Good afternoon. My name is Connor and I'll be your conference operator today. At this time, I would like to welcome everyone to KLA-Tencor's Fourth Quarter Fiscal Year 2015 Earnings Conference Call. Thank you. Ed Lockwood with KLA-Tencor Investor Relations, you may begin your conference.

Thank you, Connor. Good afternoon, everyone, and welcome to our conference call. Joining me on our call today are Rick Wallace, our President and Chief Executive Officer; and Bren Higgins, our Chief Financial Officer. We're here to discuss fourth quarter results for the period ended June 30, 2015. We released these results this afternoon at 1:15 P.M. Pacific Time. If you haven't seen the release, you can find it on our website at www.kla-tencor.com or call 408-875-3000 to request a copy. A simulcast of this call will be accessible on demand following its completion on the Investor Relations section of our website. This quarter we prepared a brief slide presentation to supplement our earnings call including a reconciliation of our GAAP and non-GAAP financial measures. These slides can be found on KLA-Tencor's Investor Relations website. There you'll also find a calendar of future investor events, presentations, and conferences as well as links to KLA-Tencor's SEC filings including our Annual Report on Form 10-K for the year ended June 30, 2014, and our subsequently filed 10-Q reports. In those filings, you'll find descriptions of risk factors that could impact our future results. As you know, our future results are subject to risks. Any forward-looking statements including those that we make on the call today are subject to those risks and KLA-Tencor cannot guarantee those forward-looking statements will come true. Our actual results may differ significantly from those projected in our forward-looking statements. With that, I'll turn the call over to Rick. Richard P. Wallace - President, Chief Executive Officer & Director: Thanks, Ed. Thank you all for joining us for our call today. I'll focus my commentary on summary highlights of the quarter and our view of the demand environment in the second half of calendar year 2015, and provide guidance…

Okay. Thank you, Bren. At this point, we'd like to open up the call to questions. We do once again request that you limit yourself to one question and one follow up, given the limited time we have for today's call. Please feel free to re-queue for your follow up questions and we'll do our best to give everyone a chance for follow-ups in today's call as time permit. So, Connor, we're ready for the first question.

Your first question comes from the line of Timothy Arcuri with Cowen & Co. Your line is open. Timothy M. Arcuri - Cowen & Co. LLC: Thanks a lot. I guess first thing, Bren, just to clarify something you just said. You said calendar second half flat with calendar first half. You mean shipments, is that right? So that would imply that shipments in December are like $800 million? Bren D. Higgins - Chief Financial Officer & Executive Vice President: No, I meant orders, Tim. Timothy M. Arcuri - Cowen & Co. LLC: Orders? Okay. Bren D. Higgins - Chief Financial Officer & Executive Vice President: The order profile for the second half of the year is in line with the first half of the year. Obviously, we're seeing the seasonal effects in September with strengthening. Timothy M. Arcuri - Cowen & Co. LLC: Okay. Then I guess just a big picture question for Rick. So I'm just looking back at, if I strip out the service number, if I just assume that service grows a bit and I look at just your systems revenue for September, it's as low as it's really ever been since the 2009 downturn. Nobody else is really anywhere close to that. So I guess from a strategic point of view, obviously, right now, you guys aren't super exposed to some of the 3D NAND things that are happening. And whenever in the past we've talked about maybe getting exposure to that area, maybe via partnership with a films company, at the time the argument was that you wanted to remain independent process neutral third-party. But does that logic hold anymore? Do you think that now given some of the changes in device architecture that maybe it does makes sense for a process control company…

Your next question comes from the line of Harlan Sur with JPMorgan. Your line is open.

Good afternoon. Thanks for taking my question. You talked about second half orders equivalent to first half orders. Last call, you articulated a view of shipments and revenue second half being relatively balanced. Based on your commentary today, it seems like second half is going be lower now even with December quarter inflection. So I guess first question is, is that a fair statement? And it sounds like most of this is foundry push-outs. So if you could just help us, is this more 14-nanometer, 16-nanometer FinFET push-outs or is it more the legacy 28-nanometer technology? Bren D. Higgins - Chief Financial Officer & Executive Vice President: Yeah, Harlan, it's Bren. Your assessment is correct. From an order perspective, we think it lines up fairly consistent with what we had seen last quarter. But certainly, shipments and revenue, we did have some sizable shipments that pushed out of the revenue forecast in the second half of the year for sub-20-nanometer foundry activity that is the largely responsible for the reduced outlook in terms of our views on shipments and revenue into the second half of the year.

Okay. And then your one large logic customer pushed out the timing of their 10-nanometer high volume production ramp by about a year. On the flipside, though, it does seem like the other two major foundry suppliers are still aggressively going to try and rollout 10-nanometer next year. How has this sort of changed your view on 2016, and the 10-nanometer contribution to the business? You mentioned 10-nanometer development tools shipping in the first half. Is this going to be more foundry or logic biased? Bren D. Higgins - Chief Financial Officer & Executive Vice President: I think it's a little early to call 2016 at this point. I mean, clearly, our view is, is that we'll see the 10-nanometer ramp again in the first half of the 2016, so you'll start to see activity there. Order timing is always a question in when you'd see those orders. On the logic side, we tend to get a little bit more lead-time than we do on the foundry. So in terms of how we're looking at how the shipments roll out, I think the shipments roll out largely consistent across both segments but it's a little bit early at this point. But I don't think our view is – we talked a lot about it at SEMICON a couple weeks ago, I don't think our views around 10-nanometer interest and timing have changed all that much. It's just that's hard for me to see how you see any of that activity begin in this calendar year from a – you might start to see some orders at the tail end but certainly don't expect to see any shipments in 2015 for that.

Okay. Great. Thanks a lot.

Your next question comes from the line of Krish Sankar with Bank of America. Your line is open.

Yeah, hi. Thanks for taking my question. Two of them. First one, did you guys say that you expect some of your gen five optical inspection orders in the second half or is it more tied to 10-nanometer? Bren D. Higgins - Chief Financial Officer & Executive Vice President: Yeah, Krish, it's Bren. I don't know if it's tied exactly to 10-nanometer. It's really tied to the timing of those introductions. Typically, new products create their own weather in terms of timing of interest by customers. We would expect to see orders in the – toward the end of our fiscal year. And perhaps we'll see some revenue, too, towards the tail end. I don't think you fully see full scale sort of ramp and adoption until you move into the second half of 2016 but we should see some activity in the first half. Richard P. Wallace - President, Chief Executive Officer & Director: And, Krish, as you know, with a new product it's often the case that that is shipped and it's under contingency provision that when it achieves the milestones that you both recognize the revenue and the bookings. So less likely to see the bookings in the first half of the fiscal year because of that.

Got you. And then a follow up for Bren. If I took at your June quarter, over the last six months your OpEx is down 7% from December. I mean you guys have done a 10% head count. The June quarter numbers look similar to your target model. So is it fair to assume that you already started seeing the benefits of the restructuring or is there still more room to cut cost here? Bren D. Higgins - Chief Financial Officer & Executive Vice President: I think it's fair to assume we're starting to see some of it. Part of our assessment of where we were on a normalized basis, we were trending before we started the actions. And when I say normalized, I mean in terms of how you think about variable compensation adjustments and so on, somewhere around $225 million a quarter. And we see that trending down in terms of a fully loaded operating level of about $205 million to $210 million and we should see that progression across the fiscal year from here. So I think there's still room from where we're at now as we start to see those – some of those costs come off the books over the next quarter or so. And then we expect it to stay in that ballpark with some of the other actions that we have planned and are in process of executing.

Got it. Thank you.

Your next question comes from the line of C.J. Muse with Evercore. Your line is open.

Yeah, good afternoon. Thank you for taking my question. And apologies for the voice. Curious your thoughts on 10-nanometer. We heard from one of your competitors talking about capacity being brought online in 2016 through 2018. And roughly 150,000 wafer starts versus, call it, 250,000 at 16, 14, 20, and 300,000 wafer 28. And would love to hear your thoughts on the puts and takes in terms of rising intensity but elongation of the node and smaller amount of wafer starts and what that means for annualized spend at the next node. Bren D. Higgins - Chief Financial Officer & Executive Vice President: So, C.J., we haven't done the work on how we're looking at 10-nanometer starts. I mean, clearly, what we've seen so far in the sub-20-nanometer is not a lot of end-market movement towards 20-nanometer, 16-nanometer, 14-nanometer, which obviously impacts that start level. So depending on the level of adoption that you do see obviously will impact what customers are able to do as they move to 10-nanometer. But so far at 20-nanometer outside of a couple high volume products, haven't seen a lot of activity which has enabled customers to use some of those tools at 14-nanometer and 16-nanometer. So a lot of it, I think, depends on not only the end-market activity but also the competitive dynamics at that node that drives ultimately the overall size of it. So we think 10-nanometer will be a bigger node, given that it's – you have a full shrink to that node and that the ability to reuse tools if – is not the same as it was at 20-nanometer and 16-nanometer given that you had effectively the same back end process is at 20-nanometer down to 16-nanometer, 14-nanometer. So we're optimistic about 10-nanometer both from a competitive dynamic…

That's very helpful. And as a quick follow up, I guess, a short term question, given the lower utilization at many foundries, how do you think about your service revenue trajectory into the back half of the year? Bren D. Higgins - Chief Financial Officer & Executive Vice President: Yeah, C.J., that tends to be pretty linear. I don't expect to see an acceleration there. I expect to see it continue along the trajectory that we've seen, somewhere between 6% and 8% per year and growing quarter-on-quarter generally. Richard P. Wallace - President, Chief Executive Officer & Director: Yeah, part of what's happening of course, as you know is some of the fabs being extended longer that aren't at the leading edge. So if you look at the contribution that the service business from the very leading-edge and even some places where the utilization is slightly lower, it's actually to Bren's point, it responds slower. So we're seeing pretty good signs out of our service and our interactions with customers. Plus, we've identified a number of places where we can do upgrades and give more productivity to those customers to give us some upward pressure on the growth rate.

Thank you.

Your next question comes from the line of Romit Shah with Nomura Securities. Your line is open.

Yes. Thank you. If you look at gross margin relative to your competitors, your margins are about 10 to 15 points higher. And your competitors are saying, while true, their revenue growth is better. So sort of implying that there's a direct relationship between margins and top line growth. And I'm curious what your take is. Do you feel that gross margins at these levels are holding back the revenue growth to a certain extent? Richard P. Wallace - President, Chief Executive Officer & Director: Yeah, it's a great question and one that we've reviewed over time. I think the challenge is it doesn't appear to be the case that demand for process control is elastic. So if you were to offer – if you were to reduce prices, there's no evidence to support that there'd be more business there. I think people find the level they want to be at in terms of investing to get their process to ramp and to keep it under control. And they're going to pay for that with based on the returns they get. Whereas in a process situation, if I'm getting designed in at a node and the customer has a very strong view of how many they're going buy, they're in a very good position to negotiate that price over the life of that particular node. And I think that's why you don't see the expansion, margin expansion for process equipments near the same way that we have it. And it's harder for them to get that beneficial pricing. With us, it's really a question of, if you need it. And if you don't need it, you're not going to buy it. And if you do need it, it's going to be a value exchange and that's where we see the strength in our business model.

Rick, on that point, you have talked about market share which you ceded a couple points last year. And I know the expectation internally is that you'd like to grow share. So does margins and pricing play a role in improving your share in process control at the time? Richard P. Wallace - President, Chief Executive Officer & Director: It hasn't historically. And the reason I say that is we've never been tool for tool low cost and competed on price. What we have to do is differentiate on performance and if the performance is there, we can typically, we can have higher productivity than the alternative but since we don't really make the same tools, when we look at our tool compared with our competitors, they're not the same tools. They are different approaches, different technologies. The most extreme example would be gen five against the e-beam alternative that's out there. So if we can demonstrate capability and higher productivity, it's again not a function of price. So what we're not going to do is chase the markets where it's based on a pricing decision because that's not consistent with our model. So this is why we invest heavily in R&D to have that differentiation. So two things we say. One, you got to have differentiation and the differentiation has to matter to the customers in a way that they see benefit in buying it and we think there are those opportunities for us.

Okay. Terrific. Thank you.

Your next question comes from the line of Mehdi Hosseini with Susquehanna International. Your line is open.

Yes. Thanks for letting me ask a question. Rick, I want to go back to the 10-nanometer commentary. There seems to be some confusion out there as to how the die size, not so much of the cost per transistor is going to change. Based on the tape-outs you've seen, do you have any color, anything you can share with us as how the die size is going be impacted by adverse impact of multi-patterning? And I'm referring to over-provisioning that limits the die size shrink? And is there a factor that is going to somewhat reduce the scaling that we're all hoping to have in the 10-nanometer? And I have a follow-up. Richard P. Wallace - President, Chief Executive Officer & Director: We've seen a range. As you know, when you think about advanced design roles for logic or for the foundry market, often one of the biggest drivers for those tends to be, it has been historically FPGAs, which tend to utilize large die. And I think that for those they're still going to be pushing performance and wanting scaling but there are a number of other chips of course that are going to drive various ranges of die size. So we've not heard that. I think it's an astute insight but we have not heard that as being a limiter for the 10-nanometer rollout as we've seen these increased number of designs. But to your point, it's also pretty early. So we haven't. I think it's still early days.

And this is my follow up question. The reason I ask is, when we migrated from 28 to 20-, there was some yield challenges and despite lower wafer start, you were actually able to do relatively okay. And it was much better environment than converting, than migrating to sub-20. And now that we're a year or so away from 10-nanometer, is it true shrink? And I'm just wondering if some of the opportunities would go away? Is this something that we're going to learn more about the impact of die size at 10-nanometer? Are we going to learn that when wafers come out of the pilot line in the spring timeframe? Or are you going to be able to provide some color by October timeframe? Richard P. Wallace - President, Chief Executive Officer & Director: I don't know how much color we'll have by October but I can give you my take on the last migration. I think a lot of what happened was, as we know now, looking back, 20-nanometer, we did do reasonably well going to 20-nanometer but it didn't carry over to 16-nanometer because as we went to 16-nanometer, of course we were left with reuse. I think the challenge in 10-nanometer is for customers it is a full shrink so they're going be challenged by that. But then as we think about 7-nanometer, the question is, are they going to have reuse opportunities there? And so part of the way we plan on addressing that is with new products. And I think the new products will give us this catalyst for driving new capability and creating more of an opportunity for us to grow.

Got it. Thank you.

Your next question comes from the line of Mahesh Sanganeria with RBC Capital Markets. Your line is open.

Yes. Thanks very much. Rick, a question on your December outlook. You're looking for a pretty substantial increase in order in December. Can you give us a little bit of color on what's driving that? Is it order for the new product you're looking at or is there segment specifically that's driving the order growth because we kind of know that 10-nanometer is a little bit far out. Bren D. Higgins - Chief Financial Officer & Executive Vice President: Yeah, Mahesh, it's Bren. So in terms of how we're sizing, I mean I'm not really guiding the December quarter as I said. It looks roughly flat in terms of half to half, so strengthening into December. We think obviously memory continues to be solid but we do expect to see some foundry activity start to pick up in the December quarter as well. There's some timing of some trailing edge projects that are out there that looks like we might see some of that activity start to book in the December timeframe. So, a combination of things across a couple of segments that gives us confidence around December being a solid increase versus September at this time.

And then a follow up on that, the – usually you have a much longer lead-time but it has been shrinking for a while. If you see order pickup in December, I would say the – is the shipment pickup – significant shipment pickup happens in March or is it something that can happen in December? Bren D. Higgins - Chief Financial Officer & Executive Vice President: It tends to be customer-specific. So harder to say at this point. I'm not sure I can guide the second half shipment profile right now.

All right. Thank you.

Your next question comes from the line of Edwin Mok with Needham & Co. Your line is open. Edwin Mok - Needham & Co. LLC: Hey, thanks for taking my question. Just, I guess, follow up question on the memory order, very strong this quarter and you guys attributed that to 3D NAND. But I understand some of your customers might be looking to convert planar NAND fab to 3D NAND rather than doing greenfield. To the extent that they do that, is that a lot of reuse can happen and would that kind of limit your opportunity on the NAND side? Bren D. Higgins - Chief Financial Officer & Executive Vice President: In the quarter, we had – 3D NAND was solid. Also we had some DRAM activity that was good as well. I think you're going to see some conversions but most of the activity that we're seeing so far is more greenfield focused. Richard P. Wallace - President, Chief Executive Officer & Director: It also has more variation. I mean 3D NAND inherently doesn't necessarily have a lot more process control intensity but the decision by our customers to upgrade or try to reuse often depends more on the age of the fleet and what's out there and when they did their last process control buys. So memory was pretty soft for a while so there'd become more opportunities and when they're spending we're on the list of opportunities that they're looking at. So it's not quite as simple as their reuse because in those cases, the memory guys have invested at a lower level historically than we saw in foundry. Edwin Mok - Needham & Co. LLC: Great. That was good color. And then my follow up question is on 10-nanometer. Our understanding is that there's…

Your next question comes from the line of Jagadish Iyer with Redstone Research. Your line is open.

Yeah, thanks so much for taking my question, Rick. It's two questions. First, I just wanted to understand ASML has been pushing its EUV to its logic customers and several customers, just wanted to understand what is the status of the EUV mask inspection as ASML plans to ship several tools over the next 18 months to a major logic customer. I know you had kind of scaled back a little bit on the EUV. Just wanted to get your latest thoughts on that. Richard P. Wallace - President, Chief Executive Officer & Director: Well, we think we have a pretty compelling answer to reticle verification for EUV but it doesn't require an EUV reticle tool. It requires the 6xx platform that we have and our ability to do print check on devices once they're printed. And so, from our perspective, that is the answer to support the customers as they go through and the degree with which they adopt EUV. We're already supporting that in terms of the work that's going on in the reticle tool. And then we can support it when they printed on the actual wafer, so that is our answer.

Okay. Thank you. And just a follow up, I just wanted to understand fundamentally if you look at all the patterning opportunities that your competitors, like, Lam and Applied have laid out in terms of their growth in the patterning step, you would imagine that etch and deposition which are intensive for several of these applications would definitely need process control. Just wanted to get your thoughts into why the process control market hasn't really grown as one would have imagined? Is there anything that we are missing something like that? I'd appreciate your input on that. Richard P. Wallace - President, Chief Executive Officer & Director: Well, I think it's much more a function right now of the mix between memory and what we're seeing in terms of customers investing in memory versus investing in logic. In logic and foundry, our intensities are pretty good. It's just those customers are in a bit of an air pocket right now for us whereas the most of the investment has been along memory where there's also multi-patterning opportunities but that's – when you breakdown our process control intensities by different technologies, whether it's memory, logic, or foundry, that shift to higher percentage of memory is really explains the shift in our demand environment. Bren D. Higgins - Chief Financial Officer & Executive Vice President: Yeah, we're pretty comfortable with what we're seeing on foundry, logic intensity changes node to node. I think the biggest issue right now is, is that you are dealing with very similar tool sets at 20-nanometer and below and so the ability to migrate the capacity that was acquired for 20-nanometer down to 16-nanometer, 14-nanometer with no backfill of design tape-outs where that capacity has enabled customers to reuse some of that equipment. But in terms of the intensity that we've seen on those purchases, it is in line with what we were expecting to see at 1x.

Thank you.

Your next question comes from the line of Patrick Ho with Stifel. Your line is open. Patrick J. Ho - Stifel, Nicolaus & Co., Inc.: Thank you very much. Yes. Sorry about that. Rick, kind of a bigger question in terms of multiple patterning and traditionally where you get process control intensity. Do you ever see more and more double, multiple patterning steps that should drive increasing I guess process control intensity that you've seen the foundry, logic space? I guess why hasn't the DRAM space or the memory guys adopted more process control, I guess in line with that transition? Richard P. Wallace - President, Chief Executive Officer & Director: Well, so there's two things if you think about process control. One is around the metrology space and the other one is around the defectivity space. And if you remember our SEMICON West presentation, we talked about in patterning, our market share's probably in the 40% range. So the capital intensity is higher in patterning and our share is not particularly strong and it hasn't actually gone up that much in memory for process control intensity. The other side though is defectivity, and defectivity for multi-patterning doesn't really depend so much on multi-patterning as much as it does on the device type. So you're making memory. These guys are almost at 100% repair when it comes to DRAM. And so you're not going to see as much and we haven't for many, many years see the adoption as high in DRAM. And then 3D is a different decision because, for them, because there they really want 3D capability to look through the stacks and that technology just doesn't exist. So it's more a function of the process control intensity on defectivity and our market share in terms of the…

Your next question comes from the line of Farhan Ahmad from Credit Suisse. Your line is open. Farhan Ahmad - Credit Suisse Securities (USA) LLC (Broker): Thanks for taking my question. I wanted to understand a little bit of the shipment profile of the 3D NAND orders that you received in the June quarter. Is it pretty much timed in September quarter or is it going to be spread out over next few quarters? Bren D. Higgins - Chief Financial Officer & Executive Vice President: I think around that segment most of those orders will ship in the next, over the course of September and into December. So lead times being three to six months on those tools. Farhan Ahmad - Credit Suisse Securities (USA) LLC (Broker): Got it. And then one high level question, like if we just look at like the yield problems that are going on, in whatever segment we look at there are yield challenges that are kind of slowing down the ramp plans, like we hear about DRAM 20-nanometer being like an issue for a lot of customers. And 3D NAND obviously is having issues and in foundry, since it doesn't seem like yields are progressing as well as people would like. So the question really is like despite the yields being challenged, why are we not seeing like an increase in process control intensity as one would have imagined like a few years ago? It seems to me like whenever you have yield challenges, process control used to benefit. Is there some change going on here? And is there a different way that we need to think about when yield challenges are there and not just in the process control segments that KLA is serving here? Richard P. Wallace - President, Chief Executive Officer…

Your next question comes from the line of Mark Heller with CLSA. Your line is open.

Thanks for taking my question. I was wondering if you have any view on the order mix for calendar 3Q? Bren D. Higgins - Chief Financial Officer & Executive Vice President: Yes, so for September, it looks like 43% memory and foundry 35%, logic 22%.

Got it. And then where do we stand on the buyback and when do you expect to complete that authorization? Bren D. Higgins - Chief Financial Officer & Executive Vice President: Well, we've got in excess of 8 million shares remaining on the authorization. We repurchased $168 million in the June quarter. So we see a continuation over the course of the year, now approach is to do, what we call, a dollar cost average-like approach towards that over time. And so we'll continue to do it quarter in, quarter out. Certainly, we – as we manage our overall cash relative to our U.S. target, it does have an impact in terms of cash needs and in terms of where we ultimately end up around share repurchases. And we are going to start to pay down the debt. We've started to do that in the last quarter and so that will be an aspect to the cash management going forward as well. So we're about halfway through, a little over halfway through and we'll see it continue over the course of the next 12 months or so.

Thank you.

Your next question comes from the line of Stephen Chin of UBS. Your line is open.

Yeah, thanks. Just a follow up question on the impact of Intel's CapEx cadence change. It wasn't clear to me, does this impact how you run KLA at all? Do you maybe throttle back manufacturing output? Or is the impact just not that meaningful since logic has been, I think you said, a smaller part of your orders recently? Thanks. Richard P. Wallace - President, Chief Executive Officer & Director: Well, obviously if anyone is reducing their CapEx and our sensitivity to process control intensity is higher in foundry and in logic than it is in memory, that's we don't consider that a great thing, so that dials us back a little bit. If you think about the restructuring that we did, we talked about two motivators. One was to position the company better to deal with our customer challenges to get to market and be easier for our customers to deal with us. But the other side of that was to reduce our cost base, and we've done that. And if you look at where we are from the peak, we're down pretty significantly. So our view is that, in the event that this continues, we want to be positioned appropriately for our investments to support it. But we never know how long these things are going to go. There are many examples in the past where customers give one direction and then change directions based on the way things go. And we're prepared for either one. But I think that we have taken actions to deal with, for us, what was a lower end market demand environment than we would have hoped for a couple years ago, but we also think that, in 2016, we will see a resumption of the investment.

Okay. Thanks for sharing that, Rick.

There are no further questions at this time. I will turn the call back over to Mr. Ed Lockwood.

Thank you, Connor. On behalf of the management team, I'd like to thank everyone for joining us here today. An audio replay of today's call will be available on our website later this afternoon. And again, we appreciate your interest in KLA-Tencor. Thank you.

This concludes today's conference call. You may now disconnect.