Q2 2021 Kulicke and Soffa Industries Inc Earnings Call
[music].
Hello, and welcome to the killer can solve for 2021 second fiscal quarter results conference call and webcast.
At this time all participants are in a listen only mode.
And what should require operator assistance. Please press star zero on your telephone keypad of question and answer session will follow the formal presentation.
And as a reminder of this conference is being recorded.
It's now my pleasure to turn the call over to Jill logging the senior director of Investor Relations and strategic initiatives. Joe. Please go ahead.
And welcome everyone to cool can solve the fiscal second quarter 2021 conference call joining us on the today's call is food and Chen President and Chief Executive Officer, and Lester Wong Chief Financial Officer for.
For those of you who have not received a copy of todays results the release as well as the supplemental earnings presentation are both available and the Investor Relations section of our website at Investor Day, That's dotcom and.
In addition, the 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 1995, our actual results and financial condition may differ materially from what is indicated and those forward looking statements for.
For a complete discussion of the risks associated with fuel can solve for that could affect our future results and financial condition. Please refer to our recent SEC filings specifically the 10-K for the year ended October three 2020, and the 8-K filed yesterday.
With that said I would now like to turn the call over to Susan Chen for the business overview. Please go ahead Susan.
Thank you Joel.
Addition to our normal quarterly update during today's call I will also share our perspective on the underlying driver contributing to the global semiconductor shortage.
If I expect it to the transitional both of us.
Particular, and also highlight recent customer wins and the progress within our growing portfolio.
Before addressing the items.
I would like to first discuss of our ongoing ESG focus.
As we continued progress on this you bought the ESG journey.
We have continued to expand our reported metrics, while ensuring we are organizationally prepared to meet our future goals.
You many of the much quarters, we usually see.
Ships and your sustainability report of.
75 page stuck and then let check our accomplishment and adjacent environmental social and the governance topics.
In addition, I'm pleased to report that we have of recently brought on educating of staff to support our global diversity and the inclusion initiative.
We look forward to sharing more information in the futures.
Turning to our current business condition.
We would like to share our perspective on the underlying demand driver positively impacting our business today.
And the high level with the two transitional driver and the several additional and the meaningful and secure drivers the <unk>.
And to continue possibly impacting demand for our product and the solution over the long term.
First the two transmission of driver of central somatic capital equipment, and the investment and fiscal year 2019, and the 2020 and also the incremental and market demand due to work and the play for long haul.
And in applications, such as the <unk> and again.
While we expect these drivers to the transitional.
The time for our new co products and also capacity and utilization of our installed base.
And the daily high table.
These data points give us confidence.
Transitional driver are likely to extend into fiscal year, 2020 two.
The most comparable period of one of the investment in the past.
While still in two or eight and the two all in line.
Len and extended periods of strong demand.
Additionally, two of these two transitional driver I would like to clearly highlight the more material and the secular long term trends such as the anticipated data explosion supported by global hygiene, Iot and artificial intelligence adoption.
The electric and autonomous vehicles transfusions.
And also the increasing capital intensity and needed to support and next generation higher density of semiconductor Assembly and requirements.
These new applications are expected to create additional day of demand.
Structurally supporting the above average and semiconductor growth over the coming years.
Specifically for <unk>, we are also attrition and the increasing capital intensity the needs within our close of market.
The <unk>.
Activity expanding of our coal market reach.
As I discussed last quarter, these new of capital intensity and.
And then Nick is being driven by growing demand for multi chip applications.
Patient several of the dice into one semiconductor package and.
Effective heightens the assembly solution, that's the smaller form factor for each of Leach.
Connected consumer electronics.
Higher density of package, such as a system and package.
Multi chip modules and the heterogeneous assembly to the niche market.
The market and <unk> solution to mitigate the well known challenge of two dimension of Nordstrom, Inc.
Today, we estimate approximately of 40% over wire bound Mulder Shimmer and are supporting module Assembly.
Each day has effectively doubled in the past years, highlighting our direct participation support and more complex assembly.
It is complexity and create the need for more of advance assembly solution, which extend our value proposition, we didn't get of course of market.
Well the average monthly that package consist of approximately for individual day.
Looking ahead, we expect this to the beginning of a long term trend and anticipate the percentage or bounder support and monetize applications to go along with the agency number of the type of package.
Creating a new and the significant growth driver for our large and the dominate coal business.
And the increasing number of type of package, increasing the number of the interconnect per ticket, which in turn the increase the capital intensity of the assembly market.
Gina two and increasing complexity.
Experiencing within our core market.
Modify packaging is picking up momentum for the leading edge logic memory and the optical applications.
We continue to anticipate adoption, what the increase over the longer term driven by the need to reduce the design cost while enhancing the quality efficiency and the performance.
Post production.
Production environment.
Yeah.
We've got a big and we're prepared to support customers through this transition and the <unk>.
I'm pleased to announce the that we have recently along similar qualification at the top of Oss Idms and foundries supporting complex assembly of leading edge applications, enabling next generation and logic memory and the image sensing capabilities.
As a reminder, we are participating.
In this fundamental assembly change.
And the leading edge.
So for competitive systems.
The AMA so more competition system.
The kind of as high accuracy for each of the system.
The light Tech you sell coffee system and the all hybrid system and package solution, which is uniquely positioned to support high speed Pressman for high density multi chip the chip applications.
Over the coming quarters, we are externally focused on expanding our customer engagement and the expect these recent clarification when will further enhance our product diversification and the long term gross of late.
We didn't mean EOD.
We shipped over 130 people across the system critical day through the March quarter.
This revenue growing installed base highlights our dealership and the enabled and provision within this exciting emerging media and the opportunity.
Our execution and the current and long rate is on track to achieve these high end of all fiscal of 2021 target of $60 million to $80 million.
We also anticipate market opportunities to broaden in the second half of fiscal year, 2020 two.
We have of Korea dealership provision in this market and the majority of enhanced our technical competency since releasing piece rollout in fiscal 2019.
Our development initiatives remain on track as we actively extending our existing competitive provision and the market presence.
Yes.
And <unk> technology is expected to penetrate the breadth the supreme market addressing consumer.
And the commercial applications.
We remain very engaged with the prospective customers and the expect market adoption of salary through our fiscal 2022.
And of multi year line to continue.
I look forward to sharing of additional updates as we expand our portfolio of mini and the micro <unk> solution.
Turning to the March quarters of results, we generated <unk> hundred $42 million of Arabia.
Representing 27% increase from the December quarter, and over 125% increase from the same period in the prior year.
The EPS segment.
The increased by over 15% sequentially.
Driven by higher EPS erosion over the installed base, we continue to make ongoing progress to expand our shifts within the EPS market.
Capital equipment, the prison, 85% of Ebola revenue and the increase by 29% sequentially.
Due to improvement across all of our end markets.
We didn't have much for those capital equipment sales.
Generous and conifer once it supports a broad set of applications such as smartphones and the consumer electronics continued to be very strong and the increased 16% sequentially.
As discussed earlier, increasing complexity and additional layer of demand and the higher growth towards the successful and market.
And of course, our other and market, we sold of the largest sequential trends within the automotive and the industrial end market, which increased 83% sequentially.
The sales are helping to address near term automotive semiconductor production needs and also a much longer term production and supporting the transition to electrification and autonomous driving.
Next namely increased by over 60% sequentially.
And we will continue to remain relatively soft.
We currently see heightened duration within the memory market and anticipate further improvements within memory over the coming for this.
And finally LD.
Increased nearly 60% driven by sequential improvement in both general and the IP.
And the advanced LCD.
For much quarters, we estimate approximately 75% of capital equipment sales supported more complex of the.
And <unk> packaging applications, which highlights the increasing capital intensity of generalists income per pill.
And the memory market.
During last quarter's earning call, we guided revenue to the $1 $1 billion full of for fiscal year.
Despite a very strong demand environment, we anticipate supply chain constraints within the hour production capacity in.
In our second fiscal half.
Hello, and both known and unknown is the present challenge and remains I'm pleased to report that our efforts to mitigate recent supply chain constraints strength.
And our ability to support customers and the improved global semiconductor production capacity.
Additionally, as we have aggressively work on it.
Improve the.
No supply chain constraints, our outlook has also improved.
For the full fiscal year, we now anticipate revenue to be between one three to one 4 billion.
The presenting a significant increase.
Over our prior guidance of $1 $1 billion and over 100% sequential change from fiscal year 2020.
Over the remainder of the fiscal year, we anticipate some incremental manufacturing and the operation expense expenses.
As we continue to address is comfortable of supply chain challenges.
This is the will provide more detail shortly.
In summary, we are confident current market driver, including <unk> Iot transition in automotive and then the fundamental change within our core equipment market and.
Increase our value proposition for our customers and the the broader industry.
Additionally, our progress and the institution and entering new higher growth market supporting leading edge.
IC Assembly and the media and the micro OLED panel Assembly eight additional and the meaningful layer of business. The further support the inherent leverage in our operating model.
I would now like to turn the call over to the Mr. Wong who will cover this equivalent for the financial overview in greater detail later.
For my remarks today will refer to GAAP results unless noted as.
As Susan mentioned demand for our products and services remained strong and the March quarter of revenue of $342 million up 27% sequentially.
We were again able to quickly flex our operational capacity, while mitigating supply chain challenges within our control.
Gross margins and the March quarter came in at 43, 7% below our target due to the strong growth and equipment, but also additional costs largely related to spot purchases and expediting fees. These.
And these incremental fees amounted to $4 9 million during the March quarter.
Considering ongoing global supply chain challenges and our strong business outlook. We anticipate these incremental expenses to temporary continue through the second fiscal half.
As demonstrated last quarter, we are now generating a higher level operating margin, which we believe is sustainable and helps to reinforce the longer term potential of our model. We generated non-GAAP operating margins of 26, 4%, which represents a 410 basis point improvement from the December call.
<unk>.
Over the coming quarters, we continue to be very focused on cost control, but also on new longer term growth initiatives within the dramatically changing semiconductor and display markets.
Overall non-GAAP net income came in at $79 4 million of one dollar and 26 of non-GAAP EPS during the March quarter, which highlights the leverage and our model.
Considering this operating leverage and traction with our outlook, we expect to generate strong free cash flow over the coming years.
Operating expenses and the March quarter came in below our previous guidance due to several favorable items, including foreign exchange gains credit and asset sales.
<unk> the favorable items reduced March quarter operating expenses by approximately $4 $7 million and are not anticipated to continue nor considered in the June quarter outlook.
Separately, we previously explained our Opex model on a GAAP basis, although have adjusted this model to perform to non-GAAP, the better align with peers and analysts reporting.
On a non-GAAP basis, we expect quarterly operating expenses to represent roughly $48 million of fixed expenses, plus 5% to 7% of variable expenses tied to revenue.
Out of this adjustment to non-GAAP. This opex model remains consistent.
Tax expense for the quarter came in at $12 $2 million and we continue to target and 18% long term effective tax rate.
Through fiscal 2021, we continue to anticipate the effective tax rate will come in closer to 15%.
Turning to the balance sheet. We ended the March quarter of a total net cash and investment position of $564 3 million down $12 $3 million sequentially, representing $8 and 92 per diluted share.
This decrease and cash is largely due to an increase of working capital due to the demand environment and also accounts for the Utica acquisition, which was closed during the March quarter.
Despite the absolute increase in working capital we have maintained efficiency days of accounts receivable increased slightly from 76 days to 81 days days of inventory improved significantly from 77 days to 66 days and days of accounts payable increased slightly from 55% to 58 days.
Similar to last quarter demand continues to strengthen although our outlook remains supply chain constrained our operational and development teams continue to work aggressively to mitigate supply chain challenges within our control.
For the June quarter, we expect revenues to be approximately $400 million plus or minus $20 million.
Gross margins are expected to be approximately 44% plus or minus 50 basis points due largely to product mix and additional costs related to spot purchases and expediting fees.
Non-GAAP operating expense is expected to be approximately $72 million, plus or minus 2% and non-GAAP EPS to be $1 35, plus or minus 10%.
In summary demand patterns continue to be very strong with transitional drivers expected to continue well into fiscal year 2022, and many structural drivers such as big data <unk>, Iot and automotive transitions and higher density packaging the continue well into the long term we.
We also anticipate our successful and aggressive market expansion plans will continue to provide new growth opportunities and support of higher sustainable level of operational leverage we look forward to sharing additional information regarding these new opportunities over the coming quarters. This concludes our prepared comments operator, please open the <unk>.
And for questions.
Thank you will now be conducting a question and answer session, if you'd like to be placed and the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is and the question queue.
The press star two if you'd like to remove the question from the queue.
And for participants using speaker equipment may be necessary to pick up of handset before pressing star one.
One moment, please while we poll for questions.
Our first question today is coming from Tom definitely from.
And from D. A Davidson your line is now live.
Yes, good morning, and good afternoon and good evening.
Maybe just start with the health of the.
The the end markets.
Some of the the traditional metrics like utilization rates, we hear that lead times for wire Bonder is may be extended up to upwards of a year right now and so I just wanted to hear your view of the huge ramp.
And how you protect yourselves against the.
The concern of double ordering.
So.
Tom Let's talk about.
The first one is encouraged and rate.
Okay.
Current current entity.
Yes.
Hi.
And that's why I can trigger a lot of the capacity by so.
The second question for Ultra the U is a double booking.
So.
And actually we check of carefully of all customer of double booking and the reason.
But we feel quite comfortable.
But for this wrong the continue into say middle of next year, we might expect.
And maybe even more.
Double booking the introduced when I think.
And for our business, we don't see.
And looking double bookings of skincare.
The so question and I think you asked yes.
The newcomer.
And it is the woman.
All of the income is about 10 months.
And the kitchen of item actually this sort of.
Price Chen actually a bottleneck or.
Our engineering team and.
Our operating team actually.
Look of closely.
Our supplier partners and make sure. We are curious are these of supply chain strategic issue of ultra.
The increase our capacity to meet the demands that customers really need the profile.
This is Greg and I haven't answered.
Okay.
No that's perfect and then just one quick follow up.
And.
When you look at just the core wire bonding market and is there any way to quantify the benefit youre getting from capital intensity increases for I assume having the slowdown and the wire bonder is to do more accurate bonding with these multi chip packages.
Okay.
Okay, Let me tell you maybe.
And then we can come back.
Additional questions.
And so when we enter.
From a for <unk>, we see a lot.
To additional demand for these of market chip package. So right now we are not only the scene.
The extra among of.
Demand needed.
The multi chip.
Package also.
Additional.
The capital intensity, because youll never connect for a lot of in the content within the package for that.
So.
And so.
The other way.
Tom and if you'll remember.
Two or three quarters ago, I mentioned, our <unk> business for our core business.
And is about $750 million in the normal year, which.
Ah represents six 8% unit growth.
But at the high growth year like the 10%.
And our core business probably.
And we'll be about 850.
But we love the estimate this.
The multi die package Honeywell eight above the additional.
100 to 100 of 18 million annually.
Annually to all of this night.
And so you can take the ratio of lovely and articulate about the ratio of improvement due to the multi die package.
Okay. No. That's very helpful. Thank you I appreciate your time.
Thank you.
Thank you and next question today is coming from Chris <unk> from Cowen and company. Your line is now live.
Yes, hi, Thanks for taking my question and a couple of them and congrats on the really strong results first one tools and a less drag I just wanted to square and dispersed you said fiscal 'twenty. One revenue one three to one 4 billion, which implies September revenue company to be down sequentially from June <unk>.
And whilst at the case.
Chris I shall we die.
This is Tom.
And we move on outlook actually also of getting better. So previously we've got one one but this time, we got actually between the one three to one for.
Lots of our new guidance.
And the Krish I think also it's off.
And a lot of volatility and the supply chain right. So I think right now we're still looking in terms of the visibility of got better service and said in his script for the second half, which is why we increased guidance, but we're still being a bit cautious in terms of the for the quarter a little further out so I appreciate you've got sort of net.
And I remember the first quarter, roughly 270, something and this quarter and 340, so forget about 600, and so if we do our Q3s of 400.
About $1 billion right and if you remember of two quarter ago. During my script I also let's say Navy.
The experience.
And there is slightly.
Seasonality in Q4.
So.
And one point for me to one for you take the middle point.
And so strategically so that executive and while we're talking about.
Got it and got it fair enough. Thanks for the color and then.
And as you said two quick follow ups, one is improved and you mentioned about how the time that now.
10 months.
Is the gating factor for you all SaaS customers and more on the top strength not wild wonders of is liable and also a big issue for the wholesale customers.
Yeah actually for.
All the information and we've got right now the men's.
For wire Bonder is very strong.
We continue to get a call not only from the onset.
Given current industry automobile.
So we have a lot of the high level talk and see how can we work together and make sure. We are now the bottleneck, but I can tell you at Inc.
Also the extra cost to the bottleneck, but hopefully we won't holding more of of the bottleneck.
Good and assemblies.
Could I ask a quick follow up how.
And how much of China as the percentage of total sales.
So for the quarter, China was 61%.
Okay.
Thank you for the Taiwan of 'twenty one.
Got it thank you.
Thanks for the next question is coming from Charles <unk> from Needham and company. Your line is now live.
Hi.
Thanks for taking my question.
Congrats on the and nice results.
I think I want.
Want to start from the world visibility in terms of the orders.
Definitely I understand that you sort of guided the lat.
Fiscal fourth quarter flat or slightly down given the.
And your supply constraints, you're facing and I wonder what's the outlook today as where you stand about the December quarter right now.
Well.
So Charlie of ICL flow all of the information.
We have actually next few quarter too.
And into.
FY 'twenty two.
Very strong and.
And the.
And when we give our guidance we owned the also want of a mixture of us.
The supply chain issue weekend adjusted Okay.
So.
Some of the for US we still believe will be very good.
We are not only dealing with a known supply chain issue.
And once a while.
Enabling all to date, we needed to deal with the unknown supply chain issue.
That's why I think of the only thing we can tell you is the right now the order really is not the issue.
And extend.
And.
We're into the next few quarters and.
But a lot.
Steve.
Some uncertainty.
Everybody can look to get out of two mega capacity go up as the antibodies and need.
So I think we'd have a quite good.
The BD.
<unk> December quarters, even for the early and net yields.
Got it got it thanks for that.
Helpful.
So also on a follow up onto lump the.
A question previously asked and it seems like you are sort of expecting.
And your baseline business and the core business.
And <unk> is probably not.
Not your own Ah manufacturing capacity at this point is probably more of the upstream of the supply chain is more constrained that's the limit and your output I wonder with your car and the capacity icily exclude any of the kind of strange English supply chain network what is.
Your kind of of designed the capacity is at as of today and and what's your and go off and maybe at the end of this the fiscal year.
Okay. So you know we guy the next quarter is of fall under me of notice so for the information and we go for our customers for this Ah cycle. We did if maybe the idea of capacity pick the paucity of what for US we of she.
And maybe around 450 per call.
For those and the S U and though Kenneth historically, we can rent up quicker day I've seen and this time either you remember our trough was the 2019 extra the queue to we ran the actually of for $150 million two of the guidance.
For the next for the fall and a million dollars and we can do as of quickly because of the all of the site actually is not S. S. Heavy is the more labor related and.
And we can read me the up and you also see the the wall financial model <unk>, we can have of 20% for sure net profit so even though we need to worry about some investment and use it will not change of all financial models.
Got a goner so sorry allow me for asking for the last question of Armenia E. D. Uhm, we recently here the the.
The the premium and electronics company and the U S.
And they're seeing some field issues and it's more like me do the P. C. B a piece of of materials as far as the depressed report says I wonder whether that changes sure I mean very near term I'll look for your <unk> E D. A tool shipment and the revenues in terms of supporting the Ram of.
And our piece of the.
We will slow down of course of some quarter will be higher some quarters below for the Ava Judy I think you know.
This year, we guided 60 to 80 and we are on track to achieve a higher end of guidance and the next year.
I think what we saw.
A piece of the looming next our second generation, which all contribute to the revenue data power plant and 72, the whole year and that is more enrollment looks like what we are looking at about $100 million and 23 hopefully.
We will go higher because of.
And these alumina index the second generation.
Actually as of.
Marty step might be process in this industry and piece of loss of only sort of one step on process and use of final prisoner. So.
So this is the huge market and we are very excited.
As of this moment I think we will go with the industry and the feedback has been the very positive.
Got it got it. Thank you for the sake of pie I want to go back to the queue. Thank you.
Okay. Thank you.
As a reminder of that Starwood and to place for the question queue.
The next question is coming from Christian Schwab from Craig Hallum Capital Group. Your line is and a lot.
Okay, Here's the times, there's you know what the driver at the southern point well sort of.
Okay.
So let's make the hypothetical.
And.
If we finished our FY of revenue C. One <unk> Street, one for right.
And and this year, we are going to grow almost double.
Such a faucet grow is not unreasonable to expect.
Olivia suffering you know in the transitional driver. So at one point of Street, one point for.
Possibility you know not unreasonable to expect to be for like 1.1 to 1.2, alright. This double of of revenue two two of them back a little bit to consolidate day I think is a reasonable by for you then with the Liberty, it's slower and if I.
<unk> you too.
Lola and if like on the one due to a huge or and we actually optimistic because at least you have a lot of facilitation.
To go a lot of growth initiative include the end of the bunch of <unk>.
Pay the Kitty of a P.
Simple competition pretty cheap and and we can also growing and the a P. S. So we need the day, if I, if we pull of <unk>, a little bit and 20.
Q.
Six one day <unk>.
We should be able to you know of putting the revenue back.
At 221 day will even be yeah, or even via email of April of 23, and the beyond the way.
So again this is and not forecast and since you ask and I just tried to pay by the hour of printed by the view of the month.
Thank you for that that's the that's fantastic and I didn't have any other questions. Thanks guys.
Thank you and next question today is coming from David duty for him still had security of your line isn't alive.
Thanks for taking my question was most of the been answered, but as far as the advance packaging products the of Palmer and catalyst and the line up of the products. There when does the reasonable target for those advanced packaging products as far as the revenue goes per.
[noise] happen and fiscal year, 2021, and and maybe a target for fiscal year of 2022.
Okay. So.
And I. Thank God for my script mentioned that we actually.
And you being worse, and then what I say of that.
So wanted to ease of I think two ramp up of 100% and to expect continued growth probably is not very reasonable for us at a certain point I think the slowdown will come.
But we do expect.
The minor and we still have the organic growth can compensate it in the new features.
So.
In short summary, I think.
We are in the beta provision to support $1 billion and above the anytime before and we have a very very strong and our operational margin.
When we over $1 billion.
And the EBIT and a quarterly.
340, almost 25% and net profit so.
We cannot precisely predict market, but I think the company is and moving forward post COVID-19.
Okay.
Thanks.
Thank you we reached end of our question and answer session.
For the floor of that corporate management for any further of closing comments.
Thank you Kevin. Thank you all for joining today's call, we will be presenting at several upcoming conferences over the coming months, including conferences with Cowan, Craig Hallum Stifel and Jefferies and also the CEO of summit.
As always please feel free to follow up directly with any additional questions have a great day, everyone. Operator. This concludes the call.
Thank you for that does conclude today's teleconference and webcast. You may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.
Yeah.