Good day ladies and gentlemen, thank you for standing by. Welcome to the Aehr Test Systems Second Quarter Fiscal 2013 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions). This conference is being recorded today, Wednesday, January 09, 2013. I would now like to turn the conference over to Mrs. Marilynn Meek. Please go ahead ma’am.

Thank you. Good afternoon, and thanks for joining us to discuss Aehr Test Systems second quarter fiscal 2013 results. By now, you should have all received a copy of today's press release. If not, you can call my office at 212-827-3746, and we'll get one out to you 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 its 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 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. Now, I'd like to introduce Gayn Erickson, Chief Executive Officer. Please go ahead, Gayn.

Well thank you Marilynn and good afternoon to those joining us on the conference call and also listening in to our online link on the web. Gary will go over our financial details in a few minutes but I want to first start by discussing the overall business and product highlights. Our topline revenue for the first quarter was 5.1 million, the highest we've seen in three years. Our test during burn-in business continued to grow. During the quarter we installed and received revenue on our new ABTS-P system from three different customers, two of which are new customers for us. These systems are being used for qualification and life test of higher power logic devices including advanced mobile phone and tablet processors, two very fast growing areas. We also announced that we received over $2 million in orders in the quarter for our automotive applications which were seeing follow-on production orders. These orders were for our ABTS or Advanced Burn-in and Test System as well as our older max burn-in systems. We continue to see a growing market for semi-conductors in the automotive space where high reliability and burn-in needs continue to increase. As consumer products meet with automotive applications, the need for higher reliability and reduced early failures are driving new companies towards high reliability EFR test and production burn-in for the first time. After what seems like a saturated non-growth market, we now see this market reemerging as a growth market for Aehr for many years. Our customer face of the ABTS systems is now up to 13 customers with 17 different customer sites and locations. Applications for these systems include automotive, communication, mobile devices that we just described and high power advanced logic devices and even flash memory. We’re also pleased to have received several very…

Thank you Gayn. As reported in today's press release, our net sales in the second quarter were $5.1 million compared to 4.8 million for the first quarter of fiscal 2013. Gross profit was 2.3 million for the second quarter or 45% of net sales. This compares to a gross profit of $2.5 million in the first quarter fiscal 2013 or 51% of net sales. Our gross margin decreased due to a change in mix in our system and upgrade business. Last quarter we had a higher amount of high margin upgrades including software and also the completion of the first milestone of our new FOX product development project compared to this quarter in which we didn’t see the same level of high margin transactions. Operating expenses for the second quarter were $3.0 million compared to $2.7 million in the first quarter of fiscal 2013. SG&A was 2.1 million in the second quarter compared to 1.8 million in this year’s first fiscal quarter. Sequential increase in operating expenses in the second quarter was primarily related to severance charges, pre sales, support costs and commissions to outside sales reps. R&D expenses of $962,000 were basically flat with $930,000 in R&D for the first quarter of fiscal 2013. As stated previously, R&D spending fluctuates from a quarter to quarter depending on the development phase of our new products. Our net loss of $811,000 in the second quarter of fiscal 2013 or $0.09 per diluted share compared to the net loss of $296,000 or $0.03 per diluted share in this year’s fiscal first quarter. Net sales rose 31% to $5.1 million in the second quarter of fiscal 2013 compared to 3.9 million in the second quarter of last year. This quarter we reported a net loss of $811,000 or $0.09 per share compared to…

(Operator Instructions). Our first question is from the line of Tom Diffely with D.A. Davidson and Company. Please go ahead.

Maybe one more question on the margins. The resulting 45% gross margin you had for the quarter, is that representative of what you typically see for system sales then without a lot of software?

No, I'd say depending on revenue, it’s obviously a big factor of what the revenue level is. We typically see 45 to 50% would be a normal system margin.

This is actually I think a little worse than normal on any representative quarter.

Is it the byproduct of just having new systems going out or just the type of system then as well?

It was a little bit more to do with the product mix I would say. I mean we had a shift in some of our WaferPaks business and we talked about our upgrades typically with systems that are out there when we do upgrades and enhancements particular software. Those are higher margin business for us. And then the way relative to the previous quarter in particular, we have development milestones associated with this new FOX development and we received our first milestone that previous quarter and this quarter we actually did not which was not the plan we had anticipated receiving that and it got pushed into this quarter.

So I guess Gary in the past you talked about a cash breakeven that was in the low 5 million, has it gone down now with the restructuring?

Yes we think it has. We think both the P&L breakeven and the cash breakeven have probably gone down about 0.5 million and as always there is a caveat on there that the product mix cash impact those numbers, so it’s not doubtful from one quarter to the next but yes, the cash breakeven will come down about 0.5 million.

And Tom, the way to look at that is the expenses have gone down about 250K a quarter and using that 50% gross margin, that’s where that resolution came from.

Okay so when you look at the SG&A, most of the difference there was the charges it sounds like quarter over quarter?

Yes it was commissioned, it was some presale support cost that we incurred and then there were also some severance charges that appeared there.

All right, so I guess when you look at the cash then, a biggest question is, it sounds like you seeded the market with some nice new products, how do you feel about your cash when it comes time to start ramping up some of these production models.

One of the good things about that is, as business comes in, usually we’re able to expand our lines, our borrowing lines from commercial banks in those situations. Also what we've been requesting our customers to do when there is a larger project involved is to make a certain percentage payment with the order and that helps us go through the process as well. So as business picks up, we see that as good news and we do anticipate we’ll be able to handle that.

And Tom we actually as we reported in previous quarters, that was part of where our cash was being used as we were in fact ramping that up. So we were buying all the materials for those early shipments as well as some forecasting materials. And that leaves us actually in a position where this quarter we came down a few 100K on our inventory levels and as we stated, we actually brought back some systems that are resalable and we have targeted customers for that and so that will help us to reduce our inventory further and it turns the inventory in a source of cash as it should be. I believe our inventories are just too hot. But they were appropriate for where we were in the ramp and getting to this point.

And Gayn, you talked a little bit about the FOX, some new high volume potential customers, so does that mean that they will be ordering multiple systems there for the high volumes or do you just sample test the high volumes?

So the target for each of these customers that I alluded to in particular the ones that are all asking for pull-ins are actually considerable volume production applications. And I tried to allude to it here but let me just restate. One of the big opportunities and this is what we have communicated in our investor presentations that we see for Aehr Test, is that the functional test steps that were traditionally tested by the ATE companies, Teradyne, (inaudible), LTXCs of the world people have been developing design for test modes along with Aehr Test in our original FOX product where by in lower pin count test modes we can much more cost effectively test those parts. The challenge is to have the right tester architecture which I believe Aehr Test is very, if not uniquely qualified and is very differentiated from the functional ATE suppliers. And so we’re getting customers that really see the value that we can provide through a more cost effective test step and so they are pulling pretty hard. So that it’s interesting because and sometimes this quarter, we’ll talk more about the expenses and our operating loss if you will but we've got this mix of some really good news with respect to these customers asking for pull-ins and how fast can we get these products out to them.

Okay, and here you are talking just mainly about the DST type test as opposed to the burn-in test with FOX?

Well in many cases it’s the same, so our FOX products really, when we talk FOX versus ABTS, FOX is really aimed at wafer level testing and we have both single wafer solutions and multiple wafer solutions. In the ABTS, it’s really a package level burn-in machine. And so what we have in terms of pull-in from customers include both single and multi-wafer solutions for FOX in particular.

Okay, and then just finally on some of the consumables stuff you talked with WaferPaks business, is that market changing or is it really just the customers have a little leeway as to when they order stuff and so when things slowed down a bit, they just push out those decisions.

Well I am not prepared to say anything of a changing market, I know for certain that this customer kind of caught us by surprise in terms of some of the forecast and dropped a hole at least in just since we've been digging into it, we see that they forecast has come back a little bit and we’re trying to get more clarity on it. But I think at this point, we have been running with a particular base line and they dropped a hole in there and I've been working with the teams to get a much more clarity with our customers around what that tests are.

Thank you, our next question is from the line of William Smart of Cardinal Value. Please go ahead.

You mentioned the possibility of moving some of the sales of your new products forward. What is the potential calendar move of that would be in nine months instead of a year out or sooner than that?

You sound like my customers right now Bill and I am quite frankly part of that is in the discussions and the commitment on the customers. I mean it ranges from reprioritization to quite frankly adding additional resources based upon the financial commitment. I don’t believe this is and I am told our customers, I don’t believe this is a nine month pull in on a 12 month enhancement project. But I think there are still some leeway in there and but I think for expectations steading from a revenue recognition, I think that approximately a year out is still the right answer. Whereas I point out to the customers, I am every bit as motivated to pull it in as they are because the primary value of us doing this is not through NRE or development dollars, but it’s from actually selling the products.

Another question, I am not really that familiar with design through test. Does that refer to actually changing the design of various chips to make it easier to test or?

That’s right Bill and in fact the vocabulary in the ATE space which is I think I've introduced to people as my background for years, if you were to look at a device and let`s say it just for simplicity sake, I'll call it a memory device, and maybe the memory has 20 pins or so and its normal what I'll call user mode, but the designer who uses that chip has power supplies and goes into it and come out are like 20 channels. Tester companies for the last couple of decades have figured out how to lower the cost of test primarily through two ways. Testing more of those devices in parallel platform and to some extent lowering the cost of the tester. The latter actually has not been as easy because the fundamental electronics cost et cetera are pretty much tied on a per pin basis. About a decade ago, people started to realize that and that was if they were to design their semi-conductors, where instead of what would be referred to as broad side testing of the device where you have all 20 pins that the tester accesses, if instead I only access four pins and inside the device expands those four pins out to the 20, if that gives you a mental picture. It burns out at just for nothing else; the tester just got reduced by 60% in cost as the testers are primarily priced on a per pin basis. But there are subtle things associated with that. The architectures of the ATE systems that are out there were designed around in many cases hundreds if not thousands of tester channels for every power supply on the device. And now all of a sudden, there may be only a few tester channels for each power supply. And what that means is the testers that are out there are not fundamentally designed very well for this and in other cases, they just have the wrong architecture. If you follow the burn-in market that Aehr Test was a leader in, the design for test methodologies that Aehr Test in many cases pioneered for testing these devices and burn-in are more similar than that of the ATE side. And one of my greatest interest in joining the company was that those architectures are much better suited both in terms of the performance and type of resources as well as the price points and so therein lies the opportunity that customers develop these designs for test methodologies and they look for solutions, Aehr Test has both IP and many years of experience to test your hardware architecture and software that quite frankly is very well suited for this.

(Operator Instructions). Our next question is from the line of Geoffrey Scott with Scott Asset Management. Please go ahead.

Last quarter you gave us a backlog direction, you said that the book to bill was greater than one. Can you update us on that please?

Yes, I started down that path and I owe you guys to continue on. In this case actually it was less than one and the backlog has gone down a little bit from last time. So each of the last few quarters I was able to point out that we were kind of raising the watermark each quarter and so that’s what I prepared to share with you right now Geoff.

Okay and the revenue forecast for the current quarter?

Well we are looking at our forecast range right now and trying to understand exactly what that ends up looking like and I think in the last couple of quarters, we had been able to at least guide with a level of clarity in terms of slightly up or about the same with improving operating results. And I am looking right now and given the uncertainty with that we’re seeing in the customers, I am hesitant to put a number out right now and so I realize that that’s vague, but I think the prudent thing right now is to not give a forward-looking forecast.

Going back you had said I think maybe last June, Spanxion had ordered another FOX-1 and then you said there was an order for FOX-15. Have either of those been shipped?

Okay, so I am quite certain that I haven't mentioned any of my customers that directly…

You said at FOX-1 to an existing customer.

You know many of my favorite customers listen in and I don’t want to be getting myself in trouble here, but we did mention that we had a FOX-1 that shipped and we did support revenue for.

But that was in your last quarter…

No, no, no, that was couple of quarters ago Geoff as I recall it, it’s not three I think. And then we did make a public announcement of an order for a FOX-15. Actually we have not shipped that for revenue yet.

Do you have any idea when you might ship it for revenue?

Actually we’re expecting to do that later this quarter.

Later this quarter.

Yes.

You talked about 13 ABTS customers in 17 sites. When is that number likely to be a year from now?

Well I am going to try to be vague here. I haven't thought about it in that terms. I know I have a forecast. We do plan for it to be up and I don’t know I am ready to give you a real number, but if we look at the number of customers, I mean the one that in ABTS, for those people listening and aren't familiar with the advanced burn-in and test system, we’re very proud of this but the market for the burn-in side is very well known. Many people may not know that pretty much every semi-conductor device in the world goes through a process of a qualification and early failure rate call to validate that it will run for so many hours at certain temperature ranges etcetera. And we have a very long list of customers including the four of the top five semiconductor companies in the world that use our product. That is true for all from an engineering and for high reliability applications such as automotive and now we’re seeing some in mobility, obviously defense, people do what's known as an extended test or a production burn-in but they also use that tool. Why bring that up is, it’s not unreasonable to have a very long list of customers. This is not like the memory space where there is only four or five big guys. So what I will leave you with is that our goal is to continue to increase that numbers substantially on an annual basis. And this isn't like where to saturate the market if we hit 20 or even 30 customers.

Okay, of those 13, how many are currently in production with ABTS?

Okay, let me clarify. Are using it for our production brand application is what you meant by contrast to engineering?

Right.

I think we've got a little bit of questions; I am taking around five right now off the top of my head.

So five production and eight engineering.

That’s right.

How many of those eight engineering do you think you would convert to production within the next 12 months?

Actually that’s interesting. In general, when I described it as an engineering account, what I meant is that they are using it in what they are called engineering qualification application. So an engineering customer might buy multiple of them. In fact we have customers that do that. In a production account, the application is designed for actually testing the part before it gets shipped to the customer. In engineering you test the part to validate the design and then you throw it away when you are done, a little subtle. But in general, what you may be alluding to is fair. Production customers tend to buy more. We have production customers that have more than 100 systems whereby an engineering customer I think who might have a few that are in 10 or more. In many cases there are a few type systems.

Our next question is from the line of Marty Cawthon with ChipChat Technology Group. Please go ahead.

Gayn, you’ve been the CEO of Aehr Test for just about one year now, just a little bit over one year, and I'd like to hear your comments on how the industry has changed in this past year and just some other comments that you might have on your experience there with Aehr Test, what it looked like a year ago and what it looks like now to you.

That’s a good open ended question. You just missed the happy birthday, because I think it’s just been a couple of a few days past that of my one year anniversary. So let`s see here. So in many ways, and it feels a little bit full circle, I stand here today feeling very similar to what I felt a year ago with in some cases, even some of the same and other cases, new customers that are looking towards the production EFT applications in a very positive way. I feel that we have more time and energy and experience to be able to confidently talk about our ability to build those products for them, is in one category. Relative to the test and burn-in side or the more traditional side of our business, I think that we continue to see the same macro level signs of automotive that is driving more and more need for reliability. In the last year I met with several customers that quite frankly come to us and say we've got these new automotive applications, tell us about burn-in. and so it’s kind of exciting because in many cases, the historical automotive companies have been doing a long time and understand all there is to know about it. But if you look at the new companies where a consumer is meeting automotive and they are kind of new and interesting applications and so it feels fresh. I think at the same time we've seen some shifts over this year which, it felt like a year ago the entire down turn was completely behind us completely behind us but as we look through this last year and some of it may be a little more US focused than we’d like to admit with some of the things…

(Operator Instructions). Our next question is from the line of Geoffrey Scott. Please go ahead.

Gayn you talked about three customers that have bought into the development of a new FOX-1. From an engineering perspective, are they all targeting kind of the same objective? Is this fairly easy for you all to manage or the three distinct objectives where you have to prioritize what you’re trying to accomplish?

Well I'll tell you what, so it turns out they are not all FOX as you would call 1s. And actually a couple of FOX-1s, what we will be using in our vocabulary more like a FOX-15. What I have explained in some of our investor conferences in the past are strategy which I think is absolutely the right thing and one of things that really driving for, from the moment I got here, is to highly leverage our development work into those different form factors if you will. So each of these project leverage development work that we did in the P system, the ABTS-P. and so that electronics hardware, although morphed into slightly different form factors, but some of the basic circuits in the same software is applicable into if you will, a FOX-1 where a lot of resources come down on to a single wafer or a FOX-15 where we’re able to test up to 15 different wafers in parallel using our proprietary WaferPak contact technology. They are all leveraged. They are all slightly different. They are all not competing with each other themselves as customers. But in the sense that all of them are vying for our precious resources, they are not 100% aligned other than they all want our products sooner.

And how do you decide which one gets their first?

That’s a good question that’s going to be part of our working with those customers and using our best management judgment as many of those customers are on the line right now, I am trying to do the best I can to probably answer those questions.

I am showing now further questions at this time. I'd now like to turn the call back over to management for closing remarks.

Okay, well you know we covered a lot of ground here today and I appreciate folks listening in, those that were calling in and had questions and much longer list of folks that were listening in online. As always I put the invitation out if folks have follow-on questions or happen to be in town here in the San Francisco Bay area and would like to come in and take a look at what we’re doing, we’d be happy to host you and we look forward to our call quarter out and look forward to that conference call with everyone. So thank you very much for joining us.

Ladies and gentlemen, this concludes the Aehr Test Systems second quarter fiscal 2013 earnings conference call. If you’d like to listen to a replay of today's conference, please dial 1800-406-7325 or 303-590-3030 with the access code of 458-5422. We like to thank you for your participation, you may now disconnect.