新思科技 (SNPS) 2004 Q4 法說會逐字稿

Good day, everyone and welcome to the Nassda Corporation fourth quarter fiscal 2004 earnings conference.

Today's call is being recorded.

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

Please go ahead.

Good afternoon, ladies and gentlemen.

Welcome to our earnings conference call for the quarter ended September 30, 2004 which was our fourth 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, anticipate, 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 factor section of our most recent SEC filings, our annual report on form 10-K for the fiscal year ended September 30, 2003, and our quarterly report on form 10-Q for the quarter ended June 30, 2004.

I will start by reviewing the financial results for the quarter, and Sang Wang, our Chief Executive Officer will give you his views of the general economic environment, the status of our business and outlook.

Through today's discussions we will refer to the quarter ended September 30, 2004 as Q4, June 30 2004 as Q3 and so on.

During the past few months we saw some improvements in customer's budgets and increased activities.

Even though customers remained cautious in their spending and negotiate intensely for discounts and extended payment terms.

Customers continued to use competitors' aggressive pricing and bundling as leverage which has resulted in lower ASP.

Therefore, the competitive landscape and challenges remain relatively unchanged.

Bookings in Q4 by geographic locations were as follows. 67 percent was from domestic, 8 percent from Europe, 12 percent from Japan and 13 percent from the rest of Asia.

Domestic came in strong in Q4 as a result of the success of our western territory, primarily due to large TBL renewals and perpetual orders received from major accounts in the territory.

For fiscal '04 55 percent of our bookings came from domestic, 12 percent from Europe, 20 percent from Japan and the rest of Asia was 13 percent.

For fiscal 2004 the territory distribution was within our historical trend.

Now for bookings by license type and as a percent of total bookings, for the quarter of Q4 24 percent was from perpetual licenses, 59 percent from time-based license, 17 percent from maintenance.

During Q4 TBL bookings percentage decreased as compared to Q3.

However, still within the range of our expectations.

For fiscal 2004, 24 percent of bookings were from perpetual, 57 percent from time-based license and 19 percent from maintenance.

Major accounts which is measured by the top 30 accounts of historical bookings decreased as compared to Q3 and Q4 but still were higher than Q1 to 64 percent, approximate our fiscal 2004 average of 63.

Contribution by other than HSIM product was approximately 12 percent of total bookings in Q4 and for the year it was 13 percent, (indiscernible) our expectation of 10 to 15 percent.

Revenue for Q4 was $11 million, a slight increase from Q3 and met expectations.

The guidance for (indiscernible) was 10.8 to $11 million.

No end-user customers accounted for more than 10 percent of the total revenue in Q4 of fiscal 2004.

With our highest potential of TBL bookings in Q3, (indiscernible) revenue increased to historical high of 60 percent for Q4. 15 percent of our revenue was from perpetual and 25 percent was roaming.

Geographically our revenue was distributed as follows. 66 percent from domestic, 9 percent from Europe, 21 percent from Japan and rest of Asia was 4 percent.

Revenue from Japan increased in Q4 due to strong bookings from Japan in Q3.

For the whole year of fiscal 2004 geographically revenue distribution are as follows. 64 percent from domestic, 10 percent from Europe, Japan was 18 percent and rest of Asia was 8 percent.

Cost of goods sold includes third party OEM royalties and allocated (indiscernible) before cost has remained consistent with prior quarters.

While operating expenses as of September 30, 2004 our total headcount was 116, an increase of 6 new hires in Q4.

For fiscal 2004 our headcount has increased by 16 percent.

Overall operating expenses (indiscernible) by approximately 1.2 million as compared to Q3, primarily due to increase in litigation related legal expenses of $1.7 million.

Partially offset by decreases in sales and marketing (inaudible).

R&D had a total headcount of 52 (ph) at the end of the quarter with 3 new hires.

Expenses decreased slightly in Q4 and as a percent of total revenue R&D expenses stayed flat at 22 percent.

Without the marketing, expenses decreased by approximately $200,000 in Q4 due to a decreased marketing spend related to trade shows and lower application engineering operating costs.

As a percent of total revenues sales and marketing expenses decreased to 27 percent in Q4 as compared to 30 percent in Q3.

Back to our Q1 and Q2 levels.

Headcount increase by 3 was a total of 51 at quarter end.

G&A expenses increased by approximately 1.5 million primarily due to increased litigation related legal expenses.

As a result as a percent of total revenue, G&A expenses increased to 47 percent in Q4 versus 34 percent in Q3.

The litigation legal expenses in Q4 were 4.5 million dollars which was about 40 percent of our total revenue.

G&A headcount remained at 13 as of the end of the year.

Therefore, we incurred an operating loss of approximately 1.8 percent of our total revenue.

Effective income tax rate for fiscal 2004 has decreased to 19 percent from 23 percent estimated in Q3, primarily due to higher foreign source revenue which resulted in higher ETI exclusions and lower tax rate.

Applying this rate to the whole year of fiscal '04 resulted in a tax benefit in Q4 of approximately $90,000.

With income interest income and tax benefits offsetting the operating loss, net income for Q4 were $135,000 or 1 penny per fully diluted share.

Now the balance sheet we're happy to report a cash and short-term investment increase again by 1.6 million and totaled 101 million as of September 30, 2004.

Primarily from decreases in accounts receivable, decreases in accounts payable, through liability and partially offset by decreases in preferred revenue.

Accounts receivable decreased by $743,000 which resulted in a DSO of 11 days -- I believe this is the lowest in our history.

As more customers moved towards time bases licenses with quarterly or installment payment terms our accounts receivable has remained low.

Deferred revenue has two parts, short-term and long-term (indiscernible) by approximately $1.1 million, primarily in deferred maintenance and time-based licenses.

Partially offset by increases in deferred product revenue.

Just as a reminder deferred revenue will fluctuate from quarter to quarter depending on the timing of renewals and payment terms.

With increases in quarterly payment terms we also do not expect our deferred revenues to decrease materially.

That concludes my comments about last quarter's results.

Now I would like to (indiscernible) about last quarter.

Before that with respect to Snag’s comments regarding our outlook, I would like to reiterate my earlier Safe Harbor regarding our forward-looking statements about the uncertainties we face in our ability to perform as we have anticipated.

We also want to communicate our policy regarding forecast.

The connection with the SEC rules on corporate disclosure Reg FD have established our procedures with publishing and updating our business outlook.

In addition to today's discussion, we expect that during the fourth quarter -- I'm sorry that during the first quarter of fiscal '05, our corporate representatives will meet or discuss privately with investors the media, investment analysts and others.

In these discussions we may reiterate business outlook discussed publicly during our full year earnings conference call but we do not intend to give material guidance beyond that discussion prior to public statements.

Now I would like to turn it over to Sang.

Thank you, Tammy.

Good afternoon, ladies and gentlemen.

Thank you very much for joining our earnings conference call for Q4 and fiscal year '04.

We are pleased that the management team excelled under very challenging circumstances and delivered satisfactory fiscal Q4 numbers which also met the guidance that we provided in July.

Moreover, these numbers make the Q4 our highest revenue quarter.

Our annual revenue growth rate was over 18 percent in fiscal 2004, which was considerably higher than we predicted EDA average revenue growth of around 5 percent for calendar 2004.

Despite our operating in a highly competitive environment and at a cost of ongoing litigation, our staff continue their excellent performance and achievements.

After several quarters of growth in the semiconductor industry, we believe that the upward momentum of the industry slowed down slightly during last quarter.

There was a revised outlook and reduced forecasts by semiconductor manufacturers and industry analysts.

These downward predictions may have affected a few EDA purchase decisions last quarter and could delay some orders in December quarter.

We also believe that a cautious EDA outlook is warranted because industry wide consistent increase in EDA to procurement has not yet happened.

Furthermore, due to a lack of visibility, R&D projects increased among semiconductor companies.

We believe that a double-digit EDA revenue growth for 2005 is not likely.

Nevertheless, in our fourth quarter we observed a slight increase in purchase spending among our major IC customer.

Those who produce advanced mixed signal, memory and a high-speed digital product.

We are also (indiscernible) a stronger urgency among these advanced users to more actively tackle their nanometer design and the production (indiscernible).

More than a handful of our customers are well underway with design projects based on 90 nanometer technology.

And during last quarter we also noticed increasing design activities for products at 130 nanometer nodes across our user base.

We believe that even today's mainstream IC designers currently using 180 nanometer process will start to adopt technologies or smaller feature (ph) sizes in the coming year.

We believe that many advanced design teams began to realize that future certification (ph) and analysis is a key for their nanometer product successes.

A number of these teams have experienced more interest in our (indiscernible) solution such as our post layer analysis capabilities and our integrated flow with Mentor caliber SRC (indiscernible) solution.

We believe that performing detailed nanometer (indiscernible) to resolve the challenging timing, power, noise the (indiscernible) has become a necessity for designers at 90 nanometer nodes and below.

The high cost of silicon (indiscernible) makes it not affordable to put off these problems any longer.

In essence, this increased user demand and our superior product and support were the main factors that contributed to our recent business growth.

Compared to the same quarter a year ago, our Q4 bookings total improved fairly and also increased sequentially over the previous quarters.

Year to year total annual bookings gained moderately and trend toward more TDO licenses and a fewer perpetual licenses continued in fiscal 2004.

We achieved about 57 percent TBL license among all bookings in FY '04 and versus to 46 percent in FY '03.

Also Q4 revenue contained the highest TBL revenue contribution percentage at 60 percent.

As a result, we have continuously improved our financial visibility.

Among our Q4 bookings were one multi million dollar order from one of our top 10 semiconductors in U.S., a $1 million order received from another U.S. major account, and a bookings of between a half to $1 million from 5 customers, 3 in U.S., 1 in Korea and 1 in Japan.

Four customers also accounted for bookings of between 300,000 and $500,000.

We added 7 new accounts to our existing customer base.

Our new products in option bookings as a percentage of total bookings were 12 and 13 percent for Q4 and fiscal year '04, respectively, which were within our annual goal of between 10 to 15 percent.

The Q4 major account bookings remain stable, and our top 20 major accounts contributed over 53 percent of our total bookings in the fourth quarter and 53 percent for fiscal year '04.

On the annual revenue side we earned one cent EPS on a record quarterly revenue of $11 million, which represented a 30.7 percent increase relative to the Q4 revenue of FY '03.

Total fiscal revenue increased 18.3 percent over FY '03 annual revenue.

Our total cash and short-term securities grew to over $101 million as of September 30th.

In the staffing area our corporate staff headcount increased by 6 during the quarter, which augmented our workforce by over 5 percent.

During Q4 our R&D team implemented a number of important enhancements in our product after the version 5.0 release in Q3.

These enhancements included a powered down floating day (indiscernible) analysis for analog mixed signal circuits, and intelligent dynamic cross power analysis for large high-speed digital circuits, a statistical analysis of critical delays for our sale based designs, and an early signal (indiscernible) and power (indiscernible) reliability analysis flow for embedded memory IPs.

In addition our co simulation capability with leading high level digital simulators broke some new ground in its breadth of applications.

We believe that these important capability enhancements will enable us to persistently stay ahead of our competitors.

In Q4 management continued to promote its brand name in the EDA marketplace and semiconductor community through printed and a Web based advertisements, articles, press announcements and participation at industrial user group meetings.

As well, we promoted a joint (indiscernible) instruction (ph) and a verification of flow with Mentor Graphics, which enabled improved speed of analysis and a greater capacity for complex diversification at the post layout stage.

Another foundry success story occurred recently in addition to the previously released success story in memory preservation (ph) at TSMC.

We announced early in Q4 that the mixed signal semiconductor foundry Australia Microsystems AG had adopted (indiscernible) HSIM for diversification of its high-performance design (indiscernible) customers.

HSIM had verified over 10 designs in CMOS by CMOS and silicon germanium process technologies for the full-service foundry group at Australia Microsystems.

Using qualified (indiscernible) models in the design kits Australia Microsystems customers can be confident in getting silicon accurate simulation results.

Entering FY '05, we intend to focus on continuing development of major accounts, selling newly released products into options and building alliances with foundries and other EDA partners.

The task of laying down the detailed plan and strategies for achieving success in the new fiscal year has been worked on and are in reasonable shape.

Now I would like to invite Tammy back to give you the guidance for our Q1 and fiscal year '05.

Thank you, Sang.

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

Fiscal 2004 has been challenging and eventful.

Nevertheless, we have achieved satisfactory growth and our TBL bookings have continued to increase as a percent of our total bookings and have resulted in increasing visibility.

However, we have not seen meaningful improvements in our customers purchasing behavior or the competitive landscape.

Therefore, we believe it is prudent to be conservative and assume that customer’s budgets will be tightly controlled.

Based on these assumptions we have provided the following guidance.

For Q1 fiscal 2005 Nassda expects total revenue of 10.8 million to $11 million, and fully diluted per share earnings will approximately break even to a net loss of 5 cents.

This 5 cents per share range is largely due to the uncertainty relating to the timing, the magnitude of our spending on our litigation defense.

For fiscal 2005 we expect total revenue of 44 million to 46 million, which will be 6 percent to 11 percent year-to-year growth.

And fully diluted net loss per share of 5 cents to 15 cents.

Included in this annual guidance is approximately 18 million to $20 million of litigation-related costs.

Time-based license orders bookings as a percent of total bookings is expected to increase slightly from fiscal 2004 and be over 60 percent.

And time-based license revenue as a percent of total revenue will be between 55 percent to 65 percent.

They will keep our earnings release and earnings conference call replay available on our website until October 26, 2004.

Now we will open the floor for questions.

Natasha.

(OPERATOR INSTRUCTIONS) Tim Fox with Deutsche Bank.

Good afternoon.

How are you?

First question, Tammy, on the tax benefit in this past quarter, how is that going to translate into fiscal '05?

What would you use for an assumption on the pro forma tax rate?

I think it is because we are forecasting our guidance is that we are forecasting a net loss, that you would actually be forecasting a tax benefit.

Okay, similar to the range we saw in fiscal 4Q?

Yes.

And for reference I don't know if you provided this earlier or not, but what were your total legal expenses related to litigation for fiscal '04?

12.9 million.

12.9 million, okay.

About 39 percent of our total revenue.

And on that front, is it still a working assumption that you are going to, you are required to go to trial, I believe it is in early January.

January.

January, okay, and that is still a working assumption?

Yes.

I guess for saying you gave a little bit of mixed signals about the environment and in that it may have become a little bit more conservative with all the P&L yet you are seeing design activity seeming to pick up as well as the move to 130 and 90 nanometer.

Can you just expound on that a little bit further?

Yes, I think in our particular area nanometer design, (indiscernible) we have seen some momentum there but I wasn't that robust about the EDA total revenue increase because we heard of the downward guidance by Synopsys and Magma, they have seen some booking and also we knew that EDA total revenue growth is not rosy.

So my comment to say that in our particular sector we've been doing reasonably well and the outlook is relatively brighter.

Okay, great.

And any changes at all in Japan or rest of Asia?

That has been an area that has been fairly strong for the whole industry.

Did you see anything specific over the past quarter in either direction there?

Yes, overall in the last two quarters or so we have seen good momentum increase in Japan, and our customers seems to have more design activities and (indiscernible) of our (indiscernible) also increased, not as you know the (indiscernible) EDA purchase is seasonal, has very obvious trend that in a fiscal year, beginning of fiscal year they spend more money, by the middle of the fiscal year, much less.

So we see the seasonality in our Japanese booking same also.

Great.

I will someone else jump in.

Thank you.

(OPERATOR INSTRUCTIONS) Joan Tong with Sidoti and Company.

I have got a question for Sang.

Can you talk about your new product initiative, your HSIM 5.0, the platform strategy that you have -- how is that coming along?

Can you give us more color on that?

Yes, I think we released 5.0 in Q3.

Along with 5.0 we also release the HSIMplus platform that allows us to start selling a lot of options associated with the common (ph) core technology platform and that (indiscernible) seems to work quite well because this quarter we observed slight increase in this option selling of the post layout and the whole simulation, many use for capabilities their user required.

So the 5.0 release went out very smoothly, and we haven't heard too many negative feedback from customers.

Most of them open the release and the user and they work and the credit goes to our R&D team and our product release team did a pretty good job.

So customers are generally happy, and we just hope to continue to build on this HSIMplus core technology platform.

More and more analysis feature and the capabilities so users will have a consistent, very productive environment to work with.

Great.

And Tammy, do you have a booking target for new product, your digital product and also like for the options that products go with the platform for fiscal 2005, you have a target for that?

Yes, I think currently we set a target as 25 percent based on these new products and option sales as versus the target we set last year at 10 to 15 percent.

So we tried to double or slightly within the (indiscernible) range growth, new product and option area.

Great.

And as far as the litigation, you talk about the litigation expense for the September quarter is about 4.5.

How about for the whole year of fiscal '04?

Fiscal '04 was 12.9 million.

12.9 million.

Do you have a number for fiscal '03?

Fiscal '03, yes.

Actually it was 7.8 million.

Okay, great.

Thank you.

(OPERATOR INSTRUCTIONS) It appears we have no further questions at this time.

Okay.

Thank you very much for participating in our conference call.

We wish you a good afternoon.

Goodbye.

Thank you very much.

That will conclude today's conference.

Thank you all for your participation.

You may now disconnect.