Aehr Test Systems — Fiscal 2020 Third-Quarter Form 10-Q
Reporting period: Three and nine months ended February 29, 2020; comparable periods ended February 28, 2019. Unaudited. Aehr develops and manufactures semiconductor test and burn-in equipment, including wafer-level systems and contactors.
Financial performance
| Metric | Three months ended Feb. 29, 2020 | Prior-year quarter | Nine months ended Feb. 29, 2020 | Prior-year nine months |
|---|---|---|---|---|
| Net sales | $6.111 million | $3.163 million | $18.518 million | $13.814 million |
| Gross profit / margin | $2.991 million / 48.9% | $0.272 million / 8.6% | $8.464 million / 45.7% | $4.223 million / 30.6% |
| Operating income (loss) | $0.255 million | $(3.116) million | $0.076 million | $(5.123) million |
| Net income (loss) | $0.245 million | $(3.201) million | $0.083 million | $(5.345) million |
| Net income (loss) per diluted share | $0.01 | $(0.14) | $0.00 | $(0.24) |
- Quarterly sales rose 93.2% year over year; nine-month sales rose 34.1%. Wafer-level product sales were $5.4 million in the quarter and $16.6 million year to date. Test During Burn-in (TDBI) sales declined to $0.7 million and $1.9 million, respectively.
- Quarterly gross margin improved from the prior-year period, which management attributed to greater inventory write-downs and unabsorbed manufacturing overhead at lower production and revenue levels. Nine-month margin also improved as sales rose and those prior-year pressures eased.
- Nine-month operating cash flow was negative $0.640 million, versus negative $4.793 million a year earlier. Investing activities used $0.149 million; financing activities provided $0.423 million, mainly from employee stock-plan share issuance. Cash and cash equivalents were $5.058 million at period end; cash, cash equivalents and restricted cash totaled $5.138 million.
- At February 29, 2020, working capital was $15.2 million, current assets $18.485 million, and current liabilities $3.327 million. Inventory was $9.330 million. Total liabilities were $5.133 million, including $2.416 million of operating lease liabilities; the filing reports no outstanding borrowings.
Changes and notable items
- SG&A was $1.891 million for the quarter and $5.856 million for nine months. R&D was $0.845 million and $2.532 million, respectively. No restructuring charges were recorded in fiscal 2020 to date; the comparable prior-year periods included $0.607 million of employee termination costs.
- Interest income replaced interest expense after the convertible notes were repaid at maturity in April 2019.
- The company adopted lease accounting standard ASC 842 on June 1, 2019, recognizing $2.7 million of right-of-use assets and $2.8 million of lease liabilities at adoption. Adoption had no material effect on earnings or cash flows.
- On January 16, 2020, Aehr entered into an undrawn Silicon Valley Bank revolving facility with a $4.0 million limit, subject to an eligible-receivables borrowing base. The stated minimum interest rate is 4.75%; maturity is 364 days from January 13, 2020. The company reported compliance with applicable reporting covenants.
Outlook, risks and contingencies
- Management said existing cash, operating income, receivable collections, backlog revenue, inventory sales and customer deposits/down payments were expected to meet liquidity needs for the next 12 months. No quantified revenue or earnings guidance was provided.
- The filing added COVID-19 as a risk: employee travel restrictions, supplier/customer facility closures, supply-chain disruption and broader economic weakness could adversely affect demand and results; the impact was described as highly uncertain and not predictable.
- After quarter end, on March 19, 2020, the company approved dissolution of its majority-owned Japan subsidiary. It expected approximately $150,000 of fourth-quarter fiscal 2020 severance and legal charges and estimated quarterly savings of approximately $90,000 beginning in fiscal 2021.
- Customer concentration was substantial: the five largest customers represented approximately 94% of quarterly sales and 89% of nine-month sales; one customer represented about 71% of quarterly sales. Legal proceedings: none reported. Management assessed disclosure controls as effective.
Investor verification points
- Verify the sustainability and customer/order drivers of the wafer-level sales increase, given the decline in TDBI sales and high customer concentration.
- Review subsequent disclosures on COVID-19 effects, backlog, collections, supplier availability and any revision to management’s 12-month liquidity assessment.
- Track execution, costs and realized savings from the Japan subsidiary dissolution against the stated estimates.
- Confirm availability and terms of the revolving facility, lease obligations, and cash generation as customer deposits and deferred revenue declined.
- Compare future gross margins with the improved quarter and assess whether prior-year inventory write-down and manufacturing-efficiency pressures recur.