新思科技 (SNPS) 2004 Q1 法說會逐字稿

Good day everyone and welcome to this Nassda Corporation first-quarter 2004 earnings.

Today's call is being recorded.

For opening remarks and introductions, I would like to turn the call over to Ms. Tammy Liu, Chief Financial Officer for Nassda Corporation.

Thank you, Jimmy.

Good afternoon, ladies and gentlemen.

Welcome to our earnings conference call for the quarter ended December 31st, 2003, which was also our first quarter of fiscal 2004.

Before we start reviewing the results, I would like to give the following Safe Harbor regarding forward-looking statements.

During the course of this conference call, we will make forward-looking statements.

Those forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially.

These forward-looking statements include, but are not limited to, statements with words like expect, anticipates, target to, plan to, continue to, may, potential, will or the negative of those terms.

For a discussion of the relevant risks, please refer to the Risk Factors section of our most recent SEC filings, our annual report on Form 10-K for the fiscal year ended September 30th, 2003.

I will start by reviewing the results for the quarter.

Then Sang Wang, our Chief Executive Officer, will give you his views of the general economic environment, the status of our R&D efforts and business outlook.

Through today's discussion, we will refer to the quarter ended December 31st, 2003 as Q1 and December 30th, 2003 as Q4 and so on.

Even though we saw continued recovery in the semiconductor industry, customers remain conservative as limited budgets and express of preference for timebased licensing model in Q1.

We also at times have to offer flexible payment terms in order to compete for the business.

Let's start by providing you with an analysis of our bookings, geographically and as a percent of total bookings.

Domestic was 47 percent of our total bookings, Europe was 22 percent, Japan was 11 percent, and rest of Asia was 20 percent.

Domestically due to some large TBL renewals, both West and Southwest had a strong quarter as compared to Central and East.

Internationally both Europe and rest of Asia did well.

Europe also had received a major TBL renewal.

For rest of Asia, we did well, particularly in Korea, with five new customers, and Japan came in at target.

Unlicensed type and as a percent of total bookings, potential license accounted for 22 percent of our overall booking.

TBL was 61 percent, and maintenance was 17 percent.

As expected, TBL bookings continued to increase relative to perpetual licenses and were at their highest levels historically as a percent of total bookings.

Together with maintenance, 78 percent of the bookings in Q1 was renewable business as compared to 67 percent for fiscal '03.

We booked two large TBL renewals of more than $1 million each and five new multiyear TBL deals.

Please keep in mind that we only book the first year of any multiyear TBL contract.

Together these seven customers accounted for 47 percent of the total bookings for Q1.

Our top 20 customers again accounted for more than 50 percent of our overall bookings as compared to 57 percent of fiscal '03.

Revenue for Q1 was 9.7 million, an increase of 16 percent from Q4.

In absolute dollars, those perpetual license and TBL license revenue increased in Q1 as compared to the previous quarter.

Micron technology accounted for approximately 12 percent of our total revenue as we shipped and recognized revenue for a large potential license purchase order which also resulted in an increase of total perpetual license revenue.

This order was actually received and booked in Q4 of fiscal '03.

Relative to to Q4, TBL revenue increased in absolute dollars as we continued to experienced more preference with such license structure even though it decreased as a percent of total revenue due to the higher percent increase in perpetual license revenue.

Maintenance revenue decreased due to a few large retroactive maintenance orders we received and recognized in Q4.

By revenue type, perpetual license accounted for 31 percent of our overall revenue, TBL was 44 percent, and maintenance was 25 percent.

Geographically the distribution of revenue was as follows.

Domestic was 60 percent, Europe 9 percent, Japan 18 percent, and rest of Asia 13 percent.

Revenue from Europe was lower than our historical trends due to lower bookings in Q4 FY '03.

Our Japanese distributor.

Marubeni Solutions, accounted for 18 percent of our total revenue in Q1.

With the exception of Micron, no other custom accounted for more than 10 percent of our total revenue in Q1 FY '04.

Cost of goods sold include third-party OEM royalties and allocated (inaudible) support costs.

Cost of goods sold increased by approximately $100,000 primarily due to higher OEM royalties and was 4.3 percent of total revenue in Q1.

As of December 31st, 2003, our total headcount was 106, an increase of 6 from previous quarter.

Overall operating expenses increased due to higher legal expenses and executive salaries which were reinstated in Q1 after being waived for two fiscal years and higher base salaries across employee populations generally as a result of salary adjustments that were affected in November 2003.

R&D had a total headcount of 46 at the end of the quarter, an increase of 4.

Expenses increased slightly due to new hires and higher base salaries which were offset partially by lower bonus accrual.

As a percent of total revenue, R&D expenses decreased 21 percent in Q1 as compared to 23 percent in Q4 due to increasing revenue.

Sales and marketing expenses increased by approximately $300,000, primarily due to higher salaries and travel expenses.

However, as a percent of total revenue, it stated relatively flat as revenue increased.

Headcount increase by 1 with a total of 48.

G&A expenses increased by approximately $500,000, primarily due to higher litigation legal costs and reinstated executive salaries.

Litigation legal fee for Q1 was approximately $2.9 million, which was 30 percent of our total revenue.

We expect these costs to continue at current level or even increase to a high level as the cases head toward trial and during trial.

There is no trial date set at this time.

Headcount was 12 in G&A at the end of the year, an increase of 1.

Overall we were able to offset increase in operating expenses with additional revenue and achieved an operating income of 6 percent of total revenue in Q1 as compared to 3 percent in Q4 FY '03.

GAAP net income was 8.4 percent of total revenue or 2 cents per diluted shares, meeting external guidance with an effective tax rate of 30 percent.

Now the balance sheet.

Cash and short-term investments again increased in Q1 by 2.9 million primarily from net income increases in Accounts Payable, accrued liabilities and deferred revenue.

DSL was only nineteen days due to the majority of revenue coming early in the quarter and the invoice collected and recognized as revenue in the same quarter.

Accounts Payable and accrued expenses increased in Q1 by approximately $730,000, primarily due to unpaid legal fees.

As a result of the growth or the percent of our total revenue represented by TBL, deferred revenue, which has short-term and long-term components, increased by approximately $1.4 million in Q1.

I would like to reiterate that we expect deferred revenue to fluctuate from quarter to quarter depending on the timing of invoicing of TBL and maintenance and their respective payment terms.

That concludes my comments about last quarter results.

Before I turn it over to Sang, I would like to reiterate our earlier comments that all the statements made -- I apologize. (inaudible).

All the forward-looking statements that we are making in this conference call we will not reiterate during the quarter.

Please keep in mind if you are looking for risk factors, please refer to our SEC filing, our annual report on Form 10-K for the fiscal year ended September 30th, 2003.

Now I would like to turn it over to Sang.

Thank you.

Good afternoon, ladies and gentlemen.

Thank you very much for participating in our first-quarter fiscal '04 earnings conference call.

We are pleased that Nassda's Q1 revenue beat our guidance, and we met our quarterly earnings target.

As Tammy reported, we made 2 cents EPS on revenue of $9.7 million for the quarter, which represents a 16 percent sequential revenue growth found that of the September quarter.

In fact, Q1 was traditionally a challenging quarter due to relatively depleted sales pipeline resulting from previous quarters' aggressive sales efforts at the fiscal year-end.

However, our team worked very hard and achieved the admirable Q1 revenue growth.

Purchase orders booked in the quarter slightly below our expectation, yet maintained our revenue visibility at a level similar to Q4.

We are quite pleased to mention here with that our time based license bookings as a percentage of total bookings reached 61 percent in the fiscal Q1.

This is because we had made conscious effort in the last three quarters to increase the TBL license percentage in our total bookings.

Consequently our TBL percentage has been progressing quite smoothly towards a target of between 60 to 70 percent for fiscal '04.

Indeed, our steady percentage increase in TBL bookings over the last four quarters provides Nassda with both better revenue, predictability, and a more consistent financial performance as we go forward.

On top of this, our total cash balance increased by $2.9 million for a total of $95 million at the end of the last quarter.

While the revenues of many semiconductor companies grew considerably in December quarter, we found that customer spending pattern did not change too significantly during the quarter.

R&D budget remains quite high across the board.

Nevertheless, our team performed very well even when these customers (inaudible) were only slightly open in the last quarter.

Included in our Q1 bookings were two TBL renewal orders of more than $1 million each for all existing users.

In addition, we added record nineteen new logos to our over 20-plus existing customer base in Q1.

Among them were five new Korean customers, including two potential major accounts there.

With one of these two major new Korean users, we now have 19 out of the top 20 worldwide semiconductor leaders on our customer list.

As we continue to penetrate these and other key accounts, the 20 largest customers on our list contributed over 50 percent of our Q1 bookings.

During the quarter, bookings for our three new products and (inaudible) approached 10 percent of our total bookings.

A good gain from last fiscal year's average of 5 percent down by these new products and options.

We have continued to exert a good deal of effort to attain our goal of booking 10 to 15 percent from the new product and options in fiscal year '04.

Analysts have reported that design starts based on 130 nanometer and 90 nanometer technologies were increasing significantly.

For instance, IBS (ph) reported an 80 percent growth in 130 nanometer design starts and almost a 200 percent increase in 90 nanometer design starts during 2003.

At the same time, in contrast 180 nanometer design starts rolldown to an 8 percent annual growth rate.

RBC's analysts believe that most chip designers will stick with 130 nanometer technology in 2004.

Clearly migrations to 130 nanometer, 90 nanometer and 65 nanometer process notes are really taking place, and they will benefit Nassda as we asserted in the past.

We strongly believe that our products will be used more extensively by the leading nanometer circuit designers in coming years to resolve detailed circuit concerns.

These concerns include circuit level functional verification, timing analysis, technical integrity, power leakage, supply (inaudible) fluctuation and (inaudible) migration progress.

When these issues are fully under control, users successfully in working nanometer silicon will be much enhanced.

For years Nassda has been playing a highly important role in helping advanced users achieve their complex (inaudible) success.

More specifically, we have been focusing on a number of fast-growing areas of nanometer semiconductors in addition to the conventional memory market which we have already dominated.

As we communicated last quarter, Nassda has gained a good momentum in the analog and the mixed signal market.

These markets cover key product areas such as Wi-Fi, CST, LCD, flat-panel controllers, RF transceivers, high-density Flash, power management circuits and other interesting products such as image sensors, storage area network chips, digital TV tuners, high-speed (inaudible) and the gigabits per second physical layer networking chips.

All these products meet highly precise circuit simulation results.

We are assured that they will work properly in production.

Following are some Nassda success examples.

In the Wi-Fi area, Nassda has converted eight out of leading 10 wireless LAN players to become our users in this 802.11 ABG market.

Our product HSIM can stimulate analog to digital converters and efficiently verify full-chip functionality along with NR (ph) blocks and the DST core.

It is also used to help minimize Wi-Fi chip power and improve (inaudible) via a (inaudible) analysis.

In a TFT (ph) LCD flat-panel controller market, we also have 70 percent of the leaders in this sector as our customers.

HSIM can stimulate 384 flat-channel flat-panel circuits without a drop between channels and a timing error.

Finally, Nassda has been most popular among the high-density Flash users, and our tools are used by about 90 percent of the major Flash memory design companies worldwide.

This market is predicted to grow at a 44 percent rate in 2004 by the Merrill Lynch analysts.

Anticipating a good economic recovery, we started hiring in Q1 and added 6 percent new staff to Nassda's workforce.

The majority of them were in R&D organizations.

During Q1, our R&D team focused it efforts in two areas.

First, due to the market demand, the co-simulation capability between HSIM and the leading digital simulators from other vendors was strengthened.

Now we have a pretty solid increase in (inaudible) co-simulation capability in HSIM.

We have also been working to integrate HSIM with the VLDL (ph) digital simulation leader within the ADMS environment from intergraphics.

These co-simulation capabilities are essential in very fine large mixed signal SoCs currently being designed in many leading semiconductor companies.

For the last two quarters, we have established a fledgling early adapter base for the NCC and co-simulation option.

Because it fills a rising market need, we expect our co-simulation user list to grow meaningfully in fiscal year '04.

Secondly, the R&D team has been working diligently to prepare for the annual new version release for all our products in the June quarter.

We plan to include many user requested (inaudible) and the enhancements as well as new options and to deliver them timely to our present users with maintenance contracts.

We hope this new major release will further distance our products with respect to the competition.

In the sales and the support department, we also had a headcount increase in Q1.

More importantly, there are several other openings for sales and application engineer positions yearning to be filled in this quarter.

There will be additional resources needed to contribute to our second half of fiscal year to meet our enlarged booking requirements.

A new major account program has been put together by our VP of Sales.

We certainly hope that we will execute this plan well, and the major accounts will contribute indispensably in achieving our fiscal year '04 booking goal.

The highlights of our marketing progress in Q1 included our press announcement of the U.S. patent office ranking of Nassda's first patent, (inaudible) transistor level circuits simulator using (inaudible) circuit data.

After two years of waiting, Nassda was finally awarded with this patent, which symbolized our technology foundation and competitive advantage.

Next, we communicated that Nassda's CRITIC product was recognized as one of the top 100 products of 2003 by EDN magazine.

This selection confirms the innovative product idea behind CRITIC and its potential value to high performance ASIC designers.

Thirdly, Nassda participated in the Fabless Semiconductor Association's (inaudible) expo event, which allowed us to come face-to-face with some FSA members.

On the promotion front, we started a new and expanded online brand awareness campaign emphasizing Nassda's unique technologies and mixed signal design verification capabilities.

Marketing is currently getting up for the Eurodec (ph) in France next month and the Design Automation conference in San Diego next quarter.

Now with a higher-than-expected Q1 revenue, we have a good headstart for fiscal year '04.

We are motivated to strive to achieve our Q2 goals and to increase our business momentum.

With additional resources added, our staff will continue to work as a team to meet this quarter's challenges head on.

And I hope I happily report to you our positive Q2 accomplishments in April.

We believe that the coming June and September quarters will be more prosperous for EDA as a whole, mainly because of a predicted strong upswing in the semiconductor industry revenue.

IC analysts have forecasted a 20 to 25 percent growth in the 2004 semiconductor revenue, and the foundry production capacity has been utilized at a 90 to flat percentage level.

We are optimistic that the EDA revenue should grow moderately in the second half of calendar 2004.

This is precisely the reason that Nassda made a decision in the beginning of our fiscal year '04 to increase our workforce in preparation to grow with this anticipated IC market expansion.

Now I would like to invite Tammy back to give you the guidance for our Q2 quarter and fiscal year '04.

Thank you, Sang.

Before we open for questions, here is our guidance which has been included in our press release.

We are very happy to have achieved our goals in Q1, and the recovery seems to be slowly on its way.

However, we believe our customers will continue to be cautious.

Additionally we expect to continue to experience longer sales cycles, increased booking and timebased licenses, increases in revenue visibility, but decreased revenue growth rates.

We also continue to be required to offer flexible payment terms to remain competitive.

Based on these assumptions, we have provided the following guidance.

For Q2 FY '04, we expect revenue of $9.8 million to $10 million and fully diluted earnings per share of approximately 3 cents for the quarter ending March 31st, 2004.

For fiscal 2004, due to Q1 revenue higher than expected, we are increasing our guidance for total revenue to 40 million to 41 million.

We are anticipating that fully diluted earnings per share will not change and will be approximately 13 to 15 cents.

We expect our timebased license order bookings as a percent of total bookings will be between 60 to 70 percent for fiscal 2004.

As a result, we expect timebased license revenue as a percent of total revenue to increase between 50 to 60 percent.

We anticipate continuing to control operating costs.

We also intend to make continued investment in our worldwide salesforce R&D organization.

As a result, we expect quarterly operating margins to vary from quarter to quarter in ranges between 8 percent to 16 percent during fiscal 2004.

We will keep our earnings release and earnings conference call replay available on our Website until January 21st, 2004.

Now we will open the floor for Q&A.

(OPERATOR INSTRUCTIONS).

Tim Fox, SG Cowen.

Good afternoon.

Tammy, could you just walk through how you had an upside in the quarter given the fact that bookings were slightly below expectations and it appears that perpetuals as a percentage of bookings were actually less than fiscal Q4?

I am having a little trouble following how you had such a strong quarter.

Typically bookings in Q1 is anticipated to be challenging and it was challenging.

However, it can mean not at expectation, a little lower than expectation.

As far as the revenue, the majority of our business is coming from timebased license and maintenance because those revenues typically are pretty visible by the time we are going through a quarter.

Now as far as the perpetual license in Q1, they actually increased to level of 3 million as compared to we had 2 million in Q4.

Primarily the difference, the increase is really because of a large order that we had received from a major customer, actually Micron as you can tell accounted for 12 percent of our revenue in fiscal Q1.

They are a perpetual customer, and that order was received in Q4 that we shipped in this quarter.

It was the micron deal.

Okay.

Looking forward, you mentioned we should maintain G&A due to legal and the reinstated executive compensation.

Should we assume about that same level as fiscal Q1 throughout the year?

At this point in time, we anticipate basic legal fees to be at the current levels.

I would probably say yes.

As far as when we move the cases closer and closer to trial, of course, legal fees anticipate the increase.

We will give you an update as the trial date is set as to the impact on the expenses at that time.

Okay.

I guess that is it on the financial side.

Sang, maybe you could talk a little bit about evaluation activity.

You mentioned that the new products accounted for close to 10 percent of bookings.

Is there a way to look at your activity level on the evaluation side in that new product category, and are you seeing a pickup there?

Yes, indeed.

Certainly the co-simulations areas are starting to contribute and LEXSIM also picked up some momentum.

So I see last quarter as pushing level is stronger than the previous quarter.

This is a good sign.

However, we have to make sure we maintain the momentum this quarter and in the coming quarters.

Okay.

And I guess along those same lines of the co-simulation you mentioned your R&D efforts with some of the other EDA vendors out there.

Are there any (inaudible) marketing efforts going on with either Mentor or Cadence that may actually pull some of your sales through their efforts?

Well, last quarter, there was not anything like that, and also please keep in mind, that Cadence is now a competitor.

They are an acquisition of Celestra (ph).

And we have been working with Mentor graphics, and the integration work has not been completed yet.

So after the completion, we expect Asun (ph) Corporation to gain some joint marketing or sales success down the road.

Okay and thanks for the segue.

On the competitive front, any changes at all -- you mentioned, of course, Celestra (ph), but any other new efforts from either privates our the other public companies that are putting some competitive pressures?

Any different from last quarter?

I think we are all surprised now our previous major competitor seemed to have slacked off a little bit, and we certainly have some concern with the Celestra's (ph) product.

However, we have not lost the market share to them yet.

And the smaller companies, there are one or two creeping up a little bit, but no major dent or impact on our last quarter's bookings as yet.

So the bookings is really still being effected by budgets more than it is the competitive environment?

That is exactly right.

Okay.

Thank you.

Nice solid quarter.

(OPERATOR INSTRUCTIONS).

There appear to be no further questions.

Okay.

Then I would like to thank you for participating in our conference call, and we wish you a very prosperous 2004.

That does conclude our conference.

We thank everyone for their participation, and we hope you have a great day.

Thank you.