Applied Materials Announces Fourth Quarter and Fiscal Year 2020 Results

FINANCIAL NEWS RELEASE

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Applied Materials Announces Fourth Quarter and Fiscal Year 2020 Results

  • Record quarterly revenue of $4.69 billion, up 25 percent year over year
  • Record quarterly GAAP EPS of $1.23 and non-GAAP EPS of $1.25, up 64 percent and 56 percent year over year, respectively
  • Generated record annual cash from operations of $3.80 billion

SANTA CLARA, Calif., Nov. 12, 2020 (GLOBE NEWSWIRE) -- Applied Materials, Inc. (NASDAQ: AMAT) today reported results for its fourth quarter and fiscal year ended Oct. 25, 2020.

Fourth Quarter Results

Applied generated revenue of $4.69 billion. On a GAAP basis, the company recorded gross margin of 45.4 percent, operating income of $1.28 billion or 27.4 percent of net sales, and earnings per share (EPS) of $1.23.

On a non-GAAP adjusted basis, the company reported gross margin of 45.7 percent, operating income of $1.33 billion or 28.3 percent of net sales, and EPS of $1.25.

The company generated $1.32 billion in cash from operations and returned $250 million to shareholders including $200 million in dividends and $50 million in share repurchases.

Full Year Results

In fiscal 2020, Applied generated revenue of $17.20 billion. On a GAAP basis, the company recorded gross margin of 44.7 percent, operating income of $4.37 billion or 25.4 percent of net sales, and EPS of $3.92.

On a non-GAAP adjusted basis, the company reported gross margin of 45.1 percent, operating income of $4.53 billion or 26.3 percent of net sales, and EPS of $4.17.

The company generated a record $3.80 billion in cash from operations, paid dividends of $787 million and used $649 million to repurchase 12 million shares of common stock.

“Applied Materials closed fiscal 2020 with record quarterly performance as demand for our semiconductor systems and services remains very strong,” said Gary Dickerson, president and CEO. “Our future opportunities have never looked better and, as powerful technology trends take shape, we are uniquely positioned to accelerate our customers’ roadmaps and outperform our markets.”

Results Summary

                Change
  Q4 FY2020   Q4 FY2019   FY2020   FY2019 Q4 FY2020
 vs.
Q4 FY2019
  FY2020
vs.
FY2019
  (In millions, except per share amounts and percentages)
Net sales $ 4,688      $ 3,754      $ 17,202      $ 14,608    25 %   18 %
Gross margin 45.4  %   43.5  %   44.7  %   43.7  % 1.9 points   1.0 points
Operating margin 27.4  %   23.0  %   25.4  %   22.9  % 4.4 points   2.5 points
Net income $ 1,131      $ 698      $ 3,619      $ 2,706    62 %   34 %
Diluted earnings per share $ 1.23      $ 0.75      $ 3.92      $ 2.86    64 %   37 %
Non-GAAP Adjusted Results                    
Non-GAAP adjusted gross margin 45.7  %   43.8  %   45.1  %   44.0  % 1.9 points   1.1 points
Non-GAAP adjusted operating margin 28.3  %   23.7  %   26.3  %   23.5  % 4.6 points   2.8 points
Non-GAAP adjusted net income $ 1,148      $ 744      $ 3,845      $ 2,875    54 %   34 %
Non-GAAP adjusted diluted EPS $ 1.25      $ 0.80      $ 4.17      $ 3.04    56 %   37 %

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 2021, Applied expects net sales to be approximately $4.95 billion, plus or minus $200 million. Non-GAAP adjusted diluted EPS is expected to be in the range of $1.20 to $1.32.

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

Fourth Quarter and Fiscal Year Reportable Segment Information

Semiconductor Systems Q4 FY2020   Q4 FY2019   FY2020   FY2019
               
  (In millions, except percentages)
Net sales $ 3,070     $ 2,302     $ 11,367     $ 9,027  
Foundry, logic and other 58 %   58 %   59 %   52 %
DRAM 21 %   21 %   20 %   22 %
Flash memory 21 %   21 %   21 %   26 %
Operating income 1,059     641     3,714     2,464  
Operating margin 34.5 %   27.8 %   32.7 %   27.3 %
Non-GAAP Adjusted Results            
Non-GAAP adjusted operating income $ 1,073     $ 652     $ 3,778     $ 2,507  
Non-GAAP adjusted operating margin 35.0 %   28.3 %   33.2 %   27.8 %


Applied Global Services Q4 FY2020   Q4 FY2019   FY2020   FY2019
               
  (In millions, except percentages)
Net sales $ 1,106     $ 977     $ 4,155     $ 3,854  
Operating income 320     274     1,127     1,101  
Operating margin 28.9 %   28.0 %   27.1 %   28.6 %
Non-GAAP Adjusted Results            
Non-GAAP adjusted operating income $ 320     $ 274     $ 1,135     $ 1,101  
Non-GAAP adjusted operating margin 28.9 %   28.0 %   27.3 %   28.6 %







Display and Adjacent Markets Q4 FY2020   Q4 FY2019   FY2020   FY2019
               
  (In millions, except percentages)
Net sales $ 485     $ 457     $ 1,607     $ 1,651  
Operating income 95     96     291     294  
Operating margin 19.6 %   21.0 %   18.1 %   17.8 %
Non-GAAP Adjusted Results            
Non-GAAP adjusted operating income $ 98     $ 99     $ 304     $ 307  
Non-GAAP adjusted operating margin 20.2 %   21.7 %   18.9 %   18.6 %

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; 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 first 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 impact of the implementation and interpretation of the rules published by the U.S. Department of Commerce on April 28, 2020 and August 17, 2020 relating to certain export license requirements; 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-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   Twelve Months Ended
(In millions, except per share amounts) October 25,
2020
  October 27,
2019
  October 25,
2020
  October 27,
2019
Net sales $ 4,688     $ 3,754     $ 17,202     $ 14,608  
Cost of products sold 2,558     2,120     9,510     8,222  
Gross profit 2,130     1,634     7,692     6,386  
Operating expenses:              
Research, development and engineering 560     515     2,234     2,054  
Marketing and selling 131     129     526     521  
General and administrative 156     126     567     461  
Total operating expenses 847     770     3,327     3,036  
Income from operations 1,283     864     4,365     3,350  
Interest expense 59     59     240     237  
Interest and other income (loss), net 19     35     41     156  
Income before income taxes 1,243     840     4,166     3,269  
Provision for income taxes 112     142     547     563  
Net income $ 1,131     $ 698     $ 3,619     $ 2,706  
Earnings per share:              
Basic $ 1.24     $ 0.76     $ 3.95     $ 2.89  
Diluted $ 1.23     $ 0.75     $ 3.92     $ 2.86  
Weighted average number of shares:              
Basic 914     920     916     937  
Diluted 921     931     923     945  



APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions) October 25,
2020
  October 27,
2019
ASSETS      
Current assets:      
Cash and cash equivalents $ 5,351     $ 3,129  
Short-term investments 387     489  
Accounts receivable, net 2,963     2,533  
Inventories 3,904     3,474  
Other current assets 764     581  
Total current assets 13,369     10,206  
Long-term investments 1,538     1,703  
Property, plant and equipment, net 1,604     1,529  
Goodwill 3,466     3,399  
Purchased technology and other intangible assets, net 153     156  
Deferred income taxes and other assets 2,223     2,031  
Total assets $ 22,353     $ 19,024  
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current liabilities:      
Current portion of long-term debt $     $ 600  
Accounts payable and accrued expenses 3,138     2,511  
Contract liabilities 1,321     1,336  
Total current liabilities 4,459     4,447  
Long-term debt, net of current portion 5,448     4,713  
Income taxes payable 1,206     1,275  
Other liabilities 662     375  
Total liabilities 11,775     10,810  
Total stockholders’ equity 10,578     8,214  
Total liabilities and stockholders’ equity $ 22,353     $ 19,024  



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

(In millions) Three Months Ended   Twelve Months Ended
October 25,
2020
  October 27,
2019
October 25,
2020
  October 27,
2019
Cash flows from operating activities:              
Net income $ 1,131     $ 698     $ 3,619     $ 2,706  
Adjustments required to reconcile net income to cash provided by operating activities:              
Depreciation and amortization 97     92     376     363  
Share-based compensation 73     66     307     263  
Deferred income taxes (18 )   (8 )   80     49  
Other 5         60     (19 )
Net change in operating assets and liabilities 27     (22 )   (638 )   (115 )
Cash provided by operating activities 1,315     826     3,804     3,247  
Cash flows from investing activities:              
Capital expenditures (162 )   (97 )   (422 )   (441 )
Cash paid for acquisitions, net of cash acquired         (107 )   (28 )
Proceeds from sales and maturities of investments 366     555     1,754     1,940  
Purchases of investments (345 )   (544 )   (1,355 )   (1,914 )
Cash used in investing activities (141 )   (86 )   (130 )   (443 )
Cash flows from financing activities:              
Debt borrowings, net of issuance costs         2,979      
Debt repayments         (2,882 )    
Proceeds from common stock issuances 83     72     174     145  
Common stock repurchases (50 )   (500 )   (649 )   (2,403 )
Tax withholding payments for vested equity awards (6 )   (3 )   (172 )   (86 )
Payments of dividends to stockholders (200 )   (194 )   (787 )   (771 )
Cash used in financing activities (173 )   (625 )   (1,337 )   (3,115 )
Increase (decrease) in cash, cash equivalents and restricted cash equivalents 1,001     115     2,337     (311 )
Cash, cash equivalents and restricted cash equivalents—beginning of period 4,465     3,014     3,129     3,440  
Cash, cash equivalents and restricted cash equivalents — end of period $ 5,466     $ 3,129     $ 5,466     $ 3,129  
               
Reconciliation of cash, cash equivalents, and restricted cash equivalents              
Cash and cash equivalents $ 5,351     $ 3,129     $ 5,351     $ 3,129  
Restricted cash equivalents included in deferred income taxes and other assets 115         115      
Total cash, cash equivalents, and restricted cash equivalents $ 5,466     $ 3,129     $ 5,466     $ 3,129  
               
Supplemental cash flow information:              
Cash payments for income taxes $ 23     $ 69     $ 542     $ 522  
Cash refunds from income taxes $ 63     $ 2     $ 68     $ 22  
Cash payments for interest $ 68     $ 76     $ 219     $ 219  



APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Corporate and Other

(In millions) Q4 FY2020   Q4 FY2019   FY2020   FY2019
Unallocated net sales $ 27     $ 18     $ 73     $ 76  
Unallocated cost of products sold and expenses (145 )   (99 )   (533 )   (322 )
Share-based compensation (73 )   (66 )   (307 )   (263 )
Total $ (191 )   $ (147 )   $ (767 )   $ (509 )



Additional Information

  Q4 FY2020   Q4 FY2019   FY2020   FY2019
Net Sales by Geography (In millions)                  
United States 448     412     1,619     1,871  
% of Total 10 %   11 %   10 %   13 %
Europe 206     147     736     820  
% of Total 4 %   4 %   4 %   6 %
Japan 706     471     1,996     2,198  
% of Total 15 %   13 %   11 %   15 %
Korea 719     471     3,031     1,929  
% of Total 15 %   13 %   18 %   13 %
Taiwan 872     919     3,953     2,965  
% of Total 19 %   24 %   23 %   20 %
Southeast Asia 161     135     411     548  
% of Total 3 %   3 %   2 %   4 %
China 1,576     1,199     5,456     4,277  
% of Total 34 %   32 %   32 %   29 %
               
Employees (In thousands)              
Regular Full Time 24.0     22.0          



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

  Three Months Ended   Twelve Months Ended
(In millions, except percentages) October 25,
2020
  October 27,
2019
  October 25,
2020
  October 27,
2019
Non-GAAP Adjusted Gross Profit              
Reported gross profit - GAAP basis $ 2,130     $ 1,634     $ 7,692     $ 6,386  
Certain items associated with acquisitions1 12     9     37     37  
Certain incremental expenses related to COVID-195         23      
Non-GAAP adjusted gross profit $ 2,142     $ 1,643     $ 7,752     $ 6,423  
Non-GAAP adjusted gross margin 45.7 %   43.8 %   45.1 %   44.0 %
Non-GAAP Adjusted Operating Income              
Reported operating income - GAAP basis $ 1,283     $ 864     $ 4,365     $ 3,350  
Certain items associated with acquisitions1 16     14     54     55  
Acquisition integration and deal costs 26     10     80     22  
Certain incremental expenses related to COVID-195         30      
Non-GAAP adjusted operating income $ 1,325     $ 888     $ 4,529     $ 3,427  
Non-GAAP adjusted operating margin 28.3 %   23.7 %   26.3 %   23.5 %
Non-GAAP Adjusted Net Income              
Reported net income - GAAP basis $ 1,131     $ 698     $ 3,619     $ 2,706  
Certain items associated with acquisitions1 16     14     54     55  
Acquisition integration and deal costs 26     10     80     22  
Certain incremental expenses related to COVID-195         30      
Realized loss (gain) on strategic investments, net         (1 )   (6 )
Unrealized loss (gain) on strategic investments, net (7 )   (5 )   (8 )   (30 )
Loss on early extinguishment of debt         33      
Income tax effect of share-based compensation2 13     4          
Income tax effect of changes in applicable U.S. tax laws3             (24 )
Income tax effects related to intra-entity intangible asset transfers 10     6     114     62  
Resolution of prior years’ income tax filings and other tax items (36 )   20     (41 )   95  
Income tax effect of non-GAAP adjustments4 (5 )   (3 )   (35 )   (5 )
Non-GAAP adjusted net income $ 1,148     $ 744     $ 3,845     $ 2,875  


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 recognized ratably over the fiscal year on a non-GAAP basis.
   
3 Charges to income tax provision related to a one-time transition tax as a result of U.S. tax legislation.
   
4 Adjustment to provision for income taxes related to non-GAAP adjustments reflected in income before income taxes.
   
5 Temporary incremental employee compensation during the COVID-19 pandemic.


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

  Three Months Ended   Twelve Months Ended
(In millions, except per share amounts) October 25,
2020
  October 27,
2019
  October 25,
2020
  October 27,
2019
Non-GAAP Adjusted Earnings Per Diluted Share              
Reported earnings per diluted share - GAAP basis $ 1.23     $ 0.75     $ 3.92     $ 2.86  
Certain items associated with acquisitions 0.02     0.01     0.05     0.05  
Acquisition integration and deal costs 0.02     0.01     0.07     0.02  
Certain incremental expenses related to COVID-19         0.03      
Loss on early extinguishment of debt         0.03      
Unrealized loss (gain) on strategic investments, net (0.01 )       (0.01 )   (0.03 )
Income tax effect of share-based compensation 0.02              
Income tax effect of changes in applicable U.S. tax laws             (0.03 )
Income tax effects related to intra-entity intangible asset transfers 0.01     0.01     0.12     0.07  
Resolution of prior years’ income tax filings and other tax items (0.04 )   0.02     (0.04 )   0.10  
Non-GAAP adjusted earnings per diluted share $ 1.25     $ 0.80     $ 4.17     $ 3.04  
Weighted average number of diluted shares 921     931     923     945  



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

  Three Months Ended   Twelve Months Ended
(In millions, except percentages) October 25,
2020
  October 27,
2019
  October 25,
2020
  October 27,
2019
Semiconductor Systems Non-GAAP Adjusted Operating Income              
Reported operating income - GAAP basis $ 1,059     $ 641     $ 3,714     $ 2,464  
Certain items associated with acquisitions1 12     11     41     43  
Acquisition integration costs 2         3      
Certain incremental expenses related to COVID-192         20      
Non-GAAP adjusted operating income $ 1,073     $ 652     $ 3,778     $ 2,507  
Non-GAAP adjusted operating margin 35.0 %   28.3 %   33.2 %   27.8 %
AGS Non-GAAP Adjusted Operating Income              
Reported operating income - GAAP basis $ 320     $ 274     $ 1,127     $ 1,101  
Certain incremental expenses related to COVID-192         8      
Non-GAAP adjusted operating income $ 320     $ 274     $ 1,135     $ 1,101  
Non-GAAP adjusted operating margin 28.9 %   28.0 %   27.3 %   28.6 %
Display and Adjacent Markets Non-GAAP Adjusted Operating Income              
Reported operating income - GAAP basis $ 95     $ 96     $ 291     $ 294  
Certain items associated with acquisitions1 3     3     12     12  
Acquisition integration costs             1  
Certain incremental expenses related to COVID-192         1      
Non-GAAP adjusted operating income $ 98     $ 99     $ 304     $ 307  
Non-GAAP adjusted operating margin 20.2 %   21.7 %   18.9 %   18.6 %


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.

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 25, 2020
   
Provision for income taxes - GAAP basis (a) $ 112  
Income tax effect of share-based compensation (13 )
Income tax effects related to intra-entity intangible asset transfers (10 )
Resolutions of prior years’ income tax filings and other tax items 36  
Income tax effect of non-GAAP adjustments 5  
Non-GAAP adjusted provision for income taxes (b) $ 130  
   
Income before income taxes - GAAP basis (c) $ 1,243  
Certain items associated with acquisitions 16  
Acquisition integration and deal costs 26  
Unrealized loss (gain) on strategic investments, net (7 )
Non-GAAP adjusted income before income taxes (d) $ 1,278  
   
Effective income tax rate - GAAP basis (a/c) 9.0 %
   
Non-GAAP adjusted effective income tax rate (b/d) 10.2 %

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Source: Applied Materials, Inc.