KLA-Tencor Reports Fiscal 2019 Third Quarter Results

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- 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-Tencor 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

Released May 6, 2019