Kulicke & Soffa(KLIC) - 2020 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Unaudited consolidated financial statements for Q3 and nine months ended June 27, 2020, report significant net income growth year-over-year Consolidated Condensed Balance Sheets Total assets decreased to $1.03 billion from $1.08 billion, primarily due to reduced cash and short-term investments Consolidated Condensed Balance Sheet Highlights (in thousands) | Account | June 27, 2020 | September 28, 2019 | | :--- | :--- | :--- | | Total current assets | $839,193 | $893,751 | | Cash and cash equivalents | $321,775 | $364,184 | | TOTAL ASSETS | $1,029,465 | $1,079,616 | | Total current liabilities | $142,804 | $174,642 | | Short-term debt | $0 | $60,904 | | TOTAL LIABILITIES | $279,821 | $310,553 | | TOTAL SHAREHOLDERS' EQUITY | $749,644 | $769,063 | Consolidated Condensed Statements of Operations Q3 2020 net revenue increased 18.4% to $150.5 million, and net income surged to $11.2 million from $1.3 million Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2020 | Q3 2019 | 9 Months 2020 | 9 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Net revenue | $150,450 | $127,109 | $445,488 | $400,225 | | Gross profit | $69,423 | $58,780 | $209,090 | $189,152 | | Income from operations | $10,971 | $1,827 | $35,461 | $13,917 | | Net income | $11,151 | $1,287 | $36,516 | $5,249 | | Diluted EPS | $0.18 | $0.02 | $0.57 | $0.08 | Consolidated Condensed Statements of Cash Flows Nine-month operating cash flow decreased to $62.7 million, while financing activities used $130.6 million for debt and stock repurchases Cash Flow Summary for Nine Months Ended (in thousands) | Cash Flow Activity | June 27, 2020 | June 29, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $62,681 | $83,181 | | Net cash provided by investing activities | $25,863 | $30,374 | | Net cash used in financing activities | ($130,618) | ($38,751) | | Change in cash, cash equivalents | ($42,409) | $74,864 | Notes to Consolidated Condensed Financial Statements Notes detail accounting policies, balance sheet components, and segment performance, highlighting ASC 842 adoption and industry volatility - The company's business is highly volatile, depending on the capital expenditures of semiconductor device manufacturers, which are influenced by demand for semiconductors[30] - The company adopted the new lease accounting standard ASC 842 in the first quarter of fiscal 2020, resulting in the recognition of approximately $22.2 million in right-of-use assets and $23.8 million in operating lease liabilities[75] - While the COVID-19 pandemic has created global economic uncertainty, it did not have a material impact on the company's consolidated financial statements for the quarter ended June 27, 2020[32] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q3 2020 revenue growth to higher volumes, maintaining strong liquidity despite debt repayment and share repurchases Q3 2020 vs Q3 2019 Performance (in thousands) | Metric | Q3 2020 | Q3 2019 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net revenue | $150,450 | $127,109 | $23,341 | 18.4% | | Gross profit | $69,423 | $58,780 | $10,643 | 18.1% | | Income from operations | $10,971 | $1,827 | $9,144 | 500.5% | - The increase in net revenue was primarily due to higher volume in both Capital Equipment and APS segments, with Capital Equipment growth driven by demand in LED and general semiconductor markets[189][190] - The company's customer base is geographically concentrated, with approximately 93.9% of net revenue from shipments outside the U.S., primarily in the Asia/Pacific region, and 53.3% from China in Q3 2020[173] - The company maintains a strong balance sheet with $515.8 million in total cash, cash equivalents, and short-term investments as of June 27, 2020[179] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rate and foreign currency fluctuations, hedging exposure with forward contracts - The company's primary market risks are interest rate risk and foreign currency risk[232][233] - A 10.0% fluctuation in foreign currency exchange rates could impact the company's financial position, results of operations, or cash flows by $2.0 to $3.0 million[234] - To mitigate foreign currency risk, the company uses foreign exchange forward contracts, with a notional amount of $37.4 million outstanding as of June 27, 2020[235] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of June 27, 2020, with no material changes to internal controls - Management concluded that as of June 27, 2020, the company's disclosure controls and procedures were effective[236] - No changes were identified during the three months ended June 27, 2020, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[238] PART II - OTHER INFORMATION Item 1. Legal Proceedings No material pending legal proceedings are reported that would significantly impact the company's business or financial condition - There are no material pending legal proceedings against the company as of the filing date[240] Item 1A. Risk Factors The company faces U.S. export restrictions, including recent EAR amendments impacting Huawei sales, with potential indirect consequences - The company is subject to U.S. Export Administration Regulations (EAR), which may limit sales to certain customers[242] - A May 15, 2020 amendment to the EAR impacts some of the company's advanced packaging products sold to Huawei and its affiliates, subjecting them to end-use restrictions[244] - While a direct material impact from the new EAR rules is not anticipated, potential indirect consequences include increased U.S.-China trade tensions, which is significant as 46.7% of FY2019 revenue was from China[244] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In Q3 2020, the company repurchased 1.0 million shares for $22.4 million, and the Board increased the repurchase authorization by $100 million Share Repurchases for Q3 2020 | Period | Total Shares Repurchased (thousands) | Average Price Paid Per Share | | :--- | :--- | :--- | | March 29 - April 25, 2020 | 495 | $22.06 | | April 26 - May 30, 2020 | 304 | $22.32 | | May 31 - June 27, 2020 | 205 | $22.68 | | Total for Quarter | 1,004 | N/A | - As of June 27, 2020, $50.9 million remained available for repurchase under the program[247] - On July 3, 2020, the Board increased the share repurchase authorization by $100 million to a total of $400 million and extended the program to August 1, 2022[247] Item 6. Exhibits This section lists exhibits filed with Form 10-Q, including CEO/CFO certifications and Inline XBRL documents - Filed exhibits include CEO and CFO certifications under Sarbanes-Oxley Sections 302 and 906[248] - The filing includes financial data in Inline XBRL format as required by the SEC[248]