Aehr Test Systems — FY2020 Form 10-K
Business context and reporting period. Aehr Test Systems develops and sells semiconductor test and burn-in equipment, including FOX wafer-level systems and ABTS packaged-device systems. This annual report covers the fiscal year ended May 31, 2020; the fourth quarter ended that date was materially affected by COVID-19. The company operates as one reportable segment.
Key financial results
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales | $22.291 million | $21.056 million |
| Gross profit / margin | $8.371 million / 37.6% | $7.602 million / 36.1% |
| Operating loss | $2.765 million | $5.000 million |
| Net loss / diluted loss per share | $2.802 million / $0.12 | $5.235 million / $0.23 |
| Cash used in operating activities | $2.024 million | $5.637 million |
| Cash and cash equivalents at year-end | $5.433 million | $5.428 million |
| Working capital at year-end | $13.786 million | $14.522 million |
Annual revenue increased 5.9%, but fourth-quarter sales fell to $3.773 million from $7.242 million in the year-earlier quarter. Q4 gross loss was $93,000 and net loss was $2.885 million, versus prior-year Q4 gross profit of $3.379 million and net income of $110,000.
FY2020 sales of wafer-level products were $19.8 million, up about $5.2 million; test-during-burn-in sales were $2.5 million, down about $3.9 million. Wafer-level products represented 89% of sales, compared with 69% in FY2019. Management attributed the improved annual gross margin mainly to this product mix, partly offset by excess and obsolete inventory charges.
Financial position and material changes
- Cash from operations improved year over year, though the company still used $2.0 million. Lower customer deposits and deferred revenue, accounts payable, and shipment activity affected cash flows.
- The company received a $1.679 million Paycheck Protection Program loan in April 2020, bearing 1% interest and due in April 2022. Forgiveness was not assured; the balance sheet included $653,000 current and $1.026 million long-term debt.
- A $4.0 million revolving credit facility was in place, but no amount had been drawn at year-end and only $263,000 was available under its borrowing base.
- Backlog fell to $2.5 million at May 31, 2020 from $7.5 million a year earlier. Inventory was $8.0 million, after $1.669 million of inventory write-downs during FY2020.
- FY2020 restructuring charges were $220,000 for the closure of the Japan subsidiary. Management expected this action to save approximately $90,000 per quarter beginning in FY2021. The company had repaid its prior convertible notes in April 2019.
Outlook, risks and unusual items
Management said it could not predict the continuing effects of COVID-19, which had disrupted operations, manufacturing, customer demand and research and development. It implemented cost reductions, including mandatory vacation and shutdown days, and remote-work and onsite safety measures. Management stated that available cash and expected operating receipts, backlog revenue, inventory sales, customer deposits and anticipated PPP loan forgiveness should meet liquidity needs for the next 12 months; this outlook depends in part on anticipated loan forgiveness and business conditions. It also said it continued investing in priority areas to pursue profitable long-term growth. No specific revenue or earnings guidance was provided.
- Customer concentration is significant: the five largest customers generated 87% of FY2020 sales; Intel alone accounted for 43%. Two customers represented 45% and 18% of year-end receivables.
- Other principal risks include COVID-related disruption, semiconductor industry cyclicality, competition and pricing pressure, uncertain market adoption and qualification of FOX systems, reliance on limited or sole-source suppliers, and customer order cancellations or shipment delays.
- The company warned that PPP loan forgiveness could be denied and that SBA review or audit could require repayment or lead to penalties. Management’s liquidity assessment also notes that future financing may be needed depending on growth and profitability.
- The 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.
Important facts for investors to verify
- Whether the PPP loan was forgiven, and any remaining repayment obligations or regulatory review.
- Whether backlog, orders and customer demand recovered after the sharp FY2020 fourth-quarter decline.
- Whether the elevated customer concentration and large receivable exposures changed, and whether collections were made on time.
- Whether further inventory write-downs or product-transition costs affect margins, particularly for ABTS products.
- Whether cash use, credit-facility availability and liquidity remain consistent with management’s 12-month assessment.
- Whether FOX product adoption and wafer-level growth can offset continued weakness in packaged-part systems.