Rambus Reports Third Quarter 2018 Financial Results

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.

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 our new product and service offerings, growth for 2018 and financial guidance for the fourth quarter of 2018, including revenue, operating costs and expenses, earnings per share and estimated, fixed, long-term projected tax rates, both on a GAAP and non-GAAP basis as appropriate. 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.


Rambus Inc. Condensed Consolidated Balance Sheets (In thousands) (Unaudited)

	September 30, 2018		December 31, 2017
ASSETS

Current assets:
Cash and cash equivalents	$	134,534	$	225,844
Marketable securities	113,637		103,532
Accounts receivable	42,674		25,326
Unbilled receivables	164,487		566
Inventories	6,272		5,159
Prepaids and other current assets	14,434		11,317
Total current assets	476,038		371,744
Intangible assets, net	65,411		91,722
Goodwill	208,116		209,661
Property, plant and equipment, net	49,174		54,303
Deferred tax assets	3,930		159,099
Unbilled receivables, long-term	535,422		—
Other assets	5,879		4,543
Total assets	$	1,343,970	$	891,072

LIABILITIES & STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	8,572	$	9,614
Accrued salaries and benefits	14,353		17,091
Deferred revenue	12,727		18,272
Income taxes payable, short-term	17,784		258
Convertible notes, short-term	—		78,451
Other current liabilities	5,942		9,156
Total current liabilities	59,378		132,842
Long-term liabilities:
Convertible notes, long-term	140,279		135,447
Long-term imputed financing obligation	36,558		37,262
Long-term income taxes payable	81,400		3,344
Other long-term liabilities	17,351		10,593
Total long-term liabilities	275,588		186,646
Total stockholders’ equity	1,009,004		571,584
Total liabilities and stockholders’ equity	$	1,343,970	$	891,072


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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017

Revenue:
Royalties	$	33,599		$	72,787		$	85,022		$	211,733
Product revenue	11,753			8,661			27,153			27,966
Contract and other revenue	14,402			17,686			50,463			51,506
Total revenue	59,754			99,134			162,638			291,205
Operating costs and expenses:
Cost of product revenue (1)	$	5,376		$	5,152		$	13,932		$	17,882
Cost of contract and other revenue	5,952			14,456			29,163			43,274
Research and development (1)	43,131			36,196			120,944			109,718
Sales, general and administrative (1)	24,462			26,799			79,143			82,122
Gain from sale of intellectual property	—			(479		)	—			(479		)
Restructuring charges	—			—			2,223			—
Total operating costs and expenses	78,921			82,124			245,405			252,517
Operating income (loss)	(19,167		)	17,010			(82,767		)	38,688
Interest income and other income (expense), net	8,008			208			25,373			491
Interest expense	(3,976		)	(3,287		)	(13,031		)	(9,754		)
Interest and other income (expense), net	4,032			(3,079		)	12,342			(9,263		)
Income (loss) before income taxes	(15,135		)	13,931			(70,425		)	29,425
Provision for income taxes	89,069			6,236			84,825			16,119
Net income (loss)	$	(104,204	)	$	7,695		$	(155,250	)	$	13,306
Net income (loss) per share:
Basic	$	(0.97	)	$	0.07		$	(1.43	)	$	0.12
Diluted	$	(0.97	)	$	0.07		$	(1.43	)	$	0.12
Weighted average shares used in per share calculation
Basic	107,897			109,555			108,324			110,353
Diluted	107,897			113,119			108,324			113,861

_________ (1) Total stock-based compensation expense for the three and nine months ended September 30, 2018 and 2017 is presented as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Cost of product revenue	$	2		$	20		$	7		$	53
Research and development	$	3,184		$	2,969		$	9,662		$	9,048
Sales, general and administrative	$	3,003		$	3,975		$	5,922		$	11,068


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

	Three Months Ended September 30,
	ASC 606			ASC 605
	2018			2018			2017

Operating costs and expenses	$	78,921		$	78,921		$	82,124
Adjustments:
Stock-based compensation expense	(6,189		)	(6,189		)	(6,964		)
Acquisition-related transaction costs and retention bonus expense	(10		)	(10		)	(47		)
Amortization expense	(5,083		)	(5,083		)	(10,498		)
Non-GAAP operating costs and expenses	$	67,639		$	67,639		$	64,615

Operating income (loss)	$	(19,167	)	$	20,919		$	17,010
Adjustments:
Stock-based compensation expense	6,189			6,189			6,964
Acquisition-related transaction costs and retention bonus expense	10			10			47
Amortization expense	5,083			5,083			10,498
Non-GAAP operating income (loss)	$	(7,885	)	$	32,201		$	34,519

Income (loss) before income taxes	$	(15,135	)	$	18,419		$	13,931
Adjustments:
Stock-based compensation expense	6,189			6,189			6,964
Acquisition-related transaction costs and retention bonus expense	10			10			47
Amortization expense	5,083			5,083			10,498
Non-cash interest expense on convertible notes	2,191			2,191			1,801
Non-GAAP income (loss) before income taxes	$	(1,662	)	$	31,892		$	33,241
GAAP provision for income taxes	89,069			89,069			6,236
Adjustment to GAAP provision for income taxes	(89,468		)	(81,415		)	5,398
Non-GAAP provision for (benefit from) income taxes	(399		)	7,654			11,634
Non-GAAP net income (loss)	$	(1,263	)	$	24,238		$	21,607

Non-GAAP basic net income (loss) per share	$	(0.01	)	$	0.22		$	0.20
Non-GAAP diluted net income (loss) per share	$	(0.01	)	$	0.22		$	0.19
Weighted average shares used in non-GAAP per share calculation:
Basic	107,897			107,897			109,555
Diluted	107,897			109,780			113,119


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

	Three Months Ended September 30,
	ASC 606		ASC 605
	2018		2018		2017
GAAP effective tax rate	(589	)%	484	%	45	%
Adjustment to GAAP effective tax rate	613	%	(460	)%	(10	)%
Non-GAAP effective tax rate	24	%	24	%	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 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 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 September 30,									Three Months Ended September 30,
	ASC 606			ASC 605						ASC 606			ASC 605
	2018			2018			2017			2018			2018			2017

Revenue (i)	$	59,754		$	99,840		$	99,134		$	59,754		$	99,840		$	99,134
Operating income (loss) (ii)	(19,167		)	20,919			17,010			(7,885		)	32,201			34,519
Operating margin (ii/i)	(32		)%	21		%	17		%	(13		)%	32		%	35		%


	Three Months Ended September 30,
	ASC 605
	2018			2017

Net income (loss)	$	(70,650	)	$	7,695
Add back:
Interest and other income (expense), net	2,500			3,079
Provision for income taxes	89,069			6,236
Depreciation expense	2,578			3,249
Amortization expense	5,083			10,498
EBITDA (1)	$	28,580		$	30,757
Adjustments:
Stock-based compensation expense	6,189			6,964
Acquisition-related transaction costs and retention bonus expense	10			47
Adjusted EBITDA (2)	$	34,779		$	37,768

					(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)

	ASC 606						ASC 605
	Three Months Ended December 31, 2018						Three Months Ended December 31, 2018
	Low			High			Low			High

Forward-looking operating costs and expenses	$	77.4		$	73.4		$	77.4		$	73.4
Adjustments:
Stock-based compensation expense	(7.0		)	(7.0		)	(7.0		)	(7.0		)
Amortization expense	(5.4		)	(5.4		)	(5.4		)	(5.4		)
Forward-looking Non-GAAP operating costs and expenses	$	65.0		$	61.0		$	65.0		$	61.0

Forward-looking operating income (loss)	$	(21.4	)	$	(11.4	)	$	21.6		$	31.6
Adjustments:
Stock-based compensation expense	7.0			7.0			7.0			7.0
Amortization expense	5.4			5.4			5.4			5.4
Forward-looking Non-GAAP operating income (loss)	$	(9.0	)	$	1.0		$	34.0		$	44.0

Forward-looking income (loss) before income taxes	$	(19.1	)	$	(9.1	)	$	17.5		$	27.5
Adjustments:
Stock-based compensation expense	7.0			7.0			7.0			7.0
Amortization expense	5.4			5.4			5.4			5.4
Non-cash interest expense on convertible notes	2.7			2.7			2.7			2.7
Forward-looking Non-GAAP income (loss) before income taxes	$	(4.0	)	$	6.0		$	32.6		$	42.6
Forward-looking GAAP provision for (benefit from) income taxes	(4.6		)	(2.2		)	4.2			6.6
Adjustment to Forward-looking GAAP provision for (benefit from) income taxes	3.6			3.6			3.6			3.6
Forward-looking Non-GAAP provision for (benefit from) income taxes	(1.0		)	1.4			7.8			10.2
Forward-looking Non-GAAP net income (loss)	$	(3.0	)	$	4.6		$	24.8		$	32.4

Forward-looking Non-GAAP basic net income (loss) per share	$	(0.03	)	$	0.04		$	0.23		$	0.30
Forward-looking Non-GAAP diluted net income (loss) per share	$	(0.03	)	$	0.04		$	0.23		$	0.29
Weighted average shares used in forward-looking Non-GAAP per share calculation:
Basic	108.0			108.0			108.0			108.0
Diluted	108.0			110.0			110.0			110.0

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