Applied Materials Announces Third Quarter 2021 Results

FINANCIAL NEWS RELEASE

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Applied Materials Announces Third Quarter 2021 Results

  • Record quarterly revenue of $6.20 billion, up 41 percent year over year
  • Record quarterly GAAP operating margin of 32.5 percent and record non-GAAP operating margin of 32.7 percent, up 7.3 points and 6.3 points year over year, respectively
  • Record quarterly GAAP EPS of $1.87 and record non-GAAP EPS of $1.90, up 105 percent and 79 percent year over year, respectively

SANTA CLARA, Calif., Aug. 19, 2021 (GLOBE NEWSWIRE) -- Applied Materials, Inc. (NASDAQ: AMAT) today reported results for its third quarter ended Aug. 1, 2021.

Third Quarter Results

Applied generated revenue of $6.20 billion. On a GAAP basis, the company recorded gross margin of 47.9 percent, operating income of $2.01 billion or 32.5 percent of net sales, and earnings per share (EPS) of $1.87.

On a non-GAAP adjusted basis, the company reported gross margin of 48.0 percent, operating income of $2.03 billion or 32.7 percent of net sales, and EPS of $1.90.

The company generated $1.69 billion in cash from operations and returned $1.72 billion to shareholders including $1.50 billion in share repurchases and $219 million in dividends.

“Applied Materials delivered record performance as long-term trends fueled by the digital transformation of the economy drive strong, secular demand for semiconductors,” said Gary Dickerson, President and CEO. “Applied has the broadest and most enabling portfolio of technologies to accelerate our customers’ roadmaps, putting us in a great position to outperform our markets again in 2021 and the years ahead.”

Quarterly Results Summary

  Q3 FY2021   Q3 FY2020   Change
  (In millions, except per share amounts and percentages)
 Net sales $ 6,196     $ 4,395     41%
 Gross margin 47.9 %   44.5 %   3.4 points
 Operating margin 32.5 %   25.2 %   7.3 points
 Net income $ 1,716     $ 841     104%
 Diluted earnings per share $ 1.87     $ 0.91     105%
Non-GAAP Adjusted Results          
 Non-GAAP adjusted gross margin 48.0 %   45.0 %   3.0 points
 Non-GAAP adjusted operating margin 32.7 %   26.4 %   6.3 points
 Non-GAAP adjusted net income $ 1,740     $ 976     78%
 Non-GAAP adjusted diluted EPS $ 1.90     $ 1.06     79%

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 2021, Applied expects net sales to be approximately $6.33 billion, plus or minus $250 million. Non-GAAP adjusted diluted EPS is expected to be in the range of $1.87 to $2.01.

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.

Third Quarter Reportable Segment Information

Semiconductor Systems Q3 FY2021   Q3 FY2020
  (In millions, except percentages)
Net sales $ 4,454     $ 2,916  
Foundry, logic and other 63 %   55 %
DRAM 20 %   22 %
Flash memory 17 %   23 %
Operating income $ 1,785     $ 958  
Operating margin 40.1 %   32.9 %
Non-GAAP Adjusted Results    
Non-GAAP adjusted operating income $ 1,794     $ 982  
Non-GAAP adjusted operating margin 40.3 %   33.7 %

 

Applied Global Services Q3 FY2021   Q3 FY2020
  (In millions, except percentages)
Net sales $ 1,286     $ 1,034  
Operating income $ 393     $ 273  
Operating margin 30.6 %   26.4 %
Non-GAAP Adjusted Results    
Non-GAAP adjusted operating income $ 393     $ 277  
Non-GAAP adjusted operating margin 30.6 %   26.8 %

 

Display and Adjacent Markets Q3 FY2021   Q3 FY2020
  (In millions, except percentages)
Net sales $ 431     $ 425  
Operating income $ 99     $ 83  
Operating margin 23.0 %   19.5 %
Non-GAAP Adjusted Results    
Non-GAAP adjusted operating income $ 100     $ 87  
Non-GAAP adjusted operating margin 23.2 %   20.5 %


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 fourth 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, our ability to meet customer demand, and our suppliers' ability to meet our demand requirements; 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 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   Nine Months Ended
(In millions, except per share amounts) August 1,
2021
  July 26,
2020
  August 1,
2021
  July 26,
2020
Net sales $ 6,196     $ 4,395     $ 16,940     $ 12,514  
Cost of products sold 3,229     2,440     8,971     6,952  
Gross profit 2,967     1,955     7,969     5,562  
Operating expenses:              
Research, development and engineering 640     572     1,863     1,674  
Marketing and selling 159     130     454     395  
General and administrative 155     145     465     411  
Severance and related charges         158      
Deal termination fee         154      
Total operating expenses 954     847     3,094     2,480  
Income from operations 2,013     1,108     4,875     3,082  
Interest expense 57     61     179     181  
Interest and other income, net 24     (7 )   69     22  
Income before income taxes 1,980     1,040     4,765     2,923  
Provision for income taxes 264     199     589     435  
Net income $ 1,716     $ 841     $ 4,176     $ 2,488  
Earnings per share:              
Basic $ 1.89     $ 0.92     $ 4.57     $ 2.71  
Diluted $ 1.87     $ 0.91     $ 4.52     $ 2.69  
Weighted average number of shares:              
Basic 908     915     914     916  
Diluted 918     922     923     924  

 

APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions) August 1,
2021
  October 25,
2020
ASSETS      
Current assets:      
Cash and cash equivalents $ 6,066     $ 5,351  
Short-term investments 444     387  
Accounts receivable, net 3,822     2,963  
Inventories 4,117     3,904  
Other current assets 799     764  
Total current assets 15,248     13,369  
Long-term investments 1,658     1,538  
Property, plant and equipment, net 1,814     1,604  
Goodwill 3,479     3,466  
Purchased technology and other intangible assets, net 116     153  
Deferred income taxes and other assets 2,164     2,223  
Total assets $ 24,479     $ 22,353  
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current liabilities:      
Accounts payable and accrued expenses $ 3,437     $ 3,138  
Contract liabilities 1,688     1,321  
Total current liabilities 5,125     4,459  
Long-term debt, net of current portion 5,451     5,448  
Income taxes payable 1,144     1,206  
Other liabilities 699     662  
Total liabilities 12,419     11,775  
Total stockholders’ equity 12,060     10,578  
Total liabilities and stockholders’ equity $ 24,479     $ 22,353  

 

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

(In millions)

Three Months Ended   Nine Months Ended
August 1,
2021
  July 26,
2020
August 1,
2021
  July 26,
2020
Cash flows from operating activities:              
Net income $ 1,716     $ 841     $ 4,176     $ 2,488  
Adjustments required to reconcile net income to cash provided by operating activities:              
Depreciation and amortization 98     94     289     279  
Severance and related charges         149      
Share-based compensation 81     70     272     234  
Deferred income taxes 20     79     44     98  
Other (15 )   33     (30 )   55  
Net change in operating assets and liabilities (214 )   (250 )   (606 )   (665 )
Cash provided by operating activities 1,686     867     4,294     2,489  
Cash flows from investing activities:              
Capital expenditures (137 )   (87 )   (462 )   (260 )
Cash paid for acquisitions, net of cash acquired     (80 )   (12 )   (107 )
Proceeds from sales and maturities of investments 400     353     1,024     1,388  
Purchases of investments (457 )   (178 )   (1,179 )   (1,010 )
Cash provided by (used in) investing activities (194 )   8     (629 )   11  
Cash flows from financing activities:              
Debt borrowings, net of issuance costs     1,481         2,979  
Debt repayments     (2,882 )       (2,882 )
Proceeds from common stock issuances         86     91  
Common stock repurchases (1,500 )   (200 )   (2,250 )   (599 )
Tax withholding payments for vested equity awards (12 )   (3 )   (171 )   (166 )
Payments of dividends to stockholders (219 )   (202 )   (622 )   (587 )
Cash used in financing activities (1,731 )   (1,806 )   (2,957 )   (1,164 )
Increase (decrease) in cash, cash equivalents and restricted cash equivalents (239 )   (931 )   708     1,336  
Cash, cash equivalents and restricted cash equivalents—beginning of period 6,413     5,396     5,466     3,129  
Cash, cash equivalents and restricted cash equivalents — end of period $ 6,174     $ 4,465     $ 6,174     $ 4,465  
               
Reconciliation of cash, cash equivalents, and restricted cash equivalents              
Cash and cash equivalents $ 6,066     $ 4,350     $ 6,066     $ 4,350  
Restricted cash equivalents included in deferred income taxes and other assets 108     115     108     115  
Total cash, cash equivalents, and restricted cash equivalents $ 6,174     $ 4,465     $ 6,174     $ 4,465  
               
Supplemental cash flow information:              
Cash payments for income taxes $ 232     $ 238     $ 641     $ 519  
Cash refunds from income taxes $ 3     $     $ 26     $ 5  
Cash payments for interest $ 34     $ 41     $ 137     $ 151  

 

APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Corporate and Other

(In millions) Q3 FY2021   Q3 FY2020
Unallocated net sales $ 25     $ 20  
Unallocated cost of products sold and expenses (208 )   (156 )
Share-based compensation (81 )   (70 )
Total $ (264 )   $ (206 )


Additional Information

  Q3 FY2021   Q3 FY2020
Net Sales by Geography (In millions)  
United States $ 533     $ 399  
% of Total 9 %   9 %
Europe $ 238     $ 196  
% of Total 4 %   5 %
Japan $ 449     $ 472  
% of Total 7 %   11 %
Korea $ 1,291     $ 1,051  
% of Total 21 %   24 %
Taiwan $ 1,261     $ 687  
% of Total 20 %   16 %
Southeast Asia $ 173     $ 120  
% of Total 3 %   2 %
China $ 2,251     $ 1,470  
% of Total 36 %   33 %
       
Employees (In thousands)      
Regular Full Time 26.0     23.6  

 

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

  Three Months Ended   Nine Months Ended
(In millions, except percentages) August 1,
2021
  July 26,
2020
  August 1,
2021
  July 26,
2020
Non-GAAP Adjusted Gross Profit              
Reported gross profit - GAAP basis $ 2,967       $ 1,955       $ 7,969       $ 5,562    
Certain items associated with acquisitions1 6       8       21       25    
Certain incremental expenses related to COVID-192       15       12       23    
Other charges             2          
Non-GAAP adjusted gross profit $ 2,973       $ 1,978       $ 8,004       $ 5,610    
Non-GAAP adjusted gross margin 48.0   %   45.0   %   47.2   %   44.8   %
Non-GAAP Adjusted Operating Income              
Reported operating income - GAAP basis $ 2,013       $ 1,108       $ 4,875       $ 3,082    
Certain items associated with acquisitions1 11       12       36       38    
Acquisition integration and deal costs 5       20       40       54    
Certain incremental expenses related to COVID-192       20       24       30    
Severance and related charges3             158          
Deal termination fee             154          
Other charges             6          
Non-GAAP adjusted operating income $ 2,029       $ 1,160       $ 5,293       $ 3,204    
Non-GAAP adjusted operating margin 32.7   %   26.4   %   31.2   %   25.6   %
Non-GAAP Adjusted Net Income              
Reported net income - GAAP basis $ 1,716       $ 841       $ 4,176       $ 2,488    
Certain items associated with acquisitions1 11       12       36       38    
Acquisition integration and deal costs 5       20       41       54    
Certain incremental expenses related to COVID-192       20       24       30    
Severance and related charges3             158          
Deal termination fee             154          
Realized loss (gain) on strategic investments, net (6 )     (8 )     (2 )     (1 )  
Unrealized loss (gain) on strategic investments, net (13 )     (5 )     (45 )     (1 )  
Loss on early extinguishment of debt       33             33    
Other charges             6          
Income tax effect of share-based compensation4 11       12       (12 )     (13 )  
Income tax effects related to intra-entity intangible asset transfers 23       67       60       104    
Resolution of prior years’ income tax filings and other tax items (9 )     (1 )     (22 )     (5 )  
Income tax effect of non-GAAP adjustments5 2       (15 )     (43 )     (30 )  
Non-GAAP adjusted net income $ 1,740       $ 976       $ 4,531       $ 2,697    

 

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   Nine Months Ended
(In millions, except per share amounts) August 1,
2021
  July 26,
2020
  August 1,
2021
  July 26,
2020
Non-GAAP Adjusted Earnings Per Diluted Share              
Reported earnings per diluted share - GAAP basis $ 1.87     $ 0.91     $ 4.52     $ 2.69  
Certain items associated with acquisitions 0.01     0.01     0.03     0.04  
Acquisition integration and deal costs 0.01     0.02     0.04     0.05  
Certain incremental expenses related to COVID-19     0.02     0.02     0.03  
Loss on early extinguishment of debt     0.03         0.03  
Severance and related charges         0.13      
Deal termination fee         0.17      
Realized loss (gain) on strategic investments, net (0.01 )   (0.01 )   0.01      
Unrealized loss (gain) on strategic investments, net (0.01 )       (0.05 )    
Other charges         0.01      
Income tax effect of share-based compensation 0.01     0.01     (0.01 )   (0.02 )
Income tax effects related to intra-entity intangible asset transfers 0.03     0.07     0.06     0.11  
Resolution of prior years’ income tax filings and other tax items (0.01 )       (0.02 )   (0.01 )
Non-GAAP adjusted earnings per diluted share $ 1.90     $ 1.06     $ 4.91     $ 2.92  
Weighted average number of diluted shares 918     922     923     924  

 

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

  Three Months Ended   Nine Months Ended
(In millions, except percentages) August 1,
2021
  July 26,
2020
  August 1,
2021
  July 26,
2020
Semiconductor Systems Non-GAAP Adjusted Operating Income              
Reported operating income - GAAP basis $ 1,785     $ 958     $ 4,588       $ 2,655  
Certain items associated with acquisitions1 9     9     29       29  
Acquisition integration costs     1     (2 )     1  
Certain incremental expenses related to COVID-192     14     12       20  
Other charges         3        
Non-GAAP adjusted operating income $ 1,794     $ 982     $ 4,630       $ 2,705  
Non-GAAP adjusted operating margin 40.3 %   33.7 %   38.7   %   32.6 %
AGS Non-GAAP Adjusted Operating Income              
Reported operating income - GAAP basis $ 393     $ 273     $ 1,083       $ 807  
Certain incremental expenses related to COVID-192     4     8       8  
Other charges         1        
Non-GAAP adjusted operating income $ 393     $ 277     $ 1,092       $ 815  
Non-GAAP adjusted operating margin 30.6 %   26.8 %   30.0   %   26.7 %
Display and Adjacent Markets Non-GAAP Adjusted Operating Income              
Reported operating income - GAAP basis $ 99     $ 83     $ 229       $ 196  
Certain items associated with acquisitions1 1     3     3       9  
Certain incremental expenses related to COVID-192     1     1       1  
Severance and related charges3         8        
Non-GAAP adjusted operating income $ 100     $ 87     $ 241       $ 206  
Non-GAAP adjusted operating margin 23.2 %   20.5 %   19.8   %   18.4 %

 

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) August 1, 2021
   
Provision for income taxes - GAAP basis (a) $ 264    
Income tax effect of share-based compensation (11 )  
Income tax effects related to intra-entity intangible asset transfers (23 )  
Resolutions of prior years’ income tax filings and other tax items 9    
Income tax effect of non-GAAP adjustments (2 )  
Non-GAAP adjusted provision for income taxes (b) $ 237    
   
Income before income taxes - GAAP basis (c) $ 1,980    
Certain items associated with acquisitions 11    
Acquisition integration and deal costs 5    
Realized loss (gain) on strategic investments, net (6 )  
Unrealized loss (gain) on strategic investments, net (13 )  
Non-GAAP adjusted income before income taxes (d) $ 1,977    
   
Effective income tax rate - GAAP basis (a/c) 13.3   %
   
Non-GAAP adjusted effective income tax rate (b/d) 12.0   %

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Source: Applied Materials, Inc.