Cohu, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 26, 2020 (52 weeks). The filing includes fourth-quarter results; it is an annual report, not a standalone Q4 filing. Unless noted, financial results are from continuing operations. Cohu supplies semiconductor test and inspection equipment, interface products and PCB test systems.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales | $636.0 million | $583.3 million |
| Gross margin | 42.7% | 39.4% |
| Operating income (loss) | $3.3 million | $(52.3) million |
| Net loss | $(13.8) million | $(69.7) million |
| Diluted loss per share | $(0.33) | $(1.69) |
| Cash from operating activities | $49.7 million | $17.3 million |
| Capital expenditures | $18.7 million | $18.0 million |
- FY2020 sales rose 9.0%. Semiconductor Test & Inspection contributed $585.2 million; PCB Test contributed $50.8 million.
- SG&A fell to $129.2 million from $142.9 million, while R&D was essentially flat at $86.2 million. Cost controls, including temporary salary reductions and reduced travel, helped contain expenses.
- FY2020 included $11.2 million of IPR&D impairment charges, $7.6 million of restructuring charges, and a $4.5 million gain on facility sales. Acquisition-related intangible amortization was $38.7 million.
- Cash, cash equivalents and short-term investments totaled $170.0 million at year-end; working capital was $310.6 million. Total debt was $319.9 million net of discount and financing costs (reported principal debt was $325.5 million). The Term Loan B principal was $306.6 million, due October 2025.
- Cohu repaid $36.4 million of Term Loan B principal during the second half of 2020. It suspended its quarterly dividend indefinitely beginning May 2020, citing cash management and deleveraging; the suspension was expected to save about $10 million annually.
Material changes and business trends
- Sales were pressured in the first half of 2020 by COVID-19-related operating and supply disruptions and weakness in automotive demand. Demand strengthened in the second half, with FY2020 fourth-quarter sales reaching $202.4 million, versus $142.0 million in Q4 2019.
- Management attributed the second-half recovery to demand tied to mobility, data centers and PCs; the ramp of its RedDragon RF module for 5G, Wi-Fi 6 and Ultra-Wideband testing; new Neon inspection customers; improved automotive and industrial demand; and near-record PCB test orders.
- Backlog increased to $259.5 million at year-end from $160.4 million a year earlier. The filing cautions that orders may be cancelled or rescheduled and backlog is not necessarily predictive of future sales.
- International shipments represented 83% of FY2020 revenue. No single customer exceeded 10% of sales in 2020, but the ten largest customers together represented 47%.
Outlook, risks and unusual items
- Management reported positive order momentum and customer traction with new products entering 2021, and expressed optimism about long-term drivers including 5G, semiconductor complexity and increased testing requirements. The filing provides no specific revenue, earnings or margin guidance.
- Key risks include pandemic-related disruption, volatile semiconductor capital spending, supply constraints and dependence on Asian manufacturing, intense competition, customer concentration, and rapid product transitions that can create inventory obsolescence.
- Debt adds liquidity and flexibility risk: the credit agreement includes restrictive covenants, and the Term Loan B carries a floating rate tied to LIBOR. The filing notes uncertainty over the transition from LIBOR after 2021.
- U.S.-China export restrictions had adversely affected direct and indirect Huawei sales. Management said it had not seen an overall material business impact at that time, while warning that further restrictions or tariffs could harm competitiveness and results.
- COVID-19-related delays in customer adoption and roadmap changes contributed to the $11.2 million IPR&D impairment. Management reported no goodwill impairment in its 2020 tests, but further impairment charges remain possible.
- The company stated that existing liquidity should cover anticipated cash requirements for at least 12 months. This outlook is subject to demand, pandemic impacts, debt reduction plans and access to financing.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls and internal controls were effective at year-end.
Important facts for investors to verify
- Whether the sharp Q4 sales and backlog increases translated into sustained shipments, collections and profitability after year-end.
- Debt principal, interest-rate exposure, covenant headroom and the pace of subsequent deleveraging.
- Whether gross-margin improvement persists as product mix, factory utilization, component availability and inventory reserves change.
- Customer concentration, export restrictions and the extent of exposure to Asia-based customers and suppliers.
- Progress and commercial adoption of new products, particularly RedDragon and Neon, and the remaining risk of IPR&D or goodwill impairment.
- Developments in tax audits and the $33.7 million of unrecognized tax benefits; the timing or amount of any cash settlement was not reliably estimable.