Greetings, and welcome to the Culligan Software 2019 4th fiscal quarter results call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Joseph Alguini, Senior Director, Investor Relations And Strategic Initiatives, for Culicon Sopha.
Joseph, you may begin.
Thank you, Roya. Welcome everyone to Culicon Sopha's fourth quarter fiscal 2019 conference call. Joining us on the call today are Susan Chen, President and Chief Executive Officer and Lester Wong, Chief Financial Officer and General Counsel. 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 at 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. 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 to our recent SEC filings specifically in the 10 K for the year ended September 29, 2018. I would now like to turn the call over to Susan Chen for the business overview. Please go ahead, present.
Thank you, Joe. Since the March quarter, we observed a gradual recovery in our overall businesses. Improved fuel utilization rate, increased demand within both capital equipment and APS segment. Continued progress within our advanced packaging progress, and we recognize revenue of several piece products in the micro and the MediaD system. Continuing this improvement and the state of our industry, we will include comparison from the March quarter in addition to sequential comparisons to provide a broader perspective during today's call In parallel with improving market conditions, we continue to operate very efficiently, generating strong gross margin and executing on near term cost opportunities without jeopardizing our ongoing development projects.
For the September quarters, we recognized revenue of $139,800,000, an increase of approximately 10% sequentially and over 20% from the March quarters. The sequential increase in both capital equipment and aftermarket product and service segments was driven by improvement in general semiconductor LED and advanced packaging. Demand from the general semiconductor and LED, our largest end market increased by nearly 17% sequentially and the 74% from the March quarters. We have also continue to see improvement demands from our OSAT customers during the September quarter. As you may call, demand from memory and the automotive end market declined fairly dramatically in the June quarters, partially offsetting the same period improvement within the larger general semiconductor and the LED market.
However, demand has largely stabilized within automotive and memory end market through the September quarters. This stabilized demand improve NAND pricing and the growing semiconductor opportunities in automotive provides confidence. Overall, our automotive and the memory solution remain highly competitive and we anticipate general recovery in memory and automotive. So throughout fiscal 2020. Capital equipment sales during the September quarter increased 12% sequentially and increased 25% from the March quarter, which again, we believe represents trough demand.
The prior two quarters of sequential revenue improvements helped to highlight the resilience of our end market and also our ability to generate demand for new products cycle. Within capital equipment, we experienced increased sales within many of our businesses, Bobandin, Westbonding, electronics, assembly and advanced packaging. Within advanced packaging revenue, 4, 5 more pieces of our mini and the micro LED tool were recognized. This system sales provides strong margins, which Lester will share more detail on shortly. Our aftermarket product and service segment APS has increased by 11% from our March quarters and the 6 percent sequentially to $39,400,000 in September quarter.
This demand is consistent with our longer term quarterly APS average of approximately $40,000,000 in quarterly revenue, which support our view of healthy utilization rate for our large installed base of both and the Witch Bonding systems. 30 APS sales improved utilization rate increased demand from global OSAT and ongoing traction with our new products provides increasing confidence for stronger 2020 performance. As we look ahead, we remain focused on customer engagement and operational readiness of our new products and are very confident of our competitiveness in this the financial overview in greater detail. Lester?
Thank you, Fuce. My remarks today will be referred to GAAP results unless noted. Net revenue for the $65,400,000 of gross profit and net income of $6,400,000 or $0.10 per diluted share. Gross margins were clearly stronger than we expected last quarter. This was partially due to our ability In addition to receiving acceptance earlier than anticipated, these initial PIKT systems generated gross margins above per average.
Similar to other newly developed products, the majority of the build materials is expensed through R&D until products have received market accepted We anticipate recognizing revenue on the final 2 fully expensed Pick Flex systems during the December quarter. Operating expense also came in more favorably than our expected target model of $53,000,000 of fixed expenses plus 5% to 7% of variable expense tied to revenue. We have also restructured a small fraction of our global R and D team, which resulted in a discrete opportunities that will enhance the quality and efficiency of our global organization. Over the coming quarters, we maintain our current operating expense target of $53,000,000 of fixed quarterly expense, plus 5% to 7% of variable quarterly expense tied to revenue. While we are cautious of costs in the soft environment, we continue to invest heavily in our ongoing R and D programs, which will drive meaningful long term value and market share expansion.
Turning to tax. We booked a net tax expense of $3,800,000 which was in line sequentially. Over the long term, we continue Turning to the balance sheet. We ended the September quarter with a total net cash and investment position of $532,000,000 or 8.28 dollars on a diluted share basis. During the September quarter, we have continued our repurchase activity and deployed $15,000,000 to repurchase 680,000 shares.
At the end of September quarter, we had approximately $97,100,000 remaining under the existing repurchase authorization. Cumulatively, over the last 5 years, from the repurchase program's inception through the September quarter, we repurchased 17,200,000 shares in open market transactions. A total value of $302,800,000. Roughly 1 third of this total value, $100,600,000 was deployed in our fiscal 2019 period alone. The repurchase program, combined with our dividend program, prudent M and A and aggressive market expansion through new product development provide a powerful platform for long term sustainable shareholder value creation and delivery.
On a book value $3 from the June quarter. Working capital defined as accounts receivable plus inventory less accounts payable was effectively flat at $207,000,000, down $1,000,000 sequentially. From a DSO perspective, our day sales outstanding increased from 107 days with 126 days. Our days sales of inventory decreased from 129 days to 108 days and days of counts payable decreased from 56 days to 44 days. This concludes the financial review portion of our call.
Will now turn the discussion back to Susan for the December quarter business outlook.
Thanks, Lester. We have clearly experience a recovery in the general semiconductor and the LOG related business. While automotive and the memory seems to be near or at a trough level, continue to anticipate ongoing and gradual recovery in all of the end market we serve over the coming quarters. Initially for Kness, we are also aggressively pursuing several new revenue opportunities through fiscal year 2020. That expand our sale market and further increase the diversification of our brother lean portfolio.
Looking into December quarters, We are forecasting a revenue in a range of $130,000,000 to $150,000,000. We presented our outlook. Continuing the historical seasonality in our business, we believe this support our view of gradual and ongoing demand recovery for our products and services. Over the past 5 years, the sequential revenue change December over September represents an averaging 14% reduction with a range of +3 percent to negative 45 percent. Considering this 5 year trend, our December outlook indicates in improving and a fairly resilient end market demand.
We have also met fundamental improvement to our business, development process, ability to identify and target new market opportunities and also delivering shareholder returns. Most specifically, for the past 3 fiscal years, we have dramatically increased our market shares in high volume LED business. Lapiti, Deepgram and the recognized revenue on several new tools, entered the high gross media and the micro LED market and collectively returned opportunity. $250,000,000 to investors through the repurchase and the dividend programs. We continue to believe this improvement are fundamental in nature, demonstrate our ability to expand the market and provide a sustainable platform for further value creations.
With that said, I would like to provide a brief update on our advanced packaging initiatives. Overall, we continue to be very focused on working toward new customer qualification within all of our advanced packaging business. NIPTech, APAMA, catalysts, and the Pixelox. These two will continue to be very promising and highly competitive. We expect They provide new growth prospect and will contribute meaningful to long term profitability.
All the side of it, thermal compression and the high accuracy feature business continued to be at the various engagement label at multiple customers, supporting qualification and also high volume productions. Overall, These products are delivering new solutions to our customers. Higher level of productivity and the continued to driving new customer interest. In addition to our view of gradual core market recovery. We also anticipate all advanced packaging progress to accelerate through fiscal 2020 as we ramp production with existing customer and the proliferation of these solutions to new customers.
For our Mini and the micro AD tool, we recognize revenue on an additional 5 system in the September quarter, a system in total. We are currently aggressively preparing for a production ramp. As a reminder, the backing within a display market is a main housing market for diesel log system. Although we are also focused on opportunities within direct display, automotive and also consumer electronics. We continue to anticipate piece of that will run through 2020 and enhance overall profitability.
In summary, we are highly confident our core market is past trough and also that our newly developed market expanding offering will provide the industry with enabling technologies. We believe our enabling solution are increasingly a line with major trend, such as evolution of electric and autonomous vehicle, the low out of 5g Technology, the proliferation of IoT devices, the English intention of advanced packaging and the emerging opportunity within the display market. Our entire organization remains extremely committed to execute toward our long term strategy of value creation and the deliveries. This concludes our prepared remarks. Operator, we will now be happy to take
Our confirmation tone will indicate your line is in the question you. Our first question today from Tom Diffely from D. A. Davidson. Your line is now live.
Yes. Good afternoon. Good evening. Thanks for the call. So I guess first question on the Pixeluxe line.
Obviously, very nice to see that being accepted by customers. Curious, you talked about how it benefited the margins during the quarter. Was that because some of the tools were already accounted for, or is that the kind of the true margin structure of the product that's helping the margins?
Hi, Tom. It's Lester. For the quarter, the, contribution to the higher gross margin by Pixellex was because of the fact that like many, new tools. It's already been expensed through R and D until market acceptance. So 5 all five tools is a complete fall through.
In terms of into the gross margin.
Okay. On a go forward basis, do we expect the tools to be above corporate average? For margins? Or
Yes, we do. We believe the gross margin for the Pixelux will be among the higher among the company. Pixelux the most technologically advanced and fastest tool on the market. And so it's a very low cost of ownership for our customers. So we believe that the margins will remain high.
Okay. Good. And how big do you think that market is at this point?
Tom, can you repeat the questions?
Yes, how big is the market for the pixel XR for other micro mini LED solutions?
Okay. We believe this market is going to grow significantly. And we are at the early stage of backlighting application, for consumer electronics. So for us, we do believe depend on the ramping schedule of our customers. We target about 5% to 10% annual revenue, in 2020.
So that's our plan. And I think in the future, it's an adoption of 1,000,000 micro AB continues.
Okay. And just for clarification, is this for mobile screens or computer screens, what size screens is this, for today?
Well, actually, the display size can be varied from a small screen, a little bit screen actually direct view, right? But direct view display actually probably in the future, still need to increase the productivity. But actually, we are working with multiple, customers and including the customer in consumer electronics, display and auto industries.
Okay, great. And then quick question on the model itself. It sounds like the OpEx is similar to where it's been. I was wondering on the margin front though, when you look at relatively flat, revenue, a lot of times in the fourth quarter, you see a little bit of a boost in the margins because you're higher on the wedge bonder side, a little lower on the ball bonder side. Curious if you're going to see any expect any differences sequentially on the margin front?
Well, Tom, I think the margin, what we're looking at probably between 45% to 47%, that's margin, the corporate margin that we've been looking at. Thanks Tom.
Thank you. Our next question today is coming from Craig Ellis from B. Riley FBR. Your line is now live.
Thanks for taking the question and congratulations on the strong earnings performance in the quarter guys. The first question I had was really more of a clarification. It relates to one of Tom question. So I think what I've heard is that there are 8 systems that have shipped for sale in the last two quarters 3 a couple of quarters ago, 5 in the most recent quarter. Can you just discuss how broadly those are being affected by customers?
Are we talking about one customer is a couple or even more than that?
It's Lester. We're talking about a couple of customers. So it's not one customer. So now it's going to see evaluation at several customers, this the sales have been spread among several customers. So, we believe that going forward, the ramp will be half and, 1 or 2 different customers.
Okay. And, and clearly, the expectation since this product was announced back at Semicon West, certainly it sounds like from Fusion's commentary that that there would be a material rep in front of us. But as we look at the businesses, shipment and rev rec capability on on 5 systems. Are there any capacity issues that we need to be aware of? What's your internal capacity to ramp this system?
Is it in the tens of systems? And if so, where would, where would that be?
Well, no, Craig, we prepared for the ramp. We've known it come for a while. So, we do not believe that our production capacity will be a bottleneck during the ramp. So I think we're ready to produce as many systems as is required.
Excellent. And then I wanted to go back, Fusen, to one of your questions. You mentioned that there were a number of new revenue opportunities that the company was pursuing and it sounds like you've got very good visibility on growth there. I was just wondering if you could help us just by ranking some of the new revenue opportunities that you see, I assume Pixelak near the top, but could you help us prioritize that list? Thanks.
Okay. So, first of all, I think there are a few positive sign in, from the industry. And that make us quite positive about 2020 and onward. Historically, the semi downturn is no more than six quarters. And clearly, we see the March 2019, is our trough.
And we also see in the OSAT customer adding the capacity and they are adding capacity for the whole industry not only for themselves, right? And the memory, I think it's a good story ahead of us. We see the big growth actually quarter to quarter for the past 2 quarters. And the industry actually expect NDC spend memory recovery through our calendar year next year. 2020, with the NAND first and then followed by DRAM.
So for us specifically, in addition to the market conditions. I just described. I think a piece of that actually is a bright spot for us. And it's going to be a ramping year in 2020. And I say this a few times, depending on customers' ramping schedule.
Can be 1 or 2 months late or whatever, but we do expect a 5% to 10% of calendar year revenue. That's a good one. We also expect a free chip and the TCB, sure, good traction in the market because we have we are engaging multiple customers for qualification and also some of our customer already having in production. We do believe a good traction in 2020 and, a short first growth, both of which you and TCV in 2021. So that's what we are seeing in our market and for the industry.
Okay, that's very helpful. I'll ask a longer term question on gross margin to Lester. Lester, with the benefit of some favorable mix, the business is operating well. On the gross margin side and yet here we are very near the trough and the company has the target model out there. Can you just help us understand as you look at the the things that are going to bridge the gap between where we are to the low end of the target model, I believe, at 49%.
What does it take to get into the long term target model range?
Well, Craig, I think what we on the long term target model range, what we're looking at is at some of those tools that Houston talked about as a Pixelux becomes more of the company's revenues, in beyond 2020 2021, 2022. As well as, as catalysts as well as the Palma and the new, what we call TCB 2.0 kicks in. Those are margin tools, we believe that, that would drive the gross margin forward. As you well know, a huge focus for Fusen always has been cost. We continue to reduce costs across the board in terms of our core businesses.
And then also, one of the initiatives that been pushing for over 3 years has increased our APS sale. APS carries high gross margin than our capital equipment. So I think between those an element, we believe we can drive towards the gross margin target we presented.
Okay. Last one for me, and then I'll hop back in the queue. Houston, you were quite pressured in terms of being very early to call the March quarters a trough. And the company really did a great job putting money where its mouth is with the $100,000,000 of share buyback in the quarter. Can you gentlemen just help us understand how you're looking at buyback intents to the at this point now and now that we're into what looks like the early stages of a recovery, should we expect a similar level of share repurchase activity or something closer to what we were seeing in the 6 or 7 quarters prior to the most recent quarter.
Thank you.
Okay. So, Craig, before I answer you, with the lumber, I want to tell you, our thinking logic. I do believe the company, the most important is to have capability, we can organic the growth. Right? So, for us, I think our capital allocation including dividend payback, stock repurchasing, and M and A.
So at the certain point, for sure, I think we will engage with M and A. But we want to make sure our organic development in a program, we have a strength, we have knowledge, we have commitment. And I think we are seeing attraction. So I think in the near term local horizon, I would say, yes, a year from now on, we already seriously, you know, consider M and A. So because of, we need to use a capital among M and A, repurchasing and also dividend.
I think it's going to be a balanced bill, right? So, it's very difficult to answer you with a precise amount. But we are committed continuing to a repurchase and continue, you know, we are committed to the dividend, then we'll continue repurchase program. And the amount really depends on when we decide to trigger the M and A activity. I hope I answered your questions.
Yes, that's very helpful. Thanks, Houston. Thanks, Lester. Thanks, Frank.
Thank you. Our next question today is coming from David Duley from Steelhead Securities. Your line is now live.
Yes, thanks for taking my questions. Just a clarification, I think in your prepared remarks, you said In reference, was it to the wire bonder business or the total bonder business that was up 17% sequentially and up 64% from the bottom?
I think price overall of equipment. Of course, the bode is a big part of that. I think in the past few quarters, we actually see why bond are coming back? And, strongly, I think, they represent about 50% of our revenue. So I would say, you know, we're talking about overall, including both under.
Okay. And what Could you talk about, I don't think you mentioned the utilization rates of the wire bonder, perhaps, give us a measure there. And then, help us understand if the utilization rates are higher or lower in China or what you're seeing from that market?
Sure, Dave. So utilization we see in the field is in the high 70s. However, I'd like to point out that it is not uniform across all the businesses as well as end customers and the regions. Specifically to your question about China. China is actually at the highest utilization rate of all the regions we see actually in the 90s, while Taiwan come down in low 70s and Korea is in mid 70s.
So I think, a lot of utilization rate growth has been driven by China.
Okay. That's very helpful. And, as far as the, you mentioned the automotive and the memory businesses have stabilized now. And I guess you're kind of expecting a gradual improvement in 2020. Could you just talk about in each one of those segments what the key trigger is to spur growth.
For instance, in the automotive space, is it more electrical vehicles or more electrical vehicle content? Or what will get these two segments of the business up and running again?
What we will assume, you know, the memory, we will assume, I think, a server and a high performance computing. This will consume fairly large amount of the memory. And automotive right now, I think in the bottom, But we do believe, based on our historical result, we can expect auto also increase from here but auto, I don't think it will consume that much of memory. Right? So I will still believe it's traditional, you know, in a server and also in the computing areas.
That would be the memory growth. And the first one is the big growth quarter to quarter. I think we already see 2 quarter growth. And the next step is a price holding up and then holding does your work to recover and that will be our expectation.
Okay. And then as far as maybe just look into next year, it seems like you have core business recovery happening and you have a bunch of new product contributions starting to ramp up in the LED space and some of these other spaces. Do you think that is there any reason to think that you can't get back? I guess, first question is, is there any reason to think that you can't get back to peak revenue levels? Is there any segment of business that may not recover and allow you not to get back up to $200,000,000 or $250,000,000 per quarter kind of run rate
So, Dave, I think we are cautiously optimistic about the recovery, both in general ME LED as well as eventually as Susan said auto and memory with pixels coming in. But I think the $250,000,000 a quarter is a pretty high target. And while we think there will be a significant recovery, I'm not sure we're going to hit that in 2020.
So, maybe it's a little bit more color. We do believe this recovery is a gradual recovery, from our view. So let me give you an example. I think, a question asked me a few times of our old model, 2021, the original model for the $1,100,000,000. So this probably if I answered it, probably can give you a little bit the color, you know, in our mind.
So assume the current recovery will bring 2022. I'm talking about 2022 a year after, we set an original goal of the 2021. To 2018 label of $900,000,000 as a baseline, right? I'm talking about as a baseline. So that's a $900,000,000 revenue
as a baseline.
And the next 3 years, 20, 21, 22, 3 years. We believe we can add additional $200,000,000. Additional revenue from the organic growth product we introduced to the market. This is including Flee chip, TCB, Pixelox, and also Lester mentioned that APS in additional revenue, right? So, to reach, you know, $250,000,000, quarterly average revenue, this is about $1,000,000,000, right?
So right now, as we look at it, look at it, I think probably, you know, 2022 will be the time, we probably can reach 1,100,000,000 to $1,200,000,000 But spotty, I do believe we will shift 250, you know, from time to time, you know, maybe there's about 20 2020 beyond like 2021. So that will be our expectation.
Thank you very much. That was very helpful.
Our next question today is coming from Christian Schwab from Craig Hallum Capital Group. Your line is now live.
Great. Thanks for taking my question. Fusen, can you give us an idea in both the automotive and memory business, peak to trough quarterly revenue if you have that this cycle?
Christian, hi, it's Lester. So right now, we believe auto memory is near the trough. So auto is roughly 50% of what, our 2018 quarterly run rate was, while memory is, about 1, 1 quarter to 1 third.
Okay. Fantastic. And so then memory, could see a more material, you know, if we have a true memory cycle and equilibrium supply and demand equals out in second half of this year, we get back to spending money again on the CapEx side, that could ramp up more quickly. In my opinion, is that fair?
Is that a fair question?
I think that's fair. Right now, memory is close to 4% to 5% of revenue and its height is close to the 20%. So I think if there is a recovery we're seeing some recovery in NAND. If DRAM comes back, I think, significantly, both, I think, there could be a faster
Yeah. And Christian, as you know, we actually have a very high market shares in the memory space.
Right. Right. And then on the automotive side, recovery in that business, I know there was a series of questions about it. It wasn't clear to me. Is it automotive recovery based upon units or can that business, if unit should stay kind of at these type of levels for the next year or 2 with greater electronification for lack of a better word.
Going into vehicles, could that see a nice recovery over time? Or is the automobile business much more of a just a gradual recovery?
Well, Christian, you know, any segment recovery will not be sudden, right? So, it's really my expectation. The auto will take a little bit more digestion and maybe show stronger momentum. I would say maybe second half or next year.
Okay, fabulous. All my other questions have been asked. Thank you.
Thank you,
Our next question is coming from Krish Sankar from Cowen And Company. Your line is now live.
Hi, this is Robert Martin on behalf of Krish. Thanks for letting me ask this question. Just a real quick housekeeping 1 first. And then I had a follow-up what was the size of the Advanced Packaging business this quarter?
The Size Advanced Packaging was about 14%.
Okay. Great. And then,
you're guiding next quarter sort of flat quarter over quarter where it's typically seeing some seasonal weakness. Could you just give some sort of puts and takes around which areas you're seeing strengthened into the December quarter, is this sort of broad based, continuation? Or is there one area that's going to be a little bit stronger and some softness and other ones?
Well, I think as we have indicated on the call, we still think memory and auto is recovering, but there's still soft right now. I think the recovery is much more ahead in, general semi and LED, and particularly in China, as I indicated, the OSAT running at a very high utilization rate in China. So we believe that the growth or the maintenance of the revenue at flat is coming from General Semi And LED.
Thank you. We reached the end of our question and answer session. I'd like to turn the floor back over to management for any further or closing comments.
Thank you. Before closing, we wanted to inform investors that we'll be participating in several upcoming conferences and roadshows throughout the December quarter. In Dallas, New York City and London. Additional details can be found at investor. Kns.com.
Also, going forward, we will be adjusting the timing of our earnings release pre market at approximately 8 am Eastern Time. Thank you all for the time today. As always, please feel free to follow-up directly with any additional questions. Operator, this concludes our call. Good day.
Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.