EX-99.1 2 exhibit991q32018earningsre.htm EXHIBIT 99.1 EARNINGS RELEASE Exhibit
Exhibit 99.1
amatnewlogoa04a01a14.jpg

APPLIED MATERIALS DELIVERS STRONG YEAR-ON-YEAR GROWTH
IN QUARTERLY REVENUE AND OPERATING INCOME

•
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., August 16, 2018 — 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.”





Applied Materials, Inc.
Page 2 of 13
Quarterly Results Summary
 
Q3 FY2018
 
Q3 FY2017
 
Change
 
(In millions, except per share amounts and percentages)
Net sales
$
4,468

 
$
3,744

 
19%
Gross margin
45.4
%
 
45.4
%
 
—
Operating margin
28.1
%
 
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 margin
46.4
%
 
46.6
%
 
(0.2) points
Non-GAAP adjusted operating margin
29.2
%
 
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.







Applied Materials, Inc.
Page 3 of 13


Business Outlook
In the fourth quarter of fiscal 2018, Applied expects net sales 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 Systems
Q3 FY2018
 
Q3 FY2017
 
(In millions, except percentages)
Net sales
$
2,748

 
$
2,532

Foundry
28
%
 
39
%
DRAM
24
%
 
15
%
Flash
36
%
 
38
%
Logic and other
12
%
 
8
%
Operating income
930

 
874

Operating margin
33.8
%
 
34.5
%
Non-GAAP Adjusted Results
 
 
Non-GAAP adjusted operating income
$
975

 
$
920

Non-GAAP adjusted operating margin
35.5
%
 
36.3
%

Applied Global Services
Q3 FY2018
 
Q3 FY2017
 
(In millions, except percentages)
Net sales
$
954

 
$
786

Operating income
281

 
213

Operating margin
29.5
%
 
27.1
%
Non-GAAP Adjusted Results
 
 
Non-GAAP adjusted operating income
$
281

 
$
215

Non-GAAP adjusted operating margin
29.5
%
 
27.4
%








Applied Materials, Inc.
Page 4 of 13

Display and Adjacent Markets
Q3 FY2018
 
Q3 FY2017
 
(In millions, except percentages)
Net sales
$
741

 
$
410

Operating income
214

 
91

Operating margin
28.9
%
 
22.2
%
Non-GAAP Adjusted Results
 
 
Non-GAAP adjusted operating income
$
218

 
$
93

Non-GAAP adjusted operating margin
29.4
%
 
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.



Applied Materials, Inc.
Page 5 of 13

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.
Page 6 of 13


APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
 
 
Three Months Ended
 
Nine Months Ended
(In millions, except per share amounts)
July 29,
2018
 
July 30,
2017
 
July 29,
2018
 
July 30,
2017
Net sales
$
4,468

 
$
3,744

 
$
13,239

 
$
10,568

Cost of products sold
2,441

 
2,044

 
7,202

 
5,823

Gross profit
2,027

 
1,700

 
6,037

 
4,745

Operating expenses:
 
 
 
 
 
 
 
Research, development and engineering
504

 
454

 
1,501

 
1,308

Marketing and selling
138

 
117

 
394

 
351

General and administrative
128

 
106

 
362

 
316

Total operating expenses
770

 
677

 
2,257

 
1,975

Income from operations
1,257

 
1,023

 
3,780

 
2,770

Interest expense
59

 
59

 
174

 
141

Interest and other income, net
41

 
14

 
90

 
28

Income before income taxes
1,239

 
978

 
3,696

 
2,657

Provision for income taxes
66

 
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:
 
 
 
 
 
 
 
Basic
994

 
1,071

 
1,026

 
1,076

Diluted
1,005

 
1,083

 
1,039

 
1,087







Applied Materials, Inc.
Page 7 of 13


APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
 
(In millions)
July 29,
2018
 
October 29,
2017
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
3,374

 
$
5,010

Short-term investments
610

 
2,266

Accounts receivable, net
2,882

 
2,338

Inventories
3,681

 
2,930

Other current assets
342

 
374

Total current assets
10,889

 
12,918

Long-term investments
1,613

 
1,143

Property, plant and equipment, net
1,321

 
1,066

Goodwill
3,368

 
3,368

Purchased technology and other intangible assets, net
263

 
412

Deferred income taxes and other assets
429

 
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 revenue
1,581

 
1,665

Total current liabilities
4,322

 
4,115

Income taxes payable
1,148

 
392

Long-term debt
5,308

 
5,304

Other liabilities
280

 
259

Total liabilities
11,058

 
10,070

Total stockholders’ equity
6,825

 
9,349

Total liabilities and stockholders’ equity
$
17,883

 
$
19,419








Applied Materials, Inc.
Page 8 of 13


APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
 
(In millions)
Three Months Ended
 
Nine Months Ended
July 29,
2018
 
July 30,
2017
July 29,
2018
 
July 30,
2017
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 amortization
110

 
102

 
337

 
302

Share-based compensation
64

 
55

 
193

 
162

Deferred income taxes
26

 
(3
)
 
112

 
6

Other
(7
)
 
6

 
4

 
15

Net change in operating assets and liabilities
(733
)
 
292

 
(373
)
 
143

Cash provided by operating activities
633

 
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 investments
391

 
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 period
4,870

 
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.
Page 9 of 13

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.
Page 10 of 13
 APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS

 
Three Months Ended
 
Nine Months Ended
(In millions, except percentages)
July 29,
2018
 
July 30,
2017
 
July 29,
2018
 
July 30,
2017
Non-GAAP Adjusted Gross Profit
 
 
 
 
 
 
 
Reported gross profit - GAAP basis
$
2,027

 
$
1,700

 
$
6,037

 
$
4,745

Certain items associated with acquisitions1
45

 
44

 
134

 
127

Non-GAAP adjusted gross profit
$
2,072

 
$
1,744

 
$
6,171

 
$
4,872

Non-GAAP adjusted gross margin
46.4
%
 
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 acquisitions1
49

 
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 margin
29.2
%
 
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 acquisitions1
49

 
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 compensation2
13

 
—

 
(13
)
 
—

Income tax effect of changes in applicable U.S. tax laws3
12

 
—

 
1,089

 
—

Resolution of prior years’ income tax filings and other tax items
(29
)
 
(46
)
 
(32
)
 
(68
)
Income tax effect of non-GAAP adjustments4
1

 
(6
)
 
(7
)
 
(15
)
Non-GAAP adjusted net income
$
1,205

 
$
927

 
$
3,613

 
$
2,520



1 
These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.
 
 
2
Applied 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.
 
 
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.
Page 11 of 13

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,
2018
 
July 30,
2017
 
July 29,
2018
 
July 30,
2017
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 acquisitions
0.05

 
0.04

 
0.13

 
0.12

Impairment (gain on sale) of strategic investments, net
(0.01
)
 
—

 
(0.01
)
 
—

Income tax effect of share-based compensation
0.01

 
—

 
(0.01
)
 
—

Income tax effect of changes in applicable U.S. tax laws
0.01

 
—

 
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 shares
1,005

 
1,083

 
1,039

 
1,087


 
 






Applied Materials, Inc.
Page 12 of 13
 
APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS
 
 
Three Months Ended
 
Nine Months Ended
(In millions, except percentages)
July 29,
2018
 
July 30,
2017
 
July 29,
2018
 
July 30,
2017
Semiconductor Systems Non-GAAP Adjusted Operating Income
 
 
 
 
 
 
 
Reported operating income - GAAP basis
$
930

 
$
874

 
$
2,996

 
$
2,372

Certain items associated with acquisitions1
45

 
46

 
137

 
138

Non-GAAP adjusted operating income
$
975

 
$
920

 
$
3,133

 
$
2,510

Non-GAAP adjusted operating margin
35.5
%
 
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 margin
29.5
%
 
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 acquisitions1
4

 
2

 
10

 
2

Acquisition integration costs
—

 
—

 
1

 
—

Non-GAAP adjusted operating income
$
218

 
$
93

 
$
488

 
$
292

Non-GAAP adjusted operating margin
29.4
%
 
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.





Applied Materials, Inc.
Page 13 of 13



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 items
29

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 acquisitions
49

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
%