Document
false408Q320200000319201875-3000 0000319201 2020-05-05 2020-05-05


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 5, 2020

KLA CORPORATION
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
000-09992
04-2564110
(State or other jurisdiction of incorporation)
(Commission File Number)
(I.R.S. Employer Identification No.)
 
One Technology Drive
Milpitas
California
 
95035
(Address of principal executive offices)
(Zip Code)
 
 
Registrant’s telephone number, including area code:
(408) 875-3000

 
 
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.001 par value per share
KLAC
The Nasdaq Stock Market, LLC
 
 
The Nasdaq Global Select Market
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 







Item 2.02
Results of Operations and Financial Condition.
On May 5, 2020, KLA Corporation (the “Company”) issued a press release announcing selected financial and operating results for its third quarter of fiscal year 2020. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.
The information in Item 2.02 of this Current Report on Form 8-K and the exhibit attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities under that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, regardless of any general incorporation language in such filing.
Item 9.01
Financial Statements and Exhibits.
(d)
Exhibits
The following exhibit is filed herewith:






SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
 
 
 
 
 
 
 
 
 
KLA CORPORATION
 
 
 
 
 
Date: May 5, 2020
 
 
 
By:
 
/s/ BREN D. HIGGINS
 
 
 
 
Name:
 
Bren D. Higgins
 
 
 
 
Title:
 
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)



Exhibit


FOR IMMEDIATE RELEASE
Investor Relations:
 
Media Relations:
Kevin Kessel, CFA
 
Randi Polanich
Vice President, Investor Relations
 
Vice President and Chief Communications Officer
(408) 875-6627
 
(408) 875-6633
kevin.kessel@kla.com
 
randi.polanich@kla.com

KLA CORPORATION REPORTS FISCAL 2020 THIRD QUARTER RESULTS

Record shipments for the quarter driven by record demand in our Semiconductor Process Control segment;
Quarterly Revenue of $1.42 billion finished at the midpoint of original guidance, and featured record quarterly Service revenue;
GAAP EPS was $0.50, and non-GAAP EPS finished above the midpoint of the range of guidance at $2.47. GAAP EPS was impacted by a $256.6 million goodwill impairment charge related to our acquisition of Orbotech, or $1.63 per share after taxes.

MILPITAS, Calif., May 5, 2020 -KLA Corporation (NASDAQ: KLAC) today announced operating results for its third quarter of fiscal year 2020, which ended on March 31, 2020, and reported GAAP net income attributable to KLA of $78 million and GAAP earnings per diluted share attributable to KLA of $0.50 on revenues of $1.42 billion.

“KLA delivered solid results in the March quarter, demonstrating strong demand for KLA’s products and services coupled with exceptional execution across our global operations, while facing the unprecedented challenges associated with COVID-19,” commented Rick Wallace, president and chief executive officer of KLA Corporation. “KLA’s performance in the March quarter highlights how the KLA Operating Model provides a strong and resilient framework for us to predictably deliver on our commitments and support our customers. KLA is performing well under extraordinary conditions. In this environment, our first priority is to preserve and protect the health and safety of our employees and their families, while we maintain our long-term strategy and operate in a way that preserves our flexibility to deliver the essential products and services our customers both demand and require.”
GAAP Results
 
Q3 FY 2020
Q2 FY 2020
Q3 FY 2019
Revenues
$1,424 million
$1,509 million
$1,097 million
Net Income Attributable to KLA
$78 million
$381 million
$193 million
Earnings per Diluted Share Attributable to KLA
$0.50
$2.40
$1.23
 
 
 
 
Non-GAAP Results
 
Q3 FY 2020
Q2 FY 2020
Q3 FY 2019
Net Income Attributable to KLA
$389 million
$422 million
$283 million
Earnings per Diluted Share Attributable to KLA
$2.47
$2.66
$1.80
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, goodwill impairment, restructuring, severance and other charges, loss on extinguishment of debt, and certain discrete tax items. KLA will discuss the results for its fiscal year 2020 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 Corporation (“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: www.kla.com.

1



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.

Note Regarding Forward-Looking Statements:
This release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements, including statements regarding the industry outlook on growth, are subject to risks and uncertainties. For the factors that may cause actual results to differ materially from those projected and anticipated in the forward-looking statements in this release, please refer to KLA’s annual report on Form 10-K for the year ended June 30, 2019, subsequently filed quarterly reports on Form 10-Q and other filings with the Securities and Exchange Commission (including, without limitation, the risk factors described therein). Except as otherwise specifically indicated, the information included in this release is as of the date it is delivered. KLA assumes no obligation to, and does not currently intend to, update these forward-looking statements.



2




KLA Corporation
 
 
 
Condensed Consolidated Unaudited Balance Sheets
 
 
 
 
 
 
 
(In thousands)
March 31, 2020
 
June 30, 2019
ASSETS
 
 
 
Cash, cash equivalents and marketable securities
$
1,634,531

 
$
1,739,385

Accounts receivable, net
1,119,263

 
990,113

Inventories
1,264,130

 
1,262,500

Other current assets
300,541

 
323,077

Land, property and equipment, net
497,743

 
448,799

Goodwill
2,043,129

 
2,211,858

Deferred income taxes, non-current
207,958

 
206,141

Purchased intangible assets, net
1,437,844

 
1,560,670

Other non-current assets
340,807

 
265,973

Total assets
$
8,845,946

 
$
9,008,516

LIABILITIES, NON-CONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
243,234

 
$
202,416

Deferred system revenue
336,383

 
282,348

Deferred service revenue
214,238

 
206,669

Current portion of long-term debt

 
249,999

Other current liabilities
859,419

 
827,054

Total current liabilities
1,653,274

 
1,768,486

Non-current liabilities:
 
 
 
Long-term debt
3,443,937

 
3,173,383

Deferred tax liabilities
647,220

 
702,285

Deferred service revenue
100,375

 
98,772

Other non-current liabilities
675,944

 
587,897

Total liabilities
6,520,750

 
6,330,823

Stockholders’ equity:
 
 
 
Common stock and capital in excess of par value
2,019,071

 
2,017,312

Retained earnings
376,656

 
714,825

Accumulated other comprehensive income (loss)
(88,294
)
 
(73,029
)
Total KLA stockholders' equity
2,307,433

 
2,659,108

Non-controlling interest in consolidated subsidiary
17,763

 
18,585

Total stockholders’ equity
2,325,196

 
2,677,693

Total liabilities and stockholders’ equity
$
8,845,946

 
$
9,008,516



3



 
KLA Corporation
 
 
 
 
 
 
 
Condensed Consolidated Unaudited Statements of Operations
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
(In thousands, except per share amounts)
2020
 
2019
 
2020
 
2019
Revenues:
 
 
 
 
 
 
 
Product
$
1,051,096

 
$
793,224

 
$
3,253,621

 
$
2,474,652

Service
372,868

 
304,087

 
1,093,210

 
835,817

Total revenues
1,423,964

 
1,097,311

 
4,346,831

 
3,310,469

Costs and expenses:
 
 
 
 
 
 
 
Costs of revenues
590,158

 
486,945

 
1,828,017

 
1,276,592

Research and development
215,433

 
184,887

 
646,764

 
504,320

Selling, general and administrative
185,760

 
182,184

 
566,358

 
409,084

Goodwill impairment
256,649

 

 
256,649

 

Interest expense
39,231

 
31,187

 
120,053

 
84,087

Loss on extinguishment of debt
22,538

 

 
22,538

 

Other expense (income), net
(1,004
)
 
(9,282
)
 
(5,190
)
 
(28,535
)
Income before income taxes
115,199

 
221,390

 
911,642

 
1,064,921

Provision for income taxes
37,190

 
28,745

 
106,932

 
107,232

Net income
78,009

 
192,645

 
804,710

 
957,689

Less: Net loss attributable to non-controlling interest
(443
)
 
(83
)
 
(822
)
 
(83
)
Net income attributable to KLA
$
78,452

 
$
192,728

 
$
805,532

 
$
957,772

Net income per share attributable to KLA:
 
 
 
 
 
 
 
Basic
$
0.50

 
$
1.23

 
$
5.12

 
$
6.20

Diluted
$
0.50

 
$
1.23

 
$
5.08

 
$
6.17

Weighted-average number of shares:
 
 
 
 
 
 
 
Basic
156,067

 
156,349

 
157,356

 
154,561

Diluted
157,172

 
157,182

 
158,586

 
155,310



4



KLA Corporation
Condensed Consolidated Unaudited Statements of Cash Flows
 
Three Months Ended
March 31,
(In thousands)
2020
 
2019
Cash flows from operating activities:
 
 
 
Net income
$
78,009

 
$
192,645

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
81,990

 
73,445

Loss on extinguishment of debt
22,538

 

Goodwill impairment
256,649

 

(Gain) loss on unrealized foreign exchange and other
(5,950
)
 
73

Stock-based compensation expense
31,270

 
34,193

Changes in assets and liabilities, net of assets acquired and liabilities assumed in business acquisitions:
 
 
 
Accounts receivable
73,103

 
(72,796
)
Inventories
(11,640
)
 
(1,893
)
Other assets
(23,899
)
 
(3,068
)
Accounts payable
(12,904
)
 
(590
)
Deferred system revenue
89,280

 
32,105

Deferred service revenue
10,691

 
(15,371
)
Other liabilities
(125,591
)
 
(75,149
)
Settlement of treasury lock agreement
(21,518
)
 

Net cash provided by operating activities
442,028

 
163,594

Cash flows from investing activities:
 
 
 
Acquisition of non-marketable securities

 
(630
)
Business acquisitions, net of cash acquired
(70
)
 
(1,806,496
)
Capital expenditures
(43,445
)
 
(25,956
)
Purchases of available-for-sale securities
(156,173
)
 

Proceeds from sale of available-for-sale securities
69,034

 
40,920

Proceeds from maturity of available-for-sale securities
133,819

 
60,298

Purchases of trading securities
(46,784
)
 
(30,328
)
Proceeds from sale of trading securities
45,407

 
27,289

Net cash (used in) provided by investing activities
1,788

 
(1,734,903
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of debt, net of issuance costs
742,004

 
1,186,263

Proceeds from revolving credit facility

 
900,000

Repayment of debt
(721,033
)
 
(902,474
)
Common stock repurchases
(315,995
)
 
(200,029
)
Payment of dividends to stockholders
(133,327
)
 
(113,581
)
Issuance of common stock
672

 

Tax withholding payments related to equity awards
(4,958
)
 
(381
)
Payment of contingent consideration payable

 
(513
)
Net cash used in financing activities
(432,637
)
 
869,285

Effect of exchange rate changes on cash and cash equivalents
(4,868
)
 
205

Net increase (decrease) in cash and cash equivalents
6,311

 
(701,819
)
Cash and cash equivalents at beginning of period
939,864

 
1,793,982

Cash and cash equivalents at end of period
$
946,175

 
$
1,092,163

Supplemental cash flow disclosures:
 
 
 
Income taxes paid
$
91,972

 
$
51,885

Interest paid
$
35,176

 
$
3,856

Non-cash activities:
 
 
 
Issuance of common stock for the acquisition of Orbotech Ltd. - financing activities
$

 
$
1,330,786

Contingent consideration payable - financing activities
$
303

 
$
6,740

Dividends payable - financing activities
$
1,388

 
$
6,494

Unsettled common stock repurchase - financing activities
$

 
$
5,988

Accrued debt issuance costs - financing activities
$
193

 
$
2,530

Accrued purchase of land, property and equipment - investing activities
$
17,137

 
$
6,370


5



KLA Corporation
Segment Information (Unaudited)
The following is a summary of results for each of our four reportable segments and reconciliation to total revenues for the indicated periods:
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
(In thousands)
2020
 
2019
 
2020
 
2019
Revenues:
 
 
 
 
 
 
 
Semiconductor Process Control
$
1,177,777

 
$
914,305

 
$
3,588,839

 
$
3,078,277

Specialty Semiconductor Process(1)
85,083

 
84,388

 
229,328

 
84,388

PCB, Display and Component Inspection(1)
160,411

 
98,462

 
525,242

 
148,187

Other(1)
469

 
151

 
3,217

 
151

Total revenues for reportable segments
1,423,740

 
1,097,306

 
4,346,626

 
3,311,003

Corporate allocation and effects of foreign exchange rates
224

 
5

 
205

 
(534
)
Total revenues
$
1,423,964

 
$
1,097,311

 
$
4,346,831

 
$
3,310,469

__________
(1) Revenues in the three and nine months ended March 31, 2019 include the results of Orbotech business acquired on February 20, 2019.

KLA 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,
2020
 
December 31,
2019
 
March 31,
2019
 
March 31,
2020
 
March 31,
2019
GAAP net income attributable to KLA
 
$
78,452

 
$
380,555

 
$
192,728

 
$
805,532

 
$
957,772

Adjustments to reconcile GAAP net income to non-GAAP net income:
 
 
 
 
 
 
 
 
 
 
 
Acquisition-related charges
a
55,022

 
60,393

 
103,755

 
188,778

 
113,587

 
Restructuring, severance and other charges
b
5,432

 
2,786

 

 
8,218

 

 
Goodwill impairment
c
256,649

 

 

 
256,649

 

 
Loss on extinguishment of debt
d
22,538

 

 

 
22,538

 

 
Income tax effect of non-GAAP adjustments
e
(23,604
)
 
(21,505
)
 
(21,127
)
 
(67,375
)
 
(21,713
)
 
Discrete tax items
f
(5,551
)
 

 
7,482

 
(5,551
)
 
(10,389
)
Non-GAAP net income attributable to KLA
 
$
388,938

 
$
422,229

 
$
282,838

 
$
1,208,789

 
$
1,039,257

GAAP net income (loss) per diluted share attributable to KLA
 
$
0.50

 
$
2.40

 
$
1.23

 
$
5.08

 
$
6.17

Non-GAAP net income per diluted share attributable to KLA
 
$
2.47

 
$
2.66

 
$
1.80

 
$
7.62

 
$
6.69

Shares used in diluted shares calculation
 
157,172

 
158,620

 
157,182

 
158,586

 
155,310


6



Pre-tax impact of GAAP to non-GAAP adjustments included in Condensed Consolidated Unaudited Statements of Operations
 
Acquisition - Related Charges
 
Restructuring, Severance and Other Charges
 
Goodwill Impairment
 
Debt Extinguishment Loss
 
Total pre-tax GAAP to non-GAAP Adjustments
Three months ended March 31, 2020
 
 
 
 
 
 
 
 
 
Costs of revenues
$
36,850

 
$
483

 
$

 
$

 
$
37,333

Research and development

 
685

 

 

 
685

Selling, general and administrative
18,172

 
4,264

 

 

 
22,436

Goodwill impairment

 

 
256,649

 

 
256,649

Loss on extinguishment of debt

 

 

 
22,538

 
22,538

Total in three months ended March 31, 2020
$
55,022

 
$
5,432

 
$
256,649

 
$
22,538

 
$
339,641

Three months ended December 31, 2019
 
 
 
 
 
 
 
 
 
Costs of revenues
$
40,590

 
$
831

 
$

 
$

 
$
41,421

Research and development

 
802

 

 

 
802

Selling, general and administrative
19,803

 
1,153

 

 

 
20,956

Total in three months ended December 31, 2019
$
60,393

 
$
2,786

 
$

 
$

 
$
63,179

Three months ended March 31, 2019
 
 
 
 
 
 
 
 
 
Costs of revenues
$
47,659

 
$

 
$

 
$

 
$
47,659

Research and development
3,328

 

 

 

 
3,328

Selling, general and administrative
52,768

 

 

 

 
52,768

Total in three months ended March 31, 2019
$
103,755

 
$

 
$

 
$

 
$
103,755


7



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, 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, 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.
Restructuring, severance and other charges primarily include costs associated with employee severance, acceleration of certain stock-based compensation arrangements, and other exit costs. Management believes excluding these items helps investors compare our operating performance with our results in prior periods.
c.
Goodwill impairment includes non-cash expense recognized as a result of the company’s annual testing for goodwill impairment performed in the third quarter of the fiscal year. The impairment charge resulted from the downward revision of financial outlook for the acquired Orbotech business as well as the impact of elevated risk and macroeconomic slowdown driven by the COVID-19 pandemic. Management believes that it is appropriate to exclude the impairment charge as it is not indicative of ongoing operating results and therefore limits comparability. Management also believes excluding this item helps investors compare our operating performance with our results in prior periods as well as with the performance of other companies.
d.
Loss on extinguishment of debt includes a pre-tax loss on early extinguishment of the $500 million 4.125% Senior Notes due in November 2021. Management believes it is appropriate to exclude this loss as it is not indicative of ongoing operating results and therefore limits comparability and excluding this loss helps investors compare our operating results with our results in prior periods as well as with performance of other companies.
e.
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.
f.
Discrete tax items in the three and nine months ended March 31, 2020 include a decrease in deferred tax liability for an unrealized gain on investments held by subsidiaries of the acquired Orbotech business. Discrete tax items in the three and nine months ended March 31, 2019 include tax impacts of and 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 December 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.

8