Peraso Inc (PRSO) 2008 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen. We are now ready to begin the MoSys Third Quarter 2008 Financial Results Conference Call. I will now turn the call over to Beverly Twing of Shelton Group Investor Relations. Please proceed, ma'am.

Thank you. I am joined on today's call by Len Perham, President and CEO, and Jim Sullivan. 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 third 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 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 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. Len?

Thank you, Bev. Good afternoon, everyone. Thank you for joining us today. During the third quarter we recorded sequential growth in both licensing and royalty revenues, which resulted in a 27% sequential increase in total revenue. Prior to handing the call over to Jim Sullivan for a detailed discussion of our financial results, I would like to update you on a few different points, including the objectives we stated when we talked to you last quarter.

Those objectives were foundry relations, business activities, and product and technology development. First, regarding our foundry partnerships. As I've mentioned in the past, this is a significant area of focus for MoSys and our efforts are being led by John Chen. Foundry relationships are critical as we seek to increase the proliferation of our technology into the target markets we serve. By partnering with world class foundries, we leverage their broader sales and marketing capabilities in order to reach a wider array of customers for our 1T-SRAM, 1T-FLASH, and application specific display driver IP and technology.

Also helping in this effort is Dave DeMaria, our VP of Business Operations. David joined MoSys in late August and has been making significant contributions since his arrival. With 25 years of experience in the electronics industry, including eight years as a senior executive at Cadence Design Systems, David brings a wealth of experience in building customer and partner relationships, as well as driving growth via effective sales and marketing strategies.

With the combined effort of John and David, we are making steady progress in expanding our foundry based business and improving our foundry relationships. A few specifics might be TSMC. Our relationship with TSMC continues to improve as we are further expanding this relationship through late stage discussions involving all of our products. Recently we announced the verification of 1T-SRAM technology at level three and level four on TSMC's 90 nanometer general purpose eDRAM process. The achievement of this milestone further demonstrates the manufacturability, functionality, and reliability of our proprietary IP at 90 nanometers and positions MoSys well for scaling to more advanced nodes in the near future.

In addition, we have completed the qualification of our 65-nanometer macro on TSMC's 65 nanometer LP Process and expect this to be formerly certified in today's quarter. Earlier this month, one of our DDI customers completed the first tape out at TSMC on a 130 nanometer high voltage process for a display driver integrated circuit, containing a MoSys application specific DDI macro. We are developing an increasingly stronger relationship with TSMC and we're additionally pleased to see that royalties generated from TSMC significantly increased during the quarter. We continue to work closely with this foundry partner with particular emphasis at the more advanced process nodes.

UMC remains an important strategic partner of our DDI technology. In September, one of our DDI macro customers received successful first silicon of their display driver IC at UMC on the 130 nanometer high voltage process. Another DDI customer taped out their display driver IC with our DDI macro to enable wide VGA in mobile handsets. The customer is expecting to receive silicon in December and their objective is to be in production by mid-2009.

SMIC, we've completed life tests of our 1T-FLASH on three independent different date coded lots, including high temperature operating life without failures. During the third quarter, we expanded the amount of life test data in order to make the amount of our data more significant, statistically more significant and more meaningful to anyone considering incorporating 1T-FLASH into their microcontroller SOC.

Additionally, we have scheduled a hustle to run corner lots to further verify the fit of our IP to SMIC's 130 nanometer technology. It is our goal to substantially increase the volume of flash units we have put through life tests. We want our customers to be as comfortable as possible with the quality and reliability of our 1T-FLASH technology.

New foundry partnerships. In the first quarter fiscal '08 Soltera became a licensee of our DDI technology. At the beginning of the third quarter we delivered a hot VGA DDI macro to a Soltera customer and that customer's chip is due out of manufacturing later in this quarter. We are working closely with Soltera and this customer to bring this product into production as soon as possible. In addition, our test chip is in the fab and we expect to receive the results back from it in December as well. Soltera is targeting a production release of this display driver product in the first half of 2009.

I will now discuss our business activities for the third quarter. 1T-SRAM, demand for our high density 1T-SRAM product has remained strong and the prospect for additional new business is good. During the third quarter we booked two new orders for 1T-SRAM macros and our pipeline of prospective licensees remains robust. We believe there is a growing need for smaller, faster, and lower power consuming 1T-SRAM technology, specifically in the following applications, which we internally refer to as the three Ps. Pixel processing, videographics and image processing applications, which require significant blocks of memory and high speed processing. Second, packet processing. Communications applications which also require very high speed processing, and finally, third point, proximity, applications that require embedded memory close to the processor for ideal speed and performance.

Application specific solutions. In the third quarter, we achieve additional traction for our DDI macros. Our first application specific system macro, which is used in a dual port display driver integrated circuit. We continue to experience a strong opportunity for 1T-SRAM technology in this market segment due to the requirements for a cost effective, higher density, lower power solution with a small form factor. In the third quarter, we secured one new DDI customer and delivered three new macros to existing customers, all of whom are in the process of taking out their chips. We continue to leverage our highly skilled engineering team to develop additional application specific system macros. More on this segment a bit later.

1T-FLASH -- with regard to 1T-FLASH, I have already mentioned the progress made with SMC at the 130 nanometer node. Our beta site customer champion for the 1T-FLASH is expecting to begin shipping samples of his programmable microcontroller utilizing our embedded 1T-FLASH during the first quarter 2009. Additionally, we are engaged with several other foundries for adoption and support of our 1T-FLASH IP at nodes as advanced as 65 nanometers. We have also made substantial progress in developing 1T-FLASH compiler to enable us to more quickly generate macros ranging from 65 kbits of memory up to four megabits. We are optimistic that this compiler will be available during the first quarter fiscal year '09.

Blu-Ray -- we have a premier working front end Blu-Ray solution that we have demonstrated for multiple potential customers and we are well under way in scaling it to 55 nanometers and below. However, it appears that the market for Blu-Ray players will be slower to develop than originally predicted. Market researchers who had originally predicted that Blu-Ray sales would significantly increase in 2009 are now predicting that less than 5 million Blu-Ray DVD players will be shipped next year. The worldwide slow down we're facing in 2009 is expected to have a significant negative impact on Blu-Ray adoption. In light of these events, we are closely evaluating our opportunities in this market space.

Analog IP -- we are pleased to record first time revenue from our first analog mixed signal order during the third quarter. We continue to make steps toward establishing a presence in this market and further our progress to next generation technologies. Specifically, we are continuing to pursue opportunities for our Gigabit PHY. During the third quarter, we decided to cease our sales efforts for our serial ATA technology as we found that market was well served and highly competitive, not conducive to our existing royalty business model.

In addition to our commitment to capitalize on opportunities for our existing technologies, we also remain committed to leveraging our extensive IP portfolio to bring new products to market. With this in mind, let's talk about products and technology. We've continued to evaluate the market opportunities for a second application specific system macro. This project has evolved to the point that we have a draft product outline, have discussed the macro, the product features it enables, its time to market, et cetera, with several potential customers.

We should be able to make a decision regarding the launch of this new system macro during the first quarter 2009. We continue to investigate several complex analog SOC projects, but have come to no conclusions reportable for today's session.

Now, prior to handing the call to Jim for a detailed review of our financial performance, I'd just like to provide a few updates to my recent three, four week to Asia where I engaged with many of our customers and gained insight into a few market trends and activities going on there. Point one, we continue to strive toward better relationships with our foundry partners. The smooth integration of MoSys IP with our foundry partners advanced process technology will determine the quality, performance, and applicability of our shared customer solution in the market he serves. Our foundry relationships have improved dramatically and these relationships continue to be central to all we strive to achieve with our company.

Second point, our application specific Dual Port Display Driver has not lost any orders at the WVGA level. Its low active power, excellent form factor, high performance and low cost make it the go to solution. We have many opportunities before us for this great 1T-SRAM solution and are optimistic that much business is coming our way.

Point three, our 1T-FLASH solution continues to gain ground. Not only our several customers interested in this advanced technical solution, but additionally several foundries see the need as well. I am very optimistic for the future of our 1T-FLASH technology. Customers continue to strongly consider our analog IP for inclusion into their future SOCs, but our newness to this market space is making progress slow.

I'm going to now turn this over to Jim Sullivan who will provide you with a more detailed review of our third quarter financial performance and I'll come back with a few closing remarks a bit later. Go ahead, Jim.

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, in process research and development excess, 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 third quarter of 2008, total revenue for the third quarter of 2008 was $4.1 million. This compares with $3.2 million for the second quarter of 2008 and $4 million for the third quarter of 2007. Royalty revenue for the third quarter was $2.9 million compared with $2.5 million for the previous quarter and $2.4 million for the third quarter of 2007.

License revenue for the third quarter of 2008 was $1.2 million compared with $667,000 in the previous quarter and $1.5 million in the third quarter a year ago. License revenue was recognized from 17 customers compared to 16 customers in the prior quarter. Royalty revenue for the third quarter was recognized from 18 customers compared to 16 customers in the second quarter.

On a GAAP basis, our gross margin percentage was 79% for the third quarter compared with 74% for the previous quarter and 83% for the third quarter of 2007. The gross margin improvement for the third quarter of 2008 was primarily attributable to the increase in royalty revenue.

On the operating expense side, research and development expenses were $4 million for the third quarter as compared with $4.3 million for the previous quarter and $3.2 million for the third quarter of 2007. SG&A or selling, general, and administrative expenses were $2.6 million for the third quarter of 2008 compared with $2.9 million in both the previous quarter and the third quarter of 2007.

Total operating expenses were $6.8 million for the third quarter compared with $7.5 million for the previous quarter and $7.3 million for the third quarter of 2007. Third quarter operating expenses include $978,000 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 sequential decrease in total operating expenses primarily reflects a decease in stock based compensation expense, a reversal of bad debt expense recorded in 2007, and additional amounts allocated to cost of goods due to more services performed under license agreements.

On a non-GAAP basis, total operating expenses for the third quarter of 2008 were $5. 8 million compared to $6.1 million for the previous quarter and $5.4 million for the year ago quarter. Non-operating income was substantially comprised of interest income and totaled approximately $390,000 compared to $560,000 for the previous quarter. The decrease in non-operating income reflects lower interest rates earned in our cash and investment balances.

On a GAAP basis, the net loss for the third quarter was $3.2 million, or a loss of $.10 per share. This compares to a net loss of $4.6 million, or $0.14 per share for the previous quarter and a loss of $2.8 million for the third quarter of 2007. On a non-GAAP basis, the net loss for the third quarter was $2.1 million, or $0.06 per share, and excludes stock based compensation and amortization charges totaling $1.2 million. Net loss per share on both the GAAP and non-GAAP basis was computed using approximately 31.8 million weighted average shares outstanding.

Now, turning to the balance sheet, as of September 30, 2008 our cash, cash equivalence, and short and long term investments balance was $72.1 million compared to $74.6 million at the end of the previous quarter. Cash expenditures of $2.2 million during the third quarter of 2008 were primarily attributable to our operating loss.

As we 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 third quarter, we recorded additional unrealized losses to stockholders' equity of approximately $300,000, resulting in a net auction rate securities long term investment balance of approximately $8.3 million at September 30.

All of our holdings are of high credit quality and the issuers have AAA credit ratings, and have made all required interest payments when due. Substantially all of our auction rate securities are backed by pools of student loans guaranteed by the United States Department of Education.

On October 14, we announced that our Board of Directors approved a common stock repurchase plan under which we are authorized to purchase up to $5 million of our common stock over the next 12 months. Repurchases will be conducted from time to time subject to market conditions and other factors such as a determination that we believe the repurchases will be beneficial to stockholders. These transactions may be commenced or suspended at any time or from time to time without notice. As of October 29, we had repurchased approximately 173,000 shares at an average price per share of $3.61 for a total expenditure of approximately $624,000.

Accounts receivable at the end of the third quarter totaled $550,000 compared to $763,000 as of June 30, 2008. The decrease in accounts receivable reflects strong collections during the quarter and timing of invoicing. As of September 30, our total headcount was 191 employees compared to 192 at the end of June.

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 there are no questions at this time.

Okay, operator?

Yes, sir.

We have no questions at this time?

There are no questions at this time.

Okay, then let me -- this is Len Perham again. I would just like to make a couple of summary remarks, Neither MoSys nor are customers will be immune to this severe global slowdown that we are witnessing. However, both our total available market and our (inaudible) market have grown substantially from 2007 into 2008, and I expect them to grow more in 2009. If we execute well and keep an eye on our expanding customer base, we should do acceptably well over the next four to 12 quarters as our industry works through this banking disaster.

In closing, I would say that our 1T-SRAM technology has lots of opportunities left to pursue, and there's much life left in this valuable IP. We've just begun to scratch the surface of the opportunities open to our application specific 1T-SRAM macros and I am optimistic that in 2009 we will come up with another one, two, or three application specific macros that will further expand our served available market.

MoSys 1T-FLASH is generating lots and lots of interest. By late 2009 going into 2010, we should see a good strong flow of 1T-FLASH orders and the beginning of an increasingly better revenue stream. Though going slowly right now, our analog IP is solid and generating strong interest.

Last comment, I believe in the fourth quarter we should expect that we will be flat to up. I don't see us down based on our forecast today. There's a lot of economic uncertainty out there, but I believe flat to up is reasonable. When this banking disaster is finally behind us, MoSys should be strongly positioned to take full advantage of the up turn. A strong balance sheet and good fiscal controls will assure that when the smoke clears we will be there and ready to roll. I want to thank you all for coming on the call. I look forward to talking to you all soon and wish you the best with your business ventures. Thank you very, very much.

As a reminder, everyone, MoSys will be presenting at AEA and we hope to see many of you there next week. Thank you, operator. You may now disconnect the call.

Thank you for your participation in this conference. You may now disconnect. Have a great day.