Greetings, and welcome to the Kulic And Software 2019 Third Fiscal Quarter Results Call. At this time all participants are in a listen only mode. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Joseph Elgendi, Senior Director, Investor Relations And Strategic Initiatives for Kulicke and Safa. Joseph, you may begin.
Welcome everyone to Culligan's Office third quarter fiscal 2019 conference call. Joining us on the call today are Fusen 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 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. 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 Kulickeinsulfa that could affect our future results and financial condition, please refer to our recent SEC filings specifically 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, Susan.
Thank you, Joe. Throughout these unique industry conditions, we continue to generate profit, invest toward our organic development program. Reduce our shares outstanding and drive market acceptance of several new offerings. Several of our end market continued to be generally soft with a limit capital spending visibility partially due to the current Mako environment. Despite this limited near term visibility, we are confident in general improving demand and also our longer term market driver and the product opportunity into fiscal 2020.
We reported earlier today that we had shipped several piece lock system to multiple locations in the June quarter and expect additional shipment in the current September quarters. The shipment of this tour, ongoing customer interest and additional planned shipment further increase our confidence that Pixel Luxe will help accelerate market adoption of Mini and the micro LED technology. As many of you are aware, this is not our only high potential market expanding opportunity. Our APAMA, thermal conversion tool is very competitive and in production for a premium, larger application. Separately, Catalyst, our high accuracy free chip tool was recently shown at the Semicon West and continued to generate significant customer interest for leading edge memory and the larger applications.
I will provide a more detailed update to our growth initiative after the financial review. For the June quarter, we recognized revenue of $127,100,000, an increase of nearly 10% sequentially, driven by an increase in demand from our OSAT customers. With exposure to general semiconductor and also an increase in demand for our LED products. Companies continue in automotive, memory and the 4 advanced packaging products. Capital equipment sales increased by 11.5 percent sequentially to $89,900,000, driven by a strong increase in the ball bonding and partially offset by decrease in which bonding and our EA businesses.
Sequentially, revenue increased by 65% in mobile lending, driven by increased demand from our OSAT and LED customers. A significant change over the March quarter. This helped to highlight the diversity of our business but also imply improving underlying market condition due to our relatively short lead times for broadbanding. Our aftermarket product and the service segment APS, the spread similar trend and the sales increased 5.4% sequentially to $37,200,000. This change was driven mainly by an increase in the broadband business.
Considering the broader macro driven uncertainty, our global organization continued to be focused on cost control, while also prioritizing ongoing business development and the effort to drive fundamental business optimizations. Stronger broadband, increased consumable sales, improved customer sentiment, and ongoing improvement to our outlook increased confidence that this industry is showing signs of improvement. As we look ahead, we remain focused on market adoption of our new tool and continue to be operationally prepared for demand improvements. I would now like to turn the call over to Lester Wong, who will cover this quarter's financial overview in greater detail. Lester?
Thank you, Fusen. My remarks today will refer to GAAP results unless noted. Net revenue for the quarter was $127,100,000, a gross margin of 46.2 percent generated $58,800,000 of gross profit. We anticipate gross margin to be approximately 45% in the September quarter. We continue to benefit from the flexibility of our manufacturing operations and continue to drive As mentioned on our last earnings call, this cost containment exercise is extremely selective and we do not intend to jeopardize our long term growth in this this.
Compared to the June quarter 1 year ago, our global workforce has been reduced by over 12% while we are maintaining an elevated level of R&D investments. In the long term, we plan on maintaining our existing operating expense targets $53,000,000 of fixed quarterly expenses, plus 5% to 7% of variable quarterly expenses tied to revenue. Due to our aggressive focus on controllable and discretionary spending in the near term, we are targeting to gain to achieve the lower range of our variable expense component in the current September quarter. Turning to tax. We booked a net tax expense of $3,900,000, resulting in a rate above our long term infective tax rate target of 15 percent, as mentioned on last quarter's call.
The higher June quarter tax rate is due to the dynamics of our business in a lower demand period, specifically our jurisdictional income mix and valuation allowances on certain deferred tax assets impact our effective tax rate more significantly during lower demand periods. Going forward, we have raised our long term effective tax rate target to approximately 18%. Looking into the September quarter, we are anticipating the absolute tax expense excluding discrete items to be around $2,500,000. Turning to the balance sheet. We ended the June quarter with a total net cash and invested position of $572,000,000, or $8.75 on a diluted share basis.
As a reminder, we have begun to draw down from our overdraft facilities during the March quarter. At the end of the June quarter, we have drawn down 71,200,000 During the June quarter, we have again increased our repurchase activity and deployed $33,200,000 to repurchase one 500,000 shares. At the end of our June quarter, we had approximately $112,100,000 remaining under the existing share purchase authorization cumulatively from our initial program inception through the June quarter, we have repurchased 16,600,000 shares outstanding for a total value of $287,900,000. Our overall repurchase activity has accelerated in coordination with our organic development progress over the past 2 years. Deployed in the past 2 years with approximately 30% deployed in the past 9 months.
On a book value per share basis, we closed the June quarter with $12.03, a decrease of $0.46 from the March quarter, due primarily towards our ongoing repurchase activity. Working capital defined as accounts receivable plus inventory less accounts payable was effectively flat at $207,000,000, down $1,000,000 sequentially. A DSO perspective, our day sales outstanding decreased from 108 days to 107 days. Our day sales inventory decreased from 153 days to 129 days and days of accounts payable increased from 50 days to 56 days. This concludes the financial review portion of our call.
I will now turn the discussion back to Fusen for the September quarter business outlook.
Thanks, Lester. While we continue to operate in a very dynamic macro environment, that is difficult to predict. We remain cautiously optimistic considering recent demand improvement at our global OSAT. Additionally, We are also uniquely positioned to create meaningful value through our market expansion efforts in advanced packaging and the next generation LOED opportunity. As mentioned in today's press release, we believe the soft demand environment is gradually improving and we expect revenue to be approximately $130,000,000 to $150,000,000, representing a 10% sequential improvement.
We remain extremely focused on several of our development initiatives and our ongoing effort to drive market and customer adoption. Of our newly introduced advanced packaging, mini and the micro LED systems. This ongoing development effort provides an opportunity to emerge this period of softness, a much stronger and higher growth organization. A few weeks ago, we participated in the Silicon West ratio. We advanced packaging technique and approach was highlighted by several leading logic and the foundry companies.
This focus on advanced packaging highlights our long term view that new packaging approach provide alternative to no shrink by deep learning power efficiency, performance and the form factor benefit for next generation devices. We are well positioned to directly in this transition through our competitive and the comprehensive advanced packaging offering. Over the coming years, we anticipate meaningful leverage in our operating model as our served market expense through share gains in these new businesses. During Semicon, we exhibit our catalyst high accuracy free chip to the broader market due to unique architectures throughput and accuracy, we are pleased with the competitiveness of this tool. I would like development approach facilitated by our R and D organization has allowed us to develop and introduce this tool in just over 1 year.
The customer system provides increased placement accuracy and a dramatically enhanced throughput for next generation high density free chip devices. Today free chip equipment is the 2nd largest interconnect market behind wirebonding, with a total available market size of approximately $250,000,000. Over the coming years, we anticipate new forms of advanced packaging such as high accuracy free chip, thermal compression and fan out wafer level packaging to depress traditional free chip tool. A market, we do not participate significantly in. For KNet, this anticipated transition will enhance our share of leading edge logic and memory applications.
Also, as mentioned last quarter, Apama, our summer compression system, continue to perform well and remain very competitive versus alternative system and a leading OSAT for a high volume logic application. Separately, we shipped our 1st evaluation of LiTech 500 discovery system during the June quarter. This system has been installed successfully and on schedule. We have received positive feedback on the system ease of use and are targeting to ship a second evaluation system to as separate customers early in calendar year 2020. Finally, In just over a year, we engaged with a technology partner and subsequently, develop, ship and the recognized revenue for our Mini and the micro LED tool piece of locks.
It's to a new benchmark 4 high speed placement and operate up to 5 times faster than computing pick and press solution. Continuing this capability, our recent sales and the end customer interest, we expect this to effective and the high volume production of mini and the micro LED devices in the near futures. Over the coming years, we anticipate new forms of big lighting to drive initial adoption of Pixelox tool. In the longer term, DirectView LED display are also a high potential and applications for this tool. While we are focused on mini and the micro LED HD for high resolution display, there is also meaningful potential for lighting and the general informational display within automotive and the consumer electronics.
As of today, we have shipped a total of 7 systems, several of which we have already recognized revenue. We continue to operationally prepare for an initial production ramp. We are confident that our current and the new technology solutions are extremely aligned with significant long term trend in advanced packaging, automotive, IoT and the display market. In addition to our new system revenue contribution, which are anticipated to deliver meaningful operating leverage benefit over longer term. We also continue to anticipate more near term major demand recovery in our core business as a seasonal dynamic, including smartphone cycle, followed by U.
S. And the Asian holiday season, drug capacity digestions and the incremental capacity demand into fiscal 2020. Our strong balance sheet, expanding portfolio, dummynet market position, ongoing repurchase activity and the high potential customer engagements provide us with increasing confidence that we will exit this sub domain environment which enhance fundamental strengths and the growth prospect. This concludes our prepared remarks. Operator, we will now be happy to take questions.
You. Thank
you.
Our comes from the line of Christian Schwab with Craig Hallum. Please proceed.
Hey, great. Thanks for taking my question. Last quarter, Fusen, you talked, you know, accurately that you kind of felt that the March quarter would be the trough for your business. But the timing and the magnitude of the recovery and the growth from there would be somewhat difficult predict. But it seems like we've got a couple of quarters here going in the right direction.
With that in mind, have you guys given any updated thought to what your, you know, your long term target model is in the timeframe to get there and potentially the trajectory of that recovery?
Okay. Thank you for a question, Christian. So we discussed this question for you, Tom. Let me answer it in different ways these times. So our 2018 revenue was about $900,000,000, actually the $890,000,000 and, we generate $170,000,000 profit.
So our 2021 model did not consider 2019 downturn and was purely based on a 10% annual gross from 2018. And the hardware growth actually assumption come from semi unit growth and another half at the will come from new product introduction plus our APS growth. So with that formula, will come $1,200,000,000 target for the 2021 revenue. So, at this moment, as you mentioned, I think we guide March, was our trough. And I believe we are at the beginning of a recovery phase.
So let's do a reasonable assumption, you know, assume in 2021. Our industry can reach recovery. So it means the same products we had in 2018 can contribute same revenue into 2021. So I mean, it's $900,000,000. And process contribution from the new product development we introduced and all going to introduce or introduce him, including Pixelox, the free chip TCD and the ATS, which I believe can generate additional Hangzhou to $200,000,000 revenue into 2021.
So I think our 2021 model will likely be delayed 12 to 18 months due to 2019 downturn. This is including is including the memory downtime and also the trade dispute between the two big countries. But regardless, you know, with our new product introduction and coupling with our current stock repurchase plan, we believe we will create very good shareholder value to our shareholder in into 2021. So that will be my answer to your questions.
Fabulous. Of the new products, you know, which one in particular are you most excited about if we're in 2021 and we do $200,000,000 in revenue, which product is the one most likely of your new product introductions that we should be keeping the closest eye on?
Okay. So I think in short summary, we believe there are 2 areas. 1 is advanced packaging. And one is mini and micro LED. I think LED market is a huge market.
And when people cannot shift green energy. Actually, people tell the same energy. So LED is a big market. And the next phase is going to be mini and micro LED. The bottleneck, actually located and how to transfer this small device, right?
So I believe all piece products and has a very ultra high speed and the transfer rate is about 4 to 5 times compared to combination of Pick N Pay solution. So that's one. I think, we have a good hope The second one actually lie into advanced packaging. This is including the free chip we introduced. And we are very satisfy with the performance we have by engaging with a few customers at this moment.
And also, TCB is an internship to echo TCB 2, which is capable to handle bigger die, you know, up to 7 centimeter by 7 centimeter and also, you know, given how interface content. So, also including our APS, I think, you know, we see, an improvement in our APS engagement with our customers. There are areas. Let me make a short summary. I think this additional $100,000,000 to $200,000,000 of revenue I just mentioned will come from MiraOD, MicroaOD and also all advanced packaging, including free chip.
Including a new TCB engagement with customer and also our APS growth.
Okay, great. Thank you. No other questions.
Thank you.
Thank you. Our next question comes from the line of Craig Ellis with B. Riley. Please proceed.
Yes, thanks for taking the question. I'll start with the clarification. So another quarter of very strong gross margin performance at 46% plus. So what I was hoping to do is just have you guys reflect a little bit on some of the trends that are driving that because, given the volumes, I wouldn't normally expect gross margins coming back I think in such a healthy fashion?
Hi, Craig. So I think, as you know, our gross margin is highly contingent on product mix. So in the quarter, the margin went down a little bit because we sold more ball bonders, I think, more LED bonders versus our wedge bonder and our APMR, equipment, picking place equipment. Think as we go into the 10th quarter, our 4th quarter, we guided around 45%. We believe that the ball bonder LED will continue to recover.
I think the wedge bonder is a little soft because of automotive, but I think going into 2020, I think we're confident they will recover.
That's helpful. Thanks, Lester. And Houston, I just wanted to follow-up on some of your 6 select commentary nice to see some traction in the marketplace in June September. The question is, I think the company believes that that business could be one that adds 5% to revenues next year, maybe double that in 2 years' time. How should we think about the path between some initial engagements and shipments now versus much more material levels.
Do you envision that being fairly linear or are there things related to the engagements that you're having with customer acuity either of you a more front end or a more back end loaded ramp?
Okay. So, I think at this moment, we have shipped 7 system and recognized most of the revenue. And we expect our next two quarters, will have additional, you know, appeal and deliver and, to customer side and also recognize revenue. This system, our 7 plus Next Field Land, is going to be a system located in customer side doing qualification. So we don't expect this going to be linear until next production, you know, from customer side, upon qualification, But upon qualification, we do expect next year can contribute, meaning to us, what we mean is probably, in the mid to high single digit of revenue, if this qualification will be successful.
And that will be, the total calendar year revenue, because we probably cannot precisely predict which month is going to be high volume production started, right? So that will be my answer. I don't know if I satisfy your questions.
Yes, that's helpful. Thanks for that, Piacin. And then lastly, I just wanted to go back to some of your higher level commentary. You noted you were a little bit more confident in general improvement in demand. And you mentioned some things you were seeing on the OSAT side.
I was hoping you could elaborate a little bit further on what you're seeing and whether some of the components either comes from customer interactions or other things that you've seen And are there any concerns that you've seen and incremental, negatives that we need to bear in mind as we look forward potentially coming off a cyclical bottom up from the March quarter through your guidance in the September quarter?
Okay. So, let me answer this way. I think every year is about 2,000,000,000,000 semiconductor devices, finish the process and they need to do a packaging. The majority, what I mean, majority is about 80% and which I don't see going to be dramatically changed next, for the couple of years, 75% to 80% use go boundary. So during any, up to low downturn, I think both of them is a leading indicator.
So, if you record our 2018 Q3 revenue was very high. I remember this was $270,000,000. And, but actually, we suffer this downturn, including a trade tension between U. S. And China and also memory downturn.
And actually, I think that we declined pretty fast. So in March quarter, actually, we believe we will reach to a trough. And we just delivered June quarter about 10 percentage points of growth and we are guiding September quarter will be another 10 increase. And we will work hard and hoping maybe December quarter will also show a sequential growth. A low is too early to say.
So what we are feeling right now, by engaging with the customer, hopefully after the Chinese New Year 20 20 and we can see, more significant growth if a macro environment don't deteriorate anymore, right? So that's what we are seeing at this moment. That's helpful. Thank you and good luck guys.
Thank you. Thanks, Greg.
Thank you. Our next question comes from the line of Krish Sankar with Carlin and Co. Please proceed.
Hi, thanks for taking my question. I had a couple of them. Number 1 is, on the PixelX product for the mini micro LED, if it's really like mid single percentage of revenues, I'm just trying to figure out the math. Are we talking about like shipment of maybe like 60 or so pixelX tools, is that in the ballpark or?
Hi, Craig. It's last year. 60 or 70 Pixel Ship when? I'm sorry. I'm not clear on that.
The calendar 20?
I would say would be north of that.
North of that. Got it. All right. Fair enough. And then, how much was Advanced Packaging as a percentage of your revenues in June?
So, Krishna, as you know, we everyone defines advanced packaging differently. We include advanced memory in, our advanced packaging. Excuse me. Historically, we've been around 20%, but due to the, memory downturn, I would say for the quarter, we're probably around 12% to 13%.
Got it. Got it. Okay. Okay. Alright.
And then, just another question on your sales into China, how much was that?
Around 52%.
And this includes everything across all products?
Across all products.
Got it, got it. All right. Enough. And then a final question, like, Susan, you kind of like mentioned how, I mean, it's nice to see that you guys have passed the cyclical bottom and hopefully probably grow in December quarter also sequentially. And I'm just trying to understand like that is not a normal seasonality for you, right?
But is it because that we're going through coming off a downturn that we should not think about traditional seasonality?
So, actually, Krishna, I think seasonality still played But if you look at it, the fuels still have some assets capacity, right? So the first step is to digest these assets capacity. And that's why I mentioned this is a seasonality. If you can digest some some utilization and hopefully start from next year, February of the Chinese New Year, we can have more significant growth for the whole industry, not only, limited DNS. And, of course, there are 4 December quarters.
Is still a little bit little early for us to predict, but I think we will work hard to see if we can show the growth in the system of quarters. And our serial lot still have hope is because we believe. I think she's a lady still there. And I think a lot of people didn't buy and they have a chance as they have to buy in similar quarters. And early to say, but I think we will work hard on that.
Got you, got you. All right. That's very helpful.
And I
think those are the questions
I had at this point.
Thank Thank you. Our next question comes from the line of Tom Diffely with D. A. Davidson. Please proceed.
Hi, good afternoon. Good evening. Question on the Pixelux tool. Sounds like some nice momentum there. I was wondering, is that with multiple customers at this point?
Yes, actually, Tom, I think we doing more multiple customers. Actually, we work together with our partner LoGenie to decide our customer bases. And as they have end customer network in consumer electronics, auto and display industry. So at this moment, we actually are engaging with professionals.
Okay. And we've talked in the past about how this serves the mini LED market. Is it the same tool that does microlity as well?
Thank you for Michael.
Some tool as well.
So, hi, Tom, it's Lester.
I think the Pixelak is very well suited for, mini LED, as Susan says, is the fastest tool on the market 4 to 5 times facet in the current place pick and place machine. For mini LED, we believe that, even the higher speed is needed. And I think we're, already working on, what we call basically Pixelips. 2, the next generation of, mini and micro LED, which, will it will not be the same tool, but it'll be based on same platform and we will build on the tool that we have now a sort of experience we have from linearity.
So, Tom, I think I got your question right we do believe, mini LED and micro LED will have a huge growth opportunity for the next couple of years. And we apply confident that the Pixelox provide the current need for the industry for initial mini and microd adoption. A low, we still believe our next couple of years, the pricing of our LED and our performance LED so as the next transfer rate speed need to be increased. And of course, we are working on that together with our partner, for the future.
Yes. All right.
That makes sense. And then looking at the catalyst, you said the flip chip market is about $250,000,000 right now. What is the size of the high density flip chip market? Is that just a small segment of that?
So, we think maybe high density, high accuracy say maybe half of the market, that would be our guess, yes.
Okay. And then finally, what are the current utilization rates you're seeing out in the field that sounds like you're a little more confident of a little less seasonalities into this year?
Well, Tom, as you know, utilization rate is uniform across all customers, all regions, right? And so there's patches that are doing better than others. I think earlier in the quarter, we were seeing it move as we indicated in our last earnings call, we're seeing it moving towards mid 70s. However, you know, with, trade tensions and some of the events in May, I think we see a little bit more choppy. And obviously today's announcement, probably will not help.
So I think it's going to be a little bit choppy in terms of utilization rate across.
Okay. That makes sense. I appreciate your time. Thanks.
There are no further questions in queue at this time. Like to turn the floor back over to Joseph Elginis for closing comments.
Thank you, Gloria. Before closing, we wanted to inform investors that we will be fading in several upcoming conferences and roadshows through the September quarter, including Jefferies in Chicago, D. Davidson in New York and also several non deal launches. Thank you all for the time today. As always, please feel free to follow-up directly with additional questions.
Gloria, this concludes our call. Good day.
Thank you. This concludes today's conference. You may disconnect your lines at this time and thank you for your participation.