Greetings and welcome to the Kulicke and Soffa Third Fiscal Quarter 2016 results call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Joseph Elgindy, Director of Investor Relations and Strategic Initiatives for Kulicke and Soffa. Mr. Elgindy, you may begin.

Thank you, Melissa. Welcome, everyone, Kulicke and Soffa’s third quarter fiscal 2016 conference call. Joining us on the call today is Jonathan Chou, Interim CEO, CFO. As in prior quarterly calls, I will assist with the financial and Q&A portion of this call. For those of you who have not received a copy of today’s results, the release as well as the latest Investor presentation are both available in the Investor Relations section of our website at kns.com. In addition to historical statements, today’s remarks will contain statements relating to future events and our future results. These statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Our actual results and financial condition may differ materially from what is indicated in those forward-looking statements. For a complete discussion of the risks associated with Kulicke and Soffa that could affect our future results and financial condition, please refer to our recent SEC filings, specifically the 10-K for year ended October 3, 2015. I would now like to turn the call over to Jonathan Chou for the business overview. Please go ahead Jonathan.

Thanks, Joe. As we announced earlier this morning, we are very pleased to have once again exceeded the high-end of our guidance with $216.4 million of revenue for the third fiscal quarter. This deep 38% sequential revenue important marks the second consecutive quarterly ramp. As a reminder, our top line increased steeply by 44% during the March quarter. This solid performance was largely due to continuing demand of our core ball and wedge solutions, as well as consistent strength within our advanced packaging business supporting system in package opportunities. The June quarter’s top line revenue of $216.4 million generated $100 million of gross profit, a 46.2% gross margin and $38.6 million of operating profit. Our 38% sequential top line improvement drove a 230% operating profit improvement and highlights our excellent fall-through performance during higher volume quarters. Our ball bonding sales increased 64% sequentially, with broad-based pickup in demand from global OSATs, which accounted for 93% of our total ball bonding sales this quarter. As those sales effectively provide the industry with buffer capacity, such a percentage of OSAT sales implies a very healthy wire bonding utilization throughout the install base. The utility and premium smartphones as well as NAND-flash applications drove our wire bonding strength. While the smartphones market is more sizable and it’s fairly well understood, NAND-flash also represents a very interesting and attractive application for wire bonding solutions. The lower price of solid-state-storage is accelerating consumer and business adoption of NAND-based solid-state-drive. Both 2D and 3D NAND’s production heavily relies on stacks of die connected using wire bonding technology. While we have historically served this space, emerging chance within memory market related to thinner die, taller die stacks and complex stacking arrangements have demanded new wire bonding features and process capabilities. We directly address this market opportunity with…

Thank you, Jonathan. My remarks today will only refer to GAAP results on compared to June quarter to the March quarter. Net revenue for the quarter was $216.4 million. Gross margins were strong at 46.2% with $100 million in gross profit; this higher revenue driven the operating margin of 17.8% which was up from 7.5% in the prior quarter. The incremental sequential revenue felt through the net income at approximately 44%. During the June quarter, we generated $38.6 million of operating income, $31.8 million of net income and $0.45 of EPS. Moving on to tax, during the June quarter, we incurred tax charges totaling $7.5 million. Turning to the balance sheet, we ended the June quarter with a total cash and investment position of $516.1 million. From a diluted share standpoint, this cash position is equivalent to $7.29 and our book value equivalent is $11.23. Working capital defined as accounts receivable plus inventory less accounts payable increased by $7.7 million to $190.2 million, due to the current ramp. From a DSO perspective, our Days Sales Outstanding decreased from 94 days to 71 days. Our Days Sales of Inventory decreased from 83 days to 69 days and Days of Accounts Payable decreased from 62 days to 55 days. As mentioned in prior quarters, the availability of U.S. based cash continues to be a major constraint. As a result of this constraint, we have paused our open market repurchase activity and have not made any share repurchases during the June quarter. Finally, before we end the financial discussion, I’d like to touch on the recent Brexit referendum and provide some insight toward global hedging strategy. At the highest level, we have no meaningful direct operating related exposure, nor sizeable customer base within the UK; although, we do conduct business within the European Union and other non-USD regions. Our year-to-date revenue and COGS is overwhelmingly USD denominated with about 16% in euros. Operating expenses are more diversified with about 40% in USD, 35% in Singapore dollars, 10% in euros and another 15% in a mix of other currencies. Operating expenses denominated in euros are effectively hedged naturally with our euro revenue exposure. Through the larger Singapore dollar exposure, we enter into forward content tracks with maturities up to six months to limit near-term currency fluctuations through our operating plan. In summary, we do not anticipate any direct business impact related from Brexit. We continue to monitor our natural hedges and have the capacity and processes in place to hedge our transactional currency exposures. This concludes the financial review portion of our call. I’ll now turn the discussion back over to Jonathan for the September quarter’s business outlook.

Thanks, Joe. As disclosed in this morning press release, we’re targeting revenue to come in between $135 million and $145 million for the September quarter based on our current visibility. As we look ahead, we are eagerly anticipating meaningful and industry expansion into the calendar year 2017 and specific opportunities such as solid-state drives growth and the ongoing adoption of new advanced packaging techniques such as Fan-Out, System in Package and thermal compression. Looking at the semiconductor units alone the incremental growth for the calendar year 2015 was about 2.8% and this anticipated to be only 1.4% for calendar 2016. In comparison, this is dramatically below the average annual growth rate for the prior five-year period. During the calendar year 2009 through 2014, semiconductor unit growth increased at an average of 6.1% annually. Looking ahead to calendar year 2017 and 2018, forecasters are anticipating a return to a more normal growth rate, which is expected to drive capacity additions for our solutions. Furthermore, while this unit growth is measured at the package level, the interconnect capacity to place and connect the growing number of die within these packages is expected to also increase. SiP and NAND are high volume fast growing multi-die packages that are driving incremental die to die capacity requirements and are served with our growing base of solutions. The other significant trend that is - that has within our internal investment is the more meaningful technology replacement cycle, triggered from the ongoing challenges of front-end node shrink. We continue to believe these physical shrink challenges can be better resolved with fundamental technology adoption to the backend process to drive form-factor reductions, higher performance and energy efficiency. We are well positioned to address this long-term trend as we continue to dedicate R&D resources to extend the market and feature-sets of our advanced packaging solutions. As we continue to be well-aligned with meaningful technology trends, executing on new business growth, driving innovation and feature expansion within our core businesses and leveraging our growing balance sheet, we continue to be increasingly optimistic as we look ahead to the September quarter and beyond. This concludes our prepared remarks. Operator, we will now be happy to take any questions.

[Operator Instructions] One moment please, while we poll for questions. Thank you. Our first question comes from the line of Tom Diffely with D.A. Davidson. Please proceed with your question.

Yes. Good morning and, I guess, good evening. So first on the model itself, what is the current breakeven level for the company? And then you talked about an incremental drop through of I think it was 44%, what do you think that is on a go-forward basis?

Yes. The breakeven level, Tom, is $120 million per quarter in terms of top-line revenue. That’s in line with what we had shared earlier, it’s the fixed cost is $45 million and the variable cost component, which is tied revenue is 6% to 7%, that hasn’t changed.

Okay. Great, all right. And then, you gave some nice data about how units are little slower this year and you expect it to go back to normal levels next year and the year after. When you look at the unit growth in the out-year, what is your own projection for the unit growth of wire bonded units versus against packaged units within the context of maybe a 5% or 6% growing market?

Actually, well, the unit growth is actually growing at 6%, 5%. There will be actually throughput improvement or UPH improvement for our machines. So we generally will actually bring that down couple of percentage points in terms of what could drive the demand for our solutions. So we generally were basically allowed to model in the low-single-digits, 2%, 3% level.

And, Tom, just generally for the wire bonded packages. They’re usually just a hair under that average rate. I think right now VLSI and Gartner from a unit standpoint into 2017 are around 7% from a unit standpoint. But the advanced packaging pieces usually are on the higher side, usually approaching 10%. But there is also a good amount of technology replacement at that advanced packaging side, which is the interesting piece, a smaller market than wire bond, yeah.

Yes, right. Okay. And then, you look at the - it sounds like there’s three compression bonder customers right now. And those - I didn’t quite catch it, are those all three memory customers initially?

Actually, we only refer to only one as memory customer. The other one we were silent [ph].

Okay. In general, does this technology - do you think the adoption is with - the wide scale adoption with memory first were stacked memory chips or is it going to be - do you think have a combination in memory logic components?

Yes. We always believe that the memory market will be the first adoption of the TCB as well as actually in terms of the advanced packaging side. And logic will follow later. But obviously this market while we do believe it’s quite attractive, in terms of the market that will eventually develop, which could actually be quite sizeable. The timing of it is hard to gauge, but we still believe that memory will go first ahead of logic.

Okay. And then, finally, in the press release you referred to a slightly shifted seasonal pattern. What do you think is behind that? Obviously, I know that the units are down this year. And so maybe the utilization rates on what they know normally on this time of year, but is there something specific, project-based stuff that is started to trump seasonality?

Yes. Well, if you look at Q4 from a year ago, we actually died at $135 million to $145 million top line. And then, we actually issue revenue guidance, which is between $100 million and $110 million. And we ended at $119.2, exiting that adjusted guidance last year. So that was the Q4 fiscal year quarter kind of the lower quarter compared to at least sequentially. And this one will be the second quarter that we’re guiding sequentially lower than the prior quarter. But year on year, if you look at the quarter compared to the last fiscal year, every quarter is higher than the previous in terms of the improvement for us. So that’s the first point. The second point is really about - typically we have the seasonal kind of the cyclicality, which is tied to kind of the selling seasons based on the U.S. or Western kind of selling season for the holiday season, having all the consumer devices ready for the shelves. We’re starting to see some trends where it’s starting to shift towards the Chinese New Year kind of holiday season. So there is actually some shifting of that seasonality.

And also the smartphone releases have also switched in a little bit, and specifically with this cycle we saw a pause around the same time last year, which basically was also a major driver we think and shifting some of the demand into Q3 from Q4.

Okay. The move to Chinese New Year versus the Western holidays doesn’t that - would that push out the business there or push it into the fourth quarter versus the third quarter there?

Yes, it could be, but this year is a little interesting, because of the fact that the utility smartphone markers are actually driving a lot of capacity investments early on, which we actually have seen some pickup in terms of our ramp as early as Q2 of this year. But there is some shift in terms of that. But we’re still watching in terms of how the Asian holiday come and impacting our - what we previously experienced in terms of the westernized seasonal selling seasons.

Okay. Thank you.

You’re welcome.

Thank you. Our next question comes from the line of Krish Sankar with Bank of America Merrill Lynch. Please proceed with your question.

Yes, hi, thanks for taking my question. I have two quick ones. On the topic of seasonality, as you on the Fan-Out Wafer Level Packaging, is it fair to assume most of that is front-half loaded or do you see that throughout the year?

Sorry, Kris, we didn’t quite get that.

Can you repeat that question? You didn’t come in as clear as we like.

So the Fan-Out Wafer Level Packaging orders that you see, is that typically front-half orders?

We haven’t discussed any specific Fan-Out Wafer Level Packaging orders, but generally I don’t know if there is a specific seasonality of some of the emerging Advanced Packaging trends. I mean, for this broader technology kind of replacement, demands don’t usually follow the broad seasonal patterns you see in wire bonding for example.

Got you, got it. And then, the thermal compression bonder is that still the revenue potential still a year out or do you think you’re going to see some revenues this year?

Well, I think the thermal order itself it is thermal compression bonder that we just received an order for. But thermo-compression bonder you look at some specific applications like high bandwidth memory. It hasn’t been actually pushed out for one or two years. And that’s not something that we believe we’re well-positioned for that market, when the market is available for us. And we continue to actually work with selected customers on that eventual application.

And just to clarify so for the APAMA, advanced packaging business, as well as our APMR business that basically gives us a pretty comprehensive set of solutions that serves thermo-compression, fan-out, embedded die and high-accuracy flip chip, so those are collectively somewhat in each, but depending on accuracy and future requirements, the both sets of equipments sort of cover pretty big group. So we are prepared for pretty much all the advanced packaging trend. It’s just always difficult to know exactly when they come on, but different customers are clearly engaged at different levels and perhaps have different types of activity.

Okay, thanks, guys.

Yes. No problem, Krish.

Thank you. [Operator Instructions] Our next question comes from the line of Jeff Feinberg with Feinberg Investments. Please proceed with your question.

Thank you very much. Can you just give a little bit of flavor on the potential growth available to you guys next year with the improved industry trends you’ve cited?

Well, I think in terms of the - our outlook, we certainly - based on what VLSI has actually projected and what Gartner has, just to kind of recap, VLSI is, I reckon, 7.6% in terms of growth rate through 2017 and for 2018 to 8.4%. And Gartner, they basically project in revenue, not units, which we tend to follow units, it’s much more relevant for us. And Gartner has 4.7% and 5.7% respectively for 2017 and 2018. So we tend to - we certainly would basically be - I’d say more correlated to the unit growth side, and if you compared to the last year - last two years overall the market actually has shrunk a little and now actually in the next coming two years, we should be in the low-single-digits side.

Low-single-digit, what? I’m sorry, the industry, you’re saying?

Well, it is tracking the unit growth side, I mentioned. So for our side we tend to be - we should be around low-single-digit 2%, 3% thereabout, because this takes into account the performance improvements of our machines as well.

And Jeff, when we talk about the other opportunities in advanced packaging in a lot of ways, these are new to us. When we look at longer term market forecast between SiP, fan-out, thermo-compression, package-on-package, this is collectively roughly $600 million equipment opportunity. In addition, there is flip chip, which is another roughly $400 million. Currently, we are focused on high-accuracy alone, flip chip, but also potentially the larger flip chip market. So that collectively is sort of roughly $1 billion opportunity over the next five years, which is fairly significant. And then, when we talk about advanced packaging, it covers basically all those areas.

I guess, just stepping back, big picture, based on what you got for the nine months and the fourth quarter guidance, your revenue growth will be about 15% or so this year. It sounds like there’s strong - I want to make sure I understand the context of the industry improvement - that there should be nice growth available to you next year also?

Yes, I think, obviously, this is - so far we’re tracking on a pretty good year-on-year growth. But a think a lot of it is also our - the way we position and capture some of the demands in the SiP application through our wire bonding business as well as through our advanced packaging solutions for the SiP. So those are, I’d say it’s additional, like I say, share capture for those markets. But if you look at the general market from unit growth perspective, that’s really - for our ball bonder, which is where the bulk of our volume is coming from that we tend to look at it from a low-single-digit in a growth rate perspective. But we’ll continue to actually try to actually had offer technology as we have in the past, in terms of copper offering, for example, there will be other type of offerings in the future to try to increase that growth rate.

So, I guess, I’m just looking at it from a third-party perspective when we’re talking about strong industry growth the next couple of years. The analyst consensus if for declining revenue next year, it just doesn’t seem consistent. It seems conservative?

Yes.

Wanted to make sure I understood the context. Okay. Thanks very much.

Thanks, Jeff. Thanks for your questions.

Thank you. Our next question is a follow-up from the line of Tom Diffely with D.A. Davidson. Please proceed with you question.

Yes, so just getting back to the overall ball bonder business right now, where do you think the split is between wire bonded units and advanced package units, and what do you think the conversion rate from wire to advanced packaging is over the next few years?

I think right now, it’s just over about 80% of all semiconductor units are wire bonded. And over the last - what six, seven years, I think that moved about 2% or 3%. So I wouldn’t expect it to really accelerate. It seems like that is sort of the saturation point or the limiting the 4 from wire bonding standpoint. And we look at advanced packaging, it seems like a lot of that 15% to 20% of what was historically traditionally flip chip is moving to some of these new package types. And that gives us the sort of entrance into the advanced packaging market with some of those changes - so again, we don’t see a lot of shifted plans to shift those large low cost wire bonded applications to more advanced packaging applications. Again, a lot of those probably for traditional flip chip

Yes. So from a percentage perspective, the degradation from say 80. I think, when we start to kind of provide the mix between wire bonding and flip chip was actually started on the 85% level. And so the degradation is about 1% per year, but in a growing pipe from a unit perspective.

Yes. When you look at the capacity that’s been added over the last couple years now, a lot of it has been at the 28 nanometer node. I know that initially a lot of that was flip chip, but have you seen your contributions from a wire bonding point of view grow at the 20 nanometer and below nodes?

So I think, the big runner in the sub 28 nanometer node for us is memory applications and NAND. A lot of other devices under that node are mostly logic, which moved to flip chip in the late 90s and in lot of ways. So I think, it’s important when you look at it to not look at nodes, but look at the IO count per die. Where at some of those memory applications are at even well under 20 nanometers and still have a stacked to our bond approach, because they only have about 60 to 100 IO count. So when we look at devices, we usually and look at the market broadcast, we usually take assume that devices under 800 IO count would generally be wire bonded devices over 800 IO count it usually fall to that advanced packaging world. And that’s usually a more consistent methodology than just looking at node alone. But when we also look at node shrink alone its tough right. Node shrink is becoming pretty challenging and I think, after a SEMICON West, some of the foundries that have lot of 28 and above of capacity have actually taken on some of the new IoT-type applications, because they don’t require the shrink at that level below 28 nanometers and definitely don’t want to pay for the cost. Even on 3D NAND that was a market, which actually went the other way from I think, 10 nanometers to 28 recently again through the not requiring the multi- patterning approach and the additional costs. So I think, generally for wire bonded devices, they could go below 20 nanometers again, it depends on the pitch and the IO for each one. Right now our wire bonders go in the 55 micron range from a bond pad standpoint. And that’s usually below the normal bond that pads that are out in the market.

Okay. When you look at projections for the next, we’ll call it five years, it seems like a vast majority of additional or new wafer starts are going to be in the 3D NAND world versus logic or DRAM. It sounds like you are pretty well-positioned there, both for current packaging, but also the high density packaging that might arise?

Yes. 3D NAND is really interesting for us. Yes.

Okay. And then finally, have you seen any changes on the competitive front between your dominant position on the copper side of the business and then your less than optimal position on the LED side?

Well, I think, in terms of the - our traditional core business, we haven’t really seen that much changes in terms of the players that’s competing with it. We are still a dominant leader, but we have seen a lot of pricing, let’s just say competitiveness through pricing, especially in China. This could be a Japanese player who has actually 5% or actually the second player with 20% market share. But I would say, in terms of the competitive landscape it is still the same.

Okay. Thank you.

Thank you.

Thank you. Our next question comes from the line of Sandy Mehta with Value Investment Principals. Please proceed with your question.

Yes, thank you. Congratulations on a very strong June quarter. The APMR business, I would have thought that you would have seen more growth in the June quarter. Was it just sequentially a tough comparison because the March quarter had grown quite rapidly? And the second question is given your comments earlier on the industry outlook. So it sounds like from your perspective, as well as the industry that you continue to expect ball bonding, your traditional ball bonding business to grow. I mean, advanced packaging may be growing faster, but the traditional business will continue to see growth as well? Thank you.

Yes, let me just address the APMR side and then maybe, Chou, you can get the other one. The APMR business, as we actually communicated and shared with the Street is that we had a sizeable order that come through, which really accelerated the performance of that unit. And that’s actually related to a SiP application order of 60-plus in terms of units. And it’s actually multi-quarters and that went from the March quarter to June quarter and it will taper off in this current quarter. So this is all in line with expectation and this is where the more performance-oriented smartphone sector. So from a performance, even though it’s actually a modest increase from March to June quarter, it is still reflected of that volume order that we receive. So from a performance perspective, we’re very pleased actually with the performance of APMR. And we continue to actually look for other opportunities going forward. Obviously, the sizeable multi-quarter order was actually was fantastic for us. And then, we’ll continue to look for something, but that is something that doesn’t quite as consistent as we like it to be. But what proves for us so is that the acquisition of actually Assembleon and through the hybrid platform, it really positions well for the advanced packaging, in how we serve our customer in the semiconductor space, through these advanced packaging solutions. Whether or not it’s APAMA, which is definitely more accurate, has higher accuracy. But the hybrid machine definitely has the higher speed and the necessary accuracy to meet the customers’ needs into today’s requirement. And then the second question?

Yes, the question ball bonder and AP, I mean, clearly, most of the growth we’re focused on and have been over the last couple of years has been in advanced packaging and all the new opportunities that are driving the technology replacement of that performance, top 20% of semiconductor units. But, yes, we also see ongoing growth driven by overall semiconductor units and then also the big replacement market within wiring bonding too. From an attractive growth opportunity standpoint, clearly, wire bonding is not as attractive, but, yes, it’s still a growing market, because overall semi-conductor units are also growing.

And the SiP order that you mentioned, the large unit sort of one-time order, given that it’s been delivered and presumably the customer is satisfied, do you expect follow-up order from other customers? Do you think that that product of yours has some legs or you would expect to see other orders over the next few quarters?

Well, we do expect the fact that we - at least with this higher-end performance segment, smartphone segment, we do have actually quite sizeable share with this particular customer through OSAT. So we do expect future, let’s just say, demand, possible demand for the same type of applications, perhaps through other makers of these high-end smartphones.

Thank you so much.

You’re welcome.

Thank you. Mr. Elgindy, at this time there are no further questions. I’d like to turn the floor back to you for final remarks.

Thank you, Melissa. And thank you all for the time. Say, I’ve one final note before we close the call. K&S will be presenting at the Credit Suisse 17th Annual Asian Technology Conference in Taipei on September 7. Please feel free to follow-up directly with any additional questions. Melissa, this concludes our call. Thank you.

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.