Lam Research Corporation

Lam Research Corporation Reports Financial Results for the Quarter Ended September 27, 2015

FREMONT, CA -- (Marketwired) -- 10/21/15 -- Lam Research Corp. (NASDAQ: LRCX) today announced financial results for the quarter ended September 27, 2015. A conference call and webcast will be held beginning at 5:00 a.m. Pacific Time. Please dial in 5 - 10 minutes prior to the start time using the dial in numbers and conference ID below:

Conference ID: 4899617

Participants, Int'l Toll: 719-325-2494

Participants, US/CAN Toll free: 888-438-5453

Highlights for the September 2015 quarter were as follows:

 
U.S. GAAP
    September 2015   June 2015   Change Q/Q
                 
Revenue   $ 1,600,043   $ 1,481,370   +8%
Shipments   $ 1,579,298   $ 1,615,968   -2%
Gross margin as percentage of revenue     45.1%     43.3%   +180 bps
Operating margin as percentage of revenue     21.0%     12.9%   +810 bps
Diluted EPS   $ 1.66   $ 0.74   +124%
                 
Non-GAAP
      September 2015     June 2015   Change Q/Q
                 
Revenue   $ 1,600,043   $ 1,481,370   +8%
Shipments   $ 1,579,298   $ 1,615,968   -2%
Gross margin as percentage of revenue     46.5%     45.5%   +100 bps
Operating margin as percentage of revenue     23.8%     21.6%   +220 bps
Diluted EPS   $ 1.82   $ 1.50   +21%
                 

GAAP Financial Results

For the September 2015 quarter, revenue was $1,600.0 million, gross margin was $722.4 million, or 45.1% of revenue, operating expenses were $386.9 million, operating margin was 21.0% of revenue, and net income was $288.7 million, or $1.66 per diluted share on a GAAP basis. This compares to revenue of $1,481.4 million, gross margin of $641.5 million, or 43.3% of revenue, operating expenses of $450.5 million, operating margin of 12.9% of revenue, and net income of $131.3 million, or $0.74 per diluted share, for the quarter ended June 28, 2015 (the "June 2015 quarter"). The September 2015 operating expenses, operating margin, net income and income per diluted share were negatively impacted by $7.3 million of restructuring charges. The June 2015 operating expenses, operating margin, net income and income per diluted share were negatively impacted by a goodwill impairment charge of $79.4 million. In addition, the June 2015 gross margin, operating margin, net income and income per diluted share were negatively impacted by an impairment charge related to a long-lived asset of $9.8 million.

Non-GAAP Financial Results

For the September 2015 quarter, non-GAAP gross margin was $744.0 million or 46.5% of revenue, non-GAAP operating expenses were $363.6 million, non-GAAP operating margin was 23.8% of revenue, and non-GAAP net income was $313.0 million, or $1.82 per diluted share. This compares to non-GAAP gross margin of $673.8 million or 45.5% of revenue, non-GAAP operating expenses of $354.5 million, non-GAAP operating margin of 21.6% of revenue, and non-GAAP net income of $260.0 million, or $1.50 per diluted share for the June 2015 quarter.

"Lam posted record revenue and earnings in the September quarter and is on track to deliver over 20% revenue growth for the third consecutive year in calendar 2015," said Martin Anstice, Lam Research's president and chief executive officer. "We are positioning the company for continued outperformance by focusing on our commitment to helping our customers solve their most critical challenges, through the delivery of differentiated products and services in the market expanding technology inflections."

Balance Sheet and Cash Flow Results

Cash and cash equivalents, short-term investments, and restricted cash and investments balances increased to $4.5 billion at the end of the September 2015 quarter compared to $4.2 billion at the end of the June 2015 quarter. This increase was primarily the result of approximately $449.0 million in cash flows from operating activities which was partially offset by approximately $98.4 million of treasury stock repurchases, including net share settlement on employee stock-based compensation; approximately $49.5 million of capital expenditures; and approximately $47.7 million of dividends paid to stockholders during the September 2015 quarter.

Deferred revenue at the end of the September 2015 quarter remained stable at $517.4 million, as compared to $518.1 million at the end of the June 2015 quarter, while deferred profit balances at the end of the September 2015 quarter increased to $325.0 million, as compared to $322.1 million at the end of the June 2015 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 $146.7 million as of September 27, 2015.

Geographic Distribution

The geographic distribution of shipments and revenue during the September 2015 quarter is shown in the following table:

     
Region Shipments Revenue
Taiwan 26% 28%
Japan 17% 18%
Korea 13% 17%
China 25% 16%
United States 8% 9%
Southeast Asia 8% 8%
Europe 3% 4%
     

Outlook

For the December 2015 quarter, Lam is providing the following guidance:

    GAAP   Reconciling Items   Non-GAAP
Shipments   $1.275 Billion   +/-   $75 Million   -   $1.275 Billion   +/-   $75 Million
Revenue   $1.410 Billion   +/-   $75 Million   -   $1.410 Billion   +/-   $75 Million
Gross margin   44.0%   +/-   1%   $21 Million   45.5%   +/-   1%
Operating margin   17.8%   +/-   1%   $37 Million   20.5%   +/-   1%
Net income per diluted share   $1.19   +/-   $0.10   $38 Million   $1.42   +/-   $0.10
Diluted share count   174 Million   2 Million   172 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 U.S. GAAP results, this press release also contains non-GAAP financial results. The Company's non-GAAP results for both the September 2015 and June 2015 quarters exclude amortization related to intangible assets acquired in the Novellus transaction, restructuring impacts, the amortization of notes discounts, and tax expense (benefit) of non-GAAP items. Additionally, the September 2015 quarter non-GAAP results exclude cumulative income tax benefits due to a court ruling, and the June 2015 quarter non-GAAP results exclude acquisition-related inventory fair value impact, long-lived asset impairment, goodwill impairment, and additional accrual for 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.

Cautionary Statement 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 expected revenue growth, our ability to continue to successfully execute our growth strategy and solve our customers' critical challenges through the delivery of differentiated products and services in market expanding technology inflections, our ability to continue to successfully collaborate closely with and to support our customers and their long term success, our ability to achieve market growth gains at key inflections, our ability to continue to outperform, our ability to deliver growth and value for our customers and our stockholders; the extent of inflection driven expansion in our served available market, and our guidance for shipments, revenue, gross margin, operating margin, earnings per share, and diluted earnings per share and share count. Some factors that may affect these forward-looking statements include: our proposed acquisition of KLA-Tencor Corporation ("KLA") (the "proposed transaction") may not close and if it does close we may not receive the expected benefits of the acquisition, such as the scale and breadth of critical technologies and better financial performance for our stockholders; our stockholders and the KLA stockholders may not support the planned acquisition; business conditions in the consumer electronics industry, the semiconductor industry and the overall economy may deteriorate; and the strength of the financial position reflected in documents filed or furnished by us with the Securities and Exchange Commission, including specifically our report on Form 10-K for the fiscal year ended June 28, 2015, may not be as anticipated. 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. Nothing contained herein constitutes or will be deemed to constitute a forecast, projection or estimate of the future financial performance of Lam, KLA, or the merged company, following the implementation of the proposed acquisition or otherwise. No statement contained herein should be interpreted to mean that the revenue, margins, earnings per share, cash flows or other financial performance metrics of Lam Research or the merged company for the current or future financial years would necessarily match or exceed the historical published figures.

Additional Information and Where to Find It

This document does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. The proposed transaction will be submitted to the stockholders of each of Lam and KLA for their consideration. Lam intends to file with the SEC a Registration Statement on Form S-4 that will include a joint proxy statement/prospectus of Lam and KLA. Each of Lam and KLA will provide the joint proxy statement/prospectus to their respective stockholders. Lam and KLA also plan to file other documents with the SEC regarding the proposed transaction. This document is not a substitute for any prospectus, proxy statement or any other document that Lam or KLA may file with the SEC in connection with the proposed transaction. Investors and security holders of Lam and KLA are urged to read the joint proxy statement/prospectus and any other relevant documents that will be filed with the SEC carefully and in their entirety when they become available because they will contain important information about the proposed transaction. You may obtain copies of all documents filed with the SEC regarding this transaction, free of charge, at the SEC's website (www.sec.gov). In addition, investors and stockholders will be able to obtain free copies of the joint proxy statement/prospectus and other documents filed with the SEC by Lam on Lam's Investor Relations website (investor.lamresearch.com) or by writing to Lam Research Corporation, Investor Relations, 4650 Cushing Parkway, Fremont, CA 94538-6401 (for documents filed with the SEC by Lam), or by KLA on KLA's Investor Relations website (ir.kla-tencor.com) or by writing to KLA-Tencor Corporation, Investor Relations, One Technology Drive, Milpitas, California 95035 (for documents filed with the SEC by KLA).

Participants in the Solicitation

Lam, KLA, their respective directors, and certain of their respective executive officers, other members of management and employees, may, under SEC rules, be deemed to be participants in the solicitation of proxies from Lam and KLA stockholders in connection with the proposed transaction. Information regarding the persons who, under SEC rules, are or may be deemed to be participants in the solicitation of Lam and KLA stockholders in connection with the proposed transaction will be set forth in the joint proxy statement/prospectus when it is filed with the SEC. You can find more detailed information about Lam's executive officers and directors in its definitive proxy statement filed with the SEC on September 21, 2015. You can find more detailed information about KLA's executive officers and directors in its definitive proxy statement filed with the SEC on September 24, 2015. Additional information about Lam's executive officers and directors and KLA's executive officers and directors will be provided in the above-referenced Registration Statement on Form S-4 when it becomes available.

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 Market(SM) 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)
             
    Three Months Ended
    September 27,   June 28,   September 28,
    2015   2015   2014
    (unaudited)   (unaudited)   (unaudited)
Revenue   $ 1,600,043   $ 1,481,370   $ 1,152,368
  Cost of goods sold     877,680     839,832     646,829
    Gross margin     722,363     641,538     505,539
    Gross margin as a percent of revenue     45.1%     43.3%     43.9%
Research and development     234,209     221,675     188,934
Selling, general and administrative     152,726     149,384     148,307
Goodwill impairment     -     79,444     -
  Total operating expenses     386,935     450,503     337,241
  Operating income     335,428     191,035     168,298
  Operating margin as a percent of revenue     21.0%     12.9%     14.6%
Other expense, net     (27,121)     (20,353)     (5,648)
  Income before income taxes     308,307     170,682     162,650
Income tax expense     (19,628)     (39,411)     (21,569)
  Net income   $ 288,679   $ 131,271   $ 141,081
Net income per share:                  
  Basic net income per share   $ 1.82   $ 0.83   $ 0.87
  Diluted net income per share   $ 1.66   $ 0.74   $ 0.80
Number of shares used in per share calculations:                  
  Basic     158,352     158,590     161,685
  Diluted     174,374     176,575     177,118
Cash dividend declared per share   $ 0.30   $ 0.30   $ 0.18
                   
 
LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
             
    September 27,   June 28,   September 28,
    2015   2015   2014
    (unaudited)   (1)   (unaudited)
ASSETS                  
Cash and cash equivalents   $ 1,744,325   $ 1,501,539   $ 1,293,678
Short-term investments     2,587,474     2,574,947     1,593,668
Accounts receivable, net     1,088,942     1,093,582     864,403
Inventories     916,683     943,346     815,612
Other current assets     178,557     157,435     123,615
  Total current assets     6,515,981     6,270,849     4,690,976
Property and equipment, net     636,769     621,418     555,658
Restricted cash and investments     183,455     170,969     149,483
Goodwill and intangible assets     2,076,164     2,115,649     2,322,153
Other assets     182,062     185,763     175,558
  Total assets   $ 9,594,431   $ 9,364,648   $ 7,893,828
                   
LIABILITIES AND STOCKHOLDERS' EQUITY                  
Current portion of convertible notes and capital leases   $ 969,392   $ 1,359,650   $ 519,099
Other Current Liabilities     1,312,549     1,271,711     1,080,526
  Total current liabilities     2,281,941     2,631,361     1,599,625
Long-term debt and capital leases     1,400,615     1,001,382     824,269
Income taxes payable     247,448     202,930     217,118
Other long-term liabilities     127,607     184,023     179,711
  Total liabilities   $ 4,057,611   $ 4,019,696   $ 2,820,723
                   
Temporary equity, convertible notes     178,665     241,808     182,432
                   
Stockholders' equity (2)     5,358,155     5,103,144     4,890,673
  Total liabilities and stockholders' equity   $ 9,594,431   $ 9,364,648   $ 7,893,828
                   
(1) Derived from audited financial statements
 
(2) Common shares issued and outstanding were 158,101 as of September 27, 2015, 158,531 as of June 28, 2015, and 159,384 shares as of September 28, 2014.
 
 
LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
             
    Three Months Ended
    September 27,   June 28,   September 28,
    2015   2015   2014
    (unaudited)   (unaudited)   (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:                  
Net income   $ 288,679   $ 131,271   $ 141,081
Adjustments to reconcile net income to net cash provided by operating activities:                  
                 
  Depreciation and amortization     70,590     70,177     67,885
  Deferred income taxes     (5,563)     (2,694)     3,186
  Impairment of long-lived assets     -     9,821     -
  Equity-based compensation expense     35,774     39,734     32,040
  Income tax benefit (expense) on equity-based compensation plans     3,545     (2,124)     9,861
  Excess tax (benefit) expense on equity-based compensation plans     (3,572)     1,809     (10,404)
  Amortization of note discounts and issuance costs     9,831     12,343     9,157
  Gain on sale of business       -      -     (7,431)
  Goodwill impairment     -     79,444     -
  Other, net     10,011     3,621     5,526
  Changes in operating asset and liabilities:     39,702     (51,336)     (109,740)
    Net cash provided by operating activities     448,997     292,066     141,161
                   
CASH FLOWS FROM INVESTING ACTIVITIES:                  
Cash paid for business acquisition     -     -     (1,137)
Net (purchases) sales of available-for-sale securities     (28,203)     (278,379)     9,645
Proceeds from sale of business      -      -      41,212
Other, net     (1,500)     1,056     22
  Net cash (used for) provided by investing activities     (79,157)     (340,456)     7,871
                   
CASH FLOWS FROM FINANCING ACTIVITIES:                  
Principal payments on long-term debt and capital lease obligations     (96)     (615)     (107)
Proceeds from issuance of long-term debt, net issuance costs and captial lease obligations     -     345     -
Excess tax benefit (expense) on equity-based compensation plans     3,572     (1,809)     10,404
Dividends paid       (47,659)      (28,714)      (29,240)
Treasury stock purchases     (98,385)     (74,339)     (308,422)
Reissuances of treasury stock related to employee stock purchase plan     19,245     16,950     16,919
Proceeds from issuance of common stock     377     1,285     4,609
Other, net     (300)     (660)     -
  Net cash used for financing activities     (123,246)     (87,557)     (305,837)
Effect of exchange rate changes on cash     (3,808)     1,850     (2,194)
Net increase (decrease) in cash and cash equivalents     242,786     (134,097)     (158,999)
Cash and cash equivalents at beginning of period     1,501,539     1,635,636     1,452,677
Cash and cash equivalents at end of period   $ 1,744,325   $ 1,501,539   $ 1,293,678
                   
 
Non-GAAP Financial Summary
(in thousands, except percentages and per share data)
(unaudited)
         
    Three Months Ended
    September 27,   June 28,
    2015   2015
Revenue   $ 1,600,043   $ 1,481,370
Gross margin   $ 743,984   $ 673,837
Gross margin as percentage of revenue     46.5%     45.5%
Operating expenses   $ 363,596   $ 354,542
Operating income   $ 380,388   $ 319,295
Operating margin as a percentage of revenue     23.8%     21.6%
Net income   $ 313,045   $ 260,023
Net income per diluted share   $ 1.82   $ 1.50
Shares used in per share calculation - diluted     172,046     173,641
             
 
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 27,   June 28,
    2015   2015
U.S. GAAP net income   $ 288,679   $ 131,271
Pre-tax non-GAAP items:            
Amortization related to intangible assets acquired in Novellus transaction - cost of goods sold     21,250     21,286
Acquisition-related inventory fair value impact - cost of goods sold     -     1,192
Impairment of long lived asset - cost of goods sold     -     9,821
Restructuring charges - cost of goods sold     371     -
Restructuring charges - research and development     4,206     -
Amortization related to intangible assets acquired in Novellus transaction - selling, general and administrative     16,083     16,083
Restructuring charges - selling, general and administrative     3,050     434
Goodwill impairment - selling, general and administrative     -     79,444
Amortization of note discounts - other expense, net     9,122     9,019
Net income tax benefit on non-GAAP items     (7,791)     (9,605)
Cumulative income tax benefit due to a court ruling     (21,925)     -
Net income tax expense on resolution or additional accrual for certain tax matters     -     1,078
Non-GAAP net income   $ 313,045   $ 260,023
Non-GAAP net income per diluted share   $ 1.82   $ 1.50
U.S. GAAP number of shares used for per diluted share calculation     174,374     176,575
Effect of convertible note hedge     (2,328)     (2,934)
Non-GAAP number of shares used for per diluted share calculation     172,046     173,641
             
 
Reconciliation of U.S. GAAP Gross Margin, Operating Expenses and Operating Income to Non-GAAP Gross Margin, Operating Expenses and Operating Income
(unaudited)
         
    Three Months Ended
    September 27,   June 28,
    2015   2015
U.S. GAAP gross margin   $ 722,363   $ 641,538
Pre-tax non-GAAP items:            
Amortization related to intangible assets acquired in Novellus transaction - cost of goods sold     21,250     21,286
Acquisition-related inventory fair value impact - cost of goods sold     -     1,192
Impairment of long lived asset - cost of goods sold     -     9,821
Restructuring charges - cost of goods sold     371     -
Non-GAAP gross margin   $ 743,984   $ 673,837
U.S. GAAP gross margin as a percentage of revenue     45.1%     43.3%
Non-GAAP gross margin as a percentage of revenue     46.5%     45.5%
U.S. GAAP operating expenses   $ 386,935   $ 450,503
Pre-tax non-GAAP items:            
Restructuring charges - research and development     (4,206)     -
Amortization related to intangible assets acquired in Novellus transaction - selling, general and administrative     (16,083)     (16,083)
Restructuring charges - selling, general and administrative     (3,050)     (434)
Goodwill impairment - selling, general and administrative     -     (79,444)
Non-GAAP operating expenses   $ 363,596   $ 354,542
Non-GAAP operating income   $ 380,388   $ 319,295
GAAP operating margin as percent of revenue     21.0%     12.9%
Non-GAAP operating margin as a percent of revenue     23.8%     21.6%
             

Lam Research Corporation Contacts:
Satya Kumar
Investor Relations
phone: 510-572-3232
e-mail: satya.kumar@lamresearch.com

Source: Lam Research Corporation

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