Management Quality -- 9.0/10
Rick Wallace has led KLA since 2006 (20 years), navigating multiple WFE cycles while
consistently expanding market share and margins. Under his leadership, CY2025 was a record
year on revenue ($12.7B), EPS, and FCF ($4.4B). KLA has beaten guidance midpoints for 5
consecutive quarters, raised dividends for 16 consecutive years, and returned $3B+ to
shareholders via buybacks and dividends. The hallmark of the KLA operating model is
underpromise and overdeliver.
Weight: 20%
CEO Tenure
20 Years
Rick Wallace, CEO since 2006
Guidance Beat Streak
5/5 Quarters
Rev avg +2.8%, EPS avg +5.1%
Dividend Streak
16 Years
Consecutive annual increases
Share Count Decline
~2.5% in 6Q
134.4M to 131.1M diluted shares
Guidance vs. Actuals (Last 5 Quarters)
| Quarter | Rev Guide Mid | Rev Actual | Beat % | EPS Guide Mid | EPS Actual | Beat % |
|---|---|---|---|---|---|---|
| CQ4 2024 (FY25Q2) | $2.95B | $3.08B | +4.4% | $7.75 | $8.20 | +5.8% |
| CQ1 2025 (FY25Q3) | $3.00B | $3.06B | +2.0% | $8.05 | $8.41 | +4.5% |
| CQ2 2025 (FY25Q4) | $3.075B | $3.17B | +3.3% | $8.53 | $9.38 | +10.0% |
| CQ3 2025 (FY26Q1) | $3.15B | $3.21B | +1.9% | $8.53 | $8.81 | +3.3% |
| CQ4 2025 (FY26Q2) | $3.225B | $3.30B | +2.3% | $8.70 | $8.85 | +1.7% |
KLA has beaten revenue and EPS guidance midpoints in every quarter shown. Gross margin has
consistently come in at or above guided midpoint. Management underpromises and overdelivers --
a hallmark of the KLA operating model.
Capital Allocation
CY2025 Buybacks
$2.0B+
$507M + $426M + $545M + $548M
CY2025 Dividends
~$1.0B
$226M + $254M + $254M + $250M
Dividend Raise (Apr 2025)
12%
16th consecutive annual increase
New Buyback Auth
$5B
Signals continued aggressive returns
| Metric | CQ1 2025 | CQ2 2025 | CQ3 2025 | CQ4 2025 |
|---|---|---|---|---|
| Share Repurchases ($M) | $507 | $426 | $545 | $548 |
| Dividends ($M) | $226 | $254 | $254 | $250 |
| Total Capital Return ($M) | $733 | $680 | $799 | $797 |
| Quarter | Diluted Shares |
|---|---|
| CQ2 2024 | 134.4M |
| CQ3 2024 | 133.8M |
| CQ4 2024 | 132.9M |
| CQ1 2025 | 132.2M |
| CQ2 2025 | 132.0M |
| CQ3 2025 | 131.4M |
| CQ4 2025 | 131.1M |
Steady ~2.5% diluted share reduction over 6 quarters through aggressive buybacks.
Investment-grade ratings from all three major agencies. Debt of $5.9B vs. $5.2B in cash
and marketable securities -- manageable and well-structured. LTM capital return was $3.0B.
Promise Tracking
| Promise | Source | Current Status | Verdict |
|---|---|---|---|
| $14B CY2026 revenue target | 2022 Investor Day (at $125B WFE) | CFO confirmed KLA does not need $125B WFE given share gains | ON TRACK |
| 63%+ long-term gross margin | Long-term model | Currently 62.6%; guided 62% +/- 50bps for CY2026 with DRAM cost headwinds | WATCH |
| 40-50% incremental op margin | Long-term model | Consistently delivered; CY2025 operating margin was ~43.6% | DELIVERED |
| 12-14% service CAGR | Long-term model | Delivered 15% in CY2024, 18% in CQ4 2025 YoY; operating above target | EXCEEDED |
Promise tracking based on 2022 Investor Day targets and long-term financial model guidance.
Minor Deductions
Investor Day postponements: KLA postponed its Investor Day twice -- from
June 2025 to March 2026, then finally held it in March 2026. Understandable given tariff
uncertainty, but reflects caution that slightly dents the otherwise strong communication track record.
Gross margin guided lower for CY2026: DRAM component cost inflation
creating 75-100bps headwind. Management guided CY2026 gross margin at 62% +/- 50bps vs.
CY2025 at 62.5%. Both tariff and DRAM cost headwinds are described as transitory, with
return to 63%+ expected by CY2027. Margins remain best-in-class for semi equipment.
Score Rationale
9.0/10. Rick Wallace has led KLA for 20 years, delivering industry-leading
margins (62%+ gross, 43%+ operating) while consistently expanding market share. CY2025 was a
record year on revenue, EPS, and FCF. Guidance has been beaten 5 consecutive quarters with
an average revenue beat of ~2.8% and EPS beat of ~5.1%. Capital allocation is aggressive and
shareholder-friendly: $2B+ in buybacks, ~$1B in dividends, a 12% dividend raise, and $5B in
new buyback authorization. Share count has declined ~2.5% in 6 quarters. The 2022 Investor
Day $14B revenue target for CY2026 remains on track, and the services business has exceeded
its 12-14% CAGR target. Not a 10 because the Investor Day was postponed twice, and gross
margin is guided modestly lower for CY2026 due to DRAM component cost inflation -- a
transitory headwind but one that keeps the long-term 63%+ gross margin model just out of reach
for now.
Data sourced from Daloopa, earnings call transcripts, and company disclosures.