Company Announcements

Cypress Reports Second Quarter 2019 Results

SAN JOSE, Calif.--(BUSINESS WIRE)--Jul. 25, 2019-- Cypress Semiconductor Corporation (NASDAQ: CY), today announced its second quarter 2019 results with the following highlights:

  • $532.2 million in revenue, down 1.3% sequentially, but up 4.8% sequentially after adjusting for the divestiture of our NAND business, which was completed on April 1, 2019
  • GAAP and Non-GAAP gross margins were 37.3% and 47.0%, respectively
  • GAAP and Non-GAAP diluted EPS were $(0.03) and $0.25, respectively

"We delivered a solid second quarter with revenue, gross margin, and diluted EPS all within our guidance ranges," said Hassane El-Khoury, Cypress’ president and chief executive officer. "Cypress’ world-class connect and compute solutions continue to gain strong momentum, including in IoT where Cypress' revenue was up 30% sequentially in Q2, driven by strength in Wi-Fi/Bluetooth combos as well as standalone Bluetooth. Cypress also continues to execute well in automotive where Cypress' revenue grew in Q2, both annually and sequentially, as our per-vehicle content continues to outgrow vehicle unit production levels."

As announced on June 3, 2019, Infineon Technologies AG ("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 per-share data)

 

 

GAAP

 

NON-GAAP1

 

 

Q2 2019

 

Q1 2019

 

Q2 2018

 

Q2 2019

 

Q1 2019

 

Q2 2018

Revenue

 

$

532,221

 

 

$

539,004

 

 

$

624,090

 

 

$

532,221

 

 

$

539,004

 

 

$

624,090

 

Gross margin

 

37.3

%

 

37.6

%

 

37.5

%

 

47.0

%

 

47.4

%

 

46.3

%

Operating margin

 

2.5

%

 

5.9

%

 

8.1

%

 

20.4

%

 

21.1

%

 

22.3

%

Net (loss) income

 

$

(12,729

)

 

$

19,714

 

 

$

27,706

 

 

$

97,241

 

 

$

102,104

 

 

$

124,964

 

Diluted EPS

 

$

(0.03

)

 

$

0.05

 

 

$

0.07

 

 

$

0.25

 

 

$

0.27

 

 

$

0.33

 

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

(In thousands, except per-share data)

 

 

GAAP

 

NON-GAAP1

 

 

Six Months

 

Six Months

 

 

Q2 2019

 

Q2 2018

 

Q2 2019

 

Q2 2018

Revenue

 

$

1,071,225

 

 

$

1,206,331

 

 

$

1,071,225

 

 

$

1,206,331

 

Gross margin

 

37.4

%

 

37.0

%

 

47.2

%

 

46.1

%

Operating margin

 

4.2

%

 

7.2

%

 

20.7

%

 

21.0

%

Net income

 

$

6,985

 

 

$

36,784

 

 

$

199,345

 

 

$

225,260

 

Diluted EPS

 

$

0.02

 

 

$

0.10

 

 

$

0.52

 

 

$

0.60

 

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

 

June 30, 2019

 

March 31, 2019

 

July 1, 2018

 

Sequential
Change

 

Year-over-year
Change

Business Unit¹

 

 

 

 

 

 

 

 

 

MCD

$

354,225

 

 

$

310,389

 

 

$

368,526

 

 

14.1

%

 

(3.9

)%

MPD2

$

177,996

 

 

$

228,615

 

 

$

255,564

 

 

(22.1

)%

 

(30.4

)%

Total

$

532,221

 

 

$

539,004

 

 

$

624,090

 

 

(1.3

)%

 

(14.7

)%

 
 

 

Three Months Ended

End Use

June 30, 2019

 

March 31, 2019

 

July 1, 2018

IoT

37.5

%

 

28.5

%

 

34.1

%

Automotive

38.0

%

 

36.7

%

 

30.8

%

Legacy

24.5

%

 

34.8

%

 

35.1

%

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 June 30, 2019 reflects 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 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 obtain stockholder approval for the Merger or the failure to satisfy other conditions to completion of the Merger, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of 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 consummated 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 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.

ADDITIONAL INFORMATION AND WHERE TO FIND IT

This press release may be deemed to be solicitation material in respect of the proposed Merger. This press release does not constitute an offer to sell or the solicitation of an offer to buy our securities or the solicitation of any vote or approval. The proposed Merger will be submitted to Cypress’ stockholders for their consideration. In connection with the proposed transaction, Cypress has filed a definitive proxy statement with the SEC on July 16, 2019 and other relevant materials with the SEC in connection with the solicitation of proxies in connection with the proposed transaction. The definitive proxy statement has been mailed to Cypress’ stockholders. BEFORE MAKING ANY VOTING OR INVESTMENT DECISION WITH RESPECT TO THE PROPOSED TRANSACTION, INVESTORS AND STOCKHOLDERS OF CYPRESS SEMICONDUCTOR CORPORATION ARE URGED TO READ THE DEFINITIVE PROXY STATEMENT REGARDING THE PROPOSED TRANSACTION (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS THERETO) AND OTHER RELEVANT MATERIALS CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. The proxy statement, any amendments or supplements thereto and other relevant materials, and any other documents filed by Cypress with the SEC, may be obtained once such documents are filed with the SEC free of charge at the SEC’s website at www.sec.gov.

In addition, Cypress’ stockholders may obtain free copies of the documents we file with the SEC through the Investors portion of Cypress’ website at investors.cypress.comunder the link “Financials & Filings” and then under the link “SEC Filings” or by contacting Cypress’ Investor Relations Department by (a) mail at Cypress Semiconductor Corporation, Attention: Investor Relations, 198 Champion Ct., San Jose, CA 95134, (b) telephone at (408) 943-2600, or (c) e-mail at investorrelations@cypress.com.

PARTICIPANTS IN SOLICITATION

Cypress and certain of its executive officers, directors, other members of management and employees may, under the rules of the SEC, be deemed to be “participants” in the solicitation of proxies from Cypress’ stockholders in connection with the proposed transaction. Information regarding the persons who may be considered “participants” in the solicitation of proxies is set forth in Cypress’ definitive proxy statement filed with the SEC on July 16, 2019 and other relevant documents to be filed with the SEC in connection with the proposed transaction, each of which can be obtained free of charge from the sources indicated above when they become available. Information regarding certain of these persons and their beneficial ownership of Cypress’ common stock is also set forth in Cypress’ definitive proxy statement on Schedule 14A for its 2019 annual meeting of stockholders filed on March 15, 2019 with the SEC, which can be obtained free of charge from the sources indicated above.

CYPRESS SEMICONDUCTOR CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

 

 

June 30, 2019

 

December 30, 2018

 

 

 

 

 

ASSETS

 

 

 

 

Cash, cash equivalents and short-term investments

 

$

372,180

 

 

$

285,720

 

Accounts receivable, net

 

267,763

 

 

324,274

 

Inventories

 

335,251

 

 

292,093

 

Assets held for sale

 

 

 

13,510

 

Property, plant and equipment, net

 

268,723

 

 

282,986

 

Goodwill and other intangible assets, net

 

1,760,564

 

 

1,864,340

 

Other assets

 

643,995

 

 

630,292

 

Total assets

 

$

3,648,476

 

 

$

3,693,215

 

LIABILITIES AND EQUITY

 

 

 

 

Accounts payable

 

$

182,826

 

 

$

210,715

 

Income tax liabilities

 

50,385

 

 

53,469

 

Revenue reserves, deferred margin and other liabilities

 

451,955

 

 

437,757

 

Revolving credit facility and long-term debt

 

854,304

 

 

874,235

 

Total liabilities

 

1,539,470

 

 

1,576,176

 

Total Cypress stockholders' equity

 

2,107,706

 

 

2,115,734

 

Non-controlling interest

 

1,300

 

 

1,305

 

Total equity

 

2,109,006

 

 

2,117,039

 

Total liabilities and equity

 

$

3,648,476

 

 

$

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

 

Six Months ended

 

June 30, 2019

 

March 31, 2019

 

July 1, 2018

 

June 30, 2019

 

July 1, 2018

Revenues

$

532,221

 

 

$

539,004

 

 

$

624,090

 

 

$

1,071,225

 

 

$

1,206,331

 

Cost of revenue

333,463

 

 

336,595

 

 

389,952

 

 

670,058

 

 

759,801

 

Gross profit

198,758

 

 

202,409

 

 

234,138

 

 

401,167

 

 

446,530

 

Research and development

93,639

 

 

88,606

 

 

96,693

 

 

182,245

 

 

189,926

 

Selling, general and administrative

91,633

 

 

81,987

 

 

86,599

 

 

173,620

 

 

169,996

 

Total operating expenses

185,272

 

 

170,593

 

 

183,292

 

 

355,865

 

 

359,922

 

Operating income

13,486

 

 

31,816

 

 

50,846

 

 

45,302

 

 

86,608

 

Interest and other expense, net

(12,003

)

 

(9,244

)

 

(14,143

)

 

(21,246

)

 

(32,297

)

Income before income taxes, share in net loss of equity method investee and non-controlling interest

1,483

 

 

22,572

 

 

36,703

 

 

24,056

 

 

54,311

 

Income tax provision

18,189

 

 

730

 

 

(5,154

)

 

18,919

 

 

(10,211

)

Share in net loss and impairment of equity method investees

(32,405

)

 

(3,590

)

 

(3,755

)

 

(35,995

)

 

(7,216

)

Net (loss) income

(12,733

)

 

19,712

 

 

27,794

 

 

6,980

 

 

36,884

 

Net gain attributable to non-controlling interests

4

 

 

2

 

 

(88

)

 

5

 

 

(100

)

Net (loss) income attributable to Cypress

$

(12,729

)

 

$

19,714

 

 

$

27,706

 

 

$

6,985

 

 

$

36,784

 

Net (loss) income per share attributable to Cypress:

 

 

 

 

 

 

 

 

 

Basic

$

(0.03

)

 

$

0.05

 

 

$

0.08

 

 

$

0.02

 

 

$

0.10

 

Diluted

$

(0.03

)

 

$

0.05

 

 

$

0.07

 

 

$

0.02

 

 

$

0.10

 

Cash dividend declared per share

$

0.11

 

 

$

0.11

 

 

$

0.11

 

 

$

0.22

 

 

$

0.22

 

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

 

 

 

 

 

 

 

 

 

Basic

365,600

 

 

363,700

 

 

358,577

 

 

364,842

 

 

356,123

 

Diluted

365,600

 

 

373,131

 

 

371,967

 

 

377,195

 

 

370,402

 

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 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 net loss 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 B: GAAP to non-GAAP reconciling items: Three Months Ended Q1 2019

 

 

 

 

Cost of revenues

 

Research and
development

 

Selling, general
and
administrative

 

Interest and other
expense, net

GAAP [i]

 

$

336,595

 

 

$

88,606

 

 

$

81,987

 

 

$

(12,834

)

[1] Stock-based compensation

 

2,684

 

 

6,680

 

 

11,031

 

 

 

[2] Changes in value of deferred compensation plan

 

471

 

 

2,204

 

 

2,259

 

 

(4,334

)

[3] Loss on assets held for sale

 

2,017

 

 

 

 

1,515

 

 

 

[4] Share in net loss of equity method investee

 

 

 

 

 

 

 

3,590

 

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

 

 

 

 

 

 

 

3,368

 

[6] Amortization of debt issuance costs

 

 

 

 

 

 

 

929

 

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

 

48,217

 

 

 

 

4,310

 

 

 

[8] Restructuring charges and other

 

(49

)

 

 

 

98

 

 

 

[9] Other income and expenses

 

 

 

57

 

 

448

 

 

303

 

Non - GAAP [ii]

 

$

283,255

 

 

$

79,665

 

 

$

62,326

 

 

$

(8,978

)

Impact of reconciling items [ii - i]

 

$

(53,340

)

 

$

(8,941

)

 

$

(19,661

)

 

$

3,856

 

Table C: GAAP to Non-GAAP reconciling items: Three Months Ended Q2 2018

 

 

 

 

Cost of revenues

 

Research and
development

 

Selling, general
and
administrative

 

Interest and other
expense, net

GAAP [i]

 

$

389,952

 

 

$

96,693

 

 

$

86,599

 

 

$

(17,898

)

[1] Stock-based compensation

 

3,986

 

 

13,800

 

 

16,121

 

 

 

[2] Changes in value of deferred compensation plan

 

102

 

 

467

 

 

572

 

 

(1,123

)

[3] Share in net loss of equity method investees

 

 

 

 

 

 

 

3,755

 

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

 

 

 

 

 

 

 

4,415

 

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

 

49,438

 

 

 

 

4,355

 

 

 

[6] Gain on sale of cost method investment

 

 

 

 

 

(1,521

)

 

 

[7] Restructuring charges and other

 

1,589

 

 

33

 

 

(383

)

 

(377

)

Non - GAAP [ii]

 

$

334,837

 

 

$

82,393

 

 

$

67,455

 

 

$

(11,228

)

Impact of reconciling items [ii - i]

 

$

(55,115

)

 

$

(14,300

)

 

$

(19,144

)

 

$

6,670

 

Table D: GAAP to non-GAAP reconciling items: Six Months Ended Q2 2019

 

 

 

 

Cost of revenues

 

Research and
development

 

Selling, general
and
administrative

 

Interest and other
expense, net

GAAP [i]

 

$

670,058

 

 

$

182,245

 

 

$

173,620

 

 

$

(57,241

)

[1] Stock-based compensation

 

5,501

 

 

18,984

 

 

26,390

 

 

 

[2] Changes in value of deferred compensation plan

 

601

 

 

2,836

 

 

2,886

 

 

(5,479

)

[3] Loss on assets held for sale

 

2,017

 

 

 

 

1,515

 

 

 

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

 

 

 

 

 

 

 

35,995

 

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

 

 

 

 

 

 

 

6,644

 

[6] Amortization of debt issuance costs

 

 

 

 

 

 

 

1,858

 

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

 

95,510

 

 

 

 

8,614

 

 

 

[8] Restructuring charges and other

 

969

 

 

1,362

 

 

739

 

 

 

[9] Merger-related expenses

 

 

 

 

 

8,409

 

 

 

[10] Other income and expenses

 

 

 

57

 

 

480

 

 

200

 

Non - GAAP [ii]

 

$

565,460

 

 

$

159,006

 

 

$

124,587

 

 

$

(18,023

)

Impact of reconciling items [ii - i]

 

$

(104,598

)

 

$

(23,239

)

 

$

(49,033

)

 

$

39,218

 

1.

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

Table E: GAAP to non-GAAP reconciling items: Six Months Ended Q2 2018

 

 

 

 

Cost of revenues

 

Research and
development

 

Selling, general
and
administrative

 

Interest and other
expense, net

GAAP [i]

 

$

759,801

 

 

$

189,926

 

 

$

169,996

 

 

$

(39,513

)

[1] Stock-based compensation

 

7,569

 

 

20,514

 

 

24,283

 

 

 

[2] Changes in value of deferred compensation plan

 

163

 

 

739

 

 

922

 

 

(1,389

)

[3] Equity in net loss and impairment of equity method investees

 

 

 

 

 

 

 

7,216

 

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

 

 

 

 

 

 

 

7,846

 

[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

 

98,876

 

 

 

 

9,505

 

 

 

[8] Gain on sale of cost method investment

 

 

 

 

 

(1,521

)

 

 

[9] Restructuring charges and other

 

3,476

 

 

325

 

 

1,533

 

 

16

 

Non - GAAP [ii]

 

$

649,717

 

 

$

168,348

 

 

$

135,274

 

 

$

(21,493

)

Impact of reconciling items [ii - i]

 

$

(110,084

)

 

$

(21,578

)

 

$

(34,722

)

 

$

18,020

 

Table F: Non-GAAP gross profit

 

Three Months Ended

 

Six Months Ended

 

 

Q2'19

 

Q1'19

 

Q2'18

 

Q2'19

 

Q2'18

GAAP gross profit

 

$

198,758

 

 

$

202,409

 

 

$

234,138

 

 

$

401,167

 

 

$

446,530

 

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

 

51,258

 

 

53,340

 

 

55,115

 

 

104,598

 

 

110,084

 

Non-GAAP gross profit

 

$

250,016

 

 

$

255,749

 

 

$

289,253

 

 

$

505,765

 

 

$

556,614

 

GAAP gross margin (GAAP gross profit/revenue)

 

37.3

%

 

37.6

%

 

37.5

%

 

37.4

%

 

37.0

%

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

 

47.0

%

 

47.4

%

 

46.3

%

 

47.2

%

 

46.1

%

Table G: Non-GAAP operating income

 

Three Months Ended

 

Six Months Ended

 

 

Q2'19

 

Q1'19

 

Q2'18

 

Q2'19

 

Q2'18

GAAP operating income [i]

 

$

13,486

 

 

$

31,816

 

 

$

50,846

 

 

$

45,302

 

 

$

86,608

 

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

 

51,258

 

 

53,340

 

 

55,115

 

 

104,598

 

 

110,084

 

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

 

14,298

 

 

8,941

 

 

14,300

 

 

23,239

 

 

21,578

 

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

 

29,372

 

 

19,661

 

 

19,144

 

 

49,033

 

 

34,722

 

Non-GAAP operating income [ii]

 

$

108,414

 

 

$

113,758

 

 

$

139,405

 

 

$

222,172

 

 

$

252,992

 

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

 

$

94,928

 

 

$

81,942

 

 

$

88,559

 

 

$

176,870

 

 

$

166,384

 

GAAP operating margin (GAAP operating income / revenue)

 

2.5

%

 

5.9

%

 

8.1

%

 

4.2

%

 

7.2

%

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

 

20.4

%

 

21.1

%

 

22.3

%

 

20.7

%

 

21.0

%

Table H: Non-GAAP pre-tax profit

 

Three Months Ended

 

Six Months Ended

 

 

Q2'19

 

Q1'19

 

Q2'18

 

Q2'19

 

Q2'18

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

 

$

1,483

 

 

$

22,572

 

 

$

36,703

 

 

$

24,056

 

 

$

54,311

 

Share in net loss and impairment of equity method investees1

 

(32,405

)

 

(3,590

)

 

(3,755

)

 

(35,995

)

 

(7,216

)

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

 

94,928

 

 

81,942

 

 

88,559

 

 

176,870

 

 

166,384

 

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

 

35,362

 

 

3,856

 

 

6,670

 

 

39,218

 

 

18,020

 

Non-GAAP pre-tax profit

 

$

99,368

 

 

$

104,780

 

 

$

128,177

 

 

$

204,149

 

 

$

231,499

 

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

 

0.3

%

 

4.2

%

 

5.9

%

 

2.2

%

 

4.5

%

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

 

18.7

%

 

19.4

%

 

20.5

%

 

19.1

%

 

19.2

%

1.

The three and six months ended Q2'19 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

 

Six Months Ended

 

 

Q2'19

 

Q1'19

 

Q2'18

 

Q2'19

 

Q2'18

GAAP income tax provision [i]

 

(18,189

)

 

(730

)

 

5,154

 

 

(18,919

)

 

10,211

 

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

 

 

 

 

 

 

 

 

 

 

[a] Stock-based compensation

 

6,401

 

 

4,283

 

 

7,121

 

 

10,684

 

 

10,997

 

[b] Changes in value of deferred compensation plan

 

51

 

 

126

 

 

3

 

 

177

 

 

91

 

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

 

6,805

 

 

754

 

 

788

 

 

7,559

 

 

1,515

 

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

 

688

 

 

707

 

 

927

 

 

1,395

 

 

1,648

 

[e] Amortization of debt issuance costs

 

195

 

 

195

 

 

 

 

390

 

 

225

 

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

 

10,835

 

 

11,031

 

 

11,297

 

 

21,866

 

 

22,760

 

[g] Restructuring charges and other

 

620

 

 

21

 

 

260

 

 

641

 

 

1,120

 

[h] Other (income) and expenses

 

 

 

159

 

 

 

 

159

 

 

 

[i] Loss on extinguishment of convertible notes

 

 

 

 

 

 

 

 

 

684

 

[j] Loss on assets held for sale

 

 

 

742

 

 

 

 

742

 

 

 

[k] Gain on sale of cost method investment

 

 

 

 

 

(319

)

 

 

 

(319

)

[l] Merger-related expenses

 

1,766

 

 

 

 

 

 

1,766

 

 

 

[2] Uncertain tax positions

 

2,621

 

 

297

 

 

(1,348

)

 

2,918

 

 

(2,710

)

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

 

(9,662

)

 

(14,907

)

 

(20,758

)

 

(24,569

)

 

(40,083

)

Non-GAAP income tax expense [ii]*

 

$

2,131

 

 

$

2,678

 

 

$

3,125

 

 

$

4,809

 

 

$

6,139

 

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

 

(20,320

)

 

(3,408

)

 

2,029

 

 

(23,728

)

 

4,072

 

*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

 

Six Months Ended

 

 

Q2'19

 

Q1'19

 

Q2'18

 

Q2'19

 

Q2'18

GAAP net (loss) income attributable to Cypress

 

$

(12,729

)

 

$

19,714

 

 

$

27,706

 

 

$

6,985

 

 

$

36,784

 

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

 

94,928

 

 

81,942

 

 

88,559

 

 

176,870

 

 

166,384

 

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

 

35,362

 

 

3,856

 

 

6,670

 

 

39,218

 

 

18,020

 

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

 

(20,320

)

 

(3,408

)

 

2,029

 

 

(23,728

)

 

4,072

 

Non-GAAP net income

 

$

97,241

 

 

$

102,104

 

 

$

124,964

 

 

$

199,345

 

 

$

225,260

 

Table K: Weighted-average shares, diluted

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Q2'19

 

Q1'19

 

Q2'18

 

 

GAAP

 

Non-GAAP

 

GAAP

 

Non-GAAP

 

GAAP

 

Non-GAAP

Weighted-average common shares outstanding, basic

 

365,600

 

 

365,600

 

 

363,700

 

 

363,700

 

 

358,577

 

 

358,577

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

Stock options, unvested restricted stock units and other

 

 

 

13,937

 

 

6,343

 

 

10,496

 

 

7,837

 

 

14,391

 

Convertible notes

 

 

 

5,187

 

 

3,088

 

 

1,634

 

 

5,553

 

 

3,070

 

Weighted-average common shares outstanding, diluted

 

365,600

 

 

384,724

 

 

373,131

 

 

375,830

 

 

371,967

 

 

376,038

 

Table L: Weighted-average shares, diluted

 

 

 

 

 

 

Six Months Ended

 

 

Q2'19

 

Q2'18

 

 

GAAP

 

Non-GAAP

 

GAAP

 

Non-GAAP

Weighted-average common shares outstanding, basic

 

364,842

 

 

364,842

 

 

356,123

 

 

356,123

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

Stock options, unvested restricted stock and other

 

6,913

 

 

12,347

 

 

7,879

 

 

13,071

 

Convertible notes

 

5,440

 

 

3,117

 

 

6,400

 

 

3,916

 

Weighted-average common shares outstanding, diluted

 

377,195

 

 

380,306

 

 

370,402

 

 

373,110

 

Table M: Earnings per share

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Q2'19

 

Q1'19

 

Q2'18

 

 

GAAP

 

Non-GAAP

 

GAAP

 

Non-GAAP

 

GAAP

 

Non-GAAP

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

 

$

(12,729

)

 

$

97,241

 

 

$

19,714

 

 

$

102,104

 

 

$

27,706

 

 

$

124,964

 

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

 

365,600

 

 

384,724

 

 

373,131

 

 

375,830

 

 

371,967

 

 

376,038

 

(Loss) earnings per share - diluted [i/ii]

 

$

(0.03

)

 

$

0.25

 

 

$

0.05

 

 

$

0.27

 

 

$

0.07

 

 

$

0.33

 

Table N: Earnings per share

 

 

 

 

 

 

Six Months Ended

 

 

Q2'19

 

Q2'18

 

 

GAAP

 

Non-GAAP

 

GAAP

 

Non-GAAP

Net income (see Table J) [i]

 

$

6,985

 

 

$

199,345

 

 

$

36,784

 

 

$

225,260

 

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

 

377,195

 

 

380,306

 

 

370,402

 

 

373,110

 

Earnings per share - diluted [i/ii]

 

$

0.02

 

 

$

0.52

 

 

$

0.10

 

 

$

0.60

 

Table O: Adjusted EBITDA

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

Q2'19

 

Q1'19

 

Q2'18

 

Q2'19

 

Q2'18

GAAP net (loss) income attributable to Cypress

 

$

(12,729

)

 

$

19,714

 

 

$

27,706

 

 

$

6,985

 

 

$

36,784

 

Interest and other expense, net

 

(12,003

)

 

(9,244

)

 

(14,143

)

 

(21,246

)

 

(32,297

)

Income tax provision

 

18,189

 

 

730

 

 

(5,154

)

 

18,919

 

 

(10,211

)

Share in net loss and impairment of equity method investee1

 

(32,405

)

 

(3,590

)

 

(3,755

)

 

(35,995

)

 

(7,216

)

Net gain (loss) attributable to non-controlling interests

 

4

 

 

2

 

 

(88

)

 

5

 

 

(100

)

GAAP operating income

 

$

13,486

 

 

$

31,816

 

 

$

50,846

 

 

$

45,302

 

 

$

86,608

 

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

 

94,928

 

 

81,942

 

 

88,559

 

 

176,870

 

 

166,384

 

Non-GAAP operating income

 

$

108,414

 

 

$

113,758

 

 

$

139,405

 

 

$

222,172

 

 

$

252,992

 

Depreciation

 

19,394

 

 

19,512

 

 

16,239

 

 

38,906

 

 

33,379

 

Adjusted EBITDA

 

$

127,808

 

 

$

133,270

 

 

$

155,644

 

 

$

261,078

 

 

$

286,371

 

1.

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

Table P: Free cash flow

 

Three Months Ended

 

Six Months Ended

 

 

Q2'19

 

Q1'19

 

Q2'18

 

Q2'19

 

Q2'18

GAAP net cash provided by operating activities

 

$

118,923

 

 

$

61,248

 

 

$

110,734

 

 

$

180,171

 

 

$

142,412

 

Acquisition of property, plant and equipment, net

 

(7,490

)

 

(10,534

)

 

(25,589

)

 

(18,024

)

 

(42,612

)

Free cash flow

 

$

111,433

 

 

$

50,714

 

 

$

85,145

 

 

$

162,147

 

 

$

99,800

 

CYPRESS SEMICONDUCTOR CORPORATION

SUPPLEMENTAL FINANCIAL DATA

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

(Unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 2019

 

March 31, 2019

 

July 1, 2018

 

June 30, 2019

 

July 1, 2018

Selected Cash Flow Data (Preliminary):

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

118,923

 

 

$

61,248

 

 

$

110,734

 

 

$

180,171

 

 

$

142,412

 

Net cash used in investing activities

 

$

(6,821

)

 

$

(4,376

)

 

$

(7,213

)

 

$

(11,197

)

 

$

(21,386

)

Net cash used in financing activities

 

$

(25,041

)

 

$

(57,473

)

 

$

(97,556

)

 

$

(82,514

)

 

$

(159,904

)

Other Supplemental Data (Preliminary):

 

 

 

 

 

 

 

 

Capital expenditures, net

 

$

7,490

 

 

$

10,534

 

 

$

25,589

 

 

$

18,024

 

 

$

42,612

 

Depreciation

 

$

19,394

 

 

$

19,512

 

 

$

16,239

 

 

$

38,906

 

 

$

33,379

 

Payment of dividend

 

$

40,134

 

 

$

39,748

 

 

$

39,404

 

 

$

79,882

 

 

$

78,145

 

Dividend paid per share

 

$

0.11

 

 

$

0.11

 

 

$

0.11

 

 

$

0.22

 

 

$

0.22

 

Total debt (principal amount)

 

$

908,339

 

 

$

909,549

 

 

$

955,553

 

 

$

908,339

 

 

$

955,553

 

Leverage ratio¹

 

0.88

 

 

0.98

 

 

1.51

 

 

0.88

 

 

1.51

 

Cash Income Tax

 

$

2,131

 

 

$

2,678

 

 

$

3,125

 

 

$

4,809

 

 

$

6,139

 

1.

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

 

Source: Cypress Semiconductor Corporation

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

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