Quicklogic Corp (QUIK) 2017 Q3 法說會逐字稿

Ladies and gentlemen, good afternoon. At this time, I'd like to welcome everyone to QuickLogic Corporation's Third Quarter 2017 Results Conference Call. (Operator Instructions) Today's conference call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to the company's representative, Ms. Moriah Shilton of LHA. Ms. Shilton, please go ahead.

Welcome everyone, and thank you for joining us today for QuickLogic's Third Quarter 2017 Results Conference Call. With us today are Brian Faith, President and Chief Executive Officer; and Dr. Sue Cheung, Chief Financial Officer.

Before we begin, I will read a short state harbor statement. Some of the comments QuickLogic makes today are forward-looking statements that involve risks and uncertainties including but not limited to stated expectations relating to revenue from new and mature products; statements relating to QuickLogic's future stock performance, design activity, and its ability to convert new design opportunities into production shipments; timing and market acceptance of its customers' products; schedule changes and projected production start dates that could impact the timing of shipments; our future valuation system; broadening our ecosystem partners; expected results and financial expectations for revenue, gross margin, operating expenses, profitability and cash.

These statements should be considered in conjunction with the cautionary warnings that appear in QuickLogic's SEC filings. For additional information, please refer to the company's SEC filings listed on its website, and the SEC's website.

Investors are cautioned that all forward-looking statements in this call involve risks and uncertainties, and that the future events may differ materially from statements made. For more details of the risks, uncertainties and assumptions, please refer to those discussed under the heading, Risk Factors, in the annual report on Form 10-K for the fiscal year ended January 1, 2017 the company filed with the SEC on March 9, 2017.

These forward-looking statements are made as of today, the date of the conference call, and management undertakes no obligation to revise or publicly release any revision of the forward-looking statements in light of any new information or future events. Please note, QuickLogic uses its website; the company blog, QuickLogic HotSpot; the corporate Twitter account; its Facebook page and LinkedIn page as channels of distribution of information about its products, its planned financial and other announcements, its attendance at upcoming investor and industry conferences, and other matters. Such information may be deemed material information and QuickLogic may use these channels to comply with its disclosure obligations under regulation FD.

The conference call is open to all, and is being webcast live. We will start today's call with the company's strategic updates from QuickLogic CEO Brian Faith. Then, CFO Sue Cheung will provide financial results and guidance. Brian will deliver closing remarks and open the call for questions. At this time, it is my pleasure to turn the call over to Brian Faith, President and CEO. Please go ahead, Brian.

Thank you, Moriah, and thank you all for joining our Q3 2017 conference call. I am very pleased with the progress we have made since our last conference call. We have continued to benefit from the growing influx of new opportunities and with the improvements we've made to our engagement process, a more rapid conversion of opportunities to design wins. We expect this trend to accelerate as mobile, wearable, hearable, and voice-enabled IoT designs continue moving away from push-to-talk and adopt always-on, always-listening technology.

To keep pace with this growing demand, we added three senior level domain experts during Q3 for product management, hardware solutions architecture, and system engineering. Many of our EOS S3 customers are forecasting production start in Q4, to support product introductions at the January Consumer Electronics Show in Las Vegas. As a result, I believe we'll see a record number of new products at CES with QuickLogic inside.

This tangible success and the building momentum we are enjoying across the board in our strategic sensor processing and IP markets not only bolsters my confidence that we will grow revenue in excess of 50% in 2018, but that we will also start the year with sound footing towards realizing that goal. However, there are three factors that have led me to lower our current Q4 outlook relative to what I anticipated three months ago.

The EOS S3 designs we believe will move into production this quarter, and a seasonal increase in mature product revenue will offset [these] declines to the extent we will guide flat revenue for Q4. Absent these factors, our outlook would be about $1 million higher.

First, Display Bridge customers recently lowered Q4 forecasts by approximately $450,000. While this also leads us to moderate our 2018 outlook for Display Bridge solutions, that decrease is far more than offset by the significant uptick in opportunities we have experienced during the last several months for our sensor processing and embedded FPGA IP solutions.

Second, we do not have orders yet from our Tier 1 smartphone customer for its new wearable design, and therefore are not including any revenue from the application in our Q4 guidance.

Third, instead of expanding our license agreement with an existing fab partner to cover a trailing fabrication node, we jointly elected to delay the expansion and focus our efforts toward the currently-licensed technology that is running at increasingly high volume. Had we gone forward with the license expansion, the revenue would have been mostly recognized during Q3 and Q4.

Let's start with our embedded FPGA IP business. We have continued to make progress in our engagement with major semiconductor companies and OEMs, and in finalizing qualifications with our fabrication partners. We are also in the process of launching a significant upgrade to our Aurora embedded FPGA tool suite, to enable customers to evaluate and target designs on the new GLOBALFOUNDRIES 22-nanometer FDSOI process called 22FDX. In addition to improving the design efficiency for all our embedded FPGA customers, this will lower the amount of QuickLogic resources we will have to dedicate during our licensee's design process.

We completed our test chip qualification for the SMIC low power 40-nanometer process during Q3, and SMIC has been actively promoting our embedded FPGA technology with its customers. As it stands today, QuickLogic's ArcticPro is the only embedded FPGA technology that is currently available for SMIC's high volume, low-power 40-nanometer process.

We are on schedule to complete our 22-nanometer FDSOI test chip tape-out with GLOBALFOUNDRIES this quarter, and anticipate the test chip qualification in Q1 2018. We believe this will mark the first demonstration of FPGA technology running on an FDSOI process. GLOBALFOUNDRIES continues to promote our ArcticPro embedded FPGA IP with its customers for its 22-nanometer FDSOI process in advance of our qualification. We are also seeing continued interest in our 40-nanometer ArcticPro technology that was previously qualified at GLOBALFOUNDRIES.

To broaden our reach and accelerate our penetration in China, we established a partnership agreement with AcconSys to provide sales and support for ArcticPro embedded FPGA solutions. AcconSys is the largest EDA tool and semiconductor IP distributor in China, and has established relationships with SoC and ASIC design groups throughout China. I believe the breadth of experience and the connections that AcconSys brings will play a key role in accelerating the adoption of our embedded FPGA IP with major Chinese OEMs and semiconductor companies.

In addition to our independent and team efforts with our partners, we generated a noteworthy increase in our IP engagement funnel through our participation in a variety of technical symposiums during the last quarter. These included the 2017 SMIC Technology Symposium, the Design and Reuse IP SoC days, three GLOBALFOUNDRIES technology conferences, the FDSOI Design and Application panel, the 15th Annual International System-on-Chip conference, and the Arm TechCon.

Now, turning to sensor processing with an initial focus on wearable, hearable, and IoT applications: first, I am proud to say that we have been granted our patent from the United States Patent and Trademark Office for our Flexible Fusion Engine, or FFE. The FFE is a highly-differentiated and proprietary element of our multi-core sensor processing architecture, enables very low-power always-on use cases, and is used by our Tier 1 smartphone OEM for certain always-on features of their wearable device. During the last quarter, this customer continued to refine its software to optimize accuracy and battery life, and is now in the process of expanding its field testing to include several hundred users. I also had an opportunity to briefly try out the new wearable during a customer visit, and believe the outcome will be worth the wait.

Given the discussions I've had with this customer's senior executives and our continuing involvement with manufacturing engineering, I have a high level of confidence it will move into mass production during the first half of 2018, but as it stands today I am unsure about the exact timing. Please note, though, while significant, this is only one of many growth drivers I envision coming into play during the first half of 2018.

As I noted last quarter, this Tier 1 OEM has made a top-down strategic commitment to include always-on, always-listening voice in all of its future wearable and hearable designs. Since our EOS S3 SoC can support the customer's always-on, always-listening requirement at a fraction of the power needed by other MCU solutions, we believe we have a substantial competitive advantage. Due to this significant power consumption advantage and the depth of experience the customer has built during its first wearable design using our EOS S3 SoC as a host and sensor processing solution, the OEM is working closely with us on two new, high-volume consumer designs that are targeted to include always-on, always-listening voice features. Both of these new products are scheduled for production in mid-2018.

One of these new designs is a wearable device where the customer can directly leverage the software it has developed and refined for EOS S3 during the last year. This design opportunity transitioned from an evaluation to an engagement, since our last conference call. The second, a hearable device which can also leverage the customer's software investment, is still in the evaluation stage.

If we are successful in winning these new designs, QuickLogic will exit the first half of 2018 shipping production quantities to support three high-volume EOS S3 designs with this Tier 1 customer.

In the broader market, we are seeing a growing trend for new mobile, wearable, hearable and battery-powered IoT products that require always-on, always-listening capability versus the past design approach of using push-to-talk. This may seem like a subtle change, but it is actually a significant engineering challenge. To deliver acceptable battery life, a different design approach is required. Traditional design approaches that run sound detection and software consume an excessive amount of power, and would shorten battery life considerably if forced to run constantly to listen for trigger words. That is the primary reason why push-to-talk has been the dominant interface in past designs. With the trend shift to always-on, always-listening, product designers know they need to do things differently, and an increasing number are looking to EOS S3 as the answer.

With its hard-ware integrated low-power sound detector, or LPSD, our EOS S3 SoC enables always-on, always-listening, while consuming only about 1/10 of the power of software sound detection that is used in other MCU-based devices. That is why this trend shift has been a significant factor in our growing success.

In addition to the advantages driven by our hardware-integrated LPSD, EOS S3 is also designed to intelligently manage power consumption of external devices used in product designs such as microphones, activity and biometric sensors, and wireless connectivity ICs like Bluetooth and Bluetooth Low Energy, or BLE.

With this capability, our EOS S3 can further minimize power consumption by intelligently controlling when subsystems within the design are powered. This is a very important capability for battery-powered designs targeting immersive user experiences. One example of this would be a voice-enabled hearable or wearable device that includes an activity sensor like an accelerometer to track step count. With intelligent power management, our EOS S3 knows if the device is being worn or sitting on a table. If the device is sitting on a table, everything could be shut down except the low-power accelerometer and our patented Flexible Fusion Engine, or FFE. If the device was picked up, the FFE would signal it is time to activate the microphone to listen for a trigger word like Alexa, or Ok Google.

Another trend that is driving interest for our EOS S3 is the proprietary software that we recently developed that enables EOS S3 to run voice over BLE. BLE lowers the power consumption of the wireless Bluetooth interface that is used on virtually every wearable and hearable device. We are in the process of further leveraging this and our intelligent power management technology through ecosystem partnerships.

Due to the increasing importance of our competitive advantages, we continue to enjoy a growing influx of new opportunities from not only leading Asian companies, but also from U.S. and European sector leaders that have high branding recognition. We believe the unique capabilities of our EOS S3 SoC will drive the same success with these large OEMs as it has across numerous Asian customers.

Our investments in developing software and tools during the last year has enabled us to materially improve the efficiency of our engagement process, and with that, significantly shorten the cycle from opportunity to design win from months to weeks in some cases. As a result, we anticipate a significant number of EOS S3 designs will move into production ahead of CES late next month.

We expect these will include new products from Janyun, Qiwo, the wearable and hearable products from the large app companies we've discussed in past conference calls, and several others. As a result, we are anticipating an impressive number of wearable, hearable, and voice-enabled IoT products with QuickLogic inside will be shown at the Las Vegas Consumer Electronics Show this coming January.

In addition to the traditional consumer use cases for wearable products, we are also seeing more interest from companies that are addressing emerging B2B applications. OEMs that are addressing B2B applications believe there is significant volume potential as hospitals, insurance companies, fitness companies and others, leverage sensor data to track activity in biometric information. We recently won a design with a European OEM that is addressing the B2B market with a new wearable device that utilizes our EOS S3 as the host and sensor processor and its embedded FPGA as a display driver. We expect this design will enter production during Q1 2018.

In addition to the strong interest we've seen from companies addressing wearable and hearable designs, we're also seeing growing interest from companies developing voice-enabled IoT products. The short story here is, voice has not only become the next interface, current trends suggest that always-on, always-listening voice is on-pace to become the dominant interface for a wide variety of technology products, and with that, give rise to the term, "Internet of Voice."

Through a variety of initiatives, we have continued to grow our engagement funnel for voice-enabled IoT applications and we've won several designs that we expect will enter production during the first half of 2018.

To capitalize on this trend, our Japanese distributor, Shinko Shoji, developed and at CEATEC demonstrated, a new EOS S3 evaluation module that is designed to support voice-enabled IoT and other applications. Our engagement with the Tier 1 cloud-based IoT provider that I've mentioned on past calls has continued to move forward in line with our expectations. While the NDA with this company prevents me from saying more, I can tell you that I expect this will be one of several drivers that leads to a sharp ramp in battery-powered IoT engagements and design wins beginning in the first half of 2018 and accelerating as we move through the year.

Let's now turn to the smartphone market. During the last year, we have been working closely with a major Japanese smartphone OEM that is targeting EOS S3 for new models scheduled to launch in 2018. We recently shipped prototype units to this OEM for a concept smartphone that they are intending to showcase at Mobile World Congress in Barcelona during late February. If their lead Japanese carrier mandates certain features enabled by EOS S3, the OEM will introduce a high-volume flagship smartphone with that carrier during Q2 2018 that is based on the concept design.

We have continued to move forward with other smartphone engagements that target models that are scheduled to move into production during the first half of 2018. While I believe we are well positioned for success, there are still too many variables in the equation to forecast these as design wins.

Now, I will turn the call to Sue, and return for my closing remarks before we open for Q&A.

Thank you, Brian. Good afternoon, and thanks to everyone for joining us today. Please note that we are reporting on non-GAAP results here. You may refer to the press release we issued today for a detailed reconciliation of our GAAP to non-GAAP results and other financial statements. We have also posted an updated financial table on our IR webpage that provides current and historical non-GAAP data.

For the third quarter of 2017, total revenue was $3 million, within our guidance range. Our new product revenue was $1.5 million and mature product revenue was $1.5 million. New product revenue was slightly below our forecast. This is due to a joint decision we made with one of our fabrication partners not to expand a license agreement to include a trailing fabrication node. Revenue from that agreement would have been largely recognized during Q3 and Q4 2017. Instead, we are jointly focusing our efforts toward currently-licensed technology that is running at an increasingly high volume.

Third quarter 2017 mature product revenue was above our forecast, due to higher-than-anticipated demand from a single customer in the military aerospace industry. Samsung accounted for 24% of total revenue during the quarter compared to 21% during the previous quarter.

Our Q3 2017 gross margin was 44%, within our forecast range. Operating expense for Q3 totaled $4.3 million, which was at the low end of our forecasted range. SG&A expenses were $2.1 million, and R&D expenses were $2.2 million. The decrease in OpEx was mainly due to a one-time adjustment of accrued variable expenses in the quarter.

The total for other income expense and taxes in Q3 was a charge of $95,000, which was greater than our forecast due to a one-time tax adjustment related to our foreign subsidiaries. This resulted in a net loss of approximately $3.1 million, or $0.04 per share, essentially at the midpoint of our forecasted range.

Our Q3 cash usage was $3.2 million, which resulted in an ending cash balance of $19 million. This was within our forecasted range. In August, we renewed a line of credit agreement with Silicon Valley Bank, with more favorable covenant terms. This agreement allows us to borrow up to $6 million with an option to increase to $12 million at our election.

Let us now turn to the 4th quarter 2017 outlook. Our revenue guidance for Q4 is approximately $3 million plus or minus 10%. Total revenue is expected to be comprised of approximately $1.2 million of new product revenue and $1.8 million of mature product revenue. The expected sequential increase in mature product revenue is primarily due to strong demand from another customer in the military defense sector.

On a non-GAAP basis, we expect the gross margin to be approximately 48% plus or minus 3%. The sequential increase in gross margin is expected to be driven mostly by the product mix. We are currently forecasting non-GAAP operating expenses at approximately $4.6 million plus or minus $300,000. We expect our non-GAAP R&D expenses to be approximately $2.3 million and non-GAAP SG&A expenses to be approximately $2.3 million. We expect our other income expense and taxes will be a charge of approximately $60,000.

At the midpoint of our forecast, our non-GAAP loss is expected to be approximately $3.3 million, or $0.04 per share. As was the case in prior quarters, the main difference between our GAAP to non-GAAP results is our stock-based comp expense, which we expect to be approximately $480,000 for the quarter.

In Q4, we expect to use between $2.8 million and $3.2 million in cash. The forecasted cash usage will be primarily driven by working capital needs and the CapEx expenditures associated with our eFPGA and SoC development efforts.

Starting with fiscal year 2018, we are required to adopt a new revenue standard, ASC 606. We expect to adopt this standard using the notified retrospective transition method. With this approach, we will not have to [restate] prior years financial statements. We do not expect this new standard to affect us materially, other than increase the disclosures. You will find more disclosures on the change in our Q3 10-Q which we plan to file tomorrow, November 9.

With that, let me now turn the call back over to Brian for his closing remarks.

Thank you, Sue. When voice interfaces were introduced in mainstream consumer products roughly 10 years ago, they were buggy and frustrating to use. The primary problem then, was poor voice recognition. In other words, the software did not correctly recognize what was being said. Driven by software company partners like ours in sensory, voice recognition has improved dramatically and today, financial institutions commonly use very high-resolution voice recognition to provide positive ID for customers.

These improvements in voice recognition enabled the popularity of Siri, Ok Google, and more recently, Alexa. As a result, we saw a flood of voice-enabled home automation, or more broadly, IoT products, at the 2017 Consumer Electronics Show in Las Vegas. In our conference call that followed CES 2017, I stated the theme of the show was, voice as the next interface. Since then, this theme has built traction and become the dominant design trend. While improved voice recognition was clearly the obvious enabling driver of this trend, it is important to note that there was one other change that led to the successful commercialization of voice as the next interface. That change was the shift from push-to-talk to an always-on, always-listening voice interface.

Early implementations of voice interfaces required users to push a button before saying Ok Google, or asking Siri a question. And, for the most part, push-to-talk was still a requirement for the battery-powered devices shown at CES 2017. However, push-to-talk was simply not an option for Alexa. She needed to be awake all the time, ready and waiting for you to ask questions and issue commands from your easy chair. Just like you wouldn't buy a TV without a remote control, you probably wouldn't buy Alexa if you had to get up and push a button before asking a question or issuing a command.

Amazon's Alexa and the host of similar products that followed have changed the way consumers expect to interface with technology using voice commands. With its success, Alexa proved the value of the immersive, always-on, always-listening use cases I described earlier this year. Delivering an immersive, always-on, always-listening experience was easy for AC-powered devices like the Echo. However, However, to deliver these immersive use cases in battery-powered devices presented new challenges. The traditional MCU-based design approaches used to deliver push-to-talk cannot be economically adapted to deliver the always-on, always-listening experiences consumers expect today without notably shortening battery life.

Our EOS S3 enables always-on, always-listening without this penalty, and that is the primary driver that has led to a significant increase in our flow of opportunities, engagements and design wins during the last several months. I believe you will begin seeing tangible evidence of this success as customers start shipping new always-on, always-listening products enabled by EOS S3 later this quarter. And, if you attend CES in January, I think you'll be impressed by the number of new always-on, always-listening designs that have QuickLogic inside.

I'd now like to open the call for Q&A.

(Operator Instructions) Our first question comes from Richard Shannon of Craig Hallum.

We talked about your Tier 1 customer maybe delaying its initial product, but it sounds like the software development is going to give you a little more certainty on follow-on orders, so I wanted to get a sense of the time frame or the confidence level in kind of seeing that mid-year rollout with some of those follow-on designs. The second part of the question is, how should we think about the volume opportunity with all the other customers that you talked about either ramping just before CES or soon after, including any of the smartphone guys that might be in Mobile World Congress?

So, on the Tier 1 delay, yes, it's definitely delayed. Obviously we don't have that in our Q4 guidance, but we still see a lot of work on the software side, and as you point out that software will be leveraged into these other projects if we are successful in those. The timing of those, we indicated leaving the second quarter of next year, or ending the first half. I think the timing of those is fairly accurate, because those are based on product types that they're already shipping in the market. These are not new product categories. For the other wearable that we've been talking about for some time now, it's somewhat different, and I think that's one of the reasons that they're putting a lot of energy into optimizing this for the use case and the battery life. And that's why I don't think it buts up against that exact same timing of those other two, because it is different. And that's probably the extent of what I can say on that, at this time. Your second question was related to the volume of the other customers, particularly the ones that are going to be at CES. So, as I said part way through the script, we think that those are going to be more introduced in the late part of next month, of this quarter, leading into CES where they're going to show them. The volumes that they've indicated to us are all 6-digit and up volumes, in terms of number of units. How that actually ramps and rolls out I think is going to be dependent largely on the reception of those products at CES. So, I can't comment on that until I go to CES and see how well it's received, but I've seen the products. We've used some of them here in our office in Sunnyvale, and I get the user experience they're trying to promote. And they're primarily form factors that we're already buying today as consumers, they're just enabling voice features with that. So, I think that's going to be well-received. But again, I can't put an exact volume just because I don't know yet. But, they're all forecasting in the 6-digit kind of volumes for each project.

You talked about in your embedded FPGA business, maybe getting it, going to as many as three signature licensees exiting the year, and it sounds like based on a push-forward to a lower node this year, not necessarily going to happen, but pushed out into next year. I want to make sure I'm understanding the commentary relative to what you talked about before, and any details about how fast we might see those customers come in as licensees?

Sure. So, one of the three reasons I mentioned for having the essentially flat guidance for Q4 was related to us jointly deciding with one of the foundry partners not to do a trailing node. So, it's not a trailing node, it's actually a trailing node, and bring that up for the IoT space. Generally we decided, let's focus on what we have today. We're seeing activity and opportunity there, let's look at these and not worry about the lagging node. That would have been one of those. For the other opportunities that we have and engagements in eFPGA, none of those are lost during the quarter. They're essentially just pushed depending on the schedule of the OEM, basically when are they applying the resources and when do they need to issue a license for us to integrate that into their SoC? So, pushed -- I'm imaging it's going to be in Q1, but we'll see. I'm hopeful.

(Operator Instructions) Our next question comes from Gary Mobley of Benchmark.

I wanted to start out by picking up where we left off on the last line of questioning. What specific nodes are available for licensing between GLOBALFOUNDRIES and SMIC right now?

I'll just walk right through them. So, for GLOBAL, we have 65-nanometer, 40-nanometer, and once qualified in Q1, 22-nanometer FDSOI which is their 22FDX process. I wouldn't preclude that somebody could sign a license before we go through the qualification, in most cases they'll wait for that to be finished. And then, we have the SMIC 40-nanometer that we announced just a couple months ago. I'd also like to mention that because we've been shipping our own devices with TSMC 65 previously, with some of our other technologies, that's also available for people to license. So, I'm pretty proud of the fact we're in three different foundries across these different nodes, only a year into this initiative.

Okay, could you help me understand why you walked away from, or decided to refocus away from a potential licensing agreement for some trailing-edge technology with your foundry partner? Were you not going to recoup your NRE on that, and potentially not generate much licensing revenue? Or, is this a resource constraint issue with your R&D staff?

It's not a resource issue. We actually, we can do two different developments at the same time with our current resources, two different ports, if you will. This is really just a joint decision with this particular foundry that it made more sense to focus on what we've already done and a potential future node that would be a smaller geometry and not bringing up a laggard node, just because it takes about 6 to 8 months for us to bring up a new node like this. And, you never know if the market is still going to be there in terms of actual design starts in that time frame, or if people are going to be moving on to the next thing. And with embedded Flash coming up now soon on 40-nanometer, I think a lot of microcontroller designs are going to gravitate to that, or to the FDSOI and not necessarily for something that's a laggard node anymore. So, it was purely a business decision. We could have started it, had we decided we wanted to.

Maybe I heard this wrong, but I thought, Brian and Sue, you guys said something different with respect to the mix in contributions to the 4Q revenue. I think initially you guys mentioned that you're expecting some of the mature products to decline including some of the more [middle aero] stuff in Display Bridge, and then seeing a ramp ahead of CES for some of the newer EOS products. But Sue, I think you mentioned that mature products are expecting some growth sequentially in Q4. Could you clarify that?

You're right. So, mature we do expect it to grow in Q4 as we mentioned in the prepared remarks. It's going to be $1.8 million, which is much higher than we expected, and that trend will continue actually for the next few quarters. And this is from one particular customer, so we don't expect [like] overall growth.

Our next question comes from the line of Rick Neaton of Rivershore Investment.

Do you expect eight or more products using the S3 will be at CES?

Do I expect eight or more? Is that what the question is?

Yes.

It could be. I think it's going to depend on when they actually finish up all their fine-tuning and everything, but it could be in that range.

Okay, and so you have the four designs that you had mentioned before, Qiwo, Janyun, and then the two app companies -- the two app companies are definitely now forecasting production in the fourth quarter, is that correct?

Yes, they're forecasting production units in the fourth quarter, that's correct. (inaudible) late fourth quarter.

Okay. Do you expect all four of those companies will be showing their devices at CES?

I think that they should, I don't have confirmations from every single one of them. But, I think historically they would be there showing these products. I know the majority of them have stated, yes they will be showing them at CES.

Okay, so then you're expecting some other new design customers that you have not called out in the past, to be also showing new products with S3 in them at CES? Is that also correct?

Yes, that's correct. That is correct, yes. Several other ones, in fact.

I heard you mention when talking about, I think, B2B IoT products, or B2B use, can you provide some additional color or examples of what this type of product would be and how it would be used?

Yes, definitely. So, just for clarity for everybody, B2B is business-to-business. There's typically two ways that a wrist-worn device could get on us as consumers. One way is, we go down to our consumer electronics store and buy it ourselves, which has been the historical way of buying wearable products. The other is that you could actually get the wearable product sent to you by a hospital, or your insurance provider, and they subsidize the majority of the cost of that. You agree to wear it because you agree that they're going to be able to see how active you are, for example, during the day. That's one business model that's being touted by a lot of these insurance companies, because they're trying to promote wellbeing in the employee base for companies, or their general [insurees]. Another way that you could imagine this going to market is that you have some condition, and you're in a hospital and you're going through treatment, and the doctor would like to understand more about you and your activity, maybe your heart rate, as you go through your treatment process away from the hospital, and having these wearable devices allows them to do that. Not necessarily it's something you would go by and go to Best Buy to buy, but something that you would be dictated to wear by your doctor. So, that's what we mean by B2B, and we're seeing a lot of interest in that because having a sense of more wellbeing about us is a really good input for the doctor to modulate what they're prescribing for you to do, and just get a sense of general activity. So, the analogy we give, car insurance companies today, they'll give you a lower rate if you take that little dongle and stick it in your car. Same thing with insurance for people. You wear a wrist-worn thing, they'll subsidize some of your insurance as long as you're open to wearing the technology.

Do you have any estimates of the size of this particular market in terms of dollar volume as it stands within the entire wearable or hearable market?

I don't have a figure in front of me, Rick, but I know just from the volumes that these people are quoting it's definitely in the tens of millions, because of all the people that are out there that are being insured. One characteristic I'd say about this market in particular, it's probably going to be more stable and have less churn and less lumpiness than the consumer market. Consumer market is always holiday-driven, or at least it tends to be. Designs change every year because consumer taste changes every year. I don't think the same thing is true for this other market. And it's also worth noting that I think there was an article published a couple weeks ago, but I think the FDA is actually loosening some of the restrictions on getting products qualified through the FDA for use in these types of environments. Historically, FDA has really showed down the innovation in this area, but I think they realize that if they can leverage consumer product designs in this environment, as long as they go through a lightweight qualification with FDA, everybody benefits by that. And I think that's just an acknowledgement of the market potential.

I'm showing no further questions. I'd like to turn the call back to Brian Faith for closing remarks.

Thanks, everyone, for joining our call today. We will be participating at the following events: The Third Annual Roth Technology Corporate Access Day on November 15 in New York City; the 8th Annual Craig-Hallum Alpha Select Conference on November 16 in New York City; the Benchmark Company Microcap Discovery 101 Conference on December 14 in Chicago; the Reuse 2017 on December 14, where our CTO and SVP of Engineering, Dr. Tim Saxe will be presenting on the topic, Slash the Cost and Time of SoC Design Reuse; CES 2018 on January 9 through January 12. Our next conference call is scheduled for Wednesday, February 14, at 2:30 p.m. Pacific Time. Thank you for your continued support, and goodbye.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.