QuickLogic Corporation (QUIK) Q1 2016 Earnings Report, Transcript and Summary

Ladies and gentlemen, good afternoon. At this time, I would like to welcome everyone to the QuickLogic Corporation’s Fiscal 2016 First Quarter Earnings Results Conference Call. During the presentation all participants will be in a listen-only mode. A question-and-answer session will follow the Company’s formal remarks. [Operator Instructions] I will repeat these instructions after management completes their prepared remarks. Today’s conference is being recorded. With us today from the Company are Andy Pease, the President and Chief Executive Officer; Sue Cheung, Principal Accounting Officer; and Brian Faith, Vice President, Worldwide Marketing, Bob Schoenfield, Vice President Worldwide Sales. At this time, I would like to turn the call over to Sue Cheung, Principal Accounting Officer. Please go ahead, ma’am.

Thank you, Operator. Good afternoon, and thanks to all of you for joining us today. Before we begin with our prepared remarks, I’ll take a moment to read our Safe Harbor statement. During this call we’ll make statements that are forward-looking. These forward-looking statements involve risks and uncertainties, including, but not limited to, stated expectations relating to revenue from our new and mature products, statements pertaining to our design activity, and our ability to convert new design opportunities into production shipments, market acceptance of our customers’ products, our expected results, and our financial expectations for revenue, gross margin, operating expenses, profitability and cash. QuickLogic’s future results could differ materially from the results described in these forward-looking statements. We refer you to the risk factors listed in our annual report on Form 10-K, quarterly reports on Form 10-Q and prior press releases for a description of these and other risk factors. QuickLogic assumes no obligation to update any such forward-looking statements. This conference call is open to all and is being webcast live. For the first quarter of 2016, total revenue was $3 million, which was at the low end of our revised guidance range. Our new product revenue was approximately $1.5 million, reflecting the expected delay of shipments to support two mobile sensor processing solution customers and the expected decline in display bridge solutions. Our mature product revenue was approximately $1.5 million. Samsung accounted for 35% of total revenue during the first quarter, compared to 36% during the previous quarter. Our non-GAAP gross margin for Q1 was 41%, which was within the guidance range. Non-GAAP operating expenses for Q1 totaled $5.6 million, which was favorable to our guidance. The lower non-GAAP operating expense was primarily due to the timing of engineering related expenses. On a non-GAAP basis, the total for other income, expense and taxes was a charge of $109,000. This resulted in a non-GAAP loss of approximately $4.5 million or $0.08 per share, which was slightly better than our guidance. We ended the quarter with approximately $23.3 million in cash. During the quarter, we raised $10 million in an equity offering, less $1.2 million in commissions and other financing expenses. This resulted in $8.8 million net cash proceeds. We also borrowed an additional $1 million from our Silicon Valley Bank line of credit, resulting in net cash usage for the quarter of approximately $5 million. This was at the favorable end of our guidance range. Cash usage during the quarter reflects the operating loss and the capital expenditure payments associated with EOS S3 production, offset by the aforementioned borrowing from our line of credit. Our Q1 GAAP net loss was $5.1 million or $.09 per share, which was in line with the midpoint of our guidance. Our GAAP results include stock based compensation charges of $562,000. Please see today’s press release for a detailed reconciliation of our GAAP to non-GAAP results and other financial statements. In addition, you will find a financial table published on our IR Web page that provides current and historical non-GAAP data. With that, I’ll turn the call over to Andy who will update you on the progress of our strategic efforts.

Thank you, Sue. While Q1 revenue came in at the low end of our adjusted guidance range, our progress towards realizing our strategic goals accelerated during the quarter. We believe this will drive our market penetration and revenue growth in the second half of 2016 and beyond. Last quarter I mentioned that we won an EOS S3 Sensor Processing Platform design with a Tier One smartphone company for a wearable device, and that we had additional smart connectivity and sensor processing engagements with the same customer. Since the last conference call, our engagement activity with this tier one customer has expanded substantially. We are intensively engaged with this customer to optimize these opportunities, and we are dedicating resources to ensure a successful launch of their first S3-based design. We are scheduled to ship preproduction volumes of our S3 platform at the end of Q2 to support this product launch. We look forward to sharing details about our design win activity with this customer later this year. In addition to these successes, we have continued to expand our engagement activity with other leading smartphone and wearable device manufacturers. During the last quarter the net number of significant OEM customer engagements increased by approximately 20%. This increase was driven by three new smartphone engagements. Two of these engagements are with top-ten worldwide smartphone OEMs, and the third is with a rapidly growing top-ten smartphone OEM in China. As a result, the potential value of our engagements increased substantially more than 20%. In total, we now have engagements with four of the top-ten smartphone companies in the world. In addition to these, we are also closely engaged with several of the largest and most widely recognized wearable device manufacturers in the world. We view this as further evidence that our Sensor Processing Solution strategy is resonating with market leaders. Given our growing optimism regarding the outcome of these potentially high volume engagements, we have further prioritized our resources towards our strategic engagements with top-tier OEMs and ODMs. The potential benefits of this strategy are obvious, but the tradeoff is that we have shifted our attention away from some of the quicker turn design opportunities with second and third tier players. With that said, we are forecasting that increased revenue from sensor processing solutions will fully offset anticipated declines in smart connectivity, display bridge and mature product revenue in Q2. We have made substantial progress in strategic Asian markets this year, and we are now engaged with most of the top-tier smartphone OEMs in China. Most of these top-tier OEMs in China who want to adopt our silicon solutions are using either internally developed algorithms, or other third party algorithms. This aligns well with our core algorithm-agnostic strategy, and we have taken steps to leverage that strength. To help the customers who are using third party algorithms adopt our silicon platforms more quickly, we have established agreements with their incumbent algorithm providers. With these agreements we can more efficiently port their algorithms to our silicon, and give the customers the added assurance of a proven solution. We believe this approach will accelerate our design win penetration with these targeted customers. In addition to accelerating the design win process, we believe these agreements will deliver broad strategic and tactical benefits. These benefits include bundling widely accepted third-party algorithms with our silicon solutions, extending our customer reach, and providing leverage to our operating model. As you may have gathered from our April press release covering the InFocus W201 smartwatch, we have continued to expand our relationship and design base with Foxconn. We view Foxconn as a strategic customer, and continue to work closely with its management and design engineers as we move forward with ongoing mobile engagements. Due to NDA constraints we have with our S3 Alpha smartphone OEMs, there are no material updates that I can provide today beyond assuring you that both engagements are active and progressing well. I am in a similar position with regards to our engagement with a large semiconductor company for a smartphone companion device that we mentioned during last quarter’s call. We consider this a design win that has very high volume potential. This companion device is scheduled to move into production late this year. We shipped samples of the production version of our S3 silicon platform in early March. Full production qualification testing for the S3 is moving forward on schedule, and the data from our testing and customer feedback are encouraging. We continue to target production availability this quarter, and anticipate shipping a modest quantity of the S3 solutions to support preproduction requirements for our wearable design with a tier one smartphone company late this quarter. We will provide you with more color on the S3 platform following its release to production. To accelerate the adoption of our new S3 Sensor Processing Solution we introduced the S3 Reference Design Platform last March. While it has been in the market less than two months, it is already being used in many of our smartphone and wearable engagements. It is also being used in third-party product development efforts to accelerate their time to market. This comprehensive design tool includes an S3 silicon platform, a variety of sensors and microphones, and support for Sensory voice triggering and voice recognition technology. It is also compatible with the Android Lollipop and Marshmallow operating systems, and provides a direct connection to a Google Nexus 5 smartphone for easy evaluation and design development. With these capabilities, customers can evaluate our S3 silicon platform, software and SenseMe algorithms in an efficient and intuitive environment that clearly illustrates the substantial advantages of our S3 Sensor Processing Solution. When a customer moves forward with a project, the engineers can leverage the experience gained during the evaluation process, and use the reference design for product development. We are rapidly building traction with some of the largest companies in our targeted markets. These companies are embracing the most significant competitive advantages of our Sensor Processing Solutions. First, mobile device manufacturers are increasingly focusing on power consumption, and our S3 Platform is the lowest system power sensor processing solution in the market today. Second, voice trigger and speech recognition is rapidly becoming a requirement in most smartphone designs. Our S3 Platform is the first to market with a hardware-optimized version of Sensory’s Low Power Sound Detection feature. With this hardware implementation, we enable longer battery life for products that incorporate Sensory’s market leading voice trigger and speech recognition technology. Third, customers want to maintain as much design flexibility as possible. We are committed to being sensor and algorithm agnostic. With this strategy our customers are not captive to integrated sensors, and can use any combination of proprietary, third party or SenseMe algorithms. And finally, many mobile customers are embracing programmable logic as a means to optimize system architecture and accelerate the introduction of differentiating features. All of our sensor processing platforms include ultra-low power in-system reprogrammable logic, and the majority of our design wins and engagements are using or target the use of this unique architecture. Since none of the competitors in the sensor processor market today have programmable logic technology, we continue to see this as a very significant and durable competitive advantage. With that, I’ll turn the call back over to Sue so that she can provide our Q2 guidance. I’ll return after that with my closing comments, and following that, we will open the call for your questions.

Thank you, Andy. As Andy noted, we are expecting that increased revenue from Sensor Processing Solutions will offset anticipated revenue decreases in Smart Connectivity, Display Bridge Solutions, and Mature product during Q2. As a result, our forecast is that total Q2 revenue will be approximately flat at $3 million plus or minus 10%. The $3 million in total revenue is expected to be comprised of approximately $1.6 million of new product revenue and $1.4 million of mature product revenue. As in prior quarters, our actual results may vary significantly due to schedule variations from our customers, which are beyond our control. Schedule changes, and projected production start dates, could push or pull shipments between Q2 and Q3 2016 and impact our actual results significantly. On a non-GAAP basis, we expect gross margin to be approximately 40% plus or minus 3%. Gross margin is driven primarily by the mix of customers and products shipped during the quarter, and continued unfavorable absorption of operational overhead. We are currently forecasting non-GAAP operating expenses at $6 million, plus or minus $300,000. The expected increase in OpEx is primarily driven by engineering expenses associated with the release of, and ongoing support for S3-based Sensor Processing Solutions. Non-GAAP R&D expenses are forecasted to be approximately $3.6 million and our non-GAAP SG&A expenses are forecasted to be approximately $2.4 million. Our other income, expense and taxes will be a charge of up to $60,000. At the midpoint of our guidance, our non-GAAP loss is expected to be approximately $4.9 million or $0.08 per share. Our stock based compensation expense for the second quarter is expected to be approximately $500,000. As was the case last quarter, our non-GAAP results will not reflect this charge. Including the favorable impact of an additional $1 million of borrowing from our bank line of credit, we expect net cash usage to be approximately $4.8 million to $5.3 million. The forecasted cash usage in Q2 is primarily due to our working capital needs and payments associated with our new product development costs. With that, let me now turn the call back over to Andy for his closing remarks.

Last month we announced Bob Schoenfield joined us as our Vice President of Worldwide Sales. Bob has spent most of his career in the wireless and mobile markets. He is a highly experienced and accomplished executive who has very strong relationships with many of the executives at our targeted customers. We are already enjoying early benefits from these relationships. We believe the depth of our engagements with some of the largest smartphone and wearable device manufacturers in the world validates the value and potential of our Sensor Processing Solutions strategy. While we don’t have enough data to predict the timing or shape of the revenue ramp that we think these engagements will deliver, we continue to believe they will lead to a very significant increase in the second half of this year, and accelerating growth into 2017. With that operator, we would like to turn the call over to Q&A.

Thank you. [Operator Instructions] Our first question comes from Krishna Shankar from ROTH Capital. Your line is open.

I was wondering, you mentioned you have a top tier OEM who is starting to move to pre-production for a wearable device. Can you give us some sense for the unit volumes associated with this opportunity and is the same customer also looking at using the EOS S3 in other wearables and potentially Smartphone devices later this year?

Yes, so first I’ll answer the second question first and clearly the goal is that, we will be able to get into not only other wearables but we will be able to get into various handsets with this customer. In terms of volume we have recent initial volumes but frankly we are still not sure what the volumes will be as their marketing teams are deciding how they want to do a launch of this product. So I think we will know a lot more as we get closer to the mid part of the summer and they align this product with other products in their belt and that would make it a lot more clearer as to what the volume would be. I can say that they are clearly targeting the high volume wearable market. So that is their goal.

Okay and then, you mentioned that you have other design engagements with top tiers Smartphone and wearable customers, are these principally in China and will they also ramp significantly in the second half of this year in terms of revenues?

Yes, so when you look at the Smartphone market, I would say that we believe when we talk about strategic Asian markets our belief is that there is really two geographic strategic markets in Asia and that would be Korea and China. So definitely what we have made significant progress with and this is where Bob has been instrumental in that -- if you read his Bio, he was actually based in Shanghai, that penetrating the top tier Smartphone people in China, is an absolute must for us and we are making great progress on that being. As far as the timing goes, there is really only a couple of Smartphone people that have very regular product introduction and that’s the top guys. And you could argue that the A company really they release their new iPhone when they are ready. But clearly the other top tier guy has some very regular design cycles, that’s not true of the other top tier guys and that they seem to want to release things based on other market variants and which kind of features they are ready to introduce.

Okay [Multiple Speakers].

Actually you may want Bob to try in there because Bob has been living this for many years, and maybe you want to add something to this Bob?

Yes, thanks Andy. And just following on Andy's comments, it's interesting with the OEMs -- the top tier OEMs in China, where they are gaining share not only domestically but we are starting to see it with their export initiatives and it's really based on variability to get the right balance of features and price points, it fits very well in our product strategy in terms of our capability allows them to build applications on our always on capability. And as it relates their cadence, their development cadence Andy was spot on, they are much more responsive and reactive to market conditions both from a competitive standpoint but also market conditions from a mobile operator and consumer standpoint and what we see them is moving and reacting much quicker and for us we see that as a gifting in deal in terms of being able to intercept certain programs and get our solution in their devices.

And my final question Andy you have a little bit of a decline here in the display bridge connectivity and mature product business, do you expect those revenues to pickup in the second half of this year or would they continue to decline?

Well, as you know most of our display bridge revenue comes from Samsung and we do expect a decline from Samsung and that has been anticipated through wildcard as some of these new opportunities that we have seen. We have actually won two accessory design wins with a smartphone guy these would be smartphone accessories but frankly we're not sure of how big that volume will be, if you recall the old Pico projector market this is kind of reminiscent of that where people give you volumes and who knows if it'll come to bear or not. The other thing is what will happen with the people that have been using the Toshiba bridge as Toshiba exits the market we have had a lot of inquiries on that but I can't tell you for certain that that will result in concrete designs or not. Obviously those OEMs are left with two distinct possibilities, one is to redesign the system so it doesn't require s bridge shift or second to try and find another source. And so that I think those customers are going through that decision making process right now.

Thank you. [Operator Instructions] We have a question from Gary Mobley of Benchmark. Your line is open.

With respect to the PolarPro 3 I think you last -- on last call you talked about a couple of Japanese OEMs transitioning to PolarPro 3and obviously you're guiding for that connectivity business to be down in Q2, at this point of where it is has expected that transition?

Okay this is Brian I will take that question. We do see continued opportunities for PolarPro 3, some of these are actually engagements with OEMs that may have the need for discrete programmable logic in addition to central hub and we're going through those discussions with the customers now to see it if it makes sense to continue with a two chip architecture or if we should actually migrate that into a single chip opportunity leveraging the programmable logic we have in the S3 architecture. So we still have engagements but it's not going to materially impact the smart connectivity revenue this year we think.

Okay, last quarter Andy you talked about seven to eight design wins each with having the potential for 1 million or more in annual revenue contribution, could you give us an update on where those stand today and presumably most of those you were referencing if I'm not mistaken were ArcticLink 3 S2 related and you've obviously seen slow uptake on some of those design wins here in the first half of the year, I'm just wondering what those delays might relate to whether the poor customer uptake for the products the products -- newer products are designed into or whether it's a design loss?

Yes I think that, that the overall size and by the way I want to emphasize that the numbers that we've been giving out, I know you guys like doing the math on this, so last quarter I think it was 16 total and then we broke out a number of sub line items including how large each one of them were and so that would be about eight that were $1 million or more, so when we talked about that sub group of 16 that increased by 20%, so we're talking 19 now, that these are customers, this is not our total funnel size by the way, these are guys that we are actively engaged with that we think could result in some significant volume. So, this is not our total funnel and I just want to be very clear on that. I think those people that have listened to me over the years know that I don’t like talking about the design win final but I like talking about things that are much closer to production, ideally once our ramp is there I just want to talk about things that we are shipping and let the numbers speak for themselves. Having said that I think all of the and I will have Brain and Bob correct me if I am wrong but I think all of those lines and we thought were a million dollars or more for the most part are still intact there may have been one or two that dropped off but they were replaced by those three that I did mention, so the overall number I think it actually went up maybe one or two in terms of size, am I right?

Yes.

Yes so and the other thing as I said is we've got to be very judicious about how we use our resources to make sure that we can do a good job with all of these customers so frankly even with those 19 we tend to focus in on the top five with their requirements are similar to the other guys requirements because it's really important that we do a good job especially with that top, the Tier 1 guy and make sure that we do a great job in getting that product to production.

Thank you. Our next question comes from Rick Neaton of Rivershore Investment. Your line is open.

I wanted to follow up on some of the disclosures in your prepared remarks since we are getting near to the second half and we would like to begin modeling some things with a little bit more specificity so in looking at the balance sheet do you -- should we be modeling increases in inventory and receivables in the second half over what your historically has been?

Hi Rick. This is Sue. Yes definitely we should start modeling the inventory buildup starting towards probably end of Q2 just to prepare for the revenue ramp in Q3 and second half of the year, so in terms of accounts receivable that is always dependent on the revenue level. So Q3 accounts receivable will depends on revenue from Q2 and so on so that is how we model our receivables.

Okay, thanks Sue. Andy are you comfortable with your capability to meet the demand for shipment of 5 million or more S3s in a quarter in the second half of this year?

Remember Rick we are a fabless semiconductor company and we have one of the largest foundries behind us and we already have talked to them and they are absolutely ready willing and able to meet our ramp and I guess I'd remind you that the 5 million that you are looking at right now is less than what the ramp was when we engaged first with Samsung on the tablet market. That ramp was closer to 8 million over the first two quarters so I feel very comfortable that we can ramp that and then some.

Is that a scenario that we should modeling at some point beginning in the second half?

Which one is that?

Baked really in the units?

More than [Multiple Speakers] I think that that would be very, very optimistic so I personally would not model something that I, it is possible but I don’t think I count on that.

So more like 5 million?

Now you are asking me to give you guidance of beyond this quarter and we’d rather not do that in this call.

Okay then I'll just -- I'm just trying to get some guidance on where I should spend my time in a spread sheet. In prior conference calls you stated that your breakeven target was in a quarter for non-GAAP was 12 million to 13 million of revenue at or about a 50% non-GAAP gross margin is that still the case?

Yes.

Yes that's still the case. We are trying to very tightly manage our operating expenses and as you saw Sue say that last quarter our OpEx was 5.6 this quarter it's gone up slightly to 6.0 I think that's fairly a timing issue we would like to keep our OpEx below 6 so if we keep our OpEx below 6 and we hit our gross margin of 50 points then we should be able to breakeven as the number is a little less than 12 million which is what would like to do.

Okay.

And we see that that is very, very doable.

This year?

The sun, the moon and the stars meet -- are aligned perfectly I think what is really a more realistic thing given the customer base that we are calling on now and the uncertainty of their introduction date, I'd say that we're really looking at the first half of 2017 realistically. Now I know that we've been saying at past conference calls, Q4 but now -- we've always said that we needed to get more visibility and we're starting to see that we'll have even more visibility by the next call for sure.

I appreciate that, a couple of more questions. For the last 3 years you had a pretty -- you have -- your customer concentration with one particular top tier OEM, should given the depth of your engagement funnel with potential high volume customers, should we expect to see any significant changes in your customer concentration later this year or early next?

Yes, we believe that next year as some of these other things come to fruition you should not see as higher concentration with that top customer but having said that we still expect them to be a significant share of our business, what we do expect though is that other customers will be part of our revenue income if you will, and we'll have a much better balanced revenue portfolio which really will help us whether the ups and downs that all companies go through that will help us get on a more consistent revenue growth track in next year and beyond.

Our next question comes from Robert West of Oak Grove Associates. Your line is open.

I'd like to begin with a question on smartphone engagements, just to get myself squared with what you updated us today on, last quarter you had 16 important engagements of which a third of those were OEM or OEM engagement for smartphones or about 5 smartphone engagements and you've had that three more to that so would that eight engagements currently following into that category for smartphones?

Yes Bob this is Brian I'll take that question. As Andy was saying the net increase in these significant OEM engagements has increased to 19 from the funnel point of view, some came on as smartphones didn’t really came off so it's not eight, second, that we have in the smartphone funnel right now.

Okay. I think the next question would be have some of those engagements turned into design wins?

Beyond what Andy has already discussed, no this is still somewhat early in the engagement process with some of these smartphone OEMs that being said as Bob was alluding to these folks in Asia more very fast, so we're pretty confident about the next call, we'll have a lot more color on exactly how many can be translated into revenue this year?

Okay.

Yes I think Bob, let me add just one thing here, one way to think about this is that the design win process do not really occur or get completed until the customer has your physical silicone and actually have time to do it and vow on it, and typically those with our state couple of months and easily and knowing that our first samples when out to the top tier guys and we did more of a general sampling we are starting to do general sampling frankly right about now. So, and when I say, general sampling it would be to most of the people who hear on this with us so these guys are just getting or just have gotten our silicone with the reference design so that it enables them to really do a harder valuation and say, you know what, this device is a principal item that thank god you gave I mean that's what they said it would do and that is when the design win will occur, so that process is happening as we speak, the good news is that we've got a great reference design and our silicone is behaving as we have predicted it would and we're getting really some good feedback.

Well that's helpful color and timing also. So, basically then and this is a 1st of May, so by July you should start being able to have better metrics on the second half, would that be right?

I will let Bob answer that.

I think in general, yes. So not only with our current engagements but with the engagements with others in the top 10, top 15 worldwide smartphone OEMs we will be extending our engagements with them and I think not only will we have better visibility but it will come straight out of the evaluations that Andy spoke of and our push is to translate those into additional active program developments that our customers will be taking to market, some in the later second half of '16 but most of them falling into 2017

Okay.

And let me just give the audience here a little color on how we pick these people that we are engaged with. Obviously if they are a tier one, then they have people that we have to be engaged with or top tier. But the other thing we have done and actually Brian, Bob and I have announced to the field exhaustibly in the last three months, finding out what the requirements are and what we are doing is we are picking the requirements to engage now people that have the potential definitely revenue within the first half of 2017 ideally, if we can find people that are in 2016 that’s even better, but they have a list of requirements that we can scale with other customers. So we are actually picking our customers because frankly we have more at doorstep than we can physically handle, if we did all of the one-offs. So we are trying to exclude the one offs and concentrate on delivering a full product at scalable to other customers in our target market.

Okay. Well, let me come then kind of over the bottom line of Smartphones, if I can. Is it reasonable to expect at least one or two Smartphones that are going into production in the second half of this year?

Is it reasonable?

Yes Bob, this is Brian. It is reasonable based on the funnel that we have and the engagements, with these customers. In fact we have fixed avenues right now working through some of the details with some of them so I do think that that is in the realm of possibility.

Yes. Let me add one more bit of color, and this was definitely in the prepared remarks but so that you understand what we are talking about. As we went in to China what we found was that while people thought it was interesting that we have our own algorithms many of these Chinese especially the top tier guys, either have their own set of algorithms so they are using a third party. So when we talk about a third party there is actually one company that seems to dominate the China landscape and that is the guy that we approached and we are partnering with right now. So what was happening right now is this person, this is the incompetent algorithm person that I mentioned in the script. He is physical porting their algorithms to our S3 platform, so that we have a complete solution that the Chinese OEMs, the top tier guys can readily go to market with and that is very important part of our strategy in accelerating our revenue.

Okay, I think I understand that, and that’s good news really. Let me turn to another subject which is the EOS S3 SenseMe a product offering, do some of these Smartphone designs include this SenseMe offering as a requirement, and again should we expect any second half SenseMe product revenue?

Yes in fact. I would say the majority of the Smartphone engagements we have now are wanting this integration of voice and motion that we can do and we can do very effectively with low power and EOS S3 and the ones that I was speaking about earlier that could be another realm of possibility for production this year I would also include that capability.

Okay, well thank you, Brian. Just kind of a third follow- up on that one, are their wearable applications for the EOS S3 SenseMe feature, in other words, are some top tier customers that are building wearable are accessories, interesting in voice and those accessories?

Yes, so if you look generically it's a wearable space, those products that are more advanced than this band like and then there is a smartwatch that are running at high level operating system like iOS or Android wear. There is smartwatches in the market today and with Android where they have SenseMe capability built in already. So it is a natural expansion that we could go after that space with EOS S3 and be a nice companion to the application process during the voice for much lower power. It is the general trend in the industry that if you are wanting to get away from mechanical buttons and to have voice speech recognition drive the UI but a user experience as opposed to this mechanical button so we see opportunity there. But I’ll go back to what Andy was saying earlier where we are being very careful about the markets and the customers that we are picking right now so that we can engage and scale from there and so the largest market in the wearables we feel right now is more of the band type. And I don’t think voice is going to be a major driver in there, simply because the battery life expectations exceed what you can practically do with an always on microphone those mics can do consume a lot of power. We do see it as the secondary space to grab the Smartwatch category, leveraging what we are doing now with the Android Smartphones because it's the natural architectural extension to those watches. And there is lots of don’t have the battery life requirement till then anyway, so it's more natural fit for the always on voice. So we are keeping it close fine on that because we do think it's a good home for EOS S3 expansion.

But I thank you guys, we all agree it's most important that we have Smartphone first because that’s where the volume is, that’s where we will drive our revenue and gave us the gross margin dollars when we need to expand our business.

Okay, that's really one of the priority of the questions was in that area, and then I appreciate you commenting on that. There's some variables that are now featuring GPS, does the EOS S3 really in the process to GPS data?

We do not have the GPS processor in there.

But you could connect to GPS module through the EOS S3, there's, I'm wearing a watch right now in fact it is not using QuickLogic but it has a microcontroller in it, in the GPS, so, it is definitely possible you could do that with the EOS S3.

Okay. One, other question last quarter you talked about a MIPI to RGB display bridge design and a top five smartphone accessory. There was -- likely to go into production this summer?

Yes.

This is a -- maybe too far a question but it doesn't, do you have a role to play in accessories and variables using RGB displays or is it even feasible?

It depends on the use case, in this one, as Andy was mentioning this is more of a Pico projector use case, it's not really an LCD, so we have seen and we had actually demonstrated that the -- adds value with Pico projectors, but I think in this case the customer just needed the grids and not the projection enhancement technology.

Well, thank you very much Andy and Brian and Bob, I appreciate the comments and helpful insights into where you are. It sounds like that, could be a very important quarter coming up right now as you were to get your arms around the opportunities you have and prioritize and hopefully a pretty close to breakeven by Q4, would that be a good one to summarize it?

We are clearly at a tipping point now. I'll leave it at that.

Thank you. I'm showing no further questions at this time. I would now like to turn the conference over back to Andy Pease for any closing remarks.

First, I'd like to tell you what we're doing over the next quarter. We will be exhibiting at the Sensor Expo and Conference at San Jose Convention Center on June 21st to June 23rd. Sue, Brian and I will be at the Benchmark Company, One-on-One Conference in Milwaukee on June the 2nd. Details would be included in our upcoming media alerts, and one other note that Bob will be at Mobile World Congress Shanghai from July 29 -- excuse me, June 29th to July 1st. I want to thank you for your continuing support and I look forward to reporting our strategic progress in our next earnings call which is scheduled for Wednesday, August 3rd, 2016. Thank you.

Thank you. Ladies and gentlemen this does conclude today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.