Filing summary
Entity discrepancy: The supplied filing is MoSys, Inc.’s Form 10-Q for the quarter ended March 31, 2016, not a Peraso Inc. filing. The summary below reflects the filing text.
Business context and reporting period
MoSys develops and sells fabless semiconductor ICs for networking and communications markets, including Bandwidth Engine and LineSpeed products, and earns royalties from IP licensing. Results cover the three months ended March 31, 2016, compared with the same period in 2015; balance-sheet figures are compared with December 31, 2015.
Key financial metrics
Amounts are in millions of dollars, except per-share data and percentages.
| Metric | Q1 2016 | Q1 2015 or prior date |
|---|---|---|
| Revenue | $1.451 | $0.776 |
| Gross profit / margin | $0.588 / 41% | $0.539 / 69% |
| Operating expenses | $7.424 | $8.507 |
| Operating loss | $(6.836) | $(7.968) |
| Net loss / loss per share | $(6.865) / $(0.10) | $(7.965) / $(0.15) |
| Cash used in operating activities | $(7.218) | $(7.009) |
| Cash and cash equivalents | $10.503 | $5.640 at Dec. 31, 2015 |
| Short-term investments | $10.382 | $14.598 at Dec. 31, 2015 |
| Current assets / current liabilities | $24.054 / $2.583 | $23.265 / $3.604 at Dec. 31, 2015 |
| Convertible notes payable | $7.879 | None at Dec. 31, 2015 |
Cash, cash equivalents and short-term investments totaled $20.9 million. The company reported working capital of $21.5 million and total liabilities of $10.7 million. Financing activities provided $8.049 million, primarily from the convertible-note issuance; investing activities provided $4.032 million, largely reflecting transfers from investments to cash.
Material changes versus the prior period
- Revenue increased 87%: product revenue rose to $1.120 million from $0.180 million, while royalty and other revenue fell 44% to $0.331 million from $0.596 million.
- Gross profit increased 9%, but gross margin declined to 41% from 69%, reflecting the greater share of product revenue and lower royalty revenue, which has no corresponding cost.
- Operating expenses decreased 13%, mainly because research and development expense fell 24%; Q1 2016 also included $0.676 million of restructuring charges.
- Net loss narrowed to $6.865 million from $7.965 million, while operating cash use increased to $7.218 million from $7.009 million.
- The company issued $8 million principal amount of secured convertible notes in March 2016. Common shares outstanding were 65.975 million at quarter-end, versus 65.496 million at year-end 2015.
Outlook, risks and unusual items
- Management expected 2016 product revenue to increase, primarily as existing customers began full production using Bandwidth Engine products; it also expected to expand its customer base and design wins. No specific revenue or earnings guidance was provided.
- MoSys expected cash expenditures to exceed receipts in 2016, but stated existing cash, investments and other expected resources should meet capital requirements for at least 12 months. It cautioned that additional capital may be needed and may not be available on acceptable terms.
- The Q1 restructuring reduced U.S. headcount by 12 and closed the Hyderabad subsidiary, which had 18 employees. Charges were $0.676 million; management expected up to $0.7 million in total termination charges and approximately $3.3 million in annualized savings. Most restructuring cash costs were paid in Q1; remaining charges were expected to be paid substantially in Q2.
- The notes bear 10% annual interest, mature August 15, 2018, are secured by all company assets, and are convertible at $0.90 per share, subject to adjustments. They could convert into up to approximately 9.4 million shares, excluding any interest paid in kind. Note terms include restrictions on additional debt and holder redemption rights upon specified fundamental changes.
- Customer concentration is significant: three customers represented 87% of Q1 revenue, and three customers represented 81% of accounts receivable at March 31, 2016.
- The filing reports no material legal proceeding believed likely to have a material adverse effect. Management said disclosure controls were effective as of quarter-end and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the intended issuer: the source filing names MoSys, Inc., not Peraso Inc.
- Track whether expected Bandwidth Engine production ramps and revenue growth materialize, and whether gross margins improve as product volumes grow.
- Monitor cash burn against the $20.9 million of cash and short-term investments, and assess the timing and need for additional financing.
- Review the secured note terms, interest burden, potential dilution and restrictions on future borrowing.
- Assess customer concentration, restructuring savings and any further costs associated with the India closure.