Cohu, Inc.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Kohu, Inc.'s first quarter 2019 financial results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require operator assistance during today's conference, please press star, then 1 on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's presentation,

Mr. Rich Eugenian, Vice President of Investor Relations Sir, please begin Thank you, Howard Good afternoon and welcome to our conference call to discuss Kohu's first quarter fiscal year 2019 results in second quarter outlook 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 Kohu's website and 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. For your information, Kohu will be participating in the following investor conferences. The B. Riley FBR Annual Investor Conference on May 22nd in Los Angeles, California. Collins 47th Annual TMT Conference on May 30th in New York, and Baird's 2019 Global Consumer Technology and Services Conference on June 6th in New York. 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 Securities 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, May 6, 2019, and COHU assumes no obligation to update these statements as a result of developments occurring after this call. Finally, during the call today, we will also discuss certain non-GAAP financial measures. Please refer to our earnings release and slide presentation for reconciliation to the most comparable GAAP measures. Now, I'd like to turn the call over to Luis Muller, who's president and CEO. Luis? Thanks, Rich.

And good afternoon, everyone, and thanks for joining us. On today's call, I'll discuss the current business environment and share an update on the long-term vision for the company and near-term integration synergies. Test cell utilization has bottomed at about 80%, but more importantly, OSAT utilization has started to rise again, reflecting strengthening conditions in mobility. At the same time, several IDMs linked to automotive and industrial markets recorded a slight decline in test cell utilization in the first quarter. At 80%, we expect that customers will look to add capacity once they start to see their internal forecasts turn positive. Thank you very much. Additionally, we forecast new tester, handler, and contactor demand in the third and fourth quarter to support a global communications infrastructure project where co-used platforms have been qualified to test a new generation of semiconductors. The continuous strength in data center, cloud, and AIs reflected in our recurring revenues, as well as orders for PCB test equipment. Now, countering this strength, the consumer IoT, IOV, and optoelectronics are as well as the industrial markets lost momentum early this year. In the meantime, automotive that has been Cohue's largest market segment and a major contributor to our growth over the last three years had an increase in system bookings in the first quarter. While our customers forecast across these end markets are muted in the near term, the fundamentals remain strong for increasing vehicle electrification, growth in automotive ADAS, increasing industrial automation, and moreover, The deployment of 5G communications that will have a significant positive impact in the industry. Near term, much of the 5G related business will come from building out the infrastructure and communications network over the next three years. We expect opportunities for test and inspection of 5G semiconductors going into mobile devices in 2020, and that should ramp into high volume starting in 2021. Using the deployment of the last standard as a reference, Thank you very much. and Kohu is planning to be at the forefront of this wave, delivering the entire solution to customers, enabling time to yield and volume production. We're not just a handler, tester, contactor company. We are actually uniquely positioned to deliver best-in-class tasks and inspection solutions to our customers' challenges. Now, having defined and communicated the Consolidated Handler Roadmap, We're now investing in next-generation platforms that will deliver improved customer value when utilized in conjunction with our testers and interface products and new generation vision capabilities for package inspection. We're working with multiple customers on refining product specifications and believe these have the potential to add $15 to $30 million a year of incremental revenue over the midterm that we define as the next three to five years. In parallel, we're focused on completing the integration of Cohue and Xera contactor manufacturing capabilities over the next six to nine months, which should deliver meaningful improvement in consolidated gross margins starting in 2020. This business is obviously not immune to the weakness in the automotive and industrial markets, but the impact of an industry-wide slowdown on contactor revenue is typically Thank you very much. We have the opportunity to grow our contactor business to upwards of $300 million over the long term. The contactor business accounted for 19% of total sales in the first quarter and is a significant contributor to what we refer to as recurring revenue. Our semiconductor test business represents approximately 20% to 25% of consolidated revenue. We're the leader in RF front-end module test, and expect to derive substantial benefit from 5G deployment over the next few years. We're in the process of finalizing strategies to grow certain niche market positions into mainstream businesses where we can become successful as a platform solution to our customers. We expect a successful execution of these plans can generate 50 to 100 million a year of incremental revenue over the midterm. Our PCB test business had a strong quarter Thank you very much. which will deliver 10 million a year in cost synergies. Combining this with the already achieved 9 million announced on the day of the transaction closed, announced plans to consolidate and close operations in California and Malaysia later this year, and going to a direct sales and support model for all semiconductor test products in China and Taiwan, we are now projecting to achieve $40 million in annual run rate cost synergies by the end of 2019. Thank you very much. I'm very optimistic about our future because I believe that Cohue is only a couple of quarters away from achieving a substantial transformation of the P&L that will drive increased profitability and cash flow generation. Furthermore, we have already aligned products and roadmaps to position Cohue to benefit from significant trends in 5G, in secular expansion, in automotive and industrial markets. I would like now to turn the call over to Jeff to review our first quarter results, explain our new business model, and provide second quarter guidance.