Aehr Test Systems — Form 10-Q Summary
Business context and reporting period. This unaudited Form 10-Q covers the fiscal second quarter and six months ended November 30, 2021. Aehr develops and manufactures semiconductor burn-in and test equipment. Its principal products include wafer-level test systems and contactors.
Financial performance
| Metric | Three months ended Nov. 30, 2021 | Six months ended Nov. 30, 2021 |
|---|---|---|
| Net sales | $9.6 million, up 471% year over year | $15.3 million, up 313% |
| Gross profit and margin | $4.5 million; 47.0% (22.4% prior year) | $6.8 million; 44.6% (16.3% prior year) |
| Operating income (loss) | $0.7 million | $(0.3) million |
| Net income (loss) | $0.7 million; $0.03 diluted EPS | $1.4 million; $0.05 diluted EPS |
Quarterly sales growth was driven mainly by wafer-level products, which generated $9.1 million. For the six-month period, wafer-level products generated $14.3 million. The company attributed improved gross margins primarily to manufacturing efficiencies associated with higher sales. SG&A and R&D expenses increased with additional headcount and, for SG&A, higher sales commissions.
Cash flow and liquidity. Cash and cash equivalents were $35.0 million at November 30, versus $4.6 million at May 31, 2021; cash, cash equivalents and restricted cash totaled $35.1 million. Working capital was $39.5 million, compared with $10.1 million at May 31. Six-month operating cash flow was $5.2 million, versus cash used of $2.3 million in the prior-year period. The operating cash inflow included a $10.0 million increase in customer deposits and deferred revenue, partly offset by higher inventory ($4.2 million) and receivables ($2.3 million). Investing cash outflow was $0.1 million; financing cash inflow was $25.4 million, principally from the stock offering.
Debt and financing. The company reported no credit-line borrowings at November 30 and had $3.35 million available under the facility. The $1.68 million PPP loan and related interest were forgiven in June 2021, producing a $1.70 million gain included in six-month earnings. In October, Aehr completed a $25.0 million ATM stock offering, receiving $24.0 million net and issuing approximately 1.70 million shares. A January 11, 2022 amendment, after the reporting date, increased the credit line to up to $10 million subject to the borrowing base, permitted up to $3 million of borrowing against eligible customer purchase orders, and extended maturity to January 13, 2023.
Material changes and notable items
- Revenue and gross margin rose sharply from the weak prior-year comparison; the six-month operating result remained a loss despite positive net income.
- Six-month 2021 net income included the PPP forgiveness gain. Prior-year comparisons included a $2.2 million gain related to the Japan subsidiary liquidation, so reported net income comparisons include significant nonrecurring items.
- Customer deposits and deferred revenue rose to $10.3 million from $0.3 million at May 31, primarily reflecting additional customer down payments.
- Revenue and customer exposure are highly concentrated: five largest customers represented about 98% of quarterly sales and 96% of six-month sales; one customer accounted for 82% and 77%, respectively. Asia generated $8.7 million of quarterly sales and $13.9 million for six months.
Outlook, risks and contingencies
The filing provides no specific revenue or earnings guidance. Management said existing cash, expected operating income, receivable collections, existing backlog, inventory sales, and customer deposits/down payments were expected to meet working-capital and capital-equipment needs for the next 12 months. It also cautioned that results remain subject to uncertainty, including COVID-19 effects, and that external financing, if needed, may not be available on acceptable terms. Management said it continues investing in priority areas to support long-term profitable growth.
Other matters to note: customer concentration and order timing may make results volatile; inventory was increased to support expected shipments; and the company’s operating lease liabilities totaled $1.38 million. Management reported effective disclosure controls and no material change in internal control over financial reporting. No legal proceedings were reported.
Key facts for investors to verify
- Whether the sales surge and gross-margin improvement are sustainable, including the timing and conversion of customer orders and backlog.
- Customer concentration, especially the customer responsible for 82% of quarterly revenue, and the related risk of order delays or cancellations.
- Whether the $10.0 million increase in customer deposits converts into recognized revenue and cash generation as expected.
- How much of reported six-month profitability reflects recurring operations versus PPP forgiveness, and how comparisons are affected by the prior-year Japan liquidation gain.
- Share dilution from the ATM offering and employee equity plans, and the terms and actual availability of the amended credit facility.