Magma Design CEO Discusses F1Q11 Results - Earnings Call Transcript

Magma Design CEO Discusses F1Q11 Results - Earnings Call Transcript
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Magma Design Automation Inc. (LAVA)

F1Q11 (Qtr End 08/01/2010) Earnings Call

August 26, 2010 5:00 pm ET

Executives

Milan Lazich - VP of Corporate Marketing

Rajeev Madhavan - Chairman and CEO

Roy Jewell - President and COO

Pete Teshima - CFO

Analysts

Rich Valera - Needham & Company

Tom Diffely - D.A. Davidson

Presentation

Operator

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Welcome to Magma's first quarter fiscal 2011 earnings call. (Operator Instructions) Now here is Magma's Vice President of Corporate Marketing, Milan Lazich.

Milan Lazich

Welcome to Magma's fiscal 2011 first quarter earnings call, hosted by Chairman and CEO, Rajeev Madhavan; President and Chief Operating Officer, Roy Jewell; and CFO, Pete Teshima. Our Q1 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, during this call all references 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-K for the fiscal year ended May 1, 2010; to Magma's subsequent and future filings with the Securities and Exchange Commission; and to the cautionary statements in today's earnings press release related to 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

Good afternoon and thank you Milan. I'm happy to report that we exceeded all guidance targets for first quarter. Revenue was $32.6 million, and we delivered non-GAAP earnings per share of $0.05 and non-GAAP operating margin of 13%. We also generated $1.4 million in cash from operations, our sixth straight quarter with positive cash flow. And today we are raising full-year guidance targets.

Magma's focus is on increasing revenue and improving profitability. Chip makers report improved visibility into their future business and most observers foresee growth this year on the order of 25% or more. Current semiconductor capacity is fully utilized. A contributing factor especially helpful to Magma are the current technology transitions semiconductor companies are making.

From our company's inception, Magma has focused on delivering design solutions for the prevailing leading-edge technology of the day. The current movement by major semiconductor companies to the 28 nanometer process node is creating opportunity across Magma's product lines, as our most advanced customers gear up for these transitions.

This summer's Design Automation Conference gave us a chance to assess customer reaction to our latest technology developments. Among the announcements we made in conjunction with the show were reference flows with MIPS, UMC, Global Foundries and TSMC, giving wide opportunity to see Magma products in action.

In our digital implementation products, including the Talus RTL-to-GDSII solution, and Hydra, our floorplanning solution for advanced low-power designs, interest at DAC was very strong. Perhaps the biggest draw we had was our new static timing analysis product, Tekton. Tekton was listed at number one on John Cooley's annual, Must See at DAC list and it clearly did not disappoint. Reaction included survey comments as simple and direct as 'impressive product'.

Customer feedback was what we hoped and expected to hear. Comments in our post-show survey of attendees included, 'I was very impressed with Magma's solutions, especially Tekton'. Designers continue to confirm the competitive advantages our product line has across the key technology segments where we compete.

In analog technology, our Titan platform is delivering. Customer engagements indicate Titan is a significant breakthrough for analog/mixed-signal IP design, optimization and porting. We are very pleased with our progress thus far in custom design, and believe our new approach and technology gives users true value and will lead to Titan's future success. Thus far, we are definitely encouraged.

In physical verification, Quartz adoption benefits from the pressure on design teams just to maintain their level of productivity, which requires that physical verification gets faster. That's very difficult as designs get smaller, and their problems continue to intensify. We all know the adoption rate of advanced process nodes is accelerating, and many wireless, networking, graphics and other high-volume semiconductor companies have already migrated to 65 nanometer and smaller process technologies.

This transition continues to accelerate as evidenced by TSMC's recent report that 43% of its revenue comes from its 65 nanometer and 40 nanometer process nodes, and the number of 40 nanometer wafer shipments increased by 30% over the previous quarter. Time-to-market pressures on verifications are going to get worse.

This creates a great opportunity for Quartz. It's the only set of verification products that is fully scalable, so it's the best verification option as design geometries shrink. This week we announced the Quartz iPOP program, designed to help engineers who haven't tried Quartz see the superior productivity and performance that Quartz DRC, Quartz LVS and Talus qDRC deliver. Once they try Quartz they'll want to continue using it. You can see why I continue to be excited about the prospects for our company.

With that I will turn the call over to Roy.

Roy Jewell

Thanks, Rajeev. In Q1 we added eight new customer logos across North America, Europe and Asia-Pac, and as we entered Q2, our sales pipeline was larger than at any time in the company's past. Overall, Magma continues to demonstrate significant footprint among the household names of semiconductor companies.

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