Greetings and welcome to the Kulicke & Soffa Fourth Quarter 2023 Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. At this time, I would like to turn the call over to Joe Elgindy, Senior Director, Investor Relations. Thank you. You may begin.

Thank you. Welcome, everyone, to Kulicke & Soffa’s fiscal fourth quarter 2023 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. Complete GAAP to non-GAAP reconciliation tables are included within the 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. 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 & Soffa, that could affect our future results and financial condition, please refer to our recent and upcoming SEC filings, specifically the 10-K for the year ended September 30, 2023, and the 8-K filed yesterday. With that said, I will now turn the call over to Fusen Chen for the business overview. Please go ahead, Fusen.

Thank you, Joe. Before discussing our business performance, I want to first reference the humanitarian crisis in the Middle East. Like many of our industry peers, we have had a long-term presence in Israel where we develop and produce our precision capillary products. Our teams based in our Haifa facility have delivered meaningful innovations and leading products over the years and we are pleased to report that they are not in a high-risk area; however, we continue to hope for a quick and peaceful resolution. As a global company with a diverse employee and customer base, we are committed to strengthening our diversity and inclusion initiatives to foster collaboration, mitigate inherent biases, and create growth opportunities. Earlier this week, we successfully hosted our inaugural Elevating Women in Engineering and Tech Summit in Philadelphia. This well attended event, featured several keynote speakers from K&S, as well as esteemed members from the external community. We’re grateful to be able to host these types of events which stand as a testament to our dedication to enabling change and exercising leadership within our local communities. Turning to the business, we have seen clear sequential improvements in key markets, although broader market recovery will be gradual. We anticipate the sequential change into the December quarter being largely seasonal, and in line with our long term average. Furthermore, based on discussions with customers, external forecasts and gradually improving utilization data, we anticipate a moderate demand improvement into the March quarter and stronger second-half driven recovery. Since our prior March quarter, we have seen significant improvements in the general semiconductor end market and some recovery within LED. At the same time, automotive and memory continue to be soft near-term. Regardless of near-term industry conditions, we remain very aligned with major technology transitions and are actively and intensively…

Thank you, Fusen. My remarks today will refer to GAAP results, unless noted. While the business environment remains challenging for the entire industry, it remains a very exciting time for the Company with clear signs of improvement within our core market and ongoing progress within our emerging opportunities supporting long-term technology transitions which address AI, battery assembly, dispense and advanced display. During the September quarter, we generated $202.3 million of revenue, 47.4% gross margin and $0.51 of non-GAAP EPS. Gross margins came in slightly softer than expectations, largely due to product mix. Non-GAAP operating expenses came in just below $70 million, in line with our prior expectations. Finally, tax came in slightly better than expectations due to favorable jurisdictional mix and discrete items. We continue to target the long-term 20% effective tax rate, although anticipate coming in slightly above this level in December. Turning to the balance sheet, working capital days decreased from 465 to 448 days in the September quarter, primarily due to the sequential revenue improvement. Our repurchase program remains opportunistic, and we have increased our repurchase activity sequentially to $9.2 million during the September quarter. As Fusen mentioned, we have also increased our dividend payout, maintaining a very competitive dividend yield. This growing and consistent dividend commitment highlights the confidence in our long-term outlook. Combined with the ongoing reduction in share count due to our opportunistic repurchase program, our dividend program provides additional long-term value to shareholders. Looking ahead to the December quarter, we anticipate revenue of approximately $170 million, plus or minus $10 million with gross margins of 47%. Non-GAAP operating expenses are anticipated to increase slightly to $71 million, plus or minus 2%. We remain focused on controlling and limiting non-critical activities, although continue to ramp headcount to support our growing set of customer engagements. Non-GAAP net income for the December quarter is expected to be approximately $14.2 million dollars with non-GAAP earnings per diluted share of approximately $0.25. In closing, we are uniquely positioned to capitalize on the growing value of semiconductor and display assembly. Our market access is steadily expanding, and we are positioned well to support and enable major long-term technology trends for the industry. As our core business gradually improves and increases in the complexity, we remain focused on expanding our access to positive long-term advanced packaging, advanced display, automotive, and dispense needs. We look forward to sharing our progress over the coming quarters. This concludes our prepared comments. Operator, please open the call for questions.

[Operator Instructions]Our first questions come from the line of Krish Sankar with TD Cowen.

Thanks for taking my question. I actually have 3 of them. First one, Fusen, when I look at your commentary into the March quarter and beyond, is it fair to assume you think the worst of the ball bonder bottom is behind us? And what kind of visibility do you have and conviction on why it should continue improving?

Okay. So Krish, you asked why ball bonder in the second half is high. Is that right?

Yes. Why you think is the worst is behind us?

Okay. So I think there are a few reasons. One is, of course, our customers' feedback. And also, historically, we have second half actually higher than the first half and the industry actually went through a few inventory digestion. So we feel like it should grow. And also recent actually forecast from IDC and the Gartner, they all point to a strong CY over '24. So especially, I think we see OSAT order, although I think we believe that they will even order more second half. Actually, we are quite close to our customers. So I hope I answered your questions.

Got it. That's really helpful, Fusen. And then I just wanted to follow up on some of the commentary you made on the HBM and GPU applications. Number one, I'm kind of curious the status of your Thermocompression bonder eval at one of the large Taiwan foundries. And second, do you expect some -- today many of the GPUs for AI are using CoWoS, do you see them migrating to TCB in the future?

Yes. Okay. So Kris, we are actually quite excited about prospects of our TCB. So look at the year 2000, our revenue is a single digit -- I'm sorry, I think, 2020. And actually, 2023, actually, we reached $64 million and we expect our TCB will be over $100 million in 2025. So when we are in 2025 for TCB, the whole dedicated AP actually will be over 200. So the progress has been very good, backed up by strong technology. So currently, I think we have multiple engagement with OSAT with IDM and also with the foundry. And each company might also have a multiple project and the engagement in the past 2 quarters are even more. So going to your questions, with the company you ask. Currently, actually, we have engagement in both the C2W and C2S, so very strong solution, which is extendable to fine pitch. The feedback has been good, and we hope to finish all qualification in the next few months, right? So I hope I answered your question. So next question is AI, GPU and HBM actually, it also require the TCB at the top 2 mega integration. So the tool actually supports multiple applications. And AI, the measure you mentioned is one of them. So I hope I answered all your questions.

Thanks, Fusen. Yes, that was very helpful. And then maybe a quick follow-up for Lester. Can you give some color on how much the backlog was? And how much was China of your total sales?

Yes. Krish, thanks for the question. The backlog was $423 million at the end of Q4. And then as far as China is concerned, are you talking about how much was China revenue?

Yes, that's right. Yes.

So for Q4, China revenue was 49%, but 46% those are China headquarters, so not MNCs. And for the year, actually, China headquarters actually dropped down to about 40% for FY '23. And FY '24, it was actually closer to 46%.

[Operator Instructions] Our next questions come from the line of Dave Duley with Steelhead Securities. Dave, could you please check if you are self-muted?

Yes. Thank you I was muted. Could you just talk a little bit about the general semi business recovery that you saw? How much that grew sequentially? What you would expect it to do in the following couple of quarters? And then as a follow-on, I think you mentioned that one of the IDC was forecasting strong unit volume growth in 2024. Could you talk about what sort of forecast you're expecting for unit volume growth in 2024?

So talking about the quarter business expectation as you ask, so Dave, as you know, we actually -- second half historically is stronger than the first half. So this means the seasonality will happen, the transition from second half to first half. So that caused seasonality from last September to December quarters. And average sequential revenue change from our September quarter to December, on average historically is 13%. So our Q1 FY '24 guidance actually is in line with our historical average. So that's Q1. So Q2, from all our current view and the customers' feedback, we will see a sequential growth. And in terms of second half, currently, we have actually ongoing intensive and very intensive qualification with our customer on AP, but advanced display and very, very strong feedback on the dispensing and coupled with a broader ball bonder business recovery, which I think Krish just asked. Maybe IDC -- IDC actually forecasts a 20% semiconductor growth. This just came out recently. At Gartner, the unit actually is very, very high. But I think average is about 6%. The forecast, I think, is close to 10%. But even with 7%, a little bit higher than historical, I think it will be very, very good for us. As I mentioned, I think industry inventory write-down has been many, many times. Coupled with K&S, I think historically, our second half revenue is 60% compared to first half of 40%. And also with the unique momentum in many, many qualification AP, advanced display, I think we'll set up a stronger second half just for K&S. So I hope I answered your question. Maybe, Lester, you want to add a little bit more.

So you're right. General semi revenues did increase 50% quarter-on-quarter. And I think, as you know, general semi is always our biggest end market segment. It accounts for between 50% to 70% of our revenues. I think another point to pick up is utilization rates. So general semi has been below 70% for a couple of quarters now. But in the last quarter, it's broken 70%. We think it's actually going to continue to rise. Actually overall utilization has increased 10% from the beginning of FY '23 to Q4. So those are all signs pointing out towards a much stronger FY '24, particularly in the second half, as Fusen said.

And then a follow-up question for me is -- I guess, two of them. Could you just elaborate a little bit more about this new battery assembly order you got? I think you mentioned it was 125 systems or units. Just talk a little bit more in greater detail about what that is about and the delivery schedules there? And then Lester, don't know if the new wire bonders you mentioned in your press release are the ones that addressed the new general semi bucket. I was just curious about the update for that particular wire bonder or when is that kind of higher-margin product going to ramp and hit market?

So for the battery assembly equipment, we see that coming into Q2 and Q3 of our year. It's one of our traditional customers who haven't bought for a while, but now is back into market again. So we're very, very happy to see that. As far as the new products, it's POWERNEXX and POWERCOMM, they have been introduced. Those are ball bonders that serve the high end or mid-end general semis market. Those should become more meaningful in Q3 and Q4 as they qualify and deploy and then that should be accretive to our gross margins.

Our next questions come from the line of Tom Diffely with D.A. Davidson.

So you talked a little bit about some tech advances for the LUMINEX. What about the market update? What are you seeing, right, there in that marketplace for those tools?

So let me say this. I think we introduced a very successful product, PIXALUX, very successful. But in the meantime, we also understand in industry really we have a higher productivity of technology. So in '23, we focused on 2 technology: One is LUMINEX. This is a laser transfer can be multiple X speed higher than the PIXALUX, so as Project W. So LUMINEX, I think at this moment -- in the prior earnings call, I described many of outstanding technical milestone has been achieved. So what we are right now is, we have a multiple engage with customers, but very, very focused just with one leading customer to complete all the high-volume production qualification by Q2, that means our end of the March. So therefore, I think in Q3, they can go to production, right? So we are very, very excited. I think the mini, micro LED size will continue to go down and the industry needs to have a high productivity tool. Currently, I think still large die scale supported by wire bonder type of low-end technology. We believe the transition is going to come for the next one or two generations. So again, I think that we hope to bring one major customer to high-volume production and finish all the qualification together with them, they can go to production in Q3. So I'll also maybe update a little bit about the Project W. This year, '24, we are delivering initial production tool as well as preparing for the ramp production during '24. And actually, we are quite optimistic with these two technology. Move forward, I think we will see growth. This year, we hope -- target for $50 million together for these two technology. And '25, we believe can do even much higher than that. So Tom, I hope I answered your questions.

Yes, no. I appreciate the extra color on the marketplace. Fusen, you obviously acquired a dispensing company a few quarters ago. Maybe just a quick update on how that integration is going and if you're able to expand the customer base for that product?

You mean dispensing right? So actually, we are very, very excited. I think dispensing is a very, very huge market. I cover multiple industries, right? An AD customer of K&S, ball bonder customer, they all have a need. So it's easy for us to actually pan out through talking to a customer. We are focused with a few customers and to demo -- demonstration. The dispensing right now reached to a critical stage, need -- we call micro dispensing, need to be very precise, be very accurate with the right amount and has become a bottleneck for many, many customers. And we focus on a few major ones. The feedback is very, very strong. So we are very confident. I think we will see initial success, maybe middle of '24. And we do believe that we can grow this product to much higher revenue in the next couple of years.

And then final question. You talked a little bit about increasing headcount. Any sense on the magnitude of that?

Well, I think we said we would increase headcount in critical areas, which particularly has to do with, I think, the R&D projects that we talked a little bit about, the growth initiatives that will pay off in the mid to long term. We are very careful on all costs, including headcount for all other functions given the -- a little bit uncertainty. So we're not looking to increase headcount significantly. It's probably -- overall, it's probably neutral or down a little bit.

We have reached a question-and-answer session. I would now like to turn the floor back over to Joe Elgindy for any closing remarks.

Thank you, Darryl, and thank you all for joining today's call. Over the coming months, we will be presenting at investor conferences in Arizona and New York. As always, please feel free to follow up directly with any additional questions. This concludes today's call. Have a great day, everyone.