Rambus Reports Fourth Quarter and Fiscal Year 2018 Financial Results

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 first 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)
   

 

December 31,
2018

December 31,
2017

ASSETS
 
Current assets:
Cash and cash equivalents $ 115,924 $ 225,844
Marketable securities 161,840 103,532
Accounts receivable 50,863 25,326
Unbilled receivables 176,613 566
Inventories 6,772 5,159
Prepaids and other current assets 15,738   11,317
Total current assets 527,750 371,744
Intangible assets, net 59,936 91,722
Goodwill 207,178 209,661
Property, plant and equipment, net 57,028 54,303
Deferred tax assets 4,435 159,099
Unbilled receivables, long-term 497,003
Other assets 7,825   4,543
Total assets $ 1,361,155   $ 891,072
 
LIABILITIES & STOCKHOLDERS’ EQUITY
 
Current liabilities:
Accounts payable $ 7,392 $ 9,614
Accrued salaries and benefits 16,938 17,091
Deferred revenue 19,374 18,272
Income taxes payable, short-term 16,390 258
Convertible notes, short-term 78,451
Other current liabilities 9,191   9,156
Total current liabilities 69,285 132,842
Long-term liabilities:
Convertible notes, long-term 141,934 135,447
Long-term imputed financing obligation 36,297 37,262
Long-term income taxes payable 77,280 3,344
Deferred tax liabilities 18,960 9,830
Other long-term liabilities 5,287   763
Total long-term liabilities 279,758   186,646
Total stockholders’ equity 1,012,112   571,584
Total liabilities and stockholders’ equity $ 1,361,155   $ 891,072
 
Rambus Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
   

 

Three Months Ended
December 31,

Year Ended
December 31,

2018   2017 2018   2017
 
Revenue:
Royalties $ 45,430 $ 77,861 $ 130,452 $ 289,594
Product revenue 11,537 8,543 38,690 36,509
Contract and other revenue 11,596   15,487   62,059   66,993  
Total revenue 68,563 101,891 231,201 393,096
Operating costs and expenses:
Cost of product revenue (1) 4,367 5,901 18,299 23,783
Cost of contract and other revenue 6,239 12,090 35,402 55,364
Research and development (1) 37,395 39,417 158,339 149,135
Sales, general and administrative (1) 24,768 28,818 103,911 110,940
Restructuring charges (recoveries) (6 ) 2,217
Gain from sale of intellectual property   (54 )   (533 )
Total operating costs and expenses 72,763   86,172   318,168   338,689  
Operating income (loss) (4,200 ) 15,719 (86,967 ) 54,407
Interest income and other income (expense), net 7,248 893 32,621 1,384
Loss on extinguishment of debt (1,082 ) (1,082 )
Interest expense (3,251 ) (3,966 ) (16,282 ) (13,720 )
Interest and other income (expense), net 3,997   (4,155 ) 16,339   (13,418 )
Income (loss) before income taxes (203 ) 11,564 (70,628 ) 40,989
Provision for income taxes 1,815   47,732   87,329   63,851  
Net loss $ (2,018 ) $ (36,168 ) $ (157,957 ) $ (22,862 )
Net loss per share:
Basic $ (0.02 ) $ (0.33 ) $ (1.46 ) $ (0.21 )
Diluted $ (0.02 ) $ (0.33 ) $ (1.46 ) $ (0.21 )
Weighted average shares used in per share calculation
Basic 108,826   109,737   108,450   110,198  
Diluted 108,826   109,737   108,450   110,198  
 
 

_________

(1) Total stock-based compensation expense for the three months and years ended December 31, 2018 and 2017 are presented as follows:

 
 

Three Months Ended
December 31,

Year Ended
December 31,

2018 2017 2018 2017
Cost of product revenue $ 1 $ 25 $ 8 $ 78
Research and development $ 2,920 $ 3,137 $ 12,582 $ 12,185
Sales, general and administrative $ 3,224 $ 4,072 $ 9,146 $ 15,140
 
Rambus Inc.
Supplemental Annual Financial Review
(In millions, except per share amounts)
(Unaudited)
 
Annual Financial Review - GAAP Year Ended December 31,
(In millions, except for percentages and per share amounts) 2018   2017

As Reported
ASC 606

 

Adjustments
(1)

  ASC 605 (1)

As Reported
ASC 605

Revenue $ 231.2 $ 169.9 $ 401.1 $ 393.1
Total operating costs and expenses $ 318.2 $ $ 318.2 $ 338.7
Operating income (loss) $ (87.0 ) $ 169.9 $ 82.9 $ 54.4
Operating margin (38 )% 58 % 21 % 14 %
Net income (loss) $ (157.9 ) $ 142.6 $ (15.3 ) $ (22.9 )
Diluted net income (loss) per share $ (1.46 ) $ 1.32 $ (0.14 ) $ (0.21 )
 
Net cash provided by operating activities $ 87.1 $ $ 87.1 $ 117.4
 

(1) See note (1) under “Quarterly Financial Review-GAAP” above for a description of the Adjustments and ASC 605 presentations.

 
Annual Financial Review - Non-GAAP (1) Year Ended December 31,
(In millions, except for percentages and per share amounts) 2018 2017

As Reported
ASC 606

Adjustments
(2)

ASC 605 (2)

As Reported
ASC 605

Revenue $ 231.2 $ 169.9 $ 401.1 $ 393.1
Total operating costs and expenses $ 264.8 $ $ 264.8 $ 269.1
Operating income (loss) $ (33.6 ) $ 169.9 $ 136.3 $ 124.0
Operating margin (15 )% 49 % 34 % 32 %
Net income (loss) $ (6.1 ) $ 108.4 $ 102.3 $ 77.5
Diluted net income (loss) per share $ (0.06 ) $ 0.98 $ 0.92 $ 0.68
 

(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.

 

(2) See note (1) under “Quarterly Financial Review-GAAP” above for a description of the Adjustments and ASC 605 presentations.

 

Rambus Inc.

Supplemental Revenue and Licensing Billings
(In thousands)
(Unaudited)
   
2018 Revenue under ASC 606
  Quarter ended Year ended

December 31,
2018

 

September 30,
2018

June 30,
2018

 

March 31,
2018

December 31,
2018

Revenue
Royalties $ 45,430 $ 33,599 $ 30,049 $ 21,374 $ 130,452
Product revenue 11,537 11,753 8,087 7,313 38,690
Contract and other revenue 11,596   14,402   18,322   17,739   62,059
Total revenue $ 68,563 $ 59,754 $ 56,458 $ 46,426 $ 231,201
 
2018 Revenue under ASC 605 and Licensing Billings
Quarter ended Year ended

December 31,
2018

September 30,
2018

June 30,
2018

March 31,
2018

December 31,
2018

Revenue
Royalties $ 76,717 $ 75,704 $ 73,626 $ 77,174 $ 303,221
Product revenue 11,867 11,753 8,221 7,556 39,397
Contract and other revenue 13,398   12,383   16,973   15,729   58,483
Total revenue $ 101,982 $ 99,840 $ 98,820 $ 100,459 $ 401,101
 
Licensing billings (1) $ 76,717 $ 75,374 $ 73,210 $ 75,924 $ 301,225
 
2017 Revenue under ASC 605 and Licensing Billings
Quarter ended Year ended

December 31,
2017

September 30,
2017

June 30,
2017

March 31,
2017

December 31,
2017

Revenue
Royalties $ 77,861 $ 72,787 $ 69,990 $ 68,956 $ 289,594
Product revenue 8,543 8,661 8,401 10,904 36,509
Contract and other revenue 15,487   17,686   16,329   17,491   66,993
Total revenue $ 101,891 $ 99,134 $ 94,720 $ 97,351 $ 393,096
 
Licensing billings (1) $ 76,611 $ 71,537 $ 72,890 $ 68,556 $ 289,594
 
2016 Revenue under ASC 605 and Licensing Billings
Quarter ended Year ended

December 31,
2016

September 30,
2016

June 30,
2016

March 31,
2016

December 31,
2016

Revenue
Royalties $ 70,604 $ 68,298 $ 62,835 $ 62,877 $ 264,614
Product revenue 11,746 7,092 3,902 3,312 26,052
Contract and other revenue 15,209   14,465   9,764   6,493   45,931
Total revenue $ 97,559 $ 89,855 $ 76,501 $ 72,682 $ 336,597
 
Licensing billings (1) $ 64,854 $ 71,548 $ 66,604 $ 61,683 $ 264,689
 
      (1)   Licensing billings is an operational metric that reflects amounts invoiced to our licensing customers during the period, as adjusted for certain differences.
 
Rambus Inc.
Supplemental Reconciliation of GAAP to Non-GAAP Results
(In thousands)
(Unaudited)
   
Three Months Ended December 31, Year Ended December 31,
ASC 606   ASC 605 ASC 606   ASC 605
2018 2018   2017 2018 2018   2017
 
Operating costs and expenses $ 72,763 $ 72,763 $ 86,172 $ 318,168 $ 318,168 $ 338,689
Adjustments:
Stock-based compensation expense (6,145 ) (6,145 ) (7,234 ) (21,736 ) (21,736 ) (27,403 )
Acquisition-related transaction costs and retention bonus expense (30 ) (70 ) (70 ) (248 )
Amortization expense (4,989 ) (4,989 ) (10,526 ) (29,341 ) (29,341 ) (41,962 )
Restructuring charges (recoveries) 6   6     (2,217

)

(2,217 )  
Non-GAAP operating costs and expenses $ 61,635   $ 61,635   $ 68,382   $ 264,804   $ 264,804   $ 269,076  
 
Operating income (loss) $ (4,200 ) $ 29,219 $ 15,719 $ (86,967 ) $ 82,933 $ 54,407
Adjustments:
Stock-based compensation expense 6,145 6,145 7,234 21,736 21,736 27,403
Acquisition-related transaction costs and retention bonus expense 30 70 70 248
Amortization expense 4,989 4,989 10,526 29,341 29,341 41,962
Restructuring charges (recoveries) (6 ) (6 )   2,217   2,217    
Non-GAAP operating income (loss) $ 6,928   $ 40,347   $ 33,509   $ (33,603 ) $ 136,297   $ 124,020  
 
Income (loss) before income taxes $ (203 ) $ 27,068 $ 11,564 $ (70,628 ) $ 72,037 $ 40,989
Adjustments:
Stock-based compensation expense 6,145 6,145 7,234 21,736 21,736 27,403
Acquisition-related transaction costs and retention bonus expense 30 70 70 248
Amortization expense 4,989 4,989 10,526 29,341 29,341 41,962
Restructuring charges (recoveries) (6 ) (6 ) 2,217 2,217
Loss on extinguishment of debt 1,082 1,082
Non-cash interest expense on convertible notes 1,655   1,655   2,255   9,242   9,242   7,579  
Non-GAAP income (loss) before income taxes $ 12,580 $ 39,851 $ 32,691 $ (8,022 ) $ 134,643 $ 119,263
GAAP provision for income taxes 1,815 1,815 47,732 87,329 87,329 63,851
Adjustment to GAAP provision for income taxes 1,204   7,749   (36,290 ) (89,255 ) (55,015 ) (22,109 )
Non-GAAP provision for (benefit from) income taxes 3,019   9,564   11,442   (1,926 ) 32,314   41,742  
Non-GAAP net income (loss) $ 9,561   $ 30,287   $ 21,249   $ (6,096 )   $ 102,329     $ 77,521  
 
Non-GAAP basic net income (loss) per share $ 0.09 $ 0.28 $ 0.19 $ (0.06 ) $ 0.94 $ 0.70
Non-GAAP diluted net income (loss) per share $ 0.09 $ 0.28 $ 0.19 $ (0.06 ) $ 0.92 $ 0.68
Weighted average shares used in non-GAAP per share calculation:
Basic 108,826 108,826 109,737 108,450 108,450 110,198
Diluted 109,618 109,618 114,341 108,450 110,837 113,899
 

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

   

Three Months Ended
December 31,

Year Ended December 31,

ASC 606   ASC 605 ASC 606   ASC 605
2018 2018   2017 2018 2018   2017
GAAP effective tax rate (894 )% 7 % 413 % (124 )% 121 % 156 %
Adjustment to GAAP effective tax rate 918 % 17 % (378 )% 148 % (97 )% (121 )%
Non-GAAP effective tax rate 24 % 24 % 35 % 24 % 24 % 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 24 percent for 2018 and 35 percent for 2017, 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 December 31, Three Months Ended December 31,
ASC 606   ASC 605 ASC 606   ASC 605
2018 2018   2017 2018 2018   2017
 
Revenue (i) $ 68,563 $ 101,982 $ 101,891 $ 68,563 $ 101,982 $ 101,891
Operating income (loss) (ii) (4,200 ) 29,219 15,719 6,928 40,347 33,509
Operating margin (ii/i) (6 )% 29 % 15 % 10 % 40 % 33 %
 
GAAP Non-GAAP
Year Ended December 31, Year Ended December 31,
ASC 606 ASC 605 ASC 606 ASC 605
2018 2018 2017 2018 2018 2017
 
Revenue (i) $ 231,201 $ 401,101 $ 393,096 $ 231,201 $ 401,101 $ 393,096
Operating income (loss) (ii) (86,967 ) 82,933 54,407 (33,603 ) 136,297 124,020
Operating margin (ii/i) (38 )% 21 % 14 % (15 )% 34 % 32 %
 

Three Months Ended
December 31,

ASC 605
2018   2017
 
Net income (loss) $ 25,253 $ (36,168 )
Add back:
Interest and other income (expense), net 2,151 4,155
Provision for income taxes 1,815 47,732
Depreciation expense 2,638 3,304
Amortization expense 4,989   10,526  
EBITDA (1) $ 36,846 $ 29,549
Adjustments:
Stock-based compensation expense 6,145 7,234
Acquisition-related transaction costs and retention bonus expense 30
Restructuring recoveries (6 )  
Adjusted EBITDA (2) $ 42,985   $ 36,813  
 
      (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 (loss). EBITDA is net income (loss) adjusted for net interest and other income (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)
(Unaudited)
 
2019 First Quarter Outlook

Three Months Ended
March 31, 2019

Low   High
 
Forward-looking operating costs and expenses $ 78.1 $ 74.1
Adjustments:
Stock-based compensation expense (6.6 ) (6.6 )
Amortization expense (5.0 ) (5.0 )
Forward-looking Non-GAAP operating costs and expenses $ 66.5   $ 62.5  
 
Forward-looking interest and other income (expense), net $ 3.4 $ 3.4
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 $ (0.6 ) $ (0.6 )
 

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