Rambus Reports Fourth Quarter and Fiscal Year 2018 Financial

Rambus Reports Fourth Quarter and Fiscal Year 2018 Financial Results

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 product and service offerings, future profit and growth and financial guidance for the first quarter of 2019, including operating costs and expenses, 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)

	December 31, 2018		December 31, 2017
ASSETS

Current assets:
Cash and cash equivalents	$	115,924	$	225,844
Marketable securities	161,840		103,532
Accounts receivable	50,863		25,326
Unbilled receivables	176,613		566
Inventories	6,772		5,159
Prepaids and other current assets	15,738		11,317
Total current assets	527,750		371,744
Intangible assets, net	59,936		91,722
Goodwill	207,178		209,661
Property, plant and equipment, net	57,028		54,303
Deferred tax assets	4,435		159,099
Unbilled receivables, long-term	497,003		—
Other assets	7,825		4,543
Total assets	$	1,361,155	$	891,072

LIABILITIES & STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	7,392	$	9,614
Accrued salaries and benefits	16,938		17,091
Deferred revenue	19,374		18,272
Income taxes payable, short-term	16,390		258
Convertible notes, short-term	—		78,451
Other current liabilities	9,191		9,156
Total current liabilities	69,285		132,842
Long-term liabilities:
Convertible notes, long-term	141,934		135,447
Long-term imputed financing obligation	36,297		37,262
Long-term income taxes payable	77,280		3,344
Deferred tax liabilities	18,960		9,830
Other long-term liabilities	5,287		763
Total long-term liabilities	279,758		186,646
Total stockholders’ equity	1,012,112		571,584
Total liabilities and stockholders’ equity	$	1,361,155	$	891,072

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

	Three Months Ended December 31,						Year Ended December 31,
	2018			2017			2018			2017

Revenue:
Royalties	$	45,430		$	77,861		$	130,452		$	289,594
Product revenue	11,537			8,543			38,690			36,509
Contract and other revenue	11,596			15,487			62,059			66,993
Total revenue	68,563			101,891			231,201			393,096
Operating costs and expenses:
Cost of product revenue (1)	4,367			5,901			18,299			23,783
Cost of contract and other revenue	6,239			12,090			35,402			55,364
Research and development (1)	37,395			39,417			158,339			149,135
Sales, general and administrative (1)	24,768			28,818			103,911			110,940
Restructuring charges (recoveries)	(6		)	—			2,217			—
Gain from sale of intellectual property	—			(54		)	—			(533		)
Total operating costs and expenses	72,763			86,172			318,168			338,689
Operating income (loss)	(4,200		)	15,719			(86,967		)	54,407
Interest income and other income (expense), net	7,248			893			32,621			1,384
Loss on extinguishment of debt	—			(1,082		)	—			(1,082		)
Interest expense	(3,251		)	(3,966		)	(16,282		)	(13,720		)
Interest and other income (expense), net	3,997			(4,155		)	16,339			(13,418		)
Income (loss) before income taxes	(203		)	11,564			(70,628		)	40,989
Provision for income taxes	1,815			47,732			87,329			63,851
Net loss	$	(2,018	)	$	(36,168	)	$	(157,957	)	$	(22,862	)
Net loss per share:
Basic	$	(0.02	)	$	(0.33	)	$	(1.46	)	$	(0.21	)
Diluted	$	(0.02	)	$	(0.33	)	$	(1.46	)	$	(0.21	)
Weighted average shares used in per share calculation
Basic	108,826			109,737			108,450			110,198
Diluted	108,826			109,737			108,450			110,198


_________ (1) Total stock-based compensation expense for the three months and years ended December 31, 2018 and 2017 are presented as follows:


	Three Months Ended December 31,						Year Ended December 31,
	2018			2017			2018			2017
Cost of product revenue	$	1		$	25		$	8		$	78
Research and development	$	2,920		$	3,137		$	12,582		$	12,185
Sales, general and administrative	$	3,224		$	4,072		$	9,146		$	15,140

Rambus Inc.
Supplemental Annual Financial Review
(In millions, except per share amounts)
(Unaudited)

Annual Financial Review - GAAP	Year Ended December 31,
(In millions, except for percentages and per share amounts)	2018									2017
	As Reported ASC 606			Adjustments (1)			ASC 605 (1)			As Reported ASC 605
	As Reported ASC 606			Adjustments (1)			ASC 605 (1)			As Reported ASC 605
Revenue	$	231.2		$	169.9		$	401.1		$	393.1
Total operating costs and expenses	$	318.2		$	—		$	318.2		$	338.7
Operating income (loss)	$	(87.0	)	$	169.9		$	82.9		$	54.4
Operating margin	(38		)%	58		%	21		%	14		%
Net income (loss)	$	(157.9	)	$	142.6		$	(15.3	)	$	(22.9	)
Diluted net income (loss) per share	$	(1.46	)	$	1.32		$	(0.14	)	$	(0.21	)

Net cash provided by operating activities	$	87.1		$	—		$	87.1		$	117.4

(1) See note (1) under “Quarterly Financial Review-GAAP” above for a description of the Adjustments and ASC 605 presentations.

Annual Financial Review - Non-GAAP (1)	Year Ended December 31,
(In millions, except for percentages and per share amounts)	2018									2017
	As Reported ASC 606			Adjustments (2)			ASC 605 (2)			As Reported ASC 605
	As Reported ASC 606			Adjustments (2)			ASC 605 (2)			As Reported ASC 605
Revenue	$	231.2		$	169.9		$	401.1		$	393.1
Total operating costs and expenses	$	264.8		$	—		$	264.8		$	269.1
Operating income (loss)	$	(33.6	)	$	169.9		$	136.3		$	124.0
Operating margin	(15		)%	49		%	34		%	32		%
Net income (loss)	$	(6.1	)	$	108.4		$	102.3		$	77.5
Diluted net income (loss) per share	$	(0.06	)	$	0.98		$	0.92		$	0.68

(1) See “Reconciliation of GAAP Forward Looking Estimates to Non-GAAP Forward Looking Estimates” tables included below. Note that the applicable non-GAAP measures are presented and that revenue is solely presented on a GAAP basis.

(2) See note (1) under “Quarterly Financial Review-GAAP” above for a description of the Adjustments and ASC 605 presentations.

Rambus Inc.
Supplemental Revenue and Licensing Billings
(In thousands)
(Unaudited)

2018 Revenue under ASC 606
	Quarter ended								Year ended
	December 31, 2018		September 30, 2018		June 30, 2018		March 31, 2018		December 31, 2018
Revenue
Royalties	$	45,430	$	33,599	$	30,049	$	21,374	$	130,452
Product revenue	11,537		11,753		8,087		7,313		38,690
Contract and other revenue	11,596		14,402		18,322		17,739		62,059
Total revenue	$	68,563	$	59,754	$	56,458	$	46,426	$	231,201

2018 Revenue under ASC 605 and Licensing Billings
	Quarter ended								Year ended
	December 31, 2018		September 30, 2018		June 30, 2018		March 31, 2018		December 31, 2018
Revenue
Royalties	$	76,717	$	75,704	$	73,626	$	77,174	$	303,221
Product revenue	11,867		11,753		8,221		7,556		39,397
Contract and other revenue	13,398		12,383		16,973		15,729		58,483
Total revenue	$	101,982	$	99,840	$	98,820	$	100,459	$	401,101

Licensing billings (1)	$	76,717	$	75,374	$	73,210	$	75,924	$	301,225

2017 Revenue under ASC 605 and Licensing Billings
	Quarter ended								Year ended
	December 31, 2017		September 30, 2017		June 30, 2017		March 31, 2017		December 31, 2017
Revenue
Royalties	$	77,861	$	72,787	$	69,990	$	68,956	$	289,594
Product revenue	8,543		8,661		8,401		10,904		36,509
Contract and other revenue	15,487		17,686		16,329		17,491		66,993
Total revenue	$	101,891	$	99,134	$	94,720	$	97,351	$	393,096

Licensing billings (1)	$	76,611	$	71,537	$	72,890	$	68,556	$	289,594

2016 Revenue under ASC 605 and Licensing Billings
	Quarter ended								Year ended
	December 31, 2016		September 30, 2016		June 30, 2016		March 31, 2016		December 31, 2016
Revenue
Royalties	$	70,604	$	68,298	$	62,835	$	62,877	$	264,614
Product revenue	11,746		7,092		3,902		3,312		26,052
Contract and other revenue	15,209		14,465		9,764		6,493		45,931
Total revenue	$	97,559	$	89,855	$	76,501	$	72,682	$	336,597

Licensing billings (1)	$	64,854	$	71,548	$	66,604	$	61,683	$	264,689

			(1)		Licensing billings is an operational metric that reflects amounts invoiced to our licensing customers during the period, as adjusted for certain differences.

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

	Three Months Ended December 31,									Year Ended December 31,
	ASC 606			ASC 605						ASC 606			ASC 605
	2018			2018			2017			2018			2018			2017

Operating costs and expenses	$	72,763		$	72,763		$	86,172		$	318,168		$	318,168		$	338,689
Adjustments:
Stock-based compensation expense	(6,145		)	(6,145		)	(7,234		)	(21,736		)	(21,736		)	(27,403		)
Acquisition-related transaction costs and retention bonus expense	—			—			(30		)	(70		)	(70		)	(248		)
Amortization expense	(4,989		)	(4,989		)	(10,526		)	(29,341		)	(29,341		)	(41,962		)
Restructuring charges (recoveries)	6			6			—			(2,217		)	(2,217		)	—
Non-GAAP operating costs and expenses	$	61,635		$	61,635		$	68,382		$	264,804		$	264,804		$	269,076

Operating income (loss)	$	(4,200	)	$	29,219		$	15,719		$	(86,967	)	$	82,933		$	54,407
Adjustments:
Stock-based compensation expense	6,145			6,145			7,234			21,736			21,736			27,403
Acquisition-related transaction costs and retention bonus expense	—			—			30			70			70			248
Amortization expense	4,989			4,989			10,526			29,341			29,341			41,962
Restructuring charges (recoveries)	(6		)	(6		)	—			2,217			2,217			—
Non-GAAP operating income (loss)	$	6,928		$	40,347		$	33,509		$	(33,603	)	$	136,297		$	124,020

Income (loss) before income taxes	$	(203	)	$	27,068		$	11,564		$	(70,628	)	$	72,037		$	40,989
Adjustments:
Stock-based compensation expense	6,145			6,145			7,234			21,736			21,736			27,403
Acquisition-related transaction costs and retention bonus expense	—			—			30			70			70			248
Amortization expense	4,989			4,989			10,526			29,341			29,341			41,962
Restructuring charges (recoveries)	(6		)	(6		)	—			2,217			2,217			—
Loss on extinguishment of debt	—			—			1,082			—			—			1,082
Non-cash interest expense on convertible notes	1,655			1,655			2,255			9,242			9,242			7,579
Non-GAAP income (loss) before income taxes	$	12,580		$	39,851		$	32,691		$	(8,022	)	$	134,643		$	119,263
GAAP provision for income taxes	1,815			1,815			47,732			87,329			87,329			63,851
Adjustment to GAAP provision for income taxes	1,204			7,749			(36,290		)	(89,255		)	(55,015		)	(22,109		)
Non-GAAP provision for (benefit from) income taxes	3,019			9,564			11,442			(1,926		)	32,314			41,742
Non-GAAP net income (loss)	$	9,561		$	30,287		$	21,249		$	(6,096	)	$	102,329		$	77,521

Non-GAAP basic net income (loss) per share	$	0.09		$	0.28		$	0.19		$	(0.06	)	$	0.94		$	0.70
Non-GAAP diluted net income (loss) per share	$	0.09		$	0.28		$	0.19		$	(0.06	)	$	0.92		$	0.68
Weighted average shares used in non-GAAP per share calculation:
Basic	108,826			108,826			109,737			108,450			108,450			110,198
Diluted	109,618			109,618			114,341			108,450			110,837			113,899

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

	Three Months Ended December 31,						Year Ended December 31,
	ASC 606		ASC 605				ASC 606		ASC 605
	2018		2018		2017		2018		2018		2017
GAAP effective tax rate	(894	)%	7	%	413	%	(124	)%	121	%	156	%
Adjustment to GAAP effective tax rate	918	%	17	%	(378	)%	148	%	(97	)%	(121	)%
Non-GAAP effective tax rate	24	%	24	%	35	%	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 December 31,									Three Months Ended December 31,
	ASC 606			ASC 605						ASC 606					ASC 605
	2018			2018			2017			2018					2018					2017

Revenue (i)	$	68,563		$	101,982		$	101,891		$	68,563				$	101,982				$	101,891
Operating income (loss) (ii)	(4,200		)	29,219			15,719			6,928					40,347					33,509
Operating margin (ii/i)	(6		)%	29		%	15		%	10				%	40				%	33		%

	GAAP									Non-GAAP
	Year Ended December 31,									Year Ended December 31,
	ASC 606			ASC 605						ASC 606					ASC 605
	2018			2018			2017			2018					2018					2017

Revenue (i)	$	231,201		$	401,101		$	393,096		$	231,201				$	401,101				$	393,096
Operating income (loss) (ii)	(86,967		)	82,933			54,407			(33,603				)	136,297					124,020
Operating margin (ii/i)	(38		)%	21		%	14		%	(15				)%	34				%	32		%

												Three Months Ended December 31,
												ASC 605
												2018						2017

Net income (loss)												$	25,253					$	(36,168			)
Add back:
Interest and other income (expense), net												2,151						4,155
Provision for income taxes												1,815						47,732
Depreciation expense												2,638						3,304
Amortization expense												4,989						10,526
EBITDA (1)												$	36,846					$	29,549
Adjustments:
Stock-based compensation expense												6,145						7,234
Acquisition-related transaction costs and retention bonus expense												—						30
Restructuring recoveries												(6					)	—
Adjusted EBITDA (2)												$	42,985					$	36,813

			(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 (loss). EBITDA is net income (loss) adjusted for net interest and other income (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)
(Unaudited)

2019 First Quarter Outlook	Three Months Ended March 31, 2019
	Low			High

Forward-looking operating costs and expenses	$	78.1		$	74.1
Adjustments:
Stock-based compensation expense	(6.6		)	(6.6		)
Amortization expense	(5.0		)	(5.0		)
Forward-looking Non-GAAP operating costs and expenses	$	66.5		$	62.5

Forward-looking interest and other income (expense), net	$	3.4		$	3.4
Adjustments:
Interest income related to significant financing component from fixed-fee patent and technology licensing arrangements	(5.7		)	(5.7		)
Non-cash interest expense on convertible notes	1.7			1.7
Forward-looking Non-GAAP interest and other income (expense), net	$	(0.6	)	$	(0.6	)

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