Rambus Reports Second Quarter 2018 Financial Results
SUNNYVALE, Calif.--(BUSINESS WIRE)--Jul 30, 2018--Rambus Inc. (NASDAQ:RMBS) today reported financial results for the second quarter ended June 30, 2018 under GAAP Accounting Standards Codification Topic 606 (“ASC 606”), which superseded the revenue recognition requirements in ASC Topic 605, Revenue Recognition (“ASC 605”) that was previously applicable. Total revenue for the quarter under ASC 606 was $56.5 million, with GAAP diluted net loss per share of $0.14 and non-GAAP diluted net loss per share of $0.03.
Rambus also reported financial results as they would have been presented under ASC 605. This ASC 605 presentation is required under the modified retrospective transition method that Rambus has chosen to adopt under ASC 606. Rambus notes that this presentation allows a more relevant comparability with prior results, which were all reported under ASC 605. Total revenue for the quarter ended June 30, 2018 under ASC 605 would have been $98.8 million, 9% higher than a year ago excluding the impact of the Lighting Division which was wound down in the first quarter, with GAAP diluted net income per share of $0.13 and non-GAAP diluted net income per share of $0.21.
“With a record number of licensing deals this quarter and record revenue in the first half of the year for our Memory and Interface IP Cores, we continue to execute on key strategic programs for the data center and mobile edge,” said Luc Seraphin, interim chief executive officer of Rambus. “We are also seeing growing traction for our Security products with recent customer announcements for our Unified Payment Platform and HCE Ticketing.”
For the Memory and Interface division, Q2 was a positive quarter with broad OEM and cloud customer qualifications in chips and record first half revenue for IP cores. For server DIMM chipsets, our DDR4 memory buffer chip business continues to grow with steady gains in market share and revenue growth remains on track to meet our targets for 2018. For the next-generation DDR5 memory buffer chips, we maintain our leadership position as the first and only supplier with working silicon that supports the top-end speeds for both the Register Clock Driver (RCD) and Data Buffer (DB) chips, and we continue to engage with our customers and the ecosystem. We also continue our leadership in high-speed IP Cores, with multiple new customer wins for GDDR6 and HBM2 on advanced process nodes. As the first IP supplier to offer a broadly-available GDDR6 PHY, we continue to see traction from customers across multiple high-performance applications including AI, automotive and networking.
Our Security Division, which consists of our Cryptography, Ticketing and Payments groups, had a solid quarter with new customer announcements and the launch of the CryptoManager Root of Trust core. The CryptoManager Root of Trust builds upon our first-generation CryptoManager Security Engine by adding flexible and secure processing capabilities within the trust boundary of the core. Featuring a secure RISC-V CPU custom designed by our security experts, the core helps to address wide-reaching CPU vulnerabilities, like Meltdown and Spectre, in a broad range of applications including IoT, networking and automotive. As a market leader in smart ticketing solutions, we announced the implementation of our smart ticketing software with West Midlands, and have been selected to roll out our Host Card Emulation, or HCE, Ticket Wallet Service for mobile ticketing to passengers on Scotland’s national rail network. Finally, our Payment Product Group announced last week that the Unified Payment Platform has been selected by Coles, one of Australia’s largest retail groups, to secure its Digital Payments Solutions to enhance the customer buying journey and provide a hassle-free, omni-channel payment service.
Lastly, our Emerging Solutions Division which focuses on advanced research, innovation and IP development continues its partnerships with industry leaders like Microsoft and IBM to build our portfolio of advanced memory IP and develop technologies that help move the industry forward. Both our cold memory and hybrid memory programs continue to progress with each in varying stages of prototype development. By collaborating on research and development for the future memory architectures, which includes a growing list of ecosystem partners, we are also able to leverage our learnings to drive licensing and product engagements with our memory and security customers.
Revenue for the quarter was $56.5 million, above the high end of our expectations, due to the structure of our licensing agreements signed within the quarter. Revenue under ASC 605 would have been $98.8 million, in line with our expectations. We had GAAP total operating costs and expenses of $76.4 million and non-GAAP total operating costs and expenses of $66.8 million. We also had $0.14 of GAAP diluted net loss per share and $0.03 of non-GAAP diluted net loss per share. Total GAAP and non-GAAP diluted net income per share under ASC 605 would have been $0.13 and $0.21, respectively, and were in line with our expectations.
Cash, cash equivalents, and marketable securities as of June 30, 2018 were $298.3 million. Adjusted EBITDA under ASC 605 for the quarter would have been $34.6 million.
2018 Third Quarter Outlook
Effective January 1, 2018, the Company adopted ASC 606 which materially impacted the timing of revenue recognition for the Company’s fixed-fee intellectual property licensing arrangements. The adoption of ASC 606 did not have a material impact on the Company’s other revenue streams, net cash provided by operating activities or its underlying financial position.
The Company has provided its third quarter outlook under ASC 606 and ASC 605 in order to provide additional transparency. The Company believes that providing this additional disclosure in the short term will help its investors and analysts understand the impact of the change in revenue recognition standards, especially given the material difference in the timing of revenue recognition for its fixed-fee licensing arrangements as mentioned above. Note that the presentation under ASC 605 is not a substitute for the new ASC 606 revenue recognition rules under current GAAP.
For the third quarter of 2018, the Company expects revenue under ASC 606 to be between $45 million and $51 million. Revenue is not without risk and achieving revenue in this range will require that the Company sign customer agreements for patent licensing, various product sales, mobile payments software and solutions licensing among other matters.
The Company also expects operating costs and expenses to be between $81 million and $77 million, and diluted net loss per share to be between $0.24 and $0.17. Additionally, the Company expects non-GAAP operating costs and expenses to be between $69 million and $65 million, and non-GAAP diluted net loss per share to be between $0.13 and $0.06. These expectations also assume non-GAAP interest and other income and expense of ($6 million), tax rate of 24% (refer to non-GAAP financial information below - income tax adjustments) and diluted share count of 108 million, and exclude stock-based compensation expense ($8 million), amortization expense ($5 million) and non-cash interest expense on convertible notes ($3 million).
For the third quarter of 2018, the Company expects that revenue under ASC 605 would be between $97 million and $103 million. Revenue is not without risk and achieving revenue in this range will require that the Company sign customer agreements for patent licensing, various product sales, mobile payments software and solutions licensing among other matters.
The Company also expects that operating costs and expenses would be between $81 million and $77 million, and diluted net income per share would be between $0.08 and $0.15. Additionally, the Company expects that non-GAAP operating costs and expenses would be between $69 million and $65 million, and non-GAAP diluted net income per share would be between $0.19 and $0.25. These expectations also assume non-GAAP interest and other income and expense 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 ($8 million), amortization expense ($5 million) and non-cash interest expense on convertible notes ($3 million).
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# 3034809.
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, presented both under ASC 606 and as they would have been presented under ASC 605. 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 (recoveries). These charges (recoveries) may consist of severance, contractual retention payments, exit costs and other charges (recoveries) and are excluded because such charges (recoveries) 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 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 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.
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