Q3 2020 Kulicke and Soffa Industries Inc Earnings Call
Hello, and welcome to the Kulicke and Soffa third quarter fiscal 2020, <unk> financial results Conference call.
This call all participants are pretty listen only mode, that's pretty wondrich acquire operator assistance during the conference. Please press star zero after telephone keypad. What question answer session will follow the formal presentation.
A reminder, this conference is being recorded.
It's now my pleasure control over to jog Indeed.
Senior director Investor Relations and strategic initiatives Joe. Please go ahead.
You welcome everyone to Kulicke and Soffa third quarter fiscal 2020 conference call.
Joining us on the call today, our fees and Chad President and Chief Executive Officer, and Luster Walker Chief Financial Officer.
For those of you received a copy of today's results the relief as well its latest and that's her presentation are both available in the Investor Relations section of our website under investor decaying dotcom.
In addition to historical statements today's remarks will contain statements relating to future events and our future results. These statements are forward looking statements within the meaning of the private Securities Litigation Reform Act of 1990.
Our actual results and financial condition may differ materially.
What is indicated as forward looking statements.
For a complete discussion of the risks associated with Kulicke, and soffa that could affect or future results and financial condition. Please refer to our recent FTC filing specifically the 10-K for the year ended September 22019, and the 10-Q for the period ending March 28 2020.
With that said I would now like to turn the call. It really isn't Chen for the business overview. Please go ahead.
Thank you Joe.
I see that into increasing dynamic environment, we all pretty.
We wanted to start to these coal by highlighting is free speech <unk> point that may help to kind of your <unk>, Oh pollution and the strategy.
First of all manufacturing facility operating at the nearly a full capacity and the dependent on progress on continuing to progress as planned.
Last quarter, we specifically identified supply chain Constance associate with the regional shopping embrace and the movement console does which constraint capacity at a simple suppliers.
You supply chain issues, what are the result, but what do you may end up we no longer and despair supply chain challenge and then gets huh.
Secondly, Hello, U.S., we'll be opening challenge me, but the most of the you effect near term medical in the industry related anemic.
We continue to anticipate a low bus to be about recovery you suddenly come to the unique girls <unk> evitable.
With over 80% of global semiconductor package utilize wire bonding process.
Oh coal market is clearly what do you laid it was a semiconductor unit gross.
All those any color that you any production in calendar year 2018 was estimated to be about 5% higher then you need expectations in calendar year Twentytwenty.
Yes decreased in production you, Nick historically, and the has impacted demand for our coal products.
Turning to the reason cynical didn't focus phone got enough support all of you know certainly contract that unicom will grow by 10% to 11% anybody for both kinda yet 2021, and the also Twentytwenty chip again just ended spent their retirement unit gross is expected to Directv and the possibility.
Trigger capacity investments for our coal products.
Last oh visibility in the longer term loan that we didn't know false glow in next generation energy market has improved.
We have ticky tacky Cody executing on our production ramp in the near 10 and also very focused on the next generation tool to increase our competitiveness and the most you again in east liquidity developing new market opportunity.
I will provide additional did you.
Oh broadening the bonds, we de business up to the financial review.
Yeah, Jim quota, leaving you come in at the $150.5 million, we generated $69.4 million gross profit $11.2 million off net income and 18 cents any push up.
Capital equipment revenue decreased by 1.6% why the optimal get pulled the in the services revenue increased by 4% sequentially into the June quarter.
We didn't kept the equipment, we experienced suffer a sequential demand in a general the semiconductor memory.
And the automotive and Marcus.
This is something this was largely offset by improved sequential demands for our system supporting technologies, such as you would end up at the bus ticketing.
And the buttons and RGB bucket.
Why we'd be de if we are approaching and I'd be double units you been market recovery.
I want to do you might you missed a lot our entire organization remains extremely committed to fundamentally expense also market and the market show through ongoing people, but it's worse.
Well conditional improvements over the past few years have lost that you sibling, you and the company that your system, which I'll provide you knew as to the bus ticketing automotive and the disparate opportunities.
Specifically, we didn't advanced packaging will become less of Liberty on all fronts Kindler high accuracy for each of systems and also recognize revenue with a new apama. So more competition customers you went in the June quarter.
We didn't the it'll get space, we aren't you space. We're excited for the technology transition, we didn't that the screen market.
Given that you wouldn't we recognize revenue.
On the fly piece deluxe system, our largest quarterly shipment oh, but the bonds detour.
Some label scale, Katy will always puts just in our business alone. We expect ongoing pulled the adoption and the show again, we didnt this new high potential market to pull but it did I wish deprecation and also to create meaningful and does tend to book value for shareholders overcoming yes.
I would know elected to Nicole with relates to one poor cupboard is for those of financial overview in greater detail as though.
Thank you said my remarks today were reported GAAP results unless noted.
Net revenue for the quarter with $150.5 million gross margin of 46% generated $69.4 million of gross profit and net income of 11.2 million or 18 cents per diluted share.
On a non-GAAP basis, we generated net income of $12.9 million or 21 cents per diluted share.
Operating expenses for the quarter came in on the lower end of our long term target range as expected.
This was due to ongoing cost control efforts reduced travel and also from local government assistance.
We continue to be very focused on cost control in the near term and we also continued to be very focused on development.
We are anticipating GAAP operating expenses to fall back into our target range within the September quarter.
This target range consists of 53 million fixed quarterly expenses, plus 5% to 7% of variable expenses tied to revenue.
Turning to the balance sheet, we ended the June quarter, well, they total net cash and investment position of $515.8 million or $8.21 per diluted share.
During the June quarter, we also paid down or overdraft facility as we repatriate it a portion of our cash balance to the United States.
We intend to maintain some capacity within the overdraft facility, which provides additional flexibility on U.S. related expenses, such an ongoing development dividend and the share repurchase programs.
Considering our long term perspective on the repurchase program. We continue to view the recent market dynamics as an opportunity.
Through the June quarter, which further increase our repurchase activity and deployed $22.4 million to repurchase just over 1 million shares.
While we intend to create meaningful and sustainable value through fundamental market expansion and market share gain we strongly believe a long term share repurchase program provides an additional lever to further maximized and efficiently deliver this value to shareholders.
In early July we announced an increase an extension to our current repurchase program.
This marked the third 100 million dollar increase to the current program since its inception in August 2017.
Including this recent authorization extension at the end of the June quarter, we would have had approximately $151 million remaining under the share repurchase authorization.
On a book value per share basis, we closed the June quarter, $11.93, a slight sequential improvement.
Working capital defined as accounts receivable plus inventory, that's accounts payable increased slightly to $260 million.
From a DSL perspective, our day sales outstanding decreased a 119 days to 117 days.
Our day sales of inventory increased from 117 days to 127 days and days of accounts payable decreased from 56 day to 55 day.
This concludes the financial review portion of I'll call.
I'll now turn the discussion back over the first then for the September quarter business outlook Houston.
Since the list.
Despite the limited visibility in a challenging opened a de bundling through all the semiconductor capital equipment space.
We were able to maintain all at the bottom and <unk>.
We expect our repurchase program and the most importantly, we have men pen or increase although consistently full flight sequential quarters.
Looking into September quarters.
Over the past five years has shown an average 19% reduction from the June quarter.
Well again, increasing Oh look and anticipates, a pembroke with us and maybe now to be 165 million Cross my nose in it.
Oh steady business and old improvements just much Nigel It's a reminder, <unk> our business is more diversified and the not open it very different that he left.
In the past.
Well I'll end market has not improved in lockstep and oxygen rate offset each other they [laughter] or could it could be improved.
Despite this gradual improvement.
Yes, the old religion below what we view it so sustained aborted the bulk of capital expenditure to support long term semiconductor unit girls.
This goes away it has averaged 6.5% over the long time, which is expected to support our core annual revenue of approximately $700 million.
Again acreage semiconductor unit growth from calendar year on the agent through calendar 2020 is expected to decline, which is historically normal.
Yes, you Nick environment has a clear the men challenge for our core products.
Well, let's say, we anticipate a return to more normal growth next year.
As mentioned earlier this expectation just show with external marketing forecast, we anticipate unicom gross to exceed 10% each over the coming into kinda, yes.
Why do you have clear challenge associated with the U.S., we'll be opening.
And we are entering a seasonal period it was a historical limited visibility.
I'll return to normal and above normal liberal semiconductor <unk> unique grows we'll have a direct and that means what impact do you mean label for all coal products.
In parallel with this expected recovery.
Our new product do you view, but new capability.
And the increased assets two fundamental technology transition, we didnt I've been speaking automotive and the display.
Yes, we assume market are becoming increasingly dependent on technologies friendship, which we expect will continue to provide additional ill, especially because you over the long term.
We didn't each of these categories, we have competitive and the proven products that are already in high volume production.
And up they were pollution to support the underlying technology transitions.
Specifically, we didn't advanced packaging could the open to opportunities are providing new and the value that you took a mix, which offsetting the well known challenge of technology military.
We continue to Cogs cibro, new customer engagement, we are providing access to high performance logic, but because you don't want dominate but traditional free chip applications.
Well, it's usually within the automobile market.
Wishing that requirement for high reliability and the infusion public cultural.
Storage and the public distribution of applications, especially for electric vehicles.
Oh couldn't products, but im a little mix and the customer relationship our video a night was evolving opportunities we didnt this dynamic automotive space.
Finally, our recent entry into the screen market has a significant potential to enable the adoption I bought him.
If if youve, meaning in the Michael it'll be solutions.
Over the course of June quarters.
Credit you own longer term prospect in the low mid supporting the buns Michael in the media because you have.
Improved.
And I would like to provide a few additional digit why this new business is important for us.
On the conservative expectations, we anticipate media and the Michael It would be title shipments to be over 100, Buda units this year and the what potentially reached over one treated its only by 22 meaningful.
Oh, it doesn't appear to us we anticipate our media in the Michael It is still well below market to grow at a compound annual growth rate exceeding 40% suit on these wonderful.
We continue to expect demands for our current system to grow more significantly so our next fiscal year.
We have prioritize all focused on developing what do fine and the ramping production old media and the Michael It would these systems, which targets the final prism instead, we view the fast growing market.
We want it to be might you missed unless they are also several additional at the bonds and only deep process steps, we can leverage Oh prefunds unique high throughput capabilities.
This including processes such as the smoking.
Nixon repositioning and there will be calibration.
Over the near term, we have a clear on that extends our reach into these although process that and also very focused on pushing the additional customer engagements.
We're very focused on executing this strategy and I look forward to shouldn't all progress and the additional opportunity over the coming with us.
One of the near term environment isn't Korea Susan.
We are confident that unit count will eventually turn positive as it has in the past cycle.
Yes. It is the underlying coal market condition improves we intend to further diversify the business, but you able in means what technology transitions, we did the advanced packaging.
So more to you and the discipline buckets.
This conclude our prepared remarks, operator, we will not be happy with equations.
Thank you will now be conducting your question answer session, if you'd like to be placing the question can you. Please press star one under telephone keypad, a confirmation tone will indicate your line is in the question Q you made press star to if you'd like to remove your question from the Q for participants using speaker equipment may be necessary.
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One moment, please what we poll for questions.
Our first question trees coming from Krish Sankar from Cowen and company. Your line is that lives.
Hi, Thanks for taking my question out a few of them all food and one thing is in terms of your guidance when you look into the September quarter.
Which verticals are driving the strength is it primarily semi sort of are you seeing human or send them. The memory packaging leidy any color on that would be helpful.
Oh for September quarters, Yeah, Yeah, So krish I think.
Current monkey layout for you have placed spot and also ahead of us.
You know, it's BBB issues, let me give you a you know if you a bright spot.
Number one is the old meaning and the Michael It would you be Smith I bought in production.
And we also see play Jesus spending and the memories and recovery.
And also I mentioned in the past two years 1920, the semi unique <unk> growth rate was actually negative and Oh, we believe and also a many people be do.
When it comes girls or would come to be positive not only plus it would be over 10%.
For next two years so.
Well she is really a bright spot along with you have us I'm used to be the challenge associated with the conducting watching it doesn't you're going to deal with that right.
Just like a U.S., we'll be opening and.
The inventory level through older support a supply chain, but compared to last quarter. We are much actually computation come to do a quarter ago.
Oh, we saw as everything please.
Yeah, absolutely that Doug thank for that there's a follow up I had to make a two part question on the Pixelworks number one.
No I wasn't an impression of the Pixelworks is a much higher margin products, what why do we start seeing that drop through because it looks like compare your March and June numbers, you know yet incremental pixelworks sale, but.
The margin profile was pretty much similar instead, what point when the drop through kick in as you should do Pixelworks and the also.
Isn't being used I mean, I was under the impression. The Pixelworks has used mainly for me levy not micro LCD, because the pick and place I'm going in the transfer micro at least I just wanted to get them stratification on that.
So we have or at least the instead, it's Chris So crash hi, how are Ya.
So let me answer the last question first yes. Thanks, a lot is for many ltd.
As far as the margin is concerned all the margins consistent what we've always said it is one of our highest margin product.
Overall margin actually got pulled down a bit because there was significant amount of L.E. bonders in the quarter. So picked let's actually pulled it back up as well as our other ATM are so that's why basically the gross margin was flat for the quarter.
So Chris if you remember icing on loss for the list them mentioned.
We have a love it but it'll be bunker and the you know that's what are you know low gross margin logos margin and he actually guy will be slightly below that doesn't but we saw a the mini I'd like where you would be to celebs actually the pull up above a close off what is what's that.
Got it got it that's very helpful. In what information thank Susan Thanks lifts.
Next question.
Thank you. Our next question comes from line of Tom.
D.A. Davidson. Please proceed with your question.
Yes. Good morning, good afternoon. So I guess following up on your comments about a recovery in 21, and 22% to 10% growth Huston each year I curious on a near term basis based on what you're seeing from utilization rates you tools in the industry have we hit the bottom at this point or.
Do you expect you know the bottom to come over the next couple of quarters or what is the near term outlook for just the core unit driven business.
Okay. So a common largely still to go to you're talking a ball a core the young September let will be some of weather. So just to look for that historically I think we will weigh into Christmas calm and the Chinese new year, Oh, we have less visibility.
And September or October you said look where the always the local the us.
So I felt we are seeing the tool picked up a putting each other one use us.
You know a bright spot I mention Fiveg I answered is spending and the memory and recovery and we also believe the company is the only way and we also have a negative Victor you know these are the opening and the other country probably have a second with Oprah you infection.
So, but I think a we are acquiring quality quite quite hopeful and maybe you don't recover can be stronger up to a tons in New York.
And maybe if you calling the whole use of 10% and Oh, we are in the fiscal year ended at yes September right. So probably we will be benefit have offered gives them more than 10% over unico. It was call, but that's what we're seeing though.
Okay. So what are the actual utilization right you see in the field right now.
They had ballistic <unk>, yeah, Hey, Tom so utilization rate, mainly for the ball Bonder because that's what we track right. It actually is remain quite strong in June at even though a reduced slightly sequentially up we expect utilization rate to remain that way to the September quarter for most of the end market Oh, we think maybe memory and general economy. It's good.
And for the most automotive probably leave a and also within a regionally I think we think there will be more improvement in southeast Asia, Taiwan, and Korea, but at the time quarter.
Okay, and then to send 'em when we look at the likely near record levels of WSE spending this year.
How much of that will ultimately translate into your business and what does the timeframe do think before turning that capital equipment purchase into unit growth.
Oh, I'm, sorry, if I can.
You should repeat again sure yeah. When you look at the near record level WFP spending this year I'm just curious how much of that spending because its advanced package that our advanced nodes or how much of that translates into your business overtime and what is the lag between capital spending and then the unit growth that you would benefit from.
Well I think all run and capacity, even three or can they get.
So.
Probably few quarters.
The highlight but for all that gap, we also see our a driving force folks on board.
You know a the increase in touches the package and the only can be done by more slowly. This can also done by advanced packaging.
And but usually the bus figure that you could increase hedges label overall chances that again this year.
So the outcomes correlated with of run there, but I think they can also be unit, we have different I have a troubling.
So I think next year overall, I think it would be automobile because people are again.
Okay. Thank you.
Thank you. My next question today is coming from Parliament from B. Riley FBR. Your line is alive.
Hey, guys Carlin Entre Craig two quick questions for me a one you had mentioned or you detailed kind of previously how that traditional and kind of course heavy business can do 700 800 million in a normalized environment.
As we look into 21 and onto 22 do you guys have a sense out when we can kind of get back to that level on a run rate given what we've seen this year with co head and you know the recovery that 10% Rick unit recovery next year is that something that might happen in calendar 21 or.
Is really a counter 22 items.
Well I think as Susan said earlier in response to up Palm question right. Now we believe that you know that unit semiconductor unit growth of 10% like kick in part in second half of our calendar 21, right. So it will be at the fed it will be part of article 21 part of fiscal 22, because we are September core.
After a year end. So we definitely think the recovery again subject to you know the uncertainty around a cold and somebody other macro cell based on historical patterns. You know two years going to roll down is unusual and usually doesn't pick up after that and again Gartner, calling for 10 or 11% semiconductor unit growth over the next two years.
We think there will be something 21.
Got it and then I guess just for my follow up and the auto segment and I apologies if I missed that.
You know we've seen from a variety of kind of people in the auto semiconductor chain things or maybe less bad than feared things or maybe picking up a little bit quicker than expected are you guys seeing any of that or is that kind of something that maybe you would see next quarter just due to a delay.
Yeah.
Yeah. So we are still seeing auto add relatively the off right now our June quarter revenue was roughly at about 36% five year run rate. So we think auto we'll take a little bit of prime to get back. We think that you know the improvement in the East Bay will probably pick up first in the next couple of quarters.
Got it alright, that's it for me thanks, guys.
Thank you. My next question today is coming from Christian Schwab from Craig Hallum. Your line is not a lot.
Great. Thank you just a follow up in the automotive questioned if you could put some numbers to that you know I think most people are talking about automotive business you know a bottoming in the September quarter with a gradual recovery from there at least.
It's and equipment that we talk to.
That being the case in it we kind of a 36% run rate can you just quantify that is a number four as quick you know what what that business is doing a quarter and and you know things normalize in the semiconductor unit recovery at some point and 21, how big that business could recover to on a yearly basis can you give us any color.
Her around that.
Sure a question although for the June quarter autumn, we'd be automotive industrial together, it's not it is basically it went down quite a bit is only about $8 million to $9 million. Oh, you know you talk about on a normalized rate.
That will give you some idea and you know previously in the high quarters back in Ah that's stronger years of 18, I mean auto industrial over $25 million.
Okay, perfect and then the memory side, you know with the you know listening to everybody last night I think its crystal clear evidence that already that.
In memory is going to have a strong capex here and in 21 is there any type of numbers that you can kind of walk us through.
With an increase in spending and technology transitions with some new wafer starts et cetera.
It is the same type of magic can give us for recovery in the memory business.
Well I think are Christian we start to see you know.
The strength for us actually or in the September quarters, probably this is a first quarter you started to see more significant recovery, but of course, I remember I remembered less than half of our historical longer and we start this year public sorry.
Okay and stuff from what's it look like.
And I feel front end problem with C., you know a stronger recovery and then US there isn't one.
Yeah. That's a question they use the same metric.
June quarter memory revenue is roughly about 30% of the five year run rate.
Okay perfect. Okay [noise].
Right.
And then in outside of memory in industrial and automotive is there any particular applications.
You know given the fact that you know 80% of you know chips use wire bonding is there any other a big pockets or or markets that investors should be paying attention to to get more confident in 21, you know unit growth of being 10% plus for the industry Oh.
Outside of.
Well, let's just answer that question, if you care sorry.
Okay I couldn't find use of spending I know like I think a wearable device is not doing very well.
Area that's involved the market is a.
It's doing well.
Okay Fabulous and then my last question you know there seems to be a lot of enthusiasm about mini and micro LNG. These.
And I think you guys have one of maybe the only machines out there functioning kick in if some of those big there's some really barge expectations for that market place.
Is this something that could you know.
So if those growth rates kind of prove out I mean could you kind of painted paints a picture.
About how big that market potentially could offer you two to four years out.
Okay. So ER.
Chris I think a you know own medium Michael Yee, Oh, what we're focused on writing all.
In two or two application it wasn't a big banking one you so that would be right.
So all of big lighting.
We expect.
Penetration rate will be about 15% in quantity plentiful life.
ER and a floor the that rebuke varied we've got an issue you know this way.
Well they lost the spread.
I seem to penetration that would be lower.
Maybe like a flight to pin person, but wanted to give you an example.
How big is the opportunity.
One very large displayed.
And that if well we Oh you know our argued that would be a TV market need to change we're about Colombia play, meaning you know about.
Well one close together please.
And the traditional possible Mesa, it's been very low so just one displayed and well that's huge opportunity.
So will you be D. Var. This is really a very pretty huge market.
This morning, I came out we only work and we're one of the process that we call Plano placement and they are many many processes.
So oh.
We actually want to have called Super gives us for US I think this you you know Oh leaching old guidance is 14 million dollar for the whole.
Ah tend to you, but actually mean shorten that we'll see more positive. So we probably can save a 40 million dollar living you just for although a quantity fiscal year.
Yeah, I think next year, we know we are looking at fiscal year two fiscal year right.
Well, we probably can you 60 to 80.
And then a another year.
The pen all if we actually pushed through all this space or like I mentioned, so we can mix in you know the publishing and they'll be calibration.
No if we get to other parts is ours is can be much bigger if not.
Just on the final Christmas that we expect I'll, probably more than $100 million another year would be much much more significant go up enough.
So.
Maybe if you call those will provide you more creative but we do believe we're very excited and this will be a huge market for us.
Great I don't have any other questions. Thank you.
Thank you as a reminder, that star one to be placed in the question Q.
Our next question is coming from Kiki sheep from thing your line is not a lot.
[noise] Autonation I'm thinking Oh for taking my my my question Oh I've two questions. The first it's regarding our.
Or maybe a media you couldn't so when that we're seeing the oh supply chain traction Asia window awesome.
I mean, it's about pick and place which is one of the more most important process. This Ah technology, and then but some of them, we'll come back and say Oh, yeah proprietary.
Page technology.
I'm, just wondering for our pick and place transport equipment is it a universal passport or so all that's all from Patrick So kind of in house those companies those probably when they said proprietary yeah really buying our equipment and the multi clients and then use for mass production that I would be my plus.
Question are you willing <unk> platform and.
And how should I think all the markets you're in kind of.
Uh huh.
I really can't opportunities rather than kind of because the customer because you know yeah that there would be because of my question. Thank you.
Okay actually a what I can to use a all technology or do you did not show additional pick and place.
So a lot of a monkey sure you mentioned I duty or how to answer you well always going to use a so called out we are hearing.
That's a probably couldn't hydro throughput in the model.
And is not again, Chris ought to be Lumpier nasal so I will not be able to provide you more color.
Thank you.
Okay sure data and then my second part of the question as far the product or low roadmap.
I think one up their key battery or for the new everything micro de <unk> of course when this you raised on the other is kind of the cost. So I'll just on our trans fats lives.
Two we have a very clear conifer throughput first my goal not in the next two three years kind of topic in that particular.
I know of Ah Ah throughput improvement, we're kind of what kind of your.
Oh, you de sizes, we tend to see like I don't know up to like 70 microns or 30. My colleagues in next couple of years I can you give more color to sonar technology roadmap. Thank you.
Okay again, I think a you know we have a very very different economic compared to other company.
So.
This is a very huge market, but in the meantime, I think it is also be challenge.
At least one probably won't have a more than 20 quite often made to transform NASA right. So.
The skill sets will be though I think a need to be very dynamic you know continue to keep it up on decrement is going to system and Oh, no won't pick 'em, Chris I think we are talking the ball.
Maybe tend to quantity Uh huh.
But I think they'll be on then we'll continue to increase and that depend on keeping company I think there I'll go back.
Okay. Thank you very much.
Yeah.
Thank you. We appreciate about question answer session, how does it turn before about over to Joe for any further closing comments.
Thank you Kevin. Thank you all for the time today will also be presenting at several upcoming personal conferences throughout August September as always please feel free to follow up directly with any additional questions have a great to everyone. Kevin. This is this concludes our call. Thanks. 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.