Joseph Elgindy - Director, IR & Strategic Planning Bruno Guilmart - President & CEO Jonathan Chou - SVP & CFO.

Krish Sankar - Bank of America Tom Diffely - D.A. Davidson David Duley - Steelhead Securities Mohit Khanna - Value Investment Principals Albert Sebastian - Prospect Advisors Craig Ellis - B. Riley & Company.

Welcome to Kulicke and Soffa Third Fiscal Quarter 2015 Results. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Joseph Elgindy, Director of Investor Relations and Strategic Planning for Kulicke and Soffa. Thank you, Mr. Elgindy. You may now begin..

Thank you, Rob. Welcome, everyone, to Kulicke and Soffa's FY15 third quarter conference call. Joining us on the call 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 release as well as our latest Investor presentation, are both available in the investor relations section of our website at K&S.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 the of risks associated with Kulicke and Soffa that could affect our future results and financial condition please refer to our SEC filings specifically 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. As anticipated we continue to face softness in overall demand during the June quarter.

This seems to be [indiscernible] the result of broad industry cyclicality driven by slower growth in smart phones as well as other mobility and connectivity license and lower expectations in the PC markets, risk factors and increasing inventory level that cause a [indiscernible] chain and reduces - for our incremental production additions for most customers.

We will provide some additional insight on these market conditions and also how we have prepared the organization to handle the cyclicality as we look ahead. Despite the current softness we have reached the midpoint of our June quarter guidance ending the quarter with $165 million of revenue and $16 million of operating income.

From a fiscal year-to-date standpoint total revenue is up only slightly in the core business and our recent APMR acquisition has driven the incremental volume.

While cyclicality is a complex issue we have lasted through our over only software history to [indiscernible] on our competitiveness of our core markets in addition or our more recent growth initiative has further strengthened [indiscernible].

Considering this view and the overall market softness since our last call, we have a significant opportunity to accelerate our repurchase program; however, we announced a meaningful reduced share tending to drive value at the shareholder level.

[Indiscernible] the executive a significant portion of the overall program and have repatriated a six person of our share value outstanding. Jonathan will provide additional insight to our recent] activity after my brief review of the last quarter even with the [indiscernible] performance.

From a business line standpoint of our sales have increased by about 16% over the last quarter over continued [indiscernible]. During the June quarter, sales were up only slightly and our [indiscernible] sales increased by approximately 24% over the March quarter.

Our first quarter with APMR I don't expect a business line to soften lower [indiscernible] to a lower demand in the shorter first period we believe the June quarter [indiscernible] is a more accurate short term run rate for this weakness with additional growth expected from exposure and new product solutions.

The integration process is moving smoothly and our R&D and sales teams have been working very closely together to expand market reach and customer awareness to our collective solutions. While the R&D collaboration adds longer term value 2016 meaningful development projects are in progress.

Meanwhile our to receive much interest for our APMR solutions across our existing base of customers. This has also driven the immediate need for our which has increased in our working capital.

While this has anticipated to drive midterm growth and long term competitiveness, in the short term the weakened euro the contribution from this new business line.

As a reminder the APMR business provides K&S with exposure a group of SMP while also dramatically increasing the breadth immediate market access to growth areas such as wafers, packaging, advanced package and. We continue to look forward to sharing our progress with this new exciting opportunity.

Advanced packaging local customer engagements are progressing well. We currently have 6 machines in the field and plan to add a total of t2 in the field at 90 from customer sites by the end of the calendar year. These machines will which largely within the high performance segments. We expect our to begin generating revenue in the first half of 2016.

I will now turn the call over to Jonathan Chou for a more detailed financial review of the June quarter. Jonathan..

Thank you, Bruno. My remarks today will only refer to GAAP results and will compare the June quarter to the March quarter. Net revenue for the quarter was $164.6 million, gross margins were 47.1% for $77.6 million gross profit. We generated $16.1 million of operating income, $25 million of net income and $0.33 of EPS.

We ended March quarter with a total cash and investment positions of $475.9 million. From a diluted share standpoint this cash position is equivalent to $6.27. The value equivalent was $10.02. As Bruno mentioned, a recent valuation adjustment has provided an attractive opportunity to expedite the pace of our repurchase program during the June quarter.

During the June quarter we repurchased 3.8 million shares at approximately $50.5 million. Since the program was initiated we have repurchased 4.6 million shares or approximately 6.1% of our June quarter's diluted weighted average shares outstanding.

This increased level of recent activity reflects our continued belief in the fundamental long term value of our core business and incremental value associated with our new growth related activities.

We continue to deploy capital in an effort to enhance shareholders' value through the repurchase program but also through selective M&A opportunities and organic initiatives. Our effort around M&A continues to be an ongoing focus within our leadership team. The potential for near term opportunities that would require the use of U.S.

cash can affect the execution rate of our repurchase program. At the same time, we continue to invest in our organic initiatives. Looking ahead to the December quarter we expect to purchase approximately $7 million of prototype material to support our advanced packaging development program and customer engagement efforts.

Turning to tax, in the June quarter, we recorded a favorable discrete tax benefit of $13.7 million. This benefit was primarily related to the reduction of deferred tax liabilities due to the change in permanent reinvestment insertion associated with our business structure reorganization.

Without these benefits, our quarterly effective tax rate would have been higher than our long term target. This is primarily due to the relative contribution of profit across our entity structure which is largely driven by overall volumes.

In higher volume periods the proportion of income generally becomes distributed to lower effective tax rate entities. Our restructuring efforts to simplify our legal entity structure will continue through the September quarter and we anticipate an additional net favorable discrete tax benefit of approximately $20 million at that point.

In the long term, we continue to maintain our 15% effective tax rate target. Working capital to finance accounts receivable plus inventory less accounts payable increased by $27.6 million to $202.8 million. The higher level of working capital was largely due to increase in business over the prior quarter.

From a DSO perspective our days sales outstanding increased slightly from 93 days to 94 days. While day sales of inventory decreased from 90 days to 81 days and days of accounts payable decreased from 60 days to 50 days. This concludes the financial review portion of our call.

I will now turn the discussion back over to Bruno for the September quarter's business outlook..

Thank you, Jonathan. In terms of our guidance for the September quarter we're currently anticipating revenue to fall in the $135 million to $145 million revenue range.

As mentioned earlier, this seems to be the result of a broad industry softness which is causing high inventory levels across supply chain and slower than anticipated growth in emerging smart phone and PC markets.

Based on general perspective supported by industry research, customer feedback and also comments made by peers over the last several weeks it seems the current outlook is not just affecting the wire body market but is much more broad based.

In addition to higher inventory levels for most of the companies in the March quarter from big and IDMs big CapEx forecast big will reduce full year revenue targets. recently updated their media forecast and 2015 to be roughly 8.5% below 2014.

Clearly this is not new information for the investment community as many peer adjusted in general over the prior few weeks. The single reason explaining a portion of the near term headwind in our core business is associated with some production from wire molding to. Clearly this is the longest trend that has been occurring since the mid '90s.

Over the last 20 years has cannibalized roughly 16% of the ICU units as a share gains per year. Historically semiconductor unit growth as greatly exceeded share loss and our wire molding business has experienced a tremendous amount of growth since the mid '90s.

We expect this long term trend to continue although production shifts are generally not linear and can drive. From our perspective is a more significant driver of. From a wire standpoint wire molding generally is the lower cost production option and therefore the perfect process for devices below 800 to 900.

While changing packaging types continue significant opportunity for our core business and many other manufacturer, semiconductor growth is expected to exceed these headwind in the long term.

As a reference point looking at the total connection industry research expect the necessary connection for 100 to 500 to grow between 8% and 10% from 2014 to 2019. Connection for next category about 500 count are expected to grow slightly faster around 11% from 2014 until 2019.

What I mentioned last quarter that at some point wire molding may become a replacement market, based on this forecast the amount of wire production as well as the install base are expected to continue to grow over the next several years at a slower rate.

In the short term, we expect excess capacity to be reabsorbed assuming overall unit growth continues. Overall, while we continue to expect wire molding to be a material portion of our revenue, due to the size of the of the install base which drives the replacement market, significant growth prospects are inherently limited.

Over the last three years has driven us through our manufacturing model reallocating existing resources, adding incremental investments organic growth prospects and M&A opportunities that provide better exposure to higher pin count, technology driven and application.

This strategy has extended our reach into many new market segments and collectively exposes us to nearly every fast growing application within packaging technology from to thermal compression packaging and wafer level packaging. We continue to anticipate that these two investments will add meaningful long term improvement to our overall business.

This completes our prepared remarks. Operator, we'll be happy to take any questions..

[Operator Instructions]. Our first question is from the line of Krish Sankar with Bank of America. Please go ahead with your question..

Bruno and Jonathan I have a couple of them.

I understand that your is limited but I am kind of curious given your comments in the September quarter how far do you think the slowdown is going to last? Is this a one quarter slow down or do you think it's going to last into the December quarter?.

Well as usual it's very difficult to predict our business or to predict even more so our business. If you refer back to previous years, our first quarter has been typically a low quarter although I have said that a number of new products already being used and revenue should stop to show up in first and second quarter of next year.

So at this current time, I would say that you know difficult for me to answer you on how the first quarter or the first half of the year for our fiscal '16 is going to turn out..

Based on what we see in terms with the different peers announcements and data out there just seems to be basically high level inventory in the marketplace. I think most of the companies were expecting a much better second half of 2015 and obviously is now much softer.

So we believe that it's going to probably take a number of quarters for them to actually get the utilization over time..

And then on the it looks like you guys updated a couple and said it might extend beyond to the also.

Do you subscribe to the part that this is a very niche market or do you think there is enough demand that you can shape a sizeable number of TCBs down the road?.

Well when you look at the TCB market, whether there is really two distant markets.

There is a memory market which has picked up and which will be involved for probably more than 18 months and that's part of the development of the product and that will continue to grow and be used in this application because these are the of technology that you need to build the and so on and definitely will see some growth.

And then there is the logic piece of it. We have always said that the logic piece of it will be the beginning of smaller market because the guys are going to try as much as possible to postpone the technology for probably two, three years as the cost of this technology is quite expensive.

However, there are multiple that you can get the way we have designed where you can actually use them in many different applications than purely compression. One example is package which are picking up strength as you know very quickly and another one is high of high end applications.

And these are applications that could actually boost this segment of advanced packaging market in FY '16..

A final question for Jonathan, how much do you have left in the $100 million buyback program?.

We have about half of it left 50, close to 50, little shy of 50..

Next question is from the line of Tom Diffely with D.A. Davidson. Please go ahead with your question..

First question for Jonathan, what is the current breakeven level?.

The breakeven level in terms of revenue breakeven is currently about $126 million in terms of our calculation, in terms of the breakeven of revenue perspective..

I was wondering how much that can vary depending on mix?.

I would say really more related to the level of our organic investments over the next several quarters where we're continuing to invest in packaging side. Our sense of our OPEX it continues to be 50 million for fixed cost and about 6% in terms of variable tied to revenue.

We continue to actually watch our costs very closely and we continue to look for opportunity to manage that as we go forward..

Okay.

And that's before the $7 million of incremental spending you talked about?.

That's right..

And then Bruno when you look at the customer base out there, where are utilization rates today? And what is the difference between OSAT utilization rates and utilization rates for your wire bundling equipment?.

Do not disclose their utilization rates. We can't just guess but I think everybody is modest. The latest data I have seen on the utilization rates for the OSAT are around 75%. That's September. I would imagine or maybe even set lower because they tend to more and more.

It's now more and more difficult to bring this in the effective rate because they'd rather shut them down or dispose of the assets..

Okay. And then I know over the last couple years you've had a little bit of a diverse if I indication of your customer base.

What about kind of the mid to smaller OSAT players verses the large players? Is there a difference there? Which companies or what customers you think recover first for you?.

Well yes, I mean I would say three, four years ago we had essentially which accounted for a very large portion of our revenue. Now revenue is over much, much longer days. We have customers but more important China is now our first region from a revenue perspective. Fiscal year but that's where we have made the most progress..

Let me give you a little bit more color. About 62% of our volume came from eight customers. Usual suspects from previous years from Taiwan were in there..

Jonathan, when you look at the September quarter, what is the share count that you are looking at?.

In terms of the fully diluted share count?.

Correct, yes..

After September about 73 million shares, when you look at the earnings release and schedule that's weighted average..

Okay.

And then just to clarify you said there was additional $20 million tax benefit in September and that's on top of the 13.7 million you just posted?.

That's correct. That's an estimate. That number could actually move a little bit as we actually pursue with the restructuring of the legal entity this quarter..

Finally what was the actual FX impact on you this quarter?.

Actually, it's less than 1% in terms of the headwind from APMR..

Our next question is from the line of David Duley with steel head. Please go ahead with your questions..

I was wondering if you can give us what the contribution was of your recent acquisition in the June quarter? What was the size of the revenue there?.

The size in terms of the revenue?.

Yes. I am just trying to figure out what happened to the core business year over year without the impact of the acquisition..

We have not changed our policy. We don't disclose the business line..

24% or something like that. Can you give us the base number or repeat what you did say about it..

I cannot tell you a number. I can tell you we're on track to execute the information we provided at the time of the acquisition in terms of growth and revenue. For the rate that's where tremendous in the first quarter from..

Maybe since you don't want to give me the total on June quarter just tell us what you have said in the past about the size of that business when you bought it..

In the past when we acquired it was about 100 million U.S..

Okay. So roughly 25 million a quarter..

Yes. This is when Euro was actually at about 1.3..

Okay.

So does that surprise you about the decline in your core business year over year or is that what you were planning for?.

I see most of the volume is from our core business before APMR. It is due to the volume that experiencing in terms of the market. I think APMR is continuing to in terms of being in line with our projection and we continue to integrate that..

I think question was about the core business. The last quarter, we said we would analyze if this was or trend. Our results talking to customers looking and talking to many analysts is that this is I would say more cyclical. Of course when you have a big number and you just go down by a few you get a big number.

This year I think peers and everybody business here and we're seeing the same thing. But we still hope that this business will recover and see some growth, some growth forward and at a smaller rate..

Okay. Maybe let me ask it a different way.

Given you're halfway through the year here and you can see September quarter what do you think the size of the wire bonder business is going to be or wire bonder market is going to be in 2015 or maybe you can remind us how big it was in 2014 and what the direction is? Either number would be helpful at this point..

And particularly for 2005 I have here some numbers 2015 which includes $125 million, yes. That's the number for the other and advanced packaging bonding equipment. If you add up packaging and you are looking at roughly $1.2 billion market verses 1.1 last year.

So again these were from official and not sure from the last estimate was given probably from 2Q actually they will revise the number for 2015..

The market's obviously not going to grow this year so the guys are going to have to adjust their number down..

I don't think it will be flat compared to last year..

Okay. As far as compression bonding revenue you mentioned I think you expect to have revenue in the first half of 2016. Maybe you could help us understand how you think that ramp is going to look. Obviously you are doing zero now. Any hints that you can help us with about how you expect that to unfold would be great..

I think at this stage it is just too early to give you some color on how this is going to develop but our operation for next year it's not going to be a small number. Okay. So I would be able to give you more color, more updates next quarter or the quarter after..

Did you say it was going to be a small number? I am not quite sure what you just said there..

No. It's not going to be a small number..

Our next question is from the line of Mohit Khanna of Value Investment. Please go ahead with your question..

Could you just talk a more about advanced packaging and apart what other platforms do you think that can take off maybe next year? Thank you..

You are talking about from market perspective or..

Both actually or whether you see moving forward apart from and what do you see and how do you see market..

So I mean I am going to rather stay on. Okay. On an approximate. MR, we'll have a number of solutions such as package, package on package and I would say this we cover more the lead in of the market. Okay. So APMR is the acquisition we have done during the year and we're in the midst to develop two products that are going to be produced early next year.

So if you want to look at this acquisition, there is really two parts of the business. Advanced packaging application I talked about and also.

Let's not forget that APNR larger part of their business is not just simple very sophisticated high end majority of the business industry or market in which we're investing quite a bit so that they can continue or we can continue to lead in this market which is market.

If you look at now the other product line which is the verses max reflow this is much more driven for high performance advanced application so what it means is basically everything if you want to simplify what it means, main specification for that reconstitution there is different solution for that but we believe that we may have because speed and accuracy is what counts, different applications require different type of reconstitution.

So this basically is in place and that goes into and with HMI you can add more that will turn it into package and package or package and package whatever. That's really that market that we're going after.

As far as which is local here again what counts is speed and accuracy but the requirements are a lot I would say tighter in terms of accuracy especially and also in terms of speed. So they will both complement each other in two different markets, one which is high performance market and driving the memory market where are used.

The other were our machine which can obviously can also do as mentioned other things such as very advanced type application as well as different markets. Okay. So that's kind of the trend of application solution launch to the market next year..

And last one for me is a normal cycle is a two year cycle so do you think our bonding is quite similar to that or it follows smart phone cycle?.

I would say based on what we have seen there is really no - it is hard to say there is a normal cycle flow for wire bonding, 16 months, 19 months of shifts..

Equipment business it's really a cycle within the silicone business. Utilization, as you follow the front end and back end utilization in the case of when you see utilization at 75% it's not good. Because typically customers are not going to order new equipment except if it's for tech no [indiscernible] transition on are technology.

95% rate or even 85% then it's very good because they need to buy more capacity. So for the time being at the level we're and we don't know for how long that is going to last the most CapEx for capacity expansion are going to be I would say fairly restraint..

Thank you. The next question is from the line of Albert Sebastian with prospect advisors. Please go ahead with your question..

Just a clarification Jonathan, What was the share count at quarter end and do you have an updated number subsequent to the quarter end?.

I mentioned earlier about 73 million shares, just slightly above it. You will see that when we, actually that will be in the schedule mentioned, weighted average number..

And did the share repurchase program continue after the quarter end?.

We continue to implement that program, three year program..

Can you give us an update to that?.

No update at this point. I gave you the update during my script. That's basically we're halfway through the program and have another 50 million it to go..

We made an announcement when we announced the program which was early this year or late last year so that is actually the time frame and since that we have bought back $50 million worth of shares. This is an ongoing program that is going to keep going for the next $50 million develop..

We'll give you an update during the next earnings call for this current quarter..

Okay.

Just one other point of clarification, my understanding is you expect the first purchase order for thermal compression bonding in the first or second quarter of your fiscal year?.

That is right..

Thank you. Our next question comes from the line of Craig Ellis with B. Riley. Please go ahead with your question.

Sorry if I missed it but did you provide any commentary on expectations for gross margins and operating expense in the September quarter..

We only guide to the revenue, Craig. As you know we do have focus to maintain 45% growth margin so everything we do we try to actually keep it above that..

And then the second question is a follow up to some of the commentary around OSAT utilization levels which was very helpful.

If the company's working on a number of new product programs it expects to roll out next year but if we're currently looking at an OSAT utilization backdrop with 75% with seasonality typically being softer late 4Q and early 1Q but with real spending pressure not occurring until utilization gets into the mid 80s to high 80s what does that mean for the ability to really drive material revenue with new product programs next year?.

I think the fact that we're our customer CapEx budget, you know the timing can shift. Sometimes actual utilizations are up in the 85% they can still delay it so it is hard to predict and forecast when they're going to actually invest..

Specifically as a rule of thumb, if our customers' utilization is above 85% they start to increase their CapEx okay because in the OSAT world when you run your factory at 90% you are essentially slow as you need about 10% capacity freedom to be able to move the within your factory to keep.

If it's a technology move like we have seen for copper it's a totally different story. And then you may see capacity or capital expenditure than in a way which is not linked to utilization or because it's just the new technology that they want and that they will need because it's a customer requirement.

In this case you will just you [indiscernible] that of that technology be done when. So there are two scenarios..

Thank you. At this time we have reached the end of our Q&A session. I will turn the floor back to management for closing comments..

Thank you for the time today. As usual feel free to follow up directly with additional questions. Rob, this concludes our call. Thanks..

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