Peraso Inc. (PRSO) Q2 2015 Earnings Report, Transcript and Summary

Good day and welcome to the MoSys Second Quarter 2015 Financial Results Conference Call. At this time, all participants are in a listen-only mode. At the conclusion of today's conference call, instructions will be given for the question-and-answer session. [Operator Instructions] As a reminder, this conference call is being recorded today, Wednesday, July 22, 2015. I would now like to turn the call over to Beverly Twing of Shelton Group Investor Relations. Beverly, please go ahead.

Thank you, Karen. Good afternoon, everyone. Joining me on today's call are Len Perham, MoSys' President and Chief Executive Officer; and Jim Sullivan, Chief Financial Officer. Before we begin today's discussion, I would like to remind everyone this conference call will contain forward-looking statements based on certain assumptions and expectations of future events that are subject to risks and uncertainties. Such statements are made in reliance upon the Safe Harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which include, but are not limited to, benefits and performance expected from use of the Company's ICs and embedded memory and interface technologies, expectations concerning the Company's execution and results, product development, achievement of IC design wins, timing of shipments of the Company's ICs, predictions concerning the growth of the Company's business and future markets, and business prospects, strategies, objectives, expectations, or beliefs. Forward-looking statements made during this call are subject to the risks and uncertainties that could cause actual results to differ materially from those projected. Additional information concerning factors that could cause actual results to differ materially from any forward-looking statements made during this call are contained in the Company's most recent report on Form 10-K filed with the Securities and Exchange Commission, in particular in the section titled 'Risk Factors', and in other reports that the Company files from time to time with the Securities and Exchange Commission. MoSys undertakes no obligation to publicly update any forward-looking statement for any reason except as required by law, even as new information becomes available or other events occur in the future. Thank you for your attention. I will now turn the call over to Mr. Len Perham, Chief Executive Officer of MoSys. Please go ahead, Len.

Thank you, Bev. Good afternoon, everyone, and thank you for joining us. On today's call, I'm going to review second quarter activities including our success winning new designs, our robust sales funnel, and our product development activities. That said, Jim will discuss our financial results, and following those remarks, we'll open the call for your questions. We continued to execute reasonably well across all facets of the business in the second quarter of 2015. Quarter two design win activity not only expanded our customer base but also increased MoSys' market footprint across multiple geographic regions, and our goal of doubling design wins year-over-year remains well within reach. The first six months have been quite satisfying in terms of design wins. Shipments and IC revenue more than doubled sequentially and the backlog was up significantly. Though we are very gratified to see both shipments and backlog moving up into the right, we have not yet hit numbers significant enough for Jim and I to say that we are past the inflection point. This is very encouraging, very encouraging indeed, but not yet totally satisfying. We made reasonable advances on our new product development for both the Bandwidth Engine and the LineSpeed product families during the second quarter as well. Now let me provide a bit of color on our design wins. We expanded our design win count in quarter two although we did not achieve double-digit design wins as in each of the previous two quarters. Quarter two wins do represent increased traction across a variety of applications ranging from Data Center Edge appliances to routers and switches. Some notable highlights of our quarter two wins might include; we brought onboard three new Bandwidth Engine customers, all BE2 by the way; we secured additional wins with our existing Tier 1 customer for a new statistics application utilizing the BE2-820; won our first design in the military market space for a LineSpeed retimer for 100-gig line cards, I think this is a small order, but it puts us into a new space and that's what we want to do is get through the door and get started; achieved more wins in the USA, an area of strength these past few quarters, a great place to be doing business because of the big players around here; achieved multiple wins with a new customer for applications at the Data Center Edge, it's our second major win in this area and it goes to the fact that we're moving to the Edge and hopefully soon into the data center itself, or almost more strongly into the data center, we have a win or two there already. Similar to recent quarters, quarter two design win activity was primarily centered on BE2. These new wins represented continued expansion of our customer and application footprint and should provide a stronger and broader base to our business and further reduce our dependency on select customers and limited geographic regions. To reiterate, at this point our goal to double last year's design win count remains achievable as we currently have a very robust pipeline of second half design win opportunities that represent meaningful contributions to our revenue. Speaking of revenue, IC revenue was up significantly in quarter two over the previous quarter driven by the early ramping toward production of some of our first customer programs and increasing prototype quantity orders from earlier design wins. Q2 saw a significant increase in backlog with several orders pulled in and requested for earlier shipment during the quarter. We expect this trend to continue as our broader design win base begins to scale up and more and more customers move in the direction of a production release. The second quarter increase in IC revenue most assuredly represents a positive step forward as we strive to reach a meaningful inflection point. We anticipate quarter three IC revenue to again increase. However, we still remain in the early stages of what we hope will be a sustained and significant revenue ramp. Now turning to sales and marketing activities; as anticipated, our market opportunities are becoming more diverse as we continue to gain new customers and serve new applications. We continue to expand the sales funnel during the quarter with more design win opportunities. Customer interest continued to grow on a quarter to quarter basis, and we remain committed to winning as many new designs as possible for both the Bandwidth and LineSpeed families. We continued to strive for a strong strategic presence in key industry events in order to build more credibility and increase the user community's awareness of the power of our IC product families and their application to his or her future design challenges. Recently at the Ethernet Technology Summit, John Monson, VP of Sales and Marketing, delivered a presentation on low-power 5 [ph] solutions for 100-gig modules, while our team demonstrated various levels of BE2 interoperability with FPGA solutions from Altera and Xilinx. Additionally, Michael Miller, our VP of Technology Innovation and Systems Applications, recently spoke at the Linley Tech Carrier Conference addressing the capabilities of BE2 and BE3 to accelerate the latest software to find networking and network function virtualization standards. Through these efforts, we are spreading the word about Bandwidth Engine and LineSpeed, thus furthering both customer and partnership opportunities. Overall, I'm encouraged by our customers' requirements for more and more performance in the next-generation systems. It is becoming clear that the market environment and the need for ever higher performance from next-generation networking equipment is playing to the strengths of both the Bandwidth Engine families and as well our very high performance LineSpeed solutions. Bandwidth Engine is garnering more and more attention as the network transitions to 100-gig and higher performance system requirements, driving greater market opportunities over a wider variety of applications for this product family. We are also seeing more appliances at the edge of the network moving into 100-gig plus space serving applications for security, threat prevention, load-balancing, and monitoring among others. Most recently, we were able to capitalize on this trend by capturing two additional Data Center Edge design wins in this most recent quarter. While 100-gig is still early in its commercialization phase, all the devices at the edge and in the core will need retimer and/or gearbox devices or will connect with QSFP28 or CFP4 optical modules requiring retimers such as MoSys' MSH110, the low-power retiming solution. Furthermore, the semi space or semiconductor space has been experiencing a rash of M&A activity with further consolidation likely in the not too distant future. In my opinion, this consolidation may lead to a reduction in a number of high-quality suppliers available to our customers. Customers who wish to keep a diversified supply chain may be looking for additional suppliers so as not to become too dependent on just one or two suppliers. This could very well open new market opportunities for MoSys. In the meantime, we expect to meaningfully expand our product catalog in the second half of 2015 as we bring new Bandwidth Engine and LineSpeed devices to market. We remain focused on increasing market awareness and accelerating the adoption of our new products while expanding our product and technology portfolio. Speaking of strategic relationships, we continue to work closely with our partners including EZchip, GSI, Altera and Xilinx to further advance our mutual efforts. One of the keys to maximizing the benefit of these relationships is for our R&D efforts to remain in sync, paralleling our partner's development timelines. To date we've been effective in accomplishing this not only with EZchip but also with the new FPGA families available from Altera and Xilinx. In addition, we are engaged with multiple potential partners investigating the possibilities of a strategic collaboration that might result in a new product that we could jointly bring to market or a new capability that one or both of us might strategically market. This effort is primarily intended to generate non-diluted funding to offset some of our significant R&D costs developing our product families and in one or two cases might allow MoSys to bring some new system solution to market earlier than otherwise possible. Expanding our strategic relationships and securing one or more of these deals has been and continues to be a priority. Discussions continue with multiple parties and we are optimistic about closing one or more of these projects in the second half of this year. Let me close with a few brief comments on each of our product families before turning this over to Jim. Just to lighten things up or change the direction, I'll start with LineSpeed. As mentioned on our last call, we have an aggressive development roadmap intended to dramatically expand the LineSpeed product family offerings. During the second quarter, we spent significant time sampling and qualifying various new LineSpeed products and in particular made excellent progress with devices aimed into short-reach applications. Significant progress is made with our low-power retime, the MSH110, and we now have an optimized production with validated features and working customer designs. As reported last quarter, we have some early design-ins for the MSH110 and other new LineSpeed products that we expect to convert into design wins within the next few months. The increase in LineSpeed opportunities has driven growth in our sales funnel and I'm confident we will secure additional design-ins and design wins for our LineSpeed products in the second half of this year. The workload releasing these new LineSpeed products to the sales catalog has been substantial and we suffered a fair bit of congestion last quarter. Sales activity around these solutions is quite gratifying and we need to increase the pace at which we get these elements released to the sales catalog. In short, the ball on LineSpeed is to some degree in the operational court now. Sales and marketing has all kinds of activity going on. Turning to Bandwidth Engine, our BE1 customers are still advancing towards full production release and in some cases have taken extra time to replace BE1 with BE2 in order to meet their customers' system requirements. Last quarter, I spent time in Asia meeting with these customers to assess project status and came away confident that we have not lost our design wins and these projects will ultimately get to production, though perhaps not until later this year. In anticipation of that event, we have BE1 inventory on hand and are in position to support our customers' requirements when they are ready to release and start ramping the production. Current and new BE2 design wins are also moving forward toward full production release. As I mentioned previously, we have started to see order increases for BE2 Express programs begin scaling toward production and other earlier design wins require more and more prototype quantities. BE2 has definitely become the workhorse of this product family driving the majority of new design wins and revenue in 2015. The customer's mean time to integrating BE2 into a system as a working solution is decreasing as customers become increasingly more familiar and comfortable with the serial I/O on BE2 and are able to get it designed in and working in their system in shorter periods of time. This will greatly increase the likelihood of BE2 being reused again and again in various applications in this customer shop. Comfortableness with a high-speed serial I/O is the key to solving some of these problems and we're seeing reuse and reuse and reuse at the customers we've already done business with. It's quite gratifying. That said, we are still only at the very beginning of the production ramp for both of these product families. Regards Bandwidth Engine 3, I'm pleased to report that tape out is imminent. As a tip of the case with the chip design and its complexity, we did experience a few delays often due to changing design requirements and feature sets or integrating together with the chip next door to it. However that said, these delays did allow us to further improve the design, upgrade BE3 performance and simultaneously reduce power consumption while remaining in step with EZchip and our FPGA partners. As a result, we're able to further maximize BE3's capabilities and performance which will result in a product that offers a significant increase in memory access and network memory bandwidth as well as many new advanced functions such as search to address specific application acquirements. BE3 is a really very, very powerful and sophisticated solution. The level of customer interest in BE3 remains very good and we have customers in the wings awaiting reference boards as soon as they are available. We will also be leveraging our partner relationships to further accelerate the adoption of BE3. In closing, I'd like to remind everyone of our 2015 goals. Among them were doubling design wins year-over-year, looking reasonable from where I sit today; expanding our customer base including at least one new Tier 1, we have several Tier 1s in the sales funnel right now, I think that goal is looking – we're optimistic about that as well; taping out and sampling BE3 and being awarded our first design wins, ball is in our court to get our reference boards going, we should have a fair bit of time near the end of the year to get this done; releasing and getting to sampling on several new LineSpeed products, that's in process across a reasonably wide front as I speak; significantly expanding our portfolio of available solutions; six, substantially increasing our served available market; and finally, commencing a more meaningful revenue ramp in the second half of 2015m, to that goal I think we may have seen a signal that one of our customers might be getting very close to starting the ramp, hasn't come onto the backlog yet but we've been hearing some pretty strong rumors, so optimistic about a little headway there as well. Looking at this list, I believe we have made important inroads on most of these goals, and with the progress we've made since January 1, I remain confident that we have the products, the people, the customers, and the partners, as well as the right strategic plan in place that will enable us to meet most if not all of our goals by year-end. I'm going to turn the call over to Jim to discuss financials and then will come back and get your questions and so forth. Thank you very, very much.

Thank you, Len, and good afternoon everyone. During the course of my comments, I'll make several references to non-GAAP numbers. Unless otherwise indicated, each reference will be to an amount that excludes stock-based compensation expense and intangible asset amortization. These non-GAAP financial measures and a reconciliation of the differences between them and comparable GAAP measures are presented in our press release and related current report on Form 8-K, which was filed with the Securities and Exchange Commission today and can be found at the Investor Relations section of our Web-site. Now let’s review our second quarter financial results. Total revenue was $1 million, compared with $0.8 million in the first quarter of 2015 and $1.8 million in the second quarter of 2014. Product revenue from the sale of our integrated circuits was $0.5 million in the second quarter of 2015, compared with $0.2 million in the previous quarter and $1 million in the year ago period. Royalty and other revenue for the second quarter of 2015 was $0.5 million, compared with $0.6 million in the previous quarter and $0.8 million in the year ago period. Royalty and other revenues primarily comprised of royalties received from semiconductor customers whose products include our IP. GAAP gross margin was 43% in the quarter compared with 69% last quarter and 42% in the year ago quarter. Gross margin declined sequentially primarily due to increased shipments of our integrated circuits. In terms of our operating expenses for the second quarter, total operating expenses on a GAAP basis were $7.3 million, compared with $8.5 million in the previous quarter and $7.9 million in the second quarter of 2014. Total operating expenses included $0.8 million for amortization of intangible assets and stock-based compensation expense. Research and development expenses were $5.8 million, as compared with $6.9 million in the previous quarter and $6.4 million in the second quarter of 2014. Second quarter R&D expense decreased sequentially due to lower personnel, stock-based compensation expense, amortization, and backend costs. Selling, general and administrative expenses were [$1.6 million] [ph], comparable with the previous quarter and compared with $1.5 million in the year ago period. On a non-GAAP basis, total operating expenses for the second quarter of 2015 were $6.5 million compared with $7 million in the previous quarter and $6.6 million in the year ago period. On a GAAP basis, the net loss for the second quarter of 2015 was $6.9 million or $0.11 per share, compared with a net loss of $8 million or $0.15 per share in the prior quarter, and a net loss of $7.2 million or $0.14 per share for the second quarter of 2014. On a non-GAAP basis, the net loss for the second quarter of 2015 was $6.1 million, or $0.09 per share, which excluded intangible asset amortization and stock-based compensation expenses totaling $0.8 million, compared with a non-GAAP net loss of $6.5 million or $0.12 per share in the previous quarter and a loss of $5.9 million or $0.12 per share in the year ago period. Net loss per share for the second quarter of 2015 on a GAAP and non-GAAP basis was computed using approximately 64.7 million weighted average shares outstanding. Now turning to the balance sheet, as of June 30, 2015, our cash and investments balance was $35.3 million compared with $40.7 million at March 31, 2015. Our cash burn in the second quarter was approximately $5.4 million compared with $6.6 million in the first quarter of 2015. Total headcount was 112 employees compared with 114 in the previous quarter. Of our total employee count, more than 80% are in applications, engineering and research and development, including 24 located in India. This concludes my prepared remarks. At this time, we would like to open the call for a question-and-answer session. Operator?

[Operator Instructions] Our first question comes from the line of Gary Mobley from Benchmark.

Thanks for fielding my question. I ask this question typically every quarter, but the issue still persists and that is negative gross margin or product revenue. I'm just hoping that you can once again clarify why you guys are still operating with a negative gross margin on the product revenue front and what it takes to get it to your optimal level?

So basically Bandwidth Engine 2 is 60% or better and I would say 60% or 65% gross margin product, and right now the volumes are very, very low, and you're just traveling in noise right now, Gary. I haven't taken the time to look at it very much Jim, but right now when you go look at our back-end, you see all kinds of R&D guys all over it, making sure everything is just exactly where we want it to be. Because the product is running so fast and is so sophisticated, we're still learning about it. There's various customers who would like it to behave one way or the other. It's internally enormously configurable. So I'm going to say that we still make lots of investments in the product from an engineering point of view. You really need to be running a consistent thousands of units per week and thousands and thousands of units a week is in the case of that product that's $100,000 per block, because it's a $100 product in rough terms. Even though I could get really excited about the negative gross margin, where we are right now is just the beginning of the ramp and not what I’d call the inflection point yet. It wouldn't be the right use of time for me to call everybody and beat them up and say, we're going to take a sharp pencil to cost yet, it's not the key thing. There's a lot of cost coming out of the backend flow where in some cases automating, in some cases [redoing] [ph] some of the backend operations, in some case reducing production burning times, just across a wide front things are happening, and frankly even though it's a pain in the neck and I appreciate that you ask me every quarter, it just isn't a high priority item with me. Jim, you may want to add something to that? It's probably high priority item with Jim.

Indeed it is. I think you covered it very well. And I think the other thing was that some changes to that backend flow and bring on new handles, et cetera, that we expected to happen in the first half of the year were delayed until the second half of the year. So we're working on bringing those up to reduce time. I think the other thing too is we probably mentioned in the past, as we also adjust test times, we have to run lot through with the new reduced testing, et cetera, and they could perhaps have lower yield which results in period costs of flow through COGS.

Okay. I noticed that your accounts receivable were up sharply at the end of the quarter. Is that a function of the late shipment in the quarter of product revenue? I also noticed your inventory was up substantially sequentially, I don't know what sort of inventory turns you were targeting there but is that indicative of $1 million plus revenue in product sales in the third quarter?

So we'll be making operations comment, then Jim is the guy who should answer, Gary. I'm going to say that our early guys ramping, every one of them has been receiving more on a weekly or monthly basis than his original request. In other words, maybe they booked some number of months, and then they call it all into the first month. So, I just reviewed this last week with a corporate vice president of a reasonably large Tier 1 outfit, and basically there's a lot of gameplay that goes on with Board stuff that is not worth talking about on this call, however we've been shipping to more than original orders having – and again, we're just not at the point yet where I feel that we're big enough to sit down and say, you’ve got to take a hard line on giving these six months a backlog to look at. And so, bottom line is, there's some efficiency, but I don't think we had any shipping late last quarter phenomenon and I think we're just shipping when we get the orders and they get pulled in and we're shipping all these as much as we can. Jim, maybe you want to comment on that?

Yes, I would agree with that. First off on the accounts receivable, I wouldn't say that it was backend loaded late in the quarter. It's just obviously increased shipments certainly up over end of December and up over Q1, and a lot of those customers do have 60 day terms. So it takes some time to get the cash in, so just a function of higher volumes and waiting to collect the receivables. With regard to the increase in inventory both over year-end and we were up certainly over March 31, that's a function of ordering more BE2 for the increased ordering volumes and increases in our backlog. We were certainly up significantly from the 180,000 of IC revenue in Q1 to close to 550,000 in the second quarter. I can't say yet – I don't have the backlog that I'd like to say that we could break that seven-figure number in the third quarter, but there's still plenty of time left in the quarter but right now the backlog is still not enough for Q3 to hit that level.

Okay. Your royalties which I understand is not core to the ongoing business but has been declining for the past several quarters and presumably there will continue to be some royalties just given their residual nature of those licensees and those license relationships, should we model IP royalties continues to decline or perhaps have we hit sort of a steady-state right now?

I think they'll stay steady for the rest of this year, but I show them in my models declining next year and basically it's more just a function of the new calendar year. I don't have specific visibility. I know historically we tend to have done better in our Q2 revenue because one of our customers does an internal true-up, and disappointingly this year this true-up resulted in a much smaller adjustment in revenue on our side. Right now, when I look out, there's probably one licensee that I can see turning on, it's been a long time coming but I expect that product to be fairly low volume, so I don't count too much on it. But net-net, I show it kind of – staying steady this year but declining next year.

Okay. And last question for me, R&D expense was the lowest it's been I think in years at least on a quarterly basis. And so, I'm sure that's indicative of the tape out of Bandwidth Engine 3 falling out into Q3, but perhaps your other tape-outs as well were low for the quarter. Should we assume that there's going to be sort of a lot of them in the third quarter and thus a sharp increase in the R&D line?

Yes, so the R&D was down quite a bit quarter-over-quarter, and if you look at the GAAP numbers, it was down $1.1 million and probably $400,000 of that or so, close to $400,000 was stock-based comp. There was another couple of hundred, $200,000 drop-off of amortization. Then we had lower personnel and consulting costs as we reduced in -- primarily consulting positions, a couple of employees left, we didn't replace. And then just with the activity, there were lower backend costs. When I look out to next quarter, we will have the Bandwidth Engine 3 tape-out in there, so I'll see it on a non-GAAP basis up pretty significantly, over say $2 million. We'll also start to incur some backend costs that didn't happen in Q2. The cost, as I mentioned earlier in your question on margin related to bringing up some of the new backend equipment, there might be some higher depreciation as we deploy some assets where the purchases didn't happen. I think Q3, there's a potential for – I'm sorry just looking out to Q4, the potential for some LineSpeed tape-out in that quarter, so that would be up over Q2 as well. Tough to say based on, I think we'll be able to reduce some extent after BE3 tapes out, so I don't have the full visibility on Q4, but I think we're going to see expenses up in the next two quarters of the second half.

Okay, all right, thanks guys.

[Operator Instructions] Our next question comes from the line of Krishna Shankar from ROTH Capital.

Congratulations on the backlog and the design win momentum. Is most of the sequential revenue increase for the June quarter and the upcoming September quarter related to BE2 revenues or is it a mix of BE1 and BE2 revenues?

It's primarily BE2 revenue, and just sort of a rough rule, we had a certain number of wins in the first six months of 2013 and as you come down the road about 18 months you should expect to see those starting to ramp and those are starting to ramp and the first half of '13 would be two wins.

Okay. And then just given the increasing momentum, you're seeing some customers pulling orders and others sort of earlier design wins go to production, would that imply that we see kind of a step-up in Q4 revenues or is there still lack of visibility or would you expect Q4 revenues for BE2 to tick up significantly?

It would be my humble opinion that Q3 and Q4 revenues will be up and backlog will be up, I just can't tell how steeply. So the one thing I can't say is whether I'll be satisfied that the backlog is adequate to say we've got through this inflection point but it seems to me that across the reasonable customer front now, a number of people are behaving in a way that I'm familiar with, so I think we're moving up into the right a little bit, I just can't tell how steeply yet, I need to see it at least a quarter or two more, Krishna.

Okay. And then on the additional BE2 design win you had with the existing top-tier OEM, can you give us some color on that, is that within sort of a different product line or another socket within a platform, can you give us something for what the new design win with existing OEM is, and then also the two new Data Center and Edge customers?

Actually I think that the new design win with that Tier 1 guy which may be either the sixth, seventh or eighth board that he's put us on now is I believe it's an Edge router I think. It's not on the edge of the data center nor in the data center. And being there it's an 820. That would imply that they are off-loading something onto it, maybe statistics or something that it's very good at and taking some load off probably their FPGA that's been used as a network processor or the packet processing engine if you will. And then as far as the edge of the data center is concerned, various security appliances and threat prevention appliances if you will that sit on the edge of the data center seeing the traffic come through, need to do very, very high-speed access and do very, very deep packet inspection, and again it's something that can be offloaded from a CPU or an NPU or an FPGA or an ASIC and to a Bandwidth Engine and done very, very efficiently. So it was another of those players and it was a very gratifying win because it gives us a couple of the key players in that space now.

Great. And then my final question on LineSpeed, you talked about getting a design win with a [military] [ph] or aerospace customer, is that a product that you already have or will this take an iteration of a product that you have, or is it something that you'll ship for revenues with an existing LineSpeed product?

I think it's a product that we already have and I think it's not necessarily a high-volume win. We believe that some of it falls to high-speed processing that military guys struggle with. Our products are ideally suited to help him deal with and so a quarter or so ago we started chatting with them and we found considerable interest. We hope to build – point to more of those wins in the next couple of quarters.

Okay. And, Jim, the $2 million incremental, is that incremental to the R&D run rate in Q2 because of the tape-out or is that the total, I mean can you just elaborate a little bit on the additional expense in Q3?

That is the incremental of the Bandwidth Engine 3 tape-out, the tape-out of the first wafers would be in the $2 million plus range.

Okay, thank you.

Thank you and that concludes our question-and-answer session for today. I would like to turn the conference back over to Mr. Perham for any closing comments.

So thank you very much guys, ladies and gentlemen for tuning in and listening to us today. Certainly comments on this quarter, certainly it's taken us longer than we anticipated to get here. In the hi-tech business, if it takes longer it costs more. However to those who've asked me this question in the past, we're seeing an expanding number of applications that is served well by BE2. I think BE2 is going to do better than a lot of folks even inside of our Company anticipated, and I thought for a long time it would serve a very valuable purpose when performance levels get to the point where they needed it. So if we look at the expanding number of applications served by BE2 and if we look at the amount of activity in our sales funnel right now, there's an encouraging amount of interest in what I'm going to call our embryonic LineSpeed family. We have a lot of really great elements and to some degree we're our own worst enemy and we're trying to get them all out at the same time and we have to prioritize ourselves and get a bit more organized about how we get them into the sales catalog. This beginning ramp of revenue that's now been a couple of three quarters in a row and this growth in backlog for a couple of three quarters in a row is very, very encouraging. We need to see it jump up to much bigger numbers and then I'm going to tell you that I'm convinced that we're now going to be concerned of what's the slope of the expansion as opposed to are we really seeing the expansion and having our customers move into production. All of this taken as a whole is encouraging. We're on a path that's familiar and it's what we would have said, it's taken longer and it's cost a bit more, nothing good about that. We're committed to driving some shareholder value for you guys over the next 24 months and we certainly appreciate your patience very, very much and thank you for calling in and listening to Jim and I give you an update on your Company. Thank you very, very much.

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone have a good day.