CY Cypress Semiconductor Corporation

Cypress Semiconductor Corporation (NASDAQ: CY) today announced its fourth quarter and fiscal year 2019 results with the following highlights:

• Fiscal year revenue of $2.21 billion, down 6.1% year-over-year after adjusting for the divestiture of our NAND business, which was completed on April 1, 2019
• Record Automotive revenue of $829.4 million representing 38% of total fiscal year 2019 revenue
• Fourth quarter revenue was $559.6 million and GAAP and non-GAAP gross margins were 38.0% and 47.1%, respectively
• Fourth quarter GAAP and non-GAAP operating margins were 5.9% and 21.1%, respectively
• Fourth quarter GAAP and non-GAAP diluted EPS were $0.05 and $0.28, respectively

"We continue to see strong adoption of our connect and compute products across the automotive and IoT end-markets, which drove record MCD revenue in fiscal year 2019 in a challenging environment," said Hassane El-Khoury, Cypress’ president and chief executive officer. "We ended the year strongly in the fourth quarter with our automotive revenue achieving a quarterly record and our IoT business up 18% compared to the fourth quarter of 2018. Our focus on maximizing profitability and cashflow continues to pay off as evidenced by our record cash from operations of $479 million in 2019."

As announced on June 3, 2019, Infineon Technologies AG and Cypress 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 proposed transaction has received antitrust clearances from authorities in the United States, the European Union, The Philippines, Taiwan, South Korea, and Japan. The parties require approval for the proposed transaction from the Committee on Foreign Investment in the United States (CFIUS) and from China’s State Administration for Market Regulation (SAMR). Due to the pending transaction, Cypress will not hold an earnings conference call and has suspended the practice of providing forward-looking guidance.

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

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

 

 

GAAP

 

NON-GAAP1

 

 

Q4 2019

 

Q3 2019

 

Q4 2018

 

Q4 2019

 

Q3 2019

 

Q4 2018

Revenue

 

$

559,568

 

 

$

574,521

 

 

$

604,474

 

 

$

559,568

 

 

$

574,521

 

 

$

604,474

 

Gross margin

 

38.0

%

 

37.7

%

 

37.3

%

 

47.1

%

 

46.9

%

 

47.8

%

Operating margin

 

5.9

%

 

7.9

%

 

0.5

%

 

21.1

%

 

21.8

%

 

24.5

%

Net income

 

$

20,760

 

 

$

12,683

 

 

$

267,114

 

 

$

108,394

 

 

$

115,794

 

 

$

130,990

 

Diluted EPS

 

$

0.05

 

 

$

0.03

 

 

$

0.72

 

 

$

0.28

 

 

$

0.30

 

 

$

0.35

 

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

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

 

 

GAAP

 

NON-GAAP1

 

 

FY 2019

 

FY 2018

 

FY 2019

 

FY 2018

Revenue

 

$

2,205,314

 

 

$

2,483,840

 

 

$

2,205,314

 

 

$

2,483,840

 

Gross margin

 

37.6

%

 

37.5

%

 

47.1

%

 

46.8

%

Operating margin

 

5.6

%

 

6.6

%

 

21.1

%

 

22.8

%

Net income

 

$

40,428

 

 

$

354,592

 

 

$

423,531

 

 

$

508,975

 

Diluted EPS

 

$

0.11

 

 

$

0.95

 

 

$

1.09

 

 

$

1.36

 

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

REVENUE SUMMARY

(In thousands, except percentages)

(Unaudited)

 

Three Months Ended

 

 

 

December 29, 2019

 

September 29, 2019

 

December 30, 2018

 

Sequential Change

 

Year-over-year Change

Business Unit1

 

 

 

 

 

 

 

 

 

MCD

$

401,292

 

$

410,748

 

$

355,793

 

(2.3)%

 

12.8%

MPD2

158,276

 

163,773

 

248,681

 

(3.4)%

 

(36.4)%

Total

$

559,568

 

$

574,521

 

$

604,474

 

(2.6)%

 

(7.4)%

 

Three Months Ended

 

December 29, 2019

 

September 29, 2019

 

December 30, 2018

End Use

 

 

 

 

 

IoT

40.0%

 

42.6%

 

31.5%

Automotive

39.3%

 

36.5%

 

35.5%

Legacy

20.7%

 

20.9%

 

33.0%

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 December 29, 2019 and September 29, 2019 reflect divestment of our NAND business to a newly formed joint venture, which was completed on April 1, 2019.

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ABOUT CYPRESS

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

NON-GAAP FINANCIAL MEASURES

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

• Non-GAAP gross profit;
• Non-GAAP gross margin;
• Non-GAAP cost of revenues;
• Non-GAAP interest and other expense, net;
• Non-GAAP research and development expenses;
• Non-GAAP selling, general and administrative expenses;
• Adjusted EBITDA;
• Non-GAAP income tax provision (benefit);
• Non-GAAP pre-tax profit;
• Non-GAAP pre-tax profit margin;
• Non-GAAP operating income;
• Non-GAAP operating margin;
• Non-GAAP net income;
• Non-GAAP diluted earnings (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 (other than free cash flow) excludes one or more of the following items:

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

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

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

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

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

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

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

FORWARD-LOOKING STATEMENTS

Statements in this press release that are not historical facts and that refer to Cypress or its subsidiaries’ plans and expectations for the future are forward-looking statements as such term is used in the Private Securities Litigation Reform Act of 1995. We may use words such as "may," "will," "should," "plan," "anticipate," "believe," "expect," "future," "intend," "estimate," "predict," "potential," "continue" or similar expressions to identify forward-looking statements. Our forward-looking statements are based on the expectations, beliefs, and intentions of, and the information available to, our executive management on the date of this press release. Forward-looking statements involve risks and uncertainties, and readers are cautioned not to place undue reliance on forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to: the occurrence of any event, change or other circumstances that could give rise to the termination of the Agreement and Plan of Merger (the "Merger Agreement") dated June 3, 2019, by and among Infineon Technologies AG, a stock corporation (Aktiengesellschaft) organized under the laws of the Federal Republic of Germany ("Infineon"), IFX Merger Sub Inc., a Delaware corporation and a wholly owned subsidiary of Infineon ("Merger Sub") and the Company, pursuant to which Merger Sub will merge with and into the Company (the "Merger"), with the Company continuing as the surviving corporation in the Merger and as a wholly owned subsidiary of Infineon; the inability to complete the Merger due to the failure to satisfy conditions to completion of the Merger, including that a governmental entity may prohibit, delay or refuse to grant approval for the Merger; risks related to disruption of management’s attention from our ongoing business operations due to the Merger; the effect of the announcement of the Merger on our relationships with our customers, operating results and business generally; the risk that certain approvals or consents will not be received in a timely manner or that the Merger will not be completed in a timely manner; the impact of the Merger on our ability to retain key employees; the outcome of any legal proceedings related to the Merger; potential tariffs and other disruptions in the international trade and investment environment; global economic and market conditions; our ability to execute on our Cypress 3.0 strategy and our margin improvement plan; risks related to paying down our indebtedness and meeting the covenants in our debt agreements; our efforts to retain and expand our customer base; business conditions and growth trends in the semiconductor market; competition; volatility in supply and demand for our products, including but not limited to the impact of seasonality on supply and demand; our ability to develop, introduce and sell new products and technologies; potential problems relating to our manufacturing activities; reliance on distributors, resellers, third-party manufacturers, and others; risks related to changing relationships with distributors; risks related to our "take or pay" agreements with certain vendors; the risk of defects, errors, or security vulnerabilities in our products; the impact of acquisitions; risks related to our joint venture for NAND flash memory products; the possibility of impairment charges; our ability to attract and retain key personnel; the unpredictability and expense of legal proceedings; the impact of floods, earthquakes, volcanoes, global health pandemics, and other major natural events beyond our control; 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 and the Cypress logo are registered trademarks of Cypress Semiconductor Corporation. All other trademarks are property of their owners.

CYPRESS SEMICONDUCTOR CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

 

 

December 29, 2019

 

December 30, 2018

ASSETS

 

 

 

 

Cash and cash equivalents

 

$

415,462

 

 

$

285,720

 

Accounts receivable, net

 

301,755

 

 

324,274

 

Inventories

 

297,904

 

 

292,093

 

Assets held for sale

 

—

 

 

13,510

 

Property, plant and equipment, net

 

258,748

 

 

282,986

 

Goodwill and other intangible assets, net

 

1,656,933

 

 

1,864,340

 

Other assets

 

625,312

 

 

630,292

 

Total assets

 

$

3,556,114

 

 

$

3,693,215

 

LIABILITIES AND EQUITY

 

 

 

 

Accounts payable

 

$

151,393

 

 

$

210,715

 

Income tax liabilities

 

54,941

 

 

53,469

 

Revenue reserves, deferred margin and other liabilities

 

523,102

 

 

430,814

 

Current portion of long-term debt

 

13,615

 

 

6,943

 

Revolving credit facility and long-term debt

 

712,808

 

 

874,235

 

Total liabilities

 

1,455,859

 

 

1,576,176

 

Total Cypress stockholders' equity

 

2,100,255

 

 

2,115,734

 

Non-controlling interest

 

—

 

 

1,305

 

Total equity

 

2,100,255

 

 

2,117,039

 

Total liabilities and equity

 

$

3,556,114

 

 

$

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

 

Twelve Months Ended

 

 

December 29, 2019

 

September 29, 2019

 

December 30, 2018

 

December 29, 2019

 

December 30, 2018

Revenues

 

$

559,568

 

 

$

574,521

 

 

$

604,474

 

 

$

2,205,314

 

 

$

2,483,840

 

Cost of revenues

 

347,150

 

 

358,080

 

 

379,264

 

 

1,375,289

 

 

1,552,385

 

Gross profit

 

212,418

 

 

216,441

 

 

225,210

 

 

830,025

 

 

931,455

 

Research and development

 

91,219

 

 

89,253

 

 

82,379

 

 

362,716

 

 

363,996

 

Selling, general and administrative

 

88,463

 

 

81,963

 

 

140,091

 

 

344,046

 

 

403,031

 

Total operating expenses

 

179,682

 

 

171,216

 

 

222,470

 

 

706,762

 

 

767,027

 

Operating income

 

32,736

 

 

45,225

 

 

2,740

 

 

123,263

 

 

164,428

 

Interest and other expense, net

 

(8,409

)

 

(14,922

)

 

(20,489

)

 

(44,577

)

 

(67,845

)

Income (loss) before income taxes and non-controlling interest

 

24,327

 

 

30,303

 

 

(17,749

)

 

78,686

 

 

96,583

 

Income tax benefit (provision)

 

(5,044

)

 

(16,247

)

 

331,447

 

 

(2,372

)

 

315,618

 

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

 

1,477

 

 

(1,383

)

 

(46,497

)

 

(35,901

)

 

(57,370

)

Net income

 

20,760

 

 

12,673

 

 

267,201

 

 

40,413

 

 

354,831

 

Net loss (income) attributable to non-controlling interest

 

—

 

 

10

 

 

(87

)

 

15

 

 

(239

)

Net income attributable to Cypress

 

$

20,760

 

 

$

12,683

 

 

$

267,114

 

 

$

40,428

 

 

$

354,592

 

Net income per share attributable to Cypress:

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.06

 

 

$

0.03

 

 

$

0.74

 

 

$

0.11

 

 

$

0.99

 

Diluted

 

$

0.05

 

 

$

0.03

 

 

$

0.72

 

 

$

0.11

 

 

$

0.95

 

Cash dividend declared per share

 

$

0.11

 

 

$

0.11

 

 

$

0.11

 

 

$

0.44

 

 

$

0.44

 

Shares used in net income per share calculation:

 

 

 

 

 

 

 

 

 

 

Basic

 

370,846

 

 

369,241

 

 

361,616

 

 

367,308

 

 

359,324

 

Diluted

 

390,952

 

 

388,243

 

 

369,638

 

 

384,670

 

 

372,178

 

CYPRESS SEMICONDUCTOR CORPORATION

RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES

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

(Unaudited)

Table A: GAAP to Non-GAAP reconciling items: Three Months Ended Q4 2019

 

 

Cost of revenues

 

Research and development

 

Selling, general and administrative

 

Interest and other expense, net

GAAP [i]

 

$

347,150

 

 

$

91,219

 

 

$

88,463

 

 

$

(6,932

)

[1] Stock-based compensation, including costs related to modification of equity awards

 

4,035

 

 

7,010

 

 

19,171

 

 

—

 

[2] Changes in value of deferred compensation plan

 

213

 

 

1,318

 

 

1,271

 

 

(2,747

)

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

 

(120

)

 

—

 

 

—

 

 

—

 

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

 

—

 

 

—

 

 

—

 

 

(1,477

)

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

 

—

 

 

—

 

 

—

 

 

3,025

 

[6] Amortization of debt issuance costs

 

—

 

 

—

 

 

—

 

 

496

 

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

 

47,085

 

 

—

 

 

4,309

 

 

—

 

[9] Restructuring charges and other

 

(22

)

 

(493

)

 

10

 

 

—

 

[10] Merger-related expenses

 

—

 

 

—

 

 

1,302

 

 

—

 

Non - GAAP [ii]

 

$

295,959

 

 

$

83,384

 

 

$

62,400

 

 

$

(7,635

)

Impact of reconciling items [ii - i]

 

$

(51,191

)

 

$

(7,835

)

 

$

(26,063

)

 

$

(703

)

Table B: GAAP to Non-GAAP reconciling items: Three Months Ended Q3 2019

 

 

Cost of revenues

 

Research and development

 

Selling, general and administrative

 

Interest and other expense, net

GAAP [i]

 

$

358,080

 

 

$

89,253

 

 

$

81,963

 

 

$

(16,305

)

[1] Stock-based compensation

 

5,907

 

 

7,708

 

 

11,276

 

 

—

 

[2] Changes in value of deferred compensation plan

 

(6

)

 

(38

)

 

(37

)

 

237

 

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

 

—

 

 

—

 

 

—

 

 

(1,887

)

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

 

—

 

 

—

 

 

—

 

 

1,383

 

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

 

—

 

 

—

 

 

—

 

 

3,101

 

[6] Amortization of debt issuance costs

 

—

 

 

—

 

 

—

 

 

626

 

[7] Loss on extinguishment of debt

 

—

 

 

—

 

 

—

 

 

6,402

 

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

 

47,084

 

 

—

 

 

4,310

 

 

—

 

[9] Restructuring charges

 

(68

)

 

291

 

 

169

 

 

—

 

[10] Merger-related expenses

 

—

 

 

—

 

 

3,043

 

 

—

 

[11] Other income and expenses

 

—

 

 

280

 

 

381

 

 

(631

)

Non - GAAP [ii]

 

$

305,163

 

 

$

81,012

 

 

$

62,821

 

 

$

(7,074

)

Impact of reconciling items [ii - i]

 

$

(52,917

)

 

$

(8,241

)

 

$

(19,142

)

 

$

9,231

 

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

 

 

Cost of revenues

 

Research and development

 

Selling, general and administrative

 

Interest and other expense, 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 D: GAAP to Non-GAAP reconciling items: Twelve Months Ended Q4 2019

 

 

 

Cost of revenues

 

Research and development

 

Selling, general and administrative

 

Interest and other expense, net

GAAP [i]

 

$

1,375,289

 

 

$

362,716

 

 

$

344,046

 

 

$

(80,478

)

[1] Stock based compensation, including costs related to modification of equity awards

 

15,443

 

 

33,702

 

 

56,837

 

 

—

 

[2] Changes in value of deferred compensation plan

 

807

 

 

4,116

 

 

4,120

 

 

(7,989

)

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

 

1,897

 

 

—

 

 

1,515

 

 

(1,887

)

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

 

—

 

 

—

 

 

—

 

 

35,901

 

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

 

—

 

 

—

 

 

—

 

 

12,770

 

[6] Amortization of debt issuance costs

 

—

 

 

—

 

 

—

 

 

2,980

 

[7] Loss on extinguishment of debt

 

—

 

 

—

 

 

—

 

 

6,402

 

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

 

189,679

 

 

—

 

 

17,233

 

 

—

 

[9] Restructuring charges and other

 

880

 

 

1,160

 

 

918

 

 

—

 

[10] Merger-related expenses

 

—

 

 

—

 

 

12,754

 

 

—

 

[11] Other income and expenses

 

—

 

 

337

 

 

861

 

 

(433

)

Non - GAAP [ii]

 

$

1,166,583

 

 

$

323,401

 

 

$

249,808

 

 

$

(32,734

)

Impact of reconciling items [ii - i]

 

$

(208,706

)

 

$

(39,315

)

 

$

(94,238

)

 

$

47,744

 

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

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

 

 

Cost of revenues

 

Research and development

 

Selling, general and administrative

 

Interest and other expense, 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 gain/loss, net 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 and other charges

 

—

 

 

(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 F: Non-GAAP gross profit

 

Three Months Ended

 

Twelve Months Ended

 

 

Q4'19

 

Q3'19

 

Q4'18

 

Q4'19

 

Q4'18

GAAP gross profit

 

$

212,418

 

 

$

216,441

 

 

$

225,210

 

 

$

830,025

 

 

$

931,455

 

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

 

51,191

 

 

52,917

 

 

63,961

 

 

208,706

 

 

230,526

 

Non-GAAP gross profit

 

$

263,609

 

 

$

269,358

 

 

$

289,171

 

 

$

1,038,731

 

 

$

1,161,981

 

GAAP gross margin (GAAP gross profit/revenue)

 

38.0

%

 

37.7

%

 

37.3

%

 

37.6

%

 

37.5

%

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

 

47.1

%

 

46.9

%

 

47.8

%

 

47.1

%

 

46.8

%

Table G: Non-GAAP operating income

 

Three Months Ended

 

Twelve Months Ended

 

 

Q4'19

 

Q3'19

 

Q4'18

 

Q4'19

 

Q4'18

GAAP operating income [i]

 

$

32,736

 

 

$

45,225

 

 

$

2,740

 

 

$

123,263

 

 

$

164,428

 

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

 

51,191

 

 

52,917

 

 

63,961

 

 

208,706

 

 

230,526

 

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

 

7,835

 

 

8,241

 

 

4,653

 

 

39,315

 

 

35,620

 

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

 

26,063

 

 

19,142

 

 

76,750

 

 

94,238

 

 

136,749

 

Non-GAAP operating income [ii]

 

$

117,825

 

 

$

125,525

 

 

$

148,104

 

 

$

465,522

 

 

$

567,323

 

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

 

$

85,089

 

 

$

80,300

 

 

$

145,364

 

 

$

342,259

 

 

$

402,895

 

GAAP operating margin (GAAP operating income / revenue)

 

5.9

%

 

7.9

%

 

0.5

%

 

5.6

%

 

6.6

%

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

 

21.1

%

 

21.8

%

 

24.5

%

 

21.1

%

 

22.8

%

Table H: Non-GAAP pre-tax profit

 

Three Months Ended

 

Twelve Months Ended

 

 

Q4'19

 

Q3'19

 

Q4'18

 

Q4'19

 

Q4'18

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

 

$

24,327

 

 

$

30,303

 

 

$

(17,749

)

 

$

78,686

 

 

$

96,583

 

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

 

1,477

 

 

(1,383

)

 

(46,497

)

 

(35,901

)

 

(57,370

)

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

 

85,089

 

 

80,300

 

 

145,364

 

 

342,259

 

 

402,895

 

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

 

(703

)

 

9,231

 

 

56,302

 

 

47,744

 

 

82,367

 

Non-GAAP pre-tax profit

 

$

110,190

 

 

$

118,451

 

 

$

137,420

 

 

$

432,788

 

 

$

524,475

 

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

 

4.3

%

 

5.3

%

 

(2.9

)%

 

3.6

%

 

3.9

%

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

 

19.7

%

 

20.6

%

 

22.7

%

 

19.6

%

 

21.1

%

1.

The three months ended Q4'18 includes $41.5 million, and the twelve months ended Q4'19 and Q4'18 include $29.5 million and $41.5 million, respectively, of impairment charge recorded for the investment in Deca Technologies Inc.

Table I: Non-GAAP income tax expense

 

Three Months Ended

 

Twelve Months Ended

 

 

Q4'19

 

Q3'19

 

Q4'18

 

Q4'19

 

Q4'18

GAAP income tax (benefit) provision [i]

 

$

 

5,044

 

 

$

 

16,247

 

 

$

 

(331,447

)

 

$

 

2,372

 

 

$

 

(315,618

)

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

 

 

 

 

 

 

 

 

 

 

[a] Stock-based compensation

 

 

6,345

 

 

 

5,227

 

 

 

4,075

 

 

 

22,256

 

 

 

20,152

 

[b] Changes in value of deferred compensation plan

 

 

12

 

 

 

32

 

 

 

(36

)

 

 

221

 

 

 

153

 

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

 

 

(310

)

 

 

290

 

 

 

9,764

 

 

 

7,539

 

 

 

12,047

 

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

 

 

636

 

 

 

651

 

 

 

892

 

 

 

2,682

 

 

 

3,964

 

[e] Amortization of debt issuance costs

 

 

104

 

 

 

131

 

 

—

 

 

 

625

 

 

 

225

 

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

 

 

10,793

 

 

 

10,793

 

 

 

11,202

 

 

 

43,452

 

 

 

45,696

 

[g] Restructuring and other charges

 

 

(105

)

 

 

82

 

 

 

318

 

 

 

618

 

 

 

3,537

 

[h] Other (income) and expenses

 

—

 

 

 

6

 

 

—

 

 

 

165

 

 

—

 

[i] Loss on extinguishment of debt

 

—

 

 

 

1,344

 

 

 

16,084

 

 

 

1,344

 

 

 

16,768

 

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

 

 

(25

)

 

 

(396

)

 

—

 

 

 

321

 

 

—

 

[k] Merger, integration, related costs and adjustments related to assets held for sale

 

—

 

 

—

 

 

 

57

 

 

—

 

 

 

57

 

[l] Settlement charges

 

—

 

 

—

 

 

 

(6

)

 

—

 

 

 

(6

)

[m] Gain on sale of cost method investment

 

—

 

 

—

 

 

—

 

 

—

 

 

 

(319

)

[n] Merger-related expenses

 

 

273

 

 

 

639

 

 

—

 

 

 

2,678

 

 

—

 

[2] Uncertain tax positions

 

 

1,027

 

 

 

(6,675

)

 

 

(3,945

)

 

 

(2,730

)

 

 

(8,815

)

[3] Valuation allowance release, utilization of NOLs including excess tax benefits, and others**

 

 

(21,998

)

 

 

(25,704

)

 

 

299,385

 

 

 

(72,271

)

 

 

237,420

 

Non-GAAP income tax expense [ii]*

 

$

 

1,796

 

 

$

 

2,667

 

 

$

 

6,343

 

 

$

 

9,272

 

 

$

 

15,261

 

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

 

$

 

3,248

 

 

$

 

13,580

 

 

$

 

(337,790

)

 

$

 

(6,900

)

 

$

 

(330,879

)

 

*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

 

Twelve Months Ended

 

 

Q4'19

 

Q3'19

 

Q4'18

 

Q4'19

 

Q4'18

GAAP net income attributable to Cypress

 

$

 

20,760

 

 

$

 

12,683

 

 

$

 

267,114

 

 

$

 

40,428

 

 

$

 

354,592

 

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

 

 

85,089

 

 

 

80,300

 

 

 

145,364

 

 

 

342,259

 

 

 

402,895

 

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

 

 

(703

)

 

 

9,231

 

 

 

56,302

 

 

 

47,744

 

 

 

82,367

 

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

 

 

3,248

 

 

 

13,580

 

 

 

(337,790

)

 

 

(6,900

)

 

 

(330,879

)

Non-GAAP net income

 

$

 

108,394

 

 

$

 

115,794

 

 

$

 

130,990

 

 

$

 

423,531

 

 

$

 

508,975

 

Table K: Weighted-average shares, diluted

 

Three Months Ended

 

 

Q4'19

 

Q3'19

 

Q4'18

 

 

GAAP

 

Non-GAAP

 

GAAP

 

Non-GAAP

 

GAAP

 

Non-GAAP

Weighted-average common shares outstanding, basic

 

370,846

 

 

370,846

 

 

369,241

 

 

369,241

 

 

361,616

 

 

361,616

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

Stock options, unvested restricted stock and other

 

8,503

 

 

11,361

 

 

7,862

 

 

11,704

 

 

6,482

 

 

11,709

 

Convertible notes

 

11,603

 

 

9,982

 

 

11,140

 

 

9,480

 

 

1,540

 

 

1,540

 

Weighted-average common shares outstanding, diluted

 

390,952

 

 

392,189

 

 

388,243

 

 

390,425

 

 

369,638

 

 

374,865

 

Table L: Weighted-average shares, diluted

 

Twelve Months Ended

 

 

Q4'19

 

Q4'18

 

 

GAAP

 

Non-GAAP

 

GAAP

 

Non-GAAP

Weighted-average common shares outstanding, basic

 

367,308

 

 

367,308

 

 

359,324

 

 

359,324

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

Stock options, unvested restricted stock and other

 

8,724

 

 

12,995

 

 

7,754

 

 

13,319

 

Convertible notes

 

8,638

 

 

6,716

 

 

5,100

 

 

2,705

 

Weighted-average common shares outstanding, diluted

 

384,670

 

 

387,019

 

 

372,178

 

 

375,348

 

Table M: Earnings per share

 

Three Months Ended

 

 

Q4'19

 

Q3'19

 

Q4'18

 

 

GAAP

 

Non-GAAP

 

GAAP

 

Non-GAAP

 

GAAP

 

Non-GAAP

Net income (see Table J) [i]

 

$

 

20,760

 

 

$

 

108,394

 

 

$

 

12,683

 

 

$

 

115,794

 

 

$

 

267,114

 

 

$

 

130,990

 

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

 

 

390,952

 

 

 

392,189

 

 

 

388,243

 

 

 

390,425

 

 

 

369,638

 

 

 

374,865

 

Earnings per share - diluted [i/ii]

 

$

 

0.05

 

 

$

 

0.28

 

 

$

 

0.03

 

 

$

 

0.30

 

 

$

 

0.72

 

 

$

 

0.35

 

Table N: Earnings per share

 

Twelve Months Ended

 

 

Q4'19

 

Q4'18

 

 

GAAP

 

Non-GAAP

 

GAAP

 

Non-GAAP

Net income (see Table J) [i]

 

$

 

40,428

 

 

$

 

423,531

 

 

$

 

354,592

 

 

$

 

508,975

 

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

 

 

384,670

 

 

 

387,019

 

 

 

372,178

 

 

 

375,348

 

Earnings per share - diluted [i/ii]

 

$

 

0.11

 

 

$

 

1.09

 

 

$

 

0.95

 

 

$

 

1.36

 

Table O: Adjusted EBITDA

 

Three Months Ended

 

Twelve Months Ended

 

 

Q4'19

 

Q3'19

 

Q4'18

 

Q4'19

 

Q4'18

GAAP net income attributable to Cypress

 

$

 

20,760

 

 

$

 

12,683

 

 

$

 

267,114

 

 

$

 

40,428

 

 

$

 

354,592

 

Interest and other expense, net

 

 

(8,409

)

 

 

(14,922

)

 

 

(20,489

)

 

 

(44,577

)

 

 

(67,845

)

Income tax benefit (provision)

 

 

(5,044

)

 

 

(16,247

)

 

 

331,447

 

 

 

(2,372

)

 

 

315,618

 

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

 

 

1,477

 

 

 

(1,383

)

 

 

(46,497

)

 

 

(35,901

)

 

 

(57,370

)

Net gain (loss) attributable to non-controlling interests

 

—

 

 

 

10

 

 

 

(87

)

 

 

15

 

 

 

(239

)

GAAP operating income

 

$

 

32,736

 

 

$

 

45,225

 

 

$

 

2,740

 

 

$

 

123,263

 

 

$

 

164,428

 

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

 

 

85,089

 

 

 

80,300

 

 

 

145,364

 

 

 

342,259

 

 

 

402,895

 

Non-GAAP operating income

 

$

 

117,825

 

 

$

 

125,525

 

 

$

 

148,104

 

 

$

 

465,522

 

 

$

 

567,323

 

Depreciation

 

 

19,282

 

 

 

19,060

 

 

 

16,527

 

 

 

77,248

 

 

 

66,299

 

Adjusted EBITDA

 

$

 

137,107

 

 

$

 

144,585

 

 

$

 

164,631

 

 

$

 

542,770

 

 

$

 

633,622

 

1.

The three months ended Q4'18 includes $41.5 million, and the twelve months ended Q4'19 and Q4'18 include $29.5 million and $41.5 million, respectively, of impairment charge recorded for the investment in Deca Technologies Inc.

Table P: Free cash flow

 

Three Months Ended

 

Twelve Months Ended

 

 

Q4'19

 

Q3'19

 

Q4'18

 

Q4'19

 

Q4'18

GAAP net cash provided by operating activities

 

$

 

234,246

 

 

$

 

64,497

 

 

$

 

142,215

 

 

$

 

478,915

 

 

$

 

471,700

 

Acquisition of property, plant and equipment, net

 

 

(12,063

)

 

 

(10,599

)

 

 

(5,069

)

 

 

(40,686

)

 

 

(63,130

)

Free cash flow

 

$

 

222,183

 

 

$

 

53,898

 

 

$

 

137,146

 

 

$

 

438,229

 

 

$

 

408,570

 

CYPRESS SEMICONDUCTOR CORPORATION

SUPPLEMENTAL FINANCIAL DATA

(In thousands except financial ratios and per-share amounts)

(Unaudited)

 

 

 

Three Months Ended

 

Twelve Months Ended

 

 

December 29, 2019

 

September 29, 2019

 

December 30, 2018

 

December 29, 2019

 

December 30, 2018

Selected Cash Flow Data (Preliminary):

 

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

234,246

 

 

$

64,497

 

 

$

142,215

 

 

$

478,915

 

 

$

471,700

 

Net cash used in investing activities

 

$

(14,058

)

 

$

(2,056

)

 

$

(5,988

)

 

$

(27,311

)

 

$

(49,690

)

Net cash used in financing activities

 

$

(147,754

)

 

$

(91,594

)

 

$

(55,252

)

 

$

(321,862

)

 

$

(287,886

)

Other Supplemental Data (Preliminary):

 

 

 

 

 

 

 

 

 

 

Capital expenditures, net

 

$

12,063

 

 

$

10,599

 

 

$

5,069

 

 

$

40,686

 

 

$

63,130

 

Depreciation

 

$

19,282

 

 

$

19,060

 

 

$

16,527

 

 

$

77,248

 

 

$

66,299

 

Payment of dividend

 

$

40,679

 

 

$

40,289

 

 

$

39,772

 

 

$

160,850

 

 

$

157,364

 

Dividend paid per share

 

$

0.11

 

 

$

0.11

 

 

$

0.11

 

 

$

0.44

 

 

$

0.44

 

Total debt (principal amount)

 

$

758,632

 

 

$

856,102

 

 

$

935,838

 

 

$

758,632

 

 

$

935,838

 

Net leverage ratio¹

 

0.63

 

 

0.90

 

 

1.03

 

 

0.63

 

 

1.03

 

Cash Income Tax

 

$

1,796

 

 

$

2,667

 

 

$

6,343

 

 

$

9,272

 

 

$

15,261

 

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

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20200130005810/en/

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

David Szabados Senior Public Relations Manager (408) 544-1473