Welcome to 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. If you would like to ask a question, you may press star one on your touchtone pad at any time. If anyone should require assistance during the conference, please press star zero on your touchtone pad at any time. 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.
Thank you, operator. 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 have 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. Along with the audio, we are webcasting slides that we will reference during portions of today's call. Even if you're 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 website beginning today at 5:00 P.M. 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 of the various markets we serve, Changes that we will experience in our financial reporting due to our adoption of the new revenue recognition standard 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. We're 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 website 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 website 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. Then we will end with Q&A. I'll now turn the call over to Luc to provide an overview of the quarter. Luc?
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 improve profitability. From a financial perspective, our performance was in line with our expectations, delivering GAAP revenues of $59.8 million under ASC 606 and generating $32 million in cash from operations. For reference, our third quarter revenue under the prior ASC 605 accounting standard would have been $99.8 million. If we compare under the same accounting standard and exclude the impact of our lighting division, this equates to a 5% increase year-over-year. Overall, we executed well with strong execution in our product groups 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 to grow with steady gains in market share and revenue growth, supported by a series of OEM design wins. As a result, we continue 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-$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-$70 million for the buffer chip program.
For next generation DDR5 memory buffer chips, we maintain 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 start 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 continue our leadership with further development of high-end and high-bandwidth series 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 trust in 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 a 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 their IoT security platform, which integrates our CryptoManager IoT security service. We are pleased with the progress from this group and look forward to meeting the market's growing demand. As we look now to our ticketing and payment groups, market traction and product development for tokenization continue to progress. This year, we have expanded our tokenization solutions from 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 solution for mobile ticketing on Scotland's national rail network. 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 card on file to token on 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 IP to develop differentiated products for high-growth markets remains. 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?
Thanks, Luc. I'd like to begin with our financial results for the quarter. Let me start with some highlights on slide five. 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 standard, ASC 606, using the modified retrospective method, which does not restate prior periods, but rather runs the cumulative effect of the adoption through retained earnings as a beginning balance sheet adjustment. As a result, any comparison between third quarter 2018 results under ASC 606 and prior results under ASC 605 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 standard.
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 standard 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 -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 with a focus on memory and security.
Let me talk you through some revenue details on slide six. Revenue for the third quarter was $59.8 million under the new revenue accounting standard, 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, excluding the lighting business we shut down 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 in both memory and security, and will continue to generate cash in 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 our tokenization and embedded security businesses. While we are pleased with our progress on the security initiatives, in particular our recent announcements, 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 product and technology announcements and customer engagement. Let me walk you through our non-GAAP income statement on slide seven. 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 to support 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 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 payment, but recognized revenue under the new accounting standard. We incurred $0.7 million of 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 a roughly $820 million adjustment to retained earnings at the beginning of 2018. The acceleration of revenue resulted in 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 in future periods, hence the valuation allowance.
Using an assumed flat rate of 24% for non-GAAP pre-tax 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. Let me turn to the balance sheet details on slide eight. 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 helped to offset the remaining $81.2 million paydown 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 adopt 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 billings. 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. Let me turn to our guidance for the fourth quarter on slide nine. 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. To provide our investors and analysts 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 this transition period, which ends in 2018. Please note that the presentation under ASC 605 is not a substitute for the new ASC 606 revenue recognition standard under GAAP. 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 licensing billings, which is an operational metric that reflects 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 see in the supplemental information we provided on slide 16 of our earnings deck, on an annual basis, licensing billings closely correlates with what we've reported as royalty revenue under ASC 605, given this timing lag. We'll continue to provide licensing 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 will 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 commitment 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 not 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 controls.
Over the course of 2018, we've kept operating expenses roughly flat as revenue grows, providing leverage to our financial model. I expect total operating expenses, which include COGS related to our buffer chip business, to grow through 2019 as we ship more product. We continue to target $35 million-$40 million in buffer chip revenue in 2018 and could see this business grow to $50 million-$70 million in 2019. Under the new ASC 606 revenue standard, 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. Excuse me, $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 a non-GAAP earnings per share of $0.04 for the quarter. Under ASC 605, using the same assumptions for operating expenses, $8 million-$10 million for taxes, and 110 million fully diluted share count, 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 step downs in a number of our long-term licensing agreements, which impact our 2019 revenue. We expect the growth we see in our product programs to offset these structural step downs. Given the structure of these agreements and what we're seeing from the 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 will improve significantly. Through our continued cost management, we also expect roughly flat earnings in 2019 as we maintain our commitment to earnings and 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 adds a level of complexity to our financial reporting, it is 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 offerings 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 will turn the call back to Jerome to begin Q&A. Could we please have our first question?
Thank you. Ladies and gentlemen, if you have questions, please press star one on your touchtone telephone. Your first question comes from the line of Gary Mobley from Benchmark. Gary, your line is now open.
Hi, guys. Thanks for taking my question. Congrats on the full appointment, Luc. I want to start with sort of dissecting the revenue for fiscal year 2018, with revenue just over $400 million. Memory, I'm assuming, will be $305 million-$310 million for the year, contracting out roughly $50 million in cores and
$37.5 million in buffer chip revenue. It looks like your patent licensing is somewhere around, what, $220 million?
Hi, Gary. Thanks very much for the question, and I think Luc appreciates your congratulations. I think your overall forecast for memory is roughly correct. The cores number for us that I typically talk about are roughly $50 million, includes not just our memory cores but our security cores as well. I think you'd see maybe that cores number would be slightly lower than what you talked about. Patents could be slightly higher. I think the forecast you had of memory being between $305 million and $310 million for the year seems about right.
Okay. Well, that was just kind of setting up the main question, and that is really, what are the puts and takes on the patent licensing side? I think in the recent comments that you made, you mentioned some step-down, which may have represented a delta of about $15 million or so. I know you've just gone through a wave of license renewals, so all factors considered, how do you see that business, patent licensing trending, long term? I think you've mentioned flattish, what about for next year, 2019?
Yeah. Gary, that's a great question. 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 their licensing. One particular has a step-down about $4 million per quarter, but there's a 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've talked about historically is that the backbone of our business, which is the patent licensing and our cores, stays roughly flat. I think that does come down a bit for us in 2019, hence the muted outlook that I talked about a few moments ago for 2019.
What I'd expect to see is that you'd continue to have product revenue that would grow and that would offset some of that licensing step-downs that we have structurally. 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.
Okay. Just to change gears to the Rambus Security side of the business. I'm curious to sort of get into the considerations for possibly selling this business. This contemplation, was it driven by somebody approaching Rambus to buy it, or was it a function of some manager transitions? I know Ron was putting a lot of time and effort into this business group, and Luke, I know your lineage is from the memory side of the business, does that play into it as well?
Yeah. Hi, Gary. Luke. 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, we continue to see market traction for tokenization in a growing number of verticals. 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, but their performance is really, really good. With that, we made the decision to explore strategic options to maximize their market opportunity and success. 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 our core business, including the embedded security, which is very close to our core.
Okay. I guess the main question that may come up is then what becomes the growth driver for Rambus with the buffer chip business demonstrating a revenue delta of $20 million-$30 million annually. I mean, it's a fairly finite survey of a market there, and you can only expect so much market share. Therefore, what drives the growth from this point forward if it isn't the security side of the business?
I think we see tremendous opportunities in the embedded security space. You saw the recent press releases about what happened with the chip on the microchip board. I think it's just a reminder to everyone that embedded security is becoming critical to the industry. 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. We make the consumption of what we offer in embedded security more easily consumable, if you wish. We're moving our cores, our embedded cores, to a RISC-V architecture, which makes them broader and more programmable. 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.
Between the fact that we are expanding our product portfolio, we're 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. Again, I would say that we are very pleased with the performance of ticketing and payment. They're just diverging and going into different markets. As we look at strategic options for them, this will allow us to also focus better on what we do best. 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's now open.
Hi, guys. This is Melissa on behalf of Sidney. Congrats, Luc, on getting the official role. I'm going to keep it high level at first. Is there any of 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-over-quarter?
Sure. Hi, Melissa. 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. Ironically, the one of the things that makes us very attractive from an investment perspective is also what causes some confusion on 605 and 606. Just from a base business, as I talked about, I think that backbone of licensing and cores is generally roughly about $300 million a year. As I mentioned previously, not just on this call, in prior quarters, we have some structural step downs on the licensing side, which I think will be offset by growth on the core side.
You have a base of licensing, and then you have growth, as Luc 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. I think that's where you'll start to really see some leverage in our model.
Okay, great. That's helpful. One other question. I know you guys are tied to the servers market a little bit with your chipsets, 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. I guess my question is, how do you guys see that dynamic playing out for your business if the market were to slow down? Also, with the transition to new generations of server products, how are you guys looking at that impacting your business as well?
Hi, this is Luc. We still have a relatively small share in the market for buffer chip. Just by 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, we see that trend continuing for us. The reason we see that trend continuing for us is that we're also tracking the progress we make in qualifications with end customers and the number of qualifications we have for our chipsets going forward in the current platforms and the future platforms keeps increasing quarter over quarter. Although we may see these macro movements in the market, we are confident with our growth in our buffer chip business.
Okay, great. Thank you, guys.
Thank you. Your next question comes from the line of Suji Des ilva from Roth Capital. Suji, your line's now open.
Hi, Luke. Congratulations on the new official role. Hi, Rahul. Following up on the last question in terms of memory buffer, 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 coming to production supporting the revenue?
I would say it's a mix. I think in the next six to eight months, we see this growth coming from existing designs. As you know, there's a new platform being introduced in market on a regular basis. We track our design wins with those new platforms. We're very confident in our current designs generating growth in the first half of next year. 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 the DB and RCD chip. We engaged 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.
My view is we've caught up on the DDR4 generation. As the rollout of new processors happen, we have more and more design wins. That creates the growth in DDR4. I think we have a leading position in DDR5.
To be clear, on the new platforms coming out, your DDR4 design win activity is up versus the prior platform. Is that?
Yes.
Okay.
Absolutely.
Okay.
They are up, we were earlier in the designs than we used to be in the past. It gives us a lot of confidence.
Okay. That's helpful. On the redeployment, I guess in the security business, are any R&D assets or personnel being redeployed? If so, to what areas are some of the investments being focused on? Maybe you could talk about the opportunity for growth, inorganic opportunities you might be considering versus the organic growth that's been talked about in the Q&A thus far.
Sure. Suji, it's Rahul. There's no assets that are being redeployed. We're still fully investing in these businesses and think that they have a very bright future ahead of them. Certainly, we continue to invest in 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 recently published in terms of a launch of Vaultify Trade, but really pulling together a lot of these very key portions of our tokenization business in an exciting new market. There's nothing from a refocus perspective in terms of those resources. However, what this change does allow us to do is operationally go back and focus on that core semiconductor business that we've had in the past.
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. 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 the security side in terms of tokenization. Certainly in the business, the payments integrity business, we're continuing to invest in those businesses because they have bright futures ahead of them.
Rahul, perhaps you can talk on inorganic opportunities versus the organic opportunities you see in front of you.
Yeah, we've actually spent a lot of energy internally just as part of Luc coming in, reorganizing to where we have even more focus in terms of potential inorganic opportunities as well. I think that we have rabid appetites for looking at things that would make sense to us that would help support those core businesses that we have. I think there's many opportunities we look at on a daily basis. What we look for is something that is going to be the right fit for our company, something that we can help grow and be successful as part of Rambus.
Okay. Luc, thanks again. Thanks, and Luc, good luck in the new role.
Thank you. Thank you, Sujeet.
Thank you. Once again, ladies and gentlemen, if you have questions, please press star one on your touch-tone telephone. Your next question comes from the line of Mark Lipacis from Jefferies. Mark, your line's now open.
Thank you, and thanks for taking my question. Congrats on the appointment, Luc. My first question is it the change in management that triggered kind of an audit in the strategy? I'm wondering if there's potentially other changes from the previous track you guys were on from here.
No. Not necessarily at this point in time.
Sure, I can help bridge that gap a bit, Mark. I've been with the company for not as long as Luc has, but 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, the competitive conference in January of last year, what we talked about is, "Hey, in the next 18 months, we'll know which ones of these investments are working and which ones haven't." If you look at our performance over the last 18 months or so, that's what you've seen, right?
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, then reducing investment from our company, in areas where we haven't had that traction. This is something that we've been doing fairly consistently over the last year and a half or so. One of the things that I think is easy to lose sight of is really just our improved financial performance. What you're seeing is a relatively stable top line as we refocus into areas where we have this expertise and we're being successful. 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.
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 high, but I think we could be somewhere in the $90 million-$100 million range again this year. Certainly that cash flow machine and engine just continues. 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. I think today's announcement, both with Luc as well as our announcement on payments and ticketing, is just part of that evolution.
That's helpful. Thank you. A follow-up, if I may be. Can you share with us the size and profitability of those businesses?
As I-
Particularly in the payments? Yeah.
Sure. As I mentioned in prepared remarks, I mean, that business is roughly breakeven. It's a high growth business, we continue to invest in it to continue to grow from a top-line perspective. 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. What I'd expect is that as we identify really what good options are for the business, it won't necessarily impact us from a bottom-line perspective, but I would expect the company to then have dramatic improvements in terms of operating margin because that business is roughly breakeven as we're investing in it.
Got you. That's helpful. Last question, if I may. DDR5, when do you expect that to ramp in volume?
We expect to see samples in 2019 and ramp in volume towards the end of 2020 to 2021.
Thank you.
Thank you. At this time, there are no further questions. This concludes today's question and answer session. I would now like to turn the conference back over to the company.
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. 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.