Cohu (NASDAQ:COHU) Q3 2019 Earnings Call

0:00 Ladies and gentlemen, thank you for standing by, and welcome to the KOHU Incorporated's third quarter 2019 financial results conference call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. As a reminder, this call is being recorded. I would now like to turn the conference over to your host, Mr. Jeff Jones, Chief Financial Officer. Please go ahead. Good morning, and welcome to our conference call to discuss Cohue's third quarter results and fourth quarter outlook. I'm joined today by our President and CEO, Luis Muller.

0:49 Luis and I are calling from our operations in Germany, and we appreciate you accommodating this early morning call. If you need a copy of our earnings release, you may access it from our website, cohue.com, or by contacting Cohue Investor Relations. There's also a slide presentation in conjunction with today's call that may be accessed on Cohue's website in the Investor Relations section. Replays of this call will be available via the same page after the call concludes. Between now and our next earnings call, will be participating in the eighth annual New York City Summit on Tuesday, December 17th, and the Needham Growth Conference, also in New York City, on January 14th.

1:36 Please contact us if you would like to request a meeting with the company at these events. And now to the safe harbor. During today's call, we'll make forward-looking statements reflecting management's current expectations concerning Cohue'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 statement section of the slide presentation and the earnings release, as well as co-use filings with the Securities and Exchange Commission, including the most recently filed Form 10-K and Form 10-Q. Our comments speak only as of today, November 4, 2019. and Kohu assumes no obligation to update these statements for developments occurring after this call.

2:28 Finally, during this call, we'll 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, Kohu's president and CEO. Luis? Good morning. Today I'm going to touch on highlights for the third quarter, briefly describe a couple of opportunities for next year, and then pass it back to Jeff to comment on the financial results and fourth quarter guidance. Cohue delivered stronger than expected non-GAAP profitability on sales of $143.5 million, despite continued softness in the automotive and industrial segments, which are historically our largest served markets.

3:19 Lower analog IC demand is expected to remain a near-term headwind to handler sales, particularly gravity systems, while automotive ADAS is forecasted to strengthen, benefiting our pick-and-place business. As a reminder, most of our handler business are for automotive and industrial applications, where Kohu is the leader in tri-temperature testing, with a large install base of equipment that provides long-term recurring revenues. In mobility, 5G applications are driving an increase in utilization of RF testers and third handlers, which is recently trending above the overall average of approximately 77%. Third quarter orders were 44% system and 56% recurring, validating our strategy to build a solid foundation of recurring business that helps offset capital equipment cyclicality.

4:16 We also captured a key design win at a leading U.S. mobile semiconductor manufacturer, adding an approximately $10 million a year customer and broadening our leadership in RF tests. Third-quarter orders continue to strengthen in mobility, cloud, data center, and AI, where we have greater ATE exposure and growing contactor sales to RF and power management IC tests, and a large thermal handler install base for microprocessors. These segments are expected to gain momentum in 2020 with 5G power amplifiers, antenna tuners, switches, and filters tested on our equipment, supporting the initial ramp of next generation smartphones coming to market next year.

5:03 We believe that we're seeing the beginning of a new growth cycle driven by 5G communications, enabling higher data rates and capacity with enhanced mobile broadband, Massive machine-type communications on narrowband Internet of Things and mission-critical applications on ultra-reliable, low-latency communications. Our products are gaining traction in sub-6 GHz 5G production and demonstrating differentiated value for Wi-Fi 6 and millimeter wave applications. We estimate that the addressable market for our RF testers will grow from about 60 to approximately $170 million in the next three years, and we expect to remain the leader in this space, supplying both U.S.

5:51 and China-based customers. In fact, China was a growing region for our tester sales this last quarter, countering some initial fears from the trade war. We're also optimistic about the prospects of selling complete solutions consisting of testers and handlers combined with contactors, for semiconductor tests across different applications. We recently ramped a complete solution supporting a global satellite communication project that is forecasted to grow next year. Adding to that are opportunities in the approximately 200 million flat panel display driver IC test segment where we continue to make inroads in Taiwan, China, and now also Korea. It's too early to speak with certainty about next year, but We expect 5G to enter the next phase of expansion, with initial volume smartphone production and a return to some level of normality in the automotive market, leading to semi-test growth year on year. We will continue to carefully manage the P&L, maximizing profitability, but also ensuring the proper investments to drive mid-term growth, particularly on testers and contactors that have much to gain from cross-selling with our larger handler business.

7:06 It's been one year since the acquisition of Xera, and I'm happy to report being on track for $40 million annual run rate cost synergies by the end of this quarter. The main synergy objectives are being achieved ahead of schedule, having substantially restructured our German operations, closed a factory in Fontana, California in the third quarter, and on track to close our Penang, Malaysia factory by the end of this quarter. More importantly, We're now integrated and actively pursuing cross-selling customer opportunities, such as the RF satellite communications that have the potential to add differentiated value to our customers. Now I'd like to turn it over to Jeff to review our third quarter results and provide fourth quarter guidance.

7:51 Okay, thanks Luis. Today I'll start by reviewing third quarter results, which delivered revenue in line with guidance, but with non-GAAP profitability higher than forecasted, due to higher gross margin and lower operating expense, including the realization of acquisition-related cost synergies. I'll also review our progress in accelerating our planned synergies from the acquisition of XERA, and then I'll provide our fourth quarter guidance. 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 Q3, the GAAP to non-GAAP adjustments include approximately $3.5 million of stock-based compensation expense. GAAP to non-GAAP adjustments, primarily driven by the XERA acquisition, include $10 million of purchased intangible amortization expense, $1.3 million of property plant and equipment step-up costs, and $2.5 million of restructuring costs.

8:54 The Q3 2019 net cash impact of Xera acquisition-related restructuring was approximately $4 million, related primarily to employee severance. Q3 revenue of $143.5 million was in line with our guidance, and no customer accounted for 10% or more of sales in the quarter. On a year-to-date basis through September, One customer in data center, cloud, and AI represents approximately 11% of sales. In Q3, we generate a gross margin of 42.3%, which is approximately 130 basis points higher than guidance due to a better-than-expected contribution from recurring revenue and a favorable mix of handler and tester system sales.

9:46 Operating expenses came in lower than forecast as a result of tight control on labor costs and discretionary spending and a $600,000 gain on sale of fixed assets. During the quarter, we realized approximately $7.2 million of acquisition cost synergies, which is in line with the forecast. In the third quarter, we generated non-GAAP operating income of $11.2 million, or approximately 8% of sales. After interest expense, A foreign currency gain of about $1.6 million and the tax provision co-generated non-GAAP EPS of 12 cents. Adjusted EBITDA in the quarter was $16.1 million or 11.2% of sales.

10:33 As I've stated on prior earnings calls, the effective tax rate is not meaningful at current pre-tax levels. As a reminder, Most of COEU's operations and related profits are generated and taxed outside the U.S. Additionally, when the U.S. operation generates a loss, as it did in Q3, there's no tax benefit to offset the foreign tax expense because of our deferred tax asset valuation allowance. As a result, in Q3, we recorded tax expense on foreign profits without any benefit from the U.S. loss. This resulted in a high effective tax rate of approximately 39%. Now turning to cost synergies and our business model, as announced on prior earnings calls, we've taken actions that result in pulling forward approximately $20 million of cost synergies into 2019. That's ahead of the original target of three to five years.

11:27 The result is that by the end of this calendar year, we expect to deliver $40 million in annual run rate cost synergies that will favorably impact and are already included in the business model going forward. This annual cost synergy split is approximately $20 million in cost of goods sold and $20 million in operating expense savings. Now, after completion of our restructuring plans, including shutdown and consolidation of various facilities, the minimum cash required to run the operations has been reduced to approximately $90 million. Our long-term capital allocation strategy is to use excess cash to pay down the debt and de-lever the company.

12:13 However, in the near term, we're making minimum debt payments until we have a better sense of the timing and extent of cash required to support anticipated business growth in 2020, driven mainly by 5G communications. During Q3, Koyu generated approximately $8 million of cash from operations, and our cash balance was approximately $146 million at the end of the quarter. Cohuse Board of Directors approved a quarterly cash dividend of $0.06 per share, payable on January 2, 2020, to shareholders of record on November 15, 2019. For the fourth quarter 2019 guidance, we're expecting sales to be $134 million to $144 million.

13:02 Revenue distribution is forecasted to be 94% semiconductor test and inspection and 6% PCB test. Gross margin is expected to be 41% to 43%, and operating expenses are projected to be approximately $50 million, including cost synergies of approximately $9 million, or about $36 million on an annualized basis. In addition to the acquisition cost synergies, we're maintaining the cost reduction measures taken in Q3 of approximately $1 million. We expect Q4 adjusted EBITDA at the midpoint of guidance to be approximately 8%. Similar to the last three quarters, the tax provision rate will be abnormally high and not meaningful. The tax provision Total tax provision at the midpoint of guidance is expected to be similar to the Q1 and Q2 non-GAAP amounts.

13:58 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. A diluted share count for Q4 is expected to be approximately 41.7 million shares. And that concludes our prepared remarks. and now we'll take your questions. Ladies and gentlemen, if you have a question at this time, please press star and the number one on your touch tone telephone. If your question has been answered or you wish to remove yourself from the queue, press the pound key. Again, star one for any questions. We'll pause for just a moment to compile the Q&A roster.

14:44 Your first question comes from the line of Craig Ellis from B. Riley. Yeah, thanks for taking the question, gentlemen, and congratulations on the strong margin performance in the quarter and outlook. Luis, I wanted to follow up on a couple of points that you made and just try and tie them together. So nice to see the new tester win that you said was worth, I believe, $10 million. And then secondly, constructive longer-term RF test outlook that I thought was framed as growing from 60 to 100 million. So if I put those two things together, just assuming a linear rate of growth in RF tests, does that mean that there could be as much as 23 million of incremental RF test revenue next year if you get 10 million from a new customer and then industry growth of 10 to 13 million as we see a rebound.

15:45 Hi, Craig. Yeah, so just to recap on those two points, right? The customer win in the RF space, we do expect that to generate about $10 million a year going forward in revenue. Obviously, there are some puts and takes on about $10 million. and then the RF market, the addressable market for RF testers we do expect over the course of the next three years as 5G deploys in greater volume and mobile to grow substantially. So I don't have a number to give you for next year specifically, but indeed our RF tester sales should be growing meaningfully into 2020, and I would expect even over the next few years as 5G continues to roll out.

16:40 That's helpful. And then a follow-up just on some of the other dynamics within the end markets. It sounds like from what you're seeing, that part of mobility looks like it has good durability. Can you comment on the potential for data centers to continue to be a strong market? And then you noted that auto is really a tale of two things, 8S strong and I think other parts weaker. Do you have any visibility as to when auto and industrial would start to inflect more positively? Okay, so to the first point, yes, we do expect – The data center cloud AI should remain strong going into next year, going into 2020. So that business, I think it's going to remain there.

17:35 On the automotive, and I would say also the industrial market, they have indeed weakened through the year. And as you can see, as a percentage of our systems business, it has actually come down in the third quarter. I think the bright spots in automotive are going to be ADAS going into 2020, and also battery management systems, BMS, if you will, for electric and hybrid electric vehicles. Nevertheless, as you know, SARs have gone down this year. I think there is some expectation that it could be flat to single digit up next year. And I think the main story around automotive will be content growth.

18:24 in electrification of vehicles going into 2020. So I would expect some recovery to normality. Now, all in all, it's hard to talk about timing for these things all combined. And so I would expect getting into 2020 more of the typical seasonality, something that we haven't seen much in 2019, with maybe Q1 starting to come back around after Chinese New Year, But in earnest, sort of a seasonality picking up in the second quarter of the year. Maybe Q1 will be more of a flat to up mid-single-digit quarter-on-quarter before the seasonality picking up in Q2, as I said.

19:09 Yeah, that makes sense given what we're seeing from analog companies. And then, Jeff, not to leave you out, following up on some of your comments regarding synergies, clearly synergies capture is going quite well. I think you noted that in the fourth quarter, expected performance takes the business to 36 million, but exiting the year on that 40 million run rate, does that mean that there's about 4 million of incremental synergies that comes into the business in the first quarter? And if so, can you give us any color on the extent to which that's either COGS or OPEX? Yeah, that would be right, Craig. So over the full year, you'd have that $4 million impact. And that would be, let's see, we're going to exit the year with COGS at about, in Q4, at about $4 million.

20:02 So yeah, most of that would be COGS-driven. Most of that incremental $4 million would be COGS-driven. Thanks, guys, and I'll jump back in the queue. Your next question comes from Christian Schwab from Craig Hallam Capital. Good morning, guys. Thanks for doing the call. Pre-market, I do like that better. As it relates to bigger picture, I know you didn't want to talk about timing regarding a recovery scenario in different markets, but maybe you could walk us through, please, the puts and takes to return the business on a top-line perspective to where we were kind of a year ago when we made the XERA acquisition.

20:51 I think that was about roughly $780 million in revenue on a $1.12 trillion basis. Can you walk us through what it would take to get us there? Yeah, sure. So, Christian, I'm going to talk about the different markets here and sort of maybe just put the whole picture together. So if you look at mobility... What we're seeing here is the 5G wave driving the growth of RF devices, or at least as it impacts us, RF devices. And that's happening already, although, honestly, in all awareness, did you expect that you'd ramp in real volume starting sort of Q2 of next year? And this is as we're going to start seeing a larger volume of next generation smartphones with higher RF 5G content in them. Now, what is that going to do? That's going to benefit both the sale of our RF configured testers as well as third handlers and to some degree even the pick and place handlers into the mobility market.

22:02 On the automotive side, and as I mentioned before, what we do see today, if you look at IHS market research, There's some expectation that global lightweight vehicle sales will be up low single-digit percent next year. More importantly, I think semi-content going up for ADAS, as I mentioned before, which benefits radar sensors, other sensors in general, high-end microcontrollers, also RF devices in cars, right? And industrials are sort of stabilizing. the data as I mentioned before to data center cloud AI is expected to remain strong and so you know I can't give you an exact number for next year but I do expect that typical seasonality coming back for 2020 where we would have again weaker first quarters and fourth quarters you know in fact look at looking at a sort of a first quarter to be similar levels to fourth quarters and then and then going into much stronger second and third quarter now is the amplitude Where is exactly the amplitude?

23:08 We don't have an answer to that question today, but I think the business is going to start coming back to the formal profile, at least the formal seasonal profile. Fabulous. I don't have any other questions. Again, great quarter. Thanks. Your next question comes from the line of Tom Differly from D.A. Davidson. Yes. Good morning or good evening. So, Maybe Jeff, following up on the costs over the last couple quarters, so in the just reported quarter, trying to figure out what the impact of the mix was in relationship to the cost reduction and also the one-time cost programs that you have going on right now.

23:55 Yeah, so in the forecast, we had baked in the cost synergies of a little over $7 million, and so We, in fact, hit that number. It's about $7.2 million for acquisition-related cost synergies. And then during the quarter, as I mentioned, we had about $4.5 million more of recurring revenue. And then as well as sort of the blend of systems from handlers and testers were a little more profitable than what was forecasted. Okay, is there any way to quantify the contribution that you got from the Better Mix? Well, from the Better Mix, it really accounted for just about all of the 130 basis points.

24:43 Okay. Okay, great. On the OpEx, Tom, you know, that spending was lower as well. And so we've, you know, we've gone beyond the... The acquisition costs, and we've done things, as I mentioned before, about lowering labor costs in terms of not hiring or replacing positions at the moment that we would in the future when business returns. So it's sort of delaying certain labor costs and other spending. We've reduced discretionary significantly in terms of travel and other costs.

25:28 Those are the additional costs we've taken, cost actions we've taken in addition to the synergies that we're achieving. And so we'll continue those as long as business remains somewhat down. Okay, so there's a potential if we have a nice second quarter next year, we get a couple million dollars of cost coming back on just from those short-term programs. Yeah, I would say as revenue returns, then I would start to look back at that business model again to model the operating expenses. Okay, great. And then a question on China. It sounds like China was actually okay for you in the quarter, and I'm wondering if you're seeing any impact of your move to a direct sales team there. Yeah, China was actually a growing region for us in the third quarter.

26:19 and we continue to forecast actually China and the rest of the world actually, not just China, to be a strong region particularly for mobility and as we grow the RF 5G business next year. So in the end, not much of an impact from the trade in the third quarter. We had a disruption, as you may recall, in the second quarter when things got moved around a little bit But on a go-forward basis now, we're not foreseeing any negative impact from that. Okay, great. And then finally, when you look at the differences between the handler business and the tester business, in general, is there a stronger utilization rates in one half of your business versus the other?

27:11 Which one do you think has the better near-term recovery or the closer near-term recovery? I think the near-term recovery is going to come more on the tester business, and that's simply because our tester business has a greater exposure to mobility and consumer applications, while our handler business, although serving across all markets, as you know, historically we've been much stronger in the automotive and industrial markets. At some point in the past, Prior to Xera, automotive and industrial represented 45% of our handler sales. So as I mentioned before here, the mobility market, particularly RF, 5G, is going to be the main driver, as we see it, for 2020 right now. And so with that, I would expect the tester business to come back sooner than the handler business.

28:12 Okay, thanks. And then final question, Jeff. When you look at the mix going into the fourth calendar quarter, any meaningful difference from what you saw in the third quarter from a mix point of view? I would say that the recurring business in Q3 was about 56% of the revenue. I expect that to be similar for Q4. And then, you know, with respect to the systems, the handlers, and the testers, what we're forecasting at the moment is a little less, a little lower margin on the systems for testers and handlers, which brings us to that 42% versus the 43% we achieved in Q3.

29:02 Okay. Great. That's very helpful. Appreciate it. At this time, I would like to remind everyone, if you would like to ask a question, please press star, then the number one on your telephone keypads. Your next question comes from David Dooley from Steelhead Securities. Thanks for taking my question. I was wondering if you could give some flavor or some additional color on the contactor business during the quarter and what you expect it to do during the fourth quarter. Hi, Dave. Yes, so the context of business right now is growing in the RF space and power management IC space, and that's going in tandem with where we see the market being stronger.

29:49 We are making inroads in the automotive market and industrial market. Nevertheless, with lower utilizations in the auto and industrial markets right now, in aggregate, it does weigh negatively. So we would have to wait for utilizations to pick up again to see higher growth in that space. So I would just say, in aggregate, contactor sales are making inroads, but predominantly, like I said, in mobility, RF, power management ICs. We also have increased the sale of our key depends in our contactors. That is an ongoing trend. So the team in Japan remains very busy and utilized supplying into contactors that Cohue provides to customers.

30:45 Okay, and then could you talk a little bit about what's going on in the flat panel display market? I know you have a good position there in the tester of the ICs, and I think that there's been some life in that segment of the business. Could you just provide some additional color or flavor of what you are seeing there? Sure. Just to remember, we are still a small number two supplier in that market, right? And our pitch here is that we have a general purpose SOC tester instead of just a dedicated tester. And what we do is we dedicate instruments that populate the tester for flat panel display. So it becomes a very desirable proposition for the OSATs, which are supporting manufacturing for predominantly these fabulous companies in the flat panel display.

31:37 So we have captured some TDDI opportunities as well as some drivers for large displays, although it's predominantly TDDI up to this point. We have sold mostly in Taiwan and China to date. Like I said, these are OSATs and have gained some traction in Korea. We expect the next The big opportunity in flat panel display to come from OLEDs, and this is mainly as the Chinese smartphone manufacturers start transitioning over to OLEDs, and we are well aligned in that supply chain. So expect this to be the predominant driver for 2020 into 2021 would be the OLED wave.

32:28 OLEDs generally require longer test times. We have our tests already qualified for all test insertions in OLAD from probe to final test. So we continue to see this as an exciting opportunity to grow our ATE business. Okay. Final question from me. I guess it was similar to a previous question, but regarding getting back to levels prior to the acquisition on revenue, is there Is there any structural reasons in the market, customers, you know, combining or market share loss or anything that would make us think that you can't get back to, let's say, whatever that peak revenue was on a quarterly basis?

33:13 I think it was like $225 million or so. Are there any hurdles on getting back to that level of revenue? There are no structural reasons to that, obviously notwithstanding share gains. It would really require the automotive and industrial markets to bounce back. And I say that because much of our handler sales is aligned with automotive and industrial markets. So you would have to say industrial automotive is back in a healthy stage for us to be at those levels again, or our growth in some of these target segments, like I said, flat panel display, RF, 5G, growing contactor business, offsetting a lagging automotive and industrial market, if you will.

34:09 There hasn't really been any market share loss to speak to, so structurally speaking, nothing to obstruct it. It's more a matter of timing now. Okay, and the weakness that you have seen in the auto and industrial space, I guess you mentioned China was strong, so I'm assuming the weakness you're referring to is more U.S. and European-oriented, or maybe just give us a little bit more incremental flavor there about the weakness in auto. Well, our semiconductor customers in the auto space are predominantly U.S. and European customers. You know, they've They supplied that to auto manufacturers in Japan, China, Europe, U.S., and you name it, right?

34:56 So if I am to look at the end market itself, this year I've seen weakness both in China, Europe, and the U.S. So I think it really has impacted our customers quite broadly as SARS went down. So I would say now we're looking at more of a stabilization to a small recovery in the SAR units and then compounded by semi-content growth, which pivoted now to more ADAS and battery management systems going into 2020. Those would be the main drivers that will pull automotive back to some normality. Thank you.

35:43 Your next question comes from the line of Brian Chen from Stiefel. Can you hear me? Yes, we can. Okay, great. Yeah, thanks for getting me on the Q&A and nice job on the execution in the quarter. Maybe first question is to kind of double back on the RS test discussion. I guess you kind of, Luis, you did kind of calibrate what the timing could be in terms of Q2 next year, maybe kind of more of a bigger pickup in the business. I'm kind of curious, can you remind us sort of roughly, based on the existing TAM, what your share is, number one, kind of if you think you'll gain incrementally in terms of as that TAM increases, and also is it fair to think that as millimeter wave is ushered in that there's maybe a little bit more of a hockey stick in terms of the growth on that TAM in kind of a year or two years beyond.

36:46 Okay, so let me see if I can cover all these pieces here, Brian. Today we look at the TAM for us, addressable market, being essentially RFPAs, about $60 million TAM for testers on an annual basis. We have, give or take, 60%, 70% share of that. On a go-forward basis, we think the RFPA market is going to be growing 40%, 50% over the next three years as greater content of RF devices, RFPAs, goes into phones. Nevertheless, in conjunction with that, we are broadening what we serve in the RF market. We're going after a larger...

37:34 section of that RF signal chain. And so we believe we can actually tap into a $170 million over the next three years annual market, addressable market. So that's the perspective here. From one side, the TAM is growing. From another side, we're growing. We're casting a bit of a wider net in the RF space. Sorry, Brian, I have to go back here. Maybe a little bit of jet lag. What was the other piece of your question again? No, I think you basically addressed it in terms of your answer. I appreciate that. I guess the second question may be just to kind of continue to frame the auto business. Clearly, you have the worser visibility relative to the mobility side of the business.

38:20 You need to calibrate maybe some of the broader signals. But even, yeah, I think the last time you updated us, that auto business was already tracking down maybe 30%, at least from a revenue perspective this year, and Obviously, it's not a very strong order intake from a system standpoint in the quarter. You usually give book-to-bills by segment. It sounds like the order level must be at a maintenance or even sub-maintenance level at this point. That must give you some confidence, I imagine, in terms of just can't get a lot worse at this point. At this point, I would say I think we're running at approximately a Book to Bill of 1, going from Q3, yeah, exiting Q3.

39:08 And like I said, if you look at a normal seasonality pattern, which we expect to be returning to next year, we will be running Q4 laterally to maybe mid-single digit up into Q1, and then the seasonality comes back into the second quarter. Now, it's easier to talk about the seasonality when we see the 5G demand coming up next year. It's a little harder to speak to the automotive market at this point. It's a little early for us. We can gauge it more by looking at many of our customers' earnings release here over the last couple weeks and how they have gauged their business performance gives us a little bit more increasing confidence that automotive will return to normality next year, but it's yet hard for us to predict the shape of that recovery curve on the automotive side.

40:10 Sure, that's fair. Maybe last question for Jeff. Sequencing out the recovery relative to what you've stated here, you certainly have a little bit more visibility in terms of the test business right now. The recurring business just tends to lead capacity as is. Relative to what that margin mix looks like, could you be operating on a gross margin standpoint maybe slightly ahead of the model then kind of as we sort of move into a recovery in the business? Yeah, you're right, Brian. With a quicker recovery on the tester side of the business, the margin would be stronger in whatever time frame that is, if that's Q2 of next year.

40:55 then you're right, we would have stronger margins at that point. Yeah, if I may just add, remember that's talking about testers, but then there's a possibility that would be some of our handlers going along with that as well. And this being mobility, more of the ambient only, ambient test handlers, we are more margin pressured on those handlers than we are on the more differentiated handlers. So I don't know how it all plays out together. Yeah, it would be a partial offset. I don't think it would be a full offset. Yeah, I'd have to look at the mix when it comes out. Right. That's a good point. Okay. Actually, maybe a sneak one more. Given that you, it sounds like TERT maybe is one, to the extent that handlers maybe have some kind of pull-through relative to 5G, and TERT maybe is part of that, is there some good inspection attachment as well for some of that business?

41:55 Yeah, we would expect so, because a lot of our inspection sales today is in the mobility-type devices, RFICs and power management ICs. A lot of it has to do with inspecting wafer-level chip-scale packages that are used in mobile products. So, yes, I would expect it to drive a pull in the inspection platform. Great. Thank you. You're welcome. and I show no further questions at this time. Gentlemen, are there any closing remarks or you may proceed with your presentation. Yes, I'd just like to say thank you for joining us today and we look forward to speaking to you in the near future. Goodbye and have a nice day. Bye-bye.

42:44 Ladies and gentlemen, this concludes today's conference. Thank you for your participation. Have a wonderful day and you may all disconnect.