Peraso Inc (PRSO) 2004 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. We are now ready to begin the Fourth Quarter 2004 Earnings Conference Call of Monolithic System Technology. I will now turn over the call to Beverly Twing of Shelton, the Investor Relations Firm of record for MoSys. Beverly.

Thank you, Bill.

By now everyone should have received our press release. However, if you haven’t it is available in the Investor Relations Section of the MoSys web site at www.mosys.com.

Before we begin the discussion of the fourth quarter results, I would like to acquaint you with our Safe Harbor 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 1TS-RAM technologies, licensees of 1TS-RAM technologies and their strategy, the development and production of products that use MoSys’ licensed technology, license fees and royalties attributable to 1TS-RAM technologies, 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 material 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 & Exchange Commission. In particular in the section entitled ‘risk factors’ in the Form 10-K, and in other reports that the Company files from time to time with the Securities & 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 and other events occur in the future.

Thank you for your attention. I would now like to turn the call over to Mark Voll, Interim CEO and Chief Financial Officer of MoSys. Mark.

Good afternoon, everyone, and welcome to the MoSys Fourth Quarter Earnings Conference Call. With me today is Karen Lamar, our Vice President of Sales and Marketing.

I will begin the call with a brief summary of the financial results for the fourth quarter and fiscal year ended 2004, and provide our business outlook for the first quarter of 2005. I will also address recent business highlights, and provide an overview of our overall business. Karen will give a brief summary of the customers and markets we serve, and provide some details on recent strategies we have employed. Finally, we will conclude with answering any questions you may have.

Today we reported financial results for the fourth quarter ended December 31, 2004. Net revenue in the fourth quarter was 1.2m. Total net revenue included licensing revenue of 118,000, royalty revenue of 1.1m, and product revenue of 33,000.

Licensing revenue in the fourth quarter was 118,000 compared to 1.9m in the fourth quarter of 2003. Licensing revenue included 600,000 of offsets against revenue, namely due to project costs incurred in completing customer projects. These costs are not recurring and were not associated with the revenue recognized in the quarter. There were five new projects in which revenue was recognized in the quarter.

Royalty revenue in the fourth quarter was 1.1m compared to 1.1m in the fourth quarter of 2003. Royalty revenue was down in the quarter from that recorded in each of the first three quarters of the year as all of our licensees experienced excess inventories at the end of the second quarter, which led to decreases in third quarter production of products incorporating our technology. We earned royalty revenue in the quarter from 10 different licensees, most having multiple SoCs in production.

As a reminder, we recognized 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 33,000 in the fourth quarter compared to 334,000 in the fourth quarter of last year. Decreasing product revenues reflect our strategy to exit the discreet product business as we continue to sell the limited inventory we have available. The entire remaining inventory held for sale has been previously written off.

For the year net revenues decreased from 19.2m in 2003 to 10.8m. The decrease was attributable primarily to the decline in licensing revenues which fell from 10.4m to 4.5m. During most of 2004 many of our customers were waiting for the final disposition of the aborted Synopsis acquisition before making purchasing decisions. That coupled with the decrease in our sales force as some of our employees made other employment arrangements in anticipation of the acquisition had a definite disruptive affect on our licensing revenues.

Gross margins in the fourth quarter was 55 percent of net revenue compared to 80 percent in the fourth quarter of 2003. Operating expenses including research and development were 3.7m in the fourth quarter. Total operating expenses included a restructuring charge of 585,000 resulting from the close of our Atmos Facility in Ontario.

As we had previously disclosed in our last 10-Q, during the fourth quarter we realized the amount of our Synopsis related litigation expenses, which were lower than the total amount previously accrued in the second and third quarters of 2004. This resulted in approximately a $900,000 reduction in operating expenses realized in the fourth quarter.

During the quarter approximately $250,000 in operating expenses were attributable to the expenses incurred in the UniRAM litigation. Our fourth quarter operating expenses also included stock based compensation charges of $9,000.

Other income for the quarter was 548,000, of which approximately 470,000 came from interest income.

The net loss for the quarter was 2.4m or 8 cents diluted EPS compared to a net loss of 415,000 or 1 cent diluted EPS in the same period last year. Fourth quarter diluted EPS were computed using 30.296m shares.

The net loss for the year was 1.9m compared to net income of 2.5m recorded last year. Diluted EPS for the year was a loss of 6 cents compared to 8 cents fully diluted EPS in 2003. We used 30.750m shares to compute diluted EPS for 2004.

Significant revenues from licensees included NEC and [Marvel] [ph] representing 35 and 24 percent, respectively, of total revenues for the quarter. For the year significant revenues from licensees included NEC, Fujitsu, and Marvel, reprocessing 19 percent, 17 percent, and 11 percent, respectively.

During the quarter we used approximately 3.5m of net cash from operations resulting in cash, cash equivalents, and both long and short-term investments totaling 86.9m as of December 31, 2004.

As you may know, we did not give revenue guidance for the third and fourth quarters of 2004 to focus our attention on rebuilding our business following the termination of our merger and subsequent litigation with Synopsis. Having made strides towards accomplishing many of these goals we now enter 2005 with a great deal of anticipation of, once again, growing our revenues and proliferating our technologies.

That being said, we believe we need an additional quarter to fully integrate our new Sales and Marketing Team before committing to any quarterly revenue guidance. However, based on orders we have received in the fourth quarter of 2004 and customer commitments in the first quarter of 2005 we believe that we will soon be fully utilizing our current engineering capacity to fulfill customer development projects.

Therefore, we intend to increase this capacity in order to take on more customer projects by expanding both our Korean and U.S. operations. We will be increasing the size of our facilities, as well as recruiting new engineers. We hope that we will be shortly able to identify and give greater detail on some of the components contributing to the increase in licensing activities.

In general, we anticipate total revenues in the first quarter of 2005 to increase over fourth quarter of 2004 revenues, with the majority of the increase being realized from licensing revenues. Since many of these projects will be booked in the first quarter of this year we would anticipate the majority of the revenues from these projects would not be recognized until the second and third quarters of this year.

We expect operating expenses will range between 3.6m and 4.0m in the first quarter, while anticipating that expenses relating to the UniRAM matter will be approximately $250,000.

On December 30th, 2004 we announced that Fu-Chieh Hsu resigned as President, Chief Executive Officer, and Chairman of the Board of MoSys. On behalf of the Board of Directors and employees we all wish Fu-Chieh all the best in his future endeavors. We recognize all of Fu-Chieh’s significant contributions and personal sacrifice in building our Company, and now look to expand on Fu-Chieh’s vision in growing MoSys in the future.

We have been actively recruiting a new CEO to lead our Company into the future. As you can imagine, with all the great technology we have developed, an assembly of extremely qualified and dedicated employees, and our significant cash position, this opportunity has attracted the attention of many qualified candidates.

In November we announced our plan to close our Research & Development Facility in [Canade] [ph], Ontario, which we acquired through our acquisition of Atmos Corporation in 2002. As part of this plan, we terminated the employment of approximately 20 employees, some of whom will be given the opportunity to relocate to our Corporate Headquarters in California.

As we had discussed earlier, we incurred a restructuring cost of $585,000 in the quarter due to this move. However, we estimate a reduction in quarterly operating expenses of approximately $500,000 going forward. After the close of the facility at yearend we had 69 employees, of which 51 are engineers.

After the close of the fourth quarter we also announced that Chenming Hu had joined the Board of Directors of MoSys. From 2001 to 2004 Dr. Hu was Chief Technology Officer of Taiwan Semiconductor, the world’s largest dedicated integrated circuit manufacturing company. He is currently the TSMC distinguished chair professor in electrical engineering and computer science at the University of California Berkeley. Dr. Hu also cofounded [Silestri Design Technologies] [ph], an integrated circuit design software company that was acquired by Cadence Design System in 2003.

We are pleased to have Dr. Hu with his depth of experience and unique perspective join our Board as we develop new strategies to further the proliferation of our technologies. Dr. Hu brings a great deal of experience and expertise in the semiconductor technology to our Board, and we expect his insights and leadership skills to be of great value to the Company.

I’d like to hand the call to Karen for a few moments so she can give an overview regarding our customers and markets. Karen.

Thanks, Mark.

This past quarter has certainly been an active one as we’ve retooled the Sales and Marketing Team. The resulting organization is made-up of those experienced MoSys team members who have been an integral part of the organization in the past, and new team members who bring a significant amount of prior success and experience in the area of marketing and licensing of intellectual property. I am pleased with the depth of knowledge, breadth of skills, and enthusiasm that our new sales and marketing organization now possesses. And I believe that we are dedicated to moving our Company forward.

As Mark had discussed earlier, we are seeing significant customer interest in high density embedded memory solutions for their SoC projects, and acceleration in the number of SoC project starts, particularly in the consumer and communications market, has resulted in an increased demand for our IT-SRAM-Q technology. To date, we have ported our 1T-SRAM-Q technology to several foundry partners, including TSMC, UMC, and Chartered, making the technology available at all of the world’s leading foundries.

One of the primary strategic initiatives that MoSys is focusing on is expanding our worldwide sales and marketing presence through the addition of channel sales representatives. Towards this initiative, in October we announced the appointment of AMOS Technology as our sales representative in Israel. In January we also added Crescendo Technologies as an authorized sales representative for MoSys in China. Crescendo Technologies is a premiere electronics design solutions company, which provides EDA software and semiconductor intellectual property solutions to leading electronic companies in China.

At the same time, we also signed a sales representative agreement with [Teresek Technologies] [ph], an authorized sales representative for MoSys in Taiwan. Teresek Technologies focuses on providing advanced solutions from many leading electronic system design and ASIC design firms in Taiwan.

The appointment of third-party independent sales representatives is one component of our overall strategy to increase our sales presence throughout the world. Independent sales representatives are only compensated for the booking of projects with customers, thus providing a cost effective solution to broaden our sales coverage. We believe that qualified independent sales representatives can better address the needs of a given market where direct representation isn’t practical, or where it would be too costly to address with the direct sales organization.

By adding third-party sales representatives we can augment our current direct sales personnel to increase our sales coverage and to provide better support for our customers throughout the world.

Now, I’ll turn the call back to Mark.

2004 was, indeed, a difficult year for our Company. However, we ended the year with strong bookings in the fourth quarter which is only accelerated as we enter the first quarter. We entered 2005 with considerable momentum, and look forward to further improvements throughout the year for our business.

I would like to reiterate that due to the confidential nature of our licensing agreements we do not provide detailed information on 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. We are now ready to take questions. When introducing yourself, please first state your first and last name, and your firm’s name.

[Caller instructions.]

And your first question comes from Gary Mobley of B Riley and Company. Please proceed, sir.

Good afternoon. I apologize for the noise, I’m at an airport. But, Mark, I was hoping you could walk us through what your current breakeven point may be post-restructuring?

I would imagine it would be roughly about $4m in revenue.

Okay. And as a point of clarification, could you go over the licensing offsets, that was not an offset to revenue recognized in the fourth quarter, was it rather an offset to cost of goods sold in the fourth quarter?

No, it was actually some costs we incurred on customer projects that really trailed from other quarters, and we were able to finally reach agreement on what those costs were. And so, it was a contra revenue or an offset to our revenue in the quarter. So, without that our licensing revenue would have been up approximately 700,000, an increase over obviously the third quarter.

Okay. All right. And, again, what were the legal expenses in the quarter?

Approximately 250,000 on the UniRAM litigation.

Okay. Where does the UniRAM litigation stand?

We’re in discovery phase right now, so we’re, each party has submitted, all three parties have submitted their discovery or request to the courts, and each party is complying with those requests. I would imagine that sometime perhaps as early as the end of this quarter or the beginning of the second quarter we would start depositions in that matter.

Okay. And $900,000 reduction in OpEx due to reversal of, not expenses, that was incurred in this current fourth quarter? And without that we would have seen OpEx $900,000 higher?

That’s correct, yes.

Okay. Any shares repurchased in the quarter?

We did not.

Okay. All right. That’s it for now. Thank you.

Thanks very much, sir.

[Caller instructions.]

And we will take one follow-up from Gary Mobley of B Riley and Company. Please proceed, sir.

Hi. I’m sure you’re not going to give us too much detail on the bookings trend in the quarter, but could you discuss the diversity of the booking strength? Was it just, you know, one foundry partner perhaps seeking to just to coming back, or are expected to come back in Q2?

I’m sorry, could you clarify? I need to ask you the question, again? I’m sorry.

No, no problem. So you cited strong bookings in the quarter, and certainly, you know, without this contra revenue item licensing revenues would have been up sequentially. Could you talk about the diversity of the increase in licensing revenue and the diversity of the bookings in terms of customer diversity?

Right. So, I think that on a geographic basis certainly Japan is still the largest source of our booking activity, but we’re seeing diversity both in application and breadth of customer base, as well as the focus areas that we’re penetrating now with our rep organization.

Got you. So, it’s not just one foundry coming back?

No, that’s absolutely correct.

Okay. All right. And with the closure of Atmos does that mean – what does that mean to your compiler offering?

That means that we’re bringing that development back here into California. We have employment to a number of the engineers here, and are working through the visa process to get the engineers into the United States.

Okay. All right. Thanks, again.

Okay.

You’re welcome.

[Caller instructions.]

And at this time we have no further questions. I’d like to turn the call back over to Mr. Mark Voll for any closing remarks he may have. Please proceed, sir.

Thank you for your questions.

Before we close, I would like to let you know that MoSys will be speaking at the B. Riley Annual Investor Conference, Friday, March 15th, at 10:30 a.m. at the Nation Resort Hotel in Las Vegas.

An audio webcast of this presentation will be available on our web site at www.mosys.com. We encourage you to visit our web site often for updates on our Company and its activities.

Thank you, again, for your continued support in MoSys and for your participation in this call.

Thank you very much, ladies and gentlemen, for your participation in today’s conference call. This concludes the presentation, and you may now disconnect. Have a good day.