AEHR TEST SYSTEMS — FY2013 Form 10-K
Reporting period: Fiscal year ended May 31, 2013. The filing also reports the fourth quarter ended May 31, 2013; it is not a standalone quarterly filing.
Business context
Aehr Test designs, manufactures and sells semiconductor test and burn-in equipment, including ABTS packaged-part systems and FOX wafer-level systems. It reports one business segment. Revenue is concentrated among a small number of semiconductor customers.
Financial performance and liquidity
| Metric | FY2013 | FY2012 |
|---|---|---|
| Net sales | $16.488 million | $15.521 million |
| Gross profit / margin | $6.776 million / 41.1% | $6.207 million / 40.0% |
| Operating loss | $3.307 million | $4.507 million |
| Net loss | $3.419 million | $3.389 million |
| Net loss per share, diluted | $0.36 | $0.38 |
| Cash used in operating activities | $0.310 million | $4.875 million |
| Cash and cash equivalents at year-end | $2.324 million | $2.073 million |
| Working capital at year-end | $4.821 million | $6.120 million |
At May 31, 2013, the company had $1.101 million drawn on a $2.5 million receivables- and inventory-based credit facility, with $0.846 million available to borrow. Long-term obligations, less current portion, were $0.280 million. The facility was secured by company assets other than intellectual property at year-end; an August 2013 amendment extended the facility to August 22, 2014 and added a security interest in intellectual property.
FY2013 financing included $1.138 million in net proceeds from a private placement. Investing activities used $0.127 million. The cash-flow improvement versus FY2012 largely reflected working-capital movements, including higher customer deposits and deferred revenue, and lower inventory.
Changes versus comparable periods
- Annual sales rose 6.2%. Test-during-burn-in (TDBI) sales increased about $4.5 million to $11.2 million; wafer-level product sales fell about $3.1 million to $5.1 million.
- Gross margin improved 1.1 percentage points and operating loss narrowed, helped in part by lower R&D spending ($3.2 million versus $4.2 million). Net loss increased slightly.
- FY2013 fourth-quarter sales were $3.262 million, gross profit $1.292 million and net loss $0.854 million. In the year-earlier quarter, sales were $4.676 million, gross profit $2.169 million and net loss $0.779 million.
- Backlog increased to $9.1 million at May 31, 2013 from $7.3 million a year earlier; the filing cautions that orders may be rescheduled or cancelled.
- Texas Instruments and Spansion represented approximately 32% and 26% of FY2013 sales, respectively. The five largest customers accounted for 81% of sales.
Outlook, risks and other notable items
- Management expected the company to become profitable in FY2014 and believed cash, operating cash flows and available credit would fund working-capital and capital-equipment needs through that year. This is management’s expectation, not a guarantee; the company had reported operating losses and negative operating cash flow in FY2011–FY2013.
- A next-generation FOX system was under development under a customer-funded agreement; management expected development completion in calendar 2013 and disclosed receipt of its first production order. FOX market adoption, customer qualification and timely product development remain important execution risks.
- Customer and supplier concentration, semiconductor-industry cyclicality, order cancellations and rescheduling, product reliability, intense competition, and reliance on sole- or limited-source suppliers could materially affect results. Foreign-exchange exposure is not hedged; 95% of FY2013 sales were denominated in U.S. dollars.
- The company had a full valuation allowance against deferred tax assets. Federal and state net operating loss carryforwards and tax credits may be subject to utilization limits, including on a change in ownership.
- Contractual obligations included $1.240 million of operating lease payments, $1.101 million on the line of credit and $0.473 million of purchase obligations. The company disclosed no off-balance-sheet financing arrangements. Item 3 reports no legal proceedings; the notes describe ordinary-course indemnification commitments whose maximum exposure cannot be determined.
- The financial statements received an unqualified audit opinion. Management considered disclosure controls and internal control over financial reporting effective; the auditor did not provide an internal-control attestation.
Most important facts for investors to verify
- Whether FY2014 profitability and cash-flow goals were achieved, and how much liquidity remained after the credit facility’s extension and expanded collateral pledge.
- Whether the next-generation FOX system completed development, entered production and gained repeat customer adoption; also track ABTS acceptance.
- Whether revenue concentration, especially exposure to Texas Instruments and Spansion, changed, and whether receivables from the largest customers were collected.
- Whether backlog converted to recognized revenue and whether fourth-quarter sales and gross-profit weakness continued.
- Whether inventory reserves, warranty accruals, tax-attribute limitations or supplier disruptions resulted in material charges or delivery delays.