Aehr Test Systems — Q3 FY2015 Form 10-Q
Reporting period: Quarter and nine months ended February 28, 2015; unaudited. Aehr designs, manufactures and markets semiconductor test and burn-in equipment, including ABTS and FOX systems, WaferPak contactors and related products and services.
Financial results
| Metric | Three months ended Feb. 28, 2015 | Year-ago quarter | Nine months ended Feb. 28, 2015 | Year-ago nine months |
|---|---|---|---|---|
| Net sales | $2.03 million | $5.61 million | $8.20 million | $14.31 million |
| Gross profit / margin | $0.85 million / 42.0% | $2.87 million / 51.1% | $3.16 million / 38.5% | $7.31 million / 51.1% |
| Operating income (loss) | $(1.76) million | $0.26 million | $(4.88) million | $0.28 million |
| Net income (loss) | $(1.73) million | $0.21 million | $(4.75) million | $0.18 million |
| Net income (loss) per share, diluted | $(0.14) | $0.02 | $(0.40) | $0.02 |
- Quarterly sales fell 63.9% year over year; nine-month sales fell 42.7%. Management attributed the decline to weaker TDBI and wafer-level product sales, including customers absorbing capacity installed in the prior year.
- Lower sales reduced gross margins; management cited manufacturing inefficiencies in the quarter and, for the nine-month comparison, prior-year sales of systems containing previously reserved inventory.
- Quarterly SG&A declined 6.9% to $1.58 million, while R&D increased 13.7% to $1.03 million. For nine months, SG&A rose 6.6% to $4.94 million and R&D rose 29.7% to $3.10 million.
- Other income was $110,000 for the quarter and $201,000 for nine months, versus other expense in the comparable periods; management primarily attributed the change to foreign currency fluctuations.
Cash, liquidity and financing
- At February 28, 2015, cash and cash equivalents were $2.27 million, current assets $10.15 million, current liabilities $4.83 million, and working capital $5.3 million. Total assets were $10.75 million.
- The company used $1.64 million in operating cash and $106,000 in investing cash during the nine months. Financing provided $2.47 million, chiefly from a November 2014 private placement; cash increased $465,000 to $2.27 million.
- The balance sheet showed $115,000 drawn on the working-capital line, with $78,000 available to borrow at quarter-end. The company reported covenant compliance. The facility was secured by company assets and was terminated in connection with the subsequent financing.
- In November 2014, the company issued 1,065,029 shares in a private placement, receiving net proceeds of $2.574 million. Shares outstanding were 12.695 million at February 28, 2015, versus 11.203 million at May 31, 2014.
Outlook, subsequent event and risks
- Management expected cash, operating cash flows and funding available under the subsequent financing agreement to meet working-capital and capital-equipment needs through calendar 2015. It cautioned that additional financing may be needed thereafter, depending on growth and profitability, and may not be available on acceptable terms.
- On April 10, 2015, after quarter-end, Aehr agreed to issue $4.11 million of 9.0% secured convertible notes due 2017, initially convertible at $2.65 per share, and obtained a secured revolving credit facility of up to $2.0 million at 5%. Facility advances are due within 90 days; the financing is secured by substantially all company assets.
- Customer concentration was substantial: the five largest customers accounted for 82% of quarterly sales and 87% of nine-month sales; one customer represented about 60% of quarterly sales.
- Principal risks include continued weak demand and losses, dependence on a small number of customers and large system orders, uncertain FOX market adoption, competition, product qualification and reliability issues, and foreign-exchange exposure. The company does not hedge currency risks. No legal proceedings were reported.
- Management stated disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Confirm subsequent-note and credit-facility closing terms, collateral, conversion and repayment provisions, and actual availability of revolving credit.
- Track cash burn, operating performance and whether the stated funding runway through calendar 2015 remains adequate.
- Assess sales recovery, gross-margin trends and demand for ABTS, TDBI and FOX products, including customer capacity utilization.
- Monitor customer concentration, order cancellations or deferrals, and collection of receivables.
- Evaluate potential dilution from the convertible notes, employee equity plans and additional financing needs.