×

Applied Materials Announces Second Quarter 2016 Results

  • 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) 408.235.4498
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 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) 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


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.