Applied Materials Delivers Strong Year-On-Year Growth in Quarterly Revenue and Operating Income

| Source: Applied Materials, Inc. Applied Materials, Inc.

  • Quarterly revenue of $4.47 billion, up 19 percent year over year
  • EPS of $1.17 and non-GAAP EPS of $1.20, up 38 percent and 40 percent year over year, respectively
  • Record revenue and operating income in Applied Global Services and Display

SANTA CLARA, Calif., Aug. 16, 2018 (GLOBE NEWSWIRE) -- Applied Materials, Inc. (NASDAQ:AMAT) today reported strong revenue, operating income and earnings per share in its third quarter ended July 29, 2018.

Third Quarter Results

Compared to the third quarter of fiscal 2017, Applied grew net sales by 19 percent to $4.47 billion. On a GAAP basis, the company recorded gross margin of 45.4 percent, and grew operating income by 23 percent to $1.26 billion or 28.1 percent of net sales. GAAP earnings per share (EPS) grew 38 percent to $1.17.

On a non-GAAP adjusted basis, over the same period, the company reported gross margin of 46.4 percent, grew operating income by 22 percent to $1.31 billion or 29.2 percent of net sales, and increased EPS by 40 percent to $1.20.

The company returned $1.45 billion to shareholders through $1.25 billion in share repurchases and dividends of $199 million.

“While we have seen some near-term adjustments in customer spending, fiscal 2018 is on track to be another record-setting year for Applied Materials and we expect each of our major businesses to deliver strong double-digit growth,” said Gary Dickerson, president and CEO. “Our future outlook remains positive as the A.I.-Big Data era requires new breakthroughs in technology, from materials to systems, providing Applied with a great opportunity to play a larger and more valuable role in the ecosystem.”

Quarterly Results Summary

 Q3 FY2018 Q3 FY2017 Change
 (In millions, except per share amounts and percentages)
Net sales$4,468  $3,744  19%
Gross margin45.4% 45.4% — 
Operating margin28.1% 27.3% 0.8 points
Net income$1,173  $925  27%
Diluted earnings per share$1.17  $0.85  38%
Non-GAAP Adjusted Results     
Non-GAAP adjusted gross margin46.4% 46.6% (0.2) points
Non-GAAP adjusted operating margin29.2% 28.7% 0.5 points
Non-GAAP adjusted net income$1,205  $927  30%
Non-GAAP adjusted diluted EPS$1.20  $0.86  40%

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 2018, Applied expects net sales for fiscal 2018 to be in the range of $3.85 billion to $4.15 billion; the midpoint of the range would be approximately flat, year over year. Non-GAAP adjusted diluted EPS is expected to be in the range of $0.92 to $1.00; the midpoint of the range would be an increase of approximately 3 percent, year over year.

With this fourth-quarter outlook, Applied expects net sales for fiscal 2018 to be in the range of $17.1 billion to $17.4 billion; the midpoint of the range would be up approximately 19 percent, year over year. Non-GAAP adjusted diluted EPS is expected to be in the range of $4.41 to $4.49; the midpoint of the range would be an increase of approximately 37 percent, year over year.

The fourth quarter of fiscal 2018 outlook for non-GAAP adjusted diluted EPS excludes known charges related to completed acquisitions of $0.05 per share and includes the normalized tax benefit of share-based compensation of $0.01 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 SystemsQ3 FY2018 Q3 FY2017
 (In millions, except percentages)
Net sales$2,748  $2,532 
Foundry28% 39%
DRAM24% 15%
Flash36% 38%
Logic and other12% 8%
Operating income930  874 
Operating margin33.8% 34.5%
Non-GAAP Adjusted Results  
Non-GAAP adjusted operating income$975  $920 
Non-GAAP adjusted operating margin35.5% 36.3%
 
Applied Global ServicesQ3 FY2018 Q3 FY2017
 (In millions, except percentages)
Net sales$954  $786 
Operating income281  213 
Operating margin29.5% 27.1%
Non-GAAP Adjusted Results  
Non-GAAP adjusted operating income$281  $215 
Non-GAAP adjusted operating margin29.5% 27.4%
 
Display and Adjacent MarketsQ3 FY2018 Q3 FY2017
 (In millions, except percentages)
Net sales$741  $410 
Operating income214  91 
Operating margin28.9% 22.2%
Non-GAAP Adjusted Results  
Non-GAAP adjusted operating income$218  $93 
Non-GAAP adjusted operating margin29.4% 22.7%

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, the third quarter and first nine months of fiscal 2018 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 our 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 we do not believe are indicative of our 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 fourth quarter of fiscal 2018, 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;  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; changes in U.S. tax laws and regulation, and our interpretations of them; and other risks and uncertainties described in our SEC filings, including our most 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 29, July 30, July 29, July 30,
2018201720182017
Net sales$4,468  $3,744  $13,239  $10,568 
Cost of products sold2,441  2,044  7,202  5,823 
Gross profit2,027  1,700  6,037  4,745 
Operating expenses:       
Research, development and engineering504  454  1,501  1,308 
Marketing and selling138  117  394  351 
General and administrative128  106  362  316 
Total operating expenses770  677  2,257  1,975 
Income from operations1,257  1,023  3,780  2,770 
Interest expense59  59  174  141 
Interest and other income, net41  14  90  28 
Income before income taxes1,239  978  3,696  2,657 
Provision for income taxes66  53  1,259  205 
Net income$1,173  $925  $2,437  $2,452 
Earnings per share:       
Basic$1.18  $0.86  $2.37  $2.28 
Diluted$1.17  $0.85  $2.35  $2.26 
Weighted average number of shares:       
Basic994  1,071  1,026  1,076 
Diluted1,005  1,083  1,039  1,087 

 

APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions)July 29, October 29,
20182017
ASSETS   
Current assets:   
Cash and cash equivalents$3,374  $5,010 
Short-term investments610  2,266 
Accounts receivable, net2,882  2,338 
Inventories3,681  2,930 
Other current assets342  374 
Total current assets10,889  12,918 
Long-term investments1,613  1,143 
Property, plant and equipment, net1,321  1,066 
Goodwill3,368  3,368 
Purchased technology and other intangible assets, net263  412 
Deferred income taxes and other assets429  512 
Total assets$17,883  $19,419 
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current liabilities:   
Accounts payable and accrued expenses$2,741  $2,450 
Customer deposits and deferred revenue1,581  1,665 
Total current liabilities4,322  4,115 
Income taxes payable1,148  392 
Long-term debt5,308  5,304 
Other liabilities280  259 
Total liabilities11,058  10,070 
Total stockholders’ equity6,825  9,349 
Total liabilities and stockholders’ equity$17,883  $19,419 
 

 

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

(In millions)Three Months Ended Nine Months Ended
July 29, July 30,July 29, July 30,
2018201720182017
Cash flows from operating activities:       
Net income$1,173  $925  $2,437  $2,452 
Adjustments required to reconcile net income to cash provided by operating activities:       
Depreciation and amortization110  102  337  302 
Share-based compensation64  55  193  162 
Deferred income taxes26  (3) 112  6 
Other(7) 6  4  15 
Net change in operating assets and liabilities(733) 292  (373) 143 
Cash provided by operating activities633  1,377  2,710  3,080 
Cash flows from investing activities:       
Capital expenditures(133) (80) (457) (221)
Cash paid for acquisitions, net of cash acquired—  (30) (5) (56)
Proceeds from sales and maturities of investments391  935  2,823  1,822 
Purchases of investments(932) (1,174) (1,661) (3,542)
Cash provided by (used in) investing activities(674) (349) 700  (1,997)
Cash flows from financing activities:       
Debt borrowings, net of issuance costs—  —  —  2,176 
Debt repayments—  (205) —  (205)
Proceeds from common stock issuances—  1  56  47 
Common stock repurchases(1,250) (375) (4,532) (787)
Tax withholding payments for vested equity awards(6) (8) (160) (119)
Payments of dividends to stockholders(199) (107) (410) (323)
Cash provided by (used in) financing activities(1,455) (694) (5,046) 789 
Increase (decrease) in cash and cash equivalents(1,496) 334  (1,636) 1,872 
Cash and cash equivalents — beginning of period4,870  4,944  5,010  3,406 
Cash and cash equivalents — end of period$3,374  $5,278  $3,374  $5,278 
Supplemental cash flow information:       
Cash payments for income taxes$64  $103  $281  $168 
Cash refunds from income taxes$10  $9  $51  $17 
Cash payments for interest$33  $35  $143  $110 

 

APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Corporate and Other
 
(In millions)Q3 FY2018 Q3 FY2017
Unallocated net sales$25  $16 
Unallocated cost of products sold and expenses(129) (116)
Share-based compensation(64) (55)
Total$(168) $(155)
 
Additional Information
 
 Q3 FY2018 Q3 FY2017
Net Sales by Geography (In millions)      
United States 401   359 
% of Total 9%  10%
Europe 240   191 
% of Total 5%  5%
Japan 700   444 
% of Total 16%  12%
Korea 588   1,265 
% of Total 13%  34%
Taiwan 641   607 
% of Total 14%  16%
Southeast Asia 173   104 
% of Total 4%  2%
China 1,725   774 
% of Total 39%  21%
     
Employees (In thousands)    
Regular Full Time 20.7   17.6 



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

 Three Months Ended Nine Months Ended
(In millions, except percentages)July 29, July 30, July 29, July 30,
2018201720182017
Non-GAAP Adjusted Gross Profit       
Reported gross profit - GAAP basis$2,027  $1,700  $6,037  $4,745 
Certain items associated with acquisitions145  44  134  127 
Non-GAAP adjusted gross profit$2,072  $1,744  $6,171  $4,872 
Non-GAAP adjusted gross margin46.4% 46.6% 46.6% 46.1%
Non-GAAP Adjusted Operating Income       
Reported operating income - GAAP basis$1,257  $1,023  $3,780  $2,770 
Certain items associated with acquisitions149  49  147  142 
Acquisition integration costs—  1  2  3 
Other gains, losses or charges, net—  —  —  (3)
Non-GAAP adjusted operating income$1,306  $1,073  $3,929  $2,912 
Non-GAAP adjusted operating margin29.2% 28.7% 29.7% 27.6%
Non-GAAP Adjusted Net Income       
Reported net income - GAAP basis$1,173  $925  $2,437  $2,452 
Certain items associated with acquisitions149  49  147  142 
Acquisition integration costs—  1  2  3 
Impairment (gain on sale) of strategic investments, net(14) (1) (10) 4 
Loss on early extinguishment of debt—  5  —  5 
Other gains, losses or charges, net—  —  —  (3)
Income tax effect of share-based compensation213  —  (13) — 
Income tax effect of changes in applicable U.S. tax laws312  —  1,089  — 
Resolution of prior years’ income tax filings and other tax items(29) (46) (32) (68)
Income tax effect of non-GAAP adjustments41  (6) (7) (15)
Non-GAAP adjusted net income$1,205  $927  $3,613  $2,520 


1These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.
  
2Applied adopted the accounting standard related to share-based compensation (ASU 2016-09) in the first quarter of fiscal 2018, which resulted in $51 million tax benefit on a GAAP basis for the nine months ended July 29, 2018; this benefit is being recognized ratably over the fiscal year on a non-GAAP basis.
  
3Charges 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.
  
4Adjustment 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 Nine Months Ended
(In millions, except per share amounts)July 29, July 30, July 29, July 30,
2018201720182017
Non-GAAP Adjusted Earnings Per Diluted Share       
Reported earnings per diluted share - GAAP basis$1.17  $0.85  $2.35  $2.26 
Certain items associated with acquisitions0.05  0.04  0.13  0.12 
Impairment (gain on sale) of strategic investments, net(0.01) —  (0.01) — 
Income tax effect of share-based compensation0.01  —  (0.01) — 
Income tax effect of changes in applicable U.S. tax laws0.01  —  1.05  — 
Resolution of prior years’ income tax filings and other tax items(0.03) (0.04) (0.03) (0.06)
Other gains, losses or charges, net—  0.01  —  — 
Non-GAAP adjusted earnings per diluted share$1.20  $0.86  $3.48  $2.32 
Weighted average number of diluted shares1,005  1,083  1,039  1,087 

 

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

 Three Months Ended Nine Months Ended
(In millions, except percentages)July 29, July 30, July 29, July 30,
2018201720182017
Semiconductor Systems Non-GAAP Adjusted Operating Income       
Reported operating income - GAAP basis$930  $874  $2,996  $2,372 
Certain items associated with acquisitions145  46  137  138 
Non-GAAP adjusted operating income$975  $920  $3,133  $2,510 
Non-GAAP adjusted operating margin35.5% 36.3% 36.5% 35.4%
AGS Non-GAAP Adjusted Operating Income       
Reported operating income - GAAP basis$281  $213  $813  $585 
Certain items associated with acquisitions1—  1  —  1 
Acquisition integration costs—  1  1  3 
Non-GAAP adjusted operating income$281  $215  $814  $589 
Non-GAAP adjusted operating margin29.5% 27.4% 29.3% 26.9%
Display and Adjacent Markets Non-GAAP Adjusted Operating Income       
Reported operating income - GAAP basis$214  $91  $477  $290 
Certain items associated with acquisitions14  2  10  2 
Acquisition integration costs—  —  1  — 
Non-GAAP adjusted operating income$218  $93  $488  $292 
Non-GAAP adjusted operating margin29.4% 22.7% 27.2% 23.9%
 
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)July 29, 2018
    
Provision for income taxes - GAAP basis (a)$66 
Income tax effect of share-based compensation(13)
Income tax effect of changes in applicable U.S. tax laws(12)
Resolutions of prior years’ income tax filings and other tax items29 
Income tax effect of non-GAAP adjustments(1)
Non-GAAP adjusted provision for income taxes (b)$69 
    
Income before income taxes - GAAP basis (c)$1,239 
Certain items associated with acquisitions49 
Impairment (gain on sale) of strategic investments, net(14)
Non-GAAP adjusted income before income taxes (d)$1,274 
 
Effective income tax rate - GAAP basis (a/c)5.3%
 
Non-GAAP adjusted effective income tax rate (b/d)5.4%