Applied Materials Announces Third Quarter 2020 Results

FINANCIAL NEWS RELEASE

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Applied Materials Announces Third Quarter 2020 Results

  • Quarterly revenue of $4.40 billion, up 23 percent year over year
  • GAAP EPS of $0.91 and non-GAAP EPS of $1.06, up 49 percent and 43 percent year over year, respectively
  • Returned $402 million to shareholders

SANTA CLARA, Calif., Aug. 13, 2020 (GLOBE NEWSWIRE) -- Applied Materials, Inc. (NASDAQ: AMAT) today reported results for its third quarter ended July 26, 2020.

Third Quarter Results

Applied generated revenue of $4.40 billion. On a GAAP basis, the company recorded gross margin of 44.5 percent, operating income of $1.11 billion or 25.2 percent of net sales, and earnings per share (EPS) of $0.91.

On a non-GAAP adjusted basis, the company reported gross margin of 45.0 percent, operating income of $1.16 billion or 26.4 percent of net sales, and EPS of $1.06.

The company returned $402 million to shareholders including $200 million in share repurchases and dividends of $202 million.

“Thanks to the hard work and agility of our employees and suppliers, Applied Materials is operating at pre-COVID levels of productivity and delivering outstanding financial results,” said Gary Dickerson, president and CEO. “By addressing our customers’ highest value problems, Applied is outperforming today and is positioned to grow faster than our markets over the next several years.”

Quarterly Results Summary

  Q3 FY2020   Q3 FY2019   Change
   
  (In millions, except per share amounts and percentages)
Net sales $ 4,395     $ 3,562     23 %
Gross margin 44.5 %   43.7 %   0.8 points
Operating margin 25.2 %   22.5 %   2.7 points
Net income $ 841     $ 571     47 %
Diluted earnings per share $ 0.91     $ 0.61     49 %
Non-GAAP Adjusted Results          
Non-GAAP adjusted gross margin 45.0 %   44.0 %   1.0 points
Non-GAAP adjusted operating margin 26.4 %   23.0 %   3.4 points
Non-GAAP adjusted net income $ 976     $ 692     41 %
Non-GAAP adjusted diluted EPS $ 1.06     $ 0.74     43 %

A reconciliation of the GAAP and non-GAAP adjusted results is provided in the financial tables included in this release. See also “Use of Non-GAAP Adjusted Financial Measures” section.

Business Outlook

In the fourth quarter of fiscal 2020, Applied expects net sales to be approximately $4.60 billion, plus or minus $200 million. Non-GAAP adjusted diluted EPS is expected to be in the range of $1.11 to $1.23.

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 $0.02 per share and a net income tax benefit related to intra-entity intangible asset transfers of $0.02 per share, but does not reflect any items that are unknown at this time, such as any additional charges related to acquisitions or other non-operational or unusual items, as well as other tax related items, which we are not able to predict without unreasonable efforts due to their inherent uncertainty.

Third Quarter Reportable Segment Information

Semiconductor Systems Q3 FY2020   Q3 FY2019
  (In millions, except percentages)
Net sales $ 2,916     $ 2,273  
Foundry, logic and other 55 %   49 %
DRAM 22 %   27 %
Flash memory 23 %   24 %
Operating income 958     613  
Operating margin 32.9 %   27.0 %
Non-GAAP Adjusted Results    
Non-GAAP adjusted operating income $ 982     $ 624  
Non-GAAP adjusted operating margin 33.7 %   27.5 %


Applied Global Services Q3 FY2020   Q3 FY2019
  (In millions, except percentages)
Net sales $ 1,034     $ 931  
Operating income 273     259  
Operating margin 26.4 %   27.8 %
Non-GAAP Adjusted Results    
Non-GAAP adjusted operating income $ 277     $ 259  
Non-GAAP adjusted operating margin 26.8 %   27.8 %

         

Display and Adjacent Markets Q3 FY2020   Q3 FY2019
  (In millions, except percentages)
Net sales $ 425     $ 339  
Operating income 83     41  
Operating margin 19.5 %   12.1 %
Non-GAAP Adjusted Results    
Non-GAAP adjusted operating income $ 87     $ 44  
Non-GAAP adjusted operating margin 20.5 %   13.0 %

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, our investment and growth strategies, our development of new products and technologies, our business outlook for the fourth quarter of fiscal 2020 and beyond, the impact of the 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 COVID-19 pandemic; global trade issues and changes in trade and export license policies, including the impact of the rules published by the U.S. Department of Commerce on April 28, 2020 and May 15, 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;  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   Nine Months Ended
(In millions, except per share amounts) July 26,
2020
  July 28,
2019
  July 26,
2020
  July 28,
2019
Net sales $ 4,395       $ 3,562     $ 12,514     $ 10,854  
Cost of products sold 2,440       2,005     6,952     6,102  
Gross profit 1,955       1,557     5,562     4,752  
Operating expenses:              
Research, development and engineering 572       515     1,674     1,539  
Marketing and selling 130       128     395     392  
General and administrative 145       112     411     335  
Total operating expenses 847       755     2,480     2,266  
Income from operations 1,108       802     3,082     2,486  
Interest expense 61       58     181     178  
Interest and other income (loss), net (7 )     38     22     121  
Income before income taxes 1,040       782     2,923     2,429  
Provision for income taxes 199       211     435     421  
Net income $ 841       $ 571     $ 2,488     $ 2,008  
Earnings per share:              
Basic $ 0.92       $ 0.61     $ 2.71     $ 2.13  
Diluted $ 0.91       $ 0.61     $ 2.69     $ 2.11  
Weighted average number of shares:              
Basic 915       929     916     943  
Diluted 922       937     924     950  



APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions) July 26,
2020
  October 27,
2019
ASSETS      
Current assets:      
Cash and cash equivalents $ 4,350     $ 3,129  
Short-term investments 406     489  
Accounts receivable, net 2,806     2,533  
Inventories 3,952     3,474  
Other current assets 734     581  
Total current assets 12,248     10,206  
Long-term investments 1,538     1,703  
Property, plant and equipment, net 1,530     1,529  
Goodwill 3,474     3,399  
Purchased technology and other intangible assets, net 157     156  
Deferred income taxes and other assets 2,224     2,031  
Total assets $ 21,171     $ 19,024  
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current liabilities:      
Current portion of long-term debt $     $ 600  
Accounts payable and accrued expenses 2,895     2,511  
Contract liabilities 1,390     1,336  
Total current liabilities 4,285     4,447  
Long-term debt, net of current portion 5,447     4,713  
Income taxes payable 1,237     1,275  
Other liabilities 633     375  
Total liabilities 11,602     10,810  
Total stockholders’ equity 9,569     8,214  
Total liabilities and stockholders’ equity $ 21,171     $ 19,024  



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

(In millions) Three Months Ended   Nine Months Ended
July 26,
2020
  July 28,
2019
July 26,
2020
  July 28,
2019
Cash flows from operating activities:              
Net income $ 841       $ 571       $ 2,488       $ 2,008    
Adjustments required to reconcile net income to cash provided by operating activities:              
Depreciation and amortization 94       89       279       271    
Share-based compensation 70       67       234       197    
Deferred income taxes 79       8       98       57    
Other 33       (10 )     55       (19 )  
Net change in operating assets and liabilities (250 )     62       (665 )     (93 )  
Cash provided by operating activities 867       787       2,489       2,421    
Cash flows from investing activities:              
Capital expenditures (87 )     (93 )     (260 )     (344 )  
Cash paid for acquisitions, net of cash acquired (80 )     (5 )     (107 )     (28 )  
Proceeds from sales and maturities of investments 353       479       1,388       1,385    
Purchases of investments (178 )     (543 )     (1,010 )     (1,370 )  
Cash provided by (used in) investing activities 8       (162 )     11       (357 )  
Cash flows from financing activities:              
Debt borrowings, net of issuance costs 1,481             2,979          
Debt repayments (2,882 )           (2,882 )        
Proceeds from common stock issuances             91       73    
Common stock repurchases (200 )     (528 )     (599 )     (1,903 )  
Tax withholding payments for vested equity awards (3 )     (3 )     (166 )     (83 )  
Payments of dividends to stockholders (202 )     (196 )     (587 )     (577 )  
Cash used in financing activities (1,806 )     (727 )     (1,164 )     (2,490 )  
Increase (decrease) in cash, cash equivalents and restricted cash equivalents (931 )     (102 )     1,336       (426 )  
Cash, cash equivalents and restricted cash equivalents—beginning of period 5,396       3,116       3,129       3,440    
Cash, cash equivalents and restricted cash equivalents — end of period $ 4,465       $ 3,014       $ 4,465       $ 3,014    
               
Reconciliation of cash, cash equivalents, and restricted cash equivalents              
Cash and cash equivalents $ 4,350       $ 3,014       $ 4,350       $ 3,014    
Restricted cash equivalents included in deferred income taxes and other assets 115             115          
Total cash, cash equivalents, and restricted cash equivalents $ 4,465       $ 3,014       $ 4,465       $ 3,014    
               
Supplemental cash flow information:              
Cash payments for income taxes $ 238       $ 221       $ 519       $ 453    
Cash refunds from income taxes $       $ 2       $ 5       $ 20    
Cash payments for interest $ 41       $ 33       $ 151       $ 143    



APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Corporate and Other

(In millions) Q3 FY2020   Q3 FY2019
Unallocated net sales $ 20        $ 19     
Unallocated cost of products sold and expenses (156 )     (63 )  
Share-based compensation (70 )     (67 )  
Total $ (206 )     $ (111 )  



Additional Information

  Q3 FY2020   Q3 FY2019
Net Sales by Geography (In millions)  
United States 399     552  
% of Total 9 %   15 %
Europe 196     162  
% of Total 5 %   5 %
Japan 472     556  
% of Total 11 %   16 %
Korea 1,051     445  
% of Total 24 %   12 %
Taiwan 687     596  
% of Total 16 %   17 %
Southeast Asia 120     134  
% of Total 2 %   4 %
China 1,470     1,117  
% of Total 33 %   31 %
       
Employees (In thousands)      
Regular Full Time 23.6     21.6  



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

  Three Months Ended   Nine Months Ended
(In millions, except percentages) July 26,
2020
  July 28,
2019
  July 26,
2020
  July 28,
2019
Non-GAAP Adjusted Gross Profit              
Reported gross profit - GAAP basis $ 1,955       $ 1,557       $ 5,562       $ 4,752    
Certain items associated with acquisitions1 8       9       25       28    
Certain incremental expenses related to COVID-195 15             23          
Non-GAAP adjusted gross profit $ 1,978       $ 1,566       $ 5,610       $ 4,780    
Non-GAAP adjusted gross margin 45.0 %     44.0 %     44.8 %     44.0 %  
Non-GAAP Adjusted Operating Income              
Reported operating income - GAAP basis $ 1,108       $ 802       $ 3,082       $ 2,486    
Certain items associated with acquisitions1 12       13       38       41    
Acquisition integration and deal costs 20       5       54       12    
Certain incremental expenses related to COVID-195 20             30          
Non-GAAP adjusted operating income $ 1,160       $ 820       $ 3,204       $ 2,539    
Non-GAAP adjusted operating margin 26.4 %     23.0 %     25.6 %     23.4 %  
Non-GAAP Adjusted Net Income              
Reported net income - GAAP basis $ 841       $ 571       $ 2,488       $ 2,008    
Certain items associated with acquisitions1 12       13       38       41    
Acquisition integration and deal costs 20       5       54       12    
Certain incremental expenses related to COVID-195 20             30          
Realized loss (gain) on strategic investments, net (8 )     1       (1 )     (6 )  
Unrealized loss (gain) on strategic investments, net (5 )     (9 )     (1 )     (25 )  
Loss on early extinguishment of debt 33             33          
Income tax effect of share-based compensation2 12             (13 )     (4 )  
Income tax effect of changes in applicable U.S. tax laws3                   (24 )  
Income tax effects related to intra-entity intangible asset transfers 67       115       104       56    
Resolution of prior years’ income tax filings and other tax items (1 )     (1 )     (5 )     75    
Income tax effect of non-GAAP adjustments4 (15 )     (3 )     (30 )     (2 )  
Non-GAAP adjusted net income $ 976       $ 692       $ 2,697       $ 2,131    


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   Nine Months Ended
(In millions, except per share amounts) July 26,
2020
  July 28,
2019
  July 26,
2020
  July 28,
2019
Non-GAAP Adjusted Earnings Per Diluted Share              
Reported earnings per diluted share - GAAP basis $ 0.91       $ 0.61       $ 2.69       $ 2.11    
Certain items associated with acquisitions 0.01       0.01       0.04       0.04    
Acquisition integration and deal costs 0.02       0.01       0.05       0.01    
Certain incremental expenses related to COVID-19 0.02             0.03          
Loss on early extinguishment of debt 0.03             0.03          
Realized loss (gain) on strategic investments, net (0.01 )                    
Unrealized loss (gain) on strategic investments, net       (0.01 )           (0.03 )  
Income tax effect of share-based compensation 0.01             (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 0.07       0.12       0.11       0.06    
Resolution of prior years’ income tax filings and other tax items             (0.01 )     0.08    
Non-GAAP adjusted earnings per diluted share $ 1.06       $ 0.74       $ 2.92       $ 2.24    
Weighted average number of diluted shares 922       937       924       950    


 


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

  Three Months Ended   Nine Months Ended
(In millions, except percentages) July 26,
2020
  July 28,
2019
  July 26,
2020
  July 28,
2019
Semiconductor Systems Non-GAAP Adjusted Operating Income              
Reported operating income - GAAP basis $ 958     $ 613     $ 2,655     $ 1,823  
Certain items associated with acquisitions1 9     11     29     32  
Acquisition integration costs 1         1      
Certain incremental expenses related to COVID-192 14         20      
Non-GAAP adjusted operating income $ 982     $ 624     $ 2,705     $ 1,855  
Non-GAAP adjusted operating margin 33.7 %   27.5 %   32.6 %   27.6 %
AGS Non-GAAP Adjusted Operating Income              
Reported operating income - GAAP basis $ 273     $ 259     $ 807     $ 827  
Certain incremental expenses related to COVID-192 4         8      
Non-GAAP adjusted operating income $ 277     $ 259     $ 815     $ 827  
Non-GAAP adjusted operating margin 26.8 %   27.8 %   26.7 %   28.7 %
Display and Adjacent Markets Non-GAAP Adjusted Operating Income              
Reported operating income - GAAP basis $ 83     $ 41     $ 196     $ 198  
Certain items associated with acquisitions1 3     2     9     9  
Acquisition integration costs     1         1  
Certain incremental expenses related to COVID-192 1         1      
Non-GAAP adjusted operating income $ 87     $ 44     $ 206     $ 208  
Non-GAAP adjusted operating margin 20.5 %   13.0 %   18.4 %   17.4 %


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) July 26, 2020
   
Provision for income taxes - GAAP basis (a) $ 199  
Income tax effect of share-based compensation (12 )
Income tax effects related to intra-entity intangible asset transfers (67 )
Resolutions of prior years’ income tax filings and other tax items 1  
Income tax effect of non-GAAP adjustments 15  
Non-GAAP adjusted provision for income taxes (b) $ 136  
   
Income before income taxes - GAAP basis (c) $ 1,040  
Certain items associated with acquisitions 12  
Acquisition integration and deal costs 20  
Certain incremental expenses related to COVID-19 20  
Realized loss (gain) on strategic investments, net (8 )
Unrealized loss (gain) on strategic investments, net (5 )
Loss on early extinguishment of debt 33  
Non-GAAP adjusted income before income taxes (d) $ 1,112  
   
Effective income tax rate - GAAP basis (a/c) 19.1 %
   
Non-GAAP adjusted effective income tax rate (b/d) 12.2 %

 


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Source: Applied Materials, Inc.