Cohu, Inc. (NASDAQ:COHU) Q1 2023 Results Conference Call May 4, 2023 4:30 PM ET

Company Participants

Jeff Jones - CFO

Luis Muller - President and CEO

Conference Call Participants

Craig Ellis - B. Riley Securities

David Duley - Steelhead Securities

Tyler Burmeister - Craig-Hallum

Bob Mertens - Cowen

Brian Chin - Stifel

Operator

Good day, and thank you for standing by. Welcome to today's Conference Call to discuss Cohu's First Quarter Financial Results and Second Quarter Outlook. 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'd now like to hand the conference over to your host today, Jeff Jones, CFO. Please go ahead.

Jeff Jones

Good afternoon.and welcome to our conference call to discuss Cohu's first quarter 2023 results and second 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 Web site at cohu.com or by contacting Cohu Investor Relations. There's also a slide presentation in conjunction with today's call that may be accessed on Cohu's Web site 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, May 4, 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 afternoon, and thanks for joining us. I'll first discuss some of our thoughts in growing Cohu's business, aligning investments to key global trends. Jeff will then review first quarter financial results and second quarter guidance before we open up for questions at the end. We are pleased with first quarter profitability that reflects our focus on continuing improvements in operational performance in the recruiting business that delivered $334 million revenue over the last 12 months. Chou's recurring business provides stable revenue through industry cycles, allowing the company to deliver profitable results and cash flow to invest in new technologies and products to generate growth through market upturns. First quarter non-GAAP gross margin of 48.2% increased 210 basis points year-over-year and it's better than our target financial model at this revenue level. Chou's recurring business contributed 43% of first quarter revenue and approximately 53% gross margin and recurring revenue grew at a three year CAGR of 6.4% through Q1 2023. Service is a key component of Cohu’s recurring, bringing a sticky business as demonstrated by our greater than 87% annual renewal rate on service contracts. Also part of recurring, Chou's test interface business has landed a series of new opportunities in the first quarter, helping expand our contactors penetration across automotive and industrial semiconductor customers.