Welcome to the Rambus Third Quarter and FY 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. At the conclusion of our 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, Amanda, and welcome to the Rambus third 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 98501879 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 portions 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 5:00 PM Pacific Time. In an effort to provide greater clarity in the financials, we’re using both GAAP and non-GAAP 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 Q4 2017 and full-year 2018, prospects, product strategies, timings expected product launches, demand for existing and newly acquired technologies, potential benefits of our recent acquisitions, the growth opportunities of the various markets we serve and changes that we will experience in our financial reporting, future adoption of new revenue recognition standard, starting in Q1 2018 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 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’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 this on our website at rambus.com on the Investor Relations page. The order of our call 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 third quarter and I’m excited about the progress we are making across all of our businesses, as we maintain our growth trajectory for the data center and mobile edge markets, making data faster and safer. From a financial perspective, we delivered revenues of $99.1 million dollars, up 10% year-over-year and our non-GAAP diluted net income per share was $0.19. As we discussed at our Annual Analyst Day earlier in the quarter, we continue to demonstrate our leadership and execution on strategic programs to deliver profitable growth across the company. This was a positive quarter for our Memory and Interfaces Division with the announcement of the industry’s first silicon-proven server DIMM buffer chipset capable of achieving the speed targeted for next-generation DDR5. This represented an important milestone for both the company and the market, as it puts us in a leadership position and enables us to drive the ecosystem faster than the competition, providing an early path to market readiness and adoption for next generation data center solutions. Moving to IP cores, we are pleased to extend our partnership with GLOBALFOUNDRIES and extend our portfolio of high-speed interfaces for data center and enterprise applications with the addition of 16-gig and 30-gig SerDes IP cores on their 14-nanometer FX-14 ASIC Platform. The suite of silicon-proven PHYs are designed to ease integration and speed time-to-market for our customers by maximizing performance and flexibility. Additionally, as part of the ongoing ecosystem development to accelerate adoption, we validated the interoperability of our memory PHYs with Northwest Logic and ARM memory controllers. Turning now to our Security Division, which consists of mobile payments, ticketing and cryptography groups, we continue to build strong momentum in product adoption and roll out. For our Payments team, there is ongoing…

Thanks Ron. I’d like to begin with our financial results for the quarter. Let me start with some highlights on slide six. As Ron mentioned, we had a solid quarter. We delivered revenue growth of 10% year-over-year at the midpoint of our guidance range, and up 5% from Q2. We delivered non-GAAP EPS at the high end of the updated range we provided at our Analyst Day, by focusing on disciplined cost management while continuing our investments in our growth initiatives. We continue to leverage our high-margin historic businesses to fuel growth in adjacent areas where we have strong technical and market expertise with the focus on Memory and Security. Our Q3 revenue and profitability shows our ability to execute on our strategic initiatives while delivering profitable growth. Now, let me talk you through some revenue details on slide 7. Revenue for the third quarter was $99.1 million, at the midpoint of guidance we provided of $97 million to $101 million. Our revenue performance was due to execution by a security business and continued strength in our licensing program. Going into additional detail, our Memory and Interface revenue was $58.8 million, Security was $26.3 million and our Lighting and Display Technology revenue was $4 million. Year-over-year, mid-revenue grew by 9% and our Security division grew by 17%. The increasing revenue from our Security Division was driven by our payments and cryptography businesses. We have a diversified revenue stream and as I will discuss a little later, as we look at Q4 2017, we remain on-track to meet current revenue projections for the fiscal year. Let me walk you through our non-GAAP income statement on slide 8. Along with our solid revenue performance in Q3, we once again managed our expenses without sacrificing growth. Cost of revenue plus operating expenses are…

Thank you, Rahul. [Operator Instructions] And your first question comes from Suji Desilva.

Hi, Ron. Hi, Rahul. Nice job on the quarter here. Couple of questions on the segments. On the Security part of the business, can you talk about, I guess, the RSD contract line has come back up toward $10 million, it was there in the second-half 2016 if that's a secular trend or whether that's a seasonal trend if there's any underlying drivers that perhaps take that above $10 million in the next few quarters just to understand the dynamics there?

Of course, Suji. So, I think, specifically what you're talking about is a webcast that’s on slide 16. We breakout our revenue between Royalty, Products and then Contract and Other, and you’re referring to the contracts and other revenue line in RSD. I think that's the….

Correct.

…success both in our Payments business as well as our Cryptography business. What's interesting is that that continued to – does continue to grow and I’d expect that to be roughly flat, most likely in Q4, but I would expect to see growth there in 2018.

Yeah, along those lines, are you seeing more recurring revenue coming there from some of the projects you've gotten live here or are we still looking at licenses with recurring revenue being further out?

See, let me – it’s something that, most of the business that we have is the traditional licensing model in cryptography and payments. We didn't have the recurring revenue model for the ticketing, but that's a smaller part of the business. The new platform that we announced in part at the CryptoManager platform for IoT security services that will be a SaaS model with recurring revenue. The unified payments platform that we announced has been gaining a lot of traction on globally is also a SaaS models of recurring revenue. So, we’re going to see an increase in recurring revenue, but I think it’s going to be more in the second half of next year with stronger pilots in the first half and maybe we’ll be able to announce some sooner.

Great. That's good color there, Ron. And then switching over to the Memory buffer side, can you talk about the products there? What’s the reasonable run rate assumption here near-term, and is – what’s the mix of DDR3, DDR4 and are you seeing any Intel Skylake benefit? Any color there would be helpful.

I’ll do a little bit of the benefit, and I don’t have the run rates in front of me. So I'll turn it over to Rahul. We definitively have a much stronger position in Skylake platform and we’re expecting to see increased revenue just on the DDR4 for the second – or the first half of next year and continuing on. And of course, while it’s not short-term revenue, the biggest leading indicator is the DDR5 base feed that we’ve announced and we’re super excited about. As you know, it tends – the person who tends to lead in the next generation, gets the parts out there and work their ecosystem and really tune the part, tends to have a lion’s share of the revenue. So that’s what we’re anticipating for DDR5, but we should get a much stronger buffer chip next year than we had this year.

And to the other part of your question, I think our buffer chip business is probably going to be in the $20 million odd range for us in 2017, but because of the reasons that Ron out – I think we’ll start to see growth there starting in the first half of 2018.

Got it. And then one quick follow-up there, Ron – Rahul rather. Can you talk about the gross margin you’re expecting in Memory Buffer business as that ramps into volume?

Yeah. So, I still expect gross margin in that business to be in the 50% range and that’s what we’re seeing right now.

Great. Thanks, guys. Nice job in the quarter.

Sure. Thanks, Suji.

And your next question comes from Gary Mobley.

Congrats, on some strong numbers for the quarter, and guidance as well. I wanted to ask a question about your capital allocation. I see that your debt is due in the next 9 months, 12 months and, I’m wondering what you’re thinking there in terms of your need to roll that, that debt over into some new instrument. And where you stand with respect to the remaining buyback?

Sure. So I’ll take the second part of that first. As you pointed out, Gary, we did another $50 million buyback in Q2, and I think that extends probably through the first week of November or so. In terms of the convertible debt, as you call, as you mentioned we have $138 million in accounts due in Q3 of 2028 and so I think you shouldn’t be surprised if we do end up rolling that into a similar instrument, you know, a little before that comes to maturity. I think from our perspective, the debt market still is very favorable and it makes sense for us to keep some element of debt on our balance sheet, but I also, as I mentioned in my prepared remarks, think that we’ll continue to generate a lot of cash from operations. And if we don’t have anything in the near-term from an M&A perspective, you shouldn’t be surprised surprise if we continue to do share repurchase.

Okay. Rahul did you mention that, you expect RSD, the Security Division to, trend flat sequentially in Q4, and as well and along that line, I noticed your deferred revenue was essentially flat sequentially as we concluded Q3. And so I’m just trying to figure out the correlation there; is the deferred revenue the primary component of the backlog in RSD, or – you know, I guess the point I’m trying to get to in general, is what does your visibility look like RSD, whether it be tangible backlog number or the pipeline?

Sure. So we do have pretty good visibility in terms of our RSD. I expect it to be roughly flat, Q4 over Q3. It did grow very nicely, Q3 over Q2, so flat is a pretty good result, because it means we’re sustaining our growth. Gary, unfortunately, there’s just not a very good correlation between what we print in deferred revenue and what shows up because it really just is the timing of when we receive cash versus the time that we can do our invoicing. And if you recall, because we do have different revenue models like we have licensing models, we have product models, we have SaaS model as well. There’s a lot of different things that will flow in and out of that differed deferred revenue account over the course of the quarter. So trust me, I’ve tried to do the same thing, it’s just harder to build your intuition on a quarter-to-quarter basis on what our deferred revenue will vote for the future. But to your earlier question, I think, we do have a lot of growth opportunity in our RSD in 2018. The business has performed very well over the course of this year. I think, one of the things that we look at is, as we look at 2018, I think more than half of the revenue is with existing partners and customers which is a very good time.

Okay. Something you guys don’t often speak about is our ROD and I’m just wondering if you can give us a sense of the revenue prognosis for ROD just given the fact that it isn’t a key investment area. And then as well, what are the long-term plans for that group however small or however large it is today?

Sure. So, I think, I’ll agree with that $4 million for us in Q3, I expect it to be roughly flat in Q4. It continues to take long, it’s running at roughly a breakeven business from an operating perspective and also from a cash perspective as well. I think, the interesting opportunities that we have in ROD and that we have new product announcements that we’re doing, that really broadens the base there and we’ve been pretty excited to some of the design wins. So I think the business continues to support itself.

Okay. That's it from me. Thank you, guys.

And your next question is from Betsy Van Hees.

Good afternoon, and let me add my congratulations on the strong quarter and a great guidance. I wanted to ask a question on the effective tax rate. So it looks like it's 45% on the GAAP basis and 35% on pro forma, and given that we're getting a better sense of what the potential corporate tax rates are going to be, is there any benefit for you guys given the tax brackets you're currently in?

Sure. Betsy let me give you a little more information on our GAAP taxes, our cash taxes are usually about $20 million or $25 million a year, and those are predominantly related to the taxes we have on the licensing agreements we have with our partners in Korea. We use a 35% statutory rate for our non-GAAP tax rate, but if there is a change in terms of overall tax plus legislation, you should expect us to change our pro forma tax rate, our non-GAAP tax rate accordingly. And you would see that, a benefit for Rambus in terms of after-tax earnings, on a – on non-GAAP basis.

Thanks for the clarification. I appreciate that. And then a clarification on cash flow from operations, you said that was $15 million, is that correct?

That’s right, it was $15 million in Q3.

Okay. And then, my last question is – and I’ll hop back in the queue, is on OpEx, you’re doing a tremendous job in controlling expenses and as we look at the March quarter, can we still expect a tick-up, excuse me, in operating expenses, given that you have bonuses, one-time charges FICA, things like that, or even if you’ll be able to continue to do the excellent job as you’re doing in keeping things sort of flat to down?

So I wouldn’t be surprised if we had a little bit of a tick-up in Q1 in terms of total operating cost and expenses. There's a couple of different pieces related to that. One is that as you mentioned in Q1, we have FICA and some of the other statutory charges that come in that that usually impact us by about $1 million or $1.5 million. The second part is, is I hope that our buffer chip business continues to grow in Q1 and then we would have higher COGS associated with higher revenue according to buffer chip. But one of the things that we have been doing is working on that that capital allocation model and making sure that we continue to invest in program. So, with that said, I think you would see a little bit of uptick in Q1 related to total operating cost and expenses partly because of COGS, partly because of FICA, and because investments we’re making in our sales and engineering team.

Thank you so much for all the clarification and highlights, and once again congratulations on a great quarter and the guidance.

Thank you, Betsy.

And your next question comes from Atif Malik.

Hi. Thanks for taking my question. Rahul, you mentioned that you’re comfortable with the consensus revenue growth for next year, which is around 4%, 5%, can you just talk about in terms of products, which products you’re most excited about in terms of driving year-over-year growth? And then as a follow-up, your long-term target model calls for 12% to 15% type growth. Is that – is that a realistic long-term growth model given that you’re kind of guiding or alluding to 4%, 5% revenue growth? Thank you.

Hi, Atif. It’s Ron. I’ll take in terms of kind of not necessarily priority order growth, the barriers I think are going to have the strong growth, the different lines of business and then Rahul can come back with the long-term operating model. So there’s a couple of areas, as we just said repeatedly, we think we’re in a much better positions with Skylake, we’re really engaged with all of the ecosystem. We think we’re really starting to execute on that with the improved products and all that will be affording and beyond. So we think the buffer chip is going to grow and grow nicely with the good gross margin that Rahul commented on. The other part in general is that, the tokenization capabilities that we have, whether it’s on the ticketing side or on the payment side. We’re starting to see expanded interest in tokenization. A lot of people ask me, wow, I don’t completely understand Rambus and the cores and the embedded security and Crypto Manager and then tokenization, how does that fit together? And one of the simple models that we started to discuss with customers and the industry and partners is, when we have something like Crypto Manager IOC Security Services, we’re really securing an end point in an IoT device or in fact on the mobile phone if we chose to do that, with some of the VPA technology that we use in with SIM cards and NFC. But these devices, they create data and the data needs to be secured and the way you do that is with token. I mean data is used for transaction. So this kind of chip-to-cloud-to-crowd, it’s really starting to be synergistic. Everybody is starting to get it. So, I don’t think it’s going to be quick with the IoT Security Services. It takes a long time, but we’re getting a lot of great traction, and kind of the leading indicator on that, it – I think it will be longer-term revenue, not as much next year. Next year, you’re going to see more about the tokenization part of it, is the ecosystem collaboration. We announced the partnership with FT Microelectronics, so it’s provisioning not just our cores, but the others, same things with Synopsys and their [indiscernible] and of course, there’s broader collaboration to look to extend with Softbank Technology group and Cybertrust. So, I think we’re gaining that traction short term, buffer chip and tokenization built on payments and ticketing, longer term on IoT security services.

And, Atif, I’ll take some of the other parts of your question. One, you talked about 2018 and I think what I said in prepared remarks is we’re comfortable with the range of those estimates that people have for us in 2018. So in some cases, it’s 2% higher, some cases it is higher than that and closer to our long-term model. Also, if you just look at Q3 2017 versus Q3 2016, when you look at the product breakdown, Buffer Chip is roughly flat year-over-year, but if you look at the growth in our other businesses, we are up 10% year-over-year and I think what we talked about on a long-term basis at our Analyst Day, is 12% to 15%. So I think on a long-term basis, we absolutely can grow into that, for some of the reasons that Ron talked about. Now one caveat, is that, as I mentioned a little bit on our Analyst Day, is that I think the way that we account for our revenue is going to change in 2018. As I’m sure you’re aware, there’s a new standard ASC 606 that’s going to come out, that’s going to change the way that companies that have a lot of royalty revenue like ours are reporting revenue. So we believe, we’re going to adopt the new standard ASC 606, according to the full retrospective method. So we’ll give you the history as well on its effective date in the first quarter of 2018. And while we’re yet to finalize our evaluation and the quantification of the FX that the standard is going to have on our financial statements, I currently expect that the revenue recognition derived from these sorts of fixed fee, IT arrangements will likely be accelerated. And so, we’ll be required to recognize revenue from per unit royalty based arrangements on the basis of estimates and we’ll have to true-up every time the licenses concluded to report actual sales. So what we’re doing, is we’re going to evaluate the form and content of any guidance that we provide as well, so that you still have a good indication of really how our underlying business and cash is performing. But I wouldn’t be surprised if the guidance metrics change, but I just wanted to make sure that you had that caveat when we talk about things in the future.

Great. Thank you, Ron and Rahul, very helpful.

Thank you, Atif.

And your next question comes from Paul Coster.

Yeah, thanks for taking my questions. First up, the DDR5 technology, are there any roadmaps being published by any OEMs that kind of give us some sense of when that technology will start to generate revenue for you?

I don’t know of any roadmaps, but I think what we’ve said publicly is 2019 we might in the second half starts to see the ramp, it will be stronger thereafter.

Okay. And Ron, the success you’ve had with tokenization of software and ticketing software in Australia and Scotland, it seems sort of rather eccentric wins. Can you explain to us how success in these two locations might translate into something bigger and broader?

These are not eccentric, they’re just the timing of where it’s starting. Strathclyde Partnership in transport is just very advanced in what we’re doing; more advanced than most of the other parts in the UK, and our focus has been on the UK standard itself. We’re moving as quickly as we can internationally. In terms of eftpos, they are one of the domestic schemes that we worked like PCH or Interac in Canada, so we’re ready – we only have a broad global footprint with these domestic schemes. And also Australia is one of the leading places of contactless. So today, I would say that’s probably the number one in the world on a contactless adoption. So, that's kind of the leading indicator, if you want to be in payments, if you want to really be advanced in mobile, that – that's a great place.

And yeah in London which preceded Australia in terms of contactless transportation, I think with Cubic they, they don't use your system or why is that?

We actually work with Cubic and we provide the [indiscernible] standard. Cubic and other partners like [indiscernible] have their own proprietary standards but only offer an open standard. So, we are in fact partners with them, it's just that – we obviously don't use the proprietary software that they use. We only do the open standard software, which is my understanding is what the UK is trying to drive across the …

Right. Okay. Got it, Finally Rahul, if you just go back to accounts receivables, silly question, but was the reason for the jump there?

Yeah. So, our accounts receivable did climb quarter-over-quarter and it’s really just as timing of billings and collections. I’d expect that to come down dramatically in Q4 and that would translate into a much higher cash in operations. Obviously it’s something that we look at very closely, but I don't think there's any risk of collectability, I think it really just as on timing and I’d expect it to come down in Q4.

Okay. All right. Thanks very much.

At this time, there are no further questions. This does conclude this question-and-answer session. I would now like to turn the call back over to Ron.

Thank you very much. As you can see, we continue to demonstrate our leadership and execution across our products and deliver profitable growth across the company. Thank you for your continued interest and time. Have a very nice day.

This concludes today’s call. You may now disconnect.