Applied Materials Announces Second Quarter 2021 Results

Thursday, 20. May 2021 22:01
  • Record quarterly revenue of $5.58 billion, up 41 percent year over year
  • Quarterly GAAP operating margin of 28.3 percent and non-GAAP operating margin of 31.7 percent, up 4.7 points and 7.0 points year over year, respectively
  • Quarterly GAAP EPS of $1.43 and record non-GAAP EPS of $1.63, up 74 percent and 83 percent year over year, respectively

SANTA CLARA, Calif., May 20, 2021 (GLOBE NEWSWIRE) -- Applied Materials, Inc. (NASDAQ: AMAT) today reported results for its second quarter ended May 2, 2021.

Second Quarter Results

Applied generated revenue of $5.58 billion. On a GAAP basis, the company recorded gross margin of 47.5 percent, operating income of $1.58 billion or 28.3 percent of net sales, and earnings per share (EPS) of $1.43.

On a non-GAAP adjusted basis, the company reported gross margin of 47.7 percent, operating income of $1.77 billion or 31.7 percent of net sales, and EPS of $1.63.

The company generated $1.19 billion in cash from operations and returned $952 million to shareholders including $750 million in share repurchases and $202 million in dividends.

“Applied Materials’ record performance is underpinned by broad-based strength across our semiconductor businesses,” said Gary Dickerson, President and CEO. “We are confident in our ability to outperform our markets as large, secular trends create sustainable demand for semiconductors and our leadership in materials engineering becomes increasingly critical to deliver new chip technologies.”

Quarterly Results Summary

 Q2 FY2021  Q2 FY2020 Change
      
 (In millions, except per share amounts and percentages)
Net sales$5,582   $3,957   41%
Gross margin47.5 % 44.2 % 3.3 points
Operating margin28.3 % 23.6 % 4.7 points
Net income$1,330   $755   76%
Diluted earnings per share$1.43   $0.82   74%
Non-GAAP Adjusted Results     
Non-GAAP adjusted gross margin47.7 % 44.6 % 3.1 points
Non-GAAP adjusted operating margin31.7 % 24.7 % 7.0 points
Non-GAAP adjusted net income$1,509   $817   85%
Non-GAAP adjusted diluted EPS$1.63   $0.89   83%
           

Second quarter GAAP results included a $154 million deal termination fee paid per the terms of the Share Purchase Agreement with Kokusai Electric Corporation and KKR HKE Investment L.P., which reduced earnings per share by $0.17.

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 2021, Applied expects net sales to be approximately $5.92 billion, plus or minus $200 million. Non-GAAP adjusted diluted EPS is expected to be in the range of $1.70 to $1.82.

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.

Second Quarter Reportable Segment Information

Semiconductor SystemsQ2 FY2021  Q2 FY2020
    
 (In millions, except percentages)
Net sales$3,972   $2,567  
Foundry, logic and other56 % 56 %
DRAM14 % 22 %
Flash memory30 % 22 %
Operating income$1,542   $782  
Operating margin38.8 % 30.5 %
Non-GAAP Adjusted Results  
Non-GAAP adjusted operating income$1,555   $798  
Non-GAAP adjusted operating margin39.1 % 31.1 %


Applied Global ServicesQ2 FY2021  Q2 FY2020
    
 (In millions, except percentages)
Net sales$1,203  $1,018 
Operating income$358  $256 
Operating margin29.8% 25.1%
Non-GAAP Adjusted Results  
Non-GAAP adjusted operating income$359  $260 
Non-GAAP adjusted operating margin29.8% 25.5%


Display and Adjacent MarketsQ2 FY2021  Q2 FY2020
    
 (In millions, except percentages)
Net sales$375  $365 
Operating income$65  $75 
Operating margin17.3% 20.5%
Non-GAAP Adjusted Results  
Non-GAAP adjusted operating income$66  $78 
Non-GAAP adjusted operating margin17.6% 21.4%

 

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 third 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; 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 the recent 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 Six Months Ended
(In millions, except per share amounts)May 2,
2021
 April 26,
2020
 May 2,
2021
 April 26,
2020
Net sales$5,582   $3,957   $10,744   $8,119  
Cost of products sold2,929   2,208   5,742   4,512  
Gross profit2,653   1,749   5,002   3,607  
Operating expenses:       
Research, development and engineering617   550   1,223   1,102  
Marketing and selling148   130   295   265  
General and administrative149   137   310   266  
Severance and related charges  —   158   —  
Deal termination fee154   —   154   —  
Total operating expenses1,074   817   2,140   1,633  
Income from operations1,579   932   2,862   1,974  
Interest expense61   61   122   120  
Interest and other income, net27     45   29  
Income before income taxes1,545   878   2,785   1,883  
Provision for income taxes215   123   325   236  
Net income$1,330   $755   $2,460   $1,647  
Earnings per share:       
Basic$1.45   $0.82   $2.68   $1.80  
Diluted$1.43   $0.82   $2.66   $1.78  
Weighted average number of shares:       
Basic918   917   917   917  
Diluted927   923   926   925  


APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions)May 2,
2021
 October 25,
2020
ASSETS   
Current assets:   
Cash and cash equivalents$6,305   $5,351  
Short-term investments460   387  
Accounts receivable, net3,375   2,963  
Inventories4,053   3,904  
Other current assets778   764  
Total current assets14,971   13,369  
Long-term investments1,569   1,538  
Property, plant and equipment, net1,768   1,604  
Goodwill3,479   3,466  
Purchased technology and other intangible assets, net127   153  
Deferred income taxes and other assets2,171   2,223  
Total assets$24,085   $22,353  
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current liabilities:   
Accounts payable and accrued expenses$3,116   $3,138  
Contract liabilities1,706   1,321  
Total current liabilities4,822   4,459  
Long-term debt, net of current portion5,450   5,448  
Income taxes payable1,138   1,206  
Other liabilities682   662  
Total liabilities12,092   11,775  
Total stockholders’ equity11,993   10,578  
Total liabilities and stockholders’ equity$24,085   $22,353  


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

(In millions)

Three Months Ended Six Months Ended
May 2,
2021
 April 26,
2020
May 2,
2021
 April 26,
2020
Cash flows from operating activities:       
Net income$1,330  $755  $2,460  $1,647 
Adjustments required to reconcile net income to cash provided by operating activities:       
Depreciation and amortization97  91  191  185 
Severance and related charges1    149   
Share-based compensation84  71  191  164 
Deferred income taxes(4) (11) 24  19 
Other(15) 7  (15) 22 
Net change in operating assets and liabilities(306) (278) (392) (415)
Cash provided by operating activities1,187  635  2,608  1,622 
Cash flows from investing activities:       
Capital expenditures(204) (71) (325) (173)
Cash paid for acquisitions, net of cash acquired  (27) (12) (27)
Proceeds from sales and maturities of investments266  667  624  1,035 
Purchases of investments(281) (404) (722) (832)
Cash provided by (used in) investing activities(219) 165  (435) 3 
Cash flows from financing activities:       
Debt borrowings, net of issuance costs  1,498    1,498 
Proceeds from common stock issuances86  76  86  91 
Common stock repurchases(750) (199) (750) (399)
Tax withholding payments for vested equity awards(17) (10) (159) (163)
Payments of dividends to stockholders(202) (193) (403) (385)
Cash provided by (used in) financing activities(883) 1,172  (1,226) 642 
Increase in cash, cash equivalents and restricted cash equivalents85  1,972  947  2,267 
Cash, cash equivalents and restricted cash equivalents—beginning of period6,328  3,424  5,466  3,129 
Cash, cash equivalents and restricted cash equivalents — end of period$6,413  $5,396  $6,413  $5,396 
        
Reconciliation of cash, cash equivalents, and restricted cash equivalents       
Cash and cash equivalents$6,305  $5,281  $6,305  $5,281 
Restricted cash equivalents included in deferred income taxes and other assets108  115  108  115 
Total cash, cash equivalents, and restricted cash equivalents$6,413  $5,396  $6,413  $5,396 
        
Supplemental cash flow information:       
Cash payments for income taxes$299  $199  $409  $281 
Cash refunds from income taxes$4  $4  $23  $5 
Cash payments for interest$68  $76  $103  $110 


APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Corporate and Other

(In millions)Q2 FY2021  Q2 FY2020
Unallocated net sales$32  $7 
Unallocated cost of products sold and expenses(174) (117)
Share-based compensation(84) (71)
Severance and related charges(6)  
Deal termination fee(154)  
Total$(386) $(181)
        

Additional Information

 Q2 FY2021  Q2 FY2020
    
Net Sales by Geography (In millions) 
United States$489   $331  
% of Total% %
Europe$229   $181  
% of Total% %
Japan$442   $467  
% of Total% 12 %
Korea$1,428   $753  
% of Total25 % 19 %
Taiwan$1,041   $1,029  
% of Total19 % 26 %
Southeast Asia$109   $58  
% of Total% %
China$1,844   $1,138  
% of Total33 % 29 %
    
Employees (In thousands)   
Regular Full Time24.8   22.7  


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

 Three Months Ended Six Months Ended
(In millions, except percentages)May 2,
2021
 April 26,
2020
 May 2,
2021
 April 26,
2020
Non-GAAP Adjusted Gross Profit       
Reported gross profit - GAAP basis$2,653   $1,749   $5,002   $3,607  
Certain items associated with acquisitions17   8   15   17  
Certain incremental expenses related to COVID-192   8   12   8  
Other charges2      2     
Non-GAAP adjusted gross profit$2,662   $1,765   $5,031   $3,632  
Non-GAAP adjusted gross margin47.7 % 44.6 % 46.8 % 44.7 %
Non-GAAP Adjusted Operating Income       
Reported operating income - GAAP basis$1,579   $932   $2,862   $1,974  
Certain items associated with acquisitions112   13   25   26  
Acquisition integration and deal costs11   21   35   34  
Certain incremental expenses related to COVID-192   10   24   10  
Severance and related charges36      158     
Deal termination fee154      154     
Other charges6      6     
Non-GAAP adjusted operating income$1,768   $976   $3,264   $2,044  
Non-GAAP adjusted operating margin31.7 % 24.7 % 30.4 % 25.2 %
Non-GAAP Adjusted Net Income       
Reported net income - GAAP basis$1,330   $755   $2,460   $1,647  
Certain items associated with acquisitions112   13   25   26  
Acquisition integration and deal costs12   21   36   34  
Certain incremental expenses related to COVID-192   10   24   10  
Severance and related charges36      158     
Deal termination fee154      154     
Realized loss (gain) on strategic investments, net6   5   4   7  
Unrealized loss (gain) on strategic investments, net(26)  2   (32)  4  
Other charges6      6     
Income tax effect of share-based compensation46   8   (23)  (25) 
Income tax effects related to intra-entity intangible asset transfers17   16   37   37  
Resolution of prior years’ income tax filings and other tax items(10)  (3)  (13)  (4) 
Income tax effect of non-GAAP adjustments5(4)  (10)  (45)  (15) 
Non-GAAP adjusted net income$1,509   $817   $2,791   $1,721  


1These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.
  
2Temporary incremental employee compensation during the COVID-19 pandemic.
  
3The severance and related charges primarily related to a one-time voluntary retirement program offered to certain eligible employees.
  
4GAAP basis tax benefit related to share-based compensation is recognized ratably over the fiscal year on a non-GAAP basis.
  
5Adjustment 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 2,
2021
 April 26,
2020
 May 2,
2021
 April 26,
2020
Non-GAAP Adjusted Earnings Per Diluted Share       
Reported earnings per diluted share - GAAP basis$1.43  $0.82  $2.66  $1.78 
Certain items associated with acquisitions0.01  0.01  0.02  0.02 
Acquisition integration and deal costs0.01  0.02  0.03  0.04 
Certain incremental expenses related to COVID-19  0.01  0.02  0.01 
Severance and related charges0.01    0.13   
Deal termination fee0.17    0.17   
Realized loss (gain) on strategic investments, net0.01  0.01    0.01 
Unrealized loss (gain) on strategic investments, net(0.03)   (0.02)  
Income tax effect of share-based compensation0.01  0.01  (0.02) (0.03)
Income tax effects related to intra-entity intangible asset transfers0.02  0.02  0.04  0.04 
Resolution of prior years’ income tax filings and other tax items(0.01) (0.01) (0.01) (0.01)
Non-GAAP adjusted earnings per diluted share$1.63  $0.89  $3.02  $1.86 
Weighted average number of diluted shares927  923  926  925 



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

 Three Months Ended Six Months Ended
(In millions, except percentages)May 2,
2021
 April 26,
2020
 May 2,
2021
 April 26,
2020
Semiconductor Systems Non-GAAP Adjusted Operating Income       
Reported operating income - GAAP basis$1,542  $782  $2,803   $1,697 
Certain items associated with acquisitions110  10  20   20 
Acquisition integration costs    (2)   
Certain incremental expenses related to COVID-192  6  12   6 
Other charges3    3    
Non-GAAP adjusted operating income$1,555  $798  $2,836   $1,723 
Non-GAAP adjusted operating margin39.1% 31.1% 37.7 % 32.0%
AGS Non-GAAP Adjusted Operating Income       
Reported operating income - GAAP basis$358  $256  $690   $534 
Certain incremental expenses related to COVID-192  4  8   4 
Other charges1    1    
Non-GAAP adjusted operating income$359  $260  $699   $538 
Non-GAAP adjusted operating margin29.8% 25.5% 29.6 % 26.7%
Display and Adjacent Markets Non-GAAP Adjusted Operating Income       
Reported operating income - GAAP basis$65  $75  $130   $113 
Certain items associated with acquisitions11  3  2   6 
Certain incremental expenses related to COVID-192    1    
Severance and related charges3    8    
Non-GAAP adjusted operating income$66  $78  $141   $119 
Non-GAAP adjusted operating margin17.6% 21.4% 17.9 % 17.1%


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.
3The 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 2, 2021
  
Provision for income taxes - GAAP basis (a)$215  
Income tax effect of share-based compensation(6) 
Income tax effects related to intra-entity intangible asset transfers(17) 
Resolutions of prior years’ income tax filings and other tax items10  
Income tax effect of non-GAAP adjustments4  
Non-GAAP adjusted provision for income taxes (b)$206  
  
Income before income taxes - GAAP basis (c)$1,545  
Certain items associated with acquisitions12  
Acquisition integration and deal costs12  
Certain incremental expenses related to COVID-19  
Severance and related charges6  
Deal termination fee154  
Realized loss (gain) on strategic investments, net6  
Unrealized loss (gain) on strategic investments, net(26) 
Other charges6  
Non-GAAP adjusted income before income taxes (d)$1,715  
  
Effective income tax rate - GAAP basis (a/c)13.9 %
  
Non-GAAP adjusted effective income tax rate (b/d)12.0 %

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