Cohu Inc (COHU) 2012 Q4 法說會逐字稿

Greetings and welcome to the Cohu, Inc. fourth-quarter and 2012 conference call and webcast. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder this conference is being recorded. It is now my pleasure to introduce your host, Mr. James A. Donahue, Chairman and Chief Executive Officer. Thank you. Mr. Donahue, you may begin.

Good afternoon, and welcome to this conference call that will cover Cohu's results for the fourth quarter ended December 29, 2012. Our Chief Financial Officer, Jeff Jones, is with me today. I hope you have a copy of our earnings release and have had an opportunity to review it. But if you need a copy you may obtain one from our website, Cohu.com, or by contacting Cohu Investor Relations at 858-848-8106.

I will provide an overview and comments on Cohu's results for the fourth quarter and Jeff will take us through the financial statements. I will then discuss our recent acquisition of Ismeca, comment on the current business environment and then we will take your questions. First though 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, future operations, financial results and any comments we make about the Company's future in response to your questions. Our comments speak only as of today, January 30, 2013, and the Company assumes no obligation to update these comments.

Certain matters discussed on this conference call, including statements concerning Cohu's new products, expectation of business conditions, orders, sales, expected accretion from the Ismeca acquisition, growth in the LED market 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, risks associated with acquisitions including the acquisition of Ismeca on December 31, 2012; 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; the 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.

Lastly, on December 31, the second day of Cohu's 2013 fiscal year, we completed the acquisition of Ismeca. The comments we make today about Cohu's fourth quarter do not include Ismeca. Beginning with the first quarter of 2013 Ismeca will be included in Cohu's financial results.

Sales for the fourth quarter were $50.7 million compared to $57.7 million in the third quarter of 2012. The non-GAAP loss was $0.07 per share compared to a loss of $0.01 per share for the third quarter. Orders were $42.1 million compared to $50.1 million in the third quarter. Semiconductor equipment orders were $33.7 million compared to $38.5 million in the third quarter. Backlog was $44.7 million at the end of the fourth quarter.

Our results are in line with overall orders for back-end semiconductor equipment, as reported by [SEMI] that have trended downward during the second half of 2012. And also with recent results and commentary from a number of semiconductor and semiconductor equipment companies.

Equipment utilization on customer test floors remains in the low to mid 70% range and capacity expansion therefore is generally not needed. What capacity buys we did see were driven by mobility. The semiconductor group unit order distribution for the fourth quarter was high-speed handlers 76%, thermal handlers 24%. So while business conditions have not been favorable, we did have a number of important accomplishments and highlights in the fourth quarter.

Demand for our EDGE pick-and-place handler was the highest since the third quarter of 2010. Two IDMs placed multi-unit orders for testing MEMS sensors that are used in major brand mobile device applications. This particular opportunity is expanding and we expect follow-on orders for EDGE or possibly MATRiX as these customers increase test parallelism throughout the year.

Multiple evaluations of the MATRiX handler are underway or are planned during the first quarter with a common requirement to increase test parallelism. These include a large fabless company in the mobile chip space, an OSAT and a major IDM. With its fast index time, MATRiX is an ideal solution for high parallel test.

Our large Pyramid customer is reaching adequate capacity for current programs and, as anticipated, orders decreased through 2012 and in the fourth quarter Pyramid represented only 9% of our total sales. Last year we began working with this customer to develop new standardized input and output automation for semiconductor assembly processes.

During the fourth quarter we received an initial, multi-unit order for these systems. The production ramp is expected to start next quarter as the customer phases in this new solution over the next several years. We are excited about this business in its own right and also for the longer-term prospect to further diversify our served market.

A new customer placed an initial order for Pyramid to evaluate the system for advanced memory devices, which combine high-speed logic with stacked memory dies. Pyramid offers unique capability for testing high parallelism power dissipated devices such as these next-generation 3D stack packages.

Opportunities for our T-Core thermal subsystems are increasing as certain customers implement batch testing and also system-level test methodologies for mobility ICs. During the first quarter we expect to ship our first T-Core qualification unit for integration in an automated, batch testing system for application processors used in mobile computing.

T-Core utilizes the same proprietary thermal technology as our Pyramid production handler, so we have solutions to address thermal requirements across a broad range of test handling applications.

Bookings for gravity handlers were flat sequentially. Orders were received from six different IDMs and a follow-on order for a test and strip system was booked from a large OSAT for high volume testing of temperature sensors in battery power management of mobile devices.

Our MEMS business was steady and multiple test units were ordered in conjunction with the EDGE pick-and-place handler business that I just mentioned. We received a repeat order for Jupiter, the new large package version of Saturn that was first qualified and placed into production during last year's third quarter.

A key focus in 2013 is to win new business with the Saturn and Jupiter handlers and at least four evaluations are scheduled during the first half of the year, including a major IDM that will begin an evaluation this quarter for testing automotive ICs.

As is standard practice in the automotive market, new product qualifications are extensive and accordingly we expect that production orders will not be placed before the second half of this year.

Turning briefly to our other businesses, sales decreased at the electronics division as state and local budget constraints continue to limit opportunities in the traffic market. The book to bill was positive and two additional new products were released including the 3720HD, a feature-rich but affordable IP66 dome camera for the security and traffic markets.

BMS sales improved for the second consecutive quarter, but were still below plan as several orders that were expected to book and bill during the quarter were delayed. BMS continues to benefit from its strong position in the broadcast equipment rental market that's providing equipment to production companies for TV shows such as reality TV series.

The government surveillance market also looks solid over the near-term with both US and international opportunities. And now Jeff will provide financial details.

The semiconductor equipment-related revenues for Q4 were approximately 81% international and 19% domestic. International sales were distributed 77% Asia-Pacific, 17% the Americas and 6% other. We recorded approximately $1.4 million of stock-based compensation expense and $1.1 million of purchased intangible amortization expense in Q4.

Beginning in Q1 we estimate our purchased intangible amortization expense will increase by approximately $600,000 per quarter as a result of the Ismeca acquisition. The comments I make today include the impact of these items.

Gross margin was 32.8% in Q4 and in line with our projection. We expect gross margin in Q1 to be approximately 200 basis points lower than Q4 as we will absorb the one-time impact that results from the required change in accounting method at Ismeca from IFRS to US GAAP standards. The impact of this change is to decrease gross margin and operating income by $2 million in Q1.

Operating expense in Q4 was $22.4 million and was higher than our projection as a result of due diligence costs incurred in connection with the acquisition of Ismeca. We expect operating expense in Q1 to be approximately $26 million with the addition of Ismeca.

The Q4 income tax provision was a benefit of $500,000. We expect the 2013 effective tax rate will be approximately 10%. Q4 loss per share on a GAAP basis was $0.21. The non-GAAP loss per share, which excludes the after-tax impact of share-based compensation, amortization of intangibles and acquisition costs incurred in connection with the acquisition of Ismeca was $0.07 for the quarter.

Now moving to the balance sheet, cash and investments were $110.2 million at December 29. Our Q4 ending cash balance excludes the impact of acquiring Ismeca for a cash purchase price of $54.5 million which, again, occurred on December 31, 2012 and was funded out of existing cash reserves at that date.

Cash provided by operations in Q4 was approximately $2 million. Net accounts receivable were $37 million at December, decreasing $6.6 million from September and the DSO at December was $65 million decreasing from $72 million at September.

Inventory was $62.3 million at December, decreasing $6.4 million from September as a result of strict inventory and supply chain management. Additions to property, plant and equipment for Q4 were approximately $900,000 and depreciation was approximately $1.2 million.

Deferred profit at December was $2.1 million compared to $1.8 million at September and the related deferred revenue at the end of Q4 was $3.6 million compared to $2.4 million at September and consists primarily of revenue deferrals on shipments of test handlers and mobile microwave communications equipment.

Thanks, Jeff. Now I will comment on the Ismeca acquisition, how it fits into our semiconductor equipment group and why we are so excited about the expanded opportunities, synergies and growth that it brings. Through this acquisition we combined the number one supplier of turret-based test handling and back-end finishing equipment with Delta Design, the number one supplier of logic pick-and-place test handlers and with Rasco, the number two supplier of gravity feed and test and strip handlers.

The acquisition of Ismeca strengthens our leadership position, provides new growth opportunities and significant cost synergies. Our SAM increased to $900 million. Ismeca turret technology enables us to move into markets that test smaller IC and discrete components at faster speeds and also provides an entry into the LED equipment market with an industry leader.

According to industry analysts, the LED market is forecasted to grow at a compounded rate of 28% over the next four years as a result of this technology being adopted it for general lighting. The LED industry is rapidly evolving and Ismeca has unique product solutions and strong relationships with key LED manufacturers.

Cohu's semiconductor equipment group now comprises three businesses, with a range of complementary products and technology capabilities that is unmatched in the industry. The semiconductor industry needs suppliers that have the technical resources, manufacturing capability and global scale to deliver effective solutions as technology change drives new form factors, smaller geometries, critical temperature control, new sensors and lighting applications in a very dynamic market environment.

For semiconductor test is a 7-24 operation, mainly in Asia, where the timely availability of qualified technical personnel is critical. During the fourth quarter we celebrated the 20th anniversary of our Asia sales and service operation. And with the addition of Ismeca, this award-winning customer support organization grows even wider and deeper.

Customers realize that no test handler supplier is better equipped than Cohu's semiconductor equipment group to meet the complex technical challenges of the business and to support them on a global basis.

Our proprietary technology, particularly in the thermal control area, provides competitive advantage and is considered essential for microprocessor testing. However, our broad product portfolio and enabling technologies address diversified markets that include mobility, automotive, consumer, industrial, LED, discrete and MEMS. And we are not dependent on any single customer or segment.

As we realized with our acquisition of Rasco just over four years ago, we expect to benefit from significant cross-selling synergies across all three companies and product lines. In fact, since the announcement we've engaged with multiple customers concerning new opportunities to integrate our products in different applications spanning test, inspection, taping and assembly.

In addition to product, customer and technology synergies, we will leverage Ismeca's established Asia-based high volume manufacturing and supply chain to accelerate the transition of pick-and-place handler manufacturing to Asia.

Integration activities are progressing well and on multiple fronts. Sales teams have been a realigned to strengthen our position in the China, Korea and Taiwan markets. The operations team has been restructured to capitalize on the supply-chain management and production experience of our factories in the Philippines and Malaysia.

With Ismeca we have a new opportunity to compete for testing and performing optical inspection and taping of wafer level packages, a fast-growing package segment in the semiconductor industry that is driven by the performance and miniaturization requirements for mobile devices. A key objective in Q1 is to initiate qualification with a new customer for testing of these WLPs on a wafer to tape turret handler.

LED is a great market segment and also a new one for Cohu, where incremental manufacturing capacity is needed even in this soft market and where new technologies are being implemented at a rapid pace almost irrespective of global market conditions.

We started the year with strong orders from a current customer and expect follow-on orders from a recent win at a major Taiwanese LED manufacturer. Unique hot testing capability and innovative optical IP enables Ismeca's system to deliver the highest quality for color testing, which is a critical parameter for the solid-state general lighting market, that is the segment that is expected to be the next growth driver for LEDs.

We are very enthusiastic about the expanded product and market opportunities that Ismeca brings, particularly in the LED and WLP areas. Additionally, we are beginning to realize benefits from last year's initiatives to organically grow and diversify our product portfolio and customer base with thermal subsystems, semiconductor assembly automation and test contactors.

These new opportunities, combined with synergies from the Ismeca acquisition, can drive meaningful growth as business conditions improve and over the longer term. And now turning to the current business environment.

As last year unfolded the semiconductor and semiconductor equipment industries were increasingly affected by negative global economic conditions. According to our trade organization, SEMI, preliminary three-month average billings for back-end equipment suppliers of as December declined 55% from the June 2012 level.

Cohu's semiconductor equipment sales are down only 18% during the same period. Through December industry bookings have declined for seven consecutive months, signaling that lower sequential billings are likely in the first quarter. In this environment we are tightly controlling discretionary spending, but at the same time continuing to invest in key projects to broaden our product portfolio, grow the customer base and optimize manufacturing.

Q1 will include Ismeca for the first time and we will present results for the entire semiconductor equipment group. As we previously announced, Ismeca sales for the 12 months ended June 2012 were $84 million. Since that time the turret handler market has softened like the rest of the industry. The decline in business at Ismeca has been similar to what we have seen at Cohu, though not as severe as the overall back-end equipment industry.

While not immune from the microeconomic overhang that has affected the industry, Ismeca has benefited from the diversified markets it serves, that include ICs but also discretes and LEDs and from unique solutions in growing applications like wafer level packages.

Over the near term we expect that capacity expansion for traditional semiconductor packages will be limited but we anticipate solid opportunities in selected areas including ICs for mobile, LEDs, MEMS and wafer level. For Q1 we expect sales to be between $52 million and $57 million.

Cohu's directors approved a dividend of $0.06 per share payable on April 19 to shareholders of record on March 5, 2013. That concludes our prepared remarks and now we will take questions.

(Operator Instructions). Vernon Essi, Needham & Company.

This is Tony Grillo calling in for Vernon Essi. Just a couple quick questions for you guys. One was I may have missed a couple numbers -- cash flow from operations. Did you guys mention that?

Yes, about $2 million in Q4.

Okay. And then also when you talked about your sales break out for semi-equipment, cameras and microwaves, could you go over that again for me?

Sales of semi-equipment accounted for 79% of the quarter; microwave was 14% and video cameras 7%.

Great, thank you so much.

Jairam Nathan, Sidoti & Company.

My first question was on the gross margins where you said it was in line with your expectations. But can you just give us an idea of what led to the sequential up-tick despite the declining revenues?

Yes, it was primarily product mix, Jairam. Again it was in line with our projection, so it was a mix that we had anticipated. We also had strong recurring business in the quarter in our semi-equipment group.

Can you expand on that, Jeff, (inaudible) when you talk about product mix is it more Pyramid handlers, is it -- or are you suggest -- businesses like your BMS was better?

The product -- the favorable product mix really relates back to that recurring business and the strength of the recurring business and the margin on that business is what I am referring to as a favorable product mix.

Okay, and on the operating expense side I noticed that your R&D has gone up. I think you mentioned -- is that in line with -- I believe you had indicated that, but that was pretty much in line with your guidance?

Operating expense in the quarter was higher than what I had guided. But of course we have got the due diligence acquisition costs in Q4. In Q1, Jairam, I expect that on a comparative basis that we will see a drop in Q1, but then when we add Ismeca we will have operating expense of about $26 million in the first quarter.

And just on your guidance of $52 million to $57 million, SEMI orders were around $34 billion. Should we kind of look at Ismeca adding around $10 million to $15 million in the quarter?

Yes, I think you are in the ballpark.

Okay. And my last question was on -- do you have a breakup of fixed assets and intangible when you consolidate Ismeca?

We will have that for the Q1 results. We don't have that currently at Q4; Ismeca is not part of the balance sheet at the end of the fourth quarter.

Okay, and just if I may, one more. Your current liabilities trend down significantly, is there anything going on there?

Nothing unusual there, Jairam, it was normal business.

I would just supplement that by saying we've had a real focus throughout the year particularly in the semiconductor equipment group in controlling our inventory, reducing our inventory; we've been quite successful in doing that. So I think it is directly attributable to the success of those activities which were a key focus of 2012 and a very good story -- good result.

Okay. Okay, thank you, that is all I had. Thanks.

(Operator Instructions). Mr. Donahue, there are no further questions in queue at this time. I would like to turn the call back over to you for closing comments.

Thank you for joining us today and we look forward to speaking to you again when we will be reporting Cohu's results for the first quarter of 2013. Thank you and good day.

This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.