GAAP Results (1)

(in millions, except per share amounts)

Q3 FY

2020

Q2 FY

2020

Q3 FY

2019

9 Months

2020

9 Months

2019

Net sales

$

150.6

$

144.1

$

143.5

$

433.7

$

441.3

Loss

$

(6.6

)

$

(4.7

)

$

(10.5

)

$

(28.7

)

$

(52.7

)

Loss per share

$

(0.16

)

$

(0.11

)

$

(0.25

)

$

(0.69

)

$

(1.28

)

Non-GAAP Results (1)

(in millions, except per share amounts)

Q3 FY

2020

Q2 FY

2020

Q3 FY

2019

9 Months

2020

9 Months

2019

Income

$

11.6

$

7.1

$

4.9

$

18.9

$

4.3

Income per share

$

0.27

$

0.17

$

0.12

$

0.44

$

0.10

(1) All amounts presented are from continuing operations.

COHU, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share amounts)

Three Months Ended (1)

Nine Months Ended (1)

September 26,

September 28,

September 26,

September 28,

2020

2019

2020

2019

Net sales

$

150,647

$

143,498

$

433,652

$

441,318

Cost and expenses:

Cost of sales (excluding amortization)

87,147

84,565

253,111

265,564

Research and development

20,497

20,483

63,389

65,324

Selling, general and administrative (2)

31,336

33,690

95,664

108,404

Amortization of purchased intangible assets

9,783

9,969

28,848

29,975

Restructuring charges

412

814

1,400

10,720

Impairment charges (3)

7,300

-

11,249

-

Gain on sale of facilities (4)

(4,468

)

-

(4,495

)

-

152,007

149,521

449,166

479,987

Loss from operations

(1,360

)

(6,023

)

(15,514

)

(38,669

)

Other (expense) income:

Interest expense

(3,021

)

(5,000

)

(10,904

)

(15,789

)

Gain on extinguishment of debt (5)

293

-

293

-

Interest income

42

190

210

603

Foreign transaction gain (loss)

(1,484

)

1,630

(2,528

)

1,302

Loss from continuing operations before taxes

(5,530

)

(9,203

)

(28,443

)

(52,553

)

Income tax provision

1,116

1,277

261

161

Loss from continuing operations

(6,646

)

(10,480

)

(28,704

)

(52,714

)

Discontinued operations: (6)

Income from discontinued operations before taxes

-

173

46

400

Income tax provision

-

19

4

58

Income from discontinued operations

-

154

42

342

Net loss

(6,646

)

(10,326

)

$

(28,662

)

$

(52,372

)

Net income (loss) attributable to noncontrolling interest

-

142

-

62

Net loss attributable to Cohu

$

(6,646

)

$

(10,468

)

$

(28,662

)

$

(52,434

)

Loss per share:

Basic:

Loss from continuing operations before noncontrolling interest

$

(0.16

)

$

(0.25

)

$

(0.69

)

$

(1.28

)

Income from discontinued operations

-

0.00

0.00

0.00

Net income (loss) attributable to noncontrolling interest

-

(0.00

)

-

(0.00

)

Net loss attributable to Cohu

$

(0.16

)

$

(0.25

)

$

(0.69

)

$

(1.28

)

Diluted:

Loss from continuing operations before noncontrolling interest

$

(0.16

)

$

(0.25

)

$

(0.69

)

$

(1.28

)

Income from discontinued operations

-

0.00

0.00

0.00

Net income (loss) attributable to noncontrolling interest

-

(0.00

)

-

(0.00

)

Net loss attributable to Cohu

$

(0.16

)

$

(0.25

)

$

(0.69

)

$

(1.28

)

Weighted average shares used in (7)

computing loss per share:

Basic

41,947

41,229

41,764

41,075

Diluted

41,947

41,229

41,764

41,075

(1)

The three- and nine-month periods ended September 26, 2020 and September 28, 2019 were both comprised of 13 weeks and 39 weeks, respectively.

(2)

For the nine-month period ended September 28, 2019 Xcerra transaction costs were $0.4 million. No transaction costs were incurred during the three-month period ended September 28, 2019 or during 2020.

(3)

Included in our results for the three- and nine-month period ended September 26, 2020 is impairment charges recorded in the third and first quarter to write certain of our in-process research and development assets (“IPR&D”) obtained as part of our acquisition of Xcerra down to current estimated fair values.

(4)

During the third quarter of 2020 we completed the sale of our facility in Rosenheim, Germany which generated a gain of $4.5 million. In the second quarter of 2020 we completed the sale of our facility in Penang, Malaysia which generated a gain of $27,000. The gain related to the sale of the Penang facility was previously included in SG&A and has been reclassified to gain on sale of facility for the nine months ended September 26, 2020. Both facilities were sold as part of the previously announced Xcerra integration program.

(5)

In August 2020 we repurchased and retired $16.4 million of our outstanding Term Loan B which resulted in a gain from the extinguishment of debt.

(6)

On October 1, 2018, the Company made the decision to sell the fixtures business acquired from Xcerra, and, as a result, the operating results of this business have been presented as discontinued operations. In February 2020, we completed the sale of this business.

(7)

For the three- and nine-month periods ended September 26, 2020 and September 28, 2019, potentially dilutive securities were excluded from the per share computations due to their antidilutive effect. The Company has utilized the "control number" concept in the computation of diluted earnings per share to determine whether a potential common stock instrument is dilutive. The control number used is income from continuing operations. The control number concept requires that the same number of potentially dilutive securities applied in computing diluted earnings per share from continuing operations be applied to all other categories of income or loss, regardless of their anti-dilutive effect on such categories.

COHU, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands)

September 26,

December 28,

2020

2019

Assets:

Current assets:

Cash and investments

$

170,875

$

156,098

Accounts receivable

116,805

127,921

Inventories

137,879

130,706

Other current assets

19,259

21,468

Current assets of discontinued operations (1)

-

3,503

Total current assets

444,818

439,696

Property, plant & equipment, net

64,546

70,912

Goodwill

244,341

238,669

Intangible assets, net

238,832

275,019

Operating lease right of use assets

30,099

33,269

Other assets

23,717

20,030

Noncurrent assets of discontinued operations (1)

-

115

Total assets

$

1,046,353

$

1,077,710

Liabilities & Stockholders’ Equity:

Current liabilities:

Short-term borrowings

$

5,209

$

3,195

Current installments of long-term debt

2,990

3,322

Deferred profit

11,859

7,645

Other current liabilities

126,845

134,124

Current liabilities of discontinued operations (1)

-

599

Total current liabilities

146,903

148,885

Long-term debt

331,469

346,518

Non-current operating lease liabilities

26,532

28,877

Other noncurrent liabilities

66,840

70,334

Noncurrent liabilities of discontinued operations (1)

-

24

Cohu stockholders’ equity

474,609

483,072

Total liabilities & stockholders’ equity

$

1,046,353

$

1,077,710

(1)

On October 1, 2018, the Company made the decision to sell the fixtures business acquired from Xcerra, and, as a result, the fixtures business has been presented as discontinued operations since that date. The sale of this business was completed in February 2020.

COHU, INC.

Supplemental Reconciliation of GAAP Results to Non-GAAP Financial Measures (Unaudited)

(in thousands, except per share amounts)

Three Months Ended

September 26,

June 27,

September 28,

2020

2020

2019

Loss from operations - GAAP basis (a)

$

(1,360

)

$

(528

)

$

(6,023

)

Non-GAAP adjustments:

Share-based compensation included in (b):

Cost of sales (COS)

218

211

212

Research and development (R&D)

782

828

820

Selling, general and administrative (SG&A)

2,299

2,364

2,474

3,299

3,403

3,506

Amortization of purchased intangible assets (c)

9,783

9,527

9,969

Restructuring charges related to inventory adjustments in COS (d)

2,606

72

1,114

Restructuring charges (d)

412

585

814

Manufacturing and sales transition costs included in (e):

COS

-

-

416

SG&A

179

76

152

179

76

568

Impairment charges (f)

7,300

-

-

Gain on sale of facility (g)

(4,468

)

(27

)

-

PP&E step-up included in SG&A (h)

243

243

1,257

Income from operations - non-GAAP basis (i)

$

17,994

$

13,351

$

11,205

Loss from continuing operations - GAAP basis

$

(6,646

)

$

(4,740

)

$

(10,480

)

Non-GAAP adjustments (as scheduled above)

19,354

13,879

17,228

Tax effect of non-GAAP adjustments (j)

(1,080

)

(2,011

)

(1,836

)

Income from continuing operations - non-GAAP basis

$

11,628

$

7,128

$

4,912

GAAP loss from continuing operations per share - diluted

$

(0.16

)

$

(0.11

)

$

(0.25

)

Non-GAAP income from continuing operations per share - diluted (k)

$

0.27

$

0.17

$

0.12

Management believes the presentation of these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provides meaningful supplemental information regarding the Company's operating performance. Our management uses these non-GAAP financial measures in assessing the Company's operating results, as well as when planning, forecasting and analyzing future periods and these non-GAAP measures allow investors to evaluate the Company’s financial performance using some of the same measures as management. Management views share-based compensation as an expense that is unrelated to the Company’s operational performance as it does not require cash payments and can vary in amount from period to period and the elimination of amortization and impairment charges provides better comparability of pre- and post-acquisition operating results and to results of businesses utilizing internally developed intangible assets. Management initiated certain restructuring activities including employee headcount reductions and other organizational changes to align our business strategies in light of the merger with Xcerra. Restructuring costs have been excluded because such expense is not used by Management to assess the core profitability of Cohu’s business operations. Manufacturing and sales transition costs relate principally to expenses incurred as a result of moving certain manufacturing activities to Asia and incremental costs incurred related to the buildup of a direct sales force for certain equipment sales in Asia. Employee severance are costs incurred in conjunction with the termination of certain employees to streamline our operations and reduce costs. Management has excluded these costs primarily because they are not reflective of the ongoing operating results and they are not used to assess ongoing operational performance. Impairment charges and gain on sale of facility have been excluded as these amounts are infrequent and are unrelated to the operational performance of Cohu. Adjustments for inventory and PP&E step-up costs have been excluded by management as they are unrelated to the core operating activities of the Company and the frequency and variability in the nature of the charges can vary significantly from period to period. Excluding this data provides investors with a basis to compare Cohu’s performance against the performance of other companies without this variability. However, the non-GAAP financial measures should not be regarded as a replacement for (or superior to) corresponding, similarly captioned, GAAP measures. The presentation of non-GAAP financial measures above may not be comparable to similarly titled measures reported by other companies and investors should be careful when comparing our non-GAAP financial measures to those of other companies.

(0.9)%, (0.4)% and (4.2)% of net sales, respectively.

(b)

To eliminate compensation expense for employee stock options, stock units and our employee stock purchase plan.

(c)

To eliminate the amortization of acquired intangible assets.

(d)

To eliminate restructuring costs incurred related to the integration of Xcerra.

(e)

To eliminate manufacturing and sales transition and severance costs.

(f)

To eliminate impairment charges recorded to adjust IPR&D assets obtained in the acquisition of Xcerra to current fair value.

(g)

To eliminate the gains generated by the sale of the Company’s facilities in Rosenheim, Germany in the third quarter and Penang, Malaysia in the second quarter, sold as part of the previously announced Xcerra integration and restructuring program.

(h)

To eliminate the accelerated depreciation from the property, plant & equipment step-up related to the acquisition of Xcerra.

(i)

11.9%, 9.3% and 7.8% of net sales, respectively.

(j)

To adjust the provision for income taxes related to the adjustments described above based on applicable tax rates.

(k)

The three months ended September 26, 2020, June 27, 2020 and September 28, 2019 were computed using 42,659, 42,283 and 41,587 shares outstanding, respectively, as the effect of dilutive securities was excluded from GAAP diluted common shares due to the reported net loss under GAAP, but are included for non-GAAP diluted common shares since the Company has non-GAAP net income.

COHU, INC.

Supplemental Reconciliation of GAAP Results to Non-GAAP Financial Measures (Unaudited)

(in thousands, except per share amounts)

Nine Months Ended

September 26,

September 28,

2020

2019

Loss from operations - GAAP basis (a)

$

(15,514

)

$

(38,669

)

Non-GAAP adjustments:

Share-based compensation included in (b):

Cost of sales (COS)

641

545

Research and development (R&D)

2,443

2,234

Selling, general and administrative (SG&A)

7,229

8,082

10,313

10,861

Amortization of purchased intangible assets (c)

28,848

29,975

Restructuring charges related to inventory adjustments in COS (d)

4,281

321

Restructuring charges (d)

1,400

10,720

Manufacturing and sales transition costs included in (e):

COS

-

1,211

SG&A

318

1,266

318

2,477

Impairment charges (f)

11,249

-

Acquisition costs included in SG&A (g)

-

404

Gain on sale of facility (h)

(4,495

)

-

Inventory step-up included in COS (i)

-

6,038

PP&E step-up included in SG&A (j)

729

3,771

Income from operations - non-GAAP basis (k)

$

37,129

$

25,898

Income (loss) from continuing operations - GAAP basis

$

(28,704

)

$

(52,714

)

Non-GAAP adjustments (as scheduled above)

52,643

64,567

Tax effect of non-GAAP adjustments (l)

(5,051

)

(7,542

)

Income from continuing operations - non-GAAP basis

$

18,888

$

4,311

GAAP loss per share from continuing operations - diluted

$

(0.69

)

$

(1.28

)

Non-GAAP income per share - diluted (m)

$

0.44

$

0.10

Management believes the presentation of these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provides meaningful supplemental information regarding the Company's operating performance. Our management uses these non-GAAP financial measures in assessing the Company's operating results, as well as when planning, forecasting and analyzing future periods and these non-GAAP measures allow investors to evaluate the Company’s financial performance using some of the same measures as management. Management views share-based compensation as an expense that is unrelated to the Company’s operational performance as it does not require cash payments and can vary in amount from period to period and the elimination of amortization charges provides better comparability of pre- and post-acquisition operating results and to results of businesses utilizing internally developed intangible assets. Management initiated certain restructuring activities including employee headcount reductions and other organizational changes to align our business strategies in light of the merger with Xcerra. Restructuring costs have been excluded because such expense is not used by Management to assess the core profitability of Cohu’s business operations. Manufacturing and sales transition costs relate principally to expenses incurred as a result of moving certain manufacturing activities to Asia and incremental costs incurred related to the buildup of a direct sales force for certain equipment sales in Asia. Employee severance are costs incurred in conjunction with the termination of certain employees to streamline our operations and reduce costs. Management has excluded these costs primarily because they are not reflective of the ongoing operating results and they are not used to assess ongoing operational performance. Impairment charges and gain on sale of facility have been excluded as these amounts are infrequent and are unrelated to the operational performance of Cohu. Acquisition costs, fair value adjustment to contingent consideration and adjustments for inventory and PP&E step-up costs have been excluded by management as they are unrelated to the core operating activities of the Company and the frequency and variability in the nature of the charges can vary significantly from period to period. Excluding this data provides investors with a basis to compare Cohu’s performance against the performance of other companies without this variability. However, the non-GAAP financial measures should not be regarded as a replacement for (or superior to) corresponding, similarly captioned, GAAP measures. The presentation of non-GAAP financial measures above may not be comparable to similarly titled measures reported by other companies and investors should be careful when comparing our non-GAAP financial measures to those of other companies.

(a)

(3.6)% and (8.8)% of net sales, respectively.

(b)

To eliminate compensation expense for employee stock options, stock units and our employee stock purchase plan.

(c)

To eliminate the amortization of acquired intangible assets.

(d)

To eliminate restructuring costs incurred related to the integration of Xcerra.

(e)

To eliminate manufacturing and sales transition and severance costs.

(f)

To eliminate impairment charges recorded to adjust IPR&D assets obtained in the acquisition of Xcerra to current fair value.

(g)

To eliminate professional fees and other direct incremental expenses incurred related to the acquisition of Xcerra.

(h)

To eliminate the gains generated by the sale of the Company’s facilities in Rosenheim, Germany in the third quarter and Penang, Malaysia in the second quarter, sold as part of the previously announced Xcerra integration and restructuring program.

(i)

To eliminate the inventory step-up costs incurred related to the acquisition of Xcerra.

(j)

To eliminate the property, plant & equipment step-up depreciation accelerated related to the acquisition of Xcerra.

(k)

8.6% and 5.9% of net sales, respectively.

(l)

To adjust the provision for income taxes related to the adjustments described above based on applicable tax rates.

(m)

The nine months ended September 26, 2020 and September 28, 2019 were computed using 42,457 and 41,527 shares outstanding, respectively, as the effect of dilutive securities was excluded from GAAP diluted common shares due to the reported net loss under GAAP, but are included for non-GAAP diluted common shares since the Company has non-GAAP net income. All other periods were calculated utilizing the GAAP diluted shares outstanding.

COHU, INC.

Supplemental Reconciliation of GAAP Results to Non-GAAP Financial Measures (Unaudited)

(in thousands)

Three Months Ended

September 26,

June 27,

September 28,

2020

2020

2019

Gross Profit Reconciliation

Gross profit - GAAP basis (excluding amortization) (1)

$

63,500

$

60,957

$

58,933

Non-GAAP adjustments to cost of sales (as scheduled above)

2,824

283

1,742

Gross profit - Non-GAAP basis

$

66,324

$

61,240

$

60,675

As a percentage of net sales:

GAAP gross profit

42.2

%

42.3

%

41.1

%

Non-GAAP gross profit

44.0

%

42.5

%

42.3

%

Adjusted EBITDA Reconciliation

Net loss attributable to Cohu - GAAP Basis

$

(6,646

)

$

(4,740

)

$

(10,468

)

(Income) loss from discontinued operations

-

-

(154

)

Income tax provision

1,116

137

1,277

Interest expense

3,021

3,456

5,000

Interest income

(42

)

(21

)

(190

)

Amortization of purchased intangible assets

9,783

9,527

9,969

Depreciation

3,462

3,557

5,231

Amortization of cloud-based software implementation costs (2)

318

308

-

Other non-GAAP adjustments (as scheduled above)

9,328

4,109

5,456

Adjusted EBITDA

$

20,340

$

16,333

$

16,121

As a percentage of net sales:

Net loss attributable to Cohu - GAAP Basis

(4.4

)%

(3.3

)%

(7.3

)%

Adjusted EBITDA

13.5

%

11.3

%

11.2

%

Operating Expense Reconciliation

Operating Expense - GAAP basis

$

64,860

$

61,485

$

64,956

Non-GAAP adjustments to operating expenses (as scheduled above)

(16,530

)

(13,596

)

(15,486

)

Operating Expenses - Non-GAAP basis

$

48,330

$

47,889

$

49,470

(1)

Excludes amortization of $7,447, $7,256 and $7,597 for the three months ending September 26, 2020, June 27, 2020 and September 28, 2019, respectively.

(2)

Represents amortization of capitalized implementation costs related to cloud-based software arrangements that are included within SG&A.

Nine Months Ended

September 26,

September 28,

2020

2019

Gross Profit Reconciliation

Gross profit - GAAP basis (excluding amortization) (1)

$

180,541

$

175,754

Non-GAAP adjustments to cost of sales (as scheduled above)

4,922

8,115

Gross profit - Non-GAAP basis

$

185,463

$

183,869

As a percentage of net sales:

GAAP gross profit

41.6

%

39.8

%

Non-GAAP gross profit

42.8

%

41.7

%

Adjusted EBITDA Reconciliation

Net loss attributable to Cohu - GAAP Basis

$

(28,662

)

$

(52,434

)

(Income) loss from discontinued operations

(42

)

(342

)

Income tax provision

261

161

Interest expense

10,904

15,789

Interest income

(210

)

(603

)

Amortization of purchased intangible assets

28,848

29,975

Depreciation

10,435

15,353

Amortization of cloud-based software implementation costs (2)

831

-

Other non-GAAP adjustments (as scheduled above)

23,066

29,728

Adjusted EBITDA

$

45,431

$

37,627

As a percentage of net sales:

Net loss attributable to Cohu - GAAP Basis

(6.6

)%

(11.9

)%

Adjusted EBITDA

10.5

%

8.5

%

Operating Expense Reconciliation

Operating Expense - GAAP basis

$

196,055

$

214,423

Non-GAAP adjustments to operating expenses (as scheduled above)

(47,721

)

(56,452

)

Operating Expenses - Non-GAAP basis

$

148,334

$

157,971

(1)

Excludes amortization of $21,969 and $22,863 for the nine months ending September 26, 2020 and September 28, 2019, respectively.

(2)

Represents amortization of capitalized implementation costs related to cloud-based software arrangements that are included within SG&A.