Wind River Systems-Conference Call Notes (Apologies for typos. These are notes after all!)
Safe harbor statement
"Outstanding Quarter"-Significant accomplishments--
Initiatives
1. Closed integration with ISI-- Building new org. Aligning products, technologies, operational groups,sales,
2. Complete announcement recently--Webcast available on this. Focus is on product innovation, to drive into market opportunities see..
3. New Business units
4. Brought together products into single platform unit.
5. Networking, Epilogue benefited
6. Consumer business unit created-Internet appliances. Digital TV (from ISI)
7. Another new unit--Automotive-TDI-Transportation, defense and industrial. Substantial opportunity.
8. Services-Combined. Business opp and strategic asset. Aligning to better support customers.
9. Inhouse/proprietary OS are 75% of all processors today. Tornado-based tools strategy will address.
This realignment last 8-10 weeks
Moved to focus on customers. Global account organization (6 of 15 established) Customer support and satisfaction is top priority "for me". Consolidated and aligned sales forces. 500 people globally. On the street in combined company.
Transparency-Will report going forward (from Q1)--
Market share on 32-bit platforms (and up-ed).
Run-time royalties as it effects revenues
Number of seats under maintenance. Indication of number of people designing products using our technology.
Bookings and Design wins-very strong for quarter
Bookings exceeded revenues in dollars and percent growth Strong signal from market that we were doing was right.
Financials-
53.4 MM--36% growth yoy, Exceeds Q3, Q2 and Q1.
81% gross margin (down slightly from 82% in Q3)
R%D-50% higher than Q4 (16% of revenue-up on focus on new products)
S&M (35% down from 36%)
GA-up from prior-4 Reasons-
1. Legal up $500,000. Patent applications. Filed for 6 patents. Focus on IPR.
2. 2. 335K on Y2K. Got through without hitch
3. $200,000 G&A-Human capital for M&A strategy
4. $200,000--Oracle ERP implementation
DSO-a bit disappointing. Uptick historically. Main cause is Oracle ERP implementation. Difficulty in invoicing--out 6 weeks late.
Balance Sheet strong
Head count up 37% 220 employees.
I2O Rev-Intel $1.2 MM revenue Up $139%.
Support services--$1.9MM Q4
Integration faster than expected
Meeting last week positive
Design wins positive
Focus on building a billion-dollar company
Jerry Sidler opening statement-
Dramatically different company. Market at inflection point. Internet changing. Connecting people and things. Lead connected smart devices. Moving to become undisputed market leader. We've taken off the brakes. Accelerated introduction of new products. Focus now not on earnings growth. Now on revenue growth. New Business units with vitality of startups, and infrastructure of an unquestioned market leader. New CEO with experience in complex organization, with mandate to grow top line.
New Products--
Tornado 2 shipped on time to enthusieastic
Tornado for managed switches
Acquired Exact and Routerware-brought in protocols, become core of Wind River Networks
Epilogue will help with that as well
ISI merger has been exhilirating-All resources we need-Financial,
"Acquiring capabilities"-Creating new kind of company-Creates unique channel.
Clear product road map has come out of that (See separate webcast).
Roadmap leads to Unified platform, and protected, fault-tolerant. Customers are enthusiastic. We have protected their investments. Very low attrition. Another result is that revenue growth has re-accelerated. Market has been ready for this consolidation for some time.
Our strengths-helping our customers build custom platforms. Camera or Printer or Fax machine. Very different from people who are entering this world from the desktop.
We are an order of magnitude larger than nearest pure-play competitor.
Enhanced by EST acquisition, just announced, unparalleled value to offer.
Emulators and compilers, . . , smart devices . . , Solution level services. Leading to unique value proposition.
Opportunity with EST is an outstanding opportunity. Very optimistic on that.
Question/Answer Period
Jennifer Smith-
Line of Credit purpose? Movement of funds in Japan. Tax strategy between here and japan. Clearly don't need the cash.
Change in selling margin effecting DSO? Not different. Some larger orders. Mix roughly same. Solely ERP glitch that caused DSO's to go up.
Linux OS? Not nearly the threat some people thought it would be. Msft "always out there" but as of today we are competing quite effectively. Few Linux-based embedded designs. Linux inroads are on Intel or PC platforms, single platform-resulting because of single common hardware platform that msft mandated. ("The only reason Linux can exist is because Microsoft mandated a single hardware platform"). Embedded os's are different. Divergences between Linux apps happening rapidly. Looking at it hard. Will do Linux host platform. We have used open source software for years. Our product is to do do what is needed to get customer what he needs to get an application date. If Linux adds value, it will be needed, but seems that it will be a small part.
Changes in competitive front? Biggest competitive threat?
Right to assume 30% plus type growth going forward.
Mr. Privat Petkoff--
ISI announcement-Has sales cycle shortened? Was ISI's growth comparable to WIND's? We both moved ahead. Things were strong. Too early to say if cycle has shortened. Continued to get strong orders both large and small.
Can you talk about consolidation and savings? Combined company 1,600 employees. Objective to retain as many as possible. Annual turnover 12%. Substantially lower than ISI used to do. Only slightly higher than WIND. Eliminating about 40 positions (Presidents, CFO's, Country managers who are redundant)-will save several millions of dollars.
Margins sustainable? Need to invest in G&A and infrastructure is imperative for M&A strategy. ISI margins were slightly narrower than wind's. 8K will provide consolidated numbers. There will be efficiencies.
William Anderson--
Competitively ready? Yes, but that doesn't mean we will stop acquisitions. Continuous stream of technologies that we will want to talk to.
How comfortable with Y2000 revenue projections? 30% guidance good.
George Chandler-
Focusing on investments for future vs necessarily the bottom line-Trying to increase 30%? Will operational expenses be higher? Focus is on top line. Won't ignore bottom line. Investment Opportunities Consumer business ("significant"). Professional services business ("strategic opportunity"). On Bottom line-One of the things that differentiates Wind River from some of competitors, is that we have balanced business profile differentiates us. We won't forsake that. Some segments are seeing 100% plus growth. That's our primary mission. Plan on keeping company profitable. Combined will provide efficiencies.
Jennifer Smith-
Sales force-Vision is that sales force will be single point of contact. From beginning to end. Their job will be to coordinate resources. Some sales specialists. Each business will have technical sales resources to aid sales specialists. Detailed technical support. Ensure simplified orchestration of resources of company.
Fred Love-
Revenue growth-How is industry growing? Embedded RTOS-Lots of different segments. Dataquest says internet (routers, switches, etc) doubling and tripling and quadrupling. Over next three years. Trends are there for dramatic growth. And devices that connect to it. 32 bit and above embedded processors. To grow 30% per year foreseeable future. Markets targeted to those areas.
Mr. Aja-
Surprises from merger? How well organizations aligned. Further and faster than expected. Last week 500 people. We had consolidated combined price list. Business units formed. How well people have come together. How well industry and customers have reacted.
Palm offering? Change valuation in industry? At the end of the day a customer needs to get a [product done. Palm not a competitor. Licensed to something like 5 customers, only. We announced 1000 design wins in 4Q, regardless of market cap. Won't have effect Wind. Value chain cannot be bought simply by market cap. (Comment by Aja-Importance of Post PC era).
David Flaxman--
What is Wind going to do to increase visibility? (in Kodak cameras, DSL modems, etc.) Components pulled together from ISI and Wind River. Signage going up. Some advertising. Several business publications articles coming up, now that different size and market cap has been reached. That will help. Other opportunities also being worked on. Road show coming up at end of month will increase visibility among investors.
Mr. Chowdry-Saw Chicago exhibit. 50 devices being displayed. On design wins, what revenues they will produce? Lucent relationship announced for Lucent VOIP chip. They want to deliver complete solution. As complexity increases customers want complete solution. Includes Tornado in seat, so customer can open up box and immediately begin to work on the product. We look at LU as value added reseller. Lucent will pay directly. Cisco (cable modems). Flashpoint (digital cameras) HP (printers) provide other examples.
Also, average revenue per deal is rising.
Fred Love-
Partners Trade Winds page on web site-Do all those products have some Wind involved in the product? Partner program is called Wind Link. 500 companies are in program. They put their products together with Wind River's. They go through certification process. Then they will be listed on web site. They will be invited to co-participate in trade shows. Represent Value Chain. Customer can look to those companies for value added.
Mr. PJ Singh-
Expenses on G&A line-Do you expect that they will recur? Only cost that won't occur again is the Y2K. IPR and patents will persist. ERP will be replace by sales info, call tracking types of purchases. Efficiencies will occur as we get larger.
Revenue Growth seasonal? Yes. Seasonal buying patterns and sales forces incentives. Expect that to persist at least in the near term.
Tom set growth target YOY of 30%, and we have embraced it.
(Closing comments. Next conference call when 8K is ready.) |
