CY
$15.55
Cypress Semiconductr
$.02
.13%
Earnings Details
4th Quarter December 2018
Thursday, January 31, 2019 4:05:00 PM
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Summary

Cypress Semiconductr Beats

Cypress Semiconductr (CY) reported 4th Quarter December 2018 earnings of $0.36 per share on revenue of $604.5 million. The consensus earnings estimate was $0.33 per share on revenue of $598.7 million. The Earnings Whisper number was $0.32 per share. Revenue grew 1.2% on a year-over-year basis.

The company said it expects first quarter non-GAAP earnings of $0.22 to $0.26 per share on revenue of approximately $550.0 million. The current consensus earnings estimate is $0.26 per share on revenue of $558.5 million for the quarter ending March 31, 2019.

Cypress Semiconductor Corp with its subsidiaries, designs, develops, manufactures and markets high-performance, mixed-signal, programmable solutions that provide customers with rapid time-to-market and system value.

Results
Reported Earnings
$0.36
Earnings Whisper
$0.32
Consensus Estimate
$0.33
Reported Revenue
$604.5 Mil
Revenue Estimate
$598.7 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Cypress Reports Fourth Quarter and Year End 2018 Results

SAN JOSE, Calif.--(BUSINESS WIRE)-- Cypress Semiconductor Corporation (NASDAQ: CY), a leader in embedded solutions, today announced its fourth quarter and fiscal year 2018 results with the following highlights:

  • Record fiscal year revenue of $2.48 billion representing 6.7% year-over-year growth
  • Automotive fiscal year revenue grew 13% year-over-year
  • Fourth quarter revenue was $604.5 million and GAAP and non-GAAP gross margins were 37.3% and 47.8%, respectively
  • Fourth quarter GAAP and non-GAAP diluted EPS were 72 cents and 35 cents, respectively
  • Fiscal year 2018 cash from operations of $471.7 million increased 16.9% year-over-year

"Our disciplined execution in 2018 resulted in record fiscal year revenue, the achievement of our 2018 gross margin improvement plans that we committed to at our 2017 Analyst Day event, and EPS that grew significantly faster than revenue demonstrating the powerful leverage in our business model," said Hassane El-Khoury, Cypress’ president and chief executive officer. "While the current demand environment remains somewhat uncertain, we are focused on what we can control and we will continue disciplined investments that will drive many of today’s megatrends in the automotive, industrial and IoT markets."

Revenue and earnings for the fourth quarter and fiscal year 2018 are shown below with comparable periods:

(In thousands, except per-share data)

       

GAAP1

NON-GAAP2
Q4 2018     Q3 2018     Q4 2017 Q4 2018     Q3 2018     Q4 2017
Revenue $ 604,474 $ 673,035 $ 597,547 $ 604,474 $ 673,035 $ 597,547
Gross margin 37.3 % 38.6 % 37.2 % 47.8 % 47.0 % 45.4 %
Operating margin 0.5 % 11.2 % 7.0 % 24.5 % 24.7 % 20.2 %
Net income (loss) $ 267,114 $ 50,695 $ (34,014 ) $ 130,990 $ 152,725 $ 104,684
Diluted EPS (loss) $ 0.72 $ 0.14 $ (0.10 ) $ 0.35 $ 0.40 $ 0.28
       

GAAP1

NON-GAAP2
FY 2018     FY 2017 FY 2018     FY 2017
Revenue $ 2,483,840 $ 2,327,771 $ 2,483,840 $ 2,327,771
Gross margin 37.5 % 33.6 % 46.8 % 42.2 %
Operating margin 6.6 % 3.4 % 22.8 % 16.8 %
Net income (loss) $ 354,592 $ (80,915 ) $ 508,975 $ 324,257
Diluted EPS (loss) $ 0.95 $ (0.24 ) $ 1.36 $ 0.89
1.   In 2018, certain expenses were reclassified as part of cost of revenue. Historical results have been conformed with the 2018 presentation.
2. See “Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures” tables (“Non-GAAP Results” tables) included below.
 

BUSINESS REVIEW

During the fourth quarter, Cypress expanded its connect and compute portfolio for consumer Internet of Things (IoT) and automotive applications and strengthened its software offerings. Highlights included:

+ Cypress addressed the growing need for IoT edge processing with the addition of a new microcontroller (MCU) product to its ultra-low-power and secure PSoC® 6 family. The new PSoC 6 MCU includes expanded embedded memory to support compute-intensive algorithms, connectivity stacks and data logging.

+ Cypress expanded its industry-leading wireless connectivity portfolio for automotive infotainment with a trio of new products, including its first Wi-Fi 6 (802.11ax) and Bluetooth® combo solution. Wi-Fi 6 enables gigabit-level throughput and improves reliability for content streaming to multiple devices at once. The Wi-Fi 6 combo solution allows multiple users to connect and seamlessly stream unique content to as many as 10 mobile devices simultaneously via Cypress’ Real Simultaneous Dual Band (RSDB) architecture. Cypress also introduced two Wi-Fi 5 (802.11ac) and Bluetooth combo solutions, empowering car makers and automotive system suppliers with a scalable platform solution to address a wide range of vehicles with a uniform software architecture that minimizes development and system integration costs.

+ Cypress strengthened its IoT portfolio with the launch of our Cirrent software and cloud services platform for consumer Wi-Fi® products, which allows IoT products to easily connect to a customer’s home network and stay connected, providing an outstanding user experience and significant return on investment to OEMs by reducing support costs and product returns. Cirrent’s ZipKey® Wi-Fi Onboarding and IoT Network Intelligence software lets users set up products without typing in passwords and ensures products stay connected even when network names and passwords are changed.

+ Cypress introduced an automotive-qualified USB-C controller with USB Power Delivery (PD) that enables fast charging of portable electronics in vehicles. The Automotive EZ-PD™ CCG3PA controller delivers a plug-and-play user experience to automotive charging ports by providing support for current and legacy charging standards. As the standards continue to evolve, compliance and interoperability pose an ongoing challenge, but the programmable controller overcomes these issues with its firmware upgradeability. Additionally, the controller offers a high level of integration that minimizes bill-of-material cost and simplifies designs, replacing multiple discrete components.

+ Cypress introduced the Excelon™ LP Ferroelectric Random Access Memory (F-RAM™), the industry’s most energy-efficient nonvolatile RAM, which delivers instant-write capabilities with virtually unlimited endurance. This solution is ideal for the latest-generation of portable medical and wearable devices and other IoT applications that demand nonvolatile memories to continuously log an increasing amount of user and sensor data while using as little power as possible. The Excelon LP F-RAM enables these applications to perform mission-critical data logging requirements while maximizing battery life.

+ Cypress paid a cash dividend of $39.7 million, or $0.11 per share, to holders of record of the Company’s common stock as of the close of business on December 27, 2018. The dividend was equivalent to a 3.5% annualized yield as of December 28, 2018. This dividend was paid on January 17, 2019.

 
 

REVENUE SUMMARY

(In thousands, except percentages)

(Unaudited)

 
    Three Months Ended      
December 30,     September 30,     December 31,     Sequential     Year-over-year
2018     2018     2017     Change     Change

Business Unit1

MCD $ 355,793 $ 413,413 $ 357,247 (13.9 )% (0.4 )%
MPD $ 248,681     $ 259,622     $ 240,300 (4.2 )%     3.5 %
Total $ 604,474     $ 673,035     $ 597,547 (10.2 )%     1.2 %
   
 
Three Months Ended
December 30, 2018     September 30, 2018     December 31, 2017

End Market

       
Industrial 20.0 % 19.6 % 17.5 %
Automotive 35.5 % 31.0 % 30.2 %
Consumer 25.2 % 32.0 % 32.1 %
Enterprise 19.4 % 17.4 % 20.1 %
Total 100 % 100 % 100 %
1.   The Microcontroller and Connectivity Division ("MCD") includes microcontroller, automotive and connectivity products and the Memory Products Division ("MPD") includes RAM, Flash and AgigA Tech products.
 

FIRST QUARTER 2019 FINANCIAL OUTLOOK

For the first quarter of 2019, Cypress estimates financial results as follows:

       

GAAP1

      Non-GAAP
Revenue       $520 million to $550 million
Gross Margin       36.0% - 37.0%       46.0% - 46.5%
Diluted EPS       $0.00 to $0.04       $0.22 to $0.26
1.   GAAP outlook does not include any impact from the planned disposition of our NAND business to the joint venture with SK Hynix system ic Inc., which is expected to occur in the second quarter of 2019.
 

A reconciliation of GAAP forward-looking estimates to non-GAAP forward-looking estimates may be found in the tables at the end of this earnings report.

The timing and amount of certain material items, including restructuring charges, asset impairments, changes in value of deferred compensation assets and liabilities, impact of stock-based compensation from modification of equity awards, and the tax impact of non-GAAP adjustments, which are needed to estimate forward-looking GAAP financial measures, are either inherently unpredictable or outside the control of the Company, and may have a significant impact on the Company’s financial results.

CONFERENCE CALL AND WEBCAST INFORMATION

Cypress will host its quarterly conference call on January 31, 2019 at 1:30 p.m. Pacific Standard Time to discuss its fourth quarter and fiscal year 2018 results and outlook for the first quarter of 2019.

All interested parties may dial 517-308-9119 and provide the passcode “Cypress” to listen to the call. The event will be broadcast over the Internet and may be accessed through Cypress’ website at www.cypress.com/investors. The archived presentation will be available for two weeks immediately following the event.

FOLLOW CYPRESS ONLINE

Join the Cypress Developer Community 3.0, read our blog, follow us on Twitter, Facebook and LinkedIn, and watch Cypress videos on our Video Library or YouTube.

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, wireless and USB-based connectivity solutions, analog ICs, 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 (loss);
  • Non-GAAP operating margin;
  • Non-GAAP net income (loss);
  • Non-GAAP diluted earnings (loss) 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 Results tables in this press release, each of the non-GAAP financial measures 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:

  • Revenue from an intellectual property license,
  • 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). Commencing in the second quarter of 2018, Cypress reconciles adjusted EBITDA to GAAP net income rather than operating income; prior period reconciliation tables have been revised to conform to the current presentation. 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 identify forward-looking statements. This press release includes, among others, forward-looking statements regarding our first quarter financial outlook (as well as the related GAAP to non-GAAP reconciling items). 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: 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 our “take or pay” agreements with certain vendors; the risk of defects, errors, or security vulnerabilities in our products; the impact of acquisitions; 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 and in our subsequent quarterly filings with the Securities and Exchange Commission 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 and Excelon, F-RAM and EZ-PD are trademarks of Cypress Semiconductor Corporation. ZipKey is a registered trademark of Cirrent, Inc. All other trademarks are property of their owners.

 
 
CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
 
    December 30, 2018     December 31, 2017
ASSETS
Cash, cash equivalents and short-term investments $ 285,720 $ 151,596
Accounts receivable, net 324,274 295,991
Inventories 292,093 272,127
Assets held for sale 13,510
Property, plant and equipment, net 282,986 289,554
Goodwill and other intangible assets, net 1,864,340 2,154,592
Other assets   630,292   373,190
Total assets $ 3,693,215 $ 3,537,050
LIABILITIES AND EQUITY
Accounts payable $ 210,715 $ 213,101
Income tax liabilities 53,469 52,006
Revenue reserves, deferred margin and other liabilities 437,757 497,838
Revolving credit facility and long-term debt   874,235   956,513
Total liabilities   1,576,176   1,719,458
Total Cypress stockholders' equity 2,115,734 1,816,536
Non-controlling interest   1,305   1,056
Total equity   2,117,039   1,817,592
Total liabilities and equity $ 3,693,215 $ 3,537,050
 
 
CYPRESS SEMICONDUCTOR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
ON A GAAP BASIS
(In thousands, except per-share data)
(Unaudited)
 
    Three Months Ended     Twelve Months Ended
December 30,     September 30,     December 31, December 30,     December 31,
  2018     2018     2017     2018     2017  
Revenues $ 604,474 $ 673,035 $ 597,547 $ 2,483,840 $ 2,327,771
Cost of revenues¹ 379,264 413,320 375,162 1,552,385 1,545,837
Gross profit 225,210 259,715 222,385 931,455 781,934
Research and development¹ 82,379 91,691 94,566 363,996 362,931
Selling, general and administrative¹ 140,091 92,943 86,125 403,031 340,910
Total operating expenses   222,470     184,634     180,691     767,027     703,841  
Operating income (loss) 2,740 75,081 41,694 164,428 78,093
Interest and other expense, net   (20,489 )   (15,059 )   (21,563 )   (67,845 )   (75,947 )
(Loss) income before income taxes and non-controlling interest (17,749 ) 60,022 20,131 96,583 2,146
Income tax benefit (provision) 331,447 (5,618 ) 2,773 315,618 (11,157 )
Share in net loss and impairment of equity method investees   (46,497 )   (3,657 )   (56,930 )   (57,370 )   (71,772 )
Net income (loss) 267,201 50,747 (34,026 ) 354,831 (80,783 )
Net (gain) loss attributable to non-controlling interests   (87 )   (52 )   12     (239 )   (132 )
Net income (loss) attributable to Cypress $ 267,114   $ 50,695   $ (34,014 ) $ 354,592   $ (80,915 )
Net income (loss) per share attributable to Cypress:
Basic $ 0.74 $ 0.14 $ (0.10 ) $ 0.99 $ (0.24 )
Diluted $ 0.72 $ 0.14 $ (0.10 ) $ 0.95 $ (0.24 )
Cash dividend declared per share $ 0.11 $ 0.11 $ 0.11 $ 0.44 $ 0.44
Shares used in net income (loss) per share calculation:
Basic 361,616 361,631 343,011 359,324 333,451
Diluted 369,638 374,266 343,011 372,178 333,451
1.   In 2018, certain expenses were reclassified as part of cost of revenue and operating expenses. Historical results have been conformed with the 2018 presentation.
 
 
CYPRESS SEMICONDUCTOR CORPORATION
RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES
(In thousands, except per-share data)
(Unaudited)
 

Table A: GAAP to Non-GAAP reconciling items: Three Months Ended Q4 2018

           

Selling,

   

Interest and

Cost of

Research and

general and

other expense,

revenues

development

administrative

net

GAAP [i] $ 379,264 $ 82,379 $ 140,091 $ (66,986 )
[1] Stock based compensation 3,842 6,395 9,166
[2] Changes in value of deferred compensation plan (468 ) (2,377 ) (2,726 ) 5,401
[3] Loss on assets held for sale¹ 10,869 65,722
[4] Share in net loss and impairment of equity method investees² 46,496
[5] Imputed interest on convertible debt, equity component amortization on convertible debt and others 3,338
[6] Amortization of debt issuance costs 908
[7] Amortization of intangible assets 49,583 4,310
[8] Litigation settlement and other (309 ) (159 ) 159
[9] Restructuring charges   135     944     437      
Non - GAAP [ii] $ 315,303   $ 77,726   $ 63,341   $ (10,684 )
Impact of reconciling items [ii - i] $ (63,961 ) $ (4,653 ) $ (76,750 ) $ 56,302
1.   Relates to our entry into a definitive agreement to divest the NAND business
2. Includes $41.5 million impairment charge recorded for the investment in Deca Technologies Inc.
 
 

Table B: GAAP to Non-GAAP reconciling items: Three Months Ended Q3 2018

           

Selling,

   

Interest and

Cost of

Research and

general and

other expense,

revenues

development

administrative

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 net loss of equity method investees 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] Restructuring charges (340 ) 516 9,815
[7] Litigation settlement and other           (486 )   (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 C: GAAP to Non-GAAP reconciling items: Three Months Ended Q4 2017

           

Selling,

   

Interest and

Cost of

Research and

general and

other expense,

revenues

development

administrative

net

GAAP [i] $ 375,162 $ 94,566 $ 86,125 $ (78,493 )
[1] Stock based compensation 3,000 8,050 12,014
[2] Changes in value of deferred compensation plan 92 389 617 (1,210 )
[3] Merger, integration, related costs and adjustments related to assets held for sale 1,334 (135 ) 11
[4] Share in net loss and impairment of equity method investees1 56,930
[5] Imputed interest on convertible debt, equity component amortization on convertible debt and others 3,378
[6] Loss on extinguishment of Spansion convertible notes 4,250
[7] Amortization of debt issuance costs 1,011
[8] Amortization of intangible assets 44,199 5,025
[9] Settlement charges and other (1,000 ) 151
[10] Restructuring charges   317     3,205     2,097      
Non - GAAP [ii] $ 326,220   $ 82,922   $ 67,507   $ (13,972 )
Impact of reconciling items [ii - i] $ (48,942 ) $ (11,644 ) $ (18,618 ) $ 64,521
1.   Includes $51.2 million impairment charge recorded for the investment in Enovix Corporation
 
 

Table D: GAAP to Non-GAAP reconciling items: Twelve Months Ended Q4 2018

           

Selling,

   

Interest and

Cost of

Research and

general and

other expense,

revenues

development

administrative

net

GAAP [i] $ 1,552,385 $ 363,996 $ 403,031 $ (125,215 )
[1] Stock based compensation, including costs related to modification of equity awards 16,531 35,115 44,319
[2] Changes in value of deferred compensation plan (169 ) (971 ) (1,036 ) 2,904
[3] Share in net loss and impairment of equity method investees¹ 57,369
[4] Amortization of intangible assets 200,024 18,125
[5] Imputed interest on convertible debt, equity component amortization on convertible debt and others 17,966
[6] Amortization of debt issuance cost 1,981
[7] Settlement charges and other (309 ) (645 ) (1,111 )
[8] Restructuring charges 3,271 1,785 11,785
[9] Loss on extinguishment of Spansion convertible notes 3,258
[10] Loss on assets held for sale² 10,869 65,722
[11] Gain on sale on cost method investment                   (1,521 )        
Non - GAAP [ii] $ 1,321,859       $ 328,376       $ 266,282       $ (42,848 )
Impact of reconciling items [ii - i] $ (230,526 ) $ (35,620 ) $ (136,749 ) $ 82,367
1.   Includes $41.5 million impairment charge recorded for the investment in Deca Technologies Inc.
2. Relates to our entry into a definitive agreement to divest the NAND business
 
 

Table E: GAAP to Non-GAAP reconciling items: Twelve Months Ended Q4 2017

           

Selling,

   

Interest and

Cost of

Research and

general and

other expense,

revenues

development

administrative

net

GAAP [i] $ 1,545,837 $ 362,931 $ 340,910 $ (147,720 )
[1] Stock based compensation, including costs related to modification of equity awards 15,605 36,804 39,172
[2] Changes in value of deferred compensation plan 602 2,826 3,936 (6,087 )
[3] Merger, integration, related costs and adjustments related to assets held for sale 5,357 (96 ) (1,057 ) 10
[4] Inventory Step-up related to acquisition accounting 3,736
[5] Share in net loss and impairment of equity method investees¹ 71,772
[6] Amortization of intangible assets 174,981 20,274
[7] Imputed interest on convertible debt and others 20,538
[8] Settlement charges and other 2,500 844
[9] Restructuring charges 548 5,915 2,625
[10] Loss on extinguishment of Spansion convertible notes               4,250  
Non - GAAP [ii] $ 1,345,008   $ 317,482   $ 273,460   $ (56,393 )
Impact of reconciling items [ii - i] $ (200,829 ) $ (45,449 ) $ (67,450 ) $ 91,327
1.   Includes $51.2 million impairment charge recorded for the investment in Enovix Corporation.
       
 

Table F: Non-GAAP gross profit

Three Months Ended Twelve Months Ended
Q4'18     Q3'18     Q4'17 Q4'18     Q4'17
 
GAAP gross profit $ 225,210 $ 259,715 $ 222,385 $ 931,455 $ 781,934
Impact of reconciling items on cost of revenues (Table A, B, C, D and E)   63,961     56,481     48,942     230,526     200,829  
Non-GAAP gross profit $ 289,171 $ 316,196 $ 271,327 $ 1,161,981 $ 982,763
GAAP gross margin (GAAP gross profit/revenue) 37.3 % 38.6 % 37.2 % 37.5 % 33.6 %
Non-GAAP gross margin (Non-GAAP gross profit/revenue) 47.8 % 47.0 % 45.4 % 46.8 % 42.2 %
       
 

Table G: Non-GAAP operating income

Three Months Ended Twelve Months Ended
Q4'18     Q3'18     Q4'17 Q4'18     Q4'17
GAAP operating income [i] $ 2,740 $ 75,081 $ 41,694 $ 164,428 $ 78,093
Impact of reconciling items on cost of revenues (see Table A, B, C, D, E) 63,961 56,481 48,942 230,526 200,829
Impact of reconciling items on R&D (see Tables A, B, C, D, E) 4,653 9,389 11,644 35,620 45,449
Impact of reconciling items on SG&A (see Tables A, B, C, D, E)   76,750     25,276     18,618     136,749     67,450  
Non-GAAP operating income [ii] $ 148,104   $ 166,227   $ 120,898   $ 567,323   $ 391,821  
Impact of reconciling items on operating income [ii - i] $ 145,364   $ 91,146   $ 79,204   $ 402,895   $ 313,728  
GAAP operating margin (GAAP operating income / revenue)   0.5 %   11.2 %   7.0 %   6.6 %   3.4 %
Non-GAAP operating margin (Non-GAAP operating income / revenue)   24.5 %   24.7 %   20.2 %   22.8 %   16.8 %
       
 

Table H: Non-GAAP pre-tax profit

Three Months Ended Twelve Months Ended
Q4'18     Q3'18     Q4'17 Q4'18     Q4'17
GAAP (loss) income before income taxes and non-controlling interest ("Pre-tax income") $ (17,749 ) $ 60,022   $ 20,131 $ 96,583   $ 2,146
Share in net loss and impairment of equity method investees (46,497 ) (3,657 ) (56,930 ) (57,370 ) (71,772 )
Impact of reconciling items on operating income (see Table G) 145,364 91,146 79,204 402,895 313,728
Impact of reconciling items on interest and other expense, net (see Table A, B, C, D, E)   56,302     8,045       64,521     82,367       91,327  
Non-GAAP pre-tax profit $ 137,420 $ 155,556 $ 106,926 $ 524,475 $ 335,429
GAAP pre-tax profit margin (GAAP pre-tax income/revenue) (2.9 )% 8.9 % 3.4 % 3.9 % 0.1 %
Non-GAAP pre-tax profit margin (Non-GAAP pre-tax profit/revenue) 22.7 % 23.1 % 17.9 % 21.1 % 14.4 %
       
 

Table I: Non-GAAP income tax expense

Three Months Ended Twelve Months Ended
Q4'18     Q3'18     Q4'17 Q4'18     Q4'17
GAAP income tax (benefit) provision [i] $ (331,447 ) $ 5,618 $ (2,773 ) $ (315,618 ) $ 11,157
[1] Stock-based compensation 4,075 5,081 8,073 20,152 32,054
[2] Changes in value of deferred compensation plan (36 ) 97 (39 ) 153 447
[3] Merger, integration, related costs and adjustments related to assets held for sale 57 424 57 1,475
[4] Inventory step-up related to acquisition accounting 1,308
[5] Share in net loss and impairment of equity method investees 9,764 768 19,926 12,047 25,120
[6] Imputed interest on convertible debt, equity component amortization on convertible debt and others 892 1,424 1,536 3,964 5,218
[7] Amortization of debt issuance costs 225 1,971
[8] Amortization of acquisition-related intangible assets and other 11,202 11,734 17,228 45,696 68,339
[9] Restructuring charges 318 2,098 1,967 3,537 3,181
[10] Settlement charges (6 ) (350 ) (6 ) 875
[11] Loss on extinguishment of Spansion convertible notes 16,084 1,488 16,768 1,488
[12] Gain on sale of cost method investment (319 )
[13] Uncertain tax positions (3,945 ) (2,159 ) (3,769 ) (8,815 ) (6,228 )
[14] Valuation allowance release, utilization of NOLs including excess tax benefits, and others**   299,385     (21,882 )   (41,457 )   237,420     (135,365 )
Non-GAAP income tax expense [ii]* $ 6,343   $ 2,779   $ 2,254   $ 15,261   $ 11,040  
Impact of reconciling items on income tax provision [i - ii] $ (337,790 ) $ 2,839 $ (5,027 ) $ (330,879 ) $ 117

*Tax impact of Non-GAAP adjustments is calculated by using the federal statutory rate of 21% and 35% for 2018 and 2017, respectively.

** 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 Twelve Months Ended
Q4'18     Q3'18     Q4'17 Q4'18     Q4'17
GAAP net income (loss) attributable to Cypress $ 267,114 $ 50,695     $ (34,014 ) $ 354,592     $ (80,915 )
Impact of reconciling items on operating income (see Table G) 145,364 91,146 79,204 402,895 313,728
Impact of reconciling items on interest and other expense, net (see Table A, B, C, D, E) 56,302 8,045 64,521 82,367 91,327
Impact of reconciling items on income tax provision (see Table I)   (337,790 )   2,839       (5,027 )   (330,879 )       117  
Non-GAAP net income $ 130,990   $ 152,725     $ 104,684   $ 508,975       $ 324,257  
   
 

Table K: Weighted-average shares, diluted

Three Months Ended
Q4'18     Q3'18     Q4'17
GAAP     Non-GAAP GAAP     Non-GAAP GAAP     Non-GAAP
Weighted-average common shares outstanding, basic 361,616 361,616 361,631 361,631 343,011   343,011
Effect of dilutive securities:
Stock options, unvested restricted stock and other 6,482 11,709 7,096 12,468 14,003
Convertible notes 1,540 1,540 5,539 3,234 12,110
Weighted-average common shares outstanding, diluted 369,638 374,865 374,266 377,333 343,011 369,124
   
 

Table L: Weighted-average shares, diluted

Twelve Months Ended
Q4'18     Q4'17
GAAP     Non-GAAP GAAP     Non-GAAP
Weighted-average common shares outstanding, basic 359,324 359,324 333,451 333,451
Effect of dilutive securities:
Stock options, unvested restricted stock and other 7,754 13,319 14,838
Convertible notes 5,100 2,705 16,851
Weighted-average common shares outstanding, diluted 372,178 375,348 333,451 365,140
   
 

Table M: Earnings (loss) per share

Three Months Ended
Q4'18     Q3'18     Q4'17
GAAP     Non-GAAP GAAP     Non-GAAP GAAP     Non-GAAP
Net income (loss) (see Table J) [i] $ 267,114 $ 130,990 $ 50,695 $ 152,725 $ (34,014 ) $ 104,684
Weighted-average common shares outstanding, diluted (see Table K) [ii]   369,638   374,865   374,266   377,333   343,011     369,124
Earnings per share - diluted [i/ii] $ 0.72 $ 0.35 $ 0.14 $ 0.40 $ (0.10 ) $ 0.28
   
 

Table N: Earnings (loss) per share

Twelve Months Ended
Q4'18     Q4'17
GAAP     Non-GAAP GAAP     Non-GAAP
Net income (loss) (see Table J) [i] $ 354,592 $ 508,975 $ (80,915 ) $ 324,257
Weighted-average common shares outstanding, diluted (see Table L) [ii]   372,178   375,348   333,451     365,140
Earnings (loss) per share - diluted [i/ii] $ 0.95 $ 1.36 $ (0.24 ) $ 0.89
       
 

Table O: Adjusted EBITDA

Three Months Ended Twelve Months Ended
Q4'18     Q3'18     Q4'17 Q4'18     Q4'17
GAAP net income (loss) attributable to Cypress $ 267,114 $ 50,695 $ (34,014 ) $ 354,592 $ (80,915 )
Interest and other expense, net (20,489 ) (15,059 ) (21,563 ) (67,845 ) (75,947 )
Income tax provision 331,447 (5,618 ) 2,773 315,618 (11,157 )
Share in net loss of and impairment of equity method investees (46,497 ) (3,657 ) (56,930 ) (57,370 ) (71,772 )
Net gain (loss) attributable to non-controlling interests   (87 )   (52 )   12     (239 )   (132 )
GAAP operating income $ 2,740 $ 75,081 $ 41,694 $ 164,428 $ 78,093
Impact of reconciling items on operating income (see Table G)   145,364     91,146     79,204     402,895     313,728  
Non-GAAP operating income $ 148,104 $ 166,227 $ 120,898 $ 567,323 $ 391,821
Depreciation   16,527     16,393     18,701     66,299     67,578  
Adjusted EBITDA $ 164,631   $ 182,620   $ 139,599   $ 633,622   $ 459,399  
       
 

Table P: Free cash flow

Three Months Ended Twelve Months Ended
Q4'18     Q3'18     Q4'17 Q4'18     Q4'17
GAAP net cash provided by operating activities $ 142,215 $ 187,073 $ 201,541 $ 471,700 $ 403,487
Acquisition of property, plant and equipment, net   (5,069 )   (15,448 )   (7,790 )   (63,130 )   (51,944 )
Free cash flow $ 137,146   $ 171,625   $ 193,751   $ 408,570   $ 351,543  
 
 
CYPRESS SEMICONDUCTOR CORPORATION
SUPPLEMENTAL FINANCIAL DATA
(In thousands except financial ratios and per share amounts)
(Unaudited)
 
    Three Months Ended     Twelve Months Ended
December 30,     September 30,     December 31, December 30,     December 31,
  2018     2018     2017     2018     2017  

Selected Cash Flow Data (Preliminary):

Net cash provided by operating activities $ 142,215 $ 187,073 $ 201,541 $ 471,700 $ 403,487
Net cash (used in) provided by investing activities $ (5,988 ) $ (22,316 ) $ (6,036 ) $ (49,690 ) $ (14,429 )
Net cash (used in) provided by financing activities $ (55,252 ) $ (72,730 ) $ (175,472 ) $ (287,886 ) $ (357,634 )

Other Supplemental Data (Preliminary):

Capital expenditures, net $ 5,069 $ 15,448 $ 7,790 $ 63,130 $ 51,944
Depreciation $ 16,527 $ 16,393 $ 18,701 $ 66,299 $ 67,578
Payment of dividend $ 39,772 $ 39,447 $ 36,670 $ 157,364 $ 144,749
Dividend paid per share $ 0.11 $ 0.11 $ 0.11 $ 0.44 $ 0.44
Total debt (principal amount) $ 935,838 $ 936,518 $ 1,061,414 $ 935,838 $ 1,061,414
Net leverage ratio¹ 1.03 1.20 1.98 1.03 1.98
Cash Income Tax $ 6,343 $ 2,779 $ 2,254 $ 15,261 $ 11,040
1.   Total debt (principal amount) less cash / Last 12 months Adjusted EBITDA
 
 
CYPRESS SEMICONDUCTOR CORPORATION
RECONCILIATION OF GAAP FORWARDING LOOKING ESTIMATES TO NON-GAAP FORWARD LOOKING ESTIMATES
 
            Q1'19 Non-

Q1'19 GAAP

GAAP estimate
estimate ¹(A) Adjustments (B) (C)=(A)+(B)
   

Stock-based

   

Amortization of

compensation

intangibles

expense

Other items

Gross Margin 36.0% - 37.0% 8.5% - 9.0% 0.7% 0.3% 46.0% - 46.5%
Diluted earnings per share $0.00 to $0.04 $ 0.14 $ 0.05 $ 0.03 $0.22 to $0.26
1.   GAAP outlook does not include any impact from the planned disposition of our NAND business to the joint venture with SK Hynix system ic Inc., which is expected to occur in the second quarter of 2019.
 

Thad Trent
EVP Finance & Administration and CFO
(408) 943-2925

Ann Minooka
Vice President, Corporate Communications
(408) 456-1962

Source: Cypress Semiconductor Corporation