Kulicke and Soffa Industries, Inc.

Greetings and welcome to the Q3 2025 quarter results. 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, 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 Elengie. Thank you. You may begin.

Welcome, everyone, to QLIC's Office Fiscal Third Quarter 2025 Conference Call. Susan 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 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 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 fuel consulta that could affect our future results and financial condition, please refer to our latest Form 10-K and upcoming SEC filings for additional information. With that said, I'd now like to turn the call over to Susan Chen for the business overview. Please go ahead, Susan. Thank you, Joe.

Good morning, everyone. Over the coming quarters, we will focus on extending our market access through ongoing technology transition, and we continue to be encouraged by gradual core market improvements. As discussed last quarter, uncertainty around global trade has clouded near-term industry visibility, although we continue to see steady core market improvement as expected. We do not expect near-term trade dynamics to materially affect our global business operation, although they do create additional uncertainty in customers' near-term capacity planning decisions. Despite this near-term headwind, we continue to remain cautiously optimistic as we continue to see broadband utilization improve in key regions We also continue to work very closely with customers to support technology transition within advance expense, vertical wire, and the thermal compression, bounding, or TCP, which I will provide an update on shortly. Fortune quarters, which generated revenue of $148.4 million, gave loss per share of $0.06 and a non-GAAP, ending the shares of $0.07. and the execution has allowed us to exceed expectations. This will provide an update on financial performance and outlook shortly. As expected, the sequential revenue reduction into the June quarter was largely driven by order hesitation within the automotive and industrial markets. We mentioned last quarter, this was focused uniquely with a certain customer production facility in Southeast Asia, and we anticipate it will persist through the September quarters. We anticipate this substance is largely driven by trade uncertainty. It's broadly affecting global automotive and the industrial supply chain, and it will create a slight headwind over the coming quarters. Regardless, this key market is supported by ongoing technology transition and an above-average growth rate. Despite the near-terms, automotive-driven technology transition provides a long-term set of growing opportunities. For example, EV charging infrastructure is driving new equipment opportunities, and we anticipate charging-related infrastructure will exceed a 20% trigger over the next five years. Additionally, This ongoing growth is also driving the need for smarter and more efficient power semiconductor applications, which we are addressing with our growing base of pin welding, advanced dispense, and clip attach. Similar to automotive and industrial, but less pronounced. Order hesitation was also apparent within the general semiconductor end market during the June quarters. More recently, we are encouraged by seasonal and the cyclical dynamic, which are improving more on the evaluation improvement within core region and we anticipate both leading and the high volume market to improve through the September quarters. We remain very focused on both core market recovery and also new product momentum. We also experienced strong sequential demand increase in memory and are encouraged by improving conditions, recent price dynamic, and emerging packaging format. We continue to be focused on driving share gain and expanding our reach into D-RAN applications by enabling new packaging for capabilities in high volume with our vertical wire solution and the wheeling leading edge application in future version of HBM. Next, I would like to provide a brief status update on broader technology transition we are addressing through our advanced dispense, vertical wire, and the TCP portfolio. First, with advanced dispense, we are continuing to seek opportunity across key customers and the end market, while maintaining an aggressive product development pipeline. We have received initial POs from an automotive OEM, several IDMs, and multiple offsets, which highlight the broader diversity of our solutions. The need for higher precision and a more Capable dispense system is broadening across the market. We look forward to expanding our portfolio to support this need, and we plan to introduce new advanced dispense capabilities in September at Semicon Taiwan. Next, within virtual wire, Market expectations remain on track. We continue to plan for initial higher volume productions to begin in fiscal 2026, driven initially by an exciting technology transition within the memory market. Emerging on-device AI applications are demanding higher bandwidth. This market need is driving demand for transistor-dense, vertically-stacked, low-power dynamic memory. We have observed market reference such as mobile HBM, energy-efficient HBM, or low-power Wi-Fi or DRAM applications, which describe this new opportunity. This new format of a low-power HBM is anticipated to increase bandwidth by three to four times over existing low-power DRAMs. Both vertical wire interconnect are enabling an alternative, more cost-effective production process for those lower-power HBM applications. As a reminder, higher-power data center HBMs utilize more costly through silicon via die and thermocompression-based assemblies. We anticipate this new vertical wire-based HBM will be adopted in broader D-RAN applications and eventually support higher transistor density requirements across broader general semiconductor applications. Finally, within TCD, we continue to focus on many different applications for both logic and memory. Our flexible thermal compression or FTC solution continues to be best in class and is increasingly positioned to seamlessly integrate into a variety of applications and the customer's production flow. We have recently demonstrated new physical and chemical-based in-line material preparation capabilities, which further extend our leading FTC process. We are very proud of how our existing chemical-based solutions have performed, which have enabled us to lead the initial market transition to fluxless. This solution has allowed us to be first to high volume production, and we are currently supporting multiple large customers in mass production. With that said, we are now pleased to offer a tailored mix all physical and chemical-based process within one solution to best suit the widest variety of customer process flow and the market applications by adding in light dye and wafer preparation capabilities to our leading chemical-based process. Initial customer feedback has been positive, and we expect this new capability to be a market-enabler, which lower barrier to entries as customers initiate new production or expand their FTC capabilities. In addition to this new FTC solution, we have also made progress within the high-power HBM market. We now expect to ship an initial FTC system by the end of calendar year 2025 to support the anticipated fluxless transition within the HBM space. As we increase focus on emerging memory opportunity, we are confident our proven leadership in driving FTC adoption within leading edge logic application provide a unique advantage pitch to support leading memory application as they transition to final pitch FTC-based assembly. We are confident. We have the most robust and capable solution for leading-edge thermal compression application and remain positive on our engagement, recent progress, and long-term roadmap of this highly capable technology. We expect FTC solution will outpace overall TCP growth, allowing us to extend our market shares over the coming years within both memory and the logic market. In summary, we continue to expand our market presence on multiple fronts and remain cautiously optimistic as key regions and the end market show signs of cyclical improvement. While automotive headwinds are anticipated to linger into the September quarters, general semiconductor capacity digestion and expansion. driven by China and Taiwan, as well as the memory technology transition and the price improvement are increasing our confidence in the outlook. It continues to be a unique time in semiconductor assembly with a wide set of opportunities to be addressed. I look forward to updating our progress over the coming quarters and will now turn the call over to Lester to discuss the financial and outlook. Lester?

Thank you, Fusheng. My remarks today will refer to GAAP results unless noted. Despite uncertainty regarding macro dynamics, we delivered revenue above guidance, continued to execute on those customer engagements, and maintained an ongoing focus on cost control. Gross margin came in at 46.7%, and we delivered 7 cents of non-GAAP earnings per share. Total operating expense came in at $75.3 million on a GAAP basis, and $68 million on a non-GAAP basis. Tax expense came in at $3.2 million, and we continue to anticipate our effective tax rate will remain above 20% over the near term. We are also positive on recent U.S. tax law changes and are in the process of evaluating the future impact on our tax rate. We have continued to opportunistically reduce shares outstanding by repurchasing approximately 668,000 shares equivalent to 1.3% of diluted shares during the June quarter. Since the first fiscal quarter of 2024, we have taken a more aggressive approach to delivering shareholder value directly. Over this seven-quarter period, we deployed over $270 million in dividend payments and open market repurchase activities. This has allowed us to repurchase over 5 million shares, nearly 10% of shares outstanding, and currently offer a best in class dividend yield above 2%. Looking ahead, as Susan mentioned, we are more positive on key end market improvements in general semiconductor and memory supported by regional utilization and pricing improvements. Automotive and industrial headwinds will likely persist over the coming months, although we anticipate this softness to be short-term. For the September quarter, revenue is expected to increase by approximately 15% sequentially to $170 million, with gross margins at 47%. Non-GAAP operating expenses are expected to be $68 million, with GAAP earnings per share targeted to be $0.08 million, and non-GAAP earnings per share of 22 cents. We are very focused to exit from this extended period a leaner and more growth oriented organization. Today, we're either an incumbent leader or are aggressively taking significant market share in every key market serve. We continue to ensure our highest potential opportunities are adequately resourced and our customer development efforts are on a positive trajectory. Although we remain cautiously optimistic as we look into fiscal 2026, end market visibility remains unclear. We continue to anticipate gradual recovery with some potential minor seasonality anticipated in the December quarter. We look forward to demonstrating progress on vertical wire, advanced dispense, and thermal compression opportunities as we prepare for the broader core market recovery. K&S is very focused on executing our strategic priorities. We are confident with our capabilities and technology leadership, and we remain well prepared to navigate the near-term macro environment. This concludes our prepared comments. Operator, please open the call for questions.

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 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from the line of Chris Sankar with TD Cowan. Please proceed with your question.

Hi, thanks for taking my question, and nice to see sequential revenue improvement. I have three questions, Susan or Lester. Number one, I think you kind of mentioned about FY26 gradual recovery, minor seasonality. So is it fair to assume December quarter revenues have to be down sequentially and then we grow from there, but are we going to be bouncing around these $170 million levels for a few quarters or how to think about it?

Okay. You asked three questions, so we do it one by one. So first question is, I think at this moment, the industry utilization rate is quite healthy. Actually, it's a benefit improvement, the general semiconductor. And the memory, I think it's also quite strong. But we're still facing the ongoing heavy in the automotive. The Q3 revenue we just published, and we got $170 million for Q4. And in our, you know, review, we do believe probably Q1 of 26, you know, first half always is weaker. But because we are high utilization, right now we feel I think Q1 of 26 will be flat, fresh. I hope I answered your questions. Again, 26, we do believe it's in a better cyclical position with a potential significant improvement in the industrial integration rate and affordable boundary. We also have a new product, a three-year-old new product, for example, clip-attached wear boundary, pin welder. This is for the wedge boundary family. high-power semiconductor. We also have improvement over advanced dispense, vertical wire, and TCV growth. TCV growth was due to industry fluctuates technology transition and potential in HBM. So we do believe probably first half of 26 will be flat to Q4 of our And this industry already has a downturn, facing a tail quarter. So we believe Q3 and Q4 will be up. So I hope I answered your questions.

Yeah, that was very helpful, Fuzeng. So around $170 million for the next couple of quarters. I have two other quick questions. The second one is, I'm just kind of curious how to think about the impact of Intel CapEx cuts, because you do have some pretty good fluxless position there. some of the copper to copper, et cetera. So I'm just wondering, is that a headwind, or have you seen any progress there, or do you think that potential opportunity in the future for SPC is probably minimized with Intel? And then I have one last follow-up.

Okay. I think the engagement is still quite healthy, but I can only answer one. Of course, the revenue compared to our previous year will be down. So that's all I can say.

Got it. And then the last final question, you said you're going to be shipping TCB for HBM end of this calendar year. Is this for HBM 4 or is this just one customer or how to think about it? Thank you.

Okay. So we do believe... The next version of HVN is going to be a fractured very important though. So currently, I think we have two customers we are working with, but one of the customers, I think we will intend to ship a system end of calendar year, you know, 25.

Thank you very much. Appreciate that.

Okay. Thank you. Thank you, Chris.

Thank you. Our next question comes from the line of Tom Diffley with DA Davidson. Please proceed with your question.

Yes. Thank you for taking the questions. I'm curious, what are the utilization rates this quarter at your kind of core customers? And then what are the areas that's driving this incremental growth quarter over quarter here in the fiscal fourth quarter?

Hi Tom, it's Lester. So utilization rate overall is about 81%. I think in the end markets, general semi is around 83%, memory is about 80%. We see growth in utilization in all the major end markets, even auto, even though auto is still quite soft, utilization is below 70 there. But as far as what's driving it, it's basically general semi as well as memory. They've shown some they're the highest rising utilization rate. So I think that basically is driving, particularly general assembly, our, you know, sequential growth in the revenues.

Great. Thank you. And then, Fusan, I was hoping you could just dig a little deeper into the thermal compression business. You know, how big was it historically with fluxless and going into memory going forward, how big could it be, you know, a year or two down the road?

Okay, so I think I will repeat a few times already. This year, previous quarter, you know, we target 25, you know, as a shipping. You know, we are talking about, you know, 60 to 70. And next year, I think, originally, we target $100 million. But with the fluctuating transition, and we really work hard on HVM, you know, we believe we will have some upside. But as the market grows, our target, actually, the memory market actually is higher, bigger than the logic right now. We intend, you know, 2028, we think the market will reach about a billion dollars. We actually plan, you know, we have a plan and target about 250 to 300 million dollars in 2028. We believe at that time, the market will have a size of about $900 to $1 billion.

Okay. And is the main advantage here on the cost side? You mentioned that obviously you don't have to do it through Silicon Valley with this technology. So is it really for lower-cost applications where you are benefiting the customer, or is there a technology advantage as well?

I think it's really technology. You know, we actually start with, you know, chemical-based. There are two technology, and we are the leader. Actually, we can tell you, at this moment, all the high-volume production, you know, production, high-volume, actually, we are the only technology in high-volume production. So, uh, and, uh, uh, as you mentioned, as I mentioned in my script, we are adding a more capability. So we are quite positive about the transition to our practice. We are number one and we intend to capture the market and, uh, other focus in a larger, uh, we will focus on it as well as the HBM from here.

Great. I appreciate the extra color.

Thank you. Thank you. Our next question comes from the line of Charles Shi with Needham & Company. Please proceed with your question.

Hi, Susan Lester. Thanks for taking my question. The first one, I want to get a better sense of your soft guidance December quarter, meaning you don't have an official guide, but you did provide a direction. So, the December quarter, how do I think about that the LACOC confidence level you have, like, is it you're basically guiding December maybe flattish? Is it based on orders on hand, or how should I, is it based on forecast, and maybe you don't have all the orders on hand, but things may be coming along nicely? I want to gauge a little bit of your confidence there. Thank you.

Hi, Charles. It's Lester. So it's a combination of the things you mentioned, right? I mean, Susan and Reid mentioned earlier about utilization rates being quite high, right? And I think over the last couple of quarters, we've seen utilization rate at a healthy level and it's increasing. Obviously, in normalized times, you know, there would have been a ramp already. But again, as we've mentioned several times, the tariffs are kind of creating a little bit of hesitation in our customer supply chain. As far as our confidence on why we think that, again, we're not guiding, but as Susan said, we think December quarter will be flat to our Q4, which is our September quarter. The reason is, yes, we do see higher ordered intake coming in. We do see a lot more increase from customers. And, you know, we're seeing, again, recovery in both end markets as well as regions that were, you know, a little slow over the last couple quarters, right? So I think combination of all those things makes us think that even with You know, again, usually the summer quarter, we have a little bit of seasonality, but we believe that, you know, of all these factors, it should be, again, relatively flat from the September quarter.

Thanks, Lester. Maybe a second question. I want to ask a little bit more about the PCB. Maybe this is more about technology. So, Fusheng, I think you mentioned about preparation, physical or chemical preparation. But I kind of want to ask you what that means. Is it in situ preparation or it's a separate tool? And I think related to that, there has been a debate on PCB, the two approaches, the chemical approach, which is the approach you guys have, and the plasma approach. So are you, by saying physical preparation, are you talking more about the plasma approach you are developing or what is that and... On HBM, high bandwidth memory, which technology you are proposing or you are going to evaluate with customers? Thank you.

Okay. So, Charles, as I mentioned, the industry, you know, we have eight customers, and they are all in production. And the whole industry, the only technology in high volume production actually is a chemical base, right? So, actually, we are very proud, you know, all the customer side, we have the mass production as a chemical. So, to answer your question, actually, we also develop, you know, physical preparation technology. This is really very old technology, probably tens of years prior in a semiconductor plant. But actually, both technologies actually have a merit. I give you an example. I think for the physical one, you need to clean like soda oxide actually have a faster rate. But for the chemical, we are very confident. I think for the surface preparation, especially interface, interface integrity, quality is the most important for the year. We are strongly confident. I think the chemical one is the best. So right now, to answer your question, we have a capability. Actually, we have done it and demonstrated and get the feedback. It's positive. It's actually we do it in situ or together. Integrate all these capabilities together in a system. So with doing that, actually, you know, our customer is so convenient to easily integrate their integration and enable us to actually fight for market shares in various kind of chip on wafer, on substrate, and also maybe in the futures, also HBM. Hope I answered your questions.

Thank you. That's all from me. Thanks.

Thank you. As a reminder, if anyone has any questions, you may press star 1 on your telephone keypad to join the queue. Our next question. comes from the line of Christian Suave with Craig Hallam. Please proceed with your question.

Great. Thanks for taking my question. Booson, at the end of the prepared comments, you talked about being well-positioned, taking market share. Can you elaborate on, you know, what, you know, products, you know, that you plan on gaining market share, auto, industrial, you know, memory, et cetera. Just give a more clear answer to that, please.

Okay. So the first one I mentioned actually is called clip attach. And also pin welder. This is in our wastebounder family. This is especially for high-power semiconductor products. This will be very, very important. High-power semiconductor will be very, very important to show significant growth in the next many, many years. So the second one is an advanced dispense solution. Dispense actually is quite a big market. It's like a billion to a two billion. And we are focused on appreciation, you know, dispense. Actually, three years ago, we acquired a company and we do believe technology is differentiated. and has a micro-dispensing capability with in-light inspection and also have a good reliability, right? And we put this one actually in the common platform of our company, common platform, so we do believe our cost is very competitive and have different share products. And we will show actually the growth next year over here. And then vertical wire, I think we talked about vertical wire actually probably close to five, six quarters. I think finally this will take off. When I mentioned I mentioned this product will be implemented into a DDR file, you know speaking in but when people do this and a lot of people is encouraged because it's a stick theorem, you know die and The bandwidth actually not like a high power, you know HVM. I have a much wider language, but this one can actually provide 3 to 4X of bandwidth increase compared to current DDR. And the last one I mentioned, I think a TCB, I think a lot of discussion, and we are quite focused, and we believe we can make a traction on our TCB.

Great. Fantastic. Thank you. No other questions.

Thank you. And we have reached the end of the question and answer session. Therefore, I'll turn the floor back to Joe Galinti for closing remarks.

Thank you, Shamali, and thank you all for joining today's call. Over the coming quarter, we'll be presenting at several conferences. As always, please feel free to follow up directly with any additional questions.