Operator: The next question comes from Paul Treiber of RBC Capital Markets. Please go ahead.
John Chen: Hi, Paul.
Paul Treiber: Hi John. Good afternoon. The — I’m going to apologize upfront for asking a accounting question, but just on there, can you explain the high level reason for the revenue recognition on the patent sale of — you received a $170 million cash and you’re recognizing $218 million. What’s the reason for the difference there?
John Chen: I could ask Steve to tell you, because I think we should recognize a lot more, but my accounting guru, so said that this is the right proper constrained revenue. I think they used the word constrained. I have never used that term before, but I’ll let Steve answer the question on how this come about.
Steve Rai: Sure. So, as we disclosed the details of the terms of the deal, there is a — beyond the initial payment of the $170 million, which we did receive, there is a fixed amount that’s due no later than a few years out, and then there is some also a royalty component as well. So, it’s those other elements in short, that under the accounting framework, where the fixed piece, obviously there is some discounting there that you apply to kind of net present value it back and then only a very small component of the — just the very near-term on the royalty component. So, the rest obviously will be recorded in future periods when as the amounts become known over the next several years.
Paul Treiber: And the earnout per se of the future royalty, like, is it a risk-adjusted measure, or like how do your accountants arrive at that number?
Steve Rai: There’s a — basically, there is a lot of factors that go into it and there is — there is some risk weighting in it, but by no means does the accounting framework allow you to kind of look at the full stream and value the full stream over the remaining period. So, it’s — don’t think of it as a fair value because the accounting does not represent the full fair value of the…
Paul Treiber: Okay. That’s helpful to understand. Just in terms of cash flow though, the — if you take out the patent sale this quarter, cash flow from operations was negative, what were the headwinds to cash flow this quarter?
Steve Rai: Our first — I mean at the beginning of the year, usually that — our typical profile is to have net cash usage in the early part of the year. So, in that regard, if you remove the amount related to the IP sale, it’s a similar profile to what we typically have over the course of the year and then generate in later periods.
John Chen: Hey Paul, and it’s is driven by, mainly by bonuses for last year, so for our VIP payment and compensation.
Paul Treiber: Okay. Good to know. The last question and I’m not sure you can answer it, but I’ll throw it out there. This arbitration in regards to the patent sale, any comments there, any sort of outlook on that?
John Chen: Well, we — it’s something that I shouldn’t comment on. I think the lawyer won’t like me to comment on it, but it’s — there is no merits to it and we will fight it vigorously and that I don’t think you need to worry about it.
Paul Treiber: Thanks for taking the questions.
John Chen: Sure.
Operator: The next question comes from Daniel Chan of TD Cowen. Please go ahead.
John Chen: Hi, Daniel.
Daniel Chan: Hey, John. On the new Software-Defined Vehicle plans, you mentioned that there is timing differences, but just wondering if there is any changes to the scope of those programs that could either generate potential upside to what you originally had agreed to them?
