Cohu, Inc. (NASDAQ:COHU) Q1 2024 Earnings Call Transcript

Cohu, Inc. (NASDAQ:COHU) Q1 2024 Earnings Call Transcript May 2, 2024

Cohu, Inc. misses on earnings expectations. Reported EPS is $-0.3105 EPS, expectations were $-0.01. COHU isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day and thank you for standing by. Welcome to Cohu’s First Quarter 2024 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 Jeff Jones, Chief Financial Officer. Please go ahead.

Jeff Jones: Good afternoon and welcome to our conference call to discuss Cohu’s first quarter 2024 results and second quarter outlook. I am 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 maybe 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. Now 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-K and Form 10-Q. Our comments speak only as of today, May 2, 2024 and Cohu assumes no obligation to update these statements for developments occurring after this call. Finally, 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 Muller, Cohu’s President and CEO. Luis?

Luis Muller: Good afternoon. First quarter results were in line or better than guidance with non-GAAP gross margin of 46% and EPS of $0.01 as we navigate through the eye of the storm in this semiconductor cycle. We estimated test cell utilization at the end of first quarter, up 1 point to 72%. We expect business conditions to remain more or less at this level for another quarter or two before we start seeing improvement. Test cell utilization at IDMs was down 1 point to 74% with computing, industrial and automotive demand down sequentially. OSAT utilization improved slightly to 70%, although still well below the trigger threshold for capacity buys at approximately 80%. There are a couple of bright spots in the quarter. A leading U.S. fabless semiconductor manufacturer has selected our Sense+ system with MicroSense for testing their next-generation, high-fidelity microphones.

This MicroSense microphone tester is Cohu’s latest product in our MEMS solution portfolio. And when combined with the Sense+ automation platform, delivers state-of-the-art testing of up to 96 devices in parallel. According to industry analysts, the MEMS microphone sensor market is projected to grow 14.5% annually over the next 7 years, reaching an estimated revenue of $6.2 billion. We estimate a buy rate of approximately 1% for integrated test in vision inspection systems, making this an attractive market opportunity over the mid-term. In the optoelectronics market, we saw increased demand for our testers, handlers and interface products for automotive LED production from a European customer. A leading automotive ADAS customer has selected Cohu’s high-performance RF contactors for testing automotive radar sensors.

Finally, we completed the qualification of Diamondx for final test of display driver ICs at a large customer in Korea, opening the door for the next stage of revenue growth in this important market that we started developing a few years ago. This has been the fundamental strategy for a tester business to add a market segment in which Cohu can differentiate and diversify revenue. As the industry moves through its cycle, it remains critical to Cohu’s strategy to leverage our profitable recurring business, which provides for a more stable revenue stream of mostly consumable products. Recurring was approximately 66% of revenue in the first quarter, serving an installed base of about 24,700 systems worldwide. Cohu’s recurring business delivered revenue of $304 million over the last 12 months with a 3-year compound growth rate of 2.7%.

Finally, we published our 2023 Sustainability Report with improvements in many areas. Renewable source energy usage increased to 32%. We completed construction of a new modern facility in the Philippines with rainwater harvesting system and are investing solar energy installations at our factories in Malaysia and the Philippines. Cohu has also recently committed to engage with the science-based targets initiative, or SBTI, with the goal to develop near-term science-based emissions reduction targets. As the industry grows through this cycle, we remain focused on managing cash flow while continuing to execute critical new product developments and customer design win initiatives to enable growth when customers resume test capacity buys. Let me now turn it over to Jeff to provide further details on first quarter results and second quarter 2024 guidance.

Jeff?

Jeff Jones: Thanks, Luis. Before I walk through the Q1 results and Q2 guidance, please note that my comments that follow, I’ll refer to non-GAAP figures. Information about the non-GAAP financial measures, including the GAAP to non-GAAP reconciliations 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 Q1 financial results. Cohu delivered revenue and profitability above the midpoint of our guidance. Q1 revenue was $107.6 million. Recurring revenue, which is largely consumable-driven and more stable than systems revenue, represented 66% of total revenue in Q1. During the first quarter, one customer in the automotive market accounted for more than 10% of sales.

Q1 gross margin was 46%, about 100 basis points higher than guidance driven by better-than-forecasted margins on Cohu’s resilient recurring business. Operating expenses for Q1 were lower than guidance at $50.2 million driven by lower labor and labor-related costs. First quarter non-GAAP operating income was approximately breakeven and adjusted EBITDA was 2.6%. Interest income, net of interest expense, loss on extinguishment of debt and a foreign currency loss of approximately $0.5 million was $1.6 million. Q1 pretax income consists of foreign profits combined with a loss in the U.S. The Q1 tax provision reflects tax on foreign profits, but no tax benefit from the U.S. loss, due to our valuation allowance against deferred tax assets. Additionally, the non-GAAP tax provision in Q1 of $300,000 is net of a one-time 2.7 million credit for the reversal of reserves for uncertain tax positions in foreign jurisdictions.

Non-GAAP EPS for the first quarter was $0.01. Moving to the balance sheet. Cash and investments decreased by $64 million during Q1 to $271 million due to variable comp and payroll taxes totaling approximately $20 million plus $29 million used to pay off the remaining term loan B balance and approximately $11 million to repurchase 334,000 shares of Cohu common stock. CapEx in Q1 was $3.3 million with approximately $2 million related to our factories in the Philippines and Malaysia, supporting operations for our interface and automation businesses. Overall, Cohu continues to maintain a strong balance sheet to support investment opportunities to expand our served markets and technology portfolio in line with our growth strategy and return capital to shareholders through our share repurchase program.

Now moving to our Q2 outlook. We’re guiding Q2 revenue to be in the range of $105 million, plus or minus $6 million, reflecting continued weakness across end markets and low test cell utilization at customers’ production facilities. Q2 gross margin is forecasted to be approximately 45%, better than the financial target model at this level of revenue due in large 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. We expect gross margin to increase again when our revenue recovers with a broader semiconductor device market recovery and with better absorption of our factories infrastructure costs. Operating expenses for Q2 are projected to decrease about $1.5 million quarter-over-quarter to approximately $48.5 million due primarily to a reduction in force in optimizations as we completed certain product developments.

As I noted during our last earnings call, we have taken action to reduce operating expenses without sacrificing critical new product investments while navigating through the trough of this cycle. As a result, we are now modeling operating expenses to average approximately $48 million per quarter in the second half of this year. We’re projecting Q2 interest income net of interest expense and foreign currency impacts to be approximately $2 million at current interest rates. We expect Q2 adjusted EBITDA to be approximately 2%. The Q2 non-GAAP tax provision is expected to be approximately $1.6 million because of tax on foreign profits without benefit from the U.S. loss. Additionally, the $2.7 million credit recorded in Q1 is not expected to repeat in Q2.

Until the markets recover, we expect a similar tax provision profile as we navigate through this cycle. The basic share count for Q2 is expected to be approximately 47 million shares. That concludes our prepared remarks. And now we’ll open the call to questions.

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