Peraso Inc (PRSO) 2004 Q1 法說會逐字稿

Welcome to the Monolithic Systems Technology first-quarter 2004 earnings results conference call. At this time, all participants are on listen-only lines. At the end of the presentation, there will be a question-and-answer session. (OPERATOR INSTRUCTIONS). We will remind you today's call is being Webcast and recorded for replay.

I would now like to turn the call over to Beverly Twing, of Shelton Investor Relations. Over to you, ma'am.

By now, everyone should have received our press release. However, if you haven't, it is available on the MoSys Website at www.MoSys.com. Before we begin the discussion of this quarter's 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 include without limitation statements about the market for the MoSys technology, benefits and performance expected from use of the 1T-SRAM technology, licensees of 1T-SRAM technologies and their strategy, the development and production of products that use MoSys's license technology, licensees and royalties attributable to 1T-SRAM technology and the Company's anticipated or prospective 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 10-K, filed with the Securities and Exchange Commission, in particular 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 Exchange Commission. MoSys undertakes no obligation to publicly update any forward-looking statements for any reason, except as required by law, even as 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 is Mark Voll, our CFO. We will begin the call with Mark giving a brief overview of the financial results for the first quarter of fiscal year 2004, and providing our business outlook for the second quarter, after which I will discuss the business and technology highlights of the quarter, and we will entertain questions at the end of the call.

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, 2004. Here is a summary of the results.

Net revenue in the first quarter was 4.5 million, which was in line with our guidance for the quarter, even though much of our activities in the quarter involved integration issues surrounding the planned acquisition of MoSys by Synopsys. Total net revenue included licensing revenue of 3 million, royalty revenue of 1.4 million and product revenue of 162,000.

Licensing revenue in the first quarter was 3 million, compared to 1.9 in the previous quarter and 4.5 million in the first quarter of last year. Licensing revenue was recognized from 17 different chip development projects this quarter, compared to 21 chip development projects last quarter. Two of the chip development projects were new this quarter.

Royalty revenue in the first quarter was 1.4 million, up from the 1.1 million in the previous quarter, compared to 2.9 million in the first quarter of 2003. The decrease in royalties in the first quarter from the first quarter of last year is attributable to the decline in royalties from GameCube chip sales of 1.7 million. We earned royalty revenue from 10 different licensees in the quarter, most of whom have multiple SoCs in production.

As a reminder, we recognize royalty revenue 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 162,000 in the first quarter, compared to 544,000 in the first quarter of last year, as we continue to focusing on our licensing and intellectual property to our customers.

Gross margin percentage in the first quarter was 88 percent of net revenue, compared to 87 percent in the first quarter of 2003 and up from 80 percent in the fourth quarter of 2003.

Non-operating income, including interest income, totaled 361,000 for the quarter.

The net loss for the quarter was 521,000 or a loss of 2 cents diluted earnings per share, compared to net income of 2.7 million or 9 cents fully-diluted earnings per share in the same period last year. First-quarter diluted earnings per share were computed using 30,845,000 shares.

These results for the quarter included approximately $900,000 of operating expenses, or $700,000 on a net tax basis, associated with the planned acquisition of MoSys by Synopsys. Excluding the expenses associated with the Synopsys acquisition, pro forma net income for the quarter was 190,000, or 1 cent earnings per share on a fully-diluted basis. Significant revenues from our licensees included Fujitsu, which represented 40 percent of our total revenues for the quarter.

For the second quarter, we anticipate total revenues will range from 4 to 5 million. This guidance is based on booked business we currently have under contract at the end of the first quarter. We expect that our operating expenses will range between 3.8 and 4 million in the second quarter, exclusive of legal fees and associated expenses for the UniRAM and Synopsys litigation matters.

Net cash provided from operations was approximately 600,000 in the first quarter. Cash equivalents in both long- and short-term investments totaled 89.1 million at the end of the quarter.

On March 31, 2004, accounts receivable totaled 609,000, of which 58,000 was attributable to product sales. Inventory at the end of the first quarter declined to 437,000 from 474,000 at the end of the previous quarter. At quarter end, we had 92 employees, of which 66 are engineers.

After the close of the quarter, we announced that our Board of Directors has authorized the Company to purchase up to $25 million of our common stock over the next year. Share repurchases may be made from time to time in the open market, subject to market conditions and other factors, such as if the Company believes the repurchases will be beneficial to shareholders. These repurchases may be commenced or suspended at any time, or from time to time without prior notice.

That concludes my prepared remarks about the financial results. Fu-Chieh will now discuss business highlights of the first quarter.

The first quarter of 2004 was indeed a very busy period for MoSys. As many of you are aware, on February 23, we announced the execution of a merger agreement between MoSys and Synopsys. On March 22, Synopsys began the tender offer for all of the outstanding shares of MoSys, with the tender offer expiring on April 16, and the closing of the transaction anticipated to conclude shortly thereafter.

However, on April 16, Synopsys delivered a notice to us terminating the merger agreement, with no specific reason for this action identified. Synopsys took this action after we had delivered to them our certification of compliance with all the conditions to close the merger. We are unaware of any issues that would constitute a legitimate reason to breach our agreement, as we had discussed all the significant aspects of our business and operations that Synopsys had inquired about. We believe today, as we had when we entered into the merger agreement, that this merger is important and beneficial for both companies and its customers.

On April 23, we filed a lawsuit in the Chancery Court of the state of Delaware, in which we seek to force Synopsys to complete the merger agreement, or otherwise seek monetary damages arising from the breach of the merger agreement. While we regret our only alternative is litigation, we have asked the court to compel Synopsys to close the merger that we believe is in the best interests of our shareholders, customers and employees.

On April 29, 2004, the Delaware Chancery Court issued an order to proceed on an expedited basis, and to separate our specific performance from our damage claims -- in both instances, pursuant to the parties' stipulation. Trial date, on our request for specific performance of the merger agreement, is scheduled for July 6 to 13, 2004.

On April 1, MoSys received a complaint from UniRAM Technology alleging trade secret misappropriation and patent infringement. In its complaint, UniRAM asserted that we had provided trade secret information to Taiwan Semiconductor Manufacturing Corporation, known also as TSMC, in 1996 to 1997 timeframe, and speculated that MoSys improperly obtained unspecified trade secrets of UniRAM from TSMC in an unknown manner. MoSys was named as a defendant in the lawsuit, and later, on April 19, an amended complaint also named TSMC as a defendant. On April 21, we filed our answer to the amended complaint, in which we denied all claims made by UniRAM against MoSys, raised affirmative defenses to UniRAM's claims and asserted counter claims for (indiscernible) judgment that UniRAM's patents in suit are not infringed, are invalid and unenforceable.

On April 30, UniRAM filed papers with the court seeking to amend its complaint once again, this time to drop from the lawsuit one of the two patents they have alleged we infringed. This development comes only one month after UniRAM filed suit, and it is apparently in response to MoSys' answer and the counterclaim filed April 21, 2004. Management believes that UniRAM's remaining patent infringement claim and trade secret allegations are without merit, and MoSys will ultimately prevail.

While we would like to provide you with greater detail for further background relating to this matter, we cannot do so in this time, due to the pending litigations.

As indicated earlier with our financial results, we continue to work with Fujitsu in delivering our technology to them in accordance with the current license agreement. Fujitsu marks the first integrated device manufacturer to take a technology license from MoSys, and has said it will use our 1T-SRAM-Q to provide high-density embedded memory solutions to their SoC design customers in consumer applications, including digital cameras and the video camcorders. During the quarter, we announced two new licensees, Sigmatel and Z-Micro (ph). Sigmatel is a leader in providing application-specific mixed-signal integrated circuits for a variety of products in the consumer electronics and the computing market, including portable audio players such as MP3 players, notebooks and desktop PCs, DVD players, digital television and set-top boxes. Z-Micro, a leading China-based semiconductor Company, provides integrated circuits that enable multimedia communications in applications for telecommunications, PC, mobile and consumer markets. Our initial design for Z-Micro will be incorporated into their next-generation multimedia processors for cellular phones.

During the quarter, we also completed successful silicon validation of our 1T-SRAM-Q technology, UMC's 0.13 micron standard logic process. This development will allow UMC's customers to access our high-density 1T-SRAM-Q technology, thus further advancing (ph) the availability of our technology.

On April 17, 2004, Dr. Wei Yen submitted his resignation from our Board of Directors. In his letter of resignation, Dr. Yen explained that he spends more than half of his time on business in Asia and, as a result, did not believe he was able to dedicate sufficient time to serving as a director of our Company in the future. Currently, there are two vacancies on our Board of Directors, of which we are actively seeking qualified independent outside directors.

In our prepared comments, we have outlined our business results and guidance for the second quarter of 2004. I would like to reiterate that, due to the confidential nature of our licensing agreements, we usually cannot provide detailed information on our specific projects or licensees. 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 results, as we are able to do so.

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

(OPERATOR INSTRUCTIONS). Matthew Curtis, Kenny Securities.

Real quick, on this Fujitsu business, just to clarify, did you say 40 percent of revenues was Fujitsu?

Correct.

And does that count as one of the two new licensing projects you had for the quarter?

No, it does not.

In terms of the Fujitsu contract, are we still working on a general buildup of knowledge with their engineers, or are there specific projects being worked on, at this point?

I think that would be both.

And then, do you guys have any updates on the Motorola LSI projects to give us at this point?

We cannot comment on the progress of any specific customer's project.

(OPERATOR INSTRUCTIONS). Gary Mobley, B. Riley & Co.

You ended the quarter with 92 employees, and I think that was roughly flat with last quarter. You were in the mid 90's, correct?

Exactly 92 at the end of the year.

I would assume that a lot of these employees were not going to be retained after the merger, and perhaps a lot of them started seeking jobs in anticipation of the deal closing. Are there going to be a number of key employees leaving here in the next few weeks to months? And will that impact your business going forward?

I think this we have a real (ph) employment with our employees, and certainly, as we stated earlier, we have devoted significant resources in the quarter for the integration activities. And at this time, we certainly are trying our best to keep our teams and everything together. And we have reason to be optimistic we will be successful.

Are you trying to put some incentives in place to keep people from accepting job offers, and keep them at MoSys?

Well, I think that at MoSys, we're always looking at to have a competitive compensation package with all our employees.

Is Mark-Eric still with the Company?

That's correct.

And, Mark, are you still staying with MoSys? Have you accepted a job offer from somewhere else?

No, I haven't; I'm still with MoSys.

I would have expected royalties perhaps to be a little bit stronger, given Nintendo, I believe, started ramping production at the end of October. How normal, or how much of the royalties in the quarter represented normalization of Nintendo? In other words, did we not see a normalized quarter for Nintendo?

Well, again, I think Nintendo is, given what their forecast is in terms of units, again, they are looking in relationship with the inventory they have, what they need to fill their channel, and what production they will need to acquire as far as chips are concerned from NEC.

(OPERATOR INSTRUCTIONS). Matthew Curtis, Kenny Securities.

I didn't expect to be up quite so quickly, but let me go ahead and offer a couple more here. Going back to the Fujitsu revenue real quick, is it safe to assume, since it's so new, that was all licensing revenue that you got from them this quarter?

That's correct

Is there a way to quantify how you guys have -- what kind of business you guys have developed from your 1T and 6T compilers at this point -- either a percentage of revenue, new orders, something along those lines?

The 6T compiler, the program we only announced it fairly recently. So it's something that we are in the promotion stage, but we don't in fact to have the significant -- the business until after some time with the customers.

Can you all give us some indication, so we can compare with last quarter, what we're looking at in terms of new bookings at the end of this quarter?

We are not disclosing the booking information. We can tell you that, again, by the licensing activity, the licensing revenue was pretty strong, and that we did not see that going into the second quarter also.

In terms of the licensing projects that you all are currently working on, would you say it is fair to characterize that the amount of revenue that you derive per project is still increasing?

It's really difficult to say. I would say that we have given our guidance typically on macro development, the licensing fees, several hundred thousand dollars plus. And so I don't see any real change in the way we have priced our technology within the last several quarters.

Let me ask it another way, then. As we get down to smaller and smaller geometries, and more complicated designs, is it fair to characterize that the time that is spent developing per project has increased, in terms of the number of months that is spent on the design cycle?

Not really. I think that our design and the technologies always go down (ph) the pipeline with the previous generation. So, even though the absolute complexity of new design in the newer-generation technology is quite high, the incremental complexity is quite reasonable.

Would you be able to comment on the number of individual projects that generated royalties this quarter?

Yes. We said there were 10 licensees that generated royalties. And again, most of our 10 licensees that are generating royalties have multiple projects.

Since we saw an increase in the number of licensees quarter over quarter, is it safe to assume that the number of projects has also increased?

That's correct.

In the cost structure this quarter, the product cost was a little higher than I think I certainly would have guessed, and licensing costs were quite a bit lower. Was there something contributing to those two factors?

Only on the product side, because you're seeing the relationship to higher costs in relationship to a lower revenue base. So we are not absorbing the total manufacturing overhead related to that. So you're seeing a lower gross profit percentage.

Okay. So what we're seeing, in terms of the cost for the licensing revenue this quarter, is somewhat sustainable going forward?

Well, it compares to similar quarters. We have had a couple that we have had in the past. So, for example, it was 87 percent the same quarter in 2003, it was 88 percent this quarter.

And one last thing. Have you guys developed any strategies for handling the large cash position that you're starting to develop? Is there anything that we should look for there?

No, other than we announced that we had (ph) of our stock repurchase program.

Gary Mobley, B. Riley & Co.

In your complaint filed against Synopsys, you put some preemptive citings in there, perhaps why Synopsys may have called off the merger, and in there, you mentioned Sony's comments regarding the technology, and then having issues with integrating the technology. Could you expand that a little bit?

I think, other than what we specify in the suit, that we believe that the allegation was inaccurate.

And I would assume that pertains to Sony Kaiushu (ph)? The Kaiushu fab?

How do you mean? The Kaiushu fab? No.

And just moving a little bit into the technology, it's my understanding that your technology was manufacturable on a standard CMOS process at 0.18 microns, but as we move to smaller and smaller process nodes, the required photomasks increase. Is it true that at 90-nm, it requires four additional photomasks for chips to be manufactured incorporating your 1T-SRAM?

No. The 90-nm should be very similar to the 0.13 micron generation.

So, for the chip developer, how much do they have to budget, in terms of photomask costs, above and beyond the standard CMOS process?

In the 0.13 generation and the 90-nm, is the one additional non-critical mask.

And that would for the 1T-SRAM-Q.

And I would assume there is very little chance that you might be able to --

Just a correction earlier. I think your question referred to the standard 1T-SRAM, the 0.13 micron, and 90-nm is the one additional non-critical mask for the (indiscernible), and for the 1T-SRAM-Q technology, there will be one additional mask over. Just for clarification.

And I would assume there's little chance that you would be able to partner with Synopsys to resell your IP through them?

Well, certainly, we do believe that the merger makes tremendous sense.

Could that potentially be part -- I guess I probably shouldn't ask that, because you're not going to be able to answer it, anyway.

The ending cash balance -- that does not reflect the $10 million breakup fee, because the cashier checks are not cashed at this point; is that correct?

That's correct.

And what was the reason for the large increase in unbilled receivables? Was it specific to one particular customer?

No, not really. I think that the higher amount is really attributable to the higher overall licensing revenue that we recognized in the quarter.

And deferred revenues continued to decrease. When might we see some replenishment there?

Well, again, as we have stated in prior quarters, it's really difficult to forecast, with our particular business model, deferred revenues.

I think that in the five quarters, we have indicated that, based on the standard model, the (indiscernible) should probably be approximately zero, on average.

How should we model product sales? These things just keep -- continuing to come in below expectations. Will these product sales be zero by the end of the year?

As we have stated, our focus is on the licensing of our intellectual property right now.

But might we see some bimodal event where you're just going to discontinue that business altogether?

I'm sorry?

Will there be a quarter where you'll just simply discontinue the business altogether?

Well, we continue to fulfill orders from our customers for those products. But again, the focus is on the licensing of our technology.

Will you continue to supply those if you're selling those at negative gross margin?

Probably not.

Our objective is to support customer.

And that will conclude our Q&A session. I will turn the call back over to management for closing remarks.

Thank you again for participating in our call. Before we close, I would like to reiterate that we remain confident in the positioning of MoSys and our technology. We continue the implementation of our business plan, and we are committed to diversifying our customer base, increasing the number of licensees, improving the efficiency of our design cycle and devoting engineering resources to further expand and improve our technologies.

Thank you again for your participation in this call.