10-QPeriod: Q1 FY2022

ANALOG DEVICES INC Quarterly Report for Q1 Ended Jan 29, 2022

Filed February 16, 2022For Securities:ADI

Summary

Analog Devices Inc. (ADI) reported its financial results for the quarter ended January 28, 2022. The company experienced a significant 72% increase in revenue year-over-year, reaching $2.68 billion, primarily driven by the acquisition of Maxim Integrated Products, Inc. (Maxim), which contributed approximately 70% of this growth. Despite the revenue surge, net income saw a decline of 28% to $280.1 million, with diluted Earnings Per Share (EPS) falling to $0.53 from $1.04 in the prior year period. The decrease in net income and EPS is largely attributable to the impact of the Maxim acquisition, which resulted in increased cost of goods sold due to a non-recurring fair value adjustment to inventory and higher amortization of acquired intangible assets. These factors, coupled with increased R&D, SMG&A, and special charges related to integration, led to a 21% decrease in operating income. Investors should note the substantial integration costs and ongoing efforts to realize synergies from the Maxim acquisition.

Financial Highlights

54 data points
Beta

Revenue

$2.68B

52.2% Gross Margin

Net Income

$280.08M

10.4% Net Margin

EPS (Diluted)

$0.53

Total Assets

$51.22B

Cash & Equivalents

$1.79B

Free Cash Flow

$745.28M

Financial Statements
Beta
Revenue$2.68B
Cost of Revenue$1.28B
Gross Profit$1.40B
R&D Expenses$426.78M
SG&A Expenses$297.37M
Operating Expenses$1.04B
Operating Income$364.76M
Interest Expense$51.96M
Net Income$280.08M
EPS (Basic)$0.53
EPS (Diluted)$0.53
Shares Outstanding (Basic)525.29M
Shares Outstanding (Diluted)530.14M

Key Highlights

  • 1Revenue surged by 72% to $2.68 billion, heavily influenced by the acquisition of Maxim Integrated Products, Inc.
  • 2Net income decreased by 28% to $280.1 million, impacted by acquisition-related costs and increased operating expenses.
  • 3Diluted EPS fell to $0.53 from $1.04 in the prior year quarter.
  • 4Gross margin percentage decreased significantly from 67.1% to 52.2% due to acquisition-related fair value adjustments to inventory and amortization of intangible assets.
  • 5R&D, SMG&A, and amortization expenses all increased substantially, largely due to the Maxim acquisition and integration efforts.
  • 6Operating income decreased by 21% to $364.8 million.
  • 7The company has $7.3 billion remaining available for share repurchases under its authorized program.

Frequently Asked Questions

The primary driver for the 72% revenue increase to $2.68 billion was the acquisition of Maxim Integrated Products, Inc. (Maxim), which closed on August 26, 2021. Maxim's results have been consolidated into Analog Devices' financials from that date, contributing approximately 70% of the reported revenue growth.

The decline in net income and EPS is mainly due to significant expenses associated with the Maxim acquisition. These include a substantial non-recurring fair value adjustment to inventory ($271.4 million), increased amortization of intangible assets ($253.4 million), higher research and development (R&D) and selling, marketing, general, and administrative (SMG&A) expenses related to integration, and special charges for restructuring and employee severance. These factors, combined, led to a decrease in operating income and consequently, net income and EPS.

The gross margin percentage decreased significantly from 67.1% in the prior year period to 52.2% in the current quarter. This reduction is primarily attributed to the acquisition accounting for acquired inventory at its fair value as of the acquisition date, which resulted in a $271.4 million 'step-up' in cost of goods sold, and increased amortization of acquired intangible assets.

Analog Devices reported $1.79 billion in cash and cash equivalents as of January 29, 2022. The company believes its current liquidity and expected cash from operations are sufficient to fund operations, capital expenditures, and R&D for at least the next twelve months. The company also has $7.3 billion remaining under its authorized share repurchase program and continues to pay dividends, with a recent declaration of $0.76 per share for the upcoming quarter.