Peraso Inc (PRSO) 2008 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen. We are now ready to begin the MoSys Second Quarter 2008 Financial Results Conference Call. My name is George and I will 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 toward the end of this conference. (OPERATOR INSTRUCTIONS)

As a reminder, this conference is being recorded for replay purposes. I would now turn the call over to Beverly Twing of Shelton Group, Investor Relations. Please proceed.

Thank you, George. I am joined on today's call by Len Perham, President and CEO, and Jim Sullivan, CFO. By now everyone should have received the press release, however if you haven't it is available on the MoSys website at www.mosys.com.

Before we begin today's discussion of the second quarter financial 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 markets for the MoSys technology, benefits and performance expected from use of the 1T-SRAM, 1T-FLASH or mixed signal technologies, licensees of 1T-SRAM technologies and their strategy, the development and production of products that use MoSys' license technology, license fees and royalties attributable to 1T-SRAM, 1T-FLASH, and analog mixed signal technologies, and the company's anticipated or perspective financial performance.

Forward-looking statements made during this call are subject to risks and uncertainties that could cause actual results to differ materially from any forward looking statements made during this call, or contained in the company's most recent annual and quarterly reports on Forms 10-Q and 10-K filed with the Securities and Exchange Commission, in particular in the section titled Risk Factors, 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 Len Perham, Chief Executive Officer of MoSys.

Good afternoon, everyone. Thank you for joining us. Sorry to be a little bit late getting online. We had some problems with our friend, Edgar, but we're rolling along now. In the last six months, we've been discussing three immediate company priorities, organizing and focus in the company, reorganizing the sales function, improving customer relationships, and product and technology development. But today will change that.

So for the next few quarters now we're going to focus on something different, founder relations, business activity, and product and technology development.

So let me say a few things about founder relations first. John Chen has joined MoSys as the CA Director of Strategic Business Relationships. John reports to the COO of the company and has first line of responsibility for developing optimum relationships with each of our foundry partners. The better these relations, the more likely it will be that we can deliver an optimum systems solution to our shared system on a chip customers.

Easy way to say that is the outcome for the customer is the perfection of the integration of what we create and are designed to what they create in the process architecture. Observations from John's recently completed series of meetings with both foundry partners and potential foundry partners in his first trip offshore. First, we've been working very hard to improve and optimize our relationships with TSMC. They're a very important strategic partner and MoSys had not been doing enough to perfect that relationship.

We are in very active discussions, late stage discussion in many cases with TSMC involving our 1T-SRAM, 1T-FLASH, and application specific display driver intellectual property. Three of our founding partners are in one stage or the other of completing the assimilation of our application specific display driver IP into their 130 nanometer high voltage process technology. The most advanced partner is essentially complete and ready to go to production.

That is, both of us feel good that our macros running in their processes are now producing optimum or near optimum electrical characteristics. The second most advanced foundry is making excellent progress toward integration of our IP into their process technology and our third foundry partner is considering whether to bring it up at 130 nanometers or 110 nanometers. We'll make that decision and go forward very shortly.

We have completed life tests of our 1T-FLASH on three independent, different date coded lots at SMIC including high temperature operating life without any failures. We're now in the process of expanding the amount of life test data we will have by running more material and expanding the sample sizes, and making the depth of our data, or the amount of our data more significant and statistically more meaningful to anybody considering incorporating us into their macro.

We are scheduling corner lots to further verify the fit of our IP to SMIC's 130 nanometer technology. Additionally, we are at various stages of discussion with three or four foundries and two or three IDMs regarding the adoption of our proprietary 1T-FLASH IP for their embedded flash requirements. We're very excited at the reception we've been given for our 1T-FLASH technology.

Let's talk about business activities. Jim will report today that business in our second quarter fiscal year '08 was up over the first, and early indications are the third quarter should be up as well. Just a couple of general highlights. More new orders were booked in the first half of 2008 than all of 2007. Six new adoptions of MoSys IP occurred. That means six new first time customers came aboard. We also signed up one new foundry.

We're generally very pleased with the results of our first half. By business area, in the 1T-SRAM area business remains very strong. The business activity and the number of customers we're talking with is very significant and the prospects for new business are very good. In the area of our application specific system macros, the display driver business, our dual port display drivers, we saw three orders in the first half and we ended the half in negotiation with two, three, or four more customers, some of whom in the near term are very, very likely to sign orders.

There is significant ongoing business activity involving our application specific display port -- dual port display driver. In the 1T-FLASH area, as I mentioned we've completed the qualification of independently date coded lots with no failures. Currently scheduled to receive more material and expand sample sizes. We're going to increase the company's in-house capability to do low temperature testing.

Because some of this is a new activity for people in our end of the business, we're going to take a bigger role toward what I call verifiable silicon. We intend to go and acquire corner lots from SMIC to further verify the fit of our process and design, or the success of the integration of the two. There's lots of late stage negotiations and discussions at several foundries regarding adoption and support of our 1T-FLASH IP. We're excited by the level of activity in this area.

The Blu-Ray analog front end, we continue in late stage negotiations with several customers regarding the adoption of our Blu-Ray single chip analog front end. This work underway and well along to scale this 130 nanometer solution to 55 nanometers and our macro continues to pass all evaluations and demonstrations with flying colors. It's a very excellent solution and it required no mask iterations to get there.

Analog intellectual property. There's very strong interest in several of our analog IP blocks such as the serial ATA and/or our gigabit PHY. A half dozen or more very interested foundries, design services companies, or freestanding SOC houses are considering the adoption of these IP blocks. We are well on our way to scaling these products to next generation technologies. Perhaps our largest hurdle is our newness to this market sector. We do not yet have strong credibility and a background of orders, so we need to earn our right to participate more or less, but I think we're going to prevail.

Third area, products and technologies. The application specific system solution macro that we'd been describing, the one that I referred to as the second one we will bring, is now near a final draft product specification. We've successfully completed reviewing the product and the technology it represents with more than a handful of potential customers, and we're now looking for an ideal customer partner who has a strong strategic interest in this market sector.

We'll be ready to go soon and we may or may not go forward without this initial customer on board. We'll see how strong the market looks as we continue to collect more and more information. Application specific system solution number three, which would be display drivers number one. We're in early stage discussions with what I would consider to be a customer champion who needs a strong application specific product not likely possible without the utilization of MoSys IP. That is this product and this application would require a large memory and low latency, ideal for a MoSys 1T-SRAM.

And finally, early stage work has started on a new complex analog SOC, the first being the Blu-Ray. We are investigating three areas, two with customer champions and one being driven internally by a recently hired senior systems architect. We spent a long time looking for the right guy, interviewed lots of people. This gentleman joined us a week or two ago. This is our longest long term project, but success in these efforts is economically important and should have a great, great payback.

I'm going to hold up here and let Jim review the numbers with you. Later I'll have a few closing comments after the question and answer session. Thank you very, very much.

Thank you, Len, and thank you to everyone for being on the call today. During the course of my comments, I will make several references to non-GAAP numbers. Unless otherwise indicated, each reference will be to an amount that excludes stock based compensation expense and intangible asset amortization. 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 was filed with the Securities and Exchange Commission today, and can be found at the Investor Relations section of our website.

With regard to the results for the second quarter of 2008, total revenue for the second quarter of 2008 was $3.2 million. This compares with $2.8 million for the first quarter of 2008 and $4.3 million for the second quarter of 2007. Royalty revenue for the second quarter was $2.5 million compared with $2.4 million for the previous quarter and $2.2 million for the second quarter of 2007.

During the second quarter of 2008, we continued to experience additional ramping of royalty revenue associated with the Nintendo Wii product. License revenue for the second quarter of 2008 was $667,000 compared with $432,000 in the previous quarter and $2.2 million in the second quarter a year ago. License revenue was recognized from 16 customers in the current quarter, while royalty revenue for the second quarter was also recognized from 16 customers.

The decline in royalty paying customers as compared to the 18 we reported in the first quarter of 2008 was attributable to two customers completing end of life with their products. These customers had not been generating significant revenues for us in recent quarters. We have already received a royalty report from a major customer this month, which has fully utilized the prepaid royalty, and accordingly we will be recognizing our first royalty revenue from this customer in the third quarter.

On a GAAP basis, the gross margin percentage was 74% for the second quarter compared with 83% for the previous quarter and 84% for the second quarter of 2007. Gross margin was negatively impacted by a $200,000 loss accrual recorded to cost of net revenues related to a customer project that commenced in 2007 and which we expect to complete by the fourth quarter of this year. Total operating expenses were $17.5 million for the second quarter of 2008 compared with $7.7 million the previous quarter and $4.9 million for the second quarter of 2007.

Second quarter operating expenses included $1.3 million in stock based compensation charges and $197,000 in amortization charges related to the 2007 acquisition of the analog and mixed signal design teams. The year-over-year increase primarily reflects additional research and development and Selling, General and Administrative expenses related to the acquired analog mixed signal engineering teams and their associated product development projects, as well as an increase in our 1T-FLASH development efforts.

Selling, General, and Administrative expenses were $2.9 million for the second quarter of 2008 compared with $3.4 million in the previous quarter, and $2.8 million for the second quarter of 2007. Research and Development expenses were $4.3 million for the second quarter of 2008 as compared with $4.1 million for the previous quarter and $2.1 million for the second quarter of 2007.

On a non-GAAP basis, operating expenses for the second quarter were $6.1 million compared to $6.3 million for the previous quarter and $4.1 million for the year ago quarter. Non-operating income was substantially comprised of interest income and totaled approximately $561,000 compared to $1.1 million for the previous quarter and $1.2 million for the second quarter of 2007. This sequential decrease in non-operating income selects lower interest rates earned in our cash and investment balances, and a one time interest receipt in the first quarter of 2008 for an IRS refund related to a prior year tax return.

On a GAAP basis, the net loss for the second quarter was $4.6 million, or a loss of $0.14 per share, and includes the stock based compensation and amortization charges of $1.5 million. This compares to a net loss of $4.3 million, or $0.14 per share for the previous quarter, and a loss of $146,000 for the second quarter of 2007.

On a non-GAAP basis, the net loss for the second quarter was $3.1 million, or $0.10 per share, and excludes stock based compensation and amortization charges totaling $1.5 million. Net loss per share on both the GAAP and non-GAAP basis was computed using 31.7 million weighted average shares outstanding.

Now, turning to the balance sheet, as of June 30, 2008 our cash, cash equivalence, and short and long term investments balance was $74.6 million compared to $78.6 million as of December 31, 2007. Cash expenditures during the first half of 2008 were primarily attributable to our operating losses and fixed asset purchases.

As we had previously discussed, our investments consist of money market funds, government agency and municipal debt securities, corporate notes, commercial paper, and student loan backed auction rate securities. Due to the continuing lack of liquidity of the auction rate securities during the first half of 2008, we recorded unrealized losses to stockholders' equity of approximately $600,000, resulting in a net auction rate securities long term investment balance of approximately $8.5 million as of June 30, 2008.

All of our holdings are of high credit quality and the issuers have AAA credit ratings. Substantially all of our auction rate securities are backed by pools of student loans guaranteed by the United States Department of Education. Accounts receivable at the end of the second quarter totaled $763,000 compared to $1.3 million as of March 31, 2008. The decrease in accounts receivable reflects strong collections during the quarter and timing of invoicing.

As of today, we have collected approximately 60% of the June 30 receivables balance. During the quarter, we did not repurchase any shares of common stock under our existing stock repurchase plan. As of June 30, we had added engineering staff, primarily in China, bringing our total headcount to 192 employees, compared to 190 at the end of March.

This concludes my prepared remarks. At this time, we would like to open the call for a question and answer session. Please clearly state your name and company affiliation prior to asking your question. Operator?

(OPERATOR INSTRUCTIONS) And our first question comes from the line of Mike Crawford from Riley Investment Management. Please proceed.

Yes, I think with your recent engineering acquisition there was a potential earn out that related to some design wins, some future design wins that need to occur before the beginning of August. Was that correct?

That's correct.

And is that going to be earned out.

It was basically a percentage of revenue sharing that would go t select employees of the analog mixed signal groups. To date, we have not recognized any revenue from our analog mixed signal divisions and to the extent we have revenue in the month of July, it'll be pretty minimal. So it will not be significant amounts paid to those individuals.

You did go through somewhat of a -- not exactly a laundry list, but quite a few kind of deals in the pipeline you're working on. Is there any sense you can give on what you'd like, say, the income statement to look at in a year or two's time, assuming that you start to connect on some of these things?

I'll take a crack and then Jim can add to it. I think that second question was about the corporation and not about our acquisition or Blu-Ray in particularly. So in the first half of the year, we had a significant amount of new business come onto our books. We expect that we would do even better in the second half if things go according to plan.

It would seem to me that 12 months from today we might be thinking that we would have in the pipeline business that was going to result in maybe close to if not more than twice as many royalty bearing deals. I can't tell if the average of those would be the same as the average of the 14 or 15 that Jim reported today. But it would seem to me that by the end of this year we would have a significant number of new business opportunities going through the phases of integrating our IP into their SOC, allowing fourth quarter of this year, first second, maybe even part of the third or all of the third quarter next year to get the SOC to the market.

And somewhere in the second half of next year, we should start seeing a lot more royalty layering onto a fairly good base that shouldn't deteriorate too much. At the same time, we should expect to see that our NRE and license, which we may combine as one number, Jim can address that, should ratchet up significantly over 2007 because of the amount of business we're pursuing right now and the overall expansion of our served available market.

So I guess I would say that we would expect to see substantial new business, an opportunity for a reasonably decent slope up into the right of revenue going forward quarter to quarter. When the company's in the black, we'll start taking a look at each deal coming in and starting to measure it against whether or not the effect of that deal is to pull down the company's flow through to the bottom line as a percentage basis, so that we start looking for deals driven by value rather than just getting ourselves back into a sensible place of operating in the black. And we will focus the company, once in the black we'll focus it on just driving value and competitive strength very, very strongly. So that's my position on it from a CEO's point of view, and Jim can add to that.

I don't think I can add anything as far specific numbers, but I think we're, as Len mentioned, tracking a significant amount of new business. Certainly in the top line licensing number this quarter, we saw the effects of the deals we signed in Q1 and Q2, which were significantly up. There were very few deals in the second half of 2007 and we're starting to put the numbers up on the board from the new deals, and certainly tracking a number of new royalty opportunities.

Now, as I mentioned, we've got one large customer that will start -- has already reported their amount for Q3 and we're expecting a nice uptick from them in Q4 and other design wins coming into play. So I think the one thing that could impact our financials pretty significantly is the extent we score on some of these Blu-Ray deals, as these are very significant. They're deals that we would take on a percentage of completion basis say, over, they're long development efforts, 9 to 12 months up to, and those could have a huge impact.

Great, thank you.

(OPERATOR INSTRUCTIONS) There are no questions at this time.

Okay, then thank you very, very much. I think I'd just like to make a couple of comments in closing. Just a general point, I think it's important to share with you. The first would be that we continue to believe that MoSys' 1T-SRAM intellectual property is both very, very important to our customers and very valuable to MoSys. That was discussed early on when I got to the company, is their life left in our IP and the level of business activity around our traditional products, and IP is very strong and you can be assured that there's a lot of life left in the company as what I want to call a traditional 1T-SRAM IP.

The second point I'd make is MoSys 1T-FLASH is very good and it has the potential to do very well in a wide array of embedded applications. We need to build an ever mounting amount of data in the form of valuable information from a QA in our point of view, to make our customers increasingly comfortable that when they integrate this into their SOC it will stand by them and not give them any grief.

We're kind of a new player to the Flash market and we have had no failures in our first round of testing, as I said, which is very impressive. But from a statistical point of view, this is an area where more is better. So we're not only going to increase the lots that are being sampled to accelerate a high temperature operating life, but we're also going to increase our capacity to do high temperature and low temperature testing, and make more data available to potential partners.

But we should be very optimistic about this 1T-FLASH. It's a very, very strong technology. My third point would be that our application specific display driver interface intellectual property is making great inroads and I would leave you with the idea that we booked three orders, one being very significant in the first half, and we closed the first half with several orders that were very, very late stage of negotiation.

And we're optimistic that we're going to get some of those and that more are going to come in, and that we're going to hit the 130 node, and then the 90 node, and we think that we're going to be in this business for a long time. It's been very satisfying to see the acceptance of this display driver frame buffer.

My fourth point, though our new analog IP products seem to be getting off to a slow start. I believe we will overcome these what I call getting started hurdles and that we will in fact do very, very well. The level of interest from foundries and the level of interest from design services companies is very high and I'm optimistic that we'll start to build a reputation here and we're going to be a long-term and successful player in this analog IP space.

And my final point would be that I'm very optimistic about MoSys. Some people ask me, well what's change since I got here, and from my point of view in terms of what I see, I see the opportunity for a bright future and it's more clear to me now, perhaps, than when I walked through the door. And I continue to believe that we're on the right track and that we should expect that good things are going to happen.

I want to thank you for your support, thank you for being on the call and we'll look forward to visiting with you and sharing our progress again next quarter. Thank you very, very much.

Ladies and gentlemen, this concludes the presentation. You may now disconnect. Good day.