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Executives

Peter Santos - President & CEO

Kevin Palatnik - CFO

Analysts

Harlan Sur - JPMorgan

Kip Clifton - Deutsche Bank

John Pitzer - Credit Suisse

James Faucette - Pacific Crest Securities

Gary Mobley - Benchmark

Jay Srivatsa - Chardan Capital Market

Audience’s Inc (ADNC) Q3 2013 Earnings Conference Call October 31, 2013 4:30 PM ET

Operator

Good day ladies and gentlemen, and welcome to the Audience Incorporated, Third Quarter 2013 Earnings Conference Call. (Operator Instructions). As a reminder, this call is being recorded.

I will now like to introduce your host of today’s conference call, Ms. Suzanne Schmidt with The Blueshirt Group. Please go ahead.

Suzanne Schmidt

Thank you operator. Good afternoon everyone and thank you for joining us on today’s conference call to discuss Audience’s third quarter 2013 financial results. The webcast of this call can be accessed through our website at audience.com and will be archived for two weeks. Today’s call is being hosted by Peter Santos, President and CEO; and Kevin Palatnik, CFO.

During this conference call we will make forward-looking statements regarding future events or results of the company. Actual events or results could differ materially from those projected in the forward-looking statements. Please refer to our SEC filings, including our most recent Form 10-Q, which contain important factors that could cause actual results to differ materially from the forward-looking statements.

In addition, Audience reports gross margin, net income, basic and diluted net income per share in accordance with GAAP and additionally on a non-GAAP basis. Management believes that non-GAAP information is useful, because it can enhance the understanding of the company’s ongoing economic performance and Audience uses non-GAAP reporting internally to evaluate and manage the company’s operations. Audience has chosen to provide this information to investors to enable the comparisons of operating results in a manner that the company analyzes its operating results.

A full reconciliation of the GAAP to non-GAAP financial data can be found in our earnings release issued earlier today and we ask that you review it in conjunction with this call.

And now, let me turn the call over to Peter Santos, President and CEO of Audience.

Peter Santos

Thank you Susan and welcome to everyone on the call. In the third quarter we delivered better-than-expected financial results and continue to build the strong pipeline of opportunities. But we continue to see near term weakness in the high-end smartphone business of our largest customer, Samsung. Going forward, however, we anticipate continued expansion of the role of voice as a key user interface and believe we are better positioned than ever to benefit from this fundamental trend in not only mobile phones, but also in PC, tablet, television, automotive and wearable computing applications. Today I'll briefly discuss our third-quarter results and then review conditions in the smartphone market and our opportunity within it, including our business with Samsung and our China customers. I will also discuss some important developments in mobile user-interface as well as our progress in developing adjacent markets.

Third quarter total revenue was $34.5 million; our largest customer in the quarter was Samsung which represented 62% of total sales. Non-GAAP gross margins for the third quarter was 56.2% and property forma loss per share was $0.01 for the quarter.

Looking out at the smartphone market the trends that we observed in the summer have continued with growth abiding in the high-end of the market, but strengthening in the mid-range and greater share accruing to OEMs based in Asia. Our design win business with Samsung continues to be healthy but we expect somewhat muted demand from them in Q4 as our recent midrange of projects with them had yet to start significant production in the waiting of our business with them through year-end continues to be predominantly in high-end devices, including the Galaxy S4 and the recently announced Note 3.

Newly launched midrange projects from which we expect to see growth include the Mega, the Galaxy S4 Mini as well as the Express and Ace 3. With other share gainers in Asia we’re optimistic about our positioning and we’re pleased to announce the inclusion of our technology with ZTEs new Geek smartphone further extending our momentum in China.

We are also making continued progress in our work with China mobile around the development of voice quality test methods and requirements for their high-end devices. We extended our relationship with LG with the inclusion of our technology in the LG G2 phone which launched globally this month, the LG G2 is their first model to support all four major U.S. carriers Verizon, AT&T, Sprint and T-Mobile and we expect it to help continue LGs recent growth in the market. Finally, we’re progressing well in the development of products specifically designed to target midrange opportunities which we expect to substantially grow our servable market in 2014.

I would like to turn now to an important user-interface development in the mobile market. The emergence of always on capability for voice and motion sensor. The next major must-have feature for smartphones and mobile devices will be the ability to constantly listen to in sense of what you're doing, enabling you to wake up and interact with your device via voice or for to monitor your footsteps. For devices to offer this capability without compromising battery life, a very low-power solution is needed. And for the capability to be truly useful to end-users, dependable, intelligent always on solutions are must. The joint requirement for high intelligence and very low always on power creates the need for a dedicated always on processor. Apple’s iPhone 5S was a recent indicator with M7 motion coprocessor as was the Motorola Moto X with it's X8 voice and motion engine.

While these were implemented with off the shelf MCUs purpose built always on processors will offer a next level of lower power and greater end-user experience, in particular by fusing audio and motion sensor information. Audience had deep experience in building sensory offload coprocessors for voice and is well positioned to benefit from the always on trend. In fact, we are very early to fuse microphone and motion sensor information in our advance voice implementation on tablets.

Looking out to adjacent markets we introduce the earSmart eS320 the world’s first advanced voice processors created specifically for tablets ultra-books and all-in-one PCs. We expect a half-dozen different computer product releases using a solution during Q4, and we see a growing pipeline of additional opportunities with top PC and tablet providers to deliver an exceptional voice experience to end-users.

In the home entertainment market our technology has a key role to play in making TV voice interaction a dependable, high-quality user experience. We're working on some initial projects that we now expect to release to production the early part of next year.

In automotive, we continue to see significant interest in our industry-leading speech recognition assist capability and find this area to be among the most exciting and compelling applications for our technology. We’ve a project underway with a beating [ph] automotive OEM to pilot our technology in a number of test vehicles and we look forward to sharing more details on this collaboration in the future. Finally we’re seeing significant interest in our technology is the fast emerging wearable’s market where with a premium on voice interaction is even greater than in phones, tablets, TVs or cars. This is also an application in always on capability has tremendous value. In summary the market opportunity for our products and technology is significant in 2014 and beyond despite the near term headwind in our business with Samsung the way demand for their high end smartphones. We’re excited about the traction we’re gaining in Asia and the broad applicability for advance voice across the industry.

Together with our proprietary technology offering and focused efforts our diversification strategy is creating a strong foundation for the future. Without I will now turn the call over to Kevin for review of third quarter financials and our forward guidance.

Kevin Palatnik

Thank you Peter and good afternoon everyone. Today I will first summarize Q3, 2013 financial results and move to the outlook for Q4. I will discuss primarily non-GAAP results and ask that you refer to today's press release for detailed (indiscernible) between GAAP and non-GAAP financial results. The non-GAAP adjustments really primarily the stock-based expense warrant to reevaluation expense, treatment of non-cash rent expense, and related tax adjustments. Q3, 2013 results for the company's key operating metrics were total revenue of $34.5 million, non-GAAP gross margin of 56.2% and non-GAAP operating margin of a negative 1.1%. In Q3, GAAP net loss was $2.3 million, this amounts to $0.07 per diluted share based on weighted average shares outstanding, 21.6 million.

That compares with GAAP net income of $3.7 million or $0.16 per diluted share based on weighted average shares outstanding of 23.2 million in the same period in 2012. On a non-GAAP basis we incurred a loss of $0.01 of diluted share based on weighted average shares outstanding of 21.6 million. That compares to net income of $0.21 per diluted share based on 23.2 million shares for the same period in 2012.

Total revenues for the third quarter was $34.5 million, hardware revenue was $32.5 million and license revenue was $2 million. Hardware revenue was virtually flat over the same period in 2012; royalty revenue decreased 76% over the same period in 2012. Samsung represented approximately 62% of revenue in Q3, 2013 compared with approximately 66% of revenue in Q2. Apple in it's contract manufacturers represented approximately 20% of revenue in Q3 compared with approximately 23% of revenue in Q2. Revenue from customers other than Samsung and Apple comprised 18% of revenues in Q3, as compared with 11% of revenues in Q2. In absolute terms revenue from customers other than Samsung and Apple increased 15% sequentially. Non-GAAP gross margin for Q3, 2013 was 56.2% that compares to 59.2% in Q2, 2013.

The sequential decrease in our non-GAAP gross margin as a result of the rich product mix for our second generation products versus third generation product. Total operating expenses on a non-GAAP basis for Q3, 2013 were flat sequentially at $19.7 million. Non-GAAP operating margin for Q3 was a negative 1.1% compared to 15.7% for Q2. Q3, ’13 ending headcount was 331, an increase of 16 from Q2 ending headcount of 315.

With regard to the balance sheet, cash and cash equivalents were approximately $110 million at quarter end. In addition, we have approximately $22 million invested in marketable securities. Total DSOs for Q3, 2013 were 29 days compared to 32 32 days in Q2.

And finally inventory at the end of Q3, 2013 was $17.5 million, a sequential decrease of approximately $5.2 million as we slowed the purchase of materials and response to lower demand.

Now I'll turn to our outlook for Q4, 2013. We expect revenue for Q4 to be in the range of $31 million to $34 million. The sequential decrease represented by this range is a result of three factors: lower than expected demand from Samsung; the headwind we expect with Apple continuing to decrease as a percentage of our business, both of which were partially offset by growth in our less than 10% customers as a result of our continued diversification efforts. Also note that total revenue from customers other than Samsung and Apple is expected to grow by 30% to 35% sequentially.

Q4 non-GAAP gross margin was expected to be in the range of 52% to 55%. Q4 non-GAAP operating margin is expected to be in the range of a negative 11% to a negative 13%. Given the top line challenges we expect to face in Q4, we’re highly focused on continuing to keep operating expenses in check GAAP EPS for the fourth quarter is expected to be in a arrange of negative $0.20 to negative $0.24 per diluted share and the non-GAAP EPS is expected to be in the range of a negative $0.12 to a negative $0.16 per diluted share based on approximately 22.1 million shares.

Operator we will now take questions.

Question-and-Answer Session

Operator

(Operator Instructions). And our first questions comes from the line of Harlan Sur with JPMorgan. Your line is open.

Harlan Sur – JPMorgan

So if I’m watching the math properly your Apple and Samsung business is going to decline about $4 million sequentially Q3 to Q4, can you just help us understand how much of that is Samsung high-end weakness and how much of that is just kind of continued you know work down of the Apple business?

Kevin Palatnik

Obviously the one with the frog in the throat, you know the absolute dollar amounts you’re in the ballpark that math works, the decrease sequentially is heavily weighted towards Apple as the iPhone 4 was discontinued as you know that’s the chip model so that continues to increase sequentially, the 4S we haven't seen the royalty report yet so we were I would say conservative on volumes for Q4 that’s the wait and see, that’s the majority of the decrease. There is a decrease related to Samsung, it's in a range of about 5% sequentially in terms of absolute dollar amounts and as you know and as Peter said in his script majority of those revenues if you will come from the high end smartphone devices the S4 as well as Note 3.

Harlan Sur – JPMorgan

Got it and then the gross margins are coming down by about 250 basis points in Q4, is that just mix in another words you’re shipping into more mid-range phones with potentially some of your legacy chipsets and then you have obviously the impact from sort of lower demand from kind of the model that your largest customers is that pretty much the majority of the impact or do we have something going on there more or like pricing pressure. Any color there would be great.

Kevin Palatnik

You know your explanation pretty well characterizes it. As you know we’re heavily concentrated at Samsung so our gross margins are going to correlate, built to that product mix related to the very high end, newly released model, the S4 in comparison to the S3 we have legacy product on. The S3 continues to be strong so with that waiting as we look into Q4 we did see you know the 2.5 points or 250 basis point reduction.

Harlan Sur – JPMorgan

And then my final question and I’ll get back into the queue. There is a number of new midrange models that you know Samsung has either announced or will be announcing here in Q4 that should start to ramp soon and I’m certain you guys have good design win traction there. I understand that you probably don’t have a whole lot of backlog, you probably do a pipeline and you probably do have a forecast but can we expect that you know as it relates to your Samsung business that Q4 is more likely a trough point for your Samsung related revenues?

Kevin Palatnik

You know last quarter we talked about Q3 being the trough and as you have seen from the numbers related to Q3 actuals would be better than expected, a good part of that we believe is Samsung’s volumes coming out of Q4 going into Q3. So now as we look into Q4 we see that is a trough for that reason as well as when we look into Q1 again being heavily concentrated with Samsung as they do hint to 2014 as they have done in ’13 and ’12 with their flagship smartphone announcement we expect to see some strength in Q1. So all of that is correlating around Q4 being a trough.

Operator

Our next question comes from the line of Brian Modoff with Deutsche Bank. Your line is open.

Kip Clifton - Deutsche Bank

Hi guys it's Kip Clifton filling in for Brian. Just a question on the competitive landscape with Cirrus Logic buying Acoustic Technologies. I wonder how that is affecting, have you heard from your customers how that’s affecting their viewpoint or your relationships with them at all?

Peter Santos

So we’re familiar with acoustic technologies, we’ve been aware of them for some time in the voice quality business probably for four or five years. We have never seen them in our customer base and that continues to today including the acquisition by Cirrus of Acoustic Tech.

Kip Clifton - Deutsche Bank

Okay and then Kevin just on the OpEx of the gross cost you said earlier maybe last quarter that you know there was some purchase agreements involved with that I’m just as you looked for throughout the end of the year and I’m just wondering if as we look out further beyond the next quarter if those will start to moderate a bit so that you can start to begin to get your operating expenses, are your expenses in line with kind of where your revenue is.

Kevin Palatnik

Yeah Kip there has been a couple of things that have overall from an OpEx standpoint call it abrasions if you will, going back in time a little bit and not to dredge up a little history but we had a tape that was planned in Q2, it rolled into by couple of days into Q3, as we look into 2013 we’re going through our planning process now, we can better plan quarter-by-quarter you know what we think is going to happen with OpEx and we will communicate that as appropriate during our earnings calls.

Operator

Our next question comes from the line of John Pitzer with Credit Suisse. Your line is open.

John Pitzer - Credit Suisse

Kevin maybe a follow-up on the Apple front, on their most recent conference call they describe the 5C as being their midrange and so I’m kind of curious as we think about modeling the royalty stream from Apple for next calendar year how should we think about the longevity of that stream from your perspective?

Kevin Palatnik

We haven't seen a royalty report yet since the announcement so it's hard to gauge relatively to 4S. You know they put prices on 4S down to zero basically that’s their entry level model if you will and that’s where we see a significant royalty. I haven't seen volumes yet, we planned our Q4. I expect to see within next two weeks or so royalty report. We will have a better feel for that so that we can plan in 2014 generically I will say though that if I go back in time to when 4 was the iPhone 4 was at zero and the 3GS was at zero pricing it at zero the entry model it did have some legs [ph] so I expect to see royalty revenues relative to the 4S throughout 2014.

John Pitzer - Credit Suisse

And I guess guys in hindsight looking back on this year it's probably going to be remembered as a year with a high-end of the smartphone market kind of disappointed. I think there were estimates out there for kind of a 400 million unit number for this year and it looks like it's now that would have represented about 30% growth and it looks like it's going to be up maybe 5% to 10% and so do you think that was an anomaly this year, how do you guys think about the high end of the market and if it is a saturated market, do we have to think about the kind of the long term gross margin target for you guys?

Peter Santos

I will take the front end of that question, our view of the high-end of the market is that we will when you get into some additional innovation cycles and always on, by the way I think is a big one. We will see somewhat greater growth than we experienced in ’13 but I think the days of 30% - 40% a year are probably behind us and it's a much more well-developed market than it was three years ago in which there was very little low end and not much midrange. So I think we will see a different distribution of growth among the different tiers in the smartphone market but I think it will be someone better for the high-end than what we’re seeing here in ’13.

Kevin Palatnik

And John on the margin front you know we started off targeting let’s say the high-end smart phones with our premium products. We recently announced the eS320 just targeted to PCs and laptops and that’s doing fine, but as we look at the midrange market and even the low end of the midrange market we've got products under development that will target that focus built for that market such that the margin should carry. We don't expect by entering those lower end or mid-tier markets that we will see significant margin erosion where purpose building if you will voice processors and smart sound processors for that tier.

John Pitzer - Credit Suisse

And Peter my final question just relative to the always on functionality and the M7 microcontroller coprocessor, do you envision your exploiting that market with just a discreet voice solution or do you feel like you will need to come to market with some sort of microcontroller coprocessor that can do voice and other same [ph] thing.

Peter Santos

Well John we’re already providing some type of capabilities related to always on and I would think of it in this way. Today we've already demonstrated and have new project where we are using sensor information and that sensor information is coming from a motion sensing subsystem and the information in being passed to us through the AP or other channels. What I envision going forward and what you will see from Audience in the early part of next year are products that can connect directly to the motion sensors or motion subsystem as well as a partnership that would allow us to play a larger role. I will not describe that larger role as an MCU introduction. I would portray it as the introduction of a purpose built coprocessor that is dedicated to serve broader sensory and interface than voice.

Operator

Our next question comes from the line of James Faucette with Pacific Crest. Your line is open.

James Faucette - Pacific Crest Securities

I just wanted to ask a couple of questions is that it seems like, certainly making a pretty good progress on the diversification. You highlighted customer results out of Apple and Samsung. I think we’re if I have my notes correct for 18% you know third quarter and the (indiscernible) group as a whole will be up something like 30% sequentially. Firstly I just want to make sure that I got that those notes correct.

Kevin Palatnik

That’s correct James, 18% for the current quarter Q3 that grew sequentially by 15% as we look into Q4 we expect that same to grow by 30% - 35% correct.

James Faucette - Pacific Crest Securities

Okay and then as we look into next year I think it was mentioned that Peter mentioned that Samsung should be a bottom in kind of the December quarter and there is kind of a new midrange start to ramp and so on and the first quarter next year that we will see a bounce back. Can a non-Samsung and Apple products continue to also grow sequentially or will we take a bit of pause around Chinese New Year et cetera before returning, just wondering how should we think about continued diversification, changes during the course of 2014.

Peter Santos

So James you know we clearly haven't finished our 2014 planning but what I’m willing to say whereas Chinese New Year always causes a little bit of a slowdown. As we look at 2014 overall the opportunity in China is large and as strong as we have been in China we look forward and we expect to further penetrate China in 2014.

James Faucette - Pacific Crest Securities

Great and then just kind of the last question from me is as we go through the I think the case that has been quite well that there are lots of sensor type capabilities being built and opportunities that are developing and at the same time you’re moving slowed down market, has that changed at all your margins, gross margin outlook long term for better or worse or it's still kind of developing with your smartphone [ph] product about as you would have expected.

Peter Santos

Yes it's later James. We look at as a team ASPs every quarter, interim quarter you know rolling six months et cetera and you know as I look at 2012 just at a historical point. I exited the year greater than from an ASP standpoint average ASP across our entire portfolio than we did at the beginning of the year and by the introduction of new product that carries premium pricing versus an older generation product, as long as we continue to maintain that mix I believe we can maintain ASPs and then if you layer on top of that our smart sound processor as a marriage of voice processing with a codec we expect to get a significant uplift on price related to that. So overall average ASP should increase in that.

Operator

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

Gary Mobley – Benchmark

As a point of clarification, you do mentioned that your Samsung business is expected to decrease about 5% sequentially in the fourth quarter?

Peter Santos

That’s correct.

Gary Mobley - Benchmark

And we assume the Apple related revenues just shy, expect to be just shy of $3 million in the fourth quarter and is all that, I mean is all that royalties is that right?

Peter Santos

No there still be some shipments that we do for Apple related to warranty and service units if you will. You know in terms of specific number for overall Apple what we said in the past is they should become less than 10% customer in Q4, right projections are to be at about 10% or slightly less.

Gary Mobley - Benchmark

If I work into your guidance correctly you’re expecting about a $3 million sequential increase in both GAAP and non-GAAP OpEx and I know you have covered this partially in the previous question but specific to the quarter what’s the reason for that marge of an increase?

Peter Santos

Yeah there is host of reasons, I don’t think it's that large per say but the number one reason is we’re in the process of the consolidating our two locations into a single building and as a result there is some real expense and just general expense related to debt facility consolidation if you will.

Gary Mobley - Benchmark

Last question from me, could you give us an update on when you expect some of the design wins for the eS5052 to start contribute to revenue.

Peter Santos

I think you’re referring to the eS515 which is our first smart audio codec product that was introduced into the market. We expect at this point that we will see initial production for that in the middle of the first half of ’14 which is pushed out a little bit from where we expected.

Operator

Our next question comes from the line of Jay Srivatsa with Chardan Capital Market. Your line is open.

Jay Srivatsa - Chardan Capital Market

Let me ask Peter on China Mobile, you mentioned you’re in the testing phases. Can you give us some more details on has the spec being released? Has the handset guys started to work on it? Are you engaging with the handset guys themselves or are you still working with the China Mobile guys, can you kind give a layout of how it's going to progress and when you expect to start to get some revenues from this?

Peter Santos

I was actually at China Mobile last week with their Senior Executive that’s is in charge of the CMRI which is attached with doing this work and we are still actively working with his team in the development of spec and the construction and specification of facilities. At this point we expect the first spec to come out at very beginning of next year and for there to be impact on revenue during the second half. I will also highlight that while things are in a very positive states with them our access, the amount of time that I was able to spend them with them was really very good. This is their first time going through a process like this for establishing a multimedia specifications of any type of let alone voice and there is some minor uncertainty as the timing. But our current projection based on (indiscernible) that we should start seeing a spec on in the near term you know in the next few months and that will start getting rolled out to OEMs, we will engage with OEMs to help them understand that and they'll be an impact on revenue sometime during the second half.

Jay Srivatsa - Chardan Capital Market

Okay and following on that same note, given that a lot of Chinese handsets are typically low to mid-end not so much high-end. What was your sense, your discussions with China Mobile as to where you expect your voice processors to be designed into in terms of the market segment itself?

Peter Santos

In the place that we will see specs first will be for 4G devices generally and beyond that for high-end that’s where it will start and while from a proportionate basis the low-end and midrange market in China is certainly larger because of the absolute size of the smartphone market in China you know in the vicinity of 250 million or 300 million units there is a still a very large high-end market there and there is evidence of that in the success of that companies like Samsung have had you know in that market with their flagship devices and also the revenue that’s been generated by flagship high-end devices from Xiaomi, from Huawei, and the lesser known players like BBK.

So we don't view the introduction of the stack at the high-end in 4G devices as something that only have influence in a niche. It's still an important, very important part of the market and what we've seen in the global market is that as specs have been introduced into high-end devices OEMs respond even if the spec doesn't slowdown in midrange devices by including these kind capabilities proactively further down their portfolio. We expect to see the same in the China market.

Jay Srivatsa - Chardan Capital Market

Okay in terms of your comments related to the delay in the audio codec revenues, can you expand on that what were the circumstances was it competition or was it just design related stuff, any color you can provide would be appreciated?

Peter Santos

Relative to what we expect for the onset of the 515 it's been program delays for engagements that we’re in.

Jay Srivatsa - Chardan Capital Market

In previous calls you have talked about the PC market, TV and even the over the top boxes. Can you expand on that and where are things at in terms of products that are coming out shortly or products that you have designed into?

Peter Santos

Sure on the PC front as I mentioned in my prepared comments we have several different tablet and all-in-one and PC devices that are launching they are 5 or 6 they are launching during this quarter that we’re now during fourth quarter using eS320 product so that is ramping up significantly. On the TV front on there are a couple of projects that are related that we’re in which we actually expected to hit the market around now in time for the 2013 holiday season and that has now been pushed out to early next year. And that will be our first television production revenue.

Jay Srivatsa - Chardan Capital Market

And then on the over the top boxes?

Peter Santos

It is an over the top application that I’m referring to in terms of our first TV project.

Operator

(Operator Instructions). Our next question is a follow-up question from the line of Harlan Sur with JPMorgan. Your line is open.

Harlan Sur – JPMorgan

So along that same lines of that last question adjacent markets you know PCs, TVs, setup tops, automotive, do you still feel like this broad segment could approach sort of 10% of your business around the middle of next year as you look at your pipeline of design wins, what applications are going to be driving the initial ramp? I’m assuming it's going to be tablets and PCs given sort of their early success with the eS320 but not compared from you guys.

Peter Santos

Yes an expectation of middle of year third quarter to exceed 10% of revenues is still sensible for adjacent markets and as you suggest PC will be dominant factor including eS320. The television opportunity is a little harder to calibrate than, we’re staying conservative with our expectations there as it's a say somewhat of a new product category.

Harlan Sur – JPMorgan

Got it and the my final question, as you look at midrange, as you look at high-end and as you look at some of these adjacent market opportunities the question always comes up you know what is the competitive environment look like? Obviously I think you guys have sort of a one, two step lead over your nearest competitors. Has anything changed? Are you seeing other competitors more than others how do you feel about your market position?

Peter Santos

So let’s sort of segment your question about the competitive landscape into midrange smartphones and then adjacent markets and in terms of midrange smartphone that's where there is probably the most intense competition. It's the best established voice market, and of all the markets we work with you know handsets are relatively easier than the PCs and television. So what that requires is that we make sure we bring the right bucket of features into our midrange products and we have a pretty deep reservoir in our high-end hardware solutions that allow us to descope those solutions into a solution in midrange that is competitive. So while there is greater competition there we feel like we're well-positioned to do that based upon descoping best in class solutions for midrange and stay competitive. In the adjacent market like PCs and televisions these are just harder use cases. In general they also place more of a premium on speech rec assist than pure voice communications and that’s an area in which our lead is larger. So you know harder acoustic use cases and dependence on speech recognition assist. So that's actually a position of strength for us as we go into those use cases.

Operator

And I’m not showing any further questions at this time. I would like to turn the call back over to Peter Santos for closing remarks.

Peter Santos

Thank you everyone for calling in this afternoon. We look forward to speaking with you soon.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a good day.

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