Aehr Test Systems (AEHR) 2006 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Aehr Test Systems first-quarter fiscal 2006 conference call.

At this time, all participants are in a listen-only mode.

Following today's presentation, instructions will be given for the instruction question-and-answer session. (OPERATOR INSTRUCTIONS).

As a reminder, this conference is being recorded today, Tuesday, September 27, 2005.

I would now like to turn the conference over to Ms. Laurie Berman with Financial Relations Board.

Please go ahead, ma'am.

Thank you.

Good afternoon, everyone, and thanks for joining us to discuss Aehr Test Systems' results for the first quarter of fiscal 2006.

You by now, you should have all received a copy of today's press release.

If you do not have one, please contact my office at 310-854-8300, and we'll get a copy to you right away.

With us today from Aehr Test are Rhea Posedel, Chairman and Chief Executive Officer, and Gary Larson, Vice President of Finance and Chief Financial Officer.

Management will review its operating performance for the quarter before opening the call to your questions.

I'd now like to turn the call over to Gary Larson.

Go ahead, Gary.

Thanks, Laurie.

I'd like to add my thanks to everyone for joining us today.

Before we begin, I'd like to make a few comments about forward-looking statements.

Please be advised that during the course of our discussion today, we may make forward-looking statements that involve risks and uncertainties relating to projections regarding industry growth and customer demands for Aehr Test's products, as well as projections regarding Aehr Test's future financial performance.

Actual results may differ materially from projected results, and should not be considered as an indication of future performance.

These risks and uncertainties include, without limitation, economic conditions in Asia and elsewhere, world events, acceptance by customers of our FOX, MTX, MAX, and DiePak technologies, inversion (ph) of quote activity to purchase orders and acceptance by customers of products shipped upon receipt of a purchase order, the ability of new products to meet customer needs or performance described, the Company's development and manufacture of commercially successful wafer-level test and burn-in system, and the potential emergence of alternative technologies, each of which could adversely affected demand for Aehr Test's products in fiscal year 2006.

We refer you to our most recent 10-K and 10-Q report and the reports filed from time to time with the Securities and Exchange Commission for a more detailed description of the risks facing our business and factors that could cause actual results to differ materially from projected results.

The Company disclaims any obligation to update information contained in any forward-looking statements to reflect events or circumstances occurring after the date of this conference call.

Now I would like to introduce our Chairman and CEO, Rhea Posedel.

Ray?

Thank you, Gary.

Good afternoon, everyone, and welcome to our conference call for the first quarter of fiscal 2006.

I am pleased to say that the year got off to an exciting start.

Net sales for the first quarter were up more than 40% over the prior quarter, and bookings were the strongest we have seen in several years.

Most importantly, we narrowed our net loss to $244,000, or $0.03 per share.

As always, Gary will provide detail on our quarterly financial results in a few minutes, so I will spend my time highlighting our many accomplishments in the first quarter and discussing our outlook for the second quarter.

Our growth strategy over the last few years had been to expand our addressable markets and grow net sales by investing in R&D and market development of our innovative FOX full wafer contact burn-in and test products, while also enhancing and aggressively selling our core burn-in test MAX and MTX products.

We strongly believe this strategy will pay off over the long term, and we are now seeing positive results.

During the quarter, we had a significant increase in orders from both new and existing customers.

I would like to point out a few examples.

On the 1st of September, we announced $5 million in multisystem orders for our MAX logic burn-in and test systems from a leading U.S.-based wireless communication IT manufacture.

We believe these follow on MAX system orders demonstrate our ability to provide a reliable, cost-effective production burn-in solution for complex logic integrated circuits.

These MAX3 systems were purchased for additional production capacity for automotive and mobile communication devices.

We also had a significant increase in orders for our MTX-Fp+ Massively Parallel Test System for DRAMs and flash memories.

During the order, we received follow-on MTX-Fp+ system orders from a leading flash memory manufacturer.

On August 23rd, we announced multisystem orders for our MTX-Fp+ systems in excess of $3 million.

Because the MTX-Fp+ has the capability to parallel test over 12,000 memories, we believe that flash memory manufacturers see it as an effective tool for reducing test costs in a price competitive flash market.

Another positive event for the quarter was that we penetrated a new, high-volume memory account with our MTX-FP+ product.

This customer has already taken delivery of the MTX-Fp+ system this quarter, and will evaluate its performance over the next few months.

If successful, we would expect to see follow-on system orders in the first half of calendar 2006.

We believe that considerable interest in our MTX-FP+ system will continue throughout fiscal 2006 as the mobile communication market demand for higher-capacity and lower-cost flash memories strengthens.

In a quarter that had many positives, I believe the major event was booking an initial order from a leading DRAM manufacture related to our FOX products.

This order was the first phase of a project with the objective of developing and delivering 300-millimeter full wafer contactors in a FOX system, which will be used to evaluate whether our products can provide a cost-effective solution for wafer-level burn-in and test of mobile DRAMs.

As DRAM manufacturers are major users of the burn-in process, successfully achieving the objectives of this development project could result in production orders for our FOX wafer-level burn-in and test systems over the next few years.

Our primary challenge will be to provide a cost-effective full wafer contactor that can simultaneously contact tens of thousands of fine-pitch wire-bond pads over a 300-millimeter wafer, and at elevated temperatures to 125 degrees Celsius.

During the quarter, we also continued to see strong interest in our newly released FOX1 full wafer tester for a wide variety of applications.

The key advantage of the FOX1 system is that it makes full wafer contact, and parallel tests the entire wafer in minutes versus the hour or more it takes with a conventional way wafer prober and tester.

We are close to completing our final milestone on the project, which involves finishing and validating all of the product features so that the system is production ready.

Upon completion of our final development milestone, expected later this quarter, we anticipate receiving additional FOX1 orders this fiscal year, with the first system shipments commencing later this calendar year.

We continue to believe that the market opportunities for our FOX family of wafer-level test and burn-in products will grow over the long term as the demand for multichip packages is driving the need for known-good (ph) die or burned-in and tested die.

In closing, as a result of our strong bookings over the last few months, we expect net sales for the second quarter of fiscal 2006 to be significantly higher than the first quarter.

Most importantly, I am pleased to say that we expected to achieve profitability for the quarter.

Now I'd like to turn the call over to Gary for a discussion of our first quarter results.

Gary?

Thanks, Rhea.

Reported net sales rose 42% to $4.6 million from $3.3 million in the fourth quarter of fiscal 2005, but declined from 5.9 million in the prior year's first quarter.

As expected, gross margin grew in the first quarter of fiscal 2006 to 47% compared to 28% in the fourth quarter of last year and 18% in the prior year's first quarter.

The increase was primarily related to product mix and manufacturing efficiencies related to increased production levels.

Additionally, the first quarter of fiscal 2005 included a significant amount of pass-through products with little or no margin, whereas the two most recent quarters did not include any material amounts of pass-through product.

We anticipate that the gross margin for the second quarter of fiscal 2006 will be in the mid-40% range.

SG&A of $1.5 million is basically flat, with both the sequential quarter and the prior year's period.

First-quarter 2006 R&D expenses were also flat compared to last year's first quarter, coming in at $1.0 million in both periods.

R&D expenses decreased slightly when compared to the fourth quarter of fiscal 2005.

Our net loss narrowed considerably in the first quarter of fiscal 2006, coming in at $244,000, or $0.03 per share, compared to a net loss of $1.3 million, or $0.18 per share, in the first quarter of fiscal 2005, and $1.7 million, or $0.23 per share, in the last quarter of fiscal 2005.

Cash, short-term and long-term investments declined from the end of fourth-quarter fiscal 2005 and totaled $6.3 million compared to 9.2 million at the end of May.

The decline was a result of increases in accounts receivable and inventory related to our higher shipments in production levels.

At August 31, 2005, we had no outstanding debt, and shareholders' equity was $17.2 million, or $2.30 per diluted share.

Before we open our call to your questions, I would like to remind you of our projections for the second quarter of fiscal 2006, as well as for the full year.

Based on the increased activity we are seeing and a recent high level of bookings, we expect fiscal 2006 second-quarter net sales to be significantly higher than those of the first quarter of fiscal 2006.

And importantly, we expect to achieve a profit in the second fiscal quarter.

We also expect net sales for fiscal year 2006, the full year, to improve considerably over fiscal 2005 levels.

We would now be happy to entertain your questions.

Operator?

(OPERATOR INSTRUCTIONS).

Jeff Scott (ph).

Scott Asset Management.

Congratulations.

We're getting close.

A couple of questions -- the major IT manufacturer -- was that MAX3s and MAX4s you're shipping to them?

What are you referring to?

The press release regarding the $5 million --

That was MAXs.

Pardon?

MAX4s.

MAX4s -- okay.

The 3 million to a major memory manufacturer -- is that the same order which was referred to in the fourth-quarter -- press release on July 9th for the fourth quarter?

No, that was after.

In the -- that's a good question, Jeff --

Both orders were kind of described the same way for the same amount.

Unfortunately, that's how it happened.

But the order that was described in last quarter's conference call was $3 million that started near the end of the fourth quarter.

And most of it was in the first quarter.

But those are two different orders.

Okay, so you've shipped the product related to the first press release?

Some of -- yes.

And so in --

Part of the first order was in the first quarter.

And all of the second $3 million order was in the first quarter.

So the total orders for the MTX probably was around 5 million for the quarter.

Okay.

-- to be specific.

Yes, in that press release, you talked about the performance of the PTB-400 Performance Test Board.

It was new and larger.

Were there performance issues relating to that test board that kind of delayed the order?

No, I think it's just a matter of the customers' demand changing and needing more systems, and using them to a higher degree to offload tests from the more expensive final testers that they were using.

So they are putting more test functions on our system because we can parallel test more devices as a result of the cost per device is lower -- testing each device is lower.

The order that was announced on 8/23, that 3 million to memory, was that driven by wanting to use it on flash rather than DRAM?

Yes, it was flash.

So it was flash oriented?

Correct.

Okay.

As I recall, last conference call we kind of had a debate on the difference between "considerably" and "significant."

And we found out that significant is in the range of 42%.

I'll let Gary answer that. (laughter)

You're passing on to him?

I don't want to be sarcastic, but since you enjoyed those words so much in the last conference call, we decided to use them again.

We don't want you to draw a conclusion as far as an exact number that's associated with "significantly."

I noticed from this press release, you talk about 2Q is going to be significantly higher than 1Q.

And since we've determined that significant is in the range of 42% --

That could be a very big range, though.

Again, I'm not trying to get a specific number tied into the word.

But "significantly" is a good increase -- is really the way to look at it.

You used that word intentionally rather than "considerably?"

Yes.

Okay.

Going back to the FOX1, what is left to do on the milestone?

Last time, we talked about it only being kind of the final integration. (multiple speakers) Are there any technical issues which remain?

Yes (multiple speakers) no major technical issues, but as the customer is running wafers in our factory, they discover certain software bugs or things of that sort that hits on a hit list, and we have to finish them.

So as far as we know, at least as of now, there's nothing major that we have run across.

It's just software bugs, or some feature that when tried, it doesn't work.

So their motivation is to have basically a production-ready system when it leaves here.

And the last milestone you expect to complete this fiscal quarter?

I hope so. (laughter) That's the plan.

If that's the case, then the customer will take the machine which is currently operating in your premises?

Initially, we would complete a milestone and received 300,000 of engineering revenue.

And I would expect there would be a few weeks after that to groom this system and get it ready.

Yes, but the intent would be that once they complete the milestone, that we would deliver the system.

And you would deliver that system?

That system.

Have you started building more FOX1s?

Yes.

So in addition to the one that you are finishing up for this particular customer, you have actually started building some more?

That is correct.

And that's in contemplation of orders, or in response to a purchase order?

It's basically forecasting, because the leadtimes for our products would be long if we started from scratch.

So we tend to build on forecast.

Okay, so you have actually started building more FOX1s?

Right.

Going back to the number of orders for the other FOX systems, is there any change -- remind me what we talked about in terms of -- last conference call about your forecast for the year.

Wasn't it five or six machines?

I don't believe I said -- FOX?

I don't believe I said five or six.

I might have, but I don't remember that.

What I talked about earlier in the conference call is that a leading DRAM manufacturer gave us a purchase order for an evaluation system.

It's going to be a multiphase project.

But their intent is to have us develop a 300-millimeter contactor for their wafer, their DRAM wafer, and buy a FOX system and to evaluate these -- the contactor in the system, at which time we complete this product.

It's going to be a while to do this, because for us, it's going to require some changes from our interconnect technology in both of our systems.

So it's probably a ten- to twelve-month kind of a project.

For delivery of a system that they can actually test in their facility?

Yes.

Jeff, this is Gary.

Is it possible for you maybe to hold any additional questions until later in the call?

That way will have a chance to get some other questioners?

I apologize.

No problem at all.

I think it's very helpful.

Joy Mukherjee (ph).

State of Wisconsin Investment Board.

Let me add my congratulations, firstly, that it's great you're going to be profitable next quarter.

What are your expectations for cash flow?

That's probably going to be similar.

Cash balances would probably be similar to where we see them now.

Even though the revenue will be increasing, we do anticipate gaining similar levels of Accounts Receivable, similar levels of inventory to what we have now.

So we wouldn't expect any serious decline in cash.

Okay.

You mentioned that the mix was one of the drivers of the gross margins.

Could you elaborate on that a little bit?

We have quite a range of margins on our various systems.

And there was even one additional anomaly this year or this quarter -- we had one customer who had previously paid 80% on a system.

And the rules that would follow for FAB 101 says that until that remaining 20% is paid, we don't show that 20% as net sales.

So when the 80% portion was booked, all of the costs of the system are booked.

So the remaining balance was really pure margin that came through.

So that gave a little bit of an extra boost to the quarter that we wouldn't typically see.

And that was two or three percentage points.

I see, okay.

I realize also that you have some exciting products which are driving improving sequential quarters.

Now would you give me a sense of also the industry, apart from just what you're seeing?

Is your sense that there is an improvement in the industry as well?

That's always a difficult question.

What I see is in terms of the back-end ATE industry is that it's basically what you read.

And obviously, the bookings are increasing in the test sector.

And actually, the book-to-bills are above 1.

But again, we are such a small part of that, I believe that we can increase faster than the overall industry can if we can win some large accounts.

So sometimes the equipment industry goes up and we don't.

And sometimes we go up and they don't.

So it's just a matter of us penetrating new customers with our products or getting our existing customers to buy more products because we offer cost savings advantages.

Thank you.

Congratulations again.

(OPERATOR INSTRUCTIONS).

John Gruber (ph).

Backlog -- it might be in the release;

I don't see it here.

But what was backlog versus what was the beginning of the quarter -- at the end of last quarter and the end of the year-ago quarter?

We don't give bookings or backlog each quarter, John.

At year-end, the backlog was $3.7 million. (multiple speakers) And during the quarter, as we have said, we got a much higher level of bookings than we have seen in several years.

So you would anticipate that backlog would have grown from that.

But that's not a number that we disclose on a quarterly basis --

Everyone in your industries basically reports backlog or orders.

So why don't you?

One of the reasons -- a couple of reasons.

One is we have a large average selling price in our systems, and the orders tend to come in in huge lumps.

So we have very lumpy bookings from one quarter to another.

And the other reason, which is probably the most important reason, is that customers know when your financial quarters ends.

And they tend to hold bookings and get that extra few percent discounts.

So we feel it's an advantage.

Because oftentimes, they do try and hold us up and wait until the end of our quarter to start negotiating business.

And we don't flinch.

We just say, okay, if you want order it a day or two later, that's fine.

It saves us a few points on discounts.

So those are the reasons why we don't do it.

I think there's a few other companies that don't.

But you're right, John.

A lot of (multiple speakers)

Very few.

And the companies do know when your quarterly ends.

It's not like just because you don't report your backlog doesn't mean that they don't know when your quarter ends.

Yes, but there's no motivation.

Whether we book it August 31st or September 1st, it doesn't matter to us.

We want to book it, of course.

But it would if you reported bookings every quarter, you knew your stock price was going to --

So was the rough book-to-bill, then?

I'm trying to get the same answer a different way.

You could basically add up the bookings of the -- what we have announced, so you can get a fairly good feel that it was significant.

Certainly more than 1, just based on what we have announced for the quarter.

Yes, no, I know, but was it more than 2.2?

As Ray said, we don't report the book-to-bill number, and very similar reasons.

We can have big swings from one quarter.

We can have a very high book-to-bill number.

We could have a very low book-to-bill number, just basically depending on how the orders came in.

So we prefer not to disclose book-to-bill.

But anyway, as Gary mentioned, it was one of the largest booking quarters that we had in a while.

Was it your largest?

In several years.

Okay, but not your largest ever.

Jeff Scott.

Okay, I'll get back in the queue.

Was there any FOX revenue in this quarter?

No FOX revenue.

No FOX revenue.

There was no specific press release regarding the FOX order that you got, though, right?

That's correct.

So this is new information as of today, really?

That's correct.

Have there been any follow-on orders from Viking?

There was -- I think they ordered half -- basically, the first time they ordered the system, they didn't fully populate it.

And they ordered about a half a system's worth of electronics.

Right.

And now they have pretty much a full system, so their --

But they still have only the one system?

Correct, because they were doing a lot of evaluation development work.

And I think their business will ramp if they are successful and they win large contracts.

But you are still waiting to hear from Viking whether or not they have won the business from Viking's customers -- whether or not Viking has been successful with their evaluations, right?

Yes.

It's up to them whether they are successful with their evaluation.

Right, and when you expect to know whether or not they have been successful?

I would probably say in the next -- in calendar 2006.

Not until calendar 2006?

Correct.

I don't know -- just to be clear on the FOX order that we talked about in this conference call, it's not entirely -- I say it's a project that's going to lead to a system order.

So the first phase of it we got, which is the contact, or development part of it.

Rather than a FOX order itself?

Right.

Ultimately, it will lead to a FOX order.

So it will be a multiphase.

And there might be a future announcement if we get additional orders from that customer.

You had three or four pad (ph) evaluations going on, did you not?

Yes, a couple.

Yes, and they're still under way.

And all of those are currently underway?

Correct.

I think one of them went away.

One of the customers changed their focus.

Was that a function of the --

It wasn't a function of us.

The engineering group (ph) or the test manager wanted -- and it might come back again.

But anyway, it was just the company's change of focus and product direction.

It had nothing to do with the evaluation.

Are you still comfortable that the pad technology is sufficient?

Our contactor -- yes, I believe -- our contactor technology addresses a significant part of the market.

We don't address the whole market for wafer level burn-in.

But the amount that we address is still significant for us.

Okay.

Which is -- I think the fact that a leading DRAM manufacturer has enough confidence in us to give us a significant order, or an order for the development of a 300-millimeter contactor for their next generation device -- someone validates our leadership position in this marketplace.

I hope you're right.

Congratulations.

At this time, I would like to turn the call back to management for additional remarks.

Thank you.

This is Rhea.

And I would like to thank you again for joining us this afternoon.

Based on what we have discussed today, we remain confident about the long-term growth potential and future of Aehr Test.

And we look forward to updating you on our progress next quarter.

Thanks again.

Bye now.

Thank you.

Ladies and gentlemen, this concludes the Aehr Test Systems first-quarter fiscal 2006 conference call.

Thank you again for your participation today, and you may now disconnect.