KLA-Tencor Reports Fiscal 2019 Second Quarter Results

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,                 Sept. 30,              Dec. 31,               Dec. 31,                         Dec. 31,
                                                                                                             2018                       2018                   2017                    2018                              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.

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SOURCE KLA-Tencor Corporation