Aehr Test Systems (AEHR) 2007 Q3 法說會逐字稿

Welcome to the Aehr Test Systems third quarter 2007 conference call.

[OPERATOR INSTRUCTIONS] As a reminder, this conference call is being recorded today, Tuesday, the 27th, of March, 2007.

I would now like to turn the conference over to Ms.

Erin Cox with the Financial Relations Board.

Please go ahead.

Thank you.

Good afternoon, and thanks for joining us to discuss Aehr Test Systems results for the third quarter of fiscal 2007.

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

If not you can call my office at 310-854-8319 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 the 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 would 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 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 customers 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 or performance described, the Company's development and manufacture of a commercially successful wafer level test and burn-in system and the potential emergence of alternative technologies, each of which could adversely effect demand for Aehr Test products in calendar 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 & Exchange Commission for a more detailed description of the risks facing our business and the 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.

Rhea.

Thank you, Gary.

Welcome to the conference call for the third quarter of fiscal 2007.

We are pleased to report our sixth profitable quarter in a row, although net sales came in down 9% from the preceding quarter.

The demand for our MAX family of test burn-in systems was still soft last quarter.

Mostly as a result of the Texas Instruments capital freeze that we discussed on our last call.

The good news is that based on recent quoting activity we believe TI will soon start buying MAX systems again.

The highlight for the quarter was that we continued to see momentum building for our FOX 1 full wafer parallel tester.

Today we announced follow-on orders for multiple FOX 1 parallel testers and wafer pack contactors totaling over $8 million.

We now have announced over $18 million in orders for FOX 1 testers and wafer pack contactors this fiscal year.

We are very excited about the significant growth opportunities we see for our FOX 1 testers and wafer packs throughout calendar year 2007 and beyond.

It is also important to point out that we design and manufacture the custom wafer pack contactors for our FOX 1 tester.

These are full wafer contactors which enable our FOX 1 system to parallel test thousands of dye in a single touch down thus dramatically increasing throughput and reducing test costs.

With contactor ASPs mostly varying from 200,000 to $400,000 depending on the number of pins, our wafer pack contactor sales have the potential to become a significant segment of our business.

Wafer pack contactor sales should grow rapidly as our installed base of FOX 1 testers increases.

Another important accomplishment last quarter was that we shipped our first FOX 1 parallel tester configured for testing 300mm wafers.

In January we announced receiving orders for multiple 300mm FOX 1 testers for a new 300mm fab targeted to come online in late calendar 2007.

Moving to our FOX 14 system, we have made some important changes in improvements in this product.

As you will recall, a year ago we announced selling a FOX 14 system to a leading automotive IC manufacturer for production wafer level burn-in and test.

The Fox 14 system was optimized for primarily testing memories.

Rather than customize the FOX 14 system for these new automotive applications, we redesigned this system to make it a general purpose tester for a wider variety of ICs.

We are very pleased about the development progress we made on our newly designed FOX 14 over the past few months.

We have verified the system's design by functionally testing and burning in our customer's product wafers using an engineering system.

We have also enhanced our patented wafer pack cartridge design for ease of handling, lower costs, and higher power dissipation.

Most importantly our FOX 14 system is now 300mm wafer ready.

We believe this newly designed multi-slot FOX 14 system will enable us to penetrate a broad range of IC manufacturers for their production wafer level burn-in and test needs.

We expect to deliver this FOX 14 system by mid-year calendar 2007.

Another recent piece of good news is that we sold our MTX FP Plus parallel test and burn in system to a leading memory module manufacturer.

They purchased our MTX FP Plus system to the reliability of their high end DDR 2 dual in line memory modules.

We believe there could be additional MTX orders over time if their customers see added value in their higher reliability products.

In closing, we continue to be encouraged by the strong demand we see for our FOX 1 products over the long-term.

We are taking a very targeted approach to business development and focusing on those IC manufacturers that we know have devices that are good matches for our FOX systems.

We continue to have a goal of adding a minimum of one more customer for each of our FOX 1 and our new FOX 14 systems during this calendar year.

We continue to see the bookings for our FOX 1 products increasing and believe that will drive our growth through next fiscal year.

Our challenge over the next few quarters will be to continually improve our wafer pack contactor design and manufacturing processes to ramp capacity for the large number of custom wafer pack contactors we are expecting.

Based on our strong backlog of Fox products and the strong demand we see through this calendar year, we expect our net sales in fiscal 2008 to increase over this current fiscal year.

Now, I would like to turn the call over to Gary, and he will add some color on the Q3 financials.

Gary.

Thanks, Rhea.

Net sales were $5.7 million in the third quarter of fiscal 2007, a decline of 10% from $6.3 million in the third quarter of fiscal 2006.

In the third quarter FOX 1 systems and contactors represented approximately half of our net sales.

Through the first nine months of fiscal 2007 net sales were $19.1 million, a 14% increase over the same period of last year.

Gross margin was 58% for the third quarter compared with 40% in the year ago quarter.

Our gross margin in the third quarter was positively impacted by a one-time NRE fee and also by higher than normal burn-in board royalty revenues which are all essentially 100% margin.

In addition, the larger proportion of FOX related net sales also contributed somewhat to the higher gross margins.

On a going-forward basis we believe that a more typical gross margin would be in the high 40% to low 50% range.

SG&A was $1.6 million in the third quarter compared with $1.3 million in the prior year period.

The increase in SG&A is partially attributable to an increase in head count as we added sales and support resources to address the expected growth in our business as well as recognition of stock compensation expense which was $97,000 in the quarter.

Third quarter 2007 R&D expense was $1.6 million, up from $1 million in the third quarter of last year.

This increase is related primarily to the development of our new FOX 14 wafer level burn-in system that Rhea mentioned, wafer pack contactors, and other new products.

Also included in R&D was $64,000 in stock compensation expense.

Our net income for the third quarter was $265,000 or $0.03 per share compared with net income of $360,000 or $0.05 per share a year ago.

Excluding $171,000 in stock compensation expense, pro forma net income in the third quarter of fiscal 2007 was $433,000 or $0.05 per share.

Fiscal year-to-date we've posted a profit of $1.5 million or $0.18 per share, a notable improvement over our net income of $282,000 or $0.04 per share for the first nine months of fiscal 2006.

We continue to have a strong balance sheet, our cash, cash equivalents, and short-term investments stood at $10.1 million at February 28, 2007, accounts receivable was $6.1 million at the end of the third quarter, an increase of approximately $2.5 million from the end of the prior quarter.

This is primarily a timing issue as many of our shipments were made towards the end of this recent quarter.

Our inventory was $7.1 million at February 28, 2007, an increase of $1.1 million from the end of the prior quarter.

This inventory build reflects the ramp in production resulting from the strong growth in FOX 1 backlog that we've experienced.

Shareholders equity was $21.5 million or $2.76 per share outstanding at February 28, 2007, and we continue to have no outstanding debt.

Given our strong backlog of FOX products and the number of systems and contactors scheduled to ship in the fourth quarter, we expect net sales and net income in the fourth quarter to exceed those levels of the fourth quarter of fiscal 2006.

We're very pleased that this means our fiscal 2007 net sales and net income will be nicely higher than the levels of fiscal 2006.

We're now ready to answer your questions.

Operator, please go ahead.

[OPERATOR INSTRUCTIONS] Our first question is from Ramesh Misra with C.E.

Unterberg, Towbin.

Good to see strong growth and strong maintenance of the strong trends and orders for FOX.

Thanks.

Rhea, you alluded to the fact that you expect to add one more customer for the FOX 1.

Can you be a little more specific in terms of timing?

I know you can't pinpoint it, but do you see it three months down the line, six months, is it a year down the line?

We said our goal is this calendar year to add one more customer for each product, so as you know it is always a challenge.

It is kind of like you talk, it is like a funnel, right, you talk to a number of customers, five or six, and then it filters down to one or two at the end.

So that's kind of the process that we're in at this point, and I don't have any more information or better information to give you.

Okay.

Can you talk about the range of total orders that you received last quarter?

Basically we don't announce bookings.

We do at year end, so at the end of the--.

But year end we announce the backlog.

We announce the backlog which you can calculate the bookings, but basically we don't discuss things.

Got it.

Some time ago I think you had expected that you may have a FOX 14 shipment recognition in the May quarter.

Sounds like you now think that that is because of the modification of the two that looks like it is being pushed out.

Did I get that correctly?

Actually we said the same thing last quarter, but -- in the conference call, but it is scheduled -- we're looking at we said a mid-calendar year 2007 shipment.

Ramesh, this is Gary.

What we have said in the past on that since this is the first FOX 14 that we're shipping and obviously the first one to this customer, we would need to have customer acceptance on that before the revenue would be recorded.

Okay.

Obviously we're doing our best to try and speed up the process, but as you said it is a new system using a new set of hardware and electronics and a new wafer pack design.

That has delayed the schedule slightly.

Got it.

Okay.

And you said that indications are that TI is looking to start reordering some of the MAX systems.

That's correct.

What kind of time line are you thinking?

Do you think that in fiscal Q4 your MAX shipments could get back to say, Q1 levels or do you think it is still maybe another quarter out before it goes back to say Q1 or year ago Q4 levels?

It is always difficult to predict what they're doing.

We are seeing that they are starting to run out of capacity, and they've asked us for quotes on systems, so my best guess is that we could see a few units this quarter and it might be another quarter or two before it gets back to the earlier levels.

Okay.

And in terms of pricing, would the pricing for these new MAX systems be markedly different?

No.

What's the reason for a brand new quote?

Oh, no, basically the -- it is usually confirming deliveries.

Got it.

Got it.

Okay.

No, they would be the same, basically the same price.

I see.

Okay.

All right.

I will stop there and maybe circle back.

Thanks.

Thank you our next question is from Jeff Scott with Scott Asset Management.

Please go ahead.

Good afternoon.

Hello, Jeff.

You said you shipped one FOX 1 in this quarter.

Was revenue recognized for that shipment?

Yes.

Okay.

I don't know whether we said we shipped one.

We said we shipped one 300mm.

The first 300mm configured system.

We've actually shipped more than one system.

We mentioned or I mentioned that our FOX revenue was about half of the total for the quarter.

Right.

On the FOX 14 you said you had made improvements so that it was no longer just going to be for memory products for that automotive IC manufacturer.

Can you talk about what additional products will be incorporated in that new design that's been verified?

It is a good question.

If you looked at the FOX 14 that we had, it was a 200mm system based on the MTX platform.

It could do -- it was designed for memories.

It could do some logic.

The new system, newly designed FOX 14 is a 300mm system.

It also has higher power dissipation capabilities so we could handle wafers with higher power, and it also added in logic testing capabilities.

So it has I would say additional capabilities so we could do microcontrollers, sensors, more analog along with memories of course.

So I think adding the logic capability, the power dissipation capability and the 300mm gives us a much broader target in terms of markets that we can go after.

Are the microcontrollers going to be a significant part of that market, in your opinion?

There is a market for microcontrollers for automotive applications where--.

Big market, yes.

Yes, where wafer level burn-in fits in nicely.

Thanks so much.

I appreciate it.

Thank you.

Dennis Watson with Canaccord Adams.

Please go ahead.

This is actually [Aaron Horning] on behalf of Dennis Watson.

I guess as an overall general market environment are you seeing any changes in spending besides from TI?

That's a good question.

Certainly we do see TI coming back.

We see right now a lot of activity in Taiwan, in Japan, so I think overall I see an improvement.

It hasn't certainly transmitted orders yet, but I think in terms of potential for our products I see the space out there still very active, and seemingly picking up over last year.

And do you see that picking up more back to normal levels, one quarter away or is it more two to three quarters away?

I would say two to three quarters away.

Two to three quarters away.

Okay.

I guess on the new $8 million orders from the FOX 1 testers, when do you think you are going to start recognizing that revenue.

We would expect that those would ship over the next six months and we would be recognizing revenue at the time of shipment.

Thanks.

And then how about the MTX business?

You said that you did have some orders in the quarter?

What percent of revenue was that?

I don't know if you usually break that out.

Well, we didn't ship it, we just booked it, so we don't talk about the bookings, so we would expect to ship that system in our -- in this current quarter or fourth quarter.

Okay, and then how about head count?

Can you give us a -- quantify that number for us?

Head count has come up a little bit.

We talked about some of our sales and support expenses increasing as a result of that, but we don't normally give out head count numbers except at the end of the year and in the 10-K, but we have gone up a few heads.

And then last question here, are you still seeing any capacity constraints on the wafer contractor design side?

Last quarter you had kind of hinted that there was a little capacity constraining.

You mean on the wafer pack contactors?

Yes.

Yes.

I think initially our challenge was overcoming and adding the resources as Gary talked about to design the wafer pack contactors, and then the next challenge was getting our supply chain up and running.

So that's been a challenge for us, and we think we've overcome that, but time will tell, I guess, and I think we're going to have to continue to develop second sources for that type -- those type of materials that we buy.

Right.

Okay.

That's all for me.

Thanks for the questions.

All right, Aaron, thank you.

We have a follow-up from Jeff Scott.

Hi, Jeff.

The comments you made about the revenue for the fourth quarter of '07, that will be an improvement from the third quarter of '07?

It would be an improvement from the fourth quarter of '07 -- or fourth quarter of '06.

Excuse me.

How about the third quarter of '07?

We're not commenting on that.

Well, third quarter of '07 was a lot less than fourth quarter of '06, so it would definitely be higher than that one.

Fourth quarter of '06 in case you don't have the number in front of you is 7,019,000 revenue.

7.019.

7.019, yes.

And Rhea made some initial comments about fiscal '08.

Can you be any more specific?

No.

I am not giving you a range.

I just gave you a longer-term vision.

I think as we complete next -- we're currently developing our plan, and as we finish our fourth quarter and go into next year we'll probably have a better indication what if looks like.

Just what we see in terms of backlog going into next fiscal year and what we see in terms of orders for the FOXes coming in, if things continue in the current mode we see next year being up over this fiscal year.

Is there an adjective that can be attached up since you guys are so good at that material and substantial and all that other kind of good stuff?

Jeff, you always complain when we give you adjectives.

So we decided not to.

I never complain about adjectives.

I just want to know what they mean.

That's all.

Thank you, Jeff.

Thank you.

Another follow-up from Ramesh Misra.

Hi, guys, did I get this correctly that there were no MTX revenues in the quarter?

Nothing substantial.

Okay.

So basically half of it was FOX and the rest was -- what was the rest?

The rest would be MAX products, other products, any spares, service, things like that, but the lion's share or at least half of it was the FOX products.

That's the key.

Okay.

So the MTX order that you received, is that also revenue that you will recognize upon shipment?

Yes.

Okay.

So that is already from a preexisting customer?

We have shipped similar products.

I see.

Many MTXs, so this is similar to what the systems that we shipped to other customers.

Okay.

Okay.

All right.

So right now it would be safe to assume that in the May quarter FOX revenues should be up -- well, MTX revenues will obviously be up, and possibly the MAX revenues should also be up from just shipping spares that you're shipping right now?

We haven't given guidance as far as what the split would be in the quarter, but as you point out, we have seen a recent up trend in net sales of the FOX products, and we've also put out as Rhea said a number of press releases recently about new FOX 1 orders that we received, so there are a good number of orders that will need to be dispatched during the fourth quarter.

Okay.

Okay.

All right.

Thank you.

Thanks.

Thank you, Ramesh.

Thank you.

Our next question comes from [Joey McCorgie] with the State of Wisconsin Investment Board.

Hi, Joey.

In terms of the decision to add onto the capabilities of the FOX 14.

Yes.

Was that the existing auto customer asking for these additional capabilities or is that some internal decision that you came upon?

Basically it was an internal decision.

We knew we needed to make some changes to meet his requirements, and as we -- I said earlier, we are trying to penetrate other FOX 14 applications, other -- and win new accounts, so in seeing some of the other opportunities out there we felt it was best to make the system a more general purpose system, and improve it or increase the wafer size to 300mm.

The automotive manufacturer didn't really need 300mm capability.

He was happy with 200, but since we are changing a few things and we just felt it was longer-term a better decision.

So what does that do to the market size for that product?

It broadens the -- let's say the available market that we can go after with the FOX 14.

Right, but is there a quantification of what kind of size that could be?

We've talked about the FOX market generally, the available market being four or five years out maybe in the 225 to 250 million a year range, so Rhea can correct me if I'm wrong.

I believe that as part of that assumption we were looking at broadening our product lines in order to capture that kind of a number, so I don't think it has really grown that expected market that we've discussed in the past.

Let me just say that, Joey, we were going to do this anyway.

In our product road map of development projects this was a product that was going to be done, so we just did it earlier rather than later.

All right.

Thank you.

Thank you, Joey.

Thank you.

[OPERATOR INSTRUCTIONS] Gentlemen, there are no further questions at this time.

Please continue with any closing comments.

This is Rhea.

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

We look forward to speaking to you again next quarter.

Thanks again.

Bye now.

Ladies and gentlemen, this concludes the Aehr Test Systems third quarter 2007 conference call.

You may now disconnect.

Thank you very much for using AT&T conferencing.

Have a very pleasant day.