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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 margin44.2%  43.2%  1.0 points
Operating margin23.6%  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 margin44.6%  43.5%  1.1 points
Non-GAAP adjusted operating margin24.7%  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 SystemsQ2 FY2020  Q2 FY2019
 (In millions, except percentages)
Net sales$2,567  $2,184 
Foundry, logic and other56%  58% 
DRAM22%  18% 
Flash memory22%  24% 
Operating income782  579 
Operating margin30.5%  26.5% 
Non-GAAP Adjusted Results  
Non-GAAP adjusted operating income$798  $589 
Non-GAAP adjusted operating margin31.1%  27.0% 

 

Applied Global ServicesQ2 FY2020  Q2 FY2019
 (In millions, except percentages)
Net sales$1,018  $984 
Operating income256  283 
Operating margin25.1%  28.8% 
Non-GAAP Adjusted Results  
Non-GAAP adjusted operating income$260  $283 
Non-GAAP adjusted operating margin25.5%  28.8% 

 

Display and Adjacent MarketsQ2 FY2020  Q2 FY2019
 (In millions, except percentages)
Net sales$365  $348 
Operating income75  42 
Operating margin20.5%  12.1% 
Non-GAAP Adjusted Results  
Non-GAAP adjusted operating income$78  $46 
Non-GAAP adjusted operating margin21.4%  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 sold2,208  2,009  4,512  4,097 
Gross profit1,749  1,530  3,607  3,195 
Operating expenses:       
Research, development and engineering550  508  1,102  1,024 
Marketing and selling130  133  265  264 
General and administrative137  113  266  223 
Total operating expenses817  754  1,633  1,511 
Income from operations932  776  1,974  1,684 
Interest expense61  60  120  120 
Interest and other income, net7  43  29  83 
Income before income taxes878  759  1,883  1,647 
Provision for income taxes123  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:       
Basic917  942  917  950 
Diluted923  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 investments423  489 
Accounts receivable, net2,625  2,533 
Inventories3,725  3,474 
Other current assets681  581 
Total current assets12,735  10,206 
Long-term investments1,678  1,703 
Property, plant and equipment, net1,534  1,529 
Goodwill3,426  3,399 
Purchased technology and other intangible assets, net132  156 
Deferred income taxes and other assets2,310  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 expenses2,831  2,511 
Contract liabilities1,334  1,336 
Total current liabilities4,765  4,447 
Long-term debt, net of current portion6,215  4,713 
Income taxes payable1,238  1,275 
Other liabilities573  375 
Total liabilities12,791  10,810 
Total stockholders’ equity9,024  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 amortization91  94  185  182 
     Share-based compensation71  65  164  130 
     Deferred income taxes(11)  8  19  49 
     Other7  (10)  22  (9) 
     Net change in operating assets and liabilities(278)  (23)  (415)  (155) 
Cash provided by operating activities635  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 investments667  442  1,035  906 
Purchases of investments(404)  (430)  (832)  (827) 
Cash provided by (used in) investing activities165  (129)  3  (195) 
Cash flows from financing activities:       
Debt borrowings, net of issuance costs1,498    1,498   
Proceeds from common stock issuances76  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 activities1,172  (747)  642  (1,763) 
Increase (decrease) in cash, cash equivalents and restricted cash equivalents1,972  (76)  2,267  (324) 
Cash, cash equivalents and restricted cash equivalents—beginning of period3,424  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 assets115    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 States331  457 
% of Total8%  13% 
Europe181  215 
% of Total5%  6% 
Japan467  520 
% of Total12%  15% 
Korea753  441 
% of Total19%  13% 
Taiwan1,029  794 
% of Total26%  22% 
Southeast Asia58  119 
% of Total1%  3% 
China1,138  993 
% of Total29%  28% 
    
Employees (In thousands)   
Regular Full Time22.7  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 acquisitions18   9   17   19  
Certain incremental expenses related to COVID-1958      8     
Non-GAAP adjusted gross profit$1,765   $1,539   $3,632   $3,214  
Non-GAAP adjusted gross margin44.6%   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 acquisitions113   14   26   28  
Acquisition integration and deal costs21   4   34   7  
Certain incremental expenses related to COVID-19510      10     
Non-GAAP adjusted operating income$976   $794   $2,044   $1,719  
Non-GAAP adjusted operating margin24.7%   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 acquisitions113   14   26   28  
Acquisition integration and deal costs21   4   34   7  
Certain incremental expenses related to COVID-19510      10     
Realized loss (gain) on strategic investments, net5   (4)   7   (6)  
Unrealized loss (gain) on strategic investments, net2   (7)   4   (17)  
Income tax effect of share-based compensation28   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 transfers16   (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  

 

1 These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.
  
2GAAP basis tax benefit related to share-based compensation is recognized ratably over the fiscal year on a non-GAAP basis.
  
3Charges to income tax provision related to a one-time transition tax as a result of U.S. tax legislation.
  
4Adjustment to provision for income taxes related to non-GAAP adjustments reflected in income before income taxes.
  
5Temporary 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 acquisitions0.01  0.01  0.02  0.03 
Acquisition integration and deal costs0.02    0.04   
Certain incremental expenses related to COVID-190.01    0.01   
Realized loss (gain) on strategic investments, net0.01    0.01   
Unrealized loss (gain) on strategic investments, net      (0.02) 
Income tax effect of share-based compensation0.01    (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 transfers0.02  (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 shares923  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 acquisitions110  10  20  21 
Certain incremental expenses related to COVID-1926    6   
Non-GAAP adjusted operating income$798  $589  $1,723  $1,231 
Non-GAAP adjusted operating margin31.1%  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-1924    4   
Non-GAAP adjusted operating income$260  $283  $538  $568 
Non-GAAP adjusted operating margin25.5%  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 acquisitions13  4  6  7 
Non-GAAP adjusted operating income$78  $46  $119  $164 
Non-GAAP adjusted operating margin21.4%  13.2%  17.1%  19.2% 

 

1 These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.
2Temporary 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 items3  
Income tax effect of non-GAAP adjustments10  
Non-GAAP adjusted provision for income taxes (b)$112  
  
Income before income taxes - GAAP basis (c)$878  
Certain items associated with acquisitions13  
Acquisition integration and deal costs21  
Certain incremental expenses related to COVID-1910  
Realized loss (gain) on strategic investments, net5  
Unrealized loss (gain) on strategic investments, net2  
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%  

 

AMATlogo_blue.jpg

 

Source: Applied Materials, Inc.

May 14, 2020