KLA Corporation

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 September quarter 2022 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 1 on your telephone keypad. If you wish to remove yourself from the queue, please press star 2. Please limit yourself to one question and one follow-up. Lastly, if you should need operator assistance, please press star 0. Thank you. I will now turn the call over to Kevin Kessel, Vice President of Investor Relations and Market Analytics. Please go ahead.

Thank you and welcome to KLA's fiscal Q1 2023 earnings call to discuss the results of the September quarter and our December quarter outlook. Joining me is Rick Wallace, our chief executive officer, and Brent Higgins, our chief financial officer. During this call, we will discuss our results released today after the market closed in the form of a press release, shareholder letter, and slide deck, which can all be found on the KLA IR website. Today's discussion is presented on a non-GAAP financial basis unless otherwise specified. Whenever references are made to full-year business performance, they are calendar year references. A detailed reconciliation of GAAP to non-GAAP results is in the earnings material 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 also subject to those risks, and KOA cannot guarantee those forward-looking statements will come true. Our actual results may differ significantly from those projected in our forward-looking statements. Our CEO, Rick Wallace, will begin the call with some brief quarterly comments and highlights before discussing the semiconductor industry demand environment, including our business in China. Brent Higgins, our CFO, will conclude with the financial highlights as well as our guidance and outlook. I will now turn the call over to our CEO, Rick Wallace. Rick?

Thank you all for joining us today. I'll spend some time sharing highlights of KLA's performance in the quarter, touch on our business in China, and provide a brief perspective on the overall semiconductor demand environment. Before we get into details, I'd like to first acknowledge our global KLA teams who have continued to demonstrate perseverance in navigating dynamic challenges to deliver for our customers. Their commitment is evident in our results. KLA's September quarter demonstrates strong customer demand across major product groups. Specifically for this quarter, record revenue of $2.7 billion was at the top of the guidance range, growing 31% on a year-over-year basis, and 10% sequentially. Quarterly non-GAAP net income topped $1 billion for the first time. GAAP earnings per share was $7.20, and non-GAAP EPS was $7.06, each above guidance ranges. Our performance is a reflection of the increasingly essential role process control plays in the development of enabling technology and the long-term product roadmaps of our customers. As drivers for semiconductor demand continue to diversify beyond traditional PC and consumer-facing markets, process control is considered critical in enabling customers to execute on node and technology transitions. As this demand backdrop continues to evolve, our KLA operating model ensures focus on delivering for our customers, navigating supply chain challenges, and continued investment in R&D. Now I will quickly summarize key highlights for the quarter. First, KLA continues to deliver strong relative outperformance versus peers and is positioned to be one of the fastest growing tier one WFE equipment suppliers in calendar 2022, substantially outperforming expected overall WFE market growth. Second, our patterning systems revenue grew 49% sequentially and 67% on a year over year basis. Third, KLA delivered strong quarterly revenue in our SPTS segment. KLA has intensified efforts in advanced packaging and automotive electronics, leveraging the combined portfolios of both the semiconductor process control and EPC groups. Fourth, the KLA services business grew to $529 million in the September quarter, up 16% year over year. Finally, operating cash flow topped $1 billion for the first time, and we generated quarterly free cash flow of $927 million and free cash flow margin of 34%. For the 12 months ended September 30, 2022, total free cash flow grew from 37% to $3.14 billion. Total capital returns in the quarter were $278 million, comprising $90 million in share repurchases and $188 million in dividends paid. Total capital returns over 12 months ended September 30th were $5.2 billion, or 166% of free cash flow, and included $4.6 billion in share repurchases and $664 million in dividends. Early in October, the U.S. government issued new regulations to control aspects of the U.S. semiconductor industry trade with China. Specific to KLA, a meaningful amount of our business in China is focused on legacy node investment, which is not the focus of the recent export restrictions. However, our system and service revenue will be adversely impacted going forward as we are unable to provide systems and support to certain customers for certain end uses. We are assessing the broader implications and engaging collaboratively with the U.S. government to provide the necessary information about our products and services to fully determine the impact on our business operations moving forward. As we look at the industry demand environment, growth for the semiconductor industry has evolved to be more strategic with more diverse and market mix. For the near term, The recognized excess inventories driven by a slowdown in consumer electronics markets such as PC and mobility is having an impact on semiconductor device pricing, particularly in memory. As a result, semiconductor customers are adjusting CY23 CapEx budgets lower, with the largest impact to date coming from memory customers. However, long-term growth for the semiconductor equipment industry continues due to the prioritization of R&D investment at the leading edge, continued investment in legacy nodes, and growth in enabling technologies such as advanced packaging. Considering all factors, KLA's long-term targets announced at our investor day in June remain intact. In summary, KLA's September quarter's results demonstrate sustainable outperformance and highlight the critical nature of KLA's products and services. Our teams continue to navigate and execute against dynamic challenges and KLA remains well-positioned with a comprehensive portfolio to meet evolving customer requirements. The KLA operating model and our strategic objectives are the foundation for our sustained technology leadership, wide competitive moat, leading financial performance, strong cash flow generation, and consistent returns to shareholders. Now, our CFO, Bren Higgins, will review our September quarterly financial highlights and outlook. Bren?