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Magma Design Automation Inc. (LAVA)

F2Q2011 Earnings Call Transcript

December 2, 2010 5:00 pm ET

Executives

Milan Lazich – VP, Corporate Marketing

Rajeev Madhavan – Chairman and CEO

Roy Jewell - President and COO

Pete Teshima – Corporate VP, Finance and CFO

Analysts

Richard Valera – Needham & Company

Tom Diffely – D.A. Davidson

Presentation

Operator

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Welcome to Magma's second quarter fiscal 2011 earnings call. All lines have been placed on mute and we ask that all participants turn off wireless communication devices to prevent background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator instructions) Now, here is Magma's Vice President of Corporate Marketing, Milan Lazich. Sir?

Milan Lazich

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Good afternoon, and welcome to Magma’s fiscal 2011 second quarter earnings call, hosted by Chairman and CEO, Rajeev Madhavan; President and Chief Operating Officer, Roy Jewell; and CFO, Pete Teshima. Our Q2 earnings release is on Magma’s website and includes a reconciliation of non-GAAP results to GAAP results.

The Financial Data Supplement in our website’s Investor Relations section also includes a reconciliation of non-GAAP results to GAAP results, as well as updated financial guidance. Unless otherwise noted, all references today to expenses, margins and other financials are on a non-GAAP basis.

Please note that during our call, including the question-and-answer period, we make forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, and that actual results may differ materially from expectations.

For information on factors that could cause a difference in our results, please refer to our Form 10-Q for the fiscal quarter ended August 1, 2010 to Magma’s subsequent and future filings with the Securities and Exchange Commission and to cautionary statements in today’s earnings press release regarding forward-looking statements. Magma undertakes no obligation to update these forward-looking statements.

With that, let me turn the call over to Rajeev Madhavan.

Rajeev Madhavan

Thank you, Milan. Good afternoon. I’m happy to report that we exceeded all guidance targets for our second quarter. Revenue was $33.9 million, and we delivered non-GAAP earnings per share of $0.07 and non-GAAP operating margin of 16%. And for the seventh straight quarter we had positive cash flow. Magma is enjoying solid momentum in technology, market adoption, and financial performance, and recent developments indicate this will continue.

Let me tell you about two product announcements and a milestone partnership. This morning we announced two new products; Talus 1.2, the latest version of our industry-best Talus Vortex implementation platform, and Talus Vortex FX, a new product that is the first and only IC implementation solution to fully utilize distributed computing for place and route.

These releases extend our technology leadership in place-and-route technology with capabilities required as our leading-edge customers migrate to designs at 28-nanometer and smaller geometries. Creating chips at such small nodes requires designers to comprehend crosstalk, advanced on-chip variation, and multi-mode multi-corner variation.

Talus 1.2 borrows advanced algorithms from our next generation static timing analysis and extraction products, Tekton and QCP, and comprehends all three of these effects simultaneously during implementation. It delivers 1.0 million to 1.5 million cells, that’s as many as 4 million to 6 million logic gates, in 24 hours while simultaneously analyzing for all three effects.

This is at least 25% better than one of our major competitors in this space and 400% better than the other. Talus 1.2 also has the capacity to handle blocks of up to 4 million cells without any partitioning, an important factor as the average complexity of designs keeps moving up. Those are great advantages for any designer, but Talus Vortex FX takes it even further.

Talus Vortex FX, based on our Distributed Smart Sync technology, implements designs up to three times faster than Talus 1.2 and enables designers to implement multi-million cell designs flat at a rate of up to 2 million to 5 million cells per day. And this is with crosstalk avoidance, advanced on-chip variation, and multi-mode multi-corner analysis, all enabled.

Using Talus Vortex FX can substantially improve the productivity of engineers working at 28-nanometer and below. By now you’re probably thinking, “Okay, why does this matter?” It matters because our customers are on an increasingly faster treadmill. Expectations for electronic products continue to escalate. I myself moved to the iPad for much of my day-to-day use, and I usually go through two to three cell phones a year as new capabilities come along. I know I’m not alone in this. Tablets, many of them using integrated CDMA-GSM chips, are expected to sell more than 50 million units in 2011.

If design sizes grow at the current pace, especially with the migration to 28-nanometer technologies getting 3X productivity allows engineers to deliver 3X the number of gates they would otherwise be able to do. Hence the driver for Talus 1.2 and Talus Vortex FX. These two products will offer significant increases to productivity, and therefore profitability for our customers. Talus 1.2 and Talus Vortex FX offer designers more than just a ramping of the productivity curve. They deliver a wholesale shift to a new curve so they can cope with accelerating consumer demands that consumer products do more, do it faster, and do it anywhere.

The second major piece of news surrounding Magma is our partnership with Applied Materials, which closed during our second quarter. Under this agreement, Applied Materials is working with Magma’s Fab Analysis business unit to develop and co-market a full end-to-end solution for process qualification and yield improvement for advanced nodes.

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