Semiconductor manufacturing equipment maker KLA Corporation (NASDAQ:KLAC) reported Q4 CY2024 results exceeding the market’s revenue expectations, with sales up 23.7% year on year to $3.08 billion. On top of that, next quarter’s revenue guidance ($3 billion at the midpoint) was surprisingly good and 3.8% above what analysts were expecting. Its non-GAAP profit of $8.20 per share was 5.7% above analysts’ consensus estimates.
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KLA Corporation (KLAC) Q4 CY2024 Highlights:
- Revenue: $3.08 billion vs analyst estimates of $2.94 billion (23.7% year-on-year growth, 4.5% beat)
- Adjusted EPS: $8.20 vs analyst estimates of $7.76 (5.7% beat)
- Adjusted EBITDA: $1.21 billion vs analyst estimates of $1.31 billion (39.4% margin, 7.7% miss)
- Revenue Guidance for Q1 CY2025 is $3 billion at the midpoint, above analyst estimates of $2.89 billion
- Adjusted EPS guidance for Q1 CY2025 is $8.05 at the midpoint, above analyst estimates of $7.47
- Operating Margin: 34%, up from 29.5% in the same quarter last year
- Free Cash Flow Margin: 24.6%, up from 21.9% in the same quarter last year
- Inventory Days Outstanding: 227, down from 247 in the previous quarter
- Market Capitalization: $95.37 billion
"KLA's December quarter results were above the midpoint of our guidance ranges despite navigating through the business impact of new U.S. government export controls released late in the quarter. These results supported a strong finish to calendar 2024 for KLA highlighted by relative revenue growth outperformance and strong profitability," said Rick Wallace, President and CEO, KLA Corporation.
Company Overview
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.
Semiconductor Manufacturing
The semiconductor industry is driven by demand for advanced electronic products like smartphones, PCs, servers, and data storage. The need for technologies like artificial intelligence, 5G networks, and smart cars is also creating the next wave of growth for the industry. Keeping up with this dynamism requires new tools that can design, fabricate, and test chips at ever smaller sizes and more complex architectures, creating a dire need for semiconductor capital manufacturing equipment.
Sales Growth
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, KLA Corporation grew its sales at an excellent 15.5% compounded annual growth rate. Its growth surpassed the average semiconductor company and shows its offerings resonate with customers, a great starting point for our analysis. 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).
Long-term growth is the most important, but short-term results matter for semiconductors because the rapid pace of technological innovation (Moore's Law) could make yesterday's hit product obsolete today. KLA Corporation’s recent history shows its demand slowed significantly as its annualized revenue growth of 1.7% over the last two years is well below its five-year trend. 
This quarter, KLA Corporation reported robust year-on-year revenue growth of 23.7%, and its $3.08 billion of revenue topped Wall Street estimates by 4.5%. Company management is currently guiding for a 27.1% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 7.5% over the next 12 months. While this projection indicates its newer products and services will spur better top-line performance, it is still below average for the sector. At least the company is tracking well in other measures of financial health.
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Product Demand & Outstanding Inventory
Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’ capital intensity 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.
This quarter, KLA Corporation’s DIO came in at 227, which is 4 days above its five-year average. These numbers suggest that despite the recent decrease, the company’s inventory levels are higher than what we’ve seen in the past.
Key Takeaways from KLA Corporation’s Q4 Results
We were impressed by KLA Corporation’s strong improvement in inventory levels. We were also glad its revenue, EPS, and quarterly guidance for both metrics outperformed Wall Street’s estimates. Zooming out, we think this quarter featured some important positives. The stock traded up 4.4% to $776 immediately after reporting.
KLA Corporation had an encouraging quarter, but one earnings result doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.