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. [OperatorInstructions]. This conference call is being recorded for replay purposes. I would now like to 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 06, 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 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 adjustments, inventory step-up and backlog amortization, amortization of acquired intangible assets, stock-based compensation expense, restructuring expenses, gain on extinguishable convertible debt and discount accretion on convertible debt to fair value.

The Company uses these non-GAAP measures internally to access our operating performance. We believe these non-GAAP measure 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 income loss to adjusted EBITDA, which provide additional details. With that said, I would now turn the call over to Todd 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, and 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 target 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 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 projected 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 PDRs and set top boxes. Consistent with what we indicated on our previous conference call.

The decline in forecasting bookings we observed from our lead customer during the third quarter was a result of soccer pull through on any products by Japanese consumers.

Despite this moderation and 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 X code trans coders for new OTA devices here in the U.S. As announced in late December, Pixel works advanced trans-coding SoC provides the OTA streaming and recording capability incorporated into the recently launched Air TV2, OTA DVR.

For those not familiar with Air TV, which along with Sling our wholly owned subsidiaries of dish, the Air TV2 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 Air TV2 device allows users to watch it record live OTA broadcast channels for 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 trans coders in the fourth quarter. Looking beyond the first quarter, we are well positioned on engagements from multiple next generations 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 in force based upon the Company’s head count at your end. This strategic action was in part designed to achieve improved efficiencies and better align 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 true cut growth businesses. As such, the reductions were made primarily in non-mobile areas of our business.

Conversely, we recently announced the opening of a new Pixel works office in Shin gin 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 smart phone 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 viewed.

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’s formatted content available for potential viewers.

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

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

As part of our ongoing collaboration, we meet we have made incredible headway on several metrics that we use to measure the platforms market reach. Between April and as of year-end, or in roughly nine-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 nine mobile OEMs. Making in 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 nine-months, we have been actively working to demonstrate the platforms value proposition and cultivate advocates for TrueCut in adjacent markets across the broader video ecosystem.

A fundamental elements of the end-to-end solution we have 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 within only a few months of launching our TrueCut Motion Grading tools, we received notable recognition and two 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 four motion picture titles released in China cinemas, and two additional titles leveraging TrueCut are due to be released in 48 frames per second format in the near future. Lastly, we are 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 agreements 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 multi phone and co-branding agreement with HMD Global to incorporate Pixelworks’ Iris technology in a broad range of next generation Nokia Smartphone's. HMD subsequently launched the first two 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 six smartphones launched across four 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 2.

Specific to the fourth quarter, mobile revenue, which was comprised almost entirely of sales of our Iris Visual Processors increased 140% sequentially, and by the 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 ninth consecutive quarter of year-over-year growth.

Since year-end, we have entered into two new publicly announced collaboration agreements with customers to incorporate Pixelworks’ leading visual processing and display enhancement technology in multiple plan next generation devices.

The first of which was Cool Pad, 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 multiyear collaboration agreement with Oppo Group for the development and integration of advanced display and Visual Processing Solutions. Well, 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 eight-months on a series of upcoming programs, we are also working together to align and shape our respective product roadmap.

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 solution 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 advances high-performance displays is extremely compelling, they also presented challenges due to higher frame rates, higher pixel count and wider color gamete capabilities.

Out Iris solution were specifically designed not only to 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 technology and expertise to help a number of smartphone OEM to achieve the desired and highly differentiated performance on their next generation devices.

To help to quantify the pipeline for our mobile visual processing engagements. In the first half of 2020, we expect to announced wins on approximately 12 models across seven different mobile customers, three of which are first time customers, including Oppo.

Again, these are all devices with planned launched 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 Corona Virus 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 9th and resuming work in our offices on February 10th.

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 10th. 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 six 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 will turn the call over to Elias for 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 a revenue of 20.5 million in 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, future delivery revenue as an 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 have reported a net loss of 2.3 million or loss of $0.06 cents per share in the fourth quarter of 2019 compared to a non-GAAP net loss of $518,000 or loss of one penny 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 receipt, I want to point out that the sizeable portion of the sequential decrease in our reported cash balance was related to small group of customers around year-end. Together, these payments amounted to a significant portion of a reported account receivable at year-end.

We collected these payments within the first week of January, 2020, subsequently resulting in both the meaningfully higher cash balance and lower accounts receivable as of early January. Therefore, our cash bonds in Q4 2019 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 was 7.8 times compared to 11 times 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 digital 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 will do the Q&A..

Okay. Let's do the Q&A now. Sorry. Yes..

Thank you. [Operator Instructions]. Our first question comes from Sujeeva Desilva of Roth Capital..

Hi Todd, hi Elias Nader, congratulations on the progress here across multiple front. 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 2020 half the revenue, just want to make sure I heard that.

And if that is the case, 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 you that to achieve that goal, you would have to have at least two Tier-1 OEMs as part of that group..

Okay good. That helps absolutely. And then on TrueCut just maybe a subtlety here. How is the maybe perhaps the U.S. strategy you are talking about versus Asia different and as you talk about guys you are engaged with in the U.S. is it content providers like a YOUKU? Or is this the production houses for both sides of the equation there -..

So before I give you a specific answer to what you are 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 acquire the content. In the U.S. it is 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 and HDR, but also converting from lower frame rates to high 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 during the post production process of the original content. So with that said, in the U.S., what we are really focused on is the full ecosystem.

We are 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 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 is so tight about what you can do with the content. Is the streaming service provider is challenged of delivering that content even harder and it is even more of a requirement for TrueCut and Iris in the U.S.

than China, where you can just down shift it and delivered it, is that a fair statement?.

What I would suggest to you is well, first of all, today, the large streaming providers that there is new large streaming providers, and there is 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 are more motivated here or in China, I think they are both motivated in delivering a improved experience to the consumer. It is a highly competitive market.

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

Okay, I appreciate that color Todd. And last question and I will go back in the queue. Two segments here, protector in Japan in the video delivery both recovering.

I'm curious where the run rates will fall out In your opinion, versus say where they were in 2018 average or peak and, I guess the moving parts in projector of the SoC ASP versus prior and in Japan is kind of rebuilding from the initial ramp.

So, any thoughts there and how their run rates might fall out in 2020 versus where they had been in 2018 would be helpful. Thanks..

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 is down a good 15% to 18% of units shift. And this is all the professional market including DLP. We don't really serve DLP market much.

The DLP market actually had the largest market loss within the segment this year, the professional projector market. But, I expect and you never know where it is going to end, but I do not expect that we will see 2018 levels again. I expect that, we will see where we end up in 2020, I think that is sort of where the markets is going to be.

Right now, my expectation, I mean you can go and get research data from PM Research, but they are probably looking at a total market down 20%. From 2018 as a reference point, alright..

Okay. Thanks guys. Congrats again on the progress on Mobile..

You are welcome Sujeev..

Thank you. Our next question comes from Charlie Anderson of Dougherty & Company. Your line is open..

Yes. Thanks for taking my question and 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 it maybe a little bit difficult, but the degree you could maybe talk about the addressable market or how we should think about pricing relative to volume that is out there, just any color would be helpful. And then I have a follow-up..

I will try to really, you know, we are really going to compete against something that is existing in the market. We are trying to create a format let’s say or solution for delivering creators intent at high frame rate to these new devices that are now coming to the market.

It is a challenge that the creators have, that they don't really have a good solution for. And as we are creating that market, it is 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 to streaming providers like we did with YOUKU. And we will be marketing the end devices supporting that format. And so there is three areas that would be in our business model, those three areas.

How big that market is? I mean go and tell you how much they spend on movies every year. I can go and 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 tablet spend each year, it is very large.

So, we are just going to go in a capture a segment of that. I do expect it to be a material contributor to the business probably next year going into 2022..

Great. Thanks for all that color. And then Elias just a question on cash burn, just so I understand that, are you saying that you will 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 2020..

Exactly. No exactly what you are saying. We intend to grow cash for the second half of 2020 for sure, that is the goal and we are very comfortable with where we are at on cash. So, cash burn will be similar, Q1 to Q4..

Okay. Got it. Thanks so much..

You are welcome..

Thank you. Our next question comes from Richard Shannon from Craig-Hallum. Your line is open..

Hey Richard..

Hi Elias, how are you. Hey Todd..

Hello Richard..

Hi, sorry, I'm going to try not cough too much, it is coming up so apologize if I pack up along here. Excuse me. 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 the ramp out here, you talked about 12 models with seven OEMs, three 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 could 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 are coming from a Tier-1 flagship is material to us at any volume, alright.

I think what I will say is the flagships that are going to come out are not only incorporating Pixelworks’ technology, but they are 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 is a whole new visual experience that these OEMs and it is 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 has been a lot of effort over the last two years in focuses on camera and the capabilities of the camera and sort of removing the bezel display, but not really improving the full visual experience of the display. So I think, it is new, collectively we are working with the OEMs to market these features. And you will see how that goes shortly.

We clearly anticipate a material increase in revenue in 2020 versus 2019 for mobile. It is 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 international markets including the U.S. carriers..

Okay. That is helpful perspective Todd. Thanks for that. Wanted to follow-up on the agreements you announced with Oppo last month here. I know that Oppo is part of the larger group, I think it is called BBK, which also has another large OEM and that group.

Is there a possibility of kind of cross fertilization of work that you are doing at them into other affiliates within that group?.

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 is happening and it is not coming from the technology provider. It is just the nature of that community. They are very closely tied.

So there is no - corporate don't read too much into it, just because OPPO is part of BBK that corporate wide they will use it. But clearly, I mean we are engage with several OEMs, Tier-1 OEMs in China, they are very aware of our technology..

Okay, fair enough. Just probably a couple of more questions from me. - TrueCut. Within the U.S. community, Todd, how would you characterize or what is your expectation of how the sales cycle will go? And what are going to be the kind of the next milestones that 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 that to me Tier-1 studio backing gamut or 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 is a very key indicator of the progress we are making 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 of China adopting the technology..

Okay. And if you look at these constituencies, studios, streaming guys, device guys, et cetera. Is there one that is kind of drives the rest of the ecosystem to move towards it.

Is it the streaming guys side out of the studios or any ways you can describe were kind of your biggest focus should on?.

This is somewhat new to me, but, I have spent a lot of time and energy on it recently. I would say that there are a handful of sort of evangelist, directors and creators that go out on a limb with new technology, because they believe the experience they are going to deliver with their project would be a better experience to that new technology.

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

Okay, fair enough. Last question financial one for Elias. You just reported a quarter of I think 48% gross margin.

You know you are 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 mixture.

Wonder if you could help us understand bridge the difference here? Mobile gross margin are improving more than you have had the past or any way you can help us bridge that please?.

Well, it will improve, because our expectation is that, that is not going to stay at these levels of 48% to 49%. We are looking at the huge improvement for the whole year. But the mixture of Q1, the way we are looking at it is of course, contributing to these ranges we are giving you which is 49% to 51%.

But for the whole year there will be an improvement, and we are very comfortable with that..

Okay, fair enough. That is all the questions for me guys. Thank you..

Thank you, Rich..

Our next question comes from Jaeson Schmidt of Lake Street..

Hey guys, thanks for taking my questions..

Hey Jaeson..

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, 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.

In fact, I mean, I think we were a third of what the competing way to do it was 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 can have interest in the Soft Iris solutions, but if they really want to use the full suite of 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 will do that after the phones launch. At a very high level they are 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 software or Soft Iris together.

But I would say, what is going to drive the revenue growth in the majority of the models that I highlighted in that, that you will see launched in the first half the majority are processors. There are a couple of Soft Iris only solutions. The grand majority use either Iris three, or Iris five..

Okay, that is helpful. And just more 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, but need through differentiation in the market, or some of these newer technologies such as the high frame rate you outlined, or really needing a way to address that? What do you that sort of kind of pushing this mobile to center stage finally?.

Add 5G your three scenarios and I would say, yes, it is all of them. It is all, I mean we have been pushing for four years, we have been evangelizing the technology. And through that process, we didn't stay still with development, right. We are developing new products, even we didn't sell a lot two years ago.

We still spend a lot of money on R&D, on our roadmap, and we continue to do that. And so, I think they see that. There is a level of comfort from the customers that we are not going away. We are going to be here and we are 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 market 5G and the value proposition to consumers is in consumption and interactive video and gaming, and interactive gaming. And so you put them all altogether, that is all coming together right now at sort of a right place, right time..

Okay. That make sense. And then, just a last one from me.

It still looks like the $11 million at the mid-point for OpEx, how should we think about that trending this year factoring in the recent restructuring?.

Yes. It is still going to be the same range as I’m expecting you know for the short time, for the time being I should say. I don't expect OpEx to go out massively this year. I mean, we are comfortable where we are at in terms of our investments in growing business. And like you know, we are using the cash very efficiently..

Okay. Perfect. Best of luck guys..

You welcome Jaeson..

Thank you Jaeson..

Thank you. I'm showing no further questions at this time. I would 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 on our progress. That is it..

Thank you. Ladies and gentlemen this does conclude today's conference. Thank you for participating. You may now disconnect..