Peraso Inc (PRSO) 2007 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. We are now ready to begin the MoSys First Quarter and Fiscal Year 2007 Financial Results Conference Call. I would now like to turn the call over to Ms. Beverly Twing of Shelton Group Investor Relations.

Thank you Operator. By now, everyone should have received the press release. However, if you haven't, it is available on the MoSys Web site at www.MoSys.com.

Before we begin the discussion of the first quarter results, I would like to remind you that 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 and embedded memory designs, licensees of 1T-SRAM technologies and their strategy, the development and production of products that use MoSys' licensed technology, license fees and royalties attributed to 1T-SRAM technology, and the Company's anticipated or prospective financial performance.

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 if new information becomes available or other events occur in the future.

Thank you for your attention. I will now turn the call over to Chet Silvestri, Chief Executive Officer of MoSys; Chet.

Thank you, Beverly; good afternoon, everyone, thanks for joining us today.

I'd first like to begin by updating you on our strategy and our business results. Afterward, Jim Pekarsky, our CFO will provide a more detailed financial update, including guidance for the coming quarter and for the entire year.

So let me begin by saying that our first quarter showed a marked increase in interest for our 1T-SRAM technology. Many potential; customers have witnessed the success of the Nintendo Wii Game Console and are now convinced that our memory technology is scalable to state-of-the-art process geometries and can quickly and reliably ramp to high-volume production. This high-volume endorsement encourages them to look further into the performance, scalability, and cost effectiveness that our technology can offer.

With all of this expanded interest in our technology, it is important that we can efficiently respond to all the opportunities. I'd like to spend a minute to review the initiatives that we're putting place to support this expansion. First, as stated in our previous earnings calls, we're targeting to close major technology licensing agreements with integrated device manufacturers, or IDMs, as a way to dramatically increase the deployment of our technology. These large manufacturing partners can reach many more system-on-chip developers than we can with our small sales force.

Under our technology licensing program, we provide these manufacturers with the design templates that they can use to develop macro solutions directly for their customers. So in a manner of speaking, these IDMs act as an indirect sales channel for us to reach a broad base of designs.

In the first quarter, we closed another of these licensing agreements with a major IDM for 65 nanometer-class technology. We expect to announce this agreement some time in the next few weeks. Additionally, we closed yet another technology licensing agreement in April, which gets us off to a strong start in Q2.

We have also been working with a major pure-play foundry in order to allow them to directly distribute our techno logy. This is an extension of our classic macro program where we have developed a number of off-the-shelf macro designs, and we will now make these available to foundry so that they can provide these designs directly to their customers. Again, our goal is to rapidly expand our ability to reach new system-on-chip designs without the need to have our direct sales force identify every opportunity.

Another important enhancement to our classic macro effort is our focus on developing application-specific memory solutions. These are macros that are optimized to provide compelling advantages in system applications. The first of these system solutions is our family of dual-port LCD color display macros. These macros have been specifically developed to be integrated in cellular handsets and other consumer devices. These macros are unique as they are the only dual-port single transistor memories in the industry, and as such, they're able to meet the critical form factor requirements of the new generation of liquid crystal display chips. We have been delivering these LCD macros and are already seeing our initial customers beginning their high-volume production ramp.

In yet another variation of our strategic selling strategy, we announced during the quarter that we signed a strategic agreement with TSMC, which allows them to develop and market ED-RAM technology incorporating MoSys patented 1T-SRAM intellectual properties at 90 nanometers, 65 nanometers, and future advanced process geometry. This agreement enables the world the largest dedicated semiconductor foundry utilizing their broad marketing and sales infrastructure and internal design service capabilities to design macros and chip wafers containing these ED-RAM macros directly to their fabless semiconductor customers for volume production. Under this arrangement, TSMC will pay MoSys royalties for all wafers shipped containing their ED-RAM technology.

In addition, MoSys will continue to independently sell and support our CLASSIC macros implemented at TSMC, particularly for our application-specific memory solutions like the LCD driver macros. There have already been announcements from TSMC indicating the success of their ED-RAM initiative. They have announced that they have begun shipments of 65 nanometer wafers containing ED-RAM to Nvidia for a mobile graphic chip, and have also indicated they are beginning shipments of 90 nanometer wafers containing ED-RAM for the Microsoft X-Box Game Console. This means that MoSys technology will now be incorporated in 2 of the 3 major Game Console units, the Wii and the X-Box.

Other announcements during the quarter included MoSys' agreement with China's leading foundry, SMIC to jointly productize MoSys high-density embedded flash memory IP. As previously mentioned, MoSys 1T Flash is a high-density embedded flash that is implemented on a pure logic (inaudible) process. Targeted applications for this technology include mobile devices such as cellular phones and embedded micro controllers.

In summary, we remain confident in our business prospects going forward. All of these IBM and foundry initiatives are expected to grow our royalty stream beyond what we can accomplish by limiting our strategy to just directly licensing CLASSIC macros to system-on-chip designers.

MoSys, in combination with our technology licensees, can reach an even larger number of system-on-chip designers. We expect to see the first designs from the initiatives such as we have described in other handsets, graphics and Game Consoles. Beginning the production ramp in the second half of this year, and add incrementally to our already strong royalty stream coming from Nintendo.

With that, I'd now like to turn the call over to Jim Pekarsky who will review our first quarter financial results and provide additional guidance after which we will open up the call for questions; Jim.

Thank you Chet; I will begin my review of our financial results with our statement of operations. During the course of my comments this afternoon, I will make several references to non-GAAP numbers. Unless otherwise indicated, each reference excludes stock-based compensation charges. These non-GAAP financial measures and a reconciliation of the differences between them and comparable GAAP measures are presented in our press release and related current report on Form 8-K, which can be found at the Investor Relations section of our website.

The total net revenue in the first quarter was $3.1 million, compared to $5 million in the fourth quarter of 2006 and $3.5 million in the year-ago quarter. As Chet mentioned, we closed the major IDM licensing agreement during the first quarter. However a majority of the revenue associated with this agreement will be deferred due to the bundling of engineering services within this agreement. The deferred portions will be recognized over the next several quarters. It is difficult to determine in advance the revenue recognition treatment for these major licensing deals, since every customer engagement is different, and we try to accommodate and support these customers in whatever way is necessary to help them develop and deploy our technology effectively.

Our most important goal is to support these licensees' efforts in getting major design wins that will ramp to volume production and strengthen our royalty stream. Therefore license revenue for the first quarter totaled $1.1 million and compared to $1.8 million in the previous quarter and $2.3 million in the first quarter of 2006. Licensing revenue is recognized from 12 different chip development projects during the quarter, which is comparable to the previous quarter.

Royalty revenue in the first quarter was $2 million in line with our previously stated guidance. This compared to $3.2 million in the fourth quarter of 2006 and $1.2 million in the same period a year ago. During the quarter, royalty revenue was earned from 16 different licensees, which was comparable to the prior quarter.

Under Generally Accepted Accounting Principles, the gross margin percentage was approximately 82% in the first quarter compared to 88% in the previous quarter due to percentage of completion accounting. Operating expenses were $4.7 million in the first quarter, compared to $4.6 million in the previous quarter. On a non-GAAP basis, operating expenses for the first quarter were comparable to the previous quarter of $3.9 million. Non-GAAP operating expenses exclude stock-based compensation charges of $786,000.

Non-operating income, including interest income, totaled approximately $1.1 million compared to $865,000 in the previous quarter. On a GAAP basis, the net loss for the quarter was $969,000, or a loss of $0.03 per share. This compares to a net income of $567,000, or $0.02 per fully diluted share in the previous quarter and a net loss of $973,000, or $0.03 per share in the first quarter of 2006.

On a non-GAAP basis, which excludes stock-based compensation charges of $886,000, net loss for the first quarter was $83,000 or break-even. First quarter net loss per share on both a GAAP and non-GAAP basis was computed using 31,689,000 shares.

With regard to our balance sheet, as of March 31, 2007 our cash, cash equivalents, and both long and short-term investments increased $2 million and totaled approximately $86.2 million, primarily due to the collection of receivables. This compares to $84.3 million as of December 31, 2006 and $85.4 million as of March 31, 2006.

Accounts receivable at the end of the first quarter totaled approximately $1.1 million compared to $2.5 million in the previous quarter.

Now with regard to guidance, we expect total revenue for the second quarter to be in the range of approximately $5 million to $6 million, with royalty revenue in the range of $2 million to $2.5 million. Additionally, based on our strong pipeline of major technology licensing agreements, we are maintaining our previously-stated full-year 2007 total revenue guidance of $23 million to $27 million, which is unaffected by current revenue deferrals. This represents a year-over-year projected growth rate of more than 50%.

As we also mentioned last quarter, we continue to expect full-year royalty revenue to be in excess of $10 million. This projection includes design wins that will reach the production phase during 2007 as Chet has previously described, and also includes the additional ramping of the Nintendo Wii Game Console which has experienced significant traction since its introduction late last year.

Based on these 2007 revenue projections, we are maintaining our earnings guidance and expect non-GAAP EPS to be approximately $0.25 per fully diluted share, excluding stock-based compensation charges and approximately $0.13 per fully diluted share on a GAAP basis.

Now, we'd like to open the call for the question-and-answer session. Operator?

(OPERATOR INSTRUCTIONS).

Chris Chaney, Stanford Group.

Thank you and good afternoon gentlemen; just had a couple questions here. First I'd like to lead off with the license deferral. You mentioned, I mean I understand in the past, you've had some new contracts, some new products that had to go through a deferral like this. I'm wondering though the new deferral that was, well the new license that was signed in early Q2, in April that you mentioned, the IDM license, will that also see a similar pattern of deferral?

And secondly, could you also in whatever terms you can somehow quantify the amount of the original IDM contract signed in Q1 and over how many quarters should we be seeing this spread?

Chris it's Chet; I'll take the first part, Jim can add if he'd like. You're referring to, I think what you're referring to in the past, when we first launched our CLASSIC macros back in the end of 2005 and early 2006, we had some deferrals because these were new products without a proven track record of shipments and returns and for a lot of reasons we were deferring the revenue recognition on those so we basically delivered everything and got the customers effectively ready to go for production as it were.

These technology licensing agreements are a little bit different in the sense that they are large dollar complex agreements that contain a lot of different elements to them. And so it's very hard in advance to know when finally we end up negotiating these things what the customer is really going to need from us if anything. So for example, last summer, you may recall, we announced a major licensing agreement at 65-nanometers with Fujitsu where because we'd had a long-standing relationship with them and they're pretty capable with our earlier generations of technology, we actually didn't have to deliver anything to them or help them in any way and we recognized the entire licensing agreement up front. With some of these newer ones, depending on the circumstances, there are other elements and so they're gong to get deferred, including the one that we just signed, and we just signed it, we're looking at it; it is a large, high-dollar value complex agreement. So at this point it's hard to know.

Jim you may have some additional.

Well one of the other questions you asked was the relative size of these agreements. They tend to be in the multi-millions of dollars; they will contain a technology license but in the case of this major agreement that we signed in Q1, it also contained a macro deliverable that our engineering will need to build and ship. And so while we have some relative but history of doing both, a technology license stand-alone by itself and doing macro development, as these deals get bigger, sometimes they get more complex and in that case, when it's hard to separate out the elements it's best to defer the entire contract. And this is typically over 2 to 3 quarters; it's not an extensive period of time because the work involved is still based off of our CLASSIC macro templates, but in some cases the, as Chet mentioned, the IDM will go off and do the work themselves; in others in the first engagement of the IDM prefers us to do the work, and that will drive the revenue recognition.

Okay I think I understand that. And then further, kind of along the lines of the licensing question then, as TSMC that you mentioned, well I have a couple questions on TSMC but first as they gain traction and see a number of customers come to them for 1T-SRAM, rather than perhaps coming directly to you, do you see a maybe not deferral but maybe a loss of licensing revenue as you go forward, but in the process a I guess a gain of royalty revenue that comes through the TSMC relationship as a result. I'm just trying I guess to gauge whether or not any more the license revenue stream really is a good or a bad indicator or no indicator of what royalties might be down the line, because my suspicion is that although license revenue is weak right now, but the pipeline of I guess deals coming through TSMC could be rather strong, I mean therefore not making the license revenue that meaningful in the near term.

Yes I think that's right; we will continue to develop CLASSIC macro so to speak, but we'll be developed in the future based on the system application where we can really create a better unique value proposition for our system-level function. And the generic macros that are basically used to put large memory blocks onto SOCs, we hope more and more get done by our foundry partners and our IDM partners.

And so it will be hard by just tracking the license revenue to know how many designs they're getting and what the royalty stream can be. And for example, I mean TSMC calls their embedded high-density memory program ED-RAM; that's their branding. Our branding happens to be 1T-SRAM and we'll stick with that. So both may be used interchangeably in the marketplace but as they get more and more design wins, sometimes we know about them, and sometimes we don't. They've recently also kind of indicated they've got more than 10 designs going into production now for their ED-RAM. We don't know the names but it's a lot, and so we expected this program to really work more closely with foundries and IDMs as technology licensees is really going to be a huge benefit to the royalty stream.

Okay, and then a question on the TSMC contracts then; are we to understand then, I just want to clarify this, that every announcement that TSMC might make in the future regarding one of their customers using embedded ED-RAM is actually, the underlying technology is actually the MoSys 1T-SRAM and that each one of those customers or deals that TSMC has will be paying you a royalty on every single one and there's not other embedded D-RAM as TSMC.

Yes so the basis of our agreement with them is for all of their ED-RAM wafer shipments they will pay us a royalty, and the agreement allows them to use in whatever way they choose the right to use our intellectual property and patents in incorporated in their ED-RAM in whatever way they want. But I think the end result as you correctly stated is that all those wafer shipments we will collect royalties on.

Okay, and finally, another TSMC question, so far I see mentioned there are at least 10 major contract that TSMC is going to have in production soon, and we saws the official announcement of Nvidea and just yesterday I saw something in the Commercial Times I believe that mentioned the X-Box 360 graphic processor that will be using embedded D-RAM so that's 2, and should we expect others of these 10, I guess 2, the other 8 of the 10 to be similar types of arrangements, big deals, big strategic customers for TSMC.

We're not really at liberty to disclose any confidential TSMC information, and so we can only wait until they either put out announcements or in course of their business discussions just let it be known what they are doing like they've done in a couple examples. So the only thing I'm aware of is they've given a couple of examples of the kinds of designs that will be incorporated in their embedded D-RAM technology. The have not indicated what the other ones are and we really don't have any way to describe that to you.

Gotcha, okay; now finally last question, the first half of the year has generated about $7.5 million so far; the full-year guidance is for roughly $25 million , so you have $17 million left. That's a pretty heavily back-end loaded year. I'm wondering if the Nvidea and the X-Box deals are going to be major contributors in the second half or is that mostly expected to be from

So we do expect, so Nintendo will be our largest royalty payer this year, obviously. We believe our second-largest royalty payer will be TSMC.

Gotcha, okay thank you very much. I'll turn the floor over for other questions.

(OPERATOR INSTRUCTIONS). Abraham Alasrapu, Thomas Weisel Partners.

Good afternoon gentlemen; just to take you back to the TSMC question, could you give a little sense of what percentage of revenues this quarter were recognized from TSMC? I'm just trying to get an idea of what you were able to recognize as revenue this quarter.

Currently it's under 10%; it's not significant because a lot of their new design licensees are in early stages of production. And so you may recall, we had signed the agreement with them and recognized license fees associated with it in the fourth quarter, and so it's royalties we're talking about going forward.

Yes there were some deferred license fees that we also took in the first quarter, but from a certainly from a royalty perspective it's not significant yet.

Okay and last quarter you had announced that you had signed 4 new CLASSIC macro agreements and 2 more (inaudible) agreements, so were you able to recognize revenues from all of those this quarter as well?

Yes.

Okay and just to take you back to 1T Flash, so do you expect that revenues from that would be more of a late '07 event, or do you think it will be in '08?

We have always said that we expected to see some Flash revenues in the latter half of '07, but the real significant ramp in the Flash revenues would be in '08.

And could you elaborate a little bit more on your agreement with SMIC on the 1T Flash; I'm sorry if you've already spoken about that earlier. I might have missed that so could you just repeat that if you've already spoken about it?

Sure so in order to get through all of the productization phase of developing a new technology like 1T Flash, we need access to a lot of wafers and we need to work closely with manufacturers because we don't have our own factory so to speak for manufacturing, and so we've engaged with SMIC to help do that and help drive a more aggressive time to market for our Flash technology in cooperation with them, and they obviously will benefit by being one of our foundry partners so to speak in promoting this technology and delivering our technology into the marketplace, much as we do with 1T-SRAM/

Okay thank you very much. I will step back in the queue and will ask questions later on if I have any.

(OPERATOR INSTRUCTIONS).

A this time, there are no additional questions in queue. I would now like to turn the call back over to Mr. Chet Silvestri for any closing remarks.

Thank you and thank you all for your participation in our call. Should you have any additional questions, please feel free to contact us directly. Thank you again. Operator you may now disconnect the call.

Ladies and gentlemen, this concludes the presentation. You may now disconnect, thank you and have a nice day.