Cohu, Inc. — Form 10-Q Summary
Business context and reporting period
Quarter ended June 27, 2015 (13 weeks); six-month results cover the period from December 28, 2014. Cohu supplies semiconductor test and inspection equipment, modules, contactors and thermal subsystems. Results are unaudited. Unless noted, operating results below are from continuing operations.
Cohu sold its mobile microwave communications business, Broadcast Microwave Services (BMS), on June 10, 2015, and had sold its video camera business in June 2014. Both are reported as discontinued operations.
Financial performance and position
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Continuing net sales | $75.2 million | $74.3 million | $138.7 million | $134.5 million |
| Gross margin | 34.2% | 32.7% | 33.1% | 32.9% |
| Operating income | $4.2 million | $2.9 million | $3.5 million | $0.1 million |
| Income (loss) from continuing operations | $3.9 million | $2.2 million | $2.2 million | $(0.5) million |
| Net income (loss), including discontinued operations | $(0.1) million | $4.2 million | $(2.8) million | $0.8 million |
| Diluted earnings (loss) per share | $0.00 | $0.16 | $(0.11) | $0.03 |
Cash and cash equivalents were $72.6 million and short-term investments $1.5 million at quarter-end, for combined cash and investments of $74.0 million. Working capital was $145.0 million. Total assets were $336.8 million and stockholders’ equity $239.2 million. The filing reports no borrowings outstanding; Ismeca had CHF 2.5 million of available credit with no amounts drawn. Cash, cash equivalents and short-term investments held by foreign subsidiaries totaled $56.8 million, which Cohu intended to keep invested abroad.
For the six months, operating cash flow was $3.8 million, investing cash flow $2.8 million and financing cash flow $(3.0) million. Cash increased by $1.7 million to $72.6 million. Investing cash flow included $5.3 million received from the BMS sale; capital expenditures were $2.2 million. Dividends paid were $3.1 million, or $0.12 per share.
Changes versus comparable periods
- Q2 continuing sales rose 1.2%; first-half sales rose 3.1%. Gross margin improved 1.5 percentage points in Q2 and 0.2 points for the first half.
- Operating income improved in both comparisons, supported by lower R&D spending and improved gross margin. First-half R&D declined to $16.3 million from $18.3 million, while SG&A was $26.1 million versus $25.9 million.
- Reported net results turned negative because discontinued operations included a BMS sale loss of $2.9 million in Q2 and $3.0 million for the first half. The prior-year periods included a $4.2 million Q2 and $4.1 million first-half gain on the Cohu Electronics sale.
- Foreign currency translation reduced equity by $5.5 million in the first half; accumulated other comprehensive loss increased to $16.4 million from $10.7 million at year-end.
Outlook, commentary, risks and unusual items
- Management said semiconductor back-end equipment orders fell 15% sequentially in Q2 and Cohu’s orders also declined. It characterized the slowdown as a possible pause while customers absorb capacity added in 2014, while noting customer caution related to uncertainty in Europe and China. Management remained positive on long-term demand and cited efforts to gain share and expand into test contactors and wafer-level package test.
- Cohu expected existing working capital to meet operating requirements for at least 12 months. The board approved a $0.06-per-share quarterly dividend payable October 23, 2015, subject to customary record-date conditions; future dividends remain at the board’s discretion.
- Key exposures include semiconductor-industry cyclicality and uncertain equipment demand, customer concentration (two customers represented 28% of sales in both current comparison periods versus three customers and 39% in 2014), competition, product acceptance and inventory-obsolescence risk, and the ongoing manufacturing transition to Asia. Currency fluctuations, particularly the Swiss franc, also affected results.
- Q2 SG&A included a $0.6 million foreign-currency loss, compared with a $0.1 million gain in the prior-year quarter. First-half inventory increased $5.7 million, reflecting purchases for orders expected to ship in later quarters. Deferred revenue was approximately $12.1 million and deferred profit $7.6 million at quarter-end, primarily related to shipment and customer-acceptance timing.
- The BMS sale price was $8.0 million, comprising $5.5 million cash and up to $2.5 million contingent consideration, subject to a working-capital adjustment. Cohu recorded a $0.2 million fair-value estimate of contingent consideration; final sale proceeds and the recorded loss could change.
- Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter. It did not expect pending legal matters to have a material adverse effect. The filing identifies no material change in contractual obligations.
Important facts for investors to verify
- Subsequent semiconductor equipment orders and customer demand, including whether the Q2 slowdown was temporary.
- Cash conversion, inventory levels and shipment/customer-acceptance timing, including realization of deferred revenue and profit.
- Final BMS working-capital adjustment and contingent consideration, and any further discontinued-operation effects.
- Effects of foreign exchange and the Asia manufacturing transition on margins, costs and delivery performance.
- Customer concentration, valuation allowances on deferred tax assets, and potential inventory, goodwill or intangible-asset impairment risks.