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ARC International’s
1H 2008 Financial Review

      Copyright© 2008. ARC International. All rights reserved.
       Copyri...
Overview of ARC International

      Leader in           • Unique “vertically integrated” portfolio of
       Leader in   ...
ARC’s Strategic Goals
        Top Line Growth to Outpace the
        Top Line Growth to Outpace the
            Semiconduc...
1H 2008 Company Highlights
                          •   Top line revenue up 32%
    Solid Financial
     Solid Financial ...
1H 2008 Financial Results

      Copyright© 2008. ARC International. All rights reserved.
      Copyright© 2008. ARC Inter...
1H 2008 Financial Results
                     •    Revenue up 32% to $18.3 million (£9.3 million)
                     • ...
Healthy Bookings and Backlog

              $ 10.0 M


                                                                   ...
Summary Profit & Loss

(in £ million)          H1 '08            H1 '07 Variance % of Variance

Revenue                   ...
Operating Expenses

                                                                                            % of
(in £...
Net Loss without Sonic Focus

                                         H108                   H107               Change
  ...
Balance Sheet Summary

                                                  June               June      Dec
(in £ million)  ...
Cash Flow Summary
(in £ million)                                                     H1 '08         H1 '07
Opening Cash an...
CEO’s Report

Copyright© 2008. ARC International. All rights reserved.
 Copyright© 2008 ARC International All rights reser...
“Enabling the YouTube Generation”


                Market Opportunity
 Consumer demand for audio, video, and graphics in ...
1H ARC Highlights

• New product innovations
  – Introduced new Energy PRO™ core family
  – Introduced new annual multimed...
Customer Spotlight: ViXS Systems

• ViXS taken a new license for ARC® multimedia
  solution
• ARC’s acquisitions contribut...
License-to-Royalty Model

                          160
                                                                  ...
1H Sonic Focus Highlights

• Sonic Focus licenses award-winning audio
  enhancement software to OEMs globally
• Acquisitio...
Customer Spotlight: HP

• New all-in-one TouchSmart PC “redefines
  home computing”
• High quality audio enabled by Sonic ...
Market Conditions

  Copyright© 2008. ARC International. All rights reserved.
   Copyright© 2008 ARC International All rig...
New Consumer OEM Requirements

More/New Content
 For Consumers

                            OEMs Offering
                ...
ARC’s IP Approach

     Building Integrated Solutions

Application IP
Application IP                 Audio Restoration    ...
ARC’s IP Approach


      Example:
   ARC® AM 401V
Multimedia Subsystem




Application Optimized
                        ...
Summary and Outlook

    Copyright© 2008. ARC International. All rights reserved.
     Copyright© 2008 ARC International A...
Outlook

  Challenging Market Trends to Continue into 2009
  Challenging Market Trends to Continue into 2009



ARC will S...
Disclaimer

The content of this presentation has not been approved by an authorised person within the meaning of the Finan...
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Earnings Presentation to Investors and Analysts

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Transcript of "Earnings Presentation to Investors and Analysts"

  1. 1. ARC International’s 1H 2008 Financial Review Copyright© 2008. ARC International. All rights reserved. Copyright© 2008 ARC International All rights reserved
  2. 2. Overview of ARC International Leader in • Unique “vertically integrated” portfolio of Leader in multimedia products Multimedia Multimedia Solutions • Dual revenue streams from both semiconductor Solutions companies and OEMs • Revenues from contract licenses, maintenance and engineering services, and royalties Intellectual Property Intellectual Property Business Model • Semiconductor company royalties ~3 years after Business Model initial contract license • OEM royalties ~1 year after initial contract license • 148 semiconductor customers globally High Growth Company • Award-winning multimedia products High Growth Company • More than 300 million ARC-Based™ chips shipping annually by customers 2 Copyright© 2008. ARC International. All rights reserved.
  3. 3. ARC’s Strategic Goals Top Line Growth to Outpace the Top Line Growth to Outpace the Semiconductor Industry Semiconductor Industry Higher Value Products to OEMs which Drive Higher Value Products to OEMs which Drive Higher Fees and Royalties Higher Fees and Royalties Close Higher Value Consumer Product Design Wins Close Higher Value Consumer Product Design Wins Continue to Enhance the Company Brand Continue to Enhance the Company Brand Profitability and Beyond Profitability and Beyond 3 Copyright© 2008. ARC International. All rights reserved.
  4. 4. 1H 2008 Company Highlights • Top line revenue up 32% Solid Financial Solid Financial • Licensing revenue up 33% Performance Performance • Royalty revenue up 53% • 16 licensing contracts completed • Adds a new, complementary class of customer and revenue channel Strategic Acquisition of Strategic Acquisition of • Sonic Focus-ready multimedia subsystems already Sonic Focus Completed Sonic Focus Completed introduced • First customer post acquisition shipping higher value royalty-bearing products • Chip ASPs declining despite continued increases in unit shipments; Semi IP industry has been affected Fundamental Shifts in the Fundamental Shifts in the Semiconductor Market • Standalone technologies no longer cost-effective Semiconductor Market approach for differentiating end products • Trends expected to continue into 2009 4 Copyright© 2008. ARC International. All rights reserved.
  5. 5. 1H 2008 Financial Results Copyright© 2008. ARC International. All rights reserved. Copyright© 2008. ARC International. All rights reserved.
  6. 6. 1H 2008 Financial Results • Revenue up 32% to $18.3 million (£9.3 million) • Licensing up 33% to $8.4 million (£4.3 million) Continued Revenue Continued Revenue • Royalties up 53% to $8.3 million (£4.2 million) Growth Growth • Bookings down 30% to $18.5 million • Total backlog down 17% to $17.2 million • Cash position at $33.0 million (£16.6 million) • Operating expenses before acquisition were £10.4 million Operating Expenses Operating Expenses • 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 • 16 contracts completed Ongoing Industry Ongoing Industry Adoption • 148 total customers Adoption • Fourth consecutive quarter of royalty growth 6 Copyright© 2008. ARC International. All rights reserved.
  7. 7. Healthy Bookings and Backlog $ 10.0 M Asia $ 8.0 M $ 30.0 M Europe Contractual $ 25.0 M $ 6.0 M N. (in $ Mil.) Amer. Other Def. $ 20.0 M (in $ Mil.) $ 4.0 M Maint/Train $ 15.0 M $ 10.0 M $ 2.0 M $ 5.0 M $ 0.0 M $ 0.0 M 1H 2H 1H 2H 1H 2H 1H 2H 1H 1H 2H 1H 2H 1H 2H 1H 2H 1H '04 '04 '05 '05 '06 '06 '07 '07 '08 '04 '04 '05 '05 '06 '06 '07 '07 '08 Rolling 12 Month Backlog Bookings 7 Copyright© 2008. ARC International. All rights reserved.
  8. 8. 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% 8 Copyright© 2008. ARC International. All rights reserved.
  9. 9. Operating Expenses % of (in £ million) H1'08 H1'07 Variance 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 9 Copyright© 2008. ARC International. All rights reserved.
  10. 10. Net Loss without Sonic Focus H108 H107 Change £'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% 10 Copyright© 2008. ARC International. All rights reserved.
  11. 11. Balance Sheet Summary June June Dec (in £ million) 2008 2007 2007 NON- CU RRENT ASSETS Intangible Assets 5.9 3.9 4.1 Goodwill 5.4 0.0 3.4 Tangible Assets 1.8 1.3 1.5 Trade & Other Receivables 0.4 0.4 0.4 Investments 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 S Inventory 0.0 0.2 0.1 Trade & Other Receivables 6.1 3.6 5.6 Trade 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 20.9 Long Term Provision / Liabilities (1.2) (0.1) (0.5) NET ASSETS 28.3 30.9 30.2 11 Copyright© 2008. ARC International. All rights reserved.
  12. 12. 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) 12 Copyright© 2008. ARC International. All rights reserved.
  13. 13. CEO’s Report Copyright© 2008. ARC International. All rights reserved. Copyright© 2008 ARC International All rights reserved
  14. 14. “Enabling the YouTube Generation” Market Opportunity Consumer demand for audio, video, and graphics in power efficient devices will drive sales of billions of chips needing programmable multimedia subsystems. ARC’s Mission ARC 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. 14 Copyright© 2008. ARC International. All rights reserved.
  15. 15. 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 & HDTV Multimedia & Applications Flash Applications Security Applications 15 Copyright© 2008. ARC International. All rights reserved.
  16. 16. 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 HDTV by 2012 • ARC-Based™ XCode™ chip family already adopted by major OEMs Personal Video Personal Video Personal Computers Personal Computers Advanced DTVs Advanced DTVs Recorders Recorders Copyright© 2008. ARC International. All rights reserved. 16
  17. 17. License-to-Royalty Model 160 148 141 144 140 137 127 No. of Unique Licensees 120 114 106 63 New 100 98 Licensees 85 88 82 78 80 72 60 Current 55 60 Royalties 41 From Legacy 40 26 Customers 20 16 0 '97 - 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 '08 '99 ~3 years from license to royalty 17 Copyright© 2008. ARC International. All rights reserved.
  18. 18. 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 18 Copyright© 2008. ARC International. All rights reserved.
  19. 19. Customer Spotlight: HP • New all-in-one TouchSmart PC “redefines home computing” • High quality audio enabled by Sonic Focus enhancement technology • Higher value royalty revenue Industry Reviews: Industry Reviews: “Opens the door to a new “Opens the door to a new way for consumers to way for consumers to engage with their content” engage with their content” “Good sound quality despite “Good sound quality despite not having a subwoofer” not having a subwoofer” “I absolutely love “I absolutely love this piece of equipment” this piece of equipment” 19 Copyright© 2008. ARC International. All rights reserved.
  20. 20. Market Conditions Copyright© 2008. ARC International. All rights reserved. Copyright© 2008 ARC International All rights reserved
  21. 21. New Consumer OEM Requirements More/New Content For Consumers OEMs Offering Differentiated Devices Targeting Consumers “Digital Lifestyle” Chip Companies Providing Solutions Optimized to a Specific Application Standalone Technologies No Longer Offer Cost-Effective Advantages 21 Copyright© 2008. ARC International. All rights reserved.
  22. 22. ARC’s IP Approach Building Integrated Solutions Application IP Application IP Audio Restoration Surround Sound Multi-Channel Stereo Expansion Video Encode Imaging Encode Audio Encode Software IP Software IP Video Decode Imaging Decode Audio Decode MPlayer Network Stacks Compilers Modelers Configuration Management Development Tools Development Tools Debuggers Simulators Operating Profilers IDE Systems 128-bit Motion Entropy SIMD Estimation Encode Hardware IP Hardware IP 32-bit CPU/DSP 16-bit DMA Entropy CPU/DSP Engines Decode 22 Copyright© 2008. ARC International. All rights reserved.
  23. 23. ARC’s IP Approach Example: ARC® AM 401V Multimedia Subsystem Application Optimized “Product of the Year” Enables Differentiation “Editors Choice” Award Based Upon Award- Winning Technology Twice Winner of “Partner of the Year” 23 Copyright© 2008. ARC International. All rights reserved.
  24. 24. Summary and Outlook Copyright© 2008. ARC International. All rights reserved. Copyright© 2008 ARC International All rights reserved
  25. 25. Outlook Challenging Market Trends to Continue into 2009 Challenging Market Trends to Continue into 2009 ARC will Strengthen its Ability to Deliver Higher Value ARC will Strengthen its Ability to Deliver Higher Value Multimedia Solutions Multimedia Solutions ARC will Look for Additional Cost-Effective Ways ARC will Look for Additional Cost-Effective Ways To Realize Acquisition Synergies To Realize Acquisition Synergies ARC will Extend its Revenue Growth and ARC will Extend its Revenue Growth and Transition to Profitability Transition to Profitability 25 Copyright© 2008. ARC International. All rights reserved.
  26. 26. 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. The information in this presentation is subject to updating, revision and amendment. The information in this presentation, which includes certain information drawn from public sources does not purport to be comprehensive and has not been independently verified. This presentation does not constitute or form part of any offer or invitation to sell, or any solicitation of any offer to purchase or subscribe for or otherwise acquire, any securities in ARC International plc (the "Company") in any jurisdiction or any other body corporation or an invitation or an inducement to engage in investment activity under section 21 of the Financial Services and Markets Act 2000, nor shall it or any part of it form the basis of or be relied on in connection with any contract therefore. This presentation does not constitute an invitation to effect any transaction with the Company or to make use of any services provided by the Company. No reliance may be placed for any purpose whatsoever on the information contained in this presentation or any assumptions made as to its completeness. No representation or warranty, express or implied, is given by the Company, any of its subsidiaries or any of its advisers, officers, employees or agents, as to the accuracy, reliability or completeness of the information or opinions contained in this presentation or in any revision of the presentation or of any other written or oral information made or to be made available to any interested party or its advisers and, save in the case of fraud, no responsibility or liability is accepted (and all such liability is hereby excluded for any such information or opinions). No liability is accepted by any of them for any such information or opinions (which should not be relied upon) and no responsibility is accepted for any errors, misstatements in or omissions from this presentation or for any loss howsoever arising, directly or indirectly, from any use of this presentation or its contents. The information and opinions contained in this presentation are provided as at the date of this presentation and are subject to change without notice. In the United Kingdom, this presentation is only being distributed to persons who are reasonably believed to be persons who fall within Articles 19 (1) and 19 (5) (investment professionals) or 49 (2) (High net worth Companies etc.) of The Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (“Financial Promotion Order”) or to other persons to whom this presentation may otherwise be lawfully distributed. Persons who do not fall within any of these definitions should return this presentation immediately to the Company and should not stay for the remainder of the presentation, and in any event, must not act or rely upon the information contained in this presentation. By staying for the remainder of this presentation, each person is deemed to confirm, warrant and represent that they fall under one of the Articles set out above. The contents of this presentation must not be copied or distributed by recipients and its contents are confidential. No recipient of the information in this presentation should deal in or arrange any dealing in or otherwise base any behaviour (including any action or inaction) in relation to any securities to which this document relates (including behaviour referred to in section 118(6) of the Financial Services and Markets Act 2000) which would or might constitute market abuse (as defined in section 118 of the Financial Services and Markets Act 2000). By accepting this presentation you agree to be bound by the foregoing provisions. August 2008 26 Copyright© 2008. ARC International. All rights reserved.
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