SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 quarterly period ended September 30, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 000-50460
TESSERA TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
| Delaware | 16-1620029 | |
| (State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
| 3099 Orchard Drive, San Jose, California | 95134 | |
| (Address of Principal Executive Offices) | (Zip Code) |
(408) 894-0700
(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 Exchange Act Rule 12b-2). Yes ¨ No x
As of November 5, 2004, 41,735,449 shares of the registrant’s common stock were outstanding.
FORM 10-Q — QUARTERLY REPORT
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER, 2004
TABLE OF CONTENTS
| Page | ||||
| PART I | ||||
| Item 1. |
Financial Statements | |||
| Condensed Consolidated Balance Sheets (unaudited) – September 30, 2004 and December 31, 2003 |
3 | |||
| 4 | ||||
| 5 | ||||
| Notes to Condensed Consolidated Financial Statements (unaudited) |
6 | |||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 15 | ||
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risks | 26 | ||
| Item 4. |
Controls and Procedures | 27 | ||
| PART II | ||||
| Item 1. |
Legal Proceedings | 28 | ||
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds | 29 | ||
| Item 3. |
Defaults Upon Senior Securities | 29 | ||
| Item 4. |
Submission of Matters to a Vote of Security Holders | 29 | ||
| Item 5. |
Other Information | 29 | ||
| Item 6. |
Exhibits | 30 | ||
| 31 | ||||
| 32 | ||||
2
PART I – FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except for share amounts)
(unaudited)
| September 30, 2004 |
December 31, 2003 |
|||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 96,376 | $ | 64,379 | ||||
| Accounts receivable |
5,482 | 2,540 | ||||||
| Other current assets |
961 | 1,335 | ||||||
| Total current assets |
102,819 | 68,254 | ||||||
| Property and equipment, net |
1,980 | 1,725 | ||||||
| Other assets |
145 | 102 | ||||||
| Total assets |
$ | 104,944 | $ | 70,081 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 1,033 | $ | 876 | ||||
| Accrued liabilities |
4,782 | 3,014 | ||||||
| Deferred revenue |
30 | 202 | ||||||
| Total current liabilities |
5,845 | 4,092 | ||||||
| Commitments and contingencies (Note 6) |
||||||||
| Stockholders' equity: |
||||||||
| Common stock: $0.001 par value; 54,686,666 shares authorized; 41,001,497 and 38,474,443 shares issued and outstanding |
41 | 38 | ||||||
| Additional paid-in capital |
163,617 | 157,178 | ||||||
| Deferred stock-based compensation |
(51 | ) | (153 | ) | ||||
| Accumulated deficit |
(64,508 | ) | (91,074 | ) | ||||
| Total stockholders’ equity |
99,099 | 65,989 | ||||||
| Total liabilities and stockholders' equity |
$ | 104,944 | $ | 70,081 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||
| 2004 |
2003 |
2004 |
2003 |
||||||||||
| Revenues: |
|||||||||||||
| Intellectual property revenues |
$ | 10,399 | $ | 5,987 | $ | 27,431 | $ | 18,037 | |||||
| Other intellectual property revenues |
9,350 | 1,293 | 17,930 | 2,169 | |||||||||
| Service revenues |
3,896 | 1,924 | 9,051 | 6,438 | |||||||||
| Total revenues |
23,645 | 9,204 | 54,412 | 26,644 | |||||||||
| Operating expenses: |
|||||||||||||
| Cost of revenues (1) |
2,610 | 1,849 | 6,497 | 4,890 | |||||||||
| Research and development (1) |
1,490 | 1,997 | 5,566 | 5,702 | |||||||||
| Selling, general and administrative (1) |
4,954 | 2,839 | 13,833 | 7,725 | |||||||||
| Stock-based compensation |
20 | 612 | 206 | 1,008 | |||||||||
| Total operating expenses |
9,074 | 7,297 | 26,102 | 19,325 | |||||||||
| Operating income |
14,571 | 1,907 | 28,310 | 7,319 | |||||||||
| Other income, net |
233 | 69 | 475 | 202 | |||||||||
| Income before taxes |
14,804 | 1,976 | 28,785 | 7,521 | |||||||||
| Provision for income taxes |
999 | 370 | 2,219 | 1,261 | |||||||||
| Net income |
13,805 | 1,606 | 26,566 | 6,260 | |||||||||
| Cumulative preferred stock dividends in arrears |
— | — | — | (6,187 | ) | ||||||||
| Net income attributable to common stockholders |
$ | 13,805 | $ | 1,606 | $ | 26,566 | $ | 73 | |||||
| Basic and diluted net income per share attributable to common stockholders: |
|||||||||||||
| Net income per common share; basic |
$ | 0.34 | $ | 0.23 | $ | 0.67 | $ | 0.01 | |||||
| Net income per common share; diluted |
$ | 0.30 | $ | 0.04 | $ | 0.57 | $ | 0.01 | |||||
| Weighted average number of shares used in per share calculations; basic |
40,448 | 6,870 | 39,482 | 6,851 | |||||||||
| Weighted average number of shares used in per share calculations; diluted |
46,655 | 40,869 | 46,537 | 11,590 | |||||||||
(1) Operating expense line item detail excludes stock-based compensation, as follows: |
|||||||||||||
| Cost of revenues |
$ | — | $ | — | $ | — | $ | 1 | |||||
| Research and development |
5 | 223 | 52 | 373 | |||||||||
| Selling, general and administrative |
15 | 389 | 154 | 634 | |||||||||
| Total |
$ | 20 | $ | 612 | $ | 206 | $ | 1,008 | |||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Nine Months Ended September 30, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 26,566 | $ | 6,260 | ||||
| Adjustments to reconcile income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
726 | 654 | ||||||
| Gain on disposal of fixed assets |
(5 | ) | (7 | ) | ||||
| Stock-based compensation, net |
206 | 1,008 | ||||||
| Unrealized gain and foreign translation |
— | (36 | ) | |||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
(2,942 | ) | (1,169 | ) | ||||
| Other assets |
331 | (729 | ) | |||||
| Accounts payable |
157 | 43 | ||||||
| Accrued liabilities |
1,768 | 1,211 | ||||||
| Deferred revenue |
(172 | ) | 463 | |||||
| Net cash provided by operating activities |
26,635 | 7,698 | ||||||
| Cash flows from investing activities: |
||||||||
| Purchases of property and equipment |
(982 | ) | (1,184 | ) | ||||
| Proceeds from sale of fixed assets |
6 | 14 | ||||||
| Purchases of short-term investments, net |
— | (6,230 | ) | |||||
| Net cash used in investing activities |
(976 | ) | (7,400 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Proceeds from exercise of stock options and warrants, net |
5,907 | 209 | ||||||
| Proceeds from employee stock purchase program |
431 | — | ||||||
| Repurchase of common stock |
— | (269 | ) | |||||
| Repurchase of preferred stock |
— | (1,447 | ) | |||||
| Net cash provided by (used in) financing activities |
6,338 | (1,507 | ) | |||||
| Net increase (decrease) in cash and cash equivalents |
31,997 | (1,209 | ) | |||||
| Cash and cash equivalents at beginning of period |
64,379 | 1,341 | ||||||
| Cash and cash equivalents at end of period |
$ | 96,376 | $ | 132 | ||||
| Supplemental disclosure of non-cash investing and financing activities: |
||||||||
| Deferred stock-based compensation |
$ | — | $ | 90 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004 AND SEPTEMBER 30, 2003
(unaudited)
NOTE 1 – THE COMPANY AND BASIS OF PRESENTATION
Tessera Technologies, Inc. (together with its subsidiaries, Tessera, Inc. and Tessera Global, Ltd., herein referred to as “Tessera” or the “Company”) develops semiconductor packaging technology that meets the demand for miniaturization and increased performance of electronic products. The Company licenses its technology to its customers, enabling them to produce semiconductors that are smaller and faster, and incorporate more features. These semiconductors are utilized in a broad range of electronics products including digital cameras, MP3 players, personal computers, personal digital assistants, video game consoles and wireless phones.
The Company was first incorporated in the state of Delaware in May 1990, as the entity Tessera, Inc. The Company was formed to develop proprietary semiconductor packaging technology and to promote the adoption of this technology in the semiconductor industry. In January 2003, in a corporate reorganization, each outstanding share of each class and series of Tessera Inc.’s capital stock was converted into a share of equivalent class and series of Tessera Technologies, Inc., a newly-formed Delaware corporation. Consequently, Tessera, Inc. became a wholly-owned subsidiary of Tessera Technologies, Inc. Tessera Technologies, Inc. is a non-operating holding company that has no assets other than its shares in Tessera, Inc. The financial position, results of operations and cash flows of Tessera, Inc. are the same as that of Tessera Technologies, Inc. when consolidated with Tessera, Inc. Since this was a reorganization of entities under common control, the financial statements are presented as if Tessera Technologies, Inc. was in existence for all periods presented.
The Company completed its initial public offering (“IPO”) of common stock in November 2003. In the IPO, the Company sold an aggregate of 3,000,000 shares of common stock. The underwriters of the Company’s IPO exercised their over-allotment option to purchase an additional 58,573 shares of common stock from the Company. Net proceeds from the IPO and the exercise of over-allotment option aggregated approximately, $34,590,000.
The accompanying interim unaudited condensed consolidated financial statements as of September 30, 2004 and 2003 and for the three and nine months then ended have been prepared by the Company in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). The amounts as of December 31, 2003 have been derived from the Company’s annual audited financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of the Company and its results of operations and cash flows as of and for the periods