Lam Research Corporation

Lam Research Corporation Reports Financial Results for the Quarter Ended September 24, 2017

FREMONT, Calif., Oct. 17, 2017 (GLOBE NEWSWIRE) -- Lam Research Corp. (Nasdaq:LRCX) today announced financial results for the quarter ended September 24, 2017 (the "September 2017 quarter").

Highlights for the September 2017 quarter were as follows:

 
Key Financial Data for the Quarters Ended
September 24, 2017 and June 25, 2017
(in thousands, except per-share data, percentages, and basis points)
 
U.S. GAAP
  September 2017 June 2017 Change Q/Q
Shipments $2,381,565  $2,542,664  - 6%
Revenue $2,478,140  $2,344,907  + 6%
Gross margin as percentage of revenue 46.4% 45.6% + 80 bps
Operating margin as percentage of revenue 28.0% 25.9% + 210 bps
Diluted EPS $3.21  $2.82  + 14%
 
Non-GAAP
  September 2017 June 2017 Change Q/Q
Shipments $2,381,565  $2,542,664  - 6%
Revenue $2,478,140  $ 2,344,907  + 6%
Gross margin as percentage of revenue 47.2% 46.5%  + 70 bps
Operating margin as percentage of revenue 29.6% 27.7% + 190 bps
Diluted EPS $3.46  $3.11  + 11%

U.S. GAAP Financial Results

For the September 2017 quarter, revenue was $2,478 million, gross margin was $1,149 million, or 46.4% of revenue, operating expenses were $456 million, operating margin was 28.0% of revenue, and net income was $591 million, or $3.21 per diluted share on a U.S. GAAP basis. This compares to revenue of $2,345 million, gross margin of $1,069 million, or 45.6% of revenue, operating expenses of $461 million, operating margin of 25.9% of revenue, and net income of $526 million, or $2.82 per diluted share, for the quarter ended June 25, 2017 (the "June 2017 quarter").

Non-GAAP Financial Results

For the September 2017 quarter, non-GAAP gross margin was $1,171 million or 47.2% of revenue, non-GAAP operating expenses were $438 million, non-GAAP operating margin was 29.6% of revenue, and non-GAAP net income was $628 million, or $3.46 per diluted share. This compares to non-GAAP gross margin of $1,090 million or 46.5% of revenue, non-GAAP operating expenses of $440 million, non-GAAP operating margin of 27.7% of revenue, and non-GAAP net income of $566 million, or $3.11 per diluted share for the June 2017 quarter.

"Lam delivered another record quarter for revenue and non-GAAP income in September and our positive momentum continues, with calendar year shipments on track to grow nearly double the rate of 2017 industry growth," said Martin Anstice, Lam Research's President and Chief Executive Officer. "The foundation of silicon in an economy that is increasingly data driven, combined with disciplined investment and more diversified demand drivers, points to sustainable semiconductor industry capital spending. Lam's differentiated products and services are increasingly relevant to the success of our customers, and that remains a core element of our strategic focus. For more than five years, we have consistently reported outperformance and this track record, combined with our commitment to invest in our future with a focus on disruptive technologies and enabling roadmaps, sets the stage for what we see as a very exciting future for the company."

Balance Sheet and Cash Flow Results

Cash and cash equivalents, short-term investments, and restricted cash and investments balances increased slightly to $6.4 billion at the end of the September 2017 quarter compared to $6.3 billion at the end of the June 2017 quarter. Cash flows from operating activities during the September 2017 quarter of $858 million were primarily utilized for approximately $155 million of share repurchases, including net share settlement on employee stock-based compensation;  approximately $302 million of principal payments on debt, primarily related to our convertible notes;  approximately $73 million of dividends paid to stockholders; approximately $60 million of capital expenditures; and approximately $116 million related to a business acquisition.

Deferred revenue at the end of the September 2017 quarter decreased to $938 million as compared to $966 million at the end of the June 2017 quarter. Deferred profit at the end of the September 2017 quarter decreased to $598 million as compared to $608 million at the end of the June 2017 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 $344 million as of September 24, 2017 and $397 million as of June 25, 2017.

Geographic Distribution

The geographic distribution of shipments and revenue during the September 2017 quarter is shown in the following table:

RegionShipments Revenue
Korea38% 38%
Japan19% 20%
Taiwan15% 14%
China 10% 14%
United States8% 6%
Southeast Asia5% 5%
Europe5% 3%

Outlook

For the December 2017 quarter, Lam is providing the following guidance:

 U.S. GAAP Reconciling
Items
 Non-GAAP
Shipments$2.60 Billion+/-$100 Million  $2.60 Billion+/-$100 Million
Revenue$2.55 Billion+/-$100 Million  $2.55 Billion+/-$100 Million
Gross margin 46.6%+/- 1% $23 Million  47.5%+/- 1%
Operating margin 28.4%+/- 1% $41 Million  30.0%+/- 1%
Net income per diluted share$3.40 +/-$0.12  $38 Million $3.65 +/-$0.12 
Diluted share count184 Million 2 Million 182 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, balance sheet valuation adjustments, financing arrangements, other investments, or other significant transactions that may be completed after the date of this release. U.S. 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:

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 2017 and June 2017 quarters exclude amortization related to intangible assets acquired through business combinations, costs associated with business process reengineering, the amortization of note discounts, tax benefit of non-GAAP items, and income tax benefit on the conclusion of tax matters related to a prior business combination. Additionally, the September 2017 quarter non-GAAP results exclude acquisition costs associated with a business combination.

Management uses non-GAAP gross margin, operating expense, operating income, 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; our revenue, industry, performance and general outlooks, and their drivers; our future strategic relevance to customers; our vision of the Company's future; technology demand trends; 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 25, 2017. 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. is a global supplier of innovative wafer fabrication equipment and services to the semiconductor industry. As a trusted, collaborative partner to the world's leading semiconductor companies, we combine superior systems engineering capability, technology leadership, and unwavering commitment to customer success to accelerate innovation through enhanced device performance. In fact, today, nearly every advanced chip is built with Lam technology. Lam Research (Nasdaq:LRCX) is a FORTUNE 500® company headquartered in Fremont, Calif., with operations around the globe. Learn more at 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 24,
2017
 June 25,
2017
 September 25,
2016
Revenue$2,478,140  $2,344,907  $1,632,419 
Cost of goods sold 1,328,797  1,275,946  916,222 
Gross margin1,149,343   1,068,961  716,197 
Gross margin as a percent of revenue46.4% 45.6% 43.9%
Research and development275,078  285,712  235,240 
Selling, general and administrative181,043  175,310  165,010 
Total operating expenses456,121  461,022  400,250 
Operating income693,222  607,939  315,947 
Operating income as a percent of revenue28.0% 25.9% 19.4%
Other expense, net(5,502) (4,444) (23,154)
Income before income taxes687,720  603,495  292,793 
Income tax expense(97,030) (77,071)  (28,958)
Net income$590,690  $526,424  $263,835 
Net income per share:     
Basic$3.64  $3.25  $1.64 
Diluted$3.21  $2.82  $1.47 
Number of shares used in per share calculations:     
Basic162,141  162,213  160,607 
Diluted183,880  186,427  180,017 
Cash dividend declared per common share $0.45  $0.45  $0.30 


LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
 September 24,
2017
 June 25,
2017
 September 25,
 2016
 (unaudited) (1) (unaudited)
ASSETS     
Cash and cash equivalents$2,406,462  $2,377,534  $5,861,701 
Investments3,775,925  3,663,628  1,352,775 
Accounts receivable, net1,530,762   1,673,398  1,290,317 
Inventories1,328,297  1,232,916  931,581 
Other current assets187,334  195,022  162,628 
Total current assets9,228,780  9,142,498  9,599,002 
Property and equipment, net745,600  685,595  649,587 
Restricted cash and investments256,045  256,205  255,640 
Goodwill and intangible assets1,904,389  1,796,668  1,912,431 
Other assets263,812  241,799  219,702 
Total assets$12,398,626  $12,122,765  $12,636,362 
LIABILITIES AND STOCKHOLDERS' EQUITY     
Current portion of convertible notes and capital leases$639,907  $908,439  $952,999 
Other current liabilities2,148,724  2,041,676  1,533,253 
Total current liabilities2,788,631  2,950,115  2,486,252 
Long-term debt and capital leases1,793,477  1,784,974  3,378,179 
Income taxes payable129,611  120,178  241,671 
Other long-term liabilities278,733  280,186  142,910 
Total liabilities4,990,452  5,135,453  6,249,012 
Temporary equity, convertible notes136,996  169,861  202,467 
Stockholders' equity (2) 7,271,178  6,817,451  6,184,883 
Total liabilities and stockholders' equity$12,398,626  $12,122,765  $12,636,362 


(1)Derived from audited financial statements.
(2)Common shares issued and outstanding were 162,144 as of September 24, 2017, 161,723 as of June 25, 2017, and 161,706 as of September 25, 2016.


LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands,  unaudited)
  
 Three Months Ended
 September 24,
2017
 June 25,
2017
 September 25,
2016
CASH FLOWS FROM OPERATING ACTIVITIES:     
Net income$590,690  $526,424  $263,835 
Adjustments to reconcile net income to net cash provided by operating activities:     
Depreciation and amortization79,142  79,036  74,562 
Deferred income taxes43,204  35,069  7,633 
Equity-based compensation expense41,783  43,802  38,595 
Amortization of note discounts and issuance costs4,588  6,114  6,830 
Other, net 6,569  8,151  16,807 
Changes in operating assets and liabilities92,330  30,676  64,962 
Net cash provided by operating activities858,306  729,272  473,224 
CASH FLOWS FROM INVESTING ACTIVITIES:     
Capital expenditures and intangible assets(60,064) (34,811) (41,979)
Business acquisitions, net of cash acquired(115,613)    
Net (purchase) sale of available-for-sale securities(117,774) 93,858  431,750 
Transfers of restricted cash and investments160  (48) (5,219)
Other, net(10,600) 103  (7,800)
Net cash (used for) provided by investing activities(303,891) 59,102  376,752 
CASH FLOWS FROM FINANCING ACTIVITIES:     
Principal payments on long-term debt and capital lease obligations and payments for debt issuance costs(301,727) (2,445) (371)
Excess tax benefit on equity-based compensation plans  38,635   
Treasury stock purchases(155,385) (525,778) (1,854)
Dividends paid(72,738) (73,709)  (48,052)
Reissuance of treasury stock related to employee stock purchase plan  23,120  19,320 
Proceeds from issuance of common stock1,042  369  1,459 
Other, net4  (1) (10)
Net cash used for financing activities(528,804) (539,809) (29,508)
Effect of exchange rate changes on cash and cash equivalents3,317  399  1,911 
Net increase in cash and cash equivalents28,928  248,964  822,379 
Cash and cash equivalents at beginning of period2,377,534  2,128,570  5,039,322 
Cash and cash equivalents at end of period$2,406,462  $2,377,534  $5,861,701 


Non-GAAP Financial Summary
(in thousands, except percentages and per share data)
(unaudited)
  
 Three Months Ended
 September 24,
2017
 June 25,
2017
Revenue$2,478,140  $2,344,907 
Gross margin$1,170,905  $1,090,211 
Gross margin as percentage of revenue47.2% 46.5%
Operating expenses$438,056  $440,126 
Operating income$732,849  $650,085 
Operating margin as a percentage of revenue29.6% 27.7%
Net income$627,754  $565,518 
Net income per diluted share$3.46  $3.11 
Shares used in per share calculation - diluted181,412  182,093 


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 24,
2017
 June 25,
2017
U.S. GAAP net income$590,690  $526,424 
Pre-tax non-GAAP items:   
Amortization related to intangible assets acquired through certain business combinations - cost of goods sold21,562  21,250 
Amortization related to intangible assets acquired through certain business combinations - selling, general and administrative16,413  16,083 
Costs associated with business process reengineering - selling, general and administrative716  4,813 
Business combination acquisition-related costs - selling, general and administrative936   
Amortization of note discounts - other expense, net4,104  5,631 
Net income tax benefit on non-GAAP items(6,114) (5,697)
Income tax benefit on conclusion of certain tax matters(553) (2,986)
Non-GAAP net income$627,754  $565,518 
Non-GAAP net income per diluted share$3.46  $3.11 
U.S. GAAP number of shares used for per diluted share calculation183,880  186,427 
Effect of convertible note hedge(2,468) (4,334)
Non-GAAP number of shares used for per diluted share calculation181,412  182,093 


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 24,
2017
 June 25,
2017
U.S. GAAP gross margin$1,149,343  $1,068,961 
Pre-tax non-GAAP items:   
Amortization related to intangible assets acquired through certain business combinations21,562  21,250 
Non-GAAP gross margin$1,170,905  $1,090,211 
U.S. GAAP gross margin as a percentage of revenue46.4% 45.6%
Non-GAAP gross margin as a percentage of revenue47.2% 46.5%
U.S. GAAP operating expenses$456,121  $461,022 
Pre-tax non-GAAP items:   
Amortization related to intangible assets acquired through certain business combinations(16,413) (16,083)
Costs associated with business process reengineering(716) (4,813)
Business combination acquisition-related costs(936)  
Non-GAAP operating expenses$438,056  $440,126 
Non-GAAP operating income$732,849  $650,085  
U.S. GAAP operating margin as percent of revenue28.0% 25.9%
Non-GAAP operating margin as a percent of revenue29.6% 27.7%

Lam Research Corporation Contacts:

Satya Kumar, Investor Relations, phone: 510-572-1615, e-mail: investor.relations@lamresearch.com 

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