Rambus Inc. 10-Q Summary: Quarter Ended March 31, 1998
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 1998, for Rambus Inc., a Delaware corporation. The company develops and licenses high-speed memory interface technology. As of the reporting date, the company had 22,703,498 shares of common stock outstanding. The financial statements are unaudited and include the accounts of Rambus Inc. and its wholly owned subsidiary, Rambus K.K. in Tokyo, Japan.
Key Financial Metrics
| Metric | Three Months Ended Mar 31, 1998 | Six Months Ended Mar 31, 1998 | Three Months Ended Mar 31, 1997 | Six Months Ended Mar 31, 1997 |
|---|---|---|---|---|
| Total Revenues | $9.65 million | $19.04 million | $5.93 million | $11.43 million |
| Net Income | $1.79 million | $3.35 million | $0.30 million | $0.39 million |
| Operating Income | $2.23 million | $4.35 million | $0.41 million | $0.52 million |
| Net Income Per Share (Basic) | $0.08 | $0.15 | $0.02 | $0.02 |
| Cash and Cash Equivalents | $9.04 million (as of Mar 31, 1998) | |||
| Marketable Securities | $61.59 million (as of Mar 31, 1998) | |||
| Working Capital | $62.2 million (as of Mar 31, 1998) | |||
| Deferred Revenue | $64.2 million (Total; $24.7M current) (as of Mar 31, 1998) |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 62.6% year-over-year for the quarter and 66.7% for the six-month period. Contract revenues grew 61.8% (quarter) and 63.0% (six months), driven by new licensees and additional contracts for DirectRambus development. Royalties increased 65.0% (quarter) and 77.2% (six months) due to increased volumes of existing applications.
- Profitability: Net income surged 505% for the quarter and 763% for the six-month period compared to the prior year. Operating margins improved significantly, with operating income rising from 7.0% of revenue in the prior year quarter to 23.2% in the current quarter.
- Expense Trends: Engineering costs (Cost of contract revenues + R&D) increased in absolute dollars but decreased as a percentage of revenue (from 58.4% to 46.3% for the quarter) due to revenue growth outpacing cost increases. Marketing, general, and administrative expenses increased 43.3% year-over-year due to personnel buildup and public company costs, though they decreased as a percentage of revenue.
- Cash Flow: Net cash provided by operating activities dropped to $5,000 for the six months ended March 31, 1998, compared to $3.24 million in the prior year period. This was primarily due to a significant increase in accounts receivable ($10.5 million) and deferred tax assets, offset by increases in deferred revenue.
Outlook, Risks, and Management Commentary
- Revenue Concentration: The company faces high revenue concentration. The top five licensees accounted for 53% of revenues in the quarter and 56% for the six months. NEC alone accounted for 28% of quarterly revenues. International revenues (primarily Japan and Korea) comprised 76% of total revenues for the quarter.
- Royalty Volatility: Royalties are heavily dependent on Nintendo 64 shipments. Management expects royalties to decline in the third quarter due to the end of the holiday season and reduced Nintendo 64 shipments. There is no contractual obligation for systems companies to continue using Rambus ICs.
- Deferred Revenue: The company holds $64.2 million in deferred revenue, representing nonrefundable license and engineering fees received but not yet recognized. This is scheduled to be recognized over the next five years.
- Liquidity: The company holds $70.6 million in cash and marketable securities. Management anticipates existing balances are adequate for at least the next 12 months.
- Intel Warrant: The company granted Intel Corporation a warrant for 1,000,000 shares at $10.00 per share, exercisable only upon achieving certain milestones.
Investor Verification Checklist
- Licensee Dependency: Verify the stability of relationships with top licensees, particularly NEC and Nintendo, given the high concentration of revenue.
- Deferred Revenue Recognition: Confirm the schedule and assumptions for recognizing the $64.2 million deferred revenue balance over the next five years.
- Accounts Receivable: Investigate the $10.5 million increase in accounts receivable and its impact on future cash collections.
- Royalty Seasonality: Assess the risk of a significant drop in royalty revenue in the upcoming quarter due to the anticipated decline in Nintendo 64 shipments.
- DirectRambus Adoption: Monitor the progress and market acceptance of the DirectRambus technology, which is a key driver for future contract revenues.