Cypress Reports Third Quarter 2019 Results and Provides Update on Regulatory Approvals

Cypress Semiconductor Corporation (NASDAQ: CY), today announced its third quarter 2019 results with the following highlights:

  • $574.5 million in revenue, up 7.9% sequentially, and down 8.8% year-over-year after adjusting for the divestiture of our NAND business, which was completed on April 1, 2019
  • GAAP and Non-GAAP gross margins were 37.7% and 46.9%, respectively
  • GAAP and Non-GAAP operating margins were 7.9% and 21.8%, respectively
  • GAAP and Non-GAAP diluted EPS were $0.03 and $0.30, respectively

"Cypress had a solid third quarter with strong demand in our MCD division, where revenue was up 16% sequentially driven by IoT growth, particularly in our wireless, USB-C, and PSoC product families," said Hassane El-Khoury, Cypress’ president and chief executive officer. "Our Cypress 3.0 strategy remains on track as we deliver consistently strong operating margins, even in a soft market environment."

On October 16, 2019, the European Commission cleared the proposed acquisition of Cypress by Infineon Technologies AG ("Infineon") without any conditions. The proposed transaction previously received antitrust clearances in the Philippines and South Korea. As announced on June 3, 2019, 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 percentages and per-share data)

GAAP

Non-GAAP1

Q3 2019

Q2 2019

Q3 2018

Q3 2019

Q2 2019

Q3 2018

Revenue

$

574,521

$

532,221

$

673,035

$

574,521

$

532,221

$

673,035

Gross margin

37.7

%

37.3

%

38.6

%

46.9

%

47.0

%

47.0

%

Operating margin

7.9

%

2.5

%

11.2

%

21.8

%

20.4

%

24.7

%

Net income (loss)

$

12,683

$

(12,729

)

$

50,695

$

115,794

$

97,241

$

152,725

Diluted EPS

$

0.03

$

(0.03

)

$

0.14

$

0.30

$

0.25

$

0.40

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

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

GAAP

Non-GAAP1

Nine Months Ended

Nine Months Ended

Q3 2019

Q3 2018

Q3 2019

Q3 2018

Revenue

$

1,645,746

$

1,879,366

$

1,645,746

$

1,879,366

Gross margin

37.5

%

37.6

%

47.1

%

46.4

%

Operating margin

5.5

%

8.6

%

21.1

%

22.3

%

Net income

$

19,668

$

87,478

$

315,138

$

377,984

Diluted EPS

$

0.05

$

0.23

$

0.82

$

1.01

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

Business Unit¹

September 29,
2019

June 30, 2019

September 30,
2018

Sequential
Change

Year-over-year
Change

MCD

$

410,748

$

354,225

$

413,413

16.0

%

(0.6

)%

MPD2

163,773

177,996

259,622

(8.0

)%

(36.9

)%

Total

$

574,521

$

532,221

$

673,035

7.9

%

(14.6

)%

Three Months Ended

End Use

September 29, 2019

June 30, 2019

September 30, 2018

IoT

42.6

%

37.5

%

37.4

%

Automotive

36.5

%

38.0

%

31.0

%

Legacy

20.9

%

24.5

%

31.6

%

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 September 29, 2019 and June 30, 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 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 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; 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 of Cypress Semiconductor Corporation. All other trademarks are property of their owners.

CYPRESS SEMICONDUCTOR CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

September 29, 2019

December 30, 2018

ASSETS

Cash and cash equivalents

$

343,027

$

285,720

Accounts receivable, net

389,896

324,274

Inventories

327,392

292,093

Assets held for sale

13,510

Property, plant and equipment, net

262,955

282,986

Goodwill and other intangible assets, net

1,708,676

1,864,340

Other assets

628,045

630,292

Total assets

$

3,659,991

$

3,693,215

LIABILITIES AND EQUITY

Accounts payable

$

181,704

$

210,715

Income tax liabilities

55,228

53,469

Revenue reserves, deferred margin and other liabilities

503,801

430,814

Current portion of long-term debt

63,518

6,943

Revolving credit facility and long-term debt

756,853

874,235

Total liabilities

1,561,104

1,576,176

Total Cypress stockholders' equity

2,098,887

2,115,734

Non-controlling interest

1,305

Total equity

2,098,887

2,117,039

Total liabilities and equity

$

3,659,991

$

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

Nine Months Ended

September 29,
2019

June 30,
2019

September 30,
2018

September 29,
2019

September 30,
2018

Revenues

$

574,521

$

532,221

$

673,035

$

1,645,746

$

1,879,366

Cost of revenue

358,080

333,463

413,320

1,028,138

1,173,121

Gross profit

216,441

198,758

259,715

617,608

706,245

Research and development

89,253

93,639

91,691

271,498

281,617

Selling, general and administrative

81,963

91,633

92,943

255,583

262,940

Total operating expenses

171,216

185,272

184,634

527,081

544,557

Operating income

45,225

13,486

75,081

90,527

161,688

Interest and other expense, net

(14,922

)

(12,003

)

(15,059

)

(36,168

)

(47,356

)

Income before income taxes, share in gain/loss, net and impairment of equity method investees and non-controlling interest

30,303

1,483

60,022

54,359

114,332

Income tax (provision) benefit

(16,247

)

18,189

(5,618

)

2,672

(15,829

)

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

(1,383

)

(32,405

)

(3,657

)

(37,378

)

(10,873

)

Net income (loss)

12,673

(12,733

)

50,747

19,653

87,630

Net loss (income) attributable to non-controlling interest

10

4

(52

)

15

(152

)

Net income (loss) attributable to Cypress

$

12,683

$

(12,729

)

$

50,695

$

19,668

$

87,478

Net income (loss) per share attributable to Cypress:

Basic

$

0.03

$

(0.03

)

$

0.14

$

0.05

$

0.24

Diluted

$

0.03

$

(0.03

)

$

0.14

$

0.05

$

0.23

Cash dividend declared per share

$

0.11

$

0.11

$

0.11

$

0.33

$

0.33

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

Basic

369,241

365,600

361,631

366,444

358,560

Diluted

388,243

365,600

374,266

381,633

373,064

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 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 B: 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 gain/loss, net 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 C: GAAP to non-GAAP reconciling items: Three Months Ended Q3 2018

Cost of revenues

Research and
development

Selling, general
and
administrative

Interest and other
expense, net

GAAP [i]

$

413,320

$

91,691

$

92,943

$

(18,716

)

[1] Stock-based compensation

5,120

8,206

10,869

[2] Changes in value of deferred compensation plan

136

667

768

(1,108

)

[3] Share in gain/ loss, net of equity method investee

3,657

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

6,782

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

51,565

4,310

[6] Acquisition costs

119

[7] Restructuring charges

(340

)

516

9,815

[8] Litigation settlement and other

(605

)

(1,286

)

Non - GAAP [ii]

$

356,839

$

82,302

$

67,667

$

(10,671

)

Impact of reconciling items [ii - i]

$

(56,481

)

$

(9,389

)

$

(25,276

)

$

8,045

Table D: GAAP to non-GAAP reconciling items: Nine Months Ended Q3 2019

Cost of revenues

Research and
development

Selling, general
and
administrative

Interest and other
expense, net

GAAP [i]

$

1,028,138

$

271,498

$

255,583

$

(73,546

)

[1] Stock-based compensation

11,408

26,692

37,666

[2] Changes in value of deferred compensation plan

594

2,798

2,849

(5,242

)

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

2,017

1,515

(1,887

)

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

37,378

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

9,745

[6] Amortization of debt issuance costs

2,484

[7] Loss on extinguishment of debt

6,402

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

142,594

12,924

[9] Restructuring charges and other

901

1,653

908

[10] Merger-related expenses

11,452

[11] Other income and expenses

338

861

(432

)

Non - GAAP [ii]

$

870,624

$

240,017

$

187,408

$

(25,098

)

Impact of reconciling items [ii - i]

$

(157,514

)

$

(31,481

)

$

(68,175

)

$

48,448

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

Table E: GAAP to non-GAAP reconciling items: Nine Months Ended Q3 2018

Cost of revenues

Research and
development

Selling, general
and
administrative

Interest and other
expense, net

GAAP [i]

$

1,173,121

$

281,617

$

262,940

$

(58,229

)

[1] Stock-based compensation

12,689

28,720

35,152

[2] Changes in value of deferred compensation plan

299

1,406

1,690

(2,497

)

[3] Equity in gain/loss, net of equity method investee

10,873

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

14,628

[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

150,441

13,815

[8] Gain on sale of cost method investment

(1,521

)

[9] Acquisition costs

119

[10] Restructuring charges and other

3,136

841

11,347

[11] Litigation settlement and other

(605

)

(1,270

)

Non - GAAP [ii]

$

1,006,556

$

250,650

$

202,943

$

(32,164

)

Impact of reconciling items [ii - i]

$

(166,565

)

$

(30,967

)

$

(59,997

)

$

26,065

Table F: Non-GAAP gross profit

Three Months Ended

Nine Months Ended

Q3'19

Q2'19

Q3'18

Q3'19

Q3'18

GAAP gross profit

$

216,441

$

198,758

$

259,715

$

617,608

$

706,245

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

52,917

51,258

56,481

157,514

166,565

Non-GAAP gross profit

$

269,358

$

250,016

$

316,196

$

775,122

$

872,810

GAAP gross margin (GAAP gross profit/revenue)

37.7

%

37.3

%

38.6

%

37.5

%

37.6

%

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

46.9

%

47.0

%

47.0

%

47.1

%

46.4

%

Table G: Non-GAAP operating income

Three Months Ended

Nine Months Ended

Q3'19

Q2'19

Q3'18

Q3'19

Q3'18

GAAP operating income [i]

$

45,225

$

13,486

$

75,081

$

90,527

$

161,688

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

52,917

51,258

56,481

157,514

166,565

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

8,241

14,298

9,389

31,481

30,967

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

19,142

29,372

25,276

68,175

59,997

Non-GAAP operating income [ii]

$

125,525

$

108,414

$

166,227

$

347,697

$

419,217

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

$

80,300

$

94,928

$

91,146

$

257,170

$

257,529

GAAP operating margin (GAAP operating income / revenue)

7.9

%

2.5

%

11.2

%

5.5

%

8.6

%

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

21.8

%

20.4

%

24.7

%

21.1

%

22.3

%

Table H: Non-GAAP pre-tax profit

Three Months Ended

Nine Months Ended

Q3'19

Q2'19

Q3'18

Q3'19

Q3'18

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

$

30,303

$

1,483

$

60,022

$

54,359

$

114,332

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

(1,383

)

(32,405

)

(3,657

)

(37,378

)

(10,873

)

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

80,300

94,928

91,146

257,170

257,529

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

9,231

35,362

8,045

48,448

26,065

Non-GAAP pre-tax profit

$

118,451

$

99,368

$

155,556

$

322,599

$

387,053

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

5.3

%

0.3

%

8.9

%

3.3

%

6.1

%

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

20.6

%

18.7

%

23.1

%

19.6

%

20.6

%

1. The three months ended Q2'19 and the nine months ended Q3'19 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

Nine Months Ended

Q3'19

Q2'19

Q3'18

Q3'19

Q3'18

GAAP income tax provision [i]

$

16,247

$

(18,189

)

$

5,618

$

(2,672

)

$

15,829

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

[a] Stock-based compensation

5,227

6,401

5,081

15,911

16,078

[b] Changes in value of deferred compensation plan

32

51

97

209

189

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

290

6,805

768

7,849

2,283

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

651

688

1,424

2,046

3,072

[e] Amortization of debt issuance costs

131

195

521

225

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

10,793

10,835

11,734

32,659

34,494

[g] Restructuring charges and other

82

620

2,098

723

3,218

[h] Other (income) and expenses

6

165

[i] Loss on extinguishment of debt

1,344

1,344

684

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

(396

)

346

[k] Gain on sale of cost method investment

(319

)

[2] Merger-related expenses

639

1,766

2,405

[3] Uncertain tax positions

(6,675

)

2,621

(2,159

)

(3,757

)

(4,870

)

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

(25,704

)

(9,662

)

(21,882

)

(50,273

)

(61,966

)

Non-GAAP income tax expense [ii]*

$

2,667

$

2,131

$

2,779

$

7,476

$

8,917

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

13,580

(20,320

)

2,839

(10,148

)

6,912

*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

Nine Months Ended

Q3'19

Q2'19

Q3'18

Q3'19

Q3'18

GAAP net income (loss) attributable to Cypress

$

12,683

$

(12,729

)

$

50,695

$

19,668

$

87,478

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

80,300

94,928

91,146

257,170

257,529

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

9,231

35,362

8,045

48,448

26,065

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

13,580

(20,320

)

2,839

(10,148

)

6,912

Non-GAAP net income

$

115,794

$

97,241

$

152,725

$

315,138

$

377,984

Table K: Weighted-average shares, diluted

Three Months Ended

Q3'19

Q2'19

Q3'18

GAAP

Non-GAAP

GAAP

Non-GAAP

GAAP

Non-GAAP

Weighted-average common shares outstanding, basic

369,241

369,241

365,600

365,600

361,631

361,631

Effect of dilutive securities:

Stock options, unvested restricted stock units and other

7,862

11,704

13,937

7,096

12,468

Convertible notes

11,140

9,480

5,187

5,539

3,234

Weighted-average common shares outstanding, diluted

388,243

390,425

365,600

384,724

374,266

377,333

Table L: Weighted-average shares, diluted

Nine Months Ended

Q3'19

Q3'18

GAAP

Non-GAAP

GAAP

Non-GAAP

Weighted-average common shares outstanding, basic

366,444

366,444

358,560

358,560

Effect of dilutive securities:

Stock options, unvested restricted stock and other

7,567

12,325

8,378

13,557

Convertible notes

7,622

5,573

6,126

3,852

Weighted-average common shares outstanding, diluted

381,633

384,342

373,064

375,969

Table M: Earnings per share

Three Months Ended

Q3'19

Q2'19

Q3'18

GAAP

Non-GAAP

GAAP

Non-GAAP

GAAP

Non-GAAP

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

$

12,683

$

115,794

$

(12,729

)

$

97,241

$

50,695

$

152,725

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

388,243

390,425

365,600

384,724

374,266

377,333

Earnings (loss) per share - diluted [i/ii]

$

0.03

$

0.30

$

(0.03

)

$

0.25

$

0.14

$

0.40

Table N: Earnings per share

Nine Months Ended

Q3'19

Q3'18

GAAP

Non-GAAP

GAAP

Non-GAAP

Net income (see Table J) [i]

$

19,668

$

315,138

$

87,478

$

377,984

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

381,633

384,342

373,064

375,969

Earnings per share - diluted [i/ii]

$

0.05

$

0.82

$

0.23

$

1.01

Table O: Adjusted EBITDA

Three Months Ended

Nine Months Ended

Q3'19

Q2'19

Q3'18

Q3'19

Q3'18

GAAP net income (loss) attributable to Cypress

$

12,683

$

(12,729

)

$

50,695

$

19,668

$

87,478

Interest and other expense, net

(14,922

)

(12,003

)

(15,059

)

(36,168

)

(47,356

)

Income tax (provision) benefit

(16,247

)

18,189

(5,618

)

2,672

(15,829

)

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

(1,383

)

(32,405

)

(3,657

)

(37,378

)

(10,873

)

Net loss (income) attributable to non-controlling interest

10

4

(52

)

15

(152

)

GAAP operating income

$

45,225

$

13,486

$

75,081

$

90,527

$

161,688

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

80,300

94,928

91,146

257,170

257,529

Non-GAAP operating income

$

125,525

$

108,414

$

166,227

$

347,697

$

419,217

Depreciation

19,060

19,394

16,393

57,966

49,772

Adjusted EBITDA

$

144,585

$

127,808

$

182,620

$

405,663

$

468,989

1. The three months ended Q2'19 and the nine months ended Q3'19 include a $29.5 million impairment charge recorded for the investment in Deca Technologies, Inc.

Table P: Free cash flow

Three Months Ended

Nine Months Ended

Q3'19

Q2'19

Q3'18

Q3'19

Q3'18

GAAP net cash provided by operating activities

$

64,497

$

118,923

$

187,073

$

244,668

$

329,485

Acquisition of property, plant and equipment, net

(10,599

)

(7,490

)

(15,448

)

(28,623

)

(58,061

)

Free cash flow

$

53,898

$

111,433

$

171,625

$

216,045

$

271,424

CYPRESS SEMICONDUCTOR CORPORATION

SUPPLEMENTAL FINANCIAL DATA

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

(Unaudited)

Three Months Ended

Nine Months Ended

September 29,
2019

June 30, 2019

September 30,
2018

September 29,
2019

September 30,
2018

Selected Cash Flow Data (Preliminary):

Net cash provided by operating activities

$

64,497

$

118,923

$

187,073

$

244,668

$

329,485

Net cash used in investing activities

$

(2,056

)

$

(6,821

)

$

(22,316

)

$

(13,253

)

$

(43,700

)

Net cash used in financing activities

$

(91,594

)

$

(25,041

)

$

(72,730

)

$

(174,108

)

$

(232,634

)

Other Supplemental Data (Preliminary):

Capital expenditures, net

$

10,599

$

7,490

$

15,448

$

28,623

$

58,061

Depreciation

$

19,060

$

19,394

$

16,393

$

57,966

$

49,772

Payment of dividend

$

40,289

$

40,134

$

39,447

$

120,171

$

117,592

Dividend paid per share

$

0.11

$

0.11

$

0.11

$

0.33

$

0.33

Total debt (principal amount)

$

856,102

$

908,339

$

936,518

$

856,102

$

936,518

Leverage ratio¹

0.90

0.88

1.20

0.90

1.20

Cash Income Tax

$

2,667

$

2,131

$

2,779

$

7,476

$

8,917

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

Contacts:

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

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