DSP Group, Inc.
Q1 2015 Earnings Call Transcript

Published: 1 May 2015

[Dror Levy:]

Good morning ladies and gentlemen. I’m Dror Levy, Chief Financial Officer at DSP Group. Welcome to our First Quarter 2015 Earnings Conference Call. On today’s call we also have with us Mr. Ofer Elyakim, Chief Executive Officer. Before we begin, I would like to remind you that during this conference call we will be making forward-looking statements about our financial projections for the second quarter of 2015 replenishment of cash reserves as fiscal year progresses, revenue and growth opportunities for each of our three business segments, the commercialization of new product and time of present generation from such products, including DECT/CAT-iq HD voice, ULE, voice over IP and HD Clear, as well as the success of our transition and positive impact on revenues growth and profitability. Actual results or trends could differ materially from our forecast including the impact of reduction in lease terms and inventory levels by our customers and their customers; continued uncertainty in consumer demand for traditional cordless telephony products in our major end markets and the magnitude of declines in such markets; unexpected delays in commercial launches or mass production of new product incorporating on technologies; the growth of new market verticals, our ability to manage operating expenses; our ability to secure additional design wins; and general market demands for products that incorporate our technologies in the market. We assume no obligation to update these forward-looking statements. For more information please refer to the risk factors discussed in our 2014 Form 10-K and the other SEC we have filed. Now I would like to turn the call over to Ofer Elyakim, our Chief Executive Officer. Ofer, the floor is yours.

[Ofer Elyakim:]

Thank you, Dror. Good morning, everyone, and thank you for joining us today. I’m glad to open this discussion about our first quarter 2015 financial results. I hope you had the opportunity to read our press release that was released earlier today. I would like to begin this discussion by reviewing our results for the first quarter of 2015 and then comment on the progression of our plans including design wins and recent market developments across the different product offerings. In a short while, Dror will provide you with detailed comments on our financial results and update you on our outlook for the second quarter of 2015. Our first quarter financial results exceeded our guidance in every financial metrics. First quarter revenues of $38 million were well ahead of the midpoint of our guidance. Revenues for the first quarter increased by approximately 16% versus the first quarter of 2014 and were also up by 2% sequentially. The revenue increase was propelled by meaningful contribution from new products which accounted for almost a quarter of the revenue mix including record high shipments in Home gateways and solid demand for voice over IP products. Most importantly, our first quarter marked a third consecutive quarter of year-over-year revenue growth and also the fourth successive quarter of sequential growth. The higher revenues combined with better gross margins and operating expenditures that were below the midpoint of guidance resulted in non-GAAP operating profit of approximately $2.1 million or 5.5% of revenues. This represents our 10th consecutive quarter of non-GAAP operating profitability and the 12th consecutive quarter of non-GAAP net profitability. Our cash and marketable security balance was $118 million at the end of March. A decrease in our cash balance in the first quarter of the year is the recurring phenomenon due to the usage of cash for working capital needs. During this first quarter, we also used $1.1 million for share repurchase activity the repurchases were part of our $10 million 10b5-1 stock repurchase plan that was announced in March. Before moving to the business update on each of our business segment, I would like to provide a short overview on where we stand today and what our goals are for this year. DSP Group has built a leading position in DECT that has enabled us to generate strong cash flows and profitability in spite of the maturity of the cordless phone business. And concurrent with solidifying our market position in the core business we have steadily reinvested our profits and resources in the future growth engines, and has established three new product initiatives in the segments of Home, Office and Mobile. Our financial results continue to demonstrate the success of these investments quarter-after-quarter. During our first quarter revenues from these new products accounted for 23% of revenues compared with 15% a year ago. This solid contribution is more than offsetting the revenue decline in cordless phone SoCs and driving us back to revenue growth for a third consecutive quarter. Our goals for this year are to build a leading market position in each of the three market segments that we are focusing on. In ULE, our goal is to build strong design engagements with leading service providers and OEMs and to enable meaningful revenue contribution in the mid-term. In voice over IP, we aim to establish DSP Group as the leading and central player for the enterprise terminals and continue our execution focus on strong revenue growth. In Mobile, our goal is to increase our footprint into markets of smart and low power voice announcement SoCs, focusing on production and revenue generation this year and targeting strategic design wins that would drive our growth next year. An accomplishment of these goals, we place DSP Group on the right track for sustainable revenue growth this year and beyond and create ample growth opportunities as well as diversity in our revenue streams. We believe that the revenue opportunity in each of these three segments Home, Office and Mobile is significant and we estimated to be at least $100 million for each segment providing plenty of room for long-term growth. Now, I’d like to give you some specific updates about our progress in each of these segments. Let’s start with the Home vertical, our Home vertical includes mainly DECT SoCs used in cordless phones, Home gateways, and ULE connectivity for the burgeoning IoT market. The DECT market during the first quarter, our DECT revenues accounted for approximately 84% of revenues versus 83% for the fourth quarter of 2014. DECT revenues were up both year-over-year and sequentially growing by 16% and 4% respectively. Our year-over-year -- on a year-over-year comparison, the strength in DECT is attributable to better demand of cordless phone SoCs and higher contribution from DECT enabled Home gateways. And on a sequential basis the increase in revenues is related to record demand for DECT enable Home gateway products which more than offset the decline in cordless phone SoCs. Sales of our DECT products for the European and rest of the world end markets were strong, up 14% year-over-year and up by 5% sequentially and accounted for approximately 52% of our revenues. Demand for DECT products for the North American end market was also solid. Sales were up by 20% year-over-year and up by 3% sequentially. DECT 6.0 products for the North American end market accounted for approximately 32% of revenues. As mentioned earlier, the key contributor to the solid demand for DECT this quarter was Home gateways. We are pleased with the continued strength and the record shipments we have achieved this quarter of our DECT and CAT-iq ICs going to Home gateways. The demand for DECT and CAT-iq during the quarter was exceptionally robust due to record demand from two large telecom operators. This drove Home gateway revenues to $4.8 million, representing growth of 69% year-over-year and 68% sequentially. We view the strong demand for Home gateway product in the first quarter as exceptional and would expect a more moderate year-over-year growth in DECT CAT-iq in the upcoming quarter. Moreover, during the first quarter to leading European service provider selected our DECT/CAT-iq 2.0 SoCs for the new generation of Home gateway product. The underlying trend behind this momentum is the acceptance and adoption of high definition voice. With more than 100 operators around the world actively supporting HD voice on their networks, HD voice is gradually becoming more popular and abundant, and a fair amount of cost to-date already run the HD voice product. Many service providers they do not support HD voice are in the process of upgrading their infrastructure and Home gateway terminals to support HD voice and to provide our customers the benefits of superior voice quality and better voice called intelligibility. Our DECT/CAT-iq solution is the preferred medium for transmitting HD voice wirelessly at home, and is highly regarded for its superior range, interference free band, and reliability. Now, turning to ULE and IoT, we are excited with the market recognition and the growing customer traction of our ULE technology. More and more players are realizing the key attributes that DECT and ULE have over other available short range wireless technologies. This is demonstrated by a solid pipeline of engagements with the leading security and telecom service providers, OEMs, and our growing ecosystem. We are happy to share with you today, that a leading tier one European service provider has selected our DECT/ULE as the primary technology for its smartphone services and product. This service provider chose ULE following a fairly long evaluation of various wireless technologies recognizing the main attributes of ULE including. Its better home coverage and longer range, its interference-free and dedicated band; its natural support for two-way data, voice and video, such a design win is of major strategic importance for us and for our ecosystem. ULE a two-year old technology was selected in spite of the longer track record and wider market adoption of other available IoT technologies. We believe that such a selection turns the spotlight on ULE and its unique merits, and should create favorable market dynamics with other leading service providers and OEMs. To summarize, we are successfully progressing in a number of strategic engagements and are well positioned to realize wider market adoption for our technology and see more ULE engagement go-to-production and contributes to revenue growth. Moving now to an update on the Office vertical. During the first quarter, we achieved two major milestones. The first is we secured our third tier one design win with a leading IP phone OEM based on our DVF99 SoC. This win demonstrates a strong fit between our product portfolio, and the enterprise terminal market. The second milestone is that during the quarter we began first commercial shipments of our DVF99 voice SoC to our strategic tier one customer. We expect revenues from this customer to contribute in a more meaningful way started from -- starting from the second quarter and onwards. The first quarter was also a solid quarter for our Office voice segment revenues of $3.7 million were ahead of the midpoint of our guidance range reflecting an increase of 69% year-over-year while down 7% versus the fourth quarter of 2014. Looking ahead to the second quarter and based on our backlog and forecast receipts from our customers we expect second quarter revenues to grow on a sequential basis and be in the range of $4.5 million and $5.5 million. We are excited about the business momentum and design win pipeline and expect our revenues in this segment to grow gradually throughout this year. On to the Mobile segment, the interest in low power voice processing, always-on voice functionality, and more sophisticated noise suppression technology is on the rise and more Mobile OEMs are incorporating such features in products ranging from smartphones to wearable products. And we see a solid market opportunity and fit for our HD Clear product. During the first quarter, we completed the design-in phase with a flagship smartphone Mobile of leading OEM as well as reach final stages of the design cycle with additional products. We expect this product to rollout gradually during this year. Moreover, an in line with our previous expectations we are on track to start early commercial shipments of our HD Clear products this quarter and to see a gradual pickup in revenue contribution from the Mobile segment throughout the second half of this year. We believe that our HD Clear products will play an instrumental role in the evolution of smartphones through the adoption of multi-microphone noise suppression always-on features and smart sensing, all of which will enable new layers of artificial intelligence and awareness. This new intelligence is a major breakthrough and could be achieved by bringing value sensors including microphones and transformational signal processing together. Now, turning to our business outlook for the second quarter of the year, based upon forecast receipt from customers, our backlog and our own assessment we expect our revenues for the second quarter to be in the range of $35 million to $39 million implying a fourth consecutive of quarter of year-over-year growth at the midpoint of the range. In summary, 2015 is off to a good start, we are focused on successfully executing our financial and strategic objectives, and we are three quarters into the most important phase of our transition, which is revenue growth. We are effectively transitioning from a company with revenue concentration in cordless telephony to a company diversified revenues streams derived from growing market segments. We believe that this transition to propel DSP Group to sustainable and solid growth this year and beyond and gradually drive operating leverage across our P&L. Now, I would like to turn the call over to Dror, our Chief Financial. Dror please.

[Dror Levy:]

Thank you, Ofer. I will now review the income statement for the first quarter of 2015 from top to bottom. For each line item, I will provide the U.S. GAAP results as well as equity based compensation expenses included in that line item and the expenses related to previous acquisitions. Our revenues for the quarter were $38 million, gross margin for the quarter was 40.8%, gross margin for the quarter included equity based compensation expenses in the amount of $0.1 million. R&D expenses were $9.1 million including equity based compensation expenses in the amount of $0.5 million. Operating expenses for the quarter were $15 million including equity based compensation expenses in the amount of $1.2 million and amortization of acquired intangible assets in the amount of $0.3 million. Financial income for the quarter was $0.3 million, provision for income taxes for the quarter was $0.1 million and included the tax benefit resulting from the amortization of the deferred tax liability related to intangible assets in the amount of $0.1 million. Net income was $0.8 million including equity based compensation expenses of $1.3 million amortization of intangible assets of $0.3 million and the tax benefit resulting from the amortization of deferred tax liability in the amount of $0.1 million. Our non-GAAP net income excluding these items, I’ve just described was $2.3 million. Diluted GAAP income per share was $0.03. The negative impact of equity based compensation expenses on the EPS was $0.06. The negative impact of the amortization of acquired intangible assets on the EPS was $0.01. The positive impact of the tax benefit resulting from the amortization of deferred tax liability on the EPS was $0.01. Non-GAAP diluted earnings per share excluding these items, I’ve just described were $0.09. Please see the current report on Form 8-K that we filed with the SEC this morning for full reconciliation of the non-GAAP presentation to the GAAP presentation. Now, turning to the balance sheet, accounts receivable increased from $20.3 million at the end of the fourth quarter of 2014 to $26.5 million representing a level of 63 days of sales at the end of March. Inventory decreased from $15.6 million at the end of the fourth quarter of 2014 to $13.5 million representing a level of 54 days. Our cash and marketable securities decreased by $6.8 million during the first quarter and we are at the level of $118.2 million at the end of March. Our cash and marketable securities position during the quarter was affected by the following, $5.8 million of cash was used for operations attributed mostly to usage of cash for working capital, $0.6 million of cash was used for purchase of property and equipment, $1.1 million of cash was used for repurchase of approximately 97,000 shares of our common stock at an average price of $11.5 per share, $0.8 million of cash was received from stock option exercises by employees and $0.1 million was an increase in market value and amortization of marketable securities. Now, I would like to provide you with our projection for the second quarter of 2015. Our second quarter projections on the U.S. GAAP basis including the impact of equity base compensation expenses and acquisition related amortization expenses are as follows. Revenues are expected to be in the range of $35 million to $39 million. We expect our gross margin to be in the range of 40% and 41%. R&D expenses are expected to be in the range of $9 million to $10 million. Operating expenses are expected to be in the range of $14 million to $16.5 million, financial income is expected to be in the range of $0.25 million to $0.35 million. Provision for income taxes for the second quarter is expected to be approximately $0.1 million to $0.2 million, and shares outstanding are expected to be approximately 24 million shares. Our second quarter projection includes approximately $0.3 million of amortization of intangible assets. Our second quarter projections also include the following amount forecasted for equity based compensation expenses. The cost of goods includes approximately $0.1 million, R&D expenses include $0.5 million to $0.7 million and operating expenses include $1.3 million to $1.5 million. And now, we would like to open up the line for questions and answers, Operator please.

[Operator:]

Thank you. [Operator Instructions] We will now take our first question from Daniel Amir from Ladenburg. Please go ahead.

[Daniel Amir:]

Hi, great. Thanks a lot. Congrats on a good quarter. Couple of questions here, so first of all, on the guidance midrange here 37 that’s a decline on Q-over-Q basis. Can you better explain kind of what’s driving that given it looks like your VoIP business is going to be up, you are starting ship in the Mobile business. So you got to get low revenues there your ULE business gradually increases. So is it a decline in the Home gateway business? Or is it a deeper decline in DECT side and then have a couple other questions. Thanks.

[Ofer Elyakim:]

Hi, Daniel. So thanks for the question. So regarding the guidance, yes, you are right, the midpoint is 37 and what we have alluded to during the prepared comments was the Home gateway revenues that we saw this quarter were -- is significantly higher than what we expected and kind of in a way probably stole a little bit from the revenues in Q2. And so, in Q2 as we said we are going to see a more moderate type of year-over-year revenue growth in Home gateway. So I believe that explained a fair amount of the GAAP let’s say between the first quarter and the second quarter. With respect to the other items that you described, yes, we do expect a pickup in voice over IP. We do expect to see beginning starts of revenues as a result of shipments in Mobile and also we are expecting to see more contribution from ULE. And this is probably a little bit offset by some decline that we expect that we will see in DECT during the second quarter. But when we look outside, when we look at the end markets, the end markets continued to show a pretty kind of a steady and they seem to be fairly healthy, the end markets especially Europe the economy seems very strong at least when we look at the demand for a DECT product, they look much better than they were last year. So I hope that it does answer your question.

[Daniel Amir:]

Yes, absolutely. So on the VoIP side in the past you kind of provided opportunity for annual revenues on VoIP. Do you feel it's still on that track of towards that 20-ish range, given your recent guidance here for Q2 on this business?

[Dror Levy:]

Yes, Daniel. The way we look at the voice over IP business is that we see basically a gradual pickup. And it’s very hard to time when our shipments and the demand from customers is not done on a quarterly basis, but rather through a sequence. And it just happens to be that the quarters are ending on certain days so what we are expecting is basically a gradual pickup supporting the same expectation of the $20 million to $25 million for the year and continue throughout into next year. Our pipeline is robust as you can see from the recent announcement that this market is moving very, very nicely and well for us and we are becoming that basically the leading vendor in this space during the last two years.

[Daniel Amir:]

Okay, great. And then the last question and then I'll hop back into the queue. Just can you expand a little on this DECT side -- excuse me on the ULE side with this leading telecom European provider here basically selecting you? What type of products? When should we see those products in the market? And do feel this is a significant milestone in terms of ULE adoption I guess at least in Europe?

[Dror Levy:]

Yes. So it’s an excellent question. This service provider is in one aspect is a top service provider in Europe, and # 2 chose the technology for smart home services meaning it’s not just for one application or one device, but rather as the – kind of the IoT wireless last meter infrastructure. And this is what makes it standout compared to other announcement that we have made during the last couple of quarters including leading service provider in Europe and also North American tier one service provider we chose ULE for a certain application. On the product rollout front, what we do expect to see is that these products are gradually going to go through the design phase during 2015 and probably and likely go to production during the early to mid 2016.

[Daniel Amir:]

Okay, great. Thank you. I will get back in the queue [indiscernible].

[Ofer Elyakim:]

Thanks.

[Operator:]

Thank you. Our next question comes from Matt Robison from Wunderlich. Please go ahead.

[Matthew Robison:]

Hi, thanks for taking my questions and congrats on the results. So one of the things -- when I looked at the press release I thought that HD Clear and Mobile was kind of conspicuously absent from the discussion. Maybe, I was hoping you could add a little bit more flavor. Perhaps I didn't catch all of your comments about the discussion of adoption there, design-ins, and the emphasis on gradual and the commentary for the ramp. But, was there a delay in that business? And then I'd like to get a little bit more color on the gateways as well. And Dror, if you could at some point give us the depreciation was -- I'd appreciate that also.

[Ofer Elyakim:]

Good. So Dror do you want to start?

[Dror Levy:]

Okay. So Matt thanks for the question. For the first three questions it relates to the commentary on Mobile, and the other one was on a kind of commentary around the Home gateway. So in Mobile what we have achieved is this quarter is basically moving to the final stage of the design-ins that we completed the design with this leading OEM customer and then -- are basically the next milestone is for this product to go to production. In addition to that, we did progress with a number of additional products of this OEM and also another OEM that are basically now in the final stage of design, and we expect them to go to production also during the year and the way we are seeing there --and also this also relates to what we discussed during the fourth quarter earnings is that we want and we expect to start shipments in the second -- as early as the second quarter. And we are actually expecting to do these shipments during the second quarter and then to see a gradual pickup during the third and fourth quarter. What we are taking is a more cautiously and I think we also discussed that during the fourth quarter earnings result, since this is a fairly new market for us. The kind of qualification design-in, design win or when how exactly the ramp is going to be et cetera is we try to take a little bit of more of a conservative type of approach in the other markets where we are already selling. We know the customers, we know how the ramp up looks, it’s going much easier for us to kind of discuss, much more kind of publicly about kind of the trends here we did expect that we should be able to start shipments in second quarter. We are hoping that this is indeed the case and we are on track to start shipment this quarter, and we expect a more meaningful revenues and also unit volumes during the third and the fourth quarter of the year.

[Matthew Robison:]

Are you sharing these designs with other vendors?

[Ofer Elyakim:]

If we are not to the best of my knowledge. And again this is probably a fairly general question, but if I understand you correctly, the answer is no.

[Matthew Robison:]

Okay. So for some, you are going to be essentially at least for the time being, sole-source for a few SKUs of your customers?

[Ofer Elyakim:]

Yes, it’s kind of very hard for us to say like a 100%, also that the amount of information we have is not always perfect. We believe that in the models that we are design into, we don’t know of another source, it’ doesn’t mean that there are not many other model that could carry a different source.

[Matthew Robison:]

Now, on the gateway business, it sounds like you think there's a little bit of inventory overhang. How do you see the inventory for the other businesses at this point?

[Ofer Elyakim:]

Yes. So this is also an excellent question. So that the difference -- the main difference between – the different businesses is that the Home gateway business is purely a telco driven business. And the telcos are driving the demand, whenever there is the new product launch, they are stocking up in order for them to have enough products so that they can ship to their customer base, and we do expect and I think that also over the course of the last two years we have seen when you look at the quarters, it’s fairly high volatility. So product launches there isn’t a fairly strong and robust demand then kind of it goes to a more moderated tone probably because they are already kind of stop that and they need to make sure that the overstock is depleted by shipments to customers and then they restock and this is the way to look at Home gateways. But, when we look at when we look at it from an annual perspective where you can actually see that the growth we are looking and seeing a very nice momentum of gradual adoption every major operator is putting this connectivity in every major operator is interested in bringing HD voice to the Home, to the Office, and not leaving it just in the Mobile handset. And we know that people who have experienced high definition voice capabilities are really thrilled with the way it elevates the quality and the better intelligibility the better productivity of the voice call. And we see a very, very strong adoption all around the world for this -- for HD voice in these terminals and also in handsets.

[Matthew Robison:]

So for your earlier customers, you've seen a good, solid -- can you -- been able to characterize the pattern of business after the initial stocking activity?

[Ofer Elyakim:]

Yes. So we do expect, as I said -- for the ULE, we do expect revenue growth on a year-over-year basis. But, what we said is that the first quarter was exceptionally strong. So it was much stronger than what we expected there were a lot of request to ship early and as I said that probably took and [indiscernible] off the Q2 demand because there was a pull-in of material from Q2 to Q1. And so, for the most part we look at Home gateway market as a growing market in the area of the around 20% -- 20% to 30%. So it’s a solid market, growing very nicely for us we are definitely the market leader in this domain both in terms of the DSL market, the phone market, the cable market. And we see a growing market adoption all across. And as I said, within the quarter there is a lot of volatility because of new product launch, maintenance, destocking, depletion, replenishment, et cetera, et cetera.

[Matthew Robison:]

Let me just ask one more question about then you’ve got the depreciation answer, and I'll leave the floor, so.

[Ofer Elyakim:]

Yes, yes. Sure.

[Matthew Robison:]

I’m also just curious about the overall inventory picture, if you look at the other product lines. Customer inventory picture how are you feeling about that?

[Dror Levy:]

So just to recap on the depreciation, I saw it was $300,000 for this quarter.

[Matthew Robison:]

Thanks.

[Ofer Elyakim:]

Matt, so on the inventory situation. So we are after a several strong quarters of DECT demand. And I alluded to the fact that when we look at the end markets we also see fairly stable or healthy market trends Europe looks very good at the moment especially in the big economies. U.S. is doing okay are in line with expectations. In terms of inventory within the channel meaning between us and the end market. We are not aware of anything on a meaningful basis, I’m sure there are some focus could be in Europe and elsewhere where there is probably some destocking, but nothing on a material basis that we can think about.

[Matthew Robison:]

Thanks a lot.

[Dror Levy:]

When we -- so just one more comment. When you look at the difference between Q1 and Q2, you do see that the DECT category means that the guidance implies and when you take out the voice over IP, the DECT guidance by itself becomes slightly lower on a sequential basis some of it is Home gateway and some of it is just a nature of DECT market and I think if there is anything it's kind of in DECT Europe at the moment.

[Matthew Robison:]

Okay.

[Operator:]

Thank you. [Operator Instructions] We will now take our next question from Charlie Anderson from Dougherty & Company. Please go ahead.

[Charlie Anderson:]

Yes. Thank you for taking my questions and my congrats also on a great quarter. So I wanted to ask about Mobile. Are you assuming anything in Q2 in the guidance in revenue? And then I'm also curious, I don't know if you guys caught this before you jumped on the call, but there is news that audience is being bought by Knowles this morning. I just wonder if you have any thoughts on that as it relates to kind of competition in that market both short-term and longer term?

[Ofer Elyakim:]

Sure, sure Charlie. Thank you for your question. So let’s start with Mobile and are we taking it into account in our guidance. As I said, we are expecting just to start so going to be the early start so nothing of significant materiality. But we will have to see -- wait and see exactly how much we will ship this quarter. But, right now, we are expecting just to start. And so, this is what is in our guidance in a way so we are not expecting meaningful contribution of Mobile in the second quarter guidance. And but again we will have to going to see how the quarter shapes up. And with respect to the headlines that just crossed the tape, yes, we are aware. We also just saw the headline quotes I cannot say that we are very surprise I think there is a lot of M&A activity in our space. There is a lot of consolidation in the market. I don’t think that we see -- we read any negative into this announcement on the contrary. We believe that this just opens an even bigger market opportunity for us, and we believe we have a very strong product offering out there that should enable us to compete very well and effectively with all the competitors for strategic design wins that we hope to secure during the back half of this year.

[Charlie Anderson:]

Perfect. And then a question on ULE, I think on the last call you had mentioned another significant strategic win with a North American, operator. So combining that with this European win, I wonder if maybe you could just help us size the market for us when you get to where you want to go, I mean just any thought on what that looks like in terms of revenue, number of homes, penetration, just any metrics you can give us to help us think about how the whole ULE story plays out would be helpful?

[Ofer Elyakim:]

Yes, Charlie. Thanks. So the way we look at ULE is ULE and IoT market in general are on the very early stages of the hockey stick curve. And IoT is kind shaping up in many different markets verticals whether they are the personal, the health, the security, the automotive, the industrial, building management, home automation and safety et cetera, et cetera. And the way, we are thinking about this market is that, as we need for a very strong robust reliable, and effective short range while the technology is a must because the only way to connect devices to the network requires a very effective and robust wireless link. And this is where ULE is positioned and this is where ULE in a way is competing with many different technology some of them are propriety, some of them are open standards with all kinds of shape and forms and flavors. And from our research and from our the last two years of being in the market and pitching our story and listening to the requirements and the dreams of that with different OEMs and the service providers. We do believe that ULE is uniquely positioned for this space for a variety of reasons, which we’ve outlined in this call and also in prior calls. We do believe also that the combination of short range wireless with voice and when we say voice we mainly means sensing here is a unique opportunity that could bring significant breakthrough to the market in terms of the ability to serve and analyze and bring in intelligence to people or service providers or call center about things that are happening. And also here, ULE is uniquely positioned and when I tried to kind of a go into the discussion of the two major service providers that that we have one which is the European one that we discussed in this quarter and there was another European one that we discussed on the third or fourth quarter and there was a North American one that we discussed on the fourth quarter. The difference is the following, so in Europe right now the designs are for basically the generic, any generic type of service that will be offered for home automation and safety. We see a preference to run it on ULE. In the U.S. market where many of the service providers or market participant already picked the wireless technology, now when they are looking to launch new services that require not just data transmission between a sensor and the gateway and we are talking are more sophisticated use cases including video, including audio, including sensing. We see that they are turning to ULE for that. So this I would say the big difference between the two examples of the North American one, the North American example and the European one. And when we think about how to size the market, so as I said earlier, we are at a very early stages or kind of the fairly leaner flattish areas of the hockey stick curve today. But, when we look into the future we see the entire installed base, the entire data base of subscribers in Europe, in the U.S., in Asia, in Latin America being a candidate for this type of offering. We are thinking about, and you can look at the way Orange is promoting their smartphone service today or how the North American service providers are doing that we believe it’s a very solid opportunity to increase for the service providers to increase their ARPU and protect the churn and for subscribers to realize a new values of connectivity and IoT to their smartphone to everywhere they are with analytics with the ability to contact call center. So we believe the opportunity is enormous, but we are just at the very beginning of that opportunity and we want to see stronger revenues than we had last year, this year. Let’s say a low single millions this year than to see that growing and propelling in the mid-term to let’s say around the $10 million. So this is kind of how we see because we are just at the beginning, the very early launches this is kind of where the rubber hits the road. This is where ULE gets actually deployed in the market space. We are not at this stage the same period, last year.

[Charlie Anderson:]

Perfect. Thank you so much.

[Operator:]

Thank you. [Operator Instructions] As there are no further questions in the queue, I would like to turn the call back over to our speaker for any additional or closing remarks.

[Dror Levy:]

Thank you. Thank you all for participating and we look forward reporting again in 90 days. Thank you.