Peraso Inc (PRSO) 2012 Q2 法說會逐字稿

Good morning, and welcome to the MoSys second-quarter 2012 financial results conference call. (Operator Instructions). As a reminder, this conference call is being recorded today, Friday, July 20, 2012.

I would now like to turn the call over to Beverly Twing of Shelton Group, the investor relations agency for MoSys. Beverly, please go ahead.

Thank you, Frances. Joining me on today's call are Len Perham, MoSys' President and Chief Executive Officer, and Jim Sullivan, Chief Financial Officer.

The second-quarter 2012 financial results press release was distributed earlier today and is available on the MoSys website at www.MoSys.com.

Before we begin today's call and discussion, I would like to remind everyone that this conference call will contain forward-looking statements based on certain assumptions and expectations of future events that are subject to risks and uncertainty. Such statements are made in reliance upon the Safe Harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which include, but are not limited to, benefits and performance expected from use of the Company's embedded memory and interface technology and ICs; expectations concerning the Company's execution and results; expected benefits of the Bandwidth Engine ICs; product development; achievement of design wins; and timing of shipments of Bandwidth Engine ICs; predictions concerning the growth of the Company's business and future markets and business prospects, strategies, objectives, expectations, or beliefs.

Forward-looking statements made during this call are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Additional information concerning factors that could cause actual results to differ materially from any forward-looking statements made during this call are contained in the Company's most recent annual reports on Form 10-K and Form 10-Q filed with the Securities and Exchange Commission, in particular in the section titled risk factors, and in other reports that the Company files from time to time with the Securities and Exchange Commission. MoSys undertakes no obligation to publicly update any forward-looking statement for any reason, except as required by law, even if new information becomes available or other events occur in the future. Thank you for your attention.

I will now turn the call over to Len Perham, Chief Executive Officer of MoSys. Please go ahead, Len.

Thank you, Bev. Good morning, everyone, and thank you for joining us.

I'll start today's call with updates on our Bandwidth Engine IC family. Jim will then discuss our IP business and second-quarter 2012 financial results, prior to opening this call for some questions.

I'm going to talk a little bit about our operations and the progress we made on our design wins in the most recent period. Operationally, MoSys continued executing at a brisk pace during our second quarter. Our first-generation bandwidth integrated circuits were released to production in early May, and we saw some significant -- or some increase in both shipments and backlog over the prior quarter as our lead customers advance further into their system development cycles. I'm cautious about overemphasizing increase in inventory because the customers are still in the pilot production and system bring-up phases. They haven't released to their channels yet.

As you recall, last quarter we discussed design wins for multiple LAN cards with multiple OEM customers of networking and telecommunications equipment. During this quarter, we were audited by these same companies as far as our compliance to ISO-9000 and our ability to demonstrate that we can meet both their quality -- their stringent quality and their stringent servicing requirements in terms of our policies, procedures, and processes for manufacturing and delivering high-quality ICs on time, every time.

As a result of these audits, our customers no doubt gained some additional confidence in our capability to meet all compliance standards, as well as to support their stringent servicing requirements. We are now working closely with these customers to integrate our first-generation high-speed serial access Bandwidth Engine into their next-generation line cards.

We're also collaborating closely with these customer partners as they labor to integrate these advanced line cards into next-generation systems and move rapidly towards full system qualification. Our combined efforts have resulted in very good progress to date, but much remains to be done. Maybe most gratifying is some of these companies that are our early adopters are already chatting with us about 400 gig systems and where Bandwidth Engine 2 might play, and so on and so forth.

Another area of operational focus is driving manufacturing efficiency and driving cost reduction. Now that we are in pilot production, our operations personnel are focused on improving yield, reducing test times, and generating other process and manufacturing improvements to ensure we achieve the best cost basis as possible for these integrated circuit products. The MoSys team's intense commitment to operational performance and superior customer support is gratifying, and we are committed to making further progress by applying this newfound base of wisdom to our second-generation Bandwidth Engine family and beyond.

A little bit about demand creation. Before I talk about our new product developments, let's discuss our efforts to further incite demand and increase design win activity. We've been working hard to expand our sales channels and increase sales activities across three primary sales regions, those being Japan, China, and the United States.

To date, we've had our best success and probably strongest presence, if you will, in Japan, including the benefit of a very strong relationship with Macnica, who provide us with local distribution, local inventory, and excellent application engineering support.

In addition to the multiplatform design wins we've achieved to date with the major Japanese-based networking equipment suppliers, we have multiple potential design win projects in the pipeline with various other network and telecom OEM suppliers in this region. Based on current expectations, I remain optimistic that we will win designs at many, if not all, the network equipment suppliers in Japan in the coming quarters.

In China, John Monson has made some very good progress working with our local distribution partner, and Herrick Wang, our on-site direct employee. The level of potential design win activity has increased with two new evaluations underway with networking companies. We have the attention of the major networking companies there and continue to diligently work these design win opportunities. The prospects for future design wins in China look very promising.

In the US, we expanded our sales channels by adding a sales rep firm here in northern California and adding Macnica Americas as a nationwide distributor and demand creation partner. Our partnership with Macnica in Japan has been very successful and our new relationship with Macnica Americas should further our demand creation efforts here in the US, leveraging their strong application support resources.

The level of activity in the US with our design wins in progress is also increasing, and we have been actively working with many of the key players. We had several mid- to late-stage discussions in progress with a few companies and we are hopeful we'll be able to announce a couple of design wins before year-end 2012.

Overall, our sales activity across the channel (technical difficulty) increasing across all regions. We have a strong pipeline with more than 10 design wins in progress. We are actually tracking quite a fair number of opportunities. I attribute this increased activity to our intensely-focused sales efforts.

Customers continue to be impressed with the performance levels achievable with our first-generation Bandwidth Engine family of products, and I believe this is setting the stage for our next-generation IC products that will operate at higher speeds, substantially improved efficiency, and with significantly enhanced feature sets.

A little bit about product development -- Bandwidth Engine 2, Bandwidth Engine 3, and so forth. Let me turn to our progress on our product development for our next-generation ICs. Bandwidth Engine 2 is expected to tape out next month. We're probably within a few weeks of being on our original schedule for something that was going to take nine to 11 months, so it might be -- instead of July 15, it could be anywhere between now and August 15, I suppose, something like that.

Let me take a moment, though, and acknowledge the efforts and dedication of the engineering team, who have now gone into the phase of working nights and weekends in an all-out effort to finalize the design, complete the verification, and prepare this product for tape out.

At the recent Lindley Tech Carrier conference in June, we announced some of the new features and enhanced capabilities of our second-generation Bandwidth Engine IC family. Bandwidth Engine 2 is designed to support up to 400 gigabits of bandwidth for next-generation networking systems. It has greatly enhanced capabilities; is able to support various additional applications on the line card, such as counting, metering, statistics, queuing, policy, and so forth. And the current schedule would have us sampling Bandwidth Engine 2 late in the fourth quarter of this year.

We're also moving forward with the definition of Bandwidth Engine 3. Last quarter, we mentioned that this chip was approximately 40% defined. To ensure this design will support future systems requirements, we are in conversation with multiple customers, first and second tier, looking at what changes we can make to the I/O, evaluating different potential feature sets, and, by leveraging our many customer partner relationships and relying on our deep understanding of system applications, we will ensure that the products our development teams create will be ideally configured and featured to support the advanced needs of the systems our customers have on their drawing board.

My last point on the product front is an update on our GigaChip Interface. We continue to see growing interest and growing utilization of this interface and are working closely with our customers and their FPGA suppliers. Excellent support from both Altera and Xilinx have been critical in getting us to where we are so far with our interface.

It's also gratifying to see the potential customers and partners encouraging other of their suppliers to adopt our interface because of its efficiency and small density, if you will, or small area.

In summary, the second quarter reflected significant progress toward expanding our integrated circuit business and increasing sales and design activity for our first-generation products. Going forward, we'll continue to focus on inciting more demand while managing our costs and advancing the development of the next-generation ICs on our product roadmap.

I'm going to pass this call to Jim now for a business update and review of our second-quarter financials. We will then open the call for questions, followed by a few closing remarks. Jim?

Thank you, Len, and good morning, everyone.

During the course of my comments, I will make several references to non-GAAP numbers. Unless otherwise indicated, each reference will be to an amount that excludes stock-based compensation expense and intangible asset amortization. These non-GAAP financial measures and a reconciliation of the differences between them and comparable GAAP measures are presented in our press release and related current Form 8-K, which was filed with the Securities and Exchange Commission today and can be found at the investors relation section of our website.

Prior to discussing our financial results, I'd like to first address our IP business. We continue to record licensing and royalty revenue from ongoing SerDes and 1T-SRAM IP projects. However, as mentioned on previous calls, we are not actively pursuing additional licensing agreements as we've completed IP asset sales in recent quarters. This aligns with our strategy to de-emphasize and monetize our IP in order to achieve our primary business objective of becoming a fabless semiconductor company.

That being said, our team continues to support existing IP customers and is working to complete our technology transfer obligations to Synopsys, which arose from our $4 million sale of SerDes technology in March. We expect to complete these obligations and receive an additional $1.2 million payment in the third quarter.

Now let's review our second-quarter results. Total revenue was $1.7 million, compared with $1.4 million for the first quarter of 2012 and $3.3 million for the second quarter of 2011.

Licensing and other revenue for the second quarter was $0.6 million, compared with $0.2 million in the first quarter of 2012 and $1.2 million in the second quarter of 2011. The sequential increase was due to follow-on revenue from existing license agreements and maintenance renewals. License and other revenue for the second quarter included revenue from 10 licensees, compared with nine in the first quarter.

Royalty revenue for the second quarter was $1.1 million, compared with $1.2 million for the previous quarter and $2.1 million for the second quarter of 2011. The sequential decrease in second-quarter royalty revenue was primarily due to reduced royalties from a gaming product license fee. Second-quarter 2012 royalty revenue was recognized from 12 licensees, compared with 13 licensees in the first quarter of 2012.

GAAP gross margin for the second quarter was 90%, compared with 96% for the prior quarter and 86% in the year-ago quarter. The sequential decrease in gross margin was primarily attributable to the higher license revenue and its associated cost, with the license revenue representing a larger portion of our total revenue.

In terms of operating expenses for the second quarter, research and development expenses were $6.7 million, compared with $7.5 million in the previous quarter and $6.6 million in the second quarter of 2011. R&D expenses decreased sequentially, primarily due to lower headcount costs, Bandwidth Engine test costs, and amortization of intangibles.

Selling, general, and administration expenses were $1.4 million, compared with $2.9 million in the previous quarter and $1.9 million in the year-ago period. The sequential decrease in SG&A expense was primarily attributable to one-time legal fees and settlement expenses recognized in the first quarter, combined with a reduction in year-end compliance expenses. The legal settlements in the first quarter related to an unfavorable arbitration judgment received relating to a contract dispute arising from the Company's acquisition of analog/mixed-signal technology in 2007.

Total GAAP operating expenses for the second quarter were $8.1 million and included $0.6 million of amortization of intangible assets and $1 million from stock-based compensation expense. Second-quarter total operating expenses compared with $8.6 million in the previous quarter, which included a net gain of $1.9 million received from the sale of a portion of our SerDes IP, and also compared with $8.5 million in the second quarter of 2011.

On a non-GAAP basis, total operating expenses for the second quarter of 2012 were $6.6 million, compared with $6.9 million in the previous quarter and $7 million for the second quarter of 2011. We continue to closely manage our operating costs while maintaining the necessary investment for developments of our Bandwidth Engine ICs.

On a GAAP basis, net loss for the second quarter was $6.6 million, or $0.17 per share, compared with a net loss of $7.2 million, or $0.19 per share in the prior quarter, and a net loss of $5.7 million, or $0.15 per share, for the second quarter of 2011. On a non-GAAP basis, net loss for the second quarter of 2012 was $5 million, or $0.13 per share, which excluded intangible asset amortization and stock-based compensation expenses totaling $1.6 million, compared with a non-GAAP net loss of $5.5 million, or $0.14 per diluted share in the previous quarter, and a loss of $4.2 million, or $0.11 per share, in the year-ago period.

Net loss per share for the second quarter of 2012 on a GAAP and non-GAAP basis was computed using approximately 38.9 million shares.

Now turning to the balance sheet. As of June 30, 2012, our cash and investments balance was $48.9 million, compared with $54.7 million at March 31, 2012. The $5.8 million sequential decrease in cash and investments included the one-time $1.4 million legal settlement payment made in the second quarter.

As of June 30, our total headcount was 115 employees, compared with 143 employees as of December 31, 2012 (sic). Over 80% of our employees are in engineering and research and development. Of our total employee account, 21 are located in India, which is consistent with the previous quarter.

This concludes my prepared remarks. At this time, we would like to open the call for a question-and-answer session. Please clearly state your name and company affiliation prior to asking your question.

Operator?

(Operator Instructions). Gary Mobley, Benchmark.

Hi, guys, and good morning. Len, last quarter you, I think, talked about the same number of design wins in progress. That is a number of about 10. And I think, as well, you talked about one of those transitioning to maybe a full-on design win with a potential customer in Japan. How has that number of design wins in progress and actual design wins changed in the past 90 days? And when would you expect to lock up more full-on design wins for the Bandwidth Engine?

Yes, we had something in the order of maybe five different line card wins occur that we reported on last quarter.

We said multiple wins at multiple locations. And we're probably a little lack of sharp pencil analysis of what was going on there with the design wins in progress at the end of last quarter versus stuff that had now converted into the win column and is going to move into prototype, production, and actual system level integration.

So bearing that in mind, this quarter we come back and we see 10 design wins in the channel after we've taken out these other opportunities that have moved into the design win column. I think that we can say that the level of activity at a couple of locations in the United States has moved to reasonably intense now, and we can see both existing design wins here now moving up into the win column, and in one case it's a fairly recent company that we've really had accelerated conversations with regarding getting into their next-generation system.

Additionally, John Monson and Herrick Wang have been doing a great job in China, and we now can see that we're very close to -- we're in the final stages, if you will, of winning a design there as well.

There are several new potential design wins that are being pursued by the Company. I don't have an exact number this morning, but I think in saying that we just have 10 that we're following, I'm probably being conservative.

And the ones that are heating up are, in some cases, opportunities that two calls ago I wouldn't have pointed at. And some of the new activity is very gratifying, as well. I would have said on the summary here today that we have every right to feel very gratified about the level of activity going on in our various sales channels now. There is an accelerated level of activity, and it's very, very encouraging, Gary.

Okay. Have any of these potential customers pushed back on -- or, I guess, deferred a decision until Bandwidth Engine 2 has been made available?

No. Actually, Bandwidth Engine 2 is -- I'm going to call it an evolution in terms of performance, an evolution in terms of feature set, and an evolution in terms of -- I should break that down into enhanced existing features and the introduction of totally new features.

From our point of view, Bandwidth Engine 2 has the opportunity to give us a lot of leverage over cost because it's a different process node and the die side should be significantly smaller. And since you pay for unit area of silicon, this should allow us to pass some cost savings on to our customers and, at the same time, develop a much better cost basis for ourselves, if you will.

Having said that, in some cases, as we looked at the various statistical queuing, policy, and counting requirements that modern-day line cards have, when we fleshed out the features on BE-2, in some cases we made that part much more effective and maybe even more efficient at solving some of these problems that we were just -- these new applications or these more clearly understood applications, if you will.

So in some cases, customers will probably -- and again, I think it's timing. We can look out now and see some of our design wins in progress will probably most effectively be served by Bandwidth Engine 2.

But maybe, if I'm anticipating you a bit, Gary, we don't particularly have anybody that's looking at doing all of his work with one and then ramping up two, and one of the reasons that 10 lanes -- 10 serial lanes running at 10.3 gig, it's easy to say that two parts are PIN compatible, but running at these signal speeds it really is a very sensitive issue to switch from one to another.

So we aren't seeing any cannibalism of Bandwidth Engine 2 trying to eat Bandwidth Engine 1 before it got down to the end of the runway. We're not seeing that kind of a problem.

Okay. And Jim, I'm assuming you're anticipating your R&D to be higher in the third quarter -- perhaps substantially higher due to the tape out of Bandwidth Engine 2. Is that a fair assessment?

Yes, that's correct.

About $1.5 million higher?

We expect -- I'd put it between $1.5 million and $2 million.

Okay. That's it for me. Thanks, guys.

Thanks, Gary.

Suji De Silva, ThinkEquity.

Good morning, Len. Good morning, Jim. Quick questions on the product with the initial customers that you were talking about, Len, what stage they are in terms of coming up to production volume. Can you just go over that again, at this point?

Yes, so basically last quarter we announced that we had won some designs, and that meant, using the definition that we came up with some quarters ago, that we felt that the schematics were frozen.

And I didn't mention much about it on the call, but during this most recent call, we had the quality guys come in and audit our compliance to ISO, and we had the manufacturing people come in and audit our ability to allow the customer to run at zero inventory and have availability real-time all the time without having to carry a lot of inventory somewhere between us.

But I should have mentioned, we've also sent our applications guys back and forth to our partners a few times in the quarter as well, and those conversations now are about our real system-level problems -- boards interfacing to other boards or things interfacing to each other on the actual line card.

So the design wins that we said are design wins, the customers are getting ready now, in my opinion, to build pilot quantities of their systems and to put them out into their beta sites and their channels and to see what the demand for a particular performance level or cost performance level system might be. And the minute he gets a reading, he's then going to come back and he'll place a production order with us. And the production order would be then to fill his channel, and in some cases, these guys are pretty big companies, so when they place an order to fill their channel, it's fairly sizable.

So I think where we are with the design wins is we are in the stages now of supporting them, getting their prototype builds out, and getting their beta boxes out into the field at whatever locations they want to get them to, looking at real-world challenges that face system designers now as they adopt this new high-speed serial RAM and they move in the direction of serializing their line cards.

And by the way, there's a huge amount of enthusiasm for that. I would say that probably now, more than any other time, there's very little conversation now about whether or not it's going to go serial, and I think that's probably because 100-gig systems are going to become the reality and 400 are moving up on the drawing board. And as you recall, I may have said one to two times along the way here that it becomes increasingly more difficult to even consider doing it the old way anymore. So I don't know -- Suji, I hope I've answered your question.

No, that was good, Len. That was the kind of the detail I was looking for.

And Len, so what's your best estimate for a new customer coming on today to get to that point where they're a near production fill? I mean, how long are we talking about? Two, three quarters, or?

I would like to think -- we're in the middle of our third fiscal quarter right now -- or our third calendar quarter, one and the same. I would like to think we're going -- and I mentioned it earlier, I would like to think we're going to have a couple more design wins from US or elsewhere before the end of the year, which happens to be -- you know, just between you and I -- midnight, December 31.

However, in the United States, there isn't too much activity after December 15. But I'm going to be disappointed if we don't have a couple more design wins before the end of the year.

Okay. And then last question, really stepping back, Len, how do you see end-market demand, and the networking market has been certainly choppy here, and is Japan ahead of the curve here where your first customers are in terms of [boeing]? Thanks.

In terms of -- so first off, about the market. I think the market is in pretty heavy weather.

I think the guys that have to drive a huge amount of revenue out of the market right now and depend on shipping systems into real-world applications on an ongoing basis -- in other words, my customers -- I think business is reasonably worrisome for them right now in light of the macroeconomic situation.

Having said that, you can hardly have a week go by where somebody doesn't talk about the need to adopt some new higher-level performance standard for either mobility, mobile devices, which now, basically, just run the Internet. They're becoming a bigger and bigger percentage of the activity on the Internet. But hardly a week goes by that you don't see the performance level and the density and the complexity of traffic coming out of the mobile devices going up. And then if you go to the system, not very much time goes by and you start running into people that are talking about us cheating some new higher level of communication rate through the Internet itself -- more packets per second, more QOS.

So in light of that, even though we have a little bit of a flat spot in the overall demand and the actual installation of systems around the various continent, the demand for increased performance and increased complexity of information being handled on the Internet is just going straight up.

And it is really -- it's a very challenging time for people who supply the equipment to serve the needs of the users. It's a challenging time because to meet these standards, there's a lot of activity on a lot of fronts. I don't see any cutback in that.

Got it. All right. Thanks, guys.

Krishna Shankar, Roth Capital.

Yes, Jim and Len, in terms of initial production revenues for the Bandwidth 1, would these accelerator cards for existing networking systems? Can you give us a flavor for what types of applications will see first revenues for the Bandwidth Engine 1?

Well, these Bandwidth Engine 1 products are going into the line cards on next-generation or performance-upgraded routing systems, so the line cards are supporting high-speed routing.

I don't think we're particularly confined to the edge or the core or anything like that. I'm going to say that I believe some of these are in the core; I'm not sure all of them are. So we don't particularly apply only in one area, and more likely we see a guy looking at using our product, and as he evaluates its capability, he comes back with more applications poured on his board than less. So I hope that's a fair answer.

Okay. And then, Bandwidth Engine 2 design wins, can you give us some metrics on design wins for Bandwidth Engine 2 and what kind of enhancements that has versus Bandwidth Engine 1?

I mentioned on the -- in my earlier transcript there that we've done a lot to upgrade the feature set in terms of the numbers of requirements it can support on a given line card. There's counting functions; there's queuing functions; there's statistical functions, policying.

And in many cases, we don't replace one part when we serve that application; we might replace six or eight products with just one of ours. I would have to get our applications guys in here, but in many cases we understood those applications better than we had in the past, as a result of our customers introducing us to the fact he was trying to use our part in those areas.

So we took a look at many of them and increased the, I'll call it, support circuitry around supporting that function. As you know in Bandwidth Engine 2, we also put in a cache so that we're capable to support burst mode in applications where people like the burst data. BE-1 hadn't supported that.

Bandwidth Engine 1 runs up to 10 gig in terms of its serial speed, and Bandwidth Engine 2 will likely have some distribution, up to maybe even 15. So the I/O speed is dramatically improved.

If we take a look at just serving the Bandwidth Engine 1 socket somewhere down the road in the future when somebody wants the costs down that come with a next-generation part, we can probably serve that function with maybe even a 20% or 25% decrease in power for 10 gigabits because of the advantages of a more advanced processing node. So there's -- and in some cases, we may have a few new features that we haven't said much about in Bandwidth Engine 2.

In terms of design wins, we're a little bit early. We can look at some requirements for 400-gig systems that -- I mentioned earlier that our design wins, that one or both of those companies -- one more noticeably, or maybe he's earlier, he's making it obvious that he didn't buy our product and design it into his system as a point solution that he might never use again. We can already see that he's looking at using it and evolving it across some families of products he's going to develop over time, some now, some later, some after that. And we can see that he's moving now to understand the feature set that he'll have at his disposal for 400-gig systems, if you will.

Then I guess another comment I could make is some of the design wins that we have that are in progress now, one of them notably here in the US, the customer has moved out his requirement because the generations of products he's releasing right now have moved a quarter or so. So when he moves out that distance and we see where he'll turn on, I think it's not inconceivable that we would have -- we'd be able to supply him and serve him with either one of the products. And because of the feature levels -- feature sets and performance levels he's looking for, we might steer him to 2.

We don't particularly -- I guess that would be correct. I think in some cases customers are looking with increased interest at something beyond what we've discussed in the past where they might take advantage of some of these enhanced features or new features that I've mentioned.

Great. And then, can you talk about -- do you have any kind of strategic partnership, reference designs, or co-marketing agreements with some of the multicore processor companies, Broadcom, Netlogic, Cavium, Freescale, Intel. Can you talk about how your parts have a place at their design platforms and architecture?

Well, we've actually been in the middle of those conversations with some of the people you mentioned and some that you didn't mention. Of course, all that is happening under NDA.

We haven't said anything on this call about signing off a deal that we couldn't discuss, and I did mention in prior calls that we've had a lot of conversations about considering doing a BE-2.5 instead of a BE-3, where BE-2.5 might grab a bunch of features intended for 3, but also do something about hand-shaking with something else on the board in an advantaged way. So those conversations are ongoing, and most of those are always under some fairly severe NDA, so there's not too much to say about it at this time.

But we haven't had anything monstrous happen, but the fact of the matter is we've been having the conversations you mentioned now for the last six months.

Great. And then, Jim, finally, on the balance sheet, what do you anticipate the cash burn per quarter over the next few quarters? Can you give us some sense for the runway?

Yes. I mean, obviously we're not providing forward-looking guidance, but when you look at what we've burned so far in the first half of the year, which was around $9 million, we are obviously -- as Gary asked the question, we're going to see higher expenses on the R&D line with the tape out, buying the mass set for Bandwidth Engine 2 here in the third quarter. And obviously there's a tremendous amount of effort going on around here, higher contracting, costs associated with that.

As I mentioned in my Q&A -- or I'm sorry, in my script -- we'll see some additional funds coming in from Synopsys in the quarter. The net of it is, I think the burn in the second half will be comparable to a little higher. (Multiple speakers). It'll go up in the third quarter, but then come back down in the fourth quarter.

Great. That's helpful. Thank you and good luck, folks.

Thank you, Krishna.

At this time, there are no other questions in the queue. I'd like to turn the call back over to Mr. Len Perham for your closing remarks.

Thank you very much, everyone, for getting on the call, especially any of you guys that are out here in California. It was a little dark out there when I drove in this morning. It must've been the same for you.

Anyway, in closing, I'd make one comment that I intended to convey on this call, that the level of activity with the customers is very gratifying. I can't change anything about when these big boxes ramp into production, so we still think that the ramp is still out there in 2014 and 2015.

But the fact is I can tell you that we're feeling good about what's going on and the level of activity in the Company. If you ask me what I was thinking, I'd be looking at, or doing tomorrow after all these calls are over and done, we'll be looking very, very hard at staying on schedule with our tape out. We'll be looking very, very hard at keeping the heat on winning some more designs, and Jim and I are spending a lot of time taking a look at how we can improve the efficiency of what we're doing from a company point of view, watching our burn rate and going to make a serious effort to get it down here and get it even into a better place than it is because companies don't make sense until they make money.

Anyway, enough said on all that. We intended to have you guys feel good about where we are. We appreciate that you're our partners and we look forward to talking to you again. Thanks very, very much. Bye, now.

And ladies and gentlemen, this concludes your presentation. You may now disconnect and have a great day.