Cohu, Inc. — Form 10-Q Summary
Reporting period: Third quarter and first nine months of fiscal 2022 ended September 24, 2022. The quarter and year-to-date periods covered 13 and 39 weeks, respectively. Financial statements are unaudited; dollar figures below are in millions unless noted.
Business context
Cohu supplies semiconductor test and inspection automation systems, test equipment, contactors and related products and services. Capital-equipment sales depend on customers’ semiconductor demand and capital spending; consumables provide a more recurring revenue stream. Following the June 2021 sale of its PCB Test business, Cohu reports one segment: Semiconductor Test & Inspection.
Financial performance
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Net sales | $206.7 | $225.1 | $621.7 | $695.4 |
| Gross margin | 47.4% | 42.5% | 46.7% | 43.5% |
| Income from operations | $33.7 | $33.7 | $98.3 | $184.0 |
| Net income | $24.9 | $23.7 | $75.2 | $146.4 |
| Diluted EPS | $0.51 | $0.48 | $1.53 | $3.04 |
Gross margin improved year over year, which management attributed to favorable product mix, increased in-house contactor manufacturing and currency effects. Q3 R&D was $23.4 million and SG&A was $32.8 million; both increased as a share of sales from the prior-year quarter. Nine-month operating income and net income were substantially lower year over year, principally because 2021 included a $75.8 million gain on the PCB Test sale.
Cash flow, liquidity and debt
- Operating cash flow for the first nine months was $85.3 million, compared with $70.1 million a year earlier. Capital expenditures were $10.7 million.
- Investing cash flow was a use of $58.3 million, mainly reflecting net purchases of short-term investments. Financing cash flow was a use of $78.7 million, including $36.9 million of debt repayments and $38.1 million of share repurchases.
- Cash and cash equivalents were $232.4 million and short-term investments were $137.0 million at September 24, 2022, totaling $369.4 million. Working capital was $578.6 million. Cash and investments were down $10.5 million from December 25, 2021.
- Total debt was approximately $79.0 million, versus $119.3 million at year-end 2021. The term loan principal remaining was approximately $67.8 million; the facility matures October 2025 and had a 6.4% interest rate at quarter-end. Cohu prepaid $31.8 million of term-loan principal during the first nine months.
- Cohu repurchased 1.36 million shares for $38.1 million in the first nine months. The board authorized an additional $70 million for repurchases on October 25, 2022, after quarter-end.
Changes, outlook and risks
- Q3 sales fell 8.2% year over year and 4.8% sequentially. Management cited weaker mobility and 5G-related demand, while noting high customer test-cell utilization and robust demand for semiconductor test equipment.
- Nine-month sales declined 10.6%; the comparison also reflects the PCB Test business’s $26.8 million of 2021 sales before its June 2021 divestiture. Semiconductor Test & Inspection systems revenue was $370.0 million for 9M 2022 versus $433.8 million; non-systems revenue rose to $251.7 million from $234.8 million.
- Management said it remained encouraged by demand across its main markets and customer traction with new products, and cited long-term drivers including semiconductor complexity, test intensity, 5G and electronics growth. The filing gives no numerical revenue or earnings guidance.
- Inventory-related charges were $2.7 million in Q3 and $5.2 million for 9M 2022, versus $0.5 million and $3.0 million in the comparable 2021 periods. Management cautioned that lower customer forecasts or product issues could require further charges.
- Risks highlighted include cyclical customer capital spending; inflation, labor, freight and component costs and shortages; rising interest rates and the LIBOR transition; foreign-currency exposure; Russia-Ukraine-related supply and energy disruption; and new U.S. export controls announced October 7, 2022 that may affect China-related sales. The impact of the export controls was still being evaluated.
- The effective tax rate was 29.1% for Q3 and 25.2% for 9M 2022, compared with 23.7% and 16.4%. Cohu cited tax-rule changes, including foreign tax-credit limits and capitalization of research and software costs, partly offset by valuation-allowance releases and stock-compensation tax benefits.
- Foreign-currency translation and other items produced a $45.1 million comprehensive loss component for 9M, principally from currency translation. Cohu said it expected working capital to meet operating needs for at least 12 months. It reported no material changes in risk factors other than updates described in the filing, and management considered disclosure controls effective.
Important facts for investors to verify
- Whether weaker mobility and 5G demand persists, and how customer capital-spending trends affect equipment sales.
- The actual effect of the October 2022 U.S. export controls on shipments to China and customers’ semiconductor operations in the region.
- Whether elevated inventory and the increase in inventory charges lead to further write-downs or margin pressure.
- How rising rates affect interest expense on the floating-rate term loan and the transition from LIBOR to a replacement benchmark.
- The pace and price of future share repurchases, including the additional authorization announced after quarter-end, relative to debt repayment and liquidity needs.
- Customer concentration and geographic exposure: one customer represented 13% of Q3 sales; China shipments were $31.5 million in Q3 versus $60.2 million a year earlier.
- The filing identifies $7.3 million of remaining performance obligations for contracts with original durations over one year; it does not disclose obligations for shorter-duration contracts.