Greetings, and welcome to the Kulicke and Soffa 2019 second 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Joseph Elgindy, Senior Director, Investor Relations and Strategic Initiatives for Kulicke and Soffa. Joseph, you may begin.
Welcome everyone to Kulicke 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 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.
For a complete discussion of the risks associated with Kulicke and Soffa that could affect our future results and financial condition, please refer to our recent SEC filings, specifically the 10-K for the year ended September 29th, 2018. I would now like to turn the call over to Fusen Chen for the business overview. Please go ahead, Fusen.
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 optimizations. We continue to be cautiously optimistic and believe the current demand environment has stabilized. Customer sentiment and our check on field utilization rate have both improved through the quarter. From our view, excess capacity is being digested, we believe one of the key factors contributing to this lower level of capital intensity is the uncertainty surrounding global trade. Despite the lack of resolution on U.S.-China trade, there continue to be positive macro, micro, and company-specific drivers that provide a solid foundation for long-term growth. Macro conditions such as strong global employment, a strong U.S. economy, ongoing global expansion, and fiscal stimulus programs in major consumer markets are anticipated to positively impact global semiconductor consumption.
From a micro-industry standpoint, again, we see improving trends such as a slight pickup in both utilization rate for the field capacity or ball bonder, and we also experienced a slight pickup in our shipment late in the March quarter. Major trends such as 5G and IoT are anticipated to be key drivers supporting higher levels of semiconductor unit growth. We continue to anticipate the 5G transition will help reinvigorate the premium smartphone market, drive demand for infrastructure build, and the broadened adoption of new low-cost end 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 positioned to drive operating leverage as we optimize our business and enter new markets.
These efforts are focused on four 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 extremely committed to executing toward this multi-pronged initiative. Considering this longer-term view, we also maintain our commitment to delivering value to shareholders. During the March quarter alone, we have returned approximately $35 million to shareholders through both our dividend and share repurchase programs. This is well in excess of our long-term free cash flow targets. I will provide some additional detail on the progress of our new business initiatives shortly, but first, a brief review on the March quarter. We were able to achieve our revenue guidance range and now anticipate a modest progression toward industry recovery.
During the March quarter, we experienced a sequential reduction within general semiconductor, LED, memory, and automotive. We also experienced a slight increase in our advanced packaging offering, driven by ongoing customer interest of our expanding and competitive advanced packaging portfolio. We booked $115.9 million 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. We are committed to further enhancing this performance as we execute on our longer-term goals. The sequential revenue reduction in March quarter was most pronounced within our capital equipment segment, which decreased by 35%, while our APS business declined by 14%.
Within capital equipment, ball bonding reduced by 47%, and the wedge bonding reduced by 16% sequentially. Several of our advanced packaging tool, APAMA thermal compression bonder, iStack die attach tool, and also our system-in-package hybrid flip-chip tool, all increased on a sequential basis. 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 Chen. My remarks today will refer to GAAP results, unless noted. Net revenue for the quarter was $115.9 million. Gross margins of 47.9% generated $55.6 million 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 operations. 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 were able to also drive efficiencies within SG&A through the March quarter.
We are all very focused on limiting controllable and discretionary costs and driving workforce efficiency. This cost containment exercise is extremely selective, and we do not intend to jeopardize our long-term growth initiatives. Compared to the March quarter one 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 million of fixed quarterly expense, plus 5%-7% of variable quarterly expense tied to revenue. Due to our aggressive focus on controllable and discretionary spending, we are targeting to achieve the lower range of our variable expense over the remaining quarters of fiscal 2019.
We booked a net tax expense of $4.7 million in the March quarter, which included several discrete items, including a $2.5 million expense related to the final regulations of the transition tax calculation associated with the Tax Cuts and Jobs Act of 2017. These additional regulations were issued by the IRS in February of 2019. Going forward, we continue to maintain a long-term effective tax rate target of around 15%, although anticipate the effective tax rate in the June quarter to be above this long-term target due to jurisdictional income mix and lower overall profitability. Turning to the balance sheet. We ended the March quarter with a total cash and investment position of $627.3 million, or $9.52 on a per share basis. During the quarter, we have increased our repurchase activity and deployed $26.9 million, repurchasing 1.2 million shares.
At the end of our March quarter, we had approximately $145.3 million remaining under the existing share repurchase authorization. We continue to take a long-term and prudent 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 $42.5 million to $208 million. From a DSO perspective, our day sales outstanding increased from 107 days to 108 days. Our day 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.
I will now turn the discussion back over to Fusen for the June quarter business outlook.
Thanks, Lester. While the near-term environment continue to be challenging, we remain optimistic when we look further out given the macro and the micro trends, such as strong global employment, ongoing stimulus program in major consumer market, improving utilization 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 prospect and the customer traction within our growing advanced packaging portfolio. Our mini LED solution, in addition to our fundamental optimization plan. As mentioned in today's press release, we believe the soft demand environment has stabilized, and expect revenue to be approximately $120 million-$140 million, representing a 12% sequential improvement. Looking further out, our new and core products are aligned with several significant transitions in our space.
First, our core ball and wedge bonding offering. Where we have a leadership position, are where positions 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 semiconductor unit growth rate over the coming years. Second, 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 thermo-compression tool, supporting advanced and high volume logic production at a major OSAT. We also continue customer evaluations of our Katalyst, high-accuracy flip-chip tool with major customers.
We are pleased with the performance of Katalyst, which is extremely competitive in both accuracy and throughput among all leading flip-chip solutions in the market. Separately, I am happy to report we have shipped the LITEQ 500 lithography tool to a high potential, high volume commercial customer for evaluation. Finally, we continue to make meaningful progress on our mini LED and plan on shipping multiple tools over the coming months. Considering the extreme speed of this tool, which is up to 5 times faster than typical pick-and-place tools, it has significant potential to enable high volume adoption of this emerging mini LED packaging technology. We look forward to updating you on the progress and the customer acceptance of this tool. Again, the entire organization remains extremely focused and continues to make progress toward this multifaceted business strategy.
We intend to create significant investor value by executing on this business initiative and continuing to take a long-term and prudent 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 soft demand environment with enhanced fundamental strength and growth prospects. This concludes our prepared remarks. Operator, we will now be happy to take your questions.
Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Our first question comes from the line of Christian Schwab with Craig-Hallum Capital Group. Please proceed.
Hey, 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, from the run rate in June, would you expect sequential growth to continue or for business to stabilize at that level?
Okay. Christian, compared to, say, three months ago, we see signs of positive directions. Like the field evaluation rate actually going up. We also see some OSAT companies starting to think about adding additional capacity. In fact, very selective OSAT companies already start to add small capacity. Industry also expect memory to reach a big growth by end of the year. We see here and there a positive sign. We believe we are at a trough, and we already see about 12% growth for next quarters. I think visibility is still not clear enough, we are hopeful. The strength of visibility, I think in a few months, we should be able to judge it. Actually, we feel quite positive from here.
Great. 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 get to that $1.1 billion-$1.2 billion and operating margins of 24%-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 update on your long-term financial targets as well, that'd be great.
Sure. Thank you, Christian, for the questions. We proposed a three-year model in July 2018. When we were back, actually, this was at the peak of the cycle. We missed semiconductor memory cycle, as well as U.S. China trade tension. At this moment, I believe we are in a stabilized phase, and that we are on the way for recovery. To answer your question, whether we can achieve $1.2 billion revenue goal by 2021, actually, it depends a lot on the strength of this industry recovery. I would say this. In 2017, actually, we grew 30% compared to 2016. If we can see the utilization rate close to 80%, somewhere, say in second half of 2019, we might have a strong 2020 and 2021.
Coupled with the growth contribution from our new product introduction in advanced packaging, Mini LED and the APS, which has yet to generate any significant revenue, I believe we still have a good chance to achieve $1.2 billion by 2021. If the recovery rate is somewhat slower, we might need to take additional year to achieve $1.2 billion in 2022. Let me answer your question maybe from different angle. In 2018, we generate $171 million cash from operation. Hopefully by 2020, our earning power will expand and the contribution will come from what I just mentioned, advanced packaging, Mini LED and the APS, which has yet to generate significant revenue. In 2018, our share count was 69 million shares, and our current share count is around 66 million shares. For sure by 2021, our share count will be below 66 shares.
Our current remaining authorized amount for the share repurchase plan is $140 million. This amount is capable to repurchase additional 6 million shares at the current stock price. What I try to say is, whether we will achieve $1.2 billion revenue in 2021 or 2022, we believe we can deliver significant shareholder value to our investor in the coming years.
That's great. Thank you, guys.
Thank you. Our next question comes from the line of Krish Sankar with Cowen and Company. Please proceed.
Yeah, hi. Thanks for taking my question, a couple of them. First on the March quarter, Fusen and Lester, can you say how much was auto and advanced packaging as a % of revenues?
Just a second, Krish. Auto, we combine auto and industrial together. Auto industrial is about 27%, and advanced packaging is about 20% or so.
Got it. Okay. When you look into June, it's nice to see the revenue grow, but looks like that sequential growth rate is below what your typical seasonality or whatever you'd quantify that as. Is the weakness in June primarily auto-related, or are you seeing pockets of other weakness too?
Krish, I think, the increment for the June quarter is positive return or business in general semiconductor. I think people just feel like it's a trough and although U.S.-China trade tension is not fully resolved yet, I think people believe, in general, second half will have a better business prospect. I would say it's a recovery in some semiconductor, general semiconductor unit growth.
Got it. All right. That's helpful. Lester, just quickly, I remember last time in the last call, you highlighted that probably your breakeven revenues, I think it was 120 or something like that. Is this still the case, or has it gone below that?
It's around that neighborhood, $120-$125 or so.
Got 120, 100. Okay, all right. Then the last question. Fusen, obviously given your short lead time on the wire bonder side, and you saw some pickup in mobile post-Chinese New Year, 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 buy back too? Where are we in that purchasing pattern? Thank you.
Okay, I think generally, all company, including OSAT, all customer, including OSAT, they have the capacity, and also replacement, around 80% utilization. Right now, the rate is around mid-70. We already see some selective customers and start to working with us. In fact, some very few of them start to add a small amount of capacity. I don't know if I answer your questions. In general, I think utilization rate going up and the capacity adding is for mobile amount.
Got it. That's very helpful. Thanks, Fusen.
Thank you. Our next question comes from the line of David Duley with Steelhead Securities . Please proceed.
Thank you for taking my question. I had a few. I guess you just mentioned the utilization rates. Was that what your wire bonder utilization rates were running in the mid 70% range? Is that what you just said?
Yes, that's correct.
Okay. You mentioned that around 80% is typically when you see people start to reorder in a more significant way.
Yeah, it is totally correct.
Okay. Now, a little bit of a hypothetical here is, the largest foundry, TSMC, is talking about what I would call a significant second half recovery in overall volumes, both advanced nodes and other nodes as well. I think it's up 35% in the second half versus the first half. 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 by without ordering a lot of tools?
Okay. If you look at the total device produced, a trillion devices per year. Majority actually use a ball bonder as a way to do the packaging. Advanced packaging, I think at this moment, the total market shares for packaging, I think it's still low. The company you just mentioned will have a significant revenue growth. If this come from a general, including higher technology node, and my answer is yes. I think this will trigger, or this is a indication that the broader recovery is taking place. If it is just limited on the advanced packaging, the answer might not be very conclusive. I don't know if I answered your questions.
Yes, thank you. Well, it's a hypothetical, so that's a good answer. You mentioned that advanced packaging was, I think, 20% of revenue. Is that just the new tools, the three tools that you were referring to, or does that include advanced packaging, wire bonders that are classified in the advanced packaging bucket?
Okay. Actually, this is including all our advanced packaging we mentioned. For example, is a PCB and of course, a flip chip is here to generate a new revenue and our step-up pin, our hybrid tool. Of course, we also count in advanced memory. Advanced memory included, it's north over 20%.
Okay. 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 abroad? What areas do you expect to improve sequentially in the June quarter then?
Well, actually, we see, of course, at this moment, memory alone is somewhat positive, and still some inventory capacity need to be digested. I think by end of the year, the big growth will start to resume. Memory, actually, at this moment, is still a little bit weak. Although I think our prospect, I'm always a strong believer for the memory market. 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 from me is, you mentioned, I think that you shipped a lithography tool for advanced packaging.
Yeah.
Can you just, a bit more greater detail about what's going on there?
Okay. We had acquisition back 2 years ago. This is a differential tool. Compared to our competitor, they use a tungsten lens, and we use a laser lens. Productivity actually is much higher. It took a while for us to actually position this tool to a major customer, because when customer need to take this tool, they need to change a lot of infrastructures. Finally, I think the tool has been shipped and start to work in a customer site, and we are quite excited about it.
Thank you.
Thank you. Again, if you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. 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.
Thank you.
On the March results, the gross margins outperformed. Can you talk about the variance in the gross margin line?
Yeah. Peter, as you know, in softer quarters, our gross margin tend to go up because our wedge bonder, our ATMR, and our APS business has much higher margins than our ball bonder business. Even with ball bonder, obviously, our higher pin count tools have greater margins than our LED tools. A large part of the margin variance is due to the product mix.
For the June guidance, the 12% Q on Q growth, is that pretty split 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 Fusen Chen 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. I think, ball bonder would be the one that would be leading the growth.
Okay, great. One more question for me is on the buyback, good job on the execution. Is it a trend that we can see sustaining for the next few quarters, or at some point, is it going to taper off a little bit?
Well, we constantly review our capital allocation policy. Just as a point of reference, Peter Peng, over the last 12 months, we repurchased approximately $125 million worth of shares and paid out $24 million in dividends. That represents 110% of our free cash flow over the same period. That's well above the 50% free cash flow long range that we talked about at Analyst Day.
Thank you, guys.
Thank you. There are no further questions in queue at this time. I would like to turn the floor back over to Joseph Elgindy for closing comments.
Thank you, Roya. Before closing, we wanted to inform investors that we will be participating in several upcoming conferences and roadshows through the June quarter, including the 20th Annual B. Riley FBR Conference in Beverly Hills, Cowen and Company's 46th Annual TMT Conference in New York City, the Baird Consumer Tech Conference, also in New York City, the Stifel 2019 Cross Sector Insights Conference in Boston, and finally, the 11th Annual CEO Investor Summit in San Francisco. Thank you all for the time today. As always, please feel free to follow up directly with any additional questions. Roya, 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.