Xperi Inc. (XPER) Q2 2013 Earnings Report, Transcript and Summary

Good morning. My name is Brandy and I will be your Conference Operator today. At this time I would like to welcome everyone to Tessera Technologies’ Q2 2013 Earnings Conference Call. (Operator instructions.) Thank you. Ms. Moriah Shilton, you may begin your conference.

Thank you, Brandy, and good morning everyone. Thank you for joining us for the call today. This call is also being broadcast live over the internet. I will now read a short Safe Harbor statement. During the course of this conference call management will make a number of forward-looking statements which are statements regarding future events, including the future financial performance of the company. These forward-looking statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties that could cause actual results to differ significantly from those projected. You are cautioned not to place undue reliance on the forward-looking statements which speak only as of the date of this call. More information on the factors that may cause results to differ from the projections made in these forward-looking statements can be found in Tessera’s filings with the Securities and Exchange Commission including its Annual Report on Form 10(k) for the year ended December 31, 2012, and its Quarterly Report on Form 10(q) for the quarter ended March 31, 2013, especially in the sections entitled “Risk Factors.” The company disclaims any obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that occur after this call. Joining me on the call today from management are Tom Lacey, Interim Chief Executive Officer; and John Allen, acting Chief Financial Officer. During this call today management may discuss certain non-GAAP financial measures for comparison purposes only. A non-GAAP allowance of cost of revenues, research and development, selling, general, and administrative expenses, net income, and earnings per share do not include the following: discontinued operations, stock-based compensation expense, acquired intangibles’ amortization charges, charges for acquired in-process research and development, impairment charges on long-lived assets and goodwill, restructuring and other related exit costs and related tax effects. After management’s opening remarks we will open the call to your questions. I would now like to turn the call over to Tom.

Moriah, thanks a lot and good morning. Good morning to all and thanks for your interest in Tessera and for joining us on the call. Given that there have been a number of changes at the company I’m very pleased to have the opportunity to share my initial observations, to provide an update on my initial priorities for the company, an update on our DOC business unit, longer-term growth opportunities, and our views regarding the recently-proposed reforms to the patent system. First, let me share my observations after two months with the company. Number one, market opportunity for Tessera is substantial. Our people, innovation capabilities of our peak portfolios, uncollected episodic revenue and balance sheet are a strong collection of assets to expand on the success of our company. Number two, regarding our new Board: despite an at times heated proxy contest the new Board immediately put the proxy contest in the rearview mirror and began focusing entirely on the best interests of all stockholders. The new Board is a unified team and is focused on driving improved performance and results for the company. Number three, regarding our employees. Via one-on-ones, group meetings and online employee surveys I have spoken to and communicated to literally hundreds and hundreds of our employees. First of all, despite the turmoil at the company there are many extremely talented and dedicated employees who are passionate about both the company today and its future. The employee have welcomed an overall strong leadership tone at the top and are keen to look forward, not backwards, and to focus on the opportunities ahead. Number four, turning to my direct staff and the company’s structure I have made several changes to improve the overall efficiency of the company and the executive teamwork and collaboration; and have begun to reset the overall company culture and focus on our new mission statement which is “To create, develop and license innovative semiconductor interconnect and imaging technologies to deliver value to our customers, partners, employees, and stockholders.” We’re off to a good start. Number five, innovation capability. I’ve been very pleasantly surprised by the depth, experience, and creativity of our R&D teams. We have substantial capabilities that are very helpful for our partners. In Invensas we are hyper-focused on delivering world-class, more efficient, lower cost innovative packaging technology to market in conjunction with our customers and partners. Our areas of focus that we have announced publicly include xFD, BVA and 3D-IC. Number six, my final observation is regarding the philosophy of our overall approach to the intellectual property market. Our IP business model includes licensing our innovations’ intellectual property. We are establishing a practice of engaging in partnerships with our customers which we believe will drive greater value to our stockholders as we strive to receive fair value for our intellectual property and our customers receive greater value from our innovations through these partnerships. Litigation will remain a tool to be used when we are unable to reach agreement on the value of our innovations and/or our intellectual property portfolio. At times we have been forced to litigate to enforce our licensing agreements or to stop the infringement of our patented technologies, but we choose our battles very carefully. And when we have gone to court or to arbitration we have been very successful because we bring strong cases. Now I’d like to shift to the short-term priorities for the company. Number one is to relicense DRAM companies; number two is to rationalize our DOC strategy; and number three is to stabilize the organization. As we have previously stated, we continue to be optimistic that we’ll be successful in relicensing Micron and Samsung. As I mentioned previously the employees are responding well to the overall strong leadership, organization changes, and are moving forward as we continue to stabilize the overall organization. Now let me talk about our DOC rationalization strategy. At a high level, after a detailed examination of the operations we’ve decided to take steps as necessary to run the operation near cash flow breakeven for the second half of the year. This includes decreasing our overall expenditures, continuing to license our world-class software imaging technology, and selling off our previously purchased assets that are not part of our core DOC efforts. Based upon strong interest from a broad base of customers we believe DOC is worth substantially more by delivering a product in high-volume manufacturing. Under new leadership we have improved our overall discipline in identifying and solving technical issues, have a line of sight to the remaining issues and are managing the business in a very disciplined approach against a list of specific milestones with a finite amount of capital. Consequently, our confidence is increasing that we will be able to achieve high-volume manufacturing before the end of the year. Substantive structural changes we have made or are making in the second half of 2013 include number one, we have exited the lens manufacturing and are in the process of selling the assets; number two, we have exited internal high-volume camera module assembly, have eliminated all manufacturing staff, have completed the sale of all the Zhuhai assets. We expect to complete the final negotiations with our landlord and return the facility to our landlord in the next few weeks. Number three, we continued to pursue a transaction on our Micro Optics operation. All these changes results in the reduction of hundreds of employees and a significant OPEX reduction, but more importantly almost all of our internal manufacturing capabilities are being replaced with partnerships with world-class, high-volume, supply chain efficient Asian-based companies. These partners are experts at high-volume manufacturing and have high-volume semiconductor fab processing, optical lens, and camera modules and we are already seeing substantial benefits of lower material costs. Similarly we have identified primary second half milestone deliverables including number one, signing a contract with a high-volume camera module manufacturer, which even we did just a few hours ago – I’m pleased to announce that Liteon, one of the top leading camera module integrators globally with over 10% global share of the market and the share leader in China, Liteon ships an estimated 20 million camera modules per month to many of the leading phone OEMs; number two is producing a functional high-volume, robust [MGs] actuator; number there, receiving multiple 100,000 unit camera module purchase orders; and number four, achieving yield and cost targets that produce a positive contribution margin. Additionally we have made solid progress in Q2 with exploring strategic financial partnership opportunities for the DigitalOptics organization. These potential partners range from pure financial partners to strategic technology partners. At this point in the process we are unable to state definitively what the outcome might be but we anticipate that we’ll be able to provide additional information in the coming months. It is safe to say that with excellent execution from our engineering teams, the range of alternatives and valuation will be far greater than it is today. Lastly, regarding DOC, we previously stated we would curb up to $15 million in net spending in Q2 through Q4 of this year. I’m pleased to report that our focus on efficiencies is working as our net spending for those same three quarters is now estimated at $35 million to $40 million, and our DOC cash flow is expected to be near breakeven for the balance of the year including margin from software licensing revenue and expected proceeds from asset sales. Now I’d like to talk about our growth opportunities in the intellectual property aspect of our business. After executing the aforementioned short-term priorities are medium- to longer-term growth opportunities include forming additional partnership and licensing opportunities with semiconductor manufacturers around our announced and innovative technologies of xFD, BVA and 3D-IC. Here’s a quick update on Invensas. Our Invensas subsidiary continued to execute to its memory, mobile and 3D-IC portfolio initiatives in Q2. In memory we expanded our multi-chip DRAM technology that we call xFD as optioned by licensing Hermes Group, the leading provider of semiconductor and test services in Taiwan, and by obtaining Ultrabook and tablet PC design wins with Dell and Azuztech. We are pleased with the progress of xFD and are currently engaged in a number of customer adoptions and licensing discussions at the OEM, ODM, and DRAM fabricator levels. In the mobile arena we launched our latest high-volume bandwidth BVA packaged solutions with our high-volume manufacturing partners. BVA provides smartphone and mobile SOC providers with a multi-generational platform to increase the performance and bandwidth of mobile processors without sacrificing either size or battery life. Thirdly, we continue to invest in our 3D-IC solutions and patent portfolio. 3D-IC chip-to-chip interconnect using through-silicon vias is a critical next-generation packaging technology for memory, mobile and logic sensors in high-performance computing. At the end of Q2 the Invensas portfolios held approximately 1300 patents and patent applications. Additional growth opportunities include examining all of our IP portfolios and identifying adjacent markets whereby we can license our existing assets, exploration of potential acquisitions, and identify current assets that are not part of our growth strategy and that we might choose to sell. Specifically this means we might expand beyond DRAM-focused to adjacent semiconductor and imaging markets. This review of our IP portfolio is an important investment of resources to help us focus our growth strategy around potential adjacent markets where we have the greatest opportunity for licensing or IP. We believe we have done a fantastic job in analyzing and monetizing the IP portfolios in our IP segment. The $1.7 billion in sales that our legacy Tessera, Inc. portfolio has generated today speaks for itself. Our other IP segment portfolio is run by our Invensas subsidiary, a business we launched just over two years ago. We’ve already signed two licensees including SK Hynix, one of the top DRAM manufacturers in the world. As we typically sign multi-year license agreements which can have sales cycles which can take up to 18 months or longer, we believe we’re off to a great start. We also believe there may be incremental revenue opportunities in our DOC patent portfolio which applies broadly to imaging in such devices as smartphones, tablets and notebooks to name a few. We are currently conducting a thorough review of the portfolio. There are multiple potential venues to realize monetization – patents we can license, patents we can partner on to license, and patents we can sell. Before I turn the call over to John for an update on our financials I want to provide a brief summary on our views regarding the press and activities surrounding the potential changes to patent legislation coming out of Washington, D.C. It’s a fairly complicated set of messages that you’re hearing publicly, but from our perspective there are really two key messages. Number one, we are involved in shaping the debate and aren’t troubled by its general direction, recognizing the road to change is both long and unpredictable. And number two, our business model has been and will continue to be about real innovation. We’ve been influential and involved either directly or through industry groups to help guide the discussion in various IP policy recommendations. For instance, we were central in getting a recommendation for the US PTO to establish an office in Silicon Valley. We don’t always agree with perspectives being put forward but we have a seat at the table to help shape the views of the key executives and legislators. Importantly we recognize that the journey of both legislative and executive action has many miles to travel before the proposed changes become real, so it is hard to assess the specifics and the timing impact but generally we see the potential impact of what we call kind of “cleaning up the neighborhood,” including addressing frivolous lawsuits and additional training to the PTO as positives and hence we aren’t troubled by the direction of the changes being pursued. We find it interesting that there’s a lot of loose language describing PAEs or patent assertion entities and NPEs, non-practicing entities, but if you take a look at the President’s recent seven-point framework we believe it clearly demonstrates that given our current and long demonstrated history of innovation, Tessera is certainly not in trouble – in fact, quite the opposite. Our business continues to be about innovation, both in terms of products – 3D-IC, xFD, BVA, imaging software, (inaudible) to name a few – implementation know-how in addition to our complex process manufacturing skills that are highly sought after by the leading players in the multi-billion dollar semiconductor industry as well as the rapidly growing smartphone world. Obviously we’ve built an expansive portfolio of IP to support which is central to our licensing model. Additionally, since its founding in 1990 Tessera has built its success on an invention plus licensing business model, a model embraced by R&D for its (inaudible) and by universities like Stanford who have licensed their technology for others to commercialize rather than build products themselves. Customers of our own technology include Intel, Samsung, Micron, Tech TI and many other significant semiconductor manufacturers. With some 3000 issued and pending patents Tessera is a non-practicing entity or NPE in much the same way that Thomas Edison and more than two thirds of all the great inventors of the US Industrial Revolution in the 19th century were. They too concentrated on invention and for the most part left the commercialization of their inventions, the enterprise with requisite manufacturing and other resources needed to build and sell products successfully. As I mentioned earlier we strongly believe the future models of success for us will be more partner-like in nature, working to implement new technologies, exploring ways to share risks, broadening the ecosystem and the like. We are taking this new partner first approach in our current in-process licensing negotiations. Now I’d like to turn the call over to John – welcome, John – for an update on our financials.

Thank you, Tom. Before I begin my discussion of our financial results I want to briefly discuss changes in our financial presentation made in Q2 to classify certain activities as discontinued operations. As you may recall we announced in March of this year that we’re restructuring our DigitalOptics segment to focus our strategy on our MEMS-related technologies where we have proprietary assembly technology and expertise. And we are partnering with third-party manufacturers to produce other components of [full] camera module. As part of this restructuring we closed our Zhuhai camera module assembly facility. Revenue and expenses related to the Zhuhai facility are therefore classified as discontinued operations starting with Q2 2013, and also reclassified to discontinued operations for all prior periods. You may also recall in Q4 2012 as part of our overall DigitalOptics restructuring efforts we announced that we were exploring strategic alternatives for our DOC business located in Charlotte, North Carolina. We have determined this site is no longer part of our long-term strategy for the DOC business and we are actively pursuing a sale of this business. We have therefore classified our Charlotte operation as discontinued operations during Q2. Our discontinued operations relate so our DOC segment. I will separate continuing from discontinued operations in my discussion of our financial results. And now on to the financials. Total revenue for Q2 2013 was $49.3 million, with revenue from continuing operations of $46.6 million and revenue from discontinued operations of $2.7 million. Intellectual property total revenue was $42.9 million and included $18.9 million in episodic revenue in Q2. Compared to Q1 2013, intellectual property revenue was up $17.2 million. The primary components of this increase were increased episodic revenue and increased recurring royalties from our initial quarter under the new licensing agreements with SK Hynix. In comparison to the prior year, intellectual property revenue was down $10.1 million primarily due to the absence of royalty revenue in this year’s quarter from Micron and PTI. In DOC total revenue from continuing operations for Q2 2013 was $3.7 million compared to $3.0 million in Q1 2013. The increase was due primarily to sequentially higher revenues from our image enhancement technologies including a one-time fee recognized in the quarter. In comparison to the prior year, Q2 2013 DigitalOptics revenue was down $1.6 million. The decrease was due primarily to lower revenues from our image enhancement technologies. DOC revenue from discontinued operations was $2.7 million in Q2 2013, $2.5 million in Q1 2013, and $3.1 million in the year-ago Q2, all related to products and services sold from our Zhuhai or Charlotte facilities. Total GAAP operating expenses from continuing operations in Q2 2013 were $69.2 million as follows: cost of revenues, $1.0 million; R&D, $20.2 million; SG&A, $24.6 million; litigation expense, $17.4 million; and finally restructuring, impairment of long-lived assets and other charges totaled $5.9 million – with about $2.8 million of this expense representing cash expenditures. Our GAAP operating expenses include the amortization of acquired intangibles of $5.2 million and stock-based compensation expense of $5.0 million. Q2 total GAAP operating expenses from continuing operations were lower by $5.8 million quarter-over-quarter primarily due to restructuring, impairment of long-lived assets, and other charges which were $5.9 million in Q2 compared to $11.7 million in Q1 2013. Other income and expense net was $486,000 and our GAAP tax provision from continuing operations was $1.9 million for Q2 2013. The GAAP net loss for continuing operations from Q2 2013 was $24.0 million or $0.45 per basic share. Now let me cover the discontinued operations. For Q2 2013, discontinued operations included revenue of $2.7 million, operating expenses of $7.8 million, and a tax benefit of $13.3 million. This compares with revenue of $2.5 million, operating expenses of $20.7 million, and taxes of $0.9 million from discontinued operations in Q1 2013. The expense decrease quarter-over-quarter reflects our winding down of Zhuhai operations during Q2 as well as the restructuring charges recorded in Q1 related to the Zhuhai operations. The increase in tax benefit attributable to discontinued operations in Q2 is a reflection of the allocation of total tax benefit between continuing and discontinued operations. The GAAP net income from discontinued operations for Q2 2013 was $8.2 million or $0.15 of net income per diluted share. In total then our total GAAP net loss for Q2 2013 was $15.8 million or $0.30 per basic share. Moving to the quarterly non-GAAP results, our non-GAAP operating expenses from continuing operations in Q2 2013 were $53.1 million as follows: cost of revenues was $110,000; R&D, $17.9 million; SG&A, $17.7 million; and litigation expense, $17.4 million. Q2 total non-GAAP operating expenses were lower by $1.8 million compared to the previous quarter primarily due to lower R&D expense of $3.1 million of which $2.9 million is related to the termination of non-core DOC activities as well as lower personnel and material expenses. Our lower SG&A expenses of $2.0 million were driven primarily by personnel and marketing expense reductions. These decreases were partially offset by higher litigation expenses of $3.3 million due to the timing of litigation-related activities during the quarter. We have mentioned in the past that litigation costs can vary considerably and are more difficult to forecast because of internal and external decisions that may alter the planned timing and the magnitude of litigation-related spending. Looking at expenses for both continuing and discontinued operations and excluding the stock-based comp, amortization and restructuring, and the impairment charges our operating expenses decreased by $7.7 million or with litigation included by $4.4 million. I consider this the best measure of the total cost reduction activities completed during Q2. Excluding the $3.1 million proxy process-related expense incurred in Q2, the cost reductions would have been even greater. Non-GAAP results exclude discontinued operations, restructuring and other exit costs, stock-based compensation, charges for acquired in-process research and development, acquired intangibles’ amortization, impairment charges on long-lived assets and goodwill, and related tax effects. We have included a detailed reconciliation between our GAAP and non-GAAP net income or loss in both our earnings release and on our website for your convenient reference. The tax adjustments in Q2 2013 for non-GAAP were approximately $4.4 million. In summary then, the non-GAAP net loss for Q2 2013 was $12.3 million or $0.23 per basic share. Turning now to some balance sheet metrics, we ended Q2 2013 with $380.5 million in cash, cash equivalents and short-term investments, a decrease of $22.2 million from the prior quarter. This decrease is due to the following: cash loss from operations was $13.7 million, we had $21.4 million in dividend payments during the quarter, $4.8 million for the purchases of property and equipment – which was offset, though, by $3.3 million in sales of property and equipment – and we had $1.7 million for the purchase of intellectual property in the quarter. These uses were offset by $16.8 million in proceeds from stock option exercises, a significantly greater amount than in prior quarters which we believe is primarily due to increases in the average price of our common stock. You will see that assets and liabilities from discontinued operations are now shown broken out on our balance sheet. This gives you a better idea of how our balance sheet will appear once the Zhuhai and Charlotte facilities are fully disposed of. Turning to a discussion of dividends, in addition to our quarterly dividend of $0.10 per common share to those paid stockholders of record as of May 23, 2013, in Q2 we also had a special dividend of $0.30 per common share paid to stockholders as of the same record date. This special dividend is associated with a capital allocation strategy we outlined during Q2 to return our episodic gains to our stockholders through annual special dividends and share repurchases. On July 17, 2013, the Board declared a cash dividend of $0.10 per share of common stock for Q3 payable on September 19, 2013, to stockholders of record at the close of business on August 29, 2013. Turning now to guidance for Q3. Our guidance for Q3 2013 is based on results from continuing operations. We’ll exclude the revenue and expenses associated with discontinued operations from the guidance but I will provide our estimate of the net losses from the discontinued operations. For Q3 2013 we expect the following: total revenue is expected to range from $35 million to $38 million. Intellectual property revenue is expected to range between $30 million and $33 million, and DOC revenue is expected to be approximately $5 million for Q3 2013. Regarding episodic revenue, as you can imagine it is difficult to estimate the timing of episodic revenue. We are focused on the right deals first and foremost and we do not intend to rush into settlements to meet short-term financial targets. We believe providing ongoing guidance on episodic revenue either for the current quarter or for longer periods of time can hinder our negotiations. We will therefore no longer provide this guidance. Nothing has changed about our confidence in our ability to resolve the episodic revenue opportunities in the future with significant upside to the company from these recoveries. We will continue to notify you of episodic revenue collected each quarter and we expect to pay a special annual dividend from these episodic gains as indicated in the prior quarter. Q3 2013 GAAP operating expenses from continuing operations are expected to range between $59 million and $63 million, which includes cost of sales, R&D and SG&A roughly flat with Q2. We expect the litigation expenses to be flat to slightly down compared to the prior quarter, amortization of intangibles at $5 million, stock-based compensation expense of $3 million, and restructuring, impairment of long-lived assets and other charges at $1 million. Our assumed tax rate is 30%. We expect a net loss from discontinued operations between $1 million and $4 million. With that I’d like to turn the call back over to Tom.

Hey John, thank you very much. Well done! Before I turn the call back over to Brandy for Q&A, given the importance of our episodic revenue I want to provide a high level summary of the cases with trial dates in the next 18 months. Please understand for legal and commercial reasons John and I aren’t able to provide additional details on these cases beyond the summary. We have one case with a current trial date in 2013, what we refer to as the Sony Audit case; and four with trial dates in 2014 – the Susman arbitration, PTI, Renesas and the remaining parties in the AMD Consolidated cases. In the Amkor arbitration we are looking forward to the ICC issuing a final damages award after their partial award in the July 5, 2013, ruling on validity and infringement and finding that Amkor owes significant royalties. Since then the parties have engaged in further damages briefing and damages discovery, and that process will end in the next few months. We still cannot yet give a definitive date on when the ICC’s final damage award will be issued. In the AMD Consolidated cases in the Northern District of California, four defendants have already settled – AMD, AGI Expansions, [Fill and ShipPac] – and five defendants remain, that’s [ASD, Chip Moss, SC Micro], Qualcomm, and [Free Scale]. The case is currently scheduled for trial in August, 2014. In the PTI case there has been increased activity lately in terms of discovery and expert reports. We believe PTI’s purported termination of this agreement in June, 2012, was improper and that we are owed significant back royalties. The case is set for trial in April, 2014. In the Sony Audit case we believe we are owed significant back royalties. The case is set for trial in October, 2013. This ends our prepared remarks. I’d like to turn the call over to Brandy for any Q&A.

(Operator instructions.) Your first question comes from the line of Krish Sankar with Bank of America. Krishi Sankar – Bank of America: Hi, thanks for taking my questions. I have a few of them, Tom. So first and foremost in your guidance for IP, so that is all the recurring revenue and there’s no other episodic revenue in the guidance so $30 million to $33 million, right?

Hi Krish, this is John. The guidance would be for a combination of recurring and episodic revenue but we do not split out what the breakage is between the recurring and the episodic within the guidance. Krishi Sankar – Bank of America: Okay, so the $30 million to $33 million for Q3 includes both recurring and episodic.

That’s correct. Krishi Sankar – Bank of America: And so it is fair to assume that on the last earnings call, Rick mentioned it’s possible you have $200 million in episodic revenue over the next four quarters. Is it fair to assumet hat is off the table at this point or…

No, quite the opposite. As I indicated in my prepared statements we are not continuing to give specific guidance on the episodic on a quarter-over-quarter basis, but nothing has changed about our views of the opportunity we have from those episodic revenue cases that are out there . What we’re trying to get away from is giving guidance that might be actually hindering our ability to negotiate effectively with our customers if we put out specific guidance that can put us at a bit of a disadvantage in those discussions. Further these are cases that don’t necessarily usually fall within a given quarter. We want to settle these things in the best way; not in a fashion that is driving us to try to solve them within a particular quarter.

Krish, it’s Tom. The thinking here is that it can put us, as John mentioned it can put us in the negotiation potentially at a disadvantage. If we publicly state that we’re going to collect X, Y, or Z in a given quarter and we’re in active negotiations with that particular party or parties, it’s fundamentally playing a game of cards where they see what our four cards are. But there’s every intent to continue to be as transparent as possible. Krishi Sankar – Bank of America: Got it, alright. And then you guys have definitely done a good job in cost reduction on the DOC side, and it’s gone down dramatically. But I did notice that the OPEX on the IP side went up. I’m just kind of curious what drove it?

On a quarter-over-quarter basis, the one main driver in Q2 is we did have fees related to proxy contests, a little over $3 million. Those would not be recurring on a going forward basis. There are other investments we see making in particular as we review some of the patent activities we have going forward in Q3 that can raise certain costs, but there certainly is an ongoing effort to manage and reduce the costs. Krishi Sankar – Bank of America: Got it, alright. Fair enough. And then the reduction in DOC, the OPEX, is it all primarily from the Zhuhai facility? It came down from about $54 million in Q1 to almost $27 million in Q2 – is it all coming from the Zhuhai facility or is there something else going on?

It’s more than the Zhuhai facility. Remember that we had to close Tel Aviv back beginning in Q4 and further into Q1, so we have all the costs behind us related to that. Clearly the Zhuhai activities contribute to the cost reductions but there has been an effort to make cost containment efforts in a variety of places. Krishi Sankar – Bank of America: Got it, alright. And just a final question. Back to the IP revenue guidance, I know you don’t want to break it between recurring and episodic but is recurring going to grow sequentially or is it going to be down sequentially?

Let me think, if I do that math there’s two numbers, right? [laughter] I would stick with the guidance right now, Krish, what we said about what we see as the opportunity of episodic over time. We still have a strong opportunity there. We will continue pursuing that as well as continuing to pursue the relicensing opportunities that can make a substantial impact on the recurring revenue going forward. Krishi Sankar – Bank of America: Got it, alright. Thank you guys.

Thank you, Krish.

(Operator instructions.) There are no other questions at this time. I’ll now turn the floor back over to Tom for any closing comments.

Hey Brandy, thanks a lot, and thanks everybody for joining, both live and those of you listening after the fact. I did want to thank all of you for your interest in Tessera in joining us live or via recording. As I mentioned at the start of the call, we’re very optimistic about the market opportunities and future for Tessera. We have a number of passionate, dedicated and very talented employees who are focused on our top priorities. Our innovation capability remains core to our company, our customers, our partners as we work towards receiving their value for our innovations and intellectual property. Thanks again.

Thank you. That concludes today’s conference. You may now disconnect.