Greetings, and welcome to the Cohu 2016 Fourth Quarter and Full-Year Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Mr. Jeff Jones, CFO. Thank you, you may begin.

Good afternoon and welcome to our discussion of Cohu’s most recent financial results. I am joined today by our President and CEO, Luis Müller. Following our opening remarks, we’ll provide details of our performance for the fourth quarter and full year of 2016 as well as our outlook for the first quarter of this year. If you need a copy of our earnings release, you may obtain one from our website cohu.com or by contacting Cohu Investor Relations. Before we begin, you should all be aware that during the course of this conference call, we will make forward-looking statements reflecting management's current expectations concerning the company’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. Forward-looking statements include our comments regarding the company’s expectations for industry conditions, future operations, financial results, market share gains, expansion into new markets, and any comments we make about the company’s future in response to your questions. Our comments speak only as of today, February 16, 2017 and the company assumes no obligation to update these comments. We encourage you to review the forward-looking statements section of the earnings release as well as Cohu’s filings with the Securities and Exchange Commission, including the most recently filed Form 10-K and Form 10-Q. Cohu assumes no obligation to update these statements as a result of developments occurring after this call. Further, our comments and responses to any questions will not make reference to any specific customers, as we are precluded from disclosing such information by our non-disclosure agreements. Now I’ll turn it over to Luis. Luis Müller: Thanks Jeff and good afternoon everyone. Last year I laid out a strategy to grow share in test handlers, expand served available market…

Thank you, Luis. Before I move into Q4 financial details and our Q1 outlook, I'd like to touch on a few highlights from last year. 80% of our handlers for 2016 were delivered from Cohu's Malaysia manufacturing operations benefiting our gross margin which averaged nearly 37% in the second half of the year and we're expecting a strong gross margin in Q1. Throughout 2016 we achieved non-GAAP profits each quarter in line with our near-term financial model and Q4 was Cohu's 12th consecutive quarter of profitability. Cohu had strong cash generation from operations of approximately $25 million and adjusted EBITDA was $27.1 million or approximately 10% of sales. For Q4 the GAAP to non-GAAP adjustments include approximately $1.9 million of stock-based compensation expense, $1.5 million of purchased intangible amortization expense, $496,000 of restructuring costs, $896,000 of costs related to the acquisition of Kita and $588,000 of costs related to the reductions of our tax indemnification receivable recorded in connection with the Ismeca acquisition in Q1 of 2013. My comments are based on Cohu's non-GAAP results which exclude the impact of these items. A reconciliation of non-GAAP measures to equivalent GAAP measures can be found in our earnings release located on the Investor Information section of Cohu's website. Unless otherwise noted, all amounts discussed on this call are from continuing operations. Sales for the quarter were $70.7 million and higher than guidance due to increasing demand for our turret handlers, particularly from customers in the mobility and communications market, testing high-performance mixed-signal and RF devices. One customer in the automotive market represented 22.6% of sales during the quarter. For the year one customer in the automotive market represented 14% of sales and one customer in computing represented 17% of sales. Q4 gross margin was 37.8% significantly better than our forecast benefiting…

[Operator Instructions] Our first question is coming from the line of Edwin Mok with Needham & Company. Please proceed with your question. Edwin your line is now alive, you may proceed with your questions.

Sorry about that, actually this is Arthur on for Edwin. Congrats on the great quarter and the good guidance and thanks for taking my questions. So just to jump straight into it, I just wanted to see what end markets were an area of strength or will be in 4Q, if you could just provide a breakout of the mix that you have just seen between the key markets, and your claim for 4Q and kind of what your expectations are for the change in mix going to 1Q? Luis Müller: Hi Arthur this is Luis. In the fourth quarter from a order perspective we saw strength in both the RF and high-performance mixed-signal market as Jeff had already stated and frankly this has to do much with RF filters that are growing I think at about 15% rate according to several research reports I've seen. Frankly, the number of communications, bands is increasing driving, yes proliferation of RF content in smartphones and tablets. I saw recently a study that showed that premium smartphones have now over $16 of RF content driven by the sort of integration of RF technology. And this is not a particular Q4 event, so not a blip in business, but something that we think is going to continue here in Q1 and subsequent quarters. We have been seeing sort of a steady demand for products in that space for over five quarters now. The other piece is automotive and if you look at Q4 alone it was a 55% of our system business and continuing. As you know, China is accelerating the implementation of emission standards, or tough emission standards that were originally planned for 2020, but were pulled in now. And it is well known that they have some of the worst air pollution in the world due in part to years of sort of lax emission regulations covering their factories as well as vehicles. These new standards in China, I think they are called National VI, are mentioned the equivalents of the Euro VI standards that were implemented in 2015 in Europe. And I think they're here to drive the auto semiconductor industry for at least the next few quarters and perhaps even for the balance of this year.

Got it, thanks for that color. So Luis just a going off to your comments in your prepared remarks about improved predictability and your model often the customer end market diversification, you guys have historically shown that you have been strongest in the middle of the year. Now how should we think about linearity of revenues as you go into 2017? Should we know what the stability and the revenue should we expect more steady quarterly growth or do you feel like seasonal trends will still continue? Luis Müller: There is still going to be seasonal trends in the equipment side of the business, but as you know, for this year we're also increasing our contactor sales from the acquisition of Kita, new products that we will be introducing and obviously the cross-selling synergies, opportunities with Kita that should be materializing through the year, as well as we're doing the introduction of our new prober this year that should bring incremental revenue in the second half of 2017. So that is going to add on to the seasonality, the typical seasonality of the test handler business and particularly the contactors that adds onto recurring will dampen the effect of the test handler seasonality.

Okay, thanks. That was great. And the last question from me, could you provide a little update on the progress that you had made on the system-level test position, I think the last time you had mentioned that you are planning to launch product this year, do you have a ballpark, timeframe when we can expect that? Luis Müller: Sure, yes, just to recap it and add some color on what that is, actually as the industry moved to smaller silicon nodes and greater integration, some of the major semiconductor manufacturers, particularly the ones delivering integration of processors, memory RF, power management ICs, they need to test these and what we call system package, system-level packet, system in a package. We have been in this market actually supplying thermal subsystems and now we're pursuing more of the automation platform. But with that, that is a product that is actually behind in development relative to our wafer level package which comes first, behind being just second in line. So we will see some revenue this year. We have originally modeled something in the order of $5 million to $10 million this year. Timing will tell, certainly it would be in the sort of the second half of the year and potentially into 2018 at this stage.

Great, thanks for answering my questions.

Thank you. The next question is coming from the line of Craig Ellis with B. Riley Financial. Please proceed with your question.

Thanks for taking the question and congratulations on the very strong performance in the quarter and the outlook. The first question is really just a clarification from a comment made on the last call. I believe on the last call the company identified that there was around $5 million of turret handlers that were shifting from the fourth quarter to sometime in the first half of calendar 2017. Is any of that $5 million incorporated into the first quarter's guide or how should we expect that to land?

Hi, Craig its Jeff. Yes, in the quarter we didn't end up deferring revenue for all $5 million. We were able to recognize some of that, so we did differ about $3 million and that rolls into our Q1 forecast.

Okay thanks for that Jeff and then the followup just sticking with some revenue items. Luis, in your prepared remarks, you talked about handler testing contactor on the growth and I wasn't sure if you were talking about industry growth or if you were speaking to Cohu growth. So if it was the latter can you provide more color around that and some of the specific product programs and when they might tip through the year that made you confident in or on your growth? Luis Müller: Okay. On the prepared remarks I was really talking about two things, one was the industry growth. I believe the handler markets and the test contactor market will be growing 2% to 5% this year, but that’s just our estimates. So, in all viewing the handler market growing to somewhere between $800 million to $825 million in 2017. And relative to our products, I did say our plans are to outperform or outgrow the industry and the timing on the products are we'll be rolling out contactors through the year starting in Q1 now essentially and throughout the year. We will be rolling out the wafer level package prober in the first half of the year and likely towards the summer or late summer the system level past last one.

That’s very helpful. Moving down to a couple gross margin items or at least one, Jeff you mentioned that there were really three things that contributed to gross margin upside in the quarter, can you break out the relative contribution of those items, were they about equal or were you going in order and if so to what degree is the first greater than the second and third. Luis Müller: Right, yes the manufacturing cost levers that I mentioned was about two-thirds of the improvement above our guidance and then the overhead and the product mix made up the last third almost equally.

Super and then lastly from me on operating expenses, we climbed up to the $22 million level which includes essentially a full quarter of Kita. Is that a good run rate or is there anything that we should think about as being incremental in the model either way. For example, I would expect there some plica that could roll off as we go through the year, but what are the gives and takes as we look out through 2017?

Sure. In Q1 and Q2 we will still have some cost related to our ERP project implementation, so if you recall last year we started this project and the costs are running anywhere from about $400,000 to $500,000 per quarter. So our base run rate is, call it $19.5 million a quarter. Then you add Kita on top of that. And for Q1 and Q2 we will have this additional cost for the ERP project of $400,000 to $500,000. So, Q1 we also have some timing with respect to things like audit that happened in the beginning of the year. So, that pushes Q1 a little bit higher, but on average it should be the 19.5 plus roughly 1.3 for Kita, so that takes us close to about $20 million on a run rate.

That's very helpful. Once again a real nice job with the execution guys.

Thank you.

Thank you. And the next question is coming from the line of Patrick Ho with Stifel Nicolaus. Please proceed with your question.

Thank you very much. Luis, first off in terms of the commentary regarding handler growth of 2% to 5% from an industry from Cohu's specifically which markets do you believe will be the key growth drivers for your projected outperformance? Luis Müller: Well, I think we still have room to grow and capitalize on some recent penetrations we had at a major Japanese RF filter semiconductor manufacturer of our turret handlers. There is also more that can be done for us to penetrate the test subcontractors in Taiwan and on opportunities to expand at a large IDM in Korea testing logic devices and processors that are going into the mobile market and this is a customer that we have received a repeat order actually earlier this quarter for a system that is still in development. We basically have an order for two handlers now already from this Korean IDM, but we don't have the system yet to ship and not until Q3 which actually answer to your question I forgot to answer this to previous question. There is another product coming out in Q3 this year. And I know there is demand for more handlers there that we want to execute against if we could move faster. And that’s not to talk about the wafer level prober that we will be introducing that we still view as an opportunity for $10 million to $20 million this year and the system level test that is an opportunity for $5 million to $10 million so in all $15 million to $30 million and the test contactors that I already mentioned.

Great, that’s really helpful. As a followup question, with the markets growing in China over the next several years, you've leveraged your manufacturing operations to Malaysia. How do you see the investment profile for the company in terms of services and support in that region. Is there a potential uptick in OpEx particularly as the Chinese market grows? Luis Müller: We’re not projecting an uptick in the service expense and we currently, we do have a location in China. We have quite a number of field service engineers in China supporting a large number of handlers in the field. Currently we’re not projecting significant increases in that expense in the near-term Patrick.

Just to add on to that, today the largest installed base of our test handlers is in China and concurrent with our service infrastructure.

Great so, I just want to make it clear. You feel very comfortable to your installed base and infrastructure needs even as that marketplace grows. Luis Müller: Correct, that's our largest country today for installation and service of the equipment.

Great, thank you very much guys. Luis Müller: Thank you, Patrick.

You’re welcome.

Thank you. It appears we have no additional questions at this time. I’d like to pass the floor back over to Mr. Jones for any additional concluding comments.

Alright, thank you for joining us on today's call and we look forward to speaking with you when we report our first quarter results. Thank you and have a nice day.

Ladies and gentlemen, this does conclude today’s teleconference. Again we thank you for your participation and you may disconnect your lines at this time.