Applied Materials Announces First Quarter 2020 Results
-- Quarterly revenue of $4.16 billion, up 11 percent year over year -- GAAP EPS of $0.96 and non-GAAP EPS of $0.98, up 20 percent and 21 percent year over year, respectively -- Returned $392 million to shareholders
SANTA CLARA, Calif., Feb. 12, 2020 (GLOBE NEWSWIRE) -- Applied Materials, Inc. (NASDAQ: AMAT) today reported results for its first quarter ended Jan. 26, 2020.
First Quarter Results
Applied generated revenue of $4.16 billion. On a GAAP basis, the company recorded gross margin of 44.6 percent, operating income of $1.04 billion or 25.0 percent of net sales, and earnings per share (EPS) of $0.96.
On a non-GAAP adjusted basis, the company reported gross margin of 44.9 percent, operating income of $1.07 billion or 25.7 percent of net sales, and EPS of $0.98.
The company returned $392 million to shareholders including $200 million in share repurchases and dividends of $192 million.
“Applied Materials’ first quarter earnings exceeded the top-end of our guidance, giving us great momentum entering 2020,” said Gary Dickerson, president and CEO. “We believe we can deliver strong double-digit growth in our semiconductor business this year as our unique solutions accelerate our customers’ success in the AI-Big Data era.”
Quarterly Results Summary
Q1 FY2020 Q1 FY2019 Chang e (In millions, except per share amounts and percentages) Net sales $ 4,162 $ 3,753 11 % 0.2 Gross margin 44.6 % 44.4 % point s 0.8 Operating margin 25.0 % 24.2 % point s Net income $ 892 $ 771 16 % Diluted earnings per share $ 0.96 $ 0.80 20 % Non-GAAP Adjusted Results 0.3 Non-GAAP adjusted gross margin 44.9 % 44.6 % point s 1.1 Non-GAAP adjusted operating margin 25.7 % 24.6 % point s Non-GAAP adjusted net income $ 904 $ 779 16 % Non-GAAP adjusted diluted EPS $ 0.98 $ 0.81 21 %
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.
In the second quarter of fiscal 2020, Applied expects net sales to be approximately $4.34 billion, plus or minus $200 million. Non-GAAP adjusted diluted EPS is expected to be in the range of $0.98 to $1.10.
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 net income tax benefit related to intra-entity intangible asset transfers of $0.03 per share, but does not reflect any items that are unknown at this time, such as any additional charges related to acquisitions or other non-operational or unusual items, as well as other tax related items, which we are not able to predict without unreasonable efforts due to their inherent uncertainty.
First Quarter Reportable Segment Information
Semiconductor Systems Q1 FY2020 Q1 FY2019 (In millions, except percentages) Net sales $ 2,814 $ 2,268 Foundry, logic and other 68 % 44 % DRAM 15 % 21 % Flash 17 % 35 % Operating income 915 631 Operating margin 32.5 % 27.8 % Non-GAAP Adjusted Results Non-GAAP adjusted operating income $ 925 $ 642 Non-GAAP adjusted operating margin 32.9 % 28.3 %
Applied Global Services Q1 Q1 FY2020 FY2019 (In millions, except percentages) Net sales $ 997 $ 962 Operating income 278 285 Operating margin 27.9 % 29.6 % Non-GAAP Adjusted Results Non-GAAP adjusted operating income $ 278 $ 285 Non-GAAP adjusted operating margin 27.9 % 29.6 %
Display and Adjacent Markets Q1 Q1 FY2020 FY2019 (In millions, except percentages) Net sales $ 332 $ 507 Operating income 38 115 Operating margin 11.4 % 22.7 % Non-GAAP Adjusted Results Non-GAAP adjusted operating income $ 41 $ 118 Non-GAAP adjusted operating margin 12.3 % 23.3 %
Use of Non-GAAP Adjusted Financial Measures
Applied provides investors with certain non-GAAP adjusted financial measures, which are adjusted for the impact of certain costs, expenses, gains and losses, including certain items related to mergers and acquisitions; restructuring 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 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.
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.
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 second quarter of fiscal 2020 and beyond, the impact of the coronavirus outbreak 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; 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-K and 8-K. All forward-looking statements are based on management’s current estimates, projections and assumptions, and we assume no obligation to update them.
About Applied Materials
Applied Materials, Inc. (Nasdaq: AMAT) is the leader in materials engineering solutions used to produce virtually every new chip and advanced display in the world. Our expertise in modifying materials at atomic levels and on an industrial scale enables customers to transform possibilities into reality. At Applied Materials, our innovations make possible the technology shaping the future. Learn more at www.appliedmaterials.com.
APPLIED MATERIALS, INC.UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended (In millions, except per share amounts) January 26, January 27, 2020 2019 Net sales $ 4,162 $ 3,753 Cost of products sold 2,304 2,088 Gross profit 1,858 1,665 Operating expenses: Research, development and engineering 552 516 Marketing and selling 135 131 General and administrative 129 110 Total operating expenses 816 757 Income from operations 1,042 908 Interest expense 59 60 Interest and other income, net 22 40 Income before income taxes 1,005 888 Provision for income taxes 113 117 Net income $ 892 $ 771 Earnings per share: Basic $ 0.97 $ 0.81 Diluted $ 0.96 $ 0.80 Weighted average number of shares: Basic 916 957 Diluted 927 965
APPLIED MATERIALS, INC.UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions) January 26, October 27, 2020 2019 ASSETS Current assets: Cash and cash equivalents $ 3,424 $ 3,129 Short-term investments 536 489 Accounts receivable, net 2,679 2,533 Inventories 3,472 3,474 Other current assets 658 581 Total current assets 10,769 10,206 Long-term investments 1,713 1,703 Property, plant and equipment, net 1,555 1,529 Goodwill 3,399 3,399 Purchased technology and other intangible assets, net 142 156 Deferred income taxes and other assets 2,189 2,031 Total assets $ 19,767 $ 19,024 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Current portion of long-term debt $ 600 $ 600 Accounts payable and accrued expenses 2,569 2,511 Contract liabilities 1,400 1,336 Total current liabilities 4,569 4,447 Long-term debt 4,714 4,713 Income taxes payable 1,298 1,275 Other liabilities 526 375 Total liabilities 11,107 10,810 Total stockholders’ equity 8,660 8,214 Total liabilities and stockholders’ equity $ 19,767 $ 19,024 - ------ -- - ------ --
APPLIED MATERIALS, INC.UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Three Months Ended (In millions) January January 26, 27, 2020 2019 Cash flows from operating activities: Net income $ 892 $ 771 Adjustments required to reconcile net income to cash provided by operating activities: Depreciation and amortization 94 88 Share-based compensation 93 65 Deferred income taxes 30 41 Other 15 1 Net change in operating assets and liabilities (137 ) (132 ) Cash provided by operating activities 987 834 Cash flows from investing activities: Capital expenditures (102 ) (133 ) Proceeds from sales and maturities of investments 368 464 Purchases of investments (428 ) (397 ) Cash used in investing activities (162 ) (66 ) Cash flows from financing activities: Proceeds from common stock issuances 15 — Common stock repurchases (200 ) (750 ) Tax withholding payments for vested equity awards (153 ) (74 ) Payments of dividends to stockholders (192 ) (192 ) Cash used in financing activities (530 ) (1,016 ) Increase (decrease) in cash and cash equivalents 295 (248 ) Cash and cash equivalents — beginning of period 3,129 3,440 Cash and cash equivalents — end of period $ 3,424 $ 3,192 Supplemental cash flow information: Cash payments for income taxes $ 82 $ 34 Cash refunds from income taxes $ 1 $ 8 Cash payments for interest $ 34 $ 34
APPLIED MATERIALS, INC.UNAUDITED SUPPLEMENTAL INFORMATION
Corporate and Other (In millions) Q1 Q1 FY2020 FY2019 Unallocated net sales $ 19 $ 16 Unallocated cost of products sold and expenses (115 ) (74 ) Share-based compensation (93 ) (65 ) Total $ (189 ) $ (123 ) - ---- - - ---- -
Additional Information Q1 Q1 FY2020 FY2019 Net Sales by Geography (In millions) United States 441 450 % of Total 10 % 12 % Europe 153 296 % of Total 4 % 8 % Japan 351 651 % of Total 8 % 17 % Korea 508 572 % of Total 12 % 15 % Taiwan 1,365 656 % of Total 33 % 18 % Southeast Asia 72 160 % of Total 2 % 4 % China 1,272 968 % of Total 31 % 26 % Employees (In thousands) Regular Full Time 22.3 21.2
APPLIED MATERIALS, INC.UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS
Three Months Ended January 26, January (In millions, except percentages) 2020 27, 2019 Non-GAAP Adjusted Gross Profit Reported gross profit - GAAP basis $ 1,858 $ 1,665 Certain items associated with acquisitions1 9 10 Non-GAAP adjusted gross profit $ 1,867 $ 1,675 Non-GAAP adjusted gross margin 44.9 % 44.6 % Non-GAAP Adjusted Operating Income Reported operating income - GAAP basis $ 1,042 $ 908 Certain items associated with acquisitions1 13 14 Acquisition integration and deal costs 13 3 Non-GAAP adjusted operating income $ 1,068 $ 925 Non-GAAP adjusted operating margin 25.7 % 24.6 % Non-GAAP Adjusted Net Income Reported net income - GAAP basis $ 892 $ 771 Certain items associated with acquisitions1 13 14 Acquisition integration and deal costs 13 3 Impairment (gain on sale) of strategic investments, net 2 (2 ) Loss (gain) on strategic investments, net 2 (10 ) Income tax effect of share-based compensation2 (33 ) (5 ) Income tax effect of changes in applicable U.S. tax laws3 — (24 ) Income tax effects related to amortization of intra-entity intangible asset transfers 21 (28 ) Resolution of prior years’ income tax filings and other tax items (1 ) 59 Income tax effect of non-GAAP adjustments4 (5 ) 1 Non-GAAP adjusted net income $ 904 $ 779 - ----- --- - ----- -
1 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.
APPLIED MATERIALS, INC.UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS
Three Months Ended January January (In millions, except per share amounts) 26, 27, 2020 2019 Non-GAAP Adjusted Earnings Per Diluted Share Reported earnings per diluted share - GAAP basis $ 0.96 $ 0.80 Certain items associated with acquisitions 0.01 0.01 Acquisition integration and deal costs 0.01 — Loss (gain) on strategic investments, net — (0.01 ) Income tax effect of share-based compensation (0.03 ) — Income tax effect of changes in applicable U.S. tax laws — (0.02 ) Income tax effects related to amortization of intra-entity intangible asset transfers 0.03 (0.03 ) Resolution of prior years’ income tax filings and other tax items — 0.06 Non-GAAP adjusted earnings per diluted share $ 0.98 $ 0.81 Weighted average number of diluted shares 927 965
APPLIED MATERIALS, INC.UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS
Three Months Ended January January (In millions, except percentages) 26, 27, 2020 2019 Semiconductor Systems Non-GAAP Adjusted Operating Income Reported operating income - GAAP basis $ 915 $ 631 Certain items associated with acquisitions1 10 11 Non-GAAP adjusted operating income $ 925 $ 642 Non-GAAP adjusted operating margin 32.9 % 28.3 % AGS Non-GAAP Adjusted Operating Income Reported operating income - GAAP basis $ 278 $ 285 Non-GAAP adjusted operating income $ 278 $ 285 Non-GAAP adjusted operating margin 27.9 % 29.6 % Display and Adjacent Markets Non-GAAP Adjusted Operating Income Reported operating income - GAAP basis $ 38 $ 115 Certain items associated with acquisitions1 3 3 Non-GAAP adjusted operating income $ 41 $ 118 Non-GAAP adjusted operating margin 12.3 % 23.3 %
1 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) January 26, 2020 Provision for income taxes - GAAP basis (a) $ 113 Income tax effect of share-based compensation 33 Income tax effects related to amortization of intra-entity intangible asset transfers (21 ) Resolutions of prior years’ income tax filings and other tax items 1 Income tax effect of non-GAAP adjustments 5 Non-GAAP adjusted provision for income taxes (b) $ 131 Income before income taxes - GAAP basis(c) $ 1,005 Certain items associated with acquisitions 13 Acquisition integration and deal costs 13 Impairment (gain on sale) of strategic investments, net 2 Loss (gain) on strategic investments, net 2 Non-GAAP adjusted income before income taxes (d) $ 1,035 Effective income tax rate - GAAP basis (a/c) 11.2 % Non-GAAP adjusted effective income tax rate (b/d) 12.7 % ------- -