Rambus Reports Third Quarter Financial Results

  Rambus Reports Third Quarter Financial Results

Business and Financial Highlights:

  *Expanded agreement with Freescale Semiconductor
  *Signed agreements with MicroSemi and ALi
  *Bulbs available for purchase on Amazon and in select Costco Canada
    locations
  *Quarterly revenue of $73.3 million; non-GAAP customer licensing income of
    $74.3 million
  *Quarterly GAAP diluted loss per share of $0.05; non-GAAP diluted income
    per share of $0.15

Business Wire

SUNNYVALE, Calif. -- October 17, 2013

Rambus Inc. (NASDAQ:RMBS), the innovative technology solutions company that
brings invention to market, today reported financial results for the third
quarter ended September 30, 2013.

GAAP Financial Results:

Revenue for the third quarter of 2013 was $73.3 million, up 27% on a
sequential basis from the second quarter of 2013. The increase in revenue was
primarily due to royalty revenue recognized in the third quarter of 2013 from
SK Hynix. As compared to the third quarter of 2012, revenue was up 27% in the
third quarter of 2013, also primarily due to royalty revenue recognized in the
third quarter of 2013 from SK Hynix.

Revenue for the nine months ended September 30, 2013 was $198.1 million, up
12% over the prior year period. The increase in revenue was primarily due to
royalty revenue recognized in the third quarter of 2013 from SK Hynix and
recognition of one-time royalty revenue during the first quarter of 2013 from
LSI Corporation.

Total operating costs and expenses for the third quarter of 2013 were $64.2
million, 23% higher than the previous quarter. The previous quarter included a
one-time reversal of $8.5 million, for previously accrued SK Hynix related
litigation costs. Additionally, during the third quarter of 2013, the Company
streamlined its immersive media platform, and as a result of this action, the
Company recorded a charge for the impairment of goodwill of $8.1 million and a
restructuring charge of $1.2 million. Third quarter operating costs and
expenses of $64.2 million included $0.7 million of general litigation
expenses, $3.4 million of stock-based compensation expenses, $8.1 million of
impairment of goodwill, $1.1 million of restructuring charges, $7.4 million of
amortization expenses and $1.5 million of retention bonuses from past business
acquisitions. This is compared to total operating costs and expenses for the
second quarter of 2013 of $52.2 million, which included a credit of $6.2
million of general litigation expenses (primarily due to the one-time reversal
of accrued SK Hynix related litigation costs), $3.6 million of stock-based
compensation expenses, $7.0 million of amortization expenses and $3.4 million
of retention bonuses from past business acquisitions. As compared to one year
ago, total operating costs and expenses for the third quarter of 2012 were
$104.6 million, which included $2.6 million of general litigation expenses,
$5.1 million of stock-based compensation expenses, $35.5 million of impairment
of goodwill and long-lived assets, $6.6 million of restructuring charges, $8.0
million of amortization expenses and $4.4 million of retention bonuses from
past business acquisitions.

Total operating costs and expenses for the nine months ended September 30,
2013 were $181.8 million, which included $11.9 million of stock-based
compensation expenses, $8.1 million of impairment of goodwill, $3.3 million of
restructuring charges, $21.4 million of amortization expenses and $8.9 million
of retention bonuses from past business acquisitions. This is compared to
total operating costs and expenses for the nine months ended September 30,
2012 of $263.0 million, which included $18.0 million of stock-based
compensation expenses, $6.6 million of restructuring charges, $35.5 million of
impairment of goodwill and long-lived assets, $23.5 million of amortization
expenses and $21.5 million of acquisition-related transaction costs and
retention bonuses from past business acquisitions. General litigation expenses
for the nine months ended September 30, 2013 were a credit of $3.4 million, a
decrease of $14.6million from the same period in 2012. The change in total
operating costs and expenses was primarily attributable to lower general
litigation expenses, lower acquisition-related transaction costs and retention
bonuses from past business acquisitions, lower headcount-related costs due to
restructuring, lower stock-based compensation expenses, lower consulting costs
and a decreased charge related to impairment of goodwill and long-lived
assets.

Net loss for the third quarter of 2013 was $5.7million as compared to net
loss of $7.8million in the second quarter of 2013 and net loss of
$58.1million in the third quarter of 2012. Diluted net loss per share for the
third quarter of 2013 was $0.05 as compared to diluted net loss per share of
$0.07 in the second quarter of 2013 and diluted net loss per share of $0.52 in
the third quarter of 2012.

Net loss for the nine months ended September 30, 2013 was $24.0 million as
compared to a net loss of $118.2 million for the same period of 2012. Diluted
net loss per share for the nine months ended September 30, 2013 was $0.21 as
compared to a diluted net loss per share of $1.07 for the same period of 2012.

Non-GAAP Financial Results (1):

Customer licensing income in the third quarter of 2013 was $74.3 million, up
21% sequentially from the second quarter of 2013, primarily due to royalty
revenue received in the third quarter of 2013 from SK Hynix, and up 19% from
the third quarter of 2012, also primarily due to royalty revenue received in
the third quarter of 2013 from SK Hynix.

Customer licensing income for the nine months ended September 30, 2013 was
$207.7 million as compared to $185.1 million in the same period of 2012. The
increase in customer licensing income was primarily due to royalty revenue
received in the third quarter of 2013 from SK Hynix and recognition of
one-time royalty revenue from LSI Corporation.

Total non-GAAP operating costs and expenses in the third quarter of 2013 were
$43.0 million, 10% lower than the previous quarter. General litigation
expenses for the current quarter, included in the non-GAAP operating costs and
expenses above, were $0.7 million. The prior quarter’s non-GAAP operating
costs and expenses of $47.7 million included non-GAAP general litigation
expenses of $2.3 million. Total non-GAAP operating costs and expenses in the
third quarter of 2012 were $45.0 million, which included general litigation
expenses of $2.6 million.

Total non-GAAP operating costs and expenses for the nine months ended
September 30, 2013 were $138.6 million as compared to $157.7 million in the
same period of 2012 due primarily to lower general litigation expenses, lower
consulting costs and lower headcount-related costs due to restructuring
efforts.

Non-GAAP net income in the third quarter of 2013 was $17.9 million as compared
to $6.6 million in the second quarter of 2013 and $9.0 million in the third
quarter of 2012. Non-GAAP diluted net income per share was $0.15 in the third
quarter of 2013 as compared to $0.06 in the second quarter of 2013 and $0.08
in the third quarter of 2012. Non-GAAP net income for the nine months ended
September 30, 2013 was $37.9 million as compared to $11.5 million in the same
period of 2012. Non-GAAP diluted net income per share was $0.33 for the nine
months ended September 30, 2013 as compared to non-GAAP diluted net income per
share of $0.10 for the nine months ended September 30, 2012.

Other Financial Highlights:

Cash, cash equivalents and marketable securities as of September 30, 2013 were
$366.4 million, an increase of approximately $160.7million as compared to
June 30, 2013. During the third quarter of 2013, the Company received
approximately $134.4 million (net of fees) from the issuance of the 1.125%
convertible senior notes due 2018.

During the third quarter of 2013, the Company recorded an income tax provision
of $6.3 million. As the Company continues to maintain a full valuation
allowance against its U.S. deferred tax assets, the Company’s tax provision
consists of primarily foreign withholding taxes relating to royalty payments
from foreign licensees.

Conference Call:

The Company will host a conference call at 2:00 p.m. PT today to discuss its
financial results. The call, audio and slides will be available online at
investor.rambus.com. A replay will be available following the call on the
Rambus Investor Relations website for one week at the following numbers: (855)
859-2056 (domestic) or (404) 537-3406 (international) with ID#75199907.

(1) 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:customer licensing income, operating costs and expenses, operating
income (loss) and net income (loss).In computing each of these non-GAAP
financial measures, the following items were considered: other patent
royalties received but not recognized as revenue, gain from settlement,
proceeds from sale of intellectual property, stock-based compensation
expenses, acquisition-related transaction costs and retention bonus expense,
amortization expenses, costs of restatement and related legal activities,
restructuring charges, impairment charges, severance costs, 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:

Customer licensing income. Customer licensing income includes the Company’s
measure of the total cash royalties received from its customers under its
licensing agreements with them and any product sales. Beginning in the third
quarter of 2013, the Company bifurcated royalty payments that it received from
SK Hynix between revenue and gain from settlement, which was reflected as
reducing operating expenses. The Company has combined revenue from its
customers, including SK Hynix, and the gain from the SK Hynix settlement as
customer licensing income to reflect the total amounts received from all of
its customers for the periods presented. In addition, customer licensing
income includes other patent royalties received but not recognized as revenue
and proceeds from sale of intellectual property. In certain periods presented,
certain patent royaltiesreceived from a customer were not recognized as
revenue as not all revenue recognition criteria were met during the
period.Additionally, since the third quarter of 2011, the Company has
received patent royalty payments from certain patent license agreements
assumed in the acquisition of CRI which were treated as favorable contracts.
Cash received from these acquired favorable contracts reduced the favorable
contract intangible asset on the Company’s balance sheet. The Company has
combined these cash royalty payments as customer licensing income to reflect
the total amounts received from its customers.

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 they 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. These charges may consist of severance, contractual
retention payments, exit costs and other charges and are excluded because such
charges are not directly related to ongoing business results and do not
reflect expected future operating expenses.

Impairment of goodwill and long-lived assets. These charges consist of
non-cash charges to goodwill and long-lived assets and are excluded because
such charges are non-recurring and do not reduce the Company’s liquidity.

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 core operation of the Company’s business.

Costs of restatement and related legal activities. These expenses consist
primarily of investigation, audit, legal and other professional fees related
to the 2006-2007 stock option investigation and related litigation, as well as
recoveries received from third parties. The Company excludes these costs and
recoveries from its non-GAAP measures primarily because the Company believes
that these non-recurring costs and recoveries have no direct correlation to
the core operation of the Company’s business.

Non-cash interest expense. 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.

Reversal of one-time litigation costs. This adjustment is a one-time
litigation cost reversal of prior litigation costs accrued related to
previously awarded costs that the Company was required to pay in connection
with the SK Hynix litigation. The Company excludes this reversal from its
non-GAAP measures because the Company believes that this reversal has no
direct correlation to the core operations of the Company’s business and it is
a one-time event.

Severance costs. These expenses relate to the separation payment to the
Company’s former chief executive officer. The Company excludes these costs
from its non-GAAP measures because the Company believes that these
non-recurring costs have no direct correlation to the core operations of the
Company’s business.

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 36%.
Accordingly, the Company has applied the 36% tax rate to its non-GAAP
financial results to assist the Company’s planning for future periods.

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.

Rambus is the innovative technology solutions company that brings invention to
market. Unleashing the intellectual power of our world-class engineers and
scientists in a collaborative and synergistic way, Rambus invents, licenses
and develops solutions that challenge and enable our customers to create the
future. While best known for creating unsurpassed semiconductor memory
architectures, Rambus is also developing world-changing products and services
in security, advanced LED lighting and displays, and immersive mobile media.
For additional information visit rambus.com.

RMBSFN


Rambus Inc.

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)
                                                        
                                            September     December
                                             30, 2013      31, 2012
ASSETS
                                                           
Current assets:
Cash and cash equivalents                    $ 307,961     $ 148,984
Marketable securities                        58,396        54,346
Accounts receivable                          1,597         529
Prepaids and other current assets            6,038         10,529
Deferred taxes                               288          788
Total current assets                         374,280       215,176
Intangible assets, net                       132,448       153,173
Goodwill                                     116,899       124,969
Property, plant and equipment, net           72,772        86,905
Deferred taxes, long-term                    4,806         4,458
Other assets                                 3,801        3,131
Total assets                                 $ 705,006    $ 587,812
                                                           
LIABILITIES & STOCKHOLDERS’ EQUITY
                                                           
Current liabilities:
Accounts payable                             $ 5,967       $ 7,918
Accrued salaries and benefits                30,336        23,992
Accrued litigation expenses                  1,020         9,822
Convertible notes, short-term                159,731       —
Other accrued liabilities                    7,293        12,402
Total current liabilities                    204,347       54,134
Long-term liabilities:
Convertible notes, long-term                 108,316       147,556
Long-term imputed financing obligation       39,685        45,919
Other long-term liabilities                  9,536        18,609
Total long-term liabilities                  157,537      212,084
Total stockholders’ equity                   343,122      321,594
Total liabilities and stockholders’ equity   $ 705,006    $ 587,812
                                                             

Rambus Inc.

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)
                                                     
                                Three Months Ended      Nine Months Ended

                                September 30,           September 30,
                                2013       2012        2013       2012
                                
Revenue:
Royalties                       71,013      57,361      194,244     175,127
Contract and other revenue      2,281      169        3,835      1,481    
Total revenue                   73,294     57,530     198,079    176,608  
Operating costs and expenses:
Cost of revenue (1)             8,958       7,529       22,857      22,032
Research and development (1)    27,553      30,674      91,178      107,415
Marketing, general and          18,698      24,255      57,937      91,283
administrative (1)
Gain from sale of               —           —           (1,388  )   —
intellectual property
Costs of restatement and        —           79          19          192
related legal activities
Restructuring charges           1,129       6,622       3,335       6,622
Impairment of goodwill and      8,070       35,471      8,070       35,471
long-lived assets
Gain from settlement            (179    )   —          (179    )  —        
Total operating costs and       64,229     104,630    181,829   263,015  
expenses
Operating income (loss)         9,065       (47,100 )   16,250      (86,407  )
Interest income and other       66          (12     )   (1,373  )   175
income (expense), net
Interest expense                (8,552  )   (7,121  )   (23,290 )   (20,420  )
Interest and other income       (8,486  )   (7,133  )   (24,663 )   (20,245  )
(expense), net
Income (loss) before income     579         (54,233 )   (8,413  )   (106,652 )
taxes
Provision for income taxes      6,304      3,865      15,558     11,552   
Net loss                        (5,725  )   (58,098 )   (23,971 )   (118,204 )
Net loss per share:
Basic                           $ (0.05 )   (0.52   )   $ (0.21 )   $  (1.07 )
Diluted                         $ (0.05 )   $ (0.52 )   $ (0.21 )   $  (1.07 )
Weighted average shares used
in per share calculation
Basic                           112,640    110,826    112,144    110,580  
Diluted                         112,640    110,826    112,144    110,580  

_________

(1) Total stock-based compensation expense for the three and nine month
periods ended September 30, 2013 and September 30, 2012 are presented as
follows:

                                    Three Months Ended   Nine Months Ended
                                     September 30,         September 30,
                                     2013      2012      2013      2012
Cost of revenue                      $ 7        $ 5        $ 12       $ 20
Research and development             $ 1,630    $ 2,221    $ 5,166    $ 7,572
Marketing, general and               $ 1,726    $ 2,863    $ 6,707    $ 10,438
administrative
                                                                        

Rambus Inc.

Supplemental Reconciliation of GAAP to Non-GAAP Results

(In thousands)

(Unaudited)
                                                           
                      Three Months Ended                      Nine Months Ended
                      September   June 30,    September     September    September
                      30, 2013     2013         30, 2012      30, 2013      30, 2012
                                                                            
Revenue               $ 73,294     $ 57,919     $ 57,530      $ 198,079     $ 176,608
Adjustments:
Other patent          850          3,392        4,875         9,479         8,490
royalties received
Gain from             179         —           —            179          —          
settlement
Total customer        $ 74,323    $ 61,311    $ 62,405     $ 207,737    $ 185,098  
licensing income
                                                                            
Operating costs and   $ 64,229     $ 52,175     $ 104,630     $ 181,829     $ 263,015
expenses
Adjustments:
Other patent          —            965          —             2,250         —
royalties received
Stock-based           (3,363   )   (3,574   )   (5,089    )   (11,885   )   (18,030    )
compensation
Acquisition-related
transaction costs     (1,512   )   (3,385   )   (4,437    )   (8,909    )   (21,487    )
and retention
bonuses
Amortization          (7,383   )   (6,997   )   (7,977    )   (21,420   )   (23,536    )
Reversal of
one-time litigation   —            8,482        —             8,482         —
costs
Restructuring         (1,129   )   —            (6,622    )   (3,335    )   (6,622     )
charges
Impairment of
goodwill and          (8,070   )   —            (35,471   )   (8,070    )   (35,471    )
long-lived assets
Severance costs       —            —            —             (514      )   —
Gain from             179          —            —             179           —
settlement
Costs of
restatement and       —           (2       )   (79       )   (19       )   (192       )
related legal
activities
Non-GAAP operating    $ 42,951    $ 47,664    $ 44,955     $ 138,588    $ 157,677  
costs and expenses
                                                                            
Operating income      9,065        5,744        (47,100   )   16,250        (86,407    )
(loss)
Adjustments:
Other patent          850          2,427        4,875         7,229         8,490
royalties received
Stock-based           3,363        3,574        5,089         11,885        18,030
compensation
Acquisition-related
transaction costs     1,512        3,385        4,437         8,909         21,487
and retention
bonuses
Amortization          7,383        6,997        7,977         21,420        23,536
Reversal of
one-time litigation   —            (8,482   )   —             (8,482    )   —
costs
Restructuring         1,129        —            6,622         3,335         6,622
charges
Impairment of
goodwill and          8,070        —            35,471        8,070         35,471
long-lived assets
Severance costs       —            —            —             514           —
Costs of
restatement and       —           2           79           19           192        
related legal
activities
Non-GAAP operating    $ 31,372    $ 13,647    $ 17,450     $ 69,149     $ 27,421   
income
                                                                            
Income (loss)         $ 579        $ (3,101 )   $ (54,233 )   $ (8,413  )   $ (106,652 )
before income taxes
Adjustments:
Other patent          850          2,427        4,875         7,229         8,490
royalties received
Stock-based           3,363        3,574        5,089         11,885        18,030
compensation
Acquisition-related
transaction costs     1,512        3,385        4,437         8,909         21,487
and retention
bonuses
Amortization          7,383        6,997        7,977         21,420        23,536
Reversal of
one-time litigation   —            (8,482   )   —             (8,482    )   —
costs
Restructuring         1,129        —            6,622         3,335         6,622
charges
Impairment of
goodwill and          8,070        —            35,471        8,070         35,471
long-lived assets
Severance costs       —            —            —             514           —
Costs of
restatement and       —            2            79            19            192
related legal
activities
Impairment of         —            1,400        —             1,400         —
investment
Non-cash interest
expense on            5,135       4,145       3,789        13,369       10,856     
convertible notes
Non-GAAP income       $ 28,021     $ 10,347     $ 14,106      $ 59,255      $ 18,032
before income taxes
Non-GAAP provision    10,088      3,725       5,078        21,332       6,491      
for income taxes
Non-GAAP net income   $ 17,933    $ 6,622     $ 9,028      $ 37,923     $ 11,541   
                                                                            
Non-GAAP basic net    $ 0.16       $ 0.06       $ 0.08        $ 0.34        $ 0.10
income per share
Non-GAAP diluted
net income per        $ 0.15       $ 0.06       $ 0.08        $ 0.33        $ 0.10
share
Weighted average
shares used in
non-GAAP per share
calculation:
Basic                 112,640      112,183      110,826       112,144       110,580
Diluted               116,052      116,162      117,738       115,833       117,569

Contact:

Rambus Inc.
Nicole Noutsios, 408-462-8050
Investor Relations
nnoutsios@rambus.com