Cypress Reports Fourth Quarter and Year End 2018 Results | Cypress Semiconductor
Cypress Reports Fourth Quarter and Year End 2018 Results
CLICK HERE FOR Q4 AND FY18 FINANCIAL TABLES
SAN JOSE, Calif., January 31, 2019 — 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)
- In 2018, certain expenses were reclassified as part of cost of revenue. Historical results have been conformed with the 2018 presentation.
- See “Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures” tables (“Non-GAAP Results” tables) included below.
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.
(In thousands, except percentages)
- 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:
- 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
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.
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.
CLICK HERE FOR Q4 AND FY18 FINANCIAL TABLES