Cohu, Inc.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Kohl's Incorporated Fourth Quarter 2018 Financial Results Conference. At this time, all participants are in a listen-only mode. If anyone needs assistance during the conference, just press star and zero for an operator. Later, we will have a question-and-answer session. And as a reminder, this conference is being recorded. Now it's my pleasure to turn the call to Rich Yeganian, Vice President of IR.

Thank you, Carmen. Good afternoon and welcome to our conference call to discuss Kohu's fourth quarter and fiscal year 2018 results and first quarter outlook for 2019. I'm joined today by our President and CEO, Luis Muller, and our Vice President of Finance and CFO, Jeff Jones. If you need a copy of our earnings release, you may access it from our website at www.kohu.com or by contacting Kohu Investor Relations. There is also a slide presentation accompanying today's call that may be accessed through the webcast link on COHU's website. It is also posted as a PDF 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 the course of this conference call, we will make forward-looking statements reflecting management's current expectations concerning the company's future business. These statements are based on current information that we've assessed. but which by its nature is subject to rapid and even abrupt changes. We encourage you to review the forward-looking statement section of the slide presentation and the earnings release, as well as COHU's filings with the Security and Exchange Commission, including the most recently filed Form 10-K, Form 10-Q, and registration statement on Form S-4. Our comments speak only as of today, March 12th, 2019, and COHU assumes no obligation to update these statements as a result of developments Thank you very much.

I will provide commentary on the fourth quarter in fiscal year 2018 results. I'll also discuss the current business environment, provide an update on the integration of XERA, and share our thoughts on the industry prospects for 2019. Cohue's fourth quarter sales of $170.6 million were within guidance for the first reported period reflecting the combination of Cohue and XERA. following the close of the acquisition on October 1st, 2018. Non-GAAP earnings per share of 24 cents was better than expected and reflects the strength of the business model. Although the mobility market has weakened since early last fall, there was one positive exception in the fourth quarter as a customer drove volume demand for our testers, handlers, and contactors to support production plans for a new device launch in 2019. Holding up relatively well were the automotive and data center, cloud, and AI semiconductor markets. We had a particularly strong quarter for analog IC test with customers driving demand for our testers, gravity handlers, and power analog contactors. While not all customers serving this market continue to see a strong demand into the new year, several are maintaining a bullish outlook. We also had several design wins in the quarter. Our tri-temperature pick-and-place handlers were qualified at three new customers and we capture a new win in the European automotive semiconductor market with our turret inspection platform. We continue to see demand for our testers used in engineering for 5G applications which are expected to ramp in high volume later this year We also had multiple design wins with the X-Wave contactor at a leading mobility customer testing 5G antenna modules, power amplifiers, and transceivers. Several early adopters of this contactor have begun ramping volume manufacturing for automotive radar applications. Despite weaker market conditions, Cohus still delivered growth year over year, including the contribution from XTERRA Annual sales reached $451.8 million and non-GAAP earnings per share of $1.49. We're not immune to the same market weakness affecting many semiconductor and semiconductor equipment companies. This includes the impact of continued softness in the mobility and IoT markets that started last fall and persist into the beginning of this year. Uncertainty around the U.S. and China Thank you very much. We're only now emerging from what is typically the seasonally weak period for the industry. At this point, we have not seen any significant change in tone or sentiment from our customers. There are some bright spots, but overall customers see market weakness continuing into Q2 while expecting a return to growth as we approach the middle of the year, resulting in a stronger second half. This view is consistent with several customer-specific projects we have been working on that are expected to ramp in high volume later this year. Our latest data point from a December survey showed equipment utilization at approximately 81%, which is down three points quarter over quarter. This is consistent with what we could expect given the current market conditions. As for the integration of XTERRA, We announced a plan in late November to rationalize our global handler and contactor manufacturing operations, resulting in the closing of facilities in Penang, Malaysia, and Fontana, California, by the end of this year. These facility closings are expected to eliminate about 280 positions and reduce costs by approximately an $8 million annual run rate by the end of 2019. We have also communicated to customers plans to consolidate certain handler product lines that are expected to lead to additional reductions in operating expenses and improvements to gross margin in the second half of 2019. More recently, we have agreed to an early termination with our distributor for Xera products in China and Taiwan, effectively going direct in these regions starting tomorrow, March 13, instead of the previously announced date in September 2019. This is expected to help accelerate profitability of business generated in these regions and increases ability into new business opportunities. You may recall we committed to $20 million of annual run rate cost synergies within the first two years of the acquisition. And these actions put us about a year ahead of schedule. Turning to 2019, We forecast the non-memory market for semiconductor test and inspection to contract approximately 10% to 15% year-over-year. We estimate the non-memory handler market, our largest segment, to be about $600 to $650 million in 2019, and the SOC tester market likely to be in the range of $2.1 to $2.3 billion. We also expect the inspection market to decline approximately 10% and model the contactor and PCB test markets to be about flat year over year, with 5G infrastructure and other millimeter wave applications offsetting some decline in traditional product segments. All of these estimates assume our customers' expectation of a mid-year recovery takes shape. Our work on 5G solutions is starting to turn into meaningful business. Our PCB test is leading the way with new high-accuracy methods to test the quality of back drills, a critical concern for high-frequency signal transmission. Our millimeter-wave contactors continue to win new opportunities while existing customers are starting to ramp in volume production. There's optimism that investments in 5G-related infrastructure will accelerate into the second half of the year. And if so, that should also translate into initial volume orders for testers and handlers. Overall, we expect the semiconductor market will continue to grow over the midterm, not only due to 5G, but also from the continued expansion of semiconductor content in automobiles and industrial equipment, the proliferation of sensors in IoT and IOV applications, the adoption of Industry 4.0, and the general growth in data creation, storage, and processing. Now, I'd like to turn it over to Jeff to review our fourth quarter results and provide first quarter guidance.