Rambus Inc. (RMBS) Q1 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Rambus Q1 2017 Earnings 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 be given at that time. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to turn the conference over to CFO, Rahul Mathur. You may begin.

Thank you and welcome to the Rambus first quarter 2017 results conference call. I'm Rahul Mathur, CFO and on the call with me today is Dr. Ron Black our President and 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 99301279 when you hear the prompt. In addition, we are simultaneously webcasting this call, and along with the audio, we are webcasting slides that we will reference during portion of today’s call. So, even if you are joining us via conference call, you may want to access the webcast with the slide presentation. A replay of this call can be accessed on our website beginning today at 5 p.m. Pacific Time. In an effort to provide greater clarity on the financials, we are using both GAAP and non-GAAP pro forma financial presentations in both our press release and also on this call. Our discussion today will contain certain forward-looking statements regarding our financial guidance for future periods including Q2 2017, prospects, product strategies, timing of expected product launches, demand for existing and newly acquired technologies, potential benefits of our recent acquisitions and the growth opportunities of the various markets we serve 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 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. Further, as mentioned, we will discuss non-GAAP financial results today and have posted on our website 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 website at rambus.com on the Investor Relations page under Financial Releases. The order of our call today will be as follows, Ron will start with an overview of the business, I will then discuss our financial results including the guidance we issued in today’s press release, and then, we will end with Q&A. I’ll now turn the call over to Ron to provide an overview of the quarter. Ron?

Thanks Rahul and good afternoon, everyone. The first quarter of the year was another good one for us and I'm pleased with the progress we're making across all of our businesses. Revenues were 97.4 million up 34% year-over-year. Our memory and security businesses are doing well and our revenue is at the high end of the guidance we provided. Rahul will go through the financial details in a few minutes but we're off to a good start for the year and our acquisitions continue to execute to our expectations. We made substantial progress in our memory and interfaces division this past quarter. Our licensing program remains robust and we continue to extend our portfolio beyond the DRAM market including a signed agreement with Western Digital to utilize both our memory and security technologies with a particular emphasis on flash memories. Expanding our IP Core solutions we introduced our high bandwidth memory PHY solution targeting networking and datacenter applications and designed for systems that require low latency and high bandwidth memory. This solution which is available on GLOBALFOUNDRIES 14 nanometer FinFET process technology, it is fully compliant with the JEDEC HBM2 standard and meets the needs of today's most data intensive tasks by delivering data rates of up to 2000 megabits per second per data pin and a total bandwidth of 256 gigabits per second. Just as a reference that is greater than ten times higher bandwidth than existing DDR4 solution shipping today. On the SerDes side we were pleased to be a key partner in a multi company collaboration where Samsung taped out a 14 nanometer network processor utilizing its 14 LPP process technology and our high speed 28 gig SerDes solution. This was an important collaboration and is the first product to come from Samsung's I-Cube solution that they are expecting to be adopted into applications such as computing, server, and artificial intelligence in the near future. Also during the quarter we introduced the availability of our 56 gigs SerDes5 on cutting edge FinFET process technology and partnered with Samsung to develop it on their 10 nanometer LPP process mode. Our server DIM chipset is on track and we are shipping product to key customers in the datacenter. Moving on in our emerging solutions division we continue our project with Microsoft to help define memory system requirements for quantum computing, enhanced memory capabilities, reducing energy consumption, and improving overall system performance utilizing memory at cryogenic temperatures. We are excited about the progress we're making on this program with Microsoft as we have expanded our collaboration and started development of a prototype system to optimize memory performance at cryogenic temperatures. Our investment in these technology initiatives will help provide the foundation for long-term growth. Turning now to our security division we were pleased with our continued momentum as Q1 was an excellent quarter with the launch of our unified payment platform and Mobile World Congress in Barcelona. This platform enhances payment security and reduces cost for retailers by easily integrating payment cards, gift cards, loyalty points and coupons into a single mobile wallet and shopping app for a seamless shopping experience for consumers. What is so compelling about the solution is that it securely converts and manages digital value to enable consumers to pay with credit, points, and coupons in a single transaction and transform in that manner how they shop and pay. By using tokenization the risk of card on file fraud is reduced by replacing key account information with temporary data. As you can see we have launched a comprehensive platform and one that we are very excited about and will be sharing updates on throughout the year. In closing we are making good progress across all of our businesses and our acquisitions continue to execute to our expectations. We also have exciting programs that allow us to leverage our expertise in memory and signaling while expanding our security offerings into consumer facing and consumer driven interactions. The programs we have in development are poised for growth in the future while today we focus on executing to plan. With that I'll turn the call to Rahul to walk everyone through the quarterly financial results. Rahul?

Thanks Ron, before I go through our financial results I'd like to remind everyone that for this call and for internal assessment we use non-GAAP or pro forma numbers to discuss our operating results and forward-looking projections. We believe these numbers are more indicative of our performance since they exclude certain discrete items such as stock-based compensation, amortization, impairment, and restructuring charges as we believe that these expenses or charges are non-cash or not indicative of long-term performance. As noted earlier, the reconciliation to our GAAP financials is available in our press release and in our earnings presentation and posted on our IR website. And with that I'd like to turn to our financial results for the quarter. Let me start with some highlights on slide 6, revenue grew very nicely 34% year-over-year another proof point that our acquisitions continue to execute to our expectations. We delivered flat quarter-over-quarter revenue which is positive considering our historically seasonal decrease in the first quarter. We continue 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. We had a solid quarter and our Q1 revenue and EPS performance shows the continued execution on our key initiatives. We also continued to make progress delivering profitable growth while we achieved another quarter of disciplined cost management without sacrificing investment in our growth initiatives. We delivered pro forma EPS on the high end of our guidance. Let me talk you through some of the revenue details on slide 7. Revenue for the first quarter was 97.4 million at the high end of guidance we provided 93 million to 98 million. Our strong revenue performance was due to strength in our licensing program, execution by our newly acquired businesses, and partly as a result of an existing partner choosing to accelerate payment into the last day of the quarter that we had anticipated to come in Q2. Going into additional details, our memory and interface revenue was 70.6 million, security was 23.2 million, and our lighting and display technology revenue was 3.6 million. Quarter-over-quarter these numbers represent an increase of 3% for memory, a flat security business and the 2.1 million seasonal decline we anticipated in our lighting business due to timing of royalty payments. Year-over-year mid revenue grew 32% and our security division grew by 65%. The increase in revenue from our memory and security divisions was driven by our continued execution on our acquisitions and our strong licensing program. As we look to 2017 we remain on track to meet our internal revenue targets for each of our acquisitions. Now let me walk you through our pro forma income statement on slide 8, along with our solid revenue performance in Q1 we continued to actively manage our expenses. Cost of revenue for operating expenses or what we refer to as total operating expenses for the quarter came in at 66.8 million at the low end of our expected range without compromising our ability to invest in programs that we expect to drive long-term growth. We ended the quarter with headcount of 784, roughly flat with 767 in the previous quarter and up from 626 a year ago. Again the increase in headcount is related to the new employees we welcome to Rambus through our acquisitions in 2016 to support our long-term growth. Revenue and operating expenses led to operating income of 30.6 million, again at the high end of our guidance of 23 million to 31 million and an increase of 0.5 million quarter-over-quarter. After adjusting for noncash interest expense on our convertible debt, pro forma interest and other expenses for the first quarter were 1.3 million even with Q4. Using a flat rate of 35% for pro forma pretax income, net income for the quarter was 19.0 million or $0.17 a share as compared to 18.7 million last quarter. Now let me turn to the balance sheet details on slide 9. Overall cash defined as cash, cash equivalents, and marketable securities was 187.6 million an increase of 15.4 million from the previous quarter. During the quarter we generated approximately 18 million in cash from operations. First quarter CAPEX was 1.9 million and depreciation was 3.4 million. In 2017 we expect to make additional capital investments to help fuel our growth specifically at some of our international facilities and for our CHIP programs. As a result I expect we'll have roughly 12 million of CAPEX for the year with another 5 million or so in the second quarter. Correspondingly I expect depreciation of roughly 3.5 million per quarter. As we expected we saw solid operating cash flow in the first quarter and our ability to generate cash positions us nicely in the current industry environment. Overall we believe we have a strong balance sheet with limited debt, and we expect to continue to generate strong cash from operations in the future. Now let me turn to our guidance for the second quarter on slide 10. As a reminder our forward-looking guidance reflects our best estimates at this point of time and our actual results could differ materially from what I'm about to review. Also given that a substantial portion of our revenue is related to licensing agreements, we don't exhibit the same seasonality as other semiconductor businesses that have a larger mix of product revenue. As a rule of thumb to use as you model our quarters looking back over the last several years on average we find Q1 down 2% from Q4, Q2 down another 5% from Q1, Q3 up 5% on Q2, and then Q4 up 2% over Q3. We expect revenue in the second quarter between 90 million and 96 million which represents our typical seasonality. As I mentioned earlier, our guidance was impacted as a result of an existing partner choosing to accelerate payment into Q1 we had anticipated in Q2. We expect Q2 non-GAAP total operating expenses which includes COGS to be between 67 million and 71 million. Over the course of the year we expect total operating expenses to stay roughly flat as a reduction in our functional group operating expenses will be offset by higher COGS related to our expected revenue growth. Non-GAAP operating income for the second quarter is expected to be between 19 million and 29 million. We expect roughly 1 million in non-GAAP interest and other income and expense and based on a 35% tax rate we expect between 6 million and 10 million in taxes. We expect our future to share count to be roughly 115 million fully diluted shares outstanding which includes roughly 1 million shares of dilution related to the $138 million convertible debt that we had due in the third quarter of 2018. This leads you to between $0.10 and $0.15 of non-GAAP earnings per share for the quarter. Looking ahead to the remainder of 2017 we're very focused on ramping our acquisitions as they continue to deliver to our expectations as well as maintaining our long term focus on profitable growth. While we will no longer be issuing annual guidance as we look to forecast from our sell side analysts we continue to be comfortable with their revenue and earnings estimates in aggregate for the subsequent quarters and full year of 2017. Let me finish with a summary on slide 11. As I look at the quarter we're proud of the solid execution by our team and the progress we continue to make on our financial and business initiatives. Our strategy remains unchanged. We continue to execute well and are growing profitably through strategic acquisitions and execution on key programs. We have a large predictable high margin revenue base and we have a strong balance sheet to support our strategic initiatives. With that I'll turn the call back to our operator to begin Q&A, could we please have our first question.

[Operator Instructions]. And our first question comes from Suji Desilva with Roth Capital, your line is open.

Hi Ron, hi Rahul, nice job on the quarter here. In terms of the second half, the visibility you have here can you talk about what some of the key programs or products give you -- that give you visibility into the statements about being comfortable with the consensus?

Yeah, sure Suji I'll get the high level one and Rahul could chime in and add some. I think it's the same discussion that we've been having for really the last several quarters. As you know the base business we're very lucky to have exceedingly profitable, really solid and we're continuing to close licensing agreements most notably in new spaces which is great. We had Xilinx before and now we just did Western Digital. So that's still solid but that base is not a faster growing business and the growth areas are really around the acquisitions that we had. So we're looking kind of half of the expected growth to be on the payment side and ticketing and the other half to be on the buffer chip and everything just keeps on trucking. Rahul, do you want to add anything.

No, I think what Ron said is exactly right, is that we have this very profitable foundation from that traditional licensing business and with the recent announcements particularly the ones that Ron mentioned we've been able to expand upon that. The challenge that we have though is that our licensing agreements are scattered over time. So we're usually in a constant state of working with our customers for the next renewal cycle and that's what gives some of the fluidity in terms of the course of the year. So even though we don't have any of the significant DRAM renewals up this year, the timing of these renewals and the new partnerships in our licensing business can be predictable -- can be difficult to predict and that's really what gives us some variability over the course of the year. However, if you look at our engagements because we've been able to broaden our engagements beyond just the occasional DRAM players as well as execute in terms of these acquisitions that's what gives us comfort that we have what we need in place to hit our numbers for the rest of the year and beyond.

Okay, great and then a question on the Western Digital flash arrangement, I'm just trying to understand whether the flash memory opportunity is incremental for you guys or not on the one hand, the people who sell flash or sell DRAM license across the DRAM side and on the other hand probably it is a different product category, so maybe you can help me understand incremental market opportunity in flash, is that something you can articulate?

Yeah, if you go back to the DRAM agreements that we have, they are broad based agreements. Not all on the security side but on the memory side. So there is really little incremental benefit from the existing DRAM providers until the renewals. But that is 2019, 2022 and 2024 or something. So it's quite a ways away.

Okay, great and then my last question is on the payment platform you showcased at Barcelona, I'm just wondering how the initial business model plays out in your financials as you start to gain traction with that payment platform initially and overtime?

Sure, so at the high level just -- and to manage expectations, understand that the way these things roll out is if there are two pilots so we're working on pilots for the second half then lead into tenders. So it's a little more lumpy which then lead into licensing agreements. What is a little bit different about this platform, as you move and we still partner with the banks, it is one part of the bank acquiring side of it that service the retail space. So as we go to market with this spot the bigger retailers would be straight licensing just like we do today. The smaller players would be in a SaaS model so it will be more subscription based. So you look at it as incremental and we think this will be attractive over time because it'll show a more steady growth and be able to be more predictable long time as opposed to big licensing deals for millions and millions of dollars that come and go over time.

Okay, thanks guys.

Thank you Suji.

And our next question comes from Matt Robison with Wunderlich. Your line is open.

So I just wanted to get your perspective on an announcement made today with Micron and Microsoft concerning their authentic, Micron's authentic rule of trust technology and I was wondering if you guys -- if you're involved with that or how you see that industry development in terms of what you're trying to accomplish with the trust?

Matt, it's Ron. Thanks for asking the question and actually sending the email. We hadn't seen it until you sent it. So no that's not us, we're not involved with it but we are extremely excited about this. Because this is what we've been saying is a requirement for the industry for a long term and as you know with our CryptoManager solution it provisions things just like this. So we look at this as a great opportunity, we look at it as the industry is going exactly down the path that we wanted. Its new opportunities for DPA licensing technology so it's super.

So are there both things out of the purse to be competitive so do you see yourself participating with the other with their peers as they look to be competitive with this or do you see yourself also potentially augmenting this DPA?

From the release and what I saw I wouldn't say it was competitive, I don't really know the details of it but I didn't get the feeling it was competitive, it was more complimentary. If you think about our offerings and what we've been describing really for the last three years really at least solid to when we talk about CryptoManager is that the value in things shifts to provisioning, that security is needed, that hardware based security, hardware root of trust in fact I think that may have even been our word that the industry isn't picking up on what seems to be translating is the only way to guarantee right that you can really manage it and securely manage keys. So as a cryptography company which is a little more specific than just general security we think that this is perfect. So I don't see it at all as anything other than exactly complimentary and hopefully it's going to drive other industries and segments if you look at this. So we're hoping that this is going to gain traction and we are seeing a lot of general interest in our CryptoManager solution for IOT.

Okay. Thank you.

And our next question comes from Gary Mobley with Benchmark your line is open.

Hi guys, thanks for taking my question. Realizing that two pillars of growth -- for revenue growth that is relate to DDR4 buffer chip and subsequent product cycles and as well the SCS side of the business for security. I wanted to ask where you guys stand and get an update on where you guys stand with respect to DDR4 buffer chip and getting traction with your lead customer as we look into the second half of the year?

So in fact today I think we've spoken about this before. We're shipping in Haswell and Broadwell and we designed in for Skylake and to use parts for Icelake. I think we're in very good position, we feel comfortable also typically on DDR5. So that's kind of the status. There's really been no update from where it's been before. We have -- we're still learning of course the seasonality and more of the details about the business because it’s our new entrant. But we still felt confident that we have more traction in the second half than we do in the first half and things are just kind of moving along.

Okay, correct me if I'm wrong but I believe you have the license renewals is coming up with a couple your SoC licensees specifically Nvidia MediaTek license renewals this year that is. Can you confirm that and do you see any speed bumps associated with those renewals?

Yeah, I think it was in the press releases so I don't know the specific timing of those but we have them periodically throughout the year. This is what Rahul was referencing in one of the previous questions. We don't have any of the big renewals with the DRAM manufacturers but we have new business that we're working on and renewals throughout this year and next. It's kind of the typical cycle.

Okay and Rahul you mentioned, well I guess I can see from the balance sheet that you had about a $5 million sequential increase in deferred revenue and I know the total dollar amount is relatively small compared to your quarterly revenue but I think in your deferred revenues are at an all time high, can you speak to what's your driving there in terms of customer engagements and what not?

You know Gary it really is just the timing of payments and the contracts that work in terms of our customer bases because as you know in different parts of our businesses we structure those contracts differently in terms of how they come in. So in some cases we'll have customers that pay us upfront and then we'll recognize revenue ratably over a period of time or the period of the contract. So it's interesting because I have looked at multiple companies and tried to build the intuition on how deferred revenue works and it's just always been a challenge for me based on the timing of cycles. But as you said earlier I think the variance quarter-over-quarter wasn't necessarily material, it was a few hundred thousand more I believe but it's really again just related to the timing of agreements and contracts.

Okay, that's it for me, thank you guys.

Thank you Gary.

Our next question comes from Paul Coster with JP Morgan, your line is open.

Thanks, first up can you just confirm regarding this your issues for the year does not really include any contribution from the emerging solutions and then can you give us a quick update on your thoughts around realizing revenue from those initiatives especially those related to data center and memory?

Sure Paul, why don't I take the first part of that question and I'll ask Ron to comment on the second. So we do invest in long-term growth opportunities and most of those investments are actually in that emerging solutions group. Now what I look at is for the broad number of programs that we invest in is do we have partners who are investing along side with us. Now in many cases that we have seen [Disturbance] and then, Paul, you still, okay, in many terms what this means is that we'll have an engineering team and then the partner will have an engineering team as well and we're working together. In other cases what it means is that we'll have an engineering team and then sometimes we may get some NRE from some of our partners for the work that we're doing. So not every initiative is the same in terms of the financials but there is a small amount of NRE that we do get as part of these initiatives. And also for me that's what gives me faith and confidence that we are working with our industry in terms of these long-term growth initiatives and we actually meet our investments based on what our partners are doing as well. So there is some NRE that is associated with some of these activities in the industry but truthfully there's also NRE in our other businesses as well. And it's just a validation that our customers in the industry are working alongside with us in terms of where we're headed. I will ask Ron to answer the second half of your question.

Could you repeat the second half of the question Paul. Unidentified Analyst So, Ron I am just wondering if in addition to -- well, it is good to hear that some NRE revenue coming through I don't measure this particular material but of course I am overall interested in potential payback from these really big R&D initiatives and well what's the latest and what's your view of the timeline to realizing those paybacks?

So, each of them is different so it depends on how broadly, if there is some specific one. With respect to Microsoft this is obviously a highly speculative program. They're investing heavily in doing it and I think that the earliest we would see something is around 2020. Now we plan on building this so, what we've said in the prepared remarks I think is that the next stage is prototyping. We've done some work already taking down the temperature so we're kind of going through the plan. Laura and team are executing exactly on to plan. So it's very exciting but it's a high risk program. So 2020 would be it. Now what's so great about this is Microsoft is just I can say a super partner. I went to visit some of them in Redmond and showed all of the things that Rambus are doing there. They're very influential, they are really thinking through strategically where the data center is going to go. But we like it because we're co-investing as Rahul said and really partnering with them on this and we're hoping that it's going to turn out to be a product. But obviously it's highly speculative. It could be game changing or it could run into problems and be nothing. Was there any other of the programs that you…

So, wondered if you could give us an update on the Intel initiative as well?

So the Intel initiative I think is more just a collaboration on DDR5 as we have said. We think we're in a very good position on that but again Intel is a great partner. They're working very closely with us, we're working very closely with them, we are expanding our focus. We are on track for all of the devices that we're trying to take out and take to market. So it's going well. Was there another one?

And resistive RAM but I mean there's no time, there is no -- these all seem pretty…

DDR5 is the same timeframe, I think it's 2019. It is where it starts shipments, it could be a little early, it could be a little later and then it ramps from there. The importance of being in this and just by way of history if you recall, PHY led in DDR3 and got the lion's share of it. They had an issue in missed on part of DDR4 so that put them behind. Obviously we entered the market much after the DDR4 had already initiated because we were thinking about it more as a long-term play as we saw the tax rates go up. By combining the teams I think we're in a position to gain share on DDR4 but to win big in this and achieve our long term objectives is we need to be first with DDR5. So the gain and the revenue for 2019, 2020, 2021 is how good we execute this year and next on DDR5 even though the revenue is not there, it's just the nature of the beast. Now the good news is as we power into that we don't need to add expenses as Rahul and I've said for the last couple of the year well last couple years him for a shorter period of time as he came on. So this is where you see the real leverage and I felt it and Rahul has said many times this is a good margin business. This is not the struggling 30% gross margin Chiclets type business. It's solid so we're still optimistic cautiously focused on execution but it's the path to lead to significantly higher stock prices over the next couple of years and that's the good news. We’ll know hopefully earlier that we're in the pole position.

Okay and then finally resistive RAM?

Resistive RAM we continue to have partnership in China. We have increased our sales team in China. We're gaining a lot of interest by a variety of groups. There is activity but I can't announce anything. I think we've spoken about a variety of different test chips that are out, they are functioning. We're looking for the right segment to go in. The focus initially is not on standalone chips but more on embedded solutions, things like smart cards where performance matters and cost matters and so we think it could be getting prime for that. We could see long-term embedded applications into automotive and IoT but at this point the technology I don't believe really makes it from a temperature spectrum. But as we keep working with our fab partner there, we'll keep tweaking the process with them, tweaking the design and hopefully be able to look at this technology being broadly licensed. It is not us doing some selective designs ourselves.

Okay I got one last question for Rahul, sorry about all these questions. You saw some strength in licensing, can you give us some sense of what the organic sort of year-on-year comps are lying and to extend you are able to do so?

Sure Paul and never a bother, happy to have as much of a dialogue as you’d like. You know when I look at the organic versus inorganic and we try to give you all little more information here. I think it's on slide 16 of our earnings deck, what you see is that we have a base business where that base business is roughly kind of 290 million to 300 million. And that base business I consider is made up of our licensing business, our cores, and our lighting business. And what we are seeing is if you look at our numbers for 2016 and if you look at the estimates for 2017 is we expect the growth off that base business to come from our recent acquisitions and the other leading edge programs in the long-term many of the ones that you and Ron were just talking about. So as Ron and I said earlier, those acquisitions are attractive to our plan and we're seeing our company's growth and honestly I look at that financial performance that we printed last quarter this quarter and the guidance that we've given for Q2 is a validation of that M&A strategy. So one of the benefits we have then is we're leveraging the high margin historic base business that fuels growth in adjacent areas where we have that strong technical and market expertise particularly in these focus areas of memory and security.

Okay, thank you very much.

Thank you Paul, always welcome.

Our next question comes from Atif Malik with Citigroup. Your line is open.

Hi, thanks for taking my questions. Ron, we saw quite a few announcements with Samsung and Microsoft and HBM. Can you just talk about every top level what's going on in datacenter and networking which is kind of driving accelerated kind of partnership with these guys?

Yeah, sure there's a few different things. Most of the focus is on our expanded portfolio of both technologies and technology nodes and data rates on the SerDes. So we introduced our 56 gig which has gone spectacularly well, we've had lot of customer interest in that. As you know there's not a lot of providers of this technology, that is why it was important to do that kind of classic consolidation. With the SunTech snobbish [ph] team we're working together I would say rather well. By expanding the number of designs, the number of designers, combining the revenue we're just kind of hitting our milestone. So in general as you look at going in 100 meg increments, 56 gig is the natural node. But we're also selling as we referenced in this 28 gig in a variety of different -- 25 gig especially depending on how they're actually using it. So we're really trying to do off the shelf designs using existing product. We've gotten in a variety of places. I think on the last call I mentioned in China so we’re even getting traction there and then really expanding and trying to get all of the new 56 gig designs with the FinFET technology which is really challenging to do.

Thanks and for Rahul, thanks a lot to providing the seasonality comments on the four quarters, that helps us on the modeling. I am just trying to better understand what drives the seasonality down in Q2, is this in the memory business or is it in the security business, which segment drives the seasonal downtick in Q2?

You know what really drives it dramatically if you see it is just the timing of the license agreements and the renewals. So I would say just from a segment perspective it's pretty much aligned with the relative revenue contribution of the segments. But what happens is that just in terms of the historical timing on one of these contracts have been signed many of them end up being signed in the Q2 timeframe. And honestly I think Ron and I and the rest of the management team are very clear on this that we have absolutely no desire whatsoever to sacrifice any long-term value for our company in order to meet a short-term quarterly revenue target. And that's why you see a slightly wider range in terms of Q2 but really that timing of those agreements is really what drives that variability. And I think largely you'll see it on the memory side but you'll see some of it on the security side as well.

Okay, one last question, capital allocation in terms of the use of cash from here M&A is still the top priority or share repurchase is upward M&A could you just help us out?

So, what I will tell you from use of cash perspective is that we absolutely explore all different kinds of opportunities. We're exploring all sorts of different kinds of M&A right now but I'd tell you there's nothing eminent. We do see a lot of conversations and opportunities with all the industry consolidation that's on the table and that means not just companies but also part of companies become available. And so we are always looking for opportunities that leverage our existing core markets or technologies. Now with that said as you mentioned we have executed on buybacks in the past and would consider one in the future. So, in the recent past we would use that capital to fuel the M&A strategy but I do expect it will continue to generate strong cash flows and it positions us well because we will use our existing operating cash flow growth either for incremental M&A or return it to shareholders in the form of a buyback. But honestly what we look at achieving is just the most effective and efficient ways to deliver shareholder value back to our investors.

Okay, thanks.

And I am showing no further question. I would now like to turn the call back to Dr. Ron Black for any further remarks.

Thank you operator. As you can see we are well aligned with the needs of the industry and have the right programs in place to capitalize on the trends driving technology choices. Thank you for your continued interest and time, have a very nice day.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program and you may all disconnect. Everyone have a great day.