Q2 2019 Earnings Call
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Good day, everyone and welcome to the inner good Interdigital second quarter 2019 earnings Conference today's call is being recorded.
And now it's my pleasure to turn the conference over to Patrick Van de Wille. Please go ahead Sir.
Thank you very much good morning, everyone and welcome to Interdigitals second quarter 2019 earnings Conference call.
With me. This morning are Bill Mehrotra, President and CEO Kosta more C O enriched brzeski our CFO .
Consistent with last quarter's Cohen will offer some highlights about the quarter and the company and then open the call up for questions.
Before we begin our remarks I need to remind you that in this call. We will make forward looking statements regarding our current beliefs plans and expectations, which are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results and events to differ materially from results and events contemplated by such forward looking statements.
These risks and uncertainties include those set forth in our earnings release and our annual report on Form 10-K for the year ended December 31st 2018.
And from time to time in our other filings with the Securities and Exchange Commission.
These forward looking statements are made only as of the date hereof, except as required by law, we undertake no obligation to update or revise any of them, whether as a result of new information future events or otherwise.
In addition, today's presentation may contain references to non-GAAP financial measures.
Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our second quarter 2019 financial metrics tracker.
Which can be accessed on our homepage at interdigital Dot com.
By clicking on the link on the left side of the homepage that says financial metrics tracker for Q2 2019.
With that said and Carol will turn the call over to Bill.
Good morning, everyone and thank you for joining us on the call. This morning, I'm going to start the call today with a quick reminder of our strategy. I'll then provide some color around our licensing activities and finish up with a great opportunities that the ROI acquisition brings us I will then provide an update on the operational front and rich will give you some financial highlights around the quarter on our progress in meeting our integration goals all of which are very positive.
So put me on strategy were focused on three things. The first is driving our mobile device licensing program leveraging both our strong cellular wireless assets and now the strong video related assets from Technicolor.
Second we're leveraging those very same assets in the consumer electronics space.
With the goal of driving meaningful revenue with a high degree of profitability last we're positioning ourselves for the expected growth of the IR team market with technologies that drive both the billions and billions of wireless connections themselves and the middleware to organize and manage all those connections.
Flying all these together we believe our significant investment in Fiveg technologies will enhance each of these opportunities with fiveg invigorating, the smartphone space, enabling a richer and more seamlessly connected home and entertainment environment and creating the network topology to help drive the full aiotv.
In a nutshell, we have access to three huge markets using one core set of technology.
Now these which translates into highly profitable revenue growth.
On the first slide a mobile device level licensing while we are in discussions with many customers. We are currently primarily focused on licensing six Chinese customers Jami Lenovo Oppo vivo Wawa NCT.
These six represent the vast majority of the unlicensed market for us and collectively represent hundreds of millions of dollars in potential annual licensing revenue.
In fact, if you look at the handset market today, we have 90% of the non Chinese manufacturer market license.
So our growth opportunity in China is China, and it's big.
No surprise these discussions have been long and hard and impacted to a degree in the short term by the trade discussions ongoing between the U.S. in China.
While the trade talks and the related issues like the while we then have created some short term uncertainty the long term trajectory of the trade discussions in IP rates remains positive for us.
The U.S. government is solidly focused on protecting American IP and that will be hugely important to us in fact, just last week and the administration is press statement announcing the upcoming trade talks intellectual property with the first issue listed as central sets off.
They want to take a moment to send a clear message about something we see as very important to the health of the continued technological advancement in many important fields, especially in light of the efforts in both the U.S. in Europe , our major resource locations to secure their positions in future technologies.
We are strong believers that neutral binding arbitration either mandated as part of standards commitments or through regulation is the best option for resolving industry disputes around licensing.
Well I think this is disputes are generally contractual disputes and companies have long looked arbitration to resolve their business. This dispute this type of dispute should be no different.
We also believe that arbitration has the greatest potential to balance interest reduce friction and ensure continued technological advancement in important areas.
And that innovators are fairly rewarded for their success and able to properly invest in future research.
Arbitration is also perfectly in line with the global collaborative process that leads to standards development.
Our engineers and those from other companies around the globe try their best to tear down national boundaries in establishing worldwide standards disputes around licensing should not impact that collaborative spirit.
Today, we're more active than ever in advocating arbitration across the industry through our relationships with our fellow innovators manufacturers operators and regulators many of them want a more reliable solutions to resolving licensing dispute.
Over the years, we've seen arbitration go from something that was viewed very skeptically by many to something that market participants are looking at with more interest we have more work to do on this we are we are encouraged by the greater reception being given to arbitration.
If you are listening and your and industry peer regulator or a member of an industry organization, we urge you to support our effort.
Or to reach out to us to engage further in the discussion.
Moving onto the Technicolor or transaction that transaction closed at the start of June and we're very excited to have the of the approximately 150 researchers in rent, France, and Palo Alto join our research team.
The Florida Research Springs research researchers bring exceptional talent in the area of video coding and other visual technologies.
Networking artificial intelligence and machine learning.
Viewed as a whole the capabilities of the combined team of approximately 350, interdigital and former Technicolor engineers and scientists represents one of the strongest research teams in the world focused on advanced research for mobile and consumer electronics devices.
As I've mentioned before while each technology area is exciting in its own right. Its at the intersection of the technologies, where the additional magic can happen for example.
Hi machine learning will drive disruptive change in how wireless networks are designed and deployed having scientific expertise in these technologies combined with some big significant domain expertise in wireless system design will allow us to determine how best to deploy this capability to drive system performance and lower cost.
Similarly, AI machine learning will have major impact on how video is processed discovered transported and viewed.
And of course wireless and video technologies are also highly complementary.
You can view the technologies is three circles overlapping in the middle and it's in the middle that where that where the greatest and most disruptive innovation lies.
And where we are now as a company.
With that let me turn it over to Scott.
Let me provide a brief review of some of our research activities and also review our current status of our licensing efforts.
As Bill mentioned this quarter, we completed the acquisition of Technicolor research and innovation team.
That's on station makes into digital one of the largest pure long term research and licensing companies in the world with strong bump offense in key technologies of wireless video display AI machine learning and home connectivity.
The integration of New research is broke is progressing very well Neil mentioned.
A number of areas, where our wireless research intersects very well with those new research areas and our teams are already collaborating explore those technologies. We are currently exhibiting some of those new areas in this case immersive technologies and digital doubles.
At the very prestigious Seagrass computer graphics conference in Los Angeles.
The dramatic expansion of our research capabilities and not being a new fields and broader technology footprint gave us a chance to examine our previous efforts at technology diversity.
And continue the progress probing process of bringing our operating costs down to 2017 levels.
As a result this quarter, we made the decision to sell the Hillcrest labs business to see Bob.
Importantly.
Thank you Chris patent portfolio remains with entity to talk.
It was and it is a tremendous portfolio and with the expansion of our business into consumer electronics licensing, we believe that the fourth place more valuable to us today than it was at the time when we bought it.
Selling hillcrest business helps us to reduce our footprint reduce our costs and also gives hillcrest business and employees the best chance for success.
Well I wish them, well and we thank them for their contributions.
On the licensing front Bill mentioned to us trade negotiation backdrop.
Overall, we see as a positive.
Some people might think it would be impossible to continue to have meaningful discussions with potential licensees against that backdrop, but I am pleased to say that far off of that that is far from the case.
Our licensing business development and licensing and business development teams have been very active going to enormous links to maintain and build momentum in licensing talks at in the last couple of months, we have been able to meet with almost every major potential licensee.
I think that has the typical case in these very high value discussions the ultimate economic discussion saw difficult, particularly with the Chinese Oems, who do not have a long history of licensing.
To help bridge gaps with these cost customers, we continue to rely on the creative approach a licensing.
Recognizing that one size does not always work well for all.
And as Bill mentioned, we are we are also in favour of arbitration to resolve any issues.
I also continue to continue to be encouraged by the movement in our new CE licensing business covering digital Tvs set top boxes comp computer displays and other related devices.
That business is contributing nicely.
Revenues today, and we see additional growth on the horizon as we asked the discussions with manufacturers more from technical diligence to economic discussions.
It remains early days for this portion of our business, but the science Socgen.
So to summarize our integration and research capabilities, our pro proceeding very very well and we are encouraged by the momentum licensing discussions with some key customers with that I'll turn over to rich.
Thanks, guys.
We delivered another solid quarter in Q2, 2019, with 10% year over year growth in recurring revenue and with expenses that came in below our expectations.
I'll say a few words on each of these operating headlines and then provide some details on the non operating items impacting our results related to our new convertible debt issuance and our May 30, Onest acquisition of tech and colors or NIE Division.
The year over year increase in recurring revenue was driven by a new license agreement signed in second half 2018, plus. The addition of revenue associated with our new CE licensing business.
With those items during the first half of the year, we maintain annualized recurring revenue at a $300 million run rate.
This is a solid platform on which we plan to add additional revenue from new consumer electronics and wireless agreements with the lions share of such gains dropping to the bottom line.
Our expenses increased year over year due to the Technicolor acquisitions.
Neither of which had closed before second quarter 2018 head end.
On a sequential basis lower integration costs helped drive a small decrease in operating expenses as compared to first quarter 2019.
This came despite carrying one month of expenses related to the R&D team. We acquired we acquired from Technicolor on May 30, Onest of this year.
As previously discussed there was no cash consideration associated with the May 30, Onest acquisition. However, as part of the transaction, we assumed certain liabilities associated with the acquired team and Technicolor agreed to reduce its rights to a revenue sharing arrangement that was established under our July 2018 acquisition of Technicolor licensing business.
In second quarter 2019, we recorded a one time non operating gain of $14 million to record the net effect of the transaction.
Unrelated to the acquisitions on June 3rd we issued $400 million of unsecured convertible notes that will come due in 2024.
These notes are convertible at a price of about $81 per share.
But as was the case in our prior convertible debt issuances, we used a portion of the proceeds to enter into a call spread transaction that increases the point at which we feel dilution.
With the cost spread in place the effective point of dilution for the 2024 notes is over $109 per share.
In addition, we used a portion of the proceeds from the notes issuance to repurchase 70% of our 2020 convertible notes.
We also repurchased approximately $20 million of our common stock in connection with the transaction, bringing our total share repurchases in first half of 2019.
Two two and a half million shares.
After these uses of proceeds and the expenses related to the offering we have approximately $120 million of proceeds remaining which we have earmarked to pay off the balance of the 2020 notes.
In connection with the second quarter repurchase of 70% of the 2020 convertible notes.
We recognized a one time non operating loss on extinguishment of debt of about $6 million.
We also have broken out the interest expense components for both the 2020 and 2024 notes and the long term debt footnote of our Form 10-Q that we filed this morning.
Moving on to taxes.
We reported a provision of $6 million in the quarter at an effective tax rate of a little more than 50%.
The high effective tax rate is primarily attributable to our new consumer electronics program, which has presently resulted in losses in foreign jurisdictions.
As such we currently maintain evaluation allowance against the related tax benefits of course, our plan is to grow the consumer electronics program and reverse the valuation allowance.
We will provide guidance for third quarter revenue once we receive second quarter per unit reports and account and kind of assess the impact of any true ups.
We will also provide some additional guidance on expenses that will factor in a full quarter of the acquired or 19.
I'll now turn it back over to Patrick.
Thanks, very much rich more you can now turn the call over to questions.
Thank you and to the audience. If you do have a question at this time. Please press star one on your Touchtone phone.
And just a reminder, if you are joining us by a speaker phone today make sure. Your mute function is turned off to allow the signal to reach our equipment.
And once again that is star one for any question.
And we'll go first to Charlie Anderson at Dougherty and company.
Yes, good morning, everyone and thanks for taking my questions.
Bill I wanted to start with your comments about arbitration you are clearly trying to send a message here. So I guess I'm wondering.
What goal you have in mind, you, hoping that the trade discussions lead to some mechanism for.
Agreement Arbitrates among.
Parties within country just yet.
Any additional color on sort of what the what the end game is here and then I've got a follow up.
Sure so.
You're right I mean, we are pushing arbitration within the context of the trade discussions we one of the things. We're observing is you have.
Different courts in different regions of the world approaching the licensing rate setting differently and that's that's a that's a problem and we think a uniform system would be much better.
You know issues like while a reaching out to Verizon and others for patent licensing and.
I think the operators have always been.
Wanting a solutions or licensing issues and I think that.
Having something more certain like arbitration would be helpful to them.
Overall, if you look at the.
The licensing environment the litigation that can occur around licensing can can be acrimonious and kind of take people's eye off the ball, which is really to develop new technology, and we think arbitration actually as a way to settle things anymore.
Yes.
Friendly manner, obviously arbitration is not.
We were a kind of a lone voice for a while and then some of the innovators began to pick up steam on it what we're seeing now is even thought in the decision with the FCC and Qualcomm, where she pointed to the judge Cote pointed to arbitration as a maybe a way to resolve these things so.
I think it's a good moment in time for us to really push this I think is the best solution to what has been a really thorny problem.
And we're going to take advantage of the current environment and push as hard as we can.
And just to tack on to that Bill.
If nothing happens politically.
Are you also saying here that the industry can can shoulder the loading.
It sounds like you're feeling like there's more momentum in industry does as arbitrary no matter, what the politicians are side or.
Yes, so just if you could maybe.
Yes, I think there's a couple of different at a strong I mean, obviously, there's the quote the regulatory AG angle through the government that.
That's the.
A very it would be a very efficient angle, but of course, it's a it's difficult to get governments to agree but were given our best.
I think on call it the industry side it can be.
Used in connection with for example, the purchasing environment within operators right and so they can push towards license products and as long as they're the arbitration process by which those products can get licensed they feel more comfortable that fair amounts will be paid so I think there is that channel.
I think there's also within the standards bodies themselves the ability to sort of enhance the commitment on licensing and put it put it there. So we're pushing there as well and then the other thing that happens is once you get enough people talking in favor of arbitration. The one on one discussions where we offer up arbitration against more difficult for the party on the other side to say no because it become the standard way to resolve these things and.
And that's what we'd love to have it ultimately I'd love to be able to say, we discharge our friend commitment in a very simple way, we offer arbitration and that takes away any opportunity for folks to come to us and say well, we want to set rates and dessert.
Fine, we'll do an arbitration and.
Intellectually I can't think of anything that's fairer than skilled.
On licensing professionals to win.
Beyond the arbitration panel coming up with the right rates to be paid there is nothing that seems to be more fair to me.
Great. Thanks for all that color and then just real quick on the Opex side.
Could you maybe quantify.
How much opex was tied to the ROI for that one month and then maybe just update us on or was there anything onetime expense wise in the back half we need to be cognizant of that move toward.
About in the past that maybe just remind us what's going on there. Thanks.
Yes so.
From an ROI perspective.
It was relatively small because it was just one quarter.
So it was.
From a recurring perspective.
I'm, sorry, nonrecurring perspective, what drove the sequential decrease in where we came in a little bit below what we had anticipated.
Was some of that the integration costs.
Okay. Thanks, so much.
Thanks.
And we'll go next to soderstrom at Sidoti.
Yes.
Hi, Please check your mute button your line is open.
Hi, everyone. Thank you for taking my question and congratulations on a good quarter. So I guess, what I'll call out on them.
On the previous question about integration costs, you said that with a little bit lower in the second quarter does that mean, we should expect more in the third quarter.
The display against all spectrum integration integration costs going forward, but actually the Atlanta transaction note included fewer important employees or there is more systems work to do that was costly and in the earlier parts of that transaction integration there were costs associated with.
Transferring to patents to Georgia jurisdiction is getting them to sign and so forth.
So we have seen the integration costs go down and that's really digesting a lot of the Lambda stuff I'm, sorry, excuse me the initial transaction.
Of the licensing team and we expect cost going forward to continue the integration of the ore and I team, but what we see that at a lower level than what we've been running at.
Okay. So it's more a matter of lower level not that it spilled over to I don't want to put it together.
Yeah, that's correct. It so it <unk> or integration costs relating to a million and a half dollars this past quarter.
So we would expect it to be in that range.
And maybe even going down over time.
Okay.
Thank you and also.
And then last question you broke out how much Technicolor contributed to the revenue topline and would you be able to break that out for this quarter as well.
Yes, so technicolor was it.
Approximately it was just under $5 million, maybe around $4 million for the quarter.
Okay.
Okay that was helping me thank you.
And we'll go next to air cooled at B. Riley Sir.
Thank you good morning.
Just a couple of questions got a I use one can you remind us what the next steps in the timetable is currently with the the waterway renewal discussions.
So.
It'll be late as laid out in the Q unheard of with the status of litigation is so yeah once and services effect and then you know the typical process in China is.
Via the set of hearings they'll be I'm sure. Some jurisdictional fights on the front end and then there will be a process for.
The the the rate setting so otherwise I'd refer you to the queue in terms of how that will play out over time.
And we do continue to be engaged with them outside of that as well.
Out of the litigation as well.
Okay and then.
The six remaining trying to Oems that you laid out initially I mean, obviously, that's been a sticking point and kind of been out there for three years I'm just trying to get something done there I guess.
You know.
What do you think it takes to get something done I mean, theoretically that they're building out more and more making payments were just making the discussion is probably even more onerous for them and and worrisome for them and you know.
I know you don't want to abandon and give up.
What is owed to use and trying to figure out kind of what.
But eventually gets that done.
Can get those over the over the hurdle.
Okay.
So as I think I can give is yours as well Matt.
Learn with other folks that are licensing in China as well as me a bunch of friends. If you do this is.
Well the negotiation can be measured in terms of steps that are you know a yard long.
In China. The steps are our two inches in the region. It is just a tremendously slow process.
But I think the thing that we've seen at least it's progressing.
Which is good yeah, you know I think others, some are progressing better than others.
And but I think that we do have a good level of engagement there is.
If I put the right measurement scale on progress I think we're with some key customers were moving along that line in terms of your question how you ultimately get it over the line right.
So I think it's a couple of things right I think its persistence is one.
You know one of the things we've talked about Kai it's been very fortunate its cost is when they get back to you you get back to them very quickly you force meetings as often as you can.
You are creative with each customer each one comes with their different needs. We talked about that a lot. We push arbitration I think the arbitration discussion heard before is to try to create pressure on them to.
Become effectively an industry outlier estate wouldn't agree to it we've got a ways to go to get there, but we will do that.
Analog and ultimately if it does that all of that fails.
Yes, there is always the option to litigate and we've got a very strong portfolio and we would be very confident in any position in litigation that we were to bring sell and I think we've got to make that clear to people as well that there isn't and our patients will run out.
Telecom Cai common as well the only additional color I would add is that from a license fee side the incentive to take a license actually increases all kind of when they start to have a signal more and more significant part of their business outside of China, and especially and many of the companies that you mentioned I mean, they are growing and seeing their growth actually outside of China, not so much inside China.
Oh, he laid out some broader got into a few years ago, and I would see I'm going to ramp in the coming years.
Maybe kind of where we are on that trajectory.
Do you have the number you kind of laid out you know how realistic that number still may be what are the.
Remaining steps to start seeing that flow through and sort of I guess is the price points can said I'm thinking of the branches et cetera, and the industry.
You know I Wouldnt speaking kind of you're trying to turn on and you sort of thing that does not flow through your perspective.
Yeah, So a total contributions meyer to yet.
There is still much lower than where we'd like to get into.
And thats, a little bit a function of the maturity of the market.
But but they're there we get royalties associated with our Avanci platform.
As well as you know some implementations of.
The important platform the the Io tea platform that we are.
License and provide a solution for so they are on the call in the $10 million in annualized range at present.
But so a waste a ways to go to reach the full opportunity.
And I'll just add I think.
What this is really a market issue more than anything else and if you look at other companies that participate in the United States I think or they are all waiting for that to get to that point in hockey stick, whereas now they come off the blade and they go up to handle.
Yeah, the thing that we.
The benefit that we have is that our IP licensing opportunity is.
Sensibly reuse of that.
The technology that we're using on a mobile device side to a large extent.
So the the trick here is if the revenue is slower coming is controlling your costs.
To get to that revenue and we've done a lot of things to do exactly that so when we have reuse of the mobile technology.
We substantially reduced our cost around coordinate.
And so we're able to now kind of patiently wait for the opportunity to come it will come I think fiveg will be a big enabler for it.
But waiting is not costing us a whole lot and that was that was a key shift we made this year as we saw that market kind of push out a little bit.
Perfect. Thanks, guys.
Just a reminder to the audience. It is star one if you do have a question.
And moving next to Scott So at Roth capital.
Hi, good morning, Thanks for taking my question.
Hey, rich just to follow up on on the Opex front, what would the normalized number looking at the June quarter, just to calibrate us. So we can put an order and I doing forward and how to think about that there are a lot of I think onetime costs associated with that could you just normalize that from a patent administration standpoint, and total Opex standpoint, and then I had a couple of follow ups.
Yes.
On that one Scott, we'll be providing guidance pretty soon for the second quarter I'm, sorry for the third quarter.
And that will include we're going to definitely include some operating expense guidance there.
That will that will give you a full quarter of all and I.
And also have a little we'll have a little more advanced thoughts in terms of what the integration cost be for Q3 as well.
Gotcha and Chi maybe following up on Technicolor it it sounds like the level of engagement is increasing you guys are progressing well both from an integration standpoint, but certainly from a customer engagement.
Opportunity it four or 5 million a quarter now.
I'm wondering how you're thinking about it from a a cape you higher or metric standpoint in terms of milestones and otherwise thinking about the next several quarters, what we should be paying attention to and as we get into 2020, what's kind of the the range of outcomes and and metric for sale success that we should be thinking about.
Well I would reiterate what we said earlier that during this year, we want to really establish the level of what the licensing opportunity is by getting.
Several deals done during this year and some of them being smaller.
And some of them hopefully a little bit there, but really establishing what the benchmark is what's really the right level. So that we can be more accurate in forecasting and in guiding the market on on what the what the level eventually will be.
And kind of if I look at kind of rest of the year, what I would we be looking at what our internal matrix here is to getting the deals done and.
Getting kind of a summary.
Though the discussions that I know in in a very advanced stage.
But at the moment.
Cross the finish line and getting get them over and once we get them over we can verify that our estimations on what the opportunity total GTS is actually accurate.
Okay, great. Thank you and bill.
Maybe to just come back to China in Fiveg license and could you remind us in terms of your existing non Chinese.
Licensees right now who has five G as part of a license component currently.
In your relationships and then also I know you've been.
Very clear that Fiveg does not necessarily represent an increase in the royalty rate, but you listen to Qualcomm talking about the opportunity the complexity of Fiveg seems to represent more value in dollar content to them. Yes. There are silicon based fan provider that they were able to capture some of that but wondering just in terms of some of the negotiations and thoughts is that an opportunity beyond just units.
That the rate could and in effect go up and lastly, fiveg in China.
Becoming more internally focused now because of the current.
Going trade discussions.
Does that a long gate your ability to.
Fully engage with them as Fiveg becomes more China centric or are they still actively pushing in other markets that they have no choice to come back and continue to engage thanks.
Sure.
So in terms of.
Fiveg being included or not in license agreements.
Yes, I think generally agreements that.
Have been done over the last number of years.
Generally would capture five dealing because it would.
It was a technology that was going to be deployed in a reasonable period of time.
There are we do have the release or that do not have fiveg as well I think there is some level disclosure in the Qs and Ks around that but.
Yes, I'd say, there's a mix typically a larger guys have got capture in the smaller guys may not as often have capture of that of that technology. So.
In terms of the royalty rates.
I always think about it.
It did.
There's not really a fiveg rate per se in my mind, its a layer cake right STG Threeg Fourg Fiveg side, it's nice.
Yeah, we're thinking about it like what are the same things you build at the beach right.
The size of the layers change over time and so.
But I.
I wonder.
About.
The level of price elasticity of the entire layer cake I don't think that entire layer.
So.
No I totally agree with Bob I think this is a very complex technology.
That said.
Its greatest value I think its revolutionary value is in.
Things like that.
I don't see autonomous vehicles, all that stuff.
Within a handset.
I think it will I think it will excite people I think it's going to deliver some new capabilities, but I'd say, it's more evolutionary in the handset and revolutionary.
It's great. It's a great technology, so I don't want to undermine the technology and I think we've done a great job of innovation and I think we can secure a great value from that layer cake there but.
I think it will kind of stick by our view that.
On the handset side it sustains when it's a really really good business.
And if you look at it as a market opportunity so as as a total waste. It is you can argue its various bigger but not necessarily the individual rates to the higher the wireless handsets, it's all about diversity and the pervasive nature all defined so that's much broader licensing opportunity.
But the EPS as Bill said, the actual just kind of a wireless mobile handsets.
One wonders that.
Why would the rates go up one on the hands of failure on the handset side.
And then your last question around the trade talks and all this discussion around security and does that fracture the standards process at the end of regionalized standards and.
I think.
The.
Worldwide community has benefited tremendously from the single standard.
And I think that.
Going back I mean, I live through the entire live through the world of fractures standards in different standards in other countries. It's not a good place to go back to us.
Conversations that we're having with.
The GSM and other people no one wants to go back there.
So notwithstanding the political battles there is pretty strong industrial.
Weight behind maintaining this single standard out there.
How that all plays out and how.
You know the security issues are resolved over time and how that.
Impacts that will last and I think we'll see I think there's a lot of.
Opportunities for solving some of these problems you know theres been.
For example, as Wally discussions with the split the handset in the infrastructure.
Don't you kind of deal with the.
Security issues on the network side that you free up the handset side they would it wants to do so.
Yeah look I think there's a lot of noise around that.
Issue I again, I come back to I think that the industry, who will have a tremendous amount to say here does not want to fracture the standards process.
Great. Thank you good we won't have another TDSTV may situation. Thanks.
[laughter] right.
And we'll move next to Matthew Galinko at National Securities.
Hey, good morning, Thanks for taking my question.
Just curious if the Hillcrest IP is currently part of your CE license discussions or is there sort of working through the early stages of that market or is that something you.
All right. Thank you to come back and sort of up sell too early licensees.
Well when you when we talk to see licensees.
We depending on when we start obviously the discussions, but we tend to kind of take the benefit of a full portfolio that we have been.
Our our.
All the technology that we have in our portfolio in those discussions so so its app.
But obviously in the end, it's a kind of a kind of a customer choice as well that and where do you want to limit limits. The actual deals, but if we offer. We then kind of when we go and meet their customers. We offer all the all the technologies that we have.
Whether it's kind of where they came from.
Great. Thank you.
And we'll go back to Charlie Anderson at Dougherty.
Yes. Thanks for squeezing me in a follow up rich can you remind us as any revenue going out the door with Hill crest and then no.
Could you maybe frame up any potential cost savings through that divestiture. Thanks.
Yeah. So.
In the current year, Charlie it's running kind of at the product business that is running kind of at a breakeven.
So.
Caught in the neighborhood of five to 10 million annualized of revenue and expense.
So his help me meets our expense goals, but but there is a little bit of offsetting revenue that goes out as well okay. Perfect. Thanks, so much.
[noise].
It appears we have no additional questions at this time I'll turn the program back over to our speakers for any additional or concluding remarks gentlemen.
Well. Thank you very much good morning, and thanks to all our investors for joining us this quarter looking forward to updating you again next quarter. Thanks very much.
Ladies and gentlemen, once again that does conclude today's conference and again I'd like to thank everyone for joining us today.