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Applied Materials Announces First Quarter 2020 Results

  • Quarterly revenue of $4.16 billion, up 11 percent year over year
  • GAAP EPS of $0.96 and non-GAAP EPS of $0.98, up 20 percent and 21 percent year over year, respectively
  • Returned $392 million to shareholders

SANTA CLARA, Calif., Feb. 12, 2020 (GLOBE NEWSWIRE) -- Applied Materials, Inc. (AMAT) today reported results for its first quarter ended Jan. 26, 2020.

First Quarter Results

Applied generated revenue of $4.16 billion. On a GAAP basis, the company recorded gross margin of 44.6 percent, operating income of $1.04 billion or 25.0 percent of net sales, and earnings per share (EPS) of $0.96.

On a non-GAAP adjusted basis, the company reported gross margin of 44.9 percent, operating income of $1.07 billion or 25.7 percent of net sales, and EPS of $0.98.

The company returned $392 million to shareholders including $200 million in share repurchases and dividends of $192 million.

“Applied Materials’ first quarter earnings exceeded the top-end of our guidance, giving us great momentum entering 2020,” said Gary Dickerson, president and CEO. “We believe we can deliver strong double-digit growth in our semiconductor business this year as our unique solutions accelerate our customers’ success in the AI-Big Data era.”

Quarterly Results Summary

  Q1 FY2020   Q1 FY2019   Change
  (In millions, except per share amounts and percentages)
Net sales $ 4,162     $ 3,753     11 %
Gross margin 44.6 %   44.4 %   0.2 points
Operating margin 25.0 %   24.2 %   0.8 points
Net income $ 892     $ 771     16 %
Diluted earnings per share $ 0.96     $ 0.80     20 %
Non-GAAP Adjusted Results          
Non-GAAP adjusted gross margin 44.9 %   44.6 %   0.3 points
Non-GAAP adjusted operating margin 25.7 %   24.6 %   1.1 points
Non-GAAP adjusted net income $ 904     $ 779     16 %
Non-GAAP adjusted diluted EPS $ 0.98     $ 0.81     21 %

A reconciliation of the GAAP and non-GAAP adjusted results is provided in the financial tables included in this release. See also “Use of Non-GAAP Adjusted Financial Measures” section.

Business Outlook

In the second quarter of fiscal 2020, Applied expects net sales to be approximately $4.34 billion, plus or minus $200 million. Non-GAAP adjusted diluted EPS is expected to be in the range of $0.98 to $1.10.

This outlook for non-GAAP adjusted diluted EPS excludes known charges related to completed acquisitions of $0.01 per share, includes the normalized tax benefit of share-based compensation of $0.01 per share and net income tax benefit related to intra-entity intangible asset transfers of $0.03 per share, but does not reflect any items that are unknown at this time, such as any additional charges related to acquisitions or other non-operational or unusual items, as well as other tax related items, which we are not able to predict without unreasonable efforts due to their inherent uncertainty.

First Quarter Reportable Segment Information

Semiconductor Systems Q1 FY2020   Q1 FY2019
  (In millions, except percentages)
Net sales $ 2,814     $ 2,268  
Foundry, logic and other 68 %   44 %
DRAM 15 %   21 %
Flash 17 %   35 %
Operating income 915     631  
Operating margin 32.5 %   27.8 %
Non-GAAP Adjusted Results    
Non-GAAP adjusted operating income $ 925     $ 642  
Non-GAAP adjusted operating margin 32.9 %   28.3 %


Applied Global Services Q1 FY2020   Q1 FY2019
  (In millions, except percentages)
Net sales $ 997     $ 962  
Operating income 278     285  
Operating margin 27.9 %   29.6 %
Non-GAAP Adjusted Results    
Non-GAAP adjusted operating income $ 278     $ 285  
Non-GAAP adjusted operating margin 27.9 %   29.6 %


Display and Adjacent Markets Q1 FY2020   Q1 FY2019
  (In millions, except percentages)
Net sales $ 332     $ 507  
Operating income 38     115  
Operating margin 11.4 %   22.7 %
Non-GAAP Adjusted Results    
Non-GAAP adjusted operating income $ 41     $ 118  
Non-GAAP adjusted operating margin 12.3 %   23.3 %

Use of Non-GAAP Adjusted Financial Measures

Applied provides investors with certain non-GAAP adjusted financial measures, which are adjusted for the impact of certain costs, expenses, gains and losses, including certain items related to mergers and acquisitions; restructuring charges and any associated adjustments; impairments of assets, or investments; gain or loss on sale of strategic investments; tax effect of share-based compensation; certain income tax items and other discrete adjustments. Additionally, non-GAAP results exclude estimated discrete income tax expense items associated with changes to U.S. tax legislation. Reconciliations of these non-GAAP measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are provided in the financial tables included in this release.

Management uses these non-GAAP adjusted financial measures to evaluate the company’s operating and financial performance and for planning purposes, and as performance measures in its executive compensation program. Applied believes these measures enhance an overall understanding of its performance and investors’ ability to review the company’s business from the same perspective as the company’s management, and facilitate comparisons of this period’s results with prior periods on a consistent basis by excluding items that management does not believe are indicative of Applied's ongoing operating performance. There are limitations in using non-GAAP financial measures because the non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles, may be different from non-GAAP financial measures used by other companies, and may exclude certain items that may have a material impact upon our reported financial results. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with GAAP.

Webcast Information

Applied Materials will discuss these results during an earnings call that begins at 1:30 p.m. Pacific Time today. A live webcast will be available at www.appliedmaterials.com. A replay will be available on the website beginning at 5:00 p.m. Pacific Time today.

Forward-Looking Statements

This press release contains forward-looking statements, including those regarding anticipated growth and trends in our businesses and markets, industry outlooks and demand drivers, technology transitions, our business and financial performance and market share positions, our capital allocation, our investment and growth strategies, our development of new products and technologies, our business outlook for the second quarter of fiscal 2020 and beyond, the impact of the coronavirus outbreak on our operations and financial results; and other statements that are not historical facts. These statements and their underlying assumptions are subject to risks and uncertainties and are not guarantees of future performance. Factors that could cause actual results to differ materially from those expressed or implied by such statements include, without limitation: the level of demand for our products; global economic and industry conditions; the effects of regional or global health epidemics; global trade issues and changes in trade policies; consumer demand for electronic products; the demand for semiconductors; customers’ technology and capacity requirements; the introduction of new and innovative technologies, and the timing of technology transitions; our ability to develop, deliver and support new products and technologies; the concentrated nature of our customer base;  changes in income tax laws; our ability to expand our current markets, increase market share and develop new markets; market acceptance of existing and newly developed products; our ability to obtain and protect intellectual property rights in key technologies; our ability to achieve the objectives of operational and strategic initiatives, align our resources and cost structure with business conditions, and attract, motivate and retain key employees; the variability of operating expenses and results among products and segments, and our ability to accurately forecast future results, market conditions, customer requirements and business needs;  and other risks and uncertainties described in our SEC filings, including our recent Forms 10-K and 8-K. All forward-looking statements are based on management’s current estimates, projections and assumptions, and we assume no obligation to update them.

About Applied Materials

Applied Materials, Inc. (AMAT) is the leader in materials engineering solutions used to produce virtually every new chip and advanced display in the world. Our expertise in modifying materials at atomic levels and on an industrial scale enables customers to transform possibilities into reality. At Applied Materials, our innovations make possible the technology shaping the future. Learn more at www.appliedmaterials.com.

Contact:

Ricky Gradwohl (editorial/media) 408.235.4676
Michael Sullivan (financial community) 408.986.7977

 


APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

  Three Months Ended
(In millions, except per share amounts) January 26,
2020
  January 27,
2019
Net sales $ 4,162     $ 3,753  
Cost of products sold 2,304     2,088  
Gross profit 1,858     1,665  
Operating expenses:      
Research, development and engineering 552     516  
Marketing and selling 135     131  
General and administrative 129     110  
Total operating expenses 816     757  
Income from operations 1,042     908  
Interest expense 59     60  
Interest and other income, net 22     40  
Income before income taxes 1,005     888  
Provision for income taxes 113     117  
Net income $ 892     $ 771  
Earnings per share:      
Basic $ 0.97     $ 0.81  
Diluted $ 0.96     $ 0.80  
Weighted average number of shares:      
Basic 916     957  
Diluted 927     965  



APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions) January 26,
2020
  October 27,
2019
ASSETS      
Current assets:      
Cash and cash equivalents $ 3,424     $ 3,129  
Short-term investments 536     489  
Accounts receivable, net 2,679     2,533  
Inventories 3,472     3,474  
Other current assets 658     581  
Total current assets 10,769     10,206  
Long-term investments 1,713     1,703  
Property, plant and equipment, net 1,555     1,529  
Goodwill 3,399     3,399  
Purchased technology and other intangible assets, net 142     156  
Deferred income taxes and other assets 2,189     2,031  
Total assets $ 19,767     $ 19,024  
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current liabilities:      
Current portion of long-term debt $ 600     $ 600  
Accounts payable and accrued expenses 2,569     2,511  
Contract liabilities 1,400     1,336  
Total current liabilities 4,569     4,447  
Long-term debt 4,714     4,713  
Income taxes payable 1,298     1,275  
Other liabilities 526     375  
Total liabilities 11,107     10,810  
Total stockholders’ equity 8,660     8,214  
Total liabilities and stockholders’ equity $ 19,767     $ 19,024  



APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(In millions) Three Months Ended
January 26,
2020
  January 27,
2019
Cash flows from operating activities:      
Net income $ 892     $ 771  
Adjustments required to reconcile net income to cash provided by operating activities:      
Depreciation and amortization 94     88  
Share-based compensation 93     65  
Deferred income taxes 30     41  
Other 15     1  
Net change in operating assets and liabilities (137 )   (132 )
Cash provided by operating activities 987     834  
Cash flows from investing activities:      
Capital expenditures (102 )   (133 )
Proceeds from sales and maturities of investments 368     464  
Purchases of investments (428 )   (397 )
Cash used in investing activities (162 )   (66 )
Cash flows from financing activities:      
Proceeds from common stock issuances 15      
Common stock repurchases (200 )   (750 )
Tax withholding payments for vested equity awards (153 )   (74 )
Payments of dividends to stockholders (192 )   (192 )
Cash used in financing activities (530 )   (1,016 )
Increase (decrease) in cash and cash equivalents 295     (248 )
Cash and cash equivalents — beginning of period 3,129     3,440  
Cash and cash equivalents — end of period $ 3,424     $ 3,192  
Supplemental cash flow information:      
Cash payments for income taxes $ 82     $ 34  
Cash refunds from income taxes $ 1     $ 8  
Cash payments for interest $ 34     $ 34  



APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Corporate and Other      
(In millions) Q1 FY2020   Q1 FY2019
Unallocated net sales $ 19      $ 16   
Unallocated cost of products sold and expenses (115 )   (74 )
Share-based compensation (93 )   (65 )
Total $ (189 )   $ (123 )


Additional Information      
  Q1 FY2020   Q1 FY2019
Net Sales by Geography (In millions)  
United States 441     450  
% of Total 10 %   12 %
Europe 153     296  
% of Total 4 %   8 %
Japan 351     651  
% of Total 8 %   17 %
Korea 508     572  
% of Total 12 %   15 %
Taiwan 1,365     656  
% of Total 33 %   18 %
Southeast Asia 72     160  
% of Total 2 %   4 %
China 1,272     968  
% of Total 31 %   26 %
       
Employees (In thousands)      
Regular Full Time 22.3     21.2  




 APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS

  Three Months Ended
(In millions, except percentages) January 26,
2020
  January 27,
2019
Non-GAAP Adjusted Gross Profit      
Reported gross profit - GAAP basis $ 1,858     $ 1,665  
Certain items associated with acquisitions1 9     10  
Non-GAAP adjusted gross profit $ 1,867     $ 1,675  
Non-GAAP adjusted gross margin 44.9  %   44.6  %
Non-GAAP Adjusted Operating Income      
Reported operating income - GAAP basis $ 1,042     $ 908  
Certain items associated with acquisitions1 13     14  
Acquisition integration and deal costs 13     3  
Non-GAAP adjusted operating income $ 1,068     $ 925  
Non-GAAP adjusted operating margin 25.7 %   24.6  %
Non-GAAP Adjusted Net Income      
Reported net income - GAAP basis $ 892     $ 771  
Certain items associated with acquisitions1 13     14  
Acquisition integration and deal costs 13     3  
Impairment (gain on sale) of strategic investments, net 2     (2 )
Loss (gain) on strategic investments, net 2     (10 )
Income tax effect of share-based compensation2 (33 )   (5 )
Income tax effect of changes in applicable U.S. tax laws3     (24 )
Income tax effects related to amortization of intra-entity intangible asset transfers 21     (28 )
Resolution of prior years’ income tax filings and other tax items (1 )   59  
Income tax effect of non-GAAP adjustments4 (5 )   1  
Non-GAAP adjusted net income $ 904     $ 779  


These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.
   
2 GAAP basis tax benefit related to share-based compensation is recognized ratably over the fiscal year on a non-GAAP basis.
   
3 Charges to income tax provision related to a one-time transition tax as a result of U.S. tax legislation.
   
4 Adjustment to provision for income taxes related to non-GAAP adjustments reflected in income before income taxes.



APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS

  Three Months Ended
(In millions, except per share amounts) January 26,
2020
  January 27,
2019
Non-GAAP Adjusted Earnings Per Diluted Share      
Reported earnings per diluted share - GAAP basis $ 0.96      $ 0.80   
Certain items associated with acquisitions 0.01      0.01   
Acquisition integration and deal costs 0.01      —   
Loss (gain) on strategic investments, net —      (0.01 )
Income tax effect of share-based compensation (0.03 )   —   
Income tax effect of changes in applicable U.S. tax laws —      (0.02 )
Income tax effects related to amortization of intra-entity intangible asset transfers 0.03      (0.03 )
Resolution of prior years’ income tax filings and other tax items —      0.06   
Non-GAAP adjusted earnings per diluted share $ 0.98      $ 0.81   
Weighted average number of diluted shares 927      965   



APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS

  Three Months Ended
(In millions, except percentages) January 26,
2020
  January 27,
2019
Semiconductor Systems Non-GAAP Adjusted Operating Income      
Reported operating income - GAAP basis $ 915     $ 631  
Certain items associated with acquisitions1 10     11  
Non-GAAP adjusted operating income $ 925     $ 642  
Non-GAAP adjusted operating margin 32.9 %   28.3 %
AGS Non-GAAP Adjusted Operating Income      
Reported operating income - GAAP basis $ 278     $ 285  
Non-GAAP adjusted operating income $ 278     $ 285  
Non-GAAP adjusted operating margin 27.9 %   29.6 %
Display and Adjacent Markets Non-GAAP Adjusted Operating Income      
Reported operating income - GAAP basis $ 38     $ 115  
Certain items associated with acquisitions1 3     3  
Non-GAAP adjusted operating income $ 41     $ 118  
Non-GAAP adjusted operating margin 12.3 %   23.3 %


These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.

Note: The reconciliation of GAAP and non-GAAP adjusted segment results above does not include certain revenues, costs of products sold and operating expenses that are reported within corporate and other and included in consolidated operating income.



UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED EFFECTIVE INCOME TAX RATE

  Three Months Ended
(In millions, except percentages) January 26, 2020
   
Provision for income taxes - GAAP basis (a) $ 113  
Income tax effect of share-based compensation 33  
Income tax effects related to amortization of intra-entity intangible asset transfers (21 )
Resolutions of prior years’ income tax filings and other tax items 1  
Income tax effect of non-GAAP adjustments 5  
Non-GAAP adjusted provision for income taxes (b) $ 131  
   
Income before income taxes - GAAP basis (c) $ 1,005  
Certain items associated with acquisitions 13  
Acquisition integration and deal costs 13  
Impairment (gain on sale) of strategic investments, net 2  
Loss (gain) on strategic investments, net 2  
Non-GAAP adjusted income before income taxes (d) $ 1,035  
   
Effective income tax rate - GAAP basis (a/c) 11.2  %
   
Non-GAAP adjusted effective income tax rate (b/d) 12.7  %