Cohu, Inc. (COHU) — Q2 2022 Form 10-Q
Reporting period: 13 weeks ended June 25, 2022; six-month year-to-date period was 26 weeks. Amounts below are in millions of dollars except per-share data.
Business context and key results
Cohu supplies semiconductor test and inspection equipment, consumables and related services. Its capital-equipment demand is tied to customers’ semiconductor investment cycles; consumables provide a comparatively recurring revenue stream. The company reported one segment, Semiconductor Test & Inspection, following its June 2021 sale of the PCB Test business.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $217.2 | $244.8 | $415.0 | $470.3 |
| Gross margin | 46.5% | 42.8% | 46.3% | 44.0% |
| Operating income | $36.9 | $114.5 | $64.6 | $150.2 |
| Net income | $28.8 | $95.1 | $50.3 | $122.7 |
| Diluted EPS | $0.59 | $1.92 | $1.02 | $2.58 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $45.8 | $35.7 |
Financial condition and liquidity
- Q2 sales declined 11.3% year over year, while management reported a 9.8% sequential increase. First-half sales fell 11.8% year over year.
- Gross margin improved year over year, which management attributed to favorable product mix, greater insourcing of contactor manufacturing and price increases that offset supply-chain cost increases.
- Six-month operating cash flow was $45.8, compared with $35.7 in the prior-year period. Capital expenditures were $5.7. Cash and cash equivalents were $280.6 at quarter-end; short-term investments were $87.5. Working capital was $573.0.
- Total debt was $92.6 before financing fees and current-portion classification; reported debt net of discount and financing costs was $91.6. Cohu prepaid $22.0 of term-loan principal during the first half. The term loan matures in October 2025 and had a 3.5% interest rate at June 25, 2022.
- Cash and short-term investments totaled $368.1, exceeding reported debt net of financing costs. Cash declined $9.6 from year-end, reflecting debt repayments and share repurchases, among other items.
Material changes and unusual items
- Prior-year operating income and net income included a $75.8 gain from the PCB Test business sale. The divestiture also contributed $13.7 of Q2 2021 sales and $26.8 of first-half 2021 sales; this makes year-over-year comparisons less comparable.
- Excluding that divestiture gain, Q2 2021 operating income was approximately $38.7, versus $36.9 in Q2 2022. The filing does not present this as a reported non-GAAP measure.
- First-half 2022 foreign-currency translation adjustments reduced other comprehensive income by $21.4. The company also recorded a $2.6 foreign-transaction gain in earnings for the period.
- The effective tax rate was 23.6% for Q2 and 23.2% for the first half, compared with 15.7% and 14.8% in the corresponding 2021 periods. Management cited tax-rule effects, partly offset by valuation-allowance releases and stock-compensation tax benefits.
- Cohu repurchased 717,808 shares for $20.4 during the first half; $42.3 remained under its $70 million authorization at quarter-end.
Outlook, management commentary and risks
- No specific quarterly or full-year revenue or earnings guidance is provided. Management said current working capital should fund operating requirements for at least the next 12 months.
- Management described semiconductor test demand and customer utilization as robust and expressed optimism about long-term drivers, including semiconductor complexity, 5G, automotive and industrial electronics, and customer adoption of new products. It also cited lower mobility- and 5G-related demand as a factor in the year-over-year sales decline.
- Risks highlighted include semiconductor-equipment cyclicality; inflation and rising interest rates; shortages and higher costs for specialty semiconductors, materials, labor and freight; and geopolitical disruption related to Russia’s invasion of Ukraine, sanctions, energy availability and China-related trade uncertainty.
- The term loan has floating-rate exposure and is tied to LIBOR; the filing notes uncertainty around the transition to replacement reference rates. Foreign-exchange movements can affect earnings and equity. Tax authorities were examining the company in Germany, the Philippines and Malaysia.
- Management reported no material changes to previously disclosed risk factors beyond the updates described in the filing. It stated that no events or conditions indicated impairment of goodwill or other intangible assets during the first half.
Important facts for investors to verify
- Whether mobility and 5G-related demand weakness persists, and how semiconductor-equipment demand and customer spending evolve.
- Whether margin gains from product mix, insourcing and pricing can continue to offset input-cost inflation and supply constraints.
- Cash conversion and working-capital needs, especially receivables, inventory and customer advances.
- Floating-rate debt exposure, LIBOR transition terms, scheduled repayments and the pace of further voluntary prepayments.
- Tax examination outcomes and the sustainability of the higher effective tax rate.
- The effects of currency movements and the timing and price of remaining share repurchases.