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| 8-K - FORM 8-K - APPLIED MATERIALS INC /DE | q118earnings8-k.htm |
Exhibit 99.1
APPLIED MATERIALS DELIVERS STRONG YEAR-ON-YEAR GROWTH
IN QUARTERLY REVENUE AND OPERATING PROFIT
• | Record quarterly revenue of $4.20 billion, up 28 percent year over year |
• | GAAP EPS of $0.13; record non-GAAP EPS of $1.06, up 58 percent year over year |
• | Doubles quarterly dividend and increases share repurchase authorization by $6.0 billion |
SANTA CLARA, Calif., February 14, 2018 — Applied Materials, Inc. (NASDAQ:AMAT) today reported record revenue and operating profit in its first quarter ended January 28, 2018.
First Quarter Results
Compared to the first quarter of fiscal 2017, Applied grew net sales by 28 percent to $4.20 billion. On a GAAP basis, the company increased gross margin by 1.6 points to 45.7 percent, and grew operating income by 48 percent to $1.20 billion or 28.4 percent of net sales. GAAP earnings per share (EPS) declined to $0.13 due to a one-time charge related to recent U.S. tax legislation that reduced EPS by approximately $0.94.
On a non-GAAP adjusted basis, over the same period, the company increased gross margin by 1.3 points to 46.7 percent, grew operating income by 46 percent to $1.25 billion or 29.6 percent of net sales, and increased EPS by 58 percent to $1.06, which excludes the charge related to recent U.S. tax legislation. In addition, non-GAAP EPS included a benefit of $0.04 that was driven by recent changes in U.S. tax legislation that reduced the company's fiscal 2018 tax rate relative to previous expectations.
The company increased cash flow from operations by 85 percent year over year to $1.47 billion and returned $888 million to shareholders through dividends of $106 million and $782 million in share repurchases.
“We see sustainable strength in our markets as large, powerful trends drive a fundamental shift in the demand for semiconductors and displays,” said Gary Dickerson, president and CEO. “Our broad portfolio of capabilities and products puts us in a great position to outperform our markets and we’re confident that each of our three major business segments can deliver strong double-digit growth in 2018.”
Applied Materials, Inc.
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Quarterly Results Summary
Q1 FY2018 | Q1 FY2017 | Change | |||||||
(In millions, except per share amounts and percentages) | |||||||||
Net sales | $ | 4,204 | $ | 3,278 | 28% | ||||
Gross margin | 45.7 | % | 44.1 | % | 1.6 points | ||||
Operating margin | 28.4 | % | 24.6 | % | 3.8 points | ||||
Net income | $ | 135 | $ | 703 | (81%) | ||||
Diluted earnings per share | $ | 0.13 | $ | 0.65 | (80%) | ||||
Non-GAAP Adjusted Results | |||||||||
Non-GAAP adjusted gross margin | 46.7 | % | 45.4 | % | 1.3 points | ||||
Non-GAAP adjusted operating margin | 29.6 | % | 26.0 | % | 3.6 points | ||||
Non-GAAP adjusted net income | $ | 1,135 | $ | 732 | 55% | ||||
Non-GAAP adjusted diluted EPS | $ | 1.06 | $ | 0.67 | 58% | ||||
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.
Capital Allocation
Applied’s Board of Directors has approved a doubling of the quarterly cash dividend on the company's common stock to $0.20 per share. The Board declared that a dividend of $0.20 per share will be payable on June 14, 2018 to shareholders of record as of May 24, 2018. As previously announced, a cash dividend of $0.10 per share will be paid on March 14, 2018 to shareholders of record as of February 21, 2018.
The Board also approved a new $6.0 billion share repurchase authorization. This new authorization is incremental to $2.8 billion remaining in the previously approved authorization.
“The dividend increase and additional repurchase authorization reflect Applied’s confidence in the underlying strength of our markets along with our company’s technology leadership and strategy to deliver profitable growth and increase shareholder value,” said Dan Durn, Senior Vice President and Chief Financial Officer.
Impact of Recent U.S. Tax Legislation
As a result of the Tax Cuts and Jobs Act, the company recorded a $1.0 billion tax charge, which included an estimate of a one-time transition tax that is payable over 8 years.
Applied Materials, Inc.
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Business Outlook
In the second quarter of fiscal 2018, Applied expects net sales to be in the range of $4.35 billion to $4.55 billion; the midpoint of the range would be an increase of approximately 26 percent, year over year. Non-GAAP adjusted diluted EPS is expected to be in the range of $1.10 to $1.18; the midpoint of the range would be an increase of approximately 44 percent, year over year.
This outlook for non-GAAP adjusted diluted EPS excludes known charges related to completed acquisitions of $0.04 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.
First Quarter Reportable Segment Information
Semiconductor Systems | Q1 FY2018 | Q1 FY2017 | |||||
(In millions, except percentages) | |||||||
Net sales | $ | 2,847 | $ | 2,150 | |||
Foundry | 25 | % | 50 | % | |||
DRAM | 25 | % | 16 | % | |||
Flash | 37 | % | 25 | % | |||
Logic and other | 13 | % | 9 | % | |||
Operating income | 995 | 690 | |||||
Operating margin | 34.9 | % | 32.1 | % | |||
Non-GAAP Adjusted Results | |||||||
Non-GAAP adjusted operating income | $ | 1,041 | $ | 736 | |||
Non-GAAP adjusted operating margin | 36.6 | % | 34.2 | % | |||
Applied Global Services | Q1 FY2018 | Q1 FY2017 | |||||
(In millions, except percentages) | |||||||
Net sales | $ | 880 | $ | 676 | |||
Operating income | 254 | 178 | |||||
Operating margin | 28.9 | % | 26.3 | % | |||
Non-GAAP Adjusted Results | |||||||
Non-GAAP adjusted operating income | $ | 255 | $ | 179 | |||
Non-GAAP adjusted operating margin | 29.0 | % | 26.5 | % | |||
Applied Materials, Inc.
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Display and Adjacent Markets | Q1 FY2018 | Q1 FY2017 | |||||
(In millions, except percentages) | |||||||
Net sales | $ | 455 | $ | 422 | |||
Operating income | 101 | 115 | |||||
Operating margin | 22.2 | % | 27.3 | % | |||
Non-GAAP Adjusted Results | |||||||
Non-GAAP adjusted operating income | $ | 104 | $ | 115 | |||
Non-GAAP adjusted operating margin | 22.9 | % | 27.3 | % | |||
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, the first quarter 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.
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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 2018, the expected impact of recent U.S. tax legislation, 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; 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; further 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.
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APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended | |||||||
(In millions, except per share amounts) | January 28, 2018 | January 29, 2017 | |||||
Net sales | $ | 4,204 | $ | 3,278 | |||
Cost of products sold | 2,284 | 1,833 | |||||
Gross profit | 1,920 | 1,445 | |||||
Operating expenses: | |||||||
Research, development and engineering | 488 | 417 | |||||
Marketing and selling | 126 | 118 | |||||
General and administrative | 110 | 103 | |||||
Total operating expenses | 724 | 638 | |||||
Income from operations | 1,196 | 807 | |||||
Interest expense | 59 | 38 | |||||
Interest and other income, net | 25 | 2 | |||||
Income before income taxes | 1,162 | 771 | |||||
Provision for income taxes | 1,027 | 68 | |||||
Net income | $ | 135 | $ | 703 | |||
Earnings per share: | |||||||
Basic and diluted | $ | 0.13 | $ | 0.65 | |||
Weighted average number of shares: | |||||||
Basic | 1,056 | 1,078 | |||||
Diluted | 1,071 | 1,089 | |||||
Applied Materials, Inc.
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APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions) | January 28, 2018 | October 29, 2017 | |||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 6,799 | $ | 5,010 | |||
Short-term investments | 655 | 2,266 | |||||
Accounts receivable, net | 2,182 | 2,338 | |||||
Inventories | 3,125 | 2,930 | |||||
Other current assets | 268 | 374 | |||||
Total current assets | 13,029 | 12,918 | |||||
Long-term investments | 1,203 | 1,143 | |||||
Property, plant and equipment, net | 1,195 | 1,066 | |||||
Goodwill | 3,368 | 3,368 | |||||
Purchased technology and other intangible assets, net | 362 | 412 | |||||
Deferred income taxes and other assets | 506 | 512 | |||||
Total assets | $ | 19,663 | $ | 19,419 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable and accrued expenses | 2,381 | 2,450 | |||||
Customer deposits and deferred revenue | 2,018 | 1,665 | |||||
Total current liabilities | 4,399 | 4,115 | |||||
Income taxes payable | 1,158 | 392 | |||||
Long-term debt | 5,305 | 5,304 | |||||
Other liabilities | 295 | 259 | |||||
Total liabilities | 11,157 | 10,070 | |||||
Total stockholders’ equity | 8,506 | 9,349 | |||||
Total liabilities and stockholders’ equity | $ | 19,663 | $ | 19,419 | |||
Applied Materials, Inc.
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APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In millions) | Three Months Ended | ||||||
January 28, 2018 | January 29, 2017 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 135 | $ | 703 | |||
Adjustments required to reconcile net income to cash provided by operating activities: | |||||||
Depreciation and amortization | 119 | 97 | |||||
Share-based compensation | 65 | 54 | |||||
Deferred income taxes | 41 | 25 | |||||
Other | — | 9 | |||||
Net change in operating assets and liabilities | 1,106 | (96 | ) | ||||
Cash provided by operating activities | 1,466 | 792 | |||||
Cash flows from investing activities: | |||||||
Capital expenditures | (203 | ) | (64 | ) | |||
Cash paid for acquisitions, net of cash acquired | (5 | ) | — | ||||
Proceeds from sales and maturities of investments | 1,944 | 286 | |||||
Purchases of investments | (384 | ) | (589 | ) | |||
Cash provided by (used in) investing activities | 1,352 | (367 | ) | ||||
Cash flows from financing activities: | |||||||
Common stock repurchases | (782 | ) | (130 | ) | |||
Tax withholding payments for vested equity awards | (141 | ) | (102 | ) | |||
Payments of dividends to stockholders | (106 | ) | (108 | ) | |||
Cash used in financing activities | (1,029 | ) | (340 | ) | |||
Increase in cash and cash equivalents | 1,789 | 85 | |||||
Cash and cash equivalents — beginning of period | 5,010 | 3,406 | |||||
Cash and cash equivalents — end of period | $ | 6,799 | $ | 3,491 | |||
Supplemental cash flow information: | |||||||
Cash payments for income taxes | $ | 78 | $ | 35 | |||
Cash refunds from income taxes | $ | 40 | $ | 2 | |||
Cash payments for interest | $ | 34 | $ | 34 | |||
Applied Materials, Inc.
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APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION
Corporate and Other
(In millions) | Q1 FY2018 | Q1 FY2017 | |||||
Unallocated net sales | $ | 22 | $ | 30 | |||
Unallocated cost of products sold and expenses | (111 | ) | (152 | ) | |||
Share-based compensation | (65 | ) | (54 | ) | |||
Total | $ | (154 | ) | $ | (176 | ) | |
Additional Information
Q1 FY2018 | Q1 FY2017 | ||||
Net Sales by Geography (In millions) | |||||
United States | 371 | 317 | |||
% of Total | 9 | % | 10 | % | |
Europe | 264 | 209 | |||
% of Total | 6 | % | 6 | % | |
Japan | 481 | 235 | |||
% of Total | 12 | % | 7 | % | |
Korea | 1,230 | 670 | |||
% of Total | 29 | % | 20 | % | |
Taiwan | 756 | 1,103 | |||
% of Total | 18 | % | 34 | % | |
Southeast Asia | 185 | 97 | |||
% of Total | 4 | % | 3 | % | |
China | 917 | 647 | |||
% of Total | 22 | % | 20 | % | |
Employees (In thousands) | |||||
Regular Full Time | 19.0 | 16.0 | |||
Applied Materials, Inc.
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APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS
Three Months Ended | |||||||
(In millions, except percentages) | January 28, 2018 | January 29, 2017 | |||||
Non-GAAP Adjusted Gross Profit | |||||||
Reported gross profit - GAAP basis | $ | 1,920 | $ | 1,445 | |||
Certain items associated with acquisitions1 | 45 | 42 | |||||
Non-GAAP adjusted gross profit | $ | 1,965 | $ | 1,487 | |||
Non-GAAP adjusted gross margin | 46.7 | % | 45.4 | % | |||
Non-GAAP Adjusted Operating Income | |||||||
Reported operating income - GAAP basis | $ | 1,196 | $ | 807 | |||
Certain items associated with acquisitions1 | 49 | 47 | |||||
Acquisition integration costs | 1 | 1 | |||||
Other gains, losses or charges, net | — | (3 | ) | ||||
Non-GAAP adjusted operating income | $ | 1,246 | $ | 852 | |||
Non-GAAP adjusted operating margin | 29.6 | % | 26.0 | % | |||
Non-GAAP Adjusted Net Income | |||||||
Reported net income - GAAP basis | $ | 135 | $ | 703 | |||
Certain items associated with acquisitions1 | 49 | 47 | |||||
Acquisition integration costs | 1 | 1 | |||||
Impairment (gain on sale) of strategic investments, net | (1 | ) | 5 | ||||
Other gains, losses or charges, net | — | (3 | ) | ||||
Income tax effect of share-based compensation2 | (39 | ) | — | ||||
Income tax effect of changes in applicable U.S. tax laws3 | 1,006 | — | |||||
Resolution of prior years’ income tax filings and other tax items | (13 | ) | (16 | ) | |||
Income tax effect of non-GAAP adjustments4 | (3 | ) | (5 | ) | |||
Non-GAAP adjusted net income | $ | 1,135 | $ | 732 | |||
1 | These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets. |
2 | In the first quarter of fiscal 2018, Applied adopted the accounting standard related to share-based compensation (ASU 2016-09), which resulted in a $51 million tax benefit on a GAAP basis; 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.
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APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS
Three Months Ended | |||||||
(In millions, except per share amounts) | January 28, 2018 | January 29, 2017 | |||||
Non-GAAP Adjusted Earnings Per Diluted Share | |||||||
Reported earnings per diluted share - GAAP basis | $ | 0.13 | $ | 0.65 | |||
Certain items associated with acquisitions | 0.04 | 0.04 | |||||
Income tax effect of share-based compensation | (0.04 | ) | — | ||||
Income tax effect of changes in applicable U.S. tax laws | 0.94 | — | |||||
Resolution of prior years’ income tax filings and other tax items | (0.01 | ) | (0.02 | ) | |||
Non-GAAP adjusted earnings per diluted share | $ | 1.06 | $ | 0.67 | |||
Weighted average number of diluted shares | 1,071 | 1,089 | |||||
Applied Materials, Inc.
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APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS
Three Months Ended | |||||||
(In millions, except percentages) | January 28, 2018 | January 29, 2017 | |||||
Semiconductor Systems Non-GAAP Adjusted Operating Income | |||||||
Reported operating income - GAAP basis | $ | 995 | $ | 690 | |||
Certain items associated with acquisitions1 | 46 | 46 | |||||
Non-GAAP adjusted operating income | $ | 1,041 | $ | 736 | |||
Non-GAAP adjusted operating margin | 36.6 | % | 34.2 | % | |||
AGS Non-GAAP Adjusted Operating Income | |||||||
Reported operating income - GAAP basis | $ | 254 | $ | 178 | |||
Acquisition integration costs | 1 | 1 | |||||
Non-GAAP adjusted operating income | $ | 255 | $ | 179 | |||
Non-GAAP adjusted operating margin | 29.0 | % | 26.5 | % | |||
Display and Adjacent Markets Non-GAAP Adjusted Operating Income | |||||||
Reported operating income - GAAP basis | $ | 101 | $ | 115 | |||
Certain items associated with acquisitions1 | 3 | — | |||||
Non-GAAP adjusted operating income | $ | 104 | $ | 115 | |||
Non-GAAP adjusted operating margin | 22.9 | % | 27.3 | % | |||
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.
Applied Materials, Inc.
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UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED EFFECTIVE INCOME TAX RATE
Three Months Ended | |||
(In millions, except percentages) | January 28, 2018 | ||
Provision for income taxes - GAAP basis (a) | $ | 1,027 | |
Income tax effect of share-based compensation | 39 | ||
Income tax effect of changes in applicable U.S. tax laws | (1,006 | ) | |
Resolutions of prior years’ income tax filings and other tax items | 13 | ||
Income tax effect of non-GAAP adjustments | 3 | ||
Non-GAAP adjusted provision for income taxes (b) | $ | 76 | |
Income before income taxes - GAAP basis (c) | $ | 1,162 | |
Certain items associated with acquisitions | 49 | ||
Acquisition integration costs | 1 | ||
Impairment (gain on sale) of strategic investments, net | (1 | ) | |
Non-GAAP adjusted income before income taxes (d) | $ | 1,211 | |
Effective income tax rate - GAAP basis (a/c) | 88.4 | % | |
Non-GAAP adjusted effective income tax rate (b/d) | 6.3 | % | |