Aehr Test Systems (AEHR) 2016 Q4 法說會逐字稿

Good day and welcome to the Aehr Test Systems fiscal 2016 fourth quarter and full-year financial results conference call. Today's conference is being recorded. At this time I would like to turn the conference over to Jim Byers of MKR Group. Please go ahead, sir.

Thank you, operator. Good afternoon and thank you for joining us today to discuss Aehr Test Systems' fiscal 2016 fourth quarter and full-year financial results. By now you should have received a copy of today's press release, but if not you may call the office of MKR Group, investor relations for Aehr Test, at 323-468-2300 and we will get a copy out to you right away.

With us today from Aehr Test Systems are Gayn Erickson, President and Chief Executive Officer, and Ken Spink, Chief Financial Officer. Management will review the Company's 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 the forward-looking statements.

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

Thanks, Jim, and good afternoon to those joining us on the conference call and also listening in online. Ken will go over the fourth quarter and full-year fiscal results later, but first I will spend a few minutes discussing our business and product highlights, including our continued progress with the development and introduction of our new FOX-P platform, our wafer level test and burn-in products. After that we will open up the lines for your questions.

We made substantial progress this past fiscal year, including completing development of a single wafer version of our FOX-XP wafer level test and burn-in system, which customers are able to evaluate and use to validate Aehr Test's ability to test and burn-in their devices and demonstrate our ability to do full wafer testing of a broad range of devices.

As most of you know, the FOX-XP system is our next generation multi-wafer test and burn-in solution for high-volume production and early failure rate test. It is capable of functional test and burning-in/cycling of flash memories, microcontrollers, sensors, optical devices, laser diodes, VCSELs, LEDs and other leading-edge ICs in wafer form before they are assembled into multi-die packages, or other applications where known good die are critical.

These end applications can span enterprise solid-state drives, automotive devices, highly valuable mobile applications, communications and mission-critical integrated circuits and sensors. The FOX-XP system utilizes our proprietary FOX WaferPak Contactor, which provides a cost effective solution for making electrical contact with a full wafer or substrate in a multi-wafer environment. Our WaferPak Contactors contain up to tens of thousands of probes to contact all devices on wafers and substrates up to 300 millimeter simultaneously.

Over the fiscal year, we have established a very good relationship with a customer who has become our initial lead customer for the FOX-XP multi-wafer burn-in and test system. Early in the year in our initial engagement with this customer, we successfully delivered, installed and qualified for mass production a FOX-15 multi-wafer test and burn-in system, a FOX Aligner, and the WaferPak Contactors that were part of a previously announced order for a new production test and burn-in application.

This installation included the development and first shipment of the new FOX WaferPak Aligner that is part of the FOX-XP test cell. This customer's production application represents a significant opportunity for Aehr Test as we expand our unique and highly cost-effective wafer level test and burn-in solution into the rapidly growing automotive, consumer, mobile and computing markets.

Our success in the FOX-15 application led to the second engagement with our initial lead FOX-XP customer, where we delivered our first FOX-XP system, along with multiple WaferPak Contactor designs and applications programs for different devices. This system and the WaferPak Contactors are being used for reliability and qualification test of integrated devices intended for a very high-volume application. While this FOX-XP system is configured for a single wafer for device qualifications, the FOX-XP test cell is scalable to production systems of more than 56 wafers in parallel in a single test cell, that operates in a very efficient manufacturing space footprint.

With the initial single-slot system order delivered and accepted and the success of the device qualification tests that are being run on this system, we're acting production orders from this customer to meet their first quarter of calendar 2017 capacity needs with a capacity ramp continuing through calendar 2018.

As noted above, we have completed multiple WaferPak designs for this lead customer, which they have used in evaluation of FOX system, FOX Aligner, FOX WaferPak Contactors and their devices in a FOX-XP system configured with one blade. The FOX-XP blade of test electronics can be used in a single wafer configuration for engineering use or several can be stacked together for use in our FOX-XP multi-wafer thermal chamber. We have shown this customer the multi-wafer capability of the FOX-XP system, as a single blade configuration uses the exact same hardware and software and can be scaled up to 18 wafers in one FOX-XP chambered system.

At the beginning of our last fiscal year, we announced that we had successfully completed testing of full wafer single touchdown 300 millimeter wafer with our new FOX-XP system, a critical milestone as part of our second lead FOX-XP customer evaluation order. We're also excited to have announced last month that just after our fiscal year end we received the first order for our new FOX-XP production test cell from that customer. This initial order totals more than $4.5 million and includes a FOX-XP system configured with 18 blades of wafer test resources, enabling up to 18 wafers to be tested simultaneously.

The order also includes a FOX-XP WaferPak Aligner and initial set of XP WaferPak Contactors. This customer is one of the largest semiconductor manufacturers in the world and selected the FOX-XP for a high-volume production application where extended burn-in is required to meet their stringent quality standards.

The second lead FOX-XP customer's end product will be used for high-speed communications in enterprise and server applications, and is much more cost effective to do the burn-in required for this critical application at the wafer level on our FOX-XP platform instead of in packaged form. Also, the footprint of our 18 wafer test cell is similar to the footprint of typical semiconductor ATE systems that can only test one wafer at a time.

We believe that the FOX-XP test cell is a perfect fit for this new and exciting application and this second lead customer is forecasting device capacity growth that will drive the need for additional production burn-in capacity for multiple years into the future. We now have two high quality, top-tier lead customers for the FOX-XP system that represent a significant opportunity for Aehr Test, not only with the initial applications, but also with other application areas at both of these customers. We look forward to expanding our initial customer list as we address the many other opportunities where our multi-wafer test and burn-in systems can deliver a significant cost and quality of test advantage to our customers.

Earlier this month we introduced the FOX-XP test system at Semicon West in San Francisco. This is the premier marketplace for microelectronics manufacturing. We had a very successful debut. We saw significant interest from many of the buyers and key decision-makers that attended the event from our customer base. In addition, we met with many outside investors, both current investors and new potential investors, and had actually a lot of great conversations with folks. So, it garnered a lot of interest.

Now I will turn to the FOX-1P system, which is our single wafer test system that has up to 16,000 test system resources on a single wafer, more device power supplies and I/O channels on a single wafer than any other system on the market. During the quarter, we received approval of the final pre-shipment milestone from our lead customer for this FOX-1P single wafer test system, and as announced just today, we have now shipped the system to the customer's facility for final acceptance.

While our development and checkout of this next generation system with this customer has taken longer than planned, the pre-shipment qualification testing by the customer was very thorough and we expect a smooth acceptance of this initial system at the customer site. Shipment of the multiple follow-on production systems already in backlog and in final integration and test on our manufacturing floor is expected within the next quarter. This lead customer initially planned to use the FOX-1P system for memory devices and added microcontrollers and other target devices during the development of the system.

Turning to our packaged part burn-in systems business, we are pleased to announce this afternoon that we received $4 million in follow-on orders for multiple ABTS packaged part burn-in and test systems from a leading multinational manufacturer of advanced logic ICs for automotive, embedded processing, digital signal processing and analog applications. We are very encouraged to see the strengthening in our base business after several quarters of soft bookings and revenue. The customer is running at full capacity in their production burn-in area and needed to add capacity both to satisfy increasing demand for existing products and for products that are just beginning their production ramp.

Two configurations of the ABTS system were ordered. The ABTS-P configuration is targeted at production test and burn-in of low-power devices and offers compatibility with the customer's extensive inventory of burn-in boards for our previous MAX family of test and burn-in systems. This configuration also allows customers to transition easily from their legacy MAX systems to the enhanced per-pin architecture and higher channel count of the ABTS-P system, key capabilities that are required for burn-in and test of the latest ICs.

The ABTS-Li configuration features individual device temperature control for improved thermal control of higher power devices, which is needed for sophisticated processors fabricated with state-of-the-art processes. The customer's devices are used for multiple applications, including the growing automotive advanced driver assistance market.

As we move into fiscal 2017, we have greater optimism and expectations for a stronger year with significant bookings and revenue growth. We see bookings momentum building, with already over $8.5 million in bookings announced this fiscal quarter, which began June 1, including the $4.5 million in orders that we received in early June from the FOX-XP production test cell and the $4 million orders announced today in follow-on ABTS systems.

We continue to be very pleased with the customer interest in our FOX-P products, especially our FOX-XP multi-wafer system. We are excited to have very good, top-tier customers for our FOX and ABTS systems who are committed to our current and new products, who are very supportive of Aehr Test, and have continued to express how important we are to their businesses.

It is clear that Aehr Test offers a differentiated system and compelling value proposition with our full turnkey solutions to address the new opportunities in the mobile, automotive, sensors and Internet of Things markets. Our ability to cost-effectively test devices in wafer form, or devices that are too small to handle in traditional packaged part burn-in systems, creates a significant and unique opportunity for Aehr Test moving forward.

With that, I will turn the call over to Ken, and then we will open it up for questions after that. Ken?

Great, thank you, Gayn. As we reported in today's press release, we finished the 2016 fiscal year with total revenue of $14.5 million, a 45% increase over $10 million in revenue for fiscal 2015. Net sales in the fourth quarter were $1.6 million compared to $1.7 million in the preceding quarter and $1.8 million in the fourth quarter of the previous year.

As Gayn indicated, just after fiscal year end we received our first order for our new FOX-XP production test cell from our second lead customer for the FOX-XP system. The order included over $1.4 million related to inventory on hand, immediately deliverable to the customer. Had the order been received prior to our fiscal year-end, our revenues in the fourth quarter would have been $3 million with the delivery of the on-hand inventory. This revenue will be included in our first quarter fiscal 2017 results.

Non-GAAP net loss for the fourth quarter was $2.8 million, or $0.21 per diluted share, compared to a non-GAAP net loss of $2.8 million, or $0.21 per diluted share, in the preceding quarter and a non-GAAP net loss of $1.6 million, or $0.13 per diluted share, in the fourth quarter of the previous year. The non-GAAP results exclude the impact of stock-based compensation expense.

On a GAAP basis, net loss for the fourth quarter was $3.1 million, or $0.23 per diluted share. This compares to a GAAP net loss of $3 million, or $0.23 per diluted share, in the preceding quarter and a GAAP net loss of $1.9 million, or $0.15 per diluted share, in the fourth quarter of the previous year.

Gross loss in the fourth quarter was $100,000 or negative 6% of sales. This compares to a gross profit of $169,000 or 10% of net sales in the preceding quarter and a gross profit of $682,000 or 38% of net sales in the fourth quarter of the previous year. Gross margin for the quarter was impacted by an increase in labor and overhead cost due to higher unabsorbed overhead charges to cost of goods resulting from lower manufacturing levels in the quarter and the purchase of turnkey assemblies rather than using internal labor. Gross margin was also impacted by product mix.

Operating expenses in the fourth quarter were $2.8 million compared to $3 million in the preceding quarter and $2.5 million in the fourth quarter of the previous year. R&D expenses were $1 million for the fourth quarter compared to $1.3 million in the preceding quarter and $1 million in the prior year quarter. The sequential decrease is primarily due to a decrease of $300,000 in expensed R&D project materials as Q3 2016 included $200,000 in write-downs of engineering material for the FOX-P program. As stated previously, R&D spending can fluctuate from quarter-to-quarter depending on the development of our new products. SG&A was flat at $1.7 million compared to the preceding quarter and up $200,000 from $1.5 million in the fourth quarter of the prior year.

Turning to the results for the full fiscal year, net sales for fiscal 2016 were $14.5 million, up 45% from net sales of $10 million in fiscal 2015. The year-over-year increase was driven by sales of our wafer level burn-in products and includes a $5.7 million increase in wafer level burn-in system and WaferPak revenue. Non-GAAP net loss for fiscal 2016 was $5.8 million, or $0.44 per diluted share, compared to a non-GAAP net loss of $5.7 million, or $0.47 per diluted share in fiscal 2015.

On a GAAP basis, net loss for fiscal 2016 was $6.8 million, or $0.52 per diluted share, compared to a GAAP net loss of $6.6 million, or $0.55 per diluted share, in fiscal 2015. Gross profit for fiscal 2016 was $5.1 million or 35.5% of net sales compared to a gross profit of $3.8 million or 38.3% of net sales in fiscal 2015. The decrease in gross margin reflects the impact in Q3 2016 of $432,000 in inventory reserves for obsolete FOX-1 system and WaferPak legacy materials, as well as excess ABTS materials unique to a specific customer. Gross margin was also impacted by an increase in labor and overhead costs due to higher unabsorbed overhead charges to cost of goods resulting from lower manufacturing levels, resulting from the purchase of turnkey assemblies rather than using internal labor.

Operating expenses for fiscal 2016 were $11.3 million compared to $10.5 million in fiscal 2015. The year-over-year increase included an increase in SG&A of $500,000 due to a $300,000 increase in labor related expenses and $200,000 in outside commissions resulting from the year-over-year increase in sales. R&D expenses increased by $300,000 year-over-year due to an increase of $300,000 in expensed R&D materials as Q3 2016 included $200,000 in write-down of engineering materials for the FOX-P program. Our backlog as of May 31 was $5.3 million. It is important to note that we have received over $8.5 million in new orders since our fiscal year ended on May 31.

Turning to the balance sheet and changes in the fourth quarter, our cash and cash equivalents were $939,000 at May 31, 2016, compared to $2.5 million at the end of the preceding quarter. Accounts receivable at quarter end was $522,000 compared to $1.9 million at the preceding quarter end. Inventories at May 31 were $7 million, down approximately $400,000 from $7.4 million at the preceding quarter end. Property and equipment was $1.2 million compared to $1.3 million in the prior quarter.

During the quarter, $900,000 of the line of credit was converted to a convertible note. The $1.1 million line of credit balance outstanding at year-end matured on July 17 and was converted to a convertible note. This convertible note, shown as long-term debt in our prior financials, has been reclassified to current liabilities as of year-end due to the maturity of the note on April 10, 2017. The Company believes that we have options to extend the maturity of the date of the note if desired.

As noted in our SEC filing, the Company received a notice from NASDAQ during the quarter that it was out of compliance with the NASDAQ continued listing requirements as our shareholders' equity had fallen below $2.5 million. The Company submitted a plan to regain compliance and received an extension from NASDAQ to implement the plan. The Company has until October 17 to implement the plan and provide evidence to NASDAQ of successful completion of the plan.

We are seeing overlapping investments in our FOX-1P and FOX-XP family of products in both our development and sales activities, which has resulted in maintaining our level of spending to bring these products to market. We will continue to look aggressively at ways to lower our expenses in an appropriate way to maintain the health as well as the growth prospects of the Company. This includes a tight management of our cash position.

We continue to believe that we have the ability to manage our cash in the near-term with the following. Sale of existing backlog of products, for which we already have the inventory; sale of existing inventory on hand for fast turns in both our packaged parts and wafer level product; deposits and down payments against significant orders; and access to increase lines of credit against our backlogs.

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

(Operator Instructions). Larry Chlebina, Chlebina Capital.

Gayn, did I hear that right, that you exited Q4 with $5.3 million in backlog? And then the way to think about that, you had another $8.5 million since then?

Yes, that's right. Minus at least the $1.5 million that we already acknowledged that we shipped with the initial XP order, as far as where our backlog would be. But yes, basically between those two, that is the backlog that we have in this fiscal year at least.

Right. So announced so far for this fiscal year would be the total of those two?

Of the $8.5 million, that's right. That's right.

So, $13.8 million. The 1P was -- I assume there is -- did you book any portion of that sale or that shipment when you shipped in Q4? Or was that -- is that part of the backlog?

Yes, so, the shipment of the system actually was shipped during this current quarter, okay, that we are in right now. And we -- I am not sure we would break that down. Technically, with the initial product, any final payments would be typically associated with the acceptance of that product. So our plan is to recognize the revenue of the remaining balance of that original development of that first test head upon acceptance. And then we will -- we have payments related to the shipment of the follow-on production systems that include a substantial amount at shipment and then a remaining balance within a period of time after it gets shipped.

So, do you have any of those orders already in that backlog or are those yet to come assuming (multiple speakers)?

Yes, yes, yes, we have multiple production systems in that backlog. That's correct.

Okay. That's all I had. Very good. I know you have been through a lot of challenging times getting this done, but it looks like you are at the starting gate.

Thank you, Larry. Appreciate it.

Take care. Bye.

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

I would be willing to bet that you are very, very pleased that the 1P has finally shipped?

For heaven sakes, at least that much, yes. Actually, yes, it's a big deal. It is for us, and it has been -- as we all know, it has taken as a whole lot longer. And I think last quarter I even pointed out had someone told me we were going to actually ship and take revenue on the XP before the 1P, I would have thought they were crazy. But that's exactly how it played out. But, yes, we're all pretty elated around here to move on and tipping (multiple speakers) some production system.

I am sure you are tired of hearing our question of when is it going to ship.

We all are.

So, I am going to give you a second opportunity. If you go back to about a year ago, you were talking about a second FOX-1 customer.

Yes.

All right. Where do we stand with that engagement?

I would say that we have not been focusing a lot of energy on that one. That particular engagement shifted away from us. And I would -- the bulk of our energy has been related to the customer engagements on the FOX-XPs. They were actually a number of customers we originally talked to about the FOX-1P who shifted to XP conversations. But if we were to have listed this specific customer that we were talking at the time, we are actually not engaged with them at this point on the 1P.

Okay. Another conversation from the past; you talked about -- maybe the second quarter of last year call, about a new ABTS customer. You were in evaluation and they were looking at the ABTS, I think it was the Pi?

Yes.

And they currently were I guess using a competitor's system for engineering, but they were looking for, as I recall, something for their production side?

Yes, that's right.

Is that headed for (multiple speakers)?

Yes, let me jump in on that one. That actually -- that was -- that is an interesting deal that is still in play. That customer in fact did an evaluation, or is in the process of an evaluation, where we -- they are using one of our test houses that owns our ABTS systems and using the capacity there. They bought a full set of burn-in boards, which is measured in the hundreds of thousands of dollars, to do the evaluation of that system. And I believe that is still in play and so far it has been quite successful. So, that's a deal that, for a couple of reasons, has also taken longer than originally expected, but they are still in our funnel.

Still in the funnel, okay. Bring us up to date on where you stand with the flash memory side? Everything you have done so far has been on the sensor side. You had gone through I guess one checkpoint on the flash side.

That's right.

Where do your potential customers stand?

So, yes, actually one of the very first applications that we did on the XP was about a year ago we announced successful completion I think in August or so of a full wafer benchmark with the FOX-XP. It was actually the first application that was brought up.

Right.

We are still talking to flash manufacturers about the product. Some of those conversations have been focused on the burn-in side, some on test related activities. And so, we have discussions with both NOR and NAND flash customers on the FOX-P platform, arguably on both sides of that platform. But I think in recent quarters I have even pointed out that the energy and the focus and the immediacy shifted towards the sensors and other devices that we have announced the initial orders on.

The initial orders for the FOX-XP production system certainly with -- it's funny; we talk about customer number two and customer number one. We are not trying to confuse anyone, but there was a chronology there. Our first lead customer, while they bought the engineering or single-slot system, has yet to place their production orders. And then the second customer skipped the engineering and went right to the production system.

Neither of those are in flash memory yet. So again, the lead customers that have -- that appear to be doing the focus of the ramp are actually not in the flash memory, which leaves the flash memory still as a significant TAM and opportunity for us.

Okay. In the backlog, there is no FOX-XP number in that $5.3 million, right?

No.

That's only the FOX-1 multiple systems; the evaluation that you've delivered and the production orders that you (multiple speakers)?

Correct, plus some miscellaneous other revenue. We have a bunch of FOX -- you know, that's interesting, as you point this out, Geoff, we haven't talked much about it. During the quarter, we -- and we have had a number of follow-on orders for our FOX WaferPaks for our installed base.

Yes.

And they are coming in at several hundreds of thousand dollars at a time. We didn't send out press releases for all of those. We probably should have aggregated them in our comments here, but that is made up in that as well. So, a lot of FOX WaferPaks. We have some upgrades to our FOX systems installed base, and there is always service support contracts and miscellaneous small enhancements and accessories and stuff.

Okay, last -- just a housekeeping question for Ken. The customer who gives you an annual service contract, when you show the geographic revenue in your 10-Qs and 10-Ks, is all of that allocated to the head office country of that customer, or is it allocated to the specific location of the machines that you service?

Yes, Geoff, so what happens is all of our reporting from a regional standpoint is based upon the customer site location where either the goods or services are shipped to or provided. So, service contracts are related to where the entity is located.

So, if it were a $1 million and a third of the machines were in the US, it would be $333,000 to the US and a third to Asia would be $333,000 to Asia, and that kind of thing?

Correct, and it makes it very easy, because the customers themselves place the POs in their geographic region. So we don't have to take a large customer that has multiregional service and support contacts and breakup one PO.

Okay, good. I will pass to somebody else. Thank you.

(Operator Instructions).

You folks are going easy on us here. I think last time --.

There are no other questions at this time.

Okay, let me just make sure. I will give you guys another second here. So I know we have a relatively full house, based upon the folks that were calling in. So, no other questions, is that right?

Yes.

All right, then I will wrap it up here. As always, we leave ourselves open. If you folks want to set up some time to ask some questions we will be happy to take them. As always, if you happen to be in the Bay Area and would like to stop by, we would love to show our facility and all the great technology and products that we are working on right now.

Appreciate everybody's patience. This was a tough year for us and just getting us through. I know that we have been making these key investments to get these new products out. We really believe that was the right thing to have done and looking forward to a strong year this year. And we will talk to you next quarter. Thank you.

Thank you, everyone. That does conclude today's conference. We thank you for your participation.