Peraso Inc (PRSO) 2003 Q3 法說會逐字稿

Ladies and gentleman thanks for standing by, welcome to the Monolithic System Technology third quarter earnings conference call. During the presentation, all participants will be in the listen only mode, after which we will conduct a question-and-answer session.

At that time, if you have a question please press the "1" followed by "4" on your telephone. As a reminder, this conference is being recorded Thursday, October 16, 2003.

Now I would like to turn the conference over to Miss Beverly Twain of Shelton, the investor relation firm of (inaudible) for MoSys'. Please go ahead, madam.

Thank you Heather. By now everyone should have received our press release, however, if you haven't it is available on the Mosys Web site at at www.mosys.com. Before we begin the discussion of the third quarter results, I would like to acquaint you with our forward-looking statements.

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 MoSy's technologies, benefits and performance expected from use of the 1T-SRAM technologies. Licensees of 1T-SRAM technologies and their strategy, the development and production of products that use MoSy's MoSys' licensed technology, license fees and royalties attributable to 1T-SRAM technologies and the company's anticipated or perspective 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 and annual report on form 10-K filed with the Securities and the Exchange Commission.

In particular intersection in the section titled risk factors in the form 10-K and in other reports the company files from time to time with the Securities and the Exchange Commission.

MoSys undertakes no obligation to publicly update any forward-looking statement for any reason except as required by law even as new information becomes available or other events occur in 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 third quarter earnings conference call. With me today is Mark Voll, our CFO. We will begin the call with Mark giving a brief over-view of the financial results of the third quarter of the fiscal year 2003 and providing our business outlook for the fourth quarter. After which, I will discuss business and technology highlights of the third 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 third quarter ended September 30, 2003. Here is a summary of the results.

Net revenue in the third quarter was 3.5 million; total net revenue included licensing revenue of 1.8 million, royalty revenue of 1.2 million and product revenue of 511,000. Licensing revenue in the third quarter was 1.8 million compared to 2.8 million in the third quarter of last year.

Licensing revenue was recognized from 22 different chip development projects, this quarter compared to 21 chip development projects last quarter. Four of the chip development projects were new this quarter.

Royalty revenue in the third quarter was $1.2 million, compared to $3.5 million in the third quarter of 2002. The decrease is attributable to the absence of Game Cube royalties compared to approximately $2.4 million in the third quarter of last year. During the third quarter of this year, we earned royalty revenue from 7 different licensees, most having multiple association production.

We recognized royalty revenues from reports provided by the licensee, which are typically received in the quarter following that in which the licensee has sold or manufactured products containing our 1T-SRAM technologies.

Product revenue was $511,000 in third quarter compared to $784,000 in the third quarter of last year. As we have stated in previous conference calls this year, we continue to see weakness in the communications market for our stand alone memory chips, and believe that is likely we will continue to experience this weakness in product revenues, for several more products. The gross margin percentage in the third quarter was 76% of net revenues. The gross margin percentage for the quarter was lower than normal (inaudible) due to royalty revenue being in a lower portion of total revenues. And lower gross margin on licensing revenues in the quarter. The gross margin percentage on licensing revenue was below normal due to fixed overhead costs absorbed by lower licensing revenues during this period. We expect the overall gross margin percentage to return to historical levels in the fourth quarter of this year.

Operating expenses, including research and development, were at 3.7 million for the quarter, which was in line with our previous stated guidance. Our third quarter operating expenses also included stock based compensation charges of 190,000 of which approximately 100,000 was a one time charge associated with our Atmos acquisition last year. Net operating income including interest income totaled $311000 for the quarter.

The net loss for the quarter was 249000 or a loss of 1 cent diluted earnings per share. Compared to net income of $2.8 million or 9 cents fully diluted earnings per share in the same period last year. The net loss for the quarter included a benefit of approximately 400,000 from a reduction of the company's tax provision. This is due to the use of available tax credits. We anticipate having an effective tax rate of 10% for the fourth quarter and adjusting the tax rate to be for the 10% in entire year.

Third quarter diluted earnings per share were computed using 30,614, 000 shares. Significant revenues from our licensees included Sony, Motorola and Marvell representing 28, 11 and 11% respectively of our total revenues for the quarter.

As we had stated in our announcement of reduced third quarter revenues, some of the transactions we anticipated closing in the quarter, either occurred after the close of the quarter or occurred too late in the quarter, to recognize revenue from these transactions.

In addition, some of the projects in which we had already signed license agreements required customer decisions that were delayed and thus, we are not able to recognize revenue. Revenues from these transactions should be recognized in the fourth quarter. As a result, we do enter the fourth quarter with better visibility than we had in the previous quarters this year.

However, as our results for the third quarter would indicate, it remains difficult (inaudible) to foresee future revenues. Our overall perspective on our future revenues still remains on a contract to contract basis.

For our guidance for the fourth quarter, while we are optimistic, remain cautious and as such we anticipate total revenues will range between 5.5 and 6 million. We would anticipate that the majority of the increase in the fourth quarter revenues would be realized from licensing activity. We expect operating expenses will remain between 3.6 and 3.8 million in the fourth quarter. Net cash used in operations was $1 million in third quarter. Cash equivalence in both long and short-term investments totaled $84.3 million at the end of the quarter.

On September 30, 2003 accounts receivable totaled 2.1 million of which 215,000 were attributable to product sales. Inventory at the end of the third quarter declined to 592,000 from 794,000 at the end of the previous quarter.

At quarter end we had 92 employees of which 69 were engineers that concludes my prepared remarks about the financial results. Fu-Chieh will now discuss the business highlights of the third quarter.

During the past quarter, I had the opportunity to spend time with customers discussing their future design plans. The activity level with many of our customers is strong, however, our customers still remain cautious in their R&D expenditures on both design starts and production deployment. Although the timing of design wins is difficult to predict in the current environment.

We anticipate an improvement in the overall micro economic environment, which should be conducive to a turnaround in new design wins. We continue to witness a wide array of customer applications for our technology as well as the need on the part of our customers to increase performance and decrease cost for highly integrated SOC designs.

Our customers may have many available memory solutions, but we remain confident that no other technology offers the combination of performance, cost and ease of implementation as our technologies provide. With respect to the license, royalty projections, no doubt many of you have read that during the quarter, (no return here - should be part of the next sentence).

Nintendo announced a price reduction on game cube units reducing its retail list price from a $149 to $99 There are initial indications that the game cube unit sales have increased, but at this time we have not received enough information to determine how any such success will affect our future revenues.

During the quarter we announced the successful silicon verification of our 1TSMR technology, 0.13 micron logic process at Charter emiconductor. This runs out the availability of our technology on Charter's Leading Edge semiconductor processes from.25 microns through 0.13 microns. We also announced the successful silicon validation of our 1TSMQ technology under 0.13 micron standard logic process. This was an important milestone event allowing us to fully demonstrate our ability to meet customers' increasing density requirements on SOC devices.

We also announced deporting of our 1T SMQ technology through UM C's 0.13 microns and 90 nanometer logic processors. To date we have initiated or completed porting of our 1T-SRAM- Q technology through multiple Fabs including AEC, TSMC and UMC. We continue to see strong interest in this very important technology and we would expect further adoption by industry leaders in the near future. We are prepared to commence we have outlined our business results and guidance for the forth 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. Aside from limits of this nature we intend to disclose relevant material information concerning our business and operating, as we are able to do so.

That concludes our prepared comments and we are now ready to take questions.

Please introduce yourself including your firm's name when you are at the questions.

Thank you. Ladies and gentlemen if you would like to register questions press the number "1" followed by "4" on your telephone. You will hear a greet tone prompt to acknowledge your request. If your question has been answered and you would like towards to withdraw your registration please press the "1" followed by "3". If you are using the speakerphone please rest your hand sets if you are entering a request.

One moment please for the first question.

The first question will come from the line of Matthew Curtis from Kenny Securities. Please proceed with your question.

Hello Mark, this is Matthew Curtis with Kenny Securities just a couple of quick questions for you guys today. As I understand it, your tax provision was increased you're reducing the amount of taxes, is that the result of your overseas sales like we saw in the fourth quarter last year?

Exactly, the availability of foreign tax credit as well as availability of NOLs -- correct.

OK. So, there were some NOLs mixed in there as well ?

That's correct, as we carry forward.

OK. And as I understand it, there were zero Game Cube royalties recognized this quarter. Is that correct?

That's correct.

Could you all give us an update on where you all are with your compiler technology what process generations we're at and what kind of design activities we've seen there?

Fu-Chieh Hsu Yes, , I think that we discussed that in the last several the conference calls was that the-- to date, we have completed fully integrated our team into our engineering organizations working on the variety of projects and we have already released the several the compiler base for the year, the programs the vehicle based on our 1T-SRAM technology and some on the way but some are available for customers usage. And we continue to view the compiler related activity as a complement to our extended product macro as well as the customer's macro development support for our customers.

Sure. And have we seen actual designs constructed through the compiler at this point or it is still sort of an introductory technology ?

Fu-Chieh Hsu Our view is that the compiler technology is an excellent tool for customers the planning and the project usage and usually after if the technology is the top is selected and the usually we will be required for making minor modifications. So We see that the compiler is a very usefully important marketing tool and more often than that the actual delivery is based on the (inaudible) but with additional customization.

OK, We saw a little bit of an increase in the unbilled contract receivable with the majority of that, the result of this delay in contract signings with some preliminary work done ahead of time.

No not really, this would just represent that we have more projects that are in the back end of their stage, either the tape (inaudible) or verification stages.

OK, Is it just longer time to completion there? Is that why they would not have been billed yet. ?

No, it just means that we are working to attain a milestone in order to build a customer.

OK and, I'm sorry, I missed that during the remarks, Mark. How many of the licensing projects this quarter were new?

Four.

Four of them.

Correct .

And then, your significant customers, Sony, Motorola, and Marvel, could you give us some kind of idea as to how much of those percentages that they accounted for were licensing versus royalties?

Ah, we really cannot provide the breakdown of the customer revenue, other than stating that they were significant customers.

OK. Thank you very much gentleman.

Thank you.

Next question will come from Gavin Duffy with AG Edwards. Please proceed with your question.

Hello, guys, just a couple of quick questions. In the revenue guidance for Q4 seeing that most of the growth will come from on the licensing side, are we expecting any growth in royalties?

For the most part, we have not received enough indications from customers but for the most part we are not anticipating any significant increase in royalty revenues for Q4.

OK, and just a general question. On the compiler side, when somebody would take a license on that, how will the revenue recognition break out over a timeline?

Fu-Chieh Hsu Well, as I mentioned on the previous question, is that the compilers deployment is mostly used by customer as the design gate ages, by and large is that the for the high volume, the enlarged memory configurations than the most customer would require the customization.

So internally from the accounting wise that we do not treat it as the compiler generated the activity, that is why we view the compiler. The program is very instrumental as a marketing tool rather than the actual product delivery, the vehicle for the 1T-SRAM family.

Thank you guys.

(Operator Instructions). I am showing no further questions. I turn the call back to you.

Thank you again for participation in our call. Before we close, I would like to reiterate that we remain confident in the positioning of MoSys and our technology. We are committed to 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 technologies.

Thank you again for your participation in this call.

Ladies and gentlemen, that concludes the conference for today, we thank you for your participation. Now ask you to please disconnect your lines.