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

Thank you, operator. Good afternoon and thank you for joining us today to discuss Aehr Test Systems' fiscal 2014 fourth quarter and full year financial results. By now you should have received a copy of today's press release. If not, you may can MKR's office Investor Relations for Aehr Test at 323-468-2300 and we'll get you a copy right away. With us today from Aehr Test Systems are Gayn Erickson, President and Chief Executive Officer and Gary Larson, Vice President of Finance and Chief Financial Officer. Management will review the company's operating performance for the quarter before opening the call to your questions. Before turning the call over to management, I would like to make a few comments about forward-looking statements. We will be making forward-looking statements today that are based on current information and estimates and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those in forward-looking statements. Factors that may cause results to differ materially from those in the forward-looking statements are discussed in our most recent periodic and current reports filed with the SEC. These forward-looking statements, including guidance provided during today's call are only valid as of this date and Aehr Test Systems undertakes no obligation to update the forward-looking statements. With that, I'd like to now introduce Gayn Erickson, Chief Executive Officer. Please go ahead.

Thank you, Jim. And good afternoon to those joining us on the conference call and also listening in on our webcast online. Gary will go over our fourth quarter and fiscal year 2014 financial details in a few minutes, but I want to first start by discussing our overall business and product highlights. We're pleased to finish fiscal 2014 with solid fourth quarter and full year results. Fourth quarter revenue was $5.4 million, an increase of 65% over the same quarter last year. We achieved non-GAAP net income of $443,000 and $239,000 on a GAAP basis. The difference between these non-GAAP and GAAP net income numbers is stock-based compensation expense. For the full fiscal year, we generated total revenue of $19.7 million, an increase of 19% over the prior year. We're pleased to have achieved our goal of profitability for the year as a whole with non-GAAP net income of nearly $1.3 million and GAAP net income of $422,000. In our fourth quarter, we had solid shipment of our ABTS package of our burn-in systems as well as a particularly strong quarter for our FOX WaferPak contactor, our WaferPak contactor is consumable fully for contactor that we provide for our FOX full wafers single and multi-wafer test systems. Shipments included WaferPak contactors for our FOX-1 single wafer and FOX-15 multi-wafer test systems for applications including flash and automotive device test and burn-in. We see our install base for both our FOX and ABTS systems at or near capacity, which is a good sign for the overall market as additional test capacity needs can drive orders with short term delivery requirements. During the quarter, we announced an order for multiple production capacity ABTS-P burn-in systems from a key customer servicing the outsource needs for engineering and production burn-in of package parts.…

Thank you, Gayn. As reported in today’s press release our net sales in the fourth quarter of fiscal 2014 were approximately $5.4 million, down 4% sequentially from $5.6 million in the third quarter, but up 65% year-over-year from $3.3 million in the fourth quarter of the previous year. Non-GAAP net income for the fourth quarter of fiscal 2014 was $443,000 or $0.04 per diluted share, compared to non-GAAP net income of $447,000 or $0.04 per diluted share in the preceding quarter. On a GAAP basis, net income for the fourth quarter was $239,000 or $0.02 per diluted share. This compares to GAAP net income of $212,000 or $0.02 per diluted share in the prior quarter. Gross profit in the fourth quarter was $2.9 million or 54% of net sales. This compares to gross profit of $2.9 million or 51% of net sales in the third quarter. Our gross margin was up slightly in Q4 versus the previous quarter, both of these quarters included shipments that incorporated previously written down material. Our gross margin may decrease somewhat quarter over quarter as we expect to ship fewer systems with any significant amounts of previously written down material. Operating expenses of $2.7 million for the quarter were up slightly compared to $2.6 million in the preceding quarter. SG&A was $1.7 million, essentially flat sequentially compared to the third quarter. R&D expenses were $1 million for the quarter, up slightly from approximately $900,000 in the prior quarter. As stated previously, R&D spending can fluctuate from quarter-to-quarter depending on the development of our new product. Turning to results for the full fiscal year, net sales for fiscal 2014 were $19.7 million, an increase of 19% compared to net sales of $16.5 million in fiscal 2013. As Gayn noted, we're pleased to have achieved our goal of profitability for the full year. Non-GAAP net income for fiscal 2014 was $1.3 million or $0.11 per diluted share, compared to a non-GAAP net loss of $2.8 million or a loss of $0.30 per share in fiscal 2013. On a GAAP basis, net income was $422,000 or $0.04 per diluted share, compared to a GAAP net loss of $3.4 million or a loss of $0.36 per share in fiscal 2013. Turning to the balance sheet and changes during the fourth quarter, our cash and cash equivalents were $1.8 million at May 31, 2014, essentially flat sequentially compared to the end of the third quarter. Net cash or cash less the line of credit, declined by $0.4 million. Account receivables at quarter end was $3.4 million, flat sequentially from the third quarter. Our inventories increased sequentially by approximately $0.2 million, accounts payable decreased by $0.4 million from the prior quarter end. This concludes our prepared remarks. We’re now ready to take your questions. Operator, please go ahead.

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

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

Okay. Thanks, Tom, it’s a good question. Actually directly the answer is current testers today can test the devices at wafer and in fact customers today do a functional test of a NAND wafer most often an entire wafer at a time, but the test systems can only test one wafer at a time. And company such as Verigy recently purchased by Advantest and Advantest and Teradyne are the world market leaders of those types of testers. But the average selling price of a tester like that might be over $0.5 million plus a $200,000, $300,000 wafer prober and that system can only test one wafer at a time. Our system is at a very low price, which we’re not talking about here, but substantially lower than that as we are able to share the infrastructure of our unique advanced burn-in and test system chambers that we load up with our also unique electronic test systems that we supply into the burn-in space, but we’re able to functionally test not just one wafer, but up to 25 wafers at a time. And so between the shared infrastructure of 24 fewer probers, 24 fewer large test heads and infrastructure and one-25 the floor space, we are able to deliver a machine to cost effectively test those parts. Now the goal in this case is not necessarily to displace those ATE systems, because the test times of a test step at that might be in the 30 minutes or so, we’re actually displacing these very long cycle times that can take half a day or more. And if the customers were to go and try and test those long cycle times that they do at package part on those systems, it will drive their manufacturing cost up to maybe two to three times the cost of the entire wafer whereby we can test it cost effectively for a very small percentage of the cost, in fact quite a bit lower than the yield loss and therein lies the beauty of it. People – I actually met with a customer recently and they specifically talked about understanding the value of this, but they had tried to evaluate how can they do it on and in this case, one of those testers I just described, but it was just too expensive to ever consider doing that. And their comment was this actually enables the ability to do those multi-hour tests cost effectively to save the money.

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

Well, in this case those test systems which in my previous role as I’m running the memory business of Verigy before we acquired by Advantest, our solutions supplied to test electronics they were ample enough to be able to test the devices, but there also each tester had a wafer connection that was quite expensive by contrast to what Aehr Test is offering. But again shares the infrastructure of a single wafer prober which is very expensive. So we’re actually approaching this in a unique way. The key is, today we actually shipped systems and are building and shipping 15 test systems that can test 15 wafers in parallel. That system today however does not have the tester resources to be able to functionally test the flash devices. That’s what we’ve added in our new P line of test systems. The first system was the ABTSP which we talked about in the introduction in the last couple of years including about six months ago with those shipments at the beginning of the year. The next system is the FOX 1P which as we said can test one wafer at a time, but with a lot more resources, over 16,000. And then the FOX-XP where we have enough resources to be able to test all of the die on wafer for device like a flash memory. But we can actually test up to 25 wafers at a time.

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

We have discussed this in previous calls, but FOX 1P we’re already taken orders on both engineering and production systems and also be for those first shipments that I described for later this year. The FOX-XP we have not announced any customer order yet and of course as we feel appropriate we would do that. But the FOX-XP we believe is a leverage product offers the FOX 1P we continue to engage with multiple customers and the definition of that to ensure it has the features that it broadly covers the market and the customers for these applications. It’s reasonable to think of that as about two to three quarter gap between the FOX 1P and the XP.

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

That’s correct. That’s correct. In a typical application I mentioned a very good application as I mentioned the Microcontroller or the emerging market where companies that are doing automotive devices that today use a reliability test step on systems like ours, like our ABTS for example. They’d like to move our test step to wafer level. And at the wafer level they currently test that with an ATE platform, but with significantly fewer resources, maybe a 1,000 tester resources or there about. As they go to reliability test that can take hours. The parallelism offered by the ATE platform that’s maybe 32 to 64 devices in parallel just on a cost effective to be able to get there. Our test system with the 16K resources have the ability to actually test those microcontrollers in one insertion all in parallel. And when the test times go up significantly related to these reliability tests it’s the only way to do it cost effectively. The analogy is exactly what happened with the memory test world where as device test times of flash and DRAM increased substantially, the only way to cost effectively test them was to be able increase their parallelism substantially. Those same design for test modes and the ability to increase the parallelism is what we’re offering with the new FOX 1P to customers that traditionally were using standard ATE system.

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

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

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

That would be fair.

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

No. we don’t have models that go out quite that far, but what we had said was the gross margin we wouldn’t be surprised if we saw the gross margins come down a little on a sequential basis, because we don’t have as much inventory with written off material that will be going into this shipment. From an expense standpoint, again haven’t given out specific numbers but again its spoken in the past about key staffing needs that we have to meet. We have actually been doing a little bit of hiring, so we would expect to see some increases in spending from that standpoint.

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

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

And Tom what I might share which I think it's fair without any real competitive information going out, is that the applications that we are talking to customers about not only have very long test times and therefore require a lot of capacity. They tend to be fairly high volumes. So in this case, these are not customers that we would expect to buy only one or few systems. Why that’s important? Is that as the products -- as we ship more products to single customers, there are -- if you will, they tend to be of the same flavor they get cheaper to build? So we’re not -- we don’t need a ramp significant manufacturing resources in manufacturing nor realistically in support. It looks more like what I would consider a memory model where you have a relatively fewer number of customers with higher amounts of purchases. However it's by contrast to where the test was say in 2007 where were very focused on couple of key customers for a good portion of our sales. We actually anticipate a much broader number of customers that will provide us with not only multiple different markets but different customers and in different regions to give us a little bit what I would say, diversity if you will.

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

Thank you, Tom.

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

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

Thanks, Collin.

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

Okay. It’s a good question, Colin. In fact we had presented at a conference just here recently and posted the slides out on our website which I encourage people to take a look at it. It talks a little bit more about these markets and the sizes and some of the typical customers that are key suppliers in those markets. The reality is in semiconductor in general, there are fewer and fewer semiconductor suppliers and fewer yet semiconductor test suppliers. I will get into the latter. But in the semiconductor space, there is in terms of flash memory suppliers or things like SSPs, you really talking about half a dozen suppliers. The SSPs themselves might be twice as many as that interestingly in many cases the suppliers of the memories are the suppliers of the SSPs themselves but not always. Microcontrollers, the key leaders in the microcontroller particularly those serving the automotive space, there is again maybe half a dozen or few more, many of which are current customers. And interestingly in the infotainment space although it would seem like there’s a much broader number of companies, the reality is within the dozen companies you’re really talking about all the key leaders. So is that really a lot or a large number of companies? Well certainly if you added them all up its 20 different companies and that would certainly make us a live diversity. We actually have a large number of customers today in our base business, we were talking last year and we stop counting but last time we were talking 13, 14 customers of thereabouts of our new ABTS platform. We continue to add new customers to that list. And so, we have a fairly wide number of customers again on our website, we’ll show you the partial list of our installed base, but we have literally shipped to perhaps 100 or more customers over the years. So in this case we have ability of to have touch points with customer because of our leadership in the burn-in and test base that we’ve traditionally been in that can help us in penetrating these new market opportunities and in some cases some of these new emerging markets, our companies they aren’t current customers of ours.

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

Okay. Well to some extent I’ll give a little bit of the shape without starting to share specific numbers, because we have lots of ears on line that are not just our shareholders. And I also Gary pointed out I didn’t answer directly about the resources to meet these potential new demands. So let me talk together about those. So one of the keys I think in success is building platforms that serve a wide range of market that have the ability to be customized as appropriate to be able to meet different needs. It’s a key to making a successful semiconductor automated test platform. In this case our FOX really are P or [propane] line of products, it’s been able to be leveraged first into our ABTS packaged part burn-in system. Next into our single wafer ATE platform and as I said following on with the XP multi wafer system. So, one basically system architecture and software is applicable across three different flavors of test systems that have very unique devices that they’re testing. Then within the platforms the ABTSP for example today is testing application processors for the things that are in most of our phones or tablets that we have that are doing automotive devices and communication devices. There’s a broad array because we build the system to have very capable electronics. It also is testing memories including flash memories. Those same electronics then is imported over to the FOX 1P which in this case is a single wafer in a very different test step and the FOX-XP, which is multi wafer and so they had another market. So the key is its been able to have a product that can be leverage both from an R&D applications and manufacturing perspective. Now having said that, we actually…

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

Thank you, Colin.

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

Good afternoon, guys.

How are you, Jeff?

Was there any NRE milestone achieved during this quarter?

Yes, there was one recorded as revenue.

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

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

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

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

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

So no machines itself.

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

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

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

Okay. Is…

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

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

Well, I think that you remind me of that, but there are a few sides of the coin of having the quick terms in shipments. In this case, I am going to refer to it as a feature. In fact we have recently won some deals as a result of being able to have shorter lead times whereby some of our competitors have standard five or six month lead times. We have typically been able to on 1Z, 2Z type deals ship in a month at times. And that also has helped as we have kind of standardized the ABTS-P system is very applicable into a number of different customers an applications, which allows us to hold an inventory of boards and chambers and then do a basically configure to order at times like in our quarter I will admit.

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

I think there is a little bit of let's point on with that too is we've been with some large multi system orders and are we particularly and some of those we've actually been consuming some of that, but I don't think it would be typical for us and actually not even ideal, I think it might be nice. I wouldn't expect us to be having multi quarter backlogs that's a regular course. As Jeff, I think you have visited us before, but those who have not we actually have significant manufacturing capacity here in Freemont. If you were to come and look on our floor, we have a large number of chambers and process and you can see our ability and particularly as the backlog and the orders kind of uniform to similar types of configurations, which has ability to build a lot of systems in a month or a quarter. And so it would be more typical that anything that has a longer lead time than their quarter, has more to do with our development schedule or in some cases, the customer gives us half a dozen systems and when them to schedule over some period of time. By the way Jeff, I will also point out leads to one of the conversations you haven’t gotten yet too more clarity around this quarter. As we shorten our lead times as a competitive advantage and as a way for our customers to be able to buy our product shipped quicker, it does lead towards less visibility on our part as we are seeing higher percentage of our business be in turns within the quarter than historically.

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

Yes.

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

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

Okay. Have a good one. Thank you.

Thank you, Jeff.

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

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

Yes, it sounds as a little confusion Bill. What are the ways you try and anticipate your orders in my business? If customers use our tools for engineering our qualifications and production testing, they buy them one whole system at a time or may increase the capacity of that system by adding bonds to it and they do that when they run out of capacity. So we have customers that have -- might have 150 systems on their floor and we during the downturn of 2000 let's say 2009 or 2010, those customers might have had 70 testers idle. While they are idle, they are not buying any more. And so if you track that slope and see as they get closer and closer to maximum utilization, that's when you can anticipate that people will be buying your systems and when they need one more, that's when they buy them. The good news for us is really off the board in our engineering qualification and production customers across the Board, both on FOX and ABTS. They are running really much -- pretty much at capacity with very small percentage of systems idle and of course at the end of the month, there are full types of deals. And so that's good because as long as that's the case, then that bodes well for us and they all are markets that are only buying more systems.

So you say, that's across the Board?

Pretty much, yes.

Okay.

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

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

Well, I’m not -- I think we’re pretty deliberate of the fact as you may have known from previous calls; we’ve been talking about these potential markets and how big we think they’re going to be and indirect questions of how big are they, we have not said. So that was part of why we put the press release out. We make sure our investors were able to see it. This is first time we’ve really called the market. A combination of confidence and third-party validation, so it’s not just what we believe in, but also to really be able to give our shareholders some visibility of the investments that we’re making at those markets. Now, those are not the only markets. We talk about some of the -- we’ve got even in our base business, we serve markets that are I think very valuable to our customers and to the industry. As I said, we have systems testing technically all of the three major tablets in engineering application, right. Very, very important -- we have testers that are key to automotive and some of those parts that are in the dashboards where companies are ahead of the game in terms of the quality. So, we serve a lot of very interesting markets. And I think if you look, there are some major test trends that are coming towards us, automotive, autonomous vehicles, just quality and reliability expectations of mobile processors and phones are very good. The DFT modes and test modes are devices across the board that are encouraging or enabling customers to move their test what I call shift left from backend test to wafer level where it’s cheaper and easier. Those are actually done with design for test modes that enabled and our test systems are extremely -- are very good at. And so -- and then of course I’ve talked about some of these other emerging markets, but there is a lot of markets that we plan which is obviously quite interesting when you think of the current size of the company.

Okay. Thank you very much.

Thank you, Bill.

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

Hello, Gary, hello Gayn.

Hi, Marty.

Hi, Marty.

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

Correct

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

Okay. And Marty you were…

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

Right.

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

As Gayn mentioned earlier he talked to the 2007 comparison a little bit, but at that time we had just one or two significant customers and we were doing everything to address those customers needs and we were very successful doing that and we didn’t have any situation where our facility was taxed or anything else, so we could have expanded much, much more. What we’re anticipating not exactly at today’s level but the level that we’re looking towards as these new products come online is we’ll be seeing much more diverse customer base. So we expect to have a number of larger customers that each have significant requirements and we expect that the company will be growing quite a bit from today's level in order to support those customers.

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

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

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

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

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

Well thank you for calling in and fighting the helicopter.

Okay. Bye, bye.

Bye, bye.

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

All right. Well, thank you very much folks. I had only covered a lot of ground here. We discussed that a lot internally. We really wanted to address the many questions that were coming in and make sure people understood the opportunities with little bit more clarity and color that we are making these key investments for. And should you have any more questions, as always, feel free to contact any one of us or if you happen to be in the Silicon Valley, feel free to make an appointment. We would love to have you stop by and check out our facilities. Thank you very much. Bye, bye.

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