Rambus Inc. RMBS reported fourth-quarter 2016 adjusted earnings per share (including stock-based compensation but excluding all one-time items) of 13 cents, which came in line with the Zacks Consensus Estimate. Reported earnings compared unfavourably with the year-ago quarter figure of 16 cents. The year-over-year decrease was mainly due to higher share count and higher tax.
Quarter Details
Total revenue for the quarter increased 27.1% year over year to $97.6 million. The increase was mainly due to better-than-expected patent revenues from security technology development projects, higher product revenues and higher royalty revenues. Reported revenues also surpassed the Zacks Consensus Estimate of $94 million.
Royalty revenues for the quarter increased 6.6% year over year, whereas revenues from Contract and other were up 155.9% on a year-over-year basis.
Total operating costs and expenses of $97 million were 71.9% higher than the year-ago quarter, primarily due to increased consulting costs, headcount related costs and cost of sales.
Excluding one-time items but including stock-based compensation expenses, total operating costs and expenses increased nearly 56.6% year over year to $73.1 million. As a percentage of revenues, it increased from 60.8% to 74.9%.
This, in turn, negatively impacted operating results. Adjusted operating income (including stock-based compensation but excluding all one-time items) came in at $24.4 million compared with $30.1 million in the year-ago quarter, decreasing 18.8% year over year. Adjusted operating margin was 25% compared with 39.2% a year ago.
On a GAAP basis, net loss was approximately $3.4 million compared with net income of $12.9 million reported last year. Also, net income on an adjusted basis (including stock-based compensation but excluding all one-time items) was approximately $14.7 million compared with $18.9 million.
Rambus exited the quarter with cash, cash equivalents and marketable securities of roughly $172.2 million, up from $150.8 million in the previous quarter. The company does not carry any long-term debt.
Guidance
For the first quarter of 2017, the company expects revenues between $93 million and $98 million. The Zacks Consensus Estimate is pegged at $96 million. Total non-GAAP operating costs and expenses are expected to be in a range of $67 million and $70 million. Non-GAAP earnings per share are expected to be in a range of 13 cents to 17 cents.
Share Price
Rambus’ stock price over the last one year has risen only 8.9%, underperforming the Zacks Categorized Electronics-Semiconductors industry, which has showcased an increase of 74.1%.
Our Take
Rambus reported modest fourth-quarter results, wherein the bottom line matched the Zacks Consensus Estimate and the top line surpassed the same. Quarterly revenues increased from the year-ago period. However, the company provided a not-so-encouraging first quarter revenue guidance.
Nonetheless, Rambus is poised well to capitalize on the rising popularity of energy-efficient lighting, and LED products in the latest architectural, retail, commercial and residential lighting fixtures.
Rambus is going through a restructuring phase and we expect it to yield favourable results. Additionally, licensing agreements — the result of successful monetization of Rambus’ patents — remains a recurring revenue source.
Furthermore, the acquisition of certain serial link assets of Semtech Corporation’s SMTC Snowbush IP and Smart Card Software will enhance its product offerings, thereby boosting its top and bottom line performance, in our view.
However, competition from Semiconductor Manufacturing International Corp. SMI and Advanced Micro Devices AMD and customer concentration remain headwinds for the company.
Currently, Rambus has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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