Business Context and Reporting Period
Cohu, Inc. filed this Form 8-K on June 10, 2015, to report the completion of the sale of its wholly owned subsidiary, Broadcast Microwave Services, Inc. (BMS). BMS develops and sells mobile microwave communications equipment to government and commercial entities. The transaction was executed with an affiliate of StoneCalibre, LLC.
Key Financial Metrics
- Sale Price: Total consideration of $8.0 million, consisting of $5.5 million in cash at closing and up to $2.5 million in contingent earn-out payments based on BMS revenues through December 2017.
- Estimated Loss on Sale: Approximately $3.0 million, subject to net working capital adjustments and final valuation of contingent consideration.
- Forecasted Q2 2015 GAAP Gross Margin: 34%.
- Forecasted Q2 2015 Non-GAAP Gross Margin: 36% (adjusted for intangible amortization).
- Forecasted Q2 2015 GAAP Operating Expense: $21.1 million.
- Forecasted Q2 2015 Non-GAAP Operating Expense: $19.0 million (adjusted for share-based compensation, intangible amortization, and transition/severance costs).
Material Changes
The primary material change is the divestiture of the BMS business unit. Consequently, Cohu has updated its second-quarter 2015 guidance to exclude BMS results. The filing includes unaudited pro forma financial statements illustrating the effects of the sale as if it occurred on January 1, 2012, and March 28, 2015. The transaction resulted in an estimated $3.0 million loss recognized in the second quarter of 2015.
Guidance, Outlook, and Risks
Management provided updated Q2 2015 guidance excluding BMS, utilizing non-GAAP measures to assist investors in evaluating operational trends. The filing notes that the final purchase price is subject to net working capital adjustments and the final valuation of the earn-out, which may adjust the recognized loss. Additionally, BMS entered into a twelve-month lease with Cohu to continue operations at its current Poway, California location. The filing explicitly states that pro forma financial statements are for informational purposes only and are not indicative of future results.
Investor Verification Checklist
- Verify the final net working capital adjustment and its impact on the estimated $3.0 million loss on sale.
- Monitor the performance of BMS against revenue targets to determine the payout of the $2.5 million contingent earn-out.
- Review the unaudited pro forma financial statements (Exhibit 99.1) to understand the historical impact of the divestiture.
- Confirm the reconciliation between GAAP and non-GAAP operating expenses and gross margins for Q2 2015.