Aehr Test Systems — Form 10-Q Summary
Business context and reporting period
Unaudited quarterly report for the fiscal third quarter and nine months ended February 28, 2017. Aehr designs, manufactures and markets semiconductor test and burn-in equipment, including TDBI systems, wafer-level products and related products and services. The company reports one operating segment.
Financial performance and liquidity
| Metric | Three months ended Feb. 28, 2017 | Nine months ended Feb. 28, 2017 |
|---|---|---|
| Net sales | $2.681 million | $12.215 million |
| Gross profit / margin | $0.503 million / 18.8% | $4.172 million / 34.2% |
| Operating loss | $2.469 million | $4.323 million |
| Net loss | $2.651 million; $0.16 per share | $4.858 million; $0.32 per share |
- Quarterly sales increased 59.9% year over year; nine-month sales declined 5.5%. Quarterly TDBI sales were $2.5 million, while wafer-level sales were $0.1 million. For nine months, TDBI sales were $7.8 million and wafer-level sales were $4.3 million.
- Operating cash used was $4.468 million for the nine months, compared with $4.707 million a year earlier. Investing cash used was $0.219 million. Financing provided $5.809 million, including $5.299 million net proceeds from a private placement.
- Cash and cash equivalents were $2.039 million at February 28, 2017, versus $0.939 million at May 31, 2016. Working capital was $6.5 million, up from $4.1 million.
- Long-term debt, net of issuance costs, was $6.095 million; the $6.110 million principal bears 9% interest and matures April 10, 2019. The secured credit facility had no remaining availability. Total liabilities were $10.857 million; total shareholders’ equity was $1.296 million.
Material changes versus comparable periods
- Quarterly sales rose from $1.677 million, driven mainly by higher TDBI sales, partly offset by lower wafer-level sales. Gross margin improved from 10.1% to 18.8%; the prior-year quarter was affected by higher inventory reserves and unabsorbed overhead.
- Nine-month sales fell from $12.930 million as wafer-level product sales declined by approximately $3.9 million, partly offset by a $3.1 million increase in TDBI sales. Gross margin declined from 40.5% to 34.2%; the prior period benefited from systems sold using previously written-down materials.
- Quarterly net loss narrowed from $2.975 million to $2.651 million, while the nine-month net loss increased from $3.729 million to $4.858 million. Interest expense increased year over year in both comparisons.
- Shares outstanding increased from 13.216 million at May 31, 2016 to 16.754 million at February 28, 2017, reflecting, among other items, the September 2016 private placement of 2.722 million shares and shares issued for an equipment invoice.
Outlook, commentary and risks
- Management expected available cash, operating receipts, collections, backlog shipments, inventory sales and customer deposits to meet short-term working-capital and capital-equipment needs. It cautioned that additional debt or equity financing may be required depending on growth, profitability and significant orders; availability and terms are not assured. No specific revenue or earnings guidance was provided.
- Customer concentration is acute: one customer represented approximately 91% of quarterly sales; the five largest represented 98% for the quarter and 95% for the nine months. The filing identifies customer loss, delays, cancellations and collection issues as significant risks.
- Other disclosed risks include semiconductor industry cyclicality, competition and pricing pressure, product qualification and reliability challenges (including FOX market adoption), supplier dependence, foreign-exchange exposure, and potential need for financing. The company reported that it regained Nasdaq listing compliance in October 2016 after a prior stockholders’ equity shortfall.
- The company reported no legal proceedings, no defaults upon senior securities and no material change in internal control over financial reporting. Management concluded disclosure controls were effective. The filing notes that estimates, including inventory and warranty estimates, could differ from actual outcomes.
Important facts for investors to verify
- Whether the highly concentrated customer demand and late-quarter shipments continued, and whether receivables were collected after the reported large shipments.
- Backlog, deposits and order timing supporting management’s short-term liquidity assessment, given ongoing operating cash use and no remaining credit-facility availability.
- Debt terms and conversion implications, including the 9% coupon, 2019 maturity, $2.30 conversion price and security over substantially all company assets.
- Gross-margin sustainability and the product mix, particularly the shift between TDBI and wafer-level sales and the effects of inventory reserves and previously written-down materials.
- Potential dilution and continued Nasdaq listing compliance following the private placement and increase in shares outstanding.