Kla Corp 10-Q for FY2022 Q1

Kla Corp (KLAC)

10-Q 2021-10-28 For: 2021-09-30

Added on April 02, 2026

About this 10-Q

Kla Corp filed this 10-Q on October 28, 2021, covering the quarter ended September 30, 2021 (FY2022 Q1).

Headline figures

Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $2.08B; up 35.4% from $1.54B a year earlier
Net income: $1.07B; up 154.0% from net income of $420.57M a year earlier
Diluted EPS: $6.96; up 158.7% from $2.69 a year earlier

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Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value per share	KLAC	The Nasdaq Stock Market, LLC
		The Nasdaq Global Select Market


		Page Number

PART I	FINANCIAL INFORMATION
Item 1	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of September 30, 2021 and June 30, 2021	3
	Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2021 and 2020	4
	Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended September 30, 2021 and 2020	5
	Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended September 30, 2021 and 2020	6
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2021 and 2020	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3	Quantitative and Qualitative Disclosures About Market Risk	47
Item 4	Controls and Procedures	48

PART II	OTHER INFORMATION
Item 1	Legal Proceedings	49
Item 1A	Risk Factors	49
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	67
Item 3	Defaults Upon Senior Securities	67
Item 4	Mine Safety Disclosures	67
Item 5	Other Information	67
Item 6	Exhibits	68

SIGNATURES		69


(In thousands)	September 30, 2021		June 30, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	1,509,564	$	1,434,610
Marketable securities	1,115,249		1,059,912
Accounts receivable, net	1,463,974		1,305,479
Inventories	1,715,339		1,575,380
Other current assets	340,546		320,867
Total current assets	6,144,672		5,696,248
Land, property and equipment, net	698,547		663,027
Goodwill	2,041,338		2,011,172
Deferred income taxes	665,672		270,461
Purchased intangible assets, net	1,157,535		1,185,311
Other non-current assets	438,713		444,905
Total assets	$	11,146,477	$	10,271,124
LIABILITIES, NON-CONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	380,827	$	342,083
Deferred system revenue	319,846		295,192
Deferred service revenue	286,741		284,936
Short-term debt	20,000		20,000
Other current liabilities	1,515,596		1,161,016
Total current liabilities	2,523,010		2,103,227
Non-current liabilities:
Long-term debt	3,423,436		3,422,767
Deferred tax liabilities	625,540		650,623
Deferred service revenue	94,824		87,575
Other non-current liabilities	620,581		631,290
Total liabilities	7,287,391		6,895,482
Commitments and contingencies (Notes 9, 14 and 15)
Stockholders’ equity:
Common stock and capital in excess of par value	2,137,706		2,175,988
Retained earnings	1,801,268		1,277,123
Accumulated other comprehensive income (loss)	(78,044)		(75,557)
Total KLA stockholders’ equity	3,860,930		3,377,554
Non-controlling interest in consolidated subsidiaries	(1,844)		(1,912)
Total stockholders’ equity	3,859,086		3,375,642
Total liabilities and stockholders’ equity	$	11,146,477	$	10,271,124


	Three Months Ended September 30,
(In thousands, except per share amounts)	2021		2020
Revenues:
Product	$	1,629,888	$	1,145,495
Service	453,950		393,125
Total revenues	2,083,838		1,538,620
Costs and expenses:
Costs of revenues	813,624		620,562
Research and development	258,153		219,038
Selling, general and administrative	193,261		172,631

Interest expense	38,312		39,386

Other expense (income), net	14,140		3,197
Income before income taxes	766,348		483,806
Provision (benefit) for income taxes	(302,137)		63,664

Net income	1,068,485		420,142
Less: Net income (loss) attributable to non-controlling interest	68		(425)
Net income attributable to KLA	$	1,068,417	$	420,567
Net income per share attributable to KLA
Basic	$	7.01	$	2.71
Diluted	$	6.96	$	2.69
Weighted-average number of shares:
Basic	152,330		155,281
Diluted	153,410		156,442


	Three Months Ended September 30,
(In thousands)	2021		2020
Net income	$	1,068,485	$	420,142
Other comprehensive income (loss):
Currency translation adjustments:
Cumulative currency translation adjustments	(2,755)		5,440
Income tax (provision) benefit	317		(403)
Net change related to currency translation adjustments	(2,438)		5,037
Cash flow hedges:
Net unrealized gains (losses) arising during the period	852		(918)
Reclassification adjustments for net (gains) losses included in net income	(1,218)		(54)
Income tax (provision) benefit	(61)		208
Net change related to cash flow hedges	(427)		(764)
Net change related to unrecognized losses and transition obligations in connection with defined benefit plans	628		(3,119)
Available-for-sale securities:
Net unrealized gains (losses) arising during the period	(317)		(951)
Reclassification adjustments for net (gains) losses included in net income	(1)		(101)
Income tax benefit	68		226
Net change related to available-for-sale securities	(250)		(826)
Other comprehensive income (loss)	(2,487)		328
Less: Comprehensive income (loss) attributable to non-controlling interest	68		(425)
Total comprehensive income attributable to KLA	$	1,065,930	$	420,895


(Mark one)
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


KLA CORPORATION
(Exact name of registrant as specified in its charter)


	Common Stock and Capital in Excess of Par Value			Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total KLA Stockholders’ Equity		Non- Controlling Interest		Total Stockholders’ Equity
(In thousands, except per share amounts)	Shares	Amount
Balances as of June 30, 2021	152,776	$	2,175,988	$	1,277,123	$	(75,557)	$	3,377,554	$	(1,912)	$	3,375,642

Net income attributable to KLA	—	—		1,068,417		—		1,068,417		—		1,068,417




Net loss attributable to non-controlling interest	—	—		—		—		—		68		68
Other comprehensive income	—	—		—		(2,487)		(2,487)		—		(2,487)


Net issuance under employee stock plans	160	(46,532)		—		—		(46,532)		—		(46,532)
Repurchase of common stock	(1,190)	(16,966)		(382,711)		—		(399,677)		—		(399,677)
Cash dividends ($1.05 per share) and dividend equivalents declared	—	—		(161,561)		—		(161,561)		—		(161,561)

Stock-based compensation expense	—	25,216		—		—		25,216				25,216
Balances as of September 30, 2021	151,746	$	2,137,706	$	1,801,268	$	(78,044)	$	3,860,930	$	(1,844)	$	3,859,086


	As of		As of
(Dollar amounts in thousands)	September 30, 2021		June 30, 2021		$ Change		% Change
Accounts receivable, net	$	1,463,974	$	1,305,479	$	158,495	12	%
Contract assets	$	94,877	$	91,052	$	3,825	4	%
Contract liabilities	$	701,411	$	667,703	$	33,708	5	%


Level 1						Valuations based on quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.

Level 2						Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.

Level 3						Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.


			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Little or No Market Activity Inputs
As of September 30, 2021 (In thousands)	Total		(Level 1)		(Level 2)		(Level 3)
Assets
Cash equivalents:

Money market funds and other	$	690,579	$	690,579	$	—	$	—






Marketable securities:
Corporate debt securities	467,529		—		467,529		—
Municipal securities	70,892		—		70,892		—
Sovereign securities	5,049		—		5,049		—
U.S. Government agency securities	126,147		126,147		—		—
U.S. Treasury securities	247,764		241,815		5,949		—

Equity securities(1)	18,653		18,653		—		—

Total cash equivalents and marketable securities(2)	1,626,613		1,077,194		549,419		—
Other current assets:
Derivative assets	10,156		—		10,156		—
Other non-current assets:
Executive Deferred Savings Plan	262,042		199,933		62,109		—
Total financial assets(2)	$	1,898,811	$	1,277,127	$	621,684	$	—
Liabilities
Derivative liabilities	$	(4,348)	$	—	$	(4,348)	$	—
Deferred payments	(4,625)		—		—		(4,625)
Contingent consideration payable	(21,324)		—		—		(21,324)


Total financial liabilities	$	(30,297)	$	—	$	(4,348)	$	(25,949)


(In thousands)	Currency Translation Adjustments		Unrealized Gains (Losses) on Available-for-Sale Securities		Unrealized Gains (Losses) on Derivatives		Unrealized Gains (Losses) on Defined Benefit Plans		Total
Balance as of September 30, 2021	$	(35,001)	$	345	$	(20,519)	$	(22,869)	$	(78,044)

Balance as of June 30, 2021	$	(32,563)	$	595	$	(20,092)	$	(23,497)	$	(75,557)


AOCI Components	Location in the Condensed Consolidated Statements of Operations	Three Months Ended September 30,
		2021		2020
Unrealized gains (losses) on cash flow hedges from foreign exchange and interest rate contracts	Revenues	$	1,729	$	(217)
	Costs of revenues and operating expenses	(232)		550
	Interest expense	(279)		(279)

	Net gains (losses) reclassified from AOCI	$	1,218	$	54
Unrealized gains (losses) on available-for-sale securities	Other expense (income), net	$	1	$	101


As of September 30, 2021 (In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Corporate debt securities	$	467,126	$	516	$	(113)	$	467,529
Money market funds and other	690,579		—		—		690,579

Municipal securities	70,830		83		(21)		70,892
Sovereign securities	5,044		7		(2)		5,049
U.S. Government agency securities	126,088		103		(44)		126,147
U.S. Treasury securities	247,853		30		(119)		247,764
Equity securities(1)	3,211		15,442		—		18,653

Subtotal	1,610,731		16,181		(299)		1,626,613
Add: Time deposits(2)	250,553		—		—		250,553
Less: Cash equivalents	761,917		—		—		761,917
Marketable securities	$	1,099,367	$	16,181	$	(299)	$	1,115,249


FORM			10-Q


	Three Months Ended September 30,
(In thousands)	2021		2020
Cash flows from operating activities:
Net income	$	1,068,485	$	420,142
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization	84,824		80,066

Unrealized foreign exchange (gain) loss and other	15,639		(12,907)
Asset impairment charges	5,962		865
Stock-based compensation expense	25,216		26,992


Deferred income taxes	(427,970)		(14,967)
Changes in assets and liabilities, net of assets acquired and liabilities assumed in business acquisitions:
Accounts receivable	(180,354)		73,000
Inventories	(138,189)		(85,991)
Other assets	4,673		20,070
Accounts payable	41,868		(9,822)
Deferred system revenue	33,469		(82,633)
Deferred service revenue	4,912		(3,646)
Other liabilities	325,262		101,002
Net cash provided by operating activities	863,797		512,171
Cash flows from investing activities:

Proceeds from sale of assets	—		1,114

Business acquisitions, net of cash acquired	(37,986)		—
Capital expenditures	(68,955)		(55,925)
Purchases of available-for-sale securities	(264,000)		(231,821)
Proceeds from sale of available-for-sale securities	14,954		53,249
Proceeds from maturity of available-for-sale securities	178,414		95,835
Purchases of trading securities	(22,896)		(18,630)
Proceeds from sale of trading securities	25,163		21,244
Proceeds from other investments	—		614
Net cash used in investing activities	(175,306)		(134,320)
Cash flows from financing activities:


	As of		As of
(In thousands)	September 30, 2021		June 30, 2021
Accounts receivable, net:
Accounts receivable, gross	$	1,481,868	$	1,323,515
Allowance for credit losses	(17,894)		(18,036)
	$	1,463,974	$	1,305,479
Inventories:
Customer service parts	$	348,913	$	349,743
Raw materials	696,314		595,151
Work-in-process	426,855		453,432
Finished goods	243,257		177,054
	$	1,715,339	$	1,575,380
Other current assets:
Prepaid expenses	$	112,592	$	76,649
Contract assets	94,877		91,052
Deferred costs of revenues	69,865		59,953
Prepaid income and other taxes	23,893		68,847
Other current assets	39,319		24,366
	$	340,546	$	320,867
Land, property and equipment, net:
Land	$	67,862	$	67,862
Buildings and leasehold improvements	463,865		458,605
Machinery and equipment	745,877		743,710
Office furniture and fixtures	32,029		32,856
Construction-in-process	215,038		182,320
	1,524,671		1,485,353
Less: accumulated depreciation	(826,124)		(822,326)
	$	698,547	$	663,027
Other non-current assets:
Executive Deferred Savings Plan(1)	$	262,041	$	266,199

Operating lease right of use assets	99,616		102,883
Other non-current assets	77,056		75,823
	$	438,713	$	444,905
Other current liabilities:
Customer credits and advances	$	421,928	$	250,784
Compensation and benefits	421,677		305,445
Executive Deferred Savings Plan	264,740		268,028
Other accrued expenses	177,045		180,982


(In thousands)		As of September 30, 2021						As of June 30, 2021
Category	Range of Useful Lives (in years)	Gross Carrying Amount		Accumulated Amortization and Impairment		Net Amount		Gross Carrying Amount		Accumulated Amortization and Impairment		Net Amount
Existing technology	4-8	$	1,400,191	$	540,125	$	860,066	$	1,382,612	$	499,219	$	883,393
Customer relationships	4-9	313,317		139,919		173,398		305,817		131,386		174,431
Trade name / Trademark	4-7	117,983		57,100		60,883		117,383		53,493		63,890
Backlog and other	<1-9	51,836		50,242		1,594		50,403		49,962		441
Intangible assets subject to amortization		1,883,327		787,386		1,095,941		1,856,215		734,060		1,122,155
In-process research and development		67,656		6,062		61,594		63,256		100		63,156
Total		$	1,950,983	$	793,448	$	1,157,535	$	1,919,471	$	734,160	$	1,185,311


As of June 30, 2021 (In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Corporate debt securities	$	468,192	$	689	$	(135)	$	468,746
Money market funds and other	691,375		—		—		691,375
Municipal securities	70,155		106		(33)		70,228
Sovereign securities	3,045		7		—		3,052
U.S. Government agency securities	145,810		160		(49)		145,921
U.S. Treasury securities	233,052		129		(117)		233,064
Equity securities(1)	3,211		26,719		—		29,930

Subtotal	1,614,840		27,810		(334)		1,642,316
Add: Time deposits(2)	210,636		—		—		210,636
Less: Cash equivalents	793,040		—		—		793,040
Marketable securities	$	1,032,436	$	27,810	$	(334)	$	1,059,912


As of September 30, 2021 (In thousands)	Fair Value		Gross Unrealized Losses
Corporate debt securities	$	142,915	$	(113)
Sovereign securities	2,002		(2)
Municipal securities	16,727		(21)
U.S. Government agency securities	37,410		(44)
U.S. Treasury securities	172,839		(119)
Total	$	371,893	$	(299)


As of September 30, 2021 (In thousands)	Amortized Cost		Fair Value
Due within one year	$	547,941	$	563,772
Due after one year through three years	551,426		551,477
Total	$	1,099,367	$	1,115,249


(In thousands)	Wafer Inspection and Patterning		Global Service and Support (“GSS”)		Specialty Semiconductor Process		PCB and Display		Component Inspection		Total
Balance as of June 30, 2021	$	416,860	$	25,908	$	681,858	$	872,971	$	13,575	$	2,011,172
Acquired goodwill	30,164		—		—		—		—		30,164



Foreign currency adjustments	2		—		—		—		—		2
Balance as of September 30, 2021	$	447,026	$	25,908	$	681,858	$	872,971	$	13,575	$	2,041,338


Fiscal year ending June 30:	Amortization (In thousands)
2022 (remaining nine months)	$	160,633
2023	212,609
2024	209,615
2025	197,396
2026	182,071
2027 and thereafter	133,617
Total	$	1,095,941


	As of September 30, 2021				As of June 30, 2021
	Amount (In thousands)		Effective Interest Rate		Amount (In thousands)		Effective Interest Rate
Fixed-rate 4.650% Senior Notes due on November 1, 2024	$	1,250,000	4.682	%	$	1,250,000	4.682	%
Fixed-rate 5.650% Senior Notes due on November 1, 2034	250,000		5.670	%	250,000		5.670	%
Fixed-rate 4.100% Senior Notes due on March 15, 2029	800,000		4.159	%	800,000		4.159	%
Fixed-rate 5.000% Senior Notes due on March 15, 2049	400,000		5.047	%	400,000		5.047	%
Fixed-rate 3.300% Senior Notes due on March 1, 2050	750,000		3.302	%	750,000		3.302	%

Fixed-rate 3.590% Note Payable due on February 20, 2022	20,000		2.300	%	20,000		2.300	%
Total	3,470,000				3,470,000
Unamortized discount/premium, net	(7,023)				(7,168)
Unamortized debt issuance costs	(19,541)				(20,065)
Total	$	3,443,436			$	3,442,767
Reported as:
Short-term debt	$	20,000			$	20,000
Long-term debt	3,423,436				3,422,767
Total	$	3,443,436			$	3,442,767


	Three Months Ended September 30,
In thousands	2021		2020
Operating cash outflows from operating leases	$	9,485	$	9,370
Right of use assets obtained in exchange for new operating lease liabilities	$	5,955	$	6,844


(In thousands)			Available For Grant(1) (2)
Balance as of June 30, 2021			10,253

RSUs granted(3)			(436)
RSUs granted adjustment(4)			39
RSUs canceled			28

Balance as of September 30, 2021			9,884


	Shares(1) (In thousands)	Weighted-Average Grant Date Fair Value
Outstanding RSUs as of June 30, 2021(2)	1,710	$	133.76
Granted(3)	218	$	353.71
Granted adjustments	(19)	$	118.47


Vested and released	(160)	$	125.29
Withheld for taxes	(133)	$	125.29
Forfeited	(16)	$	105.45
Outstanding RSUs as of September 30, 2021(2)	1,600	$	165.75


	Three Months Ended September 30,
(In thousands, except for weighted-average grant date fair value)	2021		2020
Weighted-average grant date fair value per unit	$	353.71	$	201.95

Grant date fair value of vested RSUs	$	36,740	$	27,302
Tax benefits realized by us in connection with vested and released RSUs	$	9,008	$	6,737


	Asset Derivatives					Liability Derivatives
	Balance Sheet	As of		As of		Balance Sheet	As of		As of
	Location	September 30, 2021		June 30, 2021		Location	September 30, 2021		June 30, 2021
(In thousands)		Fair Value					Fair Value
Derivatives designated as hedging instruments

Foreign exchange contracts	Other current assets	$	4,104	$	3,940	Other current liabilities	$	(346)	$	272
Total derivatives designated as hedging instruments		4,104		3,940			(346)		272
Derivatives not designated as hedging instruments
Foreign exchange contracts	Other current assets	6,052		4,312		Other current liabilities	(4,002)		2,535
Total derivatives not designated as hedging instruments		6,052		4,312			(4,002)		2,535
Total derivatives		$	10,156	$	8,252		$	(4,348)	$	2,807


As of September 30, 2021							Gross Amounts of Derivatives Not Offset in the Condensed Consolidated Balance Sheets
Description	Gross Amounts of Derivatives		Gross Amounts of Derivatives Offset in the Condensed Consolidated Balance Sheets		Net Amount of Derivatives Presented in the Condensed Consolidated Balance Sheets		Financial Instruments		Cash Collateral Received		Net Amount
Derivatives - Assets	$	10,156	$	—	$	10,156	$	(3,522)	$	—	$	6,634
Derivatives - Liabilities	$	(4,348)	$	—	$	(4,348)	$	3,522	$	—	$	(826)


(In thousands, except net income per share)	Three Months Ended
	September 30, 2021			June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020
Total revenues	$	2,083,838		$	1,925,471		$	1,803,773		$	1,650,870		$	1,538,620
Costs of revenues	$	813,624		$	772,241		$	709,629		$	669,733		$	620,562
Gross margin	61		%	60		%	61		%	59		%	60		%
Net income attributable to KLA(1)	$	1,068,417		$	632,978		$	567,496		$	457,251		$	420,567


Diluted net income per share attributable to KLA(2)	$	6.96		$	4.10		$	3.66		$	2.94		$	2.69


	Three Months Ended September 30,						Q1 FY22 vs. Q1 FY21
(Dollar amounts in thousands)	2021			2020
Revenues:
Product	$	1,629,888		$	1,145,495		$	484,393	42	%
Service	453,950			393,125			60,825		15	%
Total revenues	$	2,083,838		$	1,538,620		$	545,218	35	%
Costs of revenues	$	813,624		$	620,562		$	193,062	31	%
Gross margin	61.0		%	59.7		%


			Gross Margin Percentage
			Three Months Ended
September 30, 2020			59.7%
Revenue volume of products and services			2.6%
Mix of products and services sold			(0.2)%

Manufacturing labor, overhead and efficiencies			(0.3)%
Other service and manufacturing costs			(0.8)%

September 30, 2021			61.0%


Rating Agency			Rating
Fitch			BBB+
Moody’s			A2
Standard & Poor’s			BBB+


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs(1)	Approximate Dollar Value that May Yet Be Purchased Under the Plans or Programs(1)
July 1, 2021 to July 31, 2021	202,449	$	311.12	202,449	$	2,030,016,137
August 1, 2021 to August 31, 2021	619,188	$	334.63	619,188	$	1,822,819,927
September 1, 2021 to September 30, 2021	368,774	$	351.15	368,774	$	1,693,324,545
Total	1,190,411	$	335.75	1,190,411