Aehr Test Systems (AEHR) 2009 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen.

Thank you for standing by.

Welcome to the Aehr Test Systems second quarter fiscal 2009 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).

I will now turn the call over to Ms.

Tricia Ross, of the Financial Relations Board.

Good afternoon.

Thanks for joining to us discuss Aehr Test Systems results for the second 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 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'd 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'd like to make a few comments about forward-looking statements.

Please be advised that during the course of our discussion today, we may make forward-looking statements that involve risks and uncertainties relating to projections regarding industry growth and consumer demand for Aehr Test products, as well as projection 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 code 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 manufacturer of commercially successful wafer level test and burn-in system and the potential emergence of alternative technologies; each which could adversely affect demand for Aehr Test products in calendar year 2009.

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

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'd like to introduce our Chairman and CEO, Rhea Posedel.

Rhea?

Thank you, Gary.

Happy New Year to everyone, and welcome to our conference for the second quarter of fiscal 2009.

I don't need to mention how much the current economic downturn has severely impacted our industry.

Well it finally caught up to us last quarter.

We saw a number of our customers delay new orders and had some wafer pack delivery push outs at the end of our quarter that impacted our results.

In spite of the contracting market for semi-conductor equipment, we had a pretty decent quarter.

Revenue was $9.2 million, down about 4% from the prior quarter.

Importantly, we did an excellent job in delivering a net income of $872,000, up slightly from the prior quarter.

Most importantly, we increased our cash position during the quarter to $13.7 million, up over $4.3 million compared to the prior quarter ending August 31.

One of our major objectives during this industry downturn is to maximize our cash position.

This will give us the cushion to implement initiatives that will strengthen the Company long-term.

Our strategy during this downturn is to develop more new products and to aggressively sell our new and existing products to expand our customer base and our markets.

Our objective is to come out of this downturn a stronger company when the industry recovers.

Even though IC manufacturers aren't adding capacity, they will purchase systems that can lower operating costs and/or provide the new technology needed to meet their future testing and burn-in requirements, such as [nose good die or KGD].

The demand for KGD is driven by the industry's migration to multichip packages or stack packages which will happen even during a downturn.

We believe our FOX wafer level burn-in systems can provide a cost-effective solution for producing KGD.

The good news for Aehr Test is that we have a very strong product portfolio to build from with our FOX and ABTS platforms.

Today we announced receiving an order from a leading European embedded wireless IC provider for a new ABTS system configuration for burn-in of high powered logic devices.

This order is significant because it allows us to address a new growing market for high power burn-in, up to 50 watts per device, requiring individual device temperature control.

Last month, we showed our new ABTS system at SEMICON Japan and the interest level exceeded our expectations in this slow market.

Fortunately, the market for logic and mixed signal burn-in is still active in Japan.

Customers were interested in the ABTS product because the ABTS platform offers lower cost of ownership, and advanced thermal and electronic technology to parallel test and burn-in a wide range of logic and memory devices.

We believe we can sell new technology products even in down markets.

We are aggressively -- working aggressive to the sell our FOX-1 tester and FOX-15 wafer level burn-in system.

And there remains a high interest level for these products.

The problem is that the companies we were targeting, memory and automotive IC manufacturers, are in the hardest hit markets and as a result, are delaying capital purchases.

We are making good inroads and would hope to penetrate new accounts when our industry turns around.

One positive last quarter, is that we saw some increased activity from our MAX product line.

Even though it's a small segment, the military and aerospace sector still has budget and as a result, we did book a MAX burn-in system and some system upgrade orders.

We have a large install base of MAX systems for a wide variety of applications.

We are hopeful we can sell additional MAX burn-in systems and upgrades during this semiconductor downturn.

To provide any guidance or outlook is extremely difficult.

Most of our customers were shocked by what's happened with the economic meltdown during the last few months.

For example, their end customers, such as cellphone manufacturers, stop taking deliveries of ICs in November and December.

And as a result, our customers delayed both capital equipment spending and shipments.

If I had to guess, I would say that the next two quarters will be very difficult for Aehr Test.

Our customers are telling us that they don't see their capacity increasing until the second half of calendar 2009 at the earliest.

With all the uncertainty in the economy and with our customer base, we are unable to provide guidance at this time.

With that said, we believe Aehr Test is in a favorable position to grow market share during this downturn, enabling us to return to the growth trajectory we had over the last few years when our industry recovers.

We have exciting new technology with our FOX-4 wafer test and burn-in products and will roll-out new ABTS products to address new market segments for parallel tests and burn-in of packaged integrated circuits.

Now I'd like to turn the call over to Gary and he'll add some color to the second quarter financials.

Gary?

Thanks, Ray.

Net sales were $9.2 million in the second quarter of fiscal 2009, compared with $9.7 million in the second quarter of fiscal 2008.

In the second quarter of fiscal 2009, FOX-1 wafer pack contractors and FOX-1 system upgrades represented the large majority of our net sales.

Gross margin was 50% for the second quarter of fiscal 2009, essentially flat with the year-ago period.

The 50% gross margin is in line with our stated expectations, given the costs associated with ramping up production of wafer packs.

We anticipate that if net sales decline, we will see lower gross margins.

SG&A was $1.8 million in the second quarter, flat with the prior year period.

Second quarter 2009 R&D expense was $1.6 million, slightly higher than the $1.4 million in the second quarter of last year.

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

We had $384,000 in other income during the second quarter of fiscal 2009.

This was primarily attributable to foreign exchange gains on settlement of transactions in our Japanese subsidiary.

Pretax income was $1.6 million in the second quarter of fiscal 2009.

And that's $51,000 higher than the year ago quarter.

Our effective tax rate was 46% in the second quarter, compared to 13% in the second quarter last year.

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

This rate is expected to be in the vicinity of 45%.

Our net income for the second quarter was $872,000 or $0.10 per diluted share, compared with net income of $1.4 million or $0.16 per diluted share a year ago.

Excluding stock compensation expense in these periods, pro forma net income in the second quarter of fiscal 2009 was $1.1 million or $0.13 cents per diluted share, compared to $1.6 million or $0.19 per diluted share in the same period of the prior year.

Our cash, cash equivalents and short-term investments stood at $13.7 million at November 30, 2008.

This is an increase of more than $4.3 million from the end of last quarter which is primarily attributable to a reduction in our accounts receivable balance.

Our inventory was $10.5 million at November 30, 2008, a slight decline from the end of the prior quarter.

Shareholders equity increased to $40.8 million or $4.83 per share outstanding at November 30, 2008.

And we continue to have no outstanding debt.

We've always run a tight ship at Aehr Test and have a low headcount with a high percentage of variable expenses in our cost structure.

Our objective is to maximize our cash during this downturn.

In response to the challenging business conditions, we implemented a two-week shutdown of our facilities in December and are actively exploring other measures to control or reduce our expenses until capital spending in the semiconductor equipment industry returns to more normal levels.

We are not expecting a meaningful improvement in this difficult operating environment until the second half of calendar 2009 at the earliest.

We believe that it would be imprudent to provide guidance at this time.

We are now ready to answer your questions.

Operator, please go ahead.

(Operator Instructions).

Our first question is from the line of Jeffrey Scott with Scott Asset Management.

Please go ahead.

Good afternoon, guys.

I have just come in off the slopes of snowy Telluride, Rhea.

You are the only guy that could get me in today.

I imagine it was wonderful there.

It was truly wonderful.

Yes.

SG&A was down a bit from the prior quarter.

Is that true reduction or was that a reversal of some accruals in the prior-year period?

It wasn't a dramatic reduction from year to year so it was basically just --

Not year to year, but you were 2.1 in the prior quarter, 1.8 this prior quarter.

I think what we saw in the prior quarter is we saw some additional expenses accrued that were not recurring this quarter.

The level that we are at is probably a more realistic level.

Okay.

The -- you said that there was an order booked for a MAX.

At one point, somebody in the defense industry was looking at buying an ABTS.

Was the MAX order in lieu of that ABTS order?

No, this was always a MAX order.

Did anything happen with the ABTS?

I can't remember which one we were talking about when I mentioned it to you, but I don't believe we lost any ABTS business.

We --

Did you book any new ABTS orders?

We did.

We announced a new ABTS order along with our press release -- that we sold a high power version of our ABTS system to a European embedded flash manufacturer -- not embedded, but embedded RF manufacturer in Europe.

Okay.

The --

That was a major accomplishment.

It's a new product and a new customer for us.

Okay.

What's the reaction been from the ABTS in Taiwan?

So far, it's been good.

We announced that we had received an order from IST, a logic test house.

I believe, last quarter, and we said we were going to ship it over the next three to six months.

And we haven't shipped it yet.

I thought it had already been shipped.

We shipped an evaluation unit which they liked well enough to place a production unit.

But you have not actually shipped a production unit to Taiwan?

Not yet.

Soon we hope.

Has there been any further development on the joint venture with [Enterre Ease]?

Not as much progress in that area as we would have liked.

We are still working together.

And we would have hoped to have a little more business in that market, but I think just the overall slowdown in the industry has affected our progress in that joint marketing development.

The first FOX-15, have there been any other follow-on orders from that particular customer?

It's a good question.

We've been told that the customer -- obviously, it's an automotive IC manufacturer so their end customer has seen some slow down in their demand.

But they are telling us they need another FOX-15 probably in the second half of 2009.

We should see possibly a wafer pack contractor order this quarter from them.

Not a system, but buying more of the consumables from us so that's good.

The more consumables they buy, then the more system capacity they are going to need downstream.

And they are telling you that another order may be forthcoming?

For the system, yes.

Which is good.

Yes.

[Spansion] has announced that they are going to sell part of their Chinese test facility in a joint venture with ASE.

I believe they've already done that.

Okay.

But that was a back-end facility.

It's not a wafer sort or wafer test facility.

None of your FOXs are at that facility?

That's correct.

I think we do have some MTXs at that facility, but no FOXs.

Will that development affect in any way your relationship with Spansion going forward?

No, I don't think so.

I don't see any.

Most of the back-end testing was already moved -- the areas that are using our systems are in different parts of Malaysia and so forth so we had very little of our install base there in [Pushow] China.

Most of your FOXs are down in Malaysia?

No; the back-ends -- the MTXs that they were using for back-end testing.

The FOXs are mostly in Japan.

Okay.

That's what I thought.

Do you have any significant relationship with ASE?

Yes.

ASE has a number of our MAX systems that they use for a wide variety of applications.

We've had a long-term relationship with ASE.

Does ASE have any experience with your FOXs inside Japan?

Have they seen them and things like that?

I can't say.

I think ASET is really -- does packaged part assembly and package part tests.

I don't think they do much of wafer test or wafer sort as they call it.

Okay.

Okay.

You said that in the press release -- you said that a number of orders have been deferred.

Could you put a dollar figure on that?

I would say at the end of the quarter or somewhere it could have been $1 million.

That were deferred that are finished goods sitting in your facility?

Correct -- that were pushed out.

In fact if those orders had been included, you would have been spot on or indeed ahead of the original -- ?

That's correct.

I think it was two to three wafer packs, something like that -- maybe three that moved out.

In fact was it a very decent quarter, just a very lousy outlook.

Right.

Correct.

We executed perfectly in the quarter.

And executed to plan.

I will hop off.

Good luck to you.

Thanks, Jeff.

Our next question is from [Marcelle Herbs] with [Herbs Capital Management].

Please go ahead.

Good afternoon, Rhea.

Congratulations on the quarter.

Thank you.

I wanted to -- I have a follow-up question on Spansion.

What percent of revenue did it contribute for the first half of the fiscal year?

We haven't given out the exact percentage yet.

You will see it in the queue, but it was a very high percentage.

Spansion has been a very high percentage of our revenue for the last several quarters.

Going forward, how dependant are you on Spansion as a customer?

As Gary mentioned, Spansion is a significant -- has been a significant part of our business the past 12 months.

We are aware of that and we are aggressively -- we don't want to reduce the business with Spansion.

We want to increase the other business that we have with selling FOX products to new customers and selling our ABTS products.

I think that you will see the percentage of our business with Spansion going down.

The nonSpansion business should go up as a percentage of revenue going forward although Spansion will probably still be our most significant customer.

Okay.

Thank you so much.

Thank you.

(Operator Instructions).

Management, there are no further questions at this time.

Please continue with any closing comments.

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.

Thank you, ladies and gentlemen, This does conclude the Aehr Test Systems second quarter fiscal 2009 conference call.

If you would like to listen to a replay of today's conference, you can do so by dialing 1-800-405-2236 or 303-590-3000, and put the access code 11124067.

Those numbers again are 800-405-2236 or 303- 590-3000 and put the access code 11124067.

We would like to thank you very much for your participation today.

You may now disconnect.

Have a very pleasant rest of your day.