Aehr Test(AEHR) - 2024 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Condensed Consolidated Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income, shareholders' equity, and cash flows, along with detailed notes on accounting policies, fair value measurements, balance sheet items, income tax, borrowing arrangements, commitments, shareholders' equity, accumulated other comprehensive loss, revenue recognition, stock-based compensation, and segment information Condensed Consolidated Balance Sheets Presents the company's financial position at specific dates, detailing assets, liabilities, and shareholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | February 29, 2024 | May 31, 2023 | | :---------------------- | :---------------- | :----------- | | Cash and cash equivalents | $47,581 | $30,054 | | Total current assets | $92,349 | $89,030 | | Total assets | $101,596 | $98,143 | | Total current liabilities | $9,180 | $16,308 | | Total liabilities | $15,099 | $22,543 | | Total shareholders' equity| $86,497 | $75,600 | Condensed Consolidated Statements of Operations Details the company's revenues, expenses, and net income or loss over specific periods Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric (3 Months Ended) | Feb 29, 2024 | Feb 28, 2023 | | :---------------------- | :----------- | :----------- | | Total Revenue | $7,563 | $17,206 | | Gross Profit | $3,156 | $8,875 | | Income (loss) from operations | $(2,046) | $3,793 | | Net income (loss) | $(1,471) | $4,132 | | Basic EPS | $(0.05) | $0.15 | | Diluted EPS | $(0.05) | $0.14 | | Metric (9 Months Ended) | Feb 29, 2024 | Feb 28, 2023 | | :---------------------- | :----------- | :----------- | | Total Revenue | $49,618 | $42,692 | | Gross Profit | $24,095 | $21,267 | | Income (loss) from operations | $7,537 | $7,736 | | Net income (loss) | $9,292 | $8,446 | | Basic EPS | $0.32 | $0.31 | | Diluted EPS | $0.31 | $0.29 | Condensed Consolidated Statements of Comprehensive Income Reports net income and other comprehensive income items, reflecting total changes in shareholders' equity from non-owner sources Condensed Consolidated Statements of Comprehensive Income (in thousands) | Metric (3 Months Ended) | Feb 29, 2024 | Feb 28, 2023 | | :---------------------- | :----------- | :----------- | | Net income (loss) | $(1,471) | $4,132 | | Comprehensive income (loss) | $(1,481) | $4,125 | | Metric (9 Months Ended) | Feb 29, 2024 | Feb 28, 2023 | | :---------------------- | :----------- | :----------- | | Net income (loss) | $9,292 | $8,446 | | Comprehensive income (loss) | $9,303 | $8,389 | Condensed Consolidated Statements of Shareholders' Equity Outlines changes in shareholders' equity components, including common stock, additional paid-in capital, and accumulated deficit Shareholders' Equity Changes (9 Months Ended February 29, 2024, in thousands) | Item | Common Shares | Stock Amount | Additional Paid-in Capital | Accumulated Other Comprehensive Income (loss) | Accumulated Deficit | Total Shareholders' Equity | | :------------------------------------ | :------------ | :----------- | :------------------------- | :-------------------------------------------- | :------------------ | :------------------------- | | Balances, May 31, 2023 | 28,539 | $285 | $127,776 | $(155) | $(52,306) | $75,600 | | Issuance of common stock under employee plans | 402 | $4 | $1,266 | - | - | $1,270 | | Issuance cost of common stock offering | - | - | $(72) | - | - | $(72) | | Shares repurchased for tax withholdings | (35) | - | $(1,480) | - | - | $(1,480) | | Stock-based compensation | - | - | $1,876 | - | - | $1,876 | | Net income | - | - | - | - | $9,292 | $9,292 | | Foreign currency translation adjustment | - | - | - | $(6) | - | $(6) | | Net unrealized gains on investments | - | - | - | $17 | - | $17 | | Balances, February 29, 2024 | 28,906 | $289 | $129,366 | $(144) | $(43,014) | $86,497 | Condensed Consolidated Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities over specific periods Condensed Consolidated Statements of Cash Flows (9 Months Ended, in thousands) | Cash Flow Activity | Feb 29, 2024 | Feb 28, 2023 | | :----------------- | :----------- | :----------- | | Operating activities | $532 | $4,143 | | Investing activities | $17,297 | $(25,472) | | Financing activities | $(282) | $7,138 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $17,527 | $(14,226) | | Cash, cash equivalents and restricted cash, end of period | $47,731 | $17,338 | 1. Organization and Significant Accounting Policies Describes the company's business and significant accounting policies, including recent accounting standard adoptions and customer concentration - Aehr Test Systems develops and manufactures test and burn-in equipment for the semiconductor industry, including FOX-XP, FOX-NP, FOX-CP systems, WaferPak contactors, and DiePak carriers[17] - The company adopted ASU 2016-13 (CECL) on June 1, 2023, which did not materially impact the financial statements, with no allowance for credit losses recorded at February 29, 2024[22] Customer Revenue Concentration (Percentage of Total Revenue) | Customer | 3 Months Ended Feb 29, 2024 | 3 Months Ended Feb 28, 2023 | 9 Months Ended Feb 29, 2024 | 9 Months Ended Feb 28, 2023 | | :--------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Customer A | 59.6% | 82.5% | 65.8% | 77.5% | | Customer B | 19.3% | 11.6% | * | 15.7% | | Customer C | * | * | 17.2% | * | 2. Fair Value of Financial Instruments Details the fair value measurements of financial instruments, primarily cash equivalents and investments Assets Measured at Fair Value (February 29, 2024, in thousands) | Asset | Balance | Level 1 | | :---------------- | :-------- | :------ | | Money market funds| $44,189 | $44,189 | Cash, Cash Equivalents and Investments (February 29, 2024, in thousands) | Security Type | Cost | Fair Value | | :---------------------- | :------ | :--------- | | Cash | $3,542 | $3,542 | | Money market funds (cash equivalents) | $44,039 | $44,039 | | Money market funds (long-term investments) | $150 | $150 | | Total | $47,731 | $47,731 | - The Company's cash equivalents and money market funds are measured at fair value on a recurring basis, primarily classified as Level 1 inputs[25][27] 3. Balance Sheet Information Provides detailed breakdowns of key balance sheet items such as inventories, product warranties, and deferred revenue Inventories (in thousands) | Category | February 29, 2024 | May 31, 2023 | | :---------------------- | :---------------- | :----------- | | Raw materials and sub-assemblies | $24,770 | $15,953 | | Work in process | $11,080 | $5,764 | | Finished goods | $2,235 | $2,191 | | Total | $38,085 | $23,908 | Product Warranties Liability (in thousands) | Metric (9 Months Ended) | Feb 29, 2024 | Feb 28, 2023 | | :---------------------- | :----------- | :----------- | | Balance at beginning of period | $267 | $410 | | Accruals for warranties issued | $344 | $207 | | Consumption of reserves | $(396) | $(390) | | Balance at end of period| $215 | $288 | Deferred Revenue, Short-term (in thousands) | Category | February 29, 2024 | May 31, 2023 | | :-------------- | :---------------- | :----------- | | Customer deposits | $418 | $2,690 | | Deferred revenue | $68 | $132 | | Total | $486 | $2,822 | 4. Income Tax Discusses the company's income tax provision and its valuation allowance against deferred tax assets Provision for Income Taxes (in thousands) | Period (3 Months Ended) | Feb 29, 2024 | Feb 28, 2023 | | :---------------------- | :----------- | :----------- | | Provision for income taxes | $7 | $17 | | Period (9 Months Ended) | Feb 29, 2024 | Feb 28, 2023 | | :---------------------- | :----------- | :----------- | | Provision for income taxes | $43 | $49 | - The Company's income tax provision primarily consists of foreign withholding and income taxes, with a full valuation allowance maintained against all deferred tax assets since fiscal 2009[41][42] 5. Borrowing Arrangements Details the termination of the company's revolving line of credit with Silicon Valley Bank - The Company terminated its revolving line of credit with Silicon Valley Bank on January 4, 2024, which had been subject to several amendments extending its maturity and adjusting terms since its inception in January 2020[44][48] 6. Commitments and Contingencies Outlines the company's purchase obligations, potential legal proceedings, and indemnification agreements - The Company has purchase obligations with suppliers and may be involved in legal proceedings, but management does not anticipate any material adverse effects on its financial position from current pending legal matters[49] - The Company indemnifies customers and its officers/directors against certain losses, but historical payments under these agreements have not been material[50][51] 7. Shareholders' Equity Reports on the company's 'At the Market' (ATM) offering and remaining available proceeds - The Company partially executed an 'At the Market' (ATM) offering, selling 208,917 shares for $7.3 million gross proceeds during the quarter ended February 28, 2023. As of February 29, 2024, $17.7 million remained available under the ATM offering[52][53] 8. Accumulated Other Comprehensive Loss Details changes in accumulated other comprehensive loss, including cumulative translation adjustments and unrealized investment gains/losses Changes in Accumulated Other Comprehensive Loss (in thousands) | Component | Balance as of May 31, 2023 | Other comprehensive income (loss) before reclassifications | Balance as of Feb 29, 2024 | | :---------------------------- | :------------------------- | :--------------------------------------------------------- | :------------------------- | | Cumulative translation adjustment | $(138) | $(6) | $(144) | | Unrealized loss on investments, net | $(17) | $17 | $- | | Total | $(155) | $11 | $(144) | 9. Revenue Explains the company's revenue recognition policies and provides a breakdown of revenue by geographic area and product category - Revenue is recognized when goods or services are transferred to customers, typically upon shipment for products and over time for services, with transaction prices allocated based on standalone selling prices[55][57] Revenue by Geographic Area (in thousands) | Geographic Area | 3 Months Ended Feb 29, 2024 | 3 Months Ended Feb 28, 2023 | 9 Months Ended Feb 29, 2024 | 9 Months Ended Feb 28, 2023 | | :-------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Asia | $5,167 | $14,849 | $43,320 | $34,873 | | United States | $1,640 | $2,343 | $3,105 | $7,761 | | Europe | $756 | $14 | $3,193 | $58 | | Total | $7,563 | $17,206 | $49,618 | $42,692 | Revenue by Product Category (in thousands) | Product Category | 3 Months Ended Feb 29, 2024 | 3 Months Ended Feb 28, 2023 | 9 Months Ended Feb 29, 2024 | 9 Months Ended Feb 28, 2023 | | :--------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Systems | $1,971 | $9,821 | $20,750 | $26,315 | | Contactors | $4,759 | $6,299 | $25,174 | $13,400 | | Services | $833 | $1,086 | $3,694 | $2,977 | | Total | $7,563 | $17,206 | $49,618 | $42,692 | - As of February 29, 2024, remaining performance obligations totaled $68,000, with approximately 30.2% expected to be recognized in the remainder of fiscal 2024 and 69.8% in fiscal 2025[65] 10. Stock-Based Compensation Presents stock-based compensation expenses and activity related to nonvested restricted stock units and shares Stock-Based Compensation Expense (in thousands) | Category | 3 Months Ended Feb 29, 2024 | 3 Months Ended Feb 28, 2023 | 9 Months Ended Feb 29, 2024 | 9 Months Ended Feb 28, 2023 | | :------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Cost of sales | $58 | $75 | $222 | $252 | | Research and development | $148 | $158 | $440 | $513 | | Selling, general and administrative | $377 | $359 | $1,081 | $1,330 | | Total | $583 | $592 | $1,743 | $2,095 | - The Company's shareholders approved the 2023 Equity Incentive Plan on October 23, 2023, authorizing 1,500,000 shares for awards[68] Nonvested RSU, PRSU and Restricted Shares Activity (9 Months Ended February 29, 2024, in thousands of shares) | Activity | Shares | | :------------------------ | :----- | | Unvested, May 31, 2023 | 345 | | Granted | 204 | | Vested | (137) | | Forfeited | (59) | | Unvested, February 29, 2024 | 353 | 11. Net Income (Loss) Per Share Provides basic and diluted net income (loss) per share calculations for the reported periods Net Income (Loss) Per Share (3 Months Ended, except per share data) | Metric | Feb 29, 2024 | Feb 28, 2023 | | :---------------------- | :----------- | :----------- | | Net income (loss) | $(1,471) | $4,132 | | Basic EPS | $(0.05) | $0.15 | | Diluted EPS | $(0.05) | $0.14 | | Basic weighted average shares outstanding | 28,866 | 27,893 | | Diluted weighted average shares outstanding | 28,866 | 29,373 | Net Income (Loss) Per Share (9 Months Ended, except per share data) | Metric | Feb 29, 2024 | Feb 28, 2023 | | :---------------------- | :----------- | :----------- | | Net income (loss) | $9,292 | $8,446 | | Basic EPS | $0.32 | $0.31 | | Diluted EPS | $0.31 | $0.29 | | Basic weighted average shares outstanding | 28,773 | 27,571 | | Diluted weighted average shares outstanding | 29,670 | 29,080 | 12. Segment and Concentration Information States that the company operates as a single segment and provides geographic information for long-lived assets - The Company operates as a single operating segment, with the chief executive officer reviewing financial information on a consolidated basis[76] Long-Lived Assets, Net by Geographic Area (in thousands) | Geographic Area | February 29, 2024 | May 31, 2023 | | :-------------- | :---------------- | :----------- | | United States | $3,015 | $2,713 | | International | $135 | $46 | | Total | $3,150 | $2,759 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations, highlighting revenue trends, gross margin changes, operating expenses, and liquidity. It discusses the impact of demand softness in electric vehicles on recent performance and outlines cash flow activities Overview Introduces Aehr Test Systems as a leading provider of semiconductor test solutions for various high-growth applications - Aehr Test Systems is a leading provider of test solutions for semiconductor devices, driven by increasing quality and reliability needs in applications like electric vehicles, solar/wind power, computing, and memory[80] - The Company's product portfolio includes FOX-P family test and burn-in systems (FOX-XP, FOX-NP, FOX-CP), WaferPak Aligners/Contactors, and DiePak Carriers/Loaders[81] Critical Accounting Estimates Confirms no material changes to the company's critical accounting policies and estimates during the reported periods - There have been no material changes to the Company's critical accounting policies and estimates during the three and nine months ended February 29, 2024, compared to the prior fiscal year[84] Results of Operations Analyzes revenue, gross profit, gross margin, and operating expenses for the three and nine-month periods Revenue Performance (in thousands) | Metric (3 Months Ended) | Feb 29, 2024 | Feb 28, 2023 | % Change | | :---------------------- | :----------- | :----------- | :------- | | Products | $6,730 | $16,120 | (58%) | | Services | $833 | $1,086 | (23%) | | Total Revenues | $7,563 | $17,206 | (56%) | | Metric (9 Months Ended) | Feb 29, 2024 | Feb 28, 2023 | % Change | | :---------------------- | :----------- | :----------- | :------- | | Products | $45,924 | $39,715 | 16% | | Services | $3,694 | $2,977 | 24% | | Total Revenues | $49,618 | $42,692 | 16% | - Three-month revenue decreased by 56% YoY due to softness in electric vehicle demand, impacting system and contactor shipments. Nine-month revenue increased by 16% YoY, primarily driven by strong contactor sales[87] Gross Profit and Margin (in thousands) | Metric (3 Months Ended) | Feb 29, 2024 | Feb 28, 2023 | % Change | | :---------------------- | :----------- | :----------- | :------- | | Gross Profit | $3,156 | $8,875 | (64%) | | Gross Margin | 41.7% | 51.6% | (9.9 pp) | | Metric (9 Months Ended) | Feb 29, 2024 | Feb 28, 2023 | % Change | | :---------------------- | :----------- | :----------- | :------- | | Gross Profit | $24,095 | $21,267 | 13% | | Gross Margin | 48.6% | 49.8% | (1.2 pp) | - Three-month gross margin decreased by 9.9 percentage points due to lower shipments, reduced manufacturing efficiencies, increased design change costs, and higher warranty expenses[90] Operating Expenses (in thousands) | Expense Category (3 Months Ended) | Feb 29, 2024 | Feb 28, 2023 | % Change | | :-------------------------------- | :----------- | :----------- | :------- | | Research and development | $2,139 | $1,832 | 17% | | Selling, general and administrative | $3,063 | $3,250 | (6%) | | Expense Category (9 Months Ended) | Feb 29, 2024 | Feb 28, 2023 | % Change | | :-------------------------------- | :----------- | :----------- | :------- | | Research and development | $6,568 | $4,881 | 35% | | Selling, general and administrative | $9,990 | $8,650 | 15% | - Interest and other income, net, increased significantly for both three and nine-month periods due to higher average cash and investment balances and improved yields from money market funds[97] Liquidity and Capital Resources Discusses changes in cash, cash equivalents, and restricted cash, and analyzes cash flows from operating, investing, and financing activities - Cash, cash equivalents, and restricted cash increased to $47.7 million as of February 29, 2024, from $17.3 million as of February 28, 2023[101] - Net cash provided by operating activities decreased by $3.6 million for the nine months ended February 29, 2024, primarily due to increased inventory production and vendor payments, partially offset by higher net income and accounts receivable collection[103] - Net cash provided by investing activities increased by $42.8 million, driven by $18.0 million from maturities of short-term investments in the current period, contrasting with $25.3 million net purchases in the prior year[104] - Net cash provided by financing activities decreased by $7.4 million, mainly due to $6.9 million net proceeds from an 'At the Market' offering in the prior year, with no such sales in the current period[105] Off-Balance Sheet Agreements Confirms the absence of off-balance sheet arrangements, special purpose entities, or undisclosed borrowings - The Company has no off-balance sheet arrangements, investments in special purpose entities, or undisclosed borrowings or debt, and no material changes to contractual obligations since May 31, 2023[106] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Aehr Test Systems is not required to provide quantitative and qualitative disclosures about market risk - As a smaller reporting company, Aehr Test Systems is exempt from providing quantitative and qualitative disclosures about market risk[107] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of February 29, 2024. There were no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of February 29, 2024[108] - No material changes in internal control over financial reporting occurred during the three months ended February 29, 2024[109] PART II OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits Item 1. Legal Proceedings The Company was not a party to any material legal proceedings during the reported period, and no related losses were accrued - The Company was not a party to any material legal proceedings during the reported period, and no loss was probable or accrued as of February 29, 2024[110] Item 1A. Risk Factors There have been no material changes to the significant risks associated with the Company's business as disclosed in its Annual Report on Form 10-K for the year ended May 31, 2023 - No material changes to the Company's risk factors have occurred since the Annual Report on Form 10-K for the year ended May 31, 2023[111] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report during the period - No unregistered sales of equity securities or use of proceeds were reported[111] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities to report during the period - No defaults upon senior securities were reported[111] Item 4. Mine Safety Disclosures This item is not applicable to the Company - Mine Safety Disclosures are not applicable to the Company[111] Item 5. Other Information No directors or officers informed the Company of the adoption or termination of Rule 10b5-1 trading arrangements during the fiscal quarter ended February 29, 2024 - No directors or officers reported adopting or terminating Rule 10b5-1 trading arrangements during the fiscal quarter ended February 29, 2024[112] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including organizational documents, certifications, and XBRL-related documents Key Exhibits Filed | Exhibit Number | Description | | :------------- | :--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | | 3.1(1) | Restated Article of Incorporation of Registrant | | 3.2(2) | Amended and Restated Bylaws of the Registrant | | 31.01 | Certification of the principal executive officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.† | | 31.02 | Certification of the principal financial and accounting officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.† | | 32.01 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.** | | 101.INS | XBRL Instance Document.† | SIGNATURES This section formally certifies the report by the President, CEO, and CFO on April 10, 2024 - The report was signed by Gayn Erickson, President and Chief Executive Officer, and Chris P. Siu, Executive Vice President of Finance, Chief Financial Officer and Secretary, on April 10, 2024[115]