Aehr Test Systems — Form 10-Q Summary
Business context and period: This unaudited filing covers the three months ended August 31, 2017, Aehr Test Systems’ first quarter of fiscal 2018. The company designs, manufactures and markets semiconductor test and burn-in equipment, including wafer-level products and Test During Burn-in systems. Unless otherwise indicated, amounts below are in U.S. dollars.
Financial performance
| Metric | Q1 FY2018 | Q1 FY2017 |
|---|---|---|
| Net sales | $6.970 million | $5.318 million |
| Gross profit / margin | $2.918 million / 41.9% | $2.206 million / 41.5% |
| Operating income (loss) | $172,000 | $(570,000) |
| Net income (loss) | $10,000 | $(755,000) |
| Operating cash flow | $(3.877) million | $1.244 million |
- Sales rose 31.1% year over year. Wafer-level product sales were $4.2 million, up approximately $1.4 million; TDBI product sales were $2.8 million, up approximately $0.2 million.
- Gross margin improved 0.4 percentage points. Operating expenses totaled $2.746 million versus $2.776 million; SG&A increased 4.4% to $1.791 million while R&D declined 9.9% to $955,000.
- Net interest expense was $107,000, down from $178,000, primarily because note issuance costs were fully amortized in fiscal 2017. Other expense was $60,000, mainly reflecting foreign-currency movements.
- Cash and cash equivalents were $13.993 million at August 31, 2017, down $3.810 million from May 31, 2017. Working capital was $22.3 million, compared with $21.5 million at fiscal year-end.
- Current liabilities were $8.079 million. Convertible notes were $6.110 million, bearing 9% interest and due April 10, 2019; the obligations are secured by substantially all company assets. No credit-facility availability remained.
Material changes and financial position
- Operating cash use reversed from $1.244 million provided in the prior-year quarter. The main uses included increases in inventory ($2.044 million), accounts receivable ($1.260 million) and prepaid expenses and other current assets ($1.089 million); accounts payable increased $651,000. Management said inventory growth supported future shipments for customer orders, receivables reflected higher sales, and prepaid assets mainly reflected vendor down payments.
- Inventory increased to $9.020 million from $6.604 million at May 31, 2017. Accounts receivable rose to $5.301 million from $4.010 million.
- Sales mix shifted geographically: Asia sales were $5.660 million versus $1.910 million a year earlier; U.S. sales were $1.290 million versus $3.164 million.
- Customer concentration was very high: the five largest customers accounted for approximately 99% of sales, and two customers represented approximately 54% and 35% individually.
Outlook, risks and other matters
- Management expected existing cash, operating income, collections, backlog revenue, inventory sales, and customer deposits/down payments to meet liquidity requirements for the next 12 months. The filing provides no numerical revenue or earnings guidance.
- Key disclosed exposures include dependence on a small number of customers, foreign-currency fluctuations, and estimates affecting revenue recognition, receivables, inventory, taxes and warranties. The company reported no material change in previously disclosed risk factors and no use of currency hedges.
- The company reported no legal proceedings, off-balance-sheet financing arrangements, or material changes in contractual obligations. Its U.S. manufacturing and office lease was due to expire in June 2018.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. The filing states that the company had a full valuation allowance against deferred tax assets.
Important facts for investors to verify
- Whether the elevated customer concentration and Asia-led sales mix persist, and the status and timing of major customer orders.
- Whether increased inventory and vendor prepayments convert into shipments, revenue and cash collections; operating cash flow was materially negative despite near break-even net income.
- The terms, interest burden, security and potential dilution associated with the $6.110 million convertible notes due in 2019.
- Whether management’s 12-month liquidity expectation remains supportable, particularly given cash decline, customer deposits and the June 2018 facility lease expiration.
- The filing’s results are for the quarter ended August 31, 2017; they are not necessarily indicative of full-year performance.