Cohu, Inc. (NASDAQ:COHU) Q2 2023 Earnings Conference Call August 3, 2023 8:30 AM ET

Company Participants

Jeff Jones – Senior Vice President and Chief Financial Officer

Luis Muller – President and Chief Executive Officer

Conference Call Participants

Brian Chin – Stifel

Craig Ellis – B. Riley

Krish Sankar – TD Cowen

Charles Shi – Needham & Company

Operator

Good day and thank you for standing by. Welcome to Cohu's Second Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Jeff Jones, Senior Vice President and Chief Financial Officer. Please go ahead.

Jeff Jones

Morning and welcome to our conference call to discuss Cohu's second quarter 2023 results and third quarter 2023 outlook. I'm joined today by our President and CEO, Luis Muller. If you need a copy of our earnings release, you may access it from our website at cohu.com, or by contacting Cohu Investor Relations. There is also a slide presentation in conjunction with today's call that may be accessed on Cohu's website in the Investor Relations section. Replays of this call will be available via the same page after the call concludes.

Now to the safe harbor. During today's call, we will make forward-looking statements reflecting management's current expectations concerning Cohu'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. We encourage you to review the forward-looking statements section of the slide presentation and earnings release as well as Cohu's filings with the SEC, including the most recently filed Form 10-K and Form 10-Q. Our comments speak only as of today, August 03, 2023, and Cohu assumes no obligation to update these statements for developments occurring after this call. Finally, during this call, we will discuss certain non-GAAP financial measures. Please refer to our earnings release and slide presentation for reconciliations to the most comparable GAAP measures.

Now I'd like to turn the call over to Luis Muller, Cohu's President and CEO. Luis?

Luis Muller

Good morning and thanks for joining us. Second quarter gross margin and – profit was strong, driven by Cohu's resilient recurring business model. Q2 non-GAAP gross margin of 47.8% increased 130 basis points year-over-year and is better than our target financial model at this revenue level. Cohu's recurring business contributed 48% of second quarter revenue at approximately 55% gross margin. Our recurring business achieved a three year compound annual growth rate of 7% to 2%, and it is the key driver of Cohu's new baseline profitability through industry cycles. As communicated last quarter, we're expanding our infrastructure in the Philippines to support growth in our interface business. At the end of second quarter, we were approximately 60% through construction of a new 92,000 square foot facility that will become operational in the first half of 2024. We'll also continue working in the local supply chain to increase flexibility and quickly ramp production in support of customers' needs.