News Release

KLA-Tencor Reports Fiscal 2019 Second Quarter Results

January 29, 2019 at 4:15 PM EST

MILPITAS, Calif., Jan. 29, 2019 /PRNewswire/ -- KLA-Tencor Corporation (NASDAQ: KLAC) today announced operating results for its second quarter of fiscal year 2019, which ended on Dec. 31, 2018, and reported GAAP net income of $369 million and GAAP earnings per diluted share of $2.42 on revenues of $1,120 million.

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"KLA reported excellent results for the December quarter, with shipments, revenue, and earnings per share each closing above the range of guidance in the period, capping the third consecutive year of double-digit growth for the company in calendar 2018," commented president and chief executive officer Rick Wallace. "Our strong performance highlights the strength and resilience of the KLA business model, and demonstrates the company's ability to consistently drive long-term growth, and deliver top-tier financial performance and strong cash returns to stockholders."

GAAP Results


Q2 FY 2019

Q1 FY 2019

Q2 FY 2018

Revenues

$1,120 million

$1,093 million

$976 million

Net Income (Loss)

$369 million

$396 million

$(134) million

Earnings (Loss) per Diluted Share

$2.42

$2.54

$(0.86)





Non-GAAP Results


Q2 FY 2019

Q1 FY 2019

Q2 FY 2018

Net Income

$372 million

$384 million

$309 million

Earnings per Diluted Share

$2.44

$2.46

$1.97

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 for the three and six months ended Dec. 31, 2017 and cash flows for the three months ended Dec. 31, 2017 were prepared using accounting standards that were different than those in effect for the three and six months ended Dec. 31, 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 will discuss the results for its fiscal year 2019 second quarter, along with its outlook, on a conference call today beginning at 2 p.m. Pacific Time. A webcast of the call will be available at: www.kla.com.

About KLA:

KLA-Tencor Corporation (aka "KLA Corporation" or "KLA") develops industry-leading equipment and services that enable innovation throughout the electronics industry. We provide advanced process control solutions for manufacturing wafers and reticles, integrated circuits and packaging. In close collaboration with leading customers across the globe, our expert teams of physicists, engineers, data scientists and problem-solvers design solutions that move the world forward. Additional information may be found at www.kla.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's financial results presented in accordance with United States GAAP.

To supplement KLA'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's operating performance and its prospects in the future. Specifically, KLA believes that the non-GAAP information provides useful measures to both management and investors regarding financial and business trends relating to KLA'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)

Dec. 31, 2018


June 30,
2018

ASSETS




Cash, cash equivalents and marketable securities

$

2,694,094



$

2,880,318


Accounts receivable, net

658,080



651,678


Inventories

1,005,990



931,845


Other current assets

127,350



85,159


Land, property and equipment, net

306,351



286,306


Goodwill

360,480



354,698


Deferred income taxes, non-current

225,124



193,200


Purchased intangible assets, net

23,818



19,333


Other non-current assets

204,000



216,819


Total assets

$

5,605,287



$

5,619,356


LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Accounts payable

$

152,491



$

169,354


Deferred system revenue

196,242




Deferred service revenue

168,936



69,255


Deferred system profit



279,581


Current portion of long-term debt

249,996




Other current liabilities

714,873



699,893


Total current liabilities

1,482,538



1,218,083


Non-current liabilities:




Long-term debt

1,988,382



2,237,402


Deferred service revenue

90,466



71,997


Other non-current liabilities

446,279



471,363


Total liabilities

4,007,665



3,998,845


Stockholders' equity:




Common stock and capital in excess of par value

619,265



617,999


Retained earnings

1,048,804



1,056,445


Accumulated other comprehensive income (loss)

(70,447)



(53,933)


Total stockholders' equity

1,597,622



1,620,511


Total liabilities and stockholders' equity

$

5,605,287



$

5,619,356


























KLA-Tencor Corporation

Condensed Consolidated Unaudited Statements of Operations










Three months ended Dec. 31,


Six months ended Dec. 31,

(In thousands, except per share amounts)

2018


2017


2018


2017

Revenues:








Product

$

852,201



$

761,587



$

1,681,428



$

1,522,374


Service

267,697



214,235



531,730



423,029


Total revenues

1,119,898



975,822



2,213,158



1,945,403


Costs and expenses:








Costs of revenues

408,260



347,002



789,647



700,119


Research and development

165,903



156,700



319,433



303,387


Selling, general and administrative

112,462



105,265



226,900



212,697


Interest expense and other, net

17,310



19,548



33,647



45,741


Income before income taxes

415,963



347,307



843,531



683,459


Provision for income taxes

46,863



481,626



78,487



536,842


Net income (loss)

$

369,100



$

(134,319)



$

765,044



$

146,617


Net income (loss) per share:








Basic

$

2.43



$

(0.86)



$

4.98



$

0.94


Diluted

$

2.42



$

(0.86)



$

4.96



$

0.93


Weighted-average number of shares:








Basic

152,148



156,587



153,684



156,707


Diluted

152,648



156,587



154,389



157,688





KLA-Tencor Corporation

Condensed Consolidated Unaudited Statements of Cash Flows



Three months ended

Dec. 31,

(In thousands)

2018


2017

Cash flows from operating activities:




Net income (loss)

$

369,100



$

(134,319)


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




Depreciation and amortization

15,806



16,130


Loss (gain) on unrealized foreign exchange and other

895



(4,154)


Stock-based compensation expense

15,695



13,739


Changes in assets and liabilities, net of business acquisitions:




Accounts receivable

(55,869)



(73,877)


Inventories

(15,109)



(24,240)


Other assets

34,978



86,512


Accounts payable

(2,440)



11,069


Deferred system revenue

(19,723)




Deferred service revenue

12,211




Deferred system profit



40,773


Other liabilities

(73,372)



197,738


Net cash provided by operating activities

282,172



129,371


Cash flows from investing activities:




Acquisition of non-marketable securities



(3,377)


Businesses acquisitions, net of cash acquired



(4,780)


Capital expenditures

(26,366)



(13,369)


Purchases of available-for-sale securities

(2,686)



(134,268)


Proceeds from sale of available-for-sale securities

107,370



56,506


Proceeds from maturity of available-for-sale securities

128,052



123,095


Purchases of trading securities

(27,481)



(18,914)


Proceeds from sale of trading securities

29,722



21,062


Net cash provided by investing activities

208,611



25,955


Cash flows from financing activities:




Proceeds from revolving credit facility, net of debt issuance costs



248,693


Repayment of debt



(540,000)


Issuance of common stock

20,556



20,579


Tax withholding payments related to equity awards

(3,233)



(2,567)


Common stock repurchases

(250,213)



(40,427)


Payment of dividends to stockholders

(114,562)



(92,575)


Net cash used in financing activities

(347,452)



(406,297)


Effect of exchange rate changes on cash and cash equivalents

1,137



3,668


Net increase (decrease) in cash and cash equivalents

144,468



(247,303)


Cash and cash equivalents at beginning of period

1,649,514



1,320,697


Cash and cash equivalents at end of period

$

1,793,982



$

1,073,394


Supplemental cash flow disclosures:




Income taxes paid

$

87,854



$

123,625


Interest paid

$

51,136



$

55,693


Non-cash activities:




Accrued purchase of land, property and equipment - investing activities

$

7,705



$

5,548


Business acquisition holdback amounts - investing activities

$

440



$


Contingent consideration payable - financing activities

$

2,529



$


Unsettled common stock repurchase - financing activities

$



$

1,289


Dividends payable - financing activities

$

5,404



$

7,590





KLA-Tencor Corporation

Condensed Consolidated Unaudited Supplemental Information

(In thousands, except per share amounts)


Reconciliation of GAAP Net Income (Loss) to Non-GAAP Net Income





Three months ended


Six months ended




Dec. 31,
2018


Sept. 30,
2018


Dec. 31,
2017


Dec. 31,
2018


Dec. 31,
2017

GAAP net income (loss)


$

369,100



$

395,944



$

(134,319)



$

765,044



$

146,617


Adjustments to reconcile GAAP net income (loss) to non-GAAP net income:












Acquisition-related charges

a

4,281



5,551



1,608



9,832



3,195



Merger-related charges

b









3,015



Income tax effect of non-GAAP adjustments

c

(276)



(310)



(465)



(586)



(2,064)



Discrete tax items

d

(765)



(17,106)



441,894



(17,871)



441,894


Non-GAAP net income


$

372,340



$

384,079



$

308,718



$

756,419



$

592,657


GAAP net income (loss) per diluted share


$

2.42



$

2.54



$

(0.86)



$

4.96



$

0.93


Non-GAAP net income per diluted share


$

2.44



$

2.46



$

1.97



$

4.90



$

3.76


Shares used in diluted shares calculation


152,648



156,083



156,587



154,389



157,688





Pre-tax impact of GAAP to non-GAAP adjustments included in Condensed Consolidated Unaudited Statements of Operations



Acquisition-related charges


Three months ended Dec. 31, 2018



Costs of revenues

$

967



Selling, general and administrative

3,314



Total in three months ended Dec. 31, 2018

$

4,281



Three months ended Sept. 30, 2018



Costs of revenues

$

890



Selling, general and administrative

4,661



Total in three months ended Sept. 30, 2018

$

5,551



Three months ended Dec. 31, 2017



Costs of revenues

$

1,530



Selling, general and administrative

78



Total in three months ended Dec. 31, 2017

$

1,608



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'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 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 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.com; or Media Relations, Becky Howland, Ph.D., Sr. Director, Corporate Communications, (408) 875-9350, becky.howland@kla.com