Cypress Reports Third Quarter 2018 Results

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CYPRESS SEMICONDUCTOR CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

   
September 30, 2018 December 31, 2017
 
ASSETS
Cash, cash equivalents and short-term investments $ 204,771 $ 151,596
Accounts receivable, net 404,561 295,991
Inventories 289,436 272,127
Property, plant and equipment, net 292,854 289,554
Goodwill and other intangible assets, net 1,994,200 2,154,592
Other assets 372,102   373,190
Total assets $ 3,557,924   $ 3,537,050
LIABILITIES AND EQUITY
Accounts payable $ 228,159 $ 213,101
Income tax liabilities 57,283 52,006
Revenue reserves, deferred margin and other liabilities 515,420 497,838
Revolving credit facility and long-term debt 870,574   956,513
Total liabilities 1,671,436   1,719,458
Total Cypress stockholders' equity 1,885,280 1,816,536
Non-controlling interest 1,208   1,056
Total equity 1,886,488   1,817,592
Total liabilities and equity $ 3,557,924   $ 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 Nine Months Ended

September 30
2018

  July 1, 2018  

October 1,
2017

September 30,
2018

 

October 1,
2017

Revenues $ 673,035 $ 624,090 $ 604,574 $ 1,879,366 $ 1,730,224
Cost of revenue 1 413,320   389,952   394,878   1,173,121   1,170,675  
Gross profit 259,715   234,138   209,696   706,245   559,549  
Research and development 1 91,691 96,693 90,422 281,617 268,365
Selling, general and administrative 1 92,943   86,599   78,194   262,940   254,785  
Total operating expenses 184,634   183,292   168,616   544,557   523,150  
Operating income 75,081 50,846 41,080 161,688 36,399
Interest and other expense, net (15,059 ) (14,143 ) (18,619 ) (47,356 ) (54,385 )
Income (loss) before income taxes and non-controlling interest 60,022 36,703 22,461 114,332 (17,986 )
Income tax provision (5,618 ) (5,154 ) (4,500 ) (15,829 ) (13,930 )
Equity in net loss of equity method investees (3,657 ) (3,755 ) (4,931 ) (10,873 ) (14,842 )
Net income (loss) 50,747 27,794 13,030 87,630 (46,758 )
Net gain attributable to non-controlling interests (52 ) (88 ) (14 ) (152 ) (144 )
Net income (loss) attributable to Cypress $ 50,695   $ 27,706   $ 13,016   $ 87,478   $ (46,902 )
Net income (loss) per share attributable to Cypress:
Basic $ 0.14 $ 0.08 $ 0.04 $ 0.24 $ (0.14 )
Diluted $ 0.14 $ 0.07 $ 0.04 $ 0.23 $ (0.14 )
Cash dividend declared per share $ 0.11 $ 0.11 $ 0.11 $ 0.33 $ 0.33
Shares used in net income (loss) per share calculation:
Basic 361,631 358,577 332,873 358,560 329,787
Diluted 374,266 371,967 360,311 373,064 329,787
1.   In 2018, certain expenses have been reclassified as part of cost of revenue and operating expenses. Historical results have been conformed with the 2018 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 Q3 2018
 
  Cost of revenues  

Research and
development

 

Selling, general and
administrative

Interest and other
expense, net

GAAP [i] $ 413,320 $ 91,691 $ 92,943 $ (18,716 )
[1] Stock-based compensation 5,120 8,206 10,869
[2] Changes in value of deferred compensation plan 136 667 768 (1,108 )
[3] Equity in net loss of equity method investees 3,657
[4] Imputed interest on convertible debt, equity component amortization on convertible debt and others 6,782
[5] Amortization of acquisition-related intangible assets and other 51,565 4,310
[6] Acquisition costs 119
[7] Restructuring charges (340 ) 516 9,815
[8] Litigation settlement and other     (605 ) (1,286 )
Non - GAAP [ii] $ 356,839   $ 82,302   $ 67,667   $ (10,671 )
Impact of reconciling items [ii - i] $ (56,481 ) $ (9,389 ) $ (25,276 ) $ 8,045
 
 
Table B: GAAP to non-GAAP reconciling items: Three Months Ended Q2 2018
 
  Cost of revenues  

Research and
development

 

Selling, general and
administrative

 

Interest and other
expense, net

GAAP [i] $ 389,952 $ 96,693 $ 86,599   $ (17,898 )
[1] Stock-based compensation 3,986 13,800 16,121
[2] Changes in value of deferred compensation plan 102 467 572 (1,123 )
[3] Equity in net loss of equity method investees 3,755
[4] Imputed interest on convertible debt, equity component amortization on convertible debt and others 4,415
[5] Amortization of acquisition-related intangible assets and other 49,438 4,355
[6] Gain on sale of cost method investment (1,521 )
[7] Restructuring charges and other 1,589   33   (383 ) (377 )
Non - GAAP [ii] $ 334,837   $ 82,393   $ 67,455   $ (11,228 )
Impact of reconciling items [ii - i] $ (55,115 ) $ (14,300 ) $ (19,144 ) $ 6,670
 
 
Table C: GAAP to Non-GAAP reconciling items: Three Months Ended Q3 2017
 
  Cost of revenues  

Research and
development

 

Selling, general and
administrative

 

Interest and other
expense, net

GAAP [i] $ 394,878 $ 90,422 $ 78,194 $ (23,550 )
[1] Stock-based compensation 4,720 8,692 7,600
[2] Changes in value of deferred compensation plan 208 1,278 1,415 (1,734 )
[3] Merger, integration, related costs and adjustments related to assets held for sale 1,336 (636 )
[4] Inventory step-up related to acquisition accounting 704
[5] Equity in net loss and impairment of equity method investees 4,931
[6] Imputed interest on convertible debt, equity component amortization on convertible debt and others 3,521
[7] Write-off of unamortized debt issuance costs related to Term Loan A 2,996
[8] Amortization of debt issuance costs 856
[9] Amortization of acquisition-related intangible assets and other 43,345     5,083   51  
Non - GAAP [ii] $ 344,565   $ 80,452   $ 64,732   $ (12,929 )
Impact of reconciling items [ii - i] $ (50,313 ) $ (9,970 ) $ (13,462 ) $ 10,621
 
 
Table D: GAAP to non-GAAP reconciling items: Nine Months Ended Q3 2018
 
  Cost of revenues  

Research and
development

 

SG&A and
Restructuring costs

 

Interest and other
expense, net

GAAP [i] $ 1,173,121 $ 281,617 $ 262,940 $ (58,229 )
[1] Stock-based compensation 12,689 28,720 35,152
[2] Changes in value of deferred compensation plan 299 1,406 1,690 (2,497 )
[3] Equity in net loss and impairment of equity method investees 10,873
[4] Imputed interest on convertible debt, equity component amortization on convertible debt and others 14,628
[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 150,441 13,815
[8] Gain on sale of cost method investment (1,521 )
[9] Acquisition costs 119
[10] Restructuring charges 3,136 841 11,347
[11] Litigation settlement and other     (605 ) (1,270 )
Non - GAAP [ii] $ 1,006,556   $ 250,650   $ 202,943   $ (32,164 )
Impact of reconciling items [ii - i] $ (166,565 ) $ (30,967 ) $ (59,997 ) $ 26,065
 
 
Table E: GAAP to non-GAAP reconciling items: Nine Months Ended Q3 2017
 
  Cost of revenues  

Research and
development

 

Selling, general and
administrative

 

Interest and other
expense, net

GAAP [i] $ 1,170,675 $ 268,365 $ 254,785 $ (69,227 )
[1] Stock-based compensation 12,605 28,754 27,157
[2] Changes in value of deferred compensation plan 512 2,438 3,319 (4,876 )
[3] Merger, integration, related costs and adjustments related to assets held for sale 4,022 (96 ) (922 )
[4] Inventory step-up related to acquisition accounting 3,735
[5] Equity in net loss and impairment of equity method investees 14,842
[6] Imputed interest on convertible debt, equity component amortization on convertible debt and others 10,517
[7] Write-off of unamortized debt issuance costs related to Term Loan A 2,996
[8] Amortization of debt issuance costs 2,634
[9] Amortization of acquisition-related intangible assets 130,782 15,250
[10] Restructuring charges 231 2,710 528
[11] Settlement charges and other     3,500   693  
Non - GAAP [ii] $ 1,018,788   $ 234,559   $ 205,953   $ (42,421 )
Impact of reconciling items [ii - i] $ (151,887 ) $ (33,806 ) $ (48,832 ) $ 26,806
 
   
Table F: Non-GAAP gross profit Three Months Ended Nine Months Ended
Q3'18   Q2'18   Q3'17 Q3'18   Q3'17
GAAP gross profit $ 259,715   $ 234,138   $ 209,696 $ 706,245   $ 559,549
Impact of reconciling items on cost of revenues (Table A, B, C, D and E) 56,481   55,115   50,313   166,565   151,887  
Non-GAAP gross profit $ 316,196   $ 289,253   $ 260,009   $ 872,810   $ 711,436  
GAAP gross margin (GAAP gross profit/revenue) 38.6 % 37.5 % 34.7 % 37.6 % 32.3 %
Non-GAAP gross margin (Non-GAAP gross profit/revenue) 47.0 % 46.3 % 43.0 % 46.4 % 41.1 %
 
   
Table G: Non-GAAP operating income Three Months Ended Nine Months Ended
Q3'18   Q2'18   Q3'17 Q3'18   Q3'17
GAAP operating income [i] $ 75,081 $ 50,846 $ 41,080 $ 161,688 $ 36,399
Impact of reconciling items on cost of revenues (see Table A, B, C, D, E) 56,481 55,115 50,313 166,565 151,887
Impact of reconciling items on R&D (see Table A, B, C, D, E) 9,389 14,300 9,970 30,967 33,806
Impact of reconciling items on SG&A (see Table A, B, C, D, E) 25,276   19,144   13,462   59,997   48,832  
Non-GAAP operating income [ii] $ 166,227   $ 139,405   $ 114,825   $ 419,217   $ 270,924  
Impact of reconciling items on operating income [ii - i] $ 91,146 $ 88,559 $ 73,745 $ 257,529 $ 234,525
GAAP operating margin (GAAP operating income / revenue) 11.2 % 8.1 % 6.8 % 8.6 % 2.1 %
Non-GAAP operating margin (Non-GAAP operating income / revenue) 24.7 % 22.3 % 19.0 % 22.3 % 15.7 %
 
   
Table H: Non-GAAP pre-tax profit Three Months Ended Nine Months Ended
Q3'18   Q2'18   Q3'17 Q3'18   Q3'17
GAAP income (loss) before income taxes and non-controlling interest ("Pre-tax income") $ 60,022 $ 36,703 $ 22,461 $ 114,332 $ (17,986 )
Equity in net loss and impairment of equity method investees (3,657 ) (3,755 ) (4,931 ) (10,873 ) (14,842 )
Impact of reconciling items on operating income (see Table G) 91,146 88,559 73,745 257,529 234,525
Impact of reconciling items on interest and other expense, net (see Table A, B, C, D, E) 8,045   6,670   10,621   26,065   26,806  
Non-GAAP pre-tax profit $ 155,556 $ 128,177 $ 101,896 $ 387,053 $ 228,503
GAAP pre-tax profit margin (GAAP pre-tax income/revenue) 8.9 % 5.9 % 3.7 % 6.1 % (1.0 )%
Non-GAAP pre-tax profit margin (Non-GAAP pre-tax profit/revenue) 23.1 % 20.5 % 16.9 % 20.6 % 13.2 %
 
   
Table I: Non-GAAP income tax expense Three Months Ended Nine Months Ended
Q3'18   Q2'18   Q3'17 Q3'18   Q3'17
GAAP income tax provision [i] 5,618 5,154 4,500 15,829 13,930
[1] Stock-based compensation 5,081 7,120 7,354 16,078 23,981
[2] Changes in value of deferred compensation plan 97 4 408 189 488
[3] Merger, integration, related costs and adjustments related to assets held for sale 245 1,051
[4] Inventory step-up related to acquisition accounting 246 1,314
[5] Equity in net loss and impairment of equity method investees 768 789 1,726 2,283 5,195
[6] Imputed interest on convertible debt, equity component amortization on convertible debt and others 1,424 927 1,232 3,072 3,681
[7] Amortization of debt issuance costs 300 225 922
[8] Amortization of acquisition-related intangible assets and other 11,734 11,297 16,950 34,494 51,111
[9] Restructuring charges 2,098 260 3,218 1,214
[10] Settlement charges 1,225
[11] Loss on extinguishment of Spansion convertible notes 1,049 684 1,049
[12] Gain on sale of cost method investment (319 ) (319 )
[13] Uncertain tax positions (2,159 ) (1,348 ) (663 ) (4,870 ) (2,458 )
[14] Utilization of NOL including excess tax benefits, and others** (21,882 ) (20,759 ) (30,445 ) (61,966 ) (93,917 )
Non-GAAP income tax expense [ii]* $ 2,779   $ 3,125   $ 2,902   $ 8,917   $ 8,786  
Impact of reconciling items on income tax provision [i - ii] 2,839 2,029 1,598 6,912 5,144
*   Tax impact of Non-GAAP adjustments is calculated by using the federal statutory rate of 21%, 21%, and 35% for the periods ended July 1, 2018, September 30, 2018, and October 1, 2017 respectively.
** Other items include but are not limited to deferred tax expense not affecting income tax payable.
 
Table J: Non-GAAP net income
 
  Three Months Ended   Nine Months Ended
Q3'18   Q2'18   Q3'17 Q3'18   Q3'17
GAAP net income (loss) attributable to Cypress $ 50,695 $ 27,706 $ 13,016 $ 87,478 $ (46,902 )
Impact of reconciling items on operating income (see Table G) 91,146 88,559 73,745 257,529 234,525
Impact of reconciling items on interest and other expense, net (see Table A, B, C, D, E) 8,045 6,670 10,621 26,065 26,806
Impact of reconciling items on income tax provision (see Table I) 2,839   2,029   1,598   6,912   5,144  
Non-GAAP net income $ 152,725   $ 124,964   $ 98,980   $ 377,984   $ 219,573  
 
 
Table K: Weighted-average shares, diluted
 
  Three Months Ended
Q3'18   Q2'18   Q3'17
GAAP   Non-GAAP GAAP   Non-GAAP GAAP   Non-GAAP
Weighted-average common shares outstanding, basic 361,631 361,631 358,577 358,577 332,873 332,873
Effect of dilutive securities:
Stock options, unvested restricted stock and other 7,096 12,468 7,837 14,391 7,884 12,948
Convertible notes 5,539   3,234   5,553   3,070   19,554   18,790
Weighted-average common shares outstanding, diluted 374,266   377,333   371,967   376,038   360,311   364,611
 
 
Table L: Weighted-average shares, diluted
 
  Nine Months Ended
Q3'18   Q3'17
GAAP   Non-GAAP GAAP   Non-GAAP
Weighted-average common shares outstanding, basic 358,560 358,560 329,787 329,787
Effect of dilutive securities:
Stock options, unvested restricted stock and other 8,378 13,557 13,060
Convertible notes 6,126   3,852     18,370
Weighted-average common shares outstanding, diluted 373,064   375,969   329,787   361,217
 
 
Table M: Earnings per share
 
  Three Months Ended
Q3'18   Q2'18   Q3'17
GAAP   Non-GAAP GAAP   Non-GAAP   GAAP   Non-GAAP
Net income (see Table J) [i] $ 50,695 $ 152,725 $ 27,706 $ 124,964 $ 13,016 $ 98,980
Weighted-average common shares outstanding, diluted (see Table K) [ii] 374,266   377,333   371,967   376,038   360,311   364,611
Earnings per share - diluted [i/ii] $ 0.14   $ 0.40   $ 0.07   $ 0.33   $ 0.04   $ 0.27
 
     
Table N: Earnings (loss) per share
 
  Nine Months Ended
Q3'18 Q3'17
GAAP Non-GAAP GAAP Non-GAAP
Net income (loss) (see Table J) [i] $ 87,478 $ 377,984 $ (46,902 ) $ 219,573
Weighted-average common shares outstanding, diluted (see Table L) [ii] 373,064   375,969   329,787   361,217
Earnings (loss) per share - diluted [i/ii] $ 0.23   $ 1.01   $ (0.14 ) $ 0.61
 
     
Table O: Adjusted EBITDA
 
  Three Months Ended Nine Months Ended
Q3'18   Q2'18 Q3'17 Q3'18 Q3'17
GAAP net income (loss) attributable to Cypress $ 50,695 $ 27,706 $ 13,016 $ 87,478 $ (46,902 )
Interest and other expense, net (15,059 ) (14,143 ) (18,619 ) (47,356 ) (54,385 )
Income tax provision (5,618 ) (5,154 ) (4,500 ) (15,829 ) (13,930 )
Equity in net loss of and impairment of equity method investees (3,657 ) (3,755 ) (4,931 ) (10,873 ) (14,842 )
Net gain (loss) attributable to non-controlling interests (52 ) (88 ) (14 ) (152 ) (144 )
GAAP operating income $ 75,081 $ 50,846 $ 41,080 $ 161,688 $ 36,399
Impact of reconciling items on operating income (see Table G) 91,146   88,559   73,745   257,529   234,525  
Non-GAAP operating income $ 166,227 $ 139,405 $ 114,825 $ 419,217 $ 270,924
Depreciation 16,393   16,239   16,674   49,772   48,876  
Adjusted EBITDA $ 182,620   $ 155,644   $ 131,499   $ 468,989   $ 319,800  
 
   
Table P: Free cash flow Three Months Ended Nine Months Ended
Q3'18   Q2'18   Q3'17 Q3'18   Q3'17
GAAP net cash provided by operating activities $ 187,073 $ 110,734 $ 143,778 $ 329,485 $ 201,946
Acquisition of property, plant and equipment, net (15,448 ) (25,590 ) (15,975 ) (58,061 ) (44,154 )
Free cash flow $ 171,625   $ 85,144   $ 127,803   $ 271,424   $ 157,792  
 
 

CYPRESS SEMICONDUCTOR CORPORATION

SUPPLEMENTAL FINANCIAL DATA

(In thousands)

(Unaudited)

       
Three Months Ended Nine Months Ended

September 30,
2018

July 1,
2018

October 1,
2017

September 30,
2018

October 1,
2017

Selected Cash Flow Data (Preliminary):
Net cash provided by operating activities $ 187,073 $ 110,734 $ 143,778 $ 329,485 $ 201,946
Net cash (used in) provided by investing activities $ (22,316 ) $ (7,213 ) $ (15,051 ) $ (43,700 ) $ (8,393 )
Net cash used in financing activities $ (72,730 ) $ (97,556 ) $ (105,935 ) $ (232,634 ) $ (182,162 )
Other Supplemental Data (Preliminary):
Capital expenditures, net $ 15,448 $ 25,590 $ 15,975 $ 58,061 $ 44,154
Depreciation $ 16,393 $ 16,239 $ 16,674 $ 49,772 $ 48,876
Payment of dividend $ 39,447 $ 39,404 $ 36,325 $ 117,592 $ 108,079
Dividend paid per share $ 0.11 $ 0.11 $ 0.11 $ 0.33 $ 0.33
Total debt (principal amount) $ 936,518 $ 955,553 $ 1,205,790 $ 936,518 $ 1,205,790
Leverage ratio 1.54 1.71 2.91 1.54 2.91
Cash Income Tax 2,779 3,125 2,902 8,917 8,786
 
     

CYPRESS SEMICONDUCTOR CORPORATION

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

LOOKING ESTIMATES

 

Forward-looking GAAP
estimate (A)¹

Adjustments (B)

Forward-looking Non-GAAP
estimate (C)=(A)+(B)

Amortization of
intangibles

 

Stock-based
compensation
expense

  Other items
Gross margin 38.0% - 39.0% 8.4 % 0.4 % 0.2 % 47.0% - 48.0%
Diluted earnings per share $0.07 to $0.11 $ 0.15 $ 0.06 $ 0.03 $0.31 to $0.35
1.   GAAP outlook does not include any impact from the planned disposition of our NAND business to the joint venture with SK hynix system ic Inc., which is not expected to be completed until the first quarter of 2019.
 

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