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Aehr Test Systems (NASDAQ:AEHR)

Q4 2014 Results Earnings Conference Call

July 17, 2014, 05:00 PM ET

Executives

Jim Byers - IR

Gayn Erickson - President and CEO

Gary Larson - VP of Finance and CFO

Analysts

Tom Diffely - D.A. Davidson

Colin Denman - Westerly Capital Management

Jeffrey Scott - Scott Asset Management

William Smart - Cardinal Value

Marty Cawthon - ChipChat

Operator

Good day and welcome to the Aehr Test Systems Fourth Quarter Fiscal 2014 Financial Results Conference Call. At this time, I would like to turn the conference over to Jim Byers, Please go ahead sir.

Jim Byers

Thank you, operator. Good afternoon and thank you for joining us today to discuss Aehr Test Systems' fiscal 2014 fourth quarter and full year financial results. By now you should have received a copy of today's press release. If not, you may can MKR's office Investor Relations for Aehr Test at 323-468-2300 and we'll get you a copy 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 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 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'd like to now introduce Gayn Erickson, Chief Executive Officer. Please go ahead.

Gayn Erickson

Thank you, Jim. And good afternoon to those joining us on the conference call and also listening in on our webcast online. Gary will go over our fourth quarter and fiscal year 2014 financial details in a few minutes, but I want to first start by discussing our overall business and product highlights.

We're pleased to finish fiscal 2014 with solid fourth quarter and full year results. Fourth quarter revenue was $5.4 million, an increase of 65% over the same quarter last year. We achieved non-GAAP net income of $443,000 and $239,000 on a GAAP basis. The difference between these non-GAAP and GAAP net income numbers is stock-based compensation expense.

For the full fiscal year, we generated total revenue of $19.7 million, an increase of 19% over the prior year. We're pleased to have achieved our goal of profitability for the year as a whole with non-GAAP net income of nearly $1.3 million and GAAP net income of $422,000.

In our fourth quarter, we had solid shipment of our ABTS package of our burn-in systems as well as a particularly strong quarter for our FOX WaferPak contactor, our WaferPak contactor is consumable fully for contactor that we provide for our FOX full wafers single and multi-wafer test systems.

Shipments included WaferPak contactors for our FOX-1 single wafer and FOX-15 multi-wafer test systems for applications including flash and automotive device test and burn-in.

We see our install base for both our FOX and ABTS systems at or near capacity, which is a good sign for the overall market as additional test capacity needs can drive orders with short term delivery requirements.

During the quarter, we announced an order for multiple production capacity ABTS-P burn-in systems from a key customer servicing the outsource needs for engineering and production burn-in of package parts. We also announced that we shipped ABTS systems to two new customers in China, which is a rapidly growing market for semiconductor manufacturing.

We continue to see increased capacity needs at our FOX customers driving upgrades and new system purchases. Last month, we announced receiving following orders for increased capacity and FOX-15 wafer level burning and test systems and wafer WaferPak for wafer contactor from a leading communication equipment manufacturer that will enable them to increase burn-in capacity by 250%.

We always have a lot of questions on our new test systems and development and the new emerging market opportunities we see for our products at Aehr Test. I am actually going to spend quite a few minutes on that right now.

We continue to gain momentum in our discussions with several potential customers for two key products under development, the FOX-1P, our next generation single wafer test system and the FOX-XP, our next generation multiple wafer test and burn-in solution.

As noted before, we have taken orders for our new FOX-1P system for both engineering and production applications and expect first shipments for the FOX-1P later this calendar year. This system features a massively parallel test interface, which we believe will provide more test resources than any other automated test equipment system on the market. The hardware and software of our FOX-1P are directly leveraged into our new FOX-XP multiple wafer test system.

Both of these systems are next generation products for us as we currently ship both single and multiple wafer test systems today for test and burn-in applications.

As we move into the new fiscal year, we are excited about three significant emerging market opportunities in the IC test market that substantially increased our serve available market. Two of these new markets are related to our new FOX products and one related to our existing ABTS package part test and burn-in system.

I'll walk through the three markets. The first market is an emerging market that we call the [stat] (ph) flash wafer level test and cycling market. With the assistance of independent semiconductor research analyst firm VOSI Research. We've been able to validate that there is an emerging demand for our cost effective solution to do wafer level testing and cycling of flash memories that are destined for application, starting multiple die in a single package.

There are applications such as solid state drives or SSDs where there is a real push for large numbers of die within a single package. These stack die packages are needed in order to cost effectively address the demand for high density SSDs such as those greater than one terabyte. Cost effective, highly reliable SSDs are a key catalyst to the growth of the SSD market, particularly in enterprise applications, such as massive data centers.

While today this market is being served primarily with sub terabyte drives, SSDs with four, eight and 16 terabyte capacity are projected to become available over the next few years.

In order to ensure quality and reliability of these devices, there is not only extensive testing of the SSD drive itself, but also extended testing of a flash ICs that go into these drives to confirm the reliability. It is not cost effective to use today's available semiconductor APE systems for testing these devices and wafer form, but the long test times required for this application.

So instead, companies do testing on packaged part test and burn-in systems such as Aehr Test ABTS Advance Burn-In and Test System or similar systems from one of our competitors. However, for devices that include multiple die stack in a single package, this test strategy has a significant cost in terms of yield as sale devices in the stack effectively force throwing away the other die in the stack package.

Building on our FOX-15 multi-wafer test and burn-in solution experience, our next generation multi wafer test system of FOX-XP will be capable of functionally testing these flash memories at wafer form before they are assembled into multi die step packages.

We are able to cost effectively do this through a unique wafer level test and burn-in solution that can test up to 25 wafers per test system at a time. A stacked die manufacturer can save significant manufacturing cost due to substantial yield improvements of the stack die package.

By the moving the cycling and burn-in test from package level to wafer level, we expect our customers to be able to provide cost effective die, stack die at eight times stack or more and enable cost effective high yielding 16 die stacks and beyond. We see this as a key enabler to the long term growth of the SSD for higher capacity drives.

The market for test equipment and consumables for this emerging SSD market is estimated to be $200 million to $300 million annually and we're targeting our new FOX-XP directly at this market.

We believe there are currently no available competitive fruitions in the market comparable to our FOX-XP, which delivers a multi wafer solution of up to 25 wafers tested in parallel in a single test system. We also believe we have an affordable solution and roadmap for full wafer contactors on our wafer packs for our FOX-XP test.

The second emerging market is for automotive devices such as microcontrollers, safety, mission-critical components that are tested today as package part for extended early failure rate of burn-in testing. There is a demand for moving these extended tests from packaged part test to wafer level and we believe our new FOX-1P solution is very well positioned to meet this demand.

Our FOX-1P will be capable of testing an entire wafer in a single touchdown. With over 16,000 tester channels and power suppliers, it will be capable to deliver a more independent power supply and tester resources than any other automated test equipment solution on the market today.

The number of resources we are able to provide with our system is critical to cost effectively moving the long test times associated with burn-in and structure cycling from packaged part to wafer level.

This system will allow companies to do full wafer testing in microcontrollers or other automotive or mission-critical applications in a single touchdown. We estimate the market for test systems with this capability to be greater than $50 million annually beginning in calendar 2015.

The third emerging market we've identified is also in the automotive space and it's been driven by all the new technology being added to the dashboard for infotainment application like navigation, media, communications etcetera. These Infotainment features are now being showcased in the marketing programs of the automotive companies offering them differentiation from their competitors.

New standards have been developed and new capabilities have been introduced including CarPlay from Apple that integrates the Apple iPhone and iPad user interface into the dashboard of the car. CarPlay has already been announced by several automotive manufacturers.

As automotive manufacturers add complex infotainment technology to their vehicles, they are becoming concerned about the reliability of these devices. Packaged part early failure rate testing and burn-in is already a key step for automotive control and safety centers, which allows the manufacturer to achieve the less than one part per million failure rate demand of the automotive customers.

Devices within the dashboard for infotainment applications like navigation, media communication are not currently being tested for this standard, but are moving towards this. We have seen multiple customers that are entering this infotainment field realizing that early failure rate and test and burn-in are going to be critical steps to achieve the quality and reliability needs of this market.

Many of the companies are addressing this infotainment space are new to automotive and do not have installed basis of equipment for this production test. Aehr Test is the market leader in automotive and logic production test and burn-in having installed more systems for production burn-in than any other company in the world.

Our ABTS and PI systems are very well positioned to take advantage of this new emerging test need. Our ABTS systems can test more devices with more pins and power supplies than any other system on the market and with our [propane] (ph) architecture and software that allows easy test hardware design, we believe our systems have proven to be the lowest cost for these new emerging automotive devices. We estimate this emerging market to also be greater than $50 million annually by 2015.

As you could imagine our focus is on engaging with current and potential new customers to capture the opportunities in these emerging markets. We're very focused on getting our new FOX products out to market as quickly as possible, but want to ensure that that these products nail the customer needs in these markets for functionality, cost and quality.

We also serve very important customers with our current products and services. We expect to continue to increase our R&D spending in our key resources to address the new customer engagements and evaluations, while at the same time meeting our current customer's needs.

We feel, we have a unique opportunity to provide our current and new customers with some great new solutions to help them significantly increase their yield improve quality and lower their manufacturing cost.

We're excited about the continued positive momentum we're seeing with our next generation FOX product family and the substantial emerging IT test market opportunities we have validated.

We believe that these new markets will expand our served available market in calendar year 2015 and beyond from our current market of $100 million to a served available market of between $400 million and $500 million annually. With our new FOX products and the advanced burn-in and test capabilities of our ABTS systems, we believe Aehr Test is uniquely positioned to capitalize on these new emerging markets.

As always we are continuously and certain I am asked about our forecast and when we will provide specific guidance quarterly or annually. As I said in the past, it's very difficult to make quarterly projections n our business, particularly at these revenue levels.

Having said that, we continue to be optimistic about our ability to grow our revenue and improve our profitability over the next several years particularly as we roll out these new products to address these much larger market opportunities.

In the near term, our base business appears to be a little softer, not unlike what we saw last year. However, our customers have much higher capacity utilization than we've seen in years and we have a significant amount of inventory that we have on hand that allows us to meet short term capacity requirements of customers.

Still we expect our revenue for fiscal 2015 to increase year-over-year as well as be profitable for the fiscal year. Once again, our focus is on getting our new FOX products out to market and engaging with the key customers in the new emerging market to capture the production capacity purchases starting in 2015.

Now I would like to turn it over to Gary, our CFO, to review the quarter's numbers before we open up the lines for questions.

Gary Larson

Thank you, Gayn. As reported in today’s press release our net sales in the fourth quarter of fiscal 2014 were approximately $5.4 million, down 4% sequentially from $5.6 million in the third quarter, but up 65% year-over-year from $3.3 million in the fourth quarter of the previous year.

Non-GAAP net income for the fourth quarter of fiscal 2014 was $443,000 or $0.04 per diluted share, compared to non-GAAP net income of $447,000 or $0.04 per diluted share in the preceding quarter. On a GAAP basis, net income for the fourth quarter was $239,000 or $0.02 per diluted share. This compares to GAAP net income of $212,000 or $0.02 per diluted share in the prior quarter.

Gross profit in the fourth quarter was $2.9 million or 54% of net sales. This compares to gross profit of $2.9 million or 51% of net sales in the third quarter. Our gross margin was up slightly in Q4 versus the previous quarter, both of these quarters included shipments that incorporated previously written down material.

Our gross margin may decrease somewhat quarter over quarter as we expect to ship fewer systems with any significant amounts of previously written down material. Operating expenses of $2.7 million for the quarter were up slightly compared to $2.6 million in the preceding quarter. SG&A was $1.7 million, essentially flat sequentially compared to the third quarter.

R&D expenses were $1 million for the quarter, up slightly from approximately $900,000 in the prior quarter. As stated previously, R&D spending can fluctuate from quarter-to-quarter depending on the development of our new product.

Turning to results for the full fiscal year, net sales for fiscal 2014 were $19.7 million, an increase of 19% compared to net sales of $16.5 million in fiscal 2013. As Gayn noted, we're pleased to have achieved our goal of profitability for the full year. Non-GAAP net income for fiscal 2014 was $1.3 million or $0.11 per diluted share, compared to a non-GAAP net loss of $2.8 million or a loss of $0.30 per share in fiscal 2013.

On a GAAP basis, net income was $422,000 or $0.04 per diluted share, compared to a GAAP net loss of $3.4 million or a loss of $0.36 per share in fiscal 2013.

Turning to the balance sheet and changes during the fourth quarter, our cash and cash equivalents were $1.8 million at May 31, 2014, essentially flat sequentially compared to the end of the third quarter. Net cash or cash less the line of credit, declined by $0.4 million.

Account receivables at quarter end was $3.4 million, flat sequentially from the third quarter. Our inventories increased sequentially by approximately $0.2 million, accounts payable decreased by $0.4 million from the prior quarter end.

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

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And we’ll take our first question from Tom Diffely. Please go ahead, sir.

Tom Diffely - D.A. Davidson

Yeah, good afternoon, maybe first couple of question for Gayn on the new products. So first, when you look at the stack flash opportunity, the big out there, the $200 million to $300 million market with XP, so why is it that today’s flash testing companies or flash testers can't just hook up to a probe card and test on the wafer? What is it about your systems that allow you to do this that the current competitors can’t?

Gayn Erickson

Okay. Thanks, Tom, it’s a good question. Actually directly the answer is current testers today can test the devices at wafer and in fact customers today do a functional test of a NAND wafer most often an entire wafer at a time, but the test systems can only test one wafer at a time. And company such as Verigy recently purchased by Advantest and Advantest and Teradyne are the world market leaders of those types of testers.

But the average selling price of a tester like that might be over $0.5 million plus a $200,000, $300,000 wafer prober and that system can only test one wafer at a time.

Our system is at a very low price, which we’re not talking about here, but substantially lower than that as we are able to share the infrastructure of our unique advanced burn-in and test system chambers that we load up with our also unique electronic test systems that we supply into the burn-in space, but we’re able to functionally test not just one wafer, but up to 25 wafers at a time. And so between the shared infrastructure of 24 fewer probers, 24 fewer large test heads and infrastructure and one-25 the floor space, we are able to deliver a machine to cost effectively test those parts.

Now the goal in this case is not necessarily to displace those ATE systems, because the test times of a test step at that might be in the 30 minutes or so, we’re actually displacing these very long cycle times that can take half a day or more.

And if the customers were to go and try and test those long cycle times that they do at package part on those systems, it will drive their manufacturing cost up to maybe two to three times the cost of the entire wafer whereby we can test it cost effectively for a very small percentage of the cost, in fact quite a bit lower than the yield loss and therein lies the beauty of it.

People – I actually met with a customer recently and they specifically talked about understanding the value of this, but they had tried to evaluate how can they do it on and in this case, one of those testers I just described, but it was just too expensive to ever consider doing that. And their comment was this actually enables the ability to do those multi-hour tests cost effectively to save the money.

Tom Diffely - D.A. Davidson

Okay. So is the limitation in the other testers on just the connection to the wafer itself or is it actually the tester itself now that it's been able test any channels?

Gayn Erickson

Well, in this case those test systems which in my previous role as I’m running the memory business of Verigy before we acquired by Advantest, our solutions supplied to test electronics they were ample enough to be able to test the devices, but there also each tester had a wafer connection that was quite expensive by contrast to what Aehr Test is offering.

But again shares the infrastructure of a single wafer prober which is very expensive. So we’re actually approaching this in a unique way. The key is, today we actually shipped systems and are building and shipping 15 test systems that can test 15 wafers in parallel.

That system today however does not have the tester resources to be able to functionally test the flash devices. That’s what we’ve added in our new P line of test systems. The first system was the ABTSP which we talked about in the introduction in the last couple of years including about six months ago with those shipments at the beginning of the year.

The next system is the FOX 1P which as we said can test one wafer at a time, but with a lot more resources, over 16,000. And then the FOX-XP where we have enough resources to be able to test all of the die on wafer for device like a flash memory. But we can actually test up to 25 wafers at a time.

Tom Diffely - D.A. Davidson

Okay well, all right. And then -- so I guess initially it sounds like you’re coming out with the 1P first that’s a single wafer, that’s for the automotive. And then XP is a plan early next year then is that what I heard?

Gayn Erickson

We have discussed this in previous calls, but FOX 1P we’re already taken orders on both engineering and production systems and also be for those first shipments that I described for later this year. The FOX-XP we have not announced any customer order yet and of course as we feel appropriate we would do that.

But the FOX-XP we believe is a leverage product offers the FOX 1P we continue to engage with multiple customers and the definition of that to ensure it has the features that it broadly covers the market and the customers for these applications. It’s reasonable to think of that as about two to three quarter gap between the FOX 1P and the XP.

Tom Diffely - D.A. Davidson

Okay. Good. And then maybe just on the similar trend thought for the automotive market, so the 1P, I mean the big dip between that and the existing testers out there today is just the number of power supplies and channels you can put in your systems versus the standard tester out there today?

Gayn Erickson

That’s correct. That’s correct. In a typical application I mentioned a very good application as I mentioned the Microcontroller or the emerging market where companies that are doing automotive devices that today use a reliability test step on systems like ours, like our ABTS for example. They’d like to move our test step to wafer level. And at the wafer level they currently test that with an ATE platform, but with significantly fewer resources, maybe a 1,000 tester resources or there about.

As they go to reliability test that can take hours. The parallelism offered by the ATE platform that’s maybe 32 to 64 devices in parallel just on a cost effective to be able to get there. Our test system with the 16K resources have the ability to actually test those microcontrollers in one insertion all in parallel.

And when the test times go up significantly related to these reliability tests it’s the only way to do it cost effectively. The analogy is exactly what happened with the memory test world where as device test times of flash and DRAM increased substantially, the only way to cost effectively test them was to be able increase their parallelism substantially.

Those same design for test modes and the ability to increase the parallelism is what we’re offering with the new FOX 1P to customers that traditionally were using standard ATE system.

Tom Diffely - D.A. Davidson

Okay, great. That looks like a market that starts in 2015?

Gayn Erickson

Yes. To some extent there are customers that are waiting for us now quite frankly.

Tom Diffely - D.A. Davidson

Well, it sounds like with the ability of the XP 2, testers probably like to have that tool pretty soon as well?

Gayn Erickson

That would be fair.

Tom Diffely - D.A. Davidson

Okay. And then finally, Gary when you look at the model is there anything you can give us as far as like incremental margins, gross and operating on revenue growth from where we are today or do you have a target model for $10 million a quarter, $15 million a quarter something like that?

Gary Larson

No. we don’t have models that go out quite that far, but what we had said was the gross margin we wouldn’t be surprised if we saw the gross margins come down a little on a sequential basis, because we don’t have as much inventory with written off material that will be going into this shipment.

From an expense standpoint, again haven’t given out specific numbers but again its spoken in the past about key staffing needs that we have to meet. We have actually been doing a little bit of hiring, so we would expect to see some increases in spending from that standpoint.

Tom Diffely - D.A. Davidson

Okay. And then, if we look at year out on that to the model and that we assume a certain percentage of revenue growth, is there some way to some ramp up the operating expenses with that revenue growth and is it 40% of the revenue growth is something along those lines?

Gary Larson

I would say historically we’ve been very conservative when we’re in a ramp situation. We don’t have a lot of growth, but I just said, we’re doing some strategic hires and I think those strategic hires aren’t necessary hired direction to the immediate revenue. They are more focusing on future revenue, so there’s not a percentage that I think we can give you there.

Gayn Erickson

And Tom what I might share which I think it's fair without any real competitive information going out, is that the applications that we are talking to customers about not only have very long test times and therefore require a lot of capacity. They tend to be fairly high volumes. So in this case, these are not customers that we would expect to buy only one or few systems.

Why that’s important? Is that as the products -- as we ship more products to single customers, there are -- if you will, they tend to be of the same flavor they get cheaper to build? So we’re not -- we don’t need a ramp significant manufacturing resources in manufacturing nor realistically in support. It looks more like what I would consider a memory model where you have a relatively fewer number of customers with higher amounts of purchases.

However it's by contrast to where the test was say in 2007 where were very focused on couple of key customers for a good portion of our sales. We actually anticipate a much broader number of customers that will provide us with not only multiple different markets but different customers and in different regions to give us a little bit what I would say, diversity if you will.

Tom Diffely - D.A. Davidson

Yeah. Okay. And well thanks for your time today and I look forward to the story unfolding over the next several quarters.

Gary Larson

Thank you, Tom.

Operator

And we’ll take our next question from Colin Denman. Please go ahead sir.

Colin Denman - Westerly Capital Management

Hi, Gayn and Gary, thanks for taking the question and congrats on another strong quarter.

Gayn Erickson

Thanks, Collin.

Colin Denman - Westerly Capital Management

Just had a quick question, I’m trying to understand kind of how many customers we're really talking about here potential customers, can you talk about a broader range of customers. And I’m curious with the new market sizing that you guys have done, are we talking that there kind of five to 10 customers that are really important focus accounts for you guys and then some other kind of one zee, two zees and do you have the sales and engineering resources to really go after all the potentially interested customers right now?

Gary Larson

Okay. It’s a good question, Colin. In fact we had presented at a conference just here recently and posted the slides out on our website which I encourage people to take a look at it. It talks a little bit more about these markets and the sizes and some of the typical customers that are key suppliers in those markets.

The reality is in semiconductor in general, there are fewer and fewer semiconductor suppliers and fewer yet semiconductor test suppliers. I will get into the latter. But in the semiconductor space, there is in terms of flash memory suppliers or things like SSPs, you really talking about half a dozen suppliers. The SSPs themselves might be twice as many as that interestingly in many cases the suppliers of the memories are the suppliers of the SSPs themselves but not always.

Microcontrollers, the key leaders in the microcontroller particularly those serving the automotive space, there is again maybe half a dozen or few more, many of which are current customers. And interestingly in the infotainment space although it would seem like there’s a much broader number of companies, the reality is within the dozen companies you’re really talking about all the key leaders.

So is that really a lot or a large number of companies? Well certainly if you added them all up its 20 different companies and that would certainly make us a live diversity. We actually have a large number of customers today in our base business, we were talking last year and we stop counting but last time we were talking 13, 14 customers of thereabouts of our new ABTS platform.

We continue to add new customers to that list. And so, we have a fairly wide number of customers again on our website, we’ll show you the partial list of our installed base, but we have literally shipped to perhaps 100 or more customers over the years.

So in this case we have ability of to have touch points with customer because of our leadership in the burn-in and test base that we’ve traditionally been in that can help us in penetrating these new market opportunities and in some cases some of these new emerging markets, our companies they aren’t current customers of ours.

Colin Denman - Westerly Capital Management

And then the other thing I wanted to touch on is just kind of helping us understand what a potential customer win might look like over the first say year that the customer engages with you.

So, whether that’s an automotive market with the FOX 1P or later on that with SAG Flash opportunity with FOX-XP if say you land on of these customers that you’re in discussions with now, how does it different terms of number of tools if someone decides to use you for engineering test and what is that mean over the first year deployment versus production test, is this five to 10 tool type of engagement over first 12 months. Or how would you expect that to look like?

Gayn Erickson

Okay. Well to some extent I’ll give a little bit of the shape without starting to share specific numbers, because we have lots of ears on line that are not just our shareholders. And I also Gary pointed out I didn’t answer directly about the resources to meet these potential new demands. So let me talk together about those.

So one of the keys I think in success is building platforms that serve a wide range of market that have the ability to be customized as appropriate to be able to meet different needs.

It’s a key to making a successful semiconductor automated test platform. In this case our FOX really are P or [propane] line of products, it’s been able to be leveraged first into our ABTS packaged part burn-in system.

Next into our single wafer ATE platform and as I said following on with the XP multi wafer system. So, one basically system architecture and software is applicable across three different flavors of test systems that have very unique devices that they’re testing.

Then within the platforms the ABTSP for example today is testing application processors for the things that are in most of our phones or tablets that we have that are doing automotive devices and communication devices. There’s a broad array because we build the system to have very capable electronics. It also is testing memories including flash memories.

Those same electronics then is imported over to the FOX 1P which in this case is a single wafer in a very different test step and the FOX-XP, which is multi wafer and so they had another market. So the key is its been able to have a product that can be leverage both from an R&D applications and manufacturing perspective.

Now having said that, we actually do believe that we’ll be adding on applications and R&D engineers to be able to do some of the customization if nothing else, helping customers writing test programs as they are evaluating and purchasing our new products.

What a typical evaluation looks like for a volume production, starts with paper benchmarks and going through the map and understanding and working with our key marketing and sales people along within times our R&D folks around potential enhancement.

Those then typically will move to application benchmarking here on our systems to show a level proof-of-concept, customers typically purchase their first systems as part of the evaluation process at that point knowing that it meets their cost of test model and there’s a validation if you will to ensure that it's at a production worthiness before they will buy multiple systems.

Now having said that, in my experience of 20-plus years of doing that, sometimes that all gets crunched together and things go from paper benchmark to purchase orders fairly quickly followed by how fast can you ship. So I would say that those are all ranges, but typically there is some progression that can take a couple few quarters from those first introduction discussion before they’ve actually taken systems and of course that all is dependent upon us having the system available.

So there will be a point where the orders will come, the first shipments to our customer will come and then there will be volume production. The customers that we're talking about, in fact all three of those emerging markets, we all believe that any customer will take multiple systems of that type along with engineering work station in support of these systems.

Colin Denman - Westerly Capital Management

Great. That's very helpful. Thank you very much guys.

Gayn Erickson

Thank you, Colin.

Operator

We’ll take our next question from Jeffrey Scott. Please go ahead sir.

Jeffrey Scott - Scott Asset Management

Good afternoon, guys.

Gayn Erickson

How are you, Jeff?

Jeffrey Scott - Scott Asset Management

Was there any NRE milestone achieved during this quarter?

Gary Larson

Yes, there was one recorded as revenue.

Jeffrey Scott - Scott Asset Management

Okay. In the MCC filings, you break out the wafer level revenue and the Tdbi revenue, can you do that for me?

Gary Larson

We prefer just to show that in the 10-K when that comes out.

Jeffrey Scott - Scott Asset Management

Is there some reason you can't tell us now?

Gary Larson

No reason we can't tell you now. We just haven’t historically given that out in the conference calls.

Gayn Erickson

Let's say about half of it was FOX related and half of it was ABTS related and FOX between systems upgrades and wafer packs.

Jeffrey Scott - Scott Asset Management

So no machines itself.

Gayn Erickson

They were not FOX systems. There was not a full FOX systems in there.

Jeffrey Scott - Scott Asset Management

Okay. In that backlog that I think it was $6 million in the press release, there would be three FOX systems in there, there was a FOX that you talked about a couple of months ago that was not shipped and then you have at least two FOX-1Ts, which are in that backlog, is that right?

Gayn Erickson

Track our numbers as well as anyone in this room here Jeff. Yes, you got that right.

Jeffrey Scott - Scott Asset Management

Okay. Is…

Gayn Erickson

In terms of there are FOX systems. I think we've been vague about the total number of production systems specifically for competitive reasons as we sometimes will mix pricing and numbers and we're trying to keep that from being widely known.

Jeffrey Scott - Scott Asset Management

It sounds like the backlog of the ABTS system is down somewhat, is that because as you mentioned in your prepared remarks that the market is just a little bit softer than it has been recently or is it because you have sufficient inventory that your customers think that they can get delivery reasonably quickly and are less pressed to put in an order well ahead of time.

Gayn Erickson

Well, I think that you remind me of that, but there are a few sides of the coin of having the quick terms in shipments. In this case, I am going to refer to it as a feature. In fact we have recently won some deals as a result of being able to have shorter lead times whereby some of our competitors have standard five or six month lead times. We have typically been able to on 1Z, 2Z type deals ship in a month at times.

And that also has helped as we have kind of standardized the ABTS-P system is very applicable into a number of different customers an applications, which allows us to hold an inventory of boards and chambers and then do a basically configure to order at times like in our quarter I will admit.

Jeffrey Scott - Scott Asset Management

Does that mean that I should be less worried about the reduction of backlog from $9 million to $6 million?

Gary Larson

I think there is a little bit of let's point on with that too is we've been with some large multi system orders and are we particularly and some of those we've actually been consuming some of that, but I don't think it would be typical for us and actually not even ideal, I think it might be nice.

I wouldn't expect us to be having multi quarter backlogs that's a regular course. As Jeff, I think you have visited us before, but those who have not we actually have significant manufacturing capacity here in Freemont. If you were to come and look on our floor, we have a large number of chambers and process and you can see our ability and particularly as the backlog and the orders kind of uniform to similar types of configurations, which has ability to build a lot of systems in a month or a quarter.

And so it would be more typical that anything that has a longer lead time than their quarter, has more to do with our development schedule or in some cases, the customer gives us half a dozen systems and when them to schedule over some period of time.

By the way Jeff, I will also point out leads to one of the conversations you haven’t gotten yet too more clarity around this quarter. As we shorten our lead times as a competitive advantage and as a way for our customers to be able to buy our product shipped quicker, it does lead towards less visibility on our part as we are seeing higher percentage of our business be in turns within the quarter than historically.

Jeffrey Scott - Scott Asset Management

Yes, you said that fiscal 2015 revenue will be higher than 2014.

Gary Larson

Yes.

Jeffrey Scott - Scott Asset Management

Can you put any kind of brackets around what a reasonable increase would be?

Gary Larson

You know what; we've been deliberately vague on that as we for both competitive reasons for fiscal responsibility reasons and depending on how a number of the deals shape up. Sorry Jeff.

Jeffrey Scott - Scott Asset Management

Okay. Have a good one. Thank you.

Gary Larson

Thank you, Jeff.

Operator

And we’ll take our last question from William Smart. Please go ahead sir.

William Smart - Cardinal Value

Yes, good afternoon, I had trouble hearing you, but it seemed to me you were talking about capacity at some of your customers being filled up. What was that all about?

Gayn Erickson

Yes, it sounds as a little confusion Bill. What are the ways you try and anticipate your orders in my business? If customers use our tools for engineering our qualifications and production testing, they buy them one whole system at a time or may increase the capacity of that system by adding bonds to it and they do that when they run out of capacity.

So we have customers that have -- might have 150 systems on their floor and we during the downturn of 2000 let's say 2009 or 2010, those customers might have had 70 testers idle. While they are idle, they are not buying any more. And so if you track that slope and see as they get closer and closer to maximum utilization, that's when you can anticipate that people will be buying your systems and when they need one more, that's when they buy them.

The good news for us is really off the board in our engineering qualification and production customers across the Board, both on FOX and ABTS. They are running really much -- pretty much at capacity with very small percentage of systems idle and of course at the end of the month, there are full types of deals.

And so that's good because as long as that's the case, then that bodes well for us and they all are markets that are only buying more systems.

William Smart - Cardinal Value

So you say, that's across the Board?

Gayn Erickson

Pretty much, yes.

William Smart - Cardinal Value

Okay.

Gayn Erickson

And I say pretty much I can't think of one customer right now that isn’t the case. And so our VP of Sales is running around the country, around the world right now talking to customers about where they are and things are busy here.

William Smart - Cardinal Value

Okay. One other question, you dramatically increased the size of your available market because of some market research you received over the last month or so, my question is, is that where the market is going to stay for a while or are there other areas you’re looking at possibly penetrating in the next year or so?

Gary Larson

Well, I’m not -- I think we’re pretty deliberate of the fact as you may have known from previous calls; we’ve been talking about these potential markets and how big we think they’re going to be and indirect questions of how big are they, we have not said.

So that was part of why we put the press release out. We make sure our investors were able to see it. This is first time we’ve really called the market. A combination of confidence and third-party validation, so it’s not just what we believe in, but also to really be able to give our shareholders some visibility of the investments that we’re making at those markets.

Now, those are not the only markets. We talk about some of the -- we’ve got even in our base business, we serve markets that are I think very valuable to our customers and to the industry. As I said, we have systems testing technically all of the three major tablets in engineering application, right. Very, very important -- we have testers that are key to automotive and some of those parts that are in the dashboards where companies are ahead of the game in terms of the quality.

So, we serve a lot of very interesting markets. And I think if you look, there are some major test trends that are coming towards us, automotive, autonomous vehicles, just quality and reliability expectations of mobile processors and phones are very good.

The DFT modes and test modes are devices across the board that are encouraging or enabling customers to move their test what I call shift left from backend test to wafer level where it’s cheaper and easier.

Those are actually done with design for test modes that enabled and our test systems are extremely -- are very good at. And so -- and then of course I’ve talked about some of these other emerging markets, but there is a lot of markets that we plan which is obviously quite interesting when you think of the current size of the company.

William Smart - Cardinal Value

Okay. Thank you very much.

Gayn Erickson

Thank you, Bill.

Operator

(Operator Instructions) We’ll take our question from Marty Cawthon. Please go ahead, sir.

Marty Cawthon - ChipChat

Hello, Gary, hello Gayn.

Gary Larson

Hi, Marty.

Gayn Erickson

Hi, Marty.

Marty Cawthon - ChipChat

I believe the last time Aehr Test was profitable was 2007 and Gary you were CFO at that time as I recall.

Gary Larson

Correct

Marty Cawthon - ChipChat

I’m interested to hear just a few words that compared to profitable AEHR of 2007 with the profitable AEHR of 2014?

Gary Larson

Okay. And Marty you were…

Marty Cawthon - ChipChat

I’m sorry, let me ask -- there was a helicopter taking off -- let me ask again, they’re gone, hold on, let me repeat it. I believe the last time that Aehr Test was profitable for a fiscal year was 2007 and Gary you are the CFO now and you have been for many years and you were CFO in 2007 as I recall.

Gary Larson

Right.

Marty Cawthon - ChipChat

And I’m interested to hear just a few words that compare the profitable Aehr Test of 2007 and how it compares to the profitable Aehr Test of 2014?

Gary Larson

As Gayn mentioned earlier he talked to the 2007 comparison a little bit, but at that time we had just one or two significant customers and we were doing everything to address those customers needs and we were very successful doing that and we didn’t have any situation where our facility was taxed or anything else, so we could have expanded much, much more.

What we’re anticipating not exactly at today’s level but the level that we’re looking towards as these new products come online is we’ll be seeing much more diverse customer base. So we expect to have a number of larger customers that each have significant requirements and we expect that the company will be growing quite a bit from today's level in order to support those customers.

Marty Cawthon - ChipChat

Okay. And again as I recall, the state drive the share price that they are catching in 2007 was about $12 a share, was it not?

Gary Larson

I think we got upwards of that point around that timeframe, 2007, 2008.

Marty Cawthon - ChipChat

Okay. So you're in much better share than you were back then and the stock price is about one sixth what it was, one sixth to one fourth of what it was back then.

Gary Larson

I agree with everything you are saying. Hopefully we have our reasons to reflect that, the opportunities some early.

Marty Cawthon - ChipChat

Okay. That's all I need for now. Thanks very much.

Gary Larson

Well thank you for calling in and fighting the helicopter.

Marty Cawthon - ChipChat

Okay. Bye, bye.

Gary Larson

Bye, bye.

Operator

I show no further questions in the queue. I will turn it back over to management for closing remarks.

Gary Larson

All right. Well, thank you very much folks. I had only covered a lot of ground here. We discussed that a lot internally. We really wanted to address the many questions that were coming in and make sure people understood the opportunities with little bit more clarity and color that we are making these key investments for.

And should you have any more questions, as always, feel free to contact any one of us or if you happen to be in the Silicon Valley, feel free to make an appointment. We would love to have you stop by and check out our facilities. Thank you very much. Bye, bye.

Operator

This does conclude today's conference. We appreciate everyone's participation.

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Source: Aehr Test Systems' (AEHR) CEO Gayn Erickson on Q4 2014 Results - Earnings Call Transcript
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