Cohu, Inc.

Thank you for standing by and welcome to the Coho, Inc., Second Quarter 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I'd now like to hand the conference over to your speaker today, Mr. Jeff Jones. Thank you. Please go ahead, sir.

Thank you, and good morning, and welcome to our conference call to discuss Cohue's second quarter results and third quarter 2020 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 cohue.com or by contacting Cohue Investor Relations. It's 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. Now to the safe harbor. During today's call, we'll make forward-looking statements reflecting management's current expectations concerning COHU's future business. These statements are based on future 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 statement section of the slide presentation and the earnings release as well as CoHUE's filings with the SEC, including the most recently filed Form 10-K and Form 10-Q. Our comments speak only as of today, July 30, 2020, and CoHUE 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, Cohuse President and CEO. Luis?

Thanks, Jeff. Hello, everyone, and thanks for joining us. Today, I'll discuss some of our accomplishments in the second quarter and provide our perspective for the rest of the year. Jeff will later discuss financial results and provide guidance for the third quarter. Sales in the second quarter were approximately $144 million and a little better than the midpoint of guidance with our manufacturing facilities back to full operation after the COVID-19 disruption that started in mid-March. Thanks to our operations team, We incurred lower outsourcing costs than originally anticipated and delivered a higher gross margin and profitability in Q2. Orders were split 52% recurring and 48% systems, and mobility once again represented close to one-third of our system bookings. We saw strong RF tester demand for connectivity in the second quarter, with one of our major customers committing their flagship 5G RF front NICs to our platform. We capture a new opportunity testing transceivers, further expanding our product penetration in the RF segment. There was also increased demand for IoT connectivity, testing devices using Bluetooth, ZigBee, and newer Wi-Fi 6 technologies. Cohuse RF instruments delivered leading throughput and performance and ultimately low cost of test for next generation RF semiconductor devices. This is a segment we have been traditionally strong, and we are releasing now our third-generation solution at the perfect time to catch a wave of growth driven by 5G, Wi-Fi 6, and RF IoT. Other customers are using our systems for testing low-noise amplifiers, RF switches, and filters, and we made very good progress supporting production ramps of several OSATs in Taiwan testing devices for smartphones launching in the coming months. In the non-RF segment, we had several design wins at major Asia phablets companies testing a variety of mobility applications, including display drivers, power management, baseband connectivity, and others. At the same time, our handler business captured multiple design wins in the quarter. We got an order from a leading European sensor manufacturer for handling wafer-level chip-scale MEMS devices deployed in smartphones and vehicles. This is the first application of our WLCSP handling solution for sensor test. Our strip handler was selected by two semiconductor manufacturers for testing high performance analog and sensors used in automotive and industrial applications. GoU's vision inspection system has been gaining a lot of traction and attention at various customers with a design win in the second quarter and multiple qualifications starting in the third quarter. Our NEON inspection platform lowers over-rejection rates for wafer-level chip-scale packages, effectively increasing yield and maximizing value to our customers. This system delivers leading throughput and flexibility to inspect all package sides with best-in-class accuracy and add-on true infrared vision to see below the surface. It really takes inspection quality to the next level and customers are starting to recognize the significance of protecting their brand value with our neon inspection platform. In other news, we identified an application for Cohue's active thermal technology testing high performance memory. The sale consists of engineering lab thermal handlers for a US headquarter customer. Cohue equipment continues to be used for medical applications where quality is obviously of prime importance. Although volumes are not as high as in other segments, this is an area where Cohue excels, and our team is proud to contribute to the fight against COVID-19. On the contactor front, we know attachment rates will fluctuate quarter over quarter, and in Q2, it was at 44%, with increasing alignment of contactor to handler sales in several of the design wins previously mentioned. Looking back at order distribution by market segment, Mobility represented 15% of total in about one-third of systems. Second quarter orders for PCB-DAS systems were at record highs in 10% of total, driven by expansion in telecommunications, computing, and network infrastructure. For the remaining segments, system orders accounted for 23% of total, and despite lower in semiconductor computing, recurring business remained healthy in the second quarter. Turning to third quarter, our guidance reflects expected strong RF and PCB tester shipments, a new customer attraction for handlers and inspection equipment. We continue to forecast a disproportionately stronger mobility segment through the end of this year, with a slow recovery in automotive, initially driven by improved vehicle sales in China and likely accelerating globally into 2021. With average test cellularization at 78% at the end of June, stronger at mobility customers, and weaker in the automotive segment, we expect sales to remain relatively flat within plus or minus 5% quarter over quarter through the end of this year. More importantly, we're actively working on multiple cross-selling opportunities that combine our testers, handlers, and contactors. This differentiation is becoming important in RF tests where high frequency signal fidelity to the semiconductor device is increasingly difficult. I hope to share more details in the next couple quarters as we demonstrate our value proposition to various customers. Now I would like to turn it over to Jeff to review our second quarter results and provide third quarter guidance.