Aehr Test Systems

Good evening and welcome to the Aehr Test System's fiscal 2023 second 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 one on your telephone keypad. To withdraw from the question queue, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Jim Byers of MKR Investor Relations. Please go ahead.

Thank you, Operator. Good afternoon, and welcome to Aehr Test Systems' second quarter fiscal 2023 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 Spank. Before I turn the call over to Gayn and Ken, I'd like to cover a few quick items. This afternoon, right after market closed, Aehr Test issued a press release announcing its second quarter fiscal 2023 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 are 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, I'd like to turn the conference call over to Gane Erickson, President and Chief Executive Officer. Gane?

Thanks, Jim. Good afternoon, everyone, and welcome to our second quarter of fiscal 2023 earnings conference call. Thanks for joining us today. Let's start with a quick summary of the highlights of the quarter and the momentum we're seeing in the semiconductor wafer-level test and burn-in market, and then Ken will go over the financials in detail. After that, we'll open up the lines to take your questions. We had a very solid second quarter, reflecting strong sequential and year-over-year growth in our revenue and net income, both ahead of consensus estimates. Revenue for the quarter was $14.8 million, an increase of 39% sequentially and 54% year-over-year. and we generated non-GAAP net income of $4.5 million, slightly over 30% net profit. Our momentum in silicon carbide wafer-level test and burn-in continues to grow, and we see this momentum continuing for the next several years as companies are adding significant capacity in silicon carbide semiconductors to address the incredible forecasted demand, particularly for the electric vehicle and electric vehicle charger markets. Forecasts from William Blair estimate that the silicon carbide market for devices and electric vehicles alone, such as traction inverters and onboard chargers, is expected to grow from 119,000 six-inch equivalent silicon carbide wafers for electric vehicles in 2021 to more than 4.1 million six-inch equivalent wafers in 2030. This represents a compound annual growth rate of 48.4% This equates to almost 35 times larger in 2030 than in 2021. In addition, six inch equivalent silicon carbide wafers for other markets such as solar, industrial, and other electrification infrastructure are expected to grow to another 3 million wafers by 2030. This expands our silicon carbide test and burn-in market even more. We are excited to have added two new customers for silicon carbide test and burn-in during the quarter. The first is a major silicon carbide semiconductor supplier that purchased our FOX-NP dual wafer test and burn-in system used for engineering and device qualification during the quarter. And after the quarter closed, has since placed their first orders for two of our FOX-XP multi-wafer systems for volume production test and burn-in of the silicon carbide wafers, including the order we just announced today. This company is one of the world's largest suppliers of silicon carbide devices and serves several significant markets, including the electric vehicle industry, as well as other industrial applications. We now have two of the top four silicon carbide market participants as customers. They have indicated to us that they plan to order a significant number of Fox XP systems for volume production of their silicon carbide devices at facilities around the world to meet the rapidly expanding forecasted market demand for silicon carbide devices for electric vehicles and other industrial markets. This new customer selected our Fox XP multi-wafer test and burn-in system configured with our new fully integrated and automated wafer pack aligner for high volume hands-free operation. They have told us how important automation is to them across their wafer fabrication and assembly and test, and that in addition to the cost effectiveness and scalability of our system, our fully integrated Fox XP with automated wafer pack alignment and handling is key to meeting their automation needs that are critical to their scalability, as well as the quality and reliability goals of the customers and markets they serve. The Fox XP multi-wafer level test and burn-in system can be configured with up to nine or 18 wafers, depending on the customer's specific test requirements. It 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. Our automated wafer pack aligner adds a number of very valuable features to the wafer level test and burn-in process. This new Fox wafer pack aligner is available in both standalone and integrated versions. In the standalone version, customers can align the wafer packs offline from the Fox XP systems using our new Fox wafer pack carts that can be docked to the aligner. The aligner will automatically load the wafer packs with wafers or exchange tested wafers with untested wafers and can be used to support up to five or more fully loaded XP systems for an extremely low-cost application with long test and burn-in times. The integrated version of our new aligner docks directly to a Fox XP chamber that can test and burn in up to 18 wafers at a time. This can be preferable to customers for lower test and burn-in times, or in the case where the customer wants near hands-free operation. The new aligner can work with all types of wafer sizes, including the high volume runners of 150 millimeter and 200 millimeter used for silicon carbide, and can also test 100 millimeter silicon carbide or other wafers. It can also test 200 millimeter and 300 millimeter wafers, typical of silicon photonics devices, memories, and logic devices. We see automation more typically desired in 300 millimeter fabs such as silicon photonics and memory devices where automation is much more typical. The automated aligner also allows for unattended changeovers from one product type to the next and the ability to run multiple different product type wafers in parallel. Adding automation through our new aligner gives our wafer level test and burn-in offering even greater value as well as opens up several large incremental markets to air such as high volume processors and chipsets with integrated photonics transceivers, flash and ultimately DRAM memories, and also higher mix devices requiring extremely high reliability and 100% burn-in, such as automotive microcontrollers and sensors. The new second customer added this quarter is a multi-billion dollar annual revenue global manufacturer of semiconductors that serves multiple markets, including supplying devices to the automotive industry. This new customer already has experience in power semiconductors and quickly understood the value proposition of being able to test and burn in 100% of their devices at wafer level. In a fairly short period of time, they selected our Fox NP dual wafer test and burn-in system for qualification of their silicon carbide devices for multiple markets, including electric vehicles. We anticipate that this customer will move to high volume production using our Fox XP systems after their customer qualifications. Adding two new customers now provides more optimism about our ability to gain significant market share of the test and burn-in market for silicon carbide devices. These customers expand our penetration beyond our initial lead silicon carbide wafer-level burning customer. Regarding that lead customer, they continue to ramp their capacity and use of our Fox XP multi-wafer test and burn-in systems and wafer packs which is being driven by increased demand for silicon carbide, particularly for, but not limited to, electric vehicles. We expect significant orders from them for the necessary wafer pack full wafer contactors to match their previously purchased Fox XP systems, and they continue to forecast orders for significant numbers of new Fox XP systems and wafer pack contactors over the next several years to meet growing demand. In addition to the customers that have now placed initial orders with Aehr for silicon carbide wafer-level test and burn-in systems, our ongoing benchmarks and evaluations with multiple prospects made great progress during the quarter. These include significant market leaders in silicon carbide, as well as several smaller existing and up-and-coming suppliers. We expect several of these companies to place their initial orders with us before the end of this fiscal year ending May 31, 2023. We also continue to see very positive responses from our discussions with a number of new potential customers in silicon carbide this quarter, and have also begun detailed discussions with gallium nitride semiconductor suppliers from around the world. Silicon carbide devices and modules have key advantages for traction inverters and onboard and offboard charges for electric vehicles, as well as other high power industrial applications. While gallium nitride is generally believed to be superior for lower power applications, particularly under 1,000 watts. Both device types are forecasted to grow significantly over the next several years and into the future. Both silicon carbide and gallium nitride semiconductors address the high voltage power semiconductor markets that are significant opportunities for our FOX wafer level test and burn in systems and wafer packed full wafer contactors. As we look to further penetrate these markets, we continue to add new capabilities to our wafer level test and burn in systems. These include the new bipolar voltage channel module and very high voltage channel module options that enable silicon carbide and gallium nitride semiconductor manufacturers more flexibility to address a wider variety of stress and burning conditions for their engineering qualification and production needs. These advanced capabilities enable manufacturers to ship product with higher reliability and parametric stability necessitated by applications such as electric vehicle traction inverters, onboard chargers, and several other industrial and power conversion markets. With these new features, test and burn-in at wafer level ensures even better control of yield loss and improved product reliability. Many questions have come up on what does the addition of these two new silicon carbide customers mean. Both have a history in the automotive space, and one is currently a leading supplier of silicon carbide devices to this market. We announced our lead customer about three years ago, right before the pandemic started. Silicon carbide's massive ramp did not really start until the latter half of the pandemic as electric vehicles, chargers, and worldwide electrification of infrastructure really began to take off. Our lead customer did not place an order for their second system until the middle of 2021. If you aggregate the orders we've announced from them and the wafer pack contactors to support their orders, their choice of Aehr has meant roughly $75 million of business for Aehr already, and they publicly said they have plans to expand. So we're enjoying their success. The new customers can be equally significant. For the major supplier, silicon carbide customer, we first tested their wafers on our machines at Aehr, and then they purchased a Fox NP for engineering qualification three months ago and have since tested their wafers at their facility. Since then, they have already purchased two of our multi-wafer Fox XPs for production test and burn and other devices, including the order announced today, and they have told us they'll need a significant number of additional systems. This happened in a fraction of the time that it took to get to this point with our initial customer, As Aehr has now validated our wafer-level solution with multiple customers and their end customers, that our solution is very effective at screening out defects to automotive qualities. We believe this new customer can be as large as our lead customer. So while we only announce purchase orders as they come in, the fact that this customer is depending on Aehr for its production volumes going forward should give investors confidence that Aehr is right in the middle of this electric vehicle tsunami. The second new customer this last quarter is a very large player in discrete and power semiconductors today and is already qualified for automotive. Interestingly, this company has yet to announce their silicon carbide MOSFETs that they're already characterizing on our Fox wafer-level burn-in systems. We believe that most customers of our Fox wafer-level test and burn-in systems have the potential to be a significant revenue source for air, and this customer is no different. We've said in the past that we haven't seen any real competition in terms of cost effectiveness, footprint, and manufacturing capacity compared to our proprietary Fox wafer-level test and burn-in systems and wafer-packed full wafer contactors. We continue to engage with both current suppliers of silicon carbide devices as well as other new entrants into this market. The industry data suggests cagers of close to 50% over the rest of this decade as the electric vehicle and charging infrastructure markets develop. Solar and wind will also be part of this growing market. So naturally, you'd expect lots of new entrants. Some will succeed wildly. Some may make niche inroads. We want all of them to come to air for their test requirements. Our use case is compelling, since their customers, such as the automotive companies, require zero failures. Not one in 10,000 or one in 100,000, but no failures. So test and screening out early defects becomes very, very important to our customers and prospects. And from the level of interest we're seeing, we believe our message is getting through. We set out to be seen as the industry standard for wafer-level test and burn-in, a critical piece of the production process for several semiconductors and their target applications, including silicon carbide and silicon photonics. With the momentum we're seeing, we feel we have a very good chance to be recognized as that industry standard. and to gain significant market share worldwide. Now let me move on to silicon photonics. We're also seeing a strong recovery of our silicon photonics wafer level test in burn-in business after the weakness we saw during the pandemic. Halfway through this fiscal year, we've already shipped over $5 million in systems upgrades and wafer packs to silicon photonics customers. And that's over 300% of last year's fiscal year's first half revenue for silicon photonics. This jump in revenue is also spread across multiple customers, and much of it is for new product designs and qualifications that we feel will lead to production volumes. We have systems installed at over half a dozen customers testing silicon photonics devices used in 5G infrastructure, data and telecommunications transceivers, and a few yet-to-be-introduced applications that we're very excited about. With multiple market leaders announcing plans to integrate photonics transceivers into their microprocessors, graphics processors, and chipsets, we believe silicate photonics will become a significant market for wafer-level test and burn-in over the next several years. Looking ahead, we continue to be very encouraged by our discussions with current and prospect customers and the continued momentum and opportunities we are seeing. Europe has a large number of potential customers for power semiconductors, including both silicon carbide and gallium nitride. And the US East Coast has a number of companies that are already in or getting into silicon carbide, as well as companies that are making investments in silicon photonics. And we're also starting to see companies in Asia getting into the power semiconductor game. The lifting of COVID-related travel restrictions in Taiwan and Japan is really helping with our new customer engagements in those regions. With the significant increase in market demand we're seeing for our products and in our sales activities, we have been investing in building up our sales and support teams across the globe. During the quarter, we expanded our senior sales leadership with the addition of several proven executives that will manage our sales activities in Asia, Europe, and the East Coast of the United States. These are experienced semiconductor capital equipment sales veterans with significant expertise in test and direct relationships with our target customers. We're very happy with these additions and have already seen a positive impact from their efforts. In conclusion, we continue to believe that we will receive production orders from additional silicon carbide companies beyond our current customers and begin shipping systems to meet their production capacity by the end of our current fiscal year that ends May 31st, 2023. We expect a strong second half of this fiscal year and are maintaining our guidance for revenues of at least 60 to $70 million for our current fiscal year that ends May 31st, representing growth of at least 18% to 38% year over year, and also represents revenue growth of between 35% and 75% in the second half of the fiscal year compared to the first half of this year. Additionally, we continue to expect bookings to grow faster than revenues in fiscal 2023 as the rampant demand for silicon carbide and electric vehicles increases, and we build momentum going into fiscal 2024. With that, let me turn it over to Ken before we open up the line for questions.