KLA Corporation

Ladies and gentlemen, please stand by and welcome to the KLA Corporation for Fiscal Year 2020 earnings conference call. At this time, all participants are in listen on the mode. After the speaker's remarks, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone keypad. If you require any further assistance, please press star 0. I would now like to hand the conference over to Mr. Kevin Kessel, Vice President of Investment Relations. Please go ahead, sir.

Thank you, and welcome to KLA's Fiscal Q4 2020 Quarterly Earnings Call to discuss the results of our June quarter and outlook for the September quarter. Joining me today is Rick Wallace, our Chief Executive Officer, and Brent Higgins, our Chief Financial Officer. During today's call, we will discuss quarterly results for the period ended June 30, 2020, that we released today after the market closed in the form of a press release. shareholder letter, and slide deck. All of these documents can be found on the IR section of our website. Today's discussion of our financial results and outlook is presented on a non-GAAP financial basis unless otherwise specified. A detailed reconciliation of GAAP to non-GAAP results is in today's earnings materials posted on the KLA IR website. Our IR website also contains a calendar of future virtual investor events, as well as presentations, corporate governance information, including our quiet period policy, and links to KLA's SEC filings, including the most recent annual report and quarterly reports on Forms 10K and 10Q. Our comments today are subject to risks and uncertainties reflected in the risk factors disclosed in our SEC filings. Any forward-looking statements, including those we make on the call today, are also subject to those risks, and KLA cannot guarantee those forward-looking statements will come true. Our action results may differ significantly from those projected in our forward-looking statements. As we mentioned last quarter, we are changing the format of these calls to provide deeper insights into KLA and our business performance, and also allow more time for Q&A. Beginning this quarter, we will provide some highlights from our full prepared remarks, which can be found in the shareholder's letter, before beginning our Q&A session. I encourage you all to read the letter. It can be accessed on our KLA IR website. And with that, I'd like to turn the call over to our President and Chief Executive Officer, Rick Wallace.

Thanks, Kevin, and thank you all for joining us today. On behalf of all of us at KLA, we hope you and your families are safe and in good health, and we thank you for your continued interest and support of our company. In many ways, our performance in the June quarter once again highlights how the KLA operating model and long-term strategic objectives provide a dependable framework to guide our execution and help us consistently deliver on our commitments. Thanks to the dedication, engagement, and perseverance of our global workforce in the face of the challenges posed by the COVID-19 pandemic, KLA delivered strong results in the June 2020 quarter. Revenue and non-GAAP EPS each finished above the midpoint of our guidance ranges, demonstrating strong, consistent demand from our customers, exceptional execution by our teams, and the enduring strength and resiliency of the KLA operating model under today's extraordinary circumstances. For my opening remarks today, I plan to touch on some of the key messages from our letter to shareholders. I'll start with an update on our priorities related to COVID-19, touch on the industry demand environment, and then cover five highlights from the quarter before passing it to Bren, who will review our financial highlights and our outlook. In terms of COVID-19, we continue to take proactive measures to ensure the health and safety of our employees, their families, and our partners. Our action to date have been successful and effective as reflected in our strong financial results in the first half of calendar 2020, but more importantly, in our safety record to this point in this pandemic. What's also important is that our worldwide teams have never lost sight of what our customers need. Our teams have been exceptionally resourceful and committed to executing for our customers' most pressing needs and challenges. Customer feedback has been outstanding. KLA is consistently delivering on our customer commitments. Investment in the long term remains an important priority for us during this time. We're confident that our R&D investments will help ensure a bright future. Now, turning to the industry demand environment, customer demand is strong. We ended the quarter with our second highest level of quarterly backlog ever. In the June quarter, we saw broad diversified strength across each of our segments. Semiconductor process control was above plan. Multiple EPC businesses set records. and our services business achieved record installations. Today's environment continues to accelerate many of the secular industry growth drivers that we outlined in our 2019 Investor Day. Data center demand, 5G infrastructure, the revival of PC demand to support work from home, virtual collaboration, remote learning and entertainment, and gaming are driving an acceleration of the data era that translates across end markets and industries. We're also seeing this acceleration in our own business, adopting new digital productivity tools to improve collaboration with teams and customers. We've also increased investment to accelerate digitalization of our global enterprises. For example, in our services business, we're working closely with our customers to expand remote service technologies to augment our in-country service and installations engineers. Here are five highlights that stood out the most during the past quarter. First, we saw continued strength in Foundry and Logic in the June quarter and our revenue forecast for the remainder of 2020 shows relative balance between businesses from these customers. Business from memory customers is improving somewhat in the second half of 2020 versus the first half with higher business levels and more customer breadth expected in the December quarter with that momentum continuing into 2021. Second, KLA ended the June quarter with near record total company backlog demonstrating momentum in the marketplace across our portfolio. Newly launched products, such as the well-received DSL-10 e-beam inspection platform, help drive our market leadership. Third, our services business continues to perform well and remains on track for growth and healthy free cash flow generation once again this calendar year. The services business set a record for system installations in the quarter. We see robust service contract penetration, which has risen steadily from the 70% plus contract penetration to 75% plus over the past several quarters and delivering a strong recurring revenue stream. We're forecasting service revenue growth in 2020 in line with our long-term annual 9% to 11% target. Fourth, the newly formed Electronics Packaging and Components, or EPC, group delivered record results in the June quarter and finished above our internal forecasts. Within APC, we achieved a key milestone with the SPTS delivering record quarterly revenue of $100 million in the June quarter. We expect 2020 to be a year of double-digit growth for SPTS. PCB also had a record quarter, driven by improved market positioning supporting 5G infrastructure and handsets. The strong results for APC are coming about 18 months post the acquisition of Warbitech. We're very pleased to see the successful demonstration of our strategic growth strategies bearing fruit. We're also on pace to achieve cost synergies from the Orbitech acquisition above the original targets. Finally, in keeping with our commitment to deliver strong and predictable capital returns to our shareholders, today we announced our board of directors has approved the 11th consecutive annual dividend increase. The increase raises our quarterly dividend by 5 cents to 90 cents per share for an annual run rate dividend of $3.60 per share. KLA's dividend payout has grown at a CAGR of approximately 15% since inception. Before I hand it over to Bren, let me summarize by saying KLA's focus on innovation and execution, combined with market leadership and robust free cash flow, have helped us successfully navigate through these challenging times. We believe the secular factors driving industry demand and our 2023 targets remain firmly intact and will drive diversified growth with strong long-term operating leverage that positions our business to be even stronger and more resilient in the future. And with that, I'll turn it over to Bren.