Aehr Test Systems

Good day and welcome to the Aehr Test Systems second quarter fiscal 2022 financial results 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 Aehr Test Systems second quarter fiscal 2022 financial results conference call. With me on today's call are Aehr Test Systems President and Chief Executive Officer, Gane Erickson. and Chief Financial Officer Ken Spang. Before I turn the call over to Gayn and Ken, I'd like to cover a few quick items this afternoon. Right after market close, Aehr Test issued a press release announcing its second quarter fiscal 2022 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 today that are based on current information and estimates and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. These factors that may cause results to differ materially from those in the forward-looking statements are discussed in the company's most recent periodic and current reports filed with the SEC. These forward-looking statements, including guidance provided during today's call, are only valid as of this date, and Aehr Test Systems undertakes no obligation to update the forward-looking statements. And now, with that said, I'd like to turn the call over to Gane Erickson, President and CEO.

Thanks, Jim. Good afternoon, everyone, and thank you for joining us for our second quarter fiscal 2022 earnings conference call. We hope that everyone's off to a great new year and are healthy and managing through these historic times with COVID-19. Also, I do want to apologize in advance that I have a lingering dry cough after recovering from COVID myself over the holidays. While I was fully vaccinated, I'm one of those that had the breakthrough case, and I'm happy to say that I'm feeling fine and fully recovered from what little symptoms I had. Let's start with a quick summary of the highlights of the quarter and momentum we're experiencing in the semiconductor wafer-level test and burn-in market, and then Ken will go over the financials in detail. Then we'll open up the lines to take your questions. For second quarter, we're happy to announce our second consecutive quarter of record bookings and solid results for revenue, our bottom line, our balance sheet. And we finished the quarter with new record for bookings in a single quarter of $29.1 million. This follows the previous quarter where we set a record of $20.7 million. Revenue for Q2 was $9.6 million, a sequential increase of 70% over the first quarter. and up over 470% year-over-year. Our backlog at quarter end was $36.1 million, which is our highest backlog on record for the company. With our strong backlog and the incredible performance of our manufacturing and supply team, as well as the great job our suppliers are doing in ramping to meet the significant uptick in revenues, we're confident and are reiterating our previously provided guidance for full year total revenue of at least $50 million for the fiscal year ending May 31st, 2022. This equates to fiscal 22 revenue, which is three times that of last year's full year revenue. Our projected revenue of $35 million or more for the second half of this fiscal year is over 2.3 times our revenue for the first half of the fiscal year. Today, I'm going to go into detail on the silicon carbide and silicon photonics market segments of our business. Let me start with a discussion on the silicon carbide test and burn-in market, which is being driven substantially by anticipated growth in electric vehicles. We continue to see very strong interest and an increase in inbound requests for information on our solutions for wafer level test and burn-in of silicon carbide devices, particularly for use directly in and in support of the electric vehicle market. Now, for those who have not followed error, let me describe the market opportunities for silicon carbide test in Vernon. Silicon carbide devices are used in solid state power conversion of electric vehicles. Some would say it's an enabling technology to electric vehicles. Silicon carbide MOSFETs are used in converting alternating current, or AC, to direct current, DC, needed to charge batteries that store the power in the electric vehicles. then these same devices, although higher current and power, are used to convert the DC power in the battery pack back to AC to power the engine. The AC to DC conversion is the on-board or off-board battery charger, and the DC back to AC is referred to as the traction inverter. There's one traction inverter per engine, so for a car like most Tesla Model Ss, Xs, and 3s, as well as the Ford F-150 Lightning, there are likely two engines and therefore two traction inverters. A typical traction inverter today uses 48 silicon carbide MOSFETs to address the current and number of phases needed. A typical six inch silicon carbide semiconductor wafer today has about 500 of these high current MOSFETs and so yield about 10 engines per wafer with perfect yield and they do not get perfect yield. Every silicon carbide supplier agrees that these MOSFETs must go through an extended stress test called burn-in to remove the extrinsic or infant mortality failures to get to the quality required to meet automotive standards. In addition, companies use burn-in to stabilize the threshold voltages of the devices, particularly for use in modules where the devices are gained in parallel. This burn-in step can be done in the final package form in discrete packages But looking ahead, the industry is moving mostly to multi-die modules. The modules are more efficient, require less cooling, and are easier to integrate into the inverter. The downside is that these modules contain many individual die that are all assembled in the modules. When customers burn in these modules, the failure of a single die will cause the entire module to fail, reducing the production yield. Not only is the cost of the module packaging more expensive, but the other die, which could include up to 10 or more die per module, are discarded. The combination of the industry moving to modules and this constant implication of burning in at package part versus wafer or die level is great for us at Aehr, where we have a clearly differentiated solution for full wafer level test and burning of these devices. Our Fox XP wafer-level burn-in system can test up to 18 wafers at a time, with 100% of the devices being tested and burned in in parallel at the same time. This is an extremely cost-effective and scalable solution for high-volume manufacturing of a critical reliability step in the manufacturing process. We have qualified this to eliminate the extrinsic failures seen on the silicon carbide devices, and it has been validated by multiple electric vehicle manufacturers so far. During this last quarter, we received a follow-on $19.4 million order for a Fox XP wafer-level test and burn-in systems from our lead silicon carbide customer. This order was then followed by a $7.6 million order for wafer packs that are the consumable, if you will, that makes contact between our Fox XP system and the device-specific wafers. This wafer pack order is actually not enough to fully populate the systems they ordered. so we are expecting additional follow-on wafer pack orders for these production Fox XP systems. These systems and wafer packs are being used to test and burn in MOSFET devices and traction inverters in electric vehicle motor controllers, as well as both onboard and offboard electric vehicle chargers. This customer, a major automotive semiconductor supplier with a significant customer base in the automotive semiconductor market, continues to forecast significant additional system and wafer pack purchases over the next several years to meet the silicon carbide market growth. In addition to a very strong backlog and forecast from our lead silicon carbide customer, we're currently engaged in discussions and or evaluations with several other silicon carbide suppliers regarding their wafer-level test and burn-in needs. This includes all of the current large silicon carbide suppliers and a number of companies, both large and small, that intend to enter the silicon carbide market. The new entrants are actually quite interesting to us, as several are starting from a green field without any installed base of test or burn-in equipment and are looking to Aehr for advice on the best solutions for them to meet the critical quality and reliability needs of the electric vehicle, as well as other silicon carbide markets. Multiple industry forecasters and analysts expect the market for silicon carbide devices to grow at a compound annual growth rate, or CAGR, of more than 30% over the next decade, driven by demand from the electric vehicle market and other applications. It is more and more clear that silicon carbide is becoming the industry standard for electric vehicle powertrain conversion and the traction inverters, as well as for the onboard and offboard battery charges for EVs. Tesla was the first to move to silicon carbide over the historical IGBT high-voltage silicon-based devices as the silicon carbide devices promised to be more efficient, which translated into longer range and faster charging times, two of, if not the most important buying criteria for electric vehicles. Since their introduction in the Model 3, Tesla has since adopted silicon carbide in all of their vehicles, and most of the new electric vehicles across the industry will start with silicon carbide as a solution of choice for their power conversion electronics. While no one can completely predict the exact growth rate of the electric vehicle automobile market, there is no doubt that every car company in the world and many new companies are committed, if not dedicated, to new EVs and volume production. An example of how fast forecasts are changing is that just recently Ford announced that it will nearly double its production capacity of its upcoming electric F-150 Lightning pickup truck to 150,000 vehicles a year by only mid-2023 in response to enormous customer demand. The industry forecasters and analysts also appear to be converging on the idea that the typical electric vehicle will have more than one electric engine and traction inverter, as electric vehicles with two or more engines are being marketed with longer ranges and faster charging times, two of the most critical features in the electric vehicle market. What this means to Aehr is that there will be more silicon carbide devices forecasted per average vehicle than we saw only a few months ago. Forecasts from Canaccord Genuity estimate that the silicon carbide market for just devices in electric vehicles, such as the traction inverters and onboard chargers, will require 4 million 6-inch equivalent wafers to meet demand in 2030, and another 4 million wafers for electrification infrastructure industrial and photovoltaic power devices. This is incredible when you realize that this year the entire market is expected to ship fewer than 150,000 wafers to meet the automotive electric vehicle market. This represents a growth of over 25 times the current wafer capacity just for the in-vehicle devices and then double that for the entire silicon carbide market. Why I'm going into so much detail here is that folks like Canaccord Genuity are making the point that the industry has only yet even announced capacity plans to meet this demand, much less put it in place. So let me make sure that they do not have enough capacity even announced to meet this in place. They're forecasting that the announced capacity is somewhere near 2 million wafers. And yet the total capacity, or maybe 2.4, I think, versus the total capacity is over 8 million wafers of demand. We're seeing multiple companies come forth and approach Aehr with a message that they're entering the market because there simply is not enough capacity out there to meet demand, and there's plenty of room for newcomers. Now think back on my comment about new companies not having an installed base or bad habits of using packaged part burn-in systems to test their IGBT or silicon carbide devices that we may have to talk them out of. Stay tuned on our progress with a broader array of customers than just the current top companies. Again, remember last year, The current companies that address the silicon carbide market only shift about 2% of the wafers needed against the total demand needed by the end of the decade. Again, all of the companies today, including, quote, the big ones, are only 2% of the total demand. So stay tuned to find out about the new companies entering the market. Now, having highlighted that new players are not to be ignored, we have announced that we do have at least one currently large silicon carbide supplier that has moved to on wafer evaluation and benchmarking of Aehr's Fox XP multi-wafer system for testing and burning in their silicon carbide wafers. We feel these benchmarks have demonstrated the value Aehr can provide and also validate our solution for screening out extrinsic or early life failures as we had predicted by looking at the actual failures of their devices on their wafers. We're now being asked to do more tests and experiments and run more wafers, which we're happy to work with them on. Without getting into too much detail, I do want to say that companies all have their own internal processes and timelines for evaluating and qualifying a new tool, and not all companies move at the same pace. One thing is for sure, every company we talk to is a combination of excited and scared at the size of the ramp expected to meet the electric vehicle market. particularly in the second half of this decade. Some companies are driving to meet this demand sooner than others. I do want to be clear that independent of different companies' timelines, we expect that we will add several new silicon carbide customers that will ramp into production with our solution by next fiscal year as they look to capitalize on the rapidly expanding silicon carbide market. We are ramping our FOX multi-wafer test and burn-in systems in full wafer pack capacity full wafer-wafer pack capacity to meet this upcoming silicon carbide market opportunity, which we believe will grow significantly over the next decade or more. We really are only at the very beginning of this ramp as electric vehicles accounted for a small percentage share of the overall market last year and are expected to be over 30% of total vehicles sold by 2030. We provide a very cost-effective solution for testing and burning in these silicon carbide devices and we're confident in our ability to capitalize on the expected growth in the silicon carbide market over the next several years and for many years beyond that. So let me turn to the silicon photonics stabilization and burn-in market. So in addition to our success in the silicon carbide applications, we continue to see signs of strengthening in the silicon photonics test and burn-in market as our FOX multi-waiver systems and wafer packs provide a very cost-effective and scalable solution for burning in the optical lasers, and stabilizing their output power while also removing any extrinsic or early-life failures. Silicon Photonics describes photonic systems that use silicon as an optical medium and can be made using existing semiconductor fabrication techniques. A critical manufacturing step is a stabilization step where energy is used by applying high temperatures and electric power to, quote, burn in the optical lasers and stabilize their output power. Aehr is able to do this critical step while the devices are still in wafer form before they're singulated and put into a modular system using our Fox multi-wafer systems and wafer packs. This provides a very cost-effective and scalable solution for this critical step while also removing any extrinsic or early life failures. Today, silicon photonics devices address the 5G and data center infrastructure industry as well as several other key markets. and YOL research predicts that the silicon photon extrinsic market alone will reach $4.6 billion in 2026, with a CAGR of 25% between 2021 and 2026. Several companies, including Intel and Cisco, have proven it is possible to create hybrid devices in which the optical and electronic components are integrated onto a single microchip And the first products in volume production are being used for fiber optic transceivers used in the datacom and telecom infrastructure, such as data centers and 5G communications. But in addition, there have been many technical presentations and public announcements about silicon photonics and co-packaged optics being integrated with MPUs and GPUs from companies such as Intel and NVIDIA as a means for keeping on track with Moore's Law. by using optical interconnects to provide faster data transfer both between and within microchips. We believe that the market for silicon photonics will expand beyond being used for only fiber optic transceiver photonic integrated circuits and will start to be used in high-end processor applications and intra-chip as well as inter-chip communications within the next few years. During the last few months, we received orders from the current silicon photonics customer for six additional FOX-NP wafer-level testing burn-in systems to support the characterization and product qualification of new types of photonics-based devices in wafer form. This customer is expected to purchase new sets of wafer-packed full wafer contactors to be used with these systems. As the applications and market for silicon photonics-based devices continue to grow, we expect this customer to continue to increase their capacity in the future. Several other customers addressing the silicon photonics market have also forecast additional Fox systems as well as wafer pack or die pack contactor capacity needs over the next 12 months. These include needs to address incremental production capacity, as well as capacity to address new customer and new product qualification in engineering. Again, as the only supplier of a commercially available and cost-effective solution for testing and burning in these silicon photonic devices in wafer form, we're also very confident in our ability to capitalize on the expected growth in the silicon photonics market over the next several years. Before turning over to Ken, let me summarize where we're at. We remain very focused on serving the very large markets opportunities we see ahead, which include the significant opportunity for chest and burn and silicon carbide devices for electric vehicles and electrification infrastructure, silicon photonics devices for data center and 5G infrastructure, and 2D and 3D sensors for mobile and wearable devices. With our record bookings and the strength of our semiconductor chest and burn and solutions, we're confident in our ability to deliver significant revenue growth and are reiterating our guidance of at least $50 million in revenue for the fiscal year ending May 31st. This represents revenue in the second half, which is 2.3 times that of the first half. As we have discussed in the past and are proving now, Aehr has the manufacturing infrastructure and supply chain in place to ramp to significantly higher revenue levels. We have been ordering long-lead components for systems and wafer packs, particularly for the enormous opportunity we see for silicon carbide that is gaining momentum, and we have been able to maintain reasonable lead times to meet customer requests. Our supply chain is holding up to the increase in demand, and we're ramping all of our subsuppliers to meet the customer bookings and forecasts we are seeing. Aehr has a very robust supply chain with world-class subcontract manufacturers on subsystems of our test systems, contactors, wafer pack aligners, and die pack handlers. These are very mature subcontractors that have successfully supplied these subsystems to air for years. In all cases, these suppliers have capacity well in excess of air historical shipments and the ability to ramp significantly higher as well. We are very confident in our ability to meet the customer forecasted demand plus considerable upside. As we discussed and anticipated at the beginning of the COVID-19 pandemic, Aehr Test has emerged a stronger company with more production customers, more markets and applications, and higher value products than we had before the start of the pandemic. With our record bookings and the strength of our semiconductor test and burning solutions, as well as the positive response we are getting from multiple new potential customers in the silicon carbide space, we're confident in our growth forecasts and ability to meet them. The hard work we put in over the past several years is paying off for our customers, our financials, and our shareholders, and we're excited about the large market opportunities ahead and for the future of air test systems. With that, let me turn it over to Ken to review our financial results and guidance in more detail before we open up the line for questions.