BE Semiconductor Industries

Good morning and good afternoon, ladies and gentlemen, and welcome to Bessie's quarterly conference call and audio webcast to discuss the company's 2024 first 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 Verheyen, 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 would now like to turn the call over to Mr. Richard Blickman.

Thank you. 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'd like to remind everyone that on today's call, management will be making forward-looking statements. All statements other than statements of the historical facts may be forward-looking statements. Forward-looking statements reflect Bayes' current views and assumptions regarding future events, many of which are by nature inherently uncertain and beyond basis control. Actual results may differ materially from those in the forward-looking statements due to various risks and uncertainties, including but not limited to factors that are discussed in the company's most recent periodic and current reports filed with the AFM. Such forward-looking statements, including guidance provided during today's call speak only as of this date. And Basie does not intend to update them in light of new information or future developments, nor does Basie undertake any obligation to update the forward-looking statements. For today's call, we'd like to review the key financial highlights for our first quarter ended March 31st, and update you on the markets, our strategy, and outlook. First, some overall thoughts on the first quarter. Basie delivered solid first quarter results in an extended assembly market downturn. Revenue of 146.3 million euros was above the midpoint of prior guidance and represented a 9.7% increase versus the first quarter of 2023. Year-over-year revenue growth reflected strength in both 2.5D and 3D AI-related applications, partially offset by continued weakness in mobile and automotive markets. Order trends in the first quarter reflected a number of cross-currents affecting assembly equipment markets currently. For the quarter, orders decreased by 10.1% versus Q1 last year, and by 23.3% sequentially. Mainstream assembly markets continue to be soft, particularly for smartphone and automotive applications, despite increasing utilization rates generally. For smartphone applications, it reflects both ongoing weakness in Chinese markets and limited new product innovation this year. For automotive applications, it reflects excess assembly capacity after periods of strong growth over the past two years. We also noted a pause in advanced packaging order development this quarter, particularly for 2.5D and 3D applications after a strong ramp in the second half of last year as customers install new incremental capacity. We expect these orders to revive in the second quarter Orders for photonics applications continued to be strong in the first quarter. Profit for the quarter was above expectations. Net income adjusted for share-based compensation rose to 49.5 million euros, an increase of 15.1% versus the first quarter last year, with adjusted net margins increasing to 33.8% versus 32.2%. Profit growth was primarily attributable to increased revenue combined with a 3.0 point increase in gross margins to 67.2% associated with a more favorable product mix and net Forex benefits. Baseline OPEX were also on target relative to guidance reflecting overhead cost controls and increased R&D spending to support next-generation product development. Our financial position continues to improve, with net cash increasing by 60.1% from year-end to reach 180.9 million euros due to strong cash flow generation and the conversion into equity of certain convertible nodes. Since year end, a total of 127.7 million euros of basis convertible notes due 2024 and 2027 have been converted into a total of 2.6 million shares through April 25. As of such date, their aggregate principal amount decreased to 200.5 million euros. Next, I'd like to speak a little bit about the current market environment and our strategy. It appears that the recovery of the assembly equipment market in 2024 is progressing more slowly than previously anticipated due to continued excess capacity conditions in a number of our end user markets. We are in an extended downturn for many applications lasting eight to nine quarters including the Chinese market. Industry analysts now expect the upturn in mainstream assembly applications to be more second-half 2024 focused. Similarly, Tech Insights has recently reduced its assembly market growth estimates for 2024 to 16% from 31% in December. Growth is now more back-end loaded for the year. However, it also increased its estimates for 2025 and 2026 and expects the next market peak in 2026 at US$7.6 billion, up 73% from 2023 levels. Our principal strategic focus currently is the expansion of DAISY's Advanced Packaging Market Share in 2.5D, 3D, and photonics applications to meet strong growth anticipated for AI-related applications over the next decade. Our advanced packaging prospects continue to be favorable based on customer investment plans for such applications, particularly in the areas of hybrid plumbing, cobalt, and photonics assembly. We anticipate orders for 25 to 35 hybrid bonding systems in Q2 from multiple customers, substantially all of which are for BASIC's most advanced 100 nanometer accuracy generation. As such, we are increasing our R&D investment in each of these assembly processes to take advantage of growth anticipated in the period 2025-27. We have also expanded our resource commitment to next generation TCV systems. We see a parallel path pursued by leading memory customers for the adoption of both hybrid bonding and next generation TCV assembly processes in order to meet the significant demand for high bandwidth memory necessary to support AI related capacity growth. In addition, we received a follow-on order for our new inline flipchip system for CoWAS applications, shipped a TCBnext system for evaluation to a second customer, and received indications of interest for additional systems for multiple customers. Now a few words about the guidance. For the second quarter 2024, we forecast that revenue will be flat plus or minus 5% versus the first quarter of this year. with gross margins between 63 and 65% based on our projected current product mix. Aggregate operating expenses are forecasted to decrease by 15 to 20% versus the first quarter due to a reduction in share-based compensation expense. At the midpoint of guidance, we see H124 revenue relatively flat versus H123. That ends our prepared remarks. I would like to open the call for questions. Operator.

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. Please ensure your line is unmuted locally, as you will be advised when to ask your question. So once again, that's star 1 if you would like to ask a question. And our first question comes from the line of Alexander Duval from Goldman Sachs. Please go ahead.