Kulicke and Soffa Industries, Inc.

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 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 El-Gindi, Senior Director of Investor Relations for Kulik & Safa. Thank you, Mr. El-Gindi. You may begin.

Thank you. Welcome, everyone, to Kulikin's Office Fiscal Fourth Quarter 2025 Conference Call. Lester Wong, Interim Chief Executive Officer and Chief Financial Officer, also joins me 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 earnings presentation. Both are available at investor.kns.com. along with prepared remarks for today's call. In addition to historical information, today's discussion contains forward-looking statements regarding our future performance and outlook. These statements are made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and involve risks and uncertainties that may cause actual results to differ materially. For complete discussion of the risks associated with fuel consult, 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 will now turn the call over to Lester Wong for the business overview. Please go ahead, Lester.

Thank you, Joe. Good morning, everyone. Before discussing this quarter's business performance and outlook, I want to briefly discuss recent organizational changes we announced on October 28th. I have taken over as interim CEO due to Fu Xinchen's recent retirement and will continue my existing duties as the company's executive vice president and chief financial officer. FUSEN is actively recovering and doing well, and we appreciate everyone's thoughts and concerns. While a search for a permanent successor among external and internal candidates is underway, we are fortunate to have a deep bench of talented leaders in the executive team and an involved board of directors who are committed to ensuring the continuity of leadership, stability, and strategic focus of the company. We expect this transition to be seamless and customers can accept continued innovation, global support, and strong commitment from K&S to serve the evolving needs and to enable next-generation devices. I want to thank Fusan for his leadership over the past nine years. Under his guidance, we pursued meaningful new business opportunities and expanded our market assets by securing a foothold in several high-potential technologies. We have also dramatically increased the volume of customer engagement and improved time-to-market execution. In doing so, we have accelerated the growth of our advanced portfolio of solutions, which enable meaningful share gain in leading-edge logic and has paved the path for additional expansion in DRAM, Power Semiconductor, and Advanced Dispense. FUSEN's legacy is an organization defined by growth, agility, and close customer focus. We appreciate that he has agreed to provide advisory support over the coming year and believe his vast experience and industry knowledge will be a useful resource to the company as we extend our leadership in advanced packaging and adapt to industry transitions such as the rise of chiplet architectures and heterogeneous integration. I, along with the entire organization, would like to wish FUSEN a happy and healthy retirement. I am confident we will continue to win market share and grow the business over the long term. As all of our end markets are showing signs of improvement, we have recently begun to prepare for higher production while continuing to aggressively drive several exciting technology transitions. Additionally, in my role as interim CEO, I am grateful to have met many customers in person over the past month and look forward to meeting with many others over the near term. We are fully committed to consistently providing customers with best-in-class capabilities and high-performance solutions they expect from K&S. Turning to our recent business results, we are encouraged by improved order activity, supported by favorable utilization trends in general semiconductor and memory end markets, while we continue to execute our key initiatives. Within our fourth fiscal quarter, we generated revenue of $177.6 million, GAAP earnings per share of 12 cents, and non-GAAP earnings per share of 28 cents. We remain focused on operational efficiency as we expand our reach within thermal compression, vertical wire, advanced suspense, and power semiconductor transitions. From an end market standpoint, utilization rate for high volume general semiconductor and memory applications continue to improve, while dynamics within the automotive and industrial markets are now showing early improvement. General semiconductor revenue increased by 24% sequentially, driven by technology and capacity needs which increased thermal compression and ball bonded demand during the September quarter. We estimate utilization rates are currently over 80% for this key end market. Memory has also improved sequentially, similar to General Semi, in both utilization and revenue. Memory-related revenue increased by nearly 60% sequentially to $24.4 million and was driven predominantly by NAND-related capacity additions. Historically, our memory solution were tailored for high density NAND assembly. Although we remain closely engaged in supporting advanced packaging transition within DRAM, we continue to expect the growth in high performance edge application like on-device AI or AI on the edge will begin to accelerate this trend. Order hesitation within automotive and industrial has continued into the September quarter with a relatively sharp sequential decline. While the broader automotive market has been softer, we anticipate a sequential improvement during the current December quarter, and are pleased to report a more positive outlook through fiscal 2026. As a reminder, we remain an active technology partner, providing many new innovations within power semiconductor, which are supporting long-term transitions within the EV and other clean tech markets. Last, APS has increased by 17% sequentially, which aligns with improving utilization data and more distinctly highlights increased production activity across our high-volume install base. We are optimistic about fiscal 2026 and remain encouraged by improving end-market dynamics, along with strong traction we are seeing across our growing set of advanced packaging, advanced dispense, and power semiconductor opportunities. Within Advanced Packaging, we continue to support the industry adoption of advanced thermal compression and vertical wire applications and remain closely engaged with multiple leading customers on these exciting initiatives. First, within Fluxus Thermal Compression, or FTC, we continue to directly address the needs of advanced heterogeneous logic applications. We are pleased to see growing demand across our customer base driven by the increasing capacity needs of IDM, foundry, and assembly and test customers. Our operational and supply chain teams are actively preparing for a production ramp through fiscal 2026 as adoption for our FTC process begins to accelerate. Additionally, we are preparing to ship our first HBM system within the current December ending quarter. Within the HBM market, we continue to anticipate advanced thermal compression capabilities such as FTC, provides an attractive assembly alternative as bandwidth requirements increase with future HBM standards. On the mobility side of DRAM, we continue to expect on-device AI applications to demand high level of bandwidth and increase the need for new vertical wire-based assembly over the coming years. This is a great example of how advanced packaging techniques are directly supporting power efficiency, performance, and form factor improvements helping to offset the rising cost of traditional transistor strength. We remain engaged with a broad group of memory customers who are actively preparing for this transition. Our vertical wire market expectations into fiscal 2026 remain consistent, and we continue to anticipate a shift to high-volume market production by the end of the year. Longer term, we anticipate Stack DRAM, or mobile HBM, will continue to grow aggressively with high-volume edge-related applications. Next, with advanced dispense, we are pleased to release our recent dispense system, Esalon, during Semiconductor Taiwan in September. Esalon leverages our unique and high precision dispense capabilities with a highly robust architecture platform, which has been proven in critical production environment. Transitions in many of our end markets are increasing demands for high precision and more capable dispense systems. We continue to receive recurring purchase orders as well as new customer purchase orders for our growing line of advanced dispense systems. Finally, while the current automotive and industrial market remains dynamic, we continue to develop innovative solutions to address increasing level of assembly complexity surrounding power semiconductor applications. In summary, we continue to expand our market presence on multiple fronts and remain cautiously optimistic as key regions and end markets show signs of cyclical improvement. We are pleased to see ongoing general semiconductor capacity digestion and expansion within our key regions, as well as memory technology transitions and pricing improvements, which are all promising indicators and that increases our confidence in the outlook. We continue to navigate a uniquely exciting time in semiconductor assembly, where the potential to capitalize on a wide set of opportunities in the industry. With that said, I will now provide a brief financial update. My remarks today will refer to GAAP results unless noted. We deliver revenue above guidance, continue to execute on close customer engagements, and maintain an ongoing focus on cost control. Gross margins came in at 45.7%, and we delivered $0.28 of non-GAAP earnings. Total operating expense came in at $80.3 million on a GAAP basis and just below $70 million on a non-GAAP basis. we continue to remain focused on operational efficiency while we support a growing set of opportunities. We continue to anticipate non-GAAP operating expense to be around $70 million over the coming quarters, which provides a strong foundation for operational leverage as demand for our solution ramps. Tax expense came in at $0.3 million, and we continue to anticipate our effective tax rate will remain above 20% over the near term. During the September quarter, we continued our repurchase program and deployed $16.7 million to repurchase 464,000 shares. Over fiscal year 2025, we repurchased 2.4 million shares, representing nearly 5% of shares outstanding, for $96.5 million. Looking ahead, end market improvements within general semiconductor and memory are becoming more evident, supported by regional utilization improvement and a strong sequential increase in APS demand. While automotive and industrial was previously expected to create an ongoing headwind into fiscal 2026, we are pleased to now anticipate sequential improvement into the December quarter. For the December quarter, revenue is expected to increase by approximately 7% sequentially to $190 million, with gross margins at 47%. Non-GAAP operating expenses are expected to be $71 million with GAAP earnings per share targeted to be $0.18 and non-GAAP earnings per share of $0.33. While we remain focused on production readiness and key growth opportunities, we have also strengthened operational and development efficiencies over the past few quarters. We are confident that these efforts position us to emerge from the extended soft demand period a leaner and more growth-optimized organization. Today, we're either a dominant incumbent leader or are aggressively taking share in every key market we serve. We continue to ensure our highest potential opportunities are well resourced and our customer development efforts are on a positive trajectory. Looking into fiscal 2026, we anticipate that half of our incremental growth will stem from technology transitions and share gains in new markets. At the same time, the other portion of sequential growth is increasingly encouraging due to the anticipation of ongoing cyclical recovery over the coming quarters. We look forward to ongoing execution and progress on advanced packaging, advanced suspense, and power semiconductor opportunities as we prepare for the broader core market recovery. In closing, we remain focused on executing our strategic priorities, are confident in our capabilities and technology leadership, and prepare to navigate the near-term macro environment. This concludes our prepared comments. Operator, please open the call for questions.

Thank you. The floor is now open for questions. If you would like to ask a question, please press star 1 on your telephone keypad at this time. A confirmation tone will indicate that 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, it may be necessary to pick up the handset before pressing the star keys. Again, that's star 1 to register a question at this time. Today's first question is coming from Chris Shankar of TD Cowan. Please go ahead.

Hi, thanks for taking my question. And good luck to Fuzan. Definitely going to miss him. I have two questions, Lester. The first one, you know, it looks like based on your guidance, pretty much sequentially all your three segments, general, semi, memory, and auto industrial should grow. Is that the right way to think about it? And how to think about it into the March quarter and any kind of seasonality effects? And then a follow-up.

Thanks, Chris, and I appreciate your sentiments for FUSA, and I will definitely pass it on. As far as the three segments are concerned, I think, as we said, general semi and memory are actually very strong. Utilization for both is over 80. Auto and industrial is still lagging a little bit, but we're very optimistic about it because we do see improvements, and we think there will be sequential growth into Q1. So I think as far as how we want to look at the March quarter, we think March will probably be, you know, probably flat to CQ1, so we don't see any seasonality into the March quarter.

Got it, Lester. Thanks for that. And then as a quick follow-up, you know, one of your Taiwan competitors spoke about Their FTC plasma solution for chip to wafer has passed final qual, has been used to the leading foundry. So I'm kind of curious, what is your status there? And do you think they could split the business or you're not in pole position anymore?

Well, Krish, I think we're still the only one at the foundry doing high volume production, right? I won't comment on competitors. I mean, we were qual a long time ago. So I think we continue to feel very strongly about our solution. Our solution now has both formic acid and plasma, so it gives the customer a lot more optionality to do it. We have single head. We have dual head. So we think our FTC solution is basically best in class, and we feel very, very competitive at the foundry as well as anywhere else we compete against the competitors.

Got it. Thanks a lot, Lester.

Thank you. The next question is coming from Charles Shi of Needham & Co. Please go ahead.

Hi, Lester. Thanks for taking my questions. Maybe the first one. You talked about shipping a system to the HVM customer. I know the team has worked on this for a while, and it's finally shipping, so it's definitely going to be good news, I think, by most of the investors. But kind of wondered if you can provide a little bit more color what's the nature of the shipment, where, I mean, as much as you can provide, probably where you are shipping the system to, and what's the next milestone? Thank you.

Thanks, Charles. Well, we're shipping the system to somewhere in the United States, right, without being too specific. As far as the next milestone is, once it's installed, they're going to start running, wait through it, and we're going to look for a qualification. So we hope to share some news soon. a few months after the system has been installed at the customer.

Thanks. Do you have any insight into which generation of HBM this qualification is targeted at?

I would say it's probably 4E.

Okay. Thank you. So maybe the next question, you talked about growth for fiscal 26. Half of that is coming from tech transitions, share gains, the other half from physical recovery. But wondering if you can put some quantitative color into that, like how much, how many percentage points you think can come from both areas and any directional, I mean, hopefully it can be a little bit more quantitative. That would be great. Thank you.

Sure, Charles. As you know, we don't guide beyond the quarter, but I think we're very comfortable with the, for FY26, we're very comfortable with the consensus number, which I believe is around 730, 740. And then again, as I said in my remarks, and as you just repeated, we think half the incremental growth will be from technology transition, like FTC, like vertical wire, like advanced suspense, as well as power semiconductor. And then the other one would be from The cyclical recovery led by the very high utilization rate, which we see out there, which is about 80% right now.

Got it. Thanks, Lester.

Thank you. The next question is coming from Tom Disley of DA Davidson. Please go ahead.

Yes. Good morning. Thank you for letting me ask a few questions. Lester, I was wondering if you could talk a little bit more about the NAND market. You know, we're hearing, obviously, strength and high bandwidth memory, and that's using up some of the DRAM capacity. But I haven't heard anybody talk about strength or improvements in the NAND markets until you mentioned it earlier today. Maybe just a little more comment on the NAND market?

Well, sure. I mean, I think what we're seeing is we're seeing very high utilization rates in memory. It's over 80%, about 82%, 83%. We're also seeing, you know, I guess, Purchase orders increasing in that market as well, particularly in China. Again, China itself is driven by general semi-memory, and China utilization is actually close to 90%. So that's basically what we're seeing in the field, Tom.

Okay. And would you still – you said there wasn't much in the way of normal seasonality, but would you still expect more of a ramp to happen post-Chinese New Year, kind of the normal cycle as far as incoming new orders? Yes.

Well, we're actually, again, already seeing orders now into Q2. So I think it'll probably be flat. I think this year, FY26, probably would be a little more linearity throughout the entire year. So I think, again, I don't see a huge uptick after Chinese New Year, but it'd be nice if it happened.

Yeah. I do want to echo your comments on Fusen. I've been covering the company on and off for 25 years. And when he came in several years, Many years ago, there was really a seed change in the productivity of the company and the outlook of the company. So I wish him all the best.

Thank you, Tom. Thank you. As I indicated, you know, FUSEN transformed K&S and, you know, expanded, you know, our portfolio of advanced products. And, you know, a big part of this incremental growth from the technology transition is due to, you know, his vision and his strategy. So we all wish him well in his retirement.

Yeah. Thanks, Lester.

Once again, ladies and gentlemen, that's star one to register a question at this time. Our next question is coming from Dave Dooley of Steelhead Securities. Please go ahead.

Yeah. Good evening and thanks for taking my questions and please relay my best wishes on retirement to FUSEN as well. Will do, Dave. Okay. First question, I think in your slide deck you talked about increasing market share in the HBM market. Could you just elaborate a little bit further on that? Is that just what you were referring to as shipping an HBM tool for general compression bonding, or is there something else to that commentary?

So, Dave, I think actually the slide referred to increasing market share in DRAM, not specifically HBM. As I think I said in my remarks, as well as responding to Charles' question, We are going to ship our first HBM machine to a customer in the U.S. for qualification.

Okay. So that commentary is just wrapped around the HBM shipment to a thermal compression bonding tool, nothing else?

Yes. For now, we are very, as you know, we started our thermal compression, you know, focused on logic. You know, we are the market leader in logic for thermal compression, but again, we're just entering the HBM market now. But we are very optimistic. We believe the tool is very well suited to HBM, and we think as, you know, standards change and as well as density increases, I think the tool, the flux thermal compression tool will do really well.

Now, do you think at this customer you'll be trying to displace a fluxless thermal, a standard thermal compression tool, or are you up against a hybrid tool? Or what do you think kind of how this unfolds as far as the qualification goes and what you're competing against?

Well, I think we're basically competing against other thermal compression bonders, right? Not so much hybrid for now. I think hybrid still, as we've spoken before, For HBM hybrid, it's a little bit off for now. So I think mainly the competition will be other TCB.

Okay. And then you mentioned vertical wire ramping in the – I think in the back in 2026. Could you just elaborate a little bit more on what exact – why is that ramping now? Is it tied to a specific handset model or some in-market – and then maybe help us understand what expectations you have for that business in 2026.

Sure. Well, I mean, we've been working on vertical wire for a while, and now we've had calls and we have tools at many customers, both in China as well as outside of China. As the calls progress, we believe that the first high-volume production will be in the latter part of CY26, which means we start shipping tools, you know, in the latter part of our fiscal 26, right? So I think that's basically, you know, sort of the color around what we think. And as far as, you know, our expectations, we still think FY26 is going to be, you know, the beginning. So I think somewhere around the neighborhood of $10 billion, and I think we think it will ramp significantly in 27 and beyond.

Okay. And do you have, as far as your core business goes usually, It's somewhat tied to unit volume growth in the general semi market. I was just wondering if you had an idea about how fast units are growing in 2025 or a prediction for unit growth in 2026.

Well, yeah, we have used that before, and I think it's probably 5%, 7%. But again, I think what is really giving us confidence is the utilization rate, which is, as I said, over 80% in both memory and general semiconductor and then 80% overall. Also, again, a lot of our core business is in China, and that utilization rate is almost close to 90%.

Thank you.

Thanks, Dave.

Thank you. The next question is coming from Craig Ellis of B. Riley Securities. Please go ahead.

Yeah, thanks for taking the question, and Lester, good luck in the role, and good luck to Houston as well with health issues. I wanted to start, and admittedly, I missed the first part of the call, but I wanted to start better understanding the dynamics that you're seeing in the memory market. Lester, do you think this is just a steeper slope that you're seeing in memory as utilization orders have improved, or is it really just a different timing for what might be a typical seasonal move up in memory ahead of second half build. So the question is really on the trajectory of the recovery that you're seeing.

Well, so Craig, I think right now memory utilization is very high. I mean, sales are increasing there. They're still obviously lagging general semi. So I think right now, I do think this is a ramp in memory and it will continue into FY26.

Yep. And can you talk about the potential for memory in 26 to get back to historic revenue levels and then because General Semi is rebounding and and it's doing so against uh a slightly improved but not significantly improved high volume pc and smartphone market what do you think is really driving the improvement in general setting well i think it's still still smartphone and and you know uh high performance computer right uh i mean it's cyclical i think for a long time we've as you know we've had almost

three plus four years of a downturn, right? And this is, you know, the digestion of the tremendous amount of inventory that was built up in 21-22. So I think actually this is almost back to a normal cycle, right? And it's the beginning of the recovery, which I think we've all been waiting for.

Okay. And then lastly, I think you did mention prepared remarks that we're not yet seeing any signs of uplift from the auto and industrial market, but as you talk to customers in those end markets, are you getting any indication that they could begin to see an upturn sometime in the first half of calendar 26, or is it still just very low visibility and an absence of any signs of improvement?

So, Craig, I think when we talk to customers, we actually get a sense of optimism, right? I think, you know, while there is still a little bit of headwinds, it's definitely improved significantly. And we expect our auto industrial revenue to increase sequentially in Q1 from Q4, right? And then I think going forward, we do see it, you know, it's lagging, General sent me a memory a little bit, but we do see it coming back, right? Particularly maybe our customers in Southeast Asia are as well as in China. So, and one thing I think, you know, Craig, as you know, we are sort of involved in sort of a technology transition on Power Semi, which is basically, again, for fintech as well as for EV. So I think with all those factors, we definitely think FY26 would be a much better year for auto industrial.

That's really helpful, Lester. Thank you.

Thank you, Craig.

Thank you. At this time, I would like to turn the floor back over to Mr. El-Gindi for closing comments.

Thank you, Donna, and thank you all for joining today's call. Over the months, we'll be participating at conferences in New York and Phoenix. 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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