BE Semiconductor Industries

Good morning, good afternoon, ladies and gentlemen, and welcome to the Busy's quarterly conference call and audio webcast to discuss the company's 2023 fourth quarter and full year results. You can log in to the audio webcast via Busy's website at www.besi.com. Joining us today are Mr. Richard Blickman. Chief Executive Officer, and Mr. Leon Servayan, Senior Vice President, 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 would like to now 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 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 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 the fourth quarter and year ended December 31st. 2023 and update you on the market, our strategy and the outlook. First, some overall thoughts on our performance. Q4 23 operating results were significantly better than both Q3 and Q4 2022 as our favorable market positioning offset continued weakness in demand for mainstream assembly equipment. For the quarter, revenue of 159.6 million euros was up 29.4% and 15.9% versus Q3 23 and Q4 22 respectively. The increase was due to higher shipments for hybrid bombing, photonics and other AI-related 2.5D applications continuing trends we saw last quarter. Of note, we shipped our first inline flipchip system for 2.5D HBM logic applications to address the needs of this growing market. Orders of €166.4 million were up 30.7% versus the third quarter last year, of which a portion is anticipated to be shipped in Q2 and Q3 of this year. Operating profit also improved versus prior guidance as gross margins increased to 65.1% due to a favorable advanced packaging product mix and net forex benefits, as well as cost control efforts, which kept overhead levels relatively constant versus the fourth quarter of 2022. As such, net margins rose to 34.4%, versus the 28.4% in the third quarter of last year, and 29.2% in the fourth quarter of 2022. Overall, we are encouraged by our performance this year as Bayes' leadership position in advanced packaging lessened the adverse effects of an industry downturn as severe as the 2017 till 2019 period. For the year, revenue, orders and net income, euros 578.9 million and 548.3 million and 177.1 million declined by 19.9%, 17.4% and 26.4% respectively versus 2022. Revenue and order weakness reflected significantly reduced demand for mainstream 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. Such weakness was partially offset by increased demand in the second half of the year for silicon photonics, hybrid bonding, and 2.5D logic memory applications, as customers began to build out their AI and high-performance computing capacities. In particular, hybrid bonding orders and year-end backlog approximately doubled versus year-end 2022. Of note, approximately half of Q4 hybrid bonding orders were represented by our most advanced 100-nanometre the Generation 1+, accuracy, hybrid bonding systems. We achieved peer-leading operating and net margins of 36.9% and 30.6% in 2023 due to the alignment of Basie's operating model to difficult market realities. In fact, gross margins increased to 64.9% versus 61.3% in 2022, due to successful product introductions supported by a keen focus on cost control efforts, effective supply chain management, and net forex benefits. From an end-user perspective, Bayley's 2023 revenue decrease was primarily focused on mainstream computing applications, as well as ongoing weakness in Chinese demand for mobile handsets. As a result, computing decreased by 24%, of our end-user mix versus 30% in 2022, while mobile and automotive each rose two points to 30% and 18% respectively. Basis revenue and profitability has increased significantly since the last industry downturn. As seen in this next chart, revenue, orders, and operating income in trough Year 2023 grew by 62.5%, 57.2% and 132.2% respectively versus 2019 with operating margins up by 11.1 points. Basie ended the year with a solid liquidity base consisting of cash, cash equivalents and deposits aggregating to €413.5 million. Of note, we completed the €300 million share repurchase program in October 23 and launched a new €60 million program due for completion in October 2024. As such, share repurchases increased by 45.4% to €213.4 million last year, or 2.6 million shares. In addition, we propose to pay a cash dividend of euros to 15 per share for approval by basis 2024 AGM, which represents a payout ratio of 94%. Including such a dividend, we will have returned approximately 1.9 billion euros to shareholders since 2011, or approximately 30% cumulative revenue during this period. 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 the next assembly upturn after a 40% market decline from 2021. Industry analysts anticipate a rebound 2024-26, driven primarily by recovery and mainstream assembly equipment demand, and Chinese markets. Additional capacity needed for next-generation AI, logic and memory applications, and new wafer fab facilities coming online requiring advanced packaging capacity. Tech Insights estimates market growth of 78% between 2023 and 2026. reaching a new peak of 7.3 billion US dollars. However, the slope of the recovery in 2024 is uncertain, given the restrained demand for mainstream applications and weakness in particular in automotive markets currently. We made significant progress from a strategic perspective this year. Basie maintained attractive levels of revenue and profitability relative to peers, due to our significant R&D investment in next-generation advanced packaging systems and rapid alignment of production and overhead levels to difficult market conditions. In addition, we completed an in-depth strategic review to better position BASI for growth over the next decade and industry upturn. We also expanded our operational footprint in Malaysia, in Singapore, and also in Vietnam in response to customer reallocation of certain production outside of China and in anticipation of the growth of hybrid bonding and other advanced packaging technologies. Significant progress was also achieved on our ESG agenda as we made advances in the sustainable design of our platforms, positioned ourselves to meet and exceed challenging targets set for 2024 and launched many new initiatives to further reduce BayZ's environmental footprint. In addition, we formed a technology advisory board with leading industry experts to advance our core technology competitive position and growth prospects. Our leading position in advanced packaging was on display this year. We introduced new products as planned, both for 2.5D and 3D assembly, including our TCB Next, inline flip chip system, and the next generation 100 nanometer accuracy hybrid ponder. Our installed base grew to over 40 hybrid ponding systems at year end, with adoption increasing from three to nine customers, encompassing North America, European, Taiwanese, and Korean IDMs, foundries, subcontractors, and research institutes for both logic and memory applications. Now a few words about the guidance. For the first quarter this year, we expect revenue to decrease between 5% and 15% versus the fourth quarter, and for gross margins to range between 64% and 66%, due to a favorable advanced packaging product mix. Baseline operating expenses are forecasted to increase by zero to 5% versus Q4 last year, with total operating expenses increasing by approximately 50% due to a 15 million increase in share-based incentive compensation expense. That ends my prepared remarks. I would like to open the call for questions. Operator.

Thank you. If you would like to ask a question or make a contribution on today's call, please press star 1 on your telephone keypad. If you change your mind and want to withdraw your question, please press star 2. Please ensure your lines are unmuted locally as you'll be prompted want to ask your question. Our first question comes from the lines of Charles Hsieh from Needham and Company. Please go ahead.