Peraso Inc (PRSO) 2005 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, we are now ready to begin the second quarter 2005 earnings conference call of Monolithic System Technologies. I will now turn the call over to Beverly Twing of Shelton Investor Relations, firm of record for MoSys.

Thank you, Rob. 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' licensed technology, license fees and royalties attributable to 1T-SRAM 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 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 that 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 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 Mark Voll, Chief Financial Officer of MoSys. Mark?

Good afternoon, everyone, and welcome to the MoSys second quarter earnings conference call. With me today is Chet Silvestri, our new Chief Executive Officer. We're excited to have Chet with us today in his new role as CEO. Chet brings 25 years of semiconductor expertise with deep knowledge of intellectual property industry and has extensive experience in design engineering, sales and marketing, research and development, and executive management. He most recently held the position of CEO at CEVA, the leading provider of licensable digital signal processor cores and platform-level intellectual property. We welcome him to the Company. And now I would like to turn the call over to Chet for a few brief words. Chet?

Thank you, Mark, and thanks to all of you for joining us on the call here this afternoon. Before Mark continues with the details of our quarterly results, I'd just like to spend a few minutes sharing my perspective on MoSys and our prospect. First, I'll begin by saying I'm very pleased that I've been offered the opportunity to join the MoSys organization. I have direct experience with the semiconductor IP business. And although I've only been on the job for one week, the opportunity that I see in front of MoSys is clear. Specifically, that the demand for high-density, high-performance embedded memory will increase dramatically to support the new generations of consumer products that are being developed, everything from cell phones to high-definition television.

These devices will incorporate SoC implementation that provides the latest capabilities for multimedia and wireless communications. This capability demands larger and denser memories to meet the performance and cost targets. MoSys, with its current products, patent portfolio, and people, is uniquely positioned to become the primary provider of this embedded memory technology. While the past year has certainly been a challenging one for the Company, I'm impressed with the progress the Company has already made this year and look forward to leading the Company to its next level of growth and profitability. Now with that brief statement, I'd like to turn the call back over to Mark.

Thank you, Chet. I will now provide you with a brief summary of our unaudited financial results for the second quarter ended June 30, 2005, and the business outlook for the Company's third quarter. I will also discuss recent business highlights and provide an overview of our overall business. Finally, we will conclude our call today by answering any questions you may have. Total net revenue in the second quarter was 3.1 million, which included licensing revenue of 1.9 million, royalty revenue of 1.1 million, and product revenue at $6,000. The licensing revenue of 1.9 million compares to 1.2 million in the prior quarter, and 1.3 million in the second quarter of last year. Licensing revenue was recognized from 11 different chip development projects this quarter compared to 13 chip development projects in the first quarter of 2005. Royalty revenue of 1.1 million compared to 1.5 million in the prior quarter and 1.4 million in the second quarter of 2004.

Second quarter royalty revenue was earned from 15 different licensees, one of which was new in the quarter. The decrease in royalty revenue was due to the seasonality in the consumer electronics business, which will typically impact our second and third quarter royalties. We would expect our royalties from consumer products to be higher in the first and last quarter of the calendar year, as is typical in the consumer electronic business. We recognize royalty revenue from reports provided by licensees which are typically received in the quarter following that in which the licensee has sold or manufactured product containing our 1T-SRAM technologies. Product revenue was minimal in the quarter as we continued to exit the discreet product business. With respect to our revenues for the quarter, 50% of the total revenue was generated from multiple projects within EC.

Our gross margin percentage in the second quarter was 80% of net revenue, compared to 83% in the prior quarter, and 74% in the second quarter of 2004. The slight sequential decrease in gross margin percentage was a result of our licensing revenue representing a greater percentage of total revenues in the second quarter. Operating expenses, including research and development, were 3.6 million in the quarter -- in the second quarter compared to 4 million in the first quarter. In the quarter approximately $440,000 of operating expenses was attributable to expenses incurred in the Uni-Ram litigation. Also included in the quarter's operating expenses was a restructuring charge of $114,000, resulting from entering into a sub-lease agreement on our former facility in Canada. In June we relocated our corporate headquarters to a larger facility that will provide us with space to further expand our operations.

We are already making excellent use of the added space and, as we continue, to prove our operating efficiencies. In addition, we are pleased to take advantage of the current commercial market conditions in Silicon Valley which, while providing room for our growth, will also reduce our quarterly operating expenses by more than $100,000 beginning in the third quarter. Nonoperating income, including interest income, totaled $605,000 for the quarter compared to 513,000 in the prior quarter and $269,000 in the same quarter a year ago. The net loss for the quarter was $579,000 or a loss of $0.02 earnings per share, compared to a net loss of $4.1 million or a loss of $0.13 earnings per share in the same period last year. Second quarter earnings per share were computed using 30.465 million shares. Net cash provided from operations was approximately $400,000 in the second quarter. Cash equivalents in both long and short-term investments totaled $86.3 million at the end of the quarter.

On June 30, 2005 accounts receivable totaled 1.2 million. At quarter end we had 73 employees of which 54 are engineers. With respect to our guidance for the third quarter, we anticipate total revenues will range from 3.5 million to 4 million. This guidance is based on booked business we currently have under contract at the end of the second quarter. We expect operating expenses will range from 3.7 million to 3.9 million in the quarter, while anticipating that expenses relating to the Uni-Ram litigation to be approximately $250,000. As a result, we would anticipate that we will be breakeven to slightly profitable in the third quarter, based upon achievement of the midpoint of our guidance range for both revenue expenses. Now from a product and market perspective, I would like to comment on some specific highlights of the second quarter.

During the quarter we introduced our new 1T-SRAM CLASSIC memory macros, a family of preconfigured, high density, high-speed, low powered memory macros. By adding this set of macros to our custom design embedded memory products, our customers now have the advantage of off-the-shelf Silicon proven 1T-SRAM memories for rapid integration of high density embedded memory into their SoC designs. We're already seeing solid customer interest for these preconfigured macros and expect to achieve significant bookings in shipments in the second half of 2005. We also announced during the quarter the available of our 1T-SRAM memory compiler. This memory compiler is web accessible tool that will automatically generate a wide variety of design scenarios for our 1T-SRAM memories, enabling design engineers to easily and rapidly evaluate different memory configurations for their designs. By augmenting our custom macro offerings with the CLASSIC macro family, we will be able to address a broader range of customers' specifications and time to market requirements.

Also, our 1T-SRAM compilers will complement the CLASSIC macro family product offering by enabling front-end views of variance of preconfigured CLASSIC macros. This is tremendously beneficial to our customers who may want to perform initial tradeoff analysis for their perspective designs. In the second quarter, we continued to build upon the momentum from the first quarter. We sequentially decreased our per-share loss by half and continued to see licensing revenue growth both sequentially and year-over-year. We believe that this progress is a direct result of the sales and marketing initiatives implemented over the last several quarters. Concurrently, we have also been successful in managing our operating expenses, having a positive effect on our operating margin. I would like to reiterate that due to the confidential nature of our licensing agreements, we do not provide detailed information on specific project 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.

Okay, thank you, sir. Ladies and gentlemen, on the phones, if you'd like to ask a question at this time, please key star, then one on your touch-tone telephone. All questions will be taken in the order in which they are received. Once again, for a comment or a question, it's star then one. Sir, please give me a moment while I gather up your first question. Sir, I have your first question coming to you today from Mr. Chris Cheney.

Good afternoon, Mark, and welcome, Chet.

Thanks, Chris.

First I wanted to ask you a little bit about the preconfigured macros. First of all, when you sign or sell a preconfigured macro, is there any effect typically on deferred revenue or does it go directly to the P&L?

Typically what will happen with the CLASSIC macro is that the -- since the time to market or the time to delivery to the customer is fairly quick, much shorter than it is with the -- with the custom macro, you won't see the effects of -- in the deferred revenue line item in the balance sheet.

Okay. That makes sense. Then can you talk about how many preconfigured macros you sold during the quarter or sort of the characteristics of those? In other words, I know there were two major families, the communications-oriented macros, and the consumer electronics macros. How is the interest in those various families?

I can tell you that we sold our first CLASSIC macro in the quarter and the interest is quite high. And I suspect that we will find that the -- the CLASSIC macros will complement what we have as far as a custom design in meeting our customers' overall needs. And we would expect that overall they would be -- both be a drivers in driving the increase in licensing revenue in the future.

Okay, great. Can you talk about some of the market applications that might have been seeing the most -- that were seeing the most interest for 1T-SRAM in the quarter in terms of, not only the -- I guess the new contract that came into royalties, but also sort of what's going on in the license revenue line, as well. Are these mostly communications, mostly consumer electronics, sort of how is that divided?

I would say it's a fairly broad range in which we're seeing consumer market interest. We're seeing interest in communications. That is why, for the most part, we developed both the -- the two different sets of macros. One, the high speed to address the communications need, low power to address the consumer market needs.

Okay --

I would say that others that we see that in communications -- excuse me, for -- for the consumer products we're seeing cell phones, various other consumer wireless devices. In networking we see routers, switches.

Okay. In the cell phones -- actually, that's kind of surprising because I didn't know there was some more going on in the cell phones space. Do you actual have a new contract in the cell phones space, or is this something that's been going on for a while and continues? Or what is sort of the outlook for the cell phone application for your 1T-SRAM?

I would say it's continuous. That this is a carryover of the sales marketing activity and the overall development activity that we've had in that sector.

I see. Is this something that can go into production, then, this year or is this being 2006 effort, if it comes to that?

I would say's it's probably a little bit more longer term. We would say beyond this year.

Okay. I notice also, obviously, that license revenue while -- let me go back to the deferred revenue line. The deferred revenue line came down a little bit. And I was wondering if, you know, the majority of the pickup in revenue overall came out of the deferred revenue line.

Well, the -- with our particular business model, deferred revenue is really difficult to predict as an overall performance of future licensing revenue because when we invoice it goes on the balance sheet, and then we start to do the development on that particular contract and it comes off pretty quickly. So it's not really an overall indicator of future licensing strength. I would say overall that we see that we've -- we have a pretty good backlog of material that we have in-house and then we see a pretty good pipeline of what's available to book in the second half of this year.

Now I guess it also makes sense that if the preconfigured macros become a larger portion of your revenue going forward, the deferred revenue will mean less since they're booked and shipped in the same quarter, right?

That's correct, yes.

Okay. I guess, Chet, this is a question for you. I know you're fairly new there and everything, but do you have any comments on the Company's strategy, things that are going to change or strengthen in terms of your plans for the next several quarters?

Sure, I'll take a couple of quick comments. So I think, as I said earlier, the Company has done a good job of rebuilding and -- and putting more sales in place on a worldwide basis to really go after, you know, the major design centers for these consumer products. The strategy that's already in place to me is -- is the right one. The combination of the standard, you know, hard macro, as we would call them in the chip world, or CLASSIC macros here with the custom versions. There's always going to be a balance. There will be some applications where the customer wants even a derivation of a CLASSIC macro, which would be a custom product. But the CLASSICs will allow us to, you know, address a much, much broader range of customers with capabilities, right, that are less sophisticated. Very quickly. And it's going to rapidly become, you know, a significant percentage of our business, we believe. I think that's all right on.

Okay. Great. And Mark, back to you. A quick question about the P&L on the Uni-Ram expenses. I know you said there would be some continuing expenses in Q2. Any idea if that's going to continue on to Q3 and Q4 of this year?

Yes. In my guidance, I said that operating expenses would be 3.7 to 3.9 of which we expect that the Uni-Ram litigation would be about $250,000.

Right. That's for this coming quarter but what about the next couple of quarters?

We'll have to wait and see. I think that we're really looking at this on an event basis, and so we have a important milestone that will occur during the Q3. And so when that occurs, hopefully we'll have a little more clarity on that to give at the end of the quarter, going into Q4.

Okay. Got you. And finally on the NEC comment, you said that 50% of the licensed revenue was from NEC?

Total revenue. That would be from multiple projects of which you would see revenues from both licensing and royalty revenues.

Okay, great. Okay. Thank you very much. I'll step aside and let others ask questions.

Okay, thank you, sir. Sir, your next question is from Dan Scoble from Tokikee Research.

Can you hear me?

Yes, Dan, we can.

Hi. Couple of questions. You're mentioning multiple projects on the NEC revenue. Are you guys still collecting royalty revenue on the game cube?

Yes, we are.

You are. Okay. On the next generation revolution from Nintendo, can you kind of profile how that's going to unfold here over the next couple of years. I would assume you're collecting sort of license revenue now and that's going to morph into some royalties sometime?

Yes, it is. But I really can't give any kind of greater clarity on that issue until NEC or essentially Nintendo gives their direction on where they're going with the product.

I guess, can you confirm at this point that you're, I guess, collecting license fees on some -- obviously the early stages of that program?

Yes, we can.

Okay. The -- in an attempt to push it here, is NEC also have other programs beyond Nintendo that they're working with?

Yes, they are.

Okay. Okay. Also, more pedestrian here. On the tax rate, how should we model that for this year and then going into next year?

The overall tax rate is really going to be dependent on net income that we're going to generate for the year. And so that's subject to see the operating results for the second half of the year. Typically, we've been utilizing NOL's which we've been able to get tax rates between 10% and 20%. So I would say a -- between that range is where we would expect, again, based on operating results for the tax rate to be for the remainder of this year.

Is there any reason to expect that that would change next year?

I would -- hopefully that we would see an increase in our overall revenues which would increase to a greater operating income. We would at some point be running out of the available NOL's that this Company would have available. At that point in time we would expect to be back to a more normal effective tax rate.

You don't know the size of those NOLs off the top of your head, do you?

We still have a fairly sizable amount of NOL's still available to us.

Bigger than a $10 million bread box or smaller?

I would say in that range. Less than $10 million.

Okay. Okay. Good. Thank you. Good luck.

Okay, thank you, sir. Once again, ladies and gentlemen, that's going to be star, one if you have any questions . Sir, I have a follow-up question from Mr. Chris Cheney.

Mark, I had a question about the gross margin. You mentioned -- I know it fluctuates with the royalties. And you mentioned your expectations for revenues in Q3. But I'm curious as to where gross margin might be going because of the expected decline, I guess, in Q2 and Q3 for royalties. That would suggest that maybe gross margin would be a little lighter than Q1 and Q4. So, I'm wondering if we should be expecting sort of a flat gross margin in Q3, or is there something different that I should be reading into that?

No, I wouldn't expect anything different. I believe that, you know, from our -- from my earlier discussions that we would expect Q2/Q3 to be the lighter amounts of overall royalties from consumer products. And I would expect that our licensing revenue would be increasing as we go into Q3 so that overall I would see not a substantial difference from where our gross profit was in the second quarter.

Okay, I see. And is there any -- is there any inventory of discreet 1T-SRAM chips still existing? I know you've probably written it all off, but is there any inventory of units out there?

There is some and that we will sell it this quarter. I would say beyond this quarter we don't anticipate having much if any available inventory.

Given that it's written off, is there any gross margin boost that would happen as a result of -- ?

Not of any material amount.

Not material, okay. Thank you very much.

Okay, thank you, sir. Sir, we have a follow-up question from Mr. Dan Scoble.

Yes, with regards to the revenue profile, you've now introduced the CLASSIC macro. I guess can you sort of size, maybe, how quick you would expect that to ramp over the next few quarters.

Well, we would expect that in next couple of quarters that we would have revenue from CLASSIC macros. We think that the -- the bookings potential is quite strong for those products. It just remains to be seen, because it is a new product that we're releasing, the success of that. But I think we're pretty bullish on what we see the -- the indicators from our customers.

Can you tell us how many CLASSIC macro projects or licensed programs you booked last quarter.

We booked our first one. And again, we had made the announcement at the DAC conference, which was in mid-June. So that was an earlier adopter in the customer and we would expect to have more in the second half of this year.

What -- when you -- I don't know, looking out next year or out a few quarters, as CLASSIC macro gains traction, I mean, how many per quarter would you expect? I mean, is this something that's going to be kind of a onesies, twosies, threesies, or are you going to get 10 or 20 a quarter on this thing?

We would hope that by having that it would augment what we have from the custom macros and allow us to have a greater overall licensing activity with our customers. And we -- we're assuming that it could be as much as half of our overall licensing activity.

Okay. Also, looking out into next year again kind of bigger picture, obviously the -- the Nintendo Revolution would be coming out at some point. And I would imagine that that would be a -- a material part of your business. Are there some other things, markets or applications, that you would expect should be rolling out that would be of significance over the next, say, 12 to 18 months?

I don't think that there's any one project that would be similar in scope to that one. I think that what we're encouraged by is there's a number of projects, both in the consumer and communication market, that we think that overall would really amount to an increase in royalty revenue that the Company realizes. And I think that -- that really gets us excited along with the standpoint that the CLASSIC macros, we can get those into our customers' hands pretty rapidly.

Can you comment on any of the applications for next year or not?

Mr. Voll: I would say we see digital media players. We see data storage, a couple of important markets for us.

Okay. Okay, good. Thank you.

Okay, thank you, sir. We have a question from Chris Cheney.

Back to me again, like a tennis game here. I wanted to ask also about the stock buyback program. Mark, can you remind us what the board has authorized in terms of the stock buyback and comment whether or not you guys have been active buying back stock.

Right. So the board is authorized to buyback up to $20 million, which is currently open and existing. We did not buy any shares back during the -- during the second quarter.

Okay. Okay. Thanks.

Okay, thank you, sir. Sir, as there are no further questions, I would lake to turn the call back over to Mr. Voll for any closing remarks.

Thank you for your continued support in MoSys and for your participation in this call. Chet and I will be meeting with investors directly in August, giving all an opportunity to meet our new CEO. And if investors are visiting the Silicon Valley area, we would welcome the opportunity to meet with you. Please give me a call so we can schedule a convenient time to meet. In the meantime, we encourage you to visit our website at www.mosys.com for the latest information on Company activities. Thank you and good-bye.

Okay, thank you, sir. Thank you, again, ladies and gentlemen. This brings your conference call to a close. Please feel free to disconnect your lines now at any time.