Q4 2019 Earnings Call
Greetings and welcome to the Kulicke and Soffa.
20, my team fourth fiscal quarter results call.
At this time, that's concerning listen only mode.
A brief question answer session will follow the formal presentation.
<unk> assistance during the conference. Please press star zero under telephone keypad.
As a reminder, this conference is being recorded.
It's now my pleasure to introduce your host Joseph Elgindy Senior director Investor Relations at strategic initiatives.
Kulicke and Soffa Joseph you may begin.
Thank you very welcome everyone to Kulicke and Soffa its fourth quarter fiscal 2019 conference call joining us on the call today.
President and Chief Executive Officer, Mr., Wang Chief Financial Officer, and General Counsel.
Those of you received a copy of today's results released that's what's the latest investor presentation are available.
That's a relations section of our website.
Okay.
In addition to historical statements today's remarks will contain statements relate to future events in our future results. These statements are forward looking statements with the meaning of the private Securities Litigation Reform Act like site.
Our actual results.
He doesn't materially quite as indicated as forward looking statements.
For a complete discussion at the risks associated with killed so that could affect our future results financial condition. Please refer to our resets to filing specifically the 10-K for the year ended September 29 2018.
I would now like to turn the call or if there's a chance to the business overview. Please go ahead.
Hi, good Joel.
Well we.
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Improved utilization rate.
Yeah.
We most companies.
And we recognize revenue several pieces.
Michael.
He says.
And Oh industry.
We want you quote comparison from the March quarter.
Two sequential comparisons to provide a broader.
Scope.
In parallel with improving market conditions, we continue to open a beneficiary.
Hey, good strong gross margin.
Oh near term cost saving opportunities, we don't just ongoing projects.
First.
We recognize revenue one I just said you might point immediate doors.
Oh, Oh puts you Mike.
Sequentially.
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Yes.
Okay, and I know D. I will not just in market increased by nearly 17% sequentially. So many people <unk>.
We have also continued to see improving demand oh cycles unions.
As you make whole you meant from memory.
In market decline beauty <unk> home equity in the June quarter, Australia.
Pure improvement when the larger generalist chemicals in the energy market.
Oh, Yeah, what do you meant has largely stabilized we didn't <unk> and memory end markets short.
Yes.
Yes, they watch the man.
Important <unk> pricing and the growing semiconductor.
You know automotive Hawaii.
Oh <unk> in the memory solution remains highly competitive.
We anticipate Joe recovery.
And what can walk you through all Beach, California.
California, Quiles, Yes, we didn't know September quarter.
English telcos and sequentially and the increased 25000 from the March quarter, which again, we can you do present trial you Matt.
I have to what goes on sequential revenue improvements helped to highlight the region's <unk> end market and also I'll update you generate demand for new products short cycle.
Winning kept the equipment, we experienced sales we didn't many obese niches.
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And the bonds picture.
What do you expect revenue for five more piece walk says Oh meat and Mike Etwo well recognized.
Yes, we're supposed to provide strong margins, which led to wash your more detail shortly.
Oh and Lucky product in Somebody's segment, if yes.
Quick question from all much windows, and the 6% sequentially towards $29.1 million, yes.
If you might use a conscious that we saw our longer term quarter, <unk>, Oh 2030 $40 million equally.
Oh, Yes, you Gotta <unk> for our large install base.
And the which markets yourselves.
Andy if yes, yes, yes.
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English demand.
Go once that's an ongoing traction with our new products.
We can call me that's for strong upon Eattwenty performance.
That's it.
We remain focused on customer engagement and operational readiness Oh on new products and then he called me that all will come in.
These new bucket.
Oh, no actually kind of coal what when is the one who will cover this quarter's financial overview in greater detail.
Yep.
Thank you put that my remarks today will be what we refer to GAAP yourself noted net revenue for the quarter was $139.8 million gross margins of 46.8% generated $65.4 million gross profit and net income of 6.4 million or 10 cents per diluted share.
Gross margins, what clearly strong like there will be affected last quarter. This was partially due to our ability of recognizing fivex luck tool ahead of schedule.
In addition to receiving acceptance earlier than anticipated. These initial lux systems generated gross margin above corporate average.
There's lots of other newly developed product the majority they'll material, it's expensive to R&D until products have received market acceptance.
We anticipate recognizing revenue on a final to fully expensed pick what systems during the December quarter.
Operating expenses also came in more favorable weight that all expect that target model $53 million Opex expenses.
5% to 7% variable expense tied to revenue.
We have also restructure small fraction about global R&D team, which resulted in a discrete 1.6 million dollar expense in the September quarter.
We continue to seek out opportunities that will enhance the quality and efficiency about global organization.
Over the coming quarters, we maintain outcry operating expense target of 53 million fixed quarterly expense plus 5% to 7% of bearable quarterly expense tied to remedy.
Well, we are cautioned call indeed soft environment, we continue to invest heavily in an ongoing R&D programs, which will drive meaningful long term value and market share expansion.
Turning to tax we booked a net tactics that $3.8 million, which was in line sequentially over the long term. We continue to talk at an average effective tax rate of approximately 18%.
Turning to the balance sheet, we ended the September quarter, well be total net cash and that position $532 million or $8.28 on a diluted share basis.
During the September quarter, we have continue I'll be purchase activity and the point $15 million repurchased 680000 shares.
At the end of September quarter, we had approximately $97.1 billion remaining under the existing share repurchase authorization.
Cumulatively over the last five years from the repurchase programs inception through the September quarter really question 17.2 million shares in open market transactions.
Total value of $302.8 million.
Roughly one third of this total value $100.6 million with deployed in our fiscal 2019 period.
The repurchase program combined with our dividend program prudent M&A and aggressive market expansion through new product development provide a powerful platform for long term sustainable shareholder value creation and delivery.
The book value per share basis, we closed the September quarter, what $12, a six cents an increase of three cents from the June quarter.
Working capital defined as accounts receivable plus inventory last accounts payable was effectively flat $207 million down $1 million sequentially.
From a D. S O perspective, our days sales outstanding increased from 107 day to 126 days.
<unk> inventory decreased a 129 eight to 108 days and days of accounts payable decreased from 56 840 40.
This concludes the financial review portion of I'll call I'll now turn the discussion back to them for the December quarter business outlook.
Secondly stuff.
We have clearly you guys are recovery Jonas.
You know you related business why don't come once you're in the memories seems to be new Oh, It's a trial for table, we continue to anticipate ongoing and the gradual recovery in older end market, we saw over coming quarters.
Uniquely what kinda as well as a way should be pushing against several new revenue opportunities true. Please go yes. Please.
Hi expense also market in the form to increase but let's just get your own property portfolio.
Okay, and what you said look what does.
We are focusing their living in a range of 130 to one or $250 million, we presented <unk> outlook.
How much if any that she is pretty cautious analogy in old business, we'd be do you simple old beautiful graduate and ongoing demand be called me for all products and services.
Over the past, yes, the sequential revenue change December over September .
You'd be then and it was your 14% reduction we sort of branch Oh cross sale to a negative 45%.
Can you give your trends Oh, just kind of all indications and improving in a fairly resilient end market demand.
We have also Nick on them as we implement to our core business you, but in that process ability to identify and how your new market opportunities and also do you boarding shareholder returns.
Most everybody <unk>. So you basically yes, we haven't told many good enquist own monkey shoes I bought in every business.
Hey, good breadth in the Recognizer, making your own civil and new to us.
Hi, Girls media into Michael you market and it could be a.
What you meant to be $250 million to invest a shoe the repurchase and give you the problems.
We continue to beat if this improvement all fundamental in nature.
Oh, a busy expensive market and the <unk>, that's sustainable pitiful for <unk>.
Well the value creation.
We still see I would like to provide a brief update them all at the bonds Pictures and you should use.
Overall, we continue to be very focused on walking.
I want new custom according to schedule <unk> advanced packaging business that tech I'm up.
And the peace talks.
Just want to continue to be very promising and the highly confident you. We expect they put my new growth prospects and the won't contribute meaningfully to long term profitability.
Oh, you solving somewhat completion in the high accuracy of reach your business, how can do continue to be and the various engagement stable at a multiple cosmos.
Supporting qualification and also I want in productions.
All these products are you, putting new solution to our customers.
Hi, there well well productivity and the continued to driving new customer interest.
Yeah. They shouldn't you all of you off which all coal monkey be company. We also anticipate Oh, that's picking progress to Osiris true feature called 2020.
Yes, we rent production with existing customers and the pretty decent solution to new Cosmos.
Well I'll meet and it might go Etwo piece, what else, we recognize making your own an additional five system.
The September quarter, it's just them in total.
We are currently I wish I mean, <unk> protein hold on production run.
That's what do you might not big night, we do not just pretty much.
Men hugging walkie talkies luck system.
No. We are also because all of which means we attribute you spread automotive and also consumer electronics.
We continue to anticipate piece, what I will then sue 2020, and the enhanced overall <unk> probably the beauty.
If somebody were highly confident our coal monkey Pos trough and also not all when you put up marketing spend the opening will provide the industrial with enabling technologies.
We believe all in Aberdeen solution.
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And how unless we go.
Hello, All Fiveg technology.
The putting pressure on I would you do matches.
The English a pension or otherwise packaging and the emerging opportunity we that these freight market.
Oh entire conditions remain extremely committed to execute toward our long term strategy of value creation and the TV bodies.
This concludes our prepared remarks.
We will not be happy to pick up questions.
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One moment please poll for questions.
Our first question today is coming from Tom Diffely from D.A. Davidson. Your line is now live.
Yes. Good afternoon. Good evening, thanks for the call. So I guess first question on the Pixelworks wide, obviously very nice to see that are being accepted by customers. I curious you talked about how it benefited the margins during the quarter would that because some of the tools were already accounted for or is that the.
Because of the true margin structure of the product that's helping the margins.
Hi, Tom it like that for the quarter the contribution to the a high gross margin by picks lots was because of the fact that like many.
New tool.
It's already been expats do R&D until locked in acceptance now five all five tools as a complete all through.
Into the gross margin.
Okay on a go forward basis or do we expect the tools to be a above corporate average for margin sorry, yes. We do we believe the gross margin for the picks lots will be among the higher among the company I'll pick lots is the most technologically advanced and fastest too on the market and towards the very low cost of ownership popular so we believe that the margins.
Moving on.
Okay. Good how big do you think that market is at this point.
Oh, how can you do get a questions yeah, how big of markets for the Pixelworks or for other micro many leading solutions.
Okay, we'd be de if all these markets or is going to grow a significantly and the we are at the early stage Oh for big lighting application.
For consumer electronics.
So for us.
We do believe are dependent on the redemption schedule all cosmos, we target a ball fight to pinpoint then you know what in your revenue or in 2020. So that's all right and I think you know future could getting bigger.
Adoption over began Michael you continues.
Okay and just for clarification is this for mobile screens or computer screens, what what size screens is so unfortunately.
Well actually the display side you can be very from a small two big screen. They get screened actually is there may be what I, but I really view with these quit actually probably in the future.
We still need to be inquiries have put that to be Judy, but actually we are working with some multiple cosmos and I think would in a cousin in customer gets onex display and well do industries.
Okay, Great and then quick question on the model itself sounds like the out the Opex is similar to where it's bad.
The margin front. So when you look at relatively flat revenue a lot times in the fourth quarter, you see a little bit of a boosted the margins because your higher other wedge bonder side, a little lower on the ball Bonder side, but curious if you're going to see indeed expect any differences sequentially on the margin front.
Well, Tom I think the margin what we're looking at they'll probably be paying 45% to 47% that's larger than the corporate margin that we thought okay.
Okay.
Thank you very much.
Thanks.
Thank you. My next question today is coming from Craig Ellis from B. Riley FBR. Your line is alive.
Yeah. Thanks for taking my question and congratulations on the strong earnings performance in the quarter guys. I'm. The first question I had but it's really more of a clarification that relates to what I'm. Tom's question. So I think what I've heard is that there are a eight systems that have shipped per sale in the last two quarters three.
A couple of quarters ago five in the most recent quarter can you just discuss how how broadly those are being accepted by customers are we talking about one customers, a couple or or even more than that.
I would Holly Hi, Craig.
We're talking about a couple of customers. So it's not one customer so now it's going to evaluation at several customers.
The they I failed to spread among several customers though.
We believe that going forward there the ramp will be without that probably the second half and.
One or two different customers.
Okay, and and clearly the expectation census product wasn't bounce back at Semicon West certainly it sounds like from.
A few minutes commentary that that there would be a material wrap in front of best but as we look at the businesses shipment and rubright capability on on five systems are there any capacity issues that we need to be aware of what's your internal capacity that to ramp. This system is it in the tens of systems and if so well.
Where would that be.
Well I know Craig we prepared for the ramp we know its comfortable while so we do not believe that our production capacity will be a bottleneck during the ramp. So I think we're ready to pretty intense many systems that is required.
Excellent and then I wanted to go back to you send to one of your questions. You mentioned that there were a number of new revenue opportunities that the company was pursuing and it sounds like you've got very good visibility on growth. There I was just wondering if you could help us just by ranking some of the new revenue opportunities that you see I assume picks elecsys near that.
But could you help us prioritize that less thanks [laughter]. Okay. So oh first of all I think are there are few art you saw it in a fully industry.
And are not make us quite positive about 2020 and walk.
Historically, the semi downtime is no more than six quarters, and clearly we see them much punch in 19 use all the trough and the we also she and Oh say Kuzma 18, a capacity and they are adding capacity for the whole industry not only for himself.
And the memory I think he's a good study well ahead of us a we see.
But the gross or actually quality quota for the past two core those and the industry actually expect and do you spend memory recovery a true all kinda your next year 2020.
ER was and then it first and then followed by the way.
So for US specifically you know.
In addition to the market conditions.
I just gets what I see a piece one offs actually has a bright spot for us.
And it's going to be Olympia in 2020.
And I'd say, there's a few times.
Dependent kosmos remains on schedule can be.
Oh, one or two months in dade or whatever but we do expect go fight with 10% or kind of into your revenue.
That's it for one week.
We also expect free chip and the GCB Oh sure would traction in the market.
Because a we have thought we engage in multiple cosmos awful modification.
And also some overall cosmology heavy in production. So we don't believe what would traction in pone point, <unk> and a shortlist gross.
Most feel free to and you should be in that 2021.
So, let's Oh, yes, you know market and a 40 industry.
Okay. That's very helpful. Alaska longer term question on gross margin Telestar, let's start with a with the benefit of some favorable mix that business is operating well.
On the gross margin side and yet your we are very near the trough and and the company has that target model out. There can you just help us understand as you look at the things that are going to bridge the gap between where we are to the low end of the target model I believe at 49% what does it take to get into the long term target model ranch.
Well.
Okay, I think what we on the long term target model range well, they're looking at it at some of those so that Susan talked about as our excellent becomes more of the company's revenue.
Beyond 2020, and 20 122, as well as catalyst as well the PAMA and the new what we call PCB 2.0 kicks in building the high margin tools, we believe that that would drive to both marching forward as you well know a huge focus of who said always has been costs, we continue to reduce costs across the board.
In terms of our core business. It and then also one of initiatives that systems and pushing forward. Three years is increased <unk> sale <unk> County high gross margin debt capital equipment. So I think between those different elements. We believe we can drive to what the I thought was much and target because I did.
Okay last one for me and then I'll hop back in the queue. Houston you were quite precedent in terms of being very early to call. The March quarter, So truck and the company really did a great job, putting its money worse mouth is with $100 million of of share buy back in the quarter.
Can you gentlemen, just help us understand how you're looking at buyback intensity at this point now now that we're into what looks like the early stage or separate recovery and should we expect at a similar level of share repurchase activity or something closer to what we were saying.
Six or seven quarters prior to the most recent quarter. Thank you.
Okay. So a quick before and so you know what's the lumber I won't go to your Oh, Washington Logic I do believe the company or the most important is do you have a capability we can open girls right.
So a pause I just got kept your location Inc., we can't do given buyback stubbornly congestion and the M&A.
So it's a sudden point for sure I think we engage with M&A.
But we want to make sure all organic development program, we must trends we have knowledge, we don't commitment and I think we've seen attaching so I think that you know near them the horizon.
Oh.
I would say guess a year from no we don't really seriously consider M&A.
So because of Ah, we need to do use that can be though among M&A or what you're seeing and also keep it then I think he's going to be a balanced view.
So it's a very difficult to end. So you always a precise omo well, we're committed to continuing to water purchase and the company Oh.
We are committed to other DB then they will come to know repurchase program and or the amount we depend on when we decide to luxury good M&A activity.
As we have questions.
That's very helpful. Thanks, Peter Thanks faster.
Thanks.
Thank you My next question trace David Duley from Steelhead Securities. Your line is now live.
Yeah. Thanks for taking my questions just a clarification I think in your prepared remarks, you said and reference was it to the wire bonder business or the or the total body business that was up 17% sequentially and up 64% from the bottom.
I think the overall equipment of course, a bolt on the use of although not.
I think in a positive fuel for the we actually see a wire bonder coming back and Stony I've seen god they represent about 50% Olivia.
So I would say you know when talking about overall.
We didn't move them, though.
Okay.
And what could you talk about I don't think you mentioned the utilization rates of Oh, the wirebonder, but could you perhaps give us a measure there and then help us understand if the utilization rates are higher or lower and in China or.
What what you're seeing from that market.
Sure Dave.
So utilization weight, we see in the field in the high Seventys, However, I'd like to place out that is not uniform across all the businesses as well as and calculation and the region specifically to your question about China, China is actually at the highest Eli basically all the regions, we see athletes getting the ninetyth well.
Hi, why did come down in low seventies in Korea isn't mid Seventys. So I think a lot of utilization rate growth has been driven by China.
Okay, that's very helpful and.
As far as.
You mentioned the automotive than the memory businesses have have stabilized or now and I guess, you're kind of expecting a gradual improvement in 2020 could you just talk about in each one of those segments. What the key trigger is two to spur growth like for instance, the automotive space is it more electrical vehicles.
For more electrical vehicle content or or what will get these two segments of the business up and running again.
So.
Well there when you was shown you know the memory, we will assume as you know server and not high performance computing.
This was a constant the only logical modeled a memory and automotive rightsizing in no in the bottom but.
But we do BD BAW based oil or historical result, we.
Thank you expect auto also increased cellphone here.
But oh I don't see more cultural how much your memory life. So I will still be to your thought is a you know traditional you know it you know silver and also in the computing areas.
I would be the memory girl and the precise or the be girls quarter to quarter, we ought to she took what the girls and the next step you know is a price hooking up.
And then the whole industry will.
You cover and that's what we always division.
Okay, and then as far as you know maybe just look into next year. It seems like you have core business recovery happening and you have a bunch of new product contributions.
Starting to ramp up in the L.D. space and some of these other spaces.
You know do.
Do you think that.
And we think that you can't get back I guess first question is is any reason to think that you can't get back to peak revenue levels is there any segment of business that you know may not recover and allow you not to get back up to you know 200 or 250 million per quarter kind of run rates.
So Dave I think we are cautiously optimistic about the recovery both in general Sami L.E.D. as well as you know eventually as Susan said auto and memory West, Texas coming in but I think.
The $250 million corridor is pretty high target and why we think there will be a recovery I'm not sure we're going to hit that in 2020. So are there maybe is there any more color.
Oh, we do believe a decent recovery is a wage already recovery Oh view. So let me give you. An example, I think are increasing asked me if you're a ball Oh model.
2021, the origin model for that $1.1 billion.
So this probably you fight incident, probably can give you a little bit Oh part of the Carla.
So should the current recovery will bring a 22 I'm talking about 2022, a year up to.
We sit or you don't go 2021.
Shoot Twangy 18 label, Oh, no headroom in <unk> as a baseline, but I'm talking about the submission.
That's a 900 million and you know Oh, no revenue as a business.
And next Oh, sorry, Yes, you know twangy.
20, 122, three years, we believe we probably get an additional $200 million.
You should they be deal.
Oh, the organic gross profit that we introduced to market, including.
Oh furniture TCB piece of Lux and also unless the mentioned <unk> you know additional revenue.
So true beach or you know 250, meaning.
What did you ever see revenue, it's about $1 billion. So right now as we look at it will get it I think a probably you know 2020 true you know will be the time, a we've spoken to be job $1.1 billion to $1.2 billion.
But Bobby I do be de pop, we wash U 250 from Uh Huh.
Or maybe you didnt out 20, <unk> and the young.
Anyway.
So not will be always progression.
Thank you very much I was very helpful.
Thank you My next question today, it's coming from Christian Schwab from Craig Hallum Copper group Your line is alive.
Great. Thanks for taking my question.
And can you give us an idea and in both the automotive in memory business, you know peak to trough quarterly revenue if you have that.
This cycle.
The question I left out so right now are we believe auto memory is near the trough. So auto is roughly 50% of what our 2018 quarterly run rate was well mainly is about one point into one third.
Okay.
Fantastic and so so then memory.
Good to see a more materially, though if we have a true memory cycle and and in equilibrium supply demand equals out and second half of this year, we get back to spending money again on the Capex side.
That could ramp up more quickly other <unk> in my opinion is that fair.
That apparently there.
Right now memory is close to four to five to sell revenue at its height closer to 20. So I think if there is a recovery.
We were seeing some of the company in the end of DRAM comes back I think significantly.
Okay.
It could be Oh right.
Yeah, and a accretion as you know we actually have a very high market shows.
Space.
Right right and then on the automotive side ill it recovery in that business. It was a series of questions about it it wasn't clear to me isn't the automotive recovery based you know upon a upon units or can that business, a if unit should stay kind of.
But it these type of levels for the next year or two with greater Oh, you know electronification for lack of a better word.
I'm going into vehicles. Good that you know see a nice recovery overtime or is the automobile business much more but just a a gradual recovery.
Well, because even though or any segment recovery will not be sub advice. So isn't really might expect against the auto or to go to the more digesting and maybe show a stronger momentum I would say maybe second loveland that shows.
Okay. Okay [laughter] Fabulous all my other questions have been asked thank you.
Thank you Christian.
Thank you hasn't run off a reminder, ladies and gentlemen, it star one to be placed and the question Q1 moment. Please what we pull for further questions.
Our next question is coming from Krish Sankar from Cowen and company. Your line is I live.
Hi, This is Bob <unk> on behalf of Chris. Thanks for letting me I asked this question just real quick housekeeping, one first and that I had a follow up well, what's the size of the advanced packaging business this quarter.
Size of that's actually what about 14%.
Okay.
Great and then.
You got in next quarter sort of flat quarter over quarter, where it's typically.
Seen some seasonal weakness could you just gave some sort of puts and takes around which areas you're seen strengthen into the December quarter is this sort of broad based continuation or is there one area.
It is gonna be a little bit stronger and some softness and other ones.
Well I think it's we have indicated on the call. We still think memory and auto is recovering, but there's still soft right now I think that recovery. It's small I had it not just I mean, L.E.D. and particularly in China as I indicated the old Pat I'm running at a very high utilization rate in China. So we believe that the ER.
Well on and maintain its not the revenue at flat is coming from general with Fannie and Freddie.
Okay, great. Thank you that's helpful.
Thank you we reach of our question answer session I'd like to turn the floor back over to management for any further a closing comments.
Thank you before closing we wanted to inform investors that will be participating in several upcoming conferences urges throughout the December quarter in Dallas, New York City in London additional details can be found at Investor Day Mccain as dotcom also going forward, we will be adjusting the timing of our earnings release to premarket at approximately eight am eastern time.
Thank you all for the time today as always please feel free to follow up directly with any additional questions.
Operator. This concludes our call. Good day. Thank you that does conclude today's teleconference. You may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.