Aehr Test Systems — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended November 30, 2018; filed January 14, 2019. Financial amounts below are in millions unless noted.
Business context and financial results
Aehr designs and manufactures semiconductor burn-in and test equipment, including wafer-level and Test During Burn-In (TDBI) products. The company reports one operating segment.
| Metric | Three months ended Nov. 30, 2018 | Prior-year quarter | Six months ended Nov. 30, 2018 | Prior-year six months |
|---|---|---|---|---|
| Net sales | $5.91 | $7.92 | $10.65 | $14.89 |
| Gross profit / margin | $2.40 / 40.6% | $3.13 / 39.5% | $3.95 / 37.1% | $6.05 / 40.6% |
| Operating income (loss) | $(0.57) | $0.19 | $(2.01) | $0.36 |
| Net income (loss) | $(0.63) | $0.06 | $(2.14) | $0.07 |
| Basic and diluted EPS | $(0.03) | $0.00 | $(0.10) | $0.00 |
- Quarterly sales fell 25.4%; management attributed the decline mainly to TDBI sales, down about $3.4 million, partly offset by wafer-level sales growth of about $1.4 million. For the six-month period, sales declined 28.5%, with both product lines lower.
- Six-month gross margin declined 3.5 percentage points, which management attributed primarily to manufacturing inefficiencies at lower sales volume. Quarterly margin improved 1.1 percentage points.
- Six-month SG&A rose 5.8% to $3.86 million; R&D rose 2.8% to $2.10 million. Management cited higher employment costs. Quarterly SG&A increased 6.6%; quarterly R&D decreased 9.5%.
- Quarterly revenue mix: systems $3.71 million, contactors $0.94 million, and services $1.26 million. Six-month sales by product line were $6.20 million wafer-level and $4.46 million TDBI.
Cash flow, liquidity and debt
- Cash and cash equivalents were $14.00 million at November 30, versus $16.85 million at May 31, 2018. Working capital was $16.9 million, down from $18.3 million.
- Operating cash use was $2.96 million for the six months, compared with $2.15 million a year earlier. The current-period outflow reflected the net loss and increases in receivables and inventory, partly offset by higher payables and customer deposits/deferred revenue.
- Investing cash use was $0.10 million, mainly equipment purchases; financing provided $0.31 million, primarily employee-plan stock issuance. Cash decreased by $2.85 million over the period.
- Current long-term debt was $6.11 million. The debt consists of secured convertible notes bearing 9% interest and maturing April 10, 2019; the notes are secured by substantially all company assets. The $2 million credit facility had been fully converted to notes, with no remaining availability.
- Management stated that existing cash and expected operating receipts, backlog revenue, inventory sales, and customer deposits should meet liquidity needs for the next 12 months.
Outlook, risks and notable items
- The filing provides no specific revenue or earnings guidance. Management’s liquidity statement is its principal near-term outlook.
- Customer concentration is substantial: the five largest customers represented about 94% of quarterly sales and 83% of six-month sales. One customer contributed 55% of quarterly sales; four customers each contributed at least 10% of six-month sales.
- Foreign-exchange movements affect results; the company does not hedge currency risk. Management said a 10% decline in subsidiaries’ local currencies versus the U.S. dollar would not be expected to materially affect net income or loss.
- Revenue recognition standard ASC 606 was adopted June 1, 2018 using the modified retrospective method, with no material impact. Remaining performance obligations were $0.695 million, mainly service and extended-warranty contracts; approximately 35% was expected to be recognized in fiscal 2019 and 65% in fiscal 2020 and later.
- No legal proceedings, defaults, or material changes to contractual obligations were reported. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Key facts for investors to verify
- Whether revenue and order trends recover, particularly for TDBI, and whether lower production volumes continue to pressure margins.
- The company’s ability to address or refinance the $6.11 million secured notes before their April 2019 maturity.
- Cash conversion and working-capital movements, especially receivables and inventory relative to shipments and customer deposits.
- Ongoing exposure to a concentrated customer base and the effect of any major customer’s order changes.
- Actual revenue timing for the remaining performance obligations and the assumptions underpinning management’s 12-month liquidity outlook.