Financial News Release

Applied Materials Delivers Strong Year-On-Year Growth in Quarterly Revenue and Operating Income
  • Quarterly revenue of $4.47 billion, up 19 percent year over year
  • EPS of $1.17 and non-GAAP EPS of $1.20, up 38 percent and 40 percent year over year, respectively
  • Record revenue and operating income in Applied Global Services and Display

SANTA CLARA, Calif., Aug. 16, 2018 (GLOBE NEWSWIRE) -- Applied Materials, Inc. (NASDAQ:AMAT) today reported strong revenue, operating income and earnings per share in its third quarter ended July 29, 2018.

Third Quarter Results

Compared to the third quarter of fiscal 2017, Applied grew net sales by 19 percent to $4.47 billion. On a GAAP basis, the company recorded gross margin of 45.4 percent, and grew operating income by 23 percent to $1.26 billion or 28.1 percent of net sales. GAAP earnings per share (EPS) grew 38 percent to $1.17.

On a non-GAAP adjusted basis, over the same period, the company reported gross margin of 46.4 percent, grew operating income by 22 percent to $1.31 billion or 29.2 percent of net sales, and increased EPS by 40 percent to $1.20.

The company returned $1.45 billion to shareholders through $1.25 billion in share repurchases and dividends of $199 million.

“While we have seen some near-term adjustments in customer spending, fiscal 2018 is on track to be another record-setting year for Applied Materials and we expect each of our major businesses to deliver strong double-digit growth,” said Gary Dickerson, president and CEO. “Our future outlook remains positive as the A.I.-Big Data era requires new breakthroughs in technology, from materials to systems, providing Applied with a great opportunity to play a larger and more valuable role in the ecosystem.”

Quarterly Results Summary

  Q3 FY2018   Q3 FY2017   Change
  (In millions, except per share amounts and percentages)
Net sales $ 4,468     $ 3,744     19 %
Gross margin 45.4 %   45.4 %    
Operating margin 28.1 %   27.3 %   0.8 points
Net income $ 1,173     $ 925     27 %
Diluted earnings per share $ 1.17     $ 0.85     38 %
Non-GAAP Adjusted Results          
Non-GAAP adjusted gross margin 46.4 %   46.6 %   (0.2) points
Non-GAAP adjusted operating margin 29.2 %   28.7 %   0.5 points
Non-GAAP adjusted net income $ 1,205     $ 927     30 %
Non-GAAP adjusted diluted EPS $ 1.20     $ 0.86     40 %

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 2018, Applied expects net sales for fiscal 2018 to be in the range of $3.85 billion to $4.15 billion; the midpoint of the range would be approximately flat, year over year. Non-GAAP adjusted diluted EPS is expected to be in the range of $0.92 to $1.00; the midpoint of the range would be an increase of approximately 3 percent, year over year.

With this fourth-quarter outlook, Applied expects net sales for fiscal 2018 to be in the range of $17.1 billion to $17.4 billion; the midpoint of the range would be up approximately 19 percent, year over year. Non-GAAP adjusted diluted EPS is expected to be in the range of $4.41 to $4.49; the midpoint of the range would be an increase of approximately 37 percent, year over year.

The fourth quarter of fiscal 2018 outlook for non-GAAP adjusted diluted EPS excludes known charges related to completed acquisitions of $0.05 per share and includes the normalized tax benefit of share-based compensation of $0.01 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 Systems Q3 FY2018   Q3 FY2017
  (In millions, except percentages)
Net sales $ 2,748     $ 2,532  
Foundry 28 %   39 %
DRAM 24 %   15 %
Flash 36 %   38 %
Logic and other 12 %   8 %
Operating income 930     874  
Operating margin 33.8 %   34.5 %
Non-GAAP Adjusted Results    
Non-GAAP adjusted operating income $ 975     $ 920  
Non-GAAP adjusted operating margin 35.5 %   36.3 %
 
Applied Global Services Q3 FY2018   Q3 FY2017
  (In millions, except percentages)
Net sales $ 954     $ 786  
Operating income 281     213  
Operating margin 29.5 %   27.1 %
Non-GAAP Adjusted Results    
Non-GAAP adjusted operating income $ 281     $ 215  
Non-GAAP adjusted operating margin 29.5 %   27.4 %
 
Display and Adjacent Markets Q3 FY2018   Q3 FY2017
  (In millions, except percentages)
Net sales $ 741     $ 410  
Operating income 214     91  
Operating margin 28.9 %   22.2 %
Non-GAAP Adjusted Results    
Non-GAAP adjusted operating income $ 218     $ 93  
Non-GAAP adjusted operating margin 29.4 %   22.7 %

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, the third quarter and first nine months of fiscal 2018 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 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 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 2018, 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   Nine Months Ended
(In millions, except per share amounts) July 29,   July 30,   July 29,   July 30,
2018 2017 2018 2017
Net sales $ 4,468     $ 3,744     $ 13,239     $ 10,568  
Cost of products sold 2,441     2,044     7,202     5,823  
Gross profit 2,027     1,700     6,037     4,745  
Operating expenses:              
Research, development and engineering 504     454     1,501     1,308  
Marketing and selling 138     117     394     351  
General and administrative 128     106     362     316  
Total operating expenses 770     677     2,257     1,975  
Income from operations 1,257     1,023     3,780     2,770  
Interest expense 59     59     174     141  
Interest and other income, net 41     14     90     28  
Income before income taxes 1,239     978     3,696     2,657  
Provision for income taxes 66     53     1,259     205  
Net income $ 1,173     $ 925     $ 2,437     $ 2,452  
Earnings per share:              
Basic $ 1.18     $ 0.86     $ 2.37     $ 2.28  
Diluted $ 1.17     $ 0.85     $ 2.35     $ 2.26  
Weighted average number of shares:              
Basic 994     1,071     1,026     1,076  
Diluted 1,005     1,083     1,039     1,087  

 

APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions) July 29,   October 29,
2018 2017
ASSETS      
Current assets:      
Cash and cash equivalents $ 3,374     $ 5,010  
Short-term investments 610     2,266  
Accounts receivable, net 2,882     2,338  
Inventories 3,681     2,930  
Other current assets 342     374  
Total current assets 10,889     12,918  
Long-term investments 1,613     1,143  
Property, plant and equipment, net 1,321     1,066  
Goodwill 3,368     3,368  
Purchased technology and other intangible assets, net 263     412  
Deferred income taxes and other assets 429     512  
Total assets $ 17,883     $ 19,419  
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current liabilities:      
Accounts payable and accrued expenses $ 2,741     $ 2,450  
Customer deposits and deferred revenue 1,581     1,665  
Total current liabilities 4,322     4,115  
Income taxes payable 1,148     392  
Long-term debt 5,308     5,304  
Other liabilities 280     259  
Total liabilities 11,058     10,070  
Total stockholders’ equity 6,825     9,349  
Total liabilities and stockholders’ equity $ 17,883     $ 19,419  
 

 

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

(In millions) Three Months Ended   Nine Months Ended
July 29,   July 30, July 29,   July 30,
2018 2017 2018 2017
Cash flows from operating activities:              
Net income $ 1,173     $ 925     $ 2,437     $ 2,452  
Adjustments required to reconcile net income to cash provided by operating activities:              
Depreciation and amortization 110     102     337     302  
Share-based compensation 64     55     193     162  
Deferred income taxes 26     (3 )   112     6  
Other (7 )   6     4     15  
Net change in operating assets and liabilities (733 )   292     (373 )   143  
Cash provided by operating activities 633     1,377     2,710     3,080  
Cash flows from investing activities:              
Capital expenditures (133 )   (80 )   (457 )   (221 )
Cash paid for acquisitions, net of cash acquired     (30 )   (5 )   (56 )
Proceeds from sales and maturities of investments 391     935     2,823     1,822  
Purchases of investments (932 )   (1,174 )   (1,661 )   (3,542 )
Cash provided by (used in) investing activities (674 )   (349 )   700     (1,997 )
Cash flows from financing activities:              
Debt borrowings, net of issuance costs             2,176  
Debt repayments     (205 )       (205 )
Proceeds from common stock issuances     1     56     47  
Common stock repurchases (1,250 )   (375 )   (4,532 )   (787 )
Tax withholding payments for vested equity awards (6 )   (8 )   (160 )   (119 )
Payments of dividends to stockholders (199 )   (107 )   (410 )   (323 )
Cash provided by (used in) financing activities (1,455 )   (694 )   (5,046 )   789  
Increase (decrease) in cash and cash equivalents (1,496 )   334     (1,636 )   1,872  
Cash and cash equivalents — beginning of period 4,870     4,944     5,010     3,406  
Cash and cash equivalents — end of period $ 3,374     $ 5,278     $ 3,374     $ 5,278  
Supplemental cash flow information:              
Cash payments for income taxes $ 64     $ 103     $ 281     $ 168  
Cash refunds from income taxes $ 10     $ 9     $ 51     $ 17  
Cash payments for interest $ 33     $ 35     $ 143     $ 110  

 

APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Corporate and Other
 
(In millions) Q3 FY2018   Q3 FY2017
Unallocated net sales $ 25     $ 16  
Unallocated cost of products sold and expenses (129 )   (116 )
Share-based compensation (64 )   (55 )
Total $ (168 )   $ (155 )
 
Additional Information
 
  Q3 FY2018   Q3 FY2017
Net Sales by Geography (In millions)            
United States   401       359  
% of Total   9 %     10 %
Europe   240       191  
% of Total   5 %     5 %
Japan   700       444  
% of Total   16 %     12 %
Korea   588       1,265  
% of Total   13 %     34 %
Taiwan   641       607  
% of Total   14 %     16 %
Southeast Asia   173       104  
% of Total   4 %     2 %
China   1,725       774  
% of Total   39 %     21 %
         
Employees (In thousands)        
Regular Full Time   20.7       17.6  



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

  Three Months Ended   Nine Months Ended
(In millions, except percentages) July 29,   July 30,   July 29,   July 30,
2018 2017 2018 2017
Non-GAAP Adjusted Gross Profit              
Reported gross profit - GAAP basis $ 2,027     $ 1,700     $ 6,037     $ 4,745  
Certain items associated with acquisitions1 45     44     134     127  
Non-GAAP adjusted gross profit $ 2,072     $ 1,744     $ 6,171     $ 4,872  
Non-GAAP adjusted gross margin 46.4 %   46.6 %   46.6 %   46.1 %
Non-GAAP Adjusted Operating Income              
Reported operating income - GAAP basis $ 1,257     $ 1,023     $ 3,780     $ 2,770  
Certain items associated with acquisitions1 49     49     147     142  
Acquisition integration costs     1     2     3  
Other gains, losses or charges, net             (3 )
Non-GAAP adjusted operating income $ 1,306     $ 1,073     $ 3,929     $ 2,912  
Non-GAAP adjusted operating margin 29.2 %   28.7 %   29.7 %   27.6 %
Non-GAAP Adjusted Net Income              
Reported net income - GAAP basis $ 1,173     $ 925     $ 2,437     $ 2,452  
Certain items associated with acquisitions1 49     49     147     142  
Acquisition integration costs     1     2     3  
Impairment (gain on sale) of strategic investments, net (14 )   (1 )   (10 )   4  
Loss on early extinguishment of debt     5         5  
Other gains, losses or charges, net             (3 )
Income tax effect of share-based compensation2 13         (13 )    
Income tax effect of changes in applicable U.S. tax laws3 12         1,089      
Resolution of prior years’ income tax filings and other tax items (29 )   (46 )   (32 )   (68 )
Income tax effect of non-GAAP adjustments4 1     (6 )   (7 )   (15 )
Non-GAAP adjusted net income $ 1,205     $ 927     $ 3,613     $ 2,520  


1 These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.
   
2 Applied adopted the accounting standard related to share-based compensation (ASU 2016-09) in the first quarter of fiscal 2018, which resulted in $51 million tax benefit on a GAAP basis for the nine months ended July 29, 2018; this benefit is being recognized ratably over the fiscal year on a non-GAAP basis.
   
3 Charges 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.
   
4 Adjustment 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 29,   July 30,   July 29,   July 30,
2018 2017 2018 2017
Non-GAAP Adjusted Earnings Per Diluted Share              
Reported earnings per diluted share - GAAP basis $ 1.17     $ 0.85     $ 2.35     $ 2.26  
Certain items associated with acquisitions 0.05     0.04     0.13     0.12  
Impairment (gain on sale) of strategic investments, net (0.01 )       (0.01 )    
Income tax effect of share-based compensation 0.01         (0.01 )    
Income tax effect of changes in applicable U.S. tax laws 0.01         1.05      
Resolution of prior years’ income tax filings and other tax items (0.03 )   (0.04 )   (0.03 )   (0.06 )
Other gains, losses or charges, net     0.01          
Non-GAAP adjusted earnings per diluted share $ 1.20     $ 0.86     $ 3.48     $ 2.32  
Weighted average number of diluted shares 1,005     1,083     1,039     1,087  

 

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

  Three Months Ended   Nine Months Ended
(In millions, except percentages) July 29,   July 30,   July 29,   July 30,
2018 2017 2018 2017
Semiconductor Systems Non-GAAP Adjusted Operating Income              
Reported operating income - GAAP basis $ 930     $ 874     $ 2,996     $ 2,372  
Certain items associated with acquisitions1 45     46     137     138  
Non-GAAP adjusted operating income $ 975     $ 920     $ 3,133     $ 2,510  
Non-GAAP adjusted operating margin 35.5 %   36.3 %   36.5 %   35.4 %
AGS Non-GAAP Adjusted Operating Income              
Reported operating income - GAAP basis $ 281     $ 213     $ 813     $ 585  
Certain items associated with acquisitions1     1         1  
Acquisition integration costs     1     1     3  
Non-GAAP adjusted operating income $ 281     $ 215     $ 814     $ 589  
Non-GAAP adjusted operating margin 29.5 %   27.4 %   29.3 %   26.9 %
Display and Adjacent Markets Non-GAAP Adjusted Operating Income              
Reported operating income - GAAP basis $ 214     $ 91     $ 477     $ 290  
Certain items associated with acquisitions1 4     2     10     2  
Acquisition integration costs         1      
Non-GAAP adjusted operating income $ 218     $ 93     $ 488     $ 292  
Non-GAAP adjusted operating margin 29.4 %   22.7 %   27.2 %   23.9 %
 
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.

 

UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED EFFECTIVE INCOME TAX RATE

  Three Months Ended
(In millions, except percentages) July 29, 2018
       
Provision for income taxes - GAAP basis (a) $ 66  
Income tax effect of share-based compensation (13 )
Income tax effect of changes in applicable U.S. tax laws (12 )
Resolutions of prior years’ income tax filings and other tax items 29  
Income tax effect of non-GAAP adjustments (1 )
Non-GAAP adjusted provision for income taxes (b) $ 69  
       
Income before income taxes - GAAP basis (c) $ 1,239  
Certain items associated with acquisitions 49  
Impairment (gain on sale) of strategic investments, net (14 )
Non-GAAP adjusted income before income taxes (d) $ 1,274  
 
Effective income tax rate - GAAP basis (a/c) 5.3 %
 
Non-GAAP adjusted effective income tax rate (b/d) 5.4 %
 

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Applied Materials, Inc.