Cohu(US:COHU)2025-10-29 21:30Financial Data and Key Metrics Changes - Consolidated revenue for Q3 2025 reached $126.2 million, exceeding guidance and reflecting a sequential improvement for the fourth consecutive quarter [11][6] - Non-GAAP gross margin was reported at 44.1%, consistent with guidance, indicating the value differentiation of products and resilience of the recurring business model [11][6] - Operating expenses for Q3 were $48 million, which was $2 million lower than guidance due to timing of R&D material [11][12] - Cash and investments decreased by $11.2 million during Q3, primarily due to cash used in operations to support a 17% growth in sales quarter over quarter [12] Business Line Data and Key Metrics Changes - Recurring revenue accounted for 55% of total revenue in Q3, driven by strength in interface solutions and test handler spares systems [11][4] - Systems revenue represented 45% of total revenue, with notable orders for NEON HBM inspection tools and Eclipse handlers [6][5] - New business wins included approximately $1.7 million in orders for automated test equipment and optical inspection systems [7][8] Market Data and Key Metrics Changes - Revenue from customers based in China accounts for only a low single-digit percentage of total consolidated results, indicating limited exposure to geopolitical risks [9] - The company anticipates a seasonal slowdown in Q4, partially offset by ongoing market recovery, particularly in computing and high bandwidth memory inspection [9] Company Strategy and Development Direction - The company announced a strategic convertible notes offering, raising gross proceeds of $287.5 million to support future growth and strategic initiatives [13] - The focus is on advancing growth initiatives including mergers, acquisitions, and partnerships, with a new Vice President of Strategy appointed [4] - The company is pivoting towards AI applications, particularly in high-performance computing and generative AI, with expectations of increased revenue contribution from these areas in 2026 [23][41] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in sustaining top-line momentum into 2026, particularly in the HBM business and new customer engagements [21][23] - The company expects Q4 revenue to be approximately $122 million, reflecting a seasonal decline but continued growth in recurring revenue [14] - Management noted that the cyclical recovery in automotive and industrial markets remains muted, but there are signs of initial demand returning in early 2026 [58] Other Important Information - The company is maintaining its 2025 capital expenditure target of approximately $20 million, which includes a facility purchase completed in Q1 [12] - The repayment structure of the convertible notes includes net share settlement, limiting shareholder dilution [13] Q&A Session Summary Question: What is driving the improved system revenue momentum? - Management indicated that the momentum was largely associated with the Eclipse handler and NEON HBM inspection tools, with confidence in continued progress in the HBM business [21][22] Question: How does the Eclipse handler's thermal control subsystem contribute to wins? - The higher wattage requirements for newer AI processors are driving demand, and the platform is designed to scale with these advancements [24][26] Question: What is the expected revenue contribution from computing in 2026? - Management expects computing to contribute in the low teens percentage of revenue, indicating growth potential in this segment [28] Question: How will the recent convertible raise be utilized? - The company plans to pursue both organic development and acquisitions, with a focus on strengthening the balance sheet and being opportunistic in M&A [45] Question: What is the outlook for automotive and industrial markets? - Management noted that while recovery has been elusive, there are signs of initial demand returning, particularly in Q1 and Q2 of next year [58]