Cohu Inc (COHU) 2003 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to the Cohu, Inc. First Quarter and Fiscal Year 2003 Result Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require OPERATOR assistance during the conference, please press star 0 on your telephone keypad. As a reminder, the conference is being recorded. It is now my pleasure to introduce your host Mr. James Donahue, President and CEO of Cohu. Thank you, Mr. Donohue, you may begin.

Well, good afternoon. Welcome to Cohu's conference call covering our results for the first quarter of 2003. I'm Jim Donahue, Cohu CEO and President. John Allen, our CFO, is with me. I hope you have a copy of our earnings release. If you don't, you can obtain one from our website Cohu.com or by contacting Cohu investor relations. That's at 858-848-8106.

I'll provide an overview of the quarter. John will take us through the numbers. I will conclude with some comments on operations and our view of the business environment. And we'll take your questions.

Thank you, Jim. Before we go on, I must remind you that the company's discussion this afternoon will include forward-looking statements reflecting management's current expectation concerning certain aspects of the company's 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. Forward-looking statements include our comments regarding the company's expectations regarding industry conditions, Q2 operations, new product introductions and any comments we make about the company's future in response to your questions. Our comments speak only as of today, April 23rd, and the company assumes no obligation to update these comments. The company's actual results may differ materially from those stated or implied by our forward- looking statements due to risks and uncertainties associated with the company's business, which includes but are not limited to the cyclical and unpredictable nature of capital expenditures by semiconductor manufactures; goodwill investment and intangible asset write-downs including possible write-downs that could adversely impact our 2003 operating results due do impairment testing required by accounting standards; Cohu's ability to convert new products under development into production on a timely basis support product development, and meet customer delivery and acceptance requirements for next generation equipment; the effective competitive product; the concentration of revenues in a limited number of customers; inventory write-offs; order cancellations; failure to obtain customer acceptance and recognize revenue; difficulties in integrating acquisitions and new technologies; and other risks addressed in filings with the Securities and Exchange Commission including Cohu's form 10K for the year ended December 2002 and our most recently filed form 10Q. We assume no obligation to update any of the information shared on this conference call. Our comments and responses to any questions will not make reference to any specific customers as we are precluded from disclosing such information by our non-discloser agreements. Jim?

Sales for the first quarter we're at $31.1 million compared to $31.6 million for the first quarter of last year and $28 million for the fourth quarter of 2002. The net loss for the first quarter was $1.4 million or 7 cents per share compared to a net loss of $575,000 or 3 cents per share for the first quarter of 2002 and a net loss of $566,000 or 3 cents per share for 2002's fourth quarter. This quarter's result includes charge of $750,000 related to the consolidation of our Columbus, Ohio operations into our Poway, California headquarters.

Orders during the first quarter were $31.8 million compared to $28.1 million for the fourth quarter of 2002. Backlog at March 31, 2003, was $31.3 million compared to $30.6 million at the end of the fourth quarter of 2002 at the end of 2002. Conditions within the semiconductor equipment industry remained unfavorable during the first quarter. But during times like this, customer requirements can change suddenly and significantly. This happened in January when a major IC manufacturer placed a large order for [capital] handlers and required fast delivery. We are able to respond by quickly ramping our production capacity and deliver all systems by the end of the quarter as required by the customer. John will now provide details on our financial performance.

Semiconductor equipment related revenues for first quarter were approximately 78% international and 22% domestic. International sales were distributed 91% Asia Pacific, 5% the Americas, 3% Europe and 1% Japan. These percentages were generally consistent with those for Q4.

Gross margin in Q1 was 33.4% versus 35.3% in Q4 of 2002. The decline in gross margin was primarily due to product mix with more lower margin [capital] handlers shipped in Q1 verses Q4.

R&D expense was $6.9 million in Q1 of '03 versus $8.4 million in Q4. The Q4 R&D includes approximately $750,000 of amortization and write-off of intangible assets. R&D in Q1 was less than Q4 R&D without the amortization and write-off primarily due to lower material costs. We expect our Q2 R&D to be similar or slightly less that R&D in Q1.

SG&A expense was $5.9 million in Q1, slightly higher than the $5.5 million in Q4. The higher SG&A was due to slightly higher revenues and Q4 savings from holiday shutdowns. We expect Q2 SG&A to be about the same as Q1.

Interest income decreased from $1.4 million in Q4 to $700,000 in Q1 as a result of lower interest rates and the collection of past due interest in Q4 on our $9 million note receivable. The income tax benefit in Q1 was based on the estimated annual effective tax rate for 2003 and was lower than the federal statutory rate primarily due to tax credit. The estimated 2003 effective tax rate will increase or decrease depending upon the estimates of pre-taxed income or loss for the entire year.

Net loss per share was computed based on $20.9 million weighted average shares. The effective stock options was excluded in the quarter calculation as their inclusion would be anti-dilutive.

Moving briefly to the balance sheet. Cash and investments decreased $4 million from $107.2 million at December 31 to $103.1 million at March 31. The decrease was primarily due to increases in accounts receivable and inventory due to slightly higher business volumes. Net accounts receivable increased from $18.3 million in December to $24 million at March 31 and represented about 70 days sales outstanding versus 60 days at December 31. The increase in day sales outstanding was primarily due to decreased cash collections in March versus December. Inventory increased from $24.3 million at December to $26.4 million at March 31 due primarily to the slight increase in business volume. Additions to property plant and equipment during Q1 were approximately $200,000 and depreciation and amortization was approximately $1.1 million.

Deferred profit increased from $5.2 million at December 31 to $7.4 million at March 31. The increase resulted from increase revenue deferrals of approximately $10 million on December 31 to more than 14 million at March 31 as a result of the application of SAB 101. Jim?

During the first quarter unit, orders for handlers increased 51% over the fourth quarter of 2002 due to the increase in capital handler business which I noted earlier. I would also note that while this increase is of a significant percentage, it's off of a low absolute unit base. (inaudible) handlers accounted for 98% of unit orders during the quarter. Our capital handlers comprise 70% of total unit orders. Our new Delta edge handler represented 7% of Q1 orders and we're very encouraged by the positive reception from customers for this system. You may have noted the press release today, which we issued where we announced that U-tech, a Singapore-based [inaudible] contractor has selected edge.

We continue to successfully install field upgrades for summit handlers to provide increased thermal control during test. This active thermal control or ATC capability decreases the power dissipation of the handler and enables customers to optimize the speed grading of the latest fastest microprocessors. This is very important since higher speed means higher ASPs.

As we have throughout this prolonged downturn in the semiconductor equipment industry, we continue to take steps to operate cost effectively under extremely challenging business conditions. The consolidation of our Columbus, Ohio, operation into Poway is complete ahead of scheduled. Earlier this month, we announced plans to relocate our Littleton, Massachusetts operation also into Poway. The plan is to complete this work by the end of third quarter.

Last month we received Intel's prestigious preferred quality supplier award. This is the third consecutive year we have been recognized by Intel and we're extremely proud of our employees whose outstanding performance, particularly under the very difficult business conditions made this award possible.

Turning briefly to the current business environment. Recent earnings releases and customer forecasts, which we monitor very closely, suggest that business will not improve significantly in the near term. As I think we all know there are a number of global issues like the Iraq war, which created generally unfavorable contacts for business. These issues, of course, are beyond our control. We are focused rather intensely though on what we can control and improve, operating efficiently, investing in new product development and our crisp execution throughout our operations. We want to insure that we have the right products and the capability to ramp our operations rapidly and cost effectively.

Our balance sheet is strong and we intend to keep this that way. I am confident in our ability to grow and to enhance our competitive position when business conditions improve.

As we noted in our press release, we have a significant amount of deferred revenue, $14 million in backlog at March 31st. The associated equipment is awaiting normal customer acceptance signoff, and we can't predict precisely when this will occur. While we don't expect much change in underlying business during the second quarter, some or all of this deferred revenue may be recognized in the second quarter and it is, therefore, not possible for us to reliably estimate Q2 revenue at this time.

Operator, with that, we'll take questions.

Thank you, gentlemen. At this time, we'll be conducting a question and answer session. If you would like to be asking a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. To remove your question from the queue, please press star two. For participants using speaker equipment, it maybe necessary to pick up your handset before pressing the star keys. Once again, if you do have a question, please press star one on your telephone keypad. Keeping in mind that if you are using speaker equipment, it may be necessary to pick up your handset before pressing your star keys. Your first question comes from Vernon Essi with Adams Harkness. Please state your question.

Thank you. Couple of questions here. First off, John, I appreciate you playing sort of by the GAAP rulebook here with your facilities consolidation charge are related to Columbus. But I wanted to kind of dig into that a little bit deeper and get an understanding as to where those charges were recognized in your P&L.

Sure. We didn't break them out separately in the P&L obviously as you see; hence, the reason for your question. The charges were primarily included in R&D expense, Verne, because that's where most of the head count in Columbus is allocated is to R&D expense. I would say about $500,000 of that went to R&D and very small amount would have gone to cost of sales in the balance in SG$A.

I'm sorry. Let me restate that. $500,000 to R&D?

It was 570 to R&D. 130 to SG&A and 47 to cost and sales.

Okay. Thank you. And then I wanted to kind of get a little bit more of an understanding of your guidance or lack there of for next quarter. You have this deferred revenue situation. Can you give us an understanding of if this were to be pushed out into say the September quarter for whatever reason, what sort of minimum threshold do you feel comfortable in sort of saying the business could land at, meaning there wouldn't be a lot of upside and not counting on a lot of things happening in the June time frame to sort of make up the difference? What would be kind of your minimum of revenue guidance?

Yeah. It probably would be fairly close to Q1, Vern, maybe slightly less. But in the ballpark, I guess to gives you a range. We did $28 million in Q4 and $31 million in Q1. My guess would be that it would probably fall somewhere in between that range if I had to guess. So it wouldn't be tremendously different than what you saw in Q1. Obviously, with that said, there would be significant upside from the revenues we have just reported in Q2 if all of that deferred revenue were recognized in Q2.

Just to be clear here, it is fair to say things are humming along on a static basis exclusive of this differed revenue. That's the message here?

Yeah, I think that's basically right.

Okay. Just wanted to get an understanding too on the deferred aspect. Is this the same order that was the capital handler order?

No. They're different. The capital handler that Jim referred to that we had the quick turn on was our capital product.

So we shipped and recognized that that's a mature product.

I'm sorry then. Where do we assume this is obviously the Delta edge product?

This is ATC.

ATC upgrades mainly.

Which is the same--If you go back to Q4, Vern, it is the same product that we deferred at Q4, essentially.

And that takes care of it. I'll get back to you.

Thank you.

Thank you.

If are there questions, please press star one on your telephone keypad. Gentlemen, it would appear there are no further questions at this time.

Okay. If are there no further questions, we thank you for attending the call and we look forward to speaking with you at the end of the second quarter. Thank you very much.

Thank you, gentlemen. That concludes today's teleconference. Thank you again for your participation.