Aehr Test Systems (AEHR) 2010 Q3 法說會逐字稿

Good afternoon, welcome to the Aehr Test Systems third quarter fiscal 2010 earnings 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 would like to turn the conference over to Mr. Lasse Glassen of the Financial Relations Board.

Good afternoon and thank you for joining us to discuss Aehr Test Systems results for the third quarter of fiscal 2010. By now you all should have received a copy of the press release. You can call my office at area code 213-876-6546 we will get you a copy right away. With us today from Aehr Test Systems 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. Now I would like to turn the call over to Gary Larson. Gary?

Thank you, Larsen. 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 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 Systems products as well as projections regarding Aehr Test Systems 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, world economic conditions, the timing of recovery of the semi conductor equipment market, acceptance by customers of Aehr Test Systems technologies, acceptance by customers of the systems shipped upon receipt of a purchase order, the ability of new products to meet customer needs or performance described, the Company's development manufacture and marketing 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 Systems products in calendar year 2010. We refer you to most recent 10K and 10Q report and reports from time to time filed with the US Securities and Exchange Commission for 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.

Thank you Gary. Welcome to the conference call for the third quarter of fiscal year 2010. Before I start I wanted to mention that case to quality of the call is bad and I'm calling from Texas. I'm down here visiting on potential customers I hope.

So I'm pleased to report that pro forma revenue for the third quarter was $2.5 million, up 49% on a sequential quarter basis. On a GAAP basis, our revenue for the third quarter was $5.2 million, with a net profit of $1.5 million. GAAP numbers includes the sale of the remainder of US bankruptcy claim primarily related to the cancellation of wafer pack orders that were mostly built. I would like to point out that our $2.5 million in revenues do not include the acceptance of the FOX 15 system we shipped to [Micronous] in our second quarter. Even though the system is running production wafers, the customer has not completed the formal acceptance process. We are now planning to receive customer acceptance and recognize revenue for the FOX 15 during our fiscal fourth quarter.

There are several highlights from this past quarter that I would like to bring to your attention. We are most excited about winning a production order for ABTS burn in system from a major Japanese integrated device manufacturer. This customer ordered a specially configured ABTS optimized for burn in and testing of their high end microcontrollers. In addition, the ABTS will be designed to include burn in board automation which integrates into their factory automation. The first order was for a single system, however we hope to receive follow on production orders starting in our next fiscal year. This is an important order for Aehr Test Systems for a couple of reasons. First, it's a major accomplishment to win a production burn in system order in a country where large icy manufacturers generally buy from local suppliers. In addition, we believe this order further validates the performance capabilities of the ABTS platform and evidence that it can be a cost affective production tool for package part burn in test of logic devices.

Another highlight was the announcement today of a sale of a Max 4-I, burn in system to a second major Japanese integrated device manufacturer for burn in of logic devices with individual temperature control per device. If our first installation goes successfully, we think we could receive follow on production orders in the few quarters. This is another major account win for us and lays the foundation for growing our business over the next few quarters. Also during the third quarter, we shipped over $1 million in FOX 1 system upgrades to Spansion. We believe the FOX 1 shipments are significant because they indicate that Spansion is investing in our FOX 1 solution for their full wafer test in a single touch down for Austin fab. We are hopeful we will receive additional wafer pack orders as their business expands over the next few quarters. We continue to be excited about the opportunities we see for the ABTS product family this coming year. The quoting activity the past few months has been high for burn in of low to high power logic's including those requiring individual temperature control per device. We believe the ABTS system offers cost savings and performance advantages that will allow us to penetrate and expand share in this growing market segment for immediate medium to high power burn in above 10 watts per device.

While we continue to aggressively market our FOX 1 full waver parallel tester and 15 wafer-level burn in systems, we do not have new orders to report at this time. However we are making inroads in to a number of accounts where we're seeing interest levels for a variety of applications such as sensors, automotive IC's just to name a few. Capital is still tight particularly in the automotive sector. We are hopeful to convert some prospects to orders. We believe that over time over the long-term more multichip module stack dye and 3D packaging producers will need known good dye solutions to produce high yielding modules.

Our strategy continues to be focused on penetrating as many production accounts as possible with our new ABTS and FOX products. This will allow us to expand our customer base and grow market share. Since our last conference call we penetrated two Japanese IDM's and confident our ability to expand our customer base and achieve our growth objectives because we have the strongest competitive product portfolio in our history with our FOX and ABTS platforms. We will be increasing our R&D over the next few quarters to accelerate new product development initiatives which we expect will help the Company to win addition until new accounts as business returns to more normal levels.

In closing, we belief Aehr Test Systems is in the favorable position to grow market share during this recovery period enabling us to return to a growth trajectory over the next few years. We have exciting technology with our FOX full wafer test and burn in systems and wafer pack contractors. We feel confident we can continue to win additional new accounts with ABTS products which address growing market segments for high power logic burn in, and memory applications in Asia. Now I would like the turn the call over the Gary, we will discuss the third quarter financials in more detail. Gary?

Thanks Rhea. As Rhea mentioned net sales were $5.2 million in the third quarter of fiscal 2010. This compares to $1.2 million in the same quarter last year. In the third quarter of fiscal 2010, the Company sold the remainder of expansion US bankruptcy claim for net proceeds of approximately $4.6 million, which resulted in the recording of $2.7 million, as revenue, related to cancellation charges, $1.3 million as deferred revenue, and $0.6 million as a reduction of operating expenses. Excluding impact of the sale of Spansion claim fiscal 2010 third quarter product sales were $2.5 million, this compares to net sales of $1.2 million in the same quarter last year. The increase was result of the high level of net sales of the Company's wafer-level product. Gross profit was $4.0 million for the third quarter fiscal 2010 or 77% of net sales. This included $2.7 million in gross profit related to the Spansion bankruptcy claim. In the Q3 last year, the Company recorded a gross loss of $6.8 million included $5.7 million provision for excess and obsolete inventory reserves that were primarily taken as a result of Spansion's bankruptcy.

SG&A was $1.7 million, for the third quarter of fiscal 2010. This compares to $15.3 million in the prior year period which included a $13.7 million provision for bad debt due to the bankruptcy. Third quarter 2010 R&D expense was $1.5 million, compared with $1.6 million in the third quarter of last year. R&D spending varies from quarter to quarter depending on the level of development of new products. As I noted earlier, fiscal 2010 third quarter operating expense reduced by $600,000 as a result of the sale of the Spansion claim.

Net income in the third quarter was $1.5 million, or $0.18 per diluted share compared with a net loss of $27.7 million or $3.28 per diluted share a year ago. Pro forma net loss in the third quarter of fiscal 2010 was $1.5 million or $0.17 per diluted share, compared with a pro forma net loss of $1.8 million or $0.21 per delude share in the same period of the prior year. Determining the pro forma or non-GAAP, net loss, in the third quarter of 2010 we excluded the gain on the sale of the Spansion bankruptcy claim of $3.3 million and non-cash stock compensation expense of $0.3 million.

Turning to the balance sheet, our cash and cash equivalence increased to $8.7 million, at February 28th, 2010 from $5.1 million, at November 30th, 2009. Increase was primarily due to the $4.6 million in cash, received in January 2010, from the sale of the remainder of Spansion bankruptcy claim to a third party. We continue to remain debt free. This concludes our prepared remarks. We are now ready to answer your questions. Operator, please go ahead.

(Operator Instructions). Our first question comes from the line of [Geoffrey Scott] with Scott Asset Management. Please go ahead.

Good afternoon.

Hi, Geoff, how are you?

Well and you?

Good.

Gary, can you break down the $2.5 million in sales you said $1 million Spansion upgrades. Typically $200,000 is service and spares what was the rest?

We don't generally give a detailed break down of the sales but we thought it was important to mention Spansion upgrades because all of those were written off materials that so basically those items had full 100% more margin on them.

Okay. Was the rest the max equipment?

Again we don't generally give the full breakdown of the revenue.

I guess, I mean there are spares I believe we did sell a max to a local US company.

Okay. What will it take for [Micronous] to accept the FOX? What further demonstration do they need?

You know they are running it in production. There is just -- it's one of these things where they need to take the system down to let us do some things and it's basically just a timing they to want want to give up the system. So that's -- it's more of that than anything. It's very little that has to be done. It's matter of fitting in to the production schedule. Hopefully we will do that this quarter.

Okay. Do they owe you anymore cash for it?

Yes, they owe 25% of the selling price.

Okay. So you have received 75% in cash already.

That's correct.

Okay. What are you hearing about Spansion Japan?

I mean, I know it's an excellent question, we are always staying on top of that, and as far as we are hearing, they are not running wafers and it looks like trying to sell off their equipment.

How many FOX machines are at Spansion Japan?

20.

What will happen to them?

We don't know. We actually would look forward to them being sold. And purchased by a -- another company, besides Spansion.

Yes.

But I don't know. It's very complicated. So we just get secondhand information from them.

Do you have any idea when that Spansion Japan will get resolved?

I don't. Gary, do you have any information on that?

No I don't. As I mentioned in the past, the status of the Spansion Japan bankruptcy is very difficult to assess. There is little information that's publicly shared. It's not at all like the US side where we have filings everyday that we can review and shoe through. It really is a matter of just listening as well as we can and trying to get some insight but we haven't heard anything as far as what might happen. Any equipment sale would have to be approved by the bankruptcy court in Japan. We have heard GE credit has the task of trying to locate buyers so again as Rhea said, we would be anxious to see a third party come in and buy that equipment and use it productively.

Would you expect GE credit to go to both Spansion Austin and yourself as a potential buyer of that fox equipment.

I were GE credit I would go to any entities I would think I could sell to. The the difficulty in the past has been since Spansion US is also in bankruptcy is getting the two different bankruptcy courts to agree on anything they haven't been real successful in that so far.

What are you hearing about the Spansion US bankruptcy?

Spansion US bankruptcy, they had previously announced they expected to exit bankruptcy in the first calendar quarter.

That was today.

That was today. Very good. I was going to point that out. I noticed on their docket filings with their scheduling continuation hearings in to April and May. So it would obviously be possible at any point in time for them to exit. Since I'm still seeing substantive meetings out there I'm guessing we are talking about the latter part of the second quarter.

Is that delaying their ordering pattern any?

The impression that we gotten on that is that they are only allowed to order on a hand to mouth basis if they have current order active that they would have to walk away from if they didn't order equipment, then they are allowed to order it but they are not allowed to anticipate order or business that might come down the pipe six months out or nine months out and most semi conductor manufacturers do that kind of anticipative ordering. We would hope when they exit bankruptcy that can benefit us.

They can order spares and things like that they can't order a new wafer pack.

They can if they have a production need for it and they can prove they have a production need for it to ship product in the current quarter they can order it. They can't forecast, say next quarter I'm going to we think or the next two quarters are going to need additional systems or additional wafer packs and maybe the product is not ready for the customer hasn't given the firm orders yet they can't buy that type of equipment. If they can prove they need systems or wafer packs to make shipment requirements then they can order it.

Okay. There was a million dollars worth of deliveries in the February quarter, can you be more specific about their ordering pattern for subsequent to the February 28th quarter?

I think what we are looking at now, at least again the visibility from them is very short. But it would probably be this quarter would most i will be if they order anything it would be wafer packs not system upgrades. We upgraded four or five systems from 200 to 300-millimeter and we expect maybe to get some wafer pack orders to fill up those systems.

Okay. What -- one other question first. On the web site, the Aehr Test Systems web site you are not currently looking for there are no jobs posted. What is your head count been over the last quarter?

We haven't added any bodies over the last quarter. I did say we would increase R&D but probably won't increase head count. We have variable labor opportunities that we could either hire temporary people. We have a number of software people in India and various places to add and expand. Probably be engineering expenses will go up because of some consulting but also some materials that we have to buy for some of the new developments we are doing for Japanese customers.

What kind of additional features do you need to put on to our machines in order to make them available?

What do you mean?

Additional --

One large customer for example, wants, they want them -- minor things like changing the board to board spacing or we need to do we need to reconfigure the ABTS for higher power application, as we said it's a very configurable system. The electronics can be plugged in to different back lane, so in some ways creating a new back plain or new interface for the burn in board. So, its not -- It's more development type engineering as opposed to R&D, it's not doing advanced work in that sense. So it's maybe repackaging our ABTS technology for different applications.

Reconfiguring.

Correct. Might be a back plain or interface board or of that sort or racks in one case we are putting in burn in board automation to automatically load the burn and boards in and out of the system. Things of that sort.

Is this an existing customer that's asking you to do this?

These would be new customers or least new customers for ABTS.

Is it your understanding that if you can get the ABTS configured that way that they would buy it.

That's correct if it meets their qualifications.

You are well down the sales cycle with them. Okay.

Hopefully next quarter or two another announcement or account win for the abts.

Okay. How many abts systems have you now delivered?

Somewhere between five to 10. I'm not sure. Mostly with different customers.

Yes, probably on the lower end of that range.

What are you finding in terms of the your cost of goods sold as you manufacture more systems. Is the cost coming down?

I can take that question. Because of the very low volume levels we have had during the past year it's a little bit hard to give any good cost of goods information on ABTS. Our max products when we were at more traditional volume levels were in the high 40% range, FOX products were generally in the low 50% range, we would expect the ABTS on on going basis to be probably if the low 50% range.

That's where you are or what you want to to get too?

Again, there have been so few ABTS' right now that it's hard to generalize on our cost, particularly with the volume levels we have been seeing. We will have to hold off on what it will look like I was just giving you my guess.

Certainly we are not there now as Gary mentioned. It's where we want to get to, basically.

Max 4i that you talked about, what was new and different about that particular --

What was exciting for sus that we penetrated a major Japanese manufacturer. What was unique about it for him was that they were using traditional Japanese burn in systems but our system, our Max 4200 could deliver higher current. Oven could provide higher power dissipation than the current system they are using. It's a proven solution. We had 96 channels and it could do this independent temperature control per [dught] we had that feature in the Max 4. It's the i-feature, additional power supplies and reconfiguring the driver boards to provide this extra current. That's why they bought to Max 4 they couldn't burn in high powered devices on existing systems without a huge amount of modification.

These were microcontrollers.

Microcontrollers for high end consumer product , like 3d Tv's tat sort so the volume systems they will buy in the future could be a lot or few depending on how well the product succeeds in the marketplace.

This was a new customer.

New customer.

Okay.

Both customers this is a new customer. I don't think we sold it as customer ever. The first ABTS customer we sold products 15 years ago to or 20 years ago.

Yep. All right, and the second one the Max 4i, this is for production.

For production, the plan is for production.

So. There is large hope for more orders from that particular customer.

That's the plan and that's the hope. If we are successful with our first system we would expect to see the follow on orders, within the first half of fiscal 2011.

Okay. I will let somebody else hop in.

Thanks Jeff.

Thank you. Our next question comes from the line of Jon Evans with Edmonds White Partners, please go ahead.

Can you talk about the increases in R&D kind of where you estimate that you guys will be from a break even point or where you have to get to from a revenue stand point and then I don't know if you talk about this, can you give us a sense of book to bill was your bookings stronger than your deliveries or can you give us any kind of insight?

Jon, good talking to you. We don't generally talk about our book to bill. We do declare our backlog at the end of the fiscal year. But we don't give interim bookings or backlog information. Generally if we have what we consider to be important orders from the stand point of the size or if we consider them to be critical new customer opportunities then we will put those orders out on press releases and so it's somewhat easy to at least keep track of the big ones that come through that way. With regard to the R&D, Rhea did mention that we anticipate additional R&D spending. But we also see as R&D of times in our business is quite variable from one quarter to the next. There isn't a set number we are putting out there. We wanted to put out an early warning that our R&D might start to climb somewhat. As far as a break even point in the past what we said everything is very much dependant on mix. Because as we discussed some of our products right now written off materials end up having 100% margin and then more standard products that are less and also quite a low level now. It's hard to really assess the break even what we said in the past at our current expense level probably we would be in the $5 million to $6 million range to see break even.

Okay. Several of your big customers I think Texas is our biggest customer, they all talked about having capacity constraints on the test side, I guess if you look at a lot of the back end companies they've started to see that I guess can you help us understand maybe why you potentially are a lager in that or why you haven't seen as much ramp yet?

That's a good question. In particular speaking about Texas Instruments where they had bottleneck in testers we are at the end of that chain for them. It becomes the assembly and the test capacity. Then I think after that hopefully it's going to be that they need more burn in capacity.

You don't believe you lost share --

I don't think so. I will find out more tomorrow. I'm in Austin I'm going to go to Dallas tomorrow. It's my mission.

Okay. So we should believe if they are saying on their conference call that they are getting more in line from the test side than hopefully 60-90, or 120 days from that you should see that on the burn in side.

At least some of it. Depends on where they are capacity-wise in our systems and product mix. Some devices maybe don't need burn in or much burn in on them, other ones do. It depends on so different devices at different times require more or less. They are automotive devices require 24-hour burn in. Their DSP's maybe require less or just early life type burn in. So it does depend on their product mix somewhat. In general if they are seeing a push in all areas, then I think that's going to be do our advantage. They have a number of our systems turned off in 2009 when volumes were low. I think pretty much all of them are turned back on. So they are -- if they see any increase in capacity they will have to add burn in systems. We haven't lost share with them.

Okay. Then I know you didn't want to answer this before and it's difficult because of the different products and mixes but I guess can you help us understand maybe why you feel comfortable of picking R&D up with sales at such low levels. So I guess what I'm trying to get to, can you help us understand from a cash basis will you not burn cash over the next couple of quarters? Can you give us insight into that?

Basically I looked at it as a positive. Geoff alluded he was trying me on that, what is it for. It's not major new developments but it's going after some doing some customization or specialization of modification of the systems for a few customers to get qualified and get some production orders. So it's just spending money on materials to win some new accounts. So that's all. It's not going to be 50% higher or whatever. Maybe 10% to 20% higher than what we are normally running for R&D. It's things that we need to do to win orders. It means we fairly far along the sales cycle to win the orders.

Can I ask you relative, can you give us sense of size of those if you are successful and basically redoing the systems to specifications how much business potentially is there to win here?

That's always with good question. So it could be 10- 20, 10 to 50 systems. Over a few years.

Sure. Okay. Then the last question I have for you is when you think about test capacity, the test companies talk about utilization capacity utilization, is there any way for you to talk to your customers or give us a sense of kind of utilization of your systems and kind of what's the breaking point before they have to start to add significant capacity?

I think it really depends on which ones we have service contracts in. For example if Texas Instruments, we have service contracts we know what systems are turned on and off and utilized but other accounts we don't have that visibility and there is a lot of accounts we aren't in. It's hard for us to figure that out. There is no research that's done in our sector. The only way to do it is call on customers and try to ask and find out that way, but our objective is to penetrate new accounts with products. We can spread our customer base wrath I that just have Spansion and Texas Instruments, we want to have multiple production customers.

Okay. Great, thank you so much.

Thanks Jon.

Thank you. (Operator Instructions). Our next question comes from the line of Joy Mukherjee, a private investor.

Hi, Joy.

Hi. I'm not a private investor. Quick question, most of the questions have been answered. Would you talk a little bit about the market and what the outlook is for Nor flash?

I think certainly the growth that you read about is in the Nan flash. Obviously Spansion is bullish about their business going forward although they shrunk it and jet us in the mobile market. We feel there is still growth at Spansion because right now they just have a few FOX 1-s and waif packs, so most of the systems we sold them are in Japan and in the bankrupt part of their Company. Nor flash is still going to be there, there is still a market for it. I don't see it going away any time soon. Nan flash if you need high density memory, cheap memory, flash memory that's the way to go. There is a lot of applications where you don't need that much memory that you need the reliability of the Nor flash. So there is this strong segments for Nor flash. I don't see anything that's going to change it. As they grow and grow in density, the test times get longer they need more test equipment.

Then on the competitive front has anything changed? Is foreign factor a bigger player against what you do?

Hmm. Foreign factor makes the pro cards. They can compete against us I guess on our wafer packs for the FOX 1-s. If they can do full wafer up to that density. Maybe, I mean certainly they are trying to.

So other than that, you haven't seen much of a change in land scape?

Not on the system approach arena.

All right. That's all I had, thank you.

Thanks, Joy.

Thank you. (Operator Instructions). Management I'm showing no further questions please continue with any further remarks.

This is Rhea and I'd thank you for joining us we look forward to next quarter's conference call. Thanks and good evening, bye now.

That does conclude the Aehr Test Systems Q3 fiscal 2010 earnings conference call. If you would like to lis didn't replay of today's conference you may do so by dialing 303-590-3030. Or 1-800-406-7325. Access code of 426-7428. Thank you for your participation and you may now disconnect