AEhr Test Systems — FY2015 Form 10-K
Business and reporting period: Aehr Test designs and sells semiconductor test and burn-in systems, wafer contactors, die carriers and related products. This annual report covers the fiscal year ended May 31, 2015; it also reports unaudited fourth-quarter results for the three months ended May 31, 2015. Unless noted otherwise, amounts below are in U.S. dollars.
Financial performance and liquidity
| Metric | FY2015 | FY2014 |
|---|---|---|
| Net sales | $10.0 million | $19.7 million |
| Gross profit / margin | $3.8 million / 38.3% | $10.2 million / 51.9% |
| Operating income (loss) | $(6.7) million | $0.5 million |
| Net income (loss) | $(6.6) million | $0.4 million |
| Net income (loss) per diluted share | $(0.55) | $0.04 |
| Cash used in operating activities | $2.3 million | $0.6 million |
- Sales fell 49.1%, driven by customer order and shipment push-outs, customers absorbing capacity acquired earlier, and delays in release of the FOX-1P system. Wafer-level product sales were $3.1 million, down approximately $5.2 million; test-during-burn-in sales were $6.6 million, down approximately $4.6 million.
- Gross margin contracted 13.6 percentage points. Management attributed the decline mainly to higher direct material costs as a share of sales and manufacturing inefficiencies.
- Fourth-quarter FY2015 sales were $1.8 million, gross profit $0.7 million and net loss $1.9 million, versus sales of $5.4 million, gross profit of $2.9 million and net income of $0.2 million in fourth-quarter FY2014.
- At May 31, 2015, cash and equivalents were $5.5 million, working capital $7.8 million and total assets $14.9 million. Inventory was $7.1 million, up from $6.1 million; management said inventory purchases supported future shipments.
- Operating cash use was partly offset by a $3.7 million increase in customer deposits and deferred revenue and a $1.8 million decrease in receivables. Financing provided $6.4 million, principally from convertible-note proceeds and a private placement.
Debt, capital and liquidity
- In April 2015, the company issued $4.11 million of 9% convertible secured notes due April 2017; carrying debt, net of issuance costs, was $3.79 million at year-end. The notes are secured by substantially all company assets and initially convert at $2.65 per share, subject to adjustment.
- A new secured revolving credit facility permits up to $2.0 million of borrowing at 5%; no amount was drawn at May 31, 2015. The company terminated its prior working-capital line.
- FY2015 financing also included $2.57 million net proceeds from a November 2014 private placement. Shares outstanding at May 31, 2015 were 12.857 million; the filing reports 12.987 million outstanding at July 31, 2015.
- Management expected cash, operating cash flows and credit-facility availability to cover working capital and capital-equipment needs through FY2016. It cautioned that financing might be needed after FY2016 and might not be available on acceptable terms.
Changes, outlook and principal risks
- Backlog was $12.0 million at May 31, 2015, versus $6.0 million a year earlier. The company cautioned that customer rescheduling, cancellations and shipment or development delays can make backlog an unreliable indicator of future sales.
- FOX-1P received its first production order, but the FOX market remained early-stage and required customer qualification. The older FOX-1 system and MAX system were nearing the end of their product lifecycles, with limited future shipments expected.
- Packaged-part systems represented approximately 65% of FY2015 sales and full-wafer-contact systems approximately 31%. The five largest customers contributed 79% of sales; Texas Instruments alone represented 45%, and Micronas 11%.
- Key risks include concentrated customers and receivables, volatile high-value system orders, competition and price pressure, execution and qualification risks for new products, supplier and subcontractor dependence, semiconductor-industry cyclicality, and foreign-exchange exposure. Approximately 64% of FY2015 sales were for delivery outside the United States; the company did not hedge currency risk.
- There were no reported pending legal proceedings in Item 3. The filing discusses ordinary-course indemnification obligations whose maximum exposure could not be determined; management did not expect pending proceedings to materially affect results or financial condition.
- The financial statements received an unqualified audit opinion. Management assessed disclosure controls and internal control over financial reporting as effective; the auditor did not attest to internal-control effectiveness.
Most important facts for investors to verify
- Whether the $12.0 million backlog converted to revenue on schedule, and whether FOX-1P customer qualification and production shipments progressed.
- Whether customer orders recovered, particularly from Texas Instruments, and whether customer concentration or collection risk changed.
- Whether gross margins improved as shipment volume and manufacturing utilization changed, and whether inventory remained recoverable and aligned with demand.
- Cash burn, available borrowing under the secured facility, debt service and potential dilution or repayment associated with the convertible notes.
- Whether management’s expectation of adequate liquidity through FY2016 remained supportable and whether additional financing became necessary.