Greetings, and welcome to the Culek And Safa 2019 Second Fiscal Quarter Results Call. At this time, all participants As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Joseph Elguendy, Senior Director, Investor Relations and strategic initiatives for our Kulic and Soffa. Joseph, you may begin.
Welcome everyone to Kulic and Soffa's second 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 the latest investor presentation are both available in the Investor Relations section of our website dotkns.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 financial condition may differ materially from what is indicated in those forward looking statements. For a complete discussion of the risks associated with 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 Fuzen Chen for the business overview.
Please go ahead, Fuzen.
Thank you, Joe. Despite the current industry conditions, our global organizations continue to be increasingly focused on cost control. While we also prioritize our ongoing business development process and effort to drive fundamental business automations. We continue to be cautiously optimistic and believe the current demand environment has stabilized. Customer sentiment and our check on fuel utilization rate have both improved through the quarter.
For our view, excess capacity is being adjusted, and we believe one of the key factor contributing to this lower level of capital intensity is an uncertainty surrounding global trade. Despite the lack of resolution on U. S.-China trade, there continued to be positive, Michael, Michael, and the company specific drivers, that provide a solid foundation for long term growth. Negotiations such as a strong global employment, a strong U. S.
Economy, ongoing global expansion and the physical stimulus program in major consumer markets are anticipated to positively impact global semiconductor consumption. From a micro industry standpoint, again, we see improving trends such as site pickup in both utilization rate for the field capacity or wirebinder. And we also experienced a slight pickup in our shipment late in the March quarters. Also major trends such as 5G and IoT are anticipated to the key drivers supporting higher level of semiconductor unit growth. We continue to anticipate the 5G transition will help reinvigorate the premium smartphone market, draft demand for infrastructure UL and the broadened adoption of new low cost and devices.
We expect our core market leading product will benefit from this evolving transition. Finally, from a company specific standpoint, We continue to make meaningful progress on several key growth initiatives. We are increasingly Polishing to drive operating leverage as we optimize our business and enter new market. These efforts are focused on 4 specific areas: enhancing market shares in aftermarket products and service improving gross margin for high volume equipment, providing new market access to emerging, mini LED and also participating in the fundamental technology transitions of new advanced packaging approaches. The entire KNS organization remains Jimmy Committee committed to executing toward this multi prong initiative.
Considering this longer term view, we also maintained our commitment to delivering value to shareholders. During the March quarter alone, we have returned approximately $35,000,000 to shareholders through both our dividend and the share repurchase programs. This is aware in excess of our long term free cash flow targets. I will provide some additional detail on the progress of our new business initiative shortly, but first, a brief review on the March quarter. We were able to achieve our revenue guidance range and not anticipate a modest progression cable industry recovery.
During the March quarters, we experienced a sequential reduction within General Semi LED, memory and automotive. We also experienced a slight increase in our advanced packaging offering, driven by ongoing customer interest of our expanding and the competitive advanced packaging portfolio. We booked $115,900,000 of revenue, gross margin of nearly 48% and generated profit on non GAAP basis. Despite the current market dynamics, we are pleased with our current operating model as we continue to optimize our business and invest heavily in new development. This current operating model provides significance through cycle cash flow generation and support aggressive R And D investment.
We are committed to further enhancing this performance as we execute on our longer term goals. The sequential revenue reduction in March quarters was most pronounced within our capital equipment segment, which decreased by 35%, while our APS business declined by 14%. Within capital equipment, more bonding reduced by 47% and the wage bonding reduced by 16% sequentially. Several of our advanced packaging tool, Apartment similar completion binder, iStax DIP attached tool, and also our system in package hybrid free chip tool or increase on a sequential basis. I would now like to turn the call over to Mr.
Wang, will cover this quarter's financial overview in greater details. Lester?
Thank you, Susan. My remarks today will refer to GAAP results unless noted. Net revenue for the quarter was $115,900,000, gross margins of 47.9 percent, generated $55,600,000 of gross profit. We anticipate gross margins to be just above 45% in the June quarter. Our strong March quarter gross margins were due in part to product mix and also a release of a costing provision and were facilitated through the flexibility of our operation.
As discussed in the past, our flexible equipment integration approach, which leverages our supply chain relationships and a mix of temporary headcount allows for a lower level of fixed costs, providing more consistent through cycle gross margin performance. We continue to benefit from the flexibility of our manufacturing operations and we're able to also drive efficiencies within SG and A through the March quarter. We are all very focused on limiting controllable This cost containment exercise is extremely selective and we do not intend to jeopardize our long term growth initiatives. Compared to the March quarter 1 year ago, we have reduced our global workforce by over 16% while increasing resources allocated to ongoing development initiatives. In the long term, we plan on maintaining our existing operating expense target of $53,000,000 of fixed plus 5% to 7% of variable quarterly expense tied to revenue due to our aggressive focus on controllable and discretionary spending, we are targeting to We booked a net tax expense related to the final regulations of the transition tax calculation associated with the Tax Cuts and Jobs Act 2017.
These additional regulations were issued by the IRS in February Going forward, we continue to maintain a long term effective tax rate tax rate in the June quarter to be above Turning to the balance sheet, we ended the March quarter with a total cash and investment position of $627,300,000 or $9.52 on a per share basis. During the quarter, we have increased our repurchase activity and deployed $26,900,000 repurchasing 1,200,000 shares. At the end of our March quarter, we had approximately $145,300,000 remaining under the existing share repurchase authorization. We continue to take a long term improvement approach to shareholders' return and have recently entered into a credit facility which provides additional flexibility supporting our regional cash needs. On a book value per share basis, we closed the March quarter with $12.49.
A decrease of $0.33 from the December quarter. Working capital defined as accounts receivable plus inventory less accounts payable decreased by $42,500,000 to $208,000,000. From a DSO perspective, our days sales outstanding increased 107 days to 108 days. Our days sales of inventory increased from 120 days to 153 days and our days of accounts payable decreased from 51 days to 50 days. This concludes the financial review portion of our call.
Will now turn the discussion back over to Fusen for the June quarter business outlook.
Thanks, Lester. While the near term environment continues to be challenging, we remain optimistic when we look further out, given the macro and the micro trend, such as strong global employment, ongoing stimulus program in major consumer market, improving deterioration rate for our equipment and the key trend directly impacting demand for our core products such as 5g, IoT, Automotive, and solid state memory. Unique to our business, we are also very excited with our new business prospects and the customer traction within our growing advanced packaging portfolio. Our mini AOD solution in addition to our fundamental automation plan As mentioned in today's press release, we believe the soft demand environment has stabilized and expect revenue to be approximately $120,000,000 to $140,000,000, representing a 12% sequential improvement. Looking further out, our new and the core products are online with several significant transition in our space.
First, our Cobalt and the Weichbonding opening, where we have a leadership position are well positioned to benefit from the industry recovery. And also long term fundamental semiconductor unit demand driven by electric and autonomous vehicle. The 5G transition Internet of Things and solid state memory. We continue to anticipate this significant trend will support a higher than average same contact in the growth rate over the coming years. 2nd, our multi pronged efforts surrounding advanced packaging are also gaining traction.
They continue to be increasing interest and adoption of new packaging techniques in both high end memory and logic applications, supporting cloud, artificial intelligence and also consumer electronics. In March quarters, we recognized revenue on several APAMA similar completion tool, supporting advanced and high volume logic production at a major OSAT. We also continue customer evaluations of our catalysts high accuracy free chip tool with the major customers. We are pleased with the performance of Catalyst which is extremely, extremely competitive in both accuracy and throughput among all leading free chip solutions in the market. Typically, I'm happy to report.
We have shipped the Litek 500 e star coffee tour to a high potential high volume commercial customer for evaluation. Finally, we continue to make meaningful progress on our mini LED and shipping multiple to over the coming months. Considering the extreme speed of this tool, which is up to 5 times faster than typical PIK and PACE tools. It has significant potential to enable high volume adoption of this emerging media LED packaging technology. We look forward to updating you on the progress Again, the entire organization remains extremely focused and continues to make progress towards this multi faceted business strategy.
We intend to create significant investor value by executing on this business initiative and continuing to take a long term and proven approach to capital allocations. Our strong balance sheet, expanding portfolio, dominant share positions and high potential customer engagement provide us with increasing confidence that we will exit this demand environment with enhanced fundamental strengths and the gross prospect. This concludes our prepared remarks. Operator, we will now be
Thank you. Our first question comes from the line of Christian Schwab with Craig Hallum Capital Group. Please proceed.
Hey, good good afternoon, guys. Thank you for all the color. I was just wondering, Fusen, just bigger picture as we finally have business stabilizing business up on a sequential basis. As you begin to think about the second half of the year kind of from the run rate in June. Would you expect sequential growth to continue or for business to kind of stabilize at that level?
Okay. So, question compares to you say 3 months ago, we see a size of, positive directions. Like, the field utilization rate actually going up, And we also see some other companies publishing about adding additional capacity, in fact, very selective for all the company already start to add small capacity. And industry also expect a memory to reach a big close by end of the year. So we see here and there a positive sign.
And, we believe we are in the trough and we already see about 12% growth for next quarters. I think visibility is still not clear enough, but we are hopeful. The strength of visibility, I think in a few months, we should be able to judge it. But actually, we feel quite positive, from here.
Great. And then if I may, just one more question, bigger picture, looking beyond this year, previously you guys put out, some strong objectives in 2021 for revenue to kind of get to that 1.1to1 point $2,000,000,000 in operating margins of 24% to 27%, which, from current run rates of business seems kind of heroic. Is that something that you still think is roughly attainable or do you think that's been pushed out a year? If you could just give us an an update on kind of your long term financial targets as well, that'd be great.
So we proposed a 3 year model in July 2018. And when we were back, actually this was at the cycle. Then now we, we need semiconductor memory cycle, as well as, you know, US China retention. So at this moment, I believe we are in a stabilized phase and we are on the way for recovery. So to answer your question, whether we can achieve $1,200,000,000 revenue goal by 2021.
Actually, it depends a lot on the strength of this industry recovery. So I would say this. In 2017, actually, we grew 30% compared to 2016. So, if we can see the utilization rate close to 80%, somewhere say in second half or twenty nineteen, then we might have a strong 2020 2021, coupled with the growth contribution from our new product introduction in advanced packaging, METOD and the APS, which has yet to generate any significant revenue Then I believe we still have good chance to achieve a $1,200,000,000 by 2021. But if a recovery rate is somewhat slower, then we might take we might need to take additional year to achieve $1,200,000,000 in 2022.
But let me answer your question maybe from a different angle. In 2018, we generated $171,000,000 cash from operation. So hopefully by 2020, our earning power will expand and the contribution will come from, you know, what I just mentioned, advanced packaging, linear LED, and the APS, which has yet to generate significant revenue. And in 2018, our share count was 69,000,000 shares and our current share count is around 66,000,000 shares. So for sure, by 2021, our share count will be below 66 shares.
So the current remaining authorized amount for the, yearly purchase plan. Is $140,000,000, which this amount is capable to repurchase additional $60,000,000 at the current stock price. So what I try to say is, we will achieve $1,200,000,000 revenue in 2021 or 2020 2, we believe we can deliver significant shareholder value to our investor in the coming years.
Thank you. Our next question comes from the line of Chris Sandkar with Cowen and Company. Please proceed.
Hi, thanks for taking my question. A couple of them first on the March quarter, Fusen or Lester, can you see how much was auto and advanced packaging as a percentage of revenue
Just second question. So auto, would we we kind of combine auto and industrial together. So all industrial is about 27% and advanced packaging is about 20% or so.
Got it. Got it. Okay. And then when you look into June, like, it's nice to see the revenue grow, but it looks like that sequential growth rate is not is below what your typical seasonality or whatever you'd quantify that as? So is the weakness in June primarily auto related or are you seeing pockets of other weakness too?
So, Krish, I think the increment for the June quarter, is positive, you know, we can always visit in general semiconductor. I think people just feel like, it's a trough and a low U. S.-China trade, you know, pension is not fully result yet. I think people believe, in general, second half, we'll have a better business prospect. So I would say it's, a recovery in some semiconductor, you know, general semiconductor unit growth.
Got it. Got it. Alright. That's helpful. And then, Lester, just quickly, you know, I remember last time in the call, you kind of highlighted that you're probably a breakeven revenues.
I think it was like 120 or something like that. So is it still case or is it gone below that?
It's around that neighborhood, 120 to 125 or so.
Okay. All right. And then the last question, Fusen, obviously, given your short lead time on the WildBonder side and you saw some pickup in mobile post Chinese New York. Have you guys seen any of your OSAT customers, talk about improvement post Chinese New Year besides just utilization rate trends or have they come to buyback tools? So where do you think that, where are we in that purchasing pattern?
Thank you.
Okay. I think generally, our company including OSAT, our customer including OSAT. They add capacity and also replacement. Around 80% utilization. And right now, the rate is around mid 70.
So, we already see some sort of, customers and start working with us. In fact, some video fuel and start to add a small amount of capacity. And, so I don't know if I answered your question. So, I think you have recently going up and the capacity, adding is a follow-up mobile, a margin.
Got it. Got it. That's very helpful. Thanks, Susan.
Thank you. Our next question comes from the line of David Duley with Steelhead Securities. Please proceed.
I had a few.
I guess you just mentioned the utilization rates of was that your wire bond or utilization rates were running in the mid-seventy percent range? Is that what you just said?
Yes, that's correct.
Okay. And you mentioned that around 80% is typically when you see people start to reorder in a more significant way? A little bit of a hypothetical here is your the largest founder TSMC is talking about what I would call a significant second half recovery in in overall volumes, both advanced notes and other notes as well. I think it's up 35% in the second half versus the first half. If and they're a pretty broad player of units, if they are able to achieve that sort of growth in the second half of the year.
Do you think that would trigger, the OSATs to come back in and order more significantly or will they be able to get get by without ordering a lot of tools?
If you look at the total device, produce a trillion devices per year. Majority, actually use the ball on the as a way to do a packaging. So advanced packaging, I think at this moment, the market shares, you know, total market shares for packaging, I think it's still low. So, you know, the company you just mentioned, we have a significant revenue growth. If this comes from, you know, a general the, including, higher technology node.
And my answer is yes. I think this will trigger or this is indication that the broader recovery is taking place. But if it is just a limit on the advanced packaging, the answer might not be very complicated. I don't know if I answered your questions.
Yes, thank you. Well, it's hypothetical, so that's a good answer. As far as You mentioned, that advanced packaging was, I think, 20% of revenue. Is that just the new tools, the 3 tools that you were into or does that include advanced packaging of wire bonders that are classified as advanced in the advanced packaging bucket?
Okay. So, actually, this is including all our advanced texting we mentioned, for example, is a PC be. And of course, our free chip is here to generate, you know, any revenue and out of developing our hybrid tool. And, all of course, we also count in advanced memory. So advanced memory included.
It's north of 20%.
Okay.
And
you had the sequential growth that you're going to see in the June quarter just as a follow on question, I think, to someone else's there. Did you say the sequential growth was driven by Abrog what areas do you expect to improve sequentially in the June quarter?
Well, actually we see of course, at this moment, memory alone, is somewhat positive and still some inventory capacity need to be purchased. But I think by end of the year, the big growth was start to reach him. So memory actually at this moment, year, a little bit weak, a low, I've seen a prospect. I'm always, a zombie diver for a memory market. So memory is still weak.
I think LED is a little bit positive. And, probably I think, the mobility contribute a lot at this early stage.
Okay. Final thing for me is you mentioned
I think that you shipped a lithography tool for advanced packaging. Bit more greater detail about what's going on there?
Okay. We have a acquisition back to 3 years ago. And, this is a differentiator tool. Compared to, you know, our competitor, they use a Tungsten Land and we use a laser lens. So productivity actually, is much higher.
It took a while for us to actually, polishing this to a to a major customer because, when customer need to take this tool. They need to change a lot of infrastructure. So finally, I think, you know, tool has been shipped and, start to, you know, work in a customer side. And we are very excited about it.
Thank Thank you. Our next question comes from the line of Craig Ellis with B. Riley FBR. Please proceed.
Hi, this is actually Peter Peng calling in for Craig Ellis and thanks for taking our questions. On the March result, the gross margins outperformed, can you talk about the variance in the gross margin line?
Yes. So Peter, as you know, in softer quarters, our gross margin tends to go up because, our wedge bonder, our, ATM arm, and our APS business has much higher margins than our ball bonder business. And even with ball bonder, obviously, our higher pin count tools have greater margins than our LED tools. So a large part of the the margin variance is due to the product mix. Great.
And then for among the traditional wedge bonding, advanced packaging aftermarket service or is there a certain area that's more stronger?
I think a lot of the growth will be coming from Ball Bonder. Ball Bonder was particularly weak, in the last couple of quarters. As Susan mentioned in his earlier remarks, we're beginning to see a recovery led by general semi as well as mobility devices, and a little bit by LED. So I think ball bonder would be the one that would be leading to growth.
Great. And one more question for me is on the the buyback, good job on the execution. Is that a trend that we can see sustaining for the next few quarters? Or at some point, is it going to tear off a little bit?
Well, we constantly review our capital allocation policy, but just as a point of reference, Peter, Over the last 12 months, we repurchased approximately $125,000,000 worth of shares and paid out $24,000,000 in dividends that represents like 110 percent of our free cash flow over the same period. So that's well above the 50% free cash flow long range that we talked about at Analyst Day.
There are no further questions in queue at this time. I would like to turn the floor back over to Joseph Elguendy for closing comments.
Thank you, Rya. Before closing, we wanted to investors that we will be participating in several upcoming conferences in roadshows through the June quarter, including the 20th Annual B. Riley FBR Conference in Beverly Hills. Cowen And Company's 46 annual TMT Conference in New York City, the Baird Consumer Tech Conference also in New York City, this default 2019 Cross Sector Insights Conference in Boston, and finally, the 11th Annual CEO Investors Summit in San Francisco. You all for the time today.
As always, please feel free to follow-up directly with any additional questions. Maria, this concludes our call. Good day.
Thank you. This concludes our conference call for today. Please disconnect your lines at this time and have a wonderful day.