Good day and welcome to the Aehr Test Systems Fiscal 2019 Fourth Quarter and Full-Year 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 Investor Relations. Please go ahead, sir.

Thank you, operator. Good afternoon, everyone, and welcome to Aehr Test Systems fiscal 2019 fourth quarter and full-year financial results conference call. With me on today's call are Aehr Test Systems' President and Chief Executive Officer, Gayn Erickson; and Chief Financial Officer, Ken Spink. Before I turn the call over to Gayn and Ken, I'd like to cover a few items. This afternoon, Aehr Test issued a press release announcing its fiscal 2019 fourth quarter and full-year results. That release is available on the Company's website at aehr.com. This call is being broadcast live over the Internet for all the interested parties, and the webcast will be archived on the Investor Relations page of the Company's website. I'd like to remind everyone that on today's call, management 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. These 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. Now, with that said, I'd like to turn the conference call over to Gayn Erickson, President and CEO. Gayn?

Thanks, Jim, and good afternoon to those joining on today's conference call and also listening in online. Ken will go over the fourth quarter and full-year financial results later in the call, but first, I'll spend a few minutes discussing our business and product highlights in particular, the continued progress with our FOX-P platform for the wafer level and singulated die/module and test and burn-in systems. We'll then open up the lines for your questions. Let me start off with, we are pleased to have finished the fiscal year with a strong revenue in the fourth quarter and to return to profitability in that quarter. We had a really good year for our FOX product family, including our newest FOX-NP and CP solutions that we introduced earlier this year. We've since announced three new customers that we use these solutions to perform 100% test and burn-in production on their devices. We see each of these new customers moving to production, as well as adding new customers for these solutions this fiscal year. The FOX-NP and CP are the newest editions in our FOX-P family of semiconductor and module test and burn-in systems. Our new FOX-NP is a low-cost, small footprint entry level system, providing a configuration and price point for companies to do initial product development, product qualification and production and enables an easier transition to our FOX-XP system for high-volume production test. Our new FOX-CP is a low-cost, single-wafer compact test and reliability verification solution that's used for logic, memory and photonic devices. These new tests and burn-in solutions complement the capabilities of our FOX-XP and FOX-1P systems and we believe they will significantly expand the market for our FOX-P products. During the fourth quarter, we began shipments of both the FOX-NP and CP to these three new customers.…

Thank you, Gayn. As Gayn noted, we finished the fiscal year with strong revenue and a return to profitability in the fourth quarter. Net sales in the fourth quarter were $7.2 million, up more than double from $3.2 million in the preceding quarter and flat compared to $7.3 million in the fourth quarter of the previous year. The sequential increase from Q3 includes an increase in wafer level burn-in revenues of $4.4 million, partially offset by a decrease in customer service revenues at $329,000. While Q4 2019 revenues were flat compared to prior year, wafer level burn-in revenues increased by $3.3 million, partially offset by a decrease in packaged part revenues of $2.6 million and a decrease in customer service revenues of $730,000. Non-GAAP net income in the fourth quarter was $428,000 or $0.02 per diluted share compared to a non-GAAP net loss of $1.6 million or $0.07 per diluted share in the preceding quarter and a non-GAAP net income of $365,000 or $0.02 per diluted share in the fourth 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 income for the fourth quarter was $110,000 or $0.00 per diluted share, which includes the impact of $118,000 in restructuring charges related to our workforce reduction we announced in Q3. This compares to a GAAP net loss of $3.2 million or $0.14 per diluted share in the preceding quarter, which included the impact of approximately $1.4 million or $0.06 per share in restructuring and inventory write-down charges taken in the quarter and a GAAP net income of $191,000 or $0.01 per diluted share in the fourth quarter of the prior year. Gross profit in the fourth quarter was $3.4 million or…

Thank you. [Operator Instructions] We will take our first question from Christian Schwab with Craig-Hallum. Your line will be open in just a moment. Mr. Schwab, please go ahead.

Hi. This is Tyler on behalf of Christian. Thanks for letting us ask a couple of questions here.

Hey, Tyler.

Hi, guys. So first I was hoping, as you guys look next year, if you can give us some more color, maybe specifically on what products or applications or customers where you obviously can comment that's going to be driving this expected 40% year-over-year growth?

Well, actually a good percentage of the current forecasts that we are confident in is coming from current customers and their repeat orders of their primarily FOX and wafer level burn-in systems, contactors, whether it be DiePak or WaferPaks. So we are not anticipating a significant amount of our revenue having to come from sales that we have not won yet. Having said that, we actually have a full funnel of customers and we are engaged in multiple benchmarks physically in the building today related to some new opportunities with new customers and markets. As I look back on my call script, if you will, you kept hearing silicon photonics and photonics and photonic sensors over and over again and it's really turned into a really hot wave for us and we're getting more calls on that, so certainly one of the big markets for us is the silicon photonics and transceiver markets. Subsystems going into transceivers including lasers, as well as modules and semiconductor-related singulated die and wafer in that area. Other areas that we are engaged with customers on is automotive. And a couple – a handful of different areas, one of the things that's sort of a blend, but pretty acute in the automotive space is this new silicon carbide trend that's going on. Silicon carbide is a new semiconductor. Arguably, it's been around for a while, but the semiconductor process allows very high voltage and current with very low losses. And if you look at the application space for that, some of the things that are driving it are all the electric vehicles are their public announcements of companies that are selling volumes of switches and other power subsystems that go into electric vehicles and the Teslas of the world and all of the different electric…

Thanks. That's great color. And then second and I apologize if I might have missed a comment on this, but would you expect next year to be roughly equally weighted? Or there's some give and take that we should be thinking about as far as first half for a second half. Any color there?

Yes, I think, Ken had actually alluded to it. We actually had a very good quarter in – we had a good quarter in Q4. The customers that we're engaged in, quite frankly, were pounding on us to get the products out to them to meet some of their customer demand, early samples and the early production ramp. So we had some customers that pulled in to shipments on the FOX-CPs and NPs in Q4. We know that they are planning to purchase additional systems for shipments as we head into the year here. So I think relatively speaking, our Q1 is probably the softest quarter of the year and continue to pick up throughout the year. And one thing I guess I want to emphasize, I know sitting in semicon, I was talking with a lot of investors, a lot of other CEOs; the semiconductor space right now and capital equipment is actually in a bit the doldrums. I mean, we're in the middle of a downturn cycle right now. And I'll tell you, if we don't wake up every day and think a lot about that. The engagements that we're at it with customers right now are all about these new products and all and they're moving as fast as they can to get them to market. We're not anticipating some big turnaround in the semiconductor market to meet our numbers. If the market were to come back and we are base level business with even our installed base customers would to increase, we see that as upside. But we're not going to hear from this CEO that the market needs to turnaround in order for us to actually hit our numbers this year.

That's great. All right. That's all for me. Thanks, guys.

All right.

Thanks, Tyler.

We'll take our next question from Kevin Dede with H.C.W. Your line will be opened in just a moment. Please go ahead, sir.

Hi. Good afternoon, Gayn. How are you doing? Hey listen, I apologies. I got kicked out of the office, so there's a lot of background noise.

Okay.

Listen, Gayn, you've been talking about silicon photonics and 5G. I think if you move this all if you could just provide a little bit more color on why you see those devices meeting that extra level of test and burn-in that your equipment provides. It's more mission critical. I just thought that maybe you could dive in a little bit deeper and tell us what your customers are telling you.

Okay. Actually, that's a very good call. That's good point, because we've got to live and breathe in here. And I think it's a good to tee up, if you will, for other folks that is in. And so, what is silicon photonics, what does it mean? So in general, in the fiber optic space that people think of for communications that are driving the backbone of the Internet and are moving more deeply into the data centers. So not only within between data centers, but within the data centers and a big push to get within the rack of servers between the servers and ultimately between the servers and the disk drives As you go down that pyramid, if you will, the market for transceivers increases 10 fold with each step. The challenge has been is that a fiber optic transceiver, in fact, one of the headwinds back in the 2000 timeline when everybody was talking up a storm about how fiber was going to change the world, a fiber optic transceiver for say a 100-gig transceiver, what might have been or a 40-gig at the time was a $700 component. The challenge is that's just too expensive. And so the infrastructure for fiber optic never could get to your house because no one's going to be putting a pair of $700 transceivers in our homes. The vision by folks that are out there, including several of our customers has then – if you could replace all of those subsystems that make up a transceiver that create a $500 bill of materials into a silicon-based structure that have all of the RF modulators, demodulators and all the logic and [indiscernible] and everything on top of it, plus some physical structures on it that would allow it to attach a…

I thought you did great, but before I ask the same sort of top level view on 5G, I was wondering if you could size up the market. How many potential customers do you think are out there? How many if you can tell us, are you talking to? What do you think the opportunity is? How fast do you think the guys that aren't there are moving to try to get there, so that they don't miss the boat?

Yes. That's a good question, and I'll give you some, I'll hide some information too. We actually last time specifically stated, I think we're engaged with over a half a dozen photonic silicon photonics type customers. So over half of the 12 engagements are actually photonics related. There are a few different classes, not classes, types of customers that are playing into this space. There are folks that sell just the raw semiconductors themselves. That isn't really a target for us. They're folks that sell the lasers. That is a target. And we're engaged with folks. There are the people that put the lasers on the semiconductors and sell the whole system. That's our sweet spot. And that we're engaged with at least three of those guys. I think if you depending on who the soothsayers are of the space, there's probably a dozen people out there all buying for in the silicon photonics kind of space, maybe a little less, but in that range. And then maybe another dozen or so related sub-suppliers underneath that. So there's not hundreds of companies out there, and even the small ones are being acquired. As you've seen, Cisco picked up a couple of folks. Intel picked up someone a couple, a few handful of years ago. So there's some – some of the little guys are turning into big guys too. For us, we're kind of watching to see what that looks like. I mean, it's reasonable for companies to own more than one, two, three of our big production systems. In some cases, it could be 10. So we're kind of watching to see. The one thing that is holding up is that every single one of them is doing aging and every single one of them would like the test…

Okay. Thanks, Gayn. So your point on 5G is really more silicon photonics versus maybe gallium arsenide and other chips that would fit in, I mean, everybody is talking about a lot of micro base stations and I'm wondering if you think you've got a hand in that.

I think there is a little bit going on there. I’ve been mostly lumping it into the 5G infrastructure related to those transceivers side of things. We certainly have solutions related to logic and other processor based that things. But, there's not, as we understand it, a bunch of folks out there that are trying to burn-in the RF and microwave transceivers themselves, it's in the other space. But there's a lot of money being spent on the 5G side of things, and there's a bit of a rising tide for all ships. And anything that needs more reliability and quality is good for us.

Yes, no, one or two other things, if I may. Before I go off into 5G again, the overarching question I had the start of this call. Given your narrative on consumables – I guess a flexible consumable, you'll have customers spending on your DiePak, right, to test the particular die or a wafer in a WaferPak scenario, and then change their products as their technology migrates. And I'm wondering if you have the flexibility to offer those consumables in a flexible package, so that their maybe coming to you for a service versus all new hardware?

All right. And Kevin, let me go ahead and call that maybe your last one for now, not that I don't like these questions, but get some other folks a chance and then let's we'll come back again. So how it is working right now is in many cases, these customers might have a couple a few different designs that are in process. They're trying to figure out which one's going to be the better one. They might be buying DiePaks and WaferPaks from us in a small handful of versions to do all their qualifications, determine which one's the high runner, and then they'll buy quantity of that. One year later or one and a half years later, in many cases, if you look at 2D, 3D sensors, these silicon photonics devices, they have already obsolete their product. We're engaged with a few customers. We not only know their product now, the one that's in six months, the one that's in 18 months, the one that's in 24, 36 months. And as those come out, they would need all new DiePaks and WaferPaks from us, although the tester itself would actually continue to be useful, okay. And so, if you were to look at the life of a system where maybe the ASP of say, an NP system might be in the $0.5 million range or a full large scale NP might be from $1.5 million to $3 million a piece, over a few year cycle or a five-year cycle, the customer might buy the equivalent number of WaferPaks and consumables as the original test system itself costs. And then they might use that for another decade. And so, over the life maybe the consumable is 3x the value of the actual initial sale.

Thanks very much, Gayn. Yes, it does. It helps tremendously. Thank you for entertaining on all my questions. Apologies for dragging the call.

All good.

We'll take our next question from Larry Chlebina. Your line will be opened in just a moment, Larry.

Good afternoon.

Hi, Larry.

I was – your updated website, and you state that the FOX-P products reduce test cost by functionally testing, as well as or during the reliability verification and basically across the board. You also in the presentation said that this is achieved at a lower cost versus traditional 80 tests with a smaller footprint. I'm assuming you're referring to the XP system. If that's correct, in this pipeline that you have, are there any semiconductor applications particularly in the high volume end involving heterogeneous packages or stacked dies that would take advantage of that cost benefit, and particularly, to get the benefit of both, the 80 test out of the way while you're doing the reliability testing for infant mortality?

Okay. And so it's a mix, Larry. There's certain devices that are probably letting themselves more to testing while they're being burnt-in or the test in order to burn them in, for example, NAND memory or flash, traditional NOR flash memory. The burn-in, if you will is to run the device functionally for an extended period of time at elevated temperatures and voltages, and that's what stresses, the devices and creates a stress test to burn them in. In that case, we are functionally testing them along the way good from bad and will note to the customer that upon a failure that the device failed at 1.5 hours into an 8-hour burn-in, for example. There is other devices where the functionality is pretty simple, for example, the lasers are really a laser diode. And so the testing is a very precise – precision and power driver that is able to create high power very accurately and a controlled state. And we are monitoring throughout that cycle, the parametrics of that, whether it be the temperature, the voltage or the current for a functional failure. Now, it's not as exciting, but you can see a functional failure on a laser diode for some of these other devices. And we will note that during the test that it had failed. You actually mixed it in there. You talked a little bit about heterogeneous. I happen to know that you know what that means and I do, but a lot of folks don't. It's a big word these days for what's going on. Folks like Intel, TSMC, Qualcomm's, the big guys have realized that in order for them to get to these new devices, particular things that are going into mixed signal type applications like 5G, where there's an RF, subsystem, along…

Okay. That was good. Then I know you’re working on small animation to load WaferPaks or DiePaks in the numerous XPs. Where you stand on that? That would be for high-volume application.

We are still engaged in some programs. We have not made any public announcements with respect to anything along those lines, but we do believe that there are applications where a higher level of automation is really valuable in some very high-volume applications. And so we would encourage any customers that are listening that if they're interested to hear in a fully turnkey lights out application for multi way for burn-in to please contact us and under non-disclosures we would be happy to have a conversation about that. Sorry, Larry.

That's fine. One last quick one. I didn't hear any news on OEM chamber business? Is that anything on the horizon? Is that in your forecast at all?

Let me give a little bit more color and they actually think you put in that out. I forgot, we didn't put that in our prepared remarks. For those folks that have actually followed along, I think they've been able to interpret that, we had – some of our OEM business was with a customer who was actually acquired. I'm just not going to do names, but they've acquired during the last year. We have had direct conversations with the management of the acquired company and the acquiring the company that acquired them. I've personally talked to them and they continue to not only assure us that as they move forward that they not only are planning to use our high-power chambers in those solutions, but we actually had to sign a document that said we would guarantee, we would keep selling it because it was important to them and to their end customer. So it is our expectation that as they need equipment for that particular application or similar ones, that we would get orders out of that. Having said that, we're currently not anticipating materials sales in our current forecast to that business. That doesn't mean there couldn't be substantial, and that might be all upside to our current forecast.

Okay. So it's not in your forecast and certainly is getting them.

Yes, it just takes a lot longer to say that. Okay. Thanks, Larry.

Thank you.

We'll take our next question from [Charles Doe]. Your line will be open in just a moment. Mr. Doe, go ahead.

Yes, a couple of questions. Can you comment on the percentage of revenue you expect to be from consumables for fiscal 2020 versus 2019?

Okay. I'll tell you what, our 2019 revenue for consumables was over 30%, a third of our business, so about right there. And we expect it to be similar if not higher this year.

Okay. What percentage of FOX-CPs and NPs do you expect to result in the purchase of the FOX-XP?

I expect a high percentage of NP customers to also own XPs over time, and in some cases we had – the customers started with an XP and then filled in with NPs. I think CPs is a mix. The application for a CP with the single wafer is where test times are much shorter. So whereas the NPs and the XPs allow you to load, if you will up to 18 wafers at a time and then run them. The typical application for that is devices that have multiple hour burn-ins, sometimes days. And it's extremely cost effective because the alignment of the WaferPak is done in our offline aligner that can be shared between what we call a blade. So a XP would have 18 wafers in that 18 blades in the machine, and an NP has 2 blades, which can handle 2 wafers. An offline aligner could feed 30, 40 blades, if you will. If the test times are really short, like, say, under an hour, maybe under two hours, but probably in that time and maybe even in tens of minutes. And there are applications where that makes sense or even shorter than that. Our FOX-CP comes with a fully and integrated, fully automatic wafer prober, as a turnkey solution with us, including the contractor. You come up to it, you put a full product set of 25 wafers in, you hit a button and you walk away and it will run through all of those wafers and it will step across the wafer. We have wafers that are being tested right now that have 50,000 devices on them. And even though we're testing 10,000 or 12,000 at a time, it may take five steps to step across that wafer. And with short test times, the CP is a better application for that. That's one wafer. So, then somebody needs 10 wafers. They would buy 10 CPs with the 10 probers, if you will. And so the CP on a cost from a capital cost per wafer is more. But if the test times are lower, it can be a more cost effective solution. So we have both, and so CP customers aren't necessarily a natural fit for an XP customer and that's okay with us.

What's the outlook for new products for fiscal year 2020?

We have two, what I would call major programs for products that we'll be introducing throughout the year, and there's always a handful of enhancements and even our major programs. One of the things that we're very committed to and I think it's a differentiator for us as a company is our platforms. So we're able to take. If you look at the FOX-P family, a CP or an NP would be considered a major program, albeit an example of the NP, the entire program was about six months long. And so we're able to create adaptation either in this case the mechanical infrastructure to support a particular point by reusing all of the electronics and software and our blades and repackaging things. By creating new channel modules, new blades, new differentiated things, we can create solutions within the FOX-P or our packaged part burn-in family that would address new market segments. And we're probably don't want to go into any more detail with respect to our – those roadmaps, but we do have some things up our sleeve.

Thanks. I have no more questions.

You're welcome.

We have one more questioner in queue, Ben Rabizadeh with StoryTrading. Your line will be opened in just a moment, Ben.

All right. And folks just on line, the reason we made a big deal out of the star, ones and being on mute is, in each of the last two calls, we had individuals try to connect in and had difficulty. And I think the trick was, if your phone's on mute, even though it doesn't seem to make sense, just take it off mute and hit star one and then it seems to work, I believe. But Ben, go ahead.

Hi, Gayn. Great quarter. Thanks for taking my call. Just a couple quick questions. The gross margin, great improvement there at 46.6%. How's that looking for the fiscal year? About the same?

Yes, a little better.

Okay, great. And the guidance of $27 million to $31 million, is that including – are you anticipating any new customers in that or would that be upside beyond that range?

It's got a conservative number of new customers. We have the ability to add a lot more than are needed to hit that plan. So it's does have some customers in it. But I would say by contrast to we're not – there's no miracle customers out there that need to come in. We don't need some major, folks that have followed us. I mean, one-year ago, we had one of our big lead customers had a major program that they had anticipated that was driving a fairly significant $10-plus million with a business. And no sooner had we had that call at about a month later, so that we got win or a couple of months later that they had pushed out that. That particular customer not going to get into it has been very well known, very visible, and has been quite devastating to a lot of companies that we're out there. We do not have a significant amount of revenue, although we do have some in critical programs with the installed base that are of high competence. So I'd say from a new customer perspective, this is a pretty low risk plan.

Okay, great. And just last question. This may have been covered somewhere else, but what's the market size with current products that you're offering? What's in the potential market out there that you're targeting per year annual revenue?

Yes, that's a very good point. We were trying to get our arms around because of the broader market slowdown, if you will, out there. I mean in the logic side of things on the traditional packaged part burn-in, the folks that have been – that have the estimates out there, the overall logic packaged part burn-in is probably somewhere at $70 million to $100 million annually without any consumables, okay. On the wafer level and the – what we call, our FOX level products, in some cases, there's just not a lot of people out there to go look and figure that out. So we do a bottoms-up based upon the customers, the test times, the anticipated markets. And if you look at the markets that we talked about and kind of ran down the list before, we see it at maybe about a similar size, maybe it's a little bit smaller, but it kind of depends on how the year plays out. And one thing that's interesting is that there's a consumable side of it. On the logic – on the packaged part burn-in side, the packaged part burn-in, what are called burn-in boards, we estimate at – I mean, there are times where it was $500 million, $600 million, $700 million annually for the BIBs on a $100 million in testers, over 5x. We think that the consumable business because we're kind of – we're the ones pushing the industry in this pace, the consumable business will grow, and so today the consumable business is on the same order of magnitude as the testers, but if you push us out three years, four years, five years and you've got five years' worth of installed base also buying consumables, the market for the consumables will absolutely be larger than the tester business. And that's why we kind of conservatively just state that our consumable business will exceed 50%, just simply based upon, in this case a relatively captive market share with unique products for our installed base of solutions.

All right. Thank you, guys. Good quarter.

You're welcome.

It would appear there are no further questions at this time. I'd like to turn the call back over to management.

All right, we really appreciate it. Hey, just one more thing I wanted to bring up. We did put out a press release today and [not sure if it went out after] exactly. We did add a new member to our Board of Directors, and I believe she is listening in on this call, and we want to welcome Laura Oliphant to Aehr Test's Board of Directors. She comes to us with a great wealth of background and experience. She is someone that is well known to us here at Aehr Test for a number of years. She has got backgrounds in test, probe cards, wafer, the probing environment. She spent many years as a process engineer management up through the Intel side of things and was at Intel Capital for many years on the M&A side of the house there. So she has a great wealth of practical, relevant information that I think will be a great add to our Board. We're proud to have her join us and we just want to welcome her to Board to our Company. So with that, I appreciate everybody calling in. And as always, give us a call if you happen to be anywhere near in the Silicon Valley. We'd love to have you come by and show you about our products and some technology and some of the things we're working on and will always host you here in the Valley. Thank you very much and unless, catch you next quarter.

Thank you for your participation. In that event that will conclude today's conference call. Thank you all for dialing in and participating. You may now disconnect your line.