Aehr Test Systems (AEHR) 2007 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen.

Thank you for standing by and welcome to the Aehr Test Systems fourth quarter fiscal 2007 conference call.

During today's presentation, all parties will be in a listen-only mode.

Following the presentation, the conference will be open for questions.

(OPERATOR INSTRUCTIONS).

This conference is being recorded today, Tuesday, July 24th, 2007.

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

Please go ahead ma'am.

Thank you, good afternoon, and thanks for joining us to discuss Aehr Test Systems results for the fourth 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 213-486-6549 and we'll get you one 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.

The 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 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 affect demand for Aehr Test products in fiscal year 2008.

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 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.

Rhea?

Thank you, Gary.

Welcome to our conference call for the fourth quarter of fiscal 2007.

We are pleased to report that our fourth quarter came in somewhat better than expected.

Our net sales for the fourth quarter of fiscal 2007 were $8.3 million, up 18% over the same quarter of the prior fiscal year.

The strong sales were driven by solid contributions from both our FOX-1 and MAX systems.

As a result of higher revenues and improved gross margins, our net profit for the fourth quarter was $919,000, up 74% compared to the same quarter of the last fiscal year.

We also ended last fiscal year on a high note.

Net sales for fiscal 2007 were $27.4 million, up 15% year-over-year.

I am proud to say we had our second profitable year in a row.

Our net profit for the last fiscal year was $2.4 million, a 200% increase over the prior year.

A special thanks to all of our employees worldwide for making fiscal 2007 a successful year.

The highlight for last fiscal year was that we continue to see bookings momentum building for our FOX-1 full wafer parallel tester and wafer pack contactors.

We ended fiscal 2007 with a record backlog of over $21 million, which is 70% higher than our backlog at the end of last fiscal year.

We continue to be very excited about the significant growth opportunities we see for our FOX-1 testers and wafer packs throughout this fiscal year.

For those of you who aren't familiar with our FOX-1 product, our FOX-1 system has the capability of parallel testing an entire wafer in a single touchdown, thus dramatically reducing cost versus conventional testers, which take multiple touchdowns to step across the wafer.

It's also important to point out that we designed and manufactured the custom wafer pack contactors for our FOX-1 testers.

These are full wafer contactors, which enable our FOX-1 system to parallel test thousands of die in a single touchdown.

We would expect our wafer pack contactor sales to grow rapidly as our installed base of FOX-1 testers increases.

I am pleased to announce that Joel Bustos was hired on July 9th as VP of Operations and as a member of the senior management team.

Joel is a senior manufacturing executive with 20 years of management experience in the high-tech industry.

I believe Joel will help us improve our manufacturing processes so we can efficiently ramp capacity for our FOX family of systems and wafer pack contactors this fiscal year and in the future.

Another highlight for our fourth quarter was receiving $3 million in orders for our MAX3 and MAX4 systems from Texas Instruments.

These MAX systems were purchased to provide burn-in for communication and automotive devices.

We are also very pleased about the development progress we made in our newly designed FOX-14 wafer level burn-in system over the past few months.

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

We are now in the final integration and test verification phase.

This means that we are currently doing wafer level burn-in of our customers' product wafers to ensure that the FOX-14 is performing to its specification.

These correlation studies can sometimes be lengthy as we experienced with our FOX-1 customer.

However, our objective is to ship the FOX-14 within the next few months and to recognize revenues in the quarter following shipment.

We believe this newly designed multi 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 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.

Our goal is to add a minimum of one more customer for each of our FOX-1 and our new FOX-14 systems during this fiscal year.

Another challenge over the next few quarters will be to continually improve our wafer pack contactor design and manufacturing processes to ramp capacity and reduce cycle time to meet our customers' demands.

We would expect to hire additional engineers throughout the first half of this fiscal year to strengthen our design team.

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

Based on our record backlog of $21 million and the demand we see for our FOX products and wafer pack contactors, we expect to grow our top and bottom line in fiscal 2008 compared to the prior fiscal year.

Now, I would like to turn the call over to Gary, and he will add some color on the Q4 financials.

Gary?

Thanks, Rhea.

Thanks, Rhea.

Net sales were $8.3 million in the fourth quarter of fiscal 2007, an increase of 18% from $7 million in the fourth quarter of fiscal 2006.

In the fourth quarter FOX-1 systems and contactors represented more than half of our net sales.

Gross margin was 53% for the fourth quarter compared with 46% in the year-ago quarter.

Gross margin increased primarily because FOX products with somewhat higher margins represented a higher proportion of net sales.

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

SG&A was $1.8 million in the fourth quarter compared with $1.5 million in the prior-year period.

The increase in SG&A dollars is partially attributable to an increase in headcount as we added support resources to address the expected growth in our business, as well as the recognition of stock compensation expense, which was $101,000 in the quarter.

Fourth quarter 2007 R&D expense was $1.8 million, up from $1.3 million in the fourth quarter of last year.

This increase is related primarily to the development of our wafer pack contactors and other new products.

Also included in R&D was $62,000 in stock compensation expense.

Our net income for the fourth quarter was $919,000 or $0.11 per share compared with net income of $528,000 or $0.07 per share a year ago.

Excluding $172,000 in stock compensation expense, pro forma net income in the fourth quarter of fiscal 2007 was $1.1 million or $0.13 per share.

For fiscal 2007, we posted a profit of $2.4 million or $0.30 per share, a dramatic improvement over our net income of $810,000 or $0.11 per share in fiscal 2006.

Excluding stock compensation expense of $678,000, our full year fiscal 2007 net income was $3.1 million or $0.38 per share.

We continue to have a strong balance sheet.

Our cash, cash equivalents, and short-term investments stood at $9.6 million at May 31, 2007.

Accounts receivable was $6.6 million at the end of the fourth quarter, an increase of approximately $500,000 from the end of prior quarter.

This reflects the higher level of sales in the fourth quarter.

Our inventory was $9.7 million at May 31, 2007, an increase of $2.6 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 we've experienced.

Shareholders equity was $22.7 million or $2.90 per share outstanding at May 31, 2007, and we continue to have no outstanding debt.

Looking ahead, given our solid backlog of FOX products and the number of systems and contactors scheduled to ship in the first quarter, we expect net sales and net income in the first quarter to be similar to the levels we saw in the fourth quarter.

We're now ready to answer your questions.

Operator, please go ahead.

Thank you sir.

(OPERATOR INSTRUCTIONS).

Our first question comes from the line Brian Wilkinson with Louis Asset Management.

Please go ahead.

Hi guys.

Great job on the quarter.

Thanks, Brian.

Also I wanted to ask about -- in that backlog, I know that a lot of your legacy business has come back, but how much of the backlog did you say or have you said was FOX-14 and FOX-1 related, and is there a new customer there or how many customers do you have for this equipment and how many new customers you are signing on aside from the one that you have done so much business for?

Yes, basically we don't define the breakdown of our backlog, but during the year, we did announce significant FOX-1 bookings.

So, I think it's safe to say that a majority of the backlog is related to the FOX-1 system and the wafer pack contactors for that system.

And I mean, I would assume that's new customer business, is that --?

Well, that is the new customer, but it is from the same customer.

Pardon me?

It is from one customer.

It's all from one customer.

Yes.

What we talked about is our --

The last few quarters and what's in the backlog.

Correct.

Okay.

And FOX-1.

Okay.

But, the FOX-14 --

That's a different customer.

But still, there are two customers that are primarily driving all this demand?

That is correct.

For the FOX, that's correct.

For the FOX, right.

Okay, thank you.

Thanks, Brian.

Thank you.

Our next question comes from the line of Ramesh Misra from C.E.

Unterberg Towbin.

Hi, Ramesh.

Yes, good afternoon gentlemen.

Hello, Ramesh.

Hi, in regards to cumulative FOX-1 orders, you said last quarter, you had about $18 million in fiscal '07.

Can you say what the cumulative orders finished up in -- for the fiscal year?

What we are trying to do this time, Ramesh, because we have been -- each time we give an earnings conference call, we have been trying to give orders up to that point, and it gets a little bit confusing when we talk earnings days and fiscal years and everything else.

So, the best thing for us to do is to say that, for fiscal year '07, we had in excess of $23 million and the FOX-1 orders from the same customer.

Okay.

And then, can you give a similar number for the FOX-14?

Actually, we didn't -- there was no significant bookings for the FOX-14.

Okay.

Now, did I understand you correct when you said that it is likely that the FOX-14 will be shipped in the August quarter and revenue recognition will be a quarter --?

I said we expect to ship it in the next few months, but --

I see.

I think historically, these wafer correlations have taken longer than we expected.

Okay, got it.

You said that there was a rebound on the MAX side.

Can you update us on what's happening on the MTX side of the equation?

I think we -- for this past quarter, we did ship an MTX to a leading memory module manufacturer and we would expect after they use the system and run through their qualification that potentially there could be some follow-on business if related to that order, if the system does detect the failure mechanisms they are looking for.

But, that pretty much was the extent of the MTX business in the past quarter.

We are talking to other customers for MTX, but nothing that we can announce at this point.

Got it.

So, Rhea, the MTX system that you shipped in the May quarter, was revenue recognized for that or is that likely to be recognized in the August?

It was recognized for that.

Okay, so it was shipped and recognized.

Yes.

Okay.

In terms of your engagement with other flash customers beyond the one that you have right now, can you give us an update as to where the efforts over there are.

I obviously don't expect it to be very quantitative, but --

No, we wouldn't want to tip off our hand to our competitors, but we are talking to a number of customers for both the FOX-1, our parallel tester, and our FOX-14 wafer level burn-in and test system.

And some of them are flash customers and other customers are automotive IC manufacturers or in some cases, DRAM manufacturers.

So, we -- there are a number of customers that we are talking with and there is a couple of them that are interested in the products.

So, it's a challenge to get the IC manufacturers and a lengthy process to get them to change.

So, typically, to change their process from what they are currently doing to accept and adapt a new technology is a lengthy process and requires qualifications.

But, we feel we have some -- a couple of potentials out there that are quite interesting and as we set our target as to book a production customer for each of those products this fiscal year.

Okay.

Is it reasonable to expect -- and I recognize -- the reason why I ask this is that you have been pursuing additional customers for quite some time now.

So, is it reasonable to expect that in the current fiscal year, you may be able to layer on a second customer on the FOX-1 side?

That is correct.

That's our goal.

Okay.

All right, gentlemen, thanks and congratulations on the --

Thank you.

Thank you, Ramesh.

Thank you.

Our next question comes from the line of Jeff Scott from Scott Asset Management.

Please go ahead.

Hi, Jeff.

Hi, good afternoon.

Great results.

Thank you.

Thank you, Jeff.

Well, we are making some really solid progress now.

You ought to feel -- do you feel pretty good?

That's true, except I have a cold that I got at SEMICON from shaking too many hands, but --

Customers are good though.

That's true.

That's true.

Somebody put this on me, either an investor or a customer.

I hope it wasn't one of your investors.

I am clean anyway.

I know.

The Texas Instruments Max3s and Max4s, were those shipped in that quarter?

A good part of it, but not all of it.

But, some of that is part of the $21 million backlog?

Correct.

And is the FOX-14 in that $21 million backlog?

Yes.

It is, okay.

Gross margin came in a little bit higher than you expected, right?

That's good news.

It is.

You had thought that because of the loss of the license income, gross margin would be down.

Let me respond to that.

When we were talking about licensing income, we typically do have licensing income and it varies in amount.

We are never really sure how much there is going to be until the licensee contacts us and sends us a check and we drop it in the bank.

So, if I make a comment about that sort of thing, it's just because it was unusually high, it's not a situation that we are not going to have it again.

We have licensing income every quarter.

But, third quarter was higher than you had originally expected.

Correct, it was.

And you thought it was going to come down in the fourth quarter?

Correct.

And did it come down?

It came down, some in the fourth quarter, yes.

What we have said, just as a general guideline, not necessarily in any particular quarter, but we have said that we expect to see margins because of the new FOX products becoming a higher percentage of the total net sales that we will be looking at gross margins in the high 40s to the low 50s.

And I think that's still a fair comment.

Are you getting more manufacturing efficiencies than you had once got on the FOX systems or is it just a question of mix?

I think oftentimes it will be a question of mix.

We are at a point where we are becoming more efficient.

Obviously, when we start shipping a number of systems out the door, it's easier as you are shipping more and more of them.

So, we are seeing some efficiencies, but those actually have been built into the margin assumptions that we are looking at.

Okay.

We talked about the possibility of a revenue goal for the year of '08.

Is that possible?

In Rhea's commentary, what he said is he expects to see the topline and the bottom line for '08 exceeding '07.

Is it possible to put some brackets around that?

Not at this point, we don't have a number or a range to throw out other than we expect it to head up.

We would love to do that, Jeff, but the semiconductor industry is cyclical.

It could start and stop at any moment.

So, it's highly risky I think to do that.

I am sure you have brackets, you just don't want to share them, isn't that right?

That's true.

We do have a plan that we are working to.

Okay.

Congratulations, and I will talk to you later, thanks.

Thank you.

See you, Jeff.

Thank you.

(OPERATOR INSTRUCTIONS) We have a follow-up question coming from the line of Brian Wilkinson from Louis Asset Management.

Please go ahead.

Hey guys, just a little more color if you could, I know you said your goal was to get one more FOX-1 customer in the year.

Do you think, of the evaluations that are going on, are they -- could they be as significant in the scale of revenues for -- and the number of pieces of equipment as your current customer or -- and also maybe you could comment on the pipeline and how many folks you are talking to and how long that sales cycle is?

In the sales -- okay, let me start with the number of customers that we would, I guess, initially would be talking to would be fairly broad, it could be five to ten.

And then, as you narrow that down, you might be talking to three or four at the end, as you start to review their requirements versus our systems capabilities.

In talking about the potential per customer, I would say that for the FOX-1 that it would be my estimation or forecast that it would be similar if we did sell to another flash manufacturer, the volumes would be similar.

On the FOX-14, maybe a little bit less, it might be somewhere between five to ten systems per customer, which maybe would be $15 million to $30 million per customer, but significant numbers nevertheless.

Sure.

And what -- and of the pipeline, you said five to ten?

Maybe you start with -- it's kind of like a funnel.

So, you start talking to a lot of customers and then you kind of narrow it down and then a few get through the funnel.

So --

But you have three to five that are potential customers for fiscal '08, that have evaluated you equipment --?

There is probably somewhere between three and five that are left, that are still -- that we are still talking to and they are talking to us.

What we are talking about was that we would hope to win a production order this fiscal year for each product.

Not that we would be shipping volumes this fiscal year.

Right.

The volumes will be coming next fiscal year.

So, there might be one order this year in evaluation.

And if we are successful, we will have production orders happen the following fiscal years.

Okay.

Okay.

Thanks, Brian.

Thank you.

All right, thanks, Brian.

Operator?

We have another question coming from Jim Gentrup from Meadowbrook Capital.

Please go ahead.

Hi, Jim.

How are you guys doing?

Good afternoon.

Just wanted to know, get your I guess little more detail on your comments on the sensitivity to semiconductor cycle.

I mean you have got arguably some pretty disruptive technology and so -- which I think improves throughput quite a bit.

So, I would -- I would like to hear what you guys think about, you are being conservative about your comments, I just want to have a little more detailed background as to why -- I mean from my perspective, I guess you would be a little insensitive to it, but can you talk about that a little bit?

That's a fair question.

I mean if you look at -- we have core products for burning and test a package part ICs.

And certainly our Max systems go into existing production lines and that's very capacity driven.

So, those products certainly are influenced by the semiconductor industry.

I agree with you that the FOX-1 system is a cost saving and a disruptive technology.

So, I think there we might be a little bit immune to the industry and that's what we are hoping for is that, even if the industry does flatten next year as the forecaster says, forecaster [saved] and we continue -- we would expect to continue to get business for the FOX-1 system since it is a cost saving product.

However, on the other hand, I mean obviously, things can happen in the industry where some companies just put on capital freeze as no matter how great you product is, they don't issue orders.

But, overall, we feel our FOX products, since they are kind of breakthrough technology products will continue to grow -- allow Aehr Test to grow even in a flat semiconductor cycle.

Okay, I appreciate that.

The TI business, I missed your opening remarks or maybe I am repeating or somebody already asked this or you already commented on it, but obviously it came back a little bit.

Can you give us a little bit more I guess color as to what they are telling you or what you are seeing out there?

I mean do you expect a more steady state now or do you -- is it going to be lumpy?

I mean can you give us a little more information on that?

I think our visibility with TI has always been fairly close in.

They don't give us a large forecast in months or quarters out there.

And in the fourth quarter, after being pretty much slow for the first three quarters, they did give us an additional order for MAX systems.

And this fiscal year, we don't have a lot of visibility on capacity adds from them, although we do see some opportunities for new technology systems that we are talking to them about.

And what are you --

It would be for more advanced or new products.

Is this something that would be -- is ready to -- I mean, is this a product you already have readied to ship?

Yes, we would -- it's something we have been working on and it would be something that would ship at a later time.

So, there might an order, but the shipment might be at best at the end of the fiscal year.

Is this replacement or an incremental?

It would be -- I guess, it is probably a combination of both.

It would be, I guess incremental in the sense that it would be for newer technology devices that they have.

Okay.

And then, just going back to operating expenses for a minute, can you talk a little bit more about, because I find your guidance pretty conservative going forward given the backlog is as high as it's ever been, I mean $21 million versus $12 million.

So, I guess assuming that revenues continue to sequentially ramp because of your success with the FOX-1, can you talk just a little bit about the leverage and where R&D is going to go and -- I mean, it's $1.8 million last quarter, can you just talk about the different expense lines a little bit and how much leverage you have there?

Sure, this is Gary.

Without going into gory detail on all the things, I will mention a few things that have been brought up or we have talked about earlier.

In the SG&A area, we have been doing some additional hiring to support particularly the FOX systems that are being installed and just supporting the volume activity that we have got.

In the R&D side, we have been hiring design people to support the contactor, the wafer pack contactor group.

So, we have had additional hires in both of those arenas.

We have said that on a forward-looking basis, we would anticipate that any growth in either SG&A or in R&D would not be as higher rate as we see sales growth.

So, our expectation is that both of those line items as a percent of sales would be declining over time.

Now, it is possible particularly with the R&D because the R&D has more volatile expenses that you might see some ups and downs during that time that won't necessarily be steady growth or anything like that.

But overall what we are expecting is that both of those line items as a percent of sales will decline over the next several quarters.

So, if we see, just drawing a number out there, 25% to 30% topline growth because of your success with FOX-1, FOX-14, then -- for example, your SG&A went up 16%.

That's something that we could model in and expect then?

Using your assumptions, that would meet the words that I had put out there, yes.

Perfect.

All right, thank you very much.

Thanks, Jim.

Thank you.

Our next question comes from the line of Ramesh Misra from C.E.

Unterberg Towbin.

Please go ahead.

Hi guys.

Just another follow-up.

In regards to the split between 300 millimeter and 200 millimeter equipment for the FOX, can you provide some color in that regard?

Thanks.

Yes, I would say that most of the orders were for the 200 millimeter (inaudible) the prior fiscal year.

I don't have the exact number, but I would say that the majority of it will be for 200 millimeter.

You had shipped one 300 millimeter tool though.

One system, yes.

Okay.

So, there have been no follow-on?

No, there has been follow-on, but of the $23 million in orders that Gary talked about, probably I am guessing some 60%, 70% of it was for 200 millimeter.

Okay.

Some part of it is 300.

So, the -- as we -- we would expect in the future that there would be more 300 millimeter than 200 millimeter.

Okay, thanks very much.

Thank you, Ramesh.

Thank you.

We have a follow-up question coming from the line Jeff Scott with Scott Asset Management.

Please go ahead.

Two quick follow-ups, Gary.

In other income, are we down to where it's going to be plus or minus a few tens of thousand dollars every quarter?

Other income, we are currently not forecasting any dramatic swings there, but sometimes shows up on that line is a dividend from ESA.

We have seen that in the past.

That's not predictable, it doesn't happen at the same time of year or in the same magnitude.

So, it's not something we are comfortable predicting.

But, other than that, we would expect to see smallish numbers on that line.

Okay.

And could you remind me the tax loss carryforward situation?

Tax loss carryforward, again, I am doing this from memory rather than beating through the numbers.

But, it was in the U.S.

in excess of $10 million and Japan was a smaller amount.

Okay, we will read it in the K, but I just -- I am just seeing [if my] memory is fresh.

Thanks.

Correct.

Any other questions, Jeff?

No, that's it.

All right.

Okay.

Operator?

Thank you.

Management, there are no further questions.

I will turn it back to you for closing remarks.

Hi.

This is Rhea, I would like to thank you for joining us this afternoon.

Before I conclude, I would like to note that Aehr Test is celebrating its 30th anniversary this fiscal year.

This is exciting times for the Company and I believe we are well positioned to show good future growth.

We look forward to speaking with you again next quarter.

Thank you.

Bye-bye.

Thank you.

Ladies and gentlemen, if you would like to listen to a replay of today's call, please dial 800-405-2236 or 303-590-3000, enter the passcode 101093519 followed by the pound key.

Once again, the number is 800-405-2236 or 303-590-3000, enter the passcode 101093519 followed by the pound key.

That does conclude today's conference call.

Thank you and have a nice day.

You may now disconnect.