Q1 2020 Earnings Call

Greetings and welcome to the Kulicke and Soffa 2020 fiscal first quarter results conference call.

This time up 'cause trends pretty listen only mode.

It should answer session will follow the formal presentation.

If anyone should require operator assistant store the conference. Please press star Zero Wonder telephone keypad.

As a reminder, this conference is being recorded.

Now my pleasure to introduce your host Joseph Elgindy.

Senior director Investor Relations and strategic initiatives pre Kulicke and Soffa.

Oh. Please go ahead.

Thank you welcome everybody gets office first quarter fiscal 2020 conference call joining.

Joining us on the call player accusing chairman President and Chief Executive Officer in Leicester Wong Chief Financial Officer, and General Counsel.

For those of you have not received a copy of today's results the relief as well as the latest investor presentation are both available in the Investor Relations section of our web site at Investor Day.

Dot com.

In addition to historical statements today's remarks will contain statements relating to future events in our future results. These statements are forward looking statements within the meaning of private Securities Litigation Reform Act like 95, our actual results financial condition may differ materially more as indicated in those forward looking statements.

For a complete discussion of the risk associated with talking south of that could affect or future results of national condition. Please refer to our resets E filing specifically the 10-K for the year ended September 28 2019.

I'd now like to turn the call refusing Chan for the business overview. Please go ahead.

Thank you Joe.

Well, what do you still quotas.

We experienced expected she's in those companies you know you know semiconductor market.

Well, you must be more than offset by a resurgence in the demand for <unk> advanced packaging memory.

And what your <unk> solutions.

In addition, you need these yields in recent years event in Las Vegas, we were pleased to see the strong alignment in the Liberty is all Rob you can the opening here.

<unk> future outcomes, you must be watches.

I will put my more detailed two leases leader, but for a review of the December .

Well one of the possible, yes, Oh sequential revenue change December over September <unk>.

Just a beach, 14% sequentially. There's not you just you what is quite different and the we were able to generate 144, when we should be meaningful revenue.

We present life's repurpose in sequential improvement.

We were also able to de lever based on gross margin of 48.8%.

Income so viewpoint I mean, it kind of get <unk> 21 cents.

So good news improvement, what's driven by both capital.

Oh, good MCU products and services.

Again due to input you, Matt <unk> advanced packaging memory and automotive focus systems.

You know.

No no it'll you'd be focused cosmos.

To be done 50%, Oh, what he said look what the sales.

Which was sequentially down by approximately 15% low income logical watching our future would reach 59, Oh well bunkers.

Oh, It did you get what the bus packaging solution.

Represents 17% on some of what the see us.

<unk> increased 29% sequentially.

You need like you said look with Oh, Emma business [laughter] strengthen.

We hit a new upon my cousin must win.

We are engaged in multiple qualification with Canada and the we continue to exceed Oh, I'm talking four people not our meaning in the Michael it'll be systems.

Namely represent just over 2% you some of what the revenue.

A material increase nearly 200% sequentially.

He meant we didn't automotive and industrial occasion, we present opportunity one of the puts and hope you can look what does the revenue.

<unk> increased lobby, 24% sequentially.

This was driven by.

You should automotive OEM customers and the new demand for that'd be assembly capacity.

Why is he mckee how to use a memory on what you have improved.

We do not be different this market has 40 recover and the we anticipate additional improvements true Frisco 2020.

Oh boy.

You got originally and often Mcus, yes, that's where it's meaningful improvement we didn't want them, what you've been the memory Mcus increased I'm confident in an ongoing mckee recovery, which we'd expect to improve for the throughout fiscal 2020.

Ongoing market traction, we didn't <unk> dedicated advanced packaging systems.

Equally old meat and the Michael it would be.

Sure, it's a coffee does to our longer than maybe even pocket.

Oh, no like you tend to go over to list a woman who will cover this would this financial overview in greater detail leased up.

Thank you for said my remarks today were referred to GAAP results that noted net revenue for the quarter, what's $144.3 million wrote margin, 48.8% generated $70.4 million gross profit and net income up 13.5 million or 21 cents per diluted share.

Yeah.

Margins came in better than expected largely due to product mix. This next include a higher relative contribution <unk> atheist business stronger feature rich ball bonder demand as well a few higher margin advanced packaging sales.

Looking into next quarter, we anticipate gross margin to return to approximately 45%.

We expect taught it makes to drive this reduction which include increased L.E.D. sale and a lower proportion of Apia relative to capital equipment.

Operating expense again came in more favorably than expected target range. This is due to an ongoing focused effort on discretionary and non critical calls.

Looking into March quarter, we anticipate returning to our target range 53 million fixed expense plus 5% to 7% variable expense tied to revenue.

Turning to attack.

Okay net tax expense of $2.1 million, an improvement from last quarter, we continue to target a long term average effective tax rate of approximately 18%.

Turning to the balance sheet. We ended the December quarter, total net cash and investment position $540.4 million or $8 at 43 cents on a diluted champagne.

During the December quarter, we have continue our repurchase activity and the point $5.4 million repurchased 224000 shares.

At the end about December quarter, we had approximately $91.8 million remaining under the existing share repurchase authorization.

On a book value per share basis, we closed the December quarter, what $12, a nine cents an increase of six cents from September quarter.

Working capital defined as accounts receivable plus inventory left accounts payable reduced to $249.1 million from a DSL perspective upbeat sales outstanding decreased from 126 day to 100 2040.

Outpaced sales of inventory increased from 180 to 116 day and they have accounts payable increased from 40 40 to 55 days.

This concludes the financial review portion of I'll call I will now turn the discussion back or what the fuson, but the March quarter business outlook.

And so this though.

For all standpoint.

No some kind of the unit volume <unk>.

Of course, if demand for all products to be below the longer than seasonal patterns, you to broader industry and the make whats right that mix.

Over the past decade, and you were sitting on the unit production grew at a compound annual goes really well just over 6%.

Well one of the past year, we'd be deemed the industry has expanded at a much slowly.

Looking ahead.

Why did you could abilities.

You shouldn't do Joe's.

New I what did you buy she is.

The growth in big data.

And automotive evolution and despite a serious and you can have a unique gross <unk> about this historical 6% acreage.

Yes, and these big growth is very positive for what you need even put us.

So putting that you know, what's really going to put in the energy space.

In addition, our new market opportunities are disruptive and expect you to grow much faster than the industry. It's they provide a very compelling value proposition good <unk> Jude existing approaches.

Usually a parent display lucky as well as a we didn't have the bonds logic and memory applications.

Over the past few years, we improve organization.

Expense also available market was new you know with you in the east trimmed the comparative all pretty to become a true multiple products and the much bull market company.

Yes, Andy if it should be diversification is critical and to provide higher gross but you would you not Aki board, depending upon them into a new capabilities.

On less exposed you inhalant cyclical nature or chemical do the you any production and a half the potential to dramatically enhanced Copeland label profitability.

Oh Geez I mean this effort, we don't know entered in a very exciting huh.

Oh, new products are gaining traction in the we'd be if the recent beautiful suffered demand is behind us.

Why do we remain very confident in the longer longer Kim.

So what some uncertainty tree goodbye extended facility closures. So all that China has caused us to broaden our guidance range.

Pretty much quotas, we are anticipating revenue to be between 140 and the $170 million.

He's marks the fourth sequential quarters or live new improvements.

Repeat that over a 7% increase from what you said look what the and a 34% improvement fullness Im curious last year.

Looking to long term overall solution increasingly a night with major suddenly going to the package and trends.

As well as a trend not likely to impact the broad consumer market.

The consumer electronics show in Las Vegas These months Phil to highlight these new possibilities.

We're not going to buy a teacher somebody is always a clear enough room to scare us.

Good luck to open to clear vision.

He said growing appetite for connected semiconductor, which you might use.

You bet use in addition to foster in the highest being weak connectivity service.

Gee, what drives more streaming.

Oh processing and artificial intelligence applications.

Over the coming years, we're confident this new technology, what's the point increase grossly over global semiconductor production and the threat increased demand for our products and services.

In parallel we continue to make a meaningful progress with our new advanced packaging products.

Yes, new products continue to be present fundamental known to market opportunities who might be more collaborative customer engagement.

The increased diversity and the new gross Victor.

The key products, providing this new opportunities, including Apollo.

Although somewhat conversion system.

And then Oh actually she friendships system and the piece alone own meaning in the Michael Yee systems.

We continue to achieve all of which your gross but in general.

All these new initiative.

Okay.

We are working aggressively to want new customer because you're in that continue to be suit Pos Steve customer feedback.

Specifically or could that is to have begun to live production in the high bought M. D. H logic application this past quarter.

'cause it has continued to be extremely competitive and the we are very focused was sick oh, new customer engagement in the past because you know over the coming with us.

Next.

We are able to become less revenue on two up how much system this quarters.

Obama has been long production at a major offset for several quarters supporting I bought in smartphone application.

And the we were recently able to penetrate a new high potential image sensor applications.

Oh customer continues to leverage some of compression technology for a pretty kitchen, we fear than initially anticipated.

Such as you more complex market you packages and also imaging sensor.

Oh system is performing very well I bought in production environments and the remains very competitive.

More recently.

We have also engage along with them.

Technology collaborations with a high potential customers, which for the what's your fight the all in market.

Finally, the people up but the best energy system continued to perform well and the we recognize that live in your own five additional just don't support he knew that review and the Big lighting Company vision, we didn't know this way markets.

We continue to operationally prepare for peace Lupski meant to begin ramping maturity you need a second half.

And anticipate these new opportunity to extend considerably should could end up 2021 and the beyond.

These are up and Oh, all the best figures into our own extremely competitive.

And the old global team continue to engage in the drive new customer adoption.

Over the coming years, we anticipate the pace of new customer engagement and the demand for our products increased meaningfully.

Overall.

We are very excited to demonstrate oh value creation ginger.

We put should this new opportunities in coordination with the expected industry recovery over the coming quarters.

The entire as organization.

Remained extremely committed as we execute our strategies for 18 and that you'd be building shareholder value.

This concludes our prepared remarks, operator, we will not be happy to pick up patients.

Thank you when I became ducking. Your question answer session, if you'd like to be placed in the question Q. Please press star one under telephone keypad.

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One moment, please what we poll for questions.

Our first question today is coming from Tom Diffely from D.A. Davidson Your line is not alive.

Yes, good morning, and good afternoon first let's start on the Corona virus it sounded like the impact or the unknown from the krona virus caused you to reduce the low end of your guidance by about $10 million that a good way to read it.

Oh, so oh actually a deep actually so they did a good luck on fight.

But I won't continues so we did not see India or that we show or cancellation you much quarters.

If you expect it once you get you called you're actually getting paid all production in China.

So oh.

Actually it's a manageable this woman and if we need to monitor you produce a shutdown will be further extend deal now.

And our you know Oh.

Well why continues to be men actually is quite strong. So it's almost a people come next walk that's your pujols feel very bright philosophy and gives me some yesterday gone.

It all competing we actually saw a case I guess us sitting here.

Okay, and I know last quarter, we talked about you talked about how the utilization rates in China or upwards of 90% are you still seen that high level utilization rates would your tools in the field there.

Hi, Tom left so China has softened slightly.

It's more seasonally softer Jerry semiconductor segment I wanted to strengthen the low bad so I think China, if it's still around 90% Iwai has improved a little bit caused them to 80% now.

Okay, Great and then a you just a couple of questions on new products, you talked about the image sensors been a new market you penetrated here what is the size or opportunity in that marketplace.

I'm sorry.

What products can you repeat so yes, the they'll PAMA for the image sensor market.

Oh, okay.

Oh so.

Actually I think I'm wondering new product I punkin globally.

Big a high level updates.

Well I think this year you know the second part we've prepared a lengthening or for the future loss.

And Oh really depend on the precise a schedule you know we are targeting 5% to 10% overbought I'm kinda revenue.

Oh, that's is a ball maybe you said you're right it's used seven to $10.

And now we believe a this product has a lot of potential because of Oh, there will be a lot about devices.

Yes, you have a knee deep applications. So we obviously will help useless.

And this is the you.

We believe are very important for all the times just yet we have multiple wanting to get is all going okay. No. That's a free chip and also Apama TB.

So oh policy, that's more qualification and the design win we expect got who ran the only beating people you want.

That's all for because I think this going to be a year in 2022 rent a piece of laws and the 2021 or two right below 80, including about future AMR and how long. It I know I think though we have more and more comes not stopped no one or certain major casinos and right now when you start to penetrate a few our cousins.

Okay.

Okay, Great and finally, when you look at all.

Okay.

Okay. How you were talking about imaging center or.

I'm talking about maybe.

In public when do you want to young talking about.

Or maybe assuming a normal love.

Okay. That's helpful.

And then you know as we look at the ramps in some of these new products unless you're wondering on the the margin side are these accretive to margins are they they hit margins a little bit how do how do you view margins as we roll into some of these new products rights.

[noise] well, Paul I think as well as we've all the new product I think we indicated before the new products, whether it is advanced packaging on many of my co Ltd, Hey, their margins above the corporate margin fell out they definitely should be accretive to margin.

Okay. Thanks for your time.

Thank you. My next question is coming from Krish Sankar from Cowen and company. Your line is alive.

Hi, Thanks for taking my question and congrats on the good results.

Last question either for food Gonna less to how much was China as opposed to make it seems in December and how do you how much is expected to be in March.

[noise] attached.

Hi, not in December quarter was about 53%.

And in watch the belief as be about the thanks.

Gotcha, and let's just since you kinda highlighted the March the mix shifts more towards Elie D.

That's one of the reasons why do you see us it's not slight impact negative impact on gross margin is that said as you pretty much all that lead business is coming from China.

Yes.

Got it alright, I didn't know a question who's not thinking that the perhaps you've spoken about the micro leidy opportunity being maybe a remember I just like a $50 million in kind of just when do you that's still the case.

Yeah I think.

But when it's going to happen impaired in the second half.

Oh really depends on a precise skate you're right. We haven't you know the schedule can be video and can be Cristiano say couple of weeks, so big dependable present schedule.

Maybe between a simplified and she was $70 million full calendar year.

Hey, guys like Oh.

Okay. So thats bore you know on it you bring paging through market.

Hopefully 21, NPL can be bigger.

But that's really helpful. That's the final question.

Susan They know when I look at the auto auto Industrial you said it was like 20% of the mix.

The five some of these auto business your hard like I speak if it's extremely lumpy comes up and then like good to be put a few quarters at a time is there anything different this time or do you think the auto market it more sustainable for you.

Well, so I feel we are quite possibly football although businesses in our own.

Because of using one he's a semiconductor content per vehicle is going to increase right and number two I think on the on many of the loans or the badly packaging and assembly Greenfield.

So at the beginning you always see do lumpy and we do believe it or longer can be should they be job.

So I do agree I, thank god for the past few quarters.

To be lumpy, but for longer than I think yes.

Okay.

Got it thank you very much whose and then the congrats.

Okay. Thank you Chris.

Thanks. My next question today is coming from David duly from Steelhead Securities. Your line is not wise.

Yeah. Thanks for taking my question I had a couple of you've talked a on the last couple of conference calls about how.

The ramp up and pickle Lux and how it should produce I guess $35 million to $70 million and this upcoming year why.

Using highly confident about that ramp happening what what is it that gives you confidence that you will see that level of business with this new product.

Okay, I think a we had no fuel costs in the right and we walk across the region and you know just like any other business then they have a plan I can we will come together and come off will cost.

So I think easily.

And on the.

Product development schedule.

And is can be.

I couldn't be you know push ahead, maybe a few weeks or pushed back a few weeks.

As Steve alluded open modification, that's why but mainly davinci, it's going to happen, let's take a novel in calendar year and if you can see this quarter, we recognize the revenue home prices, but so at the beginning I think right no customer older systems, you know for.

A pilot production.

And upcoming them do not there yet you know the wonderful things can happen then that will be a second hub.

Yes.

And what other lead times on that tool if the if the end market products in a wrap in the second half of the calendar year will they be ordering well what does lead times.

Well actually.

For the order did either I think would be.

We'll be a few months few most newness maybe every two months.

Second.

Okay.

And.

And your prepared remarks, and gave US a lot of data about the Arab automotive and the memory market. We're recovering for you in a very substantial way.

Is there some reason why it jumped so much or what was what was behind the rapid growth in both the automotive in the memory space.

Well I feel namely baby, but do you expect a this is going to your for them they made to recover.

To start first followed by the land.

And before like you know, there's the already indication I think last year not be girls already happen.

And the December quarter.

Actually it's a ball 10% of old really good for a memory and compared to you you know five year treating they reach which do you have to give not least upside for us in the memory and also in the overall space.

Thank you.

Thank you my next question.

Our next question is coming from Peter pain from B. Riley Your line is that life.

I didn't see a pan calling in for Craig Ellis and thanks for taking my questions following them on the memory question.

It seems like you know you do the math memories about 14 million and you know at the peak you guys are doing about 35 million I'm just wondering what the trajectory of memory is do you see it stabilizing at this rate or do you see expect kind of closing into that vary by that we go through the year.

Hi, Peter I think as Susan said, all that stuff I'm a lot them in response to a day question I think memory, if the covering so.

For the.

Q4 for US it was very thoughtful analysis, you know rebound up to 10% for this call for the December quarter. We believe it will continue to grow out for all the reasons, we discuss the for memory prices are going back up both NAND and DRAM as our big well Ah. So we believe that are normally business.

You go back to what I.

I guess, where what historically.

And then just on the you mentioned some utilization rates in China, and what's the overall utilized utilization rate.

I think the overall utilization rate again as I've mentioned several times before it varied the clock region. That's why customers I think its closing in on 80%.

And and just.

I think mentioned that you're seeing.

More aggressive capital spending throughout fiscal 20.

Expecting more seasonal ramp as we go into the back half of the calendar year or is it going to be somewhat.

Below seasonal just like the March quarter, just want as Steve you have any visibility into that.

I think what based imaging or capital spending is really Cutler capital spending yeah. No I think in terms of the last Peter I think again, we believe that there.

We believe.

Can you get a gold sequentially I mean Q1 with Ben can fall, we believe in but we don't got Q2 is that in Q1 in I don't guide into for the quarter. If we believe that love the second half youll be stronger than first half the yet so.

Okay. That's helpful.

Hi, guys congratulations on the strong core.

Thanks Peter.

Thank you as a reminder, that star one to be placed into question Q.

Our next question is coming from Christian Schwab from Craig Hallum. Your line is now alive.

Great.

Solid quarter guys I'm most of my questions have been a asset but they were only just asked a couple customer specific questions. Maybe I know I'm Infineon, just announced that they're moving production in autos to flip chip is that an opportunity for you frozen.

Well.

So the short answer is yes, right. So I think our future.

Oh, it's always is important and will become a more and more important.

With that strategy and our system is very competitive and that has been you know a recognized by our customers. So are we.

In March for quite a schedule, namely customer sites and we.

We believe we have begun to.

Okay Fabulous and then another customer specific question you know a given the success of Tesla is there is there an opportunity for them to become.

A material customer for you again at any time in the next beano year year, and a half or so.

Hey, Greg it's less.

Obviously, we don't specifically talk about any individual customers I think it Tesla has been identified previous as a top Castilla and test. There has you know they did great yesterday on their results and a growing both in Shanghai as well as in Germany. So we believe that there's opportunity there.

Fabulous great I don't have any other questions. Thanks, guys.

Okay.

Thank you we reach of our question answer session Oh, let's turn the floor back over for any further closing comments.

Thank you Kevin before closing the wanting to inform investors that we will be participating in several upcoming conferences and riches throughout the March quarter in New York, Chicago, Montreal, Minneapolis, and Portland additional details can be found at Investor day, Mackaness Dot com.

Thank you all for the time says as always please feel free to follow up directly with additional questions.

Have a great day, everyone. Operator. This concludes our call. Thanks. Thank you that does conclude today's teleconference. You may disconnect. Your lines. This time and have a wonderful day, we thank you for your participation today.