Cohu, Inc.

Good day and thank you for standing by. Welcome to COU's third 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 will 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 host today, Jeff Jones, Chief Financial Officer.

Good afternoon and welcome to our conference call to discuss CoHUE's third quarter 2023 results and fourth 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 10-Q. Our comments speak only as of today, November 2nd, 2023, 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, CoHUE's President and CEO. Luis?

Luis Muller Good afternoon. Third quarter gross margin and profitability were again strong driven by higher than forecasted margin on pastors and CoHUE's resilient recurring business. Q3 non-GAAP gross margin of 47.1% continues to benefit from our focus on product differentiation, reducing cost, and the greater contribution of recurring that was 51% of Q3 total revenue. On October 2nd, we announced the acquisition of Equipped Test Engineering, which we refer to as EQT, with the goal to expand our test interface products and recurring revenue that continues to deliver resilient profitability through industry cycles. EQT's trailing 12 months revenue was approximately $20 million, selling primarily semiconductor test contactors to Tier 1 IDM and OSAT customers. The rationale for the acquisition is to broaden our product portfolio in mid- to high-power test contactors, better serving our automotive and industrial semiconductor customers. EQT also enhances our complex machining capability and manufacturing expertise, expands engineering capacity, and customer presence in Southeast Asia. This acquired business will contribute three months' revenue to our fourth quarter guidance, and it is forecasted to be accretive to Q4 adjusted EBITDA. In support of plans to grow CodeHue's interface business, we're constructing a new 92,000-square-foot facility in the Philippines. that is approximately 85% complete and targeted to be operational in the first half of 2024. As we have been communicating, it remains our strategy to expand recurring revenue, which was $322 million over the last 12 months with a three-year compound growth rate of 6% through Q3. The service portion of this revenue has delivered a year-to-date renewal rate of approximately 92% in 2023 with customers increasingly relying on Cohue personnel to support the large active install base of over 24,600 systems across 108 customers. In the third quarter, we landed three new applications for test contactors at Cohue's Tier 1 customers, with an estimated potential $6.5 million revenue stream per year. We also received orders from two new customers for DI Core to monitor equipment performance and a first order for AI inspection that is a new module in our software suite that provides artificial intelligence services to increase vision yield. We continue to make progress with DI Core, adding new capabilities and expanding the software as a growth service model for the company. This is due at the beginning of a long journey to grow software services. but one we view as a very attractive business as test and inspection complexity requirements increase along with Cohuse equipment install base. Switching over to Cohuse systems business, it contributed 49% of third quarter revenue, decreasing two points quarter over quarter in reflecting weak demand across all markets. Estimated test cell utilization remained flat quarter over quarter at 73%, with automotive and industrial down one point sequentially, utilization in the consumer segment was two points up, and mobility increased by one point. All small changes, but more indicative of the inventory digestion coming to an end, particularly in the smartphone market. The computing segment showed a two-point sequential utilization decline, following what has been a small increase in demand to test AI-related GPUs in prior quarters. At the macroeconomic level, with the ongoing Russia-Ukraine conflict and now the Hamas-Israel conflict, and while the economy adapts to a higher interest rate environment in continuing trade restrictions with China, it is not surprising that customers are taking a more cautious approach on capital spending. It is too soon to forecast market dynamics and revenue for 2024, but perhaps safer to remain cautious on near-term revenue projections and assume this market downturn will last longer than we originally expected and into the first half of next year. We're modeling incremental growth in the second half of 2024 in line with our customers' recent forecasts. We remain optimistic on the long-term prospects for the technology industry and in particular semiconductor test markets, and as usual, The longer it takes for a recovery inflection, the steeper the upcycle ramp will be. However, in the near term, we will continue to look for ways to lower quarterly expenses while focusing on customer design wins and qualification of new products to deliver organic growth when market conditions improve. We will continue executing our 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. Let me now turn it over to Jeff to provide further details on third quarter results and fourth quarter guidance. Jeff?