Pixelworks Inc (PXLW) 2019 Q4 法說會逐字稿

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

Fourth Quarter 2019 Earnings Conference Call.

I will be your operator for today's call.

(Operator Instructions)

This conference call is being recorded for replay purposes.

I will now turn the call over to Pixelworks' CFO, Mr. Elias Nader.

Thank you.

Good afternoon, everyone, and thank you for joining us today.

With us 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 Pixelworks' press release issued earlier today announcing the company's financial results for the fourth quarter and full year 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, February 6, 2020.

And we undertake no obligation to update any such statements or reflect events or circumstances occurring after today.

Please refer to today's press release, our annual report on Form 10-K for the year ended December 31, 2018 and subsequent SEC filings for a 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, deferred revenue, fair value adjustment, inventory step-up and backlog amortization, amortization of acquired intangible assets, stock-based compensation expense, restructuring expenses, gain on extinguishment of convertible debt and discount accretion on convertible debt fair value.

The company uses these non-GAAP measures internally to assess our operating performance.

We believe 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.

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

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

Thank you.

Thank you, Elias, and good afternoon to everyone joining us on today's call.

Starting with a quick overview of our financial results for the quarter.

Consolidated revenue was $16 million, which was at the midpoint of our guidance.

At a high level, activity within our respective end markets played out as we anticipated with continued momentum and triple-digit growth in Mobile, resulting in record Mobile revenue that exceeded 20% of total revenue in the quarter.

We also saw the expected decline in both projector and video delivery as those markets work through previously indicated inventory corrections.

Gross margin and operating expenses were each within our targeted range and adjusted loss for the quarter came in at the top end of guidance.

Looking first at our digital projector business.

The overall market dynamics and profile of the end-market demand has remained very consistent with the commentary we provided on our third quarter conference call.

As a result of broad global macroeconomic headwinds, ongoing trade tensions and slowing growth in China, the professional projector market declined approximately 15% in 2019 according to PMA Research.

Combined with what we would characterize as the first quarter seasonality in the projector market, we anticipate subdued demand to extend through at least the first quarter.

Also in Q1, we expect to begin ramping more meaningful shipments of our next-generation SoC to our large co-development customer.

As we have previously communicated, we continue to believe that this transition will happen throughout 2020.

Also previously stated, projector revenues will be impacted by lower ASPs of the new SoC, but we will see overall margin improvement in our projector business as all of our customers transition to our newest SoCs.

Turning to our Video Delivery business.

As anticipated, revenue declined sequentially in the fourth quarter as a result of an inventory correction in the Japanese consumer market for consumer PVRs and set-top boxes.

Consistent with what we indicated on our previous conference call, the decline in forecast and bookings we observed from our lead customer during the third quarter was a result of softer pull-through on end products by Japanese consumers.

Despite this moderation in Video Delivery revenue during the fourth quarter related to our customers working down channel inventory, for the full year, video delivery revenue grew 23% over 2018.

Outside of Japan, we saw a continuation of the renewed demand and increased shipments during the quarter of our XCode transcoders for new OTA devices here in the U.S.

As announced in late December, Pixelworks' advanced transcoding SoC provides the OTA streaming and recording capability, incorporated into the recently launched AirTV 2 OTA DVR.

For those not familiar with AirTV, which along with Sling, are wholly owned subsidiaries of DISH, the Air TV 2 is a Wi-Fi enabled network tuner that delivers free local over-the-air TV channels in HD to nearly any smartphone, leading smart TVs or streaming media devices.

In addition to the unique ability to integrate these live local OTA channels into Sling's TV channel guide, the AirTV 2 device allows users to watch and record live OTA broadcast channels from both inside the home and anywhere in the U.S. combined with our ongoing support of other smaller independent in-Home media device customers, we generated record revenue from our OTA transcoders in the fourth quarter.

Looking beyond the first quarter, we are well positioned on engagements for multiple next-generation in home media and OTA devices.

Combined with an anticipated increase in the availability of high-quality broadcast content particularly given Japan's hosting of the 2020 Olympics, we continue to anticipate renewed growth in our video delivery business as we progress throughout the year.

I want to give some additional color on the restructuring plan we disclosed in a filing in early January, which involved an approximate 4% reduction enforced based upon the company's headcount at year-end.

This strategic action was in part designed to achieve improved efficiencies and better operating expenses with recent revenue levels.

Additionally, we took this action in order to facilitate our continued shift towards our growth initiatives and accelerate the allocation of increased resources in support of both our Mobile and TrueCut growth businesses.

As such, the reductions were made primarily in nonmobile areas of our business.

Conversely, we recently announced the opening of a new Pixelworks office in Shenzhen, China.

This new engineering and customer support facility further expands our existing presence in China, providing us with important local resources to support existing and expanded engagements with smartphone customers including for both our Mobile and TrueCut solutions.

Regarding TrueCut, I would like to take the opportunity to highlight several of the milestones we achieved since our commercial launch of this innovative platform in April 2019.

As a reminder, TrueCut was developed to provide a true end-to-end solution for cinematic motion and HDR with the objectives of both expanding the boundaries for creators of high-quality video content and then also preserving the creator's original intent regardless of the display on which content is ultimately [aviewed].

Given the inherent wide disparity in streaming content quality and display capabilities, we decided to focus our initial efforts around Mobile with the goals of rapidly expanding TrueCut's market reach and also to dramatically increase the amount of TrueCut formatted content available for potential viewers.

In conjunction with its commercial launch, we announced a multiyear marketing and license agreement with TrueCut, or for TrueCut with YOUKU, a subsidiary of Alibaba, to jointly advance the ecosystem for high-quality HDR video on mobile devices in China.

As one of the top three video content providers with over 500 million active users, and an expansive existing library of content, YOUKU is also a creator of its own digital entertainment in China, which made them an ideal first customer.

As part of our ongoing collaboration, we have made incredible headway on several metrics that we use to measure the platform's market reach.

Between April, and as of year-end or in roughly 9 months, the amount of video content available in TrueCut HDR format has expanded to more than 20,000 hours.

In addition, Pixelworks has now completed the qualification of over 130 existing models spanning at least 9 mobile OEMs, making them TrueCut enabled smartphones whenever a user views content utilizing the YOUKU app.

This translates to TrueCut content reaching more than 100 million mobile device users and an estimated 70% of all daily average users of YOUKU in China.

Concurrently over the last 9 months, we've been actively working to demonstrate the platform's value proposition and cultivate advocates for TrueCut in adjacent markets across the broader video ecosystem.

A fundamental element of the end-to-end solution we've developed are cloud-based software tools that empower creators of high-quality cinematic motion and HDR content to target a predictable viewing experience independent of the target display device.

This has enabled Pixelworks to build growing support for TrueCut within the film industry.

As highlighted in recent quarters and with only -- within only a few months of launching our TrueCut motion grading tools, we received notable recognition and 2 prestigious awards.

The Entertainment Technology Lumiere Award from the Advanced Imaging Society and the Hollywood Professional Association's Engineering Excellence Award.

TrueCut Motion Rendering has been used for 4 motion picture titles released in China cinemas and 2 additional titles leveraging TrueCut are due to be released in 48 frames per second format in the near future.

Lastly, we're also actively engaged in a series of TrueCut evaluations with influential and prospective partners here in the U.S.

We currently plan on beginning shipping a beta release of our TrueCut Motion Rendering software tools to select film studios and post-production partners in the current quarter.

We look forward to announcing additional milestones over the course of the year.

Now looking more broadly at our mobile business, which as a reminder, includes licensing revenue generated from TrueCut, and which we do not break out separately.

For the full year, Mobile revenue grew more than 170% and was driven by a combination of increased sales of our Iris solutions as well as licensing royalty revenue associated with our previously discussed TrueCut agreement with YOUKU.

Underpinning this growth were a number of significant milestones we achieved during 2019, including the commercial introductions of both our fifth generation Iris visual processor and Soft Iris advanced display color calibration software.

We also successfully negotiated and entered into an ISV cooperative agreement with Qualcomm, providing smartphone OEMs with the ability to easily implement our industry-leading visual enhancement technology using our Soft Iris solution on devices running on the Snapdragon 855 and 855 Plus mobile platform.

Additionally, early in the year, we secured a multiyear, multiphone and co-branding agreement with HMD Global to incorporate Pixelworks' Iris technology in a broad range of next-generation Nokia smartphones.

HMD subsequently launched the first 2 devices under this agreement in September, the Nokia 7.2 and the Nokia 6.2.

Both of these smartphones feature Nokia's pure display technology, enabled by the incorporation of Pixelworks' Iris visual processor.

In total, during 2019, Pixelworks' Iris solutions were incorporated into 6 smartphones launched across 4 different mobile OEM customers, including one new first-time OEM, TCL communications; as well as the first implementation of our Soft Iris solution in a flagship gaming phone, the ASUS ROG II.

Specific to the fourth quarter, Mobile revenue, which was comprised almost entirely of sales of our Iris visual processors, increased 140% sequentially and by more than 400% year-over-year.

As mentioned in my opening remarks, our record Mobile business represented 24% of total revenue, and it was also the 9th consecutive quarter of year-over-year growth.

Since year-end, we've entered into 2 new publicly announced collaboration agreements with customers to incorporate Pixelworks' leading visual processing and display enhancement technology in multiple planned next generation devices.

The first of which was Coolpad, which we announced in conjunction with their participation at the Consumer Electronics Show, their intent to launch the first of multiple new products later this year that leverage Pixelworks' industry-leading SDR to HDR conversion, HDR tone mapping and contrast enhancement solutions.

Then most recently, we announced the signing of a multi-year collaboration agreement with OPPO Group for the development and integration of advanced display and visual processing solutions.

While this customer is the lead Tier 1 OEM that we made reference to last quarter, I want to emphasize that this collaboration agreement represents a significant milestone in the scope of our engagement with OPPO.

In addition to closely collaborating for the last 8 months on a series of upcoming programs, we are also working together to align and shape our respective product roadmaps.

As indicated in the announcement, we anticipate the first in a series of smartphones derived from this collaboration to be launched in the first half of this year.

We are obviously excited about working closely with OPPO to raise the bar on visual and display experience in the next-generation 5G smartphones.

Having said that, I want to acknowledge and thank our Pixelworks team in China who have been closely working with OPPO's engineering team while simultaneously advancing engagements with numerous other existing and new smartphone customers.

As a result, our current pipeline of customer commitments to incorporate one or more of our Iris solutions in their next-generation devices is at an all-time high.

Following the recent launches of 5G service throughout the globe, we are seeing numerous OEMs adopting advanced mobile displays in order to couple the expanded capabilities of 5G with the ability to deliver premium video and enhanced gaming experiences.

While the visual appeal of these advanced high-performance displays is extremely compelling, they also present new challenges due to higher frame rates, higher pixel count and wider color gamut capabilities.

Our Iris solutions were specifically designed to not only overcome these hurdles, but to fully optimize and take advantage of the superior performance capabilities offered by advanced displays.

As a result, the value proposition of our Mobile solutions is gaining strength, and Pixelworks is increasingly recognized as having the enabling technology and expertise to help a number of smartphone OEMs achieve the desired and highly differentiated performance on their next generation devices.

To help quantify the pipeline for our Mobile visual processing engagements.

In the first half of 2020, we expect to announce wins on approximately 12 models across 7 different mobile customers 3 of which are first time customers, including OPPO.

Again, these are all devices with planned launches during the first half of this year.

And collectively, they represent multiple flagships and mid-tier smartphones in addition to several high-end gaming phones.

We also expect additional launches in the second half of the year.

Regarding the recent Coronavirus outbreak, we have taken necessary precautions to ensure the safety of our employees and adhere to the respective provincial government policies in both Shanghai and Shenzhen.

This includes extending the Lunar holiday through February 9, and resuming work in our offices on February 10 although some employees have resumed work-from-home this week supporting critical projects.

We have also issued a near-term hold on work-related travel into and out of China.

Our supply chain is currently uninterrupted, and we have ample inventory to meet Q1 customer demand.

Many of our customers have also resumed work from their homes and plan on returning to their offices as of February 10.

Some flexibility on venue and timing of planned Q1 product launches has been required by our customers, but as of now, we have seen no cancellations.

Our management team is monitoring the situation closely, and we will adapt to changes if and when they come.

In closing, the progress made over the last 6 months continues to validate our strategy and ability to achieve our ultimate objective of transforming Pixelworks into a mobile-centric growth company.

Although the impact of the prolonged inventory corrections in our projector and Video Delivery markets are contributing to lower guidance for the first quarter and a disappointingly slow start to the year on a consolidated level, we don't believe the current conditions in either of these markets are permanent.

In fact, we anticipate both of these businesses to show improvement by the middle of this year.

That said, our highest priority will remain focused on successful execution on our growing number of mobile engagements and mobile growth initiatives, including achievement of relevant milestones on our TrueCut platform.

Specific to Mobile revenue in the first quarter, we expect to maintain the trend of consecutive year-over-year growth.

Looking further out, the trajectory of our Mobile business in the second half of 2020 will largely depend on the reception of our technology in customers' devices that are launched in the first half of the year.

However, our goal continues to be for our Mobile business to contribute 50% or more of total revenue by Q4 of this year.

With that, I'll turn the call over to Elias for a review of the fourth quarter financials as well as more detailed guidance on expectations for the first quarter.

Thank you, Todd.

Revenue for the fourth quarter of 2019 was $16 million compared to $18.1 million in the third quarter, and compared to revenue of $20.5 million in the prior year fourth quarter, which included approximately $1.5 million of end-of-life product revenue.

The sequential and year-over-year decline in fourth quarter revenue reflects the respective inventory corrections in both our digital projector and video delivery end markets, which was partially offset by record revenue contribution from the Mobile market.

The breakdown of revenue during the fourth quarter was as follows: revenue from digital projector was approximately $9.4 million; video Delivery revenue was approximately $2.8 million; revenue from Mobile was approximately $3.8 million, comprised almost entirely of sales of our Iris Visual Processing solutions.

Non-GAAP gross profit margin was 48% in the fourth quarter of 2019 compared to 53.9% in the third quarter of 2018 and 55.1% in the fourth quarter of 2018.

Non-GAAP operating expenses were $10.4 million in the fourth quarter of 2019 compared to $10.3 million in the third quarter of 2019 and $10.3 million in the fourth quarter of 2018.

Adjusted EBITDA in 2019 was a negative $1.7 million compared to a positive $452,000 in the third quarter of 2019 and positive $1.8 million in the fourth quarter of 2018.

On a non-GAAP basis, we reported a net loss of $2.3 million or a loss of $0.06 per share in the fourth quarter of 2019 compared to a non-GAAP net loss of $518,000 or a loss of $0.01 per share in the prior quarter.

Our non-GAAP net income of $1.3 million or $0.03 per share in the fourth quarter of 2018.

Moving to the balance sheet.

We ended the fourth quarter of 2019 with cash, cash equivalents and short-term investments of approximately $14.2 million compared to approximately $22.3 million at the end of the third quarter.

Because cash usage was impacted by timing of receipts, I want to point out that a sizable portion of the sequential decrease in the reported cash balance was related to a small group of customers around year-end.

Together, these payments amounted to a significant portion of our reported accounts receivable at year-end.

We collected these payments within the first week of January 2020, subsequently resulting in both a meaningfully higher cash balance and lower accounts receivable as of early January.

Therefore, our cash balance in Q4 '19 would have been $18.4 million.

We believe our cash usage in Q1 2020 will be similar to the ending cash balance of Q4 2019.

Inventory terms during the fourth quarter of 2019 were 7.8x compared to 11x in the prior quarter.

Now turning to our guidance for the first quarter of 2020.

We expect revenues to be in the range of between $13 million and $15 million, which largely reflects first quarter seasonality in the digital projector market, combined with an expected continuation of prolonged inventory corrections in both our digital projector and video delivery end markets.

Partially offsetting these primary contributing factors, we anticipate continued year-over-year revenue growth in the mobile market.

We expect non-GAAP gross profit margin of between 49% and 51%.

We anticipate operating expenses in the first quarter to range between $10.5 million and $11.5 million on a non-GAAP basis.

Lastly, we expect first quarter non-GAAP EPS to be in the range of between a loss of $0.07 and a loss of $0.13 per share.

That concludes our prepared remarks, and I will turn the call over to Todd for closing remarks.

Then we will open it up for Q&A session.

Well, I think we'll do the Q&A.

Okay.

Let's do the Q&A now.

Sorry.

Yes.

(Operator Instructions) Our first question comes from Suji Desilva of Roth Capital.

So let me start off maybe with Mobile, obviously, the exciting story here.

I just want to make sure I heard correctly, you think Mobile will be, Todd, by the end of '20, half the revenue.

I just want to make sure I heard that.

And if that's the case, what -- how many Tier 1s do you expect to be embedded in that sort of growth maybe OPPO or maybe more than OPPO?

So let me make sure that I'm clear.

I said our goal is in the fourth quarter to have Mobile, which is a combination of TrueCut and our Iris visual processing solutions, to be more than 50% of our total revenue.

I would suggest to you that to achieve that goal, you would have to have at least 2 Tier 1 OEMs as part of that group.

Okay.

Good.

That helps.

And then on TrueCut just to -- maybe a subtlety here.

How is the maybe perhaps the U.S. strategy you're talking about versus Asia different?

And as you talk about guide, you're engaged within the U.S. Is it content providers like a YOUKU or is it the production houses or both sides of the equation there [to you]?

So before I give you a specific answer to what you're asking which I will, I just want to make sure that you understand the difference between China and the U.S. When it comes to content acquisition or content creation, in China, when the streaming service providers acquire the rights to content, they also acquire the rights to reformat that content.

So that makes it very simple that we can structure a deal that requires reformatting of content just with the streaming provider itself whether they created the content themselves or whether they acquired the content.

In the U.S. it's different.

In the U.S. most of the creators of content do not release the reformatting rights to the streaming providers when they license them that content.

That requires a new license.

In addition, when you put motion rendering, when you really -- not just dealing with converting from SDR to HDR but also converting from lower frame rate to higher frame rate or vice versa, filming in higher frame rate and displaying in lower frame rate, this is not something that usually a streaming provider will go reformat.

This will be done at -- during the post-production process of the original content.

So with that said, in the U.S. what we're really focused on is the full ecosystem.

We're focused on studios, Tier 1 studios; their post-production partners; the creative directors; and then in addition, the streaming platform providers; and then finally, the devices that would -- that content would be streamed to: mobile, TVs, cinema.

Okay.

Very helpful.

And just as a quick follow-up question to that question, because the U.S. content creators are so tight about what you can do with the content, the streaming service providers' challenge of delivering that content even harder, is even more of a requirement for TrueCut and Iris in the U.S. than China where you can just downshift it and deliver it.

Is that a fair statement?

What I would suggest to you is well, first of all, today the large streaming providers -- there's new, large streaming providers and there's old-school studios that have now become large streaming providers.

In both cases, they have large studios within their ranks that produces a lot of their own content.

So you can deal directly with a studio/streaming provider and provide an end-to-end solution.

To say whether they're more motivated here or in China, I think they're both motivated in delivering a improved experience to their consumer.

It's a highly competitive market.

If one streaming provider or one studio can get ahead of another, they like the edge.

Okay.

Appreciate that color, Todd.

And last question then I'll go back in the queue.

Two segments here, projector in Japan and the Video Delivery both recovering.

I'm curious where the run rates will fall out in your opinion versus, say, where they were in '18 average or peak.

And I guess the moving parts in projector are the SoC, ASP versus prior.

And in Japan, it's kind of rebuilding from the initial ramp.

So any thoughts there on how the run rates might fall out in '20 versus where they had been in '18 would be helpful.

So we expect growth overall in the Video Delivery business from 2018, although with a slow start this year, let's call it, modest growth.

For digital projector, the market itself will not achieve the -- I mean it's down a good 15% to 18% of units shipped, and this is all the professional market, including DLP.

We don't really serve the DLP market much.

The DLP market actually had the largest market loss within the segment this year in the professional projector market.

But I expect -- and you never know where it's going to end, but I do not expect that we'll see 2018 levels again.

I expect that we'll see where we end up in 2020.

I think that's sort of where the market is going to be right now.

My expectation, I mean you can go get research data from PMA research, but they're probably looking at a total market down 20%.

For -- from 2018 as your reference point, right?

Our next question comes from Charlie Anderson of Dougherty & Company.

Congrats on all the solid progress on Mobile design traction.

Todd, I want to start on TrueCut.

I wonder if maybe you could frame up for us in any way possible, just sort of the revenue potential opportunity there.

I know you don't have a lot of customers, so maybe it's a little bit difficult, but the degree you can maybe talk about addressable market, or how we should think about pricing relative to volume that's out there.

Just any color would be helpful.

And then I have a follow-up.

I've tried to really -- we're not really going to compete against something that's existing in the market.

We're trying to create a format, shall we say, or a solution for delivering creator's intent at high frame rate to these new devices that are now coming to the market that it's a challenge that the creators have that they don't really have a good solution for.

And as we're creating that market, it's hard for me to peg exactly how big it is, but with that said, I can tell you, our approach is we will be marketing the licensing of our tools and support to studios and post-production houses.

We will be marketing our streaming platform, the licensing of our streaming platform, 2 streaming providers like we did with YOUKU, and we will be marketing the end devices supporting that format.

And so there's 3 areas that would be in our business model, those 3 areas.

How big that market is?

I mean I can go tell you how much they spend on movies every year.

I can go tell you how much the streaming providers spend on their platform every year, and I can go tell you how much device manufacturers, TVs, mobile devices and tablets spend each year, it's very large.

So we're just going to go in and capture a segment of that.

I do expect it to be a material contributor to the business probably next year going in -- going into 2022.

Great.

Thanks for all that color.

And then Elias, just a question on the cash burn.

Just so I understand it, are you saying that you'll end Q1 with similar level of cash that you ended Q4?

And then any thoughts to the degree that you can share on just cash usage in '20?

Exactly.

No, exactly what you're saying.

We intend to grow cash for the second half of 2020 for sure.

That's the goal.

And we're very comfortable with where we're at on cash.

So cash burn would be similar Q1 to Q4.

Our next question comes from Richard Shannon of Craig-Hallum.

Let's see a lot of interesting things to ask about, I guess, Todd, the first thing kind of characterizing your mobile customers and how they're ramped out here.

You talked about 12 models with 7 OEMs, 3 of which are new and some of them are flagships and some of them were kind of high-end premium gaming ones.

Maybe if you can help us understand the extent to which these flagships can be large ones, either in absolute or relative context.

Well, I mean given where we're coming from, a Tier 1 flagship is material to us at any volume, right?

I think -- what I will say is these -- the flagships that are going to come out are not only incorporating Pixelworks technology, but they're also incorporating high frame rate displays that at a pixel count and color gamut range that have not been available on the market before.

So there's a whole new visual experience that these OEMs, and it's more than one, are targeting to bring to the market.

They do believe that this experience will be a key differentiator for consumers deciding on which flagship to upgrade to, at least in the Android community, right?

And there's been a lot of effort over the last 2 years in -- the focus is on camera and the capabilities of the camera and sort of increase -- removing the bezel display but not really improving the full visual experience of the display.

So I think this is -- it's new.

Collectively, we're working with the OEMs to market these features, and you'll see how that goes shortly.

We clearly anticipate a material increase in revenue in 2020 versus 2019 for mobile.

It's going to be highly dependent on how these models, as they launch, are received in the market.

Some of them are targeting China, Southeast Asia.

Some of them are targeting the international market, including the U.S., U.S. carriers.

Okay.

That's helpful perspective, Todd.

Want to follow up on the agreements you announced with OPPO last month here.

I know that OPPO was -- is part of a larger group.

I think it's called BBK, which also has a little bit large OEM in that group.

Is there a possibility to kind of cross-fertilization of work that you're doing with them into other affiliates within that group?

Yes.

Well, I mean they operate as independent companies.

But I would say that the large OEMs in China are very aware what their competitors in China are doing when it comes to new technology.

And if one is going down a path of adopting technology to differentiate, the others are very aware that, that's happening.

And it's not coming from the technology provider.

It just -- it's a -- the nature of that community there is they're very closely tied.

So there's no corporate -- don't read too much into just because OPPO is part of BBK that corporate-wide, they'll use it.

But clearly, several -- I mean we're engaged with several OEMs, Tier 1 OEMs in China.

They're very aware of our technology.

Okay.

Fair enough.

Just probably a couple of more questions for me.

I guess next one on TrueCut.

Within the U.S. community, Todd, how would you characterize, or what's your expectation of how the sales cycle will go?

And what are going to be kind of the next milestones that at least you should be able to report on?

How should we be able to judge this going forward from here?

Well, I mean I think that to me, Tier 1 studio backing down out of Hollywood, beyond just these technical organizations that have given us awards, that have given us backing, if we now get endorsement by a large studio, I think that's a very key indicator of the progress we're making with TrueCut.

Subsequent, the studio and large post-productions adopting the technology, the next milestone would be -- in my mind, would be a streaming content provider outside the China adopting the technology.

Okay.

And as you look at these constituencies, studios, streaming guys, device guys, et cetera.

Is there 1 that kind of drives the rest of the ecosystem to move towards it?

Is it the streaming guys kind of the next or the studios?

Or any ways you can describe where kind of your biggest focus should be on?

From what -- this is somewhat new to me, but I've been spending a lot of time and energy on it recently.

I would say that there are a handful of sort of evangelist directors and creatives that go out on a limb with new technology because they believe the experience they're going to deliver with their project would be a better experience for that new technology.

I think that if you -- if these people, these evangelists adopt and publicly endorse your technology, the rest follow pretty quickly.

Okay.

Fair enough.

Last question, a financial one for Elias.

You just reported a quarter of, I think, 48% gross margins and you're now guiding for 49% to 51%, if I remember correctly.

Yes.

Yes, 49% to 51%.

And we have lower revenues, and I imagine, a little bit higher contribution from Mobile, which seems to be going contrary due to the mix here.

Wondering if you could help us understand -- bridge the difference here.

Is this we're getting -- in Mobile, gross margins are improving more than you had in the past?

Or any way you can help us bridge that, please?

Well, it will improve because our expectation is that it's not going to stay at these levels of 48% to 49%.

We are looking at a huge improvement for the whole year.

But the mixture of Q4 -- I mean of Q1, the way we're looking at it is, of course, contributing to these ranges we're giving you, which is 49% to 51%.

But for the whole year, there'll be an improvement, and we're very comfortable with that.

Our next question comes from Jaeson Schmidt of Lake Street.

Todd, when you look at your Mobile pipeline, are you seeing more interest on the chip side or in the Soft Iris side, or a combination?

So the Soft Iris is a very small subset of the features of what our chips deliver, right?

But it does one thing really well.

It does a couple of things, but it does one thing really well.

And that is device calibration.

So you can do unit-by-unit calibration at the manufacturing line in a very low test time.

And in fact, I mean I think we were 1/3 of what the competing way to do it was and more accurate.

So if somebody wants to just calibrate their phone and isn't interested in the other features, they could have a high interest, or they want to do tone mapping.

They could have interest in the Soft Iris solution, but if they really want to use the full suite visual processing features that we bring, including motion, they have to use our visual processors.

And I would suggest to you -- we have some customers using both in conjunction on the same platform.

And I don't want to go into too much detail why they use both.

We'll do that after the phones launch.

At a very high level, they're very focused on bringing -- introducing new features, but trying to maintain the power budget, the use budget throughout the day.

And so they have to come up with creative ways to implement some of these features that can be power intensive, but still maintain that power budget.

And one way is to use both our processor and our Soft Iris together.

But I would say what's going to drive the revenue growth and the majority of the models that I highlighted in that you'll see launched in the first half, the majority are our processors.

There are a couple of Soft Iris only solutions.

The grand majority use either Iris 3 or Iris 5.

Okay.

That's helpful.

And just more of a kind of big picture question.

What do you think is really driving this acceleration in Mobile for you guys?

Is it these OEMs finally recognizing the value proposition, the need for differentiation in the market or some of these newer technologies such as the high frame rate you outlined are really needing a way to address that?

What do you think is sort of kind of pushing this mobile to center stage finally?

Add 5G to your 3 scenarios, and I'd say, yes, it's all of them.

Okay.

It's all of them.

We've been pushing for 4 years.

We've been evangelizing the technology.

And through that process, we didn't stay still with development, right?

We're developing new product -- even -- and we didn't sell a lot 2 years ago, and we still spent a lot of money on R&D on our road map, and we continue to do that.

And so I think they see that.

There's a level of comfort from the customers that we're not going away.

We're going to be here, and we're constantly innovating.

There are new problems that we solve with high frame rate displays, which now they want to implement.

5G, a big part of 5G, at least initially marketing 5G and the value proposition to consumers is video consumption and interactive video and gaming and interactive gaming.

And so you put them all together, that's all coming together right now.

It's sort of a right place, right time.

Okay.

That makes sense.

And then just the last one for me.

Elias, it looks like $11 million at the midpoint for OpEx.

How should we think about that trending this year, factoring in their recent restructuring?

Yes.

It's still going to be the same range that I'm expecting for the short time -- for the time being, I should say.

I don't expect OpEx to go up massively this year.

I mean we are comfortable where we're at in terms of our investments into the growing businesses.

And like we are using the cash very efficiently.

Thank you.

I'm showing no further questions at this time.

I'd like to turn the call back over to Todd DeBonis for any closing remarks.

Thank you.

Thank you for joining today's call.

And for those investors and analysts that will be traveling to Mobile World Congress, I look forward to meeting you there and updating you on our progress.

That's it.

Thank you.

Ladies and gentlemen, this does conclude today's conference.

Thank you for participating.

You may now disconnect.