Applied Materials Announces Second Quarter 2021 Results

FINANCIAL NEWS RELEASE

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Applied Materials Announces Second Quarter 2021 Results

  • Record quarterly revenue of $5.58 billion, up 41 percent year over year
  • Quarterly GAAP operating margin of 28.3 percent and non-GAAP operating margin of 31.7 percent, up 4.7 points and 7.0 points year over year, respectively
  • Quarterly GAAP EPS of $1.43 and record non-GAAP EPS of $1.63, up 74 percent and 83 percent year over year, respectively

SANTA CLARA, Calif., May 20, 2021 (GLOBE NEWSWIRE) -- Applied Materials, Inc. (NASDAQ: AMAT) today reported results for its second quarter ended May 2, 2021.

Second Quarter Results

Applied generated revenue of $5.58 billion. On a GAAP basis, the company recorded gross margin of 47.5 percent, operating income of $1.58 billion or 28.3 percent of net sales, and earnings per share (EPS) of $1.43.

On a non-GAAP adjusted basis, the company reported gross margin of 47.7 percent, operating income of $1.77 billion or 31.7 percent of net sales, and EPS of $1.63.

The company generated $1.19 billion in cash from operations and returned $952 million to shareholders including $750 million in share repurchases and $202 million in dividends.

“Applied Materials’ record performance is underpinned by broad-based strength across our semiconductor businesses,” said Gary Dickerson, President and CEO. “We are confident in our ability to outperform our markets as large, secular trends create sustainable demand for semiconductors and our leadership in materials engineering becomes increasingly critical to deliver new chip technologies.”

Quarterly Results Summary

  Q2 FY2021   Q2 FY2020   Change
           
  (In millions, except per share amounts and percentages)
Net sales $ 5,582      $ 3,957      41 %
Gross margin 47.5  %   44.2  %   3.3 points
Operating margin 28.3  %   23.6  %   4.7 points
Net income $ 1,330      $ 755      76 %
Diluted earnings per share $ 1.43      $ 0.82      74 %
Non-GAAP Adjusted Results          
Non-GAAP adjusted gross margin 47.7  %   44.6  %   3.1 points
Non-GAAP adjusted operating margin 31.7  %   24.7  %   7.0 points
Non-GAAP adjusted net income $ 1,509      $ 817      85 %
Non-GAAP adjusted diluted EPS $ 1.63      $ 0.89      83 %
                     

Second quarter GAAP results included a $154 million deal termination fee paid per the terms of the Share Purchase Agreement with Kokusai Electric Corporation and KKR HKE Investment L.P., which reduced earnings per share by $0.17.

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 2021, Applied expects net sales to be approximately $5.92 billion, plus or minus $200 million. Non-GAAP adjusted diluted EPS is expected to be in the range of $1.70 to $1.82.

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.

Second Quarter Reportable Segment Information

Semiconductor Systems Q2 FY2021   Q2 FY2020
       
  (In millions, except percentages)
Net sales $ 3,972      $ 2,567   
Foundry, logic and other 56  %   56  %
DRAM 14  %   22  %
Flash memory 30  %   22  %
Operating income $ 1,542      $ 782   
Operating margin 38.8  %   30.5  %
Non-GAAP Adjusted Results    
Non-GAAP adjusted operating income $ 1,555      $ 798   
Non-GAAP adjusted operating margin 39.1  %   31.1  %


Applied Global Services Q2 FY2021   Q2 FY2020
       
  (In millions, except percentages)
Net sales $ 1,203     $ 1,018  
Operating income $ 358     $ 256  
Operating margin 29.8 %   25.1 %
Non-GAAP Adjusted Results    
Non-GAAP adjusted operating income $ 359     $ 260  
Non-GAAP adjusted operating margin 29.8 %   25.5 %


Display and Adjacent Markets Q2 FY2021   Q2 FY2020
       
  (In millions, except percentages)
Net sales $ 375     $ 365  
Operating income $ 65     $ 75  
Operating margin 17.3 %   20.5 %
Non-GAAP Adjusted Results    
Non-GAAP adjusted operating income $ 66     $ 78  
Non-GAAP adjusted operating margin 17.6 %   21.4 %

 

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; gain or loss on 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 third quarter of fiscal 2021 and beyond, the impact of the ongoing COVID-19 pandemic and responses thereto on our operations and financial results, 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-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 a better 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) May 2,
2021
  April 26,
2020
  May 2,
2021
  April 26,
2020
Net sales $ 5,582      $ 3,957      $ 10,744      $ 8,119   
Cost of products sold 2,929      2,208      5,742      4,512   
Gross profit 2,653      1,749      5,002      3,607   
Operating expenses:              
Research, development and engineering 617      550      1,223      1,102   
Marketing and selling 148      130      295      265   
General and administrative 149      137      310      266   
Severance and related charges     —      158      —   
Deal termination fee 154      —      154      —   
Total operating expenses 1,074      817      2,140      1,633   
Income from operations 1,579      932      2,862      1,974   
Interest expense 61      61      122      120   
Interest and other income, net 27          45      29   
Income before income taxes 1,545      878      2,785      1,883   
Provision for income taxes 215      123      325      236   
Net income $ 1,330      $ 755      $ 2,460      $ 1,647   
Earnings per share:              
Basic $ 1.45      $ 0.82      $ 2.68      $ 1.80   
Diluted $ 1.43      $ 0.82      $ 2.66      $ 1.78   
Weighted average number of shares:              
Basic 918      917      917      917   
Diluted 927      923      926      925   


APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions) May 2,
2021
  October 25,
2020
ASSETS      
Current assets:      
Cash and cash equivalents $ 6,305      $ 5,351   
Short-term investments 460      387   
Accounts receivable, net 3,375      2,963   
Inventories 4,053      3,904   
Other current assets 778      764   
Total current assets 14,971      13,369   
Long-term investments 1,569      1,538   
Property, plant and equipment, net 1,768      1,604   
Goodwill 3,479      3,466   
Purchased technology and other intangible assets, net 127      153   
Deferred income taxes and other assets 2,171      2,223   
Total assets $ 24,085      $ 22,353   
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current liabilities:      
Accounts payable and accrued expenses $ 3,116      $ 3,138   
Contract liabilities 1,706      1,321   
Total current liabilities 4,822      4,459   
Long-term debt, net of current portion 5,450      5,448   
Income taxes payable 1,138      1,206   
Other liabilities 682      662   
Total liabilities 12,092      11,775   
Total stockholders’ equity 11,993      10,578   
Total liabilities and stockholders’ equity $ 24,085      $ 22,353   


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

(In millions)

Three Months Ended   Six Months Ended
May 2,
2021
  April 26,
2020
May 2,
2021
  April 26,
2020
Cash flows from operating activities:              
Net income $ 1,330     $ 755     $ 2,460     $ 1,647  
Adjustments required to reconcile net income to cash provided by operating activities:              
Depreciation and amortization 97     91     191     185  
Severance and related charges 1         149      
Share-based compensation 84     71     191     164  
Deferred income taxes (4 )   (11 )   24     19  
Other (15 )   7     (15 )   22  
Net change in operating assets and liabilities (306 )   (278 )   (392 )   (415 )
Cash provided by operating activities 1,187     635     2,608     1,622  
Cash flows from investing activities:              
Capital expenditures (204 )   (71 )   (325 )   (173 )
Cash paid for acquisitions, net of cash acquired     (27 )   (12 )   (27 )
Proceeds from sales and maturities of investments 266     667     624     1,035  
Purchases of investments (281 )   (404 )   (722 )   (832 )
Cash provided by (used in) investing activities (219 )   165     (435 )   3  
Cash flows from financing activities:              
Debt borrowings, net of issuance costs     1,498         1,498  
Proceeds from common stock issuances 86     76     86     91  
Common stock repurchases (750 )   (199 )   (750 )   (399 )
Tax withholding payments for vested equity awards (17 )   (10 )   (159 )   (163 )
Payments of dividends to stockholders (202 )   (193 )   (403 )   (385 )
Cash provided by (used in) financing activities (883 )   1,172     (1,226 )   642  
Increase in cash, cash equivalents and restricted cash equivalents 85     1,972     947     2,267  
Cash, cash equivalents and restricted cash equivalents—beginning of period 6,328     3,424     5,466     3,129  
Cash, cash equivalents and restricted cash equivalents — end of period $ 6,413     $ 5,396     $ 6,413     $ 5,396  
               
Reconciliation of cash, cash equivalents, and restricted cash equivalents              
Cash and cash equivalents $ 6,305     $ 5,281     $ 6,305     $ 5,281  
Restricted cash equivalents included in deferred income taxes and other assets 108     115     108     115  
Total cash, cash equivalents, and restricted cash equivalents $ 6,413     $ 5,396     $ 6,413     $ 5,396  
               
Supplemental cash flow information:              
Cash payments for income taxes $ 299     $ 199     $ 409     $ 281  
Cash refunds from income taxes $ 4     $ 4     $ 23     $ 5  
Cash payments for interest $ 68     $ 76     $ 103     $ 110  


APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Corporate and Other

(In millions) Q2 FY2021   Q2 FY2020
Unallocated net sales $ 32     $ 7  
Unallocated cost of products sold and expenses (174 )   (117 )
Share-based compensation (84 )   (71 )
Severance and related charges (6 )    
Deal termination fee (154 )    
Total $ (386 )   $ (181 )
               

Additional Information

  Q2 FY2021   Q2 FY2020
       
Net Sales by Geography (In millions)  
United States $ 489      $ 331   
% of Total %   %
Europe $ 229      $ 181   
% of Total %   %
Japan $ 442      $ 467   
% of Total %   12  %
Korea $ 1,428      $ 753   
% of Total 25  %   19  %
Taiwan $ 1,041      $ 1,029   
% of Total 19  %   26  %
Southeast Asia $ 109      $ 58   
% of Total %   %
China $ 1,844      $ 1,138   
% of Total 33  %   29  %
       
Employees (In thousands)      
Regular Full Time 24.8      22.7   


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

  Three Months Ended   Six Months Ended
(In millions, except percentages) May 2,
2021
  April 26,
2020
  May 2,
2021
  April 26,
2020
Non-GAAP Adjusted Gross Profit              
Reported gross profit - GAAP basis $ 2,653       $ 1,749       $ 5,002       $ 3,607    
Certain items associated with acquisitions1 7       8       15       17    
Certain incremental expenses related to COVID-192       8       12       8    
Other charges 2             2          
Non-GAAP adjusted gross profit $ 2,662       $ 1,765       $ 5,031       $ 3,632    
Non-GAAP adjusted gross margin 47.7   %   44.6   %   46.8   %   44.7   %
Non-GAAP Adjusted Operating Income              
Reported operating income - GAAP basis $ 1,579       $ 932       $ 2,862       $ 1,974    
Certain items associated with acquisitions1 12       13       25       26    
Acquisition integration and deal costs 11       21       35       34    
Certain incremental expenses related to COVID-192       10       24       10    
Severance and related charges3 6             158          
Deal termination fee 154             154          
Other charges 6             6          
Non-GAAP adjusted operating income $ 1,768       $ 976       $ 3,264       $ 2,044    
Non-GAAP adjusted operating margin 31.7   %   24.7   %   30.4   %   25.2   %
Non-GAAP Adjusted Net Income              
Reported net income - GAAP basis $ 1,330       $ 755       $ 2,460       $ 1,647    
Certain items associated with acquisitions1 12       13       25       26    
Acquisition integration and deal costs 12       21       36       34    
Certain incremental expenses related to COVID-192       10       24       10    
Severance and related charges3 6             158          
Deal termination fee 154             154          
Realized loss (gain) on strategic investments, net 6       5       4       7    
Unrealized loss (gain) on strategic investments, net (26 )     2       (32 )     4    
Other charges 6             6          
Income tax effect of share-based compensation4 6       8       (23 )     (25 )  
Income tax effects related to intra-entity intangible asset transfers 17       16       37       37    
Resolution of prior years’ income tax filings and other tax items (10 )     (3 )     (13 )     (4 )  
Income tax effect of non-GAAP adjustments5 (4 )     (10 )     (45 )     (15 )  
Non-GAAP adjusted net income $ 1,509       $ 817       $ 2,791       $ 1,721    


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   Six Months Ended
(In millions, except per share amounts) May 2,
2021
  April 26,
2020
  May 2,
2021
  April 26,
2020
Non-GAAP Adjusted Earnings Per Diluted Share              
Reported earnings per diluted share - GAAP basis $ 1.43     $ 0.82     $ 2.66     $ 1.78  
Certain items associated with acquisitions 0.01     0.01     0.02     0.02  
Acquisition integration and deal costs 0.01     0.02     0.03     0.04  
Certain incremental expenses related to COVID-19     0.01     0.02     0.01  
Severance and related charges 0.01         0.13      
Deal termination fee 0.17         0.17      
Realized loss (gain) on strategic investments, net 0.01     0.01         0.01  
Unrealized loss (gain) on strategic investments, net (0.03 )       (0.02 )    
Income tax effect of share-based compensation 0.01     0.01     (0.02 )   (0.03 )
Income tax effects related to intra-entity intangible asset transfers 0.02     0.02     0.04     0.04  
Resolution of prior years’ income tax filings and other tax items (0.01 )   (0.01 )   (0.01 )   (0.01 )
Non-GAAP adjusted earnings per diluted share $ 1.63     $ 0.89     $ 3.02     $ 1.86  
Weighted average number of diluted shares 927     923     926     925  



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

  Three Months Ended   Six Months Ended
(In millions, except percentages) May 2,
2021
  April 26,
2020
  May 2,
2021
  April 26,
2020
Semiconductor Systems Non-GAAP Adjusted Operating Income              
Reported operating income - GAAP basis $ 1,542     $ 782     $ 2,803       $ 1,697  
Certain items associated with acquisitions1 10     10     20       20  
Acquisition integration costs         (2 )      
Certain incremental expenses related to COVID-192     6     12       6  
Other charges 3         3        
Non-GAAP adjusted operating income $ 1,555     $ 798     $ 2,836       $ 1,723  
Non-GAAP adjusted operating margin 39.1 %   31.1 %   37.7   %   32.0 %
AGS Non-GAAP Adjusted Operating Income              
Reported operating income - GAAP basis $ 358     $ 256     $ 690       $ 534  
Certain incremental expenses related to COVID-192     4     8       4  
Other charges 1         1        
Non-GAAP adjusted operating income $ 359     $ 260     $ 699       $ 538  
Non-GAAP adjusted operating margin 29.8 %   25.5 %   29.6   %   26.7 %
Display and Adjacent Markets Non-GAAP Adjusted Operating Income              
Reported operating income - GAAP basis $ 65     $ 75     $ 130       $ 113  
Certain items associated with acquisitions1 1     3     2       6  
Certain incremental expenses related to COVID-192         1        
Severance and related charges3         8        
Non-GAAP adjusted operating income $ 66     $ 78     $ 141       $ 119  
Non-GAAP adjusted operating margin 17.6 %   21.4 %   17.9   %   17.1 %


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 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) May 2, 2021
   
Provision for income taxes - GAAP basis (a) $ 215    
Income tax effect of share-based compensation (6 )  
Income tax effects related to intra-entity intangible asset transfers (17 )  
Resolutions of prior years’ income tax filings and other tax items 10    
Income tax effect of non-GAAP adjustments 4    
Non-GAAP adjusted provision for income taxes (b) $ 206    
   
Income before income taxes - GAAP basis (c) $ 1,545    
Certain items associated with acquisitions 12    
Acquisition integration and deal costs 12    
Certain incremental expenses related to COVID-19    
Severance and related charges 6    
Deal termination fee 154    
Realized loss (gain) on strategic investments, net 6    
Unrealized loss (gain) on strategic investments, net (26 )  
Other charges 6    
Non-GAAP adjusted income before income taxes (d) $ 1,715    
   
Effective income tax rate - GAAP basis (a/c) 13.9   %
   
Non-GAAP adjusted effective income tax rate (b/d) 12.0   %

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Source: Applied Materials, Inc.