Greetings, and welcome to the Kulicke and Soffa 2024 Second Quarter Results and Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Joseph Elgindy, Senior Director of Investor Relations. Thank you, sir. You may begin.

Thank you. Welcome, everyone, to Kulicke and Soffa Fiscal Second Quarter 2024 Conference Call. Fusen Chen, President and Chief Executive Officer; and Lester Wong, Chief Financial Officer, are also joining on today's call. Non-GAAP financial measures referenced today should be considered in addition to, not as a substitute for or in isolation from our GAAP financial information. GAAP to non-GAAP reconciliation tables are included within our latest earnings release and our earnings presentation. Both are available at investor.kns.com, along with prepared remarks for today's call. In addition to historical statements, today's remarks will contain statements relating to future events and/or future results. These statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that may cause our actual results and financial condition to differ materially from the statements made today. 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 and upcoming SEC filings, specifically our most recently filed Form 10-K and the 8-K filed yesterday. With that said, I would now like to turn the call over to Fusen Chen for the business overview. Please go ahead, Fusen.

Good morning, everyone. While certain market including LED, automotive and industrial continued to be a challenging new term, we remain focused on expanding our market position and driving new and successful customer qualification over the coming quarters in Thermocompression, VFO and Advanced Dispense. These expected successes combined with a recovering core market and a significant focus on operational efficiency will be beneficial to customers, employees and the investors over the coming years. Before discussing this quarter's results and outlook, I wanted to briefly discuss Project W and our overriding customer engagement strategy. This 2017 K&S has evolved by growing intimate customer engagement. This customer-focused growth strategy has been successful and has allowed us to take shares in new markets as we expand our competency. A few recent example of this engagement approach include our effort to enter advanced display market, enter the co-packaged optics market, expand our share in leading-edge logic and actively enables next high-volume packaging format for DRAM. Our Advanced Dispense business is taking a similar customer-focused approach, which I will explain shortly. While our intimate engagement strategy has provided a new market access, share gain and profitability, there will always be a potential risk that a project may be canceled by the end customer, which unfortunately was the case for Project W. Industry challenges combined with macro factors likely played a role in our customers' decision to discontinue this program with its supply chain partners, including K&S. Project-related assets and the tool, raw and finished goods inventory as well as open purchase order with our vendor was accounted for in the second quarter's impairment charge, which has affected both GAAP and non-GAAP earnings. Largely related to the cancellation of our Project W, we have restructured to remain lean and have reallocated resource to accelerate other critical business…

Thank you, Fusen. My remarks today will refer to GAAP results unless noted. While there continues to be headwinds across specific end markets, related to macroeconomic and industry conditions, it continues to remain an exciting time for the company. As Fusen mentioned, we are pleased to see improving order activity with higher volume customers and anticipate additional groups of customers to begin ramping for both capacity and technology needs over the near term. During the March quarter, we generated $172.1 million of revenue and a 9.6% gross margin. Without this quarter's unique charges gross margin would have been similar to the prior quarter. During this recent quarter, we booked pre-tax charges, including impairments in the amount of $105.5 million. As you recall, we announced in March 11 that the company has anticipated pre-tax charges, including impairments relating to the cancellation of Project W to be between the low estimate of $110 million and a high estimate of $130 million. By the end of fiscal year 2024 and we expect our total charges to come in below our high estimate of $130 million. In addition to reallocating key R&D members through in-demand projects, we prudently reduce resources, which have directly and indirectly supported Project W. We booked GAAP tax expenses of $6.4 million for the March quarter, which included tax items related to unique events during the quarter. We continue to anticipate an effective tax rate above 20% through the remainder of fiscal year 2024. Our repurchase program remain opportunistic, and we have again increased our repurchase activity sequentially. During the March quarter, we booked $37.3 million of open market repurchases activity, which represents a sequential increase of nearly 40% over the December quarter. Although gradual, recent order activity increases expectations of broader general semiconductor end market growth. We continue to anticipate near-term headwinds within the automotive and power semiconductor end markets and also anticipate approximately $15 million of lost revenue relating to the cancellation of Project W in the second fiscal half. Looking into the June quarter, we expect revenue of approximately $180 million, plus or minus $10 million, with gross margins of 47%. Non-GAAP operating expenses are anticipated to be $72 million plus or minus 2%, which includes additional wind down expenses of approximately $2.5 million. Collectively, for the June quarter, we expect GAAP EPS of $0.17 per share and non-GAAP EPS of $0.30 per share. Over the coming quarters, we look forward to providing additional updates as we reach new milestones, which will help build a foundation in Memory, Dispense and Thermocompression opportunities over the coming years. This concludes our prepared comments. Operator, please open the call for questions.

[Operator Instructions] Our first question comes from Krish Sankar with TD Cowen.

First one on your general semi core wire bonder business. It looks like that's kind of bouncing off the bottom. Fusen, do you think that, is this a cyclical recovery for the wire bonder business, i.e., utilization rates are going up for OSATs and you're beginning to see through and demand pull through? Or is this more bouncing off the bottom until visibility gets better?

Well, Krish, I believe, in general, the recovery was not strong enough as expanded last quarter. Automotive, core semi and LED was the center of [indiscernible] when we have general semiconductor recovery, right? But even with this, actually, second quarter are mitigated by stronger Ball Bonder improvement. In fact, Ball Bonder, has an increase in revenue by 55% in Q2 of '24 versus '23. So going to Q3, even general semi continued to go up, but the LED and the core semi and auto also increase -- incrementally also a bit weaker. So what I should say is I think this industry probably need a little bit more Ball Bonder recovery. And even we have a general semiconductor recovery, we also have a headwind in auto [indiscernible]. As a result, actually part of that, they actually cancel together, right? But what I can say is I think our '25 will be a better year for us. If we see some recovery in TCB, phone and auto, this should be very easy to add on Ball Bonder in a much bigger way, right? So I don't know if I answer your questions. I think a recovery is ongoing way. But when we have an increase in general semi, we also see the -- we're going [indiscernible] was the reason, I think it was a bit slower. But looking forward, we expect the recovery that will be more broader and in PC, phone and auto. And at this moment, even we have a stronger Ball Bonder 55% above the trough. But still only 40% of FY '24 revenue compared to the peak. So I think our recovery still have a long way to go and probably this industry needs a little bit broader recovery.

Got it. Got it. And then one other quick follow-up. Can you give us an update on your TCB qualification of the Taiwan foundry? I thought that you -- the call is expected to be done around this time where the end customer is going from hybrid warning to TCB. Can you give us an update there?

Okay. Krish, let me first to tell you. I think the hybrid bonding and the TCB actually [indiscernible] exists in this market. So [indiscernible] -- Okay, I can tell you this, the foundry is one of several priority engagement for us at this moment. And we have actually engagement and qualification for multiple application with our new Fluxless technology layer, right? So it's not only a single project. As I mentioned, we are currently the first and only Fluxless technology provider in the mass production for the whole industry. And the Advanced Technology process in Foundry is always relented and the production of this new advanced technology for production is intended for CY' '25. And we are in early discussions for shipments to begin in the first half of CY '25, right? So we expect to reach a new short-term milestones and give you update during or prior to our next call, right? So what I try to tell you, I think that we feel like the progress is good, but the qualification in Foundry really take very, very lengthy. Let me give you an example. We anticipate this Foundry relationship to progress share to our engagement on the IDM side. We began to engage in 2021 and begin to actually figure shares 18 months later, right? So qualification can take a little bit longer. And this is the TCB application. And TCB, actually is increasing importance in the beginning, and we have a very good presence in OSAT as well as IDM, than we do expect. It's just a matter of time since we have multiple projects, we will grow our shares in Foundry in coming quarters.

Our next question comes from Dave Duley with Steelhead Securities.

I also have a follow-up on Thermocompression bonding. I guess one of your competitors had a conference call a few days ago talking about how they thought that all the memory guys are going to pursue kind of a dual strategy with both Thermocompression bonding and hybrid bonding. And I think they implied the Thermocompression bonding would be the kind of technology of choice for HBM3 and HBM4. I'm just wondering where we are at as far as working with the memory guys with Thermocompression bonding? And do you see TCB as the near-term solution for stacking these memory die? Or will they continue to use the current technology?

Okay. So we actually believe TCB right now is a production tool and next generation will still be TCB. One of the reasons I think is capability. The other reason is really the cost. We are engaging a next generation of HBM. And our working together system probably potentially will be issued by end of this year, fiscal -- calendar year. I think we also have another exciting project we call VFO. This is a project actually can physically reduce the form factor of a memory package by 40% and also increase IO as well as improved electoral performance. The first production actually is intended for low-power DDR, but one of a memory customer also have a road map for HBM, but will not be for the like next generation HBM. But actually one of our customers has a potential to be as a HBM. So we actually work on both ways. TCB, we actually focus on heterogenous integration and chiplet. This is for advanced logic. But for the memory, actually, we have VFO, actually both of our project will increase our potential revenue. So to answer your question, I think the TCB is a focus, and we believe TCB is used that is simple and capable. And we believe current generation and next-generation of HBM is going to be TCB.

Okay. Great. And my second question has to do with the core business. You announced a 1,000-unit order, I guess, for a new wire bonder. I'm assuming this is the first big order that you've received. Would it be fair to assume usually when you get one big order, you start to collect other large orders from the other OSATs or IDMs, because they all kind of tend to order at the same time. Is that the assumption that we should start to make here is that you're starting to roll up these big orders on a more consistent basis?

Well, Dave, it's Lester. We are definitely seeing, over the last couple of months, gradually improving order requests as well as customer increase RFQs. The POs are starting to come, as we indicated, this one big PO is starting to come in. We do see the utilization rates also creeping up. So that also is an indicator of higher volume purchases. And even in the weaker end markets, we are starting to get some discussion with customers about their sort of future demand. So yes, I would say that we do believe that, as Fusen said earlier, the second half will be better than the first half, but definitely early FY '25, that's when the ramp probably should kick off.

Our next question comes from Tom Diffely with D.A. Davidson.

Yes. Fusen, on the memory side, nice explanation of the vertical fan-out and the Thermocompression bonder. Curious though, are those all just focused on the DRAM market? Because historically, you've been stronger on the flash side or the NAND side. So curious if these technologies are looking at both memory types or just DRAM?

Actually, thank you for the question, Tom. At this moment, memory market is recovering. At this moment, we believe our NAND play a little bit stronger low but go back to your question, vertical fan-out, we are working with all the memory customers. This is a very exciting, all are memory customer and behind that actually is a bigger IDM company. We actually have the DRAM with all the memory customers, but we also have one NAND company working with us for the vertical panel, right? So to answer your question, this is a vertical fan-out, we believe, just at the initial stage. Start with low-power DDR and even NAND, I think, it get started for the development. In the future, is going to be applicable for other applications, not only memory only, right? So I hope I answered your question.

Yes. No, perfect. And then a follow-up on the display side, I guess, few-part question here. First is how fungible are the -- is the team going from display to TCB and dispense and then with the exit of Project W, what is your outlook for display for your other sets of tools?

Okay. So let me answer your second question. I think the micro LED is somewhat unclear due to the project cancellation. The impact of the industry actually is really rare. So micro LED, we do believe is a setback for the whole industry for a few years, not sure 2 years, 3 years. But despite change in micro LED, high-speed pick-and-place die transfer system is still needed for the [indiscernible] application and this will be still a good opportunity for our LUMINEX . And at this moment, actually, we are still targeting smaller die size, mini LED for direct initiative, large format display with a high volume opportunity for our LUMINEX in the second half of CY '25, right? So the project is ongoing. But in terms of people, actually really depends on the capability of people, right? If the project canceled for sure impacts some of our people. For some people, if we can actually continue for them to contribute on the company, I think a mechanical engineer is a mechanical engineer. So we do also keep a big part of the people and in a useful project for the futures.

[Operator Instructions] Our next question comes from Ross Cole with Needham & Co.

On behalf of Charles Shi. So my question is, can you describe the significance of the 1,000 system order from this fast-growing assembly and test customer? What kind of ASP uplift should we be thinking about relative to your more standard Ball Bonder systems?

Well, Ross, I guess this is one of more advanced Ball Bonder system. It's a China-based customer. Again, it's about 1,000 machine order and again serve mostly the general semi applications, consumer, smartphones, PC. Again, this is some of our most leading technology. And again, the customer not only bought a significant amount of new bonders, they also upgraded their existing bonders with our new ProSuite, which is our advanced bonding looping software.

Great. And then could I ask a second question as well. What was the backlog like exiting the March quarter? Can you provide some directional color if you don't want to quantify it?

Sure. So I think the book-to-bill for the quarter was approximately about 1, which has -- pretty much the normalized level other than when you're in a ramp or in a trough cycle. So we have seen bookings improved, backlog has come down, as we said, as we burn down some of the orders that was -- that we received during the ramp. So I think it's much more at a normalized level now, similar to our lead times, which is about 8 to 12 weeks of Ball Bonder and about 12 to 16 for Wedge bonder.

There are no further questions at this time. I would now like to turn the floor back over to Joe Elgindy for closing comments.

Thank you, Maria, and thank you all for joining today's call. Over the coming quarter, we'll be presenting at conferences in Minneapolis, New York and San Francisco. As always, please feel free to follow up directly with any additional questions. This concludes today's call. And have a great day, everyone.