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Rambus Beats Q3 Earnings; Shares Fall on Weak Q4 Outlook

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Shares of Rambus Inc.RMBS plunged over 15% in after-hours trade yesterday in response to the lower-than-expected revenues reported for the third quarter of 2015 and a dismal fourth-quarter outlook.

However, the company's adjusted earnings per share (including stock-based compensation but excluding all one-time items) of 12 cents came a penny ahead of the Zacks Consensus Estimate and compared favorably with the year-ago quarter figure. The year-over-year improvement was mainly driven by higher revenues and stringent cost management.

On a GAAP basis, the company reported earnings of $1.52 per share, much better than 5 cents earned a year ago.

Rambus Inc. - Earnings Surprise | FindTheBest

Quarter Details

Total revenue for the quarter increased 5.8% year over year to $73.8 million. The year-over-year increase was mainly driven by higher revenues from the new license agreement signed with International Business Machines Corporation IBM during the first quarter and extension of license agreement with SK Hynix in the second quarter. These positives were partially offset by lower royalty revenues from ST Microelectronics.

However, reported revenues were toward the lower end of management's guided range of $73 million to $78 million but missed the Zacks Consensus Estimate of $76 million.

Total operating costs and expenses of $56.1 million were 2% lower than the year-ago quarter primarily due to reduced prototyping costs, lower costs of sales due to decline in sales of security and lighting products. Total operating costs and expenses, as a percentage of revenues, also decreased from 79.2% to 76.1% on a year-over- year basis.

This, in turn, positively impacted operating results. Adjusted operating income (including stock-based compensation but excluding all one-time items) came in at $23.9 million compared with $21.2 million in the year-ago quarter. Adjusted operating margin was 32.4% compared with 30.4% a year ago.

On a GAAP basis, net income was $12.7 million, which improved from $11.4 million reported in the year-ago quarter. Also, net income on an adjusted basis (including stock-based compensation but excluding all one-time items) was $14.3 million compared with $13.0 million.

Rambus exited the quarter with cash, cash equivalents and marketable securities of approximately $362.9 million, up from $348.1 million in the prior quarter. During the quarter, the company generated cash from operations of $14.8 million.

Guidance

The company has lowered its full-year 2015 revenue guidance to $291 - $297 million from $300 - $315 million. The Zacks Consensus Estimate is pegged at $305 million.

For the fourth-quarter, the company expects revenues to range between $71 million and $77 million (mid-point $74 million), lower than the Zacks Consensus Estimate of $83 million.

Our Take

Rambus reported mixed third-quarter results with the bottom line beating the Zacks Consensus Estimate while the top line lagging the same. Moreover, the company provided tepid fourth-quarter revenue guidance.

Nonetheless, Rambus is poised well to capitalize on the rising popularity of energy-efficient lighting, 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 favorable results, going ahead. Additionally, licensing agreements - the result of successful monetization of Rambus' patents - remain a recurring revenue source.

The company's investments in the CryptoManager platform and certain memory and interface technologies can impact near-term margins. Other companies operating in the same space are Semiconductor Manufacturing International Corp. SMI and Advanced Micro Devices AMD .

Currently, Rambus has a Zacks Rank #3 (Hold).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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