AMD Conference Call CFO Prepared Remarks

Following Dr. Su, AMD's CFO, Devinder Kumar, also had prepared remarks:

2019 was an outstanding year for AMD. Our competitive product portfolio and market share gains drove the highest annual and highest quarterly revenue in AMD history. We achieved our highest annual gross margin percentage and annual free cash flow since 2011. We improved non-GAAP earnings per share by 39% year-on-year. In short, we are very pleased with our financial performance.

Fourth quarter revenue was $2.13 billion up 50% from a year ago, and up 18% from the prior quarter driven by strong sales of Ryzen and EPYC processors, and Radeon on GPUs, partially offset by softer semi-custom sales. Gross Margin was 45%, up 360 basis points from a year ago, driven primarily by sales of our leadership 7nm  products. Operating Expenses were $545 million, with increased investments in go-to-market activities and R&D, compared to $474 million a year ago. Operating Income was $405 million, up $296 million from a year ago, driven by revenue growth and higher gross margin. Operating margin was 19% as compared to 8% a year ago. That income was $383 million, up $296 million from a year ago. Diluted earnings per share were 32 cents per share, compared to eight cents per share a year ago.

Business Segment Results

The Computing and Graphics segment revenue was $1.66 billion, up 69% year over year, driven by Ryzen processor and Radeon gaming GPU sales growth. The Computing and Graphics segment operating income was $360 million or 22% of revenue, compared to $115 million a year ago, driven by higher revenue.

Enterprise Embedded and Semi-Custom (EESC) segment revenue was $465 million, up 7% from $433 million the prior year. The continued growth of EPYC processes was partially offset by softer semi-custom revenue. EPYC processor revenue grew by a strong double digit percentage sequentially driven by robust shipments of our second generation EPYC processors. EESC segment operating income was $45 million, or 10% of revenue, driven by EPYC process sales, compared to an operating loss of $6 million a year ago.

During the quarter, we reduced gross debt by $524 million, which resulted in a GAAP loss of $128 million. These debt reductions result in an annualized interest expense saving of approximately $16 million. Free cash flow was positive $400 million in the fourth quarter, and cash flow from operation was $442 million. Inventory was $1 billion down 6% from the prior quarter. Fourth quarter adjusted EBITDA was $469 million compared to $152 million a year ago, driven by higher quarterly earnings.

Full Year Results

2019 revenue was $6.73 billion, up 4% YoY driven by strong growth in Computing and Graphics segment and sales of second generation EPYC processors, partially offset by a decline in semi-custom sales. Excluding semi-custom, revenue was up more than 20% year over year. Gross Margin of 43% was up 420 basis points from the prior year, driven by our current generation of Ryzen and EPYC products. Operating expenses were 31% of revenue, as we increase go-to-market activities and investments in R&D. 2019 operating income was up 33% from a year ago to $840 million, or 12% of revenue. Net income was $756 million, up 47% from the prior year.

Turning to the balance sheet, I'm extremely pleased with our progress on the strengthening balance sheet. Cash, cash equivalents and marketable securities total $1.5 billion at year end, while gross debt was $563 million. This represents our highest net cash position since the third quarter of 2006. Full year free cash flow was $276 million. We reduced principal debt by almost $1 billion in 2019, and ended the year with less than $600 million of gross debt. On a trailing 12 month basis, adjusted EBITDA was $1.1 billion, resulting in gross leverage of 0.5x, down from 1.9x at the end of 2018.

Outlook for 1Q 2020

We expect revenue to be approximately $1.8 billion, plus or minus $50 million, an increase of approximately 42% year over year, and a decrease of approximately 15% sequentially. The year over year increase expected to be driven by strong growth in Ryzen, EPYC, and Radeon product sales. The sequential decrease is driven primarily by negligible semi-custom revenue, which continues to soften in advance of the ramp of next generation products, in addition to seasonality.

In addition, for Q1 2020, we expect non-GAAP gross margin to be approximately 46%. [We expect] Non-GAAP operating expenses to be approximately $580 million, non-GAAP interest, expense, taxes, and other to be approximately $18 million, and the first quarter diluted share count is expected to be approximately 1.22 billion shares.

Outlook for FY2020

For the full year 2020, we expect revenue growth of approximately 28 to 30%, driven by strength across all businesses. We expect non-GAAP gross margin, to be approximately 45%, non-GAAP operating expenses to be approximately 28% of revenue, and a non-GAAP tax rate of approximately 3% of pre-tax income.

In closing, we had an excellent fourth quarter, and an excellent 2019. Our full year financial results highlight the strength of our business model. I look forward to what we have in store for 2020 as we expect to further expand and ramp our leadership portfolio of high performance products to drive revenue growth, gross margin expansion, market share gains and financial momentum.

AMD Conference Call CEO Prepared Remarks Slide Deck
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  • ahtoh - Tuesday, January 28, 2020 - link

    stock is 5% down tho Reply
  • catavalon21 - Tuesday, January 28, 2020 - link

    Meh. Sometimes that just means analysts wanted even better news. I would never take a stock's movement on quarterly report day to mean much by itself. The fact that they're making money is fantastic. A company with a positive P/E ratio. Also, whether or not it was the best use of the cash is debatable, paying down a big chunk of debt is also encouraging. I like it. Reply
  • ahtoh - Tuesday, January 28, 2020 - link

    I see now the forecast was a bit lighter than expected, hence the fall Reply
  • webdoctors - Tuesday, January 28, 2020 - link

    The problem is investors and unreasonable and pumped their stock too high. Its P/E is more than 260! Compare that to Apple (26) or INTC (14) or NVDA (66), all of which have much lower P/E. The assumption is AMD is going to have explosive growth, and if they don't deliver the stock drops.

    That's really not fair to the ppl that make great products and try to succeed.
    Reply
  • phr3dly - Tuesday, January 28, 2020 - link

    P/E isn't a useful measure when your 'E' is very small. After all, the P/E when your earnings are 0 are infinite.

    Some people use forward P/E, which for AMD is much more reasonable.

    It's not at all unfair to the employees. They've all benefited hugely from the run-up that's already occurred. Stock options from 5 years ago are worth a fortune today; there are probably quite a few AMD millionaires minted in the last year.

    A very wise man said that in the short run, the stock market is a popularity contest. In the long run it's a scale.
    Reply
  • ksec - Wednesday, January 29, 2020 - link

    You do realise even if they had double the Net Income, their current P/E for this year would still be 130? Even without paying down the debt they are no anywhere close to doubling of Net income this year.

    Basically on a market median of P/E 25, the market right now is expecting 10x growth from AMD in the very near future. And they are NO where near that number.

    And Intel is trading at P/E 14 right now.
    Reply
  • sing_electric - Thursday, January 30, 2020 - link

    The article clearly says that AMD is focused on paying down debt. In the last quarter alone, they paid off $524m in debt - 100% of that isn't "off the top" of net income, since they'd presumably have had to pay interest and some principal on it - but it's not too far off. If AMD had the same quarter next year (with debt at/near 0), they'd have had 2.5x net income and a ~100 P/E ratio - still high, but arguably in the same range as NVIDIA (~66), while AMD arguably has better growth prospects (since NVIDIA's growth largely comes from growing the size of the pie, while AMD can grow by getting a bigger slice AND growing the pie).

    That alone doesn't explain the P/E ratio, but that's not the only number that matters for a stock (though for some investors, it might be the most important number).
    Reply
  • lopri - Saturday, February 1, 2020 - link

    Not necessarily a good thing. It is curious as to why they would pay a debt now when the interest rate is at historic low, when they can generate 45% of gross margin. Reply
  • Spunjji - Monday, February 3, 2020 - link

    Unless they have something specific in mind to invest cash into that will grow revenue or margins faster than their debts accrue interest, it makes a lot of sense to pay off that debt while the going is good - regardless of interest rates. Reply
  • catavalon21 - Wednesday, January 29, 2020 - link

    P/E is a very relevant benchmark. If your E is very small (or zero), then you are not making (much) money, and that is a very relevant point for most investors. Always exceptions, but P/S or P/E(forward) really ignore a key point - is the company making any money? As to how many AMD employees got stock options 5 years ago, or how many employees in the tech industry are still with the company 5 years later is another, but interesting, discussion Reply

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