Applied Materials Announces Third Quarter 2019 Results

Donnerstag, 15. August 2019 22:01
  • 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. (NASDAQ: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 margin43.7% 44.8% (1.1) points
Operating margin22.5% 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 margin44.0% 45.9% (1.9) points
Non-GAAP adjusted operating margin23.0% 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 SystemsQ3 FY2019 Q3 FY2018
        
 (In millions, except percentages)
Net sales$2,273  $2,578 
Foundry, logic and other49% 36%
DRAM27% 25%
Flash24% 39%
Operating income613  831 
Operating margin27.0% 32.2%
Non-GAAP Adjusted Results  
Non-GAAP adjusted operating income$624  $876 
Non-GAAP adjusted operating margin27.5% 34.0%


 

Applied Global ServicesQ3 FY2019 Q3 FY2018
        
 (In millions, except percentages)
Net sales$931  $952 
Operating income259  280 
Operating margin27.8% 29.4%
Non-GAAP Adjusted Results  
Non-GAAP adjusted operating income$259  $280 
Non-GAAP adjusted operating margin27.8% 29.4%


Display and Adjacent MarketsQ3 FY2019 Q3 FY2018
        
 (In millions, except percentages)
Net sales$339  $616 
Operating income41  156 
Operating margin12.1% 25.3%
Non-GAAP Adjusted Results  
Non-GAAP adjusted operating income$44  $160 
Non-GAAP adjusted operating margin13.0% 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. (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 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 sold2,005  2,298  6,102  7,086 
Gross profit1,557  1,864  4,752  5,860 
Operating expenses:       
Research, development and engineering515  505  1,539  1,503 
Marketing and selling128  138  392  394 
General and administrative112  128  335  363 
Total operating expenses755  771  2,266  2,260 
Income from operations802  1,093  2,486  3,600 
Interest expense58  59  178  174 
Interest and other income, net38  43  121  95 
Income before income taxes782  1,077  2,429  3,521 
Provision for income taxes211  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:       
Basic929  994  943  1,026 
Diluted937  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 investments547  590 
Accounts receivable, net2,373  2,323 
Inventories3,539  3,721 
Other current assets569  530 
Total current assets10,042  10,604 
Long-term investments1,650  1,568 
Property, plant and equipment, net1,513  1,407 
Goodwill3,399  3,368 
Purchased technology and other intangible assets, net170  213 
Deferred income taxes and other assets2,031  473 
Total assets$18,805  $17,633 
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current liabilities:   
Accounts payable and accrued expenses$2,355  $2,721 
Contract liabilities1,430  1,201 
Total current liabilities3,785  3,922 
Income taxes payable1,253  1,254 
Long-term debt5,312  5,309 
Other liabilities339  303 
Total liabilities10,689  10,788 
Total stockholders’ equity8,116  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 amortization89  110  271  337 
Share-based compensation67  64  197  193 
Deferred income taxes8  22  57  94 
Other(10) (7) (19) 4 
Net change in operating assets and liabilities62  (572) (93) (199)
Cash provided by operating activities787  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 investments479  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 period3,116  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 States552  348 
% of Total15% 9%
Europe162  224 
% of Total5% 5%
Japan556  700 
% of Total16% 17%
Korea445  572 
% of Total12% 14%
Taiwan596  506 
% of Total17% 12%
Southeast Asia134  165 
% of Total4% 4%
China1,117  1,647 
% of Total31% 39%
    
Employees (In thousands)   
Regular Full Time21.6  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 acquisitions19  45  28  134 
Non-GAAP adjusted gross profit$1,566  $1,909  $4,780  $5,994 
Non-GAAP adjusted gross margin44.0% 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 acquisitions113  49  41  147 
Acquisition integration and deal costs5     12  2 
Non-GAAP adjusted operating income$820  $1,142  $2,539  $3,749 
Non-GAAP adjusted operating margin23.0% 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 acquisitions113  49  41  147 
Acquisition integration and deal costs5     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 transfers115    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 


1These 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 being recognized ratably over the fiscal year on a non-GAAP basis.
  
3Charges 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.
  
4Adjustment 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 acquisitions0.01  0.05  0.04  0.13 
Acquisition integration and deal costs0.01     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 transfers0.12    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 shares937  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 acquisitions111  45  32  137 
Non-GAAP adjusted operating income$624  $876  $1,855  $2,984 
Non-GAAP adjusted operating margin27.5% 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 margin27.8% 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 acquisitions12  4  9  10 
Acquisition integration costs1     1  1 
Non-GAAP adjusted operating income$44  $160  $208  $467 
Non-GAAP adjusted operating margin13.0% 26.0% 17.4% 26.3%


1These 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 items1 
Income tax effect of non-GAAP adjustments3 
Non-GAAP adjusted provision for income taxes (b)$100 
  
Income before income taxes - GAAP basis (c)$782 
Certain items associated with acquisitions13 
Acquisition integration and deal costs5 
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%

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