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Applied Materials Announces Fourth Quarter and Fiscal Year 2020 Results

Applied Materials, Inc.
·18 min read
  • Record quarterly revenue of $4.69 billion, up 25 percent year over year

  • Record quarterly GAAP EPS of $1.23 and non-GAAP EPS of $1.25, up 64 percent and 56 percent year over year, respectively

  • Generated record annual cash from operations of $3.80 billion

SANTA CLARA, Calif., Nov. 12, 2020 (GLOBE NEWSWIRE) -- Applied Materials, Inc. (NASDAQ: AMAT) today reported results for its fourth quarter and fiscal year ended Oct. 25, 2020.

Fourth Quarter Results

Applied generated revenue of $4.69 billion. On a GAAP basis, the company recorded gross margin of 45.4 percent, operating income of $1.28 billion or 27.4 percent of net sales, and earnings per share (EPS) of $1.23.

On a non-GAAP adjusted basis, the company reported gross margin of 45.7 percent, operating income of $1.33 billion or 28.3 percent of net sales, and EPS of $1.25.

The company generated $1.32 billion in cash from operations and returned $250 million to shareholders including $200 million in dividends and $50 million in share repurchases.

Full Year Results

In fiscal 2020, Applied generated revenue of $17.20 billion. On a GAAP basis, the company recorded gross margin of 44.7 percent, operating income of $4.37 billion or 25.4 percent of net sales, and EPS of $3.92.

On a non-GAAP adjusted basis, the company reported gross margin of 45.1 percent, operating income of $4.53 billion or 26.3 percent of net sales, and EPS of $4.17.

The company generated a record $3.80 billion in cash from operations, paid dividends of $787 million and used $649 million to repurchase 12 million shares of common stock.

“Applied Materials closed fiscal 2020 with record quarterly performance as demand for our semiconductor systems and services remains very strong,” said Gary Dickerson, president and CEO. “Our future opportunities have never looked better and, as powerful technology trends take shape, we are uniquely positioned to accelerate our customers’ roadmaps and outperform our markets.”

Results Summary

Change

Q4 FY2020

Q4 FY2019

FY2020

FY2019

Q4 FY2020
vs.
Q4 FY2019

FY2020
vs.
FY2019

(In millions, except per share amounts and percentages)

Net sales

$

4,688

$

3,754

$

17,202

$

14,608

25

%

18

%

Gross margin

45.4

%

43.5

%

44.7

%

43.7

%

1.9 points

1.0 points

Operating margin

27.4

%

23.0

%

25.4

%

22.9

%

4.4 points

2.5 points

Net income

$

1,131

$

698

$

3,619

$

2,706

62

%

34

%

Diluted earnings per share

$

1.23

$

0.75

$

3.92

$

2.86

64

%

37

%

Non-GAAP Adjusted Results

Non-GAAP adjusted gross margin

45.7

%

43.8

%

45.1

%

44.0

%

1.9 points

1.1 points

Non-GAAP adjusted operating margin

28.3

%

23.7

%

26.3

%

23.5

%

4.6 points

2.8 points

Non-GAAP adjusted net income

$

1,148

$

744

$

3,845

$

2,875

54

%

34

%

Non-GAAP adjusted diluted EPS

$

1.25

$

0.80

$

4.17

$

3.04

56

%

37

%

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 first quarter of fiscal 2021, Applied expects net sales to be approximately $4.95 billion, plus or minus $200 million. Non-GAAP adjusted diluted EPS is expected to be in the range of $1.20 to $1.32.

This outlook for non-GAAP adjusted diluted EPS excludes known charges related to completed acquisitions of $0.01 per share and includes a 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.

Fourth Quarter and Fiscal Year Reportable Segment Information

Semiconductor Systems

Q4 FY2020

Q4 FY2019

FY2020

FY2019

(In millions, except percentages)

Net sales

$

3,070

$

2,302

$

11,367

$

9,027

Foundry, logic and other

58

%

58

%

59

%

52

%

DRAM

21

%

21

%

20

%

22

%

Flash memory

21

%

21

%

21

%

26

%

Operating income

1,059

641

3,714

2,464

Operating margin

34.5

%

27.8

%

32.7

%

27.3

%

Non-GAAP Adjusted Results

Non-GAAP adjusted operating income

$

1,073

$

652

$

3,778

$

2,507

Non-GAAP adjusted operating margin

35.0

%

28.3

%

33.2

%

27.8

%


Applied Global Services

Q4 FY2020

Q4 FY2019

FY2020

FY2019

(In millions, except percentages)

Net sales

$

1,106

$

977

$

4,155

$

3,854

Operating income

320

274

1,127

1,101

Operating margin

28.9

%

28.0

%

27.1

%

28.6

%

Non-GAAP Adjusted Results

Non-GAAP adjusted operating income

$

320

$

274

$

1,135

$

1,101

Non-GAAP adjusted operating margin

28.9

%

28.0

%

27.3

%

28.6

%







Display and Adjacent Markets

Q4 FY2020

Q4 FY2019

FY2020

FY2019

(In millions, except percentages)

Net sales

$

485

$

457

$

1,607

$

1,651

Operating income

95

96

291

294

Operating margin

19.6

%

21.0

%

18.1

%

17.8

%

Non-GAAP Adjusted Results

Non-GAAP adjusted operating income

$

98

$

99

$

304

$

307

Non-GAAP adjusted operating margin

20.2

%

21.7

%

18.9

%

18.6

%

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; certain incremental expenses related to COVID-19; impairments of assets, or investments; gain or loss on sale of strategic investments; loss on early extinguishment of debt; certain income tax items and other discrete adjustments. On a non-GAAP basis, the tax effect related to share-based compensation is recognized ratably over the fiscal year. Additionally, non-GAAP results exclude estimated discrete income tax expense items associated with 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 and related slide presentation 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 and cash deployment strategies, our investment and growth strategies, our development of new products and technologies, our business outlook for the first quarter of fiscal 2021 and beyond, the impact of the ongoing COVID-19 pandemic and responses thereto on our operations and financial results, strategic acquisitions and investments, including the proposed acquisition of Kokusai Electric Corporation, 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, including the severity and duration of the ongoing COVID-19 pandemic; global trade issues and changes in trade and export license policies, including the impact of the implementation and interpretation of the rules published by the U.S. Department of Commerce on April 28, 2020 and August 17, 2020 relating to certain export license requirements; 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; acquisitions, investments and divestitures; 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-Q 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. (Nasdaq: 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

Twelve Months Ended

(In millions, except per share amounts)

October 25,
2020

October 27,
2019

October 25,
2020

October 27,
2019

Net sales

$

4,688

$

3,754

$

17,202

$

14,608

Cost of products sold

2,558

2,120

9,510

8,222

Gross profit

2,130

1,634

7,692

6,386

Operating expenses:

Research, development and engineering

560

515

2,234

2,054

Marketing and selling

131

129

526

521

General and administrative

156

126

567

461

Total operating expenses

847

770

3,327

3,036

Income from operations

1,283

864

4,365

3,350

Interest expense

59

59

240

237

Interest and other income (loss), net

19

35

41

156

Income before income taxes

1,243

840

4,166

3,269

Provision for income taxes

112

142

547

563

Net income

$

1,131

$

698

$

3,619

$

2,706

Earnings per share:

Basic

$

1.24

$

0.76

$

3.95

$

2.89

Diluted

$

1.23

$

0.75

$

3.92

$

2.86

Weighted average number of shares:

Basic

914

920

916

937

Diluted

921

931

923

945



APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions)

October 25,
2020

October 27,
2019

ASSETS

Current assets:

Cash and cash equivalents

$

5,351

$

3,129

Short-term investments

387

489

Accounts receivable, net

2,963

2,533

Inventories

3,904

3,474

Other current assets

764

581

Total current assets

13,369

10,206

Long-term investments

1,538

1,703

Property, plant and equipment, net

1,604

1,529

Goodwill

3,466

3,399

Purchased technology and other intangible assets, net

153

156

Deferred income taxes and other assets

2,223

2,031

Total assets

$

22,353

$

19,024

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Current portion of long-term debt

$

$

600

Accounts payable and accrued expenses

3,138

2,511

Contract liabilities

1,321

1,336

Total current liabilities

4,459

4,447

Long-term debt, net of current portion

5,448

4,713

Income taxes payable

1,206

1,275

Other liabilities

662

375

Total liabilities

11,775

10,810

Total stockholders’ equity

10,578

8,214

Total liabilities and stockholders’ equity

$

22,353

$

19,024



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

(In millions)

Three Months Ended

Twelve Months Ended

October 25,
2020

October 27,
2019

October 25,
2020

October 27,
2019

Cash flows from operating activities:

Net income

$

1,131

$

698

$

3,619

$

2,706

Adjustments required to reconcile net income to cash provided by operating activities:

Depreciation and amortization

97

92

376

363

Share-based compensation

73

66

307

263

Deferred income taxes

(18

)

(8

)

80

49

Other

5

60

(19

)

Net change in operating assets and liabilities

27

(22

)

(638

)

(115

)

Cash provided by operating activities

1,315

826

3,804

3,247

Cash flows from investing activities:

Capital expenditures

(162

)

(97

)

(422

)

(441

)

Cash paid for acquisitions, net of cash acquired

(107

)

(28

)

Proceeds from sales and maturities of investments

366

555

1,754

1,940

Purchases of investments

(345

)

(544

)

(1,355

)

(1,914

)

Cash used in investing activities

(141

)

(86

)

(130

)

(443

)

Cash flows from financing activities:

Debt borrowings, net of issuance costs

2,979

Debt repayments

(2,882

)

Proceeds from common stock issuances

83

72

174

145

Common stock repurchases

(50

)

(500

)

(649

)

(2,403

)

Tax withholding payments for vested equity awards

(6

)

(3

)

(172

)

(86

)

Payments of dividends to stockholders

(200

)

(194

)

(787

)

(771

)

Cash used in financing activities

(173

)

(625

)

(1,337

)

(3,115

)

Increase (decrease) in cash, cash equivalents and restricted cash equivalents

1,001

115

2,337

(311

)

Cash, cash equivalents and restricted cash equivalents—beginning of period

4,465

3,014

3,129

3,440

Cash, cash equivalents and restricted cash equivalents — end of period

$

5,466

$

3,129

$

5,466

$

3,129

Reconciliation of cash, cash equivalents, and restricted cash equivalents

Cash and cash equivalents

$

5,351

$

3,129

$

5,351

$

3,129

Restricted cash equivalents included in deferred income taxes and other assets

115

115

Total cash, cash equivalents, and restricted cash equivalents

$

5,466

$

3,129

$

5,466

$

3,129

Supplemental cash flow information:

Cash payments for income taxes

$

23

$

69

$

542

$

522

Cash refunds from income taxes

$

63

$

2

$

68

$

22

Cash payments for interest

$

68

$

76

$

219

$

219



APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Corporate and Other

(In millions)

Q4 FY2020

Q4 FY2019

FY2020

FY2019

Unallocated net sales

$

27

$

18

$

73

$

76

Unallocated cost of products sold and expenses

(145

)

(99

)

(533

)

(322

)

Share-based compensation

(73

)

(66

)

(307

)

(263

)

Total

$

(191

)

$

(147

)

$

(767

)

$

(509

)



Additional Information

Q4 FY2020

Q4 FY2019

FY2020

FY2019

Net Sales by Geography (In millions)

United States

448

412

1,619

1,871

% of Total

10

%

11

%

10

%

13

%

Europe

206

147

736

820

% of Total

4

%

4

%

4

%

6

%

Japan

706

471

1,996

2,198

% of Total

15

%

13

%

11

%

15

%

Korea

719

471

3,031

1,929

% of Total

15

%

13

%

18

%

13

%

Taiwan

872

919

3,953

2,965

% of Total

19

%

24

%

23

%

20

%

Southeast Asia

161

135

411

548

% of Total

3

%

3

%

2

%

4

%

China

1,576

1,199

5,456

4,277

% of Total

34

%

32

%

32

%

29

%

Employees (In thousands)

Regular Full Time

24.0

22.0



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

Three Months Ended

Twelve Months Ended

(In millions, except percentages)

October 25,
2020

October 27,
2019

October 25,
2020

October 27,
2019

Non-GAAP Adjusted Gross Profit

Reported gross profit - GAAP basis

$

2,130

$

1,634

$

7,692

$

6,386

Certain items associated with acquisitions1

12

9

37

37

Certain incremental expenses related to COVID-195

23

Non-GAAP adjusted gross profit

$

2,142

$

1,643

$

7,752

$

6,423

Non-GAAP adjusted gross margin

45.7

%

43.8

%

45.1

%

44.0

%

Non-GAAP Adjusted Operating Income

Reported operating income - GAAP basis

$

1,283

$

864

$

4,365

$

3,350

Certain items associated with acquisitions1

16

14

54

55

Acquisition integration and deal costs

26

10

80

22

Certain incremental expenses related to COVID-195

30

Non-GAAP adjusted operating income

$

1,325

$

888

$

4,529

$

3,427

Non-GAAP adjusted operating margin

28.3

%

23.7

%

26.3

%

23.5

%

Non-GAAP Adjusted Net Income

Reported net income - GAAP basis

$

1,131

$

698

$

3,619

$

2,706

Certain items associated with acquisitions1

16

14

54

55

Acquisition integration and deal costs

26

10

80

22

Certain incremental expenses related to COVID-195

30

Realized loss (gain) on strategic investments, net

(1

)

(6

)

Unrealized loss (gain) on strategic investments, net

(7

)

(5

)

(8

)

(30

)

Loss on early extinguishment of debt

33

Income tax effect of share-based compensation2

13

4

Income tax effect of changes in applicable U.S. tax laws3

(24

)

Income tax effects related to intra-entity intangible asset transfers

10

6

114

62

Resolution of prior years’ income tax filings and other tax items

(36

)

20

(41

)

95

Income tax effect of non-GAAP adjustments4

(5

)

(3

)

(35

)

(5

)

Non-GAAP adjusted net income

$

1,148

$

744

$

3,845

$

2,875


1

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.

5

Temporary incremental employee compensation during the COVID-19 pandemic.


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

Three Months Ended

Twelve Months Ended

(In millions, except per share amounts)

October 25,
2020

October 27,
2019

October 25,
2020

October 27,
2019

Non-GAAP Adjusted Earnings Per Diluted Share

Reported earnings per diluted share - GAAP basis

$

1.23

$

0.75

$

3.92

$

2.86

Certain items associated with acquisitions

0.02

0.01

0.05

0.05

Acquisition integration and deal costs

0.02

0.01

0.07

0.02

Certain incremental expenses related to COVID-19

0.03

Loss on early extinguishment of debt

0.03

Unrealized loss (gain) on strategic investments, net

(0.01

)

(0.01

)

(0.03

)

Income tax effect of share-based compensation

0.02

Income tax effect of changes in applicable U.S. tax laws

(0.03

)

Income tax effects related to intra-entity intangible asset transfers

0.01

0.01

0.12

0.07

Resolution of prior years’ income tax filings and other tax items

(0.04

)

0.02

(0.04

)

0.10

Non-GAAP adjusted earnings per diluted share

$

1.25

$

0.80

$

4.17

$

3.04

Weighted average number of diluted shares

921

931

923

945



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

Three Months Ended

Twelve Months Ended

(In millions, except percentages)

October 25,
2020

October 27,
2019

October 25,
2020

October 27,
2019

Semiconductor Systems Non-GAAP Adjusted Operating Income

Reported operating income - GAAP basis

$

1,059

$

641

$

3,714

$

2,464

Certain items associated with acquisitions1

12

11

41

43

Acquisition integration costs

2

3

Certain incremental expenses related to COVID-192

20

Non-GAAP adjusted operating income

$

1,073

$

652

$

3,778

$

2,507

Non-GAAP adjusted operating margin

35.0

%

28.3

%

33.2

%

27.8

%

AGS Non-GAAP Adjusted Operating Income

Reported operating income - GAAP basis

$

320

$

274

$

1,127

$

1,101

Certain incremental expenses related to COVID-192

8

Non-GAAP adjusted operating income

$

320

$

274

$

1,135

$

1,101

Non-GAAP adjusted operating margin

28.9

%

28.0

%

27.3

%

28.6

%

Display and Adjacent Markets Non-GAAP Adjusted Operating Income

Reported operating income - GAAP basis

$

95

$

96

$

291

$

294

Certain items associated with acquisitions1

3

3

12

12

Acquisition integration costs

1

Certain incremental expenses related to COVID-192

1

Non-GAAP adjusted operating income

$

98

$

99

$

304

$

307

Non-GAAP adjusted operating margin

20.2

%

21.7

%

18.9

%

18.6

%


1

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

2

Temporary incremental employee compensation during the COVID-19 pandemic.

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)

October 25, 2020

Provision for income taxes - GAAP basis (a)

$

112

Income tax effect of share-based compensation

(13

)

Income tax effects related to intra-entity intangible asset transfers

(10

)

Resolutions of prior years’ income tax filings and other tax items

36

Income tax effect of non-GAAP adjustments

5

Non-GAAP adjusted provision for income taxes (b)

$

130

Income before income taxes - GAAP basis (c)

$

1,243

Certain items associated with acquisitions

16

Acquisition integration and deal costs

26

Unrealized loss (gain) on strategic investments, net

(7

)

Non-GAAP adjusted income before income taxes (d)

$

1,278

Effective income tax rate - GAAP basis (a/c)

9.0

%

Non-GAAP adjusted effective income tax rate (b/d)

10.2

%