UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE PERIOD ENDED JUNE 30, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 000-23649
ARTISAN COMPONENTS, INC.
(Exact name of registrant as specified in its charter)
| DELAWARE | 77-0278185 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
141 Caspian Court
Sunnyvale, California 94089
(Address of principal executive offices)
Telephone number (408) 734-5600
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act). Yes x No ¨
As of July 30, 2004, there were 23,439,610 shares of the Registrant’s Common Stock outstanding.
FORM 10-Q
INDEX
i
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(Unaudited)
| June 30, 2004 |
September 30, 2003 |
|||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 96,325 | $ | 98,841 | ||||
| Marketable securities |
20,882 | 9,921 | ||||||
| Accounts receivable, net |
21,695 | 18,398 | ||||||
| Prepaid expenses and other current assets |
4,490 | 2,197 | ||||||
| Deferred tax asset |
2,092 | — | ||||||
| Total current assets |
145,484 | 129,357 | ||||||
| Long-term marketable securities |
23,242 | 5,504 | ||||||
| Property and equipment, net |
5,832 | 7,418 | ||||||
| Purchased intangible assets, net |
5,261 | 8,394 | ||||||
| Goodwill |
32,557 | 36,016 | ||||||
| Deferred tax asset |
19,747 | — | ||||||
| Other assets |
482 | 414 | ||||||
| Total assets |
$ | 232,605 | $ | 187,103 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 1,628 | $ | 1,486 | ||||
| Accrued liabilities |
9,422 | 7,201 | ||||||
| Deferred revenue |
8,687 | 7,094 | ||||||
| Total current liabilities |
19,737 | 15,781 | ||||||
| Deferred revenue |
771 | 788 | ||||||
| Income tax payable |
3,941 | — | ||||||
| Deferred tax liability |
2,182 | 3,257 | ||||||
| Other liabilities |
856 | 1,146 | ||||||
| Total liabilities |
27,487 | 20,972 | ||||||
| Commitments and contingencies (Note 8) |
||||||||
| Stockholders’ equity: |
||||||||
| Common stock, $0.001 par value: |
||||||||
| Authorized: 50,000; Issued and outstanding: 23,265 and 22,157 shares at June 30, 2004 and September 30, 2003, respectively |
23 | 22 | ||||||
| Additional paid in capital |
191,439 | 167,043 | ||||||
| Deferred stock-based compensation |
(143 | ) | (368 | ) | ||||
| Accumulated other comprehensive (loss) income |
(241 | ) | 118 | |||||
| Retained earnings (accumulated deficit) |
14,040 | (684 | ) | |||||
| Total stockholders’ equity |
205,118 | 166,131 | ||||||
| Total liabilities and stockholders’ equity |
$ | 232,605 | $ | 187,103 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
| Three months ended June 30, |
Nine months ended June 30, | ||||||||||||
| 2004 |
2003 |
2004 |
2003 | ||||||||||
| Revenue: |
|||||||||||||
| License |
$ | 14,162 | $ | 15,606 | $ | 41,804 | $ | 41,520 | |||||
| Net royalty |
7,811 | 3,313 | 21,599 | 7,505 | |||||||||
| Total revenue |
21,973 | 18,919 | 63,403 | 49,025 | |||||||||
| Costs and expenses: |
|||||||||||||
| Cost of revenue * |
5,653 | 4,941 | 15,070 | 12,428 | |||||||||
| Product development * |
4,019 | 5,695 | 13,898 | 13,386 | |||||||||
| Sales and marketing * |
3,857 | 4,092 | 11,521 | 10,422 | |||||||||
| General and administrative * |
1,894 | 1,586 | 5,443 | 4,819 | |||||||||
| In-process research and development |
— | — | — | 520 | |||||||||
| Amortization of purchased intangible assets |
896 | 1,511 | 3,133 | 2,910 | |||||||||
| Total costs and expenses |
16,319 | 17,825 | 49,065 | 44,485 | |||||||||
| Operating income |
5,654 | 1,094 | 14,338 | 4,540 | |||||||||
| Interest and other income, net |
445 | 614 | 1,127 | 992 | |||||||||
| Income before income taxes |
6,099 | 1,708 | 15,465 | 5,532 | |||||||||
| (Benefit from) provision for income taxes |
(130 | ) | 274 | 741 | 727 | ||||||||
| Net income |
$ | 6,229 | $ | 1,434 | $ | 14,724 | $ | 4,805 | |||||
| Net income per share: |
|||||||||||||
| Basic |
$ | 0.27 | $ | 0.07 | $ | 0.65 | $ | 0.26 | |||||
| Diluted |
$ | 0.25 | $ | 0.06 | $ | 0.59 | $ | 0.23 | |||||
| Shares used in computing net income per share: |
|||||||||||||
| Basic |
23,113 | 20,359 | 22,722 | 18,447 | |||||||||
| Diluted |
25,387 | 22,873 | 24,866 | 20,634 | |||||||||
| * Includes stock-based compensation expense of: |
52 | 150 | 225 | 209 | |||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
| Nine months ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 14,724 | $ | 4,805 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
5,551 | 4,405 | ||||||
| In-process research and development |
— | 520 | ||||||
| Compensation expense related to options |
225 | 209 | ||||||
| Deferred income taxes |
(15,514 | ) | — | |||||
| Tax benefit arising from disqualifying dispositions of stock options |
13,959 | — | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable, net |
(3,297 | ) | (4,385 | ) | ||||
| Prepaid expenses and other current assets |
(2,293 | ) | (134 | ) | ||||
| Other assets |
(68 | ) | 634 | |||||
| Accounts payable |
142 | (173 | ) | |||||
| Accrued liabilities |
2,221 | (759 | ) | |||||
| Deferred revenue |
1,576 | 1,540 | ||||||
| Other liabilities |
(290 | ) | (1,047 | ) | ||||
| Net cash provided by operating activities |
16,936 | 5,615 | ||||||
| Cash flows from investing activities: |
||||||||
| Purchases of property and equipment |
(832 | ) | (3,192 | ) | ||||
| Purchases of marketable securities |
(51,104 | ) | (26,195 | ) | ||||
| Proceeds from sale and maturities of marketable securities |
22,046 | 34,463 | ||||||
| Acquisition of NurLogic, net of cash acquired |
— | (2,798 | ) | |||||
| Net cash (used in) provided by investing activities |
(29,890 | ) | 2,278 | |||||
| Cash flows from financing activities: |
||||||||
| Proceeds from issuance of common stock related to secondary offering |
— | 53,297 | ||||||
| Proceeds from issuance of common stock related to exercise of employee stock options |
10,438 | 7,919 | ||||||
| Proceeds from repayment of stockholders’ note receivable |
— | 240 | ||||||
| Net cash provided by financing activities |
10,438 | 61,456 | ||||||
| Net (decrease) increase in cash and cash equivalents |
(2,516 | ) | 69,349 | |||||
| Cash and cash equivalents, beginning of period |
98,841 | 29,159 | ||||||
| Cash and cash equivalents, end of period |
$ | 96,325 | $ | 98,508 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Description of Business
Artisan Components, Inc. (“Artisan” or the “Company”) is a leading provider of physical intellectual property components for the design and manufacture of integrated circuits including those known as system-on-a-chip integrated circuits. The Company’s products include embedded memory, standard cell, communication, input/output components and analog and mixed-signal products which are designed to achieve the best combination of performance, density, power and yield for a given manufacturing process. The Company’s intellectual property components are pre-tested by producing them in silicon to ensure that they perform to specification. This enables designers to reduce the risk of design failure and gain valuable time to market. The Company licenses its products to customers for the design and manufacture of integrated circuits used in complex, high volume applications such as portable computing devices, cellular phones, consumer multimedia products, automotive electronics, personal computers and workstations.
Note 2. Summary of Significant Acco