Press release

Cypress Reports Third Quarter 2019 Results and Provides Update on Regulatory Approvals

0
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Cypress Semiconductor Corporation (NASDAQ: CY), today announced its third quarter 2019 results with the following highlights:

  • $574.5 million in revenue, up 7.9% sequentially, and down 8.8% year-over-year after adjusting for the divestiture of our NAND business, which was completed on April 1, 2019
  • GAAP and Non-GAAP gross margins were 37.7% and 46.9%, respectively
  • GAAP and Non-GAAP operating margins were 7.9% and 21.8%, respectively
  • GAAP and Non-GAAP diluted EPS were $0.03 and $0.30, respectively

“Cypress had a solid third quarter with strong demand in our MCD division, where revenue was up 16% sequentially driven by IoT growth, particularly in our wireless, USB-C, and PSoC product families,” said Hassane El-Khoury, Cypress’ president and chief executive officer. “Our Cypress 3.0 strategy remains on track as we deliver consistently strong operating margins, even in a soft market environment.”

On October 16, 2019, the European Commission cleared the proposed acquisition of Cypress by Infineon Technologies AG (“Infineon”) without any conditions. The proposed transaction previously received antitrust clearances in the Philippines and South Korea. As announced on June 3, 2019, Infineon and Cypress have entered into an agreement and plan of merger providing for Infineon to acquire Cypress for $23.85 per share in cash, corresponding to an enterprise value of approximately $10 billion. The combination of our highly-complementary product portfolios opens up great potential in the high-growth areas of automotive and IoT. Due to the pending transaction, Cypress will not hold an earnings conference call and has suspended the practice of providing forward-looking guidance.

Revenue and earnings for the quarter are shown below with comparable periods:

(In thousands, except percentages and per-share data)

 

 

GAAP

 

Non-GAAP1

 

 

Q3 2019

 

Q2 2019

 

Q3 2018

 

Q3 2019

 

Q2 2019

 

Q3 2018

Revenue

 

$

574,521

 

 

$

532,221

 

 

$

673,035

 

 

$

574,521

 

 

$

532,221

 

 

$

673,035

 

Gross margin

 

37.7

%

 

37.3

%

 

38.6

%

 

46.9

%

 

47.0

%

 

47.0

%

Operating margin

 

7.9

%

 

2.5

%

 

11.2

%

 

21.8

%

 

20.4

%

 

24.7

%

Net income (loss)

 

$

12,683

 

 

$

(12,729

)

 

$

50,695

 

 

$

115,794

 

 

$

97,241

 

 

$

152,725

 

Diluted EPS

 

$

0.03

 

 

$

(0.03

)

 

$

0.14

 

 

$

0.30

 

 

$

0.25

 

 

$

0.40

 

Year-to-date revenue and earnings are shown below with comparable periods:

(In thousands, except percentages and per-share data)

 

 

GAAP

 

Non-GAAP1

 

 

Nine Months Ended

 

Nine Months Ended

 

 

Q3 2019

 

Q3 2018

 

Q3 2019

 

Q3 2018

Revenue

 

$

1,645,746

 

 

$

1,879,366

 

 

$

1,645,746

 

 

$

1,879,366

 

Gross margin

 

37.5

%

 

37.6

%

 

47.1

%

 

46.4

%

Operating margin

 

5.5

%

 

8.6

%

 

21.1

%

 

22.3

%

Net income

 

$

19,668

 

 

$

87,478

 

 

$

315,138

 

 

$

377,984

 

Diluted EPS

 

$

0.05

 

 

$

0.23

 

 

$

0.82

 

 

$

1.01

 

1. See the “Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures” tables (“Non-GAAP Reconciliation Tables”) included below.

REVENUE SUMMARY

(In thousands, except percentages)

(Unaudited)

 

 

Three Months Ended

Business Unit¹

September 29,

2019

 

June 30, 2019

 

September 30,

2018

 

Sequential

Change

 

Year-over-year

Change

MCD

$

410,748

 

 

$

354,225

 

 

$

413,413

 

 

16.0

%

 

(0.6

)%

MPD2

163,773

 

 

177,996

 

 

259,622

 

 

(8.0

)%

 

(36.9

)%

Total

$

574,521

 

 

$

532,221

 

 

$

673,035

 

 

7.9

%

 

(14.6

)%

 

Three Months Ended

End Use

September 29, 2019

 

June 30, 2019

 

September 30, 2018

IoT

42.6

%

 

37.5

%

 

37.4

%

Automotive

36.5

%

 

38.0

%

 

31.0

%

Legacy

20.9

%

 

24.5

%

 

31.6

%

Total

100

%

 

100

%

 

100

%

  1. The Microcontroller and Connectivity Division (“MCD”) includes microcontroller, wireless connectivity and USB products and the Memory Products Division (“MPD”) includes RAM, Flash and AgigA Tech products.
  2. MPD revenue for the three months ended September 29, 2019 and June 30, 2019 reflect divestment of our NAND business to a newly formed joint venture, which was completed on April 1, 2019.

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ABOUT CYPRESS

Cypress is a leader in advanced embedded solutions for the world’s most innovative automotive, industrial, smart home appliances, consumer electronics and medical products. Cypress’ microcontrollers, analog ICs, wireless and USB-based connectivity solutions and reliable, high-performance memories help engineers design differentiated products and get them to market first. Cypress is committed to providing customers with the best support and development resources on the planet enabling them to disrupt markets by creating new product categories. To learn more, go to www.cypress.com.

NON-GAAP FINANCIAL MEASURES

To supplement its condensed consolidated unaudited financial results presented in accordance with GAAP, Cypress uses the non-GAAP financial measures listed below, which are adjusted from the most directly comparable GAAP financial measures to exclude certain items, as described in more detail below.

  • Non-GAAP gross profit;
  • Non-GAAP gross margin;
  • Non-GAAP cost of revenues;
  • Non-GAAP interest and other expense, net;
  • Non-GAAP research and development expenses;
  • Non-GAAP selling, general and administrative expenses;
  • Adjusted EBITDA;
  • Non-GAAP income tax provision (benefit);
  • Non-GAAP pre-tax profit;
  • Non-GAAP pre-tax profit margin;
  • Non-GAAP operating income;
  • Non-GAAP operating margin;
  • Non-GAAP net income;
  • Non-GAAP diluted earnings per share; and
  • Free cash flow.

Management believes that these non-GAAP financial measures reflect an additional and useful way of viewing aspects of the Company’s operations which, when viewed in conjunction with Cypress’ GAAP results, provide a more comprehensive understanding of the various factors and trends affecting the Company’s business and operations.

The Company presents non-GAAP financial measures because management uses these measures to analyze and assess the Company’s financial results and to manage the business.

There are limitations in using non-GAAP financial measures, including those discussed below. Moreover, the Company’s non-GAAP measures may be calculated differently than the non-GAAP financial measures used by other companies. The presentation of non-GAAP financial information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP financial measures. The non-GAAP financial measures supplement and should be viewed in conjunction with GAAP financial measures.

As presented in the Non-GAAP Reconciliation Tables in this press release, each of the non-GAAP financial measures (other than free cash flow) excludes one or more of the following items:

Acquisition-related charges: Acquisition-related charges are not factored into management’s evaluation of Cypress’ long-term performance after the completion of acquisitions. However, a limitation of non-GAAP measures that exclude acquisition-related charges is that these charges may represent payments that reduce the cash available to the Company for other purposes. Acquisition-related expenses primarily include:

  • Amortization of purchased intangibles, including purchased technology, patents, customer relationships, trademarks, backlog and non-compete agreements;
  • Amortization of step-up in value of inventory recorded as part of purchase price accounting; and
  • One-time charges associated with the completion of an acquisition including items such as contract termination costs, severance and other acquisition-related restructuring costs; costs incurred in connection with integration activities; and legal and accounting costs.

Stock-based compensation expense: Stock-based compensation expense relates primarily to employee stock options, restricted stock units, performance stock units and the employee stock purchase plan. Stock-based compensation expense is a non-cash expense that is affected by changes in market factors including the price of Cypress’ common shares, which are not within the control of management. In addition, the valuation of stock-based compensation is subjective, and the expense recognized by Cypress may be significantly different than the expense recognized by other companies for similar equity awards, which makes it difficult to assess Cypress’ results compared to its competitors. Accordingly, management excludes this item from its internal operating forecasts and models. However, a limitation of non-GAAP measures that exclude stock-based compensation expense is that they do not reflect the full costs of compensating employees.

Other adjustments: Other items are excluded from non-GAAP financial measures because management does not consider them to be related to the core operating activities and ongoing operating performance of Cypress. Excluding these items, which can vary significantly from quarter to quarter, allows management to better compare Cypress’ period-over-period performance. However, limitations of non-GAAP measures that exclude these items include that these adjustments are often subjective and such non-GAAP measures may not be comparable to similarly titled non-GAAP financial measures used by other companies. Other adjustments primarily include:

  • Costs incurred in connection with the proposed merger,
  • Impairments of equity-method investments,
  • Changes in value of deferred compensation plan assets and liabilities,
  • Investment-related gains or losses, including equity method investments,
  • Restructuring and related costs,
  • Loss on extinguishment of debt,
  • Amortization of debt issuance costs, discounts and imputed interest related to the equity component of convertible debt,
  • Asset impairments,
  • Tax effects of non-GAAP adjustments,
  • Income tax adjustment related to the use of the net operating loss, non-cash impact of not asserting indefinite reinvestment on earnings of our foreign subsidiaries, deferred tax expense not affecting taxes payable (i.e. release of valuation allowance), and non-cash expense (benefit) related to uncertain tax positions,
  • Certain other expenses and benefits, and
  • Diluted weighted average shares non-GAAP adjustment – for purposes of calculating non-GAAP diluted earnings per share, the GAAP diluted weighted average shares outstanding is adjusted to include the impact of non-GAAP adjustments on the number of diluted shares underlying stock-based compensation awards and the impact of the capped call transactions related to the convertible notes.

Adjusted EBITDA: Adjusted EBITDA is calculated by adjusting net income (loss) attributable to Cypress to exclude (without duplication): interest expense, income tax provision, depreciation, amortization, equity in net loss of equity method investees, and the non-GAAP adjustments described above (acquisition related charges, stock-based compensation expense, and other adjustments). Adjusted EBITDA may be useful to management, investors and other users of our financial information because the exclusion of certain gains, losses, and expenses facilitates comparisons of Cypress’ operating performance on a period to period basis. Adjusted EBITDA should not be considered as a measure of discretionary cash available to invest in the growth of the business. In addition, adjusted EBITDA should not be considered as a substitute for, or superior to net income attributable to Cypress, operating income, or diluted earnings per share, or other financial measures prepared in accordance with GAAP.

Free Cash Flow: Free cash flow is calculated as net cash provided by (used in) operating activities, less acquisition of property, plant and equipment, net (i.e., acquisition of property, plant and equipment less proceeds received from disposition of property, plant and equipment). We consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by business operations, after deducting our net payments for acquisitions and dispositions of property and equipment, which cash can then be used for strategic opportunities or other business purposes including, among others, investing in the Company’s business, repurchasing stock, making strategic acquisitions, repayment of debt, and strengthening the balance sheet. A limitation of free cash flow is that it does not represent the total increase or decrease in the cash balance for the period. Management compensates for this limitation by also relying on the net increase in cash and cash equivalents and restricted cash as presented in the Company’s condensed consolidated statements of cash flows prepared in accordance with GAAP which incorporates all cash movements during the period.

FORWARD-LOOKING STATEMENTS

Statements in this press release that are not historical facts and that refer to Cypress or its subsidiaries’ plans and expectations for the future are forward-looking statements as such term is used in the Private Securities Litigation Reform Act of 1995. We may use words such as “may,” “will,” “should,” “plan,” “anticipate,” “believe,” “expect,” “future,” “intend,” “estimate,” “predict,” “potential,” “continue” or similar expressions to identify forward-looking statements. Our forward-looking statements are based on the expectations, beliefs, and intentions of, and the information available to, our executive management on the date of this press release. Forward-looking statements involve risks and uncertainties, and readers are cautioned not to place undue reliance on forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to: the occurrence of any event, change or other circumstances that could give rise to the termination of the Agreement and Plan of Merger (the “Merger Agreement”) dated June 3, 2019, by and among Infineon Technologies AG, a stock corporation (Aktiengesellschaft) organized under the laws of the Federal Republic of Germany (“Infineon”), IFX Merger Sub Inc., a Delaware corporation and a wholly owned subsidiary of Infineon (“Merger Sub”) and the Company, pursuant to which Merger Sub will merge with and into the Company (the “Merger”), with the Company continuing as the surviving corporation in the Merger and as a wholly owned subsidiary of Infineon; the inability to complete the Merger due to the failure to satisfy conditions to completion of the Merger, including that a governmental entity may prohibit, delay or refuse to grant approval for the Merger; risks related to disruption of management’s attention from our ongoing business operations due to the Merger; the effect of the announcement of the Merger on our relationships with our customers, operating results and business generally; the risk that certain approvals or consents will not be received in a timely manner or that the Merger will not be completed in a timely manner; the impact of the Merger on our ability to retain key employees; the outcome of any legal proceedings related to the Merger; potential tariffs and other disruptions in the international trade and investment environment; global economic and market conditions; our ability to execute on our Cypress 3.0 strategy and our margin improvement plan; risks related to paying down our indebtedness and meeting the covenants in our debt agreements; our efforts to retain and expand our customer base; business conditions and growth trends in the semiconductor market; competition; volatility in supply and demand for our products, including but not limited to the impact of seasonality on supply and demand; our ability to develop, introduce and sell new products and technologies; potential problems relating to our manufacturing activities; reliance on distributors, resellers, third-party manufacturers, and others; risks related to changing relationships with distributors; risks related to our “take or pay” agreements with certain vendors; the risk of defects, errors, or security vulnerabilities in our products; the impact of acquisitions; risks related to our joint venture for NAND flash memory products; the possibility of impairment charges; our ability to attract and retain key personnel; the unpredictability and expense of legal proceedings; and other risks and uncertainties described in the “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Quantitative and Qualitative Disclosures about Market Risk” sections in our most recent Annual Report on Form 10-K filing and in our subsequent quarterly filings with the U.S. Securities and Exchange Commission (the “SEC”) which are available on our investor relations website at http://investors.cypress.com/financial-information/sec-filings. We assume no responsibility to update our forward-looking statements.

Cypress, the Cypress logo and PSoC are registered trademarks of Cypress Semiconductor Corporation. All other trademarks are property of their owners.

CYPRESS SEMICONDUCTOR CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

 

September 29, 2019

 

December 30, 2018

 

 

 

 

 

ASSETS

 

 

 

 

Cash and cash equivalents

 

$

343,027

 

 

$

285,720

 

Accounts receivable, net

 

389,896

 

 

324,274

 

Inventories

 

327,392

 

 

292,093

 

Assets held for sale

 

 

 

13,510

 

Property, plant and equipment, net

 

262,955

 

 

282,986

 

Goodwill and other intangible assets, net

 

1,708,676

 

 

1,864,340

 

Other assets

 

628,045

 

 

630,292

 

Total assets

 

$

3,659,991

 

 

$

3,693,215

 

LIABILITIES AND EQUITY

 

 

 

 

Accounts payable

 

$

181,704

 

 

$

210,715

 

Income tax liabilities

 

55,228

 

 

53,469

 

Revenue reserves, deferred margin and other liabilities

 

503,801

 

 

430,814

 

Current portion of long-term debt

 

63,518

 

 

6,943

 

Revolving credit facility and long-term debt

 

756,853

 

 

874,235

 

Total liabilities

 

1,561,104

 

 

1,576,176

 

Total Cypress stockholders’ equity

 

2,098,887

 

 

2,115,734

 

Non-controlling interest

 

 

 

1,305

 

Total equity

 

2,098,887

 

 

2,117,039

 

Total liabilities and equity

 

$

3,659,991

 

 

$

3,693,215

 

CYPRESS SEMICONDUCTOR CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

ON A GAAP BASIS

(In thousands, except per-share data)

(Unaudited)

 

 

Three Months Ended

 

Nine Months Ended

 

September 29,

2019

 

June 30,

2019

 

September 30,

2018

 

September 29,

2019

 

September 30,

2018

Revenues

$

574,521

 

 

$

532,221

 

 

$

673,035

 

 

$

1,645,746

 

 

$

1,879,366

 

Cost of revenue

358,080

 

 

333,463

 

 

413,320

 

 

1,028,138

 

 

1,173,121

 

Gross profit

216,441

 

 

198,758

 

 

259,715

 

 

617,608

 

 

706,245

 

Research and development

89,253

 

 

93,639

 

 

91,691

 

 

271,498

 

 

281,617

 

Selling, general and administrative

81,963

 

 

91,633

 

 

92,943

 

 

255,583

 

 

262,940

 

Total operating expenses

171,216

 

 

185,272

 

 

184,634

 

 

527,081

 

 

544,557

 

Operating income

45,225

 

 

13,486

 

 

75,081

 

 

90,527

 

 

161,688

 

Interest and other expense, net

(14,922

)

 

(12,003

)

 

(15,059

)

 

(36,168

)

 

(47,356

)

Income before income taxes, share in gain/loss, net and impairment of equity method investees and non-controlling interest

30,303

 

 

1,483

 

 

60,022

 

 

54,359

 

 

114,332

 

Income tax (provision) benefit

(16,247

)

 

18,189

 

 

(5,618

)

 

2,672

 

 

(15,829

)

Share in gain/loss, net and impairment of equity method investees

(1,383

)

 

(32,405

)

 

(3,657

)

 

(37,378

)

 

(10,873

)

Net income (loss)

12,673

 

 

(12,733

)

 

50,747

 

 

19,653

 

 

87,630

 

Net loss (income) attributable to non-controlling interest

10

 

 

4

 

 

(52

)

 

15

 

 

(152

)

Net income (loss) attributable to Cypress

$

12,683

 

 

$

(12,729

)

 

$

50,695

 

 

$

19,668

 

 

$

87,478

 

Net income (loss) per share attributable to Cypress:

 

 

 

 

 

 

 

 

 

Basic

$

0.03

 

 

$

(0.03

)

 

$

0.14

 

 

$

0.05

 

 

$

0.24

 

Diluted

$

0.03

 

 

$

(0.03

)

 

$

0.14

 

 

$

0.05

 

 

$

0.23

 

Cash dividend declared per share

$

0.11

 

 

$

0.11

 

 

$

0.11

 

 

$

0.33

 

 

$

0.33

 

Shares used in net income (loss) per share calculation:

 

 

 

 

 

 

 

 

 

Basic

369,241

 

 

365,600

 

 

361,631

 

 

366,444

 

 

358,560

 

Diluted

388,243

 

 

365,600

 

 

374,266

 

 

381,633

 

 

373,064

 

CYPRESS SEMICONDUCTOR CORPORATION

RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES

(In thousands, except percentages and per-share data)

(Unaudited)

Table A: GAAP to non-GAAP reconciling items: Three Months Ended Q3 2019

 

 

 

 

Cost of revenues

 

Research and

development

 

Selling, general

and

administrative

 

Interest and other

expense, net

GAAP [i]

 

$

358,080

 

 

$

89,253

 

 

$

81,963

 

 

$

(16,305

)

[1] Stock-based compensation

 

5,907

 

 

7,708

 

 

11,276

 

 

 

[2] Changes in value of deferred compensation plan

 

(6

)

 

(38

)

 

(37

)

 

237

 

[3] Gain on sale of NAND business to joint venture

 

 

 

 

 

 

 

(1,887

)

[4] Share in gain/loss, net of equity method investees

 

 

 

 

 

 

 

1,383

 

[5] Imputed interest on convertible debt, equity component amortization on convertible debt and others

 

 

 

 

 

 

 

3,101

 

[6] Amortization of debt issuance costs

 

 

 

 

 

 

 

626

 

[7] Loss on extinguishment of debt

 

 

 

 

 

 

 

6,402

 

[8] Amortization of acquisition-related intangible assets and other

 

47,084

 

 

 

 

4,310

 

 

 

[9] Restructuring charges

 

(68

)

 

291

 

 

169

 

 

 

[10] Merger-related expenses

 

 

 

 

 

3,043

 

 

 

[11] Other income and expenses

 

 

 

280

 

 

381

 

 

(631

)

Non – GAAP [ii]

 

$

305,163

 

 

$

81,012

 

 

$

62,821

 

 

$

(7,074

)

Impact of reconciling items [ii – i]

 

$

(52,917

)

 

$

(8,241

)

 

$

(19,142

)

 

$

9,231

 

Table B: GAAP to non-GAAP reconciling items: Three Months Ended Q2 2019

 

 

 

 

Cost of revenues

 

Research and

development

 

Selling, general

and

administrative

 

Interest and other

expense, net

GAAP [i]

 

$

333,463

 

 

$

93,639

 

 

$

91,633

 

 

$

(44,408

)

[1] Stock-based compensation

 

2,817

 

 

12,304

 

 

15,359

 

 

 

[2] Changes in value of deferred compensation plan

 

130

 

 

632

 

 

627

 

 

(1,145

)

[3] Share in gain/loss, net and impairment of equity method investees1

 

 

 

 

 

 

 

32,405

 

[4] Imputed interest on convertible debt, equity component amortization on convertible debt and others

 

 

 

 

 

 

 

3,276

 

[5] Amortization of debt issuance costs

 

 

 

 

 

 

 

929

 

[6] Amortization of acquisition-related intangible assets and other

 

47,293

 

 

 

 

4,304

 

 

 

[7] Restructuring charges

 

1,018

 

 

1,362

 

 

641

 

 

 

[8] Merger-related expenses

 

 

 

 

 

8,409

 

 

 

[9] Other income and expenses

 

 

 

 

 

32

 

 

(103

)

Non – GAAP [ii]

 

$

282,205

 

 

$

79,341

 

 

$

62,261

 

 

$

(9,046

)

Impact of reconciling items [ii – i]

 

$

(51,258

)

 

$

(14,298

)

 

$

(29,372

)

 

$

35,362

 

1. Includes a $29.5 million impairment charge recorded for the investment in Deca Technologies, Inc.

Table C: GAAP to non-GAAP reconciling items: Three Months Ended Q3 2018

 

 

 

 

Cost of revenues

 

Research and

development

 

Selling, general

and

administrative

 

Interest and other

expense, net

GAAP [i]

 

$

413,320

 

 

$

91,691

 

 

$

92,943

 

 

$

(18,716

)

[1] Stock-based compensation

 

5,120

 

 

8,206

 

 

10,869

 

 

 

[2] Changes in value of deferred compensation plan

 

136

 

 

667

 

 

768

 

 

(1,108

)

[3] Share in gain/ loss, net of equity method investee

 

 

 

 

 

 

 

3,657

 

[4] Imputed interest on convertible debt, equity component amortization on convertible debt and others

 

 

 

 

 

 

 

6,782

 

[5] Amortization of acquisition-related intangible assets and other

 

51,565

 

 

 

 

4,310

 

 

 

[6] Acquisition costs

 

 

 

 

 

119

 

 

 

[7] Restructuring charges

 

(340

)

 

516

 

 

9,815

 

 

 

[8] Litigation settlement and other

 

 

 

 

 

(605

)

 

(1,286

)

Non – GAAP [ii]

 

$

356,839

 

 

$

82,302

 

 

$

67,667

 

 

$

(10,671

)

Impact of reconciling items [ii – i]

 

$

(56,481

)

 

$

(9,389

)

 

$

(25,276

)

 

$

8,045

 

Table D: GAAP to non-GAAP reconciling items: Nine Months Ended Q3 2019

 

 

 

 

Cost of revenues

 

Research and

development

 

Selling, general

and

administrative

 

Interest and other

expense, net

GAAP [i]

 

$

1,028,138

 

 

$

271,498

 

 

$

255,583

 

 

$

(73,546

)

[1] Stock-based compensation

 

11,408

 

 

26,692

 

 

37,666

 

 

 

[2] Changes in value of deferred compensation plan

 

594

 

 

2,798

 

 

2,849

 

 

(5,242

)

[3] Loss (gain) from sale of NAND business to joint venture

 

2,017

 

 

 

 

1,515

 

 

(1,887

)

[4] Share in gain/loss, net and impairment of equity method investees1

 

 

 

 

 

 

 

37,378

 

[5] Imputed interest on convertible debt, equity component amortization on convertible debt and others

 

 

 

 

 

 

 

9,745

 

[6] Amortization of debt issuance costs

 

 

 

 

 

 

 

2,484

 

[7] Loss on extinguishment of debt

 

 

 

 

 

 

 

6,402

 

[8] Amortization of acquisition-related intangible assets and other

 

142,594

 

 

 

 

12,924

 

 

 

[9] Restructuring charges and other

 

901

 

 

1,653

 

 

908

 

 

 

[10] Merger-related expenses

 

 

 

 

 

11,452

 

 

 

[11] Other income and expenses

 

 

 

338

 

 

861

 

 

(432

)

Non – GAAP [ii]

 

$

870,624

 

 

$

240,017

 

 

$

187,408

 

 

$

(25,098

)

Impact of reconciling items [ii – i]

 

$

(157,514

)

 

$

(31,481

)

 

$

(68,175

)

 

$

48,448

 

1. Includes a $29.5 million impairment charge recorded for the investment in Deca Technologies, Inc.

Table E: GAAP to non-GAAP reconciling items: Nine Months Ended Q3 2018

 

 

 

 

Cost of revenues

 

Research and

development

 

Selling, general

and

administrative

 

Interest and other

expense, net

GAAP [i]

 

$

1,173,121

 

 

$

281,617

 

 

$

262,940

 

 

$

(58,229

)

[1] Stock-based compensation

 

12,689

 

 

28,720

 

 

35,152

 

 

 

[2] Changes in value of deferred compensation plan

 

299

 

 

1,406

 

 

1,690

 

 

(2,497

)

[3] Equity in gain/loss, net of equity method investee

 

 

 

 

 

 

 

10,873

 

[4] Imputed interest on convertible debt, equity component amortization on convertible debt and others

 

 

 

 

 

 

 

14,628

 

[5] Loss on extinguishment of Spansion convertible notes and debt issuance cost write off due to refinancing

 

 

 

 

 

 

 

3,258

 

[6] Amortization of debt issuance costs

 

 

 

 

 

 

 

1,073

 

[7] Amortization of acquisition-related intangible assets and others

 

150,441

 

 

 

 

13,815

 

 

 

[8] Gain on sale of cost method investment

 

 

 

 

 

(1,521

)

 

 

[9] Acquisition costs

 

 

 

 

 

119

 

 

 

[10] Restructuring charges and other

 

3,136

 

 

841

 

 

11,347

 

 

 

[11] Litigation settlement and other

 

 

 

 

 

(605

)

 

(1,270

)

Non – GAAP [ii]

 

$

1,006,556

 

 

$

250,650

 

 

$

202,943

 

 

$

(32,164

)

Impact of reconciling items [ii – i]

 

$

(166,565

)

 

$

(30,967

)

 

$

(59,997

)

 

$

26,065

 

Table F: Non-GAAP gross profit

 

Three Months Ended

 

Nine Months Ended

 

 

Q3’19

 

Q2’19

 

Q3’18

 

Q3’19

 

Q3’18

GAAP gross profit

 

$

216,441

 

 

$

198,758

 

 

$

259,715

 

 

$

617,608

 

 

$

706,245

 

Impact of reconciling items on cost of revenues (see Table A, B, C, D and E)

 

52,917

 

 

51,258

 

 

56,481

 

 

157,514

 

 

166,565

 

Non-GAAP gross profit

 

$

269,358

 

 

$

250,016

 

 

$

316,196

 

 

$

775,122

 

 

$

872,810

 

GAAP gross margin (GAAP gross profit/revenue)

 

37.7

%

 

37.3

%

 

38.6

%

 

37.5

%

 

37.6

%

Non-GAAP gross margin (Non-GAAP gross profit/revenue)

 

46.9

%

 

47.0

%

 

47.0

%

 

47.1

%

 

46.4

%

Table G: Non-GAAP operating income

 

Three Months Ended

 

Nine Months Ended

 

 

Q3’19

 

Q2’19

 

Q3’18

 

Q3’19

 

Q3’18

GAAP operating income [i]

 

$

45,225

 

 

$

13,486

 

 

$

75,081

 

 

$

90,527

 

 

$

161,688

 

Impact of reconciling items on cost of revenues (see Table A, B, C, D and E)

 

52,917

 

 

51,258

 

 

56,481

 

 

157,514

 

 

166,565

 

Impact of reconciling items on R&D (see Table A, B, C, D and E)

 

8,241

 

 

14,298

 

 

9,389

 

 

31,481

 

 

30,967

 

Impact of reconciling items on SG&A (see Table A, B, C, D and E)

 

19,142

 

 

29,372

 

 

25,276

 

 

68,175

 

 

59,997

 

Non-GAAP operating income [ii]

 

$

125,525

 

 

$

108,414

 

 

$

166,227

 

 

$

347,697

 

 

$

419,217

 

Impact of reconciling items on operating income [ii – i]

 

$

80,300

 

 

$

94,928

 

 

$

91,146

 

 

$

257,170

 

 

$

257,529

 

GAAP operating margin (GAAP operating income / revenue)

 

7.9

%

 

2.5

%

 

11.2

%

 

5.5

%

 

8.6

%

Non-GAAP operating margin (Non-GAAP operating income / revenue)

 

21.8

%

 

20.4

%

 

24.7

%

 

21.1

%

 

22.3

%

Table H: Non-GAAP pre-tax profit

 

Three Months Ended

 

Nine Months Ended

 

 

Q3’19

 

Q2’19

 

Q3’18

 

Q3’19

 

Q3’18

GAAP income before income taxes and non-controlling interest (“Pre-tax income”)

 

$

30,303

 

 

$

1,483

 

 

$

60,022

 

 

$

54,359

 

 

$

114,332

 

Share in gain/loss, net and impairment of equity method investees1

 

(1,383

)

 

(32,405

)

 

(3,657

)

 

(37,378

)

 

(10,873

)

Impact of reconciling items on operating income (see Table G)

 

80,300

 

 

94,928

 

 

91,146

 

 

257,170

 

 

257,529

 

Impact of reconciling items on interest and other expense, net (see Table A, B, C, D and E)

 

9,231

 

 

35,362

 

 

8,045

 

 

48,448

 

 

26,065

 

Non-GAAP pre-tax profit

 

$

118,451

 

 

$

99,368

 

 

$

155,556

 

 

$

322,599

 

 

$

387,053

 

GAAP pre-tax profit margin (GAAP pre-tax income/revenue)

 

5.3

%

 

0.3

%

 

8.9

%

 

3.3

%

 

6.1

%

Non-GAAP pre-tax profit margin (Non-GAAP pre-tax profit/revenue)

 

20.6

%

 

18.7

%

 

23.1

%

 

19.6

%

 

20.6

%

1. The three months ended Q2’19 and the nine months ended Q3’19 include a $29.5 million impairment charge recorded for the investment in Deca Technologies, Inc.

Table I: Non-GAAP income tax expense

 

Three Months Ended

 

Nine Months Ended

 

 

Q3’19

 

Q2’19

 

Q3’18

 

Q3’19

 

Q3’18

GAAP income tax provision [i]

 

$

16,247

 

 

$

(18,189

)

 

$

5,618

 

 

$

(2,672

)

 

$

15,829

 

[1] Tax impact of non-GAAP adjustments* relating to:

 

 

 

 

 

 

 

 

 

 

[a] Stock-based compensation

 

5,227

 

 

6,401

 

 

5,081

 

 

15,911

 

 

16,078

 

[b] Changes in value of deferred compensation plan

 

32

 

 

51

 

 

97

 

 

209

 

 

189

 

[c] Share in gain/loss, net and impairment of equity method investees

 

290

 

 

6,805

 

 

768

 

 

7,849

 

 

2,283

 

[d] Imputed interest on convertible debt, equity component amortization on convertible debt and others

 

651

 

 

688

 

 

1,424

 

 

2,046

 

 

3,072

 

[e] Amortization of debt issuance costs

 

131

 

 

195

 

 

 

 

521

 

 

225

 

[f] Amortization of acquisition-related intangible assets and other

 

10,793

 

 

10,835

 

 

11,734

 

 

32,659

 

 

34,494

 

[g] Restructuring charges and other

 

82

 

 

620

 

 

2,098

 

 

723

 

 

3,218

 

[h] Other (income) and expenses

 

6

 

 

 

 

 

 

165

 

 

 

[i] Loss on extinguishment of debt

 

1,344

 

 

 

 

 

 

1,344

 

 

684

 

[j] (Gain) loss on sale of NAND business to joint venture

 

(396

)

 

 

 

 

 

346

 

 

 

[k] Gain on sale of cost method investment

 

 

 

 

 

 

 

 

 

(319

)

[2] Merger-related expenses

 

639

 

 

1,766

 

 

 

 

2,405

 

 

 

[3] Uncertain tax positions

 

(6,675

)

 

2,621

 

 

(2,159

)

 

(3,757

)

 

(4,870

)

[4] Valuation allowance release, utilization of NOL including excess tax benefits, and other items**

 

(25,704

)

 

(9,662

)

 

(21,882

)

 

(50,273

)

 

(61,966

)

Non-GAAP income tax expense [ii]*

 

$

2,667

 

 

$

2,131

 

 

$

2,779

 

 

$

7,476

 

 

$

8,917

 

Impact of reconciling items on income tax provision [i – ii]

 

13,580

 

 

(20,320

)

 

2,839

 

 

(10,148

)

 

6,912

 

*Tax impact of Non-GAAP adjustments is calculated by using the federal statutory rate of 21%.

** Other items include but are not limited to deferred tax expense not affecting income tax payable.

Table J: Non-GAAP net income

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

Q3’19

 

Q2’19

 

Q3’18

 

Q3’19

 

Q3’18

GAAP net income (loss) attributable to Cypress

 

$

12,683

 

 

$

(12,729

)

 

$

50,695

 

 

$

19,668

 

 

$

87,478

 

Impact of reconciling items on operating income (see Table G)

 

80,300

 

 

94,928

 

 

91,146

 

 

257,170

 

 

257,529

 

Impact of reconciling items on interest and other expense, net (see Table A, B, C, D and E)

 

9,231

 

 

35,362

 

 

8,045

 

 

48,448

 

 

26,065

 

Impact of reconciling items on income tax provision (see Table I)

 

13,580

 

 

(20,320

)

 

2,839

 

 

(10,148

)

 

6,912

 

Non-GAAP net income

 

$

115,794

 

 

$

97,241

 

 

$

152,725

 

 

$

315,138

 

 

$

377,984

 

Table K: Weighted-average shares, diluted

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Q3’19

 

Q2’19

 

Q3’18

 

 

GAAP

 

Non-GAAP

 

GAAP

 

Non-GAAP

 

GAAP

 

Non-GAAP

Weighted-average common shares outstanding, basic

 

369,241

 

 

369,241

 

 

365,600

 

 

365,600

 

 

361,631

 

 

361,631

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

Stock options, unvested restricted stock units and other

 

7,862

 

 

11,704

 

 

 

 

13,937

 

 

7,096

 

 

12,468

 

Convertible notes

 

11,140

 

 

9,480

 

 

 

 

5,187

 

 

5,539

 

 

3,234

 

Weighted-average common shares outstanding, diluted

 

388,243

 

 

390,425

 

 

365,600

 

 

384,724

 

 

374,266

 

 

377,333

 

Table L: Weighted-average shares, diluted

 

 

 

 

 

 

Nine Months Ended

 

 

Q3’19

 

Q3’18

 

 

GAAP

 

Non-GAAP

 

GAAP

 

Non-GAAP

Weighted-average common shares outstanding, basic

 

366,444

 

 

366,444

 

 

358,560

 

 

358,560

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

Stock options, unvested restricted stock and other

 

7,567

 

 

12,325

 

 

8,378

 

 

13,557

 

Convertible notes

 

7,622

 

 

5,573

 

 

6,126

 

 

3,852

 

Weighted-average common shares outstanding, diluted

 

381,633

 

 

384,342

 

 

373,064

 

 

375,969

 

Table M: Earnings per share

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Q3’19

 

Q2’19

 

Q3’18

 

 

GAAP

 

Non-GAAP

 

GAAP

 

Non-GAAP

 

GAAP

 

Non-GAAP

Net income (loss) (see Table J) [i]

 

$

12,683

 

 

$

115,794

 

 

$

(12,729

)

 

$

97,241

 

 

$

50,695

 

 

$

152,725

 

Weighted-average common shares outstanding, diluted (see Table K) [ii]

 

388,243

 

 

390,425

 

 

365,600

 

 

384,724

 

 

374,266

 

 

377,333

 

Earnings (loss) per share – diluted [i/ii]

 

$

0.03

 

 

$

0.30

 

 

$

(0.03

)

 

$

0.25

 

 

$

0.14

 

 

$

0.40

 

Table N: Earnings per share

 

 

 

 

 

 

Nine Months Ended

 

 

Q3’19

 

Q3’18

 

 

GAAP

 

Non-GAAP

 

GAAP

 

Non-GAAP

Net income (see Table J) [i]

 

$

19,668

 

 

$

315,138

 

 

$

87,478

 

 

$

377,984

 

Weighted-average common shares outstanding, diluted (see Table L) [ii]

 

381,633

 

 

384,342

 

 

373,064

 

 

375,969

 

Earnings per share – diluted [i/ii]

 

$

0.05

 

 

$

0.82

 

 

$

0.23

 

 

$

1.01

 

Table O: Adjusted EBITDA

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

Q3’19

 

Q2’19

 

Q3’18

 

Q3’19

 

Q3’18

GAAP net income (loss) attributable to Cypress

 

$

12,683

 

 

$

(12,729

)

 

$

50,695

 

 

$

19,668

 

 

$

87,478

 

Interest and other expense, net

 

(14,922

)

 

(12,003

)

 

(15,059

)

 

(36,168

)

 

(47,356

)

Income tax (provision) benefit

 

(16,247

)

 

18,189

 

 

(5,618

)

 

2,672

 

 

(15,829

)

Share in gain/loss, net and impairment of equity method investees1

 

(1,383

)

 

(32,405

)

 

(3,657

)

 

(37,378

)

 

(10,873

)

Net loss (income) attributable to non-controlling interest

 

10

 

 

4

 

 

(52

)

 

15

 

 

(152

)

GAAP operating income

 

$

45,225

 

 

$

13,486

 

 

$

75,081

 

 

$

90,527

 

 

$

161,688

 

Impact of reconciling items on operating income (see Table G)

 

80,300

 

 

94,928

 

 

91,146

 

 

257,170

 

 

257,529

 

Non-GAAP operating income

 

$

125,525

 

 

$

108,414

 

 

$

166,227

 

 

$

347,697

 

 

$

419,217

 

Depreciation

 

19,060

 

 

19,394

 

 

16,393

 

 

57,966

 

 

49,772

 

Adjusted EBITDA

 

$

144,585

 

 

$

127,808

 

 

$

182,620

 

 

$

405,663

 

 

$

468,989

 

1. The three months ended Q2’19 and the nine months ended Q3’19 include a $29.5 million impairment charge recorded for the investment in Deca Technologies, Inc.

Table P: Free cash flow

 

Three Months Ended

 

Nine Months Ended

 

 

Q3’19

 

Q2’19

 

Q3’18

 

Q3’19

 

Q3’18

GAAP net cash provided by operating activities

 

$

64,497

 

 

$

118,923

 

 

$

187,073

 

 

$

244,668

 

 

$

329,485

 

Acquisition of property, plant and equipment, net

 

(10,599

)

 

(7,490

)

 

(15,448

)

 

(28,623

)

 

(58,061

)

Free cash flow

 

$

53,898

 

 

$

111,433

 

 

$

171,625

 

 

$

216,045

 

 

$

271,424

 

CYPRESS SEMICONDUCTOR CORPORATION

SUPPLEMENTAL FINANCIAL DATA

(In thousands, except per-share and ratio data)

(Unaudited)

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 29,

2019

 

June 30, 2019

 

September 30,

2018

 

September 29,

2019

 

September 30,

2018

Selected Cash Flow Data (Preliminary):

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

64,497

 

 

$

118,923

 

 

$

187,073

 

 

$

244,668

 

 

$

329,485

 

Net cash used in investing activities

 

$

(2,056

)

 

$

(6,821

)

 

$

(22,316

)

 

$

(13,253

)

 

$

(43,700

)

Net cash used in financing activities

 

$

(91,594

)

 

$

(25,041

)

 

$

(72,730

)

 

$

(174,108

)

 

$

(232,634

)

Other Supplemental Data (Preliminary):

 

 

 

 

 

 

 

 

Capital expenditures, net

 

$

10,599

 

 

$

7,490

 

 

$

15,448

 

 

$

28,623

 

 

$

58,061

 

Depreciation

 

$

19,060

 

 

$

19,394

 

 

$

16,393

 

 

$

57,966

 

 

$

49,772

 

Payment of dividend

 

$

40,289

 

 

$

40,134

 

 

$

39,447

 

 

$

120,171

 

 

$

117,592

 

Dividend paid per share

 

$

0.11

 

 

$

0.11

 

 

$

0.11

 

 

$

0.33

 

 

$

0.33

 

Total debt (principal amount)

 

$

856,102

 

 

$

908,339

 

 

$

936,518

 

 

$

856,102

 

 

$

936,518

 

Leverage ratio¹

 

0.90

 

 

0.88

 

 

1.20

 

 

0.90

 

 

1.20

 

Cash Income Tax

 

$

2,667

 

 

$

2,131

 

 

$

2,779

 

 

$

7,476

 

 

$

8,917

 

  1. Total debt (principal amount) less cash / Last 12 months Adjusted EBITDA