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

Thank you. Welcome everyone to Kulicke & Soffa’s fiscal third 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 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 our 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 & Soffa that could affect our future results and financial condition, please refer to our recent and upcoming SEC filings, specifically our latest Form 10-K as well as the 8-K filed today. With that said, I’ll now turn the call over to Fusen Chen for the business overview. Please go ahead.

Thank you, Joe. Good afternoon, everyone. Throughout the past quarters, we continued to execute on several growth initiatives, including driving critical progress in Advanced Packaging and Advanced Dispense qualifications, enjoying broadening adoption of our new ball bonding solutions, while we also observed ongoing utilization improvements across several of our key end markets. Before reviewing our quarterly results and performance, I would like to mention a few points on the recent industry momentum within Thermocompression. There have been three key milestones which we are excited to explain. First, the formation of, as well as our membership in, the U.S.-Joint semiconductor consortium was announced last month. Resonac Holdings Corporation, a leading provider of global semiconductor materials, formed this consortium to support industry collaboration and market adoption of new advanced packaging production solutions. After Joint and Joint 2 were created in Japan, the U.S.-Joint consortium represents the third Joint consortium globally and the first in the United States. A combination of 10 leading equipment, materials and process companies based in the U.S. and Japan represent the U.S.-Joint’s forming members, who have the near-term goal to establish a U.S.-based R&D facility with advanced packaging capabilities. Construction for the U.S.-based R&D facility will begin in the current calendar year, and at completion, will provide access for critical industry-leading advanced packaging technologies, materials and processes, which are not readily available locally to many of our U.S.-based customers. Our second TCB milestone is associated with collaboration with the subsidiary of a large semiconductor conglomerate who has successfully demonstrated our leading Fluxless Thermocompression, or FTC system, which is capable of direct copper-to-copper bonding as a standard feature, can also enable an exciting new chip-to-wafer hybrid bonding process. Hybrid bonding involves making both conductive and dielectric bonds, providing specific benefits for select end-markets. With a lower requirement for capital-intensive…

Thank you, Fusen. My remarks today will refer to GAAP results, unless noted. While there continues to be headwinds across specific end markets it remains a transformative time for the company. As Fusen mentioned, multiple end-markets are showing signs of improvement represented in utilization rates as well as growth expectations into next year, while momentum in our portfolio of advanced packaging solutions is accelerating through both our direct customer qualifications and broadening industry adoption. During the June quarter, we generated $181.7 million of revenue, and a 46.6% gross margin. Gross margins were largely affected by product and customer mix. Operating expenses came in slightly lower than expected as we have maintained a significant focus on operational efficiency as our development teams remain nimble and were efficiently re-allocated to support in-demand projects over the past quarter. GAAP tax expenses came in at $4.1 million during the June quarter. We continue to anticipate an effective tax rate above 20% through the remainder of fiscal year 2024, largely related to our R&D tax treatment under Section 174. Our repurchase program remains opportunistic, and we have again increased our repurchase activity sequentially. During the June quarter we booked $44 million of open market repurchase activity, which represents a sequential increase of nearly 18%, and a 64% increase over the previous December quarter. As a reference point, we repurchased $728.5 million through both open market and accelerated repurchase activity under the existing repurchase program since August of 2017. At the end of the June quarter, we had approximately $73 dollars remaining on this existing share repurchase authorization. In addition to the long-term nature of our share repurchase program, we continue to support an industry leading dividend program as we continue to execute on new long-term growth opportunities. As Fusen clearly explained, we remain very optimistic in a broader multi-market recovery over the coming quarters. Although we may not be at the tipping point yet, we anticipate meaningful capacity demand improvements for our high-volume markets over the near-term. For the September 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 $69 million, plus or minus 2%. Collectively, for the September quarter, we expect GAAP EPS of $0.22 per share and non-GAAP EPS of $0.35 per share. Looking ahead, we remain very focused on our close customer engagements and look forward to providing additional details to the technology transitions we are involved in that are supporting new technology and adoption milestones which will help to build a foundation in memory, dispense and thermocompression growth prospects over the coming years. This concludes our prepared comments. Operator, please open the call for questions.

Thank you. [Operator Instructions] Our first question comes from the line of Craig Ellis with B. Riley Securities. Please proceed with your question.

Yes. Thanks for taking the question. And Fusen, thank you for all the help with the new product information. I wanted to inquire on a near-term item first and look a little bit beyond the September quarter. So as you look at the gives and takes for the fiscal first quarter, with the broad-based or coordinated, I guess, coordinated recovery you talked about, Fusen, how do you think about the impact of what you’re seeing with some improving end markets or portions of end markets versus just still relatively low utilization levels in most of the industry. Thank you.

So Craig, you are asking about Q4 FY ‘24...

Calendar, of course, yes.

Okay. So last quarter, I think we expect a greater recovery with a slight improvement into September. Our low utilization rate went up, but are still not high enough to trigger further recovery. So at this moment, actually, I think we are seeing Q4 actually flat compared to the Q3.

That’s helpful. And then as you look out further, Fusen, and this is more of a question about what your customers are telling you and how they’re telling you to get the business ready for what should be some seasonal acceleration in the business. Can you just talk about how you envision the slope of recovery playing out? It seems like we’ve got very uneven demand dynamics across end markets. Indeed, some are recovering, some seem to be still trying to find the bottom like industrial. What does that mean for how the business might perform as we think about calendar 1Q through 3Q next year?

Okay. So, Craig, as you see in the past about six quarters, our revenue basically is quite flat. And – but at each moment, it’s our feeling. This is the first half in a positive quarter, we see multiple end market improvement in coordination. For example, I think early ‘23, they go on actually are picking up a lot. In the meantime, the wedge bonder, which was impacted by industrial and also auto. So that’s why I think we actually almost have a cost activity 6 months of quite flat. But what we are seeing from our feedback, we see auto really coming back. We’re – the Q3, Q4, we also did a quite with order for EV companies for the wedge bonders, and memory is also picking up. So if you are asking about ‘25, I think many people have an optimistic view about ‘25. With the Gartner predicted 75%, these will actually trigger a broader recovery and in our many end markets. So you ask about seasonality. This is our view. This – we probably can see the growth into the Q1 because of our utilization rate is inching close to 80%. But also, I think I said not impossible if we see flat to slightly, begin with minor shift to negative over Q1 and Q2 with a stronger recovery in Q3, Q4 ‘25. Hope I answer your questions.

That’s really helpful, Fusen. Thanks for taking the questions.

Thank you. Our next question comes from the line of Krish Sankar from TD Cowen. Please proceed with your question.

Hi, thanks for taking my questions. I’ve a few of them. First to Fusen, a clarification. When you said December quarter flat versus September, was it for revenues or utilization rate?

Actually, for us, because we also guide $180 million for Q4, right? And actually, Q3, we just finished with $181 million. So I mean flat is the revenue. But utilization, we are actually seeing continue to inching up some areas already over 80% for two quarters. And maybe right now, I think, is 75. We do expect in Q4 will go to higher up 70, but it will not touch it at 80% yet, so that’s why I – and so if ask seasonality it’s hard to get, because of our recovery expected by Gartner, we will have a chance to maybe go up in Q1, but it’s also not impossible we see flat also actually very miners energy [indiscernible] supported by a second half based on a recovery.

Got it. Got it. And then just on that point, Fusen, historically, OSAT had an appetite to add capacity and utilization rate is about 90% given the lead times were not that long. So is that a fair assumption in that case, maybe the recovery is truly later sometime next year until we get to 90%? Or do you think there’s an appetite to add capacity even below 90?

Well, I think it’s 80% trigger additional buy. Actually, we did see OSAT start to contributing. We actually start from Q3 and the Q4 also from China, we also have memory OSAT also start to have a buy. So we feel a OSAT is really in that capacity now.

Got it. Got it. And then two quick questions on advanced packaging. One is, can you talk a little bit about the status of the TCV qual on the Taiwan foundry, what is going on there?

Okay. So, Krish, I think we actually have an engagement and qualification, actually a multiple project over there. And this place is we believe, is going to be a growth for us in the future. The qualification is full Fluxless. And this is for the high-end, the products, and it’s Fluxless. And for the Fluxless, we are the only one in the mass production in the full industry. And qualification actually takes a long time, the previous IDM company, we took close to 2 years to get to finish it. But so far, in our opinion, we believe all these are come out positive. And we have early production for the first customer is intended for first half of ‘25. We feel positive and we have an initial discussion about the capacity and also delivery schedule at the early stage, right? So we expect to reach a new near-term milestones, and we will be able to update if you want, maybe in our December call or the November call.

And then final question, I think in the last time, Fusen, you mentioned FY ‘25 advanced packaging, dedicated AP revenue could be $200 million. Are you still sticking to that number, or do you think it may be lower than that?

Krish, can you repeat?

I think last quarter you said in fiscal ‘25, advanced packaging revenues could be $200 million dedicated AP. Is that still the case?

Yes. So, this is our forecast. Our TCB alone in ‘25, last quarter, we forecast about $100 million. But for the dedicated advanced packaging, this including TCB, also including the vertical wire and also including system and packaging. So, all in together, we are close to $200 million. And since we – AP no more engagement in our side, we are doing a long-term forecast. At this moment, we probably will be able to choose you in the next couple of quarters.

Thank you very much Fusen. Thanks.

Thank you. Our next question comes from the line of Tom Diffely with D.A. Davidson. Please proceed with your question.

Yes. Good afternoon. Appreciate the question. When I look at the guidance for flat next quarter at $180 million, is there any kind of shift between end markets or products, or is it going to be fairly similar to what you had this quarter?

Actually, it’s quite similar compared to Q3.

Okay. And then, Fusen, when you looked at the slides you produced and you gave a 5-year average for the different segments. When you look over the next 5 years, do you think that those are pretty good numbers, or do you think some of those markets were overstated with the big upturn or understated because of growth drivers?

Tom, are you talking about which number, can you update?

Yes. On your slides, you had a 5-year average for the different segments. And I was wondering if those 5-year segment – the 5-year averages are good on a go-forward basis, or do you think they are over or understated for the next 5 years?

So, yes, Tom, it’s Lester. So, I mean we believe that the – those numbers are good going forward on a 5-year basis. As a projection going forward, there might even be a little bit of an upside going forward.

Okay. Great. And then finally, Lester, when you look at the Project W that was canceled last quarter, what was the cost associated with that? And have those expenses or costs been reallocated?

So, I think for Project W, there is minimal costs associated with in Q3 and in Q4 going forward. And we have reallocated those resources. I think in my remarks, I mentioned that we kept OpEx down because we reallocated those resources in an efficient manner to projects that is we – that was more in demand for the quarter and going forward.

Great. Thank you.

Thank you. Our next question comes from the line of Dave Duley with Steelhead Securities. Please proceed with your question.

Thanks for taking my questions. A couple, let’s start on advanced packaging. I was wondering if you could just help us understand the applications that you have thus far kind of captured in order to produce this 10x growth in your Thermocompression Bonding. And just digging into that puzzle just a little bit further, I think we all recollect your first customer here was a big IDM CPU provider. If you could kind of just help us understand at that big customer, what – are you doing chip-on-wafer or chip-on-substrate? And how does that help you win business at the big foundry?

So, Dave, I think we will start to get a more significant revenue in ‘21. So, it’s about less than $10 million. So, within 4 years, I think first, I think we start with OSAT. After OSAT, we are working with an IDM company, and that we develop actually chip-to-substrate. And in the meantime, I think when we worked with OSAT, we are also working with the customers who focus on silicon photonics and also like 3D sensing. So, right now, I think we have special market, silicon photonics, silicon sensing, and also have actually more important it’s a heterogeneous integration. So, I think last year, we – was the capacity [ph] was certainly $6 million to $18 million. So, we actually started to focus – we believe in the features. They are a big area for us. One is the OSAT, we actually feel very comfortable. We continue to get more revenue and more applications over there. And number two is a chip-to-substrate. I think we are doing very well. What we are focusing right now actually is going to be a chip-to-wafer. We believe this is a huge market as well as foundry, right. So, with these two areas, I think we probably will fuel our growth for the next couple of years.

And does the outsourcing of part of the [indiscernible] process to the OSAT, and I think that’s the OS part the chip-on-substrate. Is that a beneficial trend for you guys, given that you already have relationships with these OSATs and they are using your equipment, or do you have to go in and kind of prove yourself completely new there?

Yes, it’s beneficial to us.

I am sorry, I didn’t hear that.

It’s beneficial to us.

Okay. Final question from me is just on the core business. A couple of years ago, it was obviously running at much, much higher levels. And I am just kind of curious, is there any reason that you can see that, that core business wouldn’t achieve peak levels of revenue again like it was a few years ago, given the appropriate circumstances in the end markets?

Well, so David, you are asking for core business, right. So, actually, the year 2020 to 2021, I think we basically went up from like 500-something to about 1.5%. It’s a 2.6 growth, 2.6x. That’s very, very significant. So, that’s why I think ‘21, ‘22, 1.5%. I think a lot of customers they overbuy large of our core business. Therefore, I think it’s – we are down to this level. But if you look at it, the Gartner prediction is correct, the 17% unit growth just assumed is, say AI related or whatever, even like 8%, right, or achieve a lot of capacity by for our core business. I give you an EBITDA of a normal ball bonder business. Like even before COVID, it’s about $500 million to $600 million. So, we trigger capacity by, I think you can calculate. We are still – this year less than $400 million for ball bonder. So, we believe we have a huge – we have a huge opportunity in core business. Also, our new technology adds value for the future ball bonder including VFO, and also in wedge bonder over HPI. So, we do believe semiconductor downturn normally no more than six quarters. We already have a quarter, right, including this quarter, maybe nine quarters. So, longer downturn, actually, we believe it is somewhere to be stronger and a strong start from there.

Yes. The long you stay under the curve, the bigger you will be over the part of the curve when the things get better, right, everything kind of evens out that way. Okay. Thank you.

Thank you. Our next question comes from the line of Ross Cole with Needham & Company. Please proceed with your question.

Hi. Thank you for taking my question. I noticed that you mentioned you expect the December quarter to be flat compared to the September quarter. And you are expecting gross margin to remain roughly the same area for the two quarters as well? Thank you.

So, actually, I think maybe that was a high, it’s Lester. I don’t think we have guided to the December quarter. I think what Fusen said was actually the September quarter, which we just guided to is flat to the third quarter. He did mention for the December quarter, which is our first fiscal quarter for ‘25. There is some uptick, but there may also be some seasonality in there. So, I think right now, it’s the same. As far as gross margin is concerned, yes, I think we believe the gross margin will probably stay around the 47% level through the rest of the calendar year, but then we will pick up in the calendar year ‘25 as some of our cost reduction initiatives kick in as well as some of our newer products, which certainly gets traction, but we will have a lot more traction in ‘25, and those are much higher-margin products. So, we still are aiming towards a 50% gross margin on a corporate-wide basis.

Hey. Thank you for the presentation and the answer.

Thank you.

Thank you. Our next question comes from the line of Christian Schwab with Craig-Hallum Capital Group. Please proceed with your question.

Great. Just, Fusen, other than Gartner enthusiasm for revenue growth, your semiconductor unit growth, is any of your dialogue with any of your customers suggesting that the first half of calendar ‘25 that they plan on giving you a bunch of orders?

I think everybody we talk optimistic on ‘25 because Gartner has been really long. Actually, in the short-term, we have been in this chart for six quarters to eight quarters already, right. If you look at it, and historically, we don’t see this. That means our market is stabilized. And in the future, we have a new product to offer. But the short-term, I think is really hard to judge. In the meantime, the integration rate is inching to 80%, right. 75%, we do believe finish Q4 will be high 78%. And that’s why it’s given to trigger capacity by maybe customers still have a really budget concern and the [indiscernible]. So, if you are asking me about Q1 and Q2, this can go up, but it can also be flat, also be, if seasonality, we don’t expect a major one. But actually, we are quite bullish. So, as many customers we talk ‘25 a good year.

And then just further clarity, what type of applications or end markets are people most excited about a recovery in ‘25 then, automotive, industrial, etcetera?

Okay. I can tell you, of course, we look at our advanced packaging. And we also look at the wedge bonder is a lot of auto, industrial, and mainly is ball bonder, right. So, ball bonder actually the customer who is in general semi and is also auto and also in AI. So, I think the application is quite broad. And I mentioned the average normal year for ball bonder should be 500 to 600, right, even before COVID. And we have been in a prolonged downturn. And we do believe a little bit of broader recovery. I think we probably will be the first one in the recovery.

Okay. Great. No other questions. Thank you.

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

Thank you, Alicia and thank you all for joining today’s call. Over the coming quarter, we will be presenting at several conferences and road shows. As always, please feel free to follow-up directly with any additional questions. This concludes today’s call. Have a great day everyone.