Transcript of
Cohu, Inc.
Cohu
Unit to Acquire Rasco GmbH
December 8, 2008
Jeffrey Jones, Chief
Financial Officer
James A. Donahue,
President and Chief Executive Officer.
Operator
Greetings and welcome to the Cohu, Inc. conference
call to discuss Cohu’s acquisition of Rasco. At this time all participants are
in listen only mode. A brief question/answer session will follow the formal
presentation. If anyone should require operator assistance during the
conference, please press #0 on your telephone keypad. As a reminder this call
is being recorded. It is now my pleasure to introduce Mr. Jeff Jones, Chief
Financial officer for Cohu. Thank you sir, you may begin.
Jeffrey Jones – Cohu,
Inc.‑ CFO
Thank you and good
morning. Earlier today we announced our agreement to acquire Rasco, and we
look forward to taking you through the significant strategic benefits this
acquisition brings to Cohu. Joining me today is Jim Donahue, Cohu’s President
and Chief Executive Officer. If you have not received a copy of our press
release issued this morning, you’ll find the release on our website at cohu.com.
Please note that there is a slide presentation that accompanies today’s call
which can also be found in the investor relations section of our website.
Before we get
started, I must remind you, as outlined on slide two, that certain matters
discussed in this teleconference, including statements concerning the
expectations of Cohu’s and Rasco’s future operating performance are forward-looking
statements that are subject to risks and uncertainties that could cause actual
results that differ materially from those projected or forecasted. Such risks
and uncertainties include, but are not limited to, difficulties in integrating
the Rasco acquisition, expected synergies and cost savings from the acquisition
may not be realized, market opportunities as a result of the acquisition may be
smaller than anticipated or may not be realized, and other risks addressed in
Cohu’s filings with the Securities and Exchange Commission including the most
recently filed Form 10K and Form 10Q. These forward looking statements speak
only as of today and Cohu assumes no obligation to update the information in
this release. And with that I’ll ask you to advance to slide three in the
presentation and I will turn the call over to Jim.
James A. Donahue –
Cohu, Inc. - President & CEO
Good morning everyone
and thank you for joining us. Today before the market opened we announced our
agreement to acquire Rasco for $80 million in an all cash transaction. Through
this acquisition we combine Delta Design, the number one supplier of Logic Pick
& Place IC test handlers, with Rasco, the number two provider of
gravity-feed handlers, which expands our customer base, broadens our product
and technology offerings and further strengthens our global sales and service
network. This acquisition enhances our position as the number one IC test
handler company globally and expands our total available market. Rasco’s
gravity handlers address the fast-growing market for small form factor
integrated circuits, used in consumer electronic applications. We believe that
this acquisition will significantly advance our strategic position and drive
shareholder value. Now let’s move to slide four and give you some background
on why we focused on Rasco in particular.
We have viewed Rasco
as an attractive acquisition candidate for several years, because of the Company’s
excellent products and reputation, strong financial performance, including
gross margin percentages in the low to mid-40’s and the potential to expand our
served market in an industry that we understand very well. So when the
opportunity recently arose to get this deal done, we were in the position to
put excess cash to work and complete the transaction. Rasco provides the
unique opportunity to acquire a leading gravity test handler company allowing
us to expand into handling smaller IC package sizes with systems that are complementary
but with no product overlap. This acquisition is a logical industry
consolidation step, which provides strategic benefits and synergies, and less
execution risk as we know the industry so well. So for these reasons, we have
been focused as Rasco as the best acquisition candidate in the IC test handler
space. Let’s turn to slide five and look at the strategic rationale for this
transaction.
Cohu, by combining
Delta Design and Rasco, is the number one supplier of IC test handlers in the
world and expands our total available market close to 70%, from $330 million to
$560 million. This expanded TAM, broader customer base, extended product
offerings and combined global sales and service network, provides significant
additional growth opportunities. I will explain each of these strategic advantages
in more detail in a few minutes. Also as we announced earlier this year we
initiated an Asia manufacturing strategy at Delta Design, targeted at
significantly enhancing gross margins and we will expand the strategy to Rasco,
to deliver manufacturing cost synergies. So, although present economic
conditions are difficult, and we believe that 2009 will be a tough year for the
semiconductor capital equipment industry, we are confident that the combination
of strategic benefits and synergies derived from the Rasco acquisition will
drive meaningful accretion when business conditions improve. And importantly,
Cohu maintains its strong financial position with approximately $80 million in
cash and no debt, even after this strategic investment.
Slide six shows the
2007 worldwide IC test handler market and breaks down the overall market into
five segments. The blue segment is logic pick and place, where Delta Design is
the market leader, and it represents 37% of the total IC test handler market.
Rasco is number two in the gravity-feed segment and also participates in the
test on strip market, that together represent 25% of the total market. So Cohu,
now with both Delta Design and Rasco, expands its TAM from $330 million to $560
million and has a product line that addresses more than 60% of the overall IC
test handler market, with a breadth of customers and products that is unmatched
in the industry.
Slide seven portrays
the wide array of semiconductor customers that Cohu now serves. In the circle
on the left you see the Delta Design customer base and in the right circle are
the Rasco customers. The customers that are common to both companies are
represented by the area where the two circles overlap. This chart clearly
portrays the breadth and strength of our combined customer base, and we see
significant new opportunities to increase sales at both Delta Design and Rasco
with a broader product line and consolidated global sales and service
organization.
Now turning to slide eight,
let me give you a brief overview of the combined IC test handler product line.
Delta Design’s pick and place handlers serve two distinct markets. Delta’s
high performance Logic handlers incorporate proprietary thermal control
technology that provides enabling capability to optimize test yield and ASPs for
microprocessors, advanced graphics processors and other high speed, high power
integrated circuits. We also utilize this proprietary temperature control
technology in other thermal subsystem products that are used in high power
burn-in applications by microprocessor manufacturers. Delta’s high speed pick and
place systems serve a wide array of test handling applications including
general purpose logic, SOC, wireless, and automotive. We offer systems with a
full range of temperature and parallel test capabilities. With the addition of
Rasco, we complement Delta’s pick and place product lines with a complete set
of gravity-feed handlers and a test on strip system. Rasco’s handlers provide
full temperature capability and various input and output options, including
tube, magazine, bowl feed and tape and reel and are particularly well-suited
for very small integrated circuits, such as high performance analog devices
used in consumer electronics applications. Now please turn to slide nine.
Underlying the
strength of both companies’ product offerings is a strong portfolio of
intellectual property and leading technologies. Delta Design and Rasco have
established leadership positions by consistently being early to market with next
generation handlers that integrate key technologies to deliver the highest
throughput, lowest cost of test and most reliable solutions. For example,
Delta Design, with its proprietary thermal technology, pioneered the use of
conductive thermal control in microprocessor test handling and Delta has made
three strategic acquisitions in recent years that solidified our portfolio of
thermal intellectual property. Delta’s new MATRiX pick and place handler
provides industry-leading x32 parallel test capability, automated vision
alignment to improve test results for small form factor devices and
chamber-less tri-temperature design. One of the key attributes of Rasco that
was very attractive to us was the similar approach they had taken to applying
leading technology in critical areas such as thermal control, vision systems
and high throughput. We believe that the two companies combined will further
strengthen this technology leadership.
The next slide shows
the breadth of the combined sales and service network worldwide. IC test is a
7x24 operation, located mainly at production facilities throughout Southeast Asia and the timely availability of qualified service personnel has proven to be
a key competitive advantage. With the addition of Rasco, this award-winning
customer support organization grows wider and deeper and is unmatched in the
industry. Combining with Rasco strengthens sales and service support to our
customers around the world, and also provides savings by integrating the two
organizations. Now turning to slide 11, we have a summary of the transaction.
As I stated earlier
the Rasco acquisition is an $80 million all cash transaction. Rasco’s last
twelve months’, unaudited, non-GAAP results included revenues of $47 million,
gross margin in the low to mid 40’s, operating expenses around 30% and
operating income just north of 10%. We project that this transaction will be
moderately dilutive on a non-GAAP basis in 2009, given the outlook for weak
economic conditions. We then expect the acquisition of Rasco to deliver
accretion greater than 20% once business conditions recover. This accretion is
driven by cost synergies in manufacturing, sales and service, by incremental
market opportunities for the two companies and finally by putting excess cash
to work in a higher return investment through this acquisition. After this
transaction we maintain a very strong balance sheet with cash of more than $80
million and no debt. We are very excited about the strategic benefits and the
shareholder value we believe the Rasco acquisition brings to Cohu. But in
addition there are other important strategic initiatives underway at Delta
Design, and I would like to now take a few minutes to give you an overview of
those as well.
Turning to slide 12,
let’s review two next generation pick and place handlers that we believe will
drive revenue growth at Delta Design as the economy recovers. MATRiX,
introduced several months ago, has industry leading x32 parallelism, vision
alignment that is important when testing small form factor devices and
chamberless tri-temperature capability that reduces production downtime and
lower cost of test. MATRiX is ideally suited for testing microcontrollers,
high performance analog, automotive, wireless and other cost sensitive IC’s and
we expect to gain market share with this new product. We are completing
development of a next generation thermal handler, the successor to our industry
leading Summit test handler. This system, named Pyramid, incorporates
proprietary thermal control technology and is closely aligned with the future
requirements of microprocessor and graphics chip testing. We expect to begin
delivering systems in 2009. These two major new products position Delta Design
for strong growth over the next several years as business conditions improve.
Please turn to our
last slide and we will summarize and then take your questions. Cohu, with both
Delta Design and Rasco, has the number one market position, with a product
line, technology portfolio, customer base and global sales and service network
that is unmatched in the industry and we have employed a wide array of
strategic initiatives to drive shareholder value. This includes the
acquisition of Rasco, the roll out of two key next generation products of Delta
Design, and our Asia manufacturing strategy to reduce manufacturing costs and
enhance gross margins. Although projected to be moderately dilutive in the
current economic downturn, we expect that the acquisition of Rasco will deliver
meaningful accretion when business conditions recover, on top of revenue growth
and enhanced profitability expected from Delta Design’s new products and Asia manufacturing strategy. And importantly, following the Rasco acquisition, Cohu
maintains a very strong balance sheet with over $80 million in cash and no
debt. While current industry and macroeconomic conditions are difficult, we
have never been more optimistic about our future and believe that Cohu is well
positioned for profitable growth and increased shareholder value as business
conditions improve. This ends our prepared remarks and now Jeff and I will
answer any questions you may have. Ryan we’ll be happy to take questions.
Operator:
Thank you. Ladies
and gentlemen we’ll be conducting a question and answer session. If you would
like to ask a question, please press *1 on your telephone keypad. A
confirmation tone will indicate your line is in the question queue. You can
press *2 if you would like to remove your question from the queue. For
participants using speaker equipment, it may be necessary to pick up your
handset before pressing the * keys. One moment please while we poll for
questions. Our first question comes from the line of Vernon Essi with Needham
& Company.
<Q>: Thank
you, congratulations on the acquisition.
James A. Donahue –
Cohu, Inc. - President & CEO
Thanks Vern.
Jeffrey Jones – Cohu,
Inc.‑ CFO
Thanks Vern.
<Q>: Just
wondering on the prepared comments here, you’ve talked about, it sounds like
about a 10% operating profit and you’re looking for modest dilution it sounds
like in 2009. What, give us an idea of that 10% if that’s more of a trailing
figure or is that sort of a snapshot in the current environment or should we be
assuming that that was off of a little bit higher of a revenue level than what
you’re probably going to see in the near term. Obviously, the revenue would be
declining here I would assume given the environment so I’m jutting trying to
gauge sort of where that’s going to land a little bit real time.
James A. Donahue – Cohu,
Inc. - President & CEO
Well yes revenues in
this environment have trailed off across the board so that’s really a 12 month
trailing number and we wouldn’t expect to see that in this current environment
but once business conditions recover we’re quite optimistic about the
opportunities for significant accretion.
<Q>: Okay and
how much cost, I mean obviously you probably don’t have detailed figures in
front of you but in terms of just cost savings, where do you think the best
opportunities are in putting both of these together for cost synergies.
James A. Donahue –
Cohu, Inc. - President & CEO
Well, in several
areas Vern. The combination of our sales and service organization will be
important. Additionally, we’re achieving good success with our Asia
manufacturing initiatives here at Delta Design and we’re going to look at all
opportunities to reduce manufacturing cost with the Rasco products whether that
involves working at the Rasco facility in Germany or looking at opportunities
with local or offshore subcontractors to do the same thing that we’re doing at
Delta.
<Q>: Okay and
then on the, sort of shifting gears here, on the supply chain side are there
any key partners in terms of your technology cores and vision or thermal, I
think you do most of those in house, but are there any efforts where you think
you could parlay into them or you have the same source of partners for those
technologies, is there anything along those lines we should expect?
James A. Donahue –
Cohu, Inc. - President & CEO
Well possibly and
we’ll be digging into that as we get working on the integration over the next
few months. I think there will be some opportunities for common use of
technologies.
<Q>: Okay.
Alright, thank you.
James A. Donahue –
Cohu, Inc. - President & CEO
Thanks Vern.
Jeffrey Jones – Cohu,
Inc.‑ CFO
Thanks
Vern.
Operator
Once again if you’d
like to ask a question please press *1 on your telephone keypad. Seeing as
there are no further questions I would like to turn the call back to management
for any concluding remarks.
James A. Donahue –
Cohu, Inc. - President & CEO
Okay. Thanks
everyone for joining us today. Our next scheduled opportunity to speak with
you will be in late January when we report our Q4 operating results. Thank you
very much for joining us today and have a good day. Before I leave, I would
like to mention that we will be attending the Needham Growth Conference in
early January in New York and will be speaking further about the acquisition at
that time. And with that, thanks again for attending and have a good day.
Operator
Ladies and gentleman
this concludes today’s teleconference. Thank you for your participation.
