Welcome to the Rambus Third Quarter and FY '19 Earnings Conference Call. At this time all participants are in a listen-only mode. [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, Benita, and welcome to the Rambus third quarter 2019 results conference call. I am 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 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 7170477 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'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 Web site beginning today at 5:00 p.m. Pacific Time. Our discussion today will contain forward-looking statements including our financial guidance for future periods, products and investment strategies, timing of expected product launches, demand for existing and newly acquired technologies, the growth opportunities of the various markets we serve, the expected benefits of our merger, acquisition and divestiture activity, including the expected timing of transaction completions, and the success of our integration effects. In the effects of ASC 606 on reported revenue 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. In an effort to provide greater clarity in our financials, we're using both GAAP and non-GAAP financial presentations in both our press release and also on this call. A reconciliation of these non-GAAP financials to the most directly comparable GAAP measures as included in our press release and our slide presentation and 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 our guidance for future periods; and then we'll 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. Over the past year we have consistently demonstrated strong execution and product revenue growth, while meeting or exceeding the expectations in the market. This quarter was no exception with revenue above the high-end of guidance at $57.4 million. We've strengthened our balance sheet by generating $25.6 million in cash from operations taking the year-to-date total to $93.1 million which already exceeds the cash generated for all of 2018. The company has made tremendous progress to all the strategic objectives set out at the beginning of the year that are critical to our company's success. Our efforts continue to be driven by refocusing our product portfolio and research and our core strength in semiconductor, optimizing the company for operational efficiency and leveraging our strong cash generation to reinvest for growth. In Q3, we had significant M&A activity in line with our areas of focus and mission to deliver data faster and safer. We announced two exciting silicon IT acquisitions that will enhance our offerings and expand our market position in interfaces and security. We began with the acquisition of digital controller company, Northwest Logic. As a market leader in memory, PCIE, EP digital controllers, Northwest Logic expands our interface solutions for data center, AI communications and automotive. Every SoC design that uses ASIC also needs an associated controller. With a combination of complimentary digital and physical IP portfolios from Northwest Logic and Rambus, we can offer fully integrated PCI and memory interface subsystems for our customers. As we mentioned in last quarter score, this transaction will not materially impact 2019 results having just closed in August, but we expected to have an immediate positive impact on the business and be accretive to revenue and earnings in 2020. We also announced an agreement to acquire the…

Thanks, Luc. I'd like to begin with our financial results for the third quarter. Let me start with some highlights on Slide 6. As Luc mentioned, we continue to execute on our product businesses and delivered solid financial results above our revenue and earnings expectations. We've adopted ASC 606 using the modified retrospective method, which is [Technical Difficulty] that rather runs a cumulative effect of the adoption through retained earnings as a beginning balance sheet adjustment. Any comparison between our results under ASC 606 and prior results under ASC 605 is not an accurate way to track our company's progress. We'll continue to provide operational metrics such as licensing billings to give our investors better insight into our operational performance. We delivered revenue of $57.4 million and licensing billings of $63.1 million, revenue was higher than our expectations due to strong buffet chip sales. We have a very strong balance sheet and ended the quarter with a cash, cash equivalence and marketable securities of 338 million flat from the previous quarter as cash from operations of $25.6 million was offset by cash used for the acquisition of Northwest Logic. 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 chips and Silicon IP. Now let me talk you through some revenue details on Slide 7. Revenue for the third quarter was $57.4 million above our expected range due to market share gains in our buffer chip business. Royalty revenue for the third quarter was $19.4 million, while licensing billings was $63.1 million. The difference between licensing billings and royalty revenue primarily relates to timing as we don't always recognize revenue the same quarter we bill our customers. Going into…

Thank you, Mr. Mathur. [Operator Instructions] Your first question comes from the line of Suji Desilva with ROTH Capital.

Hi, Luc. Hi, Rahul. Congratulations on the strong cash generation here. So, every quarter I try and go through these numbers to make sure I get the kind of ASC 605 pro forma, correct, if I did the math correctly? So, Rahul, 3Q'19, I get revenue of $101 million would've been reported and EPS is $0.23. So, those numbers sound reasonable.

So, Suji, we can't report the 605 numbers anymore as you know. But if I were to do that math, but I think you're doing, I'd get the same numbers.

Okay. Good to know. And then, 4Q'19, couple of moving parts here, but it seems like if I put it together, I can get to something like $98 million midpoint revenue guidance and $0.25. And if you back out the payment and ticketing from 3Q, the revenue isn't sequential growth. Does that sound right as well?

Yes. Again, I understand the math you are doing, and I would get the same results, but that's not math that we can do as a company.

Understood. That's fair enough. Okay. And then for the business for '20, you reiterated the guidance from the Analyst Day, can you give us, maybe some more color or detail on what Northwest Logic or Verimatrix contribute to the '20 run rates, so we have some idea, the inorganic versus organic year-over-year.

Yes, absolutely. So, what we expected, and we said at our Analyst Day in September in New York, as we expected Northwest Logic to generate roughly $10 million of revenue for us in 2020. And we expect the businesses from Verimatrix or formerly Inside Secure to generate roughly $20 million of revenue for us in 2020. And both of these should be minimally accretive to our EPS. Now as a remainder, we have a significant portion of 2019. So, when you take those numbers out of 2019, you see very nice growth across the board in our product businesses. You see product revenue, I think what we said is, we not expect to be at the high-end of our range for 2019 of almost $70 million. And again, that's almost entirely our buffer chip business. And I think what we said in September is that our range for that product revenue in 2020 is between $75 million and $95 million. So that's a business that's growing very nicely. What you also see is growth in our Silicon IP business and that's really reported as contract and other. As a reminder, there's about $20 million of billings that we have in licensing billings that we think are really directly related to that Silicon IP business. So, if you had, I think what we said in September between $70 million and $90 million or $80 million as a midpoint, yes, that '20 and I think in 2020, that's almost $100 million of billings associated with our Silicon IP business, which is really nice growth over '19, both organic and inorganic. But, we're certainly pleased with our execution. As we talked about repeatedly Suji and what we see is structural -- in our structural patent licensing agreements we see step downs in certain agreements that we have. And what you see is then that product growth is offsetting any step downs we have. And we're also growing from a bottom-line and from a cash from operations perspective as well. So, we're very pleased with our performance and the guidance.

Okay. That's a lot of helpful color Rahul appreciate that. And then a couple more questions before I pass it off, the DDR4 memory, you had kind of upside versus your expectations. Was this driven potentially by perhaps the hyperscale or data center recovery that Intel called out or are there competitive factors versus [IDT assessment] [ph] and thoughts that might be also in the mix here?

Hi, Suji. It's actually both. We do see some recovery in the market. We see the inventory levels normalize in the market and demand is up from a data center and the resume purchase to our customers. So that's one factor. The other factor is that we are starting to see the results or continue to see the results of our design win activity on the cascade Lake platform where our footprints of design wins was twice what it was on the Skylake, platform. So, the combination of our increase of footprint in the design wins with the recovery of the memory market explains these results for the buffer chip.

Okay. My last question is, you talked about closing a set of deals here in the quarter. I was curious what the numbers were relative to that, the number you reported in the most recent quarters, whether that's a typical level of number of deals you'll see, or if there's more or less than a typical quarter historically.

Yes. I think Q3 was very active for us because we were able to announce the divestiture of our payment and ticketing. Then, we also announced the closure of Northwest Logic and our intent to acquire the business from Verimatrix. I think we have an opportunity, we have a very strong balance sheet, we definitely have an opportunity to continue to drive more inorganic growth. But, it's really driven by what the opportunities are and how they align from a timing perspective. I think we will continue to be judicious. What I'm very pleased with is that certainly the execution on the divestiture of payments and ticketing help refined our focus back to our sending better business and certainly the acquisitions in Northwest Logic back to acquire from Inside Secure very nicely bolster both our memory and security portions of that Silicon IP business. I think we certainly will expect to continue to look forward to other inorganic opportunities.

Okay. Thank you very much guys.

Your next question comes from the line of Gary Mobley with Wells Fargo Securities. Mr. Mobley, your line is open for your question. There is no response from that line. We will go to the line of Sidney Ho with Deutsche Bank.

Great. Thank you. Just want to follow-up the previous question. At the Analyst Day, you gave a full year guidance for next years, architectural license billings of 220 to 240, which is down about 10% from this year just taking the midpoint of the guidance. So, one, is that still a valid assumption and if so, can you help us understand the moving pieces how much of that decline is related to sale of the ticketing business? How much related to any schedule step-down like we've seen this year and what kind of growth does it mean for the rest of the businesses?

Yes. It's a great question, Sidney. And what I will tell you is that there's really not that much of that that's related to the payments and ticketing business. Most of the revenue and the payments and ticketing business was more in the contract and other segments. We did have a little bit in that licensing billings. But most of the revenue that we recognized particularly was under contract and other. It really is almost entirely related to just the structure of our licensing agreements. What we did is, we signed a long-term licensing agreement in 2014, '16, '17. And those have very defined structures in terms of how much we are able to collect from our partners each quarter. There are of those agreements which are loyalty-based and so you will see some variability in terms of what will come in. But really, it's almost entirely related to just the structure of those agreements. What we found is that those years were very strong for many of our partners and our partners took that as an opportunity when they were having strong years to up front some of the payments that they had in those agreements. What we looked at is, what's the total value and we're very comfortable with that total value. But again, to answer your question, it's almost entirely related to the structure. Looking forward beyond 2020, I'd expect it to be roughly flat with what we show here. There are upsides. I think one thing that's we've talked about that's very difficult for us to predict is, is really what happens with China. And again, how that happens and how those agreements are structured are going to be something that we'll work through. But hopefully that helps answer your question.

That's helpful. Thanks. Maybe a follow-up question is on the CryptoManager business. You announced the design with Micron at the end of last year and I think Micron just announced their product and services as a matter of fact just a couple of weeks ago. Can you help us understand your revenue opportunity there? How do you think about the ramp? How would it look like and maybe compare and contrast with some of the -- well, I guess the other customer that you have announced in the past?

Yes. Thanks Sidney. Just to clarify things, so our CryptoManager device key management system is the software foundation that Micron is using for the authentic key management services and for the IoT application. So, it's nice to see that the product is being commercialized as every one of our CryptoManager deals, it's a combination of license to that customer. That sometimes is linked to volume tiers. And that's the kind of business model that we have. We cannot give more details than that. But it's a great opportunity for us. The software foundation for the IoT services based on that memory, they just announced.

Okay. Maybe one quick question for me. In terms of the 5G side of things, we've been hearing, there's a lot of acceleration of 5G infrastructure build out and the expectations for 5G handsets has a quite high, maybe 200 million, 250 million units next year. Can you help us understand how and when you will start benefiting from that kind of rollout?

Yes, sure. That's a great question. We actually start to benefit from the deployment of 5G. One of the key interfaces being used in 5G systems is PCIe Gen 5 interface using 32 gig per second. So, a lot of the design wins that we have announced over the course of the past quarters actually used in SoC that are being used in 5G infrastructure. So, the way we benefit from 5G is actually people designing SoCs with that type of interfaces that are required for 5G. In the call today, we mentioned several types of applications that are using our IP course. I would just add to this that these are with very large cap customers, trendsetters and one of them is actually addressing the 5G market.

Great. Thank you very much.

Thank you, Sidney.

[Operator Instructions] At this time, there are no further questions. I will now like to turn the conference back over to Luc.

Thank you, everyone, for your continued interest and time and have a good day. Thank you.

Thank you. This now concludes today's conference call. You may now disconnect.