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Analog Devices Reports Second Quarter Fiscal 2019 Results with Revenue and EPS at the High-End of Guidance

Analog Devices, Inc., a leading global high-performance analog technology company, today announced financial results for its second quarter of fiscal 2019, which ended May 4, 2019.

“We continue to execute exceptionally well in an uncertain environment,” said Vincent Roche, President and CEO. “Revenue and EPS came in at the high-end of our guidance, led by strong growth in our communication applications across multiple markets. All told, B2B revenue increased year-over-year for the 12th consecutive quarter.”

“The world around us remains volatile and uncertain, but when I take a step back and look past the geopolitical noise, I am confident that the macrotrends propelling our markets forward are creating unprecedented demand for the technologies we provide. We remain well-positioned to continue to deliver sustainable profitable growth and strong shareholder returns over the long-term.”

Performance for the Second Quarter of Fiscal Year 2019

Results Summary
(In millions, except per share amounts and percentages)

Three Months Ended
May 4, 2019 May 5, 2018
(1)
Change
Revenue $1,527 $1,564 (2)%
Gross margin $1,034 $1,072 (4)%
Gross margin percentage 67.7% 68.6% (90 bps)
Operating income $470 $503 (7)%
Operating margin 30.8% 32.1% (130 bps)
Diluted earnings per share $0.98 $1.06 (8)%
Adjusted Results
Adjusted gross margin $1,077 $1,117 (4)%
Adjusted gross margin percentage 70.6% 71.5% (90 bps)
Adjusted operating income $634 $675 (6)%
Adjusted operating margin 41.5% 43.2% (170 bps)
Adjusted diluted earnings per share $1.36 $1.50 (9)%

Cash Generation
(in millions, except percentages)

Three Months Ended
May 4, 2019
Trailing Twelve Months
May 4, 2019
Net cash provided by operating activities $671 $2,378
% of revenue (1) 44% 39%
Capital expenditures $(75) $(304)
Free cash flow $596 $2,074
% of revenue (1) 39% 34%

Cash Return
(in millions)

Three Months Ended
May 4, 2019
Trailing Twelve Months
May 4, 2019
Dividend paid $(200) $(735)
Stock repurchases (102) (525)
Total cash returned $(302) $(1,260)

(1) Prior year balances have been restated to reflect the adoption of the new revenue recognition standard in the first quarter of fiscal 2019.

Outlook for the Third Quarter of Fiscal Year 2019

Our third quarter guidance takes into account the estimated impact on ADI from the U.S. Government’s recently announced export restrictions on a large communications company. At this time, we have ceased shipments of products to that company, and we are currently reviewing our ability to resume shipments under the recently announced temporary general license.

For the third quarter of fiscal 2019, we are forecasting revenue of $1.45 billion, +/- $50 million. At the midpoint of this revenue outlook, we expect reported operating margins of approximately 29.7%, and adjusted operating margins of approximately 40.5%. We are planning for reported EPS to be $0.86, +/- $0.07, and adjusted EPS to be $1.22, +/- $0.07.

Our third quarter fiscal 2019 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 $0.54 per outstanding share of common stock. The dividend will be paid on June 11, 2019 to all shareholders of record at the close of business on May 31, 2019.

Conference Call Scheduled for Today, Wednesday, May 22, 2019 at 10:00 am ET

ADI will host a conference call to discuss our second quarter fiscal 2019 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: 4736779, 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.

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, acquisition-related transaction costs2, and restructuring related expense3 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, acquisition-related transaction costs2, and restructuring related expense3 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, acquisition-related transaction costs2, and restructuring related expense3 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 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 EPS, determined in accordance with GAAP, excluding: acquisition-related expenses1, acquisition-related transaction costs2, restructuring related expense3 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.

  1. 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.

  2. Acquisition-Related Transaction Costs: Costs directly related to the Linear Technology acquisition, including legal, accounting and other professional fees, as well as integration-related costs. 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.

  3. Restructuring-Related Expense: Expenses incurred in connection with facility closures, consolidation of manufacturing facilities, severance, 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.

  4. Tax-Related Items: Tax adjustments associated with the non-GAAP items discussed above, discrete tax items including tax expense or benefit related to prior periods, tax expense or benefit related to the impact of the Tax Cuts and Jobs Act of 2017, and uncertain tax positions. 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.

Source: https://www.analog.com/en/index.html

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