KLA(KLAC) - 2025 Q4 - Annual Report

Part I Business KLA is a leading supplier of process control equipment for the semiconductor industry, operating through three segments with significant international sales - KLA operates through three reportable segments: Semiconductor Process Control, Specialty Semiconductor Process, and PCB and Component Inspection[19][20][21] - The services business accounted for approximately 22% of total revenue in fiscal 2025, providing a recurring revenue stream[18] - International revenues accounted for approximately 89% of total revenues in fiscal 2025, highlighting the company's global reach, particularly in Asia[39] - The company's order backlog decreased from $9.83 billion as of June 30, 2024, to $7.86 billion as of June 30, 2025, as supply chain constraints eased and lead times normalized[47] - As of June 30, 2025, KLA had approximately 15,000 regular full-time employees, with 49% located in Asia, 32% in the U.S., and 19% in Europe and the Middle East[66] Major Customers (over 10% of total revenues) | Fiscal Year | Major Customers | | :--- | :--- | | 2025 | Taiwan Semiconductor Manufacturing Company Limited | | 2024 | Taiwan Semiconductor Manufacturing Company Limited | | 2023 | Taiwan Semiconductor Manufacturing Company Limited, Samsung Electronics Co., Ltd. | Risk Factors The company faces significant risks from macroeconomic conditions, international trade regulations targeting China, cybersecurity threats, and a concentrated customer base - A majority of annual revenues are derived from outside the U.S., exposing the company to risks from global trade issues, political instability, and foreign currency fluctuations[92][93] - Evolving BIS rules from the U.S. Department of Commerce significantly restrict the company's ability to sell products and provide services to certain customers in China, which could harm business and cash flows[95][96][99] - Revenue from customers in China was 33% of total revenue in fiscal 2025, a decrease from 43% in 2024, reflecting the impact of trade restrictions and market normalization[100] - The company is exposed to cybersecurity threats affecting its own systems as well as those of its customers and suppliers, which could lead to operational disruptions and financial damages[122][125] - The customer base is highly concentrated, with orders from a limited number of manufacturers accounting for a substantial portion of sales[156][159] - As of June 30, 2025, the company had $5.95 billion in outstanding senior, unsecured long-term notes, creating a leveraged capital structure[177] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[201] Cybersecurity KLA maintains a cybersecurity risk management program based on the NIST Framework, with oversight from the Audit Committee and management led by the CISO - The company's cybersecurity risk management process is designed and assessed based on the National Institute of Standards and Technology (NIST) Cybersecurity Framework[202] - The Board's Audit Committee has been delegated oversight of cybersecurity risks and receives quarterly reports from management[204][206] - The management team responsible for cybersecurity includes the Chief Legal Officer and a CISO with over 20 years of experience in information technology[208] Properties As of June 30, 2025, KLA owned or leased 7.1 million square feet of space globally, with its headquarters in Milpitas, California Owned and Leased Properties (as of June 30, 2025) | (Square Feet) | U.S. | Other Countries | Total | | :--- | :--- | :--- | :--- | | Owned | 1,134,127 | 3,147,113 | 4,281,240 | | Leased | 555,043 | 2,292,335 | 2,847,378 | | Total | 1,689,170 | 5,439,448 | 7,128,618 | Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 15 in the Consolidated Financial Statements - Details on legal proceedings are incorporated by reference from Note 15 of the financial statements[212] Mine Safety Disclosures This item is not applicable to the company - Not applicable[213] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock trades on NASDAQ, and capital is returned to shareholders via dividends and a stock repurchase program with $5.03 billion remaining - A quarterly cash dividend of $1.90 per share was declared on August 7, 2025[217] - As of June 30, 2025, $5.03 billion remained available for repurchases under the company's stock repurchase program, which was increased by $5.00 billion in Q4 fiscal 2025[221] Stock Repurchases (Q4 Fiscal 2025) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2025 | 169,783 | $643.29 | | May 2025 | 272,564 | $732.50 | | June 2025 | 134,467 | $867.44 | | Total | 576,814 | | Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2025 revenue grew 24% to $12.16 billion with improved margins, driven by strong AI-related demand, while the company maintained strong liquidity and shareholder returns Executive Summary Fiscal 2025 saw strong revenue growth to $12.16 billion driven by advanced semiconductor demand, though the revenue share from China decreased due to export controls - The services business, largely from recurring contracts, accounted for approximately 22% of total revenues in fiscal 2025[225] - Revenue from Chinese customers decreased to 33% of total revenue in FY2025 from 43% in FY2024, while revenue from Taiwan increased, driven by leading-edge demand[227][260] Key Consolidated Financial Information (Fiscal Years 2023-2025) | (in thousands, except per share) | 2025 | 2024 | 2023 | | :--- | :--- | :--- | :--- | | Total revenues | $12,156,162 | $9,812,247 | $10,496,056 | | Gross margin | 60.9% | 60.0% | 59.8% | | Net income attributable to KLA | $4,061,643 | $2,761,896 | $3,387,277 | | Diluted net income per share | $30.37 | $20.28 | $24.15 | Critical Accounting Estimates Key accounting estimates involve revenue recognition, inventory, and income taxes, with a significant goodwill impairment charge of $239.1 million recorded in fiscal 2025 - A goodwill impairment charge of $230.4 million and a purchased intangible assets impairment charge of $8.7 million were recorded in the second quarter of fiscal 2025 for the PCB and Component Inspection segment[239][244] - Inventory valuation requires significant judgment based on assumptions about future demand, market conditions, and technological changes[236] - The calculation of the effective tax rate involves complex judgments regarding tax laws, uncertain tax positions, and the realization of deferred tax assets[247][249] Results of Operations Fiscal 2025 revenues increased 24% to $12.16 billion, driven by strong product and service growth, with an expanded gross margin and a lower effective tax rate - R&D expenses increased by 6% to $1.36 billion in FY2025, primarily due to higher employee-related expenses and project material costs[262][263] - SG&A expenses increased by 6% to $1.03 billion in FY2025, driven by higher facility, employee, depreciation, and promotional expenses[265] - The effective tax rate for fiscal 2025 was 12.5%, down from 13.4% in fiscal 2024, primarily due to the tax impact of non-deductible goodwill impairment charges in both years[276] Revenues and Gross Margin (FY25 vs. FY24) | (in thousands) | FY2025 | FY2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Product Revenue | $9,472,854 | $7,482,679 | $1,990,175 | 27% | | Service Revenue | $2,683,308 | $2,329,568 | $353,740 | 15% | | Total Revenues | $12,156,162 | $9,812,247 | $2,343,915 | 24% | | Gross Margin | 60.9% | 60.0% | N/A | 0.9 ppt | Revenues by Segment (FY25 vs. FY24) | (in thousands) | FY2025 | FY2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Semiconductor Process Control | $10,947,359 | $8,733,556 | $2,213,803 | 25% | | Specialty Semiconductor Process | $587,107 | $528,701 | $58,406 | 11% | | PCB and Component Inspection | $621,721 | $552,491 | $69,230 | 13% | Liquidity and Capital Resources The company maintained a strong liquidity position with $4.49 billion in cash, generated $4.08 billion in operating cash flow, and returned $3.05 billion to shareholders - In fiscal 2025, the company repurchased $2.15 billion of its common stock and paid $904.6 million in dividends[286][287] - Total debt was $5.95 billion as of June 30, 2025, with maturities ranging from fiscal 2029 to 2063[289] - On July 3, 2025, the company replaced its revolving credit facility with a new one, maintaining borrowing capacity of $1.50 billion with a maturity of July 3, 2030[290] Key Liquidity and Cash Flow Data (Fiscal Year Ended June 30) | (in thousands) | 2025 | 2024 | | :--- | :--- | :--- | | Total cash, cash equivalents and marketable securities | $4,494,623 | $4,503,995 | | Net cash provided by operating activities | $4,081,903 | $3,308,575 | | Net cash used in investing activities | ($202,481) | ($1,476,985) | | Net cash used in financing activities | ($3,785,687) | ($1,776,017) | Quantitative and Qualitative Disclosures About Market Risk KLA is exposed to interest rate, market price, and foreign currency risks, which it manages in part through derivative financial instruments - A hypothetical 100 basis point increase in market interest rates would cause the fair value of the company's $2.05 billion fixed income portfolio to decline by $21.5 million[302] - The company's investment in a publicly traded equity security, valued at $24.0 million, is subject to market price risk[305] - The company uses net forward and option contracts to hedge foreign currency exposures, with contracts to purchase $50.9 million in foreign currency as of June 30, 2025[307] Financial Statements and Supplementary Data This section presents KLA's audited consolidated financial statements and supplementary data for the fiscal years ended June 30, 2025, 2024, and 2023 Consolidated Financial Statements The consolidated financial statements provide a comprehensive overview of KLA's financial health, showing total assets of $16.07 billion as of June 30, 2025 Consolidated Balance Sheet Summary (as of June 30) | (in thousands) | 2025 | 2024 | | :--- | :--- | :--- | | Total current assets | $10,698,789 | $10,031,144 | | Total assets | $16,067,926 | $15,433,566 | | Total current liabilities | $4,085,795 | $4,660,774 | | Total liabilities | $11,375,473 | $12,065,238 | | Total stockholders' equity | $4,692,453 | $3,368,328 | Consolidated Statement of Operations Summary (Year Ended June 30) | (in thousands) | 2025 | 2024 | 2023 | | :--- | :--- | :--- | :--- | | Total revenues | $12,156,162 | $9,812,247 | $10,496,056 | | Income before income taxes | $4,644,448 | $3,190,032 | $3,789,190 | | Net income attributable to KLA | $4,061,643 | $2,761,896 | $3,387,277 | | Diluted net income per share | $30.37 | $20.28 | $24.15 | Notes to Consolidated Financial Statements The notes provide detailed disclosures on accounting policies, revenue, debt, and taxes, including a $239.1 million goodwill impairment charge in FY2025 - As of June 30, 2025, the company had $7.86 billion of remaining performance obligations (RPO), representing future revenue from existing contracts[391] - In Q2 FY2025, the company recorded a goodwill impairment charge of $230.4 million in the PCB and Component Inspection segment[422] - Total debt as of June 30, 2025, was $5.95 billion in senior notes, with maturities ranging from 2029 to 2063[437][438] - The effective income tax rate was 12.5% in FY2025, compared to 13.4% in FY2024 and 10.6% in FY2023[492] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[562] Controls and Procedures Management concluded that the company's disclosure controls, procedures, and internal control over financial reporting were effective as of June 30, 2025 - The CEO and CFO concluded that as of June 30, 2025, the company's disclosure controls and procedures were effective at a reasonable assurance level[563] - Management concluded that the company's internal control over financial reporting was effective as of June 30, 2025[566] - No changes in internal control over financial reporting occurred during the fourth quarter of fiscal 2025 that have materially affected, or are reasonably likely to materially affect, internal controls[569] Other Information Three executive officers adopted or amended Rule 10b5-1 trading plans during the fourth quarter of fiscal 2025 Officer Rule 10b5-1 Trading Plans Adopted in Q4 FY2025 | Name of Officer | Title | Date of Adoption | Max Shares to be Sold | | :--- | :--- | :--- | :--- | | Bren Higgins | EVP and CFO | May 5, 2025 | 18,070 | | Ahmad Khan | President, Semiconductor Products | May 30, 2025 | 23,163 | | Brian Lorig | EVP, KLA Global Services | May 2, 2025 | 12,482 | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[574] Part III Directors, Executive Officers, Corporate Governance, Compensation, and Other Matters Information for Items 10 through 14 is incorporated by reference from the company's 2025 Proxy Statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the company's 2025 Proxy Statement[576][577][578] Part IV Exhibits and Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the Annual Report on Form 10-K - This section contains a list of all financial statements, schedules, and exhibits filed with the Form 10-K[582] Form 10-K Summary The company has not provided a summary under this item - None[587]