Good afternoon, my name is Veronica, and I will be your conference operator today. At this time, I would like to welcome everyone to the Tessera Technologies Second Quarter 2016 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the conference over to Don Markley. Please go ahead.

Thank you, Veronica. Good afternoon and welcome to Tessera Technologies' second quarter 2016 financial results conference call. This call is also being webcast live over the Internet. 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 provisions 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, August 02, 2016. More information about factors that may cause results to differ from the projections made in those 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, 2015 and the 10-Q for the quarter ended June 30, 2016, especially in the sections titled risk factors. The Company disclaims any obligation to publicly update or revise any forward-looking statements to reflect 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 second quarter financial results new release issued earlier today. Now, I would like to introduce Tessera’s Chief Executive Officer, Tom Lacey. Tom?

Don, thank you very much. Whether live or via webcast recording, thank you for joining us on the call today. Robert and I are pleased to report another strong quarter as we exceeded both revenue and earnings guidance and we're very excited about the developments of the Company and our progress towards several of our growth initiatives. Let me begin with some highlights for Q2. We once again exceeded expectations on virtually all financial metrics and delivered a strong quarter of performance. Our Q2 revenue was $67 million which exceeded the high end of our guidance range and we achieved a non-GAAP operating margin of 66%. FotoNation produced its second highest revenue quarter of all time and remains extremely well-positioned in the very hot imaging market. Our capital allocation program remains robust with a combination of dividends and share buybacks. During Q2 we purchased approximately $25 million of our stock. Q2 represents our sixth consecutive quarter whereby our fully-diluted share count has decreased from the previous quarter. While we remain aggressive on the capital allocation front our balance sheet is strong and debt free and our cash position increased by $8 million from last quarter. We continue to be both selective and active on potential M&A opportunities and view our management team, IP, balance sheet, and cash generation as a valuable asset in this regard. Next let me provide an update on developments with our Invensas, FotoNation and IP licensing efforts during the second quarter. Our Invensas team is engaged with several leading semiconductor manufacturers and OSATs to further the development and broadly commercialize our portfolio of advanced packaging and interconnect technologies including ZiBond and Direct Bond Interface or DBI bonding technologies and BVA for the enablement of high pitch interconnect using industry standard readily available wire bond equipment. Positive…

Thank you, Tom. As Thomas noted, we exceeded our financial objectives for the quarter and are encouraged by the progress we've made through mid-year. Let me provide some additional details on our financial performance in the quarter. Total revenue for the second quarter was $67 million above the high-end of the Company's guidance range including $66.7 million of recurring revenue. Compared with the second quarter of 2015, recurring revenue grew by $3.5 million or 6%, primarily to the payment from the UTAC made in the quarter which was offset by timing of royalties from other customers. GAAP operating expenses for the quarter were $32.9 million compared with $27.4 million for the second quarter of 2015. R&D expense for the quarter increased by $2.4 million from the second quarter of 2015, but only – was only slightly higher from the first quarter of 2016. The year-over-year increase was primarily result of incremental spending from increased headcount both through the acquisition of Ziptronix and strategic hiring to support expanded research and development programs in advanced packaging, imaging, and machine learning. Litigation expense for the second quarter was $5.3 million an increase of $1.8 million from the prior year, primarily due to the increased activity of open legal proceedings particularly Broadcom and Toshiba. Compared to the first quarter of this year litigation expense decreased by $1.3 million due primarily to the settlement of the UTAC matter. Amortization expense for the quarter increased by $1.4 million from the second quarter of 2015, but was flat sequentially. The year-over-year increase was primarily due to the amortization of intangibles recorded from our Ziptronix acquisition in August 2015 as well as IP acquisitions over the past year. GAAP net income for the quarter was $23.5 million or $0.48 per share on a diluted basis. Earnings per share…

Thanks, Robert. That concludes our prepared remarks. Now, we’ll open the call to your questions. Over to Veronica.

[Operator Instructions] And your first question comes from Krish Sankar from Bank of America Merrill Lynch.

Yes, hi, thanks for taking my question. I had a couple of them. One is how do we think about the litigation expense heading into next year. Given that most of your Broadcom dates are coming up in Q1, Q2 timeframe?

Good question Krish. Litigation is notoriously difficult to forecast. As you’ve seen it fluctuated on a quarterly basis. And it will really depend on the cadence of the cases. And in a lot of ways what happens between now and then. So it will probably be given that sort of six months plus out, I don't think it makes sense for us to try to give too much guidance on that. In terms of what next year is going to look like.

Got it. All right. Then in terms of the Q3 guidance between $61 million to $63 million the dip from Q2, is it primarily coming on the FotoNation side or your microelectronics?

FotoNation is part of it. We've mentioned before that we have a cap in one of our contracts with a key customer that comes into effect during the second half of this year. So that's a piece of it and you noticed revenue was higher than we'd initially planned for Q2, so some revenue called into Q2 and also some revenue pushes out to slightly into Q4. So I mentioned in the guidance section that we expect Q4 to be our strongest quarter for the year and that was why I was comfortable reiterating the guidance.

Gotcha. And then for FotoNation for the full-year calendar 2016, is it fair assume it will be greater than calendar 2015?

Yes. At this moment we're forecasting it to be higher than last year for 2016.

Thank you. Got it. All right. I think that’s all I had at this point. Thank you very much.

Thanks, Krish.

Thanks, Krish.

Your next question comes from Gary Mobley with Benchmark.

Good afternoon, guys.

Hi, Gary.

I wanted to start with the question about litigation and how it's impacting your pipeline at Greenfield licensing opportunities. I'm sure everybody in your Greenfield licensing pipeline took note of legal action against the Broadcom. Has that hurt or helped negotiation with some of these other Greenfield opportunities?

They're all unique and they're all different Gary, candidly. Yes, you're right, everybody certainly took notice for sure and some are quite – feel quite positive that we're confident enough in our assets to take those steps. But each one I swear is just it's so different, it's hard to characterize plus or minus. As an optimist, I tend to think of it as a positive, but again each one of these things are so unique.

Okay. And Robert how should we think about share retirement. I'm sure the key variables, the share price, and that bringing options into the money and what not. But some of the share price stays the same, what is your goal in terms of share retirements?

Well, I gained sort of [indiscernible] goal of 5% for this year and we're already well on track to be at that for this year. So I think we've got out to a good start for the first half of the year. We will continue to monitor it. We've been buyers. I think at the current prices, we would continue to be buyers, but we’re also balancing that with other potential opportunities. Tom mentioned M&A as possibility, so we try to make sure that we’re very thoughtful about using our capital in the best way possible.

Okay. I want to delve a little bit deeper into your assumed fourth quarter revenue outlook at roughly $74 million. If I’m not mistaken is the best quarter you'll have in almost two years. It will be the best quarter in recurring revenue presumably in the entire time you've been at the company. And so can you give us a sense of the ebbs and flows and what's driving now is sequential revenue growth in Q4, but the year-over-year growth?

Well, I think we're really talking about Q3 as we're guiding forward and I'm just reiterating our annual guidance, so I understand you're backing into Q4. We are very fortunate that we have good visibility based on the nature of our contracts as to what we expect. Things do occasionally move around on us a little bit, but I think we're very confident in numbers. And keep in mind that the annual guidance numbers that I'm giving our overall revenue and I'm not distinguishing between recurring and episodic when I give the guidance.

Sure. Okay. So that what you're saying in that last sentence is there maybe some episodic event in Q4?

Yes. That's possible certainly.

Okay. All right. That's it for me. Thanks guys.

Thanks, Gary.

Thanks, Gary.

Your next question comes from Jorge Rivas from Craig-Hallum Capital.

Hello, guys. Can you hear me?

Yes. Hi, Jorge.

Hello, Jorge.

Hi. Thanks for taking my question. So first question on the FotoNation side, so it appears that even though you had a good quarter the guidance and the results for the quarter may seem to imply that FotoNation is – as we decline in fourth quarters in a row after third quarter revenues in March. So I'm wondering, what are the drivers of that whether it's a ASP compression or units. Can you please elaborate a little bit on that?

Sure, thanks. So the good news for FotoNation, it’s just then as Tom mentioned, the right business in a very hot imaging space, so we're excited about the business and have two really strong quarters behind us, so far this year is great. For the second half, the real difference when you're looking at the total year is driven by just that one customer in which we had a cap in the contract which I mentioned earlier. So it's just a factor that will affect us primarily just for the second half. We exit the year on a new contract with this particular customer at a higher ASP. So we really exit the year with good momentum in FotoNation with that particular customer. And so we're only impacted for the second half and then on any historical products that are related to the prior contract that we’re in good shape following the end of this year. We will actually catch – we should catch the tip of that at the end of Q4.

Yes, and one other additional comment Jorge, that the new agreement that Robert is referring to, we don't face any caps in that.

Yes. Thank you. So no caps on the new abstract either and that's really the only driver that's kind of on the negative side for the FotoNation, rest of the indications are very strong.

Okay. Great. And then I was hoping you can help me outside from FotoNation for the rest of the business. My understanding was that there was a little bit of seasonality on the revenues was that third quarter being the strongest, but I think I would imply order wise, so if you can just provide a little bit more color of what's going on other parts of the business that's embedded in your guidance?

Yes, fair enough. We have typically had Q3 as our seasonally strongest quarter, but just based on the structure of our contracts that can move around a little bit and in this case it just so happens that Q4 was stronger than Q3 this year. That's partly driven by FotoNation, any of the remainder of the movement is primarily on the IP side.

Okay. I appreciate the thoughts. Thanks guys. That’s all for me.

Thanks Jorge.

[Operator Instructions] Your next question comes from [Jeff Home], Investor.

Hi, Tom and Robert.

Hi, Jeff.

Hey. Thanks again for the repurchase activity, good use of cash. I just have two questions. Tom, you mentioned in BVA, it seems like you've made progress with ASC on the technical side and you mentioned they're ready to engage. But you also said maybe a change in the target market of that products, so I just wonder do you still feel good about in that new target market is that revenue potential the same and is there any update as to when we could see royalty revenue from BVA?

Yes. So in terms of the overall revenue opportunity, it's really going to depend upon Jeff, which customers we lend. What I said is, we pass the hurdle of getting the product qualified by ASC, which is fantastic and they are now in a position and we can represent it to customers. So they've been able to build it to yield et cetera. And what we're saying is the need for high density chip-to-chip interconnect from application processor to memory that market demand is not at this point in the market. We expect it will be in the future, so with respect to that opportunity, you're right that it’s pushed out. What we did have seen in our sales efforts in our commercial efforts is that there are other market opportunities that appeared to be taking quite nicely to the technology. I mentioned SIP, system in package. And what the actual revenue on that in the timing of that is it’s still to be determined and we’ll be happy to give you an update as we proceed.

Okay. Great. And then on the Greenfield side, I was just curious you mentioned you had to two and you just started litigation, is there a chance that the other one are major one there's more news in the second half of the year regarding one of the other top companies?

It’s certainly possible, right, it's hard to predict right, and it's very hard to predict, but yes we continue to be actively engaged with a number of them including the two we talked about one of which of course is Broadcom. And our goal remains is to see if we can land one of these in the second half, but it's very hard to predict the timing of it.

Okay, great. And could you just talk in general what you're seeing in M&A, I mean is there – are the opportunities similar to what you've already executed on or are they more FotoNation or more IP, microelectronics IP. Can you just talk in general what you're seeing out there in valuations and how attractive the candidates are?

Yes. There are number of opportunities big and small IP related, imaging related is really the screen. We pull the trigger on two smaller ones if you will or a small and medium size one so far. The reason I mentioned it is because we continue to be actively engaged and there's a large number of potential opportunities we're exploring. As Robert says and we fully aligned on this with the Board, Robert and I as we're really prudent spenders of shareholders capital. So in some cases we haven't agreed on valuation which is why you haven't seen more activities and others maybe there isn't the strategic fit or things fall out in diligence, but we have not let up in our intensity in our desire to continue to look for value creation opportunities in that area.

Okay. Great. Thank you. Yes, great to get the share account down with this share price, so keep up the good work there.

Thanks, Jeff.

Thanks, Jeff. End of Q&A

At this time there are no further audio questions. I would now like to turn the call back over to management.

Thank you, Veronica. In summary, we're really pleased with our results in the direction of the Company. We continue to make excellent strides on our funding and packaging technologies, our IP licensing initiatives, and our FotoNation product focus business. Again, thanks for taking the time to learn more about Tessera and thanks for spending time with us. Thank you.

Ladies and gentlemen, this does conclude today's conference call. You may now disconnect.