Cohu (COHU) 27 Oct 222022 Q3 Earnings call transcript

Good day, and thank you for standing by. Welcome to the Cohu, Inc.

Third Quarter 2022 Financial Results Conference Call. [Operator Instructions] 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, Chief Financial Officer. ahead. go Please

Muller. welcome third and outlook. conference to CEO, call joined Good XXXX to results Cohu's Luis and President quarter by XXXX and discuss today afternoon, our our fourth I'm quarter

may If you need Relations. by from copy of or website cohu.com Cohu access release, at our our contacting it earnings a you Investor

be the call available this accessed on be also slide a may of page same presentation There's the Replays website via in Investor in after that call concludes. section. conjunction will with today's call Relations Cohu's the

safe the to harbor. Now

review During even current by that which, today's Cohu's filings call, filed we the we statements most will business. information We statements make but and and Form forward-looking assessed Form its you forward-looking statements XX-K presentation nature, slide expectations the changes. reflecting section with as Cohu's earnings are management's have the encourage release well and current recently the is concerning based subject to the on These SEC including rapid future to as of abrupt XX-Q.

only comments this XX, assumes Cohu call. and occurring update today, for obligation of to Our XXXX, no these after October statements as speak developments

call, earnings to GAAP measures. non-GAAP discuss will refer to for Please measures. our Finally, certain the this release during presentation we slide comparable and financial reconciliations most

to call I'd Cohu's over the CEO. turn Luis? Now President like to Luis and Muller,

and financial $XXX.X differentiated benefited non-GAAP and XX.X% our joining strong and guidance. Cohu products model target quarter us. of the of gross of afternoon, revenue of reported business the from quarter. margin progress for continues Good in thanks great everyone. and towards recurring at million Non-GAAP $X.XX, midpoint X-year sale Hello, with to EPS exceeding another

the cell also was ongoing in consumer generation XX%, came end but quarter known flow moderating about reflecting markets, markets. in utilization XX.X% strong test down and softness the with the the cash and automotive in industrial cash third model. points X to conditions revenue Estimated approximately quarter-over-quarter Free in line delivering of mobility

and recurring quarters, XX% gross compound third Cohu's of revenue revenue produced and X.X% million quarter recurring represented approximately a profitable through X rate cycles. of the a stream non-GAAP industry $XXX delivering was significant X-year XX% of or last XX% has sales, business resilient margin. In annual growth at

revenue of Our IC and application new customers. of recurring test the made mainly from primarily kits introduction by device products is and up contactors semiconductor are benefit design-driven that our

months, manufacturing The XXX approximately XX XX of comes our across the or balance, service facilities recurring customers XX% revenue over last in from countries.

million automated volume XX,XXX service Cohu's management base. of Our system, order large assisted remote cloud-based handling and installed equipment a transactions on-site over per unit manages year to business through support a provides X parts and shipments

but contracts is such, more support than many XX% And budget, part in have of the necessary semiconductor operating This annual our rate we not a continued as ensure half an with production. capital of to XXXX. in engaged customers renewal investment customers' first of

We European This Moving our in optoelectronics software a on leading analytics quarter. customer DI-Core third the of semiconductor. initiative. added one supplier to another data is

analytics to and functionality with revenue few and expanding maintenance, Cohu's of offering, in $XX continued coming for the more. stream years, to we business to installed million penetration recurring analytics delivering uptime committed profitable We million expect equipment Data Cohu of and $XX the a software the represent growth greater DI-Core base. a help remain could fuel the years, output in DI-Core predictive broadening for contactor

technology Automotive to and margin. many driver for at the applications was Cohu's and systems of distribution the adopting Cohu's with primary over industrial T-Core tests. ADAS well System be in non-GAAP notably stronger EV across quarter quarter in Switching revenue third gross XX% continue balanced XX% represented to customers end at it automotive business, temperature segments. revenue the markets,

using processors a high-end these testing system wins design factor differentiated businesses determining had technology with our capturing new Cohu's U.S. to server we new advantage yield of greater we customers. thermal technology. orders acceptance T-Core as was headquarter and farms, to the quarter, demonstrate test securing large the During continue

new silicon is carbide die automation test proprietary winning equipment for devices. and opportunity inspection Cohu's business growing many of also the with integrating contactors. We're high-power nongood This customers, our across power

have over fourth customer have volume shipping a we the to We silicon the next strong and soon carbide in X systems with forecast to major manufacturer U.S. acceptance years. quarter, expect

and product a devices. applications introduced gaining new MEMS solution with noise in third We across signal and anticipate the precision traction Also automotive, automation mobility robotics. industrial market this high for inspection integrated quarter, ratio Cohu test, Essentially, to sensors.

As stated earlier, progress carbide, our transition gross and of Philippines development and to mitigate to MEMS, inspection for and silicon manufacturing costs shortages other contactor of margin component products ongoing the is steadily of lower expanding and differentiated test advanced with semiconductors. ADAS operation,

strategic price aligned secular strong our we at profitable positioned Cohu's initiatives. of plans, to average and third our solutions. growth and progress very applications. repurchased with growth continue of market to good during and against well Cohu's product periods inspection in to make our reaffirming revamping We're are prospects $XX.XX portfolio shares we remain belief remain an uncertainty, In about differentiated XXX,XXX executing the test quarter,

quarter share fourth Let provide and to quarter Jeff? on it our me third details now to turn guidance. over Jeff results

Thanks, Luis.

included measures, my the comments our earnings note disclosures, investor that release QX are in non-GAAP the page refer and accompanying GAAP the on and and results other about the Before reconciliations which including non-GAAP are I presentation, figures. located guidance, of to to non-GAAP website. through please the Information walk all QX financial Investor

slightly quarter. delivered midpoint was the of results. range. financial $XXX.X in and the strong higher guidance revenue to our turning million revenue than QX and profitability again Cohu Now

quarter, accounted business During for driven products. margin XX.X%, by higher the Gross Cohu's points customer more than the market QX basis differentiated X recurring automotive XX% sales. XXX about in of than third and was in guidance

basis approximately Headwinds from by our used increases our impacted products XXX cost points. on components for margin IC tester gross

into component availability with and manufacturers at challenges sourcing these improves. to mid-XXXX level expect directly we We a semiconductor reduced increase persist as

of for expenses were vacation. than $XX.X from lower million lower higher delays due guidance to at mainly QX utilization and labor costs hiring Operating

revenue, operating rate non-GAAP and guidance of $X.XX. income was of QX strong The a for tax as pretax was at XX.X%. XX.X% jurisdictions quarter quarter rate effective Germany. third higher due projected EBITDA than annual for higher income lower to was from EPS Third and rate such Non-GAAP was shift tax tax XX% non-GAAP to adjusted jurisdictions the

to strong profitability expand QX as and EBITDA target. In the summary, toward adjusted continue margin financial midterm gross was

sheet. about share other $X debt million. changes of quarter in $XXX repayment at and Moving strong additions was cash operations And at million. million, ended flow capital, capital million totaling and working of investments $XX.X to the repurchases of million, balance from net cash QX $XX.X the $XX.X

repurchase the strategy. reduction, our Overall, Cohu's a balance our strong to position expand program in to support opportunities markets investment and sheet maintains with and growth technology served debt share line portfolio

to between guiding to be revenue We're million moving QX outlook. $XXX QX and Now $XXX million. our

no volume of gross our approximately is but assessment better lower financial revenue. quarter-over-quarter points the Our margin export to mix. model, forecasted and due rules target QX little basis to the China impact new down have be on is will QX sales XX to they XX% than

approximately and $XX.X high-margin essentially expense for recurring expenses persist, to quarter-over-quarter. QX projecting be X.X%, by headwinds through cycles. consistent a QX component million, compound Operating With growth interest earlier be industry million projected are flow flat provides to approximately $X We're and to income of cash $X approximately offset approximately interest million. tester XX be annual X-year The business projecting business basis will in Cohu's IC we're QX the points. the rate mentioned I cost impact of

tax We is adjusted to XX%. tax rate forecast diluted rate the share prepared approximately expect for QX EBITDA is midpoint approximately be remarks. approximately QX the at be XX% The count of midpoint is QX to Full of XXXX guidance. non-GAAP our concludes guidance at shares. to XX projected That year million expected be XX%. The approximately non-GAAP

questions. Now we'll open the call to

Atif first Our question from Citi. line the from Instructions] comes of [Operator Malik

have job year? on been follow-up. nice your the that have I then margins. a Is question this on Luis, incremental? A this comments something in industrial throughout you I seeing And have moderation it a is demand. Or auto on gross

talked that happening, it expected something that's to and no, no, is. about Atif, we and see

market see year-end next Cohu's Just remind, a of remain the breaks part for and think a will portion to We stepping also seasonality. a revenue the normal growing customers of but frankly, we some year. quarter, automotive substantial

typically, As you do QX, know, QX, things the in slow industry. down

year. a continuing do At That's other of capacity for strong particularly automotive, some having you. the market, have power time, forecast mix silicon theme the carbide few that next of we bit A just same honest industrial. to a with not customers is adding sort the on electrification that and in be even,

a electrification major is So thing.

the a other customers for have are ADAS few at on also driving We hard time. automotive that

the an of continued I So in going think despite And moderation, in automotive the year normal at of do slightly year. like interesting here, market part the end even said automotive. be to remarks seasonality the kind up probably of next and we it's are growth the

down? of any any direct you move supply have if chain Great. gross recurring from And any X%, How or talk growth restrictions, year can you manufacturing of understand the restrictions. of China next steps the last you growth have in talked coming I job gross on I about your years, at X% on about And few then because the to with look to out utilization margins. should take kind into If potentially any don't business margins, that nice that Jeff, growth. we you view impact

to Yes. either Maybe in any address We chain of don't one. I'll really just have supply speak the first China.

a of on that. out essentially been completed move to we've China. path So We've

reason like stable. it stable of, speak revenue the it to a there Recurring it's you issues no much, we revenue, stream. and why It's know, as So promote Atif. more so

downturn, at what react performed see perhaps from of years systems business. look it it's to a the versus the systems typically we over to might X/X and we And

not revenue expecting a either for ultimately just big pretty year, up down consistent -- So next so or way, changes stream.

next Our of B. Riley Securities. line Michael Instructions] question from from Mani the [Operator comes

question This is Craig on for Mani is just Ellis. first seasonality. My on Michael

So a I typically period know business. weaker the for is XQ

seeing about kind should half year? in of and industrial, the first contracts auto sequential next into think growth how we're testers in mobility, the but also Given of we

is this Luis. Michael,

you're We So correct. typically quarters fourth we of seasonally the year. first see low and --

QX, I been expecting sort it at I'm are somewhere peg line, X% We X% from think, is we've with now. going down sequentially generally predict year hard this in of saying. around. to same what right to QX, to which between the

then the Generally We more to a speaking, do orders the half the year. have mobility consumer the in in delivery pickup mostly of way QX tests, books for of quarter earlier also markets a the mobility, we of already talked actually. PCs. year, on related sort forecasting QX, some because processor of as well of and second a we're ago, half market, the like are softer And

market server the of in the We for It's first much the half. second year. ramping stronger half do strong than have some forecast now the

call probably in strong I As half to question, said the as and in the next sorry, prior also continues stronger the grow. prior year, to that second be expect -- automotive industrial in

deck in continue as start the warranty. do which And pretty and slide systems more as of been think that on XX, we the it's last we million, the have about over XX and remarks, we put over shipped that, strong $XXX out months XX the that's run and a the business, growing is years, coming to we recurring last in months going

a next expectation paints QX for and So general hope the picture that for year.

helpful. Very

product margins For a half of as you year, we look out boost, into the gross giving is something first my mentioned next on which margins, that's differentiation. follow-up

to as year -- more you margins and seen do XX% get quarter levels of coming you first as for next we've the as think new this could ramping half target So online, we manufacturing, ease the the next the of and headwinds quarter, in-house rather? where relative these up have or XX% trend benefit products

Jeff. it's Michael, Yes,

in in So because margin well, margins of with that's we've job XX% good gross handler They've business. margin done delivered range. changes in trend but as a the susceptible will XX% less our it's expanding And gross to revenue mix. to

we into the talk about Contactor all expanding range. time, gross mid-XX% the margin,

then a have a so we're there, quite volatility with on we you shift. the And have that systems, you on if volume, manufacturing probably really light to mix outsource as improvement -- we of with respect reduces And bit. it sort will, when know, we

assembly We in-house. test final do and

a limited And -- infrastructure of have Most it or so variable. of in-house really percentage a it's -- cost. fixed is and high infrastructure

about the pretty resiliency. feeling good we're gross So margin

margin prior at for XX% we calls, said, Luis the looking lower year, range. gross the to XX.X% that half expecting if first gross to be in where we've today, year then is a about next as And margin still probably As about for talked full are something in I'm similar full year.

the from [Operator next question of Mertens Our line comes Instructions] from Robert Cowen.

Krish on Robert is Sankar. Mertens This for

some through place on take of And First, just just end maybe business? could you with the of the along through of and some the the controls into year. year cost in that, next the progress contactor in-sourcing me

not operating control cost expenses margin, well. just as Overall is gross but

Okay. are on touched respect Yes. the gross the aware of progress Well, a We've reducing lot months that. of costs. I product made with margin you I probably just think XX story. last over to

to in with that to would U.S. into pulling work Also we outsourced in the have Philippines Europe the contactors. respect and for suppliers

improved things. And that in X It's We've so the manufacturing has utilization efficiencies. done increased there.

driven And margin gross it's costs down expanded for so overall, contactors.

of we couple prices half the of so last year, full We last handler quarters. also increased in second here had effect

a delays. What we into soft typically with to So then, freeze hiring. should operating roll the in period, hiring expense mentioned would we we do, we respect quarter,

temporary encourage We eliminate would We utilization reduce personnel. would of vacation. We travel. would

we normal the run a spot. that have of into when we levers Sort soft

OpEx And $XX.X forecasting quarter. over to soft I back so which periods, been is over to down million, we're $XX million about over some quarter. be a last If we've look flat time,

could down those back necessary. to get levels have no doubt I So if we

the add Rob, a little manufacturing. bit contactor going more in-house on just to

of think shy targeting XX%, all XX% we're XX%, the in-house too. in to you end asked be XX% we've been of what and the We to to year. I in that, line right just in operation about in saying Philippines along of about QX, our by did QX, is which get with XX% manufacturing about

next the line Your Tyler from question of Craig-Hallum. comes from Instructions] Burmeister [Operator

Could hear This is you Can me? Schwab. you me? Christian hear actually

yes, we Christian, can.

Okay. Great.

that. about Sorry

As me. with you know, Tyler works

have just we So questions. a few quick

'XX, to the or looking of from the expecting are not into we you're a period, On your we're growth when some calendar change difference? you the -- guys rate at meaningfully you utilization through going are and softer utilization expect tests do material going given where areas that

about this QX. the is at IDMs. like Luis. OSATs Christian, XX% of Yes, at stronger at utilization weaker and I is is end said, It

Now seasonally first the period what fourth slow to and Yes, expect forward? going the in quarter.

a will to couple to that's XX%. to venture XX% about say hundred with at quarter say, to but from now. would about be just I guess you, could this another a basis Hard here, honest it drop hover of points utilization that

Okay.

some products isn't to in the the out that So don't case, the things case that of we testing being your it the appear you be think there. of that -- overcapacity there see say? fair despite Is there significant doesn't marketplace, to

as analog end I to around think know, that's fair say, is industrial. particularly on exposure around our and then market mostly And you and ICs test. exposure biggest automotive

I faring think well. pretty that's

have broad And users. very distribution analog of a ICs end-market

a high-end you're a processor it a small any really So or node specific that. specific pegging customer or manufacturing for not of to

serve. distribution It's a of we very, market semiconductors broad that very

careful more equipment our to yes, be much test wafer just careful So tie correlation be don't to dynamic. I growing not would I the caution and been be wouldn't so should -- has to with has expect That market major different too a tied issue it fab spending. a end demand. And in which I area, everybody

substantial on annual just time greater out, Right. give this can Right. wins with this area? over customer? lastly, this the a could for new something run new expansion then us And -- the you be an server business it some Calling that existing some a Is you? CPU rate customer? is in Is color

there business existing some doing space. it's existing customer over years. is but not business realistically, It who the many on hard to we've Yes. customers really decade. done been in It's level, is substantial last for the new an too an to -- customer. get We've But

have products. technology T-Core expand, tied this we're new qualified much thermal we here, opportunity really very to seeing It's And that have. an to

core differentiated. less As it's very thermal you times, less them It IPs issues, X issues, know, helps achieve yields. the higher of our in company. test It's power faster

for QX relative in And our basis. been last XX% year. it Revenue if quarter-to-quarter QX look over grew QX XX% growing computing to at business, actually you systems a of and computing on has computing

levels. been companies increasing getting as have existing customer are are an few largely, the revenue They their don't a last new smaller chips to quarters. customers outside. a own is we've growth tied These been server revenue business But now the them well it's that couple ride. operations at manufactured that are So nice and There themselves. over of designing

[Operator Instructions] Our of next Hans DADCo. question comes the from line Chung from

This behalf of on is Linda Hans.

heading how that love So we thinking would And I maybe guess to given how into first is question, XXXX, my correlate the macro XXXX on environment, hear with should unit semi in that you're about system I all business? going growth?

Luis. is this Linda,

question. some I'll slower do made back a and just that. So to comments fourth seasonally prior first We maybe quarter. see I on go

we're not of to QX expecting year. soft So start surprising the be a

would I venture fact, for a of say In the start year. be soft first half a bit will to probably

With of in and basis year we automotive growth next and the consistent growth sort auto overall industrial for with few maybe hundred for in and a strong have that points continued a market the said, the of do market, forecast industrial. the consistent -- expectations in TAM here

orders of mobility have already is server steep in the ramp second year. books second do have the quite a the next for We and in third forecast, in do We half quarter. which

device incremental deadlines with in applications that in again, for We mobility program business development support, QX. are doing certain starting test

our shipments well, as million So last has which and should roll I guess touched and periods. business, I -- of been out XX% and XX%, growing $XXX on if XX%, as you our basis, off recent about put of growing to together, a it more of on start all XX-month at -- recurring well, I think, continue warranty

It's a But test the estimate expect venture to going maybe mid-single you down too for almost year. the year the early to to quarter that a of do it that market realistically call. I'm So all about and next speaking, what market inspection year? early, could start be for a make next digit you softer little put maybe together, for because

very helpful. That's

And wondering, are if in the third especially to help think what your on of seeing missed mitigate your so a was to you company, issues view, lot I remarks, and the softening don't in are your in extent this companies chain quarter, do supply know might I what chain having improvements. on demand And bottlenecks, I impact supply supply but issues? maybe

what But maybe on now been can chain. working source the can comment we around quarters Jeff, go has direct that right, it you're we as to on P&L. improving. And I Frankly, and Yes, on some well on headwinds the expect actions add for of suppliers material. X supply and certain have with it

is So There it the that a improving. was in quarter. headwind is a still situation third

to smaller We a fourth expect maybe Jeff put much it the in on remain can headwind although some numbers that. that's and quarter,

here we can there's challenge That wafers. there. should to of is plan that with the the do XXXX. has at be able a When That's our look when chain the limits ship availability generally But it supply and we eliminate products to plan. middle of by customers, also we

customers some and in acquisition first some more carbide silicon of fabs half of fabs, as of companies and launching wafers year. next you're new them with have having new and Our are RFAB X automotive Lehi to get starting TI now the aware, the the

expansion Italy of in about of the the year. fabs with half capacity some coming online talking in second Others

wafer customers chain on the abate expect this middle by behind well hopefully issues so to that and for think, true here side can our I supply we us next of year, general, in we for So us. get as

for we So it products. a relates respect impact, to tester that use to our the higher on QX cost ICs with

than thereof, in and [Audio having loosening lack we're our customers. just a in availability semiconductor points, just impact those working companies, a basis so standard an Gap] But is QX. had ICs. of reduced we've XXX thankfully, of impact and we to directly had see with many pay the to And pay are due We which cost QX for And because availability higher or to much

forecasted points the basis in is impact XX QX. it's So

year Now quarter. this well, basis for as of next XX than QX and but each likely less will dribble QX into points that's

products, us color times give lastly, the some you could lead testers, on handlers your contactors? different also and And for

We time. there weeks where are said, some see, little weeks. approximately let's it are those Sure, on handlers XX can right? about XX -- average, we take XX, I stands. longer. And Linda. weeks. are like mean running and Testers, I a ship products approximately But XX Contactors, that configurations faster that's lead will about

of next Instructions] question from [Operator comes Duley line David Securities. the from Our Steelhead

if more you Luis, you great. opportunity opportunity time, sort bit a a that in that of that might could what is over be be something sorry, mentioned just elaborate which would silicon carbide about product QX. on little and I'm

and -- David. customer. inspection a products. is obviously, interface Yes. have the multiunit that customer, do test it tell Well, already from I contactor we essentially you automation, can't for order and but It's metrology

maybe So Being customer. in from high it got acceptances X the very the application. cuts a pretty fourth decent quarter carbide, broadly. forecast years And silicon be that we fourth there's particular next We'll obviously, the across shipping products not, maybe, well. voltage the quite as quarter, in for

They are capital ramping expenditures.

I And enjoying that's be of significant side hope moment. that quite They on back-end from I essentially knowledge. And front-end that at yield test the customer. bottleneck public to portion think bit spent have the recently. think a they're and CapEx a we

resolve help that. So to hoping we're

there segment the customers elaborate come? conference I first carbide market? power on just And silicon more before. this big Or you opportunity in don't view to overall should have of or Excellent. on we the mentioning -- how that calls Or -- not opportunity? this have recall are you you kind Is just of could

the not ones only actually, David. They're Yes.

-- now have X customer X and business in U.S., had in I the this the in predominantly -- with other a but that was before, large this essentially talking already customers, European Italy, have we're X about one Europe the Germany, some X space. some European customers, elaborated We in business we but the in that in space new

But It's it's up older into momentum. from revenue it's starting carbide So over in to MOSFET ramping not quarter. our years. small technology to forecast $XXX still a migrating for next million relatively third over relative time, of a new. number and over been sort few it the It's part is of key pick silicon the

turn conference to like to Officer, closing for back Jones, the Chief now would over Jeff Financial I remarks.

And mention Chicago conferences the Stifel attending to we Virtual like over few on sign Growth next we'll Growth XX, the November Midwest before XXXX. you. off, in XX on and be Conference including the Thank investor the I'd January months, Needham Conference

If you'd these Cohu. day. like We attend either with out to a soon. contacts of with your and reach Have respective please conference meeting arrange you good events, to banking to look forward to speaking a

conference Thank you for concludes today's participating. This call.

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