Magma Design Automation, Inc. (

LAVA

)

F3Q2011 Earnings Call Transcript

February 24, 2011 4:30 pm ET

Executives

Milan Lazich – VP of Corporate Marketing

Rajeev Madhavan – CEO and Chairman

Roy Jewell – COO and President

Pete Teshima – CFO and VP of Finance

Analysts

John Gruber – Gruber & McBaine

Tom Diffely – D.A. Davidson

Brian Slick – Security Research

Presentation

Operator

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Ladies and gentlemen, welcome to Magma's third quarter fiscal 2011 earnings conference 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, you may begin?

Milan Lazich

Thank you, welcome to Magma’s fiscal 2011 third quarter earnings call, hosted by Chairman and CEO, Rajeev Madhavan; President and Chief Operating Officer, Roy Jewell; and CFO, Pete Teshima. Our Q3 earnings release is on Magma’s website and includes a reconciliation of GAAP results to non-GAAP results.

The Financial Data Supplement in our website’s Investor Relations section also includes a reconciliation of GAAP results to non-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 provision 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 October 31, 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 am happy to report that for the eighth consecutive quarter, we exceeded all guidance targets for our third quarter. Revenue was $34.8 million, and we delivered non-GAAP earnings per share of $0.08 and non-GAAP operating margin slightly above 17%. And we strengthened the balance sheet significantly with cash from operations of $6.8 million, our eighth straight quarter of positive cash flow.

Because Magma’s core customers are strong financially and our product offerings are well differentiated, our prospects continue to strengthen. At Magma, we are fortunate to be associated with the technology leaders of the semiconductor industry, and Magma has been central in creating silicon used in the recently announced high-profile products such as Motorola’s Xoom, Droid X and Droid 2, Samsung’s Galaxy Tab II and a number of other tablets and cell phones that have been announced this year.

Our focus remains on giving our customers a competitive advantage through superior technology. Magma has a plan of record on several 28-nanometer designs and is used at most of the leading semiconductor companies. We have completed multiple 28-nanometer tapeouts, production designs as well as test chips, as well as the first 20-nanometer test chip.

Our strength in digital design has resulted in many competitive wins for Talus, which has beaten the competition at a number of accounts, thanks to superior turnaround time and reduced area. Among these competitive wins, I would like to highlight Atmel, where we delivered target performance on an ARM core in just 3 weeks, Exar, where Talus provided better area optimization on a heavily congested block. Talus also had a competitive win at Icera, thanks to the customizability of Talus for superior Quality of Results.

Since we announced them in early December, Talus Vortex 1.2 and Talus Vortex FX are getting rave reviews. They are showing substantially differentiated throughput and quality of results, which drove the addition of 9 new Talus logos in our third quarter. Talus Vortex 1.2 results and flows are being completed at eight top Magma accounts. One of the world’s Top 5 chip companies is using Talus 1.2 in production and is seeing exceptional results on turnaround time and is completing 1.2 million cells per day, nearly twice what our closest competitor’s product is delivering.

Without [ph] Vortex FX, we are engaged with select customers, who are seeing a 2X to 3X performance boost over a Talus Vortex’s already into a see [ph] throughput on large designs, with throughput in the range of 2 million to 4 million cells per day.

I need to offer praise for the R&D team that developed Tekton, our static timing product announced less than a year ago. It continues to generate growing interest in our customer base. Several customers are using Tekton on production tapeouts and it is being designed into flows as the go-to option for static timing.

Small wonder that – Tekton was recognized by EDN Magazine as one of the Hot Shop Products of 2010 and was a winner of Electronic Design’s Best Electronic Design award, seven tapeouts are near completion with Tekton and QCP, and we signed deals with two of the Top 10 semiconductor companies last quarter.

On the topic of QCP, our next-generation standalone extraction tool, we are seeing speedups of as much as 10X over the latest builds of Star RC product from Synopsys. QCP has built-in capabilities from QuickCap, the recognized gold standard for the extraction, and hence offers accuracy far superior to products from other vendors. And finally, Quartz continues its momentum in the physical verification segment as a number of Top 25 semiconductor companies have renewed their use of the Quartz products.

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