NASDAQ:COHU Cohu Q2 2023 Earnings Report $16.81 -0.07 (-0.41%) Closing price 04/28/2025 04:00 PM EasternExtended Trading$16.81 0.00 (0.00%) As of 04:02 AM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Cohu EPS ResultsActual EPS$0.40Consensus EPS $0.37Beat/MissBeat by +$0.03One Year Ago EPSN/ACohu Revenue ResultsActual Revenue$168.92 millionExpected Revenue$165.95 millionBeat/MissBeat by +$2.97 millionYoY Revenue GrowthN/ACohu Announcement DetailsQuarterQ2 2023Date8/3/2023TimeN/AConference Call DateThursday, August 3, 2023Conference Call Time8:30AM ETUpcoming EarningsCohu's Q1 2025 earnings is scheduled for Thursday, May 1, 2025, with a conference call scheduled at 4:30 PM ET. Check back for transcripts, audio, and key financial metrics as they become available.Q1 2025 Earnings ReportConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Cohu Q2 2023 Earnings Call TranscriptProvided by QuartrAugust 3, 2023 ShareLink copied to clipboard.There are 7 speakers on the call. Operator00:00:00And thank you for standing by. Welcome to Cohu's Second Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jeff Jones, Senior Vice President and Chief Financial Officer. Operator00:00:40Please go ahead. Speaker 100:00:43Good morning, and welcome to our conference call to discuss Cohu's Q2 2023 results and Q3 2023 outlook. I'm joined today by our President and CEO, Luis Muller. If you need a copy of our earnings release, you may access it from our website at cohu.com or by contacting Cohu Investor Relations. There is also a slide presentation in conjunction with today's call that may be accessed on Cohu's website in the Investor Relations section. Replays of this call will be available via the same page after the call concludes. Speaker 100:01:19Now to the Safe Harbor. During today's call, we will make forward looking statements reflecting management's current expectations concerning Cohu's future business. These statements are based on current information that we have assessed, but which by its nature is subject to rapid and even abrupt changes. We encourage you to review the forward looking statements section of the slide presentation and the earnings release, as well as Cohu's filings with the SEC, including the most recently filed Form 10 ks and Form 10 Q. Our comments speak only as of today, August 3, 2023 and Cohu assumes no obligation to update these statements for developments occurring after this call. Speaker 100:02:05Finally, during this call, we will discuss certain non GAAP financial measures. Please refer to our earnings release and slide presentation for reconciliations to the most comparable GAAP measures. Now, I'd like to turn the call over to Luis Mueller, Cohu's President and CEO. Luis? Speaker 200:02:24Good morning and thanks for joining us. 2nd quarter gross margin and profitability were strong driven by Cohu's resilient recurring business model. Q2 non GAAP gross margin of 47.8 percent increased 130 basis points year over year and is better than our target financial model at this revenue level. Cohu's recurring business contributed 48% of second quarter revenue at approximately 55% gross margin. Our recurring business achieved a 3 year compound annual growth rate of 7% through Q2 And it is the key driver of Cohu's new baseline profitability through industry cycles. Speaker 200:03:07As communicated last quarter, We're expanding our infrastructure in the Philippines to support growth in our Interface business. At the end of second quarter, We were approximately 60% through construction of a new 92,000 square foot facility that will become operational in the first half of twenty twenty four. We also continue working to expand the local supply chain to increase flexibility and quickly ramp production in support of customers' needs. In the Q2, we received a first DI Core software order from a European IDM For monitoring performance of Cohu's turret handlers, although in early stages, we estimate the business at approximately $1,300,000 a year in future software subscription sales at this customer. We had several design wins of our interface products, both contactors and probe cards, mostly driven by our products RF performance and final test. Speaker 200:04:12Switching over to Cohu's systems business, It contributed 52% of 2nd quarter revenue at approximately 41% gross margin. As expected, automotive and industrial continue to be Cohu's main market segments with combined system revenue of 31% of the Q2 total. Other markets remain below historical levels with mobility particularly weak this year. When market conditions soften as it is currently the case, we focus on expanding our product portfolio and winning new customer applications, positioning the company to deliver revenue growth in the midterm. Aligned to this approach, there was an important ATE win in the 2nd quarter at a leading OSAT in Korea. Speaker 200:05:01This business is for outsourced testing from a European semiconductor manufacturer. This is a high value target we have been working with to expand use of Cohu's Diamond X platform in analog IC tests. Finally, we had a couple of distinct design wins for the Handler Group during the Q2. We broke in at a large Taiwanese foundry customer with a thermal handler for hyperscaling device test. And this was a first for Cohu and creates an opportunity to serve a much broader customer base in high performance computing, including those developing their own processes. Speaker 200:05:40Then there was a handler design win in the high power semiconductor market, Adding another customer to a new expansion in this segment. All of these are great product validations and give us confidence for 2024 revenue growth. But despite improving demand for our thermal handlers for high performance computing, We saw a reduction in customers' utilization this past June, driven by soft conditions affecting all other market segments. Estimated test serialization is down 4 points quarter over quarter ending Q2 at approximately 73%. Several customers paused system orders originally planned in the second half of June, delaying capacity expansion to the latter part of the year and into 2024. Speaker 200:06:28Continued mobility weakness and recent order delays in Automotive and Industrial segments have extended this downturn into Q3 resulting in a lower revenue guidance. However, Current order forecast is projected to grow sequentially again in the Q3. In the near term, we'll continue to tightly control expenses while focusing on winning new customer applications. We will continue executing a strategy to grow recurring business, Broaden the use of Diamond X into automotive and industrial customers, add to our inspection and metrology portfolio and increased subscriptions to our emerging software business. I want to stress that we're committed to expanding Cohu's recurring business that is key to profitability through industry cycles. Speaker 200:07:17Let me now turn this presentation over to Jeff for further details on 2nd quarter results and Q3 guidance. Jeff? Speaker 100:07:26Thanks, Luis. Before I walk through the Q2 results and Q3 guidance, Please note that my comments that follow all refer to non GAAP figures. Information about the non GAAP financial measures, including the GAAP to non GAAP And other disclosures are included in the accompanying earnings release and investor presentation, which are located on the Investor page of our website. Now turning to the Q2 financial results. Cohu delivered strong profitability on revenue of $168,900,000 which is slightly higher than the midpoint of our guidance range. Speaker 100:08:02During the Q2, 2 customers in the automotive market Each accounted for more than 10% of sales. Q2 gross margin was strong at 47.8%, About 80 basis points higher than guidance driven by Cohu's resilient recurring business and differentiated products. Operating expenses for Q2 were approximately $1,000,000 lower than guidance at 50,800,000 2nd quarter non GAAP operating income was 17.7 percent of revenue and adjusted EBITDA was 19.7%. The non GAAP effective tax rate for Q2 was approximately 27%, higher than guidance due to the projected concentration of annual pre tax income in higher tax rate jurisdictions. Non GAAP EPS for the 2nd quarter was $0.48 In summary, Q2 gross margin and adjusted EBITDA were strong, exceeding the mid term financial targets at this level of revenue. Speaker 100:09:06Moving to the balance sheet. Cash flow from operations in Q2 was strong at $53,000,000 And cash and investments grew to $372,000,000 at the end of the quarter. Debt repayment in the 2nd quarter totaled $1,500,000 And we ended Q2 with net cash per share of approximately $7 Cohu shares repurchased in Q2 totaled $2,700,000 And CapEx in the quarter was $3,100,000 with approximately $2,000,000 related to construction of the new Philippines facility to support long term growth prospects in our Interface business. Total CapEx for 2023 including the new building is expected to remain at approximately $20,000,000 Overall, Cohu's balance sheet maintains a strong position to support debt reduction, The share repurchase program and investment opportunities to expand our served markets and technology portfolio in line with our growth strategy. Now moving to our Q3 outlook. Speaker 100:10:09We're guiding Q3 revenue to be approximately $150,000,000 reflecting the recent weakness across our end markets and lower test cell utilization at customers' production facilities. Q3 gross margin is forecasted to be approximately 46%, better than the financial target model at this level of revenue Due in part to Cohu's differentiated products and our stable high margin recurring business, which adds resilience to profitability and provides consistent cash flow through industry cycles. Operating expenses for Q3 are projected to decrease quarter over quarter to approximately $50,000,000 as we continue to exercise tight control over OpEx while navigating through the trough of this cycle. We're projecting Q3 interest expense to be approximately $1,000,000 and offset by interest income of approximately $2,000,000 We expect Q3 adjusted EBITDA to be approximately 15% and the Q3 forecasted non GAAP tax rate is approximately 26%. The diluted share count for Q3 is expected to be approximately 48,400,000 shares. Speaker 100:11:26While we're not guiding full year, the expectation is that we're passing the trough of this industry cycle And this is supported by the current order forecast that is projected to grow sequentially in the 3rd quarter. That concludes our prepared remarks. And now we'll open the call to questions. Operator00:11:59Our first question comes from the line of Brian Chin with Stifel. Speaker 200:12:06Hi there. Can you hear me? Yes. Speaker 300:12:09Okay, great. Sorry, I got cut off there. Good morning. Thanks for letting us ask A few questions. Maybe to start off with, Luis, what I guess in the past 60 days or 45 days, what you be more descriptive on sort of what changed in terms of deliveries? Speaker 300:12:28It sounds like it's mainly towards sort of auto industrial And tied in maybe with the utilization change, which seems to be, I guess, mainly driven by IDMs, given that OSATs already were kind of operating at lower levels. So can you maybe be descriptive About kind of what you've seen there. And then reconcile that with sort of the, I guess, the positive sequential order Trend that you're seeing because that seems to be kind of counterintuitive relative to the sequential revenue guide down. And also what that means in terms of sort of duration You expect this sort of pause in business to occur. Speaker 200:13:06Okay. Well, there are several questions there, Brian. But What we did see was actually predominantly in the auto and industrial space. And as you know, those tend to be Generally the same customers for us. They basically hit the pause button on orders in June And started pushing some things out to later in the year, talking about Restarting the ramp again latter part of this year beginning of next year. Speaker 200:13:40And this is to the tune of about $30,000,000 That they got pushed down the line here by about 6 months. Concurrently with that and as I commented on the prepared remarks here, we Notice that we end up with a lot of handlers. I mean, we've got about 100 handlers right now that are awaiting testers to be installed, Probably most of it through the Q3. And with that utilization came down about 4 points at the end of June to 73%. That's sort of the level we saw at the end of June. Speaker 200:14:17I think as these handlers start receiving testers getting installed in the 3rd quarter, that is likely to start climbing again. So concurrent with that, we're seeing also An order forecast that starts picking up in the Q3, which leads us to believe basically that we're passing the trough Speaker 300:14:43Maybe to hone in on that, again, the order increase you're seeing and I don't know if it's a book to bill above 1 for the entire business Speaker 200:14:51or maybe it's specific segments. So maybe on Speaker 300:14:53a segment basis, are you seeing this trend in auto How about also wireless in some of these markets that have been soft? Speaker 200:15:03It's predominantly auto industrial, Brian. We continue to See the same softness in the mobility space that we have been talking about. I don't necessarily see that changing course here in the Q3. So it's more of the auto In industrial, that's the segment that had orders pushed out in a softness at the end of the second quarter. And that's the same segment that seems to be turning around the corner here in the 3rd quarter from an order perspective. Speaker 300:15:32Okay. Got it. And maybe lastly, I think I heard in the prepared remarks maybe a comment about confidence On calendar 2024 growth, Speaker 100:15:43I guess what are some Speaker 300:15:43of the components of that in terms of market and recovery as well as maybe any initiatives you have Line of sight too in terms of SAM expense and market share gain, etcetera in any of the product areas? Speaker 200:15:57Yes. So starting from a market standpoint, some of the orders that we're talking about in the Q3 are actually for deliveries already And at least a couple of these are fairly sizable actually And given an indication that there is a turn of the tides coming about, one of them in particular is in the industrial space, More specific and the other one is in the automotive. From an internal, what we can control standpoint, We have 3 main activities on tester design wins that we are in the final innings of the game here in the second half of this year. We expect to convert those customers to our Diamond X That's your platform and start getting orders probably late this year, early next year. I mean, it's really going to depend on the Timing of the ramp of their particular devices that we're getting the system qualified for, but that's what we have more of a line of sight from an equipment standpoint. Speaker 200:17:09Okay, great. Thank you. Operator00:17:15Our next question comes from the line of Craig Ellis with B. Riley. Speaker 400:17:22Yes. Thanks for taking the question. Luis, I'll start maybe picking up on some of Brian's questions, but Ask a little bit differently. So as we look at the mix of order activity, we've and this is no It's been playing out. I think year to date mobility has been very weak given all the pressure on smartphone sales. Speaker 400:17:43Consumers pretty low, Compute slow, but there was some very positive commentary on hyperscale activity. How would those dynamics expect to normalize if we had a more normal demand environment next year? When would the business start to see order improvement and what would be some of the early indicators that customers Moving back to more normal utilization levels and equipment order rates for Cohu. Speaker 200:18:18Well, Craig, as I said, we do expect 3rd quarter orders to improve relative to Q2, right. So I mean, I'm not going to say that's necessarily at normal levels, but we do expect the turning of the quarter on bookings Already at this quarter. From a normalization level, I think automotive is going to start picking up automotive and industrial are going to start Up to normal levels in Q1 of next year. Mobility, quite frankly, I don't know. We keep waiting for the signs of improvement. Speaker 200:18:53I think I've seen a couple of our customers put out earnings release here in the last 24, 48 hours that are a little bit more encouraging. We haven't really seen ourselves yet that forecast, that demand forecast. So I'm going to hold my breath to that. Computing, as you said, I mean, computing on a sequential basis, Q2 orders were already about 30% higher than Q1. So It is a lot of small numbers and computing is a smaller segment for us. Speaker 200:19:24But nevertheless, the data center hyperscale Business is starting to get some momentum. But honestly, I think, a return to normality requires both automotive and industrial, 1st and foremost, and not just orders, but shipments, which I think recovers in the first half sorry, in the Q1 of next year. And then a return of mobility, which is yet at this point, Something that is a little hard to pin down. We expect late this year, early next year, but at what magnitude? I don't know the answer to that question on the mobility side. Speaker 400:20:03Yes. That's helpful. Thank you. And then turning to comments that you made On the Philippines manufacturing expansion and that facility's ability to go live next year, Can you just provide some more color on what that means for the company's ability to meet upside demand And what that expansion will mean from a cost standpoint and therefore a gross margin standpoint from levels that are already quite strong in the business. Speaker 200:20:42Yes, I'll start on the first half of your question and let Jeff Steph mentioned talk about the gross margin impact. That new facility is going to give us an opportunity to increase output on the Interface business by about 50%. So it adds about $65,000,000 of incremental revenue opportunity out of that factory. Speaker 100:21:08And with respect to gross margin, so that Increase in volume help us leverage better some of the manufacturing fixed Costs that we have, that business at the moment is running roughly in the 44% to 45% gross margin. In the model, we have them closer to 47%, 48%, which is achievable as we continue to put all the pieces together here and add capacity and continue to leverage those costs. Speaker 400:21:44That's helpful. And then if I could just Sneak in one more before going back into the queue guys. Luis, I was hoping you and maybe Jeff since this is a Longer term question dealing with just growing the business, but also focusing back on the midterm target. Luis, you mentioned that we've got the seeds of growth visible in order activity. We've heard that the gross margin is performing at above target levels for current revenue rates. Speaker 400:22:19So Can you guys just address your confidence in getting back to the midterm targets $1,000,000,000 in revenues and getting gross margin up to 49%, given the dynamics that you see in the business and the order flow that you're starting to see. Thank you. Speaker 200:22:40Yes. Honestly, the confidence is pretty good, Craig. I mean, this industry goes through its cycle, as you know, been in For long enough to know that we do hit some speed bumps in order and That's where we are now. We're sort of that trough of the cycle. And when business recovers, it's not unheard of, of it going up 15%, 20% And a subsequent year followed by another year of growth that could be 10%, 15% following that. Speaker 200:23:13We have a pretty solid position in the automotive and industrial market with our thermal handlers. It's a market that for the first time in years it's growing at a double digit rate. The semiconductor industry part of it is Growing at a double digit rate. I happen to be in Asia this week actually making this call from and We had an opportunity to visit 5 of our customers in the space and pretty much all of them are Doubling their footprint in assembly and test. And I saw get to see actually some of the factories being built That are coming up into production first and second half of next year depending on the customer you think you pick. Speaker 200:24:01So The opportunity in the automotive and industrial markets is just tremendous. And I think that ramp is Happening next year and probably for the foreseeable few years as more electric and ADAS capable vehicles Come to market. The computing space, we see the advent of AI and AI driven data center Processors, we're seeing a little bit of that ramp. There will be it's a smaller market for us. And over the long haul, that is going to drive a Number of edge computing and communication chips that will also benefit the business, But in a different sort of in a different dynamic than the automotive and industrial. Speaker 200:24:48So if you look at all of that put together, Our handler business is pretty solid with solid growth ahead. The interface business similarly, particularly because of the market, the automotive and industrial market. We're working pretty hard to broaden the penetration of our Interface business into high performance digital test, basically more computing. At the same time, we're working really hard to broaden the penetration of our ATE business into analog power semiconductor test, Again, more leverage towards automotive and industrial applications. These are sort of the customers that I mentioned earlier on an earlier call, we had some line of sight business wins for the second half of the year and then sort of enjoy the Whatever that customer's demand is going to be in 2024 and beyond. Speaker 200:25:40So I'm fairly confident on that Revenue growth aspect, obviously, we're really confident on the gross margin aspect because we're basically there or better than model at the moment. The way I see it is, we're passing through that trough of the industry cycle, delivering $0.48 of EPS in the 2nd quarter And looking ahead for growing with the market and a few design wins on the tester side and the interface side, which is what we're focusing on. Speaker 400:26:17Thanks guys. Operator00:26:21Our next question comes from the line of Krish Sankar with TD Cowen. Speaker 500:26:28Yes. Hi. Thanks for taking my question. I have 2 of them. First one, Jeff, you mentioned that the September quarter weakness is tied to auto industrial, Some of your test equipment peers have said auto is still pretty strong. Speaker 500:26:40I'm just curious, is this specific to your Customer exposure for your auto handlers or is there can you give an update on what's happening on the auto handler market share for you? And then I had a follow-up. Speaker 200:26:53So maybe let me step in on that, Krish. It's hard for you to pick an auto Customer or industrial customer that we're not selling handlers to. So that's that can't be specific to us. But One interesting observation, I don't know if you picked it up on an answer that I gave a minute ago. We have about 100 handlers that are waiting on tester deliveries to get installed. Speaker 200:27:20So I think that's one element of the speed bump here. We got to get these Testers, which are not from Cohu in this case, actually it's from some of our tester competitors To hit the production floor, so we can put these handlers into production. And frankly, I think that has been one of the elements that caused The order paused because these customers can't take more handlers until they can get delivery of these testers. Speaker 500:27:51Got it, got it, Luis. That's very helpful. So the auto handler market share is still pretty robust, right? Speaker 200:27:57Yes, it's absolutely robust. It's very solid. Speaker 500:28:01Got it. And then just like just another question. As the orders are growing in September, is it fair to assume your December revenue sequentially better than September. And along the same path, if you look into next year, are the main puts and takes on gross margins still the fact that If you have more mobility test equipment, that's better for gross margins than auto handlers. Is it as simple as that or the other You know, variance of work here? Speaker 100:28:31That does have an influence, Krish. The more ATE Business we have, yes, the mix improves a bit. So definitely that is a benefit. As we've talked before, Our handler business gross margins have expanded quite nicely over the last 4 to 6 quarters. But yes, definitely with the growth in the tester business, yes, the overall mix improves and the margin would expand as well. Speaker 500:29:05And then just a clarification on December revenues, is it too early to say or the order book growing in September gives you comfort on December revenue? Speaker 100:29:16Well, the way that we see it now, as Luis had said, sequential increase in orders Q3 versus Q2, we think that translates into sequential increase in revenue, but It is early for us to pin down a number. We think it's an incremental increase, Not a substantial increase, but it would we at this point think it is incremental, but again difficult to pin down a number. Operator00:30:03Our next question comes from Charles Hsieh with Needham and Company. Speaker 600:30:10Thank you for letting me ask maybe just one question. Jen, what is the current visibility into the trend, let's say, into Q3 and into Q4 Given your visibility today? Speaker 200:30:29Charles, we don't try to forecast test utilization. So it's always a Rearview mirror metric, it's what we measure. And it did like I said, it did come down In the Q2, just down to 73%. It did come down both at the IDMs and OSATs. But when we dug in a little bit more to understand The reasons on that is we recognize we end up having it was actually 99 handlers, so close to 100 handlers that were Sitting waiting for test to deliver. Speaker 200:31:04So here it becomes more of a question of those testers really get delivered and we do count systems that are waiting To be installed actually as part of the utilization metric. So if we do get those testers delivered on the Q3 and notwithstanding anything else happening in the market, I would Back debt stabilization to climb again in the 3rd quarter. But like I said, we don't typically try to forecast debt utilization. Speaker 600:31:31Thank you. Louis, can you provide a little bit color on your design win With the hyperscaler to the foundry, because I thought your testers are more geared towards analog intensive applications, but hyperscaler, My assumption is it's probably a digital intensive application. So almost feel like this would have been an advent test, a kind of market, You did have this design win. Can you correct any of the thoughts, any of the things I said wrong and I'll provide a little bit more color Speaker 200:32:04on this point. Yes, thank you. Yes, Charles, everything you said is correct except the very beginning. This was a handler design win, not a tester. But everything else you said is actually correct, including tester that goes with our handler and but it's really a thermal handler design win, not a tester Operator00:32:31That concludes today's question and answer session. I'd like to turn the call back to Jeff Jones for closing Speaker 100:32:37Thank you. And before we sign off, I'd just like to mention that we'll be attending 3 investor conferences during The Q3 and they are the Needham Virtual Conference on Tuesday, August 22 the Jefferies Conference in Chicago on Tuesday, August 29th, and Citi's Global Tech Conference in New York on Friday, September 8th. So if you plan to attend One or more of these conferences would like to meet with us. Please reach out to your respective analyst or conference contact to schedule a meeting. Thank you for joining today's call and we look forward to speaking with you soon. Speaker 100:33:15Have a nice day.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallCohu Q2 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Cohu Earnings HeadlinesB. 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Sign up for Earnings360's daily newsletter to receive timely earnings updates on Cohu and other key companies, straight to your email. Email Address About CohuCohu (NASDAQ:COHU), through its subsidiaries, provides semiconductor test equipment and services in China, the United States, Taiwan, Malaysia, the Philippines, and internationally. The company supplies semiconductor test and inspection handlers, micro-electromechanical system (MEMS) test modules, test contactors, thermal sub-systems, and semiconductor automated test equipment for semiconductor manufacturers and test subcontractors. It also provides semiconductor automated test equipment for wafer level and device package testing; various test handlers, including pick-and-place, turret, gravity, strip, and MEMS and thermal sub-systems; interface products comprising test contactors, and probe heads and pins; spares and kits; various parts and labor warranties on test and handling systems, and instruments; and training on the maintenance and operation of its systems, as well as application, data management software, and consulting services on its products. In addition, the company offers data analytics product that includes DI-Core, a software suite used to optimize Cohu equipment performance, which provides real-time online performance monitoring and process control. It markets its products through direct sales force and independent sales representatives. The company was formerly known as Cohu Electronics, Inc. and changed its name to Cohu, Inc. in 1972. The company was incorporated in 1947 and is headquartered in Poway, California.View Cohu ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Alphabet Rebounds After Strong Earnings and Buyback AnnouncementMarkets Think Robinhood Earnings Could Send the Stock UpIs the Floor in for Lam Research After Bullish Earnings?Texas Instruments: Earnings Beat, Upbeat Guidance Fuel RecoveryMarket Anticipation Builds: Joby Stock Climbs Ahead of EarningsIs Intuitive Surgical a Buy After Volatile Reaction to Earnings?Seismic Shift at Intel: Massive Layoffs Precede Crucial Earnings Upcoming Earnings QUALCOMM (4/30/2025)Automatic Data Processing (4/30/2025)Microsoft (4/30/2025)Meta Platforms (4/30/2025)KLA (4/30/2025)Equinix (4/30/2025)Lloyds Banking Group (4/30/2025)Itaú Unibanco (4/30/2025)Banco Santander (4/30/2025)Equinor ASA (4/30/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. 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There are 7 speakers on the call. Operator00:00:00And thank you for standing by. Welcome to Cohu's Second Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jeff Jones, Senior Vice President and Chief Financial Officer. Operator00:00:40Please go ahead. Speaker 100:00:43Good morning, and welcome to our conference call to discuss Cohu's Q2 2023 results and Q3 2023 outlook. I'm joined today by our President and CEO, Luis Muller. If you need a copy of our earnings release, you may access it from our website at cohu.com or by contacting Cohu Investor Relations. There is also a slide presentation in conjunction with today's call that may be accessed on Cohu's website in the Investor Relations section. Replays of this call will be available via the same page after the call concludes. Speaker 100:01:19Now to the Safe Harbor. During today's call, we will make forward looking statements reflecting management's current expectations concerning Cohu's future business. These statements are based on current information that we have assessed, but which by its nature is subject to rapid and even abrupt changes. We encourage you to review the forward looking statements section of the slide presentation and the earnings release, as well as Cohu's filings with the SEC, including the most recently filed Form 10 ks and Form 10 Q. Our comments speak only as of today, August 3, 2023 and Cohu assumes no obligation to update these statements for developments occurring after this call. Speaker 100:02:05Finally, during this call, we will discuss certain non GAAP financial measures. Please refer to our earnings release and slide presentation for reconciliations to the most comparable GAAP measures. Now, I'd like to turn the call over to Luis Mueller, Cohu's President and CEO. Luis? Speaker 200:02:24Good morning and thanks for joining us. 2nd quarter gross margin and profitability were strong driven by Cohu's resilient recurring business model. Q2 non GAAP gross margin of 47.8 percent increased 130 basis points year over year and is better than our target financial model at this revenue level. Cohu's recurring business contributed 48% of second quarter revenue at approximately 55% gross margin. Our recurring business achieved a 3 year compound annual growth rate of 7% through Q2 And it is the key driver of Cohu's new baseline profitability through industry cycles. Speaker 200:03:07As communicated last quarter, We're expanding our infrastructure in the Philippines to support growth in our Interface business. At the end of second quarter, We were approximately 60% through construction of a new 92,000 square foot facility that will become operational in the first half of twenty twenty four. We also continue working to expand the local supply chain to increase flexibility and quickly ramp production in support of customers' needs. In the Q2, we received a first DI Core software order from a European IDM For monitoring performance of Cohu's turret handlers, although in early stages, we estimate the business at approximately $1,300,000 a year in future software subscription sales at this customer. We had several design wins of our interface products, both contactors and probe cards, mostly driven by our products RF performance and final test. Speaker 200:04:12Switching over to Cohu's systems business, It contributed 52% of 2nd quarter revenue at approximately 41% gross margin. As expected, automotive and industrial continue to be Cohu's main market segments with combined system revenue of 31% of the Q2 total. Other markets remain below historical levels with mobility particularly weak this year. When market conditions soften as it is currently the case, we focus on expanding our product portfolio and winning new customer applications, positioning the company to deliver revenue growth in the midterm. Aligned to this approach, there was an important ATE win in the 2nd quarter at a leading OSAT in Korea. Speaker 200:05:01This business is for outsourced testing from a European semiconductor manufacturer. This is a high value target we have been working with to expand use of Cohu's Diamond X platform in analog IC tests. Finally, we had a couple of distinct design wins for the Handler Group during the Q2. We broke in at a large Taiwanese foundry customer with a thermal handler for hyperscaling device test. And this was a first for Cohu and creates an opportunity to serve a much broader customer base in high performance computing, including those developing their own processes. Speaker 200:05:40Then there was a handler design win in the high power semiconductor market, Adding another customer to a new expansion in this segment. All of these are great product validations and give us confidence for 2024 revenue growth. But despite improving demand for our thermal handlers for high performance computing, We saw a reduction in customers' utilization this past June, driven by soft conditions affecting all other market segments. Estimated test serialization is down 4 points quarter over quarter ending Q2 at approximately 73%. Several customers paused system orders originally planned in the second half of June, delaying capacity expansion to the latter part of the year and into 2024. Speaker 200:06:28Continued mobility weakness and recent order delays in Automotive and Industrial segments have extended this downturn into Q3 resulting in a lower revenue guidance. However, Current order forecast is projected to grow sequentially again in the Q3. In the near term, we'll continue to tightly control expenses while focusing on winning new customer applications. We will continue executing a strategy to grow recurring business, Broaden the use of Diamond X into automotive and industrial customers, add to our inspection and metrology portfolio and increased subscriptions to our emerging software business. I want to stress that we're committed to expanding Cohu's recurring business that is key to profitability through industry cycles. Speaker 200:07:17Let me now turn this presentation over to Jeff for further details on 2nd quarter results and Q3 guidance. Jeff? Speaker 100:07:26Thanks, Luis. Before I walk through the Q2 results and Q3 guidance, Please note that my comments that follow all refer to non GAAP figures. Information about the non GAAP financial measures, including the GAAP to non GAAP And other disclosures are included in the accompanying earnings release and investor presentation, which are located on the Investor page of our website. Now turning to the Q2 financial results. Cohu delivered strong profitability on revenue of $168,900,000 which is slightly higher than the midpoint of our guidance range. Speaker 100:08:02During the Q2, 2 customers in the automotive market Each accounted for more than 10% of sales. Q2 gross margin was strong at 47.8%, About 80 basis points higher than guidance driven by Cohu's resilient recurring business and differentiated products. Operating expenses for Q2 were approximately $1,000,000 lower than guidance at 50,800,000 2nd quarter non GAAP operating income was 17.7 percent of revenue and adjusted EBITDA was 19.7%. The non GAAP effective tax rate for Q2 was approximately 27%, higher than guidance due to the projected concentration of annual pre tax income in higher tax rate jurisdictions. Non GAAP EPS for the 2nd quarter was $0.48 In summary, Q2 gross margin and adjusted EBITDA were strong, exceeding the mid term financial targets at this level of revenue. Speaker 100:09:06Moving to the balance sheet. Cash flow from operations in Q2 was strong at $53,000,000 And cash and investments grew to $372,000,000 at the end of the quarter. Debt repayment in the 2nd quarter totaled $1,500,000 And we ended Q2 with net cash per share of approximately $7 Cohu shares repurchased in Q2 totaled $2,700,000 And CapEx in the quarter was $3,100,000 with approximately $2,000,000 related to construction of the new Philippines facility to support long term growth prospects in our Interface business. Total CapEx for 2023 including the new building is expected to remain at approximately $20,000,000 Overall, Cohu's balance sheet maintains a strong position to support debt reduction, The share repurchase program and investment opportunities to expand our served markets and technology portfolio in line with our growth strategy. Now moving to our Q3 outlook. Speaker 100:10:09We're guiding Q3 revenue to be approximately $150,000,000 reflecting the recent weakness across our end markets and lower test cell utilization at customers' production facilities. Q3 gross margin is forecasted to be approximately 46%, better than the financial target model at this level of revenue Due in part to Cohu's differentiated products and our stable high margin recurring business, which adds resilience to profitability and provides consistent cash flow through industry cycles. Operating expenses for Q3 are projected to decrease quarter over quarter to approximately $50,000,000 as we continue to exercise tight control over OpEx while navigating through the trough of this cycle. We're projecting Q3 interest expense to be approximately $1,000,000 and offset by interest income of approximately $2,000,000 We expect Q3 adjusted EBITDA to be approximately 15% and the Q3 forecasted non GAAP tax rate is approximately 26%. The diluted share count for Q3 is expected to be approximately 48,400,000 shares. Speaker 100:11:26While we're not guiding full year, the expectation is that we're passing the trough of this industry cycle And this is supported by the current order forecast that is projected to grow sequentially in the 3rd quarter. That concludes our prepared remarks. And now we'll open the call to questions. Operator00:11:59Our first question comes from the line of Brian Chin with Stifel. Speaker 200:12:06Hi there. Can you hear me? Yes. Speaker 300:12:09Okay, great. Sorry, I got cut off there. Good morning. Thanks for letting us ask A few questions. Maybe to start off with, Luis, what I guess in the past 60 days or 45 days, what you be more descriptive on sort of what changed in terms of deliveries? Speaker 300:12:28It sounds like it's mainly towards sort of auto industrial And tied in maybe with the utilization change, which seems to be, I guess, mainly driven by IDMs, given that OSATs already were kind of operating at lower levels. So can you maybe be descriptive About kind of what you've seen there. And then reconcile that with sort of the, I guess, the positive sequential order Trend that you're seeing because that seems to be kind of counterintuitive relative to the sequential revenue guide down. And also what that means in terms of sort of duration You expect this sort of pause in business to occur. Speaker 200:13:06Okay. Well, there are several questions there, Brian. But What we did see was actually predominantly in the auto and industrial space. And as you know, those tend to be Generally the same customers for us. They basically hit the pause button on orders in June And started pushing some things out to later in the year, talking about Restarting the ramp again latter part of this year beginning of next year. Speaker 200:13:40And this is to the tune of about $30,000,000 That they got pushed down the line here by about 6 months. Concurrently with that and as I commented on the prepared remarks here, we Notice that we end up with a lot of handlers. I mean, we've got about 100 handlers right now that are awaiting testers to be installed, Probably most of it through the Q3. And with that utilization came down about 4 points at the end of June to 73%. That's sort of the level we saw at the end of June. Speaker 200:14:17I think as these handlers start receiving testers getting installed in the 3rd quarter, that is likely to start climbing again. So concurrent with that, we're seeing also An order forecast that starts picking up in the Q3, which leads us to believe basically that we're passing the trough Speaker 300:14:43Maybe to hone in on that, again, the order increase you're seeing and I don't know if it's a book to bill above 1 for the entire business Speaker 200:14:51or maybe it's specific segments. So maybe on Speaker 300:14:53a segment basis, are you seeing this trend in auto How about also wireless in some of these markets that have been soft? Speaker 200:15:03It's predominantly auto industrial, Brian. We continue to See the same softness in the mobility space that we have been talking about. I don't necessarily see that changing course here in the Q3. So it's more of the auto In industrial, that's the segment that had orders pushed out in a softness at the end of the second quarter. And that's the same segment that seems to be turning around the corner here in the 3rd quarter from an order perspective. Speaker 300:15:32Okay. Got it. And maybe lastly, I think I heard in the prepared remarks maybe a comment about confidence On calendar 2024 growth, Speaker 100:15:43I guess what are some Speaker 300:15:43of the components of that in terms of market and recovery as well as maybe any initiatives you have Line of sight too in terms of SAM expense and market share gain, etcetera in any of the product areas? Speaker 200:15:57Yes. So starting from a market standpoint, some of the orders that we're talking about in the Q3 are actually for deliveries already And at least a couple of these are fairly sizable actually And given an indication that there is a turn of the tides coming about, one of them in particular is in the industrial space, More specific and the other one is in the automotive. From an internal, what we can control standpoint, We have 3 main activities on tester design wins that we are in the final innings of the game here in the second half of this year. We expect to convert those customers to our Diamond X That's your platform and start getting orders probably late this year, early next year. I mean, it's really going to depend on the Timing of the ramp of their particular devices that we're getting the system qualified for, but that's what we have more of a line of sight from an equipment standpoint. Speaker 200:17:09Okay, great. Thank you. Operator00:17:15Our next question comes from the line of Craig Ellis with B. Riley. Speaker 400:17:22Yes. Thanks for taking the question. Luis, I'll start maybe picking up on some of Brian's questions, but Ask a little bit differently. So as we look at the mix of order activity, we've and this is no It's been playing out. I think year to date mobility has been very weak given all the pressure on smartphone sales. Speaker 400:17:43Consumers pretty low, Compute slow, but there was some very positive commentary on hyperscale activity. How would those dynamics expect to normalize if we had a more normal demand environment next year? When would the business start to see order improvement and what would be some of the early indicators that customers Moving back to more normal utilization levels and equipment order rates for Cohu. Speaker 200:18:18Well, Craig, as I said, we do expect 3rd quarter orders to improve relative to Q2, right. So I mean, I'm not going to say that's necessarily at normal levels, but we do expect the turning of the quarter on bookings Already at this quarter. From a normalization level, I think automotive is going to start picking up automotive and industrial are going to start Up to normal levels in Q1 of next year. Mobility, quite frankly, I don't know. We keep waiting for the signs of improvement. Speaker 200:18:53I think I've seen a couple of our customers put out earnings release here in the last 24, 48 hours that are a little bit more encouraging. We haven't really seen ourselves yet that forecast, that demand forecast. So I'm going to hold my breath to that. Computing, as you said, I mean, computing on a sequential basis, Q2 orders were already about 30% higher than Q1. So It is a lot of small numbers and computing is a smaller segment for us. Speaker 200:19:24But nevertheless, the data center hyperscale Business is starting to get some momentum. But honestly, I think, a return to normality requires both automotive and industrial, 1st and foremost, and not just orders, but shipments, which I think recovers in the first half sorry, in the Q1 of next year. And then a return of mobility, which is yet at this point, Something that is a little hard to pin down. We expect late this year, early next year, but at what magnitude? I don't know the answer to that question on the mobility side. Speaker 400:20:03Yes. That's helpful. Thank you. And then turning to comments that you made On the Philippines manufacturing expansion and that facility's ability to go live next year, Can you just provide some more color on what that means for the company's ability to meet upside demand And what that expansion will mean from a cost standpoint and therefore a gross margin standpoint from levels that are already quite strong in the business. Speaker 200:20:42Yes, I'll start on the first half of your question and let Jeff Steph mentioned talk about the gross margin impact. That new facility is going to give us an opportunity to increase output on the Interface business by about 50%. So it adds about $65,000,000 of incremental revenue opportunity out of that factory. Speaker 100:21:08And with respect to gross margin, so that Increase in volume help us leverage better some of the manufacturing fixed Costs that we have, that business at the moment is running roughly in the 44% to 45% gross margin. In the model, we have them closer to 47%, 48%, which is achievable as we continue to put all the pieces together here and add capacity and continue to leverage those costs. Speaker 400:21:44That's helpful. And then if I could just Sneak in one more before going back into the queue guys. Luis, I was hoping you and maybe Jeff since this is a Longer term question dealing with just growing the business, but also focusing back on the midterm target. Luis, you mentioned that we've got the seeds of growth visible in order activity. We've heard that the gross margin is performing at above target levels for current revenue rates. Speaker 400:22:19So Can you guys just address your confidence in getting back to the midterm targets $1,000,000,000 in revenues and getting gross margin up to 49%, given the dynamics that you see in the business and the order flow that you're starting to see. Thank you. Speaker 200:22:40Yes. Honestly, the confidence is pretty good, Craig. I mean, this industry goes through its cycle, as you know, been in For long enough to know that we do hit some speed bumps in order and That's where we are now. We're sort of that trough of the cycle. And when business recovers, it's not unheard of, of it going up 15%, 20% And a subsequent year followed by another year of growth that could be 10%, 15% following that. Speaker 200:23:13We have a pretty solid position in the automotive and industrial market with our thermal handlers. It's a market that for the first time in years it's growing at a double digit rate. The semiconductor industry part of it is Growing at a double digit rate. I happen to be in Asia this week actually making this call from and We had an opportunity to visit 5 of our customers in the space and pretty much all of them are Doubling their footprint in assembly and test. And I saw get to see actually some of the factories being built That are coming up into production first and second half of next year depending on the customer you think you pick. Speaker 200:24:01So The opportunity in the automotive and industrial markets is just tremendous. And I think that ramp is Happening next year and probably for the foreseeable few years as more electric and ADAS capable vehicles Come to market. The computing space, we see the advent of AI and AI driven data center Processors, we're seeing a little bit of that ramp. There will be it's a smaller market for us. And over the long haul, that is going to drive a Number of edge computing and communication chips that will also benefit the business, But in a different sort of in a different dynamic than the automotive and industrial. Speaker 200:24:48So if you look at all of that put together, Our handler business is pretty solid with solid growth ahead. The interface business similarly, particularly because of the market, the automotive and industrial market. We're working pretty hard to broaden the penetration of our Interface business into high performance digital test, basically more computing. At the same time, we're working really hard to broaden the penetration of our ATE business into analog power semiconductor test, Again, more leverage towards automotive and industrial applications. These are sort of the customers that I mentioned earlier on an earlier call, we had some line of sight business wins for the second half of the year and then sort of enjoy the Whatever that customer's demand is going to be in 2024 and beyond. Speaker 200:25:40So I'm fairly confident on that Revenue growth aspect, obviously, we're really confident on the gross margin aspect because we're basically there or better than model at the moment. The way I see it is, we're passing through that trough of the industry cycle, delivering $0.48 of EPS in the 2nd quarter And looking ahead for growing with the market and a few design wins on the tester side and the interface side, which is what we're focusing on. Speaker 400:26:17Thanks guys. Operator00:26:21Our next question comes from the line of Krish Sankar with TD Cowen. Speaker 500:26:28Yes. Hi. Thanks for taking my question. I have 2 of them. First one, Jeff, you mentioned that the September quarter weakness is tied to auto industrial, Some of your test equipment peers have said auto is still pretty strong. Speaker 500:26:40I'm just curious, is this specific to your Customer exposure for your auto handlers or is there can you give an update on what's happening on the auto handler market share for you? And then I had a follow-up. Speaker 200:26:53So maybe let me step in on that, Krish. It's hard for you to pick an auto Customer or industrial customer that we're not selling handlers to. So that's that can't be specific to us. But One interesting observation, I don't know if you picked it up on an answer that I gave a minute ago. We have about 100 handlers that are waiting on tester deliveries to get installed. Speaker 200:27:20So I think that's one element of the speed bump here. We got to get these Testers, which are not from Cohu in this case, actually it's from some of our tester competitors To hit the production floor, so we can put these handlers into production. And frankly, I think that has been one of the elements that caused The order paused because these customers can't take more handlers until they can get delivery of these testers. Speaker 500:27:51Got it, got it, Luis. That's very helpful. So the auto handler market share is still pretty robust, right? Speaker 200:27:57Yes, it's absolutely robust. It's very solid. Speaker 500:28:01Got it. And then just like just another question. As the orders are growing in September, is it fair to assume your December revenue sequentially better than September. And along the same path, if you look into next year, are the main puts and takes on gross margins still the fact that If you have more mobility test equipment, that's better for gross margins than auto handlers. Is it as simple as that or the other You know, variance of work here? Speaker 100:28:31That does have an influence, Krish. The more ATE Business we have, yes, the mix improves a bit. So definitely that is a benefit. As we've talked before, Our handler business gross margins have expanded quite nicely over the last 4 to 6 quarters. But yes, definitely with the growth in the tester business, yes, the overall mix improves and the margin would expand as well. Speaker 500:29:05And then just a clarification on December revenues, is it too early to say or the order book growing in September gives you comfort on December revenue? Speaker 100:29:16Well, the way that we see it now, as Luis had said, sequential increase in orders Q3 versus Q2, we think that translates into sequential increase in revenue, but It is early for us to pin down a number. We think it's an incremental increase, Not a substantial increase, but it would we at this point think it is incremental, but again difficult to pin down a number. Operator00:30:03Our next question comes from Charles Hsieh with Needham and Company. Speaker 600:30:10Thank you for letting me ask maybe just one question. Jen, what is the current visibility into the trend, let's say, into Q3 and into Q4 Given your visibility today? Speaker 200:30:29Charles, we don't try to forecast test utilization. So it's always a Rearview mirror metric, it's what we measure. And it did like I said, it did come down In the Q2, just down to 73%. It did come down both at the IDMs and OSATs. But when we dug in a little bit more to understand The reasons on that is we recognize we end up having it was actually 99 handlers, so close to 100 handlers that were Sitting waiting for test to deliver. Speaker 200:31:04So here it becomes more of a question of those testers really get delivered and we do count systems that are waiting To be installed actually as part of the utilization metric. So if we do get those testers delivered on the Q3 and notwithstanding anything else happening in the market, I would Back debt stabilization to climb again in the 3rd quarter. But like I said, we don't typically try to forecast debt utilization. Speaker 600:31:31Thank you. Louis, can you provide a little bit color on your design win With the hyperscaler to the foundry, because I thought your testers are more geared towards analog intensive applications, but hyperscaler, My assumption is it's probably a digital intensive application. So almost feel like this would have been an advent test, a kind of market, You did have this design win. Can you correct any of the thoughts, any of the things I said wrong and I'll provide a little bit more color Speaker 200:32:04on this point. Yes, thank you. Yes, Charles, everything you said is correct except the very beginning. This was a handler design win, not a tester. But everything else you said is actually correct, including tester that goes with our handler and but it's really a thermal handler design win, not a tester Operator00:32:31That concludes today's question and answer session. I'd like to turn the call back to Jeff Jones for closing Speaker 100:32:37Thank you. And before we sign off, I'd just like to mention that we'll be attending 3 investor conferences during The Q3 and they are the Needham Virtual Conference on Tuesday, August 22 the Jefferies Conference in Chicago on Tuesday, August 29th, and Citi's Global Tech Conference in New York on Friday, September 8th. So if you plan to attend One or more of these conferences would like to meet with us. Please reach out to your respective analyst or conference contact to schedule a meeting. Thank you for joining today's call and we look forward to speaking with you soon. Speaker 100:33:15Have a nice day.Read morePowered by