Bren Higgins
Executive Vice President and Chief Financial Officer at KLA
Thank you, Rick. KLA delivered a strong September quarter, demonstrating consistent execution despite a challenging work marketplace. Revenue was $2.4 billion, non-GAAP diluted EPS was $5.74 and GAAP diluted EPS was $5.41, with all three coming in at the upper end of the guided ranges. Non-GAAP gross margin was 62.4%, 40 basis points above the guidance range due to benefits from a richer product mix and better service cost performance than model. Non-GAAP operating expenses were $534 million, in line with guidance. Total non-GAAP operating expenses comprised $311 million of R&D and $223 million in SG&A. Non-GAAP operating margin was 40.2%. Non-GAAP other income and expense, net, was $47 million. And the quarterly effective tax rate was 14%. At the guided tax rate of 13.5%, non-GAAP EPS would have been $0.03 higher or $5.77.
Quarterly non-GAAP net income was $786 million, GAAP net income was $741 million, cash flow from operations was $884 million, and free cash flow was $816 million. As a result, free cash flow conversion was a strong 104% and free cash flow margin was 34%. The company had approximately 137 million diluted weighted average shares outstanding at the end of the quarter. The breakdown of revenue by reportable segments and end markets and major products and regions can be found within the shareholder letter and slides.
Turning to the balance sheet. KLA ended the quarter with $3.35 billion in total cash, cash equivalents and marketable securities, debt principal outstanding of $5.95 billion, and a flexible and attractive bond maturity profile supported by strong investment-grade ratings from all three agencies. KLA has an impressive history of consistent free cash flow generation, high free cash flow conversion and strong free cash flow margins across all phases of the business cycle and economic conditions. Over the last 12 months, KLA has returned $2.4 billion to shareholders, including $1.7 billion in share repurchases and $726 million in dividends paid.
I also wanted to highlight that on September 5, KLA announced an increase in the quarterly dividend level to $1.45 per share from $1.30, the 14th consecutive annual dividend increase. Since its inception in 2006, KLA has grown the quarterly dividend level at an approximately 15% compoundannual growth rate. Additionally, on that date, KLA announced an incremental $2 billion share repurchase authorization. These capital return actions reflect confidence in our business model and growth strategy as we progress along the path to our 2026 financial targets.
Moving to our outlook. As we review the market and assess relative performance of our peers across the industry, we are adjusting our Wafer Fab Equipment outlook for 2023 up to approximately $80 billion, reflecting a decline of approximately 16% from the $95 billion level in calendar 2022. While the timing of a meaningful resumption in WFE investment growth remains unclear as most underlying end markets remain soft, we continue to see KLA's overall demand stabilizing around current business levels, and we expect this demand profile to continue into the first half of calendar 2024.
KLA's primary value proposition is focused on enabling innovation through technology advancements and transitions, which our customers continue to prioritize across all business environments. While capacity plans are often adjusted due to changing demand expectations, technology roadmap investments are more resilient. This adds additional confidence to our business expectations as customers align shipment slots with roadmap requirements. In this environment, we will continue to focus on meeting customer requirements, maintaining our high level of investment in R&D to advance our product roadmaps and KLA's market leadership, and delivering strong relative revenue growth and financial performance.
As for guidance, our December quarter guidance is as follows: Total revenue is expected to be $2.45 billion, plus or minus $125 million. Foundry/logic is forecasted to be approximately 68%, and memory is expected to be around 32% of Semiconductor Process Control systems revenue to semiconductor customers. Within memory, DRAM is expected to be about 85% of the segment mix and NAND 15%. We forecast non-GAAP gross margin to be 61.5%, plus or minus 1 percentage point, as product mix expectations are modestly weaker versus the September quarter and service period cost benefits realized in the September quarter normalize. Inclusive of this guidance, calendar 2023 gross margins are expected to end up in the mid-61% range.
Non-GAAP operating expenses are expected to be approximately $540 million. Other model assumptions for the December quarter include: non-GAAP other income and expense, net, of approximately $45 million, and an effective tax rate of approximately 13.5%. Finally, GAAP diluted EPS is expected to be $5.54, plus or minus $0.60, and non-GAAP diluted EPS of $5.86, plus or minus $0.60. EPS guidance is based on a fully diluted share count of approximately 136 million shares.
In conclusion, we remain focused on driving differentiation through innovation as we execute our successful portfolio strategy that supports our customers' technology roadmaps. Though the industry is correcting in 2023 and sustainable demand recovery still remains unclear, we are sizing our business to ensure that we deliver a differentiated product portfolio that meets our customers technology roadmap requirements and that we have the capacity to execute our business in line with our longer-term growth expectations.
With the KLA operating model guiding our best-in-class execution, we continue to implement our strategic objectives which are geared to drive outperformance. Our focus on customer success, delivering innovative and differentiated solutions and operational excellence is what enables us to deliver industry-leading financial and free cash flow performance and return capital on a consistent basis. We are confident that process control's importance to enabling technology advancements bodes well for KLA's long-term growth outlook despite challenging near-term demand trends.
KLA is well-positioned to deliver strong near-term relative financial performance, driven by the better-than-market performance of our Semiconductor Process Control and Specialty Semiconductor businesses and continued growth in Services. KLA is also uniquely exposed to wafer and reticle infrastructure investments that are contributing to our relative outperformance in calendar 2023. Our business continues to stabilize, and the long-term secular trends driving semiconductor industry demand and investments in WFE remain intact and are compelling.
That concludes our prepared remarks. Kevin, let's begin the Q&A.
