SouFun Holdings Limited (SFUN)

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Saifun (SFUN)
Q4 2005 Earnings Conference Call
February 15th 2006, 8:30 AM.

Executives

Dr. Boaz Eitan, Chairman and CEO
Igal Shany, Chief Financial Officer
Kobi Rozengarten, President
Todd Fromer, Investor Relations

Presentation

Operator

Good day, my name is Jackie and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Saifun Fourth Quarter 2005 Earnings Conference Call. All lines have been placed on a listen-only mode for the duration of the conference. It is now my pleasure to turn the floor over to Todd Fromer. Sir you may begin your conference.

Todd Fromer, Investor Relations

Thank you, and thank you all for joining us this morning for the Saifun Semiconductors Fourth Quarter 2005 Earnings Conference Call. Before I begin, I would like to read the following regarding forward-looking statements. During the course of this conference call, the company may make forward-looking statements regarding future events. We wish to caution you that such statements reflect only the company’s current expectations and that actual events or results may differ materially. You are kindly referred to the risks factors and cautionary language contained in the company’s final prospectus filed on November 10, 2005 with the US Securities and Exchange Commission in connection with the company’s initial public offering. The company undertakes no obligation to update any projections or forward-looking statements in the future. The company will not be providing guidance or opening the conference for questions and answers after the presentation. Although, the company expects to do so following its next earnings call. We will now turn the call over to Dr. Boaz Eitan, Chairman and CEO of Saifun Semiconductors. Boaz, the floor is yours.

Dr. Boaz Eitan, Chairman and CEO

Thank you Todd, and welcome to Saifun Fourth Quarter Earnings Conference Call. And our first conference call is a public conference. We are pleased to be able to share with you our accomplishments over the year and offer some insight into our business. For those who are new to our story, allow me to give a little explanation of what we do. Saifun provides intellectual property solution for the non-volatile memory, most commonly called Flash memory.

We market our NROM technology, which enable semiconductor manufacturers to deliver a variety of products at a lower cost per megabit with more data size, higher density, higher scalability, and better yield compared to the standard technology used today. 2005 was a remarkable year for Saifun. We established the company as a major IP provider in the NVM space. We increased NROM penetration by our licensees, and saw a number of NROM-based product on the market grow.

In addition, we maintain our technological leadership with the launch of the Quad NROM, a unique technology that enables the storage of 4-bit per cell. Quad NROM technology is a breakthrough in the NVM phase, one that we believe will generate even greater value for our licensees, as they bring Quad NROM-based product to the market.

Our results for the quarter were very strong. In the fourth quarter, we completed our IPO on the NASDAQ grade approximately $135 million. These additional capital enhances Saifun’s already strong balance sheet and better positions us to achieve our long-term strategic object. With that, I would like to turn the call over to our CFO, Igal Shany, who will provide the detailed overview of our results for the quarter. Following the financial overview, our President, Kobi Rozengarten will provide details on the overall market for NVM technology and Saifun’s role in this market. Igal.

Igal Shany, Chief Financial Officer

Thank you Boaz. Looking at the full year ‘05 our GAAP revenues were $78.6 million. The GAAP revenues including $19.2 million of non-cash revenues resulting from our former joint venture with Infineon. In the fourth quarter ‘05, we concluded recognizing these non-cash revenues, therefore unless specifically stated otherwise, the results we discuss on this call disregard these non-cash revenues. The adjusted revenues for the full year ‘05 were $59.4 million, an increase of 94% compared to $30.6 million for the full year 2004. In ‘05, we achieved a growth margin of 80% and an operating profit of approximately 60%. In addition, in ‘05, we discontinued our direct product selling activity and we believe we will not incur additional profit and losses with regards to this activity.

Looking at the fourth quarter of ‘05, revenue-- $9.4 million for the fourth quarter of 2004. Our revenues are made up of licensing and service revenues as follows: Licensing revenues for the fourth quarter were $12.6 million or 77% of our total revenues. The majority of our licensing revenues this quarter continues to be derived from Infineon, Macronix, and Spansion.

Service revenues for the fourth quarter was $3.7 million or 23% of our total revenues. This quarter will derive service revenues from five of our licensees, including Infineon, SMIC, and Spansion. Gross margin for the fourth quarter was 77% or 79% excluding stock-based compensation. Operating expense for the fourth quarter was $5.6 million or 34% of revenues, which included 12% of revenues R&D, and 22% of revenues SG&A. R&D together with cost of services in the fourth quarter was $5.8 million or 35% of revenues and $19.5 million or 33% for the whole year. Stock-based compensation was 1.8 for the fourth quarter and $4.3 million for the full year ‘05. This year’s increase in stock-based compensation compared to ‘04 where we had $0.6 million expenses was primarily due to two items. The first is the increase in the liability of stock appreciation wise, but we assume as part of the joint venture exit. And the second is the increase in the average fair value for an option granted in ‘05 compared to ‘04.

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