SOURCE: Lam Research Corporation

Lam Research Corporation

July 27, 2016 16:05 ET

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

FREMONT, CA--(Marketwired - July 27, 2016) - 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:

  • Shipments of $1,587 million and revenue of $1,546 million.
  • GAAP gross margin of 45.2%, GAAP operating margin of 20.0%, and GAAP diluted EPS of $1.46.
  • Non-GAAP gross margin of 46.6%, non-GAAP operating margin of 23.2%, and non-GAAP diluted EPS of $1.80.
 
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 margin44.2%+/-1% $21 Million 45.5%+/-1%
Operating margin20.2%+/-1% $37 Million 22.5%+/-1%
Net income per diluted share$1.48+/-$0.10 $48 Million $1.77+/-$0.10
Diluted share count178 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:

  • Gross Margin - amortization related to intangible assets acquired in the Novellus transaction, $21 million.
  • Operating margin - amortization related to intangible assets acquired in the Novellus transaction, $37 million.
  • Earnings per share - amortization related to intangible assets acquired in the Novellus transaction, $37 million; net interest expense associated with KLA-Tencor pre-acquisition funding, $18 million; amortization of note discounts, $6 million; and associated tax benefit for non-GAAP items ($13) million; totaling $48 million.
  • Diluted share count - impact of a note hedge issued contemporaneously with the convertible notes due 2018, 2 million shares.

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%

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