RMBS Rambus Inc

• Revenue of $99.1 million, up 10% year over year
• GAAP diluted net income per share of $0.07; non-GAAP diluted net income per share of $0.19
• Announced industry’s first silicon-proven server DIMM buffer chipset capable of achieving the speeds expected for next-generation DDR5
• Teamed up with eftpos domestic debit card network in Australia to support roll out of Apple Pay with tokenization software

Rambus Inc. (NASDAQ:RMBS) today reported financial results for the third quarter ended September 30, 2017. Total revenue for the quarter was $99.1 million, 10% higher than a year ago, with GAAP diluted net income per share of $0.07 and non-GAAP diluted net income per share of $0.19. Total revenue for the nine months ended September 30, 2017 was $291.2 million, 22% higher than a year ago.

“We continue to demonstrate our leadership and execution on strategic programs with the industry’s first functional server DIMM buffer chipset to reach the speeds targeted for next-generation DDR5 and the integration of our Token Service Provider software at eftpos to support the roll out of Apple Pay in Australia,” said Dr. Ron Black, chief executive officer of Rambus. “We are excited by our progress, with strong execution on strategic programs for the data center and mobile edge markets, as we continue to deliver profitable growth.”

Business Review

In our Memory and Interfaces Division, we continue to demonstrate our technology leadership with the announcement of the industry’s first functional silicon of a server DIMM buffer chipset capable of achieving the speeds expected for next-generation DDR5. This represented an important milestone for both the company and the market, as it puts Rambus in a leadership position and provides an early path to market readiness and adoption for future data center solutions. The IP cores team extended its portfolio of high-speed interfaces for data center and enterprise applications with the addition of 16G and 30G SerDes IP cores on GLOBALFOUNDRIES 14nm FX-14™ ASIC platform. In addition, and as part of the ongoing ecosystem development to ease integration and accelerate adoption, we validated the interoperability of our memory PHYs with Northwest Logic and ARM memory controllers.

Our Security Division, which consists of our cryptography, mobile payments and smart ticketing businesses, had a strong quarter with the Cryptography team demonstrating the CryptoManager IoT Security Service on a leading cloud platform to enable secure device connectivity, monitoring and provisioning. In addition, we announced Cryptography will partner with SciFive to make our cryptography technology available for the SciFive Freedom platform, easing the path to designing innovative and cost-effective SoCs in the open and growing RISC-V hardware ecosystem. For mobile payments, we continue to gain traction for our tokenization solutions, teaming with eftpos, a leading debit card network in Australia, to support the roll out of Apple Pay to their debit card users with our Token Service Provider software.

  Financial Review   GAAP   Non-GAAP(1) (In millions, except for percentages and per share amounts) Three Months Ended September 30, Three Months Ended September 30, 2017   2016 2017   2016 Revenue $ 99.1 $ 89.9 $ 99.1 $ 89.9 Total operating costs and expenses $ 82.1 $ 78.1 $ 64.6 $ 60.8 Operating income $ 17.0 $ 11.8 $ 34.5 $ 29.1 Operating margin 17 % 13 % 35 % 32 % Net income $ 7.7 $ 4.5 $ 21.6 $ 18.0 Diluted net income per share $ 0.07 $ 0.04 $ 0.19 $ 0.16   Total cash and marketable securities $ 183.6 $ 150.8 $ 183.6 $ 150.8 Total assets $ 824.1 $ 800.3 $ 824.1 $ 800.3 Total stockholders’ equity $ 589.5 $ 552.8 $ 589.5 $ 552.8   Financial Review   GAAP   Non-GAAP(1) (In millions, except for percentages and per share amounts) Nine Months Ended September 30, Nine Months Ended September 30, 2017   2016 2017   2016 Revenue $ 291.2 $ 239.0 $ 291.2 $ 239.0 Total operating costs and expenses $ 252.5 $ 205.9 $ 200.7 $ 160.3 Operating income $ 38.7 $ 33.1 $ 90.5 $ 78.7 Operating margin 13 % 14 % 31 % 33 % Net income $ 13.3 $ 10.3 $ 56.3 $ 49.3 Diluted net income per share $ 0.12 $ 0.09 $ 0.49 $ 0.44       (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 $99.1 million due to execution in our Security Division and continued strength in our licensing program. As a result of our execution in both businesses, revenue for our Memory and Interface Division was up 9% year over year and revenue for our Security Division was up 17% year over year. GAAP total operating costs and expenses were below the low end of our expectations, yielding $0.07 of GAAP net income per share, at the high end of our expectations. We had non-GAAP net income per share of $0.19, at the high end of our expectations.

Cash, cash equivalents, and marketable securities as of September 30, 2017 were $183.6 million, an increase of $15.7 million from June 30, 2017, mainly due to cash generated from operating activities of approximately $15 million. Adjusted EBITDA for the quarter was $37.8 million.

 

2017 Fourth Quarter Outlook

  (In millions, except per share amounts)   GAAP   Non-GAAP (1) Revenue $98 - $104 $98 - $104 Total operating costs and expenses $88 - $83 $69 - $64 Operating income $11 - $22 $29 - $40 Diluted net income per share $0.04 - $0.11 $0.16 - $0.22       (1) See “Reconciliation of GAAP Forward Looking Estimates to Non-GAAP Forward Looking Estimates” tables included below. Note that the applicable non-GAAP measures are presented and that revenue is solely presented on a GAAP basis.

For the fourth quarter of 2017, the Company expects revenue to be between $98 million and $104 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 $83 million and $88 million, and diluted net income per share to be between $0.04 and $0.11. Additionally, the Company expects non-GAAP operating costs and expenses to be between $64 million and $69 million, and non-GAAP diluted net income per share to be between $0.16 and $0.22. These non-GAAP expectations assume non-GAAP interest and other income and expense of $1.3 million, tax rate of 35% (refer to non-GAAP financial information below - income tax adjustments) and diluted share count of 114 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#98501879.

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 fourth 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.

Purchase accounting adjustment for inventory fair value step-up. These adjustments are the result of accounting for certain business acquisitions and are excluded because such adjustments are non-recurring. Additionally, 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)     September 30,   December 31, 2017 2016 ASSETS   Current assets: Cash and cash equivalents $ 182,345 $ 135,294 Marketable securities 1,287 36,888 Accounts receivable 49,799 21,099 Inventories 5,015 5,633 Prepaids and other current assets 10,998 17,867 Total current assets 249,444 216,781 Intangible assets, net 102,545 132,388 Goodwill 209,318 204,794 Property, plant and equipment, net 54,035 58,442 Deferred tax assets 206,503 168,342 Other assets 2,283 2,749 Total assets $ 824,128 $ 783,496   LIABILITIES & STOCKHOLDERS’ EQUITY   Current liabilities: Accounts payable $ 7,016 $ 9,793 Accrued salaries and benefits 12,278 14,177 Deferred revenue 21,224 16,932 Convertible notes, short-term 131,490 — Other current liabilities 10,731 10,399 Total current liabilities 182,739 51,301 Long-term liabilities: Convertible notes, long-term — 126,167 Long-term imputed financing obligation 37,471 38,029 Other long-term liabilities 14,381 15,217 Total long-term liabilities 51,852 179,413 Total stockholders’ equity 589,537 552,782 Total liabilities and stockholders’ equity $ 824,128 $ 783,496   Rambus Inc. Condensed Consolidated Statements of Operations (In thousands, except per share amounts) (Unaudited)     Three Months Ended   Nine Months Ended September 30, September 30, 2017   2016 2017   2016   Revenue: Royalties $ 72,787 $ 68,298 $ 211,733 $ 194,010 Product revenue 8,661 7,092 27,966 14,306 Contract and other revenue 17,686   14,465   51,506   30,722   Total revenue 99,134   89,855   291,205   239,038   Operating costs and expenses: Cost of product revenue (1) 5,152 7,031 17,882 12,581 Cost of contract and other revenue 14,456 12,393 43,274 33,139 Research and development (1) 36,196 33,820 109,718 91,100 Sales, general and administrative (1) 26,799 24,795 82,122 69,679 Gain from sale of intellectual property (479 ) — (479 ) — Gain from settlement —   —   —   (579 ) Total operating costs and expenses 82,124   78,039   252,517   205,920   Operating income 17,010 11,816 38,688 33,118 Interest income and other income (expense), net 208 142 491 1,522 Interest expense (3,287 ) (3,193 ) (9,754 ) (9,497 ) Interest and other income (expense), net (3,079 ) (3,051 ) (9,263 ) (7,975 ) Income before income taxes 13,931 8,765 29,425 25,143 Provision for income taxes 6,236   4,254   16,119   14,878   Net income $ 7,695   $ 4,511   $ 13,306   $ 10,265   Net income per share: Basic $ 0.07   $ 0.04   $ 0.12   $ 0.09   Diluted $ 0.07   $ 0.04   $ 0.12   $ 0.09   Weighted average shares used in per share calculation Basic 109,555   110,214   110,353   109,951   Diluted 113,119   113,723   113,861   112,805         _________       (1) Total stock-based compensation expense for the three and nine months ended September 30, 2017 and 2016 is presented as follows:     Three Months Ended   Nine Months Ended September 30, September 30, 2017   2016 2017   2016 Cost of product revenue $ 20 $ 14 $ 53 $ 42 Research and development $ 2,969 $ 2,337 $ 9,048 $ 6,526 Sales, general and administrative $ 3,975 $ 3,092 $ 11,068 $ 8,788   Rambus Inc. Supplemental Reconciliation of GAAP to Non-GAAP Results (In thousands) (Unaudited)     Three Months Ended   Nine Months Ended September   June 30,   September September   September 30, 2017 2017 30, 2016 30, 2017 30, 2016   Operating costs and expenses $ 82,124 $ 86,476 $ 78,039 $ 252,517 $ 205,920 Adjustments: Stock-based compensation expense (6,964 ) (6,609 ) (5,443 ) (20,169 ) (15,356 ) Acquisition-related transaction costs and retention bonus expense (47 ) (90 ) (441 ) (218 ) (3,038 ) Purchase accounting adjustment for inventory fair value step-up — — (1,168 ) — (1,168 ) Amortization expense   (10,498 )   (10,450 )   (10,174 )   (31,436 )   (26,045 ) Non-GAAP operating costs and expenses $ 64,615   $ 69,327   $ 60,813   $ 200,694   $ 160,313     Operating income $ 17,010 $ 8,244 $ 11,816 $ 38,688 $ 33,118 Adjustments: Stock-based compensation expense 6,964 6,609 5,443 20,169 15,356 Acquisition-related transaction costs and retention bonus expense 47 90 441 218 3,038 Purchase accounting adjustment for inventory fair value step-up — — 1,168 — 1,168 Amortization expense   10,498     10,450     10,174     31,436     26,045   Non-GAAP operating income $ 34,519   $ 25,393   $ 29,042   $ 90,511   $ 78,725     Income before income taxes $ 13,931 $ 5,112 $ 8,765 $ 29,425 $ 25,143 Adjustments: Stock-based compensation expense 6,964 6,609 5,443 20,169 15,356 Acquisition-related transaction costs and retention bonus expense 47 90 441 218 3,038 Purchase accounting adjustment for inventory fair value step-up — — 1,168 — 1,168 Amortization expense 10,498 10,450 10,174 31,436 26,045 Non-cash interest expense on convertible notes   1,801     1,774     1,700     5,324     5,026   Non-GAAP income before income taxes $ 33,241 $ 24,035 $ 27,691 $ 86,572 $ 75,776 GAAP provision for income taxes 6,236 2,507 4,254 16,119 14,878 Adjustment to GAAP provision for income taxes   5,398     5,905     5,438     14,181     11,644   Non-GAAP provision for income taxes   11,634     8,412     9,692     30,300     26,522   Non-GAAP net income $ 21,607   $ 15,623   $ 17,999   $ 56,272   $ 49,254     Non-GAAP basic net income per share $ 0.20 $ 0.14 $ 0.16 $ 0.51 $ 0.45 Non-GAAP diluted net income per share $ 0.19 $ 0.14 $ 0.16 $ 0.49 $ 0.44 Weighted average shares used in non-GAAP per share calculation: Basic 109,555 110,060 110,214 110,353 109,951 Diluted 113,119 112,565 113,723 113,861 112,805  

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

    Three Months Ended   Nine Months Ended September 30, 2017   June 30, 2017   September 30, 2016 September 30, 2017   September 30, 2016   GAAP effective tax rate 45 % 49 % 49 % 55 % 59 % Adjustment to GAAP effective tax rate (10 )% (14 )% (14 )% (20 )% (24 )% 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 Three Months Ended September 30, September 30,   2017       2016     2017       2016   Revenue (i) $ 99,134 $ 89,855 $ 99,134 $ 89,855 Operating income (ii) 17,010 11,816 34,519 29,042 Operating margin (ii/i) 17 % 13 % 35 % 32 %     GAAP Non-GAAP Nine Months Ended Nine Months Ended September 30, September 30, 2017   2016 2017   2016 Revenue (i) $ 291,205 $ 239,038 $ 291,205 $ 239,038 Operating income (ii) 38,688 33,118 90,511 78,725 Operating margin (ii/i) 13 % 14 % 31 % 33 %   Three Months Ended September 30, 2017   2016   Net income $ 7,695 $ 4,511 Add back: Interest and other income (expense), net 3,079 3,051 Provision for income taxes 6,236 4,254 Depreciation expense 3,249 3,423 Amortization expense 10,498   10,174 EBITDA (1) $ 30,757 $ 25,413 Adjustments: Stock-based compensation expense 6,964 5,443 Acquisition-related transaction costs and retention bonus expense 47 441 Purchase accounting adjustment for inventory fair value step-up —   1,168 Adjusted EBITDA (2) $ 37,768   $ 32,465   (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 December 31, 2017 Low   High   Forward-looking operating costs and expenses $ 87.5 $ 82.5 Adjustments: Stock-based compensation expense (7.5 ) (7.5 ) Amortization expense (11.0 ) (11.0 ) Forward-looking Non-GAAP operating costs and expenses $ 69.0   $ 64.0     Forward-looking operating income $ 10.5 $ 21.5 Adjustments: Stock-based compensation expense 7.5 7.5 Amortization expense 11.0   11.0   Forward-looking Non-GAAP operating income $ 29.0   $ 40.0     Forward-looking income before income taxes $ 7.5 $ 18.5 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 $ 27.7 $ 38.7 Forward-looking GAAP provision for income taxes 2.6 6.5 Adjustment to Forward-looking GAAP provision for income taxes 7.1   7.0   Forward-looking Non-GAAP provision for income taxes 9.7   13.5   Forward-looking Non-GAAP net income $ 18.0   $ 25.2     Forward-looking Non-GAAP basic net income per share $ 0.16 $ 0.23 Forward-looking Non-GAAP diluted net income per share $ 0.16 $ 0.22 Weighted average shares used in forward-looking Non-GAAP per share calculation: Basic 111.0 111.0 Diluted 114.0 114.0

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Rambus Inc.Rahul Mathur, 408-462-8000Senior Vice President, Finance and Chief Financial Officerrmathur@rambus.com