Cypress Reports First Quarter 2018 Results

EBITDA: Consolidated EBITDA is calculated by adding back depreciation to the Non-GAAP operating income. EBITDA may be useful to management, investors, and other users of our financial information because it, during a given period, is an indicator of the amount of cash generated that is available to repay debt obligations, make investments, and for certain other activities. However, EBITDA should not be considered as a measure of discretionary cash available to invest in the growth of the business. In addition, EBITDA should not be considered as a substitute for, or superior to net income, operating income, diluted earnings, or net cash provided by operating activities, or other financial measures prepared in accordance with GAAP.

Other adjustments: These items are excluded from non-GAAP financial measures because they are not related to the core operating activities and ongoing operating performance of Cypress. Excluding these items, which can vary significantly from quarter to quarter, allows management to better compare Cypress’ period-over-period performance. However, limitations of non-GAAP measures that exclude these items include that these adjustments are often subjective and may not be comparable to similarly titled non-GAAP financial measures used by other companies. Other adjustments primarily include:

  • Revenue from an intellectual property license,
  • Changes in value of deferred compensation plan assets and liabilities,
  • Investment-related gains or losses, including equity method investments,
  • Restructuring and related costs,
  • Debt issuance costs, including imputed interest related to the equity component of convertible debt,
  • Asset impairments,
  • Tax effects of non-GAAP adjustments,
  • Certain other expenses and benefits, and
  • Diluted weighted average shares non-GAAP adjustment - for purposes of calculating non-GAAP diluted earnings per share, the GAAP diluted weighted average shares outstanding is adjusted to exclude the benefits related to share-based compensation expense.

FORWARD-LOOKING STATEMENTS

Statements herein that are not historical facts and that refer to Cypress or its subsidiaries’ plans and expectations for the future are forward-looking statements made pursuant to the Private Securities Litigation Reform Act of 1995. We may use words such as “may,” “should,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “future,” “continue” or other wording indicating future results or expectations to identify such forward-looking statements that include, but are not limited to: statements related to our estimated non-GAAP revenue, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP EPS, net interest expense, tax expense, capital expenditures and depreciation for the second quarter of fiscal 2018 (on a GAAP or non-GAAP basis); sources of revenue for the second quarter; the expected inventory levels, cash flow, pricing and profitability; estimates of certain GAAP to non-GAAP reconciling items for the second quarter; the demand environment for semiconductors; the expected impact of our gross margin improvement plan; the impact of seasonality on revenue; cross-selling opportunities in the automotive business; our ability to meet our targeted range of inventory; the expected or anticipated uses of cash flow, including to pay dividends, repurchase shares of common stock, or pay down our existing indebtedness; and plans to reduce excess inventory. Such statements reflect our current expectations, which are based on information and data available to our management as of the date of this press release. Our actual results may differ materially due to a variety of risks and uncertainties, including, but not limited to: global economic and market conditions; business conditions and growth trends in the semiconductor market; our ability to compete effectively; the volatility in supply and demand conditions for our products, including but not limited to the impact of seasonality on supply and demand; our ability to develop, introduce and sell new products and technologies; potential problems relating to our manufacturing activities; the impact of acquisitions; our ability to attract and retain key personnel; the unpredictability and expense of legal proceedings; and other risks and uncertainties described in the "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections in our most recent Annual Report on Form 10-K and our other filings with the Securities and Exchange Commission. We assume no responsibility to update any such forward-looking statements.

Cypress, the Cypress logo and PSoC are registered trademarks and ModusToolbox and Excelon are trademarks of Cypress Semiconductor Corporation. All other trademarks are property of their owners.

 
 
CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
 
    April 1, 2018     December 31, 2017
 
ASSETS
Cash, cash equivalents and short-term investments $ 106,752 $ 151,596
Accounts receivable, net 393,303 295,991
Inventories 275,449 272,127
Property, plant and equipment, net 294,299 289,554
Goodwill and other intangible assets, net 2,100,281 2,154,592
Other assets   370,339   373,190
Total assets $ 3,540,423 $ 3,537,050
LIABILITIES AND EQUITY
Accounts payable $ 236,930 $ 213,101
Income tax liabilities 54,083 52,006
Revenue reserves, deferred margin and other liabilities 499,921 497,838
Revolving credit facility and long-term debt   920,684   956,513
Total liabilities   1,711,618   1,719,458
Total Cypress stockholders' equity 1,827,737 1,816,536
Non-controlling interest   1,068   1,056
Total equity   1,828,805   1,817,592
Total liabilities and equity $ 3,540,423 $ 3,537,050
 
 
CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
ON A GAAP BASIS
(In thousands, except per-share data)
(Unaudited)
 
    Three Months Ended
April 1, 2018     December 31, 2017     April 2, 2017
Revenues $ 582,241 $ 597,547 $ 531,874
Cost of revenue   369,849     375,162     374,766  
Gross profit 1   212,392     222,385     157,108  
Research and development 93,233 94,566 89,348
Selling, general and administrative   83,397     86,125     81,333  
Total operating expenses   176,630     180,691     170,681  
Operating income (loss) 35,762 41,694 (13,573 )
Interest and other expense, net   (18,154 )   (21,561 )   (19,359 )
Income (loss) before income taxes and non-controlling interest 17,608 20,133 (32,932 )
Income tax provision (5,057 ) 2,773 (4,927 )
Equity in net loss of equity method investees   (3,461 )   (56,930 )   (5,076 )
Net income (loss) 9,090 (34,024 ) (42,935 )
Net gain attributable to non-controlling interests   (12 )   12     (64 )
Net income (loss) attributable to Cypress $ 9,078   $ (34,012 ) $ (42,999 )
Net income (loss) per share attributable to Cypress:
Basic $ 0.03 $ (0.10 ) $ (0.13 )
Diluted $ 0.02 $ (0.10 ) $ (0.13 )
Cash dividend declared per share $ 0.11 $ 0.11 $ 0.11
Shares used in net income (loss) per share calculation:
Basic 355,461 343,011 326,964
Diluted 370,592 343,011 326,964
1.   During Q1'18, certain expenses have been reclassified as part of cost of revenue. Historical results have been conformed with Q1'18 presentation.
 
 
CYPRESS SEMICONDUCTOR CORPORATION
RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES
(In thousands, except per-share data)
(Unaudited)
 

Table A: GAAP to Non-GAAP reconciling items: Three Months Ended Q1 2018

           

Selling, general

   

Interest and

   

Income tax

Cost of

Research and

and

other

(provision)

revenues

development

administrative

expense, net

benefit

GAAP [i] $ 369,849 $ 93,233 $ 83,397 $ (21,615 ) $ (5,057 )
[1] Stock based compensation 3,584 6,713 8,161
[2] Changes in value of deferred compensation plan 61 272 350 (266 )
[3] Share in net loss and impairment of equity method investees 3,461
[4] Imputed interest on convertible debt, equity component amortization on convertible debt and others 3,431
[5] Loss on extinguishment of Spansion convertible notes and debt issuance cost write off due to refinancing 3,258
[6] Amortization of debt issuance costs 1,073
[7] Amortization of acquisition-related intangible assets and other 49,438 5,150
[8] Restructuring charges 1,887 292 1,917
[9] Tax impact               393     2,043  
Non - GAAP [ii] $ 314,879   $ 85,956   $ 67,819   $ (10,265 ) $ (3,014 )
Impact of reconciling items [ii - i] $ (54,970 ) $ (7,277 ) $ (15,578 ) $ 11,350 $ 2,043
 
 

Table B: GAAP to Non-GAAP reconciling items: Three Months Ended Q4 2017

       

Research

   

Selling, general

   

Interest and

   

Income tax

Cost of

and

and

other expense,

(provision)

revenues

development

administrative

net

benefit

GAAP [i] $ 375,162 $ 94,566 $ 86,125 $ (78,491 ) $ 2,773
[1] Stock based compensation 3,001 8,050 12,014
[2] Changes in value of deferred compensation plan 92 389 617 (1,210 )
[3] Merger, integration, related costs and adjustments related to assets held for sale 1,334 (135 ) 11
[4] Share in net loss and impairment of equity method investees 56,930
[5] Imputed interest on convertible debt, equity component amortization on convertible debt and others 3,378
[6] Loss on extinguishment of Spansion convertible notes 4,250
[7] Amortization of debt issuance costs 1,011
[8] Amortization of acquisition-related intangible assets 44,199 5,025
[9] Litigation settlement (1,000 )
[10] Restructuring charges 317 3,205 2,097
[11] Tax impact               151     (5,027 )
Non - GAAP [ii] $ 326,219   $ 82,922   $ 67,507   $ (13,970 ) $ (2,254 )
Impact of reconciling items [ii - i] $ (48,943 ) $ (11,644 ) $ (18,618 ) $ 64,521 $ (5,027 )
 
 

Table C: GAAP to Non-GAAP reconciling items: Three Months Ended Q1 2017

           

Selling, general

   

Interest and

   

Income tax

Cost of

Research and

and

other expense,

(provision)

revenues

development

administrative

net

benefit

GAAP [i] 374,766 89,348 81,333 (24,435 ) (4,927 )
[1] Stock based compensation 3,884 10,286 8,983
[2] Changes in value of deferred compensation plan 167 597 1,008 (1,558 )
[3] Merger, integration, related costs and adjustments related to assets held for sale 1,350 (1,479 )
[4] Inventory Step-up related to acquisition accounting 2,864
[5] Share in net loss and impairment of equity method investees 5,076
[6] Imputed interest on convertible debt, equity component amortization on convertible debt and others 3,489
[7] Amortization of debt issuance costs 858
[8] Amortization of acquisition-related intangible assets 43,167 5,083
[9] Restructuring charges 231 2,352 (12 )
[10] Tax impact       415   2,125  
Non - GAAP [ii] 323,103   76,113   67,750   (16,155 ) (2,802 )
Impact of reconciling items [ii - i] (51,663 ) (13,235 ) (13,583 ) 8,280 2,125
 
 

Table D: Gross Margin %

    Q1'18     Q4'17     Q1'17
GAAP     Non-GAAP GAAP     Non-GAAP GAAP     Non-GAAP
Revenue [i] $ 582,241 $ 582,241 $ 597,547 $ 597,547 $ 531,874 $ 531,874
Cost of revenues (See Table A, B, C) [ii]   369,849     314,879     375,162     326,219     374,766     323,103  
Gross profit [iii] [ii - i] $ 212,392   $ 267,362   $ 222,385   $ 271,328   $ 157,108   $ 208,771  
Gross Margin % [iii / i] 36.5 % 45.9 % 37.2 % 45.4 % 29.5 % 39.3 %
 
 

Table E: Operating income

    Q1'18     Q4'17     Q1'17
GAAP operating income (loss) [i] $ 35,762 $ 41,694 $ (13,573 )
Impact of reconciling items on Cost of revenues (see Table A, B, C) 54,970 48,943 51,663
Impact of reconciling items on R&D (see Table A, B, C) 7,277 11,644 13,235
Impact of reconciling items on SG&A (see Table A, B, C)   15,578     18,618     13,583  
Non-GAAP operating income [ii] $ 113,587   $ 120,899   $ 64,908  
Impact of reconciling items [ii - i] $ 77,825 $ 79,205 $ 78,481
GAAP Operating Margin (GAAP Operating income / Revenue) 6.1 % 7.0 % (2.6 )%
Non-GAAP Operating Margin (Non-GAAP Operating income / Revenue) 19.5 % 20.2 % 12.2 %
 
 

Table F: Pre-tax profit

    Q1'18     Q4'17     Q1'17
GAAP Pre-tax income (loss) $ 14,147 $ (36,797 ) $ (38,008 )
Impact of reconciling items on Operating income (see Table E) 77,825 79,205 78,481
Interest and other expense, net (see Table A, B, C)   11,350   64,521     8,280  
Non-GAAP Pre-tax income $ 103,322 $ 106,929   $ 48,753  
 
 

Table G: Net income (loss)

    Q1'18     Q4'17     Q1'17
GAAP Net income (loss) $ 9,078 $ (34,012 ) $ (42,999 )
Impact of reconciling items on Operating income (see Table E) 77,825 79,205 78,481
Interest and other expense, net (see Table A, B, C) 11,350 64,521 8,280
Income tax benefit (see Table A, B, C)   2,043   (5,027 )   2,125  
Non-GAAP Net income $ 100,296 $ 104,687   $ 45,887  
 
 

Table H: Pretax profit margin %

    Q1'18     Q4'17     Q1'17
GAAP     Non-GAAP GAAP     Non-GAAP GAAP     Non-GAAP
Revenue [i] $ 582,241 $ 582,241 $ 597,547 $ 597,547 $ 531,874 $ 531,874
Pre-tax profit (loss) (see Table F) [ii] $ 14,147 $ 103,322 $ (36,797 ) $ 106,929 $ (38,008 ) $ 48,753
Pre-tax profit margin % [ii / i] 2.4 % 17.7 % (6.2 )% 17.9 % (7.1 )% 9.2 %
 
 

Table I: Weighted-average shares, diluted

    Q1'18     Q4'17     Q1'17
GAAP     Non-GAAP GAAP     Non-GAAP GAAP     Non-GAAP
Weighted-average common shares outstanding, basic 355,461 355,461 343,011 343,011 326,964   326,964
Effect of dilutive securities:
Stock options, unvested restricted stock and other 7,897 12,515 14,003 14,852
Impact of convertible bond 7,234 4,750 12,110 17,304
Weighted-average common shares outstanding, diluted 370,592 372,726 343,011 369,124 326,964 359,120
 
 

Table J: Net income (loss) Per Share

    Q1'18     Q4'17     Q1'17
GAAP     Non-GAAP GAAP     Non-GAAP GAAP     Non-GAAP
Net income (loss) (see Table G) [i] $ 9,078 $ 100,296 $ (34,012 ) $ 104,687 $ (42,999 ) $ 45,887
Weighted-average common shares outstanding (see Table I) [ii]   370,592   372,726   343,011     369,124   326,964     359,120
Non-GAAP earnings per share - Diluted [i/ii] $ 0.02 $ 0.27 $ (0.10 ) $ 0.28 $ (0.13 ) $ 0.13
 
 

Table K: Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA")

    Q1'18     Q4'17     Q1'17
GAAP operating income (loss) (See Table E) 35,762 41,694 (13,573 )
Impact of reconciling items on Operating income (see Table E) 77,825 79,205 78,481  
Non-GAAP operating income 113,587 120,899 64,908
GAAP Depreciation 17,140 18,701 16,157  
Non-GAAP EBITDA 130,727 139,600 81,065  
 
 
CYPRESS SEMICONDUCTOR CORPORATION
SUPPLEMENTAL FINANCIAL DATA
(In thousands)
(Unaudited)
 
    Three Months Ended
April 1, 2018     December 31, 2017     April 2, 2017

Selected Cash Flow Data (Preliminary):

Net cash provided by operating activities $ 31,678 $ 201,541 $ 25,721
Net cash (used in) provided by investing activities $ (14,173 ) $ (6,036 ) $ 21,650
Net cash used in financing activities $ (62,348 ) $ (175,472 ) $ (46,043 )

Other Supplemental Data (Preliminary):

Capital expenditures $ 17,267 $ 7,790 $ 13,772
Depreciation $ 17,140 $ 18,701 $ 16,157
Payment of dividend $ 38,741 $ 36,670 $ 35,537
Dividend paid per share $ 0.11 $ 0.11 $ 0.11
Total debt (principal amount) $ 1,017,588 $ 1,061,414 $ 1,286,401
Leverage ratio 2.00 2.91 $ 3.83
 
 
CYPRESS SEMICONDUCTOR CORPORATION

RECONCILIATION OF GAAP FORWARDING LOOKING ESTIMATES TO NON-GAAP FORWARD LOOKING ESTIMATES

 
           

Forward looking

Forward looking

Non-GAAP

GAAP estimate

estimate

(A)

Adjustments (B)

(C)=(A)+(B)

   

Share-based

       

Amortization of

compensation

Other

intangibles

expense

Restructuring

items

Gross Margin % 36.0% - 37.0% 8.0 % 0.8 % 0.20 % 0.4 % 45.5% - 46.5%
Diluted earnings per share $0.01 to $0.04 $ 0.15 $ 0.09 $ 0.01 $ 0.03 $0.27 to $0.31
 

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