Yep. Okay. Excellent. All right. Good afternoon, everyone. Thank you for joining us for this session. I'm Vivek Arya from Bank of America Semiconductor Semicap Equipment Research Team. Really delighted to have the team from KLA join us, Bren Higgins, Chief Financial Officer. As usual, I'll go through my fireside questions, but please feel free to raise your hand if you would like to bring something up. Really welcome to you, Bren. Really glad that you could join us. Yeah, Vivek, good to see you. Thanks for having me. You as well. Maybe as a start, Bren, just give us a lay of the land. How are you seeing the demand environment versus what you thought at the start of the year, right? There has just been a lot of macro noise over the last few months, and I am wondering how your demand, right, along the different food groups, how that has evolved. Yeah, you know, it's a great question. There has been noise, but at the same time, we really haven't seen much of a change. Overall, our customers have been very committed. If you look at what they're investing in and what's driving our business today, you can understand why. Certainly, at the leading edge, we're happy to have a return of growth at the leading edge after a couple of years where, you know, things were more legacy-centric. Certainly at the leading edge, a lot of investment at the two-nanometer node. I think we're pretty well positioned. At the two-nanometer node, we're seeing higher levels of intensity for KLA, KLA's share of market at the two-nanometer node, higher than three-nanometer. As a customer has high designs, a large number of designs, more than they had at three-nanometer at a similar state. Advanced design rules, changes in architecture, which drives different defect challenges and process control challenges. Anytime you have an architecture change, it tends to be very good for process control. If you go back to FinFET, we were approaching 8% of WFE then and were in that same neighborhood today as we move to a gate all-around architecture. Large die is a big deal for high-performance compute. And if you just think about large die and what it means to yield with a similar number, if you have a set number of defects and you have large die, your yield is impacted pretty significantly. We have, we'll call it, you know, 20 die on a wafer versus 100 die on a wafer with the same number of particles. So large die that are very valuable to our customers. And so the defect challenges, advanced design rules, and then the value of the actual chip, very good for process control. Most of the investment that's happening in DRAM is high bandwidth memory focus. High bandwidth memory chips are larger than DRAM chips. That's a consumer of capacity for the company. There's less redundancy in that chip. You have higher reliability requirements because you're stacking multiple ones together. You have a logic circuitry that, as you do the base die to program these high bandwidth memory chips that then feed all the data into the GPU or the custom silicon. That is all a nice driver for the business as it relates to DRAM. I'd say the intensity of DRAM is also higher, particularly as it relates to high bandwidth memory. The advanced packaging, as you integrate the logic device with the high bandwidth memory, has also been a nice driver for our business. We talked at earnings about $850 million of opportunity in 2025, up from about $500 million across the company, about 70% of that in our process control business. A lot of momentum, both in terms of the intensity, as the processing requirements have changed in terms of heterogeneous integration and what that is doing for process control intensity, but also significant share momentum as well. I think that trend continues. It is interesting if you look at the advanced packaging market overall, it is $9 billion-$10 billion of investment today. You go back four or five years ago, it was $3 billion-$4 billion. It has grown meaningfully in support of high-performance compute markets. And as the technology has become more complex, it's a market that has moved towards higher value solutions, solutions where we can differentiate, we can leverage a lot of what we've done in the front end to meet the customer requirements there. That is strong for the business. Our service business continues to operate strongly. We've been impacted a little bit by some of the restrictions that have happened in China that have limited access to fabs. Over the long run, our service business growth correlates pretty well with semiconductor revenue growth. In the short run, if you lose access to a fab, it does have a nearer-term impact. Despite that, I think our service business still grows low double digits in 2025. Overall, if you look at just the drivers of revenue, we feel very good about the ability of the company to outperform relative to the market. We have had a nice trajectory over the last few years in terms of our share of WFE growing. I think you will see a continuation of that as we move through 2025. You know, service is functioning well. The P&L is operating consistent with our expectations. Gross margins, we guided at 63%. Adjusted our 2025 outlook for gross margins to in the mid-60% from 62% plus or minus, reflecting some of the, I think, sustainable strength in the margin profile as we go forward. Our operating income target of incremental operating margin of 40-50%. We are performing in excess of that in terms of how things lay out for 2025. I think the company's well positioned from a share point of view. This market is moving to us, we think, in a lot of ways that we couldn't design a better set of applications as what's happening with high-performance compute for KLA and the relevancy of KLA. We think it benefits KLA uniquely, and we think it's constructive as we look at the next several years of opportunity. Got it. Excellent. Maybe, Bren, just one or two China-related questions, and then we'll go to some of the longer-term drivers of your business. First of all, from a China perspective, you know, I know that, you know, whether it's KLA or your peers, you've all been kind of on either side of 30% or so exposure. You think that business is now predictable, right? There's enough visibility for the rest of the year. I realize geopolitics is an ever-evolving environment, but, you know, if there is no big change to restrictions, is that still, you know, is that a fairly predictable business for you over the next several quarters? Look, as we laid out at earnings, we talked about China for 2025 versus 2024. 2024 was over 40%. 2025, I think it comes down to about 30% plus or minus overall for the business. I think what we've seen so far has been pretty consistent with that. Given our lead times and how we manage our slot plans around customers, particularly if it's a new customer, you know, where we have flexibility, we always want to go after whatever business is out there, and we try to be as flexible as we can. Typically with customers that are newer to the company or aren't as strategic, let's say, as some of our leading-edge customers, they tend to communicate and get into the queue and get slots solidified pretty quickly. As I look at next year, I do not think that, or the rest of 2025, it looks, I think, fairly predictable. If there is an opportunity out there, I always consider different demand scenarios in terms of extra opportunity. We do not want to lose business because we cannot deliver. We have intrinsic lead times that are long. I feel pretty comfortable with where the forecast is. Look, could it be 30% plus a little bit? It could be minus a little bit, sure. I think it is going to be in that neighborhood as we go through the year. Got it. Okay. Is there any concentration of revenue in China to any, you know, single customer? You know, I realize the last time we spoke, you mentioned that there's actually a very fragmented set of customers. Is there any concentration issue at all that can impact your business? Not really. As it relates to process control, process control gets invested at in chunks as customers are working through R&D, establishing some risk production, trying to become both credible in roadmap and credible to potential customers. There is more of a kind of, you know, lower level, but more continuous level investment than a more capacity-centric investment on a fab that is ramping its first, you know, 10,000 wafer starts. You do have those that happen, and we participate in that. There is a lot of business that is more somewhat just kind of consistent with the way I laid it out. You also have customers that have been more historic customers. I call them more mature customers in China that have not invested much in the last few years that are now starting to invest again. It is a mix. We also have infrastructure investment that happens in China related to wafers and bare wafer capacity, but also reticle capacity. Not a lot of mask shops in China that are accessible was a choke point area where the customers in China need to buy reticles from the merchants, and the merchants have not invested in a lot of the capacity. That has been certainly an issue back in 2021 and 2022 when there were supply shortages. You are seeing some establishment of that domestic infrastructure. That is also a driver for KLA that is unique to KLA in that, you know, we are a high percentage of the CapEx in those operations that others may not be exposed to. Parts of WFE they are not exposed to. I would say it is really across the board. I would not call it anything excessive from an overall certain customer exposure. Got it. As you think about, you know, multiple quarter timeframe. Given your, you know, tools are so proprietary, who services the tools if a customer is restricted? It's a great question, and it is a challenge. One of the challenges is that when we're not, we don't have access to the customer, it's hard for us to know what the customer's doing with those tools. It becomes very, very difficult for them to do it. I'm sure that there's some cannibalization that likely happens. There's probably some third parties that are trying to reverse engineer, replicate certain types of parts to try to keep tools running, even if it's not running at its highest performance levels. If you look at our service business generally, it is unique in that one of the reasons why our service business has such a high contract percentage, it's about 75% of the revenue stream, is because of the complexity of the tools. These are not single-use tools. These are very custom precision instruments. They do not have a lot of them, and most of the supply chain or certainly around critical components is custom, and so therefore proprietary to KLA. As a result of that, the customer wants performance. They want availability. They want matching performance across the tools, and they rely on KLA to support those systems. A contract structure allows them to sign up to very specific requirements and allows us to size our infrastructure to support those requirements and drive as much efficiency as we can. It is a very unique business, and I think it continues, you know, it grows every year. We have had one down year in the last 25 years. Over time, if you look at service, our service business, if you had asked me when I became CFO in 2013, what was the% of ASP of a service contract for a tool, I would have said it's about 4%. Today, it's about 5%. If you had asked me what the lifetime of a tool was, I would have said lifetime was probably low teens. Today, it's high teens. If you would have asked what% of a tool ASP we capture in service revenue over time, I would have said 40-50%. Today, it's 100%. Because the tools are living longer in the field, customers are keeping them up. They're serving markets. If you think about the spectrum of demand for semiconductors, you have a lot of these markets where semiconductor content's growing in industrial and automotive and internet of things and so on. These tools are running for a long period of time, and so we're able to capture a lot more opportunity off of them and then have those dynamics around the complexity of the system and the challenge for third parties or customers to be able to support the systems. That really makes it a nice kind of captive business for KLA over time that generates what we believe are creative margins and grows, frankly, over time faster than the equipment business. It is a special part of KLA, and I think it's going to continue to be a strong contributor moving forward. Right. I'm glad you brought up services because, you know, your services business is different than the services, right? Quote unquote, services business that we hear from some of your U.S. peers who also include, you know, 200 millimeter tools or might include like refurbs and spares. What's different about your services business that gives you the ability to grow double digit, right? It is much less cyclical, right, than anybody else's services business? There are a few things. I mean, first of all, you're right. It does not include anything that's systems. A systems upgrade would show up in our systems revenue. 200 millimeter or older system shows up in systems revenue. It is classic service. You know, what our customers effectively are buying, they are not necessarily buying just break and fix. We do that. What they are buying is a certain level of performance out of the system over time because you do not want it to degrade over time. It has to match the rest of their install base in terms of overall. The availability, we commit to very high levels of availability on these systems. You know, we have the ability, I think, to customize these offerings to allow us to meet whatever their requirements are, deliver to those requirements, but then have good visibility to it so we can structure our business underneath. Very few consumables in our products. One thing on the process tool, and we have process businesses, is that there is a supply chain for consumable parts. You know, customers can get access, third parties can get access. As a result of that, you have more billable business, and you have parts of the business that are accessible from somebody other than the suppliers of the business. It behaves very uniquely relative to the process tools. I think because of that, obviously, that influences the top-line growth rate opportunity. And so most of what we sell is, you know, KLA provide, even in our billable service, customers mine the parts from us. They're just, they're paying for the labor in a billable structure. I think for all those reasons, it drives this very consistent growth rate that's at the level that we've talked about. The lifetime of the tools, and I think the higher value opportunities of the newer systems, given the complexity of them, is a nice tailwind overall. I had one or two questions on overall WFE. This year, right, most people who have kind of guided WFE have guided to kind of mid-single digit growth, but, you know, your trend line is double digit, right? Few others of your peers' trend line is double digit. Is it that mid-single digit is a conservative, you know, number, or is that, you know, some are declining a lot, or what is the right way to kind of align, right, your double-digit growth versus market itself that may not be growing as much? I have a lot more visibility, obviously, to my business than everybody else's. I think, you know, what we do every quarter is we assess what the market is, what our customers are saying, how peers are performing as we go build our forecast. We will provide an update as we move into the June quarter and the earnings cycle. I think after people guide, we will get decent visibility in the second half. There is also the packaging dynamic and how that translates back into WFE. You know, historically, I think a lot of companies, certainly KLA included, we never really identified advanced packaging as part of the overall market. It was a few billion dollars on what was a $90 billion plus number. It was kind of in the margin for error as you thought about trying to provide a directional forecast for WFE. As it's bigger now, it's a bigger part of the overall opportunity. I think when you look at our WFE number, we talked about mid-single digit growth. If you add also advanced packaging, then that's also additional served market opportunity. That could be a factor in some of this, you know, where the numbers relative to where people are performing. Now that it's so significant, I think continues to be significant over time, given what we expect to see happen in terms of the composition of semiconductor revenue over the next several years, is I think it's got to go into that baseline number in terms of what the overall market. It's not just WFE anymore. It's WFE plus advanced packaging. You know, the WFE or the advanced packaging quarter could be 10-15, maybe even higher, you know, 20% if it is growing faster of the overall served market. I think that could be a factor in all of it, but we will provide an update and would expect that at our next investor day, as we think about a long-term plan, we will dig into this a little bit more to provide this additional context because it is not just traditional WFE that is the opportunity for a company like KLA. We also have this, what is $9-$10 billion today, growing, we think over time at a growth rate faster than core WFE. It is certainly a new opportunity that I think we want to raise the awareness to from investors. Got it. You know, historically, WFE in China has been, or WFE intensity in China has been a lot higher than overall WFE. As China starts getting to be a smaller part of the industry because of restrictions or other things, what does that do to long-term WFE intensity for the industry? No, it's a good question. You've had some inefficiency from the fact that you've had a number of projects spread out, small number of wafer starts, and it's pushed. I think the efficiency of that spend has been fairly low. Now, if you look at the leading edge, the efficiency of the investment at the leading edge has also been very, very high, right? I think if you go and look at what's happened with WFE intensity over time from about 2013, 2014 timeframe, we've seen the intensity of WFE rise, right? For a long time, it was coming down, wafer transitions, consolidation in the industry, all this drove it down. Since about that time, we've seen a rise. If you look at what's happening in the industry today, it's not clear that there's anything that's coming from a tech, there's no more wafer transitions or coming from a technical point of view that's going to drive intensity down. I think there's a lot of focus on customers to keep it from growing faster. If you look at the way we model our business and think about it over the long run, we assume a pretty efficient market, right? We assume that WFE is going to grow a little bit faster than semi-revenue. If semi-revenue is growing 7-8%, we would expect WFE to grow a little bit faster than that. We think Logic Foundry WFE is growing faster. That's more friendly to process control. That means process control should grow faster than core WFE. KLA's position in process control and in markets we think that will inflect, will drive our share opportunities, plus some other markets that we're in that we think are share opportunities for us should allow KLA to grow faster than that overall. That's how we lay out the overall view of the market and how we size the company because our view is that, look, it's important for us to size the company, size our investments based on an expectation of the market. If it turns out that there's higher levels of inefficiency over time in the market, either driven by regional investment, more competitive dynamics of leading edge, or more strategic investment that's happening in parts of the legacy market, although it's hard to understand how that continues at the rate we've seen because how much legacy capacity could you add. But if that happens, that's, in my view, upside to the model. I think we've proven over time that KLA, if the opportunity is there, we know how to ramp our supply chain, ramp our operations and capacity to take advantage of it. That's generally how we see it over time. I think when you look at that and look at what that would translate to in terms of semi-revenue and WFE, you know, if you go out, you know, several years, add in packaging, we think it's a pretty compelling story relative to where the company is currently operating today. I see. One near-term question, Bren, you have kind of given a flattish profile for the back half of the year. What are the pluses and minuses from the different end markets and what could be potential for upside in that part of the year? Yeah, so it was more of soft guidance around the second half that we see the business generally operating in and around this $3 billion level. We guided for the June quarter at $3.075 billion. You know, I don't know if I'm good enough to say it's exactly around that number. We have integers that are, you know, $20 million-$30 million on some of our systems. But in general, it was a statement to say, hey, look, the dynamics that are driving the market today are more or less leading the company at this level. As you look at 2026 and you start to say, okay, what drives growth from $3 billion from KLA or drives growth from the industry? I think we continue to see significant investment in the leading edge. I think there could be more competitive investment at the leading edge. Not expecting a lot of growth out of China, not expecting growth out of legacy markets. I would expect to see DRAM continue to flash probably at very low levels, invest a little bit more. I think what would drive WFE to be stronger than kind of a, you know, a mid-single digit kind of view of growth into next year would be, you know, some strength in some of the markets that consume a lot of semiconductors, replenishment cycles and PC markets, phones, things that are consumer-centric, you know, AI at the edge and what that means in terms of replenishment of or replacement cycles on, you know, some of these markets. They do not need a lot of growth, but they consume a lot of semiconductors, so it is an important contributor over time. The one market that is really strong right now is high-performance compute. The rest of the markets are kind of, I think, you know, getting, you know, we're seeing some strength there would be the driver of upside as we move into 2026. Now, when that happens, you know, who knows? Hopefully, you know, we haven't seen any change in customer profiles. I know, you know, everybody's watching to see, you know, if anything changes from an overall demand point of view, given some of the geopolitical dynamics that we're all facing today. So far, our customers are committed to their plans and nothing's changed, but I know everybody's kind of, you know, at least looking or, you know, cautious about what they might see. We'll see how that plays out. All right. If I had to put you on the spot, if let's say there is no change in the restrictions on China, right? I mean, who knows what the situation is? Is China WFE up, down, or flat next year? At least in terms of my planning, I think you're already starting to see this normalization. You've even heard it from certain customers in China about some consolidation efforts. Most of the investment's been in the legacy markets. I expected that we would see it normalize over time. It was at elevated levels for some clear reasons, funding provided, new fabs, capacity availability in 2023 and 2024, where frankly, if I think people had capacity, a lot of some of that business would have shipped in 2021 and 2022. It cushioned what would have been a more meaningful downturn, certainly in 2023. Over time, I think it, you know, the percent of business declines, you know, down for at least for KLA, down somewhere in the, you know, 20% range, or even thinking about overall legacy, maybe 25%, you know, including what's in China, but what's also happening in other parts of the legacy market. That is in general how we're thinking about it over time is that it kind of moves down from where it is today at 30% down into that range over the next few years. I, you know, I think like we said earlier, what we see right now looks pretty consistent in terms of our plans for this year. I'm not relying in terms of my commentary earlier on meaningful growth in China to kind of enable a stronger growth year in WFE in 2026. I see. You know, one question that comes up is that KLA benefits a lot in kind of the upfront, you know, validation, you know, R&D, but then as we move to high-volume manufacturing, then some of your peers tend to benefit more. Let's say if, you know, N2, you know, ramps next year, then is it possible that your share can shift down for some time until they start, you know, investing in 18 or 14, right? Angstrom nodes. Historically, a lot of it had to do with the design start environment. A lot of it also had to do with the adoption level of the previous generation node. If you have limited design starts and, you know, customers, you know, they do their R&D work, they introduce volume, they ramp the fab, the first, you know, 40,000 or 50,000 wafer starts, and then they get to a place of stability, then you're right, historically, you'd see focus shift to more productivity-driven investments. You know, process control tools would go from, you know, higher-end tools to more capacity-centric tools. You'd also have this dynamic that if the previous generation nodes weren't adopted by follow-on designs that followed the leaders, there were opportunities to take some of that capacity and leverage it, reuse it in the current node. Those were factors that influenced it and certainly influenced it pretty dramatically where the roadmap for the Moore's Law roadmap was slower driven because of the delays in scaling that came from the push out of EUV. One of the things that's about the two-nanometer node right now is, first of all, we talked about some of the drivers as it relates to new architecture. You still have why you don't have, you know, more or meaningfully more EUV layers. The EUV layers are more complex layers. There's still desires to shrink the pitch on the reticles to shrink the feature sizes it into. You have good leading-edge design rule drivers. You have a design start environment that's rich. You have an anticipation of products starting to move to some of these higher-value products. You have the three-nanometer node, the five-nanometer node very well adopted right now. The reuse factor is next to nothing. The anticipation of design starts for two-nanometer is likely higher over the first four to five years of the node than the previous high, which was seven-nanometer. The previous high was 28-nanometer. There are a lot of unique dynamics around expectations for two-nanometer that I think sustain our business moving forward. You have to remember that lots of designs and lots of process iterations drive process control in a different way because customers, each design is different. Each design brings different defect mechanisms and systematic defectivity issues. You have different process variants. They test design rules in different ways. It does create, I think, opportunities. We have seen, you know, our customer, you know, manage very, very closely. You do not want to start too many. You have to deliver yielded die at the end. You've got to deliver to a market window. So the process control intensity, even in production, we've seen a step up in it. Then you have what's going to happen with the next node and that investment will start at some point, even at, you know, kind of R&D and risk production level. You'll have that starting, I would expect sometime in, you know, sometime in 2026 also. I would, my expectations for leading-edge investment are higher, I think, you know, from the leader, but potentially from others that invest more next year than they've invested this year. I see. Are you getting those signals that the strength could be broadening out, or? I'm optimistic. Okay, that's a good thing. On gross margins, so low 60s. I thought earlier during our chat you mentioned mid-60s. Did I catch that right? Look, we guided 63%. If you go back to the 2026 model we presented at our investor day in 2022, it was 63% plus, right? You could argue that, you know, right now the company's in line with my 2026 target more or less at roughly $2 billion less in revenue. I feel pretty good about the sustainability both in terms of the product mix dynamics. I think we're shipping more of the latest version of products. I mean, one reason why KLA has, you know, not across the portfolio that we invest the way we do is we like to introduce products at a cadence and new capability at a cadence that's much faster than competitors. The reason for it is a couple of reasons. Number one is you always want new capability to sell. You try to stay a moving target for competitors, but it also allows you to deal with some of the cost dynamics relative to price and make whatever adjustments you need to make in that. For a couple of years, we were selling more legacy equipment, older versions of products, and there was inflation across the entire cost structure that in some ways we absorbed that I think we're now able to work our way through and recapture as we move forward. What was a headwind is now more of a tailwind. Our EPC business is underperforming. We had flat panel. We don't have flat panel anymore. That was a margin-diluted business. We're out of that. Parts of that business are still somewhat sluggish. You know, frankly, you know, look, I'd be happy with another couple hundred million dollars of PCB revenue. If it impacted the gross margins a little bit, fine. My general view is we're optimizing for gross margin dollars. In terms of the overall% and how we modeled the business, I think those factors are positive ones. I think in packaging, which has been somewhat diluted for us from a margin point of view, as we move forward, that market will need more capability. We've also introduced new capability that we've been able to move the margin profile up in that part of the business. While it's modestly below corporate averages, I think over time it starts to become a tailwind as well. I feel pretty good about the trajectory where we are, inclusive of our current view of the tariff environment, which I've talked about publicly a fair amount over the last few months. As we look at the next few years, we run the business given the mix of systems and service with a 65% incremental gross margin on revenue growth, plus or minus. If we are at 63, there is not a lot of room, but there is room. You know, I think as we move forward, a lot of these factors are sustainable. Got it. Excellent. Bren, thank you so much. Really appreciate your time.