News Column

Analog Devices Reports Second Quarter Fiscal Year 2014 Results

May 20, 2014

Board declares $0.37 per share cash dividend

NORWOOD, Mass.--(BUSINESS WIRE)-- Analog Devices, Inc. (NASDAQ: ADI), a global leader in high-performance semiconductors for signal processing applications, today announced financial results for its second quarter of fiscal year 2014, which ended May 3, 2014.

“We had a very good second quarter, with our performance ahead of expectations,” said Vincent Roche, President and CEO. “Our growth this quarter was broad-based, fueled by secular and seasonal strength, particularly in the industrial, communications infrastructure, and automotive markets, which accounted for 89% of our sales. We expect these trends to continue into the third quarter driving sequential revenue growth of 1% to 5% with strong profitability.”

ADI also announced that the Board of Directors has declared a cash dividend of $0.37 per outstanding share of common stock. The dividend will be paid on June 10, 2014 to all shareholders of record at the close of business on May 30, 2014.

Results for the Second Quarter of Fiscal Year 2014

  • Revenue totaled $695 million, up 11% sequentially and 5% year-over-year
  • Gross margin was 66.1% of revenue
  • Operating margin was 31.7% of revenue
  • Diluted EPS was $0.59
  • Cash flow from operations was $238 million, or 34% of revenue

    Please refer to the schedules provided for a summary of revenue and earnings, selected balance sheet information, and the cash flow statement for the second quarter of fiscal year 2014, as well as the immediately prior and year-ago quarters. Additional information on revenue by end market and revenue by product type is provided on Schedules D and E. A more complete table covering prior periods is available at investor.analog.com.

    Outlook for the Third Quarter of Fiscal Year 2014

    The following statements are based on current expectations. 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.

  • Revenue estimated to increase 1% to 5% sequentially
  • Gross margin estimated to increase approximately 50 bps
  • Operating expenses estimated to be flat to up 3%
  • Tax rate estimated to be approximately 13.5%
  • Diluted EPS estimated at $0.60 to $0.64

    Conference Call Scheduled for 5:00 pm ET

    ADI will host a conference call to discuss the second quarter results and short-term outlook today, beginning at 5:00 pm 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: 16407472, 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 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.

    Schedule F of this press release provides the reconciliation of the Company’s non-GAAP measures to its GAAP measures.

    Manner in Which Management Uses the Non-GAAP Financial Measures

    Management uses non-GAAP operating expenses, non-GAAP operating income, non-GAAP operating margins, and non-GAAP diluted earnings per share 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 understanding and evaluating the Company’s operating results and trends in the Company’s business.

    Economic Substance Behind Management’s Decision to Use Non-GAAP Financial Measures

    The items excluded from the non-GAAP measures were excluded because they are of a non-recurring or non-cash nature.

    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:

    Restructuring-Related Expenses. These expenses were incurred in the first quarter of fiscal 2014 in connection with facility closures, consolidation of manufacturing facilities, and other cost reduction efforts. Apart from ongoing expense savings as a result of such items, these expenses and the related tax effects have no direct correlation to the operation of our business in the future.

    Stock-based Compensation Expense. In the second quarter of fiscal 2013, following the death of the Company’s then CEO, the Company recorded $6.3 million of stock-based compensation expense due to the accelerated vesting of restricted stock units in accordance with the terms of his restricted stock agreement. This stock-based compensation expense and the related tax effect have no direct correlation to the operation of our business in the future.

    The following item is excluded from our non-GAAP diluted earnings per share:

    Tax-Related Item. In the second quarter of fiscal 2013, the Company recorded a $6.6 million tax benefit as a result of the reversal of prior period tax liabilities. We excluded this tax-related item from our non-GAAP earnings per diluted share measure because it is not associated with the tax expense on our current operating results.

    Why Management Believes the Non-GAAP Financial Measures Provide Useful Information to Investors

    Management believes that the presentation of non-GAAP operating expenses, non-GAAP operating income, non-GAAP operating margins, and non-GAAP diluted EPS is useful to investors because it provides investors with the operating results that management uses to manage the Company.

    Material Limitations Associated with Use of the Non-GAAP Financial Measures

    Analog Devices believes that non-GAAP operating expenses, non-GAAP operating income, non-GAAP operating margins, and non-GAAP diluted EPS have material limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures. In addition, our 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 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.

    Management’s Compensation for Limitations of Non-GAAP Financial Measures

    Management compensates for these material limitations in non-GAAP operating expenses, non-GAAP operating income, non-GAAP operating margins, and non-GAAP diluted EPS by also evaluating our GAAP results and the reconciliations of our non-GAAP measures to the most directly comparable GAAP measures. Investors should consider our non-GAAP financial measures in conjunction with the corresponding GAAP measures.

    About Analog Devices

    Innovation, performance, and excellence are the cultural pillars on which Analog Devices has built one of the longest standing, highest growth companies within the technology sector. Acknowledged industry-wide as the world leader in data conversion and signal conditioning technology, Analog Devices serves over 60,000 customers, representing virtually all types of electronic equipment. Analog Devices is headquartered in Norwood, Massachusetts, with design and manufacturing facilities throughout the world. Analog Devices' common stock is included in the S&P 500 Index.

    This release may be deemed to contain forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among other things, our statements regarding expected revenue,earnings per share, operating expenses, gross margin, tax rate, and other financial results, expected production and inventory levels, expected market trends, and expected customer demand and order rates for our products,that are based on our current expectations, beliefs, assumptions, estimates, forecasts, and projections about our business and the industry and markets in which Analog Devices operates. The statements contained in this release are not guarantees of future performance, are inherently uncertain, involve certain risks, uncertainties, and assumptions that are difficult to predict, and do not give effect to the potential impact of any mergers, acquisitions, divestitures, or business combinations that may be announced or closed after the date hereof. Therefore, actual outcomes and results may differ materially from what is expressed in such forward-looking statements, and such statements should not be relied upon as representing Analog Devices’ expectations or beliefs as of any date subsequent to the date of this press release. We do not undertake any obligation to update forward-looking statements made by us. Important factors that may affect future operating results include: 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, adverse results in litigation matters, and other risk factors described in our most recent filings with the Securities and Exchange Commission.Our results of operations for the periods presented in this release are not necessarily indicative of our operating results for any future periods. Any projections in this release are based on limited information currently available to Analog Devices, which is subject to change. Although any such projections and the factors influencing them will likely change, we will not necessarily update the information, as we will only provide guidance at certain points during the year. Such information speaks only as of the original issuance date of this release.

    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, Second Quarter, Fiscal 2014
                     

    Schedule A

    Revenue and Earnings Summary (GAAP)
    (In thousands, except per-share amounts)
     
                     
    Three Months Ended
    2Q 141Q 142Q 13
           

    May 3,

    2014

         

    Feb. 1,

    2014

         

    May 4,

    2013

    Revenue $ 694,536 $ 628,238 $ 659,250
    Year-to-year change 5 % 1 % -2 %
    Quarter-to-quarter change 11 % -7 % 6 %
    Cost of sales (1)         235,793           219,120           237,055  
    Gross margin 458,743 409,118 422,195
    Gross margin percentage 66.1 % 65.1 % 64.0 %
    Year-to-year change (basis points) 210 240 -120
    Quarter-to-quarter change (basis points)         100           -50           130  
    Operating expenses:
    R&D (1) 136,258 128,646 128,110
    Selling, marketing and G&A (1) 102,085 98,178 102,703
    Special charges         -           2,685           -  
    Total operating expenses 238,343 229,509 230,813
    Total operating expenses percentage 34.3 % 36.5 % 35.0 %
    Year-to-year change (basis points) -70 -160 130
    Quarter-to-quarter change (basis points)         -220           40           -310  
    Operating income 220,400 179,609 191,382
    Operating income percentage 31.7 % 28.6 % 29.0 %
    Year-to-year change (basis points) 270 390 -250
    Quarter-to-quarter change (basis points)         310           -90           430  
    Other expense (income)         3,032           3,718           3,721  
    Income before income tax 217,368 175,891 187,661
    Provision for income taxes 29,935 23,305 23,189
    Tax rate percentage         13.8 %         13.2 %         12.4 %
    Net income       $ 187,433         $ 152,586         $ 164,472  
     
    Shares used for EPS - basic 313,488 312,286 307,444
    Shares used for EPS - diluted 318,347 318,017 313,368
     
    Earnings per share - basic $ 0.60 $ 0.49 $ 0.53
    Earnings per share - diluted $ 0.59 $ 0.48 $ 0.52
     
    Dividends paid per share       $ 0.37         $ 0.34         $ 0.34  
     
    (1) Includes stock-based compensation expense as follows:
    Cost of sales $ 1,417 $ 1,557 $ 1,517
    R&D $ 4,278 $ 4,859 $ 5,044
    Selling, marketing and G&A $ 4,847 $ 4,991 $ 11,395
     
     


     
     
    Analog Devices, Second Quarter, Fiscal 2014
                     

    Schedule B

    Selected Balance Sheet Information (GAAP)
    (In thousands)
     
    2Q 141Q 142Q 13
           

    May 3,

    2014

         

    Feb. 1,

    2014

         

    May 4,

    2013

    Cash & short-term investments $ 4,807,225 $ 4,701,109 $ 4,172,141
    Accounts receivable, net 360,847 328,787 333,924
    Inventories (1) 298,432 289,935 298,967
    Other current assets         171,528         151,128         158,180
    Total current assets 5,638,032 5,470,959 4,963,212
    PP&E, net 545,485 529,010 490,047
    Investments 30,080 23,363 18,678
    Goodwill and intangible assets 315,783 311,664 311,587
    Other         65,571         64,472         57,512
    Total assets       $ 6,594,951       $ 6,399,468       $ 5,841,036
     
    Deferred income on shipments to distributors, net $ 267,933 $ 245,236 $ 244,202
    Other current liabilities 303,269 274,258 264,960
    Long-term debt, non-current 872,515 872,378 757,855
    Non-current liabilities 219,711 211,961 113,429
    Shareholders' equity         4,931,523         4,795,635         4,460,590
    Total liabilities & equity       $ 6,594,951       $ 6,399,468       $ 5,841,036
     
    (1) Includes $1,982, $2,196, and $2,123 related to stock-based compensation in

    2Q14, 1Q14, and 2Q13, respectively.

     
     


     
     
    Analog Devices, Second Quarter, Fiscal 2014
                     

    Schedule C

    Cash Flow Statement (GAAP)
    (In thousands)
     
                     
    Three Months Ended
    2Q 141Q 142Q 13

    May 3,

    2014

         

    Feb. 1,

    2014

         

    May 4,

    2013

    Cash flows from operating activities:
    Net Income $ 187,433 $ 152,586 $ 164,472
    Adjustments to reconcile net income
    to net cash provided by operations:
    Depreciation 27,459 27,335 27,478
    Amortization of intangibles 55 55 55
    Stock-based compensation expense 10,542 11,407 17,956
    Other non-cash activity 1,400 1,417 (20 )
    Excess tax benefit - stock options (4,423 ) (7,604 ) (2,833 )
    Deferred income taxes 1,068 (2,993 ) (767 )
    Changes in operating assets and liabilities         14,824           (24,664 )         45,845  
    Total adjustments         50,925           4,953           87,714  
    Net cash provided by operating activities         238,358           157,539           252,186  
    Percent of total revenue         34.3 %         25.1 %         38.3 %
     
    Cash flows from investing activities:
    Purchases of short-term available-for-sale investments (2,275,241 ) (2,234,996 ) (2,203,316 )
    Maturities of short-term available-for-sale investments 1,966,158 2,028,917 1,726,488
    Sales of short-term available-for-sale investments 189,267 212,819 91,351
    Additions to property, plant and equipment (44,058 ) (48,123 ) (26,179 )
    Increase in other assets         (6,076 )         (3,006 )         (478 )
    Net cash used for investing activities         (169,950 )         (44,389 )         (412,134 )
     
    Cash flows from financing activities:
    Dividend payments to shareholders (115,795 ) (106,024 ) (104,415 )
    Repurchase of common stock (22,614 ) (88,963 ) (4,519 )
    Proceeds from employee stock plans 62,936 79,600 62,255
    Excess tax benefit - stock options 4,423 7,604 2,833
    Contingent consideration payment - (1,773 ) -
    (Decrease) increase in other financing activities         (11,284 )         22,248           4,184  
    Net cash used for financing activities         (82,334 )         (87,308 )         (39,662 )
    Effect of exchange rate changes on cash         (511 )         (704 )         (556 )
     
    Net (decrease) increase in cash and cash equivalents (14,437 ) 25,138 (200,166 )
    Cash and cash equivalents at beginning of period         417,227           392,089           795,797  
    Cash and cash equivalents at end of period       $ 402,790         $ 417,227         $ 595,631  
     
     


     
     
    Analog Devices, Second Quarter, Fiscal 2014
     

    Schedule D

    Revenue Trends by End Market

    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

    May 3,

    2014

         

    Feb. 1,

    2014

       

    May 4,

    2013

    Revenue     %       Q/Q %     Y/Y %

    Revenue

    Revenue
    Industrial $ 326,530     47 %     13 %     5 % $ 289,990 $ 311,128
    Automotive 135,488 20 % 9 % 10 % 124,285 122,715
    Consumer 77,705 11 % 5 % -23 % 74,335 101,233
    Communications   154,813     22 % 11 % 25 %   139,628   124,174
    Total Revenue$694,536     100%11%5%$628,238$659,250
     
     


     
     
    Analog Devices, Second Quarter, Fiscal 2014
     

    Schedule E

    Revenue Trends by Product Type

    The categorization of our products into broad categories is based on the characteristics of the individual products, the specification of the products and in some cases the specific uses that certain products have within applications. The categorization of products into categories is therefore subject to judgment in some cases and can vary over time. In instances where products move between product categories we reclassify the amounts in the product categories for all prior periods. Such reclassifications typically do not materially change the sizing of, or the underlying trends of results within, each product category.


         
    Three Months Ended

    May 3,

    2014

       

    Feb. 1,

    2014

       

    May 4,

    2013

    Revenue     %*     Q/Q %     Y/Y %RevenueRevenue
    Converters $ 317,915     46%     9%     8% $ 290,551$ 295,459
    Amplifiers / Radio Frequency 186,287 27% 13% 9% 164,714 170,793
    Other analog 88,103     13% 11% -5% 79,419 92,441
    Subtotal Analog Signal Processing 592,305     85% 11% 6% 534,684 558,693
    Power management & reference 43,138     6% 11% -1% 38,710 43,701
    Total Analog Products$ 635,443     91%11%5%$ 573,394$ 602,394
    Digital Signal Processing 59,093     9% 8% 4% 54,844 56,856
    Total Revenue$ 694,536     100%11%5%$ 628,238$ 659,250
     
    * The sum of the individual percentages does not equal the total due to rounding.
     
     


     
     
    Analog Devices, Second Quarter, Fiscal 2014
                         

    Schedule F

    Reconciliation from Non-GAAP to GAAP Data (In thousands, except per-share amounts)
     
    See "Non-GAAP Financial Information" in this press release for a description of the items excluded from our non-GAAP measures.
                         
    Three Months Ended
    2Q 141Q 142Q 13

    May 3,

    2014

     

    Feb. 1,

    2014

     

    May 4,

    2013

     
    GAAP Operating Expenses$238,343$229,509$230,813
    Percent of Revenue34.3%36.5%35.0%
    Restructuring-Related Expense - (2,685 ) -
    Stock-Based Compensation Expense   -       -       (6,273 )
    Non-GAAP Operating Expenses$238,343     $226,824     $224,540  
    Percent of Revenue34.3%36.1%34.1%
     
    GAAP Operating Income/Margin$220,400$179,609$191,382
    Percent of Revenue31.7%28.6%29.0%
    Restructuring-Related Expense - 2,685 -
    Stock-Based Compensation Expense   -       -       6,273  
    Non-GAAP Operating Income/Margin$220,400     $182,294     $197,655  
    Percent of Revenue31.7%29.0%30.0%
     
    GAAP Diluted EPS$0.59$0.48$0.52
    Restructuring-Related Expense - 0.01 -
    Impact of the Reversal of Prior Period Tax Liabilities - - (0.02 )
    Stock-Based Compensation Expense   -       -       0.01  
    Non-GAAP Diluted EPS (1)$0.59     $0.49     $0.52  
     
    (1) The sum of the individual per share amounts may not equal the total due to rounding.
     
     





    For more information, please contact:

    Analog Devices, Inc.

    Mr. Ali Husain, 781-461-3282 (phone);

    781-461-3491 (fax);

    Director of Investor Relations,

    investor.relations@analog.com


    Source: Analog Devices, Inc.


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