Rambus Inc. (RMBS) Q4 2012 Earnings Report, Transcript and Summary

Good day ladies and gentlemen and welcome to the Rambus Q4 2012 Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to turn the call over to your, Satish Rishi. Please go ahead.

Thank you Patrick, and welcome to Rambus fourth quarter 2012 and fiscal year 2012 conference call. I’m Satish Rishi, CFO and on the call with me today is Dr. Ron Black, our President and CEO. The press release for the results that will be discussed here today has been filed with 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 89935133 when you hear the prompt. In addition, we are simultaneously webcasting this call and along with the audio we’ll be webcasting slides. So even if you’re joining us via conference call, you may want to access the webcast for the slide presentation, a replay of this call can be accessed on our website beginning today at 5:00 p.m. Pacific Time. In an effort to provide greater clarity in our financials, we are using both GAAP and non-GAAP pro forma format in our press release and earnings call. I need to advise you the discussion today will contain forward-looking statements regarding our financial prospects, pending and current litigation, and demand for our technologies, among other things. These statements are subject 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 are under no obligation to update these statements. Further, as mentioned, we will discuss non-GAAP financial results today and have posted on our website reconciliations of these non-GAAP financials to the most directly comparable GAAP measures. You can find a copy of our earnings release and the reconciliation on our website at www.rambus.com on the Investor Relations page under financial releases. Now, I’ll turn the call over to Ron.

Thanks Satish and good afternoon everyone. 2012 was a year of change for Rambus. We restructured the company for improved financial performance and more rapid decision-making, develop several new products, some of which were recently announced at the consumer electronic show and engage the industry in a more collaborative manner while still aggressively defending our intellectual property. As Satish will review in more detail, we ended Q4 with customer license income, revenue and pro form net income within our guidance achieving positive operational cash flow again. The previous quarter had a sizable catch up payment Fujitsu, so excluding that payment, our top line improved quarter-over-quarter. While we still have some more work to do to improve both the top and bottom lines, we believe that the company is well positioned for this year and next. As I’ve mentioned in previous earnings calls, Rambus, as a company is being more open in collaborative with the industry fostering closer customer relationships to not only invent but bring invention to market. A proof point of our more collaborative approach is Broadcom’s recent announcement that they have incorporated our Cryptography Research division’s Differential Power Analysis or DPA countermeasures across it’s semiconductors for set top boxes. By licensing this technology, Broadcom is deploying advanced security measures that will provide protection to its customers. While Broadcom is the first semiconductor provider to broadly deploy our DPA countermeasures for set-top boxes, we anticipate that their aggressive adoption of our technology will prompt many others to do the same. In fact there are many companies who are utilizing our DPA countermeasures including Atmel, Infineon, Microsemi, Microsoft, NXP, Raytheon, Renesas, Samsung, STMicroelectronics and Toshiba to name just a few. It’s through engagements like these and many others that enable us to have over 7 billion security products under license.…

Thanks Ron. As a reminder, we use non-GAAP or pro forma numbers, which we believe are indicative of company performance as they include certain cash events and exclude certain non-cash and discreet events such as impairment charges and restructuring charges which are not indicative of a long-term performance. Customer licensing income is a non-GAAP measure that includes cash payments that we received under a signed patent license agreement. It is how we measure the top line of our business and it may be different than revenue within a particular period when the amount of cash received from our customers is different than the revenue recognized. Let me start by reviewing some highlights for both the fourth quarter and the fiscal year first before going into additional detail. Customer licensing income for the fourth quarter was $61.6 million, within our guidance of $60 million to $66 million. Customer license income for the full year was $246.7 million. Revenue for the quarter was $57.4 million within our guidance of $57 million to $63 million. Revenue for the full year was $234.1 million. Pro forma expenses came in at $45.2 million for the quarter, well below our guidance of $49 million to $54 million as we continue to manage expenses tightly and drive towards delivering higher operating leverage. For the full year, pro forma expense was $202.9 million. In addition, we reduced our run rate from $56.7 million in Q1 of 2012 to $45.2 million in Q4 or approximately 20% as we continue to drive leverage and improve our profitability. Pro forma net income was a gain of $8.3 million as compared to our guidance of $2 million and $9 million. Pro forma net income for the year was $19.9 million, where we improved profitability from $25 million in the first half of…

Thank you. (Operator Instructions) Our first question comes from Paul Coster, JPMorgan. Your line is open. Mark Strauss – JPMorgan: Yeah, hi, it’s Mark Strauss on for Paul. Can we just talk a little bit more about the invention to market mantra here? Anything you can give that gives us a little more confidence in the end-market demand. Before you roles these products out, just what kind of market research is being done or is it more of, if you build it, they will come kind of thing?

No, I think in all of these, Mark that we’ve done a deep dive and it actually started long before I came to the company. On the LED front, it’s clear that there is high demand for these products and we’ll see continued demand for them. It’s very complimentary to the technology that we had put in place for the general lighting market. With respect to the software that we rolled out in with John Thomas’ division, certainly that’s a bit more speculative, it’s different than Rambus has done before, but we had spent a long time examining the mobile space and while we were very impressed by some of the technologies actually companies like Apple was air played. We just thought that the industry didn’t have a great grasp on how to really make a unique user experience. So we started more from the market side of it and how consumers interact with these devices, especially consumers far younger than myself. And as said, while there is really the three screen, there is the handset, there is the tablet, and there is the TV, how do I want these things to interoperate and how do I want get access to meta-type data and create transactions. So I think the marketing of this was very, very good. Of course we have, especially on the software side that’s a more difficult market for us because we’re not well known in it, but we’re getting a lot of positive traction. Mark Strauss – JPMorgan: Got it, thanks. So you introduced these Imerz and above that CES, I guess, should we expect anything new over the next few months or is it kind of a wait-and-see thing here?

I knew – do you mean in those areas? Mark Strauss – JPMorgan: No, I meant any other assets outside of those areas that you’re looking to go to market anytime soon.

We have some interesting stuff but I think you know about on the non-volatile memory side that’s a little bit more strategic but we’re doing a lot of work there. And as I mentioned in the script, next week is a really big week for us with our memory and interfaces division. Really the technical core of the company, they are rolling out some very, very interesting technologies and products. So I think that’s the place to go and look. Mark Strauss – JPMorgan: Got it. Okay and then last one for us, just even if you can’t name customers if you can just quantify the number if any of major renewals on SPG side on the next 12 to 18 months.

Mark, I think for SPG we don’t have any renewals coming on next 12 months. Mark Strauss – JPMorgan: Yeah that’s always a go ahead. Thank you very much.

Thanks.

Our next question comes from Hamed Khorsand from BWS Financial. Your line is open. Hamed Khorsand – BWS Financial: Yeah, hi guys. Thanks for taking the call. Just a couple of questions with the scale in revenue as far as new products coming, rolling out and just generating revenue as we go into 2013. Is that going to be part of change in the OpEx front?

No, I think the new products we are talking about with the cost reductions we had, we should be all of fun with the roll out of new products as we come out. And from an OpEx perspective, as you’ve seen for the last couple of quarters, we’ve been fairly relatively flat and we are getting the benefit of the cost reductions that we started implementing back in August. So from a cost perspective I think we are very focused on managing our expense line. Hamed Khorsand – BWS Financial: Okay. Is there any kind of expectation on large revenue ramp appear in 2013, or is it just basically low by low until there is more of uptick in the general market?

Well any large revenue… Hamed Khorsand – BWS Financial: I’m talking about the new products that you’re talking about, the LED lighting and so forth.

Yeah for LED lighting as we’re introducing the bulb and we had mentioned that if they come into market sometime in the second half, so you could probably see an uptick in our revenue as the ball ticks off in the second half of the year. Hamed Khorsand – BWS Financial: Okay. My last question is on the legal front, now the Robinson ruling, it just kind of goes straight back to the appeals courts that you guys been emerged the White ruling and the Robinson ruling together again or do we just have a part two?

We’ll have to wait till to have our judgment and I think in probably about 30 days from the, there was an order yesterday or today. So we’ll probably wait 30 days, she’ll give the order. Once she gives the order, then that could be a potential path of taking it back to the CES. Hamed Khorsand – BWS Financial: Okay, that’s it from me. Thank you.

Thank you, Hamed.

Our next question comes from Michael Cohen from MDC Financial Research. Your line is open. Michael Cohen – MDC Financial Research: Hey, thanks for taking my call. My question is probably for Tom if he’s there. As Satish just mentioned, Judge Robinson issued an order today that final judgment can be issued 30 days from now. And what I would, my question is, do you expect that other parties such as LSI and ST Micro and maybe Hynix might file collateral and stop on the issues based on that final judgment or else anything that would preclude them from doing that?

Michael, that’d be very speculative. So, we don’t know. We’ll see what the judgment comes out to be and we’ll see what the other parties do and then we’ll react accordingly, probably to speculate whether they will or will not and what we’ll do if they do or if they don’t. I think probably it would not be a good use of our time. Michael Cohen – MDC Financial Research: Okay, thank you.

Thank you, Michael.

(Operator Instructions) And I would like to close the Q&A session. I will turn it back to Ron.

Thank you all for your continued interest and support. As mentioned, this is a very exciting time to be associated with Rambus. We look forward to sharing more good things in the coming weeks, good day.

Ladies and gentlemen, thanks participating in today’s program. This concludes the program. You may all disconnect.