EX-99.1 2 exhibit991q12019earningsre.htm EXHIBIT 99.1 EARNINGS RELEASE Exhibit
Exhibit 99.1
amatnewlogoa04a01a16.jpg

APPLIED MATERIALS ANNOUNCES FIRST QUARTER 2019 RESULTS

•
Quarterly revenue of $3.75 billion
•
GAAP EPS of $0.80 and non-GAAP EPS of $0.81
•
Returns $942 million to shareholders

SANTA CLARA, Calif., Feb. 14, 2019 — Applied Materials, Inc. (NASDAQ:AMAT) today reported results for its first quarter ended Jan. 27, 2019.
First Quarter Results
Applied generated revenue of $3.75 billion. On a GAAP basis, the company recorded gross margin of 44.4 percent, operating income of $908 million or 24.2 percent of net sales, and earnings per share (EPS) of $0.80.
On a non-GAAP adjusted basis, the company reported gross margin of 44.6 percent, operating income of $925 million or 24.6 percent of net sales, and EPS of $0.81.
The company returned $942 million to shareholders including $750 million in share repurchases and dividends of $192 million.

“Applied Materials delivered solid first quarter results in a challenging business environment,” said Gary Dickerson, president and CEO. “As we navigate the current market dynamics, we remain highly optimistic about the long term and are investing in new technology, products and capabilities that position the company to play a bigger and broader role in the industry's future.”





Applied Materials, Inc.
Page 2 of 13
Quarterly Results Summary
 
Q1 FY2019
 
Q1 FY2018
 
Change
 
(In millions, except per share amounts and percentages)
Net sales
$
3,753

 
$
4,205

 
(11)%
Gross margin
44.4
%
 
46.1
%
 
(1.7) points
Operating margin
24.2
%
 
28.9
%
 
(4.7) points
Net income
$
771

 
$
165

 
367%
Diluted earnings per share
$
0.80

 
$
0.15

 
433%
Non-GAAP Adjusted Results
 
 
 
 
 
Non-GAAP adjusted gross margin
44.6
%
 
47.2
%
 
(2.6) points
Non-GAAP adjusted operating margin
24.6
%
 
30.1
%
 
(5.5) points
Non-GAAP adjusted net income
$
779

 
$
1,165

 
(33)%
Non-GAAP adjusted diluted EPS
$
0.81

 
$
1.08

 
(25)%

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 months ended Jan. 28, 2018, were restated under the new standards. The cumulative impact of the adoption was an increase of approximately $6 million to beginning retained earnings of the first quarter of fiscal 2019.
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 second quarter of fiscal 2019, Applied expects net sales to be in the range of $3.33 billion to $3.63 billion. Non-GAAP adjusted diluted EPS is expected to be in the range of $0.62 to $0.70.
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 $0.02 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.

First Quarter Reportable Segment Information
Semiconductor Systems
Q1 FY2019
 
Q1 FY2018
 
(In millions, except percentages)
Net sales
$
2,268

 
$
2,852

Foundry, logic and other
44
%
 
37
%
DRAM
21
%
 
26
%
Flash
35
%
 
37
%
Operating income
631

 
1,024

Operating margin
27.8
%
 
35.9
%
Non-GAAP Adjusted Results
 
 
Non-GAAP adjusted operating income
$
642

 
$
1,070

Non-GAAP adjusted operating margin
28.3
%
 
37.5
%

Applied Global Services
Q1 FY2019
 
Q1 FY2018
 
(In millions, except percentages)
Net sales
$
962

 
$
881

Operating income
285

 
255

Operating margin
29.6
%
 
28.9
%
Non-GAAP Adjusted Results
 
 
Non-GAAP adjusted operating income
$
285

 
$
256

Non-GAAP adjusted operating margin
29.6
%
 
29.1
%








Applied Materials, Inc.
Page 4 of 13

Display and Adjacent Markets
Q1 FY2019
 
Q1 FY2018
 
(In millions, except percentages)
Net sales
$
507

 
$
443

Operating income
115

 
90

Operating margin
22.7
%
 
20.3
%
Non-GAAP Adjusted Results
 
 
Non-GAAP adjusted operating income
$
118

 
$
93

Non-GAAP adjusted operating margin
23.3
%
 
21.0
%


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; 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.



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 second quarter of fiscal 2019, 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-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.

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
(In millions, except per share amounts)
January 27,
2019
 
January 28,
2018
Net sales
$
3,753

 
$
4,205

Cost of products sold
2,088

 
2,265

Gross profit
1,665

 
1,940

Operating expenses:
 
 
 
Research, development and engineering
516

 
489

Marketing and selling
131

 
126

General and administrative
110

 
110

Total operating expenses
757

 
725

Income from operations
908

 
1,215

Interest expense
60

 
59

Interest and other income, net
40

 
27

Income before income taxes
888

 
1,183

Provision for income taxes
117

 
1,018

Net income
$
771

 
$
165

Earnings per share:
 
 
 
Basic
$
0.81

 
$
0.16

Diluted
$
0.80

 
$
0.15

Weighted average number of shares:
 
 
 
Basic
957

 
1,056

Diluted
965

 
1,071







Applied Materials, Inc.
Page 7 of 13


APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
 
(In millions)
January 27,
2019
 
October 28,
2018
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
3,192

 
$
3,440

Short-term investments
520

 
590

Accounts receivable, net
2,444

 
2,323

Inventories
3,703

 
3,721

Other current assets
426

 
530

Total current assets
10,285

 
10,604

Long-term investments
1,588

 
1,568

Property, plant and equipment, net
1,456

 
1,407

Goodwill
3,368

 
3,368

Purchased technology and other intangible assets, net
199

 
213

Deferred income taxes and other assets
2,026

 
473

Total assets
$
18,922

 
$
17,633

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued expenses
$
2,420

 
$
2,721

Contract liabilities
1,356

 
1,201

Total current liabilities
3,776

 
3,922

Income taxes payable
1,303

 
1,254

Long-term debt
5,310

 
5,309

Other liabilities
324

 
303

Total liabilities
10,713

 
10,788

Total stockholders’ equity
8,209

 
6,845

Total liabilities and stockholders’ equity
$
18,922

 
$
17,633








Applied Materials, Inc.
Page 8 of 13


APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
 
(In millions)
Three Months Ended
January 27,
2019
 
January 28,
2018
Cash flows from operating activities:
 
 
 
Net income
$
771

 
$
165

Adjustments required to reconcile net income to cash provided by operating activities:
 
 
 
Depreciation and amortization
88

 
119

Share-based compensation
65

 
65

Deferred income taxes
41

 
32

Other
1

 
—

Net change in operating assets and liabilities
(132
)
 
1,085

Cash provided by operating activities
834

 
1,466

Cash flows from investing activities:
 
 
 
Capital expenditures
(133
)
 
(203
)
Cash paid for acquisitions, net of cash acquired
—

 
(5
)
Proceeds from sales and maturities of investments
464

 
1,944

Purchases of investments
(397
)
 
(384
)
Cash provided by (used in) investing activities
(66
)
 
1,352

Cash flows from financing activities:
 
 
 
Common stock repurchases
(750
)
 
(782
)
Tax withholding payments for vested equity awards
(74
)
 
(141
)
Payments of dividends to stockholders
(192
)
 
(106
)
Cash used in financing activities
(1,016
)
 
(1,029
)
Increase (decrease) in cash and cash equivalents
(248
)
 
1,789

Cash and cash equivalents — beginning of period
3,440

 
5,010

Cash and cash equivalents — end of period
$
3,192

 
$
6,799

Supplemental cash flow information:
 
 
 
Cash payments for income taxes
$
34

 
$
78

Cash refunds from income taxes
$
8

 
$
40

Cash payments for interest
$
34

 
$
34






Applied Materials, Inc.
Page 9 of 13

APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Corporate and Other
(In millions)
Q1 FY2019
 
Q1 FY2018
Unallocated net sales
$
16

 
$
29

Unallocated cost of products sold and expenses
(74
)
 
(118
)
Share-based compensation
(65
)
 
(65
)
Total
$
(123
)
 
$
(154
)
Additional Information
 
Q1 FY2019
 
Q1 FY2018
Net Sales by Geography (In millions)
 
United States
450

 
370

% of Total
12
%
 
9
%
Europe
296

 
252

% of Total
8
%
 
6
%
Japan
651

 
482

% of Total
17
%
 
11
%
Korea
572

 
1,203

% of Total
15
%
 
29
%
Taiwan
656

 
741

% of Total
18
%
 
18
%
Southeast Asia
160

 
193

% of Total
4
%
 
4
%
China
968

 
964

% of Total
26
%
 
23
%
 
 
 
 
Employees (In thousands)
 
 
 
Regular Full Time
21.2

 
19.0








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

 
Three Months Ended
(In millions, except percentages)
January 27,
2019
 
January 28,
2018
Non-GAAP Adjusted Gross Profit
 
 
 
Reported gross profit - GAAP basis
$
1,665

 
$
1,940

Certain items associated with acquisitions1
10

 
45

Non-GAAP adjusted gross profit
$
1,675

 
$
1,985

Non-GAAP adjusted gross margin
44.6
%
 
47.2
%
Non-GAAP Adjusted Operating Income
 
 
 
Reported operating income - GAAP basis
$
908

 
$
1,215

Certain items associated with acquisitions1
14

 
49

Acquisition integration and deal costs
3

 
1

Non-GAAP adjusted operating income
$
925

 
$
1,265

Non-GAAP adjusted operating margin
24.6
%
 
30.1
%
Non-GAAP Adjusted Net Income
 
 
 
Reported net income - GAAP basis
$
771

 
$
165

Certain items associated with acquisitions1
14

 
49

Acquisition integration and deal costs
3

 
1

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

 
(1
)
Loss (gain) on strategic investments, net
(12
)
 
—

Income tax effect of share-based compensation2
(5
)
 
(39
)
Income tax effect of changes in applicable U.S. tax laws3
(24
)
 
1,006

Income tax effects related to amortization of intra-entity intangible asset transfers
(28
)
 
—

Resolution of prior years’ income tax filings and other tax items
59

 
(13
)
Income tax effect of non-GAAP adjustments4
1

 
(3
)
Non-GAAP adjusted net income
$
779

 
$
1,165



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.
Page 11 of 13

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

 
Three Months Ended
(In millions, except per share amounts)
January 27,
2019
 
January 28,
2018
Non-GAAP Adjusted Earnings Per Diluted Share
 
 
 
Reported earnings per diluted share - GAAP basis
$
0.80

 
$
0.15

Certain items associated with acquisitions
0.01

 
0.04

Loss (gain) on strategic investments, net
(0.01
)
 
—

Income tax effect of share-based compensation
—

 
(0.04
)
Income tax effect of changes in applicable U.S. tax laws
(0.02
)
 
0.94

Income tax effects related to amortization of intra-entity intangible asset transfers
(0.03
)
 
—

Resolution of prior years’ income tax filings and other tax items
0.06

 
(0.01
)
Non-GAAP adjusted earnings per diluted share
$
0.81

 
$
1.08

Weighted average number of diluted shares
965

 
1,071


 
 






Applied Materials, Inc.
Page 12 of 13
 
APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS
 
 
Three Months Ended
(In millions, except percentages)
January 27,
2019
 
January 28,
2018
Semiconductor Systems Non-GAAP Adjusted Operating Income
 
 
 
Reported operating income - GAAP basis
$
631

 
$
1,024

Certain items associated with acquisitions1
11

 
46

Non-GAAP adjusted operating income
$
642

 
$
1,070

Non-GAAP adjusted operating margin
28.3
%
 
37.5
%
AGS Non-GAAP Adjusted Operating Income
 
 
 
Reported operating income - GAAP basis
$
285

 
$
255

Acquisition integration costs
—

 
1

Non-GAAP adjusted operating income
$
285

 
$
256

Non-GAAP adjusted operating margin
29.6
%
 
29.1
%
Display and Adjacent Markets Non-GAAP Adjusted Operating Income
 
 
 
Reported operating income - GAAP basis
$
115

 
$
90

Certain items associated with acquisitions1
3

 
3

Non-GAAP adjusted operating income
$
118

 
$
93

Non-GAAP adjusted operating margin
23.3
%
 
21.0
%
 
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)
January 27, 2019
 
 
Provision for income taxes - GAAP basis (a)
$
117

Income tax effect of share-based compensation
5

Income tax effect of changes in applicable U.S. tax laws
24

Income tax effects related to amortization of intra-entity intangible asset transfers
28

Resolutions of prior years’ income tax filings and other tax items
(59
)
Income tax effect of non-GAAP adjustments
(1
)
Non-GAAP adjusted provision for income taxes (b)
$
114

 
 
Income before income taxes - GAAP basis (c)
$
888

Certain items associated with acquisitions
14

Acquisition integration and deal costs
3

Loss (gain) on strategic investments, net
(12
)
Non-GAAP adjusted income before income taxes (d)
$
893

 
 
Effective income tax rate - GAAP basis (a/c)
13.2
%
 
 
Non-GAAP adjusted effective income tax rate (b/d)
12.8
%