Cypress Reports First Quarter 2019 Results

FORWARD-LOOKING STATEMENTS

Statements in this press release that are not historical facts and that refer to Cypress or its subsidiaries’ plans and expectations for the future are forward-looking statements as such term is used in the Private Securities Litigation Reform Act of 1995. We may use words such as "may," "will," "should," "plan," "anticipate," "believe," "expect," "future," "intend," "estimate," "predict," "potential," "continue" or similar expressions identify forward-looking statements. This press release includes, among others, forward-looking statements regarding our second quarter financial outlook (as well as the related GAAP to non-GAAP reconciling items). Our forward-looking statements are based on the expectations, beliefs, and intentions of, and the information available to, our executive management on the date of this press release. Forward-looking statements involve risks and uncertainties, and readers are cautioned not to place undue reliance on forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to: potential tariffs and other disruptions in the international trade and investment environment; global economic and market conditions; our ability to execute on our Cypress 3.0 strategy and our margin improvement plan; risks related to paying down our indebtedness and meeting the covenants in our debt agreements; our efforts to retain and expand our customer base; business conditions and growth trends in the semiconductor market; competition; volatility in supply and demand for our products, including but not limited to the impact of seasonality on supply and demand; our ability to develop, introduce and sell new products and technologies; potential problems relating to our manufacturing activities; reliance on distributors, resellers, third-party manufacturers, and others; risks related to our "take or pay" agreements with certain vendors; the risk of defects, errors, or security vulnerabilities in our products; the impact of acquisitions; our ability to attract and retain key personnel; the unpredictability and expense of legal proceedings; and other risks and uncertainties described in the "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Quantitative and Qualitative Disclosures about Market Risk" sections in our most recent Annual Report on Form 10-K filing with the Securities and Exchange Commission which is available on our investor relations website at http://investors.cypress.com/financial-information/sec-filings. We assume no responsibility to update our forward-looking statements.

Cypress, the Cypress logo and PSoC are registered trademarks and Excelon, F-RAM and EZ-PD are trademarks of Cypress Semiconductor Corporation. ZipKey is a registered trademark of Cirrent, Inc. All other trademarks are property of their owners.


CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

	March 31, 2019		December 30, 2018

ASSETS
Cash, cash equivalents and short-term investments	$	285,119	$	285,720
Accounts receivable, net	266,374		324,274
Inventories	316,921		292,093
Assets held for sale	10,818		13,510
Property, plant and equipment, net	274,123		282,986
Goodwill and other intangible assets, net	1,812,452		1,864,340
Other assets	661,817		630,292
Total assets	$	3,627,624	$	3,693,215
LIABILITIES AND EQUITY
Accounts payable	$	181,220	$	210,715
Income tax liabilities	53,041		53,469
Revenue reserves, deferred margin and other liabilities	422,311		437,757
Revolving credit facility and long-term debt	851,279		874,235
Total liabilities	1,507,851		1,576,176
Total Cypress stockholders' equity	2,118,469		2,115,734
Non-controlling interest	1,304		1,305
Total equity	2,119,773		2,117,039
Total liabilities and equity	$	3,627,624	$	3,693,215


CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ON A GAAP BASIS
(In thousands, except per-share data)
(Unaudited)

	Three Months Ended
	March 31, 2019			December 30, 2018			April 1, 2018
Revenues	$	539,004		$	604,474		$	582,241
Cost of revenue	336,595			379,264			369,849
Gross profit	202,409			225,210			212,392
Research and development	88,606			82,379			93,233
Selling, general and administrative	81,987			140,091			83,397
Total operating expenses	170,593			222,470			176,630
Operating income	31,816			2,740			35,762
Interest and other expense, net	(9,244		)	(20,489		)	(18,154		)
Income before income taxes, share in net loss of equity method investee and non-controlling interest	22,572			(17,749		)	17,608
Income tax provision	730			331,447			(5,057		)
Share in net loss of equity method investee	(3,590		)	(46,497		)	(3,461		)
Net income	19,712			267,201			9,090
Net gain attributable to non-controlling interests	2			(87		)	(12		)
Net income attributable to Cypress	$	19,714		$	267,114		$	9,078
Net income per share attributable to Cypress:
Basic	$	0.05		$	0.74		$	0.03
Diluted	$	0.05		$	0.72		$	0.02
Cash dividend declared per share	$	0.11		$	0.11		$	0.11
Shares used in net income per share calculation:
Basic	363,700			361,616			355,461
Diluted	373,131			369,638			370,592


CYPRESS SEMICONDUCTOR CORPORATION
RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES
(In thousands, except per-share data)
(Unaudited)

Table A: GAAP to non-GAAP reconciling items: Three Months Ended Q1 2019
	Cost of revenues			Research and development			Selling, general and administrative			Interest and other expense, net
GAAP [i]	$	336,595		$	88,606		$	81,987		$	(12,834	)
[1] Stock-based compensation	2,684			6,680			11,031			—
[2] Changes in value of deferred compensation plan	471			2,204			2,259			(4,334		)
[3] Loss on assets held for sale	2,017			—			1,515			—
[4] Share in net loss of equity method investees	—			—			—			3,590
[5] Imputed interest on convertible debt, equity component amortization on convertible debt and others	—			—			—			3,368
[6] Amortization of debt issuance costs	—			—			—			929
[7] Amortization of acquisition-related intangible assets and other	48,217			—			4,310			—
[8] Restructuring charges	(49		)	—			98			—
[9] Other income and expenses	—			57			448			303
Non - GAAP [ii]	$	283,255		$	79,665		$	62,326		$	(8,978	)
Impact of reconciling items [ii - i]	$	(53,340	)	$	(8,941	)	$	(19,661	)	$	3,856


Table B: GAAP to non-GAAP reconciling items: Three Months Ended Q4 2018
	Cost of revenues			Research and development			Selling, general and administrative			Interest and other expense, net
GAAP [i]	$	379,264		$	82,379		$	140,091		$	(66,986	)
[1] Stock-based compensation	3,842			6,395			9,166			—
[2] Changes in value of deferred compensation plan	(468		)	(2,377		)	(2,726		)	5,401
[3] Loss on assets held for sale¹	10,869			—			65,722			—
[4] Share in net loss of equity method investees²	—			—			—			46,496
[5] Imputed interest on convertible debt, equity component amortization on convertible debt and others	—			—			—			3,338
[6] Amortization of debt issuance costs	—			—			—			908
[7] Amortization of intangible assets and other	49,583			—			4,310			—
[8] Litigation settlement and other	—			(309		)	(159		)	159
[9] Restructuring charges	135			944			437			—
Non - GAAP [ii]	$	315,303		$	77,726		$	63,341		$	(10,684	)
Impact of reconciling items [ii - i]	$	(63,961	)	$	(4,653	)	$	(76,750	)	$	56,302

1.		Relates to our entry into a definitive agreement to divest the NAND business
2.		Includes $41.5 million impairment charge recorded for the investment in Deca Technologies Inc.


Table C: GAAP to Non-GAAP reconciling items: Three Months Ended Q1 2018
	Cost of revenues			Research and development			Selling, general and administrative			Interest and other expense, net
GAAP [i]	$	369,849		$	93,233		$	83,397		$	(21,615	)
[1] Stock-based compensation	3,584			6,713			8,161			—
[2] Changes in value of deferred compensation plan	61			272			350			(266		)
[3] Share in net loss and impairment of equity method investees	—			—			—			3,461
[4] Imputed interest on convertible debt, equity component amortization on convertible debt and others	—			—			—			3,431
[5] Loss on extinguishment of convertible notes and debt issuance cost write off due to refinancing	—			—			—			3,258
[6] Amortization of debt issuance costs	—			—			—			1,073
[7] Amortization of acquisition-related intangible assets and other	49,438			—			5,150			—
[8] Restructuring charges and other	1,887			292			1,917			393
Non - GAAP [ii]	$	314,879		$	85,956		$	67,819		$	(10,265	)
Impact of reconciling items [ii - i]	$	(54,970	)	$	(7,277	)	$	(15,578	)	$	11,350


Table D: Non-GAAP gross profit	Three Months Ended
	Q1'19			Q4'18			Q1'18
GAAP gross profit	$	202,409		$	225,210		$	212,392
Impact of reconciling items on cost of revenues (see Table A, B, C)	53,340			63,961			54,970
Non-GAAP gross profit	$	255,749		$	289,171		$	267,362
GAAP gross margin (GAAP gross profit/revenue)	37.6		%	37.3		%	36.5		%
Non-GAAP gross margin (Non-GAAP gross profit/revenue)	47.4		%	47.8		%	45.9		%


Table E: Non-GAAP operating income	Three Months Ended
	Q1'19			Q4'18			Q1'18
GAAP operating income [i]	$	31,816		$	2,740		$	35,762
Impact of reconciling items on cost of revenues (see Table A, B, C)	53,340			63,961			54,970
Impact of reconciling items on R&D (see Table A, B, C)	8,941			4,653			7,277
Impact of reconciling items on SG&A (see Table A, B, C)	19,661			76,750			15,578
Non-GAAP operating income [ii]	$	113,758		$	148,104		$	113,587
Impact of reconciling items on operating income [ii - i]	$	81,942		$	145,364		$	77,825
GAAP operating margin (GAAP operating income / revenue)	5.9		%	0.5		%	6.1		%
Non-GAAP operating margin (Non-GAAP operating income / revenue)	21.1		%	24.5		%	19.5		%


Table F: Non-GAAP pre-tax profit	Three Months Ended
	Q1'19			Q4'18			Q1'18
GAAP income (loss) before income taxes and non-controlling interest ("Pre-tax income")	$	22,572		$	(17,749	)	$	17,608
Share in net loss and impairment of equity method investees	(3,590		)	(46,497		)	(3,461		)
Impact of reconciling items on operating income (see Table E)	81,942			145,364			77,825
Impact of reconciling items on interest and other expense, net (see Table A, B, C)	3,856			56,302			11,350
Non-GAAP pre-tax profit	$	104,780		$	137,420		$	103,322
GAAP pre-tax profit margin (GAAP pre-tax income/revenue)	4.2		%	(2.9		)%	3.0		%
Non-GAAP pre-tax profit margin (Non-GAAP pre-tax profit/revenue)	19.4		%	22.7		%	17.7		%


Table G: Non-GAAP income tax expense	Three Months Ended
	Q1'19			Q4'18			Q1'18
GAAP income tax provision [i]	(730		)	(331,447		)	5,057
[1] Stock-based compensation	4,283			4,075			3,876
[2] Changes in value of deferred compensation plan	126			(36		)	88
[3] Merger, integration, related costs and adjustments related to assets held for sale	—			57			—
[4] Share in net loss and impairment of equity method investees	754			9,764			727
[5] Imputed interest on convertible debt, equity component amortization on convertible debt and others	707			892			721
[6] Amortization of debt issuance costs	195			—			225
[7] Amortization of acquisition-related intangible assets and other	11,031			11,202			11,463
[8] Restructuring charges	21			318			860
[9] Other (income) and expenses	159			(6		)	—
[10] Loss on extinguishment of convertible notes	742			16,084			684
[11] Uncertain tax positions	297			(3,945		)	(1,362		)
[12] Valuation allowance release, utilization of NOL including excess tax benefits, and others**	(14,907		)	299,385			(19,325		)
Non-GAAP income tax expense [ii]*	$	2,678		$	6,343		$	3,014
Impact of reconciling items on income tax provision [i - ii]	(3,408		)	(337,790		)	2,043

*Tax impact of Non-GAAP adjustments is calculated by using the federal statutory rate of 21%.

** Other items include but are not limited to deferred tax expense not affecting income tax payable.


Table H: Non-GAAP net income
	Three Months Ended
	Q1'19			Q4'18			Q1'18
GAAP net income (loss) attributable to Cypress	$	19,714		$	267,114		$	9,078
Impact of reconciling items on operating income (see Table E)	81,942			145,364			77,825
Impact of reconciling items on interest and other expense, net (see Table A, B, C)	3,856			56,302			11,350
Impact of reconciling items on income tax provision (see Table G)	(3,408		)	(337,790		)	2,043
Non-GAAP net income	$	102,104		$	130,990		$	100,296

Table I: Weighted-average shares, diluted

Three Months Ended

Q1'19

Q4'18

Q1'18

GAAP

Non-GAAP

GAAP

Non-GAAP

GAAP

Non-GAAP

Weighted-average common shares outstanding, basic

363,700

361,616

355,461

Effect of dilutive securities:

Stock options, unvested restricted stock units and other

6,343

10,496

6,482

11,709

7,897

12,515

Convertible notes

3,088

1,634

1,540

7,234

4,750

Weighted-average common shares outstanding, diluted

373,131

375,830

369,638

374,865

370,592

372,726


Table J: Earnings per share
	Three Months Ended
	Q1'19				Q4'18				Q1'18
	GAAP		Non-GAAP		GAAP		Non-GAAP		GAAP		Non-GAAP
Net income (see Table H) [i]	$	19,714	$	102,104	$	267,114	$	130,990	$	9,078	$	100,296
Weighted-average common shares outstanding, diluted (see Table I) [ii]	373,131		375,830		369,638		374,865		370,592		372,726
Earnings per share - diluted [i/ii]	$	0.05	$	0.27	$	0.72	$	0.35	$	0.02	$	0.27


Table K: Adjusted EBITDA
	Three Months Ended
	Q1'19			Q4'18			Q1'18
GAAP net income attributable to Cypress	$	19,714		$	267,114		$	9,078
Interest and other expense, net	(9,244		)	(20,489		)	(18,154		)
Income tax provision	730			331,447			(5,057		)
Share in net loss of and impairment of equity method investees	(3,590		)	(46,497		)	(3,461		)
Net gain (loss) attributable to non-controlling interests	2			(87		)	(12		)
GAAP operating income	$	31,816		$	2,740		$	35,762
Impact of reconciling items on operating income (see Table E)	81,942			145,364			77,825
Non-GAAP operating income	$	113,758		$	148,104		$	113,587
Depreciation	19,512			16,527			17,140
Adjusted EBITDA	$	133,270		$	164,631		$	130,727


Table L: Free cash flow	Three Months Ended
	Q1'19			Q4'18			Q1'18
GAAP net cash provided by operating activities	$	61,248		$	142,215		$	31,678
Acquisition of property, plant and equipment, net	(10,534		)	(5,069		)	(17,023		)
Free cash flow	$	50,714		$	137,146		$	14,655


CYPRESS SEMICONDUCTOR CORPORATION
SUPPLEMENTAL FINANCIAL DATA
(In thousands)
(Unaudited)

	Three Months Ended
	March 31, 2019			December 30, 2018			April 1, 2018
Selected Cash Flow Data (Preliminary):
Net cash provided by operating activities	$	61,248		$	142,215		$	31,678
Net cash (used in) provided by investing activities	$	(4,376	)	$	(5,988	)	$	(14,173	)
Net cash used in financing activities	$	(57,473	)	$	(55,252	)	$	(62,348	)
Other Supplemental Data (Preliminary):
Capital expenditures, net	$	10,534		$	5,069		$	17,267
Depreciation	$	19,512		$	16,527		$	17,140
Payment of dividend	$	39,748		$	39,772		$	38,741
Dividend paid per share	$	0.11		$	0.11		$	0.11
Total debt (principal amount)	$	909,549		$	935,838		$	1,017,588
Leverage ratio¹	0.98			1.03			1.44
Cash Income Tax	2,678			6,343			3,014

1.		Total debt (principal amount) less cash / Last 12 months Adjusted EBITDA


CYPRESS SEMICONDUCTOR CORPORATION
RECONCILIATION OF GAAP FORWARDING-LOOKING ESTIMATES TO NON-GAAP FORWARD-LOOKING ESTIMATES

	Q2 2019 Forward-looking Estimates (1)
	GAAP (A)	Adjustments (B)								Non-GAAP (C)=(A)+(B)
		Amortization of intangibles			Stock-based compensation expense			Other items
Gross margin	37.0% - 37.5%	9.0		%	1.0		%	0.0%		47.0% - 47.5%
Diluted earnings per share (2)	$(0.03) to $0.01	$	0.14		$	0.09		$	0.02	$0.22 to $0.26

1.		Our Q2 2019 outlook reflects our divestiture of the NAND flash business, which closed on April 1, 2019.
2.		Our share of the NAND joint venture’s Q2 2019 income or loss will be recognized in our Statement of Operations within the line item "Share in net income (loss) of equity method investments." Our expected share of such income is included in our EPS outlook on a GAAP basis but is excluded from our EPS outlook on a non-GAAP basis (as part of the adjustment for "other items" above).

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