is the Toshiba Libretto that we mentioned that was I think [that with] great fanfare in the marketplace. They are originally showcased at as a technology advancement and one that they expect to migrate into products. So, we expect to see great success with the Toshiba Libretto. Behind that, as you are aware, there are number of others that are also considering and utilizing the Immersion technology whether direct from Immersion or through our chip partners, so we do expect to capitalize on that trend.

Okay, thank you for your time gentlemen.

Thanks, Jeff.

Thank you. And the next question comes from the line of Matt Bendixen with Craig-Hallum Capital. Please go ahead.

Hey guys.

Hi, Matt.

Quickly, was that Toshiba deal -- is that broader license deal (inaudible) per unit license fee type of deal?

It's license with Toshiba, it's a per unit deal.

Okay. Perfect. And then just one other question, for that $1.1 million of non-recurring revenues there. Can you break that out between medical on royalty adjustment?

The $1.1 million is actually all medical. And what had occurred is we had product shipments that were captured in the deferred revenue line prior to the transaction with CAE. Subsequent to that transaction activities occurred that allowed us to recognize that revenue. And so, the net of it is we have cleared out all of our medical product deferred revenue and, as Shum said, we'll not be recording any more medical product sales for the three product lines transitioned to CAE going forward.

Great. Thanks guys.

Yes. Thanks Matt.

Thank you. And our next question comes from the line of Aaron Husock with Lanexa Global. Please go ahead.

Great. Thanks for taking my questions. I've got a couple, maybe just first on operating expenses. You had guided to operating expenses of $7 million for the quarter and yet it is coming in at $5.8 million, which is great. So, as I look at the guidance for OpEx of $6 million to $7 million in September, and my impression was that you still have a little bit more streamlining of G&A, kind of bringing that down in September. Can you walk me through, I mean where a $700,000 increase in OpEx is going to come from sequentially or if there is some conservatism built in there?

No, absolutely, we expect a sequential increase in OpEx because we've got some marketing and R&D programs that we plan to launch next quarter. And so, there will be a sequential increase in OpEx. But going forward, we expect OpEx to be in the $6 million to $7 million range excluding depreciation and amortization per quarter.

Sorry, Aaron, I would, just to clarify, I think our previous guidance, there is really two ways to measure operating expenses, one is under the GAAP recognition and under GAAP, I think for the quarter we were around $7.2 million, so that's probably a little lower than we had originally planned. But when you back out the non-cash expenses, as Shum has already identified then you are down to the $5.8 million. So I just wanted to clarify that, I want to make sure we're comparing apples-to-apples here.

So, is your $6 million to $7 million, is that GAAP or is that cash?

No, that's cash.

Okay, okay. So at the midpoint cash OpEx goes up $700,000 sequentially.

Yes.

Okay, good. But then we should expect it to hold relatively flat in that range for the next several quarters?

Yes.

Okay, good. Can you tell us -- I know you don't really want to get into the business of breaking out revenue by end market anymore. Can you tell us, it's my impression that you have kind of guided mobility sales to be down seasonally in your June quarter to reflect the March quarter handset market seasonality? Did your mobility sales end up being down sequentially in June or has touch screen adoption been strong enough at your lead customers that mobility sales were actually flat or up sequentially in your June quarter?

So, we did get a healthy growth and increase in the mobility revenue. They are having success in the marketplace and so we benefited from that.

Sequentially, is that healthy growth?

I believe so, yes.

Yes.

Okay, great. And do you expect -- so can you walk me through what you mean by seasonality for the September quarter given that mobility, which is the biggest piece of your business, if seasonally the handset market was up in the June quarter, your kind of lead customers, reported mixed results, but in general talked to a higher touch screen adoption in the June quarter. Where is the seasonality, the negative seasonality coming from in the September quarter guidance?

So, I would say that historically in all the other markets that we operate in, gaming, automotive, medical, those markets typically do affect, have some seasonality because a lot of consumer based products are geared up for Q3 shipments and Q4 sales, new automotive product launches occurred later in the year. Medical products are typically budgets are filled and products are delivered later in the year in the fall as the new training programs kickoff. So, I think the seasonality would affect the non-mobility market historically and that's what we're anticipating going forward.

Okay. I mean if I just look back at your gaming revenue, as you guys have broken that in your SEC filings, historically it looks like at least in the last two years it was -- last three years it's been up sequentially in the September quarter, and medical hasn't been up every year, but it's been up quite a few years in the September quarter. I mean, is there something more pronounced in auto, or something that you see? Well I guess, is part of it this one-time catch-up payment in gaming going away, is that part of the seasonality or the negative impact we are talking about?

Well again, I think if you look at, historically, it's typically been seasonally down in Q3. There may be in any given year a product launch or a customer launch of a particular successful products that might affect that to some degree. But from where we sit as we look out, I think we would expect it to still have some seasonal weakness in those markets.

Okay. What was the amount of the catch-up payment in gaming?

So in the gaming space, it's actually in all our markets, all of our licensees they typically report based on product lines, volumes, royalty rates, and periodically our licensees make corrections, either they identify new product lines covered under the license or they do their own audits to capture additional volumes, adjust the royalty rates, if you will. And so as a result, these occur pretty much on a frequent basis. It just so happens in this quarter, in the gaming sector the amount actually turned out to be a little larger than normal, something slightly above 500,000 total.

Okay, and that's not included in the $1.1 million number?

That's correct.

Okay. Great. Thank you. I'll get back in line.

Thanks, Aaron.

Thank you. (Operator Instructions). And our next question comes from the line of [Robert Kast with SunWest Capital]. Please go ahead.

Hi, Vic and Shum.

Hi.

Good quarter. I have a few questions. On the revenue side, are we to assume that there are no more product sales going forward as far as no more development contracts or will there still be development contracts?

There will continue to be development contracts and product sales. The three product lines that we transitioned to CAE, we saw the last of those revenues in this quarter. But as we go forward you will continue to see sales of our virtual IV product. You will also see some very minor amounts of product sales, typically these are development kits, and in some cases components that we make available to our partners as part of their early launch plans.

So in aggregate that dollar amount for both of those should be sub $500,000 in any given quarter in terms of modeling?

It just depends on the business, the volume and so on. But I think this quarter what you saw is approximately a $1 million in extra product sales related to these three product lines, which will not be going forward.

Okay.

Separately they will be covered under the license agreement with CAE. So there will be revenue recognized going forward, but not from the product sales themselves. It will be from the licensing based part of our relationship with CAE.

So give or take going forward if we back out that $1 million odd from this quarter's product sales and development contracts, that would be sort of a go forward run rate, the balance?

Again, that's not a bad estimate.

Okay. Which should mean that with your guidance, the royalty revenue, license and royalty revenues actually drops sequentially, more significantly from the June to September guidance?

Yes, given the seasonality, if you were to compare the Q2 license and royalty to the Q3, we would expect the licensing and royalty revenues to decrease sequentially.

Okay. And I have a question, a follow on question on the deferred revenue bucket. What is in there? How does it flow through into the income statement and what is that for?

Sure. So the deferred revenue, you will notice the total deferred revenue is in two components $5.6 million short-term, $18.3 million long-term. That $18.3 million, the bulk of it is from Sony and deferred revenue as you know occurs when we bill, but cannot recognize revenue according to GAAP because certain conditions are unfulfilled.

And that flow through the income statement?

That flows through the income statement, once those conditions are fulfilled, those deferred revenues become revenues.

Okay and what are those conditions with respect to --?

It can be a variety of different conditions with a variety of different customers. There might be certain deliverables that has not yet been delivered. So, as long as you have deliverables that have not been fully delivered, you're not allowed to take that as revenue. Once you have delivered those they come into revenues from deferred revenue.

Sure. And how much of the revenues derived from this quarter came from, I guess transitioned from the deferred?

We don't track that information, but it's approximately about 40% or so would come from deferred.

All right. And then you'd have to get new deferred revenues to offset.

Yes, so as every quarter, you have new billings and some of those are immediately recognizable as revenues and some of those aren't and they get into the deferred revenue on the balance sheet.

All right. Okay. And then just another question about your new high definition haptics products, I was, I guess (inaudible) and you are showing I guess the benefits of your newer product, and have you seen any adoption of that yet or increased interest in that?

Yes, I think as you noticed there is a lot of enthusiasm at the show and since that time a lot of excitement around the benefits of our high definition solution. There is also quite a bit of design activity and engineering work and training and education ecosystem partner support all in preparation for those product launches.

Thank you. And our next question comes from the line of Shawn Boyd with Westcliff Capital Management. Please go ahead.

Hi, congrats on the quarter.

Thanks, Shawn.

Just a couple, if I may, the conversation earlier regarding royalties and the reconciliation of royalties in gaming, if we pull out the $0.5 million, we end up at about $5.8 million, is that correct?

In terms of prices.

Correct.

Yes.

Adjusting for that. My next piece to that is, should I really pull that out? And I'm going back to Vic where you said this happens frequently. So how often does it happen and is it really -- should I really (inaudible)?

Well, it's something that occurs on a regular basis. As I said, in this particular quarter looking back at prior quarters, I don't think we've had a quarter where the amount was quite as large. So I would say that some of that probably will not recur in Q3, but as our current licensees adjust their reports as products were added and so on that those minor adjustments occur on a pretty regular basis.

Okay. So, in an order of magnitude, if you get a couple of hundred thousand in reconciliation payments and royalties per quarter, that's not too unusual.

Yes, I would say that wouldn't be terribly unusual, no.

Okay. And on the medical, I was hearing two different numbers, Vic, I thought I heard you say that the $1.1 million that was a downside on that press release with all medical, but then Shum I thought you mentioned there was $900,000 in product sales from medical, so can you just help me clarify that?

Rounding.

Rounding okay. So it's $1 million in the product sales. Okay, and I guess last question on this is in terms of these additional sales, were there any costs associated with them, I think COGS or in operating expenses in the quarter?

Yes, in terms of these $1.1 million of sales, the COGS are about $300,000 to $400,000.

Okay. Great. That's it for me. Thank you.

Thanks, Shawn.

Thank you. And we have a follow up question from the line of Aaron Husock with Lanexa Global. Please go ahead.

Great. Thank you. So now that you guys are a profitable Company, congratulations. How should we think about the tax rate going forward?

Well we've got a lot of NOLs and about $50 million of NOLs. And so from that point of view it will take us a very long time to utilize those NOLs. Now, having said that, we do sell to a lot of Asian markets and we would be incurring, withholding taxes on those sales. So, for instance, this quarter we've recorded about $400,000 of income tax expense and going forward you should expect that same level of tax expense every quarter.

Okay. Great. And then Vic, going in the past you've talked about hopefully signing a new handset licensee before the end of this year and having a product launched by them in the market. Could you just give us an update on that? Are things still on track? When should we expect to hear from you on that?

Well, you'll hear when we are able to announce it, but I think what I said is that we are working towards signing one to two new cell phone licensees by the end of the year and we're hopeful to have a piezo-based phone launched during this year. So, we're still working towards those in anticipation.

Great. Thank you.

Thanks, Aaron.

Thank you. And our next question comes from the line of Chris Donnelly with Pacific Rock Capital. Please go ahead.

Thanks guys for taking my call. Good quarter. I had a question as it relates to the OpEx going forward. I know you're talking about a little bit of an uptick in OpEx in the third and fourth quarter. Can you just kind of give us a sense how much revenue you think you can support assuming the business continues to ramp on those kind of OpEx levels to give us kind of a sense of the leverage in the model?

Well, I think as we said, the OpEx we think will trend up slightly in Q3, although until you actually count all of the expenses and bills you really don't know. But we feel pretty confident given the estimate we did. That's a level that we think we can sustain quite a bit of growth as we go forward, so I would say that's the type of cost structure you would expect to see into 2011.

As you kind of look forward, have you identified what you think would be in your mind at least what a target operating margin will be for the business?

Yes, we have kind of looked at that and obviously there is near and long-term and I think as we move out an operating margin of 20% plus or something we think is achievable over the next -- within the next few years.

Okay. Thanks guys.

Yes. Thanks Chris.

Thank you. And at this time there are no further questions in the queue. I would like to turn the conference back over to management for closing comments.

Thank you. And thank you for being on the call with us today everyone. We look forward to seeing you on the road and updating you again on our next quarterly call. Thank you and have a great day.

Ladies and gentlemen, that does conclude our conference for today. We thank you for your participation. And at this time, you may now disconnect.