Cohu (NASDAQ:COHU) Q2 2020 Earnings Call

0:00 Thank you for standing by and welcome to the Coho, Inc., Second Quarter 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I'd now like to hand the conference over to your speaker today, Mr. Jeff Jones. Thank you. Please go ahead, sir. Thank you, and good morning, and welcome to our conference call to discuss Cohue's second quarter results and third quarter 2020 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 cohue.com or by contacting Cohue Investor Relations.

0:52 It's 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'll make forward-looking statements reflecting management's current expectations concerning COHU's future business. These statements are based on future 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 statement section of the slide presentation and the earnings release as well as CoHUE's filings with the SEC, including the most recently filed Form 10-K and Form 10-Q.

1:39 Our comments speak only as of today, July 30, 2020, and CoHUE 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, Cohuse President and CEO. Luis? Thanks, Jeff. Hello, everyone, and thanks for joining us. Today, I'll discuss some of our accomplishments in the second quarter and provide our perspective for the rest of the year. Jeff will later discuss financial results and provide guidance for the third quarter.

2:24 Sales in the second quarter were approximately $144 million and a little better than the midpoint of guidance with our manufacturing facilities back to full operation after the COVID-19 disruption that started in mid-March. Thanks to our operations team, We incurred lower outsourcing costs than originally anticipated and delivered a higher gross margin and profitability in Q2. Orders were split 52% recurring and 48% systems, and mobility once again represented close to one-third of our system bookings. We saw strong RF tester demand for connectivity in the second quarter, with one of our major customers committing their flagship 5G RF front NICs to our platform.

3:14 We capture a new opportunity testing transceivers, further expanding our product penetration in the RF segment. There was also increased demand for IoT connectivity, testing devices using Bluetooth, ZigBee, and newer Wi-Fi 6 technologies. Cohuse RF instruments delivered leading throughput and performance and ultimately low cost of test for next generation RF semiconductor devices. This is a segment we have been traditionally strong, and we are releasing now our third-generation solution at the perfect time to catch a wave of growth driven by 5G, Wi-Fi 6, and RF IoT. Other customers are using our systems for testing low-noise amplifiers, RF switches, and filters, and we made very good progress supporting production ramps of several OSATs in Taiwan testing devices for smartphones launching in the coming months.

4:11 In the non-RF segment, we had several design wins at major Asia phablets companies testing a variety of mobility applications, including display drivers, power management, baseband connectivity, and others. At the same time, our handler business captured multiple design wins in the quarter. We got an order from a leading European sensor manufacturer for handling wafer-level chip-scale MEMS devices deployed in smartphones and vehicles. This is the first application of our WLCSP handling solution for sensor test. Our strip handler was selected by two semiconductor manufacturers for testing high performance analog and sensors used in automotive and industrial applications.

4:57 GoU's vision inspection system has been gaining a lot of traction and attention at various customers with a design win in the second quarter and multiple qualifications starting in the third quarter. Our NEON inspection platform lowers over-rejection rates for wafer-level chip-scale packages, effectively increasing yield and maximizing value to our customers. This system delivers leading throughput and flexibility to inspect all package sides with best-in-class accuracy and add-on true infrared vision to see below the surface. It really takes inspection quality to the next level and customers are starting to recognize the significance of protecting their brand value with our neon inspection platform.

5:43 In other news, we identified an application for Cohue's active thermal technology testing high performance memory. The sale consists of engineering lab thermal handlers for a US headquarter customer. Cohue equipment continues to be used for medical applications where quality is obviously of prime importance. Although volumes are not as high as in other segments, this is an area where Cohue excels, and our team is proud to contribute to the fight against COVID-19. On the contactor front, we know attachment rates will fluctuate quarter over quarter, and in Q2, it was at 44%, with increasing alignment of contactor to handler sales in several of the design wins previously mentioned. Looking back at order distribution by market segment, Mobility represented 15% of total in about one-third of systems.

6:40 Second quarter orders for PCB-DAS systems were at record highs in 10% of total, driven by expansion in telecommunications, computing, and network infrastructure. For the remaining segments, system orders accounted for 23% of total, and despite lower in semiconductor computing, recurring business remained healthy in the second quarter. Turning to third quarter, our guidance reflects expected strong RF and PCB tester shipments, a new customer attraction for handlers and inspection equipment. We continue to forecast a disproportionately stronger mobility segment through the end of this year, with a slow recovery in automotive, initially driven by improved vehicle sales in China and likely accelerating globally into 2021.

7:32 With average test cellularization at 78% at the end of June, stronger at mobility customers, and weaker in the automotive segment, we expect sales to remain relatively flat within plus or minus 5% quarter over quarter through the end of this year. More importantly, we're actively working on multiple cross-selling opportunities that combine our testers, handlers, and contactors. This differentiation is becoming important in RF tests where high frequency signal fidelity to the semiconductor device is increasingly difficult. I hope to share more details in the next couple quarters as we demonstrate our value proposition to various customers. Now I would like to turn it over to Jeff to review our second quarter results and provide third quarter guidance.

8:20 Thanks, Luis. The COHU executed well during Q2. Sales were higher than the midpoint of our guidance. Gross margin was also higher than our guidance. Operating expenses were lower than forecast due to tight control of spending. And Q2 non-GAAP profitability was our highest since Q4 of 2018. Before I walk through the balance of the Q2 results and the Q3 guidance, let me talk about our GAAP to non-GAAP adjustments. Please note that my comments that follow all refer to non-GAAP figures. For GAAP to non-GAAP reconciliations and disclosures, see the accompanying earnings release and investor presentation. For Q2, the GAAP to non-GAAP adjustments include approximately $3.4 million of stock-based compensation expense.

9:09 Intangible amortization expense was approximately $9.5 million, and restructuring costs primarily driven by the XERA acquisition were approximately $700,000. Now, turning to Q2 results, revenue was $144.1 million. and 1.6 million higher than the midpoint of guidance. In Q2, no customer accounted for 10% or more of sales. In the second quarter, Koyu's gross margin was 42.5% and higher than our guidance from better than anticipated utilization of our Asia factories. The Q2 gross margin is in line with our business model. Operating expenses were $47.9 million and $1 million lower than forecast. temporary cost reductions remain in effect.

9:58 Second quarter, non-GAAP operating income was 9.3% of sales and adjusted EBITDA was 11.3%. CoHUE's non-GAAP effective tax rate for Q2 was 23.2%, lower than guidance, primarily as a result of tax benefits derived from operating losses generated in Germany. Non-GAAP EPS for the second quarter was 17 cents. Now turning to the business model, as of the end of fiscal 2019, we completed the actions required to achieve the $40 million of acquisition cost synergies. As we announced at the end of March, we implemented temporary salary reductions, which took effect at the beginning of April and further reduced operating expenses by approximately $3 million per quarter, adding about $0.05 of EPS to our model.

10:51 The actions we've taken to reduce costs Thank you very much. Combining recent cost reduction and cash preservation actions, we've lowered EBITDA breakeven revenue to approximately $110 million per quarter, and cash required to run the business has been reduced to approximately $80 million. Cash used in operations during Q2 was $4.5 million, and CapEx for the second quarter was $6.4 million, driven mainly by purchases of equipment to increase contractor manufacturing capacity in the Philippines and Japan.

11:41 as well as capital additions necessary to consolidate our German test handler operations into one facility. Now moving to third quarter, our third quarter sales forecast has improved since the directional guidance we provided during the first week of May. For Q3, we're guiding sales to be between $134 million to $146 million. The low end of the revenue range accounts for potential supply chain disruptions due to COVID-19 as well as potential risks associated with book and bill sales and customer acceptance which is required for revenue. Gross margin for Q3 is expected to be between 41% to 44% and assumes no operating constraints on our Asia factories as a result of COVID-19.

12:33 Operating expenses are projected to be approximately $48 million or essentially flat quarter over quarter. We expect Q3 adjusted EBITDA at the midpoint of guidance to be approximately 11%. The Q3 forecasted non-GAAP tax rate is approximately 25% at the midpoint of guidance. For modeling purposes, we expect a normalized effective tax rate of approximately 22% on revenue of $170 million or more and profits in line with the business model. Thank you. Thank you. Thank you. Thank you. As a reminder, to ask a question, you will need to press star one on your telephone keypad.

13:36 And to withdraw your question, press the pound key. We'll pause for just a moment to compile the Q&A roster. And your first question comes from a line of Green Bolton from Needham & Company. Your line is now open. Okay, guys, congratulations on the results and outlook. I guess I just want to come back to the sort of second half outlook. I think last quarter you had expected a sort of slower third quarter on slowing RF tests and an improvement in the fourth quarter. Now it kind of feels like Q3 is better, but maybe Q4 is tempered a little bit. Do you just think that some of the revenue you thought you would have previously seen in the fourth quarter has been pulled into the third quarter, or how should we think about sort of the changing dynamics between the third quarter and the fourth quarter compared to what you thought a quarter ago?

14:33 Hi, Gwen. This is Luis. In reality, what we've seen is the mobility customers coming in faster, a little faster than we originally anticipated in the third quarter, and that's what we're seeing here. We have limited visibility out to fourth quarter, so we don't think this is a pull-in from fourth quarter to third quarter. And that's why we say fourth quarter could still be flat, choose slightly up, slightly down. It's difficult to say, but we're viewing it approximately the same at this time. We'll obviously know more as this quarter progresses. But at this point, it's not necessarily a pull-in. It's more of an earlier Q3 Ramp than we had expected when we're out in May, talking about this in May.

15:27 Great. And then a follow-up question, just I know the automotive business has been slow, but that's an important segment for you. You know, your best guess today, when do you think you start to see perhaps better demand conditions from the automotive customers? We're very encouraged actually by seeing the are earning this release here over the last week from many of our customers in the automotive space. So we see them have turned the corner. Many of them are actually guiding up quarter on quarter. So that's very encouraging. It's a matter now of watching the test cell utilization. As I said, on average, we're at about 78% today. It's obviously stronger at the mobility customers and a bit weaker, more in the lower 70s at the automotive customers. So we're watching that test utilization and seeing as it creeps up that it will be the turning point.

16:22 It's difficult to say whether we're talking late Q4, mid Q1. It's really hard to say and pinpoint that exactly, Quinn. But we do see our customers moving up on the automotive space. So we're encouraged by it. We just don't know the exact timing. Great. And my last question, if I heard you right, Luis, I think you said the contactor at Ted Free was 44% in the June quarter, if that's right. I think it's jumped up almost 10 points quarter on quarter. Did I hear you correctly? And if I did, what do you attribute that higher attach rate to? Is it just some of the programs you've been working on now for a couple of years have started to go into production, or is there a mix shift going on that's driving that higher attach rate? Just any more color you could provide would be helpful.

17:12 Thank you. Sure. You're correct. It did jump up to 44% in the quarter. There are a couple of reasons for that. One is we did indeed see some traction, particularly with the new design wins on the handler side. We were able to bundle the contactor as part of the product proposal to the customer. So that actually drove an increase in attachment rate. at the same time I do have to caution that number will fluctuate a bit quarter on quarter depending on handler sales and which customers are driving the handler sales in that particular quarter so I wouldn't be surprised to see that number jump up and down a little bit on a quarter to quarter basis I think you may have to take this number over a longer period of time and see the moving average.

18:06 Understood. Thank you. You're welcome. and your next question goes to the line of Krish Sankar from Common & Company. Your line is now open. Hi, thanks for taking my question. This is Steve calling on behalf of Krish. Luis, maybe I can ask on the strength that you're seeing in mobility currently. I just want to drill down a little more on some of the product strength, demand strength in 5G. So just with the more complex signaling for 5G bands compared to 4G, You have MIMO, there's intended package type modules, and also ultra-wideband signals potentially that are being tested as well.

18:51 Can you provide some more color on, you know, in terms of the 5G opportunity today as it's ramping? We're still in the first year of 5G. If you can compare it to 4G back in the day, if you can go back that far, how much stronger is the ramp this year, this time around for 5G? based on the technology and the complexity of it, and then how much of the strength is just based purely on the capacity pull-ins or strength that you were citing earlier. Hi. Yeah, it's a bit of a challenge for me to do that comparison on the tester side because when 4G ramped, we didn't own tester assets, semiconductor tester assets, right?

19:39 We... were predominantly supplying handlers at that point in time. But to your point on the tester side, we're still in the early stages of 5G, obviously. You're looking at less than 15% of all cell phones, smartphones coming out this year having embedded 5G technology. And I think what it's interesting, and I don't know how it compares to 4G, but what I think it's quite interesting is that with 5G, the frequencies are jumping up significantly, and so with that is the complexity of signal fidelity all the way to device under test. So it does create a really good opportunity for us to combine our testers, our contactors, particularly our testers and our contactors, and just some degree our handlers and offering an integrated solution to customers that accelerates their time to volume production. So you don't have to rely on the customer or their expertise to bring together pieces of equipment to perform one function, which is test.

20:54 We bring to the table a complete iron-out, ready-to-go, ready-to-ramping production solution. And so we're seeing many of our customers appreciate that value of the integration, as well as the value of the test applications team for these highly complex, high-frequency RF devices. And I think that opportunity is going to continue to open up new doors for COHU in the coming quarters. And that's why I said I hope to talk to you more in the coming quarters about the cross-selling and the full test sell. That's very helpful. And as I follow up, I just had a question on gross margin profile relative to the end market mix. So as or once automotive starts to recover their opening coming quarters, what would be the general impact of greater automotive sales margins? Is it a richer mix or the initials compared to where we're – where you're guiding for for Q3?

22:03 Hey Steve, this is Jeff. The automotive, it's primarily handlers that would benefit from increase in the automotive business. And those handlers are tri-temp, a little more sophisticated, complicated, if you will. And along with that comes a higher gross margin. So they're in line with the corporate gross margins. And I guess I would direct you to the business model then to... compare the gross margins at the various revenue levels. So once automotive comes online, you know, completely expect margins to be compliant with the business model. Great. Thank you, and nice job on the quarter. Thank you.

22:51 Your next question comes from Brian Chin from Spyfall. Your line is now open. Hi there. Good morning. Nice execution in the quarter, and thanks for letting us ask a few questions. Maybe the first question here, you talked about a number of design wins in the quarter. I do want to key in on the memory win in particular. The broad memory stand is not something Cohue has historically targeted, but can you talk about why this engagement is more suited to your technology and whether this could translate into high-volume production shipments down the road? Hi, Brian. Going on to high-performance memory, these are usually stacked up memory layers onto a logic controller, and testing these devices has proven to be similar to testing, from a handler perspective, similar to testing an application processor on a smartphone, meaning it is similar Geometries, complexities, touchdown pitch on the device, and more importantly, they are power dissipative.

24:06 The devices are dissipating energy during the test cycle, or in other words, self-generating heat. And in order to ensure yield and quality of test, the application requires an advanced active thermal control solution. So that's what lands itself well into our platform. Now, truth be said, and as I mentioned on the call here, this initial sale is for lab engineering use application. I mean, we think it will have the opportunity to drive something on the order of $3 million to $4 million a year over the next couple of years, but it's still lab engineering use, and we haven't talked about anything related to volume manufacturing at this point.

24:58 Okay, fair enough. So this could be, you know, just a situation where, like, if you're looking at HPM3 and more dye for stack, that probably would be something that would even increase sort of the thermal dissipation kind of requirements, et cetera. Maybe switching gears to 5G, which is clearly a positive influence for a company. You know, I factor in companies that reported yesterday. Expectations for 5G smartphone shipments are maybe back into sort of the 200,250 million range. Granted, it's too early to probably call or say that the broader smartphone market has stabilized yet, but let's say it does next year and the 5G adoption curve remains steep. How fast might you expect the RF semi-test ham to grow next year?

25:50 Yeah, that's a very interesting question there, Brian. I got a look at the two things. One is sort of outside reference. Gartner has some projections for 5G. I don't have it in front of me right now, but it has some projections for 5G RF segment going in a double-digit rate. And I look at just the rollout of 5G this year and the projected unit cell phones that could have 5G technologies next year and probably also more so the increasing content of RFICs in those phones and the increase in frequencies as higher frequency bands get adopted for millimeter wave.

26:35 So I think we're looking at something to the tune of 20 plus percent growth rate for RFIC test and that's talking in unit volumes and I think you have to compound that a little bit with increasing ASP of the testers and the instruments that go in it. Okay, that's helpful. Maybe one more quick hit here. In terms of the RF content growth in 5G phones, is that the key rationale why COHE may be seeing more relative strength into the back end of the calendar year than some of the broader test suppliers? And then kind of not quite related to that, but The PCB test sounds like it's been strong.

27:23 Can you just remind us what that margin structure is relative to the broader business? PCB test is about 40% gross margin, very consistent business. Yeah, and just to get back to the first part of the question, you're right on the semi-test. I mean, our semi-test business, outside of handlers and thermal subsystems, the handling piece, the tester itself, We're not testing high-end digital devices, so we wouldn't be testing application processors today. And therefore, we would see the wave naturally later in the cycle because we're in the RF and the power management ICs, also flat panel display drivers, although still a smaller portion of the total is one that we expect to continue to grow.

28:14 And then as it pertains to PCB tests, It really has nothing to do with mobility or smartphones. Our PCB test business is more associated with computing, telecommunications, network infrastructure, essentially larger PCBs than what you would see on a flexible PCB inside a smartphone. Great. Thank you. Your next question, calling from the line of Sidney Howe from Deutsche Bank. Your line is now open. Hi, this is Jeffrey Randall for Sidney. On the auto side of your business, how much of your recovery in this business is tied to more cars being sold versus increased electronics in cars?

29:05 Yeah, it's really a combination of both, right? Because the increasing IC content in vehicles is In essence, we'll drive an increased demand for test equipment. But at the same time, it can be compounded up if you have an increased unit vehicle sales. I think at this point, where a lot more focus actually is on the technology shift, where we're seeing an increased content of high-end microcontrollers and microprocessors in vehicles for ADAS. We're seeing also an increased number of sensors that actually feed the information to these ADAS devices. We're seeing an increase in battery management systems for electrification.

29:54 Since we can't drive the industry or the consumer spending, what we can do is align our investments to the technology shift so that when automotive is back in full swing, and we're likely to see that next year, that We're aligned to the technologies that are actually driving the growth for sort of the new ICs that will require different handling equipment than the last generation wave of growth in the semiconductor for autos. Great. And just as a follow-up, on the inventory front, are you seeing any indication that there's an inventory build at your customers or are the orders being driven by true end demand? No, we don't see an inventory buildup at our customers. In fact, the checks we had, everybody seems to announce they're pretty lean and think this is actually end-demand driven.

30:47 Great. Thank you. Your next question comes from the line of David Dooley from Steelhead Securities. Your line is now open. Thanks for taking my question. I was wondering if you could comment a little bit further on the display driver business. I think as you put the two companies together, Xera had won some business in that area, and I was just wondering if it had ramped up or what you can talk about in that area. That's my first question. Okay. Hi, Dave. Yeah, Xera has done a good job at designing – and many more. increased sales in 2019 and 2020 even, albeit still smaller numbers than we would have hoped.

32:04 At the same time, we put more energy into additional design wins, and we have some good traction with customers both in Taiwan and Korea. And so we expect to continue to execute on that Flat Piano Display Driver Strategy that was laid out a few years ago. And as the market evolves, as the ramp comes back, particularly with OLEDs next year, we fully expect to see this business will continue to grow for us. Okay, and then I think you've mentioned in the past and also in your prepared comments about how 5G requires higher signal integrity in the test, and that might help drive higher contact and pin sales.

33:00 Could you just talk a little bit about, do you expect the attach rate to go up with the 5G rollout, and what sort of market opportunity does that create above and beyond what was seen in 4G? Yeah, our contact or attachment rate has been higher in the automotive side than he has been in the mobile side. With 5G, I really see an opportunity to increase the attachment rate, contact or attachment rate, and this time actually more towards testers on the mobile side. As frequencies go up, you start at 3, 4 gigahertz, and then you push up to 6 gigahertz with FR1 in 5G, and then you push it up to 8.5 gigahertz for Wi-Fi 6, and and then it starts going further up to 24 gigahertz and beyond for millimeter waves. As those frequencies go up, the complexity of maintaining signal fidelity all the way to the device under test grows and so grows the opportunity for us to sell a complete solution, controlling the entire signal path to the device under test.

34:14 So yes, 5G in essence does give us a greater opportunity to increase attachment rate of contactors in the mobility market, which is not where we were strong. We were strong in the automotive market for contactor attachment rate. As far as opportunity size, I don't have a number to pin to that right now for you, but we're definitely talking tens of millions of dollars of business that could be generated in the mobile space. And you have given a number in the past about how much more the 5G would be for overall revenues versus 4G. Could you just remind us what the incremental TAM of 5G was, however you phrase that? If you could just remind us what the incremental number was that you talked about.

35:07 Yeah, it was about $120 million of incremental revenue opportunity with 5G. And this is specifically talking about testers. I'm not talking about handlers or contactors now. So we view that the 5G RF space would grow by about $120 million in the span of two to three years, this being year one right now, 2020. And that applies to all RF front-end ICs, meaning power amplifiers, low-noise amplifiers, filters, switches, antenna tuners, sort of that space, basically, the whole signal chain. Okay, final thing for me. Jeff, historically, I think you've given us a breakout of systems revenue amongst five or six or seven categories.

35:57 Could you give us those numbers for the June quarter? Yeah, what we do is we do orders, and that's in the IR deck. So let me just tell you with systems, there are 48% of the total orders, as Luis mentioned, and that breaks down of the systems piece, 15% is mobility, PCB manufacturing, 10%, consumer nine, automotive five, industrial medical four, computing and network three, and IOT, IOV, and optoelectronics is two. That totals to 48% of system orders.

36:48 Okay, thank you. Your next question comes from the line of Tom DeFalle from DA Davidson. Your line is now open. Yeah, good morning. I guess first question, just on the breakdown of orders you just gave, are you surprised that compute networking isn't a little stronger right now since there's a lot of effort going on from a capacity point of view? Hi, Tom. It's Luis. Yes or no, there has been strong system orders in computing in the first half of the year, and I think there's some digestion and installation right now. But computing network represents a substantial portion of our recurring business, and that has remained fairly strong.

37:36 So if you think in terms of total here, we're looking at a couple percentage point changes in total business. Thank you very much. are those going to remain in place while revenues are at current levels? Or how do you look at that going forward? Hey, Tom. Yeah, so they remain in place, as I had mentioned.

38:24 The main item that we're looking for is an improvement in business conditions, particularly orders to improve. You know, we anticipate it's likely that these temporary cost reductions will will be in place until Q1 of next year. We could potentially reverse it sooner. It just, again, depends on business conditions. Okay. And then – that's helpful. Is there anything that you've learned or been able to adopt during kind of the stay-at-home environment we're in that will impact or reduce cost structures going forward? Yeah, certainly, Tom. I think that – Certain areas that have been high-cost areas is travel.

39:16 I think we're going to look at that a little bit differently. As you know, some of these investor conferences that are done virtually work out pretty well. So I think travel across the board is significant spend, and that's an area that we're going to look at a little bit differently moving forward. I think there were a few others that we'll take a look at as well, but that's one that really sticks out. Okay, great. And then I guess a final question here. Luis, when you look at the contactor business and some of the share gains there, which end markets are driving that today and what are the biggest opportunities from an end market point of view for that segment? So if I look in total revenue, the contactor revenue is probably going to grow fastest in the coming quarters today.

40:07 on tri-temp handling test applications in automotive and industrial. And that is just the sheer current attachment rate to tri-temp handlers and the likely resurgence of the automotive market. Nothing necessarily driven by actions on our side. Secondly, and I think that's the one that we spend more of the energy in, is where can we get a design win? Where can we increase contact or attachment to our products? And where the energy is going today is both in the RF space because of the 5G higher frequencies as I described before in a prior question, as well as in computing.

40:54 And in computing, simply because of our large presence with thermal technology and handlers in the computing space, Thank you, David. Thank you. Your next question, going from the line of Craig Ellis from B. Riley. Your line is now open.

41:40 Yeah, thanks for taking the questions, and congratulations on the company execution, guys. Jeff, I wanted to just go back to some of your comments regarding the third quarter. I missed what you said about gross margins. Can you repeat what the gross margin is, please? We gave a range of 41% to 44%. Okay, and... So the midpoint would be down, I believe, quarter on quarter. And just given the linearity of the Asian manufacturing increase through the second quarter, why wouldn't we see with the full quarter's benefit of that a flat-ish gross margin quarter on quarter? Actually, Craig, the midpoint's 42.5%, and the midpoint revenue is $140 million. So margin's up a bit.

42:28 Okay, got it. And so that does take into consideration full operations in Asia. Okay. All right. Thank you. And then a longer-term question, Luis. You know, the business is building a nice base here with better than previously expected RF in the near term and potential for flattish sales in the calendar fourth quarter. If we were to look out, Thank you. Okay. Hi, Greg. There will be a toss here on the number one.

43:26 I would have a hard time to say which one is one or two. But the two top ones would be a resurgence of demand for test handlers and associated with that test contactors because of the attachment rate in the automotive segment. Automotive has been... Substantially depressed here for the last couple quarters. I think it was actually last quarter, not couple quarters. It was coming back up in Q1, and then it got hit hard with the COVID-19 pandemic and the shutdown of auto factories worldwide. So I think automotive return and then the technology shift to ADAS and electrification will be a substantial driver for handler and contractor sales.

44:20 but equally as important and frankly I don't know which one takes the lead on this one is going to be, continue to be 5G and 5G drive for incremental testers and incremental ASPs or sort of higher ASPs on these testers for higher frequency semiconductor RF device test. And then along with that will go contactors as we continue to put together solutions that address the sole signal fidelity all the way to the device under test. So it's a toss between the two. I think those are the two major drivers. The RF test, the contact or attachment to RF is something that requires more action and activity on our side.

45:12 The automotive, I don't wanna diminish it, but it's perhaps more of a natural Thank you very much. sort of divulge competitive information on the call, but there are other activities there. There are obviously activities on the handler side as well, new products in the pipeline, continue to drive and gain some good traction with this NEON inspection platform, and I think these things will sort of widen the bays, but these two other elements I mentioned in the automotive and the RF test for testers, handlers, and contactors are from a numbers perspective, the biggest elements.

46:20 That's helpful. Thanks very much, guys. Thank you, Craig. Your next question comes from the line of Christian Sprap from Craig Hallam. Your line is now open. Great, thanks. I just have a quick follow-up to the previous question. If the automotive market does normalize and come back and 5G adoption continues to accelerate as far as smartphone percentage of shipments. Then is it fair to assume that we should probably at some point be operating in the business model of $170 to $190 million a quarter next year potentially for a meaningful portion of it depending upon automotive sales?

47:13 Yeah, Christian, this is Jeff. Yeah, I think you're absolutely right. Hard to say exactly which quarter that is, but it's 170 to 190, I think, is a reasonable expectation. Excellent. No other questions. Congrats. Have a good quarter. Thanks, Christian. And again, if you would like to ask a question, press forward into number one on your telephone keypad. and there are no further questions at this time. Please continue. Okay, I just want to say thank you for joining today's call and have a nice day.

48:00 Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.