Q2 2022 Quicklogic Corp Earnings Call
Ladies and gentlemen, good afternoon at this time I'd like to welcome everyone to a quick larger corporations second quarter fiscal year 2022 earnings results conference call.
Reminder, today's call is being recorded for replay purposes through August 23rd 2022.
I would now like to turn the conference over to Mr. Jim Fanucchi of Darrow Associates. Mr. Fanucchi. Please go ahead.
Thank you operator, and thanks to all of you for joining us our speakers today are Brian Faith, President and Chief Executive Officer, and Elias Nader Senior Vice President and Chief Financial Officer.
As a reminder, some of the comments quick logic 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 quake logic future stock performance design activity and its ability to convert new design opportunities into production shipments.
<unk> and market acceptance of its customers' products schedule changes and production start dates that could impact the timing of shipments the company's future evaluation systems broadening the number of our ecosystem partners and expected results and financial expectations for revenue gross margin operating expenses profit.
Ability and cash.
Actual results or trends may differ materially from those discussed today.
For more detailed discussions of the risks uncertainties and assumptions that could result in those differences. Please refer to the risk factors discussed in quick logics. Most recent filed periodic reports with the SEC quake logic assumes no obligation to update any forward looking statements or information, which speak as of their respective dates of any new.
Information or future events.
And today's call, we will be reporting non-GAAP financial measures you may refer to the earnings 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 webpage that provides current and historical non-GAAP data.
Please note pick logic uses its website the company board corporate Twitter account Facebook page and Linkedin page as channels of distribution of information about its business such information may be deemed material information and quick logic may use these channels to comply with its disclosure obligations under regulation FD.
A copy of the prepared remarks made on today's call will be posted at quake logics IR web page. Shortly after the conclusion of today's earnings call I would now like to turn the call over to Brian .
Thank you Jim Good afternoon, everyone and thank you all for joining our second quarter fiscal 2020, 'twenty excuse me 2022 financial results Conference call.
Our business momentum continued in Q2 as we achieved our best bottom line performance since 2010.
Moreover, we have seen an increase in our sales funnel and large design wins currently approaching $100 million.
We expect the pace to accelerate in the coming quarters and years further boosting both our near term and long term growth trajectory as we drive the company to profitability.
This has all been enabled by being the first commercial entity to market with a robust and comprehensive platform that blends open source technology with our decades of product shipments and engineering know how in the FPGA market.
I believe our recent event marks a watershed moment for a quick logic.
As noted in the earnings release today I am both honored and pleased to share that we have won by far our largest E. S. P. G a related contract to date.
One that will start at approximately $7 million.
The company's deliverables will be due over the course of 12 months and.
In addition, subject to completion of such deliverables and at the option of the customer the total contract value could increase to tens of millions of dollars.
Well, we are contractually prohibited from sharing customer names or end market details on this most recent win this.
This development demonstrates how E. S. P. G. A related opportunities are turning into multi year substantially higher revenue design wins.
We believe this is further proof that our strategy to develop E. S. P. G. A I P and related products will transform quick logic into a sustainably growing and profitable business for many years to come.
Yeah.
Since July of last year, we have now closed firm E. S. P. G a related contracts approaching $16 million.
With the aggregate potential approaching $100 million over time.
There are several additional opportunities in our sales funnel that are expected to follow a similar path.
Starting as an E. S. P. G. A I P engagement and expanding the full FPGA based device and our triplet developments with the intention of quick logic being the storefront for the device once it is completed.
Our australis E. S. P. G. A I P generator has been a substantial contributor to this pipeline of new opportunities come.
Companies of all sizes, including some very large recognizable names are coming too quick logic, because we can define and deliver customized E. S. P. G. A I P. Android devices in a highly automated way.
Our standard cell design approach allows quick logic engineers to generate custom E. S. P. G. A I pee in a matter of months.
Giving our customers a fast time to IP delivery and providing quick logic tremendous operating leverage from our R&D resources.
The breadth of our active E. S. P. G. A customer engagements spans the worlds largest stomach conductor foundries, including TSMC Globalfoundries Samsung.
M C Sky water technologies.
Now moving to our sensible business.
That's the model is having its best year ever in our May earnings call. We shared that sensor most signed their first six digit win.
The pipeline of opportunities is growing.
In the June quarter, we saw a doubling of six digit opportunities, including a growing number of fortune 500 companies.
Our current expectation is we will close at least one of these deals by the next earnings call in November .
Driving that sensible engine is an expanding ecosystem of integrators sounds somewhat recently closed three new system integrators in Asia to add to the already publicly announced deal with direct insight.
We are looking for these new additions to drive more six digit revenue deals in the first year of representing the sensible products.
Since the start of the year, we have been asked to offer additional commentary on the emerging chip with markets and specifically our triplets program.
Triplets had been steadily taking market share from more traditional monolithic semiconductor devices.
For manufacturers using a chip based approach not only creates flexibility that helps enhance yields and reduce costs as each triplet component has a smaller die size and hence higher yield than what a larger monolithic device encompassing all of the same combined functionality.
That is why our June announcement with Ito business is so significant.
We provide the FPGA technology and they provided the special high performance low power interconnect that's critical for many of the applications our customers have in mind.
Our current plan is to start with E. S. P. G E based triplet templates and then move forward with a known good die approached commensurate with customer demand.
The AAA market is expected to grow significantly over the next decade Indus.
Industry research firm transparency market research recently noted that the triplet market is expected to exceed $47 billion by 2031, representing a CAGR exceeding 40%.
We are under evaluation with lead customers to see how we might architected ship with that can be reused across multiple customers.
Okay.
I want to quickly touch on some of the other areas of our business.
Display bridge product sales and design ends remains strong as we benefit from the continued global supply chain issues.
We expect demand to remain strong into 2023 and have inventory to meet customer needs.
And our mobile phone business. We believe we are being designed into several new models of phones that will ship well into 'twenty 'twenty four.
Giving us a good long term visibility.
In the near term, though very muted consumer spending in recent months is negatively impacting our primary customer.
Given the macro factors, including ongoing supply chain issues. We believe the second half will remain weak for our mobile phone business with Q3 being the low point in demand.
Finally in our mature product segment, we are starting to see some stabilization in bookings for this quarter and the balance of this year. However.
However, without good clarity on the macro economy. We currently believe mature revenue will be slightly down from 2021.
Before turning the call to Elias I want to provide our revenue outlook for Q3 and offer a look into Q4.
Over the last two years, we have made significant progress building, our software and IP related business.
During this transition period to a more software and IP centric company I have noted that from time to time, there could be some lumpiness in our revenue recognition due to the timing of milestones and he's agreements or delays in start dates.
For Q3 in particular, we had originally expected a 7 million dollar agreement I previously mentioned to start earlier in the third quarter.
However, we were recently informed the project start date has been pushed to later this quarter.
Push out in revenue coupled with a softening smartphone sales environment has caused us to reduce expectations for Q2 revenue by approximately $1.8 million.
We expect a portion of this revenue to be realized in Q4 and into the first half of 2023.
As a result, our current expectation is for revenue in Q3 to be approximately $3 $4 million, plus or minus 10%, which on a rolling 12 month basis still puts us in line with our targets since it reflects the impact of timing in terms of signing new opportunities.
I want to be very clear.
And winning the large contract I mentioned earlier I am convinced that third quarter revenue decrease is a mere blip in our growth trajectory.
Related to the start date of this new large contract and is not indicative of any barriers to continued growth and profitability.
Even with the shift in the start date of this large contract and the smartphone weakness we are on pace to increase fiscal 2022 revenue approximately 35% of our fiscal 2021.
To further support our confidence in the business.
Early outlook for Q4 is shaping up nicely.
With this fiscal year revenue outlook and with current gross margin and operating expense levels. I believe we have a very good chance of reporting profitability in Q4.
Let me now turn the call over to Elias for a review of the financial results last please go ahead.
Thank you, Brian and good afternoon, everyone.
Our performance in Q2 was very strong.
Menu of $4 5 million was the highest since the second quarter of 2015.
Further demonstrating the strength of our software and IP focused revenue model.
The growing top line combined with a favorable gross margin and continued expense controls.
Translated into minimal non-GAAP net loss of just $47000, which is close to our goal of breakeven.
Let me now turn to the review of the results for the second quarter.
GAAP revenue in Q2 was $12 5 million. This compares with $4 1 million last quarter.
$2 9 million in the second quarter of 2021.
On a percentage basis Q2 revenue represents an increase of 11% compared with last quarter and was up 58% when compared to the second quarter of 2021.
This improvement comes despite the pandemic.
Supply chain shortages in the industry and volatile economic headwinds.
Within our Q2 revenue.
Sales of new products were approximately $3 1 million.
This compares with $3 5 million last quarter, and one 3 million in the second quarter a year ago.
Mature product revenue was approximately one 4 million compared with 0.7 million last quarter and $1 6 billion in Q2 last year.
In Q2, we had three customers that each accounted for 10% or more of our revenue, which is consistent with the prior quarter.
non-GAAP gross margin in Q2 was 58, 6%.
Bed was 61, 5% in the prior quarter and up from 51, 5% for the same quarter of 2021.
The decrease in gross margin quarter over quarter was due to increased expenses in E. F. P. J I'd be professional services Inc.
Inclusive of non recurring cost of specialized tooling.
The improvement from the same quarter last year resulted from a product mix shift to more F. P. G I B professional services.
Okay.
non-GAAP operating expenses in Q2 of approximately two 4 million.
The Opex for Q2 was lower than our forecast.
Mainly due to a reclassification when it hits a certain R&D expenses to E. F. P. G I P.
Support of E. S. P. G. A I P professional services.
Q2, Opex compares with operating expenses of $3 1 million last quarter and $3 3 million in the second.
A year ago.
non-GAAP net loss was $47000 or a loss of zero cents per share based on 12 4 million shares.
This compares with a net loss of 0.8 million 0.6.
<unk> per share last quarter.
And a net loss of $1 9 million or 16 cents per share in the second quarter of fiscal 2021.
Total cash at the end of Q2 was $18 5 million.
Compared with $20 1 million in the prior quarter.
The continued investment to support the new design wins, we have discussed accounted for a portion of the sequential decline.
Surely timing issues related to cash receipts from customers also contributed to the lower cash position.
Okay.
Now moving to our guidance for this quarter or fiscal 2022 which will end on October 2nd 2022.
As Brian discussed revenue guidance for Q3 is approximately $3 4 million.
Plus or minus 10% due to the reasons you outlined.
Revenue is expected to be mainly comprised of approximately $2 4 million of new products and $1 million of mature products.
Based on this revenue mix non-GAAP gross margin for the quarter will be approximately 64% plus or minus five percentage points.
Our non-GAAP .
Operating expenses will be approximately $3 5 million plus or minus 10%.
Because longer term, we believe opex will remain in the low 3 million means with the occasional increase used to support new programs with your words.
After interest expense other income tax in Texas.
We currently forecast.
Our non-GAAP net loss to be approximately one 3 million to $1 7 million a net loss of 11 cents to 14 cents per share based on roughly $12 4 million shares outstanding.
The difference, but you're not GAAP and non-GAAP results is related to noncash stock based compensation expenses.
Q3, we expect this compensation will be approximately $425000.
As a reminder, there'll be movements in our stock based compensation during the year and it'll be a very each quarter based on the timing of the grants.
Moving to the balance sheet, even with continued investment to support the new design wins that we've discussed at the midpoint to expect cash usage to be in the low to mid 1 billion Ridge.
Finally, as part of good corporate housekeeping. This week, we will be filing a universal shelf registration statement.
On form S three for up to $125 million.
This provides us the company an option to quickly respond to opportunities similar to the strategic investments we have done in the past year.
As Brian stated above what the new large design wins or the overall momentum in our business.
The lean operating structure, we are driving the company to profitability, possibly as soon as Q4.
Thank you and with that let me now turn the call back to Brian for his closing remarks.
Thank you Elias.
Quick logic is now in its third year of its transformation in the business is stronger than ever.
We have a fast growing pipeline of larger E. S. P. G. A IP and software sales and expanded distribution ecosystem to drive our products out to a significantly higher number of potential customers and a lean operating model that generates higher returns as revenue increases.
During the past year, we have successfully closed multiple million dollar wins, the most recent of which being approximately $7 million.
As our revenue growth resumed in Q4 and into 2023 on the strength of our largest E. F. P. G. A contract to date I'm, even more confident we are on the cusp of sustainable profitability.
I would like to again, thank our key stakeholders, including investors customers suppliers and most of all the quick logic and sensible teams for their continued support.
That completes our prepared remarks, operator, I would now like to open the call for questions.
Thank you at this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
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One moment, please while we poll for questions.
Our first question is from <unk> Desilva with Roth Capital. Please proceed with your question.
Hi, Brian Hi, Elias and congratulations on the progress here sounds great. So yeah no problem. So maybe on the $7 million deal you just now perhaps just starting some of the accounting understanding Rev recognition understanding it sounds like Brian just want to clarify you couldn't recognize what you wanted to in the third quarter, but the fourth quarter part of it will get pushed out does that mean the four quarters.
It gets all slid to.
To the right or does it mean it gets recognized three quarters any color there would be helpful.
Yeah. So for this Oh I'll take this one in particular.
The 7 million dollar deal think of it as a recognized to get it across the year.
And is that the starting point is starting later much later this quarter than what we thought so it's a shift in that but once it starts it's across 12 months again with the potential to increase notably.
Through our <unk>.
Completion of milestones in the customer election to to upsize it.
Understood Great. Thanks, Brian and then can you talk about the number you quoted in the prepared remarks. The 100 million can you give us some color around what what that number is meant to cover and imply in and how you built up that number in any thoughts there as well.
Yeah, Yeah, So I think.
If you think about how we've been characterizing the embedded FPGA IP space, whereas for the last couple of years, you can see that we've been steadily increasing the dollar value of these.
These wins and now we're talking typically every time, we announce when it's a $1 billion plus $3 million 7 million. These are typically across a year from the time that we signed the deal and something that's deliberate but as we've been talking about the last couple of quarters. We have our eye on what I think is it is actually a pretty lucrative prize at the end of it.
The development, so that can show up in terms of royalties.
So the pure IP deal now it could start to transform into silicon sales. After these developments are done in the sense of us being the storefront for the resulting product.
This 100 million dollar.
Sales funnel and categorization of our large design wins encompasses these upfront contracts that we have.
And starting to now incorporate some of the backend that we're starting to see now from these customers in terms of forecast in and getting built into these contracts like we were just mentioning with this large one here, especially that would be 100 million represents the upfront and then either the royalty or the device shipments at the end of it with the storefront notion.
Okay.
And I think if from an investor point of view. This is really important because you know sometimes.
Sometimes we talk about just the IP and people think okay. That's upfront IP and maybe some residual royalty tea and now we're talking about yes, it's not just the royalty company it could be selling devices up yet and that's a huge jump up in top line potential and monetizing. These designs that we're engaging with these contracts.
Okay. It's interesting Brian I would like to explore that storefront contract a little bit. So my perception is for example, a product.
Pensive defense prime or somebody neither chipped down and you guys gave him the IP to help them with that and it would go use it for their own products, but when you talk about historic run it sounds like almost like a standard product, you're helping somebody develop to sell to third parties, perhaps an ecosystem a large ecosystem guy wants device people to adopt it is that can you just give a sense of what how the storefront players.
It is a standard product third party sale person selling to a customer.
Yeah first of all it doesn't necessarily have to be a standard product it could be a device for a specific customer that they just don't have the supply chain expertise.
New to work with the supply chain to build a finished product or finished good wave.
Been doing that for 30 years. So we can do that for customers. So it's good in that sense be almost a custom product for the customer that were being the storefront for if they don't have the capability to run a semiconductor supply chain on the other hand like you just mentioned it very well could be a storefront or a standard product that perhaps is invested in or funded by a customer.
But maybe they don't want to cover the whole thing and so.
Depending on the business in terms of the arrangement, we could always end up being a storefront for that device or perhaps a derivative of that device in the future, but again the nice thing here about if you just step back and you look at our heritage has been on doing devices and so we clearly have all the infrastructure and processes and relationships with the supply chain lined up to do that we can pivot deals either way.
A and B it just pure IP or moving into the surface concept, depending on what makes sense with the customer.
Essentially it's something of a new model the IP plus chip.
Okay great.
Lastly.
The triplet and I'll I'll I'll I'll leave it in the last question the triplets what end markets, you're seeing the strongest.
Earliest interest in chip with out of the gate I'm curious on that.
That's a good question and I'm trying to figure out how I should characterize this let's say.
High performance computing.
Yeah, that's what I thought alright, thanks, guys Congrats again.
Thanks, Susan Thanks, Judy.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
Our next question is from Richard Shannon with Craig Hallum. Please proceed with your question.
Yeah.
Well, Hey, Brian Thanks for taking my questions Hey, Richard is here on the phone.
I'm going to follow up on Cds last question. He was just very quickly on chip lives here, yes, the end market I'm going to ask when when could this be in a noticeable contributor to revenues I don't have a great sense of whether that's next year. The year. After how do we get or how can you give us a sense of when that can be a driver of our.
Topline.
Well it could be a contributor to child topline you know as early as Q4 in fact, if we think about these contracts over.
Getting funded development from a customer as far as the actual chip revenue itself typically that would be you know usually a year later as these triplets go through the the production process and the packaging and the validation by the customer before they would move it out into the real world.
And that's what we're looking right now the ones in our opportunity funnel.
That is the timing okay.
Okay Fair enough. That's helpful. I wanted to jump back to the the 7 million dollar contract and ask a couple of different ways around this.
Can you you noted.
Something very interesting that over the last few quarters, you've noted and increasing value of these contracts.
Maybe you could help us understand why is this just an increasing amount of customization involved and so it's essentially a lot of its professional services or is this in some ways. It scaled to the you know variable affect the unit output of the design once it gets to market.
You know theres a lot of depending on what the needs of the customer.
There will be professional services incorporated into that and one of the nice things about our new automated approaches that we can actually do IP ports and designs for customers in a more timely manner, which also means we can do a port with some uniqueness to it for a lower price.
And so that's what you're I think starting to see is we're starting to see more demand for things that are very interesting and unique from a customer point of view. They solve a critical use case or a critical thing that they have that is not available as a standard product that carries a value that carries a cost and I think you're starting to see us get that finally, you know.
Yeah P J market in general you're seeing a lot of consolidation happening you're seeing voids being created out in the market for certain types of programmable logic or certain.
Instances of the product with unique features and we can fill that void and I think there's a value to that and I like to think that our sales team is pricing the value not necessarily the cost and that's also helping drive up to the value of these contracts.
Okay.
As I think about both both of those dynamics and as well as the dynamics, you're describing around the storefront, which I think have a I think a vague grasp of at this point in time, but how how translatable are these two other customers other situations at least is this a one off or could we see things like this are there things.
Like that in the funnel today.
There are things like that in the funnel today and I've been making a conscious effort to not talk about new types of business models or products until I'm pretty darn sure that we're gonna see not just the one off or something out of right field, but a repeatable business strategy and our you know I've been sort of draw.
And little bread crumbs out there about chip lifts and storefront for probably a few quarters now.
And one of the reasons why we decided to come out on this call and be a little bit more articulate in that area a little bit more detail is because we are starting to see things either far down the funnel or show up as wins.
Like in the case of this large new contract. So I don't think it's a one off a short answer to your question I think it's a business initiative that we can really rally around and they can leverage a lot of the R&D that we're putting into these are these new ports on the FPGA side.
Okay Fair enough. One last question for me and I'll jump out of line here on sensible.
<unk> talked about a pipeline that's improving here as this is a direct relationship with some of the kind of channel relationships and is that what you expect to kind of drive some of these larger deals going forward or how should we think about.
Larger deal with sensible.
Yeah.
Part of it is definitely from the channel expansion part of it is the fact that were you know sensible is continually signing up very large microcontroller sensor partners and so they're getting a little bit more brand recognition I think one of the biggest contributors to it and I think I was.
Fairly public about this in the last quarter or so is really.
We've made a strategic decision was sensible to really focus on go to market partners that matter.
And really focusing on ones that can provide a fan out effect, where we work with a large company and they can fan it out to a.
Sort of a brownfield with people that have already got installed hardware that we can then work with to deploy AI. That's a much more scalable business model than trying to chase every cat and dog and student doing a hacker project and claiming that we have high numbers, but you know the average revenue per user is low where it's starting to now focus very consciously on these six.
Did you guys that can found it out to you know five and six years, you guys themselves and I think we're starting to see the fruit of that.
Of that decision now and it's really only been like three or four months since we made that decision, but I think it was the right one and you'll start to see more of these.
Deals being closed as a result.
Okay perfect. That's great perspective, that's all from me Brian Thanks.
Richard.
Our next question is from Rick Nelson with River Shore Investment Research. Please proceed with your question.
Thank you Hi, Brian Hi, Elias.
Congratulations on a nearly breakeven quarter.
Thank you my first question concerns.
Your smartphone customer.
Hmm.
We've noticed a lot of softness in the mid range Android market is your does your particular customer, giving you any longer term visibility into its order patterns and for calendar year 2023, now that were getting into the well into that.
The second half of 2022.
Yeah.
Yeah in fact, I I have periodic a face to face meetings I, probably had more face to face meetings with that customer than any of our customers post the pandemic here.
We are getting good visibility firstly in new phone projects that they are intending to use us and are designing us into.
We're getting good visibility on the volumes of those projects by by phone.
And then I wouldn't say for more than a year out we know down to the month level, what they're planning to do but that's sort of the next level of near term visibility is getting down to the month granularity of how much volume or are each of these carriers gonna take take each of these models right. It's not just one carrier when model, it's multiple carriers and multiple models. So there's a lot of variables out there a bit.
You know distilled down to our forecast.
But I think we are getting good real time visibility from them starting again at the design stage, and then down to a volume per phone per carrier.
So that's why in the prepared remarks, I was saying we have I think reasonable visibility for 2023, and I see at least design and visibility for phones, they would be shipping even in 2024.
Of course their forecast is going to change based on the macro economy.
But the starting point is getting into the next generation of phones and I clearly see that through 2024.
Okay and that is firmed up since your last few conference calls.
So in looking at the Q3 Lumpiness here is.
Your smartphone customer the.
Our largest or second largest contributor too.
Your Ah I think you said $1.8 million shortfall in your expectations.
It is not the number one contributor the number one contributor.
By far.
The slip and start date of this very large project, we just announced in the earnings release and on the script in the script today.
Okay and.
And you said that it's basically your your start date is basically just a slide of X number of weeks of this large new contract in that.
The revenues will be apportioned.
As they are earned over the 12 month period, but.
There's no catch up anticipated in Q4 from that customer did I understand that correctly.
Yeah, exactly just slide the start date everything sides Accordingly, and if you wanted to model. It out just model it as sort of equal parts across 12 months, but that 7 million.
Okay and this is in addition to the customer you announced earlier this year, where it's providing about 250000 a quarter of revenue to you approximately per quarter. This is a honestly I'm on with a brand new.
Yeah. This is a brand new design brand new customer.
This new one.
Okay. So you've got about $2 million then of.
Fairly locked in revenue coming out of you have these two big U F. P. G. A contracts for the next four quarters at least.
That's it that's a good way to look at it right.
Okay I'd like to talk about your australis tool because you keep mentioning that for about the past three or four conference calls and calling out its importance.
I'm curious given all the large dollar values that seem to be increasing from your deals. What do you think your leverage on your ROI on your investment into the australis tool is at this point and where do you see.
Your leverage going on that tool say in the next 12 to 24 months.
You plot your long term growth.
But I think with any.
And a compelling product it doesn't stay at compelling unless you continue to invest in it right and so right. There's a lot of there's a lot of things that we're looking at for a minute.
Continued investment into a trial is two <unk>.
Maintaining a competitive moat that I think we've created so far.
There's a lot of different ways that people are looking at.
Programmable logic integration into their systems in the future we've talked about chip lids.
Theres always going to be things that we'd like to change to this trial is to make it more amenable to chip.
Triplet type development or a heterogeneous development.
So it Leverages high and it's going to continue to get higher because I don't think we have to put it.
You know as much into it as we're getting on our revenue now, but that's the nice thing.
But it's not going to be a zero investment thing either we need to continue investing in that especially as we see these new opportunities and.
Just trying to make sure that that tool as well.
Allowing us to keep pace with the market.
Okay. Thank you, Brian Thank you Elias and Ryan.
It's just around the corner.
Thank you.
Our next question is from Martin Yang with Oppenheimer. Please proceed with your question.
Hi, Good afternoon. Thank you for taking my question. My one question is on the large.
Licensing contract you announced.
With the timing coming later than expected with it changed.
Any of your Opex assumptions are.
Regarding either R&D or SG&A for the year.
No mainly because we already had anticipated.
But if we did get the contract in pieces.
We we already had accounted for those tools that Google is supposed to buy.
Okay.
So I think we okay.
Got it.
And.
Also another question regarding Opex, so with essentials adoption.
Finally, seeing more positive traction in the market.
What are your plans to have you.
<unk> thought about maybe out of investments shoe.
Since most adoption or marketing to suffer in a more aggressive way.
Yeah.
I think we are being very aggressive in the way we were marketing it that's for sure. We don't particularly you know stay away from it we are focusing on it for sure on investing where we think it makes sense.
I would say, let's give it some time on XI how sensitive tons out, but I believe that it's around the corner.
Do you see certain goods announcements from it.
So the answer is in my in my long guns in my long winded answer is yes, we are investing in it.
And we are not shying away from investing in it further to make it a better a you know a business for us.
Yeah.
Got it one thing I'd like to add to what Alex just said is I think.
We're showing good discipline in how we're marketing sense like I said, we're not marketing it to the 10000 people working out of their University dorm, we're marketing it to companies that matter that have an installed base already in place where.
Where we can go to that installed base through that partner through that customer and upsell AI into the the brownfield.
Immediately and then also work on some of these new opportunities that we see that it makes sense for AI, but you're definitely going to if you just step back and look at our marketing approach in general Youre going to see it's a lot a lot less oriented for the masses and it's really focused around some of these big microcontroller companies and some of these large partners that we've signed up worldwide over the last quarter or so.
Yes.
Got it thank you Brian that's it for me.
We have reached the end of the question and answer session and I'll now turn the call over to Brian faith for closing remarks.
I want to thank you all for participating in today's call and for your continued support we look forward to speaking with many of you again, when we participate in upcoming investor events and when we report our third quarter of fiscal year 2022 results in November.
Have a great day.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
[music].
Yeah.
Yes.
Yeah.
[music].
Okay.
Okay.
Okay.
Okay.