Rambus Reports Third Quarter 2017 Financial Results

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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