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Rambus' Q3 Earnings Beat Expectations

Zacks Equity Research

Rambus Inc. (RMBS) posted third-quarter 2013 adjusted earnings per share of 14 cents, comprehensively beating the Zacks Consensus Estimate of a loss of 4 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.


Rambus reported total revenue of $74.3 million in the third quarter, up 19.1% from the year-ago quarter and slightly higher than the company’s guided range of $69.0 million to $74.0 million. Revenues also beat the Zacks Consensus Estimate of $72.0 million. The year-over-year growth was mainly due to one-time royalty revenues received from SK Hynix as well as from other DRAM customers.

Operating Results

Pro forma operating expenses (including stock-based compensation) in the third quarter were $46.3 million, down 7.5% from the year-ago 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. Moreover, the decline in operating expenses was due to lower stock-based compensation expenses and lower consulting costs.

Adjusted operating income in the quarter was $28.0 million compared to $12.4 million in the year-ago quarter. Operating margin was 37.7% compared to 19.8% in the year-ago quarter.

Adjusted net income was $15.8 million or 14 cents per share compared to a net income of $4.3 million or 4 cents in the comparable quarter last year. Adjusted net income excludes the impact of acquisition costs and retention bonus, amortization, restructuring charges, impairment of goodwill and long-lived assets and a one-time gain from the settlement with Hynix on a tax-adjusted basis.

Balance Sheet

Rambus exited the quarter with cash, cash equivalents and marketable securities of approximately $366.4 million, up from $205.6 million in the prior quarter. During the quarter, the company generated cash from operations of $26 million. Moreover, the company paid $5.1 million as interest expense related to its convertible notes.


For the fourth quarter of 2013, the company expects customer licensing income to be between $70.0 million and $75.0 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 $45 million and $48 million. It also includes litigation expenses of $1 million to $2 million. Pro forma net income is expected between $12 million and $17 million.

Our Take

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

The company is going through a restructuring phase and we expect it to yield favorable results. Previous legal challenges from customers such as Garmin Ltd. (GRMN) and STMicroelectronics appear to have been resolved. Rambus and STMicroelectronics recently announced the settlement of all outstanding claims, including pending disputes related to Rambus' patented innovations, while Garmin was listed as a downstream customer as a result of an ITC action that has now been settled.

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 the enormous growth prospects in this market.

However, competition from Semiconductor Manufacturing International Corp. (SMI), LSI Corp. (LSI) and Advanced Micro Devices, Inc. and oversupply in the semiconductor market are concerns.

Currently, Rambus has a Zacks Rank #2 (Buy).

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