Applied Materials Announces Second Quarter 2023 Results

Rhea-AI Summary

Applied Materials reports Q2 2023 results with revenue of $6.63 billion, up 6% YoY. GAAP operating margin is 28.8%, down 1.5 points YoY. Non-GAAP operating margin is 29.1%, down 1.5 points YoY. GAAP EPS is $1.86, up 7% YoY. Non-GAAP EPS is $2.00, up 8% YoY. Generated $2.29 billion in cash from operations.

Positive

• Applied Materials reports Q2 revenue of $6.63 billion, up 6% YoY. Non-GAAP EPS increases by 8% YoY to $2.00. Generated $2.29 billion in cash from operations.

Negative

• GAAP operating margin decreases by 1.5 points YoY to 28.8%. Non-GAAP operating margin also decreases by 1.5 points YoY to 29.1%.

• Revenue $6.63 billion, up 6 percent year over year
• GAAP operating margin 28.8 percent and non-GAAP operating margin 29.1 percent, both down 1.5 points year over year
• GAAP EPS $1.86 and non-GAAP EPS $2.00, up 7 percent and 8 percent year over year, respectively
• Generated $2.29 billion in cash from operations

SANTA CLARA, Calif., May 18, 2023 (GLOBE NEWSWIRE) -- Applied Materials, Inc. (NASDAQ: AMAT) today reported results for its second quarter ended April 30, 2023.

Second Quarter Results

Applied generated revenue of $6.63 billion. On a GAAP basis, the company achieved gross margin of 46.7 percent, operating income of $1.91 billion or 28.8 percent of net sales, and earnings per share (EPS) of $1.86.

On a non-GAAP adjusted basis, the company reported gross margin of 46.8 percent, operating income of $1.93 billion or 29.1 percent of net sales, and EPS of $2.00.

The company generated $2.29 billion in cash from operations and returned $1.02 billion to shareholders including $800 million in share repurchases and $219 million in dividends.

“Applied Materials delivered strong results in our second fiscal quarter with revenues and earnings in the high-end of our guidance range, and we expect to outperform our markets in 2023,” said Gary Dickerson, President and CEO. “Our longer-term outlook is very positive as semiconductors become a larger and more strategically important market globally and major technology inflections are enabled by materials engineering, creating outsized growth opportunities for Applied.”

Results Summary

	Q2 FY2023				Q2 FY2022				Change
	(In millions, except per share amounts and percentages)
Net sales	$	6,630			$	6,245			6	%
Gross margin		46.7	%			46.9	%		(0.2) points
Operating margin		28.8	%			30.3	%		(1.5) points
Net income	$	1,575			$	1,536			3	%
Diluted earnings per share	$	1.86			$	1.74			7	%
Non-GAAP Adjusted Results
Non-GAAP adjusted gross margin		46.8	%			47.0	%		(0.2) points
Non-GAAP adjusted operating margin		29.1	%			30.6	%		(1.5) points
Non-GAAP adjusted net income	$	1,692			$	1,636			3	%
Non-GAAP adjusted diluted EPS	$	2.00			$	1.85			8	%

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 2023, Applied expects net sales to be approximately $6.15 billion, plus or minus $400 million. Non-GAAP adjusted diluted EPS is expected to be in the range of $1.56 to $1.92.

This outlook for non-GAAP adjusted diluted EPS excludes known charges related to completed acquisitions of $0.01 per share, includes the normalized tax benefit of share-based compensation of $0.01 per share and includes a net income tax benefit related to intra-entity intangible asset transfers 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.

Second Quarter Reportable Segment Information

Semiconductor Systems	Q2 FY2023				Q2 FY2022
	(In millions, except percentages)
Net sales	$	4,977			$	4,458
Foundry, logic and other		84	%			65	%
DRAM		11	%			21	%
Flash memory		5	%			14	%
Operating income	$	1,764			$	1,648
Operating margin		35.4	%			37.0	%
Non-GAAP Adjusted Results
Non-GAAP adjusted operating income	$	1,774			$	1,656
Non-GAAP adjusted operating margin		35.6	%			37.1	%

Applied Global Services	Q2 FY2023				Q2 FY2022
	(In millions, except percentages)
Net sales	$	1,428			$	1,383
Operating income	$	414			$	422
Operating margin		29.0	%			30.5	%
Non-GAAP Adjusted Results
Non-GAAP adjusted operating income	$	414			$	422
Non-GAAP adjusted operating margin		29.0	%			30.5	%

Display and Adjacent Markets	Q2 FY2023				Q2 FY2022
	(In millions, except percentages)
Net sales	$	168			$	381
Operating income	$	21			$	81
Operating margin		12.5	%			21.3	%
Non-GAAP Adjusted Results
Non-GAAP adjusted operating income	$	21			$	82
Non-GAAP adjusted operating margin		12.5	%			21.5	%

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 and severance charges and any associated adjustments; impairments of assets; gain or loss on strategic investments; certain income tax items and other discrete adjustments. On a non-GAAP basis, the tax effect related to share-based compensation is recognized ratably over the fiscal year. Reconciliations of these non-GAAP measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are provided in the financial tables included in this release.

Management uses these non-GAAP adjusted financial measures to evaluate the company’s operating and financial performance and for planning purposes, and as performance measures in its executive compensation program. Applied believes these measures enhance an overall understanding of its performance and investors’ ability to review the company’s business from the same perspective as the company’s management, and facilitate comparisons of this period’s results with prior periods on a consistent basis by excluding items that management does not believe are indicative of Applied's ongoing operating performance. There are limitations in using non-GAAP financial measures because the non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles, may be different from non-GAAP financial measures used by other companies, and may exclude certain items that may have a material impact upon our reported financial results. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with GAAP.

Webcast Information

Applied Materials will discuss these results during an earnings call that begins at 1:30 p.m. Pacific Time today. A live webcast and related slide presentation 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 Statement

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 and cash deployment strategies, our investment and growth strategies, our development of new products and technologies, our business outlook for the third quarter of fiscal 2023 and beyond, 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, our ability to meet customer demand, and our suppliers' ability to meet our demand requirements; global economic, political and industry conditions, including rising inflation and interest rates; the implementation and interpretation of new export regulations and license requirements, and their impact on our ability to export products and provide services to customers and on our results of operations; global trade issues and changes in trade and export license policies; our ability to obtain licenses or authorizations on a timely basis, if at all; 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 effects of regional or global health epidemics, including COVID-19; acquisitions, investments and divestitures; changes in income tax laws; 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; our ability to ensure compliance with applicable law, rules and regulations; and other risks and uncertainties described in our SEC filings, including our 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 a better 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. UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
	Three Months Ended							Six Months Ended
(In millions, except per share amounts)	April 30, 2023				May 1, 2022			April 30, 2023				May 1, 2022
Net sales	$	6,630			$	6,245		$	13,369			$	12,516
Cost of products sold		3,536				3,318			7,130				6,630
Gross profit		3,094				2,927			6,239				5,886
Operating expenses:
Research, development and engineering		775				686			1,546				1,340
Marketing and selling		194				173			391				340
General and administrative		214				174			421				340
Severance and related charges		—				—			—				(4	)
Total operating expenses		1,183				1,033			2,358				2,016
Income from operations		1,911				1,894			3,881				3,870
Interest expense		61				58			120				115
Interest and other income (expense), net		(73	)			28			(23	)			34
Income before income taxes		1,777				1,864			3,738				3,789
Provision for income taxes		202				328			446				461
Net income	$	1,575			$	1,536		$	3,292			$	3,328
Earnings per share:
Basic	$	1.87			$	1.75		$	3.90			$	3.77
Diluted	$	1.86			$	1.74		$	3.88			$	3.74
Weighted average number of shares:
Basic		843				878			844				883
Diluted		847				883			848				890

APPLIED MATERIALS, INC. UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions)	April 30, 2023			October 30, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	4,588		$	1,995
Short-term investments		510			586
Accounts receivable, net		5,516			6,068
Inventories		5,940			5,932
Other current assets		1,219			1,344
Total current assets		17,773			15,925
Long-term investments		2,024			1,980
Property, plant and equipment, net		2,559			2,307
Goodwill		3,711			3,700
Purchased technology and other intangible assets, net		328			339
Deferred income taxes and other assets		2,697			2,475
Total assets	$	29,092		$	26,726
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term debt	$	199		$	—
Accounts payable and accrued expenses		4,299			4,237
Contract liabilities		3,373			3,142
Total current liabilities		7,871			7,379
Long-term debt		5,459			5,457
Income taxes payable		822			964
Other liabilities		811			732
Total liabilities		14,963			14,532
Total stockholders’ equity		14,129			12,194
Total liabilities and stockholders’ equity	$	29,092		$	26,726

APPLIED MATERIALS, INC. UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In millions)	Three Months Ended								Six Months Ended
	April 30, 2023				May 1, 2022				April 30, 2023				May 1, 2022
Cash flows from operating activities:
Net income	$	1,575			$	1,536			$	3,292			$	3,328
Adjustments required to reconcile net income to cash provided by operating activities:
Depreciation and amortization		129				111				249				213
Severance and related charges		—				—				—				(4	)
Share-based compensation		113				101				261				219
Deferred income taxes		(115	)			(257	)			(136	)			(256	)
Other		167				(24	)			174				(8	)
Net change in operating assets and liabilities		423				(1,052	)			722				(419	)
Cash provided by operating activities		2,292				415				4,562				3,073
Cash flows from investing activities:
Capital expenditures		(255	)			(210	)			(542	)			(354	)
Cash paid for acquisitions, net of cash acquired		2				—				(18	)			—
Proceeds from sales and maturities of investments		255				321				669				639
Purchases of investments		(324	)			(524	)			(730	)			(836	)
Cash used in investing activities		(322	)			(413	)			(621	)			(551	)
Cash flows from financing activities:
Proceeds from commercial paper		297				—				595				—
Repayments of commercial paper		(300	)			—				(400	)			—
Proceeds from common stock issuances		111				96				111				96
Common stock repurchases		(800	)			(1,800	)			(1,050	)			(3,603	)
Tax withholding payments for vested equity awards		(18	)			(21	)			(154	)			(256	)
Payments of dividends to stockholders		(219	)			(211	)			(439	)			(425	)
Repayments of principal on finance leases		1				—				(9	)			—
Cash used in financing activities		(928	)			(1,936	)			(1,346	)			(4,188	)
Increase (decrease) in cash, cash equivalents and restricted cash equivalents		1,042				(1,934	)			2,595				(1,666	)
Cash, cash equivalents and restricted cash equivalents—beginning of period		3,653				5,369				2,100				5,101
Cash, cash equivalents and restricted cash equivalents — end of period	$	4,695			$	3,435			$	4,695			$	3,435
Reconciliation of cash, cash equivalents, and restricted cash equivalents
Cash and cash equivalents	$	4,588			$	3,331			$	4,588			$	3,331
Restricted cash equivalents included in deferred income taxes and other assets		107				104				107				104
Total cash, cash equivalents, and restricted cash equivalents	$	4,695			$	3,435			$	4,695			$	3,435
Supplemental cash flow information:
Cash payments for income taxes	$	152			$	951			$	221			$	1,031
Cash refunds from income taxes	$	47			$	5			$	51			$	128
Cash payments for interest	$	68			$	68			$	102			$	102

APPLIED MATERIALS, INC. UNAUDITED SUPPLEMENTAL INFORMATION
Corporate and Other
(In millions)	Q2 FY2023				Q2 FY2022
Unallocated net sales	$	57			$	23
Unallocated cost of products sold and expenses		(232	)			(179	)
Share-based compensation		(113	)			(101	)
Total	$	(288	)		$	(257	)

Additional Information
	Q2 FY2023				Q2 FY2022
Net Sales by Geography (In millions)
United States	$	1,113			$	702
% of Total		17	%			11	%
Europe	$	477			$	489
% of Total		7	%			8	%
Japan	$	460			$	407
% of Total		7	%			6	%
Korea	$	1,583			$	968
% of Total		24	%			16	%
Taiwan	$	1,435			$	1,408
% of Total		22	%			23	%
Southeast Asia	$	157			$	138
% of Total		2	%			2	%
China	$	1,405			$	2,133
% of Total		21	%			34	%
Employees (In thousands)
Regular Full Time		34.2				30.1

APPLIED MATERIALS, INC. UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS
	Three Months Ended								Six Months Ended
(In millions, except percentages)	April 30, 2023				May 1, 2022				April 30, 2023				May 1, 2022
Non-GAAP Adjusted Gross Profit
Reported gross profit - GAAP basis	$	3,094			$	2,927			$	6,239			$	5,886
Certain items associated with acquisitions1		7				7				14				13
Non-GAAP adjusted gross profit	$	3,101			$	2,934			$	6,253			$	5,899
Non-GAAP adjusted gross margin		46.8	%			47.0	%			46.8	%			47.1	%
Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis	$	1,911			$	1,894			$	3,881			$	3,870
Certain items associated with acquisitions1		11				10				22				19
Acquisition integration and deal costs		8				9				14				13
Severance and related charges2		—				—				—				(4	)
Non-GAAP adjusted operating income	$	1,930			$	1,913			$	3,917			$	3,898
Non-GAAP adjusted operating margin		29.1	%			30.6	%			29.3	%			31.1	%
Non-GAAP Adjusted Net Income
Reported net income - GAAP basis	$	1,575			$	1,536			$	3,292			$	3,328
Certain items associated with acquisitions1		11				10				22				19
Acquisition integration and deal costs		8				12				14				16
Severance and related charges2		—				—				—				(4	)
Realized loss (gain) and impairment on strategic investments, net		117				(2	)			113				—
Unrealized loss (gain) on strategic investments, net		11				(28	)			7				(33	)
Income tax effect of share-based compensation3		3				14				(11	)			(44	)
Income tax effects related to intra-entity intangible asset transfers		(1	)			81				16				99
Resolution of prior years’ income tax filings and other tax items		(27	)			7				(32	)			(55	)
Income tax effect of non-GAAP adjustments4		(5	)			6				(5	)			6
Non-GAAP adjusted net income	$	1,692			$	1,636			$	3,416			$	3,332

1	These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.
2	The severance and related charges primarily related to a one-time voluntary retirement program offered to certain eligible employees.
3	GAAP basis tax benefit related to share-based compensation is recognized ratably over the fiscal year on a non-GAAP basis.
4	Adjustment to provision for income taxes related to non-GAAP adjustments reflected in income before income taxes.

APPLIED MATERIALS, INC. UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS
	Three Months Ended								Six Months Ended
(In millions, except per share amounts)	April 30, 2023				May 1, 2022				April 30, 2023				May 1, 2022
Non-GAAP Adjusted Earnings Per Diluted Share
Reported earnings per diluted share - GAAP basis	$	1.86			$	1.74			$	3.88			$	3.74
Certain items associated with acquisitions		0.01				0.01				0.03				0.02
Acquisition integration and deal costs		0.01				0.01				0.01				0.02
Realized loss (gain) and impairment on strategic investments, net		0.14				—				0.13				—
Unrealized loss (gain) on strategic investments, net		0.01				(0.03	)			0.01				(0.04	)
Income tax effect of share-based compensation		—				0.02				(0.01	)			(0.05	)
Income tax effects related to intra-entity intangible asset transfers		—				0.09				0.02				0.11
Resolution of prior years’ income tax filings and other tax items		(0.03	)			0.01				(0.04	)			(0.06	)
Non-GAAP adjusted earnings per diluted share	$	2.00			$	1.85			$	4.03			$	3.74
Weighted average number of diluted shares		847				883				848				890

APPLIED MATERIALS, INC. UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS
	Three Months Ended								Six Months Ended
(In millions, except percentages)	April 30, 2023				May 1, 2022				April 30, 2023				May 1, 2022
Semiconductor Systems Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis	$	1,764			$	1,648			$	3,681			$	3,419
Certain items associated with acquisitions1		10				8				19				15
Non-GAAP adjusted operating income	$	1,774			$	1,656			$	3,700			$	3,434
Non-GAAP adjusted operating margin		35.6	%			37.1	%			36.5	%			38.0	%
AGS Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis	$	414			$	422			$	797			$	825
Non-GAAP adjusted operating income	$	414			$	422			$	797			$	825
Non-GAAP adjusted operating margin		29.0	%			30.5	%			28.5	%			30.5	%
Display and Adjacent Markets Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis	$	21			$	81			$	29			$	157
Certain items associated with acquisitions1		—				1				—				2
Non-GAAP adjusted operating income	$	21			$	82			$	29			$	159
Non-GAAP adjusted operating margin		12.5	%			21.5	%			8.7	%			21.3	%

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. UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED EFFECTIVE INCOME TAX RATE
	Three Months Ended
(In millions, except percentages)	April 30, 2023
Provision for income taxes - GAAP basis (a)	$	202
Income tax effect of share-based compensation		(3	)
Income tax effects related to intra-entity intangible asset transfers		1
Resolutions of prior years’ income tax filings and other tax items		27
Income tax effect of non-GAAP adjustments		5
Non-GAAP adjusted provision for income taxes (b)	$	232
Income before income taxes - GAAP basis (c)	$	1,777
Certain items associated with acquisitions		11
Acquisition integration and deal costs		8
Realized loss (gain) and impairment on strategic investments, net		117
Unrealized loss (gain) on strategic investments, net		11
Non-GAAP adjusted income before income taxes (d)	$	1,924
Effective income tax rate - GAAP basis (a/c)		11.4	%
Non-GAAP adjusted effective income tax rate (b/d)		12.1	%

FAQ

What is Applied Materials' Q2 revenue?

Applied Materials reports Q2 revenue of $6.63 billion, up 6% YoY.

What is the Non-GAAP EPS for Q2?

The Non-GAAP EPS for Q2 is $2.00, up 8% YoY.

How much cash did Applied Materials generate from operations?

Applied Materials generated $2.29 billion in cash from operations.