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MIPS Technologies, Inc. (MIPS)

Q3 2008 Earnings Call Transcript

April 30, 2008 4:45 pm ET

Executives

Mark Tyndall – VP of Business Development & Corporate Relations

Maury Austin – CFO

John Bourgoin – President and CEO

Analysts

Gary Mobley – Piper Jaffray

Tayyib Shah – Longbow Research

Anthony Stoss – Craig-Hallum Capital

Raj Seth – Cowen & Co.

Presentation

Operator

Good afternoon and welcome to the MIPS third quarter fiscal 2008 financial results call. Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now, I'd like turn it over to Mr. Mark Tyndall, Vice President of Business Development and Corporate Relations. Sir, you may begin.

Mark Tyndall

Thank you, and welcome to the MIPS third quarter fiscal 2008 earnings call. Leading the call today is John Bourgoin, our Chief Executive Officer and Maury Austin, our Chief Financial Officer.

Maury will cover the financial results for the third quarter and the financial guidance, followed by John covering the business aspects, after which we will open the call for Q&A. If you do not have a copy the earnings release, it is available on our Web site at www.mips.com, and an audio replay will also be posted there following the call.

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, including projections of certain operating results for the fourth quarter of fiscal 2008. 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 projections or forward-looking statements.

We refer you to the risk factor 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'll be referring to third quarter fiscal 2008 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, and MIPS uses non-GAAP measures when evaluating its financial results, as well as for internal planning and budgeting purposes.

The non-GAAP results exclude FAS 123-R, stock option expense, certain cost on expenses related to the Chipidea acquisition and restructuring costs incurred during the quarter. Please refer to the earnings press release or the Investor Relations page of the Web site for reconciliation of GAAP to non-GAAP.

At this point I'd now like to turn the call over to Maury.

Maury Austin

Thanks Mark, and I also welcome you all to the call. For me, interacting with our investor base is one of the most enjoyable parts of my job, and I look forward to meeting with many of you in the coming quarters.

Now, to recap our financials, MIPS Technologies had a total revenue of $27.3 million in the third quarter of fiscal 2008, an increase of 3% from the$26.5 million in the prior quarter, and an increase of 43% from the $19.1 million reported in the same quarter a year ago.

Total third quarter revenue from the processor business was $18.1 million, and revenue from the analog business was $9.2 million. Overall, revenue fell shortly slight of our expectations. During the quarter we combined the processor and analog sales team into one worldwide sales force. This combining of the sales teams and the contracting processes in the resultant line curves had a dampening effect on our ability to close certain deals during the quarter. John will talk a bit more about the state of the selling process during his section.

Royalty revenue in the second quarter was $12.6 million, a slight increase from the $12.5 million reported in the prior quarter, and increase of 17% from the $10.7 million reported in the same quarter a year ago. Royalty revenue from the processor business was $12.3 million.

Our processor licensees reported shipments of 115 million units, or approximately 7% higher than the 107 million units shipped in the prior quarter, and an increase of 31% over the 87 million units shipped in the same quarter a year ago.

Contract and license revenue was $14.8 million, an increase of 6% from the $13.9 million reported from the prior quarter, and increase of 77% from the $8.3 million reported in the same quarter a year ago.

License revenue from the processor business was $5.8 million with six new license agreements signed during the quarter. Contract revenue from the analog business was $9 million generated from existing contracts along with a portion of the 26 new contracts signed during the quarter.

Our third quarter gross margin was $17.9 million an $800,000 improvement over the second quarter results of $17.1 million. Our blended gross margin for the two units combined was 66% for the quarter. With the addition of the analog business group, we now have an opportunity to migrate their business model from primarily an engineering design service and license based business model to a model more similar to the processor group incorporating more IP license fees over time. And included in the Q3 cost of sales was $2.3 million charge representing intangible asset amortization related to the Chipidea acquisition.

Total operating expense in the third quarter of fiscal 2008 was $23.2 million and a decrease of $1.2 million over the second quarter. The third quarter operating expenses included approximately $1.8 million in FAS 123-R stock option expense, $2 million in the intangible asset amortization and a charge of $1.3 million associated with the processor business restructuring. MIPS ending head count was 513 employees, down 25 employees from the prior quarter as a result of our cost reduction efforts.

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