Aehr Test Systems — Form 10-Q Summary
Business context and reporting period. The filing covers the quarter ended February 28, 2013, and the nine months then ended. Aehr designs, manufactures, and markets semiconductor test and burn-in equipment, including ABTS, FOX, and MAX systems, wafer contactors, and related products and services. Figures below are in U.S. dollars; financial statement amounts are in millions unless otherwise noted.
Financial performance
| Metric | Three months ended Feb. 28, 2013 | Three months ended Feb. 29, 2012 | Nine months ended Feb. 28, 2013 | Nine months ended Feb. 29, 2012 |
|---|---|---|---|---|
| Net sales | $3.340 | $2.855 | $13.226 | $10.845 |
| Gross profit | $0.765 | $1.108 | $5.484 | $4.038 |
| Gross margin | 22.9% | 38.8% | 41.5% | 37.2% |
| Operating expenses | $2.196 | $2.458 | $7.945 | $7.708 |
| Operating loss | $(1.431) | $(1.350) | $(2.461) | $(3.670) |
| Net loss | $(1.458) | $(1.361) | $(2.565) | $(2.610) |
| Basic and diluted loss per share | $(0.16) | $(0.15) | $(0.28) | $(0.29) |
Cash flow and liquidity. For the nine months, operating cash use was $0.303 million, compared with $3.206 million in the prior-year period. Investing activities used $0.126 million; financing activities used $0.013 million. Foreign-exchange movements reduced cash by $0.250 million. Cash and equivalents were $1.381 million at February 28, down from $2.073 million at May 31, 2012. Working capital was $4.4 million.
Debt and balance sheet. The company had $1.215 million outstanding on its asset-secured line of credit, with a $2.5 million stated facility limit and no borrowing availability at February 28, 2013. The facility matured August 23, 2013; the weighted-average rate on the outstanding balance was 4.07%, and the company reported compliance with covenants. Total assets were $9.415 million, total liabilities $4.883 million, and shareholders’ equity $4.532 million. Inventory was $5.722 million.
Material changes versus prior comparable periods
- Quarterly sales increased 17.0%, driven by wafer-level product sales, while gross profit fell 31% and gross margin declined 15.9 percentage points. Management attributed the margin decline to higher direct material costs, increased inventory reserves, and higher warranty provisions.
- Nine-month sales increased 22.0%. Test During Burn-in product sales rose about $3.7 million to $8.8 million, while wafer-level product sales declined about $1.1 million to $4.2 million. Nine-month gross margin rose 4.3 percentage points, which management attributed primarily to manufacturing efficiencies from higher sales.
- Nine-month operating loss narrowed to $2.461 million from $3.670 million. Net loss improved only slightly, in part because the prior-year period included a $0.990 million gain on sale of a long-term investment.
- Quarterly SG&A was essentially flat year over year; nine-month SG&A rose 15.3%, primarily due to higher presales support and sales commissions. R&D declined in both comparisons.
Outlook, commentary, risks, and unusual items
- Management expected cash, operating cash flows, proceeds from the March 2013 private placement, and the credit facility to cover working capital and capital equipment needs through calendar 2013. It cautioned that additional financing might be needed thereafter depending on growth and profitability, and that financing might not be available on acceptable terms.
- On March 15, 2013, the company completed a private placement of 1,158,000 shares at $1.00 per share, generating $1.158 million gross proceeds before expenses. The transaction included certain directors and officers. The filing reported 10,520,987 common shares outstanding at March 31, 2013.
- Revenue is highly concentrated: the five largest customers represented approximately 98% of quarterly sales and 80% of nine-month sales. Three customers accounted for approximately 40%, 37%, and 16% of quarterly revenue.
- Key disclosed risks include customer concentration, order cancellation or rescheduling, semiconductor industry cycles, product qualification and market acceptance, supplier dependence, and foreign-currency exposure. The company does not hedge currency risk. A 10% decline in the yen was not expected to significantly affect net income or loss.
- The company revised its acceptance-related revenue recognition policy in the quarter, no longer deferring amounts for acceptance activities deemed perfunctory or inconsequential; adoption had no material impact. It also recognized qualifying development-contract revenue using milestone accounting.
- The company received a NASDAQ bid-price deficiency notice on December 26, 2012 and reported regaining compliance on April 3, 2013. No legal proceedings were reported. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Most important facts for investors to verify
- Whether gross-margin pressure from materials, inventory reserves, and warranty costs persists despite nine-month margin improvement.
- Customer concentration, order timing, and product mix, especially the substantial quarterly contribution from three customers.
- Liquidity after the private placement, the line’s August 2013 maturity, and the continuing lack of borrowing availability at the period end.
- The dilution and related-party details of the 1,158,000-share placement, including its effect on the share count.
- Execution, qualification, and customer acceptance of FOX, ABTS, and the next-generation system development project.