Kulicke & Soffa Industries, Inc. Stock

Greetings. Welcome to Kulicke & Soffa Third Quarter 2026 Conference Call Results.

[Operator Instructions]

Please note, this conference is being recorded. I will now turn the conference over to Joe Elgindy, Senior Director, Investor Relations. Thank you. You may begin.

Thank you. Welcome, everyone, to Kulicke & 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 & 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 general 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-Moore 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 operational 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 Thermo-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 FTC, 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 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 remain 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 post 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 Solutions 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 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 I/O and high-volume power and mixed signal packaging, which tends to track for 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'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 will refer to 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 remain 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 $1.07 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 primarily -- 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 in fiscal 2027. This concludes our prepared comments.

Operator, please open the call for questions.

Our first question is from Krish Sankar with TD Cowen.

Congrats on the really strong results and guidance. Lester, I had 3 quick questions. I'm just trying to wonder, given the strong growth in September, are you seeing it across the board, like mid-teens growth for semi, memory and auto industrial? Or is one better than the other?

Well, Krish, I think as we said, general semi and memory are leading the way. I think automotive and industrial has improved. As you know, they faced quite a lot of headwinds over the last couple of quarters, but they're picking up a little bit, but still, it's generally general semi and memory that's driving the ramp.

Got it. Got it. And then I think you also mentioned in the slide that the strength is expected to last into fiscal first half. I'm kind of curious, like as you get more data center, how should we think about December and March quarter? In other words, should we see seasonality in March? Or do you think there won't be seasonality this time?

Well, Krish, our business is always a little bit of seasonality in our Q1, right, which is our December quarter. But I think based on what we see right now, both the utilization rates are extremely high. In China, it's over 95%. End markets, both memory and general semi is around 90%.

We are also seeing a lot of inbound POs even go extending into Q2. Usually, that doesn't happen for us. We usually don't have POs that goes out that far. And also in conversations and visits with customers, particularly in China, we are seeing them to continue to build factories. So I think based on all those factors, we feel pretty confident that the strength in the business -- in the traditional business is going to continue into the first half of fiscal '27. In addition, for our Advanced Solutions business we're engaged with foundries, OSATs and IDMs. So again, we feel pretty confident we can take advantage of a lot of those opportunities, particularly in heterogeneous integration around logic for our Fluxless TCB.

Got you. Very helpful. And then a quick follow-up, Lester, just on the Advanced Solutions TC business. You said like over $100 million this year -- fiscal year, which is end of this quarter.

If I just take what you did last quarter, analyze that, that kind of implies like close to $120 million next year, at least 20% growth. Is that the right way to think about it? Or do you think that actually accelerates next year?

You mean what do I think TCB is going to do next year, Krish?

Yes.

I think actually TCB will grow significantly next year on a sequential basis. I think we're -- as I said, we're -- for this year, we think we're going to be at $100 million. I think for FY '27, I think for TCB, we are looking at somewhere in the region of $150 million to $200 million.

Our next question is from Charles Shi with Needham & Company.

Congrats on the nice results. I think one thing you said in the prepared remarks kind of sounds very interesting. You said the data center relies on wire bonding as much as phones and PCs.

This is a part -- I think we may have discussed this in the past, but can you kind of elaborate a little bit what kind of wire bonding packaging you are seeing the most in data center applications?

And one thing in particular, I do want to ask is we would think there's a little bit more of the power devices there that could probably drive wedge bonding, but the wedge bonding looks like it's more still relying on the traditional industry, and you are seeing some sequential improvement, but a lot of the -- what you consider data center demand seems to be driving ball bonding.

So it's a little bit of an interesting comment there, and I wonder if you can provide a little bit more color.

Sure, Charles. So wire bonding in data center, basically is, in fact, more than a majority of chips in the data center is actually traditionally packaged using wire bonding.

I mean these are for applications like general infrastructure, networking, communication, power and storage. So -- and also the -- in storage is basically memory. And I think as I said in the remarks, as you know, we're focused on NAND for now and 40% of the NAND market now goes towards data centers.

So, obviously, we have exposure there as well. As far as wedge bonder in data center, you're correct, wedge bonder is still a little bit more focused on the automotive. They're high current, but it's more ball bonder in terms of -- for power management in data centers.

Got it. I think you mentioned about NAND, mentioned of PO, you're actually starting to filling up the second fiscal quarter, if I hear you correctly, and the first half of next fiscal year.

I know it's kind of hard for you to project out for the entire year next year because you don't really have the POs, but I'm sure you have customer conversations who provide you at least some high-level forecast.

So can you kind of help us understand where you think next year's growth could potentially be? And especially one of the things people like to compare is where you could go in terms of how high the revenue could be next year versus the prior cycles, let's say, in 2021 and '22, where you did hit that $1.5 billion per year level? Is it -- are you still thinking you're not going back to that level or maybe you could actually go back there and maybe exceed that level?

Well, Charles, as you said, you've followed the industry for a long time, for us, visibility actually is usually not even as far out as what we have in the first half of fiscal '27. So I mean, it's very volatile. So I think it's difficult for me to kind of say what FY '27 would look like as a whole.

But as I said, based on utilization rate, based on POs, based on customer conversation, we think the first half of '27 will be very strong. As far as do we think they will go back to '21, '22 levels, I mean, those were extreme levels. That was like a global pandemic, right?

And growth was around the world as people work from home and play from home. So that's a very high bar.

I think we're pretty confident that the first half of '27 will look good. And then as we -- in our November call, I think we'll probably give you more color on what the second half looks like.

[Operator Instructions]

Our next question is from Dave Duley with Steelhead Securities.

Lester, I was just wondering if you could help us understand what your current total capacity is for the wire and wedge bonder business. You're running at pretty high run rates here with your guidance at $375 million a quarter. Perhaps just help us understand what your total capacity is? And how much you're increasing the core business capacity at this time?

Thanks, Dave. Well, we actually have significantly increased the capacity for the traditional business, the wire bonding business, right? I mean, from about 2 quarters ago, we have now increased capacity 4x, right? We have a very, very flexible manufacturing model. We've been doing this for a long time. As I said in my remarks, this is our 75th anniversary.

So our supply chain teams, our operations team, our logistics as well as our engineering teams work very closely together to meet customers' near-term needs as well as more midterm demands, right? So, again, we're very focused on not losing market share because of capacity issues. So we're pretty comfortable where we are at.

Would you be able to support a $450 million kind of quarterly run rate at this point?

Well, Dave, I don't see a $450 million run rate at this point. As I said, we don't guide beyond the quarter. But I think if we need to get -- we've had supported $400 million quarters before. And if we need to, as I said, I think we're a very dynamic, flexible manufacturing model. And if we need to ramp some more, we'll do what we need to do to make sure that we take care of our customers.

Okay. And then a different topic. Could you just talk a little bit more about your investments that you're making outside of the thermal compression bonding in the advanced packaging area, like I think you've mentioned hybrid bonding in the past and then also panel level. Perhaps just talk about what your opportunities are in those two areas.

Yes. So Dave, we're seeing a lot of interest in panel, right, from customers, both -- sorry, both IDMs as well as the foundry as well as the OSAT we are actively engaged with multiple customers on panel.

I mean, obviously, panel is the future, just given the geometry, right? You can set a lot more die in a rectangle than you can in a circle. So there is a lot of interest. We are investing significantly in our panel project. And then as far as hybrid bonding is concerned, yes, we also are in hybrid bonding, we have been pretty active.

We accelerated the program over the last year. We think our hybrid bonder has some unique features that is not currently in the market. So we are planning to deliver a hybrid bonding tool to a customer in the first half of fiscal '27.

And as far as the panel opportunity, just remind us exactly what you're going to do? Are you going to pick and place die and put them on the interposer? Or what exactly will be the application that you're focused in on there?

Well, I think, Dave, we're -- right now, we're talking to the customer, and we're focusing on multiple applications at the panel level. So, I think as we develop the program, we'll provide more color in our future calls.

There are no further questions at this time. I would like to turn the conference back over to Joe for closing remarks.

Thank you, Sherry, and thank you all for joining today's call. As always, please feel free to follow up directly with any additional questions. This concludes today's call. Have a great day, everyone.

Greetings, and welcome to the Kulicke & Soffa Q2 2026 Conference Call webcast. [Operator Instructions] As a reminder, this conference is being recorded. [Operator Instructions] It's now my pleasure to turn the call over to Joe Elgindy, Senior Director, Investor Relations. Joe, please go ahead.

Thank you. Welcome, everyone, to Kulicke & Soffa's Fiscal Second 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 information, 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. We are again pleased to report demand is improving at a faster and stronger pace than previously expected. Customer sentiment remains strong and utilization levels across our largest served market remain above average. This strength continued to be led by general semiconductor and memory demand, which directly supports data center capacity expansion globally. We also see improving condition in traditional markets such as premium smartphones. Over the past year, utilization rates have continued to increase and the need for incremental capacity continues to grow. As explained last quarter, data center growth required new forms of advanced packaging, which supports the most advanced logic and memory applications. Data center growth also requires new capacity for high-volume traditional packaging solutions, which support networking, communication, power management and storage requirements. Additionally, we have seen positive momentum within automotive and industrial end markets. During the March quarter, revenue increased by 21.5% sequentially. We have improved visibility within fiscal 2026 and anticipate a slight sequential improvement into fourth fiscal quarter. Our financial performance was above prior expectations, and we remain focused to aggressively ramp production in our core and advanced markets. Additionally, we continue to deliver new TCB, power semiconductor and memory solutions to support our customers' evolving production needs.

Revenue recognized for our leading Fluxless Thermo-Compression solutions have increased sequentially, supported by OSATs, foundries and IDMs. Our fiscal year 2026 outlook remains strong for Thermo-Compression and supports aggressive sequential growth. In addition to Thermo-Compression, we recently announced several new and innovative offerings, which address additional packaging transformations within power semiconductor and memory. Our new Asterion-TW system announced in late March is well positioned to support increasingly complex high current and high reliability power applications. This new system complements our recently released clip-attach and pin-welding solutions. We also announced the ProMEM Suite of memory features and highlighted our growing portfolio of DRAM solutions supporting both cost-sensitive and high-bandwidth memory applications. Additionally, we have a growing base of customer engagements in advanced packaging as we accelerate next-generation programs.

Two specific area of focus are around panel-level base system architecture and long-term industry development of true production capable hybrid solutions. Despite challenging market conditions over the past 3 years, we continue to invest in research and development in several exciting new growth areas. As we enter a period of high capacity additions across our served markets, we are pleased with the progress our team has made across these multifaceted opportunities. In addition to the industry's need for incremental near-term capacity in advanced packaging, we are also significantly ramping our own production capacity. Over the coming year, we anticipate to significantly expand our Advanced Solutions segment production capacity to support approximately $400 million of revenue. I will provide some additional details in the financial section. Turning to end market review. General semiconductor revenues increased by 19.4% sequentially to $148.9 million, driven by higher capacity and technology requirements for both ball bonding and advanced solutions segments. Memory shipments increased by 93% sequentially to $31.3 million. Our memory business is currently focused on supporting NAND technology and capacity requirements, although as advanced packaging trends continue to evolve throughout the memory market, we expect to gain market share in DRAM with our new solutions. Automotive and industrial shipments increased by 63% sequentially, driven primarily by high I/O and high-volume power and mixed signal packaging. We are also well positioned to benefit from the gradual long-term share growth in battery and plug-in hybrids, which require new power semiconductor technology and capacity requirements. Aftermarket Products and Services, or APS, end market demand decreased sequentially due to lower refurbished system sales during the March quarter. The broader consumables portion of APS has remained consistent sequentially. As we typically do during rapid changes in demand, we will continue to work aggressively to support our customers' capacity and technology needs. Our global R&D teams remain aggressively engaged on many new technology fronts supporting advanced packaging and power semiconductor trends while also extending our platform of advanced dispense solutions. Within advanced packaging, transitions to both vertical wire and thermal compression remain on track, and we continue to be positioned well. We are increasingly focused on hybrid bonding technology and are confident we can provide a very competitive solution within this emerging process. We continue to anticipate Hybrid will be commercially viable solution eventually, so it is now time to invest and accelerate market engagements. While Hybrid may be still a few years away from gaining broad market adoption, we are accelerating our research and development efforts to provide a solution that exceeds current capabilities available in the market today. In the interim, TCB is the production solution for today's most complex heterogeneous applications. Our TCB business is expected to grow at least 70% sequentially this fiscal year, generating over $100 million of revenue. We anticipate the majority of our sequential TCB growth will continue to stem from large applications and heterogeneous packaging trends. We will allocate additional resources towards emerging HBM opportunities as well. Our other unique memory opportunity continues to be addressed with vertical wire, which provides a highly capable alternative for cost-effective bandwidth through die stacking. We anticipate strong sequential growth in both TCB and vertical wire over the coming years. We introduced our latest ACELON dispense system in November at Productronica, which is now deployed with several customers for evaluation and progressing well. In addition, as well, during the March quarter, we recognized revenue associated with a new dedicated panel level dispense solution.

With that said, I will now provide a brief financial update. My remarks today will refer to GAAP results unless noted. We again delivered revenue above guidance and continue to execute on our production ramp in our core markets and Fluxless Thermo-Compression while also maintaining a focus on operational efficiency. Gross margins came in at 49.3%, and we delivered $0.66 of GAAP earnings and $0.79 on non-GAAP earnings. Gross margin remained strong sequentially due to customer and product mix. Total operating expenses came in at $81.1 million on a GAAP basis and $73.8 million on a non-GAAP basis. And we continue to remain focused on controlling costs, although considering our growing base of opportunities, we also need to ensure resource availability. Tax expense came in at $7.4 million and anticipate our effective tax rate will remain slightly over 20% near term. For the June quarter, revenue is expected to increase by 28% sequentially to $310 million with gross margins of 48% -- non-GAAP operating expenses are expected to be $85 million, representing an increase in variable compensation as well as an increase in critical headcount to support our growing market opportunities. GAAP earnings per share is targeted to be $0.87 and non-GAAP earnings per share to be $1. As discussed earlier, we're expanding the Advanced Solutions segment production footprint by investing in capital expenditures. These investments have started in April and are planned to significantly expand our Thermo-Compression capacity by the first half of fiscal 2027. Total capital expenditures in connection with this expansion are expected to be $20 million. $12 million of the total investment is set to be deployed in fiscal 2026. In closing, we are capitalizing on near-term opportunities while continuing to execute long-term strategic priorities. We are confident in our future and remain competitively positioned in core and advanced packaging markets. We look forward to delivering strong results as we continue to grow the business. This concludes our prepared comments. Operator, please open the call for questions.

[Operator Instructions] Our first question is coming from Krish Sankar from TD Cowen.

Lester, congrats on the very solid results and nice to see a $300 million plus quarter again. I just have two questions, Lester. One is, in the past, you gave some color on how to think about utilization rate across geographies. I'm wondering how is that now given that demand is improving? Can you just give some color on like where China, Southeast Asia, rest of geographies are in terms of utilization rate? And then I have a follow-up.

Sure. So Krish, I think China has been very high utilization rate for the last couple of quarters now. So for this quarter, they're over 90%, around 92%. We're also seeing strong utilization in Korea, Japan and Taiwan, what we call other Asia. I think Southeast Asia is still a bit soft, but they have improved a little bit. And then I think North America and Europe also has improved. So I think it's still being led by China as well as Japan, Korea and Taiwan.

Got it. That's very helpful, Lester. And then as a quick follow-up, it's nice to also see TCB revenues growing, and you said well over $100 million this year. I'm just wondering, I understand it's the logic vertical that's driving it. Is it actually the IDMs or the foundries? Or is it OSAT being the incremental buyer this year on TCB?

I think it's all 3, Krish. I mean we've always had a very strong position in IDM, right? And then over the last 1.5 years, we've moved into foundry. Now we see a lot of the OSAT interested. And also, we're also talking to some of the fabless customers. So I think it's -- the growth is across OSAT, IDM as well as the foundry.

Next question today is coming from Denis Pyatchanin from Needham & Company.

Well, it's nice to see the growing demand. And maybe given the improving visibility across the industry, will you be able to provide some outlook on revenue in future quarters? Do you think we can sustain these new levels that we'll be experiencing in June?

Yes. Well, I think we did say that I think for the fiscal fourth quarter, we expect sequentially incremental maybe 5% to 10%. I think we're getting much better visibility now through FY '26. I think actually, there should be strength throughout the business -- the core business as well as our Advanced Solutions business through the rest of the calendar '26.

Great. And then for my follow-up about Fluxless Thermo-Compression, can you maybe give us an update on which of your end markets are kind of seeing the strongest adoption of your Fluxless Thermo-Compression technology?

Well, basically, it's general semi, right? And it's, again, at foundries, at the IDMs. We're obviously focused on logic, even though we did deliver our first HBM system in December and it's undergoing qualification. So again, it's general semi that's driving it for end markets.

Our next question today is coming from David Duley from Steelhead Securities.

Congratulations on nice results. In the press release and in your prepared comments, you talked about increasing your thermal compression bonding capacity, I think, to $400 million annually. That's probably a 2 or 3x of total capacity. I'm wondering what has triggered that investment all of a sudden? Do you have line of sight to much higher growth in fiscal -- or calendar '27, however you'd like to fiscal or calendar '27. Because I think you were planning on doing around $100 million of TCB revenue for the year at this point. So why the incremental investment now?

Well, that's a great question, David. I think we're investing now because we definitely see a very bright future for us in Fluxless Thermo-Compression, right? We believe we have the best system in the market, right? We have a very flexible system. We have both formic acid as well as plasma. We're the only people who have that. We also have -- our material handling allows for a lot of different applications. There's also a lot or flexibility. I think our tool system has already been proven very robust and proven -- is a proven platform, both at the IDMs as well as the foundries and now into the OSAT. So I think we feel very comfortable with the solution. We have also gotten a lot of inbound interest, as I said earlier now from not just the foundry and IDMs, but also the OSATs and we're also talking to our fabless customers or customers' customers. So I think we believe that this is the time to be prepared for a significant ramp in our Fluxless TCB business over the coming years.

And do you think you'll be taking share from somebody? Or will your solutions be finding new market niches or -- because you have some established players in the sector that have, I think, bigger businesses. So how do you plan to fill up this capacity, so to speak? Where will the big orders come from first?

Well, David, I think it's both. I think we see the market expanding, right? For example, we're not in memory right now. We're not HBM. So if that market opens up for us, that's a significant -- very big market. I think within logic itself, I mean, we -- our solution is proving to be very robust as well as it's holding up against most of the competition. So we think we will also take market share, right? And also, we think additional customers will use the -- start qualifying more applications on the FTC. So both at the foundry and also at the OSAT. So I think we'll both take market share and the market will grow, and we'll enter markets that we're currently not in.

Okay. Then I think in your both in your prepared remarks and in the presentation, you talked about strength in the memory business. Could you just elaborate what you're seeing in memory? And what's behind the big bounce back, I guess, in that segment? And will we see some vertical wire revenue this year? I guess it's a 2-part question.

Yes. I'll answer vertical wire first. I think there will be a little bit of vertical wire, but I think that's more of a '27 and beyond play. We're very excited about that. As I think we've mentioned before, Vertical wire is something that we came up with, and it's the best way to stack and it's a focus towards low-power DDR, which is definitely going to be needed on on-premise AI as well as perhaps in the data center. So we think vertical wire has a very bright future. As far as memory in general, we do see a rebound in our memory business, particularly in China. I think a lot of the Chinese memory OSATs are expanding significantly, and that's really driving our business in China for ball bonding.

Our next question is coming from Rebecca Zamsky from B. Riley Securities.

This is Rebecca Zamsky on for Craig Ellis. A&I was a positive surprise this quarter. Is this primarily automotive power device related industrial sensor-driven or broader mature foundry capacity adds? And does this guide assume A&I continues to accelerate through the rest of the year? And then I have one follow-up.

Sorry, I didn't -- Rebecca, sorry, I didn't quite catch. You said what was the application or the tool that you're asking about from us?

Yes. What was primarily driving the auto and industrial positive surprise this quarter? was it automotive power device related, industrial sensor driven or more broader like mature foundry capacity adds?

Okay. Well, I think it's more automotive. I think we're seeing, obviously, semiconductor content is going up in automotive, both around ADAS as well as in infotainment. Also, I think it's the high I/O count as well as, again, we need -- as the current increases, I think we -- our new tools are serving that market quite well. So it's mainly automotive.

Great. And OpEx declined quarter-on-quarter on an absolute dollar basis despite the revenue ramp. How should we think about the OpEx trajectory through the rest of the year? And is there a step-up in R&D or SG&A to support the TCB capacity build and new product qualifications?

Yes. So I think we guided for non-GAAP OpEx for $85 million. A big part of that increase from the Q2 OpEx is because of its variable incentive compensation as well as sales commission, that's tied to revenue, which has increased significantly. But we are also investing more in terms of our fixed costs, particularly around R&D, particularly around advanced packaging. We mentioned panel-level architecture as well as Hybrid bonding, which, as I indicated, we are going to try to accelerate that program. So yes, a big part of it is variable or move of revenue, but we are increasing our investments in what we believe is the critical growth areas.

We reached the end of our question-and-answer session. I'd like to turn the floor back over to Joe for any further closing comments.

Thank you, Kevin, and thank you all for joining today's call. As always, please feel free to follow up directly with any additional questions. This concludes today's call. Have a great day, everyone.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

The meeting will please come to order. I'm Peter Kong, Chairman of the Board of Directors of K&S. I would like to welcome you to our 64th shareholders' meeting as a public company. We're excited to be hosting this meeting virtually, which will allow us to be more inclusive and reach a greater number of our valued shareholders.

Before proceeding with the business of the meeting, I need to make a few administrative announcements. I would like to point out that the audio portion of this meeting is being broadcast live over the Internet at our website, www.kns.com. We have shareholders attending this meeting the URL as printed on our proxy statement. As is our custom, we will conduct the business portion of our meeting first and answer questions at the end of the meeting. In addition, an audio recording will be made of the entire meeting, including any questions or comments that you may have.

The audio recording will be available at our website for a limited time during this meeting. I also want to point out that in addition to historical statements, remarks and comments made today may include forward-looking statements, which are covered by the safe harbor provisions of the 1995 Private Securities Litigation Reform Act. Actual results may turn out significantly better or worse than indicated by any forward-looking statements made this afternoon. For a more complete discussion of the risks associated with the operations of K&S, please refer to the company's SEC filings especially to form 10-K for the fiscal year ended October 4, 2025.

I would now like to introduce the other members of the Board of Directors of the company. Mr. David Jeffrey Richardson; Ms. Mui Sung Yeo; Ms. Denise Dignam; Mr. Gregory F. Milzcik; and Mr. John A. Olson. I'll now call on Mr. Zi Yao Lim, the Corporate Secretary of the company for the required formal announcements. Mr. Lim will record the minutes of today's meeting.

Mr. Chairman, I present a copy of the notice of Internet availability of the notice of meeting, the proxy statement, proxy card and the annual report. I also present an affidavit as to the mailing list on January 26, 2026 of the notice of Internet availability to each person who was a shareholder of record on December 8, 2025, being the record date for the meeting.

The notice of meeting call this meeting to be conducted virtually on March 4, 2026 at 1:00 p.m. Singapore time for the purposes of electing directors, ratifying the appointment of PricewaterhouseCoopers LLP as independent registered public accountants for the 2026 fiscal year, a nonbinding vote on executive compensation and transacting such other business as may properly come before this meeting. I have a complete list of shareholders entitled to vote at this meeting.

The affidavit of mailing and the attachments thereto will be filed with the minutes of the meeting. As Chairman of the meeting, I appoint Peter Deskovich as judge of election. The judge of election has informed me that there is a quorum present. Our custom has been to dispense with the reading of the minutes of the last annual meeting. Accordingly, I will move on to the 3 matters submitted to a vote of the shareholders as outlined by Mr. Lim. We will defer voting until all the matters are properly tabled before the meeting and ready for voting.

The Board of Directors has nominated Mr. Peter T. Kong and Mr. John A. Olsen for reelection at the annual meeting to serve until the 2027 Annual Meeting and until their successors have been duly elected and qualified.

The second order of business is the appointment of PricewaterhouseCooper LLP as the company's independent registered public accountants. The other committee of our Board appointed PricewaterhouseCooper LLP as the company's independent registered public accountants for fiscal 2026. As you know, PricewaterhouseCooper LLP has served as the company's independent registered public accounting firm for the past several fiscal years. I would like to introduce Mohamad Saiful Saroni of PricewaterhouseCooper LLP. If any shareholder has any questions for PricewaterhouseCooper LLP, they can be raised during the question-and-answer period.

The third order of business is the advisory vote to approve on a nonbinding basis, the overall compensation of the company's named executive officers. If there is no discussion, we can now proceed to the voting on the matters before the meeting. As has been customary, we will vote on all matters by ballot. While we are waiting for the report of the judge of election, I would like to ask Mr. Lester Wong, our Interim Executive Officer and Chief Financial Officer to make a few comments.

Thank you, Peter. The semiconductor assembly market has faced a series of challenges in recent years, which reduced both technology and capacity-related investments across many of our served markets. Despite this well-known industry headwind, we maintain our commitment to investing in technology opportunities and prioritizing long-term growth. As we move into a new period of growth, technology and capacity-related demand is strengthening and our near-term visibility is improving.

Additionally, we are very pleased to have further strengthened our foundation for growth by ensuring our business remains closely aligned with long-term advanced packaging, advanced dispense and power semiconductor technology transitions. Within advanced packaging, technology transitions are increasing the value of semiconductor assembly, which in turn, directly increases the value we can extend to our customers.

This is most evident in our strong market position and expanding thermal compression portfolio, which has enabled the industry adoption of Fluxless ThermalCompression. This Fluxless transition has enabled share gains within leading-edge logic opportunities while also increasing our access to exciting technology transitions affecting the memory market.

Beyond TCB, we continue to be engaged with several leading customers on vertical wire opportunities. We are confident our vertical-wide technology provides the most cost-effective solution to extend form factors performance and power efficiency for high-volume transistor dense stack die applications. In addition to the broadening market demand for advanced packaging, we are also extending technology opportunities within advanced dispense and power semiconductor markets.

Similar to the advanced packaging transition, we are addressing customers' requirements for more capable, feature-rich assembly systems and solutions. This past September, we were pleased to address this evolving need with the introduction of the ACELON advanced dispense system. The ACELON platform provides superior process capability and precision which addresses the emerging needs of this large adjacent margin. Separately, we are also continuing to deliver new features and capabilities aligned with the evolving need of the power semiconductor market.

We continue to support a broad range of global customers throughout our historical leadership in this emerging market. At this point, power semiconductor assembly is becoming increasingly complex due to the higher energy efficiency within areas such as mobility, electric vehicles, sustainable energy transition and also growing data center demand. Through long-term technology collaboration, we work closely with industry leaders to navigate these transitions.

These collaborations are critically necessary to drive advanced technologies adoption and also provide a revolving set of growth opportunities for shareholders. As we continue to expand our long-term potential by securing our foundation today, we also immediately focus on aggressively flexing manufacturing capacity in fiscal year 2026 in response to the strong recent rebound in core market.

We remain committed to creating value by aligning technology transition with opportunity and also committed to delivering value directly to shareholders through a combination of consistent dividend payments and opportunistic share repurchases. We will continue to take a long prudent approach to both of these important shareholder return initiatives.

As our core business returned to a higher demand environment, we are grateful for the past investments and proud of our ongoing progress in advanced packaging, advanced dispense and power semiconductor. While these opportunities leverage our large and dominant core market position, supply chain operation footprint, they also provide additional avenues to create long-term value for our shareholders.

Finally, I would like to thank our shareholders for understanding the dynamics of our business and supporting our market expansion efforts. I would also like to thank our customers, external partners, and our committed base of performance-oriented employees who have significantly contributed to solidify our long-term growth prospects. Thank you.

Thank you, Lester. Now as has been customary, we're happy to entertain any questions you might have. Please note that we do not place restrictions on the form of questions asked so long as they relate to the specific proposals on the agenda on which the stockholders are entitled to vote. We also reserve the right to reject questions that are irrelevant to the company's business, repetitious statements or claims by individuals or that are otherwise done in bad taste, matters concerning personal grievances or of individual concern.

Relevant questions that we do not get to will be addressed on our company website. If there are no further questions, I'm advised by the judge of election has completed the count of the votes and delivered the report to the Corporate Secretary. The Corporate Secretary will now announce the results as reflected in the judge's report.

The judge's report shows 46,562,655 shares of common stock present in person and/or by proxy which the judge has certified to form the quorum of the outstanding common stock on all matters presented at this meeting. The judge's report further shows that sufficient votes were cast for the election of Mr. Peter T. Kong and Mr. John A. Olsen, for the ratification of the appointment of PricewaterhouseCoopers LLP and for the approval on a nonbinding basis, the overall compensation of the company's named executive officers.

In accordance with the results certified by the judge of election, I hereby declare that Peter T. Kong; and Mr. John A. Olson, have been elected as directors for the term for which such individuals were nominated, that the appointment of PricewaterhouseCoopers LLP as independent registered public accountants for the 2026 fiscal year has been ratified, and that the shareholders have approved on a nonbinding basis, the overall compensation of the company's named executive officers.

The final results of the voting will be included in our reports filed with the U.S. Securities and Exchange Commission. I order that the report of the judge of election be filed with the minutes of the meeting. The meeting is now adjourned. On behalf of all the directors, officers and employees, I thank all of you for attending the meeting.

Greetings, and welcome to the Kulicke and Soffa First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Joe Elgindy, Senior Director, Investor Relations. Thank you, sir. You may begin.

Thank you. Welcome, everyone, to Kulicke and Soffa's Fiscal First 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 will now turn the call over to Lester Wong for the business market and financial overview. Please go ahead, Lester.

Thank you, Joe. Good morning, everyone. We are pleased to report that demand is improving at a faster and stronger pace than previously expected. Customer sentiment has strengthened meaningfully, and utilization across our most significant markets and regions remain favorable. While residual headwinds in the automotive market may persist near term, general semiconductor and memory markets continue to demonstrate robust demand, supported by broadening technology improvements and renewed production activity across multiple regions.

Turning to recent business results. We continue to see improving order activity with additional visibility through fiscal 2026, which is supported by favorable utilization trends in general semiconductor and memory end markets. Separately, demand for our portfolio of advanced packaging solutions, including our Fluxless thermocompression bonding tools remains robust, and we continue to anticipate a strong growth year for our advanced packaging opportunities.

For the first fiscal quarter, we generated revenue and earnings above expectations and remain focused on ramping production to support strong customer demand, in addition to driving parallel technological transitions within advanced packaging, advanced dispense and power semiconductor. Dynamics within the high-volume general semiconductor and memory end markets remain favorable, while we also experienced a slight sequential revenue improvement within the automotive and industrial end markets.

In the first fiscal quarter, general semiconductor revenue increased by 27% sequentially and over 90% from the same period last year, driven by both technology and capacity needs of our customers. Across our portfolio of solutions, all reportable segments recognized sequential increases within general semiconductor this past quarter. We estimate utilization levels remain over 80% for this key end market.

Turning to memory. After a 60% increase last quarter, demand sequentially declined due to product and customer mix. While the concentration of memory customers can create demand variability quarter-to-quarter, we have observed ball bonding utilization rates, which exceed 85% for the memory market, up from the mid-70% range last year. This indicates a healthy capacity environment for our NAND assembly solutions.

While AI-related workloads are driving capacity tightness across the memory market, they are also driving new packaging solutions for cost-effective stacked DRAM, in addition to emerging requirements for high-bandwidth flash or HBF. I will provide a brief update to our memory opportunities shortly.

Within automotive and industrial, we experienced a 15% sequential revenue improvement in the December quarter, although continue to anticipate industry headwinds to linger through fiscal 2026. Despite these near-term headwinds, we remain positive on long-term automotive and industrial trends, anticipate semiconductor content per vehicle supported by ADAS requirement to double over the coming 10 years. We also remain well positioned to continue benefiting from gradual long-term share growth in battery and plug-in hybrids as we deliver new power semiconductor technology and capacity requirements.

Lastly, aftermarket products and services increased by 14% from the same period last year, reflecting increased production activity and improved utilization across our high-volume installed base. We are optimistic about fiscal 2026 based on current demand levels and utilization level improvements and remain focused on ramping production to meet high-volume demand.

Also, our traction within advanced packaging, advanced dispense and across power semiconductor opportunities continue to be encouraging. Within advanced packaging, transition of both vertical wire and thermocompression remain on track. We continue to anticipate that the advanced solutions segment will strongly grow this year as advanced TCB capacity is in demand throughout our customer base.

Over the years, we have created a competitive portfolio of TCB solutions supporting a wide range of leading-edge logic applications, and are pleased to also extend our footprint into high-bandwidth memory, which is extremely important for AI as HBMs provide fast, high-performance memory, which AI accelerators need to efficiently process massive amount of data. In this regard, we are pleased to have shipped our first HBM system to a large memory customer during the December quarter. We continue to anticipate Fluxless thermocompression remain a strong alternative to hybrid bonding for the next-generation HBM needs.

Our other DRAM opportunity stems from vertical wire, which provides a high potential alternative for cost-effective bandwidth through die stacking. We have already seen positive customer feedback on a vertical wire solutions and continue to anticipate strong sequential growth in both TCB and vertical wire over the coming years.

Advanced dispense also continue to progress as planned. We introduced our latest ACELON dispense system in November at Productronica. Feedback from customers has been positive, with multiple customers engaged. We continue to prepare several systems to support this initial customer interest.

Last, within power semiconductor, we have market-leading solutions and continue to expand our portfolio. In support of growing power efficiency requirements across automotive, mobility and data centers, power semiconductor applications are rapidly evolving. This transition is demanding more efficient materials, more complex assembly techniques and more capable equipment solutions, which we are well positioned to support.

Over the past 3 years, we have navigated a challenging demand period for our core products while we invest in several areas to expand our market access. As we now move beyond this period of soft core market demand, we are optimistic and remain well positioned to capitalize on a wide set of opportunities across our served markets.

With that said, I will now provide a brief financial update. My remarks today will refer to GAAP results, unless noted. We delivered revenue above guidance, continue to execute on close customer engagements and maintain an ongoing focus on cost control. Gross margins came in at 49.6%, and we delivered $0.32 of GAAP earnings and $0.44 of non-GAAP earnings. Gross margins improved sequentially due to customer and product mix as well as revenue recognized from systems which were previously expensed. This was largely related to prior impairment charges as well as previously expensed R&D systems.

Total operating expense came in at $81.1 million on a GAAP basis and $74.2 million on a non-GAAP basis. We continue to remain focused on operational efficiency, while we support a growing set of opportunities. Tax expense came in at $5.7 million, and we continue to anticipate our effective tax rate will remain above 20% over the near term.

Over the coming quarters, general semiconductor and memory end markets are expected to continue driving strong demand for our solutions. For the March quarter, we expect revenue to increase by 15% sequentially to $230 million with gross margin of 49%. Non-GAAP operating expenses are expected to be $73 million, with GAAP earnings per share targeted to be $0.53, and our non-GAAP earnings per share of $0.67. Looking ahead, we continue to focus on ramping production as we continue to execute multiple growth strategies across key markets.

As mentioned last quarter, this is an interesting time at the company. We're either a dominant incumbent leader or are aggressively taking share in all key markets we serve. We look forward to ongoing execution and progress in advanced packaging, advanced dispense and power semiconductor opportunities as we prepare for broadening core market recovery.

In closing, we remain focused on executing our strategic priorities, are confident in our capabilities and technology leadership and look forward to demonstrating our operational leverage over the coming quarters.

This concludes our prepared comments. Operator, please open the call for questions.

[Operator Instructions] Our first question comes from Charles Shi with Needham & Company.

Lester, maybe the first one, it looks like you are indeed entering an up cycle here based on your results, based on your guidance for next quarter. Can you help us characterize what do you see for the remainder of the fiscal or calendar year, whichever you feel more comfortable at this point? What do you see for the remainder of the year in terms of overall demand, overall top line growth?

Charles, thanks for the question. So I think we're getting better visibility into the remainder of our FY '26 based on the very high utilization rates as well as our discussions with customers. I was just in Taiwan and China in the last couple of weeks talking to customers. We think Q3 definitely will be sequentially better than Q2. I think the second half of FY '26 should be about 15% to 20% better than the first half.

That's great color. Then regarding some of the new opportunities you mentioned, I believe somewhere in the prepared remarks, you talked about high-bandwidth flash, but you didn't really provide more details than that. Just a little bit of context why I asked this question because I thought the high-bandwidth flash is a TSV microbump-based technology. But it sounds like you're alluding to, maybe it's not quite more of a TCB driver, maybe it's a vertical wire driver. So mind if you elaborate a little bit because it wasn't clear how HBF is going to benefit or create opportunity for K&S.

Sure, Charles. Actually, it is a TCB play, not for vertical wire. As you know, HBF is designed to merge NAND level capacity with HBM class performance, right? And the potential benefit is obviously unlocking bottlenecks and AI workloads, right? So HBF targets to match HBM bandwidth to 8 to 16x capacity. At this point, HBF is still in early stages. We anticipate multiple packaging technologies can be used to assemble these packages, including TCB. So right now, we're currently exploring this technology with a few customers. So it is going to be our TCB, probably APTURA that will be used for HBF.

Okay. So you do have a TCB tool, which you just shipped to one of the top 3 memory customers. But yes, so it sounds like that is for HBM qualification. So what would be the next milestone like for TCB and HBF, like do you expect to ship another tool? Is that the milestone that we should be all looking forward to?

Sorry, Charles, you mean the next milestone for HBM or HBF? HBM, right?

High-bandwidth flash, sorry. I meant high-bandwidth flash.

Okay. So I think the milestone, like I said, right now, we're in early stages of discussing with some customers. I think probably the next milestone would be probably shipping a system or -- probably shipping a system before a PO, so at this point.

Okay. So a system should -- okay. The next milestone is another qualification system shipment. Okay, got it.

Our next question comes from Krish Sankar with Cowen.

Congrats on the results and guidance, kind of interesting to see the cyclical recovery here in play. I just kind of wanted to just clarify, you said second half -- fiscal second half weighted by 15% to 20%. Is that just conservative? Because I would say that if you try to strip it down by quarter, it seems like the growth rates slowed sequentially to high single digits versus low double digits the last 2 quarters. But I would think that it should be better than that given a cyclical uplift. So is this more conservatism or of the fact that this is the visibility you have today, things could end up being better than expected?

So thanks, Krish. I mean that's the visibility we have today, right? Again, while visibility is better, as I said, and utilization rate is very high at 85% over -- close to 90% in China, there is still a lot of uncertainty in terms of some of the macros, right, things we've been talking over the last couple of quarters. But at this point, we think -- from all my discussion customers, it's getting much more solid. So 15% and 20% is what we see at this point. There could be potential upside on top of that. But for now, I think 15% to 20%.

Fair enough. Fair enough. And then just to follow up on the strong growth here for advanced packaging. I'm just curious, is there a way to quantify how much did your TCB plus FTC revenues would be? Is it close to $100 million this fiscal year? And also on the FTC side, have you been -- has your plasma solution been qualified at the bigger foundry or not yet?

So are you saying have our FTC been qualified at the foundry?

The plasma solution, not the formic acid.

Right now, we're working on the qualification for the plasma. As we mentioned, the formic acid has already been qualified. It's in high-volume production. Again, I don't want to speak specifically about individual customers, but we're working very closely with the customer on that.

I think for our TCB, we obviously, as you know, Krish, we started with IDM in the U.S. and we've moved on to foundry. Now we're also seeing quite a lot of demand from OSAT. We have 120 TCBs in the field, and half of those are Fluxless. So we feel pretty good about our TCB system. We think it's best-in-class. It's got great material handling capabilities, which allow for customers to do different processes. So I think -- we definitely think both plasma and formic acid, we're best-in-class on FTC.

And let's just say, any kind of qualification on TCB revenues for this fiscal year?

Well, I think for this year, for TCB, it will be over $100 million.

[Operator Instructions] Our next question comes from Craig Ellis with B. Riley Securities.

Lester, congratulations on the nice execution. I wanted to start just by going back to the thread that Charles was on with high-bandwidth flash. The question though is, as you engage with multiple customers on high-bandwidth flash, what's their expectation for when this can commercialize? Obviously, new standards have to go through JEDEC, but on the other hand, you've probably got NVIDIA pushing really hard, and they've been very successful at accelerated technology adoption. So when are these customers thinking this can come out in volume?

Well, Craig, as I said, I think it's early days yet for the technology. As you put it, I think it's -- it will take a while for [ quotations ]. There's a lot of different standards talking about. I think this will probably be more of a CY '27 play.

Got it. And then going back to your comments on the initial shipment to a customer for high-bandwidth memory, can you just walk through the time line for when we go from that tool, which looks like an evaluation order, to volume production? Can that happen in fiscal '26 or is volume production really fiscal '27?

I think volume production will be in fiscal '27. I think right now, we've shipped the system to their facility in the U.S. It's undergoing qualification. I think the next milestone will probably be hopefully another system being shipped. There may be POs within FY '26, but I think actual production would be more FY '27.

Okay. And we'll look for progress on that. Lastly for me, vertical wire, since this is something that could work in low-power DRAM and mobile-related applications, typically the early technology adopter releases product in the third quarter of the calendar year. Do you think we can hit that in the second half of 2026? Or is this something that really goes up in significant volume in the second half of '27? Or do you see initial adoption coming out of the Android community and when would that be?

I think there will be more -- it's gaining traction, but I think this is more -- maybe the latter half of FY '26, there'll be some. But I think they'll actually expand much more in FY '27. We're currently working with 8 customers in Korea, China and the U.S. on this. So again, we pioneered the technology of vertical wire, so we're pretty excited about it. This, in addition to the HBM system that we shipped to the leading memory maker, is our sort of play into DRAM. Craig, as you know, our memory business has been traditionally very heavily into NAND, which is still growing, as I said. But I think this is, again, more opportunities for us in memory and because we think memory actually is going to be pretty robust going forward.

Our next question comes from Dave Duley with Steelhead Securities.

It's nice to see the recovery in the business. One of the comments I think you made in your slide deck is you're seeing the data center revenues increase in the general semi bucket. I was just wondering if you could talk a little bit about what those applications are, because it's really interesting that you're seeing a significant recovery when the outlook for PCs and handsets are actually down sequentially in units in '26.

Thanks, Dave. Great question. As I said earlier, over the last couple of weeks, I personally had a lot of conversation with customers in Taiwan and China. And data center is basically the central driver for this cycle. So we support data center in many ways. We have a very strong AP portfolio. It's a best-in-class for chiplet and heterogeneous logic applications. We've actually been taking share in leading-edge logic for data centers over the last couple of years already. And we're already in production for some of the most advanced heterogeneous logic applications.

We're also positioning ourselves for future growth. We're in the process of expanding our facility here in Singapore to increase our Fluxless thermocompression production capacity by 3x. So in addition to AP, we also support data center, memory and general semiconductor solutions. So many applications in data center like general infrastructure, networking, communication, power and storage, it relies on more high-volume traditional assembly technologies like ball bonder, basically, our core products.

And for memory, as I think I said earlier in response to Craig's question, we're mostly in NAND, even though we're moving into DRAM. And we're seeing actually a lot of enterprise SSD being increasingly used in data centers now, and that also help drive our memory business. And that's another way we play in the data center.

Okay. Could you just remind us what the utilization rates are in your key regions? I think you mentioned one in your commentary, but if you could just kind of run down the key regions for us, that would be great.

Sure. China is over 90%. It's been in the high 80s and 90s for a while now. We see it continuing. The rest of Asia is around 80%, which has come up now. Southeast Asia, which was a laggard, is now coming back. It's still only in the 70%, but it's been increasing over the last couple of quarters. And then North America is also over 80%. And North America and Europe, we look at it together, it's about 80%. So almost everybody is near 80% and China is at 90%.

Okay. And then the gross margins during the March quarter -- or excuse me, the December quarter were close to 50%, and you mentioned that there was some benefit from some previously written-off inventory. But then I think you guided gross margins to almost the same level again in the March quarter. So could you just talk about gross margins throughout calendar 2026 as we grow the revenue and what your expectations are there?

Sure, Dave. I think for the rest of FY '26, gross margin should be around 49% to 50%. I think what we're seeing now in our core business ball bonder is that there's a lot more demand for our high-performance ball bonders, which is much better margins, much better than our LED, for example. So a lot in high-performance bonders. Second thing is obviously, increase in volume helps with absorption, which helps the gross margin. And finally, we've always been very focused on cost control, and we'll continue to do that even during a ramp.

Can we expect gross margins to continue to go higher as revenue ramps?

Well, like I said, it's going to be around 40% to 50%, which is always been our target is 50%.

We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Joe Elgindy for closing comments.

Thank you, Maria, and thank you all for joining today's call. As always, please feel free to follow up directly with any additional questions.

This concludes today's call. Have a wonderful day, everyone.

You may disconnect your lines at this time. Thank you for your participation.

Greetings, and welcome to the Kulicke and Soffa Fourth Quarter 2025 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Joseph Elgindy, Senior Director of Investor Relations for Kulicke & Soffa.

Thank you, Mr. Elgindy. You may begin.

Thank you. Welcome, everyone, to Kulicke and Soffa's Fiscal Fourth Quarter 2025 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 information, 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 will now turn the call over to Lester Wong for the business overview.

Please go ahead, Lester.

Thank you, Joe. Good morning, everyone. Before discussing this quarter's business performance and outlook, I want to briefly discuss recent organizational changes we announced on October 28. I have taken over as Interim CEO due to Fusen Chen's recent retirement and will continue my existing duties as the Company's Executive Vice President and Chief Financial Officer. Fusen is actively recovering and doing well, and we appreciate everyone's thoughts and concerns. While a search for a permanent successor among external and internal candidates is underway, we are fortunate to have a deep bench of talented leaders in the executive team and an involved Board of Directors who are committed to ensuring the continuity of leadership, stability and strategic focus of the Company.

We expect this transition to be seamless and customers can expect continued innovation, global support and strong commitment from K&S to serve the evolving needs and to enable next-generation devices. I want to thank Fusen for his leadership over the past 9 years. Under his guidance, we pursued meaningful new business opportunities and expanded our market access by securing a foothold in several high-potential technologies. We have also dramatically increased the volume of customer engagements and improved time-to-market execution. In doing so, we have accelerated the growth of our advanced portfolio of solutions, which enabled meaningful share gains in leading edge logic and has paved the path for additional expansion in DRAM, power semiconductor and advanced dispense.

Fusen's legacy is an organization defined by growth, agility and close customer focus. We appreciate that he has agreed to provide advisory support over the coming year and believe his vast experience and industry knowledge will be a useful resource to the company as we extend our leadership in advanced packaging and adapt to industry transitions such as the rise of chiplet architectures and heterogeneous integration. I, along with the entire organization, would like to wish Fusen a happy and healthy retirement. I am confident we will continue to win market share and grow the business over the long term. As all of our end markets are showing signs of improvement, we have recently begun to prepare for higher production while continuing to aggressively drive several exciting technology transitions.

Additionally, in my role as Interim CEO, I am grateful to have met many customers in person over the past month and look forward to meeting with many others over the near term. We are fully committed to consistently providing customers with best-in-class capabilities and high-performance solutions they expect from K&S. Turning to our recent business results. We are encouraged by improved order activity, supported by favorable utilization trends in general semiconductor and memory end markets while we continue to execute on key initiatives. Within our fourth fiscal quarter, we generated revenue of $177.6 million, GAAP earnings per share of $0.12 and non-GAAP earnings per share of $0.28. We remain focused on operational efficiency as we expand our reach within thermocompression, vertical wire, advanced dispense and power semiconductor transitions.

From an end market standpoint, utilization rate for high-volume general semiconductor and memory applications continue to improve, while dynamics within the automotive and industrial markets are now showing early improvement. General semiconductor revenue increased by 24% sequentially, driven by technology and capacity needs, which increased thermocompression and ball bonder demand during the September quarter. We estimate utilization rates are currently over 80% for this key end market. Memory has also improved sequentially, similar to general semi in both utilization and revenue. Memory-related revenue increased by nearly 60% sequentially to $24.4 million and was driven predominantly by NAND-related capacity additions. Historically, our memory solutions were tailored for high-density NAND assembly, although we remain closely engaged in supporting advanced packaging transitions within DRAM. We continue to expect the growth in high-performance edge application like on-device AI or AI on the edge will begin to accelerate this trend.

Order hesitation within automotive and industrial has continued into the September quarter with a relatively sharp sequential decline. While the broader automotive market has been softer, we anticipate a sequential improvement during the current December quarter and are pleased to report a more positive outlook through fiscal 2026. As a reminder, we remain an active technology partner, providing many new innovations within power semiconductor, which are supporting long-term transitions within the EV and other clean tech markets. Last, APS has increased by 17% sequentially, which aligns with improving utilization data and more distinctly highlights increased production activity across our high-volume installed base.

We are optimistic about fiscal 2026 and remain encouraged by improving end market dynamics along with strong traction we are seeing across our growing set of advanced packaging, advanced dispense and power semiconductor opportunities. Within advanced packaging, we continue to support the industry adoption of advanced thermocompression and vertical wire applications and remain closely engaged with multiple leading customers on these exciting initiatives.

First, within Fluxless thermocompression or FTC, we continue to directly address the needs of advanced heterogeneous logic applications. We are pleased to see growing demand across our customer base, driven by the increasing capacity needs of IDM, foundry and assembly and test customers. Our operational and supply chain teams are actively preparing for a production ramp through fiscal 2026 as adoption for our FTC process begins to accelerate. Additionally, we are preparing to ship our first HBM system within the current December ending quarter.

Within the HBM market, we continue to anticipate advanced thermocompression capabilities such as FTC, provides an attractive assembly alternative as bandwidth requirements increase with future HBM standards. On the mobility side of DRAM, we continue to expect on-device AI applications to demand high level of bandwidth and increase the need for new vertical wire-based assembly over the coming years. This is a great example of how advanced packaging techniques are directly supporting power efficiency, performance and form factor improvements, helping to offset the rising costs of traditional transistor shrink.

We remain engaged with a broad group of memory customers who are actively preparing for this transition. Our vertical wire market expectations into fiscal 2026 remain consistent, and we continue to anticipate a shift to higher-volume market production by the end of the year. Longer term, we anticipate stacked DRAM or mobile HBM will continue to grow aggressively with high-volume edge-related applications. Next, with advanced dispense, we are pleased to release our recent dispense system, ACELON during Semiconductor Taiwan in September.

ACELON leverages our unique and high-precision dispense capabilities with a highly robust architecture platform, which has been proven in critical production environment. Transitions in many of our end markets are increasing demand for high precision and more capable dispense systems. We continue to receive recurring purchase orders as well as new customer purchase orders for our growing line of advanced dispense systems. Finally, while the current automotive and industrial market remains dynamic, we continue to develop innovative solutions to address increasing level of assembly complexity surrounding power semiconductor applications.

In summary, we continue to expand our market presence on multiple fronts and remain cautiously optimistic as key regions and end markets show signs of cyclical improvement. We are pleased to see ongoing general semiconductor capacity digestion and expansion within our key regions as well as memory technology transitions and pricing improvements, which are all promising indicators and that increases our confidence in the outlook. We continue to navigate a uniquely exciting time in semiconductor assembly with the potential to capitalize on a wide set of opportunities in the industry. With that said, I will now provide a brief financial update. My remarks today will refer to GAAP results unless noted. We delivered revenue above guidance, continue to execute on close customer engagements and maintain an ongoing focus on cost control. Gross margins came in at 45.7%, and we delivered $0.28 of non-GAAP earnings. Total operating expense came in at $80.3 million on a GAAP basis and just below $70 million on a non-GAAP basis.

We continue to remain focused on operational efficiency while we support a growing set of opportunities. We continue to anticipate non-GAAP operating expense to be around $70 million over the coming quarters, which provides a strong foundation for operational leverage as demand for our solution ramps. Tax expense came in at $0.3 million, and we continue to anticipate our effective tax rate will remain above 20% over the near term. During the September quarter, we continued our repurchase program and deployed $16.7 million to repurchase 464,000 shares. Over fiscal year 2025, we repurchased 2.4 million shares, representing nearly 5% of shares outstanding for $96.5 million.

Looking ahead, end market improvements within general semiconductor and memory are becoming more evident, supported by regional utilization improvement and a strong sequential increase in APS demand. While automotive and industrial was previously expected to create an ongoing headwind into fiscal 2026, we are pleased to now anticipate sequential improvement into the December quarter. For the December quarter, revenue is expected to increase by approximately 7% sequentially to $190 million with gross margins at 47%.

Non-GAAP operating expenses are expected to be $71 million with GAAP earnings per share targeted to be $0.18 and non-GAAP earnings per share of $0.33. While we remain focused on production readiness and key growth opportunities, we have also strengthened operational and development efficiencies over the past few quarters. We are confident that these efforts position us to emerge from the extended soft demand period, a leaner and more growth optimized organization. Today, we're either a dominant incumbent leader or are aggressively taking share in every key markets we serve. We continue to ensure our highest potential opportunities are well resourced and our customer development efforts are on a positive trajectory. Looking into fiscal 2026, we anticipate that half of our incremental growth will stem from technology transitions and share gains in new markets. At the same time, the other portion of sequential growth is increasingly encouraging due to the anticipation of ongoing cyclical recovery over the coming quarters.

We look forward to ongoing execution and progress on advanced packaging, advanced dispense and power semiconductor opportunities as we prepare for the broader core market recovery. In closing, we remain focused on executing our strategic priorities, are confident in our capabilities and technology leadership and prepared to navigate the near-term macro environment. This concludes our prepared comments.

Operator, please open the call for questions.

Today's first question is coming from Krish Sankar of TD Cowen.

Good luck to Fusen and definitely going to miss him. I have 2 questions left. The first one, it looks like based on your guidance, pretty much sequentially all your 3 segments, general semi, memory and auto industrial should grow. Is that the right way to think about it? And how to think about it into the March quarter and any kind of seasonality effects? And then a follow-up.

Thanks, Krish, and I appreciate your sentiment Fusen, I will definitely pass it on. As far as the 3 segments are concerned, I think as we said, general semi and memory are actually very strong. Utilization for both is over 80%. Auto and Industrial is still lagging a little bit, but we do -- we're very optimistic about it because we do see improvements, and we think there will be sequential growth into Q1. So I think as far as how we want to look at the March quarter, we think March will probably be -- probably flat to Q1. So we don't see any seasonality into the March quarter.

Got it. And then as a quick follow-up, one of your Taiwan competitors spoke about their FTC plasma solution for chip-to-wafer has passed final call as being used with a leading foundry. So I'm kind of curious, what is your status there? And do you think they could split the business or you're not in pole position anymore?

Well, Krish, I think we're still the only one at the foundry doing high-volume production, right? I won't comment on our competitors. I mean we were qualified a long time ago. So I think we continue to feel very strongly about our solution. Our solution now has both formic acid and plasma. So it gives the customer a lot more optionality to do it. We have single head, we have dual head. So we think our FTC solution is basically best-in-class, and we feel very, very competitive at the foundry as well as anywhere else we compete against the competitors.

The next question is coming from Charles Shi of Needham & Co.

Lester. Maybe the first one. You talked about shipping a system to the HBM customer. I know the team has worked on this for a while, and it's finally shipping. So it's definitely going to be good news I think by most of the investors. But kind of wondered if you can provide a little bit more color on this shipment. What's the nature of the shipment? Where -- I mean, as much as you can provide color where you are shipping the system to? And what's the next milestone?

Thanks, Charles. Well, we're shipping the system to the -- somewhere in the United States, right, without being too specific. As far as the next milestone is once it's installed, they're going to start running wafers through it, and we're going to look for qualification. So we hope to get -- share some news a few months after the system has been installed at the customer.

Do you have any insight into which generation of HBM this qualification is targeted at?

I would say it's probably 4E.

Okay. So maybe the next question, you talked about growth for fiscal '26. Half of that is coming from tech transitions, share gains, the other half from cyclical recovery. But wondering if you can put some quantitative color into that, like how much -- how many percentage points do you think can come from both areas? And any directional -- I mean, hopefully, it can be a little more quantitative that would be great.

Sure, Charles. As you know, we don't guide beyond the quarter. But I think we're very comfortable with the -- for FY '26, we're very comfortable with the consensus number, which I believe is around $730 million, $740 million. And then again, as I said in my remarks and as you just repeated, we think half the incremental growth will be from technology transition like FTC, like vertical wire, like advanced dispense as well as power semiconductor. And then the other one would be from the cyclical recovery led by the very high utilization rate, which we see out there, which is about 80% right now.

The next question is coming from Tom Diffely of D.A. Davidson.

Lester, I was wondering if you could talk a little bit more about the NAND market. We're hearing obviously strength in high-bandwidth memory, and that's using up some of the DRAM capacity. But I haven't heard anybody talk about strength or improvements in the NAND markets until you mentioned it earlier today. Maybe just a little more comment on the NAND market.

For sure. I mean I think we -- what we're seeing is we're seeing very high utilization rates in memory. It's over 80%, about 82%, 83%. We're also seeing, I guess, purchase orders increasing in that market as well, particularly in China. Again, China itself, it's driven by general semi and memory and China utilization is actually close to 90%. So that's basically what we're seeing in the field, Tom.

Okay. And would you still -- you said there wasn't much in the way of normal seasonality, but would you still expect more of a ramp to happen post Chinese New Year kind of the normal cycle as far as incoming new orders?

Well, we're actually, again, already seeing orders now into Q2. So I think it'll probably be flat. I think this year, FY '26 probably would be a little more linearity throughout the entire year. So I think, again, I don't see a huge uptick after Chinese New Year, but it'd be nice if it happened.

Yes. And I do want to echo your comments on Fusen. I've been covering the company on and off for 25 years. And when he came in several -- many years ago, there was really a sea change in the productivity of the company and the outlook of the company. So I wish him all the best.

Thank you, Tom. Thank you. As I indicated, Fusen transformed K&S and expanded our portfolio of advanced products. And a big part of this incremental growth from technology transition is due to his vision and his strategy. So we all wish him well in his retirement.

[Operator Instructions] Our next question is coming from Dave Duley of Steelhead Securities.

Please relay my best wishes on retirement to Fusen as well.

We do, Dave.

First question, I think in your slide deck, you talked about increasing market share in the HBM market. Could you just elaborate a little bit further on that? Is that just what you were referring to is shipping an HBM tool for thermocompression bonding? Or is there something else to that commentary?

So Dave, I think actually the slide referred to increasing market share in DRAM, not specifically HBM. As I think I said in my remarks as well as responding to Charles' question, we are going to ship our first HBM machine to a customer in the U.S. for qualification.

Okay. So that commentary is just wrapped around the HBM shipment to a thermocompression bonding tool, nothing else?

Yes. For now, we are very -- as you know, we started our thermocompression focus on logic. We are the market leader in logic for thermocompression. But again, we're just entering the HBM market now. But we're very optimistic. We believe the tool is very well suited to HBM. And we think as standards change and as well as density increases, I think the tool -- the [ Fluxless ] thermocompression compression tool will do really well.

Now do you think at this customer, you'll be trying to displace a Fluxless -- a standard thermocompression tool? Or will you be -- are you up against a hybrid tool? Or what do you think kind of the -- how this unfolds as far as the qualification goes and what you're competing against?

Well, I think we're basically competing against other thermocompression bonders, right? Not so much hybrid for now. I think hybrid still, as we've spoken before, for HBM, hybrid is a little bit off for now. So I think mainly the competition will be other TCB.

Okay. And then you mentioned vertical wire ramping in the -- I think, in the back -- in 2026. Could you just elaborate a little bit more on what exact -- why is that ramping now? Is it tied to specific handset model or some end market? And then maybe help us understand what expectations you have for that new business in 2026?

Sure. Well, I mean, we've been working on vertical wire for a while. And now we've had calls and we have tools at many customers, both in China as well as outside of China. As the calls progress, we believe that the first high-volume production will be in the latter part of CY '26, which means we start shipping tools in the latter part of our fiscal '26, right? So I think that's basically sort of the color around what we think. And as far as our expectations, we still think FY '26 is going to be the beginning. So I think somewhere around the neighborhood of $10 million, and then we think it will ramp significantly in '27 and beyond.

Okay. And do you have -- as far as your core business goes, usually, it's somewhat tied to unit volume growth in the general semi market. I was just wondering if you had an idea about how fast units are growing in 2025 or a prediction for unit growth in 2026?

Well, yes, we have used that before, and I think it's probably 5%, 7%. But again, I think what is really giving us confidence is the utilization rate, which is, as I said, over 80% in both memory and general semiconductor and then 80% overall. Also, again, a lot of our core business is in China, and that utilization rate is almost close to 90%.

The next question is coming from Craig Ellis of B. Riley Securities.

Lester, good luck in the role and good luck to Fusen as well with health issues. I wanted to start and admittedly, I missed the first part of the call, but I wanted to start better understanding the dynamics that you're seeing in the memory market. Lester, do you think this is just a steeper slope that you're seeing in memory as utilization and orders have improved? Or is it really just a different timing for what might be a typical seasonal move up in memory ahead of second half build. So the question is really on the trajectory of the recovery that you're seeing.

Well, as -- so Craig, I think right now, memory utilization is very high. I mean sales are increasing there. They're still obviously lagging general semi. So I think right now, I do think this is a ramp in memory, and it will continue into FY '26.

Yes. And can you talk about the potential for memory in '26 to get back to historic revenue levels? And then because general semi is rebounding and it's doing so against a slightly improved but not significantly improved high-volume PC and smartphone market. What do you think is really driving the improvement in general semi?

Well, I think it's still smartphone and high-performance computer, right? I mean it's cyclical. I think for a long time, we've -- as you know, we've had almost 3 plus 4 years of a downturn, right? And this is the digestion of the tremendous amount of inventory that was built up in '21, '22. So I think actually, this is almost back to a normal cycle, right? And it is the beginning of the recovery, which I think we've all been waiting for.

Okay. And then lastly, I think you did mention in prepared remarks that we're not yet seeing any signs of uplift from the auto and industrial market. But as you talk to customers in those end markets, are you getting any indication that they could begin to see an upturn sometime in the first half of calendar '26? Or is it still just very low visibility and an absence of any signs of improvement?

So Craig, I think when we talk to customers, we actually get a sense of optimism, right? I think while there is still a little bit of headwinds, it's definitely improved significantly. And we expect our auto industrial revenue to increase sequentially in Q1 from Q4, right? And then I think going forward, we do see -- it's lagging general semi and memory a little bit, but we do see it coming back, right, particularly maybe our customers in Southeast Asia as well as in China. So -- and one thing I think, Craig, as you know, we are sort of involved in sort of a technology transition on power semi, which is basically, again, for cleantech as well as for EV. So I think with all those factors, we definitely think FY '26 will be a much better year for auto industrial.

At this time, I would like to turn the floor back over to Mr. Elgindy for closing comments.

Thank you, Donna, and thank you all for joining today's call. Over the months, we'll be participating at conferences in New York and Phoenix. As always, please feel free to follow up directly with any additional questions. This concludes today's call. Have a great day, everyone.

Ladies and gentlemen, thank you for your participation. You may now disconnect your lines or log off the webcast. Have a wonderful day.