Applied Materials Announces Second Quarter 2020 Results

FINANCIAL NEWS RELEASE

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Applied Materials Announces Second Quarter 2020 Results

  • Quarterly revenue of $3.96 billion, up 12 percent year over year
  • GAAP EPS of $0.82 and non-GAAP EPS of $0.89, up 17 percent and 27 percent year over year, respectively
  • Returned $392 million to shareholders

SANTA CLARA, Calif., May 14, 2020 (GLOBE NEWSWIRE) -- Applied Materials, Inc. (NASDAQ: AMAT) today reported results for its second quarter ended Apr. 26, 2020.

Second Quarter Results

Applied generated revenue of $3.96 billion. On a GAAP basis, the company recorded gross margin of 44.2 percent, operating income of $932 million or 23.6 percent of net sales, and earnings per share (EPS) of $0.82.

On a non-GAAP adjusted basis, the company reported gross margin of 44.6 percent, operating income of $976 million or 24.7 percent of net sales, and EPS of $0.89.

The company returned $392 million to shareholders including $199 million in share repurchases and dividends of $193 million.

“As we navigate the challenges created by COVID-19, we have rallied the company around safety, productivity and keeping our customers and the industry moving forward,” said Gary Dickerson, president and CEO. “While the situation remains fluid, based on the visibility we have today, our supply chain is recovering, and underlying demand for our semiconductor equipment and services remains robust.”

Quarterly Results Summary

  Q2 FY2020   Q2 FY2019   Change
  (In millions, except per share amounts and percentages)
Net sales $ 3,957     $ 3,539     12%
Gross margin 44.2 %   43.2 %   1.0 points
Operating margin 23.6 %   21.9 %   1.7 points
Net income $ 755     $ 666     13%
Diluted earnings per share $ 0.82     $ 0.70     17%
Non-GAAP Adjusted Results          
Non-GAAP adjusted gross margin 44.6 %   43.5 %   1.1 points
Non-GAAP adjusted operating margin 24.7 %   22.4 %   2.3 points
Non-GAAP adjusted net income $ 817     $ 660     24%
Non-GAAP adjusted diluted EPS $ 0.89     $ 0.70     27%

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.

Second Quarter Reportable Segment Information

Semiconductor Systems Q2 FY2020   Q2 FY2019
  (In millions, except percentages)
Net sales $ 2,567     $ 2,184  
Foundry, logic and other 56 %   58 %
DRAM 22 %   18 %
Flash memory 22 %   24 %
Operating income 782     579  
Operating margin 30.5 %   26.5 %
Non-GAAP Adjusted Results    
Non-GAAP adjusted operating income $ 798     $ 589  
Non-GAAP adjusted operating margin 31.1 %   27.0 %


Applied Global Services Q2 FY2020   Q2 FY2019
  (In millions, except percentages)
Net sales $ 1,018     $ 984  
Operating income 256     283  
Operating margin 25.1 %   28.8 %
Non-GAAP Adjusted Results    
Non-GAAP adjusted operating income $ 260     $ 283  
Non-GAAP adjusted operating margin 25.5 %   28.8 %


Display and Adjacent Markets Q2 FY2020   Q2 FY2019
  (In millions, except percentages)
Net sales $ 365     $ 348  
Operating income 75     42  
Operating margin 20.5 %   12.1 %
Non-GAAP Adjusted Results    
Non-GAAP adjusted operating income $ 78     $ 46  
Non-GAAP adjusted operating margin 21.4 %   13.2 %


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; 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, our investment and growth strategies, our development of new products and technologies, our business outlook for the third quarter of fiscal 2020 and beyond, the impact of the 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; global trade issues and changes in trade and export license policies, including the impact of the rules published by the U.S. Department of Commerce on April 28, 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; 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   Six Months Ended
(In millions, except per share amounts) April 26,
2020
  April 28,
2019
  April 26,
2020
  April 28,
2019
Net sales $ 3,957     $ 3,539     $ 8,119     $ 7,292  
Cost of products sold 2,208     2,009     4,512     4,097  
Gross profit 1,749     1,530     3,607     3,195  
Operating expenses:              
Research, development and engineering 550     508     1,102     1,024  
Marketing and selling 130     133     265     264  
General and administrative 137     113     266     223  
Total operating expenses 817     754     1,633     1,511  
Income from operations 932     776     1,974     1,684  
Interest expense 61     60     120     120  
Interest and other income, net 7     43     29     83  
Income before income taxes 878     759     1,883     1,647  
Provision for income taxes 123     93     236     210  
Net income $ 755     $ 666     $ 1,647     $ 1,437  
Earnings per share:              
Basic $ 0.82     $ 0.71     $ 1.80     $ 1.51  
Diluted $ 0.82     $ 0.70     $ 1.78     $ 1.50  
Weighted average number of shares:              
Basic 917     942     917     950  
Diluted 923     948     925     957  


APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions) April 26,
2020
  October 27,
2019
ASSETS      
Current assets:      
Cash and cash equivalents $ 5,281     $ 3,129  
Short-term investments 423     489  
Accounts receivable, net 2,625     2,533  
Inventories 3,725     3,474  
Other current assets 681     581  
Total current assets 12,735     10,206  
Long-term investments 1,678     1,703  
Property, plant and equipment, net 1,534     1,529  
Goodwill 3,426     3,399  
Purchased technology and other intangible assets, net 132     156  
Deferred income taxes and other assets 2,310     2,031  
Total assets $ 21,815     $ 19,024  
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current liabilities:      
Current portion of long-term debt $ 600     $ 600  
Accounts payable and accrued expenses 2,831     2,511  
Contract liabilities 1,334     1,336  
Total current liabilities 4,765     4,447  
Long-term debt, net of current portion 6,215     4,713  
Income taxes payable 1,238     1,275  
Other liabilities 573     375  
Total liabilities 12,791     10,810  
Total stockholders’ equity 9,024     8,214  
Total liabilities and stockholders’ equity $ 21,815     $ 19,024  


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

  Three Months Ended   Six Months Ended
(In millions) April 26,
2020
  April 28,
2019
  April 26,
2020
      April 28,
2019
Cash flows from operating activities:                  
Net income $ 755     $ 666     $ 1,647     $ 1,437  
Adjustments required to reconcile net income to cash provided by operating activities:              
     Depreciation and amortization 91     94     185     182  
     Share-based compensation 71     65     164     130  
     Deferred income taxes (11 )   8     19     49  
     Other 7     (10 )   22     (9 )
     Net change in operating assets and liabilities (278 )   (23 )   (415 )   (155 )
Cash provided by operating activities 635     800     1,622     1,634  
Cash flows from investing activities:              
Capital expenditures (71 )   (118 )   (173 )   (251 )
Cash paid for acquisitions, net of cash acquired (27 )   (23 )   (27 )   (23 )
Proceeds from sales and maturities of investments 667     442     1,035     906  
Purchases of investments (404 )   (430 )   (832 )   (827 )
Cash provided by (used in) investing activities 165     (129 )   3     (195 )
Cash flows from financing activities:              
Debt borrowings, net of issuance costs 1,498         1,498      
Proceeds from common stock issuances 76     73     91     73  
Common stock repurchases (199 )   (625 )   (399 )   (1,375 )
Tax withholding payments for vested equity awards (10 )   (6 )   (163 )   (80 )
Payments of dividends to stockholders (193 )   (189 )   (385 )   (381 )
Cash provided by (used in) financing activities 1,172     (747 )   642     (1,763 )
Increase (decrease) in cash, cash equivalents and restricted cash equivalents 1,972     (76 )   2,267     (324 )
Cash, cash equivalents and restricted cash equivalents—beginning of period 3,424     3,192     3,129     3,440  
Cash, cash equivalents and restricted cash equivalents — end of period $ 5,396     $ 3,116     $ 5,396     $ 3,116  
               
Reconciliation of cash, cash equivalents, and restricted cash equivalents              
Cash and cash equivalents $ 5,281     $ 3,116     $ 5,281     $ 3,116  
Restricted cash equivalents included in deferred income taxes and other assets 115         115      
Total cash, cash equivalents, and restricted cash equivalents $ 5,396     $ 3,116     $ 5,396     $ 3,116  
               
Supplemental cash flow information:              
Cash payments for income taxes $ 199     $ 198     $ 281     $ 232  
Cash refunds from income taxes $ 4     $ 10     $ 5     $ 18  
Cash payments for interest $ 76     $ 76     $ 110     $ 110  


APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Corporate and Other

(In millions) Q2 FY2020   Q2 FY2019
Unallocated net sales $ 7     $ 23  
Unallocated cost of products sold and expenses (117 )   (86 )
Share-based compensation (71 )   (65 )
Total $ (181 )   $ (128 )


Additional Information

  Q2 FY2020   Q2 FY2019
Net Sales by Geography (In millions)  
United States 331     457  
% of Total 8 %   13 %
Europe 181     215  
% of Total 5 %   6 %
Japan 467     520  
% of Total 12 %   15 %
Korea 753     441  
% of Total 19 %   13 %
Taiwan 1,029     794  
% of Total 26 %   22 %
Southeast Asia 58     119  
% of Total 1 %   3 %
China 1,138     993  
% of Total 29 %   28 %
       
Employees (In thousands)      
Regular Full Time 22.7     21.4  


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

  Three Months Ended   Six Months Ended
(In millions, except percentages) April 26,
2020
  April 28,
2019
  April 26,
2020
  April 28,
2019
Non-GAAP Adjusted Gross Profit              
Reported gross profit - GAAP basis $ 1,749       $ 1,530       $ 3,607       $ 3,195    
Certain items associated with acquisitions1 8       9       17       19    
Certain incremental expenses related to COVID-195 8             8          
Non-GAAP adjusted gross profit $ 1,765       $ 1,539       $ 3,632       $ 3,214    
Non-GAAP adjusted gross margin 44.6   %   43.5   %   44.7   %   44.1   %
Non-GAAP Adjusted Operating Income              
Reported operating income - GAAP basis $ 932       $ 776       $ 1,974       $ 1,684    
Certain items associated with acquisitions1 13       14       26       28    
Acquisition integration and deal costs 21       4       34       7    
Certain incremental expenses related to COVID-195 10             10          
Non-GAAP adjusted operating income $ 976       $ 794       $ 2,044       $ 1,719    
Non-GAAP adjusted operating margin 24.7   %   22.4   %   25.2   %   23.6   %
Non-GAAP Adjusted Net Income              
Reported net income - GAAP basis $ 755       $ 666       $ 1,647       $ 1,437    
Certain items associated with acquisitions1 13       14       26       28    
Acquisition integration and deal costs 21       4       34       7    
Certain incremental expenses related to COVID-195 10             10          
Realized loss (gain) on strategic investments, net 5       (4 )     7       (6 )  
Unrealized loss (gain) on strategic investments, net 2       (7 )     4       (17 )  
Income tax effect of share-based compensation2 8       1       (25 )     (4 )  
Income tax effect of changes in applicable U.S. tax laws3                   (24 )  
Income tax effects related to amortization of intra-entity intangible asset transfers 16       (31 )     37       (59 )  
Resolution of prior years’ income tax filings and other tax items (3 )     17       (4 )     76    
Income tax effect of non-GAAP adjustments4 (10 )           (15 )     1    
Non-GAAP adjusted net income $ 817       $ 660       $ 1,721       $ 1,439    


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   Six Months Ended
(In millions, except per share amounts) April 26,
2020
  April 28,
2019
  April 26,
2020
  April 28,
2019
Non-GAAP Adjusted Earnings Per Diluted Share              
Reported earnings per diluted share - GAAP basis $ 0.82     $ 0.70     $ 1.78     $ 1.50  
Certain items associated with acquisitions 0.01     0.01     0.02     0.03  
Acquisition integration and deal costs 0.02         0.04      
Certain incremental expenses related to COVID-19 0.01         0.01      
Realized loss (gain) on strategic investments, net 0.01         0.01      
Unrealized loss (gain) on strategic investments, net             (0.02 )
Income tax effect of share-based compensation 0.01         (0.03 )   (0.01 )
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 0.02     (0.03 )   0.04     (0.06 )
Resolution of prior years’ income tax filings and other tax items (0.01 )   0.02     (0.01 )   0.08  
Non-GAAP adjusted earnings per diluted share $ 0.89     $ 0.70     $ 1.86     $ 1.50  
Weighted average number of diluted shares 923     948     925     957  


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

  Three Months Ended   Six Months Ended
(In millions, except percentages) April 26,
2020
  April 28,
2019
  April 26,
2020
  April 28,
2019
Semiconductor Systems Non-GAAP Adjusted Operating Income              
Reported operating income - GAAP basis $ 782     $ 579     $ 1,697     $ 1,210  
Certain items associated with acquisitions1 10     10     20     21  
Certain incremental expenses related to COVID-192 6         6      
Non-GAAP adjusted operating income $ 798     $ 589     $ 1,723     $ 1,231  
Non-GAAP adjusted operating margin 31.1 %   27.0 %   32.0 %   27.7 %
AGS Non-GAAP Adjusted Operating Income              
Reported operating income - GAAP basis $ 256     $ 283     $ 534     $ 568  
Certain incremental expenses related to COVID-192 4         4      
Non-GAAP adjusted operating income $ 260     $ 283     $ 538     $ 568  
Non-GAAP adjusted operating margin 25.5 %   28.8 %   26.7 %   29.2 %
Display and Adjacent Markets Non-GAAP Adjusted Operating Income              
Reported operating income - GAAP basis $ 75     $ 42     $ 113     $ 157  
Certain items associated with acquisitions1 3     4     6     7  
Non-GAAP adjusted operating income $ 78     $ 46     $ 119     $ 164  
Non-GAAP adjusted operating margin 21.4 %   13.2 %   17.1 %   19.2 %


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) April 26, 2020
   
Provision for income taxes - GAAP basis (a) $ 123    
Income tax effect of share-based compensation (8 )  
Income tax effects related to amortization of intra-entity intangible asset transfers (16 )  
Resolutions of prior years’ income tax filings and other tax items 3    
Income tax effect of non-GAAP adjustments 10    
Non-GAAP adjusted provision for income taxes (b) $ 112    
   
Income before income taxes - GAAP basis (c) $ 878    
Certain items associated with acquisitions 13    
Acquisition integration and deal costs 21    
Certain incremental expenses related to COVID-19 10    
Realized loss (gain) on strategic investments, net 5    
Unrealized loss (gain) on strategic investments, net 2    
Non-GAAP adjusted income before income taxes (d) $ 929    
   
Effective income tax rate - GAAP basis (a/c) 14.0   %
   
Non-GAAP adjusted effective income tax rate (b/d) 12.1   %

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Source: Applied Materials, Inc.