Aehr Test Systems F4Q10 (Qtr. End 06/30/2010) Earnings Call Transcript

Jul.21.10 | About: Aehr Test (AEHR)

Aehr Test Systems (NASDAQ:AEHR)

F4Q10 (Qtr. End 06/30/2010) Earnings Call

July 21, 2010, 05:00 PM ET

Executives

Lasse Glassen - Financial Relations Board

Gary Larson - Vice President of Finance, CFO

Rhea Posedel - Chairman of the Board, CEO

Analysts

Jeffrey Scott - Scott Asset Management

John Nelson - State of Wisconsin Investment Board

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Aehr Test Systems fourth quarter fiscal 2010 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 question.

(Operator Instructions) This conference is being recorded today, Wednesday, July 21, 2010 and I would now like to turn the conference over to Lasse Glassen with Financial Relations Board. Please go ahead, sir.

Lasse Glassen

Good afternoon and thanks for joining us to discuss Aehr Test Systems' results for the fourth quarter of fiscal 2010. By now you should have all received a copy of today's press release. If not, you can call my office at area code 213-486-6546 and we'll get one to you right away.

With us today from Aehr Test are Rhea Posedel, Chairman 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.

Now I'd like to turn the call over to Gary Larson. Please go ahead, Gary.

Gary Larson

Thank you, Lasse, and thanks to everyone for joining us today. Before we begin I'd like to make a few comments about forward-looking statements. Please be advised that during the course of our discussion today we may make forward-looking statements that involve risks and uncertainties relating to projections regarding industry growth and customer demand for Aehr Test products as well as projections regarding Aehr Test's future financial performance.

Actual results may differ materially from projected results and should not be considered as an indication of future performance. These risks and uncertainties include, without limitation, world economic conditions, the state of the semiconductor equipment market, acceptance by customers of Aehr Test's 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 development, manufacture and marketing of 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's products in fiscal year 2011.

We refer you to our most recent 10-K and 10-Q reports and other reports from time to time filed with the US Securities and Exchange Commission for a more detailed description of the risks facing our business and factors that could cause actual results to differ materially from projected results.

The company disclaims any obligation to update any information contained in any forward-looking statements to reflect events or circumstances occurring after the date of this conference call.

Now I'd like to introduce you to our chairman and CEO, Rhea Posedel. Rhea?

Rhea Posedel

Thank you, Gary. Good afternoon and welcome to our conference call for the fourth quarter and fiscal year 2010. Net sales for the fourth quarter were $3.6 million, nearly three times greater than those of the same quarter of the prior year. With the full year results, net sales were $11.7 million, a decrease of approximately 45% compared to net sales of $21.4 million for fiscal year 2009.

Despite the lower net sales we were successful in reducing our net loss to less than $500,000 in fiscal 2010 which is a significant improvement from the prior year. Importantly, we ended the year on a stronger financial footing.

I am pleased that we increased our fiscal 2010 year-end cash balance to $7.8 million, up from $4.4 million at the beginning of the fiscal year.

A major highlight during the fourth quarter was the acceptance by Micronas of their second production FOX-15 wafer-level burn-in system. This is important for Aehr Test as it is evidence of Micronas' commitment to their wafer-level burn-in strategy. We are hopeful that as their [automotive] IC business grows Micronas will purchase additional FOX products during this current fiscal year.

Another fourth quarter highlight was that we shipped several FOX-1 WaferPack contactors supporting Spansion's growing embedded NOR flash business. I am encouraged that Spansion has resumed buying WaferPack contactors again after a year-long dry spell.

I'm also pleased that during the fourth quarter we booked an order from a top tier test lab for ABTS high power logic burn-in system. We are targeting the high power logic burn-in market up to 70 watts per device with our new ABTS L56I system. This order is an important win for Aehr Test because it is our first order of an ABTS system that supports individual temperature control per device.

This should increase our visibility and credibility with other potential customers in this new market segment. We are partnering with Wells-CTI and using their iSocket Thermal Management technology in this high power ABTS system.

Our field data shows that ABTS system offers both higher capacity and cost saving advantages which should allow us to gain share in the high power logic burn-in market. This is a growing market because as process feature size continues to decrease device burn-in leakage current and power increases.

Our challenge in fiscal 2011 is to grow revenue for both ABTS package device and FOX wafer-test and burn-in systems.

Since we are starting a new fiscal year, I'd like to share some of the key opportunities we are targeting in fiscal 2011. Last quarter we announced the booking of a high power version of our MAX4-200 burn-in system with individual device temperature control to a major Japanese consumer electronics IC producer.

I am pleased to report that our engineering team executed the plan and we shipped the first system on time. We will report revenue for this system when we receive customer's acceptance. We hope to receive follow-on orders this fiscal year once our system has been qualified for production.

Another opportunity in fiscal 2011 includes follow-on orders for a low-cost ABTS platform for low to medium-power logic devices. Last quarter we announced selling a special ABTS system to a major Japanese integrated device manufacturer for burn-in of their micro controller ICs. We expect follow-on production orders for this new ABTS system after we ship the first system which is currently scheduled for early second quarter this fiscal year.

Additionally, having booked our first ABTS L56I system this past quarter, we expect additional orders to follow from customers that have requirements for high power logic burn-in. The leading candidate is a top tier IC manufacturer where we are in the final phase of product qualifications.

Assuming this qualification is successful we expect them to start placing orders for the ABTS L56I in the first half of calendar year 2011.

I have mentioned in previous conference calls that the ABTS is a flexible platform that can be configured into various products. The largest market segment we are targeting with our ABTS product is for production test and burn-in of [DVR 3] and [DVR 4] DRAMs. This is a high-volume opportunity and we are in the early stages of the sales cycle with a leading Taiwanese memory manufacturer.

Although we are coming in late against our Asian competitors our challenge is to configure and qualify our ABTS system in a timely manner to meet our customers' requirements.

In addition to Micronas, we are also making inroads with other leading automotive IC producers on various wafer-level burn-in projects mostly for micro controllers and sensors. We hope to report at least one new customer for our FOX-15 system this fiscal year.

Finally, we are encouraged with the potential business we see for our FOX-1 full wafer parallel tester and its WaferPack contactors. Now that Spansion has exited bankruptcy we believe their business will grow, which would increase their requirements for additional WaferPacks and possibly FOX-1 testers in the future.

Given the opportunities that I just outlined, we are confident in our ability to expand our business in fiscal 2011. Our strategy continues to be focused on penetrating as many production counts as possible with our new ABTS and FOX products. This will allow us to expand our customer base and grow market share.

We will continue investing in R&D over the next few quarters to accelerate new product development initiatives which we expect will help the company achieve our growth objectives. We have unique technology with our FOX full wafer test and burn-in systems and WaferPack contactors. We feel confident that we continue to win additional new accounts with our new ABTS products, which address growing market segments for high power logic burn-in and memory parallel tests and burn-in.

Now I'd like to turn the call over to Gary and he'll discuss the fourth quarter financials in more detail. Gary?

Gary Larson

Thanks, Rhea. As Rhea mentioned, net sales were $3.6 million in the fourth quarter of fiscal 2010. This compares to $1.2 million in the same quarter last year. The increase was the result of our recognizing revenue for the second Micronas FOX-15 system as well as for several Spansion WaferPack contactors which shipped in prior quarters. [Net] profit was $1.8 million for the fourth quarter of fiscal 2010 or 50% of net sales.

Moving on to look at operating expense, SG&A was $1.5 million in the fourth quarter of fiscal '10, up slightly from $1.4 million in the prior year period. Fourth quarter R&D expense was $1.3 million compared with $1.1 million in the fourth quarter of last year. R&D spending can fluctuate from quarter-to-quarter depending on the development phase of new products.

Net loss in the fourth quarter was $0.8 million or $0.09 per diluted share compared with a net loss of $4.0 million or $0.48 per diluted share a year ago. Pro forma net loss in the fourth quarter of fiscal 2010 was $0.6 million or $0.07 per diluted share compared to a pro forma net loss of $2.2 million or $0.26 per diluted share in the same period of the prior year.

In determining the pro forma or non-GAAP net loss in the fourth quarter of 2010 we've excluded the gain on the sale of the Spansion bankruptcy claim of $0.1 million and non-cash stock compensation expense of $0.3 million.

Turning to the balance sheet, our cash and cash equivalents increased to $7.8 million at May 31, 2010 from $4.4 million at May 31, 2009. The increase resulted primarily from the cash received in our sales of Spansion bankruptcy claims to third parties partially offset by operating spending.

We continue to remain debt free. As Rhea said earlier, we believe that Aehr Test is in a favorable position to expand our market share and grow our revenue in fiscal 2011 and noted that in our fourth quarter we recognized revenue for the Micronas system and several WaferPacks which shipped in earlier quarters.

As a result, although we expect shipments in our first quarter of 2011 to exceed those of the preceding quarter, we do not expect net sales to increase sequentially. However, we do expect our first quarter net sales to increase when compared with the same quarter of the prior year.

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

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) Your first question comes from the line of Jeffrey Scott - Scott Asset Management.

Jeffrey Scott - Scott Asset Management

One of the major announcements that came out last week was TI's purchase of Spansion Japan. I'm surprised you didn't make any reference to it in your prepared remarks. Is this good or bad for us, for Aehr?

Rhea Posedel

Yes, it's a good question. Basically we don't have any insight into exactly what's in TI's mind or Spansion's but in our best interest it would be for TI to use the FOX-1s, however, TI isn't the flash producer. So most likely I believe that TI will probably put the systems up for sale but whatever the outcome is I think it's positive for us.

Worst case scenario is to have the systems sitting over there and not being used. So even if TI uses them it's good for Aehr Test. If TI puts them up for sale or if they work out an agreement where Spansion continues to use them, it'll still be good because we'll get service revenue, upgrade revenue, things of that sort.

Jeffrey Scott - Scott Asset Management

The press release said that TI intended to operate one of the two facilities, [shutter] the other and move some of the equipment to the United States.

Rhea Posedel

I think they're going to move the equipment from the 300 millimeter, the new fab, to the US and there's an older [Figitsu] fab that was sitting there that I think they'll continue to operate that provides flash wafers to Spansion. But I don't know what their long-term strategy is. The test floor sits in the middle between the two fabs.

Jeffrey Scott - Scott Asset Management

You don't know what they're going to do with any of that test equipment.

Rhea Posedel

I don't. So most likely I believe TI will probably -- since they don't produce flash, would probably offer that equipment for sale.

Jeffrey Scott - Scott Asset Management

Would they come back to you to try to get it done or would they try to do it independently?

Rhea Posedel

I believe they would come back to us and ask us if we wanted to buy the equipment but I think they would try to do it independently.

Jeffrey Scott - Scott Asset Management

In the last call you mentioned that TI had I think some interest in the ABTS system.

Rhea Posedel

That's correct, so one of the things that we need to do is qualify the system with our production applications.

Jeffrey Scott - Scott Asset Management

You have not sent anything to TI for testing?

Rhea Posedel

No, it just means that we're in the qualification process.

Jeffrey Scott - Scott Asset Management

So they have one of your machines.

Rhea Posedel

No, they don't have one. It doesn't mean that we can't qualify tier.

Jeffrey Scott - Scott Asset Management

For fiscal 2011 can you give us a target revenue for the year?

Rhea Posedel

No, what we've said is that we expect year-over-year the revenue will grow but we didn't give any guidance as far as the magnitude of that.

Jeffrey Scott - Scott Asset Management

I know you didn't and you have in the past. But it seems to me that you have an obligation to investors to be a little bit more forthcoming in terms of at least annual numbers. We've been hanging around for an awful long time waiting for better results and as time goes on I think you need to loosen up a little bit and help us out in understanding what your goals are for the year.

Rhea Posedel

I mean, that's a fair statement. I think we need things to firm up a little better here before we can make that kind of a guesstimate or forecast.

Jeffrey Scott - Scott Asset Management

I mean, can you get to $20 million revenue for the year?

Rhea Posedel

I mean, could we ship $20 million? If we could book it, yes.

Jeffrey Scott - Scott Asset Management

The question is, can you book it? I know you can ship it if you get orders but can you get that kind of orders?

Gary Larson

We're not prepared at this time to give guidance at that level, Jeff. Sorry.

Jeffrey Scott - Scott Asset Management

As I said, Gary, I think you really need to be a little bit more forthcoming. Thanks very much.

Rhea Posedel

We'll try to keep you updated as we continue to bulk orders.

Operator

Your next question comes from the line of John Nelson - State of Wisconsin Investment Board.

John Nelson - State of Wisconsin Investment Board

I just wanted to check and see if you could make any comments regarding Spansion because it's been such a key customer over such a long period of time. Now that they're out of bankruptcy are they on any kind of replacement cycle that would indicate that they need to purchase a significant amount of new equipment over the next year or two?

Rhea Posedel

A brief background about Spansion, so Spansion was in the mobile communication market which they exited for the most part and now they're in embedded flash market, as they call it, which means flash goes into stationary products as opposed to handheld products.

But from our -- what I read in the marketplace it seems like they're growing market share and their business is increasing and there has been I would say a significant demand increasing from them for additional quotes for WaferPacks or new devices. So we see their business starting to improve, at least for our products, the sections that we serve.

So mostly we're seeing their need is in the WaferPack contactors but this is a customed part of our system that makes contact to wafers. So as they develop new products we should hopefully see some WaferPack business over the next few quarters. That could drive additional business, FOX-1 business.

John Nelson - State of Wisconsin Investment Board

Is the fact that you've been doing business with them and you have your product in with -- more or less embedded their manufacturing process -- does that give you much or very little advantage over competition for the WaferPack contactors?

Rhea Posedel

They're using our FOX-1 for their 65 nanometers and below technology. We believe that the FOX-1 and its contactors offers cost saving advantages over their tester approach. So they could either use testers and conventional probe technology or FOX-1. So we believe it offers cost advantages and the fact that we have an install base of testers there helps us get additional WaferPack business from them.

John Nelson - State of Wisconsin Investment Board

Have you -- I mean, again, since you are expanding the customer base significantly, is there much need to ramp up the SG&A from current levels for the coming year?

Rhea Posedel

We don't see any significant increase in that area. But, I mean, we believe that we could go through this year with minimum increases in SG&A except for maybe rep commissions, things of that sort that are kind of variable.

Operator

(Operator Instructions) Your next question comes from the line of Jeffrey Scott - Scott Asset Management.

Jeffrey Scott - Scott Asset Management

A quick follow-up please; the top tier test lab that's getting the L56I, is that in Taiwan?

Rhea Posedel

Yes.

Jeffrey Scott - Scott Asset Management

Going back a couple of calls you said that Micronas might be able to take as many as five FOX machines. They've taken and accepted the second. Is five still a reasonable target?

Rhea Posedel

I think that was something I said a long time ago, so you have a memory.

Jeffrey Scott - Scott Asset Management

It wasn't the last one. It was a couple of calls ago. As I said, I've been around for a long time.

Rhea Posedel

Yes, but I think -- yes, initially when they came to talk to us they priced the system based on taking five systems over some period of time. So I would assume it's a possibility, not over this next fiscal year but if you look over some timeframe it's possible.

Operator

There are no further questions in the queue at this time. I would like to turn it back to management for any closing remarks.

Rhea Posedel

This is Rhea. I'd like to thank you all for joining us this afternoon and we look forward to next quarter's conference call. Thanks.

Gary Larson

Bye-bye.

Operator

Thank you. Ladies and gentlemen, this concludes the Aehr Test Systems fourth quarter fiscal 2010 earnings conference call. If you would like to listen to a replay of today's call please dial 303-590-3030 or 1-800-406-7325 and enter the access code of 4328722 followed by the pound sign. We thank you for your participation and you may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!