Aehr Test Systems

Greetings. Welcome to the Aehr Test Systems Fiscal 2025 Third Quarter 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 Pondell Wilkinson Investor Relations. You may begin.

Thank you, Operator. Good afternoon and welcome to Aehr Test Systems' third quarter fiscal 2025 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 quick items. This afternoon, after market close, Aehr Test issued a press release announcing its third quarter fiscal 2025 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 Aehr 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 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 and other issues, are only valid as of this date, and Aehr Test Systems undertakes no obligation to update the forward-looking statements. Now I'd like to turn the conference call over to Gane Erickson, President and CEO.

Thanks, Jim. Good afternoon, everyone, and welcome to our third quarter fiscal 25 earnings conference call. Thanks for joining us today. I'll begin with a few opening comments, and then I'd like to spend some time discussing tariffs and air's perspective on the near and long-term implications, as this topic is obviously on everyone's mind. We received many inquiries seeking answers regarding this matter. I'll then provide a brief overview of the quarter's key highlights and share updates on the primary markets that air targets for semiconductor testing and burn-in including the significant progress we've made so far this year in new markets. After that, Chris will deliver a detailed review of our financial performance. And finally, we'll open up the floor to your questions. We're pleased to report third quarter revenue growth in solid bookings and backlog, and that we exceeded the street financial forecast consensus for both revenue and bottom line for the quarter. We're particularly excited by the significant progress we've made expanding into additional key markets and unlocking new opportunities to attract customers and drive revenue growth. Recent wins have helped us meaningfully diversify beyond silicon carbide and into high-growth markets like AI processors with our industry-leading wafer-level and packaged part test and burn-in solutions. Okay, so tariffs. Currently, it appears that the actions and announcements from the U.S. administration regarding tariffs are dominating the news cycle. At this time, we do not believe that the impact of the tariff announcements made by the U.S. administration last week will significantly affect air directly. However, we're looking at the near-term secondary effects on our current and potential new customers, along with the uncertainty this quarter regarding possible pauses or delays in customer orders, shipments, or supply chain delivery delays or disruptions. Our immediate goal is to assess the impact on a customer-by-customer basis and communicate this to them quickly to remove any uncertainty or risk so that they do not slow down or delay any orders. We already have on hand the material needed for shipments of our wafer-level burn-in and packaged part burn-in systems over the next couple quarters. For wafer-level burn-in systems, it's much longer than that. For consumables, such as our wafer packs for wafer-level burn-in, and burn-in boards and modules for our package part burn-in systems. These are quick turn items with material purchased and built to order. We're already redirecting these materials and looking to drop ship finished goods from our subcontractors as well as shifting assembly and test of our wafer packs to one of our international locations as needed to minimize tariffs and avoid any possible supply chain disruption. We also have wafer pack aligners on hand to buffer us from any tariff noise for several quarters. For the high power probers for our Fox CP, for our hard disk drive customer, the probers come from Japan. And we may look to drop ship directly from Japan to this customer so as to not even have to consider the US tariff implication. However, give it a couple of days and we may have a new tariff number with Japan or it may be zero. I provide this detail to help our customers and shareholders understand that we do have a robust supply chain and have put thought into the resiliency of our shipments for customers so they can count on us. Again, we do not believe the impact on margins or demand will be significant for error or on customer demand over time, but the challenge is not being able to control near-term secondary effects on our current and potential new customers, such as possible near-term delays in customer orders or requested delivery dates given the unknown potential tariff implications on their products or supply chain. I'll be happy to answer any additional questions on tariffs as best I can in the Q&A section. Okay, now on to running our business and to meet the needs of our customers and shareholders and stakeholders. We have been laser focused on the initiatives we set out to expand our total addressable markets, diversify our customer base, and develop new products, capabilities, and capacity to grow the business moving forward. I'll cover this in more detail, but we believe that the total available market for these target wafer level and packaged part burn-in markets we're addressing this year, plus the added flash memory wafer level burn-in that we're working on, has an addressable market of over $500 million in systems alone, plus another $500 million in consumables and wafer and device handling equipment by 2027. We're excited by the significant progress we've made this year in expanding into new key markets and unlocking new opportunities to attract customers and drive revenue growth, and particularly in diversifying our markets and customers beyond our revenue concentration last fiscal year with silicon carbide wafer level burn-in. Silicon carbide wafer level burn-in accounted for over 90% of our business in fiscal 2024. while this year it's tracking to less than 40%, with artificial intelligence processors burn-in representing over 35% of our business in just the first year. For the third quarter, we had four customers representing over 10% of revenue, and three of these are new customers slash markets for Aehr. Wafer-level burn-in for AI processors packaged part burn-in for qualification and ongoing process monitoring of AI processors, and wafer-level burn-in of gallium nitride semiconductors. If you look at bookings, yet another customer in market, hard disk drive components, accounted for over 15% of bookings. We're very excited about our expansion into new customers and markets, while at the same time, we believe we're well-positioned to continue to grow our business in the silicon carbide wafer-level burn-in market. For AI processors during the quarter, we qualified, received orders for, and shipped the world's first wafer-level burn-in systems specifically designed for AI processors. Our new high-power Fox XP wafer-level burn-in system can test up to nine 300-millimeter AI processor wafers simultaneously. This new customer ordered multiple XP systems and sets of air proprietary wafer-packed full wafer contactors for installation at their OSAT test house, which is the offshore or outsourced assembly and test house. Aehr has worked with this OSAT test house for many years, including working on wafer-level burn-in and silicon photonics devices and optical sensors on our Fox systems and on packaged part burn-in of AI processors and ASICs on our Sonoma ultra-high power test and burn-in systems. Aehr is the only company on the market that offers both a wafer-level burn-in system as well as a package part burn-in system for both qualification test and production screening and burn-in of AI processors. Another new market for Aehr is adding the production side of package part burn-in for AI processors in addition to the processor qualification burn-in. We've now shipped multiple Sonoma production burn-in systems this year to a world-leading hyperscaler for production package part burn-in of their AI application-specific processors, and expect to complete the installations on this initial order by the end of the current quarter. We've also successfully integrated the Sonoma system from the acquisition of NCAL Technology last August into Aehr's engineering and manufacturing operations, which has enabled us to scale our output to two to three times the previous record shipment volume. In addition to AI-related orders and installations for wafer-level burn-in and packaged part burn-in this quarter, Aehr achieved several other key milestones. We expanded into production wafer-level burn-in for gallium nitride power semiconductors. We secured our first high-volume production orders for the new wafer-level burn-in in hard disk drives. We completed production qualification of our new high-power multi-wafer system for wafer-level burn in the silicon photonics devices used in co-packaged optics and optical I.O. devices, and we made significant progress on proof-of-concept work with a leading flash memory supplier on a new wafer-level burn-in system for high-volume production of next-generation flash memory devices. Let me expand on each of these for just a moment and then come back to silicon carbide. I believe our most significant achievement so far this year is the successful validation of our new high-power Fox XP wafer-level burning system, which can test up to nine 300-millimeter wafers simultaneously with a power output of up to 3,500 watts per wafer. The key lies in delivering thousands of amps of current to and from each wafer while maintaining precise voltages and thermally controlling these wafers to prevent thermal runaway. We achieve this by running bidirectional logic and memory test patterns on each device, ensuring accurate burning conditions and traceability, including reading device IDs and on wafer temperature sensors for every device. This customer has told us that they're very excited about our system and that no other product on the market has the capability or capacity to test their wafers like our system. They've ordered multiple Fox XP systems and sets of air proprietary wafer pack contactors and have already completed the first system installation and will complete the installations of all of the systems from this first order this quarter at the customer's OSAT, one of the largest OSATs in the world. As I mentioned, Aehr has worked with this OSAT test house for many years, including working on wafer-level burn-in silicon photonics devices and optical sensors on our FOX systems and on packaged part burn-in of AI processors and ASICs on our Sonoma ultra-high power test and burn-in systems. We believe that allowing customers to test and burn in their processors at the wafer level before packaging them into multi-chip arrangements with other processors and memory adds significant value. We're confident that we're not only years ahead in this technology, but we also hold critical IP and patents around the world to safeguard our wafer level burn-in technology and solutions. The cloud accelerator semiconductor market is experiencing explosive growth. UBS estimates that revenues in 2024 will exceed $120 billion, and the market is growing at a CAGR of over 30%. These devices are currently burned in almost entirely at the system level, where a failed device during burn-in is significantly more expensive than at the wafer level. It is not just the cost of the advanced packaging that matters, but also the expense of co-packaged memory, as well as customers shifting to multiple processors within the same package. An annual capital test budget of 2% to 5% of revenue is typical in the semiconductor testing industry, implying a budget of $3 to $9 billion for overall testing in 2024. The potential for a solution that can do test and burn-in screening of devices while still in wafer form is remarkable, and Aehr is the first and only company in the world to demonstrate and successfully achieve this for production burn-in at the wafer level. I'm very proud of our team for this achievement with AI wafer level burn-in. Simultaneously, the finance, R&D, and manufacturing teams did an incredible job integrating NCAL technology into Aehr. Within months, they ramped up production to levels that NCAL may never have been able to reach to meet the demand from AI processor companies for the qualification and production of their devices. Aehr has shipped more NCAL package part burning systems in the past nine months than NCAL had shipped in the previous three years. Great job to the combined team. Let's keep it up as we ramp these new customers into volume production with these systems. We're also already developing multiple enhancements to increase power, cooling, parallelism, and add automation to meet the needs of the AI processor market in the future. I'm very pleased with the customer feedback on these enhancements so far. We also shipped our first Fox XP high-power multi-wafer production system with high voltage to a world-leading gallium nitride power semiconductor supplier this quarter. The system is installed and configured with our fully automated integrated wafer pack aligner, which can test 6-inch and 8-inch wafers and can even be configured for future 12-inch or 300-millimeter GaN wafers. While the system is installed for volume production of GaN devices, It is also configured to test silicon carbide wafers in the same system by simply changing the wafer pack for wafer contactors. GaN is a new and exciting semiconductor technology with high value applications such as automotive power conversion, solar inverters, and solid state transformers and breakers. We're thrilled to have been selected as the production solution for this company, which is one of the largest suppliers of power and automotive qualified semiconductors in the world. Another exciting market opportunity we're making significant progress on is the hard disk drive market. This quarter we received orders for multiple Fox CP single wafer production test and burn-in systems with an integrated high power wafer prober for the burn-in and stabilization of new devices and hard disk drive heads. We're excited to finally start this production ramp after several years of working with this company on qualification and process development. This order arrived later than we expected However, the customer is requesting shipment of all the systems as soon as possible and has already requested a forecast from when we can ship additional systems. Lastly, I want to update you on our flash memory proof of concept project that we've been working on this year. As noted in earlier calls, we're collaborating with one of the world's leaders in flash memory to demonstrate the capability and cost effectiveness of our Fox XP platform for high volume production testing and burning of flash memory wafers. Our goal has been to demonstrate this over the next quarter, and we're on track. We're setting up the test cell and new wafer packs with a high-density, fine-pitched probe head during the upcoming month. This is very exciting, as we believe Aehr has the ability to successfully demonstrate how we can achieve a high-density, high-power, and fully automated test cell, enabling us to advance to the next development phase. That next phase involves collaborating to develop a next-generation test system specifically tailored to meet this customer's needs and future requirements. Stay tuned for more updates on this demonstration and the potential for the NAND wafer-level testing and burn-in market. To provide perspective, the NAND market in 2025 is expected to exceed $80 billion U.S., according to Yole Group. Again, using the 2% to 5% rule of thumb for the budget for overall testing of semiconductor devices annually translates to a capital and expense budget in 2025 of between $1.6 and $4.2 billion. Another way of looking at it is that a 1% yield improvement on the $80 billion market amounts to $800 million. New technologies in NAND are driving new requirements for wafer-level burn-in to address the manufacturing and negative yield implications of testing these NAND devices in package or system level test. It's easy to see why the potential for the market for wafer level burden for NAND is substantial. Okay, so now let me close with silicon carbide wafer level burden market. The silicon carbide market continues to be a large opportunity for Aehr, and as I noted earlier, we believe we're well positioned to continue to grow our business in this market. Recently, we've noticed some signs of improvement in the utilization rates of our installed base of wafer-level burn-in systems for silicon carbide. Demand for silicon carbide remains significantly driven by electric vehicles and has even further strengthened its presence in EV market due to lower prices and better supply availability. Battery electric vehicles are still expected to be over 30% of all vehicles shipped in 2030 worldwide. Simultaneously, silicon carbide devices are gaining traction in other markets, such as power infrastructure, solar, and various industrial applications. According to market research firm Yol Group, despite a temporary slowdown in battery electric vehicle shipments, the silicon carbide market continues on a robust long-term growth trajectory. Yol projects that the power silicon carbide market will exceed $10 billion by 2029 and driven by a strong rebound expected in 2026, along with a compound annual growth rate of nearly 20% from 24 to 29. In response to this growing demand, we've expanded our wafer-level burn-in offering for silicon carbide to support high-voltage testing across up to 18 wafers on a single system, doubling the capacity of our industry-leading 9-wafer Fox XP system. We've already received our first order for this 18 wafer high voltage system as an upgrade to a customer's existing Fox XP configuration. This enhancement further strengthens our technical and cost advantages for silicon carbide testing and is also highly applicable to high volume production of GaN devices, an important capability for customers working on both types of wide band gap compound semiconductors. Now, here's some more details mentioned, I would say, on our available market assumptions. According to market researcher verified market research, which aligns with air internal forecast based on customer and other data from YOL, UBS, and other market forecasters, the burn-in test systems market for semiconductors is estimated to grow from approximately $750 million in 2024 to over $1.2 billion in 2030, a CAGR of 9%. This is for systems alone, not the consumables, such as our wafer packs or bibs, or handling equipment, such as our aligners, probers, or autoloaders for package part burn-in. Historically, semiconductor burn-in consumables are up to three times the annual spending on burn-in systems. By 2027, the burn-in systems TAM is forecasted to be $1 billion, and we estimate that just For the new systems purchased in 26 and 27, the consumables and handling equipment are at least another billion dollars. In this TAM are AI and high-performance computing processors, other microprocessors, DRAM, flash, optical, and compound semis. DRAM and MPUs are interesting in that the top MPU company and one of the top three DRAM companies make their own burn-in equipment. So this is not included in the system TAMs. With the introduction of our new products in compound semi, optical, both wafer-level and packaged for AI and high-performance computing processors, and our target to enter the flash wafer-level burn-in market, Aehr addresses over half of this TAM. We believe that we can address over 500 million of this TAM in 2027 for systems alone. And since Aehr provides turnkey solutions for handling and consumables, We address another $500 million annually for a total of a billion-dollar TAM. The largest portion of this is clearly the AR market, followed by the flash market, with GaN and SICK, silicon photonics, and hard disk drive optical devices rounding out the total addressable market. Obviously, we're very excited about all of these opportunities for growth. Now let me close it out and hand it over to Chris. Looking ahead, with our $45 million in revenue, and $22 million in backlog to date this fiscal year, our customer forecasts, and our success in adding new markets and customers, we feel very good about our business. We've already surpassed $66 million in combined revenue and orders this fiscal year. Currently, we do not believe that the impact of the tariff announcements made by the U.S. administration this week will significantly affect Aehr directly. However, considering the secondary effects on our current and potential new customers, along with the uncertainty this quarter regarding possible delays or pauses in customer orders, shipments, or supply chain delivery delays or impact, we're temporarily withdrawing our guidance for this quarter slash fiscal year, which ends May 30th, and we'll reassess our guidance policy as clarity develops. We're encouraged by the increasing number of engagements with both current and potential customers, as well as the long-term growth potential across our diverse target markets. Our strategic expansion in the high-growth sectors, including artificial intelligent processors, gallium nitride power semiconductors, data storage devices, silicon photonics integrated circuits, and flash memory, opens up new opportunities to attract customers and drive revenue growth. With that, let me turn it over to Chris, and then we'll open up the line for questions.