Welcome to the Rambus Fourth Quarter and Fiscal Year 2023 Earnings Conference Call. At this time all participants 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 would now like to turn the conference over to Desmond Lynch, Chief Financial Officer. You may begin your conference.

Thank you, operator, and welcome to the Rambus fourth quarter and full-year 2023 results conference call. I am Desmond Lynch, Chief Financial Officer at Rambus; and on the call with me today is Luc Seraphin, our CEO. The press release for the results that we will be discussing today has been filed with the SEC on Form 8-K. A replay of this call will be available for the next week at 866-813-9403. In addition, we are simultaneously webcasting this call. And along with the audio, we are webcasting slides that we will reference during portions of today's call. A replay of this call can be accessed on our Web site beginning today at 5:00 p.m. Pacific Time. Our discussions today will contain forward-looking statements, including our expectations regarding projected financial results, financial prospects, market growth, demand for our solutions, the company's ability to effectively manage supply chain shortages and other market challenges, and the effects of ASC 606 on reported revenue amongst other items. These statements are subject to risks and uncertainties that may be discussed during this call and are more fully described in the documents we file 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 are under no obligation to update these statements. In an effort to provide greater clarity in the financials, we are using both GAAP and non-GAAP financial presentations in both our press release and on this call. A reconciliation of these non-GAAP financials to the most directly comparable GAAP measures has been included in our press release, in our slide presentation and on our Web site at rambus.com on the Investor Relations page under Financial Releases. We adopted ASC 606 in 2018 using the modified retrospective method, which did not restate prior periods but rather run the cumulative effect of the adoption through retained earnings as a beginning balance sheet adjustment. Any comparison between our results under ASC 606 and prior results under ASC 605 is not an accurate way to track the company's progress. We will continue to provide operational metrics, such as licensing billings, to give our investors better insight into our operational performance. 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, and then we will end with Q&A. I'll now turn the call over to Luc to provide an overview of the quarter. Luc?

Thank you, Des, and good afternoon everyone. We finished the year strong with Q4 revenue and earnings at the high end of guidance, and a robust $55 million in cash from operations. Through outstanding execution on our strategy, we delivered full-year results that outpaced the overall semiconductor market in a very dynamic environment. Let me first take moment to review our 2023 accomplishments. 2023 was the year of artificial intelligence, with generative AI bursting on to the scene and emerging as a strong catalyst for long-term secular growth. The increasing need for memory performance and capacity across the computing landscape driven by the accelerating demand for data-intensive workloads is a very positive trend for Rambus, and one we expect to continue for many years to come. Over the course of the year, we realized a number of important milestones and achievements. The company further bolstered its long-term licensing foundation with the extension of the agreement with SK hynix. We've strengthened our balance sheet and returned value to our stockholders through share repurchase and debt repayments. We enhanced our focus on differentiated chips and digital IP for the datacenter with the strategic sale of the PHY business. And finally, as a testament to our success, Rambus was honored with GSA's Most Respected Emerging Semiconductor Company Award in our revenue category. Turning now to our businesses, silicon IP continued to operate at scale, offering comprehensive security and interface IP solutions for multiple market segments. With our strengthened focus on differentiated digital solutions, we brought to market leading-edge HBM, GDDR, PCIe, and CXL controller IP, as well as state-of-the-art embedded security solutions including Post-Quantum Security, all of which are essential building blocks for future AI-centric datacenter architectures. In memory interface chips, we continue to execute well and gained share in a challenging environment.…

Thank you, Luc. I'd like to begin with a summary of our financial results for the fourth quarter and for the full-year 2023 on slide five. Once again, we delivered a strong quarter with both revenue and earnings above our expectations. We had strong financial results in 2023, driven by our continued execution in a challenging macroeconomic environment as we continue to execute on our long-term strategy. Our robust balance sheet coupled with our continued ability to generate strong cash flows puts us in a strong position to continue to drive shareholder value. Let me walk you through our non-GAAP income statement on slide six. Revenue for the fourth quarter was $122.2 million above our expectations driven by higher royalty revenue in the quarter. Royalty revenue was $52.4 million with licensing billings was $66.2 million. The difference between licensing billings and royalty revenue mainly relates to timing as we do not always recognize revenue in the same quarter as we bill our customers. We are pleased to see the narrowing of the gap between royalty revenue and licensing billings as the Samsung patent licensing renewal, which was signed in 2022, was recognized as a variable contract under ASC 606 in the quarter and will be for the duration of the 10 year agreements. Product revenue was $53.7 million consisting primarily of memory interface chips. Contract and other revenue was $16.1 million consisting predominantly of silicon IP. As a reminder, only a portion of our silicon IP revenue is reflected in contract and other revenue, and the remaining portion is reported in royalty revenue as well as in licensing billings. Total operating costs, including cost of goods sold for the quarter were $71.9 million. Operating expenses of $51 million were in line with our expectations as we continue to be disciplined…

Thank you. [Operator Instructions] The first question is from the line of Gary Mobley with Wells Fargo Securities. You may proceed.

Good afternoon, guys. Thanks for taking my question. Wanted to start with a multipart question that I think is on the minds of more investors. And that relates to the product revenue. It appears as though you're guiding DDR5 revenue to be down sequentially in the first quarter. And it seems a bit counterintuitive given a lot of the data points we've seen with respect to the uptake of DDR5. And so, may be if you can help us appreciate the headwinds that may be muting the DDR5 revenue or DDR4? And do you still anticipate roughly 40% to 50% market share in the Register Clock Driver specific to DDR5?

Hey, Gary, thanks. Luc here. As we indicated in our prepared remarks, as the ecosystem redirected CapEx to AI servers in 2023, the market for traditional servers declined low-double digits last year. But with flat revenue, as Des said, year-over-year, we continue to gain share. And we estimate our share today to be above 30% on a blended basis. But also we do see continued softness in traditional servers to continue in the first-half. Like others in the industry, we expect the market to pick up in the second-half with the server refresh cycles coming online. And we expect the market overall to grow mid single-digit in 2024. And we expect to continue to gain share. I think in the second-half market pickup we will also have the benefits of introducing our companion chips on a broader basis. Now, let me shed some light on the DDR4-DDR5 transition that you mentioned in this environment. We are in the middle of a major market transition with multiple product generations ramping at the same time. And as our customers position themselves for each one of those generation, they expect their suppliers to hold more strategic inventory as expected to shift at the last time. So, we see a lot of lumpiness although we have confidence that our share in DDR5 continues to grow. We see at the same time a prolonged DDR4 inventory digestion. But overall, this transition is beneficial to us. Our blended share in 2023 is estimated at 30%-plus. But we estimate our DDR5 share to be above 35%, actually approaching 40%. It's just lumpy because every customer is launching three generations at the same time. And sometimes, from quarter to quarter, we see some fluctuation. But the momentum for us is clear. Our DDR5 blended share is approaching 40%. Our overall blended share last year was about 30%. So, we feel very confident with the continued momentum on DDR5. We just see every customer position themselves in each one of those generations that creates those fluctuations from quarter to quarter.

Appreciate the color there, Luc. As follow-up question to that, if we have a couple of impending processor generation with Emerald Rapids and Bergamo from AMD, which I believe ushers in the Gen2 of DDR5. And correct me if I'm wrong, that's the intercept point for you to be into ship your companion chip products. So, maybe if you can just speak to the timing of when you start to see more material companion chip revenue, and the benefit from that? Thank you.

Thanks, Gary. So, first of all, we are pleased with the momentum that DDR5 is taking in the market. I think it's public that Sapphire Rapids has shipped in millions of units so far. AMD Genoa is also in the market in high volume, so that creates demand for the Gen1 products. We are well-positioned with our Gen2 product, going into the next generation of our partners, Emerald Rapids and Bergamo, as you said. And we also are in qualification for Gen3, which will hit the next generation of products with our customers. And each one of them, we believe we maintain our share. And again, on a blended basis, we believe our share in DDR5 is higher than what it used to be in DDR4, again approaching 40%. We just have these different generations ramping at different times with different customers as they position their own products with their own customers. But we've seen traction with all of them. On the companion chip side, we have sampled our PMIC to all of our customers and have received very positive feedback on the PMIC, so that ramps up our offering on the companion chip. And we believe that we're going to see the benefit of all of this in the second-half of this year.

Thank you.

Thanks, Gary.

Thank you. The next question is from the line of Mehdi Hosseini with SIG. You may proceed.

Yes, thanks for taking my question. A couple of follow-ups here, first, on the inventory, it's creeping up by a few million in the quarter. And I'm just wondering how should I think about the DDR5 RCD inventory that is already in your Q4 inventory, and how much more you have to build as you think about the second-half and a ramp up of next-gen products?

Hi, Mehdi. It's Des here. We have seen that our inventory levels have increased, and this is something we've comfortable of doing. If you went back to last year, we were probably running too lean on the inventory side. And as Luc mentioned, that we have multiple generations of DDR5 ramping at the same time. So, as a company, we are very happy to hold this strategic inventory on our balance sheet, which enables us to be responsive to the customers' needs and requirements, especially given the three generations of DDR5. But we're certainly very well-positioned in DDR5, as Luc mentioned. We continue to grow our share. And what we're doing is stitching some of that inventory on our balance sheet so we can be responsive to customers' needs going forward.

Great, thank you. And my follow-up --

Yes, thanks, Des. And if I may add maybe, what's happening with our inventory is the mix of our inventory is changing. We see a slow burn of our DDR4 inventory, because we see a slow burn of DDR4 in general. And our inventory is more increasing in strategic inventories for three generations of DDR5 that have to go to market. And it's really, really important when our customers are ramping these three generations of products. And when they ask products from us, we're ready to ship them immediately. So, we do see a decline of our DDR4 inventory, but we see a strategic increase on the DDR5 inventory in the three generations to make sure we capture the share that we need to capture as the market ramps DDR5.

Great. And thanks for additional color. And then, Luc, actually my second question is, maybe you can help me here, as I look into the CPU roadmap which is more relevant to your buffer chip not so much of a DDR5 bit, I see a standardization around a 12-memory channel per CPU. So, the market is no longer going to be bifurcated between an eight and a 12. It seems to me that everyone is -- most of the CPUs coming out late this year, early to next year, are going to have 12-channel per CPU and then two DIMM per channel. So, effectively, you would have 24 DIMM per CPU. And again, this will remove the bifurcation of the past few years. Is that the right way of thinking about how your business model is going to scale, especially with your core RCD buffer chip?

Yes, you are correct. I think the first thing I would say is that our customers and our customers' customers are asking for more bandwidth and more capacity. And there are different ways of doing this. Just increasing the DRAM capacity itself, increasing the DIMM capacity, or increasing the number of DIMMs per channel or increasing the number of channels; there are all of these ways of increasing, bandwidth and capacity. You're correct to see that or to say that our customers are converging on 12 channels per processor, with the capability of having two DIMMs per channel, and that's how we model our potential growth in the long run. I think there are physical limitations to go beyond 12 channels on each one of the processors. There are also physical constraints with adding more than two DIMMs per channel. So, I think the industry on the current architecture is going to converge to these 12 channels and two DIMMs per channel. Q – Mehdi Hosseini: Thank you.

Thanks Mehdi.

Thank you. The next question is from the line of Kevin Cassidy with Rosenblatt Securities. You may proceed.

Yes, thanks for taking my question. Maybe just to expand on what you just talked about. The DDR5 devices, the DRAM themselves are increasing in density, so the modules will have higher density. Do you see that as a headwind at all, or will they still populate as much as they possibly can?

You know higher density on DRAM is a good thing for the industry in general. Of course, if you have a higher density DRAM and higher density DIMMs for a fixed amount of memory you would use fewer DIMMs. But as I said, the demand for capacity is trumping all of this. So, we're using all vectors to add to that request for more capacity. So, although at a first look, it could look as a headwind, we actually see this as a good thing. Everyone is trying to add capacity to the systems because this is what's limiting the system capabilities today. It's the lack of capacity.

Great, thanks. And just as a follow-up, do you see new markets opening up for your RCDs, you'll say high end gaming or even what's been popular discussion is the AI enabled PC?

So, when it comes to AI servers, as we indicated in earlier calls, all AI servers also contain traditional servers for basic functions like storage, caching, data grooming. So, all of these are going to drive demand for standard servers within an AI box and typically those, standard servers are high capacity, high bandwidth servers. So, this is typically those servers that will use the latest memory, the highest density memory and the highest number of DIMMs per bus. So, that's going to be a driver for LCD chips going forward.

Okay. I guess I was asking is there in the PC just they're going to do both CPU manufacturers talked about having a AI enabled PCs. Will they need RDIMMs?

So, what we see is on the client space when the speed on the bus exceeds above 6,000 mega transfers per second. We will need functions similar to the RCD chips on the client side that could be the case for high-end PC, gaming PC, or inference, PCs used for inference. But we do see from a technology standpoint, that when you exceed 6.4 mega transfers per second, then you need those clock regeneration chips, which is very similar to the RCD. So, that's something we are investing in, because after this wave of AI, training applications that we see, there will be a wave of AI inference as well, and we're going to see requirements for higher performance on the client side as well. So, that's an area we're investing in.

Great, thank you.

Thank you. The next question is from the line of Nam Kim with Arete Research. You may proceed.

Thank you for taking my question. Sorry, I missed all the part of Q&A. I'm not sure if this was addressed. Can you share qualification update on your companion chips? I was expecting your companion chip sales would start gaining some momentum in DDR5 Gen2. So, what's your expectation on companion chip sales this year? Or any color would be great. Thank you.

Thanks. We have started to ship in low volumes, companion chip in Q4 of last year, last part of last year. We believe that we're going to increase our shipments into the second generation of products towards the second-half of the year. We spent a lot of time recently in building a power management team and building power management products that we have sampled our customers with and for which we have very strong feedback. But we also expect those qualifications for the power management chip, which came a bit later, to happen in the first-half of the year, but revenue to start towards the second part of the year.

Okay, great. Thank you.

Thank you, Nam.

Thank you. [Operator Instructions] 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 the company.

Thank you to everyone who has joined us today and for your continued interest and time. We look forward to speaking with you again soon. Have a great day. Thank you.

This concludes today's conference. Thank you for your participation. You may now disconnect.