KLIC
#Thanks, Joe.
This quarter, we booked a $105 million charge specifically related to the impact of Tax Cuts and Jobs Act of 2017.
Due to this large charge and our ongoing trend to further expand our market, drive share gains and the improved overall profitability, we had supplemented our earnings release with non-GAAP financial metrics.
<UNK> will provide some additional information shortly regarding our non-GAAP approach.
Going forward, our remarks will refer to GAAP results unless noted.
For the December quarter, we started out fiscal 2018 with strong results.
We delivered $213.7 million of revenue, way above guidance; gross margin of 46.3% and the operating income of $38.6 million.
Excluding the impact of tax reform and our other non-GAAP items, non-GAAP diluted EPS was $0.54.
This operational performance was stronger than our expectations a few months ago and dramatically stronger than our trailing December quarter average largely due to favorable semiconductor-related industry condition and also the slightly earlier- than-anticipated recognition of revenue associated with automotive-related shipment from prior periods.
Our significant exposure to positive trends in advanced packaging, automotive, flash memory, LED, in addition to industry's ongoing capital intensity, are anticipated to continue driving strong operating performance through fiscal 2018.
Much of our incremental earnings were driven by our capital equipment segments while Aftermarket Products and the Service segment, APS, performed in line with our aggressive trends.
The strength from capital equipment was driven by strong demand primarily for our ball bonding, wedge bonding and the wafer label packaging offering.
Our ball bonding business was up 10% from the same period last year.
Ongoing strength in NAND flash, LED and the general semiconductor were the primary driver of this upside.
Additionally, we enjoy continuous strengths within our advanced packaging business, specifically with our wafer label packaging offering.
This performance support optical and the nonoptical sensor capacities and they continue to benefit from premium mobile image and the 3D sensor assembly needs.
Looking forward, the compound annual unit growth rate for nonoptical sensor, 2017 through 2021, is projected to grow at a nearly 11%, and then a larger optical sensors market is anticipated to grow at a nearly 16% over that same period.
We continue to shift our new opportunities for this unique and competitive advanced packaging offering.
Finally, revenue of our APS business had increased by 19% over the same period in the prior year.
We remain focused in driving share gains and to further enhancing this recurring revenue basis business as we move forward.
I would now like to turn the call over to <UNK> <UNK>, who will cover this quarter's financial overview in greater detail.
<UNK>.
Thank you, <UNK>.
My remarks today will refer to GAAP results unless noted.
Net revenue for the quarter was $213.7 million.
Healthy gross margins of 46.3% generated $99 million of gross profit.
This represented a nearly 45% increase in gross profit over the same period in the prior year.
During the quarter, we generated $38.6 million of operating income and booked a net income loss of $69.3 million and negative EPS of $0.98.
On a non-GAAP basis, which primarily excludes a onetime tax charge related to the $105 million impact of the Tax Cuts and Reform Act of 2017, EPS was $0.54.
As <UNK> mentioned, this is a very strong performance during what has historically been viewed as a seasonally soft quarter.
At 46.3%, gross margin came in stronger than we anticipated, largely due to product mix between automotive, advanced packaging and LED equipment.
While wedge bonding and advanced packaging contribution benefited the December quarter's gross margin, we anticipated LED demand to increase substantially and forecast a March gross margin of slightly below 45% as we discussed in our September quarter conference call.
Turning to the balance sheet.
We ended the December quarter with a total cash and investment position of $650.2 million or $9.21 on a per share basis.
On a book value per share basis, we closed the December quarter with $12.05.
Working capital, defined as accounts receivable plus inventory less accounts payable, decreased by $57.1 million to $212.1 million.
From a DSO perspective, our days outstanding decreased from 83 days to 73 days.
Our days sales of inventory decreased from 99 days to 84 days, and days of accounts payable increased from 42 days to 54 days.
As a result, our cash conversion cycle reduced from 140 days to 103 days sequentially.
Lastly, I want to briefly discuss the impact of the recent tax reform and our non-GAAP methodology.
For tax reform, we ultimately expect it to allow greater flexibility of our global resources, further simplicity of our global entity structures and ultimately a reduced cost for future U.S. cash deployment.
While the impact of the associate regulation of the Tax Cuts and Jobs Act of 2017 to our further global entity structure is not yet crystal clear, our near-term strategy of driving fundamental improvements through organic development and strategic M&A, while opportunistically executing open market repurchase program is unlikely to change.
Due to the significant size of this extraordinary item and also our focus on operational efficiency and business expansion, we decided to introduce non-GAAP reporting beginning in the December quarter.
We believe this provides the investment community with an additional level of transparency to supplement our U.S. GAAP reporting as we work to expand our markets, drive share gains and improve overall profitability.
This concludes the financial review portion of our call.
I will now turn the discussion back to <UNK> for the March quarter's business outlook.
Thanks, <UNK>.
Looking into the March quarters.
We are targeting revenue to come in between $205 million and $215 million and are anticipating another very strong fiscal year.
While we have historically enjoyed a sequential increase in the March quarters, as discussed earlier, our free guidance was largely related to earlier-than-expected revenue recognition of some automotive-related solution in December quarters.
Regardless, considering the strong guidance, the first fiscal half is anticipated to be approximately 21%, higher than the first fiscal half of 2017, setting a new record for the company.
Ongoing effort to broaden our base of solution and drive fundamental business improvement are expected to further mitigate seasonal and cyclical effects while driving new record for the company.
Through 2018 and beyond, we continue to be aligned with some of the fast-growing segments in the semiconductor space, including automotive, memory and the front-end expansion in China as well as Korea.
Automotive IC units are anticipated to increase by 16% in calendar 2018 and are forecast to be growing electronic system market ---+ are forecast to be the fastest-growing electronics system market through 2021.
We will continue to support the capacity and the new technology needs of our global automotive customers throughout this long-term evolutions.
Within memory, our shipment of NAND flash effectively doubled in fiscal 2017 over fiscal 2016.
We continue to anticipate flash memory capacity to be added at roughly the same pace as it was in 2017 when it amounted to approximately 10% of total revenue.
Next, global semiconductor capital equipment spending is projected to increase again in calendar year 2018 after a fairly significant increase in 2017.
This high-level expectation is anticipated due to an additional demand for our core ball bonding, wedge bonding and the APS offering.
In addition, we continue to seek out new advanced packaging opportunities that will further broaden and diversify our business.
Overall, we are very excited with our operation and the development opportunities as we look ahead.
We thank you for your continued support.
We all remain extremely committed to execute our strategy and to deliver value to our shareholders.
This concludes our prepared remarks.
Operator, we will now be happy to take your questions.
Sure.
Compared to 2017, I think we will gain about 10% more for LED bonder compared to total bonder.
So 2018, I think we'll ship roughly 20% of all bonder will be LED bonder and this is a significant increase.
And as I discussed in the previous earnings call, our gross margin will be slightly impacted, slightly below 45%, but we are working hard to recover above our 45% gross margin.
Okay.
So when ---+ our revenue policy is after we're accepted by customers, it becomes a recurring revenue.
But for the new customer or existing customer in a new facility, our revenue recognition policy is by acceptance, once accepted in a new location and the revenue is by shipment.
So for this case, actually, a low customer already pay, when we ship the system, we wait until the customer recognize the performance or system then we start to recognize the revenue.
So all these expectation is this amount of revenue, roughly $20 million, we expect to recognize in Q2.
But customer actually accepted a few weeks compared to our expectation.
Therefore, we have much higher revenue in Q1 compared to our Q2.
Well, I think if you look at memory, when you roughly calculate, will be about, maybe, 10% of our total revenue, and we are exposed to our market ---+- to our industry.
So one way I look at it, we're still very bullish on the memory.
And the up and down is really part of our life.
If you look at it, the industry actually transition from a 48 to a 72 layers.
This will make actually solid-state drive more competitive compared to a hard drive.
Therefore, there will be share gain for solid-state drive.
That probably will spur more capacity in the future.
So short term, I think up and down is the nature of our life.
We just try to diversify our products and focus on priority.
And we assume, we try to mitigate the seasonal and cyclical effect, and I believe we should do well.
I will hand to <UNK> to talk about it.
So <UNK>, I think our capital allocation strategy is a split, it's somewhere between roughly evenly between acquisition, new organic development, and also shareholder returns is a longer term by the opportunistically the open market repurchase program.
I think while obviously the U.S. tax reform has allowed the repatriation of cash a little bit easier, I think, for now, we are continuing with that strategy.
However, the board, as well as management, is continuing to look at what's the best way of capital allocation to drive the company's growth as well as return ---+ increase shareholder value over the short and longer term.
Well, actually, we are very bullish in our wedge bonder business.
As you know, other than the ball bonder, we are #1 market share in the industry.
Wedge bonder we are also #1.
And as you know, we gain the shares in automotive particularly and also a lot of high-credit application like in the battery.
And that's the area, I think, that we are quite confident.
Well, we try to grow both in advanced packaging and our core business while advanced packaging markets are getting bigger, we also expect our core business including ball bonding, wedge bonding, EA, so is APS will also grow as well.
So actually, let me clarify.
20% of our total ball bonder shipped.
This is <UNK>.
No, we're still looking at about $53 million per quarter on a GAAP basis of 5% to 7% variable, what we've always guided.
Yes, there are other non-GAAP items in there.
There's the tax impact.
There's amortization as well as there's a small restructuring charge.
It's <UNK>.
Yes, so the ---+ the total charge, which was reported today, was $105 million.
However, the total cash charge will be below that as there's other deductions and things that we can take.
As far as the time of payment, according to the tax act we have 8 years to pay and the initial 5 years we pay about 8%, and then it goes up in the later part of the year.
So it's interest-free over the next 8 years and the first 5 years is only 8% of the required tax amount.
Yes.
I think it will be significant because of our ---+ 81%.
Actually, because of we have earlier-than-anticipated revenue recognition, so actually it's very high.
It's close to 80%.
But we will say, actually, this will not be normal compared to our previous case, but growth rate of wedge bonder for this quarter is significantly high.
So <UNK>, this is <UNK>.
I think for the quarter, for us, the gross margin is largely dictated by product mix.
And for the quarter, we had a very strong automotive as well as memory, as we have indicated.
And we discussed early on the call, we are aggressively moving to execute our strategic direction in terms of LED, which has slightly lower margin.
So I think, again, as we have guided going forward for the year, we believe that the gross margin will be slightly below 45%.
