Aehr Test Systems — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended November 30, 2019, compared with the corresponding 2018 periods. The filing was signed January 14, 2020. Amounts below are in U.S. dollars; financial statement figures are in millions unless otherwise stated.
Business context
Aehr develops and manufactures semiconductor burn-in and test equipment. Its products include FOX wafer-level test systems, WaferPak contactors, DiePak carriers, test fixtures and ABTS systems. The company reports one operating segment.
Financial performance and liquidity
| Metric | Three months ended Nov. 30, 2019 | Three months ended Nov. 30, 2018 | Six months ended Nov. 30, 2019 | Six months ended Nov. 30, 2018 |
|---|---|---|---|---|
| Net sales | $6.874 | $5.911 | $12.407 | $10.651 |
| Gross profit | $3.202 | $2.398 | $5.473 | $3.951 |
| Gross margin | 46.6% | 40.6% | 44.1% | 37.1% |
| Operating income (loss) | $0.250 | $(0.565) | $(0.179) | $(2.007) |
| Net income (loss) | $0.251 | $(0.629) | $(0.162) | $(2.144) |
| Diluted EPS | $0.01 | $(0.03) | $(0.01) | $(0.10) |
- For the quarter, wafer-level product sales rose to $6.335 million from $4.226 million, while Test During Burn-In (TDBI) sales fell to $0.539 million from $1.685 million. Contactors contributed $3.046 million, versus $0.943 million a year earlier.
- Quarterly SG&A was $2.157 million, up 9.1%; R&D was $0.795 million, down 19.4%. For the six-month period, SG&A was $3.965 million, up 2.8%, and R&D was $1.687 million, down 19.7%.
- Six-month operating cash flow was $(0.276) million, compared with $(2.957) million in 2018. Investing cash flow was $(0.123) million and financing cash flow was $0.293 million. Cash, cash equivalents and restricted cash ended the period at $5.382 million, down $0.126 million from the beginning of the period.
- At November 30, cash and cash equivalents were $5.302 million, current assets $20.867 million and current liabilities $6.344 million. Working capital was $14.5 million, which management said was unchanged from May 31, 2019. Inventories were $9.800 million, up from $9.061 million.
- Total liabilities were $8.332 million, including $2.543 million in operating lease liabilities. The filing reports no outstanding financial debt on the balance sheet; the 9% convertible notes had been repaid at maturity on April 10, 2019.
Changes versus the prior comparable period
- Quarterly sales increased 16.3%, and six-month sales increased 16.5%, principally reflecting stronger wafer-level product sales; lower TDBI sales partly offset those gains.
- Gross margin improved by 6.0 percentage points for the quarter and 7.0 points for the six-month period. Management attributed the improvement to sales mix and manufacturing efficiencies; the six-month comparison also benefited from lower inventory-scrap, tooling and layout costs.
- The quarter returned to operating and net profitability, compared with losses in the prior-year quarter. The six-month period nevertheless remained loss-making, though losses narrowed substantially.
- Interest expense declined following repayment of the convertible notes. The company adopted ASC 842 leases on June 1, 2019, recognizing operating lease right-of-use assets and liabilities; management reported no material effect on operations or cash flows.
Outlook, risks and other notable items
- Management expected existing cash, operating income, receivable collections, existing backlog, inventory sales and customer deposits/down payments to meet liquidity needs for the next 12 months. No numerical revenue or earnings guidance was provided.
- Customer concentration is significant: the five largest customers represented approximately 95% of quarterly sales and 88% of six-month sales. Two customers accounted for 44% and 32% of quarterly sales; three customers accounted for 42%, 24% and 10% of six-month sales.
- Foreign-currency movements affect results and cash; the company had no currency hedges or derivative holdings. Management said a 10% decline in subsidiaries’ local currencies against the U.S. dollar was not expected to significantly change net income or loss.
- Operating leases had a 3.7-year weighted-average remaining term and a 5.5% weighted-average discount rate. Future minimum lease payments totaled $2.819 million before $0.276 million of imputed interest.
- The company had $0.415 million of remaining performance obligations for service and extended-warranty contracts, expecting about half to be recognized in fiscal 2020 and the remainder in fiscal 2021 and thereafter; this excludes certain obligations of one year or less.
- No legal proceedings, unregistered equity sales, defaults on senior securities or material changes to the risk factors disclosed in the prior annual report were reported. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Most important facts for investors to verify
- Whether wafer-level demand and customer orders can sustain sales growth, particularly given the decline in TDBI revenue.
- Whether gross-margin gains persist and whether the six-month operating loss turns into sustained profitability.
- Customer concentration, including the identities and order patterns of customers responsible for large shares of sales.
- Cash conversion and working-capital needs, including inventory growth, receivables tied to late-quarter shipments, and customer deposits.
- Management’s 12-month liquidity assumptions and the effect of lease obligations, foreign exchange and any future financing needs.