BE Semiconductor Industries

Good morning, good afternoon, ladies and gentlemen, and welcome to Bessie's quarterly conference call and audio webcast to discuss the company's 2023 second quarter results. You can log in to the audio webcast via Bessie's website, www.bessie.com. Joining us today are Mr. Richard Blickman, Chief Executive Officer, and Mr. Leon Berwejin, Senior Vice President, Finance. At this time, all participants are in 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 would now like to turn the call over to Mr. Richard Blickman. Please go ahead, sir.

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 of our second quarter and six-month ended June 30, and also update you on the market, our strategy, and the outlook. First, some overall thoughts on the second quarter. Basie reported solid second quarter results with revenue and operating profit above the midpoint of prior guidance in a challenging industry environment. For the quarter, revenue of €162.5 million and a net income of €52.6 million increased by 21.8% and 52.5% respectively versus the first quarter of this year. Sequential revenue growth benefited from increased smartphone demand this year versus 2022, partially offset by weakness broadly in computing and user markets. Net margins also grew to 32.4% versus the 25.9% in the first quarter of this year, reflecting revenue growth, gross margin improvement to 65.6%, and strict cost control efforts of production and operating overhead. Revenue and profit development in the first half year, 2023, also reflected the impact of current adverse market conditions on Basie's business this year with revenue and orders each declining by 28.9% versus the first half year last year and net income decreasing by 39.2%. Current year revenue and order trends have been adversely affected by a broad-based downturn in computing applications in particular versus the first half of 2022 partially offset by a slight uptick in the amount for high-end smartphones versus last year's levels. Automotive order trends remained favorable in this first half year, although slightly below the strong contribution reported in the first half of last year. Of note, revenue from China increased by 10.5 million euros, or 11.4% versus the first half of 2022. reflecting modest improvement in demand for automotive, power, and smartphone applications, although no meaningful uptrend has been established yet. We are pleased with our profit performance in the first half of this year, despite industry challenges with peer leading gross and net margins of approximately 65% and 30% respectively. As seen in this chart, Basie's performance this cycle is also significantly ahead of the last downturn versus the comparable period of the prior cycle. In addition, we completed a four-month strategic review of Basie's business in the second quarter of this year with a leading consulting firm to help advance our ambitions for expanding revenue and profit potential in this next upcycle. BASIE is committed to enhancing shareholder value via long-term financial performance, sustainability efforts, and capital allocation. To date, 2023, we have distributed €367 million to shareholders, of which €289 million was distributed in the second quarter of this year in the form of dividends and share repurchases. This brings total capital allocation to 1.7 billion euros over the past 30 years, equal to approximately 30% of total revenue. In addition, we're on track to complete our 300 million share repurchase program by October this year. We ended the quarter with a strong liquidity position, including cash and deposits of 378.3 million euros post the large Q2 this year capital allocation. Decrease in our cash position at the end of the second quarter is consistent with historical trends following the payout of the annual dividend and increased share repurchase activity this year. Next, I'd like to speak a little bit about the current market environment and our strategy. It appears that the assembly equipment market formed the bottom for this down cycle in this past second quarter. post a steep decline beginning last summer. In addition, customer utilization rates have increased recently, although it is too early to say whether such increase represents a seasonal or structural trend and when a meaningful upturn may begin. If traditional assembly equipment cycles hold, one would expect an upturn either at the end of the third or in the fourth quarter of this year. Most analysts anticipate an industry upturn in the second half of 2023, with significant growth returning in 2024 and 2025, as per Tech Insights, based on the strong long-term secular drivers in basis, customer, and user markets. At present, we are primarily focused on profitability, navigating the current downturn, and initiatives to capitalize on market opportunities in the next sub-term. We've reduced the overhead and headcount in alignment with current market conditions and continue to increase R&D investment for the next generation systems. In addition, we've updated our strategic planning to help achieve business model growth objectives for the next five years. Progress also continues on our hybrid bonding and wafer-level assembly roadmap. Activity associated with hybrid bonding adoption has increased significantly over the past six months with the primary focus on customer qualification and testing of processes for next-generation architectures and new market applications. We believe that the prospects for wafer-level assembly growth have increased successfully each quarter. This belief is based on the high-level interest expressed by significant resources committed to and sampling work done by leading front-end customers, also OSOTs, and the development community, particularly in the areas of data center, AI, mobile, and high-bandwidth memory applications. The favorable outlook also reflects Basie's first-mover advantage, successful move to volume production, improved yields, and ongoing progress in developing integrated hybrid bonding production lines together with applied materials. We are also encouraged by the shipment of BASIE's next-generation TCB system for qualification in high-volume production. Further, the Singapore cleanroom facility was completed recently to support process development for hybrid bondic adoption. From an operational perspective, BASIE is targeting key expansion projects by year-end, including a Vietnam tooling support facility. In addition, we formed a new company in India as a result of increasing mobile assembly demand in that country. And then there were also some organizational changes at the end of Q2 with the retirement of Ruud Boonsma, CTO. Ruud will continue his involvement with BASI as chairman of a new BASI technology board to be organized in the second half of this year. His responsibilities have been resumed by the CTO office and members of senior management. I personally want to thank Ruud on behalf of everyone for his important contributions to the growth over many years. Now a few words about the third quarter guidance. The near-term market outlook remains uncertain despite initial signs of improvement and varies per end-user market. Accordingly, we anticipate that revenue will decline by between 20 and 30% versus the second quarter due to typical seasonal patterns and current industry conditions. In addition, we expect gross margins to range between 62 and 64% and for operating expenses to decline by 10 to 50% versus the second quarter. We also expect that the fourth quarter revenue will significantly exceed the third quarter revenue levels based on scheduled shipments from backlog, particularly for wafer-level systems. That ends my prepared remarks. I would like to open the call now for questions. Operator.

Thank you, sir. Ladies and gentlemen, if you would like to ask a question or make a contribution on today's call, please press star 1 on your telephone keypad. We'll take our first question from Ruben DeVos from Kepler Show Raw. Please go ahead. Your line is open.