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Executives

Mary Lombardo – IR

Ali Khatibzadeh – President and CEO

Robert Bosi – CFO

Analysts

Orin Hirschman – AIGH Investment Partners

Richard Shannon – Craig-Hallum Capital Group

Edward Walbridge – Ergon Institute

Bob Dickson – Private Investor

Mark Robbins – Private Investor

Michael Moore – Summit Analytic Partners

TranSwitch Corp (TXCC) Q2 2013 Earnings Conference Call August 14, 2013 5:30 PM ET

Operator

Good day, everyone, and welcome to the TranSwitch second quarter 2013 earnings release conference. Today's call is being recorded. At this time for opening remarks and introductions, I will turn the call over to TranSwitch Investor Relations Manager, Mary Lombardo. Please go ahead, Ms. Lombardo.

Mary Lombardo

Thank you. Good afternoon, everyone. With me today are Dr. Ali Khatibzadeh, our President and CEO; and Mr. Robert Bosi, our CFO.

This call will include forward-looking statements that involve risks and uncertainties that could cause TranSwitch's results to differ materially from management’s current expectations. We encourage you to review the Safe Harbor Statement contained in the earnings release published today, as well as TranSwitch's most recent SEC filings for a more complete description.

At this point, I would like to hand it over to Dr. Ali Khatibzadeh for his remarks.

Ali Khatibzadeh

Thank you, Mary. Good afternoon, ladies and gentlemen. Thank you for joining us. Let me start with a brief overview of our second quarter results.

For the second quarter, we reported revenues of $2.8 million, down from $4.6 million in the first quarter. The primary source of the shortfall was our inability to close on certain IP licensing contracts. I want to emphasize that these opportunities are still out there and we hope to close on them this quarter.

To be clear, our goal is to become a leading seller of video interconnect chips. And as you will hear later in this call, we made significant the progress during the quarter towards this goal.

The IP licensing business is typically an all-or-none type of business and revenue recognition is lumpy. The view is an ancillary business that can provide valuable cash during our transition period but is not a key part of our long-term strategic game plan.

As we transition toward our new business model, we continued to take steps to reduce expenses, incurring only those expenses that we expect to further our new business model. This quarter, we consolidated all of our research and development activities in (inaudible), which will enable further $2 million in annual operating expense savings.

Beginning with the third quarter, our recurring quarterly level of operating expenses, non-GAAP operating expenses, will now be in the range of $4.4 million to $4.8 million. This lowers the quarterly revenue to achieve breakeven to about $7 million to $7.4 million.

I'm also pleased to announce that we are in the final stages of negotiation on the financing deal that would provide us with more of the cash we need to move forward. We hope to conclude this and announce it shortly.

In May, we announced that as a result of certain inquiries that we had received, we engaged Needham & Company to assist in the evaluation of strategic alternatives. We continued to work actively with Needham. When and if there is any material development, we will announce it. To be clear, we're aware of where our share price is and we are determined to create value.

Now, I'd like to update you on our video connectivity business, which we expect will be the primary driver of revenues going forward.

In the second quarter, we continued to make significant progress toward creating a strong stand-alone business of our high-speed video connectivity products. We continue to believe very strongly that the product and technology vision that we have is the correct one. As every quarter goes by, the interest in multi-protocol video interconnect solutions continues to increase significantly.

MHL has already taken off and we expect 2014 shipments of MHL-enabled smartphones to be over 200 million. MHL's rapidly becoming a requirement for televisions, projectors and the like and we see a strong opportunity here. DisplayPort continues to gain momentum and we now receive mobility DisplayPort or MyDP, which is a version optimized for tablets and smartphones market, is gaining traction as well. We know at least one national wireless carrier that wants to incorporate MyDP along with MHL into their 2014 product line. This plays directly into our strength.

In June, we announced that our HDplay IC has been selected by Sure-Fire, a leader in high frequency digital signal transmission solutions, including Dongles and accessories for video enabled smartphones. These first products will include Dongles, which allow for the conversion of MHL to HDMI or MyDP. We continue to work closely with Sure-Fire in the development of universal Dongles, which support both MHL and MyDP for video enabled smartphones and tablets.

This opens up an additional market for HDplay products, which we expect will see continued growth year-over-year as mobile handset trends, indicating growing adoption of video connectivity for smartphones. There is a strong interest in this type of solution from big box electronics retailers, such as Best Buy and we continue to have direct discussions with leading US wireless carriers, who have indicated an interest in potential cost savings and convenience of the universal MHL and MyDP Dongle. We anticipate that these engagements could lead to orders for HDplay ICs starting in the fourth quarter with shipments by early 2014.

Another important focus for HDplay is Pico Projectors, and we have made significant further progress in Q2 towards our goal of becoming a leading supplier to this growing market. We are working closely with the world's leader and provider of projection systems to enable their next generation Pico Projector reference platform. Our HDplay chip is the primary connectivity component in this new reference design and we anticipate gaining a significant market share with revenue beginning in the fourth quarter of this year. This engagement is progressing well and we look forward to supporting their launch of the new platform, which is expected to be a game changer in the market by setting a new standard in portability.

We're also closely engaged with another of the world's leading OEMs in the development of new projector model, Pico Projector model, which is targeted for design completion and market launch in the fourth quarter. So far, we have received positive feedback in our testing gun with HDplay IC by the customer, and we anticipate receiving pre-production orders in the fourth quarter of 2013. Based on the latest forecast, we now see production volumes from this opportunity starting in early Q1 of 2014. Given our continued traction with this leading OEM in the market, as well as our selection in the next leading reference platform, we remain bullish on our expectation to generate significant revenue from this market in 2014.

In the front projector space, we're engaged with many customers and see continued interest in adoption of DisplayPort as well as MHL, which plays to the strength of our HD product line. We reported in our last earnings call that we had been selected by for projectors by two leading Japanese projector OEMs and a leading US projector brand that we are expecting to announce this week, as well as other customers.

We're currently supporting third-party video compliance testing for our first Japanese projector OEM, as they finalize their product for market launch currently scheduled for the fourth quarter of this year. I'm also pleased to announce that In Focus, the world leader in projector solution, has selected our HDplay product for several projector models. We anticipate projection start with this customer by first quarter 2014.

In HDTV market, which is a much larger target market for us, we continue to make further in roads during the quarter. At this point, we have designing activities with at least two recognized HDTV makers using our HDplay chips. With the adoption of MyDP support by LG, Microsoft and Google for their smartphones and tablets, there is now significant interest in adding MyDP as one of the standard connectivity options they provide to their customers.

Now, this development plays to our advantage as we were the only one that has a solution in the market, which can support both MHL and MyDP in a single IC solution. Irrespective of MyDP adoption, our new products were also developed with a cost structure enabling us to compete in HDTV design using only HDMI and MHL. So, looking forward, we expect to see design wins for HDTV in the second half of 2013 with volume shipments commencing at the end of 2013 or early 2014.

Looking at our high-speed video connectivity business over all, we remain optimistic in the growth of our business on the basis of ongoing traction with key market players and Tier 1 OEMs. Currently, we have over 70 customer opportunities that are in various stages of their product development with our HDplay solution.

Our sales and engineering teams are working very hard to support these customers as they move their products to production phase and revenue generation. While we cannot guarantee success with every customer opportunity or guarantee their product success, we are confident that we can move many of these opportunities to the revenue column during the balance of this year and in 2014.

Now, in addition to the end markets that I just mentioned, we're also on track to sample our HD Mobile transmitter solution in the second half of 2013. We're getting significant pull in interest from global brands in the smartphone market and we see HD Mobile as a significant growth driver for us in 2014.

The proliferation of video is also creating numerous product opportunities for us. For example, during the last quarter we identified new design opportunities for our HDplay product in the automotive infotainment and navigation equipment applications. So, we continue to see HDplay reaching out to new market segments.

Finally, on the last call, we shared some very positive news relative to our telecom business. The selection of our Atlanta processor for voice over LTE gateway box that will roll out as part of Reliance's new 4G network in India. Reliance is the only wireless carrier in India, which has a nationwide license for 4G broadband wireless service, providing coverage to all of the 22 telecom circles in the country. LTE services are expected to commence in the second half of 2013 with a multi-year roll out plan and voice over LTE is a critical part of this roll out.

We're very encouraged by the progress and this opportunity, and anticipate to receive the first pre-production orders this quarter with additional volume orders commencing soon after. This program breathes new life into our telecom business and we expect that we'll support meaningful revenue going forward.

Now, I'll hand it over to Rob Bosi who will discuss our financials in greater detail.

Robert Bosi

Okay. Thank you, Ali, and good evening to everyone. Our Q2 revenue was $2.8 million as compared to our Q1 2013 revenue of $4.6 million and our Q2 2012 revenue of $3.8 million. Product revenue in the quarter was approximately $2.5 million, compared to product revenue in Q1 2013 of $2.1 million and $2.4 million in Q2 2012.

Intellectual property and service revenue for the quarter was only $300,000, to service revenue in Q1 of 2013 of $2.5 million and $1.5 million in Q2 2012. Intellectual property and service revenue generally includes revenue related to intellectual property licensing of our HDMI, DisplayPort and HDP technologies, telecom voice processing software, and royalties and patents.

By product line, our CPE revenue for the quarter was $0.3 million, compared to CPE revenue in Q1 2013 of $1.7 million and $0.8 million in Q2 2012. Our infrastructure revenue for the quarter was $2.5 million, compared to infrastructure revenue in Q1 2013 of $2.9 million and $3.1 million in Q2 2012. Our gross margin was 73% in the second quarter, compared to 81% last quarter and 67% for the second quarter of 2012. Our margin decrease was due to the low level of IP licensing in the quarter.

On a non-GAAP basis, operating expenses were $5.2 million, compared to the prior quarter's operating expenses of $5.9 million and the prior year's operating expenses of $7.4 million. Our operating expenses this quarter were consistent with our guidance of 5 to 5.5. Also, during the quarter we again took further actions to reduce our operating expenses by eliminating an additional 28 positions and recognizing an additional restructuring reserve of $0.7 million. It is expected that this restructuring will take out an additional $2 million in annual operating expenses.

Non-GAAP operating results for Q2 was a loss of $3.1 million. On a comparable basis, the prior quarter's operating loss was $2.2 million and in Q2 2012, we had a loss of $4.9 million. Non-GAAP net loss for Q2 was also $3.1 million, or $0.07 per share on a basic and diluted basis, as compared to net loss of $2.4 million in Q1 2013 and $5.0 million net loss in Q2 2012.

Q2 2013 GAAP diluted net loss per share was $0.08, as compared to with a net loss per share of $0.08 in Q1 2013 and a net loss of $0.19 per share in Q2 2012. The comparable GAAP measures for gross margin, operating expenses, operating income, and net income are reconciled to our related non-GAAP amounts in our reconciliation of GAAP to non-GAAP measures included in the press release today. The reconciling items for Q2 are as follows. Expense of $0.4 million for stock based compensation, expense of $0.7 million in restructuring charges and a benefit of $0.4 million for reversal of accrued royalties. These items are described in the press release.

Moving to the balance sheet. Cash ended in the quarter was approximately $0.8 million versus $2.2 million at December 31, 2012. At quarter end, the Company had $1.7 million balance on working capital line versus $2.4 million at the end of the year. Our quarterly end AR was $3.4 million, which is higher in relationship to our last quarter sales that included a $700,000 amount from an IP sale in the previous quarter, which was not paid by June 30 but was paid subsequently. Also of note on July 3, we extended our credit facility with Bridge Bank for another year.

This concludes my comments. I will open it up for questions, Operator.

Question-and-Answer Session

Operator

(Operator Instructions)

Our first question comes from Orin Hirschman. Please, go ahead.

Orin Hirschman – AIGH Investment Partners

Hi. Let’s see, I think what's probably on everybody's mind is the question of financing that you mentioned. Is it equity financing? Is it debt financing? Tell us what you can and the time frame?

Ali Khatibzadeh

Well, good afternoon. So at this point, we cannot comment on the nature until we announce it. Obviously, we want it to be properly announced when we concluded it and discussed it and properly disclosed, so we don't have those that are on a smaller surface.

Orin Hirschman – AIGH Investment Partners

Okay. And asking this in a different fashion, is it non-dilutive financing or strategic financing or something, which doesn't access the public market per se?

Robert Bosi

At this point, we can't comment on that, Oren. Unfortunately.

Orin Hirschman – AIGH Investment Partners

Okay. Just in terms of new product revenue this quarter, I missed it when you broken it out. If you could just reiterate it and talk about just in terms of any revenue guidance of new product/ramp.

Ali Khatibzadeh

I'm sorry. Can you repeat your questions, please?

Orin Hirschman – AIGH Investment Partners

Yes.

Ali Khatibzadeh

Particularly with regard to the revenue ramp, second half of this year?

Orin Hirschman – AIGH Investment Partners

Right. Particularly new product revenue and what new product revenue was this past quarter in June versus the March quarter.

Ali Khatibzadeh

Okay. So, in our last quarter, we – as I think as Bob mentioned, we shipped about $340,000 of non-infrastructure products, which included our HDplay products, as part of that. We expect additional revenue, as we go through the third quarter with a significant ramp starting in the fourth quarter this year.

So, for us a number of the opportunities we see, especially the high volume ones, we expect to start production by end of fourth quarter this year. So to that extent, we expect a material change in our revenue profile as we leave fourth quarter this year.

In the meantime, of course, we have a number of customers that we have announced. I think I said we have reached 13 customers, who have finalized their products and ready for production and we expect to get orders from these 13 customers and additional ones that will come on line as we go forward during the second half of this year.

Orin Hirschman – AIGH Investment Partners

Just wonder, if I may, in terms of sequential progress for this coming Q, keeping in mind the fact that the bigger ramp is in Q4, but should we hope to continue to see sequential progress here on the new product side?

Ali Khatibzadeh

Yes. We expect to see sequential growth in our new product business as we go into the second half of this year and with a bigger ramp starting in the fourth quarter.

Orin Hirschman – AIGH Investment Partners

Okay. And just – can you comment, you can say, on licenses? And then, I'll let other people ask.

Ali Khatibzadeh

On the licensing, again, that's a lumpy business and we do have opportunities that we had hope to capitalize some of those in this past quarter and the nature of that business is – you can never guarantee that you can reach an agreement with a potential customer and sometimes their timelines move because of their project. But we do see – I would say decent funnel of IP opportunities ahead of us that we're confident we should be able to close on most, if not all of those, during the second half of this year.

So we typically – we run about in the order of $1 million to $2 million a quarter of IP licensing revenue. This past quarter was an unusual one because we were not able to close on a couple of deals. We had one closed that we did not get payment on time. As a result, we were not able to recognize it but we're told that we would get paid here shortly and upon payment we can recognize that contract.

Orin Hirschman – AIGH Investment Partners

Okay, thank you.

Ali Khatibzadeh

Thank you.

Operator

Thank you. (Operator Instructions). We’ll go next to Richard Shannon. Please, go ahead.

Richard Shannon – Craig-Hallum Capital Group

Hi, Ali and Bob. How are you doing?

Ali Khatibzadeh

Okay. How are you?

Robert Bosi

Hello, Richard.

Richard Shannon – Craig-Hallum Capital Group

Hi. And actually, (inaudible). Unfortunately here – let’s then get – let's look at the third quarter here. You took – want to get your general expectations for the quarter. It sounded like we won't see a large ramp up in product revenues, sounds like maybe you'll get some licensing stuff that fell through from the second quarter coming in here. So, I'd imagine it would be flat to slightly up but just want to get your general sense of how we should think about revenues through the third quarter.

Ali Khatibzadeh

So, we're not providing guidance obviously for the third quarter because we still – as the nature of the IP licensing business, as you seen from our second quarter results are such that these coming all-or-nothing lumps of significant relative to our revenue – significant chunks.

So, what I can say is we're expecting continued growth in our new video connectivity business and that's the one that obviously is our strategic focus and we'll continue to expand our customer base trend and see revenue contribution until we get to a point where we believe that revenue could drive the overall growth of the Company. And until we get there, we really – it's still dependent on our legacy business and IP licensing revenue. Obviously, Q2 was a disappoint for us in terms of revenue; we certainly expect Q3 to be better.

Richard Shannon – Craig-Hallum Capital Group

Okay. It sounds like you're expecting a number of potential opportunities to ramp in the fourth quarter but I'm guessing it’s on a full quarter run rate basis, we won't be anywhere near that breakeven level. I think you said it was around $7 million to $7.5 million, if I caught your comments correctly.

So, what is your general outlook for cash burn through the end of the year, as you expect your financing to be able to cover most if not all of that cash burn here?

Ali Khatibzadeh

Yes. I expect the financing to cover the cash needs we have for the rest of this year and to get us to the ramp that I discussed, which would put us in a position to get to breakeven as we exit the year.

So, at this point we aren't putting a timeline around breakeven. Part of that is also tied to our strategic discussions, which I cannot comment on. Depending on the outcome of those, then we can give a better clarity and visibility into our breakeven timelines going forward.

Richard Shannon – Craig-Hallum Capital Group

Maybe a question on the strategic initiatives. Do any of these discussions include potential acquisition? Or are they more partnership in nature? Or can you elaborate on the scope of potential discussions here?

Ali Khatibzadeh

Yes. I cannot elaborate on the specifics. I can say that we – as we've said before with the help of our investment banker, Needham & Company, we're exploring all options, all strategic options, and those range from some of the ones that you mentioned. And I can ensure the fact that you have not heard from us anything about strategic options should not be interpreted, as there are no activities. We’re very committed and we spend a fair amount of our time on the management side and Board discussing those options. And once we have something material, we will definitely announce it.

Richard Shannon – Craig-Hallum Capital Group

Okay. All right. Maybe I'll jump out of line and see if there's any other questions. Guys, thank you.

Ali Khatibzadeh

Thank you, Richard.

Robert Bosi

Thank you, Richard.

Operator

(Operator Instructions). We’ll go next to Michael Moore. Please, go ahead.

Michael Moore – Summit Analytic Partners

Yes. Good afternoon. First, I'd like to preface to say that I'm not disparaging your effort in any way. But what I heard was that the breakeven in Q3, the profitability in Q4 that was lately – I mean the latest time you represented that was at the shareholder meeting on May 23rd. That is by the Board been pushed out at least a quarter. Is that correct?

Ali Khatibzadeh

Yes. We seen a quarter push out by our key customer, a Tier 1 customer in terms of their production launch of their solution. So, relative to the last earnings call, we do see three months quarter push out. And therefore, as I said in my remarks earlier, that we see production ramp starting in the fourth quarter with reaching volume production in the first quarter. So, obviously that affects our revenue in Q4.

Michael Moore – Summit Analytic Partners

Okay, and you…

(CROSSTALKING)

Ali Khatibzadeh

I'm sorry. But having said that we don't see any – we have not lost any opportunity and we are continuing to work on the same set of opportunities that we talked about in the last call and it's a matter of – the production shift that we see had nothing to do with our schedule on our end. It has more to do with the customer schedules and their marketing plans and timelines for launch. That's beyond our control.

Michael Moore – Summit Analytic Partners

Right. Also, in the last presentation you mentioned 20 million in HDplay products for 2013. What are you estimating now?

Ali Khatibzadeh

Well, at this point, given the push out that I mentioned with regard, obviously our projections for video business was back end loaded and Q4 being a significant part of that. So, at this point, we see that number coming down.

Again, I do not want to give you a new number until we have some of the other discussions that we have completed. So, hopefully at the next call we should be able to give you better clarity.

Michael Moore – Summit Analytic Partners

Okay. Last one, if I may, is I looked at the Drakes Bay website and I didn't see anything that resembled what I would expect to see for TXCC's portfolio of telecom patents. Any comment there?

Ali Khatibzadeh

Yes. Our agreement with Drakes Bay expired at the end of July and we are in discussion with another IP firm. So, that's all I can say about it but we – the agreement, of course, expired at the end of July and we are in discussion with another IP firm to help monetize those assets.

Michael Moore – Summit Analytic Partners

Thank you, Dr. Ali, and Mr. Bosi. Keep bailing, buddy.

Robert Bosi

Okay. Thank you. Thank you, Mike.

Ali Khatibzadeh

Thank you.

Operator

Thank you. We’ll go next to (Gabriel Brenner). Please, go ahead.

Unidentified Speaker

Yes. I have a question relating to a letter that I sent to the Board on April 18 that was totally ignored; criticizing you about the very high salaries and compensation to the Board, which amounts to over $1.6 million.

Since you ignored to answer the letter publicly, I figured this is a good forum for you to explain to your shareholders what if anything are you doing or you have done?

Ali Khatibzadeh

Well, good afternoon, Gabriel. Just – we have taken steps and since last year, we've taken – and very recently, in terms of management salary cuts. And…

(CROSSTALKING)

Unidentified Speaker

So, could you be a little more specific, a little more specific what measures?

Ali Khatibzadeh

Yes. So, currently our management team has a 20% reduction in cash compensation and we have also reduction in Board cash compensation put into help the Company forward, as we go through this difficult period.

Unidentified Speaker

But I'm sorry to continue to be on the same subject but I think that, that cut was already in place before I sent this letter?

Ali Khatibzadeh

No, the latest reduction took place after. It was done in two steps but the latest reduction in management compensation was done very recently.

Unidentified Speaker

And Board? Board compensation?

Ali Khatibzadeh

I think we have taken similar steps to reduce cash compensation at the Board level since – and I think this is within the last few months.

Unidentified Speaker

Okay. Thank you.

Ali Khatibzadeh

Thank you, (inaudible).

Operator

Thank you. (Operator Instructions). We’ll go next to Bob Dickson. Please, go ahead.

Bob Dickson – Private Investor

Why have you not chosen to release any kind of press releases for the additional four more customers since June 4 to this time? It’s really been a very, very quiet and as far as media outlet Press Releases and to know that you got four additional customers would have been a little bit of encouragement to us, as investors, and just to see that as a press release is discouraging.

Ali Khatibzadeh

Well that's a good question. We certainly reach out to most of our customers, if not all of them and ask for their permission to announce design wins that we have with them.

We are, as I said in the earnings call, we – I mentioned in focus, we announced – we will officially announce that tomorrow so you can expect a press release on that. We just got the approval today and it was not in time to announce that prior to this call but we have the approval from them and you'll hear about that.

But, we will continue to reach out in some cases customers do not want their name to be announced because of competitive reasons, there may be aspects of their product that they will try to keep confidential until they launch their product and they certainly don't want us to pre-announce their product.

So, we're very sensitive to that in some cases it's a competitive nature, if there's also a significant opportunity for us announcing would put us in a competitive disadvantage. We have to be obviously cautious; we don't want to announce something that comes back at us to cause us loss of that opportunity.

Bob Dickson – Private Investor

Fair enough. The 13 customers that you currently are indicating, is that as of June 30th or is that current?

Ali Khatibzadeh

As of current. As of now, we had 13 customers who reached their (quarter) design win stage and we end up going through all of the product testing and are ready – some are already in production, some about to go to production. We've not yet received orders from all those customers and some of them we expect to receive orders as they go forward here in the near future.

Bob Dickson – Private Investor

Out of the 70 customers that are interested, are you listing the 13 that you currently have out of that 70?

Robert Bosi

Yes.

Ali Khatibzadeh

That’s correct. Yes.

Bob Dickson – Private Investor

And you say you feel that you'll have many. Could you define the word many that you'll have converting over by the end of this year?

Ali Khatibzadeh

Well, it's very difficult because some of these customers, you know, they change their plan as they go to launch their product. They may decide to change their product features or – so from that perspective, I cannot put an exact figure on it. But I can say that I believe that we have we are very confident we can take many of these, as long as our plans don't change and we can take many of these to the revenue column during the balance of this year and 2014. So by 2014, I expect we'll have a significantly higher number of customers than we do today.

Bob Dickson – Private Investor

That leaves us with 67 potential customers. When you say many that's a pretty big range. Can we get that down to say five? Is that many? My definition of many would be of the 20 – above 60, 70 you've got left. Many would be half of that.

Ali Khatibzadeh

Yes. I mean certainly, we can – we some of it – our internal target is to get at least 75% of those but I could say…

Bob Dickson – Private Investor

By the end of this year?

Ali Khatibzadeh

Some of it has been – no, I cannot say because of the timing – timelines. We don't control all their timeliness but by next year, I can expect that somewhere between 50-75% of those customers we should be able to see in production.

Bob Dickson – Private Investor

Thank you.

Ali Khatibzadeh

Thank you.

Operator

Thank you. (Operator Instructions). We'll go next to Edward Walbridge. Please, go ahead.

Edward Walbridge – Ergon Institute

Gentlemen, I just want to comment that I'm not at all concerned about compensation level. My only concern is getting to the end point of a video connectivity success. And so far as I can tell that’s – you're working at getting there, and that – there seems to be good promise but there are frustrations along the way, potholes along the way and that's – I don't know that in my life that happens all the time, so I'm not too surprised. I just hope you get there and I think the compensation will be richly deserved, so if we can get there and won't be forgotten about if you don't.

Ali Khatibzadeh

Well, thank you for supporting and we share the frustration of our shareholders, and we’re well take in the Company, along with our shareholders, in the success of this Company, and it is certainly true that our biggest challenge has been for some time to finance the Company.

We are confident on the market we're going after. We are confident of the products we're putting in the market. We are confident of the customer set that we're working with and the traction we're getting is a matter of financing us ourselves between now and the time we get to the point, where the new business out paces the old business and we can reach profitability.

And I see that in sight. It's not something that's – and certainly it's not impossible. It's certainly not unreachable. It's all some things that we know we can execute and deliver. And the financing part of it has been challenging I do admit and I – we do have solutions for it and there are investors who are interested investing in a Company and they see their vision and the opportunity that's ahead and I appreciate your comments. So, thank you, Ed.

Operator

Thank you. We'll go next to Mark Robbins. Please, go ahead.

Mark Robbins – Private Investor

So, good evening, gentlemen, and thank you. I've been with TranSwitch for quite awhile now and I wonder what is taking so long to get this off the ground? I mean I was with you when we announced that we had the number one chip, as I think that was maybe three years ago. And then, it took an additional year to get the chip off the ground. And now, it’s taken – oh, my gosh I guess another year or two at least to get some contracts.

Now, my question to you really is now that we are in the second half of the year, I mean, I just heard the last gentleman speak and say that how many will you be getting and how certain do you feel and I've heard this before a year ago that in 2013 we'll be getting contracts. So, I just want to hear the confidence that these things are close to happening and that there will be a number of reasonable sized contracts not for a million or two but enough to maybe carry the Company over a bit, where you won't need to raise money and do another secondary for the stock.

Also, what are we going to do about the NASDAQ and the stock being under a dollar to say the least? Where we’d be – do you plan on reverse splitting the stock? But I'd like to know – I'd like to hear firmly if there's anything that you feel is really going to be a possible really break threw for this Company as far as contracts go? And what are we going to do about the NASDAQ? Thank you, Sir.

Ali Khatibzadeh

Well, thank you very much. I think certainly we see we're confident and we have opportunities that could turn this Company around, in terms of revenue growth and reaching profitability.

One of the advantages we have that we've seen from our profile; we have very low fixed costs. We have very decent margin in our business; therefore, we have very good leverage in terms of getting to breakeven point. We just talked about our estimate of revenue for breakeven to be around $7 million to $7.5 million per quarter.

To get there, we believe the markets we're going after are large enough in size and the customers we're working at the kinds of volumes that can get us there. Once we get into high volume production and ramp up, so that we have good confidence and I believe will happen.

The kinds of customers we're working with are the brands that you see in your homes; they are Tier 1 being electronics brand and these guys don't go after things unless they ship millions of them. They don't waste their time with small opportunities or small business opportunities, so…

Mark Robbins – Private Investor

You just – and what I’m saying – I'm sorry to interrupt you, Sir. I want you to continue, please. But I just wanted to know whether or not you will be able to get this off the ground, a reasonable size product? Or you'll need a partner obviously to do that would you not?

Ali Khatibzadeh

Well, the product so far, as I mentioned, the Tier 1 opportunity has been tested; its passed the customer test and it's now in the process of their product launch phase, to have to go through certain product steps to get their product. We expect to be in at least pre production quantities in the fourth quarter of this year and be able to get to market. So – and then on the same vein we are partner with a leading provider of the solutions, and we have said Texas Instruments of the partner in our projection solutions and we believe that's a catalyst to give a significant share of the Pico Projector market. Otherwise, we see…

(CROSSTALKING)

Mark Robbins – Private Investor

I'm sorry but the Pico Projector market is a very big market and it probably won't bring in a lot of financial dollars and cents will it?

Ali Khatibzadeh

Yes. The forecast we're seeing is significant growth starting this year going into next year and these products are becoming a – becomes of performance size and power consumption are getting to a point where they are becoming a very valuable consumer high -volume business and you can look at the market forecast out there. They're forecasting significant growth both Pico Projectors reaching by 2015 40-50 million units a year.

Now, we're on the leading platform in that market. The leader in that market has – TI has over very large percentage of that market and we believe we can serve that market very effectively and generate significant revenue for this Company.

But obviously that's one market segment we're getting into other kinds of consumer products. We talked about active cables, sound bars. We're talking about Smartphone and tablets. So, I anticipate a significant change in the revenue profile of this Company in 2014, as we go into 2014 between now and then is a transition point and I do believe we will have the financing we need to get there.

Mark Robbins – Private Investor

Okay. As far as the NASDAQ goes and being removed from the NASDAQ because the price is under a dollar. What is the – what do you plan on doing about that? Is there a plan; is there a reverse split to raise the stock of a dollar? Or I don't know how much time you have legally.

Ali Khatibzadeh

Stop. All right. I mean we have as it's – in our 10-Q that we released. We have appeared before NASDAQ; we made a case. Certainly, we're awaiting the decision from NASDAQ. So at this point, that's all I can say. That's all I know.

Mark Robbins – Private Investor

And the H – the telephone market, as you indicated which is a huge market, you'd think you're about a – would you think you're about a year away from chips for the telephone market?

We are expecting to sample our products for our customers this year, second half of this year, and we expect revenue from that by middle of 2014. That's our expectation, based on feedback we have from our customers and we have very engaged very active customer discussions. Basically, that market right now is growing very fast and if you survey that market there aren't many players in that market today so we expect to be active and valuable player in this smartphone tablet market.

Mark Robbins – Private Investor

Okay. Well, thank you very much.

Ali Khatibzadeh

All right. Thank you.

Robert Bosi

Thank you, Mark

Mark Robbins – Private Investor

You’re welcome.

Operator

Thank you. (Operator Instructions) We'll go next to Michael Moore. Please go ahead.

Michael Moore – Summit Analytic Partners

Yes. One – actually the guy previous to me asked the question. I was going to ask but did I hear you say Dr. Ali that you're expecting 200 million in MHL shipments in 2014?

Ali Khatibzadeh

That's a total market estimate for total market in 2014.

Michael Moore – Summit Analytic Partners

Total market, not your share?

(CROSSTALKING)

Ali Khatibzadeh

That's correct. That's total market, not our share. That's correct.

Michael Moore – Summit Analytic Partners

All right. Thank you, Sir. That's all.

Ali Khatibzadeh

Thank you, Mike.

Operator

Thank you. We'll go next to Dennis Gagnon. Please, go ahead.

Unidentified Speaker

Hi. Thanks. Your finance guy mentioned that you had a $700,000 revenue but it came in after the quarter. And then Dr. Ali, you mentioned there's another big revenue to be recognized soon. Is that one and the same? Or are those two different companies?

Robert Bosi

No. They are different. I mentioned that we were to be paid by the end of the quarter, when I explained the high – accounts receivable balance. And Dr. Ali mentioned with respect to a patent sale that we had that we did not receive, which was an additional amount.

Ali Khatibzadeh

Yes, there were two payments that were due at the end of the quarter that we did not receive at the end of the quarter. So, it totaled about $1.4 million, so had we had those on time payments of our customers, our cash at the end of the quarter would have been $2.2 million.

Unidentified Speaker

Right. Very nice. Thanks, guys. Sorry for the misunderstanding but good luck.

Robert Bosi

Thank you, Dennis.

Unidentified Speaker

You're welcome.

Operator

Thank you. (Operator Instructions). It appears we have no further questions at this time.

Ali Khatibzadeh

So, thank you, ladies and gentlemen. I'd like to in summary recap where we stand. We remain a business in transition. We have a number of important product opportunities that are set to ramp in the next quarter or two but they have not yet ramped in high volume production. We continue to expand our HD customer place list and we expect to grow this list significantly in the second half to include multiple Tier 1 customers.

Our position in Pico Projector and projector markets is solidifying with the world leader in projector solutions. We ask exciting customer ramp up opportunities including leading electronics OEM. We expect pre-production to start in early Q4 and reach full production by Q1.

Our design interactive cables that we expect to show up in leading electronics retail and possibly wireless carriers, stores by the end of this year and this is potentially a very high volume consumer market. While the second quarter results were disappointing due to lower IT sales, we continue to have significant IP revenue opportunities for the second half and are steadfast in our determination to grow our video connectivity business. And thank you for your participation.

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