Kulicke and Soffa Industries, Inc.

Greetings and welcome to the QLIC and SELFA first quarter 2026 earnings 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, Joe Elginy, Senior Director, Investor Relations. Thank you, sir. You may begin.

Thank you. Welcome, everyone, to Kewlkins Office Fiscal First Quarter 2026 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 statements, 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 a complete discussion of the risks associated with Kuehl-Gonzalva 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 market and financial overview. Please go ahead, Lester.

Thank you, Joe. Good morning, everyone. We are pleased to report that demand is improving at a faster and stronger pace than previously expected. Customer sentiment has strengthened meaningfully, and utilization across the most significant markets and regions remains favorable. While residual headwinds in the automotive market may persists near-term, general semiconductor and memory markets continue to demonstrate robust demand, supported by broadening technology improvements and renewed production activity across multiple regions. Turning to recent business results, we continue to see improving order activity with addition visibility through fiscal 2026, which is supported by favorable utilization trend in general semiconductor and memory end markets. Separately, demand for our portfolio of advanced packaging solutions including our fluxless thermal compression bonding tools, remains robust, and we continue to anticipate a strong growth year for our advanced packaging opportunities. For the first fiscal quarter, we generated revenue and earnings above expectations and remain focused on ramping production to support strong customer demand in addition to driving parallel technological transitions within advanced packaging, advanced dispense, and power semiconductors. Dynamics within the high-volume general semiconductor and memory end markets remain favorable, while we also experience a slight sequential revenue improvement within the automotive and industrial end markets. In the first fiscal quarter, general semiconductor revenue increased by 27% sequentially and over 90% from the same period last year, driven by both technology and capacity needs of our customers. Across our portfolio solutions, all reportable segments recognize sequential increases within general semiconductor this past quarter. We estimate utilization levels remain over 80% for this key end market. Turning to memory, after a 60% increase last quarter, demand sequentially declined due to product and customer mix. While the concentration of memory customer can create demand variability quarter to quarter, we have observed ball bonding utilization rates which exceed 85% of the memory market up from the mid 70 range last year. This indicates a healthy capacity environment for our NAND assembly solutions. While AI related workloads are driving capacity tightness across the memory market, they're also driving new packaging solutions to cost effective stack DRAM in addition to emerging requirements for high bandwidth flash or HBS. I will provide a brief update to our memory opportunities shortly. Within automotive and industrial, we experienced a 15% sequential revenue improvement in the December quarter, although continue to anticipate industry headwinds that linger through fiscal 2026. Despite these near-term headwinds, we remain positive on long-term automotive and industrial trends, anticipate semiconductor content per vehicle, supported by ADAS requirements to double over the coming 10 years. We also remain well-positioned to continue benefiting from gradual long-term share growth in battery and plug-in hybrids as we deliver new power semiconductor technology and capacity requirements. Lastly, aftermarket products and services increased by 14% from the same period last year, reflecting increased production activity and improved utilization across a high-volume install base. We're optimistic about fiscal 2026 based on current demand levels and utilization level improvements, and remain focused on ramping production to meet high volume demand. Also, our traction within advanced packaging, advanced dispense, and across power semiconductor opportunities continue to be encouraging. Within advanced packaging, transition of both vertical wire and thermal compression remain on track. We continue to anticipate that the advanced solution segment will strongly grow this year as advanced PCB capacity is in demand throughout our customer base. Over the years, we have created a competitive portfolio of TCV solutions supporting a wide range of leading-edge logic applications and are pleased to also extend our footprint into high-bandwidth memory, which is extremely important for AI as HBMs provide fast, high-performance memory, which AI accelerators need to efficiently process massive amounts of data. In this regard, we are pleased to have shipped our first HBM system to a large memory customer during the December quarter. We continue to anticipate fluxless thermal compression remain a strong alternative to hybrid bonding for the next generation HBM needs. Our other DRAM opportunity stems from vertical wire, which provides a high potential alternative for cost-effective bandwidth through die stacking. We have already seen positive customer feedback on our vertical wire solutions and continue to anticipate strong sequential growth in both TCB and vertical wire over the coming years. Advanced dispense also continue to progress as planned. We introduced our latest Esalon dispense system in November at Productronica. Feedback from customers has been positive, with multiple customers engaged. We continue to prepare several systems to support this initial customer interest. Last, within Power Semiconductor, we have market-leading solutions and continue to expand our portfolio in support of growing power efficiency requirements across automotive, mobility, and data centers, power semiconductor applications are rapidly evolving. This transition is demanding more efficient materials, more complex assembly techniques, and more capable equipment solutions, which we are well positioned to support. Over the past three years, we have navigated a challenging demand period for our core products while we invest in several areas to expand our market access. As we now move beyond this period of soft, poor market demand, we are optimistic and remain well-positioned to capitalize on a wide set of opportunities across our served markets. 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. Growth margins came in at 49.6%, and we delivered 32 cents of GAAP earnings and 44 cents of non-GAAP earnings. Growth margins improved sequentially due to customer and product mix, as well as revenue recognized from systems which were previously expensed. This was largely related to prior impairment charges as well as previously expensed R&D systems. Totally operating expense came in at $81.1 million on a GAAP basis, and $74.2 million on a non-GAAP basis. We continue to remain focused on operational efficiency while we support a growing set of opportunities. Tax expense came in at $5.7 million, and we continue to anticipate our effective tax rate will remain above 20% over the near term. Over the coming quarters, general semiconductor and memory end markets are expected to continue driving strong demand for our solutions. For the March quarter, we expect revenue to increase by 15% sequentially to $230 million, with gross margins of 49%. Non-GAAP offering expenses are expected to be $73 million, with GAAP earnings per share targeted to be $0.53 and our non-GAAP earnings per share of $0.67. Looking ahead, we continue to focus on ramping production as we continue to execute multiple growth strategies across key markets. As mentioned last quarter, this is an interesting time at the company. We're either a dominant incumbent leader or are aggressively taking share in all key markets we serve. We look forward to ongoing execution and progress in advanced packaging, advanced suspense and power semiconductor opportunities as we prepare for broadening foreign market recovery. In closing, we remain focused on executing our strategic priorities, are confident in our capabilities and technology leadership and look forward to demonstrating our operational leverage over the coming quarters. 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 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 your handset before pressing the start keys. One moment to use while we poll for questions. Our first question comes from Charles Shee with Needham and Company. Please proceed with your question.

Hi, Lester. Thanks for taking my question. Maybe the first one looks like you are indeed entering an off cycle here based on your results, based on your guidance for next quarter. Can you help us characterize what do you see for the remainder of the fiscal or calendar year, whichever you feel more comfortable at this point? What do you see for the remainder of the year? in terms of overall demand, overall top line growth? Thank you.

Hi, Charles. Thanks for the question. So I think we're getting better visibility into the remainder of our FY26 based on the very high utilization rates as well as our discussions with customers. I was just in Taiwan and China the last couple weeks talking to customers. We think Q3 definitely will be sequentially better than Q2. I think the second half of FY26 should be about 15 to 20% better than the first half.

Thanks. That's great, Tyler. Then regarding some of the new opportunities you mentioned, I believe you somewhere in the preparing marks, you talk about high bandwidth flash, but you didn't really provide more details than that. Just a little bit of context why I asked this question, because I thought the high-bandwidth flash is a TSP micro-bomb-based technology, but sounds like you're alluding to maybe it's not quite more of a TCB driver. Maybe it's a vertical wire driver. So, mind if you elaborate a little bit, because it wasn't clear how HVF can benefit or create opportunity for KMS? Thanks.

Sure, Charles. Actually, it is a TCD play, not for vertical wire. You know, as you know, HBF is designed to merge NAND-level capacity with, you know, HBM class performance, right? And the potential benefits is obviously unlocking bottlenecks and AI workloads, right? So, HBF targets to, you know, match HBM bandwidth eight to 16 times capacity. At this point, HVF is still in early stages. We anticipate multiple packaging technologies can be used to assemble these packages, including TCB. So right now, we're currently exploring this technology with a few customers. So it is going to be our TCB, probably our Aptura, that will be used for HVF.

Okay. So you do have a TCB tool, which you just shipped to one of the top three memory customers. But, yes, it sounds like that is for HBM qualification. So what would be the next milestone of a TCB in HBF? Like do you expect to ship another tool? Is that the milestone that we should be all looking forward to?

Sorry, John, you mean the next milestone for HBM or HBS?

HBM, right? High bandwidth flash, sorry. I meant high bandwidth flash.

Okay, so I think the milestone, like I said, right now we're in early stages of discussing with some customers. I think probably the next milestone would be probably shipping a system or probably shipping a system before appeal at this point.

Okay, so a system should, okay, the next milestone is another qualification system shipment. Okay, got it. Thank you.

Thanks, Charles. Our next question comes from Krish Sankar with Cohen. Please proceed with your question.

Yeah, thank you for the great question. Let's just congrats on the results and guidance. Kind of interesting to see the cyclical recovery here in place. I just kind of wanted to clarify, you said cyclical, fiscal cyclical, rated by 15 to 20 percent um is that just conservation because i would say that if you try to strip it down by quarters it seems like the growth rates low sequentially the high single digits versus low double digits the last two quarters but i would think that it should be better than that given a cyclical uplift so is this more conservative some of the fact that you know this is the disability you have today things could end up being better than expected

So thanks, Krish. I mean, that's the visibility we have today, right? Again, you know, while visibility is better, as I said, and utilization rate is very high at 85%, over close to 90% in China, there is still a lot of uncertainty in terms of some of the macros, right, things we've been talking over the last couple of quarters. But at this point, we think, you know, from all my discussion with customers, it's getting much more solid. So 15% and 20% is what we see at this point. There could be potential issues. upside on top of that, but for now, I think 15 to 20%.

Fair enough, fair enough. And then just to follow up on the strong work here for advanced packaging, I'm just curious, is there a way to quantify how much your TCD plus FTC revenues would be? Is it close to 100 million? This is familiar and also on the FTC side, has your plasma solution been qualified as a bigger foundry or not yet?

Are you saying have our FTC been qualified at the foundry?

The plasma solution, not the formic acid.

Right now, we're working on the qualification for the plasma. As you mentioned, the formic acid already been qualified. It's in high-volume production. Again, I don't want to speak specifically about individual customers, but we're working very closely with the customer on that. I think for our TCB, We also, obviously, as you know, Chris, we started with, you know, IDM in the U.S., and we've moved on to Foundry. Now we're also seeing, you know, quite a lot of demand from OSAP. We have 120 TCBs in the field, and half of those are fluxless. So we feel pretty good about our TCB system. We think it's best in class. It's got great material handling capabilities, which allow for, you know, customers to do different processes. So I think we definitely think both plasma and formic acid were best in class on FTC.

And let's see, just any kind of quantification on TCB revenues this fiscal year?

Well, I think for this year, for TCB, it will be over $100 million.

Over $100 million. Okay, awesome. Thank you very much.

Thanks, Krish.

As a reminder, if you would like to ask a question, press star 1 on your telephone keypad. Our next question comes from Craig Ellis with B Reilly Securities. Please proceed with your question.

Yeah, thanks for taking the question, and Lester, congratulations on the nice execution. I wanted to start just by going back to the thread that Charles was on with high bandwidth flash. The question, though, is as you engage with multiple customers on high bandwidth flash, what's their expectation for when this can commercialize? Obviously, new standards have to go through JDAQ, but on the other hand, you've probably got NVIDIA pushing really hard, and they've been very successful at accelerated technology adoption. So when are these customers thinking this can come out in volume?

Well, Craig, as I said, I think it's early days yet for the technology. As you put it, you know, I think it will take a while for publications. There's a lot of different standards we're talking about. I think this will probably be more of a CY27 play.

Got it. Thank you. And then going back to your comments on the initial shipment to a customer for high bandwidth memory. Can you just walk through the timeline for when we go from that tool, which looks like an evaluation order to volume production? Can that happen in fiscal 26 or is volume production really fiscal 27?

I think volume production will be fiscal 27. I think right now we've shipped the system to their facility in the U.S., It's undergoing qualification. I think the next milestone will probably be hopefully another system being shipped. There may be POs within FY26, but I think actual production would be more FY27.

Okay, and we'll look for progress on that. Lastly for me, vertical wire, since this is something that could work in low-powered DRAM, and mobile-related applications. Typically, the early technology adopter releases product in the third quarter of the calendar year. Do you think we can hit that in the second half of 2026, or is this something that really goes up in significant volume in the second half of 2027, or do you see initial adoption coming out of the Android community and when would that be?

I think there will be more. It's gaining traction, but I think this is more maybe the latter half of FY26. There will be some, but I think they'll actually expand much more in FY27. We're currently working with eight customers in Korea, China, and the U.S. on this. So, again, we've pioneered the technology of vertical wire, so we're pretty excited about it. This, in addition to the HBM system that we shipped to the leading memory maker, is our sort of play into DRAM. Craig, as you know, our memory business has been, you know, traditionally very heavily into NAND, which is still growing, as I said. But I think this is, you know, again, more opportunities for us in memory because we think memory actually is going to be pretty robust going forward.

Sure looks like it. Thanks, Lester.

Thanks, Craig.

Our next question comes from Dave Dooley with Steelhead Securities. Please proceed with your question.

Yeah, thanks for taking my question. And it's nice to see a recovery in the business. One of the comments I think you made in your slide deck is you're seeing the data center revenues increase in the general semi-bucket. I was just wondering if you could talk a little bit about what those applications are, you know, because it's real interesting that you're seeing a significant recovery when the outlook for PCs and handsets are actually down sequentially in units in 26.

Thanks, Dave. Great question. You know, as I said earlier, over the last couple weeks, I personally had a lot of conversation with customers in Taiwan and China, and data center is basically the central driver for this cycle. So we support data center in many ways. We have a very strong AP portfolio. It's the best in class for chiplet and heterogeneous logic applications. We've actually been taking share in leading-edge logic for data centers over the last couple years already. And we're already in production for some of those advanced heterogeneous logic applications. We're also positioning ourselves for future growth. We're in the process of expanding our facility here in Singapore to increase our fluxless thermal compression production capacity by 3x. So in addition to AP, we also support data center, memory, and general semiconductor solutions. So many applications in data center, like general infrastructure, networking, communication, power and storage, it relies on more high-volume traditional assembly technologies, like Ballbonder, basically, our core products. And for memory, as I think I said earlier in response to Craig's question, we're mostly in NAND, even though we're moving into DRAM. And we're seeing actually a lot of enterprise SSD being increasingly used in data centers now, and that also helps drive our memory business. And that's another way we plan the data center. Okay.

Excuse me. Could you just remind us what the utilization rates are in your key regions? I think you mentioned one in your commentary, but if you could just kind of run down the key regions for us, that would be great.

Sure. China is over 90%. It's been in the high 80s and 90s for a while now. We see it continuing. The rest of Asia is around 80%, which has come up now. Southeast Asia, which was a laggard, is now coming back. It's still only in the 70%, but it's been increasing over the last couple of quarters. And then North America is also over 80%. And North America, Europe, we look at it together, is about 80%. So almost everybody is near 80%, and China is at 90%.

Okay, and then the gross margins during the March quarter, excuse me, the December quarter were close to 50%. And you mentioned that there was some benefit from some previously written off inventory. But then I think you guided gross margins to almost the same level again in the March quarter. So could you just talk about gross margins throughout calendar 2026 as we grow the revenue and what your expectations are there?

Sure, Dave. I think for the rest of FY26, gross margins should be around 49% to 50%. I think what we're seeing now in our core business ball bonder is that there's a lot more demand for our high-performance ball bonders, which has much better margins, much better than our LED, for example. So a lot in high-performance bonders. Second thing is, obviously, increase in volume helps with absorption, which helps the gross margin. And finally, you know, we've always been very, very focused on cost control, and we'll continue to do that even during a ramp.

Can we expect gross margins to continue to go higher as revenue ramps?

Well, like I said, it's going to be around 40% to 50%, which has always been our target at 50%. Okay, thank you.

We have reached the end of our question and answer session. I would now like to turn the floor back over to Joe Elgin for closing comments.

Thank you, Maria, and thank you all for joining today's call. As always, please feel free to follow up directly with any additional questions. This concludes today's call. Have a wonderful day, everyone.

You may disconnect your lines at this time. Thank you for your participation.