Cohu (NASDAQ:COHU) Q4 2019 Earnings Call

0:00 Good morning, ladies and gentlemen, and welcome to the COHU, Inc.'s 4th Quarter and Fiscal Year 2019 Financial Results Conference Call. At this time, all participants are in a 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 touch-tone telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host today, Mr. Jeff Jones, Chief Financial Officer. Please go ahead, sir. Good morning, and welcome to our conference call to discuss Cohue's fourth quarter results and first 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.

0:56 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. 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 SEC, including the most recently filed Form 10-K and Form 10-Q.

1:45 Our comments speak only as of today, February 13, 2020. and Kohu 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, Kohu's president and CEO. Luis? Luis Muller Hi, good morning. I'd like to take a moment to reflect on last year's performance, discuss fourth quarter market dynamics, and look at our business prospects for 2020. I'll then pass it back to Jeff to comment on financial results and first quarter guidance.

2:34 In 2019, Cohue delivered the fourth consecutive year of increased revenue, with a four-year compounded annual growth rate of 21%. We accelerated the integration of XERA amid a challenging market environment, making substantial progress towards our financial target model and delivering $40 million of annual run rate cost synergies five quarters after that acquisition and ahead of schedule. We also made critical investments in new test instrumentation development, consolidation of handler and contactor product portfolio, that will enable revenue growth supporting our customer's roadmap and projected capacity expansion in 2020.

3:19 Turning to fourth quarter, orders were split 51% systems and 49% recurring, with overall sequential dollar increase across all market segments. Estimated test cell utilization gained three points quarter over quarter to 80%. The mobility segment, was 30% of total system orders and benefited from 5G-driven business in late Q4 for third handlers and testers for RF flat panel display drivers and power management semiconductors, along with thermal handlers for mobile processor tests of next-generation smartphones launching later this year. The smartphone market struggled in 2019, but the 5G adoption, which is still in its early stages, will be a key driver for tester sales in 2020.

4:14 We're modeling 5G-driven tester shipments through third quarter 2020 as customers build capacity and thereafter attention shifts to millimeter wave for 2021 new product introductions when 5G penetration is expected to accelerate. The computing segment remains strong at 22% of total system orders, driven by data center applications that utilize our high-end thermal and automation equipment. We also made inroads qualifying and supplying interface products for our high-end digital device test application. We expect this initial business to represent about $5 million in 2020 and potentially growing as we compete for additional sockets and increase our manufacturing capacity during the year.

5:05 We saw a late December uptick in automotive that expanded to 13% of total system orders and a 50% dollar increase quarter over quarter. Our leading applications in automotive are for testing high-end ADAS processors and battery management systems for electric and hybrid electric vehicles that are forecasted to drive a steady rise in electronic content as more low carbon emission vehicles come to market. According to the National Automobile Dealers Association, sales of lightweight hybrid and electric vehicles in the U.S. represented less than 5% of total in 2019. Although many analysts project the seasonally adjusted annual rate of growth to be flat in 2020, semiconductor sales in automotive are projected to grow at greater than 7% annually for the next five years.

5:59 All other segments, consumer, industrial, IOT and Optoelectronics, and PCB test grew quarter over quarter and represented the 35% balance of system orders. We expect the industrial segment to steadily improve in 2020. Overall, this should be a growth year with a return to historical seasonality. We have been tracking contractor sales with our handlers, and although we don't have a long history and much of the data is representative of a 2019 market downturn, The average attachment rate is currently at 34%. We expect this to grow through 2020, although given the higher volatility in system sales as compared to contactors, it is possible this number will fluctuate some system shipments ramp in future quarters.

6:50 The consolidation of contactor manufacturing has taken a little longer than anticipated, and we are still ramping capability and capacity. addressing some inefficiencies that negatively weighted on gross margin in the fourth quarter. As we look to the coming year, we started 2020 with a higher backlog, strong customer traction, and improved order momentum, primarily driven by mobility and a late fourth quarter uptick in automotive. At the same time, the start of the new year presents some challenges, and we're closely monitoring the impact of the novel coronavirus to our supply chain and customers. Fortunately, all of our employees are safe, and our factories in Malaysia, the Philippines, and Japan are fully operational.

7:38 While China represented approximately 20% of Koyu's sales in 2019, we're guiding first quarter to a slightly wider revenue range and net of approximately 10 million attributed to the impact of the coronavirus in our new ERP launch in Q1. Regarding the coronavirus, We have relatively few suppliers in China, but the disruption to their business is impacting our ability to ship some systems on schedule. We're also closely working with our customers to ensure continued support to their operations and order deliveries. Our mid-term strategy remains focused on growing top-line revenue and profitability, aligning investments in support of the 5G transition in mobility, growth in automotive with autonomous driving and electrification, Thanks, Luis. Let me begin by reviewing and Our Q4 results with revenue near the high end of guidance, resulting in fiscal year 2019 sales of $583 million and the fourth consecutive year of sales growth. COHU delivered approximately $14 million of cash from operations

9:10 during the fourth quarter, and our cash balance increased approximately $10 million sequentially to $156 million. Please also 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 Q4, the GAAP to non-GAAP adjustments include approximately $3.3 million of stock-based compensation expense and a $1.2 million reduction of a tax-related indemnification receivable in connection with the ISMECA acquisition in fiscal 2013. Gap to non-gap adjustments primarily driven by the XERA acquisition include $9.6 million of purchased intangible amortization expense and $5.2 million of restructuring costs.

9:59 The Q4 2019 net cash impact of XERA acquisition-related restructuring was approximately $3.5 million, primarily due to employee severance. Q4 revenue was $142 million and one customer in the computing segment accounted for 11% of sales in the quarter and 11% of sales for fiscal year 2019. No other customer accounted for 10% or more of sales during the fourth quarter or the full fiscal year 2019. In Q4, CoU's gross margin was 39.9%, which is lower than guidance due to capacity transition and manufacturing inefficiencies driving higher costs in our contractor business.

10:47 Operating expenses came in approximately $700,000 higher than forecast due mainly to sales commissions and a year-end true-up for various outside services. During the quarter, we realized approximately $9.4 million of acquisition cost synergies, which is in line with the forecast, and we exited 2019 at the annual cost synergy run rate target of $40 million. and the Board of Directors. Thank you. Thank you. is not reduced by U.S. losses due to our deferred tax asset valuation allowance.

11:44 And as a result, the Q4 non-GAAP tax provision was approximately $700,000, resulting in a net EPS loss of one cent. Now, turning to cost synergies in our business model, as announced on prior earnings calls, we've taken actions that resulted in pulling forward approximately $20 million of cost synergies into 2019, ahead of the original target of three to five years. We exited fiscal year 2019 having achieved the 40 million annual run rate cost synergies which are split approximately 18 million in cost of goods sold and 22 million in operating expense. As previously noted, our cash balance increased approximately 10 million quarter over quarter to 156 million.

12:36 Our long-term capital allocation strategy continues to be use excess cash to pay down the debt of $360 million and de-lever the company, subject to cash required to support the production ramp driven by 5G-related demand and the recent uptick in automotive business. COEU's Board of Directors approved a quarterly cash dividend of $0.06 per share, payable on April 9, 2020, to shareholders of record on February 25, 2020. Now for first quarter 2020 guidance, we're expecting sales to be $140 million to $152 million. This revenue guidance has been reduced by approximately $10 million as a result of the coronavirus and the potential impact from an ERP system implementation occurring in Q1.

13:26 Approximately half of the $10 million related to system revenue that will likely be realized in the second quarter and together with the improved order forecast in Q1 is expected to result and a 10% to 15% revenue increase in Q2 compared to the Q1 midpoint. The remaining $5 million removed from Q1 revenue guidance represents recurring revenue, which by its nature will not be realized in the future. Q1 revenue distribution is forecasted to be 93% semiconductor test and inspection and 7% PCB test. Thank you very much. The first phase of the project incorporates approximately 50% of co-used businesses and will go live this month.

14:38 The balance of the businesses will implement the system in phases over the next 12 months. Any potential revenue impact from the system implementation has been considered in our Q1 guidance. Gross margin is expected to be between 42 and 43% and in line with our financial model. Operating expenses are expected to be approximately $53 million, or about $1 million higher than target financial model due to one-time ERP system implementation costs and some increased R&D expenses in support of 5G-driven customer activities. For modeling purposes, please note that due to the increasing customer demand and improving business conditions, COHU has eliminated the temporary cost actions enabled over the last few quarters which were above and beyond the acquisition cost synergies but necessary due to weak business conditions.

15:35 Beginning in Q1, our OPEX should be measured against the financial model depending on the revenue level. We expect Q1 adjusted EBITDA at the midpoint of guidance to be approximately 9%. Similar to previous quarters, the tax provision rate will be abnormally high and not meaningful for Q1. 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. The diluted share count for Q1 is expected to be approximately 41.7 million shares. That concludes our prepared remarks, and we'll open the call to questions.

16:21 Ladies and gentlemen, if you have a question at this time, please press the star and then the number one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Your first question comes from the line of Brian Chen with Stiefel. Hi, good morning. Thanks for letting us on to ask a couple questions. Let me start with the descriptive revenue outlook that you provided in terms of the impacts you're contemplating from the coronavirus or seeing directly, I guess, and also how that flows into the following quarter.

17:06 In terms of the $10 million reduction in the midpoint relative to the overlay of the coronavirus, half of that, it sounds like, is timing-oriented, the $5 million portion. Is that exclusively tied to constraints you're seeing in your supply chain, which you notice kind of small, or is that more tied to delays from customers in terms of being able to receive the product? Hi, Brian. This is Luis. That half is really based on the constraints on our supply chain. I mean, it's really exclusively constraints on our supply chain. Got it. Got it. Do you have, you know, Other workarounds in terms of secondary suppliers you can bring up in case some of the shutdown periods persist in China?

17:58 Yeah, as you can imagine, we have been enacting those and continuing to work with suppliers in China, which by and large have started coming back online again this week, beginning of this week. But they have had, in essence, an extended Lunar New Year shutdown sort of forced in certain Thank you very much. Was that subject to maybe just the extent of shutdowns and maybe lower utilization rates?

18:57 That's precisely right, Brian. That's precisely right. I mean, take contactors as an example. If you have a shutdown and you're not testing, you're certainly not wearing those components as you're not wearing the systems. And so spares, recurring contactor sales for certain regions in China are have not really materialized at the same rate for the last few weeks, and we expect that also going to be an effect, but not an effect that we can recover. I think that is essentially gone. Got it, got it. And in terms of gross margins and maybe the expense commentary as well, I see you see gross margins back up to the 42%, 43% level in Q1, kind of back in line with your target model.

19:48 Can you be a bit more descriptive on what the contactor inefficiencies were and why you think this is resolved into Q1 and beyond? Yes, sure, Brian. The main impact in the contactor business is a transition of production out of the U.S. into our factory in the Philippines. So to this point, we've accomplished closing and consolidating contactor facilities in Penang, in California, transitioning work to the East Coast, to Japan, as well as the Philippines. And so now this last piece of it is really transitioning more of the production that has been historically based in the U.S.

20:36 over to the Philippines. And so we stumbled a bit in the corridor on doing that. We anticipate... That'll take probably another couple of quarters really to come up to the target again. And just to add on to that a little bit more, Brian, this is production that we have had outsourced in the U.S., not in-house operations, that we wanted to insource in the Philippines, as Jeff mentioned. So that's going to take a couple of quarters, I think, to get to the level we want. Got it. Okay. Understood. And I guess Maybe one last thing in terms of just fanning out a little bit on the test contactor business. It's an interesting metric on the attach rate that you provide, 34% level.

21:24 I guess if you want to give, say, a run rate you expect or attach rate you expect to exit the year at, maybe you could kind of equate that to what sort of growth rate you still think, even kind of given the start in the year, what growth rate you think is sort of suitable for that business this year. or kind of even from a midterm standpoint. Yeah, we've been targeting mid-teens, so kind of on and about 15% growth rate for the contractor business. Okay. Okay. Thank you. Your next question comes from the line of Sidney Ho with Deutsche Bank. Great. Thank you for taking my questions. My first question is, in your prepared remarks, you talked about you expect typical seasonality coming back in 2020. And in the past, that means first quarter and fourth quarter being weaker, second quarter and third quarter being stronger.

22:20 And I appreciate you talk about the layout, the Q2 revenue expectation for this year. But assuming if we're using 2Q as the baseline, given the change in business mix, what is the magnitude of growth in 3Q and maybe a weakness in 4Q would you consider as normal seasonality? Hi, Sidney. This is Luis. Yeah, you know, we don't have tremendous visibility right now into the third quarter and needless to say to the fourth quarter. Nevertheless, what we do see as described on the prepared remark is 5G being a major driver of growth in the mobile semiconductor space, right? which are starting to drive tester, handler, contact, or demand for mobile processors, RFICs, power management, display drivers. And we're seeing that ramp starting this quarter in Q1, but also having orders for shipments already in Q2 and given the forecast for Q1, understanding how that is going to drive some of the Q2 revenue. Obviously, there's a wider error band right now into that Q2 expectation than Q1, but still driving some of the demand into Q2.

23:38 At the same time, if you look at other markets, in the automotive, we do project a flat SAR, but semi-content growing, as I said, about 7%, mainly driven by ADAS, electrification, and so a steady improvement in automotive throughout the year. We also expect industrial to stabilize and start improving later this year, computing to remain strong, although for us that is a lot of it is recurring business, so it's a lot more stable. So how does that all model coming together is that we do expect a stronger second and third quarter. We talked about the projection here for second quarter being up relative to first quarter. Now, we don't have that degree of granularity today to the third quarter to say how it's going to compare. to second quarter. But we do expect a typical pullback in the fourth quarter. That would be, I think the mobility guys will pull back and start qualifying solutions for 2021 model smartphones, so the RAMP for 2021. I expect those orders then to start coming again in Q1 of 2021. Sometimes you come in late Q4 of this year.

24:51 But all in all, We do expect a typical seasonality coming back. What does that mean for Q4? I don't have a number to give you today, unfortunately, Sidney, just a pullback from Q3. That's really all we sense at the moment. Okay, that's fair. Maybe drilling into the mobility side a little bit, clearly the 5G RAMs have been pulling in. That benefits your recurring revenue business, but does that also pull in the revenue from your new RF tester when did you talk about last quarter? and maybe just a level set, if you look at your total business and not just the system sales, what is your revenue exposure to the smartphone market today and how do you expect that to change over time?

25:37 So our system exposure into mobility, I should be more careful today, is 30% in the fourth quarter. So 30% of our system orders fourth quarter were into the mobility market. And the mobility market is and many others. If you look at 5G, maybe I'll digress a little bit more into that.

26:24 5G for us, driving smartphones, it really cuts across many device segments, right? We tend to think so much about RF, but in reality, it also drives, or it is driving right now, some of our thermal subsystems and also active thermal control handlers for mobile processor tests. It is driving... for Display Driver Technology. It's driving testers and handlers for power management. And then obviously the ERF space for us on the tester side. In ERF, particularly power amplifier, where we are the leader in a market that is still relatively small, give or take $60 million in size, but we expect to see that market grow substantially to the tune of 40-50% here with the with the 5G volume ramp, not only this year but in the coming years, as it goes from sub-6 gig to a little bit higher for Wi-Fi 6 applications and eventually millimeter waves.

27:30 So we expect that business plus the whole ecosystem of RF front NIC to be about a $200 million market opportunity for us in the coming years. Great. Maybe if I can squeeze in one more, it'll go away. It may be a little longer term here, but when you think about the revenue ramp related to 5G over the next few years, other tester companies have talked about the opportunity being fairly flat year over year as the ramp down of one opportunity is offset by the ramp up of another opportunity, say infrastructure for handsets or maybe sub-6 versus millimeter wave. How do you think your profile is going to look like over the next few years? I think it's actually going to be of growth, actually, a growth profile.

28:18 To be clear, we don't have a strong presence in RF infrastructure. We don't really sell testers into RF infrastructure tests. We don't participate in transceiver tests. We don't participate in baseband tests, except for the handler side. So maybe those segments will see more of a one-to-one swap. Nevertheless, we do participate in our front-end IC test. That's our predominant space. And we see a very large increase in front-end IC content in smartphones, as well as an increase in the tests or ASPs with the higher complexities associated with much higher frequencies of tests. So that segment is definitely growing.

29:10 Great, thank you very much. Your next question comes from the line of Tom Disley with the DA Davidson. Yes, good morning. There's one more question on the attach rate on the contactors. You said it was 34%. Where was it a year ago? It was in the low 30s, Tom. I don't have the number in front of me, but it was a You know, it started with a 3. I don't know if it was 31% or something there or a magnitude. Okay. It's not too far off your mid-teens growth projection. That's right. Okay. And then, Jeff, just your comments on the ERP system. Is there actually revenue that you've noticed that has been impacted by that, or is that just a conservative outlook just in case something slips through the cracks?

30:02 Right, Tom. Yeah, it's more of the latter. There's There's nothing that would tell us that we're in any danger of having anything slip, but, you know, just, I guess, more of a conservative approach to the guidance, yes. All right, makes sense. And then also you talked about, you know, the auto 5G has been nice to orders in the quarter. You talked about 5G starting to ramp now. What's the timing on the automotive business that started to tick up late in the quarter? So the late quarter orders we got in automotive are shipping in Q1 and actually some of it into the beginning of Q2. We're not seeing, we don't expect to see a sharp increase in automotive business, although it would be welcome if that happened.

30:54 Right now we're simply modeling a steady improvement quarter on quarter here in automotive before sort of a seasonal pullback in Q4. Okay. And then maybe just digging on that a little bit more. Historically, the auto industrial markets were quite strong for you. Do you think you get back to that point when they're a combined approach, 40% of your business? Or has something changed in the makeup of your business that long-term that maybe is a smaller percentage? That's a good question. Yeah. Automotive and industrial, as I said before, has... Even on a pro forma basis with Xera now, looking back at 2018, it was 45% of system sales. Now, what happened last year was there was a drop across all markets, but automotive in particular dropped significantly.

31:48 We averaged, I think, 27% of system sales last year into automotive and industrial combined which was really a 60% dollar reduction year over year from 2018 to 2019 on system orders. So there's a dramatic drop but in the midst of that there was no market share loss. I mean it's a defined number of customers and we're still doing the same business with them just at much lower rates. So to answer your question, we think automotive will get to some degree of normality by end of this year and then Thank you very much.

33:00 Even though it may return to normality and then full swing in 2021, it should still be less than 45% of total system. All right, that makes sense. Maybe looking at it one other way, utilization rates you said are around 80%. Is it quite a bit lower or is it different for industrial auto right now? No, I was looking at that same data last night, and in fact, Auto is a bit sort of bipolar at this point. We have some really strong customers, or some customers with really strong utilization at the moment, and some others that are still fairly weak. I'd say on an average basis, the automotive is below 80%, but some of the auto customers are actually well above 80%, and that's where we're seeing the pull coming from.

33:48 Okay, great. And then finally, Jeff, when you look at the model going forward, Sounds like starting in the second quarter, you'll be tracking the target model with the different metrics? Yes. Yeah, Tom, that's our expectation. Okay. Great. That's it for me. Thank you. Your next question comes from the line of David Dooley with Stillhead Securities. Yeah. Thanks for taking my questions. Now, you mentioned, I think, the impact of 5G technology. on your business. I think the main impact that you mentioned was that the RF segment is going to go from $60 million to $70 million to, I guess, over $200 million in a few years. Is that really the only impact in total from 5G, or will it hit other segments, cameras and contactors, for instance? I'm assuming this is the test number.

34:45 Yeah, hi, Dave. This is Luis. Yes, that is the test number, and that's the one that people seem to latch more on, and it's an interesting discussion because it is where the technology pivot point is. Nevertheless, and I think because I made a quick comment before, the 5G transition in smartphones is coming along with, obviously, next-generation mobile processors. which is driving thermal subsystem orders in some of those thermal or active thermal control handlers that we sell for mobile processor test. That is happening. We have some of those orders in the backlog. We have forecasts for additional ones in first quarter.

35:32 It also drives an increase in power management IC test and it does drive inspection. to some degree, it's actually a substantial driver of our turret business, our turret handler business that is seeing the majority of the uptick associated with mobility at this time. On the contactor front, we have both high-end interfaces like the Axwave contactor for high-frequency tests. We have low-impedance products like something called C-Dragon, and we have traditional Pogopin Bayes, Candle Lever Bayes for power management IC applications. So we're very focused on increasing the attachment rating mobility as well with our contractor portfolio.

36:23 Okay. And if the overall industry, you know, I think it's people are zeroing in, I think, 7% or 8% kind of non-memory growth for 2020 since you guys don't play in the memory market. Is this a good benchmark for what your overall systems or overall revenue can do in 2020? I'm assuming if the market grows 7% or 8%, will you go faster or at that same rate? Or maybe just comment upon, if that's the industry forecast, how your revenue might unfold during the year. So Dave, the way we see these markets is we expect the handler market to grow about 10% to 15% this year.

37:12 We're expecting the contactor market to grow at about 6% this year. It's interesting to talk about the SOC test market, but to some degree, it isn't for us. It's about a $3 billion market, I think, projections for 2020. But reality be said, we don't serve the entirety of that market. We claim we can serve about 50% of it, but in fact, where we are really competitive, it's still a smaller fraction of that $3 billion, and that fraction is the one that is growing. As I answered a previous question, it's the RF front end I see that's seeing growth. It is the increasing penetration in flat panel display driver I see, which we are modeling You know, a substantial double-digit growth this year in flat-panel display drivers, I see.

38:10 So, our expectation is to outgrow sort of that single-digit rate that you're quoting before. Okay. And then, one of the big OSATs in Taiwan has fairly significantly increased its capex on test and is doing more turnkey solutions. I'm not sure how much exposure you have there, but do you view that as an increasing of the overall market for tests, or are they just taking business from some other customer or doing it themselves? I'm just wondering if moving to elevated levels of CapEx from some of these large OSATs is going to help you or hurt you or how it might impact you.

39:03 The increase in CapEx at OSATs, I think it's very much aligned with what you see when we talk about mobility. You know, let's be honest here. Who are the major suppliers and where are they getting their semiconductors from, right? And those companies are essentially fabulous semiconductor companies, and I guess I should say a little bit more than that. It's not just fabulous. They are back-end-less semiconductor companies, right? So the utilization rate across our customer base is much higher today at the OSATs than they are at the IDMs. And that is obviously related to mobile market expansion, mobile market growth here in early 2020, driving test CapEx into the OSATs.

39:57 The vast majority of our tester sales are into the OSATs today. The majority of our thermal handlers are obviously into the IDMs. That's automotive. And then we have a lot of turret sales into the OSATs, and we have been working really hard to increase our pick-and-place sales into the OSATs, and also focusing more on the contactor attachment rate into the mobile applications. You know, past years, we focused much of our contactor penetration into automotive, which we had a strong foothold on handlers. and now post-XR acquisition in understanding where mobile coming from this year being the key driver, much of the contactor focus has shifted towards OSATs, mobile customers and attachment to handlers that go into the OSATs and testers.

40:50 Final question from me. If you could just help us out and let us know or give us a dollar number for contactor sales for the year so we have a base to work forward. on that segment. For 2019, it was roughly about $110 million. Excellent. Thank you. Your next question comes from the line of Christian Schwab with Craig Halliam Capital. Great. Sorry, I got dropped. I just have a quick question on the tax rate.

41:38 What is the assumed tax rate or dollar amount in your guidance for Q1? It's tough to provide an effective tax rate that makes any sense in Q1 on lower levels of pre-tax, but If I were to guide you to a specific amount, I would probably say somewhere a little bit north of $1 million, maybe $1.3 million range. Okay, perfect. And so then I think I caught the tail end of another one of the analyst questions regarding Q2 guidance. So if we're at the high end of revenue guidance for Q1 and the high end of our growth expectations for Q2, I think you said yes, I just want to confirm that. You would expect to be operating in your stated slide business model at that point, so making potentially roughly $0.30 a share in Q2, is that correct?

42:40 That's right. We'd be at the model. But, Christian, just to make sure we're aligned on the numbers, midpoint for Q1 is about 146. And then what we talked about is seeing a potential 10% to 15% increase in revenue in Q2. No, I understand that. I understand that. I just wanted to make sure that if you operated at the high end of your expectations for Q1 and the high end of the growth expectations you laid out for Q2, that if you did hit $170 million in revenue, the company would be operating at that target model. I just wanted confirmation of that, and the answer is yes, I understand where the midpoints are. But fabulous. That is the only questions that I had.

43:27 Thank you. Okay, thank you, Christian. The next question comes from the line of Craig Ellis with B. Riley FBR. Yeah, thanks for taking the questions, and thanks for all the details. That's our guy. I just wanted to follow up on a few earlier questions. Luis, it was very helpful to get your take on some of the growth drivers for this year, handlers, contactors, SOC test providers. flat panel display drivers. My question is this. As we look beyond calendar 20, which is very unique given things that are going on with the supply chain, and as we look to calendar 21, are the growth rates that you're talking about growth rates that you would think would be sustainable into next year, or is there in any one of those areas potential for acceleration or something unusual happening this year so that on a longer-term basis, you would think that growth rates would be lower than what we would look at this year.

44:35 Yeah, hi, Craig. This is Luis. Yeah, it's very difficult to predict 2021 at this stage of the game, but given the current levels in the automotive and industrial, current level of spending for automotive and industrial semiconductor tests and inspection, I certainly would expect that to come back to normality. And as I mentioned before, that business was down about 60% in dollars spent for systems. I'm not talking recurring systems, only from 18 to 19. So it does have plenty of room to go to return to normality. And unless we're positively surprised, we're not modeling it to be back to normality this year. I mean, we're expecting it to be back sort of around Q4 when it's a seasonally down. but backspending in 2021. So I think that will be a big driver of growth into 2021. In addition to the fact that we talk about 5G and it's exciting, but reality is the 5G penetration in smartphones this year, it's still a small fraction of the total smartphone built in a year. We're talking here, I think in the order of teens, mid-teens, penetration into the smartphone market this year for 5G devices.

46:01 So that also has plenty of room to accelerate in 2021, and it's all dependent on customer adoption and the actual value delivered to customers and, frankly, I suppose how it's going to be marketed to successfully get the younger generation out there to drive towards new cell phones, smartphones. So as that rolls out into 2021 to a greater penetration, as millimeter wave starts rolling out, I do firmly believe that 2021 will be accelerating from 2020 because of those reasons. And obviously, you know, notwithstanding any other global catastrophe. That makes sense. And then following up on some earlier commentary in this one, It's a little bit more for Jeff. So, Jeff, in the near term, we've got higher mobility mix than history. Auto is lower maybe next year.

47:00 That starts to equilibrate versus historic trends. But are there any gross margin implications from some of the mixed dynamics? I understand that the business gets back into the target model in 2Q, but anything going on bigger picture as we see a shift versus historical? I think you touched on mobility and perhaps RF tests. And while the testers do have a higher gross margin than our other equipment, we're also seeing a growth in the turret handlers as a result of mobility. And that has somewhat of a lower gross margin.

47:48 So I think between the two, that sort of I don't see any unique swings or dynamics that would really change our view on gross margins at the different revenue levels. Just on the ERP system, What are some of the near-to-intermediate term OpEx implications there? Is the conversion something that adds to OpEx that would later reduce OpEx, or how do we think about the gifts and takes as you move to Oracle Cloud?

48:34 Yeah, we've been working on this project now for over a year, and so we've modeled out the expenses within the financial model So that's taken into consideration. Now, as I said, we've got about another year to go as we implement the system completely across the company. We initiated this so that we could enable future expansion, scale a lot more efficiently. And so we do expect that over time we're going to see some cost optimization. At this point in time, it's a little difficult to be Thank you. Thanks, Greg. At this time, I am showing no further questions. I would now like to turn the conference back over to Mr. Jones. Okay, thank you. I'd like to thank everybody for joining today's call and hope you have a nice day. Thank you very much.

49:44 Ladies and gentlemen, this concludes today's conference call. Thank you for your participation and have a wonderful day. You may now disconnect.