Lam Research Corporation Reports Financial Results for the Quarter Ended September 25, 2016

FREMONT, Calif., Oct. 19, 2016 (GLOBE NEWSWIRE) — Lam Research Corp. (Nasdaq:LRCX) today announced financial results for the quarter ended September 25, 2016 (the “September 2016 quarter”).

Highlights for the September 2016 quarter were as follows:

  • Shipments of $1,708 million and revenue of $1,632 million.
  • GAAP gross margin of 43.9%, GAAP operating margin of 19.4%, and GAAP diluted EPS of $1.47.
  • Non-GAAP gross margin of 45.2%, non-GAAP operating margin of 22.4%, and non-GAAP diluted EPS of $1.81.
 
Key Financial Data for the Quarters Ended September 25, 2016 and June 26, 2016
(in thousands, except per-share data, percentages, and basis points)
 
U.S. GAAP
    September 2016   June 2016   Change Q/Q
Shipments   $ 1,708,483     $ 1,587,417       + 8 %
Revenue   $ 1,632,419     $ 1,546,261       + 6 %
Gross margin as percentage of revenue   43.9 %   45.2 %   -130 bps
Operating margin as percentage of revenue     19.4 %   20.0 %   – 60 bps
Diluted EPS   $ 1.47     $ 1.46       + 1 %
 
Non-GAAP
    September 2016   June 2016   Change Q/Q
Shipments   $ 1,708,483     $ 1,587,417       + 8 %
Revenue   $ 1,632,419     $ 1,546,261       + 6 %
Gross margin as percentage of revenue   45.2 %   46.6 %   – 140 bps
Operating margin as percentage of revenue   22.4 %   23.2 %   – 80 bps
Diluted EPS   $ 1.81     $ 1.80       + 1 %
                         

U.S. GAAP Financial Results

For the September 2016 quarter, revenue was $1,632 million, gross margin was $716 million, or 43.9% of revenue, operating expenses were $400 million, operating margin was 19.4% of revenue, and net income was $264 million, or $1.47 per diluted share on a GAAP basis. This compares to revenue of $1,546 million, gross margin of $699 million, or 45.2% of revenue, operating expenses of $390 million, operating margin of 20.0% of revenue, and net income of $259 million, or $1.46 per diluted share, for the quarter ended June 26, 2016 (the “June 2016 quarter”).

Non-GAAP Financial Results

For the September 2016 quarter, non-GAAP gross margin was $737 million or 45.2% of revenue, non-GAAP operating expenses were $372 million, non-GAAP operating margin was 22.4% of revenue, and non-GAAP net income was $322 million, or $1.81 per diluted share. This compares to non-GAAP gross margin of $720 million or 46.6% of revenue, non-GAAP operating expenses of $361 million, non-GAAP operating margin of 23.2% of revenue, and non-GAAP net income of $315 million, or $1.80 per diluted share for the June 2016 quarter.

“Lam delivered another record quarter in shipments, revenues and non-GAAP net income, validating the importance of having the right products at the right time to address industry enabling technology inflections that are critical to powering a new generation of semiconductor devices in a world that is now clearly, more than Moore,” said Martin Anstice, Lam Research’s President and Chief Executive Officer. “We continue to see strong momentum for differentiated products and services addressing key applications including multi-patterning, 3D device architecture and advanced packaging.  The combination of our technology leadership, disciplined operational execution and close partnerships with customers positions us for our fifth straight calendar year of revenue growth of approximately 18% annually over that period, record performance in 2016 and a favorable forward looking multi-year growth outlook.”

Balance Sheet and Cash Flow Results

Cash and cash equivalents, short-term investments, and restricted cash and investments balances increased to $7.5 billion at the end of the September 2016 quarter compared to $7.1 billion at the end of the June 2016 quarter. This increase was primarily the result of approximately $473 million in cash flows from operating activities which was partially offset by approximately $42 million of capital expenditures; and approximately $48 million of dividends paid to stockholders during the September 2016 quarter. As a result of the October 5, 2016 termination of the Agreement and Plan of Merger and Reorganization with KLA-Tencor, our Senior Notes maturing in 2023 and 2026 were redeemed on October 13, 2016 under the Special Mandatory Redemption terms of the indenture governing these Notes, thereby reducing our cash and cash equivalents and short-term investments balance by approximately $1.6 billion.

Deferred revenue at the end of the September 2016 quarter increased to $704 million as compared to $566 million at the end of the June 2016 quarter. Deferred profit at the end of the September 2016 quarter increased to $418 million as compared to $349 million at the end of the June 2016 quarter. Lam’s deferred revenue balance does not include shipments to Japanese customers, to whom title does not transfer until customer acceptance. Shipments to Japanese customers are classified as inventory at cost until the time of acceptance. The estimated future revenue from shipments to Japanese customers was approximately $65 million as of September 25, 2016.

Geographic Distribution

The geographic distribution of shipments and revenue during the September 2016 quarter is shown in the following table:

Region Shipments   Revenue
Taiwan 26 %   26 %
Korea 28 %   23 %
Japan 11 %   15 %
China 11 %   14 %
Southeast Asia   11 %   12 %
United States 8 %   7 %
Europe 5 %   3 %
           

Outlook

For the December 2016 quarter, Lam is providing the following guidance:

  U.S. GAAP   Reconciling Items   Non-GAAP
Shipments $1.85 Billion +/-  $75 Million     $1.85 Billion +/-  $75 Million
Revenue $1.84 Billion +/-  $75 Million     $1.84 Billion +/-  $75 Million
Gross margin   44.9 % +/-  1 %                $ 21   Million           46.0 %   +/-  1 %  
Operating margin   23.0 %     +/-  1 %   $ 37   Million     25.0 % +/-  1 %
Net income per diluted share       $ 1.82   +/-     $ 0.10     $ 60   Million        $ 2.18   +/-       $ 0.10  
Diluted share count 181 Million   2   Million   179 Million
               

The information provided above is only an estimate of what the Company believes is realizable as of the date of this release, and does not incorporate the potential impact of any business combinations, asset acquisitions, divestitures, financing arrangements, other investments, or other significant transactions that may be completed after the date of this release. GAAP to non-GAAP reconciling items provided include only those items that are known and can be estimated as of the date of this release. Actual results will vary from this model and the variations may be material. Reconciling items included above are as follows:

  • Gross Margin – amortization related to intangible assets acquired in the Novellus transaction, $21 million.
  • Operating margin – amortization related to intangible assets acquired in the Novellus transaction, $37 million.
  • Earnings per share – amortization related to intangible assets acquired in the Novellus transaction, $37 million; amortization of note discounts, $6 million; special mandatory redemption fees, accelerated amortization of loan issuance costs and debt discounts, and interest expense, net associated with the early redemption of the KLA-Tencor acquisition funding, $37 million; and associated tax benefit for non-GAAP items ($20) million; totaling $60 million.
  • Diluted share count – impact of a note hedge issued contemporaneously with the convertible notes due 2018, 2 million shares.

Use of Non-GAAP Financial Results

In addition to U.S. GAAP results, this press release also contains non-GAAP financial results. The Company’s non-GAAP results for both the September 2016 and June 2016 quarters exclude amortization related to intangible assets acquired in the Novellus transaction, costs associated with campus consolidation, the amortization of note discounts, costs associated with the KLA-Tencor acquisition and tax benefit of non-GAAP items. Additionally, the June 2016 quarter non-GAAP results exclude Novellus acquisition-related inventory fair value impact, restructuring charges, gain on sale of real property, net of associated exit costs, amortization of bridge loan issuance costs and other related fees associated with the KLA-Tencor acquisition, change in income tax benefit from a court ruling, and income tax benefit on resolution of certain tax matters.

Management uses non-GAAP gross margin, operating income, operating expenses, operating margin, net income, and net income per diluted share to evaluate the Company’s operating and financial results. The Company believes the presentation of non-GAAP results is useful to investors for analyzing business trends and comparing performance to prior periods, along with enhancing investors’ ability to view the Company’s results from management’s perspective. Tables presenting reconciliations of non-GAAP results to U.S. GAAP results are included at the end of this press release and on the Company’s website at http://investor.lamresearch.com

Caution Regarding Forward-Looking Statements 

Statements made in this press release that are not of historical fact are forward-looking statements and are subject to the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to, but are not limited to; the estimated future revenue from shipments to Japanese customers; economic and market conditions in the industry and their impact on technology inflections; our growth revenue and performance outlooks and their drivers: the extent of our underlying fundamentals and multi-year outperformance opportunities and our ability to strengthen those positions and accelerate innovation for the benefit of our customers; the legal and business factors that may affect our future tax rate; and our guidance for shipments, revenue, gross margin, operating margin, net income or earnings per diluted share, and diluted share count. Some factors that may affect these forward-looking statements include: business conditions in the consumer electronics industry, the semiconductor industry and the overall economy may deteriorate or change; and the actions of our customers and competitors may be inconsistent with our expectations, as well as the other risks and uncertainties that are described in the documents filed or furnished by us with the Securities and Exchange Commission, including specifically the Risk Factors described in our annual report on Form 10-K for the fiscal year ended June 26, 2016. These uncertainties and changes could materially affect the forward looking statements and cause actual results to vary from expectations in a material way. The Company undertakes no obligation to update the information or statements made in this release.

About Lam Research

Lam Research Corp. (NASDAQ:LRCX) is a trusted global supplier of innovative wafer fabrication equipment and services to the semiconductor industry. Lam’s broad portfolio of market-leading deposition, etch, and clean solutions helps customers achieve success on the wafer by enabling device features that are 1,000 times smaller than a grain of sand, resulting in smaller, faster, more powerful, and more power-efficient chips. Through collaboration, continuous innovation, and delivering on commitments, Lam is transforming atomic-scale engineering and enabling its customers to shape the future of technology. Based in Fremont, Calif., Lam Research is a Nasdaq-100 Index® and S&P 500® company whose common stock trades on the Nasdaq Global Select MarketSM under the symbol LRCX. For more information, please visit http://www.lamresearch.com. (LRCX-F)

Consolidated Financial Tables Follow.

LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data and percentages)
(unaudited)
 
  Three Months Ended
  September 25,
2016
  June 26,
2016
  September 27,
2015
Revenue $ 1,632,419     $ 1,546,261     $ 1,600,043  
Cost of goods sold 916,222     847,477     877,680  
Gross margin 716,197     698,784     722,363  
Gross margin as a percent of revenue 43.9 %   45.2 %   45.1 %
Research and development 235,240     237,255     234,209  
Selling, general and administrative 165,010     152,288     152,726  
Total operating expenses 400,250     389,543     386,935  
Operating income 315,947     309,241     335,428  
Operating income as a percent of revenue 19.4 %   20.0 %   21.0 %
Other expense, net (23,154 )   (27,249 )   (27,121 )
Income before income taxes 292,793     281,992     308,307  
Income tax expense (28,958 )   (23,053 )   (19,628 )
Net income $ 263,835     $ 258,939     $ 288,679  
Net income per share:          
Basic $ 1.64     $ 1.62     $ 1.82  
Diluted $ 1.47     $ 1.46     $ 1.66  
Number of shares used in per share calculations:          
Basic 160,607     159,862     158,352  
Diluted 180,017     177,649     174,374  
Cash dividend declared per common share $ 0.30     $ 0.30     $ 0.30  

LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
  September 25,
2016 
  June 26,
2016
  September 27,
2015
 
  (unaudited)     (1 )   (unaudited)  
             
ASSETS            
Cash and cash equivalents $ 5,861,701     $ 5,039,322     $ 1,744,325    
Investments 1,352,775     1,788,612     2,587,474    
Accounts receivable, net 1,290,317     1,262,145     1,088,942    
Inventories 931,581     971,911     916,683    
Other current assets 162,628     151,160     (3 ) 177,668     (3 )
Total current assets 9,599,002     9,213,150     6,515,092    
Property and equipment, net 649,587     639,608     636,769    
Restricted cash and investments 255,640     250,421     183,455    
Goodwill and intangible assets 1,912,431     1,951,197     2,076,164    
Other assets 219,702     209,939     (3 ) 177,859     (3 )
Total assets $ 12,636,362     $ 12,264,315     $ 9,589,339    
LIABILITIES AND STOCKHOLDERS’ EQUITY            
Current portion of convertible notes and capital leases $ 952,999     $ 947,733     (3 ) $ 968,503     (3 )
Other current liabilities 1,533,253     1,470,308     1,312,549    
Total current liabilities 2,486,252     2,418,041     2,281,052    
Long-term debt and capital leases 3,378,179     3,378,129     (3 ) 1,396,412     (3 )
Income taxes payable 241,671     231,514     247,448    
Other long-term liabilities 142,910     134,562     127,607    
Total liabilities 6,249,012     6,162,246     4,052,519    
Temporary equity, convertible notes 202,467     207,552     178,665    
Stockholders’ equity (2) 6,184,883     5,894,517     5,358,155    
Total liabilities and stockholders’ equity $ 12,636,362     $ 12,264,315     $ 9,589,339    

  (1 ) Derived from audited financial statements
  (2 ) Common shares issued and outstanding were 161,706 as of September 25, 2016, 160,201 as of June 26, 2016, and 158,101 as of September 27, 2015
  (3 ) Adjusted for effects of retrospective implementation of ASU 2015-3, regarding the simplification of the presentation of bond issuance costs, which requires that bond issuance costs related to a recognized liability be presented on the balance sheet as a direct reduction from the carrying amount of that debt liability, consistent with debt discounts.

LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands,  unaudited)
 
  Three Months Ended
   September 25, 
2016
   June 26, 
2016
   September 27, 
2015
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net income $ 263,835     $ 258,939     $ 288,679  
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization 74,562     74,976     70,590  
Deferred income taxes 7,633     (46,708 )   (5,563 )
Equity-based compensation expense 38,595     39,288     35,774  
Income tax benefit on equity-based compensation plans     (8,048 )   3,545  
Excess tax benefit on equity-based compensation plans     9,035     (3,572 )
Amortization of note discounts and issuance costs 6,830     14,584     9,831  
Gain on sale of assets       (15,223 )    
Other, net 16,807     17,929     10,011  
Changes in operating assets and liabilities 64,962     79,052     39,702  
Net cash provided by operating activities 473,224     423,824     448,997  
CASH FLOWS FROM INVESTING ACTIVITIES:          
Capital expenditures and intangible assets (41,979 )   (51,726 )   (49,454 )
Net sale (purchase) of available-for-sale securities 431,750     605,891     (28,203 )
Proceeds from sale of assets     79,730      
Transfer of restricted cash and investments (5,219 )   (112,381 )    
Other, net (7,800 )       (1,500 )
Net cash provided by (used for) investing activities 376,752     521,514     (79,157 )
CASH FLOWS FROM FINANCING ACTIVITIES:          
Principal payments on long-term debt and capital lease obligations and payments for debt issuance costs (371 )   (450,624 )   (96 )
Proceeds from issuance of long-term debt, net of issuance costs     2,374,220      
Excess tax benefit on equity-based compensation plans     (9,035 )   3,572  
Treasury stock purchases (1,854 )   (27,114 )   (98,385 )
Dividends paid (48,052 )   (47,308 )   (47,659 )
Reissuance of treasury stock related to employee stock purchase plan 19,320     20,360     19,245  
Proceeds from issuance of common stock 1,459     1,547     377  
Other, net (10 )   (159 )   (300 )
Net cash (used for) provided by financing activities (29,508 )   1,861,887     (123,246 )
Effect of exchange rate changes on cash and cash equivalents 1,911     76     (3,808 )
Net increase in cash and cash equivalents 822,379     2,807,301     242,786  
Cash and cash equivalents at beginning of period 5,039,322     2,232,021     1,501,539  
Cash and cash equivalents at end of period $ 5,861,701     $ 5,039,322     $ 1,744,325  

 

Non-GAAP Financial Summary
(in thousands, except percentages and per share data)
(unaudited)
 
  Three Months Ended
   September 25, 
2016
   June 26, 
2016
Revenue $ 1,632,419     $ 1,546,261  
Gross margin $ 737,447     $ 720,162  
Gross margin as percentage of revenue 45.2 %   46.6 %
Operating expenses $ 371,634     $ 361,490  
Operating income $ 365,813     $ 358,672  
Operating margin as a percentage of revenue 22.4 %   23.2 %
Net income $ 322,074     $ 314,806  
Net income per diluted share $ 1.81     $ 1.80  
Shares used in per share calculation – diluted 177,628     175,052  

Reconciliation of U.S. GAAP Net Income to Non-GAAP Net Income and U.S. GAAP number of dilutive shares to Non-GAAP number of dilutive shares
(in thousands, except per share data)
(unaudited)
 
  Three Months Ended
  September 25,
2016
  June 26,
2016
U.S. GAAP net income $ 263,835     $ 258,939  
Pre-tax non-GAAP items:      
Amortization related to intangible assets acquired in Novellus transaction – cost of goods sold 21,250     21,250  
Novellus acquisition-related inventory fair value impact – cost of goods sold     128  
Costs associated with campus consolidation – research and development 2,561     7,763  
Restructuring charges – research and development     43  
Amortization related to intangible assets acquired in Novellus transaction -selling, general and administrative 16,083     16,083  
KLA-Tencor acquisition-related costs – selling, general and administrative 9,972     19,270  
Restructuring charges – selling, general and administrative     117  
Gain on sale of real property, net of associated exit costs –  selling, general and administrative     (15,223 )
KLA-Tencor acquisition funding interest expense, net – other expense, net 17,709     3,821  
Amortization of note discounts – other expense, net 5,913     7,492  
Amortization of bridge loan issuance costs and other related fees – other expense, net     6,938  
Net income tax benefit on non-GAAP items (15,249 )   (8,413 )
Income tax benefit on resolution of certain tax matters     (2,515 )
Change to income tax benefit from court ruling     (887 )
Non-GAAP net income $ 322,074     $ 314,806  
Non-GAAP net income per diluted share $ 1.81     $ 1.80  
U.S. GAAP number of shares used for per diluted share calculation 180,017     177,649  
Effect of convertible note hedge (2,389 )   (2,597 )
Non-GAAP number of shares used for per diluted share calculation 177,628     175,052  

Reconciliation of U.S. GAAP Gross Margin, Operating Expenses and Operating Income to Non-GAAP Gross Margin, Operating Expenses and Operating Income
(in thousands, except percentages)
(unaudited)
 
  Three Months Ended
  September 25,
2016
  June 26,
2016
U.S. GAAP gross margin $ 716,197     $ 698,784  
Pre-tax non-GAAP items:      
Amortization related to intangible assets acquired in Novellus transaction 21,250     21,250  
Novellus acquisition-related inventory fair value impact     128  
Non-GAAP gross margin $ 737,447     $ 720,162  
U.S. GAAP gross margin as a percentage of revenue 43.9 %   45.2 %
Non-GAAP gross margin as a percentage of revenue 45.2 %   46.6 %
U.S. GAAP operating expenses $ 400,250     $ 389,543  
Pre-tax non-GAAP items:      
Amortization related to intangible assets acquired in Novellus transaction (16,083 )   (16,083 )
KLA-Tencor acquisition-related costs (9,972 )   (19,270 )
Costs associated with campus consolidation (2,561 )   (7,763 )
Restructuring charges     (160 )
Gain on sale of real property, net of associated exit costs     15,223  
Non-GAAP operating expenses $ 371,634     $ 361,490  
Non-GAAP operating income $ 365,813     $ 358,672  
GAAP operating margin as percent of revenue 19.4 %   20.0 %
Non-GAAP operating margin as a percent of revenue 22.4 %   23.2 %
CONTACT: Lam Research Corporation Contacts:
Satya Kumar, Investor Relations, phone: 510-572-1615, e-mail: investor.relations@lamresearch.com
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