ADI Analog Devices Inc

Analog Devices, Inc. (NASDAQ: ADI), today announced financial results for its third quarter of fiscal year 2017, which ended July 29, 2017.

“The third quarter of 2017 was another excellent quarter for ADI, with strong revenue and earnings performance that exceeded the high end of our guidance,” said Vincent Roche, President and CEO. “Revenue increased to $1.43 billion on a GAAP basis, and $1.46 billion on a non-GAAP basis, with broad-based year-over-year growth led by the highly diverse and profitable industrial market.”

“The third quarter also represented our first full quarter with contributions from Linear Technology, and we are pleased with the early returns. Customers are engaged and excited by the value creation possibilities enabled by the combination, and we are making excellent progress on realizing our cost synergy targets.”

“Looking ahead to the October quarter, we continue to see signs of positive business conditions and are planning for revenue in the fourth quarter to be in the range of $1.45 billion to $1.55 billion, with strong profitability.”

ADI also announced that the Board of Directors has declared a quarterly cash dividend of $0.45 per outstanding share of common stock, representing an annual dividend per share of $1.80. The dividend will be paid on September 19, 2017 to all shareholders of record at the close of business on September 8, 2017.

Supplemental web schedules relating to ADI’s third quarter fiscal 2017 financial results are also available on the quarterly results section of ADI’s investor site at investor.analog.com.

Results for the Third Quarter of Fiscal Year 2017

• GAAP revenue totaled $1.43 billion; Non-GAAP revenue totaled $1.46 billion
• GAAP gross margin of 53.5% of revenue; Non-GAAP gross margin of 70.5% of revenue
• GAAP operating margin of 13.6% of revenue; Non-GAAP operating margin of 40.5% of revenue
• GAAP diluted EPS of $0.18; Non-GAAP diluted EPS of $1.26

Please refer to the schedules provided for a summary of revenue and earnings, selected balance sheet information, and the cash flow statement for the third quarter of fiscal year 2017, as well as the immediately prior and year-ago quarters. Additional information on revenue by end market is provided on Schedule D.

Outlook for the Fourth Quarter of Fiscal Year 2017The following statements are based on current expectations, and as indicated, are presented on a GAAP and non-GAAP basis. These statements are forward-looking and actual results may differ materially, as a result of, among other things, the important factors discussed at the end of this release. These statements supersede all prior statements regarding our business outlook set forth in prior ADI news releases, and ADI disclaims any obligation to update these forward-looking statements.

                          GAAP       Non-GAAP Adjustments       Non-GAAP Revenue       $1.45B to $1.55B       -       $1.45B to $1.55B Gross Margin       Approx. 66%       $71 million (1)       Approx. 70.5% Operating Expenses       Down approx. 3% to flat       $125 million (2)       Down approx. 3% to flat Operating Margins       Approx. 28% to 30%       $196 million (3)       Approx. 41% to 42% Interest & Other Expense       Approx. $65 million       -       Approx. $65 million Tax Rate       Approx. 8%       $28 million (4)       Approx. 10% Earnings per Share*       $0.84 to $0.98       $0.45 (5)       $1.29 to $1.43

(1) Non-GAAP gross margin excludes $71 million of costs comprised of the following:

• $27 million related to the final amortization of step up through cost of sales
• $35 million of recurring amortization of purchased intangible assets
• $8 million of recurring depreciation of step up value on purchased fixed assets
• $1 million of recurring fair value adjustment associated with the replacement of share-based awards in ADI’s acquisition of Linear Technology

(2) Non-GAAP operating expenses exclude $125 million of costs comprised of the following:

• $112 million of recurring amortization of purchased intangible assets
• $8 million of recurring fair value adjustment associated with the replacement of share-based awards in ADI’s acquisition of Linear Technology
• $5 million of transaction related costs associated with ADI’s acquisition of Linear Technology

(3) Non-GAAP operating margin excludes the reconciling adjustments noted in the two footnotes above

(4) Non-GAAP tax rate excludes the tax effects of the reconciling adjustments noted in the three footnotes above

(5) Non-GAAP earnings per share includes $0.45, which represents the net impact of the non-GAAP adjustments noted above on a per share basis consisting of:

• acquisition-related expenses including amortization of step up value of inventory and purchased intangible assets, depreciation of step up value on purchased fixed assets, and the fair value adjustment associated with the replacement of share-based awards in ADI’s acquisition of Linear Technology ($0.51)
• acquisition-related transaction costs ($0.01)
• the effect on income tax of the prior items ($0.07)

Conference Call Scheduled for Today, Wednesday, August 30, 2017 at 10:00 am ETADI will host a conference call to discuss third quarter fiscal 2017 results and short-term outlook today, beginning at 10:00 am ET. Investors may join via webcast, accessible at investor.analog.com, or by telephone (call 706-634-7193 ten minutes before the call begins and provide the password "ADI").

A replay will be available two hours after the completion of the call. The replay may be accessed for up to two weeks by dialing 855-859-2056 (replay only) and providing the conference ID: 33638977, or by visiting investor.analog.com.

Non-GAAP Financial InformationThis release includes non-GAAP financial measures that are not in accordance with, nor an alternative to, generally accepted accounting principles and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles.

Schedules E and F of this press release provides the reconciliation of the Company’s historical non-GAAP measures to their most comparable GAAP measures.

Management uses non-GAAP measures internally to evaluate the Company’s operating performance from continuing operations against past periods and to budget and allocate resources in future periods. These non-GAAP measures also assist management in evaluating the Company’s core business and trends across different reporting periods on a consistent basis. Management also uses these non-GAAP measures as the primary performance measurement when communicating with analysts and investors regarding the Company’s earnings results and outlook and believes that the presentation of these non-GAAP measures is useful to investors because it provides investors with the operating results that management uses to manage the Company and enables investors and analysts to evaluate the Company’s core business. Management also believes that the non-GAAP liquidity measure free cash flow is useful both internally and to investors because it provides information about the amount of cash generated after capital expenditures that is then available to repay debt obligations, make investments and fund acquisitions, and for certain other activities.

The following item is included in our Non-GAAP revenue, non-GAAP gross margin, non-GAAP operating income, non-GAAP operating margin, and non-GAAP diluted earnings per share:

Acquisition-Related Deferred Revenue: Deferred revenue related to shipments of Linear Technology products by distributors to end customers that were received by the distributors prior to the Company’s acquisition of Linear Technology. Business combination accounting principles require the write down of deferred revenue in conjunction with the acquisition. We included these revenues in our non-GAAP measures because they relate to a specific transaction and are reflective of our ongoing financial performance.

The following items are excluded from our non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP operating margin, and non-GAAP diluted earnings per share:

Acquisition-Related Expenses: Expenses incurred as a result of current and prior period acquisitions and primarily include expenses associated with the fair value adjustments to inventory, property, plant and equipment and amortization of acquisition related intangibles, which include acquired intangibles such as purchased technology and customer relationships. Expenses also include severance payments, equity award accelerations and the fair value adjustment associated with the replacement of share-based awards related to the Linear Technology acquisition. We excluded these costs from our non-GAAP measures because they relate to specific transactions and are not reflective of our ongoing financial performance.

The following items are excluded from our non-GAAP operating expenses, non-GAAP operating income, non-GAAP operating margin, and non-GAAP diluted earnings per share:

Acquisition-Related Transaction Costs: Costs incurred as a result of the Linear Technology acquisition, including legal, accounting and other professional fees directly related to the acquisition. We excluded these costs from our non-GAAP measures because they relate to a specific transaction and are not reflective of our ongoing financial performance.

The following items are excluded from our non-GAAP diluted earnings per share:

Tax-Related Items: Tax adjustments associated with the non-GAAP items discussed above. In addition, in the third quarter of fiscal 2017, the Company released $50 million of reserves associated with a favorable ruling on its petition with the U.S. Tax Court regarding the beneficial treatment of dividends paid from foreign owned companies under The American Jobs Creation Act. Also, in the third quarter of fiscal 2017, the Company recorded $98 million of tax expense associated with the remittance of cash held outside of the United States related to the post-acquisition integration of Linear Technology. We excluded these tax-related items from our non-GAAP measures because they are not associated with the tax expense on our current operating results.

The following items are excluded from our calculation of non-GAAP free cash flow:

One Time Tax Payment: In the third quarter of fiscal 2017, the Company paid $750 million in income taxes associated with the acquisition of Linear. These payments were principally related to pre-acquisition liabilities but also included $98 million associated with the remittance of cash held outside of the United States related to the post-acquisition integration of Linear Technology. We excluded these payments from our non-GAAP free cash flow measure because they relate to a specific transaction and are not reflective of our ongoing financial performance.

These non-GAAP measures have material limitations in that they do not reflect all of the amounts associated with the Company’s results of operations as determined in accordance with GAAP and should not be considered in isolation from, or as a substitute for, the Company’s financial results presented in accordance with GAAP. In addition, the Company’s non-GAAP measures may not be comparable to the non-GAAP measures reported by other companies. The Company’s use of non-GAAP measures, and the underlying methodology when including or excluding certain items, is not necessarily an indication of the results of operations that may be expected in the future, or that the Company will not, in fact, record such items in future periods.

About Analog DevicesAnalog Devices (NASDAQ: ADI) is the leading global high-performance analog technology company dedicated to solving the toughest engineering challenges. We enable our customers to interpret the world around us by intelligently bridging the physical and digital with unmatched technologies that sense, measure, power, connect and interpret. Visit http://www.analog.com

Forward Looking StatementsThis press release contains forward-looking statements, which address a variety of subjects including, for example, our statements regarding expected revenue, earnings per share, gross margin, operating expenses, interest and other expense, tax rate, and other financial results, expected operating leverage, production and inventory levels, expected market trends, and expected customer demand and order rates for our products and expected benefits and synergies of the acquisition of Linear Technology Corporation (“Linear Technology”), including expected growth rates of the combined companies, expected product offerings, product development, marketing position and technical advances resulting from the transaction. Statements that are not historical facts, including statements about our beliefs, plans and expectations, are forward-looking statements. Such statements are based on our current expectations and are subject to a number of factors and uncertainties, which could cause actual results to differ materially from those described in the forward-looking statements. The following important factors and uncertainties, among others, could cause actual results to differ materially from those described in these forward-looking statements: any faltering in global economic conditions or the stability of credit and financial markets, erosion of consumer confidence and declines in customer spending, unavailability of raw materials, services, supplies or manufacturing capacity, changes in geographic, product or customer mix, higher than expected or unexpected costs associated with or relating to the acquisition of Linear Technology and the integration of the businesses; the risk that expected benefits, synergies and growth prospects of the acquisition may not be fully achieved in a timely manner, or at all; the risk that Linear Technology’s business may not be successfully integrated with Analog Devices’; the risk that we will be unable to retain and hire key personnel; and the risk that disruption resulting from the acquisition may adversely affect our business and relationships with our customers, suppliers or employees. For additional information about factors that could cause actual results to differ materially from those described in the forward-looking statements, please refer to our filings with the Securities and Exchange Commission (“SEC”), including the risk factors contained in our most recent Quarterly Report on Form 10-Q and Annual Report on Form 10-K. Forward-looking statements represent management’s current expectations and are inherently uncertain. Except as required by law, we do not undertake any obligation to update forward-looking statements made by us to reflect subsequent events or circumstances.

Analog Devices and the Analog Devices logo are registered trademarks or trademarks of Analog Devices, Inc. All other trademarks mentioned in this document are the property of their respective owners.

     

Analog Devices, Third Quarter, Fiscal 2017

 

Schedule A

Revenue and Earnings Summary (Unaudited)

(In thousands, except per-share amounts)

  Three Months Ended 3Q 17       2Q 17       3Q 16         July 29,2017       April 29,2017       July 30,2016 Revenue $ 1,433,902 $ 1,147,982 $ 869,591 Year-to-year change 65 % 47 % 1 % Quarter-to-quarter change 25 % 17 % 12 % Cost of sales (1)       667,278         507,539         297,301   Gross margin 766,624 640,443 572,290 Gross margin percentage 53.5 % 55.8 % 65.8 % Year-to-year change (basis points) (1,230 ) (980 ) (10 ) Quarter-to-quarter change (basis points)       (230 )       (1,010 )       20   Operating expenses: R&D (1) 275,670 235,232 163,227 Selling, marketing and G&A (1) 183,980 190,686 122,909 Amortization of intangibles       112,153         68,690         17,447   Total operating expenses 571,803 494,608 303,583 Total operating expenses percentage 39.9 % 43.1 % 34.9 % Year-to-year change (basis points) 500 410 (30 ) Quarter-to-quarter change (basis points)       (320 )       430         (410 ) Operating income 194,821 145,835 268,707 Operating income percentage 13.6 % 12.7 % 30.9 % Year-to-year change (basis points) (1,730 ) (1,390 ) 20 Quarter-to-quarter change (basis points)       90         (1,430 )       430   Other expense       68,023         59,121         12,307   Income before income tax 126,798 86,714 256,400 Provision (benefit) for income taxes 57,882 (6,850 ) 25,970 Tax rate percentage       45.6 %       (7.9 )%       10.1 % Net income (2)       $ 68,916         $ 93,564         $ 230,430     Shares used for EPS - basic 367,315 341,316 307,135 Shares used for EPS - diluted 371,159 345,654 310,558   Earnings per common share - basic $ 0.18 $ 0.27 $ 0.75 Earnings per common share - diluted $ 0.18 $ 0.27 $ 0.74   Dividends paid per share       $ 0.45         $ 0.45         $ 0.42    

(1) Includes stock-based compensation expense as follows:

Cost of sales

$ 4,375 $ 2,566 $ 1,844 R&D $ 15,781 $ 11,910 $ 6,682 Selling, marketing and G&A $ 12,668 $ 8,010 $ 8,093

(2) Under the two-class method, earnings per share is calculated using net earnings allocable to common shares, which is derived by reducing net income by the income allocable to participating securities. Net income allocable to common shares used in the basic and diluted earnings per share calculation was $67,935 for the three months ended July 29, 2017. There was no net income allocated to participating securities in the three months ended April 29, 2017 or July 30, 2016.

                 

Analog Devices, Third Quarter, Fiscal 2017

 

Schedule B

Selected Balance Sheet Information (Unaudited)

(In thousands)

  3Q 17 2Q 17 3Q 16         July 29,2017       April 29,2017       July 30,2016 Cash & short-term investments $ 908,569 $ 6,188,372 $ 3,803,434 Accounts receivable, net 692,552 630,353 452,944 Inventories (1) 519,695 647,858 392,303 Other current assets       67,827         68,884         79,207 Total current assets 2,188,643 7,535,467 4,727,888 PP&E, net 1,098,848 1,089,319 629,094 Investments 60,464 55,815 54,077 Goodwill 12,241,815 12,269,501 1,639,033 Intangible assets, net 5,440,692 5,587,862 529,035 Other       84,533         84,719         105,926 Total assets       $ 21,114,995         $ 26,622,683         $ 7,685,053   Deferred income on shipments to distributors, net $ 449,663 $ 377,792 $ 327,444 Other current liabilities 651,414 750,321 351,249 Debt, current — 4,321,169 — Long-term debt 8,199,230 8,572,364 1,731,758 Deferred income taxes 1,730,253 2,431,410 133,412 Other non-current liabilities 161,535 203,032 157,857 Shareholders' equity       9,922,900         9,966,595         4,983,333 Total liabilities & equity       $ 21,114,995         $ 26,622,683         $ 7,685,053

(1) Includes $4,628, $3,007, and $2,554 related to stock-based compensation in 3Q17, 2Q17, and 3Q16, respectively.

     

Analog Devices, Third Quarter, Fiscal 2017

 

Schedule C

Cash Flow Statement (Unaudited)

(In thousands)

 

  Three Months Ended 3Q 17       2Q 17       3Q 16 July 29,2017       April 29,2017       July 30,2016 Cash flows from operating activities: Net Income $ 68,916 $ 93,564 $ 230,430 Adjustments to reconcile net income to net cash provided by operations: Depreciation 55,217 48,772 33,732 Amortization of intangibles 147,238 88,770 18,916 Stock-based compensation expense 32,824 22,486 16,619 Cost of goods sold for inventory acquired 195,565 121,113 — Other non-cash activity (42,762 ) 11,078 1,127 Excess tax benefit - stock options (4,282 ) (17,851 ) (2,982 ) Deferred income taxes 98,510 (79,980 ) 12,250 Changes in operating assets and liabilities       (915,509 )       233,512         (56,089 ) Total adjustments       (433,199 )       427,900         23,573   Net cash (used for) provided by operating activities       (364,283 )       521,464         254,003   Percent of revenue       (25.4 )%       45.4 %       29.2 %   Cash flows from investing activities: Purchases of short-term available-for-sale investments (37 ) (378,540 ) (2,284,166 ) Maturities of short-term available-for-sale investments 270,918 1,247,493 2,078,716 Sales of short-term available-for-sale investments 219,799 69,787 139,805 Additions to property, plant and equipment (63,617 ) (46,929 ) (37,528 ) Payments for acquisitions, net of cash acquired 70 (9,686,497 ) — Change in other assets       (1,062 )       (6,117 )       (8,591 ) Net cash provided by (used for) investing activities       426,071         (8,800,803 )       (111,764 )   Cash flows from financing activities: Proceeds from debt — 9,083,858 — Debt repayments (4,700,000 ) — — Payments for deferred financing fees — — (22,208 ) Dividend payments to shareholders (166,265 ) (139,314 ) (128,954 ) Repurchase of common stock (8,955 ) (23,874 ) (23,022 ) Proceeds from employee stock plans 17,971 52,841 16,633 Excess tax benefit - stock options 4,282 17,851 2,982 Change in other financing activities       9         (2,237 )       (2,093 ) Net cash (used for) provided by financing activities       (4,852,958 )       8,989,125         (156,662 ) Effect of exchange rate changes on cash       1,996         694         (1,569 )   Net (decrease) increase in cash and cash equivalents (4,789,174 ) 710,480 (15,992 ) Cash and cash equivalents at beginning of period       5,697,743         4,987,263         1,119,662   Cash and cash equivalents at end of period       $ 908,569         $ 5,697,743         $ 1,103,670          

Analog Devices, Third Quarter, Fiscal 2017

 

Schedule DRevenue Trends by End Market (Unaudited)(In thousands)

 

The categorization of revenue by end market is determined using a variety of data points including the technical characteristics of the product, the “sold to” customer information, the "ship to" customer information and the end customer product or application into which our product will be incorporated. As data systems for capturing and tracking this data evolve and improve, the categorization of products by end market can vary over time. When this occurs we reclassify revenue by end market for prior periods. Such reclassifications typically do not materially change the sizing of, or the underlying trends of results within, each end market.

    Three Months Ended July 29,2017       April 29,2017       July 30,2016 Revenue       % *       Q/Q %       Y/Y % Revenue Revenue Industrial $ 700,213       49%       29%       87% $ 542,742 $ 373,923 Automotive 227,462 16% 25% 69% 181,768 134,804 Consumer 252,498 18% 19% 36% 211,311 186,171 Communications 253,729   18% 20% 45% 212,161   174,693 Total Revenue $ 1,433,902         100% 25% 65% $ 1,147,982   $ 869,591

____________* The sum of the individual percentages does not equal the total due to rounding.

     

Analog Devices, Third Quarter, Fiscal 2017

 

Schedule E

Reconciliation of Non-GAAP to GAAP Revenue and Earnings Measures (In thousands, except per-share amounts)(Unaudited)

See "Non-GAAP Financial Information" in this press release for a description of the items excluded from our non-GAAPmeasures.

  Three Months Ended 3Q 17       2Q 17       3Q 16 July 29,2017 April 29,2017 July 30,2016 GAAP Revenue $ 1,433,902 $ 1,147,982 $ 869,591 Y/Y Revenue growth % 65 % 47 % 1 % Q/Q Revenue growth % 25 % 17 % 12 % Acquisition-Related Deferred Revenues 24,576     60,759     —   Non-GAAP Revenue $ 1,458,478     $ 1,208,741     $ 869,591   Y/Y Revenue growth % 68 % 55 % 1 % Q/Q Revenue growth % 21 % 23 % 12 %   GAAP Gross Margin $ 766,624 $ 640,443 $ 572,290 Gross Margin Percentage 53.5 % 55.8 % 65.8 % Acquisition-Related Deferred Revenues 19,782 46,480 — Acquisition-Related Expenses 241,554     150,732     1,888   Non-GAAP Gross Margin $ 1,027,960     $ 837,655     $ 574,178   Gross Margin Percentage 70.5 % 69.3 % 66.0 %   GAAP Operating Expenses $ 571,803 $ 494,608 $ 303,583 Percent of Revenue 39.9 % 43.1 % 34.9 % Acquisition-Related Expenses (126,732 ) (75,361 ) (17,582 ) Acquisition-Related Transaction Costs (8,017 )   (39,266 )   (8,310 ) Non-GAAP Operating Expenses $ 437,054     $ 379,981     $ 277,691   Percent of Non-GAAP Revenue 30.0 % 31.4 % 31.9 %   GAAP Operating Income/Margin $ 194,821 $ 145,835 $ 268,707 Percent of Revenue 13.6 % 12.7 % 30.9 % Acquisition-Related Revenues 19,782 46,480 — Acquisition-Related Expenses 368,286 225,392 19,470 Acquisition-Related Transaction Costs 8,017     39,966     8,310   Non-GAAP Operating Income/Margin

$

590,906     $ 457,673     $ 296,487   Percent of Non-GAAP Revenue 40.5 % 37.9 % 34.1 %   GAAP Diluted EPS

$

0.18

$

0.27

$

0.74

Acquisition-Related Deferred Revenue

0.05

0.13

—

Acquisition-Related Expenses

0.99

0.65

0.06

Acquisition-Related Transaction Costs

0.02

0.12

0.03

Income Tax Effect of Above Items

(0.10

)

(0.09

)

(0.01

)

Impact of State Tax Valuation Release

—

(0.05

)

—

Impact of Reversal of Prior Period Tax Liabilities

(0.14

)

— —

Impact of Tax Remittance for Linear Integration

0.26

 

      —

 

 

    —

 

Non-GAAP Diluted EPS

$

1.26

       

$

1.03

       

$

0.82

       

Analog Devices, Third Quarter, Fiscal 2017

 

Schedule F

Reconciliation of Adjusted Free Cash Flow to Adjusted Net Cash Flows Provided by Operating Activities

(Unaudited)

(In thousands)

  Three Months Ended 3Q 17     2Q 17     3Q 16 July 29,2017       April 29,2017       July 30,2016 Net cash (used for) provided by operating activities $ (364,283 ) $ 521,464 $ 254,003 Net cash (used for) provided by operating activities as a % of Revenue (25.4 )% 45.4 % 29.2 % Non-GAAP adjustments: Federal income tax payments 750,000         —         —   Adjusted cash flows from operations $ 385,717 $ 521,464 $ 254,003 % of Revenue 26.4 % (1 ) 43.1 % (1 ) 29.2 % Capital expenditures (63,617 )       (46,929 )       (37,528 ) Adjusted free cash flow $ 322,100         $ 474,535         $ 216,475   % of Revenue 22.1 % (1 ) 39.3 % (1 ) 24.9 %

(1) 3Q17 and 2Q17 Revenue on a non-GAAP basis and includes acquisition-related deferred revenue outlined on Schedule E.

View source version on businesswire.com: http://www.businesswire.com/news/home/20170830005364/en/

Analog Devices, Inc.Mr. Ali Husain, 781-461-3282781-461-3491 (fax)Treasurer and Head of Investor Relationsinvestor.relations@analog.com