Good day and welcome to the Aehr Test Systems' Second Quarter Fiscal 2020 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.

Thank you, operator. Good afternoon and welcome to Aehr Test Systems' fiscal 2020 second 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 Aehr Test issued a press release announcing its second quarter fiscal 2020 results. That release is available on the company's website at aehr.com. This 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 Aehr Test Systems undertakes no obligation to update forward-looking statements. And now with that, I'd like to turn the call over to Gayn Erickson, President and Chief Executive Officer.

Thanks, Jim, and good afternoon to those joining us on today's conference call and also listening 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 and singulated die test and burn-in solutions. We'll then open up the lines for your questions. We had a solid fiscal second quarter with net revenue of $6.9 million, 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 Aehr on both the top and bottom lines for the quarter. We also generated strong bookings in the quarter of nearly $10 million. 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 HiTech News in July last year, the major factors driving the growth in the global silicon carbide power semi-market include the rise in demand of power electronic 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 that 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, waveguide, 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 in the service of the data storage. And today, most of that is still in copper wiring. The big deal with silicon photonics devices is that they are 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 achieve the scale that we've all come to know about semiconductors, allowing major cost reductions and scalability of cost and capacity over time. What Aehr brings is the ability to test and burn-in or stabilize the optical subsystems while directly in wafer form. 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 competitive cost and capacity availability. This makes the silicon photonics market very cost and demand elastic, with the demand for low-cost fiber optic transceivers far outstripping the available capacity. 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 DiePak carriers for the singulated die test of critical silicon photonics laser modules. Aehr is the only company 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 million 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 Aehr to support their high-volume production ramp and wafer level burning capacity and forecasts significant growth in shipments for silicon photonics devices that we expect will drive the need for additional production test and burn-in 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 burn-in solutions for their engineering and production needs. Aehr Test 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, and 5G bandwidth requirements, which are driving new innovations in silicon photonics from leading network suppliers and startups alike, and the implementation of 3D capabilities in sensors, which is driving continued market expansion into new products and mobile phones, tablets, and other markets, particularly where security is critical. Market research company Yole 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 the market value for transceivers of almost $4 billion in 2025. According to Market Research Engine, silicon photonics for data centers 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 bring our 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. Aehr has 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 Aehr brings by being able to cost-effectively stabilize and test these devices while in wafer or singulated die form before putting them in the modules, we believe this market will be a significant growth driver for Aehr over the next several years at a minimum. Aehr 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 Aehr 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 used in 5G infrastructure build-out, 2D and 3D sensors, and enterprise and datacenter 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 DiePaks from our lead customer and their subcontractors and possibly additional test capacity for an exciting new device coming up 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 type. These systems use our proprietary DiePak that allows up to 256, 512, or 1,024 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 lots of devices and use our proprietary thermal chucks 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 2,040 individual power supplies and digital channels, which is critical to testing these highly complex devices. Our FOX-XP can read and write every device individually, record device IDs, device temperatures, and device status while also burning in critical logic and optical subsystems, all in parallel with this means thousands of devices at a time. Customers use our FOX systems when they must have 100% certainty of burn-in and to address critical thermal control of their devices. 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 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 WaferPaks 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 received all of the contactors to fully utilize the infrastructure of Aehr Test Systems they have purchased today. Turning to our packaged part and OEM chamber business, as we've noted before, the low level of business in our packaged part business has been expected and was already built into our financial forecast. However, we are starting to see some forecast for renewed market demand for packaged part burn-in systems, particularly regarding automotive applications. While our largest packaged part burn-in customers are 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 new need for high voltage capabilities in both wafer level and the packaged part as a new high growth opportunity for Aehr Test. 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 2020, and we would 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.

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 $6.9 million, up 24% sequentially from $5.5 million in the preceding first quarter, and up 16% from $5.9 million in the second quarter of the previous year. The sequential increase from Q1 included an increase in wafer level burn-in revenues of $1.5 million, primarily due to increased WaferPak and DiePak revenues. The increase from Q2 last year includes an increase in wafer level burn-in revenues of $2.2 million, 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 $0.02 per diluted share, compared to a non-GAAP net loss of $214,000 or $0.01 per diluted share in the preceding quarter and a non-GAAP net loss of $405,000 or $0.02 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 $0.01 per diluted share. This compares to a GAAP net loss of $413,000 or $0.02 per diluted share in the preceding quarter and a GAAP net loss of $629,000 or $0.03 per diluted share in the second quarter of the previous year. Gross profit in the second quarter increased to $3.2 million or 47% of sales, up from gross profit of $2.3 million or 41% of sales in the preceding first quarter and gross profit of $2.4 million 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 absorbed overhead costs 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 account for a more significant portion of our overall revenues. Our WaferPak and DiePak consumable business accounted for 44% of total revenues in the second quarter, up from 30% in the preceding Q1 and more than doubled from 16% of revenues in Q2 of last year. Operating expenses in the second quarter were $3 million, compared to $2.7 million in the preceding quarter and $3 million in the prior year second quarter. The sequential increase in operating expenses includes an increase in SG&A of $349,000, partially offset by a decrease in R&D of $97,000. SG&A was $2.2 million in the second quarter, compared to $1.8 million in the preceding first quarter and $2 million 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&D expenses were $795,000 in 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&D expenses is primarily due to a reduction in R&D project materials. Turning to the balance sheet for the second quarter, our cash and cash equivalents were $5.3 million at November 30, 2019, flat compared to $5.3 million at the end of the preceding quarter. Accounts receivable at quarter-end was $5.2 million, an increase of $1.9 million compared to $3.3 million at the preceding quarter-end, up primarily due to the increase in revenues from the prior quarter. Inventories at November 30 were $9.8 million, compared to $9.2 million 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 million at the preceding quarter-end. As I noted in our last call, under new accounting guidance effective for Aehr Test beginning in fiscal 2020, 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 $2.4 million with an offsetting short-term liability of $619,000 and a long-term liability of $1.9 million. Customer deposits and deferred revenue, short-term and long-term were $1.9 million, an increase of $1.1 million compared to $728,000 at the preceding quarter-end. The increase is primarily due to the increase in bookings and backlog from the prior quarter. Bookings in the second quarter totaled $9.8 million and included an order from a new customer for an order of $3 million for a FOX-XP, 18 blade system and WaferPaks configured to test silicon carbide wafers and orders totaling over $6 million for a FOX-XP system and WaferPaks from an existing silicon photonics customer. Backlog at November 30 was $6.5 million, compared to $3.6 million at the end of the preceding first quarter and $4.3 million 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 million. 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, it will allow us to help meet funding requirements for future growth. We will be filing an 8-K with the agreement shortly. Now turning to our outlook for fiscal 2020. We are reiterating our previously provided guidance for fiscal 2020, for full-year total revenue of between $27 million and $31 million, which would represent growth between 28% and 48% 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 2020 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&D spending in calendar year 2020 with investments and enhancements to our products for automotive, silicon carbide, silicon photonics, and memory. The company is also planning for an increase in employment-related expenses in the first half of calendar 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, Aehr will be exhibiting at the SPIE Photonics West conference taking place in San Francisco from February 4 through February 6. We welcome any attending visitors to stop by our booth. This concludes our prepared remarks. We're now ready to take your questions.

Thank you, sir. [Operator Instructions] We'll take our first question from Christian Schwab with Craig-Hallum. Please go ahead, sir.

Hi, guys. This is Tyler on for Christian. Thanks for letting us ask a few questions.

Hi, Tyler.

First, a similar question – hi guys. 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 the back half, what that incremental growth is particularly coming from maybe rank or just broken down by customer or end market type?

Well, normally, as it is, we've been relatively conservative on detailing our forecast in general, but I think that as we look at our second half, the expectation is that it would be of 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, the customers that were anticipating have ordered, that will be shipping against backlog and the new orders that will be getting including orders that will come in time to ship are within, as I said, the primary market segments we talked about. I think silicon photonics will be the largest. Silicon carbide is in there. Some automotive applications and some of the 3D sensor, particularly mobile sensor applications will see bookings and revenue in our fiscal second half to fill out our range of forecast. And just a little bit of color behind the range of $27 million to $31 million, one of the challenges for our business always is the customers' range of forecast in a system that comes in, in May 31 versus June 4 can have an impact on us. We're seeing positive feedback from customers, bookings, and revenue forecasts from pretty much all of our customer base, and just depending on how those things play out is where we think we're going to come in, but I think we're still feeling really good about our range and choose 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?

That's perfect. Thank you. And then maybe for Gayn, a little bit more of a modeling question, maybe a couple of parts here, so on gross margins, I don't believe I heard you reiterate your previous guidance was for 40% to 46% for the full-year, I guess is there a chance that could be a little bit better now? And then also with the WaferPak and DiePak products being 44% of revenue this quarter, is that maybe a little bit high as far as the immediate run rate? And how might that affect margins in the back half of the new year?

So, I'm going to look at Ken a little bit across here, but I think our margins, you would probably anticipate to be somewhat similar, although I think actually this quarter may be even stronger on some of the mix of some of the WaferPaks and DiePaks, but honestly next quarter too is full with particularly some of the DiePak revenues that we will 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 quite frankly there are more competitors and alternatives out there that has lower incremental margin rates, 40% or so, let's say, whereas our wafer-level products and contactors are in the higher incremental margins, maybe 60%. Given the fact that our packaged part business 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 in the contactors have about similar kind of margins.

Great for the details, I very much appreciate it. That's all from me, guys. Thanks.

Thanks, Tyler.

Thanks, Tyler.

Thank you. We will now take our next question from Larry Chlebina with Chlebina Capital.

Hi, Larry.

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 like the largest pipeline that you've had in a good while? Or is that – could you maybe give some sense of how big of a pipeline is that relative to past history?

Okay. So, let me clarify what 12 new lots are, because I'm not sure the way you described 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 would be silicon photonics, silicon carbide, and gallium nitride type, the high-voltage stuff as well as automotive and 3D 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 an installed base of memory customers but haven't had a lot of engagements with that in the last couple of years. And then I think we kind of said at least or over 12 – I'm talking, Vernon, our VP of Sales and 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 10 or 20 make all the world of difference. So, to actually be engaged with that many companies is really a good thing. And certainly, in my ten years 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 a number of years that we might have been involved in 12 new customer applications all at the same time. We actually spent 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 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 thought if you had it, I know you're going to talk about it, but it'll show up in our inventory that we kind of anticipated it to go down a little, but went up. What had happened is, we've actually taken on and developed kind of a formal application and the 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, 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, etc. And Vernon has done a really good job of having the teams divide up in such a way that we can actually do many applications at the exact same time. It's kind of funny and I sometimes joke about it. 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 access and stuff so we can ensure 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 is absolutely no way that any kind of IP transfer. And we have saved some 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 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.

Your consumables were a little over $3 million last quarter. Is that – did I hear that that's probable – a probable good run rate going forward mainly for this quarter or…?

That's – so, Larry, yes, we have a little bit right around $3 million 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 …

We may have a [indiscernible].

So, we could have some good ones. Yes. So, Larry, I'm not sure I'm ready to call 44% like a baseline or a base, but I will tell you, it is growing, the base is growing.

Or is it going to make sense as your revenue goes up, so that at least $3 million, yes, that's really the question.

You know what? Right now, we have a very strong forecast of systems and contactors, and we are still absorbing one of the things that's subtle – and 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 products than they shipped 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 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 contactors. So, for every year, we sell X number of systems, we sell that same X number of sets of contactors, but then we also sell a certain number of contactors for the installed base. Just by the model each year, the contactor business will rise even to a point, let's say, there was some horrific year and you sold no systems, we're likely to sell a whole lot of contactors in the same year because the consumables historically like the probe card market companies aren't necessarily growing, they're still changing their designs. And so, it creates some stability for us. But like we said, we'll stick to our guns. I would see that number continually to rise, and we absolutely could get to a point where there is sort of a baseline of 50% of our business or even more being with contactors.

Okay. A little bit ago you announced the sale of or a deal with the NP machines for a data center application. When do you expect your sales to actually start booking?

Yes, 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 or CP or an NP, but nevertheless, that system – I'm sorry, I'm going to correct that, that's not true. So, let me try to – we did announce a data center application, which was on a FOX-CP, which is a single wafer production system. We refer 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 first tool that we ship. They're going through qualification and process qualification in anticipation, maybe production ramp from them over as we have stated the next several years. So, we are – 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.

I'm sorry, near-term for fiscal year 2020?

Yes, like in the next six months, I think I'm okay saying that. I'm just trying to be – there are some reasons, and someday 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.

Okay, one last one. On the memory application, do you have any comments about where that stands? You have just one potential customer in that area or do you have…?

There are – I'm going to – there are several potential customers we are talking to, call it more than one to several customers in that area. There's not a bunch of them, but you could imagine several, how's that. There is a real market need out there in 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 packaged burn-in to wafer level as a value-added step or at least as an alternative and better step to doing it at the package level. We see there are 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, 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 and some of those early conversations right now.

Alright. That's all from me. Thanks, guys.

Thanks, Larry.

Thanks, Larry.

Thank you. We will now take our next question from Tom Diffely with DA Davidson.

Hi, Tom.

Yes. Good afternoon. Couple of questions on the cash flow, maybe for Ken. So, obviously nice to hear about the Silicon Valley Bank piece, but if we think about revenues doubling over the next few quarters, how does – or the dynamics or the pieces of cash flow, do you pre-build some of these systems? Are you still getting deposits? We have…

So, yes. So, Tom, we do – our traditional is a 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 a direct materials and an overhead and cost structure. So, and then the last piece is inventory, and we've built up inventory, I don't know if we talked about it. We have both in our demo that we have now, and if you do, we built up inventory for the quick churns. 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.

Okay. So, with the Silicon Valley Bank piece, you're comfortable over the next year that you can handle a pretty healthy ramp?

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 million as a way to help us fund some growth going forward. I think I want to be careful, and so it's nice to have a line of credit. It gives us a little flexibility in terms of some of the simple cash flow in 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 in to go off and do R&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, 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, even in a fairly substantial ramp, we can ramp into it without having to tap into any significant cash flow issues.

Okay, great. And then if you look at the projected increase in operating expenses, is that your peer R&D to create new products? Or is that more engineers to engage with customers to do more customer engagements with the current product set?

You know, if there is a little bit of some of the cost of board with some pay raises, we've actually done some – we've done some hiring in several different areas from our customer-facing team to some manufacturing and some quality roles, some R&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 probably some of the package part burn-in side. 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 they add up, but we'll continue to look – some of the ads we're doing in sales and marketing come through reps, so they don't come in direct expense, they would come through commission structures and SG&A, as we go – under with new sales. So, we're trying to do more of that where possible.

And Tom, if I may add too, so if you take a look at our run rate, so you'll see over the last several quarters, our actual R&D spend had decreased at about $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 up to where we were.

That's right.

Okay. And finally, what are the current lead times for the different types of things you look at, like kind of a large system versus some of the WaferPak sets? And then are you pre-building some of that at this point ahead of an actual order?

So, generally speaking, what we try to refer to is our lead times, so like our NP systems are typically maybe 12-week or 16-week lead times and XP system might be a little longer than that. We try to have our WaferPaks be closer in the 8-week to 12-week timeline, so that we can do them quicker and we do have programs in place with expedite fees for some people, onesie, twosies, we can do them quicker than that. Having said all of the above, we do pre-build things against forecast, and it is not atypical for customers to place orders and get inside of lead times; I just hate to always sign ourselves up to that. The other thing is, we do have in our demo center, we have a customer that came and said, 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 the silicon carbide, silicon photonics – there's a lot of people out there scrambling for market share and for market lead. And they'll be waiting and they get an order, and then they are 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 – WaferPak or DiePak 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 mixed and matched. So, between one customer to the other, there are very often just slight variations. And this allows us to buy inventory as a pool and then be able to do a quick configured order, which allows us to have better and better lead times.

Okay. So, do you envision a day where you are essentially breakeven on just a recurring revenue stream?

That would be certainly our goal, such that on a bad quarter or a bad year, we're not losing any money. That would be at a minimum, that should be our goal as we always live. There's always going to 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 are. It is interesting, we're really at a point where as we add, if we go add $3 million, $4 million, $5 million with the revenue in a quarter, we really barely add any expenses at all. The problem is if we drop $2 million, $3 million, or $4 million, we also can't cut very much. And so, I think we're at a good point right now, and with these products, majority completed and shifting from sort of an R&D focus to a sales focus, this is a good place to be.

Alright. Thanks for your time today.

Thank you. [Operator Instructions] Gayn Erickson: And operator, I know that Jeff who is one of our regular calling guys had sent a message in just recently saying he was not – he was on a plane and not to be shocked. So, I don't think he's missed a conference call in eight or so. So, he won't be calling in today. Okay, great. I show that there are no further questions, and I would like to turn the conference back over to management for any additional or closing remarks.

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.

Thank you. That does conclude today’s conference. Thank you all for your participation. You may now disconnect.