Aehr Test Systems

Good day and welcome to the AR Test Systems first quarter fiscal 2020 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 Investor Relations. Please go ahead, sir.

Thank you, operator. Good afternoon and welcome to AR Test Systems first quarter fiscal 2020 financial results conference call. With me on today's call are Hehr Test Systems President and Chief Executive Officer Gayn Erickson and Chief Financial Officer Ken Spank. Before I turn the call over to Gayn and Ken, I'd like to cover a few quick items. This afternoon, Hehr Test issued a press release announcing its first quarter fiscal 2020 results. That release is available on the company's website at hehr.com. This call is being broadcast live over the internet for all interested parties and the webcast will be archived and the Investor Relations page of Ehr Test's website. I'd like to remind everyone that on today's call, management 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. Those factors that may cause results to differ materially from those in the forward-looking statements are discussed in the company's 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 Air Test Systems undertakes no obligation to update the forward-looking statements. And now I'd like to turn the conference call over to Gayn Erickson, President and Chief Executive Officer.

Gayn Erickson Thanks, Jim. Good afternoon to those joining us on today's conference call and also listening online. Ken will go over the first quarter financial results later in the call, but first I'll spend a few minutes discussing our business and product highlights. including our continued progress with our FOXP platform for wafer level and singulated dye and module test in Vernon. Then we'll open up the lines for your questions. While our revenue in the fiscal first quarter was lower on a sequential basis, it was in line with the expectations that we discussed on last quarter's call for a slower first quarter. We continue to expect to see a pickup in momentum in the remaining quarters of this fiscal year and are seeing continued growth in customer engagements worldwide, particularly for high growth applications that include photonics, silicon carbide, automotive and memory. This includes several new customer opportunities in our existing markets as well as customer engagement opportunities to penetrate new markets. We're excited to have announced last week an initial order from a new customer for our Fox XP system to enable high volume wafer level production test and burn-in of the customer's line of silicon carbide devices. This new customer is a Fortune 500 supplier of semiconductor devices with a significant customer base in the automotive semiconductor market and selected the Fox XP for its unique high voltage and high power capabilities. The order, which totaled over $3 million, includes a Fox XP system configured to test 100% of the devices on 18 silicon carbide wafers in parallel and multiple wafer pack contactors. It's our understanding that the higher defect density inherent in today's silicon carbide devices presents an additional test and burn-in challenge to achieve the initial quality and long-term reliability needed by many industries, and in particular, the automotive market. This is a new and very exciting market opportunity for AIR, as our FOXP family of products are cost-effective solutions for ensuring reliability of wafer and bare die in the emerging silicon carbide device market. We've successfully proven out our ability to test the customer wafers on our system as we've run a number of wafers in our factory as part of the initial qualification and also for the final buy-off of the solution and its ability to catch and remove the infant mortality failures that were working their way into the customer's modules. This correlation proved that we can successfully catch and weed out these failures, which is a significant cost savings and improvement in the initial quality and reliability for this customer. This capability is unprecedented in this space and provides our customers with a unique ability to improve their end product reliability in a very cost effective way. According to market research reported this past July by High Tech News, the major factors driving the growth in the silicon carbide semiconductors include the rise in demand of power electronic modules across various industry verticals, the increase in installation of solar panels for electric Electric Generation, and the surge in demand of electric vehicles, plug-in electric vehicles, and hybrid electric vehicles. An analysis of the silicon carbide market published this summer by Grandview Research stated that semiconductor devices manufactured from silicon carbide exhibit tremendous speed and exceptional toughness and are therefore considered to be a more effective alternative to silicon, particularly for higher voltage applications. They predicted future demand will be substantially driven by silicon carbide power semiconductor applications in aerospace, automotive, energy, and electronics with those applications that require very high levels of quality and reliability. We also have multiple customers using our FOXP solutions for test and reliability verification of silicon photonics devices. These customers have forecast the need for additional production test and burning capacity this year and into the future. and we continue to work closely with them to support their production ramp and plans to transition to high volume production test using our systems. With our full family of FOXP products, we're able to provide a seamless transition from initial product qualification to very high volume. We're excited to mention that our lead customer in silicon photonics has forecasted a ramp that we believe will drive new orders for additional FOXXP systems and a significant number of wafer packs this quarter. This customer, one of the world's largest semiconductor manufacturers, continues to look to air to support their high-volume production ramp, and wafer-level burning capacity is forecasting significant growth in shipments for silicon photonics devices that we expect to drive the need for additional production test capacity for multiple years in the future. During this quarter, we received factory acceptance from two new silicon photonics customers that we announced this past fiscal year on their Fox systems for wafer-level and module level test during burn-in. One of these customers is using the FOX-NP for initial product development, qualification and production and then plans to transition to high volume production test and burn-in of 100% of their silicon photonics chips using our FOX-XP multi-wafer singulated module test solution. The new silicon photonics customers completed factory qualification acceptance of the FOX-P family for full wafer test during burn-in and their integrated silicon photonics devices. They're doing 100% test and burn in other devices and are forecasting incremental production capacity needs to begin in our fiscal second half. They too are forecasting significant growth in shipments for silicon photonics devices over the next several years. We remain very optimistic about the silicon photonics and the photonics sensors markets. which we've had significant success with our FOXP products and consumable contactors. We believe these markets will be significant growth drivers for air over the next several years at a minimum. During the quarter, we also completed customer acceptance and manufacturing release to our new major customer for our new FOXCP single waiver test and burn-in system. This system is being used for 100% test and burn-in of devices by contrast to a sampling that will be used in a very high volume application for the enterprise and data center market with a build out of this production ramp over the next several years. As our customers move to high volume production test on our Fox XP and CP systems, we see their ramps driving significant incremental capacity of both our systems and also our proprietary wafer pack contactors and dye pack carriers. There's pent up demand for consumable wafer packs and dye packs that has not really been satisfied because while they have built up the number of systems they receive from AIR, they have not yet purchased all the contactors to fully utilize these systems. As we've talked about on past calls, as we grow our installed base, we believe we'll reach a point in the next few years where our wafer pack and dive pack contactors exceed over half of our annual revenue. The high quality and reliability requirements of mobile devices which increase with every new product generation is driving utilization of our tools for both wafer level and module level and singulated dye and module level test in Vernon. And we are engaged in critical new programs in this space that are expected to ramp next year and that we believe will require our systems as well as further drive our consumables growth. As we look to other addressable markets, we believe data storage market, network infrastructure, several devices related to the worldwide 5G build-out, electric vehicles market, and volatile and non-volatile memories, as well as heterogeneous packaging that enables new solutions with mixed technologies are all substantial new opportunities for our test and burn-in systems. All of these end markets and customers require devices to have extremely high levels of quality and long-term reliability and are perfect targets for our solutions. We saw a significant reduction in our operating expenses during the quarter, reflecting the structural changes we made this past year to improve efficiencies in key areas of our company. And we continue to streamline our sales organization and processes to address the customer opportunities we see ahead for our FOXP platform. As part of these changes, we've added a new manufacturer's representative in Europe, HTT, or High Tech Trade, to more effectively target the significant growth opportunities we see there. I recently returned from a very successful business trip to Europe where I visited several current and new potential customers with HTT. And this new sales partnership has already increased our exposure and activity with potential European customers. Looking ahead, we remain very optimistic about growth in systems and consumables within our installed base of customers, as well as expanding the number of customers with our family of FOXP solutions. On our package part systems business, we continue to anticipate an overall slow market recovery of these legacy traditional markets and customers for package part business and still have no forecast from the largest customer of our high power ABTS package part systems. Their systems are at fairly low utilization rate and so we do not anticipate additional orders from this customer this fiscal year. Our customer interest continues to be more and more focused on the wafer, singulated dye, and module test and burn-in level applications with our FOX line of products, and we forecast this to continue for at least several quarters. This low level of business in our packaged part business has been expected and was already built into our financial forecast and is not impacting our strong growth expectations this year that will come from our FOXP family of systems and consumables. We continue to expect to see a pickup in momentum as we move through the rest of this fiscal year. For the fiscal year ending May 31, 2020, we're reiterating our previously provided guidance for four-year total revenue to be between $27 and $30 million, which will represent a growth between 28% and 47% year-over-year growth and to be profitable for the fiscal year. With that, let me turn it over to Ken.