Hello. And welcome to the Aehr Test Systems Fiscal 2023 Third Quarter Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] 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, Gayn 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 close, 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 Gayn Erickson, President and CEO.

Thanks, Jim. Good afternoon, everyone. And welcome to our third quarter fiscal 2023 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 are 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 will 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 are 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. Forecast from William Blair estimate that the silicon carbide market for devices in electric vehicles alone, such as traction inverters and onboard chargers is expected to grow from 119,000 6-inch equivalent silicon carbide wafers for EVs in 2021 to more than 4.1 million 6-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, 6-inch equivalent silicon carbide wafers for other markets such as solar, industrial and other electrification infrastructure…

Thank you, Gayn, and good afternoon, everyone. As Gayn noted, we had another solid quarter in Q3 with strong sequential and year-over-year growth in our revenue and net income, beating analyst estimates in both the top and bottomlines. We also reported record quarterly bookings and a strong backlog. In addition, with over $9 million already in bookings in the first month of the quarter, we now have an effective backlog of $41 million. Looking at our financial results in more detail. Net sales in the third quarter were $17.2 million, up 16% sequentially from $14.8 million in the second quarter and up 13% from $15.3 million in the third quarter last year. The sequential increase in net sales from Q2 includes an increase in systems revenue of $2.5 million and customer service revenues of $278,000. This was partially offset by a decrease in WaferPak and DiePak revenues of $308,000. These consumables revenues accounted for 37% of our total revenue compared to 45% of revenue in the preceding second quarter. Customers typically purchase our FOX systems and WaferPaks at separate times and also stagger their delivery. Still, our Contactor revenue grows both with increased installations of our systems and also with the increase with the installed base. Customers purchased new contactors with new wafer or device designs, not just with new system capacity put in place. Gross profit in the third quarter was $8.9 million or 51.6% of sales, down 1.8 percentage points from gross profit of $7.9 million or 53.4% of sales in the preceding second quarter and up from gross profit of $6.4 million or 41.9% of sales in the third quarter of the previous year. Last year’s fiscal third quarter, gross profit includes the impact of a $1 million adjustment for excess and obsolete inventory related to legacy…

Thank you very much. [Operator Instructions] Today’s first question comes from Christian Schwab with Craig-Hallum Capital Group. Please go ahead.

Hey. Hi, guys. Thanks for taking my questions. Ken, congratulations on retiring, well-deserved opportunity to go spend free time with the people you love, good for you. So I just have a few quick questions. Thank you for all the clarity that you gave, Gayn. Just as far as it relates to the third customer to take a large customer, would you expect production orders in your next fiscal year from them?

We have actually announced a total of four customers in silicon carbide so far. We expect production orders from all of them during the next fiscal year.

Perfect. That answers the question. Thank you. And then on silicon photonics and the six different customers, when would you anticipate the first meaningful orders from that new area. Is that something that could happen as soon this next fiscal year or is that two years to three years out?

So, I mean, we think that based on some of the customer forecasts that we are seeing that we are actually going to see just call it rising tide of the previous just the transceiver business. I mean, candidly, we are seeing the same forecast they told us back in 2019 that they plan to buy in 2020 and didn’t when COVID happened. So we think there will be a rising tide of that. I think maybe more importantly, what you are trying to get to is when is that next big wave. We have already seen some purchases and are doing some early qualification work on some of those new types of products and we think that, that can continue on next year as well. I think the -- under is really when do we start to see the front end of any meaningful production and right now, we are still kind of assuming it’s going to be out a couple of few years, but it could turn quickly. And there’s been some news out there on the Internet and some of the company making announcements, et cetera. So we are really close to it. We have the products. I mean we can -- based on what customers are telling us, we can test those devices in each of the different wafer forms or even singulated die with what we have today, and with the new automated Aligner, we can even do it with more automation and hands-free, et cetera. So I think we are really well positioned and what we are doing is we are just focusing to be that engineering tool to begin with and be the plan of record, if you will, when they go to production, and then as we hit it a little closer we will see. But I don’t know -- I probably wouldn’t put a lot of revenue expectations for next year, but there certainly will be some, okay?

Great. And then the expansion of opportunity to domestic Chinese providers of silicon carbide. Is that something where you would expect substantial shipments to occur maybe next fiscal year or is that something where negotiations and get to know you has just started?

We will see. I mean for clarity, we currently believe there’s a pretty reasonable or significant, I use that word a lot, but we are going to get a lot of purchases we think for our systems, for companies that serve the China market that are not in China. So there -- we already are doing that today. We know that that’s going to grow. I think there’s not all silicon carbide for China is going to be built in China, for example, okay? We are also talking to suppliers in China, as well as OEMs in China. So we are kind of making our way up the food chain, if you will, with several conversations with Tier 1s and OEMs, which as people that are close to this realize that is a completely new thing. Prior to COVID, none of the automotive guys talk to the semiconductor guys, right? They all worked with Tier 1s and then the Tier 1s bought from the semiconductor guys. But with all the craziness that went on supply chain, automotive guys who realize they need to go directly to and talk to the semiconductor guys. Well, we are taking a step further, they are talking to us. So there’s another way of creating clarity around what we offer, the traceability, the confidence in our solution, et cetera, and so I think we have several oars in the water in China. Having said that, we are very confident in next year and how things are going and candidly, without trying to be in a significant portion of it, I would say that would be upside to our plans.

Great. So I just want to be clear, Gayn. When you talked about China silicon carbide, you were talking about the six. I think I wrote six customers, that is Chinese domestic producers more than likely for Chinese domestic demand, is that...

It’s my -- by the way, I am not sure I have ever said six. When I talk about six a silicon photonics type people that we are currently in. But if there are six big players in China that are saying they are going to be in silicon carbide, I believe you, okay? It is my belief that those companies are most likely targeting the Chinese domestic to their markets. But having said that, a lot of Chinese automotive suppliers today are buying silicon carbide from the companies outside of China and so we think that we can play in China, both with non-domestic suppliers but also domestic suppliers over time. Domestic to China, if you will, right?

Correct. Correct. Great. Thank you for that. And just a quick -- one last quick question. On the -- as we -- as far as backlog is concerned, would you expect kind of similar trajectory as last year, where we did have a very strong February quarter of backlog. We have worked through some of that and then enter the next fiscal year with a very strong idea of what the year will look like. Are we going to enter that do you believe with a really strong backlog number, too early to tell…

Yeah. I mean, we…

… objective for next year?

We haven’t been doing a lot of it. We really don’t give quarterly guidance. But then if you give annual guidance on top of three quarters, it’s pretty clear what the quarter is. I realize but that’s still revenue focus. The reality is that, I see things picking up. There’s not a dwarf. There seems to be a lot of people accelerating their plans right now. We are having -- we are putting out a lot of quotes. There’s a lot of people asking for lead times on top of each other and I believe we will go into next year with a lot more visibility than even last year. Having said that, it will be distributed across a much larger number of customers, which I guess there’s some averaging going on in terms of that -- it’s not all or nothing with one or two customers, but we also think that the large customers are going to continue to buy. So I don’t know how many different ways I can describe our optimism, but Aehr is -- I mean, people are really recognizing the value that we add and are seeking us out in addition to us knocking on all the right doors and I am super enthusiastic about heading into next year.

Fabulous. No other question. Thanks, Gayn.

Okay. Thanks, Christian.

The next question comes from Jed Dorsheimer with William Blair. Please go ahead.

Hey. Thanks for taking my questions here, and Ken, I will echo the congrats.

Thanks, Jed.

So I guess first question, Gayn or maybe Ken, maybe you want to take either one. But the guide and kind of reiterating the numbers suggest a pretty wide variance at this stage in the game, $17 million to $27 million.

Yeah.

And I know that there were two tools with the -- that we weren’t -- that you weren’t sure were not you get the rev rec to fall into the quarter. But I am wondering, is that the only thing that sort of kind of the difference of that $10 million or is there something else that you can probably provide a bit more color on?

That’s a big chunk and for folks that are -- Aehr Test along with most, I think, all capital equipment companies have revenue recognition policies related to when you can score revenue and that is different than when you get paid by the way. Our policy, I think, is very conservative. If we have a new product, particularly to a new customer, but if we have a brand new product that has never been proven or installed and accepted by the customer, we simply don’t take revenue for it until that milestone, even though we know it’s working here, it’s been completely proven out, et cetera, but until the customer actually signs off on it, we won’t score revenue recognition. And we gave that as a pretty big heads-up going in. That’s why a lot more detail than normal, and candidly, we will probably be pulling back on detail related to things. It’s just to make sure that our shareholders understand that we have got some pretty large revenue number of things that are shipping during the quarter, but may or may not score revenue. And you have several multimillion dollar tool that misses by a few days and it’s pretty easy. What I want to make sure that and I will be explicit even though it’s just been implied, we are just talking about whether it comes in, in Q4 or Q1. So that’s the bulk of it. We also have a lot of new WaferPak designs. These are new customer wafers. Folks, I think, we have almost 20 -- right now 20 designs of WaferPaks that are in process. Those designs are all like the timing of when those first ones ship, et cetera, not so much revenue recognition just with the timing, but those all are expected to then go into volume production as well into next year. So there’s some of that, too, that adds up. I mean, we are not trying to be coy. We -- I will tell you, we have treaded over how do we re-describe where we are at, but that’s a realistic range of where we think we are still at. And again, we have not lost any deals, not -- we don’t -- we have not identified any new competitors that are threatening or more threatening to us. We -- our momentum has picked up in terms of customer enthusiasm, but they are still, as a public company, you still have this quarterly milestone thing and like how do you describe it? So comfortable with the numbers. There’s some variation in there. Probably going to come down in the last week or two to know exactly where it ends up and if not, it will probably already scored by the time we have our earnings call what in July. So we will see how it goes. Sorry about that, Jed.

No. The color is helpful. So thank you. I guess if you could just help me reconcile just two moving parts. Inventory, not surprisingly picked up as you talked about in terms of ramping some of these products, but customer deposits dropped off on the balance sheet. I was wondering if you could just provide a bit more color there. Is that a timing issue or how should we read those two vectors, if you will?

Yeah. That’s a good observation and good to move in [ph]. So we actually have taken with some specific terms and conditions with customers. There are circumstances where we do not take down payments. It’s a pretty good threshold contractually for them to actually do that. I have also at times on a brand-new product with a new customer, waived the down payment to begin with, because it’s a little odd to tell them we guarantee it’s going to work and then at the same time, we holding their money. And candidly, people are pushing back harder and harder on some of those deposits. Ken, I think, a lot of it is that they can earn a lot more money on that too. But there’s a little bit of examples where some of the backlog is not all out of deposit and that’s what you are seeing.

Got it. And then last question for me. Just as we run through, I guess, the announced but not named customers, which I think memory serves, there’s four of them at this point. But the second one that you have talked about that, I think, previously have said, has not publicly announced their intention into silicon carbide. This is a major…

Yeah.

… semiconductor provider. They have at this point put out an announcement in silicon carbide. I just want to make sure that, that is correct.

I believe they have not -- they have still not said they are in it. I should go look again. But at least about a week ago they still hadn’t. So still quiet. Interesting. Yeah.

All right. I will take it offline. So thank you.

Okay. Okay.

Thanks, guys.

Thanks, Jed.

The next question is from Dylan Patel with SemiAnalysis. Please go ahead.

Hey. Gayn great color. I wanted to ask about the aligner, because I am having trouble with like the new automated aligner. How does that impact revenue? How does that impact the growth over time? Right now you have the manual aligner. I think, when I visited a month ago, you folks told me more like you have three sort of FOX systems, the XP systems can get configured or treated by one aligner, but the automated aligner is a one-to-one. How should I think about? What is the penetration of that automated aligner that you are going to sell and develop versus the manual aligners over time…

Okay.

… everything going to go automated or, yeah.

All right. So, for clarity, yeah, we actually make -- today we make and sell two types of aligners. We have actually had an automated aligner for years, installed in multiple customers and we also have what we call a manual aligner. The automated aligner allows you to walk up with a WaferPak and group of wafers or cassette of wafers and then it will automatically take a wafer, put it into a WaferPak and then present that WaferPak in a platform we call it. So it’s actually now this cartridge that you can place into our system up to 18 of them, for example, okay? That’s an automated aligner. We also make a manual aligner, which is a really cool tool that we had internally developed that customers came and said, we want them, and they allow you to do a very quick alignment process. It’s still sort of a proprietary sequence. But a user can be trained to do that and it’s great for engineering, but people actually use it for production as well. It is something that has the interaction of the operator, it follows a certain sequence, but you can very repeatably and consistently do that for both engineering and production. Manual tends to be more operator intervention. Automated, you just push a button, okay? We have developed a new automated aligner. It’s really considered our fourth generation. We have been working on it now solidly for over three years and it’s the one we said that we began shipments on this fiscal quarter. We have already taken multiple customer orders for it, right? Interestingly, the way we designed it, for those people at least in our company know this is one of my passionate babies, if you will. It’s very -- that I am going…

So, hey, to add to that Gayn, the topic of rev rec. Yes, absolutely, we do have the automated aligners that we have not recognized revenue yet, because they have not been accepted at the customer. So those fall into the same criteria that you had talked about earlier in our rev rec policy.

Thank you.

Thank you, Ken.

So…

And by the way if…

Okay.

Yeah. Sorry, just one more thing. And a customer that places an order for an integrated system with both the XP and the aligner, if we ship the XP ahead of time and then upgrade it, we still don’t recognize the XP revenue, okay? Because we have a continuation of that until those aligners are accepted and that’s right now kind of that’s what’s got a lot of this stuff related to. When is the revenue going to happen? Is it going to be Q4 or Q1, okay. Sorry, go ahead.

So, should I think about this as a way to increase tool utilization from the companies that kind of like it a lot or does it or more so is it and -- but while it does increase your -- the FOX-XP utilization, there’s also they are paying a bit more for the 1:1 with the aligners that are automated and made it directly to the XP. How should I think about that for you and your revenue going forward, right, because it isn’t a cheap thing, right? It is an increased cost and revenue per sort of XP that you deployed?

It has some efficiencies, advantages by being integrated that offset the fact that you would have one of them per system versus maybe one or three or four. It allows -- and I actually choosing not to go into all those competitive reasons, candidly. But there are absolutely advantages to being integrated by contrast to, well, doesn’t it drive some of the ASP up. There’s also companies that are passionate about not wanting to have any manual operations in their factory and not having WaferPaks moving around, and other people that are passionate that, that is the best way to do it and so we just offer that to them. I would tell you that you could make the argument that they are similar in cost of test and one just has the advantage of automation. The other one has an advantage of potentially some flexibility on test times and fungibility of tools across the floor.

Okay. One last little comment I wanted to hone in on and thank you for the answer. Is -- you mentioned GaN a couple of times, you haven’t talked about GaN too much in the past. Is the burn-in -- are you thinking that the burn-in times are going to be long for GaN? Is the customers that are doing silicon carbide, some of them are or at least the major companies are doing GaN as well. Do you think that they would use -- would they use a lot of burn-in there as well for sort of application?

Yeah.

Yeah. Could you talk about that a bit more?

I think that’s what shifted. If you would kind of look at the breadcrumbs over the last couple of quarters, I think, maybe two quarters ago, I mentioned GaN for the first time, maybe last quarter, I said, hey, we are starting to talk to some people about it. We now have people specifically describing requirements for production burn-in and test times that are significant that make it an attractive market for us. That includes -- it seems more obvious for the automotive guys, but there’s actually other applications as well that would require production burn-in. The way to interpret that is these devices have an infant mortality rate that exceeds the applications need, okay? By the way, one of the things we brought up is there are devices that have been shipping in the industry for decades that still have production burn-in. Even though they have high infant mortality rates by using a production burn-in, you can weed out those devices and ship it into the application. An example of that would be DRAM, right? So DRAM, one of the most commoditized products that has been around since 1980 if you will and Aehr Test was one of the market leaders in what put us on the map was building production DRAM burn-in systems. They are still being burned in. So it doesn’t always go away. And what we are seeing is silicon carbide, silicon photonics, these compound semiconductors are kind of a hotspot both in terms of applicability for new applications, driving things like electric vehicles or fiber optic communications, but also need this infant mortality rate and seem very susceptible to the desire for wafer level burn-in, because the devices are going to be put in multi-chip modules with other devices. So it’s -- the GaN devices specifically are being put into automotive applications. There are people for power and we have even seen RF people talk to us about wanting a production burn-in. So it’s the first time we are getting that message out and we now have engagements with several of them. One of them has already given us drawings to move forward with the wafer level burn-in application for a long test time burn-in application they need. Anything else, Dylan? I think we lost, Dylan.

I think we did. The next question.

All right.

The next question comes from Matt Winthrop with Equitable Research. Dylan, if you would like to rejoin the queue. [Operator Instructions]

I just want -- again I just wanted to once again congratulate you on all the effort and thank you my friend, because I have so many happy and successful clients based on the due diligence side did and the tenacity and go getter ship that you have led this company and I am just so tickled to think that you are doing great, keep up the good work and your PR guys…

Thank you, Matt.

Your PR guys, by the way, Jim Byers, I think, don’t get enough congratulations, but they have been diligent on this, too. So I just want to…

Thank you. And you know what, if you walk around this building, there’s a lot of happy, proud people here, because it’s -- there’s -- it’s funny. We all believed it. Everybody has been working their butt off, like if we build it, they will come and we are just believed in our hearts that this would play out and for having sake, sometimes it works out. And we are seeing it’s not just silicon. I think silicon carbide will go down as the one thing that was sort of the one that really pushed the industry over to widely adopt wafer level burn-in, but then it’s going to -- we are already seeing people saying, well, if you use it for that, can I use it for this as well. So it’s been a long time coming and we have a long way to go. It’s really exciting. Thank you.

Good work and you have also changed forever conversation at Thanksgiving dinner to difference between silicon carbide and GaN and stuff, but anyway. Go back to work. Keep on plugging. Thank you.

Well, thank you. That’s it. Okay.

Yeah.

Appreciate it.

Yeah.

At this time, there are no further questions in the queue and I’d like to turn back to management for closing remarks.

All right. Well, I really appreciate folks everyone’s time here and we are really excited to be serving our customers. We will just -- as we have always offered, if you folks happen to be in town here in the Bay Area in Fremont, California, manufacturing floor is just a buzz. We would love to host you and answer any questions for you and we look forward to seeing many of you at some of the conferences that are coming up, and then if not, we will have a chance to talk to you on our next call as we talk about our next fiscal year. Thank you very much. Bye-bye.

The conference has now concluded. Thank you for participating in today’s presentation. You may now disconnect.