SemiLEDs Corporation — Q3 FY2024 Form 10-Q
Reporting period: Quarter and nine months ended May 31, 2024. Financial statement amounts below are in U.S. dollars; unless stated otherwise, amounts are in thousands. SemiLEDs develops, manufactures and sells LED chips, components, modules and lighting products, with operations and assets concentrated in Taiwan.
Financial performance and position
| Metric | Three months ended May 31 | Nine months ended May 31 |
|---|---|---|
| Revenue, 2024; prior year | $1,323; $1,679 (-21%) | $3,859; $4,526 (-15%) |
| Gross profit; gross margin, 2024 | $543; 41% (prior year $241; 14%) | $900; 23% (prior year $966; 21%) |
| Operating loss, 2024; prior year | $(473); $(981) | $(2,124); $(2,337) |
| Net loss, 2024; prior year | $(316); $(756) | $(1,469); $(1,810) |
| Net loss attributable to SemiLEDs stockholders | $(319); prior year $(756) | $(1,476); prior year $(1,809) |
| Loss per share, basic and diluted | $(0.04); prior year $(0.15) | $(0.25); prior year $(0.37) |
- Quarterly revenue mix: LED components revenue fell 52% to $520, while other revenue rose 49% to $698. Management attributed the component decline mainly to lower sales volumes and the increase in other revenue mainly to services and raw-material sales.
- Nine-month revenue mix: LED components revenue was $2,139, lighting products $169, LED chips $93 and other revenue $1,458. Declines in components, lighting products and other revenue contributed to the overall revenue decrease.
- Cash flow: Nine-month operating cash use was $570, versus $645 in the prior year; investing cash use was $46 versus $228; financing cash use was $336 versus $354. Cash and restricted cash declined by $898 during the period to $1,843, including $1,676 of cash and cash equivalents at May 31.
- Balance sheet and liquidity: Cash and cash equivalents were $1,676, down from $2,572 at August 31, 2023. Current assets were $6,376 and current liabilities $6,776. Total assets were $11,511; total liabilities $8,746; and total equity $2,765.
- Debt: The balance sheet reports $2,848 of current debt and $969 of long-term debt, or $3,817 combined. Management describes total long-term debt as approximately $4.0 million, compared with $6.4 million at August 31, 2023; the filing’s figures differ in scope or presentation. Related-party loans were $2.4 million at May 31, bearing 8% interest and secured by a second-priority interest in the headquarters building. NT-dollar-denominated notes totaled $1.4 million.
- Other metrics: Inventory was $3,673, including $2,437 of finished goods. Nine-month inventory write-downs were $300. Capital expenditures were $80, versus $212 in the prior year. Other income was $913 for the nine-month period, primarily from rental income and a patent cross-license agreement.
Material changes and financing
- Gross margin improved year over year in both the quarter and nine-month period, which management attributed to a greater mix of higher-margin products. Quarterly gross profit rose despite lower revenue; nine-month gross profit declined.
- Operating expenses fell 17% for the quarter and 8% for the nine-month period. The nine-month results included a $50 gain on disposal of long-lived assets, reflecting the sale of idle equipment.
- In January 2024, holders converted $1,608.8 of convertible notes and accrued interest into 1,228,128 shares at $1.31 per share. The notes’ balance fell from $1.4 million at August 31, 2023 to zero.
- The company also issued 305,343 shares to repay $400 of accrued interest to Simplot Taiwan and 629,921 shares to repay $800 of loan principal owed to CEO Trung Doan. Shares outstanding increased from 4.941 million at August 31, 2023 to 7.196 million at May 31, 2024. A further July 3, 2024 amendment permits, by mutual agreement, repayment to Mr. Doan in shares.
- The company’s at-the-market offering program expired June 8, 2024; it sold no shares under the program during the nine months ended May 31. As of July 5, 2024, it had no available credit facility.
Outlook, risks and contingencies
- Going concern: The filing states that recurring losses, operating cash use and a declining cash balance raise substantial doubt about the company’s ability to continue as a going concern. Management believes its liquidity plan, if implemented successfully, can fund obligations for 12 months after issuance, but cautions there is no assurance. The plan relies on cost reductions, higher-margin products, possible asset sales and potential additional equity or debt financing. Financial statements contain no adjustments that might be required if the company cannot continue as a going concern.
- Management expects module growth and continued commercial sales of UV LED products to support margins and cash flow, and is targeting niche markets. It is also considering reduced activity and capital spending and has pursued a fabless approach, workforce reductions and possible sales of manufacturing equipment. No quantified revenue or earnings guidance is provided.
- Management estimated fiscal 2024 cash requirements for debt service and contractual obligations at approximately $3.4 million, which it expected to fund through equity issuance to repay debt and loan extensions. Related-party loans were extended to January 15, 2025; future extensions and financing are not assured.
- Customer concentration is high: the top ten customers represented 94% of quarterly revenue and 92% of nine-month revenue; the three largest represented 79% and 65%, respectively. Sales to the United States, Japan, the Netherlands and Taiwan together accounted for 91% of revenue in both periods.
- Nasdaq listing remains a material risk. Stockholders’ equity was $2.765 million at May 31, above the stated $2.5 million minimum, and the company reported a conditional compliance letter in January. Following a July 3 director and audit committee appointment, management believed the committee met Nasdaq requirements but had not received a compliance letter as of the filing. Continued listing is not assured.
- Other disclosed risks include competition and pricing pressure, underutilized manufacturing capacity, reliance on limited suppliers and contract manufacturers, currency movements, and the ability to obtain funding. No material pending litigation or material purchase commitments were reported as of May 31.
Important facts for investors to verify
- Whether SemiLEDs can execute its liquidity plan, extend or refinance debt, and meet the going-concern challenge without additional dilution.
- Current Nasdaq listing compliance status, including equity and audit committee requirements.
- The composition and sustainability of “other revenue” and other income, and whether higher-margin product sales can offset falling volumes and revenue.
- Customer and market concentration, inventory recoverability, and continuing inventory write-downs.
- The scope and maturity terms underlying the filing’s differing debt totals, and the terms of any further related-party repayments in shares.