Cohu, Inc. (Nasdaq: COHU) — FY2021 Form 10-K
Reporting period: Fiscal year ended December 25, 2021 (52 weeks). This filing reports annual results, not standalone fourth-quarter results. Unless noted, amounts are from continuing operations.
Business context
Cohu supplies semiconductor test and inspection equipment, handlers, automated test equipment, interface products, spares and services. After selling its PCB Test business on June 24, 2021, the company reports one segment, Semiconductor Test and Inspection. Semiconductor equipment sales are cyclical and depend on customers’ capital spending; recurring products and services are linked to device testing volumes.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $887.2 million | $636.0 million |
| Gross margin | 43.6% | 42.7% |
| Operating income | $201.5 million | $3.3 million |
| Income (loss) from continuing operations | $167.3 million | $(13.8) million |
| Diluted earnings (loss) per share | $3.45 | $(0.33) |
| Cash from operating activities | $97.7 million | $49.7 million |
| Capital expenditures | $12.0 million | $18.7 million |
Sales rose 39.5%, supported by recovering demand and strength in automotive, industrial and mobility markets, including 5G-related demand. Gross margin improved with higher volume and better fixed-cost absorption, though product mix shifted toward handlers and away from semiconductor testers during parts of 2021, which management said pressured margins. Research and development expense was $92.0 million, up from $86.2 million.
Reported operating income includes a $70.8 million pretax gain on the PCB Test sale. The filing does not provide a single company-defined adjusted operating income measure; excluding that gain mechanically, operating income would be approximately $130.7 million before considering any other adjustments. The sale generated $120.9 million in net cash proceeds.
Cash, debt and liquidity
- Cash, cash equivalents and short-term investments totaled $379.9 million at year-end, versus $170.0 million a year earlier. Working capital was $558.3 million, up from $310.6 million.
- Operating cash flow increased to $97.7 million. Higher receivables and inventory absorbed cash, including a $59.1 million increase in receivables and $35.9 million increase in inventory.
- Total debt principal was $119.3 million at year-end; the balance sheet reported $117.8 million net of financing fees and discount. This compares with $325.5 million in total debt principal at FY2020 year-end. Cohu prepaid $200 million of its term loan during 2021; approximately $103.1 million of term-loan principal remained.
- Management said available liquidity should meet working-capital and cash requirements for at least 12 months. About $189.4 million, or 49.9% of cash, cash equivalents and short-term investments, was held by foreign subsidiaries.
Material changes and capital allocation
- The PCB Test divestiture reduced the company’s business scope and produced the $70.8 million gain; its results remain in continuing operations because the sale was not considered a strategic shift under the applicable accounting rules.
- A March 2021 stock offering of 5,692,500 shares generated $223.1 million in net proceeds, contributing to debt repayment and general corporate funding. The offering increased the share count.
- The board authorized a $70 million repurchase program in November 2021. Cohu repurchased 206,572 shares for $7.3 million in FY2021; $62.7 million remained available at year-end.
- The quarterly cash dividend remained suspended. Cohu said the suspension was intended to preserve about $10 million annually for deleveraging and balance-sheet strength.
- Backlog was $292.9 million at December 25, 2021, up from $259.5 million a year earlier, including the former PCB Test business. Backlog is generally expected to ship within 12 months but can be canceled or rescheduled.
Outlook, risks and unusual items
Management expressed optimism about long-term demand drivers, including semiconductor proliferation, 5G, rising device complexity and test intensity, and customer traction with new products. The filing gives no quantified revenue, earnings or margin guidance.
- Supply constraints: At the beginning of 2022, Cohu reported constraints and delays in specialty semiconductors needed for ATE test instruments, warning that unresolved issues could adversely affect revenue and gross margin beginning in Q1 2022.
- Costs and execution: Management expected inflation in materials, labor, components and freight to continue into 2022 and cautioned it might not be able to offset costs through pricing. Cohu also relies on Jabil as the sole contract manufacturer for most semiconductor test systems and depends on some sole- or limited-source suppliers.
- Industry and customer exposure: Demand is volatile and cyclical; the ten largest customers represented 57% of FY2021 revenue. Analog Devices alone accounted for 14.1%. Approximately 91% of revenue was from products shipped outside the U.S., primarily exposing Cohu to Asian market, trade, geopolitical and currency risks.
- Other notable risks: COVID-19 disruptions, competition and product-development risk, potential inventory obsolescence, variable-rate debt and LIBOR transition, and tax uncertainty. The company had a $76.3 million valuation allowance against deferred tax assets and disclosed ongoing tax examinations in Germany and Malaysia.
- Unusual items: FY2021 included the PCB Test sale gain and a $3.4 million loss on debt extinguishment; FY2020 included $11.2 million of impairment charges and a $4.5 million gain on facility sales. Cohu recorded $7.1 million of inventory-related charges in FY2021.
Ernst & Young issued an unqualified opinion on the financial statements and internal controls. Inventory valuation was identified as a critical audit matter. Management reported effective disclosure controls and internal control over financial reporting as of year-end.
Key facts investors should verify
- How much FY2021 earnings and cash generation depended on the PCB Test sale, and the sustainable earnings level after that gain.
- Whether specialty-semiconductor supply constraints were resolved and their actual effect on Q1 2022 shipments and margins.
- Whether the higher backlog converted to recognized revenue, given cancellation, rescheduling and supply risks.
- Whether customer concentration, product mix and semiconductor-equipment cyclicality changed after FY2021.
- Progress on debt repayment, the remaining variable-rate exposure and the use of cash for repurchases, investment or other purposes.
- Changes in deferred-tax-asset realizability, tax examinations and potential tax settlements.