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

Thank you, operator. Good afternoon and thank you for joining us today to discuss Aehr Test Systems third quarter fiscal 2017 financial results. By now, you should have received a copy of today's press release, but if not, you may call the office of MKR Group, Investor Relations for Aehr Test, at 323-468-2300 and we'll get a copy to you right away. With us today from Aehr Test Systems are Gayn Erickson, President and Chief Executive Officer; and Ken Spink, Chief Financial Officer. Management will review the company's operating performance for the fiscal third quarter before opening the call to your questions. Before turning the call over to management, I'd 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. Go ahead, Gayn.

Thank you, Jim. And good afternoon to those joining us on the conference call and also listening in online. Ken will go over the third quarter financial results later but first I'll spend a few minutes discussing our business and product highlights including our continued progress with our new FOX-XP platform for our next-generation of wafer level test and burn-in products. After that we will open up the lines for your questions. Our net revenue for the third quarter was $2.7 million, up from $1.7 million in the third quarter a year ago and revenue for the first fiscal nine months was $12.2 million compared to $12.9 million for the same period of last fiscal year. Although our third quarter revenue was lower than we would have liked, it was mainly a timing issue consistent with our discussions last quarter. A significant amount of revenue for our new FOX-XP test systems shipments was on the edge between our fiscal Q3 and in February 28 and this current fiscal quarter that will end in May. With the actual and expected shipments of our FOX-XP systems already in backlog, we're expecting much higher revenue and a solid bottom-line in this fiscal current Q4 to finish our fiscal year. With bookings in the third quarter of $7.8 million resulting in a quarter-end backlog of $11.8 million, we are reiterating our forecast for strong fiscal year-over-year growth in our revenue bookings in bottom-line. With this solid backlog including actual and expected shipments of our FOX-XP systems, we expect revenue for the fourth quarter of at least $6 million which represents full year-over-year revenue growth of greater than 25%. Now let me provide some updates on our business; let me start off with our packaged part burn-in and test systems business. As we noted on…

Thank you Gayn. The company recognized strong bookings and backlog in the third quarter of fiscal 2017. While we do not typically disclose quarterly bookings or backlog, other than reporting backlog at fiscal year-end due to the significance of the amount and the impact on quarterly revenues we want to report on those metrics in the call. Quarterly bookings totaled $7.8 million and included $4.6 million in purchase orders received from our lead customer for a FOX-XP system, DiePak carriers and services. On a year-to-date basis, the company reported bookings in FY17 of over $18.8 million, this compares to year-to-date bookings through the third quarter of fiscal 2016 of $5.8 million. Our backlog total of $11.8 million at February 28, 2017 includes over $8 million in FOX-XP family backlog. While our year-to-date revenue of $12.2 million is down $715,000 or 6% compared to last year, we continue to hold to our forecast for strong fiscal year-over-year growth in our revenue, bookings and bottom-line. Net sales in Q3 were $2.7 million compared to $4.2 million in the preceding quarter and $1.7 million in the third quarter of the previous year. And included in Q3 net sales were $1.8 million in revenues from ABTS package part system sales and $863,000 in customer service related revenues. There were no wafer level burn-in system, WaferPak or DiePak revenues in the third quarter of fiscal 2017. This compares to $1.3 million in wafer level burn-in revenues in the preceding quarter and $855,000 in wafer level burn-in revenues in the third quarter of the previous year. Non-GAAP net loss for the third quarter was $2.4 million or $0.14 per diluted share compared to a non-GAAP net loss of $1.2 million or $0.08 per diluted share in the preceding quarter. And a non-GAAP net loss of $2.8…

[Operator Instructions] And we'll take our first question from Christian Schwab - Craig-Hallum Capital Group.

Good afternoon, guys. So Gayn, I just wanted to come back to your lead customer, I know you've said in the past that the opportunity would not be unreasonable to you know shift 10 different systems per program and you're kind of working at -- on a program level of two times. So would that kind of being you know $2 million to $3 million a piece and $40 million to $60 million opportunity. Do you feel better about that today or do you -- has anything changed?

Yes, I would say that nothing has changed on that Christian and the content -- just to kind of square up the content -- context that we have talked about this and I think a couple of times is just -- you know, what do we think because the over-under is for these kind of programs that we're talking about because there are examples where there could be opportunities that we would call engineering or characterization or R&D opportunities and those are not the ones we're talking about -- these -- the opportunities for these FOX-XP systems are high volume applications where even though the system itself can test 9/18 wafers or DiePaks at a time, our expectation is each application over some period of time will take multiple systems. And I think the number that we've been pretty consistent on is over an 18 to 24 month period, I think a typical application could forecast about 10 systems worth. It could be more, it could be less and the combination to be blunt, we don't always have that level of visibility and certainly as you go out to 24 months or so but that I think is still consistent with what we're thinking with these opportunities.

When you guys talk about the new thermal chamber opportunity, can you compare the magnitude of that opportunity to the FOX-XP opportunity?

Okay, I probably -- let's see here. We'll provide more information as we certainly start seeing bookings and revenue off of that but certainly the ASP on a per chamber basis is substantially less. But the quantities are -- have the potential of being substantially more. It's an interesting model for us that -- you know, with our proprietary chamber which we call our ABTS chamber and I think folks have followed along, we're really proud of this system; it took us a number of years to develop it -- to develop a chamber that has basically more power handling capacity and greater uniformity in both air and chilled water. It's an amazing chamber and prior to us developing that really over the last decade, we would have to go by chambers from suppliers out on the street and many of our competitors in order to compete in the standard burn-in space will go out and buy Chambers from some OEM and in many cases the only thing that differentiates them from the other person is the electronics they've put inside. We found that that wasn't adequate for our needs and we embarked on a development effort to build the chamber. We -- they are our design, they are our specifications and we have actually a couple of manufacturers that build them for us from an assurances supply. One of the interesting things is through those suppliers we have the ability to supply a very large quantity. And in addition to the thermal capabilities of our machine, both our ability to supply a large quantity and our supply chain in terms of redundancy we're a couple of the key attributes to that. So it's pretty neat opportunity, we're pretty excited about it and partnering with this company on it and we'll see -- we'll give you guys more details as we get closer.

Is it fair to assume that that chamber costs roughly $600,000 plus or minus; am I thinking about that price correctly or not?

No. I think I would rather put at least a more reasonable number on there. I don't want to get into too many details just because there was in fact to some extent a competitive deal that was going on there but you know, quote an empty chamber without the electronics is substantial -- it is significantly less than that but time some pretty large quantities.

And as we look to 2018 in the backlog and in the order growth that you talked about going into the fall, would you -- are you in a position yet to make a comment about maybe not necessarily the entire year which you're thinking about but the first half of fiscal year '18 versus fiscal year '17. Are you in a position to kind of suggest directionally how that should look on a year-over-year basis?

Yes, I mean Christian as we continue to provide more and more guidance, if you will; even if its trajectory based, we're still pretty cautious about giving guidance for several reasons; you know, not -- the least of which is when we're running at these really -- you know, we understand where we're at at these really low revenue run rates. When you start looking at the ASPs of our systems at $2 million, $3 million, $4 million; there is obviously significant upside but there is also opportunities to be lumpy, particularly when you're running at these low levels. So we're not giving any guidance yet, although let me just say that we're very optimistic heading into next year and we'll leave it at that.

Sounds perfect. No other questions, thanks.

Okay.

[Operator Instructions] We'll take our next question from Geoffrey Scott with Scott Asset Management.

Good afternoon, guys. A couple of follow-ups on that -- the ABTS and the OEM. What is the timing for initial revenue?

Unbeknownst [ph] to you, we scored our first revenue on it nine months ago. Sorry to sneak around on you like that. So we've already gotten acceptance of the first system and so your next question is going to be how many and how soon and I am not going to go there yet.

But will fiscal 2018 be material?

Yes.

It will, okay. Is the chamber that you're providing them patent protected?

We have multiple patents in it, significant amount of IP and trademarks and under the business terms by which we will engage with them, we have terms that preclude them from competing with us for that.

Okay. Going down to customer; number one, for the FOX-XP. The -- you said that acceptance have been received with the unit ads protection site, right?

Yes, that's correct. And yes, we're thoroughly excited and impressed with that and so is the customer.

The engineering system that they had, is that still at cater road?

So the engineer system, we don't want to go into too much detail on that. But this system that we are talking about related to the latest was a different system, it was a full chambered system with a blade in it and it did physically ship to their installation site and the final acceptance was done at their production site.

As I recall this was a U.S. site, is that correct?

A) we've never said, and B) no, it isn't U.S. and now we have said.

Okay. Let me think, the 3D NAND business is not something that you have talked about today. Does -- the market seems to be in a bit of a quandary for shippers selling their business; is that having any effect on the decision making in the 3D NAND space or how do you see that market moving?

Yes, you know what -- last quarter I think I took a question related to that and I think if you both directly and read between the lines what we had stated is that we've got a pretty full plate with respect to the couple of lead customers on the XP and obviously our FOX-XP lead customer, as well as the number of opportunities in the sensor space that have kind of directed our focus and attention away from the 3D NAND for now. We also stated that each of our two lead customers has the potential to -- for an application for NAND or directed and that makes it particularly interesting for us because even as we have a lead customer with a lead market, each of those customers has opportunities for us in other markets which we believe are successful execution, will afford or allow us the opportunity to go look at some other opportunities including the NAND space. I'm going to stick to my guns, I actually think that some of that stuff becomes more interesting again, later on, maybe mid-year or so, that's calendar before we start kind of reengaging in that. And then related to your specific question about Toshiba -- I'm not sure I really could comment but it's an -- obviously it's a pretty dynamic and interesting market to see all the things in the shifts and with SanDisk being acquired and how Western Digital plays into the relationship with Toshiba; I don't know that that really impacts the test side of things but -- you know, change can be -- have pros and cons I suppose.

Yes, certainly can, fair enough. You did not talk about the FOX-1 customer. They took no additional system sales this quarter?

That's correct. Actually I think we didn't have any FOX revenue in the quarter.

Right, for the first time kind of ever.

Yes, that's pretty unique.

What are you hearing from the FOX-1 customer, are they -- is the machine successful? Are they using it to capacity?

Probably because of a little bit too close to home; I think at this point as we said, they took the production systems and accepted them. I'm going to kind of leave it that we don't have any projected near-term forecast from them, it's quieter than we had originally anticipated; particularly with all the different changes and things that we had made to make it more applicable. But it's -- I've been in this business long enough to know, this too shall pass, and so we're in a position to be able to ship additional systems as they need them and won't just keep executing and hope for the best and to tie it to some of the other comments we've made in recent history. It's been interesting as we've engaged with new customers on the FOX-1, there has been a pretty consistent trend that as they look at the FOX-1 and for folks that are joining the call, our FOX-1P was our latest generation and the first product within the FOX-P product line. It's really designed to test a single wafer on a standard wafer prober with a massive number of test resources. But it uses the same architecture of electronics and software as the FOX-XP but the FOX-XP doesn't use a standard prober but can test instead of only one way for a contest upto 18 wafers using 18 independent sets or blades of electronics. When we've talked to some of the applications that have come in on leads to trade shows etcetera on the FOX-P or 1P; in most cases the customers have shifted over and said, okay, how do I take advantage of the FOX-XP because it's just uniquely different in its cost of test and how cost effective it can be if you can implement the design for test methodologies that we share with customers to use our proprietary wafer pack contactors, our system itself, and then our WaferPak aligner. So it seems to be a consistent trend that most of our activities focused around the FOX-XP multi-wafer system and now -- as we have now introduced publicly having filed all the patents and all includes a DiePak version which is very similar -- if you walk up to an XP you can't really tell the difference between whether it's going to be focused on wafers or singulated Die or modules but the difference is that DiePak has individual devices upto 10-24 than being contacted of these tiny little devices even with very high power. So it's pretty neat application, it's broad, it isn't just wafer, it can also be these tiny packages; and it just gives lots of opportunities, if the customer has a test and burn-in need, we can go and talk to them from system level test to a singulated module -- module wafer, singulated die and wafer level burn-in and we're good with them doing any of those as long as they are out of FOX-XP.

Okay. Customer number two, I think you talked about an optical device for the data center. And at the photonics conference you talked about optical for specifically automotive not data center. Is that an accurate description of what you were at Photonics for?

Yes, we're trying to keep you on your toes. We have multiple applications that we are engaged with today covering automobile, data center, mobile lighting, interestingly very smart lighting applications, LIDAR type applications that are all interesting kind of under this umbrella in many cases of Photonics and or sensors. And so sometimes we may be confusing you on accident or on purpose, only in that part of this…

Must be on purpose gain?

Some of that's just trying to keep consistent with our non-disclosures that we have and to quite frankly keep our competitive advantage because a lot of what we know is learned through these intimate relationships with these customers who are pretty happy with what we have and we're just trying to keep those great relationships.

Okay. Last question, this just might be for Ken. The terms of the convertible debt; can you refresh our memory on when it is callable and under what circumstances?

Yes, it's actually -- the conversion price is $6.51 and it needs to maintain that price for 30 consecutive trading days. And that would be the criteria for forced conversion.

It has to be a minimum of $6.51 for 30?

Correct; for forced conversion.

And then there is -- as I recall, there is a volume restriction on it, right?

I'm sorry, yes, there is also volume restriction related to so many specific volume of the average of the last so many days as well.

Okay.

The volume restriction of how much we can force them to convert.

Okay, right. Okay, thanks very much. I appreciate it.

[Operator Instructions] We'll take our next question from Tom Diffely with D.A. Davidson.

Good afternoon. Getting back to the XP product line, it sounds like you have both a wafer level program going on, as well as the DiePak program going on. When you look at to the future, which of those two types of programs you think it's going to be the biggest market for you?

They -- I don't know I would make that call; they both have enormous potential. And we've seen at least one deal shipped from wafer to DiePak and I personally believe that there is an application that could do the opposite overtime. And so -- but they're both -- they're both significant and they're -- what we're able to do in the DiePak versus a WaferPak, both have significant IP and value and technology; so they are both great opportunities for us.

Is the opportunity bigger on the DiePak side because you have multiple packs you can sell overtime?

It's interesting, our DiePaks and our WaferPaks are of similar type of ASP's and we've stated before that a typical DiePak or WaferPak or somewhere in there may be $60,000 to $100,000 a piece. And then how many devices are inside it? How to do with lots of different technologies? The DiePak we've now stated probably has an upper limit of about 10-24 individual devices, just having more to do with the geometries. And that's over a 300 millimeter area, if you will. The WaferPaks can have much, much higher density because there is -- the devices are not singulated. So we today in production are testing wafers with tens of thousands of devices in a single insertion and so you would argue, oh, then it's always better to do it at wafer level. I think there is lots of arguments for that; there is also applications where what the people -- because of certain types of devices themselves they may not lend themselves towards wafer or the customer says I want to test them at a model level and like I said, as long as they're looking at XPs, I think that's a brilliant idea. There is opportunities for us to save them cost by moving it to wafer level overtime as well; so it's kind of both.

Okay. If you buy you have such that they give you back and forth?

I'm sorry?

If you buy an XP you have the ability to move back and forth with the right…

We actually do. Mechanically, there is some subtle differences between the DiePak and the WaferPak. Our DiePak blade is actually slightly taller and the reason is that devices and the mechanicals for holding them is a little bit larger in terms of height and wafer is really thin, no matter how big the wafer is. And so, for example, we currently only offer the DiePak configuration in nine blades in a chamber whereas wafers can go up to 18. But if you were to use -- if you had a DiePak based system, you could stick -- you can put nine wafers in it.

Okay, alright. And then Ken, since we're around the cusp of potentially some pretty big orders here; what's your view of just the balance sheets, and the cash and the inventory over the next few quarters?

So in terms of the cash -- like I mentioned, we're -- in my mind you never have enough cash flow; that's a little bit concerning to me. And we've managed the business in the past based upon customer deposits in backlog. So we're in a very favorable backlog position. As I noted in the call, we've yet to receive the deposits that are forthcoming; so definitely our cash position will be improving from what we reported at the quarter-end. And with the expected growth in our business, again, I expect to be seeing favorable results. The offset to that is as Gayn talking about and the purchasing of our inventory; even with a 30% down payment that really is not enough to cover our direct material cost and overhead. And because of our delays in getting to profitability that has had a negative impact on our cash.

Okay. Would you expect the cash flow positive this quarter?

Cash flow in Q4?

Yes.

We haven't been given any cash flow yet Tom. We have been not been given guidance in that area.

Okay, thanks for your time.

Thanks, Tom.

[Operator Instructions] And it looks like we have a follow-up from Geoffrey Scott with Scott Asset Management.

Just to follow-up on Tom's question; what -- under what conditions would you start using the registration that you just filed?

Let me try and handle that one.

Dance around it Gayn.

It's my job, you know. Well, let me just -- let me -- instead of being completely invasive here, let me just start by including many of the folks that are on the phone here. I think there has been a consistent message from our shareholders related to our cash position and are we -- do we have enough cash and as we get these orders, do -- you know, do we have the cash to be able to do what we want to do and could we do more with if we had more cash. And could we use that to shorten lead times, for example. For those of folks that have been following along, we did a pipe last fall, a private placement in this case where we raised -- I'm sorry -- yes, okay, well over $5 million. One of the things that we did with that money is, we in fact invested it into some inventory in anticipation of short lead time requirements of our FOX-XP customers and I would tell you that worked out extremely well. If you walk through the math, we got an order for an XP sometime late in February, shifted before the end of February and scored revenue on it by the time we have this call, okay. So we're -- I think that's a great thing and I believe it has helped us to not only be successful but to potentially capture some business that perhaps would have been harder for us to capture. So again, there is a theme of -- do you have enough cash or are you doing the right things. We did as people know file a S3 for a shelf operating; basically dry powder if you will. Based upon there could be a time when it makes sense for us to use that. And unlike the private offering of the pipe, this gives us an opportunity to open that upto other shareholder investors and to a broader set of people to participate in that. Related to timing, of course, which I'll just catch up before you go there. Of course we could never talk specifically about any timing or under what specific conditions we would use that and so we'll just have to leave it at that.

Okay, I appreciate it.

You're welcome, Jeff.

[Operator Instructions].

Alright, operator. It sounds like we've given folks a chance here; do you see any other questions?

We do not. So I'll turn it back to management for any final remarks.

Okay, thank you very much. Well folks, we really appreciate you joining us for the call here. As I stated, I think even norms in my closing comments in the last quarter, you know, we're really looking forward to a very exciting year; both in the calendar year and headed into next year's fiscal year. We've got -- you know, the -- I think one of the -- it didn't come up here today; I think one of the challenges I think with some of the folks is, it took a long time to get these FOX-XP products out, we certainly acknowledge that we had anticipated that the FOX-1P would have come out sooner than we originally did. I think I made the comment once and honestly, I remember saying it off the cost and it wasn't prepared remarks but having several friends that are dual language families, it was interesting with their children where they did -- their kids didn't come out speaking as quickly as my kids but when they did, they came out with two languages. And I feel the same way; I mean it's kind of interesting that the FOX-XP I think when we looked at the shipment earlier last year actually scored revenue before the 1P and it's completely overtaken in terms of the opportunity and the excitement on the customer side but now with the product support, the 1P and the XP physically working and -- and with the customer acceptances, we shift our focus towards supply chain and ramp and lead times and materials and multiple customers and applications and we're just really in a good spot right now. And so we certainly appreciate all the support of the folks that have been supporting and following us; and we look forward to a great year. So we'll leave it at that and hope you guys join us next time. As always we do offer ourselves availability if folks have follow-on questions; to reach out to MKR and set something up. And if you should yourself anyway near Freemont, California; we'd love to host you here and show you some of our great products and our facility. Thank you very much and have a nice day.

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