Aehr Test Systems — Form 10-Q Summary
Business context and reporting period
Fiscal 2017 second quarter and first six months, ended November 30, 2016; filed January 13, 2017. Aehr designs, manufactures and markets semiconductor test and burn-in equipment, including ABTS, FOX and related wafer-level products. The interim financial statements are unaudited.
Financial results
| Metric | Three months ended Nov. 30, 2016 | Prior year | Six months ended Nov. 30, 2016 | Prior year |
|---|---|---|---|---|
| Net sales | $4.216 million | $4.620 million | $9.534 million | $11.253 million |
| Gross profit | $1.463 million | $1.691 million | $3.669 million | $5.074 million |
| Gross margin | 34.7% | 36.6% | 38.5% | 45.1% |
| Operating loss | $1.284 million | $945,000 | $1.854 million | $469,000 |
| Net loss | $1.452 million | $1.048 million | $2.207 million | $754,000 |
| Loss per diluted share | $0.09 | $0.08 | $0.15 | $0.06 |
- Second-quarter sales declined 8.7% year over year; six-month sales declined 15.3%. Management attributed the six-month decrease mainly to weaker wafer-level product sales, partly offset by increased Test During Burn-in (TDBI) sales.
- For the quarter, wafer-level sales were $1.4 million, down about $0.7 million year over year; TDBI sales were $2.7 million, up about $0.2 million. For the six months, wafer-level sales were $4.2 million, down about $3.2 million, while TDBI sales were $5.3 million, up about $1.4 million.
- Six-month gross margin fell to 38.5% from 45.1%; the prior-year period benefited from systems sales that included previously written-down material. Quarterly margin decreased primarily due to product mix.
- Six-month SG&A was $3.423 million, down 3.8%, while R&D was $2.100 million, up 5.8%, primarily due to employment-related expenses. Quarterly R&D increased 12.7%; quarterly SG&A was approximately flat.
- Six-month operating cash use was $1.416 million, compared with $3.853 million in the prior year. Investing cash use was $88,000. Financing provided $5.762 million, including $5.299 million of net private-placement proceeds.
- Cash and cash equivalents were $5.154 million at November 30, versus $939,000 at May 31, 2016. Working capital was $8.9 million, versus $4.1 million. Current assets were $13.042 million and current liabilities $4.191 million.
- Long-term debt, net of issuance costs, was $6.051 million; principal was $6.110 million. The secured convertible notes bear 9% interest, mature April 10, 2019, and have a $2.30-per-share conversion price. The credit facility had no remaining availability.
Material changes, outlook and risks
- On September 28, 2016, Aehr sold 2,721,540 shares at $2.15 per share for $5.851 million gross and $5.299 million net proceeds. It also issued 200,000 shares to settle a $323,000 capital-equipment invoice. Shares outstanding rose from 13.216 million at May 31 to 16.639 million at November 30.
- In August 2016, the company amended its note agreement, extending note maturity from 2017 to April 2019 and reducing the conversion price from $2.65 to $2.30. The debt is secured by substantially all company assets.
- Management said existing cash, expected operating receipts, collections, backlog shipments, inventory sales and customer deposits should cover short-term working-capital and capital-equipment needs. It cautioned that additional equity or debt financing may be needed depending on growth, profitability and significant orders; availability and acceptable terms are not assured. No specific revenue or earnings guidance was provided.
- Customer concentration is significant: the five largest customers generated approximately 96% of quarterly sales and 95% of six-month sales. Two customers accounted for approximately 60% and 22% of quarterly sales.
- Principal disclosed risks include continued operating losses and cash consumption, dependence on a small number of customers and large system orders, acceptance and qualification of FOX, weakening ABTS sales, intense competition, supplier concentration, product reliability and warranty costs, semiconductor industry cyclicality, and foreign-exchange exposure. The company does not hedge currency risk.
- Aehr reported no legal proceedings, no defaults upon senior securities, and effective disclosure controls. It had regained Nasdaq continued-listing compliance in October 2016 after previously falling below the stockholders’ equity requirement; continued compliance is not assured.
Important facts for investors to verify
- Whether wafer-level demand stabilizes and TDBI growth can offset lower FOX and other wafer-level sales.
- Customer concentration, order timing, cancellations or deferrals, and collection of the large shipments reflected in quarter-end receivables.
- Cash burn, working-capital trends, and whether the company can fund operations without further financing.
- Convertible-note terms, interest burden, secured status, and potential dilution from conversion or equity awards.
- Nasdaq continued-listing compliance and progress in FOX qualification, product reliability and customer adoption.