Business context and reporting period
Aehr Test Systems’ Form 10-Q covers the fiscal second quarter and six months ended November 30, 2020; the comparable periods ended November 30, 2019. The company makes semiconductor burn-in and test equipment, including wafer-level systems and contactors. All financial amounts below are in U.S. dollars.
Financial performance and liquidity
| Metric | Three months ended Nov. 30, 2020 | Three months ended Nov. 30, 2019 | Six months ended Nov. 30, 2020 | Six months ended Nov. 30, 2019 |
|---|---|---|---|---|
| Net sales | $1.683 million | $6.874 million | $3.695 million | $12.407 million |
| Gross profit / margin | $377,000 / 22.4% | $3.202 million / 46.6% | $604,000 / 16.3% | $5.473 million / 44.1% |
| Operating expenses | $2.321 million | $2.952 million | $4.735 million | $5.652 million |
| Operating income (loss) | ($1.944 million) | $250,000 | ($4.131 million) | ($179,000) |
| Net income (loss) | ($1.966 million) | $251,000 | ($1.859 million) | ($162,000) |
| Net income (loss) per diluted share | ($0.08) | $0.01 | ($0.08) | ($0.01) |
- For the six months, net cash used in operating activities was $2.255 million, versus $276,000 in the prior-year period. Investing activities used $194,000 and financing activities provided $365,000.
- Cash and cash equivalents were $3.449 million at November 30, down from $5.433 million at May 31, 2020. Cash, cash equivalents and restricted cash totaled $3.529 million at November 30. Working capital was $9.9 million, versus $13.8 million at May 31.
- Total long-term debt was $1.679 million, comprising $1.213 million current and $466,000 noncurrent; this was the PPP loan. Total liabilities were $6.319 million. Operating lease liabilities totaled $2.066 million.
- The company had not drawn on its SVB revolving facility at November 30; reported borrowing availability was $76,000. The facility permits up to $4 million subject to the borrowing base.
Material changes versus the prior comparable period
- Sales fell 75.5% in the quarter and 70.2% in the six-month period. Management attributed the declines to COVID-19-related weakness in customer and end-customer demand. Six-month wafer-level product revenue fell to $2.810 million from $11.161 million; Test During Burn-in revenue fell to $885,000 from $1.246 million.
- Gross margin contracted sharply amid lower production volumes and manufacturing inefficiencies, higher warranty provisions, and, for the six-month period, higher direct material costs as a percentage of sales.
- SG&A decreased 30.4% for the quarter and 24.0% for the six months, primarily due to lower employment-related costs from cost reductions. R&D increased 3.1% for the quarter and was roughly flat for the six months.
- Six-month results included a $2.186 million gain from the dissolution of Aehr Test Systems Japan and a $211,000 income tax benefit. The gain was primarily a currency translation adjustment released upon liquidation; it materially offset operating losses in reported net income.
Outlook, commentary, risks and unusual items
- The company gave no specific revenue or earnings guidance. Management said COVID-19 impacts remained uncertain, but expected existing cash, receivable collections, inventory sales, and customer orders to be adequate for working capital and capital needs over the next 12 months.
- As of the filing date, management reported a product backlog of $6.3 million. The filing also reported $75,000 of remaining service and extended-warranty performance obligations, with approximately 62% expected to be recognized in fiscal 2021 and the balance in fiscal 2022 and thereafter.
- Cost actions included mandatory vacation and shutdown days and executive pay reductions. The company said it continued investment in priority areas for long-term profitable growth.
- The company applied on November 6, 2020 for forgiveness of the full $1.679 million PPP loan and accrued interest; forgiveness remained subject to SBA review, with no assurance of approval. The SVB facility’s stated maturity was 364 days from its January 13, 2020 effective date; the filing does not state whether it was extended or replaced.
- Customer concentration was high: the five largest customers accounted for approximately 90% of quarterly sales and 74% of six-month sales. Inventory increased to $9.057 million from $7.989 million at May 31, primarily to support future shipments.
- Management reported no material changes to critical accounting policies, no off-balance-sheet financing arrangements, and no legal proceedings. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether the reported $6.3 million backlog converted to shipments and cash, and how demand evolved after the filing date.
- Whether the PPP loan was forgiven and whether the SVB credit facility was renewed or otherwise available after its stated maturity.
- Whether sales and gross margins recovered from the unusually low quarter, and whether higher inventory was consumed or required further reserves.
- Whether customer concentration changed and whether major customers’ demand remained affected by the pandemic.
- How much of future earnings depends on nonrecurring items; the Japan dissolution gain was not part of recurring operating performance.