Aehr Test Systems :AEHR-US: Earnings Analysis: Q2, 2018 By the Numbers : January 19, 2018

Aehr Test Systems reports financial results for the quarter ended November 29, 2017.

Highlights

  • Summary numbers: Revenues of USD 7.92 million, Net Earnings of USD 0.06 million.
  • Gross margins widened from 34.70% to 39.52% compared to the same period last year, operating (EBITDA) margins now 2.36% from -30.46%.
  • Change in operating cash flow of 164.81% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-11-29 2017-08-30 2017-05-30 2017-02-27 2016-11-29
Relevant Numbers (Quarterly)
Revenues (mil) 7.92 6.97 6.68 2.68 4.22
Revenue Growth (%YOY) 87.93 31.06 325.4 59.87 -8.74
Earnings (mil) 0.06 0.01 -0.8 -2.65 -1.45
Earnings Growth (%YOY) 104.13 101.32 73.99 10.89 -38.55
Net Margin (%) 0.76 0.14 -11.9 -98.88 -34.44
EPS 0 0 -0.04 -0.16 -0.09
Return on Equity (%) 0.34 0.06 -8.77 -106.57 -98.57
Return on Assets (%) 0.77 0.13 -14.78 -81.31 -45.97

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, AEHR-US’s change in revenue was close to the amount of its change in earnings. It remains to be seen how the rest of its peer group’s results will turn out and if AEHR-US’s performance is a sign of any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by 13.67% and earnings by 500% compared to the previous period.

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 34.70% to 39.52% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from -30.46% to 2.36% compared to the same period last year. For comparison, gross margins were 41.87% and EBITDA margins were 2.47% in the last reporting period.

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

AEHR-US’s gross margin improvement has not produced any big difference in its working capital. Working capital days are currently 261.23, compared to last year’s level of 143.55 days. This leads Capital Cube to conclude that the improvements in gross margins are likely from operating decisions and not trade-offs with the balance sheet.

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

AEHR-US’s year-on-year change in operating cash flow of 164.81% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from -30.46% to 2.36% and (2) one-time items. The company’s pretax margins are now 0.95% compared to -33.73% for the same period last year.

EBIT Margin History
PreTax Margin History

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Company Profile

Aehr Test Systems is engaged in the designing, manufacturing and marketing of advanced test and burn-in products to the semiconductor manufacturing industry. The Company manufactures and markets full wafer contact test systems, test during burn-in systems, test fixtures, die carriers and related accessories. The Company’s principal products are the Advanced Burn-In and Test System (ABTS), the FOX full wafer contact parallel test and burn-in systems, WaferPak full wafer contactor, the DiePak carrier and test fixtures. The Company develops, manufactures and sells systems, which are designed to reduce the cost of testing and to perform reliability screening, or burn-in, of complex logic devices, memory integrated circuits (ICs), sensors and optical devices. These systems can be used to perform parallel testing and burn-in of packaged ICs, singulated bare die or ICs still in wafer form.

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