Aehr Test Systems — Form 10-Q Summary
Reporting period: Third quarter and first nine months of fiscal 2012, ended February 29, 2012. Financial statements are unaudited. Amounts below are in U.S. dollars.
Business context and results
Aehr designs, manufactures and markets semiconductor test and burn-in equipment, including ABTS, FOX and MAX systems and related products and services. It reports one operating segment.
| Metric | Three months ended Feb. 29, 2012 | Prior-year quarter | Nine months ended Feb. 29, 2012 | Prior-year nine months |
|---|---|---|---|---|
| Net sales | $2.855 million | $4.242 million | $10.845 million | $9.988 million |
| Gross profit / margin | $1.108 million / 38.8% | $1.605 million / 37.8% | $4.038 million / 37.2% | $3.903 million / 39.1% |
| Operating loss | $1.350 million | $0.920 million | $3.670 million | $3.818 million |
| Net loss | $1.361 million | $0.946 million | $2.610 million | $3.229 million |
| Basic and diluted loss per share | $0.15 | $0.11 | $0.29 | $0.37 |
Quarterly sales fell 32.7%, primarily because wafer-level product sales declined by about $2.0 million, partly offset by approximately $0.7 million higher monitored burn-in sales. For the nine months, sales rose 8.6%: monitored burn-in sales increased about $2.4 million to $5.6 million, while wafer-level sales fell about $1.6 million to $5.2 million. Nine-month gross margin declined mainly because of higher initial material costs on certain early production systems sold in the second quarter.
For the quarter, SG&A was $1.525 million versus $1.486 million; R&D was $0.933 million versus $1.039 million. For the nine months, SG&A was $4.654 million versus $4.499 million and R&D was $3.054 million versus $3.377 million. Nine-month results included a $990,000 gain on sale of a long-term investment; the comparable prior-year period included $593,000 of other income, largely a $575,000 investment dividend, and a $155,000 gain on a bankruptcy claim. These items affect comparison of underlying performance.
Cash flow, balance sheet and liquidity
Cash and cash equivalents were $2.975 million at February 29, 2012, down from $4.020 million at May 31, 2011. Working capital was $6.6 million. Total assets were $10.456 million and shareholders’ equity was $7.050 million. The company reported a $716,000 line-of-credit borrowing, its only stated borrowing on the balance sheet; the facility permits borrowing up to $1.5 million against eligible receivables and export-related inventory. Aehr said it was in compliance with covenants.
For the first nine months, operating cash use was $3.206 million, compared with $4.452 million in the prior-year period. Investing provided $1.355 million, mainly from $1.375 million in proceeds from the investment sale; financing provided $0.830 million, including the $0.716 million credit-line draw. Inventory rose $692,000 from fiscal year-end, while accounts receivable declined $607,000. The company said inventory was built to support expected customer shipments and receivables declined partly because of improved payment terms.
Management expected existing cash, operating cash flows and credit-facility availability to meet working-capital and capital-equipment needs through fiscal 2013. It cautioned that additional debt or equity financing may be needed after fiscal 2013 depending on growth and profitability, and that financing availability and terms are not assured.
Outlook, risks and other notable disclosures
- Customer concentration is pronounced: the five largest customers represented approximately 98% of quarterly sales and 86% of nine-month sales. Three customers represented 59%, 17% and 17% of quarterly revenue.
- Management identified semiconductor-industry cyclicality, order cancellations or deferrals, customer concentration and credit risk, supplier dependence, product-development and acceptance challenges, and foreign-exchange exposure as risks. The FOX market is described as early-stage, with lengthy customer qualification requirements.
- Sales are often high-value, low-volume system transactions, and orders may be cancelled or rescheduled with limited penalties. Backlog may therefore not predict future sales.
- The company had not regained compliance with Nasdaq’s minimum bid-price rule as of the filing: it had until April 30, 2012 to regain compliance. Failure could result in delisting. It previously transferred to the Nasdaq Capital Market after falling short of the Global Market’s stockholders’ equity requirement.
- The company reported no pending legal proceedings, no off-balance-sheet financing arrangements and no material changes to internal control over financial reporting. Management concluded disclosure controls were effective.
Important facts for investors to verify
- Whether sales recover after the sharp quarterly decline, particularly wafer-level product demand and customer order timing.
- Whether the high customer concentration persists and whether major customers maintain orders and meet payment obligations.
- Cash-burn trends, inventory conversion into shipments, and continued access to the credit facility; management’s liquidity outlook only extends through fiscal 2013.
- Nasdaq bid-price compliance status and any resulting listing consequences after the April 30, 2012 deadline.
- How much reported nine-month improvement depended on the nonrecurring investment-sale gain, and whether gross margins recover from early-production costs.