Aehr Test Systems (AEHR 1.50%) stock dropped 12.1% in Thursday's after-hours trading, following the semiconductor test and reliability qualification equipment supplier's release of its results for the first quarter of fiscal 2024 (ended Aug. 31). Results were strong, primarily driven by increasing demand for the company's equipment from manufacturers of silicon carbide semiconductors for use in electric vehicles (EVs).
So why did the stock drop in after-hours trading? The primary reason is likely that investors were disappointed that management didn't raise fiscal 2024 guidance.
Investors have very high expectations for the company's performance, as evidenced by shares surging about 119% in 2023 through Thursday's regular trading session. So, as is rather common in such cases, investors are often not satisfied with such a company merely reiterating full-year guidance, as Aehr management did.
Moreover, it's possible that some investors weren't happy that even though revenue soared on a year-over-year basis, it fell on a sequential basis. Aehr's business has some seasonality, and the fiscal first quarter is historically its slowest quarter. Investors, therefore, shouldn't be concerned about a sequential revenue decline.
Aehr Test Systems' key numbers
| Metric | Fiscal Q1 2023 | Fiscal Q1 2024 | Change |
|---|---|---|---|
| Revenue | $10.7 million | $20.6 million | 93% |
| GAAP operating income | $458,000 | $4.1 million | 795% |
| Adjusted operating income | $1.2 million | $4.6 million | 283% |
| GAAP net income | $589,000 | $4.7 million | 698% |
| Adjusted net income | $1.3 million |
$5.2 million |
300% |
| GAAP earnings per share (EPS) | $0.02 | $0.16 | 700% |
| Adjusted EPS | $0.05 | $0.18 | 260% |
Data source: Aehr Test Systems. GAAP = generally accepted accounting principles. Fiscal Q1 2024 ended Aug. 31, 2023.
Investors should focus on the adjusted numbers, which exclude one-time items.
Wall Street was looking for adjusted earnings per share (EPS) of $0.16 on revenue of $19.2 million. So Aehr exceeded both estimates.
Bookings were $18.4 million for the quarter, and the company ended the period with a backlog of $22.3 million. That backlog had increased to $24 million as of the date of the earnings release.
Aehr generated cash of $3.9 million running its operations during the quarter. It ended the period with cash and cash equivalents of $51 million, up from $47.9 million in the prior quarter. It has no long-term debt.
What the CEO had to say
CEO Gayn Erickson's statement in the earnings release was once again very long. The following includes the main highlights:
We are off to a very good start to our fiscal year and are reaffirming our expectation to grow fiscal full-year revenue by at least 50% and profit by over 90% year over year.
During the quarter we had record shipments of our FOX™ WaferPak full-wafer Contactors in both revenue and units and are very pleased with the continued stream of new designs we are seeing. Our new design volume has tripled over the last nine months as we are seeing more electric vehicles coming online with their own specific device design for inverters and onboard chargers.
We have now received customer acceptance of both configurations of our new fully automated FOX WaferPak Aligner, which allows hands-free operation of WaferPak handling and alignment and is available either as a stand-alone unit or in full integration with the FOX-XP system. ...
Additionally, we announced last month our sixth customer for silicon carbide wafer level burn-in. This new customer is a US-based multibillion-dollar semiconductor supplier that serves several markets.
Fiscal 2024 guidance reiterated
Management reiterated the fiscal 2024 guidance it issued in the prior quarter. For the year ending May 31, 2024, the company guided for revenue of at least $100 million, representing annual growth of over 50%. It also expects GAAP net income of at least $28 million, representing annual growth of more than 90%.
A stock worth watching
Reiterating what I initially wrote a year ago, following the company's release of its fiscal Q1 2023 results, "Aehr Test Systems stock is worth a spot on growth investors' watch lists. Unlike many companies involved in the EV supply chain, Aehr is profitable."
That said, the risk level of the stock is high, which stems from the company's small size and extremely high customer concentration level. In the just-reported quarter, 88% of its revenue was generated from sales to just a single customer, as management divulged on the earnings call. In fiscal 2023, this large customer accounted for 79% of its total annual revenue.
