Lam Research Corporation

Lam Research Corporation Reports Financial Results for the Quarter Ended December 28, 2014

FREMONT, CA -- (Marketwired) -- 01/28/15 -- Lam Research Corp. (NASDAQ: LRCX) today announced financial results for the quarter ended December 28, 2014 (the "December 2014 quarter").

Highlights for the December 2014 quarter were as follows:

 
Lam Research Corporation 
Financial Highlights for the Quarters Ended December 28, 2014 and September 28, 2014 
(in thousands, except per share data and percentages) 
               
GAAP
    December 2014     September 2014   Change Q/Q
               
Revenue $ 1,232,241   $ 1,152,368   7%
Gross margin as percentage of revenue   43.6%     43.9%   -30 bps
Operating margin as percentage of revenue   15.3%     14.6%   70 bps
Diluted EPS $ 1.00   $ 0.80   25%
               
Non-GAAP
    December 2014     September 2014   Change Q/Q
               
Revenue $ 1,232,241   $ 1,152,368   7%
Gross margin as percentage of revenue   45.4%     45.8%   -40 bps
Operating margin as percentage of revenue   18.7%     18.0%   70 bps
Diluted EPS $ 1.19   $ 0.96   24%
               

GAAP Financial Results

For the December 2014 quarter, revenue was $1,232.2 million, gross margin was $536.7 million, or 43.6% of revenue, operating expenses were $347.9 million, operating margin was 15.3% of revenue, and net income was $176.9 million, or $1.00 per diluted share on a GAAP basis. This compares to revenue of $1,152.4 million, gross margin of $505.5 million, or 43.9% of revenue, operating expenses of $337.2 million, operating margin of 14.6% of revenue, and net income of $141.1 million, or $0.80 per diluted share, for the quarter ended September 28, 2014 (the "September 2014 quarter").

Non-GAAP Financial Results

For the December 2014 quarter, non-GAAP gross margin was $560.0 million or 45.4% of revenue, non-GAAP operating expenses were $330.2 million, non-GAAP operating margin was 18.7% of revenue, and non-GAAP net income was $207.6 million, or $1.19 per diluted share. This compares to non-GAAP gross margin of $528.0 million or 45.8% of revenue, non-GAAP operating expenses of $321.2 million, non-GAAP operating margin of 18.0% of revenue, and non-GAAP net income of $167.7 million, or $0.96 per diluted share for the September 2014 quarter.

"Lam's December quarter concludes a record calendar year for the Company defined by outperformance in our industry and strong execution on our priorities," said Martin Anstice, Lam Research's president and chief executive officer. "For the year we grew revenue at twice the rate of the industry and made good progress on our market share objectives. Our strong execution combined with a meaningful market expansion is enabling a compelling multi-year growth opportunity." 

Balance Sheet and Cash Flow Results

Cash and cash equivalents, short-term investments, and restricted cash and investment balances remained steady at $3.0 billion at the end of both the December 2014 quarter and the September 2014 quarter. Cash provided by operating activities was utilized for approximately $65.5 million of treasury stock purchases including net share settlement on employee stock-based compensation, $61.4 million of capital expenditures and $29.4 million of cash dividends paid to stockholders during the December 2014 quarter.

Deferred revenue at the end of the December 2014 quarter increased to $373.7 million as compared to $356.8 million at the end of the September 2014 quarter. Deferred profit at the end of the December 2014 quarter increased to $254.8 million as compared to $251.8 million at the end of the September 2014 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 anticipated future revenue from shipments to Japanese customers was approximately $53.2 million as of December 28, 2014.

Geographic Distribution

The geographic distribution of shipments and revenue during the December 2014 quarter is shown in the following table:

     
Region Shipments Revenue
Taiwan 23% 25%
Korea 30% 24%
United States 16% 18%
Japan 13% 12%
China 7% 8%
Southeast Asia 4% 7%
Europe 7% 6%
     

Outlook

For the quarter ending March 29, 2015, Lam is providing the following guidance:

           
  GAAP   Reconciling
Items
  Non-GAAP
Shipments $1.45 Billion +/- $50 Million   -   $1.45 Billion +/- $50 Million
Revenue $1.37 Billion +/- $50 Million   -   $1.37 Billion +/- $50 Million
Gross margin 42.5% +/- 1%   $21 Million   44.0% +/- 1%
Operating margin 16.3% +/- 1%   $37 Million   19.0% +/- 1%
Earnings per share $1.06 +/- $0.07   $38 Million   $1.30 +/- $0.07
Diluted share count 177 Million   3 Million   174 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:

Use of Non-GAAP Financial Results

In addition to GAAP results, this press release also contains non-GAAP financial results. The Company's non-GAAP results for both the December 2014 and September 2014 quarters include the impact of the note hedge issued contemporaneously with the convertible notes due in 2016 and 2018 and exclude amortization related to intangible assets acquired in the Novellus transaction, the amortization of convertible note discounts, and tax expense (benefit) of non-GAAP items. Additionally, the December 2014 quarter non-GAAP results exclude acquisition-related inventory fair value adjustments, cost of restructuring and tax benefit on reinstatement of research and development credit. The September 2014 quarter non-GAAP results also exclude the rationalization of certain product configurations, gain associated with disposition of a business, and tax benefit on valuation allowance adjustment.

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 GAAP results are included at the end of this press release and on the Company's web site 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 of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to, but are not limited to, the anticipated revenue from shipments to Japanese customers; our ability to continue to outperform the semiconductor equipment industry; our ability to continue to grow our revenue and make progress on our market share objectives; our ability to execute and deliver performance that meets or exceeds our plans, including our abilities to execute on our priorities, and deliver multi-year growth; the scope of opportunities we have; our ability to expand our served market; the ability of the market to continue to expand and the extent of any such expansion; and our guidance for shipments, revenue, gross margin, operating margin, earnings per 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; the strength of the financial performance of our existing and prospective customers; the introduction of new and innovative technologies; the occurrence and pace of technology transitions and conversions; the actions of our competitors, consumers, semiconductor companies and key suppliers and subcontractors; and the success of research and development and sales and marketing programs. These forward-looking statements are based on current expectations and are subject to uncertainties and changes in condition, significance, value and effect as well as other risks, including those detailed in documents filed by us with the Securities and Exchange Commission, including specifically our report on Form 10-K for the year ended June 29, 2014 and the Form 10-Q for the quarter ended September 28, 2014. These uncertainties and changes could cause actual results to vary from expectations. The Company undertakes no obligation to update the information or statements made in this press 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, strip, and wafer cleaning 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, 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 Market™ 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   Six Months Ended  
 
 
 
 
December 28 2014  
 
September 28 2014  
 
December 29 2013  
 
December 28 2014  
 
December 29 2013  
 
Revenue   $ 1,232,241   $ 1,152,368   $ 1,116,061   $ 2,384,609   $ 2,131,120  
  Cost of goods sold     695,584     646,829     628,272     1,342,413     1,211,473  
    Gross margin     536,657     505,539     487,789     1,042,196     919,647  
    Gross margin as a percent of revenue     43.6%     43.9%     43.7%     43.7%     43.2%  
Research and development     196,768     188,934     174,477     385,702     345,044  
Selling, general and administrative     151,148     148,307     148,838     299,455     304,721  
    Total operating expenses     347,916     337,241     323,315     685,157     649,765  
    Operating income     188,741     168,298     164,474     357,039     269,882  
    Operating margin as a percent of revenue     15.3%     14.6%     14.7%     15.0%     12.7%  
Other expense, net     (9,799 )   (5,648 )   (3,837 )   (15,447 )   (18,099 )
    Income before income taxes     178,942     162,650     160,637     341,592     251,783  
Income tax expense     2,002     21,569     11,645     23,571     17,285  
    Net income   $ 176,940   $ 141,081   $ 148,992   $ 318,021   $ 234,498  
Net income per share:                                
  Basic net income per share   $ 1.11   $ 0.87   $ 0.92   $ 1.98   $ 1.44  
  Diluted net income per share   $ 1.00   $ 0.80   $ 0.87   $ 1.80   $ 1.37  
Number of shares used in per share calculations:                                
  Basic     159,248     161,685     162,305     160,467     162,603  
  Diluted     177,046     177,118     171,757     177,082     171,592  
                                 
Cash dividend declared per share   $ 0.18   $ 0.18   $ -   $ 0.36   $ -  
                                 

 
LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
                   
    December 28,   September 28,   June 29,
    2014   2014   2014
    (unaudited)   (unaudited)   (1)
ASSETS                  
Cash and cash equivalents   $ 981,275   $ 1,293,678   $ 1,452,677
Short-term investments     1,902,402     1,593,668     1,612,967
Accounts receivable, net     944,014     864,403     800,616
Inventories     913,390     815,612     740,503
Other current assets     173,731     123,615     176,899
  Total current assets     4,914,812     4,690,976     4,783,662
Property and equipment, net     585,372     555,658     543,496
Restricted cash and investments     155,455     149,483     146,492
Goodwill and intangible assets     2,282,006     2,322,153     2,360,303
Other assets     173,044     175,558     159,353
  Total assets   $ 8,110,689   $ 7,893,828   $ 7,993,306
                   
LIABILITIES AND STOCKHOLDERS' EQUITY                  
Current liabilities   $ 1,708,656   $ 1,599,625   $ 1,582,001
                   
Long-term debt, convertible notes, and capital leases   $ 830,880   $ 824,269   $ 817,202
Income taxes payable     205,535     217,118     258,357
Other long-term liabilities     183,678     179,711     122,662
  Total liabilities     2,928,749     2,820,723     2,780,222
                   
Senior convertible notes     181,505     182,432     183,349
Stockholders' equity (2)     5,000,435     4,890,673     5,029,735
  Total liabilities and stockholders' equity   $ 8,110,689   $ 7,893,828   $ 7,993,306
                   
(1) Derived from audited financial statements
 
(2) Common shares issued and outstanding were 159,294 shares as of December 28, 2014, 159,384 shares as of September 28, 2014 and 162,350 shares as of June 29, 2014.

   
LAM RESEARCH CORPORATION  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
(in thousands)  
(unaudited)  
                                       
  Three Months Ended     Six Months Ended  
 
 
 
 
December 28, 2014  
 
 
 
September 28 2014  
 
 
 
December 29 2013  
 
 
 
December 28 2014  
 
 
 
December 29 2013  
 
CASH FLOWS FROM OPERATING ACTIVITIES:                                      
Net income $ 176,940     $ 141,081     $ 148,992     $ 318,021     $ 234,498  
Adjustments to reconcile net income to net cash provided by operating activities:                                      
  Depreciation and amortization   69,536       67,885       73,552       137,421       147,883  
  Deferred income taxes   3,320       3,186       12,457       6,506       12,457  
  Impairment of long-lived asset   -       -       628       -       7,632  
  Equity-based compensation expense   30,632       32,040       23,046       62,672       46,281  
  Income tax benefit on equity-based compensation plans   1,141       9,861       -       11,002       -  
  Excess tax benefit on equity-based compensation plans   (599 )     (10,404 )     -       (11,003 )     -  
  Amortization of convertible note discount   8,609       8,509       8,217       17,118       16,339  
  Gain on sale of business   -       (7,431 )     -       (7,431 )     -  
  Other, net   1,607       5,526       (2,428 )     7,133       1,687  
  Changes in operating assets and liabilities:   (129,947 )     (109,092 )     (135,441 )     (239,039 )     (285,829 )
    Net cash provided by operating activities   161,239       141,161       129,023       302,400       180,948  
                                       
CASH FLOWS FROM INVESTING ACTIVITIES:                                      
Capital expenditures and intangible assets   (61,363 )     (41,871 )     (38,323 )     (103,234 )     (62,101 )
Cash paid for business acquisition   -       (1,137 )     (18,388 )     (1,137 )     (18,388 )
Net sales/maturities (purchases) of available-for-sale securities   (321,590 )     9,645       (88,754 )     (311,945 )     (46,187 )
Repayment of notes receivable   3,978       -       10,000       3,978       10,000  
Proceeds from sale of business, net   -       41,212       -       41,212       -  
Proceeds from sale of assets   -       -       21,635       -       21,635  
Transfer of restricted cash and investments   100       22       -       122       150  
    Net cash (used for) provided by investing activities   (378,875 )     7,871       (113,830 )     (371,004 )     (94,891 )
                                       
CASH FLOWS FROM FINANCING ACTIVITIES:                                      
Principal payments on long-term debt and capital lease obligations   (674 )     (107 )     (719 )     (781 )     (807 )
Excess tax benefit on equity-based compensation plans   599       10,404       -       11,003       -  
Treasury stock purchases   (65,536 )     (308,422 )     (47,910 )     (373,958 )     (152,195 )
Dividends paid   (29,381 )     (29,240 )     -       (58,621 )     -  
Reissuances of treasury stock related to employee stock purchase plan   -       16,919       (35 )     16,919       15,119  
Proceeds from issuance of common stock   4,223       4,609       8,449       8,832       21,023  
    Net cash used for financing activities   (90,769 )     (305,837 )     (40,215 )     (396,606 )     (116,860 )
Effect of exchange rate changes on cash   (3,998 )     (2,194 )     1,393       (6,192 )     885  
Net decrease in cash and cash equivalents   (312,403 )     (158,999 )     (23,629 )     (471,402 )     (29,918 )
Cash and cash equivalents at beginning of period   1,293,678       1,452,677       1,156,184       1,452,677       1,162,473  
Cash and cash equivalents at end of period $ 981,275     $ 1,293,678     $ 1,132,555     $ 981,275     $ 1,132,555  
                                       

 
Non-GAAP Financial Summary
(in thousands, except percentages and per share data)
(unaudited)
           
  Three Months Ended   Three Months Ended
  December 28,   September 28,
  2014   2014
           
Revenue $ 1,232,241   $ 1,152,368
Gross margin $ 560,044   $ 528,032
Gross margin as percentage of revenue   45.4%     45.8%
Operating expenses $ 330,213   $ 321,158
Operating income $ 229,831   $ 206,874
Operating margin as a percentage of revenue   18.7%     18.0%
Net income $ 207,631   $ 167,671
Net income per diluted share $ 1.19   $ 0.96
Shares used in per share calculation -- diluted   174,316     175,433
           

   
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 share and per share data)  
(unaudited)  
                 
    Three Months Ended     Three Months Ended  
    December 28,     September 28,  
    2014     2014  
U.S. GAAP net income   $ 176,940     $ 141,081  
Pre-tax non-GAAP items:                
  Amortization related to intangible assets acquired in Novellus transaction -- cost of goods sold     21,286       20,893  
  Costs associated with rationalization of certain product configurations -- cost of goods sold     -       1,600  
  Acquisition-related inventory fair value impact -- cost of goods sold     2,101       -  
  Amortization related to intangible assets acquired in Novellus transaction -- operating expenses     16,083       16,083  
  Restructuring charges - operating expenses     1,620       -  
  Amortization of convertible note discount, Lam notes -- other expense, net     7,682       7,593  
  Amortization of convertible note discount, Novellus assumed notes -- other expense, net     927       911  
  Net gain associated with disposition of a business -- other expense, net     -       (4,331 )
Net tax (benefit) expense on non-GAAP items     (7,914 )     (13,348 )
Net tax benefit on valuation allowance adjustment     -       (2,811 )
Net tax benefit on reinstatement of research and development credit     (11,094 )     -  
Non-GAAP net income   $ 207,631     $ 167,671  
Non-GAAP net income per diluted share   $ 1.19     $ 0.96  
                 
U.S. GAAP number of shares used for diluted per share calculation     177,046       177,118  
Effect of convertible note hedge     (2,730 )     (1,685 )
Non-GAAP number of shares used for diluted per share calculation
    174,316       175,433  
                 

   
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   Three Months Ended  
    December 28,   September 28,  
    2014   2014  
U.S. GAAP gross margin   $  536,657   $ 505,539  
Pre-tax non-GAAP items:              
  Amortization related to intangible assets acquired in Novellus transaction -- cost of goods sold     21,286     20,893  
  Costs associated with rationalization of certain product configurations -- cost of goods sold     -     1,600  
  Acquisition-related inventory fair value impact -- cost of goods sold     2,101     -  
Non-GAAP gross margin    $  560,044   $ 528,032  
U.S. GAAP gross margin as a percentage of revenue     43.6%     43.9%  
Non-GAAP gross margin as a percentage of revenue     45.4%     45.8%  
U.S. GAAP operating expenses    $  347,916   $ 337,241  
Pre-tax non-GAAP items:              
  Amortization related to intangible assets acquired in Novellus transaction - operating expenses     (16,083     (16,083 )
  Restructuring charges -- operating expenses     (1,620     -  
Non-GAAP operating expenses    $  330,213   $ 321,158  
Non-GAAP operating income    $  229,831   $ 206,874  
Non-GAAP operating margin as a percent of revenue     18.7%     18.0%  

Lam Research Corporation Contact:

Audrey Charles
Investor Relations
Phone: 510-572-1615
E-mail: audrey.charles@lamresearch.com

Source: Lam Research Corporation

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