Cohu, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Cohue Incorporated Fourth Quarter and Fiscal Year 2020 Financial Results Conference Call. At this time, all participant lines are in listen-only mode, so if you require operator assistance, please press star, then zero. After the presentation, there will be a question and answer session. To ask a question during the session, you will need to press star, then one. Please be advised that today's conference may be recorded. I'd now like to hand the conference over to your host today, Mr. Jeff Jones, Chief Financial Officer.

Good morning and welcome to our conference call to discuss Cohue's fourth quarter 2020 results and first quarter 2021 outlook. I'm joined today by our President and CEO, Luis Mueller. If you need a copy of our earnings release, you may access it from our website at cohue.com or by contacting cohueinvestorrelations.com. There's also a slide presentation in conjunction with today's call that may be accessed on CoHUE'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 CoHUE'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 statement 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, February 11, 2021, 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 Mueller, Cohue's president and CEO. Luis?

Thanks, Jeff. Good early morning, everyone, and thanks for joining us. Today, I will discuss some of the dynamics from fourth quarter, explain what's driving your growth, Talk about our expectations for first half 2021 and why we believe Cohue is uniquely positioned now to capitalize on a strong semiconductor market. Record fourth quarter revenue of $202.4 million was up 34% sequentially and exceeded our updated guidance with business conditions continuing to improve throughout the quarter. Despite COVID-19 challenges, we executed on our fifth consecutive year of revenue growth. a five-year CAGR of 18.7%. Cohue ended last year on a high note with all-time record orders and strong momentum that has carried into first quarter 2021. Our operations team and supply chain partners are executing on an unprecedented business ramp to meet customer needs. Fourth quarter orders were split 29% recurring and 71% systems, reflecting the sharp increase in tester and handler systems orders. Interface business orders increased 30% quarter-over-quarter, but given such strong system demand, the contactor attachment rate to handler sales was 19%. Orders improved sequentially across all semiconductor markets, with automotive increasing nearly 200% quarter-over-quarter. Estimated test cell utilization increased five points quarter-over-quarter to 86% at the end of December and explains some of the dynamics driving strong business momentum. Mobility continues to be a significant segment for Kohu as we enable the introduction of next-generation 5G smartphones deployed by all major U.S., Korean, and Chinese manufacturers. Our interface group had a key design win at a leading foundry in Taiwan and OSAT in Korea for testing millimeter wave RF devices. We're not only excited by demonstrating our capabilities in high frequency, but also for the success of our new probe head solution against well-established competitors in wafer test. The new C-Racer interface platform will be used initially in pre-production in product qualifications. We expect volume orders starting late this year or early next. Our ATE business experiences steep ramp driven by the new Red Dragon instrumentation suite for testing RF front-end ICs and Wi-Fi 6 devices. Along with RF, we had good traction in display driver, power management, and application processor tests for smartphones, which marks an expansion of our addressable market. Tester orders doubled year over year. demonstrating the success of our new product portfolio in complementary value that the 2018 XERA acquisition brought to Cohue. Moving on to vision inspection, our NEON platform continued to capture new customers and applications in the fourth quarter. We estimate that we gained three to four points share last year, positioned Cohue as the second largest supplier of automated optical inspection systems for the backend semiconductor market. We've entered 2021 with significant momentum in this segment and are optimistic about business prospects as we continue to expand our portfolio solutions with greater vision accuracy, speed, and the deployment of artificial intelligence to improve inspection yield. Our sales teams have been incredibly busy securing key design wins in China and Taiwan with our testers, handlers, inspection equipment, and contactors further expanding our market penetration in the mobility segment. Kudos to our sales team and the great efforts of engineering in developing new capabilities in our products. Turning to the automotive segment, orders tripled quarter over quarter as semiconductor companies ramped to catch up to auto demand, marking a significant shift in business toward power electronics, battery management, and ADAS processors. It comes as no surprise that this new wave of growth in automotive coincides with all major auto manufacturers announcing the introduction of electric vehicles and new driver assist technologies. We estimate that about 20% of our automotive handler orders were for testing semiconductors for EVs. Driver assist, or ADAS, is also particularly interesting as it marks the confluence of extreme temperature testing with active thermal control making it a perfect storm of complex thermal management requirements. We like these challenging technical problems that ultimately impact yield, offering us an opportunity to address customer needs with our proprietary thermal technology. Approximately 5% of our automotive handler orders were for testing ADAS processors, and our forecast is increasing in the first half of 2021 as this technology starts to ramp in volume production. Orders in the industrial and consumer segments also improved quarter over quarter. Our gravity and pick-and-place handler businesses are once again ramping in support of testing high-power electronics using industrial and medical applications. We have ongoing handler qualifications for testing gaming processors, where we can optimize yield by actively managing thermal dissipation, along with testers for display driver and power management ICs. In the computing segment, orders practically doubled quarter over quarter. And in IoT, IOV, and optoelectronics, orders were up substantially, driven mainly by our success in testing new RF devices. Now looking ahead, we're encouraged by momentum across all CoHue's main market segments and by customer interest in our new products and integrated test cell solutions. We'll be guiding first quarter revenue and profitability up, and expect second quarter to be sequentially stronger. We're motivated to accelerate time to yield and productivity for our customers, being diligent about new product investments and incredibly focused on improving margin and profitability. So why is Cohue doing so well, and why is our outlook so positive? We have made substantial improvements to our product portfolio over the past two years that have positioned the company for continued growth over the midterm. The 5G deployment is accelerating, and analysts are now projecting greater than double year-over-year volume penetration of this technology in 2021. Task complexity is also increasing, leading to higher system ASPs and greater test intensity. Additionally, smartphone units are projected to grow again this year, further compounding the opportunity for selling RF, display driver, and power management IC testers, handlers, and contactors. But the Cohuse story is not limited to 5G. As mentioned earlier, we're capturing new customer opportunities in RF transceivers, Wi-Fi 6, general IoT, and even application processor tests, with some of these being new additions to our addressable market. Last year, we saw new U.S. export restrictions to Huawei. I believe everyone understands that smartphone demand is increasing. There has been a redistribution of business that translates into incremental orders for KOHU products from customers where we have greater share in new opportunities, particularly in China. There are significant positive trends in the automotive segment, starting with many auto companies suggesting a complete transition to EV technology in the coming decade, and significant government mandates to go carbon neutral in China, Europe, and the U.S., Another exciting trend is the rapid adoption of ADAS technologies in vehicles, which expands the use of processors, sensors, microcontrollers, displays, and RFICs. We believe our sales growth to the automotive segment will benefit about equally from IC content growth and a projected vehicle SAR in the mid-teens this year. With the successful integration of XERA now behind us, we held an analyst and investor conference early December describing a new target financial model in the path to 14% revenue CAGR to $940 million and 23% operating income over the midterm. This comes from enabling testing of new high-growth technologies in RF, battery management, and ADAS processors, and gaining traction in automated optical inspection. Now I'd like to turn it over to Jeff to provide details on fourth-quarter results and share first-quarter guidance.