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Edited Transcript of KLAC earnings conference call or presentation 5-May-20 9:00pm GMT

·53 min read

Q3 2020 KLA Corp Earnings Call MILPITAS May 28, 2020 (Thomson StreetEvents) -- Edited Transcript of KLA Corp earnings conference call or presentation Tuesday, May 5, 2020 at 9:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Bren D. Higgins KLA Corporation - Executive VP & CFO * Kevin M. Kessel KLA Corporation - VP of IR * Richard P. Wallace KLA Corporation - President, CEO & Executive Director ================================================================================ Conference Call Participants ================================================================================ * Christopher James Muse Evercore ISI Institutional Equities, Research Division - Senior MD, Head of Global Semiconductor Research & Senior Equity Research Analyst * Harlan Sur JP Morgan Chase & Co, Research Division - Senior Analyst * John William Pitzer Crédit Suisse AG, Research Division - MD, Global Technology Strategist and Global Technology Sector Head * Joseph Michael Quatrochi Wells Fargo Securities, LLC, Research Division - Associate Analyst * Krish Sankar Cowen and Company, LLC, Research Division - MD & Senior Research Analyst * Quinn Bolton Needham & Company, LLC, Research Division - Senior Analyst * Timothy Michael Arcuri UBS Investment Bank, Research Division - MD and Head of Semiconductors & Semiconductor Equipment * Vivek Arya BofA Merrill Lynch, Research Division - Director ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Ladies and gentlemen, thank you for standby. And welcome to the KLA Corporation Third Quarter Fiscal 2020 Earnings Conference Call. (Operator Instructions) I would now like to hand the conference over to Mr. Kevin Kessel, Vice President of Investor Relations with KLA Corporation. Thank you, sir. Please go ahead. -------------------------------------------------------------------------------- Kevin M. Kessel, KLA Corporation - VP of IR [2] -------------------------------------------------------------------------------- Thank you, Charlie. And welcome to KLA's earnings conference call to discuss the results of the March 2020 quarter and the outlook for the June quarter. Joining me today is Rick Wallace, our Chief Executive Officer; and Bren Higgins, our Chief Financial Officer. During today's conference call, we will discuss quarterly results for the period ended March 31, 2020, that we released today after the market close and can be found on the Investor Relations section of our website. Today's discussion and 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 press release and the earnings slide presentation posted on the KLA IR website, along with our newly published shareholder letter. Our IR website also contains a calendar of future virtual investor events and presentations, corporate governance information, including our quiet period policy as well as links to KLA's 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 KLA cannot guarantee those forward-looking statements will come true. Our actual results may differ significantly from those projected in our forward-looking statements. I'd like to now turn the call over to our President and Chief Executive Officer, Rick Wallace. -------------------------------------------------------------------------------- Richard P. Wallace, KLA Corporation - President, CEO & Executive Director [3] -------------------------------------------------------------------------------- Thank you all for joining us today in these extraordinary times. I hope you and your families are safe and healthy. KLA delivered strong results in the March 2020 quarter. Revenue finished at the midpoint of our guidance, and non-GAAP EPS was above the midpoint of the guidance range, demonstrating strong demand from our customers and exceptional execution across our global KLA operations. KLA's performance in the March quarter highlights how the company's operating model and long-term strategic objectives provide a strong and resilient framework to guide our execution and consistently deliver on our commitments even during unprecedented challenges. In our prepared remarks today, we will discuss how KLA's unique and sustainable competitive advantages helped us consistently deliver strong relative results, while showcasing the enduring strength of the KLA investment thesis. We will also discuss how KLA is positioned to confidently navigate through these periods of uncertainty. To lead off, I want to highlight KLA's priorities and actions in addressing the COVID-19 crisis. Please turn to Slide 4. First and foremost, we are prioritizing the health and safety of our employees, their families and our partners. We began taking proactive measures for our teams as soon as we saw the outbreak begin in China, including immediately eliminating nonessential travel, canceling our annual sales conference, our global engineering conference as well as the KLA Lithography Users Forum at SPIE. A large percentage of our workforce is in China and the Pacific region, and we initiated a global crisis management team to ensure we had insight into needs and activities at the local levels to provide assistance as needed. As information and shelter-in-place orders began to roll out across the globe, we prioritized rapid communications to our employees. And we immediately instituted guidelines and policies to ensure that our essential workforce could operate in safe conditions, and we remain focused on that daily. Specifically, as our teams worldwide have largely had to shift to working from home, we worked hard to maintain our ability to support our customers in this unique scenario. At our manufacturing facilities, we have focused on creating a significantly reduced employee footprint. We have rigorous social distancing and cleaning guidelines and health checks to allow our teams to be safe while staying on track with shipping, installing and delivering the essential services we provide to our customers. I'd like to personally commend our global team for their resourcefulness and commitment to executing under these challenging circumstances. Our customer feedback has been outstanding. And our business is healthy and performing well under unprecedented conditions. I'm really proud of the way we as a company have responded to these challenges. It really reflects the extraordinary strength of our teams guided by the KLA core values of perseverance, drive to be better, high-performing teams and indispensability. For our global employee base, we recognize that this crisis also extends well beyond the disruption to their work life. And we're focusing on continuing to ensure that we can support them in any way that we can. I'd also like to note that we took action to support our communities by creating a KLA Foundation Global Relief Fund, where we committed $2 million in global relief efforts to benefit local nonprofit organizations, which are working in areas identified as having a high number of affected individuals and with those who are with high-risk populations in Asia, Europe, Israel and the United States. Above all, we remain advocates for the holistic health and safety of our employees as well as the communities they work and live in. Turn now to Slide 5 for some comments on the industry demand environment. Though we were encouraged to see many of our customers in China return to full production late in the quarter, COVID-19 has already impacted global economic growth. The question remains whether it will result in a short-term pushout in global demand supported by substantial levels of monetary and fiscal stimulus from governments or whether it leads to long-term demand decline followed by an elongated recovery. Many economic prognosticators now expect a global recession as the effects of business disruption, rising unemployment and reduction in consumer spending are felt across the global economy. So at KLA, we're not predicting the depth or duration of this impact until we have more evidence about the evolution of the crisis. But if there's one thing we do know, it's the situation is rapidly evolving. And at this stage, the full impact of COVID-19 on consumer demand and the global economy remains unclear. But from our point of view, although the semiconductor equipment industry is currently supply-constrained, customer demand remains strong in the first half of 2020. And to underscore that point, KLA delivered record shipments of our semiconductor process control systems during the quarter, and total backlog finished at record levels exiting March. It's also important to point out that KLA is most levered to our customers' strategic R&D investments and their product road maps for leading-edge technologies across foundry, logic and memory. Our customers use these investments as critical to their long-term growth strategies and their competitive positioning. And therefore, they tend to be more resilient. Now in the near and medium term, we see increased semiconductor device demands for enterprise and cloud applications in response to the surge in work from home and a pickup in gaming. Now this is somewhat offset by a decline in some consumer-facing end markets. We also see strong results in our specialty semiconductor markets with demand driven by 5G infrastructure investment, particularly in China. We're fulfilling urgent requests to supply products essential in MEMS manufacturing and power technologies focused on medical applications such as smart thermometers and ventilators, which are directly addressing the crisis. It's clear health care will be one of the many industries which will be profoundly impacted with the acceleration of technology implementation, virtual capabilities and automation. We know that KLA is not immune to the impact this crisis may have on customers' capital investment plans over the next several months. However, we do draw some confidence from the historical evidence that our customers tend to maintain their investment in next-generation development in times of semiconductor industry contraction and uncertainty, which makes KLA's revenue more resilient in times like this. As an example, I'd point out that in 2019, according to the recent Gartner market share analysis, total WFE investment was estimated to decline about 6%, but KLA semiconductor process control business grew at 1%. Taking a step back even further, it's worth highlighting that KLA's business has always declined less than the industry in periods of general contraction. Also, KLA's service business, which accounts for roughly 1/4 of our total revenues today and has strong and growing profitability, also tends to demonstrate exceptional resilience throughout the business cycle, given the unique nature of our service model with 70% to 75% of the revenue being subscription-like contracts. Given the continued focus on innovation and execution, combined with our market leadership and strong balance sheet, KLA is in a very strong position to navigate this period of uncertainty and to capitalize on opportunities to drive long-term growth for our industry once the conditions eventually normalize. Even though we couldn't have anticipated what we're experiencing today, we believe that secular factors driving the industry demand and our 2023 revenue and EPS targets remain largely intact, and they'll drive diversified growth with operating leverage over the long term. Finally, in many ways, the global response to COVID-19 is accelerating secular drivers of the industry growth that we outlined in our 2019 Investor Day. And that gives us strong optimism that we and our industry will emerge from this crisis stronger than before. We always knew we had compelling secular growth trends a year ago, but if anything, these trends will be stronger and more important going forward. Whether it's the move to Industry 4.0 or factory automation, the rising semiconductor content in automobiles, remote medical diagnostics and care, 5G, ubiquitous connectivity supported by continued data center build-outs or new, more capable handset offerings, the new work-from-home reality or the overall acceleration of digitization and move to the data era, everything will depend on advancing semiconductor technology that KLA helps to make possible. Please turn to Slide 6 and 7 for a review of the KLA operating model and our strategic objectives. As in prior industry downturns, one thing that remains a constant, serving as our guide as we manage through this uncertainty, is the KLA operating model. This codifies our corporate values and management principles and defines the critical core competencies that drive our performance and represents a solid and enduring framework for the execution of our long-term strategic objectives. The KLA operating model is essential to aligning the company on a consistent strategy. It ties accountability to results, ensures product development execution and facilitates continuous improvement, while ensuring the company always operates with strong financial discipline while driving long-term performance and profitability objectives. As we indicated during our September 2019 Investor Day, we're also leveraging the KLA operating model to strengthen the performance of new businesses. We have recently reorganized the former Orbotech units under the leadership of long-term KLA Executive Vice President Oreste Donzella, creating the new Electronics, Packaging and Components or EPC group. This new organization will help drive synergies and growth across the broad electronics value chain, including specialty semiconductors, packaging, printed circuit boards and flat panel display. Guided by this and with our global team's experience navigating through various industry cycles and downturns over the years, we have the benefit of history and the processes in place to maintain a high level of investment, which is critical to our market leadership and our customers' technology road map, while at the same time, protecting and preserving operating margins. Please turn to Slide 8 for the March quarter 2020 business highlights. In closing, I'd like to mention 4 highlights that stood out this quarter. First, as I mentioned at the outset, KLA achieved record company-wide shipments driven by record shipments in our Semiconductor Process Control segment, and we ended March with record backlog. This illustrates the overall momentum we are having in the marketplace across various product platforms with particular strength in mask inspection, patterned optical inspection and films metrology. And it further shores up our confidence in the long-term future growth position for the company. Secondly, we're really pleased to see KLA's customer success being further validated by third-party market share analysis from Gartner. KLA's market leadership is the result of ongoing successful execution of the company's customer-focused strategy, which is based on investing a high level of R&D to drive differentiated products and a portfolio of products and solutions that address the most critical process control market challenges. And we're pleased once again to see the success of our strategy being validated by our customers' purchasing decisions. The report shows that process control grew as a percent of overall WFE, and KLA strengthened its process control market leadership by gaining 2.5 points of market share. The past year marked a record or new record demand in KLA's core franchises such as optical wafer inspection, overlay metrology and mask inspection. This data also shows KLA's first meaningful revenue in e-beam inspection since 2015. We expect the process control intensity will continue to stay at a similar level in calendar 2020 or better and that KLA will maintain our market leadership, driven by an expanding EUV investment environment as well as advanced technology development in memory and continued semiconductor industry expansion in China. Third, we saw continued strength in both foundry and logic. Foundry and logic revenue grew sequentially as customers accelerated the ramp of both 7- and 5-nanometer nodes and continue to prioritize their leading-edge technology road maps. And finally, our services business continues to perform well and remains on track for growth and steady free cash flow in calendar 2020 despite all the uncertainty. Total KLA service revenue rose to $373 million, thanks to the continued growth of our Semiconductor Process Control installed base as well as the expanding service businesses from recent acquisitions. Please turn to Slide 9 for my concluding thoughts. To summarize, before I turn the call over to Bren, we're in extraordinary times. And in that, we're facing both unprecedented uncertainties as well as opportunities. But amidst this background, one thing that's not changing is KLA's strong fundamentals. And we're confident that our strategies and the actions we're taking today will continue to lead us in the right direction and position us to emerge even stronger and more resilient. KLA's March quarter indicates the soundness and strength of our ongoing strategy. We expect to be able to continue to meet customer needs and expand our market leadership while protecting operating profits, generating strong free cash flow and maintaining our capital return strategies. As I stated earlier, we will remain laser-focused on continuing to preserve the health and safety of our employees and their families. We believe that this is a new reality, and we're going to be in this for some time, but we're confident we can work together to get through it and continue to deliver in the way we know how. I'll now turn the call over to our CFO, Bren, to discuss our financial results and guidance. Bren? -------------------------------------------------------------------------------- Bren D. Higgins, KLA Corporation - Executive VP & CFO [4] -------------------------------------------------------------------------------- Thank you, Rick. Please turn to Slide 11 for quarterly financial highlights. KLA delivered a solid quarter in March with revenue at the midpoint and non-GAAP EPS finishing at the upper end of the company's guidance ranges. Total revenue was $1.424 billion. Non-GAAP gross margin was 61.2%, at the upper end of the guided range for the quarter of 59.5% to 61.5%, driven by a richer product mix than was modeled at the beginning of the quarter. Non-GAAP operating margin was 34.6%. GAAP EPS was $0.50 and non-GAAP EPS was $2.47. At the guided tax planning rate of 13%, EPS would have been $2.52. The reconciliation between the GAAP and non-GAAP EPS includes an impairment of goodwill of $257 million and a $22.5 million loss related to the extinguishment of our November '21 notes that we refinanced in a new bond offering in February. Let me briefly provide more context on the goodwill impairment. During the March quarter, and consistent with our policy, KLA conducted its annual goodwill impairment assessment based on the discounted cash flows for each reporting unit. Given the uncertainty of the current environment and the associated unknown long-run trajectory of economic growth, we recorded a noncash impairment charge of $257 million in the third quarter to write down a portion of the carrying value of the goodwill associated with the Orbotech acquisition. Before going into further detail on quarterly results, I want to echo Rick's comments and say that while the COVID-19 situation is unprecedented and presents new challenges to running our business, one thing remains clear. KLA has a resilient business model underpinned by a rock-solid investment-grade balance sheet. We will continue to be agile in the marketplace and actively manage and responsibly navigate our way through this crisis. Additionally, we remain committed to maintaining our investment-grade credit ratings, and our recent bond offering and refinancing means that we are in a great position and don't have any bond maturities until late 2024. To further expand on that point, I want to highlight that in February, KLA issued $750 million and 3.3% 30-year bonds to redeem $500 million in aggregate principal amount 4.125% senior notes due in November of 2021. And S&P upgraded our credit rating one notch earlier in the quarter to BBB+. Given our solid balance sheet and consistently robust free cash flow that our business generates, we believe KLA has enough cash and liquidity to respond to any operating condition, while still being able to execute our long-term strategies, invest at a high level in new capabilities across our product portfolio and maintain our well-articulated capital returns approach, which includes our current $3.40 annual per share dividend. Regarding capital management and deployment, as you would expect, we are reviewing all operating expenses and capital expenditure plans to prioritize and optimize them given the current business conditions and economic environment. One thing is certain. We remain committed to returning 70% or more free cash flow to shareholders over the long term, balanced between dividend payments and share repurchases. In March, we were consistent with our long-standing capital return framework, returning 113% of quarterly free cash flow to investors, consisting of $133 million in quarterly dividend distributions and $316 million in repurchases of common stock. KLA currently has approximately $1 billion remaining under our share repurchase authorization. Please turn to Slides 12 and 13 for the breakdown of revenue by segments, end markets, products and regions. Revenue for the Semiconductor Process Control segment, which includes associated service business, was healthy at $1.18 billion. Foundry was once again very strong in March at approximately 55% of Semi Process Control revenue, up from 52% last quarter. Memory was 31% in March, down from 40%. Logic was 14% versus 8% last quarter. Revenue for the Specialty Semiconductor Process segment was $85 million, up 13% sequentially, driven by strength in RF, MEMS and advanced packaging. PCB, Display and Component Inspection revenue was $160 million, down 14% sequentially and slightly below our internal plans as these businesses, which are closer to consumer markets, softened somewhat as we moved through the quarter. Now for the breakdown of revenue by major products and regions, starting with the distribution of revenue by major product category. Wafer inspection was 38%. Patterning, which includes reticle inspection, was 21%. Wafer inspection and patterning are part of the Semiconductor Process Control segment. Specialty Semiconductor Process was 5%. PCB, Display and Component Inspection revenue was 7%. Service was 26% of revenue in the quarter and other was 3%. The regional split of revenue was as follows: China was 25%. Taiwan was 24%. Korea was 21%. The U.S. and Japan were 11% each. Europe, including Israel, was 5%. And the rest of Asia was 3%. Please turn to Slide 14 for other income statement highlights. Total operating expenses were $378 million, including $215 million of R&D expense. Operating expenses were modestly below our targets for the quarter, with the largest delta to plan coming from lower travel and entertainment expenses and a slower hiring pace than was originally planned. Operating margin was 34.6%. Other income and expense in the March quarter was $38 million. The non-GAAP tax rate was 14.6% and above the company's long-term tax planning rate of 13% due to negative capital market impact on expense deductions in the company's employee deferred compensation program. Going forward, based on the company's expectations for geographic distribution of profit, you should continue to use 13% as a long-term tax planning rate. Non-GAAP net income was $389 million, and the company had approximately 157 million diluted weighted average shares outstanding. Turning now to a review of our balance sheet and free cash flow on Slides 15 and 16. KLA ended the quarter with $1.6 billion in cash, total debt of $3.4 billion and a flexible and attractive bond maturity profile supported by investment-grade ratings from all 3 agencies. KLA has a history of consistent free cash flow generation and high free cash flow conversion. Our innovation and differentiation in the marketplace are what drives our industry-leading gross and operating margins and ultimately our free cash flow conversion. Cash from operations and free cash flow were both strong, coming in at $442 million and $399 million, respectively. Free cash flow margin was 28%, and the annualized free cash flow yield was above 6%. For a frame of reference, over the last 10 years, KLA's free cash flow margin averaged 25%. KLA's business model generates strong free cash flow and is very resilient across the various phases of the business cycle and economic conditions. Over the past 5 years, the company has averaged 98% free cash flow conversion. Please turn to Slide 17 for a snapshot of our capital return activities. KLA continues to execute on its commitment to return capital to shareholders in the form of both dividends and share repurchases. The dividend payout has increased at a CAGR of approximately 15% since inception 13 years ago. Share repurchases have also increased over the years, with the average price paid to repurchase shares being roughly $73, with approximately $4.1 billion deployed for repurchases since 2010. Now for our June 2020 guidance on Slide 18. I will start by saying we have mitigated the supply chain issues related to COVID-19 that arose over the past quarter, but fluidity related to this situation makes it a daily challenge to manage as countries around the world handle their respective coronavirus responses. The uncertainties and added complexity associated with global social distancing policies, such as travel restrictions and mandated quarantine periods, continue to pose challenges to our ability to install and support KLA systems. Accordingly, we have taken extra measures to maintain flexibility and continuity of supply for critical components in our supply chain. Somewhat unique to KLA's business model are longer material lead times and volume hedging strategies that -- to enable flexibility with key components in our products, which slows inventory velocity but allows us to weather short-term disruptions in supply. For short lead time parts, we maintain dual supplier strategies, mostly with suppliers in different countries to optimize capital commitments and ensure we can shift supply to maintain flexibility to meet fluid customer delivery schedules. In addition, our customers rely on KLA to enable their long-term technology development programs, which tend to be sustained and protected in periods of short-term demand uncertainty and disruption, such as we are currently experiencing. We continue to maintain close ongoing communication with our suppliers to ensure continuity and identify supply chain pressure points, and we remain confident today in our ability to meet our demand and to be able to continue to service and support our customers in the field. KLA is managing this situation with both determination and creativity. We have fully mobilized our teams and are taking action to minimize disruption in our operations, meet essential customer needs and maintain the resilience of our supply chain to limit the overall impact of COVID-19 across our business. Given the scale of our worldwide service and support infrastructure, we are supporting our customers with local resources and are executing well. However, it is taking longer in some cases to complete rigorous acceptance criteria for certain products without the support of our factory-centric teams. In all cases, we've done our best to contemplate these factors in our guidance, including the broader range of guidance in our June quarter outlook, which is as follows. Total revenue for the June quarter is expected to be in a range of $1.26 billion to $1.54 billion. Foundry is forecasted to be about 51% of Semi Process Control system revenue, depicting the strength we continue to see amongst our foundry customer base. Memory is expected to be approximately 39%. Logic is expected to be about 10% of Semiconductor Process Control system revenue. We forecast gross margin to be in a range of 59% to 61% as product mix is modestly less favorable and slightly higher costs are expected in our service business than in the March quarter. Other model assumptions include operating expense of approximately $380 million, interest and other expense of approximately $40 million and a non-GAAP tax rate of approximately 13%. Finally, GAAP diluted EPS is expected to be in a range of $1.58 to $2.64 and non-GAAP diluted EPS in a range of $1.81 to $2.87. The EPS guidance is based on a fully diluted share count of approximately 156 million shares. For my financial conclusion, please turn to Slide 19. I'd like to share our perspective on the demand environment for the balance of the year 2020. First, I'd like to address the new export rules published by the U.S. Department of Commerce on April 28, which will go into effect on June 29, 2020. Those rules will expand export license requirements for U.S. companies to sell certain items to companies in China that have operations that could support military end uses even if the item sold by the U.S. companies are used for civilian purposes only. On this issue, I would note that the new rules do not impact the majority of our business as most of our products are manufactured and assembled outside of the United States. I would also like to point out that we routinely ensure that our products are not used for prohibited military end uses in China. However, the question remains today whether these new rules, when enacted, would make it more difficult to ship to certain customers in China that might be deemed military end users under the new rules as a result of their potential activities supporting military end uses. We are still assessing the new rules and working with trade associations and others to obtain additional guidance from the U.S. government regarding the scope and practical application of these new rules. Once we have clarity on how these rules will be implemented, we can better determine the impact on our business, if any, in the second half of the calendar year. Notwithstanding this recent trade issue, our outlook for customer demand in the Semiconductor Process Control business is virtually unchanged today from what we expected in February. As I mentioned earlier, we continue to drive our supply chain in our factories to meet current customer expectations for deliveries. However, we do expect that the overall macroeconomic environment will put pressure at some point on some of our customers' demand for products in certain segments and ultimately could affect their capacity investment plans, both in magnitude and timing. Obviously, the depth and duration of this impact is unknown today, so we will continue to run our business to maintain the flexibility to respond to any demand scenario. We do expect our customers to continue to progress their technology road maps across all segments, and KLA products are critical to those transitions. We expect investments to continue in this area at a normalized pace, independent of the macro environment. For our more consumer-centric businesses, we have seen some weakness over the course of the March quarter. And while we are well positioned, we would expect some impact to these businesses compared to what we thought in early February. Finally, collaboration across global teams and partners on large-scale product development programs without direct in-person engagement is creating some execution challenges, and while early, could put pressure on release dates for new products expected over the next 12 months. To summarize, as we look ahead to the balance of the year, KLA continues to be well positioned to navigate the uncharted territory we find ourselves in. We derive our strength from our strong balance sheet and liquidity and comfort from not having any bond maturities until late in 2024. Our strong operating performance helps us prioritize critical investments across our technology portfolio and protects our margins while simultaneously generating strong and consistent free cash flow. Our market position has never been stronger. Despite the usual competitive noise, our share gain and improving process control intensity serve as validation that our products -- our portfolio of products and solutions are adding critical value to our customers' technology road map differentiation and their ability to yield these new technologies at production volumes. How we allocate capital has never been more important. You can be assured, we will continue to make smart capital allocation decisions, continue to invest in the important R&D to support our customers and new product launches, fuel our long-term growth strategy, maintain our ongoing dividend strategy and preserve our ability to be opportunistic with our buyback program to fully deploy the free cash flow of the company. Lastly, predictability and business model resiliency matter more now than ever. Our growing diversification, significant exposure to our customers' critical process technology transitions, our subscription-like service revenue stream and our focus on driving operating leverage are key attributes of our business model. We are confident we can continue to excel in managing these areas and position KLA for a brighter future. Before we begin the Q&A, just a reminder that KLA will participate in many virtual investor webcasted conferences this quarter. Please keep an eye out for notice of future event scheduling, and we look forward to seeing some of you virtually later in the quarter. With that, I'll turn the call over to Kevin Kessel to begin the Q&A. -------------------------------------------------------------------------------- Kevin M. Kessel, KLA Corporation - VP of IR [5] -------------------------------------------------------------------------------- Thank you, Bren. (Operator Instructions) Okay. Charlie, we're ready for the first question. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Your first question comes from the line of Harlan Sur with JPMorgan. -------------------------------------------------------------------------------- Harlan Sur, JP Morgan Chase & Co, Research Division - Senior Analyst [2] -------------------------------------------------------------------------------- Solid job on the quarterly execution. On the increased revenue guidance range for June, $280 million range versus $200 million for last quarter. You called out the COVID-19-related impact. It sounds like it's still more operational, logistics, personnel support. But I wondered if there's some part of that, that is demand related, potential pushing out of the business by customers either in your process control or Orbotech businesses on the potential for maybe some second half macro demand weakness. I'm just trying to figure out where the bias is skewed towards the larger range. -------------------------------------------------------------------------------- Bren D. Higgins, KLA Corporation - Executive VP & CFO [3] -------------------------------------------------------------------------------- Harlan, it's Bren. I hope you're doing well. So the bias is more around just the operational constraints. As I mentioned in the prepared remarks, we are having to support the tools with our local teams, particularly around installations, and that can take a little bit longer. And as a result of that and the ability to handle escalations faster and so on, we've essentially put in some incremental risk -- or tried to account for some incremental risk in our overall execution. Clearly, the environment is very fluid by country. And so we have to be sensitive to navigate through that. There is a component of supply chain. But as I said in the prepared remarks, we feel very good about our supply chain positioning. So it's mostly more about the general uncertainty and what we're having to do operationally to deal with it. -------------------------------------------------------------------------------- Harlan Sur, JP Morgan Chase & Co, Research Division - Senior Analyst [4] -------------------------------------------------------------------------------- Okay. Great. And then congrats on the 300 basis points of share gain in process control last year. I think now you're about 5x larger than your nearest competitor. On your commentary on the sustainability of process control intensity for this year, where are you seeing the biggest sustainable increases of this intensity? Is it China and NAND? Or is it just across all of the sectors given rising complexity? And then it also looks like your large logic customer is executing and finally getting back to sort of this 2-, 2.5-year cadence on node migrations after a long pause and much reuse. How does this also change your longer-term view on intensity for the team? -------------------------------------------------------------------------------- Richard P. Wallace, KLA Corporation - President, CEO & Executive Director [5] -------------------------------------------------------------------------------- Yes. Great question, Harlan. I think that the biggest difference we see right now, I think, in the process control intensity is the realization that EUV and those in support of it really need more capability. And specifically, we've talked about Gen5 in the past being used for print check, and that's definitely driving adoption. In addition, we believe the sustainability is there based on new products that we introduced that we outlined in our Investor Day. And so it's really not one particular customer. It's really now we have Gen5 is really humming at every major customer and is growing in adoption. And maybe in the last couple of years, we went from being in the development phase to people actually expanding their footprint with that. But we also saw strength in laser scanning. And so I think even optical metrology, we mentioned in there, it's really pretty broad-based across the portfolio. And I do think in times like this, even if customers are going to back off capacity, which could happen later in the year, they're going to continue to invest in capabilities that allow them to bring out new technologies, which is always favorable for process control. -------------------------------------------------------------------------------- Operator [6] -------------------------------------------------------------------------------- Your next question comes from the line of John Pitzer with Crédit Suisse. -------------------------------------------------------------------------------- John William Pitzer, Crédit Suisse AG, Research Division - MD, Global Technology Strategist and Global Technology Sector Head [7] -------------------------------------------------------------------------------- Glad to hear that everyone is doing well. I guess, Bren, I want to go back to just the COVID-19 impact and whether or not you have a number that quantifies the March quarter impact. And was it an impact to shipments and rev rec or just rev rec? And I guess is the broader range for June just a realization that you're expecting the impact to be larger in the June quarter than the March quarter? -------------------------------------------------------------------------------- Bren D. Higgins, KLA Corporation - Executive VP & CFO [8] -------------------------------------------------------------------------------- So John, on March, when we go back to when we gave guidance, we certainly felt that there would be some potential risk of pushout related to tools that were going into the affected areas in China, particularly in Hubei province. And so we tried to account for that in our guidance and expected that independent of the COVID effect that our guidance would have been higher. As the quarter went along, our issues were more -- we were able to ship a little bit into that area, which was positive for us. And we had some other puts and takes across the business. The challenge we had is with quarantine periods and travel restrictions, it is taking us some time to line up resources. And if you don't have the resources for installations, customers will want to readjust some of those delivery dates. So we did have some of those issues in the quarter, and it was more shipment based than it was revenue. So as we look at the June quarter, though, I mean, it's a pretty challenging situation out there. And as I said in the demand -- or in the prepared remarks, I mean, demand from customers has been pretty consistent. We think that carries forward in June. And so we widened the risk to be prudent -- or the range to be prudent just given the circumstances we think we're now facing. But we did the same exercise tool by tool, and we feel pretty comfortable with the guidance. But just overall, we're learning things every day about what's going on, and so we wanted to account for some of this uncertainty that's out there. -------------------------------------------------------------------------------- John William Pitzer, Crédit Suisse AG, Research Division - MD, Global Technology Strategist and Global Technology Sector Head [9] -------------------------------------------------------------------------------- And then just as my follow-up, despite the wider range for June, I think we all appreciate the fact that you're trying to give us a guidance number out there with all the puts and takes, even more so, Bren, your commentary about the full year. But I'm kind of curious. I think 90 days ago, you would have characterized calendar year '20 as sort of an above trend year for growth for you guys, trend being sort of the 7% to 9% that underpins your 2023 target model. Relative to the puts and takes you talked about in your prepared comments, should we think about 2020 as being more of a trend growth year? Or is there not enough visibility to even say that? -------------------------------------------------------------------------------- Bren D. Higgins, KLA Corporation - Executive VP & CFO [10] -------------------------------------------------------------------------------- Well, I think the visibility question is challenging. We have peer companies that couldn't even guide the quarter given some of the challenges. So when we look at it, I mean, it's hard to believe that we wouldn't see some impact into the second half from the environment we're now operating in. We do expect, based on our current view, that it will be a growth year for the company. But as I look at it today, again, a lot of moving parts. But I would say that it would probably likely be below that trend line. Not much below, but I think it'd be below. -------------------------------------------------------------------------------- Operator [11] -------------------------------------------------------------------------------- Your next question comes from the line of Krish Sankar with Cowen and Company. -------------------------------------------------------------------------------- Krish Sankar, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [12] -------------------------------------------------------------------------------- I had 2 of them. First one, either Bren or Rick, can you give a little bit color on the sales into China that you saw in March? What is the split between domestic and multinational and split between foundry and memory? And any kind of color into the June quarter on geography would be helpful. Then I have a follow-on. -------------------------------------------------------------------------------- Bren D. Higgins, KLA Corporation - Executive VP & CFO [13] -------------------------------------------------------------------------------- Yes. Krish, I don't think I have it by -- broken down that way. As we said, revenue mix for China was 25%. I don't -- it's something we'll have to get back to you at this point for the March quarter. -------------------------------------------------------------------------------- Krish Sankar, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [14] -------------------------------------------------------------------------------- Got it. Got it. That's fine. And then the second question I had was, when you look into your June guidance, when you look at the numbers, it looks like foundry is probably slowing a bit and memory is coming back. I understand no one has a crystal ball at this point, but would you expect the trend to continue to the calendar second half? Or is it more a function of just customer CapEx spending in Q2? -------------------------------------------------------------------------------- Bren D. Higgins, KLA Corporation - Executive VP & CFO [15] -------------------------------------------------------------------------------- Yes. I mean I think our base assumption is that we'll see stronger memory environment in the second half. Obviously, that's part that might be -- part of the business that might be more impacted by what happens in the overall economy. But our base assumption is that we would see memory recover in the second half or be stronger in the second half. Now foundry seems -- the foundry and logic seems to be pretty consistent over the course of the year, at least at this point. So I wouldn't say it's weighted to 1 half or the other right now. -------------------------------------------------------------------------------- Operator [16] -------------------------------------------------------------------------------- Your next question comes from the line of C.J. Muse with Evercore. -------------------------------------------------------------------------------- Christopher James Muse, Evercore ISI Institutional Equities, Research Division - Senior MD, Head of Global Semiconductor Research & Senior Equity Research Analyst [17] -------------------------------------------------------------------------------- I guess first question, Bren, to go back to John's earlier question on COVID and the impact there. Can you share with us what kind of, I guess, impact to revenues you're embedding in the guide? Or should we take the midpoint as indicative of what you would do with or without indicating no supply chain issues? And then as part of the challenges around supply chain management and logistics, can you share with us what impact that might have on your cost structure as well? -------------------------------------------------------------------------------- Bren D. Higgins, KLA Corporation - Executive VP & CFO [18] -------------------------------------------------------------------------------- So C.J., at some point, it becomes a little challenging to be -- to speculate on with and without given the environment we're operating in today and the adjustments we've had to make. If I just go back a few months, I mean, I would think that our revenue would be $100 million higher at the midpoint from a guidance perspective for the quarter in a normalized environment. Now we're far from a normalized environment and don't know when we'll get back there. So most of our adjustments, though, are related to just our ability to cadence our resources to be able to support customers. As we said in the prepared remarks, for the year, demand is virtually unchanged. We have seen some impact in some of the -- with customers that are closer to some consumer markets. But generally, our customers, particularly our largest customers, are still very focused on executing their plans and we're maintaining the flexibility to be as flexible as we can to respond to them. So I don't feel like I have significant supply issues to be able to make that happen, and we're running the factories to be able to respond to that. So they want to be in the right position to respond to their customers, and so we're managing our supply chain and our factory resources to have the flexibility to do that. If the business were to fall off in a meaningful way, of course, we're carrying a lot more resources than the -- that business level would suggest. And so there would be some adjustment required in terms of just the overall cost impact of that. But right now, that's how we're running the business, and we'll adjust as we go. We've done this before. -------------------------------------------------------------------------------- Christopher James Muse, Evercore ISI Institutional Equities, Research Division - Senior MD, Head of Global Semiconductor Research & Senior Equity Research Analyst [19] -------------------------------------------------------------------------------- Very helpful. If I could follow up regarding the Department of Commerce ruling, and I know it's still very early, and I'm sure you're waiting clarity on how broad or narrow the rules will be pursued. But if you think about what's been written to date, the major ruling is for manufacturing in the U.S. And considering you do make tools and assemble tools offshore, is your first interpretation that you will not be impacted in terms of shipping into China based on kind of what you've read today? -------------------------------------------------------------------------------- Richard P. Wallace, KLA Corporation - President, CEO & Executive Director [20] -------------------------------------------------------------------------------- Sure, C.J. I think that, to your point, it's relatively new. And we're still unpacking it. And as we said, we're working to gain clarity. But our understanding at this point is this will impact the tools that are manufactured in the U.S., which are manufactured for us in California. We have 3 major manufacturing sites: Israel, Singapore and here. So there's a potential impact depending on the customer in our final understanding of the ruling that will impact tools that come out of California. But even that, based on the words we had and the comments we made, it's still unclear. And we're getting guidance on that and actually working through it. So we haven't been able to come up with more than that at this point. But we still -- as we look to the year, we feel -- as Bren said, we understand that risk and potential risk, and we feel good about the year. -------------------------------------------------------------------------------- Operator [21] -------------------------------------------------------------------------------- Your next question comes from the line of Vivek Arya with Bank of America Securities. -------------------------------------------------------------------------------- Vivek Arya, BofA Merrill Lynch, Research Division - Director [22] -------------------------------------------------------------------------------- So sticking with this China export control, and again, I appreciate that it's somewhat earlier in the process. But I think you mentioned you already restrict shipments for military end use. So I'm curious, what else do you need to do to satisfy these new requirements, right? Whether or not you ship the end product from the U.S. or from overseas, if according to you, you're not shipping something for military end use, what more do you need to do? Like what is the mechanical process, I mean, going and asking for a license if you are not shipping anything for a military end use already? -------------------------------------------------------------------------------- Richard P. Wallace, KLA Corporation - President, CEO & Executive Director [23] -------------------------------------------------------------------------------- So there's a couple of aspects of this as we understand it, but one of them is a rigorous process we're going through to make sure we understand the intent and the -- how to execute on this rule. And we're working with outside counsel, inside counsel to do that. And as we said, we already have some of the constraints. This was a broad policy, not simply about semiconductor equipment, and semiconductor equipment just happens to be included in this. So we will work through that process. But that is why we say that we already take steps to handle some of the questions that are being put forward, and we will continue to work through it. When we have more clarity -- and frankly, the rule is still -- there's still a period where further definition is happening until the end of June. So once we have more clarity, of course, we're going to share that. -------------------------------------------------------------------------------- Vivek Arya, BofA Merrill Lynch, Research Division - Director [24] -------------------------------------------------------------------------------- Got it. And for my follow-up, I'm curious, what have you seen from a demand perspective and just from any supply chain issues in the first few weeks of the quarter? Because just from the outside looking at it, it seems as if, right, there are expectations that second half would get better, that macro conditions could improve, that people are slowly starting to get back. That's why I'm curious, but is it fair to say that June is the trough for the year? Just what -- how would you characterize what you have seen for the first few weeks of the quarter from a demand and a supply perspective? -------------------------------------------------------------------------------- Richard P. Wallace, KLA Corporation - President, CEO & Executive Director [25] -------------------------------------------------------------------------------- So I think Bren -- this is Rick. Bren talked about the demand, but I'll give some color to it. I've had a number of conversations with customers. And I would say that everyone is continuing with their plan. The notable exception, as Bren mentioned, consumer facing and anybody that's dealing directly, for example, with automobile, I think that's an area where there's been constraint. But it's been compensated for by some of our other customers who actually see increase in demand driven by some of the work-from-home trends. So I think that in balance, we're seeing that. The supply chain actually got better in terms of some of the supply that we had in Asia, specifically China, where coming out of Chinese New Year, part of what we weren't sure about was the supply chain that we had in China, how effective they were going to be and how efficient. That's fully recovered, and we're back actually above the level of supply for some of those parts. And we've pretty definitely moved through the different opportunities for supply, and we feel very good about our ability to navigate that. As Bren said, it's not easy, but we're confident of our ability to do it. So we don't really see a reason to change it. So then what we're backing up to is what are the macro implications of the economic downturn and subsequent recovery. And since we don't have a way to really understand that long term because I don't think anybody really knows, we just model different scenarios for what that might look like. But we have no leading indicators right now of any real change in behavior. -------------------------------------------------------------------------------- Bren D. Higgins, KLA Corporation - Executive VP & CFO [26] -------------------------------------------------------------------------------- Yes. And just an additional point here is the internal forecast would suggest that the second half is stronger. I think the challenge we have to Rick's point is what ultimately happens with our customers' demand profile and what that means to supply. Now there are lead times with -- and so on, and those issues are things that customers have to contemplate as they think about how they're managing their capacity. But that's essentially where we're at. So we'll have to see how that plays out, what that ultimately means to them and then ultimately what that means to their demand for our products. We do have a certain amount of investment that happens in supporting technology road maps. Those are continuing on a normalized pace. And so we would expect that for products that are particularly focused on enabling technology transitions that those products would be more resilient than more capacity-centric products depending on one environment. But I'm not ready to call a trough here in the June quarter until we get better visibility about what ultimately thing -- how things will look in the September quarter is, I think, one of the challenges that we're facing here. We don't talk about it very much, but I think that the way we manage the supply chain is a competitive advantage for KLA. We talk about our operating model, and a lot of that has to do with how we manage supply chains, how we run our factories. We work with suppliers that provide very high end capability for us, and we engage very closely with them. We buy parts earlier. We commit earlier. So we're able to navigate through, certainly for key components, potential disruptions and working with them to make sure they're in a place to be able to support us in whatever environment we might end up in. We have the service business. It's very contract based. The products live a long time. So having extra parts from time to time is the least of my concerns generally as a CFO running this company. So I think that, that situation works for us. And with the extension of demand in terms of how it's affecting, how long products are living, we tend to work our way through the parts that we do have. So it slows down inventory turns, but it is fundamental to the operating model of the company. And I think the margin profile reflects that. -------------------------------------------------------------------------------- Operator [27] -------------------------------------------------------------------------------- Your next question comes from the line of Timothy Arcuri with UBS. -------------------------------------------------------------------------------- Timothy Michael Arcuri, UBS Investment Bank, Research Division - MD and Head of Semiconductors & Semiconductor Equipment [28] -------------------------------------------------------------------------------- Bren, I also wanted to ask on the Commerce changes. It certainly looks like you have some cover on the direct product rule for the stuff being made outside the U.S. when you sort of look through the CCL list and at the ECCN categorizations. But the language around end use and end user seems to be very ambiguous. And I guess -- we obviously hope to get clear interpretation from Commerce before June 29. But the experts that I've talked to indicate that it's sort of purposely ambiguous. So I guess the question is, if you have to apply when in doubt, would you agree that the risk might be more on the foundry/logic side and less on the memory side? -------------------------------------------------------------------------------- Bren D. Higgins, KLA Corporation - Executive VP & CFO [29] -------------------------------------------------------------------------------- Tim, I think it's too early to speculate. I mean I -- yes, it's too early to speculate. -------------------------------------------------------------------------------- Timothy Michael Arcuri, UBS Investment Bank, Research Division - MD and Head of Semiconductors & Semiconductor Equipment [30] -------------------------------------------------------------------------------- Okay. And then, Bren, I guess, a follow-up on the impairment. So 15% of the acquired goodwill was written down. So can you just quantify, did that have any impact on the sort of long-term growth prospect for the Orbotech businesses? Or do you think that even though that was written down that long-term numbers that were put into the model at Analyst Day still hold? -------------------------------------------------------------------------------- Bren D. Higgins, KLA Corporation - Executive VP & CFO [31] -------------------------------------------------------------------------------- Yes. Tim, as you know, these are asset-light businesses. And so there's a fair amount of purchase consideration that shows up in goodwill. And what that reflects really is when you do valuations, as we all know, and you do a discounted cash flow that -- as cash flows push out and what discount rates you use have an effect on ultimate value. Certainly, in the near term, in some of those businesses, if you look at the specialty semiconductor business, being impacted by trade last year and some of the automotive dynamics into this year, that did affect some of our near-term focus -- forecast. So over the long run -- and then I think the second part is around flat panel where we saw -- we expected to see more recovery in flat panel CapEx into '20, and we're not seeing that. So there were some modest adjustments related to COVID and some of these issues that I mentioned and then just the general uncertainty in terms of how that affects an ultimate discount rate that you use. But to be clear, we do feel very comfortable with the growth rate trajectory that we presented at Investor Day back in September. And it's really a function of the things I talked about, just given the uncertainty of the current environment that we're operating in. -------------------------------------------------------------------------------- Operator [32] -------------------------------------------------------------------------------- Your next question comes from the line of Quinn Bolton with Needham & Company. -------------------------------------------------------------------------------- Quinn Bolton, Needham & Company, LLC, Research Division - Senior Analyst [33] -------------------------------------------------------------------------------- Bren, just wanted to ask on the gross margin. You guided 59% to 61%. Wondering if there's any impact from spacing requirements and social distancing on that manufacturing capacity or your cycle times within your own facilities. -------------------------------------------------------------------------------- Bren D. Higgins, KLA Corporation - Executive VP & CFO [34] -------------------------------------------------------------------------------- Yes. That's a good question. I mean in our facilities, most of our builds are bay builds, and so we're able to comply with some of the social distancing challenges there pretty effectively. So it's not really related to that. I think from a cycle time point of view, we're executing generally in line with our plans. Quarter-to-quarter, it's really more around just some of the mix of products that we expect to see this quarter versus last quarter. And the service profitability levels were particularly strong last quarter, I think, with some of the delays in just activity out there and so how that affected our cost structure. So I would expect some of those costs to come back as we move into this quarter. So overall, it was a little bit richer than we expected in the March quarter, and we're seeing some adjustment into the June quarter. But the long-term view at the current sort of expected revenue levels is to see gross margins between 60% and 61%, with the biggest factor being mostly around the mix of products. -------------------------------------------------------------------------------- Quinn Bolton, Needham & Company, LLC, Research Division - Senior Analyst [35] -------------------------------------------------------------------------------- Great. And then a follow-up question. You mentioned the 3 main manufacturing sites: Israel, Singapore and U.S. Wondering if you have redundant capacity to build the same tool at multiple sites. And if you don't have that capacity today, does the export control action and just the COVID outbreak make you rethink whether having redundant manufacturing capacity is -- would be part of a long-term 3- to 5-year plan? -------------------------------------------------------------------------------- Richard P. Wallace, KLA Corporation - President, CEO & Executive Director [36] -------------------------------------------------------------------------------- Yes, it's a great question. We have definitely the ability -- the similarity in what we do in these different sites allow us some flexibility, which over time has caused us actually to transition more to the sites out of the U.S. in both the case of Israel and also in Singapore. So that's something that we're always evaluating in terms of our ability and flexibility to manufacture different products in different locations based on customer needs, supply chain and our staffing. So of course, that's a lever and an option that we have as we look out and think about where the best place to be positioned is. -------------------------------------------------------------------------------- Operator [37] -------------------------------------------------------------------------------- Your next question comes from the line of Joe Quatrochi with Wells Fargo. -------------------------------------------------------------------------------- Joseph Michael Quatrochi, Wells Fargo Securities, LLC, Research Division - Associate Analyst [38] -------------------------------------------------------------------------------- Yes. Looks like you're thinking about a nice sequential increase in implied memory revenue for the June quarter. I was wondering, can you help us understand the drivers of that? Is it more of a market recovery? Or are there also some kind of embedded assumptions around new product shipments that you've launched recently? -------------------------------------------------------------------------------- Richard P. Wallace, KLA Corporation - President, CEO & Executive Director [39] -------------------------------------------------------------------------------- It's funny, I went back and I looked at -- if you looked at the March quarter revenue levels for memory, it was probably our lowest since about 2016. So in some ways, there was a bit of a trough there in terms of just the overall business level for memory. So we do see a pickup. The pickup is pretty balanced across the -- it's about 50-50 overall of what we expect in the quarter from flash and DRAM. So I wouldn't say it's related to anything in particular other than just we're seeing a stronger revenue profile this quarter versus a very low one last quarter. -------------------------------------------------------------------------------- Joseph Michael Quatrochi, Wells Fargo Securities, LLC, Research Division - Associate Analyst [40] -------------------------------------------------------------------------------- Okay. And then just on the record backlog, when we think about your comments around the long-term target for growth rate for 2020, how do we think about the backlog covering that relative to prior years? -------------------------------------------------------------------------------- Richard P. Wallace, KLA Corporation - President, CEO & Executive Director [41] -------------------------------------------------------------------------------- Well, we have record backlog today. So we had a very strong order quarter, record backlog this quarter. So that certainly gives us some comfort. I mean customer demand is there. We have the backlog. We have the parts. So as I said, we're in a position where we can deliver to any scenario. So we feel pretty confident about that. But we really just have to see where our customers are ultimately in what they do. But certainly, the backlog does give us confidence really across the businesses to -- with a certain expectation. But again, depending on what happens with their business, then sometimes they do push dates and things like that. But given the lead time for our products, the backlog gives us some comfort about what we see in front of us over the next 6 months or so. -------------------------------------------------------------------------------- Bren D. Higgins, KLA Corporation - Executive VP & CFO [42] -------------------------------------------------------------------------------- I think, John, as you think about the longer term, the 2023 plan, the biggest variable in that from our standpoint is really what happens in the macro economy because when we look at all the trends that we've said, the new products, the market share, the secular dynamics, everything is really working the way we had envisioned. And we're executing -- and we feel really great about that. What we can't forecast at this point is how deep and how long any kind of economic disruption is. So that's the thing that will really ultimately determine the pace of the overall industry. I do think that there are aspects of the semiconductor and semiconductor equipment industry that are actually going to do quite well. So unlike general recessions we've had or the '08, '09, there's aspects of what we do that are enabling people to actually continue to function through this time period. But ultimately, if there's macroeconomic shock, it's going to -- depending on how long it goes, it will alter those plans in terms of the length of the time it will take to come out of this. And that's the thing we're in no position to forecast. -------------------------------------------------------------------------------- Operator [43] -------------------------------------------------------------------------------- Ladies and gentlemen, that concludes our Q&A session for today. I'll now turn the call over back to the presenters. -------------------------------------------------------------------------------- Richard P. Wallace, KLA Corporation - President, CEO & Executive Director [44] -------------------------------------------------------------------------------- Thank you very much, and we appreciate everybody tuning in today. We look forward to chatting with you going forward. This ends the call. -------------------------------------------------------------------------------- Operator [45] -------------------------------------------------------------------------------- Ladies and gentlemen, this concludes today's conference call. Thank you for participating, you may now disconnect.