Applied Materials Announces First Quarter 2020 Results

Wednesday, 12. February 2020 22:01
  • Quarterly revenue of $4.16 billion, up 11 percent year over year
  • GAAP EPS of $0.96 and non-GAAP EPS of $0.98, up 20 percent and 21 percent year over year, respectively
  • Returned $392 million to shareholders

SANTA CLARA, Calif., Feb. 12, 2020 (GLOBE NEWSWIRE) -- Applied Materials, Inc. (NASDAQ: AMAT) today reported results for its first quarter ended Jan. 26, 2020.

First Quarter Results

Applied generated revenue of $4.16 billion. On a GAAP basis, the company recorded gross margin of 44.6 percent, operating income of $1.04 billion or 25.0 percent of net sales, and earnings per share (EPS) of $0.96.

On a non-GAAP adjusted basis, the company reported gross margin of 44.9 percent, operating income of $1.07 billion or 25.7 percent of net sales, and EPS of $0.98.

The company returned $392 million to shareholders including $200 million in share repurchases and dividends of $192 million.

“Applied Materials’ first quarter earnings exceeded the top-end of our guidance, giving us great momentum entering 2020,” said Gary Dickerson, president and CEO. “We believe we can deliver strong double-digit growth in our semiconductor business this year as our unique solutions accelerate our customers’ success in the AI-Big Data era.”

Quarterly Results Summary

 Q1 FY2020  Q1 FY2019 Change
 (In millions, except per share amounts and percentages)
Net sales$4,162  $3,753  11%
Gross margin44.6% 44.4% 0.2 points
Operating margin25.0% 24.2% 0.8 points
Net income$892  $771  16%
Diluted earnings per share$0.96  $0.80  20%
Non-GAAP Adjusted Results     
Non-GAAP adjusted gross margin44.9% 44.6% 0.3 points
Non-GAAP adjusted operating margin25.7% 24.6% 1.1 points
Non-GAAP adjusted net income$904  $779  16%
Non-GAAP adjusted diluted EPS$0.98  $0.81  21%

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 second quarter of fiscal 2020, Applied expects net sales to be approximately $4.34 billion, plus or minus $200 million. Non-GAAP adjusted diluted EPS is expected to be in the range of $0.98 to $1.10.

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 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.

First Quarter Reportable Segment Information

Semiconductor SystemsQ1 FY2020  Q1 FY2019
 (In millions, except percentages)
Net sales$2,814  $2,268 
Foundry, logic and other68% 44%
DRAM15% 21%
Flash17% 35%
Operating income915  631 
Operating margin32.5% 27.8%
Non-GAAP Adjusted Results  
Non-GAAP adjusted operating income$925  $642 
Non-GAAP adjusted operating margin32.9% 28.3%


Applied Global ServicesQ1 FY2020  Q1 FY2019
 (In millions, except percentages)
Net sales$997  $962 
Operating income278  285 
Operating margin27.9% 29.6%
Non-GAAP Adjusted Results  
Non-GAAP adjusted operating income$278  $285 
Non-GAAP adjusted operating margin27.9% 29.6%


Display and Adjacent MarketsQ1 FY2020  Q1 FY2019
 (In millions, except percentages)
Net sales$332  $507 
Operating income38  115 
Operating margin11.4% 22.7%
Non-GAAP Adjusted Results  
Non-GAAP adjusted operating income$41  $118 
Non-GAAP adjusted operating margin12.3% 23.3%

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 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 second quarter of fiscal 2020 and beyond, the impact of the coronavirus outbreak 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 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 recent Forms 10-K 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
(In millions, except per share amounts)January 26,
2020
 January 27,
2019
Net sales$4,162  $3,753 
Cost of products sold2,304  2,088 
Gross profit1,858  1,665 
Operating expenses:   
Research, development and engineering552  516 
Marketing and selling135  131 
General and administrative129  110 
Total operating expenses816  757 
Income from operations1,042  908 
Interest expense59  60 
Interest and other income, net22  40 
Income before income taxes1,005  888 
Provision for income taxes113  117 
Net income$892  $771 
Earnings per share:   
Basic$0.97  $0.81 
Diluted$0.96  $0.80 
Weighted average number of shares:   
Basic916  957 
Diluted927  965 



APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions)January 26,
2020
 October 27,
2019
ASSETS   
Current assets:   
Cash and cash equivalents$3,424  $3,129 
Short-term investments536  489 
Accounts receivable, net2,679  2,533 
Inventories3,472  3,474 
Other current assets658  581 
Total current assets10,769  10,206 
Long-term investments1,713  1,703 
Property, plant and equipment, net1,555  1,529 
Goodwill3,399  3,399 
Purchased technology and other intangible assets, net142  156 
Deferred income taxes and other assets2,189  2,031 
Total assets$19,767  $19,024 
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current liabilities:   
Current portion of long-term debt$600  $600 
Accounts payable and accrued expenses2,569  2,511 
Contract liabilities1,400  1,336 
Total current liabilities4,569  4,447 
Long-term debt4,714  4,713 
Income taxes payable1,298  1,275 
Other liabilities526  375 
Total liabilities11,107  10,810 
Total stockholders’ equity8,660  8,214 
Total liabilities and stockholders’ equity$19,767  $19,024 



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

(In millions)Three Months Ended
January 26,
2020
 January 27,
2019
Cash flows from operating activities:   
Net income$892  $771 
Adjustments required to reconcile net income to cash provided by operating activities:   
Depreciation and amortization94  88 
Share-based compensation93  65 
Deferred income taxes30  41 
Other15  1 
Net change in operating assets and liabilities(137) (132)
Cash provided by operating activities987  834 
Cash flows from investing activities:   
Capital expenditures(102) (133)
Proceeds from sales and maturities of investments368  464 
Purchases of investments(428) (397)
Cash used in investing activities(162) (66)
Cash flows from financing activities:   
Proceeds from common stock issuances15   
Common stock repurchases(200) (750)
Tax withholding payments for vested equity awards(153) (74)
Payments of dividends to stockholders(192) (192)
Cash used in financing activities(530) (1,016)
Increase (decrease) in cash and cash equivalents295  (248)
Cash and cash equivalents — beginning of period3,129  3,440 
Cash and cash equivalents — end of period$3,424  $3,192 
Supplemental cash flow information:   
Cash payments for income taxes$82  $34 
Cash refunds from income taxes$1  $8 
Cash payments for interest$34  $34 



APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Corporate and Other   
(In millions)Q1 FY2020  Q1 FY2019
Unallocated net sales$19   $16  
Unallocated cost of products sold and expenses(115) (74)
Share-based compensation(93) (65)
Total$(189) $(123)


Additional Information   
 Q1 FY2020  Q1 FY2019
Net Sales by Geography (In millions) 
United States441  450 
% of Total10% 12%
Europe153  296 
% of Total4% 8%
Japan351  651 
% of Total8% 17%
Korea508  572 
% of Total12% 15%
Taiwan1,365  656 
% of Total33% 18%
Southeast Asia72  160 
% of Total2% 4%
China1,272  968 
% of Total31% 26%
    
Employees (In thousands)   
Regular Full Time22.3  21.2 




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

 Three Months Ended
(In millions, except percentages)January 26,
2020
 January 27,
2019
Non-GAAP Adjusted Gross Profit   
Reported gross profit - GAAP basis$1,858  $1,665 
Certain items associated with acquisitions19  10 
Non-GAAP adjusted gross profit$1,867  $1,675 
Non-GAAP adjusted gross margin44.9 % 44.6 %
Non-GAAP Adjusted Operating Income   
Reported operating income - GAAP basis$1,042  $908 
Certain items associated with acquisitions113  14 
Acquisition integration and deal costs13  3 
Non-GAAP adjusted operating income$1,068  $925 
Non-GAAP adjusted operating margin25.7 % 24.6 %
Non-GAAP Adjusted Net Income   
Reported net income - GAAP basis$892  $771 
Certain items associated with acquisitions113  14 
Acquisition integration and deal costs13  3 
Impairment (gain on sale) of strategic investments, net2  (2)
Loss (gain) on strategic investments, net2  (10)
Income tax effect of share-based compensation2(33) (5)
Income tax effect of changes in applicable U.S. tax laws3  (24)
Income tax effects related to amortization of intra-entity intangible asset transfers21  (28)
Resolution of prior years’ income tax filings and other tax items(1) 59 
Income tax effect of non-GAAP adjustments4(5) 1 
Non-GAAP adjusted net income$904  $779 


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.



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

 Three Months Ended
(In millions, except per share amounts)January 26,
2020
 January 27,
2019
Non-GAAP Adjusted Earnings Per Diluted Share   
Reported earnings per diluted share - GAAP basis$0.96   $0.80  
Certain items associated with acquisitions0.01   0.01  
Acquisition integration and deal costs0.01   —  
Loss (gain) on strategic investments, net—   (0.01)
Income tax effect of share-based compensation(0.03) —  
Income tax effect of changes in applicable U.S. tax laws—   (0.02)
Income tax effects related to amortization of intra-entity intangible asset transfers0.03   (0.03)
Resolution of prior years’ income tax filings and other tax items—   0.06  
Non-GAAP adjusted earnings per diluted share$0.98   $0.81  
Weighted average number of diluted shares927   965  



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

 Three Months Ended
(In millions, except percentages)January 26,
2020
 January 27,
2019
Semiconductor Systems Non-GAAP Adjusted Operating Income   
Reported operating income - GAAP basis$915  $631 
Certain items associated with acquisitions110  11 
Non-GAAP adjusted operating income$925  $642 
Non-GAAP adjusted operating margin32.9% 28.3%
AGS Non-GAAP Adjusted Operating Income   
Reported operating income - GAAP basis$278  $285 
Non-GAAP adjusted operating income$278  $285 
Non-GAAP adjusted operating margin27.9% 29.6%
Display and Adjacent Markets Non-GAAP Adjusted Operating Income   
Reported operating income - GAAP basis$38  $115 
Certain items associated with acquisitions13  3 
Non-GAAP adjusted operating income$41  $118 
Non-GAAP adjusted operating margin12.3% 23.3%


These 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)January 26, 2020
  
Provision for income taxes - GAAP basis (a)$113 
Income tax effect of share-based compensation33 
Income tax effects related to amortization of intra-entity intangible asset transfers(21)
Resolutions of prior years’ income tax filings and other tax items1 
Income tax effect of non-GAAP adjustments5 
Non-GAAP adjusted provision for income taxes (b)$131 
  
Income before income taxes - GAAP basis (c)$1,005 
Certain items associated with acquisitions13 
Acquisition integration and deal costs13 
Impairment (gain on sale) of strategic investments, net2 
Loss (gain) on strategic investments, net2 
Non-GAAP adjusted income before income taxes (d)$1,035 
  
Effective income tax rate - GAAP basis (a/c)11.2 %
  
Non-GAAP adjusted effective income tax rate (b/d)12.7 %

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