Aehr Test Systems (AEHR 1.50%) stock plunged 22.4% on Monday, following the semiconductor test and reliability qualification equipment supplier's release of its preliminary results for the third quarter of fiscal 2024 (ended Feb. 29) and its updated guidance for fiscal year 2024.
The stock sell-off was due to the preliminary fiscal Q3 results coming in considerably weaker than Wall Street had expected, and management lowering its full-year guidance for revenue and net income based on generally accepted accounting principles (GAAP). Moreover, management had just cut the annual outlook in January, which probably added to investors' ire.
Investors will learn more when Aehr releases its full quarterly results and holds its earnings call on Tuesday, April 9.
Aehr Test Systems' key preliminary quarterly numbers
| Metric | Fiscal Q3 2023 | Preliminary Fiscal Q3 2024 | Change |
|---|---|---|---|
| Revenue | $17.2 million | $7.6 million | (56%)* |
| GAAP net income | $4.1 million | ($1.8 million) to ($1.5 million) | Flipped to negative from positive |
| Adjusted net income | $4.7 million |
($1.2 million) to ($0.9 million) |
Flipped to negative from positive |
| GAAP earnings per share (EPS) | $0.14 | ($0.06) to ($0.05) | Flipped to negative from positive |
| Adjusted EPS | $0.16 | ($0.04) to ($0.03) | Flipped to negative from positive |
Data source: Aehr Test Systems. GAAP = generally accepted accounting principles. Fiscal Q3 2024 ended Feb. 29. *Calculation by author.
Investors should focus on the adjusted numbers, which exclude one-time items.
Wall Street was looking for adjusted earnings per share (EPS) of $0.13 on revenue of $14.3 million. So Aehr's preliminary results fell far short of the consensus estimates for both the top and bottom lines.
Bookings were $24.5 million for the quarter, and the company ended the period with a backlog of $20 million.
The CEO addressed the 2 main reasons for the lighter-than-expected preliminary Q3 results and lowered guidance
CEO Gayn Erickson's statement in the preliminary earnings release was extremely long. The following includes some of the main highlights:
As we discussed in our second quarter earnings call, we had seen several push-outs of forecasted orders by current and new customers that impacted our fiscal year revenue. We believe that this was due to two key factors. There is clearly softness in the overall semiconductor capital spending, particularly in automotive applications, related to a glut in inventory[...]. ... In addition, we have seen specific shifts in order timing of our equipment used for wafer level test and burn-in of silicon carbide power semiconductors used in electric vehicles. ...
It is now clear that the recent overall softness in semiconductors and the impact of shifts in electric vehicle introductions and ramps are impacting our bookings and revenue forecasts more than we understood only two months ago at our last earnings call. We now expect this to last for another quarter or two before the orders resume based on the latest roll up of direct forecasts from over a dozen silicon carbide companies.
Fiscal 2024 guidance lowered
| Metric | Initial Fiscal 2024 Guidance Issued 7/13/23 | Fiscal 2024 Guidance Updated 1/9/24 | Current Fiscal 2024 Guidance | Wall Street's Current Consensus Estimate | Growth Implied by Current Guidance* (YOY) |
|---|---|---|---|---|---|
| Revenue | At least $100 million | $75 million to $85 million | At least $65 million | $77.4 million | 19% |
| GAAP net income | At least $28 million | $15 million to $21.3 million | At least $11 million | N/A | (25%) or better |
| GAAP earnings per share (EPS) | Not provided | Not provided | At least $0.38 | N/A | (24%) or better |
| Adjusted EPS | Not provided | Not provided | At least $0.48 | $0.76 | (19%) or better |
Data source: Aehr Test Systems. Fiscal 2024 ends May 31. YOY = year over year. *Calculations by author.
Investors might want to note the fiscal 2023 results for all the above metrics: revenue $65 million, GAAP net income $14.6 million, GAAP EPS $0.50, and adjusted EPS $0.59.
A disappointing quarter and guidance
The fiscal Q3 preliminary revenue and earnings results were much lower than Wall Street had expected. Worse yet, the annual guidance cut follows one in January. Given these factors, it's understandable that investors punished the stock to the degree they did on Monday.
As it stands, investors need more information to better gauge whether Aehr looks like an attractive long-term investment. A lot depends on whether the new and existing customer orders that apparently aren't going to occur in fiscal 2024 as expected are "just" pushed back or end up cancelled altogether.
That said, Aehr stock is worth watching. It's a high-risk stock, but the company does have a potentially very large total addressable market that includes the electric vehicle (EV) market and beyond.
As I've written previously, the stock's high-risk level is due primarily to the company's small size and its ultra-high customer concentration level. In fiscal 2023, its largest customer accounted for 79% of its total annual revenue.
