Magma reported revenue of $28.8 million for the period, just above the top of its guidance. Income from term licenses constituted more than 90% of total revenue, and the company generated $5.7 million in cash during the period. It has been ten months since the company realigned its structure and operating focus. Although the road to GAAP profitability is hard, especially in the present economic climate, and not yet completed, progress is notable and steady. Overall Magma is now a healthier, albeit smaller, company than it was a year ago.

Rajeev Madhavan, Chairman and CEO, and Roy Jewell, President and COO, reported on the state of the company and its prospects for the immediate future.

Magma has focused its operations around four products: Talus, Quartz, Titan, and Finesim. All four products have improved their positions in their respective market segments during the quarter. Talus is making inroads in the very competitive digital implementation market. it has surpassed the 50 tapeouts figure at the 40nm node and some of its users are preparing to use it at the 32/28nm node. The product is an official component of the TSMC Reference Flow 10.0.

Quartz competes in the physical verification market segment. its acceptance and use is increasing with leading companies like NVIDIA using it in both 65nm and 40nm designs. The product is also being used for memory designs.

Titan is a an analog design implementation environment that offers both simulation and schematic driven layout capabilities. TSMC qualified it for its 65nm Interoperable Process Design Kit, and it has been adopted by a leading FPGA vendor for flash technology design.

Finesim is a SPICE equivalent circuit simulator that is finding acceptance by a number of customers including TLI.

I found it interesting that Magma is expanding into the solar technology market, a segment so far ignored by its direct competitors. Its new Yield Manager Solar product has been developed in cooperation with Orion Metrology and will be deployed to reduce solar fab inefficiencies to improve yield for solar panel manufacturing a fast growing market especially in China.

Financial Analysis

Magma's balance sheet shows that during the period reported the company improved its cash position by $3.9 million and its total current assets by $5.6 million. The balance sheet shows that Magma converted all of its long-term investments to short-term investments, thus improving its liquidity. Net accounts receivable decreased by $15.3 million and constitute approximately 40% of the revenue projected for the 2Q2010. Total assets have decreased by $15 million from the previous quarter.

Looking at the company's liabilities one notices that Accrued Expenses have decreased by almost $6 million and that, excluding the item of Convertible notes, total current liabilities decreased by $13.8 million. Convertible notes, which in the previous quarter appeared under Long Term Liabilities are coming due and thus have been moved under the Short Term section of the Balance Sheet. The company has an outstanding offer expiring on September 14, to convert the notes due May 15, 2010 with notes due in 2014. You can read more about this here.

Turning to the Condensed Consolidated Statement on Operation, Total Revenue, compared with the same period the previous year, shows a decrease of $16.9 million, a figure that may give pause. Yet, Gross Profit only decreased by 9.4 million indicating a increase in productivity and efficiency by the company. This fact is further underlined by looking at the ratio of cost of revenue to total revenue. In the 1Q2009 period, the ratio was 26.9% while the just concluded period shows the ratio to be only 16.6%, a significant change.

Refocusing the company to address only key product areas also resulted in Operating Expenses savings. Research and Development expenses were 38.8% of Revenue, while Sales and Marketing expenses amounted to 33.6%. All operating expense categories have declined from the 1Q2009 period although Magma needs to still improve its operations. One year ago results showed a loss of $13.9 million or 41.6% of gross profit, while this period the loss was $2.3 million or 9.5%.

Reorganizing and refocusing has enabled the company to improve its non-GAAP performance over the equivalent period a year ago by $0.01 per share, in spite of the fact that there are 4,457,000 more outstanding shares.