It has been about a month since the last earnings report for KLA (KLAC Quick QuoteKLAC - Free Report) . Shares have added about 12.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is KLA due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

KLA Q3 Earnings Beat Estimates

KLA Corporation reported third-quarter fiscal 2023 non-GAAP earnings of $5.49 per share, beating the Zacks Consensus Estimate by 3.6%. The figure was up 7% from the year-ago fiscal quarter’s level. Also, it was within the management’s guided range of $4.52-$5.92.

Revenues increased 6.3% on a year-over-year basis to $2.43 billion, surpassing the Zacks Consensus Estimate of $2.36 billion. The reported figure also exceeded the management’s guidance of $2.2 million to $2.5 million.

Strong momentum across the Semiconductor Process Control and Specialty Semiconductor Process segments drove the quarterly results.

Further, the robust performance delivered by wafer inspection, other and services businesses contributed well.

However, weakness in the PCB, Display and Component Inspection segment was a concern.

A slowdown in wafer fabrication equipment (WFE) spending remains a concern for the company in the rest of 2023. Also, weakening momentum among memory customers remains a negative.

Top Line Details

Products revenues (accounting for 78.2% of total revenues) increased by 5.7% year over year to $1.9 billion.

Services revenues (21.8% of total revenues) were up 8.4% from the year-ago quarter’s reading to $529.1 million. Growth in Services revenues is attributed to the growing installed base, strengthening momentum across long-term service agreements and solid prospects in legacy nodes.

In terms of reportable segments, Semiconductor Process Control revenues (90% of total revenues) increased by 10% year-over-year to $2.2 billion, driven by strength in Foundry & Logic. Foundry & Logic accounted for 86%, while Memory constituted about 14% of semiconductor process control systems’ revenues.

Specialty Semiconductor Process revenues (5%) were $128.4 million, up 10% year over year.

PCB, Display and Component Inspection revenues (5%) declined 32% from the year-ago quarter’s actuals to $131.9 million. The decline was due to a sluggish consumer electronics market.

Regarding revenue breakdown by major products, Wafer Inspection, Patterning systems, including metrology and reticle inspection, and Specialty Semiconductor Process accounted for 42%, 25% and 5% of KLA’s total revenues for the fiscal third quarter. Wafer Inspection and Specialty Semiconductor Process revenues grew 12% and 9% year over year, respectively. Patterning revenues remain flat on a year-over-year basis.

PCB, Display and Component Inspection accounted for 3%, Service represented 22%, and Other — reported in the Semiconductor Process Control segment — constituted 3% of the quarterly revenues.

Services and Other revenues were up 8% and 93% year-over-year, while PCB, Display and Component Inspection were down 44% in terms of major product groups.

In terms of regional breakdown of revenues, China, Taiwan and Korea accounted for 26%, 20% and 19% of the total revenues for the fiscal third quarter, respectively. Further, North America, Japan, Europe and Rest of Asia accounted for 14%, 9%, 9% and 3%, respectively.

Operating Details

Non-GAAP gross margin contracted 210 basis points (bps) from the prior-year quarter’s level to 60.8%. This was attributed to increasing non-cash inventory reserves.

Research and development (R&D) expenses increased by 15.1% year-over-year to $328.3 million. Selling, general and administrative (SG&A) expenses also increased by 10.1% year-over-year to $238.4 million. As a percentage of sales, R&D expenses expanded 100 bps year over year to 13.5%, while SG&A expenses expanded 30 bps from the year-ago figure to 9.8%.

For the reported quarter, non-GAAP operating margin was 38.8%, contracting 290 bps year over year.

Balance Sheet

As of Dec 31, 2022, cash, cash equivalents and marketable securities totaled $2.89 billion compared with $2.87 billion on Dec 31, 2022.

Long-term debt at the end of the fiscal third quarter was $5.9 billion compared with $6.1 billion in the previous quarter.

Cash flow from operating activities was $1.01 billion for the reported quarter, up from $688.3 million in the prior quarter. Free cash flow was $925.9 million for the fiscal third quarter.

During the fiscal third quarter, KLAC paid out $180.9 million in dividends and repurchased $478.2 million worth of shares.

Fourth-Quarter Fiscal 2023 Guidance

For fourth-quarter fiscal 2023, revenues are expected between $2.125 billion and $2.375 billion.

KLA expects non-GAAP EPS within $4.23-$5.43.

Management expects non-GAAP gross margin in the range of 59.75-61.75%.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

The consensus estimate has shifted 10.77% due to these changes.

VGM Scores

Currently, KLA has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, KLA has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.