Rambus(RMBS) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Unaudited Q2 2023 financials show total assets increased to $1.13 billion, with net income surging to $168.9 million due to a $155.3 million tax benefit Condensed Consolidated Balance Sheets Total assets increased to $1.13 billion by June 30, 2023, driven by deferred tax assets, while liabilities decreased, boosting equity | Balance Sheet Item | June 30, 2023 ($ thousands) | December 31, 2022 ($ thousands) | | :--- | :--- | :--- | | Total Current Assets | 536,465 | 527,214 | | Deferred tax assets | 140,405 | 3,031 | | Total Assets | 1,127,116 | 1,012,594 | | Total Current Liabilities | 101,444 | 126,709 | | Total Liabilities | 181,558 | 233,297 | | Total Stockholders' Equity | 945,558 | 779,297 | Condensed Consolidated Statements of Operations Q2 2023 revenue slightly decreased to $119.8 million, but a $155.3 million tax benefit led to a net income of $168.9 million | Metric ($ thousands, except per share) | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | 119,832 | 121,132 | 233,594 | 220,182 | | Product Revenue | 54,978 | 53,302 | 118,753 | 101,271 | | Royalties | 40,672 | 48,038 | 68,841 | 78,502 | | Operating Income | 11,695 | 35,560 | 13,637 | 43,881 | | Provision for (benefit from) income taxes | (155,325) | 2,930 | (155,124) | 3,444 | | Net Income (Loss) | 168,880 | 35,020 | 172,161 | (31,198) | | Diluted EPS | $1.51 | $0.31 | $1.55 | ($0.28) | Condensed Consolidated Statements of Cash Flows Net cash from operations decreased to $89.3 million for H1 2023, with significant cash used in investing and financing activities | Cash Flow Activity ($ thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | 89,348 | 99,113 | | Net cash provided by (used in) investing activities | (34,982) | 167,389 | | Net cash used in financing activities | (58,296) | (201,886) | | Net (decrease) increase in cash | (3,504) | 63,562 | Notes to Unaudited Condensed Consolidated Financial Statements Notes highlight customer concentration, a $149.4 million tax benefit from valuation allowance release, and a $9.5 million restructuring charge - Customer 1 accounted for 64% of total accounts receivable as of June 30, 2023[38] - Customer A and Customer B represented 38% and 12% of total revenue, respectively, for the three months ended June 30, 2023[39] - In Q2 2023, the company released the valuation allowance on the majority of its U.S. deferred tax assets, resulting in a $149.4 million discrete tax benefit[80] - A restructuring plan initiated in June 2023 resulted in charges of approximately $9.5 million, related to a reduction of 42 employees and write-downs of certain IP development costs and software licenses[95] - On July 19, 2023, the company entered into an agreement to sell its PHY IP business to Cadence Design Systems, Inc. for $110 million in cash[105] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2023 performance, noting product revenue growth, royalty decline, increased operating expenses, and strong liquidity Business Overview Rambus provides chips and silicon IP for data centers, focusing on high-performance memory subsystems and strategic semiconductor growth - Rambus is a leader in high-performance memory subsystems, providing chips and intellectual property (IP) to improve performance and security in data-intensive systems[110] - Strategic objectives include focusing the product portfolio on semiconductors, optimizing operational efficiency, and leveraging cash generation to reinvest for growth[111] Results of Operations Q2 2023 total revenue decreased slightly to $119.8 million, with product revenue growth offset by lower royalties and increased operating expenses | Revenue Stream ($ millions) | Q2 2023 | Q2 2022 | Change (%) | Six Months 2023 | Six Months 2022 | Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Product revenue | 55.0 | 53.3 | 3.1% | 118.8 | 101.3 | 17.3% | | Royalties | 40.7 | 48.0 | (15.3)% | 68.8 | 78.5 | (12.3)% | | Contract and other revenue | 24.1 | 19.8 | 22.2% | 46.0 | 40.4 | 13.8% | | Total revenue | 119.8 | 121.1 | (1.1)% | 233.6 | 220.2 | 6.1% | - The increase in product revenue for both the three and six-month periods was due to higher sales of memory interface chips[129] - The decrease in royalty revenue for both periods was primarily due to the timing and structure of license renewals[132] - In June 2023, the company initiated a restructuring plan, recording charges of approximately $9.5 million related to workforce reduction and write-downs[150] Liquidity and Capital Resources The company maintains strong liquidity with $332.6 million in cash and marketable securities, supported by $89.3 million in operating cash flow | Metric ($ millions) | As of June 30, 2023 | As of Dec 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | 122.2 | 125.3 | | Marketable securities | 210.4 | 187.9 | | Total | 332.6 | 313.2 | - Net cash provided by operating activities was $89.3 million for the six months ended June 30, 2023, compared to $99.1 million for the same period in 2022[162][169] - As of June 30, 2023, there was an outstanding authorization to repurchase approximately 9.7 million shares under the 2020 Repurchase Program[168] Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate risk on its $246.8 million investment portfolio and manages foreign currency exposure with forward contracts - The company is exposed to interest rate risk on its investment portfolio of $246.8 million; a 1.0% increase in interest rates would lead to a fair value decline of approximately $1.0 million[184] - To manage foreign currency risk, the company uses forward contracts for certain euro-denominated assets; as of June 30, 2023, the outstanding contract had a notional value of $11.0 million (€10.0 million)[186] Controls and Procedures Management confirmed effective disclosure controls and procedures as of June 30, 2023, with no material changes to internal controls - The Chief Executive Officer and Chief Financial Officer concluded that as of June 30, 2023, the company's disclosure controls and procedures were effective[189] - No material changes to internal control over financial reporting were identified during the quarter ended June 30, 2023[190] PART II. OTHER INFORMATION Legal Proceedings The company is not currently involved in any material pending legal proceedings - Rambus is not currently a party to any material pending legal proceedings[192] Risk Factors Key risks include cyclical industry operations, customer concentration, supply chain reliance, product defects, and intellectual property protection - Key business risks include operating in highly cyclical industries, concentration of revenue in a few customers, and potential costs from product defects[194] - The company relies on third parties for manufacturing, exposing it to supply chain risks, capacity constraints, and quality control issues[194][232] - Cybersecurity breaches, protection of intellectual property, and potential litigation are identified as significant operational and legal risks[194][241][277] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred during the reporting period - None[304] Other Information No Rule 10b5-1 trading arrangements were adopted or terminated by directors or officers last quarter - No director or officer adopted or terminated a Rule 10b5-1 trading plan during the last fiscal quarter[307] Exhibits This section lists exhibits filed, including the Asset Purchase Agreement, corporate governance documents, and officer certifications - Key exhibits filed include the Asset Purchase Agreement with Cadence, amended Certificate of Incorporation and Bylaws, and officer certifications[309]