Aehr Test Systems — Form 10-Q Summary
Reporting period: Third quarter and first nine months of fiscal 2019, ended February 28, 2019. The interim financial statements are unaudited. Unless stated otherwise, amounts are in U.S. dollars.
Business context and financial performance
Aehr develops and manufactures semiconductor burn-in and test equipment, including wafer-level systems, Test During Burn-In systems, contactors, and related services. The company reports one operating segment.
| Metric | Q3 FY2019 | Q3 FY2018 | Nine months FY2019 | Nine months FY2018 |
|---|---|---|---|---|
| Net sales | $3.16 million | $7.39 million | $13.81 million | $22.29 million |
| Gross profit | $0.27 million | $3.18 million | $4.22 million | $9.23 million |
| Gross margin | 8.6% | 43.0% | 30.6% | 41.4% |
| Operating income (loss) | $(3.12) million | $0.31 million | $(5.12) million | $0.67 million |
| Net income (loss) | $(3.20) million | $0.27 million | $(5.35) million | $0.34 million |
| Basic and diluted EPS | $(0.14) | $0.01 | $(0.24) basic; $(0.24) diluted | $0.02 basic; $0.01 diluted |
| Cash used in operating activities | Not presented separately | Not presented separately | $4.79 million | $3.10 million |
Material changes and financial position
- Q3 sales fell 57.2% year over year; nine-month sales fell 38.0%. Management attributed the declines primarily to lower sales of wafer-level and Test During Burn-In products. Q3 systems revenue was $0.40 million versus $4.35 million a year earlier; contactors revenue increased to $1.45 million from $0.75 million.
- Management attributed lower gross margins to inventory write-downs and, particularly in Q3, under-absorbed manufacturing overhead associated with lower production and revenue. Inventory write-downs were $0.80 million for the first nine months, including $0.80 million in Q3.
- Cash and cash equivalents were $12.30 million at February 28, 2019, down from $16.85 million at May 31, 2018. Working capital was $14.2 million, compared with $18.3 million at May 31, 2018. Total current assets were $24.22 million and current liabilities were $10.02 million.
- At quarter-end, debt consisted of $6.11 million of current long-term debt: 9% convertible secured notes due April 10, 2019. The company subsequently repaid the $6.1 million principal at maturity on April 10, 2019. The filing gives no post-repayment cash balance.
- Nine-month capital spending was $0.12 million. Financing activities provided $0.44 million, primarily from employee stock plans.
Outlook, risks, and unusual items
- No specific revenue or earnings guidance was provided. Management said existing cash, operating income, receivable collections, backlog revenue, inventory sales, and customer deposits and down payments were expected to meet liquidity needs for the next 12 months.
- The company recorded $0.61 million of restructuring expense in Q3 for employee termination costs, with another approximately $0.1 million expected in the next quarter. No related payments had been made by February 28.
- Customer concentration was high: the five largest customers generated approximately 90% of Q3 sales and 81% of nine-month sales. Four customers represented 27%, 25%, 22%, and 13% of Q3 sales.
- Foreign currency movements affect results; the company said it had not used instruments to hedge currency risk. It reported no derivative holdings and stated a 10% decline in subsidiaries’ local currencies versus the U.S. dollar was not expected to significantly affect net income or loss.
- The company reported no legal proceedings. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether sales and manufacturing utilization recover after the sharp year-over-year decline, particularly for systems and Test During Burn-In products.
- Whether inventory write-downs and low gross margins persist, and how the restructuring affects costs and operations.
- Cash and liquidity after the April 10, 2019 repayment of $6.1 million of secured debt, including any subsequent financing or cash needs.
- Customer order timing and concentration, given the large share of sales attributable to a small number of customers.
- Whether management’s stated 12-month liquidity expectation is supported by realized collections, backlog, sales, and customer deposits.