Rambus Inc (RMBS) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Rambus Q4 2012 conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time.

(Operator Instructions).

I would now like to turn the call over to your host, Satish Rishi. Please go ahead.

Thank you, Patrick, and welcome to Rambus' fourth-quarter 2012 and fiscal-year 2012 conference call. I am Satish Rishi, CFO, and on the call with me today is Dr. Ron Black, our President and CEO. The press release for the results that will be discussed here today have been filed with 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 89-935-133 when you hear the prompt.

In addition, we are simultaneously web casting this call, and along with the audio will be web casting slides. So even if you are joining via conference call, you may want to access the website for the slide presentation. A replay of this call can be accessed on our website beginning today at 5 PM Pacific time. In an effort to provide greater clarity in our financials, we are using both GAAP and non-GAAP pro forma format in our press release and earnings call.

I need to advise you the discussion today will contain forward-looking statements regarding our financial prospects, pending and current litigation, and demand for our technologies, among other things. These statements are subject to risks and uncertainties that are discussed during this call and may be more fully described in the documents we filed with the SEC, including our 8-Ks, 10-Qs, and 10-Ks.

These forward-looking statements may differ materially from our actual results, and we are under no obligation to update these statements. Further, as mentioned, we will discuss non-GAAP financial results today, and have posted on our website reconciliations of these non-GAAP financials to the most directly comparable GAAP measures. You can find a copy of our earnings release and the reconciliation on our website at www.rambus.com on the investor relations page under financial releases. Now I will turn the call over to Ron.

Thank you, Satish, and good afternoon, everyone. 2012 was a year of change for Rambus. We restructured the Company for improved financial performance and more rapid decision making, developed several new products, some of which were recently announced at the Consumer Electronics Show, and engaged the industry in a more collaborative manner, while still aggressively defending our intellectual property.

As Satish will review in more detail, we ended customer licensing income and revenue, and pro forma net income within our guidance, achieving positive operational cash flow again. The previous quarter had a sizable catch-up payment from Fujitsu, so excluding that payment, our top line improved quarter over quarter. While we still have some more work to do to improve both the top and bottom lines, we believe that the Company is well positioned for this year and next.

As I have mentioned in previous earnings calls, Rambus, as a Company, is being more open and collaborative with the industry, fostering closer customer relationships to not only invent, but bring intervention to market. A proved point of our more collaborative approach is Broadcom's recent announcement that they have incorporated our Cryptography Research Division's Differential Power Analysis, or DPA, countermeasures across its semi-conductors for set-top boxes.

By licensing this technology, Broadcom is deploying advanced security measures that will provide protection to its customers. While Broadcom is the first semiconductor provider to broadly deploy our DPA countermeasures for set-top boxes, we anticipate that their aggressive adoption of our technology will prompt many others to do the same.

In fact, there are many companies who are utilizing our DPA countermeasures, including Atmel, Infineon, Microsemi, Microsoft, NXP, Raytheon, Renasas, Samsung, STMicroelectronics, and Toshiba, to name just a few. It's through engagements like these and many others that enables us to have over 7 billion security products under license.

Given our success in the smart card segment, set-top boxes, as well as printers, we are expanding our focus to mobile, which we believe will ultimately be the largest opportunity for our security and technology, especially as smart phones increasingly contain sensitive information for consumers and enterprises, not to mention becoming payment terminals.

One of the new ways we are bringing invention to market is through our mobile technology division headed by John Thomas. At CES, John and team introduced and demonstrated Imerz, a new mobile multimedia platform that allows consumers to interact with and access video in a personalized experience.

This universal platform enables integrated multi-screen viewing, social interaction, e-commerce, and access to metadata in a simple and yet very compelling way. Some companies have demonstrated part of what our Imerz platform can do, but we do not believe any company has done all that we have in such a seamless and easy-to-use manner. Indeed, our platform brings a unique, totally integrated user experience that we are calling TV 3.0.

In particular, as smart phones and mobile devices are increasingly becoming the first screen, that is, the first place consumers turn to access content, we believe that Imerz will become interesting to a variety of potential customers, including software providers, end-user device manufacturers, service operators, and even content rights owners.

Given the variety of different potential customers, we understand that the Imerz platform may not ultimately fit into our traditional licensing models, so in the spirit of collaboration, we are discussing a variety of other monetization models with customers and partners.

Another solution we announced at CES is a revolutionary new LED light bulb based on our innovative MicroLens technology. Our new bulb offers the high quality of light, simplicity, and ease-of-use of traditional incandescent bulbs, while delivering significantly better energy efficiency, durability, and life. The initial offer is an Edison socket, or A19, 60-watt equivalent, but we have several other products and other form [faxes] that we will be announcing in the future.

Independent testing performed by Intertech shows our bulb to perform better than leading competition in four out of five standard LED tests, including lumens, dimmer compatibility, thermal management, and light distribution. Additional information on this testing can be found on our website.

In conjunction with our introduction of the bulb and consistent with our focus on industry collaboration, we also announced a business alliance with The Elite Group, a designer and distributor of home goods, lighting, and other consumable products. We are working closely with The Elite Group as they gear up to promote and sell the Rambus LED bulb to retail markets within North America.

So far, we have received very positive industry feedback on our new approach. In a report, one analyst stated quote, changes afoot at Rambus, which still looks to get paid for its foundational chip interface IP, but also now is developing products and services in security, advanced LED lighting and displays, and immersive mobile media, unquote. And the industry trade press is also seeing a shift in our strategy as well, with EE Times stating, quote, the new model of Rambus is to license technology and patents when appropriate, but also bring that into products, unquote.

Invention remains important, but our focus is more than that. We want to bring this invention to market. Patent licensing is one way, and still critical for the Company, but we are committed to collaborate with the industry and bring invention to market in any manner that drives optimal shareholder value.

While the bulk of our recent press activity has been on our new businesses, our core business of memory and interfaces is about to unveil some very exciting new approaches next week at DesignCon. Without giving too much away, you will see that we are embracing a more open and collaborative approach and looking for ways to help the industry push the technology bounds within the standards that are set forth.

Next week, we will be unveiling and demonstrating our latest technologies and solutions that can address the performance, power, and [cost] requirements of the memory industry. We will be showcasing high-performance and low-power standard solutions, as well as giving a glimpse into the technologies we are currently working on within Rambus labs to provide significantly better performance.

Our team of engineers and scientists will be presenting six papers at this premier industry event, and we look forward to sharing more information about expanding our portfolio of superior main-memory technology soon.

Finally, I would like to provide a quick update on the legal front. Earlier this month, we received a decision from the US District Court of Delaware in the Micron matter. Following this case being remanded by the Court of Appeals for the Federal Circuit, the Honorable Sue L Robinson found that the Rambus patents and suit are an enforceable against Micron. She will be entering judgment on the patent claims in 30 days, and the rest of the case is stayed. Despite this result, and while we disagree, we remain confident in the strength of our technology, and we'll move beyond this matter to reach reasonable agreements.

With regard to the SK Hynix manner in the Northern District of California, both sides have briefed the court on the issue of fair and reasonable licensing terms. As a reminder, in his decision, the Honorable Judge White affirmed the validity infringement of our patents and determined that we are entitled to reasonable and nondiscriminatory royalty payments from Hynix. Judge White is evaluating the positions to determine the amount of the royalty payments we are entitled to receive. With that, I will turn the call back over to Satish to review the financials. Satish?

Thank you, Ron. As a reminder, we use non-GAAP, or pro forma numbers, which believe are indicative of [complete] performance as they include certain cash events and exclude certain non-cash and discrete events, such as impairment charges and restructuring charges, which are not indicative of a long-term performance.

Customer licensing income is a non-GAAP measure that includes cash payments that we receive under assigned patent license agreement. It is how we measure the top line of our business, and it may be different than revenue within a particular period when the amount of cash received from our customers is different than the revenue recognized.

Let me start by reviewing some highlights about the fourth quarter and the fiscal year first before going into additional detail. Customer licensing income for the fourth quarter was $61.6 million, within our guidance of $60 million to $66 million. Customer license income for the full year was $246.7 million. Revenue for the quarter was $57.4 million, within our guidance of $57 million to $63 million. Revenue for the full year was $234.1 million.

Pro forma expenses came in at $45.2 million for the quarter, well below our guidance of $49 million to $54 million, as we continue to manage expenses tightly and drive towards delivering higher operating leverage. For the full year, pro forma expense was $202.9 million. In addition, we reduced our run rate from $56.7 million in Q1 of 2012 to $45.2 million in Q4 or approximately 20% as we continue to drive leverage and improve our profitability.

Pro forma net income was a gain of $8.3 million as compared to our guidance of $2 million to $9 million. Pro forma net income for the year was $19.9 million, where we improved profitability from $25 million the first half of the year to $17.4 million in the second half. As you can see, our efforts to better manage the costs while continuing to invest in key growth drivers for the business has resulted in significant improvement in our financial results.

Now we will shift to discussing additional details related to the fourth quarter and the full year. Customer licensing income for the quarter was $61.6 million. During our third-quarter earnings call, we had mentioned that we signed a patent purchase agreement with Elpida, where we agreed to buy patents from them over four quarters.

From an accounting perspective, the patent license agreement and the patent purchase agreement are considered to be linked and we only recognize the net amount as revenue, which explains most of the difference in customer licensing income and revenue for the quarter. Customer licensing income was relatively flat compared to the previous quarter. The previous quarter had a catch-up payment from Fujitsu, so excluding that, patent royalties were higher quarter over quarter.

Customer licensing for 2012 was $246.7 million, down approximately 22% year over year. The year-over-year decline was primarily due to one-time payments we received in 2011 when we signed companies like Freescale, Broadcom, a smartphone manufacturer, and also due to a lower patent licensing from a variable royalty paying customers, primarily in the DRAM segment.

For the quarter and for the year, the new businesses were approximately 10% of the total CLI. This was at the lower end of our expectations, and given the recent announcement we have made, we expect that percentage to grow in the coming quarters.

Pro forma operating expenses, which exclude restructuring and impairment charges, stock-based compensation, amortization of intangible assets, and retention bonuses, were $45.2 million and sequentially flat to the previous quarter. These pro forma expenses include litigation expense of $2.1 million, down from $2.6 million in the prior period. Pro forma operating expenses for the year were $203 million, down from $234 million in 2011, primarily due to lower litigation expenses and the cost-reduction efforts we drove in the second half of 2012.

Compared with the prior quarter, pro forma [engineering] expenses were up approximately 11%, primarily due to prototype and material costs and the MG&A expenses were down 12%, primarily due to lower litigation expenses along with the realization of benefits of cost reductions that were implemented in Q3 over a full quarter. For the full year, pro forma engineering expenses increased approximately 18% relative to 2011, primarily due to investments in certain growth areas, while MG&A expenses declined 34%, primarily due to lower litigation expenses.

Pro forma interest and other expenses were $3.4 million, relatively flat to the previous quarter. For the full year, pro forma interest and other expenses were $12.8 million, up 10% from 2011. For pro forma tax expenses, we are using a flat rate of 36% on pro forma pretax income. Pro forma net income this quarter was $8.3 million as compared to $9 million last quarter. For the full year, pro forma net income was $19.9 million, as compared to $46.3 million for 2011.

Overall cash, defined as cash, cash equivalents, and marketable securities, was at $203 million, a decrease of $4 million from the previous quarter and a decrease of $86 million year over year. Cash flow from operations was an increase of $2 million, as compared an increase of $11 million in the prior quarter. For the full year, cash from operations was a decrease of $18 million as compared to increase of $53 million in 2011.

Now let me shift to guidance. I want to reiterate that we remain committed to delivering on operating leverage and to the $30 million to $35 million reduction in annual spending that we had communicated at the time we announced our restructuring activities last year. As we continue to manage investment opportunities and expenses going forward, we expect to show growth in the top line, profitability, and a positive cash flow from operations.

Now I will give you some thoughts regarding the first quarter of 2013. This guidance reflects our reasonable estimate and our actual results could differ materially from what I am about to review. For the first quarter, we expect customer licensing income to be between $60 million and $65 million and revenue to be between $58 million and $63 million.

We expect pro forma operating expenses, which exclude restructuring charges, stock-based comp, amortization of intangible assets, and retention bonuses, to be between $51 million and $46 million. These amounts include an estimate for litigation expenses of between $2 million and $3 million. Pro forma net income is expected to be between $4 million and $10 million.

I would like to close by saying we had a solid quarter, and are well-positioned for growth and improved profitability in 2013. We were within our guidance range for the period, while continuing to deliver operating leverage. We remain focused on execution while investing in areas which will drive future revenue growth and profitability for the Company. It is an exciting time for Rambus as we are well positioned to deliver value across all of our investment areas. We are now ready to open the lines for Q&A. Operator?

(Operator Instructions). Paul Coster, JPMorgan.

Hello, it is Mark Strouse on for Paul. Can we just talk a little bit more about the invention, the market mantra here? Anything you can give that gives us a little more confidence in the end-market demand? Before you roll these products out, what market research is being done, or is it more of if you build it, they it will come kind of thing?

No. I think in all of these, Mark, that we've done a deep dive. And it actually started long before I came to the Company. On the LED front, it is clear that there is high demand for these products, and we'll see continued demand for them. It is very complementary to the technology that we had put in place for the general lighting market.

With respect to the software that we rolled out with John Thomas' division, certainly that is a bit more speculative. It is different than Rambus has done before. But we had spent a long time examining the mobile space, and while we were very impressed by some of the technologies, especially companies like Apple with AirPlay, we just thought that the industry didn't have a great grasp on how to really make a unique user experience. So we started more from the market side of it and how consumers interact with these devices, especially consumers far younger than myself, and said, well, there is really the three screens. There is a handset; there is a tablet, and there is the TV. How do I want these things to inter-operate, and how do I want to get access to metatag data and create transactions? So I think the marketing of this was very, very good. Of course we have, especially on the software side, that is a more difficult market for us because we are not well known in it, but we're getting a lot of positive traction.

Got it, thank you. So you introduced these -- Imerz and the bulb at CES. Should we expect anything new over the next few months, or is it a wait and see thing here?

I knew -- do you mean in those areas?

No, I meant any other assets outside of those areas that you're looking to go the market anytime soon.

We have some interesting stuff that I think you know about on the non-volatile memory side that's a little bit more strategic. But we are doing a lot of work there. And as I mentioned in the script, next week is a really big week for us with our memory and interfaces division. It's really the technical core of the Company. They are rolling out some very, very interesting technologies and products, so I think that's the place to go and look.

Got it. Okay, last one for us, just even if you can't name customers, if you can just quantify the number, if any, of major renewals on SPG side in the next 12 to 18 months?

Mark, I think for SPG we don't have any renewals coming in the next 12 months.

That is what we figured, thank you very much.

Hamed Khorsand, BWS Financial.

Just a couple of questions, with the scale in revenue as far as new products coming -- rolling out and just generating revenue as we go into 2013, is there going to be quite a change in the OpEx line?

No, I think the new products we are talking about with the cost reductions we had, we should be able to fund the roll out of the new products as they come out. And from an OpEx perspective, as you've seen for the last couple of quarters, we've been fairly relatively flat, and we are getting the benefit of the cost reduction that we started implementing back in August. So from a cost perspective, I think we are very focused on managing our expense line.

Okay, and is there any expectation of a large revenue ramp here in 2013, or is it just basically little by little until there is more of a uptick in the general market?

Any large revenue --

I am talking about the new products that you were talking about, the LED lighting and so forth.

Yes, for LED lighting as we introducing the bulb and we had mentioned that it will be coming to market sometime in the second half. So you can probably see an uptick in our revenue as the bulb takes off in the second half of the year.

Okay. My last question is the legal front. Now with the Robinson ruling, is this just going to go straight back to the appeals court? Are you guys going to merge the White ruling and the Robinson ruling together again; do we just have a part two?

We will have to wait till after our judgment, and I think it will probably about 30 days from the -- there was an order yesterday -- or today. So we will probably wait 30 days. She will give the order. Once she gives the order, then that could be a potential path of taking it back to the [CLC].

Michael Cohen, MDC Financial Research.

My question would probably be for Tom, if he is there. As Satish just mentioned, Judge Robinson issued an order today that final judgment is going to be issued 30 days from now. What I was -- my question is, do you expect that other parties such as LSI and STMicro and maybe Hynix might file collateral estoppel motions based on that final judgment? Or is anything that would preclude them from doing that?

Michael, that would be very speculative. So we don't know. We will see what the judgment comes out to be, and we will see what the other parties do, and then we will react accordingly. For me to speculate whether they will or will not and what we will do if they do or they don't I think probably would not be a good use of our time.

(Operator Instructions). I like to close the Q&A session. I will turn it back to Ron.

Thank you all for your continued interest and support. As mentioned, this is a very exciting time to be associated with Rambus. We look forward to sharing more good things in the coming weeks. Good day.

Ladies and gentlemen, thank you for participating in today's program. This concludes the program. You may all disconnect.