Applied Materials Announces Third Quarter 2022 Results

Rhea-AI Summary

Applied Materials reported record quarterly revenue of $6.52 billion, a 5% increase year over year, for Q3 FY2022. GAAP earnings per share (EPS) stood at $1.85, down 1% year over year, while non-GAAP EPS rose 2% to $1.94. The company generated $1.47 billion in cash from operations and returned $1.23 billion to shareholders. For Q4 FY2022, Applied expects net sales around $6.65 billion, impacted by ongoing supply chain challenges. Management remains optimistic about the long-term strength of the semiconductor market.

Positive

• Record quarterly revenue of $6.52 billion, up 5% year-over-year.
• Non-GAAP EPS of $1.94 increased by 2% compared to the previous year.
• Generated $1.47 billion in cash from operations.
• Returned $1.23 billion to shareholders, including $1 billion in share repurchases.

Negative

• GAAP EPS decreased by 1% year-over-year to $1.85.
• Gross margin declined by 1.8 points to 46.1% compared to the previous year.
• Operating margin dropped to 29.5%, down 3.0 points year-over-year.
• Ongoing supply chain challenges continue to impact revenue growth.

• Record quarterly revenue of $6.52 billion, up 5 percent year over year
• GAAP EPS of $1.85 and non-GAAP EPS of $1.94, down 1 percent and up 2 percent year over year, respectively
• Generated $1.47 billion in cash from operations and returned $1.23 billion to shareholders
  

SANTA CLARA, Calif., Aug. 18, 2022 (GLOBE NEWSWIRE) -- Applied Materials, Inc. (NASDAQ: AMAT) today reported results for its third quarter ended Jul. 31, 2022.

Third Quarter Results

Applied generated revenue of $6.52 billion. On a GAAP basis, the company achieved gross margin of 46.1 percent, operating income of $1.92 billion or 29.5 percent of net sales, and earnings per share (EPS) of $1.85.

On a non-GAAP adjusted basis, the company reported gross margin of 46.2 percent, operating income of $1.95 billion or 30.0 percent of net sales, and EPS of $1.94.

The company generated $1.47 billion in cash from operations and returned $1.23 billion to shareholders including $1.00 billion in share repurchases and $225 million in dividends.

“Applied Materials delivered record quarterly revenue, yet ongoing supply chain challenges constrained our ability to meet demand, and our top priority remains increasing shipments to our customers,” said Gary Dickerson, President and CEO. “We feel confident in our ability to navigate macroeconomic headwinds and remain very positive about the long-term strength of the semiconductor market and our outsized growth opportunities.”

Results Summary

	Q3 FY2022				Q3 FY2021				Change
	(In millions, except per share amounts and percentages)
Net sales	$	6,520			$	6,196			5%
Gross margin		46.1	%			47.9	%		(1.8) points
Operating margin		29.5	%			32.5	%		(3.0) points
Net income	$	1,606			$	1,716			(6)%
Diluted earnings per share	$	1.85			$	1.87			(1)%
Non-GAAP Adjusted Results
Non-GAAP adjusted gross margin		46.2	%			48.0	%		(1.8) points
Non-GAAP adjusted operating margin		30.0	%			32.7	%		(2.7) points
Non-GAAP adjusted net income	$	1,683			$	1,740			(3)%
Non-GAAP adjusted diluted EPS	$	1.94			$	1.90			2%

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 fourth quarter of fiscal 2022, Applied expects net sales to be approximately $6.65 billion, plus or minus $400 million, which includes the expected impact of ongoing supply chain challenges. Non-GAAP adjusted diluted EPS is expected to be in the range of $1.82 to $2.18.

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 $0.02 per share and includes a net income tax benefit related to intra-entity intangible asset transfers of $0.03 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.

Third Quarter Reportable Segment Information

Semiconductor Systems	Q3 FY2022				Q3 FY2021
	(In millions, except percentages)
Net sales	$	4,734			$	4,454
Foundry, logic and other		66	%			63	%
DRAM		15	%			20	%
Flash memory		19	%			17	%
Operating income	$	1,701			$	1,785
Operating margin		35.9	%			40.1	%
Non-GAAP Adjusted Results
Non-GAAP adjusted operating income	$	1,708			$	1,794
Non-GAAP adjusted operating margin		36.1	%			40.3	%

Applied Global Services	Q3 FY2022				Q3 FY2021
	(In millions, except percentages)
Net sales	$	1,420			$	1,286
Operating income	$	434			$	393
Operating margin		30.6	%			30.6	%
Non-GAAP Adjusted Results
Non-GAAP adjusted operating income	$	434			$	393
Non-GAAP adjusted operating margin		30.6	%			30.6	%

Display and Adjacent Markets	Q3 FY2022				Q3 FY2021
	(In millions, except percentages)
Net sales	$	333			$	431
Operating income	$	69			$	99
Operating margin		20.7	%			23.0	%
Non-GAAP Adjusted Results
Non-GAAP adjusted operating income	$	70			$	100
Non-GAAP adjusted operating margin		21.0	%			23.2	%

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; certain incremental expenses related to COVID-19; 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 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 and cash deployment strategies, our investment and growth strategies, our development of new products and technologies, our business outlook for the fourth quarter of fiscal 2022 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; transportation interruptions and logistics constraints; global economic, political and industry conditions, including rising inflation and interest rates; the effects of regional or global health epidemics, including the severity and duration of the ongoing COVID-19 pandemic and government imposed lockdowns and other measures taken in response; global trade issues and changes in trade and export license policies; 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; acquisitions, investments and divestitures; changes in income tax laws; 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; 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								Nine Months Ended
(In millions, except per share amounts)	July 31, 2022				August 1, 2021				July 31, 2022				August 1, 2021
Net sales	$	6,520			$	6,196			$	19,036			$	16,940
Cost of products sold		3,514				3,229				10,144				8,971
Gross profit		3,006				2,967				8,892				7,969
Operating expenses:
Research, development and engineering		705				640				2,045				1,863
Marketing and selling		180				159				520				454
General and administrative		197				155				537				465
Severance and related charges		—				—				(4	)			158
Deal termination fee		—				—				—				154
Total operating expenses		1,082				954				3,098				3,094
Income from operations		1,924				2,013				5,794				4,875
Interest expense		56				57				171				179
Interest and other income (loss), net		(7	)			24				27				69
Income before income taxes		1,861				1,980				5,650				4,765
Provision for income taxes		255				264				716				589
Net income	$	1,606			$	1,716			$	4,934			$	4,176
Earnings per share:
Basic	$	1.86			$	1.89			$	5.63			$	4.57
Diluted	$	1.85			$	1.87			$	5.59			$	4.52
Weighted average number of shares:
Basic		864				908				877				914
Diluted		869				918				883				923

APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions)	July 31, 2022				October 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	2,956			$	4,995
Short-term investments		592				464
Accounts receivable, net		4,956				4,953
Inventories		5,506				4,309
Other current assets		1,424				1,386
Total current assets		15,434				16,107
Long-term investments		2,047				2,055
Property, plant and equipment, net		2,194				1,934
Goodwill		3,713				3,479
Purchased technology and other intangible assets, net		337				104
Deferred income taxes and other assets		2,436				2,146
Total assets	$	26,161			$	25,825
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	4,005			$	4,268
Contract liabilities		2,828				2,076
Total current liabilities		6,833				6,344
Long-term debt		5,456				5,452
Income taxes payable		955				1,090
Other liabilities		847				692
Total liabilities		14,091				13,578
Total stockholders’ equity		12,070				12,247
Total liabilities and stockholders’ equity	$	26,161			$	25,825

APPLIED MATERIALS, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(In millions)	Three Months Ended								Nine Months Ended
	July 31, 2022				August 1, 2021				July 31, 2022				August 1, 2021
Cash flows from operating activities:
Net income	$	1,606			$	1,716			$	4,934			$	4,176
Adjustments required to reconcile net income to cash provided by operating activities:
Depreciation and amortization		108				98				321				289
Severance and related charges		—				—				(4	)			149
Share-based compensation		95				81				314				272
Deferred income taxes		47				20				(209	)			44
Other		22				(15	)			14				(30	)
Net change in operating assets and liabilities		(409	)			(214	)			(828	)			(606	)
Cash provided by operating activities		1,469				1,686				4,542				4,294
Cash flows from investing activities:
Capital expenditures		(210	)			(137	)			(564	)			(462	)
Cash paid for acquisitions, net of cash acquired		(441	)			—				(441	)			(12	)
Proceeds from sales and maturities of investments		374				400				1,013				1,024
Purchases of investments		(339	)			(457	)			(1,175	)			(1,179	)
Cash used in investing activities		(616	)			(194	)			(1,167	)			(629	)
Cash flows from financing activities:
Proceeds from common stock issuances		—				—				96				86
Common stock repurchases		(1,000	)			(1,500	)			(4,603	)			(2,250	)
Tax withholding payments for vested equity awards		(3	)			(12	)			(259	)			(171	)
Payments of dividends to stockholders		(225	)			(219	)			(650	)			(622	)
Cash used in financing activities		(1,228	)			(1,731	)			(5,416	)			(2,957	)
Increase (decrease) in cash, cash equivalents and restricted cash equivalents		(375	)			(239	)			(2,041	)			708
Cash, cash equivalents and restricted cash equivalents—beginning of period		3,435				6,413				5,101				5,466
Cash, cash equivalents and restricted cash equivalents — end of period	$	3,060			$	6,174			$	3,060			$	6,174
Reconciliation of cash, cash equivalents, and restricted cash equivalents
Cash and cash equivalents	$	2,956			$	6,066			$	2,956			$	6,066
Restricted cash equivalents included in deferred income taxes and other assets		104				108				104				108
Total cash, cash equivalents, and restricted cash equivalents	$	3,060			$	6,174			$	3,060			$	6,174
Supplemental cash flow information:
Cash payments for income taxes	$	592			$	232			$	1,623			$	641
Cash refunds from income taxes	$	5			$	3			$	133			$	26
Cash payments for interest	$	35			$	34			$	137			$	137

APPLIED MATERIALS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION

Corporate and Other

(In millions)	Q3 FY2022				Q3 FY2021
Unallocated net sales	$	33			$	25
Unallocated cost of products sold and expenses		(218	)			(208	)
Share-based compensation		(95	)			(81	)
Total	$	(280	)		$	(264	)

Additional Information

	Q3 FY2022				Q3 FY2021
Net Sales by Geography (In millions)
United States	$	725			$	533
% of Total		11	%			9	%
Europe	$	529			$	238
% of Total		8	%			4	%
Japan	$	438			$	449
% of Total		7	%			7	%
Korea	$	1,224			$	1,291
% of Total		19	%			21	%
Taiwan	$	1,537			$	1,261
% of Total		24	%			20	%
Southeast Asia	$	270			$	173
% of Total		4	%			3	%
China	$	1,797			$	2,251
% of Total		27	%			36	%
Employees (In thousands)
Regular Full Time		31.9				26.0

APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS

	Three Months Ended								Nine Months Ended
(In millions, except percentages)	July 31, 2022				August 1, 2021				July 31, 2022				August 1, 2021
Non-GAAP Adjusted Gross Profit
Reported gross profit - GAAP basis	$	3,006			$	2,967			$	8,892			$	7,969
Certain items associated with acquisitions1		7				6				20				21
Certain incremental expenses related to COVID-192		—				—				—				12
Other charges		—				—				—				2
Non-GAAP adjusted gross profit	$	3,013			$	2,973			$	8,912			$	8,004
Non-GAAP adjusted gross margin		46.2	%			48.0	%			46.8	%			47.2	%
Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis	$	1,924			$	2,013			$	5,794			$	4,875
Certain items associated with acquisitions1		10				11				29				36
Acquisition integration and deal costs		19				5				32				40
Certain incremental expenses related to COVID-192		—				—				—				24
Severance and related charges3		—				—				(4	)			158
Deal termination fee		—				—				—				154
Other charges		—				—				—				6
Non-GAAP adjusted operating income	$	1,953			$	2,029			$	5,851			$	5,293
Non-GAAP adjusted operating margin		30.0	%			32.7	%			30.7	%			31.2	%
Non-GAAP Adjusted Net Income
Reported net income - GAAP basis	$	1,606			$	1,716			$	4,934			$	4,176
Certain items associated with acquisitions1		10				11				29				36
Acquisition integration and deal costs		12				5				28				41
Certain incremental expenses related to COVID-192		—				—				—				24
Severance and related charges3		—				—				(4	)			158
Deal termination fee		—				—				—				154
Realized loss (gain) on strategic investments, net		(1	)			(6	)			(1	)			(2	)
Unrealized loss (gain) on strategic investments, net		18				(13	)			(15	)			(45	)
Other charges		—				—				—				6
Income tax effect of share-based compensation4		22				11				(22	)			(12	)
Income tax effects related to intra-entity intangible asset transfers		21				23				120				60
Resolution of prior years’ income tax filings and other tax items		1				(9	)			(54	)			(22	)
Income tax effect of non-GAAP adjustments5		(6	)			2				—				(43	)
Non-GAAP adjusted net income	$	1,683			$	1,740			$	5,015			$	4,531

1	These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.
2	Temporary incremental employee compensation during the COVID-19 pandemic.
3	The severance and related charges primarily related to a one-time voluntary retirement program offered to certain eligible employees.
4	GAAP basis tax benefit related to share-based compensation is recognized ratably over the fiscal year on a non-GAAP basis.
5	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								Nine Months Ended
(In millions, except per share amounts)	July 31, 2022				August 1, 2021				July 31, 2022				August 1, 2021
Non-GAAP Adjusted Earnings Per Diluted Share
Reported earnings per diluted share - GAAP basis	$	1.85			$	1.87			$	5.59			$	4.52
Certain items associated with acquisitions		0.01				0.01				0.03				0.03
Acquisition integration and deal costs		0.01				0.01				0.03				0.04
Certain incremental expenses related to COVID-19		—				—				—				0.02
Severance and related charges		—				—				—				0.13
Deal termination fee		—				—				—				0.17
Realized loss (gain) on strategic investments, net		—				(0.01	)			—				0.01
Unrealized loss (gain) on strategic investments, net		0.02				(0.01	)			(0.02	)			(0.05	)
Other charges		—				—				—				0.01
Income tax effect of share-based compensation		0.03				0.01				(0.03	)			(0.01	)
Income tax effects related to intra-entity intangible asset transfers		0.02				0.03				0.14				0.06
Resolution of prior years’ income tax filings and other tax items		—				(0.01	)			(0.06	)			(0.02	)
Non-GAAP adjusted earnings per diluted share	$	1.94			$	1.90			$	5.68			$	4.91
Weighted average number of diluted shares		869				918				883				923

APPLIED MATERIALS, INC.
UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS

	Three Months Ended								Nine Months Ended
(In millions, except percentages)	July 31, 2022				August 1, 2021				July 31, 2022				August 1, 2021
Semiconductor Systems Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis	$	1,701			$	1,785			$	5,120			$	4,588
Certain items associated with acquisitions1		7				9				22				29
Acquisition integration costs		—				—				—				(2	)
Certain incremental expenses related to COVID-192		—				—				—				12
Other charges		—				—				—				3
Non-GAAP adjusted operating income	$	1,708			$	1,794			$	5,142			$	4,630
Non-GAAP adjusted operating margin		36.1	%			40.3	%			37.4	%			38.7	%
AGS Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis	$	434			$	393			$	1,259			$	1,083
Certain incremental expenses related to COVID-192		—				—				—				8
Other charges		—				—				—				1
Non-GAAP adjusted operating income	$	434			$	393			$	1,259			$	1,092
Non-GAAP adjusted operating margin		30.6	%			30.6	%			30.5	%			30.0	%
Display and Adjacent Markets Non-GAAP Adjusted Operating Income
Reported operating income - GAAP basis	$	69			$	99			$	226			$	229
Certain items associated with acquisitions1		1				1				3				3
Certain incremental expenses related to COVID-192		—				—				—				1
Severance and related charges3		—				—				—				8
Non-GAAP adjusted operating income	$	70			$	100			$	229			$	241
Non-GAAP adjusted operating margin		21.0	%			23.2	%			21.2	%			19.8	%

1	These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.
2	Temporary incremental employee compensation during the COVID-19 pandemic.
3	The severance and related charges related to workforce reduction actions globally across the Display and Adjacent Markets business.

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.

UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED EFFECTIVE INCOME TAX RATE

	Three Months Ended
(In millions, except percentages)	July 31, 2022
Provision for income taxes - GAAP basis (a)	$	255
Income tax effect of share-based compensation		(22	)
Income tax effects related to intra-entity intangible asset transfers		(21	)
Resolutions of prior years’ income tax filings and other tax items		(1	)
Income tax effect of non-GAAP adjustments		6
Non-GAAP adjusted provision for income taxes (b)	$	217
Income before income taxes - GAAP basis (c)	$	1,861
Certain items associated with acquisitions		10
Acquisition integration and deal costs		12
Realized loss (gain) on strategic investments, net		(1	)
Unrealized loss (gain) on strategic investments, net		18
Non-GAAP adjusted income before income taxes (d)	$	1,900
Effective income tax rate - GAAP basis (a/c)		13.7	%
Non-GAAP adjusted effective income tax rate (b/d)		11.4	%

FAQ

What are the key financial results for AMAT in Q3 FY2022?

Applied Materials reported record revenue of $6.52 billion, with GAAP EPS of $1.85 and non-GAAP EPS of $1.94.

How did AMAT perform compared to last year?

AMAT's revenue increased by 5% year-over-year, while GAAP EPS decreased by 1% and non-GAAP EPS increased by 2%.

What is AMAT's outlook for Q4 FY2022?

Applied Materials expects Q4 net sales to be approximately $6.65 billion, affected by ongoing supply chain challenges.

How much cash did AMAT generate from operations?

Applied Materials generated $1.47 billion in cash from operations during Q3 FY2022.

What amount did AMAT return to shareholders?

AMAT returned $1.23 billion to shareholders, which included $1 billion in share repurchases and dividends.