Earnings Presentation to Investors and Analysts
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Transcript of Earnings Presentation to Investors and Analysts
Copyright© 2008 ARC International All rights reservedCopyright© 2008. ARC International. All rights reserved.
ARC International’s 1H 2008 Financial Review
ARC International’s 1H 2008 Financial Review
2Copyright© 2008. ARC International. All rights reserved.
Overview of ARC International
• Revenues from contract licenses, maintenance and engineering services, and royalties
• Semiconductor company royalties ~3 years afterinitial contract license
• OEM royalties ~1 year after initial contract license
• Unique “vertically integrated” portfolio of multimedia products
• Dual revenue streams from both semiconductor companies and OEMs
• 148 semiconductor customers globally
• Award-winning multimedia products
• More than 300 million ARC-Based™ chips shipping annually by customers
Leader inMultimediaSolutions
Leader inMultimediaSolutions
Intellectual PropertyBusiness Model
Intellectual PropertyBusiness Model
High Growth CompanyHigh Growth Company
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ARC’s Strategic Goals
Top Line Growth to Outpace the Semiconductor Industry
Top Line Growth to Outpace the Semiconductor Industry
Higher Value Products to OEMs which DriveHigher Fees and Royalties
Higher Value Products to OEMs which DriveHigher Fees and Royalties
Close Higher Value Consumer Product Design WinsClose Higher Value Consumer Product Design Wins
Continue to Enhance the Company BrandContinue to Enhance the Company Brand
Profitability and BeyondProfitability and Beyond
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1H 2008 Company Highlights
• Top line revenue up 32%
• Licensing revenue up 33%
• Royalty revenue up 53%
• 16 licensing contracts completed
• Adds a new, complementary class of customer and revenue channel
• Sonic Focus-ready multimedia subsystems already introduced
• First customer post acquisition shipping higher value royalty-bearing products
Solid Financial Performance
Solid Financial Performance
Strategic Acquisition ofSonic Focus Completed
Strategic Acquisition ofSonic Focus Completed
• Chip ASPs declining despite continued increases in unit shipments; Semi IP industry has been affected
• Standalone technologies no longer cost-effective approach for differentiating end products
• Trends expected to continue into 2009
Fundamental Shifts in theSemiconductor Market
Fundamental Shifts in theSemiconductor Market
Copyright© 2008. ARC International. All rights reserved.
1H 2008 Financial Results1H 2008 Financial Results
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1H 2008 Financial Results
• 16 contracts completed
• 148 total customers
• Fourth consecutive quarter of royalty growth
• Operating expenses before acquisition were £10.4 million
• Incremental expense from acquired company was£0.3 million
• Net loss without acquisition remained flat at £1.5 million
– With acquisition, net loss at £2.0 million
• Revenue up 32% to $18.3 million (£9.3 million)
• Licensing up 33% to $8.4 million (£4.3 million)
• Royalties up 53% to $8.3 million (£4.2 million)
• Bookings down 30% to $18.5 million
• Total backlog down 17% to $17.2 million
• Cash position at $33.0 million (£16.6 million)
Continued RevenueGrowth
Continued RevenueGrowth
Operating ExpensesOperating Expenses
Ongoing IndustryAdoption
Ongoing IndustryAdoption
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Healthy Bookings and Backlog
$ 0.0 M
$ 2.0 M
$ 4.0 M
$ 6.0 M
$ 8.0 M
$ 10.0 M
1H'04
2H'04
1H'05
2H'05
1H'06
2H'06
1H'07
2H'07
1H'08
(in $
Mil.
)
Contractual
Other Def.
Maint/Train
$ 0.0 M
$ 5.0 M
$ 10.0 M
$ 15.0 M
$ 20.0 M
$ 25.0 M
$ 30.0 M
1H'04
2H'04
1H'05
2H'05
1H'06
2H'06
1H'07
2H'07
1H'08
(in $
Mil.
)
Asia
Europe
N.Amer.
Rolling 12 Month Backlog Bookings
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Summary Profit & Loss
(in £ million) H1 '08 H1 '07 Variance % of Variance
Revenue 9.3 7.0 2.3 32%
Gross Margin % 92% 90% 2% 2 ppts
Loss - E B I T D A (1.5) (1.8) 0.3 19%
Loss - E B I T (2.9) (2.4) (0.5) -20%
Net Loss (2.0) (1.5) (0.5) -34%
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Operating Expenses
(in £ million) H1'08 H1'07 Variance% of
Variance
Cost of Revenue 0.7 0.7 (0.0) -1%
R & D Exp 4.5 3.4 1.1 33%
Sales& Marketing Exp 3.1 2.7 0.4 12%
General & Corporate Exp 2.3 1.8 0.5 25%
Share Option Exp 0.2 0.2 (0.0) -17%
OPER EXP + COS 10.7 8.8 1.9 22%
TOTAL EXPENSES* 12.1 9.4 2.7 29%
* Total expenses include depreciation & amortization expenses and a share of loss in associated company
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Net Loss without Sonic Focus
H108 H107
£'000 £'000 £'000 %
Net Loss (2,012) (1,543) (469) -30%
Sonic Focus
Revenue 38 38
Expense
Engineering (314) (314)
Admin & facilities (31) (31)
Dep'n and amort (159) (159)
Net Loss (466) (466)
Net Loss without Sonic Focus (1,546) (1,543) (3) 0%
Change
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Balance Sheet Summary
(in £ million)June2008
June2007
Dec2007
N O N - C U R R E N T A S S E T SIntangible Assets 5.9 3.9 4.1Goodwill 5.4 0.0 3.4Tangible Assets 1.8 1.3 1.5Trade & Other Receivables 0.4 0.4 0.4Investments 0.4 0.0 0.4
Total Non-Current Assets 13.9 5.6 9.9
NET C U R R E N T A S S E T SInventory 0.0 0.2 0.1Trade & Other Receivables 6.1 3.6 5.6Trade Payables (1.2) (0.2) (0.7)Other Payables (4.3) (2.0) (3.9)Deferred Revenue (1.4) (2.0) (1.2)Short Term Provision (0.2) (0.2) (0.2)Cash & Short Term Investments 16.6 26.0 21.2
Total Net Current Assets 15.6 25.5 20.9Long Term Provision / Liabilities (1.2) (0.1) (0.5)
N E T A S S E T S 28.3 30.9 30.2
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Cash Flow Summary
(in £ million) H1 '08 H1 '07
Opening Cash and Short-term Investments 21.2 31.6
Net Cash Outflow from Ops. (3.0) (2.9)
Net Interest & Taxes 1.8 1.5
Cash from (used by) Operating Activities (1.1) (1.4)
Capital Expenses (1.4) (1.2)
Acquisitions (2.0) (3.4)
Issue of Ord. Share Cap. 0.0 0.4
Exchange (0.1) 0.0
Closing Cash and Short-term Investments 16.6 26.0
CASH INFLOW/(OUTFLOW) (4.7) (5.6)
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CEO’s ReportCEO’s Report
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Market OpportunityConsumer demand for audio, video, and graphics in power efficient devices will drive sales of billions of chips needing
programmable multimedia subsystems.
ARC’s MissionARC will be the leading provider of multimedia IP to accelerate development of personalized media-centric chips by licensing
our patented IP based upon configurable technology.
“Enabling the YouTube Generation”
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1H ARC Highlights
• New product innovations
– Introduced new Energy PRO™ core family
– Introduced new annual multimedia codec library subscriptions
– ARC® Video Subsystem family supports RealVideo format
• 16 new customer agreements for high-growth applications
Mobile & HDTVApplications Flash Applications
Multimedia & Security Applications
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Customer Spotlight: ViXS Systems
• ViXS taken a new license for ARC® multimedia solution
• ARC’s acquisitions contributed to winning the new agreement
• New license enables ViXS chips to deliver multiple HD video streams
• Analysts predict 200M households to have HDTVby 2012
• ARC-Based™ XCode™ chip family already adopted by major OEMs
Advanced DTVsAdvanced DTVsPersonal ComputersPersonal ComputersPersonal VideoRecorders
Personal VideoRecorders
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License-to-Royalty Model
1626
41
5560
7278 82 85 88
98106
114
127
137 141 144 148
0
20
40
60
80
100
120
140
160
'97 -'99
1H '00 2H '00 1H '01 2H '01 1H '02 2H '02 1H '03 2H '03 1H '04 2H '04 1H '05 2H '05 1H '06 2H '06 1H '07 2H '07 1H '0 8
No.
of U
niqu
e Li
cens
ees
Current Royalties
From Legacy Customers
63 New Licensees
~3 years from license to royalty
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1H Sonic Focus Highlights
• Sonic Focus licenses award-winning audio enhancement software to OEMs globally
• Acquisition of Sonic Focus adds new complementary class of customers and revenue channel
• Sonic Focus integrated; strong industry interest– First Sonic Focus-ready multimedia subsystems introduced– Significant interest by OEMs creating PCs and laptops,
handsets, and Digital TVs– Target customers realize Sonic Focus technology is a key
differentiator for consumer electronics products• Also see how Sonic Focus technology can reduce BOM costs
• OEMs underscoring how Sonic Focus technology delivers higher quality audio compared to competitive solutions
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Customer Spotlight: HP
• New all-in-one TouchSmart PC “redefines home computing”
• High quality audio enabled by Sonic Focus enhancement technology
• Higher value royalty revenueIndustry Reviews:
“Opens the door to a new way for consumers to
engage with their content”
“Good sound quality despite not having a subwoofer”
“I absolutely love this piece of equipment”
Industry Reviews:“Opens the door to a new way for consumers to
engage with their content”
“Good sound quality despite not having a subwoofer”
“I absolutely love this piece of equipment”
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Market ConditionsMarket Conditions
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More/New ContentFor Consumers
OEMs OfferingDifferentiated DevicesTargeting Consumers
“Digital Lifestyle”
Chip CompaniesProviding Solutions
Optimized to a Specific Application
New Consumer OEM Requirements
Standalone Technologies No Longer OfferCost-Effective Advantages
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ARC’s IP Approach
Hardware IPHardware IP16-bitCPU/DSP
32-bitCPU/DSP
128-bitSIMD
EntropyDecode
EntropyEncode
MotionEstimation
DMAEngines
Software IPSoftware IP
Development ToolsDevelopment Tools
Imaging Decode
Imaging Encode
Audio Decode
Audio Encode
Video Decode
Video Encode
Network StacksMPlayer
Modelers
Profilers
Simulators
ConfigurationManagement
IDE
Debuggers
Compilers
OperatingSystems
Building Integrated Solutions
Application IPApplication IP Surround SoundMulti-ChannelStereo Expansion
Audio Restoration
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Example:ARC® AM 401V
Multimedia Subsystem
ARC’s IP Approach
Application Optimized
Enables Differentiation
Based Upon Award-Winning Technology
“Product of the Year”
“Editors Choice” Award
Twice Winner of “Partner of the Year”
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Summary and OutlookSummary and Outlook
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Outlook
Challenging Market Trends to Continue into 2009Challenging Market Trends to Continue into 2009
ARC will Strengthen its Ability to Deliver Higher Val ueMultimedia Solutions
ARC will Strengthen its Ability to Deliver Higher Val ueMultimedia Solutions
ARC will Look for Additional Cost-Effective WaysTo Realize Acquisition Synergies
ARC will Look for Additional Cost-Effective WaysTo Realize Acquisition Synergies
ARC will Extend its Revenue Growth and Transition to Profitability
ARC will Extend its Revenue Growth and Transition to Profitability
26Copyright© 2008. ARC International. All rights reserved.
Disclaimer
The content of this presentation has not been approved by an authorised person within the meaning of the Financial Services and Markets Act 2000 (“FSMA”). Reliance on the information contained in this presentation for the purposes of engaging in any investment activity may expose the investor to a significant risk of losing all of the property or assets invested. Any person who is in any doubt about the investment to which this presentation relates should consult a person duly authorised for the purposes of FSMA who specialises in the acquisition of shares and other securities.
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August 2008