Applied Materials Announces Second Quarter 2019 Results

Thursday, 16. May 2019 22:01
  • Quarterly revenue of $3.54 billion
  • GAAP and non-GAAP EPS of $0.70
  • Returns $814 million to shareholders

SANTA CLARA, Calif., May 16, 2019 (GLOBE NEWSWIRE) -- Applied Materials, Inc. (NASDAQ:AMAT) today reported results for its second quarter ended April 28, 2019.

Second Quarter Results

Applied generated revenue of $3.54 billion. On a GAAP basis, the company recorded gross margin of 43.2 percent, operating income of $776 million or 21.9 percent of net sales, and earnings per share (EPS) of $0.70.

On a non-GAAP adjusted basis, the company reported gross margin of 43.5 percent, operating income of $794 million or 22.4 percent of net sales, and EPS of $0.70.

The company returned $814 million to shareholders including $625 million in share repurchases and dividends of $189 million. As previously announced on March 8, 2019, Applied’s Board of Directors approved a five percent increase in the quarterly cash dividend from $0.20 to $0.21 per share.

“In the second fiscal quarter Applied Materials delivered results toward the top-end of our guidance range, reflecting solid execution across the company in a business environment that remains challenging,” said Gary Dickerson, president and CEO. “Looking ahead, we maintain a positive view of our markets as powerful new demand drivers for semiconductors and displays take shape, creating tremendous opportunities for Applied Materials.”

Quarterly Results Summary

 Q2 FY2019 Q2 FY2018 Change
  
 (In millions, except per share amounts and percentages)
Net sales$3,539  $4,579  (23)%
Gross margin43.2% 44.9% (1.7) points
Operating margin21.9% 28.2% (6.3) points
Net income$666  $1,100  (39)%
Diluted earnings per share$0.70  $1.06  (34)%
Non-GAAP Adjusted Results     
Non-GAAP adjusted gross margin43.5% 45.9% (2.4) points
Non-GAAP adjusted operating margin22.4% 29.3% (6.9) points
Non-GAAP adjusted net income$660  $1,244  (47)%
Non-GAAP adjusted diluted EPS$0.70  $1.19  (41)%
          

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 six months ended April 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 third quarter of fiscal 2019, Applied expects net sales to be approximately $3.525 billion, plus or minus $150 million. Non-GAAP adjusted diluted EPS is expected to be in the range of $0.67 to $0.75.

This outlook for non-GAAP adjusted diluted EPS excludes known charges related to completed acquisitions of $0.01 per share and 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.

Second Quarter Reportable Segment Information

Semiconductor Systems Q2 FY2019
  Q2 FY2018
  
 (In millions, except percentages)
Net sales$2,184  $2,901 
Foundry, logic and other58% 30%
DRAM18% 32%
Flash24% 38%
Operating income579  992 
Operating margin26.5% 34.2%
Non-GAAP Adjusted Results     
Non-GAAP adjusted operating income$589  $1,038 
Non-GAAP adjusted operating margin27.0% 35.8%


Applied Global Services Q2 FY2019
  Q2 FY2018
  
 (In millions, except percentages)
Net sales$984  $945 
Operating income283  279 
Operating margin28.8% 29.5%
Non-GAAP Adjusted Results     
Non-GAAP adjusted operating income$283  $279 
Non-GAAP adjusted operating margin28.8% 29.5%


Display and Adjacent Markets Q2 FY2019
  Q2 FY2018
  
 (In millions, except percentages)
Net sales$348  $719 
Operating income42  210 
Operating margin12.1% 29.2%
Non-GAAP Adjusted Results     
Non-GAAP adjusted operating income$46  $214 
Non-GAAP adjusted operating margin13.2% 29.8%

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 third 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;  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; changes in U.S. tax laws and regulation, and our interpretations of them; 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
 Six Months Ended
(In millions, except per share amounts)April 28,
 2019
 April 29,
 2018
 April 28,
 2019
 April 29,
 2018
Net sales $3,539  $4,579  $7,292  $8,784 
Cost of products sold2,009  2,523  4,097  4,788 
Gross profit1,530  2,056  3,195  3,996 
Operating expenses:           
Research, development and engineering508  509  1,024  998 
Marketing and selling133  130  264  256 
General and administrative113  125  223  235 
Total operating expenses754  764  1,511  1,489 
Income from operations776  1,292  1,684  2,507 
Interest expense60  56  120  115 
Interest and other income, net43  25  83  52 
Income before income taxes759  1,261  1,647  2,444 
Provision for income taxes93  161  210  1,179 
Net income$666  $1,100  $1,437  $1,265 
Earnings per share:           
Basic$0.71  $1.07  $1.51  $1.21 
Diluted$0.70  $1.06  $1.50  $1.20 
Weighted average number of shares:           
Basic942  1,029  950  1,042 
Diluted948  1,040  957  1,056 
            


APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions)April 28,
 2019
 October 28,
 2018
ASSETS      
Current assets:     
Cash and cash equivalents$3,116  $3,440 
Short-term investments507  590 
Accounts receivable, net2,264  2,323 
Inventories3,677  3,721 
Other current assets498  530 
Total current assets10,062  10,604 
Long-term investments1,609  1,568 
Property, plant and equipment, net1,494  1,407 
Goodwill3,399  3,368 
Purchased technology and other intangible assets, net185  213 
Deferred income taxes and other assets2,026  473 
Total assets$18,775  $17,633 
LIABILITIES AND STOCKHOLDERS’ EQUITY     
Current liabilities:     
Accounts payable and accrued expenses$2,212  $2,721 
Contract liabilities1,393  1,201 
Total current liabilities3,605  3,922 
Income taxes payable1,326  1,254 
Long-term debt5,311  5,309 
Other liabilities332  303 
Total liabilities10,574  10,788 
Total stockholders’ equity8,201  6,845 
Total liabilities and stockholders’ equity$18,775  $17,633 
      


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

 Three Months Ended Six Months Ended
(In millions)April 28,
 2019
 April 29,
 2018
 April 28,
 2019
 April 29,
 2018
Cash flows from operating activities:           
Net income$666  $1,100  $1,437  $1,265 
Adjustments required to reconcile net income to cash provided by operating activities:           
Depreciation and amortization94  108  182  227 
Share-based compensation65  64  130  129 
Deferred income taxes8  40  49  72 
Other(10) 11  (9) 11 
Net change in operating assets and liabilities(23) (712) (155) 373 
Cash provided by operating activities800  611  1,634  2,077 
Cash flows from investing activities:           
Capital expenditures(118) (121) (251) (324)
Cash paid for acquisitions, net of cash acquired(23)   (23) (5)
Proceeds from sales and maturities of investments442  488  906  2,432 
Purchases of investments(430) (345) (827) (729)
Cash provided by (used in) investing activities(129) 22  (195) 1,374 
Cash flows from financing activities:           
Proceeds from common stock issuances73  56  73  56 
Common stock repurchases(625) (2,500) (1,375) (3,282)
Tax withholding payments for vested equity awards(6) (13) (80) (154)
Payments of dividends to stockholders(189) (105) (381) (211)
Cash used in financing activities(747) (2,562) (1,763) (3,591)
Decrease in cash and cash equivalents(76) (1,929) (324) (140)
Cash and cash equivalents — beginning of period3,192  6,799  3,440  5,010 
Cash and cash equivalents — end of period$3,116  $4,870  $3,116  $4,870 
Supplemental cash flow information:           
Cash payments for income taxes$198  $139  $232  $217 
Cash refunds from income taxes$10  $1  $18  $41 
Cash payments for interest$76  $76  $110  $110 
            



APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Corporate and Other

(In millions)Q2 FY2019 Q2 FY2018
Unallocated net sales $23  $14 
Unallocated cost of products sold and expenses(86) (139)
Share-based compensation(65) (64)
Total$(128) $(189)

Additional Information

 Q2 FY2019 Q2 FY2018
  
Net Sales by Geography (In millions) 
United States457  345 
% of Total13% 8%
Europe215  292 
% of Total6% 6%
Japan520  502 
% of Total15% 11%
Korea441  1,232 
% of Total13% 27%
Taiwan794  666 
% of Total22% 15%
Southeast Asia119  242 
% of Total3% 5%
China993  1,300 
% of Total28% 28%
    
Employees (In thousands)   
Regular Full Time21.4  19.8 
      


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

 Three Months Ended Six Months Ended
(In millions, except percentages)April 28,
 2019
 April 29,
 2018
 April 28,
 2019
 April 29,
 2018
Non-GAAP Adjusted Gross Profit                
Reported gross profit - GAAP basis$1,530  $2,056  $3,195  $3,996 
Certain items associated with acquisitions19  44  19  89 
Non-GAAP adjusted gross profit$1,539  $2,100  $3,214  $4,085 
Non-GAAP adjusted gross margin43.5% 45.9% 44.1% 46.5%
Non-GAAP Adjusted Operating Income       
Reported operating income - GAAP basis$776  $1,292  $1,684  $2,507 
Certain items associated with acquisitions114  49  28  98 
Acquisition integration and deal costs4  1  7  2 
Non-GAAP adjusted operating income$794  $1,342  $1,719  $2,607 
Non-GAAP adjusted operating margin22.4% 29.3% 23.6% 29.7%
Non-GAAP Adjusted Net Income       
Reported net income - GAAP basis$666  $1,100  $1,437  $1,265 
Certain items associated with acquisitions114  49  28  98 
Acquisition integration and deal costs4  1  7  2 
Impairment (gain on sale) of strategic investments, net  5    4 
Loss (gain) on strategic investments, net(11)   (23)  
Income tax effect of share-based compensation21  13  (4) (26)
Income tax effect of changes in applicable U.S. tax laws3  71  (24) 1,077 
Income tax effects related to amortization of intra-entity intangible asset transfers(31)   (59)  
Resolution of prior years’ income tax filings and other tax items17  10  76  (3)
Income tax effect of non-GAAP adjustments4  (5) 1  (8)
Non-GAAP adjusted net income$660  $1,244  $1,439  $2,409 


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 Six Months Ended
(In millions, except per share amounts) April 28,
 2019
 April 29,
 2018
 April 28,
 2019
 April 29,
 2018
Non-GAAP Adjusted Earnings Per Diluted Share                
Reported earnings per diluted share - GAAP basis$0.70  $1.06  $1.50  $1.20 
Certain items associated with acquisitions0.01  0.04  0.03  0.09 
Loss (gain) on strategic investments, net    (0.02)  
Income tax effect of share-based compensation  0.01  (0.01) (0.03)
Income tax effect of changes in applicable U.S. tax laws  0.07  (0.02) 1.02 
Income tax effects related to amortization of intra-entity intangible asset transfers(0.03)   (0.06)  
Resolution of prior years’ income tax filings and other tax items0.02  0.01  0.08    
Non-GAAP adjusted earnings per diluted share $0.70  $1.19  $1.50  $2.28 
Weighted average number of diluted shares948  1,040  957   1,056 
           


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

 Three Months Ended Six Months Ended 
(In millions, except percentages) April 28,
 2019
 April 29,
 2018
 April 28,
 2019
 April 29,
 2018
Semiconductor Systems Non-GAAP Adjusted Operating Income                
Reported operating income - GAAP basis$579  $992  $1,210  $2,016 
Certain items associated with acquisitions110  46  21  92 
Non-GAAP adjusted operating income$589  $1,038  $1,231  $2,108 
Non-GAAP adjusted operating margin27.0% 35.8% 27.7% 36.6%
AGS Non-GAAP Adjusted Operating Income       
Reported operating income - GAAP basis$283  $279  $568  $534 
Acquisition integration costs       1 
Non-GAAP adjusted operating income$283  $279  $568  $535 
Non-GAAP adjusted operating margin28.8% 29.5% 29.2% 29.3%
Display and Adjacent Markets Non-GAAP Adjusted Operating Income       
Reported operating income - GAAP basis$42  $210  $157  $300 
Certain items associated with acquisitions14  3  7  6 
Acquisition integration costs  1    1 
Non-GAAP adjusted operating income$46  $214  $164  $307 
Non-GAAP adjusted operating margin13.2% 29.8% 19.2% 26.4%


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) April 28, 2019
Provision for income taxes - GAAP basis (a)$93 
Income tax effect of share-based compensation(1)
Income tax effects related to amortization of intra-entity intangible asset transfers31 
Resolutions of prior years’ income tax filings and other tax items(17)
Non-GAAP adjusted provision for income taxes (b)$106 
  
Income before income taxes - GAAP basis (c)$759 
Certain items associated with acquisitions14 
Acquisition integration and deal costs4 
Loss (gain) on strategic investments, net(11)
Non-GAAP adjusted income before income taxes (d)$766 
  
Effective income tax rate - GAAP basis (a/c)12.3%
  
Non-GAAP adjusted effective income tax rate (b/d)13.8%

 

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