KLA-Tencor Reports Fiscal 2019 First Quarter Results

October 29, 2018 at 4:15 PM EDT

MILPITAS, Calif., Oct. 29, 2018 /PRNewswire/ -- KLA-Tencor Corporation (NASDAQ: KLAC) today announced operating results for its first quarter of fiscal year 2019, which ended on Sept. 30, 2018, and reported GAAP net income of $396 million and GAAP earnings per diluted share of $2.54 on revenues of $1,093 million.

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"KLA-Tencor delivered another outstanding quarter, demonstrating the company's technology and market leadership, and the compelling value of our diversified product and service portfolio in enabling customer success," commented President and Chief Executive Officer Rick Wallace. "We believe these factors uniquely position KLA-Tencor to continue to deliver long-term value to all our stakeholders."

GAAP Results


Q1 FY 2019

Q4 FY 2018

Q1 FY 2018

Revenues

$1,093 million

$1,070 million

$970 million

Net Income

$396 million

$349 million

$281 million

Earnings per Diluted Share

$2.54

$2.22

$1.78





Non-GAAP Results


Q1 FY 2019

Q4 FY 2018

Q1 FY 2018

Net Income

$384 million

$348 million

$284 million

Earnings per Diluted Share

$2.46

$2.22

$1.80

Effective on the first day of fiscal 2019, the Company adopted Accounting Standards Update 2014-09, Revenue from Contracts with Customers ("ASC 606"). Prior periods were not retrospectively restated, and accordingly, the condensed consolidated unaudited balance sheet as of June 30, 2018, and the condensed consolidated unaudited statements of operations and cash flows for the three months ended Sept. 30, 2017 were prepared using accounting standards that were different than those in effect for the three months ended Sept. 30, 2018.

A reconciliation between GAAP operating results and non-GAAP operating results is provided following the financial statements included in this release. Non-GAAP results include the impact of stock-based compensation, but exclude the impact of acquisitions or pending acquisitions, restructuring, severance, merger and other related charges and certain discrete tax items. KLA-Tencor will discuss the results for its fiscal year 2019 first quarter, along with its outlook, on a conference call today beginning at 2:00 p.m. Pacific Time. A webcast of the call will be available at: www.kla-tencor.com.

About KLA-Tencor:

KLA-Tencor Corporation, a leading provider of process control and yield management solutions, partners with customers around the world to develop state-of-the-art inspection and metrology technologies. These technologies serve the semiconductor and other related nanoelectronics industries. With a portfolio of industry-standard products and a team of world-class engineers and scientists, the company has created superior solutions for its customers for more than 40 years. Headquartered in Milpitas, Calif., KLA-Tencor has dedicated customer operations and service centers around the world. Additional information may be found at http://www.kla-tencor.com. (KLAC-F)

Use of Non-GAAP Financial Information:

The non-GAAP and supplemental information provided in this press release is a supplement to, and not a substitute for, KLA-Tencor's financial results presented in accordance with United States GAAP.

To supplement KLA-Tencor's condensed consolidated financial statements presented in accordance with GAAP, the company provides certain non-GAAP financial information, which is adjusted from results based on GAAP to exclude certain costs and expenses (benefits), as well as other supplemental information. The non-GAAP and supplemental information is provided to enhance the user's overall understanding of KLA-Tencor's operating performance and its prospects in the future. Specifically, KLA-Tencor believes that the non-GAAP information provides useful measures to both management and investors regarding financial and business trends relating to KLA-Tencor's financial performance by excluding certain costs and expenses (benefits) that the company believes are not indicative of its core operating results. The non-GAAP information is among the budgeting and planning tools that management uses for future forecasting. However, because there are no standardized or generally accepted definitions for most non-GAAP financial metrics, definitions of non-GAAP financial metrics (for example, determining which costs and expenses (benefits) to exclude when calculating such a metric) are inherently subject to significant discretion. As a result, non-GAAP financial metrics may be defined very differently from company to company, or even from period to period within the same company, which can potentially limit the usefulness of such information to an investor. The presentation of non-GAAP and supplemental information is not meant to be considered in isolation or as a substitute for results prepared and presented in accordance with United States GAAP.

KLA-Tencor Corporation

Condensed Consolidated Unaudited Balance Sheets





(In thousands)

Sept. 30, 2018


June 30, 2018

ASSETS




Cash, cash equivalents and marketable securities

$

2,780,308



$

2,880,318


Accounts receivable, net

602,210



651,678


Inventories

993,527



931,845


Other current assets

144,999



85,159


Land, property and equipment, net

291,232



286,306


Goodwill

360,428



354,698


Deferred income taxes, non-current

222,107



193,200


Purchased intangibles, net

25,129



19,333


Other non-current assets

225,169



216,819


Total assets

$

5,645,109



$

5,619,356


LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Accounts payable

$

154,930



$

169,354


Deferred system revenue

216,427




Deferred service revenue

166,254



69,255


Deferred system profit



279,581


Other current liabilities

773,319



699,893


Total current liabilities

1,310,930



1,218,083


Non-current liabilities:




Long-term debt

2,237,890



2,237,402


Deferred service revenue

80,936



71,997


Other non-current liabilities

447,984



471,363


Total liabilities

4,077,740



3,998,845


Stockholders' equity:




Common stock and capital in excess of par value

596,166



617,999


Retained earnings

1,027,370



1,056,445


Accumulated other comprehensive income (loss)

(56,167)



(53,933)


Total stockholders' equity

1,567,369



1,620,511


Total liabilities and stockholders' equity

$

5,645,109



$

5,619,356


 

KLA-Tencor Corporation

Condensed Consolidated Unaudited Statements of Operations






Three months ended Sept. 30,

(In thousands, except per share amounts)

2018


2017

Revenues:




Product

$

829,227



$

760,787


Service

264,033



208,794


Total revenues

1,093,260



969,581


Costs and expenses:




Costs of revenues

381,387



353,117


Research and development

153,530



146,687


Selling, general and administrative

114,438



107,432


Interest expense and other, net

16,337



26,193


Income before income taxes

427,568



336,152


Provision for income taxes

31,624



55,216


Net income

$

395,944



$

280,936


Net income per share:




Basic

$

2.55



$

1.79


Diluted

$

2.54



$

1.78


Cash dividends declared per share

$

0.75



$

0.59


Weighted-average number of shares:




Basic

155,221



156,826


Diluted

156,083



157,846


 

KLA-Tencor Corporation

Condensed Consolidated Unaudited Statements of Cash Flows



Three months ended


Sept. 30,

(In thousands)

2018


2017

Cash flows from operating activities:




Net income

$

395,944



$

280,936


Adjustments to reconcile net income to net cash provided by operating activities:




Depreciation and amortization

16,087



15,282


(Gain) loss on unrealized foreign exchange and other

3,005



2,291


Other

890



980


Stock-based compensation expense

16,138



14,031


Changes in assets and liabilities, net of business acquisition:




Accounts receivable

36,079



(95,621)


Inventories

(55,738)



(20,194)


Other assets

(16,853)



(4,222)


Accounts payable

(14,765)



(8,877)


Deferred system revenue

(79,810)




Deferred service revenue

(13,325)




Deferred system profit



28,406


Other liabilities

93,753



160,617


Net cash provided by operating activities

381,405



373,629


Cash flows from investing activities:




Business acquisition, net of cash acquired

(11,787)



(710)


Capital expenditures

(22,330)



(15,756)


Purchases of available-for-sale securities



(191,744)


Proceeds from sale of available-for-sale securities

91,238



50,095


Proceeds from maturity of available-for-sale securities

254,757



268,665


Purchases of trading securities

(4,619)



(11,876)


Proceeds from sale of trading securities

7,612



14,320


Net cash provided by investing activities

314,871



112,994


Cash flows from financing activities:




Repayment of debt



(156,250)


Tax withholding payments related to equity awards

(26,961)



(23,628)


Common stock repurchases

(299,974)



(39,927)


Payment of dividends to stockholders

(122,757)



(100,327)


Net cash used in financing activities

(449,692)



(320,132)


Effect of exchange rate changes on cash and cash equivalents

(1,452)



1,155


Net increase in cash and cash equivalents

245,132



167,646


Cash and cash equivalents at beginning of period

1,404,382



1,153,051


Cash and cash equivalents at end of period

$

1,649,514



$

1,320,697


Supplemental cash flow disclosures:




Income taxes paid

$

24,962



$

23,858


Interest paid

$

537



$

3,005


Non-cash activities:




Accrued purchase of land, property and equipment - investing activities

$

9,242



$

4,734


Contingent consideration payable - financing activities

$

3,102



$


Business acquisition holdback amounts - investing activities

$

440



$

4,780


Unsettled common stock repurchase - financing activities

$

7,812



$

848


Dividends payable - financing activities

$

4,783



$

7,011


 

KLA-Tencor Corporation

Condensed Consolidated Unaudited Supplemental Information

(In thousands, except per share amounts)


Reconciliation of GAAP Net Income to Non-GAAP Net Income





Three months ended




Sept. 30,
2018


June 30,
2018


Sept. 30,
2017

GAAP net income


$

395,944



$

348,767



$

280,936


Adjustments to reconcile GAAP net income to non-GAAP net income:








Acquisition-related charges

a

5,551



3,973



1,587



Merger-related charges

b





3,015



Income tax effect of non-GAAP adjustments

c

(310)



(300)



(1,599)



Discrete tax items

d

(17,106)



(4,402)




Non-GAAP net income


$

384,079



$

348,038



$

283,939


GAAP net income per diluted share


$

2.54



$

2.22



$

1.78


Non-GAAP net income per diluted share


$

2.46



$

2.22



$

1.80


Shares used in diluted shares calculation


156,083



156,822



157,846



Pre-tax impact of items included in Condensed Consolidated Unaudited Statements of Operations





Acquisition-
related charges


Merger-related
charges


Total pre-tax
GAAP to non-
GAAP
adjustments

Three months ended Sept. 30, 2018







Costs of revenues


$

890



$



$

890


Selling, general and administrative


4,661





4,661


Total in three months ended Sept. 30, 2018


$

5,551



$



$

5,551


Three months ended June 30, 2018







Costs of revenues


$

729



$



$

729


Selling, general and administrative


3,244





3,244


Total in three months ended June 30, 2018


$

3,973



$



$

3,973


Three months ended Sept. 30, 2017







Costs of revenues


$

1,530



$

405



$

1,935


Research and development




1,147



1,147


Selling, general and administrative


57



1,463



1,520


Total in three months ended Sept. 30, 2017


$

1,587



$

3,015



$

4,602


To supplement our condensed consolidated financial statements presented in accordance with GAAP, we provide certain non-GAAP financial information, which is adjusted from results based on GAAP to exclude certain costs and expenses, as well as other supplemental information. The non-GAAP and supplemental information is provided to enhance the user's overall understanding of our operating performance and our prospects in the future. Specifically, we believe that the non-GAAP information provides useful measures to both management and investors regarding financial and business trends relating to our financial performance by excluding certain costs and expenses that we believe are not indicative of our core operating results. The non-GAAP information is among the budgeting and planning tools that management uses for future forecasting. However, because there are no standardized or generally accepted definitions for most non-GAAP financial metrics, definitions of non-GAAP financial metrics (for example, determining which costs and expenses to exclude when calculating such a metric) are inherently subject to significant discretion. As a result, non-GAAP financial metrics may be defined very differently from company to company, or even from period to period within the same company, which can potentially limit the usefulness of such information to an investor. The presentation of non-GAAP and supplemental information is not meant to be considered in isolation or as a substitute for results prepared and presented in accordance with United States GAAP.

a.

Acquisition-related charges include amortization of intangible assets and inventory fair value adjustments, and transaction costs associated with acquisitions or pending acquisitions, including the pending acquisition of Orbotech. Management believes that the expense associated with the amortization of acquisition related intangible assets and acquisition related costs are appropriate to be excluded because a significant portion of the purchase price for acquisitions may be allocated to intangible assets that have short lives, and exclusion of these expenses allows comparisons of operating results that are consistent over time for both KLA-Tencor's newly acquired and long-held businesses. Management believes excluding these items helps investors compare our operating performances with our results in prior periods as well as with the performance of other companies.



b.

Merger-related charges associated with the terminated merger agreement between KLA-Tencor and Lam Research Corporation ("Lam") primarily includes employee retention-related expenses, legal expenses and other costs. Management believes that it is appropriate to exclude these items as they are not indicative of ongoing operating results and therefore limit comparability and excluding these items helps investors compare our operating performance with our results in prior periods as well as with the performance of other companies.



c.

Income tax effect of non-GAAP adjustments includes the income tax effects of the excluded items noted above. Management believes that it is appropriate to exclude the tax effects of the items noted above in order to present a more meaningful measure of non-GAAP net income.



d.

Discrete tax item during the three months ended Sept. 30, 2018 and during the three months ended June 30, 2018 includes the income tax effects of an income tax expense from the enacted tax reform legislation through the Tax Cuts and Jobs-Act (the "Act"), which was signed into law on Dec. 22, 2017, of which the impact is primarily related to the provisional tax amounts recorded for the transition tax on accumulated foreign earnings and the re-measurement of certain deferred tax assets and liabilities as a result of the enactment of the Act. Management believes excluding these items helps investors compare our operating performance with our results in prior periods as well as with the performance of other companies.

 

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SOURCE KLA-Tencor Corporation

Investor Relations: Ed Lockwood, Sr. Director, Investor Relations, (408) 875-9529, ed.lockwood@kla-tencor.com, or Media Relations: Becky Howland, Ph.D., Sr. Director, Corporate Communications, (408) 875-9350, becky.howland@kla-tencor.com