Cohu, Inc. — Q1 2021 Form 10-Q Summary
Business context and reporting period
Unaudited results cover the 13 weeks ended March 27, 2021; comparative figures are for the 13 weeks ended March 28, 2020. Cohu supplies semiconductor test and inspection equipment and PCB test systems. Its two reportable segments are Semiconductor Test & Inspection and PCB Test.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net sales | $225.5 million | $138.9 million |
| Gross margin | 45.3% | 40.4% |
| Operating income (loss) | $35.7 million | $(13.6) million |
| Net income (loss) | $27.6 million | $(17.3) million |
| Diluted EPS | $0.61 | $(0.42) |
| Cash from operations | $6.1 million | $17.8 million |
- Sales increased 62.3% year over year. Semiconductor Test & Inspection sales were $212.4 million, versus $128.0 million; PCB Test sales were $13.1 million, versus $10.9 million.
- Gross margin improved 4.9 percentage points, which management attributed principally to higher volume and better fixed-cost absorption. Operating margin was 15.9%, compared with an operating loss margin of 9.8%.
- Cash and cash equivalents were $143.1 million and short-term investments were $147.9 million at quarter-end, for combined cash and investments of $291.0 million. Working capital was $467.7 million.
- Debt, net of discounts and financing costs, was approximately $220.0 million, including $201.3 million under the Term Loan B. The company repaid $100.0 million of term-loan principal and recorded a $1.8 million extinguishment loss.
- Operating cash flow was lower than the prior year despite the return to profitability, primarily reflecting higher receivables and inventory. Investing cash outflow of $129.9 million largely reflected purchases of short-term investments; financing cash inflow of $116.6 million included $223.1 million in net public-offering proceeds and debt repayments.
Material changes versus the prior comparable period
- Revenue and profitability rebounded from the pandemic-affected first quarter of 2020, when movement restrictions in Malaysia and the Philippines disrupted supply and shipments.
- Demand was strong across automotive semiconductors and sensors, 5G, Wi-Fi 6, Ultra-Wideband, data centers and PCs. Management said demand for these applications was near record levels.
- The March 2021 equity offering issued 5,692,500 shares at $41 per share, increasing shares outstanding by 13.4% according to the filing. Net proceeds were approximately $223.1 million.
- Interest expense declined to $2.6 million from $4.4 million, reflecting lower debt and interest rates. The prior-year quarter included a $3.9 million impairment of in-process research and development; there was no impairment charge in Q1 2021.
- Other comprehensive loss was $10.4 million, primarily from foreign-currency translation adjustments.
Outlook, commentary and risks
- Management cited continued strong demand, positive order momentum and customer traction with new products, and expressed optimism about long-term semiconductor market drivers. The filing gives no specific numerical revenue or earnings guidance.
- Management expected working capital to be sufficient for operating requirements for at least the next 12 months and said remaining offering proceeds were intended for general corporate purposes, including future growth initiatives.
- Risks include the cyclical and customer-capital-spending-sensitive nature of equipment demand; rising material, labor, logistics and supplier costs; COVID-related disruption; foreign-exchange exposure; and the uncertain transition from LIBOR for floating-rate debt. A hypothetical 10% U.S. dollar move would affect translation adjustments by approximately $37.7 million in either direction, according to the filing.
- The company continued restructuring and facility consolidation in Germany; Q1 restructuring charges were $1.3 million on the income statement. Tax examinations were ongoing in Germany, Malaysia and the Philippines. Management did not believe ordinary-course legal and other proceedings would materially affect the company.
- No material impairment indicators were identified in Q1 2021. The company reported no credit-agreement default events and stated its disclosure controls were effective.
Important facts for investors to verify
- Whether order momentum and demand in automotive, 5G and other end markets persist, and how much revenue growth translates into sustained margins.
- Whether receivables and inventory growth convert to cash; Q1 operating cash flow was $6.1 million versus $17.8 million a year earlier.
- The impact of share issuance and dilution on per-share results, and how remaining offering proceeds are deployed.
- Debt repayment plans, floating-rate exposure and the transition away from LIBOR; the filing provides no commitment to further voluntary principal reductions.
- Whether input-cost, logistics and labor pressures affect gross margin, and whether restructuring achieves expected cost savings.