Aehr Test Systems - Earnings Call - Q2 2020
January 9, 2020
Transcript
Speaker 0
Good day, and welcome to the Airtest Systems Second Quarter Fiscal twenty twenty 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 Investor Relations. Please go ahead, sir.
Speaker 1
Thank you, operator. Good afternoon, and welcome to Airtest Systems' fiscal twenty twenty second quarter financial results conference call. With me on today's call are Airtest 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 quick items. This afternoon, Airtest issued a press release announcing its second quarter fiscal twenty twenty results.
That release is available on the company's website at air.com. The call is being broadcast live over the Internet for all 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 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 valid only as of this date, and Airtest Systems undertakes no obligation to update the forward looking statements.
And now with that, I'd like to turn the call over to Gayn Erickson, President and Chief Executive Officer.
Speaker 2
Thanks, Jim, and good afternoon to those joining us on today's conference call and also listening in online. Ken will go over the second quarter financial results later in the call, but first, I'll spend a few minutes discussing our business and product highlights, including our continued progress with our wafer level insinuated die test and burn in solutions. We'll then open up the lines for your questions. We had a solid fiscal second quarter with a net revenue of $6,900,000 which is up 24% sequentially from Q1 and up 16% over last year's Q2. And we returned to profitability in Q2 with GAAP net income of $251,000 and non GAAP net income of $456,000 and improved gross margins.
We're pleased to note that these results exceed analyst expectations for Air on both the top and bottom lines for the quarter. We also generated strong bookings in the quarter of nearly $10,000,000 We expect to see continued momentum in the remaining quarters of this fiscal year and are seeing growth in customer engagements worldwide, particularly for high growth applications that include silicon carbide, photonics, automotive and memory devices. During the quarter, we successfully completed a new and unique production application for wafer level test and burn in of silicon carbide devices and received and shipped our first order from a new customer for this solution. This customer is a leading supplier of automotive semiconductor devices and selected the FOX XP for its unique capability to provide high voltage and high temperatures to the entire wafer. We're also currently engaged with numerous additional potential customers in this market.
Silicon carbide is a new emerging market for our FOX P family of products as our wafer level test and burn in systems are cost effective solutions for improving the reliability of silicon carbide based power devices used in electronic vehicles and other power conversion applications. It is our understanding that the higher defect density inherent in today's silicon carbide devices will drive the demand for additional test and burn in to achieve the initial quality and long term reliability needed by many industries and in particular the automotive market. The silicon carbide power device market and the need for reliability test solutions are expected to grow significantly over the next decade. According to research reported by High-tech News in July, the major factors driving the growth in the global silicon carbide power semi market include the rise in demand of power electronics modules across various industry verticals, the increase in installation of solar panels for electricity generation and the surge in demand of electric vehicles, plug in vehicles and hybrid electric vehicles. The key advantage of silicon carbide based over silicon based semiconductors is silicon carbide based power devices, in particular, provide significant reductions in power loss in high voltage power systems.
This leads to extended battery lives and range for electric vehicles, for example, which is a huge deal. We also continue to see a significant silicon photonics market growth opportunity. Silicon photonics is the name referring to photonics devices such as lasers and optical receivers that are fully integrated into or onto a complex semiconductor made of silicon. Today, the majority of fiber optic transceivers, which transmit and receive a fiber optic transmission between two points, are made up of many different devices on a complex module. Each fiber optic transceiver module includes discrete lasers, receivers, modulators, demodulators, waveguides, switches, filters, digital logic amplifiers, basically everything needed to make up a single transceiver.
These transceivers can cost several hundreds of dollars for data center applications and several thousands of dollars for telecom or data center to data center applications. I've heard that over half of the cost of a data center farm is in the communication infrastructure, not the servers or the data storage. And today, most of that is still in copper with LAN type wiring. The big deal with silicon photonics devices is that they're much less expensive to build and are much more scalable in terms of manufacturability and yield. A key is the integration of the optical components directly onto a silicon device that has all the modulators, switches, and logic on a single piece of silicon.
This allows companies to build hundreds of transceivers on a single wafer and get the scale we've all come to know about semiconductors that allow most major cost reductions and scalability of cost and capacity over time.
Speaker 3
What AIR brings is the ability to test and burn in or stabilize the optical subsystems while directly in wafer form.
Speaker 2
We're able to stabilize and test all the devices in parallel on up to nine or 18 wafers at a time in a single system. For the first time, silicon photonics devices can displace traditional copper based networks because of a competitive cost and capacity availability. This makes the silicon photonics market very cost and demand elastic, with a demand for low cost fiber optic transceivers far outstripping the available capacity available. This is great for our customers that are now moving into production with their silicon photonics devices with all of them rushing to add capacity. We're pleased to report that three of our silicon photonics customers have now moved from engineering testing to high volume production test and burn in of their devices during the quarter using our FOX P systems.
One of these customers is utilizing both the FOX XP system and a set of custom die pack carriers for the singulated die test of critical silicon photonics laser module. Aehr is the only company available able to provide both these unique solutions for wafer level and singulated die production test and burn in on the same platform. We also received follow on orders totaling over $6,000,000 during the quarter from one of our lead customers for our FOX XP multi wafer test and burn in system and multiple WaferPak contactors to provide additional high volume test capacity for this customer's increasing silicon photonics device production requirements. This customer continues to look to AIR to support their high volume production ramp and wafer level burning capacity and forecast significant growth in shipments for silicon photonics devices that we expect will drive the need for additional production test and burning capacity for multiple years into the future. In addition, we're currently engaged with several additional potential customers in the silicon photonics market to utilize our wafer level burning solutions for their engineering and production needs.
Airtest is benefiting from the broad adoption of Photonics in the data, telecom and sensing markets as our existing customers expand their product portfolios and ramp manufacturing as well as new customers entering this high demand rapidly growing segment. Some of the key drivers of this market include data centers, where companies are moving many new products into production for rapid deployment, five gs bandwidth requirements, which are driving new innovations in silicon photonics from leading network suppliers and startups alike, and the implementation of three d capabilities and sensors, which is driving continued market expansion into new products in mobile phones, tablets and other markets, particularly where security is critical. Market research company, YOLO Development, predicts silicon photonics technology will go from being used in just a few percent of the total optical transceiver market in 2016 to over a third of the market in 2025, with market value for transceivers of almost $4,000,000,000 in 2025. And according to market research engine, silicon photonics for data center and high performance computing is projected to grow at a compound rate of approximately 27% from 2017 to 2024. The lasers used in silicon photonics transceivers require a stabilization process where we apply precise calibrated current through every laser device at elevated temperatures to ring up process variations and to stabilize the output power of each device.
This process takes many hours to even days to do and is needed on 100% of the devices. Air
Speaker 3
has
Speaker 2
been doing this for years, starting with our previous generation of wafer level burn in systems, but our new FOX XP system provides the mass production and high power requirements these new devices require. As a result of the high growth of silicon photonics, the need for 100% stabilization and burn in and the unique value that AIR brings by being able to cost effectively stabilize and test these devices while in wafer or singulated die form before putting them into modules, We believe this market will be a significant growth driver for Ehre over the next several years at a minimum. Ehre is uniquely positioned with our value proposition of being able to test, stabilize and detect infant mortalities of these devices at either wafer level or singulated die at a cost point that gives AIR a significant advantage. We believe our FOX P systems are the only way to cost effectively scale to meet the demands of these devices that are using five gs infrastructure build out, two d and three d sensors and enterprise and data center server and storage applications. Turning to our mobile photonic sensors business.
While this business has been somewhat quiet the last couple of years, we're expecting orders for additional die packs from our lead customer and their subcontractors and possibly additional test capacity for an exciting new device coming out this summer. Our FOX XP test and burn in systems continue to be an important and critical part of this customer's manufacturing quality process on all their devices of this test of this type. These systems use our proprietary die packs that allow up to two fifty six, five twelve, or ten twenty four devices to be tested in parallel per test blade and nine high power test blades per system. Each blade can test up to 2,000 watts of devices and use our proprietary thermal checks to heat and cool the devices conductively by direct contact with the device rather than convection chambers which use air blowing over the devices. Each blade can be configured with up to 2,048 individual power supplies and digital channels, which is critical to test these highly complex devices.
Our FOX XP can read and write to every device individually, record device IDs, device temperatures, and device status, while also burning in critical logic and optical subsystems, all in parallel with as many as thousands of devices at a time. Customers use our FOX systems when they must have a 100% certainty of burn in and to address critical thermal control of their devices. As we've talked about on past calls, our customers move to high volume production test I'm sorry. As our customers move to high volume production test on our FOX P systems, we see their ramps driving significant incremental capacity of both our systems and also our proprietary WaferPak contactors and DiePak carriers. As we grow our installed base, we believe we'll reach a point in the next few years where our WaferPak and DiePak contactors exceed over half of our annual revenue.
To illustrate this trend, revenue from our WaferPak and DiePaks accounted for 44% of total revenues in this fiscal Q2, more than double compared to only 16% of total revenues in last year's Q2. And there continues to be pent up demand for our consumables, WaferPaks and DiePaks as some of our customers have not yet reached all of the contact ors to fully utilize the infrastructure of air test systems they have purchased to date. Turning to our packaged part and OEM chamber business. As we've noted before, the low level business in our packaged part business has been expected and was already built into our financial forecast. However, we are starting to see some forecasts for renewed market demand for packaged part burn in systems, particularly in automotive applications.
While our largest packaged burn in customers still not fully utilizing the installed base of our systems, they and other customers are asking us about our high voltage capability and adding this capability to our packaged part systems. We see the need the new need for high voltage capabilities in both wafer level and packaged part as a new high growth opportunity for Airtest. We feel good about our progress midway through our fiscal year and remain very optimistic about growth in sales of systems and consumables to our installed base of customers as well as the expansion of sales to new customers with our family of FOX P solutions. Looking ahead, we expect to see continued positive momentum to generate significant year over year revenue growth in fiscal twenty twenty and to be profitable for the fiscal year. And with that, let me turn it over to Ken, and then we'll open up the line for questions.
Speaker 4
Thank you, Gayn. As Gayn noted, our financial performance for the second quarter included solid revenue and bookings, strong gross margins and a return to profitability. Net sales in the second quarter were $6,900,000 up 24% sequentially from $5,500,000 in the preceding first quarter and up 16% from $5,900,000 in the second quarter of the previous year. The sequential increase from Q1 included an increase in wafer level burn in revenues of $1,500,000 primarily due to increased WaferPak and DiePak revenues. The increase from Q2 last year includes an increase in wafer level burn in revenues of $2,200,000 also primarily due to increased WaferPak and DiePak revenues, partially offset by a decrease in packaged part revenue of 758,000 and customer service revenues of $455,000 Non GAAP net income for the second quarter was $456,000 or $02 per diluted share compared to a non GAAP net loss of 214,000 or $01 per diluted share in the preceding quarter and a non GAAP net loss of $405,000 or $02 per diluted share in the second 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 second quarter was $251,000 or $01 per diluted share. This compares to a GAAP net loss of $413,000 or $02 per diluted share in the preceding quarter and a GAAP net loss of $629,000 or $03 per diluted share in the second quarter of the previous year. Gross profit in the second quarter increased to $3,200,000 or 47% of sales, up from gross profit of $2,300,000 or 41% of sales in the preceding first quarter and gross profit of $2,400,000 or 41% of sales in the second quarter of the previous year. The sequential and year over year increase in gross margin is primarily due to a decrease in unabsorbed overhead cost to cost of sales related to higher revenue in the quarter and a change in product mix.
As we noted on prior calls, our wafer level burn in products maintain higher margins than our packaged part systems or pass through products such as WaferPak aligners and DiePak auto loaders. In addition, WaferPak and DiePak revenues are accounting for a more significant portion of our overall revenues. Our WaferPak and DiePak consumables business accounted for 44% of total revenues in the second quarter, up from 30% in the preceding Q1 and more than double from 16% of revenues in Q2 of last year. Operating expenses in the second quarter were $3,000,000 compared to $2,700,000 in the preceding quarter and $3,000,000 in the prior year second quarter. The sequential increase in operating expenses includes an increase in SG and A of $349,000 partially offset by a decrease in R and D of $97,000 SG and A was $2,200,000 in the second quarter compared to 1,800,000 in the preceding quarter and $2,000,000 in the prior year second quarter.
The increase from Q1 and from Q2 of the prior year includes an increase in commission and bonuses related to our increased bookings and costs associated with new product introductions. R and D expenses were $795,000
Speaker 2
in
Speaker 4
the second quarter compared to $892,000 in the preceding first quarter and $986,000 in the prior year second quarter. The decrease in R and D expenses is primarily due to a reduction in R and D project materials. Turning to the balance sheet for the second quarter. Our cash and cash equivalents were $5,300,000 at November 3039, flat compared to $5,300,000 at the end of the preceding quarter. Accounts receivable at quarter end was $5,200,000 an increase of $1,900,000 compared to $3,300,000 at the preceding quarter end, up primarily due to the increase in revenues from prior quarter.
Inventories at November 30 were 9,800,000 compared to $9,200,000 at the preceding quarter end. The increase in inventory is primarily due to adding inventory to our demo lab for sales and marketing activities. This inventory can also be used for quick turns. Property and equipment was $860,000 compared to $1,000,000 at the preceding quarter end. As I noted in our last call, under new accounting guidance effective for air test beginning in fiscal twenty twenty, we are now required to report our facility operating lease as a right of use asset with a corresponding short term and long term lease liability.
For Q2, we reported an operating lease right of use asset of 2,400,000.0 with an offsetting short term liability of $619,000 and a long term liability of $1,900,000 Customer deposits and deferred revenue, short term and long term, were $1,900,000 an increase of $1,100,000 compared to $728,000 at the preceding quarter end. The increase primarily due to the increase in bookings and backlog from prior quarter. Bookings in the second quarter totaled $9,800,000 and included an order from a new customer for order $3,000,000 for a FOX XP 18 blade system and WaferPaks configured to test silicon carbide wafers and orders totaling over $6,000,000 for a FOX XP system and WaferPaks from an existing silicon photonics customer. Backlog at November 30 was $6,500,000 compared to $3,600,000 at the end of the preceding first quarter and $4,300,000 at the end of the second quarter of the previous year. We are pleased to announce that today, we have come to terms for a borrowing agreement with Silicon Valley Bank providing a line of credit of up to $4,000,000 Under terms of the agreement, the company can borrow at a minimum borrowing rate of prime rate, currently at 4.75%.
We believe that with this available line, we'll allow us to help meet funding requirements for future growth. We will be filing an eight ks with the agreement shortly. Now turning to our outlook for fiscal twenty twenty. We are reiterating our previously provided guidance for fiscal twenty twenty for full year total revenue of between $27,000,000 and $31,000,000 which would represent growth between 2848% year over year and to be profitable for the fiscal year. We continue to expect to see a pickup in the momentum for the remainder of the fiscal year.
Our forecast is based upon customer commitments to our FOX solutions for wafer level and singulated die and module test and burn in. We still see an overall slow market recovery of our packaged part burn in market. As such, we are not anticipating a significant amount of revenue contribution from our lower margin packaged part business in fiscal twenty twenty and remain focused on opportunities with key customers for our FOX products, including our FOX XP multi wafer system, WaferPak and DiePaks, and our FOX NP and CP systems that we both introduced and sold to customers in the prior fiscal year. In terms of operating expenses, the company plans to increase its R and D spending in calendar year twenty twenty with investments in enhancements to our products for automotive, silicon carbide, silicon photonics and memory. The company is also planning for an increased employment related expenses in the 2020.
This initial spending is expected to result in an increase in operating expenses of approximately 5% to 7% from current levels. Lastly, on the Investor Relations front, Air will be exhibiting at the SPIE Photonics West Conference taking place in San Francisco, February 4 through February 6. We welcome any attending visitors to stop by our booth. This concludes our prepared remarks. We're
Speaker 2
now ready
Speaker 4
to take your questions. Operator, please go ahead.
Speaker 0
We'll take our first question from Christian Schwab with Craig Hallum. Please go ahead, sir.
Speaker 5
This is Tyler on for Christian. Thanks for letting us ask a few questions. First, a similar question. I think a similar type of question I've asked in the past. Could you help bridge the gap between these current revenue levels and the expected strength in back half, what that incremental growth is particularly coming from, maybe ranked or just broken down by customer or end market type?
Speaker 2
Well, normally, as it is, we've been, you know, relatively conservative on detail in our forecast in general. But I think that as we look at our second half, the expectation is that it would be a similar type of mix of markets, particularly from a revenue perspective. I don't think we'll see any significant revenue in a new market segment, if you will. So, you know, the customers that we're anticipating that that have ordered that will be shipping against backlog and the new orders that we'll be getting, including orders that will come in in time to ship are within, as I said, the primary market segments we talked about. I think silicon photonics will be largest.
Silicon carbide is in there. Some automotive applications and some of the three d sensor, particular mobile sensor applications, we'll see bookings and revenue in our in our fiscal second half, to fill out our range of forecast. You know? And and just a little bit of color behind the, you know, the range of '27 to 31. You know, one of the challenges with our business always is is is the customer's range of forecast in a system that comes in in May 31 versus June 4.
It can have a you know, can have an impact on us. We're seeing positive, feedback from customers, you know, bookings and revenue forecast from pretty much all of our customer base. And just depending on how those things play out is where we think we're gonna come in. But, you know, I think we're we're we're still feeling, you know, really good about our range and, you chose not to tighten it up at this point, but we'll see as we continue to go through the second half as to where we come in. Okay?
Speaker 5
That's perfect. Thank you. And then maybe for Gain, a little bit more of a modeling question, maybe a couple of parts here. So on gross margins, I don't believe I've heard you reiterate your previous guidance for 46 to 40% for the full year. I guess is there a chance that, that could be a little bit better now?
And then also with the WaferPak and DiePak parts being 44% of revenue this quarter, is that maybe a little bit high as far as immediate run rate? And how might that kind of affect margins in back half of year here?
Speaker 2
So I'm gonna look at Ken a little bit across here, but I I think our margins, would probably anticipate to be somewhat similar. Although, I think, actually, this quarter may be even stronger on some of the, the the mix of some of the, WaferPaks and DiePaks. But, honestly, next quarter too is is full with, particularly some of the DiePaks revenues that we'll see. Generally speaking, we spent a lot more time trying to clarify our model, a couple of years ago, particularly because our packaged part business, which, know, quite frankly, there are more competitors and alternatives out there, has lower incremental margin rates, you know, 40, you know, 40% or so, let's say. Whereas, our wafer level products and contactors are are in the in the higher incremental margins, maybe 60%.
And given the fact that our packaged part business is is very low or nascent right now with the dominant being wafer level products and contactors, there's just not as much variation in our mix even between customers and different products because the Fox products and the contactors have about similar kind of margins.
Speaker 5
Great. The details the details very much appreciate. That's all for me guys. Thanks.
Speaker 4
Thanks, Todd. Thanks, Todd.
Speaker 0
Thank you. We'll now take our next question from Larry Klabini with Klabini Capital.
Speaker 2
Hey, Larry.
Speaker 3
Hi, guys. On your recent presentation, you said you had 12 new customer applications for your FOX P line of solutions in the pipeline. Is that is that like the largest pipeline that you've had in a good while? Or is that maybe you can give some sense of how big of a pipeline is that, you know, relative to past history.
Speaker 2
So let me clarify what 12 new whats are because I'm not sure the way you describe it. So that's really 12 new customer engagements, over, call it, several applications, which, many of those I would consider relatively new, but they'd be silicon photonics, silicon carbide, gallium nitride type, you know, the high voltage stuff as well as automotive and three d sensing. Those, we might argue, are older applications or current applications. We are also engaged with some memory folks that we would consider now a relatively new application or a renewed application because historically, we have had, in fact, have an installed base of memory customers, but haven't had, a lot of engagements with that in the in the last couple of years. And then I think we've kind of said at least or over 12, you know, talking, you know, Vernon, our VP of sales, and, you know, I think we've got a brand new customer in tomorrow.
I heard of another one, brand new yesterday. It's actually pretty exciting because, the reality is having spent my entire career in the semiconductor market, there really are not hundreds and hundreds of customers out there. And very often, you know, 10 or 20 make all the world of difference. So to actually be engaged with that many companies, is is is is really a good thing. And certainly, in my tenure that I've been here, that is definitely more than we have been engaged with in that entire time.
I think you'd have to go back, you know, a number of years that we might have been involved in, you know, 12 new customer applications all at the same time. We actually spend a lot of time here and have made a lot of process changes. It's something you don't hear me talk a lot about, but we're doing a lot of things internally in terms of not only manufacturing processes and the way we're the changes we're making in our sales force and adding distributors and reps and all. But we're actually optimizing the engagement process of how so we can do more applications in parallel with customers. And, Ken, I'm not sure I how do you how do you know you're gonna talk about it.
But, you know, it you'll show up in our inventory that we kind of anticipated to go down a little bit went up. What had happened is we've actually taken on and developed kind of a formal application and and benchmark center here as a way for us as a demo lab for us to actually be engaged in multiple customers at the same time. So, you know, like, physically right now, I think we probably have four or five different applications running in the back in our clean rooms of different customers, doing benchmarks or proof of concepts or running some wafers for them, etcetera. And and, Vernon has done a really good job of of having the teams divide up in such a way that we can actually do many applications at the exact same time. It's kinda funny, and I sometimes joke about it.
You know, we do have to be careful of when all the customers come in because, we these rooms are interesting. They're locked up. They have secure accesses and stuff so we can make sure there's no IP transfer and things like that. So we have all these different rooms that they can all be in secure locations even when the customers aren't here just to make sure there's absolutely no way that there's any kind of IP transfer. And we have safes and things to lock up devices and wafers, but, there's just a lot of activity going on, and that is definitely different than where we were a few years ago as we shift from a product concept to actually having a product to getting it released into these major customers.
And then not only are those customers ramping, but we're starting to see lots of other little guys. And some of the little guys are top 20 or top 10 semiconductor manufacturers. So this isn't they're not just small.
Speaker 3
Your your consumables were a little over 3,000,000 last quarter. Is that did I hear that that's probable a probable good run rate going forward, maybe for this quarter?
Speaker 2
That's so Larry, yes, we had a little bit right around $3,000,000 this quarter, and that's pretty high. It's higher than we've historically had. As we talked about, it was previously 30%, and then But we may have a ten year one. Right? So We could have some good ones.
Yeah. So, Larry, I'm not sure I'm ready to call 44 like a baseline or a bay base, but I will tell you, it is growing. Base is growing.
Speaker 3
Is gonna make sense as your revenue goes up. So but at least 3,000,000. I guess that's really the question.
Speaker 2
You know what? I right now, we we have a, you know, very strong forecast of systems and contactors, and we're still absorbing. You know, one of the things that's subtle, and I I think we've talked about it before, but I just want people to understand. So remember that we sell these systems, and the customer buys a system when they have to ship more product than they ship the quarter before. So they buy another machine, and then every quarter, that machine can ship more and more.
When they buy that machine from us, they also buy a set of contactors, either WaferPaks or DiePaks, that allow us to make contact to their specific and unique device design. Next year, if they're still shipping exactly that same device and in no more quantity, they would be fine. But what happens is they may not they may change the design of the device, which is very typical. And so even though they have a tool from us, a year from now or two years from now, they need to buy another set of contractors. So for every year we sell x number of systems, we sell that same x number of sets of contractors.
But then we also sell a certain number of contractors for the installed base. And so just by the model, each year, the contractor business will rise even to a point, let's say, was some horrific year and you sold no systems, we're likely to sell a whole lot of contractors in the same year because the consumables, historically, like the probe card market, if companies aren't necessarily growing, they're still changing their designs. And so it creates, some some stability for us. But, like we said, we'll stick to our guns. I would see the number can you know, continuing to rise, And we absolutely could get to a point where there's sort of a baseline of 50% of our business or even more being the contactors.
Speaker 3
Okay. A little bit ago, you you announced a sale of, or a deal with the MP machines for a data center application. When do you expect those sales to actually start booking?
Speaker 2
Yeah. So what we, the way we described it, we were always somewhat elusive on purpose for the customer's request. We refer to it as a FOX P system, which has everybody guessing, is it an XP, a CP, or an NP? But, nevertheless, that system I'm sorry. I'm gonna correct that.
That's not true. So let me try to we did announce, we did announce a data center application, which was on a FOX CP, which is a single wafer system production system. We referred to it as related to a new device that we're being very elusive on that is in a massively high volume data center application. That customer is using that, that first tool that we ship. They're going through qualification and process qualification and anticipation, maybe production ramp from them over, as we have stated, the next several years.
So, we're for lots of reasons, we're trying to be elusive. It's not a significant part of our near term forecast. Let me leave it at that. But we do anticipate, that should be a very good business for us as we head into next year and the following year.
Speaker 3
You say near term for fiscal year twenty?
Speaker 2
Yeah. Like, in the next six months. I think I'm okay saying that. I'm just trying to be there there's some reasons, and Sunday, when the dust settles and everyone understands what it is, they'll know why we were asked to be and why we've been so selectively secretive about this.
Speaker 3
Okay. One last one. On the memory application, do you have any comments about where that stands? Do you have just one, potential customer in that area? Or do you have
Speaker 1
There are there are.
Speaker 2
I'm going to there are several potential customers. We are talking to the call of more than one to several customers in that. You know, there's not a bunch of them, but you could imagine several. How's that? There is a real market need out there, and the memory wafer level burn in market that, as you guys that have followed us know, we had discussed as a potential new concept, would appear to actually be having real traction in terms of its value and its ability for customers to actually move package burn into wafer level as a value added step or at least as an alternative and better step to doing it in the package level.
We see there's some things going on technically and commercially in that area where people that did actually buy some multi position probers that are very expensive and very large, in the past are looking for different alternatives going forward. And right now, I we see that as something that is very intriguing and interesting. And I'll as we get closer, I will give you more details on where we stand on that. But it is our belief that our FOX XP products are applicable and can be leveraged, to be able to go after that space with some enhancements as opposed to complete. We don't need an entirely new product or product family to go after it, And we are engaged with some customers in some of those early conversations right now.
Speaker 0
We'll now take our next question from Tom Daifle with D. A. Davidson.
Speaker 6
A couple of questions on the cash flow, for Ken. So obviously, nice to hear about Silicon Valley Bank piece. But if we think about revenues doubling over the next few quarters, does what are the dynamics of the the pieces of cash flow? Do you use prebuild some of these systems? Are you still getting deposits?
You know, what happens
Speaker 2
be So, yes. So what
Speaker 4
we so, Tom, we do we do our our traditional is 30% down payment, and that's with all customers. So we can model that into our cash flow. And I think we've talked about our margin structure from the direct materials and overhead and cost structure. So and then the the last piece is inventory. And we built up inventory like we talked about.
Speaker 2
We have both in our demo that we have now, and you can
Speaker 4
see we've built up inventory for the quick turns. So we wouldn't necessarily need to be adding a significant amount of inventory and consuming cash to build that inventory to meet some of our short term needs.
Speaker 6
Okay. So with the Silicon Valley Bank piece, it's you're comfortable over the next year that you could handle a pretty healthy ramp?
Speaker 2
Correct. I do. And, hey, Ken. Let me just you had mentioned something in your pre in your script. You referred to the Silicon Valley Bank $4,000,000 as a way to help us fund some growth going forward.
I think I wanna be careful, and I it's so it it's an it's nice to have a line of credit. It gives us a little flexibility in terms of some of the simple cash flow and the quarters and things like that, but it is not at all our intent nor is it a line of credit intended to be tapped into to go out and do r and d spend and other things. It does make it easier for us to manage through accounts receivable, as an example, very specifically. But as we stated before, you know, the terms and conditions we have with all of our large customers is that there is a 30% down payment, necessary with all of that. That does help us substantially through anything.
So, you know, even a fairly substantial ramp, we can ramp into it without, having to tap into any significant cash flow issues.
Speaker 6
Okay. Great. And then if you look at the projected increase in operating expenses, is that your pure R and D to create new products? Or is that more engineers to engage with customers to do more customer engagements with current products then?
Speaker 2
You know, if there's a little bit of a some of the across the board with some pay raises, we've actually done some we've done some hiring in in several different areas from our our customer facing team to some manufacturing and some quality roles, some r and d things. So it's spread a little bit, but there's also definitely an element that we've got some enhancement products that we're doing on the Fox products and price some of the package part burn inside that we're seeing some incremental spend. And these are all pretty small numbers. I mean, we're a small company, but these are all pretty small numbers that we're talking about, but, you know, they they add up. But, we'll continue to look you know, some of the the ads we're doing, say, in sales and marketing, it come through reps.
So they don't come in direct expense. They would come through commission structures and s g and a as we go under with with new sales. So we're trying to do more of that where possible. And and, Tom, if I may
Speaker 4
add too. So if you take a look
Speaker 2
at our run rate, you'll see over the last several quarters, our actual r and
Speaker 4
d spend has had decreased at about a $100,000 per quarter rate, where we went down to, I think, 800,000 this quarter. So a lot of it too is just building back
Speaker 2
up and to where we were. That's right.
Speaker 6
Okay. And finally, what are the current lead times for the different types of things you look at, like, in the large system versus, in some of the WaferPak sets? And then are you prebuilding some of that at this point ahead of an actual handover?
Speaker 2
You know, so generally speaking, what we try and refer to is, you know, our lead times. So, like, our NP systems are, you know, typically maybe twelve or sixteen week lead times. An XP system might be a little longer than that. We try and have our WaferPaks be closer in the, you know, eight to twelve week timeline so that we can do them in, quicker. And we do have programs in place with expedite fees for some people want onesie twosies.
We can do them quicker than that. Having said all of the above, we do prebuild things against forecast, and it is not atypical for customers to place orders and get inside of lead times. I just hate to always, you know, sign ourselves up to that. The other thing is we do have in our demo center. We, you know, have a customer that came.
So I need something right away. It's like, well, we'll be happy to sell you one out of the demo center for a premium or for this. We're not actually taking a discount on it because some people it's interesting. It's actually fun right now because this you know, the silicon carbide, silicon photonics, there's a lot of people out there scrambling for market share and for market lead. And, you know, they'll be waiting and they get an order, and then they're in a big hurry to get capacity.
So we've been trying to make sure that we have inventory on hand to be able to meet that. The nice thing about the Fox product family remember that the Fox XP, NP, and CP, think of them as enclosures or they're the boxes, if you will, that the blades go into. The blade, which holds the wafer wafer pack or die pack for singulated die, is the same blade, and they're just interchangeable between a single blade that sits on a prober with the CP, two blades for engineering and new product introduction with the NP, and either nine or 18 blades on the high volume XP. And then within that, there are channel modules that are mix and match. So between one customer to the other, they're very often just slight variations.
And this allows us to buy inventory as a pool and then be able to do a quick configure to order, which allows us to have better and better lead times.
Speaker 6
Okay. Great. So do you envision a day where you are essentially breakeven on just the recurring revenue stream?
Speaker 2
That would be certainly our goal, such that on a, you know, on a bad quarter or a bad year, we are not losing any money. That would be at a minimum, that should be our our goal as as we always live. There's always gonna be cycles in this thing. We believe that as we increase the number of markets and customers, we think we can get to a point where we're you know, it is interesting. We're really at a point where as we add if we go add $3.04, $5,000,000 worth of revenue in a quarter, we really barely add any expenses at all.
The problem is is if we drop $2.03, $4,000,000, we also can't cut very much. And so, you know, I think we're at a good point right now. And, you know, with these products majority, completed and shifting from sort of an r and d focus to a sales for for, focus, this is a good place to be.
Speaker 6
Alright. Thanks for your time today.
Speaker 1
Thank
Speaker 0
you. And once again, that is star one if you'd like to ask a question. Again, if you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, that's star one.
Speaker 2
And, operator, I know that Jeff, is one of our regular call in guys, had had sent a message and just recently saying he was not he was on a plane. And not to be shocked since he I don't think he's missed a conference call in eight or so. So he won't be calling in today.
Speaker 0
Okay. Great. I show that there are no further questions, and I'd like to turn the conference back over to management for any additional or closing remarks.
Speaker 2
Alright. Well, thank you very much, everyone. We appreciate it. And as always, we invite anyone who happens to be anywhere in Silicon Valley, if they want to make an appointment with us, we'll be happy to show you around and show you some of the exciting products and things that we're working on right here. And we look forward to our next call with everyone.
Take care. Bye bye.
Speaker 0
Thank you. That does conclude today's conference. Thank you all for your participation. You may now disconnect.