Pixelworks Inc (PXLW) 2019 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Pixelworks, Inc.

First Quarter 2019 Earnings Conference Call.

I will be your operator for today's call.

(Operator Instructions) This call is being recorded for replay purposes.

I would now like to turn the call over to Pixelworks Vice President and CFO, Mr. Steven Moore.

Good afternoon, and thank you for joining us today.

With me on today's call is Todd DeBonis, Pixelworks President and CEO.

The purpose of today's conference call is to supplement the information provided in our press release issued earlier today announcing the company's financial results for the first quarter 2019.

Before we begin, I would like to remind you that various remarks we make on this call, including those about our projected future financial results, economic and market trends and our competitive position, constitute forward-looking statements.

These forward-looking statements and all other statements made on this call that are not historical facts are subject to a number of risks and uncertainties that may cause actual results to differ materially.

All forward-looking statements are based on the company's beliefs as of today, Thursday, May 2, 2019, and we undertake no obligation to update any such statements to reflect events or circumstances occurring after today.

Please refer to today's press release, our annual report on Form 10-K for the period ended December 31, 2018, and subsequent SEC filings for description of factors that could cause forward-looking statements to differ materially from actual results.

Additionally, the company's press release and management statements during this conference call will include discussions of certain measures and financial information in GAAP and non-GAAP terms, including gross margin, operating expenses, net income loss and net income loss per share.

These non-GAAP measures exclude gain on sale of patents, inventory step-up and backlog amortization, amortization of acquired intangible assets, stock-based compensation expense, restructuring expenses, discount accretion on convertible debt fair value and gain on extinguishment of convertible debt.

We use these non-GAAP measures internally to assess our operating performance.

The company believes these non-GAAP measures provide a meaningful perspective on our core operating results and underlying cash flow dynamics, but we caution investors to consider these measures in addition to, not as a substitute for, nor superior to, the company's consolidated financial results, as presented in accordance with GAAP.

Included in the company's press release, are definitions and reconciliations of GAAP to non-GAAP net income loss and GAAP net income loss to adjusted EBITDA, which provide additional details.

With that said, I will now turn the call over to Todd for his opening remarks.

Thank you, Steve, and good afternoon.

And welcome to everyone joining us on today's call.

Beginning with a quick overview of the numbers.

As reported in today's press release, our first quarter financial results were at or above the high end of our guidance range.

Consolidated revenue in the first quarter increased 9% year-over-year to $16.6 million, including continued solid growth in video delivery and mobile, combined with mobile-related licensing revenue.

As a result of the licensing revenue, gross margin came in better than anticipated and contributed to first quarter EPS at the high end of our guidance range.

Additionally, during the quarter, we recognized a net gain of $3.9 million on the previous announced sale of nonstrategic patents acquired as part of ViXS.

Now turning to an update on each of our end markets.

Our digital projector business performed largely as expected with a sequential decline reflecting typical first quarter seasonality, combined with a softer demand profile due to the macro-environment in late 2018, particularly in China.

This resulted in an inventory correction during the quarter, as customers worked to reduce higher inventory levels in advance of the fiscal year ending in March.

Although the current macroeconomic backdrop in China will likely continue to temper end-market demand, most of our projector customers appear to have made progress, working down excess channel inventory.

Our current bookings and backlog indicate reasonable sequential growth in the second quarter and further normalization of the channel inventory and order patterns throughout 2019.

As discussed in our last call, we also continue to expect our large co-development customer to begin gradually transitioning to the next-generation SoC late this year.

Although this new chip will have higher gross margin profile, it also is at a lower ASP than the current generation.

Currently, this product transition is forecast to start late this year and will continue through 2020.

However, this transition is likely to moderate the typical seasonal trends that we experience in the second half of the year.

In our Video Delivery business, we had another strong quarter with revenue growth of over 60% year-over-year.

Most notable, we shipped to fulfill solid follow-on orders from our Japanese consumer electronics customers for our XCode family of decoder and transcoder devices.

We continue to be well positioned with previous design wins on a series of ADSB-compatible in-home media devices in Japan, including both set-top box converter devices and advanced personal video recorders or PVRs.

Our highly integrated and low power XCode processors are a key enabler of the performance and advanced features of these devices, all of which allow Japanese consumers to take advantage of the newly launched ADSB broadcast standard, which supports over-the-air terrestrial broadcast in 4K and HDR quality.

As we've stated previously, our leading customer's recorders incorporate 2 XCode processes in order to leverage Pixelworks' industry-leading transcoding, which enables users to efficiently stream high-quality recorded content to display devices, either directly or over WiFi.

Our same transcoding solutions also continue to be utilized in a number of existing single, dual and quad over-the-air streaming products here in the U.S. Pixelworks technology enables these devices to wirelessly stream free high-definition over-the-air broadcast channels to WiFi-connected TVs, smartphones and tablets.

As demonstrated by the significant year-over-year growth in our Video Delivery business, the initial ramp of our customers' ADSB-compatible devices in Japan have been progressing well.

We do believe the current rate of growth is likely to moderate as end-market consumer demand from early adopters tapers off and begins to shift towards everyday Japanese consumers that are more price-sensitive and likely to adopt, over time, as additional high-quality 4K, HDR content becomes available.

That said, we still anticipate our Video Delivery business will continue to show solid year-over-year growth.

In our Mobile business, we enteredd the year with strong momentum following what I previously characterized as a transformational year in 2018.

In the first quarter, Mobile revenue, including Mobile-related licensing revenue, grew more than 250% year-over-year, representing the fifth consecutive quarter of year-over-year revenue growth.

More importantly, we successfully executed on multiple strategic initiatives to significantly increase the size of Pixelworks' total market opportunity.

A perfect example is the strategic partner we announced in January with HMD Global to incorporate Pixelworks' Iris technology in a broad range of Nokia's next-generation smartphones as part of the shared vision of bringing advanced visual processing to a new tier of consumers.

Another example of expanded opportunity is gaming phones.

In March Xiaomi-backed Black Shark launched its latest high-performance gaming smartphone, the Black Shark 2, which represented this customer's third gaming phone, all incorporating a Pixelworks Iris visual processor.

In order to better address unique applications and requirements across a broader set of prospective OEM engagements, during the quarter, we formally introduced the feature set and began sampling our fifth generation Iris visual processor to select Mobile customers.

Our fifth generation device incorporates significant advancements in visual processing while simultaneously maintaining unprecedented power efficiency.

A few of its many advanced features include intelligent adaptive motion processing, HDR10 + Tone Mapping and advanced local contrast management and enhancement.

In addition, to significantly improve power efficiency and dramatically improved video and image quality on both LCD and OLED displays, our fifth generation Iris supports refresh rates of up to 120 hertz.

Early customer interest has been strong, and our early adopter customers are targeting launches of the first mobile devices incorporating Iris 5 in the second half of 2019.

Also during the quarter, we announced a cooperative agreement with Qualcomm to provide smartphone OEMs with the ability to seamlessly implement Pixelworks' display calibration software on smartphones and tablets that utilize Qualcomm's flagship, Snapdragon 855, platform.

This agreement represented a major milestone as it facilitated Pixelworks' first-ever software-only solution for mobile devices.

In addition to this software solution being publicly endorsed by Qualcomm as part of our announcement, together, we are bringing improved color accuracy to a broad set of customers.

Importantly, our innovative Soft Iris solution includes only a subset of the full features provided by our Iris family of visual processors.

Currently, the subset primarily consists of advanced color calibration and progressive color management that can be implemented on Snapdragon 855-based mobile devices.

This offering now expands our Iris product portfolio to include both hardware and software solutions and increases the total addressable market for Pixelworks' visual enhancements solutions.

Taken together, the announcements of our fifth generation Iris processor and our Soft Iris solution have resulted in further expansion of our Mobile customer engagements over the last few months.

For the -- further expanding both Pixelworks' product portfolio and market opportunity, last month we introduced TrueCut, a truly unique end-to-end video platform that extends the boundaries for both content creation and the consistent delivery of high-quality cinematic motion and HDR across a large section of mobile devices, home entertainment systems and cinema displays.

TrueCut is a platform the consists of independent software tools for content creators, content distributors and also individual viewing devices.

In the simplest terms, the fundamental value of this innovative new platform is the ability to maintain the content creators' intent while also taking full advantage of the capabilities of today's incredible mobile, home entertainment and cinema displays.

In conjunction with the commercial launch of TrueCut, we announced a multi-year marketing and license agreement with YouKu to jointly advance the ecosystem for high-quality HDR video on mobile devices in China.

As brief context for those that are not familiar with YouKu, the company operates as a subsidiary of Alibaba.

It is a leading video content provider and creator of digital entertainment in China with a subscriber base of over 500 million active users.

YouKu is a great strategic partner for TrueCut due to a combination of their large existing subscriber base and focus on delivering high-quality video in China.

As part of the announced agreement, YouKu will leverage Pixelworks' TrueCut platform to remaster its existing library of content and also master newly created content in high-quality HDR.

Additionally, Pixelworks is actively in the process of qualifying a significant number of existing mobile devices that are favored by YouKu's subscribers, and we will also certify future devices by working directly with mobile OEMs to enable high-quality HDR video streaming of YouKu content.

To conclude my remarks, since the beginning of the year, we have successfully executed on a number of meaningful initiatives in support of driving continued growth in our Mobile and Video Delivery business.

This includes multiple new announced wins, initial sampling of our new fifth generation Iris visual processor to mobile OEMs and the securing of a series of strategic agreements with industry-leading customers and ecosystem partners.

In addition to serving as further validation of our technology and increasing Pixelworks' prominence in key ecosystems, our recently announced agreements with both Qualcomm and YouKu provide ideal platforms to introduce Pixelworks software solutions for the mobile market.

While nearly all of the milestones I've discussed on today's call are a result of years of effort, the team is excited to bring these initiatives to fruition in early 2019.

By meaningfully expanding our product portfolio of hardware and software visual enhancement solutions and dramatically increasing Pixelworks total addressable market, we are positioning the company for sustained long-term growth.

We continue to have a robust and growing pipeline of engagements, and we are extremely focused on converting engagements into new wins and momentum, which we look forward to announcing over the course of 2019.

With that, I'll turn the call over to Steve for a more detailed review of our first quarter financial results and guidance for the second quarter.

Steve?

Thank you, Todd.

Revenue for the first quarter of 2019 was $16.6 million compared to $20.5 million in the fourth quarter and revenue of $15.3 million in the first quarter of 2018.

Revenue for the first quarter of 2019 reflects expected seasonality in the digital projector market and continued year-over-year growth in our Video Delivery and Mobile end markets.

The breakdown of first quarter revenue by market was as follows: revenue from digital projector was approximately $11.1 million, Video Delivery revenue was approximately $3.9 million and revenue from Mobile, including sales of Iris processors and licensing revenue, was approximately $1.6 million.

Non-GAAP gross profit margin was 53.3% in the first quarter of 2019 compared to 55.1% in the fourth quarter of 2018 and 54.2% in the first quarter of 2018.

Non-GAAP operating expenses were $10.3 million in the first quarter of 2019 compared to $10.3 million in the fourth quarter of 2018 and $7.8 million in the first quarter of 2018.

Note, lower operating expenses in this year-ago quarter reflected the recognition of approximately $2 million of offsets to R&D associated with our now-completed co-development project with a large projector customer.

Adjusted EBITDA was negative $464,000 in the first quarter of 2019 compared to positive $1.8 million in the fourth quarter of 2018 and positive $1.3 million in the first quarter of 2018.

A reconciliation of adjusted EBITDA to GAAP net income loss may be found in today's press release.

We reported a non-GAAP net loss of $1.6 million or $0.04 loss per share in the first quarter of 2019 compared to non-GAAP net income of $1.1 million or $0.03 income per diluted share in the prior quarter and non-GAAP net income of $38,000 or breakeven on a per diluted share basis in the first quarter of 2018.

As a reminder, non-GAAP net income for the first quarter of 2019 does not include the $3.9 million net gain from the sale of nonstrategic patents acquired as part of ViXS.

Moving to the balance sheet.

We ended the first quarter with cash, cash equivalents and short-term investments of approximately $23.9 million, effectively flat from the prior quarter.

Other balance sheet metrics include day sales outstanding of 32 days at quarter end compared to 31 days at the end of the fourth quarter 2018.

Inventory turns during the first quarter of 2019 were 10.1x compared to 12.3x in the prior quarter.

Additionally, during the first quarter, we adopted the new lease accounting standard ASC 842, which resulted in material changes to the balance sheet.

This included the recognition of $5.7 million in right-of-use assets and $6.1 million in short- and long-term operating lease liabilities.

Our guidance for the second quarter of 2019 is as follows.

We expect revenue to be in the range of between $17.5 million and $18.5 million, which reflects anticipated seasonal growth in the digital projector market and continued year-over-year growth in our Mobile and Video Delivery businesses.

We expect non-GAAP gross profit margin of between 52% and 54%.

For operating expenses, we expect the second quarter to range between $10 million and $10.5 million on a non-GAAP basis.

And finally, we expect second quarter non-GAAP EPS to be in the range of between breakeven and $0.04 loss per share.

With that, we now open up the call for questions.

(Operator Instructions) Your first question comes from the line of Suji Desilva with Roth Capital.

Congratulations on all the progress you've made starting up.

So a couple of questions.

Looking ahead to second half of '19, I know Todd, you don't like to guide specifically, but there are clearly some headwinds here.

The projector customers is going to be lower ASP, the Japan will have the initial ramp and then moderate.

So can you just -- can you talk about the puts and takes into the second half, and how you see that shaking out given that there are some things we can cite already for the second half looking ahead?

Well.

I mean I don't think it's dramatically different from the last time we gave an update.

Probably the new information is -- I don't -- I'm not as bullish as some of my peers on China coming back in the second half.

I don't think it's going to get worse.

But I'm not seeing the catalyst to truly create demand like it existed in 2018 from China.

Now some of the other parts of the world are actually doing okay.

I mean here in North America, it's okay.

It's just that the projector business itself -- the second largest market and for some customers the first largest market for them is China, and we're seeing that softness and inventory correction clearly in Q1 and a little bit in Q2.

I just don't expect -- I guess what the guidance we're giving you, with the verbiage we're giving you, I don't expect a strong bounce back in the second half.

I'm just not seeing the catalyst.

I'm not seeing it down.

I just -- it's not going to be this is self-correcting thing that quick.

That's my estimate.

As we get closer, I'll give more color.

On Video Delivery, they -- it's mainly the PVR business is that I don't expect it to really correct.

It's doing fine.

But a lot of the volume we shipped and a lot of the growth we showed in Q4, now in Q1 and even into Q2 because we're already into Q2, is from the set-top box converters.

And frankly, the cost of the converters is not that -- it's not a no-brainer to go out and buy one.

You go out and buy one and it's because you're converting this existing 4K HDR TV to probably a beautiful TV, you want it to be able to receive these new 20 channels of what is supposed to be 4K HDR content.

The problem is, you have a bunch of -- sampling of original 4K HDR content that looks beautiful with quite a bit of up-converted content.

They just don't have enough content to fill 20 channels 24/7.

And so I think the early adaptors went out and all wanted it.

And I think it's going to slow down until 2 things happen.

Not 1 of 2 things, but both things happen, which is, the cost of the converter boxes come down.

We're working with the converter manufacturers on that, and the quantity of content goes up, which all sports is converting over to 4K HDR, but you need more non-sports content to be converted.

And that's going to take a little while.

So with that said, I just see what I would point as our legacy business, which is where our predominant revenue comes from today is having headwinds.

But I'm really excited about the Mobile and TrueCut business because we're starting from virtually 0 in a much bigger market.

So, that's that.

I think that's the color for you.

Okay.

That's very helpful.

Specifically, on the -- called Soft Iris for Qualcomm, the announcement, what's the timing of that starting to impact the revenues?

And how do I -- how do we get the magnitude of the contribution for that relative to your chip business?

Well.

I -- the way I look at it is now with the introduction of Iris 5 and the collaboration with Qualcomm on Soft Iris, in conjunction with us, we are reducing the cost point, both the cost structure and the ASP because I see elasticity with our what I -- our fourth generation Iris, which is our lowest cost -- our lower cost version of the processor.

Between the 3 of them, we have a very good family of solutions to address the Mobile market.

And so we've expanded the total TAM, which I'll tag at $1 billion for that Mobile processor market.

The Soft Iris right now is actually the smallest portion of the TAM, partly because licensing fees will be less than what we sell our processors for, one.

But two, it is only targeted today on their highest -- their newest and highest-end AP, the 855.

The approach is, we can't do everything we're doing in software.

We can do some of the things we're doing in software as long as the display pipeline is the high-quality display pipeline.

The 855 has a high-quality display pipeline in it.

It doesn't have MEMC.

It doesn't have some of the other features we have.

But it is a good display pipeline.

And if you put our calibration and some of our color management algorithms on that display pipeline, you have a very good experience.

But today it's very targeted.

It's not just a choice that Qualcomm only wants to apply it there or we only want to apply it there.

It's more of an artifact of the capabilities of the display pipeline.

They will be extending the quality of the display pipeline over time through further APs, but that will take quite a while.

So net sum, the answer to your question, the software solution -- we'll see revenue.

We should see revenue this year from it.

We still -- this is an early announcement.

This was -- we're collaborating with Qualcomm on delivering this to customers, so we're just now starting to engage with those customer programs.

So it's going to take a little while.

There are -- it is quick, I mean, you can do it -- come to a program with Soft Iris a little bit later in the game and still impact it before their product release.

When you're bringing in a processor and it's got to be on the motherboard, you've got to come in much earlier in the game.

Okay.

Very helpful.

And the last question, or a similar question.

The TrueCut announcement.

Congratulations on that -- on the YouKu customer -- marketing announcement.

Congratulations on that.

How we think about TrueCut from a revenue perspective?

What kind of revenue model should we be thinking about here?

Or is that not the right way to think about the impact you guys have rolling out TrueCut and the partnership here?

Well.

I think at some point, clearly, it's going to -- I mean, that's why we're in this business, is to create revenue and profits.

But in short term, I wouldn't be focused on the revenue and profits from that business.

I'd be focused on the engagements we announce.

So let's just -- to be clear this is a licensing model, okay.

It is several factors of licensing.

The thing we did with YouKu is effectively a platform license that allows them to use the tools to convert the content, distribute the post-conversion content to their consumers.

And then we've enabled the followings of the consumers through the app.

So we've created an SDK for their apps, specifically, that runs on the GPU of different APs and we qualified -- we're starting with the phones that their users that are the most -- the highest volume phones of their user base, and then we're working our way down.

But in the end, we will probably have -- our target is to have the vast majority of their users to receive on their existing handset HDR content.

Now the quality of that content, to some degree, will be a reflection of the quality of the display of the phone.

Remember, we're not put -- these are all phones that are in the market today.

So they may have a good display pipeline, they may not, they certainly don't have our processor in it.

Clearly, the experience, if you have a very high-quality phone with a high-quality display and our processor, the experience is going to be a much better experience.

But we have if you compare it to just a standard dynamic range, the content today pre-conversion, before they converted it, almost 100% it's a better experience in HDR, most of the consumers prefer it.

It does require a little more bandwidth.

So they're going to continue to give the options of both to the consumers so that they can watch in SDR or HDR.

But this is going to go out to a vast number of their consumers.

And so we've signed into a multi-year deal with them that they license the tools and the capability to have this content they viewed on all these phones for those -- for that period of years.

Part of the agreement, you remember, when we go out early like this, with these early adopter customers, we're trying to do something that normally would be attempted by a much larger company, right.

And part of it is building a brand for our technology.

Given the amount of money we have to spend on something like this, it's almost impossible for us to go out and just spend money to build a brand.

Now we spent some money, hard dollars.

But for us, the best way to build a brand is who we engage with for -- in a partnership.

And by engaging with partners like Xiaomi and partners like Nokia and partners like now Alibaba YouKu, we get to leverage their marketing dollars, which far surpass what we could even attempt to spend.

And so part of the deal was co-marketing.

And so we take that into account.

I mean, if you want to just license it and not do co-marketing, it's one price.

If you want to license it and do co-marketing, it's a different price.

And so they wanted to do co-marketing with us, and I'm glad to do it.

But with that said, that's the platform license.

Over time, we will be doing device licenses, both in the mobile market, yet also we can do licenses for the TV market.

And we're actually working with next-generation cinema display technologies.

There's advanced displays out there.

There's both new coming advanced projector technology, but there's also panel technology.

This is just being introduced in cinemas.

That is very neat, but it definitely has some problems.

It runs brighter than traditional projector technology, it runs at high frame rate.

It's definitely HDR.

It's very high pixel count.

And for traditional content to be shown on it, it probably has to be remastered.

And then that technology has to be applied at the device.

So that's also an area we're focused on.

So from a device standpoint, it's a licensing model to all these devices that I just talked about.

And then there's a tool-licensing model for the content creators.

So it's a multi-faceted product portfolio, but it's all licensing.

And our next question comes from the line of Charlie Anderson with Dougherty & Company

Todd, I wonder if you could maybe expand on a little bit, I wonder if you'd be able to maybe quantify the TAM comparing the chip opportunity for you and Mobile between TrueCut and then between Soft Iris.

And then I've got a follow-up.

Yes.

It's a good -- it's a very good question.

We should -- I should probably even just break down the TAMs across all our businesses, real quick.

Projectors about for us, what we conserve, is maybe $100 million TAM that I think last year we shipped $60 million against, right.

And it's probably pushing it.

And then the Video Delivery business is probably sub-$100 million.

And we're sub-$20 million into it.

The biggest upside there's probably OTA.

But still, collectively together, it's less than $200 million TAM.

If you go look at the Mobile processor market the way we look at it now that we've expanded into Soft Iris, it's $1 billion, give or take, TAM and that we virtually are just scratching the surface on.

And then you look at TrueCut, and I apply it to tools, device licensing and platform licensing.

It's probably somewhere in the long run, once this technology really takes off, between $300 million and $500 million worth of licensing TAM.

And so you can see these new areas we're focused on, Mobile and TrueCut.

The market itself just dwarfs what we're currently focused on -- or what we currently get revenue on.

What we're focused on is the Mobile and TrueCut.

We certainly have to keep our customers happy.

I am focused on the OTA initiative within Video Delivery.

But where the team itself, where our hiring is focused, where our new technology development is focused, and where I personally am focused on deal-making is with Mobile and TrueCut, and so we're paying for all that effort through the cash flow generated by the legacy projector and Video Delivery business.

We try to run as very disciplined.

Clearly, I would like to spend more money than that business generates to accelerate success in Mobile and TrueCut.

But we're going -- we're public.

And we're going to remain fairly disciplined.

The larger we get, the more we get to spend.

Great.

And then on licensing.

It looked like that helped drive a little bit of upside in gross margin in the quarter.

I'm wondering maybe you could quantify how much came in on the licensing side?

And then just expectations for the rest of the year, the relationship between licensing and gross margin?

Yes.

We're not going to completely break out the licensing.

I will say it was the reasonable chunk of the Mobile revenue.

But since it was 100% tied to the YouKu deal, I don't want to really get into the details of it because I'm exposing what I consider confidential.

And so just say that it's a significant amount.

Enough that it moved the gross margin needle.

I mean maybe Steve can comment a little bit.

The only thing I would add, though, because I agree that confidentiality is very important for us and for YouKu on this.

But we certainly were well within our guidance on all measures without the licensing.

Maybe, I ask -- follow up this way.

Do you anticipate any licensing revenue in Q2?

Is that embedded in some of the gross margin guidance that you have?

There is some.

It's not as significant as what was in Q1.

These deals -- there's actually new accounting standards that are just being applied to people that were in the licensing business before.

It just so happens that our first licensing revenue showed up when the new accounting standards showed up.

And so we were learning along the way.

But there's some built into Q2.

I would say as we get started, probably a good way to understand this is, we today have a pipeline of potential opportunities in both Mobile and TrueCut that far surpasses the capability of the team to execute on -- to execute both from an R&D perspective, from an application-support perspective and from a deal-making perspective.

So what we're doing is we are prioritizing where we are absolutely going to get the most bang for our buck over the long term.

And what I mean by long term, we have a goal and I'm -- we're very focused on that goal.

It's a long-term goal, it's a 5-year goal.

But that goal is to go out and achieve 10% of the market in Mobile and TrueCut that I just talked about.

The early stage is -- a big part of that is making sure we partner with the right customers, ecosystem partners, device manufacturers, et cetera.

And so the deals we're focused on are with larger companies.

They're harder to get finalized.

The early deals -- I am trying to incentivize the early adopter customers to use their marketing clout to help us achieve our results, that complicates the deal-making.

So what I'm trying to say is I think it look -- over time, the more deals that get accomplished, the easier it is for the next deal to say yes.

And it also -- as time goes by, the less I have to lean on these customers to get the marketing message out.

So the deals become cleaner.

They probably become richer.

And they had -- they come at a quicker pace.

Today, they're going to come in sporadically.

And it's hard to predict how they're going to come in.

And in this case, a good chunk of the licensing fee, not all of it, we put into Q1, right, so -- because that's how we have to recognize the revenue.

And so it's hard to say -- it's going to be very hard to forecast this business.

So right now, I just take a conservative model, we're modeling.

(Operator Instructions) Our next question comes from the line of Gus Richard with Northland

On the Soft Iris, when would you anticipate seeing first revenue from that offering?

Back half year is what I think I'd alluded to, to Suji on the call, Gus.

Okay.

And will that be a significant portion of the Mobile revenue?

No, no.

The Mobile revenue for this year will still be predominantly processor revenue.

Okay.

And then that leads into my follow-on.

In terms of processor designings and models that you expect to ramp with your processor in the second half, can you provide any color on how that's going?

Yes.

It's going well.

We are focused on, as I said previously, the pipeline of opportunity surpasses our capability to engage.

So we're prioritizing what I would say our more platform deals.

So multi-phone -- most people engaged in this aren't even looking for just a phone model or a year.

They're looking at multiple phones over multiple years.

And so we're focused on those discussions.

It's a subset of the total pipeline.

We are doing some one-offs.

But we are having to prioritize our resources.

So at this point, how many customers and how many platforms or -- you can give any quantification

Well.

I mean I haven't.

Probably, if I go look at the sales guys opportunity list for understanding, some customers have multiple phones, and so the salesperson is going to come in and put multiple phone projects in our pipeline.

If we engage with a customer and we don't come to terms, all those phones could go away.

All those phones could go through.

So I can certainly tell you how many projects are there, I just wouldn't read too much into it.

Aren't most phones locked down for the back half now?

I'm (inaudible) point.

Yes.

Absolutely, that's not what you asked.

You asked me about my total pipeline.

You asked me what phones are going to get launched in the back half.

There'll be phones launched in the back half, I'm not going to talk about quantity.

And our next question comes from the line of Joseph Flynn with Craig-Hallam

This is Joseph Flynn.

I'm filling in for Richard Shannon.

Most of my questions are already asked, but, I guess, would you mind expanding on the HMD Global partnership with -- for the Nokia phones.

From our understanding, the 7.1 device that you guys were in last year did pretty good volumes, got pretty good reviews and everything.

But, like have you since been able to leverage that into existing Nokia designs already?

And, I guess, just any update you could provide on that partnership.

Yes.

No problem.

So we did announce that we signed in to a multi-year multi-phone collaboration.

From the time we signed on that deal, we started working on new phones, okay, together.

And that was probably 3 months after the 7.1 launched.

They did announce some phones after the 7.1, about the time we made this announcement.

We're not in those phones, right.

I know some people are wondering whether we're in those phones or not, we're not.

The phones that are part of the multi-phone multi-year announcement we made, you will see, I think the first one launch is in June.

And there'll -- and they're planning on multiple launches this year with Pixelworks inside.

And, I guess, just real quick.

When we talk about how the -- there was a good chunk of mobiles this quarter and with the licensing component, but what's the right run rate to be just like kind of thinking about as we transition through 2019, still around like a $1 million, $1.5-ish million probably, good levels to think of?

Well.

I would expect Mobile to go up in the back half of the year from where we're at today.

Okay.

And, I guess, quick question on OpEx, actually.

So you said that you have a $2 million impact but is -- will this be a good run rate to think about through calendar of 2019 as well, around the -- around $8 million to $10 million-ish?

Yes, OpEX.

No, no, no.

We guided to $10 million to $10.5 million.

The $8 million level was when we had a $2 million credit from a co-development project.

So OpEx will be somewhat lumpy, as we develop devices.

We -- in the beginning part of a development, we're acquiring IPs that go into the device.

Depending on what device is, some have more, some have less.

Projector kits, for example, usually have an ARMprocessor, which is a significant onetime hit.

But from an annual basis if you were to level-set around where we were this quarter $10.3 million to $10.5 million.

You're not going to be far off.

And I'm showing no further questions at this time.

So with that, I'd like to turn the call back over to President and CEO, Todd DeBonis, for closing remarks.

All right, well, thanks, everybody for their time Probably, the one thing I'd like to close on is we are, once again, very focused on our real opportunity -- our real upside opportunity, which is Mobile and TrueCut.

I don't want to undersell.

There's a lot of people in this company that work hard on projector and Video Delivery and are focused on those markets as well as the OTA initiative.

But I also just -- I don't want to diminish the fact that our real upside opportunity is in Mobile and TrueCut.

We have -- we've made some significant progress in Q1.

You're going to see continued progress.

This company is about fulfilling that portion of our destiny.

It's how well we do in achieving the target results in Mobile and TrueCut.

The next couple of years will be about establishing the right partnerships, ecosystems, credible marketing partners to get us to the next level.

After that, it's about accelerated revenue and profits.

Not that they may come in -- not come in accelerated revenue this year.

I'm not sure the profits because if accelerated revenue comes in, we're going to hit the spend button.

We're going to go out and chase that revenue.

So those investors and those analysts out there, you can model the growth, but right now we're not spending enough in Mobile and TrueCut, given the opportunity we have in front of us.

We are disciplined.

We're going to move forward.

And in a very disciplined manner, try to grow that spend, but it will be tied to the revenue growth.

All right.

Thank you very much.

Ladies and gentlemen, thank you for participating in today's conference.

This does conclude the program, and you may all disconnect.

Everyone, have a wonderful day.