Applied Materials Announces Fourth Quarter and Fiscal Year 2019 Results

FINANCIAL NEWS RELEASE

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Applied Materials Announces Fourth Quarter and Fiscal Year 2019 Results

  • Quarterly revenue of $3.75 billion 
  • Quarterly GAAP EPS of $0.75 and non-GAAP EPS of $0.80
  • Returns $3.17 billion to shareholders in fiscal 2019

SANTA CLARA, Calif., Nov. 14, 2019 (GLOBE NEWSWIRE) -- Applied Materials, Inc. (NASDAQ:AMAT) today reported results for its fourth quarter and fiscal year ended Oct. 27, 2019.

Fourth Quarter Results

Applied generated revenue of $3.75 billion. On a GAAP basis, the company recorded gross margin of 43.5 percent, operating income of $864 million or 23.0 percent of net sales, and earnings per share (EPS) of $0.75.

On a non-GAAP adjusted basis, the company reported gross margin of 43.8 percent, operating income of $888 million or 23.7 percent of net sales, and EPS of $0.80.

The company returned $694 million to shareholders including $500 million in share repurchases and dividends of $194 million.

Full Year Results

In fiscal 2019, Applied generated revenue of $14.61 billion. On a GAAP basis, the company recorded gross margin of 43.7 percent, operating income of $3.35 billion or 22.9 percent of net sales, and EPS of $2.86.

On a non-GAAP adjusted basis, the company reported gross margin of 44.0 percent, operating income of $3.43 billion or 23.5 percent of net sales, and EPS of $3.04.

The company generated $3.25 billion in cash from operations, paid dividends of $771 million and used $2.40 billion to repurchase 60 million shares of common stock.

“Applied Materials’ fourth quarter results reflect a healthy uptick in demand for semiconductor equipment, combined with strong execution across the company,” said Gary Dickerson, president and CEO. “The semiconductor industry is increasingly adopting a new playbook for improving chip performance, power, area and cost, and we are investing in unique solutions to enable our customers’ success in the AI-Big Data era.”

Results Summary

                Change
  Q4 FY2019   Q4 FY2018   FY2019   FY2018 Q4 FY2019
vs.
Q4 FY2018
  FY2019
vs.
FY2018
  (In millions, except per share amounts and percentages)
Net sales $ 3,754   $ 3,759   $ 14,608   $ 16,705 %   (13 )%
Gross margin 43.5%   44.1%   43.7%   45.0% (0.6) points   (1.3) points
Operating margin 23.0%   23.7%   22.9%   26.9% (0.7) points   (4.0) points
Net income $ 698   $ 757   $ 2,706   $ 3,038 (8 )%   (11 )%
Diluted earnings per share $ 0.75   $ 0.77   $ 2.86   $ 2.96 (3 )%   (3 )%
Non-GAAP Adjusted Results                    
Non-GAAP adjusted gross margin 43.8%   45.3%   44.0%   46.1% (1.5) points   (2.1) points
Non-GAAP adjusted operating margin 23.7%   25.1%   23.5%   28.1% (1.4) points   (4.6) points
Non-GAAP adjusted net income $ 744   $ 837   $ 2,875   $ 4,294 (11 )%   (33 )%
Non-GAAP adjusted diluted EPS $ 0.80   $ 0.85   $ 3.04   $ 4.18 (6 )%   (27 )%

Applied adopted Accounting Standards Update 2014-09, Revenue from Contracts with Customers (ASC 606), as of the first day of fiscal 2019 using the full retrospective method. Applied also adopted Accounting Standards Update 2017-07, Compensation—Retirement Benefits, as of the first day of fiscal 2019 using the retrospective method. All prior periods included in the unaudited consolidated condensed balance sheet as of Oct. 28, 2018, and the unaudited consolidated condensed statements of operations and cash flows for the three and twelve months ended Oct. 28, 2018, were restated under the new standards.

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 first quarter of fiscal 2020, Applied expects net sales to be approximately $4.10 billion, plus or minus $150 million. Non-GAAP adjusted diluted EPS is expected to be in the range of $0.87 to $0.95.

This outlook for non-GAAP adjusted diluted EPS excludes known charges related to completed acquisitions of $0.01 per share and includes 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.

Fourth Quarter and Fiscal Year Reportable Segment Information

Semiconductor Systems Q4 FY2019   Q4 FY2018   FY2019   FY2018
  (In millions, except percentages)
Net sales $ 2,302   $ 2,246   $ 9,027   $ 10,577
Foundry, logic and other 58%   40%   52%   36%
DRAM 21%   26%   22%   27%
Flash 21%   34%   26%   37%
Operating income 641   594   2,464   3,441
Operating margin 27.8%   26.4%   27.3%   32.5%
Non-GAAP Adjusted Results            
Non-GAAP adjusted operating income $ 652   $ 640   $ 2,507   $ 3,624
Non-GAAP adjusted operating margin 28.3%   28.5%   27.8%   34.3%


Applied Global Services Q4 FY2019   Q4 FY2018   FY2019   FY2018
  (In millions, except percentages)
Net sales $ 977   $ 976   $ 3,854   $ 3,754
Operating income 274   288   1,101   1,102
Operating margin 28.0%   29.5%   28.6%   29.4%
Non-GAAP Adjusted Results            
Non-GAAP adjusted operating income $ 274   $ 289   $ 1,101   $ 1,104
Non-GAAP adjusted operating margin 28.0%   29.6%   28.6%   29.4%


Display and Adjacent Markets Q4 FY2019   Q4 FY2018   FY2019   FY2018
  (In millions, except percentages)
Net sales $ 457   $ 520   $ 1,651   $ 2,298
Operating income 96   118   294   574
Operating margin 21.0%   22.7%   17.8%   25.0%
Non-GAAP Adjusted Results            
Non-GAAP adjusted operating income $ 99   $ 122   $ 307   $ 589
Non-GAAP adjusted operating margin 21.7%   23.5%   18.6%   25.6%

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 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 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 first quarter of fiscal 2020 and beyond, 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; 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 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   Year Ended
(In millions, except per share amounts) October 27,
2019
  October 28,
2018
  October 27,
2019
  October 28,
2018
Net sales $ 3,754   $ 3,759   $ 14,608   $ 16,705
Cost of products sold 2,120   2,102   8,222   9,188
Gross profit 1,634   1,657   6,386   7,517
Operating expenses:              
Research, development and engineering 515   519   2,054   2,022
Marketing and selling 129   127   521   521
General and administrative 126   120   461   483
Total operating expenses 770   766   3,036   3,026
Income from operations 864   891   3,350   4,491
Interest expense 59   60   237   234
Interest and other income, net 35   44   156   139
Income before income taxes 840   875   3,269   4,396
Provision for income taxes 142   118   563   1,358
Net income $ 698   $ 757   $ 2,706   $ 3,038
Earnings per share:              
Basic $ 0.76   $ 0.78   $ 2.89   $ 3.00
Diluted $ 0.75   $ 0.77   $ 2.86   $ 2.96
Weighted average number of shares:              
Basic 920   974   937   1,013
Diluted 931   984   945   1,026


APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions) October 27,
2019
  October 28,
2018
ASSETS      
Current assets:      
Cash and cash equivalents $ 3,129   $ 3,440
Short-term investments 489   590
Accounts receivable, net 2,533   2,323
Inventories 3,474   3,721
Other current assets 581   530
Total current assets 10,206   10,604
Long-term investments 1,703   1,568
Property, plant and equipment, net 1,529   1,407
Goodwill 3,399   3,368
Purchased technology and other intangible assets, net 156   213
Deferred income taxes and other assets 2,031   473
Total assets $ 19,024   $ 17,633
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current liabilities:      
Current portion of long-term debt $ 600   $
Accounts payable and accrued expenses 2,511   2,721
Contract liabilities 1,336   1,201
Total current liabilities 4,447   3,922
Long-term debt 4,713   5,309
Income taxes payable 1,275   1,254
Other liabilities 375   303
Total liabilities 10,810   10,788
Total stockholders’ equity 8,214   6,845
Total liabilities and stockholders’ equity $ 19,024   $ 17,633



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

(In millions) Three Months Ended   Year Ended
October 27,
2019
  October 28,
2018
October 27,
2019
  October 28,
2018
Cash flows from operating activities:              
Net income $ 698     $ 757     $ 2,706     $ 3,038  
Adjustments required to reconcile net income to cash provided by operating activities:              
Depreciation and amortization 92     120     363     457  
Share-based compensation 66     65     263     258  
Deferred income taxes (8 )   (23 )   49     71  
Other         (19 )   4  
Net change in operating assets and liabilities (22 )   158     (115 )   (41 )
Cash provided by operating activities 826     1,077     3,247     3,787  
Cash flows from investing activities:              
Capital expenditures (97 )   (165 )   (441 )   (622 )
Cash paid for acquisitions, net of cash acquired     (1 )   (28 )   (6 )
Proceeds from sales and maturities of investments 555     453     1,940     3,276  
Purchases of investments (544 )   (416 )   (1,914 )   (2,077 )
Cash provided by (used in) investing activities (86 )   (129 )   (443 )   571  
Cash flows from financing activities:              
Proceeds from common stock issuances 72     68     145     124  
Common stock repurchases (500 )   (751 )   (2,403 )   (5,283 )
Tax withholding payments for vested equity awards (3 )   (4 )   (86 )   (164 )
Payments of dividends to stockholders (194 )   (195 )   (771 )   (605 )
Cash used in financing activities (625 )   (882 )   (3,115 )   (5,928 )
Increase (decrease) in cash and cash equivalents 115     66     (311 )   (1,570 )
Cash and cash equivalents — beginning of period 3,014     3,374     3,440     5,010  
Cash and cash equivalents — end of period $ 3,129     $ 3,440     $ 3,129     $ 3,440  
Supplemental cash flow information:              
Cash payments for income taxes $ 69     $ 19     $ 522     $ 300  
Cash refunds from income taxes $ 2     $ 12     $ 22     $ 63  
Cash payments for interest $ 76     $ 76     $ 219     $ 219  



APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Corporate and Other

(In millions) Q4 FY2019   Q4 FY2018   FY2019   FY2018
Unallocated net sales $ 18     $ 16     $ 76     $ 75  
Unallocated cost of products sold and expenses (99 )   (60 )   (322 )   (443 )
Share-based compensation (66 )   (65 )   (263 )   (258 )
Total $ (147 )   $ (109 )   $ (509 )   $ (626 )



Additional Information

  Q4 FY2019   Q4 FY2018   FY2019   FY2018
Net Sales by Geography (In millions)          
United States 412   350   1,871   1,413
% of Total 11%   9%   13%   9%
Europe 147   241   820   1,009
% of Total 4%   7%   6%   6%
Japan 471   712   2,198   2,396
% of Total 13%   19%   15%   14%
Korea 471   532   1,929   3,539
% of Total 13%   14%   13%   21%
Taiwan 919   591   2,965   2,504
% of Total 24%   16%   20%   15%
Southeast Asia 135   197   548   797
% of Total 3%   5%   4%   5%
China 1,199   1,136   4,277   5,047
% of Total 32%   30%   29%   30%
               
Employees (In thousands)              
Regular Full Time 22.0   21.0        



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

  Three Months Ended   Year Ended
(In millions, except percentages) October 27,
2019
  October 28,
2018
  October 27,
2019
  October 28,
2018
Non-GAAP Adjusted Gross Profit              
Reported gross profit - GAAP basis $ 1,634    $ 1,657    $ 6,386    $ 7,517 
Certain items associated with acquisitions1   45    37    179 
Non-GAAP adjusted gross profit $ 1,643    $ 1,702    $ 6,423    $ 7,696 
Non-GAAP adjusted gross margin 43.8%   45.3%   44.0%   46.1%
Non-GAAP Adjusted Operating Income              
Reported operating income - GAAP basis $ 864    $ 891    $ 3,350    $ 4,491 
Certain items associated with acquisitions1 14    50    55    197 
Acquisition integration and deal costs 10      22   
Non-GAAP adjusted operating income $ 888    $ 944    $ 3,427    $ 4,693 
Non-GAAP adjusted operating margin 23.7%   25.1%   23.5%   28.1%
Non-GAAP Adjusted Net Income              
Reported net income - GAAP basis $ 698    $ 757    $ 2,706    $ 3,038 
Certain items associated with acquisitions1 14    50    55    197 
Acquisition integration and deal costs 10      22   
Impairment (gain on sale) of strategic investments, net   (15)     (25)
Loss (gain) on strategic investments, net (6)   —    (37)   — 
Income tax effect of share-based compensation2   13    —    — 
Income tax effect of changes in applicable U.S. tax laws3 —    23    (24)   1,112 
Income tax effects related to amortization of intra-entity intangible asset transfers   —    62    — 
Resolution of prior years’ income tax filings and other tax items 20      95    (26)
Income tax effect of non-GAAP adjustments4 (3)   —    (5)   (7)
Non-GAAP adjusted net income $ 744    $ 837    $ 2,875    $ 4,294 


These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.
   
2 GAAP basis tax benefit related to share-based compensation 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   Year Ended
(In millions, except per share amounts) October 27,
2019
  October 28,
2018
  October 27,
2019
  October 28,
2018
Non-GAAP Adjusted Earnings Per Diluted Share              
Reported earnings per diluted share - GAAP basis $ 0.75   $ 0.77    $ 2.86    $ 2.96 
Certain items associated with acquisitions 0.01   0.05    0.05    0.18 
Acquisition integration and deal costs 0.01   —    0.02    — 
                     
Impairment (gain on sale) of strategic investments, net   (0.01)   —    (0.02)
Loss (gain) on strategic investments, net   —    (0.03)   — 
Income tax effect of share-based compensation   0.01    —    — 
Income tax effect of changes in applicable U.S. tax laws   0.02    (0.03)   1.08 
Income tax effects related to amortization of intra-entity intangible asset transfers 0.01   —    0.07    — 
Resolution of prior years’ income tax filings and other tax items 0.02   0.01    0.10    (0.02)
Non-GAAP adjusted earnings per diluted share $ 0.80   $ 0.85    $ 3.04    $ 4.18 
Weighted average number of diluted shares 931   984    945    1,026 

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

  Three Months Ended   Year Ended
(In millions, except percentages) October 27,
2019
  October 28,
2018
  October 27,
2019
  October 28,
2018
Semiconductor Systems Non-GAAP Adjusted Operating Income              
Reported operating income - GAAP basis $ 641   $ 594   $ 2,464   $ 3,441
Certain items associated with acquisitions1 11   46   43   183
Non-GAAP adjusted operating income $ 652   $ 640   $ 2,507   $ 3,624
Non-GAAP adjusted operating margin 28.3%   28.5%   27.8%   34.3%
AGS Non-GAAP Adjusted Operating Income              
Reported operating income - GAAP basis $ 274   $ 288   $ 1,101   $ 1,102
Acquisition integration costs   1     2
Non-GAAP adjusted operating income $ 274   $ 289   $ 1,101   $ 1,104
Non-GAAP adjusted operating margin 28.0%   29.6%   28.6%   29.4%
Display and Adjacent Markets Non-GAAP Adjusted Operating Income              
Reported operating income - GAAP basis $ 96   $ 118   $ 294   $ 574
Certain items associated with acquisitions1 3   4   12   14
Acquisition integration costs     1   1
Non-GAAP adjusted operating income $ 99   $ 122   $ 307   $ 589
Non-GAAP adjusted operating margin 21.7%   23.5%   18.6%   25.6%


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) October 27, 2019
   
Provision for income taxes - GAAP basis (a) $ 142 
Income tax effect of share-based compensation (4)
Income tax effects related to amortization of intra-entity intangible asset transfers (6)
Resolutions of prior years’ income tax filings and other tax items (20)
Income tax effect of non-GAAP adjustments
Non-GAAP adjusted provision for income taxes (b) $ 115 
   
Income before income taxes - GAAP basis (c) $ 840 
Certain items associated with acquisitions 14 
Acquisition integration and deal costs 10 
Impairment (gain on sale) of strategic investments, net
Loss (gain) on strategic investments, net (6)
Non-GAAP adjusted income before income taxes (d) $ 859 
   
Effective income tax rate - GAAP basis (a/c) 16.9%
   
Non-GAAP adjusted effective income tax rate (b/d) 13.4%

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Source: Applied Materials, Inc.