MIPS Technologies' CEO Discusses F1Q13 Results - Earnings Call Transcript

| About: MIPS Technologies, (MIPS)

MIPS Technologies, Inc. (NASDAQ:MIPS) F1Q13 Earnings Call October 30, 2012 4:45 PM ET

Executives

Jen Bernier – Director-Communications

Sandeep Vij – President and Chief Executive Officer

William Slater – Vice President, Chief Financial Officer and Treasurer

Analysts

Gary Mobley – The Benchmark Company, Llc

Jeffery Schreiner – Feltl and Company

Anthony Stoss – Craig-Hallum Capital Group LLC

Vikas Tandon – Bastogne Capital

Operator

Good afternoon and welcome to MIPS Technologies First Quarter Fiscal 2013 Financial Results Call. Today's call is being recorded. If you do have objections, you may disconnect at this time.

I will now turn the call over to Jen Bernier, MIPS Director of Corporate Communications. Ma'am, you may begin.

Jen Bernier

Thank you and welcome to the MIPS Technologies first quarter fiscal 2013 earnings conference call. My name is Jen Bernier and I’m the Communications Director for MIPS. Leading the call today are Sandeep Vij, Chief Executive Officer; and Bill Slater, Chief Financial Officer. After they discuss the business highlights and detailed financial results, we will open the call for Q&A. If you do not have a copy of the earnings release, it is available on our website at www.mips.com.

Before we begin, I’d like to remind you that this conference call may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Listeners are cautioned not to place undue reliance on this forward-looking information. Many important factors could cause the results to differ materially from those contained in such forward-looking statements. We refer you to the Risk Factors section of the documents that we file from time-to-time with the Securities and Exchange Commission for factors that would cause the results to differ materially from our forward-looking statements.

In our financial discussions today, we will be referring to first quarter fiscal 2013 GAAP and non-GAAP results. MIPS management believes that non-GAAP information is useful because it can enhance the understanding of the company’s ongoing economic performance. MIPS Technologies uses non-GAAP measures when evaluating its financial results as well as for internal planning and budgeting purposes. The non-GAAP results discussed today exclude stock compensation and non-recurring charges incurred during the period. Please refer to the earnings press release or the Investor Relations page of our website for a reconciliation of GAAP to non-GAAP.

As a reminder, the playback number for this conference call is 402-220-5361 and the access code is MIPS. The recorded call will be available for 30 days after this call. An audio replay will also be posted on the Investor Relations page of our website at www.mips.com.

I’ll now turn the call over to Sandeep Vij.

Sandeep Vij

Thank you, Jen. Hello, everyone. Thank you for joining us today. Overall core licensing was up in Q1 over the previous quarter, including revenue from our new interactive core which was released to general availability in the quarter. While we did not announce any patent deals this quarter, we are continuing to explore our options in this area. We said before that we are pursuing options to monetize our patent portfolio, which led to one of the largest license agreements in the company’s history last quarter. We continue to actively pursue various patent monetization strategies.

Regarding royalties, we are seeing increasing unit growth in networking, especially in wireless LAN which is a major contributor to unit growth. We are also seeing an increasing opportunity for customers who provide LTE solutions. One example is Altair, whose MIPS based LTE chipset was certified during the quarter for run over Verizon’s 4G LTE network.

On the high end of networking, Broadcom announced that its new MIPS based XLP 200-series processors building on the NetLogic acquisition are sampling now with production volume slatted for the second half of 2013. In earlier this month, Cavium showcased a complete manufacturable reference design incorporating the MIPS-Based OCTEON Fusion small cell on-a-chip processor.

Home entertainment has been a soft market where we have seen declining unit shipments. In DTV, we are seeing some fundamental shifts. With the merger of two key DTV semiconductor companies, we are seeing the emergence of one major DTV supplier who is a MIPS licensee. With this move, there is now an opportunity for other companies to become second sources to the industry. One of the company poised to benefit from this shift is Sigma Designs with its recent acquisition of Trident Microsystems. And on the set-top box side Sigma is reporting momentum with its MIPS-based chips.

ViXS is making headway in home entertainment with its MIPS-based transcoding chips including a win with Sony's new PS3 network recorder in media storage device. Mobile continues to represent a very small portion of our royalties, but the volume is continue to increase. Based on our mobile customers efforts MIPS-based tablets are now shipping in China, Indonesia, India and other countries. There are millions of MIPS-based devices in the market, and new tablets are expected to be release soon with a multi-core MIPS-based mobile chip.

As a result of our close working relationship with Google in the upcoming Android 4.2 release from Google, MIPS will be completely at par with the other major processor architectures. This is also true in the Android tool chain, whenever an Android developer downloads or upgrades, the Android software development kit or SDK they will get full MIPS support. We've seen more than half a million downloads of the MIPS-based system image in the past several weeks.

Based on all of our efforts over the past three years starting with the launch of initial mobile devices to a major OEM tablet launch with Phillips to achieving tool chain parity to forthcoming 100% Android compatibility from Google, MIPS is making rapid progress in our Android and mobile ecosystem initiatives.

Now, Bill will provide more about the details of the quarter. Bill?

William Slater

Thanks, Sandeep. For the first quarter ended September 30, total revenues were $13.9 million compared to the fourth quarter of fiscal 2012 revenues of $38.4 million which included the patent license deal of $26.3 million. Royalty revenue in the first quarter was $10.5 million compared to royalty revenue of $10.6 million in the prior quarter. Our licensees reported shipments of 182 million units during their June quarter or 3% higher than their previous quarter.

The royalty per unit was $0.058 in Q1 compared to $0.06 in the prior quarter. The decrease in royalty per unit was primarily driven by a decrease in certain customers average selling prices and consolidation in the industry as certain of our smaller customers were acquired by larger customers with lower royalty rates.

47 MIPS licensees reported royalties in the quarter. License revenues were $3.4 million in the first quarter of fiscal 2013 compared to the fourth quarter of fiscal 2012 license revenue of $27.8 million, again which included the patent license sale of $26.3 million. Included in the license revenue were two transactions this quarter including the shipment of our new product interactive in September 2012.

Total GAAP cost and expenses in the first quarter decreased to $18.7 million from $20.1 million in the prior quarter, primarily as a result of a decrease in incentive compensation and engineering expenses partially offset by cost in connection with the company’s exploration of options related to patent monetization and other opportunities for decreasing shareholder value. As a result included in G&A cost in our Q1 ’13 numbers were $1.9 million of an advisory fees. There was approximately $1.9 million in stock compensation included in our first quarter operating expenses.

Our GAAP net loss for the quarter was $4.3 million or $0.08 per share compared with prior quarter net income of $17.2 million or $0.31 per share, which included the patent license deal.

On a non-GAAP basis net loss for the first quarter was $0.5 million or $0.01 per share compared to the prior quarter non-GAAP net income of $19.2 million or $0.35 per share. We ended the first quarter with cash and investments of a $130.3 million an increase of $19.4 million during the quarter.

Now I like to open the call up for any questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) And our first question comes from Gary Mobley with Benchmark. Your line is open.

Gary Mobley – The Benchmark Company, Llc

Hi guys. I have a question about your new FTE core and I’m mistaking you got two of the three shipping now to micro and the interactive shipping. Was there any license deal or what's the other license deal on the quarter for the micro, and then do you expect to have the pro generally available by the end of October? And then for Bill would you clearly offer up any guidance whether it be relating to royalty units a directional change there and then as well any sort of hints on the licensing front as well?

Sandeep Vij

So proactive quarter is scheduled to be available in the upcoming months, we're very pleased specific timeline, but we will publicly announce when it will be available. And the other deal in the quarter, I do not believe it included a Micra this quarter.

William Slater

Right. And on the guidance front, we are going to continue with the press that we said last quarter of not providing any additional guidance.

Gary Mobley – The Benchmark Company, Llc

Given that you’ve spent I think, as you mentioned, $1.3 million in advisory fees that’s an indication that you are fairly for long in assessing the value of the patent and based on all the work you’ve done so far and the assessment you’ve done, what do you think its more likely, an outright sale of the patent or additional one off patent licensing deals such as the Broadcom deal?

Sandeep Vij

Yeah, Gary, we are still exploring those strategies and we have nothing to announce at this time.

Gary Mobley – The Benchmark Company, Llc

Okay. Would you still expect to have something done or decided on by the end of the calendar year?

Sandeep Vij

I think we’re working diligently on the process and that would be our hope, but again this is a long process and we are being pretty diligent about looking at our various opportunities.

Gary Mobley – The Benchmark Company, Llc

Okay. Last question from me Sandeep, given all the trade [rent process] that has been given to MIPS and what the future monetization strategy might include, do you find it difficult to strike like license deals, design intellectual property license deals?

William Slater

I think we have been fairly open as we need to be of our desire to monetize our patent portfolio, and have been successful in that. We continue to license our cores and continue to have a pipeline of core deals. So we continue and kind of business is usual in the core licensing front.

Gary Mobley – The Benchmark Company, Llc

Thank you, guys.

Sandeep Vij

Thank you.

Operator

Thanks. Next question Jeff Schreiner with Feltl and Company. Your line is open.

Jeffery Schreiner – Feltl and Company

Yeah, thank you gentlemen for taking my question. I want to look at the licensing line come back to that and it runs about $3 million to $4 million a quarter right now, and we look back to kind of prior years and certainly we look at kind of the deposits available each quarter and what competitors are doing there? Is this contribution from licensing starting to suggest that MIPS might be loosing future design share or how should we be looking at kind of a run rate for licensing?

William Slater

I think the way to look at it is that we're just rolling out our new set of cores. We got our smallest core with the microAptiv earlier. We just began shipping interactive and ship it up to our first customer, and our new proAptive cores coming in the coming months. So I think we're going through a phase where we are launching out of new set of cores, which has been very well received in the marketplace by both the press, the technical community and the customer base. Many customers are waiting for these cores and we're going through the sales process with those.

Jeffery Schreiner – Feltl and Company

Okay. What percentage of the licensing revenues grew from Aptive cores in the September quarter customer?

Sandeep Vij

I would say the largest deal we had with preponderance of revenue came from the Aptive cores.

Jeffery Schreiner – Feltl and Company

And then just worrying what was the mobile contribution I know it's still kind of growing there in the September quarter. And what should we think about it potentially maybe reaching during fiscal year '13 as contributed to MIPS?

Sandeep Vij

I'm sorry, what contribution?

Jeffery Schreiner – Feltl and Company

I'm sorry, I was just wondering what was the mobile contribution during September and what do you think you can reach maybe for ’15 or '13?

Sandeep Vij

Our unit volume is still the mid to upper single digit million units, it’s still relatively small but continuing to grow at a reasonably good pace year-over-year. But again, from a royalty standpoint, it’s a relatively small portion of our royalties.

Jeffery Schreiner – Feltl and Company

And that’s one from me just a housekeeping. How many licensing deals were done in the quarter?

Sandeep Vij

Two licensing deals.

Jeffery Schreiner – Feltl and Company

Two. Okay, thank you very much gentlemen.

Sandeep Vij

Yeah. Thanks.

Operator

Okay. (Operator Instructions) And our next question comes from Anthony Stoss with Craig-Hallum. Your line is open.

Anthony Stoss – Craig-Hallum Capital Group LLC

Hi, guys. Sandeep, when you started the whole potential patent monetization about eight months ago, you talked about hiring a patent advisor and they came back with a value that was substantial. Is there anything in your exploration here that would lead you to believe that the patents are worth less than what you originally thought?

Sandeep Vij

I think that in our current exploration of patent monetization, we have been very pleased with the valuation that made them fairly consistent.

Anthony Stoss – Craig-Hallum Capital Group LLC

Okay. And then secondly on the mobile side, now that you are going to have 100% coverage of Android, you think that’s the limitation when you are signing additional mobile deals and what do you think its going to take for your timing, more significant size, licensees on mobile. Thanks.

Sandeep Vij

So I think we’ve made tremendous progress in the Android ecosystem. I mean your member two and a half years ago we were nowhere. Where came to Android fundamentally and now as the code comes out from Google, we will be literally in a 100% of the same capability of any of the architecture there as the core chips from Google and that is really a unique place to be in. The nominee company they can stay being in that type of position, and we believe that is a necessary condition of we’re really continuing our mobile momentum, and we're very happy that we are hitting those milestones.

Anthony Stoss – Craig-Hallum Capital Group LLC

Okay, thanks.

Sandeep Vij

Thank you.

Operator

Okay. Vikas Tandon with Bastogne Capital, your line is open.

Vikas Tandon – Bastogne Capital

Hey guys, thanks for taking the question. And apologies I’m on a cell phone I’ve got no power and no Internet or phone here, so my breakup apologies. Few quick questions, first would be I mean you guys have $130 million at the end of the quarter in cash, I don't know that builds or drain since the end of the quarter that any one thought obviously you're going down the road of the patent monetization, but anymore thought given to you returning that cash to shareholders whether if your stock buyback or dividend I'm just not seeing a lot of need for the cash otherwise?

William Slater

Yeah, we haven't had any discussions, yet about plans for the cash.

Vikas Tandon – Bastogne Capital

Okay. And the second question that I have – would have is something called (inaudible) one of your competitors filings on holdings made a note therefore and again I apologize that I don't have Internet access to give the exact number, roughly $150 million a size well if they got a strategic investment. You guys have any idea what they are up to, is it something maybe you are looking to use cash forward. Just trying to get a sense as to there is a shift in the industry that you guys are pursuing or but thereafter something else?

William Slater

I don't think we can really comment on another company’s financial statements. They share with you what they will and that as much as we know as well.

Vikas Tandon – Bastogne Capital

Okay, great. Thank you.

Operator

Okay. At this time, I have no further question.

Jen Bernier

Okay. Thank you all for joining us today. Bye, bye.

Operator

Okay. Thank you. That does conclude today’s conference. Thank you for your participation. You may disconnect your phone lines at this time.

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