Inphi Corp
Q3 2019 Earnings Call Transcript

Published: 29 Oct 2019

[Deborah Stapleton:]

Good afternoon, everyone, and thank you for joining us for Inphi’s financial results for the third quarter of 2019. I’m Deborah Stapleton and with me today are Inphi’s President and Chief Executive Officer, Ford Tamer; Chief Financial Officer, John Edmunds and Vern Essi, Inphi’s new Senior Director of Investor Relations. We’ll start off with Vern, giving you the Safe Harbor and then Ford will give you an overview of our business. After that, John will provide a financial summary of Q3 2019 and the outlook for Q4 2019. Then we’ll be happy to take your questions. Vern?

[Vern Essi:]

Thanks, Deb and thank you for joining us today to discuss the financial results for the third quarter of 2019. A copy of today’s press release can be found on the Investor Relations portion of Inphi’s website at inphi.com/investors. Please note that during the course of this conference call, we may make projections or other forward-looking statements about Inphi, including references to our prospects and expectations for 2019 and beyond, the projected growth and size of our markets, our customers, market share, new products and design wins. These forward-looking statements and all other statements made on this call, which are not historical facts, are subject to a number of risks and uncertainties that may cause actual results to differ materially. These forward-looking statements speak only as of today’s call. We do not take any obligation to provide updates after this conference call. For further information regarding risk factors for our business, please refer to our registration statements as well as our most recent annual and quarterly reports on forms 10-K and 10-Q, all filed with the Securities and Exchange Commission, accessible at www.sec.gov. Please refer in particular to the sections entitled Risk Factors. We encourage you to read these documents. Also during the course of this conference call, we may make reference to non-GAAP financial information. A reconciliation of this information is included in the press release and on our company website at inphi.com. This information is not a substitute for GAAP and should only be used to evaluate the company’s results in conjunction with corresponding GAAP measures. Now, to begin our review of the quarter, let me turn the call over to our CEO, Ford Tamer. Ford?

[Ford Tamer:]

Thanks, Vern and good afternoon. thank you for joining us for our third quarter 2019 earnings report. Q3 was an excellent quarter with both revenue and EPS exceeding the high end of our guidance range driven by strengths in both cloud and telecom customers. This was despite continued headwinds at Huawei. In fact, our Q3 revenue set a record as the highest in our history and we’re confident if we continue to accelerate into year-end and 2020. In the third quarter of 2019, we generate a record revenue of $94.2 million, a 9% sequential increase over our second quarter 2019 revenue of $86.3 million and also, this represents a 20.8% increase over to $78 million we reported in Q3 of 2018. on a non-GAAP basis, we earned $0.45 per diluted common share in the third quarter, a 29% sequential increase over our Q2 2019 EPS of $0.35. This is a 50% increase over to $0.30 we reported on a per share basis in the third quarter of 2018.

[John Edmunds:]

Thanks, Ford. Now let me recap the financial results. In the third quarter of 2019 Inphi reported revenue of $94.2 million, which was up 9.2% sequentially from Q2 and up 20.8% year-over-year. This result was 4.7% better than the midpoint of our guidance of $90 million. Addressing this revenue growth in more detail, our cloud products including the PAM DSP products, gearboxes, CDRs, COLORZ, and Cloud TiA's and drivers grew 3.4% sequentially, 40.5% year-over-year and comprised of 56.2% of total revenues in Q3 2019. Our growth was primarily led by COLORZ, with PAM business being solid and poised to drive growth in Q4. Telco grew 20.6% sequentially in the quarter and 7.3% year-over-year and represented 39.2% of revenues in Q3. Telco grew primarily on the strength of our Coherent DSP technology and amplifiers this is despite the ongoing Huawei situation where we experienced another small sequential quarterly decline in direct revenues.

[Operator:]

First question comes from the line of Vivek Arya from Bank of America. Your line is open.

[Vivek Arya:]

Thank you for taking my question and congratulations on the really good growth and execution. For my first question Ford, how do you see the mix of data center and telco playing out into Q4? And in general, how is the visibility, because you have had such a couple of strong quarters, the macro environment is not that great, but I know you have a number of company-specific product cycles. So I'm just curious, how is your Q4 visibility, what it tends to be at this point of the year?

[John Edmunds:]

Vivek, this is John and I’ll let Ford respond as well. We did have good visibility into Q4 right now. In general, we don't quote backlog numbers, so I won't do that here on the call. But we do expect growth in the data center in Q4 and we expect that to drive the growth that we're expecting. So that'll give you a rough feel of I think where we’re going to come out and I'll let Ford respond as well.

[Ford Tamer:]

Thanks, John, yes. Vivek, we’ve got multiple product cycles and new product ramp as you mentioned and we’re very positive and what this means to us for Q4 and 2020.

[Vivek Arya:]

Got it. And for my follow-up, I know you are – it’s a little early to guide for 2020, but expectations are for this kind of strong 20% or so growth to stay there. But I'm just looking at what would be the puts and takes? Does achieving this kind of growth require any specific any specific CapEx to come through? Any specific project to come through? Any product to come out on time? I'm just trying to get a sense for how's the confidence heading into next year.

[John Edmunds:]

Vivek, this is John. And I'll let Ford respond as well. But we actually have a very balanced business right now. And we are poised for additional growth in the data center, which we think will take place. But we also have very good position in the coherent DSP market. So there are some newer products that will continue to ramp. For instance, the 400-gig Porrima chip will continue to ramp in higher volumes. And there are other products in the wings, such as the 400-gig ZR, which might drive a little bit of revenue in the back half of next year. But that will then drive more revenue growth, we think, in 2021. And other than that, we have very good progress anticipated across the board. So there's nothing per se, I think that we are depending on. These are just natural outcomes of the existing design wins that we have already achieved.

[Ford Tamer:]

Yes Vivek, this is Ford, all of the revenue in 2020, the products we have are already done. So we're working right now in 2021 and 2022 revenue.

[Vivek Arya:]

Excellent. Thank you so much.

[Operator:]

The next question comes through the line of Harlan Sur from JPMorgan. Your line is open.

[Harlan Sur:]

Good afternoon. Congratulations on a solid execution and strong results. And it's actually good to see the diversification of the drivers in the business. On that front, it looks like more of the incremental revenue growth came from the telecom business. On the coherent DSP ramp, particularly with M200, you've got a combination of Tier 1 and Tier 2 customers. But for some of these Tier 1 customers, I mean they've never used merchant solution before. So what is the big differentiator that is motivating these Tier 1s to move to your off-the-shelf M200 solution?

[Ford Tamer:]

Thank you, Harlan. So we mentioned a few growth vectors. One, as you mentioned, is the coherent DSP. The second one, as you know, is our COLORZ between data center, 80 kilometers solution, right? Our coherent DSP is being driven mostly by the fact that we've got a better performance than alternative solution and that's driving customers to adopt us.

[Harlan Sur:]

Great. And there's been a lot of new architecture activity within your customer base, Microsoft, for example, it looks like they were an upside driver in Q3. They announced a data center partnership with Reliance Jio in August. And then just this week, they got awarded the JEDI DoD contract. I think that's a $10 billion spend over 10 years. I know it's early days on both these programs, but how does this impact your view for 2020, both for COLORZ and as well as for 400-gig PAM4 transition with this particular customer?

[Ford Tamer:]

Thank you, Harlan, so obviously both of these trends that you mentioned make us more confident and our COLORZ staying strong in revenue for a longer period of time. At least through 2020, at that time we expect the transition to go to 400-gig PAM in subdata center and the 400-gig ZR between data centers. So we're very well poised to benefit from both the continued strength in the 400-gig COLORZ and then the transition to 400-gig in the future.

[Harlan Sur:]

Yes. And just last question, one of your other customers on the PAM4 side just last night talked about stepping up their data center spending here in the second half of this year. And it was interesting because they're putting a lot more emphasis on putting more AI, machine learning, compute capability into their new data centers. I would assume using their ASICs processor, you guys have a strong partnership with them on the 200-gig PAM4 side. Is the AI and deep learning push driving a lot of the PAM4 demand here in the second half of the year?

[Ford Tamer:]

Great question, Harlan. So AI and machine learning have been a big, big driver of the bandwidths inside data center and in turn, a big driver of the need for PAM4. And we do expect a strong Q4 inside data center, driven by 200, 400 as well as retimer applications.

[Harlan Sur:]

Yes. Great execution. Thank you.

[Operator:]

Your next question comes from the line of Blayne Curtis from Barclays.

[Tom O'Malley:]

Hey guys. This is Tom O'Malley on for Blayne Curtis. Congrats on the really nice results. My first one here is again, touching on the COLORZ product. You guys mentioned a couple of times in the prepared remarks that it seems like you had some significant upside in the quarter. I think originally heading into the year, you started to be more of a flattish business versus last year. Can you talk about what happened and what incrementally is going on there to make it better? And do you think that, that trend kind of continues into 2020 as a major driver as well?

[Ford Tamer:]

Yes, so as we mentioned in the prepared remark, we believe this benefits of this between data centers module solution plugged into a regular switch or router are becoming very clear. And the good news for us is today, this is giving us strength in the 100-gig solution that is manifesting itself into Q3. We expect it to continue into Q4 and to 2020. And furthermore, we expect those benefits of space, density, cost, power advantages, to propel the need for 400-gig ZR as the follow-on product in its roadmap. And I think we're becoming very clear that not only do these pluggable solution and the regular switch and router provide tremendous OpEx advantages, latency advantages, power advantages, but they also provide tremendous revenue upside because of the density, you end up freeing server space in the data center that could be used for extra servers that can be dedicated to revenue generation as opposed to putting in a bunch of bulky and big transport boxes that are not needed anymore.

[Tom O'Malley:]

Great. And then I just have one follow-up. You guys have also mentioned you saw TiA and driver growth for both the captive and the merchant DSP. Do you think you're starting to see some signs of share shift in that market? Or do you think that's just natural demand picking back up?

[Ford Tamer:]

The share shift in that market has been very stable. We are the market leader with a strong leading market share and hasn't changed. Actually – so that's the good news. I think what you're seeing now, the 64-gigabaud merchant and captive solutions start to grow. And so these offerings are growing alongside with that.

[Tom O'Malley:]

Great. Thanks a lot. And congrats to the team guys.

[Operator:]

Your next questions comes the line of Ross Seymore from Deutsche Bank. Your line is open.

[Ross Seymore:]

Okay. So thanks for let me ask the question, and congrats on the strong execution. So Ford, you mentioned about the PAM4 adoption being pushed out a little bit from the third quarter, it sounds like it's ramping in the fourth quarter. Can you just talk about your expectations for that market? I know it's largely single-customer-driven in the fourth quarter of this year, but it seems like it should broaden going forward. Does this push out change the slope in any meaningful way or the adoption from those new customers? Or do you view it as just kind of a temporary pause and everything will be back in the normal slope soon enough?

[Ford Tamer:]

Thanks, Ross. So great questions. So look, I mean we have probably over 10 customers going to market with PAM. I mean that's the – people keep forgetting that. On 200-gig PAM, which is driven by 50-gig PAM DSP, we've got multiple customers already ramped last year and this year, strongly in PAM and that continues, okay? As you mentioned, there's a new customer coming in with 100-gig PAM DSP for 400 gig module and that is on track. So there was a lot of noise, mostly generated by competitors about what kind of flood is being created in that market. Right now we're on track. The pilot run, which we're the only ones to be in pilot run, are on track and looking fantastic. And we're going to be ramping to very significant volume for that customer. And then you add all the multiple-system customers that are fielding our PAM DSP retimer solutions for line cards. And you end up with a number of customers that are going to generate this PAM revenue. And this PAM revenue is going to grow very – in a very healthy way, not only from Q3 to Q4 but also from 2019 to 2020, so that does end up being a very a high growth vector for us and not just the DSP and the retimer, but all of the companion TiA driver for multiple optics platform, VCSEL, DML, EML, Silicon photonics are being adopted across the board. So we we're very excited about this. We've very strong roadmap to 7 nanometer moving to 5 nanometer we're opening up a gap and we're in a great shape.

[Ross Seymore:]

Great. Thank you for all those details. Two quick ones I'll ask at the same time and then you guys can answer it however you fit. On the telecom side of things, that was super strong sequentially up 21%, there's a lot of pull-in versus push-out that's affecting different markets with the trade war going on and bans for different customers, et cetera. Do you believe any of your business, maybe specifically within the telecom side, had any of pull-ins that benefited it? And then the second question is separately for John on the leverage side of things, you guys have done a great job on giving operating leverage, earlier this year you promised where you'd be exiting this year and you're hitting that beautifully. How do you guys think about leverage of revenue growth, falling down to earnings growth as we look forward? Just some sort of framework would be helpful. Thank you.

[Ford Tamer:]

Yes, thank you. So if you worried about pull-ins, you've got to look at the Huawei number and as we mentioned in our prepared remarks, Huawei revenue actually declined Q2 to Q3, so there was no such thing. Now going onto John.

[John Edmunds:]

I think from a leverage point of view, we typically are looking to grow the revenue side of the business at 20% a year or better. And then we're looking for levers on top of that. So if we could double that number, that would be ideal, although we don't always get there, but it's a combination for us both investing in the business and providing a good return to the shareholders and that's what we try to keep balanced as we move forward.

[Ross Seymore:]

Great. Congrats again guys. Thanks.

[Operator:]

Your next question comes from the line of Paul Silverstein from Cowen. Your line is open.

[Paul Silverstein:]

Thanks. I appreciate you all taking the questions. For John, if I could ask you to go back to the 200 Coherent DSPs and provide some additional color on with respect to the customer count, the revenue growth opportunity, the Acacia-Cisco impact. I think a previous question indicated that you all were gaining traction with Tier 1. My question there would be, we all know that Nokia, Ciena and Huawei they've got their own coherent DSP, I trust the traction you're getting is either with the switching like a risk to Cisco, Juniper and/or would the Tier 2 transport group, any additional incremental insight on that if you could do that, that'd be great.

[John Edmunds:]

Thank you, Paul. It’s great question. So number one, this increase is pre-Acacia-Cisco impact. So there's no impact so far off the Cisco-Acacia. I mean, the discussions we're having with those customers are our type of future, type of growth. So more positive news to come. But in the Q3 timeframe what really has helped us grow is to ramp off the M200 customers. We've been very public and open about for multiple quarters, so we're finally getting the numbers that are now proving that we're taking share and that we're growing along both captive customers and merchant customers. Meaning number one, as for some of the customers you mentioned, it's not always their own DSP. And so for some of these customers, sometimes they use their, sometimes use ours and we're not at liberty of mentioning who's doing what. But you can imagine that we've got some of these customers using us. And then we've got a number of the other customers in all geographies actually mostly in China and Europe, but all geography moving to us and have things grown. So we've in the past talked about, 10 or so customer, around 25 or so different platforms and that's what's ranting right now. So there's not just one, it's multiple, variety of customer and stay tuned for more positive news into 2020.

[Paul Silverstein:]

Guys, can I push you on where that revenue stream is today and what the opportunity is over the next year in terms of growth?

[John Edmunds:]

We don't break it Paul, as you know – but opportunity…

[Paul Silverstein:]

I know you don’t, but we would.

[John Edmunds:]

Okay, good try.

[Paul Silverstein:]

One another question if I may, we had a check that indicated that you had successful tape out on the 400 gigs ZR platform. I think I heard you made some cursory remarks on that. I was hoping you could provide some incremental insight or revisit those remarks.

[Ford Tamer:]

Good question. Paul, tape-out is very old news, right. We've taped-out a long time ago. I can't even remember when. So you can imagine we've got other news right now that we haven't yet publicly disclosed, but if we wanted to we could disclose, so you make your own judgment of what that news is, you probably can guess. But we're extremely excited about what the robustness and quality of that product and absolutely expect to be first-in-the market for what could be a very promising 400 gig ZR and ZR plus increasing market opportunity.

[Paul Silverstein:]

With meaningful revenue, what time frame?

[John Edmunds:]

No, meaningful revenue is going to be 2021 right, there’d be some revenue in 2020, but 2020 is going to be pilot run and qualification, so really 2021.

[Paul Silverstein:]

I appreciate it. Thank you.

[Operator:]

Your next question comes from the line of Quinn Bolton from Needham. Your line is open.

[Quinn Bolton:]

Hey guys, congratulations on the strong results and outlook. Just wanted to come back to the PAM market, a few quarters ago, you had sort of set TAM expectations of about 120 million, this year 320 million in calendar 2020 wondering, if you still think those are good estimates and then given some of the concerns about the 400 gig timing potentially slipping out at one of your customers, can you give us some sense of how you think the business splits between 50 gig PAM and 100 gig PAM both this year and next, and then I've got a follow up. Thanks.

[Ford Tamer:]

Yes, thanks Quinn. And I've got the benefit of having listened to your question and their answer on one of our competitor’s earnings calls, so I listened to that. And we respectfully disagree, so I think the $120 million market size for this year has been a bit on the conservative side and we're well above that, so we think we've got a very high market share into 2019. Our estimate for 2020 is still around the 300 million. So even that slight push out on that competitor earnings call, when you asked the question, they said there is a six month push out. Well, I'm glad that people that don't know what they're doing are answering that question. We don't see it. You remember the market is broken up between all of these different pieces, so we've got a 200 gig PAM DSP, there’s a 50 gig PAM for 200 gig module, we've got 100 gig PAM DSP for 400 gig module, we've got retimers, we've got IP. So between those four pieces, we're still very positive on the market being around the $300 million mark for next year.

[Quinn Bolton:]

Great. And just a follow-up question, when Huawei first went into place back in May, I think you would encourage folks to take Huawei largely out of the numbers, it sounds like it was – you had revenue in the June quarter, it was down a little bit in Q3, can you give us any sense where Huawei is running, just so we can kind of level set how important of customer that is potentially extent the ban gets repealed how much revenue may still come back into the model.

[Ford Tamer:]

Yes. they're running well below Q1, so Q1 was sort of the unrestricted view, Quinn and our Q2 and Q3 have run well below Q1. We see a bit of an uptick in Q4 and for sort of planning purposes, we're probably planning to be at about 50% of what the national run rate would be in 2020.

[Quinn Bolton:]

Great, thanks Ford.

[Operator:]

Your next question comes from the line of Tore Svanberg from Stifel. Your line is open.

[Tore Svanberg:]

Yes. Thank you and congratulations on the record results, when I look at your new presentation, I see definitely a lot of reference to 7 nanometer, I'm wondering if the 400 ZR I assume is sampling already at 7 nanometer and at what point would you be at 7 nanometer would your PAM product?

[Ford Tamer:]

So we have not confirmed that 400 ZR is sampling, Tory. So good try again. We will announce when we're ready to announce, but yes, the coherent that ZR is in 7 nanometer, the PAM DSP that’d be sampling towards the end of this year are in 7 nanometer.

[Tore Svanberg:]

Very good. And could you talk a little bit about the dynamics that really changed things for COLORZ? I mean, is this just regional expansion from your customer there or did they find anything about – about the technology that they would like to leverage in order to publically make this a bigger business before you transition to 400 ZR?

[Ford Tamer:]

I think the benefits are becoming clear. I think they're winning new data center builds in new geographies, this is what they mentioned on their calls so that's what we know.

[Tore Svanberg:]

Good. Just one last question. And again going back to your presentation, you talk about the Analog Highway between the Digital Islands and clearly you guys dominate the physical layer. And I would say probably no more so now than ever before, what's going on with the competitive landscape and how come nobody else is getting close at this point, is it just simple because it's difficult or do you have any other thoughts on that subject?

[Ford Tamer:]

As we – thank you, Tore for mentioning our new presentation. As we shown on slide number 12, we are the analog DSP optics physical layer partner for all of the different partners on the processing, networking and storage side of the world and we intend to stay that way. So, we intend to remain extremely focused on just doing what we do well, which is this analog DSP optics. We’re not – we have no intention to get into any of the digital islands, no interest in getting CPU, GPU, switching, routing, AI, none of this. So our view is there’s a huge market, multibillion-dollar market to be had and just being very good at what we do. And our secret has been to just stay extremely, extremely focused. So we don’t go invest in other stuff. We only invest in stuff we’re good at, which is the stuff in the middle, analog DSP optics. And it’s a very competitive market and we’ve got some very good competitors, both large and small companies. It’s a list of more than a dozen competitors in the market today so extremely competitive market. And we expect many of those customers – many of those competitors to grow next year. So, I think a rising tide will help our boats. We do expect this to be a big market and we expect many competitors to grow next year and we’ll all grow together.

[Tore Svanberg:]

Great. Congratulations again.

[Operator:]

Your next question comes from the line of Tom Diffely from D.A. Davidson. Your line is open.

[Tom Diffely:]

Yes, good afternoon. I guess a similar question to the last. When you look at your lead right now on the PAM4 side, I think you mentioned that you’re the only ones with a pilot lined out there, do you think your competitors are going to be ready for a ramp next year? Or are they more of a 2021 competitor story against you?

[Ford Tamer:]

No. We do expect our competitors to be ready for a ramp next year and we expect them to come from different places. So, we have strong competitors on the digital side of the world, with people like BroadCom and MaxLinear. We’ve got some strong competitor on the analog side of the world, people like MACOM and Semtech. And you’ve got multiple people ramping their own solution like the Luxtera and Cisco to HiSilicon and Huawei and other captive solutions. So, I think we do expect this market next year to be extremely competitive. But we’ll have to hold our own, we have to keep running and stay ahead.

[Tom Diffely:]

Okay. And let me just – quick model question. When you look at the stock comp, is that tied to anything in particular like revenue growth or earnings growth? Or is it a set number each year?

[John Edmunds:]

No. It’s really a function of the timing of the stock grants and then they amortized over the vesting period, which is usually four years in our case. So every year, we have refresh grants that typically take place in the April timeframe. And then you can see new hire grants take place through the course of the year. So, as we bring new hires and that sometimes increases the stock compensation expense, because we make a measurement at the hire date, at the grant date at a certain value. And then in effect, we amortize that into the expense over the four years that the person invests. So that’s how the expense curves, okay?

[Tom Diffely:]

Great. Thank you.

[Operator:]

Your next question comes from the line of Joe Moore from Morgan Stanley. Your line is open.

[Joe Moore:]

Great. Thank you. Sorry if I missed this, I have more than one call going on. But in terms of the 5G opportunity for you guys to have PAM in that 5G ecosystem, I know that your lead customer there is kind of compromised with some of the trade tensions. Can you just talk about generally what you’re seeing there? And do you see – is that opportunity going to happen more slowly because Huawei can’t deploy? And do you see other customers using PAM-type technologies in backhaul?

[Ford Tamer:]

Yes. Thank you, Joe. So, on the 5G and Huawei, we understand Huawei continues to win on 5G deployment and thus, driving the backhaul demand. Right now, as you mentioned, this doesn’t seem to be any significant share – shift between Huawei and others. So 5G opportunity is – could be a bit slower than initially anticipated, because of this dynamic. However, the strengths of PAM and all the other markets far outweighs that negative.

[Joe Moore:]

Great. Thank you.

[Operator:]

Your next question comes from the line of Joe Flynn from Craig-Hallum. Your line is open.

[Joe Flynn:]

Yes. So, a quick question on the inventory build versus which has been significant over the past couple of quarters. I was wondering if you had a reasonable timeframe or expectations for that balance to wind down in the future as the products start to ramp in the new cycles?

[John Edmunds:]

Yes, thanks for the question. The – it’s really a function of the ongoing demand. But with what we have on the balance sheet today, we’d expect that to dissipate to some degree over the next three to four quarters as the rollouts, in particular, that they are lined up for now demand continues to roll and people want to have inventory available, then we’ll have to make those decisions as we move forward. But in general, we’re looking to bring the inventory back in line within the next three to four quarters.

[Joe Flynn:]

Okay. Thanks, that’s helpful. And just a question about Huawei, we’re wondering if there was any update or insight into the license granting or just anything you can comment there?

[Ford Tamer:]

Yes. thank you, Joe. We’ve double-checked and triple-checked. We applied for licenses. We haven’t received the license. We double-checked and triple-checked across the industry. We haven’t heard of anyone having received the license. We know one of our competitor on the earnings call did mention they got a license, but when we do our own checks in the industry, we haven’t heard of anyone, at least in our markets, getting a license. So it’s – we’re still hoping for some positive news there. We keep working with the authorities to get the license. And I think we’ll stay tuned for hopefully future progress in the talks.

[Joe Flynn:]

Great. Thanks. That’s all from me.

[Operator:]

We have follow-up have follow up question from Tore Svanberg from Stifel. Your line is open.

[Tore Svanberg:]

Yes. I think just a quick one for John. John, I noticed there’s a right-of-use asset, I believe it’s about $11 million this quarter. I think that the new item was just wondering if you could clarify what that was.

[John Edmunds:]

Are you talking about the licensing in the cash flow statement? I’m not quite sure what you’re referring to.

[Tore Svanberg:]

On the balance sheet, you have the right-of-use assets, the net is about $10.8 million.

[John Edmunds:]

Yes. Those are generally capitalized licenses. And so you can see CAD licenses in particular that might be – have a three-year life. We capitalized the license payments and put them up on the balance sheet now. So that’s what that is.

[Tore Svanberg:]

Got it. Thanks for clarifying.

[John Edmunds:]

Sure.

[Operator:]

I’m showing no further questions at this time. I would now like to turn the conference back to you, Mr. John Edmunds.

[John Edmunds:]

Thank you, operator. As a special note today, we’d like to thank Deborah Stapleton and Alexis for helping us with Investor Relations for the past five years. We’ve grown in revenue two and a half times and our earnings is almost quadruple in that timeframe. So, we’re bringing the function in-house now, but we certainly will miss Deb and Alexis and we wish them well. In terms of our plans, we attend – we plan on attending the Stifel conference in Chicago on Thursday, November 7; the Needham conference in New York on November 12; the Cowen Conference in New York on December 10; the Barclays Conference in San Francisco on December 11. Ford and Deborah and Vern I would like to thank you for joining us today and we look forward to speaking with you again in the future.

[Operator:]

Ladies and gentlemen, this concludes today’s conference. Thank you for your participation and have a wonderful day. You may all disconnect.