KLAC - Earnings call transcript Q2 2019

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Operator

Good afternoon. My name is Christine and I'll be your conference operator today. At this time, I would like to welcome everyone to the KLA Corporation Second Quarter Fiscal Year 2019 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. you. Thank Instructions] [Operator KLA Relations. with Corporation Lockwood Investor Ed

You you conference. may begin

Theodore Lockwood

Good Thank welcome afternoon, to Christine. our and everyone, you, conference call.

Joining Rick results at Wallace, ended December Officer; call this discuss quarterly today afternoon and today XXXX. the We're our our Executive period for Officer. Higgins, and me Chief Time. Bren We to X:XX Financial here XXst, Pacific results our on President Chief are released these

our find our seen unless haven't can release, results the website. Form website. on Today's filings, calendar year presented the and of detailed otherwise for future presentations reconciliation risk basis, our on links There, you investor If of non-GAAP events, well also descriptions find a discussion on in impact find found KLA on in GAAP conferences SEC press you ended be today's factors to results. financial A you financial release be XX, KLA's investor In will the to Relations posted of that report future it XX-K you'll non-GAAP and can could annual earnings results those of as specified. filings, presentation as XXXX. will the also June our a including Investor

KLA As guarantee risks. on true. including and those to those are the subject come you we forward-looking will call subject our cannot results Any know, risks those make future statements to forward-looking statements, today, are

projected significantly those the With differ in may over I'll results from call forward-looking actual Rick. our turn Our that, to statements.

Richard Wallace

the strong we our consecutive for outstanding mid-teens continued caps of the product range growth and earnings KLA. of quarter, period. shipments, is result in and above share are the operational revenue The per each December for results a guidance quarter year closing performance collaboration, consistent, excellence. the The customer December excellent innovation financial delivering with reported KLA third of revenue

this growth the the deliver ability performance strength KLA to business to also unveiled and the long-term eye KLA and new returns while an financial January to on for strong and performance future, and the logo name of and delivering Consistent model with company's cash Our vision with highlights Corporation. we the XX, top-tier consistently resilience stockholders.

contemporary vision past the the of future KLA's new, for of legacy more for our partners. reflects employees and honors brand and Our

Now for dynamics. some market perspective on today's

terms be expectations In growth our for view WFE spend year in which logic. the demand are meaningful by for advanced in memory with of segments, the consensus by of partially down we offset in investment current a in the equipment largely both expected foundry to aligned and driven declines is XXXX, climate,

However, notwithstanding and the fueled near planning. currently a reduction term end for demand the diversified industry strong, data and semiconductor pullback larger a impacting are investment memory capacity today seeing long in center. WFE market-driven we the dynamics of growth is more The device remains market demand and result disciplined headwinds mobile investment, capacity term by in weaker

insertion have begun support in transitions to given posture investments investing and However, and expect is balanced and to edge supply to over nodes rebalance investment through rational to XXXX, of the ramp In disciplined customers capacity memory, and with foundry and expected leading contrast a time reasonably by the continue to we more year to EUV customers. demand lithography. advanced logic momentum

remain from shifting we mix to foundry to strong have XXXX. in logic business of investment seen expected these customers our is KLA, For and already and

growth tied market scanning demonstrating requirements laser to market inspection and flow. customer to products, our strong road their new to and strong mask multiple wafer performance progress adopted advanced node sites, both of the business XX% also and and new of long service being calendar our and technology X-nanometer exceed rates at enabling deliver is capacity also We're and of 'XX platforms. growth including while driving of demand services product volume in applications, end are including number product deliver the excellent extension a mask demand customer acceptance for a introduction X% generating annual released Voyager how KLA strategies leadership expected utilization are bare our market billion base recently bare highlights products growth installed wafer the in our useful that inspection shops. results. in maps. some the meeting continues tighter These pattern the for projects differentiation to R&D more are to for in term Now wafer cleanliness products Both long-term SPX strategies. $X the Growth technology inspection for to of at by customers geometry seeing of range. strategies cash are couple EUV and KLA's is and driven just revenue of significant experience revenue in Service and and higher non-EUV the legacy of and market factors, delivering and in expansion continues revolutionary life. of investments specifications in leadership examples wafer the

KLA remain to As To long-term strong the positioning our performance stockholder long-term to Administration and we're Chinese the company call strategies, like before on are them. to State we ahead approval and quick the on cooperatively on the with over move transaction. Bren, Orbotech the work authority, in transaction for a for finalizing Orbotech conclude the financial Regulation, Market the success I'd of continuing value. our update deliver give new focused continuing of year, we and discussions with and advancing status antitrust to handing

quarter. China receive this to approval expect We regulatory

will additional This Given answer we developments new we the regarding any have the not questions will concludes these to and transaction discussions, further timeliness for comments discuss. until discussions today. sensitivity forgo my and of

Bren. the turn I'll Bren? Now call over to

Bren Higgins

and Thanks, Rick, afternoon, good everyone.

share. in opening Shipments, earnings share in the guidance was earnings the results of $X.XX was per non-GAAP As In financial per diluted to December $X.XX GAAP, per diluted company. share above delivered today's the the Revenue GAAP billion, $X.XX in a reconciliation the quarter. remarks, find release, earnings you'll quarter. GAAP quarter each December non-GAAP in non-GAAP share earnings press was Rick and his range diluted highlighted for diluted revenue, excellent per came of

reminder, a exclude GAAP non-GAAP my the results, solely I As on press refer release. covered be unless will the adjustments the in results, commentary focused which to explicitly

a March Now to deliveries shipments. of for upside highlights on a the demand of December approximately shipping in Total the $X.XX were above quarter. $XX guidance for terms shipments million the of environment quarter. originally the for pull-ins billion, guidance of The record scheduled was of result our range

'XX flat with pull-ins, for essentially the results these of shipment of half. the first result a As the calendar second half were

challenging semiconductor for shipments just customer plans customer be shipments and was latest half, is our into visibility for DRAM occurred range in the to the greater December remain $XXX well in discussed Though Memory $XXX in shipments view quarterly the in very Our of the quarter fluid, shift million March is delivery for the first half memory, in function XXXX current and decline is a the system outlook of than as accounted for second to today in as shipments. I customers factors these XX% December. dates XXXX. XX% late industry pull-ins sequential of of our a quarter that from expectations December. in of delivery memory million, the shipments the particularly two with result

for distribution XX% by guidance. above was inspection quarter. was I'll and wafer to approximately non-semi of We the income now shipments billion be the forecasted was logic to inspection; March is of approximately shipments XX% X%. total of reticle product and is about XX%, December turn memory be in Revenue Foundry shipments a includes current the midpoint to XX% outlook to approximate expect inspection was shipments in in shipments December the component March. $XX the group service XX% XX% The the of and of XX% shipments shipments, be in of Logic was, in patterning statement. was and approximately March. for record XX%, of and quarter $X.XX million was patterning were

lower $XXX in we expect revenue be $XXX range than We revenue back to expected the to million March October. March levels in million. are of

quarter. in the This March. XX% are the the quarter. coupled Due range the revenue expenses revenue in and margin dynamic, the as are to earlier, $XXX closely reports, have shipment across December our XX.X% and of the points with XXX adoption meaningful March to expense March manufacturing the in due principally to in Due product manufacturing means XX.X%. offset improvement the for midpoint operating margin of backlog that revenue upside this 'XX. XX that for as by revenue we the calendar quarter the year mix guidance of resume a we delays and in the be Product to to December million quarterly to year, growth of the the highlighted for costs. remainder guidance. June to spread shipments. shipment roughly of and remainder I XX%, of mentioned with in the gross system shipment sequential pull-ins December, anticipate margin As tied expectations quarter the led higher point ASC levels scheduling we are service will low Total In mix in but than memory March, was the were consistent be base. our recognition at lower our continue basis shipment record revenue in expectations modest for anticipate was costs our Gross more expect Operating of and lower revenue volume now slightly experienced the recent at expectations quarterly midpoint to earnings December for was are quarter lowering

March with this development at expect by million to midpoint, timing variability be expenses For program the quarter, principally of $XXX level the around we costs. driven approximately operating the

customers' served share for forward, KLA. market technology and expansion opportunity an control Looking our maps for process opportunities market represent for road

technology. expense this geared for meet for operating products to needs the levels market our are and expanding XXXX Our investment of

challenges We get able value investments EUV adoption, products. inspection and to are increasing are significant support customers ensure metrology in from design-based and and memory data to our to analytics increasing capabilities making

accordingly. about tax optimistic rate plan are XX.X%. to prospects was and We these invest effective growth The

this after Given transaction. in XX%, rate our our and the the structure to the are XX%. remain this Orbotech adjusting tax expect long-term at At expectations geographic of rate U.S. for profit, we point, the of of we new X% close inclusive down distribution to planning corporate

fully $XXX and was quarter the million, shares for income million we XXX.X weighted had diluted net Finally, outstanding.

highlights sheet elevated our flow cash $X.X million $XXX $XXX remain than $XX production million. to investments facility for run our I support historical rate calendar Arbor, for statement. million of as Cash balance flow was cash to free the year to billion, was to $XX expect investment investments as the CapEx and million operations XXXX well and these cash levels support facilities due expenditures around to Michigan. were higher areas. make and new, of some as were in from Now expansion of Ann growth in to per R&D-focused future in 'XX continue we would Capital

free calendar share quarter, cash units dividends repurchase quarterly For million XX%. flow vesting as and and in 'XX, we of million of stock program. equivalents the of a December and year common aggregate baked of an dividend $XXX the upon stock restricted pursuant revenue percentage our regular $XXX In repurchased was to

We are buyback remaining quarter. an currently billion million just under shares the over close existing of with of as authorization the $XXX repurchasing $X

next articulated subject conditions. We program the with expect market of to the couple previously complete to consistent quarters over and approach this

KLA billion our the the We $X of customers' of control additional have technology by completion nature the the results share the December growth in upon conclusion, value In quarter Orbotech reflect leadership, company's authorization strategies critical business process and industry-leading the our generated repurchase on an by model. acquisition. demonstrated for

expansion digestion to be stockholders. of believe new capacity market with strong for coupled years continue this industry. the acquisition, of uniquely planning Customers segment for Given remains Orbotech continue XXXX road we and but to to memory long-term press will maps, of three investment, these technology a is After value their their the fluid. year the positioned represented deliver factors anticipated opportunities by KLA to

along this that, foundry EPS and to $XXX between For revenue EPS reticle in with and as $XXX $X.XX to to and $X.XX share million; With plan acquisition expect as KLA, positioned the update the segments leadership, and growth for our to the of the GAAP with diluted outperform opportunities the are wafer given We share. of well $XXX well $X.XX summarize, broader logic XXXX. quarter later in the million to per that our shipments expected diluted is: of non-GAAP we $X.XX $XXX transaction shortly exposure to million guidance quarter. the of after coupled inclusive technology of guidance range completion million; to we Orbotech per markets, March industry in and in

we over to York notify call the original in to the planned in investors questions, have the to later I'd Day like date year. turning calendar New that decided for from shift your Investor XXXX our Before March

update We at back call a date. begin the on turn you Ed the will timing to now later the Q&A. With new over I'll that, to

Theodore Lockwood

Okay. for first Bren. Instructions] At open for this ready question. Thank we'll All we're up call right. you, the point, [Operator your questions. the Christine,

Operator

Instructions] question [Operator line of UBS. Your the first from from Timothy comes Arcuri

You may go sir. ahead,

Timothy Arcuri

So Bren, the and of sort trying impact pull-in I'm to through of through the that. noodle noodle

March. adjust adjust be pull-in, $X.XX if then XXXX. And $XXX like the roughly were billion for the I the would like that back shipments the shipments So half the for if I million in midpoint of at for pull-in,

back shipments the said first half. the You that versus would be up before half

to would $X.XX something be shipments or like that So that. even that imply would have flat, billion to June it for be like

have a they'd up be to versus March. lot So

memory beyond push just wondering, be was be billion do have I'm So so it such before? those the would shipments June what you push-outs, would $X.XX it that said June two that they out not

Bren Higgins

Tim. Yes,

your on shipment had look, December $XX pull-ins think into we math, of quarter. I million So

yes, So pretty to that projects. alone are terms based that just effect million. push-outs number million $XXX major The in the two of move would guidance, on significant from $XXX

say half would first pushed So further one I year. than of out the the

see. The other one, we'll

a that might projects the think timing the of middle be where number in I there of are year.

lands. where on a it But see to had effect have we'll view. ultimately our So it clearly,

would I versus then 'XX. recovery down 'XX. a of in And would the second be now, second First the see to of expect half half half we

we'll down out. plays is plus how but So somewhere or how it around in and it XX% minus see today, I'm modeling

Timothy Arcuri

something Okay. then you you of if past, what I what the I And basis the guidance, Got million. And take margin look like about $XXX was at the the back did revenue it. than just points higher $XXX look if midpoint in it. were I at guiding back at XXX million when you're revenue,

is Is throughout maybe you do of information why can the it margin that So so in June give get back you and And the year? little a just rest mix? low?

Bren Higgins

sizing output company. And to I our were you Tim, mean, $X.X the we in So billion December obviously range. $X.X billion as from can the see

first and to that a factory is spreading across carrying in decline forward that and second year taking level half higher the here So through the the those much we're of a the basically revenue a then costs sized base. ship quarter that's smaller

as the So the volume impact change quarter-to-quarter of that is pushing gross margins the down, within from and only basis that's parts different look at really you moving a margin.

revenue So to start estimates we'll And the the lower somewhere with we the as And based basis of mix guidance gross there. some consensus the the in in contracting were where say, guidance we But modeling through. improvement on terms giving and we're will much that revenue to I revenue have gross WFE near would we relative of margin how the in XX%, dynamics pickup sequential today. the to of XX of expect industry minus effect 'XX, than We'll outperform to on a in what as margins likely see rest we the in saw and based I'm industry see given the have on probably play that are, incremental through points year. growth calendar said I gross margin our or term. plus around, obviously, see would level see year, start calendar some we

Timothy Arcuri

Thank you.

Operator

Pitzer the from line question of Suisse. Your comes Credit from John next

ahead, sir. You go may

Unidentified Analyst

domestic changes point? discuss China This seeing you at this for you're if Ada is Hi. in John. any Can

Bren Higgins

were call the projects where about we for little the China a indigenous looked weaker Well, that shipments flat year-to-year. versus the is thinking last domestic

not that ship in it's about at we 'XX, in Obviously, second profile look the XX% XX% most it's probably this XX% we around see. so the XX% As somewhere 'XX, today, what look is if great to to But we shipped the point. what in to I shipment memory. lower, at visibility expect We'll it at of in of lower. half

Unidentified Analyst

in logic can the it. nodes adoption seeing kind and being implementation and the any leading-edge the given talk if you adoption slow foundry of EUV that's Got to changes of discussed now? right cadence DRAM about And you're of

Richard Wallace

No real change. is This Rick.

But the the demand seen we're past. driven of that. piloting real has with by in do of the continued terms And mask see early in cadence to of no the participating an in we adoption, rate through development what we In ramp. some our in change some of in work intent we've and also that shop been of development the

Unidentified Analyst

Thank you.

Operator

Sankar. from Krish Your of next question comes line the

line your line is open. From Cowen, open. is Your

Unidentified Analyst

Hi. of This is in behalf Steve calling Krish.

I about tool your on bare was ask first The wafer wanted business. one to inspection

given and this starts in moderation business strong trajectory the a for performing that just in industry, how now given think of how across semi Just the year? should business while the been we that of rest wafer the some has about of

Bren Higgins

Yes.

this So Bren. is

continues that show So momentum. business strong very to

are You there keep number that of a are things happening that mind to there. in have

there of without First all. time of all, long was investment at really a period any

So have in. but tools. inspection the requirements with need there capacity been just have for investing changes, that there's driven also the a in customers metrology the That, tools, not change spec coupled

seen well expect and that we've as 'XX that 'XX look much we business at not So business. through change would very from perform

carry So change have don't on forward. And so any far I customers, would assessment. expect it to to reason see that based with I communications

Unidentified Analyst

steady also see weighted or the memory assume, Thanks. foundry across that half it. about a demand be the foundry Okay. half I and profile my followed the trend year? first follow-up, for logic you back to up And of and picks ask more moderation profile to this relatively Is demand going Got relative logic as when, across or in do by wanted year. the

Bren Higgins

balanced it reasonably of talked we the some across halves. about the remarks, prepared being In

So a and larger, could I both bit for think but half two reasonably together. the segments generally foundry second as little pretty be add logic you balanced

Unidentified Analyst

Okay. Thank you.

Operator

comes of the C.J. line from question next from Muse Your Evercore.

You may go sir. ahead,

C.J. Muse

Good taking like was the Thank it a I September, you impact for side, for in but nice looks the question guess very revenue on afternoon. question. here December. deferred first uptick modest

think deferred first us? behind associated now the guess question, with do I is volatility So revenues you that

Bren Higgins

December guidance it shipment see you Yes, filing, same XX-Q we're But to closer the look quarter is. between big of if saw that the C.J., you and and effectively the for results an the think the the certainly, I XXX, reconciliation us. wasn't quarter-to-quarter. seeing And much in revenue from you issue in as for XXX March. It results

So issues there the dynamics timing the these out. to the right given end business with shipment way is that be played was at the products. about are revenue But much timing will to day, I the pretty variation it think the some and number number model of think really new the that related

the of ship products do to we way all have so that or But generally, some have maybe Now where pretty you regions acceptance. numbers be together. certain more the and are can peers customer the new may close an than go going effect to to

C.J. Muse

very as progression to specifically revenue helpful. X-nanometer of guess think calendar of you and calendar demand follow-up, 'XX? as through my what's I can how the That's speak you and into and Okay. the thinking about 'XX you kind versus driving see X-nanometer EUV the foundry, here, to progression

Richard Wallace

or the for us? device from I'm what's the sorry, standpoint C.J., demand driving

C.J. Muse

from to aggressively demand side, this line next both plus pilot X-nanometer I'm X understand more modest a year. year, ramping your to more trying activity

Richard Wallace

shop will mask what where metrology mask trying qual-ing line the Yes, and work. experiencing of pretty because as And it'll now, then lot and is sets get of And in production early out some that's toward phases development. development we and to right the needs demand devices to the of comes in utilization of capability the shop mask also actually. inspection X-nanometer ramp. shop. in straightforward and shift the kind new drive It's those in of mainly more also applications, a both the it of new Most of the are people mask driving sure. But in we're the

C.J. Muse

Very helpful. you. Thank

Operator

of line the from Please from Stifel. Ho comes Patrick go question next ahead, sir. Your

Patrick Ho

in as your a Rick, generally Maybe, remained or to do EUV timing pull-ins C.J.'s From delivery or question. of your has of you much. delivery potential very everything the reticle of push-outs on follow-up you inspection terms Thank perspective, see tools? track any

Richard Wallace

number for delayed. has If support anything, calendar design. No, of year accelerated advanced have than a demand nothing ago forecast starts we of in we saw throughout 'XX, would of a terms larger in

without far EUV. So more both EUV, for but designs, also of advanced X-nanometer tapeouts just advanced

we're So market. don't of both tool those. an have on demand EUV-specific the in seeing We the

We have tools can both. cover that

strong pretty logic we're to either particularly situated support the in been foundry that's and area. way. it well But So

Patrick Ho

talked That's I usage follow-up question Great. helpful. We've think, maybe DRAM increase market. in And NAND. how, the past as you've seen the metrology a in an with in about XD

next control goes to metrology and DRAM be you to steps, down it more patterning online of more biased eventually tools DRAM migrates you see increases seeing industry the with because towards in patterning going and also the the these Is your are the how to or do nodes? increase As steps as XY applications intensity? an of industry in few XZ inspection process come mix

Richard Wallace

Yes.

but advanced Some sensitive be the more push of smaller high-level would than, for will inspection for capability NAND because defects. inspection both, they're flash a sensitivity towards inspection, say, sure, DRAM

our things push metrology driver past. going I talked wafers both more to the is So we've X. and cleanliness flatness definitely, it on a like been NAND in in has of so think of the terms for Gen DRAM Metrology, about

DRAM then moves overlay to back constraint. when it a got you So

depends. So it really

Fortunately, on the that push for different are where of different kind us, they depending the there in problems parts are of portfolio cycle.

Patrick Ho

you. Thank Great.

Operator

comes from Sur of the next JPMorgan. [Operator Harlan Instructions] from line Your question

You may sir. go ahead,

Harlan Sur

thoughts for calendar given PWI X one afternoon. inspection hit And just DRAM, XX sort up of Maybe Gen the products. your more growth flagship around can this your the you know in and Did last work guys year. are X-nanometer on team true Good importantly, of the taking anticipating for year? systems exiting ramp system, to node I here? was that X us question. Thanks early X alpha XX guys field of focusing target? you on what the logic, EUV, On the Gen

Bren Higgins

Yes, Harlan, it's Bren.

the thanks question. So for

development-focused. consistent we Most better more, are our or ownership steady investment line very of still provides cost with for we're some with hit a did move that next cadence of product so also into And the second for capability, product. were consistent a expectations that yes, So seeing results as target. we were the Expectations tools year, here. of customers, We're capabilities better of iteration design-based features introducing throughput slightly analytics, and new data computational and on. the has

So We'll it look in well, more be I is Gen see pretty what ramps, X-nanometer in production. exactly it percent moving along crossover should know start X think deployed. don't 'XX. you start crossover. start you'll like to as to see deployed the to will about But

Harlan Sur

Yes.

calendar Good see us you multicolumn momentum inspection? introduce to which the your Last the on this and there. track calendar get or inspector guys on time a update, about think system year, an for any just Okay. on update sub update then I Can 'XX. And gave X-nanometer give mask ago, metrics us to was feedback? e-beam throughput can customer was an team systems you year an early performance, year we

Richard Wallace

Customer high. interest remains

going now a now we on lot capability there to of we're customers, collaborations we're specific engaged specifics go capability this in we're through and phase publicly of are as in lot about position implementation. EUV where have. But you a progress. interest, tell the the right not I because where you've increase we're a there's a based out the We for talking seen developments with of in program But demand of not on can

Harlan Sur

Thank very Great. much. you

Operator

the questions. There I At the time, this are call no over further presenters. turn to back

Theodore Lockwood

all conference and us you, for you concludes our call. This today. Thank joining thank Christine,

Operator

concludes call. This today's conference

disconnect. You may now

KLA (KLAC) 29 Jan 192019 Q2 Earnings call transcript