Kulicke & Soffa(KLIC) - 2020 Q2 - Quarterly Report

Part I - Financial Information Item 1. Financial Statements (Unaudited) Unaudited financial statements for March 28, 2020, reflect increased assets and liabilities, alongside strong revenue and net income growth Consolidated Condensed Balance Sheets Consolidated Condensed Balance Sheet Highlights (in thousands) | Account | March 28, 2020 | September 28, 2019 | | :--- | :--- | :--- | | Total Current Assets | $970,427 | $893,751 | | Total Assets | $1,160,898 | $1,079,616 | | Total Current Liabilities | $262,037 | $174,642 | | Total Liabilities | $398,500 | $310,553 | | Total Shareholders' Equity | $762,398 | $769,063 | - Total assets increased to $1.16 billion as of March 28, 2020, from $1.08 billion as of September 28, 2019, driven by increases in cash, short-term investments, and inventories[11] - Total liabilities rose to $398.5 million from $310.6 million, primarily due to a significant increase in short-term debt from $60.9 million to $115.6 million[11] Consolidated Condensed Statements of Operations Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended Mar 28, 2020 | Three Months Ended Mar 30, 2019 | Six Months Ended Mar 28, 2020 | Six Months Ended Mar 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net revenue | $150,741 | $115,908 | $295,038 | $273,116 | | Gross profit | $69,303 | $55,573 | $139,667 | $130,372 | | Income/(loss) from operations | $11,076 | $(2,465) | $24,490 | $12,090 | | Net income/(loss) | $11,888 | $(3,555) | $25,365 | $3,962 | | Diluted EPS | $0.19 | $(0.05) | $0.39 | $0.06 | - The company's performance significantly improved, with net revenue for the three months ended March 28, 2020, increasing by 30.1% year-over-year to $150.7 million, turning an operating loss of $2.5 million into an operating income of $11.1 million[15] Consolidated Condensed Statements of Cash Flows Cash Flow Summary (in thousands) | Activity | Six Months Ended Mar 28, 2020 | Six Months Ended Mar 30, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $39,083 | $83,335 | | Net cash (used in)/provided by investing activities | $(24,979) | $73,689 | | Net cash provided by/(used in) financing activities | $14,258 | $(59,092) | | Change in cash and cash equivalents | $28,123 | $98,189 | - For the six months ended March 28, 2020, net cash from operating activities decreased to $39.1 million from $83.3 million in the prior year period, primarily due to changes in operating assets and liabilities, including a $19.0 million increase in inventories[25] - Financing activities provided $14.3 million in cash, driven by $54.7 million in proceeds from short-term debt, which was partially offset by $25.2 million in common stock repurchases and $15.2 million in dividend payments[25] Notes to Consolidated Condensed Financial Statements - The company adopted new lease accounting standards (ASU 2016-02, Topic 842) in the first quarter of fiscal 2020, resulting in the recognition of operating lease liabilities of $23.8 million and right-of-use assets of $22.2 million[71][74] - As of March 28, 2020, goodwill was recorded at $55.9 million, with $29.7 million allocated to Capital Equipment and $26.3 million to Aftermarket Products and Services (APS). No impairment was recorded[89] - The company repurchased 1.1 million shares for $23.9 million in the six months ended March 28, 2020, under its stock repurchase program. As of that date, approximately $73.3 million remained authorized for future repurchases[126] Revenue by Segment (in thousands) | Segment | Three Months Ended Mar 28, 2020 | Six Months Ended Mar 28, 2020 | | :--- | :--- | :--- | | Capital Equipment | $113,222 | $215,546 | | APS | $37,519 | $79,492 | | Total Net Revenue | $150,741 | $295,038 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses 30.1% quarterly revenue growth from semiconductor demand, COVID-19 supply chain impacts, and the company's strong liquidity Overview and Business Environment - The company is a leading provider of semiconductor and electronic assembly solutions, serving global automotive, consumer, communications, computing, and industrial markets[162] - The COVID-19 pandemic has significantly impacted the global economy and disrupted supply chains. While the company's manufacturing is operating at nearly full capacity, work-from-home practices have impacted non-manufacturing productivity. Demand remains high for many products, but is projected to be lower in the automotive end market[167][169][170] - The semiconductor business environment is highly volatile, driven by cyclical and seasonal dynamics. The company's Capital Equipment segment is affected by these dynamics, while the APS segment is more stable and tied to semiconductor unit consumption[173][176][177] Results of Operations Quarterly Results of Operations Comparison (in thousands) | Metric | Three Months Ended Mar 28, 2020 | Three Months Ended Mar 30, 2019 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net revenue | $150,741 | $115,908 | $34,833 | 30.1% | | Gross profit | $69,303 | $55,573 | $13,730 | 24.7% | | Income/(loss) from operations | $11,076 | $(2,465) | $13,541 | 549.3% | - Capital Equipment net revenue increased 40.5% for the quarter, primarily due to higher volume driven by demand in the general semiconductor market for consumer applications and 5G buildout, partially offset by unfavorable product mix[199][200] - APS net revenue increased 6.2% for the quarter due to higher volume in spares, consumables, and services, partially offset by price reductions in the bonding tools business[199][203] - Total gross margin decreased by 190 basis points to 46.0% for the quarter, with Capital Equipment margin at 43.4% and APS margin at 53.7%[204] - Shipments to customers in China represented 60.1% of net revenue for the three months ended March 28, 2020, a significant increase from 40.6% in the prior-year period[197] Liquidity and Capital Resources Cash and Investments (in thousands) | Account | March 28, 2020 | September 28, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $392,307 | $364,184 | | Short-term investments | $248,000 | $229,000 | | Total | $640,307 | $593,184 | - For the six months ended March 28, 2020, the company generated $39.1 million in cash from operations, used $25.0 million in investing activities, and received $14.3 million from financing activities[220] - The company drew down $54.7 million from its overdraft facility to meet short-term funding needs, while continuing its capital return program, repurchasing $25.2 million of stock and paying $15.2 million in dividends during the six-month period[225] - The company anticipates fiscal 2020 capital expenditures to be between $14.0 million and $18.0 million[229] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rate and foreign currency fluctuations, actively managing foreign exchange exposure with hedging instruments - The company's primary market risks are interest rate risk and foreign currency risk[244][245] - Based on foreign currency exposure as of March 28, 2020, a 10.0% fluctuation could impact financial results by $2.0 to $3.0 million[246] - The company utilizes foreign exchange forward contracts to hedge forecasted foreign currency-denominated expenses, with a notional amount of $32.8 million outstanding as of March 28, 2020[247] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 28, 2020, with no material changes to internal controls - Management, including the CEO and CFO, concluded that as of March 28, 2020, the company's disclosure controls and procedures were effective[248] - No changes were identified during the three months ended March 28, 2020, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[251] Part II - Other Information Risk Factors Key risks include the adverse impacts of the COVID-19 pandemic and potential disruptions from the new ERP system implementation - The COVID-19 pandemic poses a significant risk, potentially causing decreased demand, operational disruptions, supply chain issues, and increased market volatility[254][257][258] - The company is in the process of implementing a new enterprise resource planning (ERP) system over the next two years. Failure to implement it successfully could materially disrupt business operations, financial reporting, and internal controls[259] [Unregistered Sales of Equity Securities and Use of Proceeds](index=52&type=section&id=Item%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECU RITIES%20AND%20USE%20OF%20PROCEEDS) The company repurchased 872,000 common shares during the quarter, with $73.3 million remaining authorized for future repurchases Common Stock Repurchases (Q2 FY2020) | Period | Total Shares Repurchased (thousands) | Average Price Paid Per Share | | :--- | :--- | :--- | | Dec 29, 2019 - Jan 25, 2020 | 16 | $27.10 | | Jan 26, 2020 - Feb 29, 2020 | 126 | $23.68 | | Mar 1, 2020 - Mar 28, 2020 | 730 | $20.69 | | Total for Quarter | 872 | N/A | - As of March 28, 2020, the company had approximately $73.3 million remaining under its $300 million share repurchase authorization[260] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and interactive data files - The filing includes CEO and CFO certifications as required by the Sarbanes-Oxley Act (Exhibits 31.1, 31.2, 32.1, 32.2)[262] - Interactive data files (Inline XBRL) are included as Exhibits 101 and 104[262] Signatures - The report was signed on April 30, 2020, by Lester Wong, Senior Vice President and Chief Financial Officer[266]