Rambus Reports Second Quarter 2017 Financial Results

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)

	June 30, 2017		December 31, 2016
ASSETS

Current assets:
Cash and cash equivalents	$	167,207	$	135,294
Marketable securities	746		36,888
Accounts receivable	36,788		21,099
Inventories	5,328		5,633
Prepaids and other current assets	12,255		17,867
Total current assets	222,324		216,781
Intangible assets, net	111,875		132,388
Goodwill	207,959		204,794
Property, plant and equipment, net	54,305		58,442
Deferred tax assets	206,942		168,342
Other assets	2,564		2,749
Total assets	$	805,969	$	783,496

LIABILITIES & STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	9,099	$	9,793
Accrued salaries and benefits	14,076		14,177
Deferred revenue	21,327		16,932
Other current liabilities	9,449		10,399
Total current liabilities	53,951		51,301
Long-term liabilities:
Convertible notes, long-term	129,690		126,167
Long-term imputed financing obligation	37,677		38,029
Other long-term liabilities	14,433		15,217
Total long-term liabilities	181,800		179,413
Total stockholders’ equity	570,218		552,782
Total liabilities and stockholders’ equity	$	805,969	$	783,496


Rambus Inc. Condensed Consolidated Statements of Operations (In thousands, except per share amounts) (Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
		2017			2016			2017			2016

Revenue:
Royalties	$	69,990		$	62,835		$	138,946		$	125,712
Product revenue		8,401			3,902			19,305			7,214
Contract and other revenue		16,329			9,764			33,820			16,257
Total revenue		94,720			76,501			192,071			149,183
Operating costs and expenses:
Cost of product revenue (1)		7,480			3,016			12,730			5,550
Cost of contract and other revenue		14,337			11,073			28,818			20,746
Research and development (1)		37,522			28,753			73,522			57,280
Sales, general and administrative (1)		27,137			21,789			55,323			44,884
Gain from settlement		—			(138	)		—			(579	)
Total operating costs and expenses		86,476			64,493			170,393			127,881
Operating income		8,244			12,008			21,678			21,302
Interest income and other income (expense), net		129			1,138			283			1,380
Interest expense		(3,261	)		(3,163	)		(6,467	)		(6,304	)
Interest and other income (expense), net		(3,132	)		(2,025	)		(6,184	)		(4,924	)
Income before income taxes		5,112			9,983			15,494			16,378
Provision for income taxes		2,507			6,107			9,883			10,624
Net income	$	2,605		$	3,876		$	5,611		$	5,754
Net income per share:
Basic	$	0.02		$	0.04		$	0.05		$	0.05
Diluted	$	0.02		$	0.03		$	0.05		$	0.05
Weighted average shares used in per share calculation
Basic		110,060			109,904			110,758			109,818
Diluted		112,565			112,061			114,091			112,202

_________ (1) Total stock-based compensation expense for the three and six months ended June 30, 2017 and 2016 is presented as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
		2017			2016			2017			2016
Cost of product revenue	$	19		$	14		$	33		$	28
Research and development	$	3,067		$	2,109		$	6,079		$	4,189
Sales, general and administrative	$	3,523		$	2,926		$	7,093		$	5,696


Rambus Inc. Supplemental Reconciliation of GAAP to Non-GAAP Results (In thousands) (Unaudited)

	Three Months Ended									Six Months Ended
	June 30, 2017			March 31, 2017			June 30, 2016			June 30, 2017			June 30, 2016

Operating costs and expenses	$	86,476		$	83,917		$	64,493		$	170,393		$	127,881
Adjustments:
Stock-based compensation expense	(6,609		)	(6,596		)	(5,049		)	(13,205		)	(9,913		)
Acquisition-related transaction costs and retention bonus expense	(90		)	(81		)	(789		)	(171		)	(2,597		)
Amortization expense	(10,450		)	(10,488		)	(8,152		)	(20,938		)	(15,871		)
Non-GAAP operating costs and expenses	$	69,327		$	66,752		$	50,503		$	136,079		$	99,500

Operating income	$	8,244		$	13,434		$	12,008		$	21,678		$	21,302
Adjustments:
Stock-based compensation expense	6,609			6,596			5,049			13,205			9,913
Acquisition-related transaction costs and retention bonus expense	90			81			789			171			2,597
Amortization expense	10,450			10,488			8,152			20,938			15,871
Non-GAAP operating income	$	25,393		$	30,599		$	25,998		$	55,992		$	49,683

Income before income taxes	$	5,112		$	10,382		$	9,983		$	15,494		$	16,378
Adjustments:
Stock-based compensation expense	6,609			6,596			5,049			13,205			9,913
Acquisition-related transaction costs and retention bonus expense	90			81			789			171			2,597
Amortization expense	10,450			10,488			8,152			20,938			15,871
Non-cash interest expense on convertible notes	1,774			1,749			1,675			3,523			3,326
Non-GAAP income before income taxes	$	24,035		$	29,296		$	25,648		$	53,331		$	48,085
GAAP provision for income taxes	2,507			7,376			6,107			9,883			10,624
Adjustment to GAAP provision for income taxes	5,905			2,878			2,870			8,783			6,206
Non-GAAP provision for income taxes	8,412			10,254			8,977			18,666			16,830
Non-GAAP net income	$	15,623		$	19,042		$	16,671		$	34,665		$	31,255

Non-GAAP basic net income per share	$	0.14		$	0.17		$	0.15		$	0.31		$	0.28
Non-GAAP diluted net income per share	$	0.14		$	0.17		$	0.15		$	0.30		$	0.28
Weighted average shares used in non-GAAP per share calculation:
Basic	110,060			111,464			109,904			110,758			109,818
Diluted	112,565			115,325			112,061			114,091			112,202


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

	Three Months Ended						Six Months Ended
	June 30, 2017		March 31, 2017		June 30, 2016		June 30, 2017		June 30, 2016

GAAP effective tax rate	49	%	71	%	61	%	64	%	65	%
Adjustment to GAAP effective tax rate	(14	)%	(36	)%	(26	)%	(29	)%	(30	)%
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 June 30,						Three Months Ended June 30,
	2017			2016			2017			2016
Revenue (i)	$94,720			$	76,501		$	94,720		$	76,501
Operating income (ii)	8,244				12,008			25,393			25,998
Operating margin (ii/i)	9		%		16	%		27	%		34	%

	GAAP						Non-GAAP
	Six Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Revenue (i)	$	192,071		$	149,183		$	192,071		$	149,183
Operating income (ii)	21,678				21,302			55,992			49,683
Operating margin (ii/i)	11		%		14	%		29	%		33	%

							Three Months Ended June 30,
							2017			2016

Net income							$	2,605		$	3,876
Add back:
Interest and other income (expense), net								3,132			2,025
Provision for income taxes								2,507			6,107
Depreciation expense								3,330			2,996
Amortization expense								10,450			8,152
EBITDA (1)							$	22,024		$	23,156
Adjustments:
Stock-based compensation expense								6,609			5,049
Acquisition-related transaction costs and retention bonus expense								90			789
Adjusted EBITDA (2)							$	28,723		$	28,994

			(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 September 30, 2017
	Low			High

Forward-looking operating costs and expenses	$	89.2		$	85.2
Adjustments:
Stock-based compensation expense	(7.5		)	(7.5		)
Amortization expense	(11.0		)	(11.0		)
Forward-looking Non-GAAP operating costs and expenses	$	70.7		$	66.7

Forward-looking operating income	$	6.8		$	16.8
Adjustments:
Stock-based compensation expense	7.5			7.5
Amortization expense	11.0			11.0
Forward-looking Non-GAAP operating income	$	25.3		$	35.3

Forward-looking income before income taxes	$	4.1		$	14.1
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	$	24.3		$	34.3
Forward-looking GAAP provision for income taxes	1.4			4.9
Adjustment to Forward-looking GAAP provision for income taxes	7.1			7.1
Forward-looking Non-GAAP provision for income taxes	8.5			12.0
Forward-looking Non-GAAP net income	$	15.8		$	22.3

Forward-looking Non-GAAP basic net income per share	$	0.14		$	0.20
Forward-looking Non-GAAP diluted net income per share	$	0.14		$	0.20
Weighted average shares used in forward-looking Non-GAAP per share calculation:
Basic	111.0			111.0
Diluted	113.0			113.0

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