Q1 2020 Earnings Call

[music] excuse me this is the upper.

Peter I apologize, but there will be a slight delay in today's conference. Please hold and the conference will resume shortly thank you for your patience.

[music]. Please remain on the line Youre conference will resume shortly.

Welcome to the land based first quarter in fiscal year, two Calvin plenty earnings conference call. At this time, Oh disappeared. So you know listen only mode at the conclusion of her prepared remarks, we will conduct a question answer session. If you looked like asked the question Human Press Star one.

On your touched on pad at any time, if anyone should require assistance during the conference. Please press star still though on your touched on pad at any time as every my group. This conference call is being recorded.

I would now like to try to conference over to Rahul Mathur Huh.

The financial officers you may begin your conference.

Thank you operator, and welcome to the Rambus first quarter Twentytwenty results conference call on Rahul Mathur CFO and on the call with me today as Luke served in our CEO.

The press released the results that we will be discussing today have been furnished to the FCC on form 8-K.

A replay of this call will be available for the next week at 8558 Fivenine to 056, you can hear the replay by dialing the toll free number and then entering I'd number 9761889, when you hear the problem.

In addition, we're simultaneously webcasting this call and along with the audio for webcasting slides that we will reference during portions of today's call. So even if you're joining US via conference call you may want to access the webcast with a slide presentation.

A replay of this call can be accessed on our website beginning today at five PM Pacific time.

Our discussion today will contain forward looking statements, including our financial guidance for future periods product and investment strategies timings of expected product launches.

Demand for existing and newly acquired technologies.

The growth opportunities of the various markets. We serve you expected benefits of our merger acquisition and divestiture activity, including successful integration efforts risks and the potential adverse impacts related to where arising from the corona virus. So cobot 19 in the effects of 86, so sick and reported revenue amongst other things.

These statements are subject to risks and uncertainties that are discussed during this call. It may be more fully described in the documents, we filed with the FCC, including our eight cave 10-Q's and 10-K's.

These forward looking statements may differ materially from our actual results.

And where no under no obligation to update these statements.

In an effort to provide greater clarity in the financial we're using both GAAP and non-GAAP financial presentations in both our press release and also on this call. A reconciliation of these non-GAAP financials for the most directly comparable GAAP measures has been included in our press release in our slide presentation and on our website at Rambus dotcom.

On the Investor Relations page under financial releases.

The order if our call today will be as follows Luke will start with an overview of the business I will discuss our financial results, including our guidance for future period, and then we will end with queuing day.

I'll now turn the call over to lose to provide an overview of the quarter loop.

Thank you Rahul and good afternoon, everyone.

Before we discuss our results for the first quarter.

I wanted to take a moment <unk> provides an update on the impact we've seen some cobiz 19.

It is clear that we are an unprecedented times as the industry navigate the uncertainty created by the cold enough Iris.

Our top priority has been the house in safety overall global workforce customers and partners.

I'm extremely proud and humbled by the collective commitment patients and ingenuity demonstrated by or Rambus employees in these challenging time.

Why do we cannot predict a longtime with certainty.

The current increased demand you know target markets combined with the strength of our balance sheet makes me optimistic about the opportunity ahead of us.

Who runs its business model is not sure that you visited them to the near term financial they say Cisco benign team with a patent licensing business.

He is highly predictable due to the long term nature of our agreements.

This provides us financial stability and strong cash generation the whether these problems times.

From an operational standpoint, we are on track to deliver on all of our customer commitments.

We have been able to maintain a very high level of productivity with product design development and delivery continuing throughout this transition to a remote work environment.

Finally.

The almost universal shifts to learning and working from home.

Placed a tremendous claim on the global data infrastructure in terms of increased bandwidth capacity and security.

He is increasing requirements for foster insatiable hardware.

Accelerating demand for Rambus, IP and chips in the data center cloud and Fiveg.

As a result, the number of design stops and customer demand for IP and shapes remains strong.

Reaching some tailwinds for the business.

The company's focus on all cool springs in semiconductor emphases on operational efficiency and strong cash generation I've built an enduring foundation for growth even in this challenging environments.

Turning now to our results. This combination of factors coupled with all continued execution has translated into an exception themselves quota.

We delivered $64 million in revenue exceeding the high end of expectations and outstanding cash generation from operations of $37.3 million further strengthening our balance sheet.

The licensing team continues to make great progress.

Highlighted by last weeks announcement of our DRAM patent license agreements with CX empty.

This agreement is a great demonstration of the ongoing relevance of our portfolio. That's the time extends well beyond our existing agreements.

Whereas the near term impact was the deal on revenue would be small due to how nascent the DRAM market is in China.

Optimistic about the potential long term impact as the market grows.

I'll put a team had a tremendous performance with record revenue from both city can IP and she'd businesses.

The silicon IP business delivered record revenue into first quarter augmented by Mckee posed to your one it's supposed to design wins and strong execution from last year's acquisitions.

We introduced three industry, leading products to deliver and protect data.

The 125 gig excess chip that interface.

And they should be into memory solution with integrated fight on Comscore.

And 800 gig Mac Sykes security IP solution.

This strengthens our position in the fast growing and critical markets of data center cloud AI in Fiveg with additions to both the high speed interface and security IP portfolios.

Memory interface chips continues to be the fastest growing segment of the business.

Did you bring its fourth consecutive quarter of record revenue.

The growth was driven by ongoing gains in market share and was bolstered by the increased demand for memory and datacenter and cloud, but he'd be echoed by all the players in the industry.

And just sizing excellence in quality and delivery data center and OEM qualifications continue to increase with the DDR for memory interface chipset.

And the company remains well positioned as a first mover for the industry transition to DDR side.

In closing.

19 has introduced a great deal of uncertainty into the market.

It's a global she used to increase remote collaboration has also presented us with an opportunity for upside.

The resilience of our business model ongoing ability to execute an increased demand for our products across the critical markets of data Center communications AI in Fiveg give us confidence in our ongoing your ability to generate cash brothers strengthen our balance sheet and reinvesting all future.

Oh innovations and caught us a weather lines to near and long term customer demand.

That's the stability and flexibility and position ourselves for success throughout the rest of the year and beyond.

That I turn the call to Rahul to discuss the quarterly financial results Rahul.

Thanks, Luke I'd like to begin with our financial results for the first quarter, Let me start with some highlights on slide six.

As Louis mentioned, we continue to execute in our product businesses and delivered excellent financial result above the high end of our revenue and earnings expectations, while continuing to strengthen our balance sheet.

We've adopted assay 66, using the modified retrospective method, which does not restate prior periods, but rather runs the cumulative effect of the adoption through retained earnings at the beginning balance sheet adjustment.

Any comparisons between our results under 86 to six and prior results under 86, so five isn't an accurate way to track the company's progress.

We will continue to provide operational metrics such as licensing billing to give our investors better insight into our operational performance.

We delivered revenue of $64 million and licensing billing 67.1 million revenue was higher than our expectation due to strong buffer chip sales.

We have a very strong balance sheet and ended the quarter with cash cash equivalents in marketable securities a 435.4 million up from the previous quarter due to cash from operations of 37.3 million.

Our continued execution on our strategy and our operational discipline has yielded excellent financial result in a strong balance sheet that affords us flexibility on our strategic initiatives.

Now let me walk you through some revenue detailed on slide seven.

Revenue for the first quarter was 64 million well above the high end of our expected range due to market share gains in or buffer chip business.

Royalty revenue for the first quarter was 19.7 million well licensing billings was 67.1 million the difference between licensing billings and royalty revenue primarily relates to timing as we don't always recognize revenue the same quarter, we feel like customers.

Going into additional detail our product revenue was 30.7 million, consisting primarily of our budget buffer chip business.

Our contract and other revenue was 13.6 million, consisting primarily of our silicon IP business.

As a reminder, in Q4, we recorded 0.9 million up revenue associated with our payments and ticketing business prior to the sale to visa. So this reflects record results in Q1 for both buffer chip and Silicon IP.

Growth in these areas illustrates the benefit of our focus and strategy.

Let me walk you through our non-GAAP income statement on slide eight.

Along with our excellent revenue performance in Q1, we also exceeded our profitability targets total operating expenses, including Cogs for the quarter came in at 63.5 million.

Operating expenses are 51.9 million were lower than our expectations Buda lower spending on employee related expenses such as travel.

With higher revenue and disciplined execution on spending our profit was nicely above our expectations.

We ended the quarter with head count of 665 down from 685 in the previous quarter, primarily due to attrition Andre Agassi 66, we reported 4.4 million of interest income related to the financing component of our fixed fee licensing arrangements for which we have recognized revenue, but not yet received payment.

We incurred 0.6 million of interest expense.

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 noncash interest expense on our convertible notes. This resulted in non-GAAP interest and other income for the first quarter of 5.6 million.

Excluding the interest income related to the significant financing component of FC six so six this would've been 1.2 million.

Using an assumed flat rate of 24% for non-GAAP pre tax income non-GAAP net income for the quarter was 4.7 million.

Now, let me turn to the balance sheet detailed on slide nine.

Over the past several years, we've built a very strong balance sheet cash cash equivalents in marketable securities totaled 435.4 million up significantly from the previous quarter, primarily three passive operations cash from operations of 37.3 million.

At the end of Q1, we had contract assets worth 487 million, which reflects the net present value of Unbilled a are related to licensing arrangements for which the company has no future performance application.

I expect this number to continue to trend down as we build and collectively these contracts. It's important to note that this metric doesn't represent the entire value of our existing licensing agreements at several customers have royalty base agreement that allow us to recognize revenue each quarter under AC successes.

First quarter Capex was 4.5 million and depreciation was 4.8 million.

We delivered 32.8 million a free cash flow into quarter.

Looking forward assuming control construction has resumed.

Soon I expect roughly 12 million of Capex for the second quarter, and roughly 23 million for the full year of 2020 half of which is related to the relocation of our headquarters facility.

I also expect depreciation of roughly 5 million for the second quarter and roughly 20 million for the full year 2020.

Our strategic refocus on our core markets and operational efficiencies have set a solid foundation for our company are limited debt and predictable high margin licensing business have put us in a position to come out at the current environment stronger than ever.

We continue to build cash and have limited debt.

Due to the predictability of our license agreement, we expect to maintain our ability to generate solid cash from operations in 2020.

With a disciplined financial approach that has build capital while investing in growth, we have to liquidity to whether any sustained weakness and are well positioned to take advantage of any uncertainty in the market both organically and inorganically.

Furthermore, our historical an ongoing investments in technology R&D have helped us build a patent portfolio that is foundational to our industry and positions us well for licensing renewal in the upcoming period.

Our recent license with 50, M.T. demonstrates that the ongoing and long term relevance of our portfolio extends well beyond the length of our current agreements.

Long term, we're optimistic about the licensing opportunities in China that we don't expect significant financial benefit from this royalty bearing agreement in the near term.

Now, let me turn to our guidance for the second quarter on slide 10.

As a reminder are forward looking guidance reflects our current best estimates and our actual results could mr. differ materially from what I'm about to review.

In addition to financial outlook Andres see six to six we've also been providing information on licensing billings, which has an operational metric that reflects amounts invoiced to our licensing customers during the period adjusted for certain differences.

As you can see in the supplemental information we provided on slide 14 of our earnings deck licensing billings of course closely correlates with what we had historically reported as royalty revenue under 86 Oclock.

As Luke mentioned, we saw Tailwinds in the form of increased demand in data center and infrastructure and had a fantastic first quarter, while we're optimistic about the potential for these trends to continue we're remaining conservative in our guidance for Q2 due to the lack of visibility and uncertainty created by Cobot 19, and as we continue to monitor in May.

Tory status in the industry in supply chain.

With that said under 86 effects, we expect revenue in the second quarter between 50 and $56 million.

We expect royalty revenue between nine and $15 million. We also expect licensing billings between 57 and 63 million.

We expect Q2, non-GAAP total operating expenses, which includes cogs to be between 62 and $66 million.

Under 86 to six non-GAAP operating results for the second quarter are expected to be between a loss of five and $15 million.

Non-GAAP interest in other income and expense, which excludes interest income related to 86. So six we would've expected a million dollars an income which includes 0.6 million of interest expense related to the notes due in 2023.

Based on the tax legislation passed at the end of 2017, we expect our pro forma tax rate in 2020 to remain consistent with our 2019 pro forma tax rate of 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 a licensing agreements with our partners in Korea we.

We expect non-GAAP taxes to be between a benefit of one and 3 million in Q2.

We expect our Q2 share count to be roughly 116 million basic and diluted shares outstanding.

This leads you to be between a non-GAAP loss per share of three cents and nine cents for the quarter.

I'd like to provide some additional context as to how we developed our guidance for the quarter. We're fortunate to have a strong base. It's predictable recurring patent license agreements and our guidance reflects some of the structural stepped down as we've discussed previously.

Our product businesses, we continue to be actively engaged with our partners on chip design activity and have backlog that represent approximately 80% or expected chip in silicon IP revenue for the quarter.

Our Q2 guidance. Therefore, it reflects a combination of our structural step downs and conservatism in an uncertain environment.

We continue to manage cost carefully and invest in our R&D programs. The travel and other activities are limited, while we have reasonable visibility for Q2 and are encouraged by the engagement with our partners given the uncertainty surrounding the global macroeconomic environment with covert 19, we don't get understand our end markets will be impacted second half.

This year.

Well, we don't provide guidance beyond Q2.

And demand remains robust due to the resilience of our model even if Q3 in Q4 were 10% lower on the topline than what we expected in January I expect the same overall profitability for the year due to our strong performance in the first half.

Let me finish with a summary on slide 11.

We are proud of the excellent performance by our team and the progress we continue to make against our strategic initiatives to drive long term profitable growth.

Well, we understand that AMC seksix added a level of complex data to our financial reporting its important to reiterate that the underlying financial strength of our business remains strong reflected in our demonstrated ability to generate cash.

We have refocused our product portfolio around Rambus. This core strengths in the semiconductor industry improved our operational efficiency and profitability generated solid cash from operations and leveraged our balance sheet to support our strategic initiatives.

We continue to focus on our core markets and are well positioned to come out of the current environment stronger than ever.

Before I open up the call today I would once again like to thank our employees customers and partners everyone. Please stay safe and take care of yourself and your family's health is more important than anything will discuss on our call today.

With that I'll turn the call back to our operator to bring queuing. They could we please have a first question.

Thank you Rahul ladies and gentlemen, if you have a question. Please press star one on your attached to tell a sound.

Your first question comes from the line every Suji de Silva, we'd Ross you may now asking a question.

Suji. Your line is now open you may now ask your question.

Oh, sorry about that had a loop roll a thanks for the well wishes you guys into Ultramist families on wells well.

So on the.

On the the guidance Rahul if I take your numbers and try to.

To that but I would think the non-GAAP is I get to one Q results actuals of 111 point Fourmillion and he has a 32 cents is that about where those numbers the fallout.

Considering I think what you're doing if you're sort of computing licensing billing for what we normally report is wealthy revenue and obviously, that's that's not GAAP and those aren't numbers that we can provide but if I went to do the math and I get the same amount that you did for Q1.

Okay, just to make sure I got I cover the solved the guidance seems to be leading to something closer to 101 million and 25 cents I want to make sure. That's also sounds reasonable.

Yes on the same basis, I think what you're doing as youre, replacing our guidance for royalty revenue with licensing billing and if I want to do the same out yes, I I get the same numbers.

Okay. Appreciate level and then on the business itself the memory buffer I'm I don't know if you've guided the full year or not if you did I Miss that what it might be in 2020, I know the visibility is lower but can you talk about the linear already here are you depending on cloud spending it's been stronger near term and expect that continue to take a pause for digestion any color there would be helpful.

Yeah, Hi, Suji. This is where yeah, we had a great quarter and of course quarter for buffer chip business.

Product revenue was $30.7 million into first quarter.

Which was much higher than the same quarter a year ago. So we see continued gaining market share on how side and we see demand going up at least in Q1 in Q2 or server memories and that's as you said due to the increasing demand for our work from home and learn from home environments.

We did see an uptick and increase market share on our side, so, but let us two very good results in Q1.

We're very optimistic about Q2 in the numbers that are Rahul just shared with you.

And in the long run we continue to see high demand for data center cycles memory modules.

Of course squeeze the instructions you've covered 19, you know Q3 in Q4, maybe a bit tarbutton.

You know given you know the possible impact on supply chains, but we remain confident with a with a business going forward.

Q2, and in the wrong run.

Okay. Let's go appreciate that color and then maybe more broadly. That's one example of what's happening with Covidien remote work learn straining the infrastructure and.

Being something of the benefit for your business like for better term can you talk about other qualitative examples you talked about the cores and things like that just any color anecdotally would be helpful.

I think some markets will resist better than others or to the cobot 19 crisis everything that has to do with building infrastructure will be more resilient and markets in the automotive space. So consumer space for example.

And a lot of our IP be above and beyond our chip business a lot of I'd actually goes into infrastructure chip development.

All five Geo AI, so high speed interface designs with our customers continue to be very relevant our security business continues to be very relevant as well.

As you noticed we announced we knew products this quarter.

That will strengthen our position in those markets. So this was 100 square geek exit car a fight on and consumer HD into called for a and the 800 gig macsec into security space. So all of these markets are going to resist better than others and we do developed IP that goes into chipsets.

Of those markets and again.

Q3, Q4, maybe a bit turbulent but in the long run both our products and our end markets are going to be more resilient to the crises than other products in other markets.

Okay and then one last quick question on the the new China DRAM agreement, but do you can provide the color.

Starkly with sampling high Nixon Micron, you had to kind of go back to kind of up more flattish or licensing structure, then variable on average with this new customer given that the geography and the opportunity for upside DRAM. If they can gainshare did you negotiate a variable component here that would benefit you or did you not we were not able to or can you can you discuss them.

Hey, Suji throttle as I mentioned in prepared remarks that there's a royalty bearing agreement. So as a fix empty continues to grow then I'd expect to see our billings from say some tiet and continue to increase as well as I mentioned in the prepared remark you know, there's still going to be a relatively small a portion of the industry on on the New York.

Term, but we are very optimistic about licensing opportunity in China.

Over the long term and as a as I mentioned earlier with this also does is give us a lot of confidence because it's essentially an independent third party.

Validation about the strength of our licensing portfolio well beyond the existing renewals and extensions in our current contracts with the other large DRAM DRAM providers.

Absolutely all right, thanks, especially the colors.

Thanks.

Thank you next question comes from the line have Sidney Ho with Deutsche Bank, You know ask your question.

Hi, this is Jeff kilometers.

Congrats on the Big was the ultimate marketing environment can you talk a little bit about what the biggest headwinds your shapes I'm told me and has there been any changes in customer behavior.

Hi, Jeff and travel and thanks for your question. So I think from a headwind perspective, it's been interesting because we've seen a pretty robust business across the board as we mentioned we've reported record results both in our chip business as well with our silicon IP business because of the strength that we see.

Okay and data center in some of the other key market. We've continued to see a fairly robust design activity cycle through our silicon IP business I'm. So that's in front as well I think if we have seen any weakness it's been in any of our businesses, which have more of a short term sales cycle. So you can see that in some of our silicon IP businesses.

In the in the coming quarter, and I think thats reflected in our and our guide for for Q2 does that help answer your question.

That sounds great. Thank you I'm just trying to follow up can you give us a ballpark of how much of your revenues generally shift should grow in this environment, how much could be more there as well.

So between fixed and variable I think one way to look at it is that we ended the quarter with about 487 million on our balance sheet regarding the unbilled contract.

And one way to look out is again, if you look at our press release, what we reported from a royalty revenue perspective was about 19.7 million. So that's royalties under 86 to six where there is a performance obligation. So for example, it's related to ship it what we reported in licensing billings on the other hand was about six.

She 7.1 million. So that includes any agreement where there is no performed obligation. So if you look at the difference there between 67.1 and 19.7 I don't mean here [laughter] took you through a quick but that difference about $45 million.

So $45 million $47 million a quarter or at least in Q1 was the difference there, which you could attribute to agreements where there's no formal propagation, where it's just billing and collecting now as I mentioned at our analyst day in September we had given a range of a licensing billings from the 220%.

To 40 range, so about 230 million for the year. So that kind of gives you an idea of where we expected the year to come out at least in September and I think the other numbers, though forgive me an idea how much is.

Are you would call fixed versus variable is that helpful.

Yeah, great. Thank you very much.

The most welcome.

Your next question comes from the line as Gary Mobley with Wells Fargo, even though ask your question.

Hey, guys. Let me extend my congratulations on the strong start to 2020, given the circumstances.

I wanted to ask about perhaps what you would you didn't say so far on the call and that is you know some reiteration up your buffer chip sales I think the guidance midpoint previously for 2020 was 90 billion.

$400 million in overall revenue or are you has tend to sort of reaffirm that number or you raised at higher or simply because you're worried about.

Some of the data center, guys pulling forward capacity or some inventory out there of doable in my memory modules.

Hey, Gary its its thank you very much for your comments and it's a great question as I mentioned, our guide for Q2 reflects a combination of some of the structural step down we have in our licensing agreement.

As well as I'm a bit of conservatism just based on everything we see and read externally from macro environment. The demand from our partners continues to be very robust, but I think the cautious that nets that you heard when I talked about the second half. It's really just that is that I think we're in an environment, where are you have less visibility and.

As I mentioned in the prepared remarks, you know we do look at what the inventory looks like both in the supply chain and across the industry and so that kind of also helps frame. How we look at the second half, but let me be clear everything that we're getting from our customers is very positive.

Okay. When its touch base on the CX M. P license agreement and a <unk> into the extent you're willing to talk on behalf of of each party involved in this license agreements I was curious to know whether this relates to their desire for domestic consumption for DRAM.

Or if this was driven largely by their desire to move outside the China market.

Yeah, Hi, Gary.

This is this is look it's actually both.

I I think everyone, who run investing in DRAM technology has.

So large investments to say that they have to address the global markets.

And therefore.

The needs to be able to address their domestic market, probably first and then the global markets, but important aspect of this this agreement is twofold. One is that it's a royalty bearing agreement. So although we expect revenue to be low at the beginning because these technologies they time to mature and ramping corridor.

Action when it goes into production you know our royalties tween is gonna be growing with their revenue and the second thing is that it shows the strength of our patent portfolio because the time. So these agreement extend well beyond the terms of the current agreements we have with you run vendors. So strategically that's an important.

An important step for us.

You have that agreements we see accent.

Okay.

On the on the idea of a patent strength I'm curious if you could Ah trust the topic of one of your Big three patent license fees, you know coming up for renewal this year and sort of the prospects it getting that.

Across the goal line.

Hi, its Bravo and I'll tell you know, we're I'm very confident that Ah. We we have a renewal with micron I think that's coming up in the fourth quarter and we're very confident that they'll renew.

For for a bunch of reasons. One is that if you look at the terms of that agreement micron is substantially larger than they were when we signed into that agreement about five six years ago and so it didnt just wouldn't make sense for them to necessarily come back to to do some sort of a renegotiation or we think it's a pretty attractive license.

And then after that you would have Samsung coming up for a renewal in that 2023, and then hynek than in 2024. So we have fairly good visibility between the DRAM industry on a typical year and of course, Gary as we've talked about sometimes there's ups and downs, but on a typical year, we got about $150 million a year from R&D.

The Ram industry I think one thing that you look at is that our patent portfolio continues to grow I think we were now at a 2900 class patents and application I mean, that's part of our worldwide portfolio, which includes patents in multiple jurisdiction and as you were talking to think about earlier the license that we have with a fixed.

He is actually that license to our worldwide portfolio not not just trying to.

And you to file and we have new relevant patents that continue to be issued and I think thats important as well, but we're very confident about the future of our licensing business and sing a long term.

Okay, Alright, Thank you guys again congrats.

Thank you Gary.

Thank you yeah.

Your next question comes from the line as Mark on the topic with Jefferies.

A question.

Hi, Thanks for taking my questions.

I could you review a bit but part of the product side like.

How your supply chain is set up like what were the major centers for packaging. The testing you wanted to things that we heard is that as there's this viruses spread from China to Malaysia, and the Philippines that there is you know there's also issues in them and the supply chain there and I was wondering if you could just.

Give us a framework for thinking about where were you guys were the major operations are centered up you know have you encountered any issues you anticipate does your guidance anticipate any any supply chain disruptions on the product side.

That's the first question I had a patent Apollo Yeah, Hi, Hi, Hi, Mark This is Rick the that's that's a great question.

I.

As we said earlier you know we had a record quarter even in Q1, one of the reasons, we had a record quarters that we could continue to ship in high volumes and upsides to our customers.

And one of the reason reasons is that our supply chain been quite resilient.

We our supply chain is mainly located in Taiwan and Korea.

To all of the shoes that were impacting Malaysia, and Philippines, we've been kind of immune to those and that allowed us to to continue to shift without any issues and as a over the last four quarters. We continued to gain market share. We've also built a resilient supply chain.

I mean by building some strategic a buffer of stock if you wish in critical places the Bob although all of our supply chain. So that we could serve the upsurge.

Of demand, which has happened during this crisis. So again I think our supply chain is based in countries that have been a.

Very little they impacted Korea and Taiwan.

And we had built some most strategic inventory across the supply chain to deal with upsurge in demand so that put us in a very strong position, so Q1 and for Q2 as well.

Oh, that's that's very helpful.

Oh, Okay. So the other the second question I had was Luke you used the expression potential for turbulence and you know and the second half of the year and I think everybody is extremely.

Empathetic to that I'd add sometime you know the turbulence as a broad expression. It could be you know issues on the demand side or on the supply side is there is when you talk about treatments is there also embedded in that an idea that that there's a potential that.

Because demand was so high that there may have been double ordering or Pauline orders ahead into the first half of the year from the second half of the year is is there anyway that you guys can determine that if it if you even.

So suspected that that was the case.

That's a great question I think.

When I when I talk about turbulence, let me explain what I meant.

Hi, I think the whole supply chain ordered a leader in more than the would usually do as an insurance policy. Because you know supply chains are very complex and anything that breaks in the supply chain can can impact I you know the rest of the supply chain, it's not necessarily the chips themselves all that much.

And those that goes on the module was it can be you know a gas satisfactory needs to have to manufacture their products I think the whole supply chain inbound and outbound I've been to be prudent and I've orders a little more than they would usually do but we don't see situations.

When you time, where are we see double booking so over holding us off chips, that's not the case a fruitful for the time be would we see is a combination of higher demand in the short run because of the work from home learn from home environment and at the same time, the whole supply chain, taking a kind of.

Insurance policy by building a little more then they would they usually do a in order to protect themselves against a you know potential incidents in the supply chain.

And that's why Youd Rahul was talking about you know Q3 Q4, saying that we are you know we we're optimistic that are the same time be prudent about which we die.

Rahul.

Yeah.

Yeah.

Okay.

That's great May amassed just one last follow up.

Of course sure.

Yeah.

So last week, the department of Commerce announced some additional restrictions on.

Sales to China.

Russia, and Venezuela I believe.

Associated with military and markets applications, and having to do a civilian exemptions can you share.

I am assuming that you guys had it has a chance to review that at least on a preliminary basis can you share with us your your views on how that might impact rambus.

Yeah, we continue to monitor those are you, losing restrictions very very closely and make sure that we comply to them.

Business is not exposed to those as we understand today I believe continue to monitor the situation in the case of Ah, Yes, and see you know this is a kind of the opposite situation, where our DRAM partner in China is actually paying us four patents not for technology. So the paying those for the rights that.

Double up their own products, including our ideas. So we not exporting anything you know, we just giving them the right to use inventions that we we invented ourselves.

Gotcha, that's very helpful. Thank you very much on.

Thank you Mark.

Ladies and gentlemen, if he has a question. Please press star one on your Capstone College town.

[noise] at this time there no further questions. This concludes the question answer session I would now like to turn the conference back over to the company.

Thank you before we and our call today I'd like to give especially I think you to everyone on the global Rambus team will they continued dedication during these challenging and unprecedented time.

Ill focus on the ongoing well being of our employees coordination with our partners to ensure the integrity of our supply chain and commitment to customers have been and we'll continue to be critical to our success.

Thank you everyone, who has joined US today, where you continued interest in time, we hope each one of you stay safe unhealthy and look forward to speaking with you again soon have a great day.

Thank you. This now concludes todays conference you may now disconnect.

[music].