Rambus Inc. (RMBS) Q2 2018 Earnings Report, Transcript and Summary

Welcome to the Rambus Second Quarter and Fiscal Year 2018 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, Sanya. And welcome to the Rambus second quarter 2018 results conference call. I'm Rahul Mathur, CFO, and on the call with me today is Luc Seraphin, our CEO. The press release for the results that we will be discussing today has 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 3034809 when you hear the prompt. In addition, we are simultaneously webcasting this call, and along with the audio, we’re 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 for slide presentations. A replay of this call can be accessed on our Web site beginning today at 5:00 PM Pacific Time. Our discussion today will contain forward-looking statements regarding our financial guidance for future periods, including Q3 2018 and full year 2018, prospects, product strategies, timing of expected product launches, demand for existing and newly acquired technologies, the growth opportunities of the various markets we serve, and changes that we will experience in our financial reporting due to our adoption of new revenue recognition standards that started 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 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. In an effort to provide greater clarity within our financials, we are using both GAAP and non-GAAP financial presentation in both our press release and also on this call. We have posted on our Web site 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 Web site at rambus.com on the Investor Relations page, under Financial Releases. The order of our call today will be as follows. Luc 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 Luc to provide an overview of the quarter. Luc?

Thanks, Rahul, and good afternoon everyone. I’ve met many of you at our annual financial analyst days and investor conferences. Before we begin, I wanted to take a moment to briefly introduce myself. I joined Rambus five years ago as the leader of our worldwide sales organization and then became general manager of our memory and interface division. Now as the Interim CEO, I am excited to take on the role of guiding the Company. With that, I turn now to the results for the quarter. We delivered a solid second quarter, making progress across all of our businesses as we continue to execute on strategy and maintain our growth trajectory. From a financial perspective, our performance was in line with our expectations. We delivered GAAP revenues of $56.5 million. For reference, our second quarter revenue would have been $98.8 million under the prior ASC 605 accounting standard. If we compare under the same accounting standard excluding the impact of our lighting division, this equates to a 9% increase year-over-year. Overall, we performed well with strong execution in our product groups and continued technology leadership on strategic programs. Our licensing program remained strong with a record number of deals closed in Q2, including IBM and Socionext, and continued growth of our IP portfolio fueled by collaboration with our industry partners. For the memory and interface division, Q2 was a positive quarter with ongoing broad OEM and cloud customer qualifications in chips and record first half revenue for IP cores. Our DDR4 memory buffer chip business continues to grow with steady gains in market share and revenue growth. We meet our target of $6 million in Q1 and $8 million in Q2, and continue to execute to remain on track to hit our target of $35 million to $40 million for the year. For next generation DDR5 memory buffer chip, we maintained our leadership position as the first and only supplier with working silicon that supports the top end speeds for both the RCD and DB chips. We are leveraging our head staff in product development and continue to have strong collaboration with the memory vendors, as well as the broader ecosystem to bring high quality DDR5 solutions to market. We continue our leadership in high-speed IP cores with record revenue for the first half of 2018 and multiple new customer wins for DDR6 and HBM2 on advanced process nodes. As the first IP supplier to offer GDDR6 PHY, we continue to see traction from customers across multiple high-performance applications, including AI, automotive and networking. We continue to collaborate with our ecosystem partners to expand our foundry access and gain traction in next generation technologies, maintaining our market leadership in leading edge process nodes and performance capabilities, while exceeding our best-in-class IT portfolio. Turning now to our Security Division, which consists of our Cryptography, Ticketing and Payments product groups. We continue to gain commercial traction on our product programs and build upon our global leadership position in embedded security and tokenization. As we discussed previously already in the quarter our Cryptography product group launched the CryptoManager Root of Trust to enable security by design with a secure core embedded directly in the hardware. The CryptoManager Root of Trust deals upon our first generation CryptoManager security engine by adding flexible and secure processing capability within the truck boundary of the core. Featuring a secure RISC-V CPU custom designed by our security experts, the core helps to address wide-reaching CPU vulnerabilities, like Meltdown and Spectre, in a broad range of applications, including IoT, networking and automotive. As the importance of device level security continues to grow in multiple segments, like IoT and networking, we’re seeing rapidly increasing interest in the ability to securely provision those devices with unique and trusted keys and identities at manufacturing and in the field. With nearly 5 billion devices provisioned to-date by our CryptoManager infrastructure, Rambus remains the most mature provider of device level positioning solutions, and expect to continue to see steady growth in demand and customer attraction. As we look now to our Ticketing and Payments product groups, Q2 show the announcement of new customers for each group. As a market leader in smart ticketing solutions for trains and bus operator across the UK, we announced the implementation of our smart ticketing software with West Midlands. We are also pleased to report our Host Card Emulation, or HCE, Ticket Wallet Service has been selected to bring mobile ticketing to passengers on Scotland’s national rail network. With that portfolio of passenger will be the first to be able to use their smartphones to securely buy, download and use the tickets to travel on rail in UK. For our Payments product group, we also announced last week that we have been selected by Coles, one of Australia’s largest retail groups to secure its digital payment solutions. Featuring a unified payment platform, Coles will deleverage our bank proven tokenization solutions for retail to enhance the customer buying journey and provide a hassle free omnichannel payment service. Last but certainly not least is our Emerging Solutions Division, which focuses on advanced research, innovation and IP development. Through our ongoing partnerships with industry leaders, like Microsoft and IBM, we continue to deal our portfolio of advanced memory IP and develop technologies that help move the industry forward. Both our cold and hybrid memory programs continue to progress with each in varying stages of prototype development. By collaborating on research and development for the future memory architectures, which includes a growing need to ecosystem partners, we are also able to leverage our learnings to drive licensing and products engagements with our memory and security customers. In closing, Q2 was a strong quarter that continued to reinforce our confidence in our strategy and execution to plan. With that, I turn the call to Rahul to discuss the quarterly financial results. Rahul.

Thanks, Luc. I’d like to begin with our financial results for the quarter. Let me start with some highlights on Slide 5. As Luc mentioned, we delivered solid financial results in line with our revenue and EPS expectations. As you know, we have chosen to adopt the new accounting standard ASC 606 using the modified retrospective method, which does not restate prior periods but rather runs the cumulative effect of the adoption through retained earnings as a beginning balance sheet adjustment. As a result any, comparison between second quarter 2018 results under ASC 606 and prior results under ASC 605 is not the best way to track the Company's progress. We are required to present a footnote that presents our 2018 results as if we continue to recognize revenue under the old standards. To make this transition easier to the readers of our financial statements, we will continue to present our results under both ASC 606 and ASC 605 through this transition period. This way we can have a meaningful discussion regarding the performance of our business instead of focusing on accounting changes. Under the new accounting standard ASC 606, we delivered revenue of $56.5 million, under ASC 605 we would have delivered revenue of $98.8 million; under ASC 606, we delivered non-GAAP dilutive loss per share of $0.03, under ASC 605 we would have delivered non-GAAP earnings per share of $0.21, just above the midpoint of our expected range. We delivered solid results while continuing 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. Now, let me walk you through some revenue details on Slide 6. Revenue for the second quarter was $56.5 million under the new revenue accounting standards, higher than our expectations due to the structure of license agreements signed within the quarter. Revenue would have been $98.8 million under ASC 605 at the high end of our guidance range. Year-over-year, excluding the lighting business we shut down in Q1, our business was up 9%. As we've mentioned previously, the new revenue recognition standard has a material difference in the timing of revenue recognition for our fixed fee licensing arrangements. Our licensing business continued to perform well with the foundation of our success and is core to our initiatives in both our memory and security businesses. Going into additional detail under ASC 605, our memory and interface revenues would have been $43.3 million and our security business revenues would have been $25.5 million. We continue to gain commercial attraction on our security product programs and build upon our global leadership position and tokenization and embedded security. As we develop our business, we've gone to five of the opportunities in our pipeline, creating a different revenue profile than we previously anticipated. Specifically, some of the revenue we projected for 2018 will now be part of larger agreements structured over a longer period time. As a result, we now expect security revenue in 2018 to remain roughly flat year-over-year. However, we remain confident in our ability to grow this business long-term and are excited by the growing number of engagements and customer wins. Let me now walk you through our non-GAAP income statement on Slide 7. Along with our solid revenue performance in Q2, we once again met our profitability targets on a non-GAAP basis. Cost of revenue plus operating expenses or what we refer to as total operating expenses for the quarter came in at $66.8 million. We ended the quarter with headcount of 791, up from 771 in the previous quarter. Over the course of 2018, we expect to invest in headcount to support our growth initiatives in our memory and security businesses. Revenue and operating expenses under ASC 605 lead to operating income of $32 million. We recorded $7 million of interest income under ASC 606 related to the significant financing components of license agreements for which we have not yet received repayments but recognize revenue under the new accounting standards. We incurred $0.8 million of interest expense, primarily related to convertible notes we issued in Q4. This was offset by incremental interest income related to a high return on our cash portfolio. After adjusting for non-cash interest expense on our convertible notes, this resulted in non-GAAP interest and other expense for the quarter of $0.7 million, up from Q1. Using an assumed flat rate of 24% for non-GAAP pretax income, non-GAAP net income for the quarter would have been $23.8 million under ASC 605 or $0.21 a per share, just above the midpoint of our guidance. Now, let me turn to the balance sheet details on slide eight. We are very pleased with the strength of our balance sheet. Cash, cash equivalents and marketable securities totaled $298.3 million, up $7.1 million from the previous quarter due primarily to proceeds from employee stock plans of $4.8 million and cash from operations of $3.6 million. We expect to maintain our ability to generate cash from operations in 2018. This will be an important metric to monitor as we adopted ASC 606. We expect cash to go down in Q3 as we pay-off the remaining $81 million balance on our notes due in 2018. As a result of adopting ASC 606 at the end of Q2, we had contract assets worth of $751 million, which reflects the net present value of unbilled AR related to licensing arrangements for which the Company has no future performance obligations. Second quarter CapEx was $3.6 million and depreciation was $2.6 million. Looking forward, I expect roughly $3 million of CapEx for the third quarter and roughly $10 million or $11 million for the full year of 2018. I also expect depreciation of roughly $3 million per quarter in 2018. Overall, we have a strong balance sheet with limited debt and expect to continue to generate strong cash from operations in the future. Now, let me turn to our guidance for the third quarter on Slide 9. As a reminder, our forward-looking guidance reflects our best estimates at this point in time and our actual results could differ materially from what I am about to review. To provide our investors and analysts additional transparency during this accounting transition, we’re also providing financial outlook as if we were still under ASC 605, as well as ASC 606 during this transition period. Please note that the presentation under ASC 605 is not a substitute for the new ASC 606 revenue recognition standard under GAAP. Future revenue under ASC 606 will be volatile from period-to-period due to the timing and structure of our licensing arrangements. We will continue to focus on leveraging our vast patent portfolio to maximize value for our business, as well as to provide the best economic structure for our customers. To offer additional transparency, we’ve also been providing information on licensing billings, which is an operational metric that reflects amounts invoiced for licensing customers during the period adjusted for certain differences. The differences between licensing, billings and royalty revenue under ASC 605 are primarily related to timing as we don't always recognize the revenue the same quarter we bill our customers. As you’ve seen the supplemental information we provided on Slide 16 of our earnings deck, on an annual basis, licensing billings closely correlates with what we reported as royalty revenue under ASC 605 given this timing lag. We will continue to provide license and billings as another operational metric to help our investors understand the underlying performance of our Company. With that said, under the new ASC 606 revenue standard, we expect revenue for the third quarter between $45 million and $51 million. Under the ASC 605 revenue standard, we expect revenue in the third quarter would be between $97 million and $103 million. Excluding the impact of lighting division, this is up 5% year-over-year. We expect Q3 non-GAAP total operating expenses, which include COGS to be between $68.5 million and $64.5 million in line with Q2 spend. Over the course of 2018, I expect we will keep operating expenses roughly flat as revenue grows, providing leverage to our financial model. I expect total operating expenses, which include COGS related to our buffer chip business to grow through the year as we ship more products. We continue to target $35 million to $40 million in buffer chip revenue in 2018. Under the new 606 revenue standard, non-GAAP operating loss for the third quarter is expected to be between $23.5 million and $13.5 million. Under the ASC 605 revenue standard, non-GAAP operating income for the quarter is expected to be between $28.5 million and $38.5 million. The non-GAAP interest and other income and expense we expect roughly $5.6 million income per ASC 606 and $1.4 million expense under ASC 605. This includes $0.8 million of interest related to the notes due in 2023 and $0.2 million related to remaining notes due in 2018, which we expect to pay off in August. Based on the new tax legislation passed at the end of December, we expect our pro forma tax rate to drop to roughly 24%. The 24% is higher than the new statutory rate of 21%, primarily due to higher tax rates in our foreign jurisdictions. As a reminder, we pay roughly $20 million of cash taxes each year, driven primarily by our licensing agreements with our partners in Korea. Under ASC 606 and based on the 24% tax rate, we expect GAAP benefit between $4 million and $2 million from taxes in Q3. We expect our Q3 share count to be roughly 108 million basic shares outstanding. This leads you to between $0.13 and $0.06 of non-GAAP loss per share for the quarter. Under the ASC 605 using the same assumptions for operating expenses, $7 million to $9 million for taxes and $111 million fully diluted share count, we would expect between $20.6 million and $28.2 million of non-GAAP net income and between $0.19 and $0.25 of non-GAAP earnings per share for the quarter. Looking ahead, while we do not issue annual guidance as we look at consensus estimates from our sales side analysts, we remain comfortable with current quarterly consensus estimates for growth and earnings call for Q4 2018 as reported under ASC 605 prior to the new recognition rules. Let me finish with a summary on Slide 10. We are proud of the solid performance by our team and the progress we continue to make against our strategic initiatives. While we understand that the adoption of the ASC 606 has a level of complexity to our financial reporting, it's important to reiterate that the underlying financial strength of our business remains strong. We continue to generate solid cash from operations and remain focused for continued success as we head into the rest of the 2018. With that I'll turn the call back over to Sanya to begin Q&A. Could we please have our first question?

[Operator Instructions] Your first question comes from the line of Sidney Ho from Deutsche Bank. Your line is open.

This is Marisa on behalf of Sidney. I was wondering if you could provide some color on what the customer adoption is looking like in your security division, so across Cartography, Payments and Ticketing. And how can we think about those contracts contributing to revenue this year? I know you guided it to be more flattish if I understood that correctly. Thank you.

So first of all, last week we announced that our unified payment platform was selected by Coles in Australia for the digital payments. And this week we announced that ScotRail has adopted our ticketing solutions. So we do see commercial traction across the board with our security product programs that build upon our leadership position in tokenization and embedded security. But as we develop the business, what we see is that we have grown the size of the opportunities in our pipeline, creating a different revenue profile than we previously anticipated. Specifically, some of the revenue we projected for 2018 will now be part of larger agreements structured over the longer period of time. So as a result, we now expect security revenue in 2018 to remain roughly flat year-over-year. However, we remain confident in our ability to grow this business long-term and are excited by the growing number of engagements and customer wins.

And I guess just my follow-up. I know you guys have said that Rambus remains committed to its previous business strategy despite the management changes. But given that you reevaluated your writing business a few quarters ago, is that fair to say you'll continue to reevaluate your portfolio of product offerings going forward via both acquisitions and divestitures?

So the first thing I would say is that through the transitioning I noted we have a strong very collaborative management team, and I'm really pleased that you work there that we have with this team. I would say that the transition has given us an opportunity to look at the composition of our portfolio and to continue to refine that portfolio as we focus on growth. I think that will help us accelerate and improve the quality and the speed of the decisions we make. So as we said in the past quarters, you've seen us reduce investments in areas where we haven't seen customer traction like the smart data accelerator, the imaging business and our lighting division. And I think you'll see us continue to accelerate our decision making in this regard and we will focus on areas of growth, organically and inorganically as well.

Your next question comes from the line of Gary Mobley from Benchmark. Your line is open.

Rahul, you mentioned that with respect to this fourth quarter 2018 you expressed comfort in the fourth quarter revenue estimate versus the full year 2018 consensus. And so therefore, I'm assuming you're expecting the normal seasonal sequential uptick in the fourth quarter, and given the upside that you showed in the second quarter and as you’re guiding to in the third quarter. Therefore, does that put the full-year number somewhere in the neighborhood of $404 million in billings?

I think what we did today in terms of -- from a guidance perspective, and again I am talking about ASC 605, which I think those are numbers you’re talking about, is that the midpoint of our range for Q3 was $100 million in revenue, which was up slightly from Q2. Remember excluding the lighting division, our revenue in Q2 was roughly flat from Q1 when normally it’s down 5%. So it does show that underlying growth rate of our business. What I talked about from a Q4 perspective is expressing comfort with consensus. So I think consensus estimates is about 102 from a revenue perspective. And so if I look at maybe $100 million for us in Q3 and if you add the consensus of 102 in Q4, I think that gets you closer to 401 for 2018. But again, we guide one quarter at a time. So I gave you top line and bottom-line for Q3, and expressed comfort for top line and then consensus EPS also under 605 for Q4. Hopefully that’s hopeful.

You mentioned record licensing deal activity in the second quarter. Can you give us some color as to where you saw that record licensing activity achieved or generated. Was it on the patent side, was it on the core signs, or was it on the securities side of the business? Or all the above?

It’s actually across the board. Although, we are covered by NDAs with our customers, I would say that we were able to close contracts on the patent licensing cycle, and the IP cores and on the security side. So it’s a combination of all of those.

Gary, if I can add a little more color, I think it was part of our press release for the first half of the year for us from a core perspective, was a record for us. And even if you look at the divisional trend, this is something I said last quarter is that it’s hard to look at any one of our divisions on a quarter-over-quarter basis just because of how those deals could be structured, but we absolutely saw strength across the board and you see that just in the growth quarter-over-quarter on the security side as well. Hopefully, that helped answer your question.

My last question relates to the timing of DDR5 buffer chip revenue, I know it’s your belief that you’re first to market with working silicon. And I am just wondering if you can give us a sense of how far the lead you have compared to your competitors? And having working silicon, how that can translate into share as we transition into year five and when you think the market opportunity in dollar terms of all us for DDR5?

We see DDR5 ramping in volume in 2020, so it's sometime away from us. The lead in DDR5 sampling is important, because it allows us to work early with the ecosystem partners that are part of the DDR5 launch. So the memory partners and the processor partners all have to develop their ecosystem around these DDR5 technologies. And the very fact that we were first to introduce our chip was very important from that standpoint. Of course our competitors also introduced products, but that's going to be a race between now and the ramp in 2020. But having head start and every time we have new samples being able to improve our relationship and deepen our relationship with ecosystem partners is really, really important in our ability to gain shares when the products ramp.

Your next question comes from the line Asif Malik from Citi. Your line is open.

This is Amanda on for Asif. Can you give us a quick update on where you stand with the CEO transition Luc I know you’re in an interim role at this point, and congratulations on the new role. But can we just talk a little bit about how the transition is growing, how the search for upcoming CEO is at this point?

So let me talk a little bit about that, Amanda this is Rahul. So let me just talk about where that's been authorized to say by our board. So the board has commenced on a comprehensive search process to identify and evaluate internal as well the external candidates with an existence of a leading assistance, I should say of an leading executive search from. Frankly, as I look at our Company today, we have a CEO whose name is Luc so we are continuing to go run our business. In terms of timing what I'll say is that, we expect take several months to evaluate internal and external candidates, and have full confidence that the Board will conduct a deliberate and thoughtful process. The benefit is that Luc has knowledge of our Company's operations and has the strong relationship, not just with the internal team but also with our customers. So we’re continuing to move forward as before on a strategic and financial objectives. I think you heard, Luc, just mention now of having an opportunity to accelerate some of the resource decisions we've already been making. I think the only difference from a timing perspective is that this change caused a bit of the short delay in our annual strategic planning cycle. So as you’re aware, we typically present our strategic plan to our Board in the middle of Q3 and then to our investors and then in Analyst Day at the end of Q3. So with a bit of delay that means our Analyst Day maybe pushed into Q4 instead. Let me also say some other words that I’ve been authorized to say just about the transition. The termination following the incidence from earlier this year that was unrelated to the Company's strategy, financial or operational performance, once our Board became aware of the incidence, they hired an independent outside investigator to conduct a thorough examination. The Board also authorized an opportunity to present his side directly to the Board. After evaluating the information presented to them, the Board determined Dr. Black fell short of the Company's standards and terminated his employment. And in connection with his termination of employment, Dr. Black resigned from his position as the Board of Director. As the announcement we issued the indicated this decision had nothing to deal with our strategy, financials or operations and our Board acted when it had the information it needed to make a decision. Just to come back to with what I said earlier, we're running our company. We have a CEO in place and we're moving forward.

Another question I have is on the accounting change. And is there any change in how you’re interacting with your licensing customers in terms of renewing contracts that are up, or signing new licensing customers? Is there a different outlook in how you are building out those contracts, going forward, in order to have a more simplified revenue recognition process?

Amanda, it’s a great question and something that we’ve spent a lot of time on internally. What I’ll say is that we've been unequivocal that we will not give up long-term value for our Company in order to try to resolve the change in accounting standard. What we have been doing is looking at different contract terms that would allow us to take revenue ratably under ASC 606 much as we have had under ASC 605. And of course, we’ll continue to do what's in the best interests of our partners, as well as our Company, going forward. I think that’s also one of the reasons that you will continue to see variability in terms of how we report our revenue under ASC 606. For example, Q2 under 606 was certainly about the guidance range that we provided earlier, so that’s just have to do with the timing of contracts that we signed. That's why I'm also trying to give you 605 as well as license and billing so that you have all the information you need to read the underlying health of our Company.

And then on a related note to that with 606, do you see more of an impact if there are delays and no transition to customers in the memory side. Is that something that would impact being above or below guidance?

So let me make sure I understand your question, Amanda. Could you ask that one again? Are you saying that there’s delays in transition to new memories from our customers?

Yes.

Well..

If that -- what would impact the up or down above guidance range?

So most of the transitions we’re talking about have to do with the adoption of DDR4 and DDR5. As Luc mentioned, we already have samples for what we think are going to be the standards for DDR5. He has certainly much more customer intimacy in terms of how those start ramp, but wouldn’t be surprised to see that ramp starting in 2020. Now, that’s for our buffer chip revenue. And the revenue recognition for the chip revenue is actually pretty similar between ASC 605 and ASC 606. Where you start to see differences is in licensing agreement, because under ASC 606 if there is no performance obligation in the contract then we recognize the entire value of the deal the moment we sign in. I think if I can see a benefit in ASC 606 is that what you see in balance sheet is $751 million of present value of contract assets for something that we have no performance obligations. So I look at that as almost $7 per share is in our stock for something for which we have no performance obligation in order to go collect. I think from a quarter-to-quarter basis, what’s really going to determine whether or not we’ll meet our guidance from 606 and 605 is just signing contracts. And I think what we’ve showed pretty consistently is we will continue to do what’s the best interests in our Company over the long-term. And I am not going to giveaway value for our Company in order just to make a quarter if it’s a material difference for us from a revenue and cash flow and profit perspective.

Your next question comes from the line of Mark Lipacis from Jefferies. Your line is open.

First question on the memory buffer business. If you listen to the earnings calls of a lot of the hyper scale cloud players, you hear them talking about taking their CapEx forecast up. And I'm wondering if this is -- is this filtering down to you guys. Are you seeing any better visibility in the demand profile or any conversations with your customers qualitatively about what the demand environment is like or what orders could be like that might be above and beyond what you have been talking about in the $35 million, $40 million range? That’s the first question.

I'll ask Luc to talk about in terms of the demand profile. I think one of the benefits for us is particularly in the memory market is years ago we signed long-term very profitable stable predictable license agreement, and that really allows us to one, just continue to invest in the future and what happens in the industry. I think the other benefit is exactly the second half to your question, Mark, is that by then engaging in a partnership allows us to then grow in other areas in some of these product areas that we have, both on the memory side as well as on the security side. So certainly our engagement with each of these customers is much broader. I'll ask Luc to talk about what he is seeing in terms of the ramp for the buffer chip, I think which is what you’re asking for in terms of DDR4.

We do see great potential for our DDR4 ramp this year and next year. We do see those dynamics between the hyper scale datacenters and the OEMs and the memory vendors. One of the focus we had over the last year is to be in the right contact with the end customers, the OEMs, the hyper-scale vendors so that we can track those shifting demand. And we believe that we would then continue to grow this business maybe this year and next year. Our footprint is really strong as memory vendors introduce new memory types and as the processor vendors introduce new version for their processors. And as the demand shifts between the end customers we’re staying close to that.

On the GDDR6 PHY product, where are you in the deployment cycle. Are customers sampling this and testing it, or are they putting this into production system? And if not yet, when might that happen?

Without breaking any NDAs, we are engaged with customers as we speak in the development and deployment of GDDR6 IP into their products, it's an IP as opposed to a buffer chip type of product. So I believe it’s still a little bit of in terms of that adoption. And I think you expect to see some of the revenue growth probably starting in next year related to that not as much this year. I think some of these initiatives that we talk about, both on the memory side and security side like the announcements that we had and earlier this week that we’ve mentioned on security really help fuel our future growth.

And then on the record number of licensing deals that you signed this quarter. Are these things that are a long time and coming, are these deals that are conceived then executed within the same quarter?

So very rarely are any of these deals conceived and have been executed in terms in the first quarter, typically what we have is we have core or I should say dozens of different partners that are under license, Mark. And what happens as they license is usually extend for a certain term. So what happens is that usually about a year before the end of the term, we start engagement with our partner in terms of renewing that agreement. The reason that we do have any seasonality on our business is just we’re just happened to have more agreements signed in Q2 than we do in other quarters. I think overwhelmingly what you’re seeing is for us to continue to renew at a very favorable rate. What you’re also seeing is that we are able to add new licensees as well. So those are usually negotiations that are not in quarters that usually longer or sometimes one or almost two years in the making. And one of the things that’s been really pleasing to see is that you’ve seen us to be able to expand licensing from not just the DRAM industry, but also into broader memory or semi in terms of SoC or FPGA. And you’ve also seen us be able to expand our footprint from a licensing perspective on security side as well. So our licensing program goes very well and fits very strong and between that, and of course expecting licensing for us to be roughly flat and continue to serve as the backbone of our company.

At this time, there are no further questions. This concludes the question-and-answer session. I would now like to turn the conference back over to the Company.

So as you can see, we continued to demonstrate our leadership and execution across all of our products and deliver profitable growth across the Company. Thank you for your continued interest and time. And have a good day.

Thank you. This now concludes today’s conference.