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spk00: And welcome to the Kulik and Safa fourth quarter 2023 results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. At this time, I'd like to turn the call over to Joe Elgundy, Senior Director, Investor Relations. Thank you. You may begin.
spk01: Thank you. Welcome, everyone, to Kulik and Safa's fiscal fourth quarter 2023 conference call. Fuzhen Chen, President and Chief Executive Officer, and Lester Wong, Chief Financial Officer, are also joining on today's call. Non-GAAP financial measures referenced today should be considered in addition to, not as a substitute for, or in isolation from, our GAAP financial information. Complete GAAP to non-GAAP reconciliation tables are included within the latest earnings release and earnings presentation. Both are available at investor.kns.com, along with prepared remarks for today's call. 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 a complete discussion of the risks associated with Kuehl-Gonzalfa that could affect our future results and financial condition, please refer to our recent and upcoming SEC filing, specifically the 10-K for the year ended September 30th, 2023, and the 8-K filed yesterday. With that said, I would now like to turn the call over to Fuzhen Chen for the business overview. Please go ahead, Fuzhen.
spk02: Thank you, Joe. Before discussing our business performance, I want you to first reference the humanitarian crisis in the Middle East. Like many of our industry peers, we have had a long-term presence in Israel, where we develop and produce our precision capillary products. Our team based in our Haifa facility have delivered meaningful innovation and leading products over the years. And we are pleased to report that they are not in a high-risk area. However, we continue to hope for a quick and a peaceful resolution. As a global company with a diverse employee and the customer base, we are committed to strengthening our diversity and the inclusion initiative to foster collaboration, mitigate inherent bias, and create growth opportunity. Earlier this week, we successfully host our inaugural Abilating Women in Engineering and the Tech Summit in Philadelphia. These well-attended events feature several keynote speakers from KNS, as well as esteemed members from the external community. We are grateful to be able to host this type of event, which stands as a testament to our dedication to enabling change and exercising leadership within our local communities. Coming to our business, we have seen clear sequential improvement In key markets, although broader market recovery will be greater, we anticipate the sequential change into the December quarter being largely seasonal and in line with our long-term average. Furthermore, based on discussions with customers, external forecasts, and gradually improving utilization data, we anticipate a moderate demand improvement into the March quarter and a stronger second half-driven recovery. Since our prior March quarter, we have seen significant improvement in the general semiconductor end market and some recovery within LED. At the same time, automotive and the memory continue to be sub-near-term. Regardless of near-term industry condition, we remain very aligned with the major technology transition and are actively and intensively engaged in qualification for our advanced packaging, automotive, dispense, and advanced display solution with multiple industrial leading customers. Coupled with ongoing improvement in the board bonding business, this focused engagement will create more traction and momentum in the second half which we anticipate will be sustained through 2025. We have also increased our repurchase activity and remain optimistic as we execute on several key long-term projects. We recently announced the fourth consecutive annual dividend raise, and we continue to maintain the highest dividend yield relative to U.S. industry peer. For the September quarter, we delivered $202.3 million of revenue, $23.4 million of net income, and $0.51 non-GAAP EPS. We continue to see improvement in general semiconductor, which increased 50% sequentially, providing another clear indicator that we are well beyond 12 market conditions. This sequential improvement was primarily due to higher demand for our rapid-series ball-bounder platform, which is best suited for the most complex wire-bounding application. We have also seen a pickup in demand for emerging vertical wire applications increasingly deployed in mobile and IoT-based applications to mitigate RF interference between bands. We look forward to ongoing technology-driven change and improving conditions within the key world bonding market. Separately, we are well positioned to further optimize our high-volume business with the recently introduced PowerCom and the PowerNext platform. This new system will provide additional value and margin opportunities as they ramp over the coming years. Within LED, we have also seen sequential improvement in the general lighting which we associate with the US incandescent van that took place this past April. With advanced display, we continue to make technical progress with the Luminex platform and are approaching 5th, 9th year, and we also continue to execute towards Project W deliverable. For automotive and industrial, network dynamics, including high interest rates, have impacted end-user demand and also near-term industry capacity needs. Our automotive and industrial business remains a very early enabler of battery assembly and power semiconductor applications, which are supporting long-term electric vehicles and the sustainable energy transition globally. We have recently assessed an order of 120 battery assembly systems, which will be recognized primarily in March and the June quarter of 2024. Finally, As indicated in last week, in recent weeks, the memory market remains challenging in the near term. We currently see improving price dynamic as well as specific technology treatment opportunities within next generation high bandwidth memory and continuing to execute on emerging vertical fan-out or VFO application. As briefly discussed last quarter, VFO is being deployed as an alternative to through C-Conveyor or TSVs to assemble low-power dynamic RAM in a 3D format. This cost-effective and flexible VFO approach enables higher-density DDR, which supports large and established markets such as power-efficient mobile devices and other edge-based applications. We are currently engaged in evaluation with several memory leaders and are well-prepared coalition to support these emerging 3D-based memory architectures. Both emerging HBM and BFO opportunity will add new layer of diversification to our memory portfolio over the long term. Next, I wanted to discuss our participation within broadening artificial intelligence application. and provide brief update on advanced display and the dispense. First on AI, similar to how PCs, smartphone, and the connected devices have increased the capacity need for the industry. Artificial intelligence applications are directly creating both unit and a technology-based growth opportunity for many of our businesses. To be very clear, we have taken shares with optical with high volume logic and also with leading edge heterogeneous devices. This new provision have all enhanced our ability to support long-term AI trend, which are very much centered on emerging assembly techniques. Considering our growing alignment with a key artificial intelligence trend, I would like to outline how we are specifically exposed to what we consider to be the three key building blocks of AI, machine learning, network infrastructures, and the device on the edge. First, machine learning has received most attention over the past few quarters. Here we see increasing multi-die applications such as high bandwidth memory, multi-die GPU-based applications, and emerging chip-led and heterogeneous-based CPUs. We continue to directly support leading heterogeneous application with our thermal compression portfolio and anticipate both high bandwidth memory and multiple GPU-based application will begin transitioning to finer and finer pitches, increasing the need for our precision solution. As both HBM and the GPU-based application continue to move to finer I-O pitches, we expect our solution to be increasingly competitive. As we work with several key customers, we continue to believe KNS is a significant enabler to the success of most leading edge applications supporting AI. Our tools in both qualification and production are extremely competitive and the customer engagement has strengthened over the past two quarters. We look forward to sharing more feedback on the current evaluation and qualification status. of our key leading edge logic opportunities over the coming months. Next, as AI becomes more integrated with existing user applications deployed at work, at home, and through the cloud, there is a growing need for higher bandwidth and more efficient networking solutions. This need is being met with emerging silicon photonics technology deployed in compact-piece optics devices. which are anticipated to grow at 66% bigger through 2033. Currently, our silicon photonics systems are supporting a leading customer's core package optics production, used to support network switching applications. These applications have unique assembly challenges, which our competitive systems support well, and have triggered the interest of multiple new customers. Today, we are engaged with seven different customers who are critically supporting this emerging silicon photonics opportunity and remain well positioned for future growth. Yesterday evening, we announced winning the first in a series of expected orders to support customers' aggressive silicon photonics capacity expansion. The momentum and the interest for our current solution is very high. This recent win serves to highlight our incumbent position and the technical leadership in this emerging silicon photonics and the core package optics market. In addition to machine learning and the network infrastructures, the AI trend will continue demanding higher complexity and a higher volume production of devices on the edge, such as camera, sensing, connectivity, and the logic-based application, which are deployed in power-efficient mobile, IoT, and other crime-facing applications. These applications will continue to leverage proven and cost-effective assembly approaches, such as system-impeccable applications in which wall and wedge bounding play a dominant role, as well as emerging opportunities for standing wire applications used in both connectivity shielding and power-efficient stack DRAM. Over the coming years, Ball, wedge, and thermal composition are positioned very well to directly support these three AI trends. More complex assembly requirements are increasing the value of our market-leading ball, wedge, and dedicated advanced packaging portfolio. Despite the gradual industrial recovery, customer interest for qualification and evaluation remains very strong. In addition to AI, we continue to make progress on our advanced display opportunity, supporting advanced backlighting and the future direct-initiate display. As mini- and micro-LED wafer production costs improve and the die size continues to shrink, end-market use cases will grow, and the efficiency and the capability of assembly will also increase. Our dedicated high throughput, high accuracy Luminex system is well positioned to support this upcoming market need. Additionally, we continue to execute on Project W and expect to provide additional visibility into Project W's outlook over the coming quarters. Finally, the integration of our new dispense business continues to proceed very well with key engagement across our extensive customer network. Market feedback on this new solution from multiple leading customers has been very promising. Our micro-dispense solutions are extremely efficient, capable, and accurate, which adds significant value for critical applications, supporting advanced display, battery, medical, and sensing trends. The market opportunities for dispense are broad, and I will provide more specific on our target application and evaluation over the coming quarters. Looking into fiscal 2024, we continue to anticipate a return to about average semiconductor innate growth and also anticipate taking share in the new market. We have very strong customer interest and momentum across our emerging portfolio, have already seen clear cyclical improvement in our core market and look forward to releasing a steady pace of new system new feature and also announcing a new customer and a technology win over the coming quarters. With that said, I will now turn the call over to Lester who will discuss all financial performance and outlook. Lester? Thank you, Fustan.
spk03: My remarks today will refer to GAAP results unless noted. While the business environment remains challenging for the entire industry, it remains a very exciting time for the company with clear signs of improvement within our core market and ongoing progress within our emerging opportunities supporting long-term technology transitions, which address AI, battery assembly, defense, and advanced display. During the September quarter, we generated $202.3 million of revenue, 47.4% gross margin, and 51 cents of non-GAAP EPS. Gross margins came in slightly softer than expectations, largely due to product mix. Non-GAAP operating expenses came in just below $70 million in line with our prior expectations. Finally, tax came in slightly better than expectations due to favorable jurisdictional mix and discrete items. We continue to target the long-term 20% effective tax rate, although anticipate coming in slightly above this level in December. Turning to the balance sheet, working capital days decreased from 465 to 448 days in the September quarter, primarily due to the sequential revenue improvements. Our repurchase program remained opportunistic, and we have increased our repurchase activity sequentially to $9.2 million during the September quarter. As Susan mentioned, we have also increased our dividend payout, maintaining a very competitive dividend yield. This growing and consistent dividend commitment highlights the confidence in our long-term outlook. Combined with the ongoing reduction in share count due to our opportunistic repurchase program, our dividend program provides additional long-term value to shareholders. Looking into the December quarter, we anticipate revenue of approximately $170 million plus or minus $10 million with gross margin of 47%. Non-GAAP operating expenses are anticipated to increase slightly to 71 million plus or minus 2%. We remain focused on controlling and limiting non-critical activities, although continue to ramp headcount to support our growing set of customer engagements. Non-GAAP net income for the December quarter is expected to be approximately $14.2 million, with non-GAAP earnings per diluted share of approximately 25 cents. In closing, we are uniquely positioned to capitalize on the growing value of semiconductor and display assembly. Our market access is steadily expanding, and we are positioned well to support and enable major long-term technology trends for the industry. As our core business gradually improves and increases in complexity, we remain focused on expanding our access to positive long-term advanced packaging, advanced display, automotive, and dispense needs. We look forward to sharing our progress over the coming quarters. This concludes our prepared comments. Operator, please open the call for questions.
spk00: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. for participants using speaker equipment and may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for your questions. Our first questions come from the line of Chris Shanker with TD Cowen. Please proceed with your questions.
spk07: Yeah, hi, thanks for taking my question. I actually have three of them. First one, Susan, when I look at your commentary into the March quarter and beyond, is it fair to assume You think the worst of the ball-bounder bottom is behind us, and what kind of visibility do you have and conviction on why it should continue improving?
spk02: Okay, so Chris, you asked why we see a ball-bounder in second half is high. Is that right? Yeah, yeah.
spk07: Why you think the worst is behind us.
spk02: Okay, okay. So I think there are a few reasons. One is, of course, customers' feedback. And also, historically, we are second half, actually higher than the first half. And the industry actually went through a few inventory digestion. So we feel like it should grow. And also, a recent actually forecast from IDC and the gardener they all point to a strong, you know, CY of the 24. So especially, I think we see all set order, although I think we believe that they will even order more second half. A lot actually, we are quite close to our customers. So I hope I answered your questions.
spk07: Got it, got it. That's really helpful, Fuzeng. And then I just wanted to follow up on some of the commentary you made on the HBM and GPU applications. A, number one, I'm kind of curious the status of your thermal compression bonder EVAL at one of the large Taiwan foundries. And second, do you expect today many of the GPUs for AI are using co-ops. Do you see them migrating to TCB in the future?
spk02: Oh, yeah. Okay. So, Chris, we are actually quite excited about prospect of our TCB. So look at the year 2000, you know, our revenue is a single digit. I'm sorry, I think 2020. And actually, 2023, actually we reached to $64 million. And we expect our TCB will be over $100 million in 2025. So when we are in 2025 for TCB, the whole dedicated AP actually will be over $200 million. So the progress has been very good, backed up by, you know, strong technology. So currently, I think we have multiple engagements with OSEP, with IDM, and also with Foundry. And each company might also have multiple projects. And the engagements in the past two quarters are even more. So going back to your questions, with the company you asked, Currently, actually, we have engagement in both C2W and C2S. So very strong solution, which is extendable to a fine pitch. The feedback has been good, and we hope to finish all qualifications in the next few months. So I hope I answered your question. So next question is AI, GPU, and HBM. Actually, it also requires the TCB at the top to make the integration. So the tool actually supports multiple applications, and the AI, the method you mentioned, is one of them. So I hope I answered all your questions.
spk07: Yeah, thanks for the tools, and yeah, that was very helpful. And then maybe a quick follow-up for Lester. Can you give some comment on how much the backlog was and how much was China's impersonation of TotalSense?
spk03: Hi, Krish. Thanks for the question. The backlog was $423 million at the end of Q4. And then as far as China is concerned, you're talking about how much was China revenue?
spk04: Yeah, that's right. Yeah.
spk03: So for Q4, China revenue was 49%, but 46% of those are China headquarters, so not MNCs. And for the year, actually, China headquarters actually dropped down to about 40% for FY23. And FY24, it was actually close to the 46%. Got it.
spk07: Thank you very much, Lisa. Thank you. Thank you, Krish.
spk00: Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next questions come from the line of Dave Dooley with Steelhead Securities. Please proceed with your questions. Dave, could you please check if you're self-muted?
spk04: Yeah, thank you. I was muted. Could you just talk a little bit about the general semi-business recovery that you saw, how much that grew sequentially, what you would expect it to do in the following couple of quarters. And then as a follow on, I think you mentioned that one of the forecast IDC was forecasting strong unit volume growth in 2024. Could you talk about what sort of forecast you're expecting for unit volume growth in 2024?
spk02: Oh, okay. Okay. So talk about the quarter business expectation as you ask. So Deba, as you know, we actually, second half historically is stronger than the first half. So this means the seasonality will happen, the transition from second half to first half. So that cause seasonality from September to December quarters. And the average sequential revenue change from September quarter to December the average historically is 13%. So our Q1 FY24 guidance actually is in line with our historical average. So that's Q1. So Q2, from our current view and the customer's feedback, we will see sequential growth. And in terms of second half, you know, currently we have actually ongoing intensive and very intensive qualification, you know, with our customer on AP, advanced disparate, and very, very strong feedback on dispensing, and coupled with a broader board-bound business recovery, which I think Chris just asked. You know, maybe IDC, IDC actually forecast 20% semiconductor growth. This just came out recently. The governor, the unit actually is very, very high, but I think the average is about 6%. The forecast, I think, is close to 10%, but even with 7%, a little bit higher than historical. I think will be very, very good for us. You know, as I mentioned, I think industry inventory write-down has been many, many times. Coupled with KNS, I think historically our second half revenue is 60% compared to first half of 40%. And also with the unique momentum, you know, in many, many qualifications, AP, advanced display, I think we'll set up stronger, you know, second half just for KNS. So I hope... I answer your question. Maybe, Lester, you want to add a little bit more?
spk03: Yeah. Hi, Dave. So you're right. General Semi revenues did increase 50% quarter on quarter. And I think, as you know, General Semi is always our biggest end market segment. It accounts for between 50% to 70% of our revenues. I think another point to pick up is utilization rates. So General Semi has been below 70% for Couple quarters now, but in the last quarter, it's broken 70. We think it's actually going to continue to rise. Actually, overall utilization has increased 10% from the beginning of FY23 to Q4. So those are all signs pointing out towards, you know, a much stronger FY24, particularly in the second half, as Susan said.
spk05: Okay, and then a follow-up question for me is, I guess, two of them. Could you just elaborate a little bit more about this new battery assembly order you got?
spk04: I think you mentioned it was 125 systems or units. Just talk a little bit more in greater detail about what that is about and the delivery schedules there. And then, Lester, I don't know if the new wire bonders you mentioned in your press release are the ones that address the new general semi-bucket. I was just curious about the update for that particular wirebonder. When is that kind of higher margin product going to ramp and hit market?
spk05: Thanks.
spk03: So for the battery assembly equipment, we see that coming into Q2 and Q3 of our year. It's one of our traditional customers who haven't bought for a while, but now is back into the market again. So we're very, very happy to see that. As far as the The new products is PowerNext and PowerCalm. They have been introduced. Those are ball bonders that serve the high-end or mid-end general semis market. Those should become more meaningful in Q3 and Q4 as they qualify and deploy, and that should be accretive to our gross margins.
spk06: Thank you.
spk00: Thank you. Our next questions come from the line of Tom Tiffley with DA Davidson. Please proceed with your questions.
spk06: Yeah, good morning. So you talked a little bit about some tech advances for the Luminex. What about the market update? What are you seeing right there in that marketplace for those tools?
spk02: Okay. So let me say this. I think we introduced a very successful product, P-Solux. Very successful. But in the meantime, we also understand industry really have a higher productivity of technology. So in 2023, we focus on two technologies. One is Luminex. This is a laser transfer. It can be multiple X speed higher than the P-Solux. And so is Project W. So Luminex, I think at this moment, in a prior earning call, I described many of our outstanding technical milestone has been achieved. So what we are right now is have multiple engage with customer, but very, very focused just with one leading customer to complete all the high volume production you know, higher volume production qualification by Q2. That means it's the end of March. So therefore, I think Q3, they can go to production. So we are very, very excited. I think the mini micro-AOD, the size will continue to go down, and the industry need to have a high productivity tool. Currently, I think still, you know, large die still supported by die-bounder type of low-end technology, we believe the transition is going to come for next one or two generation. So again, I think that we hope to bring one major customer to high-volume production and finish all the qualification together with them, they can go to production in Q3. So also maybe update a little bit about the Project W. This year, 24, You know, we are delivering initial production tool as well as preparing for the land production during 2024. And actually, we are quite optimistic, you know, with these two technologies. Move forward, I think we will see growth. And this year, we hope target for $15 million together for these two technologies. And 2025, we believe, can do even much higher than that. So Tom, I hope I answered your questions.
spk06: Yeah, no, I appreciate the extra color on the marketplace. Fushun, you also obviously acquired a dispensing company a few quarters ago. Maybe just a quick update on how that integration is going and if you're able to expand the customer base for that product.
spk02: Okay, you mean dispensing, right? So actually, we are very, very excited. I think dispensing is a very, very huge market. You know, I cover multiple industries, right? And every customer of KNS, broadband customer, they all have a need. So it's easy for us to actually plan the service, talking to a customer. We are focused with a few customers and do a demo, a demonstration. The dispensing right now reached to a critical stage, need we call micro-dispensing. need to be very precise, be very accurate, with the right amount. And it has become a bottleneck for many, many customers. And we focus on a few major ones. The feedback has been very, very strong. So we are very confident. I think we will see initial success maybe in the middle of 2024. And we do believe we can grow this product to much higher revenue in the next couple of years.
spk06: And then final question, you talked a little bit about increasing headcount. Any sense on the magnitude of that?
spk03: Well, I think we said we would increase headcount in critical areas, which particularly has to do with, I think, the R&D projects that we talked a little bit about, the growth initiatives that will pay off in the mid to long term. We are very careful on all costs, including headcount, for all other functions, given the little bit uncertainty. So we're not looking to increase headcount significantly. It's probably overall, it's probably neutral or down a little bit.
spk06: Great. Thank you.
spk00: Thank you. We have reached the end of our question and answer session. I would now like to turn the floor back over to Joel Gindy for any closing remarks.
spk01: Thank you, Daryl. Thank you all for joining today's call. Over the coming months, we will be presenting at investor conferences in Arizona and New York. As always, please feel free to follow up directly with any additional questions. This concludes today's call. Have a great day, everyone.
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