Cypress Reports First Quarter 2019 Results

FORWARD-LOOKING STATEMENTS

Statements in this press release that are not historical facts and that refer to Cypress or its subsidiaries’ plans and expectations for the future are forward-looking statements as such term is used in the Private Securities Litigation Reform Act of 1995. We may use words such as "may," "will," "should," "plan," "anticipate," "believe," "expect," "future," "intend," "estimate," "predict," "potential," "continue" or similar expressions identify forward-looking statements. This press release includes, among others, forward-looking statements regarding our second quarter financial outlook (as well as the related GAAP to non-GAAP reconciling items). Our forward-looking statements are based on the expectations, beliefs, and intentions of, and the information available to, our executive management on the date of this press release. Forward-looking statements involve risks and uncertainties, and readers are cautioned not to place undue reliance on forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to: potential tariffs and other disruptions in the international trade and investment environment; global economic and market conditions; our ability to execute on our Cypress 3.0 strategy and our margin improvement plan; risks related to paying down our indebtedness and meeting the covenants in our debt agreements; our efforts to retain and expand our customer base; business conditions and growth trends in the semiconductor market; competition; volatility in supply and demand for our products, including but not limited to the impact of seasonality on supply and demand; our ability to develop, introduce and sell new products and technologies; potential problems relating to our manufacturing activities; reliance on distributors, resellers, third-party manufacturers, and others; risks related to our "take or pay" agreements with certain vendors; the risk of defects, errors, or security vulnerabilities in our products; the impact of acquisitions; our ability to attract and retain key personnel; the unpredictability and expense of legal proceedings; and other risks and uncertainties described in the "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Quantitative and Qualitative Disclosures about Market Risk" sections in our most recent Annual Report on Form 10-K filing with the Securities and Exchange Commission which is available on our investor relations website at http://investors.cypress.com/financial-information/sec-filings. We assume no responsibility to update our forward-looking statements.

Cypress, the Cypress logo and PSoC are registered trademarks and Excelon, F-RAM and EZ-PD are trademarks of Cypress Semiconductor Corporation. ZipKey is a registered trademark of Cirrent, Inc. All other trademarks are property of their owners.

 

CYPRESS SEMICONDUCTOR CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 
  March 31, 2019   December 30, 2018
 
ASSETS
Cash, cash equivalents and short-term investments $ 285,119 $ 285,720
Accounts receivable, net 266,374 324,274
Inventories 316,921 292,093
Assets held for sale 10,818 13,510
Property, plant and equipment, net 274,123 282,986
Goodwill and other intangible assets, net 1,812,452 1,864,340
Other assets 661,817   630,292
Total assets $ 3,627,624   $ 3,693,215
LIABILITIES AND EQUITY
Accounts payable $ 181,220 $ 210,715
Income tax liabilities 53,041 53,469
Revenue reserves, deferred margin and other liabilities 422,311 437,757
Revolving credit facility and long-term debt 851,279   874,235
Total liabilities 1,507,851   1,576,176
Total Cypress stockholders' equity 2,118,469 2,115,734
Non-controlling interest 1,304   1,305
Total equity 2,119,773   2,117,039
Total liabilities and equity $ 3,627,624   $ 3,693,215
 
 

CYPRESS SEMICONDUCTOR CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ON A GAAP BASIS

(In thousands, except per-share data)

(Unaudited)

 
  Three Months Ended
March 31, 2019   December 30, 2018   April 1, 2018
Revenues $ 539,004 $ 604,474 $ 582,241
Cost of revenue 336,595   379,264   369,849  
Gross profit 202,409   225,210   212,392  
Research and development 88,606 82,379 93,233
Selling, general and administrative 81,987   140,091   83,397  
Total operating expenses 170,593   222,470   176,630  
Operating income 31,816 2,740 35,762
Interest and other expense, net (9,244 ) (20,489 ) (18,154 )
Income before income taxes, share in net loss of equity method investee and non-controlling interest 22,572 (17,749 ) 17,608
Income tax provision 730 331,447 (5,057 )
Share in net loss of equity method investee (3,590 ) (46,497 ) (3,461 )
Net income 19,712 267,201 9,090
Net gain attributable to non-controlling interests 2   (87 ) (12 )
Net income attributable to Cypress $ 19,714   $ 267,114   $ 9,078  
Net income per share attributable to Cypress:
Basic $ 0.05 $ 0.74 $ 0.03
Diluted $ 0.05 $ 0.72 $ 0.02
Cash dividend declared per share $ 0.11 $ 0.11 $ 0.11
Shares used in net income per share calculation:
Basic 363,700 361,616 355,461
Diluted 373,131 369,638 370,592
 
 

CYPRESS SEMICONDUCTOR CORPORATION

RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES

(In thousands, except per-share data)

(Unaudited)

 

Table A: GAAP to non-GAAP reconciling items: Three Months Ended Q1 2019

  Cost of revenues   Research and development   Selling, general and administrative   Interest and other expense, net
GAAP [i] $ 336,595 $ 88,606 $ 81,987 $ (12,834 )
[1] Stock-based compensation 2,684 6,680 11,031
[2] Changes in value of deferred compensation plan 471 2,204 2,259 (4,334 )
[3] Loss on assets held for sale 2,017 1,515
[4] Share in net loss of equity method investees 3,590
[5] Imputed interest on convertible debt, equity component amortization on convertible debt and others 3,368
[6] Amortization of debt issuance costs 929
[7] Amortization of acquisition-related intangible assets and other 48,217 4,310
[8] Restructuring charges (49 ) 98
[9] Other income and expenses   57   448   303  
Non - GAAP [ii] $ 283,255   $ 79,665   $ 62,326   $ (8,978 )
Impact of reconciling items [ii - i] $ (53,340 ) $ (8,941 ) $ (19,661 ) $ 3,856
 
 

Table B: GAAP to non-GAAP reconciling items: Three Months Ended Q4 2018

  Cost of revenues   Research and development   Selling, general and administrative   Interest and other expense, net
GAAP [i] $ 379,264 $ 82,379 $ 140,091 $ (66,986 )
[1] Stock-based compensation 3,842 6,395 9,166
[2] Changes in value of deferred compensation plan (468 ) (2,377 ) (2,726 ) 5,401
[3] Loss on assets held for sale¹ 10,869 65,722
[4] Share in net loss of equity method investees² 46,496
[5] Imputed interest on convertible debt, equity component amortization on convertible debt and others 3,338
[6] Amortization of debt issuance costs 908
[7] Amortization of intangible assets and other 49,583 4,310
[8] Litigation settlement and other (309 ) (159 ) 159
[9] Restructuring charges 135   944   437    
Non - GAAP [ii] $ 315,303   $ 77,726   $ 63,341   $ (10,684 )
Impact of reconciling items [ii - i] $ (63,961 ) $ (4,653 ) $ (76,750 ) $ 56,302
 
1.   Relates to our entry into a definitive agreement to divest the NAND business
2. Includes $41.5 million impairment charge recorded for the investment in Deca Technologies Inc.
 
 

Table C: GAAP to Non-GAAP reconciling items: Three Months Ended Q1 2018

  Cost of revenues   Research and development   Selling, general and administrative   Interest and other expense, net
GAAP [i] $ 369,849 $ 93,233 $ 83,397 $ (21,615 )
[1] Stock-based compensation 3,584 6,713 8,161
[2] Changes in value of deferred compensation plan 61 272 350 (266 )
[3] Share in net loss and impairment of equity method investees 3,461
[4] Imputed interest on convertible debt, equity component amortization on convertible debt and others 3,431
[5] Loss on extinguishment of convertible notes and debt issuance cost write off due to refinancing 3,258
[6] Amortization of debt issuance costs 1,073
[7] Amortization of acquisition-related intangible assets and other 49,438 5,150
[8] Restructuring charges and other 1,887   292   1,917   393  
Non - GAAP [ii] $ 314,879   $ 85,956   $ 67,819   $ (10,265 )
Impact of reconciling items [ii - i] $ (54,970 ) $ (7,277 ) $ (15,578 ) $ 11,350
 
 

Table D: Non-GAAP gross profit

Three Months Ended
Q1'19   Q4'18   Q1'18
GAAP gross profit $ 202,409   $ 225,210   $ 212,392
Impact of reconciling items on cost of revenues (see Table A, B, C) 53,340   63,961   54,970  
Non-GAAP gross profit $ 255,749   $ 289,171   $ 267,362  
GAAP gross margin (GAAP gross profit/revenue) 37.6 % 37.3 % 36.5 %
Non-GAAP gross margin (Non-GAAP gross profit/revenue) 47.4 % 47.8 % 45.9 %
 
 

Table E: Non-GAAP operating income

Three Months Ended
Q1'19   Q4'18   Q1'18
GAAP operating income [i] $ 31,816 $ 2,740 $ 35,762
Impact of reconciling items on cost of revenues (see Table A, B, C) 53,340 63,961 54,970
Impact of reconciling items on R&D (see Table A, B, C) 8,941 4,653 7,277
Impact of reconciling items on SG&A (see Table A, B, C) 19,661   76,750   15,578  
Non-GAAP operating income [ii] $ 113,758   $ 148,104   $ 113,587  
Impact of reconciling items on operating income [ii - i] $ 81,942 $ 145,364 $ 77,825
GAAP operating margin (GAAP operating income / revenue) 5.9 % 0.5 % 6.1 %
Non-GAAP operating margin (Non-GAAP operating income / revenue) 21.1 % 24.5 % 19.5 %
 
 

Table F: Non-GAAP pre-tax profit

Three Months Ended
Q1'19   Q4'18   Q1'18
GAAP income (loss) before income taxes and non-controlling interest ("Pre-tax income") $ 22,572 $ (17,749 ) $ 17,608
Share in net loss and impairment of equity method investees (3,590 ) (46,497 ) (3,461 )
Impact of reconciling items on operating income (see Table E) 81,942 145,364 77,825
Impact of reconciling items on interest and other expense, net (see Table A, B, C) 3,856   56,302   11,350  
Non-GAAP pre-tax profit $ 104,780 $ 137,420 $ 103,322
GAAP pre-tax profit margin (GAAP pre-tax income/revenue) 4.2 % (2.9 )% 3.0 %
Non-GAAP pre-tax profit margin (Non-GAAP pre-tax profit/revenue) 19.4 % 22.7 % 17.7 %
 
 

Table G: Non-GAAP income tax expense

Three Months Ended
Q1'19   Q4'18   Q1'18
GAAP income tax provision [i] (730 ) (331,447 ) 5,057
[1] Stock-based compensation 4,283 4,075 3,876
[2] Changes in value of deferred compensation plan 126 (36 ) 88
[3] Merger, integration, related costs and adjustments related to assets held for sale 57
[4] Share in net loss and impairment of equity method investees 754 9,764 727
[5] Imputed interest on convertible debt, equity component amortization on convertible debt and others 707 892 721
[6] Amortization of debt issuance costs 195 225
[7] Amortization of acquisition-related intangible assets and other 11,031 11,202 11,463
[8] Restructuring charges 21 318 860
[9] Other (income) and expenses 159 (6 )
[10] Loss on extinguishment of convertible notes 742 16,084 684
[11] Uncertain tax positions 297 (3,945 ) (1,362 )
[12] Valuation allowance release, utilization of NOL including excess tax benefits, and others** (14,907 ) 299,385 (19,325 )
Non-GAAP income tax expense [ii]* $ 2,678   $ 6,343   $ 3,014  
Impact of reconciling items on income tax provision [i - ii] (3,408 ) (337,790 ) 2,043
 
*Tax impact of Non-GAAP adjustments is calculated by using the federal statutory rate of 21%.
** Other items include but are not limited to deferred tax expense not affecting income tax payable.
 
     

Table H: Non-GAAP net income

Three Months Ended
Q1'19 Q4'18 Q1'18
GAAP net income (loss) attributable to Cypress $ 19,714 $ 267,114 $ 9,078
Impact of reconciling items on operating income (see Table E) 81,942 145,364 77,825
Impact of reconciling items on interest and other expense, net (see Table A, B, C) 3,856 56,302 11,350
Impact of reconciling items on income tax provision (see Table G) (3,408 ) (337,790 ) 2,043
Non-GAAP net income $ 102,104   $ 130,990   $ 100,296
 
       

Table I: Weighted-average shares, diluted

  Three Months Ended
Q1'19 Q4'18 Q1'18
GAAP   Non-GAAP GAAP Non-GAAP GAAP Non-GAAP
Weighted-average common shares outstanding, basic 363,700 363,700 361,616 361,616 355,461 355,461
Effect of dilutive securities:
Stock options, unvested restricted stock units and other 6,343 10,496 6,482 11,709 7,897 12,515
Convertible notes 3,088   1,634   1,540   1,540   7,234   4,750
Weighted-average common shares outstanding, diluted 373,131   375,830   369,638   374,865   370,592   372,726
 
     

Table J: Earnings per share

  Three Months Ended
Q1'19   Q4'18 Q1'18
GAAP   Non-GAAP GAAP Non-GAAP   GAAP Non-GAAP
Net income (see Table H) [i] $ 19,714 $ 102,104 $ 267,114 $ 130,990 $ 9,078 $ 100,296
Weighted-average common shares outstanding, diluted (see Table I) [ii] 373,131   375,830   369,638   374,865   370,592   372,726
Earnings per share - diluted [i/ii] $ 0.05   $ 0.27   $ 0.72   $ 0.35   $ 0.02   $ 0.27
 
 

Table K: Adjusted EBITDA

  Three Months Ended
Q1'19   Q4'18 Q1'18
GAAP net income attributable to Cypress $ 19,714 $ 267,114 $ 9,078
Interest and other expense, net (9,244 ) (20,489 ) (18,154 )
Income tax provision 730 331,447 (5,057 )
Share in net loss of and impairment of equity method investees (3,590 ) (46,497 ) (3,461 )
Net gain (loss) attributable to non-controlling interests 2   (87 ) (12 )
GAAP operating income $ 31,816 $ 2,740 $ 35,762
Impact of reconciling items on operating income (see Table E) 81,942   145,364   77,825  
Non-GAAP operating income $ 113,758 $ 148,104 $ 113,587
Depreciation 19,512   16,527   17,140  
Adjusted EBITDA $ 133,270   $ 164,631   $ 130,727  
 
 

Table L: Free cash flow

Three Months Ended
Q1'19   Q4'18   Q1'18
GAAP net cash provided by operating activities $ 61,248 $ 142,215 $ 31,678
Acquisition of property, plant and equipment, net (10,534 ) (5,069 ) (17,023 )
Free cash flow $ 50,714   $ 137,146   $ 14,655  
 
 

CYPRESS SEMICONDUCTOR CORPORATION

SUPPLEMENTAL FINANCIAL DATA

(In thousands)

(Unaudited)

 
Three Months Ended
March 31, 2019   December 30, 2018   April 1, 2018

Selected Cash Flow Data (Preliminary):

Net cash provided by operating activities $ 61,248 $ 142,215 $ 31,678
Net cash (used in) provided by investing activities $ (4,376 ) $ (5,988 ) $ (14,173 )
Net cash used in financing activities $ (57,473 ) $ (55,252 ) $ (62,348 )

Other Supplemental Data (Preliminary):

Capital expenditures, net $ 10,534 $ 5,069 $ 17,267
Depreciation $ 19,512 $ 16,527 $ 17,140
Payment of dividend $ 39,748 $ 39,772 $ 38,741
Dividend paid per share $ 0.11 $ 0.11 $ 0.11
Total debt (principal amount) $ 909,549 $ 935,838 $ 1,017,588
Leverage ratio¹ 0.98 1.03 1.44
Cash Income Tax 2,678 6,343 3,014
 
1.   Total debt (principal amount) less cash / Last 12 months Adjusted EBITDA
 
 

CYPRESS SEMICONDUCTOR CORPORATION

RECONCILIATION OF GAAP FORWARDING-LOOKING ESTIMATES TO NON-GAAP FORWARD-LOOKING ESTIMATES

 
Q2 2019 Forward-looking Estimates (1)
GAAP (A)   Adjustments (B)   Non-GAAP (C)=(A)+(B)
Amortization of intangibles   Stock-based compensation expense   Other items
Gross margin 37.0% - 37.5% 9.0 % 1.0 % 0.0% 47.0% - 47.5%
Diluted earnings per share (2) $(0.03) to $0.01 $ 0.14 $ 0.09 $ 0.02 $0.22 to $0.26
 
1.   Our Q2 2019 outlook reflects our divestiture of the NAND flash business, which closed on April 1, 2019.
2.

Our share of the NAND joint venture’s Q2 2019 income or loss will be recognized in our Statement of Operations within the line item "Share in net income (loss) of equity method investments." Our expected share of such income is included in our EPS outlook on a GAAP basis but is excluded from our EPS outlook on a non-GAAP basis (as part of the adjustment for "other items" above).

 

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