KLA-Tencor Corporation (KLAC)

F4Q10 (Qtr End 06/30/10) Earnings Call Transcript

July 29, 2010 5:00 pm ET


Ed Lockwood – Senior Director, IR

Rick Wallace – President and CEO

Mark Dentinger – EVP and CFO


C.J. Muse – Barclays Capital

Jim Covello – Goldman Sachs

Tim Arcuri – Citi

Krish Sankar – Bank of America

Stephen Chin – UBS

Casey [ph] – RBC Capital Markets

Peter Kim – Deutsche Bank

Jagadish Iyer – Arete Research

Atif Malik – Morgan Stanley



Ladies and gentlemen, thank you for joining. I would now like to turn the call over to Mr. Ed Lockwood, with KLA-Tencor Corporation. You may begin your conference.

Ed Lockwood

Thank you, operator. Good afternoon, everyone and welcome to KLA-Tencor's fourth quarter fiscal year 2010 earnings conference call. Joining me on our call today are Rick Wallace, our President and Chief Executive Officer; and Mark Dentinger, our Chief Financial Officer. We are here today to discuss fourth quarter results for the period ended June 30, 2010. We released these results this afternoon at 1:15 p.m. Pacific Time. If you haven't seen the release, you can find it on our web site at www.kla-tencor.com or call 408-875-3600 to request a copy.

A simulcast of this call will be available on demand following its completion on the investor section of our website. There you will also find a calendar of future investor events, presentations and conferences, as well as links to KLA-Tencor’s SEC filings including our Annual Report on Form 10-K for the year ended June 30, 2009 and our subsequently filed 10-Q reports.

In those filings you will find descriptions of risk factors that could impact our future results. As you know, our future results are subject to risks. Any forward-looking statements including those we make on this call today are subject to those risks, and KLA-Tencor cannot guarantee those forward-looking statements will come true.

Our actual results may differ significantly from those projected in our forward-looking results. More information regarding factors that could cause those differences is contained in the filings we make with the SEC from time to time, including our fiscal year 2009 Form 10-K and our current reports on Form 8-K.

We assume no obligation and do not intend to update those forward-looking statements, however, you could be reassured that any updates we do provide will be broadly disseminated and available over the web.

With that, I will turn the call over to Rick.

Rick Wallace

Thanks, Ed. Thank you all for joining our call today. Given that we provided the comprehensive strategic update just two weeks ago at SEMICON West, I'll focus my commentary today on summary highlights of our results and provide guidance for September. Then Mark will follow with a more detailed review of the financials.

Today's numbers demonstrate the KLA-Tencor's market leadership is as strong as ever and the company is executing at a high level delivering exceptional growth in financial performance against the backdrop of a very robust industry environment.

Bookings for the June quarter were $956 million, an increase of 47% compared with March and above our original range of guidance.

During the quarter we saw broad based strength in each of our major end markets, geographies and products including record quarterly bookings and our Reticle and wafer inspection businesses.

Revenues in June grew 17% to $559 million coming in above the midpoint of the range of guidance and non-GAAP earnings per share was $0.70 in Q4, significantly above the original guidance range of $0.54 to $0.62 per share.

The growth we are experiencing in the marketplace today is driven in part by strong adoption of profit control in our core semiconductor markets and increase in contribution from new markets and a healthy services business.

And underlying our strong profitability performance in the June quarter our non-GAAP gross margins of 60% and non-GAAP operating margins of 31%, both record results for KLA-Tencor illustrating continued success in our operations excellence focus.

The healthy profitability and cash generating power enabled our business helped fuel a high level of investment in R&D to enable our customer focus and growth strategies while also providing resources for the company to deliver significant cash returns in the form of dividends and share repurchases.

To that end, KLA-Tencor generated approximately $448 million in cash flow from operations in fiscal year 2010. And we were active in returning value to shareholders, repurchasing over $136 million in common stock and paying cash dividends of approximately $102 million in the year. Additionally, on July 13th we announced that our Board of Directors has authorized an increase in the level of the company's quarterly dividends, $0.25 per share.

This move reflects management and the Board's confidence in our long term outlook for the company as well as the ongoing efforts to reward our shareholders for their continued investment.

Looking ahead, end market demand is expected to remain strong as our customers' businesses continue to grow at a healthy pace.

Average third-party forecasts show semiconductor revenues projected to be up 28% in calendar 2010 with growth also forecasted for 2011. Plants are running today at high utilization levels and our customers are rapidly migrating to new more complex technologies and investing to improve yields and lower costs. All while operating under tremendous competitive and time to market pressures.

In this environment the outlook for profit, controlled investment remains excellent.

KLA-Tencor's market leadership and customer focus, the breadth of our technologies and our ongoing operations excellence position the company to capitalize on this robust industry growth and to continue to deliver strong financial performance as we progress through the cycle. Of course, the driving force behind our success is our strong support and collaboration of our customers and business partners as well as the great execution of our worldwide workforce.

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