Cohu, Inc.

Good day and thank you for standing by. Welcome to CoHUE's second quarter 2023 financial results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jeff Jones, Senior Vice President and Chief Financial Officer. Please go ahead.

Good morning and welcome to our conference call to discuss CoHUE's second quarter 2023 results and third quarter 2023 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 the earnings release, as well as CoHUE's filings with the SEC, including the most recently filed Form 10-K and Form 10Q. Our comments speak only as of today, August 3rd, 2023, 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?

Good morning, and thanks for joining us. Second quarter gross margin and profitability were strong, driven by CoHUE's resilient recurring business model. Q2 non-GAAP gross margin of 47.8% increased 130 basis points year over year and is better than our target financial model at this revenue level. Cohue's recurring business contributed 48% of second quarter revenue at approximately 55% gross margin. Our recurring business achieved a three-year compound annual growth rate of 7% through Q2, and it is the key driver of Cohue's new baseline profitability through industry cycles. As communicated last quarter, we're expanding our infrastructure in the Philippines to support growth in our interface business. At the end of second quarter, we were approximately 60% through construction of a new 92,000 square foot facility that will become operational in the first half of 2024. We also continue working to expand the local supply chain to increase flexibility and quickly ramp production in support of customers' needs. In the second quarter, we received a first DI core software order from a European IDM for monitoring performance of Cohuse turret handlers. Although in early stages, we estimate the business potential at approximately $1.3 million a year in future software subscription sales at this customer. We had several design wins of our interface products, both contactors and probe cards, mostly driven by our products, RF performance, and final test. Switching over to Cohuse systems business, It contributed 52% of second quarter revenue at approximately 41% gross margin. As expected, automotive and industrial continue to be Kohu's main market segments with combined system revenue of 31% of the Q2 total. Other markets remain below historical levels with mobility particularly weak this year. When market conditions soften, as it is currently the case, We've focused on expanding our product portfolio and winning new customer applications, positioning the company to deliver revenue growth in the midterm. Aligned to this approach, there was an important ATE win in the second quarter at a leading OSAT in Korea. This business is for outsourced testing from a European semiconductor manufacturer. This is a high-value target we have been working with to expand use of Kohu's DimonX platform in analog IC tests. Finally, we had a couple of distinct design wins for the handler group during the second quarter. We broke in at a large Taiwanese foundry customer with a thermal handler for hyperscaling device tests. And this was a first for Kohu and creates an opportunity to serve a much broader customer base in high-performance computing including those developing their own processes. Then there was a handler design win in the high-power semiconductor market, adding another customer to a new expansion in this segment. All of these are great product validations and give us confidence for 2024 revenue growth. But despite improving demand for our thermal handlers for high-performance computing, we saw a reduction in customers' utilization this past June, driven by soft conditions affecting all other market segments. Estimated test utilization is down four points quarter over quarter, ending Q2 at approximately 73%. Several customers paused system orders originally planned in the second half of June, delaying capacity expansion to the latter part of the year and into 2024. Continued mobility weakness and recent order delays in automotive and industrial segments have extended this downturn into Q3, resulting in a lower revenue guidance. However, current order forecast is projected to grow sequentially again in the third quarter. In the near term, we'll continue to tightly control expenses while focusing on winning new customer applications. We'll continue executing a strategy to grow recurring business, broaden the use of DiamondX into automotive and industrial customers, add to our inspection and metrology portfolio, and increase subscriptions to our emerging software business. I want to stress that we're committed to expanding Cohue's recurring business that is key to profitability through industry cycles. Let me now turn this presentation over to Jeff for further details on second quarter results and third quarter guidance. Jeff?