Q3 2024 Cohu Inc Earnings Call
Good day and thank you for standing by. Welcome to COU's third quarter 2024 financial results conference call.
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I would now like to hand the conference over to your speaker today, Jeff Jones, Chief Financial Officer. Please go ahead.
Good afternoon and welcome to our conference call to discuss Coheses 3rd Quarter, 2024 results in 4th Quarter Outlook. I'm joined today by a President and CEO, Luis Muller. If you need a copy of our earnings release, you may access it from our website at coju.com or by contacting Coheseshoe Investor Relations.
There's also a slide presentation in conjunction with today's call that may be accessed on Co-U's website in the investor-relation section. Replace 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 co-use future business.
These statements are based on current information that we have assessed, but which by its nature is subject to rapid and even abrupt changes.
We encourage you to review the forward-looking statement section of the slide presentation and the earnings release, as well as co-use filings with the SEC, including the most recently filed Form 10K and Form 10Q.
Our comments speak only as up today, October 31, 2024, and co-U assumes no obligation to update these statements for development occurring after this call.
Finally, during this call, we will discuss certain non-gap financial measures. Please refer to our earnings release and slide presentation for reconciliation to the most comparable gap measures.
Now I'd like to turn the call over to Luis Muller, co-use president and CEO Luis.
Hello and welcome to your quarterly earnings call.
3rd quarter, non-gap, gross margin was strong at approximately 47%.
Rosemarge benefited from initial revenue of some new products and lower manufacturing costs. Jeff will get into more details on these later.
Revenue of 95.3 million was split 67% recurring in the balanced systems, continuing to demonstrate the resilience of our business model during a market downturn.
Systems revenue increased sequentially in automotive and mobile segments.
I'll go offset by the clients in computing, consumer and industrial.
The Mobile segment was strongest in 3rd quarter at 12% of consolidated revenue.
Mobile also posted 13% year over year revenue growth, defining a turning point in a segment that was first into the market downturn.
We had a significant test cell design win last quarter at a top five automotive semiconductor manufacturer.
With this win, go to you is delivery, a combined tester, handler and interface solution for testing power management devices.
We're excited to see traction with our Diamond X in the mixed signal market and expect you have additional good news in the coming quarters as more customers are evaluating your platform.
Well, Marky Conditions remain soft across our primary segments in automotive and industrial. We're busy, realigny, our investments to outsize growth opportunities.
We made good progress recently entering the memory and silicon carbide power semiconductor markets.
Earlier today, we announced a customer order for our neon inspection metrology platform configured for high bandwidth memory, also known as HBM.
The HBM Market is estimated to be approximately $23 billion today.
and project that you grew about 20-2% a year through the end of this decade.
We're pleased to have received an initial order from one of the world's leading semiconductor memory manufacturers.
Marking a big strategic win with substantial growth opportunities in the next couple of years.
We believe the industry is purchasing approximately $100 million of inspection metrology equipment for this HBM manufacturing process step today and expanding at a fast space to keep out with AI data center demand.
Neon offers a highly efficient vision system, enabling full-sick-sided optical inspection and measurement of micro-pillars, along with vision optimization powered by Co-Huse AI inspection technology.
We're expecting follow-on orders in early 2025 to support a production ramp in the second half of next year.
We also announced today that a leading European customer has selected cool Hugh for high speed handlead in inspection of silicon carbide dies.
We have been providing inspection and metrology systems to silicon carbide manufacturing now for over a year But this solution extends our offering into burning in task at the die level
OU's product configuration will significantly improve yield and productivity, eliminating more than 40% losses through burning in a tested good-only dies.
We'll also be supplying a high-power test interface for 2.5 kilo votes test per die. Satisfying Stranger Automotive Zero Deepack Requirements
The Silicon carbide market is forestry grow at 25% gagger through 2029 and were pleased to be an enabler of the next generation of devices coming to market in 2025.
Now turn into our DEI course software platform.
Several customers have expressed interest in our data and a lot of software that is demonstrating yield and productivity gains.
Well, we have validations rune at multiple customers.
in Q3, a key in co-hucos from a place orders to expand use of our AI inspection software.
This subscription-based software solution optimizes inspection yield through a convolutional neuronetwork machine. In other words, it uses deep learning models to process vision data.
We're excited to expand co-heuse recurring business with machine learning analytics.
Although this is still a small part of our portal revenue, the level of customer engagement and interest in our solutions that exceeding our expectations.
What in the subitting context, we estimate that the semiconductor back-end manufacturing industry is spending about $600 million in data analytics for process control, data visualization, connectivity, and predictive applications.
These investments are focused on positioning our products to grow applications, but also enabling our customers to expand use of factory automation and support on a near-sharing semiconductor manufacturing.
We're committing resources to making this a growth vector in our strategy. Expanding our recurring revenue with subscription software, a line of our customer's Plus, for what is known as industry4.0.
I'm expecting to see some very exciting years ahead of Khoju. As we enter the memory market, expanding Silicon carbide applications, including burning and stress-dast, and very importantly, build on our analytics platform.
Let me now turn it over to Jeff to provide for the details on last quarter results in next quarter guidance. Jeff?
Jeff: Thanks Luis, before I walk through the Q3 results in Q4 guidance, please note that my comments that follow all referred to non-gap figures.
Information about the non-gap financial measures including the Gap to non-gap reconciliation and other disclosures are included in the accompanying earnings release in investor presentation which are located on the investor page of our website.
Jeff: Now turning to the Q3 Financial Results, revenue for the quarter was 95.3 million and in line with guidance.
Recurring revenue, which is largely consumable driven and more stable than systems revenue, represented 67% of total revenue in Q3.
Jeff: During the third quarter, one customer in the automotive market accounted for more than 10% of sales.
Q3 gross margin was strong at 47.1% and higher than guidance benefiting from some new products, the one-time utilization of previously reserved inventory, as well as lower manufacturing costs in our interface or contactor business.
Jeff: Operating Expenses for Q3 or 45.2 million and lower than guidance by approximately 1.6 million, driven by lower labor costs due to replacement and new higher delays, as well as higher vacation utilization than forecasted.
Jeff: 3rd quarter, non-gap operating income was approximately break even and adjusted EBDA was 2.3%.
Interest income, net of interest expense and a foreign currency loss of approximately 1.6 million was 900,000.
The foreign currency loss was driven by typical balance sheet exposure to foreign currencies in conjunction with the devaluation of the US dollar and Q3 after the federal reserves rate cut announcement.
Jeff: Q3 pre-tax income consists of foreign profits combined with a loss in the U.S. The Q3 tax provision of 4.4 million reflects tax expense on foreign profits, but no tax benefit from the U.S. loss due to our valuation allowance against deferred tax assets.
9 Gap EPS for the third quarter was an 8 cent loss.
Jeff: Moving to the balance sheet, overall, cash and investments increased by 7 million during Q3 to 269 million.
Jeff: through mainly deposit of cash flow from operations of 17 million less 8 million used to repurchase 315,000 shares.
Jeff: of Co-U Common Stock.
and Capital Expendators of 2 million related to our factories and the Philippines and Germany, supporting operations for our interface and automation businesses.
Jeff: Overall, Coheuse Balansheet remains strong supporting investment opportunities to expand our serve markets and technology portfolio in line with our growth strategy and returning capital to shareholders through our Share Repurchase Program.
Now moving to our Q4 outlook, we're guiding Q4 revenue to be in the range of 95 million plus or minus 7 million, essentially flat to Q3 as we bounce along the bottom of this cyclical trough.
Jeff: The initial order forecast for Q4 reflects a book to build ratio over one and our current view of Q1 revenue is approximately 10% higher than Q4.
Jeff: Fourth Quarter gross margin is forecasted to be approximately 44%.
Lower than Q3, but higher than the financial target model at this level of revenue, do in part to co-use differentiated products and our stable high margin recurring business, which adds resilience to profitability and provides consistent cash flow through industry cycles.
We expect Ross Margin to increase again when our revenue recovers with the broader semiconductor device market and with better absorption of our factories infrastructure.
Operating expenses for Q4 are projected to increase about $1 million quarter over quarter to approximately $46 million due to an increase of labor costs as a result of the U.S. dollar weakening in Q3 against many foreign currencies.
As I noted on prior calls, we've taken action throughout 2024 to reduce operating expenses.
Without sacrificing critical new product investments on navigating through the rough of the cycle.
Jeff: Our main focus has been on structural changes, generating permanent cost reduction, and leading to projected 2025 operating expenses to be relatively flat compared to 2024 while supporting a recovery in business and higher revenue.
Jeff: We're projecting Q4 interest income, net of interest expense and foreign currency impacts to be approximately 1.8 million at current interest rates.
Jeff: The Q4 NonGap Tax Provision is expected to be approximately 3.1 million because of tax on foreign profits without benefit from the U.S. loss. Until the markets recover, we expect a similar tax provision profile as we navigate through the cycle.
The basic share count for Q4 is expected to be approximately 46.5 million shares, and that concludes our prepared remarks, and now we'll open the call to questions.
That's our reminder if you'd like to ask a question at the time, please press star 1-1 on your touchstone telephone and we'd be your name to be announced. To withdraw your question, please press star 1-1 again.
Please stand by when we compile the Q&A roster.
Jeff: [inaudible]
Our first question comes from a line of Craig Ellis with Beiriley.
Thanks for taking the question and guys congratulations on the new products.
Craig Ellis: that are coming to market. Luis have one of the start just by following that bond.
your comments on mobile. I think you might have remarked that
the Business in its strength is at our near return. Did I hear that right? And was it just up in three cue because of some of the strength we see season only at that time? Or do you really think it's hit a bottom and we should be moving up sequentially from here?
Hi Craig. Yeah, I did make the comment that Mobile Raving You.
Speaker Change: was up year on year by 13 percent. But if I wanted to expand on that, I can tell you that also bookings in the third quarter were up sequentially across all market segments, which I didn't say of my prepared remarks, but that is also the case.
and they're also up here and here across all segments except for a consumer.
Speaker Change: So yes, we have seen an improvement in mobile revenue quarter and quarter year in year, but we also have seen an improvement in orders across automotive, industrial computing, mobile.
So basically across the board quarter and quarter and year and year as well. So you know that's a little bit more optimistic now as we had in to 2025.
Good to hear. Second, then I want to give focus on...
and Dylabel Bernant. So in the deck, and in your comments, I believe you framed them as respected 150 million.
and Duller Opportunities. What's a reasonable way to look at revenue potential for those prospective products next year, Luis and how long does it take to realize or for...
Speaker Change: Billed up to the market-sized things that you identified the 150 million.
Yeah, we don't, you know, first of all, Craig, the market sizing obviously is going to be split between us and other suppliers that are currently, in particular case, currently in it, right? So if you look at HBM inspection today, for example, it's largely supported by a company in Korea called Hanme.
I think they're sort of there the largest supplier in this space today. So we're just getting into this.
Jeff: We got our first order, we were supposed to be delivering the product here in a coming month and then expecting subsequent orders. In the beginning of the year and we're told intercepting a production ramp that should start in the summertime.
So, you know, how fast is we're going to eat into this 100 million dollars? Well, we'll see, right? I mean, I think there are really three or four major manufacturers out there of this technology. And at this point we are working with one of them, sort of a beach-head entrance.
on the Silicon Carbite side, Bernian. This is an opportunity to actually resolve a major problem in Bernian and Silicon Carbites, which is going in with a wafer that is already...
Jeff: Um...
Jeff: You know, at a low yield from the start and then in your wasting process time, Bernie in non-good devices. So we have now a solution with some partners for doing Bernie and at the dial level.
Jeff: We have the leading supplier in this space embrace and drive against this product to their production ASAP. So I think we are the bottleneck at the moment and we're starting to dialogue with other customers about the opportunity to...
basically to lure their cost of burning process, cast of silicon carbide devices. So I don't have a trajectory exactly to tell you of how much of the 150 we're going to get, how fast that's going to happen. We just broke into those both of those segments.
Jeff: On the HBM side, not only will we be talking to the other suppliers, but we're also starting to explore what else can we do in HBM. You know, are there more upstream inspection opportunities that we could intercept in the HBM market?
So we'll see. We'll tell you more about this story as it evolves in 2025.
Okay, thanks for that color, Luis.
Luis: Thank you.
and then Jeff, if I know that I think I heard your remarks.
Speaker Change: Warders were tracking up around 10% for the first quarter.
Speaker Change: but does that give you confidence that we can see revenues rise sequentially and if revenues were to rise similarly, how would that compare to how you regard normal seasonality in one cue?
So I wouldn't.
Jeff: You know I wouldn't.
I wouldn't put any weight into the seasonality there Craig. My comment was that orders are over one or four casted be over one and two four and so that we're anticipating or projecting that revenue in Q1 will be 10% higher than Q4.
So again, you know, we haven't really seen normal seasonality here going on close to two years and so I'm not anticipating that that starts back up in Q1.
Craig: and John, guys, thanks for the help. I'll get back in the queue.
Speaker Change: You bet, thanks Craig.
Speaker Change: Our next question comes from Christian Schwab with Craig Helm.
Hey, great guys. So a couple questions. First on the high bandwidth memory. Do you know if this is the high bandwidth memory 3e or if this is high bandwidth memory 4 that you will be inspecting?
No, personally I don't have that information to share right now Christian.
and then it relates to the way for level burn-in.
How does your product compare to the other companies doing that as far as ASP and how many wait for us you could test and parallel?
Speaker Change: So this is actually a die, singulate a die burning, not really a wafer.
Speaker Change: So it's a little bit different, right? You don't have a direct comparison, so you have a couple of hundred dies
in a carrier, in a burning slot, but they're multiple those. Not a straight one to one comparison to the way for level.
The difference here is you have known, because you're testing the way for the Southern Carbi Way for before the Bernanke. So you have known.
quote unquote, good dyes to that step in the process going into the burning versus a known, you know, section of the way for that is already bad going into the burning that that's your advantage there.
Okay, okay, so do you think that would be complementary product then?
and complimentary to wafer burn any me?
Speaker Change: No, no, it's this placement off.
Yeah, so it's an alternative solution to that.
Speaker Change: That's correct.
Jeff: and then...
and you know, there's the customer who's you know looking at that or working at that, you know, do they think that?
you know, although we're caused you know faster throughput solution or
Are they doing away for level burn-in on the way for additional staff too?
that they're adding in order to, well, in that put it in a module throw it away.
Speaker Change: No, no, it's pretty much, you know, it's the same question you asked before. This is a replacement of existing wait for burning process with a divergent process.
It's just a much lower cost, more efficient way of doing it because you're not burning in known bad devices that are stuck all together in a monolithic wafer.
Okay, okay, that's just good deal.
and putting that together makes very completely understood that. And congrats on sequential growth and key one, which would, you know, to earlier question, you know, kind of seems counter cyclical.
We truly should be balancing along the bottom here, as you said, waiting for end market demand to increase plus potentially some of the new products kicking in as we go through out 25, did I hear what you were trying to say?
Speaker Change: Yeah, yeah, you're correct. We just, you know, to add to the question that came before from Craig Allen's
We are seeing the man improvement, you know, our system. Well, I think a comment I made on the prepared remark, right? Recurring, for example.
Recurring bookings were up 8% quarter and quarter.
and then system bookings were up across all market segments, quarter and quarter, and across all market segments except for consumer year over year as well. So we are seeing...
sort of the start of an improvement across the board. Now, I'll be part of this is related to the new products and in some market share gains. Indeed, it's not just, you know, purely market. It's a combination of both embedded in there. But...
Speaker Change: It's good news to see, you know, a schedule in front of you that has black numbers and, you know, positive signs in front of it showing both bookings, quarter-recorded new-over-year improvements.
and I'm sorry, Jeffrey. I don't have your company file in front of me, but can you remind me how many quarters it's been since?
You felt confident in this and to give directional guidance for two quarters in a row. Instead of just one to me, I think it's been over a year in my head, but if you know that offhand that'd be great.
Yeah, Christian had been over a year. I don't have it right in front of me either, but it's definitely been over a year.
Okay, great, congrats on that. No other questions, thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Roth Cole with Needham.
Hi, thank you for taking my question.
I was wondering if you could provide some updated directional color on the different business segments going to go into 2025. I remember you had thought, mobile and computing would have been a strong spot. It's great to see that mobile did well this quarter. I just want to see your feeling of going into next year.
Speaker Change: Well, I think if, you know, I guess I'll speak in terms of orders again. I said all segments were up quarter, quarter, and you over year in terms of bookings.
Speaker Change: So that is perhaps the best indication. At least the end of the early part of next year, right? I'm not going to speak to the entirety of next year. But if I look at a quarter or quarter year over year.
the strongest booking segments.
and Change Sequential Change or Annual Change have been in Mobile.
Mobile for a year, automotive has been the strongest on a quarter of a quarter and second strongest on a year of a year.
and then Industrial came out pretty strong on a quarter of a quarter as well.
So that's sort of the pattern that we see here is
More across Mobile Auto in Industrial
and it varies a little bit whether you're talking quarter or quarter year for year but those those three segments are.
Speaker Change: sort of leading the improvement, the sequentially improvements.
Our next question comes from Robert Merton with TD Cowan.
I'm on for a Christian Carrot, congrats on the design Wednesday in the quarter.
I guess my first question is just around your automotive business. It looks like it did much better in the quarter than previous expected but...
Speaker Change: the utilization of the space is actually down compared to the June quarter. Is this the script and see?
Largerly just due to that one greater than 10% customer in the quarter or you start in a seat in an actual quarter or a quarter improvement in the automotive business.
Speaker Change: the Cinecolor into next quarter and next year would be helpful.
Speaker Change: Yeah, I can comment that look, the automotive, I don't know if you actually do that 10% actually, I would have to dig into the numbers a little bit here, but the automotive segment has had an improvement quarter for quarter in year for year in bookings.
and then also an improvement quarter of a quarter in revenue.
Speaker Change: Now, you also got to take it a little bit of a grain of salt. I mean, you're starting from fairly depressed market environment. So it's not terribly difficult to see any improvement. I think more or the year over year is kind of encouraging.
Looking at the numbers, I can see the...
the Automotive segment going essentially through a bathtub curve.
Speaker Change: where it started to go down, Q2 and then Q3 last year. Seems you have to hit a bottom here on the second quarter this year and climb me its way back up, starting in the third quarter. And I'm looking at this from a booking perspective at the moment, so more of indicative of what's ahead.
Speaker Change: I think we have a few customers that have turned on a few orders in the quarter. I can think of one in particular that.
has been perhaps driving the man earlier relative to others, but that's always the case. There's always somebody's first and others that come later.
Speaker Change: but that's what we're seeing on the armores face today.
Speaker Change: and I'm just a quick question on the die-level burnin. I think on your slides, the revenue opportunity, you'll see that around 50 million annually is that.
Maybe what you're aware with the customer could ram two errors that just for the overall market.
Biting this is for the Market at Large.
Not one customer, but what the market could absorb as it starts to migrate from a way for a level to a dialogue of burning.
Speaker Change: Thank you for stopping me.
Our next question comes from Brian Chin with Steveville.
Dennis Onifer: Hi, thank you. This is Dennis Onifer Brian. So my first question is about this HBM opportunity. You may be discuss a little bit like the steps or the parts of the process that you've won and come.
Speaker Change: are you by chance competing at all with a company like Camtick or Onto and perhaps also discuss the kind of revenue significance and the timing for revenue for these products.
Hi Dennis, yeah good questions. No, we're not competing with onto or or camptact. They are doing inspection at the wafer at the wafer level pre-singulation to my understanding. This is what we got here initially is the stacked.
Dye inspection metrology. So you already get your multi-layer, HBM dies stacked on top of each other and it's sort of the final product inspection metrology.
Speaker Change: That's what we're doing.
I'm coming on the second part of the question. There was revenue in the rest time in the next two, which I think we addressed already, just in terms of the revenues to soon to tell, but we'll provide updates as we have them.
Speaker Change: Alright, great. And then for my follow-up, some of you'd also announce to a win-with-the-leading, I think, multinational, analog, and embedded semi-customer. How has that engagement progressed and kind of what is it time frame for seeing revenue with this customer? And maybe you can talk about the revenue contribution as well, and then is it just testers or handwritten contactors as well? Could you tell us a little bit more about that?
Sure, this is part of a press release we put out in July actually at semi-con, so it's a little dated now, but it was indeed part of Q3, AQ3 events.
We have been talking about positioning or diamond acts, tests or more entry the Nick Signal Market. A lot of it is analog, but there's some digital Samar F content.
and in July, we announced that we won a selection at a top five semiconductor automotive manufacturer.
Kind of coincidentally here, this win was not just the Diamond X, but also handlers and contractors.
So we essentially are selling them a complete test cell. We will see initial revenue, I'll do a still at a early stage, so small numbers, but initial revenue here in the fourth quarter.
Speaker Change: and there's a continuation of that going in your next year. We are touching on...
Speaker Change: Several product groups with these guys.
Speaker Change: and working our way up on.
Applicant Test Application Development, so they can move.
Speaker Change: Products on Jordan, one next to testing.
In conjunction with that announcement with it in July, we announced a new instrument that goes along with the Diamond X called the V-I-100, eventually a voltage current instrument that is used in analog applications.
Speaker Change: and um
and anyhow, this is sort of a key instrument and naveler for...
our position in the mixed signal market. There are a few other things that we did. Some other platforming enhancements that we did in conjunction with TV, I 100, some refresh and other instrument capabilities so that we re-round up to Diamond X as a...
is a very cost effective task platform for general mixed signal customers, typically those supply auto industrial markets, our sop power applications for data centers.
Speaker Change: I have a lot of great detail. I appreciate it. Thank you.
Speaker Change: 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 find off, I'd like to mention that we'll be participating in a few investor conferences over the next three months.
First one is Steve Olmed-West Conference in Chicago on November 7, followed by the New York Summit Conference in New York City on December 17.
and then we'll be attending virtually the Needham Growth Conference on January 9th.
Next year, if you're interested in meeting with us at any of these conferences, please let me know or reach out to the respective research analyst's schedule of meeting.
That's it and I'd like to thank you for joining today's call and we look forward to speaking with you soon.
Speaker Change: This concludes today's conference call. Thank you for participating. You may now disconnect.