Aehr Test Systems

Good afternoon, and welcome to the Aehr Test Systems Fiscal 2024 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 one on your telephone keypad. 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 Jim Byers of MKR Investor Relations. Please go ahead.

Excuse me. Thank you, operator. Good afternoon, and welcome to Aehr Test Systems' first quarter fiscal 2024 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 Chris Hsu. Before I turn the call over to Gayn and Chris, I'd like to cover a few quick items. This afternoon, right after market close, Aehr Test issued a press release announcing its fiscal 2024 first quarter financial 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 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 could cause actual results to differ materially from 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 undertakes no obligation to update the forward-looking statements. And now I'd like to turn the conference call over to Gane Erickson, President and CEO.

Thanks, Jim. Good afternoon, everyone, and welcome to the first quarter fiscal 2024 earnings conference call. Thanks for joining us today. Let's start with a quick summary of the highlights of the quarter and the continued momentum we're experiencing in the semiconductor wafer-level test and burn-in markets. Then Chris will go over the financials in more detail. And after that, we'll open up the lines to take your questions. We finished the first quarter with solid revenue of $20.6 million and non-GAAP net income of $5.2 million, the strongest first quarter in our history, which has historically been our seasonally softest quarter. With this, we're off to a very good start to our fiscal year, and we're reaffirming our expectation to grow fiscal full-year revenue by at least 50 percent to over $100 million and profit by over 90 percent year-over-year growth to at least $28 million. During the quarter, we had record shipments of our FOX wafer pack contactors in both revenue and units, with revenues reaching well over 50% of total revenues for the quarter. We're also very pleased with the continued stream of new designs for wafer packs we're seeing. Our new design volume has tripled over the last nine months as we're seeing more and more electric vehicles coming online with their own specific device designs for inverters and onboard chargers. As a result, our customers are buying additional wafer pack contactors for these new designs, highlighting the recurring revenue part of our business. As we've noted before, our proprietary wafer pack contactors are needed with our FOX wafer-level test and burn-in systems to contact with the individual dye on the wafer and are designed specifically for a given device. As our customers win new designs from their customers, Aehr eventually secures orders for new wafer packs to fulfill these new wins. With each new design, our customers will need enough new wafer packs to meet the volume production capacity need for those new devices. With the increase in wafer pack designs, we've been adding resources in both our U.S. and Philippines operations to expand our already successful application and support team there. We're also continuing to add capability and capacity in the Philippines to meet the support needs of our growing install base in Asia. Another key highlight is that we've now received customer acceptance of both configurations of our new fully automated Fox wafer pack aligner, which allows hands-free operation of wafer pack handling and alignment, and it's available either as a standalone unit or fully integrated with our Fox XP multi-wafer systems. We recognized revenue for the standalone wafer pack aligners in the first quarter, and after the close of the quarter, we received customer acceptance and sign-off of the aligners integrated with our Fox XP systems. The integrated aligners are integrated with Fox XP systems equipped with two key test system enhancements introduced over the last year. These Fox XPs include our new bipolar voltage channel module option for both positive and negative gate bias stress and burn-in, as well as our very high voltage channel module option. The VHP channel module option, which together with our proprietary wafer packs and new inert gas control option for the Fox XP, enable high-temperature reverse bias testing up to 2,000 volts at wafer level for silicon carbide and gallium nitride high-voltage semiconductors that are used in power converter applications such as electric vehicle traction inverters and onboard chargers. Acceptance and production release of these Fox XPs with the integrated aligners and the associated revenue recognition provide a solid start to our second quarter revenue and pave the path for revenue recognition immediately upon all future shipments of these products to this customer and forecasted shipments to additional customers this fiscal year. So let me talk a little bit about our new customers. We're excited to have announced last month yet another new customer in silicon carbide. This is our sixth customer for silicon carbide wafer-level burn-in. This new customer is a U.S.-based multibillion-dollar semiconductor supplier that serves several markets, including automotive, computing, consumer, energy, industrial, and medical markets. After conducting a detailed financial evaluation of Aehr and Aehr's Fox family of products, including multiple on-site visits to Aehr's application lab, this new customer purchased an initial Fox NP system, wafer pack aligner, and multiple wafer packs for engineering qualification and small lot production of their silicon carbide power devices. This system is also configured with our new bipolar voltage and very high voltage options that enable new advanced test and burning capabilities for silicon carbide power semiconductors. This customer has indicated that as their production capacity increases, they intend to quickly move to our Fox XP multi-wafer test and burn-in systems for high-volume production. In addition to the automotive electric vehicle device market opportunity, this customer is also focusing on the enormous opportunity for silicon carbide power devices in industrial, solar, and other power applications. Including this newest customer, the last two announced customers have selected our systems primarily for applications other than electric vehicles, which include industrial, solar, and commuter electric trains. This further extends our application space beyond the enormous opportunity we see in silicon carbide for electric vehicle traction inverters and onboard and offboard chargers. These additional applications expand our market opportunity beyond the 4.5 million 6-inch equivalent silicon carbide wafers that William Blair forecasts will be needed per year by 2030 just for electric vehicles. These new applications are driving an additional 2.8 million six-inch equivalent wafers annually by 2030 to address industrial, solar, electric trains, energy conversion, and other applications. It's also interesting to note that these last two customers did not need to see their wafers tested on our system before they moved forward to purchase from us. This need for testing before purchase was essentially a requirement with our early customer engagements, but it's clear that many of our potential new customers have become much more comfortable moving forward with Aehr simply on our assurances that our solution will perform as committed. This allows the customers to accelerate their time to market. Having said that, we're happy to engage with customers either way. If they want to see their wafers tested first, we're happy to work with them. We have yet to lose a prospective customer after demonstrating our test and burn-in capabilities on their wafers. In fact, we've never lost a head-to-head evaluation to a competitive product since introducing our FOX NP and XP configured with the silicon carbide and gallium nitride test resources. So let me move on to our pipeline of prospective new customers for silicon carbide wafer-level burn-in. In the last few weeks, we've attended two international conferences in Europe, and I personally met with more than a dozen companies in the silicon carbide market that are not currently using our solutions. We also met with all six of our current silicon carbide customers. These face-to-face meetings included multiple meetings with one of the market leaders in silicon carbide that we've been doing a significant automotive qualification of wafer-level burn-in for well over two years. Candidly, this is the longest and most extensive sales and benchmarking process I've ever experienced in my entire 30-plus year career. The good news is that we've made even more progress in the last few months, with a very large number of wafers being run at our facility, followed by multiple meetings to review the data. Based on everything we've heard, our data, cost of ownership, products, including our new fully automated wafer pack aligner, particularly in the integrated configuration, They're all meeting their needs. We continue to feel confident that this customer will move forward with us using the Fox XP multi-wafer solution for their high-volume needs, including initial purchase orders and system shipments this fiscal year. Our meetings also included face-to-face meetings with potential new silicon carbide companies who have now told us that they intend to place their first purchase orders with us over the next several months, including some that want us to ship systems, wafer packs, and aligners to them this fiscal year. In the next few weeks, we'll also be meeting with a significant number of potential new customers as well as end users of silicon carbide devices in Asia as we're seeing increasing activities and opportunities heating up there. I can tell you it's a very exciting time in the silicon carbide and the electric vehicle markets right now, and we've never been busier. Let me add some further color on the silicon carbide market opportunity. A recent report from UBS forecast that the total silicon carbide market will be close to $8 billion in 2025, and over 30% of that total will be industrial applications. While the primary opportunity is still serving the electric vehicle automotive market, the industrial segment represents a material amount of dollars and a significant market opportunity. The report also focuses on the progression of electric vehicle batteries from 400 volts to 800 volts, which is the level generally recognized by the industry at which silicon carbide is mandatory to get the range and recharging speed consumers are demanding. devices used in the traction inverters for 800-volt DC battery systems actually operate up to almost 1,200 volts AC. At this voltage, the devices will experience electrical arcing when tested at 1,200 volts under normal testing environments, which creates a very real problem for conventional testers on wafer probers and probe cards. At such high voltages, the 1,200-volt bias to the device will actually create an electrical arc through the air or on a wafer, even if surrounded by 100% nitrogen. This is basically how a spark plug works. However, this spark actually damages the devices permanently. Aehr's proprietary wafer packs have individual chambers that encapsulate each wafer and allow us to control the temperature, gas makeup, and pressure within this chamber on each wafer. Our proprietary gas and pressure control option allows us to test and burn in an entire wafer up to 2,000 volts without arcing or damaging the wafer. By contrast, other competitive systems using standard wafer progress see arcing in as little as 900 volts, which makes it impossible to do high voltage reverse bias test and burn in at the wafer level for devices aimed at these new 800 volt battery vehicles. Per UBS, in 2023, 91% of the batteries sold in electric vehicles are forecasted to be 400 volts, and only 9% are 800 volts. But by 2026, UBS expects the percentage of 800-volt battery cars to be above 30%, which is why it appears so many silicon carbide suppliers are timing their major ramps to be in the 2025 to 2026 timeframe. So in the next couple years, we expect air to benefit from both an increased number of electric vehicles being sold as well as a significant increase in silicon carbide needed for needing our solution for those electric vehicles. We're also in extensive engagements with multiple gallium nitride suppliers. Gallium nitride is similar to silicon carbide in that both of these semiconductor compounds are considered wide bandgap semiconductors. that are able to withstand high voltage applications more directly than silicon. Gallium nitride semiconductor material has characteristics that make it optimal for lower power converter applications, such as consumer power converters, solar microinverters, and industrial motor controllers, as compared with silicon carbide that is optimal for higher power, higher voltage applications, such as traction inverters in electric vehicles, trucks, trains, and converters used in charging infrastructure and storage. One of our prospective Gallium Nitride customers is also a company that we've been doing automotive qualification work for their silicon carbide devices. They became very interested when we introduced them to the new higher voltage options, including the bipolar voltage for gate stress and the very high voltage for drain stress capability. They really love that we offer both a low-cost, small-footprint Fox NP for their engineering and new product introduction needs, but also a fully compatible Fox XP system for high-volume production, including a hands-free integrated wafer pack aligner. Interestingly, in this case, the Gallium Nitride Group at this company evaluated our system and has decided to move forward with us faster than the silicon carbide group that we've been working with for nearly three years. Stay tuned for more announcements on this in the near future. We're also engaged with another large gallium nitride supplier that is already a major supplier of IGBT in silicon carbide devices and has decided to move forward with an on-site evaluation. We've agreed to place a FOX NP system on their floor for a defined period of time, and they've already ordered multiple wafer packs that are not contingent on any evaluation terms for acceptance. We're very excited about this prospect as well as the opportunity to showcase our capabilities to the GAN team with the silicon carbide team watching closely. This company, which is one of the largest automotive semiconductor suppliers in the world, could very likely be one of the largest, if not the largest, gallium nitride semisupplier in the world. The gallium nitride market is another potentially significant growth driver for our wafer-level solutions, particularly for automotive and photovoltaic applications, where burn-in appears to be critical for meeting the initial quality and reliability needs of those markets. Many forecasters believe that the gallium nitride device market will be larger than silicon carbide due to its much larger application space in terms of power chargers for everyday use, data centers, solar, and industrial applications. While we're not yet certain how big this market could be for AehrS wafer-level test and burn-in systems, we will be working with several key players in the space this year to form a better determination. While we do expect to recognize some revenue for systems, wafer packs, and aligners for gallium nitride applications this fiscal year, we continue to expect the significant majority of our revenue come from silicon carbide. Now let me move it on to silicon photonics wafer level and singulated die slash module burn-in market. We continue to be very enthusiastic about this market, which includes the current photonics transceiver market used in data and telecommunications and the upcoming application of silicon photonics integrated circuits for use in optical chip-to-chip communication, which we see as a major market opportunity. As we discussed on our previous call, we received our first order last May from a current major silicon photonics customer for a new volume production Fox XP multi-wafer test and burn-in system for use for their very high-power silicon photonics device wafers. This system is configured to enable cost-effective production tests of up to nine full wafers in parallel and up to 3,500 watts of power per wafer. The original application for this system was silicon photonics devices for fiber optic transceivers used in data centers and data and telecommunication networks. There's now been discussion about using this system for multi-chip modules embedded with processors for chip-to-chip optical communication. This customer is one of the world's largest semiconductor manufacturers and we expect to receive orders for additional production systems as they increase production of these devices. While we believe it will likely be several years before we see significant revenue generated from this optical chip-to-chip communications market, this order from our lead Silicon Photonics customer and their request for an accelerated shipping date is encouraging and provides some data to suggest that this market opportunity could happen sooner. Our FOX wafer-level test and burn-in solution with our proprietary wafer pack full wafer contactors are a great fit for the Silicon Photonics semiconductor market. These next-generation silicon photonics-based integrated circuits can require up to two to four times as much power for full wafer test burn-in and stabilization. And our FOX new production system configuration, which can be used to test and burn in these new optical I.O. devices, expands the market opportunity of the FOX XP system even further. The power and functionality of lasers used to transmit data are critically important to the performance of the communication channel, and Aehr solutions not only weed out early life failures, but also improve the performance of the device through what the photonics industry refers to as stabilization. During the first day or two of normal operation, the laser output characteristics change in an exponentially decaying manner and must be stabilized until the decaying stops before the final product can be tuned to meet its performance specification. Aehr can do this across an entire wafer of fully integrated photonics integrated circuits with embedded or attached laser emitters. These fully integrated circuits with lasers are reportedly the highest performance and level of integration possible, which is optimal for integrating into a package along with a microprocessor, graphics processor, or artificial intelligence processor for optical chip-to-chip communication. Aehr currently has six customers using our systems for production test of silicon photonics devices. Five use our NP and XP systems for wafer-level test and burn-in, and one uses both NP's and XP systems for engineering and production burn-in of individual singulated dye and modules using our proprietary dye packs. We're watching this market very closely and are working with some of the leaders in silicon photonics to ensure that we have the products and solutions available to meet their needs for this potentially significant market application. To conclude, we're encouraged by the continued positive momentum we're seeing for silicon carbide in electric vehicles and also very excited about the expanding growth opportunities we're seeing in several additional markets with current and prospective customers. For the fiscal year ending May 31, 2024, we're reiterating our previously provided guidance for total revenue to be at least $100 million, representing growth of over 50% year-over-year, and GAAP net income of at least $28 million, representing earnings growth of greater than 90% year-over-year. We look forward to updating you on our progress throughout the fiscal year. Now, with that, let me turn it over to Chris before we open up the line for questions.