Aehr Test Systems

Greetings. Welcome to the Aehr Test System's fiscal 2024 fourth quarter and full year 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 at MKR Investor Relations. You may begin.

Thank you, Operator. Good afternoon and welcome to Aehr Test Systems' fiscal 2024 fourth quarter and full year 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 Tiu. Before I turn the call over to Gane and Chris, I'd like to cover a few items. This afternoon, right after market closed, Aehr Test issued a press release announcing its fiscal 2024 fourth quarter and full year results. That release is available on the company's website at aehr.com. There were two other announcements issued today, and those are also posted to the company's website. 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 factors 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 in air test systems undertakes no obligation to update the forward-looking statements. And now with that said, I'd like to turn the conference call over to Gayn Erickson, President and CEO. Gayn?

Thanks, Jim. Good afternoon, everyone, and welcome to our fiscal 24 fourth quarter and full-year earnings conference call. Thanks for joining us today. I'll start with a quick summary of the highlights of the fiscal fourth quarter and full year we just completed in May, and spend some time giving an update on the key markets areas addressing for semiconductor wafer-level test and burn-in, including some new emerging opportunities. I also want to go over the exciting news we announced today with the acquisition of InCal Technology, which has some incredible products addressing the ultra high power semiconductor market, including a significant number of AI processor makers. Then Chris will go over the financials in more detail and provide our guidance for the new fiscal year. After that, we'll open up the lines to take your questions. Starting with our financial results, as we reported in our pre-announcement last week, our full-year revenue and net income results exceeded our previously provided guidance and surpassed analysts' consensus. Although we saw customer push-outs to silicon carbide devices due to slower electric vehicle demand in the second half of our fiscal year, we still achieved another record for annual revenue for error of $66.2 million. On the bottom line, GAAP net income was $33.2 million, or $1.12 per share, which includes a tax benefit resulting from the release of the company's full-income tax valuation allowance of approximately $20.8 million recognized in the fourth quarter. Chris will talk more about that. This past year, wafer-level testing and burning of silicon carbide power semiconductors used in electric vehicles or EVs were a key driver of our business, and we anticipate that market will continue to be a key contributor to revenue in the current fiscal year. We're also seeing traction with several emerging opportunities for our test and burn-in solutions in new target markets and expect bookings and revenue across a much broader range of customers and markets this fiscal year. These new target markets include quality, reliability, and production test and burn-in of artificial intelligence processors, wafer-level burn-in of flash memory devices used in solid-state disk drives, burn-in of semiconductors used in hard disk drive magnetic rewrite heads, wafer-level burn-in of gallium nitride power semiconductors used in data centers and solar power conversion, and stabilization and burn-in of silicon photonics integrated circuits used for optical I-O communication between chipsets and processors. I'll cover at least a little on each of these key markets, beginning with wafer-level test and burn-in of silicon carbide devices. We continue to have a high level of confidence in this market, which remains an enormous opportunity for Aehr. While most forecasters are saying that the inflection point for silicon carbide and electric vehicles is now the second half of 2025 into 2026, from our many meetings with semisuppliers, tier ones, and electric car companies themselves, it's even more clear now that silicon carbide is the plan of record for electric vehicles and preferred over IGBT. Virtually every car manufacturer is designing new electric vehicles with silicon carbide modules. which absolutely need reliability testing burn-in to screen out failures that otherwise will show up in the life of the vehicle. Burn-in of the dye at the wafer level before they're put into modules is significantly more cost-effective with much higher yield than doing this at the module level. We believe we're in a strong position to win more than our fair share of this business as we believe we have the industry-leading wafer-level burn-in solution. This past year, we engaged with a significant number of new silicon carbide device and module suppliers related to their anticipated capacity needs, and we remain engaged with these and all major players in the market, including many in China. We continue to make great progress with our previously announced benchmarks and engagements and believe these potential customers are committed to wafer-level burn-in to meet their requirements for known good dye for dye sales and for their power modules. The silicon carbide market continues to be an enormous opportunity for us, and we're seeing more and more auto suppliers that are committed to silicon carbide in their EVs, as well as roadmaps that are based on modules for their electric motor power inverters. We're also seeing growing demand for silicon carbide devices beyond the EV market, such as solar, data center, and other industrial applications for power conversions. We remain very enthusiastic and believe we're well positioned to continue to grow our business in silicon carbide and expect to receive first orders from a significant number of additional silicon carbide customers by the end of this fiscal year. Today, we announced that we received over 12 or $12.7 million in orders from one of our silicon carbide customers for wafer pack full wafer contactors to be used for production needs for wafer-level burn-in and screening of the silicon carbide devices for the EV market. We're excited about our continued partnership with this customer and to receive these orders to help them meet their needs for new device designs. As these orders illustrate, when our customers win new designs from their customers, or they change device designs, wafer patterns, or sizes, these customers need to order new wafer pack contactors from Aehr to fulfill these design changes. This consumable type of revenue grew in fiscal 2024 for us, representing 57% of total revenue as systems orders growth slowed, but new designs and variety of devices increased, causing incremental wafer pack sales on the install base. As we look ahead, we believe that silicon carbide remains a very large market opportunity for error as more and more EV manufacturers adopt silicon carbide, and we believe we're well-positioned to continue to capture market share. We expect to add a significant number of silicon carbide customers both this fiscal year and the next fiscal year as silicon carbide ramps in the second half of 2025 and into 2026. Now let me talk about the AI processor market. Last month, we announced we're working with an AI accelerator company to move their AI processor test and burn-in to wafer level and have secured a commitment from them to evaluate our Fox solution for production level test and burn-in of their high power processors. This company recognizes the potential of the significant benefits of production test and burn-in of their accelerators while still in wafer form before they're integrated into the end application product. which would prove to be more cost effective and significantly more scalable than doing the screening later in their manufacturing process. We think this is an amazing opportunity to displace the current package and system level tests for AI processors for large language model development, and we believe we can meet this enormous challenge with the current capabilities of our new high-power Fox XP system with up to 3,500 watts per wafer testing. We're working on this benchmark as I speak here in the lab right now and expect to complete the evaluation in the next couple of months. Upon successful demonstration of wafer-level test results and throughput, we expect they will utilize our new high-power Fox XP systems for production of their next-generation AI processors starting this fiscal year. The rapidly growing AI market is still in the early stages. And we see a significant opportunity in this market for our Fox wafer-level production systems, as I just discussed. However, in addition, given the unique challenges of testing very high-power devices related to AI processors, there's a very real need for a significant amount of engineering qualification and process development, as well as a significant new opportunity for production reliability screening at the package part level. AI semiconductors are amongst the highest power consumption devices in the entire semiconductor industry, with power levels of recent devices up to 1,000 watts or more, well beyond typical processors. These power levels open a new market that requires new, unique test solutions. I'm personally very excited and proud to announce today our acquisition plans for InCal Technology, a manufacturer of highly acclaimed, reliably tested burning solutions of a wide range of semiconductor devices and markets. They have a particularly strong new product family of ultra high power test solutions for AI accelerators, graphics and network processors, and high performance computing processors. Their ultra high power package part test capabilities, combined with Aehr's industry leading lineup of wafer level test and reliability solutions, uniquely position us to fully capitalize on the rapidly growing opportunity within the AI semiconductor market as a turnkey provider of reliability and test that spans from engineering to high volume production. InCal is in a unique position with intimate knowledge and working relationships with a significant number of AI industry leaders, providing a front row seat to the technology needs of those customers. They're shipping systems today for use by a broad range of companies, with many of these companies projecting needs to move to high volume production level burden of these devices. Both Aehr and NCAL believe there's a tremendous opportunity to grow this business substantially. NCAL has world-class system hardware and software architectures and customers that have a high degree of customer loyalty for their products. Aehr brings worldwide sales and support infrastructure, as well as high-value manufacturing capacity and capabilities that together we feel will quickly address customer demand, a very high global growth rate of AI and other high-power semiconductors. We also bring R&D resources, technology and processes, and the financial resources to be able to enhance and accelerate new needs that customers may ask for. This unique combination strongly positions us to capitalize on the significant opportunity within the AI market. Interestingly, we share several subcontract manufacturers and have similar supply chains, as well as our strategy for in-house assembly and final test of our systems. I have known the founders and management team for a very long time, including their CEO Alberto Salamone, who has been in the test and burn-in business for many years, and who will be joining Aehr as an executive vice president to lead our package part burn-in business. InCal is located less than four miles away from Aehr's headquarters here in Fremont, California, with all employees located at that facility. This makes combining the two companies simpler and straightforward. We believe that between wafer level and package part, the reliability test and burn-in market for AI processors exceeds $100 million annually. And with this combined product portfolio, we have the opportunity to capture a meaningful share of this market within this fiscal year. So moving on to the NAND flash memory market. We've been in discussions for several years with multiple flash memory companies related to our Fox wafer level test and burn-in systems. These companies have provided us feedback on the definition and capabilities required for a next-generation wafer-level test and burn-in system for their high-volume production roadmap. This included feedback on our systems, wafer packs, and particularly on our automation using our new fully automated wafer pack aligner. We see the NAND flash market as a key market opportunity for our systems and wafer packs with long-term potential to also move into DRAM wafer-level test and burn-in. This last quarter, we secured an engagement from one of the major flash memory suppliers to evaluate the Fox XP system with our proprietary wafer pack full wafer contactors for wafer-level test and burn-in of their flash memory devices. This application is for 100% test and burn-in of devices to be used in high-reliability applications such as enterprise storage. This is a benchmark that's going to take us throughout the fiscal year to complete. and includes the development of a new high-density wafer pack for production wafer-level burn in 300-millimeter NAND wafers. We see this as a multi-year opportunity and expect to have preliminary results and feedback during this fiscal year. Our goal is to come to an agreement for a customer-specific development of a test cell with the potential for revenue contribution in our fiscal 2026 that begins next June. We're very excited to have accomplished this critical goal this past year and believe this is the front end of an exciting and potentially enormous opportunity for our solutions. Another interesting market opportunity is hard disk drive market. One of the new market opportunities for Waveflow Burn-in is semiconductors used in hard disk drives for data storage. Some of you may recall that in 2019, prior to the COVID-19 epidemic, we announced an order and shipment of our Fox CP, which is our single wafer test and reliability solution for logic, memory, and photonics devices. This was a key win with a major customer who purchased a system for wafer-level test and burn-in on devices in a very high-volume application for enterprise and data center market. They had forecasted to ramp into production over several years, but the pandemic impacted their plans. After a multi-year product development and qualification process and impact due to COVID-19, this customer, who we've now disclosed is in the hard disk drive space, has introduced their product and is now forecasting the production ramp to begin in our current fiscal year, most likely in the second half. We believe this will drive orders for multiple CP production systems and wafer packs and could even be a 10% customer for us this year. All right, turning to the silicon photonics burn-in market. Within the silicon photonics market, we shipped the first order from a major silicon photonics customer for new high-power configuration of the XP system late in our third fiscal quarter. This new configuration expands our market opportunity by enabling cost-effective volume production tested wafers of next-generation photonic ICs that are targeted for use in the new optical IO or co-packaged optics market. NVIDIA, AMD, and Intel are examples of companies that have all discussed the potential for adding optical chip-to-chip communication for performance improvement and power savings for AI processors and high-performance computing chips. Optical I.O. has the potential to be a game-changer for semiconductors as it breaks the bottleneck of data transmission bandwidth limitations of electrical I.O. 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. Aehr's new high-power system configuration can be used to test and burn-in up to nine of these new optical IO device wafers at a time, up to 3,500 watts of power per wafer. This is absolutely unique in the market, as we're not aware of any other solution that can test even one of these wafers in a single touchdown, much less nine of them at a time like we can. While the timing of these devices and volume ramps are not clear, we're watching this market very closely to ensure that we have the products and solutions available to meet the needs of our customers for this potentially significant market application. Now, let me lastly talk about the GAN market opportunity. This past year, we announced our first order for a FOX wafer-level test and burning system for gallium nitride or GAN devices. While silicon carbide will be the semiconductor material choice for EV traction inverters, GaN is expected to gain significant penetration in the onboard charging market as well as other automotive, solar, and data center power conversion applications. We're working with several of the GaN market leaders and received a significant number of wafer pack orders throughout the year for gallium nitride reliability test and qualification of our systems. We have now received our first forecast for wafer-level production burn-in systems to be delivered during this fiscal year. We continue to be encouraged by this market and believe it will be a significant in market size for semiconductors and has the potential to be a solid market opportunity for air solutions. Looking ahead, we expect fiscal 2025 to be an exciting year for air. Silicon carbide is poised to be a key contributor to revenue again this year, But we also expect bookings and revenue from across a much broader range of customers and markets, as I discussed. We have a lot of opportunities in front of us, and we look forward to reporting on our progress throughout the fiscal year. With that, let me turn the call over to Chris before we open up the line for questions.