Aehr Test Systems (AEHR) 2012 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the AEHR Test Systems fourth-quarter fiscal 2012 earnings 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)

This conference is being recorded today, Thursday, July 19th of 2012 and I would now like to turn the conference over to Ms. Marilyn Meek. Please go ahead.

Good afternoon and thanks for joining us to discuss AEHR Test Systems fourth-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 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 up the call for your questions. I'd now like to turn the call over to Gary Larson. Please go ahead, Gary.

Thank you, Marilyn, and thanks for everyone for joining us today. Just to start with it seems like Yahoo! had some problems posting our press release. It is out on NASDAQ, it is out on the SEC Edgar website and as Marilyn said, if you need a copy you can call them at 212-827-3746. Hopefully you've already gotten the information.

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; the state of the semiconductor equipment market; acceptance by 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 and burn-in system; and the potential emergence of alternative technologies, each of which could adversely affect demand for AEHR Test products in 2013. We refer you to our most-recent 10-K, 10-Q and other reports from time to time filed with the US SEC 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 initiatives our President and Chief Executive Officer, Gayn Erickson. Gayn?

Thank you Gary. Let me start off by saying that we feel we're making very good progress in our strategy to position our Company for further growth. Our revenue and bottom line improved significantly from last quarter and we remain confident we're on track to achieving a profit and becoming cash flow positive by the end of the calendar year 2012.

Gary will provide details on our financials but I want to point out that our $4.7 million in revenue for quarter was the highest level for us in over three years and was up sequentially 64% from the $2.9 million reported last quarter. This increase came from the growth in system sales that we discussed on our last conference call, which builds on the base level business in services and consumable wafer packs that we had seen in the last several quarters. As we grew sales we were able to decrease our loss from about $1.4 million in Q3 down to under $800,000 in fiscal Q4. AEHR Test has traditionally stated our order backlog at the beginning of each fiscal year and we're happy to report that our backlog is now at $7.3 million, setting yet another high watermark for our backlog in over three years.

We had several key announcements that helped to provide some color behind their business that I thought I'd take a few minutes to summarize here. Last month we announced an order for an additional Fox-1 System to a leading flash memory manufacturer. This is great as it's further evidence that utilization of our install base is reaching capacity levels for both our Fox wafer test and burn-in solutions, as well as our ABTS line of package part test and burn-in systems. It's also a testament to the continued value provided by our Fox-1 system with our wafer pack contactors, which allow for parallel testing of thousands of die on a single 300-millimeter wafer in just a single touchdown. This system was included in our Q4 revenue.

We also announced a follow-on order for our ABTS high-power burn-in system from a leading logic analog seismic signal semiconductor manufacturer. This system offers high capacity and a low cost of ownership for burn-in of high-power logic devices that require individual temperature control per device. We expect this customer will need a -- will have a need for additional ABTS systems for both production and engineering burn-in requirements as they ramp up capacity for these new higher-power A6 and wireless and mobile processors.

And then just last week we announced orders for a Fox-15 wafer-level burn-in system and a wafer pack cartridge aligner from a leading communication equipment manufacturer. This is a customer that actually we've been working for with for some time and it's a key change in their strategy as they move devices tested in traditional package level burn-in systems to wafer-level test, where the burn-in is more cost effective and provides processing yield-related data on their devices. Their test is providing the entire wafer-level test and burn-in solution with our proprietary wafer pack contactors, a production wafer pack to a wafer liner solution and the programming services to complement the Fox 15 System, which is capable of burning in multiple wafers simultaneously.

As their production needs increase and they move more and more devices from their traditional package burn-in systems, we expect they will require additional wafer pack cartridge capacity. These orders move our Fox technology into the communications equipment industry and add to the Fox systems already in use in the memory and automotive industries.

Additionally we announced a follow-on ABTS order from a leading test house in Taiwan, which has recently won some significant burn-in contracts on our ABTS systems in the mobile computing space, but for processors going into tablets and smartphones. This is a great win for our customer, as well as AEHR Test, as this sale extends the capacity and capability of our install based in Taiwan to include higher pin count and higher power devices testing for logic devices that require this individual temperature control and monitoring. And this is an area where AB -- the ABTS Test System has proven itself in both production and reliability operating applications.

Also in May we announced a key person that was added during the quarter. We're pleased to have Larry Anderson join us as our new Vice President of sales. He brings strong experience in semiconductor test sales to AERH Test, having experience at both Verigy and FormFactor. We're confident that his experience and industry relationships will help to further strengthen and expand our worldwide customer base. We believe this is an excellent time to bring on board a person of Larry's caliber as we're seeing an upturn in activity for our Fox and AB Test families of sort test and burn-in products.

Before I hand the call over to Gary and then open up the lines for questions, I want to touch on the overall industry mood and what we're seeing. Earlier this month, in fact at Semicon West, there was some pessimistic announcements being made by some of the major front-end fab equipment suppliers. However, AEHR Test is just not seeing any weakness so far.

Historically our cycles have lagged significantly behind the front-end guys and even behind the traditional functional ATE suppliers. Further, we checked with customers and other suppliers and these checks seem to support that the semi test industry continues to be quite strong and is on track to do about $3.5 billion this year. Given this and based on our strong backlog and the continued increase in sales and order activities that we're seeing at AEHR Test we maintain our confidence that we can and will achieve a profit and become cash flow positive by the end of this calendar year. We also believe we have sufficient cash to meet our needs without raising additional capital to get us to this milestone.

Gary, thanks for going over the numbers and then we can open it up for questions.

Thank you, Gayn.

As reported in today's press release our net sales in the fourth quarter increased 64% to $4.7 million from the $2.9 million reported in the third quarter. Gross profit was $2.2 million for the fourth quarter, or 46% of net sales. This compares to a gross profit of $1.1 million in the third quarter of fiscal 2012, or 39% of net sales.

In operating expenses SG&A was $1.9 million in the fourth quarter compared to $1.5 million in the third quarter. Fourth-quarter R&D expense was $1.1 million compared to $0.9 million in the third quarter. As stated on previous calls, R&D spending can fluctuate from quarter to quarter depending on the development phase of our new products.

The sequential increase in operating expenses from the third quarter to the fourth quarter of fiscal 2012 is primarily related to the fact that in Q3 of 2012 we had Company-wide shutdowns around the holidays. Q4 also included some one-time expenses. We expect fiscal 2013 operating expenses to run somewhat higher overall than this Q4 run rate, but they will vary by quarter as we see changes in levels of sales rep commissions and we selectively add headcount to support our sales growth.

Our net loss of $0.8 million in the fourth quarter of fiscal 2012 showed an improvement of $0.6 million when compared with a loss of $1.4 million in the preceding quarter. Net sales rose 25% to $4.7 million in the fourth quarter of fiscal 2012 compared to $3.7 million in the fourth quarter of last year. This quarter we reported a net loss of $779,000, or $0.09 per share, compared to a net loss of $144,000, or $0.02 per share in the fiscal fourth quarter of 2011. The net loss in the fourth quarter of fiscal 2011 included a gain related to Spansion bankruptcy claims of $670,000.

For fiscal 2012, full-year net sales were $15.5 million compared to $13.7 million in fiscal-year 2011, an increase of 13%. Net loss for fiscal 2012 was $3.4 million, flat with net loss of $3.4 million in fiscal-year 2011. In fiscal 2012 we reported the gain of $990,000 from the sale of our interest in ESA Electronics, a Singapore private company. In fiscal 2011 operating expenses were reduced by $832,000 related to partial proceeds from the Spansion Japan bankruptcy claim.

Turning to the balance sheet and changes during the fourth quarter, our cash and cash equivalents were $2.1 million at May 31, 2012 compared with $3.0 million at February 29, 2012. Our line of credit balance increased by $0.7 million. Our net cash burn -- that would be cash less our line of credit -- was $1.7 million in the quarter. As our AR grew by $1.8 million our inventory was up $0.4 million and our loss of $0.8 million was partially offset by non-cash expenses of $0.3 million. We increased the available limit of our bank line of credit to $2.0 million during the quarter.

As Gayn commented, we're comfortable that we have sufficient cash to meet our needs until we're generating cash later this calendar year. This concludes our prepared remarks, we're now ready to answer your questions. Operator, please go ahead.

Thank you. (Operator Instructions)

Our first question is from the line of Geoffrey Scott with Scott Asset Management. Please go ahead.

Good afternoon, guys.

How are you, Geoff?

First of all, thanks for focusing on the sequential numbers third quarter to fourth quarter, I appreciate it.

Certainly.

The Fox-15 order, is that the same customer for who you were running wafers in your factory?

Yes, it was.

Okay. Is he taking that machine, or are you building a new machine for him?

We are providing a full test cell for him, including the Fox-15 and also the aligner to him.

Okay, so going forward you will not be running wafers for him any longer in the factory?

Actually there's some transition period where we will continue to that and then it is our expectation that we would -- they would be running them themselves.

Okay. What kind of revenue have you been recording for those wafer sales to this customer on a quarterly basis?

We haven't been breaking that out, Geoff.

Is it material at all or not?

I would say no.

Okay. Gary, of the $4.7 million, can you break out the systems and non-systems?

The systems there a number of systems. Again, as far as a specific split we haven't been breaking that out, but I think more than half of the revenue was systems business this quarter.

Okay. The backlog is a good number, is that up or down from the end of third quarter?

That's up from the end of third quarter.

Okay. Are you going to be providing backlog numbers on a quarterly basis going forward?

At this point we'll continue to provide them at the end of the year, as we're doing now. And typically if we have any strategic orders we will put out press releases, which give you a pretty good sense for the backlog and then net sales, obviously, will be reported each quarter.

Okay. Gayn, I'm going to try to pin you down on the forecast for cash flow positive and profitability. You said by the end of calendar 2012, is that going to be for just specifically the second quarter, or will that be cumulative first and second quarter?

Related to -- I see you're trying to grab that on quarters. I think it's basically just two, it's not a cumulative number.

Okay. So your expectation's for the second reported quarter of fiscal 2013?

Geoff, not to explicitly be vague here -- if there is such a thing (laugher) -- we absolutely see, based upon the backlog and our shipment that during the second half of the year we will transition to be able to be both cash flow positive first and then a P&L. And, A, we're not prepared yet to start talking about specific forecasts by quarter, but as you point out we're running out of quarters here in that second half.

The reality is that as we have shifted from this base level of business that we had implied -- I think you can got through the numbers and get a little more clarity -- in the $2 million $3 million range we're really at a base level of services and consumable business and as we increase our business on top of that it's through the systems business.

Now our systems business is by the nature of the ASPs relatively lumpy at these revenue levels, so our ASPs range from a couple hundred thousand dollars to even as much as a $1 million. So you can imagine at this level the sensitivity to revenue recognition under SAB 101/104 becomes particularly difficult. So we're not trying to imply any vagueness, it's just I want to be very careful of that. As we saw last quarter, where we had some things we thought were coming in and they didn't in time and in fact, we had a little of that going on this quarter, again.

Right. Last quarter you had $1 million that wasn't shipped that was, in fact, deferred to this current quarter. As I look at it, the fourth quarter of fiscal 2012 is really pretty much equal to the third quarter in terms of total shipments, correct?

Yes, I see where you're going with the math. Actually our shipments themselves were up and so --

Does that mean that you have some number of systems out there that have been shipped but for which you have not recognized revenue?

That's correct.

Is it material?

Probably $0.5 million.

Just $0.5 million? Okay. Trying to think what else I have. This is the highest gross profit number that I can remember. Was there anything unusual in this quarter or unusual in the -- whatever it was, the 38% for the third quarter that created the 800-basis-point swing?

As Gayn mentioned, we did ship a Fox-1 System and as we had several years ago taken a number of reserves on our systems we do have a lower basis on many of the Fox-1 products that we sell so that was higher than we would typically see.

But also, Geoff, I think our -- while we really have to be careful of signally to competitors about margins, et cetera, but it's not surprising that our margins on our services business and even on our consumables is not as high as you would expect on the systems business. So it's a natural transition as our systems business increased that our margins will, in fact, come back.

That, and of course we are really holding to our fixed expenses although, as we point out, we've brought on some selective hiring and we're no longer during the forced time off at the level we had talked about during the holidays, so we're going to see increased margins.

Okay. Gary, going back to the cost of goods sold for the Fox system that was sold, other companies when they have sold inventory for which they have previously reserved have typically broken that about. Will you do that in your 10-K?

I don't expect we're going to be doing that.

Is there any reason for it?

Again, there were some -- a number of write-downs that we took several years ago and we've been selling product over that entire time period of those select items, so we don't see it as a one-off situation that needs to be specifically reported.

But typically if it is going to change your gross margin by a material amount you would normally break it out, would you not?

We would politely explain it, but not break out the specifics.

Geoff, actually I would say that the margins of the quarter are more consistent with what we are forecasting over the next several and as such a don't think it is material. If you would contrast into Q3 it has less to do with that as it does with the mix from, as we already said, services to services plus systems.

We also in Q2, if you recall back, the margins were even worse as we specifically stated that there is a particular system/configuration where we have, I would say, particularly lousy margins by contrast to our average what we happen to have a lot of. So I think that these margins are more consistent and are more uniform going forward based on our current plans.

Okay. The Fox-15 quarter order was not included in the $7.3 million backlog, correct?

Fox-15, I actually know that answer, I think I'd rather not get into too much detail with you here, Geoff, on all of that.

The announcement came well after year-end, so my assumption is that it's not --?

Fair enough. Yes, that's correct.

And the same would be true for the follow-on order into Taiwan, right?

That is also true.

Okay. The Taiwan customer, are they looking for multiple customers or is it a single customer? You said it was tablet and smartphone.

Yes, they'll be using the system for multiple customers.

Okay. So their success is not limited to the success or failure of one of their customers, but it's going to be multitude?

That is our understanding, yes.

Okay. I will hop off and let go for someone else. Thanks very much, appreciate it.

Thank you, Geoff.

Thank you. And our next question is from the line of Gregory Wilbur with Bay Area Micro Cap Fund. Please go ahead.

Gayn, would you talk about the competitive landscape at this point. Who are your public competitors and how much is continuing to be home brew?

Okay. You actually mixed some -- let me just try and capture that. The competitive landscape of the historical, what I will call package level burn-in space, continues to be made up of what I would consider quite small, privately held companies around the world. There have been some dynamics in the market that have shifted towards higher technology requirements on the electronics around the functional test capabilities of the tester itself, as well as the power delivery of the tester. And also of the chambers, which includes our -- we supply our own design test chamber.

As I mentioned, I think in the last call, we have two suppliers that we purchase them from, but they are specifically designed for us and per the R&D specifications that we did out of this building. What we've seen is that the needs on those chambers in terms of airflow uniformity, the amount of power that's withdrawn from them, is not something that we can get on the open market, which was the case maybe a decade ago, because the requirements have changed. And many of these small companies around the world, or most of them, all rely on an OEM chamber.

So as the chamber requirements have shifted that's been good for us and it was a good call for us to do the development of that during the last several years to spend money to have that and it's one of our -- we're highly differentiated and competitive as a result. The electronics themselves are also requirements that many, if maybe, might even be fair, most of the historical burn-in suppliers are not capable of providing that functional test capability.

So these new requirements of automotive, mobility, the processes that are going into tablets and cell phones, for example, have created a need that our ABTS package level burn-in system -- or package burn-in system is very well suited for. So our competitors, there are fewer of them that out are doing that.

You mentioned public versus internal. Again, from a publicly traded Company there are none in this space that we are seeing today. There are couple of publicly traded Korean suppliers that have focused primarily on the DRAM production space where, as I believe you understand, we have shifted and we have no DRAM production revenue in our current historical forecast for the last several years.

From a private perspective, there are still [bouts] where individual companies have done some home-brewed systems with differing degrees. Some that have done it and are shifting away; some that have done it and my understanding will continue to do it, and, of course, I can't talk of the specific companies because they don't talk about that publicly themselves.

All right. Could you give me your definition of backlog at this point? Is it $7.3 million?

You mean breakout by the types of products you're saying?

No, the time --

The (inaudible) would products that would be expected to ship in the next 12 months.

I see, I see. Okay. So I want to encourage you to change your policy about backlog and do it every quarter. It's just another part for us outsiders to get engaged on your business.

Okay, I understand. And Greg and Scott, you're still listening and others, we have continued to look at and we appreciate the feedback. And particularly as our business increases to where we can be, quite frankly, a little more comfortable in the range forecast, we would like to be able to provide more and more information. And you folks are big boys and know how our business is and so we'll look for more opportunities to give more visibility.

Okay, thank you.

Thanks, Greg.

Thanks, Greg.

(Operator Instructions)

And we have a follow-up question from the line of Geoffrey Scott with Scott Asset Management. Please go ahead.

A real quick follow up for Gary. The deferred revenue from the end of Q3 to end of Q4, does that represent the systems that have shipped where you've received cash but you haven't recognized revenue?

Exactly.

Okay. Is there any other (inaudible) payment in there that would be material, or is it mostly systems shipped?

There are always some service contracts and things like that that go into deferred revenue, but the largest portion of the increase was related to that system.

Okay, thank you very much, appreciate it. All right, Geoff.

Thank you and I am showing no further questions in the queue. I'd like to turn the conference back over to Gayn Erickson for closing comments.

Okay. Well, thank you very much, and folks we appreciate you listening in on the web and also for those folks that had an opportunity to call in and ask questions. And we would encourage anyone who -- we try to reach out to all of the institutional investors and other folks that have expressed an interest to be able to get their questions answered real time and if you are on the web and aren't aware of that, please contact us. We'll leave the numbers and contact Gary and we'll make sure that we can give you access.

I offered a couple quarters ago and I'll remind folks, we love to hear from you and if you would like an opportunity to come, take a look, hear our story, and get an opportunity for some one-on-one time with us we'll absolutely make ourselves available and please give us a call. Thank you very much, and we look forward to hearing from you. Bye-bye.

Ladies and gentlemen, this does conclude our conference for today. If you'd like to listen to a replay of today's conference you may do so by dialing 303-590-3030, or 1-800-406-7325 and entering the access code of 4548821#. We thank you for your participation and at this time you may now disconnect.