Cohu Inc (COHU) 2012 Q1 法說會逐字稿

Greetings, and welcome to the Cohu, Incorporated First Quarter 2012 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, James Donahue, Chairman, President, and CEO of Cohu, Incorporated. Thank you. You may now begin.

Good afternoon, everyone. With me today is our Chief Financial Officer, Jeff Jones. I hope you now have a copy of our earnings release and have had an opportunity to review it. But if you need a copy, you can obtain one from our website, Cohu.com, or contact Cohu Investor Relations at 858.848.8106.

I will provide an overview and comments on Cohu's results for the first quarter of 2012. Jeff will take us through the financial statements. And then, I'll conclude with comments on the current business environment. And finally, we'll take your questions. But before we proceed, Jeff has information concerning forward-looking statements, estimates, and other matters that we will discuss during today's call.

The Company's discussion this afternoon will include forward-looking statements reflecting Management's current expectations 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, and future operations, and financial results, and any comments we make about the Company's future in response to your questions. Our comments speak only as of today, April 25, 2012, and the Company assumes no obligation to update these comments.

Certain matters discussed on this conference call, including statements concerning Cohu's new products and expectation of business conditions, orders, sales, and operating results are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those projected or forecasted. Such risks and uncertainties include, but are not limited to, inventory, goodwill and other intangible asset write-downs, our 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, our reliance on third-party contract manufacturers, failure to obtain customer acceptance resulting in the inability to recognize revenue, and accounts receivable collection problems, customer orders may be canceled or delayed, a concentration of our revenues from a limited number of customers, intense competition in the semiconductor test handler industry, our reliance on patents and intellectual property, compliance with US export regulations, and the cyclical and unpredictable nature of capital expenditures by semiconductor manufacturers. These and other risks and uncertainties are discussed more fully in Cohu's filings with the Securities and Exchange Commission, including the most recently filed Form 10-K and Form 10-Q.

Cohu assumes no obligation to update the information in this release. Further, 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 nondisclosure agreements.

Okay. Thank you, Jeff. Sales for the first quarter were $53.3 million, compared to our guidance of approximately $50 million. Non-GAAP loss per share was $0.06, compared to income of $0.12 per share for the fourth quarter of 2011. Cash and investments were $104.3 million and Cohu's balance sheet remains free of bank debt.

Orders increased to $53 million, compared to $44 million in the fourth quarter. Semiconductor equipment orders increased 22% sequentially to $41.4 million. This is the first increase in Cohu's semiconductor equipment orders since the second quarter of 2011.

Customer activity intensified as the quarter progressed, an indication to us of improving business conditions. And backlog was $51.6 million at the end of the first quarter. The semiconductor group unit order distribution for the first quarter was high speed handlers, 41%, thermal handlers, 51%, and other systems, 8%.

We regularly monitor equipment utilization on customer test floors and recent checks indicate that test equipment utilization has increased about 75%, compared to the mid-60 range at the end of 2011. In line with this, semi reported that March orders for backend semiconductor equipment increased 21% from February, and that the book-to-bill for March was 1.3. These are encouraging numbers and trends.

Now, I'll recap key highlights from the first quarter in our test handler business. Following a soft fourth quarter, orders for high speed pick-and-place handlers rebounded in Q1. Two IDMs placed repeat orders for edge handlers, and an evaluation at a major test subcontractor is nearing completion. This particular opportunity is to test mobile phone ICs designed by a large U.S. based telecommunications company that expects a significant ramp in the second half of this year. A large IDM ordered a Castle handler, and this customer is expected to place a follow-on multiple unit order in the second quarter comprised of both Castle and Matrix handlers, both in support of automotive related business. In fact, just earlier today, we received the first installment on this multi-system order. Multiple Matrix handlers were booked during the quarter. One application, and also a new customer win for us, required the ability to track device serialization, a capability for which the Matrix handler is well suited.

As I've commented before, we are aggressively pursuing and supporting equipment evaluations. And at the end of the first quarter, multiple evaluations were underway. Matrix had a track record of successful evaluations in 2011 that converted to equipment purchases usually for multiple units over an extended period. In the second quarter, at least four new evaluations are planned. Making investments to qualify our products at both existing and new customers during industry downturns positions us for capacity buys as business improves. Unit orders for thermal handlers increased 58% sequentially mainly driven by microprocessor test demand at a major U.S. based IDM. And earlier this month, this customer increased its forecast for the rest of the year.

Orders for our T-Core thermal subsystem reached a new peak in Q1 as four customers placed orders for systems that will be used for new product characterization in labs and installed on Delta test handlers. T-Core, utilizing the same proprietary thermal technology incorporated in the Pyramid handler, will be used to limit temperature fluctuations during testing of low and mid-powered dissipative processors.

As with high speed microprocessors, precise control of the device temperature during testing optimizes speed grading and ASPs. As we enter an area of--an era of pervasive computing capability and an ever expanding array of consumer products from tablets to smart phones, we expect to see an increase in the need for low to midrange thermal control during tests. And we are well positioned with our thermal technology, and now with our T-Core thermal subsystem that, as I mentioned, is being installed in development labs, to characterize device performance. Providing customers with the ability to transition from the lab environment to high volume production with the same thermal capability is a competitive advantage for us.

Our focus on expanding the Company's library of MEMS test solutions continues to drive handler sales. In the first quarter, we received orders for handlers and MEMS test modules for magnetic and acoustic test applications.

The beta evaluation of our new gravity handler was successfully completed in early April and we have initiated production of several units to support new evaluations at additional customers beginning in early Q3. The system has performed well against target throughput and productivity specs and has a strong competitive advantage, especially in high parallel short test time applications, and that's a rapidly growing segment that enables customers to achieve higher levels of output and lower cost.

The strip handler segment remains a niche, but one where we have been quite successful. We received a repeat order in Q1 and expect new customer evaluation opportunities in Q2. For high volume applications, strip test provides compelling advantages.

And now, Jeff will provide details on Cohu's financial results.

Semiconductor equipment related revenues for Q1 were approximately 78% international and 22% domestic. International sales were distributed 78% Asia Pacific, 16% the Americas, and 6% other. We recorded approximately $1 million of stock based compensation expense and approximately 1 million of purchased intangible amortization expense in Q1. The comments I make today include the impact of these items. Gross margin was 29.2% in Q1 and in line with our projection. We expect gross margin in Q2 to be approximately 30%. Operating expense in Q1 was $19.2 million and higher than our projection due to increased R&D expense associated with next generation gravity feed test handler development, variable selling expense and support costs for customer evaluations of our semiconductor equipment.

We expect operating expense in Q2 to be approximately 20 million, increasing due to development costs for thermal systems and also to variable selling expense. The Q1 effective tax rate was 11%. We currently expect our 2012 effective tax rate will be approximately 10% as our foreign income is taxed at rates substantially below the U.S. statutory rate and taxes on any U.S. earnings are expected to be largely offset by a partial reversal of our valuation allowance. The Q1 loss per share on a GAAP basis was $0.13. Non-GAAP loss per share, which excludes the after tax impact of share based compensation and amortization of intangibles, was $0.06 for the quarter.

Moving to the balance sheet, cash and investments were approximately $104.3 million at the end of March, decreasing $700,000 from December. Cash provided by operations in Q1 was approximately $700,000. Net accounts receivable were $36.3 million at March, decreasing $5.7 million from December, and DSO in March was 65, decreasing from 68 at December.

Inventory was $82.2 million at March, essentially flat from Q4. Additions to property plant and equipment for Q1 were approximately $1 million, and depreciation was approximately $1.4 million. Deferred profit at March was $2.3 million, compared to $2.8 million at December. The related deferred revenue at the end of Q1 was $3.7 million, compared to $6.6 million in Q4, and consists primarily of revenue deferrals on shipments of test handlers and microwave communications equipment.

Thanks, Jeff. And now, commenting briefly on our other businesses, sales were below plan at the electronics division, due primarily to customer delays that pushed expected orders into the second quarter. In particular, a number of traffic monitoring international security projects were delayed, but not lost. Key wins during the first quarter included a U.S. government order for thermal cameras in a security application, and multiple long range cameras for use in an armored fighting vehicle navigation and security application. We expect orders and sales to improve in the second quarter.

At BMS, orders were up in the law enforcement, broadcast, and government security and surveillance segments. A law enforcement agency in Florida placed a $1.2 million order for microwave equipment for use at the Republican National Convention this summer. BMS continues to sell wireless transmit systems to, and is well positioned with, equipment rental companies that contract with various reality TV shows. Business is also growing with U.S. Customs and during the first quarter U.S. customs ordered equipment for additional downlink receive sites and also for installation on high speed so-called go fast patrol boats whose mission is to interdict drug smuggling.

Business opportunities are expanding, especially in the Middle East where BMS is a recognized leader and has a sizeable installed base.

Now, taking a look at the current business environment, certain segments of the IC market are improving, particularly consumer mobility, computing, and automotive. IC inventory levels are declining, though still too high, but recent comments from a number of IC companies suggest that the bottom of the current downturn has been reached and that business is expected to continue to improve.

This outlook is consistent with test equipment utilization that is steadily moving in the right direction. Customer activity and forecast continue to improve, and as a result, we expect orders to increase sequentially. And for the second quarter, we expect sales to be between $55 million and $60 million.

And that concludes our prepared remarks. And Operator, we'll now take questions, please.

Thank you. (Operator Instructions) Our first question comes from Jairam Nathan from Sidoti and Company.

Hi. Thanks for taking the question. My first question is on your guidance for second quarter. At the midpoint, that seems like an 8% increase sequentially, while your orders went up much more than that. Is it primarily timing related, the gap?

The timing has a little bit to do with it, Jairam. But the orders--we had quite a bit of shipments of orders that came through in Q1 were shipped in Q1. If you look at the backlog, the backlog coming into the quarter is essentially the backlog that we end up at the end--where we end up at the end of Q1. So while orders were higher in Q1, our shipments in Q1 were higher as well. And the backlog coming out of the quarter was essentially the backlog that we came into the quarter with.

So there was a lot of book and bill in the first quarter.

Correct.

Okay. That's good. Then on SG&A, it's--the numbers didn't come down as much as revenues, even your second quarter guidance. As a percentage of sales it seems a little bit closer to like nine--it was 20% in March. It will probably be 19 or so in June. Is there any change in compensation, or what's driving that?

No change in compensation in the quarter, Jairam. But as we mentioned in the remarks, we were supporting a number of customer evaluations during the quarter. And so, that was one of the primary reasons for the increase was the support of those evaluations of new products.

Okay. And so, that--is that primarily gravity feed or--?

--Yes. New products with new gravity feed products, absolutely, plus some of our existing products as well - Matrix, as we mentioned.

Okay. And--that sounds good. And all--my last question is on inventory. It--what was--it didn't come down as much as I had expected. What was--are you just building up for the orders or--?

--Yes, that's right, Jairam. It is--has built up for orders. Certainly as shipment levels increase, that will help with the inventory balance. But we do expect an increased shipping quarter in Q2, so I'm expecting to see anywhere from a 5% to 10% reduction in inventory just depending on orders received during the quarter--shipped during the quarter.

Okay, thank you. That's all I have.

Thank you. (Operator Instructions) We appear to have no further questions at this time. I'd like to turn the call back over to our speakers.

Thank you for joining our call today, and we look forward to speaking to you when we report Cohu's second quarter earnings. Thank you, and good day.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.