Analog Devices, Inc.
May 31, 2017
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Analog Devices Reports Second Quarter 2017 Results

NORWOOD, Mass.--(BUSINESS WIRE)-- Analog Devices, Inc. (NASDAQ: ADI), today announced financial results for its second quarter of fiscal year 2017, which ended April 29, 2017.

"The second quarter of 2017 was a period of significant success," said Vincent Roche, President and CEO. "Business conditions during the quarter were strong, and our results were above the high end of our revised guidance range led by broad-based strength, particularly in the industrial end market. In addition, we closed the acquisition of Linear Technology Corporation and are on track with our integration activities. This acquisition creates a high-performance analog industry powerhouse, and I am confident that we are well on our way to creating tremendous value for our customers, employees, and shareholders."

"Looking ahead to the July quarter, we continue to see signs of good business conditions and are planning for revenue in the third quarter of 2017, our first full quarter with Linear Technology, to be in the range of $1.34 billion to $1.42 billion on a GAAP basis, and $1.37 billion to $1.45 billion on a non-GAAP basis."

ADI also announced that the Board of Directors has declared a quarterly cash dividend of $0.45 per outstanding share of common stock, representing an annual dividend per share of $1.80. The dividend will be paid on June 20, 2017 to all shareholders of record at the close of business on June 9, 2017.

Supplemental schedules relating to our second quarter fiscal 2017 results are also available on our investor site at investor.analog.com.

Results for the Second Quarter of Fiscal Year 2017

Please refer to the schedules provided for a summary of revenue and earnings, selected balance sheet information, and the cash flow statement for the second quarter of fiscal year 2017, as well as the immediately prior and year-ago quarters. Additional information on revenue by end market is provided on Schedule D.

Outlook for the Third Quarter of Fiscal Year 2017
The following statements are based on current expectations, and as indicated, are presented on a GAAP and non-GAAP basis. These statements are forward-looking and actual results may differ materially, as a result of, among other things, the important factors discussed at the end of this release. These statements supersede all prior statements regarding our business outlook set forth in prior ADI news releases, and ADI disclaims any obligation to update these forward-looking statements.

                   
      GAAP     Non-GAAP Adjustments     Non-GAAP
Revenue     $1.34B to $1.42B     $30 million (1)     $1.37B to $1.45B
Gross Margin     52% to 54%     $252 million (2)     69% to 70%
Operating Expenses     $558 million to $568 million     $128 million (3)     $430 million to $440 million
Operating Margins     10% to 14%           38% to 40%
Interest & Other Expense     $70.0 million     -     $70.0 million
Tax Rate     approx. 49% to 86%     $11 million (4)     approx. 10.0%
Earnings per Share*     $0.02 to $0.17     $1.04 (5)     $1.07 to $1.21

* The sum of the individual per share amounts may not equal the total due to rounding.

(1) Non-GAAP revenue adds back $30 million of deferred revenues related to shipments of Linear Technology products by distributors to end customers that were received by the distributors prior to ADI's acquisition of Linear Technology

(2) Non-GAAP gross margin excludes $252 million of costs comprised of the following:

(3) Non-GAAP operating expenses exclude $128 million of costs comprised of the following:

(4) Non-GAAP tax rate excludes the tax effects of the reconciling adjustments noted in the three footnotes above and $51 million of discrete items in the quarter

(5) Non-GAAP earnings per share includes $1.04, which represents the net impact of the non-GAAP adjustments noted above on a per share basis consisting of:

Conference Call Scheduled for Today, Wednesday, May 31, 2017 at 10:00 am ET
ADI will host a conference call to discuss second quarter fiscal 2017 results and short-term outlook today, beginning at 10:00 am ET. Investors may join via webcast, accessible at investor.analog.com, or by telephone (call 706-634-7193 ten minutes before the call begins and provide the password "ADI").

A replay will be available two hours after the completion of the call. The replay may be accessed for up to two weeks by dialing 855-859-2056 (replay only) and providing the conference ID: 99084395, or by visiting investor.analog.com.

Non-GAAP Financial Information
This release includes non-GAAP financial measures that are not in accordance with, nor an alternative to, generally accepted accounting principles and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles.

Schedules E and F of this press release provides the reconciliation of the Company's historical non-GAAP measures to their most comparable GAAP measures.

Management uses non-GAAP measures internally to evaluate the Company's operating performance from continuing operations against past periods and to budget and allocate resources in future periods. These non-GAAP measures also assist management in evaluating the Company's core business and trends across different reporting periods on a consistent basis. Management also uses these non-GAAP measures as the primary performance measurement when communicating with analysts and investors regarding the Company's earnings results and outlook and believes that the presentation of these non-GAAP measures is useful to investors because it provides investors with the operating results that management uses to manage the Company and enables investors and analysts to evaluate the Company's core business. Management also believes that the non-GAAP liquidity measure free cash flow is useful both internally and to investors because it provides information about the amount of cash generated after capital expenditures that is then available to repay debt obligations, make investments and fund acquisitions, and for certain other activities.

The following item is included in our Non-GAAP revenue, non-GAAP gross margin, and non-GAAP diluted earnings per share:

Acquisition-Related Deferred Revenue: Deferred revenue related to shipments of Linear Technology products by distributors to end customers that were received by the distributors prior to the Company's acquisition of Linear Technology. Business combination accounting principles require the write down of deferred revenue in conjunction with the acquisition. We included these revenues in our non-GAAP measures because they relate to a specific transaction and are reflective of our ongoing financial performance.

The following items are excluded from our non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP operating margin, and non-GAAP diluted earnings per share:

Acquisition-Related Expenses: Expenses incurred as a result of current and prior period acquisitions and primarily include expenses associated with the fair value adjustments to inventory, property, plant and equipment and amortization of acquisition related intangibles, which include acquired intangibles such as purchased technology and customer relationships. Expenses also include the fair value adjustment associated with the replacement of share-based awards in the Linear Technology acquisition. We excluded these costs from our non-GAAP measures because they relate to specific transactions and are not reflective of our ongoing financial performance.

Acquisition-Related Transaction Costs: Costs incurred as a result of the Linear Technology acquisition, including legal, accounting and other professional fees directly related to the acquisition. We excluded these costs from our non-GAAP measures because they relate to a specific transaction and are not reflective of our ongoing financial performance.

The following items are excluded from our non-GAAP operating expenses, non-GAAP operating income, non-GAAP operating margin, and non-GAAP diluted earnings per share:

Restructuring-Related Expenses: These expenses are incurred in connection with facility closures, consolidation of manufacturing facilities, severance, and other cost reduction efforts. We excluded these expenses from our non-GAAP measures because apart from ongoing expense savings as a result of such items, these expenses and the related tax effects have no direct correlation to the operation of our business in the future.

The following items are excluded from our non-GAAP other expense and non-GAAP diluted earnings per share:

Amortization of Deferred Financing Costs: In the third quarter of fiscal 2016, in connection with the Linear Technology acquisition, the Company obtained bridge financing commitments and incurred financing fees which were amortized into interest expense over the term of the bridge financing commitments. In the first quarter of fiscal 2017, the Company replaced a portion of the bridge financing commitments with $2.1 billion of senior unsecured notes. As a result, the Company accelerated $7.2 million of the unamortized bridge financing commitment fees into interest expense. We excluded these costs from our non-GAAP measures because they are not reflective of our ongoing financial performance.

The following items are excluded from our non-GAAP diluted earnings per share:

Tax-Related Items: Tax adjustments associated with the non-GAAP items discussed above as well as a discrete tax item related to the release of a state tax credit valuation allowance resulting from the Company's acquisition of Linear Technology. We excluded these tax-related items from our non-GAAP measures because they are not associated with the tax expense on our current operating results.

These non-GAAP measures have material limitations in that they do not reflect all of the amounts associated with the Company's results of operations as determined in accordance with GAAP and should not be considered in isolation from, or as a substitute for, the Company's financial results presented in accordance with GAAP. In addition, the Company's non-GAAP measures may not be comparable to the non-GAAP measures reported by other companies. The Company's use of non-GAAP measures, and the underlying methodology when including or excluding certain items, is not necessarily an indication of the results of operations that may be expected in the future, or that the Company will not, in fact, record such items in future periods.

About Analog Devices
Analog Devices designs and manufactures semiconductor products and solutions. We enable our customers to interpret the world around us by intelligently bridging the physical and digital with unmatched technologies that sense, measure and connect. Visit http://www.analog.com.

Forward Looking Statements
This press release contains forward-looking statements, which address a variety of subjects including, for example, our statements regarding expected revenue, earnings per share, gross margin, operating expenses, interest and other expense, tax rate, and other financial results, expected operating leverage, production and inventory levels, expected market trends, and expected customer demand and order rates for our products and expected benefits and synergies of the acquisition of Linear Technology Corporation ("Linear Technology"), including expected growth rates of the combined companies, expected product offerings, product development, marketing position and technical advances resulting from the transaction. Statements that are not historical facts, including statements about our beliefs, plans and expectations, are forward-looking statements. Such statements are based on our current expectations and are subject to a number of factors and uncertainties, which could cause actual results to differ materially from those described in the forward-looking statements. The following important factors and uncertainties, among others, could cause actual results to differ materially from those described in these forward-looking statements: any faltering in global economic conditions or the stability of credit and financial markets, erosion of consumer confidence and declines in customer spending, unavailability of raw materials, services, supplies or manufacturing capacity, changes in geographic, product or customer mix, higher than expected or unexpected costs associated with or relating to the acquisition of Linear Technology and the integration of the businesses; the risk that expected benefits, synergies and growth prospects of the acquisition may not be fully achieved in a timely manner, or at all; the risk that Linear Technology's business may not be successfully integrated with Analog Devices'; the risk that we will be unable to retain and hire key personnel; and the risk that disruption resulting from the acquisition may adversely affect our business and relationships with our customers, suppliers or employees. For additional information about factors that could cause actual results to differ materially from those described in the forward-looking statements, please refer to our filings with the Securities and Exchange Commission ("SEC"), including the risk factors contained in our most recent Quarterly Report on Form 10-Q and Annual Report on Form 10-K. Forward-looking statements represent management's current expectations and are inherently uncertain. Except as required by law, we do not undertake any obligation to update forward-looking statements made by us to reflect subsequent events or circumstances.

Analog Devices and the Analog Devices logo are registered trademarks or trademarks of Analog Devices, Inc. All other trademarks mentioned in this document are the property of their respective owners.

(ADI-WEB)

 
Analog Devices, Second Quarter, Fiscal 2017
   

Schedule A

Revenue and Earnings Summary (Unaudited)
(In thousands, except per-share amounts)

 

 

Three Months Ended

2Q 17     1Q 17     2Q 16
      April 29,
2017
    Jan. 28,
2017
    April 30,
2016
Revenue $ 1,147,982 $ 984,449 $ 778,766
Year-to-year change 47 % 28 % (5 )%
Quarter-to-quarter change 17 % (2 )% 1 %
Cost of sales (1)     507,539       335,945       267,863  
Gross margin 640,443 648,504 510,903
Gross margin percentage 55.8 % 65.9 % 65.6 %
Year-to-year change (basis points) (980 ) 390 (80 )
Quarter-to-quarter change (basis points)     (1,010 )     (50 )     360  
Operating expenses:
R&D (1) 235,232 183,954 160,235
Selling, marketing and G&A (1) 190,686 130,659 112,186
Amortization of intangibles 68,690 18,160 17,419
Special charges           49,463       13,684  
Total operating expenses 494,608 382,236 303,524
Total operating expenses percentage 43.1 % 38.8 % 39.0 %
Year-to-year change (basis points) 410 210 300
Quarter-to-quarter change (basis points)     430       790       230  
Operating income 145,835 266,268 207,379
Operating income percentage 12.7 % 27.0 % 26.6 %
Year-to-year change (basis points) (1,390 ) 170 (370 )
Quarter-to-quarter change (basis points)     (1,430 )     (860 )     130  
Other expense     59,121       32,959       12,469  
Income before income tax 86,714 233,309 194,910
(Benefit) provision for income taxes (6,850 ) 16,180 24,337
Tax rate percentage     (7.9 )%     6.9 %     12.5 %
Net income     $ 93,564       $ 217,129       $ 170,573  
 
Shares used for EPS - basic 341,316 308,786 308,790
Shares used for EPS - diluted 345,654 313,076 312,250
 
Earnings per share - basic $ 0.27 $ 0.70 $ 0.55
Earnings per share - diluted $ 0.27 $ 0.69 $ 0.55
 
Dividends paid per share     $ 0.45       $ 0.42       $ 0.42  
 
(1) Includes stock-based compensation expense as follows:
Cost of sales $ 2,566 $ 1,944 $ 1,986
R&D $ 11,910 $ 7,021 $ 6,646
Selling, marketing and G&A $ 8,010 $ 7,564 $ 7,327

 
Analog Devices, Second Quarter, Fiscal 2017
 

Schedule B

Selected Balance Sheet Information (Unaudited)
(In thousands)

 

    2Q 17     1Q 17     2Q 16
      April 29,
2017
    Jan. 28,
2017
    April 30,
2016
Cash & short-term investments $ 6,188,372 $ 6,317,066 $ 3,754,081
Accounts receivable, net 630,353 472,511 398,979
Inventories (1) 647,858 365,586 399,459
Other current assets     68,884       78,570       75,355
Total current assets 7,535,467 7,233,733 4,627,874
PP&E, net 1,089,319 628,924 626,162
Investments 55,815 48,690 50,680
Goodwill 12,269,501 1,677,399 1,639,165
Intangible assets, net 5,587,862 529,516 548,374
Other     84,719       85,109       78,037
Total assets     $ 26,622,683       $ 10,203,371       $ 7,570,292
 
Deferred income on shipments to distributors, net $ 377,792 $ 356,666 $ 317,290
Other current liabilities 750,321 454,960 367,310
Debt, current 4,321,169
Long-term debt 8,572,364 3,805,400 1,731,336
Deferred income taxes 2,431,410 125,196 243,263
Other non-current liabilities 203,032 154,718 37,392
Shareholders' equity     9,966,595       5,306,431       4,873,701
Total liabilities & equity     $ 26,622,683       $ 10,203,371       $ 7,570,292

(1) Includes $3,007, $2,553, and $2,719 related to stock-based compensation in 2Q17, 1Q17, and 2Q16, respectively.

 
Analog Devices, Second Quarter, Fiscal 2017
 

Schedule C

Cash Flow Statement (Unaudited)
(In thousands)
     
Three Months Ended
2Q 17     1Q 17     2Q 16
April 29,
2017
    Jan. 28,
2017
    April 30,
2016
Cash flows from operating activities:
Net Income $ 93,564 $ 217,129 $ 170,573
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation 48,772 34,379 33,483
Amortization of intangibles 88,770 19,947 18,440
Stock-based compensation expense 22,486 16,529 15,959
Cost of goods sold for inventory acquired 121,113
Other non-cash activity 11,078 13,071 500
Excess tax benefit - stock options (17,851 ) (8,102 ) (3,212 )
Deferred income taxes (79,980 ) (7,055 ) 539
Changes in operating assets and liabilities     233,512       28,594       83,921  
Total adjustments     427,900       97,363       149,630  
Net cash provided by operating activities     521,464       314,492       320,203  
Percent of revenue     45.4 %     31.9 %     41.1 %
 
Cash flows from investing activities:
Purchases of short-term available-for-sale investments (378,540 ) (326,908 ) (1,939,750 )
Maturities of short-term available-for-sale investments 1,247,493 1,844,380 1,522,688
Sales of short-term available-for-sale investments 69,787 287,601 102,316
Additions to property, plant and equipment (46,929 ) (28,337 ) (25,517 )
Payments for acquisitions, net of cash acquired (9,686,497 ) (1,036 ) (2,203 )
Change in other assets     (6,117 )     (5,946 )     (2,746 )
Net cash (used for) provided by investing activities     (8,800,803 )     1,769,754       (345,212 )
 
Cash flows from financing activities:
Proceeds from derivative instruments 3,904
Proceeds from debt 9,083,858 2,072,306
Payments for deferred financing fees (5,625 )
Dividend payments to shareholders (139,314 ) (129,683 ) (129,925 )
Repurchase of common stock (23,874 ) (3,106 ) (213,650 )
Proceeds from employee stock plans 52,841 34,432 16,480
Excess tax benefit - stock options 17,851 8,102 3,212
Change in other financing activities     (2,237 )     2,221       (2,786 )
Net cash provided by (used for) financing activities     8,989,125       1,982,551       (326,669 )
Effect of exchange rate changes on cash     694       (666 )     898  
 
Net increase (decrease) in cash and cash equivalents 710,480 4,066,131 (350,780 )
Cash and cash equivalents at beginning of period     4,987,263       921,132       1,470,442  
Cash and cash equivalents at end of period     $ 5,697,743       $ 4,987,263       $ 1,119,662  

Analog Devices, Second Quarter, Fiscal 2017
 

Schedule D

Revenue Trends by End Market (Unaudited)

(In thousands)

 

The categorization of revenue by end market is determined using a variety of data points including the technical characteristics of the product, the "sold to" customer information, the "ship to" customer information and the end customer product or application into which our product will be incorporated.  As data systems for capturing and tracking this data evolve and improve, the categorization of products by end market can vary over time. When this occurs we reclassify revenue by end market for prior periods.  Such reclassifications typically do not materially change the sizing of, or the underlying trends of results within, each end market. The Company is in the process of integrating Linear results into our systems and end market classifications. As a result revenues of Linear from March 10, 2017, the acquisition date, through the end of the Company's second quarter of fiscal 2017 are presented separately in the table below.

     
Three Months Ended
April 29,
2017
    Jan. 28,
2017
    April 30,
2016
Revenue     % *     Q/Q %     Y/Y % Revenue Revenue
Industrial $ 462,913     46%     15%     20% $ 402,585 $ 384,706
Automotive 150,418 15% 8% 9% 138,764 138,398
Consumer 205,444 21% (24)% 156% 270,146 80,385
Communications 181,744     18% 5% 4% 172,954     175,277
Total revenue (excluding Linear revenue) $ 1,000,519     100% 2% 28% $ 984,449     $ 778,766
Linear Revenue 147,463          
Total Revenue $ 1,147,982       17% 47% $ 984,449     $ 778,766

____________

* Percentages are based on total revenue (excluding Linear revenue)

 
Analog Devices, Second Quarter, Fiscal 2017
 

Schedule E

Reconciliation of Non-GAAP to GAAP Revenue and Earnings Measures (In thousands, except per-share amounts)
(Unaudited)
See "Non-GAAP Financial Information" in this press release for a description of the items excluded from our non-GAAP measures.

 

   
Three Months Ended
2Q 17     1Q 17     2Q 16
April 29,
2017
Jan. 28,
2017
April 30,
2016
GAAP Revenue $ 1,147,982 $ 984,449 $ 778,766
Y/Y Revenue growth % 47 % 28 % (5 )%
Q/Q Revenue growth % 17 % (2 )% 1 %
Acquisition-Related Deferred Revenues 60,759              
Non-GAAP Revenue $ 1,208,741       $ 984,449       $ 778,766  
Y/Y Revenue growth % 55 % 28 % (5 )%
Q/Q Revenue growth % 23 % (2 )% 1 %
 
GAAP Gross Margin $ 640,443 $ 648,504 $ 510,903
Gross Margin Percentage 55.8 % 65.9 % 65.6 %
Acquisition-Related Deferred Revenues 46,480
Acquisition-Related Expenses 150,532 2,178 1,476
Acquisition-Related Transaction Costs 200              
Non-GAAP Gross Margin $ 837,655       $ 650,682       $ 512,379  
Gross Margin Percentage 69.3 % 66.1 % 65.8 %
 
GAAP Operating Expenses $ 494,608 $ 382,236 $ 303,524
Percent of Revenue 43.1 % 38.8 % 39.0 %
Acquisition-Related Expenses (74,861 ) (18,232 ) (17,517 )
Acquisition-Related Transaction Costs (39,766 ) (8,011 )
Restructuring-Related Expense       (49,463 )     (13,684 )
Non-GAAP Operating Expenses $ 379,981       $ 306,530       $ 272,323  
Percent of Non-GAAP Revenue 31.4 % 31.1 % 35.0 %
 
GAAP Operating Income/Margin $ 145,835 $ 266,268 $ 207,379
Percent of Revenue 12.7 % 27.0 % 26.6 %
Acquisition-Related Revenues 46,480
Acquisition-Related Expenses 225,392 20,410 18,993
Acquisition-Related Transaction Costs 39,966 8,011
Restructuring-Related Expense       49,463       13,684  
Non-GAAP Operating Income/Margin $ 457,673       $ 344,152       $ 240,056  
Percent of Non-GAAP Revenue 37.9 % 35.0 % 30.8 %
 
GAAP Other Expense (Income) $ 59,121 $ 32,959 $ 12,469
Percent of Revenue 5.1 % 3.3 % 1.6 %
Amortization of Deferred Financing Costs       (7,214 )      
Non-GAAP Other Expense $ 59,121       $ 25,745       $ 12,469  
Percent of Non-GAAP Revenue 4.9 % 2.6 % 1.6 %

GAAP Diluted EPS     $ 0.27     $ 0.69     $ 0.55
Acquisition-Related Deferred Revenue 0.13
Acquisition-Related Expenses 0.65 0.07 0.06
Acquisition-Related Transaction Costs 0.12 0.03
Restructuring-Related Expense 0.16 0.04
Amortization of Deferred Financing Costs 0.02
Income Tax Effect of Above Items (0.09 ) (0.03 )
Impact of State Tax Valuation Release (0.05 )          
Non-GAAP Diluted EPS (1) $ 1.03       $ 0.94       $ 0.64

(1) The sum of the individual per share amounts may not equal the total due to rounding

Analog Devices, Second Quarter, Fiscal 2017
 

Schedule F

Reconciliation of Free Cash Flow to Net Cash Flows Provided by Operating Activities

(Unaudited)
(In thousands)
 
Three Months Ended
2Q 17 1Q 17   2Q 16
April 29,
2017
  Jan. 28,
2017
  April 30,
2016
Net cash provided by operating activities $ 521,464 $ 314,492 $ 320,203
% of Revenue 43.1 % (1) 31.9 % 41.1 %
Capital expenditures (46,929 )   (28,337 )   (25,517 )
Free cash flow $ 474,535     $ 286,155     $ 294,686  
% of Revenue 39.3 % (1) 29.1 % 37.8 %

(1) 2Q17 Revenue on a non-GAAP basis and includes acquisition-related deferred revenue outlined on Schedule E.

Analog Devices, Inc.
Mr. Ali Husain, 781-461-3282
781-461-3491 (fax)
Treasurer and Head of Investor Relations
investor.relations@analog.com

Source: Analog Devices, Inc.

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