Cohu, Inc. (COHU) — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022 (53 weeks), compared with the 52-week fiscal year ended December 25, 2021. Although the request references 2022 Q4, this filing reports annual results; it does not provide clear standalone fourth-quarter financial results in the supplied text.
Business context
Cohu supplies semiconductor test, automation, inspection and metrology equipment and related services. It reports one segment, Semiconductor Test & Inspection. Capital-equipment sales are cyclical; recurring revenue includes interface products, spares, kits, software and services. The PCB Test business was sold in June 2021, so 2021 comparisons include its results through the sale date. Cohu acquired MCT Worldwide for $28.0 million on January 30, 2023, after year-end; the acquisition is not included in 2022 results.
Key financial metrics
| Metric | 2022 | 2021 |
|---|---|---|
| Net sales | $812.8 million | $887.2 million |
| Gross margin | 47.2% | 43.6% |
| Income from operations | $125.6 million | $201.5 million |
| Net income | $96.8 million | $167.3 million |
| Diluted earnings per share | $1.98 | $3.45 |
| Cash provided by operating activities | $112.9 million | $97.9 million |
| Capital expenditures | $14.8 million | $12.0 million |
| Cash, cash equivalents and short-term investments at year-end | $385.6 million | $379.9 million |
| Working capital at year-end | $604.0 million | $558.3 million |
| Total debt at year-end, before discounts and current portion | $79.7 million | $119.3 million |
2022 operating income was 15.4% of sales. Operating cash flow less capital expenditures was approximately $98.1 million. The company reported $242.3 million of cash and $143.2 million of short-term investments at year-end. Its principal term loan had approximately $67.0 million of principal outstanding, bore interest at 6.37% at year-end and matures in October 2025. The filing states that available liquidity is expected to meet anticipated requirements for at least the next 12 months.
Changes versus the prior year
- Sales declined 8.4%, reflecting lower mobility and 5G-related demand and the absence of PCB Test sales after its 2021 divestiture. PCB Test contributed $26.8 million of 2021 sales.
- Gross margin improved 3.6 percentage points, which management attributed to favorable product mix, increased insourcing of contactor manufacturing and foreign-currency movements. Specialty-semiconductor supply constraints nevertheless adversely affected gross margin during 2022.
- Net income fell by $70.5 million. Comparability is affected by the $70.8 million pre-tax gain on the PCB Test sale recorded in 2021.
- Operating cash flow rose to $112.9 million. Cash and short-term investments increased slightly, while total debt declined by about $39.6 million; Cohu prepaid $31.8 million of term-loan principal.
- Recurring revenue increased to 42% of sales from 37%; product systems (including kits sold with systems) represented 58%, versus 61%.
- Backlog declined to $279.8 million at year-end from $292.9 million. Orders may be canceled or rescheduled, so backlog is not assured future revenue.
Outlook, risks and unusual items
- No specific numerical revenue or earnings guidance is provided in the supplied filing text. Management said demand weakened in 2022 and that slowing customer demand continued into 2023; it also cited high customer test-cell utilization and expressed optimism about longer-term semiconductor market drivers and customer traction with new products.
- Management expected inflationary cost pressures—including materials, labor and distribution—to continue in 2023. Supply constraints for specialty semiconductors had eased entering 2023 but could recur.
- Key risks include semiconductor-industry cyclicality, product-mix volatility, intense competition, dependence on a limited number of customers and suppliers, and reliance on sole-source contract manufacturer Jabil for most semiconductor test systems. The ten largest customers accounted for 56% of 2022 revenue; 90% of revenue was from products shipped outside the United States.
- Additional exposures include U.S.-China export controls, geopolitical risks in Asia and Europe, foreign-exchange movements, cybersecurity threats, and floating-rate borrowing. Management also cites potential inventory obsolescence and impairment risk; 2022 excess-and-obsolete inventory charges were approximately $7.2 million.
- The dividend has been suspended indefinitely since May 2020. Cohu repurchased 1,767,070 shares for $50.7 million in 2022; $82.0 million remained available under its repurchase program at year-end.
- Tax matters include an $89.2 million valuation allowance against deferred tax assets and $33.4 million of unrecognized tax benefits. The requirement to capitalize and amortize research and development costs under U.S. tax law increased the 2022 effective tax rate and cash taxes.
- The filing reports no legal proceedings believed likely to have a material adverse effect. The auditor issued an unqualified opinion on the financial statements and internal controls; inventory valuation was identified as a critical audit matter.
Important facts for investors to verify
- How demand, bookings and backlog developed after year-end, particularly for mobility, 5G and semiconductor test products.
- Whether gross-margin improvement is sustainable given product mix, supply costs and potential recurrence of component constraints.
- The basis and sensitivity of inventory reserves, given $170.1 million of year-end inventory and the auditor’s focus on inventory valuation.
- Debt repayment and interest-rate exposure, including the term loan’s October 2025 maturity and transition away from LIBOR.
- The integration, working-capital adjustment and financial contribution of the post-year-end MCT acquisition.
- Developments in export restrictions, customer concentration, tax examinations and deferred-tax-asset realizability.