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Applied Materials Announces Third Quarter 2019 Results

  • Quarterly revenue of $3.56 billion
  • GAAP EPS of $0.61 and non-GAAP EPS of $0.74
  • Returns $724 million to shareholders

SANTA CLARA, Calif., Aug. 15, 2019 (GLOBE NEWSWIRE) --  Applied Materials, Inc. (AMAT) today reported results for its third quarter ended July 28, 2019.

Third Quarter Results

Applied generated revenue of $3.56 billion. On a GAAP basis, the company recorded gross margin of 43.7 percent, operating income of $802 million or 22.5 percent of net sales, and earnings per share (EPS) of $0.61.

On a non-GAAP adjusted basis, the company reported gross margin of 44.0 percent, operating income of $820 million or 23.0 percent of net sales, and EPS of $0.74.

The company returned $724 million to shareholders including $528 million in share repurchases and dividends of $196 million.

“Applied Materials is delivering solid financial performance in a market environment that remains challenging for the time being,” said Gary Dickerson, president and CEO.  “We are excited about the company’s future opportunities and are fully funding our R&D programs to develop new products and capabilities that will accelerate customers’ roadmaps and underpin our growth in the years ahead.”

Quarterly Results Summary

  Q3 FY2019     Q3 FY2018     Change
                                       
  (In millions, except per share amounts and
percentages)
Net sales                  $ 3,562     $     4,162     (14)%
Gross margin 43.7 %   44.8 %   (1.1) points
Operating margin 22.5 %   26.3 %   (3.8) points
Net income $ 571     $ 1,016     (44)%
Diluted earnings per share $ 0.61     $ 1.01     (40)%
Non-GAAP Adjusted Results          
Non-GAAP adjusted gross margin 44.0 %   45.9 %   (1.9) points
Non-GAAP adjusted operating margin 23.0 %   27.4 %   (4.4) points
Non-GAAP adjusted net income $ 692     $ 1,048     (34)%
Non-GAAP adjusted diluted EPS $ 0.74     $ 1.04     (29)%

Applied adopted Accounting Standards Update 2014-09, Revenue from Contracts with Customers (ASC 606), as of the first day of fiscal 2019 using the full retrospective method. Applied also adopted Accounting Standards Update 2017-07, Compensation—Retirement Benefits, as of the first day of fiscal 2019 using the retrospective method. All prior periods included in the unaudited consolidated condensed balance sheet as of Oct. 28, 2018, and the unaudited consolidated condensed statements of operations and cash flows for the three and nine months ended July 29, 2018, were restated under the new standards.

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 fourth quarter of fiscal 2019, Applied expects net sales to be approximately $3.685 billion, plus or minus $150 million. Non-GAAP adjusted diluted EPS is expected to be in the range of $0.72 to $0.80.

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

Third Quarter Reportable Segment Information

Semiconductor Systems Q3 FY2019   Q3 FY2018
               
  (In millions, except percentages)
Net sales $ 2,273     $ 2,578  
Foundry, logic and other 49 %   36 %
DRAM 27 %   25 %
Flash 24 %   39 %
Operating income 613     831  
Operating margin 27.0 %   32.2 %
Non-GAAP Adjusted Results    
Non-GAAP adjusted operating income $ 624     $ 876  
Non-GAAP adjusted operating margin 27.5 %   34.0 %


 

Applied Global Services Q3 FY2019   Q3 FY2018
               
  (In millions, except percentages)
Net sales $ 931     $ 952  
Operating income 259     280  
Operating margin 27.8 %   29.4 %
Non-GAAP Adjusted Results    
Non-GAAP adjusted operating income $ 259     $ 280  
Non-GAAP adjusted operating margin 27.8 %   29.4 %


Display and Adjacent Markets Q3 FY2019   Q3 FY2018
               
  (In millions, except percentages)
Net sales $ 339     $ 616  
Operating income 41     156  
Operating margin 12.1 %   25.3 %
Non-GAAP Adjusted Results    
Non-GAAP adjusted operating income $ 44     $ 160  
Non-GAAP adjusted operating margin 13.0 %   26.0 %

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 recent 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 fourth quarter of fiscal 2019 and beyond, 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; 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 most 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. (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   Nine Months Ended
               
(In millions, except per share amounts) July 28,
 2019
  July 29,
 2018
  July 28,
 2019
  July 29,
 2018
Net sales $ 3,562     $ 4,162     $ 10,854     $ 12,946  
Cost of products sold 2,005     2,298     6,102     7,086  
Gross profit 1,557     1,864     4,752     5,860  
Operating expenses:              
Research, development and engineering 515     505     1,539     1,503  
Marketing and selling 128     138     392     394  
General and administrative 112     128     335     363  
Total operating expenses 755     771     2,266     2,260  
Income from operations 802     1,093     2,486     3,600  
Interest expense 58     59     178     174  
Interest and other income, net 38     43     121     95  
Income before income taxes 782     1,077     2,429     3,521  
Provision for income taxes 211     61     421     1,240  
Net income $ 571     $ 1,016     $ 2,008     $ 2,281  
Earnings per share:              
Basic $ 0.61     $ 1.02     $ 2.13     $ 2.22  
Diluted $ 0.61     $ 1.01     $ 2.11     $ 2.20  
Weighted average number of shares:              
Basic 929     994     943     1,026  
Diluted 937     1,005     950     1,039  



APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions) July 28,
 2019
  October 28,
 2018
ASSETS              
Current assets:      
Cash and cash equivalents $ 3,014     $ 3,440  
Short-term investments 547     590  
Accounts receivable, net 2,373     2,323  
Inventories 3,539     3,721  
Other current assets 569     530  
Total current assets 10,042     10,604  
Long-term investments 1,650     1,568  
Property, plant and equipment, net 1,513     1,407  
Goodwill 3,399     3,368  
Purchased technology and other intangible assets, net 170     213  
Deferred income taxes and other assets 2,031     473  
Total assets $ 18,805     $ 17,633  
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current liabilities:      
Accounts payable and accrued expenses $ 2,355     $ 2,721  
Contract liabilities 1,430     1,201  
Total current liabilities 3,785     3,922  
Income taxes payable 1,253     1,254  
Long-term debt 5,312     5,309  
Other liabilities 339     303  
Total liabilities 10,689     10,788  
Total stockholders’ equity 8,116     6,845  
Total liabilities and stockholders’ equity $ 18,805     $ 17,633  



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

(In millions) Three Months Ended   Nine Months Ended
           
July 28,
 2019
  July 29,
 2018
July 28,
 2019
  July 29,
 2018
Cash flows from operating activities:              
Net income $ 571     $ 1,016     $ 2,008     $ 2,281  
Adjustments required to reconcile net income to cash provided by
operating activities:
             
Depreciation and amortization 89     110     271     337  
Share-based compensation 67     64     197     193  
Deferred income taxes 8     22     57     94  
Other (10 )   (7 )   (19 )   4  
Net change in operating assets and liabilities 62     (572 )   (93 )   (199 )
Cash provided by operating activities 787     633     2,421     2,710  
Cash flows from investing activities:              
Capital expenditures (93 )   (133 )   (344 )   (457 )
Cash paid for acquisitions, net of cash acquired (5 )       (28 )   (5 )
Proceeds from sales and maturities of investments 479     391     1,385     2,823  
Purchases of investments (543 )   (932 )   (1,370 )   (1,661 )
Cash provided by (used in) investing activities (162 )   (674 )   (357 )   700  
Cash flows from financing activities:              
Proceeds from common stock issuances         73     56  
Common stock repurchases (528 )   (1,250 )   (1,903 )   (4,532 )
Tax withholding payments for vested equity awards (3 )   (6 )   (83 )   (160 )
Payments of dividends to stockholders (196 )   (199 )   (577 )   (410 )
Cash used in financing activities (727 )   (1,455 )   (2,490 )   (5,046 )
Decrease in cash and cash equivalents (102 )   (1,496 )   (426 )   (1,636 )
Cash and cash equivalents — beginning of period 3,116     4,870     3,440     5,010  
Cash and cash equivalents — end of period $ 3,014     $ 3,374     $ 3,014     $ 3,374  
Supplemental cash flow information:              
Cash payments for income taxes $ 221     $ 64     $ 453     $ 281  
Cash refunds from income taxes $ 2     $ 10     $ 20     $ 51  
Cash payments for interest $ 33     $ 33     $ 143     $ 143  



APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Corporate and Other

(In millions) Q3 FY2019   Q3 FY2018
               
Unallocated net sales $ 19     $ 16  
Unallocated cost of products sold and expenses (63 )   (126 )
Share-based compensation (67 )   (64 )
Total $ (111 )   $ (174 )


Additional Information

  Q3 FY2019   Q3 FY2018
Net Sales by Geography (In millions)          
United States 552     348  
% of Total 15 %   9 %
Europe 162     224  
% of Total 5 %   5 %
Japan 556     700  
% of Total 16 %   17 %
Korea 445     572  
% of Total 12 %   14 %
Taiwan 596     506  
% of Total 17 %   12 %
Southeast Asia 134     165  
% of Total 4 %   4 %
China 1,117     1,647  
% of Total 31 %   39 %
       
Employees (In thousands)      
Regular Full Time 21.6     20.7  



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

  Three Months Ended   Nine Months Ended
               
(In millions, except percentages) July 28,
 2019
  July 29,
 2018
  July 28,
 2019
  July 29,
 2018
Non-GAAP Adjusted Gross Profit              
Reported gross profit - GAAP basis $ 1,557     $ 1,864     $ 4,752     $ 5,860  
Certain items associated with acquisitions1 9     45     28     134  
Non-GAAP adjusted gross profit $ 1,566     $ 1,909     $ 4,780     $ 5,994  
Non-GAAP adjusted gross margin 44.0 %   45.9 %   44.0 %   46.3 %
Non-GAAP Adjusted Operating Income              
Reported operating income - GAAP basis $ 802     $ 1,093     $ 2,486     $ 3,600  
Certain items associated with acquisitions1 13     49     41     147  
Acquisition integration and deal costs 5           12     2  
Non-GAAP adjusted operating income $ 820     $ 1,142     $ 2,539     $ 3,749  
Non-GAAP adjusted operating margin 23.0 %   27.4 %   23.4 %   29.0 %
Non-GAAP Adjusted Net Income              
Reported net income - GAAP basis $ 571     $ 1,016     $ 2,008     $ 2,281  
Certain items associated with acquisitions1 13     49     41     147  
Acquisition integration and deal costs 5           12     2  
Impairment (gain on sale) of strategic investments, net     (14 )       (10 )
Loss (gain) on strategic investments, net (8 )       (31 )    
Income tax effect of share-based compensation2     13     (4 )   (13 )
Income tax effect of changes in applicable U.S. tax laws3     12     (24 )   1,089  
Income tax effects related to amortization of intra-entity intangible asset transfers 115         56      
Resolution of prior years’ income tax filings and other tax items (1 )   (29 )   75     (32 )
Income tax effect of non-GAAP adjustments4 (3 )   1     (2 )   (7 )
Non-GAAP adjusted net income $ 692     $ 1,048     $ 2,131     $ 3,457  


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 being recognized ratably over the fiscal year on a non-GAAP basis.
   
3 Charges to income tax provision related to a one-time transition tax and a decrease in U.S. deferred tax assets as a result of the recent 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   Nine Months Ended
               
(In millions, except per share amounts) July 28,
 2019
  July 29,
 2018
  July 28,
 2019
  July 29,
 2018
Non-GAAP Adjusted Earnings Per Diluted Share              
Reported earnings per diluted share - GAAP basis $ 0.61     $ 1.01     $ 2.11     $ 2.20  
Certain items associated with acquisitions 0.01     0.05     0.04     0.13  
Acquisition integration and deal costs 0.01           0.01        
Impairment (gain on sale) of strategic investments, net     (0.01 )       (0.01 )
Loss (gain) on strategic investments, net (0.01 )       (0.03 )    
Income tax effect of share-based compensation     0.01         (0.01 )
Income tax effect of changes in applicable U.S. tax laws     0.01     (0.03 )   1.05  
Income tax effects related to amortization of intra-entity intangible asset transfers 0.12         0.06      
Resolution of prior years’ income tax filings and other tax items     (0.03 )   0.08     (0.03 )
Non-GAAP adjusted earnings per diluted share $ 0.74     $ 1.04     $ 2.24     $ 3.33  
Weighted average number of diluted shares 937     1,005     950     1,039  


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

  Three Months Ended   Nine Months Ended
               
(In millions, except percentages) July 28,
 2019
  July 29,
 2018
  July 28,
 2019
  July 29,
 2018
Semiconductor Systems Non-GAAP Adjusted Operating Income              
Reported operating income - GAAP basis $ 613     $ 831     $ 1,823     $ 2,847  
Certain items associated with acquisitions1 11     45     32     137  
Non-GAAP adjusted operating income $ 624     $ 876     $ 1,855     $ 2,984  
Non-GAAP adjusted operating margin 27.5 %   34.0 %   27.6 %   35.8 %
AGS Non-GAAP Adjusted Operating Income              
Reported operating income - GAAP basis $ 259     $ 280     $ 827     $ 814  
Acquisition integration costs               1  
Non-GAAP adjusted operating income $ 259     $ 280     $ 827     $ 815  
Non-GAAP adjusted operating margin 27.8 %   29.4 %   28.7 %   29.3 %
Display and Adjacent Markets Non-GAAP Adjusted Operating Income              
Reported operating income - GAAP basis $ 41     $ 156     $ 198     $ 456  
Certain items associated with acquisitions1 2     4     9     10  
Acquisition integration costs 1           1     1  
Non-GAAP adjusted operating income $ 44     $ 160     $ 208     $ 467  
Non-GAAP adjusted operating margin 13.0 %   26.0 %   17.4 %   26.3 %


1 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) July 28, 2019
   
Provision for income taxes - GAAP basis (a) $ 211  
Income tax effects related to amortization of intra-entity intangible asset transfers (115 )
Resolutions of prior years’ income tax filings and other tax items 1  
Income tax effect of non-GAAP adjustments 3  
Non-GAAP adjusted provision for income taxes (b) $ 100  
   
Income before income taxes - GAAP basis (c) $ 782  
Certain items associated with acquisitions 13  
Acquisition integration and deal costs 5  
Loss (gain) on strategic investments, net (8 )
Non-GAAP adjusted income before income taxes (d) $ 792  
   
Effective income tax rate - GAAP basis (a/c) 27.0 %
   
Non-GAAP adjusted effective income tax rate (b/d) 12.6 %