Aehr Test Systems — Form 10-Q Summary
Business context and period. Unaudited results cover the fiscal second quarter and six months ended November 30, 2011, compared with the corresponding 2010 periods. Aehr designs, manufactures, and markets semiconductor test and burn-in equipment, including ABTS, FOX, and MAX systems.
Key financial results
| Metric | Three months ended Nov. 30, 2011 | Three months ended Nov. 30, 2010 | Six months ended Nov. 30, 2011 | Six months ended Nov. 30, 2010 |
|---|---|---|---|---|
| Net sales | $3.86 million | $3.58 million | $7.99 million | $5.75 million |
| Gross profit / margin | $1.13 million / 29.2% | $1.35 million / 37.9% | $2.93 million / 36.7% | $2.30 million / 40.0% |
| Operating loss | $1.44 million | $1.34 million | $2.32 million | $2.90 million |
| Net loss | $1.37 million | $0.77 million | $1.25 million | $2.28 million |
| Net loss per share, basic and diluted | $0.15 | $0.09 | $0.14 | $0.26 |
- Cash flow: Six-month operating cash use was $2.42 million, versus $3.14 million a year earlier. Investing activities provided $1.36 million, mainly from selling the ESA Electronics investment; financing provided $0.11 million. Cash declined $0.89 million to $3.13 million.
- Liquidity: Working capital was $7.7 million. Current assets were $11.02 million and current liabilities $3.32 million at November 30, 2011.
- Debt and facility: The company had not borrowed under its August 2011, one-year working-capital facility, which permits borrowing up to $1.5 million against eligible receivables and export-related inventory. It reported compliance with covenants. The filing does not provide a clear value for any other debt balance.
- Balance sheet: Total assets were $11.91 million and shareholders’ equity was $8.25 million. Inventory was $5.58 million, up from $4.96 million at May 31, 2011.
Changes versus prior comparable periods
- Quarterly sales increased 7.9%; six-month sales increased 39.1%. For the quarter, monitored burn-in sales rose about $1.2 million while wafer-level product sales fell about $0.9 million. For the six months, monitored burn-in sales rose about $1.8 million and wafer-level sales about $0.5 million.
- Gross margin fell in both comparisons, primarily because of higher initial material costs for certain early production systems. Quarterly gross profit declined despite higher sales.
- The six-month operating loss improved, but the quarter’s net loss widened. The six-month comparison includes a $990,000 gain on sale of the ESA investment; without this non-operating gain, the reported improvement in net loss would be smaller.
- Prior-year comparisons also include $575,000 of dividend income in the three- and six-month periods and a $155,000 Spansion bankruptcy-claim recovery in the prior-year six-month period.
Outlook, risks, and other notable items
- Management expected cash, operating cash flows, and the available credit facility to meet working-capital and capital-equipment needs through fiscal 2012. It cautioned that after fiscal 2012, additional debt or equity financing might be needed depending on growth and profitability, with no assurance financing would be available on acceptable terms.
- Significant risks include semiconductor-industry cyclicality, customer order cancellations or delays, reliance on a small number of customers, and product acceptance and execution risks. The five largest customers generated approximately 90% of quarterly sales and 84% of six-month sales.
- On November 2, 2011, the company received a NASDAQ notice for falling below the $1 minimum bid-price requirement, with until April 30, 2012 to regain compliance. The filing cautions that delisting remains possible.
- Sales to Japanese customers are generally denominated in yen; the company did not hedge currency exposure. Management said a 10% yen decline was not expected to significantly change net income or loss.
- No legal proceedings were reported. Management stated disclosure controls were effective and there had been no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether customer concentration and order timing continue to support revenue growth, and whether major customers defer or cancel orders.
- Whether margins recover as early-production system costs ease, and the extent to which future results depend on nonrecurring gains or other income.
- Cash burn, inventory and receivables conversion, and continued availability and covenant compliance of the working-capital facility.
- Progress toward meeting NASDAQ’s bid-price requirement by April 30, 2012.
- Acceptance and production performance of FOX, ABTS, and other products, including warranty and supplier risks.