Peraso Inc (PRSO) 2009 Q2 法說會逐字稿

Good morning and welcome to the MoSys Second Quarter 2009 Financial Results Conference Call. (Operator Instructions). As a reminder, this conference call is being recorded for replay purposes today, Tuesday, July 28th, 2009.

I would now like to turn the call to Ms. Beverly Twing of Shelton Group, the Investor Relations agency for MoSys. Beverly, please go ahead.

Thank you, operator. Joining me on today's call is Len Perham, MoSys's 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 everyone that this conference call will contain forward-looking statements based on certain assumptions and expectations of future events that are subject to risks and uncertainties. Such statements are made in reliance upon the Safe Harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which include but are not limited to benefits and performance, especially from use of the Company's embedded memory and interface technologies, expectations concerning the Company's execution and results, projected improvement of operational efficiencies, anticipated expense and revenue synergies from our recent acquisition of Prism Circuits, predictions concerning the growth of our business and our markets, our future business prospects, the estimated cost savings from restructuring plans and any other statements of plans, strategies, objectives, expectation or belief.

Forward-looking statements made during this call are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Additionally, 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 and quarterly report on Form 10-Q 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 as 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, please go ahead.

Thank you, Bev. Good afternoon, everyone, and thank you for joining us today. I'll start the call with a few short remarks and then turn it over to Jim Sullivan to address the financials. After that, we're going to open it up for Q and A.

I'll talk to a few subject headings today. First off, the macroeconomic environment, during the second quarter the macroeconomic environment remained challenging and I expect it to remain challenging for the remainder of 2009. With that said, I am optimistic about future opportunities for MoSys as we position the Company for growth and profitability.

We are anticipating a modest high tech recovery in 2010 and it is our intention that MoSys be well positioned to benefit when that market turn occurs. We have always believed we could start to make sense of MoSys in 2010 and we are positioning the Company for that eventuality.

Regard to the Prism acquisition, recap of benefits; during the quarter we took a major step towards achieving our vision to become a world class provider of differentiated high value IT by acquiring Prism Circuits. The acquisition adds several strategic benefits to MoSys. First, it significantly increases our total addressable market by instantly positioning MoSys to be a leader in the $300 million interface IP market.

The ever increasing demand for greater bandwidth on the Internet and everything connected to it is driving the need for very high speed serial communications. The next generation of advanced SoCs or complex ASICs going into these networking consumer computing and storage systems will increasingly migrate toward high speed serial I/O in order to most optimally solve system level design challenges. The differentiated high speed interface IP solutions that we now offer position MoSys as a potential key provider to that large and growing market.

Second, the acquisition enables MoSys to provide a much more comprehensive solution to our customers. As you know, there are four major categories of IP needed by complex ASIC and SoC designers, processors, memory, interface or I/O and analog mixed signal. With the addition of parallel and serial interfaced IP to our product and IP portfolio and the addition of a very talented analog mixed signal design capability in the US and in India, we can now directly provide three of the four major IP building blocks. This larger and more comprehensive capability makes MoSys a more attractive IP partner.

MoSys can play a significant role in next generation high speed telecommunication or data communication systems where efficient serial I/Os are needed as the key interface to allow very efficient chip-to-chip communication across the entire system. In addition, we believe the integration of our patented memory IP and our differentiated interface IP will be highly valuated in the networking and communication markets.

Third, as I've discussed on past calls, we see a major opportunity for our 1T-SRAM embedded memory IP in the networking and communications markets. As the processor cores use needs advanced systems have become faster and faster the lack of substantial performance increases in main memory has become a bigger and bigger problem. In short, memory speed and performance has become a major system bottleneck. MoSys believes our 1T SRAM embedded memory IP is ideally suited to solving this problem in future system designs.

And finally, fourth, in addition to a very talented team of world class memory designers we have now added to MoSys a world class team of experts in high speed interfaces, which are becoming increasingly important to our systems partners who are configuring next generation SoCs and complex ASICs.

Additionally, we have added senior systems applications, computer architecture and micro architecture talent and find ourselves able to collaborate with our system partners on future solutions. It will take MoSys much closer to the customers' future system designs and should dramatically increase our value as an IP partner.

Let's talk about the Prism acquisition progress. Let me provide a brief report on the progress we've make on integrating the two Companies into one MoSys. In the organizational and operational front we've made great progress in a short period of time since closing the acquisition in June.

A few weeks ago we completed the move of the Prism team into our MoSys headquarters in Sunnyvale so the entire US team is now in one location. Organizationally we have completely integrated the teams into a single MoSys organization. Sundari Mitra, Prism's CEO, has become Executive Vice President of Engineering responsible for the entire engineering team including both the high speed interface and the memory teams.

We combined all sales and marketing efforts for the Company under Dave DeMaria, MoSys Vice President of Business Operations, and we integrated the finance and administration functions under Jim.

Externally, Dave, Sundari and I have spent the last several weeks in numerous meetings with current and prospective customers of the combined MoSys. I am pleased to share that the feedback has been excellent. Customers see the significant contribution that the combined MoSys can bring to the architecture of their next generation single-chip solutions.

They also see that together as one Company we are much stronger than each company was on its own and in many of these meetings new opportunities have opened up for us to pursue. Combined MoSys can contribute to both our customers' memory and high speed I/O requirements. Additionally, we can integrate these two significant technologies to solve yet other significant design challenges faced by designers of next generation communications systems.

In light of our acquisition, we have evaluated and reviewed with our Board each and every aspect of our product development efforts. We have measured each project potential for revenue, profits and anticipated return on investment. Based on these evaluations we have a definitive roadmap enabling us to focus on and make substantial progress toward our new strategic plan and operating goals.

We have also been sharpening our focus and working on getting our costs down to get us to our goal of profitability. During the second quarter and early this quarter we've taken significant cost reduction actions including the closure of our Memory Design Center in Korea and a reduction in headcount in Sunnyvale made possible by the integration of our two teams into one more efficient enterprise.

In summary, although our second quarter financial results were disappointing, I believe that MoSys is in a much stronger position to expand our growth and accelerate our progress toward profitability. I am optimistic that we will begin to see meaningful growth as early as the second half of this year and certainly into 2010.

I will now pass the call to Jim for a discussion of our financial results. Jim, the ball is in your court.

Thank you, Len, and good afternoon, everyone. 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, intangible asset amortization, restructuring, and acquisition related 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 was filed with the Securities and Exchange Commission today and can be found at the Investor page of our website.

With regard to the results for the second quarter, total revenue for the second quarter of 2009 was $2 million compared with $2.6 million for the first quarter of 2009 and $3.2 million for the second quarter of 2008. License revenue for the second quarter of 2009 was $306,000 compared with $524,000 for the previous quarter and $667,000 for the second quarter a year ago, license revenue as recorded from ongoing projects as well as from one new interface IP license agreement.

In the second quarter we recognized our first revenue from customers that licensed our newly acquired interface IP. The sequential decrease in license revenue is primarily attributable to the continued instability in the macroeconomic environment, which has caused customers to delay new projects until economic and market conditions improve. License revenue for the second quarter of 2009 was recognized from 15 customers, which is consistent with the previous quarter.

Royalty revenue for the second quarter was $1.7 million compared to $2 million for the previous quarter and $2.5 million for the second quarter of 2008. The sequential decrease in royalty revenue was primarily attributable to declines in shipment volumes experienced by our licensees, including a major foundry partner, as their customers significantly reduced inventory levels.

As we discussed last quarter, in the fourth quarter of 2008 a major royalty paying IDM licensee began transitioning its system-on-chip using a popular gaming console through a more advanced process node. Since the fourth quarter of 2006 this IDM licensee has been reporting and paying royalties to us on a current quarter basis.

For the SoC at the more advanced process node, which continues to use our 1T SRAM, the licensee reports and pays us royalties a quarter in arrears, as all of our other royalty paying licensees do. The delay in royalty revenue recognition is strictly a difference in the timing of reporting and we expect the licensee will complete this transition in the third quarter of 2009. We expect that this transition will continue to negatively impact royalty revenues for the third quarter and to a lesser extent the fourth quarter. However, subject to their shipment volumes, we anticipate a significant increase in royalty revenue attributable to this customer in the third quarter.

On a year-over-year basis, royalty revenue declined due to reduced volumes arising from the weak macroeconomic conditions combined with the aforementioned SoC transition by the major IDM licensee. Our second quarter 2009 royalty revenue was recognized from 14 customers compared with 16 customers in the previous quarter.

On a GAAP basis gross margin was 86% for the second quarter of 2009 compared with 88% for the previous quarter and 74% for the same quarter a year ago. The year-over-year gross margin improvement for the second quarter of 2009 was primarily due to total revenue being comprised of a higher percentage of royalty revenue, which has no associated cost of revenue.

In terms of our operating expenses for the second quarter, research and development expenses were $4.1 million compared to $3.8 million in the first quarter of 2009 and $4.5 million in the year ago quarter. Research and development expenses for the second quarter of 2009 included $311,000 of acquisition related charges including $177,000 of expense for amortization of intangible assets and $134,000 of contingent compensation expense related to the Prism acquisition for the portion of the acquisition earnout attributable to retention of employees.

R&D also excludes -- also, excuse me, includes expenses for Prism since the June 5th closing date of the acquisition. The increase over the prior quarter was primarily attributable to the acquisition related charges and the expenses for Prism since the closing of the acquisition, partially offset by the reduction in costs related to our analog mixed signal product line. We completed our exit of the analog mixed signal product lines in the first quarter of 2009.

The year-over-year decrease in R&D expenses was primarily due to the elimination of costs associated with the analog mixed signal product lines, partially offset by the acquisition related expenses.

Selling, general and administrative expenses were $2.5 million for the second quarter of 2009 compared to $2.4 million in the previous pre-acquisition quarter and $2.9 million in the second quarter of 2008. SG&A expenses in the second quarter of 2009 included approximately $300,000 of legal and accounting transaction costs related to the Prism acquisition.

The year-over-year decrease in SG&A expenses is attributable to lower costs associated with changes in staffing and geographic locations as compared to the same period in 2008.

Total operating expenses for the second quarter were $7 million and included $788,000 in stock based compensation expense, a restructuring charge of $431,000 related to the closure of our Korea Design Center and lease termination costs and $611,000 of acquisition related costs. This compared with $9.8 million in operating expenses recorded for the first quarter of 2009, which included $447,000 in stock based compensation charges and a restructuring charge of $275,000 related to the analog mixed signal product line exit.

The second quarter of 2009 total operating expenses of $7 million for the combined Companies compared to pre-acquisition total operating expenses of $6.5 million in the previous quarter and $7.5 million in the second quarter a year ago. On a non-GAAP basis total operating expenses for the second quarter of 2009 were $5.2 million compared with $5.8 million for the first quarter of 2009 and $6.1 million for the second quarter of 2008.

Non-operating income was substantially comprised of interest income and totaled approximately $151,000 compared with $203,000 for the previous quarter and $561,000 for the first quarter of 2008. The decreases in non-operating income reflect lower interest rates earned on lower cash and investment balances combined with foreign exchange losses on cash balances denominated and foreign currencies.

On a GAAP basis the net loss for the second quarter was $5.1 million, or $0.16 per share, including acquisition related charges of $611,000, stock based compensation expense of $788,000 and a restructuring charge of $431,000. This compares with a net loss of $4.1 million, or $0.13 a share, for the first quarter of 2009, which included approximately $447,000 of stock based compensation expense and $275,000 in charges related to the analog mixed signal product line exit.

On a non-GAAP basis the net loss for the second quarter was $3.3 million or $0.11 per share, which excluded acquired intangible asset amortization, acquisition related contingent compensation expense, acquisition transaction costs, stock based compensation and restructuring charges totaling $1.8 million. This compares to the non-GAAP net loss of $3.4 million or $0.11 per share in the previous quarter and the loss of $3.1 million or $0.10 per share in the year ago period. Net loss per share on both a GAAP and non-GAAP basis for the second quarter were computed using approximately 31.2 million weighted average shares outstanding.

Now, turning to the balance sheet, as of June 30th, 2009 our cash, cash equivalents and investments balance was $45.4 million compared to $62 million at the end of the previous quarter. The decrease from December 31, 2008 included approximately $13.6 million paid at the closing of the Prism Circuits acquisition, which was net of $1.5 million in cash acquired.

Expenditures were approximately $1 million related to completing the exit of the analog mixed signal product lines and approximately $900,000 of stock repurchases. During the second quarter we did not repurchase any shares of our stock due to our acquisition activity.

As we had previously discussed, our investments consist of money market funds, government agency and municipal debt securities, corporate notes and student loan backed auction rate securities. Under an agreement with UBS we have the right to sell our auction rate securities, which have a $9.1 million face value, to UBS at par at any time beginning June 30th, 2010.

Accounts receivable at the end of the second quarter totaled $1 million compared to $445,000 as of March 31, 2009. The increase in accounts receivable was primarily due to receivables acquired from Prism. Unbilled contract receivables of $2.5 million represent future billings under customer contracts assumed by MoSys upon the acquisition of Prism.

For GAAP purposes we allocated the total purchase price for Prism to the following; $3.2 million to tangible assets including $1.5 million of cash acquired; $6.1 million to identified intangible assets, which will be amortized over the lives ranging from one to three years; and $10.3 million to goodwill. Under GAAP 30% of the $6.5 million earnout, or $1.9 million, will be treated as compensation expense and we will record quarterly expense of approximately $487,000 during the 12-month earnout period. Non-cash acquisition related expenses will approximate $640,000 per quarter for the next twelve months.

As of June 30th our total headcount was 134 employees as compared to 98 employees on March 31, 2009 and 191 at December 31, 2008. The sequential increase in headcount is primarily attributable to the addition of 54 engineers from the Prism acquisition of which 30 are located at our low cost design center in India.

In June we initiated the closure of our Memory Design Center located in Seoul, Korea and eliminated 15 positions. We also eliminated eight positions in our Sunnyvale, California headquarters, primarily in engineering related functions. In the beginning of this current quarter we initiated an 8% reduction in headcount in our Sunnyvale location, primarily comprised of engineering support personnel. These changes in personnel better align our staffing with the requirements of the combined Companies and our future needs.

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). Our first question comes from the line of John Gibbons with Odeon Partners.

Can you just give me a little better understanding? I know you had a conference call on this and maybe you were more specific about the Prism acquisition, the $13 million, $13.6 million in cash plus assumed liabilities plus $3.7 million in stock options. Can you give me a sort of a total number? And then I'd also like to know if you'll give me an idea of what Prism's revenues were last year or EBIT or whatever measure we have so we can see how you're doing buying this Company?

Jim, why don't you address the makeup of the purchase and then I'll deal with the revenues.

Sure. On the acquisition it was $15 million to be paid upon closing, which net of the $1.5 million of cash Prism had that's where the $13.5 million that we paid upon closing.

Right.

Then there was a $6.5 million earnout, which will be measured over 12 months from the acquisition date, which includes components related to billings and receivable collections, retention of key employees and certain product development requirements related to the integration of MoSys Memory and the acquired interface IP. The total amount of the earnout would be $6.5 million, which would be paid in Q3, 2010.

And what about the intangible assets acquired?

The intangible assets are how we -- you know, when we had our third-party valuation working with a third-party valuation expert. That's how we allocated the purchase price. We allocated it to the tangible assets.

And the goodwill and --

Exactly. There was about $10.3 million to goodwill and about $6 million of intangibles, you know, customer contracts, non-compete agreements.

So you're going to amortize under different schedules, right?

Yes it's over one to three years.

Got it. (inaudible) Thank you. How about the revenues and EBIT?

The revenues for Prism last year approximated $6 million. Those are unaudited numbers. We're actually in the process of completing an audit of Prism because we will need to file financials in our amended 8-K, which we'll be putting out in early August. But, subject to any audit adjustments that come out, the number is about $6 million for revenue for them forward 2008.

One comment I would make about Prism's revenue, their contracts tend to include a lot of acceptance clauses related to meeting customer specifications to the speed of transmission of the interface and achieving certain performance levels, power etcetera, so they have challenges on when they can recognize revenue or historically have had and subject to our agreements going forward we'll also face those same challenges as far as timing once you meet the spec and do the billing you can recognize the revenue.

You know, on the MoSys side we historically have had very few of those acceptance clauses and when we've had them we've had a very long history of being able to meet the criteria and it has not impaired our ability to recognize revenue as we complete the work.

That's helpful and then presumably they have the same sort of model you have of very high gross margins.

Yes very, very high gross margins, a little tougher on that side of the business to get royalties.

Good thank you.

Jim, I think going back to your point that their sales in 2007 or their revenues in 2007 unaudited were about $6 million? These unaudited financials also indicated that they were profitable at that -- through that year. I think they were anticipating an up year in 2009, forecasting an up year but the economy has been a little bit rough and we've been knocking the Company around a bit in terms of getting our M&A activities done as a combined team but I think we still are optimistic that the business should be reasonably good for 2009. Would you agree with that, Jim?

Yes, yes thank you. I did not answer John's question on the EBIT so thank you for picking that up.

I think we're ready for the next question, operator.

And there are no further questions in queue at this time. (Operator Instructions).

Are there no questions there, operator?

And there are no questions, sir.

This is Len Perham. I'll just make a couple of closing remarks. Point one, with this acquisition we now have the critical mass to make sense of the business. I used that term, "make sense of the business" earlier in my earlier few words. To me that's no business makes sense until it's profitable so we now have the critical mass to make sense of the business, that is achieve revenue growth, reduce cash burn and accelerate the Company's drive towards profitability.

The second point I'd make is our recent acquisition has greatly expanded our IP product portfolio, engineering capabilities and total addressable market. As I said earlier, I believe we are well positioned to achieve immediate progress towards our strategic goals.

Third point, our recent acquisition has provided us with a proven entry into India, both from a cost and an engineering talent basis. We will be looking to utilize the India team to drive product development on a cost effective basis. It is our intent to not simply be a technology leader but to provide our customers with the best cost per unit of performance achievable for the technology and services that we provide.

Fourth point, we remain committed to investing in our future growth through product development and other strategic initiatives to assure that we are well positioned for a return to growth as this market recovers.

And finally, I've been at MoSys for approximately six quarters now. We have been accumulating a new team of executives and engineers capable of developing a strategic plan and then driving to make it happen. This plan, our greatly expanded IP portfolio, the broadened capabilities of our engineering team, coupled with the superb engineering talent resident at MoSys when I came here, present us with an opportunity to change the face of this Company. We intend to do just that.

I would like to thank you again for joining us on today's call. I look forward to providing additional updates on our progress over the coming months and I want to thank you. Operator, you may now disconnect the call.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and everyone have a great day.