10-QPeriod: Q1 FY2019

ANALOG DEVICES INC Quarterly Report for Q1 Ended Feb 2, 2019

Filed February 20, 2019For Securities:ADI

Summary

Analog Devices Inc. (ADI) reported its fiscal second quarter results for the period ending February 2, 2019. The company experienced a slight decrease in revenue year-over-year, down 2% to $1.54 billion, primarily attributed to one less operational week compared to the prior year period and decreased demand in the consumer segment. However, net income saw a substantial increase of 21% to $355 million, driven by a significant reduction in special charges and lower operating expenses, leading to a 22% increase in diluted Earnings Per Share (EPS) to $0.95. The company's gross margin slightly declined to 67.5% from 68.4% due to a higher concentration of lower-margin products. Despite the revenue dip, ADI demonstrated strong operational efficiency. Investments in Research and Development remained stable, underscoring the company's commitment to innovation. The company also reported a robust operating income, up 3% year-over-year, with an improved operating margin. The significant decrease in the effective tax rate to 11.2% from 21.9% also contributed to the strong net income growth. Financially, ADI maintained a healthy liquidity position with $605.9 million in cash and cash equivalents. The company continued its commitment to shareholder returns through dividend payments and share repurchases, underscoring its financial strength and confidence in future performance. Management expects to continue investing in R&D and remains focused on strategic initiatives to drive future growth.

Financial Highlights

54 data points
Beta

Revenue

$1.54B

67.5% Gross Margin

Net Income

$355.01M

23.0% Net Margin

EPS (Diluted)

$0.95

Total Assets

$21.83B

Cash & Equivalents

$605.86M

Free Cash Flow

$280.77M

Financial Statements
Beta
Revenue$1.54B
Cost of Revenue$501.44M
Gross Profit$1.04B
R&D Expenses$287.38M
SG&A Expenses$167.34M
Operating Expenses$583.83M
Operating Income$455.83M
Interest Expense$58.73M
Net Income$355.01M
EPS (Basic)$0.96
EPS (Diluted)$0.95
Shares Outstanding (Basic)368.70M
Shares Outstanding (Diluted)372.51M

Key Highlights

  • 1Revenue for the quarter was $1.54 billion, a 2% decrease year-over-year, impacted by one less operational week and lower consumer demand.
  • 2Net income increased by a significant 21% to $355 million, driven by reduced special charges and improved operational efficiency.
  • 3Diluted Earnings Per Share (EPS) grew 22% to $0.95, reflecting the strong net income performance.
  • 4Gross margin decreased slightly to 67.5% from 68.4% due to a shift in product mix towards lower-margin items.
  • 5Effective tax rate significantly decreased to 11.2% from 21.9%, contributing to the substantial net income growth.
  • 6The company repurchased $2.4 billion worth of stock as of February 2, 2019, demonstrating commitment to returning capital to shareholders.
  • 7Operating income increased by 3% to $455.8 million, with an improved operating margin of 29.6%.

Frequently Asked Questions

The significant increase in net income was primarily driven by a substantial reduction in special charges (from $57.3 million to $21.8 million) and a decrease in Selling, Marketing, General and Administrative (SMG&A) expenses. Additionally, a lower effective tax rate contributed significantly to the bottom line growth.

Analog Devices adopted ASU 2014-09 (Revenue from Contracts with Customers) using the full retrospective method. This led to restatements of prior periods' financial results, impacting revenue recognition, particularly for distributor sales, and certain balance sheet accounts. The adoption did not materially impact cash flows. Additionally, ASU 2016-16 (Income Taxes) was adopted, impacting deferred tax assets and liabilities.

For the reported quarter, Industrial, Automotive, and Consumer end markets saw revenue decreases year-over-year. The Consumer segment experienced a notable 21% decline. The Communications segment, however, showed strong growth of 34%. Management's commentary suggests challenges in consumer demand but broad-based strength in communications.

The company maintains a strong liquidity position with $605.9 million in cash and cash equivalents as of February 2, 2019. It is funding operations, R&D, and capital expenditures through existing liquidity and operational cash flow. ADI also continued to return capital to shareholders through dividends and share repurchases.