Greetings, and welcome to the Kulicke and Soffa 2024 Second Quarter Results and Conference Call. As a reminder, this conference is being recorded.

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 markets including LED, automotive and industrial continued to be a challenging short term, we remain focused on expanding our market position and driving new and successful customer qualifications 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 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. Since 2017, Kulicke and Soffa has evolved by growing intimate customer engagement. This customer-focused growth strategy has been successful and has allowed us to gain shares in new markets as we expand our competency. A few recent examples of this engagement approach include our efforts to enter the advanced display market, enter the co-packaged optics market, expand our share in leading-edge logic, and actively enable the 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 us with 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 Kulicke and Soffa. Project-related assets and the tool, raw and finished goods inventory as well as open purchase orders with our vendor were 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 resources to accelerate other critical business initiatives including fulfilling a sizable purchase order and broadening customer demand for Memory, Advanced Dispense, and Advanced Packaging solutions. Restructuring and the reallocation decisions are never taken lightly; although these actions were necessary to maintain a focused operational model. We continue to expect gradual market recoveries through fiscal 2024 with greater technology and capacity opportunity in fiscal 2025. Near term, we continue to anticipate demand improvement led by general semiconductor combined with a more resilient memory demand. For general semiconductor, Ball Bonder order activity is improving and supported by utilization trends. Also, customer momentum continues as we broaden advanced packaging engagements. Since our second fiscal quarter of 2023, we have already experienced an over 50% increase in Ball Bonder revenue despite ongoing headwinds within the automotive, industrial, and LED markets. We continue to prepare for a more robust demand in general semiconductor applications as order activity with high-volume customers gradually accelerates. After markets closed yesterday, we announced a sizable purchase order of 1,000 RAPID Pro systems from a fast-growing Assembly and Test Company, which were upgraded with our ProSuite response-based bonding and looping capabilities. Improving utilization rates combined with high-volume orders provide us with optimism on near-term general semiconductor recovery. Next, demand for LED remains limited due to lower utilization rates across our customer base. The automotive and industrial markets continue to face near-term headwinds, although based on utilization rates and customer feedback, we anticipate demand to stabilize with a broader recovery to begin over the coming quarters. Despite the current softness, our current quarter automotive revenue run rate for fiscal year 2024 to date is 33% above our most recent automotive and industrial trough run rate experienced throughout fiscal year 2020. This fairly rapid increase in trough-to-trough performance is largely driven by broad secular trends we are enabling. These trends are driven by global electric vehicle, sustainable energy, and smart power distribution needs, which provide ongoing growth opportunities. Finally, Memory has sequentially reduced from a very strong quarter, largely due to customer mix changes. Demand for our memory solution has expanded significantly from the trough level we experienced last fiscal year. During the first half of fiscal year 2024, our Memory revenue has nearly doubled from our entire Memory revenue in fiscal year 2023. We expect demand across Memory applications to continue to recover over the coming quarters. Looking ahead, our core business is anticipated to strengthen as general semiconductor continues to improve, and we remain very focused on near-term execution. New technology wins in Memory, share gains in Advanced Dispense, and the broadening of our Thermocompression customer base. I would like to take a few minutes to explain each. First, within Memory, we continue to actively qualify and develop vertical fan-out, or VFO solutions, utilizing our wafer level packaging system, which is expected to expand our memory market access over the coming years. While VFO memory solutions are still emerging, customer momentum is strong, and we expect they will transition into higher volume production next year. In addition to leading memory customers, we continue to actively support key vertical wire development with a leading IDM and fabless company, who are demanding these new solutions. The benefit of our unique vertical wire solution extends well beyond the memory market. Vertical wire is currently moving into high-volume production for shielding requirements and is well positioned to provide a new cost-effective packaging solution for future high-volume system-in-package applications. Our VFO team is currently supporting the development of future stack connectivity applications, which can drive high-volume adoption. Next, our Advanced Dispense business continued to gain momentum as we are aggressively penetrating high-precision dispense opportunities in advanced packaging, battery assembly, and the display market. Broadening customer interest and ongoing evaluation progress are driving momentum, and we expect to begin growing our market share in the near term. Our Advanced Dispense solutions are highly competitive due to their micro-dispensing capability, being equipped with self-compensation, in-line inspection, and excellent repeatability. Qualification wins over the coming quarter will secure a foundation of Advanced Dispense customers, which will support revenue growth in fiscal year 2025 and beyond. Finally, we continue to gain momentum in Thermocompression bonding or TCB, which has expanded in revenue by nearly 4x comparing the trailing four quarters of demand over our fiscal year 2021 results. As customer momentum continues to build, it is becoming clear that our TCB solution can broadly support and scale chiplet and heterogeneous integration. Furthermore, we continue to expect demand for our leading Fluxless TCB solution to increase significantly in the future. We have already built a baseline of approximately $60 million in sales during fiscal year 2023 and currently have active new engagements with over 10 separate Fluxless TCB opportunities supporting key IDM, OSAT, and Foundry customers. We continue to receive multiple inquiries for additional TCB opportunities with other customers. This funnel of growing demand across a wide customer base serves as a testament that we are in the early stages of TCB growth. The need to efficiently create more transistor-dense packages will only accelerate this market momentum. Our Fluxless TCB solutions are extremely well positioned for the next wave of demand, and we remain committed to near-term execution. Upon near-term customer qualification success and the healthy customer demand trajectory, we anticipate our dedicated Advanced Packaging solution, which includes free-chip mass reflow, TCB, and wafer-level-packaging systems, to approach $200 million in annual revenue by fiscal year 2025. Contingent upon near-term qualification and business execution, growth across Advanced Packaging applications is anticipated to further accelerate. Looking more to the near term, new engagement for next-generation high-bandwidth memory or HBM can potentially begin shipping as early as this calendar year. Also, our unique copper-to-copper capability has a very strong customer momentum and could potentially delay higher volume adoption of hybrid bonding due to a more competitive cost of ownership. Currently, our Advanced Solutions team remains very focused on near-term customer engagement with leading IDM, OSAT, and Foundry customers. This broad group of customers requires a cost-effective process that supports high bandwidth, fine-pitch interconnect, and stack-die capabilities. Our leading Fluxless TCB solutions are well positioned to support high-volume copper-to-copper interconnect with a pitch from 35 to 5 microns. Our capability to pick from tray, tape and reel, or wafer and bond to substrate, chip, or wafer is robust and expected to support the broad future market of Thermocompression bonding. Today, our Fluxless TCB solutions are best in class and have allowed us to be first to mass production through our engagement with a leading IDM. In parallel, we have also continued to take share with the leading OSAT as they begin to ramp 3D assembly for high-growth and high-volume markets such as mobile, sensing, and co-packaged optics. We made significant progress over recent years to expand our TCB shares across this initial base of IDM and OSAT customers, with whom we have built long-term relationships. Over the past few quarters, we have continued to allocate additional R&D resources towards specific foundry opportunities, which we anticipate can present a sizable portion of the future TCB marketplace. Today, our global TCB team is actively engaged to support future interconnect needs throughout all our customer engagements. We look forward to announcing additional qualification wins and new partnerships over the coming quarters. In closing, we continue to look forward to a brighter 2025. We have an intense focus on enhancing operational efficiencies, are preparing for a core market recovery, and continuing to support key technology transitions with our growing Memory, Advanced Dispense, and Advanced Packaging opportunities. We look forward to sharing our near-term progress, which will solidify our foundation for future growth.

Thank you, Fusen. My remarks today will refer to GAAP results unless noted. While there continue to be headwinds across specific end markets related to macroeconomic and industry conditions, it remains 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 in 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 on March 11 that the company anticipated pre-tax charges, including impairments relating to the cancellation of Project W to be between a low estimate of $110 million and a high estimate of $130 million. By the end of fiscal year 2024, 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 reduced 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 remains opportunistic, and we have again increased our repurchase activity sequentially. During the March quarter, we booked $37.3 million of open market repurchase 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.

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 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 were the center of the challenges when we have general semiconductor recovery, right? But even with this, the second quarter was mitigated by stronger Ball Bonder improvement. In fact, Ball Bonder has seen an increase in revenue of 55% in Q2 of '24 versus '23. So going into Q3, even general semi continued to go up, but the LED, core semi, and auto markets, although they have increased, remain slightly weaker. So what I should say is I think this industry probably needs a little bit more Ball Bonder recovery. And even if we have a general semiconductor recovery, we also have headwinds in automotive. As a result, part of that, they actually canceled together. What I can say is I think our '25 will be a better year for us. If we see some recovery in TCB and automotive, it should be very easy to add on Ball Bonder in a much bigger way. I don’t know if I answered your questions. I think recovery is ongoing. However, when we have an increase in general semi, we also see that we're going through challenges, which have slowed progress. Looking forward, we expect a broader recovery in PC, phone, and automotive. At this moment, even with a stronger Ball Bonder 55% above the trough, it is still only 40% of FY '24 revenue compared to the peak. I think our recovery still has 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 the call was expected to be done around this time where the end customer is going from hybrid bonding to TCB. Can you give us an update there?

Okay. Krish, let me first clarify that hybrid bonding and TCB coexist in this market. So, I can tell you this, the foundry is one of several priority engagements for us at this moment. We have engagement and qualification for multiple applications 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 mass production for the entire industry. The Advanced Technology process in Foundry is always evolving and the production of this new advanced technology for production is intended for CY' 25. We are in early discussions for shipments to begin in the first half of CY' 25. We expect to reach new short-term milestones and give you updates during or prior to our next call. What I want to say is we feel like the progress is good, but the qualification in Foundry takes time. Let me give you an example. We anticipated this Foundry relationship to progress similarly to our engagement on the IDM side. We began engaging in 2021, and it took about 18 months to see shares figure out. Qualification can take a little longer. This is the TCB application, which is becoming increasingly important in the beginning, and we have a very good presence in OSAT as well as IDM, and we do expect growth. It’s just a matter of time since we have multiple projects that will grow our share in Foundry in the 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 that 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 dies? Or will they continue to use the current technology?

Okay. So we actually believe TCB right now is a production tool, and the next generation will still be TCB. One of the reasons I think is capability. The other reason is really cost. We are engaging a next generation of HBM. Our working system is expected to be issued by the end of this calendar year. I think we also have another exciting project we call VFO. This project can physically reduce the form factor of a memory package by 40% and also increase IO as well as improve electrical performance. The first production is intended for low-power DDR, but one memory customer has a roadmap for HBM, which is not for the next generation HBM, but will potentially be applicable. So we are actively working in both areas. TCB focuses on heterogeneous integration and chiplets for advanced logic, while for memory, we have VFO. Both our projects will increase our potential revenue. In summary, I think TCB is a focus, and we believe TCB is the solution moving forward. We believe current generation and next-generation of HBM will rely on TCB technology.

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 that usually when you get one big order, you start to collect other large orders from the other OSATs or IDMs, because they all tend to order at the same time. Is that the assumption that we should start to make here, 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 increases in RFQs. The POs are starting to come, as we indicated, this one big PO is beginning to come in. We do see the utilization rates also creeping up. So that is an indicator of higher volume purchases. Even in the weaker end markets, we are starting to get some discussions with customers about their future demand. So yes, I would say that, as Fusen said earlier, the second half will be better than the first half, but definitely early FY '25 should see the ramp kicking 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. Currently, the memory market is recovering. We believe our NAND play is a little bit stronger now. Going back to your question, vertical fan-out, we are working with all memory customers. This is a very exciting time with all our memory customers, and behind that, there are major IDM companies. We have coverage with all memory customers in DRAM, but we also have one NAND company working with us for the vertical panel. To summarize, vertical fan-out is just at the initial stage. We're starting with low-power DDR, and even NAND is getting started for development. In the future, it will be applicable for other applications, not solely limited to memory.

Yes. No, perfect. And then a follow-up on the display side. I guess, few-part question here. First is how fungible are the teams 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?

Let me address your second question. I think the micro LED situation is somewhat unclear due to the project cancellation. The impact on the industry is really uncertain. We believe micro LED has set back the whole industry for a few years, but I can’t say specifically whether it will be 2 years or 3 years. Despite changes in micro LED, the high-speed pick-and-place die transfer system is still needed for applications, and this will present good opportunities for our LUMINEX. At this moment, we are still targeting smaller die sizes, namely mini LED for direct initiatives, which has a high volume opportunity for our LUMINEX in the second half of CY '25. The project is ongoing. Regarding team capabilities, it depends on individual skill sets. If a project is cancelled, it may impact some people. For other roles, engineers can still contribute to the company. We do maintain a significant part of our team geared for useful projects moving forward.

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 our more advanced Ball Bonder systems. It's a China-based customer. Again, it's about 1,000 machine order that serves mostly general semi applications, consumer, smartphones, and PCs. Again, this is some of our most leading technology, and 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. The book-to-bill for the quarter was approximately about 1, which is pretty much the normalized level, other than when you're in a ramp or in a trough cycle. We have seen bookings improved, backlog has come down, as we said, as we burn down some of the orders that we received during the ramp. So I think it's much more at a normalized level now, similar to our lead times, which are about 8 to 12 weeks for Ball Bonder and about 12 to 16 weeks 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, everyone, 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. Have a great day, everyone.