Press release

Analog Devices Reports First Quarter Fiscal 2020 Results

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Analog Devices, Inc. (Nasdaq: ADI), a leading global high-performance analog technology company, today announced financial results for its first quarter of fiscal 2020, which ended February 1, 2020.

“ADI’s first quarter results were in-line with our expectations. Encouragingly, demand across our end markets has stabilized and is beginning to show signs of improvement as we enter our fiscal second quarter,” said Vincent Roche, President and CEO. “We are building on this momentum by executing on our 2020 priorities – deepening our customer-centricity, deploying our capital efficiently, and capitalizing on secular trends to expand our addressable markets and drive diversified growth. Further, we raised our quarterly dividend by 15%, reflecting the stability of our cash flows and our optimism regarding ADI’s future.”

Roche continued, “I believe the demand for ADI’s solutions will be unprecedented as technological innovation underpinned by ubiquitous sensing, hyper-scale and edge computing, and pervasive connectivity continues to grow at an exponential pace. Our diversified business model combined with our leading technology portfolio position ADI to deliver sustainable long-term growth and strong shareholder returns in the years ahead.”

Performance for the First Quarter of Fiscal 2020

Results Summary(1)

 

 

 

 

 

(in millions, except per-share amounts and percentages)

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Feb. 1, 2020

 

Feb. 2, 2019

 

Change

Revenue

$

1,304

 

 

$

1,541

 

 

(15)

%

Gross margin

$

848

 

 

$

1,040

 

 

(18)

%

Gross margin percentage

65.1

%

 

67.5

%

 

(240 bps)

Operating income

$

273

 

 

$

456

 

 

(40)

%

Operating margin

21.0

%

 

29.6

%

 

(860 bps)

Diluted earnings per share

$

0.55

 

 

$

0.95

 

 

(42)

%

 

 

 

 

 

 

Adjusted Results

 

 

 

 

 

Adjusted gross margin

$

893

 

 

$

1,083

 

 

(18)

%

Adjusted gross margin percentage

68.5

%

 

70.3

%

 

(180 bps)

Adjusted operating income

$

481

 

 

$

635

 

 

(24)

%

Adjusted operating margin

36.9

%

 

41.2

%

 

(430 bps)

Adjusted diluted earnings per share

$

1.03

 

 

$

1.33

 

 

(23)

%

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Trailing Twelve Months

Cash Generation

 

 

Feb. 1, 2020

 

Feb. 1, 2020

Net cash provided by operating activities

 

 

$

350

 

 

$

2,231

 

% of revenue

 

 

27

%

 

39

%

Capital expenditures

 

 

$

(55)

 

 

$

(239)

 

Free cash flow

 

 

$

295

 

 

$

1,992

 

% of revenue

 

 

23

%

 

35

%

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Trailing Twelve Months

Cash Return

 

 

Feb. 1, 2020

 

Feb. 1, 2020

Dividend paid

 

 

$

(199)

 

 

$

(799)

 

Stock repurchases

 

 

(106)

 

 

(492)

 

Total cash returned

 

 

$

(305)

 

 

$

(1,291)

 

 

 

 

 

 

 

(1) The sum and/or computation of the individual amounts may not equal the total due to rounding.

Outlook for the Second Quarter of Fiscal Year 2020

For the second quarter of fiscal 2020, we are forecasting revenue of $1.35 billion, +/- $50 million. While the effects of the coronavirus are difficult to estimate and the situation remains dynamic, we have reduced our revenue guidance by $70 million to account for its potential impact. At the midpoint of this revenue outlook, we expect reported operating margins of approximately 26.0%, +/-150 bps, and adjusted operating margins of approximately 37.5%, +/-100 bps. We are planning for reported EPS to be $0.73, +/-$0.08, and adjusted EPS to be $1.10, +/-$0.08.

Our second quarter fiscal 2020 outlook is based on current expectations 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.

The adjusted results and adjusted anticipated results above are financial measures presented on a non-GAAP basis. Reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures are provided in the financial tables included in this press release. See also “Non-GAAP Financial Information” section for additional information.

Dividend Payment

The ADI Board of Directors has declared a quarterly cash dividend of $0.62 per outstanding share of common stock. The dividend will be paid on March 10, 2020 to all shareholders of record at the close of business on February 28, 2020.

Conference Call Scheduled for Today, Wednesday, February 19, 2020 at 10:00 am ET

ADI will host a conference call to discuss our first quarter fiscal 2020 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 800-859-9560, or 706-634-7193 for international calls, 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: 7263078, or by visiting investor.analog.com.

Non-GAAP Financial Information

This release includes non-GAAP financial measures that are not in accordance with, nor an alternative to, generally accepted accounting principles (GAAP) and may be different from non-GAAP measures presented by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. 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. 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. You are cautioned not to place undue reliance on these non-GAAP measures. Reconciliations of these non-GAAP measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are provided in the financial tables included in this release.

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 non-GAAP financial measures referenced by ADI in this release include: adjusted gross margin, adjusted gross margin percentage, adjusted operating expenses, adjusted operating expenses percentage, adjusted operating income, adjusted operating margin, adjusted income before income taxes, adjusted provision for income taxes, adjusted tax rate, adjusted diluted earnings per share (EPS), free cash flow, and free cash flow margin percentage.

Adjusted gross margin is defined as gross margin, determined in accordance with GAAP, excluding certain acquisition-related expenses1 which are described further below. Adjusted gross margin percentage represents adjusted gross margin divided by revenue.

Adjusted operating expenses is defined as operating expenses, determined in accordance with GAAP, excluding: certain acquisition-related expenses1; restructuring related expense2; and charitable foundation contribution3 which are described further below. Adjusted operating expenses percentage represents adjusted operating expenses divided by revenue.

Adjusted operating income is defined as operating income, determined in accordance with GAAP, excluding: acquisition-related expenses1; restructuring related expense2; and charitable foundation contribution3 which are described further below. Adjusted operating margin represents adjusted operating income divided by revenue.

Adjusted income before income taxes is defined as income before income taxes, determined in accordance with GAAP, excluding: acquisition-related expenses1; restructuring related expense2; and charitable foundation contribution3 which are described further below.

Adjusted provision for income taxes is defined as provision for income taxes, determined in accordance with GAAP, excluding tax related items4 which are described further below. Adjusted tax rate represents adjusted provision for income taxes divided by adjusted income before income taxes.

Adjusted diluted EPS is defined as diluted EPS, determined in accordance with GAAP, excluding: acquisition-related expenses1; restructuring related expense2; charitable foundation contribution3; and tax related items4 which are described further below.

Free cash flow is defined as net cash provided by operating activities, determined in accordance with GAAP, less additions to property, plant and equipment, net. Free cash flow margin percentage represents free cash flow divided by revenue.

1Acquisition-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.

2Restructuring-Related Expense: Expenses incurred in connection with facility closures, consolidation of manufacturing facilities, severance, other accelerated stock-based compensation expense and other cost reduction efforts. We excluded these expenses from our non-GAAP measures because apart from ongoing expense savings as a result of such items, these expenses have no direct correlation to the operation of our business in the future.

3Charitable Foundation Contribution: Expenses incurred in connection with a one time contribution of registered shares of common stock to the Analog Devices Foundation. We excluded this expense from our non-GAAP measures because this expense has no direct correlation to the operation of our business in the future.

4Tax-Related Items: Income tax effect of the non-GAAP items discussed above and income tax from certain discrete tax items related to the impact of the Tax Cuts and Jobs Act of 2017. 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.

About Analog Devices

Analog Devices (Nasdaq: ADI) is a 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 Statements

This press release contains forward-looking statements, which address a variety of subjects including, for example, our statements regarding expected revenue, operating margin, tax rate, earnings per share, and other financial results, expected market trends, market share gains, operating leverage, production and inventory levels, and expected customer demand and order rates for our products, expected product offerings, product development and marketing position. 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: political and economic uncertainty, including 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; changes in export classifications, import and export regulations or duties and tariffs; changes in our estimates of our expected tax rate based on current tax law; our ability to successfully integrate acquired businesses and technologies; the risk that expected benefits, synergies and growth prospects of acquisitions may not be fully achieved in a timely manner, or at all; adverse results in litigation matters; and the risk that we will be unable to retain and hire key personnel. 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.

(ADI-WEB)

ANALOG DEVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share amounts)

 

 

Three Months Ended

 

Feb. 1, 2020

 

Feb. 2, 2019

Revenue

$

1,303,565

 

 

$

1,541,101

 

Cost of sales

455,423

 

 

501,445

 

Gross margin

848,142

 

 

1,039,656

 

Operating expenses:

 

 

 

Research & development

257,073

 

 

287,382

 

Selling, marketing, general and administrative

199,280

 

 

167,342

 

Amortization of intangibles

107,225

 

 

107,324

 

Special charges

11,136

 

 

21,782

 

Total operating expenses

574,714

 

 

583,830

 

Operating income

273,428

 

 

455,826

 

Nonoperating expense (income):

 

 

 

Interest expense

48,813

 

 

58,728

 

Interest income

(1,940)

 

 

(2,688)

 

Other, net

338

 

 

(160)

 

 

47,211

 

 

55,880

 

Income before income tax

226,217

 

 

399,946

 

Provision for income taxes

22,343

 

 

44,940

 

Net income

$

203,874

 

 

$

355,006

 

 

 

 

 

Shares used to compute earnings per common share – basic

368,241

 

 

368,703

 

Shares used to compute earnings per common share – diluted

372,264

 

 

372,506

 

 

 

 

 

Basic earnings per common share

$

0.55

 

 

$

0.96

 

Diluted earnings per common share

$

0.55

 

 

$

0.95

 

ANALOG DEVICES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands)

 

 

Feb. 1, 2020

 

Nov. 2, 2019

Cash & cash equivalents

$

654,408

 

 

$

648,322

 

Accounts receivable

584,366

 

 

635,136

 

Inventories

588,503

 

 

609,886

 

Other current assets

83,902

 

 

91,782

 

Total current assets

1,911,179

 

 

1,985,126

 

Net property, plant and equipment

1,206,769

 

 

1,219,989

 

Investments

78,228

 

 

77,324

 

Goodwill

12,257,064

 

 

12,256,880

 

Intangible assets, net

4,073,078

 

 

4,217,224

 

Deferred tax assets

1,567,521

 

 

1,582,382

 

Other

282,988

 

 

53,716

 

Total assets

$

21,376,827

 

 

$

21,392,641

 

 

 

 

 

Other current liabilities

$

1,022,082

 

 

$

1,208,965

 

Debt, current

748,460

 

 

299,667

 

Long-term debt

4,745,302

 

 

5,192,252

 

Deferred income taxes

2,055,100

 

 

2,088,212

 

Other non-current liabilities

1,116,366

 

 

894,357

 

Shareholders’ equity

11,689,517

 

 

11,709,188

 

Total liabilities & equity

$

21,376,827

 

 

$

21,392,641

 

ANALOG DEVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

Three Months Ended

 

Feb. 1, 2020

 

Feb. 2, 2019

Cash flows from operating activities:

 

 

 

Net income

$

203,874

 

 

$

355,006

 

Adjustments to reconcile net income to net cash provided by operations:

 

 

 

Depreciation

59,863

 

 

58,293

 

Amortization of intangibles

144,069

 

 

142,292

 

Stock-based compensation expense

37,501

 

 

36,393

 

Non-cash portion of special charge

 

 

4,367

 

Deferred income taxes

(13,982)

 

 

15,652

 

Non-cash contribution to charitable foundation

40,000

 

 

 

Other non-cash activity

2,332

 

 

6,693

 

Changes in operating assets and liabilities

(124,009)

 

 

(246,929)

 

Total adjustments

145,774

 

 

16,761

 

Net cash provided by operating activities

349,648

 

 

371,767

 

Percent of revenue

26.8

%

 

24.1

%

Cash flows from investing activities:

 

 

 

Additions to property, plant and equipment

(54,839)

 

 

(90,993)

 

Changes in other assets

107

 

 

(5,222)

 

Net cash used for investing activities

(54,732)

 

 

(96,215)

 

 

 

 

 

Cash flows from financing activities:

 

 

 

Proceeds from revolver

 

 

75,000

 

Payments on revolver

 

 

(75,000)

 

Debt repayments

 

 

(100,000)

 

Dividend payments to shareholders

(199,160)

 

 

(177,716)

 

Repurchase of common stock

(106,030)

 

 

(227,093)

 

Proceeds from employee stock plans

16,113

 

 

19,229

 

Changes in other financing activities

(495)

 

 

(569)

 

Net cash used for financing activities

(289,572)

 

 

(486,149)

 

Effect of exchange rate changes on cash

742

 

 

(130)

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

6,086

 

 

(210,727)

 

Cash and cash equivalents at beginning of period

648,322

 

 

816,591

 

Cash and cash equivalents at end of period

$

654,408

 

 

$

605,864

 

ANALOG DEVICES, INC.

REVENUE 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 and our methodology 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

 

Feb. 1, 2020

 

Feb. 2, 2019

 

Revenue

 

% of revenue*

 

Y/Y %

 

Revenue

 

% of revenue*

Industrial

$

684,862

 

 

53%

 

(7)%

 

$

733,432

 

 

48%

Communications

239,928

 

 

18%

 

(31)%

 

347,016

 

 

23%

Automotive

205,330

 

 

16%

 

(16)%

 

244,062

 

 

16%

Consumer

173,445

 

 

13%

 

(20)%

 

216,591

 

 

14%

Total revenue

$

1,303,565

 

 

100%

 

(15)%

 

$

1,541,101

 

 

100%

 

 

 

 

 

 

 

 

 

 

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

ANALOG DEVICES, INC.

RECONCILIATION OF GAAP TO NON-GAAP RESULTS

(Unaudited)

(In thousands, except per share amounts)

 

 

Three Months Ended

 

Feb. 1, 2020

 

Feb. 2, 2019

 

 

 

 

Gross margin

$

848,142

 

 

$

1,039,656

 

Gross margin percentage

65.1

%

 

67.5

%

Acquisition related expenses

45,016

 

 

43,495

 

Adjusted gross margin

$

893,158

 

 

$

1,083,151

 

Adjusted gross margin percentage

68.5

%

 

70.3

%

 

 

 

 

Operating expenses

$

574,714

 

 

$

583,830

 

Percent of revenue

44.1

%

 

37.9

%

Acquisition related expenses

(111,782)

 

 

(113,832)

 

Charitable foundation contribution

(40,000)

 

 

 

Restructuring related expense

(11,136)

 

 

(21,782)

 

Adjusted operating expenses

$

411,796

 

 

$

448,216

 

Adjusted operating expenses percentage

31.6

%

 

29.1

%

 

 

 

 

Operating income

$

273,428

 

 

$

455,826

 

Operating margin

21.0

%

 

29.6

%

Acquisition related expenses

156,798

 

 

157,327

 

Charitable foundation contribution

40,000

 

 

 

Restructuring related expense

11,136

 

 

21,782

 

Adjusted operating income

$

481,362

 

 

$

634,935

 

Adjusted operating margin

36.9

%

 

41.2

%

 

 

 

 

Provision for income taxes

$

22,343

 

 

$

44,940

 

Income tax effect of adjustments above

28,280

 

 

24,900

 

Income tax from certain discrete tax items

 

 

12,560

 

Adjusted provision for income taxes

$

50,623

 

 

$

82,400

 

 

 

 

 

Income before income taxes

226,217

 

 

399,946

 

Effective tax rate

9.9

%

 

11.2

%

Acquisition related expenses

156,798

 

 

157,327

 

Charitable foundation contribution

40,000

 

 

 

Restructuring related expense

11,136

 

 

21,782

 

Adjusted income before income taxes

$

434,151

 

 

$

579,055

 

Adjusted tax rate

11.7

%

 

14.2

%

 

 

 

 

Diluted EPS

$

0.55

 

 

$

0.95

 

Acquisition related expenses

0.42

 

 

0.42

 

Charitable foundation contribution

0.11

 

 

 

Restructuring related expense

0.03

 

 

0.06

 

Income tax effect of adjustments above

(0.08)

 

 

(0.07)

 

Income tax from certain discrete tax items

 

 

(0.03)

 

Adjusted diluted EPS (1)

$

1.03

 

 

$

1.33

 

(1) The sum of the individual per share amounts may not equal the total due to rounding.

ANALOG DEVICES, INC.

RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW

(Unaudited)

(In thousands)

 

 

Trailing

Twelve

Months

 

Three Months Ended

 

Feb. 1, 2020

 

Feb. 1, 2020

 

Nov. 2, 2019

 

Aug. 3, 2019

 

May 4, 2019

Revenue

$

5,753,529

 

 

$

1,303,565

 

 

$

1,443,219

 

 

$

1,480,143

 

 

$

1,526,602

 

Net cash provided by operating activities

$

2,230,981

 

 

$

349,648

 

 

$

657,905

 

 

$

552,546

 

 

$

670,882

 

% of Revenue

39

%

 

27

%

 

46

%

 

37

%

 

44

%

Capital expenditures

$

(239,218)

 

 

$

(54,839)

 

 

$

(51,076)

 

 

$

(58,094)

 

 

$

(75,209)

 

Free cash flow

$

1,991,763

 

 

$

294,809

 

 

$

606,829

 

 

$

494,452

 

 

$

595,673

 

% of Revenue

35

%

 

23

%

 

42

%

 

33

%

 

39

%

ANALOG DEVICES, INC.

RECONCILIATION OF PROJECTED GAAP TO NON-GAAP RESULTS

(Unaudited)

 

 

Three Months Ending May 2, 2020

 

Reported

 

Adjusted

Revenue

$1.35 Billion

 

$1.35 Billion

 

(+/- $50 Million)

 

(+/- $50 Million)

Operating margin

26.0%

 

37.5% (1)

 

(+/-150 bps)

 

(+/-100 bps)

Nonoperating expense

~ $48 Million

 

~ $48 Million

Tax rate

9% to 11%

 

10% to 12% (2)

Earnings per share

$0.73

 

$1.10 (3)

 

(+/- $0.08)

 

(+/- $0.08)

 

(1) Includes $157 million of adjustments related to acquisition related expenses as previously defined in the Non-GAAP Financial Information section of this press release.

(2) Includes $21 million of tax effects associated with the adjustment for acquisition related expenses above.

(3) Includes $0.36 of adjustments related to the net impact of $0.42 of acquisition related expenses and $0.06 of tax effects on those acquisition related expenses.