Kulicke and Soffa Industries, Inc.

Hello, and welcome to the Kulik and Soffa second quarter results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Joseph Elgindy, Senior Director of Investor Relations for Kulik and Soffa. Please go ahead.

Thank you. Welcome everyone to Kewlick and Soffa's fiscal second quarter 2022 conference call. Joining us on today's call, we have Fusen Chen, President and Chief Executive Officer, and Lester Wong, Chief Financial Officer. For those of you who have not received a copy of today's results, the release as well as our supplemental earnings presentation are both available in the investor relations section of our website at investor.kns.com. 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 1995. Our actual results and financial condition may differ materially from what is indicated in those forward-looking statements. For complete discussion of the risks associated with Kulik and Soffa that could affect our future results and financial condition, please refer to our recent SEC filings specifically the 10K for the year ended October 2nd, 2021 and the 8K filed yesterday. With that said, I would now like to turn the call over to Fusen Chen for the business overview. Please go ahead, Fusen.

Thank you, Joe. We continue to make significant progress toward our long-term target and remain well positioned to support significant and fundamental transition occurring within the automotive, semiconductor, and advanced discipline markets. I will provide a brief update to each shortly. In parallel, industry growth through calendar year 2022 is still anticipated to remain well above average, creating ongoing need for capacity expansion across our self-markets. We continue to be in a multi-year industry expansion period, which is consistent with the market assumptions shared at our investor day last September. Before discussing our business performance, I would like to provide our perspective on the Russia-Ukraine war and the COVID-related shutdown. At this point in time, we do not anticipate this event will materially impact our outlook and would like to provide some additional context. First, I would like to address the humanitarian crisis and express our concern and compassion for a prompt resolution of the Russia-Ukraine war. We do not expect Canada's war to have any meaningful direct operational or demand impact due to this conflict. For the broader semiconductor industry, material and commodity costs for items such as normal gases may increase a lot. We do not anticipate this to be a major concern to our business. Secondly, we wanted to also provide an update related to Shanghai COVID lockdown. Our consumer work facility in Suzhou, China, where we produce capillary and hub blades, continues to be fully operational. Logistics challenges increase temporarily, but our production and supply chain team proactively identify alternative routes, mitigating the impact. To iterate, we do not anticipate either of these recent events to significantly impact our outlook. and we remain focused to continue proactively managing our own supply chain risk very closely, as we have successfully demonstrated over the past two years. Overall, the industry remains very resilient and has overcome many obstacles over the past two years. We believe the prolonged state of industry supply chain challenge is shifting production strategy from a just-in-time approach to a more prudent and long-term inventory management and capital equipment planning approach. Moving on to our March quarter performance, we continue to make meaningful progress toward a specific opportunity, all night during our investor day. Customer engagements are proceeding as anticipated, and we remain well positioned to actively support several megatrends impacting the automotive, semiconductor, and advanced display market over the coming years. Our near-term ability to develop, quantify, and recognize revenue on our growing portfolio of solutions will help solidify our long-term strategy and position within this key market. I will briefly explain each. First, within automotive, semiconductor capacity and the battery assembly needs are anticipated to continue growing above average as the transition to the electric vehicle and autonomous driving continues to accelerate. We have a dominant leadership position within the automotive segment itself. and continue to expand our offering and increase customer engagement. Currently, we are aggressively preparing our next-generation laser-based battery assembly solution for qualification and acceptance over the coming quarters. In addition to this new system, we are also very engaged in driving acceptance and modeling the base of our proven weight-bounding battery solution to a variety of new customers. Secondly, within the semiconductor space, we continue to broaden our portfolio and further increase alignment to the market's renewed focus on assembly. The growing complexity of semiconductor assembly for both the leading edge and the high-volume market is creating several new technology-driven opportunities and enhancing our long-term growth prospects. Our primary focus is to develop a new capital equipment solution. As assembly becomes more complex, production challenges increase, driving the need for closed-loop feedback and a better process and production control. Last month, we announced a partnership with PDF Solutions to provide customers with a new analytic platform that leverages comprehensive real-time data available within our leading assembly system with artificial intelligence and machine learning capability. Ultimately, we anticipate this partnership will directly add value to customers by enabling efficiency and throughput enhancement for both high-volume and leading-edge semiconductor production. Additionally, more complex assembly represents a significant paradigm shift for an industry that historically relied heavily on no-shrink. This shifting paradigm is increasing the technology-driven growth rate within both high-volume and leading-edge semiconductor applications. Going demand for multi-type packages, new shielding requirements, and new memory opportunities are expanding our core market prospects and creating the need for additional features and capabilities for advanced wire bonding. In parallel, we are also gaining shares in leading-edge and optical markets. During the March quarter, we recognized revenue on seven PCB systems, supporting next-generation interconnects for mobile applications, processors, and high-performance computing. Our PCB order book continues to increase. As we highlighted last quarter, the adoption of thermal compression is occurring within both OSAT and the IDMs, and we continue to pursue both customer groups with a major focus on mobility, sensing, silicon photonics, and heterogeneous applications. We also remain very focused on our fluxless thermal compression solution and recently received a purchase order for several systems, which will ship later this year. Our capabilities of fluxless PCB are very unique and provide an efficient and capable solution for high-performance triplet integration. This recent purchase order includes our alignment with long-term cloud spending and the triplet trend. Finally, in addition to the evolving semiconductor assembly market, our opportunity in advanced display continues to expand. We remain extremely committed and we are actively enhancing our leadership in both mini and micro LED applications. Our advanced display engagement and efforts continue to revolve around three areas. New-term capacity expansion for PISOLUX, new engagement and the qualification for our recently introduced Luminex system, and the long-term ongoing development for next-generation display assembly solution. During the March quarter, we shipped two Luminex systems for qualification to separate customers, and recently also received two purchase orders for initial Luminex systems. These systems address different process steps at different customer sizes and represent a significant milestone in our advanced discrete business. We remain optimistic on our advanced LOD opportunities. and look forward to providing an update to our long-term target over the coming quarters. In addition to our growing market access, we continue to improve margins and drive strong operational cash flow at the current level of business. During March quarter, we achieved $384.3 million of revenue and a non-GAAP EPS of $1.95. Within capital equipment, we generated $333.9 million of revenue. End market conditions come in largely as expected. The sequential change driven by general semiconductor was largely related to our ability to surge production aggressively in support of customers' expansion plans in September and December quarters. Additionally, we continue to see supply chain constraints and Global Logistics Challenges limiting the pace of growth throughout the electronic space. As a reminder, we still anticipate semiconductor growth to remain above average into fiscal 2023, which is also a view shared by a major third-party forecaster. Despite 2022 still being an extremely strong semiconductor growth year, will be relatively lower than the dramatic growth experienced last year. Excess industry capacity in early 2021 provided headroom to enable last year's aggressive growth. However, at the start of 2022, this excess capacity was no longer available, which created a shortage and additional supply chain headwind, and is now extending the global chip shortage. To highlight this relationship, the majority of high-volume systems will ship in March quarters or related to new FAP capacity that has only recently come online. This reinforces our view that broad industry supply chain challenges should begin to resolve as wafer capacity growth improves later this year. Within our business, product mix is evolving, which is reducing our reliance on industry capacity expansion and better align our business with technology and secure growth opportunities in many of our end markets. This was clearly outlined during our investor day and I will provide a few examples that highlight this transition. Within General Semiconductor, our thermal compression sales have doubled and our wafer-labeled bonding systems have tripled. in revenue sequentially. Within the wire bonding market, we are experiencing an ongoing increase in demand for complex multi-die wire bonded package in high volume consumer market and are also seeing an ongoing ramp in wire bonding to improve shielding requirement for 5G applications. Later this year, We anticipate customers to start wire bonding assembly for applications at 6nm technology nodes. Again, these trends are increasing the rate of future capacity and also technology needs across our semiconductor offer. With LED, advanced display systems have remained consistent and represent 88% of LED sales in March quarter. At this point, We are already approaching our fiscal year revenue target of $80 million and expect to reach the target ahead of schedule. Within automotive, demand has increased dramatically and is expected to remain above average over the coming years due to the growing demand of electric and autonomous vehicles. In addition to high-growth markets like battery assembly, We also provide high-reliability IC and power semiconductor solutions, which are essential to this technology-driven tech change and the broader automotive industry. Finally, within memory, we are experiencing ongoing demand for our high-performance, market-leading LAN assembly system. We are also working to develop a new cost-effective solution for stacked DRAMs, leveraging our wafer-label packaging capabilities. From an end-market standpoint, we anticipate memory, automotive, and LED to remain strong. Additionally, the 5G transition and the need for more complex assembly continue to provide long-term tailwind to our core business. We continue to anticipate wafer capacity growth will improve in the second calendar half through 2024, which will ease industry supply chain challenges and will provide additional visibility to our outlook. In summary, our progress on new growth initiatives and customer engagement remain on track. We are expanding position across several new markets while also actively participating in a fundamental transition within our core market. With growth, long-term development engagement with industry leaders, we have developed several high competitive systems and our position to win new qualifications across the advanced packaging. Our ability to succeed near-term can provide significant upside to our long-term outlook and target. We look forward to demonstrating this progress over the coming quarters. With that said, I will now turn the call over to Lester who will discuss our financial performance. Lester. Thank you, Fusen.