AEhr Test Systems — Form 10-Q Summary
Reporting period: First quarter of fiscal 2012, the three months ended August 31, 2011. Comparisons are with the three months ended August 31, 2010, or with May 31, 2011 for balance-sheet items. The company designs, manufactures and markets semiconductor test and burn-in equipment.
Financial highlights
| Metric | Q1 FY2012 | Q1 FY2011 |
|---|---|---|
| Net sales | $4.130 million | $2.169 million |
| Gross profit / margin | $1.802 million / 43.6% | $0.944 million / 43.5% |
| Operating expenses | $2.683 million | $2.505 million |
| Operating loss | $(0.881) million | $(1.561) million |
| Net income (loss) | $0.124 million | $(1.516) million |
| Basic and diluted EPS | $0.01 | $(0.17) |
| Cash from operations | $(1.620) million | $(2.567) million |
Sales rose 90.4%, driven primarily by wafer-level products, up about $1.2 million to $2.3 million, and monitored burn-in products, up about $0.6 million to $1.2 million. Gross margin was nearly unchanged. SG&A increased 5.5% to $1.601 million, while R&D remained approximately $1.1 million.
Net income included a $990,000 gain on the sale of the ESA Electronics investment. The sale generated approximately $1.375 million in cash proceeds. Excluding this gain, the company reported an operating loss of $881,000; the filing does not present an adjusted net-income measure.
Financial position and liquidity
- At August 31, 2011, cash and cash equivalents were $3.892 million, down from $4.020 million at May 31, 2011. Accounts receivable were $2.633 million and inventory was $5.169 million.
- Current assets were $11.941 million and current liabilities were $3.133 million; reported working capital was $8.8 million. Total liabilities were $3.522 million. The filing reports no borrowings outstanding.
- Operating cash use of $1.620 million was driven mainly by a $1.101 million increase in receivables and a $211,000 increase in inventory, partly offset by a $376,000 increase in accounts payable. Investing activities provided $1.368 million, primarily from the investment sale. Cash decreased by $128,000 during the quarter.
- A one-year working-capital credit facility entered into August 25, 2011 permits borrowing of up to $1.5 million, subject to eligible receivables, export-related inventory and borrowing-base conditions. It was undrawn at quarter-end, and the company reported compliance with covenants. Collateral covers company assets other than intellectual property.
Changes, outlook and risks
- The company said cash, operating cash flows and facility availability were expected to meet working-capital and capital-equipment needs through fiscal 2012. It cautioned that financing might be required after fiscal 2012 depending on growth and profitability, and that future financing availability and terms were uncertain. No specific revenue or earnings guidance was provided.
- Sales were highly concentrated: the five largest customers represented approximately 90% of quarterly sales, versus 93% a year earlier. Two customers accounted for approximately 53% and 14% of current-quarter sales.
- Management highlighted semiconductor-industry cyclicality, customer order cancellations or delays, customer concentration and credit risk, and dependence on acceptance of FOX and ABTS products. The filing also discusses supplier constraints, product-development and warranty risks, foreign-currency exposure, and potential effects of natural disasters, including the 2011 Japan earthquake and tsunami.
- Sales to Japan are substantially denominated in yen; the company does not hedge currency risk. Management stated that a 10% yen decline versus the U.S. dollar was not expected to significantly affect net income or loss.
- The company had no derivatives, reported no pending intellectual-property infringement claims against it, and reported no legal proceedings. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether sales growth continues and customer concentration remains manageable, particularly given the two customers representing 67% of quarterly sales.
- Whether receivables convert to cash and operating cash use improves; receivables increased substantially during the quarter.
- How much of reported profitability depends on the non-recurring $990,000 investment-sale gain, and whether core operations can reach profitability.
- Availability and borrowing-base conditions of the $1.5 million facility, and whether the company can fund needs beyond fiscal 2012 without additional financing.
- Customer adoption, production performance and warranty costs for FOX, ABTS and other products, alongside semiconductor-cycle, supplier and Japan-related risks.