Rambus Beats 1Q Earnings, Misses Rev

Rambus Inc. (RMBS) posted first quarter 2013 adjusted earnings per share (EPS) of 9 cents, comprehensively beating the Zacks Consensus Estimate of a loss of 3 cents per share. Adjusted EPS excludes other patent royalties received, acquisition costs and retention bonus, amortization, costs of restatement and related legal activities but includes stock-based compensation expenses.

Revenues

Rambus reported total revenue of $66.9 million in the first quarter, up 6.4% from $62.9 million a year ago and above the company’s guided range. The year-over-year growth was mainly due to a one-time royalty received from chip maker LSI Corp. (LSI). However, the quarter’s revenues were slightly below the Zacks Consensus Estimate of $67.0 million.

Royalty revenues grew 6.7% year over year to $66.2 million. Revenues from Contracts were $0.6 million, down 21.5% from the comparable quarter last year. However, the decline moderated from the fourth quarter of 2012.

Operating Results

Total operating expenses in the first quarter were $65.4 million, down 18.6% from $80.4 million in the year-earlier quarter. The decline in operating expenses was due to higher cost rationalization, with a major cut in marketing, general & administrative expenses and research and development expenses.

Reported operating income in the quarter was $1.4 million compared to an operating loss of $17.6 million in the year-ago quarter. Operating margin was 2.2% compared with (27.9%) in the year-ago quarter.

Reported net loss was $10.4 million or 9 cents per share compared with a net loss of $27.9 million or 25 cents in the comparable quarter last year. Excluding the impact of other patent royalties received; acquisition costs and retention bonus, amortization, costs of restatement and related legal activities and non-cash interest expense on convertible notes but including stock-based compensation expenses, adjusted EPS came in at 9 cents versus 1 cent loss per share in the year-ago quarter.

Balance Sheet

Rambus exited the quarter with cash, cash equivalents and marketable securities of approximately $214.8 million, up from $203.3 million in the prior quarter. The improvement was mainly due to positive cash flows from operating activities.

Guidance

For the second quarter of 2013, the company expects customer licensing income to be between $56.0 million and $61.0 million and revenues between $53.0 million and $58.0 million. The sequential decline in revenues is typical due to lower royalty payments.

Pro forma operating expenses, which exclude restructuring charges, stock-based compensation, amortization of intangible assets and retention bonuses, are expected to be between $48.0 million and $53.0 million. These amounts include an estimate for litigation expenses between $2.0 million and $3.0 million. Pro forma net income is expected to be breakeven to $6.0 million range.

The company also announced that it will be developing a portfolio of customized semiconductors for renowned semiconductor foundry GLOBALFOUNDRIES’ edge process technology. During the process, GLOBALFOUNDRIES will make an upfront payment for the design and eventually make royalty payments with the technology being integrated into the manufacturing process. Rambus expects the royalty payments to start from the second half of 2013 and continue throughout 2014.

Apart from this, management asserted that it will continue focusing on reducing expenses by $30.0–$35.0 million annually.

Zacks Consensus Estimates for second quarter and fiscal 2013 are pegged at 7 cents loss per share and 14 cents loss per share.

Our Take

We are encouraged by Rambus’ first quarter results as the bottom line surpassed the Zacks Consensus Estimate. The company provided a dull guidance for the second quarter 2013 given lower royalty receipts. However, we see a better second half given Rambus’ association with GLOBALFOUNDRIES and ongoing cost optimization efforts.

The company has a restructuring strategy in place and we expect it yield favorable results. However, the continued loss of legal suits against its top customers such as Garmin Ltd. (GRMN) and STMicroelectronics (STM) and sluggish demand from the semiconductor companies are concerning.

We are encouraged by Rambus’ decision to divest its Display patent assets to Acacia Research Corp. and to focus wholly on the Lighting space, given enormous growth prospects in the LED (light emitting diode) arena.

Currently, Rambus has a Zacks Rank #1 (Strong Buy).
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