Cohu, Inc. — Q2 2021 Form 10-Q Summary
Reporting period: Quarter and six months ended June 26, 2021 (13 and 26 weeks, respectively). Financial statements are unaudited. Cohu supplies semiconductor test and inspection equipment and related consumables and services.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $244.8 million | $144.1 million | $470.3 million | $283.0 million |
| Gross margin | 42.8% | 42.3% | 44.0% | 41.4% |
| Operating income (loss) | $114.5 million | $(0.5) million | $150.2 million | $(14.2) million |
| Net income (loss) | $95.1 million | $(4.7) million | $122.7 million | $(22.0) million |
| Diluted EPS | $1.92 | $(0.11) | $2.58 | $(0.53) |
Q2 sales rose 69.9% year over year; first-half sales rose 66.2%. Semiconductor Test & Inspection generated $231.1 million of Q2 sales versus $131.4 million a year earlier. PCB Test contributed $13.7 million before its sale. The reported operating profit and net income include the $75.8 million pretax gain on that sale; results therefore include a significant unusual item.
Gross margin improved year over year, supported by higher sales and product mix, although excess and obsolete inventory charges increased to $1.8 million in Q2 from $0.8 million. Q2 R&D was $23.4 million and SG&A was $32.8 million; both increased in dollars as pandemic-era cost controls were discontinued, but declined as a percentage of sales. First-half interest expense fell to $4.4 million from $7.9 million.
Cash flow, liquidity and debt
- First-half operating cash flow was $35.6 million, compared with $13.3 million in 2020. Working capital absorbed cash, including an $80.1 million increase in receivables and $25.6 million increase in inventory. Capital expenditures were $5.5 million.
- Cash and cash equivalents were $353.9 million and short-term investments were $80.2 million at June 26, totaling $434.1 million, up from $170.0 million at year-end 2020. Working capital was $505.3 million, up from $310.6 million.
- Total debt was $220.7 million before unamortized financing fees and discounts; its net carrying amount was $217.4 million. The balance sheet classified $102.5 million as current installments of long-term debt. Cohu prepaid $100 million of term debt in the first half and another $100 million on June 30, after quarter-end; following the latter payment, term-loan principal was approximately $104 million.
- In March, Cohu issued 5,692,500 shares at $41 per share, generating net proceeds of approximately $223.1 million. The offering increased outstanding shares by 13.4% relative to the pre-offering amount, according to the filing.
Material changes, outlook and risks
- On June 24, Cohu completed the sale of its PCB Test business for gross proceeds of $125.4 million, subject to closing adjustments. The sale generated a $75.8 million pretax gain; net cash proceeds reported in investing activities were $120.1 million. The buyer could submit working-capital adjustment claims within 60 days. PCB Test remains in reported continuing operations for the periods shown; following the sale, Cohu has one reportable segment.
- Management attributed stronger demand to automotive semiconductors and sensors, including xEV and ADAS, 5G and broader mobility expansion, and demand for devices used in data centers, PCs and other applications. It cited positive order momentum and customer traction with new products and expressed optimism about long-term market prospects. No quantitative revenue or earnings guidance is provided in the supplied filing text.
- Management expects available working capital to meet operating requirements for at least the next 12 months, while noting semiconductor equipment demand is cyclical and future revenues and cash flows are difficult to estimate.
- Risks highlighted include rising material, labor, supplier and logistics costs; supply-chain delays and COVID-related restrictions affecting manufacturing and suppliers, particularly in Malaysia and the Philippines; customer demand volatility; inventory valuation and product acceptance risks; foreign-exchange exposure; and floating-rate debt and uncertainty around the transition from LIBOR.
- Tax authorities were examining Cohu in Germany, Malaysia and the Philippines. Cohu stated that ordinary-course legal matters were not currently expected to have a material adverse effect. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much of reported earnings growth reflects operating performance versus the one-time PCB Test sale gain, and whether final purchase-price adjustments change the gain.
- Whether strong orders convert to shipments and cash collection, especially given the substantial first-half increases in receivables and inventory.
- The effects of supply constraints, cost inflation and manufacturing disruptions on future gross margins and delivery schedules.
- Debt balances and repayment classifications after the June 30 prepayment, and the potential impact of floating interest rates and LIBOR transition terms.
- Future capital allocation and dilution following the share offering, along with progress on the restructuring program and related costs.