Good day, everyone and welcome to the Aehr Test Systems Third Quarter Fiscal 2019 Financial Results Call. Today’s call is being recorded. At this time, I would like to turn the conference over to 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 2019 financial results. 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 third quarter of fiscal 2019 before opening the call to your questions. Aehr Test announced its third quarter results in a press release issued this afternoon, which is available on the company’s website at aehr.com. In addition, this call is being broadcast live over the Internet for all interested parties and the webcast will be archived in the Investor Relations page of the company’s website. Before turning the call over to management, I would like to make a few comments about forward-looking statements. The company 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 the company’s most recent periodic and current reports filed with the SEC. These forward-looking statements, including guidance provided during today’s call are only valid as of this date and Aehr Test Systems undertakes no obligation to update the forward-looking statements. And now with that said, I would like to introduce Gayn Erickson, Chief Executive Officer. Go ahead.

Thanks, Jim. Good afternoon to those joining us on today’s conference call and also listening in online. Ken will go over the third quarter financial results later in the call, but first, I am going to spend a few minutes discussing our business and product highlights, including our continued progress with our FOX-P platform, a semiconductor wafer level and singulated die and module level test and burn-in systems. We will then open up the lines to your questions. We actually have a lot of material here, a lot of positive things going on, so I will try and move through this briefly and then get to the Q&A as quickly as possible. While our revenue in the third quarter was slightly lower on a year-over-year basis or significantly lower – I am sorry, on a year-over-year basis, it was in line with Street estimates and the expectations that we discussed on last quarter’s call for a weak third quarter with many of our customers’ capacity ramps pushed into our fiscal fourth quarter and into our next fiscal year that begins June 1, 2019. The significant increase in bookings we saw in Q3 and the orders we have received since the close of the third quarter are evidenced at the beginning of this ramp in our customers’ capacity. With the $6.9 million backlog at the beginning of the current fourth quarter plus the orders announced since then, we effectively have over $10 million in backlog for the quarter so far. We feel very positive about the momentum we are seeing with existing and multiple potential new customers for our new FOX-P products. We are actively engaged with over a dozen different customers with our new FOX-P family of products. We expect to see a significant increase in bookings in the current…

Thank you, Gayn. Net sales in the third quarter were $3.2 million compared to $5.9 million in the preceding quarter and $7.4 million in the third quarter of the previous year. The sequential decrease from Q2, included a decrease of $2 million in wafer level burn-in revenues and $800,000 in packaged part revenues. The decrease from Q3 last year included a decrease of $1.1 million in wafer level burn-in revenues and $3.1 million in packaged part revenues, including ABTS OEM revenues. Non-GAAP net loss for the third quarter was $1.6 million or $0.07 per diluted share compared to a non-GAAP net loss of $405,000 or $0.02 per diluted share in the preceding quarter, and non-GAAP net income of $509,000 or $0.02 per diluted share in the third quarter of the previous year. The non-GAAP results exclude the impact of stock-based compensation expense, restructuring charges and write down of excess and obsolete inventory. On a GAAP basis, net loss for the third quarter was $3.2 million or $0.14 per diluted share, which include the impact of approximately $1.4 million or $0.06 per share in one-time restructuring and inventory write-down charges taken in the quarter. This compares to a GAAP net loss of $629,000 or $0.03 per diluted share in the preceding quarter and GAAP net income of $267,000 or $0.01 per diluted share in the third quarter of the previous year. The $1.4 million in one-time restructuring charges are, excuse me, the $1.4 million in one-time charges taken in Q3 includes $607,000 in restructuring charges and $795,000 in charges related to slow moving and obsolete package part and burn-in product inventory, as well as inventory related charges with the completion of our new family of FOX-P products. The $607,000 restructuring charge consisted of severance costs for individuals impacted in the reduction…

Thank you. [Operator Instructions] We’ll go first to Christian Schwab from Craig-Hallum Capital. Your line is open.

Hi, this is Tyler on behalf of Christian. Thanks for taking the questions.

Hi, Tyler.

I was wondering if you guys had any update on your leading FOX-XP customer for mobile. I believe last quarter you said, you’re still optimistic what tracks with the company but didn’t see anything materialize in this fiscal year. So, I was just wondering with a quarter now passed, if you had any update on that customer?

Sure, let me talk a little bit about that. We have activities going on in basically three different programs right now, including follow-on consumables for systems that we had shipped in the past. So, right now, we’re continuing to be very excited about that customer. But in our near-term forecast, we’re actually not anticipating a significant amount from them. And having said that, we’re still very optimistic, so, we see some of their opportunities as more upside and certainly believe that we’ll continue to be doing business with them into next fiscal year.

Alright, great. So, then I guess, more broadly, as we look into fiscal ‘20, as we enter Q4 here, could you rank order your leading customers and your traditional ABTS customer, this leading mobile customer, the silicon photonics second customer, and any other customers and just kind of try to rank order them and what you’re most excited about as we look into next year?

You’re asking me to tell you which children I love the most, is that it? You know what, so obviously what we’ll be doing in our next quarter is giving guidance for our fiscal year ‘20. We’ve committed not to say much about it other than I will tell you we’re actually very optimistic and feeling very good about it, and this Q4 is going to set us up very nicely heading into that. But it’s very interesting, we – I did say it in the prepared remarks, we have over dozen – over – just over a dozen customers right now that we’re actively engaged in just on the FOX-P products. That does not include the historical installed base of the FOX-1 or FOX-15 products. So, it was actually interesting this morning, we were in a divide and conquer, we had multiple customer phone calls all this morning, and so we were all in different rooms trying to handle that, so, it’s very interesting. The good thing about this is, we do – we actually have a fairly comfortable, call it notable forecast from a number of those. And so, I’ve always believed that our business would be relatively focused on a small handful of customers, that’s the traditional market that you see, but it’s looking more like we’ll have a lot more customers with some level of diversity than we were expecting and certainly earlier with the number of customers that we’re engaged in. So, we certainly are excited about and love our two lead FOX-XP customers. As I said, we are engaged in a few programs with one. The other one just another order again today, we are engaged with a number of other customers that have already placed orders and then a much larger number that we’re anticipating a positive outcome from. So, we’re trying to juggle all those things. Some of the changes were made with Vernon and the staff. I think it is and I won’t go into all of the details that we’re doing, are really setting us up to be way more efficient and being able to call on those customers and effectively be able to get them all successfully deployed in production. So, I just – it’s a lot more broad than it was before without an anticipated 40% customer. Okay?

Alright, that’s great. And then my last question maybe for Ken, just a little bit more on the model insights. So, these OpEx savings, I just want to help understand kind of what a baseline OpEx looks like, so, in Q3 here, excluding the restructuring costs, you did about $2.8 million operating expenses. Is it fair to assume that that’s the kind of run rate we should expect in Q4 of $2.8 million level and then the savings off of that to have a baseline or help me understand, I guess, what a normalized OpEx kind of looks like?

Okay, great. That’s a great question. So, I think we mentioned that the savings that we were discussing as a result of the reduction in force and the restructuring are going to impact starting at Q1 of ‘20. So, those really won’t – we won’t recognize any savings. Also, in Q4, also, one thing to note is in Q3 as a result of our reduced revenue levels, we took some actions internally for some cost savings, including shutdowns over the holidays, things of that nature. So, we were very favorable to our prior quarters in fact in Q3 actual OpEx at the $2.8 million you’re discussing. So, I would expect an increase of a couple of $100,000 in the operations spending in Q4 once we start getting those additional bookings and ramping up with revenues.

But then in Q1, the savings will come primarily from that number.

Correct. And then, yes, from an ongoing basis, what I would put in the model is about $3,850,000 per quarter in OpEx, including the operation spending piece. That’s about $1 million a quarter, so, the $2.8 million with $1 million [ph] from manufacturing operations.

Perfect. That’s very helpful. That’s all for me. Thanks, guys.

Thank you.

[Operator Instructions] We’ll go next to Mark Gomes from Pipeline Data. Your line is open.

Hey, gentlemen, congratulations on the progress. Looking at the new products, to what extent would you say that anticipation of those new products created delayed orders of your pre-existing products coming into this quarter? And to what extent, do we – are we seeing pent-up demand being unlocked here at present time?

Okay. The primary thing that we saw and sadly we were able to see it, maybe it’s good that we could anticipate it, but it became very obvious around November, December timeframe that customers who had planned to place orders and start taking shipments in our fiscal Q3 that ended in February didn’t come to fruition. We built up the inventory, et cetera, and so when we came out and talked about the end of the quarter, we knew that or when we were kind of wrapping up Q2, we were into Q3, we knew that we were kind of digging this hole for ourselves. So – but those really had more to do with their own customer ramps than it was the new products or the timing of our products and most of the new customers are enabled using the FOX-P product, meaning on our FOX-1 and our FOX-15, the previous generation machines, they had significantly less test capability and less power. And so, these new applications realistically nobody had the ability to do it including us with our previous generations. So, it wasn’t like they didn’t buy the old product because they’re waiting for the new one. I’d say there’s very little of that. We did go up and clean up a little bit of inventory on some things that we now see for certain that customers almost entirely would only buy the new FOX-P products. There’s no reason to buy an old FOX-1, and maybe wouldn’t buy – a new customer wouldn’t start on a FOX-15, for example, the older products. So, some of that’s reflected in the write-downs and some of the inventory that we did as well, some of the older ABTS products. But I would say it wasn’t – it really wasn’t like that. It had way more to do with the initial customer ramps and their own evaluation of our products that are now breaking out.

Okay. Appreciate that color. Final question would be to what extent, was the development and release of these new products spurred by an internal feeling of what you would like to do with these products versus customer demands or customers coming back and saying, this is what we really need for us to move forward?

I think it’s – there’s a little of both. I mean, for example, we’ve talked about the wave of Photonics in the Datacom/Telecom space for a while. I think we are pleasantly enjoying the fact that it’s maybe bigger and larger than or faster than what we were anticipating. We’ve been testing devices that are used in the traditional Datacom/Telecom transceiver marketplace for I think, were going on 8, 9 years or so. And in fact, that early wafer-level burn-in system that was based on our previous generation FOX-15, has spawned at a minimum three or four customers. People that had more users at that account were recruited into other names and turned around and actually said, this is a product that you should go use. And so we’re getting a lot of word of mouth spreading going around that is catching on. For certain, those customers that have – we approached and came to us and gave us their roadmaps, there’s been some level of optimization. A good case in point, when we originally sold the FOX-XP to our lead customer for Silicon Photonics, they had anticipated a lower power per device, bought the entire system and about the same time we shipped it, they realized they were going to almost double the power per device. So, we ended up upgrading that entire – that system and their incremental systems have been purchased using a higher power what we call a high voltage power channel module. That high voltage power channel module in addition to our low voltage or universal channel and our high current channel modules allow us to mix and match configurations in the product to basically address all of the customers that we’re talking to right now. So, I think the product is stabilized out. We know what it is worth kind of, if you will, final revisions of all of the products and the manufacturing release, and now we’re just – we’re in execution mode in terms of sales and execution on DiePak’s and WaferPak engagements with customers and then deployment and ramps.

Great. Well, thanks, and I’m looking forward to further updates on your progress. Thanks again.

Thanks, Mark.

[Operator Instructions] And I show no further questions. So, at this time, I would like to turn the call back to management for any closing remarks.

Okay, alright. I know we had a number of folks that were on the call listening in and obviously online from our call list here. So, hopefully, we had a chance to address everyone’s questions. If not, feel free to get in touch with the IR folks or get in touch with us and we can do a follow-up if necessary. So, we appreciate everyone’s time. We’re very excited about where we are in the stage and look forward to a positive Q4, and we’ll give you folks an update on that at our next conference call and also give the fiscal year 2020 guidance at that time. Thank you very much.

And that concludes our call for today. Thank you for your participation. You may now disconnect.