Aehr Test Systems

Good day and welcome to the Heir Test Systems Third Quarter Fiscal 2021 Financial Results Conference Call. Today's conference is being recorded. At this time, I would 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 Heir Test Systems Third Quarter Fiscal 2021 Financial Results Conference Call. With me on today's call are Hehr 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 at 4.05 p.m. Eastern, Hehr Test issued a press release announcing its third quarter fiscal 2021 results. That release is available on the company's website at hehr.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 estimates and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. These factors that may cause results to differ materially from those in the forward-looking statements are discussed in the company's most recent periodic and current reports filed with the SEC. These forward-looking statements, including guidance provided during today's call, are only valid as of this date, and Air Test Systems undertakes no obligation to update the forward-looking statements. Now, with that said, I'd like to turn the conference call over to Gayn Erickson, President and 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 our third quarter financial results later in the call, but first I'll spend a few minutes providing some details on the quarter and the improved business momentum that we've started to see. Then I'll discuss what we see in the near term and talk a little bit to next fiscal year. And following our remarks, we'll open up the lines for your questions. During the third quarter, we began to see signs of recovery from several customer production ramp delays and pushouts of forecasted orders that we experienced related to COVID-19. We saw a significant increase in activity with both current and new customer engagements as business conditions began to improve, resulting in improved bookings and revenue for the quarter. Our $8 million in bookings generated in the third quarter is our highest bookings quarter in over a year, and we're glad to have 2020 behind us. These bookings include two significant customer orders for our Fox XP test cells during the quarter. One of these orders came from an existing customer for a partially populated Fox XP multi-wafer test and burn-in system and multiple wafer pack contactors to begin volume production of their high-performance silicon photonics devices. This customer is a major supplier of fiber optic transceivers in the Davis Center interconnect market and is our fifth customer in the silicon photonics space that's using our Fox P platform for production. They're moving to silicon photonics integration to address higher performance and lower cost needs at the market and are transitioning from our Fox NP system that they use for initial production burn and stabilization to our production XP system to meet their high volume production forecast. This Fox XP system is only partially loaded with blades and allows the customer to fill in the system by simply adding in additional blades or wafers of capacity as needed. They chose this option to align with their planned wafer capacity expansion. The other Fox XP test cell order was from a new customer to AIR who is a supplier of sensors to a major mobile device manufacturer who is currently a current customer of AIR test. This initial order totaled $4.3 million and included a single Fox XP test system, a set of Fox DIPAC carriers, and a fully automated DIPAC loader unloader. This test cell is for a test and burn-in application for a critical new mobile device and includes a new class of Fox DiPak carriers and automated DiPak loader-on-loader. I'll talk about this new DiPak in a few minutes. During the quarter, we began shipment against this order and expect to complete shipments in this fiscal quarter we're writing now. We continue to expect follow-on orders from this customer for additional DiPaks and system capacity to address the production needs for this device. The increased business activity we saw at the start of the third quarter includes existing customers as they focus on their increasing their production capacity and particularly as the data center and 5G infrastructure related silicon photonics optical transceiver market is starting to recover. Multiple customers have completed upgrades of their facilities to accommodate expected deliveries of our FOX systems in the near future. In addition, we're seeing new customer investigations and evaluations for wafer-level burn-in with multiple silicon carbide customers and over a dozen silicon photonics and transceiver laser stabilization applications. We're also seeing evaluations for both wafer-level burn-in and package part burn-in for automotive devices. These discussions have significantly increased as potential customers believe COVID-19-related travel restrictions are expected to lessen substantially over the next several months. While the customer delays we've experienced have been frustrating, to say the least, it's important to note that we've not lost a single deal, we've not seen new competitive solutions introduced, nor have any of our customers indicated any change to their plans to ramp their production using AIRS systems and consumables. This has really been about timing and when customers resume their plans that were clearly interrupted by the COVID-19 pandemic impacts. Our strong bookings this quarter is evidence of the increased momentum we're starting to see with our existing as well as new customers. And let me touch on a few of the markets we're seeing this traction starting to take place. Let me start with Silicon Photonics. So we continue to hear from our customers as well as analysts and shareholders that follow the fiber optic infrastructure markets for data centers at 5G that business is starting to return after a significant hit during COVID. We heard from our customers that companies like Facebook, Amazon, and Google were simply not doing their planned expansions and upgrades during COVID, even with all the pressure for more data and more bandwidth. As business conditions improve, we believe we will see a strong increase in investment in the space due to pent-up demand. AIR's solution is unique in its ability to test and stabilize or burn an entire whole silicon or other compound semiconductor wafers below devices before they are singulated and packaged individually or integrated into a fiber optic transceiver. These transceivers are used in data centers and as data center interconnections as well as 5G infrastructure connection. Our solution has been proven to be an enabler for whole wafer processing that significantly lowers the cost of manufacturing. In the case of silicon photonics, the laser devices are bonded directly to a silicon-based device that has all the logic, multiplexing and demultiplexing and other high-speed communication subsystems all integrated into a single silicon-based integrated circuit Our solution actually makes it feasible to burn in integrated silicon photonics devices while still in wafer form without adding the cost of the transceiver printed circuit board and other mechanical infrastructure of the final transceiver module. And that has both yield and significant cost savings. This becomes critical in particular at communication speeds of greater than 100 gigabyte transceiver bandwidths. Several large players in the market are working on direct optical to optical switches which will further simplify the deployment of greater than 100 gigabyte transceivers at the data center and data center interconnect levels. Silicon Photonics transceivers are much less expensive to build and much more scalable for quantity and capacity due to wafer level processing. Analysts see Silicon Photonics as a catalyst to higher growth and deployment of fiber optic communication across all data center layers as it becomes significantly more cost effective and there's enough capacity to displace copper-based coaxial cables in data centers. For your research, the silicon photonics market is expected to grow at a compound annual growth rate of 42% between 2019 and 2025 to the $3.6 billion annual market. And we believe that the industry will transition to wafer level or singulated dye for this critical manufacturing step, which is where our FOXP products stand alone as the most cost-effective solution in the market. and we talked about silicon carbide. Our lead customer for silicon carbide continues to forecast significant additional capacity needs and as such we expect them to add a significant number of our Fox XP systems over the next few years. They are a leading supplier of semiconductor devices with a significant customer base in the automotive semiconductor market and are using our Fox XP system for high volume production, burn-in and infant mortality screening of silicon carbide devices at wafer level for electric vehicle power modules. This customer has told us they plan to significantly increase their capital investment in the silicon carbide business this year, which most certainly would include burn-in equipment that would drive Fox wafer level systems and wafer pack sales to them. Silicon carbide continues to be promising as a key growth driver for air. For those who are not familiar with the Nature Silicon Carbide, it's a very impressive material for high power and particular high voltage devices for applications such as electric and hybrid electric vehicle powertrains and electric vehicle charging infrastructure. These devices reduce power loss by as much as 78%, which has essentially changed the entire market dynamic. With this development, we see most, if not every automotive company that's working on electric vehicles moving to silicon carbide-based powertrain and charging systems in the near future. The challenge with silicon carbide is that it's known to have high infant mortality rates. However, after reliability burn-in screening like that offered by Ayers Fox Products Solutions, these defects can be completely removed to provide extremely reliable devices for these mission-critical applications. AIR is able to provide a complete solution for one of the key reliability screening tests on an entire wafer of devices, basically all of them at one time, while testing and monitoring every device for failures during the burn-in process to provide critical information on those devices. This is an enormously valuable capability as it allows our customers to screen devices that would otherwise fail after they're packaged into multi-die modules where the yield impact is 10 times or even 100 times as costly. A critical capability that only our solution can provide in the market today is the ability to test 100% of up to 2,000 or more dye on a wafer in a single insertion while providing 100% traceability of pass-fail results of each device, including exactly what time the test and burn-in cycle the devices fail. Our systems are not only able to test 100% of their devices on 4-, 6-, 8-, and 12-inch wafers, but we can test and burn in 18 wafers at a time in a single Fox XP system, thus significantly reducing the cost of test and burn-in. We are engaged with multiple new potential customers in silicon carbide. In addition to the very large opportunity for silicon carbide with our lead customer, we're very excited to report that a new potential customer that produces silicon carbide power devices has asked us to demonstrate our full wafer-level burn-in solution on their silicon carbide wafers including putting a system on their manufacturing floor to demonstrate our capabilities. This customer is currently a large player in silicon carbide right now and we're confident that we can prove to them that our solution will catch 100% of their infant mortality failures that otherwise would show up at their customer. Additionally, we expect to move to wafer level evaluations with other potential customers in the next few quarters as we're currently engaged in detailed and very promising discussions with several other major suppliers of silicon carbide. We've invested in a special clean room at our facility that houses each of our tools, including our Fox XP multi-wafer system, our Fox NP dual wafer system, and our Fox CP single wafer system. This allows us to run many customer wafers at the same time. making it easy to do multiple evaluations in parallel, particularly in a COVID social distancing world. We anticipate that silicon carbide wafer-level burning will become the industry standard for low cost and 100% traceability for burn-in and reliability screening. AIR's Fox XP system has very unique capabilities that are a great fit for silicon carbide reliability and burn-in tests backed by significant IP, excuse me, Patents, and Experience with the unique challenges of wafer-level burn and test systems and contactors. This creates a barrier to entry that we believe will enable us to capture multiple key companies and significant market share in the silicon carbide space in the next year or two. Hold on for just a second. Sorry, my headset was giving and I'm not going to let it go out. Let me continue on. The silicon carbide semiconductor device market is growing at a tremendous rate, with unit growth of high-power devices expected to grow at over 50% CAGR from 2019 to 2025, again, per your research. When we look at the total available market opportunity for silicon carbide and silicon photonics wafer-level and singulated dye test, we see approximately $250 million of needed capacity, including consumables, based on total wafer starts, yields, and test times. Now, I've mentioned wafer packs several times. These and our dye packs are our proprietary full wafer and singulated dye and module contactors that are consumables, if you will, and that work with our Fox family of test systems. We're also seeing increased orders for our wafer packs from existing customers in the silicon carbide and silicon photonic segments for their installed base of Fox multi-wafer test systems. Towards the end of our fiscal third quarter and into our fourth quarter so far, We have received multiple orders for new designs and added capacity for volume production tests of silicon carbide semiconductors for electric vehicles and electric vehicle chargers, as well as silicon photonics devices for data center and 5G infrastructure fiber optic transceivers. We are forecasting additional orders for our wafer pack and dive pack consumables during the remainder of the current fiscal year and from our installed base of customers. As we've noted before, AIR's proprietary test and burn-in solutions include these customized wafer packs and die packs that are needed not only for new system orders, but also for each new design win or each new device added to production test. As we increase our install base of Fox Systems with current and new customers, particularly with the NP and XP multi-wafer and simulated eye module test and burn-in systems, we expect our consumables business will continue to grow in absolute value and as a percentage of our total sales. Over the long term, we expect these recurring consumable sales to account for up to half or even more of our total overall revenue. During the quarter, we successfully demonstrated and began shipments of a new solution using our standard XP high volume production system and Fox NP systems, but with a new class of dye pack that's going to be a great addition to our product family. This new dye pack is capable of handling extremely small devices and also very high power density devices with higher parallelism than ever thought possible before. The new solution also includes a fully automated pick and place handling system that automatically loads and unloads these new die packs and transfers them to and from carts. This new class of die pack can handle devices down below less than two millimeter by less than two millimeter by less than one millimeter, which is incredible. The size of such a device is small enough to rest on the tip of a pen or a pencil. We will send out to investors a photo of a device of this size sitting on the tip of a person's finger to show how small it is. I do want to note for anyone that sees this, this photo is absolutely not our customer's device. And I want to make sure that's perfectly clear. But it is of similar size of a type of device that our new dye packs can handle. Devices this small are extremely hard to handle. and particularly in any kind of parallelism. Often a discrete device this small is handled with special handling equipment and a tester that can only test one device at a time. This new Fox XP system and dye pack solution is capable of testing very complex dye in modules in addition to them being tiny. For example, the capabilities and features that are being used today in production on these micro scale type modules include the ability to individually read every device ID, Read Digital or Analog Temperature Sensors, have device power supplies on every single DUT that's continuously logging, and individual programmable current drivers, which is critical for optical transmitters and receivers, as well as programmable voltage and current limits, the readback of independent photodiodes or internal or external, which are part of our integrated into our DIPAC photodiodes, and programmable current and voltage drive levels per device as well as programmable pulse widths. These are features never thought in a burn-in and test system that we have a massive parallelism on our systems. This new Fox XP system and DIPAC solution is configured with up to nine high-power blades that can each test and burn in up to 1024 or 1024 devices at a time. Each device is thermally controlled via conduction for the devices making direct contact with a thermally controlled surface that provides a superior, or in the case of these tiny devices, possibly the only way to effectively cool these devices compared to an air controlled chamber. Our new dye pack auto loader can automatically pick and place tiny or large devices from industry standard JEDEC trays to our dye packs, visually inspect every single device Read device barcode information if it's available and track every single device from data from our Fox production systems to place the devices into different physical output bins. Watching the loader handle these tiny devices is really incredible and it can load and unload devices at thousands of devices per hour. We believe this solution further sets us apart from any other company in the industry. Let me talk about packaged parts for just a minute as well. Recently, we've been receiving and responding to requests for information about the planned introduction of our new package part burn-in system, which is under development and has very high voltage test capabilities. We continue to see indications of renewed demand for package part burn-in applications, particularly from customers seeking high voltage capability and expect to generate additional new opportunities with this new product introduction as we head into our fiscal year calendar 2022. With our increasing customer visibility, including facility improvements that customers have made to install our tools on their test floors, we continue to expect orders from the customers that told us they would ramp in the first half of our fiscal year. We expect, you know what, I apologize. People that had told us they would ramp actually in the second half of our fiscal year that we're in right now. When you reach through that, we can miss that. We expect to end our fiscal year with a strong year-over-year growth in our bookings. Unfortunately, the timing of some orders were delayed, causing us to come in short of our revenue expectations for this fiscal year. Importantly, we expect this positive bookings momentum will continue, which will drive revenue growth in the next fiscal year. Looking forward this quarter and into our fiscal 2022 that begins June 1st, We feel our outlook is very promising with forecasts from current customers to ramp in silicon carbide for electric vehicles and electric vehicle chargers, silicon photonics for data center and 5G infrastructure, 2D, 3D, and other mobile sensors and flash memory devices. We also expect to announce new customer bookings and shipments, particularly in silicon carbide and other automotive devices during this calendar year. For the fiscal fourth quarter ending May 31st, 2021, AIR expects revenue to be at least $7 million, a 33% sequential increase from the third quarter, and to be profitable for the fiscal fourth quarter. With that, let me turn it over to Ken to review our financial results in more detail, provide an update on our guidance, and then we'll open up the line for questions. Go ahead, Ken.