01—Abstract
Summary
Summary of the 10-Q filed February 5, 2020. Cited figures are marked; the original filing is the authoritative source.
KLA Corporation reported solid financial results for the period ending December 31, 2019.
The company experienced a significant increase in total revenues, driven by strong performance in both product and service segments, largely bolstered by the inclusion of the acquired Orbotech business. Net income attributable to KLA also saw a healthy increase year-over-year, demonstrating effective cost management and operational execution. Despite a challenging semiconductor market environment, KLA's strategic focus on key growth areas like wafer inspection and its expansion into the PCB and display markets through the Orbotech acquisition appear to be paying off.
The company's robust cash generation from operations and a strong liquidity position provide a solid foundation for continued investment in research and development, potential strategic acquisitions, and shareholder returns through dividends and share repurchases. Investors should note the increasing importance of the Orbotech segment, which contributes significantly to revenue and product mix, while also observing the gross margin moderation due to the integration of this acquired business.
02—Key points
Key Highlights
- Total revenues increased by 35% year-over-year to $1.51 billion for the three months ended December 31, 2019, primarily driven by the inclusion of Orbotech's results and strong demand in wafer inspection.
- Net income attributable to KLA increased by 3% year-over-year to $380.6 million for the three months ended December 31, 2019.
- Diluted earnings per share were $2.40 for the quarter, a slight decrease from $2.42 in the prior year period, reflecting a slightly higher weighted-average share count.
- The company reported $2.07 billion in remaining performance obligations as of December 31, 2019, indicating a strong future revenue pipeline.
- Operating cash flow for the six months ended December 31, 2019, was $884.0 million, demonstrating strong cash generation.
- Long-term debt increased due to new senior notes issuance, but the company maintained compliance with its debt covenants.
- KLA's investment in R&D remained strong at 15% of total revenues, highlighting a commitment to innovation and future growth.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2020filed February 5, 2020Financial Statements
Q2 FY2020 against Q2 FY2019
| Line item | Q2 FY2020Q2 FY2019 | Change |
|---|---|---|
| Revenue | $1.51B$1.12B | +34.8% |
| Cost of Revenue | $633.62M$408.26M | +55.2% |
| Gross Profit | $875.84M$711.64M | +23.1% |
| R&D Expenses | $220.75M$165.90M | +33.1% |
| SG&A Expenses | $192.25M$112.46M | +70.9% |
| Interest Expense | $40.47M$26.54M | +52.5% |
| Net Income | $380.56M$369.10M | +3.1% |
| EPS (Basic) | $0.24$0.24 | −0.4% |
| EPS (Diluted) | $0.24$0.24 | −0.8% |
| Shares Outstanding (Basic) | 1.57B1.52B | +3.4% |
| Shares Outstanding (Diluted) | 1.59B1.53B | +3.9% |
05—Questions
Frequently Asked Questions
How did the acquisition of Orbotech impact KLA's financial performance in this quarter?
The acquisition of Orbotech, completed in February 2019, significantly contributed to KLA's revenue growth. Orbotech added $171.2 million in product revenue and $69.0 million in service revenue for the three months ended December 31, 2019, compared to the prior year period. However, the integration of Orbotech, which has lower gross margins, also led to a decrease in the company's overall gross margin percentage.
What is the outlook for KLA's revenue based on remaining performance obligations?
As of December 31, 2019, KLA had $2.07 billion in remaining performance obligations, representing future revenue from unfulfilled orders. The company expects to recognize approximately 5% to 15% of these obligations beyond the next twelve months, subject to potential customer-related risks like delays or cancellations.
How is KLA managing its debt and liquidity?
KLA ended the quarter with $1.68 billion in cash, cash equivalents, and marketable securities. Net cash provided by operating activities was strong at $884.0 million for the six months ended December 31, 2019. The company has a significant amount of long-term debt, primarily from senior notes, but it reported compliance with all debt covenants. The company also has a $1 billion revolving credit facility with $225 million drawn as of December 31, 2019, providing additional liquidity.
What are the key segments contributing to KLA's revenue, and how did they perform?
KLA operates under four reportable segments: Semiconductor Process Control (SPC), Specialty Semiconductor Process (SSP), PCB, Display and Component Inspection (PDC), and Other. The SPC segment remains the largest revenue contributor, with a 14% increase year-over-year. The SSP and PDC segments saw substantial revenue increases due to the inclusion of Orbotech's business, which was acquired in February 2019. The company noted that comparisons for these newer segments against the prior year are not meaningful.
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