KLA-Tencor Reports Fiscal 2019 Second Quarter Results

News provided by

KLA-Tencor Corporation

Jan 29, 2019, 16:15 ET

MILPITAS, Calif., Jan. 29, 2019 /PRNewswire/ -- KLA-Tencor Corporation (NASDAQ: KLAC) today announced operating results for its second quarter of fiscal year 2019, which ended on Dec. 31, 2018, and reported GAAP net income of $369 million and GAAP earnings per diluted share of $2.42 on revenues of $1,120 million.

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"KLA reported excellent results for the December quarter, with shipments, revenue, and earnings per share each closing above the range of guidance in the period, capping the third consecutive year of double-digit growth for the company in calendar 2018," commented president and chief executive officer Rick Wallace. "Our strong performance highlights the strength and resilience of the KLA business model, and demonstrates the company's ability to consistently drive long-term growth, and deliver top-tier financial performance and strong cash returns to stockholders."

GAAP Results

Q2 FY 2019

Q1 FY 2019

Q2 FY 2018

Revenues

$1,120 million

$1,093 million

$976 million

Net Income (Loss)

$369 million

$396 million

$(134) million

Earnings (Loss) per Diluted Share

$2.42

$2.54

$(0.86)




Non-GAAP Results

Q2 FY 2019

Q1 FY 2019

Q2 FY 2018

Net Income

$372 million

$384 million

$309 million

Earnings per Diluted Share

$2.44

$2.46

$1.97

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 six months ended Dec. 31, 2017 and cash flows for the three months ended Dec. 31, 2017 were prepared using accounting standards that were different than those in effect for the three and six months ended Dec. 31, 2018.

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 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 second quarter, along with its outlook, on a conference call today beginning at 2 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 solutions for manufacturing wafers and reticles, integrated circuits and packaging. 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 (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)

Dec. 31, 2018

June 30,
2018

ASSETS


Cash, cash equivalents and marketable securities

$

2,694,094

$

2,880,318

Accounts receivable, net

658,080

651,678

Inventories

1,005,990

931,845

Other current assets

127,350

85,159

Land, property and equipment, net

306,351

286,306

Goodwill

360,480

354,698

Deferred income taxes, non-current

225,124

193,200

Purchased intangible assets, net

23,818

19,333

Other non-current assets

204,000

216,819

Total assets

$

5,605,287

$

5,619,356

LIABILITIES AND STOCKHOLDERS' EQUITY


Current liabilities:


Accounts payable

$

152,491

$

169,354

Deferred system revenue

196,242

—

Deferred service revenue

168,936

69,255

Deferred system profit

—

279,581

Current portion of long-term debt

249,996

—

Other current liabilities

714,873

699,893

Total current liabilities

1,482,538

1,218,083

Non-current liabilities:


Long-term debt

1,988,382

2,237,402

Deferred service revenue

90,466

71,997

Other non-current liabilities

446,279

471,363

Total liabilities

4,007,665

3,998,845

Stockholders' equity:


Common stock and capital in excess of par value

619,265

617,999

Retained earnings

1,048,804

1,056,445

Accumulated other comprehensive income (loss)

(70,447)

(53,933)

Total stockholders' equity

1,597,622

1,620,511

Total liabilities and stockholders' equity

$

5,605,287

$

5,619,356
























KLA-Tencor Corporation

Condensed Consolidated Unaudited Statements of Operations









Three months ended Dec. 31,

Six months ended Dec. 31,

(In thousands, except per share amounts)

2018

2017

2018

2017

Revenues:






Product

$

852,201

$

761,587

$

1,681,428

$

1,522,374

Service

267,697

214,235

531,730

423,029

Total revenues

1,119,898

975,822

2,213,158

1,945,403

Costs and expenses:






Costs of revenues

408,260

347,002

789,647

700,119

Research and development

165,903

156,700

319,433

303,387

Selling, general and administrative

112,462

105,265

226,900

212,697

Interest expense and other, net

17,310

19,548

33,647

45,741

Income before income taxes

415,963

347,307

843,531

683,459

Provision for income taxes

46,863

481,626

78,487

536,842

Net income (loss)

$

369,100

$

(134,319)

$

765,044

$

146,617

Net income (loss) per share:






Basic

$

2.43

$

(0.86)

$

4.98

$

0.94

Diluted

$

2.42

$

(0.86)

$

4.96

$

0.93

Weighted-average number of shares:






Basic

152,148

156,587

153,684

156,707

Diluted

152,648

156,587

154,389

157,688



KLA-Tencor Corporation

Condensed Consolidated Unaudited Statements of Cash Flows


Three months ended

Dec. 31,

(In thousands)

2018

2017

Cash flows from operating activities:


Net income (loss)

$

369,100

$

(134,319)

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


Depreciation and amortization

15,806

16,130

Loss (gain) on unrealized foreign exchange and other

895

(4,154)

Stock-based compensation expense

15,695

13,739

Changes in assets and liabilities, net of business acquisitions:


Accounts receivable

(55,869)

(73,877)

Inventories

(15,109)

(24,240)

Other assets

34,978

86,512

Accounts payable

(2,440)

11,069

Deferred system revenue

(19,723)

—

Deferred service revenue

12,211

—

Deferred system profit

—

40,773

Other liabilities

(73,372)

197,738

Net cash provided by operating activities

282,172

129,371

Cash flows from investing activities:


Acquisition of non-marketable securities

—

(3,377)

Businesses acquisitions, net of cash acquired

—

(4,780)

Capital expenditures

(26,366)

(13,369)

Purchases of available-for-sale securities

(2,686)

(134,268)

Proceeds from sale of available-for-sale securities

107,370

56,506

Proceeds from maturity of available-for-sale securities

128,052

123,095

Purchases of trading securities

(27,481)

(18,914)

Proceeds from sale of trading securities

29,722

21,062

Net cash provided by investing activities

208,611

25,955

Cash flows from financing activities:


Proceeds from revolving credit facility, net of debt issuance costs

—

248,693

Repayment of debt

—

(540,000)

Issuance of common stock

20,556

20,579

Tax withholding payments related to equity awards

(3,233)

(2,567)

Common stock repurchases

(250,213)

(40,427)

Payment of dividends to stockholders

(114,562)

(92,575)

Net cash used in financing activities

(347,452)

(406,297)

Effect of exchange rate changes on cash and cash equivalents

1,137

3,668

Net increase (decrease) in cash and cash equivalents

144,468

(247,303)

Cash and cash equivalents at beginning of period

1,649,514

1,320,697

Cash and cash equivalents at end of period

$

1,793,982

$

1,073,394

Supplemental cash flow disclosures:


Income taxes paid

$

87,854

$

123,625

Interest paid

$

51,136

$

55,693

Non-cash activities:


Accrued purchase of land, property and equipment - investing activities

$

7,705

$

5,548

Business acquisition holdback amounts - investing activities

$

440

$

—

Contingent consideration payable - financing activities

$

2,529

$

—

Unsettled common stock repurchase - financing activities

$

—

$

1,289

Dividends payable - financing activities

$

5,404

$

7,590



KLA-Tencor Corporation

Condensed Consolidated Unaudited Supplemental Information

(In thousands, except per share amounts)

Reconciliation of GAAP Net Income (Loss) to Non-GAAP Net Income




Three months ended

Six months ended



Dec. 31,
2018

Sept. 30,
2018

Dec. 31,
2017

Dec. 31,
2018

Dec. 31,
2017

GAAP net income (loss)

$

369,100

$

395,944

$

(134,319)

$

765,044

$

146,617

Adjustments to reconcile GAAP net income (loss) to non-GAAP net income:










Acquisition-related charges

a

4,281

5,551

1,608

9,832

3,195

Merger-related charges

b

—

—

—

—

3,015

Income tax effect of non-GAAP adjustments

c

(276)

(310)

(465)

(586)

(2,064)

Discrete tax items

d

(765)

(17,106)

441,894

(17,871)

441,894

Non-GAAP net income

$

372,340

$

384,079

$

308,718

$

756,419

$

592,657

GAAP net income (loss) per diluted share

$

2.42

$

2.54

$

(0.86)

$

4.96

$

0.93

Non-GAAP net income per diluted share

$

2.44

$

2.46

$

1.97

$

4.90

$

3.76

Shares used in diluted shares calculation

152,648

156,083

156,587

154,389

157,688



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


Acquisition-related charges

Three months ended Dec. 31, 2018

Costs of revenues

$

967

Selling, general and administrative

3,314

Total in three months ended Dec. 31, 2018

$

4,281

Three months ended Sept. 30, 2018

Costs of revenues

$

890

Selling, general and administrative

4,661

Total in three months ended Sept. 30, 2018

$

5,551

Three months ended Dec. 31, 2017

Costs of revenues

$

1,530

Selling, general and administrative

78

Total in three months ended Dec. 31, 2017

$

1,608

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 include amortization of intangible assets and inventory fair value adjustments, and transaction costs associated with acquisitions or pending acquisitions, including the pending acquisition of Orbotech. Management believes that the expense associated with the amortization of acquisition related intangible assets and acquisition related costs are 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 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, legal 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 item includes 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.

SOURCE KLA-Tencor Corporation

Related Links

http://www.kla.com

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