Greetings, and welcome to the CUIS and Sulfa 2018 4th fiscal quarter results call. At this time, As a reminder, This conference is being recorded. It is now my pleasure to introduce your host, Joseph Elgendy, Director of Investor Relations And Strategic Initiatives for Kulic and Safa. Joseph, you may begin.
Thank you, Hector. Welcome everyone to Kielkin's Office 4th quarter fiscal 2018 conference call. Joining us on the call today are Fuzen Chen, President and Chief Executive Officer and Lester Wong, General Counsel And Interim Chief Financial Officer. For those of you who have not received a copy of today's results, the release as well as the latest investor presentation are both available in the Investor Relations section of our website 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 in those forward looking statements. For a complete discussion of the risks associated with Culligan's Alpha that could affect our future results and financial condition, please refer to our recent SEC filings specifically the 10 KA for the year ended September 30, 2017. I would now like to turn the call over to Fuzen Chen for the business overview.
Please go ahead,
Thank you, Joe. We were again able to achieve our quarterly revenue targets despite Mako and the industry concerns. While a broader macro force are out of our control, we believe the near term industry softness is somewhat limited. And does not impact our long term fundamental targets or plans. Some perceived concerns such as ongoing challenge of 2 dimensional no shrink and also pricing reduction in the net market have little near term impact to our business and may actually improve our long term prospects.
All confident in our long term strength demonstrated by our aggressive repurchase as activity is supported by the following borrowing key points. 1st, our business is highly diversified, It is not overly dependent on any one ticket type application or customer. We broadly support the majority of semiconductor applications in productions. This includes major market such as consumer mobility, memory, LED and automotive. 2nd, as mentioned on our prior conference call, 2 dimensional no shrink continued to have challenge and is failing to drive significant cost improvement it has historically provided.
This is a driving demand for mature no payoffs, mature no equipment, and also advanced packaging. All advanced packaging solutions provide new alternative to drive form factor, performance, power efficiency, and the cost. Depending on the applications. We anticipate this shift in value proposition from no shrink to advanced packaging 4 years and are now beginning to see real traction. Looking ahead, we are excited to participate and are well positioned to benefit from this fundamental technology transition.
Finally, we continue to expand our served market opportunities. Over the prior years, we have maintained our dummy operation in general semiconductor, connectivity and automotive and we have further strengthened market shares in key areas like LED. We continue to aggressively seek our new opportunity, large will further increase our end market diversity and will further expand our submarket. For example, Our recent partnership and the solution for micro and mini LED opportunities is facilitating increased assets to the size 4 display market. The market we historically did not participate in.
Turning back to a September quarter's performance, we achieved the midpoint of our revenue guidance of $184,800,000. Although, this represents a sequential decline from the strong June quarters. September quarter revenue was 15% above our prior 3 year September quarter average. We also generated strong gross margin of 46.4 dollars and delivered $0.43 of EPS. Our full fiscal year's net revenue of $889,100,000 represents sequential growth of 9.9 percent and a 35% increase relative to our average of prior 3 years period.
Non GAAP income for the years was $171,100,000, which generated a strong $2.43 of non GAAP EPS. The expected sequential quarterly revenue decline was largely driven by our short term softness in our capital equipment offering, primarily within our high volume gold binder business. Which bonding business decreased slightly, wire, our electronic assembly, a thermal compression and the ice stack that Attached business line has sequentially improved. Also of note, we continue to make progress toward our long term aftermarket product and service strategy and realize a sequential APS revenue improvement of a approximately 11% during the September quarters. We strongly believe this improvement are driven by our fundamental over the prior 2 years to optimize our current market positions, expand our product portfolio and further enhance cash flow generation.
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 184 point $1,000,000, strong gross margins of 46.4 percent generated $85,800,000 of gross profit. Gross margins exceeded our prior expectations largely due to product mix and favorable pricing. We continue to target margins of roughly 45% over the near term.
Our operating expense came in lower than expected due to forest gains and cost control, which drove meaningful operating income of $24,600,000. Going forward, we are maintaining our existing operating expense target of $53,000,000 of fixed quarterly expense, plus 5% to 7% of variable quarterly expense tied to revenues. We booked a net tax benefit of $1,750,000, and continue to maintain our 15% long term effective tax rate targets going forward. Turning to the balance sheet, ended the September quarter with a total cash and investment position of $614,100,000 or $8 $9.4 on a per share basis. During the quarter, we have continued to return capital to investors.
We deployed $23,700,000 in open market repurchases during the September quarter and also paid out our first $0.12 dividend. Throughout fiscal 2018, we have returned $91,100,000 in cumulative repurchases, more than any prior year. At the end of the fiscal year, we had approximately $98,000,000 remaining under the current board authorization for share repurchases. We will continue to opportunistically execute the existing repurchase authorization in the most tactical way. On a book value per share basis, we closed the September quarter with $12.82, an increase of approximately $0.27 from the June quarter.
Working capital defined as accounts receivable plus inventory less accounts payable increased by $8,300,000 $5,000,000. From a DSO perspective, our day sales outstanding increased from 86 days to 118 days. Our day sales of inventory increased from 78 days to 105 days and days of accounts payable decreased from 50 days to 44 days. This concludes the financial review portion of our call. I will now turn the discussion back over to Pusen for the December quarter business outlook.
Thanks, Lester. As evident in pure guidance and also analyze industry expectations, there is clearly some softness in the December quarters particularly along the Chinese market. From our business, we believe the outlook is in part due to near term uncertainty around additional incremental capacity after several very capital intensive quarters. We also believe the near term hesitation to add capacity is also partially due to increased uncertainty along impact and the potential escalation of tariff. While 20172018 were very strong years for the space.
We anticipate momentum to run-in the second fiscal half of twenty nineteen. As it on today's earnings release, we are guiding revenue for the December quarter to be between $150,000,000 to $160,000,000. This midpoint represents a decrease of approximately 16% sequentially, a low is higher than 4 of the 5 past December quarters. All soft demand, especially within our broadband business is largely driven by our customer base in China. Looking forward, we are increasingly focused on further strengthening our fundamentals.
Driving our ongoing development, gaining traction on new business and keeping costs under control. In addition to Lois mentioned earlier, I wanted to clarify a few additional points that highlights our unique position and strengthen our outlook. First, there continued to be a lot of focus on the memory market, especially price decline in the NAND. Overall, we view the NAND market to be priced in Elastic and expect ongoing demand for our memory related equipment into the long term. The capital intensity of the memory and our dominant position within the memory assembly process, that is one of our largest specific end market.
Accounting for about 11% of our revenue over the past few months. Again, we anticipate near term price reduction to drive long term unit growth and further increase longer term demand for our memory solution. Secondly, we continue to enjoy strong exposure to several positive and long term trends in the automotive space. Our automotive exposure further increase our end market diversification and the long term growth potential. Automotive and industrial customer represent approximately 17% of fiscal year 2018 revenue, slightly up from last year.
Over the coming years, as semiconductor become more critical to traditional electric and autonomous vehicles, we anticipate our automotive centric products to outpace overall semiconductor growth. Finally, we continue to gain traction on our various growth initiative within other lines packaging and also on our micro and mini LED initiatives. In the September quarters, we recognized revenue on multiple similar completion tool and IStAC DIFH tool. We have also recently introduced our latest high accuracy, high productivity free chip to Catalyst in the September quarters. Which is a promising architecture and is driving strong customer interest.
We are also pleased to announced that during the current December quarters, we anticipate shipping the 1st catalysts to a major customers for evaluation in high volume per environment. Finally, we officially launched our micro intermediate LED solution pistol apps during the September quarters. Providing us access to the emerging LED display market. Pixelak continued to be a very interesting unique and opportunity as we look ahead. Overall, we remain very positive on our outlook.
Our core and the dominant share position are increasingly aligned with several major long term trend, supporting global consumer, mobility, memory, LED, and automotive applications. In parallel, we continue to execute on our development goal and the market expansion strategy. A lower December quarter outlook is suffering expected. We believe this is only a short term concern. Considering our balance sheet, broad and the diversified portfolio, ongoing development plan, organizational efficiency, software capital allocation and our renewed focus on profitability enhancement.
We are very confident on our fundamental position and will further enhance as we exit this near term soft period. This concludes our prepared remarks. Operator, you will now be we will now be happy to take your questions.
Session. First question comes from the line of Tom Diffely with D. A. Davidson. Please proceed with your question.
Yes. Good afternoon. So when you look at the guidance for the 4th or for the December quarter, versus the strong December quarter ahead a year ago, which of the segments are the softest on a compare on a year over year basis?
So, Tom, you're asking the segment difference. The lumber comparison this year compared to last year?
Yes, just comparing the different segments. It sounds like obviously NAND is the weaker. But just in general, I'm curious, what are the biggest impacts on a year over year basis for the December quarter?
So, Paul, it's Lester. I think, general semi, a particular or Bob on their business unit, as Susan said, particularly in, China. I think there's obviously a lot of uncertainty around that, but I think that, that and memory, I would say those are the 2 main ones.
So, Tom, maybe if I can add it, actually, there's still a lot of plan, in China, but I think at least probably trade tension and closer delay of investment. And that's all we are seeing. And, we won this year, the biggest revenue source for us. So the impact particularly, I think it's in the whole number of business. So we believe after certain periods, the demand will continue to pick up.
So do you think the biggest impact comes from just kind of the trade uncertainty or is it just the weaker than expected iPhone supply chain?
Yes, I think it's a little bit of everything, you know, I think it's approaching it a little bit. But we, you know, we are very diversified, right? You know, not only both on the products. We have a very wide product portfolio. So we actually, I would say, Probably majority is delayed all the investment for us.
And we already know the mobile space is not as strong as 2 years ago.
Okay. And then what is, what's happened with your utilization rate in the field over the last quarter? Is it today versus where it was a quarter ago?
Well, I think maybe a quarter ago probably close to 70% 80% and right now probably we believe it's probably lower. High end, I think our product, our customers, they're very high, but the low end probably is a little bit lower, probably below 70%. Okay.
So
Okay. So that's a little bit of absorption of the excess capacity for a couple of quarters before you saw orders taken up again?
Yes, we believe this will pick up in the next long quarter also.
Okay. And then finally, what is your view for just growth, for the broad incentive for the out year for 2019?
Yes. So, Tom, you know, overall 2018 is a very good year for us, even with share slowdown in the second half. And, we start we still grow 10%. So this is our view. You know, we believe a current business label is quite low.
And hopefully, we will stabilize our business through next March quarter. Followed by a ramp, then 2019 can be as good as 2018. So unit growth, I think we still expect next year can still grow 4%, maybe like a 5% and that's our view.
Thank you.
Our next question comes from the line of Krish Sankar with Cowen and Company. Please proceed with your question.
Hi, thanks for taking my question. I just have a couple of ones. Number 1 is, given that you guys are reporting probably half into your December quarter, What's your line of sight into the March quarter? And historically, when this room has been down this much, March has had a decent snapback, Given what is going on in the industry today, how do you think March is going to look directionally from December?
Okay. So, Chris, I think that we assume that trade tension will not get worse, won't get worse. And the obvious new label actually, is low at this moment. So, if a trade tension won't get worse, we expect March quarter to stabilize here much, right? And hopefully another delay investment can turn into a ramp.
That's our current expectation. The 2nd fiscal, 2nd half of fiscal year we expect a ramp maybe start beyond March quarters.
Got it. Got it. And then I remember looking at some of the old notes that looks like across all your products, your exposure to China is roughly 50%. Is there a way to parse it down into how much of it is from your core wire bonder? How much of it is from auto slash regbonders and how much from LED?
So, Krish, it is company wide about 50%. I think, LED is higher than that, while I think automotive is probably lower than that. I think that's probably the way to gauging it.
Got it. Got it. Got it.
And then, all right, fair enough. And then the last question I had was I think Lester, you kind of alluded to the OpEx to think about is $53,000,000 in fixed cost. Is that the right number? Because I thought that with all the employee headcount reduction and everything that you've done, I thought the fixed cost must be lower.
No, we're still guiding around 53 fixed costs and then a 5 to 7 variable tied to revenue. As you know, it kind of moves in and out a quarter by quarter depending on a certain performance. So, but I think that's still the target we're looking at.
Got it. Got it. All right. Thank you, folks. Our next question comes from the line of Craig Ellis with B.
Riley FBR.
The first is really just a clarification. Lester, in the fiscal fourth quarter, we had strong gross margin performance, strong operating expense performance. So the clarification is Is that just good execution on the variable cost model? Or were there any one time items in either of those line items?
So the gross margin, I think as we said, I think, Craig, it's a little bit of a mix. We sold a little less LED bonders. Because as I think as you know, the market is a little softer there right now. So, we saw a higher performance machine. So therefore, our gross margin is better.
As far as the OpEx is concerned, there are some one timers, but nothing really significant.
Great. Thank you. The second question, Houston, I wanted to follow-up on your comments around the potential for revenues to ramp off of March, which may show some stability in the fiscal second half. So Are you in your conversations with customers uncovering a strong customer interest for either technology or capacity needs at that time frame? And is the issue just getting beyond, Lunar New Year or having some visibility beyond the potential imposition of tariffs or what are you hearing from customers that lends confidence in a stronger fiscal second half?
So I think, number 1, the memory softness has been a few quarters already, right? So that's the number 1. And we expect the memory long term outlook, we are strong believer. So hopefully, we'll continue to improve. And every time, for example, every time when NAND price reduce, it's always take additional market share against hard disk drive.
Right? So memory fundamental, we are positive. And also semiconductor demand is always there. And they are short term people have a hesitation, to put investment at this moment. And we don't believe this will continue for several quarters.
And also March quarter, it will be a March quarter, June quarter is a strong quarter for us. And also a little bit indication from customers. Hopefully, at least a trade tension will not be forever. It's not everybody's interest. So we feel positive about 2nd half of our fiscal quarters.
That's helpful. And then 2 longer term questions. The first one is for youth use. And can you just talk about how you feel about your objectives to drive the significant improvement in services towards 30 percent of mix in the fiscal 2021 target model timeframe What are some of the things that you can chalk up as accomplishments as we look back at fiscal 2018? And what are some of the things that you feel like the team needs to execute in 2019 to have you on track for that target?
Okay. So, our APS including a lot is including a consumer. Spares, service refurbish, less than many things. And we put them together. So we actually have a more portfolio with working with our customers.
Actually, we start to see a result. And as I mentioned, I think, in the second quarter, just this quarter alone, compared to last quarter, actually we grow about 11%. So, we also put a lot of effort in our category. Production. And, actually, this quarter probably is a historical quarter revenue for us, right?
So, as you team has done doing a very good job. The company will focus on APS growth because in the downturn, I think APS actually is a high margin business and pay for everybody's paycheck. So we feel comfortable and hopefully probably another 4 years we will be able to achieve a 30 percent of total revenue for us.
That's helpful. And then, just the last question, both for you and Lester. Just looking at the fiscal 'twenty one target financial model, can you express areas where you're more accident in the target financial model, whether it be revenues or gross margins or other parameters like operating margin or earnings since and any that, that may be more of a challenge given the macro environment that we have right now and the impact that may have on on any of the programs that were embedded in that target model? Thank you guys.
Sure, Craig. Glad to let me take that. I think actually feel relatively confident in all the targets that we shared on the Analyst Day. I think, as far as revenue is concerned, I think Houston indicated, we I think we
believe we're
aligned very well with, some of the fastest moving trends in the industry. Yes, there is a little bit of softness, but as we've been saying throughout the call, we think it's a short term, long term semiconductor growth is going to continue. Automotive, semi and automotive is also going to continue and we're very well aligned there. We have, as we indicated, now also entered into the flip chip market, which we have not been in the form of the catalyst and it's being received very, very well. So we believe that will also drive revenue going forward, also again with the Michael Mini LED with Pixel Luxe.
So I think on the revenue Again, we still believe we can outgrow semiconductor units, which is about 5% to 7%. As far as the margins are concerned, I think Again, we believe that we're entering into some higher margin products such as automotive, such as microLED, such as lip chip, So while I think the margin expansion will probably come later on, not over the next year, year and a half, but we do believe by our target date, we would reach those targets. And finally, OpEx, we're always very cautious of cost. This is something Susan drives a dose every day. And I think, we are looking at cost reduction and also, very, very cautious on discretionary spending, particularly in the softer period.
So we're still confident, unless something significant happens in the macro market meeting our targets for 2021.
For questions. Our next question comes from the line of David Duley with Steelhead Securities. Please proceed with your question.
Thanks for taking my question. Just as a clarification, I think you mentioned that your Advanced Packaging revenue was up during the quarter and bonding revenue was down during the quarter. Could you give us some sequential changes or year over year changes in those categories or however you can frame it for us?
So, yeah, David. I think for the quarter, all on there was down, call was down. And AP business was up. But again, our AP business at this point is, still, at a lower base our core business. So therefore, the fluctuation obviously is much higher
quarter to quarter. I think that is why we expect actually year to year, same quarter, actually, I think this quarter will probably significantly less in terms of percentage?
Yes. What is percentage, can you clarify that last comment? I didn't hear you.
No, I think Houston said that for the quarter, advanced packaging business actually grew significantly, during this quarter.
Yes. And that led me to one of my other questions is you talked about, thermal compression bonding, recognizing revenue there and die attach Could you just talk about the applications that each one of those tools is that you're seeing interest in or which areas might be growing or ramping for you?
Right. So I think the TCB, the market we participate right now is in the apps processor. And, of course, the high bandwidth, high bandwidth memory, we are working with the customer and hopefully, we will see more results next year. And, TCV, I think, is also very important for high performance logic. 2.5D integration, like a ASIC plus memory.
And for the catalysts, I think, we expect it's going to be very important for the fan out and high performance microcontroller. And, mainly right now DRAM, particularly DRAM. Shift a lot of capacity to actually free chip. So our newly introduced our catalysts believe is going to be very beneficial to us. The IStax actually, we are in CMOS imaging sensors and also 3d sensing.
But the area we participate. And of course, also in the memory.
And could you talk a little bit about the trends? We hear a lot about how customers are migrating some of these memory stacks, these high performance memory stacks to, as you mentioned, I guess, an advanced packaging type, connection versus a wire bonder or a wire bonding connection, how does that impact you guys?
I'm sorry, David. So, so talk about DRAM. I think DRAM, you know, there was, of course, a lot of our vendor that we she are shifting our DRAM capacity, DRAM actually, from a bolt ons to the free chip. And we do believe that we have already in the architectures and another interest from customers. So that's really good for us.
And the spec DRAM, the high bandwidth memory, I think it's going to be TCB and we are engaging with customers. So that's for DRAM. And for the name, it's both two dimensional and also 3 g event is a sticking. And we believe our next 5 years also foreseeable future, both under are still becoming it. And we have AB intention and ABB belief, we will continue to, be high market share in this market.
It's very advanced three d looping. So we call it a really, various kind of three d packaging for the Netflix. And we are very proud, very good tool to serve in this market. Hopefully, I answered your questions.
Ladies and gentlemen, we have reached the end of the question and answer session. And I would like to turn the floor back to Joseph Elgendy for closing comments.
Thank you, Hector. Before closing, we wanted to inform investors that we will be anticipating in several roadshows as well as to upcoming New York conferences. The Midtown Cap Summit on December 11th and again at the 21st Annual Needham Growth Conference on January 16. 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.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.