Good day and welcome to the Aehr Test Systems' first quarter fiscal 2016 financial results call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jim Byers, MKR Group. Please go ahead, sir.

Thank you, operator. Good afternoon and thank you for joining us today to discuss Aehr Test Systems' first quarter fiscal 2016 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 area code 323-468-2300 and we will get you one out right out to you. 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 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 today's date and Aehr Test Systems undertakes no obligation to update the forward-looking statements. And with that, I would like to now introduce Gayn Erickson, Chief Executive Officer.

Thank you, Jim, and good afternoon to those joining us on the conference call and also listening in online. Ken will go over the first quarter financial results later, but I will first spend a few minutes discussing our overall business and product highlights including our continued progress with the development and introduction of our new FOX-P platform of products. After that, we will open up the lines for your questions. We are pleased to report improved revenue in the quarter along with increased margins and strong net income on both GAAP and non-GAAP basis. First quarter revenue was $6.6 million with a non-GAAP net income of $613,000 or $0.04 per share and a GAAP income of $294,000 or $0.02 per share. The non-GAAP results exclude the impact of stock-related compensation expense. During the quarter, we fulfilled an important initial shipment of our FOX-15 multiple wafer test and burn-in system to the major customer - the new customer we announced back in April. We are pleased to ship ahead of schedule, delivering on the customer's request for earlier shipment than originally committed. This system will be used in production test and burn-in of a very high volume device used in a consumer application, reflecting the significant growth opportunity ahead for our unique and cost effective test solutions within the rapidly growing consumer, mobile, automotive and computing markets. We are optimistic about the potential opportunities for follow-on business with this customer for both our current and next generation FOX multi-wafer test and burn-in systems. This includes some very significant long-term opportunities for our FOX multi-wafer test systems, our FOX full wafer WaferPak contactors and our FOX WaferPak aligner solutions. In the first quarter, we also shipped our ABTS-P burn-in and test system to fulfill our previously announced initial order from a…

Thank you, Gayn. The company recognized strong revenue growth in the first quarter of fiscal 2016. As we reported in today's press release, net sales in the first quarter were approximately $6.6 million, compared to $1.8 million in the preceding quarter and $3.6 million in the first quarter of the previous year. This revenue level represents the highest quarterly revenues since the second quarter of fiscal 2009. Non-GAAP net income for the first quarter was $613,000 or $0.04 per diluted share, compared to a non-GAAP net loss of $1.6 million or $0.13 per diluted share in the preceding quarter and a non-GAAP net loss of $710,000 or $0.06 per diluted share in the first quarter of the previous year. The non-GAAP results exclude the impact of stock-based compensation expense. On a GAAP basis, net income for the first quarter was $294,000 or $0.02 per diluted share. This compares to a GAAP net loss of $1.9 million or $0.15 per diluted share in the preceding quarter and a GAAP net loss of $907,000 or $0.08 per diluted share in the first quarter of the previous year. Gross profit in the first quarter was $3.4 million or 51% of net sales. This compares to gross profit of $682,000 or 38% of net sales in the preceding quarter and a gross profit of $1.6 million or 45% of net sales in the first quarter of the previous year. The favorable gross margin in the first quarter of fiscal 2016 include a benefit to cost of sales related to the sale of demonstration systems and systems which included previously reserved inventory. We do not expect a similar benefit in our fiscal second quarter and anticipate lower gross margins on revenue to be recognized on the final milestone of the FOX-1P R&D project and the…

[Operator Instructions]. We will take our first question from Jeffrey Scott with Scott Asset Management.

Good afternoon.

Hi Jeff. Nice to hear you.

Can you break out from that total of $6.6 million revenue, the amount recognized from FOX-15 order? How much was the XP milestones? And how much was the ABTS non-wafer business?

So Jeff, in general, I think as you know, we try not to breakout all of the details, particularly as it starts to get to the granularity of identifying specific prices per deals. One of the challenges of course is that we have these pretty significant ASPs, certainly as a percentage of our quarterly revenue. But maybe to give you just sort of a mix, so in addition to the FOX-15, it went with the WaferPak aligner and also a set of 15 or so WaferPaks within the quarter. We had a couple of ABTS systems. We had actually a handful of additional WaferPaks that were for current FOX-15 customers. And then we also have kind of a typical run rate of about $1 million of service and support, including contracts revenue for the quarter. The XP milestone was actually, we are not breaking out specifically, but it wasn't a big number. It was more consistent with the cost of the initial full wafer NAND WaferPak.

Okay. You have gone through the milestones and then the eval on the XP. What needs to get done in order to get the customer to agree to a shipment?

We are actually working through that right now, Jeff. And so you know in terms of maybe just a generic process, because I think this is relatively true of many of our deals. In this case -- in general the customers will go through a process of looking at the details on paper, they will be looking at equipment evaluating specifications, looking at lead times, cost of ownership and those kind of assessment. That's true of all of our deals and that can often take a couple or few months or even more. The piece that's a little different here is that while we have multi-wafer systems like the FOX-15 testing 15 wafers in production and we can show and demonstrate and actually physically show that to customers, the FOX-XP takes the capability of our FOX-15 to a whole new level and adds the capability to actually functionally test functional memory devices that traditionally were only tested with large ATE systems, like in my past at Verigy, Agilent and Hewlett-Packard. So quite frankly, the customer was sort of, show me, prove it to me that you can actually pull this off, functionally test my part, show me that you can make a full contact with an entire wafer in a multi-wafer system and they are pretty pleased with it. We believe we could do it all along but we had to show it to them. I think now that the discussion comes into, what do the early commitments from these customers look like, where do initial orders come from and how do we time that relative to giving them enough visibility to get a system installed so that they can use it for production and then ramp on it. These are not engineering tools. These are used in high volume production applications and so they become critically important that you check all the boxes to prove that it is production worthy before they will ramp on it. So we are working through that right now with this customer as well as others. And as you probably know, but I will point it out again, we have not taken our first order for this system and my expectation is when we do, we will make a public announcement of that.

Okay. If you were to pick some odds on that customer eventually placing an order, what kind of odds would you give it?

Yes. That's always a little scary, but I will tell you, I personally believe that it's a great idea for them and we stand to save them significant money as well as help their yields out in a significant way. I think the ROI of our tool for this application is overwhelming. So it's my belief that we will be able to show them enough information to make them feel confident that this can be used in production and so it's my expectation that they will be purchasing.

Okay. You expect to ship one of the FOX-1P in the second quarter and then more in the third and fourth quarters, is that the sequence for it?

Yes. I would be bold to say one or more in the second quarter. One of the challenges is the way rev rec works. In general, we don't get revenue recognition on any of it until the first one is fully accepted by the customer, but the other thing we are doing which I think is absolutely prudent, we will have the system working here and doing everything that they are expecting of it before we move it to their facility. So the difference between the first one working and then them wanting additional production systems, it can be very tight. I have been in scenarios where the customers seem to feel those are instantaneous and the good news is as when there is a production need they pull really hard. So our goal is to try and ship not only first system, but the production systems as quickly on its tail as the customer is willing to allow us.

I am less worried about revenue recognition than I am about you actually shipping the machine. The delay, was it the customer's ability to actually take it into their facility that was part of the delay or was it purely a technical delay?

I think there is some evidence, well, I believe we are pretty well aligned with the customer's production needs right now. They are one of my favorite customers and I know they are listening in right now. So our goal is to try and make sure that that tool is ready for them when they need it and that's where our focus and our energy is. But certainly a lot of the time that has been spent the last several quarters has been checking out individual pieces, getting to the level of the integration that were out right now and working through the entire production test cell. This system is part of several technical pieces that all need to work together, including a brand-new multihead prober, a new wafer sort interface that's larger than anything that's out there in the world right now. By the way, it's compatible with our current FOX-1 that's out in the customer base right now. But there a lot of things that need to be worked through. And again, this is not an engineering tool or a toy. This is intended to be a volume production tool and we need to work through all the details. I just wanted to comment. Keep in mind that the FOX-1P being part of the FOX-P platform. The FOX 1P hardware is very similar to or in some cases identical hardware to that of the XP. So the FOX-P comes in engineering configurations, single wafer and multi wafer configuration. So part of getting it right is to get the entire platform right. And that gets into little bit of a horse race of the different applications to make sure that we have wrung out the hardware entirely.

Okay. Thanks. I will hop off and let somebody else on.

Thanks Jeff.

[Operator Instructions]. We will now take our next question from Marty Cawthon with ChipChat.

Hi Marty.

Hi Gayn. Hi Ken. The report looks very good.

Thank you, Marty.

In your talk here, you mentioned last quarter, when I reviewed the transcript and also just a few moments ago, that your FOX-P series, the FOX-1 and the FOX-XP depends on several components that make up the system. For example, the FOX-P hardware platform, the full wafer contactor, which I think is also called a probe card and then the new FOX WaferPak aligner. So Gayn, could you just give us some discussion on what these three components to do and how they fit together? And then comment on up until really just a few moments ago, I had always been thinking of the FOX-1 and the FOX-15 as separate but similar products and likewise the FOX-1P and the FOX-XP, but maybe my thinking should be, it's really just the FOX-P and the FOX-P can come in different configurations depending on what they are testing. It's really one product line that's pretty versatile in how it can be shipped. Could you just comment on that? Is that a reasonable to think about it?

I think it really is. If you go back and there is a lot of detail in there. But on the FOX-1 and the FOX-15, that was, if you well, our first generation single wafer machine in the FOX-a and multi-wafer machine in the FOX 15. They actually shared a lot of similarity in hardware and software, but one was package to work with an individual wafer prober and a more traditional probe card or our WaferPaks. Whereas the FOX-15 used an off-line prober to do alignment of our WaferPak contactors that were then placed into our multi-wafer system to be able to share that prober amongst 15 wafers. As you now move forward with the FOX-P platform, it's intended to displace both the FOX-1 with the FOX 1P and the FOX-15 with the FOX XP. Now there are some applications and it's our expectation that customers will continue to purchase and use the FOX-15. Whereas with the FOX-1, we think that customers will all migrate to the 1P, right. But your comment about it being kind of a single platform and different flavors is spot on. In fact, if you come in and you look at the FOX engineering system, the FOX-P engineering, on the side it just says FOX-P and if you are 1P customer you are running it on that engineering system. If you are an XP customers, you would to be using the same tool, because it leverages the same hardware and software whether it's intended to go after a one wafer application or a multi-wafer. The big difference is not just as simple as a smaller config. The 1P allows us to have significantly more resources on a single wafer, but on the XP it can take a fewer number of resources but then it…

Thank you, Gayn. If I could ask just a few follow-on, if you don't mind?

Sure.

In today's call, you emphasize that the FOX-P systems that you are working on now are destined for production applications not for engineering or prototype applications. So in some of the company brochures, I see the figure about 2,500 systems have been sold worldwide over several many years. In the past, has Aehr Test Systems mostly sold to the engineering prototype side of things or have you been involved in production sales as well --?

I would say that you go back at the 2,500 systems and keep in mind that vast majority of those are with our traditional package level test and burn-in where we sold in high volumes to -- we were market leader in Japan, a market leader in Korea to volume production applications.

Our next question comes from Tom Diffely with D.A. Davidson.

Ma'am, can you hear me?

Yes, sir.

Okay. Actually, I wasn't finished with Marty's question. I will be back to you in a second.

I apologize. Thank you.

Okay. Sorry, Tom. Marty, you are still there, right.

Yes. I am still here.

Okay. Sorry about that and I haven't seen that one happen before. So in engineering customers, the semiconductor devices today in order to prove that they were actually have extended life go through different types of testing including a main one, which is high temp operating life where they elevate the temperatures of the devices and use equipment like ours to prove that the devices will in fact last for 20 years. There's all kinds of physics and books and all written, some of them by some of the people at this company that talk to how you do that and [Audio break] devices go through to that type of a process. And we have sold hundreds and hundreds of systems into that application. That is not what we are expecting the wafer level products to be. The wafer level products really are production tools that are going to test these devices that will ultimately end up in your cell phones, your cars, your tablet devices, in sensors and then as Internet of Things comes along and just about anything you can imagine.

Okay. Thank you very much.

All right. Sorry about that, operator.

No problem, I apologize. Our next question does come from Tom Diffely with D.A. Davidson.

Yes. Good afternoon. Can hear me okay?

Yes. Got you, Tom.

Good. So I was curious, you didn't provide fiscal second quarter guidance reduce. You just provided a general comment on the year. Is that right?

Yes. We didn't do that. I think maybe to just provide a little bit of color on that rather than on our written statement. So as we said last quarter, we had start of the year very strong. We had a backlog larger than previous year's entire revenue and in fact since the quarter backlog or end of year backlog, which is the only time we officially state it, we announced a couple million dollars more on orders. So we start off the year with a very strong backlog, that's why we made the statements about we are really forward-looking to this year as just being a much healthier year in terms of top and bottom lines. One of the challenges for us always is that our quarters can be lumpy and at times our customers pull and push things around. In this case, we are actually doing really well. We got a lot customer demand and pull. So it's kind of up to us to ship. The revenue part of that, as Jeff had mentioned earlier, follows after a shipment. And so, we are still trying to just look exactly what the quarter looks like, but I guess my expectation is, we are still expect to have pretty good quarter this quarter and we are still optimistic about the entire full year. But there is going to be some lumps along the way, particularly as we roll out these new products, because the ASPs are so significant that as the first system is shipped, we can have a great quarter even on a single system, but as you start to see multiples, that's really what we are gearing the company for, is for a much higher revenue base going forward.

Okay. So would you expect shipments to be up sequentially and then rev rec would determine whether or not revenue was in the same ballpark or down?

Tom, I don't know if I would say that. It's more likely that it's more in the flat range, given where we are at, but there is still some time. We still have opportunity for turns and part of that ends up just being with how the FOX-1 rolls out.

Okay. And when you look at your full year outlook for a nice improvement year-over-year, does that hold with the more mature products as well? Or is it the addition of the new products that gives you more optimism?

We certainly feel we are having a good year even just with our current products but I think there is an opportunity for us to be able to add our revenue related to our new products even within our fiscal year. And so, we certainly have customers that are pushing on us and as we pointed out before, it needs to start with some initial orders from those folks as well. But this is the challenge here always with the public company quarter-on-quarter is to watch and be able to anticipate where those quarters are. I could to tell you to within work weeks when customers need products for volume shipments and that's really what we are focusing on, how do we get the products to them to prove them out so that they can use them in their production. And we have customer ranges of forecast and visibility that literally span out more than a couple of years. And so are focus, I know it's overstated all the time with all the CEOs, we are really focused on the long-term. I would actually say we are quite focused on the near term as well, but the long-term is really where the opportunity is. We need to execute against this, do it right and I think it's going to play out very well for us.

Okay. And when you start to roll in some of these new products into the income statement, how do you view the margins? Does it take several systems before the margins get the corporate averages and ultimately are a benefit to the margin structure? How do you look at that from a rollout point of view?

From a margin standpoint, the new products. The thing to keep in mind, we are very scalable. Our historical margins have been around 405 to 48%. And what happens, as we expect the growth in the latter part of the year with these new product introductions, I think what you would be expecting to see is those margins really being towards the higher end of that scale.

Okay. So there is not higher expenses for things like warranty and that sort of things early on that impact the margins negatively?

We are seeing net net of that. I mean, certainly some times you will see that. The margins on our wafer level products have and continue to be higher than our burn-in systems. I think one of the wild cards is going to be the WaferPaks themselves where traditionally we don't have as higher margins on the WaferPaks and if that part of our business continues to grow, from a percentage wise margins, it will seem to look to pull down the overalls. But I think we have got a great model. Our WaferPaks are just less expensive to build than competing alternatives. And so it allows us to be able to give very cost effective solutions to customers without a ton of manufacturing infrastructure on our end to be able to be able to ship it. So there is going to be a balance there.

Okay. And then I guess last here. Do you see much seasonality, maybe in your core business or your projected new business? Is it the more project base driven, like is it with automotive? Or is it more seasonal based, like it is with some of the consumer products?

That's actually kind of interesting. I don't know that I have seen a real pattern yet. What are we selling today? We have a lot of automotive. And as you know that takes a long time to get designed in and then it's pretty stable business. We also have a consumer aspect, but we have a number of new applications that quite frankly we are trying to understand how they will play out from a seasonality perspective. In scenarios where we are offering something where alternative to wafer level burn-in, in many cases to package level burn-in which we offer as well. The difference is that a package level burn-in, the devices, particularly if they are stacked or there some sort of both multi-die application, if you lose the die inside the package, not only it is thrown away but the other devices that are along side of it. And so it's very costly to have yield loss at package level. So as we introduce a cost effective alternative by moving that to wafer level, I think there is going to be very pull by the customers to do that, which quite frankly has very little to do with any season at all. So we will see how it plays out. Right now, I think we are just sort of focused on having those customer ramps.

Okay. That's helpful. I appreciate your time today.

Thanks, Tom.

[Operator Instructions].

All right, folks, are there any other questions?

No, sir. I see no further questions from the audience. At this time I would like to turn the conference back to Mr. Gayn Erickson for any additional or closing remarks.

All right

All right. Thank you, operator. Folks, thank you very much for listening in. We really appreciate a chance to talk with you and always encouraged to the questions. We listed a few things here that are opportunities to meet up with Ken and I. I think you guys went awfully light on Ken. We should up the questions next time. Make it a little bit harder on him. I am super pleased to have him onboard and sitting here alongside of me. So if you have a chance to attend our shareholders meeting or one of the conferences or if you have an opportunity to be in the Bay Area and want to stop by, we always make ourselves available to our shareholders. Appreciate it and we will talk to you next quarter. Thank you.