Aehr Test Systems (AEHR) 2009 Q1 法說會逐字稿

Good afternoon, my name is Pam and I will be your conference operator today .

At this time, I would like to welcome everyone to the Aehr System first quarter 2009 earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks there will be a question and answer period.

(OPERATOR INSTRUCTIONS).

It is now my pleasure to turn the floor over your host, Tricia Ross of Financial Relations Board.

Ma'am, you may begin your

Good afternoon, and thanks for joining us to discuss Aehr Test Systems results for the first quarter of fiscal 2009.

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'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.

Thank you, 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 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, ABTS, MTX, MAX, and DiePak technologies, and conversion of quota 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 emergency of alternative technologies, each of which could adversely affect demand for Aehr Test products in fiscal year 2009.

We refer you to our most recent 10-K report and other reports filed from time to time with the US Securities & 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.

Greetings and welcome to our conference call for the first quarter of fiscal 2009.

We are pleased to report that we had a solid first quarter to start fiscal 2009 on a high note.

Revenue was $9.7 million, up 27% over the same quarter of the prior year.

Most importantly, we did an excellent job in managing our cost to deliver higher year-over-year operating profits.

Our operating profit increased to $1.4 million, an increase of 89% over the same quarter of the prior year.

A pretty good first quarter, considering the weakness in our industry.

We had a number of accomplishments since our last conference call .

Our major accomplishment last quarter is that we designed and shipped a record number of FOX-1 wafer pack contactors.

A special thanks to our design and manufacturing team for making this happen.

These wafer packs are a key part of the enabling technologies that allows the FOX-1 system to test thousands of die in a single touchdown.

Last quarter we shipped new wafer pack designs for contacting over 2,500 die per wafer which we believe could be an industry high water mark.

Our challenge will be to stay on this trajectory, so we can keep up with customer road maps showing the number of die increasing to over 3,000 die per wafer near term.

We expect shipments of wafer packs to grow this fiscal year to support our increasing install base of FOX-1 and FOX-15 full wafer test and burn-in systems.

Additionally since a new custom design wafer pack is required for each new design device type, we believe wafer packs will provide a significant revenue stream over the long term.

Another highlight was receiving a significant follow-on order from our FOX-1 system customer.

On September 11th, we announced receiving over $7 million in orders for our FOX-1 wafer packs and system upgrades.

Our customer is upgrading most of their remaining 200 millimeter FOX-1 systems to 300 millimeter configurations to support their new 300 millimeter fab capacity ramp.

We expect our customer to start adding additional FOX-1 system capacity in the first half of calendar year 2009, which is the second half of our fiscal year.

Now that our FOX-1 systems have been used in high volume manufacturing for more than a year, we believe our customer has significantly reduced test costs in capital expenditures by using our FOX-1.

This is reflected by their continuing commitment to the FOX-1 system, as they ramp capacity.

We continue to be encouraged by the level of interest and activity in our FOX products from other IC manufacturers, but we believe the slow down in the semiconductor industry has delayed capital spending, and our ability to penetrate new accounts.

Our management team and sales force remains positive and is focused on adding new FOX accounts this fiscal year.

We have seen a slowdown in sales of our core MAX and MTX parallel test and burn-in products for packaged ICs during this industry contraction.

However, we remain positive about the market opportunities for our core products and will aggressively invest in R&D this fiscal year to grow market share.

We are planning to introduce a family of products in our core markets using our new ABTS general purpose test electronics.

We believe we can grow our core business by targeting the growing market segments for high power logic burn-in and massively parallel testers, for DRAMs and flash memory.

These are significant market segments that we currently don't competitively address.

In July, we announced receiving our initial ABTS L36 system order from Integrated Service Technology, or IST, a leading Taiwan test house.

This is our first ABTS system rollout, and is targeting test and burn-in of a wide range of logic and mix-signal devices, which we believe is ideal for a test house.

Our ABTS platform offers significant competitive advantages in cost of ownership in six system flexibility to test a wide range of devices.

Additionally, the innovative ABTS architecture offers significant footprint and energy savings over competitive products.

The energy savings will be attractive to our customers who are increasingly interested in green products.

We are seeing increased coding activity in our new ABTS products and expect to announce new orders this fiscal year.

In closing, with the strength of our FOX and new ABTS products, we are positive on the long- term growth prospects.

And we are encouraged that fiscal 2009 has gotten off to a good start.

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

Thanks, Rhea.

Net sales were $9.7 million in the first quarter of fiscal 2009 2009, an increase of 27% from $7.7 million in the first quarter of fiscal 2008.

In the first quarter of 2009, FOX-1 wafer pack contactors represented the large majority of our net sales.

Gross margin was 51% for the first quarter compared with 55% in the year-ago quarter.

The declining gross margin reflects the increased costs associated with ramping up production of wafer packs.

Given the current mix of products, we continue to believe our typical gross margin will be about 50%.

SG&A was $2.1 million in the first quarter, compared with $1.8 million in the prior-year period.

The increase in SG&A dollars was primarily attributable to an increase in headcount, as we added sales and support staff to help drive the growth in our business.

First quarter 2009 R&D expense was $1.5 million, slightly lower than $1.6 million in the first quarter of last year.

R&D spending varies from quarter-to-quarter depending on the level of development of new products.

We would expect R&D spending to increase somewhat from this level.

Pre-tax income was $1.4 million in the first quarter of fiscal 2009, an increase of 78% from the $794,000 in pre-tax income in the first quarter of last year.

The significant increase in pre-tax income is attributable to our effective expense management while continuing to scale the business and drive revenue growth.

Our effective tax rate was 39% in the first quarter, compared to 2% in the first quarter last year.

As we indicated on our last call, on a going forward basis we expect to accrue tax expense at close to the statutory rates for the countries we generate income in, namely the United States, Japan, and Germany.

This rate is expected to be in the upper 30% to 40% range.

Our net income for the first quarter was $865,000, or $0.10 per diluted share, compared with net income of $779,000, or $0.09 per diluted share a year ago.

Excluding stock compensation expense in these periods, pro forma net income in the first quarter of 2009 was $1 million, or $0.12 per diluted share, compared to $1 million, or $0.12 per diluted share, in the same period of the prior year.

Our cash, cash equivalents and short-term investments stood at $9.5 million at August 31st, 2008.

This was down from the end of last quarter as we had a significant investment required in accounts receivable.

Our inventory was $10.8 million at August 31, 2008, a slight increase from the end of the prior quarter.

Shareholders equity increased to $38.9 million or $4.63 per share outstanding at August 31, 2008, and we continue to have no outstanding debt.

Based on expected shipment schedules for FOX products, we believe our net sales in the second quarter of fiscal 2009 will be higher on both a sequential quarter and year-over-year basis.

We're now ready to answer your questions.

Operator, please go ahead.

Thank you.

(OPERATOR INSTRUCTIONS).

Thank you.

Your first question is coming from Vernon Essi of Needham & Company.

Please go ahead.

Thank you very much.

Rhea, I was wondering if you could comment on -- it's more of a market question, and obviously on the minds of everybody these days, but we're hearing indications that, of course, the budgets are potentially slipping in some of your year end customers.

Can you share with us any anecdotal color you might have had over the last couple of weeks and what you have been hearing from your customers

Hi, Vern.

Thanks for joining us on the conference call.

As I mentioned, I think that, we saw that the opportunities for our core products are MAX and MTX have been reduced during this past slowdown in the industry.

But I think -- and that's due to the industry not adding capacity type systems.

But, we are seeing activity for our new products in terms of the FOX and the ABTS, and these are for new requirements.

So I think we haven't seen any change in the last few weeks or last few months that have gotten us concerned about the industry being in a worse state than it was prior to that.

So I think we're cautiously optimistic that in 2009 we'll see increased orders for some of our core products, along with FOX products.

And also, just -- and I appreciate you are obviously a market share -- you're in the sort of situation where you're going to be gaining market share, so I'm trying to take it to the 30,000-foot view here, and I know it's very difficult --

Well, I mean, what I read is pretty much -- and hear -- is I would say the DRAM business and the NAN flash business seems to be hit the hardest in terms of them adding fab capacity and things of that sort.

Of course the challenge is always trying to figure out how hard.

Correct.

And then also, just to switch gears here, Gary, I was wondering, just on the balance sheet, I know you went through some of the items there but could you walk us through the buildup in receivables, and how that's going to be taken care of over the next couple of quarters?

The receivables balance has actually been fluctuating quite a bit .

Our current receivables level is just a little under $17 million, up from $11 million at the end of the fiscal year.

But if you looked a quarterback, it was actually a little higher than that.

It was $17 million and change.

So as we have noted in our Qs, we do have one customer that is doing a significant portion of our business.

And so what we are seeing is the receivables level do vary depending on the particularly collection activities with that customer.

We have been at a higher level than we are right now.

We were successful in bringing that down at the end of the fiscal year, and we would anticipate being able to bring it down a little further also

Okay.

All right.

Thank you very much, Gary.

Sure, Vern.

Thank you.

Your next question is coming from Jeffrey Scott of Scott Asset Management.

Please go ahead.

Good afternoon , Rhea, and

Hi, Jeff.

On the last call you said that the most likely next new customer would be for a FOX -15.

Is that still your thinking?

That is correct.

Rather than a FOX-1?

Okay.

But it could be -- it could be either.

I think there is some potential FOX-1 customers from either Taiwan or China for -- these would be contract test houses that might be interested.

So there's a possibility we could either, over the next few months or quarters, book a FOX-1 or a FOX-15.

Okay.

The decrease in R&D, Gary, was that people's salaries moving from R&D to cost of goods sold as they did less R&D and more production work?

Really, the big fluctuation that we see in R&D is historically in the materials area.

Okay .

So as the level of development changes from one quarter to the next, you'll see higher levels of engineering materials.

As the product gets closer to completion and commercialization, then you'll see some of those costs, instead of being written off as engineering expenses, you'll see some of them go into inventory just prior to shipment of those systems.

So that's really where you are seeing most of the variability.

You are not really seeing any swings in staffing or anything like

Okay.

Thank you.

At year end you decided you would account for a portion of the tax valuation allowance, rather than all of it.

And it was going to be on a quarterly review.

You did not increase -- or decrease the valuation allowance at the end of this quarter.

What was the reason for that view?

I don't think we said we were going to be valuating in each quarter.

I think we said we would be evaluating it over time, but there wasn't any commitment that that would be done quarterly.

I thought the 10-K said that it would be a quarterly review.

Am I --

Okay.

Well, again, that was not our intent to have a quarterly review.

Periodically, we will do a review, and as appropriate, we will make those changes to the deferred-tax assets.

Okay.

Question for Rhea.

Is there anything that the semi conductor test consortium is doing with their open star software open standards which would any way impact your ability to complete in new markets?

You know, that's a good question, Jeff.

That consortium was basically started by Intel push pushing a Vaughn test to have an open architecture on their testers that they purchased,.

And I think that was done for the generation of tester that was sold to Intel, but as far as I know that consortium is going away.

I don't think it was successful.

So I don't think it's anything we need to worry about.

So it is not causing any problems with potential customers that --

I mean, that whole strategy is just -- it just hasn't materialized.

I think Intel pushed it on the Vaughn test for the generation of testers that they bought for their microprocessor.

But I don't think it covers any other product in the industry, and it's not going to affect us or really anyone else anymore.

I think that whole consortium has been disbanded, or will be disbanded.

Okay.

In the last conference call, you suggested that revenue would be higher than a year ago, and you came in about $2 million higher than a year ago .

What happened during the course of the quarter that pushed it up so much?

Or were you just being unduly conservative three months

No, that's a fair question, Jeff.

I think, when I look back at the previous conference call, before I was preparing this conference call, I did mention that there was concerns that we had a number of new wafer pack designs.

And as I mentioned, we even treat the die count up to over 2,500 die per wafer.

So we were doing a little bit of may invention and development that I was a little bit cautious of.

I think our development team and our manufacturing team did a super job to design and manufacture these wafer packs and hit our schedule.

So if I gather what you are saying, it was not a pull in of existing orders, it was not new customers, it was your ability to produce to an existing order that got it out the door in this quarter rather than next quarter.

Exist ing orders, right.

They were able to execute and did a great job doing it .

Okay.

One more.

Progress on the ABTS -- you sent a beta out there, it has now been accepted for production.

What else do you think you need to do to that to broaden the appeal?

Or are you there?

No , I think -- that's another excellent question.

The ABTS, in our mind and at Aehr Test is a hardware/software platform that can be configured to produce a number of products to go after a number of different markets.

And the first product that we sold was the ABTS low-power logic system to IST.

So we shipped them a prototype to evaluate it.

They bought a production system.

So what we need to do to expand that market now is to ship that production system, so it's accepted and they buy additional production systems.

And what we talked about to grow the market further would be to roll out new products based on this ABTS platform of hardware, where we go after different markets, and one of them being massively parallel tests for DRAMs and flash memory.

Another is for high-power logic, up to 75 watts per device.

So these would be two new market opportunities, and two new systems that would address these

How much new engineering is required to fully develop the machine for those markets?

Not a huge amount because if you look at our systems, most of the engineering is developing the hardware, the printed circuit boards, pattern generators, the software.

So all of these systems will use the same boards, the same operating systems.

So it's more a matter of configuring different ovens, and different interfaces, so we can interface to different burn-in boards.

So I would say it's more incremental engineering, which tends to be more predictable than R&D-type engineering, so the engineering efforts aren't that significant to roll out these products.

Okay .

Last question, this was the first quarter when your ESOP was able to sell shares.

Were any shares sold during that three-month

You are right.

This is the first time that diversification is allowed to the members of the ESOP plan.

We announced in our first quarter the opportunity for people to diversify, and some of them did take advantage of that.

And then we have during our second quarter to actually implement that diversification.

So, as I understand it, no shares were actually sold in the first quarter, but they are available for sale in the second quarter?

That is correct.

Okay.

Does that take care of the entire for-sale allotment for fiscal '09 or --

Yes.

-- or will more become available on a quarterly basis?

No .

It would just be once a

Just once a year.

Yes.

Okay.

I'm let somebody else hop on.

Congratulations, thanks.

Thanks, Jeff.

Thanks, Jeff.

Thank you.

Your next question is coming from Joy Mukherjee from the state of Wisconsin Investment Board.

Hi, Joy.

Please go ahead.

Hi, good afternoon.

Hello, Joy.

Hi.

You talked about the incremental market opportunities.

Could you give us some quantification of how big the new market opportunities will be for you with the ABTS products?

Yes, that's a good question .

I would look at the overall market in a good year for package part burn-in and parallel tests being around $200 million, and I would expect the market for the logic segment and the memory segment to be about half of that .

So approximately around $60 million for memory, and maybe $40 million for high-power logic.

So roughly, it would give us about $100 million market opportunity for these

And then for the next quarter around, the incremental revenues, is that still coming from your largest customer, or is that coming from something else?

We don't give guidance as far as which customers are included in the forward-looking guidance, but I can tell you that in the quarter just ended, the customer that we have been reporting as very large continues to be a large contributor.

And also the order which was recently announced was also a follow on order from our FOX-1 customer.

Okay.

All right.

And let's see.

I guess you already addressed the accounts receivable.

You are expecting that to come down in the coming quarter?

Yes, we are.

Okay.

Could you give us an idea of what the installed base now is of your FOX systems?

Roughly around 25.

25.

Okay.

All right.

That's all I had.

Thank you.

Thank you, Joy.

Thank you.

Ladies and gentlemen, the floor is still open for questions.

(OPERATOR INSTRUCTIONS).

Thank you.

Your next question is coming from Robert Moses of RGM Capital.

Please go ahead.

Hi, guys.

Hi, Rob.

Hi, Rob.

I guess first for you Gary, just in terms of tax rate and cash taxes, I think you were very specific about 37% to 40 % tax rate, so shouldn't be too surprising.

Could you just talk to me about kind of the cash taxes that you would pay on that versus what you are actually accruing on the P&L?

Cash taxes because we have substantial NOLs, we wouldn't expect to be paying cash taxes for some time.

Some time being years?

Well, again , that would be, then, trying to forecast what our business is going to be doing for the next years, but it's at least a year,

So that would be just basically an add-back in your cash flow statement.

Yes.

Secondly, Rhea , you gave us some detail on the ABTS and kind of the size that you expect.

Would you expect to run into new competition?

I remember [Ahndoe] and others in the traditional MAX and MTX, as you are moving up the technology chain and entering these new markets.

Are you also encountering new competition, or the same type of wafer -- the same type of burn-in customers in competitions you have had in the

Yes, there is competition in that space.

I think if we address the ABTS memory opportunity, this system allows us to go after the competitors in Asia.

You know, like the Ahndoe competitor and others in Taiwan.

So, yes, there will be competitors, but we believe our system offers advantages in cost of ownership and also in footprint and in capability.

So we believe we are well positioned to address these competitors.

In terms of the high-power logic system, there is a limited number of competitors in that arena, so we think we will have maybe an easier chance in that area to gain market share.

You also have the capability to sell in to your exist ing customer base, the people that have bought traditional packaged burn-in systems.

Or is it largely these new opportunities, new markets, new customers?

I think it's both.

We would expect to sell our ABTS into our historic customers, i.e.

TI.

They are looking at the ABTS because of its capabilities, and we would expect or hope that they would purchase a system over the next three to six months for evaluation.

But I think the real take away on the ABTS is that it allows us to address a broader market that we haven't been able to address before with the MTX in that it allows us to configure the system to adapt to other competitive burn-in boards.

So it makes it very seamless to sell that system into automated factories that exist for other products.

Makes sense.

Just last question , then.

You talked about the second half of the year, just to kind of understand the mind set.

I guess the wafer packs continuing, that certainly helped the first quarter, and will help the second quarter, and hopefully that continues with the install base that you have.

Your hope is that in the second half of your fiscal year, that this large FOX-1 customer adds some capacity.

And do you think it's also possible that we'll actually get some ABTS revenue, or do you think more orders for ABTS in the second half of the

I think the key for us with the ABTS is to penetrate new accounts.

So basically, we would probably see more orders and more new accounts than revenue.

Although, it's possible that we can get some ABTS revenue if we can ship early enough and get acceptance.

But investors should look for is new penetrations, new accounts, and I think the volume shipments of ABTS products will come in the following fiscal year.

So what I mentioned in terms of the FOX-1 , I think the upside potential for us is if our FOX-1 customer places additional orders in calendar 2009, and that's what they are telling us their ramp comes, in that year.

So if that happens, we would see additional purchases for FOX-1

Okay.

And then I think you mentioned either in a question or prepared remarks about a FOX-1 or FOX- 15, I guess it was in the Q&A, and I think you reiterated that you had hoped to, in your fiscal '09, that this would be probably a contactor type of order, development order, similar to other situations over the past three years.

On the FOX-15, right now it looks like our first customer for the FOX-15 -- not the first customer but the next customer for the FOX-15 more than likely will purchase a contactor for evaluation.

But we would hope to finish that evaluation this fiscal year and book an order.

Okay.

Great.

Well, thanks again, guys.

Appreciate the effort.

All right, Rob.

Your next t question is a follow-up question coming from Jeffrey Scott of Scott Asset Management.

Please go ahead.

My question has been answered.

Thanks.

Thank you .

Thank you.

There are no further questions at this time.

I would now like to turn the floor back over to the management team for any additional or closing

Hi, this is Rhea .

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

Thanks again,

Bye-bye.

Thank you.

This concludes today's Aehr Test Systems first quarter 2009 earnings conference call.

You may now disconnect your lines, and have a pleasant evening.