Welcome to the Rambus Second Quarter and Fiscal Year 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. At the conclusion of the prepared remarks, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Rahul Mathur, Chief Financial Officer. You may begin your conference.

Thank you, Karen and welcome to the Rambus second quarter 2017 results conference call. I am 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 36458130 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're 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 in our financials, we're 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 forward-looking statements regarding our financial guidance for future periods, including Q3 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 amongst 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're 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 these 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 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. We delivered a strong second quarter and I'm pleased with the progress we are making across all of our businesses. We continue to build upon our positive momentum from the start of the year. From a financial perspective, we delivered revenues of $94.7 million, up 24% year-over-year and our non-GAAP diluted net income per share was $0.14. Our IP business remains strong with key renewals and new customers signed and we continue to receive important ongoing validation from the market that our technologies are solving the important problems in the Data Center & Mobile Edge. In this quarter, we closed material customer and partnership agreements with notable names like Cybertrust, Synopsys, Google and Interac. We had a positive quarter in our Memory and Interface division, with progress in our patent and technology licensing programs, signing key renewals and new agreements. I'm also pleased to share that we closed the company's largest high-speed interface technology agreement today with a large semiconductor company. Expanding on our Server DIMM chipset family, we announced the industry's first production, JEDEC-standard DDR4 Non-volatile Register Clock Driver or NVRCD. The NVRCD chip is sampling now and builds upon our existing high-speed chip and signaling expertise to enable non-volatile server memory modules to combine the performance of DRAM with the persistence of storage-class memory, delivering high performance and reliability of data for next-generation enterprise and data center systems. For IP cores, we were pleased to partner with Samsung on the development of our 56 gig SerDes PHY. As we discussed on our previous call, the PHY is built on Samsung's cutting-edge 10-nanometer LPP FinFET process to bring power and performance-optimized interconnects to data center and networking. In addition, we announced the availability of our silicon-proven PCI Express 4.0 SerDes PHY that has…

Thanks Ron. Before I go through our financial results, I'd like to remind everyone today's 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 and are not indicative of long-term performance. And with that, I'd like to turn to our financial results for the quarter. Let me start with some highlights on slide seven. As Ron mentioned, we had a strong quarter. We delivered solid revenue growth of 24% year-over-year towards the high end of our guided range. We are typically down 5% seasonally in Q2, but this was offset by strength in our business. We achieved another quarter of disciplined cost management without sacrificing investment in our growth initiatives and again delivered solid pro forma EPS. 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. Our Q2 revenue and profitability shows the continued execution on our key initiatives. Now, let me talk you through some revenue details on slide eight. Revenue for the first -- for the second quarter was $94.7 million towards the high end of the guidance we provided of $90 million to $96 million. Our strong revenue performance was due to strength in our licensing program and strong execution by our Security businesses. Going into additional detail, our Memory and Interface revenue was $67.4 million, Security was $23.4 million, and our Lighting and Display Technology revenue was $4 million. As you can see in the detailed revenue charts in…

Thank you. [Operator Instructions] Our first question comes from the line of Suji Desilva with Roth Capital.

Hi, Ron, hi Rahul. Congratulation on the results and the progress here. First question on the partnerships, the Cybertrust partnership, is that your first working arrangement with a subsidiary of SoftBank? And did you coordinate with the parent ARM and -- parent organization, perhaps the ARM acquisition in that effort?

So, that is our first partnership with SoftBank. I certainly look forward to more of them. The specific group that we're working with is part of their technology group and it's not coordinated with anybody. It's just we work broadly and they have a fantastic position especially in Japan.

Excellent. Very helpful there Ron. And then on the third quarter growth, can you kindly specify what you think the segment-by-segment growth is across Security, MID, and maybe specifically would give us what the buffer chip was in the second quarter and the outlook there to give some color there?

Sure. So, typically, what we see in the third quarter is about 2% growth quarter-over-quarter. I think you'll see some growth both on the Security side as well as on the Memory side. Most likely, you'll see a little more on the Memory than you'll see on the Security side. In terms of the buffer chip, I would expect our buffer chip stays roughly flat quarter-over-quarter. If you look at the detail we provided in our earnings call -- in the deck that accompany the call, specifically on slide 16, we've kind of changed the way that we classify our product revenue to make it easier. And just talking about the buffer chip, we do continue to execute on the program, and we believe we have leadership products that the market is responding to taking a little longer than we hoped to help manage the transition between product cycles. So, while we -- it's difficult for us to predict the dynamics of the market, we do anticipate to continue gaining market share. And one of the nice things about having a broad revenue portfolio, like we do with not just the buffer chip, but the Memory products as well as the Security products, is that it allows us to really have a kind of broad based portfolio to compensate for any delays in adoption.

So, just to clarify, Rahul, the product revenue is, today, the buffer chip revenue and it will grow over time with other products, is that the way to interpret what you said?

That is the way to interpret it. I mean, obviously, there are other things that we do in each of our programs that may go into licensing or other pieces. So, it's not pure just in terms of the overall program, but I think that is the simplest way to look at it.

Great. And then my last question, I'll step back in the queue here. Both the AR and the deferred revenues went up on the balance sheet. I'm wondering if you're getting more visibility with some of these partnerships you have, where you're getting upfront payments that you recognize ratably just to understand the drivers of the balance sheet changes there. Thanks.

Sure. So, AR did go up, and it's really just timing of payments, I mean, those payments we've already received in the beginning of Q3. So, it's really nothing more than that. I think our DSO -- well, I would expect it to come down next quarter. I think it was 25 last quarter, 35 this quarter, and I expect it to continue to trend down. From a deferred revenue perspective, deferred revenue does continue to grow and I think that does -- leaves you to the growth that we're anticipating in our business. I would caution you though that it's very difficult to build your intuition on deferred revenues simply because we have so many different contracts and so many different types of contracts in terms of some that are annual or multiyear as opposed to just period versus period. So, it's just something that -- it's a good indicator as it continues to grow, but it's hard to build intuition or metrics on deferred revenue as a predictor of what's going to happen in the future.

Excellent. Nice job on the quarter. Thanks guys.

Thank you, Suji.

Thank you. And our next question comes from the line of Gary Mobley with Benchmark.

Hi guys. Congratulations on some solid execution. I wanted to follow-up with a question on a comment, Rahul, you made about how the dual in-line memory chipset business is maybe taking a little bit longer than you expected. Could you give us a sense of where we're at on the revenue for this particular product line for fiscal year 2017 and as well perhaps where you see the business going beyond that? And it seems as though your Security side of the business is making up for any delay in the ramp there, is that a fair characterization?

Sure. So, let me just give you a little more detail. I think probably six months or more, we probably anticipated something in the $35 million to $40 million range on that Server DIMM chipset for 2017. And with some of the transition delays that we're seeing, that ramp has probably been pushed out a couple of quarters. So, I think it's been roughly in the $5 million or $6 million per quarter range and that's kind of what we look at continuing if you look at $6 million plus per quarter going out for the rest of 2017. Now, that doesn't change how we feel about the program. That doesn't change our -- the share that we've got in the subsequent generation. It's just a question of timing and adoption. And one of the things that you mentioned, Gary, is something that I actually am very encouraged by that any given Sunday, when you have a broad portfolio, you're going to have some things that are doing a little better and you're going to have some things that aren't executing exactly as you anticipated. And really, between having the chip business, between having the licensing business, the security initiatives, all the other growth, long-term growth initiatives we have as well, what it allows us to do is smooth out that growth. And as you mentioned, we are doing very well on some of the security initiatives. And some of the things that Ron talked about in his prepared remarks, I think, position us very well for future growth.

Okay. Ron, I wanted to get your opinion on something. As you probably are aware, there were some -- there was some speculation that the company has put itself up for sale. And I don't expect you to comment on that specific news item. But relating to this, in your view of creating shareholder value, how do you see things unfolding? And where is the priority as we look into 2018? And as we sit here today and look at the portfolio of companies, which do you think are performing the best relative to expectations and I think, conversely lowest and might need more attention?

Yes. Obviously, I can't comment on that rumor or that policy now too and people will always be looking at the business as we continue to execute. That's kind of a normal situation. As I said in the prepared remarks, I'm pretty happy across the Board with everything that we're doing. I think we're executing together as a team. The team is focused. Each piece of the business is doing relatively well. There is the portfolio effect that Rahul just went through. So, I won't belabor that, but I think we're executing.

Okay, that's it from me. I'll hop in the queue. Thanks guys.

Thank you. And our next question comes from the line of Paul Coster with JP Morgan.

Thank you for taking my question. Any [Indiscernible] to the NRE revenues and year-on-year sequential comparison, Rahul?

I'm sorry, Paul, I had a bit of difficulty understanding your question. I think you're asking if there was anything in terms of NRE revenues for--

Yes, yes.

So, what I would tell you is that we continue to have very active dialogues with different partners and I think you may be referring to some of the future initiatives that we have. And what I'd tell you is that if you look at the different things that we have in the pipeline, we're really excited about the progress that we're making. I think one of the things, in particular, that we're really excited about is the program that we're doing with Microsoft and just the growth there, the progress we have. And again, as you know, this is specifically regarding the cryogenic memory program. What I will say more broadly is that one of the things that we like to focus on, even though we don't share specifics on any joint development program for obvious reasons, is we like to invest in programs where we have partners investing alongside with us. And what that means is not just they have their own internal teams but, as you mentioned, NRE as well. And that has been a part of our revenue growth quarter-over-quarter and I expect that it will continue to maintain. So, no, very pleased there, but as you can imagine, we don't break that out specifically.

And Ron, regarding the CryptoManager initiatives, are you in a position to sort of quantify the opportunity and the time to, let's say, materiality for Rambus?

Yes. So, what we plan to do on IDM is to be in the position to be at pilot by the end of the year, which would -- depending on how the pilots go, will allow us to have more substantial revenue in the next year and, of course, more the year thereafter. The go-to-market strategy here, as we described in the prepared remarks, is to make it work with the cloud provider. So, you look at this as a secured channel. So, we're not going to standing up solution for every possible vertical. We're going to be actually leveraging the existing infrastructure of those cloud providers who are already, right, selling to the IoT service provider. So, I think it's the most effective and efficient way that we can go to market.

Okay. Thank you very much.

Thank you, Paul.

Thank you. And our next question comes from the line of Atif Malik with Citi. Atif, your line is open; could you check your mute button?

Sorry about that. First question for Ron. Ron can you update us on your work with Tsinghua University on the storage-class memory, where you guys stand? If I remember it correctly from last year's Analyst Day, the idea behind this was that maybe, it could result into a potential licensing opportunity with them or you can sell it as a start-up to China. Can you just update us where you stand on that project?

Yes. We continue to work very closely with -- on the project. This is the resistive RAM project. We are improving, along with their help, the technology. And we have bigger plans, but I'm not at liberty to describe them at this point, but stay focused.

Okay. And as a follow-up, Rahul, if you talk about the operating margins. Your target model is 37% to 40%. You're at 27% Q1. Can you walk us through what will it take to get to that kind of target model operating margin from here?

Sure, absolutely. What I'll tell you, Atif, is that each of our businesses has a slightly different profile. And I think the key thing that will help us get to that operating margin profile is really just the revenue growth that we anticipate not just in the back half of this year but next year as well. What you see is that we have a base business. That includes our licensing cores and lighting that provides roughly $290 million to $300 million of revenue per year. And what we're doing is we're leveraging that historic base business to fuel growth in other areas. So, if you look at the growth in the other areas, what you'll see is that you have the buffer chip business, which we talked about earlier, and those margins are in the 50% odd range, which is very good margin for a chip business. And the good news is because we continue to invest in that program, so as that business grows, I don't anticipate making significant additional investments in the program. So, you may have seen improvement in operating margin, which would support the targets that we're talking about. Same thing happens for us on the Security and other businesses as well. Those businesses -- as you know, in Software businesses, you can have margins in the 70%, 80%, 90% range, but what also happens is you have a larger infrastructure you have to support. And so those operating costs can be in the 30-plus range, but it still gets you to roughly a 40% odd incremental operating margin. So, what I see is that as we have this portfolio growth initiative, no matter which ones strike at that particular time, incrementally, the operating margins are accretive to what we're posting now. Now, obviously, the company has gone through a transition through our acquisitions, which have shown a lot of revenue growth and has -- will show profitable growth as well, but there's been some pressure on the operating margins by design as we've added in some new portfolios. But really, as we continue to execute it is when you'll see that accretion in the coming years and I'm really excited about the profitability that we're poised to post.

Okay. Thank you.

Thank you. [Operator Instructions] At this time, there are no further questions. This concludes our question-and-answer session. I'd like to turn the call back over to Dr. Black for any additional comments.

Thank you, Karen. As I hope you can see, we feel that we're very 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 again for your continued interest and time. Have a very nice day.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect.