Aehr Test Systems — Form 10-Q Summary
Period: Fiscal 2015 first quarter, the three months ended August 31, 2014; comparative results are for the three months ended August 31, 2013. Financial statements are unaudited. Amounts below are in U.S. dollars.
Business context and results
Aehr designs, manufactures and markets semiconductor test and burn-in equipment, including ABTS and FOX systems, wafer-level products and related contactors, carriers and services. It reports one operating segment.
| Metric | Q1 FY2015 | Q1 FY2014 |
|---|---|---|
| Net sales | $3.558 million | $3.752 million |
| Gross profit | $1.610 million | $1.944 million |
| Gross margin | 45.3% | 51.8% |
| Operating expenses | $2.583 million | $2.101 million |
| Operating loss | $0.973 million | $0.157 million |
| Net loss | $0.907 million | $0.166 million |
| Loss per share, basic and diluted | $0.08 | $0.02 |
| Operating cash flow | $(0.218) million | $0.172 million |
Financial position and liquidity
- At August 31, 2014, cash and cash equivalents were $2.075 million, total current assets $10.828 million, total current liabilities $4.782 million, and working capital $6.0 million.
- Total assets were $11.415 million; total liabilities were $4.790 million; total shareholders’ equity was $6.625 million.
- The company had drawn $1.0 million on its $2.5 million asset-secured working-capital credit facility, with $569,000 available under the borrowing base. The weighted-average rate on the outstanding balance was 3.952%; the company reported covenant compliance. The facility was extended to August 21, 2015.
- Cash increased $266,000 during the quarter, as $538,000 of financing cash inflow— including $315,000 from stock-option exercises and $223,000 of net credit-line borrowings—more than offset cash used in operations and investing.
Material changes and management commentary
- Sales declined 5.2%. Management attributed the decrease mainly to a roughly $1.2 million reduction in Test During Burn-in product sales, partly offset by a roughly $0.9 million increase in wafer-level product sales. Q1 FY2015 sales were $1.4 million for TDBI and $2.0 million for wafer-level products.
- Gross margin fell 6.5 percentage points. Management said the prior-year quarter benefited from sales of systems containing previously written-down material.
- SG&A increased 14.4% to $1.624 million, primarily due to higher employment-related expenses. R&D increased 40.8% to $0.959 million, reflecting higher employment-related and project expenses.
- Management stated that additional equity or debt financing may be needed to support working-capital requirements and new product initiatives for fiscal 2015 and beyond. It was taking steps to obtain financing but gave no assurance that funds would be available on acceptable terms.
Risks, contingencies and other notable items
- Customer concentration is substantial: five customers represented approximately 95% of sales in both comparative quarters. Four customers represented approximately 35%, 22%, 22% and 10% of current-quarter sales.
- The company cites semiconductor-industry cyclicality, customer order cancellations or delays, dependence on a limited number of customers and suppliers, product-development and qualification risks, and foreign-exchange exposure. It does not hedge currency risk.
- The company’s U.S. manufacturing and office lease expires in June 2015. It reported no pending legal proceedings and no off-balance-sheet financing arrangements.
- Management reported disclosure controls and procedures were effective and no material change in internal control over financial reporting during the quarter.
- No specific revenue, earnings or margin guidance was provided. The filing says the company does not anticipate paying cash dividends in the foreseeable future.
Important facts for investors to verify
- Whether sales and margins recover, and whether wafer-level product growth can offset weakness in TDBI and other products.
- Customer order timing and concentration, including exposure to the largest customers and potential cancellations or deferrals.
- Cash use, working-capital needs, borrowing-base availability and the company’s ability to obtain additional financing on acceptable terms.
- Execution, customer qualification and market acceptance of FOX and other new products, along with associated development and warranty costs.
- Whether reported customer concentration, facility availability and credit terms remain consistent in subsequent filings.