Rambus Inc.
Jan 30, 2017

Rambus Reports Fourth Quarter and Fiscal Year 2016 Financial Results

Rambus Reports Fourth Quarter and Fiscal Year 2016 Financial Results

 

Business and Financial Highlights:

  • Generated fourth quarter revenue of $97.6 million and annual revenue of $336.6 million; delivered quarter-over-quarter growth across the business
  • Fourth quarter GAAP diluted net loss per share of $0.03; fourth quarter non-GAAP diluted net income per share of $0.16
  • Executing on buffer chip and SerDes programs with acquired businesses
  • Enabling secure provisioning for mobile payments and smart ticketing

 

SUNNYVALE, Calif.--()--Rambus Inc. (NASDAQ:RMBS) today reported financial results for the fourth quarter and year ended December 31, 2016.

Commenting on the results, chief executive officer Dr. Ron Black stated, “Our activity throughout 2016 has prepared us well for profitable growth moving into 2017. Our memory and interfaces business continues to perform well with the ability to accelerate our customer engagements for the data center. We also have several avenues of exciting opportunities to extend beyond our historic business, particularly as we move closer to the consumer with offerings serving the mobile edge.”

GAAP Financial Results:

Revenue for the fourth quarter of 2016 was $97.6 million, up 9% on a sequential basis from the third quarter of 2016 primarily due to higher product revenue from the memory and interfaces business and higher royalty revenue. As compared to the fourth quarter of 2015, revenue was up 27% primarily due to higher revenue from the security technology business, higher product revenue primarily from the memory and interfaces business, and higher royalty revenue.

Revenue for the year ended December 31, 2016 was $336.6 million, up 14% from the year ended December 31, 2015, which is primarily due to higher revenue from the security technology business and higher product revenue primarily from the memory and interfaces business.

Total operating costs and expenses for the fourth quarter of 2016 were $97.0 million, 24% higher than the previous quarter and 72% higher than the fourth quarter of 2015. Fourth quarter operating costs and expenses of $97.0 million included $5.7 million of stock-based compensation expenses, $11.1 million of amortization expenses, $18.3 million impairment of long-lived assets, $1.1 million related to the purchase accounting adjustment for inventory fair value step-up and $0.2 million of acquisition-related transaction costs, offset by a reduction of acquisition purchase consideration of $6.8 million. In comparison, total operating costs and expenses for the third quarter of 2016 of $78.0 million included $5.4 million of stock-based compensation expenses, $10.2 million of amortization expenses, $1.2 million related to the purchase accounting adjustment for inventory fair value step-up and $0.4 million of acquisition-related transaction costs. Total operating costs and expenses for the fourth quarter of 2015 were $56.4 million, which included $3.3 million of stock-based compensation expenses, $6.2 million of amortization expenses and $3.6 million of restructuring charges. The change in total operating costs and expenses in the fourth quarter of 2016 as compared to the third quarter of 2016 was primarily attributable to the impairment of long-lived assets, higher headcount-related costs, higher amortization expense, higher prototyping costs and higher costs of goods sold related to memory and security products, partially offset by a reduction of acquisition purchase consideration in the fourth quarter of 2016. The change in total operating costs and expenses in the fourth quarter of 2016 as compared to the fourth quarter of 2015 was primarily attributable to the impairment of long-lived assets, higher headcount-related costs, higher amortization expense, higher consulting costs and higher costs of goods sold related to memory and security products, partially offset by a reduction of acquisition purchase consideration and lack of restructuring charges in 2016.

Total operating costs and expenses for the year ended December 31, 2016 were $303.0 million, 35% higher than the year ended December 31, 2015. The year ended December 31, 2016 operating costs and expenses of $303.0 million included $21.0 million of stock-based compensation expenses, $37.1 million of amortization expenses, $18.3 million of impairment of long-lived assets, $2.3 million related to the purchase accounting adjustment for inventory fair value step-up and $3.2 million of acquisition-related transaction costs, offset by a reduction of acquisition purchase consideration of $6.8 million. This is compared to total operating costs and expenses for the year ended December 31, 2015 of $224.9 million, which included $15.1 million of stock-based compensation expenses, $25.1 million of amortization expenses and $3.6 million of restructuring charges. The change in total operating costs and expenses was primarily attributable to the impairment of long-lived assets, higher headcount-related costs, higher amortization expense, higher consulting costs, higher stock-based compensation expense, higher expenses related to software design tools, higher acquisition-related transaction costs, the purchase accounting adjustment for inventory fair value step-up, higher costs of goods sold related to memory and security products and lack of gain from sale of intellectual property in 2016, partially offset by a reduction of acquisition purchase consideration and lack of restructuring charges in 2016.

Net loss for the fourth quarter of 2016 was $3.4 million as compared to net income of $4.5 million in the third quarter of 2016 and net income of $13.0 million in the fourth quarter of 2015. Diluted net loss per share for the fourth quarter of 2016 was $0.03 as compared to diluted net income per share of $0.04 in the third quarter of 2016 and diluted net income per share of $0.11 in the fourth quarter of 2015.

Net income for the year ended December 31, 2016 was $6.8 million as compared to a net income of $211.4 million for the same period of 2015. Diluted net income per share for the year ended December 31, 2016 was $0.06 as compared to a diluted net income per share of $1.80 for the same period of 2015.

Non-GAAP Financial Results (1):

Total non-GAAP operating costs and expenses in the fourth quarter of 2016 were $67.5 million, 11% higher than the previous quarter, and 56% higher than the fourth quarter of 2015. The change in total non-GAAP operating costs and expenses in the fourth quarter of 2016 as compared to the third quarter of 2016 was primarily due to higher headcount-related costs, higher prototyping costs and higher costs of goods sold related to memory and security products in the fourth quarter of 2016. The change in total non-GAAP operating costs and expenses in the fourth quarter of 2016 as compared to the fourth quarter of 2015 was primarily due to higher headcount-related costs, higher consulting costs and higher costs of goods sold related to memory and security products.

Total non-GAAP operating costs and expenses for the year ended December 31, 2016 were $227.8 million as compared to $181.1 million in the same period of 2015 are primarily due to higher headcount-related costs, higher consulting costs, higher expenses related to software design tools and higher costs of goods sold related to memory and security products.

Non-GAAP net income in the fourth quarter of 2016 was $18.7 million, 4% higher than the prior quarter and 10% lower than the fourth quarter of 2015. Non-GAAP diluted net income per share was $0.16 in the fourth quarter of 2016 as compared to $0.16 in the prior quarter and $0.18 in the fourth quarter of 2015.

Non-GAAP net income for the year ended December 31, 2016 was $67.9 million as compared to $70.6 million in the same period of 2015. Non-GAAP diluted net income per share was $0.60 for the year ended December 31, 2016 as compared to non-GAAP diluted net income per share of $0.60 for the year ended December 31, 2015.

Other Financial Highlights:

Cash, cash equivalents, and marketable securities as of December 31, 2016 were $172.2 million, an increase of $21.4 million from September 30, 2016, mainly due to cash generated from operating activities.

During the fourth quarter of 2016, the Company recorded an income tax provision of approximately $0.9 million.

2017 First Quarter Outlook:

For the first quarter of 2017, the Company expects revenue to be between $93 million and $98 million. Revenue is not without risk and achieving revenue in this range will require that the Company sign new customer agreements for various product sales, mobile payments software and solutions licensing among other matters. The Company also expects operating costs and expenses to be between $85 million and $88 million, and diluted net income per share to be between $0.02 and $0.06. The Company also expects non-GAAP operating costs and expenses to be between $67 million and $70 million, and non-GAAP diluted net income per share to be between $0.13 and $0.17. These non-GAAP expectations assume non-GAAP interest and other income and expense of $1 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 ($7 million), amortization expense ($11 million), and non-cash interest expense on convertible notes ($2 million).

Conference Call:

The Company will host a conference call at 2:00 p.m. PT today to discuss its financial results. The call, audio and slides will be available online at investor.rambus.com. A replay will be available following the call as a webcast on the Rambus Investor Relations website and for one week at the following numbers: (855) 859-2056 (domestic) or (404) 537-3406 (international) with ID#50043108.

(1) 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 income (loss) and net income (loss). 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, restructuring charges, impairment charges, 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.

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.

Impairment of long-lived assets. These charges consist of non-cash charges to long-lived assets and are excluded because such charges are non-recurring and do not reduce the Company’s liquidity.

Change in contingent consideration. This change is due to a reduction of acquisition purchase consideration. This is a non-recurring benefit that has no direct correlation to the operation of the Company's business and no cash flow impact.

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 periods in 2016 and 36 percent for periods in 2015, 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 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.

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 financial guidance for the first quarter of 2017, including revenue, operating costs and expenses, earnings per share and estimated, fixed, long-term projected tax rates. 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.

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, 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. For more information, visit www.rambus.com.

RMBSFN

Rambus Inc.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
 
    December 31,   December 31,
    2016   2015
ASSETS        
         
Current assets:        
Cash and cash equivalents   $ 135,294   $ 143,764
Marketable securities   36,888   143,942
Accounts receivable   21,099   16,408
Prepaids and other current assets   17,867   10,396
Inventories   5,633   1,080
Total current assets   216,781   315,590
Intangible assets, net   132,388   64,266
Goodwill   204,794   116,899
Property, plant and equipment, net   58,442   56,616
Deferred tax assets   168,342   162,485
Other assets   2,749   2,165
Total assets   $ 783,496   $ 718,021
 
LIABILITIES & STOCKHOLDERS’ EQUITY        
         
Current liabilities:        
Accounts payable   $ 9,793   $ 4,096
Accrued salaries and benefits   14,177   12,278
Deferred revenue   16,932   5,780
Other accrued liabilities   10,399   6,212
Total current liabilities   51,301   28,366
Long-term liabilities:        
Convertible notes, long-term   126,167   119,418
Long-term imputed financing obligation   38,029   38,625
Other long-term liabilities   15,217   5,079

Total long-term liabilities

  179,413   163,122
Total stockholders’ equity   552,782   526,533
Total liabilities and stockholders’ equity   $ 783,496   $ 718,021
 
Rambus Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
 
    Three Months Ended   Year Ended
    December 31,   December 31,
    2016   2015   2016   2015
 
Revenue:                
Royalties   $ 70,604     $ 66,242     $ 264,614     $ 262,415  
Contract and other revenue   26,955     10,531     71,983     33,863  
Total revenue   97,559     76,773     336,597     296,278  
Operating costs and expenses:                
Cost of revenue (1)   21,370     11,340     67,090     45,344  
Research and development (1)   38,744     25,604     129,844     111,110  
Sales, general and administrative (1)   25,466     16,853     95,145     70,554  
Restructuring charges       3,576         3,576  
Impairment of long-lived assets   18,300         18,300      
Change in contingent consideration   (6,845)         (6,845)      
Gain from sale of intellectual property       (424)         (3,686)  
Gain from settlement       (510)     (579)     (2,040)  
Total operating costs and expenses   97,035     56,439     302,955     224,858  
Operating income   524     20,334     33,642     71,420  
Interest income and other income (expense), net   218     350     1,740     1,224  
Interest expense   (3,248)     (3,122)     (12,745)     (12,413)  
Interest and other income (expense), net   (3,030)     (2,772)     (11,005)     (11,189)  
Income (loss) before income taxes   (2,506)     17,562     22,637     60,231  
Provision for (benefit from) income taxes   939     4,570     15,817     (151,157)  
Net income (loss)   $ (3,445)     $ 12,992     $ 6,820     $ 211,388  
Net income (loss) per share:                
Basic   $ (0.03)     $ 0.12     $ 0.06     $ 1.84  
Diluted   $ (0.03)     $ 0.11     $ 0.06     $ 1.80  
Weighted average shares used in per share calculation                
Basic   110,788     111,476     110,162     114,814  
Diluted   110,788     113,388     113,140     117,484  
 

_________

(1) Total stock-based compensation expense for the three months and years ended December 31, 2016 and 2015 are presented as follows:

 
    Three Months Ended   Year Ended
    December 31,   December 31,
    2016   2015   2016   2015
Cost of revenue   $ 14   $ 12   $ 56   $ 63
Research and development   $ 2,639   $ 1,459   $ 9,165   $ 6,762
Sales, general and administrative   $ 3,004   $ 1,876   $ 11,792   $ 8,271
 
 

Rambus Inc.

Supplemental Reconciliation of GAAP to Non-GAAP Results
(In thousands)

(Unaudited)

 
    Three Months Ended   Year Ended
    December 31,  

September 30,

  December 31,   December 31,   December 31,
    2016  

2016

  2015   2016   2015
                     
Operating costs and expenses   $ 97,035     $ 78,039     $ 56,439     $ 302,955     $ 224,858  
Adjustments:                    
Stock-based compensation expense   (5,657)     (5,443)     (3,347)     (21,013)     (15,096)  
Acquisition-related transaction costs and retention bonus expense   (197)     (441)         (3,235)     (2)  
Purchase accounting adjustment for inventory fair value step-up   (1,136)     (1,168)         (2,304)      
Amortization expense   (11,093)     (10,174)     (6,160)     (37,138)     (25,074)  
Impairment of long-lived assets   (18,300)             (18,300)      
Restructuring charges           (3,576)         (3,576)  
Change in contingent consideration   6,845             6,845      

Non-GAAP operating costs and expenses

  $ 67,497     $ 60,813     $ 43,356     $ 227,810     $ 181,110  
                     
Operating income   $ 524     $ 11,816     $ 20,334     $ 33,642     $ 71,420  
Adjustments:                    
Stock-based compensation expense   5,657     5,443     3,347     21,013     15,096  
Acquisition-related transaction costs and retention bonus expense   197     441         3,235     2  
Purchase accounting adjustment for inventory fair value step-up   1,136     1,168         2,304      
Amortization expense   11,093     10,174     6,160     37,138     25,074  
Impairment of long-lived assets   18,300             18,300      
Restructuring charges           3,576         3,576  
Change in contingent consideration   (6,845)             (6,845)      
Non-GAAP operating income   $ 30,062     $ 29,042     $ 33,417     $ 108,787     $ 115,168  
                     
Income (loss) before income taxes   $ (2,506)     $ 8,765     $ 17,562     $ 22,637     $ 60,231  
Adjustments:                    
Stock-based compensation expense   5,657     5,443     3,347     21,013     15,096  
Acquisition-related transaction costs and retention bonus expense   197     441         3,235     2  
Purchase accounting adjustment for inventory fair value step-up   1,136     1,168         2,304      
Amortization expense   11,093     10,174     6,160     37,138     25,074  
Impairment of long-lived assets   18,300             18,300      
Restructuring charges           3,576         3,576  
Change in contingent consideration   (6,845)             (6,845)      
Non-cash interest expense on convertible notes   1,723     1,700     1,627     6,749     6,372  
Non-GAAP income before income taxes   $ 28,755     $ 27,691     $ 32,272     $ 104,531     $ 110,351  
GAAP provision for (benefit from) income taxes   939     4,254     4,570     15,817     (151,157)  
Adjustment to GAAP provision for income taxes   9,125     5,438     7,048     20,769     190,884  
Non-GAAP provision for income taxes   10,064     9,692     11,618     36,586     39,727  
Non-GAAP net income   $ 18,691     $ 17,999     $ 20,654     $ 67,945     $ 70,624  
                     
Non-GAAP basic net income per share   $ 0.17     $ 0.16     $ 0.19     $ 0.62     $ 0.62  
Non-GAAP diluted net income per share   $ 0.16     $ 0.16     $ 0.18     $ 0.60     $ 0.60  
Weighted average shares used in non-GAAP per share calculation:                    
Basic   110,788     110,214     111,476     110,162     114,814  
Diluted   114,060     113,723     113,388     113,140     117,484  
 
 

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

 
    Three Months Ended   Year Ended
    December 31,  

September 30,

  December 31,   December 31,   December 31,
    2016  

2016

  2015   2016   2015
                     
GAAP effective tax rate   (38)%     49%

 

  26%     70%

 

  (251)%

 

Adjustment to GAAP effective tax rate   73%

 

  (14)%     10%     (35)%     287%

 

Non-GAAP effective tax rate   35%

 

  35%

 

  36%     35%

 

  36%

 

 
  (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 periods in 2016 and 36 percent for periods in 2015, 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 GAAP Forward Looking Estimates to Non-GAAP Forward Looking Estimates
(In millions, except per share amounts)
(Unaudited)
 
    Three Months Ended
    March 31, 2017
 
    Low   High
         
Forward-looking operating costs and expenses   $ 87.6     $ 84.6  
Adjustments:        
Stock-based compensation expense   (7.1)     (7.1)  
Amortization expense   (10.5)     (10.5)  
Forward-looking Non-GAAP operating costs and expenses   $ 70.0     $ 67.0  
         
Forward-looking operating income   $ 5.4     $ 13.4  
Adjustments:        
Stock-based compensation expense   7.1     7.1  
Amortization expense   10.5     10.5  
Forward-looking Non-GAAP operating income   $ 23.0     $ 31.0  
         
Forward-looking income before income taxes   $ 2.7     $ 10.7  
Adjustments:        
Stock-based compensation expense   7.1     7.1  
Amortization expense   10.5     10.5  
Non-cash interest expense on convertible notes   1.7     1.7  
Forward-looking Non-GAAP income before income taxes   $ 22.0     $ 30.0  
Forward-looking GAAP provision for income taxes   0.9     3.7  
Adjustment to Forward-looking GAAP provision for income taxes   6.8     6.8  
Forward-looking Non-GAAP provision for income taxes   7.7     10.5  
Forward-looking Non-GAAP net income   $ 14.3     $ 19.5  
         
Forward-looking Non-GAAP basic net income per share   $ 0.13     $ 0.18  
Forward-looking Non-GAAP diluted net income per share   $ 0.13     $ 0.17  
Weighted average shares used in forward-looking Non-GAAP per share calculation:        
Basic   111.0     111.0  
Diluted   114.0     114.0  
 

 

Contacts

Rambus Inc.
Linda Ashmore, 408-462-8411
Vice President, Corporate Communications
lashmore@rambus.com
or
Rahul Mathur, 408-462-8000
Senior Vice President, Finance and Chief Financial Officer
rmathur@rambus.com