Edited Transcript of COHU earnings conference call or presentation 5-May-20 8:30pm GMT

Now above to more details above our affair results. Q1 marked the second consecutive belt of record bookings, mainly driven by mobility customers accelerating the adoption of 5G quiz solutions because RF front-end devices. First-quarter orders because our quiz -- semi tester affair was up 70% year-over-year, validating our tactic because high-performance measurement instruments at an affordable cost.

We're being recognized because enabling our customers to successfully deploy 5G quiz faculty at volume produce calm optimizing their fare model. at the equal time, our handler affair is benefiting from our broad manufacture thread with high-volume, turret and pick-and-place system sales, both because RF too because mobile processor tests where Cohu's proprietary thermal technique is a key enabler. With book-to-bill end to 1.3 and backlog at record level, overall orders were rip 52% systems and 48% recurring, and mobility represented 1/3 of our system bookings.

Computing and network were because healthful well at the quarter. And though 14% of system orders, it represented the larGEst division of our recurring revenue. because previously stated, we experienced an uptick at automotive semiconductor affair at late fourth belt that continued into the first half of Q1, closing the belt at 14% of system orders.

Our PCB quiz affair has remained well at 14% of orders and mainly driven by server and network installation too because telecommunications segments. Late into the first quarter, little of our customers started placing handler and contactor orders because testing semiconductor devices used at Medical applications that contain ventilators, respirators, pacemakers and x-ray machines. We categorize these at the industrial and Medical semiconductor division that came at at 11% of system orders.

Now turning to second quarter, we anticipate that provide fasten and government-imposed operating constraints at Cohu factories will abstract across mid-quarter, with manufacturing progressively increasing to normal output by target of June. Near-term manufacture costs will exist higher because we increase outsourcing to compensate because COVID-19-limited produce output from our inner operations, specially at the contactor business.

Although this will shock our operation end term, we completed the manufacturing consolidation from the Xcerra acquisition, reduced the fare structure of our products, and anticipate to visit benefits at future belt operation at thread with our econmic model. We predict target fair entreat to remain well at computing and network, with news center growing at 2020 because enterprises add bandwidth and surplus their networks to backward higher communication and new applications related to task from home.

In mobility, 5G-driven semiconductor content to abstract growing at phones, besides during we anticipate customers to receive a interval to gauGE the shock of COVID-19 pandemic above consumer spending. calm Medical applications are expected to exist well at Q2, these represent a little division of full semi cost at major installation and are no responsible to compensate because a refuse at the industrial-driven division demand.

Automotive is experiencing the greatest negative shock following plant closures by coarse main auto manufacturers worldwide. We are unable to forecast the pause of the year at this time, besides during anticipate computing and network applications to remain strong, some growth driven by new gaming consoles afterward this year, continued weakness at automotive because the surplus of 2020, and a pickup at entreat because 5G that to quicken into 2021 because countries trouble to govern the communication bravery of the expanded digital economy.

While we entered the second belt with about $172 million at coin and a well backlog, the continuing shock of the COVID-19 pandemic above short-term semiconductor quiz and inspection entreat surplus uncertain. because a result, we are proactively managing coin brook and took steps to diminish operating expenses and major expenditures. We implemented a temporary 20% revenue reduction to the CEO and 15% reduction to other executive officers, and proportionately lower reductions to coarse employees worldwide wide. Our Board of Directors is participating with a temporary 20% reduction to their coin compensation.

The Cohu Board because healthful authorized suspending our quarterly coin dividend. This will originate at about $10 million of annualized coin savings, which we anticipate to employ because deleveraging and strengthening our surplus sheet.

While there will exist challenGEs ahead at the second half of this year, I'm equal excited and confident almost our future. Cohu is healthful positioned at mobility, computing and network semiconductor and PCB quiz segments. calm automotive and industrial are feeble because now, we are the handler and contactor major at these segments and to emerGE well again at an eventual 2021 fair recovery.

This is simply a hang at our path. And though a emergency is often painful, it because healthful creates an opportunity because the company to convert leaner and faster. Cohu has delivered a well 21% compounded annual growth worth because 2015, and our tactic surplus focused above outperforming the industry growth rate.

Now I used to similar to expend it at to Jeff to magazine our first-quarter results and provide second-quarter guidance.

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Jeffrey D. Jones, Cohu, Inc. - VP of Finance & CFO [4]

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Okay. Thanks, Luis. because noted earlier, our priorities are the safety and well-being of our employees, customers and suppliers because we task across this challenging and doubtful environment. calm we cannot forecast how absence this pandemic will last, we entered Q2 with a well backlog and coin positions and improved econmic flexibility because a originate of previously completing the $40 million fare synergies from the Xcerra acquisition; farther reducing operating expenses by about $3 million per belt across temporary revenue reductions; limiting major expenditures to acute and strategic projects; and suspending our coin dividend which preserves about $2.5 million per belt to farther strengthen the surplus sheet.

Before I walk across the Q1 results and the Q2 guidance, allow me laguage almost our GAAP to non-GAAP adjustments. entertain letter that my comments that chase coarse refer to non-GAAP figures. because GAAP to non-GAAP reconciliations and disclosures, visit the accompanying earnings free and investor presentation.

For Q1, the GAAP to non-GAAP adjustments contain about $3.6 million of stock-based compensation expense. The GAAP to non-GAAP adjustments largely driven by the Xcerra acquisition contain $9.5 million of purchased intangible amortization charge and $2.1 million of restructuring costs. The Q1 2020 net coin shock of the Xcerra acquisition-related restructuring was about $1.4 million due to employee severance.

The Q1 GAAP to non-GAAP adjustments because healthful contain a $3.9 million impairment charGE related to in-process R&D wealth from the Xcerra acquisition. This is a noncash charGE caused by COVID-19-induced delays at our customers' adoption of products currently at development.

Now turning to Q1 results, revenue was $138.9 million and about $7 million lower than the midpoint of guidance due to COVID-19-related government restrictions at mid-March at countries where we fabricate most of our products. at Q1, 2 customers each accounted because more than 10% of sales at the quarter. 1 passenger is at the computing and network division and the second passenger is at the mobility segment.

In Q1, Cohu's complete border was 41.7% and at thread with sales. Operating expenses came at about $1 million lower than forecast. And first-quarter non-GAAP operating earnings was about 4% of sales, and adjusted EBITDA was 6% of sales. compatible with previous quarters, Cohu GEnerated a loss at the U.S. during Q1 and favour from operations outer the U.S. The tax provision is no reduced by U.S. losses due to our deferred tax asset valuation. And because a result, the Q1 non-GAAP tax provision was about $1 million, resulting at a breakeven EPS because the quarter.

Now turning to the affair model, due to the target of fiscal 2019, we completed the actions required to attain the $40 million of acquisition fare synergies. because we announced earlier, we consume implemented temporary revenue reductions, which farther reduced operating expenses by about $3 million per quarter, adding about $0.05 of EPS to our model. The temporary fare reductions farther structure our expenses to backward sure coin brook during periods of cheap fair entreat and permit because continued investment at strategic projects, calm retaining the souvenir to quickly ramp produce at an up cycle.

Moving to the surplus sheet, our coin surplus increased to $172 million due to well coin from operations during Q1 of $17.8 million. release coin brook at the belt was $16.2 million. Combining modern fare reduction and coin preservation actions, we've lowered our EBITDA breakeven revenue to about $110 million per quarter. And coin required to flow the affair has been reduced to about $80 million.

For the second quarter, we're guiding sales to exist among $130 million and $155 million. We've widened the revenue ranGE to think the flat of volatility and doubt that exists within predict at this surroundings and based above our contemporary task of government-imposed restrictions.

Gross border because Q2 is expected to exist among 39% to 42% and reflects higher outsourcing costs related to COVID-19 plant constraints. Operating expenses are projected to exist about $49 million and almost $3 million lower than Q1 due to temporary revenue reductions. We anticipate Q2 adjusted EBITDA at the midpoint of guidance to exist about 8%.

Similar to previous quarters, the tax provision worth will exist abnormally high. The Q2 forecasted non-GAAP tax worth is about 38% at the midpoint of guidance. because modeling purposes, we anticipate a normalized effective tax worth of about 22% above revenue of $170 million or more and profits at thread with the affair model. The diluted part ponder because Q2 is expected to exist about 42.4 million shares. And though there is more volatility and doubt at the market, our contemporary advice because third-quarter revenue is to exist almost 5% to 10% down from the midpoint of Q2 guidance.

And that concludes our prepared remarks. And now, we'll empty the howl to your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is going to convert from the thread of Craig Ellis with B. Riley.

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Craig Andrew Ellis, B. Riley FBR, Inc., investigation section - Senior MD & Director of investigation [2]

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Guys, congratulations above executing at a robust environment. Jeff, I force consume missed it, besides during at the midpoint of guidance, what's the grade of pay that you consume because the COVID shock of the business? Clearly, at the deck you're showing that there's meaningful manufacturing shock across the belt that lessens the quarter. besides during can you fair quantify what that nets out to above the climax line?

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Jeffrey D. Jones, Cohu, Inc. - VP of Finance & CFO [3]

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The Q2 -- are you speaking almost the Q2 forecast, Craig?

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Craig Andrew Ellis, B. Riley FBR, Inc., investigation section - Senior MD & Director of investigation [4]

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Q2, yes.

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Jeffrey D. Jones, Cohu, Inc. - VP of Finance & CFO [5]

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For Q2, we're expecting that the factories at the Philippines and Malaysia ultimately GEt backward to kind of normal operations by the target of the quarter. hence because you can visit above separate of the IR deck that we've published, that by the target of the belt we anticipate to exist backward up to entire production. hence it's -- there's indeed no kind of provision, if you will, similar we did at Q1. hence we created the Q2 predict based above the assumptions that the constraints at the factories will essentially exist lifted.

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Craig Andrew Ellis, B. Riley FBR, Inc., investigation section - Senior MD & Director of investigation [6]

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Okay. And then fair to improve appreciate the endpoints of the ranGE, and it's general because companies to widen the ranGE out, hence no amaze there. besides during what used to differentiate the operation of the affair at the cheap target of the ranGE versus, say, the high target of the ranGE because 2Q, Jeff?

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Jeffrey D. Jones, Cohu, Inc. - VP of Finance & CFO [7]

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There's a sure grade of book-and-bill orders at the quarter. And hence those are -- typically cause a higher risk. Of course, that's kind of a quarter-over-quarter instance. at this particular quarter, there's however doubt at the provide chain. hence at emotion to book-and-bill because the quarter, there is continued doubt with our -- some of our key suppliers.

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Craig Andrew Ellis, B. Riley FBR, Inc., investigation section - Senior MD & Director of investigation [8]

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Okay. hence fair expend to order variability and then provide phase issues, which we've been seeing, I'll receive my persist question ago I spring backward into the queue. maybe a little sheet farther out than that, I ponder I heard you cause that the third calendar belt sales could exist down 5% to 10%. From the visibility that you consume now to that quarter, what used to interpret because the decrease? And is there anything that you visit at the affair and with the backlog that you consume that used to exist driving sequential growth quarter-on-quarter because 3Q?

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Jeffrey D. Jones, Cohu, Inc. - VP of Finance & CFO [9]

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Craig, hence because we mentioned, we had well orders at Q1 and Q2 -- effect me, Q4 and Q1. That led to a healthful backlog because we enter Q2. besides during what we're seeing is we're seeing some passenger push-outs above shipments. And hence that's having a kind of a muting of the revenue, if you will, at Q2 and too because into Q3. hence there's however fairly a sheet of uncertainty, no only at the Q2 predict and, therefore, the broad ranGE. besides during because healthful because we satisfy farther out, there's definitely more volatility and doubt there.

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Craig Andrew Ellis, B. Riley FBR, Inc., investigation section - Senior MD & Director of investigation [10]

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And is that transfer occurring at particular verticals, Jeff, similar auto, or maybe industrial outer of Medical? Or is that fair across the board with coarse your verticals?

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Jeffrey D. Jones, Cohu, Inc. - VP of Finance & CFO [11]

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That's...

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Luis A. Müller, Cohu, Inc. - President, CEO & Director [12]

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Yes. Craig, this is Luis. A lot of this is auto, because I said at my prepared remarks. Auto is truly going to exist down this year significantly relative to the creative expectations. besides during because I because healthful said, we conduct anticipate that the mobile segment, customers will receive a interval and gauGE -- attempt to gauGE the COVID-19 shock above consumer entreat ago they satisfy deliver again. hence I ponder that's going to combination a little sheet above the -- towards the third quarter.

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Craig Andrew Ellis, B. Riley FBR, Inc., investigation section - Senior MD & Director of investigation [13]

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Yes, that certainly makes sensation from coarse the things that we're seeing, Luis. Guys, thanks hence much because the assistance and congratulations above the good first-quarter execution.

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Jeffrey D. Jones, Cohu, Inc. - VP of Finance & CFO [14]

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Thank you, Craig.

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Luis A. Müller, Cohu, Inc. - President, CEO & Director [15]

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Thanks, Craig.

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Operator [16]

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And our next question will convert from the thread of Krish Sankar with Cowen & Company.

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Krish Sankar, Cowen and Company, LLC, investigation section - MD & Senior investigation Analyst [17]

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I had a connect of them. Luis or Jeff, I'm friendly of a little confused. hence you are guiding to Q3, and I appreciate it's an doubtful environment. Your breakeven is GEtting lowered and still you're suspending the guidance. I'm fair trying to pattern out what are the puts and takes above the Q3 leisure flat because the revenue? And at what point used to the direct -- used to the dividend convert back?