Aehr Test Systems - Earnings Call - Q3 2020
April 2, 2020
Transcript
Speaker 0
Good day, and welcome to the Aehr Test Systems Third Quarter Fiscal twenty twenty Financial Results Call. Today's call is being recorded. At this time, I would like to turn the call over to Mr. Jim Byers of MKR Investor Relations. Please go ahead, sir.
Speaker 1
Thank you, operator. Good afternoon, and welcome to Aehr Test Systems fiscal twenty twenty third quarter 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 quick items. This afternoon, Aortest issued a press release announcing its third quarter fiscal twenty twenty results.
That release is available on the company's website at air.com. 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. 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. Those 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 Airtest Systems undertakes no obligation to update the forward looking statements.
And now with that, I'd like to turn the conference call over to Gayn Erickson, President and CEO.
Speaker 2
Thanks, Jim. Good afternoon to those joining us on today's conference call and also listening online. Ken, our CFO, will go over our third 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 and singulated dive test and burn in solutions, and then we'll open up the lines for your questions. Before I discuss our performance and financial results for the third quarter, I'd like to say a few words about the impact of the coronavirus and our response to this global pandemic.
First, I'd like to express a heartfelt concern to all those who've been impacted. And to everyone listening today, I hope that all of you and your family and friends are staying safe and healthy. As the COVID nineteen pandemic continues to unfold, our foremost concern at Aehr Test is to ensure the health and safety of our employees, their families, and our worldwide community. As of today, I feel fortunate to report that none of Airtest Direct employees or their immediate families have contracted the virus. On 03/19/2020, the executive department of the state of California issued an executive order ordering individuals in the State of California to stay home or at their place of residence except as needed to maintain continuity of operations of the federal critical infrastructure sectors.
Eyre is a global supplier to critical infrastructure, specifically companies in the IT communications and manufacturing sectors that require semiconductor components. As such, we're taking extraordinary measures to maintain continuity of our operations and to continue to safely operate with full capacity available in manufacturing and across the company to support the vital needs of our critical infrastructure customers while complying with the local and state mandated shelter in place directives. Wherever possible, our employees continue to work from their residences using the best possible remote communication and collaboration tools available as well as securely accessing remote operation of our tools at our facilities and also at our customers' sites. While working remotely, our r and d and applications teams continue to be highly effective in advancing our our easy for me to say, our ongoing product enhancement programs and customer applications to meet critical releases and customer product road maps. In addition to direct and indirect representatives, AIR also has engineers and infrastructure around the world to support our customers and meet our contracts, response times, and critical parts lead times for our installed base of Aehr Test products.
Personally, I feel very fortunate that Aehr Test is in the position to currently not have any employees yet directly impacted by this pandemic and that we have the capability, capacity, and government support to be productive, effective, and able to meet all customer needs at this time. We're also in the position where our customers are open for business, which I realize is simply not the case with so many businesses around the world. Let me turn to our business highlights. Excuse me. We're pleased with our results for the fiscal third quarter, which include continued profitability and strong gross margins.
Profitability for the quarter exceeded our historical business model, reflecting higher than average consumables as a percent of total revenue for the third quarter. Despite the current challenging global environment, we remain engaged with a large number of potential new customers. We continue to see a substantial number of customer evaluations of our FOX NP, XP, and CP products to address their production needs and test and burn in on a number of applications. We think this is a combination of so many of our customers' engineering teams having more time or more focus to work on improvements to their production processes so that they come out of this environment stronger than they came into it and or because so many of our applications are related to the global infrastructure of IT and communications that are clearly more important than ever before and are being stretched to their limits. We have several customers that are saying that they're trying to actually pull in plans for new programs and new products as a result of the new demands on the worldwide communication infrastructure.
We're currently working with more than a dozen new customers for production wafer or die level test and burn in. That includes silicon photonics devices for five g and data storage farms, power silicon carbide devices for automotive, sensors for mobile and automotive applications, and memory devices for data storage and computing. Our sales, marketing, and applications teams remain very busy supporting these sales efforts using online conferences, videos, and other collaboration tools. During the quarter we shipped an additional FOX XP multi wafer test and burn in system to meet the production ramp of a leading supplier of silicon photonics devices. This customer continues to look to AIR to support their high volume production ramp and wafer level burn in capacity and to forecast significant growth in shipments for silicon photonics devices that we expect to drive the need for additional production test and burning capacity for multiple years into the future.
As we've talked about on past calls, as our customers move to high volume production test on our FOX P systems, we see their ramps driving significant incremental capacity on both our systems and also our proprietary WaferPak contactors and DiePak carriers. When they buy a FOX X PRNP system from us, they also buy a set of either WaferPak or die pack contactors that allow us to make contact to their specific and unique device design. These consumables are needed with each new device they introduce or with each device shrink or new design. During the quarter, we received orders totaling more than $2,900,000 from our installed base of FOX test and burn in system customers for our WaferPak and DiePak consumables, including orders from a single customer of approximately $2,300,000 for DiePaks for test and mobile sensors. Other device applications for these orders include production test of silicon carbide devices, flash memories, and silicon photonics devices.
Shipments of our consumables for our FOX systems accounted for 51% of our total revenue for the third quarter. As I've noted before, the consumable business continues long after a system is installed and that as we grow our installed base, we believe we can reach a point where our WaferPak and DiePak contactors exceed over half of our annual revenue, providing stable baseline for our test. Over time, we feel that the percent of our business made up of consumables will grow, although it will still vary as a percent of total from quarter to quarter. Turning to our packaged part and OEM chamber business. As I noted on our last call, the low level business we've experienced in our package part business has been expected and was already built into our financial forecast.
We started to see some forecasts for renewed market demand for packaged part burn in systems from customers who are asking us about our high voltage capability and adding this capability to our packaged part systems. We see the need for high voltage capabilities in both wafer level and packaged part now as a new high growth opportunity for AERITEST. These changes in our customer long term forecast for our packaged part burn in systems reflect the move towards higher voltage higher voltages and other requirements for smartphone devices and automobiles, particularly with electric and hybrid automobiles and autonomous vehicle sensors. As a result, we've seen a drop off in demand of our older package system configurations, and we're currently evaluating these markets. Now turning to our guidance for fiscal year twenty twenty.
Currently, all of our customers have their wafer fabrication facilities open to support the critical infrastructure around the globe in information technology, communications, and critical manufacturing sectors. And AIR is able to ship orders for systems, wafer packs, die packs, and parts needed to support these customers with little to no limitations or delays. However, due to the uncertainty of the full impact of the COVID-nineteen pandemic on our customers, we simply cannot predict how this will impact our business in the near term. And we are taking a conservative stance to withdraw our previously provided guidance for fiscal twenty twenty year that ends this May 31. Looking ahead, we remain optimistic about the significant market opportunities in front of us and about our customers and our unique capability to serve their test needs this year and beyond.
As we continue to focus on our selling resources and processes, we've continued to make some structural changes in a few areas of our company that we began last fiscal year to both position us for success in addressing our new market opportunities as well as improve our efficiencies. This month, we completed closure of our Japanese subsidiary and the transition away from direct sales in Europe, moving to sales representatives in both Europe and Japan. I'm pleased to note that with these changes, we've always seen far better sales coverage of Europe while at the same time reducing our fixed costs in both Europe and Japan by approximately $120,000 per quarter beginning at the start of our fiscal twenty twenty one year, which will start this June 1. As a result of these changes, we'll be taking some onetime charges associated with these closures and layoffs of employees in those offices in our fiscal fourth quarter. Lastly, I'm pleased to announce that we recently hired a new VP of operations, Michael Brannan.
Michael comes to us with extensive background in the semiconductor test industry and particularly the printed circuit board and assembly and probe card industries where our traditional manufacturing spend is over 75% of total today. Michael is replacing David Fucci, who served as our VP of operations for the last six years and is retiring at the May. We wish David well and thank him for his contributions during a pivotal time in AHR's history. David's retirement has been in the works for some time, and we began looking for his replacement several quarters ago, well before the coronavirus outbreak. We're excited to have Michael on board to lead our team in manufacturing operations, supply chain quality, and inventory management.
To conclude, we had three solid quarters before the world got hit by COVID nineteen. We increased increased revenue by 34% year over year and most importantly turned a $5,000,000 loss into a profit, and we expect to get back on track once this crisis is over. The fundamentals for Airtest remain strong long term, and we believe that we will emerge from this difficult period even stronger than we went in with an even larger number of customers committed to using our FOX systems to meet their production tests and burn in needs. With that, let me turn it over to Ken before we open up the lines for questions. Thank you, Gayn.
Speaker 3
As Gayn noted, our financial performance for the third quarter included continued profitability and strong gross margins as well as lower operating expenses, reflecting our cost containment measures. Net sales in the third quarter were $6,100,000 down 11% from $6,900,000 in the preceding second quarter and up 93% from $3,200,000 in the third quarter of the previous year. The sequential decrease from the preceding quarter reflects a decrease of $841,000 in wafer level burn in revenues. The increase from Q3 last year includes an increase in wafer level burn in revenues of $3,400,000 reflecting an equal mix of system revenues and WaferPak and DiePak revenues, partially offset by a decrease in customer service revenues of $435,000 Non GAAP net income for the third quarter was $452,000 or $02 per diluted share compared to non GAAP net income of 456,000 or $02 per diluted share in the preceding quarter and a non GAAP net loss of 1,600,000 or $07 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 income for the third quarter was 245,000 or $01 per diluted share. This compares to GAAP net income of $251,000 or $01 per diluted share in the preceding quarter and a GAAP net loss of $3,200,000 or $0.14 per diluted share in the third quarter of the previous year. The GAAP net loss in 2019 includes the impact of approximately $1,400,000 or $06 per share in onetime restructuring and inventory write down charges taken in the quarter. Gross profit in the third quarter was $3,000,000 or 49% of sales compared to gross profit of $3,200,000 or 47% of sales in the preceding second quarter and gross profit of $272,000 or 9% of sales in the third quarter of the previous year. The sequential increase in gross margin percentage is primarily due to a change in product mix, reflecting an increase in WaferPak and DiePak revenues from Q2.
The increase in gross margin over prior year Q3 is primarily due to the impact of 795,000 in inventory write down charges, along with higher unabsorbed overhead costs due to lower revenue levels in the third quarter last year. As we've noted on prior calls, our WaferPak and DiePak revenues are accounting for a more significant portion of our overall revenues, favorably impacting our gross margins as they maintain higher margins than our systems or pass through products. In the third quarter, our WaferPak and DiePak consumables business accounted for 51% of total revenues, up from 44% in the preceding Q2 and 46% in Q3 of last year. Operating expenses in the third quarter were $2,700,000 a decrease of $216,000 or 7% from $3,000,000 in the preceding quarter and a decrease of $652,000 or 19% from $3,400,000 in the prior year third quarter. The decrease in operating expenses from the prior year primarily reflects the impact of a restructuring charge of $607,000 taken in Q3 last year related to workforce reduction severance costs.
SG and A was $1,900,000 in the third quarter, down from $2,200,000 in the preceding second quarter and flat compared to $1,900,000 in the prior year third quarter. The sequential decrease is primarily due to a reduction in costs associated with new product introductions, including travel and presale support activities and lower commissions from a decrease in bookings. R and D expenses were $845,000 in the third quarter compared to $795,000 in the preceding second quarter and $931,000 in the prior year third quarter. Turning to the balance sheet for the third quarter. Our cash and cash equivalents were $5,100,000 at 02/29/2020, compared to $5,300,000 at the end of the preceding quarter.
Accounts receivable at quarter end was $3,500,000 down from $5,200,000 at the preceding quarter end, primarily due to the impact of customer deposits and deferred revenue on current quarter revenues and a decrease in revenue from the prior quarter. Inventories at February 29 were 9,300,000.0 down from $9,800,000 at the preceding quarter end, primarily due to the consumption of inventory on hand at prior quarter, supporting current quarter revenues. Property and equipment was $783,000 compared to 860,000 at the preceding quarter end. Customer deposits and deferred revenue, short term and long term, were $419,000 down from $1,900,000 at the preceding quarter end, related primarily to customer deposits offsetting current quarter revenues and the decrease in backlog from prior quarter. Bookings in the third quarter totaled $3,100,000 Backlog at February 29 was $3,600,000 compared to $6,500,000 at the end of the preceding second quarter and $6,900,000 at the end of the third quarter of the previous year.
Now turning to outlook for fiscal twenty twenty. As Gayn noted, due to the uncertainty of the full economic impact of the COVID-nineteen pandemic on our customers, we cannot predict how this will impact our business in the near term, and we're taking the conservative stance with to withdraw our previous provided guidance for fiscal twenty twenty ending May 31. In terms of operating expenses, the company has implemented cost reduction initiatives to reduce costs and align company resources for future growth. Action taken including dissolving our Airtest Systems Japan subsidiary and reducing headcount at our Airtest Systems Germany subsidiary. We expect to take a charge in the 2020 of approximately $150,000 which includes severance payments for individuals impacted in the reduction and legal fees associated with these actions.
Through these actions, we expect to recognize cost savings of approximately a $120,000 per year starting in '21, which begins on 06/01/2020. We will be moving to a sales rep distributorship model for sales in these regions. The company is maintaining r and d investments and enhancements to our products for automotive, silicon carbide, silicon photonics and memory. Even with restrictions in place resulting from the COVID-nineteen pandemic, our R and D application teams are working effectively to meet critical releases and customer road maps. This concludes our prepared remarks.
We're now ready to take your questions. Operator, please go ahead.
Speaker 0
Yes, sir. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure that your
Speaker 2
We'll take
Speaker 0
our first question from Christian Schwab.
Speaker 4
Sorry about that. I got it on mute. Hey, guys, when we go into next quarter, and if this lingers for multiple quarters, do we feel confident in our cash position? And given the fact that some customers you highlighted possibly were talking about pulling in orders, are those large expensive systems that you'd have to put into inventory?
Speaker 2
Okay. So there's a there's a couple of jewels in there. Let me let me start with the the latter one there, Christian. So, I'll remind people, and it's you know, it has been a great idea all along, and now it seems even like a better idea. We do have policies in place with all of our large customers that systems and wafer packs that are, purchased from us.
We receive a 30% down payment upfront to secure the order. That allows us a significant ability as a way to meet all cash flow requirements to be able to build, you know, qualify and ship those products to those customers. So if we get customers and orders in for things that we don't have on hand in inventory, we're not needing to necessarily raise we don't need cash for that per se. Keep in mind that DiePaks and WaferPaks, although we do have subassemblies that can be common, are unique to them, but we've also done a substantial, amount of work during the last nine months, actually something we probably should spend more time on, of getting our lead times down. So now we're able to meet lead times for WaferPaks and DiePaks at that eight weeks and less, which allows us to do quick turns that includes the procurement assembly test of all of the material, and out the door.
So that minimizes the cash requirements for that. And keeping in mind, we still get down payments on them. So, your other question was just in general, you know, if this thing extends, how are we doing for cash? You folks won't be surprised that we spent a lot of time just looking at that, understanding, you know, if we need to hunker down, for an extended period of time what that looks like. I mean, one of the things that, we're trying to get our arms around completely on the model is right now is that, you know, we do have a a believed to
Speaker 3
be
Speaker 2
sustainable level of base business in addition to the support contracts that are done annually. You know, our certain support business tends to be about a million dollars a quarter, and then we see approximately $2,000,000 a quarter of additional revenue that comes in as base level business kind of in, you know, always be careful saying worst case with the worst case. And even at those really low levels, given appropriate and consistent pay cuts or temporary pay cuts and things that we've done in the past, we think that our cash position lost us, you know, five plus quarters easily. So our and that's without taking any, I'll call it, you know, really drastic action. It would also mean that you would have to be at, sustainably lower levels than we're expecting or forecasting, during that entire time.
So, you know, you also mentioned the customers are pulling in, and that's interesting. I mean, we had a customer within just the last couple of days, on a new application call us and ask for eight week lead times on something. So there really are you know, we wake up every single day. In fact, we have a daily, conference call with the executive staff every single morning to review, you know, the health of everybody and go all the way down all the things that need to be accomplished. But we we have so many customer engagements right now that are keeping us really busy.
The conservativeness, which is eventually gonna be one of the questions, where is it coming from? We have so much activity and so many customers that are talking up a storm about the things they wanna do. But as you guys know, when we get large orders, we report them. So in the absence of reporting, that means there aren't those large orders. So we're just taking a a stance right now to just be as conservative as we possibly can, going forward while at the same time you hear this level of optimism in our voice, which seems inconsistent with respect to just the the environment.
But it's indicative of the customers kind of pushing really hard to get more products and pull things in.
Speaker 4
In in an optimistic scenario, I guess my last question and follow-up is, it is there any new, customers or new or new customer applications for existing customers, that could lead to, you know, meaningful, you know, revenue in calendar 02/2021?
Speaker 2
In you mean from a from a longer term, are there some big deals out there? Is that kinda my overly simplified Yeah.
Speaker 4
Mean, Gayn, you highlighted a lot of, you know, opportunities and and a lot of different verticals. I'm just wondering in a lot of customer engagements that you're having daily meetings about. I'm just wondering if if, you know, some engagements will happen, others will not. But, you know, is there any is there any is there anything out there that you're, like, super excited about from a revenue perspective?
Speaker 2
Yeah. Okay. So, I mean, there's two things. One of them is the piece that is sort of I I guess you wake up every day and read the news that is maybe surprising is the number of of engagements with people that are talking about things they wanna, you know, ship into this summer or sooner or this fall or, and so, you know, there you talked about 2021. I'm talking about customers talking about, you know, ramping and pulling things into this calendar year.
Related to next year, yes. We actually we talked about it before. You know, we we booked a deal with a our first FOX CP customer, which is the the integrated program version for what we were kind of elusive on, but is a a data storage, data storage application that is a, you know, enormously large unit volume that we believe they would start to kick in their production volume and need that need would drive capacity of FOX CP test cells. That right now we see could start towards the end of this year and be at 2021, you know, the start of the the major ramp, if you will, then. We have engagements on multiple mobile applications, that include, you know, things this summer, this fall, I believe, next summer.
There are some things that are potential there that have more upside than the recent couple of years, that we're talking about. And then, the silicon carbide customers that we're engaged with right now, you know, the unit volumes around the silicon carbide, the long test and burn in times, and the yield implications, the improvements that we're able to give people seems pretty exciting and that can move the bar. And, of course, we spend a ton of time talking about the silicon photonics customers and everything related to five g and the data storage. And that's probably, you know, the the bulk of the number of companies that are saying I wanna pull in, pull in, pull in because they're actually being asked to put more infrastructure in place. You know?
Let's accelerate the stuff that's going on with the data servers or the five g infrastructure. So, you know, there are there's a mix of things both this calendar year as well as next year that look very promising.
Speaker 4
Great. No other questions. Thank you.
Speaker 2
Thank
Speaker 0
you. We'll take our next question from John Fitchthorn. Please go ahead, sir.
Speaker 2
Yes. Hi, guys.
Speaker 5
Thanks for taking the call.
Speaker 6
Hi, John.
Speaker 5
Question is, this quarter was maybe below consensus at the very least. And so that quarter ended in February. It was kinda pre corona. It's a little down sequentially. It sounds like things are going really well.
It seems like things have been going really well. Things have been trending in the right direction. Why the trend break in this quarter?
Speaker 2
Well, I mean, just, you know, just by the numbers, right, we ended up with a backlog of three six, is it, Ken?
Speaker 7
Yeah. 3.6.
Speaker 2
Yeah. So we, you know, we start off, you know, March 1, with the backlog of 3.6. Clearly, if we don't get more orders, we would only have three six to ship. Now we absolutely have systems, NP, XP, DiePaks, WaferPaks that can turn within the quarter. But as the quarter draws on, the question is, they gonna come in in time to come in this quarter, or is it gonna be moving into June?
And, you know, customers are talking up a storm about imminent orders, but, you know, I like to see them. I mean, I think that's really where we sat around as a board just a few days ago and said, know, what do you what do you do? How do you describe your end of year when you have things that can shift between May and June? And so we just, you know, said, let's just pull it off the table. People you know, I mean, to sit here and be extra bold right now would seem to be completely against the grain.
There, you know, we could still have a good quarter this quarter, and we could have not so good a quarter this quarter.
Speaker 5
But for the quarter that ended in February, what was the weakness in that quarter? Because the the question I'm trying to answer is, you pulling guidance because of uncertainty over coronavirus like you're saying?
Speaker 7
Or was there already some softness in
Speaker 5
in the quarter ended February that I should be concerned about that's a red flag outside of the coronavirus uncertainty?
Speaker 2
Yeah. I mean, we certainly have had customers that, we were expecting some orders in, like late in the quarter for for shipments in in q four, even some orders that potentially could have come in towards the end of the quarter, that didn't come in. And, you know, we're trying to get our arms around, is it, you know, can we point to specific things that are coronavirus related? I would say no, nor can we specifically point to, exactly why some of their ramps are, you know, shifting left or customers that were implying they're gonna place orders immediately didn't. I can't help but feel that, you know, any CEO is wondering, is this something I absolutely positively have to pull the trigger on now, or can I just wait a couple weeks or something?
The one thing that we're not seeing is, you know, that the ramps are going away. You know? I I I as I said before, I I I really feel we could be at yeah. Could be in such a different place. I mean, I get we get weekly calls, in some cases, you know, twice a week from key customers saying, you know, you're still fine.
Can you do a deep dive on your supply chain? Are all your suppliers still around? You know, we're forecasting these needs and these ramps, and you need to tell me you're gonna be able to ship to me. Right? And so you've got that going on at the same time that, you know, obviously, the orders haven't come in that'd be consistent with what our original guidance would have been to finish the the year at.
So, you know, I I I feel I you know, like I said, it's not like we're a restaurant and people aren't coming in to the restaurant because of coronavirus. She can't point specifically to that, but there does seem to be a general cautiousness going on in capital equipment out there that, I I feel like we are feeling.
Speaker 5
And so the the caution the cautious guidance as opposed to the
Speaker 7
softer quarter is is really you're afraid orders won't show up. Is it it's not
Speaker 5
due to the if they all showed up, could you get it to them? It sounds like there's lots of activity, but is it it Yeah.
Speaker 2
I mean, I I I could, I could ship more this quarter than last quarter still to this day if we had additional orders that showed up today. I I I have the inventory and the materials to be able to do that. So that I mean, to give you an idea of the sensitivity. So it's you know? But you give you know, you wait three, four, five more weeks, and then you can't.
Speaker 3
So, Gain, can I just add a little something here? Also, the mix makes a difference. So keep in mind, DiePak, WayPaks are more a more custom product. The lead times are are much, much longer relative to our systems that we have in house and on hand. We actually even have a marketing lab that we've built up over the last several quarters that we could quickly turn a system order of any configuration very easily by the end of the quarter as long as that order came in.
Absolutely.
Speaker 2
Yeah. So
Speaker 7
it's more order nervousness than it is Yes.
Speaker 5
Your ability to deliver. And and that's not due to activity. It's just concern that that activity might not turn into an order. Is there something concrete you can point to? Because it sounds like everything you say is, g, we're on fire, but we're pulling guidance.
So we're all gonna try and connect that we're on fire to the we're pulling guidance, whether it's cancellations, whether it's whatever it is, is there anything?
Speaker 2
Yeah. I mean, actually, that's a very specific question I wanna answer. We have had no cancellations. K? We've actually had no pull pushouts.
Everything we have in backlog, the customers have called us and asked if we can ship faster. Now we we are pointing out our backlog isn't very big. We even have customers that haven't given us the orders that are asking us to ship faster. I love that conversation. So, yeah, it it would seem inconsistent, and we're just trying to give you as raw data as we possibly can.
I you know, we had anticipated having, you know, a really good quarter this quarter. And so, I can't help but believe the only thing that really makes sense is that there's consciousness of people just trying to hold their breath, get their arms around things. You know, I this certainly feels I think we would believe that as we get through this thing, you know, our business would would come back, you know, just as strong as ever. And like I said, it, you know, we try to add the color behind it. I mean, we've had an uptick in customer engagements, you know, in the last three weeks.
I mean, I could probably think of four or five. Like, you know, like, where are these guys coming from? And, I mean, there's certainly a sense that they have time on their hands, maybe. There's there are people that are saying, you know what? We gotta move towards this, or we we've gotta pull into this resource.
You know, what can you do? You know, can you test these parts? And the answer in many cases is yes. You know, we're confident we could build it. We don't you know, we had a customer say, we can't, you know, we can't travel.
Can we do a video conference and and get a demonstration of your equipment? We're getting pretty good at that stuff. It's kind of interesting.
Speaker 5
Okay. Last question, and I'll go through whatever next.
Speaker 2
Clear answers. Go ahead. No. I I I look.
Speaker 5
It's not a super clear time. I understand. So your your the linearity of this quarter I mean, I know your standard, you know, half your business or something is in the last month. I don't know if that's the right number. But, I don't know.
Any any thoughts on linearity or book and ship in the quarter and kinda when you'll know?
Speaker 2
So I will that one I will that one I will fess up to. It has it is very typical for us to have a disproportionate amount of our bookings in the third month, you know, often more than half. Okay? And then it kind of repeats itself because we ship everything we can before the end of the quarter and then manufacturing sitting around tumbling their thumbs in the first month. That is very true in this quarter.
In fact, the timing of, you know, the, if you will, the stay at home directives have been almost unfelt by us. We've not had any restrictions yet. We actually don't have everybody in the office right now, but anybody who needs to be is there. And so but as we get towards May, we we are already planning that, you know, the manufacturing floor, is expected to be relatively full. And we've been redistributing our DiePak and WaferPak labs, the other manufacturing floors to actually make room so that we can keep our six feet distances.
We're talking to, okay, how are we gonna be creating up these systems in May when, you know, it takes two people to move a a tool, and how will we think through that so that we can maintain social distancing at the same time that we're going to start seeing our manufacturing folks coming back and filling up the place.
Speaker 5
Okay. Thanks, guys. Good luck.
Speaker 2
Okay, Thank you.
Speaker 0
Thank you. We'll take our next question from Jeffrey Scott. Please go ahead.
Speaker 2
Afternoon, guys.
Speaker 6
It's been a long time.
Speaker 2
Hey, Jeff. Seems like forever.
Speaker 6
It seems like forever, yes. Going back to last quarter, you reported that you had three silicon photonics customers in high volume production. Is it still three, or or have you added one?
Speaker 2
So I I think I might have chosen the word production because, you know, some are higher than others. So I don't wanna give out the terms. Let me just think through here. I have I still have I I think we still gosh. I wish we're over here.
I think I know the three are still in production, and I believe we have another one that might be shipping parts off of it now. So it might be a fourth.
Speaker 6
Okay. Are all of those customers using the Fox to solve the same problem, or are the problems unique to each of those three customers?
Speaker 2
Well, they're slightly different. But because they listen in, I wanna be careful with that. So let me make it generic, though. They all are they all solve a similar problem of what we will call aging stabilization. So it turns out that all silicon photonics transceivers, the output laser itself, it during its first twenty four to forty eight hours of continuous use and operation, the output efficiency drops and the power, therefore, for the input power, you get less output power.
That's a big problem with multichannel fiber optic communication transceivers. You can't have each of the four laser, wavelengths. Think of colors and different power outputs. They all need to be balanced. K?
Or else you lose bandwidth. And so they all specify the output power to be stable over time. But in order to do that, one of the manufacturing process steps is they need to stabilize the lasers, which our tool does. They've always had to do this. The traditional device, though, was done discreetly, and it was burnt in or aged in, in most cases, homegrown, test bays in big rooms.
And they were hand placed in it, and forty eight hours later, you would come back and the thing has aged. And then you test it, and if it meets the certain qualifications, you pick it out and you hand place it into these transceivers. Now keep in mind, these transceivers for these high performance ones were several $100.700 dollars, $7,000 apiece. The real, jewel, if you will, in silicon photonics that, you know, folks like the intels of the world are out claiming is the scalability of basically taking a silicon wafer, creating all of the transceiver components on it, and then effectively overlaying or attaching processes so that the laser is directly attached to the silicon. The trick is those lasers still must be aged or stabilized.
And what we do is we can stabilize them in wafer form. We test all the lasers on a single wafer, thousands of them in parallel, which gives the it allows you to maintain the cost effectiveness and the scale of doing wafer level silicon photonics devices. So it is an enabling capability. So in all of our customers, we're doing the stabilization of those lasers in when we talk about silicon photonics devices. Now each of our customers also does slightly different things in terms of tests and other types of functional infant mortality performance related specifications that are unique to them.
That makes our system more valuable to them, but they're all a little bit different.
Speaker 6
But it's the stabilization process which is kind of the most valuable problem that's being solved by Fox.
Speaker 2
I would say that that's fair. And since the Fox has this performance and capability to discern every single device good from bad, the customers are taking advantage of that. But it would be fair to say if it weren't for them using it for stabilization, they probably wouldn't have done that other test. Okay. Fair enough.
Speaker 6
Again, in in q two, you you said that you had a new customer silicon carbide customer for automobile applications that was high voltage and high temperature. Was that a onesie or was that the first of potentially more orders?
Speaker 2
We believe that is the first of more orders, and that was an 18 wafer system. So, you know, that tool itself has the ability to test 18 wafers at a time. And, my belief my understanding from last night's, report is they're running 16 or 17 wafers at a time right now with their mix of wafer packs, and they have more, on order and more planned. Which means that the next order of things were coming. That's that was what we all were describing to.
Okay.
Speaker 6
In the in the business highlights today, you said that you, shipped an additional FOX XP for silicon photonics. Was that to one of your original lead customers or not? Yes. It was. It was.
Speaker 2
And then we had we had announced the order before. I just was trying to explain, you know, where did the $6,000,000 come from. Yep.
Speaker 6
And the, the mobile sensors again was to to a lead customer. Right? It was. The wafer wafer packs and die packs?
Speaker 2
The order. The order. The order kit. Yes. So a big chunk of that order those orders were for that, and you could imagine that that would be something that we would be scrambling to be shifting right now because they're giving us up every day to give them as quick as they can.
Speaker 6
Yeah. But their reemergence, was was not definite for fiscal, 2020. It sounds like their activity has been accelerated. Is that fair?
Speaker 2
We've actually they have been forecasting this for a while, in anticipation of a periodic need that we think is pretty regular every single year, and it did come in. So in that sense, I wouldn't say it it was certainly not a bluebird. We were, building DiePaks for them throughout fall. We were critically important. Every single order they've given us, they've been pressing us for as quickly as can as possible.
It is not the only engagements with them. There are more.
Speaker 6
Okay. You said you were engaged with more than a dozen potential new customers. Yep. That is a continuation of the dozen new customers that you were engaged with a quarter ago. Right?
Speaker 2
I have to go through what the math is, but for I think if to be fair, we have yeah. We've only announced one or two new customers during the year. Yeah. One of the customers is interesting. One of the ones that came back this last week had, we were engaged with last summer, and they we had Vernon had off and decided they're gonna try and do it in package level instead, which we understand.
We sell package part systems too, but they came back. So, you know, I don't know how I'd have to do my math there. I do force myself to count out loud. We do this part of the audit committee whenever we say that to count to verify that there really are that many. I think it was, like, 12 or something.
I I'm sorry. It was, like, 14. It was, like, two more than what we had said with greater than a dozen.
Speaker 3
Yes. Yes, Gain, and I did validate that from our press release that there was more than 12, and I do have the list.
Speaker 2
Yeah. Sorry, Jack. We can't give it to you.
Speaker 6
I know. Last quarter, you talked about solar panels. Is there any activity in there?
Speaker 2
No. I mean, the only thing that we specifically know that there's an application out there is that the silicon for, I'm sorry, silicon carbide devices, are particularly good in the solar panel power conversion. Yeah. So, you know, typical device applications, you know, one of the big ones everybody's heard about is, you know, Tesla uses those in their electric cars. All the electric cars are gonna be using silicon carbide, motor controller systems and power systems in it for certain.
But another one of the big ones is actually all the solar car conversions. But that's it. We're not doing anything related to panels themselves or the electrical battery of the panel. We we don't have anything like that.
Speaker 6
Yes, I was just surprised to hear you talk about it last quarter. It kind
Speaker 7
of surprised me.
Speaker 6
Okay, that's all I have for right now. I'll let somebody else jump on.
Speaker 2
Thank you. Thanks, Jeff.
Speaker 0
Thank you. We'll take our next question from Larry Treblina. Please go ahead.
Speaker 2
Afternoon, Larry. Yes.
Speaker 7
There are several customers that are pulling in plans. Does that include any systems? Or is that mostly consumables?
Speaker 2
Both. Both. Both? Yeah. I mean, I yeah.
I had I had one that's asking for, WaferPaks and DiePaks and plan to use it on their current system, and I have some that are new customers so they do new systems and new WaferPaks and BiPaks.
Speaker 7
So when you when you talk about that, is that, like, pulling in within the next three months, or is it still farther out? Or I mean, how how would you define that to be clear?
Speaker 2
I mean, one, for certain. I mean, we we just signed all the NDAs and everything within the last forty eight hours, and they're asking for eight week lead times. So
Speaker 6
Is that
Speaker 2
how would that be would
Speaker 7
system that be or a
Speaker 2
That was actually that that was actually one of the that was one of the packs. It was one of the more of the consumables. We have yeah. I mean, I have a customer that is they've been talking about that their end customers are pulling in some five g infrastructure requirements and increasing their forecast for them, and they are you know, they haven't ramped yet for us. So that would be an example where they would absolutely need additional capacity of systems and WaferPaks, DiePaks to have both.
Okay.
Speaker 7
Did did I just hear you correctly in saying your pipeline is four 14 potential customers right now, or did I mishear that?
Speaker 2
Yeah. I mean, just in in Fox in Fox related, I think I counted about 14 of them. More than 12. That's why I wanted to make sure. And I was wondering if there's a couple more.
Yeah. In other words We actually have, probably another half a dozen package cards, which we haven't really been talking a lot about.
Speaker 7
Of those 14, how many of those would be in regards to silicon carbide?
Speaker 2
You know, I don't have it in front of me, but I actually probably don't wanna do that because eventually, you got down to a new free you're gonna really ask me how many on memory. So so I'm just gonna Actually, that was my next one. Generic. I know. So I'm gonna stay very generic right now because, for all kinds of, reasons.
But it is multiple of each, more than one or two in every one of those categories. Mhmm.
Speaker 7
I know in the past, you mentioned that, in that pipeline, you had three memory potential customers. But unlike in the past, you did announce as part of the 2.9 in total consumables recently that one included a wafer pack for a flash memory potential customer. So somebody's spending money Oh, go ahead.
Speaker 2
Yeah. Larry, I don't actually don't want you're particularly aware or buyer of details or everything like that. I'm gonna be very specific. So that was not for a new customer. That was a current memory customer.
That was a one sorry. That was a what? It's it's it's one of our installed base customers already. It's not one of the new ones. Okay.
Speaker 7
Where where do you stand automating your I know you're you said in the past that you're involved in designing automation to automate Yes.
Speaker 2
So let me let me actually Larry, I wanna let me jump in on that. I just don't wanna talk about my the future so I'm not at this point. I have all kinds of pioneers with competitors and things like that too. I will you know, I know that we have generically talked about at, you know, at some of our public events and things like that, that we absolutely see customers asking us to do more and more automation. And we and, you know, how do we take our products that make them more production worthy so that they can even go to higher and higher volumes.
And, those are things that we are spending money on. I'm gonna leave it at that.
Speaker 7
Okay. And the, you know, the data centers are obviously working overtime with so many people at home, working from home and, you know, burning up the Internet. Do you see maybe additional business from maybe existing customers on the silicon photonics side or maybe a Yep. May maybe these pull
Speaker 2
ups That's what feels like. Yeah. That's what it feels like. I I mean, I think I I mean, I know very specifically there's five g infrastructure as in towers that are driving them, and and there are data center things that, you know, people are not pulling back from us. So those are you know, and that would bode well.
And I think what we're seeing is, you know, there's sort of a the, you know, the Wild West of everybody and their brother rushing in and trying to do silicon photonics because it just at a price point, it's start to wear you know, shifting where if, you know, fiber optic bandwidth is as cheap as copper, you know, it it just you know, there's all you can build. I mean, as best as I can tell, it is 100% supply limited. There's not enough silicon photonics out there. Every one of them is being bought up. So, you know, there are people, big and small, doing all kinds of things to try and put more, to get more capacity out there.
Mhmm.
Speaker 7
One last thing on on the memory. So you still have, three active potential memory customers in that pipeline. Did did I did you did you quantify that?
Speaker 2
I we we are actively engaged in with multiple memory suppliers on road maps related to regular brain.
Speaker 7
And is there any kind of time frame on that, where it might, be kicked off? I would expect that, you would have to, you know, build, wafer packs to, move out the concept initially. And then
Speaker 2
I mean, I I believe that this is something that would be for a, I think this is, a 2021 product. Mhmm. And as we get a little closer in engagement, we can kinda narrow in when that would be. We are actively spending money, in r and d with respect to roadmap products, this quarter, next each quarter throughout this calendar year.
Speaker 7
Alright. Alright. That's all I had. Good luck, you guys. Be safe.
Sorry
Speaker 2
to sort of cut you off there on one of those. Okay? I appreciate it. No. It's alright.
Thank you. Alright. No problem.
Speaker 0
Thanks, Larry. Thank you. We'll take our next question from Tom Diffely. Please go ahead, sir.
Speaker 5
Yeah. Good afternoon. Curious what you're seeing on the supply chain right now. And if you were at full capacity, would you be having any kind of supply issues?
Speaker 2
Yes. So we've been really paranoid about that as well. And for the most part, all of the, you know, distributors and our subcontract manufacturers are all open. Let me be more specific. It's pretty much everybody is.
We have a couple of small mechanical assembly guys who have asked us to provide them with links to our letter that we put out on the website related to our positioning as a critical supplier of the critical infrastructure to Mhmm. Basically, as part of their justification to keep shipping at, you know, upon demand with everything. We've actually had little or no direct impacts related to this. Every everyone that we have is is able to ship within their steady lead times. Which sounds I mean, it seems sort of confusing, but, apparently, many of our subs are, you know, when we've I talked to them and we picked up the phone and talked to them.
Listen. We're we're directly involved with military. You know, we're, you know it wasn't even you know, we're a contract manufacturer to a capital business supplier to semiconductors that are important for IT, which is sort of a progression that's normal. They're like, really you know, the government will say, you will stay open. Yeah.
That's great. So sorry. That's good. Yeah. So, Ken, I was hoping Can I do one more?
Sure. Can I just do one more on this? So the other thing is, we have basically zero supply chain out of China right now. All of our critical infrastructure require all of our critical components, we have, put things in place for dual servicing long before this. And quite frankly, when the tariffs kicked in last year, we placed our last order with something out of China last February.
So we actually as things got ugly and personal, it's not you know, we're not all talking about, you know, China. It's a worldwide crisis. But at that time, you know, we were already had dual sources on things. So we've been able to purchase things without a critical supply impact. Go ahead, Tom.
Okay. No. That's helpful. So, Ken, I was wondering, when
Speaker 5
you move to a distribution model for Japan and Europe, what does that do to your internal model? Does that impact margins, either gross or operating?
Speaker 3
So it does give us a little bit more flexibility from a variable cost standpoint. From an overall margin standpoint, it's not gonna make a difference. Those costs will hit in our operating expense sales and marketing area. But it really moves from a fixed cost structure to a variable cost structure, which I think will ultimately benefit our bottom line.
Speaker 5
Okay. So even the rate that the distributor gets is fairly similar to what
Speaker 2
you're paying internally then? Correct. Okay. That's it. Thank you.
Speaker 6
Thanks, Humphrey.
Speaker 0
Okay. I see there are no further questions at this time. I would now like to turn the call back to management for closing remarks.
Speaker 2
Operator, just give anyone a second chance. Anyone else?
Speaker 0
Yes, sir. And as a reminder, for anyone that would like to ask a question, that is star one.
Speaker 2
There's no one. Alright. Well, folks, we really appreciate you taking the time to to listen in. We actually had a fairly long, list, and we appreciate everybody calling. If you have other further questions, I almost I think I've always ended this with if you're a talent, stop by, but this would be the time I tell you don't.
So but we'd be happy to set up a video conference or something else. We've gotten exceptionally good at that, and answer your questions as you need it. Everybody stay safe and healthy. K? Thank you very much.
Bye bye.
Speaker 0
Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.