Good morning, good afternoon, ladies and gentlemen, and welcome to Besi's Quarterly Conference Call and Audio Webcast to discuss the company's 2022 First Quarter Results. You can login to the audio webcast via Besi's website, www.besi.com. Joining us today are Mr. Richard Blickman, Chief Executive Officer; and Mr. Hetwig van Kerkhof, Senior Vice President, Finance. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, ladies and gentlemen, this conference is being recorded and cannot be reproduced in whole or in part without written permission from the company. I would now like to turn the call over to Mr. Richard Blickman. Please go ahead sir.

Thank you. Thank you all for joining us today. We will begin by making a few comments in connection with the press release issued earlier today, and then take your questions. I would like to remind you that some of the comments made during this call and some of the answers by management in response to your questions may contain forward-looking statements. Such statements may involve uncertainties and risks as described in the earnings release and other reports filed with the AFM. For today's call, we'd like to review the key highlights for the first quarter ending March 31st, and also update you on the market, our strategy and outlook, first some overall thoughts on the first quarter. Besi posted strong results in Q1 with revenue of €202.4 million and net income of €67.5 million at the high end of guidance despite the challenging semiconductor equipment environment. Revenue grew 17.9% versus the fourth quarter last year and 41.3% versus the first quarter 2021. Given continued strengths for our high-performance computing applications, including data centers, advanced logic and hybrid bonding and in automotive end user markets. We exceeded anticipated quarterly shipment levels, amid supply chain disruptions through strategic inventory and production planning. Of note shipments of hybrid bonding systems increased in the quarter as Besi overcame flood related challenges in Q4 and met customer qualifications necessary to further ran production. Orders for Q1 this year were €204.8 million, an increase of 1.1% versus the fourth quarter last year due to increased demand for high-end performance computing applications, including follow on orders for two customers for hybrid bonding system. As compared to Q1 2021, orders decreased by 37.4%, primarily due to significantly lower bookings for high-end mobile applications, post new model introductions launched in 2021. In addition, it reflected decreased demand from Chinese subcontractors for the second half. Chinese subcontractors for both smartphone and mainstream electronics applications continuing a trend, which began in the second half of last year. We believe that current demand from Chinese customers is restrained given both current capacity levels and rolling COVID lockdowns, which have adversely affected production, deliveries and new order development. Besi's adjusted net income reached €75.5 million in the first quarter representing increases of 13.9% and 59.3% respectively versus the fourth quarter last year and the first quarter last year. Further, our adjusted net margin of 37.3% rose significantly versus to 33.1% achieved in the prior year period. Profit efficiency has remained at elevated levels over the past four quarters due to relatively stable gross margin and baseline OpEx development. This was achieved by increasing prices as necessary to offset inflationary input cost and successfully limiting overhead growth even despite significantly increased spending for wafer level assembly activities. A dividend of €3.33 per share was approved at the AGM today. This dividend plus purchases through yesterday bring total distribution of €287.6 million so far this year. Since 2011, we will have paid out almost €1.2 billion to shareholders or 25% of cumulative revenue during this period. Given strong projected cash flow generation and current market uncertainties, we intend to accelerate share repurchases from €15 million to €25 million per quarter under the current program. Basis liquidity position continues to expand with cash and deposits of €696.6 million at the end of Q1, growing 3.6% versus year-end 2021 and 15% versus the fourth quarter of last year. Similarly, net cash of €407 million increased by 9.9% versus the fourth quarter last year and 88.3% versus the first quarter of last year, due to strong cash flow generation and the conversion into equity of a portion of our 2023 and 2024 convertible notes. Post quarter-end, we issued €170 million of 1.875% convertible notes due 2029. The net proceeds from which we will be used to help fund the expansion of our wafer level assembly portfolio, share buybacks and general corporate purposes, including acquisitions. Next, I'd like to speak a little bit about the current market environment and our strategy. The semiconductor equipment industry has continued to grow during the first half of 2022 reinforced by strength carried forward from the second half of last year and CapEx announcements from the leading semi producers in the first quarter of this year. From an assembly equipment perspective, tech insights recently increased its 2021 growth rates to 71% versus the 55% initially, forecast with growth continuing in 2022 by 10.8%. The market grew to a record of $6.5 in 2021 with gross expected to reach $7.2 billion in 2022, excluding any hybrid bonding revenue. At present, the assembly equipment industry is faced with many cross currency and limited visibility. We see continued strength in the first half of 2022 from advanced computing, automotive and hybrid bonding applications. In addition growth is further supported by customer CapEx roadmaps and the anticipated construction of 47 new wafer fabs over the next three years. Many of such new fabs are for advanced packaging and wafer level assembly applications. In contrast basis, order development in 2022 has been limited by a number of headwinds, including lower demand for high-end smartphones following the 2021 new model cycle, weakness in Chinese markets, global GDP uncertainties, disruptions to global supply chains and geopolitical conflict. Our strategic priorities for 2022 focus on satisfying customer delivery schedules, navigating global supply chain and pandemic related challenges and building out basis development, support and production capabilities to scale hybrid bonding and other wafer level assembly activities. Towards this end, gross R&D spending increased 23% in the first quarter this year, compared to the first quarter last year. Hybrid bonding process continues with shipments and orders increasing in Q1 and work continuing with elements to commercialize a cluster tool solution. In addition, we named an SVP to run basis below 10-nanometer die attach group to further our efforts in this area. Now a few words about the guidance. For Q2 2022, we estimate that the revenue will increase by 10% plus/minus 5% versus the first quarter of this year with gross margins levels staying in the range 59% to 61%. Operating expenses are anticipated to decrease by 0% to 5% as lower share based composition expense is partially offset by increased spending for development and circa support activities. At the midpoint of the guidance, we guide for the first half of 2022 revenue of €425 million and an operating profit of €176 million increases of 15% and 14% respectively versus the first half of 2021. Longer-term, we are encouraged by the favorable drivers for basic business as we advance further into the digital society, including the proliferation of artificial intelligence and industrial automation, cloud computing, 5G network expansion, data analytics, vehicle electrification, and increased enterprise demand as employees begin returning back to office. That prepares – that ends my prepared remarks. I would now like to open the call for some questions. Operator?

Thank you, sir. Ladies and gentlemen, we will start a question-and-answer session now. And the first question is coming from Mr. Robert Sanders, Deutsche Bank. Please go ahead, sir. Your line is open now.

Yes. Hi there, good afternoon, and thanks for taking my question. I guess the first one would just be on hybrid bonding. I think I remember you saying the backlog was relatively low last quarter in the sort of teens. I was just wondering if you could update that and just get an update on how you are thinking about this ramp into the between now and the end of 2023. I think in the past you’ve talked about 100 units between now and the end of 2030 sort of 50 – DSMC 50 in Dell. It’d be great to get a update on that. Thanks.

Great. The – as we mentioned in the notes, we are shipping systems, I would say every two weeks and gradually capacity is being expanded at a main customer in Taiwan and we are continuing to ship systems in the next two months also to other customers for process – development process applications and also to institutes. So the adoption of hybrid bonding is continuing in a way which can be characterized as very promising. Also we are receiving the customer visits again as we speak from Korea who are also entering the hybrid bonding developments and as we speak. Backlog, we have mentioned, we received orders in total around the mid-20s and has been increased with several systems somewhere in the low to mid-30s. But we’re shipping those machines gradually to the customers and the forecast till the end of 2023 remains roughly in the ballpark figures as indicated, it all of course depends on the continued adoption rate of hybrid bonding and especially the development of chiplet roadmaps in various applications. But the bottom line is, it is continuing, you could say beyond expectation. So that’s all very positive. What I should also mention in Q1 has been a major achievement in shipping the first systems into production facilities and also having these systems ramp and producing everyday parts. Until Q4, we were operating and you could say a pre-production environment, which is completely different. So traction is building and that is all very good news.

Great. And just as a follow-up, on the Chinese subcon lower demand and the reduced demand for high-end applications, mobile applications. Is that across the iOS and Android area that you are seeing some weakness? And when do you think that could potentially come back is it this year or potentially into next year?

Well, there – practically two separate subjects to be answered. Number one, on these high end smartphones, there’s always – so far, there’s always been a cycle. And not every year, you have new models with significant, let’s say, new features or functions. So last year was a very big year. This one is very normal, is less new features. Probably next year could very well be that we have some new features, again, related to 5G, backside cameras, there’s a lot of public data, which provides roadmap insight into high end smartphones. And that’s typically what drives our revenue in those applications. Chinese subcontractors, well, we all had wished after February 18 was our fourth quarter and year end. And then just after Chinese New Year, it was expected that due to various reasons that the next round of investments at those subcons would somewhere appear two, three months later. It’s now clear that we haven’t seen that so far end of April. It could very well be. And that is the expectation that next round should hit around end of June, July for shipments in the later part Q3 and Q4. So that should mean if that materializes a uptick towards the second half of this year. That’s as good as what we can see today.

Okay. Thank you.

And the next question is coming from Mr. Didier Scemama, please go ahead – from Bank of America. Please go ahead.

Thank you so much. I just wanted to come back to your guidance for Q2, Richard. I just wondered to what is baked in your assumption for Q2? Is it full lockdowns impacting channels with that or do you have a view as to when production could resume embedded in that? And I’ve got a follow-up. Thank you.

Typically, these COVID cycles are two weeks, maybe three weeks. And so one would expect that at some point and some are opening, but because not all are opening, the logistics are very difficult and that’s the current status. So 13 major cities have lockdowns and more than half are related to our industry. So that’s a major show stopper at this moment. But one expects that should open up in the next couple of – sorry, next couple of weeks. The key question is, of course, is this just COVID related or is there an over capacity in the market? And that we cannot answer today. We look at our peers, our competitors it’s a similar picture, underlying demand is still strong. There’s still significant chip shortage in many applications. We also face these shortages in certain controllers, in certain other electronics in our systems. So far, we have been able to mitigate that and certainly for the second quarter and that’s why we also have this guidance. But that tells you that the industry is still coping with let’s say, not sufficient capacity, so sufficient demand, but not sufficient capacity. And that would point towards once this COVID is under control in China that you should see a recovery anyway.

Okay. My follow-up is going back also to the order intake which was as Rob alluded, it looks like your largest customer or in-direct customer has not placed much order for the first quarter. So I was wondering if we could maybe just rewind again the tape a little bit. Is it a timing issue? It feels like it’s not from your answer earlier. Is it more of a product cycle issue? Or do you think that there is any market share loss of your machines at that particular customer?

Well, there’s certainly not market share loss. That’s easy to answer. And the picture should also be a bit more explained. We had exceptional high order intake in Q4 on a relative basis. That was cost and we explained that I think end of February, because of pre-ordering of certain critical components or modules and machines because of supply chain shortages. So if that would not be the case, the order intake in Q1, would’ve been significantly higher and in Q4 less. So that has to be understood. So it’s not that this has fallen off a cliff, so to speak. But again, as answer to previous question, there are cycles in these high end smartphone and features, high end smartphone features. Not every year you have the same amount of features. So that is typical after a very strong year, which was 2021 that you have a bit less in the subsequent year and in this case 2022.

Okay. Thank you. And maybe last quick one. On the non-hybrid bonding part of your order book or your backlog, do you think that it would be feasible to see further declines in the second quarter, in the second half of your effectively non-hybrid bonding part of the backlog?

Again, what I try to explain the key question is will this next China subcontractor ramp materialize June, July this year and causing a uptake and revenue in Q3 and Q4. That’s the answer to your question.

All right. Thank you so much, Richard.

Thank you.

And the next question is coming from Mr. Marc Hesselink, ING. Please go ahead, sir.

Yes. Thank you. My first question is actually on the – also on the backlog. After very strong order intake in previous quarter, you still have a very elevated backlog. When do you expect that that those orders can materialize? Is there either lead times in that business still relatively long? Or do you get to a process where you can get closer to your original lead times?

That’s an excellent question. Because of supply chain issues and I just try to mention that I will explain every single day we and the whole industry are facing still major battles with supply chain components, particularly electronic components. And that makes, yes, let's say the shortest lead times, which we were very well known for before. COVID, it's still, yes, let's say less perfect than it used to be. So, we have a bit longer lead time, but that doesn't matter, because customers face this issue with all other equip. So, their setting up of new lines is impacted by a less, let's say optimum delivery time of all equipment. But still with that backlog, we have a decent visibility. We have a visibility for the whole of Q2. We have also already a significant part in Q3. We, and I don't know if you noticed the inventory level is relatively high. And the simple reason is because to safeguard timely delivery, we have more parts on stock. So on relative terms our inventory level that current revenue should be around €60 million, €70 million, and today it's a €100 million. So that tells you there are critical components simply to safeguard timely delivery. When that will return to normal, who knows. But again supply chain constraints persist, and they pop up in parts, which you would not have expected. And that's a daily challenge, but we always find solutions.

So in the guidance number for the second quarter, there's still an element of supply constraint there. It could have been more if that was not the case?

Yes, yes, yes. And that's also why there's a range. Yes, clear. But again, the supply chain and also logistics in the world is still highly unpredictable.

Okay. And my second question is on your cash position and the recent convertible, in the press release, you also have specifically mentioned the expansion of current capacity. Is that something that you want to have the flexibility that if hybrid bonding suddenly ramps up much quicker that you can also ramp up that capacity? Or is that just one small part of it? And should – it is more like you want to have the general flexibility on all kinds of things?

No. It's, let's say, 99% related to hybrid bonding chip to wafer development and capacity expansion required. So simply imagine for the next five years, that should become a major growth engine. And for that, you need not only cleanroom environment, you need labs. You need an infrastructure, support centers, what we explained in Taiwan in the U.S., which will become major game changers to the industry. And you need to be independently financed to organize that. And that is the main purpose of such a convertible. At the same time, there could be opportunities in adding certain processes to our portfolio to expand the offering and in this, let's say, integrated solutions concept, i.e. cluster tools, you also need different processes. And that requires a financial backbone to be able in these, let's say, cyclical environment as this industry has been and will remain so. To develop that independently is the reason for issuing this new convert.

Okay. Thank you.

And the next question is coming from Mr. Charles Shi, Needham. Please go ahead.

Thank you. Good evening, Richard. I want to start the first question around the mobile. Obviously, the Android side of the weakness on the – for smartphone it’s well publicized. But the high end mobile which you’ve talked about, sounds like you are expecting less features this year. Obviously, I understand, you don’t exactly know what your end customer going to put on the menu for this year’s high end mobile launch. But it does sound to me that some of the features you were expecting maybe a quarter ago may get the pushed out to next year’s subversion. Is that the case? Because when I think about how your business kind of correlates with the number of features in the high end smartphone space, could that set up 2023 to be a much better year than 2022? Or am I thinking the right way? Thank you.

You’re thinking the right way. So, and what I mentioned earlier, there’s a lot of information in the public domain about these roadmaps and it points towards a next round in 2023. On the other hand, if you compare to the previous cycle 2017, which then got overexcited in 2018, which caused a significant cancellation in June timeframe of 2018. And it took all of 2019 to come back to next models in 2020. So it could be one year, but it could also be two years who knows. But the key question is, is Besi involved in all those new developments and the answer is yes. So what’s on the menu, as you said, it’s hard to forecast Charles, but we are definitely ready for any next round.

Thank you. So maybe the second question is around China I think if I hear you correctly, you think there is a chance for the demand to come back maybe around end of Q2 or second half of this year. So my question is, is that the kind of indication your customers have given to you or how much you feel like you can trust those kind of indications? Thank you.

Well, that’s an excellent question of course. Number one, it is customer driven. Number two, when there are no orders placed for more than six months, no volume orders. Of course, there’s some orders for new applications. So it’s not a complete freeze but volume ramp. It’s very reasonable to assume that should recover in the next let’s say three months, maybe six months, but then you have had a year of digestion, because it started, let’s say September last year to slow down and it should pick up at some point, unless we have a major disruption in the industry as whole, or in the world for that matter. But number one, it is customer, simply customer programs identified.

Got it. Got it.

We have to prepare for that. If you want to deliver that and these are typical machines, which are turned around in six to 10 weeks max with long lead items, you have to prepare yourself to get the major part of the next round.

Got it. Got it. Thank you, Richard. Maybe my last question; your – one of your peers this is the one based in Hong Kong, Singapore that's the one I'm talking about, they...

Sorry, which...

Sorry. Can you hear me Richard?

Yes. Sorry. I interrupted you.

Yes. I mean, your peer seems to be preparing to shift to a customer, a hybrid bonding system. They're talking about end of this year. Any sort of idea whether this is – this competitor is coming in because of their push or the customer pool over there? Thank you.

Well, it's hard. Let's say, I think but everyone, if you can build a boomer which can place within an accuracy below 500 nanometers, you want to be part of this next technology universe. So competitors are pushing whatever capability into this market. By surprise the whole hybrid template world, the adoption rate has accelerated, which is confirmed not only in Taiwan and U.S. but now also in Korea. We have as I explained earlier; we've had a very important quarter first quarter to really get our machines in full production environment operating 24/7. And we now built those machines and in a couple of days they're qualified below 150 nanometers who would ever have expected that. So we are making major progress. We're working on a second generation, which should be able to produce at a 100 nanometers early next year. And that is coinciding with the five nanometer chip design architecture and that's well on track. So there's more than just one boomer.

Thank you, Richard. That's very good color. Thank you. That's all my questions.

Thanks.

And the last question is coming from Mr. Ruben Devos, KBC Securities. Please go ahead.

Yes. Good afternoon. I just had one question related to hybrid bonding just to continue on that. I mean, we understood that you already grew the workforce and build a clean room, expanded service support. And I believe in earlier calls you mentioned the objective to produce 12 to 15 hybrid bonders per month. Just looking at where you are today from operational standpoint. What are some of the capacity already and, but may be, let's say the speed in ramping up. And then yes, given them the moment you're seeing out there, is there a possible upside to that production target in your view?

Well, in clear terms 15 machines per month, maybe 17 depends a bit on the configuration times 12 does satisfy an optimistic adoption rate scenario for the next three years. We can increase that capacity in six to nine months, simply by expanding the clean room in the current facility. We have concluded on the next site in Malaysia for further expansion for our other products, so that we can use our main facility to expand in the future hybrid bonding, manufacturing, testing but step by step don't get over excited. 200 systems per year is already a major achievement in the next three years and this is able to cover that demand.

All right. Very clear. Thanks. And just a second one on the end markets, basically. I mean you talked extensively about mobile. But you also mentioned strength in high-performance computing and in automotive. I understand that in combination, they were about, let's say, 32% of your revenue in 2021. So how would you compare their strengths relative to maybe the interim weakness in mobile?

Well, if you look over time, automotive revenue has been between 15% and 20% over a long period of time. With one exception, and that was 2020, when it dropped down below that level. Then the high-end computing or let's say, the data center devices, but also for laptops and computers, that's usually 20% to 25% of revenue and high-end smartphones is, last year, was even around 40% of revenue. So that's the largest volume from our revenue. So that has been building, by the way, over the years, over the past decade, you can say from high 20s to low 40s is simply because we increased our market share in that area significantly. It's difficult to imagine an offset by automotive or in the computer space, hybrid bonding is still early days, but there's a slide in our pack where you can see that on average, the growth in those areas should be significantly higher than that for the overall market. That does not dampen cycles, just a little bit. But it certainly also does not offset the cyclical behavior of this market. But the key is does Besi has the right customers? Does Besi have the right products? Number one choice, number one in market share, and that's where we have to look for. And from a cost point of view, do we have the best margins?

All right. Thank you very much Richard.

Thanks.

And there is a last follow-up question from Mr. Stephane Houri, ODDO. Please go ahead sir.

Yes, good afternoon. Just wanted to know if you can help us model, the OpEx dynamic going forward because in Q2 guidance, they were a bit higher than the market expectations. So if you can help us understand really the dynamic there. Thank you.

Yes. The key to understand is that R&D spending is a bit higher. And the reason is also very simple. If you look at IFRS, you capitalize the cost until you have market acceptance and what happens with hybrid bonding, and we can be very happy that due to acceptance in the fourth quarter into mainstream applications, we now start to amortize. And at the same time, continue the development cost. So there are several effects which increased the R&D spending. But then simply imagine that in the position we are right now, which is a very successful position if we can qualify it in that way, we are doing whatever we can to maintain that position, expand it also with the other major customers entering into the hybrid bonding, applications, chiplets. And we mentioned several times that R&D spending in that world is simply higher than in the NT1 world, as we called it. So that will continue to impact our R&D spending as part of the OpEx. Hopefully offset by higher margin potential and that's also already visible. So that's all good news.

Thank you very much.

Thanks, Stephane.

There are no further questions. Please continue.

Well, thank you all very much for listening in. Any further questions, don't hesitate to contact us. Thank you. All the best. Bye-bye.

Ladies and gentlemen…