Kulicke and Soffa Industries, Inc.

Greetings and welcome to the CULIC and SAFA 2024 First Quarter Results Conference Call. At this time, all participants are on a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Joe Elgandy, Senior Director, Investor Relations, Thank you. Please begin.

Thank you. Welcome, everyone, to Kulikin's Office Fiscal First Quarter 2024 Conference Call. Huizhen 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. Gap to non-gap reconciliation tables are included within our 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 and are subject to risks and uncertainties that may cause our actual results and financial condition. to differ materially from the statements made today. For a complete discussion of the risks associated with Kulik and Safa that could affect our future results and financial condition, please refer to our recent and upcoming SEC filings, specifically our most recently filed Form 10-K and the 8-K filed yesterday. With that said, I would now like to turn the call over to Fuzen Chen for the business overview. Please go ahead, Fuzen. Thank you, Joel.

Good morning, everyone. Looking ahead into fiscal 2024, we remain focused and optimistic. Our businesses remain on track to support new level of value creation. As our core market recovers, we continue to anticipate a return to an above-average industry growth rate by the end of the fiscal year. As the semiconductor industry returns to a more normal growth pattern through fiscal 2024, will remain in dominant leadership position across the core market and will continue to aggressively drive key strategic initiatives, providing additional paths to long-term value creation and profitability. Specifically, these strategic initiatives are centered around three key businesses, broadbanding, advanced packaging, and advanced display. I will provide additional detail to each of these points shortly. But first, I would like to summarize our financial performance and market observation and the shares and update on the advanced dispense business. For the December quarter, we delivered $171.2 million of revenue, just above our guidance midpoint, with a GAAP net income of $9.3 million and non-GAAP earning per share of $0.30. From a market standpoint, the fiscal first quarter was a night with a seasonal expectation. Based on external market forecasts, customer feedback, and discussions, we continue to anticipate improvement over the course of 2024, with more significant demand in the second half of 2024. We anticipate overall industry conditions will remain favorable going into 2025 as we expand our market positions. Over recent months, we have made significant progress with our advanced dispense business and are actively competing for several opportunities in parallel. We continue to target key opportunities across our self-owned market which require high precision dispense capability combined with world-class motion control capability, KNS is known for. Initial customer feedback has been strong and we are increasingly confident we will leverage and grow this opportunity over the coming years. Thinking to the end market review, we continue to see signs of broader cyclical improvement and also anticipate gradual recovery through the fiscal years. Seasonal dynamic impacts our December quarter results as expected. This effect was most pronounced within general semiconductor Here we experience software demand due to seasonal patterns, which affects the board bonding business, and the software power semiconductor market condition, which affects our wage bonding businesses. The power semiconductor market is going through a period of inventory and capacity digestion, causing a near-term headwind in wage bonding. We continue to expect trends in power semiconductors to improve over the long term, and the support growth of our wedge bonding business. For ball bonding, we anticipate a demand environment to improve as the semiconductor unit growth returns in fiscal 2024. Next, LED remains relatively soft, with a demand primarily attributable to general lighting. We remain focused on the existing qualification engagement for both Luminex and Project W. And I will share an update to both opportunity shortly. With automotive and industrial, MAKO and the industry factor have impacted the near-term demand for our wedge solution. Despite the well-known softness in automotive near-term, we continue to anticipate specific opportunity for KNS in battery assembly space later this year. This specific battery opportunity is unique to KNS and will help mitigate some of the existing demand softness affecting the broader automotive market. Longer term, as the semiconductor content and the complexity within vehicle advance, we remain strategically aligned with the automotive trend. We will continue to provide leading-class equipment to support the transition to more advanced and sustainable vehicles, including efficient power delivery and storage applications. Finally, within memory, we have seen demand improve significantly for our leading-end solution across multiple customers. Memory revenue in the first fiscal quarter exceeded revenue for the prior fiscal year. This strong improvement provides further confidence that we are past 12 in the memory market, and we continue to actively pursue near- and long-term strategies to expand share in high-volume and leading-edge design applications. During the December quarter, we have also booked revenue for multiple systems capable of supporting vertical fan-out applications in production and remain very positive on the long-term potential of this smart packaging approach. We currently anticipate overall end-market demand will return to a more normalized level by the end of fiscal 2024 and continue when into fiscal 2025. As we prepare for the next period of demand recovery, we are extremely focused to execute key KNS opportunities, which will further diversify revenue, expand market growth, and sustainably enhance earning potential over the long term. I would like to provide a brief update on our unique position within the broadbanding, advanced packaging, and advanced display opportunity. The semiconductor assembly market continues to evolve and we are well positioned to add more industry value in the form of power efficiency, performance, package label, transistor density, and cost. This technology-driven evolution within assembly is demanding more feature-rich and capable assembly solutions, which we are well prepared to deliver. This semiconductor opportunity will continue to benefit our rebounding and advanced packaging business over the long term. Within Bobangjin, we continue to deliver new future rich solutions which will further extend our leadership position, drive share gain, and also help enhance and sustain long-term gross margin. Our initial two systems, Polcom and Polnex, were recently released and have been well received by customers. We are ramping the production of this initial system during March quarter. As explained on our previous call, the board bonding process remains the most dominant and cost-effective solution for both high-volume single and multi-bike packages. As a pioneer in board bonding with decades of industry leadership, we continue to maintain a dominant market share in these key growth areas. Additionally, we continue to see many consumer mobile and IoT-based applications. in high volume market seeking new packaging approaches. These new approaches provide greater level of transistor density at the packaging level and provide candidates with opportunity to add additional value. Within broadbanding, these technology-driven changes are demanding more complex looping and higher wire count per package. Our market leadership and persistent development effort provide a unique position to track industry labor change. Currently, we see new market emerging in shielding and also willing high potential stack die applications such as vertical fan-out, which are providing specific, long-term, and unique opportunity for the company. New shielding applications are being deployed for both long- and short-distance wireless communication. As bandwidth increases and wireless communication becomes more ingrained in consumer electronics, we expect ongoing growth in this new wire-bounding market. This shielding approach was in development a few years ago and has now been broadly adopted by Oset and IDM and is utilized in high-volume production. We expect this shielding need to continue supporting near-term recovery and long-term growth in the broadband market. Similar to where shielding was a few years ago, there has recently been significant interest from customers for our vertical fan-out or VFO solution. This new opportunity is anticipated to further extend our memory market access over the course of the fiscal 2024. Over the next few years, We anticipate a similar vertical wire approach will provide a cost-effective alternative to through silicon wire or TSBs for high-volume 3D applications beyond the initial adoption within the memory market. The value of VFO stems from its ability to create complex 3D structures, which provide form factor, power efficiency improvement, and a significant cost benefit over alternative advanced packaging solution. One customer has reported a 27% improvement in the form factor and a 5% improvement in power efficiency alone with allowing higher I-O count and a better heat dissipation. During the December quarter, we booked VFO system revenue of just over half a million dollars to our first moving customer as they refine their production approach. We are currently engaged with the three leading manually customers who are seeking cost-effective 3D packaging approaches. Initially, we anticipate even application such as a low-power DDR, LPDDR, to move in low-volume production in calendar year 2024 and higher-volume production in 2025. Based on initial customer feedback, There is also strong interest in the potential that VFO can be deployed for high bandwidth memory applications in the next few years. Shielding, VFO, and the overall growth of high-volume multi-type applications has increased the growth rate, technology needs, and our competitive position within the accessible world-bounded market. we believe we are best positioned to leverage this new market opportunity long-term. Turning to advanced packaging, we continue to actively support several customers' engagement in parallel and anticipate additional orders from OSAP, IBM, and the Foundry customers as we complete key evaluations and qualifications. In addition to our incumbent position in high-volume semiconductor market, Our advanced packaging effort allow us to take shares in new high-growth market including leading-edge logic, mobility, and core package optics. We are increasingly confident on the longevity and the market potential for our TCB portfolio and expect to extend the technology well beyond the previously targeted 10-micron pitch. Using below this 10-micron ratio will further unlock the flexibility and the long-term potential of our TCV solution. We increasingly anticipate TCV will be an essential component for leading edge assembly for many years to come. In addition to final pitch capability, which extends bandwidth and the transistor density, our TCV solution also provides direct copper-to-copper interconnect. Direct copper-to-copper connections are best in class. due to low resistance and high performance. Our fluxless DC solution is well positioned to enable this industrial breakthrough across high-volume and leading-edge heterogeneous markets. We are confident of our significant technology lead in thermal compression, which we intend to extend further. Demand for our solution is rising, and we are running several qualifications within OSET, IBM, and the Foundry customers in parallel. Over the coming weeks, we intend to ship several more qualification systems supporting FluxDex DCB. I look forward to sharing new products and the new customer milestones over the next few quarters as we drive broader market adoption. Finally, within Advanced Display, we continue to expand access into the broader mini and micro-AOD market. Our growing portfolio supports the evolving display market, serving small format, high performance, mobile display, as well as large format, high volume, and direct initiative display. We expect to secure a qualification win for Luminex later this year. Luminex provides a dedicated Mini-LED, which will be increasingly necessary as Mini-LED designs continue to shrink. At this year's Consumer Electronics Show, it has become clear that Mini-LED technology is a significant performance enabler for the LCD market. Mini-LED displays have improved over the past years, delivering a higher level of brightness and quality and leveraging the large install base of LCD capacity. As dye sizes reduce, We are confident the industry will require a dedicated high throughput solution such as our Luminex system. Our other key opportunity in display is Project W, and I am happy to report that we are reaching new milestones expected to ship additional capacity during the March quarter and the recognized revenue during the upcoming June quarter. As we work successfully to qualify a previously shipped system, we are beginning to ramp production in support of our customers' long-term capacity plan. Our global R&D, operations, facilities, and supply chain teams have been working tirelessly to support this major initiative, and we look forward to sharing more information over the coming quarters. It remains a very dynamic and interesting time at the company. As our cold market recovers, we are again transitioning into a more optimized and a more diversified company. We are very excited to reach new milestones across our growing market. Looking through fiscal 2024, we continue to anticipate a gradually unique demand recovery and also technology-driven growth. As our core market evolves and we continue to extend our foothold in the new market, customer interest and momentum across our emerging portfolio remain strong. We look forward to releasing a steady pace of new systems, new features, and also announcing new customers and technology wins as the core business returns to a more normalized growth rate. With that said, I will now turn the call over to Lester, who will discuss our financial performance and outlook. Lester?