COHU - NASDAQ

Good day and thank you for standing by. Welcome to Cohu’s First Quarter 2025 Financial Results Conference Call. [Operator Instructions] 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 am joined today by our President and CEO, Luis Muller. 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 is also a slide presentation in conjunction with today’s call that maybe 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 statements 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, May 1, 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 and slide presentation for reconciliations to the most comparable GAAP measures. Now, I’d like to turn the call over to Luis Muller, 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 U.S. 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. First quarter revenue was split 63% recurring in the balance 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 1 point quarter-over-quarter 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 are 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 U.S. 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 are optimistic about the business prospects of our design wins, pickup 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 44.2% 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 $0.02 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 Cohu 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. CapEx of $11 million in Q1 is driven primarily by the Malacca facility purchase of approximately $9 million. Overall, Cohu’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 are 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 Cohu’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 Cohu’s standard shipping terms, the customer is the importer of record and responsible for tariff costs, if any. Additionally, the Cohu 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 U.S. Looking back to 2024, with assumptions that U.S. 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 are 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.

[Operator Instructions] Our first question comes from Brian Chin with Stifel.

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 2Q guidance, how much of that is improvement in recurring revenue versus the shipments for the HBM inspection?

Yes, 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 midyear 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. Yes, so we are 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. Yes, 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 is a matter of absorbing capacity and etcetera, etcetera, 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 if that suggests any sort of signals around maybe timing on when you could start to see some improved backlogs for maybe the equipment side of the business?

Yes, 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 are 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 3.5 years now that we are guiding the quarter up year-over-year. So if you look at Q2 of ‘24 versus Q2 guidance year of ‘25, revenue is up sequentially. And the last time that happened was Q1 – sorry Q3 of ‘21. So, 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.

Thank you for taking my questions. I was wondering in what segments are you seeing the pickup in the reoccurring orders that you mentioned?

Hi, Dave. The recurring order pickup is predominantly in the mobile segment.

Okay. Is it broad-based or is it just really with one or two customers or how would you describe the depth of it?

In this case, it’s actually fairly concentrated, Dave. It’s fairly concentrated. I’m just going to 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 just talk about how you won that business and 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 is a third customer that we have right behind this that we are 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 are 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 going to happen this year? 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. The other customer that we won, the one that we are working in, they are 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 what that represents and is that market share wins or how would you describe this and what’s the application? Thanks.

Sure. Yes, it’s a fabulous customer in China in the automotive space. They are outsourcing it obviously to test house also in China. We have over time actually captured 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 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 the collection of all design wins. This is not the Chinese specific customer that you have asked.

Alright. Thank you.

Our next question comes from Craig Ellis with B. Riley Securities.

Yes, 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 2Q 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 end 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 3Q and recurring in 4Q with a more seasonal 4Q 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 2Q?

Yes, great question, Craig. I would say two things. First of all, and I have 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 are 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 are cautious and we want to remain cautious and not get ahead of ourselves. So, we are not going to 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 Cohu. 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 are going to 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, Luis. 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 will give you a couple of more data points here, Craig. So, as I have said, utilization closed the quarter at about 72%. IDMs were about 70% and OSATs about 73%. What we are 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 going to be comparable to the prior methodology. We haven’t even ran that through yet entirely. So, I am avoiding breaking down utilization by end market at this time until we get a better handle on the new methodology. But that’s not going to affect the total utilization nor utilization by IDMs and OSATs. So, I am comfortable stating that as it is at the end of Q1 and we will see where that is at the end of Q2. Those are going to 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 Tignis acquisition is integrating well and that that’s on track with your expectations, Luis. Anything else you would like to say about that and how we should think about the coming next couple of quarters and then what might be possible for that business in 2026? Thank you.

Sure, yes. I mean so far only one quarter or less than a quarter behind us, right. We basically have, I think 10 weeks or 11 weeks of integration at the quarter end because we closed it at mid-January. Yes, 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 U.S. 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 got to be careful now how much we buy it all at once. What do you expect for 2026, well, if this momentum continues, I am 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 are going to embrace to create numbers that we can tag in more precisely for 2026. So, I don’t want to get ahead of myself, but it is pretty exciting.

Do you think you would 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 am 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 want to go back to the recurring order, the pickup. Sounds like it’s predominantly mobile and fairly concentrated to a small number of customers, want to 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 are 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 want to 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.

Okay. 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 of 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 are 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 sort of 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 sort of mid-summer time.

Got it. So, it sounds like for other verticals, you have auto-industrial or consumer computing. Similar behavior 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 color about Q2, right? The incremental revenue dollar, half of that is from systems, half of that is from recurring. Sounds like you are 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?

Yes. 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 60-40 give or take, couple of hundred basis points.

Thanks Jeff.

Our next question comes from Robert Mertens with TD Cowen.

Hi. This is Robert Mertens on for Krish Sankar. Thanks for taking my questions. I guess the first one that I don’t want to get too hung up on it because we have 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 are exploring and provide more information next quarter?

Hi Robert. No, uptake in buying is usually dictated by utilization regardless if you are an OSAT or IDM. Nevertheless, through different cycles of the industry, we have 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. Got it. That’s helpful. And then automotive was up 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 into the June quarter, or really need to see mobility turnaround and then auto might trail after that?

Yes. There is no hard set rule that mobility has – mobile 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 are 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 quarter-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 is going to recovery, and I would bet at this moment, slowly for now. So, that’s our expectation, at least for the next quarter or two quarters.

Okay. Got it. Thank you. That’s helpful. Appreciate it.

Our next question comes from Christian Schwab with Craig-Hallum.

Hey, this is Todd Bernson [ph] on behalf of Christian. Thanks for letting us ask a couple of questions here. Maybe first on the restructuring, it looks like after restructuring, we are kind of to a breakeven 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 – you are asking from an OpEx standpoint, Tyler?

Yes, yes, essentially from an OpEx standpoint.

Yes. So after we see full benefit of the restructuring, and if revenue is at this $100 million 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, alright. Understood. It maybe 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?

Yes. 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, Q2 was looking like a small profit, but our effective tax rate is high at this sort of breakeven 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 last one, maybe on capital allocation, cash did come down in the quarter, but still at a pretty substantial level here, I guess. Are we still potentially looking at other kind of strategic tuck-in M&A opportunities out there? 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.

Yes, you bet. Sure. Yes, 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 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 2 months. And those conferences are the B. Riley Securities Institutional Investor Conference on May 21 in Los Angeles; the TD Cowen TMT Conference on May 28 in New York City; the Stifel Cross Sector Conference on June 3 in Boston; and the Baird Consumer and Technology Conference on June 4 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 one-on-one meeting. That’s all for today. Thank you again for joining the call and we look forward to speaking with you soon.