Applied Materials Announces Second Quarter 2022 Results

May 19, 2022 at 4:01 PM EDT

Quarterly revenue of $6.25 billion, up 12 percent year over year
GAAP operating margin of 30.3 percent and non-GAAP operating margin of 30.6 percent, up 2.0 points and down 1.1 points year over year, respectively
GAAP EPS of $1.74 and non-GAAP EPS of $1.85, up 22 percent and 13 percent year over year, respectively

SANTA CLARA, Calif., May 19, 2022 (GLOBE NEWSWIRE) -- Applied Materials, Inc. (NASDAQ: AMAT) today reported results for its second quarter ended May 1, 2022.

Second Quarter Results

Applied generated revenue of $6.25 billion. On a GAAP basis, the company achieved gross margin of 46.9 percent, operating income of $1.89 billion or 30.3 percent of net sales, and earnings per share (EPS) of $1.74.

On a non-GAAP adjusted basis, the company reported gross margin of 47.0 percent, operating income of $1.91 billion or 30.6 percent of net sales, and EPS of $1.85.

The company generated $415 million in cash from operations and returned $2.01 billion to shareholders including $1.80 billion in share repurchases and $211 million in dividends.

“Demand for Applied Materials’ products and services has never been stronger, yet we remain constrained by on-going supply chain issues,” said Gary Dickerson, President and CEO. “Our priority is to work quickly and creatively across the supply chain to bring more industry capacity on-line, while accelerating the technology inflections that we believe will enable Applied to outgrow the semiconductor market in the years ahead.”

Results Summary

	Q2 FY2022			Q2 FY2021			Change
	(In millions, except per share amounts and percentages)
Net sales	$	6,245		$	5,582		12%
Gross margin		46.9	%		47.5	%	(0.6) points
Operating margin		30.3	%		28.3	%	2.0 points
Net income	$	1,536		$	1,330		15%
Diluted earnings per share	$	1.74		$	1.43		22%
Non-GAAP Adjusted Results
Non-GAAP adjusted gross margin		47.0	%		47.7	%	(0.7) points
Non-GAAP adjusted operating margin		30.6	%		31.7	%	(1.1) points
Non-GAAP adjusted net income	$	1,636		$	1,509		8%
Non-GAAP adjusted diluted EPS	$	1.85		$	1.63		13%

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 2022, Applied expects net sales to be approximately $6.25 billion, plus or minus $400 million, which includes the expected impact of ongoing supply chain challenges. Non-GAAP adjusted diluted EPS is expected to be in the range of $1.59 to $1.95.

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 $0.02 per share and includes a net income tax benefit related to intra-entity intangible asset transfers of $0.02 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 FY2022			Q2 FY2021
	(In millions, except percentages)
Net sales	$	4,458		$	3,972
Foundry, logic and other		65	%		56	%
DRAM		21	%		14	%
Flash memory		14	%		30	%
Operating income	$	1,648		$	1,542
Operating margin		37.0	%		38.8	%
Non-GAAP Adjusted Results
Non-GAAP adjusted operating income	$	1,656		$	1,555
Non-GAAP adjusted operating margin		37.1	%		39.1	%

*Applied Global Services*	Q2 FY2022			Q2 FY2021
	(In millions, except percentages)
Net sales	$	1,383		$	1,203
Operating income	$	422		$	358
Operating margin		30.5	%		29.8	%
Non-GAAP Adjusted Results
Non-GAAP adjusted operating income	$	422		$	359
Non-GAAP adjusted operating margin		30.5	%		29.8	%

*Display and Adjacent Markets*	Q2 FY2022			Q2 FY2021
	(In millions, except percentages)
Net sales	$	381		$	375
Operating income	$	81		$	65
Operating margin		21.3	%		17.3	%
Non-GAAP Adjusted Results
Non-GAAP adjusted operating income	$	82		$	66
Non-GAAP adjusted operating margin		21.5	%		17.6	%

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 and severance charges and any associated adjustments; certain incremental expenses related to COVID-19; impairments of assets; gain or loss on 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. 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 2022 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, our ability to meet customer demand, and our suppliers' ability to meet our demand requirements; transportation interruptions and logistics constraints; global economic, political and industry conditions, including rising inflation and interest rates; the effects of regional or global health epidemics, including the severity and duration of the ongoing COVID-19 pandemic and government imposed lockdowns and other measures taken in response; global trade issues and changes in trade and export license 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; 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; our ability to ensure compliance with applicable law, rules and regulations; 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 1, 2022		May 2, 2021		May 1, 2022			May 2, 2021
Net sales	$	6,245	$	5,582	$	12,516		$	10,744
Cost of products sold		3,318		2,929		6,630			5,742
Gross profit		2,927		2,653		5,886			5,002
Operating expenses:
Research, development and engineering		686		617		1,340			1,223
Marketing and selling		173		148		340			295
General and administrative		174		149		340			310
Severance and related charges		—		6		(4	)		158
Deal termination fee		—		154		—			154
Total operating expenses		1,033		1,074		2,016			2,140
Income from operations		1,894		1,579		3,870			2,862
Interest expense		58		61		115			122
Interest and other income, net		28		27		34			45
Income before income taxes		1,864		1,545		3,789			2,785
Provision for income taxes		328		215		461			325
Net income	$	1,536	$	1,330	$	3,328		$	2,460
Earnings per share:
Basic	$	1.75	$	1.45	$	3.77		$	2.68
Diluted	$	1.74	$	1.43	$	3.74		$	2.66
Weighted average number of shares:
Basic		878		918		883			917
Diluted		883		927		890			926

APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions)	May 1, 2022		October 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	3,331	$	4,995
Short-term investments		591		464
Accounts receivable, net		4,883		4,953
Inventories		5,009		4,309
Other current assets		1,430		1,386
Total current assets		15,244		16,107
Long-term investments		2,102		2,055
Property, plant and equipment, net		2,071		1,934
Goodwill		3,479		3,479
Purchased technology and other intangible assets, net		85		104
Deferred income taxes and other assets		2,478		2,146
Total assets	$	25,459	$	25,825
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	4,060	$	4,268
Contract liabilities		2,590		2,076
Total current liabilities		6,650		6,344
Long-term debt		5,455		5,452
Income taxes payable		962		1,090
Other liabilities		813		692
Total liabilities		13,880		13,578
Total stockholders’ equity		11,579		12,247
Total liabilities and stockholders’ equity	$	25,459	$	25,825

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

(In millions)	Three Months Ended						Six Months Ended
(In millions)	May 1, 2022			May 2, 2021			May 1, 2022			May 2, 2021
Cash flows from operating activities:
Net income	$	1,536		$	1,330		$	3,328		$	2,460
Adjustments required to reconcile net income to cash provided by operating activities:
Depreciation and amortization		111			97			213			191
Severance and related charges		—			1			(4	)		149
Share-based compensation		101			84			219			191
Deferred income taxes		(257	)		(4	)		(256	)		24
Other		(24	)		(15	)		(8	)		(15	)
Net change in operating assets and liabilities		(1,052	)		(306	)		(419	)		(392	)
Cash provided by operating activities		415			1,187			3,073			2,608
Cash flows from investing activities:
Capital expenditures		(210	)		(204	)		(354	)		(325	)
Cash paid for acquisitions, net of cash acquired		—			—			—			(12	)
Proceeds from sales and maturities of investments		321			266			639			624
Purchases of investments		(524	)		(281	)		(836	)		(722	)
Cash used in investing activities		(413	)		(219	)		(551	)		(435	)
Cash flows from financing activities:
Proceeds from common stock issuances		96			86			96			86
Common stock repurchases		(1,800	)		(750	)		(3,603	)		(750	)
Tax withholding payments for vested equity awards		(21	)		(17	)		(256	)		(159	)
Payments of dividends to stockholders		(211	)		(202	)		(425	)		(403	)
Cash used in financing activities		(1,936	)		(883	)		(4,188	)		(1,226	)
Increase (decrease) in cash, cash equivalents and restricted cash equivalents		(1,934	)		85			(1,666	)		947
Cash, cash equivalents and restricted cash equivalents—beginning of period		5,369			6,328			5,101			5,466
Cash, cash equivalents and restricted cash equivalents — end of period	$	3,435		$	6,413		$	3,435		$	6,413

Reconciliation of cash, cash equivalents, and restricted cash equivalents
Cash and cash equivalents	$	3,331		$	6,305		$	3,331		$	6,305
Restricted cash equivalents included in deferred income taxes and other assets		104			108			104			108
Total cash, cash equivalents, and restricted cash equivalents	$	3,435		$	6,413		$	3,435		$	6,413

Supplemental cash flow information:
Cash payments for income taxes	$	951		$	299		$	1,031		$	409
Cash refunds from income taxes	$	5		$	4		$	128		$	23
Cash payments for interest	$	68		$	68		$	102		$	103

APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Corporate and Other

(In millions)	Q2 FY2022			Q2 FY2021
Unallocated net sales	$	23		$	32
Unallocated cost of products sold and expenses		(179	)		(174	)
Share-based compensation		(101	)		(84	)
Severance and related charges		—			(6	)
Deal termination fee		—			(154	)
Total	$	(257	)	$	(386	)

Additional Information

	Q2 FY2022			Q2 FY2021
Net Sales by Geography (In millions)
United States	$	702		$	489
% of Total		11	%		9	%
Europe	$	489		$	229
% of Total		8	%		4	%
Japan	$	407		$	442
% of Total		6	%		8	%
Korea	$	968		$	1,428
% of Total		16	%		25	%
Taiwan	$	1,408		$	1,041
% of Total		23	%		19	%
Southeast Asia	$	138		$	109
% of Total		2	%		2	%
China	$	2,133		$	1,844
% of Total		34	%		33	%

Employees (In thousands)
Regular Full Time		30.1			24.8

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

	Three Months Ended						Six Months Ended
(In millions, except percentages)	May 1, 2022			May 2, 2021			May 1, 2022			May 2, 2021
Non-GAAP Adjusted Gross Profit
Reported gross profit - GAAP basis	$	2,927		$	2,653		$	5,886		$	5,002
Certain items associated with acquisitions¹		7			7			13			15
Certain incremental expenses related to COVID-19²		—			—			—			12
Other charges		—			2			—			2
Non-GAAP adjusted gross profit	$	2,934		$	2,662		$	5,899		$	5,031
Non-GAAP adjusted gross margin		47.0	%		47.7	%		47.1	%		46.8	%
Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis	$	1,894		$	1,579		$	3,870		$	2,862
Certain items associated with acquisitions¹		10			12			19			25
Acquisition integration and deal costs		9			11			13			35
Certain incremental expenses related to COVID-19²		—			—			—			24
Severance and related charges³		—			6			(4	)		158
Deal termination fee		—			154			—			154
Other charges		—			6			—			6
Non-GAAP adjusted operating income	$	1,913		$	1,768		$	3,898		$	3,264
Non-GAAP adjusted operating margin		30.6	%		31.7	%		31.1	%		30.4	%
Non-GAAP Adjusted Net Income
Reported net income - GAAP basis	$	1,536		$	1,330		$	3,328		$	2,460
Certain items associated with acquisitions¹		10			12			19			25
Acquisition integration and deal costs		12			12			16			36
Certain incremental expenses related to COVID-19²		—			—			—			24
Severance and related charges³		—			6			(4	)		158
Deal termination fee		—			154			—			154
Realized loss (gain) on strategic investments, net		(2	)		6			—			4
Unrealized loss (gain) on strategic investments, net		(28	)		(26	)		(33	)		(32	)
Other charges		—			6			—			6
Income tax effect of share-based compensation⁴		14			6			(44	)		(23	)
Income tax effects related to intra-entity intangible asset transfers		81			17			99			37
Resolution of prior years’ income tax filings and other tax items		7			(10	)		(55	)		(13	)
Income tax effect of non-GAAP adjustments⁵		6			(4	)		6			(45	)
Non-GAAP adjusted net income	$	1,636		$	1,509		$	3,332		$	2,791

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 1, 2022			May 2, 2021			May 1, 2022			May 2, 2021
Non-GAAP Adjusted Earnings Per Diluted Share
Reported earnings per diluted share - GAAP basis	$	1.74		$	1.43		$	3.74		$	2.66
Certain items associated with acquisitions		0.01			0.01			0.02			0.02
Acquisition integration and deal costs		0.01			0.01			0.02			0.03
Certain incremental expenses related to COVID-19		—			—			—			0.02
Severance and related charges		—			0.01			—			0.13
Deal termination fee		—			0.17			—			0.17
Realized loss (gain) on strategic investments, net		—			0.01			—			—
Unrealized loss (gain) on strategic investments, net		(0.03	)		(0.03	)		(0.04	)		(0.02	)
Income tax effect of share-based compensation		0.02			0.01			(0.05	)		(0.02	)
Income tax effects related to intra-entity intangible asset transfers		0.09			0.02			0.11			0.04
Resolution of prior years’ income tax filings and other tax items		0.01			(0.01	)		(0.06	)		(0.01	)
Non-GAAP adjusted earnings per diluted share	$	1.85		$	1.63		$	3.74		$	3.02
Weighted average number of diluted shares		883			927			890			926

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

	Three Months Ended						Six Months Ended
(In millions, except percentages)	May 1, 2022			May 2, 2021			May 1, 2022			May 2, 2021
Semiconductor Systems Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis	$	1,648		$	1,542		$	3,419		$	2,803
Certain items associated with acquisitions¹		8			10			15			20
Acquisition integration costs		—			—			—			(2	)
Certain incremental expenses related to COVID-19²		—			—			—			12
Other charges		—			3			—			3
Non-GAAP adjusted operating income	$	1,656		$	1,555		$	3,434		$	2,836
Non-GAAP adjusted operating margin		37.1	%		39.1	%		38.0	%		37.7	%
AGS Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis	$	422		$	358		$	825		$	690
Certain incremental expenses related to COVID-19²		—			—			—			8
Other charges		—			1			—			1
Non-GAAP adjusted operating income	$	422		$	359		$	825		$	699
Non-GAAP adjusted operating margin		30.5	%		29.8	%		30.5	%		29.6	%
Display and Adjacent Markets Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis	$	81		$	65		$	157		$	130
Certain items associated with acquisitions¹		1			1			2			2
Certain incremental expenses related to COVID-19²		—			—			—			1
Severance and related charges³		—			—			—			8
Non-GAAP adjusted operating income	$	82		$	66		$	159		$	141
Non-GAAP adjusted operating margin		21.5	%		17.6	%		21.3	%		17.9	%

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 1, 2022

Provision for income taxes - GAAP basis (a)	$	328
Income tax effect of share-based compensation		(14	)
Income tax effects related to intra-entity intangible asset transfers		(81	)
Resolutions of prior years’ income tax filings and other tax items		(7	)
Income tax effect of non-GAAP adjustments		(6	)
Non-GAAP adjusted provision for income taxes (b)	$	220

Income before income taxes - GAAP basis (c)	$	1,864
Certain items associated with acquisitions		10
Acquisition integration and deal costs		12
Realized loss (gain) on strategic investments, net		(2	)
Unrealized loss (gain) on strategic investments, net		(28	)
Non-GAAP adjusted income before income taxes (d)	$	1,856

Effective income tax rate - GAAP basis (a/c)		17.6	%

Non-GAAP adjusted effective income tax rate (b/d)		11.9	%

Source: Applied Materials, Inc.

News Release

Applied Materials Announces Second Quarter 2022 Results

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