Rambus Inc. (NASDAQ:RMBS) Q1 2024 Earnings Call Transcript

Rambus Inc. (NASDAQ:RMBS) Q1 2024 Earnings Call Transcript April 29, 2024

Rambus Inc. misses on earnings expectations. Reported EPS is $0.37 EPS, expectations were $0.44. Rambus Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Welcome to the Rambus First Quarter Fiscal Year 2024 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 Desmond Lynch, Chief Financial Officer. You may proceed.

Desmond Lynch: Thank you, operator, and welcome to the Rambus first quarter 2024 results conference call. I am Desmond Lynch, Chief Financial Officer at Rambus, 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 filed with the SEC on Form 8-K. A replay of this call will be available for the next week at 866-813-9403. In addition, we are simultaneously webcasting this call, and along with the audio, we are webcasting slides that we will reference during portions of today's call. A replay of this call can be accessed on our website beginning today at 5:00 PM Pacific Time. Our discussions today will contain forward-looking statements, including our expectations regarding projected financial results, financial prospects, market growth, demand for our solutions and other market factors and the effects of ASC 606 on reported revenue, amongst other items.

These statements are subject to risks and uncertainties that may be discussed during this call and are 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. In an effort to provide greater clarity in the financials, we are using both GAAP and non-GAAP financial presentations in both our press release and on this call. A reconciliation of these non-GAAP financials to the most directly comparable GAAP measures has been included in our press release, in our slide presentation and on our website at rambus.com on the Investor Relations page under Financial Releases.

In addition, we will continue to provide operational metrics such as licensing billings to give our investors better insight into our operational performance. 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, 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?

Luc Seraphin: Thank you, Des and good afternoon everyone. In Q1, we continued our disciplined execution, as we remain strategically focused on addressing the needs of traditional and AI servers. In the quarter, we expanded our market opportunity with the introduction of new leadership products and performed well across all of our businesses. With that, we delivered solid Q1 results and demonstrating our ongoing commitment to stockholder return, we completed a $50 million accelerated share repurchase, which brings the total return of cash to our stockholders over the past 3 years to $350 million. With strong execution, we delivered first quarter product revenue of $50 million and also continued our investments in new products to drive future growth.

As the accelerated pace of new compute platform rollouts continues, we have multiple generations of DDR5 RCDs progressing through different stages of qualification and production and the latest generation sampling to customers. We are therefore well positioned for the DDR5 product cycle and expect this to drive approximately 10% product revenue growth in the second quarter. Additionally, we are confident in the longer term outlook for the data center traditional server market. While we continue to see modest consumptions of DDR4 customer inventory, the industry is moving in earnest to DDR5 and the transition is amplified by increasing demand for performance from generative AI and other advanced workloads. The rapid evolution of traditional and AI servers requires the constant advancement of new products and architectures to address the growing memory performance requirements.

As such, expanding our leadership product portfolio to meet these requirements is a key element of our long-term growth strategy. In line with that strategy, we just announced the expansion of our chip offering with the availability of our new family of DDR5 server PMICs, completing our memory interface companion chipset for DDR5 RDIMMs. This new product line includes the industry's first extreme current server PMIC that will enable high bandwidth, high capacity DDR5 modules for leading edge servers in the data center. We are currently in qualification with major memory vendors and are receiving positive feedback. Power management solutions are a critical and challenging component of today's server memory subsystems. In order to achieve the increased bandwidth and capacity of DDR5, the industry made a major change to the power management architecture by moving the PMIC from the motherboard to the individual memory modules.

The resulting DDR5 server PMICs are required to deliver reliable power at the lower voltages and tighter tolerances of the latest DRAM chips, while operating in a very challenging environment. We have built upon our memory subsystem expertise and proven track record of delivering robust module based solutions to deliver a PMIC family optimized for efficiency power delivery under demanding noise, thermal and space conditions. Given our heritage and mission to advance memory performance, we identified power management as a critical technology to unlocking higher memory bandwidth and capacity. We made the strategic decision to invest build a world-class team and are now intercepting the market with the leadership products to address the needs.

This new server PMIC product family amplifies our market opportunity and lays the foundation for our roadmap of future power management chips. As AI expands from training to insurance [Audio Gap] continued advances in the data center and AI are also driving momentum in our silicon IP business, with strong design wins led by HBM, CXL, PCIe Express and security IP. With the industry's most advanced interface and security IP portfolio for AI, we are making great progress and are on track for our annual growth targets. As part of our continued leadership, we introduced the industry's first GDDR7 memory controller, which delivers the performance needed by next wave of inference chips for Edge AI. The ever-increasing volume of data is pushing chip interface speeds and memory bandwidth requirements higher and higher.

A close-up of a cutting-edge semiconductor product being assembled by a technician.

At the same time, the value of the data itself is also going up and with that, so does the risk and impact of a breach. Our differentiated silicon IP solutions offer chip designers top of the line performance and advanced protection against attacks, making them essential to enabling faster and more secure SoCs for the data center and adjacent markets. As we look forward, generative AI and other data intensive workloads will further accelerate the demands on performance and security across the computing landscape. We continue to focus on the ongoing scaling of memory capacity and bandwidth through novel memory form factors and architectures such as multi-rank solutions and serial attached memory that will be critical to improving efficiency and performance in computing systems from the data center to client.

In addition, ongoing advancements in security, including quantum safe solutions, will be essential to protecting valuable hardware and data. As demonstrated this quarter, through our newly introduced offerings, we continue to execute on our product roadmap for both chips and IP, unlocking new levels of system performance and expanding our market opportunity. Recent announcements by leaders in the AI industry serve as proof points of the importance of memory for system performance improvement, with the latest systems featuring more than double the memory bandwidth and capacity. As we look forward, those requirements will only grow and our strategy and roadmap are well aligned to address the market needs. In closing, Q1 was a solid quarter for the company that was achieved through disciplined execution of a clear strategy.

We delivered on our commitments across the board and continued our innovation in the market. Our focus on high performance products for the data center and AI positions us well to drive the long-term profitable growth of the company. And our strong balance sheet enables us to deliver consistent return of value to our stockholders. As always, I'd like to thank our customers, partners and employees for their ongoing support. And with that, I'll turn the call over to Des to discuss the quarterly financial results. Des?

Desmond Lynch: Thank you, Luc. I'd like to begin with a summary of our financial results for the first quarter on Slide 5. We delivered solid results in the quarter as a result of the company's ongoing disciplined execution and focus on our strategic initiatives. We are pleased to have launched our new power management products, which demonstrate the translation of new product investments to expanded market opportunity. Continuing our strong track record of returning cash back to stockholders, in Q1, we executed a $50 million accelerated share repurchase program that retired approximately 800,000 shares. Through our robust balance sheet, driven by our strong cash generation, we have returned a total of $350 million in cash to our stockholders over the last 3 years, which shows our consistent commitment to capital return.

Let me walk you through our non-GAAP income statement on Slide 6. Revenue for the first quarter was $117.9 million, which was above our expectations. Royalty revenue was $47.5 million, while licensing billings was $63.2 million. The difference between licensing billings and royalty revenue mainly relates to timing as we do not always recognize revenue in the same quarter as we build our customers. Product revenue was $50.4 million consisting primarily of memory interface chips. Contract and other revenue was $20 million consisting predominantly of silicon IP. As a reminder, only a portion of our silicon IP revenue is reflected in contract and other revenue, and the remaining portion is reported in royalty revenue as well as in licensing billings.

Total operating costs, including cost of goods sold for the quarter were $74.2 million. Operating expenses of $53.7 million were in line with our expectations as we continue to be disciplined in our expense management, and we ended the quarter with a total headcount of 622. GAAP interest and other income for the first quarter was $4.2 million, which includes $200,000 of ASC 606 interest income. Using an assumed flat tax rate of 22% for non-GAAP pre-tax income, non-GAAP net income for the quarter was $37.4 million. Now let me turn to the balance sheet details on Slide 7. We ended the quarter with cash, cash equivalents and marketable securities totaling $391.1 million. This is down from Q4 mainly due to the $50 million accelerated share repurchase program that we completed in the quarter.

Cash from operations for the quarter was $39.1 million. First quarter CapEx was $7 million while depreciation expense was $6.1 million. We delivered $32.1 million of free cash flow in the quarter. Now let me turn to our guidance for the second quarter on Slide 8. As a reminder, the forward-looking guidance reflects our current best estimates at this time. We continue to actively monitor the macro environment, and our actual results could differ materially from what I'm about to review. In addition to the financial outlook under ASC 606, we also provide information on licensing billings, which is an operational metric that reflects amounts invoiced to our licensing customers during the period adjusted for certain differences. As we have reported historically, licensing billings closely correlates with what we had historically reported as royalty revenue under ASC 605.

Under ASC 606, we expect revenue in the second quarter to be between $130 million and $136 million. We expect royalty revenue to be between $55 million and $61 million and licensing billings between $61 million and $67 million. We expect Q2 non-GAAP total operating costs, which includes COGS, to be between $80 million and $76 million. We expect Q2 CapEx to be approximately $13 million. Under ASC 606, non-GAAP operating results for the second quarter is expected to be between a profit of $50 million and $60 million. For non-GAAP interest and other income and expense, we expect $3 million of interest income. We expect the pro forma tax rate to be approximately 22% with non-GAAP taxes expected to be between an expense of $12 million and $14 million in Q2.

We expect Q2 share count to be $109 million diluted shares outstanding. Overall, we anticipate the Q2 non-GAAP earnings per share range between $0.38 and $0.45. Let me finish with a summary on Slide 9. I am pleased with the team's continued execution as we navigate dynamic market conditions in the short-term. We are pleased to see continued momentum across all of our businesses fueled by our leading edge products in both chips and silicon IP. Our innovation, diversified portfolio and disciplined model continues to drive profitable growth and strong cash generation. Our solid balance sheet enables investments into market expansion opportunities in the data center and AI, while consistently delivering value to our stockholders. Before I open up the call to Q&A, I would like to thank our employees for their continued teamwork and execution.

With that, I'll turn the call back to our operator to begin Q&A. Could we have our first question?

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