UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended June 29, 2024
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to .
Commission File No.: 0-121
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation) | (IRS Employer | ||||
| Identification No.) | |||||
(Address of principal executive offices and Zip Code)
(215 ) 784-6000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | |||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | |||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 2, 2024, there were 54,509,278 shares of the Registrant’s Common Stock, no par value, outstanding.
KULICKE AND SOFFA INDUSTRIES, INC.
FORM 10 – Q
June 29, 2024
Index
| Page Number | ||||||||
| PART I - FINANCIAL INFORMATION | ||||||||
| Item 1. | FINANCIAL STATEMENTS (Unaudited) | |||||||
Consolidated Condensed Balance Sheets as of June 29, 2024 and September 30, 2023 | ||||||||
Consolidated Condensed Statements of Operations for the three and nine months ended June 29, 2024 and July 1, 2023 | ||||||||
Consolidated Condensed Statements of Comprehensive Income for the three and nine months ended June 29, 2024 and July 1, 2023 | ||||||||
Consolidated Condensed Statements of Changes in Shareholders’ Equity for the three and nine months ended June 29, 2024 and July 1, 2023 | ||||||||
Consolidated Condensed Statements of Cash Flows for the nine months ended June 29, 2024 and July 1, 2023 | ||||||||
| Notes to Consolidated Condensed Financial Statements | ||||||||
| Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | |||||||
| Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | |||||||
| Item 4. | CONTROLS AND PROCEDURES | |||||||
| PART II - OTHER INFORMATION | ||||||||
| Item 1. | LEGAL PROCEEDINGS | |||||||
| Item 1A. | RISK FACTORS | |||||||
| Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | |||||||
| Item 3. | DEFAULTS UPON SENIOR SECURITIES | |||||||
| Item 4. | MINE SAFETY DISCLOSURES | |||||||
| Item 5. | OTHER INFORMATION | |||||||
| Item 6. | EXHIBITS | |||||||
| SIGNATURES | ||||||||
PART I. - FINANCIAL INFORMATION
Item 1. – FINANCIAL STATEMENTS
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
(in thousands)
| As of | |||||||||||
| June 29, 2024 | September 30, 2023 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Short-term investments | |||||||||||
Accounts and other receivable, net of allowance for doubtful accounts of $ | |||||||||||
| Inventories, net | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property, plant and equipment, net | |||||||||||
| Operating right-of-use assets | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
Deferred tax assets | |||||||||||
Equity investments | |||||||||||
| Other assets | |||||||||||
| TOTAL ASSETS | $ | $ | |||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | |||||||||||
| Operating lease liabilities | |||||||||||
| Income taxes payable | |||||||||||
| Accrued expenses and other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Deferred tax liabilities | |||||||||||
| Income taxes payable | |||||||||||
| Operating lease liabilities | |||||||||||
| Other liabilities | |||||||||||
| TOTAL LIABILITIES | $ | $ | |||||||||
Commitments and contingent liabilities (Note 15) | |||||||||||
| Shareholders’ equity: | |||||||||||
Preferred stock, without par value: Authorized | $ | $ | |||||||||
Common stock, without par value: Authorized | |||||||||||
Treasury stock, at cost, | ( | ( | |||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| TOTAL SHAREHOLDERS’ EQUITY | $ | $ | |||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated condensed financial statements.
1
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
(in thousands, except per share data)
| Three months ended | Nine months ended | ||||||||||||||||||||||
| June 29, 2024 | July 1, 2023 | June 29, 2024 | July 1, 2023 | ||||||||||||||||||||
| Net revenue | $ | $ | $ | $ | |||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Selling, general and administrative | |||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| Impairment charges | |||||||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Income / (loss) from operations | ( | ( | |||||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Income / (loss) before income taxes | ( | ||||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| Net income / (loss) | $ | $ | $ | ( | $ | ||||||||||||||||||
| Net income / (loss) per share: | |||||||||||||||||||||||
| Basic | $ | $ | $ | ( | $ | ||||||||||||||||||
| Diluted | $ | $ | $ | ( | $ | ||||||||||||||||||
| Weighted average shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated condensed financial statements.
2
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(in thousands)
| Three months ended | Nine months ended | ||||||||||||||||||||||
| June 29, 2024 | July 1, 2023 | June 29, 2024 | July 1, 2023 | ||||||||||||||||||||
| Net income / (loss) | $ | $ | $ | ( | $ | ||||||||||||||||||
| Other comprehensive (loss) / income: | |||||||||||||||||||||||
| Foreign currency translation adjustment | ( | ( | |||||||||||||||||||||
| Unrecognized actuarial loss on pension plan, net of tax | ( | ( | ( | ( | |||||||||||||||||||
| ( | ( | ||||||||||||||||||||||
| Derivatives designated as hedging instruments: | |||||||||||||||||||||||
| Unrealized (loss) / gain on derivative instruments, net of tax | ( | ( | ( | ||||||||||||||||||||
| Reclassification adjustment for loss / (gain) on derivative instruments recognized, net of tax | ( | ( | |||||||||||||||||||||
| Net (decrease) / increase from derivatives designated as hedging instruments, net of tax | ( | ( | ( | ||||||||||||||||||||
| Total other comprehensive (loss) / income | ( | ( | |||||||||||||||||||||
| Comprehensive income / (loss) | $ | $ | ( | $ | ( | $ | |||||||||||||||||
The accompanying notes are an integral part of these consolidated condensed financial statements.
3
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
(in thousands)
| Common Stock | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive (Loss)/Income | Shareholders' Equity | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balances as of September 30, 2023 | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||
| Issuance of stock for services rendered | — | — | |||||||||||||||||||||||||||||||||
| Repurchase of common stock | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Issuance of shares for equity-based compensation | ( | — | — | ||||||||||||||||||||||||||||||||
| Equity-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Cash dividend declared | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Components of comprehensive income: | |||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||
| Total comprehensive income | — | — | — | ||||||||||||||||||||||||||||||||
| Balances as of December 30, 2023 | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||
| Issuance of stock for services rendered | — | — | |||||||||||||||||||||||||||||||||
| Repurchase of common stock | ( | ( | — | — | ( | ||||||||||||||||||||||||||||||
| Issuance of shares for equity-based compensation | ( | — | — | ||||||||||||||||||||||||||||||||
| Equity-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Cash dividend declared | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Components of comprehensive loss: | |||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Total comprehensive loss | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||
| Balances as of March 30, 2024 | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||
| Issuance of stock for services rendered | — | — | |||||||||||||||||||||||||||||||||
| Repurchase of common stock | ( | ( | — | — | ( | ||||||||||||||||||||||||||||||
| Excise tax on repurchase of common stock | — | (730) | — | — | (730) | ||||||||||||||||||||||||||||||
| Issuance of shares for equity-based compensation | ( | — | — | ||||||||||||||||||||||||||||||||
| Equity-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Cash dividend declared | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Components of comprehensive income/(loss): | |||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Total comprehensive income/(loss) | — | — | — | ( | |||||||||||||||||||||||||||||||
| Balances as of June 29, 2024 | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||
4
| Common Stock | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive (Loss)/Income | Shareholders' Equity | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balances as of October 1, 2022 | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||
| Issuance of stock for services rendered | — | — | |||||||||||||||||||||||||||||||||
| Repurchase of common stock | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Issuance of shares for equity-based compensation | ( | — | — | ||||||||||||||||||||||||||||||||
| Equity-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Cash dividend declared | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Components of comprehensive income | |||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||
| Total comprehensive income | — | — | — | ||||||||||||||||||||||||||||||||
| Balances as of December 31, 2022 | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||
| Issuance of stock for services rendered | — | — | |||||||||||||||||||||||||||||||||
| Repurchase of common stock | ( | ( | — | — | ( | ||||||||||||||||||||||||||||||
| Issuance of shares for equity-based compensation | ( | — | — | ||||||||||||||||||||||||||||||||
| Equity-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Cash dividend declared | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Components of comprehensive income: | |||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||
| Total comprehensive income | — | — | — | ||||||||||||||||||||||||||||||||
| Balances as of April 1, 2023 | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||
| Issuance of stock for services rendered | — | — | |||||||||||||||||||||||||||||||||
| Repurchase of common stock | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Issuance of shares for equity-based compensation | ( | — | — | ||||||||||||||||||||||||||||||||
| Equity-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Cumulative effect of accounting changes | — | ||||||||||||||||||||||||||||||||||
| Cash dividend declared | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Components of comprehensive income/(loss): | |||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Total comprehensive income/(loss) | — | — | — | ( | ( | ||||||||||||||||||||||||||||||
| Balances as of July 1, 2023 | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated condensed financial statements.
5
KULICKE AND SOFFA INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
| Nine months ended | |||||||||||
| June 29, 2024 | July 1, 2023 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Net (loss) / income | $ | ( | $ | ||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Impairment charges | |||||||||||
| Equity-based compensation | |||||||||||
| Adjustment for doubtful accounts | |||||||||||
| Adjustment for inventory valuation | |||||||||||
| Deferred taxes | ( | ||||||||||
| Loss/(Gain) on disposal of property, plant and equipment | ( | ||||||||||
| Unrealized fair value changes on equity investment | ( | ||||||||||
| Unrealized foreign currency translation | |||||||||||
| Changes in operating assets and liabilities, net of assets and liabilities assumed in businesses combinations: | |||||||||||
| Accounts and other receivable | ( | ||||||||||
| Inventories | ( | ( | |||||||||
| Prepaid expenses and other current assets | |||||||||||
| Accounts payable, accrued expenses and other current liabilities | ( | ( | |||||||||
| Income taxes payable | ( | ( | |||||||||
| Other, net | ( | ( | |||||||||
| Net cash (used in)/provided by operating activities | ( | ||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Acquisition of business, net of cash acquired | ( | ||||||||||
| Purchases of property, plant and equipment | ( | ( | |||||||||
| Proceeds from sales of property, plant and equipment | |||||||||||
| Investment in private equity fund | ( | ( | |||||||||
| Purchase of short-term investments | ( | ( | |||||||||
| Maturity of short-term investments | |||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| Payment for finance lease | ( | ( | |||||||||
| Repurchase of common stock/treasury stock | ( | ( | |||||||||
| Common stock cash dividends paid | ( | ( | |||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | |||||||||||
| Changes in cash and cash equivalents | ( | ( | |||||||||
| Cash and cash equivalents at beginning of period | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES: | |||||||||||
| Property, plant and equipment included in accounts payable and accrued expenses | $ | $ | |||||||||
| CASH PAID FOR: | |||||||||||
| Interest | $ | $ | |||||||||
| Income taxes, net of refunds | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated condensed financial statements.
6
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited
NOTE 1. BASIS OF PRESENTATION
These consolidated condensed financial statements include the accounts of Kulicke and Soffa Industries, Inc. and its subsidiaries (“we,” “us,” “our,” or the “Company”), with appropriate elimination of intercompany balances and transactions.
The interim consolidated condensed financial statements are unaudited and, in management’s opinion, include all adjustments (consisting only of normal and recurring adjustments) necessary for a fair statement of results for these interim periods. The interim consolidated condensed financial statements do not include all of the information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2023 (the “2023 Annual Report”) filed with the Securities and Exchange Commission on November 16, 2023, which includes the Consolidated Balance Sheets as of September 30, 2023 and October 1, 2022, and the related Consolidated Statements of Operations, Statements of Comprehensive Income, Changes in Shareholders’ Equity and Cash Flows for each of the years in the three-year period ended September 30, 2023. The results of operations for any interim period are not necessarily indicative of the results of operations for any other interim period or for a full year.
Fiscal Year
Nature of Business
The Company designs, develops, manufactures and sells capital equipment and tools as well as services, maintains, repairs and upgrades equipment, all used to assemble semiconductor devices. The Company’s operating results depend upon the capital and operating expenditures of integrated device manufacturers (“IDMs”), outsourced semiconductor assembly and test providers (“OSATs”), foundry service providers, and other electronics manufacturers and automotive electronics suppliers worldwide which, in turn, depend on the current and anticipated market demand for semiconductors and products utilizing semiconductors. The semiconductor industry is highly volatile and experiences downturns and slowdowns which can have a severe negative effect on the semiconductor industry’s demand for semiconductor capital equipment, including assembly equipment manufactured and sold by the Company and, to a lesser extent, tools, solutions and services, including those sold or provided by the Company. These downturns and slowdowns have in the past adversely affected the Company’s operating results. The Company believes such volatility will continue to characterize the industry and the Company’s operations in the future.
In connection with the cancellation of a project with one of its strategic customers (previously referred to as Project W), on March 11, 2024, the Company committed to a plan to cease operational activities and commence wind down activities concerning various aspects of Project W. The wind down charges and impairments were primarily recorded in the Advanced Solutions reportable segment during the three month period ended March 30, 2024. The wind down activities are ongoing and are expected to be substantially completed by the end of fiscal year 2024. No material cost relating to the cancellation of Project W was incurred during the three month period ended June 29, 2024.
7
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)
Use of Estimates
The preparation of consolidated condensed financial statements requires management to make assumptions, estimates and judgments that affect the reported amounts of assets and liabilities, net revenue and expenses during the reporting periods, and disclosures of contingent assets and liabilities as of the date of the consolidated condensed financial statements. On an ongoing basis, management evaluates estimates, including but not limited to, those related to accounts receivable, reserves for excess and obsolete inventory and inventory valuation, carrying value and lives of fixed assets, goodwill and intangible assets, accrual for customer credit programs, the valuation estimates and assessment of impairment and observable price adjustments, income taxes, equity-based compensation expense, accrual for employee termination benefits and warranties. Management bases its estimates on historical experience and on various other assumptions believed to be reasonable. As a result, management makes judgments regarding the carrying values of the Company’s assets and liabilities that are not readily apparent from other sources. Authoritative pronouncements, historical experience and assumptions are used as the basis for making estimates, and on an ongoing basis, management evaluates these estimates. Actual results may differ from these estimates.
Significant Accounting Policies
Recent Accounting Pronouncements
Disclosure Improvements
In October 2023, the Financial Accounting Standards Board (the "FASB") issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative. This ASU aligns the requirements in the FASB Accounting Standards Codification with the SEC’s regulations. The amendments in the ASU are expected to clarify or improve disclosure and presentation requirements of a variety of Codification Topics. They will also allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC’s regulations. This ASU will become effective for each amendment on the date on which the SEC removes the related disclosure from its regulations. However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations, the amendments will be removed from the Codification and not become effective for any entity. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.
Segment Reporting
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure, which aims to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the amendments in the ASU enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. The purpose of the amendments is to enable investors to better understand an entity's overall performance and assess potential future cash flows. This ASU will be effective for the Company's fiscal year 2025, and interim periods within the fiscal years beginning after the Company’s fiscal year 2026. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this standard will have on its consolidated financial statements.
8
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)
Income Taxes
9
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)
NOTE 2. BALANCE SHEET COMPONENTS
The following tables reflect the components of significant balance sheet accounts as of June 29, 2024 and September 30, 2023:
| As of | |||||||||||
| (in thousands) | June 29, 2024 | September 30, 2023 | |||||||||
| Inventories, net: | |||||||||||
| Raw materials and supplies | $ | $ | |||||||||
| Work in process | |||||||||||
| Finished goods | |||||||||||
Inventory reserves | ( | ( | |||||||||
| $ | $ | ||||||||||
| Property, plant and equipment, net: | |||||||||||
| Land | $ | $ | |||||||||
| Buildings and building improvements | |||||||||||
| Leasehold improvements | |||||||||||
| Data processing equipment and software | |||||||||||
| Machinery, equipment, furniture and fixtures | |||||||||||
| Construction in progress | |||||||||||
| Accumulated depreciation | ( | ( | |||||||||
Accumulated impairment (1) | ( | ||||||||||
| $ | $ | ||||||||||
| Accrued expenses and other current liabilities: | |||||||||||
Accrued customer obligations (2) | $ | $ | |||||||||
Wages and benefits | |||||||||||
| Dividends payable | |||||||||||
| Commissions and professional fees | |||||||||||
| Accrued leasehold renovations | |||||||||||
| Other | |||||||||||
| $ | $ | ||||||||||
(1)Represents the impairments related to the cancellation of Project W. Refer to Note 1 for additional information.
(2)Represents customer advance payments, customer credit program, accrued warranty expense and accrued retrofit obligations.
10
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)
NOTE 3. GOODWILL AND INTANGIBLE ASSETS
Goodwill
Intangible assets classified as goodwill are not amortized. The goodwill established in connection with our acquisitions represents the estimated future economic benefits arising from the assets we acquired that did not qualify to be identified and recognized individually. The goodwill also includes the value of expected future cash flows from the acquisitions, expected synergies with our other affiliates and other unidentifiable intangible assets.
The Company performs an annual impairment test of its goodwill during the fourth quarter of each fiscal year, which coincides with the completion of its annual forecasting and refreshing of business outlook process.
The Company performed its annual impairment test in the fourth quarter of fiscal 2023 and concluded that no impairment charge was required. Any future adverse changes in expected operating results and/or unfavorable changes in other economic factors used to estimate fair values could result in a non-cash impairment in the future.
During the three months ended June 29, 2024, the Company reviewed qualitative factors to ascertain if a “triggering” event may have taken place that may have the effect of reducing the fair value of the reporting unit below its carrying value and concluded that no triggering event had occurred. While we have concluded that a triggering event did not occur during the quarter ended June 29, 2024, the persistent macroeconomic headwinds could, in the future, require changes to assumptions utilized in the determination of the estimated fair values of the reporting units which could result in future goodwill impairment charges. Net sales and earnings growth rates could be negatively impacted by reductions or changes in demand for our products. The discount rate utilized in our valuation model could also be impacted by changes in the underlying interest rates and risk premiums included in the determination of the cost of capital.
The following table summarizes the changes in the Company’s recorded goodwill, where applicable, by reportable segments and the “All Others” category (refer to Note 14 for further information) as of June 29, 2024 and September 30, 2023:
| (in thousands) | Wedge Bonding Equipment | APS | All Others | Total | ||||||||||||||||||||||
Balance at September 30, 2023(1) | $ | $ | $ | |||||||||||||||||||||||
| Other | $ | |||||||||||||||||||||||||
| Balance at June 29, 2024 | $ | $ | $ | |||||||||||||||||||||||
(1) Cumulative goodwill impairment pertaining to the “All Others” category as of September 30, 2023 was $45.0 million.
Intangible Assets
Intangible assets with determinable lives are amortized over their estimated useful lives. The Company’s intangible assets consist primarily of developed technology, customer relationships, in-process research and development, and trade and brand names.
11
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)
The following table reflects net intangible assets as of June 29, 2024 and September 30, 2023:
As of June 29, 2024 | As of September 30, 2023 | ||||||||||||||||||||||||||||||||||||||||
| (dollar amounts in thousands) | Average estimated useful lives (in years) | Gross Carrying Amount | Accumulated Amortization | Net Amount | Gross Carrying Amount | Accumulated Amortization | Net Amount | ||||||||||||||||||||||||||||||||||
| Developed technology | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||
| Customer relationships | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||
| Trade and brand name | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||
| Other intangible assets | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||
In-process research and development | N.A | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||
The following table reflects estimated annual amortization expense related to intangible assets as of June 29, 2024:
| As of | |||||
| (in thousands) | June 29, 2024 | ||||
| Remaining fiscal 2024 | $ | ||||
| Fiscal 2025 | |||||
| Fiscal 2026 | |||||
| Fiscal 2027 | |||||
| Fiscal 2028 | |||||
| Thereafter | |||||
| Total amortization expense | $ | ||||
NOTE 4. CASH, CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS
Cash equivalents consist of instruments with remaining maturities of three months or less at the date of purchase. In general, these investments are free of trading restrictions.
Cash, cash equivalents, and short-term investments consisted of the following as of June 29, 2024:
| (in thousands) | Amortized Cost | Unrealized Gains | Unrealized Losses | Estimated Fair Value | |||||||||||||||||||
| Current assets: | |||||||||||||||||||||||
| Cash | $ | $ | $ | $ | |||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
Mutual Funds (1) | ( | ||||||||||||||||||||||
Time deposits (2) | |||||||||||||||||||||||
| Total cash and cash equivalents | $ | $ | $ | ( | $ | ||||||||||||||||||
| Short-term investments: | |||||||||||||||||||||||
Time deposits (2) | |||||||||||||||||||||||
| Total short-term investments | $ | $ | $ | $ | |||||||||||||||||||
| Total cash, cash equivalents and short-term investments | $ | $ | $ | ( | $ | ||||||||||||||||||
12
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)
(1)Mutual funds held by the Company include Money Market Funds and Ultra-Short Funds. The fair value was determined using unadjusted prices in active, accessible markets for identical assets, and as such they were classified as Level 1 assets in the fair value hierarchy.
(2)The fair value of all short-term investments approximates cost basis. The Company did not recognize any realized gains or losses on the sale of investments during the three and nine months ended June 29, 2024.
Cash, cash equivalents and short-term investments consisted of the following as of September 30, 2023:
| (in thousands) | Amortized Cost | Unrealized Gains | Unrealized Losses | Estimated Fair Value | |||||||||||||||||||
| Current assets: | |||||||||||||||||||||||
| Cash | $ | $ | $ | $ | |||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
Mutual Funds (1) | ( | ||||||||||||||||||||||
Time deposits (2) | |||||||||||||||||||||||
| Total cash and cash equivalents | $ | $ | $ | ( | $ | ||||||||||||||||||
| Short-term investments: | |||||||||||||||||||||||
Time deposits (2) | |||||||||||||||||||||||
| Total short-term investments | $ | $ | $ | $ | |||||||||||||||||||
| Total cash, cash equivalents and short-term investments | $ | $ | $ | ( | $ | ||||||||||||||||||
(1)Mutual funds held by the Company include Money Market Funds. The fair value was determined using unadjusted prices in active, accessible markets for identical assets, and as such they were classified as Level 1 assets in the fair value hierarchy.
NOTE 5. EQUITY INVESTMENTS
Equity investments consisted of the following as of June 29, 2024 and September 30, 2023:
| As of | |||||||||||
| (in thousands) | June 29, 2024 | September 30, 2023 | |||||||||
| Non-marketable equity securities | $ | $ | |||||||||
Net Asset Value (“NAV”) (Private Equity Fund): Equity investments in affiliated investment funds are valued based on the NAV reported by the investment fund in accordance with ASC Topic 820-10. Investments held by the affiliated investment fund include a diversified portfolio of investments in the global semiconductor industry. The Company receives distributions through the liquidation of the underlying investments by the affiliated investment fund. However, the period of time over which the underlying investments are expected to be liquidated is unknown. Additionally, the Company’s ability to withdraw from the fund is subject to restrictions. The term of the fund will continue until March 18, 2032 unless dissolved earlier or extended by the General Partner. In accordance with ASC Topic 820-10, this investment is measured at fair value using the NAV per share (or its equivalent) practical expedient has not been classified in the fair value hierarchy. As of June 29, 2024, the Company has funded $2.9 million into the affiliated investment fund and recognized a cumulative unrealized fair value gain of $22.0 thousand. The Company has recorded the amount of funded capital that has been called as an equity investment.
13
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)
NOTE 6. FAIR VALUE MEASUREMENTS
Accounting standards establish three levels of inputs that may be used to measure fair value: quoted prices in active markets for identical assets or liabilities (referred to as Level 1), inputs other than Level 1 that are observable for the asset or liability either directly or indirectly (referred to as Level 2) and unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities (referred to as Level 3).
Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis
We measure certain financial assets and liabilities at fair value on a recurring basis. There were no transfers between fair value measurement levels during the three and nine months ended June 29, 2024.
Fair Value Measurements on a Nonrecurring Basis
Our non-financial assets such as intangible assets and property, plant and equipment are carried at cost unless impairment is deemed to have occurred.
Fair Value of Financial Instruments
Amounts reported as accounts receivables, prepaid expenses and other current assets, accounts payable and accrued expenses approximate fair value.
NOTE 7. DERIVATIVE FINANCIAL INSTRUMENTS
The Company’s international operations are exposed to changes in foreign exchange rates due to transactions denominated in currencies other than U.S. dollars. Most of the Company’s revenue and cost of materials are transacted in U.S. dollars. However, a significant amount of the Company’s operating expenses is denominated in local currencies, primarily in Singapore.
The foreign currency exposure of our operating expenses is generally hedged with foreign exchange forward contracts. The Company’s foreign exchange risk management programs include using foreign exchange forward contracts with cash flow hedge accounting designation to hedge exposures to the variability in the U.S. dollar equivalent of forecasted non-U.S. dollar-denominated operating expenses. These instruments generally mature within twelve months . For these derivatives, we report the after-tax gain or loss from the effective portion of the hedge as a component of accumulated other comprehensive income (loss), and we reclassify it into earnings in the same period or periods in which the hedged transaction affects earnings and in the same line item on the Consolidated Condensed Statements of Operations as the impact of the hedged transaction.
The fair value of derivative instruments on our Consolidated Condensed Balance Sheets as of June 29, 2024 and September 30, 2023 were as follows:
| As of | |||||||||||||||||||||||
| June 29, 2024 | September 30, 2023 | ||||||||||||||||||||||
| (in thousands) | Notional Amount | Fair Value Liability Derivatives(1) | Notional Amount | Fair Value Liability Derivatives(1) | |||||||||||||||||||
| Derivatives designated as hedging instruments: | |||||||||||||||||||||||
Foreign exchange forward contracts (2) | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Total derivatives | $ | $ | ( | $ | $ | ( | |||||||||||||||||
(1)The fair value of derivative liabilities is measured using level 2 fair value inputs and is included in accrued expenses and other current liabilities on our Consolidated Condensed Balance Sheets.
(2)Hedged amounts expected to be recognized to income within the next twelve months .
14
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)
The effects of derivative instruments designated as cash flow hedges in our Consolidated Condensed Statements of Comprehensive Income for the three and nine months ended June 29, 2024 and July 1, 2023 were as follows:
| Three months ended | Nine months ended | ||||||||||||||||||||||
| (in thousands) | June 29, 2024 | July 1, 2023 | June 29, 2024 | July 1, 2023 | |||||||||||||||||||
| Foreign exchange forward contract in cash flow hedging relationships: | |||||||||||||||||||||||
Net (loss) / gain recognized in OCI, net of tax(1) | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||
Net (loss) / gain reclassified from accumulated OCI into income, net of tax(2) | $ | ( | $ | $ | ( | $ | |||||||||||||||||
(1)Net change in the fair value of the effective portion classified in OCI.
NOTE 8. LEASES
We have entered into various non-cancellable operating and finance lease agreements for certain of our offices, manufacturing, technology, sales support and service centers, equipment, and vehicles. We determine if an arrangement is a lease, or contains a lease, at inception and record the leases in our financial statements upon lease commencement, which is the date when the underlying asset is made available for use by the lessor. Our lease terms may include one or more options to extend the lease terms, for periods from one year to 20 years, when it is reasonably certain that we will exercise that option. As of June 29, 2024, there were no options to extend the lease which was recognized as a right-of-use (“ROU”) asset, or a lease liability. We have lease agreements with lease and non-lease components, and non-lease components are accounted for separately and not included in our leased assets and corresponding liabilities. We have elected not to present short-term leases on the Consolidated Condensed Balance Sheets as these leases have a lease term of 12 months or less at lease inception.
Operating leases are included in operating ROU assets, current operating lease liabilities and non-current operating lease liabilities, and finance leases are included in property, plant and equipment, accrued expenses and other current liabilities, and other liabilities on the Consolidated Condensed Balance Sheets. As of June 29, 2024 and September 30, 2023, our finance leases are not material.
The following table shows the components of lease expense:
| Three months ended | Nine months ended | ||||||||||||||||||||||
| (in thousands) | June 29, 2024 | July 1, 2023 | June 29, 2024 | July 1, 2023 | |||||||||||||||||||
Operating lease expense (1) | $ | $ | $ | $ | |||||||||||||||||||
(1)Operating lease expense includes short-term lease expense and variable lease expenses, which is immaterial for the three and nine months ended June 29, 2024 and July 1, 2023.
The following table shows the cash flows arising from lease transactions. Cash payments related to short-term leases are not included in the measurement of operating lease liabilities, and, as such, are excluded from the amounts below:
| Nine months ended | |||||||||||
| (in thousands) | June 29, 2024 | July 1, 2023 | |||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Operating cash outflows from operating leases | $ | $ | |||||||||
15
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)
The following table shows the weighted-average lease terms and discount rates for operating leases:
| As of | |||||||||||
| June 29, 2024 | September 30, 2023 | ||||||||||
| Operating leases: | |||||||||||
Weighted-average remaining lease term (in years): | |||||||||||
| Weighted-average discount rate: | % | % | |||||||||
Future lease payments, excluding short-term leases, as of June 29, 2024, are detailed as follows:
| As of | |||||
| (in thousands) | June 29, 2024 | ||||
| Remaining fiscal 2024 | $ | ||||
| Fiscal 2025 | |||||
| Fiscal 2026 | |||||
| Fiscal 2027 | |||||
| Fiscal 2028 | |||||
| Thereafter | |||||
| Total minimum lease payments | $ | ||||
| Less: Interest | $ | ||||
| Present value of lease obligations | $ | ||||
| Less: Current portion | $ | ||||
| Long-term portion of lease obligations | $ | ||||
NOTE 9. DEBT AND OTHER OBLIGATIONS
Bank Guarantees
On November 22, 2013, the Company obtained a $5.0 million credit facility with Citibank in connection with the issuance of bank guarantees for operational purposes. As of June 29, 2024, the outstanding amount under this facility was $4.8 million.
Credit Facilities
On February 15, 2019, the Company entered into a Facility Letter and Overdraft Agreement (collectively, the “Facility Agreements”) with MUFG Bank, Ltd., Singapore Branch (the “Bank”). The Facility Agreements provide the Company and one of its subsidiaries with an overdraft facility of up to $150.0 million (the “Overdraft Facility”) for general corporate purposes. Amounts outstanding under the Overdraft Facility, including interest, are payable upon thirty days written demand by the Bank. Interest on the Overdraft Facility is calculated on a daily basis, and the applicable interest rate is calculated at the Secured Overnight Financing Rate (“SOFR”) plus a margin of 1.5 % per annum. The Overdraft Facility is an unsecured facility per the terms of the Facility Agreements. The Facility Agreements contain customary non-financial covenants, including, without limitation, covenants that restrict the Company’s ability to sell or dispose of its assets, cease owning at least 51% of two of its subsidiaries (the “Subsidiaries”), or encumber its assets with material security interests (including any pledge of monies in the Subsidiaries' cash deposit account with the Bank). The Facility Agreements also contain typical events of default, including, without limitation, non-payment of financial obligations when due, cross defaults to other material indebtedness of the Company and any breach of a representation or warranty under the Facility Agreements. As of June 29, 2024, there were no outstanding amounts under the Overdraft Facility.
16
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)
NOTE 10. SHAREHOLDERS’ EQUITY AND EMPLOYEE BENEFIT PLANS
Share Repurchase Program
On August 15, 2017, the Company’s Board of Directors authorized a program (the “Program”) to repurchase up to $100 million of the Company’s common stock on or before August 1, 2020. In 2018, 2019 and 2020, the Board of Directors increased the share repurchase authorization under the Program to $200 million, $300 million, and $400 million, respectively. On March 3, 2022, the Board of Directors further increased the share repurchase authorization under the Program by an additional $400 million to $800 million, and extended its duration through August 1, 2025. On November 17, 2023, the Company modified its written trading plan under Rule 10b5-1 of the Exchange Act, such plan as first entered into on May 7, 2022, to facilitate repurchases under the Program. The modified plan permits the purchase of up to approximately $169 million of the Company’s common stock from November 20, 2023 through August 1, 2025. The Program may be suspended or discontinued at any time and is funded using the Company’s available cash, cash equivalents and short-term investments. Under the Program, shares may be repurchased through open market and/or privately negotiated transactions at prices deemed appropriate by management. The timing and amount of repurchase transactions under the Program depend on market conditions as well as corporate and regulatory considerations.
During the three and nine months ended June 29, 2024, the Company repurchased a total of approximately 934.3 thousand and 2,244.5 thousand shares of common stock under the Program at a cost of approximately $44.0 million and $108.1 million, respectively. The stock repurchases were recorded in the periods the repurchased shares were delivered and accounted for as treasury stock in the Company’s Consolidated Condensed Balance Sheets. The Company records treasury stock purchases under the cost method using the first-in, first-out (FIFO) method. Upon re-issuance of treasury stock, amounts in excess of the acquisition cost are credited to additional paid-in capital.
If the Company reissues treasury stock at an amount below its acquisition cost and additional paid-in capital associated with prior treasury stock transactions is insufficient to cover the difference between acquisition cost and the reissue price, this difference is recorded against retained earnings.
As of June 29, 2024, our remaining stock repurchase authorization under the Program was approximately $72.9 million.
Dividends
On November 15, 2023, the Board of Directors declared a quarterly dividend of $0.20 per share of common stock. Dividends paid during the three and nine months ended June 29, 2024 totaled $11.2 million and $33.2 million, respectively. The declaration of any future cash dividend is at the discretion of the Board of Directors and will depend on the Company’s financial condition, results of operations, capital requirements, business conditions and other factors, as well as a determination that such dividends are in the best interests of the Company’s shareholders.
Accumulated Other Comprehensive Loss
The following table reflects accumulated other comprehensive loss reflected on the Consolidated Condensed Balance Sheets as of June 29, 2024 and September 30, 2023:
| As of | |||||||||||
| (in thousands) | June 29, 2024 | September 30, 2023 | |||||||||
| Loss from foreign currency translation adjustments | $ | ( | $ | ( | |||||||
| Unrecognized actuarial loss on pension plan, net of tax | ( | ( | |||||||||
| Unrealized loss on hedging | ( | ( | |||||||||
| Accumulated other comprehensive loss | $ | ( | $ | ( | |||||||
17
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)
Equity-Based Compensation
The Company has a stockholder-approved equity-based compensation plan, the 2021 Omnibus Incentive Plan (the “Plan”) from which employees and directors receive grants. As of June 29, 2024, 1.8 million shares of common stock are available for grant to the Company’s employees and directors under the Plan.
•Relative Total Shareholder Return Performance Share Units (“Relative TSR PSUs”) entitle the employee to receive common stock of the Company on the award vesting date, typically the third anniversary of the grant date (or as soon as administratively practicable if later), if market performance objectives which measure the relative TSR are attained. Relative TSR is calculated based upon the 90 -calendar day average price at the end of the performance period of the Company’s stock as compared to specific peer companies that comprise the GICS (45301020) Semiconductor Index. TSR is measured for the Company and each peer company over a performance period, which is generally three years . Vesting percentages range from 0 % to 200 % of awards granted. The provisions of the Relative TSR PSUs are reflected in the grant date fair value of the award; therefore, compensation expense is recognized regardless of whether the market condition is ultimately satisfied. Compensation expense is reversed if the award is forfeited prior to the vesting date.
•Revenue Growth Performance Share Units (“Growth PSUs”) entitle the employee to receive common stock of the Company on the award vesting date, typically the third anniversary of the grant date (or as soon as administratively practicable if later), based on organic revenue growth objectives and relative growth performance against named competitors as set by the Management Development and Compensation Committee (“MDCC”) of the Company’s Board of Directors. Organic revenue growth is calculated by averaging revenue growth (net of revenues from acquisitions) over a performance period, which is generally three years . Revenues from acquisitions will be included in the calculation after four fiscal quarters after acquisition. Any portion of the grant that does not meet the revenue growth objectives and relative growth performance is forfeited. Vesting percentages range from 0 % to 200 % of awards granted.
•In general, Time-based Restricted Share Units (“Time-based RSUs”) awarded to employees vest ratably over a three-year period on the anniversary of the grant date provided the employee remains employed by the Company.
Equity-based compensation expense recognized in the Consolidated Condensed Statements of Operations for the three and nine months ended June 29, 2024 and July 1, 2023 was based upon awards ultimately expected to vest, with forfeiture accounted for when they occur.
The following table reflects Time-based RSUs, Relative TSR PSUs, Growth PSUs and common stock granted during the three and nine months ended June 29, 2024 and July 1, 2023:
| Three months ended | Nine months ended | ||||||||||||||||||||||
| (shares in thousands) | June 29, 2024 | July 1, 2023 | June 29, 2024 | July 1, 2023 | |||||||||||||||||||
| Time-based RSUs | |||||||||||||||||||||||
| Relative TSR PSUs | |||||||||||||||||||||||
| Growth PSUs | |||||||||||||||||||||||
| Common stock | |||||||||||||||||||||||
| Equity-based compensation in shares | |||||||||||||||||||||||
18
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)
The following table reflects total equity-based compensation expense, which includes Time-based RSUs, Relative TSR PSUs, Growth PSUs and common stock, included in the Consolidated Condensed Statements of Operations during the three and nine months ended June 29, 2024 and July 1, 2023:
| Three months ended | Nine months ended | ||||||||||||||||||||||
| (in thousands) | June 29, 2024 | July 1, 2023 | June 29, 2024 | July 1, 2023 | |||||||||||||||||||
| Cost of sales | $ | $ | $ | $ | |||||||||||||||||||
| Selling, general and administrative | |||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| Total equity-based compensation expense | $ | $ | $ | $ | |||||||||||||||||||
The following table reflects equity-based compensation expense, by type of award, for the three and nine months ended June 29, 2024 and July 1, 2023:
| Three months ended | Nine months ended | ||||||||||||||||||||||
| (in thousands) | June 29, 2024 | July 1, 2023 | June 29, 2024 | July 1, 2023 | |||||||||||||||||||
| Time-based RSUs | $ | $ | $ | $ | |||||||||||||||||||
| Relative TSR PSUs | |||||||||||||||||||||||
| Growth PSUs | |||||||||||||||||||||||
| Common stock | |||||||||||||||||||||||
| Total equity-based compensation expense | $ | $ | $ | $ | |||||||||||||||||||
NOTE 11. REVENUE AND CONTRACT BALANCES
The Company recognizes revenue when we satisfy performance obligations as evidenced by the transfer of control of our products or services to customers. In general, the Company generates revenue from product sales, either directly to customers or to distributors. In determining whether a contract exists, we evaluate the terms of the agreement, the relationship with the customer or distributor and their ability to pay. Service revenue is generally recognized over time as the services are performed. For the three and nine months ended June 29, 2024 and July 1, 2023, the service revenue was not material.
The Company reports revenue based on its reportable segments and end markets, which provides information about how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. Please refer to Note 14: Segment Information, for disclosure of revenue by segment and end markets.
Contract Balances
As of | |||||||||||||||||||||||
| (in thousands) | June 29, 2024 | September 30, 2023 | $ Change | % Change | |||||||||||||||||||
Contract assets | $ | $ | $ | ( | ( | % | |||||||||||||||||
Contract liabilities | $ | $ | $ | % | |||||||||||||||||||
Our contract assets relate to our rights to consideration for revenue with collection dependent on events other than the passage of time, such as the achievement of specified payment milestones. The contract assets will be transferred to net account receivables as our right to consideration for these contract assets become unconditional. Contracts assets are reported in the accompanying Consolidated Condensed Balance Sheets within prepaid expenses and other current assets. The change in contract assets during the nine months ended June 29, 2024 was mainly due to $10.2 million of contract assets reclassified to accounts receivable, net, as our right to consideration for these contract assets became unconditional.
19
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)
Our contract liabilities are primarily related to payments received in advance of satisfying performance obligations, and are reported in the accompanying Consolidated Condensed Balance Sheets within accrued expenses and other current liabilities.
NOTE 12. (LOSS) EARNINGS PER SHARE
Basic (loss)/income per share is calculated using the weighted average number of shares of common stock outstanding during the period. Restricted stock are included in the calculation of diluted earnings per share, except when their effect would be anti-dilutive. For the nine months ended June 29, 2024, restricted stock were excluded due to the net loss the Company incurred during those periods.
The following table reflects a reconciliation of the shares used in the basic and diluted net income per share computation for the three and nine months ended June 29, 2024 and July 1, 2023:
| Three months ended | |||||||||||||||||||||||
| (in thousands, except per share data) | June 29, 2024 | July 1, 2023 | |||||||||||||||||||||
| Basic | Diluted | Basic | Diluted | ||||||||||||||||||||
| NUMERATOR: | |||||||||||||||||||||||
Net income | $ | $ | $ | $ | |||||||||||||||||||
| DENOMINATOR: | |||||||||||||||||||||||
| Weighted average shares outstanding - Basic | |||||||||||||||||||||||
| Dilutive effect of Equity Plans | |||||||||||||||||||||||
| Weighted average shares outstanding - Diluted | |||||||||||||||||||||||
| EPS: | |||||||||||||||||||||||
Net income per share - Basic | $ | $ | $ | $ | |||||||||||||||||||
| Effect of dilutive shares | |||||||||||||||||||||||
Net income per share - Diluted | $ | $ | |||||||||||||||||||||
Anti-dilutive shares(1) | |||||||||||||||||||||||
| Nine months ended | |||||||||||||||||||||||
| (in thousands, except per share data) | June 29, 2024 | July 1, 2023 | |||||||||||||||||||||
| Basic | Diluted | Basic | Diluted | ||||||||||||||||||||
| NUMERATOR: | |||||||||||||||||||||||
| Net (loss)/income | $ | ( | $ | ( | $ | $ | |||||||||||||||||
| DENOMINATOR: | |||||||||||||||||||||||
| Weighted average shares outstanding - Basic | |||||||||||||||||||||||
| Dilutive effect of Equity Plans | |||||||||||||||||||||||
| Weighted average shares outstanding - Diluted | |||||||||||||||||||||||
| EPS: | |||||||||||||||||||||||
| Net (loss)/income per share - Basic | $ | ( | $ | ( | $ | $ | |||||||||||||||||
| Effect of dilutive shares | ( | ||||||||||||||||||||||
| Net (loss)/income per share - Diluted | $ | ( | $ | ||||||||||||||||||||
Anti-dilutive shares(1) | |||||||||||||||||||||||
20
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)
NOTE 13. INCOME TAXES
The following table reflects the provision for income taxes and the effective tax rate for the three and nine months ended June 29, 2024 and July 1, 2023:
| Three months ended | Nine months ended | ||||||||||||||||||||||
| (dollar amounts in thousands) | June 29, 2024 | July 1, 2023 | June 29, 2024 | July 1, 2023 | |||||||||||||||||||
Provision for income taxes | $ | $ | $ | $ | |||||||||||||||||||
Effective tax rate | % | % | ( | % | % | ||||||||||||||||||
For the three and nine months ended June 29, 2024 as compared to the three and nine months ended July 1, 2023, the change in provision for income taxes was primarily due to an increase in valuation allowance recorded against certain deferred tax assets and changes in profitability. The change in effective tax rate was primarily due to an increase in valuation allowance recorded against certain deferred tax assets and the tax benefit from the one-time charge for cancellation of Project W which was recorded as a discrete the prior quarter.
For the three and nine months ended June 29, 2024, the effective tax rate is different than the U.S. federal statutory tax rate primarily due to earnings of foreign subsidiaries subject to tax at different rates than the U.S., tax incentives, tax credits, changes in valuation allowances, the impact of Global Intangible Low-Taxed Income, and the tax impact of the one-time charge for cancellation of Project W.
NOTE 14. SEGMENT INFORMATION
Reportable segments are defined as components of an enterprise that engage in business activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker (the “CODM”) in deciding how to allocate resources and assess performance. The Company’s Chief Executive Officer is the CODM. The CODM does not review discrete asset information.
The Company has four reportable segments consisting of: (1) Ball Bonding Equipment, (2) Wedge Bonding Equipment, (3) Advanced Solutions, and (4) Aftermarket Products and Services (“APS”). The four reportable segments are disclosed below:
Ball Bonding Equipment: Reflects the results of the Company from the design, development, manufacture and sale of ball bonding equipment and wafer level bonding equipment.
Wedge Bonding Equipment: Reflects the results of the Company from the design, development, manufacture and sale of wedge and wedge-related bonding equipment.
Advanced Solutions: Reflects the results of the Company from the design, development, manufacture and sale of certain advanced display, die-attach and thermocompression systems and solutions.
APS: Reflects the results of the Company from the design, development, manufacture and sale of a variety of tools, spares and services for our equipment.
Any other operating segments that have not been aggregated within the reportable segments described above which do not meet the quantitative threshold to be disclosed as a separate reportable segment have been grouped within an “All Others” category. This group is reflective of the results of the Company from the design, development, manufacture and sale of certain advanced display, advanced dispense, electronics assembly, die-attach and lithography systems and solutions. Results for the “All Others” category and other corporate expenses are included as a reconciling item between the Company’s reportable segments and its consolidated results of operations.
21
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)
The following table reflects operating information by segment for the three and nine months ended June 29, 2024 and July 1, 2023:
| Three months ended | Nine months ended | ||||||||||||||||||||||
| (in thousands) | June 29, 2024 | July 1, 2023 | June 29, 2024 | July 1, 2023 | |||||||||||||||||||
| Net revenue: | |||||||||||||||||||||||
| Ball Bonding Equipment | $ | $ | $ | $ | |||||||||||||||||||
| Wedge Bonding Equipment | |||||||||||||||||||||||
| Advanced Solutions | |||||||||||||||||||||||
| APS | |||||||||||||||||||||||
| All Others | |||||||||||||||||||||||
| Net revenue | |||||||||||||||||||||||
| Income/(loss) from operations: | |||||||||||||||||||||||
| Ball Bonding Equipment | |||||||||||||||||||||||
| Wedge Bonding Equipment | $ | $ | |||||||||||||||||||||
| Advanced Solutions | ( | ( | $ | ( | $ | ( | |||||||||||||||||
| APS | |||||||||||||||||||||||
| All Others | ( | ( | ( | ( | |||||||||||||||||||
| Corporate Expenses | ( | ( | ( | ( | |||||||||||||||||||
Income / (Loss) from operations | $ | $ | ( | $ | ( | $ | |||||||||||||||||
We have considered: (1) information that is regularly reviewed by our CODM in evaluating financial performance and how to allocate resources; and (2) other financial data, including information that we include in our earnings releases but which is not included in our financial statements, to disaggregate revenues by end markets served. The principal category we use to disaggregate revenues is by the end markets served.
The following table reflects net revenue by end markets served for the three and nine months ended June 29, 2024 and July 1, 2023:
| Three months ended | Nine months ended | ||||||||||||||||||||||
| (in thousands) | June 29, 2024 | July 1, 2023 | June 29, 2024 | July 1, 2023 | |||||||||||||||||||
| General Semiconductor | $ | $ | $ | $ | |||||||||||||||||||
| Automotive & Industrial | |||||||||||||||||||||||
| LED | |||||||||||||||||||||||
| Memory | |||||||||||||||||||||||
| APS | |||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | |||||||||||||||||||
22
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)
The following table reflects capital expenditures, depreciation expense and amortization expense for the three and nine months ended June 29, 2024 and July 1, 2023:
| Three months ended | Nine months ended | ||||||||||||||||||||||
| (in thousands) | June 29, 2024 | July 1, 2023 | June 29, 2024 | July 1, 2023 | |||||||||||||||||||
| Capital expenditures: | |||||||||||||||||||||||
| Ball Bonding Equipment | $ | $ | $ | $ | |||||||||||||||||||
| Wedge Bonding Equipment | |||||||||||||||||||||||
| Advanced Solutions | |||||||||||||||||||||||
| APS | |||||||||||||||||||||||
| All Others | |||||||||||||||||||||||
| Corporate Expenses | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Depreciation expense: | |||||||||||||||||||||||
| Ball Bonding Equipment | $ | $ | $ | $ | |||||||||||||||||||
| Wedge Bonding Equipment | |||||||||||||||||||||||
| Advanced Solutions | |||||||||||||||||||||||
| APS | |||||||||||||||||||||||
| All Others | |||||||||||||||||||||||
| Corporate Expenses | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Amortization expense: | |||||||||||||||||||||||
| Ball Bonding Equipment | $ | $ | $ | $ | |||||||||||||||||||
| Wedge Bonding Equipment | |||||||||||||||||||||||
| Advanced Solutions | |||||||||||||||||||||||
| APS | |||||||||||||||||||||||
| All Others | |||||||||||||||||||||||
| Corporate Expenses | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
NOTE 15. COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS
Warranty Expense
The Company’s equipment is generally shipped with a one-year warranty against manufacturing defects. The Company establishes reserves for estimated warranty expense when revenue for the related equipment is recognized. The reserve for estimated warranty expense is based upon historical experience and management’s estimate of future warranty costs, including product part replacement, freight charges and related labor costs expected to be incurred in correcting manufacturing defects during the warranty period.
23
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)
The following table reflects the reserve for warranty activity for the three and nine months ended June 29, 2024 and July 1, 2023:
| Three months ended | Nine months ended | ||||||||||||||||||||||
| (in thousands) | June 29, 2024 | July 1, 2023 | June 29, 2024 | July 1, 2023 | |||||||||||||||||||
| Reserve for warranty, beginning of period | $ | $ | $ | $ | |||||||||||||||||||
| Provision for warranty | |||||||||||||||||||||||
| Utilization of reserve | ( | ( | ( | ( | |||||||||||||||||||
| Reserve for warranty, end of period | $ | $ | $ | $ | |||||||||||||||||||
Other Commitments and Contingencies
The following table reflects obligations not reflected on the Consolidated Condensed Balance Sheets as of June 29, 2024:
| Payments due by fiscal year | |||||||||||||||||||||||||||||||||||||||||
| (in thousands) | Total | 2024 | 2025 | 2026 | 2027 | 2028 | Thereafter | ||||||||||||||||||||||||||||||||||
Inventory purchase obligation (1) | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
From time to time, the Company is party to or the target of lawsuits, claims, investigations and proceedings, including for personal injury, intellectual property, commercial, contract, and employment matters, which are handled and defended in the ordinary course of business. The Company accrues a contingent loss liability for such matters when it is probable that a liability has been incurred and the amount can be reasonably estimated. When a single amount cannot be reasonably estimated but the cost can be estimated within a range, the Company accrues the minimum amount. The Company expenses legal costs, including those expected to be incurred in connection with a loss contingency, as incurred.
Unfunded Capital Commitments
As of June 29, 2024, the Company also has an obligation to fund uncalled capital commitments of approximately $7.1 million, as and when required, in relation to its investment in a private equity fund.
Concentrations
The following table reflects significant customer concentrations as a percentage of net revenue for the nine months ended June 29, 2024 and July 1, 2023:
| Nine months ended | |||||||||||
| June 29, 2024 | July 1, 2023 | ||||||||||
First Technology China Ltd.(1) | * | % | |||||||||
* Represents less than 10% of total net revenue
(1) Distributor of the Company’s products
24
KULICKE AND SOFFA INDUSTRIES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Unaudited (continued)
The following table reflects significant customer concentrations as a percentage of total accounts receivable as of June 29, 2024 and July 1, 2023:
| As of | |||||||||||
| June 29, 2024 | July 1, 2023 | ||||||||||
| Forehope Electronic (Ningbo) Co., Ltd. | % | * | |||||||||
| Tianshui Huatian Technology Co., Ltd. | % | * | |||||||||
| Intel Corporation | % | % | |||||||||
Apple Inc. | * | % | |||||||||
25
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
In addition to historical information, this Quarterly Report contains statements relating to future events or our future results. These statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are subject to the safe harbor provisions created by statute. Such forward-looking statements include, but are not limited to, statements with respect to our future revenue increasing, continuing or strengthening, or decreasing or weakening; our capital allocation strategies, including any share repurchases; demand for our products, including replacement demand; our research and development effort; our ability to identify and realize new growth opportunities; our ability to successfully execute our business; our ability to control costs; our expectations regarding our wind down activities related to Project W and the impact of the cancellation of Project W on our results of operations and financial condition; and our operational flexibility as a result of (among other factors):
•our expectations regarding the potential impacts on our business of actual or potential inflationary pressures, interest rate and risk premium adjustments, falling consumer sentiment, or economic recession caused, directly or indirectly, by the ongoing Israel-Hamas war, the prolonged Ukraine/Russia conflict, geopolitical tensions and other macroeconomic factors;
•our expectations regarding supply chain disruptions caused, directly or indirectly, by various macroeconomic events, including geopolitical tensions, catastrophic events resulting from climate change or other natural disasters and other factors;
•our expectations regarding our effective tax rate and our unrecognized tax benefit;
•our ability to operate our business in accordance with our business plan;
•our ability to adequately protect our trade secrets and intellectual property rights from misappropriation;
•our expectations regarding our success in integrating companies we may acquire with our business, and our ability to continue to acquire or divest companies;
•risks inherent in doing business on an international level, including currency risks, regulatory requirements, systems and cybersecurity risks, political risks, export restrictions and other trade barriers;
•disruptions, breaches or failures in our information technology systems and network infrastructures;
•projected growth rates in the overall semiconductor industry, the semiconductor assembly equipment market, and the market for semiconductor packaging materials; and
•projected demand for our products and services; and
•unexpected delays and difficulties in executing against our environmental, climate, diversity and inclusion goals or such other ESG targets and commitments.
Generally, words such as “may,” “will,” “should,” “could,” “anticipate,” “expect,” “intend,” “estimate,” “plan,” “continue,” “goal” and “believe,” or the negative of or other variations on these and other similar expressions identify forward-looking statements. These forward-looking statements are made only as of the date of this filing. We do not undertake to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.
Forward-looking statements are based on current expectations and involve risks and uncertainties. Our future results could differ significantly from those expressed or implied by our forward-looking statements. These risks and uncertainties include, without limitation, those described below and in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023 (our “2023 Annual Report”) and our other reports filed from time to time with the Securities and Exchange Commission. This discussion should be read in conjunction with the Consolidated Condensed Financial Statements and Notes included in this Quarterly Report, as well as our audited financial statements included in our 2023 Annual Report.
26
We operate in a rapidly changing and competitive environment. New risks emerge from time to time and it is not possible for us to predict all risks that may affect us. Future events and actual results, performance and achievements could differ materially from those set forth in, contemplated by or underlying the forward-looking statements, which speak only as of the date on which they were made. Except as required by law, we assume no obligation to update or revise any forward-looking statement to reflect actual results or changes in, or additions to, the factors affecting such forward-looking statement. Given those risks and uncertainties, investors should not place undue reliance on forward-looking statements as predictions of actual results.
OVERVIEW
Founded in 1951, Kulicke and Soffa Industries, Inc. (“we,” “us,” “our,” or the “Company”) specializes in developing cutting-edge semiconductor and electronics assembly solutions enabling a smarter and more sustainable future. Our ever-growing range of products and services supports growth and facilitates technology transitions across large-scale markets, such as advanced display, automotive, communications, compute, consumer, data storage, energy storage and industrial.
We design, develop, manufacture and sell capital equipment, consumables and services used to assemble semiconductor and electronic devices, such as integrated circuits, power discretes, light-emitting diode (“LEDs”), advanced displays and sensors. We also service, maintain, repair and upgrade our equipment and sell consumable aftermarket solutions and services for our and our peer companies’ equipment. Our customers primarily consist of integrated device manufacturers (“IDMs”), outsourced semiconductor assembly and test providers (“OSATs”), foundry service providers, and other electronics manufacturers and automotive electronics suppliers.
Our goal is to be the technology leader and the most competitive supplier in terms of cost and performance in each of our major product lines. Accordingly, we invest in research and engineering projects intended to expand our market access and enhance our leadership position in semiconductor, electronics and display assembly. We also remain focused on enhancing our value to customers through higher productivity systems, more autonomous capabilities and also through continuous improvement and optimization of our operational costs. Delivering new levels of value to our customers is a critically important goal for the Company.
Our Ball Bonding Equipment, Wedge Bonding Equipment and Advanced Solutions reportable segments engage in the design, development, manufacture and sale of ball bonding equipment, wafer level bonding equipment, wedge and wedge-related bonding equipment, certain advanced display, die-attach and thermocompression systems and solutions to IDMs, OSATs, foundry service providers, and other electronics manufacturers and automotive electronics suppliers.
Our APS segment engages in the design, development, manufacture and sale of a variety of tools, spares and services for our equipment. For example, we manufacture capillaries, blades, wedge bonder consumables and other spare parts which complements our equipment and to support a broader range of semiconductor packaging applications. We also provide equipment repair, post-sale support, maintenance and servicing, training services, refurbishment and upgrades for our equipment.
All other operating segments that do not meet the quantitative threshold to be disclosed as a separate reportable segment have been grouped within an “All Others” category. This group is reflective of the results of the Company from the design, development, manufacture and sale of certain advanced display, advanced dispense, electronics assembly, die-attach and lithography systems and solutions.
Business Environment
The semiconductor business environment is highly volatile and is driven by internal dynamics, both cyclical and seasonal, in addition to macroeconomic forces. Over the long term, semiconductor consumption has historically grown, and is forecasted to continue to grow. This growth is driven, in part, by regular advances in device performance and by price declines that result from improvements in manufacturing technology. In order to exploit these trends, semiconductor manufacturers, both IDMs and OSATs, periodically invest aggressively in latest generation capital equipment. This buying pattern often leads to periods of excess supply and reduced capital spending—the so-called semiconductor cycle. Within this broad semiconductor cycle there are also, generally weaker, seasonal effects that are specifically tied to annual, end-consumer purchasing patterns. Typically, semiconductor manufacturers prepare for heightened demand by adding or replacing equipment capacity by the end of the September quarter. Occasionally, this results in subsequent reductions in demand during the December quarter. This annual seasonality can be overshadowed by effects of the broader semiconductor cycle. Macroeconomic factors also affect the industry, primarily through their effect on business and consumer demand for electronic devices, as well as other products that have significant electronic content such as automobiles, white goods and telecommunication equipment. There can be no assurances regarding levels of demand for our products and we believe historic industry-wide volatility will persist.
27
Our Ball Bonding Equipment, Wedge Bonding Equipment and Advanced Solutions reportable segments, and the remaining operating segments in the “All Others” category are primarily affected by the industry’s internal cyclical and seasonal dynamics, in addition to broader macroeconomic factors, all of which can positively or negatively affect our financial performance. The sales mix of IDM and OSAT customers, as well as our end market mix, in any period also impacts our financial results. Different customer types and end markets can affect our products’ average selling prices and gross margins due to differences in features, capabilities, order size, and machine configurations.
Our APS reportable segment has historically been less volatile than other reportable segments. APS sales are more directly tied to semiconductor unit consumption rather than incremental capacity requirements and/or production capability improvements.
From time to time, our customers may request that we deliver our products to countries where they own or operate production facilities or to countries where they utilize third-party subcontractors or warehouses as part of their supply chain. For example, customers headquartered in the U.S. may require us to deliver our products to their back-end production facilities in China. Our customer base in the Asia/Pacific region has become more geographically concentrated over time as a result of general economic and industry conditions and trends. Approximately 92.3% and 89.7% of our net revenue for the three months ended June 29, 2024 and July 1, 2023, respectively, were for shipments to customer locations outside of the U.S., primarily in the Asia/Pacific region. Approximately 54.7% and 46.8% of our net revenue for the three months ended June 29, 2024 and July 1, 2023, respectively, were for shipments to customers headquartered in China.
Similarly, approximately 89.5% and 90.4% of our net revenue for the nine months ended June 29, 2024 and July 1, 2023, respectively, were for shipments to customer locations outside of the U.S., primarily in the Asia/Pacific region. Approximately 49.9% and 37.6% of our net revenue for the nine months ended June 29, 2024 and July 1, 2023, respectively, were for shipments to customers headquartered in China.
While our customers are impacted by the current global macroeconomic conditions, those with operations in China, an important manufacturing and supply chain hub, have witnessed a faster decline in demand and, accordingly, a faster decline in product shipments, compared to the rest of the world. The shipments to customers headquartered in China are subject to heightened risks and uncertainties related to the respective policies of the governments of China and the U.S. Furthermore, there is a potential risk of conflict and instability in the relationship between Taiwan and China that could disrupt the operations of our customers and/or suppliers in both Taiwan and China and our manufacturing operations in Taiwan and China.
The U.S. and several other countries have levied tariffs on certain goods and have introduced other trade restrictions resulting in substantial uncertainties in the semiconductor, LED, memory and automotive markets.
We continue to position our business to leverage our research and development leadership and innovation and to focus our efforts on mitigating volatility, improving profitability and ensuring longer-term growth. We remain focused on operational excellence, expanding our product offerings through continuous research and development or acquisitions and managing our business efficiently throughout the business cycles. However, our visibility into future demand is generally limited, and we generally experience typical industry seasonality.
To limit potential adverse cyclical, seasonal and macroeconomic effects on our financial position, we have continued our efforts to maintain a strong balance sheet. As of June 29, 2024, our total cash, cash equivalents and short-term investments were $601.9 million, a $157.5 million decrease from the prior fiscal year end. We believe our cash position allows us to continue investing in product development, pursuing non-organic opportunities and returning capital to investors through our share repurchase and dividend programs. Please see “Liquidity and Capital Resources” for more information.
28
Key Events in Fiscal 2024 to Date
Cancellation of Project W
Previously referred to as Project W, the Company has been engaged with one of its strategic customers (the "Customer") to support the Customer with the development and future mass production of certain technologies relating to advanced display (the "Project"). In connection with the Customer's strategic review of its business, the Customer informed the Company that it cancelled the Project. In connection with the foregoing, on March 11, 2024, the Company committed to a plan to cease operational activities and commence wind down activities concerning various aspects of the Project. The wind down activities are ongoing and are expected to be substantially completed by the end of fiscal year 2024. The Company anticipates that the cancellation of the Project will reduce its fiscal year 2024 revenue by approximately $15 million. As a result of the cancellation of the Project, the Company also incurred certain charges during the fiscal period ended March 30, 2024 and expects to incur additional related charges through fiscal year 2024. No material cost relating to the restructuring and cancellation of the Project was incurred during the three month period ended June 29, 2024.
Macroeconomic Headwinds
Supply chain disruptions and global shortages in electronic components are generally abating in many jurisdictions. However, the cost of logistics remains high as a result of macroeconomic conditions, and labor shortages persist across layers of the supply chain. Additionally, management is continuing to monitor the ongoing Israel-Hamas war and the prolonged Ukraine/Russia conflict, especially regarding the availability and cost of raw materials that are produced in Middle East and Europe in general. Management is also monitoring for signs of any expansion of economic or supply chain disruptions or broader supply chain inflationary and logistical costs resulting either directly or indirectly from the tensions in the Middle East and between Ukraine and Russia, as well as Houthi rebel attacks on marine vessels in the Red Sea, which have contributed to rising ocean freight rates.
The ongoing Israel-Hamas war and the prolonged Ukraine/Russia conflict have had no material impact on our financial condition and operating results in fiscal 2024 to date. We believe that our existing cash, cash equivalents, short-term investments, existing Facility Agreements, and anticipated cash flows from operations will be sufficient to meet our liquidity and capital requirements, notwithstanding the ongoing Israel-Hamas war and the prolonged Ukraine/Russia conflict and other macroeconomic factors, for at least the next twelve months from the date of this Quarterly Report. However, this is a highly dynamic situation. As the macroeconomic situation remains highly volatile and the geopolitical situation remains uncertain, there is uncertainty surrounding the operations of our manufacturing locations, our business, our expectations regarding future demand or supply conditions, our near- and long-term liquidity and our financial condition. Consequentially, our operating results could deteriorate.
During fiscal years 2021 and 2022, semiconductor suppliers rapidly increased production output in response to increases in end-consumer demand. Concerns surrounding supply availability spurred defensive inventory purchases, which led to a heightened demand for our products.
The current macroeconomic conditions and declining consumer sentiment have resulted in significant inventory buildup in the semiconductor industry. Many of our consumers who accumulated our products in the past several years continue to reduce their order rates as a result of inventory adjustment and shorter lead times. The general reduction in demand within the semiconductor industry may also result in the instability of our key suppliers, as they struggle with oversupply and the rising cost of business.
Due to general inflationary pressures, declining consumer sentiment, and an economic downturn caused, directly or indirectly, by various macroeconomic factors, the sector is seeing short-term volatility and disruption. However, we believe that the semiconductor industry macroeconomics have not changed and we anticipate that the industry’s long-term growth projections will normalize.
For a description of the risks to our business arising from or relating to the general macroeconomic conditions, please see Part I, Item 1A, “Risk Factors” of our 2023 Annual Report.
29
RESULTS OF OPERATIONS
The following tables reflect our income/(loss) from operations for the three and nine months ended June 29, 2024 and July 1, 2023:
| Three months ended | |||||||||||||||||||||||
| (dollar amounts in thousands) | June 29, 2024 | July 1, 2023 | $ Change | % Change | |||||||||||||||||||
| Net revenue | $ | 181,650 | $ | 190,917 | $ | (9,267) | (4.9) | % | |||||||||||||||
| Cost of sales | 96,920 | 100,899 | (3,979) | (3.9) | % | ||||||||||||||||||
| Gross profit | 84,730 | 90,018 | (5,288) | (5.9) | % | ||||||||||||||||||
| Selling, general and administrative | 38,516 | 36,393 | 2,123 | 5.8 | % | ||||||||||||||||||
| Research and development | 37,937 | 36,578 | 1,359 | 3.7 | % | ||||||||||||||||||
| Impairment charges | — | 21,535 | (21,535) | (100.0) | % | ||||||||||||||||||
| Operating expenses | 76,453 | 94,506 | (18,053) | (19.1) | % | ||||||||||||||||||
Income / (loss) from operations | $ | 8,277 | $ | (4,488) | $ | 12,765 | 284.4 | % | |||||||||||||||
| Nine months ended | |||||||||||||||||||||||
| (dollar amounts in thousands) | June 29, 2024 | July 1, 2023 | $ Change | % Change | |||||||||||||||||||
| Net revenue | $ | 524,913 | $ | 540,171 | $ | (15,258) | (2.8) | % | |||||||||||||||
| Cost of sales | 343,816 | 277,355 | 66,461 | 24.0 | % | ||||||||||||||||||
| Gross profit | 181,097 | 262,816 | (81,719) | (31.1) | % | ||||||||||||||||||
| Selling, general and administrative | 119,359 | 114,233 | 5,126 | 4.5 | % | ||||||||||||||||||
| Research and development | 112,451 | 107,085 | 5,366 | 5.0 | % | ||||||||||||||||||
| Impairment charges | 44,472 | 21,535 | 22,937 | 106.5 | % | ||||||||||||||||||
| Operating expenses | 276,282 | 242,853 | 33,429 | 13.8 | % | ||||||||||||||||||
| (Loss) / income from operations | $ | (95,185) | $ | 19,963 | $ | (115,148) | (576.8) | % | |||||||||||||||
Net Revenue
Our net revenue for the three and nine months ended June 29, 2024 decreased as compared to our net revenue for the three and nine months ended July 1, 2023. The decrease in net revenue is primarily due to lower volume in Wedge Bonding Equipment, Advanced Solutions, APS and All Others and partially offset by the higher volume in Ball Bonding Equipment, as further outlined in the following tables presented immediately below.
The following tables reflect net revenue for the three and nine months ended June 29, 2024 and July 1, 2023:
| Three months ended | |||||||||||||||||||||||||||||||||||
| (dollar amounts in thousands) | June 29, 2024 | July 1, 2023 | $ Change | % Change | |||||||||||||||||||||||||||||||
| Net Revenue | % of total net revenue | Net Revenue | % of total net revenue | ||||||||||||||||||||||||||||||||
| Ball Bonding Equipment | $ | 93,254 | 51.3 | % | $ | 76,865 | 40.3 | % | $ | 16,389 | 21.3 | % | |||||||||||||||||||||||
| Wedge Bonding Equipment | 26,144 | 14.4 | % | 42,563 | 22.3 | % | $ | (16,419) | (38.6) | % | |||||||||||||||||||||||||
| Advanced Solutions | 20,953 | 11.5 | % | 23,858 | 12.5 | % | $ | (2,905) | (12.2) | % | |||||||||||||||||||||||||
| APS | 38,059 | 21.0 | % | 39,672 | 20.8 | % | (1,613) | (4.1) | % | ||||||||||||||||||||||||||
| All Others | 3,240 | 1.8 | % | 7,959 | 4.1 | % | (4,719) | (59.3) | % | ||||||||||||||||||||||||||
| Total net revenue | $ | 181,650 | 100.0 | % | $ | 190,917 | 100.0 | % | $ | (9,267) | (4.9) | % | |||||||||||||||||||||||
30
| Nine months ended | |||||||||||||||||||||||||||||||||||
| (dollar amounts in thousands) | June 29, 2024 | July 1, 2023 | $ Change | % Change | |||||||||||||||||||||||||||||||
| Net Revenue | % of total net revenue | Net Revenue | % of total net revenue | ||||||||||||||||||||||||||||||||
| Ball Bonding Equipment | $ | 261,432 | 49.8 | % | $ | 184,049 | 34.1 | % | $ | 77,383 | 42.0 | % | |||||||||||||||||||||||
| Wedge Bonding Equipment | 72,364 | 13.8 | % | 145,805 | 27.0 | % | $ | (73,441) | (50.4) | % | |||||||||||||||||||||||||
| Advanced Solutions | 46,401 | 8.8 | % | 58,997 | 10.9 | % | $ | (12,596) | (21.4) | % | |||||||||||||||||||||||||
| APS | 119,967 | 22.9 | % | 119,822 | 22.2 | % | $ | 145 | 0.1 | % | |||||||||||||||||||||||||
| All Others | 24,749 | 4.7 | % | 31,498 | 5.8 | % | $ | (6,749) | (21.4) | % | |||||||||||||||||||||||||
| Total net revenue | $ | 524,913 | 100.0 | % | $ | 540,171 | 100.0 | % | $ | (15,258) | (2.8) | % | |||||||||||||||||||||||
Ball Bonding Equipment
For the three and nine months ended June 29, 2024, the increase in Ball Bonding Equipment net revenue as compared to the prior year period was primarily due to higher volumes of customer purchases related to technology transitions and improving market conditions in general semiconductor and memory end markets. This has resulted in the reduction in semiconductor supply chain inventory levels and improved factory utilization levels.
Wedge Bonding Equipment
For the three and nine months ended June 29, 2024, the decrease in Wedge Bonding Equipment net revenue as compared to the prior year period was primarily due to lower volume of customer purchases primarily in the general semiconductor market due to the lower power discrete devices demand, as well as in the automotive and renewable energy market.
Advanced Solutions
For the three and nine months ended June 29, 2024, the decrease in Advanced Solutions net revenue as compared to the prior year period was primarily due to lower volume as a result of changes in product mix and timing of revenue recognition for certain customer contracts.
APS
For the three months ended June 29, 2024, the decrease in APS net revenue as compared to the prior year period was due to lower volume of customer purchases primarily in bonding tools.
All Others
For the three months ended June 29, 2024, the decrease in All Others net revenue as compared to the prior year period was primarily due to lower volume of customer purchases in the general semiconductor market.
For the nine months ended June 29, 2024, the decrease in All Others net revenue as compared to the prior year period was primarily due to lower volume of customer purchases in the general semiconductor market and mini LED transfer solutions from softness in the advanced display market.
31
Gross Profit Margin
The following tables reflect gross profit margin as a percentage of net revenue by reportable segments for the three and nine months ended June 29, 2024 and July 1, 2023:
| Three months ended | Basis Point | ||||||||||||||||
| June 29, 2024 | July 1, 2023 | Change | |||||||||||||||
| Ball Bonding Equipment | 46.3 | % | 40.5 | % | 580 | ||||||||||||
| Wedge Bonding Equipment | 44.3 | % | 54.8 | % | (1,050) | ||||||||||||
| Advanced Solutions | 42.7 | % | 47.1 | % | (440) | ||||||||||||
| APS | 54.5 | % | 54.3 | % | 20 | ||||||||||||
| All Others | 9.5 | % | 34.4 | % | (2,490) | ||||||||||||
| Total gross profit margin | 46.6 | % | 47.2 | % | (60) | ||||||||||||
| Nine months ended | Basis Point | ||||||||||||||||
| June 29, 2024 | July 1, 2023 | Change | |||||||||||||||
| Ball Bonding Equipment | 47.0 | % | 46.6 | % | 40 | ||||||||||||
| Wedge Bonding Equipment | 48.5 | % | 51.6 | % | (310) | ||||||||||||
| Advanced Solutions | (97.8) | % | 37.5 | % | (13,530) | ||||||||||||
| APS | 55.3 | % | 55.7 | % | (40) | ||||||||||||
| All Others | 8.5 | % | 40.8 | % | (3,230) | ||||||||||||
| Total gross profit margin | 34.5 | % | 48.7 | % | (1,420) | ||||||||||||
Ball Bonding Equipment
For the three and nine months ended June 29, 2024, the increase in Ball Bonding Equipment gross profit margin as compared to the prior year period was primarily driven by a favorable product mix, including higher sales of higher margin products.
Wedge Bonding Equipment
For the three and nine months ended June 29, 2024, the decrease in Wedge Bonding Equipment gross profit margin as compared to the prior year period was primarily driven by a shift in customer mix, including higher sales to customers where we achieve lower average margins.
Advanced Solutions
For the three months ended June 29, 2024, the decrease in Advanced Solutions gross profit margin as compared to the prior year period was primarily driven by less favorable product mix, including lower sales of higher margin products.
For the nine months ended June 29, 2024, the decrease in Advanced Solutions gross profit margin as compared to the prior year period was primarily driven by the inventory write-down charges we incurred as a result of the cancellation of Project W and less favorable product mix, including lower sales of lower margin products.
All others
For the three months ended June 29, 2024, the decrease in gross profit margin for the “All Others” category as compared to the prior year period was primarily driven by less favorable product mix, including lower sales of higher margin products.
For the nine months ended June 29, 2024, the decrease in gross profit margin for the “All Others” category as compared to the prior year period was primarily driven by the provision of excess and obsolete materials and less favorable product mix, including lower sales of higher margin products.
32
Operating Expenses
The following tables reflect operating expenses for the three and nine months ended June 29, 2024 and July 1, 2023:
| Three months ended | |||||||||||||||||||||||
| (dollar amounts in thousands) | June 29, 2024 | July 1, 2023 | $ Change | % Change | |||||||||||||||||||
| Selling, general & administrative | $ | 38,516 | $ | 36,393 | $ | 2,123 | 5.8 | % | |||||||||||||||
| Research & development | 37,937 | 36,578 | 1,359 | 3.7 | % | ||||||||||||||||||
| Impairment charges | — | 21,535 | (21,535) | (100.0) | % | ||||||||||||||||||
| Total | $ | 76,453 | $ | 94,506 | $ | (18,053) | (19.1) | % | |||||||||||||||
| Nine months ended | |||||||||||||||||||||||
| (dollar amounts in thousands) | June 29, 2024 | July 1, 2023 | $ Change | % Change | |||||||||||||||||||
| Selling, general & administrative | $ | 119,359 | $ | 114,233 | $ | 5,126 | 4.5 | % | |||||||||||||||
| Research & development | 112,451 | 107,085 | 5,366 | 5.0 | % | ||||||||||||||||||
| Impairment charges | 44,472 | 21,535 | 22,937 | 106.5 | % | ||||||||||||||||||
| Total | $ | 276,282 | $ | 242,853 | $ | 33,429 | 13.8 | % | |||||||||||||||
Selling, General and Administrative (“SG&A”)
For the three months ended June 29, 2024, the higher SG&A expenses as compared to the prior year period were primarily due to a $1.1 million increase in sales representative commissions, a $0.8 million increase in miscellaneous expenses and a $0.4 million increase in professional services.
For the nine months ended June 29, 2024, the higher SG&A expenses as compared to the prior year period were primarily due to a $3.3 million increase in staff cost, a $3.1 million increase in miscellaneous expenses, a $2.6 million increase in sales representative commissions, a $1.9 million increase in restructuring costs and a $0.7 million increase in professional services. This was partially offset by $6.3 million net favorable variance in foreign exchange.
Research and Development (“R&D”)
For the three months ended June 29, 2024, the higher R&D expenses as compared to the prior year period were primarily due to an increase in staff cost related to an increase in headcount.
For the nine months ended June 29, 2024, the higher R&D expenses as compared to the prior year period were primarily due to a $5.7 million increase in staff cost related to an increase in headcount and equity compensation and a $4.2 million increase in prototype materials. This was partially offset by a $5.3 million decrease in professional services.
Impairment charges
For the three months ended June 29, 2024, there were no impairment charges, as compared to the three months ended July 1, 2023. The impairment charges in the prior year period were due to a non-cash impairment charge of $21.5 million related to goodwill and intangible assets in the lithography reporting unit (part of our All Others segment), as well as on the investment in non-marketable equity security.
For the nine months ended June 29, 2024, the higher impairment charges as compared to the prior year period were due to a non-cash impairment charge of $44.5 million on long-lived assets related to the cancellation of Project W. The impairment charge in the prior year period relates to a non-cash impairment charge of $21.5 million related to goodwill and intangible assets in the lithography reporting unit, as well as on the investment in the non-marketable equity security.
33
Income/(Loss) from Operations
The following tables reflect income/(loss) from operations by reportable segments for the three and nine months ended June 29, 2024 and July 1, 2023:
| Three months ended | |||||||||||||||||||||||
| (dollar amounts in thousands) | June 29, 2024 | July 1, 2023 | $ Change | % Change | |||||||||||||||||||
| Ball Bonding Equipment | $ | 27,751 | $ | 18,534 | $ | 9,217 | 49.7 | % | |||||||||||||||
| Wedge Bonding Equipment | 4,149 | 15,974 | (11,825) | (74.0) | % | ||||||||||||||||||
| Advanced Solutions | (9,785) | (2,570) | (7,215) | (280.7) | % | ||||||||||||||||||
| APS | 11,443 | 11,510 | (67) | (0.6) | % | ||||||||||||||||||
| All Others | (8,317) | (23,857) | 15,540 | 65.1 | % | ||||||||||||||||||
| Corporate Expenses | (16,964) | (24,079) | 7,115 | 29.5 | % | ||||||||||||||||||
Total income / (loss) from operations | $ | 8,277 | $ | (4,488) | $ | 12,765 | 284.4 | % | |||||||||||||||
| Nine months ended | |||||||||||||||||||||||
| (dollar amounts in thousands) | June 29, 2024 | July 1, 2023 | $ Change | % Change | |||||||||||||||||||
| Ball Bonding Equipment | $ | 80,617 | $ | 49,337 | $ | 31,280 | 63.4 | % | |||||||||||||||
| Wedge Bonding Equipment | 12,696 | 53,958 | (41,262) | (76.5) | % | ||||||||||||||||||
| Advanced Solutions | (140,201) | (21,160) | (119,041) | (562.6) | % | ||||||||||||||||||
| APS | 36,275 | 34,778 | 1,497 | 4.3 | % | ||||||||||||||||||
| All Others | (25,945) | (35,025) | 9,080 | 25.9 | % | ||||||||||||||||||
| Corporate Expenses | (58,627) | (61,925) | 3,298 | 5.3 | % | ||||||||||||||||||
| Total (loss) / income from operations | $ | (95,185) | $ | 19,963 | $ | (115,148) | (576.8) | % | |||||||||||||||
Ball Bonding Equipment
For the three and nine months ended June 29, 2024, the higher Ball Bonding Equipment income from operations as compared to the prior year period was primarily due to the increase in revenue, gross margin and changes in operating expenses as explained under “Net Revenue”, "Gross Profit" and “Operating Expenses” above.
Wedge Bonding Equipment
For the three and nine months ended June 29, 2024, the lower Wedge Bonding Equipment income from operations as compared to the prior year period was primarily due to the decrease in revenue, gross margin and changes in operating expenses as explained under “Net Revenue”, "Gross Profit" and “Operating Expenses” above.
Advanced Solutions
For the three and nine months ended June 29, 2024, the higher Advanced Solutions loss from operations as compared to the prior year period was primarily due to the decrease in revenue, inventory write-down and impairment charges as explained under “Net Revenue”, “Gross Profit” and “Operating Expenses” above.
All Others
For the three and nine months ended June 29, 2024, the lower All Others loss from operations as compared to the prior year period was primarily due to the changes in operating expenses as explained under “Operating Expenses” above.
34
Interest Income and Expense
The following tables reflect interest income and interest expense for the three and nine months ended June 29, 2024 and July 1, 2023:
| Three months ended | |||||||||||||||||||||||
| (dollar amounts in thousands) | June 29, 2024 | July 1, 2023 | $ Change | % Change | |||||||||||||||||||
| Interest income | $ | 8,060 | $ | 8,847 | $ | (787) | (8.9) | % | |||||||||||||||
| Interest expense | $ | (20) | $ | (50) | $ | 30 | 60.0 | % | |||||||||||||||
| Nine months ended | |||||||||||||||||||||||
| (dollar amounts in thousands) | June 29, 2024 | July 1, 2023 | $ Change | % Change | |||||||||||||||||||
| Interest income | $ | 26,807 | $ | 23,406 | $ | 3,401 | 14.5 | % | |||||||||||||||
| Interest expense | $ | (60) | $ | (116) | $ | 56 | 48.3 | % | |||||||||||||||
Interest income
For the three months ended June 29, 2024, interest income decreased as compared to the prior year period primarily due to a lower average balances of cash, cash equivalents and short-term investments.
For the nine months ended June 29, 2024, interest income increased as compared to the prior year period primarily due to a higher weighted average interest rate on cash, cash equivalents and short-term investments.
Provision for Income Taxes
The following table reflects the provision for income taxes and the effective tax rate for the three and nine months ended June 29, 2024 and July 1, 2023:
| Three months ended | Nine months ended | ||||||||||||||||||||||||||||||||||
| (dollar amounts in thousands) | June 29, 2024 | July 1, 2023 | Change | June 29, 2024 | July 1, 2023 | Change | |||||||||||||||||||||||||||||
Provision for income taxes | $ | 4,053 | $ | 148 | $ | 3,905 | $ | 12,685 | $ | 9,462 | $ | 3,223 | |||||||||||||||||||||||
Effective tax rate | 24.8 | % | 3.4 | % | 21.4 | % | (18.5) | % | 21.9 | % | (40.4) | % | |||||||||||||||||||||||
For the three and nine months ended June 29, 2024 as compared to the three and nine months ended July 1, 2023, the change in provision for income taxes was primarily due to an increase in valuation allowance recorded against certain deferred tax assets and changes in profitability. The change in effective tax rate was primarily due to an increase in valuation allowance recorded against certain deferred tax assets and the tax benefit from the one-time charge for cancellation of Project W which was recorded as a discrete in the prior quarter.
LIQUIDITY AND CAPITAL RESOURCES
The following table reflects total cash, cash equivalents, and short-term investments as of June 29, 2024 and September 30, 2023:
| As of | |||||||||||||||||
| (dollar amounts in thousands) | June 29, 2024 | September 30, 2023 | $ Change | ||||||||||||||
| Cash and cash equivalents | $ | 366,917 | $ | 529,402 | $ | (162,485) | |||||||||||
| Short-term investments | 235,000 | 230,000 | 5,000 | ||||||||||||||
| Total cash, cash equivalents, and short-term investments | $ | 601,917 | $ | 759,402 | $ | (157,485) | |||||||||||
| Percentage of total assets | 47.9% | 50.6% | |||||||||||||||
35
The following table reflects a summary of the Consolidated Condensed Statements of Cash Flow information for the nine months ended June 29, 2024 and July 1, 2023:
| Nine months ended | |||||||||||
| (in thousands) | June 29, 2024 | July 1, 2023 | |||||||||
| Net cash (used in)/provided by operating activities | $ | (582) | $ | 95,912 | |||||||
| Net cash used in investing activities | (20,518) | (161,724) | |||||||||
| Net cash used in financing activities | (141,729) | (92,358) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | 344 | 4,439 | |||||||||
| Changes in cash and cash equivalents | $ | (162,485) | $ | (153,731) | |||||||
| Cash and cash equivalents, beginning of period | 529,402 | 555,537 | |||||||||
| Cash and cash equivalents, end of period | $ | 366,917 | $ | 401,806 | |||||||
Nine months ended June 29, 2024
The increase in net cash used in operating activities was primarily due to a net loss of $81.1 million and a net unfavourable change in operating assets and liabilities of $87.8 million, partially offset by non-cash adjustments to net income of $168.3 million. The non-cash adjustments were primarily due to impairment charges of $44.5 million and inventory write-down of $57.3 million as a result of the cancellation of the Project. The net change in operating assets and liabilities was primarily driven by an increase in accounts and other receivable of $42.4 million, an increase in inventories of $27.0 million after excluding the impact of the inventory write-down as shown above, a decrease in income tax payable of $23.1 million and a decrease in accounts payable and accrued expenses and other current liabilities of $7.8 million. This was partially offset by a decrease in prepaid expenses and other current assets of $18.4 million.
The increase in accounts and other receivable in the nine months ended June 29, 2024 was mainly due to the timing of payments due. The increase in inventories was due to the buildup of long lead time materials to fulfill certain customer purchase orders. The decrease in income tax payable was primarily due to lower profitability. The decrease in accounts payable and accrued expenses and other current liabilities was primarily due to the payment of back loaded purchases and lower accrued employee compensation. The decrease in prepaid expenses was mainly due the transfer of contract assets to net account receivables.
Net cash used in investing activities was due to net purchase of short-term investments of $5.0 million, capital expenditures of $13.7 million and investment in a private equity fund of $1.8 million.
Net cash used in financing activities was primarily due to common stock repurchases of $108.1 million and dividend payments of $33.2 million.
Nine months ended July 1, 2023
Net cash provided by operating activities was primarily due to net income of $33.8 million, non-cash adjustments to net income of $49.9 million and a net favorable change in operating assets and liabilities of $12.3 million. The net change in operating assets and liabilities was primarily driven by a decrease in accounts and other receivable of $112.9 million, prepaid expenses and other current assets of $17.2 million. This was partially offset by an increase in inventories of $44.1 million, a decrease in accounts payable and accrued expenses and other current liabilities of $35.5 million and income tax payable of $37.0 million.
The decrease in accounts and other receivable in the nine months ended July 1, 2023 was mainly due to lower sales in the period. The decrease in income tax payable was primarily due to lower profitability. The decrease in accounts payable and accrued expenses and other current liabilities was primarily due to higher payments to suppliers, lower material purchases and lower accrued employee compensation that was paid out in the period. The increase in inventories was due to slower utilization in the period and buildup of long lead time materials to fulfill certain customer purchase orders.
Net cash used in investing activities was due to net purchase of short-term investments of $90.0 million, cash outflow for the AJA acquisition of $36.9 million and capital expenditures of $35.1 million.
Net cash used in financing activities was primarily due to common stock repurchases of $60.6 million and dividend payments of $31.3 million.
36
Fiscal 2024 Liquidity and Capital Resource Outlook
We expect our aggregate fiscal 2024 capital expenditures to be between approximately $16.0 million and $20.0 million, of which approximately $10.6 million has been incurred through the third quarter. The actual amounts for 2024 will vary depending on market conditions. Expenditures are anticipated to be primarily for research and development projects, enhancements to our manufacturing operations, improvements to our information technology security, implementation of an enterprise resource planning system and leasehold improvements for our facilities. Our ability to make these expenditures will depend, in part, on our future cash flows, which are determined by our future operating performance and, therefore, subject to prevailing macroeconomic conditions, including actual or potential inflationary pressures, supply chain challenges, geopolitical tensions and other factors, some of which are beyond our control.
As of June 29, 2024 and September 30, 2023, approximately $282.5 million and $576.9 million of cash, cash equivalents, and short-term investments, respectively, were held by the Company’s foreign subsidiaries, with a large portion of the cash amounts expected to be available for use in the U.S. without incurring additional U.S. income tax. The decrease is primarily due to the repatriation of cash held by the Company's foreign subsidiaries to the U.S.
The Company’s operations and capital requirements are anticipated to be funded primarily by cash on hand, cash generated from operating activities, and cash from our existing Facility Agreements (as defined below). We believe these sources of cash and liquidity are sufficient to meet our additional liquidity needs for the foreseeable future, including repayment of outstanding balances under the Facility Agreements, as well as payment of dividends, share repurchases and income taxes.
We believe that our existing cash, cash equivalents, short-term investments, existing Facility Agreements, and anticipated cash flows from operations will be sufficient to meet our liquidity and capital requirements, notwithstanding the macroeconomic headwinds, for at least the next twelve months and beyond. Our liquidity is affected by many factors, some based on normal operations of our business and others related to macroeconomic conditions including actual or potential inflationary pressures, industry-related uncertainties, and effects arising from the ongoing Israel-Hamas war and the prolonged Ukraine/Russia conflict, which we cannot predict. We also cannot predict economic conditions or industry downturns or the timing, strength or duration of recoveries. We intend to continue to use our cash for working capital needs and for general corporate purposes.
In this unprecedented macroeconomic environment, we may seek, as we believe appropriate, additional debt or equity financing that would provide capital for general corporate purposes, working capital funding, additional liquidity needs or to fund future growth opportunities, including possible acquisitions. The timing and amount of potential capital requirements cannot be determined at this time and will depend on a number of factors, including the actual and projected demand for our products, semiconductor and semiconductor capital equipment industry conditions, competitive factors, the condition of financial markets and the global economic situation.
Share Repurchase Program
On August 15, 2017, the Company’s Board of Directors authorized a program (the “Program”) to repurchase up to $100 million of the Company’s common stock on or before August 1, 2020. In 2018, 2019 and 2020, the Board of Directors increased the share repurchase authorization under the Program to $200 million, $300 million, and $400 million, respectively. On March 3, 2022, the Board of Directors further increased the share repurchase authorization under the Program by an additional $400 million to $800 million, and extended its duration through August 1, 2025. On November 17, 2023, the Company modified its written trading plan under Rule 10b5-1 of the Exchange Act, such plan as first entered into on May 7, 2022 to facilitate repurchases under the Program. The purpose of the modification was to revise the previously established amounts and prices under the plan by providing for the purchase of up to approximately $169 million of the Company’s common stock from November 20, 2023 through August 1, 2025. The Program may be suspended or discontinued at any time and is funded using the Company’s available cash, cash equivalents and short-term investments. Under the Program, shares may be repurchased through open market and/or privately negotiated transactions at prices deemed appropriate by management. The timing and amount of repurchase transactions under the Program depend on market conditions as well as corporate and regulatory considerations.
37
During the three and nine months ended June 29, 2024, the Company repurchased a total of approximately 934.3 thousand and 2,244.5 thousand shares of common stock under the Program at a cost of approximately $44.0 million and $108.1 million, respectively. The stock repurchases were recorded in the periods in which the shares were delivered and accounted for as treasury stock in the Company’s Consolidated Condensed Balance Sheets. The Company records treasury stock purchases under the cost method using the first-in, first-out (FIFO) method. Upon re-issuance of treasury stock, amounts in excess of the acquisition cost are credited to additional paid-in capital.
If the Company reissues treasury stock at an amount below its acquisition cost and additional paid-in capital associated with prior treasury stock transactions is insufficient to cover the difference between acquisition cost and the reissue price, this difference is recorded against retained earnings.
As of June 29, 2024, our remaining stock repurchase authorization under the Program was approximately $72.9 million.
Dividends
On November 15, 2023, the Board of Directors declared a quarterly dividend of $0.20 per share of common stock. Dividends paid during the three and nine months ended June 29, 2024 totaled $11.2 million and $33.2 million, respectively. The declaration of any future cash dividend is at the discretion of the Board of Directors and will depend on the Company’s financial condition, results of operations, capital requirements, business conditions and other factors, as well as a determination that such dividends are in the best interests of the Company’s shareholders.
Other Obligations and Contingent Payments
In accordance with U.S. GAAP, certain obligations and commitments are not required to be included in the Consolidated Condensed Balance Sheets and Statements of Operations. These obligations and commitments, while entered into in the normal course of business, may have a material impact on our liquidity and are disclosed in the table below.
As of June 29, 2024, the Company had deferred tax liabilities of $35.7 million and unrecognized tax benefits within the income taxes payable for uncertain tax positions of $17.4 million, inclusive of accrued interest on uncertain tax positions of $3.7 million, substantially all of which would affect our effective tax rate in the future, if recognized.
It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain unrecognized tax positions will increase or decrease during the next twelve months due to the expected lapse of statutes of limitation and / or settlements of tax examinations. Given the number of years and numerous matters that remain subject to examination in various tax jurisdictions, we cannot practicably estimate the timing or financial outcomes of these examinations and, therefore, these amounts are excluded from the amounts below.
The following table presents certain payments due by the Company under contractual and statutory obligations with minimum firm commitments as of June 29, 2024:
| Payments due in | |||||||||||||||||||||||||||||
| (in thousands) | Total | Less than 1 year | 1 - 3 years | 3 - 5 years | More than 5 years | ||||||||||||||||||||||||
Inventory purchase obligations (1) | $ | 143,249 | $ | 3,615 | $ | 139,634 | $ | — | $ | — | |||||||||||||||||||
U.S. one-time transition tax payable (2) (reflected on our Consolidated Condensed Balance Sheets) | $ | 35,080 | 16,808 | 18,272 | — | — | |||||||||||||||||||||||
| Total | $ | 178,329 | $ | 20,423 | $ | 157,906 | $ | — | $ | — | |||||||||||||||||||
(1)The Company orders inventory components in the normal course of its business. A portion of these orders are non-cancellable and some orders impose varying penalties and charges in the event of cancellation.
(2)Associated with the U.S. one-time transition tax on certain earnings and profits of our foreign subsidiaries in relation to the U.S. Tax Cuts and Job Act of 2017.
38
Credit facilities
On February 15, 2019, the Company entered into a Facility Letter and Overdraft Agreement (collectively, the “Facility Agreements”) with MUFG Bank, Ltd., Singapore Branch (the “Bank”). The Facility Agreements provide the Company and one of its subsidiaries with an overdraft facility of up to $150.0 million (the “Overdraft Facility”) for general corporate purposes. Amounts outstanding under the Overdraft Facility, including interest, are payable upon thirty days written demand by the Bank. Interest on the Overdraft Facility is calculated on a daily basis, and the applicable interest rate is calculated at the Secured Overnight Financing Rate (“SOFR”) plus a margin of 1.5% per annum. The Overdraft Facility is an unsecured facility per the terms of the Facility Agreements. The Facility Agreements contain customary non-financial covenants, including, without limitation, covenants that restrict the Company’s ability to sell or dispose of its assets, cease owning at least 51% of two of its subsidiaries (the “Subsidiaries”) or encumber its assets with material security interests (including any pledge of monies in the Subsidiaries’ cash deposit account with the Bank). The Facility Agreements also contain typical events of default, including, without limitation, non-payment of financial obligations when due, cross defaults to other material indebtedness of the Company, and breach of a representation or warranty under the Facility Agreements. As of June 29, 2024, there were no outstanding amounts under the Overdraft Facility.
As of June 29, 2024, other than the bank guarantee disclosed in Note 9 of Item 1, we did not have any other off-balance sheet arrangements, such as contingent interests or obligations associated with variable interest entities.
Item 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Our available-for-sale securities, if applicable, may consist of short-term investments in highly rated debt instruments of the U.S. Government and its agencies, financial institutions, and corporations. We continually monitor our exposure to changes in interest rates and credit ratings of issuers with respect to any available-for-sale securities and target an average life to maturity of less than 18 months. Accordingly, we believe that the effects on us of changes in interest rates and credit ratings of issuers are limited and would not have a material impact on our financial condition or results of operations.
Foreign Currency Risk
Our international operations are exposed to changes in foreign currency exchange rates due to transactions denominated in currencies other than the location’s functional currency. Our international operations are also exposed to foreign currency fluctuations that impact the remeasurement of net monetary assets of those operations whose functional currency, the U.S. dollar, differs from their respective local currencies, most notably in Israel, Singapore and Switzerland. Our U.S. operations also have foreign currency exposure due to net monetary assets denominated in currencies other than the U.S. dollar. In addition to net monetary remeasurement, we have exposures related to the translation of subsidiary financial statements from their functional currency, the local currency, into its reporting currency, the U.S. dollar, most notably in the Netherlands, China, Taiwan, Japan and Germany.
Based on our foreign currency exposure as of June 29, 2024, a 10.0% fluctuation could impact our financial position, results of operations or cash flows by $4.0 million to $5.0 million. Our attempts to hedge against these risks may not be successful and may result in a material adverse impact on our financial results and cash flow.
We enter into foreign exchange forward contracts to hedge a portion of our forecasted foreign currency-denominated expenses in the normal course of business and, accordingly, they are not speculative in nature. These instruments generally mature within twelve months. We have foreign exchange forward contracts with a notional amount of $51.0 million outstanding as of June 29, 2024.
39
Item 4. - CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our Management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 29, 2024. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of June 29, 2024, our disclosure controls and procedures were effective in providing reasonable assurance that the information required to be disclosed by us in reports filed under the Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms; and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding disclosure.
Changes in Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP.
In connection with the evaluation by our management, including with the participation of our Chief Executive Officer and Chief Financial Officer, of our internal control over financial reporting, no changes during the three months ended June 29, 2024 were identified to have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
40
PART II. - OTHER INFORMATION
Item 1. - LEGAL PROCEEDINGS
From time to time, we may be a plaintiff or defendant in cases arising out of our business. We are party to ordinary, routine litigation incidental to our business. We cannot be assured of the results of any pending or future litigation, but we do not believe resolution of any currently pending matters will have a material adverse effect on our business, financial condition or operating results.
Item 1A. - RISK FACTORS
Certain Risks Related to Our Business
Except for the additional risk factors described below, there have been no material changes from the risk factors discussed in Part I, Item 1A, “Risk Factors”, of our 2023 Annual Report.
The cancellation and wind down of the Project may adversely affect our business, results of operations and financial condition.
In connection with the cancellation of a project with one of its strategic customers (previously referred to as Project W) (the "Project"), on March 11, 2024, the Company committed to a plan to cease operational activities and commence wind down activities concerning various aspects of the Project. These wind down activities are ongoing and are expected to be substantially completed by the end of fiscal year 2024. As a result of these activities, the Company incurred certain charges during the fiscal period ended March 30, 2024 and may incur additional related charges through fiscal year 2024 and anticipates that the cancellation of the Project will result in a reduction of the Company's fiscal year 2024 revenue. The Company's estimates of the anticipated impact on its results of operations and the timing thereof are subject to a number of assumptions and actual amounts may differ materially from estimates. As we wind down the Project, we may discover other facts that could require us to incur additional expenses and/or record additional charges that may be materially different from our initial expectations about the costs of the wind down. In addition, we may not be able to complete the wind down in the expected timeframe. If actual amounts were to differ materially from our estimates, or if the wind down takes longer than expected, our results of operations and financial condition could be materially and adversely affected. Cancellations of significant orders or other similar projects by other customers in the future could also result in the incurrence by the Company of additional costs or expenses or lead to a reduction in future revenue, which could materially and adversely affect our results of operations.
As a result of the cancellation of the Project, the Company intends to refocus its development resources towards other growth-centric opportunities supporting technology changes within the thermocompression, Vertical Fan-Out, Automotive and Dispense markets over the coming quarters. The Company may experience operational difficulties as it shifts its development resources to these other opportunities, which may result in disruptions to the Company's operations. We cannot be certain that these efforts will be effective or successful, or that we will realize the anticipated benefits of the refocus. As a result, our results of operations and financial condition could be materially and adversely affected.
We may be subject to disruptions or failures in our information technology systems and network infrastructures that could have a material adverse effect on us.
We maintain and rely extensively on information technology systems and network infrastructures for the effective operation of our business. We also hold large amounts of data in data center facilities around the world, primarily in Singapore and the U.S., on which our business depends. A disruption, infiltration or failure of our information technology systems owned or used by us or any of our data centers as a result of software or hardware malfunctions, computer viruses, cyber-attacks, employee theft or misuse, power disruptions, natural disasters or accidents could cause breaches of data security and loss of critical data, which in turn could materially adversely affect our business. Our security procedures, such as virus protection software, data loss protection and our business continuity planning, such as our disaster recovery policies and back-up systems, may not be adequate or implemented properly to fully address the adverse effect of such events, which could adversely impact our operations.
41
In addition, our business could be adversely affected to the extent we do not make the appropriate level of investment in our technology systems as our technology systems become out-of-date or obsolete and are not able to deliver the type of data integrity and reporting we need to run our business. Furthermore, when we implement new systems and/or upgrade existing systems, we could be faced with temporary or prolonged disruptions that could adversely affect our business. For example, artificial intelligence (“AI”) may be used to generate cyberattacks with greater scale and efficacy than the traditional threat actors. In other instance, a cybersecurity threat could be introduced as the result of our business partners incorporating the output of an AI tool that includes a threat, such as introducing malicious code by incorporating an AI generated source code.
We have experienced, and expect to continue to be subject to, cybersecurity threats and incidents, ranging from employee error or misuse, to individual attempts to gain unauthorized access to information systems, to sophisticated and targeted measures known as advanced persistent threats, none of which have been material to the Company to date. For example, in May 2024, the Company detected unauthorized access attempts into its network and servers and determined that the threat actor accessed and acquired some of its data, including source code, engineering information, business partner data and personally identifiable information. While these attempts did not have a material impact on the Company, future attempts or breaches might. We devote significant resources to network security and other measures to protect our systems and data from unauthorized access or misuse. However, depending on its nature and scope, cybersecurity incidents could result in business disruption; misappropriation, corruption or loss of confidential information and critical data (of the Company or that belonging to its third parties); reputational damage; litigation with third parties; diminution in the value of our investment in research, development and engineering; data privacy issues; and increased cybersecurity protection and remediation costs.
We also try to protect the confidential nature of our proprietary information by using commonly accepted information technology systems and network security measures. Such measures may not provide adequate protection for our proprietary information. For example, our internal procedures may not prevent an existing or former employee or consultant from misappropriating our trade secrets and providing them to a competitor, and recourse we take against such misconduct may not provide an adequate remedy to fully protect our interests.
While we maintain insurance policies that may cover certain liabilities in connection with a cybersecurity incident, we cannot be certain that our insurance coverage will be adequate for liabilities actually incurred, that insurance will continue to be available to us on commercially reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim.
42
Item 2. - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table summarizes the repurchases of common stock during the three months ended June 29, 2024 (in millions, except number of shares, which are reflected in thousands, and per share amounts):
| Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs(1) | ||||||||||||||||||||||
March 31, 2024 to April 27, 2024 | 293 | $ | 47.64 | 293 | $ | 102,913 | ||||||||||||||||||||
| April 28, 2024 to June 1, 2024 | 355 | $ | 47.13 | 355 | $ | 86,189 | ||||||||||||||||||||
June 2, 2024 to June 29, 2024 | 286 | $ | 46.31 | 286 | $ | 72,918 | ||||||||||||||||||||
| For the three months ended June 29, 2024 | 934 | 934 | ||||||||||||||||||||||||
(1)On August 15, 2017, the Company’s Board of Directors authorized the Program to repurchase up to $100 million in total of the Company’s common stock on or before August 1, 2020. In 2018, 2019 and 2020, the Board of Directors increased the share repurchase authorization under the Program to $200 million, $300 million and $400 million, respectively. On March 3, 2022, the Board of Directors further increased the share repurchase authorization under the Company’s existing share repurchase program by an additional $400 million to $800 million, and extended its duration through August 1, 2025. The Company may repurchase shares of its common stock through open market and privately negotiated transactions at prices deemed appropriate by management. On November 17, 2023, the Company modified its written trading plan under Rule 10b5-1 of the Exchange Act, such plan as first entered into on May 7, 2022, to facilitate repurchases under the Program. The modified plan permits the purchase of up to approximately $169 million of the Company’s common stock from November 20, 2023 through August 1, 2025. The Program may be suspended or discontinued at any time and will be funded using the Company’s available cash, cash equivalents and short-term investments. Under the Program, shares may be repurchased through open market and/or privately negotiated transactions at prices deemed appropriate by management. The timing and amount of repurchase transactions under the Program depend on market conditions as well as corporate and regulatory considerations.
Item 3. – Defaults Upon Senior Securities.
None.
Item 4. – Mine Safety Disclosures
None.
Item 5. – Other Information
Director and Officer Trading Plans and Arrangements
43
Item 6. - Exhibits
| Exhibit No. | Description | |||||||
| 3.1 | ||||||||
| 3.2 | ||||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32.1* | ||||||||
| 32.2* | ||||||||
| 101.INS | Inline XBRL Instance Document. | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.INS). | |||||||
| * | This exhibit shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that Section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act or the Exchange Act. | |||||||
44
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| KULICKE AND SOFFA INDUSTRIES, INC. | ||||||||
| Date: August 7, 2024 | By: | /s/ LESTER WONG | ||||||
| Lester Wong | ||||||||
| Executive Vice President and Chief Financial Officer (principal financial officer and principal accounting officer) | ||||||||
45