AEhr Test Systems — Form 10-Q Summary
Reporting period: Fiscal 2023 first quarter, three months ended August 31, 2022; filed October 14, 2022. Comparisons are with the three months ended August 31, 2021. Amounts below are U.S. dollars.
Financial performance
| Metric | Q1 FY2023 | Prior-year quarter | Change / context |
|---|---|---|---|
| Net sales | $10.671 million | $5.646 million | Up 89.0%, primarily on stronger wafer-level product demand related to silicon carbide applications |
| Gross profit / margin | $4.481 million / 42.0% | $2.281 million / 40.4% | Margin improved 1.6 percentage points; management cited manufacturing efficiencies from higher sales |
| Operating expenses | $4.023 million | $3.274 million | Up 22.9%; SG&A and R&D both increased |
| Operating income (loss) | $458,000 | ($993,000) | Returned to operating profitability |
| Net income | $589,000 | $696,000 | Prior-year net income included a $1.698 million PPP loan forgiveness gain |
| Diluted EPS | $0.02 | $0.03 | Share count increased; diluted weighted-average shares were 28.788 million versus 25.356 million |
| Operating cash flow | $5.461 million | $1.874 million | Increase mainly reflected a $7.648 million reduction in receivables, partly offset by inventory and accrued-expense changes |
Systems revenue rose to $9.094 million from $3.879 million. Wafer-level products generated $10.321 million, versus $5.143 million. Asia represented $7.808 million of sales and the United States $2.863 million.
Balance sheet, liquidity, and capital
- Cash and cash equivalents were $36.147 million at August 31, 2022, versus $31.484 million at May 31, 2022. Cash, cash equivalents, and restricted cash totaled $36.227 million.
- Working capital was $49.4 million, compared with $49.0 million at May 31, 2022. Current assets were $59.329 million and current liabilities $9.899 million.
- Total liabilities were $10.060 million; the company reported no borrowings under its revolving credit facility. Available borrowing capacity was $5.699 million, and the facility matured January 13, 2023.
- Inventory increased to $17.233 million from $15.051 million, which management said supported expected customer-order shipments.
- Financing cash outflow was $724,000, including $1.179 million of shares repurchased to cover taxes on vested restricted stock units, partially offset by $455,000 of employee-plan stock issuance.
Changes, outlook, and risks
- Sales growth and higher gross margin drove the improvement in operating results. SG&A increased to $2.525 million, primarily from headcount, bonuses, and stock compensation; R&D increased to $1.498 million, mainly from employment-related costs.
- Net income declined year over year despite stronger operating performance because the prior-year comparison included the one-time PPP forgiveness gain. The PPP loan was fully forgiven in 2021.
- Management stated that cash, expected operating income, receivable collections, backlog, inventory sales, and customer deposits should be adequate for working-capital and capital-equipment needs over the next 12 months. No numerical sales or earnings guidance was provided.
- Management cited ongoing uncertainty around COVID-19 and cautioned that actual results could differ from forward-looking statements. The filing refers investors to the risk factors in the fiscal 2022 Form 10-K rather than restating them.
- Customer concentration is significant: the five largest customers accounted for approximately 98% of quarterly sales, and two customers accounted for approximately 67%. The company also noted that future financing, if required, may be unavailable or cause dilution.
- Remaining performance obligations disclosed were $192,000, relating to deferred service and extended-warranty contracts; the company expected to recognize about 64% in the rest of fiscal 2023 and 36% in fiscal 2024 and thereafter. This excludes certain obligations with original durations of one year or less.
- No legal proceedings, material changes to contractual obligations, or material changes in internal control over financial reporting were reported. Management concluded disclosure controls were effective.
Key facts for investors to verify
- Whether silicon-carbide-related demand and wafer-level system sales persist, and whether customer orders convert into shipments on schedule.
- Customer concentration, especially the dependence on two customers for about 67% of quarterly revenue.
- Cash conversion and inventory levels, including whether the inventory build supports future deliveries without write-downs.
- Availability and terms of the $5.699 million credit capacity, including the facility’s January 2023 maturity.
- How much future profitability depends on growth, manufacturing efficiency, and stock-based compensation; quarterly stock-based compensation was $710,000.