AEHR TEST SYSTEMS — Form 10-Q Summary
Reporting period: Fiscal 2015 second quarter and six months ended November 30, 2014. Financial statements are unaudited. Aehr designs, manufactures, and sells semiconductor test and burn-in equipment and related products and services.
Financial performance
| Metric | Three months ended Nov. 30, 2014 | Prior-year quarter | Six months ended Nov. 30, 2014 | Prior-year six months |
|---|---|---|---|---|
| Net sales | $2.615m | $4.950m | $6.173m | $8.702m |
| Gross profit / margin | $0.694m / 26.5% | $2.494m / 50.4% | $2.304m / 37.3% | $4.438m / 51.0% |
| Operating income (loss) | $(2.147)m | $0.179m | $(3.120)m | $0.022m |
| Net income (loss) | $(2.114)m | $0.137m | $(3.021)m | $(0.029)m |
| Basic and diluted EPS | $(0.18) | $0.01 | $(0.26) | $(0.00) |
- Quarterly sales fell 47.2%; six-month sales fell 29.1%. Management attributed the decline to lower sales of wafer-level products and Test During Burn-in (TDBI) products.
- Quarterly gross margin declined 23.9 percentage points. Management said roughly half the year-over-year difference reflected prior-year shipments containing previously written-down parts, and about one-third reflected higher inventory reserves in the current quarter. For the six-month comparison, prior-year margin benefited primarily from sales of systems containing previously reserved inventory.
- Quarterly SG&A rose 14.4% to $1.736m and R&D rose 38.5% to $1.105m. For the six months, SG&A rose 14.4% to $3.360m and R&D rose 39.6% to $2.064m. Management cited higher employment-related costs and, for six-month SG&A, shareholder-relations costs; prior-year R&D was lower partly because certain non-recurring engineering costs were transferred to cost of sales and prepaid expenses.
Cash, debt, and liquidity
- At November 30, 2014, cash and equivalents were $3.596m, versus $1.809m at May 31, 2014. Working capital was $6.9m; current assets were $11.342m and current liabilities $4.472m.
- Six-month operating cash flow was negative $0.843m, compared with positive $0.435m in the prior-year period. Investing cash flow was negative $0.105m, principally for property and equipment.
- Financing provided $2.954m, including $2.574m net proceeds from a November private placement and $0.515m from employee stock plans; the company also repaid $0.135m net on its line of credit. Currency movements reduced cash by $0.219m.
- Line-of-credit borrowings were $0.642m at a 3.889% weighted-average rate, with $0.218m available under the borrowing base. The facility, secured by company assets, was extended to August 21, 2015; the company reported covenant compliance.
- Management said additional equity or debt financing may be needed to fund working capital and new-product initiatives for fiscal 2015 and beyond, and cautioned that financing may not be available on acceptable terms.
Other material developments, outlook, and risks
- The November 2014 private placement issued 1,065,029 shares to directors, officers, and other accredited investors for $2.574m net proceeds. Issued and outstanding shares were 12.667m at November 30, compared with 11.203m at May 31.
- Customer concentration remains substantial: the five largest customers represented about 94% of quarterly sales and 91% of six-month sales. Three customers accounted for 53%, 23%, and 13% of quarterly sales.
- Asia contributed $1.780m of quarterly sales and $2.866m for the six months; the United States contributed $0.707m and $2.370m, respectively. The filing reports exposure to foreign-currency movements and no currency hedging.
- No numerical revenue or earnings guidance is provided. Management identifies the FOX wafer-level system’s market acceptance and product initiatives as important, but notes that qualification can be lengthy and success is uncertain.
- Key disclosed risks include semiconductor-industry cyclicality, order cancellations or deferrals, customer concentration, competition, product-development and reliability challenges, supplier dependence, foreign-exchange exposure, and possible need for additional financing. The U.S. facilities lease was renewed through June 2018; disclosed minimum operating-lease payments total $2.065m. No legal proceedings were reported.
- Management stated disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether sales and gross margins recover, including the extent to which inventory reserves and product mix continue to affect margins.
- Customer order timing, cancellations, and concentration, particularly the impact of any change in demand from the largest customers.
- Cash use, borrowing-base availability, facility renewal or replacement, and the timing and terms of any further financing.
- FOX system qualification, customer adoption, and the costs or reliability issues associated with new-product initiatives.
- Potential dilution and share-count changes following the private placement and employee equity issuances.