Good morning. And welcome to the MoSys First Quarter 2015 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, May 1, 2015. I would now like to turn the call to Beverly Twing of Shelton Group Investor Relations. Beverly, please go ahead.

Thank you, Nicole. 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 ICs and embedded memory and interface technologies, expectations concerning the company’s execution and results; 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 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 Len Perham, Chief Executive Officer of MoSys. Go ahead, Len.

Thank you, Bev. Good morning, everyone and thank you for joining us today. On today’s call I’ll review our first quarter 2015 activities including the status of new design wins, our sales funnel and product development. Then I’ll the call over to Jim to discuss our financial results. Following our remarks we’ll open the call for your questions. On the subject of design wins, I’m pleased to report that we recorded our second consecutive quarter of double-digit design wins and we’re looking very strong in sales funnel activity again this quarter. Once I see the third quarter in a row of this kind of activity and design win success I’ll call it, I think we’re going around the corner and something is changing now in a favorable direction. Last quarter we recorded the highest number of design wins in any quarter since we began our transition back to being a fabless IC company in 2010, and we nearly repeated that accomplishment in this for the first quarter of 2015. I’m pleased to report that we’re currently on track to double our design wins again in 2015 indeed after a very, very strong start. And it’s very gratifying to see the activity themselves follow up as we go through this quarter. Again, this quarter the design wins were substantially all for our bandwidth engine products, and in some cases reflected additional market penetration with existing customers. These new bandwidth engine wins include multiple new designs for Bandwidth Engine 1 with an existing customer placing BE1 into access line cards ranging from 1 Gig or 10 Gig to 100 Gig. These are our first wins in access line cards and are direct results of the growing need for increased bandwidth, low latency and higher speed on the periphery of the network. In…

Thank you, Len, and good morning everyone. During the course of my comments, I’ll 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. Prior to discussing our financial results, I would like to first briefly address our IP business. We continue to record licensing and royalty revenue from ongoing studies of One IC IP projects. However, our IP licensing and royalty revenue have declined as we’ve not been actively pursuing new license agreements. That said, royalty still comprises majority of our revenue this quarter. Now let’s review our first quarter financial results. To date, total revenue was $0.8 million, compared with $1.1 million in the fourth quarter of 2014 and $1.3 million in the first quarter of 2014. Product revenue from the sale of our integrated circuits was $0.2 million in the first quarter of 2015, compared with $0.3 million in the previous quarter and $0.6 million in the year ago period. Royalty and other revenue for the first quarter of 2015 was $0.6 million, compared with $0.8 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 whose 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 decreased to 69% from 76% in the fourth quarter of 2014 and compared with…

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

Good morning guys.

Good morning, Gary.

Len, you go out to quick traveling, it seems like you get sick every time. I noticed that your inventory was sequentially of a pretty small base, but substantially nevertheless. I’m hopeful that’s indicative of Bandwidth Engine revenue to ramp perhaps in the second quarter, perhaps in the third quarter. But related to that, I was hoping that maybe you can quantify or give us some sort of metric on how your backlog is shaping up and then as well, sales funnel related to that?

So, I’ll start it off and then I’ll let Jim chime in, he may have some better perspective than I do in some of that question. First off, backlog, inventory did build a bit, we have to remember that we ship something like the 10,000 plus units into our second half of 2012 design wins mostly in Japan. And for some reason those field deployments didn’t meet with success, so our customers stopped. And they’d been back taking a look at what’s going on. And that was the reason for my trip over there to see if that looks, like that business was going to come back, it was going to be salvaged, etcetera, etcetera. But it did result in building up a bit of BE1 Bandwidth Engine 1 inventory. It’s my personal opinion from an operations point of view that it’s likely that we’re going to sell all of that BE1 stuff and I’ll let Jim comment on that as well. The other thing I’ll comment on, Gary, you said something about backlog. We saw a nice change in backlog from ending on hand fourth quarter to ending on hand first quarter. But the fact of the matter is it didn’t meet my requirements for me to say we’ve gone to a transition point. I could be talking about a multiple of change in backlog in a favorable direction but I’m not going to do that because I’m not satisfied with it yet. But the fact is backlog did move up a bit. I have to say unfortunately some of the inventory build you’re seeing is because of some, some of our customers didn’t do well on their field trials and so we were caught out with a few units. And the good news is I don’t think we’re going to end up scrapping them, I think they’re going to find. And you might note that we actually recorded a few BE1 wins this quarter. Jim, do you want to comment or?

I think you covered it well. And I would just say that the increase in revenue was certainly indicative of the higher shipments and higher revenue we’re expecting in the second quarter. I mean, obviously recognizing how low the first quarter was frankly nowhere for us to go but up back to that, after those inventory revenues. But we do expect much higher revenues relative to that, the Q1 revenue number. I think we may have also ordered an additional lot or two to some of our cost downs, as the guys do different testing to reduce our burning times etcetera to bring down the standard cost.

Yes, let me add one thing to what Jim just said. Unfortunately, a start-up company like ourselves, it’s very, very critical that you passed what I call a carrier grade certification which I mentioned a few times is, three different date coded launch away from factory that get tested for 1,000 hours under some stressful conditions. And you can accept, you can’t have any failures. However, the minute you get that flow in and you can make product if your new style-up chances how you’re costing down, every single step in that backend process. And that’s what’s going on. And when you start costing it down, after a while you make a significant enough change whether you like it or not, you’re going to have to do another carrier grade qualification because you’ve changed your back-end of flow in a direction of probably less testing and less of this and less of that. So, it makes your customer nervous, so you have to go out of your way to convince them that you know what you’re doing and your reliability and quality won’t be affected. But it’s not a free process. And Jim’s probably right that we may have brought in a couple of lots so that we can do some incremental group C QA in our testing. Anyway, that’s just, go ahead Gary.

All right. So, with Engine 3 taping out in the second quarter, I’m assuming that you’re going to see a spike in OpEx and could you quantify that and then as well I guess on the other side of that tape-out what OpEx may look like in Q3?

Yes, with the assumption that Bandwidth Engine 3 tapes out in the June 30 quarter, you’re spot on. I believe I’ve said in, on these calls in the past that that tape-out would be $2 million plus. And then a function of also after that following in Q3 buying various burning sockets, those types of things. And we’d expect to spike in Q2. In addition, in the first quarter and as well in the second quarter, around these new LineSpeed products we’ve been incurring more back-end cost which at this stage will go to R&D. But net-net, subject to any additional tape-out activity on LineSpeed particularly a production tape-out, another production tape-out related to LineSpeed in the third quarter, I’d expect the third quarter to be down versus the second quarter. It’s just a function of how much and what do we do a full production tape-out on some of the additional LineSpeed parts. But net-net, I’d see the second quarter being with that tape-out available with Engine 3 in there up well over $2 million when that happens.

Okay. Last question from me related to what I believe to be one of your perspective customers over in Europe, there seems to some consolidation with that customer taking place. Do you have any thoughts or opinions in how that may affect your sales funnel?

Actually, if we’re talking about the same guy, the M&A activity going on, is that what you’re referring to Gary?

Yes, yes.

Okay. So, it’s true we have a close relation for those guys. We’ve never said much about it and then we won’t make any formal commitments here. But my observation is that the strongest part of acquiring new company is their networking and switching and routing business, it’s really very, very strong. And the team is very, very aggressive and very, very good. I can’t imagine any, and I believe their margins are better than anything else in their company. I mean, I can’t see anything happen to change that, now as for sure, we’ve all been around a long time and these M&A things can lead to confusion and bumbling around and laws of attraction and so forth. To date we haven’t seen any change and we’re just rolling. We have an excellent relation for those guys and we haven’t seen any change. I would think there will be no change for the first few years, it maybe just a couple of years out from now it’s such a monstrous thing, couple of years, three years out as they try to figure out how to consolidate something they, there might be something that is different than what we would forecast now. But we can’t see anything within the next 12 to 18 months, I don’t think Gary.

Okay, fair enough. All right, thanks guys.

Thank you, Gary.

Thank you. And our next question comes from the line of Krishna Shankar of Roth Capital. Your line is now open.

Hi, yes, Len and Jim, congratulations on the design win momentum. A couple of questions, in terms of the revenue ramp in the second half of this year, will it mainly be BE1 or do you expect some BE2 revenues also late this year?

Actually I think on the call we said that the wins last quarter I think we may have even gone so far as to say, we’re 80% BE1, BE2 I’m sorry, excuse me. And then on today’s call, when we were talking, we mentioned that BE2 wins are very strong again this quarter. All the design wins, the vast majority of design wins through the 12 months of 2013 were BE2. So, we would expect to see BE2 start ramping fairly strongly. And BE1, we are really gratified by these new wins and I was very gratified with some of the stuff I heard on my recent trip to Asia. However, I think we commented that the next four to six quarters are going to be driven very hard by BE2.

Okay. And then on LineSpeed you had some good traction at the overseas shore, it sounds like the Retimer product is getting some good reception. Will that product sort of be a production method will it actually derive revenues from that LineSpeed product or will we have to wait for this new tape-out that you’re talking about for LineSpeed?

No, actually we have a production, that’s a production asset right now. Actually we don’t, we try not to overstate where we are with LineSpeed but we’re very, very, I think we probably have said or Jim may have said that we had a production massive tape-out last quarter. We are sampling this Low Power Retimer across a very wide number of customers, primarily into optical modules. And we would expect that we would generate revenue from that this year, there is no question that I mean, we answer yes, we’re going to generate revenue. And you can count on it and so, Jim, do you want to add anything on it.

Yes, let me just clarify, I think the response I gave Gary, we had a production tape-out at with a Low Power Retimer targeted towards the modules in the Q4. We have some additional next generation LineSpeed products, which frankly we’re not in a position to say much about on this call because that’s announcing new products as a domain of sales and marketing and not finance and not on these calls. So, we have some new products there which I anticipate we could potentially have a production tape-out for say Q3, Q4, which would solely be driven by customer demand and interest, we wouldn’t do it if the demand and the designing that have high potential of flipping the winds are there with us. But that Low Power Retimer which we publicly announced I think back in the fall, and we’re aggressively pursuing now is fully taped out.

Great. And then, my final question in terms of your design wins for the security and Cloud market, Cloud switching market that you talked about over the last couple of quarters is the outlook for revenues in that market to still ramp relatively quickly going forward?

I don’t have the exact ramp on that stuff right in front of this morning Krishna but I think if we had marketing and sales in the year, they would say that the data center and the security appliance wins are going to ramp sooner than stuff in the core and on the edges. I would say that we would like to see some orders maybe on both of those in the last four months of this year. And it would be an early ramp. Additionally, we’ve got a reasonable amount of traction in this space where there is a need for next generation security appliances. So in addition to our win, there is a fair bit of activity in the sales funnel as well, is an area that needs very, very deep packet inspection so it needs low latency and very, very high access speeds. So, it’s some opportunities in there for that product feature set very well. So you should expect here to say more about little on the way.

I would just add Len that both of those customers took orders in the first quarter, still have product in hand that they’re working with.

Great, okay. Thank you.

Thank you, Krishna.

Thank you. And our next question comes from the line of Quinn Bolton of Needham. Your line is now open.

Hi Len and Jim. I just wanted to follow-up on the LineSpeed product side, I know Bandwidth Engine is sort of a near-term revenue ramp opportunity. But just from conversations with some of your competitors in that space, they’ll talk about needing type integration or coupling between quick data recovery or Retimer units and either laser drivers or TIAs. And so, wondering what’s your thoughts around that, does it need to be a fully integrated solution CDR plus either a driver or TIA, if it doesn’t I think you’ve got some folks in that area that you’ve partnered with, you kind of take a strategy where you’re kind of doing joint marketing to some of the optical module companies? Thanks.

So, see if I understood the question Quinn, basically I don’t see that, I don’t see if I’ve understood what you said, the TIA and our solution is getting integrated into a single chip, I just don’t see that happening in the real near term. Okay, having said that, I think it’s a, for the last say probably the last four to six quarters, whatever we’re at optical Fiber Conferences or probably not the Linear Meetings but the ORC meetings, we usually have been demonstrating interoperability with one group of people or in another and it’s true that we have entered into I’ll call it a partnership where we’re co-selling and allowing one of the flyers of TIAs and so forth into that market to record sell us and we’ve got some reference cards out that make things run very, very well. And there are some new products coming on both sides that you’re going to step it up probably to the next generation’s requirement. So, one, I don’t see it getting integrated into a single chip, not in this generation of products and I’m going to guess, probably maybe not next year, they’re just different kinds of design challenges if you will. And we are doing some partnering in allowing some of the guys that are serving that market that segment in the art of, to effectively record sell our products. And I think from what I hear from sales and marketing is doing a lot of find.

Great. And then just the second question you sort of mentioned hoping to have first design wins for their family products for the Low Power Retimer in the June quarter. Can we assume that that’s the likely application for that would a QSFP 28 module for Datacom applications?

Quinn, we’ve -- when we’re out on the road giving a presentation and we talked about the LineSpeed family, we talked about form factor a lot and I think we’re able, I think the dice size is such John, John can get it into any one of the form factors that are currently popular for our customers if you will. So, the answer is yes, the Retimer has some unique features sitting on the isle that perhaps other suppliers of that element didn’t think about. And additionally, it’s very, very low power. And it fits into all the form factors and it’s generating probably the most excitement in those form factors where there are no other players at the current time or very, very few.

Sorry Len, maybe just to ask you, is it from a power and form factor, you can go either into CFP4 or QSFP 28, I guess, I’m just wondering, are you seeing much stronger demand for a particular form factor of module for the 100 Gig datacenter module that I’ve heard a lot of talk about the QSFP 28 I think you mentioned that form factor in the prepared script. We’re just wondering if that’s where you’re seeing the majority of customer interest, is it coalescing around that QSFP 28 or do you see a fairly broad range of different module form factors or maybe even on board optics as some of the potential opportunities for the Retimer?

Actually, if I can, so basically Quinn, I mentioned on the call today, the transcript that we’re seeing a lot of activity on the QSFP 28, so that form factor is indeed very popular. On the other hand, I would not say that that’s becoming a standard and the other form factors are going to drop by the way side, I don’t think that’s the case at all. We’re seeing and I don’t have the exact numbers but John scrambling in getting some of the other, John the marketing and sales guy, and as well applications for LineSpeed, he’s scrambling to get some other form factors out there, we have some very active customers looking at it. So, it would be true that QSFP 28 is generating a fair bit of interest, but I would not declare to the fact that we were winner and that the other form factors are going to go away, because some people went to other form factors and we’re in a position to take care of that as well.

Perfect, great. Thanks a lot.

Yes, thank you, Quinn.

Thank you. And I’m showing no further questions at this time. I’d like to hand the call back over to management for any closing remarks.

Okay. Thank you, very, very much. So, on January 30, 2015 we had our last Analyst Call. And we mentioned a few things that we would be focusing on this year. One that we would make an attempt to double our design wins again. And we made quite a bit of that today that we’re off to a very good start. And we even mentioned here in the question-and-answer session that we’ve seen some movement in our backlog and not enough for me to say that we’ve gone by the inflexion point. But in my early days, some of my bosses told me if something happens once, it’s a freak if it happens twice, it’s a coincidence and if it happens three times, it’s a trend. And today I would say that we’re on our way to one of our perhaps best three quarters as we started taking most of this back to being a nice fabric summer goods company. So, we’re moving on that and we’ve talked about that objective a bit today. We talked about design wins and some initial orders for our new LineSpeed family. And today we mentioned we’re hopeful that we might even win our first designs in this current quarter. And I believe this product family and then the stuff for the line card and the back plain is attracting a fair bit of interest from variety of Tier 1 as well. We chose not to make any announcement just on that today but there is certainly some gratifying activity going on in the sales funnel. We talked to SO43 [ph], we talked about BE3 getting released and getting some critical design wins. And I think we’re on schedule to show that to somebody perhaps and reference more with Altera and Xilinx or both.…