Jim Byers – IR, MKR Group Gayn Erickson - President, CEO Gary Larson - VP Finance, CFO.

Colin Denman - Westerly Jeffrey Scott - Scott Asset Management.

Good day, and welcome to the Aehr Test Systems' Fourth Quarter Fiscal 2015 Financial Results Call. Today's conference is being recorded. I would now like to turn the presentation over to Mr. Jim Byers MKR Group. .

Thank you, operator. Good afternoon and thank you for joining us today to discuss Aehr Test Systems' fiscal 2015 fourth quarter and full year financial results. By now you should have received a copy of today's press release.

If not, you may call the office of MKR Group Investor Relations for Aehr Test at 323-468-2300 and we will get you one out right away. With us today from Aehr Test Systems are Gayn Erickson, President and Chief Executive Officer and Gary Larson, Vice President of Finance and Chief Financial Officer.

Management will review the Company's operating performance for the fourth quarter and year end before opening the call to your questions. Before turning the call over to management, I would like to make a few comments about forward-looking statements.

We will be making forward-looking statements today that are based on current information and estimates and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.

Factors that may cause results to differ materially from those in the forward-looking statements are discussed in our most recent periodic and current reports filed with the SEC.

These forward-looking statements, including guidance provided during today's call are only valid as of this date and Aehr Test Systems undertakes no obligation to update the forward-looking statements. With that, I'd like to introduce Gayn Erickson, Chief Executive Officer. Please go ahead Gayn..

Thank you, Jim, and good afternoon to those joining us on the conference call and also listening in online.

Gary will go over the fourth quarter and full year financial results later, but I’ll first spend a few minutes discussing our overall business and product highlights including our continued progress with the development and introduction of our new FOX-P platform of products, then we’ll open up the lines for your questions.

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

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

A key reason for our optimism is not just the $6 million initial order from a major new customer we announced this quarter, but also the potential opportunities, follow-on business this customer and this new application represents for Aehr Test.

This order is for our current FOX-15 Multiple Wafer Test and Burn-in system which I'll discuss in a little more detail in a minute.

As we've discussed in earlier earnings calls our soft revenue this past fiscal year reflects a combination of factors including customer order and shipment push-outs of our packaged part systems, customers absorbing capacity taken in earlier quarters for both our packaged part and wafer level systems and consumables, and our lead customer awaiting the release of our new FOX-1P system.

Our bottom line losses were a reflection of this lower revenue but also due to the fact that we maintained our commitment to the expenditures and investments to get our new FOX wafer level test and burn-in products out to market. I believe this was absolutely the right decision which will pay out this year and moving forward.

The decisions we made this last year to maintain our development work and expenses on these new products already has and will continue to allow us to capture a much larger total available market for wafer level test and burn-in applications.

We put our money where our mouth is, as our directors and officers including Gary and myself put in our own money into the pipe last year we raised, where we raise an additional $2.7 million to keep our R&D efforts and focus on giving these new products out.

We are very excited about the new customer activity we are seeing and the market opportunities for both our existing and next generation products. And we remain focused on capturing not only the market opportunities we've discussed in the past but also some significant potential new ones.

Starting with our base business we've not lost sight of the market opportunities we have with our ABTS packaged part test and burn-in platform and our current FOX-15 multi wafer system. We’re pleased to have announced significant orders within the last few months for volume production applications for both products.

We saw a key production customer for ABTS system resume volume purchases during the last couple of months. And in late April we announced the $6 million initial order from a major new customer for our FOX-15 multi-wafer test and burn-in system which includes the FOX-15 system, multiple WaferPak contactors and our new FOX WaferPak Aligner.

This system will be used for production burn-in of a very high volume device used in a consumer application.

This production wafer level burn-in application represents not only a significant new customer but also additional opportunities as we expand our unique and highly cost effective wafer level test and burn-in solution into the rapidly growing automotive, consumer, mobile, sensor and wearable markets.

We have identified several potential new high volume applications for our current and next generation FOX multi-wafer systems with this customer and with several other companies that we can uniquely address with our test systems, WaferPak for wafer contactors and our FOX WaferPak Aligner solutions.

As we previously discussed, part of our historically low revenue this past fiscal year was a result of the delay of our new FOX-1P system which we introduced last fall at the International Test Conference.

As you know the FOX-1P or as you may know, the FOX-1P is our single wafer test and burn-in solution that is part of our new FOX-P platform and that includes single and multiple wafer configurations.

We believe the FOX-1P will provide more test resources than any other automated test equipment system on the market and will significantly expand our served available market.

While it was our original objective to begin shipping the FOX-1P by the end of our fiscal fourth quarter, we encountered delays in our development schedule that pushed out deliveries and revenues of our backlog of both engineering and production systems from last fiscal year into this fiscal year.

We had a couple of specific issues that even our component vendors had never seen before. But I am pleased to report these issues have been resolved but not without losing multiple months in our completion of the FOX-P program.

The team working on our FOX-XP system which is a multi-wafer version has been making great progress and has met some significant milestones with our lead customer for that product.

We designed and built a full wafer contactor with our new high density FOX-XP WaferPak and have successfully demonstrated our new high speed FOX WaferPak Aligner system that will ship with both our current FOX-15 multi-wafer system as well as our new FOX-XP multi-wafer system.

We will complete all the internal and customer characterization needed at Aehr Test before we ship the single-wafer FOX-1P and the multi-wafer FOX-XP configurations to customers for final acceptance and production release. Our new FOX-P platform is truly state-of-the-art with capabilities never before seen in an automated test equipment platform.

It delivers more channels, more power, more device power supplies and at an integration level meeting or exceeding that of the highest performance, highest density automated test equipment in the industry. We’ve worked hard to ensure that our FOX-P platform is tracking to meet our lead customers' high volume manufacturing requirements.

We believe we have alignment with our lead customers to meet their production ramps for both our FOX-1P single-wafer and the new FOX-XP multi-wafer systems which has been our primary goal.

Our lead customers have provided us feedback that has helped us to enhance these products to meet both the original target applications as well as to address new and higher volume applications. We are pleased with these additional capabilities and believe our products are positioned much better both in the short and long-term.

We continue to see the total available market for the new FOX-1P including the emerging automotive microcontroller wafer level test and burn-in market to be greater than $50 million dollars annually. And the total available market for the FOX-XP multi-wafer test and burn-in system as well as the WaferPak consumables to exceed $200 million annually.

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

In summary, fiscal 2015 was a very difficult year but we feel that it was a transition year for Aehr Test as we bring to market a new family of proprietary systems that will address a much larger total available market for Aehr Test. We expect to grow our business significantly this year even if we're only to ship our current FOX or ABTS products.

This allows us to focus on completing our new FOX-P products to the quality and application coverage consistent with our customers' needs and timeline for meeting our financial goals. Having said that, we fully expect to ship our new FOX-P products and achieve revenue in both the first and second half of fiscal 2016.

As we enter the new fiscal year we believe we are in a very good position with our substantial yearend backlog and our strengthened cash position to meet customer demand that is building.

We are excited about the new customer activity we are seeing with our current ABTS, Advanced Burn-in and Test Systems for packaged parts and our FOX wafer level test and burn-in systems as well as the significant newer market opportunities for our next generation FOX-P systems.

Lastly but certainly not least, as you may have seen in the announcement today, we announced that Gary Larson, our CFO and VP of Finance plans to retire effective September 8, 2015 after 24 years with the company. Gary played a key role in our successful IPO and in our recent equity and debt offerings.

We will all be sorry to see him leave when he retires but I know that Gary is looking forward to spending more time traveling with his wife. It's been a great pleasure to work with Gary and we want to thank him for his many contributions to the success of the company. We intend to name Ken Spink, our Corporate Controller to serve as Interim CFO.

Ken will assume these responsibilities upon Gary's retirement and will be working with Gary in transitioning these duties.

Ken has served at Aehr Test for seven years, he has more than 30 years of accounting and finance experience in the high tech, public accounting, leasing, service construction industries, but prior to joining Aehr Test, Ken worked for nine years at Applied Materials, the global leader in the semiconductor capital equipment industry where he was most recently Corporate Accounting Manager.

He began his career in audit for accounting firm Deloitte. We are fortunate to have someone with Ken’s experience and expertise to ensure a smooth transition and look forward to working with him as we focus on the significant opportunities we see ahead with Aehr Test current and next generation products. With that, I’ll turn the call over to Gary.

Gary?.

Thank you, Gayn. As we reported in today’s press release, our net sales in the fourth quarter of fiscal 2015 were approximately $1.8 million, compared to $2.0 million in the preceding quarter and $5.4 million in the fourth quarter of the previous year.

Non-GAAP net loss for the fourth quarter of fiscal 2015 was $1.6 million or $0.13 per diluted share, compared to a non-GAAP net loss of $1.5 million or $0.12 per diluted share in the preceding quarter, and non-GAAP net income of $443,000 or $0.04 per diluted share in the fourth quarter of the previous year.

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

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

Operating expenses in the fourth quarter were $2.5 million compared to $2.6 million in the preceding quarter and $2.7 million in the fourth quarter of the previous year. SG&A was $1.5 million compared to $1.6 million in the preceding quarter and $1.7 million in the prior year fourth quarter.

The year-over-year decrease was primarily due to lower employment related expenses. R&D expenses were approximately $1 million for the quarter, in the preceding quarter and the prior year quarter. As stated previously, R&D spending can fluctuate from quarter-to-quarter depending on the development of our new products.

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

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

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

The financing consisted of $4.1 million convertible note and a $2 million line of credit. The new line of credit replaced our previously existing credit line with Silicon Valley Bank which was terminated as a result of the debt financing.

At quarter end, our net cash for cashless line of credit was $5.5 million compared to $2.2 million at the preceding quarter end. Accounts receivable at the quarter end was $1.4 million compared to $0.6 million at the preceding quarter end. Our AR balance at the preceding quarter end was lower than usual due to the timing of customer payments.

Our inventories at May 31st were $7.1 million, up approximately $270,000 from the preceding quarter. We are working aggressively to keep our expenses to a minimum and we continue to manage our cash very closely.

As our backlog increases, we expect to fund that growth through down payments from customers and borrowings against our existing line of credit. Finally as Gayn noted earlier after 24 years with Aehr Test, I have announced my intention to retire in September.

I have a long plan to spend more time taking extended trips with my wife and visiting more with family. Aehr is also in a much better financial situation than it was the year ago. So now is the right time for me to pass the baton. Ken is well prepared for his role and will do an excellent job as Interim CFO.

He and I will transfer the duties of his position over the next two months to ensure a good and orderly transition. It's been my privilege to work with Gayn, Ray, all of my colleagues of Aehr Test and I want to thank them for all their support and friendship during my years with the company.

With the potentially significant opportunities we’re seeing for Aehr Test current and next generation products, I believe that I am leaving Aehr in good hands and with the bright future. This concludes our prepared remarks. We’re now ready to take your questions. Operator, please go ahead..

[Operator Instructions] And our first question comes from Colin Denman with Westerly..

Hi Gayn and Gary. Thank you very much for taking the question.

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

Hey Colin this is Gayn.

So thanks, I think we’re sitting in a really great position with not only a larger backlog but all really shippable in the near term for us and if you look a year back we had already announced prior to that the initial order that we received from a lead customer on the 1P and as we entered the previous year we knew that the 1P was not to ship till later in the year and so we really doing even within the $6 million backlog over a year ago, a portion of that was not immediately shippable.

We’re actually not -- I don’t want to get in the habit of breaking out a lot of the different numbers, but I will say that certainly the $6 million order is all with shippable products which we consider within our FOX-15 family.

It does include our new FOX-XP Aligner something that leveragability of the product and a compliment of WaferPaks we also in the orders, including the orders recently announced, were ABTS, FOX-15 WaferPaks, we had a service and support order backlog that was an annual contract.

So a good chunk or even a vast majority of that is actually within our current products, it does include 1P backlog and it has the small amount of XP backlog that we had announced earlier in the year which were for milestone related payments in the evaluation of the lead customer of the FOX-XP..

That's a very helpful.

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

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

Okay.

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

I think that's about right. I want to be a little careful with all the numbers, let me put a little bit more context.

A couple of years ago when we had a couple of few quarters where we were doing like $5 million or so we were shipping I think one system a quarter that was primarily made up of written down material and so we did note those that there was a little bump in our gross margin related to that I think $700 million to $800 million a quarters or so.

This entire backlog is not made up of anything with any substantial written down material if at all.

So this is -- this would be more consistent I think with more of our typical run rates going forward and a little bit about our margins in general is that we do see a little bit stronger margins on our FOX Wafer level products then we do with our packaged part products and with our WaferPak contractors we have lower margins on average than the rest of our products, just consistent with that consumable device.

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

Okay yes. So, that was I guess my follow up was just kind of on the general operating profile of the company, I mean can you help us understand where the new breakeven level is for you guys? It sounds like you are expecting that with the backlog you have you can get back to profitability, but just any help there will be good..

Yes, I have to be careful throwing out a number, I‘ll tell you what, let me -- Ken's lurking over here on the side as he always does and he’ll run some numbers real quick, let me come back to that at the end, okay..

Okay. Alright. Thank you guys very much and congrats on a backlog and thanks for all..

I’ll tell you what, maybe I can even get away with a little -- we believe that we are with it, we are profitable at that -- those revenue levels with that backlog.

So the question is how much lower than that are we at breakeven and maybe we’ll get to that or not but I think we’re just looking at a much stronger healthier year as we continue to spend in R&D investments..

That sounds great. Thank you..

And our next question comes from Jeffrey Scott with Scott Asset Management. .

Good afternoon.

A question on the lead customers, the press release has them in plural, I’m assuming that the plural means you still have the one lead customer for the FOX-1P and the one customer for the FOX-XP, is that right?.

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

Okay.

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

Yes, I probably don’t feel super comfortable about talking about that, we have had conversations with multiple customers about both of those products and I’d say that in some ways we certainly have more customers by quantity interested in the FOX-XP in terms of volume production applications than the 1P.

But as you know one of the things that we’ve actually felt that -- and that I guess we anticipated this but now that the FOX-P which really is the combination of the two hardware is here in our facility and we’re able to actually test customer parts, show them both the engineering configurations, the single wafer configurations, the multi wafer engineering configuration and chambers.

The customer’s interest has shifted from sort of a distant interest or certainly interest or in some cases just lead to a very real conversation around what is their capacity, what is their lead times, when do they actually need production volumes and that has been true for both the FOX-1P and the XP. .

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

Okay, so I forgot that we didn’t include that in our summary here. So to give people a perspective, in January we announced an order from a lead customer, on this case I would say that lead customer who is a high volume production application for a multi wafer XP system.

Those milestones included revenue related milestones as we proved the feasibility of the machine for their application. So we had announced one of the milestones last quarter. During this quarter we achieve the second milestone which was a big one that was the proof of concept of being able to test their part.

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

We have additional milestones in our pipe, it would probably be more clear about them as they’re achieved because we do have confidential arrangements with them but that talk to the full wafer contact of that and some other proof of concepts that we’re still working on.

But it’s my expectation that we would be completing those here over the next couple of few months..

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

No, I’ll put more deadline on that because I know they’re listening, no I mean we’ll -- this milestone will certainly be done before the end of Q2. Remember our Q1 ends in August next month..

Okay.

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

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

I presume it was not substantial then..

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

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

That’s the order for us, that’s right..

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

I believe that they will need additional systems not only potentially for this application but for other applications. And as you point out for folks that are relatively new to us the FOX-15 is the actual hardware platform. It tests 15 entire wafers at a time in parallel. Along with that test system that we've designed and build and manufacture here.

We also have complementary items to that that includes a contactor -- a full wafer contactor that’s proprietary to Aehr Test that we call a WaferPak and that’s a consumable that will be designed with each -- that would be ordered with each new design.

So over and during the life of the product as they come up with a new product design they buy these WaferPaks which basically is a probe card, but it has unique proprietary features that allow us to be able to do that in a test system. And we also have a supporting piece of equipment that we sell called FOX WaferPak aligner.

And this wafer pack aligner is our new high speed, high performance version that we developed as part of the FOX-P program. And for this customer we are shipping that aligner for this FOX-15. So for FOX-15s and XPs going forward they will all use our new FOX WaferPak aligner..

[Operator Instructions] And we have no more questions. We have no more questions in queue. Thank you. .

Alright, well thank you folks. I think as we put out in our press release too I’ll be attending SEMICON West tomorrow we have a summit up there call the CEO summit and that, in fact I’m going to be dragging Ken along with me as well for some of the folks I know that are on the call, you get an opportunity if you haven’t met Ken before as well.

We’ll be up there, so maybe there are some other question that will wait till then. I really appreciate everybody, I'm very excited about this fiscal year and as always we open ourselves up if you would like to set appointment with us, give us a call and we will be happy to have you come by and visit Aehr Test in Fremont, California. Thank you now. .

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