Applied Materials Announces First Quarter 2021 Results

FINANCIAL NEWS RELEASE

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Applied Materials Announces First Quarter 2021 Results

  • Record quarterly revenue of $5.16 billion, up 24 percent year over year
  • Quarterly GAAP EPS of $1.22 and record non-GAAP EPS of $1.39, up 27 percent and 42 percent year over year, respectively
  • Generated $1.42 billion in cash from operations

SANTA CLARA, Calif., Feb. 18, 2021 (GLOBE NEWSWIRE) -- Applied Materials, Inc. (NASDAQ: AMAT) today reported results for its first quarter ended Jan. 31, 2021.

First Quarter Results

Applied generated revenue of $5.16 billion. On a GAAP basis, the company recorded gross margin of 45.5 percent, operating income of $1.28 billion or 24.9 percent of net sales, and earnings per share (EPS) of $1.22.

On a non-GAAP adjusted basis, the company reported gross margin of 45.9 percent, operating income of $1.50 billion or 29.0 percent of net sales, and EPS of $1.39.

The company generated $1.42 billion in cash from operations and paid dividends of $201 million to shareholders.

“In our first fiscal quarter, we’ve seen a continued acceleration of demand in our semiconductor business as major macro and industry trends fuel increasing consumption of silicon across a wide range of markets and applications,” said Gary Dickerson, president and CEO. “We have strong momentum across the company, as our broad portfolio and exposure to technology inflections, combined with the traction of our new products, put us in a great position to substantially outgrow our markets again in 2021 and beyond.”

Quarterly Results Summary

  Q1 FY2021   Q1 FY2020   Change
   
  (In millions, except per share amounts and percentages)
Net sales $ 5,162     $ 4,162     24%
Gross margin 45.5 %   44.6 %   0.9 points
Operating margin 24.9 %   25.0 %   (0.1) points
Net income $ 1,130     $ 892     27%
Diluted earnings per share $ 1.22     $ 0.96     27%
Non-GAAP Adjusted Results          
Non-GAAP adjusted gross margin 45.9 %   44.9 %   1.0 points
Non-GAAP adjusted operating margin 29.0 %   25.7 %   3.3 points
Non-GAAP adjusted net income $ 1,282     $ 904     42%
Non-GAAP adjusted diluted EPS $ 1.39     $ 0.98     42%

First quarter GAAP results included $152 million of severance and related charges primarily related to a one-time voluntary retirement program offered to certain eligible employees, which reduced earnings per share by $0.13.

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 2021, Applied expects net sales to be approximately $5.39 billion, plus or minus $200 million. Non-GAAP adjusted diluted EPS is expected to be in the range of $1.44 to $1.56.

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.

First Quarter Reportable Segment Information

Semiconductor Systems Q1 FY2021   Q1 FY2020
   
  (In millions, except percentages)
Net sales $ 3,553     $ 2,814  
Foundry, logic and other 58 %   68 %
DRAM 17 %   15 %
Flash memory 25 %   17 %
Operating income 1,261     915  
Operating margin 35.5 %   32.5 %
Non-GAAP Adjusted Results    
Non-GAAP adjusted operating income $ 1,281     $ 925  
Non-GAAP adjusted operating margin 36.1 %   32.9 %


Applied Global Services Q1 FY2021   Q1 FY2020
   
  (In millions, except percentages)
Net sales $ 1,155     $ 997  
Operating income 332     278  
Operating margin 28.7 %   27.9 %
Non-GAAP Adjusted Results    
Non-GAAP adjusted operating income $ 340     $ 278  
Non-GAAP adjusted operating margin 29.4 %   27.9 %







Display and Adjacent Markets Q1 FY2021   Q1 FY2020
   
  (In millions, except percentages)
Net sales $ 411     $ 332  
Operating income 65     38  
Operating margin 15.8 %   11.4 %
Non-GAAP Adjusted Results    
Non-GAAP adjusted operating income $ 75     $ 41  
Non-GAAP adjusted operating margin 18.2 %   12.3 %

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 and severance charges and any associated adjustments; certain incremental expenses related to COVID-19; impairments of assets, or investments; gain or loss on sale of 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 second quarter of fiscal 2021 and beyond, the impact of the ongoing COVID-19 pandemic and responses thereto on our operations and financial results, strategic acquisitions and investments, including the proposed acquisition of Kokusai Electric Corporation, 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-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 31,
2021
  January 26,
2020
Net sales $ 5,162     $ 4,162  
Cost of products sold 2,813     2,304  
Gross profit 2,349     1,858  
Operating expenses:      
Research, development and engineering 606     552  
Marketing and selling 147     135  
General and administrative 161     129  
Severance and related charges 152      
Total operating expenses 1,066     816  
Income from operations 1,283     1,042  
Interest expense 61     59  
Interest and other income, net 18     22  
Income before income taxes 1,240     1,005  
Provision for income taxes 110     113  
Net income $ 1,130     $ 892  
Earnings per share:      
Basic $ 1.23     $ 0.97  
Diluted $ 1.22     $ 0.96  
Weighted average number of shares:      
Basic 915     916  
Diluted 925     927  


APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions) January 31,
2021
  October 25,
2020
ASSETS      
Current assets:      
Cash and cash equivalents $ 6,213     $ 5,351  
Short-term investments 410     387  
Accounts receivable, net 3,045     2,963  
Inventories 3,925     3,904  
Other current assets 676     764  
Total current assets 14,269     13,369  
Long-term investments 1,601     1,538  
Property, plant and equipment, net 1,638     1,604  
Goodwill 3,479     3,466  
Purchased technology and other intangible assets, net 140     153  
Deferred income taxes and other assets 2,178     2,223  
Total assets $ 23,305     $ 22,353  
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current liabilities:      
Accounts payable and accrued expenses $ 2,932     $ 3,138  
Contract liabilities 1,572     1,321  
Total current liabilities 4,504     4,459  
Long-term debt, net of current portion 5,449     5,448  
Income taxes payable 1,210     1,206  
Other liabilities 669     662  
Total liabilities 11,832     11,775  
Total stockholders’ equity 11,473     10,578  
Total liabilities and stockholders’ equity $ 23,305     $ 22,353  


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

(In millions)

Three Months Ended
January 31,
2021
  January 26,
2020
Cash flows from operating activities:      
Net income $ 1,130     $ 892  
Adjustments required to reconcile net income to cash provided by operating activities:      
     Depreciation and amortization 94     94  
     Severance and related charges 148      
     Share-based compensation 107     93  
     Deferred income taxes 28     30  
     Other     15  
     Net change in operating assets and liabilities (86 )   (137 )
Cash provided by operating activities 1,421     987  
Cash flows from investing activities:      
Capital expenditures (121 )   (102 )
Cash paid for acquisitions, net of cash acquired (12 )    
Proceeds from sales and maturities of investments 358     368  
Purchases of investments (441 )   (428 )
Cash used in investing activities (216 )   (162 )
Cash flows from financing activities:      
Proceeds from common stock issuances     15  
Common stock repurchases     (200 )
Tax withholding payments for vested equity awards (142 )   (153 )
Payments of dividends to stockholders (201 )   (192 )
Cash used in financing activities (343 )   (530 )
Increase in cash, cash equivalents and restricted cash equivalents 862     295  
Cash, cash equivalents and restricted cash equivalents—beginning of period 5,466     3,129  
Cash, cash equivalents and restricted cash equivalents—end of period $ 6,328     $ 3,424  
       
Reconciliation of cash, cash equivalents, and restricted cash equivalents      
Cash and cash equivalents $ 6,213     $ 3,424  
Restricted cash equivalents included in deferred income taxes and other assets 115      
Total cash, cash equivalents, and restricted cash equivalents $ 6,328     $ 3,424  
       
Supplemental cash flow information:      
Cash payments for income taxes $ 110     $ 82  
Cash refunds from income taxes $ 19     $ 1  
Cash payments for interest $ 35     $ 34  


APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Corporate and Other

(In millions) Q1 FY2021   Q1 FY2020
Unallocated net sales $ 43     $ 19  
Unallocated cost of products sold and expenses (167 )   (115 )
Share-based compensation (107 )   (93 )
Severance and related charges (144 )    
Total $ (375 )   $ (189 )

Additional Information

  Q1 FY2021   Q1 FY2020
Net Sales by Geography (In millions)  
United States 343     441  
% of Total 6 %   10 %
Europe 299     153  
% of Total 6 %   4 %
Japan 458     351  
% of Total 9 %   8 %
Korea 1,289     508  
% of Total 25 %   12 %
Taiwan 1,200     1,365  
% of Total 23 %   33 %
Southeast Asia 190     72  
% of Total 4 %   2 %
China 1,383     1,272  
% of Total 27 %   31 %
       
Employees (In thousands)      
Regular Full Time 24.2     22.3  


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

  Three Months Ended
(In millions, except percentages) January 31,
2021
  January 26,
2020
Non-GAAP Adjusted Gross Profit      
Reported gross profit - GAAP basis $ 2,349     $ 1,858  
Certain items associated with acquisitions1 8     9  
Certain incremental expenses related to COVID-192 12      
Non-GAAP adjusted gross profit $ 2,369     $ 1,867  
Non-GAAP adjusted gross margin 45.9 %   44.9 %
Non-GAAP Adjusted Operating Income      
Reported operating income - GAAP basis $ 1,283     $ 1,042  
Certain items associated with acquisitions1 13     13  
Acquisition integration and deal costs 24     13  
Certain incremental expenses related to COVID-192 24      
Severance and related charges3 152      
Non-GAAP adjusted operating income $ 1,496     $ 1,068  
Non-GAAP adjusted operating margin 29.0 %   25.7 %
Non-GAAP Adjusted Net Income      
Reported net income - GAAP basis $ 1,130     $ 892  
Certain items associated with acquisitions1 13     13  
Acquisition integration and deal costs 24     13  
Certain incremental expenses related to COVID-192 24      
Severance and related charges3 152      
Realized loss (gain) on strategic investments, net (2 )   2  
Unrealized loss (gain) on strategic investments, net (6 )   2  
Income tax effect of share-based compensation4 (29 )   (33 )
Income tax effects related to intra-entity intangible asset transfers 20     21  
Resolution of prior years’ income tax filings and other tax items (3 )   (1 )
Income tax effect of non-GAAP adjustments5 (41 )   (5 )
Non-GAAP adjusted net income $ 1,282     $ 904  


1 These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.
   
2 Temporary incremental employee compensation during the COVID-19 pandemic.
   
3 The severance and related charges primarily related to a one-time voluntary retirement program offered to certain eligible employees.
   
4 GAAP basis tax benefit related to share-based compensation is recognized ratably over the fiscal year on a non-GAAP basis.
   
5 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
(In millions, except per share amounts) January 31,
2021
  January 26,
2020
Non-GAAP Adjusted Earnings Per Diluted Share      
Reported earnings per diluted share - GAAP basis $ 1.22     $ 0.96  
Certain items associated with acquisitions 0.01     0.01  
Acquisition integration and deal costs 0.02     0.01  
Certain incremental expenses related to COVID-19 0.02      
Severance and related charges 0.13      
Income tax effect of share-based compensation (0.03 )   (0.03 )
Income tax effects related to intra-entity intangible asset transfers 0.02     0.03  
Non-GAAP adjusted earnings per diluted share $ 1.39     $ 0.98  
Weighted average number of diluted shares 925     927  


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

  Three Months Ended
(In millions, except percentages) January 31,
2021
  January 26,
2020
Semiconductor Systems Non-GAAP Adjusted Operating Income      
Reported operating income - GAAP basis $ 1,261     $ 915  
Certain items associated with acquisitions1 10     10  
Acquisition integration costs (2 )    
Certain incremental expenses related to COVID-192 12      
Non-GAAP adjusted operating income $ 1,281     $ 925  
Non-GAAP adjusted operating margin 36.1 %   32.9 %
AGS Non-GAAP Adjusted Operating Income      
Reported operating income - GAAP basis $ 332     $ 278  
Certain incremental expenses related to COVID-192 8      
Non-GAAP adjusted operating income $ 340     $ 278  
Non-GAAP adjusted operating margin 29.4 %   27.9 %
Display and Adjacent Markets Non-GAAP Adjusted Operating Income      
Reported operating income - GAAP basis $ 65     $ 38  
Certain items associated with acquisitions1 1     3  
Certain incremental expenses related to COVID-192 1      
Severance and related charges3 8      
Non-GAAP adjusted operating income $ 75     $ 41  
Non-GAAP adjusted operating margin 18.2 %   12.3 %


These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.
2 Temporary incremental employee compensation during the COVID-19 pandemic.
3 The 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) January 31, 2021
   
Provision for income taxes - GAAP basis (a) $ 110  
Income tax effect of share-based compensation 29  
Income tax effects related to intra-entity intangible asset transfers (20 )
Resolutions of prior years’ income tax filings and other tax items 3  
Income tax effect of non-GAAP adjustments 41  
Non-GAAP adjusted provision for income taxes (b) $ 163  
   
Income before income taxes - GAAP basis (c) $ 1,240  
Certain items associated with acquisitions 13  
Acquisition integration and deal costs 24  
Certain incremental expenses related to COVID-19 24  
Severance and related charges 152  
Realized loss (gain) on strategic investments, net (2 )
Unrealized loss (gain) on strategic investments, net (6 )
Non-GAAP adjusted income before income taxes (d) $ 1,445  
   
Effective income tax rate - GAAP basis (a/c) 8.9 %
   
Non-GAAP adjusted effective income tax rate (b/d) 11.3 %


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Source: Applied Materials, Inc.