Cohu, Inc. (NASDAQ:COHU) Q3 2017 Earnings Conference Call Transcript

Nov 02, 2017 • 04:30 pm ET

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Cohu, Inc. (NASDAQ:COHU) Q3 2017 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Greetings, and welcome to the Cohu Incorporated 2017 Third Quarter Earnings Call. At this time all participants are in 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 you to your host, Mr. Jeff Jones, CFO. Thank you. Mr. Jones, you may begin.

Executive
Jeff Jones

Good afternoon, and welcome to our discussion of Cohu's most recent financial results. I'm joined today by our President and CEO, Luis Muller. Following our opening remarks, we will provide details of our performance for the third quarter of 2017, as well as outlook for the fourth quarter of this year. If you need a copy of our earnings release, you may obtain one from our website, cohu.com, or by contacting Cohu Investor Relations.

(Forward-Looking Cautionary Statements)

Finally, during the call today, we will also discuss certain non-GAAP financial measures. Please refer to our earnings release for a reconciliation to the most comparable GAAP measure.

Now I'll turn it over to Luis.

Executive
Luis Muller

Thanks, Jeff, and good afternoon, everyone. For the third quarter, both sales and gross margin were at the higher end of our guidance, with sales up 35% year-over-year to $93.7 million, non-GAAP gross margin of approximately 41% and non-GAAP EPS of $0.43. Additionally, we generated significant cash in the quarter, increasing $24 million to a quarter-end balance of over $138 million.

We had strong recurring sales, particularly in the computing market and increasing demand for test contactors in spring probes as we continue to capture synergies and cross-selling opportunities from the Kita acquisition. In fact, our contactor business increased to 12% of sales during the quarter. Additionally, we captured 13 design wins and continued to gain penetration across our handler customer base, primarily complementing our pick-and-place product offerings.

Stringent device temperature accuracy during tests is a growing requirement. Not only for digital and mixed signal devices, where the Kita probes are often used, but also for power management and high-performance RF semiconductor test requirements. For these last two devise categories, our multi-beam architecture enables better thermal characteristics that increasingly challenging for high signal integrity and signal density are required. We received follow-on orders for a high-performance cDragon contactor, following a Q2 design win at our US industrial semiconductor customer. We expect to continue gaining traction at this account over the next 18 months, as we convert new and existing device applications to the cDragon platform. We have very attractive solution precision analog devices, and four other customers are lined up in different stages of the qualification process, and we're anticipating additional orders in months ahead. Although, each potential customer is unique, the average annual spend on high-performance contactors is about $5 million for each of these companies.

Looking more specifically at third quarter orders, 50% were systems and 50% recurring, and by segment, sensors represented 25% of system orders. As expected, we saw continued momentum in this segment, resulting in another strong quarter demand, mainly for gravity