Jim Byers - Investor Relations Gayn Erickson - President and Chief Executive Officer Ken Spink - Chief Financial Officer.

Christian Schwab - Craig Hallum Capital Geoffrey Scott - Scott Asset Management Orin Hirschman - AIGH Investment Partners Charlie Doe - Private Investor.

Good day and welcome to the Aehr Test Systems’ Fiscal 2017 Fourth Quarter and Full Year Financial Results Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Jim Byers of MKR Group. Please go ahead, sir..

Thank you, operator and good afternoon. Thank you for joining us today to discuss Aehr Test Systems’ fiscal 2017 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 one out to you right away. With us today from Aehr Test Systems are Gayn Erickson, President and Chief Executive Officer and Ken Spink, Chief Financial Officer.

Management will review the company’s operating performance for the fiscal 2017 fourth quarter before opening the call to your questions. Before turning the call over to management, I would like to make a few comments about forward-looking statements.

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

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

These forward-looking statements, including guidance provided during today’s call are only valid as of this date and Aehr Test Systems undertakes no obligation to update the forward-looking statements. And now with that said, I would like to introduce Gayn Erickson, Chief Executive Officer. Go ahead, Gayn..

Thanks, Jim and good afternoon to those joining today’s conference call and also listening in online. Ken will go over our fourth quarter and full year financial results later in the call, including providing some additional color on our operating model and guidance for fiscal 2018.

But first I will spend a few minutes discussing our business and product highlights, including our continued progress with our new FOX-P platform for next-generation of wafer level test and burn-in products. We will then open up the lines for your questions.

We are pleased to have exceeded our revenue guidance of $6 million for the fourth quarter, with total quarterly revenue of $6.7 million and to finish our full fiscal year 2017 with a total revenue of $18.9 million, a 30% increase over the prior year.

We announced several orders during the fourth quarter, including the follow-on production order for a FOX-XP test cell, our initial quantity production order for our ABTS chambers to an OEM customer and multiple follow-on orders for ABTS systems. These orders brought our total orders for the year to $26.4 million for fiscal year 2017.

Looking back on our progress in fiscal 2017, we completed development of our new FOX-P platform, including production release and shipment of multiple FOX-1Ps and multiple FOX-XP wafer level and singulated die and model test and burn-in systems.

We successfully engaged with two significant lead customers for the FOX-XP and we received the first three complete test orders from these customers in FY ‘17.

I will provide more information regarding the significant progress we have made with the FOX-XP later in the call, but first let me provide an update on our ABTS package part burn-in and test systems business. As I noted earlier, we continued to see a strengthening in our base business in multiple follow-on orders for our ABTS systems.

Earlier this month, we announced another follow-on order from a leading semiconductor manufacturer of automotive devices. This customer continues to run at full capacity in their burn-in and test areas and has become our largest installed base of ABTS systems.

During the quarter, we also announced the initial production order from an OEM customer for multiple proprietary ABTS thermal chambers.

This order is for an initial production run of systems for potential high-volume application and follows completion and acceptance of an initial ABTS chamber ordered and delivered to this customer earlier during the fiscal year.

As we noted on our last call, these orders are part of a partnership agreement with this customer in which Aehr Test will deliver the critical thermal chamber subsystem for use with the customers’ own electronics and software for custom application.

This customer selected Aehr Test in a competitive bidding process because of our proprietary ABTS thermal chamber superior capabilities, including its power handling, temperature, and airflow uniformity and also our ability to supply a significant number of chambers per week. We are excited about this new opportunity.

That’s an interesting and new business model for Aehr Test, and we believe this project will drive significant revenue over our next two fiscal years. Now, let me turn back to our FOX wafer level test and burn-in business, which includes our consumable WaferPak contactors and DiePak carriers.

During the quarter, we shipped an initial FOX-XP multi-wafer and singulated die/model test and burn-in system to each of our two lead customers. Each of these systems received the customer’s factory acceptance prior to shipment and was successfully installed during the quarter.

Since the installation, we have received acceptance of the systems at both customers. We are very pleased with how fast these new systems became production ready and the test results the customers are achieving.

The FOX-XP allows customers to measure individual voltage currents, generate and validate digital patterns and protocols read device IDs, temperatures, and the status of the devices all during one test. It also offers the ability to measure relative optical power on individual devices, with optical outputs.

We believe our solution is the most robust and accurate wafer and module level test and burn-in system on the market delivering substantially more test functionality and parallelism and throughput than any other competitive product available.

As discussed in previous calls, one of the FOX-XP production test cells used for multiple wafer and burn-in application included a FOX-XP production system configured for full wafer burn-in and test of 18 wafers in parallel, with 18 of Aehr Test FOX-XP blades.

This order also included a FOX-XP precision high-volume WaferPak aligner and a set of WaferPak full wafer contactors. As we noted last quarter, this customer has indicated that they intend to upgrade their system and to add capacity over time to meet new test needs for their devices.

While this upgrade order has not yet occurred, we believe it will happen within the next several months. We really can’t get into a lot of the details on this due to the confidentiality around this program, but we continue to be excited about this additional wafer level test and burn-in application for our new FOX-XP system.

We added some great new customers for our FOX products during the year. Two of these were greater than 10% of sales last year, and per SEC requirements their names will be disclosed in our annual 10-K filing that will come out towards the end of August.

As we move into fiscal 2018, a key objective will be to maximize the return from our new FOX-P product family and leverage our sales into our new lead customers, their subcontractors, and other customers in the markets where we have now proven our unique capabilities and the tremendous value of our new products.

In addition, we are working on some enhancements to our FOX and ABTS platforms and have the R&D capacity to help me cut specific customer needs to capture additional business as needed.

Our operating model continues to employ significant outsourcing of turnkey subsystems like our WaferPak aligners, DiePak autoloaders, thermal chambers, electronic printed circuit boards and subassemblies of our proprietary WaferPaks and DiePaks.

This allows us to do final assembly and testing at our Fremont facility with low overhead and resource count, while controlling our supply chain and final product test and quality. With this model, we believe we can ramp and grow our business substantially without significant increases in infrastructure, resources, or expenses.

This allows us to create solid returns for our shareholders, while meeting the customer capacity needs of these new markets we are addressing. Certainly we move into the new fiscal year with great optimism.

With our reported backlog of $12.7 million as of May 31, 2017, along with the recently reported bookings of $3.8 million for ABTS systems, we effectively head into fiscal 2018 with over $16.5 million in booked orders.

With the market opportunities we see for our FOX-XP products and a strong backlog of orders, we are very optimistic about our growth potential as we head into the new fiscal year. For this new fiscal year ending May 31, 2018, we expect full year total revenue growth to exceed 50% over fiscal 2017 and to be profitable for the year.

I will now turn the call over to Ken before questions are opened up..

Thank you, Gayn. As we reported in today’s press release we finished the 2017 fiscal year with total revenue of $18.9 million, a 30% increase from $14.5 million in fiscal 2016.

We exceeded our revenue guidance for the fourth quarter with net sales of $6.7 million, which is up significantly from $2.7 million in the preceding quarter and $1.6 million in the fourth quarter of the previous year.

As Gayn noted, during the quarter we shipped FOX-XP systems to both our lead customers and are very pleased to receive final acceptance of the customers factory for these systems.

The sequential increase in Q4 revenue is primarily due to these FOX-XP shipments and includes $5.1 million sequential increase in wafer level burn-in system and WaferPack, DiePak revenues. It’s important to note that we have recognized no wafer level burn-in revenues in the preceding third quarter.

Included in Q4 ‘17 net sales were $5.1 million of wafer level burn-in revenues, 0.4 million in packaged part system right sales and $1.2 million in customer service related revenues. We announced several sizable orders during the quarter.

Bookings for the fourth quarter totaled $7.6 million, bringing our total orders for the full fiscal 2017 year to $26.4 million, an increase of 235% from prior year’s bookings total of $7.9 million. Backlog at May 31, 2017 was $12.7 million compared to backlog of $5.3 million at the end of the prior fiscal year.

Non-GAAP net loss for the fourth quarter was $587,000 or $0.03 per diluted share compared to a non-GAAP net loss of $2.4 million or $0.14 per diluted share in the preceding quarter and a non-GAAP net loss of $2.8 million or $0.21 per diluted share in the fourth quarter of the previous year.

The non-GAAP results exclude the impact of stock-based compensation expense. On a GAAP basis net loss for the fourth quarter was $795,000 or $0.04 per diluted share.

This compares to a GAAP net loss of $2.7 million or $0.16 per diluted share in the preceding quarter and a GAAP net loss of $3.1 million or $0.23 per diluted share in the fourth quarter of the previous year.

Our bottom line for the fourth quarter reflects the impact of several one-time expenses related to completion of development and accelerated shipping and installation of the FOX-XP. These include a one-time increase in R&D in Q4 related to the completion of the FOX-XP development.

Additional cost of sales includes NRE for tooling and design layout, scrap, rework and other miscellaneous costs of sales related to this new product introduction.

There is also additional one-time expenses for expediting shipping of the FOX-XP systems to meet customer schedules and increased travel expenses and installation expenses related to the initial system shipments of the first XP systems from the factory. Gross profit in the fourth quarter was $2.6 million or 39% of sales.

This compares to a gross profit of $503,000 or 19% of sales in the preceding quarter and a gross loss of 98,000 or negative 6% of sales in the fourth quarter of the prior year.

The sequential increase in gross margin from the preceding quarter primarily reflects the impact of Q3 having higher unobserved overhead costs and lower revenue levels and the $228,000 charge in Q3 to other cost of sales related to the incremental cost to exchange the WaferPak aligners previously sold.

Operating expenses in the fourth quarter were $3.2 million compared to $3 million in the preceding quarter and $2.8 million in the prior year fourth quarter.

The increase from the preceding quarter was primarily due to higher SG&A costs related to Q4 ‘17 sales levels including an increase in bonuses and commissions, travel expenses and patent costs recognized in Q4 related to the system shipments and the new product introduction.

R&D expenses were $1.3 million for the fourth quarter compared to $1.2 million in the preceding quarter and $1 million in the previous year quarter. As stated previously R&D spending can fluctuate from quarter-to-quarter depending on the development of our new products.

SG&A was $1.9 million compared to $1.7 million in both the preceding quarter and the fourth quarter the previous year. Turning to our results for the full fiscal year, as I noted earlier net sales for fiscal 2017 are $18.9 million, up 30% from net sales of $14.5 million in fiscal 2016.

The year-over-year increase was primarily driven by an increase in packaged part system revenue of $2.2 million and increase in wafer level burn-in revenue of $1 million and an increase in customer service related revenues of $1.2 million.

Non-GAAP net loss for fiscal 2017 was $4.7 million or $0.29 per diluted share compared to a non-GAAP net loss of $5.8 million or $0.44 per diluted share in fiscal 2016. On a GAAP basis net loss for fiscal 2017 was $5.7 million or $0.35 per diluted share compared to a GAAP net loss of $6.8 million or $0.52 per diluted share in fiscal 2016.

Gross profit for fiscal 2017 was $6.8 million or 36% of net sales compared to a gross profit of $5.1 million or 35% of net sales in fiscal 2016. As noted earlier, gross margin in fiscal 2017 was impacted by an increase in non-recurring expenses related to the FOX-XP new product introduction. Product mix also impacted gross margins.

Packaged part system revenue represented 26% of sales in fiscal 2017, compared to 19% of sales in fiscal 2016. In addition, while total wafer level burn-in revenues increased by $1 million FY ‘17 compared to FY ‘16. WaferPak and DiePak revenues decreased by $3.4 million.

Operating expenses for fiscal 2017 were $11.7 million compared to $11.3 million in fiscal 2016. The year-over-year increase was primarily due to R&D expenses related to project materials and employment expenses related to the FOX-XP project.

Turning to the balance sheet and changes in the fourth quarter, our cash and cash equivalents were $17.8 million at May 31, 2017, compared to $2 million at the end of the preceding quarter, reflecting our successful public offering completed during the quarter of approximately 4.4 million shares of common stock.

The offering which included the underwriting full exercise to purchase additional shares to cover over-allotments resulted in net proceeds to the company of approximately $15.8 million.

The increase in capital from the offerings strengthens our balance sheet and our ability to meet significant increases in customer demand for our new family of products. Accounts receivable at quarter end was $4 million compared to $1.6 million at the preceding quarter end due primarily to higher sales levels in Q4.

Inventories at May 31, were $6.6 million, a decrease of $7.2 million at the preceding quarter end, the sequential decrease in inventory is primarily due to the shipment or two FOX-XP systems to our lead customers during the quarter. Property and equipment was $1.4 million compared to $861,000 in the preceding quarter.

The increase includes the purchase of a WaferPak aligner for our FOX-XP system. Customer deposits and deferred revenue were $3.5 million compared to $1 million at preceding quarter end, reflecting down payments for orders received during the third and fourth quarter of fiscal 2017.

Turning to our outlook for fiscal 2018, we discussed on past earnings call with the improved momentum in our business, we are seeking to provide greater visibility into our business outlook going forward.

For fiscal 2018 ending May 31, 2018, we expect full year total revenue growth to exceed 50% over fiscal 2017 and we expect to be profitable for the year. During prior conference calls and events and investor conferences, we have been asked to provide information on our financial model.

While I do not want to provide too much detail on gross margins, our product mix has a significant impact on gross margins. The packaged part business is lower margins than the wafer level burn-in business. And the consumable DiePak WaferPaks have better margins and systems as these are custom items.

Faster items such as loader aligner have the lowest margins. Based upon the sales mix during the quarter, the gross margins can fluctuate significantly. In terms of operating costs, in fiscal 2017 the company spent approximately $3.7 million per quarter for operating expenses and manufacturing overhead.

This number can fluctuate based upon sales levels resulting in higher manufacturing costs and sales related expenses for new product introduction where we incur higher non-recurring expenses and R&D costs. Based upon our revenue forecast for fiscal 2018, we expect a slight increase in our operating costs for the fiscal year.

The last expense item is interest from our convertible note. We have an outstanding note with the banking partner that draws bout $140,000 interest per quarter which should they convert the shares go away. The price of the convertible debt is deeply in the money at $2.30 per share.

Well, we are not aware of any indication that the banking partner may plan to convert these shares anytime soon, these certainly have the incentive to do so prior to the note maturing in April 2019.

One last note, we are pleased to have announced last month that Aehr Test was added to the Russell Microcap index reflecting our continued success in providing our advanced test solutions IC manufacturers.

As we continue to execute on our strategic plan, we look forward to the additional visibility and investment community exposure that comes with being part of the index. This concludes our prepared remarks. We are now ready to take your questions. Operator, please go ahead..

Thank you. [Operator Instructions] And we will take our first question from Christian Schwab with Craig Hallum Capital..

Hey guys, congratulations on a great quarter. As - and thank you for the guidance going out for the entire year.

As we look at that guidance gain for greater than 50% revenue growth, can you help, as you guys build that model, what type of the assumptions of success in number of systems are you counting on from your two lead customers, your two lead FOX-XP customers versus maybe continuation of strength on the ABTS side or more orders from your new OEM customer, if you can just give us some granularity around that, that be very helpful?.

Okay. So thank you, Christian. Let me give you some. One of the things in particular because of the small number of customers that we have, we have to be particularly careful with respect to any kind of forward-looking forecast that we have from them.

So I am going to be intentionally vague if you will as people have heard me before, I know a lot more than I can talk about. But I will at least share to give you a feel for the mix.

We do absolutely believe that we will get incremental systems and upgrades from our lead customers in just the current applications, if you will, for the year, and that’s part of our plan.

We do anticipate not only chipping the revenue in backlog of our ABTS systems, but we are anticipating incremental orders for ABTS systems from now our largest customer as well as others. We are counting on some, albeit I am not sure I would consider even material revenue on our OEM customer at this time, which represents some real upside in that.

I would say that we believe that there is upside within all of the current installed base as well as, as we add incremental customers which we are planning for in terms of some bookings.

So I believe that we are confident in how it’s gone with our lead customers and lead applications and believe that that will lead us to new opportunities, not only potential within those customers and there are sub-cons but within other customers in adjacent or similar markets. So it’s relatively broad which helps us with our kind of mix.

And certainly on our FOX products, we will not only get systems, but incremental WaferPak and DiePak sales.

And within our forecast, we will continue to sell DiePaks and WaferPaks to our installed base, which is something that I think is somewhat subtle in our model that as we increase our installed base of systems not only with our FOX-XP, but the FOX-15 systems that we shipped in the past, we will get incremental consumable revenue associated with that installed base with each new design turn, each new device type itself will require new sets of those WaferPaks or DiePaks..

Okay, that’s great.

Again what should we be monitoring or keeping track of that could make the 50% number a little conservative in 2018, should we be, obviously if there is, you know huge big customer order from one of your lead FOX-XP customers, but is there anything else that you are paying close attention to that would make you most excited to see over the next four quarters?.

Okay. Well, you would perhaps appreciate the amount of time and energy we put into this small little forecast – the small paragraph on forward-looking forecast as we have not done that certainly any time in recent history, so we chose the word exceed 50% very carefully, so surprised you didn’t ask me to bound it on the other side.

But certainly, we have announced all significant orders where we can, there are sometimes we have to be a little careful of its one-off with one specific price point, but we don’t put orders in drawers and wait for timing of it. They tend to come out immediately upon acceptance of those orders.

And so your leading indicator from us is just going to see how the year progresses in terms of orders. And we will keep people updated in the quarterlies. Related to macro or market conditions, to some extent obviously, we are not necessarily dealing with macro semiconductor cycles here yet.

As we are primarily designed in on key new programs with our customers with new products and new applications in many cases, and so it’s very specific to those customers although dealing with the automotive guys and the things that are going on there in the mobile phone and mobile application type applications that we see with multiple customers.

It’s got a broad sense to it and to watch those markets, but I’d say obviously the primary indicator is just watch our body language and look for announcements..

Alright. I guess my last question since they could just cut to the chase, I was trying to get there different way, because I think the answer is that you suggested you would.

So, if it’s – on the upside given everything that you are seeing and the customers that you are working with, what is the potential upside that revenue could do on a year-over-year basis at a number that is greater than 50?.

We’ll have to leave that to your soothsaying as well, Christian. So, what I tried to make sure people understand is we have the infrastructure and capacity to address significantly larger numbers than we are currently forecasting. Timing is always a challenge and how will we grow into the markets that we still believe are there.

I mean, we absolutely believe there is significant opportunities in these mobile automotive applications, the new communication markets that are driving some of our business and maybe you will have more color in some of the other questions that are asked, but we are not here to bound it on this.

And we gave you a floor at least this time where I hope that helps, Christian..

That’s very helpful. I will let somebody else ask some questions. Thank you..

Thanks, Christian..

We will take our next question from Geoffrey Scott with Scott Asset Management..

Good afternoon..

Hey, Geoff..

Specifically, I am not going to ask you for an upper boundary, because I appreciate the lower boundary so much. There is so much going to do the doctor it didn’t hurt so much after all, did it..

We will see..

Couple of quick questions really on the balance sheet kind of thing.

Is your FOX-1 customer going to be a top 10% customer?.

I am sorry, the FOX-1..

Right..

No..

So you only have three 10% customers..

That’s correct..

Okay.

So far, you have three production orders for the XP, two from your indirect customer and one from the direct customer you described as enterprise and server related, right?.

You have the numbers right with respect to what we were referring to as our lead and our second lead customer, yes..

Yes. I think you have always described that second lead customer, the enterprise and servers that you expect upgrades.

Would you expect upgrades before a new system order or after this system order?.

Probably be more. There had been discussions about in parallel, but for now I think it would be more – but it makes more sense for that to be before, but not certain actually..

Okay.

The two systems that you shipped them in Q4, you recognized revenue on both of those, correct?.

Yes, we did..

Okay. So, there is nothing in there that’s material that’s shipped, but not recognized..

I believe that’s true. So, we do have backlog in the orders. So, there are some things that are shipped, but have not scored revenue yet, correct..

But it would not be material, right..

Not be material, in terms of which shift that had recognized revenue..

Okay.

In terms of the ABTS thermal chambers, you announced the first order, when would you expect to see another one from that? Are you talking about 6 months from now or 3 months from now or a year from now?.

That’s a good question. We are currently forecasting additional orders within the fiscal year and there is a relatively wide range right now on when that could happen. And so I don’t have complete clarity of the timing of that. I have been given specific numbers that have a pretty wide range on them..

Is there a wide range on timing and/or a wide range on number of systems?.

Both relative to what the initial waves would look like..

Okay..

Sorry..

That’s okay.

I didn’t mention China specifically you have been doing kind of onesies and twosies at the ABTS, what’s happening in that market?.

I actually just went to China a few weeks ago and visited I think 4, 5 customers. I think we have announced lead 7 customers in China if I get that wrong, I apologize, but that sounds about right.

And you know what like everyone here, there is lots of things going on there with respect to things driving their semiconductor markets, the investments going into fabs, into the supply chain, into the memory side of things, we do believe that we will be getting incremental orders. We have actually won more than our fair share in there.

The ABTS is I wouldn’t call it a standard, but it’s in a number of labs and IDMs and test houses and like the first ones that were installed.

And we don’t see it right now as something that is a significant number to us, but we have got a good view from the fact that we did get installed in some of those early customers and don’t believe we are losing significant share or anything of yet.

So, I didn’t mean yet as we anticipate losing share as much as there is just not a lot of business going there right now..

But you are relatively happy with your current position in China?.

I would say that’s true in the logic space. And as you know, we have not been selling significant amounts of burden systems from memory.

And I believe that there are memory applications in China that are growing and driving growth there that we are looking to our roadmap for the ABTS and FOX products of how we could address some of those opportunities..

Okay. Last question, thank you for breaking out the quarter’s revenues, you said $1.2 million for service that as I recall is higher than kind of the average run-rate.

Is there something unusual in there or is that a new run-rate because of your expanded customer base?.

It has some of the – there are services and support that are not the bundled, but not included if you will with our FOX systems. So, there is some spares and some onsite support and some other services that were associated with those first two installations..

Yes, Geoff. We have – I have actually a detailed breakdown here as Gayn – it has a couple of hundred thousand in spares. We also have upgrades of a little over 100. We have application engineer support in time and materials of about 200,000 each.

So, those are above the run-rates, each not material on a standalone basis, but it does add up to couple of hundred thousand dollars..

So, would you still be looking at something between 750 kind of an average run-rate basis?.

I think that’s fair and would expect that, that would grow along with our business not only with the bundled services, but with service support contracts in support of the installed base..

Okay. Again, with that I will let somebody hop on, but thank you again very, very much for the color. I appreciate it..

Thanks, Geoff..

We will take our next question from [indiscernible]..

Again, in the past, you mentioned that the XP could increase your TAM, the north are around $300 million, is that still the case?.

I believe so. I think that the opportunities we kind of broken about in a couple of different areas on what we have sort of generically drawn a circle around, which we refer to as sensors in automotive mobile applications of a couple of $100 million. We are still trying to get our arms around how big that can be.

And part of that includes how fast people would turn their consumables, because remember that the WaferPak or the DiePaks are not a significant portion, often half of the initial test system of production test cell order.

So if there ends up being faster terms on that, meaning the devices don’t only last 2 years or 3 years that could grow – that could be a significant growth factor.

I don’t think it was on the call here I had an interesting conversation with somebody recently related to the automotive side, we have automotive customers today that do wafer level burn-in. In fact our oldest wafer level burn-in production account is an automotive application and they have been using our WaferPaks for 7 years, 8 years.

It was interesting we are just now seeing some incremental revenue with those WaferPaks are finally actually wearing out and so they are doing some refurbishment of them. And but those devices have lasted that long.

In a discussion related to the automotive space, we were thinking similar that these applications, these automotive devices last forever and ever and ever. But actually if you start to think about the dashboards and the LiDAR systems and all that we are starting to drive our business. I don’t know they are going to last that long.

I mean 7 years ago I don’t think I want anything in my dashboard that’s 7 years old. So that stuff is moving so fast. It maybe that our model on the automotive stuff would drive consumable turns faster than at least historically.

The other areas is, we do see that that, as we talked about before on the NAND flash side, we absolutely believe that NAND flash is driving burn-in revenues at both package and potentially wafer level, but the value proposition of that is still real and it’s something that as we think we talked about in the last call that as we finish up the FOX-XP, we would like to kind of turn our attention toward some of those customers again with our shiny new products and with the confidence of the product that is now in production to take a look at that market again and that is again I am pleased a couple of hundred million dollars for that market size as well..

Yes.

That’s what I was getting at is roughly a couple of hundred million for the stack die applications, I think you said in the past that you hope to redirect your efforts towards that application maybe before the end of the summer is that kind of still your hope?.

Without getting summers run in fast here already, but it’s certainly something that we will be looking at this fiscal year. And as we have stated before, I think to be candid the risk profile of such a large purchase from us is a smaller company on a product that had not yet been developed or proven. I think it was a challenge.

And as we now have those products in at least a couple of major customers and sub-con and you can come physically look at the product, I think it creates a different value proposition if you will. And we would hope to get the attention of some of those folks and try and capture some of that market..

And when you redirect your efforts towards the application, would we kind of get the sense of that through an order announcement or is there a lot of upfront work on your part to develop that customer market before you would deal with or announce an order?.

Well, I would certainly – it’s not going to be as easy as buying it off the web. So there would be work on our part most likely benchmark some level of R&D development depending on the customer. And so it’s not an eminent thing. I wouldn’t want you to be believing that we are about to announce any orders in that space..

Would your best guess at this point would that first application in the stack die, would that more than likely involve an existing customer or would that be a new customer?.

That’s an interesting question, while the trick question there is that with our current customers they have opportunities in those applications in other divisions or areas. So arguably those customers, I would believe would believe us to be much less risk because they now see us in production within their other product lines.

And so it might be an easier sale if you will. But I am not going to guess as to where the first customer would come from because we have talked with other companies that are not FOX-XP customers so far as well.

The value proposition and just as a reminder for those we are kind of talking and talk here a little for folks listening and so the basic concept of what’s going on in the flash memory space and now everybody knows what flash memory is, we have it in our digital cameras and USB sticks.

For one of the critical applications that’s driving the primary vault in the flash memory semiconductor content is solid state disk drives, where instead of the hard disk drive that you find in your computers, they are being replaced with a solid state fully semiconductor based hard disk drive and their major investments like Western Digital went and bought SanDisk.

For example, Toshiba is up for sale and there are all kinds of players looking at it. The biggest value proposition is in the solid state application where that critical, the big differences is the retention and reliability of that life is significantly higher than it was in digital cameras instead of USB sticks.

And so the quality reliability and the density are huge value propositions in that space. I was just looking online and you can go buy a single semiconductor chip for that 6 terabit for $650 right now at one of our components suppliers. And that has – I was trying to do the math 16 guys stack in it.

So if one of the devices inside that single semiconductor package sales during burn-in and all of those devices are going to package for a burn-in today. The other 15 devices are thrown away.

And so in that application it would be highly valuable for a customer to do the burn-in step of the individual die at wafer level prior to stacking it into 16 of those in a single package. So the value proposition is very clear.

We have actually in the original prototypes and benchmarks of the FOX-XP system, we proved capability to be able to contact the entire 200 millimeter and 300 millimeter NAND wafers in a single touchdown, very, very cost effectively. I think the math ended up being for less than about $10 per hour of cost of test.

We could test an entire wafer and if you are one – some of the potential customers listing out there those are real numbers and that’s not just capital depreciation.

So it’s a key opportunity for somebody to go put four hour or five hours of burn-in and add a very small incremental cost to an entire wafer and it will pay for itself and yield almost immediately. So, there is a real value opposition there, Larry and I am still very passionate about that space..

Right.

And would that – is that the expected time of the burn-in on the order of six hours or less than six hours somewhere in that ballpark?.

You know what, I know for a fact I have heard smaller and larger numbers than that in that fairly wide range. I mean today in non-flash applications, we have tests in production with burn-in times that range from 90 minutes to 48 hours.

So it can vary, but memories tend to be on the higher end of the burn-in time, so particularly early on in their life and then over time they might get a little bit lower..

Alright. Thanks, Gayn..

You’re welcome..

We will take our next question from Orin Hirschman with AIGH Investment Partners..

Hi, how are you?.

Good. Thank you..

So my question is you mentioned – what you have mentioned maybe very recently in the prior call as well, but you mentioned with optical test capability or with the electrical test capability, obviously presuming more advanced semiconductors that have optical capability and for doing stuff like [indiscernible] that would never be a key capability, can you talk more about that capability versus any other ways that exist to test some of these devices, particularly very small ones if there are ways?.

Sure. So, little bet, I can, what I will share is that we have been testing optical type devices that are called transceivers that translate electrical and optical and vice-versa actually for multiple years and in production and engineering characterization.

Historically, what we did and actually what the customer requested was simply electrical powering and cycling of the devices to create an aging effect that allow them to effectively be to burn-in a specific quality level if you will.

We have recently added the capability and our XP to be able to provide the ability to individually monitor a relative power output of optical device in such a way as to be able to provide some parametric data that was useful for the production test of those parts. And I can’t go much more into it although we are very proud of that.

It’s a pretty impressive capability. And I do think one thing we are looking for is to be able to add more capabilities along those lines. There is so many things going on that you can read about.

We don’t want to talk about our customers anything else related to all the sensors that are going out there that have some sort of a light optical sensor and optical transmitter whether it be we have got some interesting things with smart headlights to smart LEDs to smart arrays that are on the transmission side to the receiving side of these that are so much going into all of the automotive cars and autonomous vehicles, the mobile applications as I should believe for a semiconductor test guy, it’s actually a really fun time right now, because there is just so many things that are going on.

They are so dynamic that as opposed to where things were maybe a decade ago, where it was what’s the next microprocessor or memory chip. We are working with so many customers on new concepts and designs of devices that it’s just kind of exciting to see where they are going.

Any of those parts, people don’t really have a good idea of what the reliability is going to be or they have an update and know that they are going to need to do burn-in. And so that rising tide if you will is really good for us we believe. And so we are in a pretty good place right now..

Okay. Just one quick follow-up but you may not be able to do in a quick summary, but if you could, it would be great.

In terms of some of the emerging new miniature LiDAR products, are those through anything for your type of test, do you any advantage on that type of test?.

I believe so. LiDAR or Wi-Fi right or there is a lot of different names, I am aware of some programs we are working on. I am not even sure of what they ultimately are being used for, but under the confidentiality, but we are absolutely working on those kind of category of devices in both actually package and what on our ABTS and FOX products..

Okay, great. Thanks..

You’re welcome..

We’ll go next to Geoffrey Scott with Scott Asset Management for a follow-up..

First follow-up Gayn, your R&D budget for fiscal year ‘18 let’s say it’s $5 million plus or minus, where are you going to spend those dollars?.

It’s probably on the minus side by the way, but we – it’s a good question. For certain one of the things we are doing is the birthing of the platform arguably we completed the ABTSP and then we embarked on the FOX-P program. Those were major multiyear programs. And I have been doing this for a long time, long before I got here at Aehr Test.

And if you do a platform correctly, that’s a big word to me. It allows you to basically – we built a system that architecturally allows us to have small building blocks or Lego blocks if you will to change one piece of the tester and allow it to serve a different application.

So although we have been able to prove with the FOX-XP, for example, that uses the same boards as the 1P that we can address multiple different, very different applications with effectively the exact same platform.

We also have some enhancements on a roadmap that would be a board turn or an enhancement to one of our channel modules that would allow us to address a different application or a different customer need. The beauty of that is these tend to be 4 or 6 month projects with a half a dozen guys or less.

And so they are bite-size projects, you can define them, scope them, develop them and release them all within a customer’s normal demand window, which is really our strategy here is to take those platforms and do enhancements both based upon general market requirements and things that we believe we could do to make it a higher quality product, but also to specifically address inbound customer needs.

And my intention is to remain with as much dry powder in the R&D organization as possible, so that when the right deals come along, we can quickly say yes. So, again, the bulk of the spend is done with respect to the FOX-P programs. We will be doing in small enhancements on both the ABTS and FOX programs.

And a wildcard is we are engaged in some really exciting customers and markets. If one of them comes along and says hey, can you build me something that’s bigger than a red box and we needed to decide we are going to go spend some R&D money. We will also do that and we will give you an update on that.

And I believe there is a reasonable chance that, that could happen too certainly in the next year, year and a half..

Okay. What I think I am hearing is that over the last 5 years or so, the R&D dollars have gone into building this platform that is substantially done. We now are going to focus on new current, the building blocks which will be short-term and faster financial return on R&D dollars.

Is that a good synopsis of it?.

That is exactly correct..

Okay, thank you. Appreciate it..

You are welcome..

And we will go next to Charlie Doe, a Private Investor..

Hey, good afternoon.

So, I was wondering what the inventory buildup was for the quarter and whether the quarter would have been profitable without any buildup?.

So, actually the inventory actually decreased. We are about $7.2 million in revenue at the end of Q3 and then we went down to $6.6 million at the end of Q4.

And the reduction was really at the end of Q3, we were in the process and almost completed and shipped one of our FOX-XP systems that was actually shipped in the very, very first part of March, which is the start of our Q4. So, there was actually a reduction in the inventory levels..

And so what were the expectations for the FOX products deliverable once they were installed did they exceed both the customer and company expectations in terms of their performance?.

Yes, let me take that. I believe so. I think interestingly we pulled in the shipments specifically on one of the customers. On the other customer, it was consistent with what they had been telling us when they wanted to ship it.

I don’t mean to parse my words, but there was some shifting around at one time as to when they – when and where they wanted it to be shipped. And I believe we have two very happy customers right now. So, we are off to a good start.

There is always things that are on the tail, but the XP is probably one of the most buttoned up and complete products that I think our company has built in a very long time with a substantially smaller tail to the development of it.

So – and that was really met with how fast it went – we went from an order to a internal sign-up by the customer and shipments that probably has a shorter amount of time than any product developed in a long time at this company..

Right.

And so – but in terms of the performance in terms of cost savings for the customer, maybe they haven’t been able to measure all that yet, but what is the feedback you have been getting in that regard?.

Right now, I think we have gotten very positive feedback with respect to needing its throughput, certainly at price points that we have talked to them about the follow-on WaferPak and DiePak sales. They are right with what we had expected and budgeted.

The one thing I think that has been I don’t want to say surprising, but a delight if you like that word for the customers. The system is very accurate and very capable for what it can do.

And historically I think people may underestimate Aehr Test as a burn-in tester as opposed to a test system, whereas test systems are more – people are more used to it, their digital functionality and capability and voltage and current specifications, both in terms of accuracy and resolution.

This test system is much more a test system than a burn-in system in terms of its capability to individually measure and monitor so many parameters of the device that I believe that in the applications the customer has been maybe surprised in a positive way at how well we can characterize their devices.

And so we have been able to provide them with data that they absolutely did not get previously on either their other test system, characterization testers or alternatives and so that’s a positive thing for us..

What is the market potential for the ABTS thermal chambers and kind of how would you describe Aehr Test Systems positioned in the market with that new product?.

So Charlie I am not, I guess not only because you not announced exactly who you are, what company you are with, but we do try and hold some of these things proprietary in terms of competitive knowledge.

What I will tell you is that there are companies out there that sell chambers for living, Aehr Test in our 40 year history is probably bought from most of them. And there is a bunch of companies that sold 15 years, 20 years ago that are no longer in business.

Imagine that at some point people that were building large air conditioning systems or subsystems of pizza ovens also made there thermal chambers that people would mold electronics in. Many of our competitors today will build electronics, but buy chambers from those third-parties.

What we found about a decade ago is that we were unable to get the quality and capability on the market that we believe we needed for our systems to make these high volume production high power burn-in systems, so we embarked have designed and developed and patented our own chamber that we have built to our specifications by our subcontractors.

We have always sold that chamber. We sell it in our ABTS, it’s also the chamber of the FOX-XP system.

But without getting into details because we just won’t do it, we found ourselves with an opportunity that after months and months of negotiation determined it was an area we could not we and we are not competing with and shows to work out a contract with an OEM partner who would buy that chamber for their own purposes where they put their own electronics and software.

There are some very large opportunities out there for test, burn-in, system level test applications, we think this is one of those. And I think what we said is there is a material – materially large opportunity for us as a company..

Great. Thank you very much..

You’re welcome..

It appears there are no further questions at this time. So I will turn the conference back to Mr. Gayn Erickson for any final remarks..

Alright. Well, thank you operator and thank you folks for joining in on our – to help us with the end of our fiscal ‘17 where as we said we sit on the edge of our seat excited about heading into fiscal ‘18 and look forward to keeping you guys updated regularly on our quarterly calls.

As always if anyone has follow-on questions you need, you can contact our IR folks or if you happen to be in town in Fremont, California in the Silicon Valley, we would love to set something up and meet you. Have a nice day..

This does conclude today’s conference. Thank you for your participation. You may now disconnect..