BE Semiconductor Industries

Good morning, good afternoon, ladies and gentlemen, and welcome to BASI's quarterly conference call and audio webcast to discuss the company's 2023 third quarter results. You can log in to the audio webcast via BASI's website, www.basi.com. Joining us today are Mr. Richard Blakeman, Chief Executive Officer, and Mr. Leon Vervagen, 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 Brickman. Thank you.

Thank you. Thank you all for joining us today. We will begin, excuse me, 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 in this call and some of the answers in response to your questions and management may contain forward-looking statements. Such statements may involve uncertainties and risks 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 third quarter and nine months ended September 30, 2023, and also update you on the markets, our strategy and outlook. First, some overall thoughts on the third quarter. Bainty reported solid third quarter results with revenue and operating profit above the midpoint of prior guidance. For the quarter revenue of 123.3 million euros and a net income of 35 million euros decreased by 24.1% and 33.5% respectively versus the second quarter of this year, but orders grew by 13.1%, reflecting increased demand for next-generation AI, high-performance computing, hybrid bonding, and photonics applications. The sequential revenue decrease was principally due to decreased shipments for high-end smartphone applications post the first half-23 seasonal capacity builds and general market weakness. Profit levels remained elevated, driven primarily by gross margins of 64.6% and a 15.6% decrease in operating expenses, both of which were better than prior guidance. For the nine months ended September 30 this year, revenue and net income declined by 28.4% and 39.1% respectively, reflecting the impact of adverse market conditions on Basie's business this year. This year's revenue and order trends primarily reflect a broad-based downturn in demand for computing applications by both IDMs and Asian subcontractors, and to a lesser extent, reduced demand for automotive applications following strong growth over the past two years. Our profit performance in this market environment remains strong, with gross margins up 3.7 points and a net margin realized of 29.1% as a result of the timely adjustment of Basie's operating model to current market realities. Basie continues to significantly outperform its results as compared to the last industry downturn with latest 12 months revenue and operating profit tracking 56.5% and 115.4% versus the comparable period of 2019, with operating margins up 9.5 points. Our performance this down cycle highlights our revenue and profit potential for the next upturn. To date in 2023, capital allocation to shareholders has grown by 17.4% versus the comparable period last year. This brings Bezi's capital allocation over the past 13 years to a total of 1.8 billion euros. In addition, we will complete our 300 million euros repurchase program on October 27, 2023, under which we will have purchased approximately 4.1 million shares at an average price of approximately 70 euros. Effective November 1, we will initiate a new 60 million euros program designed to further reduce share dilution from the conversion of our convertible notes outstanding. Basie ended the quarter with a strong liquidity position, including cash and deposits of 391.2 million euros, up 3.4% versus the second quarter of this year. Of note, our cash position reflects the capital allocation of 412.4 million euros to shareholders this year. Next, I'd like to speak a little bit about the current market environment and our strategy. We believe we are in the early phase of a new assembly market upturn based on independent research data and customer utilization rates, post the trough reached in the second quarter of this year. As seen in this next chart, courtesy of Tech Insights, it appears that the industry conditions improved further in the third quarter. We caution, however, that there are many variables which could affect the upward slope of any new recovery, including global growth rates, geopolitical conflict, and the development of each of our principal mobile computing and automotive and user markets. Analysts expect the assembly equipment market to fall more greatly in 2023 and to rebound more strongly in 2024 than either the front end or the test markets. Back Insights expects the assembly equipment market to rebound from trough levels in 2023 to reach next cycle peak levels in either 2025 or 2026. in the range of 6.5 to 7.1 billion US dollars. At present, we are primarily focused on maintaining solid margins in the current downturn and executing development and operating initiatives to help capitalize on market opportunities in this next upturn. We are also pleased to report significant progress on our advanced packaging roadmap this quarter as we saw orders increase for generative AI, high-performance computing, photonics, and COGOS applications. New hybrid bonding orders were received in the third quarter from two customers, including the first order from a leading subcontractor, as well as significant orders for photonics applications from industry-leading customers. Subsequent to end quarter, we received further hybrid bonding orders from a logic and a memory customer and anticipate additional orders in the fourth quarter of this year. In addition, we received dibonding orders from multiple Asian subcontractors for chip on wafer on substrate applications, both in the third and to date in the fourth quarter. Now a few words about our fourth quarter and full year 2023 guidance. Given order trends in the third quarter and customer feedback, we remain cautiously optimistic encouraged by the ongoing progress of our wafer level assembly portfolio and market leadership position in key advanced packaging assembly systems. For the fourth quarter, we anticipate that revenue will increase by 15% to 25% versus the third quarter due to planned shipments from backlog of hybrid bonding and other advanced packaging systems. In addition, we expect gross margins to range between 62% and 64% and for operating expenses to increase by approximately 5% versus the third quarter of this year. That ends our prepared remarks. I would like to open the call for questions. Operator.

If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. We will take the first question from line Charles. He's from Needham & Company. The line is open now. Please go ahead.