Cohu, Inc. — Q2 2023 Form 10-Q
Reporting period: 13 weeks ended July 1, 2023; six-month comparison is for the 26 weeks ended July 1, 2023 versus June 25, 2022. Amounts below are in millions of dollars unless stated otherwise. Cohu supplies semiconductor test and inspection equipment and related products and services; it reports one aggregated segment.
Financial performance
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Net sales | $168.9 | $217.2 | $348.3 | $415.0 |
| Gross margin | 47.5% | 46.5% | 47.8% | 46.3% |
| Operating income | $15.7 | $36.9 | $35.5 | $64.6 |
| Net income | $10.6 | $28.8 | $26.3 | $50.3 |
| Diluted EPS | $0.22 | $0.59 | $0.55 | $1.02 |
| Operating cash flow | Not provided separately | Not provided separately | $69.6 | $45.8 |
- Q2 sales decreased 22.2% year over year; first-half sales decreased 16.1%. Management cited weaker mobility, 5G-related and computing demand amid macroeconomic conditions and customer delays in capital spending.
- Q2 gross margin improved by 1.0 percentage point, attributed to favorable product mix and greater insourcing of contactor manufacturing. Operating margin was 9.3% versus 17.0% a year earlier; net margin was approximately 6.3% versus 13.2%.
- Q2 R&D was $22.5 million and SG&A was $32.8 million. As a share of sales, both rose year over year, with SG&A also reflecting labor, product support, travel and professional-service costs and MCT-related expenses.
- First-half operating cash flow rose to $69.6 million, supported in part by a $38.1 million reduction in receivables. Capital expenditures were $8.1 million; cash paid for MCT, net of cash received, was $26.3 million.
Liquidity, debt and balance sheet
- At July 1, cash and cash equivalents were $275.3 million and short-term investments were $97.0 million, totaling $372.3 million, down from $385.6 million at year-end 2022. Working capital was $583.9 million, down from $604.0 million.
- Total debt, net of discounts and deferred financing costs, was $42.7 million, versus approximately $78.9 million at December 31, 2022. Cohu prepaid $34.1 million of term-loan principal during the first half and recognized a $0.4 million extinguishment loss. Term-loan principal outstanding was approximately $31.1 million and matures by October 2025; its rate transitioned from LIBOR to SOFR, and the rate in effect at July 1 was 8.2%.
- Management said current working capital should be sufficient for operating requirements for at least the next 12 months. However, $207.2 million, or 75.3%, of cash and cash equivalents was held by foreign subsidiaries and repatriation may involve withholding taxes.
Material changes, outlook and risks
- MCT was acquired on January 30, 2023, for a purchase price of $26.8 million; preliminary purchase accounting remained subject to change. MCT contributed $2.5 million of Q2 sales and $7.0 million for the first half. Cohu plans to consolidate MCT’s Penang manufacturing into its Melaka operations by the end of 2023; first-half integration restructuring charges were $1.3 million.
- No specific numerical revenue or earnings guidance was provided. Management cited semiconductor growth drivers, including AI, increasing device complexity and test intensity, and customer traction with new products, while acknowledging near-term demand weakness.
- Risks include cyclical customer capital spending, inventory valuation and potential additional reserves, foreign-exchange exposure, customer concentration, and reliance on financial institutions. Two customers accounted for 25% of Q2 sales. The filing also notes ongoing tax examinations in Germany, the Philippines, Malaysia, Singapore and Thailand; management did not expect ordinary-course legal matters to materially affect results.
- Available-for-sale investments had $76.2 million fair value against $76.8 million cost in loss positions; management stated it had the ability and intent to hold them to maturity. The filing reports no material change to previously disclosed risk factors other than the added bank-deposit risk discussion; Cohu said its SVB deposits of $12.3 million had been protected by the FDIC.
Important facts for investors to verify
- Whether semiconductor demand, especially in mobility, 5G and computing, stabilizes and how that affects orders, sales and margins.
- Progress and costs of the MCT integration and manufacturing consolidation, and final purchase-price allocation.
- Inventory levels and reserves, customer concentration, and the conversion of receivables and deferred revenue into cash.
- Cash availability across jurisdictions, debt repayment and interest costs following the SOFR transition, and exposure to foreign exchange and investment-market risk.
- Potential effects of tax examinations and the valuation allowance maintained against substantially all U.S. net deferred tax assets.