Good afternoon, my name is James, and I’ll be your conference operator today. At this time, I would like to welcome everyone to Tessera Technologies Fourth Quarter 2015 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Don Markley, Investor Relations, you may begin your conference.

Thank you, James. Good afternoon and welcome to Tessera Technologies fourth quarter 2015 financial results conference call. This call is also being webcast live over the Internet and today’s webcast is accompanied by a slide presentation that can be accessed at www.tessera.com in the Investors section under Events and Presentations. Please be advised that during the course of today’s call, management will make forward-looking statements regarding future events, including the future financial performance of the company. These forward-looking statements are made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected. You are cautioned not to place undue reliance on forward-looking statements, which speak only to the date of today’s call, February 2, 2016. More information about factors that may cause results to differ from the projections made in these forward-looking statements can be found in Tessera’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2014 and the 10-Q for the quarter ended September 30, 2015, especially in the sections titled Risk Factors. The company disclaims any obligation to publicly update or revise any forward-looking statements to reflect future events or circumstances that occur after today’s date. Management may also discuss certain non-GAAP financial measures for comparison purposes only, for a definition of non-GAAP financial measures and reconciliation of GAAP to non-GAAP financial results, please see the fourth quarter financial results news release issued earlier today. Now, I would like to introduce Tessera’s Chief Executive Officer, Tom Lacey. Tom?

Thank you, Don. Whether live or via the webcast recording, thank you for joining us on the call today. Robert and I are very pleased to provide a summary of our Q4 2015 and full year 2015 results and our expectation is for 2016, including an update of our key growth initiatives and full-year revenue guidance. We provided a slide deck, as Don mentioned, and we’ll refer to the slide number and slide titles as we proceed. As you will again hear today, we remain very positive on the developments of the company and we’re optimistic about our future. Let me begin with some highlights for 2015 summarized on Slide number 3, entitled 2015 full-year highlights. Although, overall annual revenue from 2014 to 2015 was down slightly, recurring revenue, which we view as the primary measure for yearly growth, grew by approximately 62% from $150 million in 2014 to $242 million in 2015. Non-GAAP operating margin increased by 5 percentage points to 71% for the year. We also generated $145 million in free cash flow. Our capital allocation program was very robust as we purchased 3.3 million shares during the year, it’s approximately 6% of the shares outstanding compared to the start of the year at a total cost of $119 million. Additionally, at the beginning of the year, we doubled our quarterly dividend to $0.20 from $0.10 a share thereby returning $42 million to shareholders over the year. During our recent board meeting, we increased our authorized share buyback program by $200 million, adding $200 million to the unused amount previous authorization totals approximately $225 million available for share repurchase. Our balance sheet remains very strong. It’s a clear asset in the uncertain financial times in the U.S. and world economy. We ended 2015 with a debt free balance…

Thank you, Tom. As just noted we had solid financial results for the fourth quarter and the year in a great stride towards continued growth during 2015. We developed new licensing agreements with customers such as Socionext, Huawei, ZTE and LG. We witnessed further market penetration of FotoNation imaging technologies and we announced the acquisition of the Ziptronix in early August, which is an excellent fit with our 3D-IC technologies and has current applicability in the market. We combine with the significant progress made on bringing our advanced packaging solutions to market and in licensing new customers to our technologies and IP portfolio, it was a solid year indeed. With that let me cover the quarter’s results. Total revenue for the quarter was $61.8 million, at the high end of the Company’s guidance range of which $60.8 million with recurring revenue. Compared with the fourth quarter of 2014 recurring revenue grew by $17.5 million or 40%, due mainly to recurring base settlements along with revenue growth in our FotoNation business. GAAP operating expenses for the quarter were $28.4 million compared with $13 million for the fourth quarter of 2014. The increase is primarily result of a 2014 fourth quarter benefit of $11.9 from the sale of assets to China-based Shenzhen O-Film, reflected on the income line statement restructuring, impairment of long-lived assets and other charges and gain on sale of patents. R&D expense for the quarter increased by $1.5 million from the fourth quarter of 2014, but was slightly lower sequentially. The year-over-year increase was the result of incremental spending related to the Ziptronix acquisition in 2015, an increase in stock-based compensation. Litigation expense for the fourth quarter was $3.2 million, compared with $2.1 million from the fourth quarter of 2014. Litigation expense increased by $1.0 million from the prior…

Thanks, Robert. That concludes our prepared remarks. Thanks for being patient with us. It was a lot to cover. Now, we’ll open the call to your questions. Over to James, the operator for Q&A.

[Operator Instructions] Your first question comes from the line of Krish Sankar from Bank of America. Your line is open.

Yes. Hi, thanks for taking my question. I had a couple of them Tom and Robert. First one, on the Q1 guidance, how much is a litigation expense going up? Is it a main reason for the EPS being marginally lower than revenue run rate?

We’re not – it’s a reasonable increase. I think we finished at roughly $3 million for the quarter $2.3 million I think. So we’re up sequentially due specifically to the UTAC case as Tom mentioned. So I’m not going to give you an exact number. That is one of the main increases quarter-over-quarter. I think if you are looking more broadly at the expense numbers, you have to remember that the Social Security tax recess during Q1, so on a sequential basis that’s an increase. We also have a R&D tax credit in Q4 that isn’t repeated in Q1. So those are two of the big differences quarter-over-quarter.

Got you. And then on the guidance for both Q1 and the full year on the top line. Can you – is that all recurring revenue guidance or does it include episodic event?

So the guidance we’re providing is total revenue. However, we would expect recurring revenue to grow year-over-year. We’re crystal clear that – clear that’s the goal and intent is to maximize recurring revenue. It’s important to understand that completing Greenfield licenses and settling legal matters can have a revenue impact that is just recurring, just episodic or some combination, not subject to negotiation. So it’s best to provide a general range for the guidance and we’ll update guidance as appropriate as our visibility improves over the year. We would expect that recurring revenue growth again for the year and also even quarter-over-quarter, so we’re looking at Q1 last year compared to this year.

Got it. And then my final question is on the FotoNation business, I know you guys have some unit based cap is going to come into effect this year, right. So you did $30 million last year, how do we think about the revenue on the FotoNation is it going to be flat or is it going to be up?

Yes, did you get a chance, I don't know Krish to see the slides. It's Tom. Slide number 4 what we did as we try to answer that. So let me take it in two ways. So the unit based cap we talked about in – on the Q3 call, still exist and we're still working on it, right. And we still like to get that so that's not quote embedded in anything but our goal is very clear, right. While we tried to outline in this slide as we see a path to $100 million and beyond simply by just executing – continued executing and execute better in the mobile segment alone. And then there is a number of different opportunities on top of that automotive, drones, robots, sports cameras, surveillance et cetera et cetera but tremendous opportunity in front of us. In mobile, we characterize our overall share in the market as our estimate is about 25% of the market today. So simply by increasing our share their increasing our ASP in some of our legacy contracts. We see a path definitely and remain confident on the number we've provided in the past.

Got it, I mean, I understand the slide but that's a long-term one. But I'm just kind of curious on 2016, how to think about FotoNation revenues.

We would expect to continue to obviously – to continue to grow the business.

Yes, I think it's fair to say that even with the cap still in place, which we would obviously work on we could still grow the business and that’s certainly our plan for the year.

Got it, got it. That’s very helpful. Thanks a lot folks. Thank you very much.

Thanks for the questions.

[Operator Instructions] Your next question is from the line of Gary Mobley from Benchmark. Your line is open.

Hey, guys congratulations to a…

Bank of America…

To Benchmark – Benchmark…

Yes…

I don’t – which firm – firm, Gary…

No, I don't think we're both working at Bank of America.

Thank you.

Thank you.

So I quite just start out with a question talking about some of the Greenfield licensing specifically for BVA and xFD if I'm not mistaking you have a technology transfer underway with BVA and xFD for that matter. With I believe ChipPAC and Micron respectively and I'm just wondering if any of that the portion of a final license is going to be relating to those, is embedded in your full year 2016 revenue guide.

I think it’s fair to say that some, but not all. So as with any guidance we are expecting to have some achievement both in rolling out BVA and in assign new license agreement under Greenfield. So we have – we certainly have opportunities there. And I think when we are giving the guidance, as I noted even in the remarks, it’s not like running the table but we did believe, we’ll make some progress there.

Okay, and as I look at the – what’s implied in the sequential changes in revenue throughout 2016, are we to assume that second half revenue is going to be 20% higher than the first half and what drives that, beside seasonality?

Well, I mean, we – it’s not – I think you’re referring to the guidance we are giving for Q1, I’ve gone through this a few times before, but its probably worth going over again which is just the way our contracts are structured, we have a certain seasonality…

In Q1…

Such that Q1 tends to be – if you will seasonally weak, Q3 a little bit stronger. So it’s not as though we have – so I think naturally the second half has a bit more strength to it. You saw this last year, if you look at the recurring revenue for over the year that the Q1 piece of the recurring revenue was just 21%. So it is structurally the way it tends to work. I think that’s what you are getting at.

Sure, sure. That’s helpful. Thank you for the legal update on UTAC I believe you have two other cases…

I wish I didn’t have to provide it, you know it isn't always what you would expect.

Well, I guess there is two more as well to contemplate, you have Toshiba and you have OVT that when you inherited. OVT is in the process of being acquired, does that change the negotiation dynamic with them. And then likewise with Toshiba going through its problems and potential sale of the group that you’d be licensed to, how have those negotiations gone as well?

Yes, so I will start in reverse order. Toshiba, probably that the bigger impediment initially was the fact that they had the top five Senior Managers and six – I forget what it is now five of their six Board Members all left on the same day, as part of the [indiscernible]. So there was a bit of chaos over there, now it is really more second half, third, fourth quarter of last year. It is stabilizing they have got an organization in place. We are not scheduled to go to trial until 2017 with them. So this is no more in the discovery phase and as you know, as well, you would expect us to continue to see if we can get something done, prior to going to trial. But unfortunately, this was one of those examples. I think it’s the only one at this point under my watch where we actually had to file against the customer and we had to file largely to protect some of our rights and the fact that there was such chaos at the customer. So we still believe and want to optimistically see if we can reach settlement. If we don’t, as you know, in the event we do end up going to trial, we’re always very well prepared and feel very good about our cases. And our track record speaks for itself. On the OVT front, I recall, Gary, you’re familiar with those, other on the call that might not be. We bought a company called Ziptronix and in that was a outstanding litigation between Ziptronix, the company we bought and OVT, TSMC. And that has gone through a serious of mediations at this point. There is no court date at this point. I don’t think the acquisition of either business has any direct impact on our potential opportunity with these guys at this point.

Okay. All right, last question from me, Robert. Just to clarify with free cash flow that you’re modeling over the next 12 months, 24 months and that is well, your appetite to buyback stock. So we assume that the share count, now that you’re – you’re no longer facing the headwinds of our issues and most of the options have been expired by ex-employees and we’re not – should we assume the share base drops by about 5% per annum?

Yes. I think it’s a reasonable assumption. I mean, that’s all things being equal. What I showed at the Needham conference in the deck that’s on our website is that, now that we have worked through a lot of the backlog that you’ve noted, if we continue to buyback at the rates we bought back during 2015 and taking current dilution into consideration, 5% per year decline is for the share count, it’s just about right. It will depend on the market dynamics. Share price goes down, it makes it all that more attractive.

Sure. All right. Great. Thank you, guys.

Thanks, Gary.

Thanks, Gary.

Your next question comes from the line of Jorge Rivas with Craig-Hallum Capital Group. Your line is open.

Good afternoon, gentlemen. Thanks for taking my question.

Hi, Jorge.

I wanted to dig in a little bit more on the revenue guidance for 2016. So it’s about $20 million higher than what you provided at the third quarter. So if you can help me understand the assumptions on that increase, seems like BVA and xFD are the – causes opportunities to see revenue growth this year. Is there anything else that am I missing there, any order streams of revenues that you expect to see in 2016?

Yes, it’s a good question. Look, what I provided during the third quarter conference call was a baseline for recurring revenue, which is something we kind of been asked about over the course of the year. So I never considered that to be a formal guidance. What I did say during that call was we would give formal guidance which we have done today. So that number is still relevant of course to the extent that it shows. We have already in place backlog of recurring revenue. The pieces of the growth that you are describing between $250 million to $270 million that we’ve given in terms of the guidance range today, really is outlined in a lot of detail in the slides we’ve given. The various opportunities within FotoNation and also within our Greenfield, BVA, et cetera, and settlements et cetera. So there’s a number of different factors that come into that.

Okay.

Jorge, just for clarification – just for clarification, you shouldn’t take away the bulk of the growth or as Robert outlined, $250 million to $270 million is depended up BVA and xFD. They are part of it, but probably overall – probably a small part of it.

Yes, that’s fair.

That’s what I was trying to get at, thank you. So and then, does this growth imply any type of out from ferments that you can receive during the year, just trying to – I guess, I get a better idea of how to do model revenues going forward. I know you guys only a quarter ahead, but I know sometimes you can get enough from payment or get royal fuels for units?

Yes, I mean what we’ve said is we’re giving an overall revenue number. It is difficult to determine in advance based on some of the discussions we have with our customers as to exactly what those structures look like.

Okay.

So it could include recurring, it could include episodic. It’s hard to say in advance. Obviously the recurring revenue is our goal and what we seek to focus on. So if we could get all of that recurring revenue we certainly would.

Robert, may be add additional color as you did in your quote, what’s specifically excluded from that guidance.

All right, I think that we have said that there are – when we are talking about the overall guidance?

Yes, what do we think is excluded from the $250 million to $270 million?

We basically said that is – it’s not that we are going to have all – everything that we have actually got on the table in other words. So we have opportunity in Greenfield and we have opportunities in FotoNation and perhaps some things like that where we – not saying we’re going to get absolutely everything. That’s actually what I said during my script is it’s a combination of…

The point is, this is opportunity well above what we’ve guided to. We tried to do is set out a guidance that we have higher confidence, high confidence in, I guess is the way to think about it.

Okay.

Yes.

All right, yes. So thanks for that and one last one for me on the M&A environment. So just wondering what you’re seeing out there? Are you seeing enough opportunities, so it may be, what you’re seeing is just still lack of acceptable pricing and what’s out there?

Yes, things have gotten cheaper. Just say it, very bluntly. Yes, things have gotten cheaper. And that’s why – I’ve said a couple of times in my script, it’s nice being in a position we’re at where we a strong predictable cash flow, where we have strong cash, we have no debt, and we have a large cash balance and a well functioning team, and a very high performance staff at this point in board, right. So, we’re in a good position to continue to shop and shop with things that match our vision. I’m also give a quick shout out to the guys on our team there. We have just some world-class people running this part of the company for us. So, very pleased with quality and our overall process. A lot of stuff we pass on, if we think the expectations are too high and – but more have kind of fallen into our radar, as a result of the stock market taking the beating, especially in the tech sector that it has.

Okay, great. Thanks gentleman. Keep up the good work.

Thank you.

Thanks, Jorge.

Thanks, man.

[Operator Instructions] Your next question comes from the line of Matthew Galinko from Sidoti. Your line is open.

Hey, Matt.

Hey, good afternoon guys.

Hey, hello.

Hi, Matt.

Hey, so, three part question for you. Regarding market share gains, one of your drivers for FotoNation’s growth in mobile, can you talk about what you’re seeing in the sale cycle – in the sales cycle, the length and whether it’s sort of contracting or expanding? What your level of engagement is with the remaining 75% of the market that’s not currently using FotoNation? And how much of that remaining 75% do you consider realistically adjustable?

Boy, several – all good questions. So the sales cycle, it depends, if its software only, it can go quite faster. You can be in something, depending on when a customer’s launch date is, it can certainly be inside six months, we’ve seen that. If it’s a hardware/software where RTL is embedded in their chip, that’s a longer design cycle. That can be certainly as I mentioned in the prepared statement that can be in excess of a year, that’s simply the semiconductor process itself. So, we get kind of a mix of both, some cases its software, some cases it’s both hardware and software, the RTL nature. Candidly, our preference is the latter although it’s longer sometimes prime to money. And we’ve been working on this everyday for since we’ve been aware, I would say most of that share is accessible to us simply because the market overall is pretty concentrated. You saw us during the year make some penetration into China, we think those are important some of the Chinese smartphone providers. There’s still more to get there and there’s others in the world that we don’t have, but you can do the straight math in terms of our overall share. Right, there’s a few large players by our share we’re seeing we don’t yet have them as customers at this point. So we feel good about that business continuing to grow that’s one of the reasons we did that slide is to - a number of people have been asking us is, can you get your target this $100 million. Do you need - how much penetration do you need in other markets? Now the reality is we would love to get penetration in other markets and we’re working on them, but we can get there just in mobile alone. I think, I answered your three questions. Sales cycle…

Yes.

Yes, okay.

Yes, that’s all I have. I appreciate it.

Okay, thanks, Matt.

Thanks, Matt.

There are no further questions at this time. I turn the call back over to the presenters.

James, thank you very much. And everybody again listening live or online. Thanks again for your interest in Tessera. We very much appreciate you spending time to learn more about us. In summary we’re super pleased with our results and outlook. And our solid foundation continues to provide an excellent financial platform from which to continue to grow the company. Thanks again and take care.