Good morning, and welcome to the MoSys First Quarter 2016 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, May 6, 2016. I would now like to turn the call over to Beverly Twing of Shelton Group Investor Relations. Please, Beverly, go ahead.

Thank you. Good morning, everyone. Joining me today on today’s call are Len Perham, MoSys’ President and Chief Executive Officer; and Jim Sullivan, Chief Financial Officer. Before we begin the call, 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 performance 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 IC; 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 the 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 report on Form 10-K filed with 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 if 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, CEO of MoSys. Please go ahead, Sir.

Thank you, Beverly. Good morning, everyone, and thank you for joining us this morning. On today’s call, I’ll review our first quarter progress from a business operational and product perspective. Following my remarks, Jim will discuss our financial results in more detail. And then we’ll open the call for questions. I’m pleased to say that just over a quarter into the year the company’s performance has been in line with our 2016 goals, that is substantially increased revenue, expand our product portfolio, add to our design-win base, reduce costs and increase our customer count. More specifically, let’s discuss our first quarter progress within the context of our 2016 goals. To that end, we shipped meaningful volumes of production units and a fair quantity of prototypes into new opportunities to pull customers in this quarter. As a reminder, we a significant base of the BE2 design-wins most of which have yet to commence production. I may have mentioned this couple of times, mostly the design wins to-date have all been either 2012 that slipped into 2013 or 2013. We haven’t really seen any of the 2014 or 2015 design wins start ramping yet. Further, a portion of BE2 shipments this quarter represent post-releases from a large annual order placed on MoSys by our Tier 1 customer earlier this year. We currently have a substantial number of design wins to this Tier 1 network equipment supplier. And we continue to leverage this key relationship for additional design win opportunities, both through the Bandwidth Engine and LineSpeed product families. During the quarter, we also saw an increase in orders for Bandwidth Engine 1, as well as early production and prototyping orders for our increasingly larger LineSpeed IC family. With an increasing number of prior design wins ramping into production, we’re entering the second…

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, amortization of reported intangible assets and restructuring charges. 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. Turning now to our first quarter 2016 results, total revenue was $1.5 million compared with $1.6 million in the fourth quarter of 2015 and $0.8 million in the first quarter of 2015. Product revenue from the sale of our integrated circuits with $1.1 million in the first quarter, consistent with fourth quarter 2015, and compared with $0.2 million in the prior year quarter. IC sales increased 77% of total revenue in the first quarter compared with 70% in the previous quarter. IC sales were primarily driven by shipments of early production, and prototype build orders of our Bandwidth Engine ICs as well as early production prototype and sample orders of LineSpeed units for new platforms. Royalty and other revenue for the first quarter of 2016 was $0.3 million compared with $0.5 million in the previous quarter and $0.6 million in the year-ago period. Royalty and other revenue is primarily comprised of royalties received from semiconductor customers whose products include our IP. GAAP gross margin was 41% in the quarter compared with 45% in the previous quarter and 69% in the year-ago quarter. The sequential and year-over-year decrease of gross margins, primarily due to product mix as product shipments increased as a percentage of revenue. In…

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

Good morning guys everybody. Jim, I want to start by trying to bring it down on your previous comments with respect to the fiscal year 2016 revenue outlook. I don’t remember the exact amount, but the expectation was somewhere around $9 million or $10 million in revenue for the year. Is that what you’re currently looking at and feel comfortable with today?

Yes. On the last call I mean, both Len and I said we’re specifically focused on IT product revenue and instead that we expect to be in the range of $7.9 million for the year. It’s not something I’m planning, I’m kind of reporting on quarter over quarter. Again, given our kind of lack of visibility and really they want to provide guidance given it’s still early in the ramp process. But I would say at this point the comments that Len and I made and we’re on track with our model. And we thought the IT revenue potentially for the year would be back-end loaded. So we’re not backing off that number today.

Okay. Obviously, the loyalty revenue is down significantly on a sequential basis and I know it’s not the long-term features company, but does fix the cash burn for the balance of the year. And so regarding that particular revenue metrics, how do you feel about some improvement of the Q1 $331,000 and or should we deal with that low level in Q1 instead of new sustainable rate?

It’s something we don’t get forecast on. It’s primarily driven by two royalty payers with a host of other [indiscernible] after that. And as I’ve indicated previously not a lot of new ones to turn on and there are a couple out there we still shape with letters and all that may yield something. Conservatively, given as you pointed out every dollar of that royalty revenue drops to my bottom line, I tend to address my forecast to match the last quarter certainly and with the beginning of the year in a new plan. I brought it down to that kind of level, just because I don’t have visibility and it’s the more conservative fact, but I certainly hope it can bounce back. We haven’t seen the reports - all the reports yet for Q2, so I’m still in the dark, because they’re still rolling in as we’re early in May.

Okay. Great. And your product gross margin I understand is not optimal for the past couple of quarters instead of 20% and I know you’ve been making something to, we configure your cost structure and hence that’s the reason for the CapEx in Q4 and Q1. And so with that behind you, how do you view the progression and ramp up of the product gross margin for the balance of the year?

So I will make an operational comment and then Jim may want to add to it. It seems to me that we have a good understanding now of how to get the when we call the process flow cost down. So that we would expect and that would be a lowest gross margin. I’m going to say somewhere between 44% and 49% something like that on - Bandwidth Engine 1 and 2 combined Bandwidth engine 2 probably the stronger of the two. We can get another may be as many as 10 points by going to a higher volume mafsets [ph] and that mafset is very expensive. So Jim and I are keeping an eye on the cash right now. And we - but when we get that mafset in I think we’re going to be somewhere between maybe 57%, 58% and 65% gross margin. And we’re sole-sourced into the market with our products with very, very high performance and very important to the solution that customers bring into market. So we wouldn’t expect a very much in a way of price erosion so I think this was summarized with your question Gary, I think we should expect to get in the middle, maybe the higher middle 40s and then with the mafset and the few things we have to do, we should see ourselves get somewhere between I don’t know may be56% 57% and 65%. And I am of the opinion that the product mix is better than 60 and for steady gross margin product based on the value in the system and we haven’t moved off that. So - and we have a good understanding of how to get to now. And Jim mentioned we bought some hardware to increase our ability to handle increasing volumes of products that have been demanded by our customer base and so forth. And we’re in the process of getting the last things down to take as much cost out of the line as we can. And then we’ll be standing by to that mafset.

Okay. I would just add to that one that we are, under GAAP we are still on a reduce standard cost. You believe in the change over time some of the period you shift. So we’re still using the previous standard cost just kind of drop it in the quarter. So the cost structure in what we’re shipping is still at the higher standard cost. And you think we’ll see notable improvement in Q2. We did end up counting some units in Q1 that will have higher power. We just concluded that, it was just too expensive to fix et cetera. But I do expect to see improvement in Q2.

Okay. Last question from me. There has been some consolidation and communication equipment group specifically with your customer base and, if I’m not mistaken, may be one of your Tier 1 customers has recently consolidated with another. I’m wondering if that’s caused any interruption in design-win activity and/or your expected revenue ramp with that Tier 1.

No, I think that the divisions of our Tier 1 customer that we do business with if you will are in a business that as far as I can see was not been prosecuted by the emerging partners if you will. And, yes, the combination of the two companies exposes this group to a much larger total market than he was looking into before, that if you will the customer lift is going to be considerably wider. So we haven’t seen any negative effects from that merger and it’s my opinion that as the smoke clears the group that we do business with, which I believe was a most profitable group inside of the $7 billion, $8 billion, $9 billion, $10 billion dollar company. I think their prospects will only get better. So it’s not an issue that I can see in any respect at all, Gary.

All right, great. Thanks, guys.

Thank you, Gary.

Your next question comes from the line of Krishna Shankar from ROTH Capital. Your line is open.

Yes. For the March quarter, you had revenues - your IC revenues were comprised both BE1 and BE2 I take it, and can you give us some sense for how much of the revenues came from your top-tier customers versus a broadening of demand from other design-wins that you have in terms of revenues?

So first off on Tier 1 customer I’m going to say that for the year. And I haven’t looked to see what we’ve done for the first quarter or what’s on the backlog for this quarter. For the year, we would expect that Tier 1 customer to be something in the area of 30% to 33% or 34% of our revenue. We have a large annual order on our books that got placed sometime ago. And I don’t pay attention to releases against that. Typically, they end up ordering more than they - or would put on you so that you end up so with something greater than that, but they place quite a large order on us here a while back. So I would say that - and if you look down into the 2017, I am going to make a guess at that 30% to 33% or 34% might dropdown into the high 27%, 28%, 29% or maybe even a bit large post [ph], but that’s very speculative. However, that it’s something in that range, that’s what the percentage of the business going to our Tier 1 values, Krishna.

Okay. And then are you shipping production BE2 now both to high-speed telecom datacenter and security applications, or can you give us some sense of the end-market demand for BE2?

Yes. Just a brief comment, that the early design wins are mostly into the core and the edge routing. And I think that the first time we’re going to see security appliance guys start ramping up might be the last few months of this year. And if we looked at our - we talked here and there at each conferences about the fact that from the time you win your order you ought to just move out 24 months and then allow for some increasing prototyping. And maybe over the 24th month - the 30th, you ought to see that your customers start ramping up. If we are on schedule, our security guys will probably start that kind of a ramp near the end of this year. Datacenter guys are about on the same trajectory, if you will. So if we backed up that, we’d say that those orders were won in the second-half of, say, 2014 or something like that. So it’s gone to 2015, 2016. We should start to see that ramping later this year, Krishna. So this year, just to sum it up it’s mostly going to be in the network infrastructure itself, core routing and maybe - I’m sorry, edge routing, perhaps a little bit core routing.

Okay. And then, do you anticipate any revenue contribution from LineSpeed this year, and if so, which particular product line seems to be getting the most traction within LineSpeed?

We are doing sampling across a fairly wide area that a lot of reference bodes out, if you will. I would say that I believe that Jim and I have been reasonably consistent that we would expect that some starting to ramp up LineSpeed again in the last four, five months of the year. I would say, we’ve had reference words out for the longest time on products that go into optical modules. We’re - the reach isn’t so dramatic, but we need to have very, very low power. It’s incredibly important. I think beyond that, we’re looking into some gearboxes that have unique features on the I/O, and maybe forward error correction or multi-link gearboxing and so on and so forth. So - but probably, if it’s such ramp, I wouldn’t be surprised if the beginning of it is into the optical module. But it could be one of our gearboxes retimer with a unique - some features that aren’t widely available from other suppliers, that’s just forward error correction or multi-linking.

Okay. And then, Jim, has your OpEx, given all the restructuring is done, is your OpEx is kind of stable now for Q2? Should we assume sort of similar levels and can you give us some sense for the cash burn going forward in Q2?

Certainly, as I indicated on the call, I reiterated that our non-GAAP OpEx would be that just over that $5 million range on a quarterly basis. Subject, as I said, any shuttles, tape-outs, major backend, I’ve included some backend. But we’ve already spent a fair amount, because obviously the backend cost for that products that are in production or CapEx, backend costs, renewal products that haven’t been released to production hit R&D. And we’ve already have had the expenditures we need right now for Bandwidth Engine 3 and we’ll be judicious on LineSpeed and investing as we see more activity, et cetera. So going forward, I think we positioned ourselves with the restructuring to bring down - we have brought down cost very meaningfully. As part of that, there is a function of just how much revenue can we bring in. As Gary pointed out earlier, although it’s still small I don’t like losing any royalties which goes right to my bottom-line. Right now, we’re just focused on measuring kind of our model against revenue coming in and I think Len and I - Len indicated particularly. So far we’re on track. We didn’t - it’s a function of when these wins turn on. And assuming it takes kind of in that range to 24 month to have to kind of look back and then wait for us to hit and have some ramp period. So we’re certainly going to keep monitoring our progress et cetera. But as I believe I indicated, I expect the burn to come down meaningfully over the next few quarters.

Okay. Thank you.

I’m showing no further questions at this time. I would now like to turn the call back over to Len Perham for closing remarks. Please go ahead, sir.

So in closing I would just like to make one comment. Earlier, Gary asked an interesting question. He asked what’s the ramifications to us was with respect to an M&A-action taken by one of our - who he thinks that one of our good customers might be. And I commented on that. But I would go further and say, that part of the question that he didn’t ask was, some of these M&A activities have reduced the number of suppliers of niche type products that are very, very valuable to the customer base we all serve. By that, I mean, it could be that in some of these M&A activities where there was once two suppliers, there’s now one. And in some of these M&A activities it might be that the two companies combine and they’re pretty huge. And they’re strategic plan going forward for product families and where they want to prosecute their business is such that they don’t have interest in these niche products anymore. And we are seeing some real interest in that area. By background through my life was building these niche oriented products that are not widely available but provide great value in the system. I think IDT might have been maybe 75%, sole source when I was running the company, and clearly NetLogic had many, many products [that they designed were] [ph] delivered. So it’s an area that I’m familiar with. And I would say the most interesting thing we’re seeing perhaps as a result of all those M&A activities is, the consolidation of small niche players into a one very big player or acquired by a thin player, who may lead the - the customer with one supplier or may not even have one supplier, because it may be obvious that the strategic intent of this much larger enterprise is to not serve that business at all. And uniquely architected networking memory is very, very important to the system going forward. And it’s going to be more important in the future than it is today that’s critical. And the Bandwidth Engines are very, very innovative and they support very high performance. And it’s an area of opportunity for us. And so having said that, that’s sort of the only issue I thought I’d love to - I’m spoken to this morning. I want to thank you all for dialing in to listen to us. And we’re hoping to let you know about even better results next quarter. I want to thank you for your time and that’s all we have today. Thank you very much and have a great day.

Ladies and gentlemen, this concludes today’s conference. Thank you for your participation and have a wonderful day. You may all disconnect.