Aehr Test Systems

Hello and welcome to the Aehr Test Systems Fiscal 2023 First Quarter Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on a touch-tone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Todd Curley of MKR Investor Relations. Please go ahead.

Thank you, Operator. Good afternoon, and welcome to Aehr Test Systems' first quarter fiscal 2023 financial results conference call. With me on today's call are Aehr Test President and Chief Executive Officer, Gane 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 first quarter financial 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 forward-looking statements, which may cause the 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 the guidance provided today, are only valid as of this date, and Aehr Test undertakes no obligation to update the forward-looking statements. Now, I'd like to turn the call over to Gane Erickson, President and Chief Executive Officer of Aehr Test. Gane?

Thanks, Todd. Good afternoon, everyone. Thank you for joining us on the first quarter 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 burden market. And then Ken will go over the financials in detail. After that, we'll open up the lines to take your questions. We're off to a good start this year, finishing the quarter with revenue and net income ahead of consensus estimates and strong bookings of $19.1 million. Revenue for the quarter was $10.7 million, which is up 89% year over year. And we generated non-GAAP net income of $1.3 million. As we've noted before and discussed last quarter, over the last couple of years, our first quarter tends to be our season lease office quarter, as it was again this year, and we expect each consecutive quarter to ramp higher throughout the year. So let me get right to it and talk about how we're doing at getting into more accounts focused on silicon carbide for electric vehicles and other markets, since that's where a lot of the questions are coming in at. We're currently engaged or in discussions with almost all the existing and future silicon carbide suppliers now regarding our unique low-cost multi-wafer level test and burn solution. that enables contact to and test of 100% of devices on every wafer. This allows our customers to burn in every device at a lower cost than they could in any other form due to our ability to contact thousands of devices on each of 18 wafers at a time with our Fox XP multi-wafer test and burn-in system and proprietary Fox full wafer contact wafer packs. All the major silicon carbide companies expect that electric vehicle traction inverters will move to multi-chip modules as this is where the electric vehicle manufacturers are driving the industry. As such, they've told us they must move to wafer-level stress and burn-in to remove the inherent failures before they put these devices into multi-die modules to meet the cost, yield, and reliability goals of those modules. AehrS technology provides a total turnkey single vendor solution to meet these customers' critical test and stress requirements at a cost and test floor footprint significantly lower than any other alternative on the market. Our lead customer for silicon carbide wafer-level burn-in continues to ramp up use of our Fox XP multi-wafer systems and wafer packs, placing yet another significant order with us during the quarter. Similar to past orders, they purchased the systems without the necessary wafer pack full wafer contactors, and as such, we expect significant orders from them for wafer packs to match these systems. This need for additional capacity is being driven by increased demand for silicon carbide customers for electric vehicles. This customer recently announced that they expect their growth rate to accelerate faster than previously forecasted. and they continue to forecast orders for a significant number of Fox systems and wafer pack contactors with us over the next several years. Beyond this lead customer, our previously announced benchmarks and evaluations with two additional major silicon carbide semiconductor suppliers continue to move forward with great progress this quarter. Following the end of the quarter, we announced an initial purchase order from one of these suppliers for our Fox NP multi-wafer test and burn-in system, multiple wafer pack contactors, and a Fox wafer pack aligner to be used for qualification of our wafer-level burn-in solution for silicon carbide devices for electric vehicles and other markets. This new customer is one of the world's largest suppliers of silicon carbide devices, serving several significant markets, including the electric vehicle industry. We now have two of the top four silicon carbide market participants as customers. We've already shipped the system to this new customer's facility and we believe we'll achieve their specific performance and functionality evaluation criteria on their test floor during the next three to six months. This new customer indicated to us that Aehr Test is the only provider that has a product that is scalable to high volume production to meet the production capacity they need to address the increasing demand for silicon carbide devices. They have provided us with forecasts for our Fox XP systems for volume production of their silicon carbide devices at multiple facilities around the world. And we expect that they will purchase Fox XP production systems to be shipped before the end of our fiscal year, ending May 31st, 2023. The benchmark with the other potential customer, which candidly has been slow and steady over the last year, has also progressed significantly since last quarter's conference call. We completed a significant milestone using a new capability we publicly announced today and I'll discuss later, where we tested a significant number of wafers for a correlation of an automotive device. And we believe that we will successfully complete their production correlation over the next few months, allowing them to also move forward with our FOX solution. With both of these major silicon carbide suppliers, I'm sorry, let me try that. We expect both of these major silicon carbide suppliers to implement our FOX platform solution into their volume manufacturing production flow as they look to capitalize on the fast-growing demand for silicon carbide devices in electric vehicles. Folks, demand is building for wafer-level burn-in of silicon carbide devices and specifically for traction inverters and onboard and offboard chargers for electric vehicles. During the last few months, multiple additional silicon carbide suppliers have asked us to provide technical feasibility, quotations, and schedules for production test and burn-in of their wafers. While some of these companies want to do on-wafer validation of our solutions before they place orders for systems from us, others are planning to move directly to purchasing our FOX systems and or wafer packs to accelerate their time to market. An example of this is just a few days ago, we received orders for wafer packs on two designs from a brand new customer for silicon carbide MOSFETs targeted electric vehicles. This multi-billion dollar semiconductor company that is already making silicon carbide MOSFET wafers that we have in-house, by the way, they have not even gone public with their silicon carbide MOSFET introduction plans. The silicon carbide market for electric vehicles and its supporting infrastructure requirements are growing at a tremendous rate, with Canaccord Genuity estimating that wafer capacity will increase from 125,000 six-inch wafers in 2021 to over 4 million six-inch equivalent wafers in 2030, just to meet the EV market alone. Add in the other applications for silicon carbide, including solar power conversion, industrial, and other electrification infrastructure, and the market size doubles. This past month, Vernon Rogers, our AVP of Sales and Marketing, and I met face-to-face with multiple potential customers at their facilities in both the U.S. and Europe and are very encouraged about our prospects for winning this capacity with these prospective customers. We also had very productive meetings around our participation in two important industry conferences in Europe. Vernon attended this year's International Conference on Silicon Carbide and Related Materials, known as ICECREAM, in Davos, Switzerland, considered to be the most important technical conference series on silicon carbide and related materials. He and I also attended the EU Power Semiconductor Executive Summit in Munich, where I gave a presentation on air and the impact of wafer-level burn-in on reliability and stability of silicon carbide devices to a large audience of power semiconductor industry leaders as well as automotive and other users of silicon carbide power semiconductors from around the globe. For our many discussions and introductions of these events, two themes were very important. Number one, it's clear there's a continued momentum in silicon carbide. In fact, there seems to be an acceleration of the expected adoption rate, as well as an increase in the expected growth in electric vehicles. Several silicon carbide and electric vehicle companies are now saying electric vehicles are more likely to account for 50% of all vehicles made in 2030, as opposed to the 30% number we've been stating. In fact, VW Group, the first or second largest automotive supplier in the world, depending on the year, along with Toyota, said in a presentation that they expect electric vehicles to comprise 50% of all their vehicles sold by 2030. I guess I should say in 2030. The number two theme is there's an increasing consensus that not only do you need to do 100% burn in silicon carbide devices that are going into the automotive space and other mission-critical applications, but that burn in of the dye must be done at wafer level before they're put into the modules for the traction inverters, in particular for electric vehicles. In my presentation at the EU Summit, I noted that in addition to the obvious cost advantage of removing device failures before they're put into a module with many other devices, companies also want to stabilize the inherent early life drift of threshold voltages observed in silicon carbide MOSFETs, and then select devices with matching threshold voltages to put into multi-chip modules. Higher than acceptable infant mortality rates of silicon carbide MOSFETs require 100% production stress and burn-in testing, to achieve automotive and industrial quality levels. And the value and requirement for doing stabilization of the devices goes beyond just infant mortality to include critical parametric parameters such as the threshold voltage. With the transition from discrete silicon carbide components to multiple silicon carbide dye modules or integrated power modules, the gate threshold voltage stability is critical to the module reliability. driven by the prerequisite to have matching and stable gate voltage threshold die to die. AehrS technologies and capabilities enable gate threshold stability and reliability at the wafer level. Module manufacturers are requesting and, in fact, requiring devices with matching threshold voltage or total on resistance between the drain and source in a MOSFET. The major silicon carbide companies expect that most EV traction inverters will move to multi-chip modules and have told us they must move to wafer-level stress and burn-in to remove the inherent failures before they put the devices into multi-die modules to meet their cost, yield, and reliability goals. Aehr's unique low-cost multi-wafer level test and burn-in solution provides the test electronics and the device contactor technology that enables contact to 100% of devices on a single wafer. and the handling and alignment equipment to provide a total turnkey single vendor solution to meet the needed critical test and stress requirements. We believe we'll have multiple more customer wins in silicon carbide for our solutions this fiscal year. In addition to our progress with silicon carbide applications, we're seeing an increase in our wafer-level burn-in business for silicon photonics devices used in data communications. We shipped multiple Fox NP systems this quarter to support the characterization and product qualification of new photonics-based devices. We've also received multiple orders for upgrades to existing systems that enable a higher number of devices and higher power per wafer, as well as multiple new designs for wafer packs from several companies. We expect these will be first ordered for engineering and new product introduction, and then they turn to volume production with higher quantity orders. As I've noted before, we expect to see a nice recovery in the silicon photonics market segment sometime over the next year, as we're being told by our customers. We're expecting customers to resume buying in the current fiscal year 2023 and fiscal 2024, and several customers addressing the silicon photonics market have forecast additional Fox systems and wafer pack or dye pack contact capacity needs during that time. So let me spend a minute on our R&D investments. On our last earnings call, I mentioned several test system enhancements we plan to introduce that will extend the capabilities of our FOXP wafer-level test and burning platform. Today, we formally announced two new advanced test and burning capabilities that enable silicon carbide and gallium nitride semiconductor manufacturers more flexibility to address a wider variety of stress and burning conditions for the engineering qualification and production needs. These include our FOX Bipolar Voltage Channel Module, or BVCM, which provides customers a wide range of bipolar voltage programmability from positive 40 volts to negative 30 volts applied to the gate for positive high-temperature gate bias or negative HTGB. This solution, in combination with our proprietary full wafer contactors, delivers a unique capability benefiting power silicon carbide diodes and MOSFETs and both E-mode, D-mode, gallium nitrate power MOSFET manufacturers. Enabling these tests is essential in threshold voltage and gate oxide stabilization and screening, and the new BVCM extends our current capability even farther. The other enhancement is our very high voltage channel module, or VHVCM, that enables customers to perform high temperature reverse bias, testing on wafers of up to 2,000 volts on MOSFETs and diodes, and measure individual device leakage current. Aehr's proprietary wafer pack contactor implements arcing mitigation technology to alleviate high-voltage arcing on the wafer, especially with fine-pitched die-to-die geometries. The modularity of the FOXP system offers customers the ability to configure solutions to provide advanced test capabilities for their power electronic device wafers. These advanced capabilities are designed to enable manufacturers to ship product with higher reliability and parametric stability necessitated by an EV's traction inverters and onboard chargers. Feedback from current and potential new customers has been very positive, and we've already taken orders for both systems and wafer pack for these new options that we discuss with customers under non-disclosure agreements. This includes the new major silicon carbide customer announced last month and the brand-new customer I just mentioned who ordered multiple wafer packs for a planned FoxP system purchased from us for their silicon carbide products. We expect these new enhancements to drive incremental bookings and revenue for our Fox NP systems for new product introduction and engineering qualification needs, as well as our Fox XP multi-wafer systems to be used for high-volume production with these new features. We're also quoting and will accept orders for our new fully automated Fox wafer pack aligner, which is configured to fully integrate with our Fox XP multi-wafer systems to enable hands-free operation and includes full integration with our wafer packs. As capacity and volume forecasts increase, eliminating all manual interface for automated handling can become critical. We expect to see our new aligner with this full automation capability to begin shipments by about the end of our fiscal year. All right, let me try and wrap this thing up. While the timing for volume production decisions, initial production orders, as well as follow-on orders from customers is never certain, there's no doubt as to the way the silicon carbide market is developing. As many of you know, OnSemi, one of the top silicon carbide suppliers in the world, announced in August it will increase its silicon carbide production capacity by five times and almost quadruple the number of its employees by the end of this year at its new silicon carbide facility in New Hampshire. And last month, Wolfspeed, another top supplier, announced a new manufacturing facility in North Carolina, a $1.3 billion factory with a tenfold increase in wafer capacity. And ST, who last year was the largest silicon carbide supplier in the world, just announced it will build an integrated silicon carbide substrate manufacturing facility in Catania, Italy, right next to its existing device manufacturing facility, with production expected to start in 2023. The decision is being made today in response to the explosive demand in silicon carbide. We're very encouraged by the continued positive momentum and expanding growth opportunities we're seeing with current and prospective customers. As such, we're confident with our previously provided forecast for total annual revenue of at least $60 million to $70 million this fiscal year, which would represent growth of at least 18% to 38% growth year-over-year, and clearly emphasize our belief that revenue will grow substantially through the fiscal year to achieve these levels. This includes our belief that we'll receive production system orders from several silicon carbide customers beyond our initial lead customer and begin shipping systems to meet their production capacity by the end of our current fiscal year that ends May 31st, 2023. We also continue to expect bookings to grow faster than revenues this year, particularly to address the ramp in demand for silicon carbide and electric vehicles. So lastly, I just want to quickly announce a couple of changes in our organization. I'm very excited to announce today the appointment of Nick Spork as vice president of our contactor business. In this role, Nick will be leading the effort to manage and grow our wafer pack contactor and dye pack carrier consumables business, which has become more and more strategic and has grown into a significantly larger part of our overall business. Over time, we expect consumables to not only grow in total revenue for error, but as a total percentage of our business, approaching 50% of our business on an annual basis. Nick has an excellent background to lead this effort with broad experience in the semiconductor and electronics industries, leading people, engineering teams, and organizations in multiple areas covering product development, product design, manufacturing applications. Nick started out as a product test engineering manager at LSI Logic, which is now part of Broadcom. He then worked at FormFactor for 17 years in various roles, but mainly as VP of design engineering. After leaving FormFactor, he was VP of design and applications at Translarity, VP of Business Development for ISC, which is a Korean sockets and probe card company. And most recently, he had his own company making various components for the probe card and test industry. We're extremely pleased to add someone of his caliber and experience to our executive team. At the same time, I'd like to announce that Dave Hendrickson, our Chief Technology Officer, will be retiring at the end of this fiscal year next May. Dave has served as a valuable member of our executive team for more than 20 years, and contributed substantially to our product portfolio and many of our business practices. Most recently, he has led a focused component sourcing task force, where his combination of engineering operations and business skills has allowed Ayr to achieve our business growth in the face of a global semiconductor crisis. He's also been leading the effort to grow our consumables business through strengthening and collaborating with our supply chain partners. Dave will continue as a part-time employee through the end of the year, as we transition our component sourcing leadership to our new Chief Operating Officer, Adil Engineer, and our wafer pack and die pack technologies and business VP, Nick Sport. And with that, let me turn it over to Ken before we open it up for questions.