Kulicke & Soffa(KLIC) - 2023 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements (Unaudited) The company's Q1 FY2023 performance saw a significant decline in revenue and net income, driven by lower Capital Equipment volumes Consolidated Condensed Balance Sheets Total assets decreased slightly to $1.55 billion, driven by a drop in receivables partially offset by an increase in inventories Consolidated Condensed Balance Sheet Highlights (in thousands) | Account | Dec 31, 2022 | Oct 1, 2022 | | :--- | :--- | :--- | | Total Current Assets | $1,270,709 | $1,332,046 | | Accounts and other receivable, net | $200,337 | $309,323 | | Inventories, net | $211,637 | $184,986 | | Total Assets | $1,549,818 | $1,588,599 | | Total Current Liabilities | $221,055 | $248,681 | | Total Liabilities | $372,589 | $393,949 | | Total Shareholders' Equity | $1,177,229 | $1,194,650 | Consolidated Condensed Statements of Operations Net revenue for Q1 FY2023 fell 61.8% to $176.2 million, with net income plummeting to $14.6 million from $133.6 million YoY Statement of Operations Summary (in thousands, except per share data) | Metric | Three months ended Dec 31, 2022 | Three months ended Jan 1, 2022 | | :--- | :--- | :--- | | Net revenue | $176,233 | $460,888 | | Gross profit | $88,706 | $223,238 | | Income from operations | $11,822 | $151,110 | | Net income | $14,589 | $133,606 | | Diluted EPS | $0.25 | $2.11 | Consolidated Condensed Statements of Cash Flows Operating cash flow was $85.1 million, while significant cash was used for share repurchases and dividend payments Cash Flow Summary (in thousands) | Activity | Three months ended Dec 31, 2022 | Three months ended Jan 1, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $85,116 | $95,874 | | Net cash (used in)/provided by investing activities | ($38,914) | $7,289 | | Net cash used in financing activities | ($56,230) | ($24,077) | | Change in cash and cash equivalents | ($4,924) | $78,702 | Notes to Consolidated Condensed Financial Statements Notes detail a 66.9% decline in Capital Equipment revenue, an increased share repurchase program, and a higher effective tax rate - The semiconductor industry is highly volatile, and downturns have previously adversely affected the Company's operating results[25] - The annual goodwill impairment test in Q4 fiscal 2022 concluded that no impairment charge was required, and no triggering events were identified in the quarter ended Dec 31, 2022[39][40] - The Board of Directors increased the share repurchase authorization to $800 million, with approximately $203.8 million remaining available as of Dec 31, 2022[75][77] - The effective tax rate for the quarter was 20.5%, an increase from 11.8% in the prior year period, primarily due to the impact of mandatory capitalization of R&D expenditures[93] - For the quarter ended Dec 31, 2022, two customers, STMicroelectronics N.V. (12.8%) and First Technology China Ltd. (11.2%), each represented more than 10% of total net revenue[106] Segment Net Revenue (in thousands) | Segment | Three months ended Dec 31, 2022 | Three months ended Jan 1, 2022 | | :--- | :--- | :--- | | Capital Equipment | $135,372 | $408,528 | | APS | $40,861 | $52,360 | | Total | $176,233 | $460,888 | Segment Income from Operations (in thousands) | Segment | Three months ended Dec 31, 2022 | Three months ended Jan 1, 2022 | | :--- | :--- | :--- | | Capital Equipment | $3,872 | $132,019 | | APS | $7,950 | $19,091 | | Total | $11,822 | $151,110 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 61.8% revenue decline to lower volumes, though gross margin improved due to a favorable product mix Overview The company operates in a volatile semiconductor market with significant revenue concentration in the Asia/Pacific region - The company operates two reportable segments: Capital Equipment and Aftermarket Products and Services (APS)[115] - Shipments to customers headquartered in China accounted for 32.8% of net revenue for the three months ended December 31, 2022, down from 61.8% in the prior year period[118] - The company's total cash, cash equivalents, and short-term investments were $795.6 million as of December 31, 2022, which management believes is sufficient for future investments[123] Results of Operations Net revenue fell 61.8% YoY due to lower volumes, while gross margin improved to 50.3% and operating expenses rose 6.6% - The decrease in Capital Equipment revenue was due to lower volume from reduced customer investments, partially offset by favorable pricing from a better customer mix[133] - The decrease in APS revenue was due to lower volume in spares, services, and bonding tools, resulting from decreased customer utilization[134] Quarterly Results of Operations (in thousands) | Metric | Q1 FY2023 | Q1 FY2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net revenue | $176,233 | $460,888 | $(284,655) | (61.8)% | | Gross profit | $88,706 | $223,238 | $(134,532) | (60.3)% | | Operating expenses | $76,884 | $72,128 | $4,756 | 6.6% | | Income from operations | $11,822 | $151,110 | $(139,288) | (92.2)% | Gross Profit Margin by Segment | Segment | Dec 31, 2022 | Jan 1, 2022 | Basis Point Change | | :--- | :--- | :--- | :--- | | Capital Equipment | 48.8% | 46.9% | 190 | | APS | 55.3% | 60.4% | (510) | | Total | 50.3% | 48.4% | 190 | Liquidity and Capital Resources The company maintains strong liquidity with $795.6 million in cash and investments, funding operations and capital returns - Net cash from operating activities was $85.1 million, driven by net income and a $108.8 million decrease in accounts receivable[147][148] - Net cash used in financing activities totaled $56.2 million, consisting mainly of $46.3 million for common stock repurchases and $9.7 million for dividend payments[147][150] - Projected capital expenditures for fiscal 2023 are between $70.0 million and $74.0 million[154] - During the quarter, the company repurchased approximately 1,054.3 thousand shares for $45.4 million, with $203.8 million remaining under the repurchase program[159][160] Quantitative and Qualitative Disclosures about Market Risk The company is primarily exposed to foreign currency and interest rate risks, managed through hedging instruments - A 10.0% fluctuation in foreign currency exchange rates could impact financial results by $4.0 million to $5.0 million[170] - As of December 31, 2022, the company had outstanding foreign exchange forward contracts with a notional amount of $47.4 million to hedge against currency risks[171] Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - The CEO and CFO concluded that as of December 31, 2022, the company's disclosure controls and procedures were effective[173] - No changes in internal control over financial reporting were identified during the quarter that would have a material effect[175] PART II - OTHER INFORMATION Legal Proceedings The company is involved in routine litigation not expected to have a material adverse effect on its business - The company does not expect any currently pending legal matters to have a material adverse effect on its financial condition or operating results[177] Risk Factors No material changes to risk factors have been reported since the company's last Annual Report on Form 10-K - No material changes to risk factors were reported since the last Annual Report on Form 10-K[178] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 1.054 million shares for $45.4 million under its expanded $800 million buyback program Share Repurchases for the three months ended December 31, 2022 | Period | Total Shares Repurchased (thousands) | Average Price Paid Per Share | Approximate Dollar Value of Shares Remaining for Purchase ($ millions) | | :--- | :--- | :--- | :--- | | Oct 2 - Oct 29, 2022 | 450 | $39.94 | $231.2 | | Oct 30 - Dec 3, 2022 | 469 | $45.20 | $210.0 | | Dec 4 - Dec 31, 2022 | 135 | $45.89 | $203.8 | | Total | 1,054 | - | $203.8 | Exhibits This section lists all exhibits filed with the Form 10-Q, including required CEO and CFO certifications