Kulicke & Soffa Industries Inc 2026 Q3 Earnings Call

Thank you. Welcome everyone to Kulicke and Soffa's fiscal third quarter 2026 conference call. Lester Wong, Interim Chief Executive Officer and Chief Financial Officer, also joins me on today's call. Non-GAAP financial measures referenced today should be considered in addition to, not as a substitute for, or in isolation from, our GAAP financial information. GAAP to non-GAAP reconciliation tables are included within our latest earnings release and earnings presentation. Both are available at investor.kns.com, along with prepared remarks for today's call. In addition to historical statements, today's discussion contains forward-looking statements regarding our future performance and outlook. These statements are made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, and involve risks and uncertainties that may cause actual results to differ materially.

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 latest Form 10-K and upcoming SEC filings for additional information. With that said, I would now like to turn the call over to Lester Wong for the business, market, and financial overview.

Please go ahead, Lester. Thank you, Joe.

Good morning, everyone. Demand continues to improve at a faster pace than previously expected, and our operational teams are aggressively ramping production to support customer capacity and technology requirements. Our own capacity expansion plan here in Singapore also remain on track. This new production space will support the growth of our advanced solutions segment over the coming years. We were able to support our customers' near-term needs by ramping our flexible production capacity and driving a 36% sequential revenue increase during the fiscal third quarter. Overall market strength continued to be led by generic semiconductor and memory applications, although we are pleased to note that utilization rates have improved sequentially in all regions and in all end markets. Growth in artificial intelligence applications remain the driving factor behind data center expansion.

This growing data center opportunity, in turn, drives meaningful increase in demand for both our thermal compression and wire bonding solutions. It is increasingly evident that most performance-oriented logic and memory applications will continue to adopt more complex heterogeneous integration approaches. Adoption of more complex assembly approaches directly benefits our current thermal compression business and steers our investments in R&D and production capacity. While emerging AI applications are a clear catalyst to accelerate high volume growth of new advanced packaging and heterogeneous assembly approaches, we expect we're still in the early stages of this much longer-term technology transition. We continue to anticipate this more than more driven technology-centric transition will continue to advance semiconductor assembly and benefit K&S well beyond this current cycle.

In addition to the needs of most performance-oriented applications, data center expansion also requires new and increased capacity for established assembly technologies, which support networking, communications, power management, and storage requirements. We estimate that the data center market relies on wire bonding technology at least as much as, if not more than, traditional semiconductor markets such as smartphones and PCs. As the leader in wire bonding technology, we are primed to support this growth. In addition to our involvement to support data center related technology and capacity needs, we are also encouraged to see positive momentum continuing within the automotive and industrial markets, which has recently increased demand for our wedge products as well. During the June quarter, company revenue increased by 36.2% sequentially through focused global coordination and operations execution.

While we are not immune from global supply chain constraints and macroeconomic conditions, we again exceeded expectations as we ramp production aggressively this quarter. Revenue recognized for our advanced solutions segment, which includes our leading fluxless thermal compression solutions, has exceeded last quarter's record revenue by 20%. In addition to supporting customers' emerging production requirements, our advanced solutions teams remain focused on driving innovation in both panel-level and hybrid bonding platforms, with a heightened emphasis on increasing our production capacity for our advanced solution offerings. We are maintaining our target of over $100 million in advanced solutions segment revenue for fiscal 2026, and continue to prepare for significant sequential growth in fiscal 2027. This growth is supported by performance and process readiness of our flexible, highly capable thermal compression platform provided to customers.

We remain closely engaged with a broad base of IDM, OSAT, and foundry customers as heterogeneous packaging approaches become mainstream. While AI applications are accelerating the transition to more complex assembly today, we're still relatively early stages of this advanced packaging transition. Today, emerging packaging solutions such as FDC, vertical wire, direct copper-to-copper, hybrid, and panel-based architectures will be critically necessary for a much wider array of semiconductor production over the coming years. Through our technical leadership, ongoing investment in R&D, and a manufacturing expansion plan, we continue to build a strong foundation that directly support these new advanced packaging approaches. Our capital expansion initiative here in Singapore is progressing well and remains on track. This new production space will allow us to support the growing capacity and technology needs of customers over the long term. We continue to target completion by the first fiscal half of 2027.

Our close engagement, technology leadership, and growing production footprint all enable us to contribute to a higher level of process value across served markets. Our wire bonding teams in both ball and wedge are also aggressively scaling production to meet strong customer demand and continue to develop and release new packaging solutions to a wide base of memory and power semiconductor customers. Turning to the end market review. General semiconductor revenue increased by 52.6% sequentially to $227.2 million, driven by higher capacity and technology requirements for both ball bonding and advanced solution segments. While AI and data center has been the major driver, we are now also seeing broader-based recovery in traditional markets as well. Memory shipment increased by 8.8% sequentially to $34 million after strong sequential growth in the second fiscal quarter. Our memory business is currently focused on delivering NAND technology and capacity requirements.

Based on our market understanding, data center is now currently the largest end applications across global NAND production. Beyond NAND, our vertical wire bonding team continues to work closely with memory customers as they develop new forms of stacked DRAM applications. Automotive and industrial demand improved by 9% sequentially to $24.2 million after strong improvement last quarter. We continue to see robust demand for high IO and high volume power and mixed signal packaging, which tends to track with general semiconductor. Additionally, during our fiscal third quarter, demand for our high current wedge solutions also increased. As many of you know, our wedge bonding suite is a critical part of our automotive and industrial offering. This market has faced industry-level headwinds for the past several years. Over this time, we continue to expand our portfolio and look forward to continued recovery.

We are pleased to see this sequential improvement and remain well positioned to benefit from long-term share growth in battery and plug-in hybrids, which require new power semiconductor technology and capacity requirements over the long term. Aftermarket Products and Services also increased sequentially due to the higher level of production across our installed base. It remains an interesting and exciting time at the company and for our industry. We recently celebrated K&S 75th anniversary and are proud of our legacy as a global leader and pioneer in semiconductor interconnect solutions. For three-quarters of a century, our success has been grounded in the trust and strong partnership we have developed with customers, suppliers, and business partners around the world. Looking ahead, we remain confident in our ability to extend our platform through ongoing investments in innovation to support the next generation of advanced packaging solutions.

With that said, I will now provide a brief financial update. My remarks today were for the GAAP results, unless noted. We again delivered revenue above guidance and continue to execute an aggressive production ramp through served markets. During the June quarter, overall revenue increased by 123% over the same period last year. Close coordination by our business segments, R&D, and supply chain teams remained essential to support our customers' immediate needs and also their future production requirements. Gross margins came in at 47.8% during the third fiscal quarter, and we delivered $1.7 of GAAP earnings and $1.20 of non-GAAP earnings. Total operating expenses came in at $89.7 million on a GAAP basis and $82.6 million on a non-GAAP basis. As explained last quarter, this sequential increase was anticipated and largely related to the increase in variable incentive compensation accruals throughout our second fiscal half.

This variable expense was the primary driver, although we have also increased some fixed resources, which support our growing base of opportunities. Tax expense came in at $15.3 million, and we anticipate our effective tax rate will remain slightly above 20% over the near term. For the September quarter, revenue is expected to increase by 13.5% sequentially to $375 million, with gross margins of 48%. non-GAAP operating expenses will temporarily increase to approximately $87.5 million. This sequential increase is temporary for the September quarter and is largely associated with the performance-oriented nature and quarterly accrual of our variable incentive compensation plan. We expect GAAP earnings per share to be $1.29 and non-GAAP earnings per share to be $1.42 for the fourth fiscal quarter. At this point, we remain opportunistic on both near-term and longer-term opportunities, and we continue to anticipate above-average demand will continue into fiscal 2027.