QuickLogic Corporation (QUIK) Q3 2017 Earnings Report, Transcript and Summary

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

Thank you, Ashley. Welcome, everyone, and thank you for joining us today for QuickLogic's Third Quarter 2017 Results Conference Call. With us today are Brian Faith, President and Chief Executive Officer, and Sue Cheung, Chief Financial Officer. Before we begin, I will read a short safe harbor statement. Some of the comments QuickLogic makes today are forward-looking statements that involve risks and uncertainties, including but not limited to stated expectations relating to revenue from new and mature products, statements pertaining to QuickLogic's future stock performance, design activity and its ability to convert new design opportunities into production shipments; timing and market acceptance of its customers' products; schedule changes and projected projection per date that could impact the timing of shipments; our future evaluation systems; broadening our ecosystem partners, expected results and financial expectations for revenue, gross margin, operating expenses, profitability and cash. These statements should be considered in conjunction with the cautionary warnings that appear in QuickLogic's SEC filings. For additional information, please refer to the Company's SEC filings posted on its website and the SEC’s website. Investors are cautioned that all forward-looking statements in this call involve risks and uncertainties and that future events may differ materially from the statements made. For more details of the risks, uncertainties and assumption, please refer to those discussed under the heading Risk Factors in the Annual Report on Form 10-K for the fiscal year ended January 1, 2017, the Company filed with the SEC on March 9, 2017. These forward-looking statements are made as of today, the day of the conference call, and management undertakes no obligation to revise or publicly release any revisions of forward-looking statements in light of any new information or future events. Please note, QuickLogic uses its website, the Company’s block QuickLogic HotSpot, the corporate Twitter account, it’s Facebook page and LinkedIn page as channels of distribution of information about its products, its planned financial and other announcements, its attendance at upcoming investor and industry conferences, and other matters. Such information may be deemed material information, and QuickLogic may use these channels to comply with its disclosure obligations under Regulation FD. The conference call is open to all and is being webcast live. We will start today's call with the Company's strategic update from QuickLogic CEO, Brian Faith. And then CFO, Sue Cheung will provide financial results and guidance. Brian will deliver closing remarks and open the call for questions. At this time, it is my pleasure to turn the call over to Brian Faith, President and CEO. Please go ahead, Brian.

Thank you, Moriah, and thank you all for joining our Q3 2017 conference call. I am very pleased with the progress we have made since our last conference call. We’ve continued to benefit from the growing influx of new opportunities and with the improvements we’ve made to our engagement process a more rapid conversation of opportunities to design wins. We expect this trend to accelerate as mobile, wearable, hearable and voice enabled IoT designs continue moving away from push-to-talk and adopt always-on/always-listening technology. To keep pace with this growing demand, we added three senior-level domain experts during Q3 for product management, hardware solutions architecture and system engineering. Many of our new EOS S3 customers are forecasting production starts in Q4 to support product introductions at the January Consumer Electronics Show in Las Vegas. As a result, I believe we’ll see a record number of new products at CES with QuickLogic inside. This tangible success and the building momentum we are enjoying across the board in our strategic sensor processing in IP markets, not only bolsters my confidence that we will grow revenue in excess of 50% in 2018, but that we will also start the year with sound footing towards realizing that goal. However, there are three factors that have led me to lower our current Q4 outlook relative to what I anticipated three months ago. The EOS S3 designs we believe will move into production this quarter and the seasonal increase in mature product revenue will offset these declines to the extent we will guide flat revenue for Q4. Absent these factors our outlook would be about $1 million higher. First, Display Bridge customers recently lower Q4 forecast by approximately $450,000. While this also leads us to moderate our 2018 outlook for display bridge solutions, that decrease is far more than offset by the significant uptick in opportunities we have experienced during the last several months for our Sensor Processing and embedded FPGA IP solutions. Second, we do not have orders yet from our tier one Smartphone customer for its new wearable design, and therefore are not including any revenue from the application in our Q4 guidance. Third, instead of expanding our license agreement with an existing fab partner to cover a trailing fabrication node, we jointly elected to delay the expansion and focus our efforts towards the currently licensed technology that is running at increasingly high volume. Had we gone forward with the license expansion, the revenue would have been mostly recognized during Q3 and Q4. Let’s start with our embedded FPGA IP business. We have continued to make progress in our engagements with major semiconductor companies and OEMs and in finalizing qualifications with our fabrication partners. We are also in the process of launching a significant upgrade to our Aurora embedded FPGA tool suite to enable customers to evaluate and target designs on the new GLOBALFOUNDRIES’ 22 nanometer FD-SOI process, called 22FDX. In addition to improving the design efficiency for all our embedded FPGA customers, this will lower the amount of QuickLogic resources we will have to dedicate during our licensees’ design process. We completed our test-chip qualification for the SMIC low power 40 nanometer process during Q3 and SMIC has been actively promoting our embedded FPGA technology with its customers. As it stands today, QuickLogic’s ArcticPro is the only embedded FPGA technology that is currently available for SMIC’s high-volume low power 40 nanometer process. We are on schedule to complete our 22 nanometer FDSOI test-chip tape-out with GLOBALFOUNDRIES this quarter and anticipate the test-chip qualification in Q1 2018. We believe this will mark the first demonstration of FPGA technology running on an FDSOI process. GLOBALFOUNDRIES continues to promote our ArcticPro embedded FPGA IP with its customers for its 22 nanometer FDSOI process in advance of our qualification. We are also seeing continued interest in our 40 nanometer ArcticPro technology that was previously qualified at GLOBALFOUNDRIES. To broaden our reach and accelerate our penetration in China, we established a partnership agreement with AcconSys to provide sales and support for our ArcticPro embedded FPGA solutions. AcconSys is the largest EDA tool and semiconductor IP distributor in China and has established relationships with SoC and ASIC design groups throughout China. I believe the breadth of experience and the connections that AcconSys brings will play a key role in accelerating the adoption of our embedded FPGA IP with major Chinese OEMs and semiconductor companies. In addition to our independent and team efforts with our partners, we generated a noteworthy increase in our IP engagement funnel through our participation in a variety of technical symposiums during the last quarter. These included, The 2017 SMIC Technology Symposium, The Design and Reuse IP-SoC Days, Three GLOBALFOUNDRIES’ Technology Conferences, The FD-SOI Design and Application panel, The 15th Annual International System-on-Chip Conference, and The ARM TechCon. Now, turning to sensor processing with an initial focus on wearable, hearable and IoT applications. First, I am proud to say that we have been granted our patent from the United States Patent and Trademark Office for our Flexible Fusion Engine, or FFE. The FFE is a highly differentiated and proprietary element of our multi-core Sensor Processing architecture, enables very low power always-on use cases, and is used by our tier one Smartphone OEM for certain always-on features of their wearable device. During the last quarter this customer continued to refine its software to optimize accuracy and battery life and is now in the process of expanding its field testing to include several hundred users. I also had an opportunity to briefly try out the new wearable during a customer visit and believe the outcome will be worth the wait. Given the discussions I’ve had with this customer’s senior executives, and our continued involvement with manufacturing engineering, I have a high level of confidence it will move into mass production during the first half of 2018, but as it stands today, I am unsure about the exact timing. Please note though, while significant, this is only one of many growth drivers I envision coming into play during the first half of 2018. As I noted last quarter, this tier one OEM has made a top-down strategic commitment to include always-on / always listening voice in all of its future wearable and hearable designs. Since our EOS S3 SoC can support the customer’s always-on / always listening requirement at a fraction of the power needed by other MCU solutions, we believe we have a substantial competitive advantage. Due to this significant power consumption advantage and the depth of experience the customer has built during its first wearable design using our EOS S3 SoC as a host and sensor processing solution, the OEM is working closely with us on two new high-volume consumer designs that are targeted to include always-on / always listening voice features. Both of these new products are scheduled for production in mid-2018. One of these new designs is a wearable device where the customer can directly leverage the software it has developed and refined for EOS S3 during the last year. This design opportunity transitioned from an evaluation to an engagement since our last conference call. The second, a hearable device, which can also leverage the customer’s software investment, is still in the evaluation stage. If we are successful in winning these new designs, QuickLogic will exit the first half of 2018 shipping production quantities to support three high volume EOS S3 designs with this tier one customer. In the broader market we are seeing a growing trend for new mobile, wearable, hearable and battery powered IoT products that require always-on / always listening capability versus the past design approach of using push to talk. This may seem like a subtle change, but it is actually a significant engineering challenge. To deliver acceptable battery life, a different design approach is required. Traditional design approaches that run sound detection in software consume an excessive amount of power and would shorten battery life considerably if forced to run constantly to listen for trigger words. That is the primary reason why push to talk has been the dominant interface in past designs. With the trend shift to always-on / always listening, product designers know they need to do things differently, and an increasing number are looking to EOS S3 as the answer. With its hardware integrated Low Power Sound Detector or LPSD, our EOS S3 SoC enables always-on / always listening while consuming only about one tenth of the power of software sound detection that is used in other MCU based devices. That is why this trend shift has been a significant factor in our growing success. In addition to the advantages driven by our hardware integrated LPSD, EOS S3 is also designed to intelligently manage power consumption of external devices used in product designs such as microphones, activity and biometric sensors and wireless connectivity ICs like Bluetooth and Bluetooth Low Energy or BLE. With this capability, our EOS S3 can further minimize power consumption by intelligently controlling when subsystems within the design are powered. This is a very important capability for battery powered designs targeting immersive user experiences. One example of this would be a voice-enabled hearable or wearable device that includes an activity sensor like an accelerometer to track step count. With intelligent power management, our EOS S3 knows if the device is being worn or sitting on a table. If the device is sitting on a table, everything could be shut down except the low power accelerometer and our patented Flexible Fusion Engine or FFE. If the device was picked up, the FFE would signal it is time to activate the microphone to listen for a trigger word like Alexa or OK Google. Another trend that is driving interest for our EOS S3 is the proprietary software we recently developed that enables EOS S3 to run voice over BLE. BLE lowers the power consumption of the wireless Bluetooth interface that is used on virtually every wearable and hearable device. We are in the process of further leveraging this and our intelligent power management technology through ecosystem partnerships. Due to the increasing importance of our competitive advantages, we continue to enjoy a growing influx of new opportunities from not only leading Asian companies, but also from U.S. and European sector leaders that have high brand-name recognition. We believe the unique capabilities of our EOS S3 SoC will drive the same success with these large OEMs as it has across numerous Asian customers. Our investments in developing software and tools during the last year has enabled us to materially improve the efficiency of our engagement process, and with that, significantly shorten the cycle from opportunity to design win from months to weeks in some cases. As a result, we anticipate a significant number of EOS S3 designs will move into production ahead of CES late next month. We expect these will include new products from Janyun, Qiwo, the wearable and hearable products from the large app companies we’ve discussed in past conference calls and several others. As a result, we are anticipating an impressive number of wearable, hearable and voice-enabled IoT products with QuickLogic inside will be shown at the Las Vegas Consumer Electronics Show this coming January. In addition to the traditional consumer use cases for wearable products, we’re also seeing more interest from companies that are addressing emerging B to B applications. OEMs that are addressing B to B applications believe there is significant volume potential as hospitals, insurance companies, fitness companies and others leverage sensor data to track activity and biometric information. We recently won a design with a European OEM that is addressing the B to B market with a new wearable device that utilizes our EOS S3 as the host and sensor processor and its embedded FPGA as a display driver. We expect this design will enter production during Q1 2018. In addition to the strong interest we’ve seen from companies addressing wearable and hearable designs, we’re also seeing growing interest from companies developing voice-enabled IoT products. The short story here is voice has not only become the next interface, current trends suggest that always-on / always listening voice is on pace to become the dominant interface for a wide variety of technology products, and with that, give rise to the term: Internet of Voice. Through a variety of initiatives, we have continued to grow our engagement funnel for voice-enabled IoT applications and we’ve won several designs that we expect will enter production during the first half of 2018. To capitalize on this trend, our Japanese distributor, Shinko Shoji, developed, and at CEATEC demonstrated, a new EOS S3 evaluation module that is designed to support voice-enabled IoT and other applications. Our engagement with the tier one cloud-based IoT provider that I’ve mentioned on past calls has continued to move forward in line with our expectations. While the NDA with this company prevents me from saying more, I can tell you that I expect this will be one of several drivers that leads to a sharp ramp in battery-powered IoT engagements and design wins beginning in the first half of 2018 and accelerating as we move through the year. Let’s turn now to the Smartphone market: During the last year we have been working closely with a major Japanese Smartphone OEM that is targeting EOS S3 for new models scheduled to launch in 2018. We recently shipped prototype units to this OEM for a concept Smartphone that they are intending to showcase at Mobile World Congress in Barcelona during late February. If their lead Japanese carrier mandates certain features enabled by EOS S3, the OEM will introduce a high-volume flagship Smartphone with that carrier during Q2 2018 that is based on the concept design. We have continued to move forward with other Smartphone engagements that target models that are scheduled to move into production during the first half of 2018. While I believe we are well-positioned for success, there are still too many variables in the equation to forecast these as design wins. Now I will turn the call to Sue and return for my closing remarks before we open for Q&A.

Thank you, Brian. Good Afternoon and thanks to everyone for joining us today. Please note that we are reporting our non-GAAP results here. You may refer to the press release we issued today for a detailed reconciliation of our GAAP to non-GAAP results and other financial statements. We have also posted an updated financial table on our IR web page that provides current and historical non-GAAP data. For the third quarter of 2017, total revenue was $3.0 million, within our guidance range. Our new product revenue was $1.5 million, and mature product revenue was $1.5 million. New product revenue was slightly below our forecast. This is due to a joint decision we made with one of our fabrication partners not to expand a license agreement to include a trailing fabrication node. Revenue from that agreement would have been largely recognized during Q3 and Q4 2017. Instead we are jointly focusing our efforts toward the currently licensed technology that is running at increasingly high volume. Third quarter 2017 mature product revenue was above our forecast due to higher than anticipated demand from a single customer in the military/aerospace industry. Samsung accounted for 24% of total revenue during the third quarter, compared to 21% during the previous quarter. Our Q3 2017 gross margin was 44%, within our forecasted range. Operating expenses for Q3 totaled $4.3 million, which was at the low end of our forecasted range. SG&A expenses were $2.1 million and R&D expenses were $2.2 million. The decrease in OpEx was mainly due to a one-time adjustment of accrued variable expenses in the quarter. The total for other income, expense and taxes in Q3 2017 was a charge of $95 thousand, which was greater than our forecast due to a one-time tax adjustment related to our foreign subsidiaries. This resulted in a net loss of approximately $3.1 million, or $0.04 per share, essentially at the midpoint of our forecasted range. Our Q3 cash usage was $3.2 million, which resulted in an ending cash balance of $19.0 million. This was within our forecasted range. In August, we renewed the line of credit agreement with Silicon Valley Bank with more favorable covenant terms. This agreement allows us to borrow up to $6 million, with an option to increase to $12 million at our election. Let’s now turn to the fourth quarter 2017 outlook: Our revenue guidance for Q4 is approximately $3.0 million, plus or minus 10%. Total revenue is expected to be comprised of approximately $1.2 million of new product revenue and $1.8 million of mature product revenue. The expected sequential increase in mature product revenue is primarily due to strong demand from another customer in the military/defense sector. On a non-GAAP basis, we expect gross margin to be approximately 48% plus or minus 3 percent. The sequential increase in gross margin is expected to be driven mostly by the product mix. We are currently forecasting non-GAAP operating expenses at approximately $4.6 million, plus or minus $300 thousand. We expect our non-GAAP R&D expenses to be approximately $2.3 million and non-GAAP SG&A expenses to be approximately $2.3 million. We expect our other income, expense and taxes will be a charge of approximately $60 thousand. At the midpoint of our forecast, our non-GAAP loss is expected to be approximately $3.3 million, or $0.04 per share. As was the case in prior quarters, the main difference between our GAAP to non-GAAP results is our stock-based compensation expense, which we expect to be approximately $480 thousand for the 4th quarter. In Q4, we expect to use between $2.8 million and $3.2 million in cash. The forecasted cash usage will be primarily driven by working capital needs and capital expenditure associated with our eFPGA and SoC development efforts. Starting with fiscal year 2018, we are required to adopt the new revenue standard, ASC 606.We expect to adopt this standard using the Modified Retrospective Transition method. With this approach, we will not have to restate prior years’ financial statements. We do not expect this new standard to affect us materially, other than increased disclosures. You will find more disclosures on this change in our Q3 2017 10-Q, which we plan to file tomorrow, November 9th. With that, let me now turn the call back over to Brian for his closing remarks.

Thank you, Sue. When voice interfaces were introduced in mainstream consumer products roughly ten years ago, they were buggy and frustrating to use. The primary problem then was poor voice recognition – in other words, the software did not correctly recognize what was being said. Driven by software companies like our partner, Sensory, Inc., voice recognition has improved dramatically, and today financial institutions commonly use very high-resolution voice recognition to provide positive ID for customers. These improvements in voice recognition enabled the popularity of Siri, OK Google and more recently, Alexa. As a result, we saw a flood of voice-enabled home automation or more broadly, IoT products at the 2017 Consumer Electronics Show in Las Vegas. In our conference call that followed CES 2017 I stated the theme of the show was “voice is the next interface.” Since then, this theme has built traction and become the dominant design trend. While improved voice recognition was clearly the obvious enabling driver of this trend, it is important to note there was one other change that led to the successful commercialization of voice as the next interface. That change was the shift from push to talk to an always-on / always listening voice interface. Early implementations of voice interfaces required users to push a button before saying, “OK Google” or asking Siri a question, and for the most part, push to talk was still a requirement for the battery powered devices shown at CES 2017. However, push to talk was simply not an option for Alexa – she needed to be awake all the time; ready and waiting for you to ask questions and issue commands from your easy chair. Just like you wouldn’t buy a TV without a remote control, you probably wouldn’t buy Alexa if you had to get up and push a button before asking a question or issuing a command. Amazon’s Alexa, and the host of similar products that followed, have changed the way consumers expect to interface with technology using voice commands. With its success, Alexa proved the value of the immersive always-on / always listening use cases I described earlier this year. Delivering an immersive always-on / always listening experience was easy for AC powered devices like the Echo. However, to deliver these immersive use cases in battery powered devices presented new challenges. The traditional MCU-based design approaches used to deliver push to talk cannot be economically adapted to deliver the always-on / always listening experiences consumers expect today without notably shortening battery life. Our EOS S3 enables always-on / always listening without this penalty and that is the primary driver that has led to a significant increase in our flow of opportunities, engagements and design wins during the last several months. I believe you will begin seeing tangible evidence of this success as customers start shipping new always-on / always listening products enabled by EOS S3 later this quarter. And, if you attend CES in January, I think you’ll be impressed by the number of new always-on / always listening designs that have QuickLogic inside. Ashley, I’d now like to open the call for Q&A.

Thank you. [Operator Instructions] Our first question comes from Richard Shannon of Craig-Hallum. Your line is open.

Hi Brian and Sue, can you hear me all right?

Yes we can, hi Richard.

Hi Richard.

Okay, I apologize for the background noise, I’m in the processing of boarding a plane here, so I’m going to ask a two part question and listen as long as I can before they close boards here. So, you talked about your tier one customer maybe delaying its initial product but it sounds like the software developments is going to give you a little bit more certainty on follow-on orders. So I wanted to get a sense of the timeframe or the confidence level and kind of seeing that mid-year kind of rollout with some of those follow-on designs. And the second part of the question is, how should we think about the volume opportunity with all the other customers that you talked about either ramping just before CES or sooner after including any of the Smartphone guys that might be in Mobile World Congress?

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

Okay, that sounds about right. Since the doors haven’t closed here, I’ll throw another one real quick Brian. You talked about in your embedded FPGA business maybe getting [Indiscernible] as many as three [inaudible] licensees exiting the year and it sounds like based on a push forward to a lower node this year, not necessarily going to happen but pushed out into next year, want to make sure I’m understanding the commentary relative to what you talked about before, [Indiscernible] details about how fast we might see those customers coming in [Indiscernible].

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

Okay, great, we’ll look forward to that. I actually should probably jump out of the line here, but thanks a lot guys. And Brian, appreciate all the detail in your prepared remarks.

Thank you, Richard.

Thanks.

[Operator Instructions] Our next question comes from Gary Mobley of Benchmark. Your line is now open.

Hi guys, thanks for taking my question.

Hi Gary.

I want to start out by picking up where you left off on the last line to questioning. What specifically – what specific nodes are available for licensing between GLOBALFOUNDRIES and SMIC right now?

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

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

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

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

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

Okay. All right, that’s it from me, I appreciate the answers. Thanks guys.

Thanks Gary.

Our next question comes from the line of Rick Neaton of Rivershore Investment. Your line is now open.

Thank you. Hi Brian and Sue.

Hi.

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

Do I expect eight or more, is that what you – the question is?

Yes.

It could be. I think it’s going to depend on when they actually finish up other fine tuning and everything but it could be in that range.

Okay. And so you have the four designs that you had mentioned before to Janyun and then the two App companies have definitely – the two App companies are definitely now forecasting production in the fourth quarter. Is that correct?

Yes, they’re forecasting production units in the fourth quarter, that’s correct.

And do you expect…

[Inaudible] late fourth quarter.

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

I think that they should. I don’t have confirmation with every single one of them but I think historically they would be there showing these products. I know the majority of them have stated, yes, they will be showing them at CES.

Okay. So then you’re expecting some other new design customers that you have not called out in the past to be also showing new products with S3 and – at CES.

Yes, that’s correct.

Is that also correct?

That is correct, yeah.

Okay.

Several other ones in fact.

Okay. I heard you mentioned when talking about I think B to B IoT products or some of B to B use. Can you provide some additional color or examples of what this type of product would be and how it would be used?

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

Right.

You wear this one thing, they’ll subsidize some of your insurance as long as you’re open to wearing the technology.

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

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

Okay. Thank you Brian, that’s it. Thank you.

Thanks Rick.

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

So, thanks everyone for joining our call today. We will be participating at the following events, the 3rd Annual ROTH Technology Corporate Access Day on November 15 in New York City, the 8th Annual Craig-Hallum Alpha Select Conference on November 16 in New York City, the Benchmark Micro Cap Discovery One-on-One Conference on December 14 in Chicago, the Reuse 2017 on December 14 where our CTO and SVP Engineering Dr. Tim Sax will be presenting on the topic Slash the Cost and Time of SoC Design Reuse, CES 2018 on January 9 through January 12. Our next conference call is scheduled for Wednesday February 14 at 2:30 PM Pacific Time. Thank you for your continued support, and good bye.

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