Lam Research Corporation

Lam Research Corporation Reports Financial Results for the Quarter Ended June 26, 2016

FREMONT, CA -- (Marketwired) -- 07/27/16 -- Lam Research Corp. (NASDAQ: LRCX) today announced financial results for the quarter ended June 26, 2016 (the "June 2016 quarter").

Highlights for the June 2016 quarter were as follows:

 
Key Financial Data for the Quarters Ended June 26, 2016 and March 27, 2016
(in thousands, except per-share data, percentages, and basis points)
 
U.S. GAAP
    June 2016     March 2016     Change Q/Q
Shipments   $ 1,587,417     $ 1,446,002     + 10%
Revenue   $ 1,546,261     $ 1,314,055     + 18%
Gross margin as percentage of revenue     45.2 %     43.5 %   + 170 bps
Operating margin as percentage of revenue     20.0 %     14.5 %   + 550 bps
Diluted EPS   $ 1.46     $ 0.82     + 78%
 
Non-GAAP
    June 2016     March 2016     Change Q/Q
Shipments   $ 1,587,417     $ 1,446,002     + 10%
Revenue   $ 1,546,261     $ 1,314,055     + 18%
Gross margin as percentage of revenue     46.6 %     45.1 %   + 150 bps
Operating margin as percentage of revenue     23.2 %     18.4 %   + 480 bps
Diluted EPS   $ 1.80     $ 1.18     + 53%
                     

U.S. GAAP Financial Results

For the June 2016 quarter, revenue was $1,546 million, gross margin was $699 million, or 45.2% of revenue, operating expenses were $390 million, operating margin was 20.0% of revenue, and net income was $259 million, or $1.46 per diluted share on a GAAP basis. This compares to revenue of $1,314 million, gross margin of $571 million, or 43.5% of revenue, operating expenses of $381 million, operating margin of 14.5% of revenue, and net income of $143 million, or $0.82 per diluted share, for the quarter ended March 27, 2016 (the "March 2016 quarter").

Non-GAAP Financial Results

For the June 2016 quarter, non-GAAP gross margin was $720 million or 46.6% of revenue, non-GAAP operating expenses were $361 million, non-GAAP operating margin was 23.2% of revenue, and non-GAAP net income was $315 million, or $1.80 per diluted share. This compares to non-GAAP gross margin of $593 million or 45.1% of revenue, non-GAAP operating expenses of $350 million, non-GAAP operating margin of 18.4% of revenue, and non-GAAP net income of $203 million, or $1.18 per diluted share for the March 2016 quarter.

"The June quarter was characterized by very positive momentum as the Company met or exceeded expectations across the board," said Martin Anstice, Lam Research's President and Chief Executive Officer. "Sequential quarterly operating profit growth of approximately 500 basis points is a strong endorsement of Lam's opportunity and execution capabilities. Our guidance for record shipments in September and outlook for second half 2016 growth confirms our increased strategic relevance, strong customer trust and the differentiation of our core values. We believe that our underlying fundamentals and multi-year outperformance opportunity remain strong on a standalone basis, and subsequent to closing our merger with KLA-Tencor we are focused on further strengthening that position and accelerating innovation for the benefit of our customers."

Balance Sheet and Cash Flow Results

Cash and cash equivalents, short-term investments, and restricted cash and investments balances increased to $7.1 billion at the end of the June 2016 quarter compared to $4.8 billion at the end of the March 2016 quarter. This increase was primarily the result of approximately $1.9 billion in debt proceeds, net repayments of maturing debt, combined with $424 million of cash generated in operating activities.

Deferred revenue at the end of the June 2016 quarter increased to $566 million as compared to $511 million at the end of the March 2016 quarter. Deferred profit at the end of the June 2016 quarter increased to $349 million as compared to $334 million at the end of the March 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 $132 million as of June 26, 2016.

Geographic Distribution

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

Region   Shipments   Revenue  
           
China   17 % 22 %
Southeast Asia   20 % 21 %
Taiwan   20 % 15 %
Korea   15 % 15 %
Japan   14 % 14 %
United States   10 % 10 %
Europe   4 % 3 %
           

Outlook

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

  U.S. GAAP   Reconciling Items   Non-GAAP
Shipments $1.700 Billion +/- $75 Million   --   $1.700 Billion +/- $75 Million
Revenue $1.625 Billion +/- $75 Million   --   $1.625 Billion +/- $75 Million
Gross margin 44.2% +/- 1%   $21 Million   45.5% +/- 1%
Operating margin 20.2% +/- 1%   $37 Million   22.5% +/- 1%
Net income per diluted share $1.48 +/- $0.10   $48 Million   $1.77 +/- $0.10
Diluted share count 178 Million   2 Million   176 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 other than the net interest expense associated with the KLA-Tencor pre-acquisition funding, 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 June 2016 and March 2016 quarters exclude amortization related to intangible assets acquired in the Novellus transaction, restructuring impacts, the amortization of notes discounts, costs associated with the KLA-Tencor acquisition, amortization of bridge loan issuance costs and other related fees associated with the KLA-Tencor acquisition, tax benefit of non-GAAP items, and income tax benefit on resolution of certain tax matters. Additionally, the June 2016 quarter excludes Novellus acquisition transaction related inventory fair value impact, cost associated with campus consolidation, gain on sale of real property net of associated exit costs, KLA-Tencor pre-acquisition funding net interest expense, and change to income tax benefit from 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.

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 second half calendar year 2016 growth outlook and its impact on our strategic relevance, customer trust and differentiation of our core values; the extent of our underlying fundamentals and multi-year outperformance opportunities as a standalone entity and our ability to strengthen those positions and accelerate innovation for the benefit of our customers following the proposed acquisition of KLA-Tencor Corporation ("KLA-Tencor"); the legal and business factors that may affect our future tax rate; our ability to close the proposed acquisition of KLA-Tencor; 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: the proposed transaction with KLA-Tencor 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; 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 28, 2015 and quarterly reports on Form 10-Q for the fiscal quarters ended September 27, 2015, December 27, 2015 and March 27, 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 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)  
   
  Three Months Ended     Twelve Months Ended  
  June 26, 2016     March 27, 2016     June 28, 2015     June 26, 2016     June 28, 2015  
  (unaudited)     (unaudited)     (unaudited)     (unaudited)     (1)  
Revenue $ 1,546,261     $ 1,314,055     $ 1,481,370     $ 5,885,893     $ 5,259,312  
Cost of goods sold   847,477       742,790       839,832       3,266,971       2,974,976  
    Gross margin   698,784       571,265       641,538       2,618,922       2,284,336  
    Gross margin as a percent of revenue   45.2 %     43.5 %     43.3 %     44.5 %     43.4 %
Research and development   237,255       221,494       221,675       913,712       825,242  
Selling, general and administrative   152,288       159,018       149,384       630,954       591,611  
Goodwill Impairment   --       --       79,444       --       79,444  
    Total operating expenses   389,543       380,512       450,503       1,544,666       1,496,297  
    Operating income   309,241       190,753       191,035       1,074,256       788,039  
    Operating income as a percent of revenue   20.0 %     14.5 %     12.9 %     18.3 %     15.0 %
Other expense, net   (27,249 )     (29,834 )     (20,353 )     (114,139 )     (47,189 )
    Income before income taxes   281,992       160,919       170,682       960,117       740,850  
Income tax expense   (23,053 )     (17,468 )     (39,411 )     (46,068 )     (85,273 )
    Net income $ 258,939     $ 143,451     $ 131,271     $ 914,049     $ 655,577  
Net income per share:                                      
  Basic $ 1.62     $ 0.90     $ 0.83     $ 5.75     $ 4.11  
  Diluted $ 1.46     $ 0.82     $ 0.74     $ 5.22     $ 3.70  
Number of shares used in per share calculations:                                      
  Basic   159,862       159,039       158,590       158,919       159,629  
  Diluted   177,649       174,373       176,575       175,159       177,067  
Cash dividend declared per common share $ 0.30     $ 0.30     $ 0.30     $ 1.20     $ 0.84  
   
(1) Derived from audited financial statements.  
   
   
LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
    June 26, 2016   March 27, 2016   June 28, 2015
    (unaudited)   (unaudited)   (1)
ASSETS            
Cash and cash equivalents   $ 5,039,322   $ 2,232,021   $ 1,501,539
Investments     1,788,612     2,306,718     2,574,947
Accounts receivable, net     1,262,145     1,236,617     1,093,582
Inventories     971,911     934,932     943,346
Other current assets     152,921     231,277     157,435
  Total current assets     9,214,911     6,941,565     6,270,849
Property and equipment, net     639,608     664,424     621,418
Restricted cash and investments     250,421     227,838     170,969
Goodwill and intangible assets     1,951,197     1,999,338     2,115,649
Other assets     215,391     191,097     185,763
    Total assets   $ 12,271,528   $ 10,024,262   $ 9,364,648
LIABILITIES AND STOCKHOLDERS' EQUITY                  
Current portion of convertible notes and capital leases   $ 949,494   $ 978,982   $ 1,359,650
Other current liabilities     1,470,308     1,363,204     1,271,711
  Total current liabilities     2,419,802     2,342,186     2,631,361
Long-term debt and capital leases     3,383,581     1,407,250     1,001,382
Income taxes payable     231,514     266,681     202,930
Other long-term liabilities     134,562     137,017     184,023
  Total liabilities     6,169,459     4,153,134     4,019,696
Temporary equity, convertible notes     207,552     178,789     241,808
Stockholders' equity (2)     5,894,517     5,692,339     5,103,144
    Total liabilities and stockholders' equity   $ 12,271,528   $ 10,024,262   $ 9,364,648
                   
(1) Derived from audited financial statements.
(2) Common shares issued and outstanding were 160,201 as of June 26, 2016, 159,319 as of March 27, 2016 and 158,531 as of June 28, 2015.
 
 
LAM RESEARCH CORPORATION  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
(in thousands)  
   
  Three Months Ended
    Twelve Months Ended  
  June 26, 2016     March 27, 2016     June 28, 2015     June 26, 2016     June 28, 2015  
  (unaudited)     (unaudited)     (unaudited)     (unaudited)     (1)  
CASH FLOWS FROM OPERATING ACTIVITIES:                                      
Net income $ 258,939     $ 143,451     $ 131,271     $ 914,049     $ 655,577  
Adjustments to reconcile net income to net cash provided by operating activities:                                      
  Depreciation and amortization   74,976       73,664       70,177       291,028       277,920  
  Deferred income taxes   (46,708 )     (4,908 )     (2,694 )     (49,003 )     5,551  
  Impairment of long-lived assets   --       --       9,821       --       9,821  
  Equity-based compensation expense   39,288       34,716       39,734       142,348       135,354  
  Income tax benefit on equity-based compensation plans   (8,048 )     1,312       (2,124 )     (1,023 )     11,316  
  Excess tax benefit on equity-based compensation plans   9,035       (2,262 )     1,809       1,020       (11,398 )
  Amortization of note discounts and issuance costs   14,584       22,458       11,023       70,522       37,550  
  Gain on sale of business   --       --       --       --       (7,431 )
  Gain on sale of assets   (15,223 )     --       --       (15,223 )     --  
  Goodwill impairment   --       --       79,444       --       79,444  
  Other, net   17,929       10,256       3,621       48,788       12,656  
  Changes in operating assets and liabilities   79,052       (95,776 )     (50,016 )     (52,229 )     (420,857 )
    Net cash provided by operating activities   423,824       182,911       292,066       1,350,277       785,503  
CASH FLOWS FROM INVESTING ACTIVITIES:                                      
Capital expenditures and intangible assets   (51,726 )     (46,007 )     (63,133 )     (175,330 )     (198,265 )
Business acquisitions, net of cash acquired   --       --       --       --       (1,137 )
Net sale (purchase) of available-for-sale securities   605,891       181,938       (278,379 )     798,828       (949,740 )
Proceeds from sale of business         --       --       --       41,212  
Proceeds from sale of assets   79,730       --       --       79,730       3,978  
Transfers of restricted cash and investments   (112,381 )     --       1,056       (112,381 )     356  
Other, net   --       (200 )     --       1,636       (2,500 )
    Net cash provided by (used for) investing activities   521,514       135,731       (340,456 )     592,483       (1,106,096 )
CASH FLOWS FROM FINANCING ACTIVITIES:                                      
Principal payments on long-term debt and capital lease obligations   (450,624 )     (107 )     (615 )     (451,497 )     (1,515 )
Proceeds from issuance of long-term debt, net of issuance costs   2,374,220       (8,372 )     345       2,338,144       992,225  
Excess tax benefit on equity-based compensation plans   (9,035 )     2,262       (1,809 )     (1,020 )     11,398  
Treasury stock purchases   (27,114 )     (20,092 )     (74,339 )     (158,389 )     (573,240 )
Dividends paid   (47,308 )     (47,539 )     (28,714 )     (190,402 )     (116,059 )
Re-issuance of treasury stock related to employee stock purchase plan   20,360       16,387       16,950       55,992       48,803  
Proceeds from issuance of common stock   1,547       308       1,285       3,405       17,520  
Other, net   (159 )     (7 )     (660 )     (488 )     (660 )
    Net cash provided by (used for) financing activities   1,861,887       (57,160 )     (87,557 )     1,595,745       378,472  
Effect of exchange rate changes on cash and cash equivalents   76       2,666       1,850       (722 )     (9,017 )
Net increase (decrease) in cash and cash equivalents   2,807,301       264,148       (134,097 )     3,537,783       48,862  
Cash and cash equivalents at beginning of period   2,232,021       1,967,873       1,635,636       1,501,539       1,452,677  
Cash and cash equivalents at end of period $ 5,039,322     $ 2,232,021     $ 1,501,539     $ 5,039,322     $ 1,501,539  
   
(1) Derived from audited financial statements.  
   
   
Non-GAAP Financial Summary  
(in thousands, except percentages and per share data)  
(unaudited)  
   
    Three Months Ended  
    June 26,
2016
    March 27,
2016
 
Revenue   $ 1,546,261     $ 1,314,055  
Gross margin   $ 720,162     $ 592,515  
Gross margin as percentage of revenue     46.6 %     45.1 %
Operating expenses   $ 361,490     $ 350,235  
Operating income   $ 358,672     $ 242,280  
Operating margin as a percentage of revenue     23.2 %     18.4 %
Net income   $ 314,806     $ 202,821  
Net income per diluted share   $ 1.80     $ 1.18  
Shares used in per share calculation - diluted     175,052       172,153  
                 
                 
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  
    June 26, 2016     March 27, 2016  
U.S. GAAP net income   $ 258,939     $ 143,451  
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       --  
  Restructuring charges - research and development     43       72  
  Cost associated with campus consolidation - research and development     7,763       --  
  KLA-Tencor acquisition-related costs - selling, general and administrative     19,270       14,323  
  Gain on sale of assets, net associated exit costs - selling, general and administrative     (15,223 )     --  
  Amortization related to intangible assets acquired in Novellus transaction -selling, general and administrative     16,083       16,084  
  Restructuring charges (benefit) - selling, general and administrative     117       (202 )
  Amortization of note discounts - other expense, net     7,492       9,333  
  Amortization of bridge loan issuance costs and other related fees - other expense, net     6,938       13,332  
  KLA-Tencor pre-acquisition funding interest expense, net - other expense, net     3,821       --  
Net income tax benefit on non-GAAP items     (8,413 )     (14,320 )
Income tax benefit on resolution of certain tax matters     (2,515 )     (502 )
Change to income tax benefit due to a court ruling     (887 )     --  
Non-GAAP net income     314,806       202,821  
Non-GAAP net income per diluted share   $ 1.80     $ 1.18  
U.S. GAAP number of shares used for per diluted share calculation     177,649       174,373  
Effect of convertible note hedge     (2,597 )     (2,220 )
Non-GAAP number of shares used for per diluted share calculation     175,052       172,153  
                 
                 
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  
    June 26, 2016     March 27, 2016  
U.S. GAAP gross margin   $ 698,784     $ 571,265  
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   $ 720,162     $ 592,515  
U.S. GAAP gross margin as a percentage of revenue     45.2 %     43.5 %
Non-GAAP gross margin as a percentage of revenue     46.6 %     45.1 %
U.S. GAAP operating expenses   $ 389,543     $ 380,512  
Pre-tax non-GAAP items:                
  Restructuring charges     (43 )     (72 )
  Cost associated with campus consolidation     (7,763 )     --  
  KLA-Tencor acquisition-related costs     (19,270 )     (14,323 )
  Gain on sale of assets, net associated exit costs     15,223       --  
  Amortization related to intangible assets acquired in Novellus transaction     (16,083 )     (16,084 )
  Restructuring (charges) benefit     (117 )     202  
Non-GAAP operating expenses   $ 361,490     $ 350,235  
Non-GAAP operating income   $ 358,672     $ 242,280  
GAAP operating margin as percent of revenue     20.0 %     14.5 %
Non-GAAP operating margin as a percent of revenue     23.2 %     18.4 %

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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