Peraso Inc (PRSO) 2004 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Monolithic System Technology, Inc. Q2 2004 earnings conference call. My name is Rachel, and I'll be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session at the end of today's conference. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded for replay purposes.

And I would now like to turn the presentation over to your host for today's call, Ms. Beverly Twing of Shelton Investor Relations. Please proceed, ma'am.

Thank you, Rachel. 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 the second quarter's results, I would 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 include, without limitation, statements about the market for the MoSys 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 MoSys's licensed technology, license fees 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 statement 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 second-quarter earnings conference call. With me today is Mark Voll, our CFO. I will begin the call with an overview of our recent litigation with Synopsys, and then Mark will be reviewing the financial results for the second quarter of fiscal year 2004. I will then conclude the call by discussing the events of the past quarter, and provide an outline for our plans for the remainder of the year. We will then entertain questions at the end of this call.

To begin, let me provide an overview of the events surrounding the settlement of the litigation with Synopsys. As you know, we initiated litigation against Synopsys over their abrupt termination of our merger agreement on April 16. I will give you some of the background information that led us to this point. From our initial discussions with Synopsys, we believed, and all of their public statements supported our belief that this merger was in the best interests of all shareholders, as well as our customers and employees. Both parties also agreed that the synergies from this merger would build long-term shareholder value.

As a result, we entered into the negotiations in good faith, and reached an agreement that resulted in a highly successful tender offer that was subsequently terminated by Synopsys. We admit we were confounded by the Synopsys position, and felt that it went well beyond any reasonable understanding of the right for either party to terminate. Their public statement did not provide a satisfactory explanation. Consequently, we decided that we had an obligation to our shareholders to take steps to effect this merger.

We filed a lawsuit, and pursued the steps leading up to a trial that began on July 6. We agreed to end the case on July 9. While the details of the settlement discussions are subject to a confidentiality agreement, we believe we must provide some explanation to you, our shareholders. It is well-known that there is never any certainty regarding the outcome of any litigation. Our burden was high, since the relief we were seeking -- compelling Synopsys to purchase the shares tendered by our shareholders -- was extraordinary. By July 9, we had reason to believe that the court was not being sufficiently persuaded by our argument, and we did not believe the court would grant the relief of specific performance that we had sought. Our assessment of a potential adverse decision was that, while we would likely but not assuredly retain (ph) the termination fee previously paid, we would be obligated to pay substantial legal costs for both sides that would continue to increase through the end of July.

The publicly-available pretrial briefs, as well as our filings, enumerated the issues raised by Synopsys, although we did not agree to their merit. Synopsys identified no other issues beyond those already aired in public that account for their action. The trial ended prematurely, and did not result in any determination of the issues. We continue to believe in the correctness of our initial position. Obviously, we had hoped for a better outcome, but on reflection, this is the right decision for the Company and our shareholders.

The Synopsys merger, as desirable as it was, was never regarded as the only path for MoSys. We always knew we had the resilience, the resources and, most importantly, the technology platform to succeed independently. Now, with the the litigation behind us, we can resume our full concentration on our business and creating greater shareholder value. The termination of our merger agreement with Synopsys and subsequent litigation has had an obvious effect on our business. We have reassured our employees, customers and investors that there is nothing wrong with our technology, and our capabilities are as strong as ever. It may take several quarters for us to complete this process of getting back to a normal operating environment, but we are committed to achieving this objective.

Accordingly, we are focused on improving the long-term value of our business, which may occasionally be at the detriment of meeting near-term goals. As such, in order to remain focused on achieving this long-term objective, we believe that it is prudent for the Company to refrain from providing financial guidance for the remaining two quarters of 2004. Improving the long-term value of the our business will require the concentrated efforts of our employees, management team and Board of Directors, all of which are committed to this goal.

During the court testimony, the subject of our relationship with Sony was raised as an issue and, in particular, to ongoing chip development projects. As frequently happens when a project moves through the development process, obstacles arise that inhibit (ph) verification. Two affected projects are 0.13 micron design, and also our technology has been verified at this process node (ph) at several foundries. The complexity of developing 0.13 micron design can not be understated. At this time, Sony has chosen 6T-SRAM for the prototype chips on both of these projects. We are continuing to work Sony to resolve any issues, with the expectation of being included in the production version on these two projects. We believe that the same reasons that made MoSys an attractive long-term investment prior to the merger are the same ones that exist today. We do not know all of the opportunities that lie ahead, but you can be confident that, should the merger situation or other opportunity present itself, we will approach it responsibly, and in good faith.

Now, I will turn the call over to Mark to discuss the financial results for the quarter.

Thank you, Fu-Chieh. Today, as you know, we reported our unaudited financial results for the second quarter, ended June 30, 2004. Here is a summary of the results. Net revenue in the second quarter was 3.4 million, which included licensing revenue of 1.3 million, royalty revenue of 1.4 million and product revenue of 681,000. At the request of a customer, we modified the scope of an existing contract in which we agreed to deliver existing components to the customer under the contract, which led to the deferral of $600,000 in revenue that otherwise would have been recognized in the second quarter. This amount, and the remaining balance of the contract, which is in excess of $1 million, will be recognized on completion of the contract, which is anticipated to be in the first half of 2005.

Licensing revenue in the second quarter was 1.3 million, compared to 3 million in the previous quarter and 2.2 million in the second quarter of last year. Licensing revenue was recognized from 17 different chip development projects this quarter, compared to 17 chip development projects in the second quarter of last year. Five of the chip development projects were new in the quarter. Royalty revenue in the second quarter was 1.4 million, the same amount as reported in the previous quarter, and compared to 1.8 million in the second quarter of 2003, which included a one-time royalty payment which we received from one customer of 700,000. Excluding that payment, our royalty revenue increased year over year.

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 a licensee has sold or manufactured product containing our 1T-SRAM technologies.

Product revenue was 681,000 in the second quarter, compared to 162,000 recognized in the previous quarter and 515,000 reported in the second quarter of last year. The sharp increase in product revenue in the quarter was attributable to the planned sale of end-of-life products from our inventory. We closed the quarter with $88,000 in inventory, and have transitioned out of the discrete memory parts business. We will offer the remaining inventory for sale throughout the remainder of this year, but we do not expect any appreciable revenues to be generated from these sales.

Gross margin percentage in the second quarter was 74 percent of net revenue, compared to 86 percent in the second quarter of 2003, and down from 88 percent in the first quarter of 2004. The decline in the gross margin percentage reflects the increase in the mix of revenue from our lower-margin product revenue and lower margins this quarter on license revenue. The lower margin on license revenue is attributable to revenue recognized on some lower-margin projects.

Nonoperating income, including interest income, totaled 269,000 for the quarter. Net loss for the quarter was 4.1 million, or a loss of 13 cents diluted earnings per share, compared to net income of 500,000 or 2 cents fully-diluted earnings per share in the same period last year. Second-quarter diluted earnings per share were computed using 30,786,000 shares.

These results for the quarter included 3.4 million of operating expenses, or 3.2 million on a net tax basis, associated with the proposed Synopsys acquisition and subsequent litigation activities. Excluding these expenses, the pro forma net loss for the quarter was $871,000 or a loss of 3 cents diluted earnings per share.

Significant revenues from our licensees included NEC, which represented 23 percent of our total revenues for the quarter. We will record the $10 million termination fee received from Synopsys as other income in the third quarter.

Net cash used in operations was approximately 1.2 million in the second quarter. Cash equivalents in both long-term and short-term investments totaled 88 million at the end of the quarter. On June 30, 2004, accounts receivable totaled 1.3 million. At quarter end, we had 89 employees, of which 64 are engineers.

That concludes my prepared remarks about the financial results. I will now turn the call over to Fu-Chieh for some final remarks.

Thank you, Mark. I want to make sure that our accomplishments during the quarter are not completely overshadowed by the litigation with Synopsys, because I am very proud of our team as they continued to focus on business despite all the distracting events.

During the quarter, we announced that AVID Electronics had licensed our 1T-SRAM embedded memory technology for use in consumer electronics products. The Taiwan-based company specializes in integrating several different components into an SoC device, and has a number of design wins that are manufactured in many notable consumer audio products.

One of the steps we are taking to rebuild our business is to re-establish the Board of Directors of the Company. To that end, we have identified several qualified candidates who we are currently interviewing with our present Board members, with the hope to fill the two outside director vacancies.

At this time, I would like to announce the departure of Mark-Eric Jones, our Vice President of Intellectual Property. Mark-Eric has been a valuable and trusted member of the MoSys team for almost six years. We wish Mark-Eric much success with his new opportunity in directing a start-up company.

In our prepared comments, we have outlined our business results. 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 results, 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 ask your questions.

(OPERATOR INSTRUCTIONS). Matthew Curtis, Kenny Securities.

Just briefly, touching on the revenue, which seemed to come in quite a bit lighter than what I had been expecting, it looks like most of the decrease was in the licensing side. Did you guys experience postponements or delays there, or were there cancellations, or can you give us some insight into what caused that?

Yes. I think we are still seeing some delays on the part of the customers. I think that there's some confusion there with the customers, as far as the proposed merger and then, of course, the patent litigation. But I think now we're out in front of customers, we're reassuring them on both fronts that there are not any issues, again, with our technologies or the capabilities of the Company.

So would it be reasonable, then, to expect at least a sizable portion of these delays to come back next quarter, as you get out in front of these customers and reassure them? Are we seeing evidence that they are coming back to the table now?

Well, we would hope so. But it's something right now that I think it's a little premature for us to say.

I'm assuming that the drop we saw in interest income was a result of the 20 million, roughly, it looked like shifted from long-term to cash. Is that correct?

That's correct, yes. And when we -- in anticipation of the merger, we had liquidated our entire portfolio. And so now we are reinvesting those funds in the longer-term.

I got you. So some of those long-term investments that we saw at the end of the quarter had actually been reinvestments at that time?

That's correct. So in April, in anticipation of the closing of the transaction, we had liquidated the funds in the portfolio.

I got you. And so are we going to be next quarter -- is it reasonable, then, that we'll see some more of that money shift back into longer-term investments?

That's correct, yes. And we would think that our rate of return would be somewhat higher.

The 600,000 that was deferred -- where was that recognized this quarter? Was that in your accounts receivable? Was that in the unbilled receivables? Where did that end up this quarter?

It would be in the unbilled receivables. So, for example, what happened was we had recognized that revenue during the quarter, and the customer subsequently asked for some additional components. We agreed to that, and as such we had to defer that revenue.

So that's in the unbilled receivable. Given that, can you give us a little more insight into why we saw the large increase in AR, given that revenues overall were down somewhat?

Well, I think that AR is slightly higher than it was last quarter. But when we look at it historically, it's been about the level it is right now. And again, there's one particular large invoice that's out there. So I think that really kind of skews the total overall amount.

Is that the one deferred invoice that we've talked about earlier, or is that another one?

That's correct, yes.

Just two last questions, real quick. I know recently you guys haven't wanted to comment on products like Motorola or LSI. Are there any updates you can give us there, at this point, as we go forward?

Not at the moment that we can make.

Gary Mobley, B. Riley & Co.

Any shares purchased during the quarter?

There was not.

Were you restricted during the quarter?

No, we were not.

Do you anticipate buying any shares from this point forward?

We have a plan in effect.

Have you guys changed your thinking at all on the share buyback? What I mean by that is do you guys feel you would be better off investing that cash in something else, perhaps increasing your sales staff versus buying back shares?

I think we have the capability, with the operating funds, to increase the staff as we see fit.

And I would assume that revenue recognition delay was Fujitsu. Was there any revenue recognition from Fujitsu during the quarter? Basically, the sense I'm trying to get is how much of a sequential drop could we see from that delay from Fujitsu.

Well, I can tell you it was a major contract, but I can't tell you a specific customer.

And TSMC has taken a bit of a different roadmap for large chunks of embedded memory. At 90-nm, I believe they are going with a DRAM (ph) solution. Is there any opportunity to get a new license cycle from some of these larger bonders, specifically with TSMC, given that TSMC is going with a different roadmap at 90-nm?

Yes. We are working with the customers and the leading foundries, including TSMC, on all the variable (ph) programs, yes.

(OPERATOR INSTRUCTIONS). Gentlemen, at this time there are no further questions. Dr. Hsu, I would like to turn it back to you for any closing remarks that you may have.

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 in 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 the design cycle, and devoting engineering resources to further expand and improve our technology. Thank you again for your continued support of MoSys and your participation in this call.

Ladies and gentlemen, thank you for your participation in today's call. That does conclude your presentation, and you may now disconnect. Have a great day.