KLA Corporation · 10-Q · Item 2 MD&A

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Securities Exchange Act”). All statements other than statements of historical fact may be forward-looking statements. You can identify these and other forward-looking statements by the use of words such as “may,” “will,” “could,” “would,” “should,” “expects,” “plans,” “anticipates,” “relies,” “believes,” “estimates,” “predicts,” “intends,” “potential,” “continues,” “thinks,” “seeks,” “commits”, or the negative of such terms, or other comparable terminology. Forward-looking statements also include the assumptions underlying or relating to any of the foregoing statements. Such forward-looking statements include those regarding, among others: the impact of tariffs on our business; forecasts of the future results of our operations, including profitability; orders for our products and capital equipment generally; sales of semiconductors; the investments by our customers in advanced technologies and new materials; growth of revenue in the semiconductor industry, the semiconductor capital equipment industry and our business; technological trends in the semiconductor industry; future developments or trends in the global capital and financial markets; our future product offerings and product features; the success and market acceptance of new products; timing of shipment of order backlog; our future product shipments and product and service revenues; our future gross margins; our future research and development (“R&D”) expenses and selling, general and administrative (“SG&A”) expenses; international sales and operations; our ability to maintain or improve our existing competitive position; success of our product offerings; creation and funding of programs for R&D; results of our investment in leading edge technologies; the effects of hedging transactions; the effect of the sale of trade receivables and promissory notes from customers; the effect of future compliance with laws and regulations; our future effective income tax rate; our recognition of tax benefits; the effects of any audits or litigation; future payments of dividends to our stockholders; the completion of any acquisitions of third parties, or the technology or assets thereof; benefits received from any acquisitions and development of acquired technologies; sufficiency of our existing cash balance, investments, cash generated from operations and the unfunded portion of our Revolving Credit Facility (as defined below in the “Revolving Credit Facility” section of “Liquidity and Capital Resources”) to meet our operating and working capital requirements, including debt service and payment thereof; future dividends, and stock repurchases; our compliance with the financial covenants under the Credit Agreement (as defined below in the “Revolving Credit Facility” section of “Liquidity and Capital Resources”) for our Revolving Credit Facility; the adoption of new accounting pronouncements; our repayment of our outstanding indebtedness; and our environmental, social and governance (“ESG”) related targets, goals and commitments.

Our actual results may differ significantly from those projected in the forward-looking statements in this report. Factors that might cause or contribute to such differences include, but are not limited to:

•Our vulnerability to a weakening in the condition of the financial markets and the global economy;

•Risks related to our international operations;

•Evolving Bureau of Industry and Security (“BIS”) of the U.S. Department of Commerce (“Commerce”) rules and regulations (the “BIS Rules”) and their impact on our ability to sell products to and provide services to certain customers in People’s Republic of China (“China”);

•Tariffs and other trade restrictions;

•Costly intellectual property (“IP”) disputes that could result in our inability to sell or use the challenged technology;

•Risks related to the legal, regulatory and tax environments in which we conduct our business;

•Differing stakeholder expectations, requirements and attention to ESG matters and the resulting costs, risks and impact on our business;

•Unexpected delays, difficulties and expenses in executing against our environmental, climate, or other ESG targets, goals and commitments;

•Our ability to attract, retain and motivate key personnel;

•Our vulnerability to disruptions and delays at our third-party service providers;

•Cybersecurity threats, cyber incidents affecting our and our business partners’ systems and networks;

•Our inability to access critical information in a timely manner due to system failures;

•Risks related to acquisitions, integrations, strategic alliances or collaborative arrangements;

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•Climate change, earthquake, flood or other natural catastrophic events, public health crises or terrorism and the adverse impact on our business operations;

•The war between Ukraine and Russia, the armed conflict in Iran and elsewhere in the Middle East, and the significant military activity in those regions;

•Lack of insurance for losses and interruptions caused by terrorists and acts of war, and our self-insurance of certain risks including earthquake risk;

•Risks related to fluctuations in foreign currency exchange rates;

•Risks related to fluctuations in interest rates and the market values of our portfolio investments;

•Risks related to tax and regulatory compliance audits;

•Any change in taxation rules or practices and our effective tax rate;

•Compliance costs with federal securities laws, rules, regulations, NASDAQ requirements, and evolving accounting standards and practices;

•Ongoing changes in the technology industry, and the semiconductor industry in particular, including future growth rates, pricing trends in end-markets, or changes in customer capital spending patterns;

•Our vulnerability to a highly concentrated customer base;

•The cyclicality of the industries in which we operate;

•Our ability to timely develop new technologies and products that successfully address changes in the industry;

•Risks related to artificial intelligence (“AI”);

•Our ability to maintain our technology advantage and protect proprietary rights;

•Our ability to compete in the industry;

•Availability and cost of the materials and parts used in the production of our products;

•Our ability to operate our business in accordance with our business plan;

•Risks related to our debt and leveraged capital structure;

•We may not be able to declare cash dividends at all or in any particular amount;

•Liability to our customers under indemnification provisions if our products fail to operate properly or contain defects or our customers are sued by third parties due to our products;

•Our government funding for R&D is subject to audit, and potential termination or penalties;

•We may incur significant restructuring charges or other asset impairment charges or inventory write offs;

•We are subject to risks related to receivables factoring arrangements and compliance risk of certain settlement agreements with the government; and

•Risks related to the Court of Chancery of the State of Delaware being the sole and exclusive forum for certain actions and proceedings.

For a more detailed discussion of these and other risk factors that might cause or contribute to differences from the forward-looking statements in this report, see Part II, Item 1A “Risk Factors” in this report as well as Part I, Item 1 “Business”, Part I, Item 1A “Risk Factors” and Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended June 30, 2025. You should carefully review these risks and also review the risks described in documents we file from time to time with the Securities and Exchange Commission. You are cautioned not to place undue reliance on these forward-looking statements, and we expressly assume no obligation and do not intend to update the forward-looking statements in this report after the date hereof.

EXECUTIVE SUMMARY

We are a leading supplier of process control and yield management solutions and services for the semiconductor and related electronics industries. Our broad portfolio of inspection and metrology products, and related service, software and other offerings, support R&D and manufacturing of integrated circuits (“IC”), wafers and reticles. Our products, services and expertise are used by our customers to measure, detect, analyze and resolve critical and nanometric level product defects, helping them to manage manufacturing process challenges and to obtain higher finished product yields at lower cost. We also offer advanced technology solutions to address various manufacturing needs of printed circuit boards (“PCB”), specialty semiconductor devices and other electronic components, including advanced packaging, light-emitting diode (“LED”), power devices, compound semiconductor, and data storage industries, as well as general materials research.

In addition, our services business has grown consistently year-over-year and accounted for approximately 23% of our total revenues in the third quarter of fiscal 2026. Our services revenue, which is generated largely from recurring “subscription-like” contracts, increases the value of our contract offerings and extension of system lifetimes resulting from growth in legacy semiconductor markets.

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We are organized into three reportable segments as follows:

•Semiconductor Process Control: a comprehensive portfolio of inspection, metrology and data analytics products as well as related service offerings that help IC manufacturers achieve target yields throughout the semiconductor fabrication process, from R&D to final volume production.

•Specialty Semiconductor Process: advanced vacuum deposition and etching process tools used by a broad range of specialty semiconductor customers.

•PCB and Component Inspection: a range of inspection, testing and measurement, and direct imaging for patterning products used by manufacturers of PCBs, advanced packaging, microelectromechanical systems (“MEMS”) and other electronic components.

The semiconductor industry continues to experience significant market expansion and diversification. High-performance computing and data centers, fueled by widespread adoption of AI, are driving industry growth. We expect this momentum to continue during calendar year 2026. T1AI is a technology inflection point driving innovation and demand at the leading edge, and we believe our portfolio of products is uniquely positioned to support leading-edge demand and the ongoing AI buildout. Our semiconductor customers generally operate in one or both of the major semiconductor device manufacturing markets: memory and foundry/logic. End-market demand drivers that are expected to continue to benefit KLA in the long term include adoption of extreme ultraviolet lithography (“EUV”) in high volume manufacturing for Logic and DRAM memory (including high-bandwidth memory), which drives new process control requirements and growth in key markets for KLA.

Demand for advanced semiconductor technologies, particularly evident in the 2-nanometer node, which is seeing higher levels of investment and process control intensity, continues to drive investments in AI. Increasing complexity and value of semiconductor packages, particularly for AI and high-performance computing applications, is also driving significant growth in our advanced packaging business. The digitization of all industries, including 5G markets, advances in healthcare and industrial applications, together with the increasing adoption of electric vehicles and intelligence in automobiles, are powering leading-edge design node technology investments and capacity expansions.

While we continue to invest in technological innovation, factors such as delays from customers in adopting new chips and technology methods could impact process control capital intensity. Pushouts or cancellations of deliveries to our customers could cause earnings volatility, due to the timing of revenue recognition as well as increased risk of inventory-related charges. T2Geopolitical factors, such as government regulations and tariffs, have had an adverse impact on our results of operations. However, despite these headwinds, our total revenues and net income improved in the three months ended March 31, 2026 compared to the three months ended March 31, 2025. Looking ahead, while we expect continued revenue growth in calendar year 2026, T3escalating costs for DRAM chips used in the Company’s image computers will continue to negatively impact our gross margin, though we expect this impact to be transitory.

We are continuously assessing the aggregate potential impact of government regulations, tariffs and other geopolitical risks on our financial results and operations. See Part II, Item 1A “Risk Factors” below, and also Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for our fiscal year ended June 30, 2025 for more information regarding how such actions by the U.S. government or another country could significantly impact our ability to provide our products and services to existing and potential customers, especially in China, and adversely affect our business, financial condition and results of operations.

The following table sets forth some of our key quarterly unaudited financial information:

(Dollar amounts in thousands, except net income per share)

Three Months Ended

Total revenues

$

$

$

$

$

Costs of revenues

$

$

$

$

$

Gross margin

Net income(1)

$

$

$

$

$

Diluted net income per share(2)

$

$

$

$

$

__________________

(1)For the explanation why our net income increased to $1.20 billion in the three months ended March 31, 2026 compared to the three months ended March 31, 2025, refer to the “Results of Operations” section below, as the change is a result of movements in various income statement line items.

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(2)Diluted net income per share is computed independently for each of the quarters presented based on the weighted-average fully diluted shares outstanding for each quarter. Therefore, the sum of quarterly diluted net income per share information may not equal annual (or other multiple-quarter calculations of) diluted net income per share.

T4We continue to focus on returning cash to our investors, making $626.0 million in share repurchases and paying $248.8 million in dividends in the three months ended March 31, 2026. Our Board of Directors has authorized a program that permits us to repurchase our common stock, including an increase in the authorized repurchase amount of $7.00 billion in the third quarter of fiscal 2026. As of March 31, 2026, we had $10.31 billion of repurchase authority remaining. In March 2026, we also announced an increase in the dividend level to $2.30 per share per quarter, which was our 17th consecutive annual dividend increase. Refer to the “Liquidity and Capital Resources” section below for more information on our strong cash flow generation and strategy of returning excess cash to our stockholders.

CRITICAL ACCOUNTING ESTIMATES

The preparation of our Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions in applying our accounting policies that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base these estimates and assumptions on historical experience and evaluate them on an ongoing basis to ensure that they remain reasonable under current conditions. Actual results could differ from those estimates.

There have been no material changes in our critical accounting estimates since our Annual Report on Form 10-K for the fiscal year ended June 30, 2025. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Part II, Item 7 of our Annual Report on Form 10-K for our fiscal year ended June 30, 2025 for a complete description of our critical accounting estimates.

Recent Accounting Pronouncements

For a description of recent accounting pronouncements, including those recently adopted and the expected dates of adoption as well as estimated effects, if any, on our Condensed Consolidated Financial Statements of those not yet adopted, see Note 1 “Basis of Presentation” to our Condensed Consolidated Financial Statements.

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RESULTS OF OPERATIONS

Revenues and Gross Margin

Our business is affected by the concentration of our customer base and our customers’ capital equipment procurement schedules as a result of their investment plans. Our product revenues in any particular period are impacted by the amount of new orders we receive during that period and, depending upon the duration of manufacturing and installation cycles, in the preceding periods. Revenue is also impacted by average customer pricing, customer revenue deferrals associated with volume purchase agreements, the effect of fluctuations in foreign currency exchange rates, increased trade restrictions and the availability of government incentives for semiconductor capital investments. Service revenues are generated from product maintenance and support services, as well as billable time and material service calls made to our customers.

The amount of our service revenues is typically a function of the number of systems installed at our customers’ sites and the utilization of those systems, but it is also impacted by other factors, such as our rate of service contract renewals, the types of systems being serviced and fluctuations in foreign currency exchange rates. A significant portion of our revenues continues to be generated in Asia, where a substantial portion of the world’s semiconductor manufacturing capacity is located, and we expect that trend to continue.

Three Months Ended March 31,

vs.

(Dollar amounts in thousands)

Revenues:

Product

$

$

$

%

Service

%

Total revenues

$

$

$

%

Costs of revenues

$

$

$

%

Gross margin

Nine Months Ended March 31,

vs.

(Dollar amounts in thousands)

Revenues:

Product

$

$

$

9

%

Service

%

Total revenues

$

$

$

%

Costs of revenues

$

$

$

8

%

Gross margin

%

%

T5Total revenues increased 11% in the three months ended March 31, 2026 compared to the three months ended March 31, 2025, primarily due to the increase in product revenues, and is attributable to higher investments from our memory customers, particularly in DRAM, led by high-bandwidth memory, and steady growth in foundry/logic. T6An increase in service revenues of 16%, due to continued growth in our installed base of tools, also contributed to higher total revenues compared to the same period in the prior year.

Total revenues increased 10% in the nine months ended March 31, 2026 compared to the nine months ended March 31, 2025, primarily due to the increase in our product revenues, and is attributable to higher investments by our memory customers, particularly in DRAM, led by high-bandwidth memory, strong customer adoption of our advanced packaging portfolio of products, and steady growth in foundry/logic. An increase in service revenues of 16%, as a result of continued growth of our installed base of tools, also contributed to higher total revenues compared to the same period in the prior year.

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Revenues by segment(1)

Three Months Ended March 31,

vs.

(Dollar amounts in thousands)

Revenues:

Semiconductor Process Control

$

$

$

%

Specialty Semiconductor Process

5

%

PCB and Component Inspection

(1)

%

Total revenues for reportable segments

$

$

$

%

Nine Months Ended March 31,

vs.

(Dollar amounts in thousands)

Revenues:

Semiconductor Process Control

$

$

$

%

Specialty Semiconductor Process

(5)

%

PCB and Component Inspection

9

%

Total revenues for reportable segments

$

$

$

%

_______________

(1)Segment revenues exclude corporate allocations and the effects of changes in foreign currency exchange rates. For additional details, refer to Note 16 “Segment Reporting and Geographic Information” to our Condensed Consolidated Financial Statements.

Revenues from our Semiconductor Process Control segment for the three months ended March 31, 2026 increased by 13% compared to the same period in the prior year, primarily due to increased revenue from our memory customers, particularly related to DRAM, led by high-bandwidth memory, growth in foundry/logic, along with higher service revenues from an increasing number of tools in our installed base. Revenues in this segment increased by 11% for the nine months ended March 31, 2026 compared to the same period in the prior year, primarily due to increased revenue from our memory customers, particularly related to DRAM, led by high-bandwidth memory, higher revenue from advanced packaging, along with higher service revenues from an increasing number of tools in our installed base.

Revenues from our Specialty Semiconductor Process segment for the three months ended March 31, 2026 increased by 5% compared to the same period in the prior year, primarily due to timing of shipments and higher service revenues from an increasing number of tools in our installed base. Revenues in this segment decreased by 5% during the nine months ended March 31, 2026 compared to the same period in the prior year, attributable to lower volume of products sold, particularly in China, partially offset by higher service revenues from an increasing number of tools in our installed base.

Revenues from our PCB and Component Inspection segment decreased by 1% during the three months ended March 31, 2026 compared to the same period in the prior year, primarily due to revenues from our Display business being included in the prior year results, a business which has since been exited. The decrease was mostly offset by increased revenues from PCB products, along with higher service revenues from growth in our installed base of tools. Revenues in this segment increased by 9% during the nine months ended March 31, 2026 compared to the same period in the prior year, due to increased revenue from advanced packaging and PCB and component inspection products, along with higher service revenues from growth in our installed base, partially offset by the exit of the Display business.

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Below is supplementary revenue information by major product categories for the indicated periods:

(Dollar amounts in thousands)

Three Months Ended March 31,

vs.

Revenues:

Wafer Inspection

$

%

$

%

$

%

Patterning

%

%

(3)

%

Specialty Semiconductor Process

4

%

4

%

4

%

PCB and Component Inspection

3

%

3

%

(9)

%

Services

%

%

%

Other

1

%

1

%

%

Total

$

%

$

%

$

%

(Dollar amounts in thousands)

Nine Months Ended March 31,

vs.

Revenues:

Wafer Inspection

$

%

$

%

$

%

Patterning

%

%

%

Specialty Semiconductor Process

4

%

4

%

(7)

%

PCB and Component Inspection

3

%

3

%

8

%

Services

%

%

%

Other

1

%

2

%

%

Total

$

%

$

%

$

%

Revenues by region

The following is a summary of revenues by geographic region, based on ship-to location, for the indicated periods:

Three Months Ended March 31,

vs.

(Dollar amounts in thousands)

Revenues:

Taiwan

$

%

$

%

$

%

China

%

%

5

%

Korea

%

%

%

North America

%

%

%

Europe and Israel

%

%

%

Rest of Asia

%

%

%

Japan

%

%

%

Total

$

%

$

%

$

%

Nine Months Ended March 31,

vs.

(Dollar amounts in thousands)

Revenues:

China

$

%

$

%

$

—

%

Taiwan

%

%

8

%

Korea

%

%

%

North America

%

%

2

%

Japan

%

%

(7)

%

Europe and Israel

%

%

%

Rest of Asia

%

%

%

Total

$

%

$

%

$

%

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T7Revenues from our customers in China increased 5% and by less than 1% in the three and nine months ended March 31, 2026, respectively, compared to the same periods in the prior year, primarily due to continued legacy node demand, partially offset by the effects of U.S. export controls and regulations.

Revenues from our customers in Taiwan decreased 12% in the three months ended March 31, 2026 compared to the same period in the prior year, primarily due to the timing of shipments. Revenues from customers in Taiwan increased 8% in the nine months ended March 31, 2026, compared to the same period in the prior year, primarily due to increased investments in process control to meet leading-edge demand driven by innovation and growth of AI.

Revenues from our customers in Korea increased 80% and 50% in the three and nine months ended March 31, 2026, respectively, compared to the same periods in the prior year, primarily due to increased investments from our memory customers. Revenues from our customers in North America increased 40% in the three months ended March 31, 2026 compared to the same period in the prior year, due to increased investments from both memory and foundry/logic customers. Revenues from customers in North America increased 2% in the nine months ended March 31, 2026, compared to the same period in the prior year, primarily due to increased investments from memory customers and continued legacy node demand, partially offset by lower shipments to foundry/logic customers.

Revenues from our customers in Japan decreased 47% in the three months ended March 31, 2026 compared to the same period in the prior year, due to decreased investments from customers in the semiconductor process control segment. The remaining regions accounted for less than 10% of total revenues individually in the periods presented.

Gross margin

Our gross margin fluctuates with revenue levels and product mix and is affected by variations in costs related to manufacturing and servicing our products, including our ability to scale our operations efficiently and effectively in response to prevailing business conditions.

The following table summarizes the major factors that contributed to the changes in gross margin:

Gross Margin

Three Months Ended

Nine Months Ended

Revenue volume of products and services

Mix of products and services sold

Manufacturing labor, overhead and efficiencies

Other service and manufacturing costs

Changes in gross margin from revenue volume of products and services reflect our ability to leverage existing infrastructure to generate higher revenues. Changes in gross margin from the mix of products and services sold reflect the impact of changes within the composition of product and service offerings. Changes in gross margin from manufacturing labor, overhead and efficiencies reflect our ability to manage costs and drive productivity as we scale our manufacturing activity to respond to customer requirements and amortization of intangible assets. In both the three and nine months ended March 31, 2026, manufacturing labor, overhead and efficiencies included increased employee-related costs due to increases in headcount offset by absorption benefits from better build plans, compared to the same periods in the prior year.

Changes in gross margin from other service and manufacturing costs include the impact of tariffs, customer support costs, including the efficiencies with which we deliver services to our customers, and the effectiveness with which we manage our production plans and inventory risk. In both the three and nine months ended March 31, 2026, other service and manufacturing costs included higher installation and warranty costs and increased costs due to tariffs, partially offset by lower inventory-related charges, compared to the same periods in the prior year.

Research and Development

R&D expenses may fluctuate with product development phases and project timing as well as our R&D efforts. As technological innovation is essential to our success, we may incur significant costs associated with R&D projects, including compensation for engineering talent, engineering material costs and other expenses.

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(Dollar amounts in thousands)

Three Months Ended March 31,

vs.

R&D expenses

$

$

$

%

R&D expenses as a percentage of total revenues

%

%

R&D expenses during the three months ended March 31, 2026 increased compared to the three months ended March 31, 2025 primarily due to increases in employee-related expenses of $35.7 million as a result of additional headcount and higher employee compensation and benefit costs, and engineering project material costs of $7.3 million.

(Dollar amounts in thousands)

Nine Months Ended March 31,

vs.

R&D expenses

$

$

$

%

R&D expenses as a percentage of total revenues

%

%

R&D expenses during the nine months ended March 31, 2026 increased compared to the nine months ended March 31, 2025 primarily due to increases in employee-related expenses of $87.6 million as a result of additional headcount and higher employee compensation and benefit costs, and engineering project material costs of $31.9 million.

Our future operating results will depend significantly on our ability to make products and provide services that have a competitive advantage in our marketplace. To do this, we believe that we must continue to make substantial and focused investments in our R&D. We remain committed to product development in new and emerging technologies.

Selling, General and Administrative

Three Months Ended March 31,

vs.

(Dollar amounts in thousands)

SG&A expenses

$

$

$

%

SG&A expenses as a percentage of total revenues

9

%

8

%

SG&A expenses during the three months ended March 31, 2026 increased compared to the three months ended March 31, 2025 primarily due to increases in provision for credit losses of $23.1 million, employee-related expenses of $14.9 million as a result of additional headcount and higher employee compensation and benefit costs, and facilities-related expense of $6.6 million.

(Dollar amounts in thousands)

Nine Months Ended March 31,

vs.

SG&A expenses

$

$

$

%

SG&A expenses as a percentage of total revenues

8

%

9

%

SG&A expenses during the nine months ended March 31, 2026 increased compared to the nine months ended March 31, 2025 primarily due to increases in provision for credit losses of $26.1 million, facilities-related expense of $20.3 million, and employee-related expenses of $17.6 million as a result of additional headcount and higher employee compensation and benefit costs.

Restructuring Charges

Restructuring charges were $0.2 million and $0.6 million for the three months ended March 31, 2026 and 2025, respectively. Restructuring charges were $0.9 million and $5.6 million for the nine months ended March 31, 2026 and 2025, respectively. For additional information, refer to Note 17 “Restructuring Charges” to our Condensed Consolidated Financial Statements.

Interest Expense and Other Expense (Income), Net

Other expense (income), net is comprised primarily of fair value adjustments and realized gains or losses on sales of marketable and non-marketable securities, gains or losses from revaluations of certain foreign currency denominated assets and liabilities as well as foreign currency contracts, interest-related accruals (such as interest and penalty accruals related to our tax

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obligations) and interest income earned on our invested cash, cash equivalents and marketable securities.

(Dollar amounts in thousands)

Three Months Ended March 31,

vs.

Interest expense

$

$

$

(2)

%

Other expense (income), net

$

$

$

%

Interest expense as a percentage of total revenues

2

%

2

%

Other expense (income), net as a percentage of total revenues

(2)

%

(1)

%

Interest expense during the three months ended March 31, 2026 was comparable to the three months ended March 31, 2025, as average outstanding debt was essentially unchanged.

The change in other expense (income), net during the three months ended March 31, 2026 compared to the three months ended March 31, 2025 was primarily due to a net fair value gain of $31.9 million from an equity security, favorable foreign exchange fluctuations of $12.4 million, and higher interest income of $4.1 million.

(Dollar amounts in thousands)

Nine Months Ended March 31,

vs.

Interest expense

$

$

$

(8)

%

Other expense (income), net

$

$

$

%

Interest expense as a percentage of total revenues

2

%

3

%

Other expense (income), net as a percentage of total revenues

(2)

%

(1)

%

Interest expense during the nine months ended March 31, 2026 decreased compared to the nine months ended March 31, 2025 primarily due to reduced interest expense following our $750.0 million debt repayment in the second quarter of fiscal 2025.

The change in other expense (income), net during the nine months ended March 31, 2026 compared to the nine months ended March 31, 2025 was primarily due to a net fair value gain of $35.1 million from an equity security, favorable foreign exchange fluctuations of $13.4 million, partially offset by lower interest income of $4.3 million.

Provision for Income Taxes

The following table provides details of income taxes:

Three Months Ended March 31,

Nine Months Ended March 31,

(Dollar amounts in thousands)

Income before income taxes

$

$

$

$

Provision for income taxes

$

$

$

$

Effective tax rate

%

%

%

%

The effective tax rate during the three months ended March 31, 2026 was higher compared to the three months ended March 31, 2025, primarily due to a decrease in the proportion of earnings generated in jurisdictions with tax rates lower than the U.S. statutory rates and a decrease in the proportion of U.S. earnings eligible for the Foreign Derived Intangible Income deduction, partially offset by a decrease in our Global Intangible Low-Taxed Income.

The effective tax rate during the nine months ended March 31, 2026 was higher compared to the nine months ended March 31, 2025, primarily due to a decrease in the proportion of earnings generated in jurisdictions with tax rates lower than the U.S. statutory rates and a decrease in the proportion of U.S. earnings eligible for the Foreign Derived Intangible Income deduction, partially offset by a decrease in our Global Intangible Low-Taxed Income and a $230.4 million goodwill impairment charge during the nine months ended March 31, 2024 which is non-deductible for income tax.

Our future effective income tax rate depends on various factors, such as tax legislation, the geographic composition of our pre-tax income, the amount of our pre-tax income as business activities fluctuate, non-deductible expenses incurred in connection with acquisitions, R&D credits as a percentage of aggregate pre-tax income, non-taxable or non-deductible increases or decreases in the assets held within our Executive Deferred Savings Plan, the tax effects of employee stock activity and the effectiveness of our tax planning strategies. We also continue to monitor the adoption of Pillar Two relating to the global minimum tax in each of our tax jurisdictions to evaluate its impact on our effective income tax rate. For some of the

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jurisdictions that have adopted Pillar Two in their tax legislation, it was effective for us beginning in our fiscal year ended June 30, 2025.

For discussions on tax examinations, assessments and certain related proceedings, see Note 12 “Income Taxes” to our Condensed Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

As of

As of

(Dollar amounts in thousands)

Cash and cash equivalents

$

$

Marketable securities

Total cash, cash equivalents and marketable securities

$

$

Percentage of total assets

%

%

Nine Months Ended March 31,

(In thousands)

Cash flows:

Net cash provided by operating activities

$

$

Net cash provided by (used in) investing activities

Net cash used in financing activities

Effect of exchange rate changes on cash and cash equivalents

Net decrease in cash and cash equivalents

$

$

Cash, Cash Equivalents and Marketable Securities

As of March 31, 2026, our cash, cash equivalents and marketable securities totaled $4.96 billion, compared to the $4.49 billion balance as of June 30, 2025. Refer to below discussions of sources and uses of cash during the nine months ended March 31, 2026. As of March 31, 2026, $1.09 billion of our $4.96 billion of cash, cash equivalents and marketable securities were held by our foreign subsidiaries and branch offices. We have recorded appropriate provisions for income or withholding taxes that may result from future repatriations of this balance.

Cash Flows Provided by Operating Activities

We typically finance our liquidity requirements through cash generated from our operations. Net cash provided by operating activities during the nine months ended March 31, 2026 was $3.24 billion compared to $2.92 billion during the nine months ended March 31, 2025. This increase was primarily due to an increase in customer and other collections of approximately $960 million primarily driven by higher shipments, a decrease in income tax payments of approximately $73 million and a decrease in other tax payments of approximately $30 million; partially offset by increases in accounts payable payments of approximately $580 million and employee-related payments of approximately $165 million.

Cash Flows Used in Investing Activities

Net cash used in investing activities during the nine months ended March 31, 2026 was $1.02 billion compared to $122.9 million of net cash provided during the nine months ended March 31, 2025. This increase in cash used was primarily due to increases in net purchases of available-for-sale securities of $1.11 billion, and capital expenditures of $51.8 million, partially offset by a $16.5 million increase in proceeds from capital-related government assistance.

Cash Flows Used in Financing Activities

Net cash used in financing activities during the nine months ended March 31, 2026 was $2.51 billion compared to $3.16 billion during the nine months ended March 31, 2025. This decrease in cash used was primarily due to a $750.0 million debt repayment during the nine months ended March 31, 2025 and a decrease in common stock repurchases of $5.5 million, partially offset by increases in payment of dividends and dividend equivalents of $101.9 million and tax withholding payments related to vested and released restricted stock units (“RSU”) of $12.7 million.

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Stock Repurchases

The shares of common stock repurchased under our stock repurchase program have reduced our basic and diluted weighted-average shares outstanding for the nine months ended March 31, 2026 and 2025. The total amount of stock repurchases during the nine months ended March 31, 2026 and 2025 were $1.72 billion for both periods. The stock repurchase program is intended, in part, to mitigate the potential dilutive impact related to our equity incentive plans and shares issued in connection with our Employee Stock Purchase Program as well as to return excess cash to our stockholders. As of March 31, 2026, an aggregate of $10.31 billion was available for repurchase under our stock repurchase program, which reflects an increase in the authorized repurchase amount of $7.00 billion in the third quarter of fiscal 2026.

Cash Dividends

During the three months ended March 31, 2026, our Board of Directors declared a regular quarterly cash dividend of $1.90 per share on our outstanding common stock, which was paid on March 3, 2026 to our stockholders of record as of the close of business on February 17, 2026. During the same period in fiscal year ended June 30, 2025, our Board of Directors declared and paid a regular quarterly cash dividend of $1.70 per share on our outstanding common stock. The total amount of regular quarterly cash dividends and dividend equivalents paid during the three months ended March 31, 2026 and 2025 was $248.8 million and $225.8 million, respectively.

The total amount of regular quarterly cash dividends and dividend equivalents paid during the nine months ended March 31, 2026 and 2025 was $752.5 million and $650.6 million, respectively. The amount of accrued dividend equivalents payable for regular quarterly cash dividends on unvested RSUs with dividend equivalent rights as of March 31, 2026 and June 30, 2025 was $15.8 million and $13.3 million, respectively. These amounts will be paid upon vesting of the underlying unvested RSUs as described in Note 9 “Equity and Long-term Incentive Compensation Plans” to our Condensed Consolidated Financial Statements.

Senior Notes

As of March 31, 2026, we had an aggregate principal amount of senior, unsecured notes totaling $5.95 billion (collectively, “Senior Notes”) with due dates ranging from fiscal 2029 through fiscal 2063. For additional information on these Senior Notes, see Note 7 “Debt” to our Condensed Consolidated Financial Statements. As of March 31, 2026, we were in compliance with all of our covenants under the Indenture associated with the Senior Notes.

Revolving Credit Facility

We have in place a Credit Agreement (“Credit Agreement”) for an unsecured Revolving Credit Facility (“Revolving Credit Facility”) with a maturity date of July 3, 2030 that allows us to borrow up to $1.50 billion. Subject to the terms of the Credit Agreement, the Revolving Credit Facility may be increased by an amount up to $500.0 million in the aggregate. As of March 31, 2026, we had no outstanding borrowings under the Revolving Credit Facility. We were in compliance with all covenants under the Credit Agreement as of March 31, 2026 (the net leverage ratio was 0.54 to 1.00, compared to a maximum net leverage ratio of 3.25 to 1.00 on a quarterly basis covering the trailing four consecutive fiscal quarters for each fiscal quarter).

Considering our current liquidity position, short-term financial forecasts and ability to prepay the Revolving Credit Facility, if necessary, we expect to continue to be in compliance with our financial covenants at the end of our fiscal year ending June 30, 2026.

For additional information on the Revolving Credit Facility, see Note 7 “Debt” to our Condensed Consolidated Financial Statements.

Material Cash Requirements

For details regarding our debt and other material cash commitments, refer to Note 7 “Debt” and Note 14 “Commitments and Contingencies,” respectively, to our Condensed Consolidated Financial Statements. For additional details regarding our material cash requirements, refer to “Material Cash Requirements” in the “Liquidity and Capital Resources” section of Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2025.

Off-Balance Sheet Arrangements

As of March 31, 2026, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial position, changes in financial condition, revenues and expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. Refer to Note 14 “Commitments and Contingencies” to our Condensed Consolidated Financial Statements for information related to indemnification obligations.

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Working Capital

Working capital was $7.60 billion as of March 31, 2026, which represents an increase of $986.4 million compared to our working capital of $6.61 billion as of June 30, 2025. As of March 31, 2026, our principal sources of liquidity consisted of $4.96 billion of cash, cash equivalents and marketable securities, as well as $1.50 billion availability under our Revolving Credit Facility. Our liquidity may be affected by many factors, some of which are based on the normal ongoing operations of the business, spending for business acquisitions, and other factors such as uncertainty in the global and regional economies and the semiconductor, semiconductor-related and electronic device industries. Although cash requirements will fluctuate based on the timing and extent of these factors, we believe that cash generated from operations, together with the liquidity provided by existing cash and cash equivalents balances, marketable securities and our Revolving Credit Facility, will be sufficient to satisfy our liquidity requirements associated with working capital needs, capital expenditures, cash dividends, stock repurchases and other contractual obligations for at least the next 12 months.

Credit Ratings

Our credit ratings as of March 31, 2026 are summarized below:

Rating Agency

Rating

Fitch Inc.

A

Moody’s Investors Service

A2

S&P Global Ratings

A-

Factors that can affect our credit ratings include changes in our operating performance, the economic environment, conditions in the semiconductor and semiconductor capital equipment industries, our financial position, material acquisitions and changes in our business strategy.