Xperi Inc. (XPER) Q4 2014 Earnings Report, Transcript and Summary

Good afternoon. My name is John, and I will be your conference operator today. At this time, I’d like to welcome everyone to Tessera Technologies’ Fourth Quarter 2014 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Don Markley, Investor Relations. You may begin your conference.

Thank you, John. Good afternoon. And welcome to Tessera Technologies’ fourth quarter and full year 2014 financial results conference call. This call is also being webcast live over the Internet. Please be advised that during the course of today’s call, management will make forward-looking 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 materially from those projected. You are cautioned not to place undue reliance on forward-looking statements which speak only to the date of today’s call, February 10, 2015. More information about factors that may cause results to differ from the projections made in those 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, 2013 and Form 10-Q for the quarter ended September 30, 2014, especially in the sections titled Risk Factors. The company disclaims any obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that occur after today’s date. Management may also discuss certain non-GAAP financial measures for comparison purposes only. For a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the fourth quarter financial results new release issued earlier today. Now, I would like to introduce Tessera’s Chief Executive Officer, Tom Lacey. Tom?

Don thanks a lot. Whether live or via the webcast recording, thank you for joining us on the call today. Robert and I are very pleased to provide an update on our fourth quarter and full year 2014 results, as well as our guidance for Q1 2015. As you will continue to hear from us, we remain very positive on the developments at the company and we are optimistic about our future. Over the past several quarters, Robert and I have talked about the turnaround underway at the company. I am pleased to say the turnaround is now complete and all energies and resources are focused on continuing to grow the company by serving new and existing customers. Before I get into the details, the high level message I hope you take away from today's call is that the company has been transformed and we are already on the path to growing the company via collection of technology, products and innovations, with a talented group of employees. Before I get into the details on the fourth quarter, I would like to provide an update on comparisons between 2013 and 2014. Revenue increased by 65%, our non-GAAP operating margin increased approximately four times from 16% to 67%. As we like to talk about internally our approach to customers changed well over 100%. We settled litigation matters and/or reissue license agreements with over 10 of our customers in 2014. These efforts helped reduce our litigation expense from 36% of revenue to 9% of revenue year-over-year. We also greatly simplified our business in 2014 by focusing on our core strength, IP and technology licensing and exiting our DOC manufacturing operations. As I have shared with our Board recently and our employees as we finalize our 2015 operating plan and had a chance to reflect upon what happened last year in 2014, a straightforward statement that fits Tessera so well is, wow, what a difference a year makes. With the turnaround officially over, we are well into an extremely exciting growth phase for the company. Now turning to the fourth quarter, there were several important developments during the quarter, including, we exceeded expectations on virtually all financial metrics and delivered our fourth consecutive profitable quarter on both the GAAP and non-GAAP basis. We are extremely proud that 2014 is our first revenue growth year since 2009 based on continuing operations. Our financial management continues to be strong, management inside the company, becoming part of our culture of spend every dollar as if it’s your own is flat-out working. All facets of the company are focused on ROI consideration. We're doing more with less and improving our internal operations, focusing on continuous improvement and striving to achieve operational excellence across all facets of the company. We continue to lower our non-litigation operating expenses and in fact, we reduced our litigation expense to approximately $2.1 million, which is the lowest amount since we began breaking litigation out as a separate expense category since 2006. A recent settlement with Amkor demonstrates our continuing efforts to reach negotiated settlements even after years of litigation. Reaching settlements and license agreement frees up management and employee time, money and resources for future investment and development that might otherwise have been diverted to litigation. It also allows us to explore technical collaborations such as what we announced with Amkor, and companies with whom previously where we not able to collaborate because of outstanding disputes. During the quarter we completed the O-Film transaction which netted the company through its entirety $41.5 million in total consideration plus ongoing licensing opportunities for both our MEMS portfolio and our FotoNation products. This was a complicated and lengthy international negotiations, which has substantive positive impact on our Q4 financials, which Robert will shortly explain. The completion of this transaction wraps up our DigitalOptics chapter. I wish to extend a special thanks to the handful of employees who brought this transaction to a successful result. Our financial performance in the fourth quarter was the best percentage operating margin performance since the company went public in 2003. A world-class imaging group FotoNation continues to be part of our overall growth initiative. Given its importance to the company we have elected to provide for the first time more information regarding its performance. FotoNation produced approximately $11 million in revenue in 2013. In the past year, we grew revenues for FotoNation by more than 100% to approximately $23 million. On the strength of our best year ever for this business, we expect 2015 to continue strong growth. During the quarter, FotoNation continued to perform very well in terms of customer engagement and product development with substantive progress on both fronts. Additionally, in late December, we purchased small company to augment our biometrics capabilities. The acquisition provides us with the additional expertise in iris authentication, some important IP, algorithm and existing customers. We are excited about this talent and group of people joining Tessera, building our scale, can accelerate product development, accelerate IP creation and help accelerate revenue growth. We see iris authentication as an important technology for security and biometric recognition. Additionally, during the quarter, we made solid progress in positioning our face detection technology into the automotive segment as our technology was displayed on the floor at CES. It is clear that the car of tomorrow will have increasing technology in it, including driver monitoring. As I mentioned at the Needham Conference last month, some analyst expect there to be more than 1 billion cameras installed in automobiles by 2018. Imaging technology is not just an important differentiating feature in smartphones where we continue to perform well but also in automobiles. We also see a substantial change in the overall rate of adoption of technology into automobiles. We believe in part this is due to the Tesla effect. Incumbents in the automotive industry often took approximately five years to adopt technology. Now we are seeing faster rate of technology adoption in part to keep up with Tesla, in part due to the increased safety technology, in part due to demands of consumers who find technology an increasingly important feature in car purchase decisions. Additionally, we continue to gain traction in FotoNation’s life focus innovations that take autofocus systems to a whole new level of speed and quality. We’re able to take some of the key knowledge on autofocus gained from -- gained from our mems|cam efforts and apply it to today's VCM camera technology found in virtually every single smartphone. We expect to be able to announce important design wins because face detection and face focus is the primary subject of the billions of pictures being taken on smartphones and our technology is flat out world-class. As we said before, we continue to remain bullish on our FotoNation opportunity and overall growth prospects. We continue to execute on our capital allocation strategy which employs a combination of dividends and share buybacks to return cash to shareholders. Given our continued confidence in operating cash flow of the company and at most of our litigation matters are behind us, we’ve decided to double our regular quarterly dividend from $0.10 a share to $0.20 a share in lieu of any future episodic special dividend payments. Additionally, we have continued our share buyback program. During the quarter, we bought back approximately three times more shares in Q3 totaling about 467,000 shares of $15.6 million, an average price of $33.54. During the last quarter -- six quarters, we have purchased more than $94 million of Tessera’s stock. Innovation continues to be alive and vibrant in Tessera [Technical Difficulty] progress to FotoNation where we are engaged with industry leaders from phone OEM to semiconductor providers now into automotive sector. We made solid progress on our semiconductor packaging technology. During the quarter, we announced the final settlement with ASC, which include technical collaboration. I'm pleased to say that collaboration continues as previously announced. BVA engagements with other customers are proceeding as well. Similarly, our xFD technical collaboration continued efforts continue with micron and others. We continue to believe that DBA invention runs into high-volume production can be an important technology for many years to come. And finally, we are doing today. We continue to get the opportunity to share our progress and our opportunity with shareholders and potential investors alike. Robert and I are actively conducting substantial outreach to the investor community to keep a post on investment settlement during the quarter. The third and fourth research analyst initiated coverage on Tessera and we additionally welcome Sidoti and Benchmark for team of analysts. We believe our investor outreach along with the progress of our business has helped drive our average daily trading volume up by more than 20% over a year ago, thereby increasing our overall stocks liquidity. All these accomplishments continue to position the company very well as we move forward. I’ll now turn the call over to Robert who will address our excellent Q4 financials and Q1 guidance.

Thank you, Tom. As Tom highlighted several times in his remarks, our fourth quarter financial results had a remarkable year of growth in our business and improved overall outlook for the company. I will now provide a bit more color on the detail beginning with the fourth quarter results. Total revenue from continuing operations was $59.9 million compared with the fourth quarter of 2013. Recurring revenue grew by $17.8 million while episodic revenue declined by $14.2 million, making for a net internet increase of $3.6 million. The change in the mix to recurring revenue reflects the company’s success in setting long-standing disputes and focusing on collaboration with customers to drive recurring revenue arrangements. The total GAAP operating expenses from continuing operations for the fourth quarter were $13 million, reduction of $26.3 million from the fourth quarter of 2013 caused by two primary factors. First, reduced spending on litigation of $14.1 million caused by a significant reduction in the number of active legal proceedings and second, a benefit of $11.9 million from the sale of the assets to China-based Shenzhen O-Film reflected on the income statement line, restructuring impairment along with assets and other charges and gain on sale of assets. During Q4, our litigation expenses were favorably impacted by approximately $4 million primarily as a result of decreased activity related to Amkor which settled in January of 2015. Another $3 million in expense benefit to R&D and SG&A was a result of higher than expected R&D tax credits, delayed spending, primarily in R&D and one-time favorable adjustments as we closed our books for the year end. We expect litigation expense to increase slightly for Q1 2015 due to a contingency fee for our legal settlement. From there it can be difficult to forecast though we are currently expecting annual 2015 litigation spend to be down significantly from 2014. GAAP income from continuing operations for the fourth quarter was $36.3 million, or $0.68 per share on a fully diluted basis. For the fourth quarter of 2014, discontinued operations generated a slight gain of $0.8 million or $0.01 per share on a diluted basis. The gain is a result of an $8.9 million benefit on the sale of assets from Shenzhen O-Film plus $4 million of expenses and fees related to the sale and the operations and the tax provision attributed to discounted operations of $4.1 million. We expect most of the discontinued operations [Technical Difficulty] within the next quarter. Non-GAAP operating expenses from continuing operations in the fourth quarter of 2014 were $17.1 million, including cost of revenue at $0.2 million, R&D of $6.3 million, SG&A of $8.4 million and litigation expense of $2.1 million. The tax adjustment for non-GAAP items in the fourth quarter of 2014 totaled $1.5 million. Non-GAAP net income from continuing operations for the fourth quarter of 2014 was $33.7 million or $0.62 per diluted common share. 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 including the impact of the valuation allowance reversal. We have included a detailed reconciliation between our GAAP and non-GAAP net income in both our earnings release and on our website for your reference. Turning to the full year results, total revenue from continuing operations was $278.8 million in the full year ended December 31, 2014. Recurring revenue for the full year was $149.8 million while episodic revenue was $120 million. The year-over-year growth in recurring revenues of $46.8 million or 45% was driven by new licensing arrangements with key customers such as Samsung and Micron, as well as strong growth in the FotoNation business, which more than doubled its revenue from the prior year to finished at just over $23 million for 2014. GAAP net income from continuing operations for the year was $174.9 million or $3.27 per share on a fully diluted basis. Non-GAAP net income from continuing operations for the year was $123 million or $2.26 for fully diluted share. In terms of the balance sheet, we finished the fourth quarter of 2014 with $434.4 million in cash, cash equivalents and investments, an increase of $35.7 million from the prior quarter, due to cash generated from operating profits, the sale of assets and licensing agreements with O-Film and proceeds from stock option exercises. This is partially offset by $5.3 million of dividend payments and the repurchase of $15.6 million of the company’s stock during the fourth quarter. The stock repurchases in the quarter totaled $467,000 shares pursuant to our stock repurchase program, of which approximately $145 million remains under the program. As Tom noted in his remarks, the company’s Board of Directors has determine to change the prior policy of paying a special dividend from episodic proceeds on an annual basis and instead focus capital returns to shareholders on -- to shareholders on share buybacks and quarterly dividends. Pursuant to this change on February 3, 2015, the Board of Directors approved the 100% increased to the regular quarterly dividend to $0.27 per share common stock payable on March 24, 2015 to shareholders of record on March 3, 2015. Given that the company is now in a stable position to estimate taxes and net earnings, I’ve determined that we will now provide earnings per share guidance rather than guidance on expenses. So for the first quarter of 2015, we expect revenues to be between $78 million and $80 million, including $27 million of episodic revenue from the settlement of ASE that’s been previously announced. We expect GAAP earnings per share to be between $0.58 and $0.62 per share and non-GAAP earnings per share to be between $0.68 and $0.72 per share. A detailed reconciliation between GAAP and non-GAAP measures is provided in the earnings release. With that, let me turn the call back over to Tom.

Robert, great quarter. Just do it again, would you?

I’ll do my best.

Okay. That concludes our prepared remarks. Now, we will open the call to your questions. John, back to you.

[Operator Instructions] And our first question comes from the line of Krish Sankar of Bank of America Merrill Lynch. Your line is open.

Yeah. Hi. Thanks for taking my questions and congrats guys, great execution. Nice to see the dividend jump up there. A few quick questions. First and foremost, Robert, I thought that when you guys had the settlement with O-Film back in December, the $7 million would be part of episodic. So was it part of recurring revenue in Q4?

No, no. It was not part of recurring revenue.

So it was actually part of the episodic revenues in Q4.

Yes.

Got it. Okay. All right. And then the other thing I want to find out is in terms of now that the Amkor is behind us, is UTAC the only one left or is that already settled?

That is the primary activity that’s still open right now, yes.

Got it. All right. And then one other question on litigation, did you say litigation expense would be down significantly for 2015 relative to 2014?

Yeah. It really depends on the level of activity. It’s difficult to predict at the beginning of the year. I’d say based on the current activity, we would believe it to be around half of 2014 spending, which would be kind of towards the lower-end of our target operating model. But this could fluctuate significantly during the year depending on how things go.

Got it. All right. That’s helpful. And then a final question is when I look at your recurring revenue for this year, $235 million roughly, is it a way you could split it or give some kind of quantification on what percentage is FotoNation, what percentage would be DRAM and the rest?

We are not breaking out FotoNation in terms of the forecast. You’ll note in my remarks, I did give the FotoNation number for 2014 and we obviously are very bullish on that business given the way the customer engagements have gone. So, we would expect that number to grow but we haven’t broken out in terms of the forecast.

Got you. But in the $235 million, is it fair to assume over 50% is still DRAM or is it under 50%?

We don’t break the forecast out in that.

It’s substantially, mostly would DRAM.

Yeah. I mean, it’s fair to say that our most of our customers are DRAM based customers, so our recurring revenue for 2015.

You will see that when the K gets published. Krish, you will see the 10% customers.

Got it. Got it. All right. Thank you very much, guys. Congrats again. Thank you.

Okay. Thanks a lot, Krish.

And our next question comes from the line of Richard Shannon of Craig-Hallum. Your line is open.

Hey guys, I’d like to offer my congratulations as well. Well done on the good 2014.

Thank you.

Maybe a couple of questions on FotoNation, the discussion here sounds like things are going very well, maybe if I can delve in just a little bit more. When you talked about growth from ’13 to ’14, $11 million to $23 million, any sense can you give up, how much of that was upfront royalties or upfront licenses versus ongoing unit royalties that drove that?

It’s almost -- for their business, it’s almost entirely unit royalties. We don’t [indiscernible] payments for the most part in that business. So it’s a royalty based business.

Okay.

By definition than it’s recurring revenue.

Okay. And then I will ask kind of a similar question looking forward here as to growth. I think you mentioned, good growth coming this year I would assume it’s going to be mostly unit royalties as well then.

Correct, yes.

Okay. You talked about a lot of interesting things going on the automotive space. I understand there is a lag between engagement and initial signup versus the recurring revenue base there, can you give us a sense of how you see this business splitting between your kind of core consumer markets and automotive looking, I don’t know what’s appropriate, two, three years out or whatever. Tom, if you can give us some perspective of that that would be great please?

Yeah. Richard, great question. I don’t know if you had a chance to go to CES and I know it’s the giant, you and 160,000 your friends there, but they had an automotive section in one of the halls. Did you get a chance to go through that at all or no?

Yes [indiscernible].

Yeah. It’s amazing how much technology is finding its way into cars. I have been in the industry a long time and to see the rate of adoption change is quite dramatic and that plays nicely to us in the sense that we have some strong technology in smartphones that we think it’s not only adjacent, but it could migrate and find its way into commercial applications in car driver monitoring. As we mentioned maybe I think it was the analyst thing in New York that really coming out from FotoNation, we talked briefly about the automotive and surveillance sectors. Candidly this automotive thing has gone faster than I thought it would have, because automotive by nature historically has been slow. So at this point, there is strong momentum in it. It’s hard for me to predict what that’s going to look like two years out. Really it’s going to depend on how well our technology continues to be adopted and then what the ramp time is from I will call it labs into production volumes. But two years out, I would expect it to start contributing if not sooner than that, but certainly contributing overall. As we look at 2014, there was zero automotive in there. We just identified it now as we think it’s going to be an important part of the business in the horizon you are talking about probably two to five years.

Okay. I appreciate the perspective. Just maybe a last quick question or two for me. Robert, in your guidance for the first quarter I had -- if I calculate it right which I am not sure if I did doing quickly, but I have got a pro forma OpEx implied guide of about $27 million for the quarter. If I got -- assuming I got that right, what’s kind of the path of OpEx going forward obviously understanding litigation can be lumpy and unpredictable?

Yeah, fair question. So I would say that over the course of the year I would expect G&A stay relatively low. I would expect us to make some incremental investments into our R&D spend, so that would be a gradual uptick throughout the year. And most of that investment would be going towards FotoNation, some into Invensas as well.

Okay.

One of the reasons we wanted to provide more insight on litigation is the spend, is, when it can be considerably less yet again, was two years ago, again this year, and again.

Okay. Perfect. Last quick question for me. When do you guys expect to be comfortable enough to elucidate [recurring] [ph] revenue number goal for 2016?

For 2016?

'16, correct?

Sometimes later in the year, we haven’t figured -- candidly haven’t figured that out yet. Something materially changes a substantial addition to it that would probably be a good time to talk about it, but we realize we kind of set the expectation that at some point during this calendar year we need to provide that guidance.

I think I gave '15 sort of midyear, and we’d sort of aim in that general vicinity.

Okay. Great. I appreciate the update guys. Congratulations again.

Thanks.

Our next question comes from the line of Gary Mobley of Benchmark. Your line is open.

Hi, guys. Let me extend my congratulations as well for 2014. Robert, I wanted to break apart your…

Thank you, Gary. And thanks for joining us, the family too. So thank you.

Thanks, Gary.

Glad to be part of it. Looking at -- Robert starting out, did you say that you expect $27 million in episodic revenue in Q1?

Yeah, that’s correct. So that’s related to the -- well that’s what we have indicated publicly that there is a payment from ASC of $27 million in Q1 which we received.

Back to Krishna’s…

We don’t take booking.

Back to Krishna’s question, it wasn’t that O-Film license fee $14 broken into two payments, one to be recognized in Q4 and one to be recognized in Q1?

No, the O-Film license fee, there is a few different pieces on it. Some of it actually is related to [activity] [ph] that will occur over a couple of years and some of it was taken as episodic revenue in Q4.

From a MEMS licenses.

That was I think $7 million around the MEMS license.

Okay. So base on your $235 million in recurring revenue guide for 2015, it’s been and as well your episodic revenue guide for Q1, it’s implied that your recurring revenue ramp is not going to --- it’s going to be ramp, it’s not going to be linear. And I am just curious to know what drives the ramp throughout the year and why isn’t it linear throughout the year?

That’s a good question. For our business, we tend to have just by the way the contract is structured to the degree of seasonality, Q1 tends -- from an episodic standpoint tends to be weaker a few degree.

From a recurring.

Pardon me, that’s from a recurring. So yes from a recurring standpoint, Q1 tends to be a weaker. Q3 tends to be a little stronger. So it’s not linear over the course of the year.

Okay. And I guess you guys were sort of looking at about 33% non-GAAP tax rate previously, but I am assuming that’s going up closer to 40%, is that right?

No, we are holding a 33% as reasonable estimation for the tax.

Okay.

Cash taxes little bit less, okay.

And stepping away from just modelling questions, I wanted to ask Tom, if you can provide any sort of evidence regarding customer collaboration. I know that certainly exists on a FotoNation side, but perhaps on some of the next generation packaging technologies if you can maybe give us some sort of anecdotal evidence, some maybe number of sales people you are now employing versus previously a number of FAEs you are now employing and as well maybe some customer dialogue, your feedback would be helpful too? Thanks.

Sure. Gary good questions. The quick way to characterize what’s happening with respect to customers is because we’ve used litigation as a tool and not as the strategy and not had to employ it certainly last year and half and reached settlements with so many different customers, many of those settlements have included technical collaboration element to them. And so those are underway and some of those are in the areas you are talking about in the semiconductor packaging and then the most recent one Amkor where we talk about the desire of the companies to work together and this is after years of not working together. ASC also was highlighted in the fourth quarter same thing, that had just specific BBA mentioned. Those efforts are underway and working quite well. Micron, middle of the year had and accept this specific mention again as I mentioned on the prepared call those are going well. What we did in terms of the sales organization, we organized earlier in 2014, just at the end of the first quarter of 2014 where we employed fundamentally a commercially-oriented sales organization, people without intellectual property as a core leading knowledge, but the flipside that they’re more customer and commercially focused. And those efforts really have helped in a whole variety of way. So there is a lot more activities with current customers, with potential customers that -- and we haven’t highlighted yet publicly, but there is a great deal. The number of engagements and just pure number of customers is up substantively, if you will, from the beginning in the year till now and that’s really, I think, a testament to this new sales organization. If you go on our website, you can, John Farrell is the gentlemen who runs the group. But we really are engaged more with existing customers and new potential customers on a commercial and technology basis as the lead.

Okay. All right. I appreciate the time. Thanks guys.

Hey. Thank you.

Thanks again.

And our next question comes from the line of James Lee of Potrero Capital. Your line is open.

Congrats as well. A - Tom Lacey Thanks, James.

And in regards to FotoNation, I know you guys said that you expect strong growth this year, but in terms of looking at your guidance, the recurring guidance, are you assuming any growth in FotoNation in your guidance?

Yeah. We do include a small amount of growth for FotoNation in the guidance, it’s not aggressive.

Okay.

And I guess, I should say, I don’t usually think of the number I’ve given for recurring revenue in 2015 as guidance so much as a baseline.

Okay.

What you mean, James, you are talking about Q1 or you are talking about 2015?

The full year, the full year, I am sorry, year, the $235 recurring revenue?

Okay. I misunderstood your question, yeah.

Yeah. Yeah. Okay. And then for BVA and xFD, do you expect any revenue in 2015, so is it minimal or do you expect meaningful revenue?

At this point we would expect there to be some in it’s and define minimal. But, yeah, probably 10 more towards [Technical Difficulty] what happens when you are getting a technology established in the semiconductor space is, you get qualified initially and there’s an awful lot of validation work that goes on and that can take months. And once you get really a major milestone is when somebody announces an actual product and that product then begins to ship and that’s more likely begin to see some more significant revenue in ’16. We’ll see some in ’15.

Okay.

More significant into ’16 and then if we’re successful, that’s why I made the comment on BVA that I did. I think, we think will be a pretty important technology for years to come if we’re successful in securing those customer design wins.

And lastly on the biometric company you guys mentioned, you bought -- how much did you spend on that acquisition?

Just a small amount, I mean, single-digit millions exactly. Single-digits, it’s not a large acquisition.

Okay. In regards to that, there are a lot of -- are you guys looking at a lot of potential acquisitions or is this more of a one-off?

No. This is, sort of, part of a overall strategy. We look at acquisitions from a strategic standpoint and this would be considered and I guess, in some sense a tuck-in acquisition in the FotoNation and we certainly look at those across the spectrum. So, I think any healthy company we look at acquisitions is accretive and strategic for the company.

With a very tough lens, Robert and I are both. You can see how the expenses of the company have been managed. We look at M&A the same way. We are very picky.

Picky. That’s fair.

Yeah. All right. Keep up the good work.

Hey, thanks.

Thanks, James.

[Operator Instructions] Your next question comes from the line of [Carlos Garcia of Canada & Associates] [ph]. Your line is open.

Hey, guys. Congratulations. It’s been amazing watching you guys and good job overall.

Thank you, Carlos.

Hey, Carlos.

Hey, guys. Quick question. So, I read in and I think I heard right. Operating expenses for Q4 ‘13 was $39.3 million and I think this year, 2014 was $13 million. I think that’s a real quick. I think it’s around 30% drop, what accounted for that. And do you guys expect that the operation number to be around full time for 2015?

Yeah. It’s Tom. I addressed this a little bit in my remarks. The Q4 numbers were unusually low primarily because…

They were about 30%, right, 39%.

Yeah. It’s more than that drop and in any of it. The driver for Q4 being kind of unusually low as we closed the O-Film deal, which is a benefit to the restructuring account, so we took about $12 million benefit there. We also had -- I think if you look at the kind of the line item detail, you’ll see that the litigation expense between Q4 ‘13, compared to Q4 ‘14 is significantly less. And then we had just some under spending in adjustments that occurred in Q4 ‘14. And I think in total between all of those matters, it’s a very significant drop. I would think of Q4 is not necessarily the best indicator where Q1 is going to be and you can check my remarks. There's the unusual one-time things will necessarily give an indication for Q1.

Okay.

Is that what you were looking for?

Yeah. I mean I know that the litigation was a huge chunk of your guys operating expenses. Now that was like pretty much the main part?

Okay.

And I know you guys touched about it a little bit. I know that -- you guys revenue, you guys were saying that it’s pretty episodic. But another estimates for Q1 ‘15 are actually pretty good, I think like in the 80s. Is that what you guys are seeing or you guys are hoping for?

Yeah. We gave the estimates of 78 to 80. So we’re -- the part of that is $47 million from ASC. So that’s the episodic fees. And I’m guiding the episodic just in this instance because we’ve already publicly release that that’s a settlement that we’ll have. And so we don’t breakout the remainder of it but there is -- I think what you’re getting out is that episodic tends to be lumpy and that’s absolutely true. And it’s difficult to forecast to be honest with you. So with the recurring revenue, I’ve given that guideline for the year because we have visibility to it. And the episodic revenue, it’s lumpy and in this instance, we know when it occurs for this next quarter.

All right, guys. So guys, thanks so much. You guys are making me a lot of money. Keep it up.

Thank you.

At this time, we have no additional audio questions. I’ll turn the call back over to Mr. Lacey.

I’m glad we’re making Carlos happy. John, thank you. So just in summary, thanks again for your interest in Tessera. We very much appreciate you spending the time to learn more about our company. In summary, we’re extremely proud that the turnaround is complete and that we have a strong financial foundation from which to continue to grow our company. I hope we were able to convey to you today that we’re as optimistic as ever about the growth prospects of our company. And those of who you are on the West Coast who wanted to get away from the tough Eastern weather, word on upcoming conferences. We’re going to be participating in the Roth Technology conference in Southern California, the week of March 9th. And we certainly hope to see some of you there. Thanks again for joining us and we look forward to speaking with you again during our first quarter update. Thanks again.