Aehr Test Systems

Hello and welcome to the Aehr Test System's fiscal 2023 third 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' third 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 Spink. 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 third quarter fiscal 2023 results. That release is available on the company's website at aehr.com. This call is also 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, I'd like to turn the call over to Gane Erickson, President and CEO.

Thanks, Jim. Good afternoon, everyone, and welcome to our third quarter fiscal 23 earnings call. Appreciate you guys joining us today. Let's start with a quick summary of the highlights of the quarter and the continued momentum we're seeing in the semiconductor wafer-level test and burn-in market. Then Ken will go over the financials in more detail. Then after that, we'll open up the lines to take your questions. Aehr had another great quarter in Q3 with revenue and net income ahead of consensus estimates. We finished the quarter with record bookings for a single quarter of $33.3 million and a strong backlog of $31.6 million at the end of the quarter. Our effective backlog, which includes all orders received since the end of the quarter or since March 1st, the beginning of the fourth quarter, are $41 million. Our total bookings for the fiscal year to date is already $72.5 million. Let me start with the increasing momentum we're seeing in wafer-level test and burn-in for silicon carbide. 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. The silicon carbide market for electric vehicles and its supporting infrastructure requirements are growing at a tremendous rate. 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 EVs in 2021 to more than 4.1 million six-inch equivalent wafers in 2030, representing a compound annual growth rate of 48.4%. This equates to almost 35 times larger in 2030 than in 2021. Also, six-inch equivalent silicon carbide wafers for other markets such as solar, industrial, and other electrification infrastructure are expected to grow to at least another 3 million wafers by 2030. This expands our silicon carbide test and burn-in market even more. During the quarter, our second major silicon carbide semiconductor customer moved from an initial Fox NP dual wafer test and burn-in system of ours used for engineering and device qualification to purchasing their first Fox XP systems to be used for production test and burn-in of their silicon carbide wafers. Last week, we announced a follow-on order from this customer for production quantities of our wafer-packed full wafer contactors, which will begin shipping this quarter to be used with these systems in production. We believe this customer, who serves several significant markets, including the electric vehicle industry as well as other industrial applications, will purchase a large number of our Fox XP systems to meet their publicly announced significant increase in plant capacity and revenue growth over the next several years and through the end of the decade. These systems include our new very high voltage channel module option, enabling high temperature reverse bias, or HTRB as it's known in the industry, testing of silicon carbide devices using our proprietary wafer pack contactors. which include patented anti-arking capability that is necessary to avoid high-voltage electrical arcing between devices or between devices in the streets on the wafer. This solves a key challenge with high-voltage wafer-level test and burn-in. These systems were also purchased with our new fully integrated and automated wafer pack aligners, which will begin shipping this fiscal quarter we're in right now. As I've noted before, adding automation to our FOX production systems through our new aligner gives our wafer-level test and burn-in offering even greater value and opens up several large incremental markets to air, such as high-volume processors and chipsets with integrated photonics transceivers, high-volume memory devices, and also high-volume, high-mix devices requiring extremely high reliability and 100% burn-in, such as automotive microcontrollers and sensors. We have the new automated wafer pack aligners here at our facility in Fremont going through customer benchmarks and completing system integration with our fully integrated Fox XP multi-wafer test and burn-in system so customers can come in and see the aligners in action. We also had several potential new customers come in to see the automated wafer pack aligners in operation. Our lead silicon carbide customer continued to ramp up their production and their use of our Fox XP production systems and wafer pack contactors. During the quarter, we received a $25 million order for a significant number of additional Fox XP wafer-level test and burn-in systems scheduled to ship over the next six to seven months to meet their increased capacity needs for producing silicon carbide devices for electric vehicles, chargers, and electrification infrastructure. Earlier this month, we also announced a $6.7 million follow-on order for wafer packs from them, representing about half of the total wafer pack for wafer contactors needed for these Fox XP systems. Each of these Fox XP systems has the capacity to test and burn in 18 full wafers of devices at a time. Now let me tell you about our benchmarks and engagements with prospective new customers. We also continue to make great progress with our previously announced benchmarks and engagements. We continue to work closely with one of the largest silicon carbide players in the world on a large wafer level benchmark and qualification. We're excited that this qualification continues towards success as the company finishes their internal processes to complete the qualification. As with our other large silicon carbide customers, we expect the silicon carbide supplier to require significant capacity of wafer-level test and burn-in systems to meet the fast-growing demand for silicon carbide devices and electric vehicles over the next decade. We understand that this has taken a long time but we're confident that this will result in success for both them and Aehr Test in using the Fox wafer-level systems and wafer packs for their volume production. We also had a very productive quarter in terms of new customer engagement, which has continued into this quarter and even multiple new potential customers visiting Aehr Test just this week. With essentially all COVID-related restrictions behind us throughout the world, our customer-facing meetings and our progress on new customer opportunities has grown substantially. Since last quarter's conference call, three additional companies currently making silicon carbide devices decided to move forward with full wafer-level evaluations and are directly to purchase our systems. We're seeing companies shift from long-term road maps to near-term execution of their product and production plans for silicon carbide devices and are internalizing the critical need for long wafer-level test and burn-in times. As such, some companies that we had only met with briefly in the past are coming to us with their wafer designs and asking for quick feasibility studies, quotations, and lead times. It's unbelievably exciting time in the silicon carbide industry and the markets that silicon carbide semiconductors are serving. In addition to our momentum in silicon carbide, we're now engaged with several gallium nitride semiconductor suppliers ranging from radio frequency or RF devices to power devices. Since our last call, we also received a firm commitment from a very large multinational semiconductor supplier to move forward with a full wafer level evaluation of gallium nitride devices. This evaluation includes our new high voltage option for doing the critical HTRB stress needed for gallium nitride MOSFETs and amplifiers. We believe gallium nitride will be a significant market driven by some very high volume applications such as RF amplifiers, consumer electronic power converters and chargers, solar power inverters, and charger and converter applications in both standard and electric vehicles. Feedback from companies has been that several of these applications will require production burn-in to meet the application's critical quality and reliability needs. With our proven Fox XP wafer-level burn-in solution and its cost-effective ability to test thousands of devices in parallel and up to nine wafers at a time with the high voltage capability option, we believe we are well-positioned to capitalize on this opportunity and believe gallium nitride can expand our total addressable market in a meaningful way. In just the last two months, I've personally met with over a dozen companies across Europe the US and Asia, and demand is extremely strong across the world. We've had questions about China since COVID restrictions have, quote, eased. From our perspective, the customer pull has been much greater for our solution outside of China so far. Having said that, we've recently seen activity pick up at several of the larger silicon carbide suppliers and electric vehicle producing companies in China. It's becoming clearer to them that wafer-level burn-in is critically important to remove the infant mortality or early failures of silicon carbide devices before they're put into modules and for certain before installing them into an inverter or drive unit or, heaven forbid, the electric vehicle itself. Each individual silicon carbide MOSFET, which acts as an electrical switch, has a failure rate of typically as much as 1% or more during the stress test burn-in conditions that correlate to the actual use and conditions and time that these devices are expected to endure or the life of the electric vehicle. This is referred to in the auto industry as the mission profile. This profile is equivalent to several hundred thousand driving miles and the time the electric vehicle would be running to drive that far, including idle time, etc., Semiconductor suppliers in critical applications such as silicon carbide MOSFETs that are used in the drive unit inverter of electric vehicles must not only prove to the auto suppliers, or OEMs as they're called, that their devices will last for the life of the mission profile, but they must also show how they will ensure production test screening to remove devices that will or are likely to fail. This is where production burning comes in. Our solutions can apply industry standard and or customers custom stress conditions such as high and low negative voltages at elevated temperatures to induce failures on weak devices without damaging good devices. We do this on every device, up to thousands of devices on a time on every wafer with 100% traceability. We then test up to 18 wafers at a time in a single pass on a single Fox XP system. This parallelism is literally unprecedented. No company has ever done this before Aehr Test, nor is anyone else doing this today. We have a significant number of patents that protect key technical features and functionality of this solution, and we believe any other company that tries to build something like our solution or any company using such a solution would be violating our intellectual property and patents. We maintain our patents across the world, including major semiconductor and automotive supplier hubs, such as the United States, Germany, Italy, Korea, Japan, Singapore, and even China. Our wafer parallelism and price point leads to an unprecedentedly low test cost for a whole wafer test and burn-in. At capital depreciation rates of less than $5 per hour per wafer, on a full wafer of silicon carbide MOSFETs to be used in electric vehicle inverters or chargers, our customers can cost-effectively apply a burn-in stress condition to weed out early life failures and to stabilize the threshold voltages of these devices for use in power modules for up to 24 hours or more without driving up their costs of the devices. And the yield improvement of removing the failure before they are put into the power modules actually lowers their overall manufacturing costs. Our FOX wafer level test and burn-in solution with our proprietary wafer pack full wafer contactors are a fantastic fit for the silicon photonic semiconductor market. And we're hearing this directly from customers and potential customers. Now let me move on to silicon photonic semiconductor burn-in and stabilization. As a reminder or to clarify those not familiar with silicon photonics, This is what the industry calls the devices where both electrical semiconductor integrated circuits are combined with photonics or light-based transmitters and receivers. The classic initial device was a device that integrated an optical transceiver with an integrated circuit into a fiber optic transceiver component. This technology was heralded as a way to massively increase the manufacturing capacity and to significantly lower the cost of fiber optic communication transmission in data centers and server farms. This was considered a major breakthrough and was key to long-term data bandwidths and to lower power data centers and has really only been proven over the last several years. The pandemic actually slowed down or even stopped the initial production ramps of customers of these devices, but is now picking back up as a viable and lower cost alternative to the higher cost discrete transceivers built over the last 20 years. We continue to be very enthusiastic about this market, especially as it looks to expand beyond just being used for fiber optic transceivers to becoming an embedded market that integrates the fiber optic technology into other devices such as chipsets and processors themselves. Multiple market leaders, including companies like Intel, AMD, Nvidia, and others, have publicly discussed their investments to integrate silicon photonics transceivers into their microprocessors, graphics processors, and chipsets. While we believe this transition is still several years out, we also believe it represents an enormous opportunity for Aehr Test with our unique position of having a proven and cost-effective multi-wafer solution for testing and burning in and stabilizing silicon photonics devices at a massive scale while still in the wafer form. We are currently today testing 150 millimeter, 200 millimeter, as well as 300 millimeter photonics-based wafers with our current Fox wafer-level tested burn-in systems at customers today. We also have provided customers with our Fox NP and XP systems using our dye packs for testing singulated dye and photonics modules. We're beginning to see the front end of this opportunity with the strong recovery of silicon photonics from the weakness we saw during the pandemic. Aehr currently has systems installed at over a half a dozen customers for 100% test and burn-in of silicon photonics devices used in 5G infrastructure, data and telecommunication transceivers, and a few additional applications yet to be introduced. As the market expands, we believe there'll be more business for both engineering and characterization qualification of devices up front, as well as for production wafer-level test and burn-in. Over the next several years, we believe silicon photonics will become a significant market for wafer-level test and burn-in and could become as large or larger than silicon carbide later in the decade. To conclude, we're very encouraged by the continued positive momentum and expanding growth opportunities we see with our current and prospective customers and continue to be very confident in the guidance we've shared for revenue of at least $60 to $70 million for our current fiscal year that ends May 31st. which represents growth of at least 18 to 30% year over year and revenue growth of between 35 and 75% in the second half of this fiscal year compared to the first half of the year. We also remain confident that our bookings will grow faster than revenue this fiscal year as the rampant demand for silicon carbide and electric vehicle increases, setting us up for strong momentum heading into our fiscal 22 that begins in June. Lastly, before I turn the call over to our CFO, Ken, I want to announce that after 15 years with Aehr Test, Ken has indicated his intention to retire from the company after finishing this fiscal year and after the fiscal year reporting period. Ken has been our CFO and VP of Finance since 2015 and has been an amazing contributor and a great partner to me during a key phase in Aehr's development and growth. Ken and I have discussed this and we feel this is actually a pretty good time for this. and it's a great time for a new CFO to come on board to help Aehr with the tremendous growth opportunity and plans ahead of us. Aehr has engaged a professional recruiting firm, and Ken is already providing help to the board and me to find an exceptional finance executive and will provide assistance and support when a candidate is identified. We're very confident that this change, when it happens, will be a seamless transition. With that, let me turn it over to you, Ken, and then we'll open it up for questions.