Aehr Test Systems — Form 10-Q Summary
Business context and reporting period. The company designs, manufactures, and markets semiconductor test and burn-in equipment, including ABTS, FOX wafer-level systems, and WaferPak products. This unaudited Form 10-Q covers the fiscal third quarter and nine months ended February 29, 2016; comparisons are with the periods ended February 28, 2015. Unless otherwise noted, amounts are in U.S. dollars.
Financial results and liquidity
| Metric | Three months ended Feb. 29, 2016 | Three months ended Feb. 28, 2015 | Nine months ended Feb. 29, 2016 | Nine months ended Feb. 28, 2015 |
|---|---|---|---|---|
| Net sales | $1.677 million | $2.027 million | $12.930 million | $8.200 million |
| Gross profit / margin | $0.169 million / 10.1% | $0.852 million / 42.0% | $5.243 million / 40.5% | $3.156 million / 38.5% |
| Operating loss | $2.819 million | $1.763 million | $3.288 million | $4.883 million |
| Net loss | $2.975 million | $1.726 million | $3.729 million | $4.747 million |
| Net loss per share, basic and diluted | $0.23 | $0.14 | $0.29 | $0.40 |
- Quarterly sales fell 17.3%. TDBI sales declined about $0.8 million to $0.8 million, partly offset by wafer-level sales rising about $0.5 million to $0.9 million.
- Nine-month sales rose 57.7%, principally from wafer-level products, which generated $8.2 million, up about $5.4 million. TDBI sales were $4.7 million, down about $0.3 million.
- Quarterly gross margin contracted sharply. Management attributed this primarily to higher inventory reserves and increased unabsorbed manufacturing overhead amid lower production and revenue. Nine-month gross margin improved year over year.
- For the nine months, SG&A was $5.253 million and R&D was $3.278 million. Quarterly operating expenses increased to $2.988 million, including SG&A of $1.695 million and R&D of $1.293 million.
- Operating cash flow was negative $4.707 million for the nine months, versus negative $1.640 million a year earlier. Investing cash use was $0.890 million, mainly for capital and infrastructure improvements. Financing provided $2.460 million, including $2.0 million of credit-facility borrowing.
- Cash and cash equivalents were $2.472 million at February 29, 2016, down from $5.527 million at May 31, 2015. Working capital was $4.7 million.
- Debt included $4.110 million principal on 9.0% secured convertible notes due April 2017, reported net of issuance costs at $3.917 million, and $2.0 million drawn under a secured revolving facility. No facility availability remained. The notes’ initial conversion price is $2.65 per share.
- Total liabilities were $11.411 million and shareholders’ equity was $2.028 million at period end. The company reported 13.164 million shares issued and outstanding at February 29, 2016; 13,164,396 common shares were outstanding on March 31, 2016.
Material changes versus prior periods
- Quarterly revenue and gross profit declined, and quarterly net loss widened. In contrast, nine-month revenue and gross profit increased and the nine-month net loss narrowed.
- Interest expense rose to $0.165 million for the quarter and $0.437 million for the nine months, primarily reflecting the convertible debt and line of credit.
- Customer deposits and deferred revenue, short-term, declined to $2.026 million from $4.750 million at May 31, 2015; management linked the operating cash outflow partly to shipment of orders for which deposits had been received.
- Accounts receivable increased to $1.947 million from $1.383 million, and property and equipment, net, increased to $1.251 million from $0.478 million.
Outlook, commentary, and risks
- Management said existing cash and anticipated operating cash flows should cover short-term working-capital and capital-equipment needs. It expects to rely on receivable collections, backlog shipments, inventory sales, and customer deposits/down payments. Additional financing may be needed depending on growth, profitability, and significant orders; availability and acceptable terms are not assured.
- Capital spending was described as supporting infrastructure, product demonstrations, and manufacturing capability in preparation for increased demand. The filing provides no quantified revenue or earnings guidance.
- Management cited weaker ABTS/TDBI sales and identified increased FOX market acceptance as important but uncertain; qualification cycles, reliability or manufacturing issues, and competition may impede adoption.
- Customer concentration is substantial: the five largest customers accounted for approximately 93% of quarterly and 94% of nine-month sales. Two customers represented approximately 45% and 37% of quarterly sales.
- The company disclosed that, as of February 29, 2016, it did not meet Nasdaq’s $2.5 million minimum stockholders’ equity continued-listing criterion. It planned steps to regain compliance but provided no assurance of success. Delisting could impair trading and trigger a default under its credit and convertible debt agreements.
- Other stated risks include dependence on a small number of large, high-value orders; order cancellation or rescheduling; semiconductor industry cyclicality; competition and product obsolescence; supplier concentration; foreign-exchange exposure without hedging; and possible need for additional financing.
- No legal proceedings were reported. Management stated disclosure controls were effective and reported no material change in internal control over financial reporting. The company reported no off-balance-sheet financing arrangements.
Important facts for investors to verify
- Progress toward Nasdaq stockholders’ equity compliance and any consequences for the listing or debt agreements.
- Cash burn, liquidity needs, and access to financing given $2.472 million in cash and no remaining availability under the revolving facility.
- Whether customer deposits, backlog conversion, and order timing support revenue and cash flow, particularly given customer concentration and cancellation risk.
- Whether the quarter’s very low gross margin reflects temporary inventory and overhead effects or persists in subsequent results.
- FOX product qualification and adoption, and the trajectory of wafer-level sales relative to TDBI/ABTS demand.
- Debt service and conversion terms, including the 9.0% notes due in April 2017 and the security interests over substantially all company assets.