BE Semiconductor Industries

Good morning and good afternoon, ladies and gentlemen, and welcome to Bessie's Hortic conference call and audio webcast to discuss the company's 2023 first quarter results. You can log in to the audio webcast by visiting Bessie's website at www.bessie.com. Joining us today are Mr. Richard Blickman, Chief Executive Officer, and Mr. Leon Verveen, 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, and instructions 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'd like to call over to your host today, Mr. Richard Blickman. Please go ahead, sir.

Thank you, George. Thank you for joining us today. We will begin by making a few comments in connection with the press release 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 by management in response to your questions 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 first quarter ended March 31st, and also update you on the market, our strategy, and the outlook. First, some overall thoughts on the first quarter. Basie's first quarter operating results were within guidance and in a challenging industry environment. Revenue of euros, 133.4 million, decreased by 3.1% versus the fourth quarter of last year, primarily reflecting general weakness in high-end and mainstream computing markets from both IDMs and Asian subcontractors and a temporary reduction in shipments for automotive applications. Such adverse influences were partially offset by increased shipments for high-end smartphone applications. On a year-over-year basis, revenue this quarter declined by 34.1%, reflecting the impact of the current downturn on Basie's business. In addition, demand from Chinese customers remained weak, representing approximately 27% of total revenue this quarter. Our trends in the first quarter reflect both the negative effects of the current industry downturn and the favorable prospects for Basie's wafer-level assembly portfolio. For the quarter, orders of 142 million euros declined by 21.3% versus the fourth quarter, primarily due to the pull forward of some high-end smartphone bookings into the fourth quarter and, to a lesser extent, decreased orders for mainstream computing and hybrid bonding applications. Orders for smartphone applications for the most recent two quarters significantly exceeded those for the comparable period of the prior year, but were less than previously anticipated. Demand for automotive applications improved in the first quarter versus both the fourth quarter last year and the first quarter last year. We received a 10.5 million euros order from a Chinese subcontractor subsequent to quarter end for automotive applications, indicating ongoing strength in this end-user market. Bookings this quarter also included orders for multiple hybrid bonding systems, with follow-on orders anticipated in the second quarter from multiple customers, including two new customers. In addition, the first order for our TCB chip-to-wafer system was received subsequent to quarter end from a US customer. Basie's profitability was solid in the first quarter with gross margin reaching 64.2% due primarily to the current product mix and cost control efforts. Operating income of 41.7 million euros exceeded the midpoint of guidance. Excluding share-based compensation expense, Basie's net income and net margin were €43 million and 32.2% this quarter versus €42.3 million and 30.7% recorded in the fourth quarter last year despite lower revenue levels. As seen in this next chart, our financial performance has significantly improved at this point of the industry cycle as measured by a comparison of Basie's results for the last 12 months ending March 31st this year versus the comparable period ending March 31st, 2019, with revenue orders and operating profit increasing by 44.7%, 66.5%, and 82.7% respectively. It is also a positive indicator for business target achievement in the next industry after 2020. Spezi has significantly increased its capital allocation in recent years. In 2022, we distributed €416.3 million. To date, in this year, 2023, we will have distributed almost €300 million, including the dividend for fiscal 2022. Progress also continues on our €300 million share repurchase program under which we spent 77.8 million euros in the first quarter this year to purchase 1.1 million shares. This brings total purchases under the program to 2.9 million shares at an average price of 59.33 euros for a total of 174.1 million euros. Our financial position remained solid at quarter end with cash and net cash of 644.9 million euros and 325.8 million euros respectively. In addition, cash flow from operations rose strongly to 61.4 million euros in this quarter, up 36.4% versus the first quarter last year. As a result of recent conversions, There remain outstanding only 600,000 euros and 13.4 million euros of our 2023 and 2024 convertible notes. Next, I'd like to speak a little bit about the current market environment and our strategy. As seen in this next chart, industry conditions have continued a downward trend since the second quarter last year, highlighted by slowing memory, mainstream computing, and data center markets, continued weakness in China, and capex reductions made by many of the largest semiconductor producers. The outlook for 2023 remains negative as we work through the current industry downturn. Analysts have further lowered market estimates for this year, while forecasting a renewed upturn starting in the second half of this year. We are prepared for various industry scenarios with a highly flexible production model and strategic initiatives in place to enhance profitability regardless of the industry direction. In the interim, we continue our investment in R&D programs and service support in preparation for the next upturn, and the significant projected growth of our wafer-level assembly portfolio over the next three to five years. We are currently updating Basie's strategic plan with the aid of an external consultant. At present, the principal focus is on R&D as we prepare our existing and wafer-level assembly portfolios for the next industry upturn. Progress in hybrid bonding and other wafer-level assembly adoption continues apace, with yields improving at customer sites and increased interest received from the development community and customers primarily for data center, mobile, and memory applications. We are working closely with AMET on the commercial development of an integrated production line, which shows significant promise at the first two customer locations. From an operational perspective, Our principal focus currently is adjusting headcount, supply chain and production overhead to align with challenging industry conditions. In addition, we continue to work to complete new clean room space in Singapore and a new tooling facility in Vietnam by year end to support future growth opportunities outside China. Now a few words about our guidance. For the second quarter this year, we forecast that revenue will increase by 15% to 25% versus the first quarter this year, with gross margins remaining elevated at 62% to 64% due primarily to our projected product mix. Operating expenses are forecasted to decrease by 0% to 5% versus the first quarter, as lower sequential incentive compensation expense is partly expected partially offset by a one-time strategic consulting expense. That ends my prepared remarks. I would like to open the call for questions. Operator.

Thank you very much, Mr. Blechman. Ladies and gentlemen, if you would like to ask an audio question, please press star 1 on your telephone keypad. Please also ensure your mute function is switched off to allow you to say it to reach your equipment. So once again, please press star 1 to ask questions. This first question is coming from Madeline Jenkins, coming from UBS. Please go ahead. Your line is open.