KLA Corporation (NASDAQ:KLAC) Exceeds Q1 Expectations, Provides Optimistic Guidance For Next Quarter

Kayode Omotosho /
2022/10/26 4:14 pm EDT

Maker of equipment for semiconductor manufacturing, KLA Corporation (NASDAQ:KLAC) reported Q1 FY2023 results that beat analyst expectations, with revenue up 30.7% year on year to $2.72 billion. On top of that, guidance for next quarter's revenue was surprisingly good, being $2.8 billion at the midpoint, 9.02% above what analysts were expecting. KLA Corporation made a GAAP profit of $1.02 billion, down on its profit of $1.06 billion, in the same quarter last year.

Is now the time to buy KLA Corporation? Access our full analysis of the earnings results here, it's free.

KLA Corporation (KLAC) Q1 FY2023 Highlights:

  • Revenue: $2.72 billion vs analyst estimates of $2.59 billion (4.95% beat)
  • EPS (non-GAAP): $7.06 vs analyst estimates of $6.23 (13.3% beat)
  • Revenue guidance for Q2 2023 is $2.8 billion at the midpoint, above analyst estimates of $2.56 billion
  • Free cash flow of $927.1 million, up 24.2% from previous quarter
  • Inventory Days Outstanding: 210, up from 200 previous quarter
  • Gross Margin (GAAP): 61.7%, up from 60.9% same quarter last year

"KLA's September quarter results were at the high-end or above the midpoint of our guidance ranges for revenue, non-GAAP gross margin and GAAP and non-GAAP EPS, exhibiting the consistency we are known for and the unique value KLA delivers to our customers," commented Rick Wallace, president and chief executive officer of KLA Corporation.

Formed by the 1997 merger of the two leading semiconductor yield management companies, KLA Corporation (NASDAQ:KLAC) is the leading supplier of equipment used to measure and inspect semiconductor chips.

The semiconductor industry is driven by demand for advanced electronic products like smartphones, PCs, servers and data storage. The growth of data and technologies like artificial intelligence, 5G networks and smart cars are also creating a next wave of growth for the industry. To keep up with ever changing customer needs requires new tools that can design, fabricate and test at ever smaller sizes and more complex architectures, and that is driving the demand for semiconductor capital manufacturing equipment.

Sales Growth

KLA Corporation's revenue growth over the last three years has been strong, averaging 26.8% annually. And as you can see below, last year has been especially strong, with quarterly revenue growing from $2.08 billion to $2.72 billion. Semiconductors are a cyclical industry and long-term investors should be prepared for periods of high growth, followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

KLA Corporation Total Revenue

This was a good quarter for KLA Corporation as revenues grew 30.7%, topping analyst estimates by 4.95%.

The company is guiding to growth of 19% YoY next quarter, while analyst consensus sees 5.18% declines over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise the company may have to downsize production.

KLA Corporation Inventory Days Outstanding

This quarter, KLA Corporation’s inventory days came in at 210, 8 days above the five year average, suggesting that that inventory has grown to higher levels than what we used to see in the past.

Key Takeaways from KLA Corporation's Q1 Results

Sporting a market capitalization of $43.2 billion, more than $2.95 billion in cash and with positive free cash flow over the last twelve months, we're confident that KLA Corporation has the resources it needs to pursue a high growth business strategy.

We were impressed by how strongly KLA Corporation outperformed analysts’ earnings expectations this quarter. And we were also glad that the revenue guidance for the next quarter also exceeded analysts' expectations. On the other hand, there was an increase in inventory levels. Overall, we think this was still a really good quarter, that should leave shareholders feeling very positive. The company is up 1.61% on the results and currently trades at $311.73 per share.

Should you invest in KLA Corporation right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.