Joseph Elgindy - Investor Relations & Strategic Planning Bruno Guilmart - President and CEO Jonathan Chou - SVP and CFO.

Krish Sankar - Bank of America Merrill Lynch Brett Piira - B. Riley Tom Diffely - D.A. Davidson Mohit Khanna - Value Investment Principals David Duley - Steelhead Securities.

Greetings and welcome to the Kulicke & Soffa First Quarter 2015 Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr.

Joseph Elgindy, Director of Investor Relations and Strategic Planning for Kulicke & Soffa. Thank you Mr. Elgindy, you may begin..

Thank you Christine. Welcome everyone to Kulicke & Soffa's fiscal 2015 first quarter conference call. Joining us on the call today are Bruno Guilmart, President and CEO and Jonathan Chou, Senior Vice President and CFO. Both are available for Q&A after the prepared comments.

For those of you who have not received a copy of today’s results the release as well as our latest investor presentation are both available in the Investor Relations section of our Web site at kns.com. In addition to historical statements, today’s remarks will contain statements relating to future events and our future results.

These statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Our actual results and financial condition may differ materially from what is indicated in those forward-looking statements.

For a complete discussion of the risks associated with Kulicke & Soffa that could affect our future results and financial condition, please refer to our SEC filings, specifically in the 10-K for the year ended September 27, 2014 and our other recent SEC filings. I would now like to turn the call over to Mr. Bruno Guilmart. Please go ahead, Bruno..

Thank you Joe and thank you all for joining our call today. We entered our first fiscal quarter with $107 million of revenue exceeding the high end of our guidance by 7% and generating nearly $8 million of net income.

Most of our business lines exceeded our expectations and our global sales team did an excellent job closing a number of incremental opportunities. As a comparison from the prior year's December quarter, this represents nearly a 36% revenue improvement.

During the latest December quarter, we generated nearly $55 million of gross profit, which represents excellent gross margin performance of nearly 51%. Jonathan will provide you more detail on this strong performance throughout the year.

From a business lines standpoint, wedge bonders strengths has continued as expected with market support stemming from all categories; power semis, automotive and industrial. The ball bonder business came in stronger than our original expectation, due in part by additional pockets of incremental demand.

We believe a portion of this unexpected demand stemmed from our exposure to the internet of things.

While the I-O-T story is still in its relative infancy, it's hard to argue it will not have a positive impact on overall semiconductor unit growth and more specifically, drive up the demand for wire bonding technologies as we discussed in previous calls.

Another portion of this demand stems from continuous growth of copper and lower pin count at application such as QFN where we have made good progress. We recently released a new solution, including a QFN specific capillary products that are tailored specifically to this market.

Copper capable ball bonding sales in the December quarter were approximately 72% of total bonder sales in line with our three year trending average. Similar to these specific copper and QFN examples, shifts in wire bonding technology have and are expected to continue driving multiple market opportunities for us.

We're able to efficiently capitalize and dominate on this significant and growing segment by intimately understanding our customers' needs but also through relentless and focused R&D efforts. LED bonders during the December quarter we produced less than 5% of our wire bonder sales.

As mentioned in prior calls and prior quarters, we continue to sell activity in the LED market when we see unique opportunities. I will now turn the call over to Jonathan for a more detailed financial review of the December quarter.

Jonathan?.

Thank you, Bruno. My remarks today will only refer to GAAP results and we're comparing December quarter to the September quarter. Net revenue for the quarter was $107 million. Gross margin were very strong at 51% with $55 million of gross profit. 51% gross margin sets a new high for K&S.

Gross margin in our core ball and wedge bonding business were critical in driving this performance. As many machines shipped with additional feature sets which generally helps margins. Another significant impact was our broader product mix between our business lines. As many of you are aware this affect generally occurs in lower volume quarters.

Record gross margin adds further support to our position that our widely-used and advanced technology remains a very healthy and thriving business. We generated $9.7 million of operating income, $7.8 million of net income and $0.10 of EPS, all fairly impressive considering expected seasonality effect in the December quarter.

R&D came in slightly below our previous estimates at $19.6 million in the December quarter. In the March quarter, considering our recent acquisition and continuing investment in our organic development, we anticipate R&D to be approximately $26 million per quarter.

We ended the December quarter with a total cash and investment position of $633.4 million, up about 6% from September. From a diluted share standpoint, this cash position is equivalent to $8.18 and our book value equivalent is $10.23.

As indicated through recent public disclosures, we closed Assembleon transaction after our December quarter ended on January 9, consuming approximately $98 million of cash balance. Working capital to finance accounts receivable plus inventory less accounts payable decreased by nearly $40 million to $146.4 million.

From a DSO perspective our day sales outstanding increased from 79 days to 102 days. Our days sales of inventory increased from 44 days to 89 days and days accounts payable increased from 31 days to 47 days. Our effective tax rates for the quarter came in at 19% which is above our prior guidance.

This is primarily due to additional income book end higher tax jurisdictions. In the longer term, we expect some additional movement in this tax rate resulting from further simplification of our operating and legal entity structure, shift in global demand patterns and effects related to the recent acquisition.

Concerning these effects, we are currently targeting our long-term, our longer term effective tax rate will be around 15%. This concludes the financial review portion of our call. I will now turn the discussion back over to Bruno for the March quarter business outlook..

Thanks, Jonathan. The guidance for the March quarter and due to the later New Year holiday this year starting on February 18 and typically lasting for two weeks, we are experiencing some of length of validity of our business and are conservatively guiding revenue of $125 million to $145 million revenue range.

This guidance includes a partial quarter's contribution from Assembleon, our new advance packaging, mass reflow and advanced SMT business line which, as Jonathan just mentioned, closed on January 9. Before we discuss Assembleon, I wanted to provide a brief status update on our internal developed thermos-compression based local reflow business line.

To date we’ve shipped six machines to a range of customers. We're activity engaged with several additional customers which results in more equipment deployment this fiscal year. Based on market feedback, we remain very confident that this will be the continued solution of choice for thermos-compression based applications.

Our official chip to chip PCB local reflow machines, or wafer to wafer, release date is still on track for SEMICON Taiwan this coming September.

The addition of Assembleon to the K&S family is a very promising and complementary extension of our K&S advanced packaging solutions and a very interesting diversification into advanced SMT, a new exciting market for us.

For those who have missed our latest call, we have provided a fairly detailed presentation on our webcast which provides much insight into the strategy and financial implications of this transaction. At a high level, there are three key points for this acquisition.

First, it immediately and significantly expand our offerings and exposure within advanced packaging. When added to our existing advanced packaging program and our leading solutions, we truly have a comprehensive portfolio offering that addresses effectively all semiconductor package in production today.

This solution effectively provides our suite access to 15% of semiconductor that don't rely solely on wire bonding. Assembleon panel-based architecture addresses many attractive and complementary packages formats such as flip chip, fan out wafer level packaged, chip scale packages, system in packages, and embedded die.

This new business line technical competencies and machine format also provide us with a flexible high speed mass reflow ability that better enables us to provide new and innovative solutions to customers in the future.

Secondly, Assembleon will give us access to the advance SMT market by providing equipment and services to a very attractive group of new quality centric customers within the automotive, medical, and industrial electronics markets.

This core business is complementary and will add breadth to our advance packaging solutions and diversification to our traditional semiconductor business. We are totally committed to continuing to carry out the high level of customer satisfaction that Assembleon is known for.

Lastly, Assembleon's strategic significance and sound valuation combined with our own green execution of the share repurchase program shows that investor confidence in our ability to source opportunities and excess deploy excess cash in a prudent efficient and very creative manner. This concludes our prepared remarks.

Operator, we will now be happy to take any questions..

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from the line of Krish Sankar with Bank of America Merrill Lynch. Please proceed with your question..

Congrats on the good execution Bruno and Jonathan. A couple of quick ones. First and foremost on the guidance on March.

Can you tell us how much of that is or what do you assume for Assembléon revenue?.

Krish, we do not provide specific guidance and we will not provide specific guidance for our business lines as we have done in the past.

Just to give you, if you will, I think you will recall the last time that remember that in FY14, last year Assembleon did about $90 million plus of business and we anticipate that business to grow at a minimum of 10% per year.

So, you know, I'll let you do the math and you can roughly figure out, you know, the contribution of the Assembleon business in our guidance for the quarter..

And then a question for Jonathan, the R&D going up to $26 million in March, I am assuming part of it is because the Assembléon getting rolled into the company and if that is the case, how should we think about the new breakeven level, given that in the past the core silicon profit was about $95 million to $100 million? What will it be with Assembléon?.

Sure, in terms of the new breakeven level at least from a revenue perspective, we are about 120 million revenue level and just to give you a bit of some assumption for your modeling purpose, we have actually estimated about 50 million of fix and 5% of actually variable for the combined basis.

Obviously we will continue, as we integrate the company we will continue to basically work on the variable portion..

That’s a conservative way to actually look at the 120, but that we believe we can actually lower that even further..

And then the final question was how much did you buyback in the December quarter and how much is left in your $100 million buyback?.

In terms of the -- as of December 27, we bought back $7.6 million. About 600,000 shares and an average price of $13.27. To date, close to 9 million or so purchased and we have, obviously, the balance of the $100 million left..

Our next question comes from the line of Brett Piira with B. Riley. Please proceed with your question..

Maybe just started off from the advanced packaging side, can you just kind of update us with the actual total number of customers that you guys are engaged with and maybe of those Flip Chip tools, is that just the one customer still or is this shipped to other customers?.

Okay, so now when we look at advanced packaging, advanced packaging has become all of a sudden a much wider space for us. As the Assembleon acquisition is adding to our portfolio mass re-flow which we didn't have. We focused purely on thermos-compression local reflow.

To date, we have deployed six APAMA machines and basically I would say they are to about four different customers.

And our forecast is to deploy actually another six in the second half of the year, and some of which will include the second product which is the APAMA which is the chip to chip or chip to wafer version, which I've talked about which will be officially launched at the Taiwan SEMICON..

And then maybe just on obviously, cash isn't a hindrance as you start thinking about how long the integration will take, when you guys think you'd feel comfortable with looking at more acquisitions?.

Tomorrow. Any time..

As you know, we have a long gestation problem with profits. We do not waste money, as you can see, we're all very prudent. It took us four years, more than four years to do our first acquisition, I think a very attractive valuation, bringing great value for shareholders and for the Company.

So we are ready at any time given that we have the right opportunity in front of us..

Our next question comes from the line of Tom Diffely with D.A. Davidson. Please proceed with your question..

I guess first question is on Chinese New Year. You talked about how it was a little bit later this year, how that makes you a little more conservative.

In general, do you see the trends whereas business is slow until after Chinese New Year? That it picks up for the rest of the quarter or is it a case where it's only slowed during the week or two of Chinese New Year?.

Usually what happened is that Chinese in Japan, but Chinese New Year tends to happen earlier in the month of February or late in the month of January.

So you have the first -- you have less visibility before Chinese New Year and the visibility starts to come after Chinese New Year, okay? So the point is that we are making and that's why we've increased the guidance range.

I mean, while we're actually quite upbeat for the second quarter but the point is that officially you should look at countries, greater China, Taiwan and China, which are a very important regions for us, from a wire bonding in perspective. They are already take essentially two weeks off.

Which will leave us four weeks in March to basically confirm that our prediction is right. On the Assembleon or advanced packaging mass-reflow product line is a totally different, I would say, business case because the lead time are six months. So at least we know exactly what we are going to do this quarter.

On our own advanced packaging line, we are not yet at this time of revenue recognition. As I've mentioned, this is a year of deployments.

Year end we'll of course hopefully, recognize some revenue this year but the year of revenue recognition will be for next year and again, we'll have more visibility on this product, because, again, it's longer lead-time products.

What we are trying to do is basically increase the outlook for you and Assembleon is a great company for that because above these so many times so that we can minimize of course, is when you always volatize that we can minimize the productivity of just being purely in the wire bonding business..

I guess looking at the gross margin, if we look at the historical level of call it 47% and then it sounds like you've gotten some more features added to make it go up sometimes but then you also have the dilution coming from the acquisition.

How do you view the gross margin on kind of a long-term view at this point?.

I think with the acquisition, we're still going to target on the average of 45% of gross margin for the entire group. I think this past quarter obviously, we had some pretty attractive ASP pickup on the pricing perspective that boosted the gross margin..

And then final question.

When you look at your exposure to different FX around the world, is there any meaningful exposures that you have either in Europe or Asia?.

Say that again, repeat the question?.

From an FX point of view, an exchange rate point of view, any meaningful exposures in either Europe and Asia at this point?.

No. Most of our actual exposure at this point in time are mainly in Singapore dollars in terms of operating expense and we do actually hedge that out about three months. So we do have actually minimum FX exposure at this point in time..

We have a slight benefit from the strength of the dollar right now given that the we have an off portion of our OpEx in Singapore. So, that's actually more (inaudible). But we have nothing really, nothing significant from an exposure perspective..

In terms of Europe continue to assess the Assembleon side. They do actually source quite a bit of their material in Euro as well as well in Euro so I think we have some natural hedges in place. But we are certainly hoping to minimize the FX exposure going forward..

When you look at the exposures on the cost side in Singapore, do you hedge two, three quarters out so we start to see a benefit later in the year if the dollar remains strong?.

Yes, we tend to -- we don't hedge two or three quarters out. We hedge up to three months ahead and it's based on our budget and that's what we do. Fairly plain vanilla forward contracts that we do based on our actual need in terms of the Sing dollars..

Our next question comes from the line of Mohit Khanna with Value Investment Principals. Please proceed with your question..

I had a question regarding the advanced packaging customer that has come with the Assembléon acquisition.

With these customers do you have some long-term price increase contracts in place or is it as you go?.

Well, we don't have per se long-term contracts in place. That's -- when you purchase -- you know, these machines are very complex. And actually they are also extremely modular. This is really a legal docs approach and each machine is custom.

So typically, when you choose to go into a vendor plus the software that goes along with it and the analytics that are required to make sure that everything is in order you have a lot of stickiness into your deal.

That's why when a customer is engaged, he will stay engaged and remember that if you look at it whether it's advanced packaging by the way or SMT. One thing I want to reinforce, SMT when is not plain SMT, Assembleon through the decision three years ago to get from the plain SMT which is basically the communication and consumer and computer stuff.

So we have very, very focused customers in automotive, medical, and industrial and these customers stay with you for a long time. And same goes with advanced packaging. It will be the same for the product of K&S. We just had a month of the issue of the rest of the portfolio and the application that we can call it..

One more question, how high are you guys looking yourself placed when you're trying to pitch the Assembléon acquisition SMT machines? Your current customers which were with you originally?.

I am sorry I didn’t get..

We have some having trouble hearing, can you repeat the question..

Yes.

How do you think you guys are placed when you have -- when you present the machines bought from Assembléon, when you present them to the existing customers that you have already?.

Well, I mean, we do expect -- there's two things. On the short term basis, we expect potential cross selling of opportunities just by the pure scale that revenue provides to Assembleon. We have 250 people in the field.

They were a much smaller company with limited resources and that we believe that we can -- I won't give you a number, that's what I say, we anticipate a gross minimum of 10% and I think that's fairly conservative. We expect immediate benefit of cross selling opportunities from the Assembleon portfolio into the K&S customers.

So Assembleon, as it would reputation name, it's a baby phillips as I like to call them. And K&S as well.

In addition to that, there are also, I would say, immediate opportunities to develop applications that are required today that we do have the pieces for on that need to be integrated into the Assembleon solutions to provide more competitive solutions.

To, for instance, address the panel technology and on flip chip technology, we also have the development project that we've also basically improved the accuracy of the seven to ten microns of the flip chip technology at Assembleon. Because this is the strength of K&S, wafer handling, material handling systems and accuracy are two core competencies.

These two things could be implemented fairly quickly and generate, again, additional revenue on top of the cross selling opportunities. So while they work on multiple things in their contract..

Our next question comes from the line of David Duley with Steelhead Securities. Please proceed with your question..

I was wondering if you might give us your thoughts on what you think the size of the thermo-compression bonder market will be I guess maybe next year or this year? Whatever numbers that you might want to give us for an estimate for the size of that market?.

I think you've asked me the question several times and I don't have a number for you. I believe the number for thermal compression bonder by roughly 2017 will be for both combined chip to substrate and chip to wafer in the $600 million range..

And with the acquisition of Assembléon I guess you now have products that can address the whole market, is that the way we might want to think about how they're additive in this area?.

We have further addressed -- Again, advanced packaging, there is two pieces of it. This there is piece coming from the front end and a piece coming from the back end. I would say from a back end perspective, we have added a large portion. One thing that we are working very hard on is basically the analytic spots of all that, which we do not have yet.

And which we'll hope -- which we hope that we'll be able to add this coming year because it's going to be play a more important role.

Basically, it's just software to make sure, you know, you're handing $5,000, $6,000, $7,000, $8,000 and if you have two wafers that's $16,000 of silicon in one shot and you want to have preemptive measures or warning, if your process have, the process deviation or something happening in the machine before you throw that amount of money into the garbage.

So that piece, we have some of it. But we want to expand it a bit further and also we are looking at metrology and inspection.

But that's -- I would say maybe less of a concern because there are obviously sub contractors in the market that can provide us with the pieces that we need and we can also develop some of that, which we've done for the APAMA to basically look at the in-depth security at what's happening during the process..

And then….

To answer your question, yes we are getting there; but that analytics is the next piece that we want to get into..

And when you look at the Assembléon product line, which products do you think going forward will be the fastest growing or in markets? I'm just trying to understand the kind of a broad base of products here when you look at the literature. I'm guessing it's the advanced packaging product lines.

Is it going to be going forward that you sell a lot of stuff into the fan out market or perhaps just help us understand what you're most excited about in this newly acquired product line?.

I think what we're excited about is to have a one-stop solution where you often have a choice of addressing both type of bonding application, either through local reflow or mass reflow, which according to different type of application.

We didn't have, for instance, the fan-out solution, we didn't have a panel solution, we didn't have flip chip solution which are all -- we didn't have an embedded die solutionwe didn't have module and all these sort of applications, as I mentioned in the previous call, added to the capability which are more of accuracy that you get in thermos-compression for die stacking and flip chipping, multiple dies for memory modules and complex graphics pieces.

All of that put into what I call a macro system and going to a mobile phone or smartphone or tablet or laptop is going to be quite powerful..

And do you see the use of fan-outs packaging growing going forward from its current base of kind of like base band processors and application processors?.

It's going to grow for sure because this is the only cost effective way to basically process even dies of different types and size and everything at the same time. 460 millimeter it's very very far away and very expensive. Fan-outs is a very very cost effective way to basically enlarge the number of die you can process at the same time..

Final thing for me is, do you expect the core wire bonder business to grow in 2015 or ‘16 or should it be flattish or kind of what's your expectations there for the core bonder business?.

The core business, you know, for this year basically if you look at it, and that without the Assembleon business still looks -- and again this is data coming from VSI and Gartner. So again, you can do whatever you want with it. But this year the TAM is largely over a $1 billion plus.

And actually it is seen well if you look at the overall bonding business that includes ball bonder, wedge bonder and chip to substrate is growing at a rate -- expected to grow at a rate of roughly 5% to 7% a year.

That the growth obviously is not going to come a lot from the ball bonder and the wedge bonder which are becoming more and more a replacement market except for pockets of applications such as IOT, such as sometimes LED, QFN and so on because we have already achieved a high penetration in terms of conversion to copper as all major subcons.

So that's how the picture looks like. But there is still some growth that is going to happen. It's not going to be double digits. The double digit stuff is going to happen in the advanced packaging..

And I have just had one follow-up. Clearly, it looks like you can expand the distribution of Assembléon's products through your very deep relationships throughout Asia with the big press and assembly houses.

I'm wondering how familiar they actually are with this company's product lines and what is the initial reaction from the silicon wares and the AFCs and the Amcor's about this acquisition?.

I am sorry David I'm not going to answer that question because that's where you're asking me for question that would provide competitive information. I am not going to answer your question..

Mr. Elgindy it appears we have no further questions at this time. I would now like to turn the floor back over to you for closing comments..

Thank you all for the time today, as usual please feel free to follow up after today's call with any additional questions. Again thank you all for the time. Christine this concludes our call. Thanks..