Rambus' 2Q Earnings Beat Expectations

Zacks

Rambus Inc. (RMBS) posted second-quarter 2013 adjusted earnings per share of 2 cents, comprehensively beating the Zacks Consensus Estimate of a loss of 11 cents per share. Adjusted earnings exclude other patent royalties received, acquisition costs and retention bonus, amortization, costs of restatement and related legal activities but include stock-based compensation expenses.

Revenues

Rambus reported total revenue of $57.9 million in the second quarter, up 3.0% from $56.2 million a year ago and within the company’s revenue range of $53.0 million to $58.0 million. The year-over-year growth was mainly due to a one-time royalty and patent license from STMicroelectronics (STM).

Royalty revenues grew 2.3% year over year to $57.0 million. Revenues from Contracts were $0.9 million, up 84.9% from the comparable quarter last year.

Operating Results

Total operating expenses in the second quarter were $52.2 million, down 32.9% from $77.9 million reported in the previous quarter, mostly due to the one-time reversal of SK Hynix related litigation costs accrued over a period of time and the absence of restructuring charges. The decline in operating expenses was due to higher cost rationalization, especially in the marketing, general & administrative expenses and research and development expenses.

Reported operating income in the quarter was $5.7 million compared to an operating loss of $21.7 million in the year-ago quarter. Operating margin was 9.9% compared to (38.7%) in the year-ago quarter.

Reported net loss was $6.4 million or 6 cents per share compared to a net loss of $32.2 million or 29 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 earnings per share came in at 2 cents versus 10 cent in the year-ago quarter.

Balance Sheet

Rambus exited the quarter with cash, cash equivalents and marketable securities of approximately $205.6 million, down from $214.8 million in the prior quarter. During the quarter, the company paid the second installment of retention bonuses for the Cryptography Research acquisition as well as their semi-annual interest gains on their bonds, resulting in the use of cash from operations of $10 million. Moreover, the company paid $4.3 million as interest expense related to the company’s convertible notes. 

Guidance

For the third quarter of 2013, the company expects customer licensing income to be between $69.0 million and $74.0 million. Moreover, the company expects pro forma operating expenses, which exclude restructuring charges, retention bonuses, stock-based compensation, amortization of intangible assets and gain from settlements, between $49 million and $52 million. It also includes litigation expenses of $1 million to $2 million. Pro forma net income is expected between $9 million and $14 million.

Our Take

We are encouraged by Rambus’ second-quarter results as the bottom line surpassed the Zacks Consensus Estimate. The company provided a decent guidance for the third quarter of 2013 given modest royalty receipts. However, we see a better second half given a ramp up in its business.

The company is going through a restructuring phase and we expect it to yield favorable results. However, the company continued to face some legal challenges from customers such as Garmin Ltd. (GRMN) and STMicroelectronics. Apart from this, sluggish demand from the semiconductor companies are added concerns. The company is also facing good competition from Advanced Micro Devices (AMD).

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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