Aehr Test Systems (AEHR) 2006 Q4 法說會逐字稿

Welcome to the Aehr Test Systems Fourth Quarter 2006 conference call.

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

Following today's presentation, instructions will be given for the question and answer session. [OPERATOR INSTRUCTIONS]

I would now like to turn the conference over to Erin Cox, from Financial Relations Board.

Please go ahead.

Thank you.

Good afternoon and thanks for joining us to discuss Aehr Test Systems results for the fourth quarter of Fiscal 2006.

By now you should have all received a copy of today's press release.

If not, you can call my office at 310-854-8300 and we'll get one 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 would now like to turn the call over to Gary Larson.

Go ahead, Gary.

Thanks, Erin.

And thank you 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 the customer demand for Aehr Test 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 customer of our Fox, MTX, Max, and DiePak technologies, and the conversion 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 for performance described, the Company's development and manufacture of a commercially successful wafer level test and burn-in system, and the potential emergence of all alternative technologies, each of which could adversely affect demand for Aehr Test products in fiscal year 2007.

We refer you to our most recent 10-K and 10-Q reports and other reports filed from time to time with the Securities and Exchange Commission for 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.

Thank you, Gary.

Good afternoon everyone and welcome to our conference call for the fourth quarter of Fiscal 2006.

I am very pleased to report that Fiscal 2006 ended on a high note.

Net profit for our fourth quarter of Fiscal 2006 was $528,000, up 47% over the prior quarter.

Revenue for fiscal 2006 was $23.8 million, an increase of 48% over the prior year.

Most importantly, we had a net profit of $810,000, or $0.11 per share for fiscal year 2006.

This is a remarkable bottom-line improvement from the prior fiscal year, when we lost $4.9 million, or $0.66 per share.

Also, bookings for the last fiscal year were strong.

While revenue increased nearly 50% year over year, we had an -- we also increased backlog at year end from 4.9 million to over $12 million.

I would like to especially thank our employees worldwide for their outstanding efforts in making Fiscal 2006 a successful year for Aehr Test.

As always, Gary will provide more detail on our quarterly financial results, so I'll spend my time highlighting other key accomplishments for the quarter, and discussing our outlook for our newt fiscal year.

The major event for the quarter was completing the final development milestone for our FOX 1 full wafer parallel tester.

Although we didn't get the official sign-off until the middle of June, all substantial wafer correlation testing and engineering work was completed in the middle of May.

The final development milestone was to verify that the system is production ready.

It is also important to note that the Fox 1 tester development consisted of 2 major components, a test head, with electronics to test thousands of die and parallel and a full wafer contactor, using our proprietary interconnect technology.

The key advantage of the Fox 1 is that it makes a full wafer contact in a single touchdown and can parallel test the entire wafer in minutes, versus the hours or more it could take using a conventional wafer prober and tester.

We believe that our FOX 1 will provide significant throughput improvements, thus reducing the high cost of testing flash memories.

Now that the final development milestone is completed, we anticipate receiving an additional FOX 1 tester and wafer contactor orders.

We expect to ship the first Fox 1 tester in our second quarter.

Significant progress was made this past quarter on the development of a production FOX 14 wafer level burn-in and test system for an automotive IC manufacturer.

As you will recall on March 16th, we announced that a leading automotive semiconductor manufacturer placed a multimillion-dollar order for a Fox 14 with a full complement of 14 wafer Paks for production wafer level burn-in.

We hope to receive follow-on orders after a successful installation and performance of the first system which is scheduled for delivery in the first half of calendar 2007.

We believe that the market opportunities for our FOX family of wafer level test and burn-in products will also continue to grow over the long term, as demand for high reliability required by the automotive industry in multi-chip package producers drive the need for known good die or burned-in and tested die.

Last fiscal year we saw a strong increase and orders for shipments for our core Max and MTX systems for package integrated circuits.

We believe the mobile communication in automotive IC markets were the key drivers for a MAX burn-in system business this past fiscal year.

The demand for burn-in systems for manufacturers of automotive ICs continued into our fourth quarter as most of our revenues were from our MAX systems.

We also saw a strong demand this past year for our new MTX FP+, massively parallel tester, which targets the fast-growing flash market.

Since the MTX FP+ system can test over 12,000 flash memories in parallel, we believe it can be an effective tool for reducing the escalating cost of testing flash memories.

Our growth strategy over the last several years has been to grow net sales by expanding our addressable markets and 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 and test MAX and MTX products.

We strongly believe this strategy will pay off over the long term and indeed we saw positive results this past fiscal year.

One of our major challenges this fiscal year will be ramping our design and manufacturing capacity to provide a growing number of custom full wafer contactors needed to support the projected FOX 1 tester sales.

We expect there to be an increase in R&D and operations infrastructures to support this new contactor business growth opportunity.

In closing, we are optimistic that the demand of our MTX and MAX systems will continue throughout fiscal 2007, and we expect to see growth opportunities coming from our FOX wafer level burn in and test products.

Now, I would like to turn the call over to Gary for a discussion of our fourth quarter financial results in more detail.

Gary?

Thanks, Rhea.

Net sales this quarter increased 115% to $7 million from 3.3 million in the fourth quarter of fiscal 2005.

For the full fiscal year, net sales were $23.8 million, a 48% increase over the last fiscal year.

Gross margin was 46% for the fourth quarter, compared to 28% in the year-ago periods and 40% in the third quarter of fiscal 2006.

The gross margin improvement over the prior prior quarter is due to a higher volume in sales, as well as a net sales product mix that was skewed more toward MAX systems, which had a relatively higher margin than MTX systems.

Fox 1 systems also carried -- also carry a relatively higher margin, and we expect those margins to trend slightly higher as these systems become part of the revenue mix.

SG&A was $1.5 million, compared to $1.4 million in the same period prior year.

This increase was primarily related to an increase in employment related expense.

Fourth quarter 2006 R&D expense was $1.3 million, up from $1.1 million in the fourth quarter of last year.

This increase was primarily related to an increase in employment expenses and outside services.

This is our third consecutive profitable quarter, with net income for the fourth quarter of $528,000, or $0.07 per share.

Compared with a net loss of $1.7 million, or $0.23 per share a year ago, and with net income of $360,000 or $0.05 per share for the third quarter fiscal 2006.

The full fiscal year we posted a profit of $810,000, or $0.11 per share, a marked improvement over a net loss of $4.9 million or $0.66 per share in fiscal 2005.

We're also pleased to report that our balance sheet continues to strengthen.

Our cash and short-term investments totaled $11 million at May 31, 2006, up $1 million from $10 million at the end of the third quarter of fiscal 2006.

Shareholders' equity was $18.8 million, or $2.47 per share outstanding at May 31, 2006, and we continue to have no outstanding debt.

We expect net sales in the first quarter of fiscal 2007 to be about the same as those in the quarter just reported.

Due to gross margin improvement, we also expect that net income, excluding stock stock option expense be higher than the fourth quarter 2006 level.

Beginning in fiscal year 2007, we will start recognizing start stock option expense, which we expect to range from under $150,000 to $200,000 in the first quarter of fiscal year 2007.

We're now ready to answer your questions.

Operator, please go ahead.

Thank you.

At this time will begin the question and answer session. [OPERATOR INSTRUCTIONS] One moment, please, for the first question.

Our first question comes from [Amesh Misra] with C.E.

Unterberg Towbin.

Please go ahead.

Good afternoon, Rhea and Gary.

Good got job on the quarterly results.

How are you, Amesh?

Good.

I had a question in terms of the cycle time for your FOX 1 system.

How long does it take from once you have an order until you are able to ship the system, and what's your estimate of the qualification time of the customer?

I think -- I mentioned that we plan on shipping the first system that's in backlog next quarter.

So I would look at the deliveries, assuming we get orders, being in the 3 months to 4 month lead time.

Okay.

I think it's pretty much typically light systems.

We can, again, forecast and try to drive that down, but we are looking at booking one quarter and shipping another quarter.

I see.

In terms of customer acceptance, how long does that take?

Well, we're hoping it's not going to take as long for this product, since the major part of the final milestone was making sure the system was production ready.

You know, we're looking at probably, I don't know, a few months, a month or two, I guess, would be my guess.

Okay.

But it's new territory for us.

This is a product -- I mean, this is a product that is going into high-volume manufacturing for doing full wafer test, so the assumption is -- and we're confident that a lot of the what would be the normal acceptance, you know, delays and pick-ups has been already -- been discovered here and we have, you know, corrected the issues.

So we're hoping there's a smooth transition into the production environment.

Okay.

So the initial orders on the FOX, are you getting them primarily from Flash customers or is there a potential of going into other areas as well?

The initial orders, we mentioned earlier that we have one FOX 1 production system in backlog that we're going to ship.

After completing milestone F, we would expect to see additional orders.

And this application, the first application is for testing Flash memories.

However, the future we believe we can move the system into other markets besides flash although the flash market is a significant market opportunity in itself.

Okay.

And then finally, in terms of your gross margin improvement next quarter, is that primarily due to recognizing the sale of this additional FOX system next quarter?

We don't anticipate recording revenue on the FOX system in the first quarter.

That will be shipping in the second quarter, actually and there'll be some delay, as you noted, for acceptance.

But the completion of our milestone F in the development project of the FOX 1 is about $300,000 in revenue and most, if not all of that would be margin.

So that should bring us an improvement.

Okay, and just one more question.

What was the breakdown between the MAX sales and MTX sales?

I know you said the majority was --

By far, the majority was the MAX systems.

The MAX systems were in the 70 to 80% category and the other systems were in the 10 to 20% category.

Okay, thanks very much, Gary.

A good job.

Congratulations.

Thanks.

Thank you.

Our next question comes from Dennis Wilson, with Kennecott Adams.

Please go ahead.

Thank you, congratulations on the quarter.

Thanks, Dennis.

A couple of questions.

I guess, first, as you guys have begun to hit these milestones on the FOX platform, and are clearly become more production ready with these systems, are you starting to generate more customer interest or are more people knocking on your door at this point?

I guess to follow on from that, when would you be ready to start adding new customers to the mix?

That is a good question.

You know, we look at this as a major turning point for us in the sense that, you know, having passed completed in milestone and having the first customer certainly helps convince other customers.

And we would anticipate adding new customers in the second half of this fiscal year, FOX 1.

You know, we are talking to people -- overcoming this hurdle really helps convince people that it works and that it's a production ready product.

So hopefully people would get on the bandwagon.

If we start shipping products and they see one of their competitors saving a lot of money.

They tend to watch -- each of the leading IDMs, as you know, watch what the others are doing.

You know, they're -- they like to know what their competitors are doing and they have ways of finding out.

So we're optimistic that the news will spread.

And I guess, sort of as you -- start to ship the product, you started mentioning in the last question, 3 to 4 months leading time, I guess, when you look to your backlog at this point how far out -- how many systems are and backlog?

I don't know if you actually said that.

And I guess if he would have enough resource at this point to really add a few more customers at this point anyway?

Obviously, you've got your arms full a little bit, with a lot less work?

I think, certainly, you know we can add capacity, you know, relatively easy.

I mean, we don't see ramping up the FOX 1 as being technically as any different as building an MTX or something of that sort.

So the difference will be in the contactors, and that's one area that we need to focus our manufacturing and R&D on so we can ramp capacity through new contactor designs.

And we would expect the lead times to come down as we -- we have more systems and production and start reducing the cycle time.

As we -- you know, our strategy is to ramp with our first customer, make sure that's successful.

In addition to that, we want to bring in more customers, so as I said, we would -- our plan is to add new customers in the second half and adding a new customer would probably mean getting the first order and shipping an evaluation system.

So we're not projecting adding the volume for another customer this fiscal year.

Okay, fair enough.

Sounds good.

Other question, more on the other traditional side of the core business with the burn-in systems, the MAX and MTX and [absolute parallel test], just when you look at your environment right now, I see things picked up this year and it sounds like you made progress on the R&D side and the like.

I'm just curious what you're seeing out there right now in terms of the environment?

Have you seen any change in your business on that side, given some of the uncertainties with the people that are starting to see at least on the second half of this year, or are you fairly isolated from that?

Can you give me a size customer distribution, whatnot?

Can you give me what your thoughts are there, it to see a nice strong to trajectory end of that side of the business going through the next couple of quarters?

I think, typically, the summer tended to be, you know, somewhat slower in activity because people are on vacation.

I mean, we tend to see a spike coming, you know, for the Christmas season, the Chinese New year.

The So, you know, the cell phone manufacturers and flash manufacturers ramp up in that area.

So we typically will see that in the -- when they need capacity in the September and October timeframe.

So our customers are still, you know, optimistic that at least we can see out into the last half of 2007, and they're saying that they need capacity out there at that timeframe.

And we're not seeing any slowdown yet from our customers.

From their demand.

Although who knows what happens 6 months out when they go to place 3 to 6 months out when they go to place orders?

Okay.

From our perspective we haven't seen much -- our customers, knock on wood, seem to be doing fairly well.

Okay, that's very helpful.

Thanks and congratulations.

Thank you, Dennis.

Thank you.

Our next question comes from Jeffrey Scott with Scott Asset Management.

Please go ahead.

Good afternoon and congratulations.

Thanks, Jeff.

How are you, Jeff?

Good, thank you.

A couple, kind of quick housekeeping questions.

The tax benefit for the fourth quarter was a change from the third quarter were there was a tax charge.

What was the reason for that, Gary?

In the U.S. and in Japan because of our significant tax losses, we don't record current tax entries.

So what we're really seeing there is those changes are related to our German subsidiary of were we have full taxability.

So in the quarter where you saw a tax charge, basically, they were profitable and in the quarter were you saw a tax benefit, they were losing some money.

But Germany was losing money in the fourth quarter?

Right.

Okay.

The increase in the cash position was a function of the increase in deferred revenue.

Substantial jump year-over-year, particularly third quarter to fourth quarter of a $1 million.

Did that arise from a cash receipt in respect of one system or was that across the order book where there's cash deposits paid upon receipt of order?

There are a number of items that enter into the deferred revenue.

And as you pointed out, that's cash received on shipments that have been made where we have not yet reported the revenue.

Okay.

So --

Different customers involved in a different systems.

Okay, but it's all systems that are out the door and awaiting approval from the end customer?

Correct.

Okay, in terms of the manufacturing, are there any parts or components that you buy for the FOX systems which have long lead times or that are problematic to get?

I'm thinking.

I'm sure there are, and we have long lead time items for all of our systems.

We tend to plan around it.

So we'll actually by long lead items to forecast.

Yes.

So if we started from scratch on a Max or and MTX, it could take you 6 months to deliver one.

So we actually buy on forecast some of the long lead item parts.

So in terms of what you've already ordered for components and parts, you're very comfortable with being able to satisfy the increased demand?

That's correct.

Obviously, it depends on what the increase in demand is, but right now we're working with our customers and trying to identify how many systems they plan on buying over the next 1 or 2 years.

They've given us indications of where they're going to buy some initially.

Yes.

And put them in their facilities and then running them at an additional capacity.

But they haven't given us the final, let's say a long range forecast.

So we're making guesstimations as to what we think is a realistic number.

I don't think there is anything in the system that I can think of that is, no, you make that has long lead items but we do have to be careful.

But they're also aware of the fact that you -- since there are long lead times, you need to be aware of their intentions, which gives you a pretty good look into what their ultimate demand is going to be?

Correct.

And that's why we want to work with them as a partner.

They have to share that info with you, though?

Yes.

I mean, that's the idea and the plan, although we do get -- if you're in this business, you do get surprised by your customers and they get surprised by their customers.

We've seen them where they'll say the demand for Max is, for the next half year is X, and they'll come in and double it, because their business changes.

So these things happen.

I mean, I'd rather have it go up than go down.

We're trying to convince our customers to work with us and give us long-range forecasts.

The FOX 14 is going to the automotive market.

Is that -- is that for micro controllers?

It is some kind of a controller, has a micro controller in it, but it's a different application.

It's not a pure micro controller.

I can't say what it is, because it might give away the manufacturer, who doesn't want us to disclose who it is.

Okay.

If I tell you what the specific part is, then you might be able to identify the customer name.

Okay, but it sounds like it's a very proprietary product.

It is that correct?

Yes.

Okay.

It's a product that's widely used in automobiles.

Will the FOX 14 and anyway cannibalize MAX systems sales?

No, we don't believe so.

It will be purely incremental business?

Correct.

Because we're -- the customers that were looking at selling it to, I mean this customer -- it's a device that isn't burned in on our MAX systems, even though our customer has Max, he isn't using the MAX's for this product.

Okay.

So in most cases, I don't see it cutting into MAX business.

Okay, I'll hop off and let someone else get in there.

Thanks, Jeff.

Thank you. [OPERATOR INSTRUCTIONS] Our next question comes from with Amesh Misra, with C.E.

Unterberg Towbin.

Please go ahead.

Hi, guys.

A just a quick question in terms of the number of contactors that you have shipped out -- sent out the door so far for the FOX -- So basically, what I'm trying to get at is how many different products are your customers evaluating on the FOX system?

Will they be doing that in the near term?

Are you saying, how many evaluation orders?

No, how many different contactors?

Have we developed?

Have you sent out the door so far?

I don't, you know, I'm just guessing but I'd say we've done, you know, a few for DRAMs, some for Vixel laser diodes, a few for flash memories, a few, 5 to 10 designs.

These were typically done for evaluation purposes prior to a system being purchased.

I guess I was looking for the contactors that are for the FOX system.

That's correct.

So that includes DRAMs, Vixel's,

I'm giving you the distant different types of contactors that we had done and made.

Okay.

So just so I understand this a little better, I guess for a DRAM of one density and a DRAM of another density, you would have a different contactor?

Right?

Correct.

Okay.

Every time you have a new wafer --

Every time you have a new mask, you have a new contactor.

Okay.

So the optics guys are also looking at this?

We announced a few years ago we sold at Fox, we call it a in Vixel system for burning in vixel laser diodes to Fuji-Xerox in Japan.

Okay, thank you very much.

Thanks.

Thank you.

Our next question comes from Josh Goldberg with Interstate Capital.

Please go ahead.

Hey, guys.

Two quick questions.

On your press release, talks about your backlog at $12.5 million.

What was that number last quarter?

We only disclose our backlog at year end.

And it was 4.9 million the previous year.

Okay, is that fair to say, though, that the backlog was up quarter to quarter and year book-to-bill was up?

Again, we don't generally disclose the bookings or book to bill on a quarterly basis.

Okay.

And then regarding that $12.5 million number, is that revenues that you should recognize over the next year or 6 months or how is that backlog defined?

Most of the time the backlog is recognized within a year.

There are some unusual situations where it could extend beyond a year, but typically it is within the year.

And that includes both the MAX products as well as the FOX products?

Yes.

Okay.

Maybe can give me, I'm fairly new to this, sorry, just an understanding of what products the FOX 1 tester is going to compete against, maybe competitively, or specifically which industries or verticals that you're seeing a lot of the interest in the FOX product.

I think, initially we were targeting it to test flash devices, devices with long test times.

So if you look at the, you know, the competition, who would be we be competing against, it could be Avon test or a Baer&G, somebody of that sort.

With their wafer probe testers.

The point is, the market thing we're going after with that, if you look at the automated or that market is $1.5 billion market.

So we're going after a small piece of it.

So I don't think there's going to be any disruption with the -- the competitors that we're going after.

At this point.

So we're still a small guy growing in this large space.

Okay.

And in terms of top customers, I know in the last couple of years, [Spansion's] been a very strong customer of yours, are you able to tell us now for the year, how big certain customers were?

We will include that in the 10-K, but we're not prepared to disclose that right now.

But you're correct, Spansion and Texas Instruments have been both 10% customers in recent years.

Okay, great.

Thanks so much.

Thank you, Josh.

Thank you.

I show there are no other questions at this time.

I would like to turn the call back over to management for closing remarks.

This is Rhea.

I'd like to thank you again for joining us this afternoon.

We have just completed, I think a complete terrific year for Aehr Test, we're excited about the future.

We believe we have a stable core business that will allow us to continue generating solid revenue from our MAX and MTX systems.

We have strong growth opportunities with our new FOX systems.

We also have a solid infrastructure in place to achieve our sales, manufacturing, and R&D goals and we expect to realize operating leverage as we continue to increase our revenues.

And we look forward to updating you on our progress for -- in fiscal 2007.

So thanks again for taking the time to listen to our conference call.

Thank you.

Bye-bye.

Thank you, ladies and gentlemen, this concludes the Aehr Test Systems Fourth Quarter Fiscal 2006 Conference Call You may now disconnect.