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DATE

Apr. 30, 2026 at 4:30 p.m. ET

CALL PARTICIPANTS

  • President and Chief Executive Officer — Luis Müller
  • Chief Financial Officer — Jeffrey D. Jones
  • Vice President, Corporate Development — Matt Hutton

TAKEAWAYS

  • Orders Growth -- Orders increased 57% year over year, driven by expanded demand across AI and high performance compute applications.
  • Computing Segment Pipeline -- The company identified a $750 million pipeline opportunity, with approximately $650 million in test handlers and $100 million from HBM inspection.
  • HPC Revenue Outlook -- The high performance computing revenue outlook for 2026 was raised to $80 million to $100 million.
  • HPC Customer Engagement -- Five customers are in qualification and seven are in early engagement, covering an estimated $100 million in near-term incremental revenue opportunity and $200 million potential from further qualifications.
  • Test Utilization Rate -- Semiconductor test utilization rose sequentially to 78% at quarter-end.
  • Inspection and Metrology Orders -- Orders grew 64% year over year, with HBM platform (Neon) revenue now forecast to grow 80% year over year to about $20 million.
  • Semiconductor Test Orders -- Orders surged 163% year over year, principally from computing segment demand.
  • Recurring Revenue -- Recurring revenue comprised 60% of total revenue, helped by high-margin software subscriptions and consumables.
  • Software Annual Recurring Revenue (ARR) -- Software ARR reached $1.2 million, with the attachment rate for systems at just 1.3%, indicating room for significant expansion.
  • Financial Results -- Non-GAAP revenue was $125.1 million; gross margin reached 46.5%, and operating expenses were $55 million.
  • Cash and Investments -- Cash and investments rose $5 million to $489 million, and cash from operations was $10 million.
  • Capital Expenditures -- Capital expenditures totaled $2 million, targeted at 2% of revenue for the full year.
  • Q2 Guidance -- Revenue is expected to rise 15% sequentially and 34% year over year to about $144 million, plus or minus $7 million, with gross margin guided to approximately 44%.
  • Full-Year Revenue Outlook -- Full-year 2026 revenue growth guidance was increased to 20%-25% over 2025.
  • Operating Expense Forecast -- Operating expenses are projected at about $53 million for Q2, with low-$50 million per quarter expected through the rest of the year.

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RISKS

  • Chief Financial Officer Jeffrey D. Jones said, "we are incurring some higher initial cost here to ramp the Eclipse supply chain and production. It is coming out very quickly with a new configuration, and so we are having to spend more on supply chain and production. We expect those costs to carry through probably through this year."
  • Gross margin headwinds are anticipated in the second half due to systems revenue increasing faster than recurring revenue, resulting in a shift from 46.5% toward a mid-40% range for the year.
  • Higher operating expenses, at $55 million in the quarter and forecasted in the low-$50 million range, reflect the need to support rapid HPC market expansion.
  • Increased cost pressures were cited from higher energy, freight, and memory IC costs, each contributing approximately 10 basis points to gross margin decline.

SUMMARY

Cohu (COHU +5.91%) reported substantial year-over-year growth in new orders and a marked increase in high performance computing opportunities, supported by a $750 million targeted pipeline spanning 12 key customers. The inspection and metrology business outpaced prior expectations, with HBM revenue projected 80% higher and overall segment revenue targeting $70 million. The company highlighted a meaningful shift toward high-margin, recurring software revenue streams, with annualized software bookings at $1.2 million and projected to more than double this year. Guidance for both Q2 and full-year 2026 revenue was raised, reflecting confidence in secular semiconductor market drivers and Cohu's expanding customer footprint in AI and power management applications. Operating expenses and initial supply chain costs are expected to remain elevated for the remainder of the year, impacting gross margin as the business shifts mix toward higher-growth but initially lower-margin system solutions.

  • The customer pipeline is highly concentrated, with $100 million of near-term opportunities and another $200 million in qualification, signaling most of the $750 million addressable market is yet to be unlocked.
  • Recurring revenue generation is paced to increase as system shipments transition into post-warranty service and spare parts, as noted by management: "The recurring revenue—maybe it was not really clear on the slide—is included in that $500 million bucket."
  • Cycle time for thermal handler shipments is about 14 weeks, though the ability to recognize revenue in 2026 depends on backlog size, customer order timing, and lead time constraints.
  • Industrial and automotive markets are contributing about half of the Q2 revenue growth, with industrial test utilization now at 79%, near the capacity-buy threshold.
  • The company is not including new silicon photonics business in its $750 million SAM and currently classifies it as an initial, smaller-scale "beachhead" opportunity.

INDUSTRY GLOSSARY

  • SAM (Serviceable Addressable Market): The portion of the total available market targeted by Cohu, based on specific customers and applications identified as likely buyers within a given period.
  • HBM (High Bandwidth Memory): A high-performance memory technology, often used alongside advanced AI and HPC processors, requiring specialized test and inspection equipment.
  • OSAT (Outsourced Semiconductor Assembly and Test): Companies providing independent assembly and testing services for semiconductor manufacturers.
  • ARR (Annual Recurring Revenue): The yearly value of subscription-based or contractual recurring revenue components.
  • Capped Call: A financial derivative used in conjunction with convertible debt to offset dilution from potential share issuance upon conversion.

Full Conference Call Transcript

Our comments are current as of today, 04/30/2026, and Cohu, Inc. does not assume any obligation to update these statements for events occurring after this call. Additionally, we will discuss certain non-GAAP financial measures during this call. Please refer to our earnings release and slide presentation for the reconciliation to the most comparable GAAP measures. Now I would like to turn the call over to Luis Müller, Cohu, Inc.'s president and CEO. Luis?

Luis Müller: Thank you for joining our Q1 2026 earnings call. We started the year with strong momentum across multiple product lines with orders up 57% year over year, reflecting both improved semiconductor market conditions and the increasing relevance of our technology portfolio across AI and high performance compute applications. An important driver of this momentum is the [inaudible] of AI workloads and inference processing driving greater computing power density that has become a primary bottleneck. AI accelerators and HPC processors generate immense amounts of heat during operation. Testing these chips requires maintaining precise temperature environments to ensure functional accuracy and long-term reliability.

If a chip is tested at the wrong temperature, its performance metrics may be skewed, leading to lower yields, or worse, latent field failures. As a result, Cohu, Inc.'s proprietary and industry leading thermal capabilities are highly valued by customers. Based on current engagements and design activity, we now see a computing segment opportunity pipeline of approximately $750 million, including roughly $650 million in test handlers, and an additional $100 million from HBM inspection, and both growing at rapid rates. For fiscal 2026, we are now increasing our high performance computing revenue outlook to approximately $80 million to $100 million.

We are emboldened by the opportunity pipeline across 12 customers with five customers in qualification stage and another seven in early engagement stage. During the first quarter, we continued to benefit from rising device complexity, higher power density, and accelerating AI adoption—trends that are reshaping test, inspection, and manufacturing requirements across the semiconductor value chain. In fact, semiconductor value is moving to the mid and the back end manufacturing, driving substantial growth in the test arena. Estimated semiconductor test utilization also increased sequentially to 78% at the end of the first quarter. Automotive and industrial markets are gradually improving again as customers started investing in test capital.

Many of our customers are broadening their product portfolio to serve AI data centers, as these transition to 800-volt DC infrastructure and more power management efficient solutions with gallium nitride technology at rack-scale server boards, such as the new VeriRubin platform. Across each of these applications, our customers are prioritizing quality, performance, and scalability. At the same time, our software platform gained traction as analytics moved from pilot deployments into broader production environments. These wins validate both the technical performance of our solution and the growing appetite for software-enabled yield and productivity investment. There is a significant SAM opportunity for Cohu, Inc. in this space and a significant lifetime value in software subscription.

This is illustrated well in the first quarter when a $20 million system order came together with $330,000 a year of software subscription, which over the course of the lifetime of these systems could yield approximately $5 million in recurring revenue. The financial implication of this shift is twofold. First, software subscriptions provide high margin recurring revenue that is less susceptible to CapEx cycles. Second, by improving overall equipment efficiency and reducing mean time to repair for customers, we build deep operational stickiness that makes it difficult for competitors to displace our systems. I would now like to highlight a few customer wins in the first quarter. Starting with our 54% year over year [inaudible].

We secured two major Eclipse orders in the first quarter. The first win supports AI data center applications with our U.S. fabless customer developing server and inference devices. As power density and mechanical complexity increase, Eclipse combined with our T CORE active thermal control enables the customer to standardize on a common handler platform across multiple device generations. This reduces capital risk while extending the life and value of the installed base. Closed-loop junction temperature control was a key differentiator ensuring consistent temperature test quality, higher yields, and faster production ramps. In addition, the customer is adopting Cohu, Inc.-hosted prescriptive analytics software to improve equipment efficiency, increasing system value, enabling recurring revenue for Cohu, Inc., and strengthening long-term engagement.

Strategically, this win deepens our computing footprint, embeds Eclipse into the customer's road map, and positions us as the platform of record representing an estimated $100 million incremental revenue opportunity at this account over the next three years. The second order supports data center computing, mobile, and automotive processors at another U.S.-based fabless customer using the Eclipse platform. Our solution allows both the customer and their OSATs to address multiple markets while leveraging T CORE thermal control to maximize yield and asset utilization. Together, these strengthen our engagement across high performance computing and AI markets, driving near-term system revenue and long-term platform, software, and recurring value growth.

Our customer engagement for Eclipse expanded in the first quarter with an additional five customers in different stages of qualification representing an incremental $200 million of revenue opportunity starting late this year and into next year. We are very bullish about the customer traction and the growing opportunities to expand our presence in this $750 million high performance computing market. These opportunities are rapidly taking shape as compute power increases, and with the need to actively manage silicon junction temperature at higher power and power densities. Now turning to our inspection and metrology business with orders up 64% year over year. In HBM memory, we continue to see strong momentum for final inspection of HBM3 and HBM4.

We are investing in this market and keeping pace with design requirements to support next generation HBM5. We are now forecasting revenue growing 80% year over year to approximately $20 million with our Neon HBM platform. In the first quarter, we also secured a significant volume repeat order for our NEON inspection system from a U.S.-headquartered customer and also from a Korean customer. Our inspection business is growing fast, and we estimate revenue at approximately $70 million this year. Semiconductor test orders recorded an impressive 163% increase year over year.

Headlines around AI infrastructure typically focus on the massive compute devices required to train and run large language models along with the memory and networking technologies that enable scale across the data center. Less visible, but equally critical, is power delivery. Every AI system depends on precise, efficient power management to sustain peak performance. This is where the DiamondX precision instrumentation becomes decisive. Our tester was qualified for testing power devices, strategically expanding our footprint in AI-related applications, and embedding it more deeply into our customers' road map. As power density increases, customers are implementing GaN-based technology to minimize energy loss and thermal impact.

While GaN offers a clean efficiency advantage, it remains less mature than traditional CMOS, creating technical and economic challenges as customers scale production to meet data center demand. Moving to our Interface Solutions group, we have seen increased adoption of our higher current contactors for AI power applications at existing customers. We also expanded our product offering and received a multi-unit order for a new silicon photonics solution. These photonic switches form the backbone of cloud and AI Ethernet fabric and we are now testing them. In closing, Q1 was a strong start for the year, and a clear validation of our strategy.

We see momentum rapidly building across AI infrastructure, high performance compute, power management, and smart manufacturing, driven by rising device complexity and increasing power density. Our expanding presence in thermal handling, advanced inspection, precision test, and high-value software is translating into larger platform wins, recurring revenue opportunities, and deeper customer engagement. With a $750 million computing segment opportunity in front of us, and improving utilization across our core markets, we are accelerating R&D investments to capture new customers, and we are expanding production capacity to move confidently through the remainder of this year and into 2027. These secular tailwinds combined with disciplined execution and continued investment in innovation position Cohu, Inc. to deliver durable value for our customers and shareholders.

Thank you for your continued support. I will now turn the call over to Jeff for a deeper review of our financial results and forward-looking guidance. Jeff?

Jeffrey D. Jones: Thank you, Luis. Before reviewing the first quarter results and providing second quarter guidance, please note that my comments refer to non-GAAP figures. Details about non-GAAP financial measures, including GAAP to non-GAAP reconciliation and other disclosures, are included in the earnings release and investor presentation on our website. For Q1 2026, revenue exceeded the midpoint of guidance at $125.1 million. Recurring revenue, driven primarily by consumables and typically more stable than systems revenue, represented 60% of total revenue. No customer accounted for more than 10% of total sales during the quarter. Gross margin was 46.5%, above guidance, primarily reflecting a more favorable mix as recurring revenue exceeded our forecast.

Operating expenses were higher than guidance at $55 million, reflecting our decision to scale resources to support the rapid increase in high performance compute opportunities. This included accelerated spending on design materials as well as incremental engineering and field support to fulfill production orders and complete new opportunity qualifications. Net interest income, after interest expense and a small foreign currency loss, was approximately $2.1 million. The Q1 tax provision was lower than guidance at $4.8 million. Now moving to the balance sheet. Cash and investments increased approximately $5 million during Q1 to $489 million, and cash from operations was $10 million. No stock repurchases were completed during the quarter.

Total debt is $305 million and includes $288 million from the Q4 2025 convertible debt offering. Capital expenditures were approximately $2 million, mainly for facility improvements and IT equipment. We are targeting total capital expenditures to be about 2% of revenue in 2026. Looking ahead, we expect Q2 revenue to increase 15% sequentially and 34% year over year to approximately $144 million, plus or minus $7 million. The increase is driven by demand tied to the ramp in high performance compute opportunities and continued recovery in automotive and industrial segments. We are increasing our full year 2026 revenue outlook for growth over last year of 20% to 25%. Q2 gross margin is projected to be approximately 44%.

For the full year 2026, we project gross margin in the mid-40% range as we ramp our supply chain and production capacity to support the rapid business expansion in high performance computing customers. Operating expenses are expected to be lower than Q1 at about $53 million. We intend to continue investing in resources to capitalize on the growing list of HPC opportunities and we expect quarterly operating expenses through the balance of the year to remain in the low-$50 million range, consistent with our Q2 guidance. Net interest income in Q2, after interest expense and foreign currency impacts, is projected to be approximately $2 million at current interest rates.

The Q2 tax provision is expected to be about $5.3 million and diluted shares are projected to be approximately 52.6 million, including 4.2 million shares attributable to the convertible debt. Of that amount, 3.3 million shares will be fully offset by the capped call but are required for U.S. GAAP diluted EPS calculations. In summary, our operational focus for 2026 is to support R&D investments and production ramp needed to secure multiple design wins in the compute market including AI data center infrastructure, HBM memory, and physical AI applications while progressively increasing free cash flow generation. That concludes our prepared remarks, and now we will open the call to questions.

Operator: Please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Our first question comes from Brian Chin with Stifel. Hi there. Good afternoon. Thanks for letting us ask a few questions. Maybe firstly, breaking down the guidance for Q2 15% quarter-on-quarter growth, can you maybe give us a sense how much of that is the ramping new HPC customer business versus maybe ramp in the broader base business, if that makes sense?

And, also, tied to that, if you were to sign up no more new customers to the end of the year, about $100 million, how much of that still remains to be revenue through the second half?

Jeffrey D. Jones: Yep. So, at least on your first point here, Brian, the quarter over quarter increase in HPC systems revenue was about $10 million, so it is just under half of our increase quarter over quarter. And that puts us then for HPC, at least systems revenue, in 2026 at roughly about $30 million.

Brian Chin: Okay. That is helpful. And in terms of the system margin contribution gross margin relative to the overall blended average company, how should we think about that?

Jeffrey D. Jones: What we saw in Q1 was a gross margin split of roughly 50% on recurring, roughly 40% on systems. I think we are going to hold that for the balance of the year. The systems revenue percentage will increase—well, systems revenue is going to increase faster than the recurring—and so that is why we see the 46.5% gross margin in Q1 hitting a little bit of a headwind in the second half. We think we are going to end the year somewhere in the mid-40% gross margin.

Brian Chin: Great. And then maybe one other question. You talked about sort of this pipeline where you have customers—was that $100 million kind of the aggregation of this year? Or is that over a multiyear horizon?

Luis Müller: No. The qualified $100 million is sort of this year’s spend from these customers. Now, as I said, we are probably going to be getting a portion of that this year, not the entirety of it this year.

Brian Chin: Got it. With the other five customers, are they kind of equal size within that $150 million to $200 million? Or how would you gauge which ones are further along or less far along in terms of ones that could be contributors even to the back end of this year?

Luis Müller: They are not all equal size, Brian. We have a $10 million to $40 million spread depending on the customer here on an annual basis, the way we see it. We expect to be getting some qualifications completed by early Q3. The question is, do we then have an opportunity to get orders and participate on demand still in 2026? Does our lead time support that as well or not? It is hard to call right now if it is going to end up hitting revenue in Q4—plus, obviously, revenue recognition as well, you have to account for accounting rules—or if this is going to end up spilling more into early 2027 at this point.

Brian Chin: Right. And then where do you think you can keep lead times or cycle times this year for the thermal test handler, T CORE, Eclipse? That may also inform what revenue could be this year versus what might have to be captured next year.

Luis Müller: We are operating at about a 14-week cycle time—rather than saying lead time—on handlers right now, on our thermal handlers. A bit of the challenge is if you get a $30 million order, not all of it is going to ship in 14 weeks. It is spread over several weeks, several months. As we start layering additional customers, we are working hard to open that manufacturing pipeline both from a supply chain side—meeting regularly now with suppliers and understanding where the choke points are, particularly for our thermal heads—as well as internally. We are hiring resources in Malaysia and we are looking at a re-layout of the facility in Malaysia to open up more floor space.

So I can tell you 14 weeks cycle time, but lead time really largely depends on the size of the backlog we have in front of it.

Operator: Our next question comes from David Dooley with Steelhead Securities.

David Dooley: Yes. Thanks for taking my questions. Congratulations on nice results, particularly the outlook. I was wondering, as far as your core business goes, all of your customers on the conference calls are really talking about how their AI data center businesses are ramping at very rapid growth rates, 50% to 100%. I get the sense that kind of filled all the excess capacity that might have been pointed from those customers at other end markets. Are you hearing that from your customers—that essentially their AI businesses have filled up their utilization rates, and they are coming in for more larger volume purchase orders going forward?

Luis Müller: What I am seeing more, Dave, is actually a bit of a pivot towards CPU—large CPU demand—ASIC accelerators. We are seeing also network processing demand. Up until recently, a lot of it seemed to be very focused on a singular or largely a singular customer driving a lot of GPU capacity in the industry. As of maybe a quarter ago, a little bit more than a quarter ago, that seems to be spreading out more broadly here, as inference is starting to pick up, and with the realization that we need more computing power going along with the GPU power that is being deployed. That is more of what I am seeing.

It is that spread out of demand for different types of processors, and network processors inclusive.

David Dooley: That leads me to my next question. You used the term XPU—CPUs, GPUs, XPUs, TPUs, whatever you want to call them. All have high voltages and create a lot of heat, so all of these end market customers—from the custom ASIC guys to the GPU guys to the CPU guys—all need some sort of temperature-controlled handling equipment for their processors, correct?

Luis Müller: That is correct.

David Dooley: And is that the market that you are referring to when you talk about the $750 million SAM? Is that aggregating what most of these customers’ thermally controlled temperature handler demand is? Or how do you come up with that $750 million?

Luis Müller: We are calling it more a SAM, to be fair, because we have a pretty defined list of customers and customer device classes that we are tallying up to $750 million. If we were to talk about a TAM, it is likely a bigger number, and we are not attempting to guess that, so we are not going there. We are being very targeted here to the list of 15 customers and customer applications that we have tallied up. That comes up to the $750 million. That is what it is. It is a very targeted list. We know what these customers have for buying patterns this year, and that is how we come up with that number.

We also understand that some of these customers are ramping, so I guess the expectation is that SAM itself could be bigger next year. But like I said, we are not trying to guess the TAM, the total available; we are just estimating here from customer information what we see for their spending this year.

David Dooley: Final question for me is could you elaborate a little bit more on the silicon photonics? What exactly is the application you address there, and how big a piece of business could that be next year? I realize we are just starting off now, but please elaborate a little bit more on what you are seeing there.

Luis Müller: Sure. That is really a beachhead business at this point. We sold a number of interface products—contactors—for silicon photonics application at one of the large accounts. There are really two major drivers in the industry today and a few others. These are interface products. You are talking about approximately $10,000 contactors, and we sold several of them. We are working to provide solutions that include our handler with the contactors, but I am not going to venture to guess what kind of revenue opportunity for 2027 that is at this point. It is not really included in our $750 million at the moment.

David Dooley: But the point is you got your foot in the door with the test contactors, and hopefully you can sell them a piece of capital equipment as well.

Luis Müller: That is correct.

Operator: Our next question comes from Craig Ellis with B. Riley Securities.

Craig Ellis: Yes. Thanks for taking the question and congratulations on the revenue performance in the quarter and the outlook, guys. Luis, I wanted to start by understanding the specific drivers to the increase in HPC system revenues this year. It looks like about a $20 million increase at the midpoint of the prior to the new expected range. Can you detail what is going on inside of that?

Luis Müller: Thanks, Craig. We finished with a very successful qualification of the Eclipse at one particular account. That looked like we could capture a bigger share of the revenue in 2026. We qualified in time to catch the next round of orders, and that increased the size of the pipeline for this year. That is simply it.

Craig Ellis: Okay. And then nice to see orders up 2% quarter on quarter. Can you help us with some color on where you are seeing that strength? Is there a preponderance towards OSAT versus IDM? Do you expect to ship all those systems this year? Any color on linearity would be helpful.

Luis Müller: When we look at orders, depending on the market segment you pick, it is about 30% to 40% increase year over year. There is one segment in particular that is driving—unsurprisingly, given what we are talking about here—it is computing, and it is up about 211% year over year. That is pretty much what is driving the business. I do have to say the industrial segment is picking up a bit as well. That is also strong and came out pretty decently strong in the first quarter.

Craig Ellis: And regarding shipment timing for all those orders?

Luis Müller: We see a ramp in Q3, and of course some of that will fall into Q4 as well.

Craig Ellis: Got it. Going back to the point on the deck where we have the expanded AI computing pipeline with almost a half billion in engagement and then $150 million to $200 million in qualification, can you provide any color on how quickly we can move some of that engagement activity into qualification, and then through qualification how much of that can convert in 2026 versus what you might have your eye on for 2027?

Luis Müller: I think at this point, Craig, it is safe to say that we are working to complete the qualification of the about $100 million opportunity in 2026. As I mentioned earlier, we will see if we can get some of that revenue also in 2026, but largely 2027. On the balance here, the remaining approximately $500 million, those engagements are likely to move into qualification later this year and into 2027. I do not expect it to be any sooner than that.

Craig Ellis: So a way we could look at it would be you have an opportunity to convert a significant amount this year, but the larger percentage would be something that could convert next year. Is that right, Luis?

Luis Müller: That is right. Qualifications of these things take a good six months, and then from there, production ramp. I do have to point out another element. Largely, the recurring portion of this is going to come out about a year after shipping systems. Our systems ship with about a year’s worth of warranty. Once that expires, you start getting the spares and the service. These devices typically have 18 months lifetime anyway. Thereafter, you start getting new kit orders and potentially new thermal head orders for upgrades. It is high performance computing, so those thermal heads are very specific to the application. Maybe you can use it across two generations, but the thermal heads themselves eventually need to be replaced.

Within a 12-month time frame, we should start seeing the recurring revenue kicking in. The recurring revenue—maybe it was not really clear on the slide—is included in that $500 million bucket as well.

Craig Ellis: Okay. So you have got a nice one-two with the second crunch included in the chart. Thanks, Luis. Thanks, Jeff.

Operator: Our next question comes from Robert Merton with TD Cowen.

Rob Martins: Hi. This is Rob Martins on for Chris Sankar. Thanks for taking my questions. I believe last quarter you highlighted a Krypton spec metrology system order for an automotive customer that had transitioned to using some positive benefit in your inspection software subscription, and then you mentioned additional software opportunities during this March. I am trying to wrap my head around how we should think about the potential software opportunities throughout your business—if there is a specific platform or area that the software opportunity might be higher.

Luis Müller: Sure, Rob. The software right now is very much going hand in hand with our test handlers and inspection systems—the automation pieces. We have an element of software we call PACE Inspection that goes in with the inspection platforms. It helps optimize yield of the inspection systems. Then we have PACE Prescriptive that goes along with both test handlers as well as inspection and metrology systems that help optimize overall equipment efficiency, optimize maintenance predictability, and factory output. Thinking about that software base, we are now currently at an ARR—annual recurring revenue—of about $1.2 million. This is what we have in bookings for annual subscription of software. The attachment rate of that subscription is still pretty low.

It is really about 1.3% of our systems that have a software subscription attached to them, so a low number with plenty of room to grow. As I pointed out in the script, the value of that software is pretty big because if you have it in—like we have here in the example given—a $20 million system order with $330,000 of software annual subscription, through the lifetime of that product that is about $5 million of recurring revenue we are going to collect through the lifetime of the product at a pretty high margin. It is still a small piece of the business. It is a growing piece of the business. It is growing fast.

We are expecting it to be close to $3 million in revenue this year—that is more than 200% growth year over year—but it does carry a really nice lifetime value recurring component that adds to our overall recurring business.

Rob Martins: Got it. Thank you. That is very helpful. And then, you mentioned some incremental strength in the orders from automotive and industrial markets this quarter. How do you expect that business, the auto handler business, to pick up in the back half of the year? And if I can squeeze one last one in, is there any typical seasonality in the RF test business?

Luis Müller: On the first portion, I refer back to how Jeff answered the question of what is driving the incremental quarter over quarter into Q2. About half of our Q2 increase in revenue is driven by non-compute markets—fundamentally industrial and, to a smaller degree, auto, but fundamentally industrial. We are seeing that pick up right now. Another interesting data point is industrial test utilization at the end of Q1 was 79%, so it is right there at that capacity-buy threshold of 80%. Industrial is doing well. It had a good increase in orders quarter over quarter and accounts for about half of the revenue growth quarter over quarter going into Q2.

On the RF side, we are also seeing a bit of a pickup in RF tester orders and sales in the second quarter. There is typically a seasonality that tends to be late year, like Q4 to early Q1, when RF picks up. It is a little late here—we are going into Q2 and seeing a bit of a pickup in RF. I cannot completely explain why. There are technology transition points that are major drivers in RF, with one coming up in the next 18 months or so associated with FR3, commonly known as 6G.

Operator: Our next question comes from Christian Schwab with Craig Hallum.

Christian Schwab: Great. Thanks for all the guidance, and congratulations on giving multi-quarter guidance again. My only question has to do with M&A. Previously, we have talked about acquisitions, particularly in recurring revenue streams, that you were looking at and targeting. Can you give us an update on your thoughts on M&A currently?

Matt Hutton: Hi, Christian. Matt Hutton here. We continue to look at opportunities. As you can imagine from what Luis and Jeff highlighted, they are mostly opportunities in the recurring space, our growth areas. We will continue to be disciplined, look at buy versus build analysis, and look for opportunities. Unfortunately, a lot of the tailwinds that some of these companies are receiving—that we are receiving—they are also receiving, so valuations remain elevated. But we will continue to be disciplined and look at opportunities in our growth areas.

Christian Schwab: Great. And then, Luis, given we are moving now to multi-quarter guidance for 2026, but given all the positive dynamics as well as future orders transitioning to revenue in 2027 instead of 2026, should we assume—if all things remain consistent—that you will grow in 2027 at the same rate that you expect to grow in 2026?

Luis Müller: We certainly expect growth in 2027. We have that qualification bucket there of $150 million to $200 million that will add to 2027. We are also encouraged with overall test utilization getting very close to that 80% mark. All things being equal, yes, growth in 2027. At what rate? We have not tried to pencil that in yet, so we are going to reserve another quarter or two before we talk about that.

Operator: Our next question comes from Denis Pyatchanin with Needham.

Denis Pyatchanin: Great. Thank you. Prior to your HPC forecast, was it $25 million to $30 million for this year and now you have moved it up to about $100 million? And I think in your presentation, it said that about $30 million of the approximately $100 million would be Eclipse. Can you tell us about the remaining approximately $70 million? Is that mostly testers? Is that other handlers? Can you break down that remainder, please?

Jeffrey D. Jones: Let us back up a little bit. Initially, we came out and said HPC revenue in the $60 million to $85 million range for 2026. We are now increasing that to $80 million to $100 million. Most of that relates to the Eclipse handler. The NEON for HBM inspection, we previously said was $15 million to $20 million—I think we are at the higher end now of that range. And as Luis mentioned, we have been in qualifications or fixed qualifications for our testers also participating in some HPC revenue. Does that help clarify?

Denis Pyatchanin: Yes. Thank you. You also said that you are now expecting 2026 total revenue to be up 20% to 25%. If I just run-rate you at approximately $144 million basically for the rest of the year, you basically get to that number. So are we assuming revenue will be going flat from $144 million through the rest of the year? Will there be a little bit of a dip in Q3? Is there anything more you can say about the cadence of revenue?

Jeffrey D. Jones: The way we see it now, we would expect Q3 to be pretty similar to Q2—somewhere in that general range. Q4, we could have some seasonality, so slightly weaker Q4, maybe down mid-single-digit quarter over quarter.

Denis Pyatchanin: Lastly, you mentioned some further engagement with the U.S. and Korean customers. Can you tell us more about that, please?

Luis Müller: We were talking about the inspection and metrology business. We saw a big increase in orders in inspection and metrology in the first quarter—up 64% year over year. We are expecting that business to hit about $70 million in revenue this year. What is driving that? One is HBM, which we are now guiding to about $20 million in the year. The other is further demand for our inspection products from both a U.S. and a Korean customer with large orders in Q1.

Operator: Our next question comes from Vedbhati Shrotra with Evercore ISI. Hi. Thanks for taking my question. I wanted to double click a little bit on the gross margin piece. You have good ramps on the HPC front in the second half. Would the systems gross margins pick up in the second half versus first half?

Jeffrey D. Jones: That is a good observation. However, we are incurring some higher initial cost here to ramp the Eclipse supply chain and production. It is coming out very quickly with a new configuration, and so we are having to spend more on supply chain and production. We expect those costs to carry through probably through this year. In 2027, we will see lower costs, particularly for Eclipse. On top of that, similar to other companies, there is a small impact from higher energy and freight costs—something to the tune of about 10 basis points. On top of that, we are also seeing higher cost of memory ICs that we use on our products—another roughly 10 basis points.

Vedbhati Shrotra: Are those the drivers for the dip in Q2 gross margins—the approximately 200 bps of decline that you have? Can you characterize what is cost driven versus mix driven?

Jeffrey D. Jones: It is a combination. It is definitely cost-driven, as I mentioned, for the Eclipse platform in terms of supply chain and production. To a certain extent, that also relates to mix. But I would say cost first, mix second.

Vedbhati Shrotra: Understood. And then in terms of R&D spend, how should we think about R&D intensity for the rest of the year? As you are going after these bigger markets of $750 million in opportunities, what is the right way to think about R&D intensity?

Jeffrey D. Jones: I am forecasting Q2 will be lower than Q1, but we are going to still be elevated from the model. We are going to be about $53 million for Q2 operating expense. That is because we are going to continue to invest in the resources to capitalize on these opportunities that we have in HPC. I expect that low-$50 million range to persist through the second half of this year for OpEx.

Vedbhati Shrotra: Got it. And then the last one—on the qualifications you have in the pipeline, $150 million to $200 million, how does that split across the five customers? How does that split between Neon versus Eclipse?

Luis Müller: These are all Eclipse—Eclipse thermal handler applications tied to some form or another of a processor device.

Operator: That concludes today’s question and answer session. I would like to turn the call back to Jeffrey D. Jones for closing remarks.

Jeffrey D. Jones: Thank you very much. Before we sign off, I would like to note that we will be attending the following investor conferences during Q2, and those conferences are the TD Cowen Conference on May 27 in New York City, the Craig Hallum Conference on May 28 in Minneapolis, the Stifel Conference on June 2 in Boston, and the Evercore Conference on June 3 in San Francisco. If any of you plan on attending these conferences, please reach out to your conference contacts or let us know and we will arrange for a one-on-one meeting. Thank you for joining today’s call. We look forward to speaking with you again very soon.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.