Aehr Test Systems — Form 10-Q Summary
Business context and reporting period
This filing covers the three months ended August 31, 2020, Aehr Test Systems’ fiscal 2021 first quarter. The company develops and sells semiconductor test and burn-in equipment, including wafer-level test systems, contactors, and related services. Financial statements are unaudited; dollar amounts below are in thousands unless stated otherwise.
Financial performance and liquidity
- Revenue: $2,012, down 63.6% from $5,533 a year earlier. Wafer-level products generated $1,559; Test During Burn-in products generated $453.
- Profitability: Gross profit was $227, with an 11.3% margin, versus $2,271 and 41.0%. Operating loss was $2,187, compared with $429. Net income was $107, or $0.00 per diluted share, versus a net loss of $413, or $0.02 per share.
- Unusual earnings item: The quarter included a $2,186 gain from the Japan subsidiary dissolution and a related $215 income tax benefit. The filing reports the aggregate net gain as $2,401, including the tax effect. Without this item, the reported net income would not reflect the underlying operating loss.
- Cash flow: Operating activities provided $643, versus using $190 in the prior-year quarter. Investing used $47, principally for equipment; financing provided $190 from employee-plan stock issuance. Cash and cash equivalents were $6,313 at quarter-end; cash, cash equivalents, and restricted cash totaled $6,393.
- Balance sheet and liquidity: Current assets were $15,970 and current liabilities $4,173; working capital was $11,800, compared with $13,800 at May 31, 2020. Total assets were $18,691 and total liabilities $6,370.
- Debt and leases: The $1,679 PPP loan carried 1% interest and matured April 23, 2022; the company intended to seek forgiveness, but gave no assurance it would be granted. The $4,000 SVB revolving facility was undrawn, with $159 available under the borrowing base at August 31, 2020. Operating lease liabilities were $2,103 in present value.
Material changes versus the prior-year quarter
- Revenue fell across both product lines, with wafer-level product sales down approximately $3,300 and Test During Burn-in sales down $254.
- Gross margin declined 29.7 percentage points. Management attributed the decrease to higher direct material costs, warranty adjustments, and manufacturing inefficiencies associated with lower sales.
- SG&A fell 16.3% to $1,514, primarily due to lower employment-related expense; R&D was broadly flat at $900.
- Sales to the five largest customers represented 81% of revenue, down from 93%; four customers individually represented approximately 21%, 19%, 17%, and 15% of quarterly sales.
- The company completed the liquidation of Aehr Test Systems Japan on July 31, 2020, deconsolidating the subsidiary and recognizing the dissolution-related gain.
Outlook, risks, and other notable items
- Management expected existing cash, operating income, receivable collections, backlog revenue, inventory sales, and customer deposits to be adequate for liquidity needs over the next 12 months. The filing does not provide specific revenue or earnings guidance.
- Remaining performance obligations were $128; the company expected to recognize approximately 66% in fiscal 2021 and the balance in fiscal 2022 and thereafter.
- Key risks evident in the filing include sharply lower sales, weakened gross margins, customer concentration, and foreign-currency exposure. The company reported no currency hedging instruments and no material change in market-risk exposure.
- PPP loan forgiveness was uncertain. Warranty accruals rose to $330, including $76 of adjustments to prior warranty estimates.
- The company reported no legal proceedings, no off-balance-sheet financing arrangements, and effective disclosure controls; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether revenue and gross margins recover from the quarter’s steep decline, and whether warranty costs or manufacturing inefficiencies persist.
- How much reported earnings and equity effects depend on the Japan dissolution and translation adjustment, rather than recurring operations.
- Customer order trends and concentration, including the contribution of the largest customers to future sales.
- Cash conversion and working-capital needs, including inventory levels and the limited availability under the SVB borrowing base.
- Whether the PPP loan is forgiven, and the effect on future cash obligations if it is not.