MoSys' (MOSY) CEO Len Perham on Q4 2015 Results - Earnings Call Transcript

| About: MoSys, Inc. (MOSY)
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MoSys, Inc. (NASDAQ:MOSY) Q4 2015 Earnings Conference Call February 10, 2016 5:00 PM ET


Beverly Twing - IR

Len Perham - CEO

Jim Sullivan - CFO


Gary Mobley - Benchmark

Krishna Shankar - ROTH Capital Partners


Good afternoon and welcome to the MoSys fourth-quarter and fiscal-year 2015 financial results conference call. [Operator Instructions] As a reminder, this conference is being recorded today, Wednesday, February 10, 2016.

I would now like to turn the conference over to Ms. Beverly Twing of Shelton Group Investor Relations. Beverly, please go ahead.

Beverly Twing

Thank you, Michelle. Good afternoon, everyone. Joining me on today's call are Len Perham, MoSys's President and Chief Executive Officer, and Jim Sullivan, Chief Financial Officer.

Before we begin today's discussion, I would like to remind everyone this conference call will contain forward-looking statements based on certain assumptions and expectations of future events that are subject to risks and uncertainties. Such statements are made in reliance upon the Safe Harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which include, but are not limited to, benefits and performance expected from use of the Company's IC and embedded memory and interface technologies; expectations concerning the Company's execution and results; product development; achievement of IC design wins; timing of shipments of the Company's IC; predictions concerning the growth of the Company's business and future markets; and business prospects, strategies, objectives, expectations, or beliefs.

Forward-looking statements made during this call are subject to the risks and uncertainties that could cause actual results to differ materially from those projected. Additional information concerning factors that could cause actual results to differ materially from any forward-looking statements made during this call are contained in the Company's most recent report on Form 10-K filed with the Securities and Exchange Commission, in particular in the section titled risk factors, and in other reports that the Company files from time to time with the Securities and Exchange Commission. MoSys undertakes no obligation to publicly update any forward-looking statement for any reason, except as required by law, even if new information becomes available or other events occur in the future.

Thank you for your attention. I will now turn the call over to Len Perham, CEO of MoSys. Please go ahead, Len.

Len Perham

Thank you, Bev, and good afternoon, everyone, and thank you for joining us on today's call. I'm going to review our quarter four progress and full-year achievements pertaining to revenue growth, design win activity and new product development. I'll also summarize our top goals for 2016. Following my remarks, Jim will discuss our financial results, and then we will open the call to questions.

Getting started, I'm pleased to report that 2015 ended on a very strong note, reflecting measurable improvement across several aspects of our business. Operationally, we began to materially benefit from our earliest Bandwidth Engine 2 design wins. As you may recall, those were in the first half of 2013. As a result, fourth-quarter unit shipments and revenues both doubled, with IC revenue exceeding $1 million, a small number, but a genuine beginning, I think.

Additionally, gross margins moved up nicely as a result of a cost reduction now integrated into our standard backend manufacturing flows, aided perhaps to a lesser degree by some slight economies of scale. I would expect further gains in gross margin over the next few quarters, and let me say we are very encouraged to see these early wins start to ramp themselves into production. Though not quite as strong as the third quarter, the fourth quarter again saw solid design wins emerging from the sales funnel. We won designs both for the Bandwidth Engine family and as well for the LineSpeed family. Better yet, the Bandwidth Engine family won designs with new customers, as well as winning repeat designs with existing customers. The repeat customers included not just our Tier 1 partner, who has now awarded us in the area of 15 design wins, but also our security appliance customers and our design win customers serving the cloud-based data center networking applications.

As an existing design win partner finalizes its first design using the MoSys high-speed serial I/O networking memory, his switchover cost dramatically dropped, down close to zero. And he would like to feel confident and use the Bandwidth Engine solution again, both in other systems and for other applications. This leads the user to think of the Bandwidth Engine or the whole family, for that matter, as a unified memory that can be copied and pasted to advantage into various different applications on the board. To date, we have benefited from copy and paste with approximately 20% of our Bandwidth Engine customers. I should say probably 20% of our customers in general.

For the full-year 2015, we doubled the number of wins over 2014 and we exceeded the number of wins secured in all other years combined. Bandwidth Engine continued to drive design wins throughout 2015, with BE2 accounting for more than 80% of those wins. We also won designs with eight new customers, and four of those copied and pasted other designs to us in the course of a year. BE2 seemed to really hit its stride in 2015 and we expect 2016 to be another strong design win year for this product family. Additionally, we expanded our served available market by winning sockets in multiple totally new applications, including new wins in access systems, video areas -- video systems, and in the military market segment. On the surface, it would seem this is being driven by the move to higher data rates and the need to address the memory bandwidth and access challenges that come once aggregated traffic throughput reaches 40 to 100 gigabits per second.

Complementing our success of the BE2 in 2015, we also achieved double-digit design wins both for Bandwidth Engine 1 and came close with our new and emerging LineSpeed product family. Even more gratifying is the fact that we concluded 2015 with a robust pipeline of pending design wins, including several that we expect to close here in the first quarter, most notably for new advanced 400-gig systems. As a reminder, the timing of design wins is not always linear or predictable; however, for certain applications, we are observing the time from introduction to evaluation and use appears to be shortening. People are becoming more familiar with our solution and more comfortable working with serial I/Os.

Currently, we have approximately 85 design wins, representing wins from 2013 through 2015, in various stages of completion at 26 different customers. This count excludes the BE1 design wins from 2012, as those initial customers' platform rollouts were significantly delayed and, in several instances, design updates are now using BE2.

On average, we estimate that a design win begins to ramp into production approximately 24 months after it has won, which is consistent with our experience to date. During this time, the customer will be initiating small prototype production builds, running tests to confirm that this product meets and exceeds his company's quality and reliability criteria, and conducting both internal and external field trials. This production ramp can, in some cases, be short 18 months, especially when it is a BE copy-and-paste win or, say, a LineSpeed win for use in an optical module subassembly.

It is difficult for us to assign an exact value to each design win because of market dynamics and some limited information available to us from our customers. However, based on our experience in the communications and networking industry and the level and quality of our customers, we believe these design wins have an annual revenue value measured in the tens of millions of dollars. To date, we believe 10% or less of our design wins have commenced a ramp toward production, and assuming a 24-month design win to production release model remains valid, then it is quite possible or quite reasonable to expect we would start generating cash in the Company sometime in the period second-half of '17 or early first-half '18.

Of course, by that time, we would also be layering on additional revenue from the design wins we expect to win in 2016, which should include many new BE3 and LineSpeed wins. We expect each design win to have a life of five to seven years or more. If we are anywhere near on this plan, then the cash requirements for 2017 would be relatively insignificant.

Current market trends are becoming increasingly favorable to MoSys. For example, memory bandwidth remains a critical issue that must be addressed by more and more customers as the products they need to bring to their market scale to higher and higher levels of performance.

Additionally, the broader adoption of serial memory, as well as the call for more intelligence in the data center and elsewhere, is increasing, driving the need again for products of the types that we build -- very low latency, very high access rate, etc., etc. By leveraging these trends, as well as our current and future partnerships, we remain optimistic that we can increase our design wins by something in the area of 40% or more, measuring 2016 against our very successful 2015.

Speaking of partners, our FPGA partnerships with Altera and Xilinx enable us to further leverage our Bandwidth Engine 2 and 3 devices, enabling MoSys to garner yet more design wins. The new generations of FPGAs are now featuring improved latency and faster SerDes and are excellent matches for our BE2 and BE3 devices, and in multiple cases, both partners have identified new applications and market opportunities with a combination of a MoSys BE device attached to one or the other of their FPGAs provides the optimal solution.

With regards to our partnership with EZchip, they now have samples of our Bandwidth Engine BE3 Z30. The device was designed after intense collaboration with EZchip to assure that the BE3 Z30 would optimally handshake with EZchip's MPS 400 network processing unit. The BE3 Z30 increases the MPS 400's available network memory bandwidth by 50%, further assuring that the MPS 400 will run smoothly up to and perhaps even beyond its specified operational performance range.

The BE3 Z30 not only increases available network memory bandwidth by 50%, it should improve small packet performance and allow for the MPS 400 to more optimally execute the full range of its feature set.

Today, we are working hard -- we are working hand in hand with the Mellanox EZchip team in order to more quickly get this unique multichip solution into the field in order to solve our shared customers' next-generation network system challenges. We expect that the NPS 400, combined with the BE3 Z30 and a chipset, will win their first designs in 2016. We recognize that Mellanox is one of the fastest-growing suppliers of next-generation equipment to the data center and we will be continuing to seek out design win opportunities for our other solutions in their next-generation products as well.

We also introduced multiple new products in 2015, including three initial Bandwidth Engine 3 and five LineSpeed flex devices, which significantly expands our product catalog and therefore our served available market. These new products resulted from a great deal of effort on the part of our exceptionally good engineering team and I want to extend my sincere appreciation for those whose long hours and commitment yielded these precious new additions to one product family or the other. Turning to each of these product families, in 2015 we successfully supported and fulfilled initial customer production orders stemming from our remaining early BE1 design wins. Looking forward, we are well positioned with sufficient inventory to support incoming orders for these early wins, as well as those secured most recently in 2015. While prospects for new BE1 wins have thinned, often in favor of a BE2 solution instead, there still remain copy-and-paste opportunities with existing customers and additional market opportunities for BE1 where either BE2's advanced features and performance levels are not needed or the customer already has familiarity with BE1 and has code written that supports its bring-up in a much faster way.

That said, based on the wins in hand today, we expect BE1 could achieve up to $2 million annual revenue -- an annual revenue rate and that would be in spite of the fact that several of our 2012 BE1 wins have converted to BE2. We saw these customers commence early production ramps in first half of 2014, but unfortunately, for reasons unrelated to Bandwidth Engine, these ramps tapered off. At one time, we believed our two lead customers in that market sector could generate up to $10 million in annual revenue from BE1.

That's changed. I still believe these customers can generate meaningful BE2 revenue for us and we anticipate their current design wins based on BE2 should start to ramp in the first half of 2016. Moving on to Bandwidth Engine 2, as mentioned previously BE2 continued to dominate design wins in the fourth quarter and throughout 2015. Market opportunity from BE2 continued to grow and is significantly broader than BE1. In 2015, BE2 design wins and customer orders increased materially, particularly in the second half of the year as shipments doubled sequentially, growing from the third to the fourth quarter. Although still at a relatively low quantity rate, I believe a growth trend is beginning to materialize, one that will continue over the coming quarters in 2016 and beyond as more designs go into production and prototype builds increase at both existing and at new customers.

We have multiple wins at various points along the development curve, meaning some are still in development, while others are ordering preproduction and a few are trying to get into full production. Several BE2 customers are approaching early production volumes and, by all accounts, these programs are advancing as forecasted. I expect more of these BE2 wins to turn on in 2016, although it's difficult to predict the exact timing for these wins to reach full production because we remain subject to our customers' development schedules and, as well, to the success of his system going into the market he serves. That said, I expect the momentum will continue and we will achieve a significant increase in shipments this year.

BE2 will be our primary growth driver and revenue generator for at least the next two years. Turning to Bandwidth Engine 3, first packaged silicon was received back in the fourth quarter and it continues to work very, very well both functionally and performance wise. This is an extremely sophisticated integrated circuit and we are gratified at its performance straight out of the box. It is truly a great piece of work by the MoSys team. As previously mentioned, initial quantities of the BE3 Z30 were shipped to EZchip late in 2015. In addition, we announced full sampling availability for BE3 starting in January 2016. All this is happening as we complete final chip characterization and initiate the lengthy carrier-grade reliability suite of life test required to release it to full carrier-grade certification.

As a reminder, BE3 expands on our capabilities to support faster data rates, doubles our memory capacity, adds more functions, behaves like a unified memory, and offers its users a significantly expanded and programmable feature set. Customer interest is building its samples are now available for shipping and we expect to secure our first BE3 design wins in the coming months. I look forward to providing additional updates concerning BE3 as they occur. 2016, especially the second half, should be a barn burner for BE3. In regards to LineSpeed, as I've mentioned on multiple occasions, our LineSpeed devices are very synergistic with Bandwidth Engine's, as every 100-gig line card needs a retimer and Gearbox functionality.

In the fourth quarter, we begin shipping early production orders for our original 65-nanometer products, as well as multiple prototype builds for our low-power retimer and flex products. We also won new designs for our LineSpeed MSH110 Duplex retimer, the QSP F28 100-gig modules, and line card applications with a new customer. Designed to support a number of key line card platform requirements and industry standards, our LineSpeed flex devices ensure compatibility between systems and support the newest 100-gig and 25-gig electrical and optical standards, including RS-spec for error correction. We began sampling these new flex devices in the fourth quarter of 2015 and are continuing to work our LineSpeed product roadmap. I agree, 2016 is a breakthrough year for our LineSpeed product families, with double-digit design wins for our low-power retimer and the flex product lines. I agree these new products can begin to contribute more meaningfully to revenue later in this year.

To summarize, our efforts in 2015 resulted in a much stronger foundation from which to drive both near- and longer-term revenues. We grew revenues substantially in quarter four, breaking $1 million and doubling units and dollar shipments quarter over quarter. We won more designs in 2015 than we had won cumulatively, and almost exclusively with Bandwidth Engine 2, expanded our customer base by 50%. Added two new product families and won first designs in each of those families.

Looking forward, our goals for 2016 are probably slightly different. First, we're going to increase Bandwidth and LineSpeed IC revenue. We are targeting $7 million or $8 million this year, in 2016. We are going to drive to secure additional new design wins, including our first BE3 wins, as well as wins for new applications and in new market segments. As I said earlier, we are targeting up to a 40% increase in 2016 over 2015, broadening our customer base with particular emphasis placed on additional Tier 1 customers, and we are adding at least one Tier 1 customer for each of Bandwidth Engine and LineSpeed and attempt to add at least eight or 10 totally new customers. Finally, we want to secure extraordinary collaborative projects and joint products that we can do with one partner or the other to fund product development and provide some cost relief while we wait for our revenue to scale higher and higher and the Company becomes financially stronger.

My last comment before I pass the call to Jim is we will be managing our costs very carefully. Realigning our resources to reduce expenses and preserve cash is a top priority for 2016. Towards this end, we recently implemented a reduction in force and expect to further reduce product development expenses earlier in this year, 2016, as we have substantially completed new product development and are focused on bringing our new BE3 and LineSpeed flex products to market. Everyone at MoSys is committed to improving the cost profile of the Company while our revenue ramp starts to gain a bit more traction.

This concludes my prepared remarks. I'm going to turn it over to Jim for a review of the financials. Following his remarks, we will open this to a Q&A session and we will have a few comments at the close. Jim?

Jim Sullivan

Thank you, Len, and good afternoon, everyone. During the course of my comments, I will make several references to non-GAAP numbers. Unless otherwise indicated, each reference will be to an amount that excludes stock-based compensation expense and intangible asset amortization. These non-GAAP financial measures and a reconciliation of the differences between them and comparable GAAP measures are presented in our press release and related current report on Form 8-K, which was filed with the Securities and Exchange Commission today and can be found at the Investor Relations section of our website.

Turning now to our fourth-quarter 2015 results, total revenue was $1.6 million, compared with $1 million in the third quarter of 2015 and $1.1 million in the fourth quarter of 2014. Product revenue from the sale of our integrated circuits increased to $1.1 million in the fourth quarter, compared with $0.6 million in the third quarter of 2015 and $0.3 million in the prior-year quarter. IC sales were 70% of total revenue in the fourth quarter and primarily driven by increased shipments of our Bandwidth Engine 2 ICs as early design-win customers commenced production. Revenue attributable to our ICs is gaining measurable momentum, a trend that we expect will continue.

As Len just mentioned, we are targeting total product revenue in the range of $7 million to $9 million in 2016 as additional BE2 design wins commence production. The pace of quarter-to-quarter product revenue ramp is somewhat unpredictable, as shipment volumes remain subject to customers' production schedules. Royalty and other revenue for the fourth quarter of 2015 was $0.5 million, consistent with the previous quarter and compared with $0.8 million in the year-ago period. Royalty and other revenue is primarily comprised of royalties received from semiconductor customers whose products include our IP.

GAAP gross margin was 45% in the fourth quarter, compared with 22% in the third quarter and 76% in the year-ago quarter. The sequential gross margin improvement was attributable to higher IC product shipments and lower production cost as we begin to benefit from higher volumes and cost-reduction improvements made to our backend manufacturing flow during 2015. The gross margin improvements were partially offset by a close to $0.1 million reserve for select BE2 inventory. On a year-over-year basis, gross margin decreased as royalties, which carry 100% gross margin, represented a smaller percentage of total revenue.

In terms of our operating expenses for the fourth quarter, total operating expenses on a GAAP basis were $7.2 million, compared with $10.3 million in the previous quarter and $9.8 million in the year-ago period. Fourth-quarter 2015 total operating expenses included $0.8 million in amortization of intangible assets and stock-based compensation expense, compared with $1.3 million in the fourth quarter of 2014.

Research and development expenses were $5.6 million, decreasing 36% from $8.8 million in the third quarter of 2015, which included $3.1 million of expenditures for tapeouts and shuttles for our LineSpeed and Bandwidth Engine products. R&D expenses were down 32% from $8.2 million in the fourth quarter of 2014, which included $1.7 million of tapeout expenses. The sequential decrease in R&D expense was primarily attributable to lower tapeout and shuttle expenses and personnel costs. Selling, general, and administrative expenses for the fourth quarter were $1.6 million, compared with $1.5 million in the previous quarter and $1.5 million in the year-ago period. On a non-GAAP basis, total operating expenses for the fourth quarter of 2014 -- sorry, 2015 were $6.4 million, compared with $9.5 million in the previous quarter and $8.6 million in the year-ago period.

For 2016, we expect operating expenses to decrease as we have substantially completed the development of our Bandwidth Engine 3 product family. We have also completed the majority of the work associated with the new LineSpeed products that we announced in 2015. As such, we have implemented a reduction in force to reduce our operating expenses and cash burn and realign our resources. This reduction in force initiative includes a headcount reduction of approximately 16% in the U.S. and the closing of our operation in India. Collectively, these reductions represent a worldwide headcount reduction of approximately 30% and include 13 positions in the U.S. and 18 in India.

Substantially all termination, severance, and other one-time related charges of up to $0.8 million are expected to be recognized in the current quarter ending March 31, 2016, with cash expenditures of up to $1 million to be paid out primarily during the first half of 2016. We expect to realize approximately $3.2 million of savings on an annualized basis from these reductions, as well as reduce our worldwide headcount to approximately 69 employees.

Since January 1, 2015, we will have reduced our payroll and benefits expenses by approximately $4.4 million, after combining the 2016 reduction in force with employee attrition during 2015. The vast majorities of our employees remain in applications, engineering, and operations positions to further support our customers' growth and continued new product development. After the reductions are fully implemented, we expect our non-GAAP operating expenses to approximate $5.2 million on a quarterly basis, excluding tape-outs, shuttles, and significant quarterly backend expenditures. On a GAAP basis, the net loss for the fourth quarter of 2015 was $6.5 million or $0.10 per share, compared with a net loss of $10.1 million or $0.15 per share, in the prior quarter and a net loss of $9 million or $0.18 per share, for the fourth quarter of 2014.

On a non-GAAP basis, the net loss for the fourth quarter of 2015 was $5.7 million or $0.09 per share, which excluded intangible asset amortization and stock-based compensation expenses totaling $0.8 million. This compared with a non-GAAP net loss of $9.3 million or $0.14 per share, in the previous quarter and a loss of $7.7 million or $0.15 per share, in the year-ago period. Net loss per share for the fourth quarter of 2015 on a GAAP and non-GAAP basis was computed using approximately 65.5 million weighted average shares outstanding. Looking briefly at our results for the full year 2015, total revenue for 2015 was $4.4 million, compared with $5.4 million for 2014. Product revenue from the sale of our ICs was $2.4 million for the full year 2015, compared with $2.3 million for 2014.

In 2015, Bandwidth Engine 2 represented almost 80% of product revenue, compared with just 37% in 2014. Total royalty and other revenue was $2 million, compared with $3.1 million for 2014. GAAP gross margin for the full year 2015 was 44%, compared with 57% for the full year 2014. The decrease in annual gross margin was mainly due to the increase in contribution of IC revenue.

In 2015, revenue contributions from product sales versus IP licensing and royalties as a percent of total revenue were almost exactly the opposite of what they were during 2014. Total GAAP operating expenses for the year were $33.4 million, compared with $35.8 million for 2014. On a non-GAAP basis, total operating expenses for 2015 were $29.4 million, compared with $30.2 million for 2014. The GAAP net loss for 2015 was $31.5 million, or $0.50 per share, compared with a net loss of $32.7 million, or $0.66 per share, in 2014. The non-GAAP net loss in 2015 was $27.5 million or $0.44 per share, excluding stock-based compensation charges and intangible asset amortization charges totaling $3.9 million. This compares with a non-GAAP net loss in 2014 of $27.1 million or $0.55 per share, excluding stock-based compensation and intangible asset amortization charges totaling $5.6 million. Earnings per share for 2015 on a GAAP and non-GAAP basis were computed using approximately 62.5 million weighted average shares outstanding.

Now turning to the balance sheet, at December 31, 2015, our cash and investments balance was $20.2 million, compared with $25.5 million at September 30, 2015. Cash burn in the fourth quarter was approximately $5.3 million, compared with $9.8 million in the third quarter of 2015. The sequential decrease in cash burn was primarily due to decreased expenditures for tape-outs and shuttle runs, as well as timing of payments. Fourth-quarter cash burn reflected $0.7 million of spend on inventory to support higher product shipments forecasted in 2016 and $0.8 million of additional expenditures for capital equipment, primarily for our backend production operations, to support continued reductions in product testing costs and improvements in our cost of goods sold.

While we expect revenue to grow and operating expenses and cash expenditures to decrease in 2016, the time lag between design wins and device volume revenues remains hard to predict. We also anticipate a significantly higher inventory spend in 2016 to support our customers' production ramps. As such, our current cash and investments balance will be insufficient to support our forecasted expense levels and negative cash flows. We are currently exploring a variety of measures to bring additional capital into the Company, including licenses, IP sales, and other approaches. This concludes my prepared remarks.

At this time, we would like to open the call for a question-and-answer session. Operator?

Question-and-Answer Session


Thank you, [Operator Instructions]. Our first question comes from the line of Gary Mobley, with Benchmark, your line is open please go ahead.

Gary Mobley

Hi, guys. Thanks for the detail. I wanted to sort of compare the revenue breakeven level or the projected revenue breakeven level against your recent OpEx cuts. Is it reasonable to assume that the new quarterly revenue breakeven level on a non-GAAP basis is somewhere in the range of 8 million to 9 million?

Len Perham

You know, Gary, I would say it's probably more in the $10 million to $10.5 million range, just using kind of around a 50% gross margin level. While certainly in the longer run, we expect to be 60% and higher, just looking out I would want to be conservative and kind of use that 50% kind of number.

Gary Mobley

Okay. And as we sit here today -- well, if we go back a quarter, I know you entered the fourth quarter with some pretty good backlog and hence the doubling of -- sequential doubling of integrated circuit revenue. As we sit here today, are we in a similar situation as you exited Q4 into Q1 and even as well looking into the first half of the year?

Jim Sullivan

Actually, as you might expect, at the end of the year a lot of companies tried to build their inventory down, so we exited December 31st a bit lower. It was reasonable, but it was lower if we measured it the way you suggest. Orders came in reasonably strongly in January. We have a reasonable shot at making our goals for this quarter. We are not going to start talking about inventory and backlog and what turns are required, but we are in reasonable shape, and I'm paying a lot of attention to what I need on the backlog for my internal goals in the second quarter now.

So the inventories and the behavior of the back end, Gary, have moved to a different place than it was, say, in the year-ago quarter. And the Company is actually -- is trying to be born now. In my close, I probably would have mentioned that when you do a venture capital startup, whether it's a public company or a private equity driven company, you pour water into an old pump and you pump and nothing comes out, and you pour more water in -- in this case, water is money and you keep pouring it in. And then, one day, something comes out, so now you have something real.

Well, something is coming out now. We are now looking at a company that customers are trying to ramp, companies are reusing us. There's lots of interest in BE3 where we took a long time on BE1 and somewhat lesser on BE2, and now we need to move as quickly as we can to have revenues that lead costs and make sense out of this business. And we have challenges to have the inventory -- to get the growth we want this year, the internal goals. But we are at a stronger place than we were.

Gary Mobley

Okay. All right, thank you, guys. That's it for me. Thanks.


Thank you and our next question comes from Krishna Shankar with ROTH Capital, your line is open please go ahead.

Krishna Shankar

Yes, Len and Jim, congratulations on the design win momentum in 2015, which seems to be translating to revenues now. As you look at 2016, will most of the revenues come from BE2? And will it be from -- mostly from your lead customer or a broad spectrum of customers and design wins that you have for BE2 in terms of revenues for 2016?

Len Perham

I think the customers that led the design wins in the first half of 2013 are leading the ramp-up now. So what, Jim, should we say? Maybe 25%, 30% could be one guy, something like that. But I think last quarter we shipped to maybe 15 or 18 different companies, and so it's quite diversified. It's for sure that we've got a guide of 25%-odd, plus or minus 5%, something like that, and I haven't computed, or if I have, I don't remember the exact numbers, but we aren't going to have some huge percentage with one customer in any quarter this year or at the end of the year. That shouldn't be the case.

Krishna Shankar

Okay. And most of the revenues will be BE2. Do you anticipate any significant LineSpeed revenues in 2016?

Len Perham

I think we're expecting some LineSpeed revenues, to start ramping the last four months of the year or something like that. We've been out -- being qualified and having reference boards out in a lot of accounts for quite a lengthy time now.

On the other hand, the stuff that's going to be ramping that you can take more firmly to the bank, if you can ever do that with forecasting, is BE2. BE2 is the Company's champion, but I think we should see some revenues start to pick up a bit in the last half from LineSpeed products, Krishna.

Krishna Shankar

Great. And then with respect to LineSpeed, I know that you had kind of a design iteration. Do you feel that you have a version of the product that is kind of production ready that you are sampling now? Or do you need to make any other changes? Can you sort of give us a status update on the LineSpeed product and its sort of qualification for prime time now?

Len Perham

So we're actually looking at four different -- three different places, excuse me, for LineSpeed. One would be a low-power solution that goes in optical modules. One would be, I would say, a project can work into a medium-sized load, medium power burn on the line card. And then, finally, we'd like to have something that can go long reach, can work in the 30/30 DB or 30/34 DB load, something like that.

And we've had a product now for the optical modules for a while and we are trying to get qualified in a number of places with the optical modules guys. We have yet to win a huge order, but I think we have a few orders that we are shipping to and there's genuinely serious interest looking at our product because I think it still remains the lowest-cost solution out there.

During the course of the last four months, or something in that order, we released the parts on the line card and that's some of the new products that we mentioned, either I or Jim, that came out in the past quarter or so. And I think that if we had John here -- he's not with us; he's off at some meeting at the Lindley conference, I believe we are feeling comfortable now that we can serve long reach applications and John is having lots of conversations about that as well. So I would say that we are right on the cusp of being able to say that we've got all three short reach, medium reach, long reach solutions in retimers, with gearboxes with unique features, such as MLG or forward error correction and so on and so forth. And then, we would expect that going forward now the challenge would become more and more winning the business than having the right reference board for the given application.

Krishna Shankar

Great. And Jim, you mentioned a 5.2 million pro forma OpEx level going forward. Would that kick in starting with Q1 or maybe beyond Q1?

Jim Sullivan

No. Q1, since we took the restructuring actions in Q1, we will have significant payments related to that, as well as partial quarter of activity. It will really start in Q2. Q2 may still be a little bit higher, but pretty much in Q2 we won't be too much above that.

Krishna Shankar

Great. Thank you. That's it for me.

Jim Sullivan

My only -- I would just say, Krishna, my only caveat as far as timing of shuttle activity or larger backend expenditures that are at the R&D stage. Again, that would just be my caveat, but that's kind of the run rate. I'd like to see it even better than 5.2 million, but that's kind of at least the flag I'm planting here today.

Krishna Shankar

Great. Thank you.


Thank you. And I'm showing no further questions at this time and I would like to turn the conference back over to Len Perham for any closing remarks.

Len Perham

So, basically, I made the point a moment or two again that the Company is starting to look real and that we now have water coming out of our pipes, if you will. We have products and we have orders coming in and we are building backlog and trying to manage inventory, trying to drive gross margin higher. It's worth mentioning that in the goals for the year, just to reiterate them, is, one, to drive revenue. Two, and this is roughly in order, to drive costs down. We need to control our costs until the revenue gets up to where it offsets the burn rate. The next three goals are all sort of integrated together. We need to win more designs, but when we win those designs, we need to give a premium to Tier 1 guys and we need to be looking around to new applications that will change the size in a positive direction for the served available market. And finally, we've got a lot of interest for here and there, maybe a half-dozen different opportunities to do something collaborative with one partner or the other. And that would bring in some either nonrecurring expense or some offset R&D to give us a lift on the balance sheet until we get our revenue a bit higher.

I made the comment that if we are anywhere near on plan, based on my experience over a good period of my career, then we should see through the course of 2017 the cash burn during the period is going to get substantially less and that the total year should not be a very large not to take care of. So we're now in the business of trying to get our business to grow. I can't dispute the fact that we've taken longer and when you take longer, it cost more, but we are here and things look pretty damn interesting. The solution we have where we have the ability to do something with very, very low latency and very, very high access rates with 90% bandwidth efficiency; the customers are coming to us on a more frequent basis because the performance levels they need to meet now find them looking at these as primary challenges to overcome before their box is going to work.

I have nothing else to offer today, other than to say that I think we are at the right place and the right time and we are at the beginning. I will be talking to you guys a lot more in the weeks and months ahead. I want to thank you all very, very much for sticking with us and I want to thank you for listening to the call today. Thank you one and all.


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

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