Rambus Inc. (RMBS) CEO Luc Seraphin On Q3 2018 Results - Earnings Call Transcript

About: Rambus, Inc. (RMBS)
by: SA Transcripts

Rambus Inc. (NASDAQ:RMBS) Q3 2018 Results Conference Call October 29, 2018 5:00 PM ET


Luc Seraphin - Chief Executive Officer

Rahul Mathur - Chief Financial Officer


Gary Mobley - Benchmark

Suji Desilva, - Roth Capital

Mark Lipacis - Jefferies



Welcome to the Rambus Third Quarter and Fiscal Year 2018 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 Rahul Mathur, Chief Financial Officer. You may begin your conference.

Rahul Mathur

Thank you, operator. And welcome to the Rambus third quarter 2018 results conference call. I'm Rahul Mathur, CFO. 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 furnished to 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 4888626 when you hear the prompt.

In addition, we are simultaneously webcasting this call. And along with the audio, we’re webcasting slides that we will reference during portions of today's call. So even if you are joining us via conference call, you may want to access the webcast with the slide presentation. A replay of this call can be accessed on our Web site beginning today at 5:00 PM Pacific Time.

Our discussion today will contain forward-looking statements regarding our financial guidance for future periods, including Q4 2018 and beyond, prospects, product strategies, timing of expected product launches, demand for existing and newly acquired technologies, the growth opportunities in the various markets we serve, and changes that we will experience in our financial reporting due to our adoption of the new revenue recognition standards that started in Q1 2018, amongst 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 file 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 to our financials, we are using both GAAP and non-GAAP financial presentations in both our press release and also on this call. We have posted on our Web site a reconciliation of these non-GAAP financials to the most directly comparable GAAP measures in our press release and our slide presentation. You can see this on our Web site at rambus.com on the Investor Relations page, under Financial Releases.

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 including the guidance we issued in today's press release; 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, Rahul, and good afternoon everyone. I am very pleased to be taking on the role of CEO and excited about our prospects as a company as we drive towards greater value creation for our customers and shareholders.

For Q3, we delivered solid results with continued progress in our businesses as we execute on strategy and improved profitability. From a financial perspective, our performance was in line with our expectations, delivering GAAP revenues of $59.8 million on the ASC-606 and generating $32 million in cash from operations. For reference, our third quarter revenue under the prior ASC-605 accounting standards would have been $99.8 million. If we compare under the same accounting standards and exclude the impact of our lighting division, this equates to 5% increase year-over-year.

Overall, we executed well with strong execution in our product group and continued technology leadership on strategic programs. Our licensing program remains strong with new deals and renewals closed in Q3, including Socionext, Phison, Infineon and Nvidia. For the Memory and Interface division, Q3 was another positive quarter with broad OEM and cloud customer qualifications ongoing in chips and steady revenue for IP cores.

Our DDR4 memory buffer chip business continues grow, with steady gains in market share and revenue growth, supported by a series of OEM design wins. As a result, we continued to hit our financial targets with $6 million in Q1, $8 million in Q2, $11 million in Q3 and remain on track to hit our target of $35 million to $40 million for the year. As we look forward to next year, we expect that growth to continue with an anticipated revenue range of $50 million to $70 million for the buffer chip program.

For next generation DDR5 memory buffer chip, we maintained our leadership position as the first and only supplier with working silicon that supports the top end speeds for both the RCD and DB chips. We are leveraging our head staff in product development with samples being validated by our partners, and continue to have strong collaboration with the memory vendors, as well as the broader ecosystem.

Following the record revenue from our high-speed IP Cores in the first half, we continued our leadership with further development of high-end and high-bandwidth SerDes and memory IP cores in advanced process nodes. We see increased traction from a growing number of customers across multiple high-performance applications, including AI, automotive, data center and networking.

Turning now to security. The Division remains focused on enabling trusting devices and their connection to the cloud, as well as protecting digital assets through tokenization and encryption. As the importance of semiconductor device level security grows, our Cryptography group is seeing increased traction and opportunities in market segments like IoT, automotive and networking. We see rapidly increasing interest and new requirements for establishing and managing the identity of devices throughout their lifecycle, starting on the factory floor. With nearly 5 billion devices provisioned to-date by our CryptoManager infrastructure product, Rambus remains the most mature provider of at-scale device level provisioning solutions and expect to see steady growth in demand and customer traction.

As part of our ongoing efforts to make it simple and fast for our customers to implement security by design, we are systematically increasing our product portfolio. We now offer the general availability of our RISC-V-based programmable CryptoManager Hardware Root of Trust, a full suite of DPA-resistant crypto cores for commercial and government applications, and an enhanced DPA Workstation with expanded side-channel attack testing capabilities through our partnership with Riscure.

The quarter also marked the commercial milestone for one of our existing customers, Cybertrust Japan. The subsidiary of SoftBank announced the availability of their software development kit, allowing customers to evaluate the IoT security platform, which integrates our CryptoManager IoT security service. We are pleased with the progress on this group and look forward to meeting the market growing demand.

As we look now to our Ticketing and Payment Groups, market traction and product development for tokenization continued to progress. This year, we have expanded our tokenization solutions for mobile payments and retail to account based payments, e-commerce and now, the blockchain. Q3 saw announcements from both groups, introducing new customers, partners and products. The Ticketing Group announced the selection and deployment of our transport tokenization solutions for mobile ticketing on Scotland's national rail network. And our Payment Group, made announcements with a retail group, Coles in Australia, as well as Visa and American Express for our retail and e-commerce tokenization products, supporting a major industry shift from carbon file to document file.

Finally, last week we launched Vaultify Trade, the first solution to offer bank-grade tokenization and encryption technologies to secure the transaction and storage of crypto assets on blockchain. Our strategy of leveraging innovation and IT to develop differentiated products for high growth markets remain. While we are pleased with the progress in our software-based payments and ticketing programs and see increasing market traction for tokenization solutions, we acknowledge that these businesses are far from our core in the semiconductor space. With that, we are exploring strategic options to maximize the market opportunity and success of these businesses.

In closing, Q3 was a strong quarter that continued to reinforce our confidence in our strategy and execution to plan. We are creating the foundation for future profitable growth as we continue to roll-out products, improve operational efficiency and generate cash.

With that, I’ll turn the call to Rahul to discuss the quarterly financial results. Rahul?

Rahul Mathur

Thanks Luc. I'd like to begin with our financial results for the quarter. Let me start with some highlights on Slide 5. As Luc mentioned, we delivered solid financial results in line with our revenue and EPS expectations. As you know, we've chosen to adopt the new revenue accounting standards ASC 606 using the modified retrospective method, which does not restate prior periods, but rather runs a cumulative effect of the adoption through retained earnings at the beginning balance sheet adjustments. As a result, in comparisons between third quarter 2018 results under ASC 606 and prior results under ASC 605, it is not the best way to track the Company's progress.

We are required to present a footnote that presents our 2018 results as if we continue to recognize revenue under the old standards. To make this transition easier to the readers of our financial statements, we will continue to present our results under both ASC 606 and ASC 605 through this transition period of 2018. This way, we can have a meaningful discussion regarding the performance of our business instead of focusing on accounting changes; under new accounting standards ASC 606, we delivered revenue of $59.8 million; under ASC 605, we would have delivered revenue of $99.8 million; under ASC 606, we delivered non-GAAP diluted loss per share of negative 1%; under ASC-605, we would have delivered non-GAAP earnings per share of $0.22; we delivered solid results while continuing to leverage our high margin historic businesses to fuel growth in adjacent areas where we have strong technical and market expertise for the focus on memory and security.

Now, let me talk you through some revenue details on Slide 6. Revenue for the third quarter was $59.8 million under the new revenue accounting standards, higher than our expectations due to licensing agreements signed in the quarter. Revenue would have been $99.8 million under ASC-605 in line with our expectations. Year-over-year, including the lighting business we shutdown in Q1, our business was up 5%. As we've mentioned previously, the new revenue recognition standard has a material difference in the timing of revenue recognition for our fixed fee licensing arrangements. Our licensing business continues to perform well, is the foundation of our success, is core to our initiatives of memory and security and will continue to generate cash in the years to come.

Going into additional detail under ASC-605, our memory and interface revenue would have been $79.8 million and our security business revenue would have been $20.1 million. As we mentioned last quarter, we've been restructuring the pipeline for a tokenization and embedded security businesses. While we are pleased with our progress on the security initiatives, in particular our recent announcement, the revenue profile has continued to change. As a result, we now expect security revenue in 2018 to be down year-over-year but we remain confident in this business long term, and are excited by the growing number of products and technology announcements and customer engagement.

Let me walk you through our non-GAAP income statement on Slide 7. Along with our solid revenue performance in Q3, we once again met our profitability targets on a non-GAAP basis. Cost of revenue plus operating expenses, or what we refer to as total operating expenses, for the quarter came in at $67.6 million. We ended the quarter with headcount of 814, up from 791 in the previous quarter. Over the course of 2018, we expect to invest in headcount toward our growth initiatives in our memory and security businesses.

Revenue and operating expenses under ASC-605 led to operating income of $32.2 million. We've recorded $6.5 million of interest income under ASC-606 related to the significant financing component of licensing agreements for which we have not yet received payments, but recognize revenue under the new accounting standard. We incurred $0.7 million of interest, primarily -- as interest expense, primarily related to the convertible notes we issued in Q4 2017. This was offset by incremental interest income related to the return on our cash portfolio. After adjusting for non-cash interest expense on our convertible notes, this resulted in non-GAAP interest and other expense for the third quarter of $0.3 million, down from Q2.

On a GAAP basis, we recorded a valuation allowance of roughly $90 million in Q3. As you may recall from our adoption of ASC 606, we accelerated a significant portion of our revenues, mostly from patent licensing, resulting in roughly $820 million adjustments to retained earnings at the beginning of 2018. The acceleration of revenue has also been roughly $157 million of foreign tax credits being utilized to offset the tax obligation. Given that we expect much of our growth to come outside of the U.S. in subsequent years, at a domestic level, we may still generate losses in future periods.

Furthermore, the decrease in our effective tax rate after last year's tax reform reduces our ability to utilize any domestic deferred tax assets for future periods hence the evaluation allowance. Using an assumed flat rate of 24% for non-GAAP pretax income, non-GAAP net income for the quarter would have been $24.2 million under ASC 605 or $0.22 a share at the midpoint of our guidance.

Now, let me turn to the balance sheet details on Slide 8. We're very pleased with the strength of our balance sheet. Cash, cash equivalents and marketable securities totaled $248.2 million down $50 million from the previous quarter as cash from operations of $32 million help to offsets remaining $81.2 million pay down on the 2018 convertible notes that came due in Q3. As part of settling the 2018 notes, we also issued 424,000 shares. We expect to maintain our ability to generate cash from operations in Q4. This will be an important metric to monitor as we adopted ASC 606.

As a result of adopting ASC 606, at the end of Q3, we had contract assets worth $700 million, which reflects the net present value of unbilled AR related to license arrangements for which the Company has no future performance obligations. I expect this number to continue to trend down as we bill and collect for these contracts. And the reduction approximates the difference between our reported royalty revenue under ASC 606 and our licensing buildings. Third quarter CapEx was $2.6 million and depreciation was $2.6 million.

Looking forward, I expect roughly $2.7 million of CapEx for the fourth quarter and roughly $10.5 million for the full year of 2018. I also expect depreciation of roughly $3 million per quarter in 2019 and CapEx of $11 million for next year. Overall, we have a strong balance sheet with limited debt and expect to continue to generate strong cash from operations in the future.

Now, let me turn to our guidance for the fourth quarter on Slide 9. As a reminder, our forward looking guidance reflects our best estimates at this point in time, and our actual results could differ materially from what I'm about to review. We provide our investors and the analyst additional transparency during this accounting transition. We're also providing financial outlook as if we were still under ASC 605, as well as ASC 606 during the transition period, which ends in 2018. Please note that the presentation under ASC 605 is not a substitute for the new ASA 606 revenue recognition standard under gap. Future revenue under ASC 606 will be volatile from period-to-period due to the timing and structure of our licensing arrangements. We will continue to focus on leveraging our vast patent portfolio to maximize the value for our business, as well as to provide the best economic structure for our customers.

To offer additional transparency, we've also been providing information on license and billings, which is an operational metric that reflect amounts invoiced to our licensing customers during the period adjusted for certain differences. The differences between licensing billings and royalty revenue under ASC 605 are primarily related to timing as we don't always recognize revenue the same quarter we bill our customers. As you've seen in the supplemental information we provided on Slide 15 of our earnings deck, on an annual basis, license and billings closely correlates with what we've reported as royalty revenue under ASC 605 given this timing lag. We'll continue to provide license and billings as another operational metric to help our investors understand the underlying performance of our Company.

With that said, under the new ASC 606 revenue standard, we expect revenue in the fourth quarter between $56 million and $62 million. Under the ASC 605 revenue standard, we expect revenue in the fourth quarter would be between $99 million and $105 million. Excluding the impact of the lighting division, this is up 4% year-over-year. As a reminder, our ability to meet our financial commitments on a quarterly basis is heavily dependent on our ability to continue to renew our licensing agreements on a timely basis. We typically have multiple partners coming up for renewal each quarter and. Aot closing these on schedule, could cause us to materially miss our financial commitments for the quarter.

We expect Q4 non-GAAP total operating expenses, which includes COGS to be between $65 million and $61 million, down from Q3 spend due to our cost control. Over the course of 2018, we expect operating expenses roughly flat as revenue grows, providing leverage to our financial model. I expect total operating expenses, which includes COGS related to our buffer chip business to grow through 2019 as we ship more products. We continue to target $35 million to $40 million in buffer chip revenue in 2018 and could see this business grow to $50 million to $70 million in 2019.

Under the new 606 revenue standards, non-GAAP operating results for the fourth quarter is expected to be between a loss of $9 million and income of $1 million. Under the ASC 605 revenue standard, non-GAAP operating income for the fourth quarter is expected to be between $34 million and $48 million -- $34 million and $44 million. For non-GAAP interest and other income and expense, we expect roughly $5 million income for ASC 606 and $1.4 million expense under ASC 605. This includes $0.8 million of interest expense related to the notes due in 2023.

Based on the new tax legislation passed at the end of December, we expect our pro forma tax rate to drop to roughly 24%. The 24% is higher than the new statutory rate of 21%, primarily due to higher tax rates in our foreign jurisdictions. As a reminder, we pay roughly $20 million of cash taxes each year, driven primarily by our licensing agreements with our partners in Korea. Under ASC 606 and based on a 24% tax rate, we expect GAAP taxes between a benefit of $1 million and a tax of $1.4 million in Q4. We expect our Q4 share count to be roughly 108 million basic shares outstanding and 110 million fully diluted shares.

This leads you to between a non-GAAP loss per share of $0.03 and non-GAAP earnings per share of $0.04 for the quarter. Under ASC 605 using the same assumptions for operating expenses, $8 million to $10 million dollars for taxes and 110 million fully diluted share accounts, we would expect between $25 million and $32 million of non-GAAP net income and between $0.23 and $0.29 of non-GAAP earnings per share for the quarter.

While we do not issue annual guidance, looking ahead to 2019 as we've disclosed previously, we have structural set downs in a number of our long term licensing agreements, which impacts our 2019 revenues. We expect the growth we see in our product programs to offset the structural set downs. However, given the structure of these agreements and what we're seeing from a macroeconomic perspective, we expect to see roughly flat revenue year-over-year. As our Payments and Ticketing business is roughly breakeven, I do not expect any changes to overall profit as we explore strategic options in the future, though operating margins would improve significantly. Through our continued top management, we also expect roughly flat earnings in 2019 as we maintain our commitment to earnings from cash flow and continue to invest in our product programs, which are growing nicely.

Let me finish with a summary on Slide 10. We are proud of the solid performance by our team and the progress we continue to make against our strategic initiatives. While we understand that the adoption of ASC 606 as a level of complexity to our financial reporting, it's important to reiterate that the underlying financial strength of our business remains strong.

In closing, we are systematically improving our operational performance, while rolling out compelling product offering and gaining traction with our customers. We continue to generate solid cash from operations and remain very well positioned for continued success as we close the year and head to 2019.

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

Question-and-Answer Session


Thank you [Operator Instructions]. Your first question comes from the line of Gary Mobley from Benchmark. Gary, your line is now open.

Gary Mobley

First, I want to start with dissecting revenue for fiscal year '18 with revenue just over $400 million. Memory, I'm assuming will be $305 million to $310 million for the year, subtracting out roughly $15 million in cores and $37.5 million in buffered chip revenue. Looks like your patent licensing is somewhere around what 220 -- $220 million?

Rahul Mathur

I think your overall forecast for memory is roughly correct. The cores' number for us that I typically talked about of roughly $50 million includes not just our memory cores but our security cores as well. So, I think you'd see maybe that cores number will be slightly lower than we talked about, patents could be slightly higher. But I think the forecast you had of memory being between 3.05 and 3.10 for the year it seems about right.

Gary Mobley

Well, the main question that is really what are the puts and takes on the patent licensing side. I think in the recent comments that you made, you've mentioned some step down, which may represent a delta of about $15 million or so. And I know you've just gone through a wave of license renewals. This all factors considered, how do you see that business, patent licensing trending? Long term, I think you've mentioned flattish, but what about for next year 2019?

Rahul Mathur

And as I've mentioned publicly and I think this has been disclosed in some of our larger agreements. We have certain customers who have contractual step downs just in terms of the licensing. So, one particular area has the step down of about $4 million per quarter but there's few others as well, because I think our partners try to manage their cash flow and what they thought was going to happen with our industry. What we talked about historically is that the backbone of our business, which is the patent licensing and our cores is roughly flat.

So I think as that does come down a bit for us in 2019 tends to the muted outlook that I talked about a few moments ago for 2019. So, what I'd expect to see is that you'd continue to have profit revenue that would grow and that would offset some of that licensing step downs that we have structurally. So specifically, we've seen very good success in our cores business and we're very pleased that we're meeting our commitments this year from the buffer chip business as well.

Gary Mobley

And just to change gears on the -- to the Rambus security side of business. I am curious to get into the considerations for possibly selling this business. Was this contemplation was driven by somebody approaching Rambus to buy it or was it a function of some management transitions. I know Ron was putting a lot of time and effort into this business group. And Luc, I know your lineages from the memory side of business. So does that play into it as well?

Luc Seraphin

I'll start by saying that we are still very excited by the progress and opportunities that we have in the payment and ticketing programs. And we continue to see market traction for tokenization in a growing number of verticals. But these businesses are far from our foundation in semiconductor as much as our embedded security is very close to our core. We have about 70% overlap on our customer base. We have the same delivery mechanisms. The structure of payments and ticketing is going further and further away from our core. The deployment is really, really good. So with that, we made the decision to explore strategic options to maximize their market opportunity and success, but we are in the early stages and it can take any form at this point in time. We just want to give them the opportunity to continue on their growth path, which is diverging from the growth path we are on for core business, including the embedded security, which is very close to core.

Gary Mobley

I guess the main question that may come up is then what becomes growth driver for Rambus with the buffer chip business demonstrating a revenue delta of $20 million to $30 million annually? And it's a fairly finite survey of market there and you can only expect so much market share. And so therefore, what drives the growth from this point forward at the security side of business?

Luc Seraphin

I think we see tremendous opportunities in the embedded security space. You saw the recent press releases about what happened with the chip and on the microchip board. I think it's just a reminder to everyone that embedded security is becoming critical to the industry. So that's where we're going to invest. We have a very broad -- I think the broadest lineup of off the shelf products to offer today in embedded security, and that's never been the case before. And we make the consumption of what we offer in embedded security more easily consumable, if you wish. We moving our embedded cores to a RISC-V architecture, which makes them broader and more programmable. And our delivery mechanism of keys into silicon is proven now.

We've had 5 billion chips using that technology and we're expanding our customer base. So between the fact that we are expanding our product portfolio, we making the offering more easily consumable by customer. And we are approaching the similar set of customers with a similar business model, makes us confident that we can grow in that area. And again, I would say that we are very pleased with the performance of ticketing and payments. There's just diverging and going into different markets. And as we look at strategic options for them, this will allow us to also focus better on what we do best. And that's why we're confident in further growth in the embedded security space.


Thank you. Your next question comes from the line of Sidney Ho from Deutsche Bank. Sidney, your line is now open.

Unidentified Analyst

This is Melissa on behalf of Sidney. Congrats Luc on getting the official role. I know you keep it at high level at first but certainly, if you guys could remind us, or I guess clarify. Which parts of the business you see as a stable recurring set of revenues, and then where do you see the more incremental revenues but less recurring quarter-on-quarter?

Rahul Mathur

This is Rahul. Let me see if I can help. Certainly, one of the things that's very attractive about Rambus is we have a long-term licensing revenue, which is very fixed, very stable, very predictable. So ironically, the one thing that makes us very attractive I think from an -- one of the things that makes us very attractive from an investment perspective is also what causes some confusion on 605 and 606. So, just from a base business as I talked about, I think that that backbone of licensing and cause is generally roughly about $300 million a year.

As I mentioned previously not just on this call but in prior quarters, we have some structural stepped downs from the licensing side, which I think will be offset by growth on the core side. So you have a base of licensing and then you have growth as we talked about on the core side, as well as on the buffer chip side as well as in other places in terms of embedded security. And I think that's where you will start to really see some leverage in our model.

Unidentified Analyst

And then one other question, I know you guys are tied to the servers market little bit with your chipsets. And I was hoping you could give some color. There's been obviously really high growth in the market recently. And as of this quarter, people have started to wonder when it's going to start slowing down. So, I guess my question is how do you guys see that dynamic playing out for your business, if the market were to slow down? And then also the transition to new generations of server products, how are you guys looking at that impacting the business as well?

Luc Seraphin

We still -- it will have a relatively small share in the market for buffer chip so despite that fact we see growth going forward. As you could see from the last few quarters we systematically increased our revenue from quarter-to-quarter in buffer chip and we see that trend continuing for us. And the reason we see that trend continuing for us is that we are also tracking the progress we make in qualifications with end customers and a number of qualifications we have for our chipsets. Going forward, in the current platforms and the future platforms, keeps increasing quarter over quarter. So although, we can see these macro movements in the market, we are confident with our growth in our buffer chip business.


Thank you. Your next question comes from the line of Suji Desilva from Roth Capital. Suji, your line is now open.

Suji Desilva

So, following up on the last question in terms of memory buffer. How much of -- thanks for the guidance into 2019 as well as 2018. How much of that growth is coming from existing designs that will ramp to more full volume versus newer designs supporting the incremental -- coming to production, supporting the revenue?

Luc Seraphin

I would say it's a mix. I think in the next six to eight months we will see this growth going from existing designs. As you know, there's a new platform being introduced in the market on a regular basis and we track our design wins with the new platforms. So we're very confident in our current designs generating growth in the first half of next year. And we're also confident with the second half of the year given the traction we have with those customers. In the future, as you know, we're also investing in DDR5. We have a lead in that space. We believe with offering both DD and also the chips we engage very early with the ecosystem, which gives us a head start in the market.

History has shown that first time to market typically translates in higher market share. So, my view is we caught up on the DDR4 generation. As the rollout of new processors happen, we have more and more design wins that creates a growth in DDR4, and I think we have a leading position in DDR5.

Suji Desilva

So to be clear on the new platforms coming out, your DDR4 design win activity is up versus the prior quarter. Is that…

Luc Seraphin

Yes, absolutely. They are up and we were earlier in the designs than we used to be in the past. So, it gives us a lot of confidence.

Suji Desilva

And then on the redeployment, I guess the security business. Are any R&D assets or personnel being redeployed? And if so, to what areas are some of the investments being focused on? And maybe you could talk about the opportunity for growth inorganic opportunities you might be considering versus the organic growth that’s been talked in the Q&A thus far?

Rahul Mathur

So there is no assets that are being redeployed. We're still fully investing in these businesses and think that they have very bright future ahead of them. Certainly, we continue to invest to them from a people perspective, from a resource perspective, from a market awareness perspective as well. I don't know if you had a chance to look at some of the materials we've recently published in terms of launch of Vaultify Trade but really pulling together a lot of these very key portions of our tokenization business and in new exciting new markets. So, there nothing from a refocused perspective in terms of those resources.

However, what this change does allow us to do is operationally if you go back and focus on that the core semiconductor business that we've had in the past. And as Luc mentioned earlier, I think two thirds or 70% of our customers on the security core side are the same as our customers on the memory core side. And as we just look to the go-to-market for that business, it's certainly very different than what we're seeing some of our engagements for on security side in terms of tokenization. But certainly, in the business -- the payments and ticketing business, we're continuing to invest in those businesses because they have bright futures ahead of them.

Suji Desilva

And then perhaps you can talk on inorganic opportunities versus the organic opportunities you're seeing broadly?

Rahul Mathur

Yes, we've actually expect a lot of energy internally just as part of new coming in reorganizing to where we have even more focus in terms of potential inorganic opportunities as well. I think that we have rather the appetites for looking at things that would make sense to us that would help support those core businesses that we have. I think there are many opportunities that we look at on a daily basis. But what we look for is something that is going to be the right fix for our company, something that we can help grow and be successful as part of Rambus.


Thank you [Operator Instructions]. Your next question comes from the line of Mark Lipacis from Jefferies. Mark, your line is now open.

Mark Lipacis

Thanks for taking my question. Congrats on the appointment Luc. My first question is -- does the change in management that triggered an audit in the strategy. And I'm wondering if there is potentially other changes from the previous track you guys run from here?

Luc Seraphin

No, not necessarily at this point in time…

Rahul Mathur

Sure, and I can help bridge that gap a bit, Mark, as the company for not as long as Luc had, so it's certainly been part of this conversation. For some time, we've been talking about making sure that we continue to invest in portfolios that are part of that core, and part of where we continue to have traction with our customers. I think if you go back to even a year and a half ago, and I apologize that competitor conference in January of last year what we talked about is in the next 18 months, we'll know which one of these investments are working and which haven't. And if you look at our performance over the last 18 months or so, that's what you've seen? What you've seen is that us continue to focus on areas where we have customer traction, where we have growth, where we're being successful. And then reducing investment from our company in areas where we haven't had that traction. So this is something that we've been doing fairly consistently over the last year and a half or so.

And one of the things that I think it's easy to lose sight out is really just are improved financial performance, because what you've seen is a relatively stable top line as we refocus into areas where we have this expertise and we're being successful, but what you're seeing is a dramatically better bottom line. I think if you look at the midpoint of our guidance for 2018 that comes out to about $0.91 of earnings for the year, up pretty significantly from last year. And we continue then to show better earnings. We also continue to show strong cash flow. Last year, we had about $117 million of cash from operations. We had a lot of collections activity that was pretty strong for us last quarter. I don't know if we'll get that that high. But I think we could be somewhere in the $90 million to $100 million range again this year. And certainly, that cash flow machine and engine just continues.

So, that's a relatively long answer to your question. But I think this is part of our company continuing to focus in areas where we're going to be successful. And I think today's announcement, both with Luc as well as our announcement on payments and ticketing, is just part of that evolution.

Mark Lipacis

And a follow-up if, I may. Can you share with us the size and profitability of those businesses in ticketing and payments?

Rahul Mathur

As I mentioned in prepared remarks, I mean that business is roughly breakeven. It's a high growth business. So, we continue to invest in it to continue to grow from a top line perspective. And from a 2019 perspective, I think we expected those businesses to be somewhere between $35 million and $40 million of revenue for us for 2019. So, what I'd expect is that as we identify really what these options are for the business, it won't necessarily impact us from a bottom line perspective. But I would expect the company to them have dramatic improvements in terms of operating margin, because that business is roughly breakeven as we're investing in it.

Mark Lipacis

And last question, if I may, DDR5. When do you expect that to ramp in volume?

Luc Seraphin

So we expect to see some growth in 2019 and ramping volumes towards the end of '20 to 2021.


Thank you. At this time, there are no further questions. This concludes today's question-and-answer session. I would like to turn the conference back over to the Company.

Luc Seraphin

As you can see, we continue to demonstrate our leadership and ability to execute across the Company. There's tremendous opportunity ahead. And I look forward to leading Rambus to its next phase of success. So, thank you everyone for your continued interest and have a good day. Thank you.


Thank you. This concludes today's conference. You may now disconnect.