Aehr Test Systems (AEHR) 2008 Q3 法說會逐字稿

Welcome to the Aehr Test Systems third quarter fiscal 2008 conference call.

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

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

(OPERATOR INSTRUCTIONS) As a reminder this conference is being recorded today on Tuesday the 25th of March, 2008.

I'll now turn the conference over to Ms.

Tricia Ross with the Financial Relations Board.

Please go ahead.

Good afternoon, and thanks for joining us to discuss Aehr Test Systems results for the third quarter of fiscal 2008.

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

If not, you can call my office at 213-486-6540 and we will 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, Tricia, and thanks 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 way for 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 calendar year 2008.

We refer you to our most recent 10K and 10Q reports and other reports filed from time to time with the U.S.

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.

Good afternoon, and welcome to our conference call for the third quarter of fiscal 2008.

We are pleased to report that we had another strong quarter.

Net sales for the third quarter of fiscal 2008 were $10.7 million, up 90% over the same quarter of the prior year, and up 12% sequentially.

Most importantly are net income for the third quarter, was 1.7 -- $1.9 million, a significant 7X increase over the same quarter of the prior year.

Our net -- our growth for the last few quarters has been driven mainly by our FOX-1 system and wafer pak products, and we continue to remain excited about the growth opportunities we see for these products long term.

Our highly parallel FOX-1 full wafer tester can test an entire wafer in a single touch down, offering significant cost-saving advantages over conventional testers.

We believe the cost-saving advantages of our FOX-1 tester will continue to drive additional orders even in a weak semiconductor environment.

The FOX-1 tester and its wafer pak contactors moves us into the $2 billion plus total available market for wafer probe testing and probe cards.

This is a new market for Aehr Test, in it significantly expanded our addressable markets.

With our FOX-1 product, we are targeting the market segments for ICs with long test times such as flash memories.

Orders for our wafer-pak contactors continued during the quarter providing further evidence that this can be a potentially strong reoccurring revenue stream, and we expect additional orders as our install base of 300 millimeter FOX-1 testers increases.

Our wafer pak contactor is custom designed for each wafer device type and is one of the key technologies that enables our FOX-1 system to parallel test thousands of [die] in a single touchdown.

Designing and producing custom wafer pak contactors that can contact thousands of [die] over a 300 millimeter wafer have been a major technical challenge.

Over the fast past few quarters, we have invested in design and manufacturing infrastructure to increase our wafer-pak capacity and reduce cycle times.

In our fourth quarter, we expect a significant part of our revenues to come from wafer pak contactors.

Another major event is that our first FOX-15 wafer-level burn-in system that we shipped in the second quarter is now running production wafers.

The good news is that yesterday we announced that our customer, a leading automotive IC producer, has accepted this system in wafer paks.

Getting the first system of a new technology platform qualified and accepted in such a short time was a major accomplishment.

A special thanks to our technical and support team for making this happen.

This was an extremely challenging application for our FOX-15 system because of our customer's requirement to burn-in wafers at temperatures up to 70 degrees centigrade.

The FOX-15 system is a general purpose system that can provide wafer-level test and burn-in on a wide range of ICs.

Now that we have a FOX-15 system running production wafers, we believe it will help us convince other customers that our technology works and can be a cost-effective tool for processing wafers for their automotive and known good die applications.

We are now aggressively targeting these growth markets.

This past quarter we continued to see strong interest from potential customers for our FOX products.

We have provided multiple quotes for our FOX products and are now progressing through the sales cycle.

We continue to be optimistic that we will receive an order from a new customer in the next few quarters.

Also, we have an increased -- seen increased quoting activity for our MAX products the past few months, although orders for our core products in the third quarter were slow, reflecting the semiconductor industry's caution about adding new capacity.

One bright note was selling our MTX system to SMART Modular for reliability testing of their advanced [dim] modules.

SMART is a leading producer over advanced memory module, and this is a new application for our MTX massively parallel tester, and we believe this could lead to additional system orders.

Going forward, one of our growth strategies is to leverage our new ABTS test electronics developed for our FOX systems and roll out a family of new parallel test and burn-in products for package devices over the next 12 months.

We are excited about our newly developed ABTS hardware and software platform which was first used on the FOX-15 system.

This is a highly configurable and flexible test -- set of test electronics which will allow us to burn-in and parallel test a wide range of ICs from memories to microprocessors.

We believe we can grow our core market share by targeting the rapidly growing segments for high-power logic burn-in and massively parallel test and burn-in of flash memories and DRAMs.

Another objective of our ABTS product strategy is to have common test electronics and software for all products, thereby reducing engineering and support cost, and increasing our manufacturing economies of scale.

The targeted customers where we have introduced the ABTS family of products are very positive about its capabilities and the low cost of ownership that it provides.

We would expect to start shipping evaluation units over the next three to six months.

In closing, we continue to be encouraged by the booking potential we see from our initial FOX-1 customer, along with the opportunities to add additional customers for our FOX products and new ABTS products over the longer term.

Based on our backlog of orders for our FOX products, we expect to end our fiscal year with another solid quarter of profitability with net sales up somewhat compared to the quarter just reported.

Now I would like to turn the call over to Gary, and he'll add some color to the third quarter financials.

Gary?

Thanks, Rhea.

Net sales were $10.8 million in the third quarter of fiscal 2008, an increase of 90% from $5.7 million in the third quarter of fiscal 2007, and an increase of 12% from $9.7 million in the prior quarter.

In the third quarter of fiscal 2008, FOX-1 systems and contactors represented the large majority of our net sales.

Gross margin was 51% for the third quarter, compared with 58% in the year-ago quarter.

Our gross margin last year was positively impacted by a one time NRE fee as well as higher than normal performance test board royalties, which are all essentially 100% margin.

On a going-forward basis, we continue to believe that our typical gross margin will be about 50%.

SG&A was $2 million in the third quarter compared with $1.6 million in the prior-year period.

The increase in SG&A dollars is primarily attributable to an increase in headcount, as we added sales and support resources to address the expected growth in our business.

Third quarter 2008 R&D expense was $1.8 million, an increase from $1.6 million in the third quarter of last year.

The increase in R&D is primarily attributable to additional staffing and spending on project materials necessary to continue growing our custom wafer pak business.

This quarter we recorded a tax benefit of $130,000.

This was the result in change in our transfer pricing approach.

The tax benefit is a retroactive adjustment for the entire fiscal year.

Our net income for the third quarter was $1.9 million, or $0.23 per share, compared with net income of $265,000 or $0.03 per share a year ago.

And net income in the prior quarter of $1.4 million, or $0.16 a share.

Excluding stock compensation expense in these periods, pro forma net income in the third quarter of fiscal 2008 was $2.1 million or $0.25 per share, compared to $433,000 or $0.05 per share in the same period of the prior year, and compared to $1.6 million or $0.19 per per share in the prior quarter.

Our cash, cash equivalents, and short-term investments stood at $6.1 million at February 29, 2008.

This totals about $800,000 lower than at the prior quarter end resulting from the increase in accounts receivable during the third quarter.

Accounts receivable was $18 million at the the end of third quarter, a $6.4 million increase from the end of the prior quarter.

The increase was primarily attributable to the higher level of sales, as well as an increase in the level of receivables in Japan, which typically have longer payment terms.

Our inventory was $9.4 million at February 29, 2008, a $1.2 million decrease from the end of the prior quarter.

Shareholders equity increased to $29.5 million, or $3.66 per share outstanding at February 29, 2008, and we continue to have no outstanding debt.

As Rhea mentioned earlier, we expect net sales in our fourth quarter to be somewhat higher than in the third quarter.

We expect to be solidly profitability in the fourth quarter.

The normal tax accrual will result in a tax expense, rather than the credit in the third quarter.

Also in the fourth quarter, we expect to see additional expenses as wafer production ramps up.

So although the sequential comparison of net income will be a bit challenging, we do expect net income in the fourth quarter to be somewhat similar to that recorded in the third quarter.

We're not ready to answer your questions.

Operator, please go ahead.

Thank you.

Ladies and gentlemen, at this time we will begin our question-and-answer session.

(OPERATOR INSTRUCTIONS) Just one moment, please, for our first question.

Ramesh Misra with Collins Stewart.

Please go ahead.

Good afternoon, Rhea, and Gary.

Hi, Ramesh.

How are you?

Good.

My first question was related to the proportion of your contractor revenue as part of your FOX sales.

I know you didn't provide much of a breakdown on that, but it is reasonable to think it is on the order of about 25% or in that ballpark in Q3?

I would that say most of the shipments were related to the FOX-1 system.

Okay.

We didn't -- I didn't really estimate the percentage, but most of it was probably the FOX-1 systems.

Okay.

And you did say that in Q4, you expect the proportion of contractors to rise --

Correct.

-- meaningfully.

Again, as -- without really looking for guidance, but what kind of a ballpark should we think of?

I mean, could we start thinking of that being -- approaching a quarter of the FOX system revenues?

I think, , generally, again, we're not planning on breaking out the split between contactors and systems.

As we've said in the past, a system is generally going to sell for about $1.2 million.

A contactor can really vary quite a bit.

It can go from $300,000 up to $500,000.

So if a customer is buying one contractor per system, you would generally be looking at about 25%, 30% of the total being contactors.

But often times we'd see a customer buying more than one contactor for a

Okay.

Yes, that's the basis that I was getting to, that 25%ish kind of number, Gary.

Yes.

But I would presume that there's a little bit of pent-up demand for the contractors, is that correct?

That's correct.

Because they -- the customer has purchased more contactors than systems.

As they add new device types they need to continually add new wafer pak contactors.

So the -- and we expect that to continue over the long term, that the orders or the shipments for contactors would probably exceed the system level shipments.

Right.

Okay.

Congratulations on the fine --

Thanks, Ramesh.

-- on the FOX-15.

Are you pursuing other customers in that regard?

We are, for both our FOX-15 and our FOX-1, yes.

So we are actively, aggressively going after different customers for different applications for these products.

Okay.

In terms of pricing, obviously, since you are pretty much a sole-source supplier of these kinds of tools.

But given the overall weakness in the [semi-cap] equipment environment, are you seeing any more aggression or any more pressure in terms of pricing from customers?

Yes, I think that's always there.

As a semiconductor equipment provider, our customers are always asking for cost down, whether their business is doing well, or isn't doing well, so we don't see -- they are always pushing for long-term price reductions.

So, it's our challenge to continually reduce our costs and improve our efficiencies so that we can maintain a decent margin.

Okay.

In regards to the MTX system that you just announced yesterday, the sale to SMART Modular, remind me again, Rhea, has SMART Modular bought MTX systems from you before?

No this would be our first opportunity to sell an MTX to SMART, and that's -- for us that was exciting.

SMART is probably one of the leading advanced memory module providers.

So we look at that as an opportunity to get in with one of the leaders, and hopefully that business can flow to some of the other second or third tier module manufacturers.

Okay.

In regards to your historical legacy business both on the MTX and the MAX, obviously [TI] has been an important customer over there, and it has been very lumpy.

But qualitatively what can you say about that portion of your business, and to the prospects over the next few quarters.

I think what I mentioned is we're seeing quoting activity for the MAX product this past quarter, and we would expect probably the orders to start increasing in decent volumes probably in our next fiscal year, so probably Q1 or Q2.

But we are taking, really, a proactive approach with our core products for package burn-in and parallel tests.

And we're developing a new platform.

We call it the ABTS, which is advanced burn-in test system platform, new set of electronics, new set of software.

So we're actually going after a couple of large segments that we haven't been competitive in the past, and one is for high-power burn-in of logic devices, and the other one is for testing burn-in or massively parallel tests of DRAMs and flash memory.

So we think with our new ABTS platform, we can go after these new segments, so we're aggressively trying to increase our market share in the core products area.

Okay.

And as you mentioned, ABTS is basically leveraging your efforts on the FOX side.

So with the pursuit of this is not really going to result in meaningfully higher R&D expense?

Correct.

We -- it's going to be more of a packaging configuration with new chambers, new interfaces.

But the core technology, the hardware, the software, the communication interfaces, that structure was all designed for the FOX systems, and we shipped the first set of the ABTS electronics with the FOX-15.

So a lot -- a large portion of that R&D has already been done.

So that's -- and the risks.

So that's a good observation on your part, Ramesh.

Okay.

And then final question for Gary.

Your accounts receivable, as you said, did go up fairly significantly.

Should we think of this kind of level being your new kind of target, or do you anticipate at least in the near term that accounts receivable number should be coming down?

Well we would hope to bring it down somewhat.

As I mentioned, what we're really seeing is a fairly large shift of our AR into the Japanese marketplace, and typically the payment terms stretch out a lot longer in Japan than they do in the U.S., so we are experiencing that.

But generally we are working with our customers trying to maintain AR at as reasonable levels as we can.

Okay.

Was any part of the AR increase on account of the FOX-15 shipment?

No, not in the third quarter.

Okay.

Great.

Thanks very much, guys, and congratulations.

Thank you.

Alright.

Thank you.

(OPERATOR INSTRUCTIONS) I'm not registering any further questions.

I'll now turn the conference back to the management team for any closing remarks.

Hi, this is Rhea.

I would like to thank everyone for joining us this afternoon, and we look forward to next quarter's conference call.

Thanks again.

Alright.

Thank you.

Ladies and gentlemen, this does conclude the Aehr Test Systems third quarter fiscal 2008 conference call.

You may now disconnect.

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Have a very pleasant rest of your day.

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