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Lam Research Corporation Reports Financial Results for the Quarter Ended December 23, 2018

FREMONT, Calif., Jan. 23, 2019 (GLOBE NEWSWIRE) -- Lam Research Corporation ( the "Company," "Lam," "Lam Research") today announced financial results for the quarter ended December 23, 2018 (the “December 2018 quarter”).

Highlights for the December 2018 quarter were as follows:

•         Revenue of $2.52 billion.

•         U.S. GAAP gross margin of 45.4%, U.S. GAAP operating income as a percentage of revenue of 27.4%, and U.S. GAAP diluted EPS of $3.51.

•         Non-GAAP gross margin of 46.3%, non-GAAP operating income as a percentage of revenue of 28.8%, and non-GAAP diluted EPS of $3.87.


Key Financial Data for the Quarters Ended
December 23, 2018 and September 23, 2018
(in thousands, except per-share data, percentages, and basis points)
 
U.S. GAAP
    December 2018   September 2018   Change Q/Q
Revenue   $ 2,522,673     $ 2,330,691     + 8 %
Gross margin as percentage of revenue   45.4 %   45.4 %    
Operating income as percentage of revenue   27.4 %   25.4 %   + 200 bps  
Diluted EPS   $ 3.51     $ 3.23     + 9 %
             
Non-GAAP
    December 2018   September 2018   Change Q/Q
Revenue   $ 2,522,673     $ 2,330,691     + 8 %
Gross margin as percentage of revenue   46.3 %   46.4 %   - 10 bps  
Operating income as percentage of revenue   28.8 %   27.0 %   + 180 bps  
Diluted EPS   $ 3.87     $ 3.36     + 15 %

U.S. GAAP Financial Results

For the December 2018 quarter, revenue was $2,523 million, gross margin was $1,145 million, or 45.4% of revenue, operating expenses were $455 million, operating income was 27.4% of revenue, and net income was $569 million, or $3.51 per diluted share on a U.S. GAAP basis. This compares to revenue of $2,331 million, gross margin of $1,058 million, or 45.4% of revenue, operating expenses of $466 million, operating income of 25.4% of revenue, and net income of $533 million, or $3.23 per diluted share, for the quarter ended September 23, 2018 (the “September 2018 quarter”).

Non-GAAP Financial Results

For the December 2018 quarter, non-GAAP gross margin was $1,167 million or 46.3% of revenue, non-GAAP operating expenses were $440 million, non-GAAP operating income was 28.8% of revenue, and non-GAAP net income was $628 million, or $3.87 per diluted share. This compares to non-GAAP gross margin of $1,081 million or 46.4% of revenue, non-GAAP operating expenses of $451 million, non-GAAP operating income of 27.0% of revenue, and non-GAAP net income of $555 million, or $3.36 per diluted share for the September 2018 quarter.

“Lam delivered solid results in the December quarter, and concluded the 2018 calendar year with record revenue and earnings per share performance,” said Timothy Archer, Lam Research’s President and Chief Executive Officer. “While near-term market trends reflect adjustments after a period of tremendous growth in semiconductor demand, I am confident that our focus on Deposition and Etch technology leadership as well as growth in our installed-base business positions us well for the long term.”

Balance Sheet and Cash Flow Results

Cash and cash equivalents, short-term investments, and restricted cash and investments balances remained steady at $3.9 billion at the end of the December 2018 quarter as compared to the end of the September 2018 quarter. Cash flow generated by operating activities during the December 2018 quarter of $642 million was primarily used for $360 million of repayments on short-term borrowings; $168 million of dividends paid to stockholders; and $106 million of capital expenditures.

Deferred revenue and deferred profit at the end of the December 2018 quarter decreased to $493 million and $432 million, respectively, as compared to $626 million and $542 million, respectively, at the end of the September 2018 quarter. Lam’s deferred revenue balance does not include shipments to customers in Japan, to whom title does not transfer until customer acceptance. Shipments to customers in Japan are classified as inventory at cost until the time of acceptance. The estimated future revenue from shipments to customers in Japan was approximately $262 million as of December 23, 2018 and $454 million as of September 23, 2018.

Geographic Distribution

The geographic distribution of revenue during the December 2018 quarter is shown in the following table:

Region Revenue
Japan 27 %
Korea 25 %
Taiwan 17 %
China 14 %
Southeast Asia 7 %
United States 5 %
Europe 5 %

Outlook

For the March 2019 quarter, Lam is providing the following guidance:

  U.S. GAAP   Reconciling Items   Non-GAAP
Revenue $2.4 Billion +/- $150 Million     $2.4 Billion +/- $150 Million
Gross margin as a percentage of revenue   43.6 % +/-   1 %   $ 22   Million     44.5 % +/-   1 %
Operating income as a percentage of revenue   23.6 % +/-   1 %   $ 34   Million     25.0 % +/-   1 %
Net income per diluted share $3.21   +/- $0.20     $ 30   Million   $3.40   +/- $0.20  
Diluted share count 159 Million     159 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, restructuring, balance sheet valuation adjustments, financing arrangements, other investments, or other significant transactions that may be completed 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:

•        Gross margin as a percentage of revenue - amortization related to intangible assets acquired through business combinations, $22 million.

•        Operating income as a percentage of revenue - amortization related to intangible assets acquired through business combinations, $34 million.

•        Earnings per share - amortization related to intangible assets acquired though business combinations, $34 million; amortization of note discounts, $1 million; and associated tax benefit for non-GAAP items ($5 million); totaling $30 million.

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 2018 and September 2018 quarters exclude amortization related to intangible assets acquired through business combinations, restructuring charges, amortization of note discounts, tax benefit of non-GAAP items, and estimated income tax impacts associated with U.S. tax reform. Additionally, the December 2018 quarter non-GAAP results exclude income tax benefit on the conclusion of tax matters related to a prior business combination.

Management uses non-GAAP gross margin, operating expense, operating income, 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 customers in Japan; the timing and amount of revenue and profit earned from any booked deferred revenue and profit; market trends and semiconductor demand; our technology leadership; our installed base growth; our long term positioning; technology demand trends; the legal and business factors that may affect our future tax rate; our engineering capabilities; our commitment to customer success; our continued ability to accelerate innovation and enhance device performance; and our guidance for revenue, gross margin, operating income (both as a dollar value and a percentage of revenue), net income or earnings per diluted share, and diluted share count. Some factors that may affect these forward-looking statements include: business, political and/or regulatory 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 24, 2018 and our quarterly report on Form 10-Q for the fiscal quarter ended September 23, 2018. 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 Corporation is a global supplier of innovative wafer fabrication equipment and services to the semiconductor industry. As a trusted, collaborative partner to the world’s leading semiconductor companies, we combine superior systems engineering capability, technology leadership, and unwavering commitment to customer success to accelerate innovation through enhanced device performance. In fact, today, nearly every advanced chip is built with Lam technology. Lam Research (LRCX) is a FORTUNE 500® company headquartered in Fremont, Calif., with operations around the globe. Learn more at 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   Six Months Ended
  December 23,
 2018
  September 23,
2018
  December 24,
 2017
  December 23,
 2018
  December 24,
 2017
Revenue $ 2,522,673     $ 2,330,691     $ 2,580,815     $ 4,853,364     $ 5,058,955  
Cost of goods sold 1,377,640     1,272,493     1,375,248     2,650,133     2,704,045  
Gross margin 1,145,033     1,058,198     1,205,567     2,203,231     2,354,910  
Gross margin as a percent of revenue 45.4 %   45.4 %   46.7 %   45.4 %   46.5 %
Research and development 285,556     291,672     281,311     577,228     556,389  
Selling, general and administrative 169,098     174,775     186,885     343,873     367,928  
Total operating expenses 454,654     466,447     468,196     921,101     924,317  
Operating income 690,379     591,751     737,371     1,282,130     1,430,593  
Operating income as a percent of revenue 27.4 %   25.4 %   28.6 %   26.4 %   28.3 %
Other expense, net (30,649 )   (377 )   (3,152 )   (31,026 )   (8,654 )
Income before income taxes 659,730     591,374     734,219     1,251,104     1,421,939  
Income tax expense (90,875 )   (58,014 )   (744,174 )   (148,889 )   (841,204 )
Net income (loss) $ 568,855     $ 533,360     $ (9,955 )   $ 1,102,215     $ 580,735  
Net income (loss) per share:                  
Basic $ 3.67     $ 3.43     $ (0.06 )   $ 7.10     $ 3.59  
Diluted $ 3.51     $ 3.23     $ (0.06 )   $ 6.73     $ 3.16  
Number of shares used in per share calculations:                  
Basic 155,022     155,658     161,135     155,340     161,638  
Diluted 162,170     165,327     161,135     163,749     183,958  
Cash dividend declared per common share $ 1.10     $ 1.10     $ 0.50     $ 2.20     $ 0.95  


 
 LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
  December 23,
 2018
  September 23,
2018
  June 24,
 2018
  (unaudited)   (unaudited)   (1)
ASSETS          
Cash and cash equivalents $ 3,359,793     $ 2,568,085     $ 4,512,257  
Investments 275,670     1,050,863     437,338  
Accounts receivable, net 1,868,842     1,846,845     2,176,936  
Inventories 1,703,307     1,874,194     1,876,162  
Prepaid expenses and other current assets 148,233     175,886     147,218  
Total current assets 7,355,845     7,515,873     9,149,911  
Property and equipment, net 1,013,306     951,376     902,547  
Restricted cash and investments 255,292     255,924     256,301  
Goodwill and intangible assets 1,736,468     1,767,562     1,802,740  
Other assets 407,547     466,842     367,979  
Total assets $ 10,768,458     $ 10,957,577     $ 12,479,478  
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current portion of convertible notes, capital leases and commercial paper $ 187,102     $ 550,369     $ 610,030  
Other current liabilities 1,979,735     2,274,596     2,540,278  
Total current liabilities 2,166,837     2,824,965     3,150,308  
Long-term debt and capital leases 1,813,190     1,805,091     1,806,562  
Income taxes payable 859,232     845,740     851,936  
Other long-term liabilities 87,827     100,144     90,629  
Total liabilities 4,927,086     5,575,940     5,899,435  
Temporary equity, convertible notes 57,009     58,812     78,192  
Stockholders’ equity (2) 5,784,363     5,322,825     6,501,851  
Total liabilities and stockholders’ equity $ 10,768,458     $ 10,957,577     $ 12,479,478  


(1 ) Derived from audited financial statements.
(2 ) Common shares issued and outstanding were 153,961 as of December 23, 2018, 153,384 as of September 23, 2018, and 156,892 as of June 24, 2018.


 
LAM RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)

  Three Months Ended   Six Months Ended
  December 23,
2018
  September 23,
2018
  December 24,
2017
  December 23,
2018
  December 24,
2017
CASH FLOWS FROM OPERATING ACTIVITIES:                  
Net income (loss) $ 568,855     $ 533,360     $ (9,955 )   $ 1,102,215     $ 580,735  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:                  
Depreciation and amortization 81,794     79,805     79,898     161,599     159,040  
Deferred income taxes 20,797     (83,501 )   (271,478 )   (62,704 )   (228,274 )
Equity-based compensation expense 38,806     50,343     42,124     89,149     83,907  
Amortization of note discounts and issuance costs 1,031     1,245     4,539     2,276     9,127  
Other, net (1,343 )   2,191     (1,108 )   848     5,461  
Changes in operating assets and liabilities (67,521 )   136,843     184,684     69,322     277,014  
Net cash provided by operating activities 642,419     720,286     28,704     1,362,705     887,010  
CASH FLOWS FROM INVESTING ACTIVITIES:                  
Capital expenditures and intangible assets (105,923 )   (56,098 )   (84,693 )   (162,021 )   (144,757 )
Business acquisition, net of cash acquired         (84 )       (115,697 )
Net sale (purchases) of available-for-sale securities 773,223     (612,583 )   (205,701 )   160,640     (323,475 )
Other, net (369 )   (3,650 )   (4,396 )   (4,019 )   (14,996 )
Net cash provided by (used for) investing activities 666,931     (672,331 )   (294,874 )   (5,400 )   (598,925 )
CASH FLOWS FROM FINANCING ACTIVITIES:                  
Principal payments on debt (6,440 )   (79,831 )   (47,522 )   (86,271 )   (349,249 )
Net (repayments) proceeds from issuance of commercial paper (359,518 )   (86 )   798,947     (359,604 )   798,947  
Proceeds from borrowings on revolving credit facility         750,000         750,000  
Repayments of borrowings on revolving credit facility         (750,000 )       (750,000 )
Treasury stock purchases (1,519 )   (1,735,895 )   (1,111,450 )   (1,737,414 )   (1,266,835 )
Dividends paid (167,907 )   (174,372 )   (73,127 )   (342,279 )   (145,865 )
Reissuance of treasury stock related to employee stock purchase plan 32,920         34,057     32,920     34,057  
Proceeds from issuance of common stock 109         3,073     109     4,115  
Other, net (13,198 )   (9 )       (13,207 )   4  
Net cash used for financing activities (515,553 )   (1,990,193 )   (396,022 )   (2,505,746 )   (924,826 )
Effect of exchange rate changes on cash, cash equivalents, and restricted cash (2,721 )   (2,311 )   842     (5,032 )   4,159  
Net increase (decrease) in cash, cash equivalents, and restricted cash 791,076     (1,944,549 )   (661,350 )   (1,153,473 )   (632,582 )
Cash, cash equivalents, and restricted cash at beginning of period 2,824,009     4,768,558     2,662,507     4,768,558     2,633,739  
Cash, cash equivalents, and restricted cash at end of period $ 3,615,085     $ 2,824,009     $ 2,001,157     $ 3,615,085     $ 2,001,157  


 
Non-GAAP Financial Summary
(in thousands, except percentages and per share data)
(unaudited)
 
  Three Months Ended
  December 23,
 2018
  September 23,
2018
Revenue $ 2,522,673     $ 2,330,691  
Gross margin $ 1,167,375     $ 1,080,540  
Gross margin as percentage of revenue 46.3 %   46.4 %
Operating expenses $ 439,808     $ 450,540  
Operating income $ 727,567     $ 630,000  
Operating income as a percentage of revenue 28.8 %   27.0 %
Net income $ 628,196     $ 555,460  
Net income per diluted share $ 3.87     $ 3.36  
Shares used in per share calculation - diluted 162,170     165,327  


 

Reconciliation of U.S. GAAP Net Income to Non-GAAP Net Income
(in thousands, except per share data)
(unaudited)
  Three Months Ended   Twelve Months Ended
  December 23, 2018   September 23,
2018
  June 24,
2018
  March 25,
2018
  December 23, 2018
U.S. GAAP net income $ 568,855     $ 533,360     $ 1,021,146     $ 778,800     $ 2,902,161  
Pre-tax non-GAAP items:                  
Amortization related to intangible assets acquired through certain business combinations - cost of goods sold 22,342     22,342     22,342     22,342     89,368  
Amortization related to intangible assets acquired through certain business combinations - selling, general and administrative 12,490     12,490     16,069     17,074     58,123  
Restructuring charges - selling, general and administrative 2,356     3,417             5,773  
Business combination acquisition and integration related costs - selling, general and administrative         728     107     835  
Amortization of note discounts - other expense, net 886     900     1,851     2,860     6,497  
Realized loss on sale or impairment of investments - other expense, net             46,641     46,641  
Net income tax benefit on non-GAAP items (5,704 )   (5,838 )   (4,686 )   (11,518 )   (27,746 )
Income tax benefit on the conclusion of certain tax matters (1,635 )       (9,656 )   (4,511 )   (15,802 )
Income tax expense (benefit) associated with U.S. tax reform 28,606     (11,211 )   (115,838 )       (98,443 )
Non-GAAP net income $ 628,196     $ 555,460     $ 931,956     $ 851,795     $ 2,967,407  
Non-GAAP net income per diluted share $ 3.87     $ 3.36     $ 5.31     $ 4.79     $ 17.44  
GAAP net income per diluted share $ 3.51     $ 3.23     $ 5.82     $ 4.33     $ 17.00  
U.S. GAAP number of shares used for per diluted share calculation 162,170     165,327     175,432     179,779     170,677  
Effect of potential dilutive securities:                  
Effect of convertible note hedge             (1,993 )   (498 )
Non-GAAP number of shares used for per diluted share calculation 162,170     165,327     175,432     177,786     170,179  


 
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 perce
 
  Three Months Ended
  December 23,
 2018
  September 23,
2018
U.S. GAAP gross margin $ 1,145,033     $ 1,058,198  
Pre-tax non-GAAP items:      
Amortization related to intangible assets acquired through certain business combinations 22,342     22,342  
Non-GAAP gross margin $ 1,167,375     $ 1,080,540  
U.S. GAAP gross margin as a percentage of revenue 45.4 %   45.4 %
Non-GAAP gross margin as a percentage of revenue 46.3 %   46.4 %
U.S. GAAP operating expenses $ 454,654     $ 466,447  
Pre-tax non-GAAP items:      
Amortization related to intangible assets acquired through certain business combinations (12,490 )   (12,490 )
Restructuring charges (2,356 )   (3,417 )
Non-GAAP operating expenses $ 439,808     $ 450,540  
U.S. GAAP operating income $ 690,379     $ 591,751  
Non-GAAP operating income $ 727,567     $ 630,000  
U.S. GAAP operating income as percent of revenue 27.4 %   25.4 %
Non-GAAP operating income as a percent of revenue 28.8 %   27.0 %


Lam Research Corporation Contacts:

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