Aehr Test Systems (AEHR) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen, thank you for standing by. Welcome to the Aehr Test Systems fourth-quarter fiscal 2013 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 18, 2013. I would now like to turn the conference over to Scott Eckstein. Please go ahead, sir.

Good afternoon and thanks for joining us to discuss Aehr Test Systems' fourth-quarter fiscal 2013 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 will get one out 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 the call to your questions.

Before turning the call over to management I would like to make a few comments about forward-looking statements. We will be making forward-looking statements today that are based on current information and estimates and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.

Factors that may cause results to differ materially from those in the forward-looking statements are discussed in our most recent periodic and current reports filed with the SEC. These forward-looking statements, including guidance provided during today's call, are only valid as of this date and Aehr Test Systems undertakes no obligation to update forward-looking statements. Now I would like to introduce Gayn Erickson, Chief Executive Officer. Please go ahead, Gayn.

Thank you, Scott, and good afternoon to those joining us on the conference call and also listening in through our online link on the Web. Gary will go over our financial details in a few minutes, but I want to first start by discussing the overall business and product highlights.

Our top-line revenue for our fiscal fourth quarter was $3.3 million, basically flat with revenues reported in our previous quarter. We feel the revenues for the quarter were indicative of the industry wide softness that has affected our Company along with other companies in the semiconductor test space in the recent past.

We are pleased to have sequentially improved our bottom-line for the quarter having reported a loss of $0.08 per diluted share compared to a loss of $0.16 per diluted share in our third quarter. We accomplished this as a result of improved margins and the absence of the one-time charges related to write-downs of older product inventory that we reported in our previous quarter.

We are continuing to make inroads towards our goal of growing our business with both new and existing customers as reflected in the orders we received during the quarter. With these orders we head into the fiscal year with a solid backlog of $9.1 million.

In late May we received a first order for multiple production systems of our next generation FOX semiconductor test system from a leading manufacturer of flash memory devices. As this client ramps capacity in several of its facilities worldwide we believe we will receive additional orders for multiple follow-on systems. We expect to begin shipping these production systems in the first half of calendar 2014.

Equally important, several other new and existing customers have expressed interest in our new FOX products for functional tests, wafer level burn in and process monitor applications. We are both excited and encouraged by this growing interest. During the quarter we also received over $4 million in follow-on orders for multiple FOX-1 Parallel Test Systems and WaferPak contactors from a leading manufacturer of semiconductor memory devices.

Similar to the FOX next-generation systems order I just mentioned, we received down payments against these orders to lock in delivery stock and volume purchase pricing discounts. These systems and WaferPak's will ship through our third quarter of fiscal 2014. Importantly, we believe these orders basically demonstrate the customer's continued commitment to our products for their wafer sort needs.

The global interest that we see for our packaged level burn-in and test systems is also continuing to increase. These test systems, which are designed to be a cost-effective solution for production burn-in and reliability screening of a wide range of ICs are of particular interest for manufacturers of the ICs for the automotive and mobility markets. These are market segments that we believe present an ongoing growth opportunity for Aehr Test.

Both our ABTS and MAX product serve the test and burden requirements of those two markets. In our fourth quarter we announced orders for these products from a leading manufacturer of advanced logic ICs for embedded processing, DSP, automotive and analog devices. This customer continues to have a strong forecast with us into the fiscal year.

In early June we also announced an expanded relationship with iST, a leading subcontract manufacturer of reliability and test services in Taiwan and China with their addition of our new ABTS-Pi test system for testing devices with up to 70 to 80 Amps per device.

These systems are large configurations that allow testing of high pin count devices with high-power and feature temperature control of both heating and cooling of each device individually. This allows customers to do reliability and burn-in tests of these higher power devices at higher depth parallelism and at a much lower cost than any other competitive system on the market.

To summarize, we are able to provide a highly competitive test solution for end customers and subcontract manufacturers serving the growth opportunity in the automotive and mobility package level test and burn-in market while at the same time enhancing our solutions for wafer level burn-in and whole wafer functional tests that open up significantly greater market opportunities for Aehr Test Systems.

Looking at our overall business, we'd like to have -- we would have liked to have seen more progress during the year. But given the headwinds we've faced for much of our fiscal year we are pleased with the advancements were made in addressing new market segments and customers with our ABTS and FOX product lines.

We are confident in the validity of our strategy and believe we are well positioned to capitalize on this plan in fiscal 2014. This is particularly true for the second half of our fiscal year when our new FOX products will be released and we begin to ship products to address new markets and customer opportunities.

As mentioned we have a backlog of over $9 million, but much of that is focused on shipments later this year. We are expecting revenue in our first quarter of fiscal 2014 to be similar to that of the fourth quarter of fiscal 2013. Although we do expect an improved bottom-line as a result of improvements in margins.

We are continuing to concentrate our efforts and R&D spending on addressing new customer and market opportunities while at the same time we remain focused on managing cost in order to return to profitability to benefit our Company and our shareholders.

In closing, I would like to acknowledge those who have asked specifically about our year's forecast. However, we want to be particularly cautious as it is very difficult to predict business levels a year out. Having said this, based on our backlog and indication from customers, we currently expect our revenue for fiscal 2014 to exceed that of 2013 and we also believe that we will be profitable for fiscal 2014. Gary will now go over the financials before we open up the line for questions.

Thanks, Gayn. As reported in today's press release, our net sales in the fourth quarter were $3.3 million, flat with net sales of $3.3 million in the third fiscal quarter of 2013. Our net loss of $854,000 in the fourth quarter of fiscal 2013, or $0.08 per diluted share, compared with a net loss of $1.5 million or $0.16 per diluted share in this year's fiscal third quarter. Gross profit was $1.3 million or 40% of net sales, this compares to gross profit of $765,000 in the third quarter of fiscal 2013 or 23% of net sales.

As stated last quarter, in addition to the reduction in gross profit that would be typical with such a decrease in net sales, gross profit in the third quarter was also impacted by inventory reserves related to our older MAX products as our new ABTS products moved into volume production.

Operating expenses for the quarter were $2.1 million compared to $2.2 million in the third quarter of fiscal 2013. SG&A was $1.5 million, basically the same as the third quarter of 2013. Our lower operating expenses reflect aggressive steps taken by management to control spending.

R&D expenses were $634,000 for the quarter compared to $685,000 in the fiscal third quarter of 2013. We have been transferring some R&D expenses into cost of goods sold related to our next generation FOX system development. Excluding those transfers R&D expenses would have increased slightly sequentially. As stated previously, R&D spending can fluctuate from quarter to quarter depending on the development of our new products.

Turning to the balance sheet and changes during the fourth quarter, our cash and cash equivalents increased to $2.3 million at May 31, 2013, up from $1.4 million at February 28, 2013. Accounts receivable increased sequentially by $1.1 million; our inventories decreased sequentially by $0.4 million. Our line of credit decreased by $0.1 million, which means that our net cash, that's cash less our line of credit, improved by $1.1 million. Certainly managing our cash has been and continues to be a clear focus for Aehr Test management.

This concludes our prepared remarks. We are now ready to take your questions. Operator, please go ahead.

William Smart, Cardinal Value.

The $9.1 million in backlog, that seems -- I don't think you announce that on every call, but that seems to be higher than previously, is that true?

Yes, that is higher than we reported in the previous four years.

Well, that is great because that means you have a substantial amount booked for the next four quarters. My second question is on the replaceables. Do you have a number for that you care to give us?

So I actually I think you mean like our consumables, our service (multiple speakers)?

Yes, yes, yes.

In the WaferPak?

Yes.

Actually typically we talk in general terms and we have not been breaking those out individually. I think that it is basically flat quarter to quarter. But it's (multiple speakers).

(Inaudible) that number right here, sorry.

I remember you had a problem forecasting that a couple quarters ago and you seemed to overcome that?

Try that again, I'm sorry. A problem forecasting it?

Yes, you had a problem forecasting your consumables, didn't you, and --?

In general what we have seen is our consumable part of our business has been running at maybe $500,000 to $1 million a quarter type of run rate. What we actually did report -- we didn't break out the separation of it, but one of our key customers actually placed an order for a number of WaferPak's as well as systems for deliveries over the first few quarters of our fiscal year. We actually got more than a normal run rate in one shot last quarter and bookings that we expect to be shipping over the next six plus months or so.

Okay, great. Thank you.

Geoffrey Scott, Scott Asset Management.

First a comment, thank you very much for the annual projection. We will not hold you to it on a quarterly basis, but it is nice to know what your target is and what our target should be for the full year. I certainly do appreciate it.

A couple questions. The increase in deferred revenue -- does that represent customer deposits or does that represent deferred revenue on shipments that have already been made to customers that have not yet technically been accepted?

Geoff, this is Gary. That is really primarily the advance payments that we have received, the deposits, if you will, when the orders come in that Gayn has alluded to previously. There is a small amount related to services and things like that. But by far the large amount is those deposits.

Would it be more usual to characterize those as customer deposits rather than deferred revenue then?

No, this is the way we have been reporting this and our auditors are comfortable with it. So --.

Well, I just -- since it's -- since you have gone to kind of advanced cash deposits required more so than you have in the past, I wonder (multiple speakers).

The word deposit may be not the right word. It is really just an early payment. So he is paying us early in the contract, but it is not a deposit. For example, most of the time deposits are held aside or (multiple speakers).

Yes, but when I think of deferred revenue I think of something that has been shipped and not yet accepted. And this is earlier in the production process than that.

You are right about that and that is exactly what we are showing is money that has been received prior to shipment.

Okay. Next question. On your website you currently have two job openings posted. Are those replacement positions for people who have left or are they incremental increases in headcount?

They are actually incremental.

Should we read into that a positive scenario?

We actually -- I am expecting us to increase our R&D spend both with internal and external contractors throughout the remainder of this year because of the new products that are coming out and, as we have stated in several of the past conference calls, we have a very real demand and we have very real both commitments to customers with the caveat they have asked us to please ship them sooner.

And so, with the balance of managing our cash and our expenses in our bottom-line we are actually trying to keep our R&D spend, quite frankly, as high as possible. I think there is a very good return on those dollars.

Okay, both of those positions were on the software side as opposed to the hardware or field application engineer kind of positions. Does that say something about where the entire business is going in terms of software being a more important part of the total package than has been the case in previous years?

I wouldn't say that. I mean explicitly where we are bringing on a couple of contractors in the hardware as well, but they didn't get posted the same way. So in that case it is somewhat balanced.

Okay, the next question is more industry related and it has to do with what I was reading in the transcript of a SanDisk conference call yesterday and an answer that was given by Sanjay. And he talked about -- I'm reading from it right now -- the second aspect of course is having controllers and the systems expertise and the firmware to really work with the flash to manage the flash to really give the reliability and the performance of the enterprise grade applications. And it talks about the difficulty in test and advanced packaging and the more complicated systems that they are trying to develop. Are you seeing that across the industry?

I think that is actually a fair observation. And it is something that, as I stated even a year ago plus when I got here, that in the ATE world where I came from on the automated test equipment, which as you know is about a $3 billion total business, the test requirements are both getting more stringent in terms of reliability expectations of obviously things like consumer products that go into automotive, think of like a GPS.

But even in all of the components that go into a cell phone. 10 years ago cell phones were truly disposable. And if my iPhone or my Galaxy 4 dies, Apple and Samsung have a big problem with that. And it is a very big contract that is really driving around the industry.

Then you see things like -- and I think what Sanjay was referring to is I can remember a time where the NAND manufacturers of not even a decade ago were talking about test is the non-value added, it's not that necessary because the commoditization of, for example, NAND flash was such that who cares if you lost a bit, you'd have a single bit lost out of a JPEG picture on your cell phone or on your camera and nobody really cared.

But now if you look at the applications where these things are actually in enterprise disk drives or in -- holding code storage within a camera device, the reliability expectations are very intense and they are quite a bit more substantial in the end-use market than they were in the [patch]. And the expectations are being driven up. And quite frankly, as people need to do more testing and as they need to think about reliability, those are all really good things both for the test industry, if you will, as a rising tide, but particularly I believe for Aehr Test.

Yes, I just -- I can't remember another time when the CEO of a significant company has been talking about test being a problem in his conference call. And the fact that he spent actually two or three paragraphs talking about test and how important it is to increase yield and things like that. It sounds as though your argument that you have been making for a couple years is finally coming to fruition.

I agree (multiple speakers).

And suppliers are finally getting on board.

And for further context is that he talks about the challenges and the importance of test rather than the problems of test, if you don't mind.

Right (multiple speakers). His problem is making sure that his yield is high enough.

But you know what, this is something we are seeing really across the board. And you look at the DRAM guys and the challenges going on with through-silicon via and 3D stacking. Many of the fundamental challenges with implementing the technology and volume reduction include test challenges. And another piece is just the cost of test.

As we talked before, our test systems are highly differentiated in their ability to test a massive parallelism of low pin count DST, design for test, or built in [soft] test modes, which is where all of these devices need to go in order to be able to be tested long enough to achieve the reliability. And so, the more pressure there is on people to -- for cost of test the better it is for our Company.

Well, I was tickled to death to have him talk about it as one of the things that keeps him up at night. So I found it very encouraging.

I'm glad. I hadn't heard that. I don't follow SanDisk, so I appreciate (multiple speakers).

As I said, I read the transcript last night and it gave me something nice to go to sleep by. Thank you, I will pass on to everybody else.

(Operator Instructions). And I am showing no further questions in the queue at this time.

Well, I appreciate it, and I just want to thank everybody on the call and particularly those -- I know we have typically a much broader group of folks that are listening online. I appreciate you listening on our quarterly call. And as always, we will make ourselves available if you have follow-on questions, or if you ever want to come and visit us here in California. Thank you very much.

Ladies and gentlemen, this concludes the Aehr Test Systems fourth-quarter fiscal 2013 earnings conference call. If you would like to listen to a replay of today's conference, please dial 303-590-3030 or 1-800-406-7325 with the access code 462-7842. We thank you for your participation and at this time you may now disconnect.