Please stand by. We're about to begin. Ladies and gentlemen, good afternoon. At this time, I'd like to welcome everyone to QuickLogic Corporate 3rd Quarter Fiscal Year 2019 Earnings Results Conference Call. 13th, 2019.
I would now like to turn the conference over to Mr. Jim Fanucchi of Darrow Associates. Mr. Fanucchi, please go ahead.
Thank you, operator, and thanks to all of you for joining us. Our speakers today are Brian Faith, President and Chief Executive Officer and Doctor. Sue Chung. Chief Financial Officer. As a reminder, some of the comments QuickLogic makes today are forward looking statements that involve risks and uncertainties, including, but not limited limited to stated expectations relating to revenue from new and mature products.
Statements pertaining to Click Logix's future stock performance, design activity, and its ability to convert new design opportunities into production shipments, timing and market acceptance of its customers' products, schedule changes and projected production start date that could impact the timing of shipments, the company's future evaluation systems, broadening our as profitability and cash. These statements should be considered in conjunction with the cautionary warnings that appear in QuickLogic's SEC filings. For additional information, please refer to the company's SEC filings posted on its website and the SEC's website. Investors are cautioned that all forward looking statements in this call involve risks and uncertainties and that future events may differ materially from the statements made. For more details of the the most recent annual report on Form Ten K, most recent quarterly report on Form 10 Q, recent forms 8 K and other documents we periodically file with the SEC.
These forward looking statements are made as of today. The day of this conference call management undertakes no obligation to revise or publicly release any revisions of the forward looking statements in light of any new information or future events. In today's call, we will be reporting non GAAP financial measures. These non GAAP measures should not be considered as a substitute for or superior to financials prepared in accordance with GAAP. You may refer to the earnings release we issued today for a detailed reconciliation of our GAAP to non GAAP results and other financial statements.
We have also posted an updated financial table on our IR webpage that provides current and historical non GAAP data. Please note, QuickLogic uses its website, website, the company blog corporate Twitter account, Facebook page and LinkedIn page, as channels of distribution of information about its products, planned financial and other announcements, its attendance at upcoming investor and industry conferences and other matters. Such information may be deemed material information and QuickLogic may use these channels to comply with its disclosure obligations under Regulation FD. A copy of the prepared remarks made on today's call will be posted on IR webpage shortly after the conclusion of today's earnings call. And with that, I would now like to turn the call over to Brian.
Thank you, Jim. Good afternoon, everyone, and thank you all for joining our Q3 fiscal 2019 financial results conference call. I would like to start off today's call updating you on our near term outlook, including some significant new developments, and then discuss the path way we will follow with the goal of achieving profitability early next year. Later, Sue will review our financial results. As I mentioned in our call on August 6, there were several factors outside our control that caused us to reset our revenue expectations for both third quarter end all of fiscal 2019.
While some of these factors have been rectified, there are still some items taking longer to complete than our customers initially expected. These items will have an come back in Q4 Currently, our fiscal 2019 guidance is for total revenue of $10,400,000 plus or minus $300,000. This translates to annual sales approximately $3,000,000 lower than the previous outlook. In addition while we expect Q4 gross profit margin to be approximately 60%. For the full year of 2019, we will see gross margin in the high 50s.
Slightly lower than the range we thought in August. We currently believe that we should see as our revenue mix should include a higher percentage of SAS and EFPGA IP sales. When combined with continued cost controls, We should be close to 2020. Furthermore, as Sue will discuss later, while we will use some cash in Q4, we expect the burn to be minimal in Q1 and close to neutral in Q2. There have been several positive developments that we believe will serve as revenue and gross margin drivers starting at the beginning of fiscal 2020.
I'd now like to expand on some of the items influencing the fourth quarter. There are 4 specific areas that comprise the majority of the approximately $3,000,000 delta between Our EOS S3 hearable business continues to be impacted by changes in how customers are developing products that meet Amazon's ABS specification most recently, Amazon has released their own proprietary voice software. This has influenced some of our customers to wait for the integration of combined with Amazon releasing their own TWS headphones for this holiday season has resulted in $1,100,000 in lower revenue. To be clear, this is due to the delayed development schedules of our customers. 2nd, one of our larger expected EFPGA licenses has pushed out to next year, impacting current quarter revenue by approximately GA business later in my prepared remarks.
3rd, within our mature product revenue, while our business with the U. S. Navy is solid and budgets have been confirmed. Some of the other military business we expected in Q4 has also been pushed into the first half of twenty twenty. This will negatively impact Fourth quarter revenue by approximately $400,000.
Lastly, several of the SensiML quick AI customers, we expect it to convert to full SensiML SaaS subscriptions, have taken longer to get through their evaluation period, thereby shifting revenue from these two areas to 2020. This resulted in lower than expected Q4 revenue by about $500,000 Combined, these 4 factors account for nearly $2,800,000 of the $3,000,000 delta. While each of these areas are below our recent expectations, We are confident the issues are short term. I now want to offer some additional Starting with our mature product segment, the push out of shipments to the U. S.
Military customers that impacted our revenue over the second half of fiscal twenty nineteen is being resolved. While we expect to see some of the military orders starting to come back this quarter it will not be at the pace we anticipated when we spoke back in August. We expect to see the balance The ongoing trade conflict with China has caused several of our customers to delay their new product introductions. As I mentioned in our last call, a Civic Chinese consumer electronics manufacturer pushed out the introduction schedule for 1 of our largest 2019 design wins that we were originally told would happen for the 2019 holiday shopping season. We still believe this project will be deployed The silver lining with this issue is that we have successfully leverage this always on technology for a voice enabled remote control.
With a well known and fast growing streaming and smart TV provider. They recently gave us a firmer launch date of Q2 2020. The reason I say the date is firmer is that the timing is not dependent on any TV manufacturer bringing it to market. This new design is completely in the hands In the hearables market, we have a clear path forward for Amazon ABS or Alexa voice service compliant hearable designs. We have successfully concluded a large suite of tests and believe that we have 2 viable solutions for customers that pass both certification and qualification testing.
With these hurdles behind us and the revised schedules we have received from our customers, I believe revenue generated by hearable designs will ramp more significantly in Q1 2020. Separately, we recently established a partnership with ADMOSIC, which is rapidly developing traction for its new ultralow power Bluetooth low energy solution. Leveraging this and our new partnership with retuned DSP, we have already won a new design with a large consumer electronics OEM for a second voice enabled TV remote control. The release schedule for this design has shifted Q2 2020. The customer expects to ship several 100,000 units next year.
In addition, We are engaged with this In addition, our largest ODM customer was the only 3rd party company TWS AirPods like headphones in Amazon's booth at the September IFA conference in Berlin. This customer has started several engagements now with OEMs who are interested in white labeling this product as their own AVS compatible TWS headphones. Our partner is still targeting to be complete with their ABS dev kit an AVS ODM design on the Amazon webpages during this quarter. We believe inclusion on Amazon's ABS websites will lead to several new OEM engagements that On another positive note, I'm very pleased to confirm our Japanese smartphone customer is integrating our technology across a broader range of their product Their first phone with EOS S3 inside was on carrier shelves in August, and we have now shipped pre production orders of EOS S3 3 additional phones that they expect to launch before year end, bringing our total number of models to 4. Since we are meeting this OEM's stringent power requirements, we hope to expand the number of models that include in EOS S3.
In June, we announced a new integrated alarm system or IAS reference design from Infineon, that targets home commercial and industrial IoT applications. Several well known consumer focused companies continue to evaluate the IAS design for integration into their products. While it is too early to predict specific launch dates by end customers, we do believe we will generate revenue from this starting in the middle of 2020. On top of this, a large module manufacturer has already designed a new low cost module based on the Infineon IAS that OEMs can easily integrate into finished IoT designs. This module is scheduled for introduction in early 2020.
Now I'd like to cover several positive updates on our EFPGA business. As I mentioned in the last call, in Q2, we finalized a license agreement with a prime military contractor, has been commissioned by the DOD to evaluate and recommend embedded FPGA solutions and suppliers. As an update, They continue to progress with their evaluation of our test chip as well as our EFPGA core through their design flow. As I have noted before, military contractors already represent a large market for discrete FPGAs and the Department of Defense is taking steps now that will make it easier for its contractors to incorporate embedded FPGA in ASIC designs. We believe we are well positioned As further evidence of this emerging trend, we are now more deeply engaged 2 nanometer FPSOI EFPGA.
We are targeting an evaluation agreement for the 1st part of fiscal 2020 could lead to a Zerich, parallel ultralowpower IC that includes our EFPGA IP. After a longer than the test chip is up and running now in our labs. I want to highlight that this test chip has led to a new engagement that we will touch on shortly. In September, we announced that Nations Technology selected our EFPGA to power its next generation low power TSOC. While this agreement generates only modest revenue in the near term, it enables us and the customer to fast track SoC license agreements that we believe will generate considerably more revenue starting in the second half of twenty twenty.
Our EFPGA strategy continues to evolve and we believe the promise it holds for our future is significant. I have often discussed the need for a more scalable go to market strategy and we believe that comes through tapping into the reach of more companies. 5 platform companies, we mean well known mega capsize companies or ones that have a strategy around connecting a massive number of users with services. These massive users in fragmented markets drives sufficiently large volumes that create a served available market, large enough for our SoC business to coexist with other SoC players where we can license our eFPGA. Last year, we signed an evaluation license with C Sky, who was acquired by Alibaba to be their SoC company moving forward.
GSKY was subsequently renamed to Pingtoga and now is driving all the semiconductor development for Alibaba. Ultimately, Alibaba wants more devices connected to their services. As such, they are creating an ecosystem similar to SiFive, what SiFive is doing, creating SOC templates such that semiconductor companies and system OEMs can bring derivative products to market quickly and cost effectively. I am pleased to announce We were selected by Pincoga to join their IP ecosystem alliance, and that we are the only EFPGA company included in their recently announced template SoC code names, swordless. This IoT SoC template is targeted for tape out in 2020.
Barring any worsening of trade tensions with China, we believe that it will drive significant EFPGA adoption moving forward. Pinktogou will use the license we had previously agreed to under our MTLA for this swordless test chip. And then any future users of the template for their own SoC will generate an IP license and royalties upon unit shipment. We are very optimistic about the potential of this initiative with Alibaba for our EFPGA business. Another exciting initiative for us related to our more scalable go to market strategy for EFPGA has now expanded in the last month to be of much broader scope than originally anticipated.
This one is also with a well which started as an eFPGA discussion has broadened significantly. I am very excited to announce that we have signed an agreement with this company to jointly develop and bring to market an IoT development platform that is based on the EOS S3 as the host processor. To enable the open source tooling support for both the ARM MCU and the EFPGA core in EOS S3. We are now jointly engaged with We also have a commitment from this mega cap company to launch thousands of low cost development kits into the market. Our largest deployment ever by 2 orders of magnitude.
Q11 2020. Moreover, we believe multiple AI software solutions will be ported to this platform, including SensiML. We believe this initiative will be a catalyst for each of our business units first, it could drive an EOS S3 user base two orders of magnitude larger than what we have today. 2nd, it should drive significantly more exposure for SensiML and subsequent SaaS subscription. Lastly, we believe it will drive a more meaningful EFPGA IP license agreement with the same company I alluded to earlier.
One of our assumptions from our previous earnings call was that the above IP license would be executed in Q4 and drive a near 7 digit license fee in the quarter. While the push out of this IP license to next year is disappointing, I firmly believe the resulting agreement we have negotiated with this company is a substantially higher aggregate value to QuickLogic, which will commence in the current quarter. We look forward to updating I'll conclude with some additional comments on our QuickAI and SensiML business. SensiML continues to gain momentum as more companies explore how AI can be integrated into their suite of products. As this macro trend accelerates and more dollars are invested in this area, we are dedicating more resources to the SensiML team and technology.
The funnel for SensiML continues to expand including additional Global Fortune 500 companies. SensiML closed Q3 with a total of customers, 7 of which are Global Fortune 500 Companies. This total is up from 12 customers in Q2 and 3 in Q1. Currently, the majority of them are still using the low cost evaluation version of the product, not yet on the full SaaS product to generate significantly higher revenue. We anticipate increasing that total during Q4 from our initiatives with our distribution partners as well as with MCU partnerships such as our most recent one with STMicro.
We currently expect Sensima will end the year with approximately 40 customers most of which serve the industrial markets. These types of customers tend to have much longer evaluation and decision making periods. As a result, we have seen that the conversion time from evaluation to full SaaS license is taking longer than we had anticipated. Therefore, our objective of cash flow and non GAAP profitability for the SensiML business unit is more likely to be achieved in mid-twenty 20. The good news is that industrial customers tend to have a much longer and more predictable revenue stream, which should offset the seasonality of our consumer oriented business.
In order to accelerate scalable growth, we have recently hired a director of software sales with experience in AI software and SaaS business models. I've covered a lot of ground in these opening remarks. The bottom line is that while there is short term lumpiness in our business, I am confident that we have I would now like to turn the call over to Sue for a discussion of our recent financial performance and full Q4 outlook.
Thank you, Brian. Good afternoon, and thanks to everyone for joining us. For the third quarter of fiscal 2019, total revenue was $2,200,000. This compares with revenue of 3 point $5,000,000 in third quarter last year. The decline from Q3 last year, which was our high is the revenue quarter since the fourth quarter of fiscal 2015 was mainly due to lower shipment of our mature and display virgin products.
Within our Q3 revenue, sales off of new products were $1,000,000. This compares with $1,500,000 in the third quarter last year. While we did have higher revenue from other new product sales, they did not make up for the significant decline in display bridge sales. Our mature product revenue was $1,100,000, a decrease compared with $2,000,000 in Q3 last year. The change was due to lower shipments customers in the military and aerospace sectors.
In third quarter of 2019, we had 4 customers each accounting for 10% or greater of sales. Non GAAP gross margin in Q3 was 48.9 percent compared with 50 point comps despite of nearly 40% of lower revenue than Q3 last year, showing the strength of our diversified product and the customer mix. Non GAAP operating expenses will queue 2019 were approximately $4,500,000, which was the same as Q3 last year. As a reminder, our OpEx from Q3 last year was the prior to the expenses associated with the SensiML acquisition that closed earlier this year. $1,000,000 and SG and A expenses were $1,900,000.
This compares with R and D and SG and A, both at $2,200,000 in Q3 2018. The approximately $300,000 of decline in SG And A from the same quarter last year resulted from a combination of items, including lower consulting expenses and a reduced cost resulting from our facility move earlier this year. The net total for other income expense and taxes in Q3 was a $78,000 charge compared with an expense of $33,000 in third quarter last year. Non GAAP net loss in Q3 was $3,500,000 or $0.03 per share. This compares with a net loss of $2,700,000 or $0.03 per share in third quarter last year.
Finally, the total cash at the end of Q3 was $24,800,000 compared with $28,200,000 at the end of last quarter. Or cash balance at the end of the 3rd quarter also includes the $15,000,000 draw from the revolving line of credit. Now moving to our forecast Our revenue guidance for the 4th plus or minus 10%. We believe that total revenue will be comprised of a approximately $1,300,000 of new product revenue and $1,700,000 of mature product revenue. With our guidance for and the corresponding better absorption of manufacturing overhead.
We currently believe our non GAAP gross margin margin will improve to approximately 60% plusor-3 percent. We're forecasting total. Non GAAP operating expenses will decline to approximately $4,200,000 plus or minus $300,000. Within operating expenses, we expect our R and D to be approximately $2,500,000 and SG and A to be approximately 1 $700,000. And to continue the improvement in our OpEx is being driven by ongoing cost controls, the lower cost of our new facility in San Jose and the roll off of the one time moving expenses we discussed last quarter.
After interest expense, other income and taxes, at the midpoint of these ranges, we currently forecast our non GAAP net loss will be approximately $2,400,000 or $0.02 per share based on about 116,000,000 shares outstanding. Most of the difference between our GAAP to non GAAP results is our stock based compensation expense, which $1000. We expect this expense will remain in the mid $700,000 range for the foreseeable future Finally, in Q4, we expect a lower cash usage in the range of 2.8to3. $2,000,000. As Brian mentioned earlier, we should be close to a non GAAP operating income breakeven at the end of Q1 This in turn should translate into minimal cash usage for the 1st quarter net year and a cash flow breakeven in Q2 of 2020.
With that, Let me now turn the call back over to Brian for his closing remarks.
Thank you, Sue. Before concluding my remarks, I'd like to take a moment to discuss preliminary proxy filing we made on October 7th, asking for shareholder approval to execute a reverse split of our common stock if this is needed to remain listed on the Nasdaq Capital Market. As I discussed in the blog post that accompanies the filing, there are steps we must take to maintain our clients for trading on the NASDAQ Capital Market. If our stock does not close with at least a $1 bid price for 10 consecutive days prior to January 13, 2020. The board has not made a final decision on whether it will execute a reverse split, nor determined the final split ratio.
The special meeting is simply to have shareholder approval should it need to be used to reverse to use the reverse split path to remain in compliance with Nasdaq. In closing, while we are disappointed to not have achieved our fiscal 2019 financial goals that we discussed during the year, I am convinced that the design wins with recognizable OEMs, new ecosystem partnerships, and product introductions addressing new growth markets creates a clear pathway to delivering improved financial I believe we to raise further cash via an offering. While it is too early to discuss a detailed outlook for fiscal year 2020, The commitments we have received from customers and mix of business we currently expect gives us greater confidence that we will not only significantly increase revenue but again, deliver a solid increase in our annual non GAAP gross profit margin for the 4th straight year. Before opening the call for Q And A, I wanna let everyone know QuickLogic will be participating in some upcoming investor events. A few of the highlights include the Craig Hallum Alpha Select Conference in New York on November 12th, the LD Micro Conference in Los Angeles on December 11th, and the Consumer Electronics Show in Las Vegas, January 7th through 10th.
All the events we plan to attend will be available on the Events section of our website. That completes our prepared remarks.
Thank you, Our first question will come from Suji Desilva, Roth Capital.
Hi, Brian. Hi, Sue. So just to get some outstanding in the revenues, how much bladebridge is left in the run rate?
It's de minimis now as of this quarter. Okay. Yeah.
And then, okay. Great. And that's where I'm at. And then the, the large consumer company you've talked about the last few quarters, I think, all the way from last I didn't I don't know if I heard an update about that customer on the call or whether it was in some other comments. So you could kind of remind us what was happening with that customer, that'd be helpful.
Yes. So the consumer electronics company, that we talked about for January when they have the product demonstrated to yes. That for the 1st OEM deployment, was hit with these, these trade issues China specifically tariffs that were going to be applied to that end product coming into the US on this last wave of tariffs. So what I said on the previous call but that they were not gonna launch that this year and they were gonna push it to next year. And what I reiterate on the call at this time was that we were still expecting that to be a mid-twenty 20 product lifecycle.
That's on that specific one. Now what we also gave more clarity on on this call was that that design led to a remote control design, for a content and trimming, company. And they are doing a remote control that is completely under their own control. And we are, the final record in there, that's the design win for us. And that we expect that will actually have a launch date of q 2 of 2020.
And again, you said it's firm because they have controlled their own destiny. They're not doing this as a design that a TV manufacturer has to ultimately sign off on.
Okay. That's helpful. And then, on the headset market, you know, having looked at the Amazon ABS since last year, CS and then hearing that there's a near term challenges for the China customers, a couple of Amazon putting out their own. Can you just kind of wrap that whole dynamic into what's made it harder for you to see your customers ramp?
Yeah. So it it obviously, some of this was complicated with the trade tensions and what could be shipped into the US without getting hit by tariffs. I would say the more recent challenge has just been that Amazon put out their own voice recognition software, which we alluded to on the call here. Because that software is free, customers are wanting to integrate free software from Amazon as the voice recognition as opposed to paying another company for the voice recognition. So that's pushed out the actual launch cycle for some of these guys as a result of that.
As it relates to Amazon specifically with the TWS, I think it's actually it's somewhat disappointing. We're not in the first product wave from them. But it's not a lot of opportunity for us. I think in many ways, this actually makes the market more real for people. And you could imagine that a lot of OEMs that we're talking to now that are working with the ODN that we are in, to be using that as a white label product for the the foreseeable future.
Meaning that when you go to your consumer electronics store, you're not gonna just see, Apple AirPods and Amazon TWS. You're gonna see a whole host of people that are very similar in form factor and hopefully white labeling the products that we're in. Okay,
good. 2 last topics for questions. First of all, in Japan, on the smartphone we have there. What were your expectations for units at the end of 2019? Are you where you expect to be or ahead or behind that?
And if so, what's the delta versus what you expected a few quarters ago?
So from a few quarters ago,
I think even on the last call, we said that we were below expectations for the year by few 100,000 units to that customer, which translates into a little more than a few $100,000. But we were expecting that we would be in around 4 phones shipping this year. And we are gonna hit from a phone launch point of view, I think we're gonna hit that based on what we just said on this call. Just the unit shipment and dollars will be a little bit below what we had expected. Earlier in the year.
Now I was it's worth noting also since you brought up that customer. Remember, we have this MOU that covers 2 years worth of phones. So I am expecting that we're gonna be in this next wave of funds next year based on the same customer where they're taking the current design and then iterating that leverage all of the software work that they put into our EOS chip. Remember, they've they've spent like almost 2 years according to their own software in the EOS and they want to maximize that that R and D investment more part as well.
Got it. And the last question, EFPGA, MedFPGA, what's a good expectation or kind of way to frame what the 2020 revenue opportunity is for that? Any royalties in that, Brian?
So now I would not factor in any royalties. I think the royalty fly will start in 2021 at this point. If you look at a lot of the the designs that we have now that I talked about on the call, they're typically like 2020, mid-twenty 20 tape outs. That's going to result in a 2020 one, royalty flywheel. As far as the licensing revenue goes for next year, I don't think greater points to nail down a specific number, but I definitely think it's going to be in the couple of millish type range, based on again, these current customers that we've talked about.
And then getting that larger IT deal in place with this mega cap size company that I mentioned on the call for the first time today. Thanks, Koji.
Thanks.
Hi, Brian and Sue. Thanks for taking my questions as well.
Yes.
Lots of things to ask about are some some of my topics covered here, but maybe just ask a simple question here. I think for 10% customers, you mentioned there were 4 of them. Any of the opportunities that you've discussed here, where you're seeing some ramps in newer products amongst those four customers, you know, 10%
Yes, there are at least the wall of them. As in this new product, Richard.
K. Is one of them the the Japanese phone OEM?
Yes.
K. That's kinda what I guess. Let's see here. Let's jump over to SensiML. Sounds like you're making some good progress, maybe not as as fast as you'd hope, but, certainly addressing the industrial market here, certainly understandable that the valuations take some time.
I guess, Brian, maybe if I could kind of check off the kind of the bad case scenario here about to evaluate taking longer. Are you seeing any customers doing evaluations and dropping off in any manner? Are you still seeing them engaged? It's just taking a little bit longer.
It's largely it's them taking longer. I think a lot of cases, what we found is that customers are trying to use some of their own hardware to gather data and use the SensiML Cloud. And inevitably, they introduce error into their systems in a way they test which is why we're trying to influence people to use our hardware development kits instead of their own systems for that level of testing to kind of get through the evaluation phase much faster. And we've also come out with a new launch of software. Actually, recently, we didn't give air time to it on the call today, but we've come out with a new version on the website that's opposed to make it easier and faster to get through this evaluation phase.
So now I I have the the funnel in front of me. I don't see anybody that's fallen off, that was that was falling off through an eval point of view. They're still ongoing and just exercising that before they commit to the level of SaaS that we would like them to.
Okay. And you said you just hired a new, a new person here for, for the central, because I can't remember if it was a sales or or engineering point of view, but is is is there experience of how long these evaluations stay consistent with their experience in the past before coming to QuickLogic?
I haven't asked that question of this individual yet. I'm intending to. He actually just started last week. But yeah, it's a sales director. It's going to be under the really driving forward, closing more of these deals, with really a focus.
So one of the nice pieces of background of this individual is that they have experienced selling SAS and selling AI software. So I think the ramp time will be short. They're gonna be handed over these thousands of leads that we have now generated from these different webinars and distribution programs that we have. And I think we're going to start to see any in the closure rate and decrease in the amount of time it takes to get to that point from that experience.
Okay. Fair enough then. Maybe a couple of quick questions for Sue on the numbers here. I think you were if I caught your comments, right, you're expecting improvement in the first quarter approaching breakeven and getting there in the second quarter. Maybe if you could detail what minimum level of sales you think it'll take to get to breakeven?
So we're thinking now, the revenue total revenue level of approximately $6,000,000 of plusminus 10%. And with the gross margin at about the low 60% level,
Okay. And well, it probably can't do the math quick enough in my head, but does that imply OpEx at kind of a similar level that you're guiding to for the fourth quarter?
Yes. Yes. Currently much is stable as what I guided for Q4, that level.
Okay. You know, I think that is all my questions here. You gave us a lot of information at Derby, and I'll do some more of that and talk to you offline. But thank you very much.
Sure. Thanks.
Our next question today comes from Martin Yang Oppenheimer.
Hi, Brian. Hi, Sue. So my question first is on the 1Q expectations. Is the 700 50 K license agreement, is that expected to be pushed out into 1Q 20 or do you expect that to be realized later than 1Q 20?
At this point, we're modeling it being spread out through the year, not all lumped in Q1. On.
Got it. And for when you mentioned the mega cap customer that can increase your, S3 platform, are they intended to focus on industrial IoT or is that a mixture of, consumer industrial and other verticals?
It's actually a mixture. It is not just industrial. It's definitely, I would say, more on the consumer side than the industrial impact. But I think the development that we're doing with them will lend itself very well to people that would like to use it in an industrial type application.
And have you discussed more specific end devices that those platforms are targeted to?
No, I haven't. In fact, this is the first time I've ever spoken publicly about this whole engagement that's been going on for a while. I think the short way to say that the majority of people on this call use products like it every day.
Understood. Last question for me, so for in the hearable space, Amazon changing software is driving some of the delay are you seeing, other drivers for instance, your your partnership with Ira, are you seeing any new developments from them?
Well, we are I don't know if you're talking about new partnership opportunities and new competitive situations. Which one do you guys have?
I was referring to, are are you are you engaged with, for instance, the, equivalent designers similar to Iraoja to, to deepen your penetration in the hearable space? Oh, yeah.
Yeah. Yeah. In
fact, that's given how long we've spent on the prepared remarks already, those types of details fell off the table, I think, on the call, but I can rate them here in Q And A. So, yeah, I mean, in the last quarter, we announced several new partnerships. I think one was at the Roha. We're working with Bettec, which is a Chinese Bluetooth company, at Maso which we did give some air time to end the call. All of these are folks that have some level of penetration into these application spaces already, and we're kind of getting on the bandwagon with him as far as, bringing a whole solution to the same customer.
So, yeah, these partnerships are definitely helping. And cases, they're bringing us to decision makers that we aren't already calling on. In other cases, it's it's a reversal. We're bringing them in to different people. But it's really important actually because in the consumer space, in particular, customers like to start from a known good, verified starting point.
They don't like to do a lot of development on the fly. And so by us pre verifying these solutions with these big semiconductor companies, it sort of validates what we're doing and it accelerates the customer development cycle.
Got it. Thank you. That's it from me.
Next up is Rick And Eaton River Shore Investment Research.
Hi, Brian. Hi, Sue. I'd like some, re clarification about Infineon. Last call, you mentioned that it you expected some production late in Q4 of this year, of that module or a product coming from that reference design. Is that one of the push outs or is that still on track?
So we are expecting to ship some from us, to them to build out some of these systems. And, but I said the bigger launch from them will actually be pushed out a little bit from what we thought last time. And some of that's just due to the the qualification of all of their AI software that they're running on the EOS S3. So we do have in our forecast to ship to that design in this quarter.
Okay. You didn't I didn't hear you mention anything about the feature smartphone that your Japanese customer had scheduled to release in Q2 of next year. Is that still on track. Absolutely.
It's on track. Okay. In speaking about your
expectations for, q 1. Is this guidance, or should it be viewed as something short of guidance?
Well, our I'm not gonna change our policy, which is to give guidance for current quarter. But I would say it's a very well thought out outlook and the driver is gonna take to get to that point of of the operating income and the balance sheet.
And so, Sue, we should model $4,200,000 of non GAAP, operating expenses for Q1 of next year? Is that what you're saying?
I want a I want a model a bit lower than that. So four point is my midpoint. I want to model that at the lower end of that midpoint range. To get up to breakeven point?
I was I was trying to reconcile your 6,000,000 plus or minus with 60% gross margin leaves about a $600,000 delta between breakeven and your $4,200,000. So, okay.
So that could've could've captured, at the fuel 1 or 2 point of a gross margin improvement. Or the all packs level adjustment. So that that's where we're surrogating close to Breakeven. And to Q2 next year, then we're we're comfortable saying breakeven.
Are you seeing, non GAAP OpEx at about $4,000,000 a quarter than in each of the 2 quarters in the first half of next year?
That's our goal to achieve that level of tax standard.
Okay. But that's not a forecast yet. That's a goal.
That's still and that we're pretty comfortable saying that as well.
Okay. Brian, at the last conference call, you said you expected 50 to 100 sensible customers by year end. And now you've scaled that back to 40. What's the reason for the big difference in your expectations?
Really boils down to 2 things, Rick. 1, is that, as I alluded to in the call, we did think that people would get through this evaluation phase of Sensible much faster than what they've what they've shown. Some of those have actually caused us to go back and come out with this more reduced fixed version of the eval software that we just launched. So that's one thing that we're doing to try to accelerate that. The second is that I did mention in the call so that we are officially a partner of STMicro.
So SensiML has their software running on the STMicro MCU. We had a very prominent kiosk at the ST developers conference in Santa Clara, we being SensiML. And our vision there was that they would also be pulling in more of these opportunities that would convert to SaaS licenses sooner than what they have. I think I, maybe over estimated how fast the large European would move. And I was on the wrong side of that estimate.
So I think we're rescaling this to 40 for the year, but I still think fundamentally and fundamentally being part of ST's ecosystem partner program and then actually getting trained up on solution now and becoming an arm, a sales arm for SensiML, I think at the end is going to accelerate this once they get more comfortable. And then the last thing I'll say is just Having a semiconductor company sells software is, it's like challenging people's DNA at some point. And so we hired this new salesperson for SensiML because we want to get breakthrough that wall. And I think having somebody that's got experience selling AI and selling SAS, getting these thousand leads, they're going to be able to convert that at a much faster rate. So retrospect, I wish we hired a salesperson dedicated for this sooner.
But we're trying to be very mindful of objects and cash as we went on that path. Hopefully, that answers your question.
Yes, it does. Thank you, Brian. As an investor, how should that person be viewing the confidence in your outlook for Q1, twenty twenty, given all the, changes that have happened in the past 2 conference calls.
Yes, I was thinking about that before the call. And I think this is where we need to step back and look at the force for a second and just realize that now we really have so many different items as wins with big customers that we didn't have, like, a year ago that so well diversified. And I think if we look at those different milestones and these different partnerships that we've put in place in these deals now that I talked about that we've signed I think that should give it certainly gives me and our management team. I hope that it gives investors that same sense of confidence that I have because it's just a much more diversified customers. The firm commitments, I mean, think about last year, we still hadn't shipped a phone, yet with the Japanese smartphone guy.
And now we're going to exit this year with 4 phones launched. So I think the evidence is there now that this really is on the cusp
Okay. And you By
the way, I'll add one other thing to that, Rick, just sorry to interrupt you. This whole deal with this mega cap company. Again, I haven't talked about this deal before except today. This is a big company putting money and resources behind this initiative for thousands of kits out into the market with this software. That you could argue as a big company, but they're going to have their reputation attached to this as well.
And they chose EOS S3 as the host processor So I think there's something there, that we could all take from that. And also, that's another reason why we're getting the confidence that the tide has turned in Q1 will be that quarter.
Time we have for questions today. I'd like to hand things back to Brian Faith for any additional or closing remarks.
Yeah. Thank you for your participation in today's call and continued support. We look forward to speaking with you again when we report our 4th quarter results in early February next year. Thank you and goodbye.
Ladies and gentlemen, that does conclude today's conference. Thank you all for your participation. You now disconnect.