KLAC KLA Corporation 10-Q 2026-09-30 section summaries

KLA Corporation — Q1 FY2027 (three months ended September 30, 2026)

Revenue and earnings grew substantially year over year. Revenue increased 28.9%, with growth in both products and services; operating income rose faster than revenue, and net income increased 38.1%. The June 2026 ten-for-one stock split is reflected retroactively in share and per-share figures.

Consolidated results

The effective tax rate was 15.1%, versus 14.4%, remaining below the U.S. statutory rate primarily because of earnings in lower-tax jurisdictions and the Foreign-Derived Deduction Eligible Income deduction. The 2025 OBBBA and international minimum-tax changes had no material effect on the quarter.

Segment and revenue-category results

Segment profit is before income taxes and excludes interest expense, other income, restructuring, foreign-exchange effects and other corporate expenses. Reconciliation to consolidated pretax income includes unallocated amounts of $15.327 million versus $2.055 million, interest expense of $67.927 million versus $71.075 million, and other income of $30.339 million versus $43.374 million.

China remained the largest ship-to market, contributing $1.4257 billion (34.5% of revenue), compared with $1.2672 billion (39.5%). Taiwan contributed $1.0227 billion versus $793.608 million; North America $618.029 million versus $297.907 million; Korea $497.169 million versus $299.373 million; rest of Asia $218.233 million versus $105.467 million; Europe and Israel $194.331 million versus $150.976 million; and Japan $159.780 million versus $295.209 million. Two customers represented approximately 21% and 13% of current-quarter revenue, compared with three customers at 15%, 11% and 10% in the prior-year quarter.

Cash flow, capital returns and shares

Repurchases totaled 4.914 million shares at a cost of $942.918 million, versus 6.225 million shares costing $564.400 million. The $7.00 billion authorization increase approved in Q3 FY2026 left $8.81 billion available at quarter-end. The program has no expiration date and may be suspended; repurchases support capital returns and partly offset equity-plan and employee stock purchase plan dilution. Inventory and accounts receivable used $433.839 million and $179.196 million of operating cash, respectively.

Balance sheet and liquidity

Purchased intangibles comprised existing technology of $149.889 million, customer relationships of $31.833 million, trade name/trademark of $0.046 million, order backlog and other of $5.783 million, and in-process R&D of $25.047 million. Goodwill’s quarter increase was a $0.925 million foreign-currency adjustment; no impairment indicators were identified for goodwill or purchased intangibles. Q1 amortization expense was $43.3 million, versus $49.3 million.

Senior Notes principal was $5.950 billion at both dates; carrying value included fair-value swap adjustments of $(165.645) million at September 30, versus $(0.584) million at June 30. Notes carry fixed coupons of 3.30%–5.65% and mature from 2029 through 2062. Swaps convert the rate exposure on $2.00 billion principal of 2022 notes to floating SOFR-based rates. The $1.50 billion unsecured revolver, maturing in 2030, was undrawn; KLA complied with debt covenants, including its 3.25:1.00 maximum net leverage covenant.

Other commitments and risks

Marketable securities had $3.200454 billion amortized cost and $3.175952 billion fair value, versus $3.214496 billion and $3.205794 billion, respectively, at June 30. Gross unrealized losses increased to $25.026 million from $10.184 million, primarily with higher interest rates and bond yields; management believes it can realize full value at maturity.

Purchase commitments were approximately $8.87 billion, mostly due within 12 months, with some contracts carrying cancellation penalties. Guarantees were available up to $180.6 million, of which $147.2 million had been issued, primarily for customs and operating requirements. Legal proceedings include commercial, intellectual-property, customer and employment matters; outcomes are uncertain and liabilities could exceed reserves.

Derivative fair values shifted to $180.949 million of net liabilities after permitted offsetting, from $5.048 million of net liabilities at June 30, primarily reflecting higher interest-rate-contract liabilities. Cash-flow FX hedge losses recognized in OCI were $12.984 million versus gains of $3.300 million; net-investment FX hedge OCI losses were $4.044 million versus gains of $19.325 million. Foreign-currency hedge maturities extended up to approximately 22 months. Outstanding RSUs had $1.63 billion intrinsic value, with $658.1 million of unrecognized compensation expected to be recognized over a weighted-average 1.5 years.

KLAC Q1 FY27 results

For the three months ended September 30, 2026, revenue accelerated from both the prior quarter and year-earlier quarter. Higher demand across leading-edge memory, foundry/logic and advanced packaging—supported by data-center investment and AI/HPC adoption—drove growth. Gross margin also expanded, while higher operating expenses and a higher effective tax rate tempered earnings growth.

Higher volume supported gross-margin expansion; sequentially, volume contributed 0.6 percentage points and mix 0.5 points, partly offset by 0.9 points of higher other service and manufacturing costs. R&D rose year over year partly due to $31.4M of additional employee-related costs. SG&A increases reflected headcount and compensation, facility costs, and fixed-asset disposal losses. The sequential decline in other income included an $18.5M fair-value loss on an equity investment and a prior-quarter $11.6M tax-reserve release. The higher tax rate reflected reduced stock-compensation tax benefits and OECD Pillar Two UTPR tax; KLAC accrued $20.2M of UTPR expense in Q1 and expects $94.5M for FY27, potentially reversible if a relevant Side-by-Side Safe Harbor applies.

Revenue mix

Product revenue was $3.2855B, versus $2.8372B in Q4 FY26 and $2.4650B in Q1 FY26. Services revenue was approximately 20% of the quarter’s total, benefiting from a larger installed base and ongoing demand for maintenance and support. Specialty Semiconductor Process’s sequential decline reflected shipment timing rather than a material change in underlying activity; higher service revenue partly offset lower system shipments.

Segment revenue excludes corporate allocations and foreign-currency effects. Product-category and segment reporting provide distinct views of revenue.

Ship-to regions

China represented 34.5% of revenue, Taiwan 24.7%, and North America 14.9%. China growth was principally from mature-node foundry/logic demand; North American growth reflected leading-edge foundry/logic and memory, while Korea growth reflected memory investment, including high-bandwidth memory. Taiwan’s sequential decline reflected timing of leading-edge foundry/logic expansion.

Cash flow, liquidity and capital allocation

Higher operating cash flow mainly reflected approximately $940M more customer and other collections as shipments increased, lower income-tax payments ($58M) and other-tax payments ($50M), partly offset by $595M more accounts-payable payments and $70M more employee payments. Lower investing outflow chiefly reflected $332.0M less net purchases of available-for-sale securities; capital expenditures increased $98.9M year over year. Financing outflow rose with share repurchases, RSU tax withholding and dividends.

Cash, cash equivalents and marketable securities were $4.7412B at September 30, 2026, down from $4.9024B at June 30; $785.7M was held by foreign subsidiaries or branches, with potential repatriation taxes provided for. Working capital was $8.02B, down $58.5M from $8.08B. Together with $1.50B of available revolving-credit capacity, management expects liquidity and operating cash generation to cover anticipated needs for at least 12 months.

KLAC repurchased $935.8M of shares and paid $305.1M in dividends during Q1; $8.81B remained under its repurchase authorization. The quarterly dividend was $0.230 per share, up from $0.190 in Q1 FY26. Senior Notes principal totaled $5.95B, due FY2029–FY2063. No borrowings were outstanding on the $1.50B revolving facility, expandable by $500M; net leverage was 0.49x against a 3.25x maximum, and covenants were met. Credit ratings were Fitch A, Moody’s A2 and S&P A−. KLAC reported no material off-balance-sheet arrangements.

Outlook and risks

Management expects further revenue growth as it expands manufacturing capacity to meet demand. Its opportunity is supported by EUV adoption in logic and DRAM, including high-bandwidth memory, increasing complexity at leading-edge nodes such as 2-nanometer, advanced packaging, and mature-node investment. Results remain exposed to customer capital-spending concentration, shipment timing and semiconductor cyclicality, as well as supply and cost pressures. Tariffs, export controls and other geopolitical restrictions could limit sales or services, particularly in China; additional risks include competition and rapid technological change, international operations, IP disputes, cybersecurity and third-party disruptions, and debt-related exposures. Management reported no material changes to critical accounting estimates since FY26 year-end.

KLAC reported no material changes in its exposure to interest-rate, marketable-equity-security, or foreign-currency risks since its FY2026 Form 10-K. For a full description of these market risks, the filing refers readers to Part II, Item 7A of that Form 10-K.

Management, including the CEO and CFO, concluded that KLAC’s disclosure controls and procedures were effective at a reasonable-assurance level as of the end of the reporting period.

In fiscal Q1 2027, the company implemented an upgraded ERP system, which modified certain business processes and related internal controls over financial reporting. Management tested the implementation and continues to monitor the system and controls. No other quarterly changes were identified that materially affected, or were reasonably likely to materially affect, internal control over financial reporting.

KLAC cautions that controls provide reasonable, not absolute, assurance and may not prevent or detect every error or instance of fraud. Their effectiveness can be limited by factors including human error, collusion, management override, and changing conditions.

Risk factors

KLAC reports no material changes to the risk factors in its FY2026 Form 10-K, except for a newly listed risk concerning protection of its technology and proprietary rights.

KLAC’s competitive position depends in part on patents, trademarks, copyrights, trade secrets, licensed technology, and technology-development collaborations. Patent applications can be costly and lengthy and may not provide meaningful protection. Competitors could develop similar or superior technologies or design around KLAC’s patents. Termination of, or disputes or delays in, collaborations with customers or suppliers could also impair research and development and operations.

The company’s future success depends substantially on the technical competence and creativity of its personnel and its ability to innovate ahead of competitors. Confidentiality agreements and other safeguards may be breached or inadequate, and available remedies may be limited. Internal or external parties, including state actors, may misappropriate or replicate KLAC’s technology. Advances in artificial intelligence and machine learning could make unauthorized use more difficult to detect and allow competitors to benefit from KLAC’s research and development. Additional risks include former employees taking confidential information to customers, suppliers, or competitors, and weaker intellectual-property protections in some jurisdictions where KLAC operates.

For the three months ended September 30, 2026, no director or officer adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement. The section reports no financial metrics, business developments, or other material changes.