Financial News Release

Applied Materials Delivers Record Revenue and Earnings Per Share
  • Record revenue of $3.55 billion up 45 percent year over year
  • Strong year-over-year increases in gross margin and operating margin
  • Record EPS of $0.76 and non-GAAP EPS of $0.79

SANTA CLARA, Calif., May 18, 2017 (GLOBE NEWSWIRE) -- Applied Materials, Inc. (NASDAQ:AMAT) today reported results for its second quarter ended April 30, 2017.

Compared to the same period last year, net sales increased by 45 percent to $3.55 billion; gross margin grew 4.1 points to 45.1 percent; operating margin increased by 9.2 points to 26.5 percent; and earnings per share (EPS) grew 162 percent to $0.76. On a non-GAAP adjusted basis, gross margin grew 3.6 points to 46.3 percent, operating margin increased by 8.6 points to 27.8 percent, and EPS grew 132 percent to $0.79.

The company generated $898 million in cash from operations and returned $390 million to shareholders through stock repurchases and cash dividends.

“Applied Materials delivered the highest quarterly revenue and earnings in our history, and we’ve now set new earnings records for four quarters in a row,” said Gary Dickerson, president and CEO.  “Across the company we have tremendous momentum as our markets are strong and getting stronger, and we’re sustainably growing faster than these markets by expanding our served opportunity and gaining share.”

Quarterly Results Summary

              Change
  Q2 FY2017   Q1 FY2017   Q2 FY2016   Q2 FY2017
vs.
Q1 FY2017
  Q2 FY2017
vs.
Q2 FY2016
  (In millions, except per share amounts and percentages)
Net sales $ 3,546     $ 3,278     $ 2,450     8 %   45 %
Gross margin 45.1 %   44.1 %   41.0 %   1.0 points   4.1 points
Operating margin 26.5 %   24.6 %   17.3 %   1.9 points   9.2 points
Net income $ 824     $ 703     $ 320     17 %   158 %
Diluted earnings per share $ 0.76     $ 0.65     $ 0.29     17 %   162 %
Non-GAAP Adjusted Results                  
Non-GAAP adjusted gross margin 46.3 %   45.4 %   42.7 %   0.9 points   3.6 points
Non-GAAP adjusted operating margin 27.8 %   26.0 %   19.2 %   1.8 points   8.6 points
Non-GAAP adjusted net income $ 861     $ 732     $ 376     18 %   129 %
Non-GAAP adjusted diluted EPS $ 0.79     $ 0.67     $ 0.34     18 %   132 %

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 2017, Applied expects net sales to be in the range of $3.6 billion to $3.75 billion; the midpoint of the range would be an increase of approximately 30 percent, year over year. Non-GAAP adjusted diluted EPS is expected to be in the range of $0.79 to $0.87; the midpoint of the range would be an increase of approximately 66 percent, year over year.

This outlook for non-GAAP adjusted diluted EPS excludes known charges related to completed acquisitions of $0.04 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 FY2017   Q1 FY2017   Q2 FY2016
  (In millions, except percentages)
Net sales $ 2,404     $ 2,150     $ 1,587  
Foundry 41 %   50 %   30 %
DRAM 19 %   16 %   20 %
Flash 33 %   25 %   42 %
Logic and other 7 %   9 %   8 %
Operating income 808     690     364  
Operating margin 33.6 %   32.1 %   22.9 %
Non-GAAP Adjusted Results        
Non-GAAP adjusted operating income $ 854     $ 736     $ 410  
Non-GAAP adjusted operating margin 35.5 %   34.2 %   25.8 %


Applied Global Services Q2 FY2017   Q1 FY2017   Q2 FY2016
  (In millions, except percentages)
Net sales $ 724     $ 676     $ 633  
Operating income 194     178     165  
Operating margin 26.8 %   26.3 %   26.1 %
Non-GAAP Adjusted Results        
Non-GAAP adjusted operating income $ 195     $ 179     $ 165  
Non-GAAP adjusted operating margin 26.9 %   26.5 %   26.1 %


Display and Adjacent Markets Q2 FY2017   Q1 FY2017   Q2 FY2016
  (In millions, except percentages)
Net sales $ 391     $ 422     $ 187  
Operating income 84     115     31  
Operating margin 21.5 %   27.3 %   16.6 %
Non-GAAP Adjusted Results        
Non-GAAP adjusted operating income $ 84     $ 115     $ 31  
Non-GAAP adjusted operating margin 21.5 %   27.3 %   16.6 %

Use of Non-GAAP Adjusted Financial Measures

Applied provides investors with certain non-GAAP adjusted financial measures, which are adjusted to exclude 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; income tax items and certain other discrete adjustments. 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 our 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 we do not believe are indicative of our 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, technology transitions, our business and financial performance and market share positions, our capital allocation, our development of new products and technologies, our business outlook for the third quarter of fiscal 2017, 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; 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; 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 30,
 2017
  January 29,
 2017
  May 1,
 2016
  April 30,
 2017
  May 1,
 2016
Net sales $ 3,546     $ 3,278     $ 2,450     $ 6,824     $ 4,707  
Cost of products sold 1,946     1,833     1,446     3,779     2,787  
Gross profit 1,600     1,445     1,004     3,045     1,920  
Operating expenses:                  
Research, development and engineering 437     417     386     854     760  
Marketing and selling 116     118     102     234     208  
General and administrative 107     103     91     210     173  
Total operating expenses 660     638     579     1,298     1,141  
Income from operations 940     807     425     1,747     779  
Interest expense 44     38     37     82     79  
Interest and other income, net 12     2     7     14     9  
Income before income taxes 908     771     395     1,679     709  
Provision for income taxes 84     68     75     152     103  
Net income $ 824     $ 703     $ 320     $ 1,527     $ 606  
Earnings per share:                  
Basic $ 0.76     $ 0.65     $ 0.29     $ 1.42     $ 0.54  
Diluted $ 0.76     $ 0.65     $ 0.29     $ 1.40     $ 0.53  
Weighted average number of shares:                  
Basic 1,078     1,078     1,113     1,078     1,130  
Diluted 1,087     1,089     1,119     1,088     1,137  


 
APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
 
(In millions) April 30,
 2017
  January 29,
 2017
  October 30,
 2016
ASSETS          
Current assets:          
Cash and cash equivalents $ 4,944     $ 3,491     $ 3,406  
Short-term investments 1,800     656     343  
Accounts receivable, net 2,381     2,369     2,279  
Inventories 2,609     2,281     2,050  
Other current assets 284     297     275  
Total current assets 12,018     9,094     8,353  
Long-term investments 961     909     929  
Property, plant and equipment, net 969     949     937  
Goodwill 3,330     3,316     3,316  
Purchased technology and other intangible assets, net 490     527     575  
Deferred income taxes and other assets1 472     449     460  
Total assets $ 18,240     $ 15,244     $ 14,570  
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable, notes payable and accrued expenses 2,310     2,139     2,256  
Customer deposits and deferred revenue 1,787     1,669     1,376  
Total current liabilities 4,097     3,808     3,632  
Long-term debt1 5,302     3,125     3,125  
Other liabilities 629     624     596  
Total liabilities 10,028     7,557     7,353  
Total stockholders’ equity 8,212     7,687     7,217  
Total liabilities and stockholders’ equity $ 18,240     $ 15,244     $ 14,570  

1 Balances reflect the effects of the retrospective adoption of the authoritative guidance in the first quarter of fiscal 2017, which required debt issuance costs to be presented as a direct reduction from the carrying amount of the related debt liability. These amounts were originally recorded under Other Assets.

 
APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
 
(In millions) Three Months Ended   Six Months Ended
April 30,
 2017
  January 29,
 2017
  May 1,
 2016
April 30,
 2017
  May 1,
 2016
Cash flows from operating activities:                  
Net income $ 824     $ 703     $ 320     $ 1,527     $ 606  
Adjustments required to reconcile net income to cash provided by operating activities:                  
Depreciation and amortization 103     97     96     200     192  
Share-based compensation 53     54     48     107     102  
Excess tax benefits from share-based compensation (4 )   (44 )   (3 )   (48 )   (13 )
Deferred income taxes (16 )   25     (22 )   9     (7 )
Other     9     5     9     15  
Net change in operating assets and liabilities (62 )   (198 )   37     (260 )   (207 )
Cash provided by operating activities 898     646     481     1,544     688  
Cash flows from investing activities:                  
Capital expenditures (77 )   (64 )   (47 )   (141 )   (115 )
Cash paid for acquisitions, net of cash acquired (26 )       (8 )   (26 )   (8 )
Proceeds from sales and maturities of investments 601     286     232     887     473  
Purchases of investments (1,779 )   (589 )   (182 )   (2,368 )   (464 )
Cash used in investing activities (1,281 )   (367 )   (5 )   (1,648 )   (114 )
Cash flows from financing activities:                  
Debt borrowings (repayments), net of issuance costs 2,176             2,176     (1,205 )
Proceeds from common stock issuances and others 46         42     46     44  
Common stock repurchases (282 )   (130 )   (900 )   (412 )   (1,525 )
Excess tax benefits from share-based compensation 4     44     3     48     13  
Payments of dividends to stockholders (108 )   (108 )   (113 )   (216 )   (228 )
Cash provided by (used in) financing activities 1,836     (194 )   (968 )   1,642     (2,901 )
Increase (decrease) in cash and cash equivalents 1,453     85     (492 )   1,538     (2,327 )
Cash and cash equivalents — beginning of period 3,491     3,406     2,962     3,406     4,797  
Cash and cash equivalents — end of period $ 4,944     $ 3,491     $ 2,470     $ 4,944     $ 2,470  
Supplemental cash flow information:                  
Cash payments for income taxes $ 30     $ 35     $ 51     $ 65     $ 95  
Cash refunds from income taxes $ 6     $ 2     $ 98     $ 8     $ 103  
Cash payments for interest $ 41     $ 34     $ 42     $ 75     $ 76  


 
APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION
 
Corporate and Other
 
(In millions) Q2 FY2017   Q1 FY2017   Q2 FY2016
Unallocated net sales $ 27     $ 30     $ 43  
Unallocated cost of products sold and expenses (120 )   (152 )   (130 )
Share-based compensation (53 )   (54 )   (48 )
Total $ (146 )   $ (176 )   $ (135 )

Additional Information

    Q2 FY2017   Q1 FY2017   Q2 FY2016
Net Sales by Geography (In millions)    
United States   383     317     272  
% of Total   11 %   10 %   11 %
Europe   189     209     97  
% of Total   5 %   6 %   4 %
Japan   332     235     260  
% of Total   9 %   7 %   10 %
Korea   942     670     506  
% of Total   27 %   20 %   21 %
Taiwan   863     1,103     311  
% of Total   24 %   34 %   13 %
Southeast Asia   109     97     252  
% of Total   3 %   3 %   10 %
China   728     647     752  
% of Total   21 %   20 %   31 %
             
Employees (In thousands)            
Regular Full Time   16.6     16.0     14.8  


 
APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS
 
  Three Months Ended   Six Months Ended
(In millions, except percentages) April 30,
 2017
  January 29,
 2017
  May 1,
 2016
  April 30,
 2017
  May 1,
 2016
Non-GAAP Adjusted Gross Profit                  
Reported gross profit - GAAP basis $ 1,600     $ 1,445     $ 1,004     $ 3,045     $ 1,920  
Certain items associated with acquisitions1 41     42     41     83     83  
Inventory reversals related to restructuring2                 (1 )
Non-GAAP adjusted gross profit $ 1,641     $ 1,487     $ 1,045     $ 3,128     $ 2,002  
Non-GAAP adjusted gross margin 46.3 %   45.4 %   42.7 %   45.8 %   42.5 %
Non-GAAP Adjusted Operating Income                  
Reported operating income - GAAP basis $ 940     $ 807     $ 425     $ 1,747     $ 779  
Certain items associated with acquisitions1 46     47     46     93     94  
Acquisition integration costs 1     1         2      
Reversals related to restructuring, net2         (1 )       (2 )
Other gains, losses or charges, net     (3 )       (3 )    
Non-GAAP adjusted operating income $ 987     $ 852     $ 470     $ 1,839     $ 871  
Non-GAAP adjusted operating margin 27.8 %   26.0 %   19.2 %   26.9 %   18.5 %
Non-GAAP Adjusted Net Income                  
Reported net income - GAAP basis $ 824     $ 703     $ 320     $ 1,527     $ 606  
Certain items associated with acquisitions1 46     47     46     93     94  
Acquisition integration costs 1     1         2      
Reversals related to restructuring, net2         (1 )       (2 )
Impairment (gain on sale) of strategic investments, net     5     (1 )   5     (3 )
Loss on early extinguishment of debt                 5  
Other gains, losses or charges, net     (3 )       (3 )    
Reinstatement of federal R&D tax credit, resolution of prior years’ income tax filings and other tax items (6 )   (16 )   16     (22 )   (13 )
Income tax effect of non-GAAP adjustments3 (4 )   (5 )   (4 )   (9 )   (9 )
Non-GAAP adjusted net income $ 861     $ 732     $ 376     $ 1,593     $ 678  


1 These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.
   
2 Results for the three and six months ended May 1, 2016 included favorable adjustments associated with the cost reductions in the solar business.
   
3 These amounts represent non-GAAP adjustments above multiplied by the effective tax rate within the jurisdictions the adjustments affect.


 
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 30,
 2017
  January 29,
 2017
  May 1,
 2016
  April 30,
 2017
  May 1,
 2016
Non-GAAP Adjusted Earnings Per Diluted Share                  
Reported earnings per diluted share - GAAP basis $ 0.76     $ 0.65     $ 0.29     $ 1.40     $ 0.53  
Certain items associated with acquisitions 0.04     0.04     0.04     0.08     0.08  
Reinstatement of federal R&D tax credit, resolution of prior years’ income tax filings and other tax items (0.01 )   (0.02 )   0.01     (0.02 )   (0.01 )
Non-GAAP adjusted earnings per diluted share $ 0.79     $ 0.67     $ 0.34     $ 1.46     $ 0.60  
Weighted average number of diluted shares 1,087     1,089     1,119     1,088     1,137  



 
APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS
 
  Three Months Ended   Six Months Ended
(In millions, except percentages) April 30,
 2017
  January 29,
 2017
  May 1,
 2016
  April 30,
 2017
  May 1,
 2016
Semiconductor Systems Non-GAAP Adjusted Operating Income                  
Reported operating income - GAAP basis $ 808     $ 690     $ 364     $ 1,498     $ 629  
Certain items associated with acquisitions1 46     46     46     92     93  
Non-GAAP adjusted operating income $ 854     $ 736     $ 410     $ 1,590     $ 722  
Non-GAAP adjusted operating margin 35.5 %   34.2 %   25.8 %   34.9 %   24.4 %
AGS Non-GAAP Adjusted Operating Income                  
Reported operating income - GAAP basis $ 194     $ 178     $ 165     $ 372     $ 314  
Acquisition integration costs 1     1         2      
Non-GAAP adjusted operating income $ 195     $ 179     $ 165     $ 374     $ 314  
Non-GAAP adjusted operating margin 26.9 %   26.5 %   26.1 %   26.7 %   25.3 %
Display and Adjacent Markets Non-GAAP Adjusted Operating Income                  
Reported operating income - GAAP basis $ 84     $ 115     $ 31     $ 199     $ 79  
Certain items associated with acquisitions1                  
Non-GAAP adjusted operating income $ 84     $ 115     $ 31     $ 199     $ 79  
Non-GAAP adjusted operating margin 21.5 %   27.3 %   16.6 %   24.5 %   17.9 %


1 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.

 
APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL HISTORICAL INFORMATION
 
Semiconductor Systems   Q2 FY2017   Q1 FY2017   Q4 FY2016   Q3 FY2016   Q2 FY2016   Q1 FY2016   FY2015
    (In millions, except percentages)
Net Sales   $ 2,404     $ 2,150     $ 2,127     $ 1,786     $ 1,587     $ 1,373     $ 6,135  
Foundry   41 %   50 %   52 %   37 %   30 %   36 %   39 %
DRAM   19 %   16 %   10 %   11 %   20 %   28 %   27 %
Flash   33 %   25 %   23 %   41 %   42 %   19 %   21 %
Logic and other   7 %   9 %   15 %   11 %   8 %   17 %   13 %

 

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Applied Materials, Inc.