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Rambus Reports Second Quarter 2017 Financial Results

SUNNYVALE, Calif. — (BUSINESS WIRE) — July 24, 2017 — Rambus Inc. (NASDAQ: RMBS) today reported financial results for the second quarter ended June 30, 2017. Total revenue for the quarter was $94.7 million, 24% higher than a year ago, with GAAP diluted net income per share of $0.02 and non-GAAP diluted net income per share of $0.14. Total revenue for the six months ended June 30, 2017 was $192.1 million, 29% higher than a year ago.

“We continue to build upon our positive start to the year with strength in our patent and technology licensing programs, as well as ongoing validation from our partners and customers that our technologies are solving the critical problems facing the data center and mobile edge markets,” said Dr. Ron Black, chief executive officer of Rambus. “We are excited by the momentum in our Security Division, signing agreements with Cybertrust and Synopsys on our CryptoManager Infrastructure and introducing our in-field CryptoManager IoT Device Management service for easy and broad adoption of our provisioning solutions.”

Business Review

In our Memory and Interfaces Division, we expanded our Server DIMM chipset family with the introduction of the industry’s first production, JEDEC-standard DDR4 Non-volatile Register Clock Driver (NVRCD) for NVDIMM applications in high-performance data centers. The NVRCD chip builds upon our existing high-speed chip and signaling expertise to enable non-volatile server memory modules to combine the performance of DRAM with the persistence of storage-class memory, delivering high performance and reliability of data for next-generation enterprise and data center systems. In addition, we signed key renewals and new agreements for patent and technology licensing, closing our largest ever high-speed interface technology agreement with a large semiconductor company.

Our Security Division, which consists of our cryptography, mobile payments and smart ticketing businesses, had an exciting quarter with the launch of our in-field CryptoManager IoT Device Management service for turnkey secure device connectivity, monitoring and provisioning. The service is designed to work with leading cloud platforms and provides out-of-the-box connectivity to IoT service providers and device manufacturers. As part of the launch at IoT World in Santa Clara, we featured live demonstrations with both Qualcomm and STMicroelectronics processor chips showcasing mutual authentication and communication. In addition, we expanded our ecosystem of CryptoManager Infrastructure customers and partners with the addition of Cybertrust, a subsidiary of SoftBank Technology Corp, and Synopsys. Both accelerate adoption of our security solutions and leverage our CryptoManager Infrastructure for secure key provisioning to enable secure, remote lifecycle management and updates of connected devices.

   
Financial Review GAAP Non-GAAP(1)
(In millions, except for percentages and per share amounts) Three Months Ended June 30, Three Months Ended June 30,
  2017       2016     2017       2016  
Revenue $ 94.7 $ 76.5 $ 94.7 $ 76.5
Total operating costs and expenses $ 86.5 $ 64.5 $ 69.3 $ 50.5
Operating income $ 8.2 $ 12.0 $ 25.4 $ 26.0
Operating margin 9 % 16 % 27 % 34 %
Net income $ 2.6 $ 3.9 $ 15.6 $ 16.7
Diluted net income per share $ 0.02 $ 0.03 $ 0.14 $ 0.15
 
Total cash and marketable securities $ 168.0 $ 259.3 $ 168.0 $ 259.3
Total assets $ 806.0 $ 765.8 $ 806.0 $ 765.8
Total stockholders’ equity $ 570.2 $ 542.4 $ 570.2 $ 542.4
 
Financial Review GAAP Non-GAAP(1)
(In millions, except for percentages and per share amounts) Six Months Ended June 30, Six Months Ended June 30,
  2017     2016     2017     2016  
Revenue $ 192.1 $ 149.2 $ 192.1 $ 149.2
Total operating costs and expenses $ 170.4 $ 127.9 $ 136.1 $ 99.5
Operating income $ 21.7 $ 21.3 $ 56.0 $ 49.7
Operating margin 11 % 14 % 29 % 33 %
Net income $ 5.6 $ 5.8 $ 34.7 $ 31.3
Diluted net income per share $ 0.05 $ 0.05 $ 0.30 $ 0.28
      (1)   See “Supplemental Reconciliation of GAAP to Non-GAAP Results” and “Reconciliation of Other GAAP to Non-GAAP Items” tables included below. Note that the applicable non-GAAP measures are presented and that revenue and the balance sheet items are solely presented on a GAAP basis.
 

Revenue for the quarter was $94.7 million as execution in our Security Division and Lighting Division offset the anticipated seasonality of our business. As a result of our execution on acquisitions, revenue for our Memory and Interface Division was up 24% year over year and revenue for the Security Division was up 42% year over year. GAAP total operating costs and expenses were at the low end of our expectations, yielding $0.02 of GAAP net income per share and in line with our expectations. We had non-GAAP net income per share of $0.14, towards the high end of our expectations.

Cash, cash equivalents, and marketable securities as of June 30, 2017 were $168.0 million, a decrease of $19.7 million from March 31, 2017, mainly due to the use of $50 million related to the accelerated share repurchase program announced on May 1st, offset by cash generated from operating activities of approximately $25 million. Adjusted EBITDA for the quarter was $28.7 million.

2017 Third Quarter Outlook

(In millions, except per share amounts)   GAAP   Non-GAAP (1)
Revenue $96 - $102 $96 - $102
Total operating costs and expenses $89 - $85 $71 - $67
Operating income $7 - $17 $25 - $35
Diluted net income per share $0.02 - $0.08 $0.14 - $0.20
      (1)   See “Reconciliation of GAAP Forward Looking Estimates to Non-GAAP Forward Looking Estimates” tables included below.
 

For the third quarter of 2017, the Company expects revenue to be between $96 million and $102 million. Revenue is not without risk and achieving revenue in this range will require that the Company sign customer agreements for patent licensing, various product sales, mobile payments software and solutions licensing among other matters. The Company also expects operating costs and expenses to be between $85 million and $89 million, and diluted net income per share to be between $0.02 and $0.08. The Company also expects non-GAAP operating costs and expenses to be between $67 million and $71 million, and non-GAAP diluted net income per share to be between $0.14 and $0.20. These non-GAAP expectations assume non-GAAP interest and other income and expense of $1 million, tax rate of 35% (refer to non-GAAP financial information below - income tax adjustments) and diluted share count of 113 million, and exclude stock-based compensation expense ($8 million), amortization expense ($11 million), and non-cash interest expense on convertible notes ($2 million).

Conference Call:

Rambus management will discuss the results of the quarter during a conference call scheduled for 2:00pm PT today. The call, audio and slides will be available online at investor.rambus.com and a replay will be available for the next week at the following numbers: (855) 859-2056 (domestic) or (404) 537-3406 (international) with ID#36458130.

About Rambus Inc.

Rambus creates innovative hardware and software technologies, driving advancements from the data center to the mobile edge. Our chips, customizable IP cores, architecture licenses, tools, software, services, training and innovations improve the competitive advantage of our customers. We collaborate with the industry, partnering with leading ASIC and SoC designers, foundries, IP developers, EDA companies and validation labs. Our products are integrated into tens of billions of devices and systems, powering and securing diverse applications, including Big Data, Internet of Things (IoT), mobile payments, and smart ticketing. At Rambus, we are makers of better. For more information, visit  rambus.com.

Forward-Looking Statements

This release contains forward-looking statements under the Private Securities Litigation Reform Act of 1995 including those relating to Rambus’ expectations regarding our new product and service offerings, growth for 2017 and financial guidance for the third quarter of 2017, including revenue, operating costs and expenses, earnings per share and estimated, fixed, long-term projected tax rates, both on a GAAP and non-GAAP basis as appropriate. Such forward-looking statements are based on current expectations, estimates and projections, management’s beliefs and certain assumptions made by Rambus’ management. Actual results may differ materially. Rambus’ business generally is subject to a number of risks which are described more fully in Rambus’ periodic reports filed with the Securities and Exchange Commission. Rambus undertakes no obligation to update forward-looking statements to reflect events or circumstances after the date hereof.

Overview of Non-GAAP Results

In the commentary set forth above and in the financial statements included in this earnings release, the Company presents the following non-GAAP financial measures: operating costs and expenses, operating margin, operating income (loss), net income (loss), diluted net income (loss) per share and Adjusted EBITDA. In computing each of these non-GAAP financial measures, the following items were considered as discussed below: stock-based compensation expenses, acquisition-related transaction costs and retention bonus expense, amortization expenses, non-cash interest expense and certain other one-time adjustments. The non-GAAP financial measures disclosed by the Company should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations from these results should be carefully evaluated. Management believes the non-GAAP financial measures are appropriate for both its own assessment of, and to show investors, how the Company’s performance compares to other periods. The non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. Reconciliation from GAAP to non-GAAP results is included in the financial statements contained in this release.

The Company’s non-GAAP financial measures reflect adjustments based on the following items:

Stock-based compensation expense. These expenses primarily relate to employee stock options, employee stock purchase plans, and employee non-vested equity stock and non-vested stock units. The Company excludes stock-based compensation expense from its non-GAAP measures primarily because such expenses are non-cash expenses that the Company does not believe are reflective of ongoing operating results. Additionally, given the fact that other companies may grant different amounts and types of equity awards and may use different option valuation assumptions, excluding stock-based compensation expense permits more accurate comparisons of the Company’s results with peer companies.

Acquisition-related transaction costs and retention bonus expense. These expenses include all direct costs of certain acquisitions and the current periods’ portion of any retention bonus expense associated with the acquisitions. The Company excludes these expenses in order to provide better comparability between periods.

Amortization expense. The Company incurs expenses for the amortization of intangible assets acquired in acquisitions. The Company excludes these items because these expenses are not reflective of ongoing operating results in the period incurred. These amounts arise from the Company’s prior acquisitions and have no direct correlation to the operation of the Company’s core business.

Non-cash interest expense on convertible notes. The Company incurs non-cash interest expense related to its convertible notes. The Company excludes non-cash interest expense related to its convertible notes to provide more accurate comparisons of the Company’s results with other peer companies and to more accurately reflect the Company’s ongoing operations.

Income tax adjustments. For purposes of internal forecasting, planning and analyzing future periods that assume net income from operations, the Company estimates a fixed, long-term projected tax rate of approximately 35 percent for both 2017 and 2016, which consists of estimated U.S. federal and state tax rates, and excludes tax rates associated with certain items such as withholding tax, tax credits, deferred tax asset valuation allowance and the release of any deferred tax asset valuation allowance. Accordingly, the Company has applied these tax rates to its non-GAAP financial results for all periods in the relevant years to assist the Company’s planning for future periods. The Company has provided below a reconciliation of its GAAP provision for income taxes and GAAP effective tax rate to the assumed non-GAAP provision for income taxes and non-GAAP effective tax rate.

On occasion in the future, there may be other items, such as impairments or significant gains or losses from contingencies, that the Company may exclude in deriving its non-GAAP financial measures if it believes that doing so is consistent with the goal of providing useful information to investors and management.

 

Rambus Inc.

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

 

 

 

June 30,
2017

 

December 31,
2016

ASSETS
 
Current assets:
Cash and cash equivalents $ 167,207 $ 135,294
Marketable securities 746 36,888
Accounts receivable 36,788 21,099
Inventories 5,328 5,633
Prepaids and other current assets 12,255   17,867
Total current assets 222,324 216,781
Intangible assets, net 111,875 132,388
Goodwill 207,959 204,794
Property, plant and equipment, net 54,305 58,442
Deferred tax assets 206,942 168,342
Other assets 2,564   2,749
Total assets $ 805,969   $ 783,496
 
LIABILITIES & STOCKHOLDERS’ EQUITY
 
Current liabilities:
Accounts payable $ 9,099 $ 9,793
Accrued salaries and benefits 14,076 14,177
Deferred revenue 21,327 16,932
Other current liabilities 9,449   10,399
Total current liabilities 53,951 51,301
Long-term liabilities:
Convertible notes, long-term 129,690 126,167
Long-term imputed financing obligation 37,677 38,029
Other long-term liabilities 14,433   15,217
Total long-term liabilities 181,800   179,413
Total stockholders’ equity 570,218   552,782
Total liabilities and stockholders’ equity $ 805,969   $ 783,496
 
 

Rambus Inc.

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

   

 

Three Months Ended
June 30,

Six Months Ended
June 30,

  2017       2016     2017       2016  
 
Revenue:
Royalties $ 69,990 $ 62,835 $ 138,946 $ 125,712
Product revenue 8,401 3,902 19,305 7,214
Contract and other revenue   16,329     9,764     33,820     16,257  
Total revenue   94,720     76,501     192,071     149,183  
Operating costs and expenses:
Cost of product revenue (1) 7,480 3,016 12,730 5,550
Cost of contract and other revenue 14,337 11,073 28,818 20,746
Research and development (1) 37,522 28,753 73,522 57,280
Sales, general and administrative (1) 27,137 21,789 55,323 44,884
Gain from settlement   —     (138 )   —     (579 )
Total operating costs and expenses   86,476     64,493     170,393     127,881  
Operating income 8,244 12,008 21,678 21,302
Interest income and other income (expense), net 129 1,138 283 1,380
Interest expense   (3,261 )   (3,163 )   (6,467 )   (6,304 )
Interest and other income (expense), net   (3,132 )   (2,025 )   (6,184 )   (4,924 )
Income before income taxes 5,112 9,983 15,494 16,378
Provision for income taxes   2,507     6,107     9,883     10,624  
Net income $ 2,605   $ 3,876   $ 5,611   $ 5,754  
Net income per share:
Basic $ 0.02   $ 0.04   $ 0.05   $ 0.05  
Diluted $ 0.02   $ 0.03   $ 0.05   $ 0.05  
Weighted average shares used in per share calculation
Basic   110,060     109,904     110,758     109,818  
Diluted   112,565     112,061     114,091     112,202  
 

_________

(1) Total stock-based compensation expense for the three and six months ended June 30, 2017 and 2016 is presented as follows:

 

Three Months Ended
June 30,

Six Months Ended
June 30,

  2017     2016     2017    

2016

 
Cost of product revenue $ 19 $ 14 $ 33 $ 28
Research and development $ 3,067 $ 2,109 $ 6,079 $ 4,189
Sales, general and administrative $ 3,523 $ 2,926 $ 7,093 $ 5,696
 
 

Rambus Inc.

Supplemental Reconciliation of GAAP to Non-GAAP Results

(In thousands)

(Unaudited)

   
Three Months Ended Six Months Ended
June 30, 2017   March 31, 2017   June 30, 2016 June 30, 2017   June 30, 2016
 
Operating costs and expenses $ 86,476 $ 83,917 $ 64,493 $ 170,393 $ 127,881
Adjustments:
Stock-based compensation expense (6,609 ) (6,596 ) (5,049 ) (13,205 ) (9,913 )
Acquisition-related transaction costs and retention bonus expense (90 ) (81 ) (789 ) (171 ) (2,597 )
Amortization expense (10,450 ) (10,488 ) (8,152 ) (20,938 ) (15,871 )
Non-GAAP operating costs and expenses $ 69,327   $ 66,752   $ 50,503   $ 136,079   $ 99,500  
 
Operating income $ 8,244 $ 13,434 $ 12,008 $ 21,678 $ 21,302
Adjustments:
Stock-based compensation expense 6,609 6,596 5,049 13,205 9,913
Acquisition-related transaction costs and retention bonus expense 90 81 789 171 2,597
Amortization expense 10,450   10,488   8,152   20,938   15,871  
Non-GAAP operating income $ 25,393   $ 30,599   $ 25,998   $ 55,992   $ 49,683  
 
Income before income taxes $ 5,112 $ 10,382 $ 9,983 $ 15,494 $ 16,378
Adjustments:
Stock-based compensation expense 6,609 6,596 5,049 13,205 9,913
Acquisition-related transaction costs and retention bonus expense 90 81 789 171 2,597
Amortization expense 10,450 10,488 8,152 20,938 15,871
Non-cash interest expense on convertible notes 1,774   1,749   1,675   3,523   3,326  
Non-GAAP income before income taxes $ 24,035 $ 29,296 $ 25,648 $ 53,331 $ 48,085
GAAP provision for income taxes 2,507 7,376 6,107 9,883 10,624
Adjustment to GAAP provision for income taxes 5,905   2,878   2,870   8,783   6,206  
Non-GAAP provision for income taxes 8,412   10,254   8,977   18,666   16,830  
Non-GAAP net income $ 15,623   $ 19,042   $ 16,671   $ 34,665   $ 31,255  
 
Non-GAAP basic net income per share $ 0.14 $ 0.17 $ 0.15 $ 0.31 $ 0.28
Non-GAAP diluted net income per share $ 0.14 $ 0.17 $ 0.15 $ 0.30 $ 0.28
Weighted average shares used in non-GAAP per share calculation:
Basic 110,060 111,464 109,904 110,758 109,818
Diluted 112,565 115,325 112,061 114,091 112,202
 
 

Supplemental Reconciliation of GAAP to Non-GAAP Effective Tax Rate (1)

   
Three Months Ended Six Months Ended
June 30, 2017   March 31, 2017   June 30, 2016 June 30, 2017   June 30, 2016
 
GAAP effective tax rate 49

 %

71

 %

61

 %

64

 %

65

 %

Adjustment to GAAP effective tax rate (14 )% (36 )% (26 )% (29 )% (30 )%
Non-GAAP effective tax rate 35

 %

35

 %

35

 %

35

 %

35

 %

      (1)   For purposes of internal forecasting, planning and analyzing future periods that assume net income from operations, the Company estimates a fixed, long-term projected tax rate of approximately 35 percent for both 2017 and 2016, which consists of estimated U.S. federal and state tax rates, and excludes tax rates associated with certain items such as withholding tax, tax credits, deferred tax asset valuation allowance and the release of any deferred tax asset valuation allowance. Accordingly, the Company has applied these tax rates to its non-GAAP financial results for all periods in the relevant year to assist the Company’s planning for future periods.
 
 

Rambus Inc.

Reconciliation of Other GAAP to Non-GAAP Items

(In thousands, except percentages)

(Unaudited)

   
GAAP Non-GAAP
Three Months Ended June 30, Three Months Ended June 30,
2017   2016 2017   2016
Revenue (i) $94,720 $ 76,501 $ 94,720 $ 76,501
Operating income (ii) 8,244 12,008 25,393 25,998
Operating margin (ii/i) 9 % 16 % 27 % 34 %
 
GAAP Non-GAAP
Six Months Ended

June 30,

Six Months Ended

June 30,

2017 2016 2017 2016
Revenue (i) $ 192,071 $ 149,183 $ 192,071 $ 149,183
Operating income (ii) 21,678 21,302 55,992 49,683
Operating margin (ii/i) 11 % 14 % 29 % 33 %
 
Three Months Ended June 30,
2017 2016
 
Net income $ 2,605 $ 3,876
Add back:
Interest and other income (expense), net 3,132 2,025
Provision for income taxes 2,507 6,107
Depreciation expense 3,330 2,996
Amortization expense   10,450     8,152  
EBITDA (1) $ 22,024 $ 23,156
Adjustments:
Stock-based compensation expense 6,609 5,049
Acquisition-related transaction costs and retention bonus expense   90     789  
Adjusted EBITDA (2) $ 28,723   $ 28,994  
      (1)   EBITDA is a non-GAAP measure that management uses to evaluate the cash generating capacity of the company. The most directly comparable GAAP measure is net income. EBITDA is net income adjusted for net interest expense, income taxes, and depreciation and amortization. It should not be considered as an alternative to net income computed under GAAP.
(2) Adjusted EBITDA excludes the impact of other non-GAAP adjustments indicated in the above tables.
 
 

Rambus Inc.

Reconciliation of GAAP Forward Looking Estimates to Non-GAAP Forward Looking Estimates

(In millions, except per share amounts)

(Unaudited)

 

Three Months Ended
September 30, 2017

Low   High
 
Forward-looking operating costs and expenses $ 89.2 $ 85.2
Adjustments:
Stock-based compensation expense (7.5 ) (7.5 )
Amortization expense (11.0 ) (11.0 )
Forward-looking Non-GAAP operating costs and expenses $ 70.7   $ 66.7  
 
Forward-looking operating income $ 6.8 $ 16.8
Adjustments:
Stock-based compensation expense 7.5 7.5
Amortization expense 11.0   11.0  
Forward-looking Non-GAAP operating income $ 25.3   $ 35.3  
 
Forward-looking income before income taxes $ 4.1 $ 14.1
Adjustments:
Stock-based compensation expense 7.5 7.5
Amortization expense 11.0 11.0
Non-cash interest expense on convertible notes 1.7   1.7  
Forward-looking Non-GAAP income before income taxes $ 24.3 $ 34.3
Forward-looking GAAP provision for income taxes 1.4 4.9
Adjustment to Forward-looking GAAP provision for income taxes 7.1   7.1  
Forward-looking Non-GAAP provision for income taxes 8.5   12.0  
Forward-looking Non-GAAP net income $ 15.8   $ 22.3  
 
Forward-looking Non-GAAP basic net income per share $ 0.14 $ 0.20
Forward-looking Non-GAAP diluted net income per share $ 0.14 $ 0.20
Weighted average shares used in forward-looking Non-GAAP per share calculation:
Basic 111.0 111.0
Diluted 113.0 113.0


Contact:

Rambus Inc.
Rahul Mathur, 408-462-8000
Senior Vice President, Finance and Chief Financial Officer
Email Contact