Rambus Inc. (RMBS) posted third quarter 2011 earnings per share of 6 cents, strongly beating the Zacks Consensus Estimate of 0 cent. The adjusted earnings per share exclude other patent royalties received, acquisition costs and retention bonus, restatement and related legal charges and amortization expenses as well as tax adjustments, but include stock compensation expenses. Shares increased 0.68% in the after market trade.
Revenue
Rambus reported total revenue of $100.3 million in the third quarter, up 215.9% from $31.7 million in the year-ago period. The quarter’s result surpassed the company’s guidance range. The improvement was attributable to strength noticed in both segments.
Royalty revenue increased 208.6% year over year to $96.2 million, mainly due to the recognition of royalties from new licensing agreements signed in the second and third quarters of 2011. Revenue from Contracts saw a whopping 617.6% rise from the comparable quarter last year.
Operating Results
Total operating expenses in the third quarter were $82.1 million, up 96.1% from $41.9 million in the year-earlier quarter. The steep rise was due to higher stock-based compensation and acquisition expenses as well as retention bonuses. The year-ago quarter included $10.3 million gain related to the Samsung settlement.
Reported operating income in the quarter was $10.7 million, compared to a loss of $11.5 million in year-ago quarter. The operating margin was 10.7% compared to negative 36.2% in the year-ago quarter.
Reported net income was $478,000 or 0 cent per share, compared with a loss of $20.6 million or 18 cents in the comparable quarter last year. Excluding the impact of other patent royalties received, acquisition costs and retention bonus, restatement and related legal charges and amortization expenses, but including stock compensation expenses, the adjusted income per share came in at 6 cents.
Balance Sheet
Rambus exited the quarter with cash, cash equivalents and marketable securities of approximately $292.8 million, compared with $359.4 million in the prior quarter. The decrease was the result of the repurchase from Samsung of approximately 4.8 million shares of its stock or an aggregate amount of $100.0 million pursuant to the put option offset in part by cash from operations. The company generated approximately $35 million in cash from operations.
Guidance
For the fourth quarter, Rambus expects revenues between $66.0 million and $71.0 million. Pro forma operating expenses are expected in the range of $58.0 million to $62.0 million, accounting for litigation expenses of $12.0 million to $15.0 million. Pro forma net income is projected between $2.0 million and $8.0 million.
Our Take
Rambus reported an interesting third quarter, surpassing the Zacks Estimates with flying colors. The company also provided a positive guidance, although seems seasonally weak.
Rambus’ endeavor to diversify into the lighting and display technology space in an effort to tap the tremendous opportunity in solid state lighting is encouraging. Moreover, Rambus has won a favorable ruling from the U.S. International Trade Commission for lawsuits filed against various parties, including chip maker NVIDIA Corp. (NVDA) and PC makers Hewlett-Packard Co. (HPQ) and Asus Computer International Inc. However, pending lawsuits against Hynix and Micron Technology Inc. (MU), as well as competitive pressure from Samsung Electronics remain concerns.
Currently, Rambus has a Zacks #3 Rank, indicating a short-term Hold recommendation.
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