Rambus Inc. (RMBS) posted fourth-quarter 2013 adjusted earnings per share of 12 cents, comprehensively beating the Zacks Consensus Estimate of a loss of 1 cent per share. Adjusted earnings on a proportionate tax basis exclude amortization, restructuring charges, acquisition costs and retention bonus, patent royalties received, impairment of goodwill, costs of restatement and related legal activities but include stock-based compensation expenses. Earnings increased from 3 cents reported in the year-ago quarter.
Reported revenue amounted to $73.4 million in the fourth quarter, up 27.8% from the year-ago quarter. Non-GAAP customer licensing income (including patent royalties received and gain from settlements) was $73.8 million compared with $61.6 million in the year-ago quarter and within the company’s guided range of $70.0 million to $75.0 million.
Revenues were roughly in line with the Zacks Consensus Estimate of $74.0 million. The year-over-year growth was mainly due to the new license agreements signed with SK Hynix, Micron Technology Inc. (MU), ST Microelectronics (STM) and LSI Corporation (LSI).
The company’s adjusted gross margin (excluding amortization and other one-time items but including stock-based compensation) decreased 374 basis points (bps) on a year-over-year basis to 85.9% primarily due to higher costs.
Adjusted operating expenses (including stock-based compensation) in the fourth quarter were $47.3 million, down 4.9% from the year-ago quarter mostly due to higher cost of sales related to lighting products, restructuring charges and impairment of assets. Operating expenses, as a percentage of revenues, contracted from 80.7% to 64.0% on a year-over-year basis.
Adjusted operating income in the quarter was $26.6 million compared with $11.9 million in the year-ago quarter. Operating margin was 35.9% compared with 19.3% in the year-ago quarter.
Adjusted net income was $13.4 million or 12 cents per share compared with net income of $3.7 million or 3 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 but includes stock-based compensation expenses.
Rambus exited the quarter with cash, cash equivalents and marketable securities of approximately $387.7 million, up from $366.4 million in the prior quarter. During the quarter, the company generated cash from operations of $51.0 million. Net cash at the end of the year was $77.0 million. Moreover, the company paid $4.3 million as interest expense related to its convertible notes.
For the first quarter of 2014, the company expects customer licensing income to be between $70.0 million and $75.0 million. 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 $45.0 million and $48.0 million. It also includes litigation expenses of $1.0 million. Pro forma net income is expected between $12.0 million and $17.0 million.
For fiscal 2014, the company expects customer licensing income to be between $295.0 million and $305.0 million. Moreover, the company expects pro forma operating expenses to be between $180.0 million and $185.0 million. Pro forma net income is expected between $64.0 million and $74.0 million.
We are encouraged by Rambus’ fourth-quarter results as the bottom line surpassed the Zacks Consensus Estimate and the top line was roughly in line. The company provided a decent guidance for the first quarter of 2014 given modest royalty receipts. We see first quarter results to improve, 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. and Advanced Micro Devices, as well as the oversupply in the semiconductor market are concerns.
Currently, Rambus has a Zacks Rank #2 (Buy).
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