Lam Research Corporation

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

FREMONT, CA -- (Marketwired) -- 01/27/16 -- Lam Research Corp. (NASDAQ: LRCX) today announced financial results for the quarter ended December 27, 2015 (the "December 2015 quarter").

Highlights for the December 2015 quarter were as follows:

Key Financial Data for the Quarters Ended December 27, 2015 and September 27, 2015
(in thousands, except per-share data, percentages, and basis points)
 
U.S. GAAP
  December 2015   September 2015   Change Q/Q
                     
Shipments $ 1,287,893     $ 1,579,298     -18 %
Revenue $ 1,425,534     $ 1,600,043     -11 %
Gross margin as percentage of revenue   43.9 %     45.1 %   -120 bps  
Operating margin as percentage of revenue   16.8 %     21.0 %   -420 bps  
Diluted EPS $ 1.28     $ 1.66     -23 %
                     
Non-GAAP
    December 2015     September 2015   Change Q/Q
                     
Shipments $ 1,287,893     $ 1,579,298     -18 %
Revenue $ 1,425,534     $ 1,600,043     -11 %
Gross margin as percentage of revenue   45.5 %     46.5 %   -100 bps  
Operating margin as percentage of revenue   20.8 %     23.8 %   -300 bps  
Diluted EPS $ 1.57     $ 1.82     -14 %
                     

U.S. GAAP Financial Results

For the December 2015 quarter, revenue was $1,426 million, gross margin was $627 million, or 43.9% of revenue, operating expenses were $388 million, operating margin was 16.8% of revenue, and net income was $223 million, or $1.28 per diluted share on a GAAP basis. This compares to revenue of $1,600 million, gross margin of $722 million, or 45.1% of revenue, operating expenses of $387 million, operating margin of 21.0% of revenue, and net income of $289 million, or $1.66 per diluted share, for the quarter ended September 27, 2015 (the "September 2015 quarter").

Non-GAAP Financial Results

For the December 2015 quarter, non-GAAP gross margin was $648 million or 45.5% of revenue, non-GAAP operating expenses were $352 million, non-GAAP operating margin was 20.8% of revenue, and non-GAAP net income was $270 million, or $1.57 per diluted share. This compares to non-GAAP gross margin of $744 million or 46.5% of revenue, non-GAAP operating expenses of $364 million, non-GAAP operating margin of 23.8% of revenue, and non-GAAP net income of $313 million, or $1.82 per diluted share for the September 2015 quarter.

"Lam's strong December quarter concludes a historic year for Lam, headlined by the delivery of nearly $6 billion in shipments and revenue, and over six dollars in EPS," said Martin Anstice, Lam Research's president and chief executive officer. "Strong execution combined with our ability to capitalize on the inflection-driven market expansion continued to drive outperformance in profitable growth. We remain committed to invest proactively and broadly to create enabling value for our customers and growth for Lam. We are excited about our proposed business combination with KLA-Tencor, which upon completion will deliver a new and unmatched capability to the benefit of the global semiconductor industry."

Balance Sheet and Cash Flow Results

Cash and cash equivalents, short-term investments, and restricted cash and investments balances increased to $4.7 billion at the end of the December 2015 quarter compared to $4.5 billion at the end of the September 2015 quarter. This increase was primarily the result of approximately $295 million in cash flows from operating activities which was partially offset by approximately $13 million of treasury stock repurchases related to net share settlement on employee stock-based compensation; approximately $28 million of capital expenditures; and approximately $48 million of dividends paid to stockholders during the December 2015 quarter.

Deferred revenue at the end of the December 2015 quarter decreased to $395 million as compared to $517 million at the end of the September 2015 quarter. Deferred profit at the end of the December 2015 quarter decreased to $261 million as compared to $325 million at the end of the September 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 $109 million as of December 27, 2015.

Geographic Distribution

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

Region   Shipments     Revenue  
Taiwan   38 %   31 %
Japan   21 %   22 %
China   9 %   17 %
Korea   15 %   15 %
United States   8 %   7 %
Southeast Asia   5 %   5 %
Europe   4 %   3 %

Outlook

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

  U.S. GAAP   Reconciling Items   Non-GAAP
Shipments $1.43 Billion +/- $75 Million   -   $1.43 Billion +/- $75 Million
Revenue $1.30 Billion +/- $75 Million   -   $1.30 Billion +/- $75 Million
Gross margin 42.4% +/- 1%   $21 Million   44.0% +/- 1%
Operating margin 14.2% +/- 1%   $37 Million   17.0% +/- 1%
Net income per diluted share $0.77 +/- $0.10   $50 Million   $1.07 +/- $0.10
Diluted share count 174.5 Million   2 Million   172.5 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 KLA-Tencor related acquisition or integration expenses, 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 December 2015 and September 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 December 2015 quarter non-GAAP results exclude costs associated with the KLA-Tencor acquisition, amortization of bridge loan issuance costs associated with the KLA-Tencor acquisition, and income tax benefit from tax extenders primarily the research and development credit; and the September 2015 quarter non-GAAP results exclude cumulative income tax benefits due to a court ruling.

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 achieve market growth gains at key inflections, our ability to continue to outperform, our commitment and ability to deliver growth and value for our customers and our stockholders; the nature of the capabilities we deliver for the benefit of the global semiconductor industry following our proposed acquisition of KLA-Tencor Corporation ("KLA-Tencor") (the "proposed transaction"); 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: the proposed transaction may not close and if it does close we may not receive the expected benefits of the proposed transaction, such as the scale and breadth of critical technologies and better financial performance for our stockholders; our stockholders and the KLA-Tencor stockholders may not support the proposed transaction; 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 annual report on Form 10-K for the fiscal year ended June 28, 2015 and quarterly report on Form 10-Q for the fiscal quarter ended September 27, 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-Tencor, or the merged company, following the implementation of the proposed transaction 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-Tencor for their consideration. On December 7, 2015, Lam and KLA-Tencor filed with the SEC a Registration Statement on Form S-4 that includes a preliminary joint proxy statement of Lam and KLA-Tencor and a prospectus for Lam. The Registration Statement on Form S-4 was amended on January 12, 2016 and declared effective by the SEC on January 13, 2016. Each of Lam and KLA-Tencor mailed the definitive joint proxy statement/prospectus to their respective stockholders on or about January 19, 2016. Lam and KLA-Tencor 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-Tencor may file with the SEC in connection with the proposed transaction. Investors and security holders of Lam and KLA-Tencor 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 contain, or 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 are 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-Tencor on KLA-Tencor'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-Tencor).

Participants in the Solicitation

Lam, KLA-Tencor, 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-Tencor 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-Tencor stockholders in connection with the proposed transaction is set forth in the definitive joint proxy statement/prospectus that was filed with the SEC on January 13, 2016.

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     Six Months Ended  
  December 27,     September 27,     December 28,     December 27,     December 28,  
  2015     2015
    2014
    2015
    2014
 
    (unaudited)  
Revenue $ 1,425,534     $ 1,600,043     $ 1,232,241     $ 3,025,577     $ 2,384,609  
  Cost of goods sold   799,024       877,680       695,584       1,676,704       1,342,413  
    Gross margin   626,510       722,363       536,657       1,348,873       1,042,196  
    Gross margin as a percent of revenue   43.9 %     45.1 %     43.6 %     44.6 %     43.7 %
Research and development   220,754       234,209       196,768       454,963       385,702  
Selling, general and administrative   166,922       152,726       151,148       319,648       299,455  
    Total operating expenses   387,676       386,935       347,916       774,611       685,157  
    Operating income   238,834       335,428       188,741       574,262       357,039  
    Operating income as a percent of revenue   16.8 %     21.0 %     15.3 %     19.0 %     15.0 %
Other expense, net   (29,935 )     (27,121 )     (9,799 )     (57,056 )     (15,447 )
    Income before income taxes   208,899       308,307       178,942       517,206       341,592  
Income tax benefit (expense)   14,081       (19,628 )     (2,002 )     (5,547 )     (23,571 )
    Net income $ 222,980     $ 288,679     $ 176,940     $ 511,659     $ 318,021  
Net income per share:                                      
  Basic $ 1.41     $ 1.82     $ 1.11     $ 3.23     $ 1.98  
  Diluted $ 1.28     $ 1.66     $ 1.00     $ 2.94     $ 1.80  
                                       
Number of shares used in per share calculations:                                      
  Basic   158,424       158,352       159,248       158,388       160,467  
  Diluted   174,242       174,374       177,046       174,308       177,082  
Cash dividend declared per share $ 0.30     $ 0.30     $ 0.18     $ 0.60     $ 0.36  
                                       
LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
                 
  December 27,   September 27,   June 28,
  2015   2015   2015
  (unaudited)   (unaudited)   (1)
ASSETS                
Cash and cash equivalents $ 1,967,873   $ 1,744,325   $ 1,501,539
Investments   2,507,607     2,587,474     2,574,947
Accounts receivable, net   1,089,850     1,088,942     1,093,582
Inventories   879,821     916,683     943,346
Other current assets   225,046     178,557     157,435
  Total current assets   6,670,197     6,515,981     6,270,849
Property and equipment, net   643,746     636,769     621,418
Restricted cash and investments   207,568     183,455     170,969
Goodwill and intangible assets   2,039,213     2,076,164     2,115,649
Other assets   189,697     182,062     185,763
    Total assets $ 9,750,421   $ 9,594,431   $ 9,364,648
LIABILITIES AND STOCKHOLDERS' EQUITY                
Current portion of convertible notes and capital leases $ 973,697   $ 969,392   $ 1,359,650
Other current liabilities   1,249,283     1,312,549     1,271,711
  Total current liabilities   2,222,980     2,281,941     2,631,361
Long-term debt and capital leases   1,404,683     1,400,615     1,001,382
Income taxes payable   257,502     247,448     202,930
Other long-term liabilities   135,303     127,607     184,023
  Total liabilities   4,020,468     4,057,611     4,019,696
Temporary equity, convertible notes   177,662     178,665     241,808
Stockholders' equity (2)   5,552,291     5,358,155     5,103,144
    Total liabilities and stockholders' equity $ 9,750,421   $ 9,594,431   $ 9,364,648
                 
(1) Derived from audited financial statements
(2) Common shares issued and outstanding were 158,568 as of December 27, 2015, 158,101 as of September 27, 2015, and 158,531 as of June 28, 2015
 
LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
  Three Months Ended     Six Months Ended  
  December 27,
    September 27,
    December 28,
    December 27,
    December 28,
 
  2015
    2015
    2014
    2015
    2014
 
    (unaudited)  
CASH FLOWS FROM OPERATING ACTIVITIES:                                      
Net income $ 222,980     $ 288,679     $ 176,940     $ 511,659     $ 318,021  
Adjustments to reconcile net income to net cash provided by operating activities:                                      
Depreciation and amortization   71,798       70,590       69,536       142,388       137,421  
Deferred income taxes   8,176       (5,563 )     3,320       2,613       6,506  
Equity-based compensation expense   32,570       35,774       30,632       68,344       62,672  
Income tax benefit on equity-based compensation plans   2,168       3,545       1,141       5,713       11,002  
Excess tax benefit on equity-based compensation plans   (2,181 )     (3,572 )     (599 )     (5,753 )     (11,003 )
Amortization of note discounts and issuance costs   23,649       9,831       9,199       33,480       18,299  
Gain on sale of business   -       -       -       -       (7,431 )
Other, net   10,592       10,011       1,607       20,603       7,133  
Changes in operating assets and liabilities   (75,207 )     39,702       (130,537 )     (35,505 )     (240,220 )
Net cash provided by operating activities   294,545       448,997       161,239       743,542       302,400  
CASH FLOWS FROM INVESTING ACTIVITIES:                                      
Capital expenditures and intangible assets   (28,143 )     (49,454 )     (61,363 )     (77,597 )     (103,234 )
Business acquisitions, net of cash acquired   -       -       -       -       (1,137 )
Net sale (purchase) of available-for-sale securities   39,202       (28,203 )     (321,590 )     10,999       (311,945 )
Repayment of notes receivable   8,082       -       3,978       8,082       3,978  
Proceeds from sale of business   -       -       -       -       41,212  
Other, net   (4,746 )     (1,500 )     100       (6,246 )     122  
Net cash provided by (used for) investing activities   14,395       (79,157 )     (378,875 )     (64,762 )     (371,004 )
CASH FLOWS FROM FINANCING ACTIVITIES:                                      
Principal payments on long-term debt and capital lease obligations and payments for debt issuance costs   (28,374 )     (96 )     (674 )     (28,470 )     (781 )
Excess tax benefit on equity-based compensation plans   2,181       3,572       599       5,753       11,003  
Treasury stock purchases   (12,798 )     (98,385 )     (65,536 )     (111,183 )     (373,958 )
Dividends paid   (47,896 )     (47,659 )     (29,381 )     (95,555 )     (58,621 )
Re-issuance of treasury stock related to employee stock purchase plan   -       19,245       -       19,245       16,919  
Proceeds from issuance of common stock   1,173       377       4,223       1,550       8,832  
Other, net   (22 )     (300 )     -       (322 )     -  
Net cash used for financing activities   (85,736 )     (123,246 )     (90,769 )     (208,982 )     (396,606 )
Effect of exchange rate changes on cash and cash equivalents   344       (3,808 )     (3,998 )     (3,464 )     (6,192 )
Net increase (decrease) in cash and cash equivalents   223,548       242,786       (312,403 )     466,334       (471,402 )
Cash and cash equivalents at beginning of period   1,744,325       1,501,539       1,293,678       1,501,539       1,452,677  
Cash and cash equivalents at end of period $ 1,967,873     $ 1,744,325     $ 981,275     $ 1,967,873     $ 981,275  
                                       
Non-GAAP Financial Summary
(in thousands, except percentages and per share data)
(unaudited)
               
  Three Months Ended
  December 27,     September 27,  
  2015     2015  
Revenue $ 1,425,534     $ 1,600,043  
Gross margin $ 648,409     $ 743,984  
Gross margin as percentage of revenue   45.5 %
    46.5 %
Operating expenses $ 352,135     $ 363,596  
Operating income $ 296,274     $ 380,388  
Operating margin as a percentage of revenue   20.8 %     23.8 %
Net income $ 270,313     $ 313,045  
Net income per diluted share $ 1.57     $ 1.82  
Shares used in per share calculation - diluted   171,796       172,046  
               
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  
  December 27,
    September 27,
    June 28,
    March 29,
 
  2015
    2015
    2015
    2015
 
U.S. GAAP net income $ 222,980     $ 288,679       131,271       206,285  
Pre-tax non-GAAP items:                              
Amortization related to intangible assets acquired in Novellus transaction - cost of goods sold   21,250       21,250       21,286       21,286  
Acquisition-related inventory fair value impact - cost of goods sold   649       -       1,192       308  
Impairment of long lived asset - cost of goods sold   -       -       9,821       -  
Restructuring charges - cost of goods sold   -       371       -       -  
Restructuring charges - research and development   34       4,206       -       -  
Acquisition costs - selling, general and administrative   17,392       -       -       -  
Amortization related to intangible assets acquired in Novellus transaction - selling, general and administrative   16,083       16,083       16,083       16,083  
Restructuring charges - selling, general and administrative   2,032       3,050       434       (495 )
Goodwill impairment - selling, general and administrative   -       -       79,444       -  
Amortization of note discounts - other expense, net   9,258       9,122       9,019       8,749  
Amortization of bridge loan issuance costs - other expense, net   13,573       -       -       -  
Net income tax benefit on non-GAAP items   (19,335 )     (7,791 )     (9,605 )     (7,181 )
Cumulative income tax benefit due to a court ruling   -       (21,925 )     -       -  
Income tax expense (benefit) on resolution or additional accrual for certain tax matters   -       -       1,078       (124 )
Income tax benefit from tax extenders, primarily the research and development credit   (13,603 )     -       -       -  
Non-GAAP net income $ 270,313     $ 313,045     $ 260,023     $ 244,911  
Non-GAAP net income per diluted share $ 1.57     $ 1.82     $ 1.50     $ 1.40  
U.S. GAAP number of shares used for per diluted share calculation   174,242       174,374       176,575       177,531  
Effect of convertible note hedge   (2,446 )     (2,328 )     (2,934 )     (3,060 )
Non-GAAP number of shares used for per diluted share calculation   171,796       172,046       173,641       174,471  
                               
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  
  December 27,     September 27,  
  2015     2015  
U.S. GAAP gross margin $ 626,510     $ 722,363  
Pre-tax non-GAAP items:              
Amortization related to intangible assets acquired in Novellus transaction - cost of goods sold   21,250       21,250  
Acquisition-related inventory fair value impact - cost of goods sold   649       -  
Restructuring charges - cost of goods sold   -       371  
Non-GAAP gross margin $ 648,409     $ 743,984  
U.S. GAAP gross margin as a percentage of revenue   43.9 %     45.1 %
Non-GAAP gross margin as a percentage of revenue   45.5 %     46.5 %
U.S. GAAP operating expenses $ 387,676     $ 386,935  
Pre-tax non-GAAP items:              
Restructuring charges - research and development   (34 )     (4,206 )
Acquisition costs - selling, general and administrative   (17,392 )     -  
Amortization related to intangible assets acquired in Novellus transaction - selling, general and administrative   (16,083 )     (16,083 )
Restructuring charges - selling, general and administrative   (2,032 )     (3,050 )
Non-GAAP operating expenses $ 352,135     $ 363,596  
Non-GAAP operating income $ 296,274     $ 380,388  
GAAP operating margin as percent of revenue   16.8 %     21.0 %
Non-GAAP operating margin as a percent of revenue   20.8 %     23.8 %

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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