Analog Devices Reports Year-Over-Year Revenue Growth at the High-End of Guidance, Strong Profit Conversion, and Substantial Debt Reduction in First Quarter 2018 Earnings

Analog Devices, Inc. today announced financial results for its 14-week first quarter of fiscal year 2018, which ended February 3, 2018.

“We continue to see broad-based momentum across our B2B markets,” said Vincent Roche, President and CEO. “In our first quarter, revenue from these markets once again increased double-digits year-over-year, led by our industrial and wireless communications sectors.”

“Looking ahead to the second quarter of fiscal 2018, we see continued strength in our business and are expecting revenue to be in the range of $1.43 billion to $1.51 billion; sequentially up on a 13-week basis and a double-digit increase compared to the year ago quarter.”

“We anticipate a continuation of market share gains thanks to our comprehensive portfolio and tight alignment with our customers on the innovations that will have the greatest impact on their businesses.”

ADI also announced that the Board of Directors has declared a quarterly cash dividend of $0.48 per outstanding share of common stock, representing an annual dividend per share of $1.92. The dividend will be paid on March 20, 2018 to all shareholders of record at the close of business on March 9, 2018.

Supplemental schedules relating to our first quarter fiscal 2018 financial results are also available on our investor site at investor.analog.com.

Results for the First Quarter of Fiscal Year 2018

• Revenue totaled $1.52 billion, down 1% sequentially and up 54% year-over-year
• GAAP gross margin of 68.2% of revenue; Non-GAAP gross margin of 71.0% of revenue
• GAAP operating margin of 26.7% of revenue; Non-GAAP operating margin of 41.7% of revenue
• GAAP diluted EPS of $0.71; Non-GAAP diluted EPS of $1.42

Please refer to the schedules provided for a summary of revenue and earnings, selected balance sheet information, and the cash flow statement for the first quarter of fiscal 2018, as well as the immediately prior and year-ago quarters and year. Additional information on revenue by end market is provided on Schedule D.

Outlook for the Second Quarter of Fiscal Year 2018

The following statements are based on current expectations, and as indicated, are presented on a GAAP and non-GAAP basis. 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.

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

1. Excludes $44 million of costs comprised of the following:
   • $35 million of recurring amortization of purchased intangible assets
   • $8 million of recurring depreciation of step up value on purchased fixed assets
   • $1 million of recurring fair value adjustment associated with the replacement of share-based awards in ADI’s acquisition of Linear Technology
2. Excludes $125 million of costs comprised of the following:
   • $107 million of recurring amortization of purchased intangible assets
   • $8 million of recurring fair value adjustment associated with the replacement of share-based awards in ADI’s acquisition of Linear Technology
   • $10 million of transaction and integration related costs associated with ADI’s acquisition of Linear Technology
3. Excludes the tax effects of the reconciling adjustments noted in the two footnotes above.
4. Includes $0.43, which represents the net impact of the non-GAAP adjustments noted above on a per share basis consisting of:
   • acquisition-related expenses including amortization of purchased intangible assets, depreciation of step up value on purchased fixed assets, and the fair value adjustment associated with the replacement of share-based awards in ADI’s acquisition of Linear Technology ($0.42)
   • acquisition-related transaction costs ($0.03)
   • the effect on income tax of the prior items (-$0.02)

Conference Call Scheduled for Today, Wednesday, February 28, 2018 at 10:00 am ET

ADI will host a conference call to discuss first quarter fiscal 2018 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: 5777769, 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.

Schedules E and F of this press release provide the reconciliation of the Company’s historical non-GAAP measures to their most comparable GAAP measures.

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 following item is excluded from our non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP operating margin, and non-GAAP diluted earnings per share:

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.

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:

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.

Restructuring-Related Expenses: These expenses are 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 and the related tax effects have no direct correlation to the operation of our business in the future.

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

Amortization of Deferred Financing Costs: In the third quarter of fiscal 2016, in connection with the Linear Technology acquisition, the Company obtained bridge financing commitments and incurred financing fees which were to be amortized into interest expense over the term of the bridge financing commitments. In the first quarter of fiscal 2017, the Company replaced a portion of the bridge financing commitments with proceeds from the issuance of $2.1 billion of senior unsecured notes. As a result, the Company accelerated $7.2 million of the unamortized bridge financing commitment fees into interest expense. We excluded these costs from our non-GAAP measures because they are not reflective of our ongoing financial performance.

The following items are excluded from our non-GAAP provision for income taxes and non-GAAP diluted earnings per share:

Tax-Related Items: Tax adjustments associated with the non-GAAP items discussed above. In the fourth quarter of 2017, the Company recorded a $10 million tax expense associated with a prior period tax liability. In the first quarter of fiscal 2018, in relation to the provisional impact of the Tax Cuts and Jobs Act of 2017, the Company recorded a provisional discrete tax charge of $687 million related to the mandatory deemed repatriation tax on foreign earnings and recorded a provisional discrete tax benefit of $640 million from remeasuring its US tax liabilities at the lower 21% statutory tax rate. 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.

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. In addition, the Company’s 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 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.