Rambus Inc. (RMBS) Earnings Call Transcript & Summary

Welcome to the Rambus Second Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Sumeet Gagneja, Chief Financial Officer. You may begin your conference.

Thank you, operator, and welcome to the Rambus Second Quarter 2026 Results Conference Call. I am Sumeet Gagneja, Chief Financial Officer at Rambus. And on the call today with me 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. We are webcasting this call along with the slides that we will reference during portions of today's call. A replay of this call will be available on our website beginning today at 5 p.m. Pacific Time. Our discussion today will contain forward-looking statements, including our expectations regarding projected financial results, financial prospects, market growth, demand for our solutions, other market factors, including reflections of the geopolitical and macroeconomic environment amongst other items. These statements are subject to risks and uncertainties that may be discussed during the call and 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 on 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. I would like to note a change in how we present our results going forward. Since the adoption of ASC 606, we have disclosed licensing billings, an operational metric that bridges the difference between GAAP revenue and actual billings to our licensees. This was an important metric in the initial years after ASC 606 adoption when the delta between royalties revenue and licensing billings was material. As the difference is now minimal, and we expect to remain so, we will focus our financial results and guidance on an ASC 606 revenue basis going forward. The order of the call today will be as follows: Luc will start with an overview of the business. I will discuss our financial results, and then we end with Q&A. I will now turn the call over to Luc to provide an overview of the quarter. Luc?

Thank you, Sumeet. Good afternoon, everyone, and thank you for joining us. Before we begin, I'd like to take a moment to welcome Sumeet Gagneja to his first earnings call as Rambus's Chief Financial Officer. Sumeet brings more than 2 decades of leadership experience in the semiconductor industry and a wealth of knowledge in the data center ecosystem. Since joining Rambus, he has quickly become a valued member of the leadership team, and we are very pleased to have him on board. Welcome, Sumeet. With that, let's turn to our results. Rambus had an excellent second quarter, delivering a new all-time high in revenue and non-GAAP earnings and beating the high end of our guidance ranges. Fueled by record product revenue and strong contributions from our diversified revenue streams, this quarter marks the first time we have exceeded $200 million in revenue. These results reflect our sustained execution and leadership across our expanding portfolio of chips and IP. We also generated solid cash from operations, underscoring the strength of our business model and enabling us to continue investing in our product road map to drive long-term growth. This combination of record performance, disciplined execution and sustained investment positions Rambus to capitalize on the exciting market trends in data center and AI. AI continues to drive a fundamental evolution in computing. As inference and agentic use cases scale, workloads are becoming more diverse, more persistent and more memory intensive. To support these workloads, AI infrastructure deployments are becoming more complex and heterogeneous, combining a mix of traditional and AI server platforms. This is accelerating demand for CPU-based servers to support orchestration, data management and real-time execution at scale while increasing requirements for memory capacity, bandwidth and power efficiency. These trends align directly with our strengths and are driving new opportunities for richer chip content and broader adoption of our industry-leading IP. Now let me turn to our quarterly business results. Starting with chips, product revenue reached a new record of $99 million, up 22% year-over-year, and we expect another quarter of double-digit growth in Q3. This reflects our continued leadership in DDR5 RCDs, strong execution and growing traction in new products. And looking ahead, we see increasing customer adoption and remain well positioned to support the ramp of next-generation platforms as they enter the market. We continue to execute well across our DDR5 road map. We expanded our portfolio with complete chipsets for DDR5 9600 client and server memory modules, further extending our leadership in high-speed memory interface solutions. Our new DDR5 9600 client chipset enables top-of-the-line performance for emerging AI PCs and leverages the same high-speed memory interface expertise we have developed across multiple generations of server platforms as technology requirements increasingly waterfall from the data center into high-performance client systems. For servers, our new DDR5 9600 RDIMM chipset built around our sixth-generation RCD and PMIC5030 supports the next level of memory performance required by advanced CPU-based server platforms. As core counts, memory channels and bandwidth requirements increase, solutions like these are essential to enabling higher system throughput and power-efficient performance. Importantly, our server chip solutions support the expanding range of new and existing processor and system architectures, positioning us to benefit from increasing memory requirements across the industry. Together, these additions expand the breadth of our DDR5 road map and demonstrate our continued enablement of higher performance, improved signal integrity and advanced power management across both data center and client applications. As AI workloads continue to diversify, there's increasing demand for novel memory architectures with application-specific performance, capacity and power requirements. We are addressing these needs through products like our complete chipsets for MRDIMM and LPDDR5X SOCAMM2 and remain on track to intercept the market as these architectures gain adoption. Supported by active engagements across customers and ecosystem partners, we are expanding our road map of differentiated memory subsystem solutions to help shape the next generation of server modules. This reinforces our opportunity for increased chip content and sustained growth in 2027 and beyond. Turning now to silicon IP. We delivered another strong quarter with increasing customer traction and key design wins across hyperscalers, custom silicon companies and emerging AI semiconductor developers. As AI infrastructure scales, chip development cycles are accelerating and performance requirements are pushing beyond industry standard specifications. Customers are building advanced SoCs for high-performance AI systems, driving robust demand for our differentiated IP solutions, spanning advanced memory, connectivity and security IP. We also have a growing number of deep architectural engagements ahead of standards being finalized to help our customers be first to market with state-of-the-art performance. This includes an exciting design win with a Tier 1 U.S. hyperscaler for next-generation HBM in future AI chips. These engagements are great testaments to the strategic importance of our premium IP portfolio. The growth of custom silicon for acceleration and connectivity remains an important long-term trend, particularly among hyperscalers and leading AI infrastructure companies. As customers optimize hardware for their own workloads, software stacks and deployment requirements, they need Rambus advanced IP to help them deliver performance, power efficiency and reliability at scale. Secure connectivity is also an increasingly important part of the overall architecture and Rambus' proven security IP is foundational to enabling trusted high-performance data movement across distributed AI infrastructure. During the quarter, we also expanded our AI IP solutions with PCIe 7.0 Switch IP supporting 128 giga transfer per second. This solution is designed to support the next generation of AI scale-up and scale-out architectures where high-bandwidth, low-latency connectivity is critical to overall system performance. As AI infrastructure scales, Rambus IP is in great demand, enabling faster, more efficient and more secure data movement. With our strong customer partnerships and deep architectural engagements, we are enabling the future of advanced AI hardware. In summary, Rambus delivered an excellent second quarter with record revenue and earnings. Our results reflect the strength of our product leadership, the depth of our customer relationships and our ability to execute in markets that continue to present significant opportunities for growth. Looking ahead, we are well positioned for the major trends reshaping data center and AI infrastructure. As AI scales and agentic workloads drive greater demand for CPU-based servers and memory, Rambus chips and IP are enabling the performance, connectivity and security customers need to build the next generations of advanced computing systems. We remain confident in our strategy, our road map and our ability to drive strong growth in 2026 and beyond. As always, I want to thank our customers, partners and employees for their continued trust and support. Now I'll turn the call over to Sumeet to walk us through the financials. Sumeet?

Thank you, Luc, and good afternoon, everyone. Before I turn to the quarter, I want to say how excited I am to be here and how much I've appreciated the warm welcome from the team. Having spent the past several weeks meeting with our employees and investors, I have come away with a clear conviction. We have differentiated technology, deep customer relationships and meaningful long-term growth opportunities ahead. As CFO, my focus is straightforward: drive profitable growth through disciplined financial execution, allocate capital thoughtfully and provide shareholders with transparent and consistent communication. Now let me turn to our second quarter financial results. As I noted earlier, because the difference between royalties revenue and licensing billing is now minimal, we will focus our financial results and guidance solely on an ASC 606 revenue basis. We delivered Q2 revenue and non-GAAP earnings per share exceeding our Q2 guidance, driven by strong contributions across our diversified revenue streams. Revenue for the second quarter was $207.4 million, which is up 20% year-over-year and up 15% sequentially, led by strong performances from our product and royalties revenue. Product revenue was $99.2 million, which is up 22% year-over-year and up 13% sequentially. Royalties revenue was $84.2 million. Contract and other revenue was $24 million, consisting primarily 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 royalties revenue. Total non-GAAP operating costs, including cost of goods sold for the quarter were $113.7 million. Operating expenses of $73.5 million were up sequentially due to higher SG&A expenses. Interest and other income for the quarter was $6.8 million. Using an assumed non-GAAP tax rate of 16%, non-GAAP net income for the quarter was $84.4 million, resulting in Q2 non-GAAP earnings per share of $0.77, which is up 24% year-over-year and up 21% sequentially. Now let me turn to the balance sheet details. We ended the quarter with cash, cash equivalents and marketable securities totaling $825 million, up $39 million from Q1 with solid operating cash flow of $61 million, partially offset by $12 million in capital expenditures and $9 million of net equity outflows. Inventory increased by $16 million during the quarter as we leveraged the strength of our balance sheet to support future product ramps and provide customers with greater supply assurance in the coming quarters. Free cash flow in the quarter was $49 million. Let me now turn to our non-GAAP outlook for the third quarter. As a reminder, the forward-looking guidance reflects our best estimates at this time, and our actual results could differ materially from what I'm about to review. We expect revenue in the third quarter to be between $210 million and $216 million. We expect product revenue to be between $110 million and $116 million, a sequential increase of 14% at the midpoint of guidance. We expect royalties revenue to be between $69 million and $75 million, and we expect contract and other revenues to be between $25 million and $31 million. We expect Q3 non-GAAP total operating costs, which include cost of sales to be between $119 million and $115 million. We expect Q3 capital expenditures to be approximately $13 million. Non-GAAP operating results for the third quarter are expected to be between a profit of $91 million and $101 million. For non-GAAP interest and other income, we expect $7 million of interest income. Assuming non-GAAP tax rate of 16% and Q3 share count of 110 million diluted shares outstanding, we expect Q3 non-GAAP earnings per share range between $0.75 and $0.82. In closing, we delivered a strong quarter, reflecting the diversification of our business and contributions across our revenue streams. Our third quarter outlook reflects continued sequential growth in both revenue and earnings per share, supported by sustained momentum across the business. We remain firmly focused on driving long-term shareholder value through disciplined execution, thoughtful capital allocation and consistent operational performance. Before we open the call to questions, I want to thank our employees for their continued dedication and execution, our customers for their trusted partnership and our investors for their ongoing support and confidence in Rambus. With that, I'll turn the call back to our operator to begin Q&A. Could we have our first question, please?

[Operator Instructions] Your first question comes from the line of Kevin Cassidy with Rosenblatt Securities.

Yes. Congratulations on the great results. Just to confirm, did you have any capacity issues during the quarter? Any orders you weren't able to meet?

Kevin, no, we didn't have any capacity issue in the second quarter. We continue to see tightness in the supply chain. We continue to see lead times increasing, but we didn't have any capacity issue in Q2. We have built strong relationships with our suppliers. And at this point in time, we are able to serve the market demand.

Okay. Great. And just because it's topical today, China-based CXMT had a big splash today. And is Rambus involved with CXMT either on the IP side or product side?

Yes, it's great news for CXMT. I think they're going to be a strong player in the market. Every company that builds memory has to have a license agreement with us, and they're one of them. So we're very pleased with the success, and that's going to be a good thing for us in the long run as well.

Your next question comes from the line of Sebastien Naji with William Blair.

Maybe just for the first one, could you update us on your expectation for MRDIMM -- for the ramp of MRDIMM? AMD is in production with the [ Venice ] CPU today. It sounds like servers will start shipping in Q4. Are you starting to get any better visibility into how much of the market will go down the MRDIMM route versus sticking with more traditional RDIMMs?

Yes. Thank you. We do continue to see MRDIMM as a material opportunity. But as you said, the timing is going to be dependent on the platform adoption when the servers go to market and whether those servers what percentage of MRDIMM are they going to use as compared to a standard DIMM. So we are excited by the opportunity. But at this point in time, we will not overcall the adoption curve before the platforms actually ramps and we get feedback from the market. The contribution for Q4 is going to be minimal. We continue to ship to our customers for these early system buildups and a more material contribution is going to happen in 2027 when both platforms from the CPU guys ramp in the market in earnest.

Got it. Okay. Great. That's helpful. And then maybe for my follow-up, one of the concerns that we're hearing more about from investors is just the risk of potentially over ordering in this very tight memory supply environment. Are you seeing any signs of inventory buildup at your customers? Or what kind of signals are you looking at that gives you some confidence this is not happening right now?

We don't see any signs of our customers building inventory for the concerns that you expressed. This said, however, we are building some inventory on critical products that we believe are going to ramp here in Q3, Q4 and early next year as we do see our lead times lengthening given the tightness in the supply chain. So no inventory buildup from our customers. We build strategic inventory for the products that we believe are going to contribute to our growth in the next few quarters.

Your next question comes from the line of Gary Mobley with StoneX.

Let me extend my congratulations on the snapback in your product revenue. Now relating to that, I think you've always stated at least so far this year that typically you see seasonal strength in the second half of the year, and that's certainly reflected in your Q3 guidance. And you're obviously building inventory, I assume, in preparation to fill strong demand. And we've also heard from the server processor supply chain that volumes continue to exceed expectations. So I'm curious to know what kind of visibility you have currently versus, say, last quarter? And what kind of visibility you have looking into the fourth quarter in terms of the continued strength?

Thank you, Gary. I think our confidence is continuing to build. One of the reasons is the use of CPU in agentic AI is certainly a demand driver, and we sense this with our customers. Our guide for Q3 shows another 20% growth year-over-year compared to last year. So this is a good sign as well. We want to be reasonable, though, in terms of guiding beyond 1 quarter for 2 reasons, the same reasons. One is the timing of ramp of the platforms. We hear good things, but they have to ramp. And the second one is the supply tightness. So we believe our second half is going to be stronger than our first half. We're going to see the same dynamic as we saw in prior years, but we will continue to guide quarter-by-quarter.

As a follow-up, I want to ask about the silicon IP business. If I'm not mistaken, you've been pretty steady and assuming that business is about $130 million, correct me if I'm wrong, but you've consistently and seemingly delivered upside to that number, at least through the first half of the year. So what's your most up-to-date view on the performance of the silicon IP business, whether be expressed in growth or dollar terms?

So we continue to see that business growing 10% to 15% a year. I would say that this is another business where our confidence in that number is continuing to build, again, with the inference and agentic AI coming up into the market, we do see a lot of our customers building custom solutions that use our IP whether it's on the interconnect side, on the security side or on the memory side. So our confidence is building up, and we're confident in this 10% to 15% growth going forward. . We also -- it gives us comfort as well in terms of the strategy we're using. We're trying to stay at the bleeding edge of technology on these interconnect, memory or security IPs and that allows us to engage with customers very, very early and gives us a longer-term visibility into that growth. So again, I would say, we still see that business growing 10% to 15% a year. But our confidence in that growth continues to grow. We had a great quarter in Q2, in particular, as you could see.

Your next question comes from the line of Aaron Rakers with Wells Fargo.

I guess my first question is, earlier was asked about MRDIMM that there's just a lot of architecture stuff going on in memory or the memory subsystems in general. I'm curious, Luc, as you think about MRDIMMs and you maybe juxtapose that relative to, let's say, CXL, what is the company's views on CXL now that we've seen Meta-endorsed technology? There's kind of other inklings that other hyperscalers are working on their own solutions for CXL. I'm just curious to how you see that playing out and maybe touch on Rambus' position for CXL, if it starts to materialize.

Yes. Thank you, Aaron. I'll start with MRDIMM because we mentioned MRDIMM. One of the excitements we show around MRDIMM is that it's a standard product defined by JEDEC and it goes into an existing infrastructure. So that's the excitement around MRDIMM. Now when it comes to CXL, we are very supportive of CXL as a very important Internet protocol. It's not a chip, it's an -- interconnect protocol, excuse me. And I think it's going to play a role in the AI evolution. In particular, in agentic AI is going to play a role on managing the memory stack or the memory pyramid and moving from cold memory to hot memory. But that's still I would say, interconnect protocol and other products. So it remains very, very relevant to our silicon IP business. Now at the product chip level, because we actually talk to the people who build those products, we continue to see a fragmented market from a product standpoint with many deployments looking like ASIC-like or customer-specific products. So our position with respect to CXL remains the same we will continue to enable the ecosystem with our IP engagement, and that's why we're building confidence in our IP business, and we'll continue to monitor the traction there. But we will continue also to focus our product investment where we see, I would say, the strongest market opportunity for scaling and in particular on standard products. So again, we play a critical role in the deployment in the ecosystem for our IP business. And we're monitoring the product business. At this point in time, we see this as a custom ASIC business that is fragmented for us. And from the product standpoint, we'd rather invest into standard products at this point in time.

Yes. That makes a lot of sense. I appreciate that. And then as a quick follow-up, I know you referenced it in your prepared remarks that you were engaged with the hyperscaler on some of the IP and some future generation, I'm guessing, XPUs or programs that they have in place. I'm curious, is that changing like that opportunity set of your business, is that necessarily a new dynamic? Or any thoughts on hyperscalers being direct like real customers and driving some incremental growth for Rambus?

Yes, Aaron, that's a very good question. I think the trend we see is that hyperscalers are playing a growing role in defining their own architectures, whether they build the products themselves or whether they have ASIC companies or product companies building the products for themselves because they want to stay competitive and move fast. So their role in defining the architectures on complex subsystems like the memory subsystems is becoming more and more important. So they work very early with us, for example, before even the other specifications are complete to make sure that we can meet their system requirements. And once this is done, they can use that to either build their own products or actually have semiconductor building their own products against those high-end specifications. And the trend that I see here is that these technologies actually proliferate. Once hyperscaler has decided upon a particular implementation of a memory controller, for example, then that proliferates into their own ecosystem. And that, again, is one of the reasons we feel confident in the growth rate of our IP business.

Your next question comes from the line of Kevin Garrigan with Jefferies.

Congrats on the results. I may have missed it, but can you just talk about how much of your revenue was from companion chips or new product revenue this quarter?

We continue -- like in the first quarter, we indicated that our product, I would say, these new products were in a low double-digit percentage of the product revenue. We continue to be at that type of rate, and we continue to ramp those products into the market. And that's going to be in the mid double digits by the end of Q4. So we are on that trajectory. Remember, this is on a growing revenue base for the product side. It actually is growing quite nicely, but it has to go through the qualification process with our customers, with our customers' customers and ecosystems. So it's never going to be a step function but we do have momentum there across the board, and we're happy with the performance of those products.

Yes. Okay. Great. That makes a ton of sense. And then -- so I get a lot of questions about just LPDDR-based servers, and you guys now have your SOCAMM2 chipset. And I believe just SOCAMM in general has lower content overall versus RDIMM and MRDIMM. But as the industry kind of shifts or potentially shifts towards more LPDDR-based server modules. I mean, does that kind of cannibalize your RDIMM or MRDIMM opportunity at all?