AEHR TEST SYSTEMS — Form 10-Q Summary
Reporting period: Fiscal second quarter and first half ended November 30, 2022. Financial statements are unaudited; amounts below are in U.S. dollars, generally millions unless stated otherwise.
Business context and financial performance
Aehr Test Systems develops and manufactures semiconductor test and burn-in equipment. Management attributed higher sales primarily to stronger demand for wafer-level products used in silicon carbide applications.
| Metric | Quarter ended Nov. 30, 2022 | Prior-year quarter | Six months ended Nov. 30, 2022 | Prior-year six months |
|---|---|---|---|---|
| Net sales | $14.815 | $9.611 | $25.486 | $15.257 |
| Gross profit / margin | $7.911 / 53.4% | $4.519 / 47.0% | $12.392 / 48.6% | $6.800 / 44.6% |
| Operating income (loss) | $3.485 | $0.717 | $3.943 | $(0.276) |
| Net income | $3.725 | $0.717 | $4.314 | $1.413 |
| Diluted earnings per share | $0.13 | $0.03 | $0.15 | $0.05 |
| Operating cash flow | Not separately presented | Not separately presented | $5.266 | $5.211 |
Quarterly sales rose 54.1% year over year; first-half sales rose 67.0%. First-half wafer-level revenue was $24.723 million versus $14.250 million. Quarterly gross margin improved 6.4 percentage points, which management attributed to manufacturing efficiencies, lower warranty provision and lower freight costs. First-half gross margin improved 4.0 points, primarily from manufacturing efficiencies. SG&A and R&D expenses increased in both comparison periods, mainly reflecting higher personnel-related costs and other operating expenses.
Financial position, liquidity and debt
- At November 30, 2022, cash and cash equivalents were $18.874 million and short-term investments were $17.710 million; total cash, cash equivalents and investments were approximately $36.664 million. The cash balance fell from $31.484 million at May 31, largely as the company purchased Treasury securities.
- Working capital was $54.8 million, compared with $49.0 million at May 31. Current assets were $65.535 million and current liabilities were $10.746 million.
- Inventory was $17.972 million, up from $15.051 million at May 31. Management said the increase supported expected shipments for customer orders.
- The company reported no borrowing under its revolving credit facility at November 30 and $6.782 million available to borrow. It reported no financial covenants in the agreement and compliance with reporting requirements. No other outstanding debt balance was reported.
- Six-month investing cash outflow was $17.751 million, mostly purchases of U.S. Treasury securities. Financing cash outflow was $0.104 million. Operating cash flow was $5.266 million.
Changes, outlook, risks and unusual items
- Higher revenue and operating profitability were accompanied by higher operating expenses. Prior-year first-half net income included a $1.698 million gain from forgiveness of a PPP loan; there was no comparable gain in 2022.
- Management said existing cash, available credit, expected operating income, receivable collections, backlog revenue, inventory sales and customer deposits should be adequate for working capital and capital needs over the next 12 months. The filing provides no specific revenue or earnings guidance.
- Customer concentration is substantial: the five largest customers represented approximately 98% of sales in both the quarter and first half. Two customers accounted for about 79% and 15% of quarterly sales.
- On December 5, 2022, the company amended its U.S. facility lease, extending it through September 2030. Monthly base rent is scheduled to increase from $66,385 to $88,474 beginning August 2023, with annual 4% increases thereafter; the amendment also provides two months’ rent abatement and an improvement allowance of up to $282,090.
- On January 10, 2023, the company amended its SVB credit agreement, extending the line’s maturity to January 13, 2024. A further extension to January 13, 2025 is conditional on an acceptable fiscal 2024 plan and at least $20 million of net cash at November 30, 2023.
- The filing identifies financing availability, potential dilution or restrictive debt terms, customer concentration, estimates such as inventory and warranty obligations, and foreign exchange fluctuations as relevant considerations. Management said a 10% decrease in subsidiary local currencies versus the U.S. dollar was not expected to significantly affect net income or loss. No legal proceedings were reported.
Important facts for investors to verify
- Whether silicon carbide-related demand and customer orders support continued sales growth, given the high customer concentration.
- Whether inventory growth converts into shipments and cash collections as expected.
- How gross margins develop as sales mix, manufacturing volume, warranty costs and freight costs change.
- Cash and investment balances, credit-line availability, and the conditions for the facility’s subsequent maturity extension.
- The effects of the extended facility lease and its scheduled rent increases on future costs.