Peraso Inc (PRSO) 2003 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. We are now ready to begin the first quarter, 2003, earnings conference call for Monolithic System Technology. I would now like to turn the conference over to Beverly Twing of Shelton, the investor relations firm of record for MoSys. Please go ahead.

Thank you, Amy. By now, everyone should have received our press release. However, if you have not, it is available on the MoSys website at www.MoSys.com. Before we begin the discussion of the first quarter results, I'd like to acquaint you with our forward-looking statement. The discussion during this conference call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which includes, without limitation, statements about the market for the MoSys technology, benefits, and performance expected from use of the 1T-SRAM technologies, their strategy, the development and production of products that use their licensed technology, and their financial performance.

Any forward-looking statements made during this call are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Additional information concerning factors that could cause actual results to differ materially from any forward-looking statements made during this call are contained in the company's most recent annual report on form 10K, filed with the Securities and Exchange Commission, in particular, in the section titled ``Risk Factors'' in the form 10K, and in other reports that the company files from time to time with the Securities and Exchange Commission. MoSys undertakes no obligation to publicly update any forward-looking statements for any reason, except as required by law, even if new information becomes available or other events occur in the future. Thank you for your attention. I would now like to turn the call over to Dr. Fu-Chieh Hsu, President and CEO of MoSys.

Good afternoon, everyone, and welcome to the MoSys First Quarter Earnings Conference call. With me today are Mark Voll, our CFO, and Mark-Eric Jones, our VP and General Manager of Intellectual Property. We will begin the call with Mark Voll giving a brief overview of the financial results for the first quarter of fiscal year 2003, inproviding our business outlook for the second quarter, after which I will discuss business and technology highlights of the first quarter. Finally, we will conclude by answering any questions you may have. Now I will turn the call over to Mark.

Good afternoon. Today, as you know, we reported our unaudited financial results for the first quarter, ended March 31, 2003. Here's a summary of the results.

Net revenue in the first quarter was in line with previously stated guidance, at $7.9m, an increase of 23% over the first quarter of last year. Total net revenue included licensing revenue of $4.5m, royalty revenue of $2.9m, and product revenue of $544,000. Licensing revenue in the first quarter was $4.5m, compared to $1.9m in the first quarter of last year. Licensing revenue was recognized from 23 different chip development projects this quarter, compared to nine chip development projects in the first quarter of last year. Five of the chip development projects were new this quarter.

Royalty revenue in the quarter was $2.9m, compared to $3.6m in the first quarter of 2002. We earned royalty revenue from eight different licensees, most having multiple SsCs in production. We recognized royalty revenue from reports provided by licensees, which are typically received in the quarter following that in which the licensee has sold or manufactured products containing our 1T-SRAM technologies. Total revenue from licensing of our intellectual property, which includes licensing and royalty revenue, was $7.4m for the quarter, representing a 35% increase over the first quarter of 2002, of $5.5m. Product revenue of $544,000 in the first quarter, compared to $893,000 in the first quarter of last year. As we have stated in recent quarters, we continue to see weakness in the communication markets for our stand-alone memory chips and believe it is likely that we will continue to experience this weakness in product revenue for several more quarters.

Gross margin percentage in the first quarter was 87% of net revenue. Operating expenses, including research and development, were $4.0m for the first quarter. SG&A increased due to the opening of our Japan sales office and other related sales and marketing expenses. Our first quarter operating expenses also included stock-based compensation charges of $126,000. Net income for the quarter was $2.7m, representing 34% of total revenue, or nine cents, fully diluted, earnings per share, compared to $2.8m, or nine cents per share, in the same quarter last year. Tax rate used to compute the net income was 20%, equal to the provisional tax rate used for the first quarter of 2002. First quarter fully diluted earnings per share were compiled using 30,539,000 shares.

In the first quarter, GameCube revenues represented 25% of our total revenues. Significant revenues from other licensees included UMC and Sony, representing 20% and 13%, respectively, of our total revenues for the quarter.

As far as our guidance for the second quarter of this year, we see a very difficult quarter ahead, and anticipate theat we will see a decline in both licensing and royalty revenues. At this time, we believe that total revenues will range from $4.75m to $5.25m for the quarter. Later in the call, Fu-Chieh will address significant trends that will likely affect our revenue in the coming quarters.

We expect operating expenses to be between $3.6m and $3.8m in the second quarter, down from the $4m that occurred in the first quarter. Currently, we anticipate having an effective tax rate of 20% for the year. Net cash provided from operations was $2m in the first quarter. Cash equivalents and investments totaled $81.9m at the end of the quarter.

On March 31, 2003, total accounts receivable were $2.1m, of which $198,000 was attributable to product sales. Inventory at the end of the first quarter declined to $892,000 from $1m at the end of the previous quarter. At quarter end, MoSys had 95 employees, of which 71 were engineers. That concludes my prepared remarks about the financial results. Dr. Hsu will now discuss the business highlights of the first quarter.

In what has become an extremely challenging environment in the semiconductor industry, we are pleased with the results of the first quarter. That being said, we're not immune from this economic downturn and will not be able to escape without any adverse effect on our business and impact on revenues. Nintendo recently announced that Game Cube sales were 5.5 million units for their fiscal year ended March 31st, 2003. Nintendo's previous public forecast of the sales of Game Cube units of 10 million units did not materialize. Therefore, we do not anticipate significant royalties from Game Cube units in the near term. Additionally, during the past 60 days, we have experienced delays from customers in the start of the design projects, as well as production deployment. We continue to observe high interest in our technologies and believe these delays to be of a temporary nature, but cannot predict with certainty when design starts will once again accelerate. This has led us to also reduce expectations on licensing revenues for the second quarter.

We are confident in the positioning of MoSys and our technology. We remain focused on diversifying our customer base, increasing the number of licensees, improving the efficiency of the design cycle, and devoting engineering resources to further expand and improve our technology offerings.

Highlighting some of the accomplishments in the first quarter, we announced new licensing agreements with AMCC and Advanced Communications Devices, a wholly owned subsidiary of UT Starcom. We end with the quarter with 33 signed licensees.

During the quarter, we also announced that we had successful proven our 1T-SRAM on the 90 nanometer generation standard logic process. [inaudible] verification of our technology on 90 nanometer manufacturing process is another step that continues to prove the excellent scalability of our technology, since it was the first introduced on the .025 micron standard logic process in 1999.

We also announced during the quarter the opening of our new office in Tokyo, Japan. The office will allow us local access to develop relationships with new customers as well as an opportunity for us to better support our existing customers. Later in the quarter, we also announced Shigeru Shimauchi as our general manager. Shigeru brings over 20 years of sales and management experience from previous associations with semiconductor companies, Nippon Sipex Corporation and TSMC Japan.

In our prepared comments, we have outlined our business results and guidance for the second quarter, 2003. I would like to reiterate that due to the confidential nature of our licensing agreements, we usually cannot provide detailed information on a specific project or licensee. This is a contractual obligation that we must uphold in order to preserve our relationships with our customers. At any point in time, when we are able to disclose these details, we will publicly provide that information.

That concludes our prepared comments, and we are now ready to take questions. Please introduce yourself, including your firm's name, when you ask your questions.

Ladies and gentlemen, if you would like to register for a question, please press the one, followed by the four on your telephone. You will hear a three-toned prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one, followed by the three. If you are using a speakerphone, please lift your handset before entering your request. One moment, please, for your first question. Ladies and gentlemen, as a reminder, to register for a question, please press the one, followed by the four

Your first question will come from the line of Brett Miller with AG Edwards. Your line is now open; please proceed with your question.

Thank you. Good evening, Mark, Mark, and Fu-Chieh. I was curious -- I know Fu-Chieh, that you just went through the NDA issues, but I was hoping you could maybe give us a little bit of color, looking at your licenses, as to maybe the aging of them? Give us some indication as to how many of them are in the first phase, second phase, or ready to be actually delivered to the customers?

OK, thanks. I think as we discussed in the last several quarters, we are starting to see the pick-up in activity in our license activity, particularly in the last quarter. And that's really the result of the 1T-SRAM technology being proven in the manufacturing environment the previous year, and so we emphasized in the past that the licensing activity from the start of the project to the production start typically runs 18 to 24 months, and I believe in our last conference we also indicated that the near-term increase in licensing activity and it's very exciting for our future, but it's unlikely to result in the immediate production for our custom product and therefore, to our-- the royalty income. So, to say- to answer your question, is that many of the new programs are really at the early stage of the development.

OK. If I could ask a follow-on, I was wondering if you could give us a little bit of maybe an indication on the newer licensees, if you can give us some indication as to where they fit as far as end markets -- i.e., you know, are they for digital cameras, cellphones, just broad-based, where they're coming from?

We're seeing the same pattern of a combination of communications products and also consumer products. Obviously, consumer products are the products where we anticipate the higher volumes.

Thanks, Mark. Is there any way you can give us kind of more of an indication as to what the end products are, besides just the category, you know, the broad category? Any more detail there?

I think we've talked about specifics on prior calls. In terms of specific products, we see on the consumer side, for example, camcorders, digital still cameras. In other areas, DVD devices, players, also on the consumer side. This is to answer your question on some of the recent licenses.

OK, thank you. Also, if I could just ask, is-- where do you all stand on possibly qualifying with [Schmick] on their platform to augment TSMC and UMC and lastly, if you could give us some update on where you are with the full stand-alone .13 compiler?

Let me first comment on the question relating to the SMIC -- I guess is our answer is ``no comment'' at this time. And I'm sorry, I missed your second question?

Sure -- it was just where you all stand on the full .13 stand-alone compiler. An update there?

Mark?

The .13 stand-along compiler, we are doing internal testing on to this point, and expect to release on to our website in a similar fashion to the .15 compiler shortly.

Your next question will come from the line of Dan Scovel with Needham & Company. Your line is now open; please proceed with your question.

Yeah, Needham & Company. Well, the quarter was good -- congratulations. A couple of questions. First, is there any insight coming from the Nintendo crowd with regards to a GameCube forecast for this year?

As we started earlier, Nintendo's recent announcement indicated a much lower shipment, compared with the earlier-- the forecast, and so we expect, and particularly right now, entering into a low season for many of the consumer devices, and we really don't expect much production activity to happen in the very near-term.

The-- there was an uptick in your licensing gross margin -- is that-- what was that from, and is that something sustainable?

There was nothing there that was attributable to any specific trend going forward, just it would be anything specific to a particular licensee, so we don't see that as any particular trend.

OK, so you don't think that'll sustain at the higher level, then?

That's correct, yes.

OK. The operating expenses seemed to tick up a little bit; you mentioned the opening of the Tokyo office. Were there other items in that operating expense, or do we expect to see that sustain at these levels as well?

Again, we had provided the guidance for Q2, would be between $3.6m to $3.8m, so no, we would not see that level again in Q2.

Was a lot of the upside just Tokyo, or were there other items--

There are sales and marketing related expenses there.

Also, the interest income was higher than I was expecting. Is there something behind that, or is that sustainable as well?

No, it's not. There was a $100,000 pick-up that we recorded in the quarter, outside of interest income.

Well, is that something sustainable or not?

No, it's not.

OK. Also, on your balance sheet, the receivables seem to have spiked up a little bit, which I guess is somewhat unusual, given the history. What was that from?

Related to the licensing- increase in licensing activity, so many of those receivables were due to the uptick in the billings for the licensing revenues.

OK, and I guess that's not the unbilled license receivable, but that would be other stuff that's already billed, correct?

That's correct.

OK. And also, you-- you indicated weakness on the intellectual property side this quarter -- can you comment on the royalty weakness between license and royalty? Are they both expected to be, say, just as weak on a percentage basis or are you expecting more weakness from one or the other?

I think that generally what we see is that it's a combination of the slow season, as we indicated earlier, that our [inaudible] business actually has a fairly heavy content of the consumer devices, which tends to have a seasonality factor, and so what we see as a result is the combination of both the slow season and the going forward, as well as the-- I mean, release from many of our customers the continuous cautious-- the caution due to the extended industry slowdown, so we see-- we do see a lot of the project activity, just like the-- as far as the signing of the contracts, including of some of the project, that gets delayed. And also, and this affects both, is that the-- many of the product production deployment, and due to the uncertainty of the end market, that also has been impacted. We see that there's many situations that our customers product was delayed because of the uncertainty in the end user market.

So you expect to see the second quarter weakness, then, pretty evenly split between licensing and royalty?

Yes. I think basically-- I don't know whether it's evenly split, but I think certainly both will be affected. Basically, from very similar factors.

OK. OK, thank you.

Your next question will come from the line of Matthew Curtis from Kenny Securities. Your now line is now open; please go ahead.

Yeah, thank you. Good afternoon, everyone. Again, congratulations on this quarter. A couple of other quick questions, if I could. I believe in your prepared remarks that you said net cash from operations generated $2m in cash?

Correct.

Yet the cash and equivalents and investments dropped by about $3.5m. Can you tell us what happened to the rest of that?

It increased by $2m.

I see on the balance sheet it's $68.4m last quarter and $64.9m this quarter?

No, I think that you need to include the long-term investments as part of the calculation.

OK. And--

Accordingly, you would seen 81.9-- 79.1 going to 81.9.

OK. OK, very good. The-- I may have missed it, are you all not giving any type of guidance on the IP portion of the revenues for next quarter?

No, we just gave guidance on total revenues.

OK. OK. In your prepared comments, Dr. Hsu had mentioned that you all were experiencing some delays because of the economic environment. I'm just curious, if the majority of these delays are occurring with you all in the licensing cycle or if you're incurring these after the designs are handed back in the production cycle?

Yes, and actually, that's similar to the question from Dan. It's that what we see is that's it's really both, and both in terms of the finalizing the new project from the customer, because they want to have greater scrutiny and greater requirements before they have finalized the development project, and at the same time, we do also see that the, because of the uncertainty in the end user market, and many of the projects that's already been verified or being the sampling stage and the-- has some delay incurred before you go to the full production deployment.

OK. On the major cellphone projects that you all have addressed on previous calls, are all of those back in the hands of the customers at this point, and are your designs, from your point, been completed?

Well, I think among other projects is that there's definitely the one of the projects that's also seen the effect of the delay.

OK. Are you saying delays from all of those cell phone projects, or just one, or can you characterize that number a little better?

Oh, no. What I meant earlier is that the cell phone-- certain cell phone projects also seen similar delays was the other announced cell phone project.

OK.

Especially in the communications and in some of the consumer projects, yeah.

I believe National Semiconductor has been sampling their design to some of their ``alpha'' customers for a while. Have you all gotten any indication from them as to whether that design is being delayed or whether production is set to go forward on that at this point?

We cannot have any comment on that. Sorry.

OK. And then one last question, gentlemen -- last quarter, some follow-on projects with NEC accounted for about 11% of your revenues. I'm just curious -- were some of those projects put on the back burner, or placed on hold? Or what happened to that revenue this quarter?

As part of the normal development projects, once we handed it off back to the customer, there may or may not be any activity for a quarter or two.

OK, so the majority of that 11%, then, was in the licensing last quarter?

That's correct.

OK, thank you very much, gentlemen.

Your next question will come from the line of Sanjay Chhabra with Sidoti. Your line is now open; please proceed with your question.

Hi. A lot of my questions have already been answered. Wondering a couple things here -- can you discuss any developments with the 1T-SRAM? You've already mentioned the compiler application, but is there something for-- any developments for some sort of specific application that you can discuss?

I won't talk about- say that 1T-SRAM Q technology that- although it's very early days, still, interest from customers in that has been excellent, so we're very encouraged by the high level of interest in our core density 1T-SRAM technology.

And what sort of applications for the 1T-SRAM Q be used for?

The applications tend to be similar to 1T, but it provides additional things to our customers by reducing the dye size appreciably, or allowing them make even more memory into products [inaudible] size.

So it's really complementing the scope and the serviceable market application segments for our 1T-SRAM technology.

OK. Also, any forecast on the number of royalty paying customers? Do you think that' going to be increasing the coming quarters? Do you see that number just staying flat for several quarters?

Again, it's really difficult to comment on our customer's business. Again, we've handed off a number of designs to customers and we'll just have to wait, when the customer determines their time to market.

We are also a little bit disappointed.

How many royalty paying customers did you have? Was it eight, that you said?

Licensees, correct, yes.

Eight different licensees, and that number was flat from the previous quarter?

Correct.

Are Sony and UMC currently paying royalties, or just involved in developmental projects at this time?

Currently both.

They're both paying royalties?

I think that the Sony-- including the royalty stage, it actually been for several quarters now, yeah.

OK, thank you.

Ladies and gentlemen, as a reminder, to register for a question, please press the one, followed by the four, on your telephone. Your next question will come from the line of Aaron Marsh with Armazon Advisers. Your line is now open; please go ahead.

Hi, guys. Good quarter. I was just wondering if you could reiterate your total revenue guidance?

It's total revenue guidance of between 4.75 and 5.25.

OK, thanks a lot.

Ladies and gentlemen, as a reminder, to register for a question, please press the one, followed by the four, on your telephone. Your next question will come from the line of Karen Owens of AG Edwards. Your line is now open; please proceed with your question.

Hi, Mark. Can you comment on what direction we would expect to see deferred revenues with the kinds of delays you're talking about in license and royalties?

Really, under our particular business model, it's really difficult to forecast or use deferred revenue as any kind of a gauge on future licensing revenue.

Well, for example, I know if you recognize, or you defer-- you defer your license revenues until you deliver the design, so if they are going-- if customers are delaying their design process altogether, would we expect to see those go down?

Not correctly. What happens is that as we receive cash from a customer, we record deferred revenues and then when we recognize revenue, we offset that amount of cash that we received in deferred revenue. So under our business model, where we're talking about months of activity, it's very difficult to kind of forecast or use that as a gauge.

OK, thank you.

Your next question will come from the line of Matthew Curtis with Kenney Securities. Please proceed with your follow-up.

Thank you. Just a quick follow-up, gentlemen. On the royalty revenue stream, the number of licensees was eight, was unchanged. Could you give us a feel for the projects themselves -- were they the exact same projects from last quarter, generating royalties, or was there some kind of- some dropping off and others kicking in this quarter?

I think as Mark mentioned earlier, that from the eight licensees, many have multiple programs, so yeah, over time, even for the same licensee, there will be a new product phasing in, replacing the older product.

OK, and we did experience some of that in that last quarter?

I don't know the-- well, I think usually they overlap a lot, but in terms of dollar amount, certainly, they will cross over.

OK. And I guess could you give us a feel, qualitatively, for the total number of projects generating royalties, as a whole, increase or decrease over the last quarter?

It increased.

OK, thank you, gentlemen.

Your next question will come from the line of Bob Stugloso with Palisade Capital. Your line is now open; please proceed with your question.

Hi, Mark. Dr. Hsu. Great quarter. Congratulations. I just had two questions. First, is going back to Dan Scovel's comment here, I think he had asked whether you had any guidance on forecasts from Nintendo that you could share with us, but I'm not quite sure whether you said did or didn't, at this point?

Oh, OK, yeah. I think that usually we need to be very cautious not to forecast our [inaudible] business for them, and we expect at the appropriate time they will be making their own-- the forecast. However, we did comment that on-- because the major revision on the number of GameCube units shipped in their last fiscal year, ended March 31st, and we do expect that there should be some inventory adjustment, and particularly coupled with entering into a slow-- traditional slow season, and for the consumer devices, we expect that there should be relatively little production activity in the near future, and the-- however, I guess we-- we do-- well, I guess in the very least, hope that the activity will pick up again when it's entering into the high season.

Yeah, OK, I understand. The second question, just on cellphone, I wonder if I could impose upon you just to, you know, just update us a little bit on how that was going and perhaps from previous conference calls, I think you had enumerated and elicit by name two or three or four different manufacturers, and perhaps you could just repeat those. That has been public before, and kind of give us-- give me a little color as to how many more there might be? And the second part of that is just your perception about how far out any of those projects may be implemented, whether these are like very advanced phones or something a little closer to the horizon?

I think that the first one, just to clarify, that in the past, we have indicated that we have the multiple programs started. I don't believe that we have mentioned specific names, other than the National-- the Semiconductor. And so I think that the-- again, as I mentioned earlier, that the-- some of the programs, we do see some delay, and yet at the same time, we do have-- continue to have the new projects, the opportunity that's in the similar space, so I would say that the situation is reasonably dynamic. I'm sorry that I missed your second part of the question.

Just some coloration on whether these are very advanced projects or something closer to the horizon that we might see here, in the-- a couple of quarters, as opposed to further out?

I think that when we first commented on this, the application, I think we also emphasized that typically the bigger the program, the longer the time it takes, beginning to deployment. I think that we had originally forecast that the second half of 2003, that the-- there's some possibility for some deployment, and I think at this time, I think that we will see-- and there's some delays and pushout on that, although I will say that-- or certainly we will be hoping for, that there will be some of the activity, starting activity not too further out.

Yeah. OK, I understand. Thanks very much.

OK, thank you.

Ladies and gentlemen, as a reminder, to register for a question, please press the one, followed by the four. Your next question will come from the line of Marty Curry with Butte Capital Management. Your line is now open; please proceed with your question.

Thank you. Can you give us some kind of projection for cash flow for Q2?

No, we're not providing guidance as far as cash flow is concerned. Typically we say that the cash that we provide from operations should be equal to net income on a kind of broad range basis.

OK, next question, and I apologize if I missed this -- you generated $2m in cash in the quarter, yet your cash went down sequentially, and I believe it was transferred into long-term investments.

That's correct, yes.

Long-term investments were up by $5.6m. What exactly is that in long-term investments?

Right. So, long-term investment would be an investment vehicle that would be greater than 12 months, that we classify as long-term.

Could you explain to us what that would be?

That could be a corporate note or bond that would be purchased, that would have a maturity longer than 12 months. So when you're looking at the total cash, you would have to include equivalents and short- and long-term investments.

OK, last question -- amount of receivables that were associated with the product revenue. I believe you gave that out, and I missed it.

--$198,000.

I'm sorry?

$198,000.

OK, thank you very much.,

Ladies and gentlemen, as a reminder, to register for a question, please press the one, followed by the four. Once again, ladies and gentlemen, to register for a question, please press the one, followed by the four. Gentlemen, I am showing no further questions. Please continue with your presentation.

OK, thank you again for participating in our call. Before we close, I would like to reiterate the key highlights and achievements of the past quarter. Total revenues increased by 23% over the first quarter of last year. Year-over-year licensing revenue increased 137% We announced our 1T-SRAM technology has now been silicon-proven on the 90 nanometer generation standard logic process. We announced new licensing agreements with AMCC and ACD. We announced the opening of our first office in Japan.

Thank you again for your participation in this call.

Ladies and gentlemen, that does conclude your conference call for today. We thank you for your participation and ask you to disconnect your lines.