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Cohu, Inc.
5/1/2025
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 Jeff Jones, Chief Financial Officer. Please go ahead.
Good afternoon, and welcome to our conference call to discuss COHU's first quarter 2025 results and second quarter 2025 outlook. I'm joined today by our President and CEO, Louise Mueller. If you need a copy of our earnings release, you may access it from our website at cohu.com or by contacting COHU Investor Relations. There'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 will make forward-looking statements reflecting management's current expectations concerning COHU'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 10K and Form 10Q. Our comments speak only as of today, May 1st, 2025, 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 in slide presentation for reconciliations to the most comparable GAAP measures. Now I'd like to turn the call over to Luis Mueller, COHU's president and CEO. Luis?
Hello, and welcome to our quarterly earnings call. First quarter 2025 results were in line with guidance with revenue approximately $97 million and non-GAAP gross margin approximately 44%. As previously announced, we implemented a restructuring program in late February to reduce manufacturing and operating expenses through this year. This program includes some incremental manufacturing transfers to our Asia factories and related expense reductions in the US and Europe. The majority of these will start benefiting the second quarter onwards. Jeff will provide more details as part of our financial results later. Our revenue was split 63% recurring in the balanced systems. Systems revenue increased sequentially in automotive and consumer segments, although offset by declines in computing, industrial and mobile. Estimated test cell utilization at the end of March was down .25% to 72%. I won't comment further on utilization at this time as we plan to implement changes going forward that we anticipate will increase accuracy when segmenting utilization by market. On a positive note, recurring orders increased 28% quarter over quarter, demonstrating the value of COHU's non-capital equipment revenue streams and indicating the possibility of utilization picking up in the coming quarters. Although COHU factories in Malaysia and the Philippines have been running below nominal capacity, we are starting to selectively add resources to support recent customer requests for fast turn on kits and contactors. On the customer design wins, in the first quarter we landed three new opportunities for our handlers, including a leading package and test subcontractor in China supporting the local automotive industry. We also won a selection with our DiamondX tester at a European fabless supplier of communications ICs. This DiamondX will ship for production to a test subcontractor in Asia. Additionally, we qualified and received the initial orders for COHU's power probe cards from a leading European semiconductor company testing silicon carbide IGBT products. On customer expansion, we received a repeat multi-unit order for HBM inspection systems in the first quarter, continuing to increase our penetration in the memory market. We're excited about this opportunity to reposition and expand our vision inspection technology aligned with the growing data center market. Two customers expanded DiamondX application in the quarter, one targeting RF IoT devices and the other gallium nitride high voltage device test. Several customers expanded the use of our contactors, notably with COHU's ICON interface supporting tests of high performance network switches. On the software front, this was our first quarter combining the recently acquired Tignis and COHU's DI Core predictive maintenance solutions. We have signed three new demonstration opportunities in the quarter to prove the value of our AI process monitoring platform, including with a front end equipment company, a semiconductor material supplier and a US Defense Military Research Group. The team has been asked to evaluate multiple applications for AI process monitoring in the backend semiconductor manufacturing, which is an encouraging validation of our strategy to support and expand COHU's own DI Core solutions. We're optimistic about the business prospects of our design wins, pick up in recurring orders and expansion into new market segments. The second quarter started with positive momentum from growing customer interest in our systems. And at this moment, we have not seen any meaningful change in customer buying patterns due to tariffs. Let me now turn it over to Jeff for further details on last quarter results and next quarter guidance. Jeff.
Thanks, Luis. Before I walk through the Q1 results and Q2 guidance, please note that my comments that follow all refer to non-GAAP figures. Information about the non-GAAP financial measures, including the GAAP to non-GAAP reconciliations and other disclosures, are included in the accompanying earnings release and investor presentation, which are located on the investor page of our website. Now turning to the Q1 financial results. Revenue for the quarter was within guidance at 96.8 million. Recurring revenue, which is largely consumable driven and more stable than systems revenue, represented 63% of total revenue in Q1. During the first quarter, one customer in the automotive and industrial market accounted for more than 10% of sales. Q1 gross margin was .2% and in line with guidance. Operating expenses for Q1 were slightly lower than guidance at 48.6 million, driven by lower labor costs due to the initial restructuring actions announced in late February. Q1 interest income, net of interest expense and a small foreign currency loss was 1.4 million. In Q1, we recorded a tax benefit of 3.6 million, yielding a non-GAAP net loss of approximately 800,000. Non-GAAP EPS for the first quarter was a two cent loss. Now moving to the balance sheet. Overall cash and investments decreased by 61 million during Q1 to 201 million, due primarily to $35 million used to acquire Tignis. Approximately $9 million used to repurchase 432,000 shares of Co-Hugh Common Stock and $10 million used in operations. From inception of our share repurchase plan through Q1 2025, we've repurchased approximately 4 million shares for approximately $117 million, leaving approximately $23 million available for us to repurchase additional shares in the future. Total debt increased in the first quarter by approximately $9 million due to a revolving credit facility used to finance the purchase of our Malacca, Malaysia facility. GAAP X of 11 million in Q1 is driven primarily by the Malacca facility purchase of approximately 9 million. Overall, Co-Hugh's balance sheet remains strong, supporting investment opportunities to expand our served markets and technology portfolio in line with our growth strategy and returning capital to shareholders through our share repurchase program. Now moving to our Q2 outlook. Recent increases in recurring revenue orders and HBM inspection systems are driving a 10% increase in revenue quarter over quarter. We're guiding Q2 revenue to be approximately 106 million plus or minus 7 million. Second quarter gross margin is forecasted to be approximately 45%, benefiting from Co-Hugh's differentiated products and our stable high margin recurring business, which adds resilience to profitability and provides consistent cash flow through industry cycles. Based on our internal analysis, we do not expect the recently announced tariffs will create a measurable and direct increase in cost of goods sold. Under Co-Hugh's standard shipping terms, the customer is the importer of record and responsible for tariff costs, if any. Additionally, the Co-Hugh's supply chain and manufacturing operations are primarily Asia-based and shipping to Asia-based customer facilities, completing the product manufacturing and delivery cycle outside of the US. Looking back to 2024, with assumptions that US suppliers are sourcing components and parts offshore, we estimate a possible tariff impact to 2024, cost of goods sold could have been approximately $3 million for the entire year. And lastly, our efforts to transition supply chain to minimize impacts of revised UF tariff scheme is ongoing. Q2 operating expenses are forecasted to be approximately 48 million, about 500,000 lower than Q1, realizing increasing cost savings from the mid-Q1 restructuring actions. Once the full impact of the restructuring plan has taken effect in the beginning of 2026, we expect quarterly operating expenses to be approximately 47 million per quarter when revenue is approximately 100 million. We're projecting Q2 interest income, net of interest expense and foreign currency impacts to be approximately 900,000 at current interest rates. The Q2 non-GAAP tax provision is expected to be approximately 1.6 million. The basic share count for Q2 is expected to be approximately 46.7 million shares. That concludes our prepared remarks and now we'll open the call to questions.
As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from Brian Chin with Stiefel.
Hi there, good afternoon. Thanks for letting us ask a few questions. Maybe to start off with, when we look at the roughly 9 million revenue increase at the midpoint of the two Q guidance, how much of that is improvement in recurring revenue versus the shipments for the HBM inspection?
Yeah, it turns out it's about half and half. So half of that quarter over quarter increase, systems half recurring.
Got
it.
And given the multi unit order for inspection, does that increase the prior $7 million target for the full year? Does that give you more visibility shipping either in the mid-year or maybe even in the second half? And I understand that's mainly been sort of one lead customer. What's the potential, maybe not this year, but potential to add customers beyond your initial customer for that product and application?
Hi Brian, this is Luis. Yeah, so we're projecting about $8 million of revenue in HBM this year. That's the best view we have at this time. And we have started discussions with a second customer, but it's still at this exploratory phase. So nothing concrete to put a number on. But we certainly expect that revenue to grow going out to 2026. I just don't have a number to put on that
at this time. Okay, great. Maybe one last question for me here. Yeah, some of your customers have been talking more favorably about maybe some inflection in their shipments. And the way this works, right, that's one part of it. But then there's a matter of absorbing capacity and et cetera, et cetera, in terms of actually materializing into some maybe capacity equipment that's required from you guys. But you have to make a commentary about some pickups in the recurring revenue. Can you maybe discuss how those things might connect a little bit and kind of what that would, you know, if that suggests any sort of signals around maybe timing on when, you know, you could start to see some improved backlogs for maybe the equipment side of the business.
Yeah, I mean, that's the expectation, right? We should see, when we see a pickup in recurring, we should naturally expect to see an improvement in utilization. So I think we'll be watching pretty closely here in the next quarter to see if utilization levels go up. If it matches the segments that we're seeing the pickup in recurring and the magnitude of that pickup in utilization. I think that would be more indicative of the trend or confirmation of the trend for when to expect sort of capital equipment demand increases again, right? With that said, I think if you look back in history here, this is our first quarter in about three and a half years now that we're guiding the quarter up year over year. So if you look at Q2 of 24 versus Q2 guidance year of 25, revenues up sequentially. And the last time that happened was Q1, sorry, Q3 of 21. So, you know, we've got to see a little bit more of utilization pickup, like I said, continuation of recurring pickup to call it a solid trend, but it's a positive sign and certainly a noticeable turn of corner.
Great, thank you.
Our next question comes from David Dooley with Steelhead Securities. Oh, thank you for taking my
question. I was wondering, you know, in what segments are you seeing the pickup in the reoccurring orders that you mentioned?
The, hi, Dave, the recurring order pickup is predominantly in the mobile segment.
Okay, is it broad base or is it just really with one or two customers or how would you describe the depth of it?
You know, in this case, it's actually fairly concentrated, Dave, it's fairly concentrated. I'm just gonna leave it at that.
Okay, and could you elaborate a little bit more to one of the comments you made on the Power Probe Card Design Win for SIC and, you know, just talk about how you won that business and, you know, what the opportunity for the revenue stream there is this year and next year or what we should expect?
Sure, sure. We have introduced this product in the second half of 24. It's really aimed at very high voltage testing at probe where you have the risk of creating an arc between probe tips. And so we have sort of a unique technology, a patent technology on how to enable multi-site testing of high voltage dye applications, which in this case is silicon carbide. We had a qualification win, I believe it was at the end of 24. This is our second customer win and there's a third customer that we have right behind this that we're working on at this time. Let me check here on your second part of your question. You got a second. We were looking, I think we're looking at this application having on this customer win that we had here. This opportunity is about a $2 million a year opportunity. How much is that gonna happen this year? You know, just given timing, qualification, production ramp, I would say definitely a fraction of the 2 million on this one customer. But that's about the size on a per customer base. You know, the other customer that we won, the one that we're working in, they're about similar sizes. So it's sort of a 2 million a dollar a year per customer, give or take opportunity.
Okay. And then finally for me is one of your other prepared remarks about winning some handler business in China. Could you elaborate, you know, what that represents and is that market share wins or how would you describe this and what's the application? Thanks.
Yeah, it's a fabulous customer in China in the automotive space. They're outsourcing it obviously to test house also in China. We have over time actually capture, you know, a small number of startup fabulous companies in China. This is viewed as small at this time. But if I extract and I go beyond this particular customer, the collection of all design wins I talked about for Q1, we tallied as a 6.5 million dollars of orders that we got, that we expect to ship throughout this year with a potential total revenue of $18 million a year. That's estimated obviously that's not in hand PO. The in hand POs are the 6.5 million. And that's, you know, that's the collection of all design wins. This is not the China specific customer that you have asked.
All right, thank you. Our next question comes from Craig Ellis with B Riley Securities.
Yeah, thanks for taking the question. Guys, congratulations on seeing the nice upturn in recurring orders. Luis, I was hoping we could just spend a little time looking beyond to Q and what is a nice guide into your point, the first in a long time that's up here on your, as you talk to your customers across your different and markets on both the systems and the recurring side of the business, how are they thinking about their needs for systems and recurring products in the back half of the calendar year? Are they thinking that we'll need to see a step up in system deployment as we go into three Q and recurring in four Q with a more seasonal four Q off of that or what kind of indication are they giving you and what are they telling you to get ready for in your production facilities beyond the current two Q?
Yeah, great question, Craig. I'd say two things. First of all, and I said this in my prepared remarks, we started the second quarter with a positive momentum. We have seen really a pick up in interest in systems, in our systems and system orders. With that said, I think we're all in this space a little cautious right now in trying to understand, look, we haven't really seen any meaningful change in customer buying pattern due to tariffs. With that said, I think we're cautious and we wanna remain cautious and not get ahead of ourselves. So we're not gonna say a ton about third quarter and beyond other than to say we still expect this to be a year over year growth year for Co-HU. And at this point, we feel that consensus estimates for us are in a good place for the second half of the year and we're gonna leave it at that until we gain more visibility into what's happening.
I might also add that our lead times for our systems are still, except for the exception of a couple of specific configurations, are within a quarter. And so customers generally aren't showing their hand more or less, more than one quarter at a time here.
That's helpful guys. And then the follow-up question goes back to the point you made about monitoring industry utilization, Louise. And I won't ask you for numbers, but what I would appreciate better understanding is when you look at the system that was in place that you had, what did you think that was missing? What are you trying to fix? And what are you trying to get to in the future? Just help us understand the to and from without all the numbers in between.
Okay, and I'll give you a couple more data points here, Craig. So as I said, utilization closed the quarter at about 72%. IDMs were about 70% and OSATs about 73%. What we're trying to refine is the distribution of utilization now down to auto and industrial, computing, mobile, consumer applications. We have a methodology to do it. I think it's a little coarse and we intend to refine it. We have the means to refine that a little bit better. I don't know how that's gonna be comparable to the prior methodology. We haven't ran that through yet entirely. So I'm avoiding breaking down utilization by end market at this time until we get a better handle on the new methodology. But that's not gonna affect the total utilization nor utilization by IDMs and OSATs. So I'm comfortable stating that as it is at the end of Q1 and we'll see where that is at the end of Q2. Those are gonna be comparable quarter over quarter still.
That's helpful. And then if I could sneak in one more before I go back in the queue. It sounds like the Tingdes acquisition is integrating well and that that's on track with your expectations, Luis. Anything else you'd like to say about that and how we should think about the coming next couple quarters and then what might be possible for that business in 2026? Thank you.
Sure, yeah. I mean, so far only one quarter or less than a quarter behind us, right? We basically have, I think 10 or 11 weeks of integration at the quarter end because we closed it at mid-January. Yeah, it's pretty interesting to see the level of interest from our customers. That business was not necessarily focused on the backend. So what they booked in the first quarter was still things that were in play at the time of the acquisition, so to speak, a front-end company, a material supplier to semiconductor manufacturing, and a research group within the US military. But at the same time, in the last quarter, there has been a flurry of requests for meetings all over the globe here. So people have been traveling and holding up interactions with customers in various countries. The activity levels picked up a lot and we gotta be careful now how much we buy it all at once. What do you expect for 2026? Well, if this momentum continues, I'm pretty excited about it, but we don't have a number to say. We have to take these activities down to paper plans, specifics, business plans by customer, and then see what we're gonna embrace to create numbers that we can tag in more precisely for 2026. So I don't wanna get ahead of myself, but it is pretty exciting.
Do you think you'd be at that point when we talk again at the end of July or early August, Luis, or would it take longer than that?
I would give it about another six months, Craig. I'm expecting more towards the Q3 earnings timeframe to be discussing numbers for software.
Okay, so maybe around summer come west. Okay, thank you very much, guys.
You're welcome.
Our next question comes from Charles Shi with Needham.
Hey, good afternoon, Luis and Jeff. I wanna go back to the recurring order, the pickup. Sounds like it's predominantly mobile and fairly concentrated to a small number of customers. Wanna ask you how you think about the sustainability of the recurring revenue or order going from here, and let's say going another few quarters, because if I think if this were in a normal environment, we would definitely look at this as possibly a leading indicator of a very, very, very positive, maybe cyclical recovery for at least the mobile segment, but we're not quite in a kind of environment right now. There has been lots of debate on whether the demand is real or is it the tariff-related pull-ins. I know for you guys as a equipment supplier, multiple degrees away from the end market, that's probably harder for you guys to really find evidence one way or the other, but wanna get your thoughts, how do you think about the sustainability and what this actually means, and maybe at a more macro level, what do you think this mobile customer is trying to do here? Thank you.
Well, multiple answers or multiple questions here, Charles. The sustainability, right? In mobile, what I would expect here to happen is once we ship these recurring orders that we would see a pickup in mobile market utilization, quarter over quarter. That's my expectation. Following that, I would expect an increasing system orders in mobile that would probably translate into revenue here in the coming quarter, say Q3 and beyond. That would be sort of a trend of sustainability in the mobile market. And I feel like that's actually quite doable. If you talk recurring more broadly, we would have to see the same happen across auto, industrial, consumer segments to be able to speak to the same trend. I don't see that quite yet, Charles. I see it more in mobile, and we have been talking here for the last couple quarters that we would expect mobile to be the leading market for us and the general volume market, followed by industrial, and then later on followed by automotive. Still believe that that's the sequence, and what we're seeing right now is in mobile. As far as tariff pull-in, your question about tariff pull-in, I really don't believe this is a tariff pull-in, because if you just look at the window of time that everybody has against the current exemptions and tariff rates to supposedly change back up again to a higher level, and the timing of shipments of these recurrings, I have a hard time believing that they can actually make any meaningful change until mid-summer time.
Got it. So it sounds like for other verticals, you have auto-industrial or consumer computing. Similar behaviour hasn't really been seen by you guys so far. So maybe... Let me ask another from the other way. For the remainder of the year, I mean, you kind of gave some colour about Q2, right? The incremental revenue dollar, half of that is from systems, half of that is from recurring. Sounds like you're holding... Maybe shift the mix of recurring will come down slightly, makes the system come up slightly, but for the remainder of the year, what's your best guess based on the trend right now? Where the system versus recurring revenue percentage, the mix, could be as
we go into the second half of the year. Thank you. At this point, hard to tell, but as
we go into the second half of the year, it's likely to be close to the 60-40 relationship, or it's not too far from that today, 63-37, 63% being recurring. So it's probably going to maintain somewhere close to that 64, do you give or take
a
couple hundred basis
points? Thanks, Jeff.
Our next question comes from Robert Mertens with TD Cowan.
Hi, this is Robert Mertens on for Chris and Carl. Thanks for taking my questions. I guess the first one that I don't want to get too hung up on it because we've touched upon it, but in terms of test cell utilization rates, do you typically see different order patterns between OSATs and IDM customers from a test cell utilization perspective? Does one see their uptake in demand earlier in the cycle, or is it sort of based on these end markets that you're exploring and provide more information next quarter?
Hi, Robert. No, uptake in buying is usually dictated by utilization regardless if you're an OSAT or IDM. Nevertheless, through different cycles of the industry, we've noticed that the OSATs tend to drop, utilization start to down cycle, and they also tend to start the up cycle. That's sort of the general observable trend of past cycles. So the OSATs tend to lead, and that's more because of the sort of the end market exposure that fabulous companies are leveraging the OSATs versus the more traditional industrial automotives that have their own factories and tend to be the segments that lag both in a recovery as well as in a downside.
Okay, I got it. That's helpful. And then automotive was substantially in the March quarter after maybe a year or so of digestion. Just how should we think about the turnaround in that market? Are you expecting similar strength to continue in the June quarter, or really need to see mobility turn around and then auto might trail after that?
Yeah, there's no hard set rule that mobility has to go first, and then somebody second, somebody third. That's not a hard fast rule, but I still expect that should be the case here, where auto is going to trail. If you look at our customers, the large automotive semiconductor manufacturers, their earnings release, some have called the trough as Q3 of 24. Others just called the trough as being this past quarter, Q1 of 25. So there is a general theme here that they're calling somewhere between the last three quarters, the trough of the cycle. So I would expect utilization to start creeping up, recurring orders to start picking up as well. The question is at what pace, right? Inventory levels have corrected, although some customers have had an increase to -over-quarter in Q1 and talking about keeping that flat going over to the next quarter. So I think the auto space has turned the corner, but I don't know yet at what pace it's going to recover, and I would bet at this moment, slowly for now. So that's our expectation, at least for the next quarter or two.
Okay, got it. Thank you. That's helpful.
Appreciate
it.
Our next question comes from Christian Schwab with Craig Hallam.
Hey, this is Todd Bremers-Straunen on behalf of Christian. Thanks for letting us ask a couple questions here. Maybe first on the restructuring, it looks like after restructuring, we're kind of to a break even on a quarterly revenue run rate in the low 100 million. I guess the way you think about that, at these sort of levels, as we see recovery over time, what kind of revenue levels can these sort of expense levels now support
in
a recovery situation?
So from an op...
You're asking from an OpEx standpoint, Tyler?
Yeah, yeah, essentially from an OpEx standpoint.
Yeah, so after we see full benefit of the restructuring, and if revenue is at this 100 million dollar level, we'd expect OpEx to be around 47 million. And then as that revenue grows, and let's just call out 130 million a quarter, we'd expect
OpEx to be about 49 million. Okay, all right, understood. It
may be a little bit of housekeeping on the model, Jeff. On taxes, the benefit in the quarter, I guess a little more color what that was exactly, and then maybe level set us going forward. You said 1.6 million in Q2. Is that what we should kind of be thinking about as kind of a fixed run rate until we see revenue and profitability accelerate from here?
Yeah, so in the first quarter, we did have a non-GAAP tax benefit. We had a tax loss, and we did have a tax benefit of 3.6 million. So based on revenue and the guidance, you know, Q2 was looking like a small profit, but our effective tax rate is high at this sort of break-even level, if you will. The effective tax rate was a little bit wacky. So the rate becomes in the 90% range of pre-tax, book pre-tax income. So I would carry that 90% into the second half as well. I'll give a guidance update, obviously, on the next call, but that's what I would run with for now.
Perfect, very helpful. And then, you know, last one, maybe on capital allocation, you know, cash did come down in the quarter, you know, but still at a pretty substantial level here, I guess. You know, are we still potentially looking at other, you know, kind of strategic tucking M&A opportunities out there? You know, any thought about an accelerated buyback or raising that given the level of the stock price down here? Any commentary on capital allocation would be great. Thanks.
Yeah, you bet. Sure. Yeah, you know, the review of the acquisition funnel is sort of within our, what's in our blood, it's part of our normal process. So that process continues. From a buyback standpoint, our stated goal for 2025 was to offset dilution from our equity compensation plans. We were able to do that in the first quarter of the buyback of 432,000 shares. So at least for now, it's a pause on buyback. That obviously could change, you know, at a moment's notice, but for now, for Q2 anyway, the posture is pause on the buyback.
Sounds good. That's all for us. Thanks, guys.
Thanks,
Tyler.
That concludes today's question and answer session. I'd like to turn the call back to Jeff Jones for closing remarks.
Thank you. And before we sign off, I'd like to note that we'll be attending the following investor conferences over the next two months. And those conferences are the B. Riley Securities Institutional Investor Conference on May 21st in Los Angeles. The TD Cowan TMT Conference on May 28th in New York City. The Stiefel Cross Sector Conference on June 3rd in Boston. And the Baird Consumer and Technology Conference on June 4th in New York City. So if you plan on attending any of these conferences, please reach out to your conference contacts or let me know and we'll arrange for an in-person -on-one meeting. That's all for today. Thank you again for joining the call and we look forward to speaking with you soon.
This concludes today's conference call. Thank you for participating. You may now disconnect.