Aehr Test Systems

Stand by as we are about to begin. Good day and welcome to the Aehr Test Systems third quarter fiscal 2022 financial results call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Jim Byers of MKR Investor Relations. Please go ahead, sir.

Thank you, operator. Good afternoon and welcome to Aehr Test Systems third 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 Ken and Gane, I'd like to cover a few quick items. This afternoon, right after market closed, Aehr Test issued a press release announcing its third 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 that 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 Aehr Test Systems undertakes no obligation to update the forward-looking statements. Now, with that said, I'd like to turn the call over to Gane Erickson, President and CEO.

Thanks, Jim. Good afternoon, everyone, and thanks for joining us for our third quarter fiscal 22 earnings conference call. 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. Then Ken will go over the financials in detail. Then we'll open up the lines to take your questions. For the third quarter, revenue was $15.3 million, our highest quarterly revenue on record. This is a sequential increase of 59% over the second quarter and up 190% year-over-year. We also generated non-GAAP net income of $4.1 million and ended the quarter with a strong $26.9 million in backlog. And our effective backlog, which includes all orders announced since the end of the quarter, is over $30 million. We continue to see very strong interest and demand for wafer-level test and burn-in of silicon carbide devices and enormous growth potential for Aehr's unique solutions to test and burn-in devices to support the worldwide electrification movement in electric vehicles, power conversion, and power generation and storage infrastructure. During the quarter, four additional companies provided detailed wafer layouts to Aehr for their silicon carbide wafers as part of their evaluation of using Aehr's Fox XP systems and wafer pad contactors for wafer-level burn-in of their devices to meet the electric vehicle market and electrification infrastructure markets. We have provided those customers with the data confirming that we believe we can test their wafers and provided proposals and lead times to meet their needs. This includes another major supplier of silicon carbide devices who has now committed to an on wafer benchmark and asked us to put a system on their test floor to demonstrate our capabilities. This is now the second of the top four silicon carbide customers and that's beyond our current lead silicon carbide considered to be one of the top four to engage with us in what we call on wafer benchmarking of their actual wafers. We have now made several proposals to customers to place orders to lock in lead times of our FOX systems and wafer packs, and then Aehr will provide on-wafer evaluations and validations for them within the lead time of those systems. In just the last few weeks, we met with multiple companies in both the U.S. and Europe face-to-face and are very encouraged by the positive feedback we received about their forecasts for wafer-level burn-in needs and our expectations for winning this capacity with those prospective customers. This included very productive meetings with a major supplier of silicon carbide that is already currently doing on-wafer benchmarking and burn-in optimization investigations with our Fox system and wafer packs today. It's apparent that wafer-level burn-in will become the standard for silicon carbide devices, and based upon customer feedback, we continue to believe that Aehr is unique in our ability to meet the cost and volume production needs of this market. Last quarter, we said that we believe we'll add several new customers that will be ramping into production by the end of our fiscal 23, which ends May 31, 2023. I'm often asked by investors about whether I'm more or less confident about a forecast than last time. I can go ahead and answer that question before someone asks. The answer is yes, I'm feeling more confident. actually even much more confident, that we will add new customers that will be ramping into production by next May. We continue to work closely with our lead silicon carbide test and burning customer, and earlier this month we announced follow-on orders from them for additional wafer pack contactors that reflect multiple new silicon carbide device designs they're building to be qualified by their customers, along with several silicon carbide devices now qualified and ramping into volume production to meet demand for electric vehicles. This customer continues to forecast the need for additional capacity to meet their goal of achieving a major market share of the silicon carbide market. We continue to expect significant additional system and wafer pack purchases from them over the next several years and through the end of the decade. The silicon carbide semiconductor test and burn-in market is being driven substantially by anticipated growth in electric vehicles, and the combination of the industry moving to multi-die modules And the cost implication of burning in a package part versus at wafer or die level is a significant opportunity for error. And this is where we have a clearly differentiated solution for full wafer-level test and burn-in 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 and parallel at the same time. It provides an unprecedented unit-per-hour capacity for wafer-level test and burn-in. Wafer-level test and burn-in is becoming the preferred way to do the required stress and reliability testing referred to as, quote, burn-in, to remove the extrinsic or early life failures needed to meet the market requirements for reliability. The reality is this burn-in is really a stress test to weed out weak devices that would otherwise fail later on, such as after it's installed in an electric vehicle. This can result in a walk-home event. where the EV will simply not operate and the driver and anyone else in the vehicle will need to walk home. The need to remove these failures before they're packaged into multi-die modules is critical to reducing the manufacturing cost impact from yield loss. Having devices fail during burn-in at module level if they're not burned in at wafer level before being put into the modules is extremely costly and reduces customer overall output capacity. Even a small 1% yield loss can have an 8% yield loss impact on an eight dye module. We have seen modules being designed right now with as many as 32 silicon carbide dye in them. And it's very clear to those customers that screening out the failures of the dye before they're put into the module is the only way to go. We're also seeing a major trend to do a test process that we call stabilization of key parametric specifications such as the threshold voltage, which is the voltage at which an individual device turns on, or the on resistance, which is the forward and reverse resistance of the device when turned on and is a key parameter related to power loss or inverter efficiency. Companies are now driving to only put matched VTH or RDS on parts in the same modules as a way to increase efficiency and reliability of the modules. This is another key driver for the shift to why customers are driving toward wafer-level burn-in. It's also important to understand that this stabilization is not something that is believed to be able to be done with short burn-in times and actually increases the opportunity for wafer-level burn-in market. With the most cost-effective solution in the market to address this significant opportunity, we believe that air can achieve a significant, perhaps dominant, share of the silicon carbide wafer-level burn-in market. Forecasts from Canaccord Genuity estimate that the silicon carbide market for devices and electric vehicles, such as traction inverters and onboard chargers, as well as the off-board charging stations used for electric vehicle charging, is expected to grow from fewer than 150,000 six-inch equivalent wafers of capacity built in 2021 to more than 4 million wafers built in 2030 to meet the more than 30 million electric vehicles anticipated to be built per year by then. This projected demand for just electric vehicle-related silicon carbide wafers represents at least a $1 billion market opportunity for our wafer-level test and burn-in systems and consumables over the next eight years. Canaccord also forecasts an additional capacity need of more than 4 million more silicon carbide wafers made in 2030 to meet the demand in 2030 for other electrification infrastructure, industrial and photovoltaic power devices. In our recent customer visits, we're now seeing demand surface for the wafer-level burn-in of silicon carbide devices beyond electric vehicles, and we believe it's likely to become a significant market opportunity for air test as well. Moving to some other markets, we're also seeing a recovery and strengthening in the silicon photonics test and burn-in market, reflecting the post-COVID recovery that's driving devices to meet 5G and data set their infrastructure buildup. Several customers addressing the silicon photonics market have forecast additional FOX system and wafer pack or dye pack contactor capacity needs from us over the next 12 months. In addition to the silicon carbide and silicon photonics markets that are strong drivers for our business, During the quarter, we received an initial order from a current Fox XP customer for proprietary DIPAC carriers for a new optical sensor device. We're getting some feedback here. All right, thanks. Sorry about that, folks. So we received an additional order from a current XP customer for proprietary DIPAC carriers for a new optical sensor device. It represents a new application for our Fox XP system. This customer is a supplier of sensors to a major mobile device, personal computer and consumer electronics manufacturer. This is the first order of dye packs for this device, which is expected to move to production and require additional dye pack carriers and may also require additional Fox XP system production capacity. Now turning to our historical packaged parts business, as we emerge from this two-year pandemic, it has become clear that the forecasts we saw from packaged part customers heading into the pandemic are not holding up on the other side. We now believe that material we had purchased against the customer forecast at the time is likely not to be needed anytime soon. As a result, we're taking a $1 million one-time charge in fiscal Q3 for excess and obsolete material related to these products, primarily ABTS configurations and packaged part burn-in products. In addition, discussions with customers such as silicon carbide, silicon photonics, and memory about products to address their package part needs are met with a ho-hum attitude that quickly turns to requests for more information about our Fox wafer-level burn-in systems. With the increased interest and demand we're seeing for wafer-level burn-in, We are turning our focus to full attention and doubling down on our efforts in the near term to fully capitalize on this substantial opportunity for our FOX full wafer test and burn-in systems and consumables. This includes several new R&D enhancements to our FOX-P family of products that include FOX test system hardware and software features to expand the application space of our systems, enhancements to our wafer packs to address higher power and higher voltage applications, and upgrades to our roadmap for wafer pack aligners that we provide with our solutions, including the ability to meet the high volume capacity and full automation requirements we see with several customers we're engaged with today. We plan to be publicly announcing these new enhancements over the next couple of quarters. So I've had lots of questions about how our supply chain is holding up. As I've noted in past calls, Aehr has the manufacturing infrastructure and supply chain in place to ramp to significantly higher revenue levels. For example, this year we'll ship three times what we did last year, and we're just getting started. 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. There are many integrated circuits used in our system that currently have greater than 12-month lead times. Our aggressive purchasing of IC components that began last February of last year of 2021 is really paying off. With a few bumps in the road, our supply chain is holding up very well to the increase in demand and growth, and we've been able to maintain reasonable lead times to meet customer requests. Aehr has a very robust supply chain with world-class Subcontract manufacturers and subsystems are test systems, contactors, wafer pack aligners, and die pack handlers. These are very mature subcontractors that have successfully supplied these systems to Aehr for years. In all cases, the suppliers have capacity well in excess of Aehr's historical shipments and the ability to ramp significantly higher as well. We're very confident in our ability to meet the customer forecasted demand plus considerable upside. So lastly, I'm excited to announce today the appointment of a gentleman named Adil Engineer as Chief Operating Officer at Aehr Test. Adil has built a career in operations and supply chain and has been in the semiconductor and medical equipment field for over 20 years. He started his career with semiconductor equipment company KLA Tencor where he spent 11 years and also worked at Coherent and Kativa in positions of increasing responsibility in manufacturing, manufacturing engineering, new product introduction, and supply chain. Most recently, he was the head of operations at TECAN, a Swiss company manufacturing medical test and diagnostic tools, devices, and solutions, where he oversaw operations for TECAN's primary site in the U.S. for manufacturing located in San Jose. Adil has a bachelor's degree in chemical engineering from TKIET, and the graduate certificate in management science and engineering from Stanford. In his role as COO, Adil will focus on continuing to ramp our supply chain, manufacturing, as well as increases in infrastructure to meet anticipated demand. We're certainly pleased with our record revenue in Q3 and forecast to finish the fiscal year with our highest annual revenue on record. And Adil will be working to continue to ramp our ability to meet the needs of the silicon carbide, silicon photonics, 2D and 3D sensors, and other markets to support further growth momentum. We welcome him to Aehr Test and look forward to his contribution. In closing, we're very excited about the unprecedented inbound interest in expanding growth opportunities we're seeing with a significant number of new potential customers that are evaluating the unique capabilities and cost effectiveness of our FOXP multi-waver test and burn-in systems for their test and burn-in needs. We remain very focused on serving the several large market opportunities we see ahead and are confident in our growth forecasts and ability to meet them. For the fiscal year, this one we're in right now, ending May 31st of 2022, Aehr is reiterating its previously provided guidance for full-year total revenue of at least $50 million and to be profitable consistent with our operating model. Given our revenue in fiscal Q3 of $15.3 million reported just today, totaling over $30.5 million for the first three quarters, that equates to a fiscal Q4 revenue of at least $19.5 million, which would equate to another solid and record revenue quarter for Aehr Test. With that, let me turn it over to Ken to review our financial results and guidance in more detail, and we'll open up the lines for questions.