Greetings, and welcome to the Kulic And Safa 2018 Third Fiscal Quarter Results Call. At this time, all participants are in a listen only mode. A brief question and answer 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 Kulickemsalva.
Thank you. Please begin.
Thank you, Gloria. Welcome everyone to Kulickemsalva's third quarter 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 events 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 these forward looking statements.
For a complete discussion of the risks associated with Culligan Software that could affect our future results and financial condition, please refer to our recent SEC filings, specifically in the 10 K for the year ended September 30, 2017. I would now like to turn the call over to Fuzan Chen for the business overview. Please go ahead, Susan.
Thanks Joe. Before discussing this quarter, performance, I wanted to highlight In summary, multiple growth opportunities, diverse end market, out product positioning and organizational alignment. Have enabled us to provide long term financial targets. Over the past 10 years, bonding equipment market has increased by roughly 7.5% annually. By the end of fiscal 2021.
I'll go out to exceed market growth by growing revenue at an average rate of 9% to 11%. We have a diverse set of growth opportunities stemming from a diverse set of end market. We categorized as general semiconductor and LED, Automotive And Industrial And Advanced Packaging. Roughly half of our growth expectations are anticipated to support capacity expansion. The other half targets new capabilities.
We also adjust our capital allocation targets during the Analyst Day. Over the long term, from announcement of our 2014 repurchase program through the recent June 2018 quarter, when we aggressively repurchase shares. We returned approximately $175,000,000 of capital, all about 37% of operational cash flow. By 2021, we intend to increase shareholder return through both dividends and the share repurchase to 50 percent of operational cash flow. In the June quarter, we initiated a dividend of $0.12 per share and acquired $42,500,000 in open market share repurchase.
We are committed to creating and delivering long term value. With that said, I would now like to briefly discuss our June quarter's performance. During the quarter, we generated $268,800,000 of revenue. And a strong gross margin of 47.2 percent. Coming with our lean operating model, we drove an operating profit of $64,500,000, equaling to an operating margin of 24%.
Revenue for the quarter increased 10.2% from the same period in the prior year and the 21.2% sequentially. Both period improvements were largely driven by increased demand for our capital equipment. Gross margin come in at 47.2 percent. Gross profit dollars of 127,000,000 represents an increase of nearly 28% from the prior period and over 11% from the same period in the prior year. This higher than expected gross margin was still primarily due to product mix.
This will provide some additional insight shortly. Sequentially, capital equipment increased by 29.5%. This increase was supported by strong and the incremental demand for our higher performance broadband tour at a major OSAT as well as incremental demand. Both semiconductor and the automotive, which bounding equipment. During the quarter, we will establish a 2 or record at a major OSAT and also recognize revenue for 1 autonomous server compression system.
We also received additional follow on orders for several APAMA TCB system, supporting high volume production for new capability mobile. Within APS, our strategy and traction continued to be positive. Although reported revenue had sequentially declined into the June quarter. This decrease was uniquely driven by our APMR APS business. When we recognize system upgrade related part in the capital equipment segment.
Our other APS business have remained consistent from the strong March quarters. Going forward, we continue to be very focused on our effort to enhance our recurring revenue basis business. And we maintain our goal of increasing APS towards 30% of our total revenue into the long term. 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 revenues for the quarter was $268,800,000, strong gross margins of 47.2 percent generated $127,000,000 expectations, largely due to product mix, a lower relative proportion of LED tools, a higher relative proportion of performance ball bonding wet funding and also advanced packaging tools. Back to our June quarter results, we generated $64,500,000 of operating income, which represent a 24% operating margin. Going forward, we are maintaining the existing operating model of $53,000,000 of fixed quarterly expense, plus 5% to 7% of variable expense tied to revenue.
Tax expense for the quarter was $7,300,000, and we continue to maintain in position of $621,200,000 or $8.81 on a per share basis. As Susan mentioned, During the quarter, we deployed $42,600,000 in open market share repurchases and also booked a $0.12 dividend which was paid in the September quarter. On a book value per share basis, we closed the June quarter with $12.55, an increase of approximately $0.23 from the March quarter. Working capital defined as accounts receivable plus inventory less accounts payable increased by $40,600,000 to 3 and $1,200,000. From a DSO perspective, our day sales outstanding decreased from 91 days to 86 days Our days sales of inventory decreased from 86 days to 71 days and days of accounts payable decreased from 60 days to 50 days.
Finally, I want to mention a few words on our capital allocation process. Over the past 5 years, we have completed 2 acquisitions that have expanded our served markets, we purchased approximately 21 percent of current shares outstanding, developed a portfolio of advanced packaging products and source new opportunities in areas such as next generation LED. Our recently announced dividend of $0.12 per quarter adds structure to our capital return process. This new dividend program, which had an inaugural payout on July 16, 2018, will consume approximately $33,000,000 of cash annually, and is largely funded through our fairly consistent APS segment and supplement our ongoing open market repurchase program. Additionally, in early July, our Board of Directors extended the existing share repurchase authorization by an additional $100,000,000.
This concludes the financial review portion of our call. I will now turn the discussion back over to Fusen for the September quarter business outlook.
Thanks, Lester. Since late in our fiscal 2015 year, seasonality of our business has shifted and we experienced an average sequential revenue decline, September over the June quarter of approximately 23%. In addition, we are also seeing some softness in mobile and the memory market, which has result in some delay investment by our customers. We are targeting September quarter revenue to be between 180 to $119,000,000. The midpoint of our guidance represents an approximately 14% decrease over the same period in the prior year.
And we still result in a full fiscal year revenue of approximately $890,000,000, representing revenue growth of upper roughly 10% over fiscal 2017. We believe this current market dynamic is short term and we remain confident as we look ahead into fiscal 2019. We continue to be extremely focused on executing on new revenue opportunities stemming from capacity addition, shares GaN and the new capability in general semiconductor, LED, Automotive, and advanced packaging market. During the SEMicon West 3 weeks ago, we introduced our high accuracy feature tool catalyst, which add and additional mass reflow offering to our growing advanced packaging portfolio. This tour increased our larger the memory exposure, supporting end market such as mobile application processor, blockchain, DRAM, and artificial intelligence.
Our team also continued to shift our new opportunity in the emerging thermal converging market. Our recent APAMA TCB win highlight the promising higher volume adoption of TCB Technology and also our competitiveness within this emerging market opportunity. This recent TCV win combined with our employee initiative in divesting, high accuracy next generation LED and also opportunity within APS provide us with additional assurance to deliver on our longer term and aggressive financial target. Despite the current market softness, we remain very confident the fundamentals of the industries. The fundamentals of our business and our ability to create and deliver long term value to our shareholders.
This concludes our prepared remarks. Operator, we will now be happy to take
session.
Thank you. Our first question comes from the line of Krish Sankar with Cowen. Please proceed.
Hi. This is Steve calling on behalf of Krish. I had a couple of questions. And starting with the first one, I was wondering if you could provide some more color on the September quarter guidance in terms of the trends that you're seeing or expecting for your ball binder business and also for your wedge binder business?
The trend into September quarters or December quarters?
This current September quarter guidance that you just provided.
I see. I see. Well, as I stated, I think we see actually a very strong demand in the wage binder and the bull binder. And the demands are from OSAT company. And this is for a very high end.
We're on the end of which bonders.
And I guess in terms of the guidance
So for Q4, actually, as I mentioned, we are experienced a little bit soft market actually in the mobile and also in the memory. So as a result, I think, there are some actually request from some of the customers, to push all the delivery from September quarter to the December quarters. And major request actually is above under.
Got you. Got you. And then I guess as a follow-up.
And also as I mentioned, I think we have a very unique seasonality. Since later part of 2015, from June quarter into September quarters. Everishi, I think the revenue declined approximately about 23%. So I think this is unique to us. It's a unique seasonality.
But in terms of softness, in a mobile and memory market, I think it's really not unique to us. Okay.
Got you. And just a quick follow-up. Can you tell us what the what percentage of your sales in the June quarter was from Advanced Packaging?
Okay. Actually, the definition of our advanced packaging Of course, it's a dedicated tool and we have a TCB and right now we introduce free chip. We also have a star bumping. And we also have a die attach. And if we also count, you know, advanced memory packaging as well as a broadband in SIP.
I think we are looking at about 16 dollars, you know, lovely into our revenue.
Thank you. Our next question comes from the line of Craig Ellis with B Riley FBR. Please proceed.
Yes, thanks for taking the question and congratulations on the very strong execution in the quarter team. The first question I want to ask you, Cindy, you noted that there are some customers that have requested tools be delivered in the December quarter rather than the September quarter. But can you just talk about the visibility that you have in other parts of your business such as automotive and other areas and the confidence that you have in the parts of the $180,000,000 guidance?
Well, Greg, personally, I believe this is a short term phenomena. As I mentioned, I think I have very strong confidence in the fundamental of the industry. And currently, we have a multiple product multiple technology to drive the growth OTC Industry. And I also have very strong confidence on the fundamental of our business. Majority of semiconductor IC finished products will use a bow binder, as a tool to do a packaging.
And we are the leader, you know, bow binder and also which binder in the meantime, we export a lot of growth paths, advanced packaging in also other areas. So I'm confident I think demand is there for the industry and we are suffering maybe a short term phenomena. So I, believe, you know, we relatively confident for the guidance and we are quite confident, you know, we'll go ahead into 2019.
Okay. That's helpful. Secondly, you mentioned your view of seasonality for the September quarter. As you look ahead to the December quarter, What's the company's view of typical December seasonality since some quarters, our revenues can move up, some quarters they can move down?
Okay. So, if I remember, I think in the past few years, I think Q4 and our Q1 relatively suffer. And we have a strong Q2 Q3. That's the pattern we established. And, we discussed the seasonality.
I think for us, I'm confident the Cincinnati has less impact to us. It's less significant because we diversify our business. But however, I think Cincinnati is always there. The biggest, I think, strongest sign for the seasonality, I think, is from our team to our September quarters.
Okay, got it. And then, tying in the guidance for the September quarter with the recently established longer term target model, the longer term target model really signals 9% to 11% annual growth that the guidance would imply, I think, a 14% year on year decline. So when do you think the business will be back to year on year growth? Would it be in the December quarter, Pison, or would it be in the March quarter sometime thereafter?
Well, I think really a lot to do with what is the uncertain period, right? I think that we have short term uncertainty and it's really not unique to us. And hopefully, this kind of, for example, the trade tension can be resolved by yourself in the next couple of quarters, then hopefully Q4 can be higher for us. So again, I think that this is not unique to us. This probably is a whole industry, but I'm hopeful, this can be very short term Q4 hopefully will go up.
But this is, I think, Q2, that means, in the March quarter. Strong quarter for us.
Got it. And certainly you've heard other companies talking about smartphones and memory. Getting a few questions in for Lester. Lester, particularly strong gross margins in the quarter, Was there anything in the quarter that was one time in nature that wouldn't recur in the in the September quarter?
Hi, Craig. Not really. I think the high gross margins as we indicated was mainly driven by the mix. We had less LED ball bonders and much more high performance, ball and wedge bonder. So our gross margin is pretty tied to the mix of our business.
And right now, we don't see the mix changing significantly. I think we are still looking towards the guidance we usually provide for the year of around 45% gross margins.
Got it. And then lastly on operating expense, it was much better than I'd expected. And it looked like it outperformed the, the variable expense model. So, there too, what accounted for the the excess performance and would any of those things be more structural than temporal and therefore carry into either the September quarter or into further in the second half of the year? Thanks, Lester.
I think there's a little bit of both structural structurally, I think, as we discussed on Analyst Day and Susan has emphasized since he joined the company, we're driving down cost reduction trying to get leaner. There is a temporal aspect in terms of in higher volume quarters, are, again, our our OpEx, the variable OpEx well, still 5% 7% does allow us, the fixed cost actually always is not as high. So I think it's a little bit of mix, sorry, of both, But I think the cost reduction obviously will continue into the September quarter and going forward.
Thanks, Lee.
Thank you. Our next question comes from the line of Tom Diffely with D. A. Davidson. Please proceed.
Yes, thank you. First, I was kind of curious what your outlook is on the automotive side. And if you could address both the ice automotive part of the market as well as the battery, the EV battery side?
So, Collin, you're talking about September quarters?
No, well, just over the next couple of quarters, yes. September would be helpful, but I
was thinking more during the next few quarters.
Okay. Okay. So I think our automotive is always very strong for us. And in the Analyst Day, we categorize all these things into a few segment. 1 is general assembly wise automotive wise packaging.
So, we believe auto in this year probably will be about 24% of our total revenue and will continue to be very strong. And the short term impact the softness, I think, is more related to capacity. So this will be impacted to more on general semiconductor. Yes.
And then what about on the battery side?
I know that can be quite lumpy.
Actually, you know, we are too early for a major EV company. And a lot of people, for example, in China, actually also a double same technology. So in the meantime, I think we also see the strong demand from China.
Okay, great.
So, we believe which bundle we will do well. We will continue to do
Okay. Yes. LockDown's Weichmonter helps offset some seasonality in the 4th calendar quarter. So I guess looking at your customer base, with the consolidation of the 2 largest players, OSAT players, has that impacted your market at all?
Well, actually, we didn't see that. I think at this moment, financially, they consolidate, but operation wise, it's really not consolidated yet. You know, we work closely together with the bolt on company relationship. So, no matter commanded or not commanded, I think we will continue to have a very strong relationship. And, you know, have each other, you know, to develop relationship to next label.
Okay. And then finally, at your Analyst, when you talked about the 3 areas of growth going forward, the general semi LED auto industrial and advanced packaging. Which of those markets have the best chance of driving growth in 2019?
Okay. Actually, I think, I think all of them, for example, advanced packaging, we start to establish to a record in the whole set company. And, you know, from now to end of the year, the second half, we expect revenue maybe 562 and we hopefully next year will be our die attach also getting traction, you know, it's a restart or iStAC, in 2018, think we probably only focus on one customer, but engagement with multiple customer already started. So we believe 2019 can be start of our advanced packaging, but we expect 2020 will be a bigger year for our advanced packaging. Because of this will be including not only TCV, not only Biotech, also including a recent announced of high accuracy free chip.
Thank you.
Session. And thank you. Our next question comes from the line of David Dley with Steelhead Securities. Please proceed.
Thanks for taking my question. A couple from me. First of
all, could you talk about what is the application for this the OSAT TCV win that you're referring to?
Okay. I think this is for high end mobile device and for the app processor.
Okay.
And how large do you expect this piece of business to be over this year and next year? I guess you just were talking about 5 or 6 tools. Is that kind of the expectation? Or maybe you could frame it in dollars? Think it will account for in 2019, let's say?
So this year, I think we are talking about maybe maybe about $4,000,000 and hopefully we can double next year's, right? And other than that, I think there are new variant over TCB. The industry need to deal with a bigger, larger die than we are currently engaging with multiple customers. So, we actually finally, we do see the traction of our TCB business.
So will the a lot more artificial intelligence in those really large NVIDIA typeships. Those are the ones that you might see further traction on in the future?
Yes, I think for AI, both our TCB and our high accuracy free chip participate in AI. Okay.
And then on a different topic, you mentioned
that you saw some push outs from, I think, the September quarter to the December quarter. Could you would you could you help us understand what sort of magnitude you think you that you saw there and, what areas it came from? Did it come from memory or mobile or help us quantify, how big the push out was and what segment it came from?
Okay. We don't think it's significant. You know? So for example, you know, we got about 100 $80,000,000 to $190,000,000. So maybe we're talking about 10% of customers 10% of our revenue, you know, people actually consider to push to our next quarters.
Okay. And then as far as
do you think that that does that mean that you think December will be up sequentially, will it snap back by this 10% that you didn't get this quarter or any commentary about December that you can help us under Dan would be great.
So, well, Dave, I wish I have crystal ball, right? And as I mentioned, I think this question is really not unique to our industry. They are not unique to our company. It's really the whole industry, have a short term softness. So, hopefully, we like to see, you know, this can be a low quarter for us.
And going to next year will be higher revenue. As I mentioned, I have very strong confidence on the fundamentals of the right? A lot of technology, a lot of, you know, products is driving the growth. So demand is there. For example, I'm a strong believer of a memory, you know, demand.
And the overcapacity is always followed by under capacity over under investment always followed by over investment. So this is the nature of our business. And as long as the demand is there, and annual ICG growth unit actually has not been revised down. So, if this is a whole true and we'd like to see, this quarter is a low quarter, But I think that our latest, our March quarter will be a strong quarter.
Okay. And final question from me
is, Just could you give us an idea what percentage of revenue you get from the memory markets and from the LED markets?
Hi, Dave. It's Lester. So LED is just about under 15% And, for memory, it fluctuates from quarter to quarter. But it's around, for this quarter that we did for the June quarter. So it's approximately around 10%.
Thank you. We have no further questions in queue at this time. I'd like to hand the floor back over to Joseph Belgendy for closing remarks.
Thanks, Raya. Before closing, we wanted to inform investors that we will be participating at the Oppenheimer's 21st annual technology, internet and communications conference in Boston on August 8th and D. A. Davidson's 10th technology forum in New York City on August 9th. 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 today's teleconference. You may disconnect your lines at this time. Thank you for your participation.