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KLA's (KLAC) Q2 Earnings & Revenues Top Estimates, Rise Y/Y

KLA Corporation KLAC reported second-quarter fiscal 2023 earnings per share of $7.38, beating the Zacks Consensus Estimate by 4.2%. The figure was up 32% from the year-ago fiscal quarter’s level. Also, it was within the management’s guidance of $6.30 to $7.70.

Revenues increased 26.8% on a year-over-year basis to $2.984 billion, surpassing the Zacks Consensus Estimate of $2.83 billion. The reported figure also exceeded the management’s guidance of $2.65 million to $2.95 million.

Strong momentum across the Semiconductor Process Control and Specialty Semiconductor Process segments drove the quarterly results.

Further, robust performance delivered by wafer inspection, patterning and services businesses contributed well.

However, weakness in the PCB, Display and Component Inspection segments was a concern.

KLA Corporation Price, Consensus and EPS Surprise


KLA Corporation Price, Consensus and EPS Surprise
KLA Corporation Price, Consensus and EPS Surprise

KLA Corporation price-consensus-eps-surprise-chart | KLA Corporation Quote


Top-Line Details

Products revenues (accounting for 82.6% of total revenues) increased by 29.9% year over year to $2.46 billion.

Services revenues (17.4% of total revenues) were up 14% from the year-ago quarter’s reading to $520.5 million. Growth in Services revenues is attributed to the growing installed base, strengthening momentum across long-term service agreements and solid prospects in legacy nodes.

In terms of reportable segments, Semiconductor Process Control revenues (89% of total revenues) increased by 29% year-over-year to $2.66 billion, driven by strength in Foundry & Logic. Foundry & Logic accounted for 77%, while Memory constituted about 23% of semiconductor process control systems’ revenues. Specialty Semiconductor Process revenues (5%) were $158 million, up 40% year over year. Strong customer demand in both Semiconductor Process Control and Specialty Semiconductor Process segments was a tailwind.

PCB, Display and Component Inspection revenues (6%) declined 10% from the year-ago quarter’s actuals to $170 million. The decline was due to a sluggish consumer electronics market.

Regarding revenue breakdown by major products, Wafer Inspection, Patterning systems, including metrology and reticle inspection and Specialty Semiconductor Process accounted for 42%, 29% and 5% of KLA’s total revenues for the fiscal second quarter and grew 14%, 69% and 39% year over year, respectively. PCB, Display and Component Inspection accounted for 4%, while Service represented 17% and Other — reported in the Semiconductor Process Control segment — constituted 3% of the quarterly revenues.

Notably, Services and Other revenues were up 14% and 63% year-over-year, while PCB, Display and Component Inspection were down 11% in terms of major product group.

In terms of regional breakdown of revenues, China, Taiwan and Korea accounted for 23%, 26% and 20% of the total revenues for the fiscal second quarter, respectively. Further, North America, Japan, Europe and South East Asia accounted for 12%, 9%, 6% and 4%, respectively.

Operating Details

Non-GAAP gross margin contracted 210 basis points (bps) from the prior-year quarter’s level to 61%. This was attributed to increasing non-cash inventory reserves.

Research and development (R&D) expenses increased by 25.6% year-over-year to $332.8 million. Selling, general and administrative (SG&A) expenses also increased by 13.9% year-over-year to $243.1 million. As a percentage of sales, R&D expenses contracted 20 bps year over year to 11.1%, while SG&A expenses contracted 100 bps from the year-ago figure to 8.1%.

For the reported quarter, non-GAAP operating margin was 42.4%, contracting 100 bps year over year.

Balance Sheet

As of Dec 31, 2022, cash, cash equivalents and marketable securities totaled $2.87 billion compared with $2.95 billion on Sep 30, 2022.

Long-term debt at the end of fiscal second-quarter was $6.1 billion compared with $6.3 billion in the previous quarter.

Cash flow from operating activities was $688.3 million for the reported quarter, down from $1.01 billion in the prior quarter. Free cash flow was $594.6 million for the fiscal second quarter.

During the fiscal second quarter, KLAC paid out $184.2 million as dividends and repurchased $355 million worth shares.

Third-Quarter Fiscal 2023 Guidance

For third-quarter fiscal 2023, revenues are expected between $2.2 billion and $2.5 billion. The Zacks Consensus Estimate for revenues is pegged at $2.53 billion.

KLA expects non-GAAP EPS within $4.52-$5.92. The Zacks Consensus Estimate for non-GAAP EPS is pegged at $5.83.

Management expects non-GAAP gross margin in the range of 60.5-62.5%.

Zacks Rank & Stocks to Consider

Currently, KLA carries a Zacks Rank #3 (Buy).

Some better-ranked stocks in the broader Zacks Computer & Technology sector are Agilent Technologies A, Arista Networks ANET and Asure Software ASUR. All three stocks carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Agilent has gained 10.5% in the past year. A’s long-term earnings growth rate is currently projected at 10%.

Arista Networks has lost 5.7% in the past year. The long-term earnings growth rate for ANET is currently projected at 17.5%.

Asure Software has gained 35.8% in the past year. The long-term earnings growth rate for ASUR is currently projected at 23%.

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