KLA Corporation

Stand by, your program is about to begin. Should you need audio assistance during today's program, please press star zero. Good afternoon. My name is Brittany, and I will be your conference operator today. At this time, I would like to welcome everyone to the KLA Corporation June quarter 2021 earnings conference call and webcast. All participant lines have been placed in a listen-only mode to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at that time, please press star one on your telephone keypad. If you wish to remove yourself from the queue, please press the pound key. Please limit yourself to one question and one follow-up. Lastly, if you should need operator assistance, please press star zero. Thank you. I will now turn the call over to Kevin Kessel, Vice President of Investor Relations. Please go ahead.

Thank you, and welcome to KLA's fiscal Q4 2021 quarterly earnings call to discuss the results of the June quarter and the outlook for the September quarter. With me on today's call is Rick Wallace, our Chief Executive Officer, and Brent Higgins, our Chief Financial Officer. During this call, we will discuss quarterly results for the period ended June 30, 2021. released this afternoon after market close. You can find the press release, shareholder letter, slide deck, and infographic on the KLA IR section of our website. Today's discussion is presented on a non-GAAP financial basis unless otherwise specified, and whenever we make references to a year, we are referring to calendar years. A detailed reconciliation of GAAP to non-GAAP results is in the earnings materials posted on our website. Our IR website also contains future investor events, as well as presentations, corporate governance information, and links to our SEC filings, including our most recent annual report and quarterly reports on Forms 10-K and 10-Q. Our comments today are subject to risks and uncertainties reflected in the risk factor disclosure in our SEC filings. Any forward-looking statements, including those we make on the call today, are subject to those risks, and KLA cannot guarantee those forward-looking statements will come true. Our actual results may differ significantly from those projected in our forward-looking statements. Let me now turn the call over to our Chief Executive Officer, Rick Wallace.

Rick? Hello, and thank you for joining us today. The June 2021 quarter showed continued momentum and strength for KLA. We delivered on our top and bottom line goals and progressed against our long-term strategic objectives. Specifically, quarterly revenue grew 7% sequentially and 32% year-over-year to $1.925 billion. Non-GAAP earnings per share was $4.43, representing 15% sequential growth and 63% growth compared to the prior year. These results demonstrate strong growth momentum in our core markets and the operating leverage in the KLA model. We continue to see increased customer demand across each of our major product groups. This demand is related to ongoing secular demand trends driving semiconductor industry growth across a broad range of markets and applications. Our customers are increasing their strategic CapEx investments to address these growth markets and investing in their leading-edge R&D efforts. Against this strong demand backdrop, we are navigating evolving customer needs and persistent supply chain challenges. Still, KLA continues to outperform expectations by operating with purpose and precision and focusing on creating value for our customers, partners, and shareholders. This strong execution is led by our talented global teams continuing to go above and beyond, constantly rising to the challenge and opportunities of the marketplace. I will quickly summarize our view of the industry demand environment. We're in a great position relative to growth drivers that are creating momentum for the industry and our business. As a result, our outlook for the wafer fab equipment industry continues to move higher. We have increased our growth estimate from the low to mid-20s stated last quarter to the low to mid-30s on a percentage basis. This is from a base of approximately $61 billion in calendar 2020. With strong secular semiconductor demand trends continuing, we expect positive industry dynamics to sustain into calendar 2022. As our business benefits from this increased demand and our customers are also investing in leading-edge node development, fab optimization, and regional expansion, KLA offers the leading portfolio of products to solve our customers' challenges. We continue to invest high levels of R&D to ensure we're constantly improving and remaining indispensable to our customers. Specifically, we're prioritizing investment in artificial intelligence and machine learning. KLA's unique capabilities in leveraging these technologies in our product and service offerings help drive adoption and differentiates KLA against the competition. KLA benefits from longstanding market leadership and high levels of investment in advanced laser, sensor, optics, and data analytics technologies that leverage our AI and ML capabilities to identify critical defects in the production process and deliver ever-increasing precision in metrology applications. This investment helps our product and service offerings deliver best-in-class performance, lower process variability, higher yields, improved time to market, and reduced cost of ownership for our customers. Our growing R&D investment is happening as process control intensity is increasing. KLA's market leadership in the process control market remains greater than four times the nearest competitor, as reported by Gartner Research in April of 2021. KLA's sustained performance in process control is augmented by a broader position within the electronics ecosystem through our electronics packaging and components, or APC, businesses and the contributions of our large and growing services business. For new and long-time KLA investors, it's essential to point out that KLA's market leadership is a result of consistent and focused execution of our company's differentiated strategy. With this favorable backdrop and our strong execution, we're on track to achieve our 2023 financial targets well ahead of expectations. Let's now move along to the top highlights for our most recent quarter. First, KLA continues to execute well and outperform expectations. In Foundry and Logic, we see simultaneous investments across multiple nodes, and our customers continue to increase demand forecasts. We remain encouraged by the breadth and consistency of investment across our customer base. In memory, demand is strong and spread across a broader set of customers. During the quarter, we announced four new products targeting the automotive semiconductor market, including patterned and unpatterned wafer inspection and inline test solutions. KLA's automotive solutions aim to help customers identify and mitigate potential reliability defects in the development and manufacturing of automotive semiconductors early in the manufacturing process, improving device reliability and driving significant value for our customers. Second, KLA's strong market leadership and optical pattern wafer inspection has helped to drive strong relative growth inspection is forecast to be among the fastest growing segments in WFE in 2021 for product segments over a billion dollars in revenue and is poised to outpace the overall industry growth by a factor of 2x this year. This follows similar growth and outperformance in 2020. Third, KLA's flagship reticle inspection business is on pace for a record year in 2021, growing faster than the market and growing our leadership positions. As proof of that, we estimate that nearly all the reticles today at 5 nanometer are inspected by KLA Systems. Our next generation EVM-based 8XX mask inspection platform shipped last quarter and has begun customer qualification for applications at 3 nanometer and below. Fourth, our services revenue is $444 million in the June quarter, or 23% of total sales. Seventy-five percent of services revenue in our semiconductor process control segment and more than 90% of services revenue in our printed circuit board business is from recurring subscription-based contracts. We believe these are among the highest subscription service rates in the industry. The services business is on track for another year of strong double-digit growth, well above our long-term growth model targets. The growth is driven by our expanding installed base, higher utilization rates, and increasing expansion of service opportunities to the trailing edge and the EPC group. Our semiconductor process control service business revenue continues to grow faster than the rate of the growth of the installed base, approximately 2.8 times faster from 2016 through 2020. KLA service business has the advantage of always working in close collaboration with our customers and partners, driving innovation and new initiatives for growth. Finally, in keeping with our commitment to deliver strong and predictable capital returns to our shareholders, today we announced that KLA's Board of Directors approved a 17% increase in the company's quarterly dividend level from $0.90 to $1.05 per share. This is the 12th consecutive annual increase in our dividend level, which has grown at a compounded annual rate of 16% since inception in 2006. In addition, we announced a new $2 billion share repurchase authorization. targeted for execution over the next 12 to 18 months. We believe KLA's track record of delivering strong capital returns is a key component of the KLA investment thesis and offers predictable and compelling value creation for our shareholders. Before moving into the financial highlights, let's briefly summarize a few key points. KLA's June quarter results demonstrate the critical nature of KLA's products and services in enabling the digital transformation of our lives the resiliency of the KLA operating model, and our commitment to productive capital allocation. KLA is exceptionally well positioned with a comprehensive portfolio of products to meet demanding customer requirements that balance sensitivity and throughput. The semiconductor and electronics landscape are constantly changing, and we're seeing broadening customer interest driven by more technology innovation than ever before at the leading edge. KLA also delivers enduring value through our commitment to corporate stewardship, We look forward to sharing an update on our ESG vision in our global impact report, which will be released in the coming weeks. And with that, I'll pass the call over to Brad.