Cohu, Inc.

Good day and thank you for standing by. Welcome to CoHUE's Incorporated Second Quarter 2021 Financial Results Conference Call. At this time, all participants are in listen-only mode. 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 1 on your telephone keypad. Please be advised that today's conference may be recorded. If you require operator assistance, please press star then 0. I'd now like to hand the call over to your host today, Jeff Jones, Chief Financial Officer. Please go ahead.

Good morning and welcome to our conference call to discuss CoHUE's second quarter 2021 results and third 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 Cohue Investor Relations. 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 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 29, 2021, 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 Mueller, CoHUE's President and CEO. Luis? Luis?

Good morning, everyone, and thanks for joining us. Today, I'll review the highlights of our second quarter results, discuss the industry's supply chain situation, and describe Kohu's introduction of a new data analytics product that improves customers' test cell productivity. Second quarter revenue was a record $244.8 million and grew 70% year over year, exceeding the midpoint of our guidance, due to stronger-than-anticipated contactor and overall recurring revenues. With solid results year-to-date and strong forecasts, Cohue is also on track for record full-year revenue and profitability in 2021. We are benefiting from the ongoing 5G technology ramp in mobility, selling RF testers and turret handlers, Also robust automotive demand for our tri-temperature handlers and contactors, mainly for testing battery management systems and ADAS devices. Our contactor revenue increased 33% year-over-year, with significant design wins for testing new products from customers in the mobility and automotive segments. We made good progress improving contactor operational efficiencies and expanding manufacturing insourcing in the Philippines, all leading to 270 basis points gross margin improvement quarter over quarter in the contactor business that is key to our midterm strategic plan. Overall, gross margin in the second quarter was in line with guidance, reflecting a sharp increase in handler sales and higher supply chain costs. as discussed when we provide acute shoe guidance. We have been working to pass on these cost increases to our customers and have substantially completed the process that will take effect over the next few quarters. Estimated test sale utilization is 87%, which is down one point sequentially from the end of March. Utilization remained notably strong with automotive segment customers, primarily U.S. and European integrated device manufacturers, and down slightly at OSAPs in Asia. In the second quarter, recurring revenue was a gain 35% of total and 50% non-gap gross margin, with the balance being systems revenue broken down by end market segments and in aggregate 39% non-GAAP gross margin. As expected, automotive was strongest and captured 18% of total revenue, with mobility staying robust at 14% of total revenue. The consumer segment gained more strength than anticipated due to a significant economic rebound in the U.S. and China. In the second quarter, we completed the sale of Koh-Iu's PCB test business, for approximately $125 million gross cash proceeds. This business came with the Xera acquisition in 2018. It was a well-run, profitable business, but not a strategic fit for Kohu's growth plans and running below corporate gross margins. We feel this transaction was good for all parties, providing the PCB test business better leverage as part of Swedish Micronic, and allowing Kohyu to monetize a non-core business and accelerate debt repayment. In the second quarter, we continue to capture new customers with the Neon inspection system that is quickly becoming the go-to solution to ensure defect-free wafer-level chip-scale packages used predominantly by leading mobile manufacturers. We're extremely happy with the success of the Neon platform and the fast adoption of our new vision systems introduced mid-last year. We also had a design win and repeat order in early Q3 for an RF test cell solution to a Korean customer. This is an opportunity we have been developing since late last year that finally qualified and got into mainstream production for a leading mobile device manufacturer. This has been part of our plan to deploy complete test cells with handler, contactor, and tester for RF front-end IC applications. We also had very strong contribution in the quarter from our customers supporting the deployment of a low-orbit satellite network, as well as increased sales for testing Wi-Fi and Bluetooth RF devices. Q2 was clearly a strong automotive quarter with significant contribution from our handler businesses. Q2 is the leader in tri-temperature handling for the automotive industry, in great part because of temperature accuracy during tests that has become key to ensure quality of new generation battery management systems and ADAS processors. Testing ADAS processors is a perfect storm of thermal challenges. combining variable power dissipation with extreme temperature conditions and multi-site test parallelism. This is a challenge we can solve today by combining our T-Core thermotechnology and the matrix handler. We will continue to evolve our solutions as ADAS gains volume penetration in mid-market vehicles and the technology grows with greater computing power. We're also happy to see our automotive tester sales growing in the quarter. essentially doubling their revenue contribution to our tester business quarter over quarter. Switching topics to the supply chain, the industry is experiencing a unique dynamic. Customers are driving hard to increase semiconductor production, and at the same time, these are some of the gating items to produce the very equipment required to increase capacity. Shortages are not limited to semiconductors. We're having constraints from motors, sensors, bearings, and other suppliers that are key to manufacturer equipment, particularly handlers. Additionally, some Asian suppliers were forced to reduce operations and even shut down for a few days as governments are trying to curb rising COVID-19 cases in certain countries. We will continue to provide guidance that takes a balanced view on risks and upsides, but it has become increasingly difficult to predict the true impact of these supply chain disruptions. Jeff will explain in more detail how we're assessing these risks in the third quarter guidance. Moving on to my last topic, in line with the COHU strategy, we're launching a new family of products, this time focused on software data analytics to address our customers' Industry 4.0 initiatives and factory automation objectives. Cohuse Data Intelligence, or DI-Core for short, is a suite of software solutions that provide real-time equipment monitoring and process control to improve overall equipment efficiency, or OEE, and productivity. The equipment data is analyzed and displayed in real-time using a web-based graphical user interface accessible remotely on a laptop or other mobile device. Customers can monitor critical equipment parameters such as yield, OEE, throughput, and other equipment states to ensure optimal test cell performance. DI Core software also interfaces with customers' manufacturing execution systems for remote equipment control, recipe, and lot management. A central database for management of equipment data enables publishing of reports, dashboards, and Pareto charts to help managers make decisions. As the need for data analytics grows, we plan to continue expanding DI Core offerings to help improve quality and yield. We're essentially enabling our customers to upgrade the large install bays of Cohu equipment to improve efficiency and productivity. Today, we're starting to sell the foundation license. We expect next year to start offering subscription products that add on to this base capability. As we help our customers extend the value of their tools, we hope to tap into our large install base of over 23,000 systems offering subscription software services that deliver measurable productivity gains to our customers. Now looking ahead, we're encouraged by design wins with our Neon inspection platform, gains in RF and automotive tasks, revenue and margin expansion in our contactor business. At the same time, we're working through a period of supply chain disruption and cost increases that will unfortunately wait negatively on the third quarter. We're trying to be cautious, but set realistic targets for third quarter, and we will avoid getting ourselves too far into fourth quarter details this time around. Let me turn it over to Jeff to share second quarter results and provide specifics of our third quarter guidance. Jeff?