MAXIM INTEGRATED PRODUCTS INC - FORM 8-K - EX-99.1 - January 26, 2021

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Press Release

Contact
Kathy Ta
Vice President, Investor Relations
(408) 601-5697

MAXIM INTEGRATED REPORTS RESULTS FOR THE SECOND QUARTER OF FISCAL 2021

•Revenue: $628 million
•Gross Margin: 66.3% GAAP (67.4% excluding special items)
•EPS: $0.68 GAAP ($0.73 excluding special items)

SAN JOSE, CA – January 26, 2021 – Maxim Integrated Products, Inc. (NASDAQ:MXIM) reported net revenue of $628 million for its second quarter of fiscal 2021 ended December 26, 2020, a 1% increase from the $619 million revenue recorded in the prior quarter, and a 14% increase from the same quarter of last year.

“Our strong performance in the December quarter relative to the same quarter last year benefitted from robust demand from automotive, industrial and consumer customers. Automotive and Industrial reached a record revenue level and comprised 63 percent of Maxim’s total revenue. In addition, progress toward closure of our merger with Analog Devices is on track,” said Tunc Doluca, President and Chief Executive Officer.

Fiscal Year 2021 Second Quarter Results
Based on Generally Accepted Accounting Principles (GAAP), diluted earnings per share in the December quarter was $0.68. The results were affected by $15 million in pre-tax special items which primarily
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consisted of $9 million in charges related to the upcoming combination with Analog Devices, $3 million in restructuring costs unrelated to the merger, and $7 million of expenses related to prior acquisitions, which were partially offset by $5 million of unrealized other income from private company investments. GAAP earnings per share, excluding special items was $0.73. An analysis of GAAP versus GAAP excluding special items is provided in this press release.

Cash Flow Items
At the end of the second quarter of fiscal 2021, total cash, cash equivalents and short-term investments were $1.8 billion, up $194 million from the prior quarter.
Notable items included:
•Cash flow from operations: $210 million
•Capital expenditures: $16 million

Trailing twelve months free cash flow was $733 million. Free cash flow is a non-GAAP measure and is defined by cash flow from operations less capital expenditures.

Dividend and Stock Repurchase
Per the terms of the Merger Agreement between the Company and Analog Devices, we will not declare dividends that would have been paid in the upcoming months of March, June and September and have suspended our open market stock repurchase program.

Due to the pending merger with Analog Devices, Maxim Integrated will not be hosting a quarterly earnings conference call and has suspended the practice of providing forward-looking guidance. Investors are requested to review our Investor Relations website for the quarterly financial highlights and SEC filings for the latest updates on the pending transaction.
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CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
December 26,
2020		September 26,
2020		December 28,
2019
(in thousands, except per share data)
Net revenues$628,288 $619,357 $551,070 
Cost of goods sold
211,866 202,343 190,546 
Gross margin416,422 417,014 360,524 
Operating expenses:
Research and development114,802 115,466 111,914 
Selling, general and administrative80,153 82,954 76,071 
Intangible asset amortization943 919 756 
Severance and restructuring expenses 3,327 8,813 2,728 
Other operating expenses (income), net 3,532 7,428 (1)
Total operating expenses 202,757 215,580 191,468 
Operating income 213,665 201,434 169,056 
Interest and other income (expense), net (3,202)(7,037)(17)
Income before taxes 210,463 194,397 169,039 
Provision for (benefit from) income taxes26,518 24,883 22,989 
Net income $183,945 $169,514 $146,050 
Earnings per share:
Basic$0.69 $0.64 $0.54 
Diluted$0.68 $0.63 $0.53 
Shares used in the calculation of earnings per share:
Basic267,299 266,831 270,330 
Diluted270,792 269,529 273,269 
Dividends paid per share$— $0.48 $0.48 
SCHEDULE OF SPECIAL ITEMS
(Unaudited)
Three Months Ended
December 26,
2020		September 26,
2020		December 28,
2019
(in thousands)
Cost of goods sold:
Intangible asset amortization $5,569 $4,363 $3,111 
Merger-related expenses (1)
1,059 1,335 — 
Cost of COVID-19 response programs565 938 — 
 Total$7,193 $6,636 $3,111 
Operating expenses:
Merger-related expenses (1)
$4,750 $6,607 $— 
Intangible asset amortization943 918 756 
Severance and restructuring3,327 8,813 2,728 
Other operating expenses (income), net (1)
3,531 7,428 (1)
 Total$12,551 $23,766 $3,483 
Interest and other expense (income), net $(5,131)$(535)$(1,230)
Total$(5,131)$(535)$(1,230)
(1) Includes ADI merger related expenses such as accelerated stock-based compensation expense resulting from the acceleration of certain RSAs and RSUs, and other legal and professional services.

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CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 26,
2020		September 26,
2020		December 28,
2019
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents$1,796,961 $1,595,089 $1,720,194 
Short-term investments8,879 17,022 63,006 
Total cash, cash equivalents and short-term investments1,805,840 1,612,111 1,783,200 
Accounts receivable, net485,773 449,376 348,342 
Inventories261,476 265,664 223,958 
Other current assets36,004 29,816 23,797 
Total current assets2,589,093 2,356,967 2,379,297 
Property, plant and equipment, net541,013 542,421 571,359 
Intangible assets, net76,166 82,679 48,509 
Goodwill562,540 562,540 532,251 
Other assets114,058 108,920 95,413 
TOTAL ASSETS$3,882,870 $3,653,527 $3,626,829 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable$96,959 $86,831 $89,449 
Price adjustment and other revenue reserves180,215 144,255 105,237 
Income taxes payable35,197 53,655 38,307 
Accrued salary and related expenses99,057 115,460 94,739 
Accrued expenses44,969 46,119 32,739 
Total current liabilities456,397 446,320 360,471 
Long-term debt994,741 994,381 993,303 
Income taxes payable362,214 360,164 433,743 
Other liabilities143,457 141,643 112,803 
Total liabilities1,956,809 1,942,508 1,900,320 
Stockholders' equity:
Common stock and capital in excess of par value43,231 12,461 270 
Retained earnings1,897,098 1,713,153 1,737,528 
Accumulated other comprehensive loss(14,268)(14,595)(11,289)
Total stockholders' equity1,926,061 1,711,019 1,726,509 
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY$3,882,870 $3,653,527 $3,626,829 


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CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended
December 26,
2020		September 26,
2020		December 28,
2019
(in thousands, except per share data)
Cash flows from operating activities:
Net income$183,945 $169,514 $146,050 
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation31,209 35,730 24,067 
Depreciation and amortization24,141 24,199 24,087 
Deferred taxes(1,782)(1,103)(2,684)
Loss from disposal of property, plant and equipment164 63 113 
Other adjustments(1,220)1,867 5,934 
Changes in assets and liabilities:
Accounts receivable(36,401)(44,798)21,974 
Inventories4,042 (5,986)12,005 
Other assets(9,868)4,159 (3,377)
Accounts payable8,945 (3,423)3,602 
Price adjustment and other revenue reserves35,964 (4,461)15,031 
Income taxes payable(16,408)(14,710)(5,792)
All other accrued liabilities(12,232)1,460 (3,545)
Net cash provided by operating activities210,499 162,511 237,465 
Cash flows from investing activities:
Purchases of property, plant and equipment(16,485)(12,728)(13,670)
Proceeds from sales of property, plant and equipment63 4 128 
Proceeds from sales of available-for-sale securities1,500 — — 
Proceeds from maturity of available-for-sale securities6,600 18,425 35,146 
Purchases of investments in privately-held companies(26)(84)(516)
Proceeds from sale of investments in privately-held companies14 25 — 
Other investing activities— — (33)
Net cash provided by (used in) investing activities(8,334)5,642 21,055 
Cash flows from financing activities:
Contingent consideration paid— — (8,000)
Net issuance of restricted stock units and awards(18,966)(17,018)(7,623)
Proceeds from stock options exercised175 2,632 1,338 
Issuance of common stock under employee stock purchase program18,498 — 18,535 
Repurchase of common stock— (9,201)(107,957)
Dividends paid— (128,147)(129,810)
Net cash used in financing activities(293)(151,734)(233,517)
Net increase (decrease) in cash, cash equivalents and restricted cash201,872 16,419 25,003 
Cash, cash equivalents and restricted cash
Beginning of period$1,601,847 $1,585,428 $1,695,191 
End of period$1,803,719 $1,601,847 $1,720,194 
Total cash, cash equivalents, and short-term investments$1,805,840 $1,612,111 $1,783,200 
Cash, cash equivalents and restricted cash:
Cash and cash equivalents$1,796,961 $1,595,089 $1,720,194 
Restricted cash in Other assets6,758 6,758 — 
Total cash, cash equivalents and restricted cash$1,803,719 $1,601,847 $1,720,194 

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ANALYSIS OF GAAP VERSUS GAAP EXCLUDING SPECIAL ITEMS DISCLOSURES
(Unaudited)
Three Months Ended
December 26,
2020		September 26,
2020		December 28,
2019
(in thousands, except per share data)
Reconciliation of GAAP gross profit to GAAP gross profit excluding special items:
GAAP gross profit$416,422 $417,014 $360,524 
GAAP gross profit %66.3 %67.3 %65.4 %
Special items:
Intangible asset amortization 5,569 4,363 3,111 
Merger-related expenses (1)
1,059 1,335 — 
Cost of COVID-19 response programs565 938 — 
Total special items7,193 6,636 3,111 
 GAAP gross profit excluding special items$423,615 $423,650 $363,635 
 GAAP gross profit % excluding special items67.4 %68.4 %66.0 %
Reconciliation of GAAP operating expenses to GAAP operating expenses excluding special items:
GAAP operating expenses$202,757 $215,580 $191,468 
Special items:
Merger-related expenses (1)
4,750 6,607 — 
Intangible asset amortization943 918 756 
Severance and restructuring 3,327 8,813 2,728 
Other operating expenses (income), net (1)
3,531 7,428 (1)
 Total special items12,551 23,766 3,483 — 
 GAAP operating expenses excluding special items$190,206 $191,814 $187,985 
Reconciliation of GAAP net income to GAAP net income excluding special items:
GAAP net income $183,945 $169,514 $146,050 
Special items:
Intangible asset amortization 6,512 5,281 3,867 
Merger-related expenses (1)
5,809 7,942 — 
Cost of COVID-19 response programs565 938 — 
Severance and restructuring 3,327 8,813 2,728 
Other operating expenses (income), net (1)
3,531 7,428 (1)
Interest and other expense (income), net (5,131)(535)(1,230)
 Pre-tax total special items14,613 29,867 5,364 
Other income tax effects and adjustments (2)
(1,616)(4,272)317 
 GAAP net income excluding special items$196,942 $195,109 $151,731 
 GAAP net income per share excluding special items:
Basic$0.74 $0.73 $0.56 
Diluted$0.73 $0.72 $0.56 
Shares used in the calculation of earnings per share excluding special items:
Basic267,299 266,831 270,330 
Diluted270,792 269,529 273,269 
(1) Includes ADI merger related expenses such as accelerated stock-based compensation expense resulting from the acceleration of certain RSAs and RSUs, and other legal and professional services.
(2) Includes tax effect of pre-tax special items and miscellaneous tax adjustments.

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Non-GAAP Measures
To supplement the consolidated financial results prepared under GAAP, Maxim Integrated uses non-GAAP measures which are adjusted from the most directly comparable GAAP results to exclude special items related to the cost of COVID-19 response programs; ADI merger-related expenses; intangible asset amortization; severance and restructuring; other operating expenses (income), net; interest and other expense (income), net; and other income tax effects and adjustments. We defined free cash flow as net cash provided from operations less gross capital expenditures. Management uses these non-GAAP measures internally to make strategic decisions, forecast future results and evaluate Maxim Integrated’s current performance. Many analysts covering Maxim Integrated use non-GAAP measures as well. Given management’s use of these non-GAAP measures, Maxim Integrated believes these measures are important to investors in understanding Maxim Integrated’s current and future operating results as seen through the eyes of management. In addition, management believes these non-GAAP measures are useful to investors in enabling them to better assess changes in Maxim Integrated’s core business across different time periods. These non-GAAP measures are not in accordance with or an alternative to GAAP financial data and may be different from non-GAAP measures used by other companies. Because non-GAAP financial measures are not standardized it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures, even if they have similar names. The non-GAAP measures displayed in the table above include the following:

GAAP Gross Profit Excluding Special Items
The use of GAAP gross profit excluding special items allows management to evaluate the gross margin of the Company’s core businesses and trends across different reporting periods on a consistent basis, independent of special items including intangible asset amortization, ADI merger-related expenses and cost of COVID-19 response programs. In addition, it is an important component of management’s internal performance measurement and reward process as it is used to assess the current and historical financial
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results of the business, for strategic decision making, preparing budgets and forecasting future results. Management presents GAAP gross profit excluding special items to enable investors and analysts to evaluate our revenue generation performance relative to the direct costs of revenue of Maxim Integrated’s core businesses.

GAAP Operating Expenses Excluding Special Items
The use of GAAP operating expenses excluding special items allows management to evaluate the operating expenses of the Company’s core businesses and trends across different reporting periods on a consistent basis, independent of special items including intangible asset amortization; ADI merger-related expenses severance and restructuring, and other operating expenses (income), net. In addition, it is an important component of management’s internal performance measurement and reward process as it is used to assess the current and historical financial results of the business, for strategic decision making, preparing budgets and forecasting future results. Management presents GAAP operating expenses excluding special items to enable investors and analysts to evaluate our core business and its direct operating expenses.

GAAP Provision for Income Taxes Excluding Special Items
The use of a GAAP provision for income taxes excluding special items allows management to evaluate the provision for income taxes across different reporting periods on a consistent basis, independent of special items. Special items include the tax impact of pre-tax special items, significant tax audit settlements, significant prior year tax reserve adjustments, significant tax legislation, and significant non-recurring and period specific tax items, which vary in size and frequency.

GAAP Net Income and GAAP Net Income per Share Excluding Special Items
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The use of GAAP net income and GAAP net income per share excluding special items allow management to evaluate the operating results of Maxim Integrated’s core businesses and trends across different reporting periods on a consistent basis, independent of special items including intangible asset amortization; ADI merger-related expenses; cost of COVID-19 response programs; severance and restructuring; other operating expenses (income), net; interest and other expense (income), net; and other income tax effects and adjustments. In addition, they are important components of management’s internal performance measurement and reward process as it is used to assess the current and historical financial results of the business, for strategic decision making, preparing budgets and forecasting future results. Management presents GAAP net income and GAAP net income per share excluding special items to enable investors and analysts to understand the results of operations of Maxim Integrated’s core businesses and to compare our results of operations on a more consistent basis against that of other companies in our industry.

“Safe Harbor” Statement
Except for historical information, this press release may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including but not limited to the Company’s belief that progress toward closure of its merger with Analog Devices is on track. These statements involve risk and uncertainty. Actual results could differ materially from those forecasted, based upon, among other things, general market and economic conditions, regulatory approvals, market developments that could adversely affect the growth of the mixed-signal analog market, product mix shifts, the loss of all or a substantial portion of our sales to one or more of our large customers, customer cancellations and price competition, as well as other risks described in the Company’s Annual Report on Form 10-K for the fiscal year ended June 27, 2020 (the “Form 10-K”). The Form 10-K may be found at https://www.sec.gov/Archives/edgar/data/743316/000074331620000025/0000743316-20-000025-index.htm.
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All forward-looking statements included in this news release are made as of the date hereof and based on the information available to the Company as of the date hereof. The Company assumes no obligation to update any forward-looking statement except as required by law.

About Maxim Integrated
Maxim Integrated, an engineer’s engineering company, exists to solve the designer’s toughest problems in order to empower design innovation. Our broad portfolio of high-performance semiconductors, combined with world-class tools and support, delivers essential analog solutions including efficient power, precision measurement, reliable connectivity and robust protection along with intelligent processing. Designers in application areas such as automotive, communications, consumer, data center, healthcare, industrial and IoT trust Maxim to help them quickly develop smaller, smarter and more secure designs. Learn more at https://www.maximintegrated.com.

Source: Maxim Integrated Investor Relations
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