KLA Corporation

Good afternoon. My name is Chelsea, and I will be your conference operator today. At this time, I would like to welcome everyone to the KLA Corporation December Quarter 2022 Earnings Conference Call-In Webcast. All participant lines have been placed in a listen-only mode to prevent any background noise. After the speakers' 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 also limit yourself to one question and one follow-up. Lastly, if you should need operator assistance, please press star 0. Thank you, and I will now turn the call over to Kevin Kessel, Vice President of Investor Relations and Market Analytics. Sir, please go ahead.

Thank you, Chelsea, and welcome to our earnings call to discuss the results of the December quarter and our March quarter outlook. Joining me is Rick Wallace, our Chief Executive Officer, and Bren Higgins, our Chief Financial Officer. During this call, we will discuss our results released today after the market closed. All materials can be found on our 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 risk to 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. Our CEO, Rick Wallace, will begin the call with some quarterly comments and highlights before discussing the semiconductor industry demand environment. 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? Thanks, Kevin, and thank you all for joining us today. I will summarize KLA's performance in the quarter and summarize calendar 2022. I'll also provide a brief perspective on the overall semiconductor demand environment, as well as outline KLA's priorities for 2023. Before we get into details, I want to first acknowledge our global KLA teams who continue to deliver for customers despite persistent challenges. KLA's results are proof of their commitment. Taylor's December quarter had a revenue of $2.98 billion, which is above the guidance range, with 27% growth on a year-over-year basis and 10% sequentially. Quarterly non-GAAP net income was $1.05 billion. GAAP EPS was $6.89, and non-GAAP EPS was $7.38, with each finishing above the midpoint of the guidance ranges. Calendar 2022 was another year of record growth, profitability, and free cash flow. Specifically, revenue increased 28% in 2022 to $10.5 billion, marking the seventh consecutive year of growth, driven by 36% growth in semiconductor process control systems. KLA also demonstrated strong operating leverage on our revenue growth in 2022, with non-GAAP operating profit up 31% in the year. Non-GAAP incremental operating margin on the revenue growth was 46% for the year. For calendar 2022, free cash flow was up a healthy 18% to a record $3 billion, with free cash flow growth exceeding our 15% long-term target growth rate. Now I'll summarize some specific highlights from the quarter and the year. First, KLA continued to deliver strong relative outperformance versus peers. KLA substantially outperformed overall WFE market growth in 2022. Looking ahead, our leadership in critical markets such as wafer and reticle inspection are expected to demonstrate resiliency in a year of contraction in overall WFE demand, setting the stage for another year of relative strength for KLA. Second, our patterning systems revenue grew 17% sequentially, which is up 69% year-over-year basis. Third, KLA delivered record revenue in the 10th consecutive quarter of sequential growth in our specialty semiconductor process segment, demonstrating resiliency and expanding market opportunity. Fourth, the KLA services business grew 14% year over year in the December quarter and was up 15% on a full year basis. Finally, the December quarter was another exceptional period from a capital returns perspective as we completed the $3 billion accelerated share repurchase component of the $6 billion share repurchase authorization announced last June. KLA's December quarter and calendar 2022 results and strong relative performance once again highlight the critical nature of KLA's products and services. Our consistent strong execution against various challenges in the marketplace, both in terms of macroeconomic uncertainties and addressing persistent supply chain challenges, highlight the resiliency of the KLA operating model, the dedication of our global teams, and our commitment to assertive capital allocation and delivering long-term value to our stakeholders. Looking at 2023, we know that this will be a year of industry capacity adjustments as customers fine-tune their CapEx plan to address decreased demand in some segments. However, we recognize that the semiconductor industry continues to be positioned for long-term growth, benefiting from the continued advancement of leading-edge technologies, increasing investment in legacy nodes, and innovation and growth of new enabling technologies, such as advanced packaging. To address this period of adjustment and maintain our commitment to growth, we're emphasizing three main priorities for our teams in Navigating 2023. First, we will continue to Make sure that we support our customers by delivering on our commitments and continuing our levels of investment in R&D. Second, we'll stabilize our spending levels. To strategically navigate the current environment, our focus will be on stabilizing spending while maintaining R&D investments to drive market leadership. Our expectation is for R&D investment to increase in calendar 2023. Third, we'll emphasize development of our workforce. After a strong hiring pace, we're currently at approximately 15,000 employees worldwide. Optimizing training and developing our workforce will help ensure continued strength for the long term. Now, Bren will review our December quarter highlights and our outlook. Bren? Thanks.