Aehr Test Systems

Greetings and welcome to Aehr Test Systems' second quarter fiscal 2024 financial results call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Jim Byers of MKR Investor Relations. Jim, you may begin.

Thank you, operator. Good afternoon and welcome to Aehr Test Systems' second 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 Gane and Chris, I'd like to cover a few items this afternoon right after market close. Aehr Test issued a press release announcing its fiscal 2024 second quarter 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. Those factors that could cause actual 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 conference call over to Gane Erickson, President and Chief Executive Officer.

Thanks, Jim. Good afternoon, everyone, and welcome to our second quarter fiscal 24 earnings conference call. Thanks for joining us today. We'll 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. After that, we'll open up the lines to take your questions. We had another solid quarter with strong year-over-year growth in revenue and net income, both ahead of consensus estimates. Revenue for the quarter was $21.4 million, an increase of 45% year over year. And we generated non-GAAP net income of $6.7 million, slightly over 31% net profit. For the first half of the fiscal year, we grew revenue 65% over the same period last year. We continue to see increased demand for our wafer-level burden products and remain confident about the future demand for our unique technology solutions and the multiple market opportunities they address. In just the last 60 days, we've seen how the slowing of the growth rate of the electric vehicle market has had a negative impact on the timing of several current and new customer orders and capacity increases for silicon carbide devices used in them. For clarity, we do not see the silicon carbide market actually decreasing, only a slowing of the growth rate, and we've seen delays in both current customer and new customer purchase orders for production ramps to meet those electric vehicle demand compared to what we were expecting even within the last several weeks and days. I'll discuss more detail on our new customer engagements, but a very large customer that we've been engaged with on a significant automotive benchmark in particular has modified their timing for taking multiple production systems, which we feel most likely pushes them out of this fiscal year and is reflected in our lowered revenue forecast for this fiscal year. Recent announcements from some automotive semiconductor suppliers of slowing growth due to their customers' stockpiling parts suggest that the automotive semiconductor slowdown may be due in part to a temporary excess in inventory, but in addition to slowing sales of automobiles worldwide related to overall caution by automotive buyers due to increased interest rates and its impact on new auto sales. Multiple companies we're engaged with are large suppliers of automotive semiconductors, and they have put in place temporary cost control measures that have trickled down to even silicon carbide plans, which we have heard are the area least impacted due to the expected growth that is forecasted by their customers. As a result, we've seen delays in customer ramps and capacity expansion plans, which has resulted in delays in expected existing and new customer orders for our products. We're also experiencing the impact of shifts in our customers' product mix, which specifically includes an increase in wafer contactors for our largest customer. As our customers shift from one design to another, they will order additional wafer packs from us to be able to test and burn in those wafers. In the case of a large shift in the customer mix, this can be a very large number of wafer packs. Our largest customers' overall forecast for revenue with us has actually remained relatively flat for the year, but the revenue mix has shifted to fewer systems and more wafer packs. Given the latest forecast from our customers and uncertainty on the timing of their orders, we believe it makes sense to take a more conservative approach to our fiscal year forecast and have reduced our growth estimates for fiscal 24 revenue. We're reducing our revenue expectations of at least $100 million this fiscal year by 15% to 25% to a range of $75 million to $85 million in revenue. This is still a growth rate of 15% to 30% year over year. Despite this uncertainty and timing of orders, we remain confident about the future demand of our unique semiconductor test solutions in the markets they address. We have not reduced our growth expectations for the years ahead, where we continue to see tremendous opportunity. We continue to hear from our current customers as well as companies we're engaged in evaluations with that wafer-level burn-in is critical to their product roadmaps to address multiple large and growing markets, including battery and hybrid electric vehicles, industrial and solar power conversion, data and telecommunications infrastructure, and the new and coming optical I.O. and co-packaged optics semiconductor markets. Well, let me discuss our progress with silicon carbide and gallium nitride power semiconductor customers. As a reminder, silicon carbide is a compound semiconductor that has thermal conductivity that's three times better than that of silicon, and the dielectric breakdown strength of SICK is around 10 times better than silicon, making this much better for high-voltage, high-power applications. Silicon carbide has become the semiconductor of choice for use in electric vehicle power conversion, and chargers, and in particular, it is a key differentiator in the motor traction inverter due to the longer range and faster charging than electric vehicles using silicon carbide C. Silicon carbide semiconductor devices have a very high relative early life failure rate compared to pure silicon, but these failures can be weeded out with special electrical and thermal stresses referred to as burn-in, such as those supplied by Ayers family of Fox wafer-level test and burn-in systems, and our proprietary wafer pack full wafer contactors. Our wafer packs make electrical contact to the tiny electrical pads of the semiconductors while still in wafer form and are unique and specific to each customer device and wafer layout. Customers are moving from package or module form of burn-in to save on the yield loss of the packages, in particular for multi-die modules used in the new electric vehicles. Aehr has a unique solution for being able to test thousands of silicon carbide devices at a time on a single wafer and also up to 18 wafers at a time so that our customers can remove extrinsic failures to get the quality and reliability critical to the electric vehicle suppliers in an extremely cost-effective way. We can do this testing and burn-in while ensuring that every single device is proven to be burned in before they're shipped to the end customer. This cost effectiveness and assurance that 100% of the devices are burned in is critical to this market. Last month, we announced our first order for a Fox wafer-level test and burn-in system to be used for gallium nitride devices. This customer is a leading global supplier of semiconductor devices used in electric vehicles and power infrastructure and adds another major customer to the list of companies using AehrS Fox products for wafer-level test and burn-in of wide bandgap compound semiconductors. We were already able to ship this system within a few weeks to them to meet their needs. We're now working with two of the market leaders in gallium nitride, which positions us front and center in a market that we believe is another potential growth driver for our wafer-level solutions. Gallium nitride is similar to silicon carbide in that both of these compound semiconductors are considered wideband semiconductors that are more efficient in higher voltage power conversion applications than pure silicon semiconductors. We believe the gallium nitride market is another potential 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. We continue to make great progress with our previously announced benchmarks and engagements with prospective new customers, including the significant automotive qualification of wafer-level burn-in we've been doing with one of the market leaders in silicon carbide. We believe we have a large opportunity with this potential new customer and feel confident they will move forward with our Fox XP multi-wafer solution for their high-volume needs, but the timing is taking longer than anticipated. We remain confident that we'll receive initial purchase orders from them in fiscal 24. However, it's not clear whether they will have the infrastructure ready to take shipments from us within our fiscal year that ends May 31st. We've made significant progress in expanding our customer base for silicon carbide, or SICK, and gallium nitride, or GAN, wafer-level burn-in for a wide variety of applications. We currently have a total of seven customers purchasing our solutions for SICK and GAN devices and are also actively engaged with more than two dozen SICK and GAN companies to address their needs for wafer-level test and burn-in of these devices. Importantly, 10 of these additional companies have already engaged with Aehr for on wafer benchmarks. We have never lost a full wafer level burn-in evaluation since introducing our FOX NP and XP systems configured with silicon carbide and gallium nitride test resources. And we believe we will have over 12 silicon carbide slash gallium nitride customers buying our wafer level test and burn-in solutions by the end of this calendar year 2024. These companies are projecting revenue growth and the need for burning in their devices at the wafer level to weed out the early failures that would otherwise show up in their devices or modules, or worse, in their customers' applications. We firmly believe that Aehr provides the most competitive solution to burn-in devices that will be used in power modules, and have shown examples where a cost of test and burn-in is significantly cheaper to do in wafer form than in the historical packaged part form. Package part burn-in is an option for discrete devices in individual packages, but the yield hit placing multiple devices in a single package or in modules exceeds the cost of test significantly. For example, at a loss of 1% per die during burn-in, a module containing 32 die experience a 32% yield loss of the entire module, and all the die inside are thrown away if they're burnt in at that module level. This is a real-life example that we have seen across every customer we've talked to. In anticipation of both our current and new customers' forecasted needs, Aehr has put in place the inventory, infrastructure, and processes to increase our manufacturing and installation capacity, as well as significantly lower our lead times to meet growth in our customer capacity needs. This allows us to ship a large number of systems and wafer packs within the same quarter that we receive purchase orders, which is certainly the case in this current fiscal year. While we've seen delays in orders from our automotive customers, we're actually seeing a pickup in opportunities for silicon carbide wafer-level burn-in for applications outside of the electric vehicle market, which includes the industrial, solar, and commuter electric trains, as the efficiency and value of silicon carbide is being recognized for these additional markets. Even though the largest market opportunity for silicon carbide is still electric vehicles and charging infrastructure, industrial and other power conversion market segments represent significant additional opportunities for silicon carbide for AehrS products. William Blair forecast that the total silicon carbide market is growing at a CAGR of greater than 4% annually to $8.5 billion in 2025, and over 25% of that will be in industrial and energy power conversion applications. As we noted on last quarter's call, we're also seeing a continued stream of new designs for our wafer packs as more and more electric vehicles are coming online with their own specific device designs for inverters and onboard chargers. Our proprietary wafer pack contactors are needed with our FOX wafer level test and burn 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 will eventually secure 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 needed for those new devices. Last quarter, we mentioned that our new wafer pack and applications test program design volume has tripled over the past previous nine months, and this quarter will be a new company record for new wafer pack designs for customers. Each design can turn into a high-volume production application, driving tens or even hundreds of wafer packs needed for production, highlighting the recurring revenue part of our business. We believe that for the semiconductor test markets we serve, our customers desire, if not require, short lead times for test and burn-in systems, and particularly for the wafer packs used with them. During this fiscal year, we've been able to increase our manufacturing capacity to enable us to ship up to 50 or more FOX test blades per month, representing 50 or more wafers of full wafer test and burning capacity each month. We have the supply chain infrastructure and process in place to increase this another 50% by the end of this fiscal year and heading into our fiscal 2025 that begins June 1st. We've increased our wafer pack capacity to not only support wafer packs for new systems, but also for our installed base or systems so that customers can purchase and ship large quantities of wafer packs within a few months. We believe the added inventory, increase in capacity, shorter lead times are creating an even larger competitive advantage for us, which in turn will result in continued market share expansion and growth in the markets we serve. So let me move on and talk a little bit about Silicon Photonics. We remain 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. These next-generation silicon photonics-based integrated circuits can require up to two to four times as much power for full wafer test and burn and then stabilization. And our new high-power configuration or FOX production system which can be used to test and burn in these new optical IO devices, expands the market opportunity of the Fox XP system even further. We've been making good progress on our new volume production Fox XP system for these very high power silicon photonics device wafers and expect to ship this system by the end of our current fiscal third quarter to fulfill our first order from our current major silicon photonics customer that we received last May. The system is configured to enable cost-effective production test of up to 3,500 watts of power per wafer and up to nine full wafers in parallel, and also includes our latest chamber configuration, which has a smaller overall footprint. This new system is also auto-aligner ready, enabling our customers to easily dock this to our new Fox wafer pack auto-aligner for hands-free operation of wafers from 6 to 12 inches using industry standard wafer cassettes and FOOPS. This new Fox XP configuration allows for the testing as many as 8,000 high-power optical devices in parallel on each of nine wafers before they're singulated and placed into a photonic application, such as fiber optic transceiver modules, or for placement and co-package optics for optical chip-to-chip communication devices, such as those that have been announced on product roadmaps by companies including NVIDIA, Intel, AMD, TSMC, and Global Foundries. These photonic ICs require an extra step in their manufacturing process, referred to as stabilization or aging, where the devices experience a varying degradation and then stabilize of their optical output power as a function of the input power. This is critical to stabilize before integration into a transceiver or optical chip-to-chip communication package. This process step takes many hours or even more than 24 hours for the stabilization and and is critical to do before the dye is integrated into the system. Aehr provides a unique solution for doing the stabilization of all devices while still in relatively easy and repeatable wafer form. One key challenge is doing this in massive parallelism up to and including all the devices in the single wafer is the power and power density of testing the devices in this form. The stabilization requires very high power, and this not only requires a test system to deliver the high power to the wafer, but all the power to the wafer must be removed in the form of heat to keep it from literally destroying the devices. Aehr can not only provide precise, regulated, and calibrated voltage and current to the devices on the wafer, up to 3,500 watts per wafer and nine wafers at a time, but we can also remove this power while we're maintaining a uniform temperature across all the wafers. At this time, we believe we're the only company both providing and removing this much power to silicon photonics wafers and are also doing it up to nine wafers at a time. This is a key differentiator in what we believe is an enabler for the capacity and scale needed to address the high-power photonic integrated circuits used in very high-speed optical transceivers and also the up-and-coming optical chip-to-chip communication devices market. As I noted in our last call, Aehr currently has six customers using our system's production test of silicon photonics devices. We're watching this market very closely and are working with some of the leaders in silicon photonics to ensure that they have the products and solutions available to meet their needs for this potentially significant market application. Let me conclude. We expect continued strong demand for our wafer-level burn-in solutions, giving the continued growth forecast for the markets they address and the expanded market opportunities we're seeing. While we've reduced our growth estimates for fiscal 24 revenue, given the uncertainty on the timing of customer orders, We believe we remain well positioned to capitalize on the incredible growth of this industry and are poised for continued solid growth for years to come. With that, let me turn it over to Chris, and then we'll open up the line for questions.