Revenue, gross margin and profitability grew year-over-year for the fifth straight quarter; gross margin expanded to 40 percent

SANTA CLARA, Calif., Oct. 24, 2018 (GLOBE NEWSWIRE) -- AMD (NASDAQ:AMD) today announced revenue for the third quarter of 2018 of $1.65 billion, operating income of $150 million, net income of $102 million and diluted earnings per share of $0.09. On a non-GAAP(1) basis, operating income was $186 million, net income was $150 million and diluted earnings per share was $0.13. 

GAAP Financial Results

 Q3 2018Q3 2017Y/YQ2 2018Q/Q
Revenue$1.65B$1.58B Up 4%$1.76B Down 6%
Gross margin %40%36% Up 4 pp37% Up 3 pp
Operating expense$511M$452M Up $59M$499M Up $12M
Operating expense / revenue %31%29% Up 2 pp28% Up 3 pp
Operating income$150M$119M Up $31M$153M Down $3M
Net income$102M$61M Up $41M$116M Down $14M
Earnings per share$0.09$0.06 Up $0.03$0.11 Down $0.02

Non-GAAP(1) Financial Results

 Q3 2018Q3 2017Y/YQ2 2018Q/Q
Revenue$1.65B$1.58B Up 4%$1.76B Down 6%
Gross margin %40%36% Up 4 pp37% Up 3 pp
Operating expense $476M $424M Up $52M $467M Up $9M
Operating expense / revenue %29%27% Up 2 pp27% Up 2 pp
Operating income$186M$148M Up $38M$186M Flat
Net income$150M$100M Up $50M$156M Down $6M
Earnings per share$0.13$0.09 Up $0.04$0.14 Down $0.01

“We delivered our fifth straight quarter of year-over-year revenue and net income growth driven largely by the accelerated adoption of our Ryzen, EPYC and datacenter graphics products,” said Dr. Lisa Su, AMD president and CEO. “Client and server processor sales increased significantly although graphics channel sales were lower in the quarter. Looking forward, we believe we are well positioned for further market share gains as we continue making significant progress towards our long-term financial targets.”

Q3 2018 Results

Quarterly Financial Segment Summary

Recent PR Highlights

Current Outlook
AMD’s outlook statements are based on current expectations. The following statements are forward-looking, and actual results could differ materially depending on market conditions and the factors set forth under “Cautionary Statement” below.

For the fourth quarter of 2018, AMD expects revenue to be approximately $1.45 billion, plus or minus $50 million, an increase of approximately 8 percent year-over-year, and non-GAAP gross margin to increase to approximately 41 percent, driven by sales growth of Ryzen, EPYC and datacenter GPU processor sales. For comparative purposes, Q4 2017 revenue was $1.34 billion, adjusted for the ASC 606 revenue accounting standard, and included blockchain-related GPU sales of approximately low double-digit percent of overall AMD revenue.    

AMD Teleconference
AMD will hold a conference call for the financial community at 2:30 p.m. PT (5:30 p.m. ET) today to discuss its third quarter 2018 financial results and forward-looking financial guidance. AMD will provide a real-time audio broadcast of the teleconference on the Investor Relations page of its website at www.amd.com. The webcast will be available for 12 months after the conference call. A slide presentation of quarterly financial results can be found at ir.amd.com.

     
     
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES    
(In millions, except per share data) Three Months Ended
  September 29,
2018		 June 30,
2018		 September 30,
2017
GAAP gross margin $661  $652  $571 
GAAP gross margin % 40% 37% 36%
Stock-based compensation 1  1  1 
Non-GAAP gross margin $662  $653  $572 
Non-GAAP gross margin % 40% 37% 36%
       
GAAP operating expenses $511  $499  $452 
Stock-based compensation 35  32  28 
Non-GAAP operating expenses $476  $467  $424 
       
GAAP operating income $150  $153  $119 
Stock-based compensation 36  33  29 
Non-GAAP operating income $186  $186  $148 


  Three Months Ended
  September 29,
2018		 June 30,
2018		 September 30,
2017
GAAP net income / earnings per share $102  $0.09  $116  $0.11  $61  $0.06
Loss on debt redemption 6  —  —  —  2   —
Non-cash interest expense related to convertible debt 6  0.01  6  —  6   0.01
Stock-based compensation 36  0.03  33  0.03  29   0.02
Equity loss in investee —  —  1  —  2   —
Non-GAAP net income / earnings per share $150  $0.13  $156  $0.14  $100  $0.09
             
The three months ended June 30, 2018 GAAP diluted EPS is calculated based on 1,147 million shares, which include 100.6 million shares related to the Company’s 2026 Convertible Notes and an $11 million interest expense add-back to net income under the "if converted" method. The three months ended September 29, 2018 and September 30, 2017 GAAP diluted EPS are calculated based on 1,076 million shares and 1,042 million shares, respectively, and do not include potential shares from the conversion of the Company’s 2026 Convertible Notes because their inclusion would have been anti-dilutive, under the “if-converted” method.

The three months ended September 29, 2018, June 30, 2018 and September 30, 2017 Non-GAAP diluted EPS are calculated based on 1,177 million shares, 1,147 million shares and 1,143 million shares, respectively, which include 100.6 million shares related to the Company’s 2026 Convertible Notes and $5 million interest expense add-back to net income under the "if converted" method for the three periods.

About AMD
For more than 45 years, AMD has driven innovation in high-performance computing, graphics and visualization technologies - the building blocks for gaming, immersive platforms and the datacenter. Hundreds of millions of consumers, leading Fortune 500 businesses and cutting-edge scientific research facilities around the world rely on AMD technology daily to improve how they live, work and play. AMD employees around the world are focused on building great products that push the boundaries of what is possible. For more information about how AMD is enabling today and inspiring tomorrow, visit the AMD (NASDAQ: AMD) website, blog, Facebook and Twitter pages.

Cautionary Statement

This document contains forward-looking statements concerning Advanced Micro Devices, Inc. (AMD) such as AMD’s expected further market share gains; AMD’s ability to continue to make significant progress towards its long-term financial targets; AMD’s financial outlook for the fourth quarter of 2018, including revenue and non-GAAP gross margin; the features, functionality, availability, timing and expected benefits of AMD’s future products and technologies including the Radeon™ Pro WX 8200 graphics card and the Radeon™ Pro V340 graphics card, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are commonly identified by words such as "would," "may," "expects," "believes," "plans," "intends," "projects" and other terms with similar meaning. Investors are cautioned that the forward-looking statements in this document are based on current beliefs, assumptions and expectations, speak only as of the date of this document and involve risks and uncertainties that could cause actual results to differ materially from current expectations. Such statements are subject to certain known and unknown risks and uncertainties, many of which are difficult to predict and generally beyond AMD's control, that could cause actual results and other future events to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements. Material factors that could cause actual results to differ materially from current expectations include, without limitation, the following: Intel Corporation’s dominance of the microprocessor market and its aggressive business practices; the ability of GLOBALFOUNDRIES Inc. to satisfy AMD’s manufacturing requirements; the ability of third party manufacturers to manufacture AMD products on a timely basis in sufficient quantities and using competitive technologies; the ability of third party manufacturers to achieve expected manufacturing yields; AMD’s ability to introduce products on a timely basis with features and performance levels that provide value to its customers; AMD’s ability to generate sufficient revenue and operating cash flow or obtain external financing; the loss of a significant customer; AMD’s ability to generate revenue from its semi-custom SoC products; actual or perceived security vulnerabilities of AMD’s products; potential data breaches and cyber-attacks; quarterly and seasonal sales patterns that may affect AMD’s business; global economic uncertainty; AMD’s ability to generate sufficient cash to service its debt obligations or meet its working capital requirements; AMD’s large amount of indebtedness; restrictions imposed by agreements governing AMD’s debt and its secured revolving line of credit; the competitive nature of the markets in which AMD’s products are sold; political, legal and economic risks and natural disasters; the dilutive effect on shareholders if West Coast Hitech L.P. exercises its warrants to purchase AMD’s common stock, and the conversion of AMD’s 2.125% Convertible Senior Notes due 2026; uncertainties involving the ordering and shipment of AMD’s products; fluctuations in demand or a market decline for AMD’s products; AMD’s reliance on third-party intellectual property to design and introduce new products in a timely manner; AMD’s reliance on third-party companies for the design, manufacture and supply of motherboards, software and other computer platform components; AMD’s reliance on Microsoft Corporation’s support and other software vendors; AMD’s reliance on third-party distributors and AIB partners; future impairments of goodwill and technology license purchases; AMD’s ability to continue to attract and retain qualified personnel; AMD’s ability to repurchase its debt in the event of a change of control; the highly cyclical nature of the semiconductor industry; future acquisitions, divestitures and/or joint ventures that may disrupt AMD’s business; modification or interruption of internal business processes and information systems; availability of essential equipment, materials or manufacturing processes to manufacture AMD’s products; compatibility of AMD’s products with industry-standard software and hardware; costs related to defective products; the efficiency of AMD’s supply chain; AMD’s ability to rely on third parties’ certain supply-chain logistics functions, product distribution, transportation management and information technology support services; stock price volatility; worldwide political conditions; unfavorable currency exchange rate fluctuations; AMD’s ability to effectively control the sales of its products on the gray market; AMD’s ability to protect its technology or intellectual property; current and future litigation; potential tax liabilities; and environmental laws and conflict minerals-related provisions. Investors are urged to review in detail the risks and uncertainties in AMD's Securities and Exchange Commission filings, including but not limited to AMD's Quarterly Report on Form 10-Q for the year ending June 30, 2018

1.In this earnings press release, in addition to GAAP financial results, AMD has provided non-GAAP financial measures including non-GAAP gross margin, non-GAAP operating expense, non-GAAP operating income (loss), non-GAAP net income (loss) and non-GAAP earnings (loss) per share. These non-GAAP financial measures reflect certain adjustments as presented in the tables in this earnings press release. AMD also provided adjusted EBITDA and free cash flow as supplemental non-GAAP measures of its performance. These items are defined in the footnotes to the selected corporate data tables provided at the end of this earnings press release. AMD is providing these financial measures because it believes this non-GAAP presentation makes it easier for investors to compare its operating results for current and historical periods and also because AMD believes it assists investors in comparing AMD’s performance across reporting periods on a consistent basis by excluding items that it does not believe are indicative of its core operating performance and for the other reasons described in the footnotes to the selected data tables. Refer to the data tables at the end of this earnings press release.


AMD, the AMD Arrow logo, EPYC, Radeon, Ryzen, Threadripper and combinations thereof, are trademarks of Advanced Micro Devices, Inc. Other names are for informational purposes only and used to identify companies and products and may be trademarks of their respective owner.

ADVANCED MICRO DEVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Millions except per share amounts and percentages)
 
 Three Months Ended Nine Months Ended
 September 29,June 30,September 30, September 29,September 30,
 201820182017 20182017
Net revenue$  1,653 $  1,756 $  1,584  $  5,056 $  3,913 
Cost of sales  992   1,104   1,013    3,146   2,578 
Gross margin  661   652   571    1,910   1,335 
Gross margin % 40% 37% 36%  38% 34%
Research and development  363   357   320    1,063   876 
Marketing, general and administrative  148   142   132    424   382 
Licensing gain   -    -    -     -   (52)
Operating income  150   153   119    423   129 
Interest expense  (30)  (31)  (31)   (92)  (95)
Other income (expense), net  (6)  1    (3)   (4)  (11)
Income before equity loss and income taxes  114   123   85    327   23 
Provision for income taxes 12   6   22    26   30 
Equity loss in investee   -   (1)  (2)   (2)  (7)
Net Income (loss)$  102 $  116 $  61  $  299 $  (14)
Earnings (loss) per share      
Basic$  0.10 $  0.12 $  0.06  $  0.31 $  (0.01)
Diluted$  0.09 $  0.11 $  0.06  $  0.28 $  (0.01)
Shares used in per share calculation      
Basic  987   972   957    976   947 
Diluted  1,076   1,147   1,042    1,058   947 
 


The three months ended June 30, 2018 diluted EPS is calculated based on 1,147 million shares, which include 100.6 million shares related to the Company’s 2026 Convertible Notes and an $11 million interest expense add-back to net income under the "if converted" method. The three months ended September 29, 2018 and September 30, 2017 diluted EPS are calculated based on 1,076 million shares and 1,042 million shares, respectively, and do not include potential shares from the conversion of the Company’s 2026 Convertible Notes because their inclusion would have been anti-dilutive under the “if-converted” method.

The nine months ended September 29, 2018 diluted EPS are calculated based on 1,058 million shares, and do not include potential shares from the conversion of the Company’s 2026 Convertible Notes because their inclusion would have been anti-dilutive under the “if-converted” method.


ADVANCED MICRO DEVICES, INC. 
CONDENSED CONSOLIDATED BALANCE SHEETS  
(Millions) 
    
 September 29, December 30,
 2018 2017
Assets   
Current assets:   
Cash and cash equivalents$  1,046  $  1,185 
Marketable securities   10     - 
Accounts receivable, net   1,207    454 
Inventories, net   738    694 
Prepayment and receivables - related parties   53    33 
Prepaid expenses   60    77 
Other current assets   200    191 
    
Total current assets   3,314    2,634 
Property and equipment, net   318    261 
Goodwill   289    289 
Investment: equity method    58    58 
Other assets   368    310 
    
Total Assets$  4,347  $  3,552 
    
Liabilities and Stockholders' Equity    
Current liabilities:   
Short-term debt$  136  $  70 
Accounts payable   508    384 
Payables to related parties   533    412 
Accrued liabilities   688    555 
Other current liabilities   13    92 
    
Total current liabilities   1,878    1,513 
Long-term debt, net   1,167    1,325 
Other long-term liabilities   177    118 
    
Stockholders' equity:   
Capital stock:   
Common stock, par value   10    9 
Additional paid-in capital   8,666    8,464 
Treasury stock, at cost   (67)   (108)
Accumulated deficit   (7,474)   (7,775)
Accumulated other comprehensive income (loss)   (10)   6 
    
Total Stockholders' equity    1,125    596 
Total Liabilities and Stockholders' Equity $  4,347  $  3,552 
    


ADVANCED MICRO DEVICES, INC. 
SELECTED CASH FLOW INFORMATION 
(Millions) 
 Three Months Ended Nine Months Ended
 September 29, September 29,
 2018 2018
Net cash provided by (used in)   
Operating activities$  95  $  (36)
Investing activities$  (8) $  (132)
Financing activities$  8  $  28 
    


ADVANCED MICRO DEVICES, INC.    
SELECTED CORPORATE DATA    
(Millions)    
 
  Three Months Ended   Nine Months Ended 
  September 29,  June 30,  September 30,   September 29,  September 30, 
Segment and Category Information 2018  2018  2017   2018  2017 
                 
Computing and Graphics (1)                
Net revenue $938   $1,086   $835    $3,139   $2,069  
Operating income $  100   $  117   $  73    $  355   $  59  
                 
Enterprise, Embedded and Semi-Custom (2)                
Net revenue $  715   $  670   $  749    $  1,917   $  1,844  
Operating income $  86   $  69   $  74    $  169   $  145  
                 
All Other (3)                
Net revenue    -      -       -       -      -  
Operating loss $  (36)  $  (33)  $  (28)   $  (101)  $  (75) 
                 
Total                
Net revenue $1,653    $1,756    $ 1,584     $5,056    $3,913   
Operating income $   150    $   153    $   119     $   423    $   129   
                 
                 
Other Data                
                 
Capital expenditures  $  33   $  43   $  34    $  122   $  69  
Adjusted EBITDA (4) $  227   $  228   $  184    $  651   $  310  
Cash, cash equivalents and marketable securities $  1,056   $  983   $  879    $  1,056   $  879  
Free cash flow (5) $  62   $  (88)  $  32    $  (158)  $  (384) 
Total assets $4,347   $4,103   $3,611    $4,347   $3,611  
Total debt $1,303   $1,393   $1,426    $1,303   $1,426  
                 
                 


(1) The Computing and Graphics segment primarily includes desktop and notebook processors and chipsets, discrete and integrated graphics processing units (GPUs) and professional GPUs. The Company also licenses portions of its intellectual property portfolio.
   
(2) The Enterprise, Embedded and Semi-Custom segment primarily includes server and embedded processors, semi-custom System-on-Chip (SoC) products, development services and technology for game consoles. The Company also licenses portions of its intellectual property portfolio.
   
(3) All Other category primarily includes certain expenses and credits that are not allocated to any of the operating segments. Also included in this category is stock-based compensation expense.
   
(4) Reconciliation of GAAP Operating Income to Adjusted EBITDA*


  Three Months Ended Nine Months Ended
  September 29, June 30, September 30, September 29, September 30,
  2018 2018 2017 2018 2017
GAAP operating income $150  $153  $119  $423  $129 
Stock-based compensation  36   33   29   101   76 
Depreciation and amortization  41   42   36   127   105 
Adjusted EBITDA $227  $228  $184  $651  $310 
                     


(5) Free cash flow reconciliation**


  Three Months Ended  Nine Months Ended
  September 29,  June 30,  September 30,  September 29,  September 30,
  2018  2018  2017  2018  2017
GAAP net cash provided by (used in) operating activities $95  $(45) $66  $(36) $(315)
Purchases of property and equipment  (33)  (43)  (34)  (122)  (69)
Free cash flow $62  $(88) $32  $(158) $(384)
                     


* The Company presents “Adjusted EBITDA” as a supplemental measure of its performance. Adjusted EBITDA for the Company is determined by adjusting operating income for stock-based compensation and depreciation and amortization expense. The Company calculates and presents Adjusted EBITDA because management believes it is of importance to investors and lenders in relation to its overall capital structure and its ability to borrow additional funds. In addition, the Company presents Adjusted EBITDA because it believes this measure assists investors in comparing its performance across reporting periods on a consistent basis by excluding items that the Company does not believe are indicative of its core operating performance. The Company’s calculation of Adjusted EBITDA may or may not be consistent with the calculation of this measure by other companies in the same industry. Investors should not view Adjusted EBITDA as an alternative to the GAAP operating measure of operating income (loss) or GAAP liquidity measures of cash flows from operating, investing and financing activities. In addition, Adjusted EBITDA does not take into account changes in certain assets and liabilities as well as interest income and expense and income taxes that can affect cash flows.
   
** The Company also presents free cash flow as a supplemental Non-GAAP measure of its performance. Free cash flow is determined by adjusting GAAP net cash provided by (used in) operating activities for capital expenditures. The Company calculates and communicates free cash flow in the financial earnings press release because management believes it is of importance to investors to understand the nature of these cash flows. The Company’s calculation of free cash flow may or may not be consistent with the calculation of this measure by other companies in the same industry. Investors should not view free cash flow as an alternative to GAAP liquidity measures of cash flows from operating activities.
   
  The Company has provided reconciliations within the earnings press release of these non-GAAP financial measures to the most directly comparable GAAP financial measures.
   


Contact:
Drew Prairie
AMD Communications
512-602-4425
 drew.prairie@amd.com

Laura Graves
AMD Investor Relations
408-749-5467
laura.graves@amd.com