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Applied Materials Announces Second Quarter 2016 Results

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May 19, 2016 4:02 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 SystemsQ2 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 ServicesQ2 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%
         
         
DisplayQ2 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 SolutionsQ2 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 Systems49%
Applied Global Services23%
Display25%
Energy and Environmental Solutions3%
   

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) 408.235.4498Michael 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,  2015May 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 amortization96  96  90  192  182 
Share-based compensation48  54  47  102  95 
Excess tax benefits from share-based compensation(3) (10) (12) (13) (51)
Deferred income taxes(22) 15  (21) (7) 7 
Other5  10  13  15  21 
Net change in operating assets and liabilities37  (244) (183) (207) (608)
Cash provided by operating activities481  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 investments232  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 others42  2  42  44  42 
Common stock repurchases(900) (625) —  (1,525) — 
Excess tax benefits from share-based compensation3  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 period2,962  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) NewOrders NetSales NewOrders NetSales NewOrders NetSales
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 

1These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.
  
2These items are incremental charges related to the terminated business combination agreement with Tokyo Electron Limited, consisting of acquisition-related and integration planning costs.
  
3Results 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.
  
4Results 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.
  
5Amounts 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 

1Amounts 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)%

1These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.
  
2Results 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, net1  — 
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 adjustments4 
Non-GAAP adjusted provision for income taxes (b)$63 
    
Income before income taxes - GAAP basis (c)$395 
Certain items associated with acquisitions46 
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%

 

Source: Applied Materials, Inc.

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