Kulicke and Soffa Industries, Inc.

Greetings and welcome to the QLIC and SOFA 2024 second quarter results and conference call. At this time, all participants are in a listen-only mode. A brief 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 is now my pleasure to introduce your host, Joseph Elkin, Senior Director, Investor Relations. Thank you, sir. You may begin.

Thank you. Welcome, everyone, to Kuhlkin's Office Fiscal Second Quarter 2024 Conference Call. Fuzin 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. GAAP to non-GAAP reconciliation tables are included within our latest earnings release and our 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 complete discussion of the risks associated with Kulik and Safa that could affect our future results in financial condition, please refer to our recent and upcoming SEC filing, specifically our most recently filed Form 10-K and the 8-K filed yesterday. With that said, I'll now like to turn the call over to Fuzhen Chen for the business overview. Please go ahead, Fuzhen.

Good morning, everyone. While certain markets, including LED, automotive, and the industrial continue to be a challenge in new terms, We remain focused on expanding our market position and driving new and successful customer qualifications over the coming quarters in thermal compression, VFO, and advanced dispense. These expected successes combined with a recovering core market and a significant focus on operational efficiency will be beneficial to customers, employees, and investors over the coming years. Before discussing this quarter's result and outlook, I wanted to briefly discuss Project W and our overriding customer engagement strategy. Since 2017, KMS has evolved by growing intimate customer engagement. This customer-focused growth strategy has been successful and has allowed us to take shares in new markets as we expand our competency. A few recent examples of this engagement approach include our effort to enter advanced display market, enter the core package optics markets, expand our shares in leading-edge logic, and actively enable the next high-volume packaging format for DRAM. Our advanced display business is taking a similar customer-focused approach, which I will explain shortly. While our intimate engagement strategy has provided a new market access, share gain, and profitability. There will always be a potential risk that a project may be canceled by the end customer, which unfortunately was the case for Project W. Industry challenges combined with medical factors likely play a role in our customers' decision to discontinue this program, which is a supply chain partner, including KNS. Project-related assets and tools, low and finished goods inventory, as well as the open purchase order with our in-vendor were accounted for in the second quarter's impairment charge, which have affected both GAAP and non-GAAP earnings. Related to the cancellation of Project W, we have restructured to remain lean and have reallocated resources to accelerate other critical business initiatives, including fulfilling accessible purchase orders and broadening customer demand for memory, advanced dispensing, and advanced packaging solutions. Restructuring and reallocation decisions are never taken lightly, although these actions were necessary to maintain a focused operational model. We continue to expect gradual market recovery through fiscal 2024 with a greater technology and capacity opportunity in fiscal 2025. Near-term, we continue to anticipate demand improvement, led by general semiconductor combined with a more resilient memory demand. For general semiconductor, more boundary order activity is improving and supported by utilization trend. Also, customer momentum continue as we broaden advanced packaging engagements. Since our second fiscal quarter 2023, we have already experienced an over 50% increase in border revenue, despite ongoing headwind within automotive, industrial, and the LED market. We continue to prepare for a more robust demand in general semiconductor applications, as all the activity with high-volume customers gradually sale-less. After market closed yesterday, we announced a sizable purchase order of 1,000 rapid probe systems from a fast-growing assembly and test company, which were upgraded with our ProSuite response-based mounting and looping capabilities. Improving utilization rate combined with high-volume order provide us with the optimum on near-term general low-sand conductor recovery. Next, demand for LED has remained limited due to a lower utilization rate across our customer base. The automotive and the industrial market continue to face near-term headwind, a low based on utilization rate and the customer feedback. We anticipate demand to stabilize with a broader recovery to begin over the coming quarters. Despite the current suddenness, our current quarter automotive revenue runway fiscal year 2024 today is 33% above our most recent automotive and industrial truck runway experience throughout fiscal year 2020. This fairly rapid increase in truck-to-truck performance is largely driven by broad and secure trends we are enabling. These trends are driven by global electric vehicles, sustainable energy, and smart power distribution needs, which provide ongoing growth opportunities. Finally, memory has sequentially reduced from a very strong quarter, largely due to customer exchange. Demand for our memory solution has expanded significantly from the tough labor we experienced last fiscal year. During the first fiscal half of 2024, our memory revenue has nearly doubled from our entire memory revenue in fiscal year 2023. We expect demand across memory applications to continue to recover over the coming quarters. Looking ahead, our core business is anticipated to strengthen as the general semiconductor continues to improve, and we remain very focused on near-term execution New technology win in memory, share gain in advance dispense, and the broadening of our thermal compression customer base. I would like to take a few minutes to explain each. First, within memory, we continue to actively qualify and develop vertical frame out or VFO solution utilizing our wafer label packaging system, which is expected to expand our memory market access over the coming years. While VFO memory solutions are still emerging, customer momentum is strong, and we expect they will transition into high-volume production next year. In addition to leading memory customers, we continue to actively support key vertical wire development with leading IBM and Fabless companies who are depending on these new solutions. The benefit of our unique vertical wire solution extends well beyond the memory market. VerticalWire is currently moving into high volume production for shielding requirements and is well positioned to provide a new cost-effective packaging solution for future high volume system in packaging applications. Our VFO team is currently supporting development of a future stack connectivity application, which can drive high volume adoption. Next, our advanced dispense business continue to gain momentum as we are aggressively penetrating high precision dispense opportunity in advanced packaging, battery assembly, and the display market. Broadening customer interest and the ongoing evaluation progress are driving momentum and we expect to begin growing our market share in the near term. Our advanced dispense solutions are highly competitive due to their micro-dispensing capability being equipped with safe compensation, in-line inspection, and excellent repeatability. Quantification win over the coming quarter will secure a foundation of advanced dispense customers, which will support revenue growth in fiscal 2025 and beyond. Finally, we continue to gain momentum in thermal compression boundary, or TCV, which has expanded in revenue by nearly four times comparing the trading four quarters of demand over our fiscal 2021 result. As customer momentum continues to build, it is becoming clear that our TCV solution can broadly support and scale chip-like and heterogeneous integration. Furthermore, we continue to expect demand for our leading fluxless TCV solution to increase significantly in the future. We have already built a baseline of approximately $60 million of sales during fiscal year 2023, and currently have active new engagement with over 10 separate fluxless TCV opportunities supporting key IDM, OSET, and Fungi customers. We continue to receive multiple inquiries for additional TCB opportunities with other customers. This funnel of growing demand across a wide customer base serves as a testament that we are in the early stage of TCB growth. The need to efficiently create a more transistor dense package will only accelerate this market momentum. All fluxless TCB solutions are extremely well positioned for the next wave of demand, and we remain committed to near-term execution. Upon near-term customer qualification success and the healthy customer demand trajectory, we anticipate our dedicated advanced packaging solution, which including free-chip mass reflow, PCB, and the wafer-level packaging system to approach $200 million in annual revenue by fiscal year 2025. Contingent upon near-term qualification and the business execution goes across advanced packaging application is anticipated to further accelerate. Looking more near-term, new engagement for next generation high bandwidth memory or HBM can potentially begin shipping as early as this calendar year. Also, our unique copper to copper capability has a very strong customer momentum and could potentially delay higher volume adoption of hybrid bonding due to a more competitive cost of ownership. Currently, our advanced solution team remains very focused on near-term customer engagement with the leading IDM, OSET, and Fungi customers. This broad group of customers require a cost-effective process that supports high bandwidth fine pitch interconnect and the stack die capabilities. All leading fluxless PCB solutions are well positioned to support high-volume copper-to-copper interconnect with pitch from 35 to 5 microns. Our capability to pick from tray, tap and reel, or wafer, and bound to substrate, chip, or wafer is robust. and expect it to support the broad future market of thermal compression bonding. Today, all Fractured-STCB solutions are best in class and have allowed us to be first to mass production through our engagement with a leading IBM. In parallel, We have also continued to take the shares with the leading offset as they begin to ramp 3D assembly for high growth and the high volume market, such as mobile, sensing, and the core package optics. We made a significant progress over recent years to expand our TCD shares across this initial base of IBM and the offset customers, who we have built long-term relationship. Over the past few quarters, we have continued to allocate additional R&D resources towards specific foundry opportunities, which we anticipate can present a sizable portion of the future TCP marketplace. Today, our global TCP team is actively engaged to support the future intercontinental needs throughout all of our customer engagements. We look forward to announcing additional qualification wins and the new partnership over the coming quarters. In closing, we continue to look forward to a brighter 2025. We have an intense focus on enhancing operational efficiencies, are preparing for a core market recovery, and are continuing to support key technology transitions with our growing memory, advanced expense, and advanced packaging opportunity. We look forward to sharing our near-term progress which will solidify our foundation for future growth. I will now turn the call over to Lester for the financial review update. Lester?