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Applied Materials Announces Second Quarter 2021 Results

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·17 min read
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  • Record quarterly revenue of $5.58 billion, up 41 percent year over year

  • Quarterly GAAP operating margin of 28.3 percent and non-GAAP operating margin of 31.7 percent, up 4.7 points and 7.0 points year over year, respectively

  • Quarterly GAAP EPS of $1.43 and record non-GAAP EPS of $1.63, up 74 percent and 83 percent year over year, respectively

SANTA CLARA, Calif., May 20, 2021 (GLOBE NEWSWIRE) -- Applied Materials, Inc. (NASDAQ: AMAT) today reported results for its second quarter ended May 2, 2021.

Second Quarter Results

Applied generated revenue of $5.58 billion. On a GAAP basis, the company recorded gross margin of 47.5 percent, operating income of $1.58 billion or 28.3 percent of net sales, and earnings per share (EPS) of $1.43.

On a non-GAAP adjusted basis, the company reported gross margin of 47.7 percent, operating income of $1.77 billion or 31.7 percent of net sales, and EPS of $1.63.

The company generated $1.19 billion in cash from operations and returned $952 million to shareholders including $750 million in share repurchases and $202 million in dividends.

“Applied Materials’ record performance is underpinned by broad-based strength across our semiconductor businesses,” said Gary Dickerson, President and CEO. “We are confident in our ability to outperform our markets as large, secular trends create sustainable demand for semiconductors and our leadership in materials engineering becomes increasingly critical to deliver new chip technologies.”

Quarterly Results Summary

Q2 FY2021

Q2 FY2020

Change

(In millions, except per share amounts and percentages)

Net sales

$

5,582

$

3,957

41

%

Gross margin

47.5

%

44.2

%

3.3 points

Operating margin

28.3

%

23.6

%

4.7 points

Net income

$

1,330

$

755

76

%

Diluted earnings per share

$

1.43

$

0.82

74

%

Non-GAAP Adjusted Results

Non-GAAP adjusted gross margin

47.7

%

44.6

%

3.1 points

Non-GAAP adjusted operating margin

31.7

%

24.7

%

7.0 points

Non-GAAP adjusted net income

$

1,509

$

817

85

%

Non-GAAP adjusted diluted EPS

$

1.63

$

0.89

83

%

Second quarter GAAP results included a $154 million deal termination fee paid per the terms of the Share Purchase Agreement with Kokusai Electric Corporation and KKR HKE Investment L.P., which reduced earnings per share by $0.17.

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 third quarter of fiscal 2021, Applied expects net sales to be approximately $5.92 billion, plus or minus $200 million. Non-GAAP adjusted diluted EPS is expected to be in the range of $1.70 to $1.82.

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 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.

Second Quarter Reportable Segment Information

Semiconductor Systems

Q2 FY2021

Q2 FY2020

(In millions, except percentages)

Net sales

$

3,972

$

2,567

Foundry, logic and other

56

%

56

%

DRAM

14

%

22

%

Flash memory

30

%

22

%

Operating income

$

1,542

$

782

Operating margin

38.8

%

30.5

%

Non-GAAP Adjusted Results

Non-GAAP adjusted operating income

$

1,555

$

798

Non-GAAP adjusted operating margin

39.1

%

31.1

%


Applied Global Services

Q2 FY2021

Q2 FY2020

(In millions, except percentages)

Net sales

$

1,203

$

1,018

Operating income

$

358

$

256

Operating margin

29.8

%

25.1

%

Non-GAAP Adjusted Results

Non-GAAP adjusted operating income

$

359

$

260

Non-GAAP adjusted operating margin

29.8

%

25.5

%


Display and Adjacent Markets

Q2 FY2021

Q2 FY2020

(In millions, except percentages)

Net sales

$

375

$

365

Operating income

$

65

$

75

Operating margin

17.3

%

20.5

%

Non-GAAP Adjusted Results

Non-GAAP adjusted operating income

$

66

$

78

Non-GAAP adjusted operating margin

17.6

%

21.4

%


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 and severance charges and any associated adjustments; certain incremental expenses related to COVID-19; impairments of assets; gain or loss on 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 third quarter of fiscal 2021 and beyond, the impact of the ongoing COVID-19 pandemic and responses thereto 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, including the severity and duration of the ongoing COVID-19 pandemic; global trade issues and changes in trade and export license policies, including the recent rules and interpretations promulgated by U.S. Department of Commerce expanding export license requirements for certain products sold to certain entities in China; 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 a better 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

Six Months Ended

(In millions, except per share amounts)

May 2,
2021

April 26,
2020

May 2,
2021

April 26,
2020

Net sales

$

5,582

$

3,957

$

10,744

$

8,119

Cost of products sold

2,929

2,208

5,742

4,512

Gross profit

2,653

1,749

5,002

3,607

Operating expenses:

Research, development and engineering

617

550

1,223

1,102

Marketing and selling

148

130

295

265

General and administrative

149

137

310

266

Severance and related charges

6

158

Deal termination fee

154

154

Total operating expenses

1,074

817

2,140

1,633

Income from operations

1,579

932

2,862

1,974

Interest expense

61

61

122

120

Interest and other income, net

27

7

45

29

Income before income taxes

1,545

878

2,785

1,883

Provision for income taxes

215

123

325

236

Net income

$

1,330

$

755

$

2,460

$

1,647

Earnings per share:

Basic

$

1.45

$

0.82

$

2.68

$

1.80

Diluted

$

1.43

$

0.82

$

2.66

$

1.78

Weighted average number of shares:

Basic

918

917

917

917

Diluted

927

923

926

925


APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions)

May 2,
2021

October 25,
2020

ASSETS

Current assets:

Cash and cash equivalents

$

6,305

$

5,351

Short-term investments

460

387

Accounts receivable, net

3,375

2,963

Inventories

4,053

3,904

Other current assets

778

764

Total current assets

14,971

13,369

Long-term investments

1,569

1,538

Property, plant and equipment, net

1,768

1,604

Goodwill

3,479

3,466

Purchased technology and other intangible assets, net

127

153

Deferred income taxes and other assets

2,171

2,223

Total assets

$

24,085

$

22,353

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable and accrued expenses

$

3,116

$

3,138

Contract liabilities

1,706

1,321

Total current liabilities

4,822

4,459

Long-term debt, net of current portion

5,450

5,448

Income taxes payable

1,138

1,206

Other liabilities

682

662

Total liabilities

12,092

11,775

Total stockholders’ equity

11,993

10,578

Total liabilities and stockholders’ equity

$

24,085

$

22,353


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

(In millions)

Three Months Ended

Six Months Ended

May 2,
2021

April 26,
2020

May 2,
2021

April 26,
2020

Cash flows from operating activities:

Net income

$

1,330

$

755

$

2,460

$

1,647

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

Depreciation and amortization

97

91

191

185

Severance and related charges

1

149

Share-based compensation

84

71

191

164

Deferred income taxes

(4

)

(11

)

24

19

Other

(15

)

7

(15

)

22

Net change in operating assets and liabilities

(306

)

(278

)

(392

)

(415

)

Cash provided by operating activities

1,187

635

2,608

1,622

Cash flows from investing activities:

Capital expenditures

(204

)

(71

)

(325

)

(173

)

Cash paid for acquisitions, net of cash acquired

(27

)

(12

)

(27

)

Proceeds from sales and maturities of investments

266

667

624

1,035

Purchases of investments

(281

)

(404

)

(722

)

(832

)

Cash provided by (used in) investing activities

(219

)

165

(435

)

3

Cash flows from financing activities:

Debt borrowings, net of issuance costs

1,498

1,498

Proceeds from common stock issuances

86

76

86

91

Common stock repurchases

(750

)

(199

)

(750

)

(399

)

Tax withholding payments for vested equity awards

(17

)

(10

)

(159

)

(163

)

Payments of dividends to stockholders

(202

)

(193

)

(403

)

(385

)

Cash provided by (used in) financing activities

(883

)

1,172

(1,226

)

642

Increase in cash, cash equivalents and restricted cash equivalents

85

1,972

947

2,267

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

6,328

3,424

5,466

3,129

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

$

6,413

$

5,396

$

6,413

$

5,396

Reconciliation of cash, cash equivalents, and restricted cash equivalents

Cash and cash equivalents

$

6,305

$

5,281

$

6,305

$

5,281

Restricted cash equivalents included in deferred income taxes and other assets

108

115

108

115

Total cash, cash equivalents, and restricted cash equivalents

$

6,413

$

5,396

$

6,413

$

5,396

Supplemental cash flow information:

Cash payments for income taxes

$

299

$

199

$

409

$

281

Cash refunds from income taxes

$

4

$

4

$

23

$

5

Cash payments for interest

$

68

$

76

$

103

$

110


APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Corporate and Other

(In millions)

Q2 FY2021

Q2 FY2020

Unallocated net sales

$

32

$

7

Unallocated cost of products sold and expenses

(174

)

(117

)

Share-based compensation

(84

)

(71

)

Severance and related charges

(6

)

Deal termination fee

(154

)

Total

$

(386

)

$

(181

)

Additional Information

Q2 FY2021

Q2 FY2020

Net Sales by Geography (In millions)

United States

$

489

$

331

% of Total

9

%

8

%

Europe

$

229

$

181

% of Total

4

%

5

%

Japan

$

442

$

467

% of Total

8

%

12

%

Korea

$

1,428

$

753

% of Total

25

%

19

%

Taiwan

$

1,041

$

1,029

% of Total

19

%

26

%

Southeast Asia

$

109

$

58

% of Total

2

%

1

%

China

$

1,844

$

1,138

% of Total

33

%

29

%

Employees (In thousands)

Regular Full Time

24.8

22.7


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

Three Months Ended

Six Months Ended

(In millions, except percentages)

May 2,
2021

April 26,
2020

May 2,
2021

April 26,
2020

Non-GAAP Adjusted Gross Profit

Reported gross profit - GAAP basis

$

2,653

$

1,749

$

5,002

$

3,607

Certain items associated with acquisitions1

7

8

15

17

Certain incremental expenses related to COVID-192

8

12

8

Other charges

2

2

Non-GAAP adjusted gross profit

$

2,662

$

1,765

$

5,031

$

3,632

Non-GAAP adjusted gross margin

47.7

%

44.6

%

46.8

%

44.7

%

Non-GAAP Adjusted Operating Income

Reported operating income - GAAP basis

$

1,579

$

932

$

2,862

$

1,974

Certain items associated with acquisitions1

12

13

25

26

Acquisition integration and deal costs

11

21

35

34

Certain incremental expenses related to COVID-192

10

24

10

Severance and related charges3

6

158

Deal termination fee

154

154

Other charges

6

6

Non-GAAP adjusted operating income

$

1,768

$

976

$

3,264

$

2,044

Non-GAAP adjusted operating margin

31.7

%

24.7

%

30.4

%

25.2

%

Non-GAAP Adjusted Net Income

Reported net income - GAAP basis

$

1,330

$

755

$

2,460

$

1,647

Certain items associated with acquisitions1

12

13

25

26

Acquisition integration and deal costs

12

21

36

34

Certain incremental expenses related to COVID-192

10

24

10

Severance and related charges3

6

158

Deal termination fee

154

154

Realized loss (gain) on strategic investments, net

6

5

4

7

Unrealized loss (gain) on strategic investments, net

(26

)

2

(32

)

4

Other charges

6

6

Income tax effect of share-based compensation4

6

8

(23

)

(25

)

Income tax effects related to intra-entity intangible asset transfers

17

16

37

37

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

(10

)

(3

)

(13

)

(4

)

Income tax effect of non-GAAP adjustments5

(4

)

(10

)

(45

)

(15

)

Non-GAAP adjusted net income

$

1,509

$

817

$

2,791

$

1,721


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.

3

The severance and related charges primarily related to a one-time voluntary retirement program offered to certain eligible employees.

4

GAAP basis tax benefit related to share-based compensation is recognized ratably over the fiscal year on a non-GAAP basis.

5

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

Six Months Ended

(In millions, except per share amounts)

May 2,
2021

April 26,
2020

May 2,
2021

April 26,
2020

Non-GAAP Adjusted Earnings Per Diluted Share

Reported earnings per diluted share - GAAP basis

$

1.43

$

0.82

$

2.66

$

1.78

Certain items associated with acquisitions

0.01

0.01

0.02

0.02

Acquisition integration and deal costs

0.01

0.02

0.03

0.04

Certain incremental expenses related to COVID-19

0.01

0.02

0.01

Severance and related charges

0.01

0.13

Deal termination fee

0.17

0.17

Realized loss (gain) on strategic investments, net

0.01

0.01

0.01

Unrealized loss (gain) on strategic investments, net

(0.03

)

(0.02

)

Income tax effect of share-based compensation

0.01

0.01

(0.02

)

(0.03

)

Income tax effects related to intra-entity intangible asset transfers

0.02

0.02

0.04

0.04

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

(0.01

)

(0.01

)

(0.01

)

(0.01

)

Non-GAAP adjusted earnings per diluted share

$

1.63

$

0.89

$

3.02

$

1.86

Weighted average number of diluted shares

927

923

926

925



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

Three Months Ended

Six Months Ended

(In millions, except percentages)

May 2,
2021

April 26,
2020

May 2,
2021

April 26,
2020

Semiconductor Systems Non-GAAP Adjusted Operating Income

Reported operating income - GAAP basis

$

1,542

$

782

$

2,803

$

1,697

Certain items associated with acquisitions1

10

10

20

20

Acquisition integration costs

(2

)

Certain incremental expenses related to COVID-192

6

12

6

Other charges

3

3

Non-GAAP adjusted operating income

$

1,555

$

798

$

2,836

$

1,723

Non-GAAP adjusted operating margin

39.1

%

31.1

%

37.7

%

32.0

%

AGS Non-GAAP Adjusted Operating Income

Reported operating income - GAAP basis

$

358

$

256

$

690

$

534

Certain incremental expenses related to COVID-192

4

8

4

Other charges

1

1

Non-GAAP adjusted operating income

$

359

$

260

$

699

$

538

Non-GAAP adjusted operating margin

29.8

%

25.5

%

29.6

%

26.7

%

Display and Adjacent Markets Non-GAAP Adjusted Operating Income

Reported operating income - GAAP basis

$

65

$

75

$

130

$

113

Certain items associated with acquisitions1

1

3

2

6

Certain incremental expenses related to COVID-192

1

Severance and related charges3

8

Non-GAAP adjusted operating income

$

66

$

78

$

141

$

119

Non-GAAP adjusted operating margin

17.6

%

21.4

%

17.9

%

17.1

%


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.

3

The severance and related charges related to workforce reduction actions globally across the Display and Adjacent Markets business.

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)

May 2, 2021

Provision for income taxes - GAAP basis (a)

$

215

Income tax effect of share-based compensation

(6

)

Income tax effects related to intra-entity intangible asset transfers

(17

)

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

10

Income tax effect of non-GAAP adjustments

4

Non-GAAP adjusted provision for income taxes (b)

$

206

Income before income taxes - GAAP basis (c)

$

1,545

Certain items associated with acquisitions

12

Acquisition integration and deal costs

12

Certain incremental expenses related to COVID-19

Severance and related charges

6

Deal termination fee

154

Realized loss (gain) on strategic investments, net

6

Unrealized loss (gain) on strategic investments, net

(26

)

Other charges

6

Non-GAAP adjusted income before income taxes (d)

$

1,715

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

13.9

%

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

12.0

%