COHU - NASDAQ

Good day, and thank you for standing by. Welcome to Cohu's Second 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.

Thanks, Luis. Before I walk through the Q2 results and Q3 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 Q2 financial results. Revenue for the quarter was $107.7 million and in line with guidance. Recurring revenue, which is largely consumable-driven and more stable than systems revenue, represented 63% of total revenue in Q2. During the second quarter, no customer accounted for more than 10% of sales. Q2 gross margin was 44.4% and in line with guidance. Operating expenses for Q2 were $47.7 million, also in line with guidance. Q2 interest income net of interest expense and a small foreign currency loss was approximately $900,000. The Q2 tax provision was approximately $300,000 and non-GAAP EPS for the second quarter was $0.02. Moving to the balance sheet. Overall cash and investments increased by $8 million during Q2 to $209 million due primarily to $16 million of cash flow from operations. No stock repurchases were completed in Q2. From inception of our share repurchase plan through Q1 2025, we have repurchased approximately 4 million shares for $117 million, leaving $23 million available for us to repurchase additional shares in the future. Total debt of $18 million is flat quarter-over-quarter. Q2 CapEx was $2.7 million and consists primarily of facility improvements. We're maintaining an annual CapEx target of $20 million, including the $9 million Melaka facility purchase in Q1. Cohu's balance sheet continues to demonstrate strength overall, supporting our ability to invest in expanding served markets and enhancing our technology portfolio in line with our growth strategy. In addition, we remain committed to returning capital to shareholders via our share repurchase program. Now moving to our Q3 outlook. Recent system orders for mobile and automotive test are driving a 16% increase in revenue quarter-over-quarter. Total recurring revenue is expected to be flat quarter-over-quarter, and we're guiding Q3 revenue to be approximately $125 million, plus or minus $7 million. The gross margin for the third quarter is projected to be approximately 44%. The Q3 revenue mix is expected to consist of approximately 47% from systems, mainly test automation systems for the mobile market, and about 53% from recurring revenue. Q3 operating expenses are projected to be about $50 million, which includes around $2 million for variable R&D product development prototype materials. Total operating expenses are in line with the restructuring plan targets that were implemented in late Q1 of this year. Once the full impact of the restructuring plan has taken effect in the beginning of 2026, we expect quarterly operating expenses to be approximately $49 million per quarter when revenue is approximately $130 million. We're projecting Q3 interest income, net of interest expense and foreign currency impacts, to be approximately $900,000 at current interest rates. The recent enactment of the One Big Beautiful Bill introduces changes to capitalized R&D, resulting in a midyear adjustment to Cohu's tax provision methodology. Consequently, a onetime year-to-date true-up will be recorded in Q3. Including this true-up, we anticipate that our Q3 tax provision will be approximately $15 million. For the full year 2025, the methodology change yields the same annual tax provision, but the quarterly amounts will differ. In Q4, we expect the effective tax rate to be in the 30% to 35% range. The basic share count for Q3 is expected to be approximately 46.8 million shares. And that concludes our prepared remarks, and now we'll open the call to questions.

[Operator Instructions] Our first question will come from the line of Brian Chin with Stifel.

Maybe first one, just to break down the $28 million order. Can you give us a sense of sort of timing across 3Q, 4Q? How much of a contributor to the sequential increase in Q3 is that? And also, is that -- in terms of the origin of that business, is it sort of tied into the utilization rate increases? Is it maybe like a market share shift in favor of that particular customer? And maybe is it more like digital handling? Or is it kind of different products?

Our next question comes from Charles Shi with Needham & Company.

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

Our next question comes from David Duley with Steelhead Securities.

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 today, I'd like to note that we'll be attending some investor conferences over the next 2 months, and we'll be attending the Needham Virtual Semiconductor & SemiCap Conference on August 20, the Jefferies Conference in Chicago on August 26, the Evercore Conference also in Chicago on August 27, the Citi TMT Conference on September 4 in New York City and the CEO Summit Conference on October 7 in Phoenix. Now if you're planning to attend any of these conferences, please reach out to your conference contacts or let me know, and we'll arrange for one-on-one meetings. That's all for today. Thank you for joining the call, and we look forward to speaking with you soon.