AEHR TEST SYSTEMS

(AEHR)
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Delayed Nasdaq  -  05/23 04:00:00 pm EDT
7.850 USD    0.00%
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04/13AEHR TEST SYSTEMS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)
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AEHR TEST SYSTEMS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

01/14/2022 | 04:11pm EDT

The following discussion of the financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes that appear elsewhere in this report and with our Annual Report on Form 10-K for the fiscal year ended May 31, 2021 and the consolidated financial statements and notes thereto.

In addition to historical information, this Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements in this Report, including those made by our management, other than statements of historical fact, are forward-looking statements. These statements typically may be identified by the use of forward-looking words or phrases such as "believe," "expect," "intend," "anticipate," "should," "planned," "estimated," and "potential," among others and include, but are not limited to, statements concerning when we expect to recognize remaining performance obligations and statements concerning our expectations regarding our operations, business, strategies, prospects, revenues, expenses, costs and resources. These forward-looking statements include management's judgments, estimates and assumptions and are subject to certain risks and uncertainties that could cause our actual results to differ materially from anticipated results or other expectations reflected in forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Report and other factors beyond our control, and in particular, the risks discussed in "Part II, Item 1A. Risk Factors" and those discussed in other documents we file with the SEC. All forward-looking statements included in this document are based on our current expectations, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

Investors and others should note that we announce material financial information to our investors using our investor relations website (https://www.aehr.com/investor-relations/), SEC filings, press releases, public conference calls and webcasts. We use these channels to communicate with our investors and the public about our company, our products and services and other issues. It is possible that the information we post on our investor relations website could be deemed to be material information. Therefore, we encourage investors, the media and others interested in our company to review the information we post on our investor relations website.



COVID-19 PANDEMIC RESPONSE


The Company has been impacted by the outbreak of the novel coronavirus, known as COVID-19, which has spread throughout the world. Our top priority during the COVID-19 pandemic is protecting the health and safety of our employees and their families, along with our customers and community. We introduced policies and procedures to increase workplace flexibility, such as working remotely where possible to reduce the number of people who are on campus each day. As a global supplier of Critical Infrastructure Sectors, as defined by the Cybersecurity and Infrastructure Security Agency, we have supported and continue to support customers during the pandemic. In the interest of public health, all onsite operations generally use the minimum number of people to safely execute tasks and follow enhanced safety and health protocols including screenings, social distancing and use of personal protective equipment.

Due to the impact of the COVID-19 pandemic on customers and customers' customers, the Company experienced a drop in customer orders and revenues during the fiscal year ended May 31, 2021 and in the last quarter of fiscal year ended May 31, 2020. In response, the Company implemented cost reduction initiatives to mitigate operating losses, including mandatory vacation days, shutdown days and executive staff pay reductions. The Company eliminated all cost reduction initiatives in the last quarter of the fiscal year ended May 31, 2021.

The Company will continue to monitor the situation. As of the date of this report, the Company cannot predict with certainty the potential effects the COVID-19 pandemic may have on the Company's business and its operating results. While the overall environment remains uncertain, the Company continues to invest in priority areas with the objective of driving profitable growth over the long term.




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OVERVIEW



We were founded in 1977 to develop and manufacture burn-in and test equipment for the semiconductor industry. Since our inception, we have sold more than 2,500 systems to semiconductor manufacturers, semiconductor contract assemblers and burn-in and test service companies worldwide. Our principal products currently are the FOX-XP, FOX-NP and FOX-CP wafer contact and singulated die/module parallel test and burn-in systems, WaferPak Aligner, WaferPak contactors, DiePak Loader, DiePak carriers and test fixtures.

Our net sales consist primarily of sales of systems, WaferPak Aligners and DiePak Loaders, WaferPak contactors, DiePak carriers, test fixtures, upgrades and spare parts, revenues from service contracts, and engineering development charges. Our selling arrangements may include contractual customer acceptance provisions, which are mostly deemed perfunctory or inconsequential, and installation of the product occurs after shipment and transfer of title.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to customer programs and incentives, product returns, bad debts, inventories, income taxes, financing operations, warranty obligations, and long-term service contracts. Our estimates are derived from historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Those results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. For a discussion of the critical accounting policies, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates" in our Annual Report on Form 10-K for the fiscal year ended May 31, 2021.

There have been no material changes to our critical accounting policies and estimates during the three and six months ended November 30, 2021 compared to those discussed in our Annual Report on Form 10-K for the fiscal year ended May 31, 2021.




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RESULTS OF OPERATIONS



The following table sets forth items in our unaudited condensed consolidated statements of operations as a percentage of net sales for the periods indicated.



                   Three Months Ended November 30,           Six Months Ended November 30,
                      2021                  2020              2021                 2020

Net sales                  100.0 %             100.0 %            100.0 %               100.0 %
Cost of sales               53.0                77.6               55.4                  83.7
Gross profit                47.0                22.4               44.6                  16.3

Operating
expenses:
Selling,
general and
administrative              25.9                89.2               29.1                  81.6
Research and
development                 13.6                48.7               17.3                  46.5
Total
operating
expenses                    39.5               137.9               46.4                 128.1

Income (loss)
from
operations                   7.5              (115.5 )             (1.8 )              (111.8 )

Interest
expense, net                  --                (0.7 )             (0.1 )                (0.7 )
Net gain from
dissolution of
Aehr Test
Systems Japan                 --                  --                 --                  59.2
Gain from
forgiveness of
PPP loan                      --                  --               11.1                    --
Other income
(expense), net               0.3                (0.4 )              0.4                  (2.7 )

Income (loss)
before income
tax (expense)
benefit                      7.8              (116.6 )              9.6                 (56.0 )

Income tax
(expense)
benefit                     (0.3 )              (0.2 )             (0.3 )                 5.7

Net income
(loss)                       7.5 %            (116.8 )%             9.3 %               (50.3 )%



THREE MONTHS ENDED NOVEMBER 30, 2021 COMPARED TO THREE MONTHS ENDED NOVEMBER 30, 2020

NET SALES. Net sales increased to $9.6 million for the three months ended November 30, 2021 from $1.7 million for the three months ended November 30, 2020, an increase of 471.1%. The increase in net sales for the three months ended November 30, 2021 was primarily due to the increases in net sales of both our wafer-level products and Test During Burn-in (TDBI) products. Net sales of our wafer-level products for the three months ended November 30, 2021 were $9.1 million, and increased approximately $7.9 million from the three months ended November 30, 2020. Net sales of our TDBI products for the three months ended November 30, 2021 were $504,000, and increased $72,000 from the three months ended November 30, 2020.

GROSS PROFIT. Gross profit increased to $4.5 million for the three months ended November 30, 2021 from $377,000 for the three months ended November 30, 2020, an increase of 1,098.7%. Gross profit margin increased to 47.0% for the three months ended November 30, 2021 from 22.4% for the three months ended November 30, 2020. The increase in gross profit margin was primarily the result of manufacturing efficiencies due to an increase in net sales.

SELLING, GENERAL AND ADMINISTRATIVE. SG&A expenses increased to $2.5 million for the three months ended November 30, 2021 from $1.5 million for the three months ended November 30, 2020, an increase of 65.8%. The increase in SG&A expenses was primarily the result of additional headcount and increased commission due to an increase in net sales.

RESEARCH AND DEVELOPMENT. R&D expenses increased to $1.3 million for the three months ended November 30, 2021 from $820,000 for the three months ended November 30, 2020, an increase of 60.1%. The increase in R&D expenses was primarily due to an increase in employment related expenses from additional headcount.

INTEREST EXPENSE, NET. Interest expense, net was $1,000 and $12,000 for the three months ended November 30, 2021 and 2020, respectively. The interest expense for the three months ended November 30, 2020 was from the PPP Loan that we obtained on April 23, 2020.




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OTHER INCOME (EXPENSE), NET. Other income, net was $35,000 for the three months ended November 30, 2021, compared with other expense, net of $6,000 for the three months ended November 30, 2020. The change in other income (expense), net was primarily due to gains or losses realized in connection with the fluctuation in the value of the dollar compared to foreign currencies during the referenced periods.

INCOME TAX (EXPENSE) BENEFIT. Income tax expense was $34,000 and $4,000 for the three months ended November 30, 2021 and 2020, respectively.

SIX MONTHS ENDED NOVEMBER 30, 2021 COMPARED TO SIX MONTHS ENDED NOVEMBER 30, 2020

NET SALES. Net sales increased to $15.3 million for the six months ended November 30, 2021 from $3.7 million for the six months ended November 30, 2020, an increase of 312.9%. The increase in net sales for the six months ended November 30, 2021 was primarily due to the increases in net sales of both our wafer-level products and TDBI products. Net sales of our wafer-level products for the six months ended November 30, 2021 were $14.3 million, and increased approximately $11.4 million from the six months ended November 30, 2020. Net sales of our TDBI products for the six months ended November 30, 2021 were $1.0 million, and increased $122,000 from the six months ended November 30, 2020.

GROSS PROFIT. Gross profit increased to $6.8 million for the six months ended November 30, 2021 from $604,000 for the six months ended November 30, 2020, an increase of 1,025.8%. Gross profit margin increased to 44.6% for the six months ended November 30, 2021 from 16.3% for the six months ended November 30, 2020. The increase in gross profit margin was primarily the result of manufacturing efficiencies due to an increase in net sales.

SELLING, GENERAL AND ADMINISTRATIVE. SG&A expenses increased to $4.4 million for the six months ended November 30, 2021 from $3.0 million for the six months ended November 30, 2020, an increase of 47.3%. The increase in SG&A expenses was primarily the result of additional headcount and increased commission due to an increase in net sales.

RESEARCH AND DEVELOPMENT. R&D expenses increased to $2.6 million for the six months ended November 30, 2021 from $1.7 million for the six months ended November 30, 2020, an increase of 53.1%. The increase in R&D expenses was primarily due to increases in employment related expenses from additional headcount of $585,000, outside services of $204,000, and project expenses of $125,000.

INTEREST EXPENSE, NET. Interest expense, net was $10,000 and $25,000 for the six months ended November 30, 2021 and 2020, respectively. The interest expense for the six months ended November 30, 2020 was from the PPP Loan that we obtained on April 23, 2020.

NET GAIN FROM DISSOLUTION OF AEHR TEST SYSTEMS JAPAN. Net gain from dissolution of Aehr Test Systems Japan was $2.2 million for the six months ended November 30, 2020, due to the release of the cumulative translation adjustment in connection with the complete liquidation of Aehr Test Systems Japan subsidiary in July 2020.

GAIN FROM FORGIVENESS OF PPP LOAN. On June 12, 2021, we received confirmation from the SVB that on June 4, 2021, the Small Business Administration approved our PPP Loan forgiveness application for the entire PPP Loan balance of $1,678,789 and interest totaling $18,933, and we recognized a gain of $1,697,722.




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OTHER INCOME (EXPENSE), NET. Other income, net for the six months ended November 30, 2021 was $58,000, compared with other expense, net of $100,000 for the six months ended November 30, 2020. The change in other income (expense), net was primarily due to gains or losses realized in connection with the fluctuation in the value of the dollar compared to foreign currencies during the referenced periods.

INCOME TAX (EXPENSE) BENEFIT. Income tax expense for the six months ended November 30, 2021 was $57,000, compared with income tax benefit of $211,000 for the six months ended November 30, 2020. During the six months ended November 30, 2020, the currency translation adjustment balance was released and the residual income tax effect of $215,000 was recorded pursuant to the inter-period allocation rules in connection with the complete liquidation of Aehr Test Systems Japan subsidiary in July 2020.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was $5.2 million for the six months ended November 30, 2021, compared with net cash used by operating activities of $2.3 million for the six months ended November 30, 2020. For the six months ended November 30, 2021, net cash provided by operating activities was primarily the result of net income of $1.4 million, as adjusted to exclude the effect of forgiveness of PPP loan of $1.7 million, and a non-cash charge of stock-based compensation expense of $1.3 million and depreciation and amortization of $149,000. Other changes in cash from operations primarily resulted from an increase in customer deposits and deferred revenue of $10.0 million, partially offset by increases in inventories of $4.2 million and accounts receivable of $2.3 million. The increase in customer deposits and deferred revenue was primarily due to the receipt of additional down payments from certain customers. The increase in inventory was to support expected future shipments for customer orders. The increase in accounts receivable was primarily due to an increase in sales for the six months ended November 30, 2021 compared with the six months ended May 31, 2020. For the six months ended November 30, 2020, the $2.3 million net cash used in operating activities was primarily the result of net loss of $1.9 million, as adjusted to exclude the effect of net gain from dissolution of Aehr Test Systems Japan of $2.4 million, including an income tax benefit of $215,000, a non-cash charge of stock-based compensation expense of $527,000 and depreciation and amortization of $165,000. Net cash used in operations was also impacted by a decrease in accounts receivable of $2.3 million, partially offset by an increase in inventories of $1.1 million. The decrease in accounts receivable was primarily due to a decrease in sales for the six months ended November 30, 2020 compared with the six months ended May 31, 2020. The increase in inventories was due primarily to inventory purchases to support future shipments.

Net cash used in investing activities was $132,000 and $194,000 for the six months ended November 30, 2021 and 2020, respectively, was due to purchases of property and equipment.

Financing activities provided cash of $25.4 million and $365,000 for the six months ended November 30, 2021 and 2020, respectively. Net cash provided by financing activities during the six months ended November 30, 2021 was primarily due to the net proceeds from issuance of common stock from public offering of $24.0 million, and the proceeds from the issuance of common stock under employee benefit plans of $2.7 million, partially offset by the net payment of the line of credit of $1.4 million. Net cash provided by financing activities during the six months ended November 30, 2020 was due to the proceeds from the issuance of common stock under employee benefit plans.




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The effect of fluctuation in exchange rates decreased cash by $4,000 for the six months ended November 30, 2021, and increased cash by $100,000 for the six months ended November 30, 2020. The changes were due to the fluctuation in the value of the dollar compared to foreign currencies.

As of November 30, 2021 and May 31, 2021, we had working capital of $39.5 million and $10.1 million, respectively.

We lease our manufacturing and office space under operating leases. We entered into a non-cancelable operating lease agreement for our United States manufacturing and office facilities, which was renewed in February 2018 and expires in July 2023. As of November 30, 2021, our operating lease liability totals $1,379,000. Under the lease agreement, we are responsible for payments of utilities, taxes and insurance.

From time to time, we evaluate potential acquisitions of businesses, products or technologies that complement our business. If consummated, any such transactions may use a portion of our working capital or require the issuance of equity. We have no present understandings, commitments or agreements with respect to any material acquisitions.

While we were profitable for the six months ended November 30, 2021, we have incurred substantial cumulative losses and generally negative cash flows from operations since our inception. In response, we have taken steps to minimize expense levels, entered into credit arrangements, and raised capital through public and private equity offerings, to increase the likelihood that we will have sufficient cash to support operations. We anticipate that the existing cash balance together with future income from operations, collections of existing accounts receivable, revenue from our existing backlog of products as of this filing date, the sale of inventory on hand, deposits and down payments against significant orders will be adequate to meet our working capital and capital equipment requirement needs over the next 12 months. Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of our spending to support research and development activities, the timing and cost of establishing additional sales and marketing capabilities, the timing and cost to introduce new and enhanced products and the timing and cost to implement new manufacturing technologies. While we successfully raised $25 million in the ATM public offering in October 2021 as a portion of a $75 million shelf registration, in the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. Any additional debt financing obtained by us in the future could also involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. Additionally, if we raise additional funds through further issuances of equity, convertible debt securities or other securities convertible into equity, our existing stockholders could suffer significant dilution in their percentage ownership of the Company, and any new equity securities we issue could have rights, preferences and privileges senior to those of holders of our common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited.

OFF-BALANCE SHEET ARRANGEMENTS

We have not entered into any off-balance sheet financing arrangements and have not established any special purpose or variable interest entities.

OVERVIEW OF CONTRACTUAL OBLIGATIONS

There have been no material changes in the composition, magnitude or other key characteristics of our contractual obligations or other commitments as disclosed in the Company's Annual Report on Form 10-K for the year ended May 31, 2021.




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Financials (USD)
Sales 2022 50,6 M - -
Net income 2022 7,61 M - -
Net Debt 2022 - - -
P/E ratio 2022 -
Yield 2022 -
Capitalization 211 M 211 M -
Capi. / Sales 2022 4,18x
Capi. / Sales 2023 2,99x
Nbr of Employees 79
Free-Float 90,9%
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Managers and Directors
Gayn Erickson President, Chief Executive Officer & Director
Kenneth B. Spink VP, Chief Financial & Accounting Officer
Rhea J. Posedel Chairman
David S. Hendrickson Chief Technology Officer
Adil Engineer Chief Operating Officer
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