Hello, and welcome to the Cullic and Sulfa Third Quarter Fiscal 2020 Financial Results Conference Call. At this time, all participants are in a listen only mode. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Joel Indi, Senior Director, Investor Relations, and Strategic Initiatives. Joel, please go ahead.
Thank you. Welcome, everyone, to Kuyl Consultant's 3rd quarter fiscal 2020 conference call. Joining us on the call today are Fuzen Chen, President and Chief Executive Officer and Lester Wong, Chief Financial Officer. For those of you who have not received a copy of today's results, the release as well as the latest investor presentation are both available in the Investor Relations section of our website. Investor.
Kns.com. 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 Culligan software, that could affect our future results and financial condition, please refer 28, 2020.
With that said, I would now like to turn the call over to Susan Chen for the business overview. Please go ahead, Susan.
Thank you, Joe. Considering the increasing dynamic environment, we are operating in, we wanted to start today's call by highlighting 3 specific points, that may help to clarify our position and the strategy. 1st, our manufacturing facility are operating at a nearly full capacity. And the development progress are continuing to progress as planned. Last quarter, we specifically identified supply chain concerns associated with the regional charter in place and the movement control orders, which constraint capacity at several suppliers.
These supply chain issues were resolved by early May and we no longer anticipate supply chain challenge in the near term. Secondly, although U. S. Reopening challenge may adversely affect near term macro and the industry related dynamic. We continue to anticipate a robust recovery in semiconductor unit growth is inevitable.
With over 80% of global semiconductor package utilizing wire bounding process, Our core market is clearly correlated with the semiconductor unit growth. Total semiconductor unit production in calendar year 2018 was estimated to be about 5% higher than unit expectations in calendar year 2020. This decrease in production is unique historically and has impacted demand for our coal products. Currently, recent semiconductor forecast from Gartner support our view that semiconductor Unicom will grow by 10% to 11% annually for both calendar year 2021 and also 2022. Again, this anticipated return to unit growth is expected to directly and positively trigger capacity investments for our core products.
Last, our visibility and the longer term roadmap within the fast growing next generation LED market has improved. We are technically executing on our production ramp in the near term and are also very focused on next generation tour to increase our competitiveness and drive more share gains in this rapidly developing new market opportunity. I will provide additional detail on our broadening advanced LED business after the financial review. In the June quarter, revenue comes in at $150,500,000, we generated $69,400,000 of gross profit, $11,200,000 of net income and the Capital equipment revenue decreased by 1.6%, while aftermarket product and service revenue increased by 4% sequentially into the June quarter. Within capital equipment, we experienced software sequential demand in the general semiconductor.
Memory, and automotive end markets. This softness was largely offset by improved sequential demand for our systems, supporting technology transition within the advanced packaging and the advanced LED market. While we believe we are approaching an inevitable unit driven market recovery. I want to remind investors that our entire organization remain extremely committed to fundamentally expand our served market and the market share through ongoing development efforts. Organational improvements over the past few years have allowed us to introduce several new and the competitive system which are providing new access to advanced packaging, automotive and the display opportunities.
Specifically, within advanced packaging, we recognize revenue on our 1st KEVELUS high accuracy breach of systems and also recognize revenue with a new Apartment thermal completion customers during the June quarter. Within the LED space, we are especially excited for the technology transition within the display market. During the June quarter, we recognized revenue on 25 Pixel Luxe System, our largest quarterly shipment of our advanced LED tool. Some label of security will always persist in our business, although we expect ongoing product adoption and the share gain within this new high potential market to provide added diversification and also create meaningful and sustainable value for shareholders over the coming years. I would now like to turn the call over to Lester Wong, who will cover this further financial overview in greater detail.
Lester?
Thank you, Fucein. My remarks today will refer to GAAP results unless noted. Net revenue for the quarter was $150,500,000, gross margins of 46 percent generated $69,400,000 of gross profit and net income of 11,200,000 or $0.18 per diluted share. On a non GAAP basis, we generated net income of $12,900,000 share. Operating expenses for the quarter came This was due to ongoing cost control efforts, reduced travel and also some local government assistance.
We continue to be very focused on cost control We are anticipating GAAP operating expenses to fall back into our target range within the September quarter. This target range consists of $53,000,000 of fixed quarterly expenses, plus 5% to 7% of variable expenses tied to revenue. Turning to the balance sheet, we ended the June quarter with a total net cash and investment position of $515,800,000 or $8 and $0.21 per diluted share. During the June quarter, state. We intend to maintain some capacity within the overdraft facility, which provides additional flexibility on U.
S. Related expenses such as ongoing development, dividend and the share repurchase programs. Considering our long term perspective on the repurchase program, we continue to view the recent market dynamics as an opportunity. Through the June quarter, we further increased our repurchase activity and deployed $22,400,000 to repurchase just over 1,000,000 shares. While we intend to create meaningful and sustainable values through fundamental market expansion and market share gains, we strongly believe our long term share repurchase program provides an additional lever to we announced an increase in August 2017.
Including this recent authorization extension at the end of the June quarter, we would have had approximately $151,000,000 remaining under the share repurchase authorization. On a book value per share basis, we closed the June quarter with $11.93, a slight sequential improvement. Working capital defined as accounts receivable plus inventory less accounts payable increased slightly to $260,000,000. From a DSO perspective, our days sales outstanding decreased from 119 days to 117 days. Our days sales of inventory increased from 117 days to 127 days and days of accounts payable decreased from 56 days to 55 days.
This concludes the financial review portion of our call. I will now turn the discussion back over to Fusen for the September quarter business outlook. Fusan?
Thanks Lester. Despite the limited visibility and the challenging operating environment throughout the semiconductor capital equipment space, We were able to maintain our development roadmap, expand our repurchase program, and the most importantly, we have maintained or increased our outlook consistently for 5 sequential quarters. Looking into September quarters, which over the past 5 years has shown an average 19% reduction from the June quarter. We are again increasing our outlook in the anticipated September quarter's revenue to be 1,000,000 plus -10,000,000. Our steady business and outlook improvements since March 2019 is a reminder that our business is more diversified and not operate very differently than it has in the past.
While our end markets has not improved in Luxtera, and occasionally offset each other, they have all collectively improved. Despite this greater improvement, we are still operating below what we view as a sustainable level of capital expenditure to support long term semiconductor unit growth. This growth rate has averaged 6.5 percent over the long term, which is expected to support our core annual revenue of approximately $700,000,000. Again, average semiconductor unit growth from calendar year 2018 through calendar 2020 is expected to decline which is historically abnormal. This unique environment has created clear demand challenge for our core products.
With lastly, we anticipate a return to more normal growth next year. As mentioned earlier, this application is shared with external marketing forecast, which anticipate unicom growth to exceed 10% in each of the coming 2 calendar years. While they are clear challenge associated with the US reopening, and we are entering seasonal period with historically limited visibility. A return to normal or above normal level of semiconductor unit growth will have a direct and meaningful impact to demand label for our core products. In parallel with this expected recovery, our new product delivered new capability and increased assets to fundamental technology transition within advanced packaging, automotive and the display.
These three specific markets are becoming increasing dependent on technology transition, which we expect will continue to provide additional layer of diversification over the long term. Within each of these categories, we have competitive and proven products that are already in high volume production, and are very well positioned to support underlying technology transitions. Specifically, within advanced packaging, current opportunities are providing new and value additive techniques, which are offsetting the well known challenge of technology notion. We continue to target several new customer engagement, which are providing access to high performance larger application that will dominate by traditional free chip applications. Transition within the automotive market are increasingly requirement for high reliability and the efficient power control, power storage and power distribution applications especially for electric vehicles.
Our current products, development roadmap and the customer relationship are very aligned with evolving opportunities within this dynamic automotive space. Finally, our recent entry into the display market has a significant potential to enable the adoption of high volume cost effective mini and the micro LED solutions. Over the course of June quarters, Clredited on longer term prospect and the low map supporting advanced micro and mini LED application have improved. And I would like to provide a few additional details to why this new business is important to us. Under conservative expectations, we anticipate many in the micro LED Diodes shipment to be over 100,000,000,000 unit this year, and will potentially reach over 1,000,000,000,000 unit by 2024.
Over the same period, we anticipate our mini and micro L. D. Serve available market to grow at a compound annual growth rate exceeding 40% through 2024. We continue to expect demand for our current system to grow more significantly through our next fiscal We have prioritized our focus on developing, modifying and the ramping production of our mini and the micro LED systems, which target the final Christmas step within the fast growing market. We wanted to be my investor that they are also several additional advanced LED process steps which can leverage our platforms in unique high throughput capabilities.
These including processes such as sorting, mixing, repositioning and recalibration. Over the near term, we have a clear roadmap to extend outreach into this other process that and are also very focused on pursuing additional customer engagements. We are very focused on executing this strategy and look forward to sharing our progress and the additional opportunity over the coming quarters. While the near term environment is clear uncertain, we are confident that unit count will eventually return positive as it has in the past cycle. As this underlying core market condition improves, we intend to further diversify our business by enabling meaningful technology transitions within the advanced packaging, automotive and the display markets.
This concludes our prepared remarks. Operator, we will now be happy to take questions.
Session. Our first question today is coming from Kish Sankar from Cowen and Company. Your line is now live.
Hi, thanks for taking my question.
I have a few of them. Fusen, one thing is in terms of your guidance, when you look into the September quarter, which verticals are driving the strength? Is it primarily semi?
So are
you seeing even, strength in the memory, packaging, LED, any color on that would be helpful?
For September quarters? Yes. So, Krish, I think, current market layout for you are bright spot. And also have some visibility issues. Let me give you a few by spot.
Number 1 is our Mini and the micro LED business are in high volume production. And we also see 5G is spending and the memory is recovering. And also I mentioned in the past 2 years, 1920, the semiconductor growth rate was actually negative and we believe and also many people believe Unicon growth will tend to be positive, not only positive will be over 10% for next 2 years. So such is really a bright spot and a lot we still have some visibility challenge associated with the COVID-nineteen, but we just need to deal with that, right? Just like a U.
S. Reopening and the inventory label throughout the supply chain. But compared to our last quarter, we are much actually confident compared to a quarter ago. I wish I answered your question, Chris.
Yeah. Absolutely. That does. Thanks for that. As a follow-up, I had, like, a 2 part question on the PixelX.
Number 1 is you know, I was under the impression that PixelX is a much higher margin product. At what point will you start seeing that drop through because it looks like compared your March June numbers, you know, you had incremental pixelated sales, but, the margin profile was pretty much similar. So at what point will the drop through kick in as you shift to PixelX and also, Is it being used? I mean, I was under the impression the Pixelox was used mainly for mini LED, not micro LED because the pick and place times weren't the FAFSA microLED. So I just wanted to get some clarification on that.
So we have a Lester answer this question.
So, Krish, hi, how are you? So let me answer the last question first. Yes, the Pixel Lock is for mini LED. As far as the margin is concern. The margin is consistent with what we've always said.
It is one of our highest margin products. The overall margin actually got down a bit because, there were significant amount of LED bonders in the quarter. So, Pixelux actually pulled it back up as well as our other APMR. So that's why basically, the gross margin was flat for the quarter.
So, Chris, if you remember, I think our last quarter, Lester mentioned, we have a lot of LED BUNDER and you know that's what's low gross margin, low gross margin. And he actually guy would be slightly below 45%. But with the 1,000,000 micro AOD piece of that actually pulled up above close to 46%. Got it.
Got it. That's very helpful and very informative.
Our next question comes from the line of Tom Diffe with D. A. Davidson. Please proceed with your question. Yes.
Good morning. Good afternoon. So, I guess, following up on your comments about a recovery in 21% 22% to 10% growth plus in each year. I'm curious on a near term basis based on what you're seeing from utilization rates of your tools in the tree. Have we hit the bottom at this point?
Or do you expect the bottom to come over the next couple of quarters? Or what is the near term outlook for just the core unit driven business?
Okay. So, Tom, historically, you're talking about a quarter beyond September that will be December quarter, right? So December quarter historically, I think we when we went into Christmas time and the Chinese New Year, we have less visibility. And September, I'm sorry, October December quarter over the low quarter for us. So I think we are seeing 2 factors pulling each other.
One is some you know, bright spot I mentioned, 5G, I actually is spending and the memory is recovering. And we also believe recovery is on the way. And we also have a negative factor. This is the opening and the other country part of the 2nd wave of infection, right? So, but I think that we are quite quite, quite, quite hopeful.
And maybe the recovery can be stronger after a chance in New Year. And maybe if you count the whole year, it's a 10% and we are in the fiscal year ended in September, right? So probably, we will benefit half of at least more than 10% of unit growth will come, right? That's what we are seeing right now.
Okay. So what are the actual utilization rates you see in the field right now?
Hey, Tom. So utilization rate mainly for the ball bonder because that's what we track, right?
It
actually has remained quite strong in June, even though it reduced slightly sequentially. We expect utilization rate to remain that way to the September quarter for most of the end markets. We think maybe memory and general semi is going to improve the most. Automotive is probably leased. And also within, regionally, I think we think there'll be more improvements in Southeast Asia, Taiwan and Korea through the 10th quarter.
Okay. And then Fusen, when we look at the likely near record levels of WFE spending this year, how much of that will ultimately translate into your business? And what is the timeframe do you think before turning that capital equipment purchase into unit growth?
I'm sorry if I can ask you to repeat again?
Sure. Yes, when you look at the near record level of WFE spending this year. I'm just curious how much of that spending, because it's advanced packing or advanced notes How much of that translates into your business over time? And what is the lag between capital spending and then the unit growth that you would benefit from?
Well, I think front end capacity eventually will come to the back end, right? So, probably a few quarters, in highlight, but for all of the games, we also see other driving force. For example, the increasing chances of packaging, the own can be done by most lower, right? This can also be done by advanced packaging. And, but you capacity, you can increase packaged labor overall transistor packing density.
So there are something correlated with the front end. But I think the game is also very unique. We have different kinds of driving force. So, I think next year, overall, think we'll be also very positive for it again.
Thank you. Our next question today is coming from Carlin Lynch from B. Riley FBR. Your line is now live.
Hey guys, this is Carlin on for Craig Two quick questions from me. 1, you had mentioned, are you detailed kind of previously how the traditional and kind of core semi business can do 700 to 800,000,000 in a normalized environment. As we look into 21 and on to 22, do you guys have a sense of when we can kind of get back to that level on a run rate given, what we've seen this year with COVID and, you know, the re the 10% re unit recovery, next year. Is that something that might happen in calendar 21 or is really a calendar 'twenty two item?
Well, Kyle, I think as Susan said earlier in response to us, Tom's question, right? And we believe that the semiconductor unit growth of 10% is when I kick in probably the second half of calendar 'twenty one. Right? So it will be, as you said, it will be part of our fiscal 2021, part of our fiscal 2022 because we are a September quarter year end. So we definitely think the recovery, again, subject to the uncertainty around, COVID and some of the other macros.
But based on historical patterns, 2 years in a row of down is unusual and usually there's a pickup after that. And again, Gartner's calling for 10% 11% semiconductor unit growth over the next 2 years. So we think there will be some in 2021.
Got it. And then I guess, just for my follow-up in the auto segment, and I apologize if I missed this, you know, we've seen from a variety of kind people in the auto semiconductor chain, things are maybe as less bad than feared. Things are maybe picking up a little quicker than expected. Are you guys seeing any of that or is that kind of something that maybe you would see next quarter just due to the delay?
Yes. So we are still seeing auto as relatively soft.
Right now,
Drew quarter revenue was roughly at a 36 percent 5 year run rate. So we think auto will take a little bit of time to get back. We think that the improvements in the EV space will probably pick up 1st the next couple of quarters.
Thank you. Our next question today is coming from Christian Schwab from Craig Hallum.
Yeah, great. Thank you. Just as a follow-up on the automotive questions, if you could put some numbers to that. I think most people are talking about automotive business bottoming in the September quarter with a gradual recovery from there at least on units and equipment that we talked to. That being the case in kind of a 36% run rate.
Can you just quantify that as a number for us quick? What that business is doing a quarter and things normalize in a semiconductor unit recovery at some points in 'twenty one, how big that business could cover too on a yearly basis. Can you give us any color around that?
Sure, Christian. So, for the June quarter, auto we do automotive investment together, but it basically went down quite a bit. It's only about $8,000,000 to $9,000,000. So if you talk about on a normalized rate, that'll give you some idea. And previously in the higher quarters, back in the stronger years of 2018, I mean, auto industrial is over $25,000,000.
Okay, perfect. And then on the memory side, with the listening to everybody last night, I think it's crystal clear, if it had been already that in memory is going to have a strong CapEx here in 'twenty one. Is there any type of numbers that you can kind of walk us through, with an increase in spending and technology transitions with some new wafer starts, etcetera. Is there the same type of math you can give us for recovery in the memory business?
Well, I think, Christian, we started the strength for us actually, in the September quarters, probably this is a 1st quarter start to see more significant recovery. But last quarter, I remember, I think memory is less than half of our historical long way. We start to see a positive sign. I think start from a certain amount of quarters. And I think on Friday end probably was stronger recovery in the house.
Is that a decent moment?
Yes. So, Christian, do you use the same metric? June quarter memory revenue is roughly about 30% of the 5 year run rate.
Okay. Perfect. Okay. Great. And outside of memory and industrial and automotive, is there any particular applications given the fact that 80% of chips use wire bonding, is there any other big markets or markets that investors should be paying attention to to get more confident in 21 unit growth of 10% plus for the industry, outside of well, I'll let you just answer that question if you can.
Sorry.
Well, I think 5G is a spending line or line. I think a wearable device is doing very well. It's part of the area. I think the market is doing well.
Okay. Fabulous. And then my last question, there seems to be a lot of enthusiasm about many of my co LEDs. And I think you guys have one of maybe the only machines out there functioning. Can if some of those big, there's some really large expectations for that marketplace Is this something that could, if those growth rates kind of prove out?
I mean, can you kind of paint us a picture about how big that market potentially could be for you 2 to 4 years out.
Okay. Question, I think our 1,000,000 micro AD, what we are focused right now, into 2 applications, one is a big backing. One is a tariff view, right? So for a big item, we expect the penetration rate will be about 15% in 2024, right? And for the direct deal that we've got initiative this way, 4,000,000,000 large display.
I think the penetration rate will be lower, maybe like a 5% to 10%. But I want to give you an example, how big is the opportunity? One very large display. And if we are, our internal view TV market, need to transfer about $25,000,000 dash from one place to the other place, right? In and the traditional tax reform measure is very, very low.
So just one desperate and will provide huge opportunity. We believe this is really a very, very huge market. But at this moment, I think we only work on one of the process that call final placement and there are many, many processes, right? So, we actually want to have a conservative just for us. Think this year, originally our guidance is $14,000,000 for the whole end of the year, but actually in short term, we are seeing more positive.
So we probably can have a $40,000,000 revenue. Just for our 20 fiscal year. I think on next year, we are looking at fiscal year to fiscal year, right? I think we probably can do 60 to 80. And then another year, it depends on if we actually push to other space, like I mentioned sorting, mixing, reposition, and recalibration, you know, if we get to other process, actually it's going to be much bigger.
If not, just on the final question on step, we expect that probably more than $100,000,000. Another year will be much, much more significant growth after that. So, maybe in few quarters, we'll provide you more clarity, but we do believe we are very excited and this is really a huge, huge market for us.
Great. I don't have any other questions.
Thank you. Our next question is coming from Kiki Shih from Feng. Your line is now live.
Hi, management. Thank you for taking my question. I have two questions. The first regarding our, mini, mini LED equipment. So when I was doing the, supply chain checks in Asia, when I asked kind of early companies about Pick N Place, which is one of the more most important process in this technology.
And then the some of them will come back and say, oh, I we have proprietary, pick and place technology. So I I'm just wondering for our pick and place, transfer equipment, is it a universal platform? Or so, it's a a competitor kind of the in house of those companies or those companies when they say proprietary, they are really buying our equipment and then modify it and then useful production? That would be my first part of question. Is there a universal platform?
And, how should I think about the market share in kind of the other kinds of opportunities rather than kind of this big customer we are engaging now. Yes, that would be the first part of my question. Thank you.
Okay. Actually, what I can tell you is our technology are really not traditional pick and place. So, a lot of market share you mentioned, I believe how to answer you. But what we can tell you is the product we are having has a probably current high tier throughput in the market. And, it's not taking place, to deal with the business.
So I will not be able to provide you more color with your questions. Okay, thank you.
Okay. Sure. Got it. And then my second part of the question is about the product, roadmap, because I think one of a key barrier for linearity micro LD, of course, when you raise and the others kind of the cost. So, just on our transfer side, do we have a very clear kind of throughput improvement roadmap in the next 2, 3 years?
Kind of, we are targeting a particular kind of, throughput improvement or what kind of, what kind of, MUT sizes we can do to my, I don't know, up to, like, 70 microns or, like, 30 microns in the next couple of years. Can you give more colors on the technological roadmap? Thank you.
Okay. Again, I think we have a very, very different technology company to other company. So this is a very huge market, but in the meantime, I think this is also very challenge. At least moment probably will have a more than 20 kind of a mistransfer master, right? So the successful leader, I think, need to be very dynamic, you know, continue to develop and that generation system.
And, normal pick and price, I think we are talking about maybe 10 to 20 Hertz but I think the requirement will continue to increase. And depending on different company, I think there is different enrollment. Okay. Thank you very much.
Thank you. We've reached the end of our question and answer session. Like to turn
the floor back over to
Joe for any further or closing comments.
Thank you, Kevin. Thank you all for the time today. We'll also be presenting at several upcoming virtual conferences throughout August September. As always, please feel free to follow-up directly with any additional questions. Have a great day, everyone.
Kevin, this concludes our call. Thanks.
Thank you. That does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.