Q1 2022 Cohu Inc Earnings Call
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Good day and thank you for standing by welcome to <unk> first quarter 2022 financial results Conference call.
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I'd now like to hand, the conference over to your host today, Mr. Jeff Jones, Senior Vice President and CFO .
Good afternoon, and welcome to our conference call to discuss <unk> first quarter 2022 results in second quarter 2022 outlook I'm joined today by our President and CEO Luis Mueller.
If you need a copy of our earnings release, you may access it from our website at <unk> dot com or by contacting <unk> Investor Relations.
Also a slide presentation in conjunction with today's call that may be accessed on co. His website in the Investor Relations section replay.
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 managements current expectations concerning <unk> future business.
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 <unk> filings with the SEC, including the most recently filed Form 10-K and Form 10-Q .
Our comments speak only as of today April 28 2022.
<unk> assumes no obligation to update these statements for developments occurring after this call.
Finally during the 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 Mueller co use president and CEO Luis.
Good afternoon, and thanks for joining us.
Fourth quarter revenue was approximately 198 million and non-GAAP EPS was <unk> 66 cents, both exceeding expectations driven by customer acquisitions and effective supply chain management.
<unk> is benefiting from several key design wins in late 2021 with those customers starting to place volume orders this past quarter.
This has been particularly beneficial for the tester business that booked incremental $45 million in design win orders in Q1, broadening our addressable market beyond RF front end IC test.
The success in new customer acquisition, driven orders increased backlog to a new record and is putting clothes you on pace to achieve our midterm targets of 25% non-GAAP operating income at $1 billion revenue.
Our supply chain team also did an effective job managing the ongoing challenges in controlling costs.
Combined with progress of our contactor manufacturing in sourcing, we're delivering better than anticipated gross margin and again on pace to achieve our mid term target of 49% non-GAAP gross margin.
In all <unk> is progressing well against our strategic plans.
Semi test is expanding applications and display driver IC, capturing business in Korea, and Taiwan gaining.
<unk>, new sockets for testing power management and analog Ics as we continue to expand the instrumentation portfolio in our low cost Diamond Ax platform.
Our das interface business is gaining momentum and millimeter wave in delivering on the promise of expanding into the probe card market.
Our services business, including spare parts upgrades and data analytic software remained robust in continuing to develop a new frontier with D. I Court D and analytic software that is now in use at several major automotive customers.
We are also qualifying new customers on the neon package inspection system on our path to grow our number two position in this market.
Our test automation business is advancing with new products in the push to automate backend operations.
We got a key order for a next generation Mems sensor test platform that brings task to a new level, enabling ultra sensitive sensors used in mobility and automotive applications.
We have demonstrated the superior thermal performance of our T core thermal technology in the Eclipse handler testing high performance computing processors, and ultra large form factor devices.
Push to automate backend factories and improve productivity.
So known as industry for Zoro is creating new sales opportunities for <unk> to provide automation and data analytics solutions to customers.
We're excited to be at the forefront of this factory automation revolution, leveraging our engineering competencies to promote value upgrades to our large installed base of equipment.
Moving to discuss E. S. G. In Q1, we published <unk> 2021 sustainability report, which you can read in detail in our website at www Dot <unk> Dot com.
We're excited to communicate our progress on energy usage addition of chew operating sites with solar power generation into continue our stellar safety and ethics record.
The report also promotes our progress on employee gender and racial diversity details about scope, one and two greenhouse gas emissions incorporate ESG targets for 2022.
Switching topics.
We are disheartened by the conflict in Ukraine.
Although we have very limited exposure to customers and supply chain in that region. We have opted to join other global corporations and halting any business engagements with Russian companies starting on March 1st.
We're also participating with employees in contributing to the relief efforts for Ukrainian refugees in Europe .
Finally, I want to comment on Covid disruptions in supply chain constrains that continue to impact many semiconductor equipment companies.
We're not immune to shortages cost increases and regional Lockdowns.
But the <unk> team has done an outstanding job putting in place countermeasures N T C. Paying these challenges requesting and receiving help from our suppliers some of which are also our customers.
These challenges are not new.
<unk> been around since March 2020, and are probably going to continue but I'm confident that our proactive approach to managing disruptions will continue to yield positive results. The fact is that one company's challenge is also in others growth opportunity and we're working hard to capitalize on these.
Disruptions to support and win new customers.
Let me now turn it over to Jeff to share first quarter results and provide specifics about our second quarter guidance Jeff.
Jeff.
Thanks Luis.
Before I walk through the Q1 results and Q2 guidance. Please note that my comments that follow I'll 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 financial results Cohill again delivered strong revenue and profitability in the quarter Q1 revenue was $197 8 million and at the higher end of our guidance range.
During the first quarter, one automotive segment customer accounted for more than 10% of sales.
Gross margin in Q1 was 46, 1% and higher than guidance.
Order over quarter, our semi test business grew in part from recent design win orders as our automation revenue moderated, resulting in our first quarter revenue mix and gross margin closer to the mid term target.
Operating expenses for Q1 were lower than guidance at $50 9 million as certain product development travel and other costs have shifted from Q1 to Q2.
First quarter non-GAAP operating income was 23% of revenue and adjusted EBITDA was 22.7%.
Return on invested capital in the first quarter was approximately 39%.
The non-GAAP effective tax rate for Q1 was approximately 19% and higher than guidance as a result of less benefit from the annual Irish investing process and reduced credit against the U S tax for foreign taxes paid.
non-GAAP EPS for the first quarter was 66 cents.
In summary, Q1 profitability was strong on seasonally low revenue and is progressing through the midterm target.
Now moving to the balance sheet the.
Q1, cash balance was $359 million and total debt was reduced to $110 million. During the first quarter, we repaid approximately $9 million of debt and used $6 4 million to repurchase approximately 214000 shares of common stock.
Cumulative through Q1 co Hugh is used $13 $7 million to repurchase approximately 420000 shares of common stock.
Overall <unk> balance sheet is in a strong position to support debt reduction the share repurchase program and investment opportunities to expand our served markets and technology portfolio in line with our growth strategy.
Now moving to our Q2 outlook for guiding Q2 revenue to be between 205 million and $221 million.
Entering Q2, our backlog is at a record level of $363 million and is scheduled to ship over multiple quarters as determined by customer requirements and material availability.
As Luis mentioned the supply chain remains challenging and to date <unk> has effectively navigated supply constraints to locate required material and control costs.
Strong order backlog in test cell utilization bodes well for sequential revenue growth in Q3, however, similar to last quarter, given the uncertainty with supply chain and semiconductor availability were hesitant to comment in further detail about future quarterly revenue at this time.
Q2 gross margin is forecasted to be approximately 46% favorable product mix and increased contactor in sourced manufacturing is having a positive impact on gross margin.
Q2 operating expenses are projected to be between 54 and $55 million higher than Q1, due to increasing R&D investments to support greater customer traction for our products and increasing travel pushed from Q1 to Q2 to support our 2022 plans.
We're projecting Q2 interest expense to be approximately $1 million.
We expect Q2 adjusted EBITDA at the midpoint of guidance to be approximately 22%.
The Q2 forecast non-GAAP tax rate is approximately 20% at the midpoint of guidance.
Full year 2022, non-GAAP tax rate is also estimated to be approximately 20%, which is 200 basis points higher than our prior guidance due to the annual impact of less tax benefit from the annual equity vesting and reduced credit against U S tax for foreign taxes paid.
The diluted share count for Q2 is expected to be approximately $49 6 million shares.
And that concludes our prepared remarks, and now we'll open the call to questions.
If you'd like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone.
To withdraw your question press the pound key.
Our first question comes from Craig Ellis with B Riley Securities.
Yeah. Thanks for taking the question and congratulations on the nice execution guys I wanted to start with a clarification and then a question. The clarification is on system. So very robust gross margin improvement up 400 basis points. Jeff can you just breakout the sub components, there and and to what extent are some of the things that were driving the improved.
Men perpetuating into the second quarter, the second half of the year.
Well Hey, Craig.
One of the drivers there was mix. So we had more tester systems in the quarter, but also we're seeing.
Manufacturing efficiencies.
Out of our operations, our foreign operations and so that contributed to the <unk>.
Improvement in the systems gross margin as well.
And I think in prior quarters, you talked about managing pricing within systems, and and did that have any impact in the quarter.
It has had incremental impact over the last few quarters as orders become subject to that price increase we had to work through the backlog we had to work through certain customer contracts.
But as of the end of Q1, it's effectively been fully realized.
Got it helpful. Okay and then the next question is for Luis Luis I wanted to go back to a comment you made in your prepared remarks around kesterson of $45 million in design wins beyond RF IC test can you just talk a little bit more about that in and to what extent are those design wins for frac reflected in.
That increase in backlog to $363 million.
Yeah, Hi, Craig Yeah. If you recall, we have mentioned that in the fourth quarter, we had.
Sort of a single quarter with the largest number of design wins that I recall at least in my history and those are starting to pan out into volume orders now in the first quarter and beginning of this year.
Yes. They are certainly they are certainly a key component of that backlog increase for sure, but even if you take that out you can see that we have had a pretty pretty good.
First quarter bookings.
That design win as I mentioned before cuts across different segments flat panel display P. Mick.
We also had some design wins in ultra wideband, Wi Fi and RF Iot.
Got it okay, and if I could just sneak in one more before hopping back in the queue.
Luis I think you and Jeff were amongst the first to talk about a return to seasonality in the business.
It's a really challenging macro environment out there but.
Can you just comment on the degree to which you're seeing that.
[noise] manifest in the order and engagement activity premier that you're getting from your customers both on the system side and on the recurring side.
Yeah.
Very much like we spoke a quarter ago, and we expect a little bit of seasonality this year again.
Nevertheless, if you look at Bostick Fair acquisition, our sixth our seasonality has been.
Muted a lot I mean, it's been be able to fight if you will.
But it is still prevalent when you see typically a bit stronger second and third quarter typically a little weaker first and fourth quarter. Nevertheless.
<unk> lower amplitude that in the past or some of the other companies that I've seen releasing earnings recently.
Yep got it thanks, guys very helpful.
Our next question comes from Brian Chin with Stifel.
Either good good afternoon, and thanks for letting us ask a few questions.
Maybe first just to talk about supply constraint.
You did a really nice job delivering in this environment, where other test companies are seeing something like six to 12 months lead times.
I think last quarter, Jeff you talked about $8 million to $10 million revenue constraint your backlog clearly grew in the quarter as.
Has this constraint grown as well and can you maybe twice.
Or quantify that.
Hey, Brian .
No that the constraint hasnt necessarily grown but so what we're seen as Luis mentioned I mentioned as well record backlog.
And so the rollout over the next few quarters.
Obviously gated by customers' ability to take more equipment trying to match that up when they have lead frames and so forth and then material material availability on our side.
No.
I would say.
I wouldn't try to attract at that $8 million beyond Q1 now.
Sort of a new set of parameters that we're dealing with in.
Customer cut.
Customer requirements at our material availability.
Okay got it and I've actually got it makes sense.
And then maybe on the back on the test business again that $45 million of design win orders.
Roughly how many customers are represented in this what's the timeframe against which you plan to deliver against this backlog and also.
At least would you characterize this as more as a penetration of existing Sam still but maybe perhaps positioning yourselves for some Sam expansion at these customers.
Yes, I think thats, a good characterization to some with them Brian we have.
I'm looking here, it's really a list of seven seven.
Seven customers and.
Indeed, we have we have bigger aspirational plans with these customers. So it. So it is it is an entry point. It is a start but it's actually a fairly decent start in terms of volume.
And I would say in terms of the backlog and the way it rolls out as we sit at the end of the quarter.
We're seeing about 80% of it roll out over the next two quarters.
Okay got it that's very helpful and maybe a last quick one last.
Last couple of quarters since inception.
We purchased sort of a ratable amount of your stock at these levels, where it's at.
Why not an even more aggressive posturing in terms of the repurchase.
Brian we put in a <unk> one plan.
So that's been sort of gating our ability to go back into the market and buy.
Additional shares on a daily basis and.
I think that's really the main reason at the moment. So we're evaluating those plans and plan to put another tenant.
<unk> one in place here soon so.
So we're reevaluating the metrics on that.
Okay fair enough. Thanks, a lot.
Yes.
Our next question comes from Quinn, Bolton with Needham <unk> company.
Hi, guys. Congratulations on the nice execution and margins wanted to follow up on Craig's question on the test.
It sounds like you guys are winning beyond your traditional strength in the RF front end.
As you do that Im wondering are you do you view this as sort of your expanding.
The test Tam that you are now able to capture or do you think the tests, Tim Hasnt really changed your just executing better and grab.
Grabbing a higher share of that available Tam.
Hi, Quinn, it's a bit of both to be honest we have.
We have previously communicated a portion of this has been our addressable market, but we're still working on developing the instrumentation should go added for example in display driver IC. We did mentioned before that was part of what we define as addressable but.
We're limited to what we could cast and <unk> instruments would come online.
Out of our roadmap development.
But in other parts I got to say realistically, we have expanded a little bit our Sam and.
I think we're going to talk more about in the near future, but we have expanded our Sam again.
Understood and then maybe for Jeff I know youre, not giving guidance beyond the second quarter, but as you look at the backlog can you give us some sense what do you see as the relative mix between inspection handlers test and contractors as we come through the second and third.
Does the mix stay relatively.
Similar to Q1 does it does it shift in favor of test.
Given the strong test backlog that you mentioned.
Yeah, I would say that it stays.
At a favorable mix level.
Over the next couple of quarters would expect tester revenue to be strong.
And so that bodes well for the for gross margin, but in addition to that I don't want to leave this out.
We've made headway and then we're seeing efficiencies in the manufacturing process and we continue to in source on contactor. So all of this together is supporting.
Supporting the gross margin.
But to your question about mix.
Strong mix over the next couple of quarters.
Great. Thank you.
Yeah.
Our next question comes from Christian Schwab with Craig Hallum.
Yeah.
Hey, guys. This is Tyler on behalf of Christian. Thanks, a lot first couple questions first just on the model a little bit Opex up in Q2, and there was some pushout of travel from Q1, So there's 40 or 54% to $55 million level.
That's the kind of level, we should expect it to the rest of the year or maybe that falls off a little bit.
Any help thinking about that would be great.
Yeah, you bet Tyler.
I wouldn't model Q3 pretty comparable to Q2, so somewhere.
54, and a half continued R&D investment.
And then I would model for down just slightly maybe half a million dollars.
Perfect.
That's much appreciate the color and then.
Given the stronger start here to 'twenty two than expected and these design wins now ramping I was wondering any color or any comment on the midterm target in the.
The timeline, you're expecting I know its three to five years is kind of a broad range.
That.
Is that accelerating now after the after this quarter or two how do you think about the timing of your midterm mid term model.
Okay.
We're going to stick to what we said here in the prepared remarks, we are on pace to.
Should that plan and.
As he stated midterm is a three to five year.
Horizon, So I think.
That's what we're sticking with it for the moment, yeah, Yeah, I mean, I would add to that that as we've said within that strategy where.
Planning for higher growth rates in the tester business.
I'd say, we're executing well on that Tyler.
Perfect sounds good I appreciate it that's all for US thanks, guys.
Thank you.
As a reminder.
That is star then one if you'd like to ask a question.
Our next question comes from Hans Chung with D. A Davidson.
Thank you for taking my question.
Sure.
I know.
Thanks.
Great job in terms of.
Excuse me.
Yes.
The supply chain concentrate.
Just kind of curious.
Is there any.
If I can.
Hello, Kevin.
Right.
Second quarter outlook.
Sure.
Campbell.
The whole challenges.
I would say, it's a bit of a balance I would say, yes, we're working through availability on material material on our side, but also gated by customer and their ability to.
Receive and utilize equipment within a reasonable period of time. So do they have the wafer is the lead frames et cetera that they need in order to absorb more test equipment. So I would say, it's a real balance there.
Between those two constraints, yeah, I was going to say, it's not so much limiting its more of a metering.
Quarter on quarter.
Capacity additions by our customers.
Okay and then.
Regarding.
The automotive business.
I know we are kind of.
Correct.
Even.
Great.
Just kind of curious.
When do you think the current king.
Sure.
Yeah.
What could be done.
Thank you.
Okay.
Yeah, I wouldn't quite characterize it the way you mentioned I don't think there is a correction going on what.
What we have seen is more of a snapback in demand in late 2020, beginning of 2021.
Because of our very.
Constrain environment due to Covid and factory shutdowns in the middle of 2020.
Since then he kind of returned to its normal growth path I don't I don't necessarily see a correction going or a return to anything it's more of a natural growth now.
<unk> driven predominantly by a dash.
Devices, essentially processors and sensors for automotive applications.
And electrification, which continues to be pretty strong.
So again I don't I don't view it the same way you do it is not there is no correction in place right now and I think there is a.
There's just the path to snapback effect in early 'twenty, one and now more of a resume resumed growth path.
Okay got it.
Thank you.
Okay.
I'm showing no further questions in queue at this time I'd like to turn the call back to Jeff Jones for closing remarks.
Alright. Thank you very much before we sign off I'd like to remind everyone that <unk> will be hosting a virtual investor and analyst day on Monday may 16th.
This is an opportunity to hear details from our business unit general managers about.
Strategy to achieve the midterm financial targets.
For more information regarding this event is located on the Investor Relations page of our website.
And then lastly, I would like to mention that we will be attending a number of investor conferences over the next few months. These include the B Riley Conference May 25th Craig Hallum Virtual Conference on June 1st Cowen Conference on June 2nd Baird Conference on June six Stifel Conference on June 7th Rosenblatt virtual comp.
On June nine and the CEO summit on July 13th So if you'd like to attend any of these events. Please reach out to your respective banking and our conference contacts to arrange a meeting with kogyo.
We look forward to speaking with you soon thank you for joining today's call and have a great day.
This concludes today's conference call. Thank you for participating you may now disconnect.
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