Cypress Semiconductor Corporation
Apr 27, 2017

Cypress Reports First Quarter 2017 Results

- Revenue was $531.9 million, exceeding guidance
- GAAP and non-GAAP margin were 37.4% and 39.3%, respectively
- GAAP and non-GAAP EPS increased 56% and 86% year-over-year respectively
- Divested Minnesota fab to align resources with Cypress 3.0 strategy
- Wireless connectivity solutions increased revenue by 30% over fourth quarter of 2016

SAN JOSE, Calif., April 27, 2017 /PRNewswire/ -- Cypress Semiconductor Corporation (NASDAQ: CY) today announced its first quarter 2017 results.

"Cypress delivered record revenue1 in the first quarter that exceeded the high end of our guidance range," said Hassane El-Khoury, Cypress President and Chief Executive Officer. "We saw above seasonal growth in our Microcontroller and Connectivity Division and strength in our memory products which exceeded our expectations. Our wireless connectivity grew 30% from the fourth quarter of 2016 and Automotive revenue hit a new quarterly record. These results highlight the strong demand for our expanding portfolio of embedded systems solutions and the continued success of our Cypress 3.0 strategy to target markets growing faster than the overall semiconductor industry.

"The sale of our Minnesota fab earlier in the quarter will enable us to sharpen our focus on core businesses in line with our financial model and gross margin improvement plan," El-Khoury added.

1.

Core Cypress revenue excluding SunPower Corp.

Revenue and earnings for the quarter are given below, compared with those of the prior quarter:

(In thousands, except per-share data)




GAAP



NON-GAAP1



Q1 2017


Q4 2016



Q1 2017


Q4 2016

Revenue


$

531,874



$

530,172




$

531,874



$

530,172


Margin


37.4%



38.1%




39.3%



40.1%


Pretax profit margin


(7.7)%



(13.5)%




9.2%



10.8%


Net income (loss)


$

(45,782)



$

(72,367)




$

45,887



$

53,823


Diluted EPS (loss)


$

(0.14)



$

(0.22)




$

0.13



$

0.15




1.

See "Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures" tables ("Non-GAAP Results" tables) included below.

BUSINESS REVIEW

+ At the Embedded World trade show in March, Cypress introduced key additions to its Internet of Things (IoT) solutions portfolio. Cypress' new PSoC® 6 microcontroller (MCU) architecture delivers the industry's lowest power and most flexible solution, with integrated security features required for next-generation, battery-powered, secure IoT devices. Cypress' two new wireless solutions offer advanced coexistence and robust connectivity combining 802.11ac high-performance Wi-Fi®, Bluetooth® and Bluetooth Low Energy (BLE) for IoT applications.

+ Continental selected Cypress' Traveo™ II automotive MCUs for its next-generation body electronics platform, marking the Company's entrance into a new segment in the automotive market.

+ GAAP and non-GAAP margins for the first quarter of 2017 were 37.4% and 39.3%, respectively, above the midpoint of guidance and in line with the Company's margin-enhancing initiatives.

+ Cypress paid a dividend of $36.2 million, or $0.11 per share, to holders of record of the Company's common stock as of the close of business on March 30, 2017. The dividend was equivalent to a 3.2% annualized yield as of March 31, 2017.

REVENUE SUMMARY

(In thousands, except percentages)

(Unaudited)



Three Months Ended


(GAAP)


(Non-GAAP)2


April 2,

2017


January 1,
2017


Sequential
Change


April 2,

2017


January 1,
2017


Sequential
Change

Business Unit












MCD1

$

317,901



$

294,893



8%



$

317,901



$

294,893



8%


MPD

213,973



235,279



(9)%



213,973



235,279



(9)%


Total

$

531,874



$

530,172



0%



$

531,874



$

530,172



0%














Geographic












China & ROW

55%



57%



(4)%



55%



57

%


(4)%


Americas

11%



11%



0%



11%



11

%


0%


Europe

13%



11%



18%



13%



11

%


18%


Japan

21%



21%



0%



21%



21

%


0%


Total

100%



100%



0%



100%



100

%


0%














Channel












Distribution

71%



74%



(4)%



71%



74

%


(4)%


Direct

29%



26%



12%



29%



26

%


12%


Total

100%



100%



0%



100%



100

%


0%




1.

Historical results of MCD include Deca Technologies.

2.

See Non-GAAP Results tables included below.

 

SECOND QUARTER 2017 FINANCIAL OUTLOOK

For the second quarter of 2017, Cypress estimates financial results as follows:






GAAP

Non-GAAP

Revenue

$530 million to $560 million

Margin %

38.5% to 39.5%

40.0% to 41.0%

Diluted EPS

$(0.13) to $(0.09)

$0.14 to $0.18

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 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. Accordingly, Cypress cannot provide a full quantitative reconciliation for such non-GAAP financial measures included as part of the second quarter 2017 financial outlook to the most directly comparable GAAP measure without unreasonable effort and additional adjustments may be reflected in our non-GAAP results for the second quarter of 2017. Cypress has qualitatively described below, under the section "Non-GAAP Financial Measures," the anticipated differences between the non-GAAP financial measures and the most directly comparable GAAP measures.

CONFERENCE CALL AND WEBCAST INFORMATION

Cypress will host its quarterly conference call on April 27, 2017 at 1:30 p.m. Pacific Daylight Time to discuss its first quarter 2017 results and provide an outlook for the second quarter of 2017.

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

FOLLOW CYPRESS ONLINE

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

ABOUT CYPRESS

Cypress is a leader in advanced embedded system solutions for the world's most innovative automotive, industrial, home automation and appliances, consumer electronics and medical products. Cypress' programmable systems-on-chip, general-purpose 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 support and engineering resources that enable innovators and out-of-the-box thinkers to disrupt markets and create 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.

  • Revenue;
  • Margin;
  • Margin %;
  • Research and development expenses;
  • Selling, general and administrative expenses;
  • Provision (benefit) for income taxes;
  • Pretax profit margin %;
  • Operating income (loss);
  • Net income (loss); and
  • Diluted earnings (loss) per share.

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.

Share-based compensation expense: Share-based compensation expense relates primarily to employee stock options, restricted stock units, performance stock units and the employee stock purchase plan. Share-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 share-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 share-based compensation expense is that they do not reflect the full costs of compensating employees.

Other adjustments: These items are excluded from non-GAAP financial measures because they are not 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 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,
  • Debt issuance costs, including imputed interest related to the equity component of convertible debt,
  • Asset impairments,
  • Tax effects of non-GAAP adjustments,
  • 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 exclude the benefits related to share-based compensation expense.

FORWARD-LOOKING STATEMENTS

Statements herein that are not historical facts and that refer to Cypress or its subsidiaries' plans and expectations for the future are forward-looking statements made pursuant to the Private Securities Litigation Reform Act of 1995. We may use words such as "may," "should," "expect," "plan," "intend," "anticipate," "believe," "estimate," "predict," "potential," "future," "continue" or other wording indicating future results or expectations to identify such forward-looking statements that include, but are not limited to: statements related to our estimated non-GAAP revenue, non-GAAP margin, non-GAAP operating expenses, non-GAAP EPS, net interest expense, tax expense, capital expenditures and depreciation for the second quarter of fiscal 2017; the expected benefits of our acquisition of Broadcom's wireless IoT business, including revenue growth and margin improvement; sources of revenue for the second quarter; the expected impact of our lean inventory initiative on fab utilization, inventory levels, cash flow, pricing and profitability; estimates of certain GAAP to non-GAAP reconciling items for the second quarter; the demand environment for semiconductors; the expected impact of our margin improvement plan; the impact of seasonality on revenue; cross-selling opportunities in the automotive business; our ability to meet our targeted range of inventory; the expected synergies related to our merger with Spansion; expected or anticipated uses of cash flow, including to pay dividends, repurchase shares of common stock, or pay down our existing indebtedness; and plans to reduce excess inventory. Such statements reflect our current expectations, which are based on information and data available to our management as of the date of this press release. Our actual results may differ materially due to a variety of risks and uncertainties, including, but not limited to:  global economic and market conditions; business conditions and growth trends in the semiconductor market; our ability to compete effectively; the volatility in supply and demand conditions 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; the impact of acquisitions, including but not limited to the continuing integration of Spansion and the recent acquisition of Broadcom's wireless IoT business; 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" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections in our most recent Annual Report on Form 10-K and our other filings with the Securities and Exchange Commission. We assume no responsibility to update any such forward-looking statements.

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

 

CYPRESS SEMICONDUCTOR CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)




April 2, 2017


January 1, 2017






ASSETS





Cash, cash equivalents and short-term investments


$

122,472



$

121,144


Accounts receivable, net


317,276



333,037


Inventories


324,978



287,776


Property, plant and equipment, net


293,055



297,266


Goodwill and other intangible assets, net


2,295,074



2,344,033


Other assets


454,052



488,615


Total assets


$

3,806,907



$

3,871,871


LIABILITIES AND EQUITY





Accounts payable


$

265,524



$

241,424


Income tax liabilities


51,571



49,552


Revenue reserves, deferred margin and other liabilities


458,816



493,164


Revolving credit facility and long-term debt


1,171,706



1,194,979


Total liabilities


1,947,617



1,979,119


Total Cypress stockholders' equity


1,858,302



1,891,828


Non-controlling interest


988



924


Total equity


1,859,290



1,892,752


Total liabilities and equity


$

3,806,907



$

3,871,871


 

CYPRESS SEMICONDUCTOR CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

ON A GAAP BASIS

(In thousands, except per-share data)

(Unaudited)



Three Months Ended


April 2, 2017


January 1, 2017

Revenues

$

531,874



$

530,172


Costs and expenses:




Cost of revenues

332,814



328,220


Research and development

88,481



92,188


Selling, general and administrative

76,114



76,839


Amortization of intangible assets

48,249



52,104


Restructuring costs

2,572



17,237


Impairment related to assets held for sale



1,960


Total costs and expenses

548,230



568,548


Operating loss

(16,356)



(38,376)


Interest and other expense, net

(19,359)



(24,389)


Loss before income taxes and non-controlling interest

(35,715)



(62,765)


Income tax provision

(4,927)



(790)


Equity in net loss of equity method investees

(5,076)



(8,766)


Net loss

(45,718)



(72,321)


Net gain attributable to non-controlling interests

(64)



(46)


Net loss attributable to Cypress

$

(45,782)



$

(72,367)


Net loss per share attributable to Cypress:




Basic

$

(0.14)



$

(0.22)


Diluted

$

(0.14)



$

(0.22)


Cash dividend declared per share

$

0.11



$

0.11


Shares used in net loss per share calculation:




Basic

326,964



322,800


Diluted

326,964



322,800


 

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 Q1 2017)








Cost of
revenues


Research and
development


SG&A and
Restructuring
costs


Amortization of
Intangible assets


Interest and other
expense, net


Income tax
(provision)
benefit

GAAP [i]


$

332,814



$

88,481



$

78,686



$

48,249



$

(24,435)



$

(4,927)


[1] Stock based compensation


5,331



11,771



8,835








[2] Changes in value of deferred compensation plan


166



597



1,008





(1,558)




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


1,350





(1,479)








[4] Inventory Step-up related to acquisition accounting


2,864












[5] Losses from equity method investments










5,076




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










3,489




[7] Amortization of debt issuance costs










858




[8] Amortization of  Intangible assets








48,249






[9] Restructuring costs






2,572








[10] Tax impact










415



2,125


Non - GAAP [ii]


$

323,103



$

76,113



$

67,750



$



$

(16,155)



$

(2,802)


Impact of reconciling items [ii - i]


$

(9,711)



$

(12,368)



$

(10,936)



$

(48,249)



$

8,280



$

2,125


 

Table B: GAAP to Non-GAAP reconciling items (Three Months Ended Q4 2016)







Cost of
revenues


Research
and
development


SG&A


Amortization of
Intangible
assets


Impairment
related to
assets held for
sale


Interest
and other
expense,
net


Income
tax
provision

GAAP [i]


$

328,220



$

92,188



$

94,076



$

52,104



$

1,960



$

(33,155)



$

(790)


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


6,589



16,687



12,292










[2] Changes in value of deferred compensation plan


42



147



292







(641)




[3] Merger, integration and related costs


2,614



476



5,136










[4] Inventory Step-up related to acquisition accounting


1,381














[5] Losses from equity method investments












8,766




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












3,482




[7] Amortization of debt issuance costs












976




[8] Amortization of  Intangible assets








52,104








[9] Impairment related to assets held for sale










1,960






[10] Restructuring costs, including executive severance






17,237










[11] Tax impact of Non-GAAP adjustments












(908)



(2,442)


Non - GAAP [ii]


$

317,594



$

74,878



$

59,119



$



$



$

(21,480)



$

(3,232)


Impact of reconciling items [ii - i]


$

(10,626)



$

(17,310)



$

(34,957)



$

(52,104)



$

(1,960)



$

11,675



$

(2,442)


 

Table C: Margin %











Q1'17


Q4'16



GAAP


Non-GAAP


GAAP


Non-GAAP

Revenue [i]


$

531,874



$

531,874



$

530,172



$

530,172


Cost of revenues (See Table A, B) [ii]


332,814



323,103



328,220



317,594


Margin [iii] [ii - i]


$

199,061



$

208,771



$

201,952



$

212,578


Margin % [iii / i]


37.4

%


39.3

%


38.1

%


40.1

%

 

Table D: Operating income (loss)







Q1'17


Q4'16

GAAP operating loss [i]


$

(16,356)



$

(38,376)


Impact of reconciling items on Cost of revenues (see Table A, B)


9,711



10,626


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


12,368



17,310


Impact of reconciling items on SG&A (see Table A, B)


10,936



34,957


Impact of Amortization of Intangible Assets (see Table A, B)


48,249



52,104


Impact of Impairment related to assets held for sale (see Table B)




1,960


Non-GAAP operating income [ii]


$

64,908



$

78,581


Impact of reconciling items [ii - i]


$

81,264



$

116,957


 

Table E: Pre-tax profit







Q1'17


Q4'16

GAAP Pre-tax profit


$

(40,791)



$

(71,531)


Impact of reconciling items on Operating income (see Table D)


81,264



116,957


Interest and other expense, net (see Table A,B)


8,280



11,675


Non-GAAP Pre-tax  income


$

48,753



$

57,101


 

Table F: Net income (loss)







Q1'17


Q4'16

GAAP Net loss


$

(45,782)



$

(72,367)


Impact of reconciling items on Operating income (see Table D)


81,264



116,957


Interest and other expense, net (see Table A, B)


8,280



11,675


Income tax benefit (provision) (see Table A,B)


2,125



(2,442)


Non-GAAP Net income


$

45,887



$

53,823


 

Table G: Pretax profit margin %











Q1'17


Q4'16



GAAP


Non-GAAP


GAAP


Non-GAAP

Revenue [i]


$

531,874



$

531,874



$

530,172



$

530,172


Pre-tax profit (see Table E)  [ii]


$

(40,791)



$

48,753



$

(71,531)



$

57,101


Pre-tax profit margin % [ii / i]


(7.7)

%


9.2

%


(13.5)

%


10.8

%

 

Table H: Weighted-average shares, diluted











Q1'17


Q4'16



GAAP


Non-GAAP


GAAP


Non-GAAP

Weighted-average common shares outstanding, basic


326,964



326,964



322,800



322,800


Effect of dilutive securities:









Stock options, unvested restricted stock and other




14,852





17,199


Impact of convertible bond




17,304





15,138


Weighted-average common shares outstanding, diluted


326,964



359,120



322,800



355,137


 

Table I: Net income (loss) Per Share











Q1'17


Q4'16



GAAP


Non-GAAP


GAAP


Non-GAAP

Net income (loss) (see Table F)


$

(45,782)



$

45,887



$

(72,367)



$

53,823


Weighted-average common shares outstanding (see Table I) [ii]


326,964



359,120



322,800



355,137


Non-GAAP earnings per share - Diluted [i/ii]


$

(0.14)



$

0.13



$

(0.22)



$

0.15


 

CYPRESS SEMICONDUCTOR CORPORATION

SUPPLEMENTAL FINANCIAL DATA

(In thousands)

(Unaudited)









Three Months Ended



April 2, 2017


January 1, 2017

Selected Cash Flow Data (Preliminary):





Net cash provided by operating activities


$

25,721



$

89,787


Net cash provided by (used in) investing activities


$

21,650



$

(19,008)


Net cash used in financing activities


$

(46,043)



$

(37,262)


Other Supplemental Data (Preliminary):





Capital expenditures


$

13,772



$

11,889


Depreciation


$

16,157



$

16,057


Payment of dividend


$

35,537



$

35,350


Dividend paid per share


$

0.11



$

0.11


 

CYPRESS SEMICONDUCTOR CORPORATION

RECONCILIATION OF GAAP FORWARDING LOOKING ESTIMATES TO NON-GAAP FORWARD LOOKING ESTIMATES











Forward looking
GAAP estimate
(A)


Adjustments (B)


Forward looking
Non-GAAP
estimate
(C)=(A)+(B)





Amortization of
intangibles


Share-based compensation expense


Restructuring


Other
items



Margin %


 38.5% - 39.5%


%


1.0

%


%


0.5

%


40.0% - 41.0%

Diluted earnings per share


 $(0.13) to $(0.09)


$

0.15



$

0.08



$

0.01



$

0.03



 $0.14 to $0.18






















 

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SOURCE Cypress Semiconductor Corp.

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