10-QPeriod: Q3 FY2014

ANALOG DEVICES INC Quarterly Report for Q3 Ended Aug 2, 2014

Filed August 26, 2014For Securities:ADI

Summary

Analog Devices Inc. (ADI) reported solid financial results for the nine months ended August 2, 2014, with a notable increase in revenue and net income compared to the prior year. A significant event during this period was the acquisition of Hittite Microwave Corporation for approximately $2.4 billion. This strategic acquisition is expected to enhance ADI's technology portfolio in high-performance signal processing solutions. The company demonstrated strong operational performance with improved gross margins, driven by better manufacturing utilization and a favorable product mix. While overall revenue growth was positive, the consumer segment experienced a decline, largely due to the prior year's sale of the microphone product line. However, growth in the industrial, automotive, and communications sectors, particularly driven by increased electronic content in vehicles and wireless base station deployments, helped offset this. ADI's financial health remains robust, supported by substantial cash reserves and a strong operating cash flow, though a significant portion of cash is held overseas. The company continues to return value to shareholders through dividends and stock repurchases.

Financial Highlights

57 data points
Beta

Revenue

$727.75M

65.4% Gross Margin

Net Income

$180.61M

24.8% Net Margin

EPS (Diluted)

$0.57

Total Assets

$8.97B

Cash & Equivalents

$2.59B

Free Cash Flow

$171.13M

Financial Statements
Beta
Revenue$727.75M
Cost of Revenue$251.46M
Gross Profit$476.29M
R&D Expenses$140.09M
SG&A Expenses$132.99M
Operating Expenses$273.74M
Operating Income$202.55M
Interest Expense$8.18M
Net Income$180.61M
EPS (Basic)$0.57
EPS (Diluted)$0.57
Shares Outstanding (Basic)314.19M
Shares Outstanding (Diluted)318.88M

Key Highlights

  • 1Revenue for the nine months ended August 2, 2014, increased by 5% to $2.05 billion compared to $1.96 billion in the prior year.
  • 2Net income for the nine months rose by 10% to $520.6 million, or $1.64 per diluted share, from $471.9 million, or $1.51 per diluted share, in the same period last year.
  • 3The company completed a significant acquisition of Hittite Microwave Corporation for approximately $2.4 billion in July 2014, financed by cash and a $2.0 billion term loan.
  • 4Gross margin percentage improved to 65.6% for the nine months, up from 63.8% in the prior year, attributed to better manufacturing utilization and product mix.
  • 5Revenue growth was strong in the Industrial (7%), Automotive (11%), and Communications (18%) sectors for the nine-month period, partially offset by a decline in the Consumer segment (-24%) due to the prior year's divestiture.
  • 6Operating income for the nine months increased by 9% to $602.6 million.
  • 7As of August 2, 2014, the company reported $4.9 billion in cash and cash equivalents and short-term investments, with approximately $1.1 billion held in the U.S.

Frequently Asked Questions

The acquisition of Hittite Microwave Corporation, completed on July 22, 2014, for approximately $2.4 billion, is a significant event. While Hittite's financial results were only included from the acquisition date, the transaction itself led to a substantial increase in goodwill and intangible assets on the balance sheet. The company financed this acquisition through existing cash and a $2.0 billion term loan, which increased current debt. Transaction-related costs of $21.1 million were expensed in the period.

Revenue showed mixed performance across end markets. The Industrial, Automotive, and Communications sectors demonstrated robust growth for the nine months ended August 2, 2014. The Industrial sector grew by 7%, Automotive by 11%, and Communications by 18%, primarily driven by increased electronic content in vehicles and infrastructure development. However, the Consumer segment experienced a significant decline of 24%, largely due to the sale of the company's microphone product line in the prior fiscal year.

For the fourth quarter of fiscal 2014, Analog Devices projected revenue to be in the range of $790 million to $820 million. They also expected a non-GAAP gross margin of approximately 66.2%, non-GAAP operating expenses between $268 million and $271 million, and non-GAAP diluted earnings per share in the range of $0.66 to $0.70.

Following the acquisition, the company had $2.0 billion in current debt from the 90-day term loan facility used for financing the acquisition, due to mature in October 2014. This was in addition to existing long-term debt, including $375 million in 3.0% notes due 2016 and $500 million in 2.875% notes due 2023. The company indicated plans to use approximately $2.0 billion of its available cash to repay the term loan in the fourth quarter of fiscal 2014. Compliance with debt covenants was maintained.