Kulicke and Soffa Industries, Inc.

Greetings, and welcome to the CULIC and SELPA Q2 2026 conference call and webcast. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. You will be placed in the question queue at any time by pressing star 1 on your telephone keypad. As a reminder, this conference is being recorded. If anyone should require operator assistance, please press star 0. It's now my pleasure to turn the call over to Joel Gindy, Senior Director, Investor Relations.

Joe, please go ahead. Thank you. Welcome, everyone, to Kuala Lumpur's fiscal second 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. 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 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 a complete discussion of the risks associated with Kuhlken software 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 would now like to 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 again pleased to report demand is improving at a faster and stronger pace than previously expected. Customer sentiment remains strong and utilization levels across our largest surf market remain above average. This strength continued to be led by general semiconductor and memory demand, which directly support data-centered capacity expansion globally. We also see improving condition in traditional markets, such as premium smartphones. Over the past year, utilization rates have continued to increase and the need for incremental capacity continues to grow. As explained last quarter, Data center growth required new forms of advanced packaging, which support the most advanced logic and memory applications. Data center growth also requires new capacity for high volume traditional packaging solutions, which support networking, communication, power management, and storage requirements. Additionally, we have seen positive momentum within automotive and industrial end markets. During the March quarter, revenue increased by 21.5% sequentially. We have improved visibility within fiscal 2026 and anticipate a slight sequential improvement into fourth fiscal quarter. Our financial performance was above prior expectations, and we remain focused to aggressively ramp production in our core and advanced markets. Additionally, we continue to deliver new TCB, power semiconductor, and memory solutions to support our customers' evolving production needs. Revenue recognized for our leading fluxless thermal compression solutions have increased sequentially, supported by OSATs, foundries, and IDMs. Our fiscal year 2026 outlook remains strong for thermal compression and supports aggressive sequential growth. In addition to thermal compression, we recently announced several new and innovative offerings which address additional packaging transformations within power semiconductor and memory. Our new Asturian TW system announced in late March is well positioned to support increasingly complex high current and high reliability power applications. This new system complements our recently released clip attach and pin welding solutions. We also announced the ProMEM suite of memory features and highlighted our growing portfolio of DRAM solutions supporting both cost sensitive and high bandwidth memory applications. Additionally, we have a growing base of customer engagements in advanced packaging as we accelerate next-generation programs. Two specific areas of focus are around panel-level base system architecture and long-term industry development of true production-capable hybrid solutions. Despite challenging market conditions over the past three years, we continue to invest in research and development in several exciting new growth areas. As we enter a period of high-capacity additions across our served markets, we are pleased with the progress our team has made across these multifaceted opportunities. In addition to the industry's need for incremental near-term capacity in advanced packaging, we are also significantly ramping our own production capacity. Over the coming year, we anticipate to significantly expand our advanced solutions segment production capacity to support approximately $400 million of revenue. I will provide some additional details in the financial section. Turning to end market review, general semiconductor revenues increased by 19.4% sequentially to $148.9 million, driven by higher capacity and technology requirements for both ball bonding and advanced solution segments. Memory statements increased by 93% sequentially to $31.3 million. Our memory business is currently focused on supporting NAND technology and capacity requirements, although as advanced packaging trends continue to evolve throughout the memory market, we expect to gain market share in DRAM with our new solutions. Automotive and industrial shipments increased by 63% sequentially, driven primarily by high I.O. and high volume power and mixed signal packaging. We are also well positioned to benefit from the gradual long-term share growth in battery and plug-in hybrids, which require new power semiconductor technology and capacity requirements. Aftermarket products and services, or APS, end market demand decreased sequentially due to lower refurbished system sales during the March quarter. The broader consumables portion of APS has remained consistent sequentially. As we typically do during rapid changes in demand, we will continue to work aggressively to support our customers' capacity and technology needs. Our global R&D teams remain aggressively engaged on many new technology fronts, supporting advanced packaging and power semiconductor trends, while also extending our platform of advanced defense solutions. Within advanced packaging, transitions of both vertical wire and thermal compression remain on track and we continue to be positioned well. We are increasingly focused on hybrid bonding technology and are confident we can provide a very competitive solution within this emerging process. We continue to anticipate hybrid will be a commercially viable solution eventually, so it is now time to invest and accelerate market engagement. While hybrid may be still a few years away from gaining broad market adoption, we are accelerating our research and development efforts to provide a solution that exceeds current capabilities available in the market today. In the interim, TCB is the production solution for today's most complex heterogeneous applications. Our TCB business is expected to grow at least 70% sequentially this fiscal year, generating over $100 million of revenue. We anticipate the majority of our sequential TCB growth will continue to stem from large applications and heterogeneous packaging trends. We will allocate additional resources towards emerging HBM opportunities as well. Our other unique memory opportunity continues to be addressed with vertical wire, which provides a highly capable alternative for cost-effective bandwidth through dissecting. We anticipate strong sequential growth in both TCB and vertical wire over the coming years. We introduced our latest Ethlon dispense system in November at Productronica, which is now being deployed with several customers for evaluation and progressing well. In addition to Ethlon, During the March quarter, we recognized revenue associated with a new dedicated panel-level dispense solution. With that said, I will now provide a brief financial update. My remarks today will refer to GAAP results unless noted. We again deliver revenue above guidance and continue to execute on a production ramp in our core markets and flexes thermal compression, while also maintaining a focus on operational efficiency. Gross margins came in at 49.3%, and we delivered 66 cents of GAAP earnings and 79 cents on non-GAAP earnings. Growth margin remained strong sequentially due to customer and product mix. Total operating expenses came in at $81.1 million on a GAAP basis and $73.8 million on a non-GAAP basis. We continue to remain focused on controlling costs, although considering our growing base of opportunities, we also need to ensure resource availability. Tax expense came in at $7.4 million and anticipate our effective tax rate will remain slightly over 20% near term. For the June quarter, revenue is expected to increase by 28% sequentially to $310 million, with gross margins of 48%. Non-GAAP operating expenses are expected to be $85 million, representing an increase in variable compensation as well as an increase in critical headcount to support our growing market opportunities. Gap earnings per share is targeted to be 87 cents and non-gap earnings per share to be $1. As discussed earlier, we're expanding the advanced solution segment production footprint by investing in capital expenditures. These investments have started in April and are planned to significantly expand our thermal compression capacity by the first half of fiscal 2027. Total capital expenditures in connection with this expansion are expected to be $20 million. $12 million of the total investment is set to be deployed in fiscal 2026. In closing, we are capitalizing on near-term opportunities while continuing to execute long-term strategic priorities. We are confident in our future and remain competitively positioned in core and advanced packaging markets. We look forward to delivering strong results as we continue to grow the business. This concludes our prepared comments. Operator, please open the call for questions.