Rambus (RMBS) Q2 Earnings & Revenues Beat, View Weak

Rambus Inc. (NASDAQ:RMBS) reported second-quarter 2016 adjusted earnings per share (including stock-based compensation but excluding all one-time items) of 12 cents, which came ahead of the Zacks Consensus Estimate of 10 cents. Also, reported earnings compared favourably with the year-ago quarter figure of 11 cents. The year-over-year increase was mainly due to higher revenues.

Quarter Details

Total revenue for the quarter increased 5.1% year over year to $76.5 million. The increase was mainly due to better-than-expected patent revenues from security technology development projects (including revenue from the SCS acquisition).

Reported revenues were toward the higher end of management’s guided range of $72 million and $77 million and surpassed the Zacks Consensus Estimate of $75 million.

Total operating costs and expenses of $64.5 million were 12.6% higher than the year-ago quarter, primarily due to higher consulting costs and higher headcount related costs owing to the Smart Card Software acquisition.

Excluding one-time items but including stock based compensation expenses, total operating costs and expenses increased nearly 9.1% year over year to $55.6 million. As a percentage of revenues, it increased 267 basis points to 72.6%.

This, in turn, negatively impacted operating results. Adjusted operating income (including stock-based compensation but excluding all one-time items) came in at $20.9 million compared with $21.9 million in the year-ago quarter, decreasing 4.2% year over year. Adjusted operating margin was 27.4% compared with 30.1% a year ago.

On a GAAP basis, net income was approximately $3.9 million, which decreased from $6.9 million reported last year. Also, net income on an adjusted basis (including stock-based compensation but excluding all one-time items) was approximately $14.5 million compared with $14.8 million.

Rambus exited the quarter with cash, cash equivalents and marketable securities of roughly $259.3 million, up from $225.6 million in the previous quarter.

Guidance

For the third quarter, the company expects revenues between $75 million and $80 million, lower than the Zacks Consensus Estimate of $82 million. Total operating expense is expected to be in the range of $50 million and $53 million. Operating income for the third quarter is expected to be between $22 million and $30 million.

Full year revenues are projected to be $313 million (+/- 5 million), lower than the Zacks Consensus Estimate of $321 million.

Our Take

Rambus reported better-than-expected second-quarter results. Moreover, the quarterly revenues and earnings increased from the year-ago period as well. However, the company provided a tepid third-quarter and full year 2016 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. The recent acquisition of Smart Card Software will enhance its product offerings, thereby boosting its top and bottom line performance over the long run, in our view.

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.

However, competition from Semiconductor Manufacturing International Corp. (NYSE:SMI) and Advanced Micro Devices (NASDAQ:AMD) and customer concentration remain headwinds for the company.

Currently, Rambus has a Zacks Rank #3 (Hold). A better-ranked stock in the technology sector is Synopsys Inc. (NASDAQ:SNPS) , sporting a Zacks Rank #1 (Strong Buy).