KLA reported record revenue of $12.745 billion for calendar 2025, a 17% increase year-over-year, driven by process control systems that outpaced broader industry growth by several points. Non-GAAP gross margin expanded to 61.9% and non-GAAP operating margin reached 41.8%. Diluted earnings per share rose 29% to $29.12, while free cash flow climbed 23% to $5.6 billion. The company returned $4.1 billion to shareholders through $2.6 billion in share repurchases and $1.5 billion in dividends, reflecting strong capital discipline and a robust cash conversion cycle.

In Q2, revenue totaled $3.30 billion, up 17% year-over-year, surpassing guidance midpoint of $3.225 billion. Non-GAAP diluted EPS came in at $8.85 versus the midpoint of $8.60, and GAAP EPS was $8.68. Non-GAAP gross margin expanded to 62.6%, fueled by stronger service performance and manufacturing efficiencies. Operating expenses were $653 million, including $384 million in R&D and $269 million in SG&A, yielding a 42.8% non-GAAP operating margin. Services revenue grew to $786 million, marking the 16th consecutive year of growth. Operating cash flow reached $1.37 billion, and free cash flow hit a quarterly record $1.26 billion. The company ended the quarter with $5.2 billion in cash and equivalents against $5.9 billion of debt.

KLA’s advanced packaging systems achieved approximately $950 million in 2025 revenue, a surge of over 70% year-over-year. Management expects continued momentum in 2026, forecasting mid- to high-teens percentage growth for that segment. Rising process control intensity in high-bandwidth memory (HBM) and DRAM is driven by higher device value, more metallization layers, tighter yield requirements and increased use of advanced lithography. This complexity enhances demand for inspection and metrology tools, positioning KLA to capture a growing share of the wafer fab equipment market, which management pegs at a combined $130 billion next year.

For Q3, KLA guided revenue of $3.35 billion ± $150 million and non-GAAP EPS of $9.08 ± $0.78, with gross margin expected at 61.75% ± 1 percentage point and operating expenses near $645 million. The 2026 planning tax rate is 14.5% on approximately 131.7 million fully diluted shares. Management forecasts core wafer fab equipment growth in the high single- to low double-digit range to about $120 billion, with advanced packaging contributing an additional $12 billion. Constraints on optics and customer facility readiness may limit first-half growth, but backlog and funnel activity support acceleration later in the year. Gross margin for the full year is expected around 62% ± 50 basis points, with long-term targets above 63%.