Aehr Test Systems — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended November 30, 2012. Unaudited; financial amounts below are in U.S. dollars. The company designs, manufactures and markets semiconductor test and burn-in equipment and related products.
Financial performance
| Metric | Three months ended Nov. 30, 2012 | Prior-year quarter | Six months ended Nov. 30, 2012 | Prior-year six months |
|---|---|---|---|---|
| Net sales | $5.054 million | $3.860 million | $9.886 million | $7.990 million |
| Gross profit / margin | $2.263 million / 44.8% | $1.128 million / 29.2% | $4.719 million / 47.7% | $2.930 million / 36.7% |
| Operating expenses | $3.030 million | $2.567 million | $5.749 million | $5.250 million |
| Operating loss | $(0.767) million | $(1.439) million | $(1.030) million | $(2.320) million |
| Net loss | $(0.811) million | $(1.373) million | $(1.107) million | $(1.249) million |
| Net loss per share, diluted | $(0.09) | $(0.15) | $(0.12) | $(0.14) |
Quarterly sales increased 30.9% year over year; six-month sales increased 23.7%. Growth was led by Test During Burn-in (TDBI) products: sales were $4.4 million for the quarter and $7.2 million for six months. Wafer-level product sales were $0.6 million and $2.5 million, respectively, down approximately $1.2 million and $1.7 million against the comparable periods.
Gross-margin improvement reflected product mix and manufacturing efficiencies; the six-month comparison also benefited from development revenue for work previously performed. Quarterly SG&A rose 35.3% to $2.1 million, mainly from pre-sales support and outside sales commissions. Six-month R&D fell 10.8% to $1.9 million, attributed to fewer development projects.
Cash, liquidity and debt
- Cash and cash equivalents were $1.192 million at November 30, 2012, down from $2.073 million at May 31, 2012.
- Six-month operating cash use was $1.229 million, compared with $2.419 million in the prior-year period. Investing activities used $21,000; financing activities provided $457,000, including $277,000 of net line-of-credit borrowing.
- Working capital was $5.6 million. Current assets were $10.925 million and current liabilities $5.351 million.
- Line-of-credit borrowings were $1.685 million under a $2.5 million facility, leaving $815,000 available. The weighted-average rate was 3.95%; the facility is secured by substantially all assets other than intellectual property and matures August 23, 2013. The company reported covenant compliance.
- Management stated that cash, operating cash flows and available credit were expected to meet working-capital and capital-equipment needs through fiscal 2013. It said additional financing may be needed after fiscal 2013 depending on growth and profitability, and availability and terms are not assured.
Changes, outlook and risks
- Profitability: Quarterly and six-month operating losses narrowed year over year. The six-month prior-year result included a $990,000 gain from selling an investment; consequently, comparisons of net loss also reflect that prior-period item.
- Revenue recognition: In fiscal 2013’s first quarter, the company entered a next-generation system development arrangement with milestone-based consideration. Milestones are recognized only when specified performance and payment-related criteria are met.
- Customer and market concentration: The five largest customers represented approximately 85% of quarterly sales and 81% of six-month sales. Semiconductor-equipment demand is cyclical; orders may be canceled, rescheduled or delayed, and a small number of high-value system sales can materially affect results.
- NASDAQ listing: On December 26, 2012, the company received notice that its share price did not meet the $1.00 minimum bid-price rule. It had until June 24, 2013 to regain compliance by closing at or above $1.00 for at least 10 consecutive business days; delisting was a stated risk.
- Other risks: The filing highlights dependence on acceptance of FOX and ABTS systems, technological change, suppliers and subcontractors, foreign exchange exposure (especially the yen), customer concentration, and semiconductor-industry and broader economic conditions. The company did not hedge currency risk. It reported no pending legal proceedings and no off-balance-sheet financing arrangements.
- Controls: Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the period.
Investor verification priorities
- Check whether TDBI sales growth and the improved product mix persisted, and whether wafer-level sales recovered.
- Assess the sustainability of gross margins, including the effect of milestone-based development revenue and manufacturing efficiencies.
- Monitor cash use, inventory and receivables, line-of-credit availability, and the facility’s August 2013 maturity.
- Review exposure to the largest customers and the timing, cancellation and acceptance terms of significant orders.
- Verify whether Aehr regained NASDAQ bid-price compliance by the June 24, 2013 deadline and whether further financing was required.