Welcome to the Rambus First Quarter and FY'19 Earnings Conference Call. At this time all participants are in a listen-only mode. At the conclusion of our prepared remarks, we will conduct a question-and-answer session. [Operator Instructions] As a reminder this conference call is being recorded. I'd now like to turn the conference over to Rahul Mathur, Chief Financial Officer. You may begin your conference.

Thank you, Jesse and welcome to the Rambus first quarter 2019 results conference call. I'm Rahul Mathur, CFO and on the call with me today is Luc Seraphin our CEO. The press release for the results that we will be discussing today have been furnished to the SEC on Form 8-K. A replay of this call will be available for the next week at 855-859-2056. You can hear the replay by dialing the toll-free number and then entering ID number 9084526, when you hear the prompt. In addition, we are simultaneously webcasting this call and along with the audio, we're webcasting slides that we will reference during portions of today's call. So even if you're joining us via a conference call you may want to access the webcast for the slide presentation. A replay of this call can be accessed on our Web site beginning today at 5 p.m. Pacific Time. Our discussion today will contain forward-looking statements regarding our financial guidance for future periods including Q2 2019 and beyond prospects, product and investment strategies timing the expected product launches, demand for existing and newly acquired technologies, the growth opportunities of the various markets we serve and the effects of ASC 606 on reported revenue amongst other things. These statements are subjects to risks and uncertainties that are discussed during this call and may be more fully described in the documents we filed with the SEC including our 8-Ks, 10-Qs and 10-Ks. These forward-looking statements may differ materially from our actual results and we're under no obligation to update these statements. In an effort to provide greater clarity in our financials, we're using both GAAP and nonGAAP financial presentations in both our press release and also on this call. We've posted on our Web site a reconciliation of these non-GAAP financials to the most directly comparable GAAP measures in our press release and our slide presentation. You can see this on our Web site at rambus.com on the Investor Relations page under financial releases. The order of our call today will be as follows; Luc will start with an overview of the business, I will discuss our financial results including our guidance for future period and then we'll end with Q&A. I'll now turn the call over to Luc to provide an overview of the quarter. Luc?

Thanks, Rahul, and good afternoon everyone. Rambus executed well in the first quarter with solid results in line with expectations. We delivered total revenue of $48.4 million and strengthened our balance sheet generating $28.8 million in cash from operations. As we outlined on the last call, our top priorities as a company centered around three primary objectives to drive long-term growth and profitability. First, we have refocused our product portfolio research and patent development on our core strengths in semiconductor delivering high-speed interface and secure silicon IP as well as memory buffer chips, the leading chip and system manufacturers worldwide. We target performance driven high growth markets including data center, networking artificial intelligence, machine learning, IoT and automotive where demand for data and security are the highest. The second strategic objective is to optimize the company for operational efficiency and profitability, leveraging the overlap in our ecosystem of customers, partners and influencers across our areas of focus. And finally, the third objective is to leverage our demonstrated ability to generate cash and reinvest in our sales to both organic and inorganic growth to amplify our market and technology positions. These three strategic priorities set the foundation for the company, fuel growth and strengthen our industry leadership position. We have made solid progress towards these objectives in the first quarter, augmenting our product offerings, securing new design wins and systematically increasing our market share. Q1 was another positive quarter for our server DIMM chipset business with revenue up nearly 40% from the same period last year. We continue to increase the number of OEM and data center qualifications making steady gains in our DDR4 buffer chip market share. We believe our improved market position will outweigh any softness in the memory market due to the near-term inventory corrections and remain confident…

Thanks Luc. I'd like to begin with our financial results for the quarter. Let me start with some highlights on Slide 6. As Luc mentioned, we continue to make progress in our product businesses and delivered solid financial results in line with our revenue and earnings expectations. As you know, we've chosen to adopt ASC 606 using the modified retrospective method, which does not restate prior periods, but rather runs the cumulative effect of the adoption through retained earnings as a beginning balance sheet adjustment. Our [Technical Difficulty] revenue amounts discussed herein are reflected under ASC 606. As a result, any comparison between first quarter 2019 was under ASC 606 and prior results under ASC 605 is not the best way to track the company's progress. Now that we are through our transition period, we will no longer be presenting results as if we continue to recognize revenue under the old standard. However, we will continue to provide additional operational metrics such as licensing billings to give our investors better insight into our operational performance. We delivered revenue of $48.4 million and non-GAAP diluted and net loss per share of $0.08. We also delivered licensing billing of $75.4 million in line with our expectations. We ended the quarter with cash, cash equivalents and marketable securities of $305.9 million up $28.1 million from the previous quarter due primarily to cash from operations of $28.8 million. We delivered solid results while continuing to leverage our high margin historic businesses to fuel growth in adjacent areas where we have strong technical and market expertise with a focus on memory and security. Now let me talk you through some revenue details on Slide 7. Revenue for the first quarter was $48.4 million higher than our expected range of $41 million to $47 million due…

Thank you, ladies and gentlemen. [Operator Instructions] Your first question comes from Suji Desilva with ROTH Capital. Your line is open.

Hi, Luc. Hi, Rahul. So, I'm trying to figure out how the 1Q number would look if I compare it to the 4Q as if 605 number and I'm getting a revenue for 1Q that's just under $99 million and EPS of $0.22 if I use $1 million of interest income. I want to understand if that was in the ballpark of where the numbers would have come out?

If I have it correctly what you're doing is, you're substituting licensing billings for royalty revenue to do that math and running it through the P&L?

Correct.

Yes. I think if I do that math, I get to the thing $99 million, but I think we would round to $0.23. But of course, those are non-GAAP numbers. We have to use ASC 606.

Understood. I just to understand if that was in the ballpark, and then, just for the guidance, Rahul, real quick, I get to $96 million and $0.20 which is consistent with what consensus where, just want to make sure that was also in the ballpark as well?

Yes. Since, if I were to do the math, I'd get the same number.

Okay, great. Appreciate that. And then, as I look at the memory buffer business and you've guided $50 million to $70 million here. I just want to understand given the headwinds I know the visibility is very difficult, but given the headwinds here versus three months ago, if you were tracking toward the middle of the range before are you tracking more to the low-end now, or if you don't have that level of clarity what are the puts and takes that puts you at the high-end versus the low-end now, is it just macro, was it also some customer up tick, any color there would be helpful.

Hi, Suji. Luc. First of all, we remain confident about the memory market in the long run. We continue to believe that this market is going to continue to grow at 20% rate over the next three years. Now what's happening this year is that we have an inventory correction that is hitting the market. Our customers' customers over billed last year and now they're leaving off their inventory. So, this being said, we continue to grow as I said earlier, we grew 40%, nearly 40% compared to the same quarter last year. And that's mainly due to the fact that we've won a lot of designs on the current generation of Intel platform Skylake and we continue to win designs on the next generation platform. So, despite the headwind in the market, which we think are going to be limited for the first half of this year, we continue to gain share and the impact is somewhat limited to us. So, we maintain our guidance of $50 million to $70 million this year. The second half is going to tell us where we stand in that guidance, things can turn very quickly.

Okay. That's very helpful Luc. And then, lastly, I know you gave some color on the payment and ticketing business in the process. Appreciate all that. Just to give a sense of what the market appetite is for that asset just to give a sense of how quickly this may or may not get done and obviously the proceeds come in, if you're thinking about inorganic activity more aggressively, if there's a target rich environment out there or any color on those two topics would be helpful as well. Thank you.

Thanks. As we said earlier, we are in process to look for these strategic options for the payment and ticketing group. And that's going well as we said earlier we expect to have more clarity before the end of the quarter. So, things are going according to plan. Now to your other question about M&A activity this is central to our thinking, we generate a lot of cash as we just said. We generated $28.8 million of cash from operations in the first quarter. So, we're looking at M&A opportunities, but we want to make sure that they fall into our strategic focus as we described it over the last two quarters. And we want to make sure that they are operationally and financially viable for us. That's a key area of focus for myself and for the management team.

Okay. I will pass along. Thank you, guys.

Thanks, Suji.

Thank you.

Your next question comes from John Pitzer with Credit Suisse. Your line is open.

Hi, guys. This is Ada calling in for John. Can you maybe talk of -- provide additional color in your licensing billings versus your royalty revenues and what the delta there looks like over time?

Sure, absolutely. Hi, Ada. This is Rahul. With the earnings presentation that we provided what we actually provided, if you look at Slide 17 of that presentation and what we show is that comparison between revenue and licensing billings. And what you see for example for fiscal 2018, I think in some of our historical presentations we've shown you the numbers for prior years as well. So, if we just look at fiscal 2018, you see that our total revenue under ASC 606 was $231 million and we reported revenue under ASC 605 for 2018, our revenue would have been $401.1 million, right. So that's the delta of about $170 million or so. Now, if you look at our royalty revenue under ASC 606 that royalty revenue ASC 606 would have been about $130 million about $138.45 million. If you look at our royalty revenue under ASC 605 that would have been about $303 million. So, substantially higher. Now, what we show on a reconciliation also is in royalty revenue compared to licensing billings for 2018. So, as I mentioned earlier royalty revenue under 2018 was $135.45 million where the licensing billings for 2018 was $301.2 million. So, historically our licensing billings has compared very nicely to what we reported as royalty relatively new under ASC 605. And what I see a lot of our analysts' investors doing is simply using that as a better proxy for our actual cash flow because I think when those folks plug that in the numbers they get in their models in terms of operating results more similarly match what we report for cash flow operations.

Got it. And can you talk about your OpEx trajectory to the remainder of the year. I know you talked about continuing to spend on the product line -- on the product.

Yes. We will continue to make investments in terms of where we will see it from a product perspective. I think what I talked about right now for Q2 was guidance of OpEx which was roughly flat from where we had in Q1. And what you see there is that as we grow things like buffer chip then what you'll see is our COGS related to buffer chip starts to increase. I think as you look over the course of the year what you'll see is total OpEx, operating expenses be roughly flat or maybe slightly down. That's what we'll see, you'll see COGS grow from buffer chip as buffer chip grow. But then, you'll see some other costs come out, so namely the Q1 spike that we typically get in terms of [cycle] [ph] and social security and the other items as well. But what I see from a total operating cost and expense is something roughly flat maybe a little bit down over the course of the year.

Great. Thank you so much.

Most welcome, Ada. Thank you.

Your next question comes from Sidney Ho with Deutsche Bank. Your line is open.

Thanks for taking my question. My first question is on licensing billing guidance declining from $75.4 million to $61 million to $67 million. Is that all driven by the licensing step down that you talked about or are there other factors that that may impact that number from quarter-to-quarter? And maybe a follow up to that how should we think about the next couple of quarters. The step downs can be reset in Q3, or is it going to continue in Q3 and Q4?

Sidney, that's a great question. What I would tell you is that as we've been implementing ASC 606, what we've been doing is for new contracts, we've been structuring them with our partners in a way that allows us to take revenue ratably over the course of the contract. And so, what you'll see is that as some of these go on then that difference between licensing billings and royalty revenue will change on a quarter-to-quarter basis. As you noted, we do have a step down in multiple contracts over the course of the year. And so, part of that difference is reflected there as well. But I think the real difference quarter-to-quarter is really more just about the structure of different contracts and how they come up over the course of the year. What we do note and I talked about this previously is that from a seasonality perspective, Q2 is usually the lowest quarter in the year for us. Just in terms of how we've historically done our licensing and renewals. But, I wouldn't read too much into that change. I think the combination of the licensing billings as well as the other product revenues give you an idea of what's the overall kind of billings of the company.

Okay. That's helpful. Maybe a follow up question is, I think last quarter you talk about the lack of visibility in the near term, I think you kind of reiterated that today, has that improved since the last quarter. Maybe talk about where you see visibility improve and where visibly is still lacking. And I understand you also have this -- your view on demand in China. I know there's no direct impact, but just want to see if there is an indirect impact on you guys.

Yes. Thanks Sidney. So, as you say we have no direct impact in China, but it has impact on our customers. So, the first thing I would say is that China does not impact our licensing billing forecast. It has a potential indirect impact on our buffer chip business. What we see is that some of our customers have to move their supply chain away from China that delays the demand from some of those customers. But this being said, although, we see softness for the first half of the year, we also have better visibility than we had last quarter in the sense that we believe things may pick back up sometimes in Q3, Q4 and that's reflected in our discussions with our customers. So, still some softness a little better visibility and an expectation that things will come back up in Q3, Q4 this year.

Okay. Wonderful. And maybe one last question for me in terms of a high-speed IP core business; first, can you remind us how big that business is; and second, you talked about taping out 112 Gig SerDes PHY on 7 nanometres. When do you expect that to contribute meaningfully to your revenue. And can you talk about competition there versus the current generation of the 56G. Thanks.

As Rahul would say our licensing billing is approximately $300 million per year, if we don't count the step downs in that that includes our IP core business. The 12 Gig, what you see in our IP core business is that we have refocused our attention to things that we believe are going to gain traction in the market. So, the 112 Gig SerDes has been developed with in line of PHY, the deployment of 400 Gig networks that we expect to see starting sometimes in 2021. So, a lot of SoC companies are actually developing today chips that will use these 112 Gig SerDes with these markets. Similarly, we have developed the 32 Gig SerDes in 7-nanometer, we are developing in 32 Gig SerDes in 7-nanometer to address other markets that we believe are going to gain traction like 5G infrastructure or PCI Gen 5. So, we are focusing our efforts on to those markets because we believe those markets are going to create demand. The way we play in those markets is, we get the revenue from the SoC vendors, who build the SoCs for when the market are going to start in 2021. So, we see licensing revenues from these SoCs earlier than 2021. That's why we're doing that. The main competitor in that market is Broadcom. There are a lot of competitors that are trying to get in that market. But what we've seen from customers and from the market today is that we are gaining nice traction with our customers and continue to gain share. I'll repeat that over the last four years, we've grown on an annual compound rate of 50% in the business.

Great. Thank you very much.

Thank you. [Operator Instructions] Your next question comes from Mark Lipacis with Jefferies. Your line is open.

Hi. Thanks for taking my questions. A couple on Crypto, one of the memory buffer business. On the Crypto side, you mentioned that key design win with a new OEM. Could you share with us where you are in that product a project deployment. And how big that could be ideally and when you talk about building momentum in CryptoManager in the data center could you provide any more color about what's going on there with the application. And then, I have a follow up on the memory buffer. Thank you.

Yes. Thank you, Mark. So, we are currently on a trajectory of about one design win with an OEM every quarter as do we got a design win for one of our IP core in crypto last quarter. And fortunately, we cannot disclose the name, but that's a different OEM than the OEMs we used to have in the past. But, that's a good sign that this market is picking up for us. The other thing that happened for us last quarter is that we have expanded some of our provisioning agreements with existing customers, which is a sign that the demand for these products is still good. Now moving forward, what we see is, we see traction with a couple of customers in two main areas. One is in the automotive area and one is the cloud infrastructure area. But, I think it's too early at this point in time to give details about that. In general, what we see is a regular piece of new design wins and new design opportunities in new segments. And that gives us confidence into our growth in that business. This just gives me an opportunity to say that in 2019 every one of our product initiatives is going to grow over 2018 which is really good for us.

Okay, excellent. Then on the memory buffer business, you mentioned some issues with the supply chain. I just want to make sure I think I understand what this is, does your customers or your customers or customer customers downstream. Time to take the manufacturing out of China and putting it in non-tariff locations and then setting up that supply chain, and then, and now you're seeing orders. Is that kind of the idea that maybe some orders pushed out in addition to the inventory issues, there is this supply chain issue that has to do with resetting up manufacturing outside of China? Thank you.

Yes. Correct. We see a combination of challenges that have hit the market recently. One is the inventory situation across the board. As we said earlier we believe that should clear up in Q3 or Q4 this year. The other thing is that you're absolutely right, some of our customers had to move their manufacturing locations from China to other countries to deal with tariff situation. So, if you combine these two factors that explains the softness that we see in the first half of this year. But as I said earlier, we had a very good trajectory of design wins. So, we were not immune to that softness, but the impact of that softness on the demand side has been less than expected on our supply.

Okay, great. Thank you very much. That's helpful.

Thank you.

Thanks Mark.

At this time there are no further questions. This concludes the question-and-answer session. I would now like to turn the conference back over to Luc.

Thank you. As you can see, we continue to navigate with confidence demonstrating our technology leadership and ability to execute across the company. Thank you for your continued interest and time and have a good day. Thank you.

Thank you. This now concludes today's conference.