Aehr Test Systems (AEHR) 2015 Q4 法說會逐字稿

Good day and welcome to the Aehr Test Systems fourth-quarter fiscal 2015 financial results call. Today's conference is being recorded.

I would now like to turn the presentation over to Mr. Jim Byers, MKR Group.

Thank you, operator. Good afternoon and thank you for joining us today to discuss Aehr Test Systems' fiscal 2015 fourth-quarter and full-year financial results. By now you should have received a copy of today's press release. If not you may call the office of MKR Group, Investor Relations for Aehr Test, at 323-468-2300 and we will get you one out 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 the Company's operating performance for the fourth quarter and year-end 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 the forward-looking statements.

With that I would like to introduce Gayn Erickson, Chief Executive Officer. Please go ahead, Gayn.

Thank you, Jim, and good afternoon to those joining us on the conference call and also listening in online. Gary will go over the fourth-quarter and full-year financial results later, but I will first spend a few minutes discussing our overall business and product highlights including our continued progress with the development and direction of our new FOX-P platform of products. Then we will open up the lines for your questions.

While fiscal 2015 was a very difficult year for Aehr Test, we begin fiscal 2016 with higher expectations and greater optimism given our strong backlog of $12 million as of May 31 which has more than doubled from a year ago. Plus we have already received an additional $2 million in new orders since year-end.

Our backlog and subsequent orders are all shippable within our first fiscal half which will lead us to a healthier topline and position us for a much stronger fiscal year.

A key reason for our optimism is not just the $6 million initial order from a major new customer we announced this quarter, but also the potential opportunities follow-on business this customer and this new application represents for Aehr Test. This order is for our current FOX-15 multiple wafer test and burn-in system which I will discuss in a little more detail in a minute.

As we have discussed in earlier earnings calls, our soft revenue this past fiscal year reflects a combination of factors including customer order and shipment pushouts of our packaged parts systems, customers absorbing capacity taken in earlier quarters for both our package part and wafer level systems and consumables, and our lead customer awaiting the release of our new FOX-1P system. Our bottom-line losses were a reflection of this lower revenue but also due to the fact that we maintained our commitment to the expenditures and investments to get our new FOX wafer level test and burn-in products out to market.

I believe this was absolutely the right decision which will pay off this year and moving forward. The decisions we made this last year to maintain our development work and expenses on these new products already has and will continue to allow us to capture a much larger total available market for wafer level test and burn-in applications.

We put our money where our mouth is as our directors and officers including Gary and myself put in our own money into the pipe last year where we raised an additional $2.7 million to keep our R&D efforts and focus on getting these new products out. We are very excited about the new customer activity we are seeing and the market opportunities for both our existing and next-generation products and we remain focused on capturing not only the market opportunities we have discussed in the past but also some significant potential new ones.

Starting with our base business, we have not lost sight of the market opportunities we have with our ABTS packaged part test and burn-in platform and our current FOX-15 multi-wafer system. We are pleased to have announced significant orders within the last few months for volume production applications for both products. We saw a key production customer for our ABTS system resume volume purchases during the last couple of months. And in late April, we announced a $6 million initial order from a major new customer for our FOX-15 multi-wafer test and burn-in system which includes a FOX-15 system, multiple wafer pack contactors and our new FOX wafer pack aligner. This system will be used for production burn-in of a very high volume device used in a consumer application.

This production wafer level burn-in application represents not only a significant new customer but also additional opportunities as we expand our unique and highly cost-effective wafer level test and burn-in solution into the rapidly growing automotive, consumer, mobile, sensor and wearable markets. We have identified several potential new high-volume applications for our current and next-generation FOX multi-wafer systems with this customer and with several other companies that we can uniquely address with our test systems, wafer pack, wafer contactors and our FOX wafer pack aligner solutions.

As we previously discussed, part of our historically low revenue this past fiscal year was a result of the delay of our new FOX-1P system which we introduced last fall at the International Test conference. As you know, the FOX-1P or as you may know, the FOX-1P is our single wafer test and burn-in solution that is part of our new FOX-P platform and that includes single and multiple wafer configurations. We believe the FOX-1P will provide more test resources than any other automated test equipment system on the market and will significantly expand our served available market.

While it was our original objective to begin shipping the FOX-1P by the end of our fiscal fourth quarter, we encountered delays in our development schedule that pushed out deliveries and revenues of our backlog of both engineering and production systems from last fiscal year into this fiscal year. We had a couple of specific issues that even our component vendors have never seen before but I'm pleased to report these issues have been resolved though not without losing multiple months in our completion of the FOX-P program.

The team working on our FOX-XP system which is a multi-wafer version has been making great progress and has met some significant milestones with our lead customer for that product. We designed and built a full wafer contactor with our new high density FOX-XP wafer pack and have successfully demonstrated our new high speed FOX wafer pack aligner system that will ship with both our current FOX-15 multi-wafer system as well as our new FOX-XP multi-wafer system.

We will complete all the internal and customer characterization needed at Aehr Test before we ship the single wafer FOX-1P and the multi-wafer FOX-XP configurations to customers for final acceptance and production release.

Our new FOX-P platform is truly state-of-the-art with capabilities never before seen in an automated test equipment platform. It delivers more channels, more power, more device power supplies and at an integration level meeting or exceeding that of the highest performance, highest density automated test equipment in the industry.

We have worked hard to ensure that our FOX-P platform is tracking to meet our lead customers' high-volume manufacturing requirements.

We believe we have alignment with our lead customers to meet their production ramps for both our FOX-1P single wafer and the new FOX-XP multi-wafer systems which has been our primary goal. Our lead customers have provided us feedback that has helped us to enhance these products to meet both the original target applications as well as to address new and higher volume applications. We are pleased with these additional capabilities and believe our products are positioned much better both in the short- and long-term.

We continue to see the total available market for the new FOX-1P including the emerging automotive microcontroller wafer level test and burn-in market to be greater than (technical difficulty) annually and the total available market for the FOX-XP multi-wafer test and burn-in system as well as the wafer pack consumables to exceed $200 million annually.

We are ensuring that we build our FOX-P platform to address both of these opportunities which together increase our total available market for both packaged part and wafer level test and burn-in to more than $400 million annually.

In summary, fiscal 2015 was a very difficult year but we feel that it was a transition year for Aehr Test as we bring to market a new family of proprietary systems that will address a much larger total available market for Aehr Test. We expect to grow our business significantly this year even if we are only to ship our current FOX or ABTS products. This allows us to focus on completing our new FOX-P products to the quality and application coverage consistent with our lead customers' needs and timeline while meeting our financial goals.

Having said that, we fully expect to ship our new FOX-P products and achieve revenue in both the first and second halves of 2016 -- fiscal 2016.

As we enter the new fiscal year, we believe we are in a very good position with our substantial year-end backlog and our strengthened cash position to meet customer demand that is building. We are excited about the new customer activity we are seeing with our current ABTS advanced burn-in and test systems for package parts and our FOX wafer level test and burn-in systems as well as the significant new market opportunities for our next-generation FOX-P systems.

Lastly but certainly not least as you may see in the announcement today, we announced that Gary Larson, our CFO and VP of Finance, plans to retire effective September 8, 2015 after 24 years with the Company. Gary played a key role in our successful IPO and in our recent equity and debt offerings. We will all be sorry to see him leave when he retires but I know that Gary is looking forward to spending more time traveling with his wife. It has been a great pleasure to work with Gary and we want to thank him for his many contributions to the success of the Company.

We intend to name Ken Spink, our Corporate Controller, to serve as interim CFO. Ken will assume these responsibilities upon Gary's retirement and will be working with Gary in transitioning these duties. Ken has served at Aehr Test for seven years. He has more than 30 years of accounting and finance experience in the high tech public accounting, leasing, service construction industries. Prior to joining Aehr Test, Ken worked for nine years at Applied Materials, the global leader in the semiconductor capital equipment industry, where he was most recently Corporate Accounting Manager. He began his career in audit for accounting firm Deloitte.

We are fortunate to have someone with Ken's experience and expertise to ensure a smooth transition and look forward to working with him as we focus on the significant opportunities we see ahead with Aehr Test current and next-generation products.

With that I will turn the call over to Gary. Gary?

Thank you, Gayn. As we reported in today's press release, our net sales in the fourth quarter of fiscal 2015 were approximately $1.8 million compared to $2.0 million in the preceding quarter and $5.4 million in the fourth quarter of the previous year. Non-GAAP net loss for the fourth quarter of fiscal 2015 was $1.6 million, or $0.13 per diluted share, compared to a non-GAAP net loss of $1.5 million, or $0.12 per diluted share, in the preceding quarter and non-GAAP net income of $443,000, or $0.04 per diluted share, in the fourth quarter of the previous year.

On a GAAP basis, net loss for the fourth quarter was $1.9 million, or $0.15 per diluted share. This compares to a GAAP net loss of $1.7 million, or $0.14 per diluted share, in the prior quarter and GAAP net income of $239,000, or $0.02 per diluted share, in the fourth quarter of the previous year.

Gross profit in the fourth quarter was $682,000, or 38% of net sales. This compares to gross profit of $852,000, or 42% of net sales, in the preceding quarter and gross profit of $2.9 million, or 54% of net sales, in the fourth quarter of the previous year.

Operating expenses in the fourth quarter were $2.5 million compared to $2.6 million in the preceding quarter and $2.7 million in the fourth quarter of the previous year.

SG&A was $1.5 million compared to $1.6 million in the preceding quarter and $1.7 million in the prior year fourth quarter. The year-over-year decrease was primarily due to lower employment related expenses.

R&D expenses were approximately $1 million for the quarter, in the preceding quarter and the prior year quarter. As stated previously, R&D spending can fluctuate from quarter to quarter depending on the development of our new products.

Turning to results for the full fiscal year, net sales for fiscal 2015 were $10 million compared to net sales of $19.7 million in fiscal 2014. Non-GAAP net loss for fiscal 2015 was $5.7 million, or $0.47 per diluted share, compared to a non-GAAP net income of $1.3 million, or $0.11 per share, in fiscal 2014.

On a GAAP basis, net loss for fiscal 2015 was $6.6 million, or $0.55 per diluted share, compared to GAAP net income of $422,000, or $0.04 per share, in fiscal 2014. Our backlog as of May 31, 2015 was $12 million, up 100% year-over-year from our backlog of $6 million as of May 31, 2014.

Turning to the balance sheet and changes during the fourth quarter, our cash and cash equivalents were $5.5 million at May 31, 2015, up from $2.3 million at the end of the preceding quarter, reflecting both the successful completion during the quarter of our convertible debt financing with a strategic investor and the significant down payment from a customer which placed the recent $6 million order.

The financing consisted of a $4.1 million convertible note and a $2 million line of credit. The new line of credit replaced our previously existing credit line with Silicon Valley Bank which was terminated as a result of the debt financing. At quarter end, our net cash or cash less line of credit was $5.5 million compared to $2.2 million at the preceding quarter end.

Accounts receivable at quarter end was $1.4 million compared to $0.6 million at the preceding quarter end. Our AR balance at the preceding quarter end was lower than usual due to the timing of customer payments. Our inventories at May 31 were $7.1 million, up approximately $270,000 from the preceding quarter.

We are working aggressively to keep our expenses to a minimum and we continue to manage our cash very closely. As our backlog increases, we expect to fund that growth through down payments from customers and borrowings against our existing line of credit.

Finally, as Gayn noted earlier, after 24 years with Aehr Test, I have announced my intention to retire in September. I have long planned to spend more time taking extended trips with my wife and visiting more with family. Aehr is also in a much better financial situation than it was a year ago so now is the right time for me to pass the baton.

Ken is well-prepared for his role and will do an excellent job as interim CFO. He and I will transfer the duties of the position over the next two months to ensure a good and orderly transition. It has been my privilege to work with Gayn, Ray, all of my colleagues at Aehr Test and I want to thank them for all of their support and friendship during my years with the Company.

With the potentially significant opportunities we are seeing for Aehr Test current and next-generation products, I believe that I am leaving Aehr in good hands and with a bright future.

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

(Operator Instructions). Colin Denman, Westerly.

Thank you very much for taking the question. First of all, congratulations on the nice backlog figure there. I was wondering if you could help me understand kind of what are some of the components of that backlog? I know you can't give too much detail but given the $6 million order from the new customer for the FOX-15, is there any -- is any of that backlog related to the 1P or the XP or is this all for existing product lines you have out right now?

So we are sitting in a really great position with not only a larger backlog but all really shippable in the near-term for us. And if you look a year back, we had already announced prior to that the initial order that we received from a lead customer on the 1P. And as we entered the previous year we knew that the 1P was not to ship until later in the year. And so we really didn't even -- within a $6 million backlog of a year ago, a portion of that was not immediately shippable.

We are actually not -- I don't want to get in the habit of breaking out a lot of the different numbers but I will say that certainly the $6 million order is all with shippable products which we consider within our FOX-15 family. It does include our new FOX-XP aligner, something, the leveragability of the product and a complement of wafer packs.

We also in the orders, including the orders recently announced, were ABTS FOX-15 wafer packs. We had a service and support order backlog that was an annual contract. So a good chunk or even a vast majority of that is actually within our current products.

It does include 1P backlog and it has a small amount of XP backlog that we had announced earlier in the year which were for milestone related payments and the evaluation of a lead customer of the FOX-XP.

That is very helpful. So I guess following from that, if you are saying the backlog you think is all shippable in the first half of the next fiscal year, then that implies you are expecting a 1P shipment during that timeframe. Is that the right way to read that?

Yes, that is. That is right including revenue for it. As you know, the shipment and revenue of a new product according to the way we do our accounting, we don't actually score revenue until we have the final customer acceptance of our new products.

The other thing I was curious about is given that assuming you guys are able to ship some of this backlog or I guess all of the backlog in the first half, you are going to be at a substantially higher revenue level than you have been at recently. And I just wanted to ask how that relates to margins. Because if I go back to kind of the end of fiscal 2014, the last time you were doing greater than $5 million quarters, it obviously helped the gross margins quite a bit. And so I am trying to relate over this next six months, should we expect gross margins to trend back into that 50% range as you get the benefit of the higher revenue level? Is that a reasonable expectation?

I think that is about right. I want to be a little careful with all the numbers. Let me put a little bit more context.

A couple of years ago when we had a couple, few quarters where we were doing like $5 million or so, we were shipping I think one system a quarter that was primarily made up of written down material. So we didn't note those, that there was a little bump in our gross margin related to that $700 million, $800 million a quarter or so.

This entire backlog is not made up of anything with any substantial written down material, if at all. So this would be more consistent I think with more of our typical run rates going forward. And a little bit about our margins in general is that we do see a little bit stronger margins on our FOX wafer level products than we do with our package part products. And with our wafer pack contactors, we have lower margins on average than the rest of our products, just consistent with that consumable device.

But having said that, I think we feel really good about this backlog and our ability to hit a profitable number with that backlog.

That was my follow-up was just on the general operating profile of the Company. I mean can you help us understand where the new breakeven level is for you guys? It sounds like you are expecting with the backlog you have you can get back to profitability but just any help there would be good.

I would be careful throwing out a number. Let me -- Ken is lurking over here on the side as he always does and he will run some numbers real quick. Let me come back to that at the end, okay?

Yes, no problem. Thank you guys very much and congrats on the backlog and thanks for everything.

I will tell you what. Maybe I can even get away with -- we believe that we are profitable at those revenue levels with that backlog. The question is how much lower than that are we breakeven and maybe we will get to that or not. But I think we are just looking at a much stronger, healthier year as we continue to spend and R&D investments.

Yes, sounds great. Thank you.

Geoffrey Scott, Scott Asset Management.

Good afternoon. A question on the lead customers. The press release has them in plural. I am assuming that the plural means you still have the one lead customer for the FOX-1P and the one customer for the FOX-XP. Is that right?

I certainly -- I refer to one customer for each product in the first person with them as our lead customer. As you know, we talk to multiple customers about each of those platforms to incorporate their feedback but we really consider one company a lead customer for each of those two.

Okay. Where do we stand on getting a second lead customer for the FOX-1P? How far along are you in discussions with another potential customer?

I probably don't feel super comfortable talking about that. We have had conversations with multiple customers about both of those products. And I would say that in some ways we certainly have more customers by quantity interested in the FOX-XP in terms of volume production applications than the 1P. But as you know one of the things that we have actually felt -- and I guess we anticipated this but now that the FOX-P, which really is the combination of the two hardware, is here in the facility and we are able to actually test customer parts, show them both the engineering configurations, the single-wafer configurations, the multi-wafer engineering configuration and chambers, the customers' interest just shifted from sort of I guess sort of a distant interest or certainly interest or in some cases just lead to a very real conversation around what is their capacity, what is their lead times, when do they actually need production volumes and that has been true for both the FOX-1P and the XP.

Okay. In terms of the milestones for the FOX-XP, on your last call you had met your first milestone. Have you met other subsequent milestones and can you put some brackets around the calendar as to when you would expect to meet all milestones?

So that is interesting. So I forgot that we didn't include that in our summary here. So to give people a perspective in January we announced an order from a lead customer -- on this case I would say that lead customer who is a high-volume production application for a multi-wafer XP system. Those milestones included revenue related milestones as we proved the feasibility of the machine for their application. So we had announced one of the milestones last quarter. During this quarter we achieved the second milestone which was a big one that was the proof of concept of being able to test their part.

Candidly we believed all along that we could test the part but that was a big milestone for them because historically those tests are done by big iron ATE platforms. And for us to be able to prove that we can test it with our system where that same system can test multiple wafers in parallel at the same time was a big milestone.

We have additional milestones and I will probably be more clear about them as they are achieved because we do have confidentiality arrangements with them. But I talked to the full wafer contact of that and some other proof of concepts that we are still working on. But it is my expectation that we would be completing those here over the next couple, few months.

So presumably by the end of your fiscal Q2 -- actually no, it would be by the end of fiscal Q3?

No, I will put more deadline on that because I know they are listening. No. This milestone will certainly be done before the end of Q2. Remember our Q1 ends in August, next month.

Okay. I was giving you a little leeway. Did you recognize any revenue for those milestones in the May quarter?

We did and we aren't breaking out those numbers.

I presume it was not substantial then?

It was not. The customer thinks it was substantial but --

Always. Going back to the FOX-15, you shipped one machine and multiple contactors, correct? Or you will ship?

That is the order for it. That is right.

Is that one machine going to be sufficient for their production or are they likely to need not only more contactors in the future but a second FOX-15?

I believe that they will need additional systems not only potentially for this application but for other applications. And as you point out for the folks that are relatively new to us, the FOX-15 is the actual hardware platform. It tests 15 entire wafers at a time in parallel. Along with that test system that we have designed and built and manufactured here, we also have complementary items to that that includes a contactor, a full wafer contactor that is proprietary to Aehr Test that we call a wafer pack and that is a consumable that would be designed -- that would be ordered with each new design.

So over and during the life of the product as they come up with a new product design, they buy these wafer packs which basically is a pro card but it has unique proprietary features that allow us to be able to do that in a test system. And we also have a supporting piece of equipment that we sell called a FOX wafer pack aligner. And this wafer pack aligner is our new high-speed, high-performance version that we developed as part of the FOX-P program. And for this customer, we are shipping that aligner for this FOX-15. So for FOX-15s and XPs going forward, they will all use our new FOX wafer pack aligner.

Okay, thanks. I will drop and let somebody else ask.

(Operator Instructions). We have no more questions.

Thank you folks. I think as we put out in our press release too, I will be attending up at Semicon West tomorrow. We have a summit up there called the CEO Summit that in fact I'm going to be dragging Ken along with me as well. For some of the folks I know that are on the call, you will get an opportunity if you haven't met Ken before as well. We will be up there so maybe there are some other questions that will wait until then.

I really appreciate everybody. I am very excited about this fiscal year and as always, we open ourselves up. If you would like to set an appointment with us, give us a call and we will be happy to have you come by and visit us here at Aehr Test in Fremont, California. Thank you now.

This concludes today's call. Have a wonderful day.