Aehr Test Systems (AEHR) 2012 Q3 法說會逐字稿

Good day, ladies and gentlemen and thank you for standing by. Welcome to the Aehr Test Systems' third quarter fiscal 2012 earnings conference call. During today's presentation all participants will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions). This conference is being recorded today, Thursday, March 29, 2012 and I'd now like to turn the conference over to Ms. Marilynn Meek.

Good afternoon and thanks for joining us to discuss Aehr Test Systems' third quarter fiscal 2012 results. By now you should have all received a copy of today's press release. If not, you can call my office at 212-827-3746, and we'll get one to you right away. With us on the call today from Aehr Test Systems are Gayn Erickson, President 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.

Thank you, Marilynn 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 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, world economic conditions, state of the semiconductor equipment market, acceptance of customers of Aehr Test 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 ability to maintain sufficient cash to support operations, the Company's marketing of a commercially successful wafer level test invert system, and the potential emergence of alternative technologies, each of which could adversely affect demand for Aehr Test products in calendar year 2012.

We refer you to our most recent 10-K, 10-Q, and other reports from time to time filed with the US 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. 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 Chief Executive Officer, Gayn Erickson.

Thank you, Gary. Welcome to everyone and thank you for joining us on our third quarter conference call. As I indicated last quarter, I'm extremely pleased to be here at Aehr Test and I'm very excited about the opportunities for our Company. In the past three months I've had a chance to visit a significant number of customers, a little over 20, in the US, Taiwan, Japan and Korea, with many more to see. The reception that I've received universally was both welcoming and encouraging as our customers are very optimistic about their business prospects. This optimism is translating into our Aehr seeing increased activity, the likes of which we have not seen since before the downturn.

This, coupled with the growing recognition of our products value proposition and their competitive advantage, results in a significant increase in orders during the third quarter. Aehr Test ended the quarter with the largest backlog that we have had in the past three years. Let me take a few minutes to bring you up-to-date on recent orders and significant milestones we have achieved. We announced in January that we received an initial order for our ABTS, which is the advanced burn-in test system, for a high powered device burn-in system from a leading logic analog and mixed signal semiconductor manufacturer. This is a major milestone for us at our Company as we believe they will purchase additional ABTS systems for both production and engineering burn-in requirements, as they ramp capacity for new higher power wireless and mobile processors. The purchase signifies the successful completion of an extensive qualification of the ABTS system performed at the customer's site.

Also today you'll see we announced three additional significant orders for us on the line. One order was for our ABTS from a leading test lab in Korea that focuses on reliability, qualification and high temperature operating life testing. Labs such as this one in Korea demand premium performance and reliability from their test and burn-in systems due to the duration of the test which often lasts six weeks or longer. A typical HTOL, or high temp operating life, test lasts 1,000 hours for a single lot of devices. This ABTS system features high power logic device testing capability using our dynamic individual temperature control and advanced test capability.

The second order is a follow-on production order for our ABTS system from a leading provider of embedded wireless technology. This order confirms that the burn-in and test process using the ABTS system is effective for this customer's wireless devices that are used in the automotive market, which requires that the ICs be qualified to operate extremely reliably in harsh environmental conditions.

The third order we announced today was another follow-on order for our ABTS system from a leading Japanese semiconductor IDM, or integrated device manufacturer. This system is also being used for production test of devices serving the automotive IC market, seeing a trend here. We worked very closely with this customer to provide a high volume solution using factory automation capabilities of our ABTS environmental chamber. Aehr Test designs our own custom environmental test chambers to meet our stringent requirements for quality, thermal specifications and system reliability. These chambers are manufactured by our own supply chain with two subcontract manufacturers in Asia that deliver lower cost, high quality and confidence in our assurance of supply of these chambers.

Additionally, we achieved another significant milestone during the quarter. We completed the validation and shipped an ABTS advanced system to a large semiconductor supplier in South Korea for testing medium and high power logic devices. This is a different customer than the new order I just mentioned. Historically, Aehr shipped and installed many systems into Korea, but this was our first ABTS system into Korea for logic device testing and it's a major milestone for us.

Last quarter we mentioned that we had gained a new customer in the automotive sector, an area we believe has good growth potential for us. We're continuing to see growth in the automotive and mobility, integrated circuit reliability needs, driving our package burn-in systems, as well as several new opportunities for wafer level tests and burn-in for our FOX products. We believe both of these areas represent good growth opportunities for Aehr going forward. The rising tide of activity and purchase orders is also showing up in our installed base of FOX wafer level burn-in and wafer sort test systems. Our installed base utilization is improving across the board and we are seeing a notable increase in orders and forecasts for our WaferPak contractors. This is good base business for us at Aehr Test.

In Q3, just to talk a little bit about it, our revenue was just $2.9 million, reflecting primarily a baseline level of business in service, support, our WaferPak consumables, upgrades to our installed base, and only a small number of systems. Our net loss of $1.36 million, versus a loss of $1.37 million on revenues of $3.9 million the previous quarter, reflects an improvement in gross margins and a proactive reduction in operating expenses made during the quarter.

We took several cost cutting measures, including some appropriate shutdowns and an officer and Board of Directors salary reduction that we implemented within a couple of weeks of my getting here. We've decided not to take extreme measures to permanently reduce expenses further at this time. We feel we need these resources to meet our customers' needs in R&D, manufacturing and shipping our backlog, and supporting our new installations and installed base. With our strong backlog, the rising tide in our customer base, and our conservative management of operating expenses, we expect our revenue and operating results to improve significantly during the next several quarters and we expect to achieve positive cash flow within the calendar year.

Before turning the call over to Gary, I'd like to reiterate my optimism for Aehr Test. There's great talent and energy throughout our organization. We have some of the best and largest customers in the world. And we're expanding those relationships, even as we look to add new customers to our roster. Gary, let me turn it over to you now.

Thank you, Gayn. As reported in today's press release, net sales declined to $2.9 million in the third quarter of fiscal 2012, compared to $4.2 million in the third quarter last year. Gross profit was $1.1 million for the third quarter, or 38.8% of net sales. This compares to a gross profit of $1.6 million in the third quarter of fiscal 2011, or 37.8% of net sales. Taking a look at operating expenses, SG&A was $1.5 million in the third quarter, about the same as SG&A expense in the prior year period. Third quarter R&D expense was $933,000, down about $100,000 from the third quarter of last year. R&D spending can fluctuate from quarter-to-quarter depending on the development phase of our new products.

In the third quarter we reported a net loss of $1.4 million, or $0.15 per share, compared to a net loss of $946,000, or $0.11 per share in the fiscal third quarter of 2011. First nine months of fiscal 2011, operating expenses were reduced by $155,000 related to partial proceeds from the expansion Japan bankruptcy claim and the first nine months of fiscal 2012 we reported a gain of $990,000 from the sale of our interest in ESA Electronics, a Singapore private company.

Turning to the balance sheet. Our cash and cash equivalents were $3.0 million at February 29, 2012, compared with $3.1 million at November 30, 2011. We took an advance of $0.7 million on our line of credit in the third quarter to fund our working capital needs and expected AR growth. We requested and expect to receive an increase in our line of credit with Silicon Valley Bank against our AR and certain inventories, or orders from key customers. Based on our improving business prospects, improvements in customer payment terms and our line of credit, we're comfortable that we have enough necessary cash to meet our needs until we're generating cash later in the calendar year.

This concludes our prepared remarks. We're now ready to answer your questions. Operator, please go ahead.

(Operator Instructions). Geoffrey Scott, Scott Asset Management.

Gary, last quarter you said that revenue would be similar to the second quarter and operating results would be improved.

Correct.

What happened?

As you mentioned, last quarter, and actually in the Q&A section we discussed the expectation of similar revenue as the previous quarter and also to pull that out of you as well, we had talked about an improving operating results. The net was our revenue, in fact, was $1 million less and effectively at the same bottom line, I think we were $10,000 higher but basically the same.

Specifically, we had a couple of deals that we had expected that were due to come in and score revenue late in the quarter. One of those actually was delayed by the customer and the other one had a short delay on our side that effectively pushed easily into this quarter, easily meaning they will be in this quarter. In this case, we were able to manage our expenses to effectively be able to hit the same bottom line with $1 million less in revenue, but the net is those two revenue and their margin pushed into this quarter.

They were system shipments that didn't happen by February 29?

One was a system and one was actually an upgrade, Geoff.

We've been spending the last many number of years talking about customers, not much focus on the engineering and cost reduction side on the manufacturing plans. Is it about time to start focusing more effort on the cost of goods sold?

There's probably a few different things that we are also focusing on, so I'll expect a follow-on question with this one too, Geoff. But the answer is absolutely, we have been focusing on both cost of goods sold but another area that we have been pushing on very specifically is our margins in terms of the value that we're seeing with the customers. I think last quarter, as noted before, we had a mix if you will or a high degree of systems that went out the door that actually had very low margins on them. The good news is that the orders that we have been seeing reporting here are all at substantially higher margins and so an expectation is that as we are shipping products we're getting the value out of that, the competitiveness and getting the value out of the ABTS that we put that investment in to actually get increased margins. When I think of cost of sales, I'm equally as concerned about are we hitting our material cost and within our supply chain do we have an ability to lower our costs, as I am to keep on -- to ensure that we are getting the value out of the products that we have and that is one of my pet peeves coming here in the Company. I believe we can do that. That has been one of the things that is very encouraging when I've been meeting with these customers and the deals that we're winning, we're winning them in an appropriate margin that allow us to continue to make the investment because that's what our customers also want us to do is still be able to make the investments in R&D to make enhancements and some new programs that we are talking to customers about.

If I'm reading between the lines correctly, I'm hearing that, one, your costs went down as the learning curve goes up as you produce more machines. Secondly, there might be a little bit less price pressure from your customers as they understand the value of what they're getting and they're letting you increase prices a bit.

I would be more specific that we're able to maintain the appropriate pricing that we enter the deals with. It's not that we're actually raising prices. We have taken in a couple of scenarios, have worked with customers on improving terms, especially if there's ever any discussion about some additional discounts. One thing we're trying to be is a lot more conservative with respect to the terms and conditions, and in terms of net terms and payments upfront in many cases.

Are you at all worried about the quality of the receivables?

Backlog, you're saying?

We don't have any concerns about the quality of our receivables. We do have provision for bad debt that has been in place for quite some time and we've not been in a situation where we needed to apply that.

Another comment on that. We have a number of customers, appropriately with LCs, that ensures that and a test of the quality of the orders we're getting is the agreement we have with Silicon Bank, in fact, has provisions for, if you will, a credit worthy or level of creditworthiness of the customers. Our installed base, typical of our industry and ourselves, we don't talk about the specific customers, but we have three of the five largest semiconductor manufacturers. These are very large multi-national companies that we believe are of low risk backlog.

(Operator Instructions). Gentlemen, I show no further questions in queue at this time. Please continue.

Thank you very much. For folks on the line and on the web, actually similar to last quarter, we had a large number of folks that were sitting on the web which I know aren't as easy to call in. We don't have a provision for clicking and sending in e-mail questions, but I do want to give the same offer that I did last quarter and that is I will make myself available for one-on-ones and questions and please contact us if you'd like to do that. I can do that either in person. We would love to have you come in and see the products and exciting things that are happening here, or we can do it over a phone call as well. I'd like to thank everyone for joining us this afternoon. We look forward to next quarter's conference call. Thank you.

Ladies and gentlemen, that concludes our call for today. If you'd like to listen to a replay of today's conference you may dial 1-800-406-7325 or 303-590-3030 and enter the access code of 4525341. Thank you very much for your participation. You may now disconnect.