Rambus, Inc. Q1 2010 Earnings Call Transcript

Rambus, Inc. Q1 2010 Earnings Call Transcript
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Rambus, Inc. (RMBS)

Q1 2010 Earnings Call Transcript

April 22, 2010 5:00 pm ET

Executives

Satish Rishi – SVP & CFO

Harold Hughes – President & CEO

Tom Lavelle – SVP & General Counsel

Sharon Holt – SVP, Licensing & Marketing

Analysts

Jeff Schreiner – CapStone Investments

Mike Crawford – B. Riley & Company

Michael Cohen – MDC Financial Research

Hamed Khorsand – BWS Financial

Presentation

Operator

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Good day, ladies and gentlemen, and thank you for standing by, and welcome to the first quarter 2010 Rambus Incorporated conference call. Currently, 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) As a reminder, this conference may be recorded.

And now, I would like to turn the conference over to our speaker, Satish Rishi. Sir, please go ahead.

Satish Rishi

Thank you, operator, and welcome to the Rambus first quarter 2010 conference call. I am Satish Rishi, CFO, and on the call today are Harold Hughes, our President and CEO; Tom Lavelle, Senior VP and General Counsel; and Sharon Holt, Senior VP of Licensing and Marketing.

The press release for the results that will be discussed here today has been filed with the SEC on Form 8-K. A replay of this conference call will be available for the next week at 888-203-1112. You can hear the replay by dialing the toll-free number and then entering ID number 68105210 when you hear the prompt. In addition, we are simultaneously webcasting this call and a replay can be accessed on our Website beginning today at 5:00 P.M. Pacific Time.

I need to advise you that the discussion today will contain forward-looking statements regarding our financial prospects, pending litigation and demand for our technologies among other things. These statements are subject to risks and uncertainties, which 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 that differ materially from our actual results and we are under no obligation to update these statements. Further as we have in previous calls, we will discuss non-GAAP financial measures on the call today and we have posted on our Website reconciliations of these non-GAAP financial to the most directly comparable GAAP measures. You can find a copy of earnings release and reconciliation on our Website at www.rambus.com on the Investor Relations page under Financial Releases.

Before I turn the call over to Harold, I would like to take a few minutes to talk about how we will report revenue for deals like the $900 million Samsung agreement we announced in January. For an agreement as the Samsung agreement, generally accepted accounting principles, or GAAP requires us to identify the elements of a multiple element arrangement, establish the accounting fair value of each element and allocate the consideration received to each element based on these calculated fair values. The accounting elements of the Samsung agreement contains past and future royalties, resolution of litigation and Samsung’s equity investment in Rambus as well as the MOU.

Of the $425 million paid by Samsung in the first quarter, $137.1 million was recognized as revenue, $95.9 million was recognized as a contra operating expense that is a reduction in operating expenses which we are calling gain from settlement, and $192 million was recognized in shareholders’ equity. For the remainder of this year, Samsung will pay us $25 million every quarter, of which we will recognize $14.7 million in revenue and the balance of $10.3 million in gain from settlement.

All $25 million will be recognized in the quarters received and all of it will flow to the operating income line, but we are required to allocate between revenue and gain on settlement. In the first quarter of 2011, the allocation will change to a revenue of $18.8 million and $6.2 million to gain from settlement, and starting in the second quarter of 2011, the allocation will be to 100% of revenue. Nothing is simple.

Given this complication of allocations and in order to continue to provide meaningful insight into our performance and outlook, we are introducing this quarter a new metric, which we have termed customer licensing income. This income to revenue other amount recognized in the income statement associated with customer licensing, in this case, the gain from settlement. So, for the current quarter, the customer licensing income is $257.8 million, which includes $161.9 million of revenue and $95.9 million from gain from settlement. We will use this new metric when we provide guidance later in the call, and we will be happy to address any questions during the Q&A.

With that, I will turn the call over to Harold.

Harold Hughes

Thanks, Satish, and good afternoon everyone. First quarter of 2010 was a pivotal one for Rambus. We view the Samsung agreement signed in January as a transformation event for the company. It helped drive customer licensing revenue of $257.8 million, that was the new metric described by Satish a few moments ago, and record revenue of $161.9 million. It demonstrates the success of our value creation strategy, which is to innovate, drive adoption and monetize. But the foundation of that strategy is innovation and our commitment to innovation has never faltered.

Since I joined the company as CEO at the beginning of 2005, the challenges we have faced have been legion. Nonetheless, during that time, we have put a high emphasis on continued investment in innovation, and we are focused on trading an environment that would attract and retain some of the best minds in our industry. Samsung recognized the technical capabilities of the Rambus team and the advantages of bringing together the strengths of our two companies.

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