Rambus Reports First Quarter 2019 Financial Results

  • First quarter revenue and billings in line with expectations; GAAP
    revenue of $48.4 million, with royalty revenue of $24.8 million and
    licensing billings of $75.4 million
  • $28.8 million in cash provided by operating activities
  • DDR4 server DIMM chipset revenue up nearly 40% year-over-year, fueled
    by continued market share growth
  • Record revenue for IP Cores business; expanded portfolio with 32G PHY
    for 5G infrastructure and 112G LR PHY in 7nm for 400G and 800G
    networking

SUNNYVALE, Calif.–(BUSINESS WIRE)–Rambus Inc. (NASDAQ:RMBS) today reported financial results for the first
quarter ended March 31, 2019. Total revenue for the first quarter was in
line with expectations at $48.4 million, with royalty revenue of $24.8
million and licensing billings of $75.4 million. The company also
generated $28.8 million in cash provided by operating activities.

“Rambus had a solid first quarter, with continued execution from our
product teams and a strong balance sheet fueled by cash generation from
operations. We have refocused and augmented our product portfolio around
our core strengths in semiconductor, to enable new design wins and
increased market share,” said Luc Seraphin, chief executive officer of
Rambus.

Business Review

Rambus product businesses made solid progress in the first quarter, with
the addition of new products and design wins at leading chip and system
manufacturers worldwide. We target performance-driven, high-growth
markets including data center and networking, artificial intelligence
and machine learning, IoT and automotive, where demand for data and
security are at their highest.

The server DIMM chipset business had a positive quarter. Buffer chipset
revenue was up nearly 40% from the same period last year, despite
declines in the overall memory market due to near-term inventory
corrections. Through steady increases in the number of OEM and data
center qualifications, we are making continued gains in market share for
DDR4 buffer chips. In addition to the growth in DDR4, we have
established a first-mover position for next-generation DDR5 memory
buffer chips and continue shipping samples at the top-end speeds for
both the RCD and DB chips.

Our high-speed IP Cores business delivered record revenue and remains on
a trajectory of approximately 50% compounded annual growth rate. We
closed several new SoC design wins for data center, networking and
artificial intelligence, including multiple new ASIC designs at a Tier 1
SoC customer. In addition to the tape out of the industry’s first
commercial GDDR6 memory PHY on TSMC 7nm, we expanded our
high-performance SerDes portfolio with a leadership 32G SerDes PHY to
enable 5G infrastructure and a 112G SerDes PHY to enable next-generation
400G and 800G communications systems.

The Rambus Cryptography business saw the importance of semiconductor
device-level security continue to grow in the industry. We increased our
traction and opportunities for secure silicon IP, with a new design win
at a major OEM and expanded agreements for our provisioning services. We
continue to build momentum for our CryptoManager Root of Trust in our
key verticals of artificial intelligence and data center.

 
Quarterly Financial Review – GAAP

Three Months Ended
March 31,

(In millions, except for percentages and per share amounts) 2019   2018
Revenue
Royalties $ 24.8 $ 21.4
Product revenue 9.0 7.3
Contract and other revenue 14.6   17.7  
Total revenue $ 48.4 $ 46.4
Total operating costs and expenses $ 79.8 $ 90.0
Operating loss $ (31.4 ) $ (43.6 )
Operating margin (65 )% (94 )%
Net loss $ (26.6 ) $ (35.7 )
Diluted net loss per share $ (0.24 ) $ (0.33 )
 
Licensing billings (1) $ 75.4 $ 75.9
 
Net cash provided by operating activities $ 28.8 $ 16.8
 
          (1)   Licensing billings is an operational metric that reflects amounts
invoiced to our licensing customers during the period, as adjusted
for certain differences.
 
Quarterly Financial Review – Non-GAAP (1)

Three Months Ended
March 31,

(In millions, except for percentages and per share amounts) 2019   2018
Revenue
Royalties $ 24.8 $ 21.4
Product revenue 9.0 7.3
Contract and other revenue 14.6   17.7  
Total revenue $ 48.4 $ 46.4
Total operating costs and expenses $ 67.3 $ 68.7
Operating loss $ (18.9 ) $ (22.3 )
Operating margin (39 )% (48 )%
Net loss $ (9.2 ) $ (11.3 )
Diluted net loss per share $ (0.08 ) $ (0.10 )
 
          (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 is solely presented on a GAAP basis.

Revenue for the quarter was $48.4 million, with royalty revenue of $24.8
million and licensing billings of $75.4 million, in line with
expectations. We had GAAP total operating costs and expenses of $79.8
million and non-GAAP total operating costs and expenses of $67.3
million, slightly above the high end of our expectations primarily
related to increased facilities costs directly offset by a corresponding
decrease in interest expense, as a result of the adoption of Accounting
Standards Update (ASU) No. 2016-02, Topic 842, “Leases.” We also had
GAAP and non-GAAP diluted net loss per share of $0.24 and $0.08,
respectively. Our basic share count was 109.7 million shares and our
diluted share count would have been 110.6 million shares.

Cash, cash equivalents, and marketable securities as of March 31, 2019
were $305.9 million, an increase of $28.1 million from December 31,
2018, mainly due to $28.8 million in cash provided by operating
activities.

2019 Second Quarter Outlook

The Company will discuss revenue guidance for the second quarter of 2019
during its upcoming conference call. The following table sets forth
second quarter outlook for other measures.

   
(In millions) GAAP Non-GAAP (1)
Total operating costs and expenses $81 – $77 $69 – $65
Interest and other income (expense), net $5 $1
Diluted share count 111 111
 
          (1)   See “Reconciliation of GAAP Forward Looking Estimates to Non-GAAP
Forward Looking Estimates” tables included below.

For the second quarter of 2019, the Company expects operating costs and
expenses to be between $81 million and $77 million. Additionally, the
Company expects non-GAAP operating costs and expenses to be between $69
million and $65 million. These expectations also assume non-GAAP
interest and other income (expense), net, of $1 million, tax rate of 24%
(refer to non-GAAP financial information below – income tax adjustments)
and diluted share count of 111 million, and exclude stock-based
compensation expense ($7 million), amortization expense ($5 million),
non-cash interest expense on convertible notes ($2 million) and interest
income related to the significant financing component from fixed-fee
patent and technology licensing arrangements ($6 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# 9084526.

Non-GAAP Financial Information:

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) and, diluted net
income (loss) per share. 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.

Restructuring charges. These charges may consist of severance,
contractual retention payments, exit costs and other charges and are
excluded because such charges are not directly related to ongoing
business results and do not reflect expected future operating expenses.

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 24 percent for both 2019 and 2018, 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. 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 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.

About Rambus Inc.

Dedicated to making data faster and safer, Rambus creates innovative
hardware, software and services that drive technology advancements from
the data center to the mobile edge. Our architecture licenses, IP cores,
chips, software and services span memory and interfaces, security and
emerging technologies to positively impact the modern world. We
collaborate with the industry, partnering with leading chip and system
designers, foundries and service providers. Integrated into tens of
billions of devices and systems, our products power and secure diverse
applications, including Big Data, Internet of Things (IoT) security,
mobile payments and smart ticketing. 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 product and service offerings, future
profit and growth and financial guidance for the second quarter of 2019,
including operating costs and expenses, 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.

   

Rambus Inc.

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

 

 

March 31,
2019
December 31,
2018
ASSETS
 
Current assets:
Cash and cash equivalents $ 143,016 $ 115,924
Marketable securities 162,850 161,840
Accounts receivable 43,810 50,863
Unbilled receivables 170,287 176,613
Inventories 8,192 6,772
Prepaids and other current assets 16,857   15,738
Total current assets 545,012 527,750
Intangible assets, net 55,507 59,936
Goodwill 207,828 207,178
Property, plant and equipment, net 22,637 57,028
Operating lease right-of-use assets 19,458
Deferred tax assets 4,411 4,435
Unbilled receivables, long-term 459,148 497,003
Other assets 7,419   7,825
Total assets $ 1,321,420   $ 1,361,155
 
LIABILITIES & STOCKHOLDERS’ EQUITY
 
Current liabilities:
Accounts payable $ 8,274 $ 7,392
Accrued salaries and benefits 13,666 16,938
Deferred revenue 15,774 19,374
Income taxes payable, short-term 16,364 16,390
Operating lease liabilities 9,351
Other current liabilities 5,847   9,191
Total current liabilities 69,276 69,285
Long-term liabilities:
Convertible notes, long-term 143,612 141,934
Long-term imputed financing obligation 36,297
Long-term operating lease liabilities 12,308
Long-term income taxes payable 73,365 77,280
Other long-term liabilities 22,972   24,247
Total long-term liabilities 252,257   279,758
Total stockholders’ equity 999,887   1,012,112
Total liabilities and stockholders’ equity $ 1,321,420   $ 1,361,155
 
 

Rambus Inc.

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

 

 

Three Months Ended
March 31,

2019   2018
 
Revenue:
Royalties $ 24,853 $ 21,374
Product revenue 8,964 7,313
Contract and other revenue   14,567     17,739  
Total revenue   48,384     46,426  
Operating costs and expenses:
Cost of product revenue (1) $ 4,427 $ 4,357
Cost of contract and other revenue 6,771 12,122
Research and development (1) 40,619 40,117
Sales, general and administrative (1) 27,645 30,198
Restructuring charges   331     3,245  
Total operating costs and expenses   79,793     90,039  
Operating loss (31,409 ) (43,613 )
Interest income and other income (expense), net 7,413 9,116
Interest expense   (2,271 )   (4,421 )
Interest and other income (expense), net   5,142     4,695  
Loss before income taxes (26,267 ) (38,918 )
Provision for (benefit from) income taxes   309     (3,229 )
Net loss $ (26,576 ) $ (35,689 )
Net loss per share:
Basic $ (0.24 ) $ (0.33 )
Diluted $ (0.24 ) $ (0.33 )
Weighted average shares used in per share calculation
Basic   109,692     109,358  
Diluted   109,692     109,358  
 

_________

(1) Total stock-based compensation expense for the three months
ended March 31, 2019 and 2018 is presented as follows:

 

Three Months Ended
March 31,

2019 2018
Cost of product revenue $ 1 $ 3
Research and development $ 3,210 $ 3,192
Sales, general and administrative $ 3,978 $ 4,319
 
 

Rambus Inc.

Supplemental Reconciliation of GAAP to Non-GAAP Results

(In thousands)

(Unaudited)

 
Three Months Ended March 31,
2019   2018
 
Operating costs and expenses $ 79,793 $ 90,039
Adjustments:
Stock-based compensation expense (7,189 ) (7,514 )
Acquisition-related transaction costs and retention bonus expense (30 )
Amortization expense (4,988 ) (10,531 )
Restructuring charges (331 ) (3,245 )
Non-GAAP operating costs and expenses $ 67,285   $ 68,719  
 
Operating loss $ (31,409 ) $ (43,613 )
Adjustments:
Stock-based compensation expense 7,189 7,514
Acquisition-related transaction costs and retention bonus expense 30
Amortization expense 4,988 10,531
Restructuring charges 331   3,245  
Non-GAAP operating loss $ (18,901 ) $ (22,293 )
 
Loss before income taxes $ (26,267 ) $ (38,918 )
Adjustments:
Stock-based compensation expense 7,189 7,514
Acquisition-related transaction costs and retention bonus expense 30
Amortization expense 4,988 10,531
Restructuring charges 331 3,245
Non-cash interest expense on convertible notes 1,678   2,679  
Non-GAAP loss before income taxes $ (12,081 ) $ (14,919 )
GAAP provision for (benefit from) income taxes 309 (3,229 )
Adjustment to GAAP provision for (benefit from) income taxes (3,208 ) (352 )
Non-GAAP benefit from income taxes (2,899 ) (3,581 )
Non-GAAP net loss $ (9,182 ) $ (11,338 )
 
Non-GAAP basic net loss per share $ (0.08 ) $ (0.10 )
Non-GAAP diluted net loss per share $ (0.08 ) $ (0.10 )
Weighted average shares used in non-GAAP per share calculation:
Basic 109,692 109,358
Diluted 109,692 109,358
 
 

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

 

Three Months Ended
March 31,

2019   2018
GAAP effective tax rate (1)% 8%
Adjustment to GAAP effective tax rate

25 %

16%
Non-GAAP effective tax rate

24 %

24%
 
          (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 24
percent for both 2019 and 2018, 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
March 31,

Three Months Ended
March 31,

2019   2018 2019   2018
Revenue (i) $ 48,384 $ 46,426 $ 48,384 $ 46,426
Operating loss (ii) (31,409 ) (43,613 ) (18,901 ) (22,293 )
Operating margin (ii/i) (65 )% (94 )% (39 )% (48 )%
 
 

Rambus Inc.

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

(In millions)

(Unaudited)

 
2019 Second Quarter Outlook

Three Months Ended
June 30, 2019

Low   High
 
Forward-looking operating costs and expenses $ 81.1 $ 77.1
Adjustments:
Stock-based compensation expense (7.2 ) (7.2 )
Amortization expense (5.0 ) (5.0 )
Forward-looking Non-GAAP operating costs and expenses $ 68.9   $ 64.9  
 
Forward-looking interest and other income (expense), net $ 4.8 $ 4.8
Adjustments:
Interest income related to significant financing component from
fixed-fee patent and technology licensing arrangements
(5.7 ) (5.7 )
Non-cash interest expense on convertible notes 1.7   1.7  
Forward-looking Non-GAAP interest and other income (expense), net $ 0.8   $ 0.8  
 
 

Source: Rambus Inc.

Contacts

Rahul Mathur
Senior Vice President, Finance and Chief Financial
Officer
Rambus Inc.
(408) 462-8000
[email protected]

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