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PRESS RELEASE: Paid content from Globe Newswire
Press release content from Globe Newswire. The AP news staff was not involved in its creation.

Applied Materials Announces Second Quarter 2019 Results

May 16, 2019

-- Quarterly revenue of $3.54 billion -- GAAP and non-GAAP EPS of $0.70 -- Returns $814 million to shareholders

SANTA CLARA, Calif., May 16, 2019 (GLOBE NEWSWIRE) -- Applied Materials, Inc. (NASDAQ:AMAT) today reported results for its second quarter ended April 28, 2019.

Second Quarter Results

Applied generated revenue of $3.54 billion. On a GAAP basis, the company recorded gross margin of 43.2 percent, operating income of $776 million or 21.9 percent of net sales, and earnings per share (EPS) of $0.70.

On a non-GAAP adjusted basis, the company reported gross margin of 43.5 percent, operating income of $794 million or 22.4 percent of net sales, and EPS of $0.70.

The company returned $814 million to shareholders including $625 million in share repurchases and dividends of $189 million. As previously announced on March 8, 2019, Applied’s Board of Directors approved a five percent increase in the quarterly cash dividend from $0.20 to $0.21 per share.

“In the second fiscal quarter Applied Materials delivered results toward the top-end of our guidance range, reflecting solid execution across the company in a business environment that remains challenging,” said Gary Dickerson, president and CEO. “Looking ahead, we maintain a positive view of our markets as powerful new demand drivers for semiconductors and displays take shape, creating tremendous opportunities for Applied Materials.”

Quarterly Results Summary

Q2 FY2019 Q2 FY2018 Change --------- --------- ------------ (In millions, except per share amounts and percentages) Net sales $ 3,539 $ 4,579 (23)% Gross margin 43.2 % 44.9 % (1.7) points Operating margin 21.9 % 28.2 % (6.3) points Net income $ 666 $ 1,100 (39)% Diluted earnings per share $ 0.70 $ 1.06 (34)% Non-GAAP Adjusted Results ---------------------------------- Non-GAAP adjusted gross margin 43.5 % 45.9 % (2.4) points Non-GAAP adjusted operating margin 22.4 % 29.3 % (6.9) points Non-GAAP adjusted net income $ 660 $ 1,244 (47)% Non-GAAP adjusted diluted EPS $ 0.70 $ 1.19 (41)%

Applied adopted Accounting Standards Update 2014-09, Revenue from Contracts with Customers (ASC 606), as of the first day of fiscal 2019 using the full retrospective method. Applied also adopted Accounting Standards Update 2017-07, Compensation—Retirement Benefits, as of the first day of fiscal 2019 using the retrospective method. All prior periods included in the unaudited consolidated condensed balance sheet as of Oct. 28, 2018, and the unaudited consolidated condensed statements of operations and cash flows for the three and six months ended April 29, 2018, were restated under the new standards.

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 2019, Applied expects net sales to be approximately $3.525 billion, plus or minus $150 million. Non-GAAP adjusted diluted EPS is expected to be in the range of $0.67 to $0.75.

This outlook for non-GAAP adjusted diluted EPS excludes known charges related to completed acquisitions 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.

Second Quarter Reportable Segment Information

Semiconductor Systems Q2 FY2019 Q2 FY2018 --------- --------- (In millions, except percentages) Net sales $ 2,184 $ 2,901 Foundry, logic and other 58 % 30 % DRAM 18 % 32 % Flash 24 % 38 % Operating income 579 992 Operating margin 26.5 % 34.2 % Non-GAAP Adjusted Results Non-GAAP adjusted operating income $ 589 $ 1,038 Non-GAAP adjusted operating margin 27.0 % 35.8 %

Applied Global Services Q2 Q2 FY2019 FY2018 ------- ------- (In millions, except percentages) Net sales $ 984 $ 945 Operating income 283 279 Operating margin 28.8 % 29.5 % Non-GAAP Adjusted Results Non-GAAP adjusted operating income $ 283 $ 279 Non-GAAP adjusted operating margin 28.8 % 29.5 %

Display and Adjacent Markets Q2 Q2 FY2019 FY2018 ------- ------- (In millions, except percentages) Net sales $ 348 $ 719 Operating income 42 210 Operating margin 12.1 % 29.2 % Non-GAAP Adjusted Results Non-GAAP adjusted operating income $ 46 $ 214 Non-GAAP adjusted operating margin 13.2 % 29.8 %

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 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 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 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 third quarter of fiscal 2019 and beyond, 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 Six Months Ended -------------------- -------------------- (In millions, except per share amounts) April 28, April 29, April 28, April 29, 2019 2018 2019 2018 --------- --------- --------- --------- Net sales $ 3,539 $ 4,579 $ 7,292 $ 8,784 Cost of products sold 2,009 2,523 4,097 4,788 ------- - ------- - ------- - ------- - Gross profit 1,530 2,056 3,195 3,996 Operating expenses: Research, development and engineering 508 509 1,024 998 Marketing and selling 133 130 264 256 General and administrative 113 125 223 235 Total operating expenses 754 764 1,511 1,489 ------- - ------- - ------- - ------- - Income from operations 776 1,292 1,684 2,507 Interest expense 60 56 120 115 Interest and other income, net 43 25 83 52 ------- - ------- - ------- - ------- - Income before income taxes 759 1,261 1,647 2,444 Provision for income taxes 93 161 210 1,179 ------- - ------- - ------- - ------- - Net income $ 666 $ 1,100 $ 1,437 $ 1,265 - ----- - - ----- - - ----- - - ----- - Earnings per share: Basic $ 0.71 $ 1.07 $ 1.51 $ 1.21 Diluted $ 0.70 $ 1.06 $ 1.50 $ 1.20 Weighted average number of shares: Basic 942 1,029 950 1,042 Diluted 948 1,040 957 1,056

APPLIED MATERIALS, INC.UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions) April 28, October 28, 2019 2018 --------- ----------- ASSETS Current assets: Cash and cash equivalents $ 3,116 $ 3,440 Short-term investments 507 590 Accounts receivable, net 2,264 2,323 Inventories 3,677 3,721 Other current assets 498 530 -------- Total current assets 10,062 10,604 Long-term investments 1,609 1,568 Property, plant and equipment, net 1,494 1,407 Goodwill 3,399 3,368 Purchased technology and other intangible assets, net 185 213 Deferred income taxes and other assets 2,026 473 -------- -------- -- Total assets $ 18,775 $ 17,633 - ------ - ------ -- LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable and accrued expenses $ 2,212 $ 2,721 Contract liabilities 1,393 1,201 -------- Total current liabilities 3,605 3,922 Income taxes payable 1,326 1,254 Long-term debt 5,311 5,309 Other liabilities 332 303 -------- -------- -- Total liabilities 10,574 10,788 -------- -------- -- Total stockholders’ equity 8,201 6,845 -------- -------- -- Total liabilities and stockholders’ equity $ 18,775 $ 17,633 - ------ - ------ --

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

Three Months Ended Six Months Ended -------------------- -------------------- (In millions) April 28, April 29, April 28, April 29, 2019 2018 2019 2018 --------- --------- --------- --------- Cash flows from operating activities: Net income $ 666 $ 1,100 $ 1,437 $ 1,265 Adjustments required to reconcile net income to cash provided by operating activities: Depreciation and amortization 94 108 182 227 Share-based compensation 65 64 130 129 Deferred income taxes 8 40 49 72 Other (10 ) 11 (9 ) 11 Net change in operating assets and liabilities (23 ) (712 ) (155 ) 373 ------- - ------- - ------- - ------- - Cash provided by operating activities 800 611 1,634 2,077 ------- - ------- - ------- - ------- - Cash flows from investing activities: Capital expenditures (118 ) (121 ) (251 ) (324 ) Cash paid for acquisitions, net of cash acquired (23 ) — (23 ) (5 ) Proceeds from sales and maturities of investments 442 488 906 2,432 Purchases of investments (430 ) (345 ) (827 ) (729 ) ------- - ------- - ------- - ------- - Cash provided by (used in) investing activities (129 ) 22 (195 ) 1,374 ------- - ------- - ------- - ------- - Cash flows from financing activities: Proceeds from common stock issuances 73 56 73 56 Common stock repurchases (625 ) (2,500 ) (1,375 ) (3,282 ) Tax withholding payments for vested equity awards (6 ) (13 ) (80 ) (154 ) Payments of dividends to stockholders (189 ) (105 ) (381 ) (211 ) ------- - ------- - ------- - ------- - Cash used in financing activities (747 ) (2,562 ) (1,763 ) (3,591 ) ------- - ------- - ------- - ------- - Decrease in cash and cash equivalents (76 ) (1,929 ) (324 ) (140 ) Cash and cash equivalents — beginning of period 3,192 6,799 3,440 5,010 ------- - ------- - ------- - ------- - Cash and cash equivalents — end of period $ 3,116 $ 4,870 $ 3,116 $ 4,870 - ----- - - ----- - - ----- - - ----- - Supplemental cash flow information: Cash payments for income taxes $ 198 $ 139 $ 232 $ 217 Cash refunds from income taxes $ 10 $ 1 $ 18 $ 41 Cash payments for interest $ 76 $ 76 $ 110 $ 110

APPLIED MATERIALS, INC.UNAUDITED SUPPLEMENTAL INFORMATION

Corporate and Other

(In millions) Q2 FY2019 Q2 FY2018 ---------- ---------- Unallocated net sales $ 23 $ 14 Unallocated cost of products sold and expenses (86 ) (139 ) Share-based compensation (65 ) (64 ) Total $ (128 ) $ (189 ) --- ---- - --- ---- -

Additional Information

Q2 Q2 FY2019 FY2018 ------ ------- Net Sales by Geography (In millions) United States 457 345 % of Total 13 % 8 % Europe 215 292 % of Total 6 % 6 % Japan 520 502 % of Total 15 % 11 % Korea 441 1,232 % of Total 13 % 27 % Taiwan 794 666 % of Total 22 % 15 % Southeast Asia 119 242 % of Total 3 % 5 % China 993 1,300 % of Total 28 % 28 % Employees(In thousands) Regular Full Time 21.4 19.8

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

Three Months Ended Six Months Ended -------------------- -------------------- (In millions, except percentages) April 28, April 29, April 28, April 29, 2019 2018 2019 2018 --------- --------- --------- --------- Non-GAAP Adjusted Gross Profit Reported gross profit - GAAP basis $ 1,530 $ 2,056 $ 3,195 $ 3,996 Certain items associated with acquisitions1 9 44 19 89 Non-GAAP adjusted gross profit $ 1,539 $ 2,100 $ 3,214 $ 4,085 - ----- - - ----- - - ----- - - ----- - Non-GAAP adjusted gross margin 43.5 % 45.9 % 44.1 % 46.5 % Non-GAAP Adjusted Operating Income Reported operating income - GAAP basis $ 776 $ 1,292 $ 1,684 $ 2,507 Certain items associated with acquisitions1 14 49 28 98 Acquisition integration and deal costs 4 1 7 2 Non-GAAP adjusted operating income $ 794 $ 1,342 $ 1,719 $ 2,607 - ----- - - ----- - - ----- - - ----- - Non-GAAP adjusted operating margin 22.4 % 29.3 % 23.6 % 29.7 % Non-GAAP Adjusted Net Income Reported net income - GAAP basis $ 666 $ 1,100 $ 1,437 $ 1,265 Certain items associated with acquisitions1 14 49 28 98 Acquisition integration and deal costs 4 1 7 2 Impairment (gain on sale) of strategic investments, net — 5 — 4 Loss (gain) on strategic investments, net (11 ) — (23 ) — Income tax effect of share-based compensation2 1 13 (4 ) (26 ) Income tax effect of changes in applicable U.S. tax laws3 — 71 (24 ) 1,077 Income tax effects related to amortization of intra-entity (31 ) — (59 ) — intangible asset transfers Resolution of prior years’ income tax filings and other tax items 17 10 76 (3 ) Income tax effect of non-GAAP adjustments4 — (5 ) 1 (8 ) ------- - ------- - ------- - ------- - Non-GAAP adjusted net income $ 660 $ 1,244 $ 1,439 $ 2,409 - ----- - - ----- - - ----- - - ----- -

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 being recognized ratably over the fiscal year on a non-GAAP basis. 3 Charges 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. 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 Six Months Ended ------------------- ------------------- April April 29, April April 29, (In millions, except per share amounts) 28, 2018 28, 2018 2019 2019 -------- --------- -------- --------- Non-GAAP Adjusted Earnings Per Diluted Share Reported earnings per diluted share - GAAP basis $ 0.70 $ 1.06 $ 1.50 $ 1.20 Certain items associated with acquisitions 0.01 0.04 0.03 0.09 Loss (gain) on strategic investments, net — — (0.02 ) — Income tax effect of share-based compensation — 0.01 (0.01 ) (0.03 ) Income tax effect of changes in applicable U.S. tax laws — 0.07 (0.02 ) 1.02 Income tax effects related to amortization of intra-entity intangible (0.03 ) — (0.06 ) — asset transfers Resolution of prior years’ income tax filings and other tax items 0.02 0.01 0.08 — ------ ------ ------ - ----- Non-GAAP adjusted earnings per diluted share $ 0.70 $ 1.19 $ 1.50 $ 2.28 - ---- - ---- - ---- - ----- Weighted average number of diluted shares 948 1,040 957 1,056

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

Three Months Ended Six Months Ended ------------------ -------------------- April April 29, April 28, April 29, (In millions, except percentages) 28, 2018 2019 2018 2019 ------- --------- --------- --------- Semiconductor Systems Non-GAAP Adjusted Operating Income Reported operating income - GAAP basis $ 579 $ 992 $ 1,210 $ 2,016 Certain items associated with acquisitions1 10 46 21 92 ----- - ------- - Non-GAAP adjusted operating income $ 589 $ 1,038 $ 1,231 $ 2,108 - --- - - ----- - - ----- - - ----- - Non-GAAP adjusted operating margin 27.0 % 35.8 % 27.7 % 36.6 % AGS Non-GAAP Adjusted Operating Income Reported operating income - GAAP basis $ 283 $ 279 $ 568 $ 534 Acquisition integration costs — — — 1 Non-GAAP adjusted operating income $ 283 $ 279 $ 568 $ 535 - --- - - ----- - - ----- - - ----- - Non-GAAP adjusted operating margin 28.8 % 29.5 % 29.2 % 29.3 % Display and Adjacent Markets Non-GAAP Adjusted Operating Income Reported operating income - GAAP basis $ 42 $ 210 $ 157 $ 300 Certain items associated with acquisitions1 4 3 7 6 Acquisition integration costs — 1 — 1 ------- - ------- - Non-GAAP adjusted operating income $ 46 $ 214 $ 164 $ 307 - --- - - ----- - - ----- - - ----- - Non-GAAP adjusted operating margin 13.2 % 29.8 % 19.2 % 26.4 %

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 April (In millions, except percentages) 28, 2019 ------- Provision for income taxes - GAAP basis(a) $ 93 Income tax effect of share-based compensation (1 ) Income tax effects related to amortization of intra-entity intangible asset transfers 31 Resolutions of prior years’ income tax filings and other tax items (17 ) Non-GAAP adjusted provision for income taxes (b) $ 106 - --- - Income before income taxes - GAAP basis(c) $ 759 Certain items associated with acquisitions 14 Acquisition integration and deal costs 4 Loss (gain) on strategic investments, net (11 ) Non-GAAP adjusted income before income taxes (d) $ 766 - --- - Effective income tax rate - GAAP basis (a/c) 12.3 % ----- - Non-GAAP adjusted effective income tax rate (b/d) 13.8 % ----- -