Aehr Test Systems — FY2016 Form 10-K Summary
Reporting period: Fiscal year ended May 31, 2016. The filing also reports fourth-quarter results for the three months ended May 31, 2016; it is an annual report, not a standalone Q4 filing. Financial amounts below are in U.S. dollars.
Business context
Aehr Test designs, manufactures and sells semiconductor test and burn-in equipment, including wafer-level FOX systems and packaged-part ABTS systems, as well as contactors, die carriers and test fixtures. FY2016 revenue growth was driven by wafer-level products, while packaged-part test-during-burn-in sales declined.
Financial performance and liquidity
| Metric | FY2016 | FY2015 |
|---|---|---|
| Net sales | $14.5 million | $10.0 million |
| Gross profit / margin | $5.1 million / 35.5% | $3.8 million / 38.3% |
| Operating loss | $6.2 million | $6.7 million |
| Net loss | $6.8 million; $0.52 per share | $6.6 million; $0.55 per share |
| Cash used in operating activities | $6.3 million | $2.3 million |
| Cash and cash equivalents at year-end | $0.9 million | $5.5 million |
| Working capital at year-end | $4.1 million | $7.8 million |
| Shareholders’ equity (deficit) | $(0.7) million | $4.6 million |
- FY2016 revenue increased 44.7%. Wafer-level product sales rose to $8.7 million, up approximately $5.5 million; TDBI sales fell to $5.8 million, down approximately $0.7 million.
- Gross margin declined 2.8 percentage points, principally due to manufacturing inefficiencies at lower production levels; product mix and sales of fully reserved inventory partly offset the decline.
- SG&A was $7.0 million and R&D was $4.3 million. Interest expense rose to $605,000 from $130,000, primarily due to increased borrowing.
- Investing activities used $0.9 million, mainly for property and equipment. Financing activities provided $2.5 million, including $2.0 million of net credit-facility borrowings.
- At May 31, 2016, the balance sheet reported $5.962 million of convertible notes, net of issuance costs. The company also reported $10.769 million total liabilities and $10.046 million total assets.
Material changes and Q4 trend
- FY2016 sales recovered from FY2015, when revenue had fallen 49.1% year over year, but remained below FY2014’s $19.7 million.
- Quarterly sales fell from $6.6 million in Q1 FY2016 to $1.6 million in Q4. Q4 gross loss was $98,000 and net loss was $3.1 million; Q4 diluted and basic loss per share was $0.23.
- Backlog declined to $5.3 million at May 31, 2016 from $12.0 million a year earlier. The company cautions that orders may be rescheduled or cancelled.
- Customer concentration increased: Apple and Texas Instruments represented approximately 47% and 32% of FY2016 sales, respectively; the five largest customers accounted for approximately 94%.
- Cash fell by $4.6 million during FY2016, and operating cash use increased. Customer deposits and deferred revenue declined by $2.9 million, primarily reflecting lower backlog with customer down payments.
Outlook, risks and unusual items
- Management said existing cash, collections, backlog revenue, inventory sales and deposits on significant orders should cover short-term working-capital and capital-equipment needs. It also warned that additional financing may be needed depending on growth, profitability and customer down payments; financing availability and terms are not assured.
- After year-end, the company amended its convertible-note agreement on August 22, 2016, extending maturity to April 10, 2019 and reducing the conversion price from $2.65 to $2.30 per share. The forced-conversion price was also reduced from $7.50 to $6.51. The notes bear 9% annual interest and are secured by substantially all company assets.
- NASDAQ notified the company in April 2016 that it did not meet the $2.5 million minimum stockholders’ equity requirement. It received an extension to October 17, 2016 to implement a compliance plan. Delisting could reduce share liquidity and would constitute an event of default under the notes.
- On August 8, 2016, the company agreed to issue 200,000 shares to Semics Inc. in consideration for a $323,000 capital-equipment invoice.
- FOX product adoption depends on customer qualification and production acceptance. Other key risks include intense competition, dependence on a few customers and suppliers, semiconductor cyclicality, order timing, and potential product-development, reliability and warranty costs. No numerical revenue or earnings guidance is provided.
- The independent auditor issued an unqualified opinion on the financial statements. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not attest to internal-control effectiveness.
Most important facts for investors to verify
- Whether the company regained and maintained NASDAQ’s stockholders’ equity listing compliance by the stated deadline.
- Current cash runway, operating cash use and the availability or need for additional financing.
- Terms, outstanding principal and potential dilution from the amended secured convertible notes and any further conversions.
- Whether FOX production orders convert into repeat shipments and whether backlog stabilizes or grows.
- Whether sales concentration and customer receivables remain elevated, and whether gross margins recover as production levels change.