Q3 2019 Earnings Call
So.
At this time all participants are in listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time, if anyone should require assistance. During the conference. Please press Star then zero on your Touchtone telephone as a reminder, this coal is being recorded.
I'd now like to turn the conference over to your host Mr., Jeff Jones, Chief Financial Officer. Please go ahead.
Good morning, and welcome to our conference call to discuss co Hughes third quarter results and fourth quarter outlook I'm joined today by our President and CEO Luis Mueller <unk>.
At least and I are calling from our operations in Germany, and we appreciate you accommodating this early morning call.
If you need a copy of our earnings release, you may access it from our website <unk> co your dot com.
Or by contacting Cohu Investor Relations.
Is also a slide presentation in conjunction with today's call that may or may be accessed on Coke is website in the Investor Relations section.
Replays of this call will be available via the same page after the call concludes.
Between now and our next earnings call.
Be participating in the eighth annual New York City Summit on Tuesday December 17.
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And now to the Safe Harbor.
During today's call will make forward looking statements, reflecting management's current expectations concerning co Hughes future business. These statements are based on current information that we have assessed the 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 Cohus filings with the Securities and Exchange Commission, including the most recently filed Form 10-K and Form 10-Q .
Our comments speak only as of today November 4th 2019, and Cohu assumes no obligation to update these statements were developments occurring after this call.
Finally during this call will discuss certain non-GAAP financial measures. Please refer 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 Co., He was president and CEO .
Good morning.
Today, I'm going to touch on highlights for the third quarter.
Roughly describe a couple of opportunities for next year, and then pass it back to John to comment on the financial results on fourth quarter guidance.
Got you delivered stronger than expected non-GAAP profitability on sales of 143.5 million. Despite continued softness in the automotive and industrial segments, which are historically, our largest served markets.
Lower analog I see the man he is expected to the man to remain a near term headwind to handler sales, particularly gravity systems.
While automotive Ada Es is forecasted to strengthen benefiting our pick and place business. As a reminder, most of our handler business, our for automotive and industrial applications, where Cohu is the leader in Tri temperature testing for large installed base of equipment that provides long term recurring revenues.
In mobility.
Gee applications are driving an increase in utilization of RF testers in turret handlers, which has recently trending above the overall average of approximately 77%.
Third quarter orders were 44% system and 56% recurring validating our strategy to build the solid foundation of recurrent business that helps offset capital equipment cyclicality.
We also captured a key design win at a leading U.S. mobile semiconductor manufacturer.
Adding approximately $10 million or your customer and broadening our <unk> leadership in RF test.
Third quarter orders continue to strengthen in mobility cloud datacenter and AI, where we have greater 80 exposure in growing context or sales to RF and power management IC test in a large thermal handler installed base for microprocessors.
These segments are expected to gain momentum in 2020 with Fiveg power amplifiers antenna tuners switches in filters tested on our equipment supporting the initial ramp of next generation smartphones coming to market next year.
We believe that we're seeing the beginning of a new growth cycle, driven by Fiveg communications, enabling higher data rates and capacity with enhanced mall mobile broadband.
Massive machine type communications on our narrow band Internet of things in mission critical applications on old reliable low latency communications our products are gaining traction in sub six gigahertz, fiveg production and demonstrate and differentiated value for why five six and millimeter wave application.
Yes.
We estimate that the addressable market for our RF testers will grow from about 62, approximately $170 million in the next three years and we expect to remains the leader in this space supply and both U.S. in China based customers in fact, China was a growing region for testers.
Sales this last quarter countering some initial fears from the trade war.
We're also optimistic about the prospects of selling complete solutions consisting of testers in handlers combined with Contactors for semiconductor test across different applications. We recently ramped a complete solutions supporting local satellite communication project that is forecasted to grow next year, adding to that are.
Opportunities in the approximately 200 million flat panel display driver IC test segment, where we continue to make inroads in Taiwan, China and now also Korea.
It's too early to speak with certainty about next year, but we expect fiveg to answer the next phase of expansion with initial volumes smartphone production and a return to some level of normality in the automotive market, leading to semi test growth year on year.
We will continue to carefully manage that BNL maximizing profitability, but elsewhere, ensuring the proper investments to drive midterm growth, particularly on testers and contactors that have much to green from cross selling far larger handler business Lastly, it's been one years since the acquisition of Big Sarah and I'm happy.
Sure report being on track for $40 million annual run rate cost synergies by the end of this quarter.
The main synergy objectives are being achieved ahead of schedule, having substantially restructure German operations close the factory in Fontana, California in the third quarter and on track to close or any bank, Malaysia factory by the ended this quarter more importantly, we're now integrated and actively pursuing cross selling customer opportunity.
As such as the RF satellite communications, they have the potential to add differentiated value to our customers now I'd like to turn it over trajectory, if you're a third quarter results and provide fourth quarter guidance.
Okay. Thanks, Louise today I'll start by reviewing third quarter results, which delivered revenue in line with guidance, but with non-GAAP profitability higher than forecasted due to higher gross margin and lower operating expense, including the realization of acquisition related cost synergies.
Well also review our progress and accelerating our planned synergies from the acquisition of et cetera, and then I'll provide our fourth quarter guidance.
Please note that my comments that swallow I'll refer to non-GAAP figures for GAAP to non-GAAP , reconciliations and disclosures see the accompanying earnings release and Investor presentation.
For Q3, the GAAP to non-GAAP adjustments include approximately 3.5 million of stock based compensation expense.
GAAP to non-GAAP adjustments, primarily driven by the Xcerra acquisition include 10 million of purchased intangible amortization expense 1.3 million of property plant and equipment step up costs and 2.5 million a restructuring costs.
The Q3 2019, net cash impact of et cetera acquisition related restructuring was approximately 4 million.
Related primarily to employee severance.
Q3 revenue.
143.5 million was in line with our guidance and no customer accounted for 10% or more of sales in the quarter.
On a year to date basis through September one customer and datacenter cloud and AI represents approximately 11% of sales.
In Q3, we generated gross margin of 42.3%, which is approximately 130 basis points higher than guidance due to a better than expected contribution from recurring revenue and a favorable mix of handler and tester system sales.
Operating expenses came in lower than forecast as a result of tight control on labor costs and discretionary spending and a 600000 dollar gain on sale of fixed assets.
During the quarter, we realized approximately 7.2 million of acquisition cost synergies, which is in line with the forecast.
In the third quarter, we generated non-GAAP operating income of 11.2 million or approximately 8% of sales.
After interest expense.
Foreign currency gain of about 1.6 million and the tax provision Cogenerated non-GAAP EPS of 12 cents.
Adjusted EBITDA in the quarter was 16.1 million or 11.2% of sales.
And as I've stated on prior earnings calls the effective tax rate, it's not meaningful at current pretax levels. As a reminder, most of co use operations and related profits are generated untaxed outside the U.S.
Additionally, when the U.S. operation generates a loss as it did in Q3 Theres no tax benefit to offset the foreign tax expense because of our deferred tax asset valuation allowance.
As a result in Q3, we recorded tax expense on foreign profits without any benefit from the U.S. loss. This resulted in a high effective tax rate of approximately 39%.
Now turning to cost synergies in our business model as announced on prior earnings calls we've taken action.
Actions that result in pulling forward approximately 20 million a cost synergies into 2019. That's ahead of the original target of three to five years. The result is that by the end of this calendar year, we expect to deliver 40 million in annual run rate cost synergies that will favorably impact and are already included.
It in the business model going forward.
This annual cost synergy split is approximately 20 million and cost of goods sold and 20 million in operating expense savings.
Now after completion of our restructuring plans, including shutdown and consolidation of various facilities. The minimum cash required to run the operations has been reduced to approximately 90 million.
Our long term capital allocation strategy is to use excess cash to pay down the debt and de lever the company.
However, in the near term, we're making minimum debt payments until we have a better sense of the timing and extent of cash required to support anticipated business growth.
In 2020, driven mainly by Fiveg communications.
During Q3, Cogenerated, approximately 8 million of cash from operations and our cash balance was approximately a 146 million at the end of the quarter.
Go use board of directors approved a quarterly cash dividend of six cents per share payable on January 2nd.
2022 shareholders of record on November 15th 2019.
For the fourth quarter 2019 guidance, we're expecting sales to be.
134 million to 144 million.
Revenue distribution is forecasted to be 94% semiconductor test and inspection and 6% PCB test.
Gross margin is expected to be 41% to 43% and operating expenses are projected to be approximately 50 million, including cost synergies of approximately 9 million or about 36 million on an annualized basis.
In addition to the acquisition cost synergies, we're maintaining the cost reduction measures taken in Q3 of approximately $1 million.
We expect Q4 adjusted EBITDA at the midpoint of guidance to be approximately 8%.
Similar to the last three quarters, the tax provision rate will be abnormally high and not meaningful.
The tax provision total tax provision at the midpoint of guidance is expected to be similar to the Q1 and Q2 non-GAAP amounts.
For modeling purposes, we expect a normalized effective tax rate of approximately 22% on revenue of 170 million or more and profits in line with the business model.
The diluted share count for Q4 is expected to be approximately 41.7 million shares.
And that concludes our prepared remarks and now we'll take your questions.
Ladies and gentlemen, if you have a question at this time, Please press star and the number one on your Touchtone telephone. If your question has been answered all you wish to remove yourself from the Q press the pound key again star one for any questions.
So just a moment to compile the Q1 day roster.
Your first question comes from the line of Craig Ellis from B. Riley.
Yes, thanks for taking the question gentlemen, congratulations on the strong margin performance in the quarter and outlook.
Let me so I wanted to follow up on a couple of points that you made and just try and tied them together so.
Nice to see the.
The new touched or when you said was worth I believe $10 million and then secondly, constructive longer term aren't touched outlook, but I'm not was sprained does growing from 60 to 100 million. So if I put those two things together, just assuming a linear ramp.
Growth in RF test does that mean that there could be as much is 23 million of incremental aren't test revenue next year. If you got.
10 million from new customer and then industry growth.
10 to 13 million.
This is we see a rebound.
Hi, Hi, Craig.
Yes, so just to just to recap on those two points right.
The customer win India reps fees, we do expect that to generate about $10 million a year going forward in revenue. Obviously, there are some puts and takes so on and about 10 million and then the.
Our aftermarket the addressable market for RF testers, we do expect over the course of the next three years as Fiveg deploys.
In greater volume and mobile to grow substantially. So you know I don't have I don't have a number to give you for next year's specifically, but but indeed, our RF test or sales should be growing should be growing meaningfully into 2020, and I would expect even over the next.
Few years as Fiveg continues to rollout.
That's helpful and then a follow up just on some of the other dynamics within the end markets.
It sounds like from what you're seeing.
Hard to mobility looks like it sounds good durability can you comment on the potential for data center to continue to be a strong market and then you noted that.
Good order was really a tale of two things one eight ounce strong and in I think.
The parts weaker you have any visibility as to when auto and industrial would start to inflect more positively.
Okay. So so to the first point, yes, we do expect.
The data center cloud AI to remains strong going into next year going into 2020, so that business I think it's going to remain there on the automotive and I would say also the industrial market.
They have indeed, we can we come through the year and as you can see as a percentage of our systems business. It has actually come down in the third quarter.
I think the the bright spots in automotive are going to be a das.
Going into 2020, and also battery management systems. So Vms, if you will for electric and hybrid electric vehicles. Nevertheless, as you know Sars have gone down. This year I think there are some expectation that you could be a flat to low single digit up.
Next year and I think the main story around automotive will be content growth.
And electrification of vehicles going into 2020, sewed expect summary coverage and normality.
No. We now it's hard to talk about timing for these for these things all combined and so I would expect getting into 2020 more the typical seasonality something that we havent seen much in 2019.
Maybe Q1, starting to come back around after Chinese new year, but in earnest sort of a seasonality picking up in the second quarter. The year, maybe Q1 will be more of a flat to up mid single digit quarter on quarter before.
The seasonality picking up in Q2 as I said.
Yeah that makes sense, given what we're seeing incremental on company to net hi, Jeff not to leave you out funnily enough on some of your comments regarding synergies clearly synergies capture is going quite well.
I think you noted that in the fourth quarter.
Expected performance tapes, the business to 36 million.
But exiting the year.
On that 40 million run rate does that mean that theres about 4 million of incremental synergies that comes into the business in the first quarter and if so can you give us any color on the extent, which that's either concert opex.
Yeah that would be right Craig so over the full year you'd have that 4 million dollar impact.
And that would be let's see we're going to exit the year.
With.
Cogs out about in Q4 at about 4 million. So you're most of that would be Cogs, driven most of that incremental $4 million would be cogs driven.
Thanks, guys and ill jump back in Q.
Your next question comes from Christian Schwab from Craig Hallum Capital.
Hey, Doug Good morning, guys. Thanks for.
During the call.
Pre market I do like that better.
As it relates to bigger picture I know you did want to talk about timing regarding.
The recovery scenario different markets, but maybe you could walk us through please the puts and takes to return the business.
Topline perspective to where we were kind of a year ago. When we made the ex your acquisition I think there was about roughly 780 million in revenue on a trailing 12 basis can you walk us through what it would take to get us there.
Yeah sure.
So Chris you're never going to talk about the different markets here in sort of maybe just put the whole picture together. So if you look at if you look at mobility. We're seeing here is the fiveg wave driving the growth of RF devices or at least as it impacts us RF devices and that's happening already.
Although honestly, you know where nested expect that your ramp.
In real volume starting sort of Q2, starting Q2 of next year and this is this is I was we're going to start seeing a larger volume of next generation smartphones with higher RF fiveg content in them.
Now this is what does that kind of do that's going to benefit.
Both the sale of our RF configured testers as well as third handlers into some degree even.
The pick and place handlers into the mobility market.
On the automotive side and as I mentioned before what we do see today and if you look at I. Hs market research.
There is some expectation that global light vehicle sales will be up low single digit percent next year more importantly, I think semi content going up for for Ada Es as I mentioned before which benefits radar sensors other sensors in general high and Microcontrollers.
Also RF devices in cars right.
In industrials are sort of stabilizing the data as I mentioned before two data center cloudy I is expected to remain strong and so you know I can't give you an exact number for next year, but I do expect that typical seasonality coming back for 2020.
Where we would have again weaker.
First quarters and fourth quarters in fact, what kind of looking at a sort of a first quarter to be similar levels to fourth quarters, and then and then going into much stronger second and third quarter now is the amplitude, whereas exactly the amplitude. We don't have an answer to that question today, but what I think the business is going to start coming back.
Sure the former profile at least a formal seasonal profile.
Fabulous I don't have any other questions again, great quarter. Thanks.
Your next question comes from the line of Tom differently from D.A. Davidson.
Yes. Good morning are good evening.
So maybe just following up on the.
On the costs over the last couple of quarters. So in the just reported quarter I was trying to figure out what's the impact was the Knicks was.
You know in relationship to the cutting cost for Doug and also the one time cost programs that you have going on right now.
Yes, so in the forecast we had we had baked in the cost synergies of a little over 7 million and so we in fact hit that number is about $7.2 million acquisition related cost synergies and then during the quarter as I mentioned, we had about 45 million more of recurring.
Revenue.
And then.
As well as sort of the blend of systems from handlers and testers were.
A little more profitable than than what was forecasted.
Okay anyway quantify the contribution that you got from the better mix.
Well from the better from the better mix it really accounted for just about all of the 130 basis points.
Okay.
Okay, great on the Internet access.
On the Opex Tom.
You know that spending was lower as well and so weve.
We have gone beyond the.
The acquisition costs and we've we've done things as I mentioned before about.
Lowering labor costs in terms of not hiring or replacing.
Positions at the moment that we would in the future when business returned so it's.
Sort of delaying.
Certain labor costs and other spending we've reduced discretionary significantly in terms of travel and other costs and so those are the additional cost we've taken cost actions. We've taken in addition to the to the synergies that we're achieving and so we'll continue those as long as business remains somewhat down.
Okay. So there's a potential fab nice second quarter next year, we get a couple million dollars of comps coming back on just from those short term programs.
Yes, I would say as revenue returns than I would I would start to look back at that business model again to to model the operating expenses okay great.
And then a question on China inside China was actually okay for you in the quarter and I'm wondering if you're seeing the impact of your move to direct sales team there.
Yeah, the the China was actually a growing growing region for us in the third quarter, Tom in and we continue to forecast actually China and the rest of the world actually not just China should be is strong.
As strong region for particularly for mobility and as we grow the RF Fiveg business next year. So.
NDN not much of an impact from the trade in the third quarter, we hadn't had a disruption as you may recall in the second quarter when things got a moved around a little bit.
But on a go forward basis now.
We're not we're not foreseeing any negative impact from that.
Okay, Great and then finally, when you look at the differences between the handler business and the tester business in general is around.
Stronger utilization rates, one half of your business versus the other which when do you think has been better near term recovery or the contribution recovery.
I think the near term recovery is going to come more on the tester business and that simply because.
Our tester business has a greater exposure to mobility and consumer applications, why our handler business, although serving across all markets.
As you know historically, we've been much stronger in the automotive and industrial markets you know at some point in the past prior to et cetera, automotive and industrial represented 40%, 45% of our handler sales so.
As I mentioned before here the mobility market, particularly RF fiveg is going to be the the main driver as we see it for 2020 right now and so with that would expect the tester business to come back sooner than the handler business.
Okay. Thanks, and then final question, Jeff when you look at the the mix going into the fourth calendar quarter.
Any meaningful difference from what you saw in the third quarter from a mix point of view.
I would say that.
The recurring business in Q3 was about 55, 56% of the revenue I expect that to be similar for Q4 and then.
With respect to these systems, the handlers and the testers.
What we're forecasting at the moment is a little less a little lower margin on this on the systems for testers, and handlers, which brings us to that 42% versus the 43% we achieved in Q3.
Okay, Great. That's very helpful. Appreciate it.
At this time I would like to remind everyone. If you will like to ask a question. Please press Star then the number one on your telephone keypad.
Your next question comes from David Duley from Steelhead Securities.
Thanks for taking my question I was wondering if you could give some.
Flavor or some additional color on the contactor business during the quarter and what you expect it to do during the fourth quarter.
Hi, Dave.
Yes, so the contactor business right now is.
Growing in the RF space and power management, IC space, and that's going in tandem with where we see the market being stronger.
We are making inroads in the automotive market in industrial market, Nevertheless, with lower lower utilizations in the auto and industrial markets right now.
In aggregate it does weigh negatively so we we would have to wait for it utilization should pick up again, just see a higher growth in that space. So I would just say in aggregate contactor Ceos are making inroads, but predominantly like I said in mobility RF power management IC.
We also have increased the.
Sale of our key to pins in our Contactors that that is an ongoing trend.
So the team in Japan.
Remains very very busy and utilized.
Supplying into.
Contactors that could you provide stir customers.
Okay, and then could you talk a little bit about.
What's going on in the flat panel display market I know you have.
Good position there in the tough throughout the season.
I think that there's been some life in that segment of the business could you just.
Provide some additional color flavor of what you are seeing there.
Sure just to remember we are still a small number two supplier in that market right and our pitch years that we have a general purpose esso see tests or instead of just for dedicated tester and where we do as we dedicate instruments that populate the tester for flat panel display so it becomes a very desirable proposition.
For the offsets.
Which are.
Supporting manufacturing for.
Predominantly these fabless companies in the flat panel display. So we have captured some on T.D. I opportunities.
As well as some drivers for large displays although it's predominantly TDD I up to this point.
We have sold mostly in Taiwan, and China to date like I said these are all sats.
In half gain some traction in Korea, we expect the next big opportunity and flat panel display it should come from.
Well ladies.
In this is mainly as the Chinese smartphone manufacturers start transitioning over to all that and we are well aligned in that supply chain. So expect this should be the.
Predominant driver for 2020 into 2021 would be the OLED wave.
Oh really these generally require longer test times.
We have horse tests are already qualified for all test insertions will add from probe to final test. So so we continue to see this is an exciting opportunity to grow.
To grow our AG business.
Okay idle question for me I guess it was similar to.
Previous question, but regarding getting back to.
Levels prior to the acquisition on revenue is there is there any structural reasons in the market.
Tumors.
You know combining or market share loss or anything.
What makes us think that you can't get back to let's say the to the whatever that peak revenue was on a quarterly basis I think it was like 225 million or so.
There are any hurdles on getting back to that level of revenue.
There are no structural reasons to that obviously notwithstanding share gains.
It would really require the automotive and industrial markets to bounce back and I see that because.
Much of our handlers seals.
Is aligned with automotive and industrial markets.
So you would you would have to you'd have to say industrial automotive is back in the healthy stage for us to be should be at those levels again or.
Our growth in some of these target segments like I said flat panel display RF fiveg growing contactor business offsetting a lagging automotive and industrial market. If you will there hasn't really been any market share loss to speak choose so structurally speaking not.
Sure obstructed, it's more a matter of timing, though.
Okay.
And the weakness that you have seen them the audio that auto and industrial space I guess, you met in China with strong so I'm, assuming the the weakness you're referring to is more U.S. and European oriented or maybe just give us a couple a little bit more incremental flavor, there about the weakness and auto.
Well, our semiconductor customers in the auto space are.
Predominantly U.S. in European customers, you know the they supply than to auto manufacturers in Japan, China, Europe , Qs and you name it right I'm, sorry, if I am to look at the end market itself. This year I've seen weakness both in China, Europe and use.
Yes.
So I think it really has impacted our customers quite broadly as Sars went down.
So I would say now we're looking at more of a stabilization. She was small recovery on the SAR units and and then compounded by semi content growth, which pivoted now to more aid das and battery management systems going into <unk>.
20, those would be the main drivers that will pull automotive back back to some normality.
Thank you.
Your next question comes from the line of Brian Chin from Stifel.
The new can you can you hear me.
Yes, we can add okay, great. Thanks for.
Getting me on the Q any and a nice job on the execution in the quarter.
Maybe first question is kind of double back on the RF test discussion.
I guess, you kind of Luis you did kind of calibrate what the timing could be in terms of Q2 next year, maybe kind of more of a.
At bigger pickup in the bid some kind of curious can you remind us sort of roughly based on the existing Tam. What your share is number one kind of that you think you'll gain incrementally in terms of as that Tam.
Increases and also.
Is it fair to think that as millimeter wave is ushered in that Theres, maybe a little more of a hockey stick in terms of how you in terms of the growth on that Tam in kind of that a year or two years beyond.
Okay. So let me let me see if they can cover all these pieces here Brian .
We look at CIT today, we look at the Tam for us addressable market being essentially RFP.
About $60 million Tam for testers on an annual basis, we have give or take 60, 70% share of that on a go forward basis, we think the RFP a market is gonna be growing 40, 50% over the next three years as as greater content of our after.
Weiss's RFP A's goes into phones. Nevertheless in conjunction with that we are broadening what we serve India RF market, we were going after a small a larger.
Section of that RF signal chain and so we believe we can actually tap into $170 million over the next three years annual market addressable market.
So so thats the perspective years from one side. The Tam is growing from another side were growing we're forecasting a bit of a wider net.
India in Europe space.
Sorry, Brian I have to go back here, maybe a little bit of jet lag what was the other piece of your question again.
I think you basically addressed it.
And your answer I appreciate that the I guess second question may be.
Yes, that's the kind of continue to frame the auto business clearly you have the worse or visibilty relative to the mobility side of the business need to calibrate maybe some of those sort of the broader signals, but even yes. I think last time, you update us that auto business was already tracking down maybe 30% at least from a revenue perspective this year and.
Obviously, it's not a very strong order intake from assistant standpoint in the quarter and so you usually give book to bills by segment and it sounds like that the order level must be sort of that a maintenance or even sub maintenance level. At this point I must give you some confidence I imagine in terms of just can't get a lot worse at this point.
Yeah, I mean at this point I would say I think we're running at approximately a book to bill of of one going from Q3, Yeah, Hey exiting Q3.
And like I said, if you look at if you look at a normal seasonality pattern, which where we expect to be returning to next year.
We will be Ronnie Q4, you know laterally to maybe mid single digit up into Q1, and then the seasonality comes back into the second quarter now it's easier to talk about the seasonality when we see the fiveg.
Demand coming up next year, it's a little harder to speak to the automotive market at this point, it's a little early for us.
We can gauge it more by looking at many of our customers earnings release here over the last couple of weeks and how they have gauge their business.
For gives us a little bit more increasing confidence that automotive will return to normality next year, but its yet hard for us to predict the.
Sort of the shape of that recovery curve on the automotive side.
Sure that's fair maybe last question for Jeff.
Yes kind of sequencing out the recovery relative to what you've stated here.
No test you certainly have a little bit more visibility in terms of the test business right now.
Cooling business this tends to lead capacity as is.
Yes relative to what that margin mix looks like could you be operating on the gross margin standpoint, maybe slightly ahead of the model than kind of as we sort of move into a recovery in the business.
Yeah, you're right Brian .
With that quicker recovery on the testers side of the business the margin would be stronger.
In that.
Whatever timeframe that is if thats Q2 of next year than than you're right, we would have stronger and stronger margins at that point.
If I may just add.
The number that's talking about testers, but then there's possibility that would be some of our handlers going along with that as well and this being mobility more at the ambien only ambien test handlers, we're more.
Margin pressure on those handlers and we are on the a more differentiated handlers. So I don't know how it all plays out together would be a partial offset I don't think it would be a full upset or have to look at the mix when it comes out right.
That's a good okay.
Actually maybe sneak one more in a given that you. It sounds like chart. Maybe is one get extended handlers, maybe have some kind of pull through relative to fiveg.
And chart, maybe as part of that is the.
Well, some a good inspection attachment as well.
Some of that business.
Yeah, we would expect we'd expect so because a lot of our inspection sales today is.
In the all in the mobility type devices, RF crises and farm infant I sees a lot of it has to do with.
Inspecting wafer level chip scale package that are used in mobile products. So yes, yes, it would expect it to drive a pool and the and inspection platform.
Great. Thank you.
Okay.
And I show no further questions at this time gentlemen are there any closing remarks, Sir you May proceed with your presentation.
Yes, so just like to say thank you for joining us today, and we look forward to speaking to you in the near future.
By and have a nice day.
Bye bye.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation have a wonderful gave you may all disconnect.