Lam Research Corporation

Lam Research Corporation Reports Financial Results for the Quarter Ended March 26, 2017

FREMONT, Calif., April 18, 2017 (GLOBE NEWSWIRE) -- Lam Research Corp. (Nasdaq:LRCX) today announced financial results for the quarter ended March 26, 2017 (the "March 2017 quarter").

Highlights for the March 2017 quarter were as follows:

 

Key Financial Data for the Quarters Ended
March 26, 2017 and December 25, 2016
(in thousands, except per-share data, percentages, and basis points)
 
U.S. GAAP
  March 2017 December 2016 Change Q/Q
Shipments $2,412,656   $1,922,549  + 25%
Revenue $2,153,995   $1,882,299  + 14%
Gross margin as percentage of revenue 45.1% 45.0% + 10 bps
Operating margin as percentage of revenue 25.0% 23.4% + 160 bps
Diluted EPS $3.10  $1.81  + 71%
 
Non-GAAP
  March 2017 December 2016 Change Q/Q
Shipments $2,412,656  $1,922,549  + 25%
Revenue $2,153,995  $1,882,299  + 14%
Gross margin as percentage of revenue 46.1% 46.4% - 30 bps
Operating margin as percentage of revenue 26.9% 26.0% + 90 bps
Diluted EPS $2.80  $2.24  + 25%

U.S. GAAP Financial Results

For the March 2017 quarter, revenue was $2,154 million, gross margin was $971 million, or 45.1% of revenue, operating expenses were $433 million, operating margin was 25.0% of revenue, and net income was $575 million, or $3.10 per diluted share on a U.S. GAAP basis. This compares to revenue of $1,882 million, gross margin of $847 million, or 45.0% of revenue, operating expenses of $407 million, operating margin of 23.4% of revenue, and net income of $333 million, or $1.81 per diluted share, for the quarter ended December 25, 2016 (the "December 2016 quarter"). March 2017 earnings per diluted share also benefited from an income tax benefit on the conclusion of tax matters primarily related to a prior business combination.

Non-GAAP Financial Results

For the March 2017 quarter, non-GAAP gross margin was $993 million or 46.1% of revenue, non-GAAP operating expenses were $414 million, non-GAAP operating margin was 26.9% of revenue, and non-GAAP net income was $508 million, or $2.80 per diluted share. This compares to non-GAAP gross margin of $874 million or 46.4% of revenue, non-GAAP operating expenses of $384 million, non-GAAP operating margin of 26.0% of revenue, and non-GAAP net income of $405 million, or $2.24 per diluted share for the December 2016 quarter.

"The company continues to perform extremely well, again setting new records of financial performance with underlying business levels almost 70% higher than the year ago equivalent quarter. This accomplishment is made possible by our broad competitive strength, with products and services increasingly enabling the success of our customers," said Martin Anstice, Lam Research's President and Chief Executive Officer. "Our outlook for the year has improved, and we are increasingly convinced by the potential for sustainable value creation from long-term diverse and secular technology demand trends."

Balance Sheet and Cash Flow Results

Cash and cash equivalents, short-term investments, and restricted cash and investments balances remained steady at $6.1 billion at the end of the March 2017 compared to the end of the December 2016 quarter. Cash flows from operating activities during the March 2017 quarter of $423 million were primarily utilized for approximately $216 million of share repurchases, including net share settlement on employee stock-based compensation;  approximately $69 million of principal payments on debt, primarily related to our convertible notes; approximately $73 million of dividends paid to stockholders; and approximately $44 million of capital expenditures.

Deferred revenue at the end of the March 2017 quarter increased to $842 million as compared to $673 million at the end of the December 2016 quarter. Deferred profit at the end of the March 2017 quarter increased to $527 million as compared to $408 million at the end of the December 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 $260 million as of March 26, 2017 and $129 million as of December 25, 2016.

Geographic Distribution

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

RegionShipments Revenue
Korea35% 34%
Taiwan22% 28%
China15% 11%
Japan15% 11%
United States7% 9%
Europe3% 4%
Southeast Asia3% 3%

Outlook

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

 U.S. GAAP Reconciling Items Non-GAAP
Shipments$2.5 Billion+/- $100 Million  $2.5 Billion+/- $100 Million
Revenue$2.3 Billion+/- $100 Million  $2.3 Billion+/- $100 Million
Gross margin 45.1%+/- 1%  $21 Million  46.0%+/- 1%
Operating margin 25.3%+/- 1% $39 Million  27.0%+/- 1%
Net income per diluted share$2.73 +/-$0.12 $38 Million $3.00+/-$0.12
Diluted share count184 Million 4 Million 180 Million

The information provided above is only an estimate of what the Company believes is realizable as of the date of this release, and does not incorporate the potential impact of any business combinations, asset acquisitions, divestitures, balance sheet valuation adjustments, financing arrangements, other investments, or other significant transactions that may be completed or determined after the date of this release. U.S. GAAP to non-GAAP reconciling items provided include only those items that are known and can be estimated as of the date of this release. Actual results will vary from this model and the variations may be material. Reconciling items included above are as follows:


Use of Non-GAAP Financial Results

In addition to U.S. GAAP results, this press release also contains non-GAAP financial results. The Company's non-GAAP results for both the March 2017 and December 2016 quarters exclude amortization related to intangible assets acquired in the Novellus transaction, the amortization of note discounts, and tax benefit of non-GAAP items. Additionally, the March 2017 quarter non-GAAP results exclude costs associated with business process reengineering, and income tax benefit on the conclusion of tax matters related to a prior business combination; and the December 2016 quarter non-GAAP results exclude costs associated with campus consolidation, product rationalization charges, litigation settlement, KLA-Tencor acquisition funding net interest expense, and costs related to the early termination of the KLA-Tencor acquisition funding.

Management uses non-GAAP gross margin, operating expense, operating income, operating margin, net income, and net income per diluted share to evaluate the Company's operating and financial results. The Company believes the presentation of non-GAAP results is useful to investors for analyzing business trends and comparing performance to prior periods, along with enhancing investors' ability to view the Company's results from management's perspective. Tables presenting reconciliations of non-GAAP results to U.S. GAAP results are included at the end of this press release and on the Company's website at http://investor.lamresearch.com.

Caution Regarding Forward-Looking Statements

Statements made in this press release that are not of historical fact are forward-looking statements and are subject to the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to, but are not limited to; the estimated future revenue from shipments to Japanese customers; our revenue, industry, performance and general outlooks, and their drivers; the potential for value creation; technology demand trends; our ability to transform atomic-scale engineering and enable our customers to shape the future of technology; the legal and business factors that may affect our future tax rate; and our guidance for shipments, revenue, gross margin, operating margin, net income or earnings per diluted share, and diluted share count. Some factors that may affect these forward-looking statements include: business conditions in the consumer electronics industry, the semiconductor industry and the overall economy may deteriorate or change; and the actions of our customers and competitors may be inconsistent with our expectations, as well as the other risks and uncertainties that are described in the documents filed or furnished by us with the Securities and Exchange Commission, including specifically the Risk Factors described in our annual report on Form 10-K for the fiscal year ended June 26, 2016 and our quarterly report on Form 10-Q for the period ended December 25, 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 MarketSM 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 Nine Months Ended
 March 26,
2017
 December 25,
2016
 March 27,
2016
 March 26,
2017
 March 27,
2016
Revenue$2,153,995  $1,882,299  $1,314,055   $5,668,713  $4,339,632 
Cost of goods sold1,182,591   1,035,502  742,790  3,134,315  2,419,494 
Gross margin971,404  846,797  571,265  2,534,398  1,920,138 
Gross margin as a percent of revenue45.1% 45.0% 43.5% 44.7% 44.2%
Research and development265,986  246,804  221,494  748,030  676,457 
Selling, general and administrative167,000  160,165  159,018  492,175  478,666 
Total operating expenses432,986  406,969  380,512  1,240,205  1,155,123 
Operating income538,418  439,828  190,753  1,294,193  765,015 
Operating income as a percent of revenue25.0% 23.4% 14.5% 22.8% 17.6%
Other expense, net(7,838) (55,023) (29,834) (86,015) (86,890)
Income before income taxes530,580  384,805  160,919  1,208,178  678,125 
Income tax benefit (expense)44,133  (52,014) (17,468) (36,839) (23,015)
Net income$574,713  $332,791  $143,451  $1,171,339  $655,110 
Net income per share:         
Basic$3.52  $2.05  $0.90  $7.22  $4.13 
Diluted$3.10  $1.81  $0.82   $6.40  $3.76 
Number of shares used in per share calculations:         
Basic163,408  162,659  159,039  162,225  158,605 
Diluted185,094  183,543  174,373  182,885  174,329 
Cash dividend declared per common share$0.45  $0.45  $0.30  $1.20  $0.90 

 

LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
 March 26,
2017
 December 25,
2016
 June 26,
2016
 
 (unaudited) (unaudited) (1) 
ASSETS      
Cash and cash equivalents$2,128,570  $2,503,960  $5,039,322  
Investments3,755,036  3,329,425  1,788,612  
Accounts receivable, net1,636,090  1,426,307  1,262,145  
Inventories1,133,196  1,018,891  971,911  
Other current assets223,056  225,291  151,160 (2)
Total current assets8,875,948  8,503,874  9,213,150  
Property and equipment, net675,707  672,553  639,608  
Restricted cash and investments256,157  255,175  250,421   
Goodwill and intangible assets1,835,150  1,873,581  1,951,197  
Other assets232,224  215,876  209,939 (2)
Total assets$11,875,186  $11,521,059  $12,264,315  
LIABILITIES AND STOCKHOLDERS' EQUITY      
Current portion of convertible notes and capital leases$905,288  $957,895  $947,733 (2)
Other current liabilities1,851,451   1,700,123  1,470,308  
Total current liabilities2,756,739  2,658,018  2,418,041  
Long-term debt and capital leases1,777,297  1,768,713  3,378,129 (2)
Income taxes payable137,173  238,968  231,514  
Other long-term liabilities282,615  262,351  134,562  
Total liabilities4,953,824  4,928,050  6,162,246  
Temporary equity, convertible notes175,108  197,313   207,552  
Stockholders' equity (3)6,746,254  6,395,696  5,894,517  
Total liabilities and stockholders' equity$11,875,186  $11,521,059  $12,264,315  


(1)Derived from audited financial statements.
(2)Adjusted for effects of retrospective implementation of ASU 2015-3, regarding the simplification of the presentation of bond issuance costs, which requires that bond issuance costs related to a recognized liability be presented on the balance sheet as a direct reduction from the carrying amount of that debt liability, consistent with debt discounts.
(3)Common shares issued and outstanding were 163,969 as of March 26, 2017, 162,357 as of December 25, 2016, and 160,201 as of June 26, 2016.

 

LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands,  unaudited)
    
 Three Months Ended Nine Months Ended
 March 26,
2017
 December 25,
2016
 March 27,
2016
 March 26,
2017
 March 27,
2016
CASH FLOWS FROM OPERATING ACTIVITIES:         
Net income$574,713  $332,791  $143,451  $1,171,339  $655,110 
Adjustments to reconcile net income to net cash provided by operating activities:         
Depreciation and amortization76,242   77,065  73,664  227,869  216,052 
Deferred income taxes27,619  34,615  (4,908) 69,867  (2,295)
Equity-based compensation expense35,323  32,255  34,716  106,173  103,060 
Loss on extinguishment of debt  36,325    36,325   
Amortization of note discounts and issuance costs6,136  6,202  22,458  19,168  55,938 
Other, net(4,738) (1,292) 9,306  10,777  29,869 
Changes in operating assets and liabilities(292,607) (113,863) (95,776) (341,508) (131,281)
Net cash provided by operating activities422,688  404,098  182,911  1,300,010  926,453 
CASH FLOWS FROM INVESTING ACTIVITIES:         
Capital expenditures and intangible assets(44,116) (36,513) (46,007) (122,608) (123,604)
Net (purchase) sale of available-for-sale securities(418,566) (1,990,928) 181,938  (1,977,744) 192,937 
(Issuance) repayment of notes receivable  (500) (200) (500) 7,882 
Transfers of restricted cash and investments(982) 465    (5,736)  
Other, net(3,586) 259    (11,127) (6,246)
Net cash (used for) provided by investing activities(467,250) (2,027,217) 135,731  (2,117,715) 70,969 
CASH FLOWS FROM FINANCING ACTIVITIES:         
Principal payments on long-term debt and capital lease obligations and payments for debt issuance costs(69,227) (1,616,270) (8,479) (1,685,868) (36,949)
Treasury stock purchases(216,373) (67,668) (20,092) (285,894) (131,275)
Dividends paid(73,337) (48,397) (47,539) (169,786) (143,094)
Reissuance of treasury stock related to employee stock purchase plan17,223    16,387  36,543  35,632 
Proceeds from issuance of common stock7,964  3,121  308  12,544  1,858 
Other, net(70) (44) 2,255  (124) 7,686 
Net cash used for financing activities(333,820) (1,729,258) (57,160) (2,092,585)  (266,142)
Effect of exchange rate changes on cash and cash equivalents2,992  (5,364) 2,666  (462) (798)
Net (decrease) increase in cash and cash equivalents(375,390) (3,357,741) 264,148  (2,910,752) 730,482 
Cash and cash equivalents at beginning of period2,503,960  5,861,701  1,967,873  5,039,322  1,501,539 
Cash and cash equivalents at end of period$2,128,570  $2,503,960  $2,232,021  $2,128,570  $2,232,021  


Non-GAAP Financial Summary
(in thousands, except percentages and per share data)
(unaudited)
  
  Three Months Ended
 March 26,
2017
 December 25,
2016
Revenue$2,153,995   $1,882,299 
Gross margin$992,654  $874,174 
Gross margin as percentage of revenue46.1% 46.4%
Operating expenses$414,229  $384,241 
Operating income$578,425  $489,933 
Operating margin as a percentage of revenue26.9% 26.0%
Net income$507,751  $405,190 
Net income per diluted share$2.80  $2.24 
Shares used in per share calculation - diluted181,539  180,613 


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
 March 26,
2017
 December 25,
2016
U.S. GAAP net income$574,713  $332,791 
Pre-tax non-GAAP items:   
Amortization related to intangible assets acquired in Novellus transaction - cost of goods sold21,250  21,250 
Product rationalization - cost of goods sold  6,127 
Costs associated with campus consolidation - research and development  995 
Product rationalization - research and development  1,650 
Amortization related to intangible assets acquired in Novellus transaction - selling, general and administrative16,083  16,083 
Costs associated with business process reengineering - selling, general and administrative2,674   
Litigation settlement - selling general and administrative  4,000 
KLA-Tencor acquisition funding interest expense, net - other expense, net  2,682 
Amortization of note discounts - other expense, net5,654  5,671 
Costs related to early termination of KLA-Tencor acquisition funding - other expense, net  34,518 
Net income tax benefit on non-GAAP items(6,418) (20,577)
Income tax benefit on conclusion of certain tax matters(106,205)  
Non-GAAP net income$507,751  $405,190 
Non-GAAP net income per diluted share$2.80  $2.24 
U.S. GAAP number of shares used for per diluted share calculation185,094  183,543 
Effect of convertible note hedge(3,555) (2,930)
Non-GAAP number of shares used for per diluted share calculation181,539  180,613 


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
 March 26,
2017
 December 25,
2016
U.S. GAAP gross margin$971,404  $ 846,797 
Pre-tax non-GAAP items:   
Amortization related to intangible assets acquired in Novellus transaction21,250  21,250 
Product rationalization  6,127 
Non-GAAP gross margin$992,654  $874,174 
U.S. GAAP gross margin as a percentage of revenue45.1% 45.0%
Non-GAAP gross margin as a percentage of revenue46.1% 46.4%
U.S. GAAP operating expenses$432,986  $406,969 
Pre-tax non-GAAP items:   
Amortization related to intangible assets acquired in Novellus transaction(16,083) (16,083)
Costs associated with business process reengineering(2,674)  
Costs associated with campus consolidation  (995)
Product rationalization  (1,650)
Litigation settlement  (4,000)
Non-GAAP operating expenses$414,229  $384,241 
Non-GAAP operating income$578,425  $489,933 
U.S. GAAP operating margin as percent of revenue25.0% 23.4%
Non-GAAP operating margin as a percent of revenue26.9% 26.0%


Lam Research Corporation Contacts:



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

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