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 |
• | 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. |
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 |
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 |
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 |
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 |
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 |
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 |
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 |
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. |