Greetings, and welcome to the Kulicke & Soffa 2025 Second Quarter Earnings 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, Joe Elgindy, Senior Director, Investor Relations. Thank you, sir. You may begin.

Thank you. Welcome everyone to Kulicke & Soffa’s Fiscal second quarter 2025 conference call. Fusen Chen, President and Chief Executive Officer, and Lester Wong, Chief Financial Officer, are also joining us 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. GAAPs and 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 file last night. 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. Last month, we announced the intent to discontinue the electronics assembly or EA equipment business, subject to local regulatory approval. We acquired this business in 2015, and it is currently a component within the All Other category. We intend to fully support and serve our customers with equipment purchase requirements over the coming quarters. We will also continue to retain EA equipment technology, as well as the related aftermarket parts and service business, to support the existing install base and our customers' operational needs. We believe this decision, though difficult, was critically essential to ensure our underlying businesses are competitive and are properly aligned with beneficial long-term technology trends. Looking ahead, we intend to prioritize development and further leverage our dominant Ball, Wedge and ThermoCompression positions, where we have demonstrated clear technology leadership to address fundamental assembly transitions within high-volume, leading-edge and power semiconductor markets. Additionally, our APS business, which provides revenue consistency, as well as our emerging Advanced Dispense portfolio extend our technology leadership and provide additional growth paths throughout these evolving core-market opportunities. This restructuring effort is also intended to enhance our long-term financials, with anticipated improvements in both margin and through-cycle performance. At a macro level, the ongoing trade situation has increased levels of uncertainty throughout global markets and supply chains. This level of macro and industry uncertainty has created hesitation and a more defensive capacity planning approach, throughout our served markets. Sequentially, this hesitation was most evident in the Southeast Asia Automotive and Industrial market, which had the effect of limiting the seasonal momentum previously anticipated for the June quarter. Interestingly, over this same period, we saw utilization improvements in other Asia regions. While we are not immune from this macro near-term dynamic, semiconductor unit growth as well as the increased complexity of…

Thank you, Fusen. My remarks today will refer to GAAP results, unless noted. I would first like to provide some additional details regarding our intent to discontinue the EA equipment business. As Fusen explained, this was a difficult, but necessary step to ensure our overall business remains competitive, aligned with long-term technology trends, and is optimized for through-cycle performance. We remain closely engaged with all key stakeholders as we plan for this intended wind down. We are currently seeking feedback regarding customer orders, and remain in close discussions with local stakeholders. During the March Quarter, we accounted for the majority of wind-down related expenses, which represented total EA related charges of $86.6 million. These charges were primarily related to inventory write-down, supply chain, asset impairment, and restructuring related charges. Dependent on local stakeholder feedback, and in alignment with our March 31st disclosure, we anticipate residual non-GAAP expenses to be below $15 million, and be accrued for in the first fiscal half of 2026. Turning to the March quarter’s financial results, we booked revenue of $162 million and gross margins of 24.9%, which included EA related inventory and supply chain charges of $38.6 million. Total operating expenses came in at $125.1 million which included restructuring charges of $8.8 million and impairment charges of $39.8 million. Excluding these charges, operating expenses would have been $76.5 million. Tax expense came in at $5.4 million related to our mix of profit and loss across entities during the quarter. We continue to anticipate our effective tax rate will remain above 20% over the coming year. We completed our previous, and also initiated our latest, repurchase program, with a 300 million dollar authorization during our first fiscal quarter of 2025. During the second fiscal quarter, we repurchased over 500 thousand shares for $21.3 million. While we…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Krish Sankar with TD Cowen. Please proceed with your question.

Yeah, hi. I have three questions. First one, Fusen, I'm just kind of curious, can you give some color on June? What are the dynamics? Is it predominantly general, semi, and auto, industrial? It's going to be down quite a bit. And how do you think about it beyond June? I understand a lot of moving parts, but any color you can give beyond June would also be helpful.

Okay. So, Krish, we have a Q3 slowdown. And this slowdown is the most pronounced and the evidence in our Southeast Asia region. I'll give you an example. The Q3 Southeast Asia slowdown accounts for the majority of our total Q2 to Q3 weakness. So, I'll give you a number. Our Q2 revenue is 162, and the Q3 guidance is 145. The difference over these two number of majority actually is a weakness from Southeast Asia. So, therefore, it is really our belief, this near-term slowdown was due to a concern regarding the potential and the unknown impact for auto and the industrial industry from our customers. So, I think in the script, we mentioned why we see the weak outlook for Southeast Asia. In the meantime, we also see the utilization rate improve in Taiwan, China, and other regions. And the utilization rate actually is at or close to a triggering broader capacity addition. So, we see positive, but we also have actually a very big slowdown in Southeast Asia. We believe it's auto-industry related, and it's because of the unknown type of impact. People hesitate to build a capacity just for the industry. So, yes, the number is a little bit bigger. And the reason, I think, is because we have a bigger, larger presence of auto exposure. And also, our manufacturing concept is a flexible in our manufacturing cycle. And we're working with customers in the up-term and down-term with a shorter cycle time. So, I think these two are together. I hope I explained your questions.

Yeah. That’s very helpful Fusen. Just to follow up on this, any view beyond June quarter? Is it too hard to say today?

Yes. So, June quarter, it's really our belief. The Q4, June quarter is Q3, Q4. We believe it will be better. It's feedback from customers. And also, some of the weakness in Q3 will be renewed in Q4. And hopefully, this can be a short-term phenomenon. And it's also supported by utilization rate. Actually, in some regions, already the number can trigger capacity buy. So, we think Q4 will be better. But how much better? Actually, it also depends on MECO and some clarity. If we have better clarity, I think we should have a sequentially up from Q3.

Got it. And then, just to follow up on TCB, your TCB exposure is predominantly logic, hardly anything in memory. Can you give a color on how it's progressing? I also noticed that your European competitor last week announced five new orders for TCB chip to wafer. So, I'm kind of curious, lay of the land, and maybe if you can talk about TCB, your TCB exposure today, and how do you see it evolving in memory, if you have a shot? Thank you.

Okay. So, practically, our first revenue for TCB was 2020. So, although we don't want to say it's quite large, but I think we made good progress with high growth rate. And we actually focus with logic first. And we actually are competent at this moment. We can grow in both IDM and also OSET, also in the foundry side for logic. And this year, we put a lot of effort in the memory. We expect to ship additional system by end of the year. And we won't say this is easy, but I think we're competent on our technology, and I hope we can have some results in 2026. So, I think, to answer your question, sequentially, we got to focus in actually some segment. And from now, I think it's a good time for us to focus on TCB.

Got it. Thank you very much, Fusen. Thank you.

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

Yes. Good morning. I was curious, what was the revenue run rate of the EA business that you're exiting, or any kind of metrics around the size and profitability would be very helpful?

Yeah. Hi, Tom. It's Lester. So, based on the recent past, the EA revenue was about $25 million to $30 million a year. Gross profit is on $7 million to $11 million. And the operating expense is about $20 million to $25 million.

Great. No, thank you. It's very helpful. And Lester, did you say that there would be a $15 million per quarter charged through the first half of 2026?

No, no, no, Tom. What we said is also consistent with the disclosure on March 31st. I said that after this, all the write-down this quarter, the $86 million, we think it'll be less than 15 for the rest of the shutdown. And that will probably be a little bit in the next two quarters, and then more in the first half of FY26. Subject to our discussions with local stakeholders, we believe that the business, other than to support existing customers and warranty and service, should be done by the first half of FY26.

Great. Thank you very much for that. And then maybe just a quick question on the power semi-side. What are the dynamics you're seeing on the powers front?

Well, I think the power is going to grow rapidly in terms of volume. And there was a lot of European companies actually invested on it. But recently, I think China actually also gained some market shares. So we are very happy. We still have very high market shares in the power semi. And there's a transition to the power semi to be more effective with higher power, more cost-effective. So we have two new products. One is a solar charge. I actually discussed that in my script. And this is for a pin welder. The other one, actually, we call Everline. This is a clever pitch. So we actually announced these two new products. We believe it's going to be an important product, start to contribute revenue for us in 2026.

Great. Thank you, Fusen.

Great. Thank you.

Our next question comes from Charles Shi with Needham & Co. Please proceed with your question.

Hi. Thank you. Good evening, Fusen and Lester. Maybe Fusen, the first question is about the market dynamics. What if you can further unpack a little bit more? China ordering activities up, Southeast Asia is down. That's understandable. But it's a little bit interesting to hear that Taiwan is also up a little bit. In terms of ordering activity, you would assume Taiwan is subject to the same tariff dynamics as Southeast Asia. Why is there a little bit of bifurcation between those two regions? Is it Southeast Asia more impact on auto-industrial side and Taiwan more on the general economy side? Or what's the reason?

Okay. So let me explain Southeast Asia first. Southeast Asia, we believe, actually, utilization rate is still not high enough. I mentioned about Taiwan and China. Actually, it's a utilization rate is actually high enough, potentially can trigger capacity buy. But actually, we didn't see that yet. Maybe it's because of hold back. People, for the unknown period of time, they can run actually utilization rate higher than even slightly higher than 80. But Southeast Asia, I think, utilization rate is below that. And as you know, the tariff impact to auto is a big deal. And Southeast Asia actually have a lot of actually European investment and also OSEC and create a big base for auto capacity. And the Southeast Asia, the slowdown actually account for almost majority of the slowdown sequentially from Q2 to Q3. I hope I answered your questions.

Yeah. Yeah. That's a very, very interesting color. Fusen, maybe another question about the fluxless TCB. I think in your prepared remarks, there's some new languages there. You are saying fluxless TCB, at least for fiscal 2025, it's fully booked. I wonder if you can provide some color what that means, because I don't think your fluxless TCB revenue forecast was that aggressive. It was, I believe, you were guiding to like 40% to 50% young year growth. When you say it's fully booked, do you mean it's… can we even read that as it's actually a little bit supply constrained at this point or... Yeah. Okay.

Actually, I think it's really a limit in our capacity. We have some capacity in U.S. and right now we moved to Asia and we intend to actually increase capacity. So I probably can say this a little bit better. I think right now we are capacity constrained right now. And we actually will create more capacity. It's undergoing.

So is the 40% to 50% young year growth, you think you can still reach that target for... Yeah.

So for example, I think we actually right now, give you an example, maybe a capacity, we are actually -- we just start in 2020, right? 2020. We actually have a capacity, a target to reach about 60 system per year, right. So this is incremental capacity we are undergoing to increase.

Got it. Maybe last one. Any update on the leading foundry? I believe you should say dual head system already. Any expectation, repeat orders and the timing of it?

Okay. So our system actually is a long-range high volume production and also multiple system and also a new customer qualification. This year, our TCB only, we expect about $70 million. Next year, we actually expect probably a hundred or above hundreds. So the difference of ‘26 and ‘25, part of that actually is a growth of foundry, right. But as we qualify more customer and more devices, I think we will have additional upside on top of that.

Okay. Thank you, Fusen.

Thank you.

[Operator Instructions] Our next question comes from Craig Ellis with B. Riley Securities. Please proceed with your question.

Yeah. Thank you for taking the question and good evening, Fusen and Lester. I wanted to start going back to some of the utilization increases you're seeing in China and Taiwan and just try to understand them in a little bit more detail. We've seen pretty visible signs that certain supply chains, PCs since February, March have been tracking well above seasonal. Smartphones seem to be doing that early in 2Q. So the question is, if that is happening and it seems like it's happening on build-aheads given tariff impacts, is there potential that related demand in the second half of the fiscal fourth quarter or in the fiscal first quarter would be below seasonal because we've already had the utilization benefit early in the year as companies try to best operationalize to mitigate tariff impacts?

Hi, Craig. It's Lester. No, we don't think so. I mean, utilization rate, you're right, as Fusen said, is quite high in China and Taiwan and also in general assembly. But what I think as we indicated on the call is in a normal cycle at these utilization rates, people should start doing capacity buys. But we're not really seeing that. And I think the reason for that is, again, there's a lot of cautiousness among our customers. They want to see how this tariff thing kind of plays out. So we don't think that the utilization rate is going to start falling. We think it's already remaining at this level. And I think without the tariff uncertainty, we believe that China, Taiwan, North American, Europe, I think the revenues would be much higher in Q3. And that's why originally we believe that the second half of the year historically has always been in the first half. I think this has really been affected by the global trade dynamics as well as the tariff. I think as we get more clarity on the tariff, I think then people will start making purchases. I think right now people are doing it just if it's critical necessity. So I think also, as said in the earlier reply, people are running it at a much higher utilization than they normally would. So we don't think actually it will fall off in Q4 and Q1.

That's really helpful, Lester. Thank you. And then the second question is more longer term. So interesting ambition to move into the DRAM, HBM market and LPDDR market in fiscal ‘26. The question is, as we think about the memory business now, which is very NAND-centric, how material could DRAM be in fiscal ‘26 and ‘27 relative to the business that you currently have? And how broad would you expect your exposure to be across the memory supplier base?

So I think then we have a very high market share. HBM, we actually put a lot of effort. In the meantime, there's also many, many competitors over there. So we will see how well we will do. But I think we work closely actually with one, but also with others. But one actually has a base of focus. So in terms of DRAM stack and die, we actually see this [indiscernible] is going to be very important for the industry in both logic and memory. The first customer we see is going to go to production. This for a stack DRAM is going to be in the first half of 2026. And not only, almost every memory customer is working with us, and including IBM. So next year will be a transition year. And we probably can give you more update about the order. Maybe it will go to production for the first half, and we will see the order. Maybe our fiscal 2026, maybe Q1 or Q2. So we believe the Vertical Wire will take off, and there will be many, many customers is going to work on this for the first product. First product is going to be DDR. It's going to have a capability to reduce the form factor about 30%. And this is going to be on a mobile. But this is only a first application we believe vertical wire is going to find a home for many other applications in the future.

That's a significant form factor reduction, Fusen. And thanks for all the color, you too, Lester.

Thanks.

Our next question comes from Dave Duley with Steelhead Securities. Please proceed with your question.

Yes. Thanks for taking my question. Just a couple of clarifications. You talked about the utilization rates in Taiwan and China being elevated. Could you just give us what those percentages are at this point? And then also a bit of a housekeeping question. What is your IC unit volume assumption for calendar 2025 and 2026, if you have them?

Hi, Dave. Utilization in China is over 80%. In fact, it's almost to the mid-80s. In Taiwan, it's just touching 80% or so. And semi-revenue growth, we still expect about 10%, a little greater than 10%.

In calendar 2025?

Yes.

Okay. And then as far as the HBM opportunity goes, I think you've made it clear you're working with one specific customer here. And is it fair to assume that HBM4 or HBM4e is the cut-in point? Or usually, it's with a new product. Maybe just explain to us what new product you think you'll get cut in at.

Well, right now, the high volume is a 3e, so we expect it will be a future generation. Yeah. Most specific, I think, are from HBM4.

So HBM4 would be the target point to try to incorporate yourself into the market, so to speak?

Yeah, that's correct.

Okay. And final question from me is, you've talked about, I guess, demand hesitation driven by trade policies and tariffs. But could you just talk about any impacts that you might have? I assume that you can ship from Asian facilities into China, so there won't be a major tariff impact from doing that. And then maybe just talk about if there are any higher costs, input costs, into your products from tariffs. Thanks.

Yeah. So, Dave, you know we manufacture our capital equipment here in Singapore, so shipping it into China will not trigger any tariffs. Because the tariff right now from China is aimed towards the United States on a reciprocal basis, right. So we don't think there's any direct impact for us. As we indicated, the impact is more on an indirect basis, as our customers and their customers are right now a little bit uncertain about how all this is going to play out. So therefore, they're much more conservative in their supply chain, right? So that's, I think, what we've been talking about earlier. As far as cost is concerned, I think there will be, again, there may not be a direct cost, but there's always going to be indirect costs. Tariffs cost everybody money, right. So I think it's across the board.

Okay. And one final clarification is you talked about the customer hesitation in Southeast Asia. And I guess you're kind of suggesting that that's an industrial automotive in-market driven. And then I think you even mentioned it was European customers. Is that the really way to think about it is European auto and industrial customers are the main customers or the food chain that is in hesitation, so to speak?

Well, David, I don't think Fusen said it was just these people who are in hesitation, right. I think all our customers are in hesitation, including those in Taiwan and China, which is why at that high utilization rate, they're not making the orders that they normally would make. I think what Fusen was talking about Southeast Asia in particular is we see Southeast Asia actually dropped the most sequentially from Q2 to Q3. And part of that is because we have a large auto industrial client base in Southeast Asia, and most of them are, you're right, are IBMs from Europe. And they are very, so they are particularly, I guess, affected by concerns about the tariffs. So we didn't say it's only them that are concerned about the tariff. I think it goes across the board is that they particularly have been affected in Q3 when you compare it to Q2.

Okay, thank you.

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 several conferences and roadshows. As always, please feel free to follow up directly with any additional questions. This concludes today's call. Have a great day, everyone.