BE Semiconductor Industries

Good morning, good afternoon, ladies and gentlemen. Welcome to Bessie's quarterly conference call and audio webcast to discuss the company's 2022 third quarter results. You can log into the audio webcast via Bessie's website, www.bessie.com. Joining us today are Mr. Richard Blickman, Chief Executive Officer, and Mr. Leon Favain, Senior Vice President of Finance. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. The instruction will follow at that time. As a reminder, ladies and gentlemen, this conference is being recorded and cannot be reproduced in whole or in part without written permission from the company. I would now like to turn the call over to Mr. Richard Blickman. Thank you.

Thank you. Thank you all for joining us today. We will begin by making a few comments in connection with the press release we issued earlier today and then take your questions. I would like to remind you that some of the comments made during this call and some of the answers in response to your questions by management may contain forward-looking statements. Such statements may involve uncertainties and risks as described in the earnings release and other reports filed with the AFM. For today's call, we'd like to review the key highlights for our third quarter and nine months ended September 30, and also update you on the market, our strategy, and the outlook. First, some overall thoughts on the third quarter. Basie reported Q3 22 results, which were at the favorable end of guidance, but reflected the impact of a new industry downturn. For the quarter, revenue, orders, and net income of 168.8 million euros, 125.3 million euros, and 57.3 million euros decreased by 21.1%, 18.2%, and 24.2% respectively versus the second quarter of this year. Adverse revenue and order developments this quarter reflected typical seasonal weakness for mobile applications, but also more general weakness in high-end server, data center, and general computing applications. Such weakness was partially offset by continued strength in automotive and industrial end-user markets and ongoing shipments, of hybrid bonding equipment to customers. Similarly, Basie's backlog of 240.6 million euros at the end of Q3 declined by 12.6% versus Q2 22, but remained at higher than typical levels. Despite the challenging market environment, we maintain profit efficiency at high levels with gross margins of 62.3%, exceeding guidance and a net margin of 34%. We realigned Basie's production model rapidly in response to changing market conditions. As a result, total headcount has declined by 12.7% and temporary Asian production headcount by 65.2% since the end of the first quarter of this year. We will continue to adjust overhead levels as necessary in accordance with market developments. For the first nine months, Basie reported revenue of €585.1 million, which increased by 1.3%, and net income, which decreased by 6.9%, versus the comparable period of last year, 2021. Growth was favorably influenced by increased demand for Basie's computing, automotive, and hybrid bonding end-user markets. Such strength was partially offset by reduced demand for high-end smartphones following a large capacity build in 2021. It also reflected a 37.6% revenue decrease from Chinese customers, primarily associated with overcapacity, slower economic growth, and COVID-19-related lockdowns. Orders of €483.3 million decreased significantly by 34.4% as industry conditions materially weakened post the significant assembly capacity built over the past two years. The 14.8 million euros decrease in basis net income between the comparable periods principally resulted from a 49% increase in development spending as we increased investment in future areas of growth for the next market upcycle. Our liquidity position continues to build with strong cash flow generation of 185.2 million euros during the first nine months of this year, which supports Basie's capital allocation policy. We ended the quarter with cash and net deposits of 661.8 million euros and a net cash of 342.5 million euros. that represented increases of 12.1% and 19% respectively versus September 30 last year. Liquidity has improved this year despite the distribution of €351.3 million to shareholders in the form of dividends and share repurchases. We completed our prior €185 million share repurchase program in July and began purchases on our new 300 million euros program in August. During the quarter, we repurchased a total of 0.9 million shares for an aggregate amount of 45.5 million euros. Next, I'd like to speak a little bit about the current market environment in our strategy. As seen in the next chart, A industry downturn began in the second quarter after a long capacity upcycle. Industry conditions deteriorated significantly during the third quarter, highlighted by slowing memory, mainstream computing and data center markets. Continued weakness in Chinese markets and CapEx reductions announced by many of the largest semiconductor producers. The only market which has enjoyed positive growth this year is automotive. The outlook for the assembly equipment market also turned more negative this quarter as industry conditions weakened, global GDP growth rates decelerated, and customer caution increased. At present, it appears to be a traditional industry downturn marked by overcapacity and order push-outs by customers. Down cycles are typically the periods in which BASIC looks to improve its business model and plans investment in those products and technologies which will drive revenue growth in the next up cycle. The announcement of new restrictions recently by the US on sales of front ends and assembly equipment to China has added more uncertainty to the industry outlook. We are currently restrictions the imposed language to better understand whether any of basis below 10 micron accuracy systems could be subject to such provisions. Strategically, we are accelerating investment in Basie's future despite near-term headwinds, particularly for our hybrid bonding and wafer-level assembly portfolio. As the long-term drivers of our business remain intact and sub-10 nanometer device innovation continues to pace, In fact, R&D spending has increased almost 50% this year, highlighting our enthusiasm for Bayes' future growth opportunities. We see continued interest in hybrid bonding applications as the natural extension of Moore's law to drive technology gains in new heterogeneous 3D architectures for next generation logic, memory, mobile, automotive, and data center applications. Of note, AMD announced last year in the third quarter its first hybrid bonding chiplet, which was the starting point for the further adoption of hybrid bonding in the past 12 months. BASIC received orders subsequent to quarter end for an incremental hybrid bonding capacity and for systems incorporated in hybrid bonding integrated lines. Additional orders are anticipated in the fourth quarter. Now a few words about Q4 guidance. For the fourth quarter, we estimate that revenue will decrease between 15% and 25% versus the third quarter, reflecting current market conditions and seasonal trends. However, basis gross margin is expected to remain in the 60% to 62% range due to the flexibility of our production model and anticipated product mix. Further operating expenses are anticipated to increase by approximately 5% versus the third quarter principally due to higher R&D spending. The midpoint of Q4 guidance implies full-year revenue of approximately €720 million, down approximately 4% versus 2021, and a gross margin of approximately 61%, up 1.4%. That ends my prepared remarks. I would like to open the call for some questions. Operator.

If you'd like to ask a question on today's call, please press star one on your telephone keypad. To withdraw your question, please press star two. The first question comes from the line of Didier Semama of Bank of America. Please go ahead.