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 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.
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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.
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, assumptions and judgments, 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 nine months ended February 28, 2022 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 Nine Months Ended
February 28, February 28,
2022 2021 2022 2021
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 58.1 64.0 56.8 72.1
Gross profit 41.9 36.0 43.2 27.9
Operating expenses:
Selling, general and administrative 17.1 31.2 23.1 52.0
Research and development 10.0 17.2 13.6 29.3
Total operating expenses 27.1 48.4 36.7 81.3
Income (loss) from operations 14.8 (12.4 ) 6.5 (53.4 )
Interest income (expense), net -- (0.2 ) (0.1 ) (0.4 )
Net gain from dissolution of
Aehr Test Systems Japan -- -- -- 24.4
Gain from forgiveness of PPP loan -- -- 5.6 --
Other income (expense), net -- (0.7 ) 0.2 (1.5 )
Income (loss) before income
tax (expense) benefit 14.8 (13.3 ) 12.2 (30.9 )
Income tax (expense) benefit (0.1 ) (0.7 ) (0.2 ) 2.0
Net income (loss) 14.7 % (14.0 )% 12.0 % (28.9 )%
THREE MONTHS ENDED FEBRUARY 28, 2022 COMPARED TO THREE MONTHS ENDED FEBRUARY 28,
2021
NET SALES. Net sales increased to $15.3 million for the three months ended
February 28, 2022 from $5.3 million for the three months ended February 28,
2021, an increase of 190.2%. The increase in net sales for the three months
ended February 28, 2022 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 February 28, 2022 were $14.9
million, and increased approximately $9.9 million from the three months ended
February 28, 2021 due to stronger demand from the market. Net sales of our TDBI
products for the three months ended February 28, 2022 were $404,000, and
increased $130,000 from the three months ended February 28, 2021.
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GROSS PROFIT. Gross profit increased to $6.4 million for the three months ended
February 28, 2022 from $1.9 million for the three months ended February 28,
2021, an increase of 237.8%. Gross profit margin increased to 41.9% for the
three months ended February 28, 2022 from 36.0% for the three months ended
February 28, 2021. The increase in gross profit margin was primarily the result
of manufacturing efficiencies due to an increase in net sales resulting in a
10.5% gross profit margin increase, partially offset by a write-down of $1.0
million inventory related to legacy products resulting in a 4.7% gross margin
decrease.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A expenses increased to $2.6 million for
the three months ended February 28, 2022 from $1.6 million for the three months
ended February 28, 2021, an increase of 59.0%. The increase in SG&A expenses was
primarily the result of additional headcount and increased commission expense
due to an increase in net sales.
RESEARCH AND DEVELOPMENT. R&D expenses increased to $1.5 million for the three
months ended February 28, 2022 from $903,000 for the three months ended February
28, 2021, an increase of 69.3%. The increase in R&D expenses was primarily due
to increases in employment related expenses of $463,000, outside services of
$102,000, and project expenses of $52,000.
INTEREST INCOME (EXPENSE), NET. Interest income, net for the three months ended
February 28, 2022 was $1,000 compared with interest expense, net for the three
months ended February 28, 2021 of $10,000. The interest expense for the three
months ended February 28, 2021 was from the PPP Loan that we obtained on April
23, 2020.
OTHER INCOME (EXPENSE), NET. Other income, net for the three months ended
February 28, 2022 was $10,000 compared with other expense, net for the three
months ended February 28, 2021 of $39,000. The changes 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 $24,000 and $34,000 for the
three months ended February 28, 2022 and 2021, respectively.
NINE MONTHS ENDED FEBRUARY 28, 2022 COMPARED TO NINE MONTHS ENDED FEBRUARY 28,
2021
NET SALES. Net sales increased to $30.5 million for the nine months ended
February 28, 2022 from $9.0 million for the nine months ended February 28, 2021,
an increase of 240.8%. The increase in net sales for the nine months ended
February 28, 2022 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 nine months ended February 28, 2022 were $29.1 million, and increased
approximately $21.3 million from the nine months ended February 28, 2021 due to
stronger demand from the market. Net sales of our TDBI products for the nine
months ended February 28, 2022 were $1.4 million, and increased $252,000 from
the nine months ended February 28, 2021.
GROSS PROFIT. Gross profit increased to $13.2 million for the nine months ended
February 28, 2022 from $2.5 million for the nine months ended February 28, 2021,
an increase of 428.3%. Gross profit margin increased to 43.2% for the nine
months ended February 28, 2022 from 27.9% for the nine months ended February 28,
2021. The increase in gross profit margin was primarily the result of
manufacturing efficiencies due to an increase in net sales resulting in a 14.4%
gross profit margin increase, partially offset by a write-down of $1.0 million
inventory related to legacy products resulting in a 2.1% gross margin decrease.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A expenses increased to $7.1 million for
the nine months ended February 28, 2022 from $4.7 million for the nine months
ended February 28, 2021, an increase of 51.4%. The increase in SG&A expenses was
primarily the result of additional headcount and increased commission expense
due to an increase in net sales.
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RESEARCH AND DEVELOPMENT. R&D expenses increased to $4.2 million for the nine
months ended February 28, 2022 from $2.6 million for the nine months ended
February 28, 2021, an increase of 58.7%. The increase in R&D expenses was
primarily due to increases in employment related expenses of $1.0 million,
outside services of $306,000, and project expenses of $177,000.
INTEREST INCOME (EXPENSE), NET. Interest expense, net was $9,000 and $35,000 for
the nine months ended February 28, 2022 and 2021, respectively. The interest
expense for the nine months ended February 28, 2021 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 nine months ended February
28, 2021, 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.
OTHER INCOME (EXPENSE), NET. Other income, net for the nine months ended
February 28, 2022 was $68,000 compared with other expense, net for the nine
months ended February 28, 2021 of $139,000. The changes 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 nine months ended
February 28, 2022 was $81,000 compared with income tax benefit of $177,000 for
the nine months ended February 28, 2021. During the nine months ended February
28, 2021, 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 $2.3 million for the nine months
ended February 28, 2022, compared with net cash used by operating activities of
$2.5 million for the nine months ended February 28, 2021. For the nine months
ended February 28, 2022, net cash provided by operating activities was primarily
the result of net income of $3.7 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 $2.2 million and depreciation and amortization of
$226,000. Other changes in cash from operations primarily resulted from an
increase in customer deposits and deferred revenue of $6.0 million, partially
offset by increases in inventories of $5.4 million and accounts receivable of
$3.5 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 the timing of
revenue generated toward the end of the fiscal quarter. For the nine months
ended February 28, 2021, net cash used in operating activities was primarily the
result of net loss of $2.6 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 $798,000 and depreciation and amortization of $239,000. Net cash used
in operations was also impacted by a decrease in accounts receivable of $1.1
million. The decrease in accounts receivable was primarily due to a decrease in
sales for the nine months ended February 28, 2021 compared to the same period in
the prior fiscal year.
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Net cash used in investing activities was $218,000 and $205,000 for the nine
months ended February 28, 2022 and 2021, respectively, was due to purchases of
property and equipment.
Financing activities provided cash of $25.4 million and $1.9 million for the
nine months ended February 28, 2022 and 2021, respectively. Net cash provided by
financing activities during the nine months ended February 28, 2022 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 $2.8 million, partially offset by the net
payment of the line of credit of $1.4 million. Net cash provided by financing
activities during the nine months ended February 28, 2021 was due to $1.4
million borrowing from our line of credit and $483,000 in proceeds from the
issuance of common stock under employee plans.
The effect of fluctuation in exchange rates decreased cash by $19,000 for the
nine months ended February 28, 2022 and increased cash by $138,000 for the nine
months ended February 28, 2021. The changes were due to the fluctuation in the
value of the dollar compared to foreign currencies.
As of February 28, 2022 and May 31, 2021, we had working capital of $42.5
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 February 28, 2022 our operating lease liability
totals $1,193,000. 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.
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.
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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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