News Release

Applied Materials Announces Second Quarter 2016 Results

May 19, 2016 at 4:03 PM EDT
  • Applied reports EPS of $0.29; non-GAAP EPS of $0.34 at high end of guidance range 
  • Generates $3.5 billion in new orders, highest in 15 years  
  • Returns $1 billion to shareholders through dividends and share repurchases
  • Expects record earnings per share in the third quarter of 2016

SANTA CLARA, Calif., May 19, 2016 (GLOBE NEWSWIRE) -- Applied Materials, Inc. (NASDAQ:AMAT) today reported results for its second quarter ended May 1, 2016.

Second quarter orders were $3.45 billion, up 52 percent sequentially and up 37 percent year over year. Backlog increased to $4.17 billion. Net sales of $2.45 billion were up 9 percent sequentially, flat year over year, and near the high end of guidance.

The company recorded gross margin of 41.0 percent, operating margin of 17.3 percent, and net income of $320 million or $0.29 per diluted share. On a non-GAAP adjusted basis, the company reported second quarter gross margin of 42.7 percent, operating margin of 19.2 percent, and net income of $376 million or $0.34 per diluted share.

The company generated $481 million in cash from operations during the second quarter, paid dividends of $113 million and used $900 million to repurchase 45 million shares of common stock.

"In our second quarter we booked our highest orders in 15 years and we expect to deliver record earnings in fiscal 2016," said Gary Dickerson, president and CEO. "We are making significant progress with our strategy in semiconductor, display and service, and have a great pipeline of differentiated products that will fuel future growth."

Quarterly Results Summary

                Change
    Q2 FY2016   Q1 FY2016   Q2 FY2015   Q2 FY2016
vs.
Q1 FY2016
  Q2 FY2016
vs.
Q2 FY2015
    (In millions, except per share amounts and percentages)
New orders   $ 3,451     $ 2,275     $ 2,515       52 %     37 %
Net sales   $ 2,450     $ 2,257     $ 2,442       9 %     %
Gross margin   41.0 %   40.6 %   41.6 %     0.4  points     (0.6) points
Operating margin   17.3 %   15.7 %   17.0 %     1.6  points     0.3  points
Net income   $ 320     $ 286     $ 364       12 %     (12) %
Diluted earnings per share (EPS)   $ 0.29     $ 0.25     $ 0.29       16 %     %


  
                Change
Non-GAAP Adjusted Results   Q2 FY2016   Q1 FY2016   Q2 FY2015   Q2 FY2016
vs.
Q1 FY2016
  Q2 FY2016
vs.
Q2 FY2015
    (In millions, except per share amounts and percentages)
Non-GAAP adjusted gross margin   42.7 %   42.4 %   43.2 %     0.3  points   (0.5)points  
Non-GAAP adjusted operating margin   19.2 %   17.8 %   19.5 %     1.4  points   (0.3) points  
Non-GAAP adjusted net income   $ 376     $ 302     $ 362       25 %    4 %  
Non-GAAP adjusted diluted EPS   $ 0.34     $ 0.26     $ 0.29       31 %    17 %  
                                         

Applied's non-GAAP adjusted results exclude the impact of the following, where applicable: 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; and certain discrete adjustments and tax items. 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 2016, Applied expects net sales to be up 14 percent to 18 percent sequentially. Non-GAAP adjusted diluted EPS is expected to be in the range of $0.46 to $0.50.

This outlook excludes known charges related to completed acquisitions of $0.04 per share and does not exclude other non-GAAP adjustments that may arise subsequent to this release.

Second Quarter Reportable Segment Information

      
                 
Silicon Systems Q2 FY2016   Q1 FY2016   Q2 FY2015
                 
  (In millions, except percentages)
New orders $   1,966     $   1,275     $   1,704  
Foundry   23 %     38 %     36 %
DRAM   17 %     29 %     31 %
Flash   49 %     22 %     21 %
Logic and other   11 %     11 %     12 %
Net sales   1,587       1,373       1,560  
Operating income   364       265       374  
Operating margin   22.9 %     19.3 %     24.0 %
Non-GAAP Adjusted Results                
Non-GAAP adjusted operating income $   410     $   312     $   418  
Non-GAAP adjusted operating margin   25.8 %     22.7 %     26.8 %
                 
                 
Applied Global Services Q2 FY2016
  Q1 FY2016
  Q2 FY2015
                 
  (In millions, except percentages)
New orders $   677     $   773     $   641  
Net sales   648       626       646  
Operating income   171       156       170  
Operating margin   26.4 %     24.9 %     26.3 %
                 
                 
Display Q2 FY2016
  Q1 FY2016
  Q2 FY2015
                 
  (In millions, except percentages)
New orders $   700     $   183     $   120  
Net sales   167       213       163  
Operating income   29       38       40  
Operating margin   17.4 %     17.8 %     24.5 %
                 
                 
Energy and Environmental Solutions Q2 FY2016
  Q1 FY2016
  Q2 FY2015
                 
  (In millions, except percentages)
New orders $   108     $   44     $   50  
Net sales   48       45       73  
Operating income (loss)         6       (5) 
Operating margin   %     13.3 %     (6.8)%
Non-GAAP Adjusted Results                
Non-GAAP adjusted operating income (loss) $ (1)    $   4     $ (4) 
Non-GAAP adjusted operating margin   (2.1)%     8.9 %     (5.5)%
     

Backlog Information

Applied's backlog increased 34 percent to $4.17 billion and included positive adjustments of $58 million, primarily consisting of favorable foreign currency impact. Backlog composition by reportable segment was as follows:

Silicon Systems 49 %
Applied Global Services 23 %
Display 25 %
Energy and Environmental Solutions 3 %
     

Use of Non-GAAP Adjusted Financial Measures

Management uses non-GAAP adjusted results to evaluate the company's operating and financial performance in light of business objectives and for planning purposes. These measures are not in accordance with GAAP and may differ from non-GAAP methods of accounting and reporting used by other companies. Applied believes these measures enhance 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. The presentation of this additional information should not be considered a substitute for results 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, technology transitions, our financial performance and market share positions, our earnings expectations, our business outlook for the third quarter of fiscal 2016, 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; 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:

Kevin Winston (editorial/media) 408.235.4498
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)   May 1,
 2016
  January 31,
 2016
  April 26,
 2015
  May 1,
 2016
  April 26,
 2015
Net sales   $ 2,450     $ 2,257     $ 2,442     $ 4,707     $ 4,801  
Cost of products sold   1,446     1,341     1,426     2,787     2,826  
Gross profit   1,004     916     1,016     1,920     1,975  
Operating expenses:                                        
Research, development and engineering   386     374     365     760     716  
Marketing and selling   102     106     109     208     220  
General and administrative   91     82     140     173     257  
Gain on derivatives associated with terminated business combination           (14)         (92)  
Total operating expenses   579     562     600     1,141     1,101  
Income from operations   425     354     416     779     874  
Interest expense   37     42     24     79     47  
Interest income and other income (loss), net   7     2     (3)    9    (1) 
Income before income taxes   395     314     389     709     826  
Provision for income taxes   75     28     25     103     114  
Net income   $ 320     $ 286     $ 364     $ 606     $ 712  
Earnings per share:                    
Basic   $ 0.29     $ 0.25     $ 0.30     $ 0.54     $ 0.58  
Diluted   $ 0.29     $ 0.25     $ 0.29     $ 0.53     $ 0.57  
Weighted average number of shares:                    
Basic   1,113     1,146     1,230     1,130     1,227  
Diluted   1,119     1,154     1,241     1,137     1,241  


APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
 
(In millions)   May 1,
 2016
  January 31,
 2016
  October 25,
 2015
ASSETS            
Current assets:            
Cash and cash equivalents   $ 2,470     $ 2,962     $ 4,797  
Short-term investments   170     154     168  
Accounts receivable, net   1,913     1,625     1,739  
Inventories   1,924     1,835     1,833  
Other current assets   251     334     724  
Total current assets   6,728     6,910     9,261  
Long-term investments   934     996     946  
Property, plant and equipment, net   904     908     892  
Goodwill   3,304     3,302     3,302  
Purchased technology and other intangible assets, net   668     714     762  
Deferred income taxes and other assets   537     496     145  
Total assets   $ 13,075     $ 13,326     $ 15,308  
LIABILITIES AND STOCKHOLDERS' EQUITY            
Current liabilities:            
Short-term debt   $     $     $ 1,200  
Accounts payable and accrued expenses   1,630     1,457     1,833  
Customer deposits and deferred revenue   981     850     765  
Total current liabilities   2,611     2,307     3,798  
Long-term debt   3,343     3,343     3,342  
Other liabilities   556     508     555  
Total liabilities   6,510     6,158     7,695  
Total stockholders' equity   6,565     7,168     7,613  
Total liabilities and stockholders' equity   $ 13,075     $ 13,326     $ 15,308  


                                              
APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
 
(In millions) Three Months Ended   Six Months Ended
May 1,
 2016
  January 31,
 2016
  April 26,
 2015
May 1,
 2016
  April 26,
 2015
Cash flows from operating activities:                  
Net income $ 320     $ 286     $ 364     $ 606     $ 712  
Adjustments required to reconcile net
income to cash provided by operating
activities:
                                     
Depreciation and amortization 96     96     90     192     182  
Share-based compensation 48     54     47     102     95  
Excess tax benefits from share-based
compensation
(3)    (10)     (12)     (13)    (51) 
Deferred income taxes (22)    15     (21)     (7)    7  
Other 5     10     13     15     21  
Net change in operating assets and liabilities 37     (244)     (183)     (207)    (608)  
Cash provided by operating activities 481     207     298     688     358  
Cash flows from investing activities:                                      
Capital expenditures (47)    (68)    (64)    (115)    (113) 
Cash paid for acquisitions, net of cash acquired (8)            (8)     
Proceeds from sales and maturities of investments 232     241     177     473     317  
Purchases of investments (182)    (282)    (203)    (464)    (344) 
Cash used in investing activities (5)    (109)    (90)    (114)    (140) 
Cash flows from financing activities:                                      
Debt repayments     (1,205)        (1,205)     
Proceeds from common stock issuances and others 42     2     42     44     42  
Common stock repurchases (900)    (625)        (1,525)     
Excess tax benefits from share-based compensation 3     10     12     13     51  
Payments of dividends to stockholders (113)    (115)    (123)    (228)    (245) 
Cash used in financing activities (968)    (1,933)    (69)    (2,901)    (152) 
Effect of exchange rate changes on cash
and cash equivalents
        (1)        (1) 
Increase (decrease) in cash and cash equivalents (492)   (1,835)    138     (2,327)    65  
Cash and cash equivalents — beginning of period 2,962     4,797     2,929     4,797     3,002  
Cash and cash equivalents — end of period $ 2,470     $ 2,962     $ 3,067     $ 2,470     $ 3,067  
Supplemental cash flow information:                  
Cash payments for income taxes $ 51     $ 44     $ 118     $ 95     $ 207  
Cash refunds from income taxes $ 98     $ 5     $ 2     $ 103     $ 5  
Cash payments for interest $ 42     $ 34     $ 7     $ 76     $ 46  
                                       


 
APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION
 
Corporate Unallocated Expenses
             
(In millions)   Q2 FY2016   Q1 FY2016   Q2 FY2015
Share-based compensation   $ 48     $ 54     $ 47  
Certain items associated with terminated business combination           29  
Gain on derivatives associated with terminated business combination, net           (14) 
Other unallocated expenses   91     57     101  
Total corporate   $ 139     $ 111     $ 163  
                         


Additional Information
 
    Q2 FY2016   Q1 FY2016   Q2 FY2015
New Orders and Net Sales by Geography                        
(In $ millions)   New
Orders
  Net
Sales
  New
Orders
  Net
Sales
  New
Orders
  Net
Sales
United States   386     272     369     293     368     472  
% of Total   11 %   11 %   16 %   13 %   15 %   19 %
Europe   194     97     156     138     131     169  
% of Total   6 %   4 %   7 %   6 %   5 %   7 %
Japan   339     260     109     334     365     274  
% of Total   10 %   10 %   5 %   15 %   15 %   11 %
Korea   792     506     373     273     607     536  
% of Total   23 %   21 %   17 %   12 %   24 %   22 %
Taiwan   445     311     534     637     589     461  
% of Total   13 %   13 %   23 %   28 %   23 %   19 %
Southeast Asia   392     252     232     87     103     96  
% of Total   11 %   10 %   10 %   4 %   4 %   4 %
China   903     752     502     495     352     434  
% of Total   26 %   31 %   22 %   22 %   14 %   18 %
                         
Employees (In thousands)                        
Regular Full Time   14.8     14.6     14.3  


                               
APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS
 
    Three Months Ended   Six Months Ended
(In millions, except percentages)   May 1,
 2016
  January 31,
 2016
  April 26,
 2015
  May 1,
 2016
  April 26,
 2015
Non-GAAP Adjusted Gross Profit                    
Reported gross profit - GAAP basis   $ 1,004     $ 916     $ 1,016     $ 1,920     $ 1,975  
Certain items associated with acquisitions1   41     42     39     83     79  
Reversals related to restructuring, net4       (1)       (1)     
Non-GAAP adjusted gross profit   $ 1,045     $ 957     $ 1,055     $ 2,002     $ 2,054  
Non-GAAP adjusted gross margin   42.7 %   42.4 %   43.2 %   42.5 %   42.8 %
Non-GAAP Adjusted Operating Income                                        
Reported operating income - GAAP basis   $ 425     $ 354     $ 416     $ 779     $ 874  
Certain items associated with acquisitions1   46     48     45     94     91  
Acquisition integration costs                   1  
Gain on derivatives associated with terminated
business combination, net
          (14)       (92) 
Certain items associated with terminated business combination2           29         49  
Reversals related to restructuring, net3,4   (1)    (1)        (2)     
Non-GAAP adjusted operating income   $ 470     $ 401     $ 476     $ 871     $ 923  
Non-GAAP adjusted operating margin   19.2 %   17.8 %   19.5 %   18.5 %   19.2 %
Non-GAAP Adjusted Net Income                                        
Reported net income - GAAP basis5   $ 320     $ 286     $ 364     $ 606     $ 712  
Certain items associated with acquisitions1   46     48     45     94     91  
Acquisition integration costs                   1  
Gain on derivatives associated with terminated
business combination, net
          (14)       (92) 
Certain items associated with terminated business
combination2
          29         49  
Reversals related to restructuring, net3,4   (1)    (1)        (2)     
Impairment (gain on sale) of strategic investments, net   (1)    (2)    6     (3)    7  
Loss on early extinguishment of debt       5         5      
Reinstatement of federal R&D tax credit, resolution
of prior years' income tax filings and other tax items5
  16     (29)    (54)   (13)    (71) 
Income tax effect of non-GAAP adjustments   (4)   (5)    (14)   (9)    3  
Non-GAAP adjusted net income   $ 376     $ 302     $ 362     $ 678     $ 700  


1 These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.
   
2 These items are incremental charges related to the terminated business combination agreement with Tokyo Electron Limited, consisting of acquisition-related and integration planning costs.
   
3 Results for the three months ended May 1, 2016 included a $1 million favorable adjustment of employee-related costs associated with the cost reductions in the solar business.
   
4 Results for the three months ended January 31, 2016 included a $1 million benefit from sales of solar equipment tools for which inventory had been previously reserved related to the cost reductions in the solar business.
   
5 Amounts for three and six months ended April 26, 2015 included an adjustment to decrease the provision for income taxes by $39 million and $35 million, respectively, with a corresponding increase in net income, resulting in an increase in diluted earnings per share of $0.03. The adjustment was excluded in Applied's non-GAAP adjusted results and was made primarily to correct an error in the recognition of cost of sales in the U.S. related to intercompany sales, which resulted in overstating profitability in the U.S. and the provision for income taxes in immaterial amounts in each year since fiscal 2010.


        
 
APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS
 
    Three Months Ended   Six Months Ended
(In millions, except per share amounts)   May 1,
 2016
  January 31,
 2016
  April 26,
 2015
  May 1,
 2016
  April 26,
 2015
Non-GAAP Adjusted Earnings Per Diluted Share                    
Reported earnings per diluted share - GAAP basis1   $ 0.29     $ 0.25     $ 0.29     $ 0.53     $ 0.57  
Certain items associated with acquisitions   0.04     0.04     0.03     0.08     0.07  
Certain items associated with terminated business combination           0.02         0.03  
Gain on derivatives associated with terminated business
combination, net
          (0.01))       (0.05  
Reinstatement of federal R&D tax credit, resolution
of prior years' income tax filings and other tax items1
  0.01     (0.03)   (0.04)   (0.01)   (0.06) 
Non-GAAP adjusted earnings per diluted share   $ 0.34     $ 0.26     $ 0.29     $ 0.60     $ 0.56  
Weighted average number of diluted shares   1,119     1,154     1,241     1,137     1,241  


1 Amounts for three and six months ended April 26, 2015 included an adjustment to decrease the provision for income taxes by $39 million and $35 million, respectively, with a corresponding increase in net income, resulting in an increase in diluted earnings per share of $0.03. The adjustment was excluded in Applied's non-GAAP adjusted results and was made primarily to correct an error in the recognition of cost of sales in the U.S. related to intercompany sales, which resulted in overstating profitability in the U.S. and the provision for income taxes in immaterial amounts in each year since fiscal 2010.
   


APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS
 
    Three Months Ended   Six Months Ended
(In millions, except percentages)   May 1,
 2016
  January 31,
 2016
  April 26,
 2015
  May 1,
 2016
  April 26,
 2015
Silicon Systems Non-GAAP Adjusted Operating Income                    
Reported operating income - GAAP basis   $ 364     $ 265     $ 374     $ 629     $ 681  
Certain items associated with acquisitions1   46     47     44     93     87  
Non-GAAP adjusted operating income   $ 410     $ 312     $ 418     $ 722     $ 768  
Non-GAAP adjusted operating margin   25.8 %   22.7 %   26.8 %   24.4 %   25.5 %
AGS Non-GAAP Adjusted Operating Income                                        
Reported operating income - GAAP basis   $ 171     $ 156     $ 170     $ 327     $ 323  
Certain items associated with acquisitions1                   1  
Non-GAAP adjusted operating income   $ 171     $ 156     $ 170     $ 327     $ 324  
Non-GAAP adjusted operating margin   26.4 %   24.9 %   26.3 %   25.7 %   26.4 %
Display Non-GAAP Adjusted Operating Income                                        
Reported operating income - GAAP basis   $ 29     $ 38     $ 40     $ 67     $ 112  
Certain items associated with acquisitions1                   1  
Non-GAAP adjusted operating income   $ 29     $ 38     $ 40     $ 67     $ 113  
Non-GAAP adjusted operating margin   17.4 %   17.8 %   24.5 %   17.6 %   25.8 %
EES Non-GAAP Adjusted Operating Income (Loss)                                        
Reported operating income (loss) - GAAP basis   $     $ 6     $ (5)     $ 6     $ (9)  
Certain items associated with acquisitions1       1     1     1     2  
Reversals related to restructuring, net2   (1)     (3)         (4)      
Non-GAAP adjusted operating income (loss)   $ (1)     $ 4     $ (4)     $ 3     $ (7)  
Non-GAAP adjusted operating margin   (2.1) %   8.9 %   (5.5 )%   3.2 %   (5.5) %


1 These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.
   
2 Results for the three months ended May 1, 2016 and January 31, 2016 and six months ended May 1, 2016 primarily included favorable adjustments of employee-related costs associated with the cost reductions in the solar business.
   


 
APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED OPERATING EXPENSES
 
  Three Months Ended
(In millions) May 1, 2016   January 31, 2016
       
Operating expenses - GAAP basis $ 579     $ 562  
Reversals related to restructuring, net 1      
Certain items associated with acquisitions (5)    (6)  
Non-GAAP adjusted operating expenses $ 575     $ 556  


UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED EFFECTIVE INCOME TAX RATE
 
  Three Months Ended
(In millions, except percentages) May 1, 2016
   
Provision for income taxes - GAAP basis (a) $ 75  
Reinstatement of federal R&D tax credit, resolutions of prior years' income tax filings and other tax items (16)  
Income tax effect of non-GAAP adjustments 4  
Non-GAAP adjusted provision for income taxes (b) $ 63  
       
Income before income taxes - GAAP basis (c) $ 395  
Certain items associated with acquisitions 46  
Reversals related to restructuring, net (1)  
Gain on sale of strategic investments, net (1)  
Non-GAAP adjusted income before income taxes (d) $ 439  
       
Effective income tax rate - GAAP basis (a/c) 19.0 %
       
Non-GAAP adjusted effective income tax rate (b/d) 14.4 %

 

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Applied Materials, Inc.