Good morning. And welcome to the MoSys Fourth Quarter 2014 Financial Results Conference Call. At this time, all participants are in a listen-only mode. At the conclusion of today’s conference call, instructions will be given for the question-and-answer session. [Operator Instructions] As a reminder, this conference call is being recorded today, Friday, January 30, 2015. I would now like to turn the call to Beverly Twing of Shelton Group Investor Relations. Beverly, please go ahead.

Thank you. Good morning, everyone. Joining me on today's call are Len Perham, MoSys' President and Chief Executive Officer; and Jim Sullivan, Chief Financial Officer. Before we begin today's discussion, I would like to remind everyone this conference call will contain forward-looking statements based on certain assumptions and expectations of future events that are subject to risks and uncertainties. Such statements are made in reliance upon the Safe Harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which include, but are not limited to, benefits and performances expected from use of the company's embedded memory and interface technologies and ICs; expectations concerning the company's execution and results; expected benefits of the company's ICs; product development, achievement of IC design wins; timing of shipments of the company's ICs; predictions concerning the growth of the company's business and future markets; and business prospects, strategies, objectives, expectations or beliefs. Forward-looking statements made during this call are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Additional information concerning factors that could cause actual results to differ materially from any forward-looking statements made during this call are contained in the company's most recent reports on Form 10-K and Form 10-Q filed with the Securities and Exchange Commission, in particular in the section titled Risk Factors and in other reports that the company files from time to time with the Securities and Exchange Commission. MoSys undertakes no obligation to publicly update any forward-looking statement for any reason except as required by law even as new information becomes available or other events occur in the future. Thank you for your attention. I will now turn the call over to Mr. Len Perham, Chief Executive Officer of MoSys. Please go ahead.

Good morning, everyone. Thank you for joining us today. I'll begin today’s call with a review of our progress in 2014 and then address recent business highlights, provide some comments on our goals to 2015 and after that, Jim, will discuss our financial results. Then we will open the call to your questions. Let's begin with a quick look back at 2014. On the design front, we finished the year quite strongly as the fourth quarter was the best design win quarter we've ever had. Best design quarter we've ever had since we took the company back into the fabless semiconductor business. With this strong finish, we came very close to achieving our goal of doubling the number of design wins that secured in 2014 compared to the number of design wins secured in 2013, and finished the year with a total of approximately 25 additional design wins. It was quite an exciting finished to the year. On our last call I expressed concern about the industry slowdown in the telecommunications and networking markets, which had negatively impacted our design win activity. I was pleased to see the rebound in the fourth quarter, as our sales team closed a significant number of design wins that we had in some cases have been working on for a fair likely time. Sadly in a significant cost slowdown in the middle of the year, cost of scenario under the curve, cost us fair bit of money off of our balance sheet. However, indications are that those headwinds now behind us. While 2014 went well on the design win front. Unfortunately, we did not see the revenue ramp we’d expected. This is primarily result of program delays experienced by our initial BE-1 at customers, perhaps some of the resulting from the industry slowdown and…

Thank you, Len and good morning everyone. During the course of my comments, I will make several references to non-GAAP numbers. Unless otherwise indicated, each reference will be to an amount that excludes stock-based compensation expense and intangible asset amortization. These non-GAAP financial measures and a reconciliation of the differences between them and comparable GAAP measures are presented in our press release and related current report on Form 8-K, which was filed with the Securities and Exchange Commission today and can be found at the Investor Relations section of our website. As a reminder, we are reporting our IC product revenues separately from our IP licensing and royalty revenue, which is reported as a combined amount. Prior period amounts have been reclassified to conform with this presentation. Now let's review our fourth quarter financial results. Total revenue was $1.1 million, compared with $1.1 million in the third quarter of 2014 and $1 million in the fourth quarter of 2013. Product revenue from the sale of our integrated circuits was $0.3 million in the fourth quarter of 2014, compared with $0.4 million in the previous quarter and $0.2 million in the year ago period. Royalty and other revenue for the fourth quarter of 2014 was $0.8 million, compared with $0.7 million in the previous quarter and $0.8 million in the year ago period. Royalty and other revenues primarily comprised of royalties received from semiconductor customers as products include our IP, as well as small amounts of revenue generated from mainly support services related to legacy IP licensed agreements. GAAP gross margin increased to 76% from 61% in the third quarter of 2014 and compared with 78% in the year ago quarter. The sequential increase was due to a higher mix of royalty and other revenue, which carry higher gross margins. In…

[Operator Instructions] Your first question comes from the line of Gary Mobley from Benchmark.

Good morning, guys. Gary Mobley, Benchmark.

Hey. Good morning.

I want to start with some questions regarding the EZchip relationship. I’m wondering how deeply this relationship may run and will this -- will a customer ultimately have the choice of utilizing Bandwidth Engine 3 alongside EZchip's NPS or is this more of a pull along relationship whereby EZchip, EZchip's NPS, sort of pulls along design wins for MOSY?

I’m not totally sure I understand the question Gary, but let me make an attempt to answer it. If I don’t, just come back with a question again. Basically, the press release indicates that there is a substantial increase in available Bandwidth, when NPS is supported by one or more than one Bandwidth Engine 3s. So the implication of that is, as the customer wants to go to higher and higher levels of performance, and he is talking of course in great debt with EZchip about this powerful processor, NPS or SoC then as they go up the performance level, there will come a time when they might add in a BE-3 or they may add in more than one. So it’s really that the customers going to be driving for some level of performance. And it’s going to get to the point that in order to achieve that level of performance, it’s better done by having one or more BE-3s running alongside NPS. So, I think that, as I see it, EZchip is negotiating a design win for their -- this very, very powerful, this revolutionary new network processor of theirs that they will just, in order to meet spec, they will incorporate this into the design. So to that end, we don’t intend to sell them the chip and have them resell. The partnership is that they would do a reference sell. We’ll be responsible with delivering the customer and maintain the quality and blah, blah, blah. But on the system -- in the system architecture, if you will, the [indiscernible] so that their performance goals can be achieved. They will have a great deal to do with it. So, consequently, I guess in summary I would say, the higher performance customers that use EZchip’s NPC are going to be driven in direction of using one or more Bandwidth Engines. And if you take a look at the history of that company, they are in the business of building superfast, super powerful stuff. And the majority of their big customers go to the highest levels of performance, which should bode well for us. So, hopefully, that answers your question.

That was helpful. Thanks Len. How many versions of Bandwidth Engine 3 will there be ultimately? And how many of those versions will be taped out in March quarter, just trying to get a sense of the R&D in the March quarter?

Actually, Bandwidth Engine 3, we only have to run one tape-out right now. And we would tell you, if you are talking to us and very likely EZchip would say the same thing that one of the powers of BE-3 is it’s capable of receiving a lot of intelligent offload. That is stuff that the packet processing engine is not so good at doing, you can send over and have it done at Bandwidth Engine 3. And it will implement the solution to minimize traffic across the critical interface. It’s a highly configurable part, configurable by the customer. So we have several products coming off from it. But the fact of the matter is it’s also configurable in the hands of a customer. So, I don’t -- in the foreseeable future, I don’t see any reason to tape out more than one part. But the part is very configurable to the needs of the end user.

Okay. Now, I’m just curious to know as well, whether or not you have captured an additional Tier 1 customer during your design win activity in the fourth quarter?

I think that there is a lot of stuff going around here with Tier 1s. But in my transcript this morning, I did not say anything about wanting another Tier 1. The activity level in the cell phone is probably at an all-time high and the fourth quarter was, as I said the best quarter we ever had but we didn’t announced another Tier 1 yet.

All right. Very great. That’s it for me. Thanks, guys.

I guess you’d might -- just go on a little further, Gary, even though I lost few moments earlier. It’s likely that the majority of the early-on business for NPS is going to be all Tier 1s, right so. And we haven’t -- in my transcript today I didn’t claim. I didn’t claim any design wins for BE-3 at this point. Next question, please.

Your next question comes from the line of Krishna Shankar from Roth Capital. Please proceed.

Yes. Len and Jim, congratulations on the design win momentum. You referenced potential revenue ramp in the second half of 2015. Would these mainly be Bandwidth Engine 2 products? And can you give us some color on sort of the backlog or what kind of order activity you have from customers to support the possibility of a revenue ramp in the second half of the year?

So, basically, it’s Bandwidth Engine 2 that’s going to be -- it’s going to be see in most of the -- driving the ramp in the second half of the year. Bandwidth Engine 1, there are some programs that should ramp up. But there is a lot of stuff going on. It’s been in design now -- design wins from 2000 -- early 2013 that are all BE-2. So I think it will be more BE-2 than anything else. Some of the opportunities at the edge of the data center are even in the cloud itself are tend to ramp sooner. So we may see a little bit of that in the last half the year as well and that’s BE-2. LineSpeed products had been out, been evaluated, there’s a lot of boards being designed. There is a lot of stuff going on involving our Lower Power Retimer. I think we'll see some of that as well. In terms of our backlog, I’ll let Jim comment on that as well, but coming out of the slow middle part 2014, our backlog is still not as high as I’d like it to be. But looking at how our customers progressing and what's going on, and trying to understand what happened to BE-1 and will it be more traditional with BE-2. We are forecasting that the second half of the year should start to see, what I probably called in my transcript and the beginning of a meaningful ramp of revenue. Jim do you want to comment?

No. I think you covered it very well and I’ll just comment what the BE-2 customers, well, as you said, we are not seeing the backlog we’d like just that. We are seeing the right steps as far as the orders coming in from their contract manufacturers rather than direct from the customer, which obviously, is evidence that they’re moving towards production and a key sign.

The next question …

Just a one follow-up quickly, Len, on BE-3, your reference EZchip as a new strategic partnership and they do have some top tier OEM relationship. So can we assume that you are talking with some of their top OEM customers also and that could lead to some new engagements there?

I would -- I believe that then some three-way meetings over the last 12 to 18 months, maybe even more. So occasionally we get together. Occasionally, there are customer deals we do separately. But we’ve been very, very collaborative with one another and we make sure that, we have every reason to world that takes superb care of the shared customer and occasionally we -- I believe those things to go on. So, yes, this has been going on for a long time. As the press release noted, the collaboration has been close and long and they’re very attractive.

Great. Thank you.

Next question please.

Your next question comes from the line of Quinn Bolton from Needham. Please proceed.

Hi, Len. Hi, Jim. I wanted to follow-up on Gary’s question about the EZchip relationship and we just curious, you’ve got the relationship now for their NPS network processor? Wondering if there is a reason why you’ve sort of selected or why NPS was the focus rather than some of their NP-4, NP-5 solutions? Are they sort of applications of NPS, just more applicable to Bandwidth Engine 3 or is there a reason why the NP-4, NP-5 family wasn’t targeted in that partnership?

Well, Quinn, that’s -- fundamentally NP-4 is way back and there was no doubt define, design and out with the fix OI already in placed before Bandwidth Engine 3 was even probably defined. NP-5, we had a lot of chatting about that, but that was -- that design was way down the road. These designs are extremely sophisticated and EZchip diligently works on for a long time. So the first time when we intersected with each other, what we can do something was about -- around about NPS. Now -- so that’s one reason and other reason is that the end customer’s performances jacking up from 40-gigabit line cards, when we started the journey a few years ago. So now a lot of hundreds are coming into the production and there’s a lot of stuff we are drawing at to -- drawing board at 200, 400 and 800. And suddenly, the data centers decided, we mentioned that we want to design in the data center and the reason we’re getting into a data center is performance levels are jacking up in the data centers, so that access and latency is becoming more and more important. So, I think, the reason we converge to get an NPS is the end-user system requires the levels of performance that you can get with our joint solutions and looking back, these other designs are too far down the road. They would have had to stop, backup and start over to use as on NP-4 and probably, would have been the same with NP-5.

Got it. Understood. So it’s not -- perhaps maybe just as another way to ask question on that. On the NPS family, it doesn’t sound like it precludes you from being able to participate in that carrier Ethernet application that the NP-4 and NP-5 has historically targeted? Just it was a matter of timing when you started doing the design work and started to talking to EZchip that that intersected most closely with the NPS product family.

Yeah. If I’m understanding you, that’s correct. And there is going to be -- really nobody ask the question about this morning but there is Bandwidth Engine 3 is going to fit together with our FPGA partners, Altera and Xilinx very well and that’s going to work because NP-3 is very, very powerful and as I call its intelligent offload feature is extremely useful. So you can expect very early on. There are going to be boards out for customers who look at working with the state of the Virtex or state of the Stratix or Aria whichever one is the appropriate part.

Got it. And then just to clarify, it sounds like your expectations for LineSpeed the Low Power Retime you may see or hope to see initial design wins as early as the end of Q1. I mean, if that’s the case, you think that some of that could actually start to ship by year end. So a much faster time to revenue than that you might see in the Bandwidth Engine family products.

I don’t think we would see enormous amounts of revenue in the fourth quarter but I do think the time for ramping up in optical modules is shorter than ramping up on new generation of line card so the answer is yes. And that we’re prototyping a long time ago on the MSH110 and we went back and I think, we brought out maybe one new feature and we may have just -- optimize one or two of things, I can’t remember and we brought out a production mask sets and we’ve had that out now and that’s well along. We’ve got silicon package. It’s well along in characterization and we’re very excited about this part. It has a good chance to really solve some serious problems at the customer shop.

And just again to clarify that, the low time, sorry -- the Low Power Retimer, that target shorter reach applications either data center perhaps metro and so could intersect. I know there’s been a lot said in the market about some of the big carriers beginning or just about to announce their metro 100 gig awards. It sounds like this solution perhaps targets some of those metro in shorter reach applications?

Actually, in the transcript I mentioned that the MSH110 is good for all optical reaches. It’s sure that when you start, talking about a Low Power Retimer and you’re in the optical module, you’re very short reach because everything is pretty compact in there and power is very critical. However, this part is very virtual, so it can operate outside of the optical module as well. And we are seeing some opportunities for it outside the optical modules. So that’s the comment I made in my remarks that it’s capable of serving all optical distances. It’s a very powerful part and the use in the optical module itself. It’s a very low power product. It appears to have a significant advantage of anything else out there.

Great. Thank you.

Your next question comes from the line of Craig Hoagland from Anderson Hoagland. Please proceed.

Yeah. Congratulations on the design wins. It sounded like your plans for R&D spending in 2015 might be higher than they were 90 days ago?

I think -- sorry, I thought you’ve finished.

If you could just comment on that and then maybe talk about the balance sheet and options for funding that activity through 2015?

Sure. I had said on the last quarterly call in response to the Q&A that we were all in a new product development. And as we also saw with the announcement this morning in the R&D expenses line, we’ve still got a heavy foot on the pedal here. Now let’s assume Bandwidth Engine tapes out, Bandwidth Engine 3 tapes out in March just to keep it simple. I expect that heavy foot to continue through the first quarter, and I’m saying too much Bandwidth Engine 3, mask set said is kind of in the $2 million range. I talked about spending $1.7 million or so on LineSpeed in the fourth quarter. So put Bandwidth Engine just north of that. So we are going to continue pretty heavy in the first quarter. However after that, we’ll be in position once that product is taped out, there won’t -- that I can see subject to customer feedback and success of our products would be what would drive anything, if we did say in additional tapeout to make a function change or do anything like that. But without that, there wouldn’t be any tapeouts for quite a well. And we’ll be in a position to dial back the cost and make adjustment as soon as the second quarter. So I think we can see R&D expending are coming down as we move out beyond the second quarter of 2015. From a balance sheet perspective, I will just round up and say we had $26 million of cash at the end of the year. Certainly, I am not happy with the burn in the fourth quarter or with what we’re going to have in the first quarter. But again, we’ve just got to keep the foot down and get these products out. As Len said, it’s going to be a meaningful increase in the portfolio and an increase in our served available market. And as well we have customers waiting for parts to evaluate and wins hopefully at hand once we deliver the parts. We’ve been -- I think I said in the last call, we’ve been creative in the past in bringing in cash as necessary. We are looking at some strategic non-dilutive transitions. We’ve had success on that front in the past, but these are always challenging to close, take a long time, etcetera. So we’ve some things on that front that we’re working. Till the paper is signed, they are never done. And should as necessary if we need to, we have our shelf available and up there. Certainly something if we want to exhaust the non-dilutive means first. And as we move out into the second half of the year, we’ll see the contribution from revenue that’s been lacking to-date.

That’s very helpful, Jim. Thank you.

Next question please.

I’d now like to hand it over to Mr. Perham for closing remarks.

So I want to thank everybody for hopping on the call and letting us give you an update on our progress to-date this morning. And I just have a couple of things that I’d like to say. So first off, regarding the fourth quarter. I could be sitting here rejoicing and telling you repeatedly that the fourth quarter was a very strong quarter and that we feel very good about it and all that would be true. But if you would ask me a few years ago what I would expect the quarters would look like as we got to the state of the longer roadway to turning MoSys into a fabless semiconductor company. This is a kind of quarter I would have expected. So when I tell you and barring some unforeseen or worst case macroeconomic event or something that I don’t see this morning, I think the quarter we had should be replicated. It seems to me that the window of opportunity is now open and that means that our customers next generation systems are now quite challenging for him to try and figure out how to bring forth using traditional design technique. So that’s evidenced a little bit I think by the fact we are now in the cloud and we actually -- And of course, the security appliances are trying to do deep packet inspection on everything going into the cloud. So speeds are running very, very fast, so it didn’t surprise me that we won some opportunities and won some designs in both edge and in the cloud itself. So I feel very good about it, I want you to feel good about it, but it’s what I would have expected. I did not expect that real bad period in the second and third quarter…