News Release

KLA Reports Fiscal 2019 Third Quarter Results

May 6, 2019 at 4:15 PM EDT
- Revenue of $1,097 million
- Quarterly revenue at the upper end of the range of updated guidance
- Non-GAAP EPS above the range of updated guidance
- Closed Orbotech acquisition on February 20 with integration activities underway

MILPITAS, Calif., May 6, 2019 /PRNewswire/ -- KLA Corporation (NASDAQ: KLAC) today announced operating results for its third quarter of fiscal year 2019, which ended on March 31, 2019, and reported GAAP net income attributable to KLA-Tencor of $193 million and GAAP earnings per diluted share attributable to KLA-Tencor of $1.23 on revenues of $1,097 million.

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"KLA delivered strong results for the March quarter, finishing at the upper end or above the range of guidance for revenue, and GAAP and non-GAAP EPS," commented Rick Wallace, president and CEO of KLA. "We achieved these results despite the challenging near-term demand environment, showcasing the resiliency of KLA's business model and the compelling value of our strategies focused on revenue diversification and operations excellence."

"On February 20, we closed the merger with Orbotech, expanding our reach in the electronics value chain, opening $2 billion of new market opportunity to KLA and enhancing our ability to serve new and existing customers who are exposed to fast-growing end markets, such as 5G infrastructure, smart mobile and automotive," continued Mr. Wallace. "Looking forward, we see extraordinary potential with this combination, including new opportunities for enhanced product offerings and meaningful cost synergies expected within the first 12-24 months."

GAAP Results

 

Q3 FY 2019

Q2 FY 2019

Q3 FY 2018

Revenues

$1,097 million

$1,120 million

$1,021 million

Net Income Attributable to KLA-Tencor

$193 million

$369 million

$307 million

Earnings per Diluted Share Attributable to KLA-
Tencor

$1.23

$2.42

$1.95

       

Non-GAAP Results

 

Q3 FY 2019

Q2 FY 2019

Q3 FY 2018

Net Income Attributable to KLA-Tencor

$283 million

$372 million

$318 million

Earnings per Diluted Share Attributable to KLA-
Tencor

$1.80

$2.44

$2.02

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 nine months ended March 31, 2018 and cash flows for the three months ended March 31, 2018 were prepared using accounting standards that were different than those in effect for the three and nine months ended March 31, 2019.

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 recurring 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 third 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.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 and process-enabling solutions for manufacturing wafers and reticles, integrated circuits, packaging, printed circuit boards and flat panel displays. 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 https://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'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)

March 31, 2019

 

June 30, 2018

ASSETS

     

Cash, cash equivalents and marketable securities

$

1,897,268

   

$

2,880,318

 

Accounts receivable, net

958,021

   

651,678

 

Inventories

1,317,260

   

931,845

 

Other current assets

270,079

   

85,159

 

Land, property and equipment, net

411,852

   

286,306

 

Goodwill

2,172,902

   

354,698

 

Deferred income taxes, non-current

205,820

   

193,200

 

Purchased intangible assets, net

1,694,313

   

19,333

 

Other non-current assets

260,090

   

236,082

 

Total assets

$

9,187,605

   

$

5,638,619

 

LIABILITIES, NON-CONTROLLING INTEREST AND STOCKHOLDERS' EQUITY

     

Current liabilities:

     

Accounts payable

$

206,248

   

$

169,354

 

Deferred system revenue

228,745

   

 

Deferred service revenue

182,119

   

69,255

 

Deferred system profit

   

279,581

 

Current portion of long-term debt

249,997

   

 

Other current liabilities

833,747

   

696,080

 

Total current liabilities

1,700,856

   

1,214,270

 

Non-current liabilities:

     

Long-term debt

3,172,649

   

2,237,402

 

Deferred tax Liability

762,303

   

1,197

 

Deferred service revenue

90,610

   

71,997

 

Other non-current liabilities

575,599

   

493,242

 

Total liabilities

6,302,017

   

4,018,108

 

Stockholders' equity:

     

Common stock and capital in excess of par value

1,989,914

   

617,999

 

Retained earnings

928,086

   

1,056,445

 

Accumulated other comprehensive income (loss)

(68,907)

   

(53,933)

 

Total KLA-Tencor stockholders' equity

2,849,093

   

1,620,511

 

Non-controlling interest in consolidated subsidiary

36,495

   

 

Total stockholders' equity

2,885,588

   

1,620,511

 

Total liabilities and stockholders' equity

$

9,187,605

   

$

5,638,619

 

 

KLA-Tencor Corporation

             

Condensed Consolidated Unaudited Statements of Operations

     
               
 

Three months ended March 31,

 

Nine months ended March 31,

(In thousands, except per share amounts)

2019

 

2018

 

2019

 

2018

Revenues:

             

Product

$

793,224

   

$

797,797

   

$

2,474,652

   

$

2,320,171

 

Service

304,087

   

223,497

   

835,817

   

646,526

 

Total revenues

1,097,311

   

1,021,294

   

3,310,469

   

2,966,697

 

Costs and expenses:

             

Costs of revenues

486,945

   

368,356

   

1,276,592

   

1,068,475

 

Research and development

184,887

   

153,239

   

504,320

   

456,626

 

Selling, general and administrative

182,184

   

113,237

   

409,084

   

325,934

 

Interest expense and other, net

21,905

   

20,479

   

55,552

   

66,220

 

Income before income taxes

221,390

   

365,983

   

1,064,921

   

1,049,442

 

Provision for income taxes

28,745

   

59,102

   

107,232

   

595,944

 

Net income

192,645

   

306,881

   

957,689

   

453,498

 

Less: Net loss attributable to non-controlling interest

(83)

   

   

(83)

   

 

Net income attributable to KLA-Tencor

$

192,728

   

$

306,881

   

$

957,772

   

$

453,498

 

Net income per share attributable to KLA-Tencor:

             

Basic

$

1.23

   

$

1.96

   

$

6.20

   

$

2.90

 

Diluted

$

1.23

   

$

1.95

   

$

6.17

   

$

2.88

 

Weighted-average number of shares:

             

Basic

156,349

   

156,221

   

154,561

   

156,547

 

Diluted

157,182

   

157,201

   

155,310

   

157,539

 

 

KLA-Tencor Corporation

Condensed Consolidated Unaudited Statements of Cash Flow

 
 
 

Three months ended

March 31,

(In thousands)

2019

 

2018

Cash flows from operating activities:

     

Net income

$

192,645

   

$

306,881

 

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

     

Depreciation and amortization

73,445

   

16,283

 

Loss (gain) on unrealized foreign exchange and other

73

   

(338)

 

Share of net earnings of equity method investee

   

 

Stock-based compensation expense

34,193

   

16,210

 

Changes in assets and liabilities, net of assets acquired and liabilities assumed in
business acquisitions:

     

Accounts receivable

(72,796)

   

91,370

 

Inventories

(1,893)

   

(60,487)

 

Other assets

(3,068)

   

(66,014)

 

Accounts payable

(590)

   

19,183

 

Deferred system revenue

32,105

   

 

Deferred service revenue

(15,371)

   

 

Deferred system profit

   

9,968

 

Other liabilities

(75,149)

   

19,551

 

Net cash provided by operating activities

163,594

   

352,607

 

Cash flows from investing activities:

     

Acquisition of non-marketable securities

(630)

   

 

Businesses acquisitions, net of cash acquired

(1,806,496)

   

 

Capital expenditures

(25,956)

   

(14,994)

 

Purchases of available-for-sale securities

   

(112,661)

 

Proceeds from sale of available-for-sale securities

40,920

   

58,429

 

Proceeds from maturity of available-for-sale securities

60,298

   

97,809

 

Purchases of trading securities

(30,328)

   

(34,370)

 

Proceeds from sale of trading securities

27,289

   

31,681

 

Net cash (used in) provided by investing activities

(1,734,903)

   

25,894

 

Cash flows from financing activities:

     

Proceeds from issuance of debt, net of issuance costs

1,186,263

   

 

Proceeds from revolving credit facility, net of debt issuance costs

900,000

   

 

Repayment of debt

(902,474)

   

(25,000)

 

Issuance of common stock

   

(8)

 

Tax withholding payments related to equity awards

(381)

   

(428)

 

Common stock repurchases

(200,029)

   

(84,724)

 

Payment of contingent consideration payable

(513)

   

 

Payment of dividends to stockholders

(113,581)

   

(92,128)

 

Net cash provided by (used in) financing activities

869,285

   

(202,288)

 

Effect of exchange rate changes on cash and cash equivalents

205

   

6,075

 

Net (decrease) increase in cash and cash equivalents

(701,819)

   

182,288

 

Cash and cash equivalents at beginning of period

1,793,982

   

1,073,394

 

Cash and cash equivalents at end of period

$

1,092,163

   

$

1,255,682

 

Supplemental cash flow disclosures:

     

Income taxes paid

$

51,885

   

$

74,314

 

Interest paid

$

3,856

   

$

2,330

 

Non-cash activities:

     

Issuance of common stock for the acquisition of Orbotech Ltd. - financing activities

$

1,330,786

   

$

 

Contingent consideration payable - financing activities

$

6,740

   

$

 

Dividends payable - financing activities

$

6,494

   

$

8,408

 

Unsettled common stock repurchase - financing activities

$

5,988

   

$

 

Accrued debt issuance costs - financing activities

$

2,530

   

$

 

Accrued purchase of land, property and equipment - investing activities

$

6,370

   

$

9,728

 

 

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

 

Nine months ended

     

March 31,
2019

 

Dec. 31,
2018

 

March 31,
2018

 

March 31,
2019

 

March 31,
2018

GAAP net income attributable to KLA-Tencor

 

$

192,728

   

$

369,100

   

$

306,881

   

$

957,772

   

$

453,498

 

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

                   
 

Acquisition-related charges

a

103,755

   

4,281

   

7,413

   

113,587

   

10,608

 
 

Merger-related charges

b

   

   

   

   

3,015

 
 

Income tax effect of non-GAAP adjustments

c

(21,127)

   

(276)

   

(343)

   

(21,713)

   

(2,407)

 
 

Discrete tax items

d

7,482

   

(765)

   

4,184

   

(10,389)

   

446,078

 

Non-GAAP net income attributable to KLA-Tencor

 

$

282,838

   

$

372,340

   

$

318,135

   

$

1,039,257

   

$

910,792

 

GAAP net income (loss) per diluted share
attributable to KLA-Tencor

 

$

1.23

   

$

2.42

   

$

1.95

   

$

6.17

   

$

2.88

 

Non-GAAP net income per diluted share attributable
to KLA-Tencor

 

$

1.80

   

$

2.44

   

$

2.02

   

$

6.69

   

$

5.78

 

Shares used in diluted shares calculation

 

157,182

   

152,648

   

157,201

   

155,310

   

157,539

 

 

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

 
 
 

Acquisition- related
charges

Three months ended March 31, 2019

 

Costs of revenues

$

47,659

 

Research and development

3,328

 

Selling, general and administrative

52,768

 

Total in three months ended March 31, 2019

$

103,755

 

Three months ended Dec. 31, 2018

 

Costs of revenues

$

967

 

Selling, general and administrative

3,314

 

Total in three months ended December 31, 2018

$

4,281

 

Three months ended March 31, 2018

 

Costs of revenues

$

1,122

 

Selling, general and administrative

6,291

 

Total in three months ended March 31, 2018

$

7,413

 
 

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 primarily include amortization of intangible assets and other acquisition-related adjustments including adjustments for the fair valuation of inventory and backlog, certain employee compensation arrangements, acceleration of certain stock-based compensation arrangements, and transaction costs associated with our acquisitions, primarily Orbotech. Management believes that the expense associated with the amortization of acquisition-related intangible assets is 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 that the other acquisition-related expenses are appropriate to be excluded because such costs would not have otherwise been incurred in the periods presented. 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 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 items include charges associated with the acquisition of Orbotech as well as 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; Media Relations: Becky Howland, Ph.D., Sr. Director, Corporate Communications, (408) 875-9350, becky.howland@kla.com