Good afternoon, and welcome to the Aehr Test Systems Fiscal 2024 First Quarter Financial Results Conference Call. [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 first quarter fiscal 2024 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, Chris Siu. 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 Gayn 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% to over $100 million and profit by over 90% year-over-year growth to at least $28 million. During the quarter, we had record shipments of our FOX WaferPak 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 WaferPaks 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 WaferPak Contactors for these new designs, highlighting the recurring revenue part of our business. As we've noted before, our proprietary WaferPak Contactors are needed with our FOX wafer level test and burn-in systems to contact with the individual die 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 WaferPak to fulfill these…

Thank you, Gayn. Good afternoon, everyone. We're pleased to announce another strong quarter for Aehr Test Systems after record fiscal 2023. On today's call, I will summarize our results for the fiscal first quarter. We exceeded the consensus on both our top and bottom line. First quarter revenue was $20.6 million, up 93% from $10.7 million in Q1 of last year. Strong demand for our WaferPaks contributed to a significant year-over-year increase in revenue in the first quarter. WaferPak and DiePak consumables revenue accounted for 55% of our total revenue in the first quarter compared to just 5% of revenue in the prior year quarter. As we have noted before, customers typically purchase our FOX systems ahead of WaferPaks and subsequently stack up purchases of WaferPaks. We're seeing continued momentum for new WaferPak designs with existing and new customers to meet their customer and market requirements. Non-GAAP net income, which excludes the impact of stock-based compensation, was $5.2 million or $0.18 per diluted share for the first quarter. This compares to non-GAAP net income of $1.3 million or $0.05 per diluted share in the first quarter of fiscal 2023. Bookings in the first quarter were $18.4 million, up from $15.2 million in the preceding Q4 and down slightly by 4% from $19.1 million in the first quarter of fiscal 2023. Included in our Q1 bookings are announced orders for additional WaferPak contactors of $60 million from our lead silicon carbide customer. Backlog as of quarter end was $22.3 million, up 14% from a year ago, with $1.7 million bookings received primarily from a new U.S. customer that we announced previously, in the first four weeks of the second quarter of fiscal 2024, we now have an effective backlog of $24 million. GAAP gross margin for the first quarter came in…

We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Christian Schwab with Craig-Hallum Capital Group. Please go ahead.

Hi, good afternoon, guys. Gayn, on the gross margin in the quarter at 48.5% with WaferPaks at greater than 50% of revenue, I would assume the gross margin would have been a little bit better than that. Is there something going on there for that?

Yes. So if you remember, historically and actually consistently, our aligners have been amongst our lowest margin products. They are fully our IP, but we have contracted to have them completely built external to our facility here. And I wouldn't call them pass through because it's not that, but they tend to be on the lower end of the margin. So we had a couple of aligners, the automated aligners in there, and that kind of offset that by a couple of few points, I think. So as our business increases, and we start to see it candidly, as we see more customers wanting to actually do an integrated aligner with every system, that will have some. But generally, overall, it still sort of normalizes our systems level of margins. But I think if you went through the math, that's where that came from.

And as far as mix on a go-forward basis, would you anticipate the remainder of the year returning back to north of 50%? Or is that going to be tremendously mix dependent quarter-to-quarter?

Yes. No. So that's right. So we're still targeting 50% above the margin for the year, and that's what we're looking at.

Okay. Great. And then regarding future orders from different customers, I think you talked about meeting with your six current customers and new customers. Just as we think about backlog to support the $100 million of revenue, when should we assume potentially your third major customer coming in as well as numerous other customers? I think you said over the next few months, you anticipated that. I'm just trying to get follow-up to that.

We're trying to do our best to give you kind of plenty of heads up on those, and I will tell you that our ability to guess the customers is not perfect either. But just a little bit, so of our current six customers, I mean, more than half of them, certainly, our top two largest customers. We're expecting orders for both bookings and shipments during this year. I think more than half of the six customers are all going to have bookings and revenue shift within the year and then a number of new customers as well. And we kind of alluded to, both with the GaN related and the large benchmark. I'm feeling really good. It's kind of hard to put our finger on it. We probably shouldn't tell you exactly when they're going to come anyhow, but we're certainly trying to give you enough hands. I think everybody and we're certainly clear here, a $24 million backlog with, what, $20 million in the bank. We've got a lot of turns and a lot of turns expected this year to do the $100 million, and we don't expect to finish the year with zero backlog either. And for those that have come and seen our facility, and we're always really pretty open about that. And if you haven't planned it, if there's no other excuse to come for our shareholders' meeting, besides the glass of wine and hors d'oeuvres, you can see our manufacturing floor, but it is bellowing right now. And that is where a lot of the inventory is going, et cetera, in anticipation of this our lead times candidly continue to be world-class shorter than anybody else while we continue to increase capacity.

That's great, Gayn. Thank you for that color. As far as the new customers then, I know you've talked previously about having multiple customers this year at 10%. So obviously, it probably appears we have at least two, but should we anticipate three or four? Or is it just too early to tell?

Chris and I were just going through that this morning again. Right now, we're right at 3% or 4%. We certainly believe 3%. And there's like I think there was like 4% or 5% that are all in the 3% to 6% that anyone might be able to poke their head up or something. So I mean, from a diversity, we're all excited because of how many customers, but let's not kid ourselves. We don't have hundreds of customers and never will in this space, but we'll definitely have a much more diverse number of customers, which is nice. But we'll stick to the 3% to 4%. It's not clear how we would get to 5% necessarily. We don't call out the 5% customers, but we might have a good chunk of those, too.

Great. I don't have any other questions at this time. Thanks Gayn.

Okay. Thanks Christian.

Thank you.

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

Hi, thanks. Hi, Gayn and Chris. I guess, first question, I just wanted to dig in, Christian touched on it but just on the WaferPak aligners the standalone that were recognized in the quarter versus, and congratulations on getting the fully integrated systems signed off. Should I look at that is taking your effective backlog and subtracting the bookings so that the quarter would have been $6 million greater had those signed off in the quarter. Is that the right way to look at that? Or how would you suggest that?

Yes. I mean as we got a little closer, we kind of anticipated that we didn't really specific. We weren't even sure that the second one was going to book, I won't get into all this, I wouldn't have scored for revenue. So I guess, theoretically, we could have pulled in one and the other one was already in our plans, whether we told you or not in our second quarter. I mean, between the two of them, I think it's closer to $8 million or so.

Got it. So to be clear, you sold these integrated systems, of those two systems at the same customer, which I think Chris mentioned is a U.S. customer, that the aligners were recognized in the August quarter, but the rest of the two systems went into September. I just want to make sure I have that correct.

No. And I'm not sure everyone else is going to be able to follow along with it. The way our revenue recognition works, which is very consistent with the industry and we're always very open, is that when we have a brand new product that has never been accepted or released into production with a customer before. We will not score revenue on it or anyone like it until candidly, the first one is accepted, and I won't get into a perfunctory and all that. But it turns out the first customer shipments were what we call stand-alone aligner and it went to our lead customer who has been accepting XPs all along. So the only thing deferred, if you will, was the revenue for those two aligners. So when they accept it, they were just the two aligners. The weird thing is, on the second lead customer, second large customer that had the systems, the XP and the aligner were bolted together. And the XP also had those new enhancements. So Ken, our previous CFO, and Chris was on board as well, we drew a circle around those and said, the whole thing isn't accepted until it's all accepted, which is a little weird, but basically, once the aligner was accepted, then the XP and the aligner it was all accepted at the same time. And in that case, both of them triggered, and they're both released and working now.

Yes. So to add to that, so that means going forward, whether they're manual auto aligners or integrated aligners we don't need to wait for - or whether they have the new options or anything, it just ships and we score, revenue when we ship going forward.

Well, that's better than I expected. So nice. I guess second question is just on this long courtship with this potential large customer. Any more details on sort of, I know it's the longest in your history Gayn in three years sounds like a long time for that process. Is there any more details you can provide on sort of what is, is the next step a large order. Is that what we should expect? And I ask that kind of also in the context of your capacity, as you're adding these customers, I know you talked about low lead times, but if you saw a large 20, 30, 40, whatever that number system type order, I would assume that, that changes things in a good way.

Yes. I mean, generally speaking, even if customers talk about ordering lots upfront, my experience has been, it's normally met with one or a small number of systems, say, for production to begin with and then a little bit of absorption. That might change here because they're running out of time. And they've done way more evaluations than I've seen in the past. So I think that has a chance to collapse itself. There's also engineering systems involved, et cetera. So I'm not sure I want to perfectly carve it because I might end up being wrong, but engineering systems, first production systems, quantities, perhaps we make it quantities with longer lead times because it's getting pretty serious with companies now. They're putting real capital in place, putting fabs in place, making commitments to these very significant ramps that are happening in the automotive guys in '25, '26. And I don't think they want to be cut short. So my message, I guess, to my customer is listening, I mean we are able to ship more than anybody else. We literally can ship up to, call it, 50, 80, 100 testers, call it, wafers or blades of capacity a month, we are shipping more per month than the combined number of installed base of every other competing alternative has ever shipped. But there's still a scenario where please get your orders in so that we can continue to make sure that we can address everybody's needs. But I'd just reiterate, obviously, we're expecting significant amounts of orders in the fiscal year to be able to turn to make $100 million and then without zero backlog, and we're sticking to our guns there.

Got it. Last question for me. Chris, on the 300 basis point decline in gross margin. You answered this question that Christian asked in terms of mix shift or gain you did. But operating margins dropped by 500 basis points. Is there something else that drove the incremental $200 million? Or is that just the aligners that in mix shift that contributed the extra of contraction there?

Yes, it's really primarily on the airlines that decreased the margin here.

Okay. I'll say...

I'm going to give a little bit more color. We haven't talked about this. In our agreement with respect to the CM that was building these things for us, we actually had some NRE charges in there. They're not necessarily directly tied to cost of sales, but they were timed with the timing of it. So the first units actually have a higher incremental cost to us than I think the ones going forward now, I think the first four or five units had that. So anyhow, it was worse than would be expected if that helps.

It does. Sorry, one last one. What percentage was your largest customer in the quarter?

Number one customer is 88%... It's very high.

88%. Great

[Operator Instructions] The next question is from Dylan Patel with SemiAnalysis. Please go ahead.

Hi. Thanks for taking my question. I wanted to ask about how I think through the number of wafers per tester, right? So there's all the various different configurations that you've sort of options you've had for various different customers. Some people want to do the bipolar voltage channel modules and some people want to do high voltage, some people want to go negative. I'm curious, can you sort of outlay how to think through what is the test time for these various systems, for various options? And then sort of how many can be tested for FOX XP, right, because some of these are 9 per system versus 18. I would love to hear that sort of rationale.

All right. Well, as I described this, I simply want you to listen in terms of just the simple math because mostly what I'll describe as a simple math. But obviously, the piece is, well, what is customers A, B and C's test time. And I want to give a little bit of color on that when I'm done. From a simple math perspective, the NP systems have two wafers. They're usually used for engineering. And if you want to do small lot production, you can test two wafers at a time. So if your test time was 24 hours, you would get two wafers per day off of that. If your test time or, call it, cycle time is 12 hours, you could get four wafers a day off of them. The XP, which is fully compatible blades, which are effectively that each tester uniquely can test a wafer has either 9 or 18, following the same math, you would either get 9 or 18 wafers a day at 24 hours or 2x that at 12 hours or 4x that at six hours. So I'm not trying to be coy, but that's the way of thinking about the capacity off of it. Now the real debate is and the discussion is, well, what's the test time? Well, if you get into the what's called the backup curve of reliability, and if you go type in bathtub curve and reliability, you can find all kinds of articles out there to talk about it. Basically, when a device is first manufactured, all semiconductor devices, as soon as they are functionally good, they have a likelihood of failure at that point in time. And as time goes on, the likelihood that they fail actually decreases. This was observed a long time ago…

That's great. And then I kind of wanted to clue in on a question or a statement that you had in the sort of the prepared remarks, which was you're seeing more electric vehicles with their own specific design for inverters. Are you saying that like XYZ, major auto OEM will want a specific inverter design from their supplier and then that's going to require a different chip design or different device design than someone else? Or I assume that everyone would have pretty similar designs for the inverters. Would that mean that there's more sort of XP or sorry, WaferPak aligners or sorry, WaferPak because of this?

Yes. And I know more than I can share, but I still don't think I know everything in this space around this. But yes, people with seemingly the same power are dictating specific requirements of the chip size. It gets into thermal trade-offs, voltage trade-offs, power trade-offs, acceleration trade-offs, how much power you have on hand, what kind of efficiency you have. And so I'm actually kind of surprised that even the same automotive supplier will dictate multiple different flavors. And then the next automotive guy won't buy the same ones. So I'm sure it drives our customers crazy because I'm sure they way rather everybody buy one. There's probably some element where they don't want to commoditize it either, though. I mean if they all made exactly the same chip, well, then maybe the customers would commoditize everything faster. But the net is, for us, there is more and more WaferPak designs. And I know I said a specific call automotive, but candidly, a lot of the new industrial designs, there's a much broader array of those two, and those designs have been increasing, too.

So in the past, I think it might have even been like a year ago, you mentioned that sort of you'd expect people to change WaferPak maybe every two to three years or designs every two to three years. Do you think that still remains the case? Or do you think that people will have to have more WaferPaks relative to, say, an XP can fit 18 or 9 of them, they might have more than that 18 or 9 because there's three or four different designs across their third of major customers, and then they might have to switch them out more often. I'm just trying to get a sense of that.

So I'm pretty sure I would have said because I remember I probably was pricing three or four years. I think two to three might be aggressive, but we weren't sure. We know like in memory, for example, every like 18 months to 24 months, the probe cards are all swapped out. But that's probably the most extreme. Generally speaking, automotive lasts longer. But the issue with silicon carbide is it's in the sort of infant phase where people are going Gen 2, Gen 3, Gen 4, Gen 5, they're going from 150 to 200 millimeter. And as those happen, there is more evolution. To me, if you can look at it over 15 years, my guess is there's more activity in the next five to seven years than there will be in the back half of seven years. But for sure, we're going to see customers with more than one WaferPak per blade, like an 18-blade or 18 tester XP. If you ask me in three years to what do I think? I bet you, for every WaferPak that's in the system, there's a couple on the shelf that wouldn't shock me for just how they will do it to meet customer demand.

Thank you so much.

Thanks Dylan.

[Operator Instructions] The next question is from Larry Chlebina with Chelbina Capital. Please go ahead.

Hi, Gayn.

Hi, Larry.

Sorry, I'm looking at my notes. Can you expect a follow-on order from the recently accepted fully automated XPs. They use those machines almost four months. Wouldn't they be needing some more capacity here soon?

Is that going to need more capacity soon? How's that?

So, no idea...

I think they're going to buy more systems and we're going to ship them within our fiscal year. Yes.

And then the three-year long development company that you referred to that you said they were going to go with GaN first before silicon carbide. Is that what I heard? Is that correct?

I kind of stitch myself into a little bit of a ...I didn't give myself much wiggle room... It prepares that way, yes.

And if it goes that way, would you expect them to start with an NP first and then progress through an XP or they jump right to an XP? Do you have a sense there?

Yes, I would think it would be an NP first.

Yes.

Okay. On the optical IO, the customer that asked for accelerated delivery, should we sell for our model plan on fiscal year to the February quarter. I think you spelled out that it was going to be in the calendar first quarter. But does that mean should we assume that it will definitely happen in the February quarter fiscal...

I don't know yet. I mean, they had originally talked about and we acknowledge the order for Q1, which could have been through a March shipment. Recently, they're like sooner the better. So we're just trying to pull it in.

So you're in charge of that, we should figure on the February quarter then?

That's what we're working on, but they're listening too. So we're trying our best to pull it in. It's awesome. I mean it's coming along really nicely. There's a couple of things that we're still working through from a qualification and thermal uniformity and things. But the system is being built up. We're actually building it in the integrated configuration. It will not be docked to our new aligner, but it can easily be docked to it. So it's being configured in the new configuration that will allow it for - to just be rolled up against the new aligner.

So it can go in and fully automate in front end. Is that what you're -

All they have to do is buy the aligner, and we can bolt on a 300-millimeter front-end on this thing, overhead transport or robotics, and it's fully [indiscernible] integrated into a high-volume manufacturing floor.

Excellent, really exciting. We've seen articles written that Taiwan Semi is pursuing something similar optical I/O. And would they be sneaky enough to be accessing your XP - do you place an XP in Taiwan [indiscernible]? Would they be accessing that machine to do their stabilization and reliability testing versus coming to you directly -

You know what - sometimes when you ask me a question, I'll just ignore you, but they are not right now. I don't want people to be left with the opinion that they are. But I think the folks - it's pretty interesting. We're trying to read up and we're talking to key players in the space. AMD, Intel and NVIDIA have all been sort of pounding this drum. And it seems like it's been picking up on this. And then TSMC and Global Foundries, in particular want to play. They want to be a part of this. And it's very interesting when you start thinking that it's not just the chip-to-chip that makes silicon photonics. In the chip itself, there's bolt-ons firing around inside on big bus planes that are transmitting these multi-gigabyte buses. And it's just what semiconductor will look like in a decade versus what they are now is going to drastically change based upon silicon photonics. And for us, not only our processors burnt in, in general, by the way, but our focus has really been on this product has been on the burn-in of the fiber optic transceiver, the integrated laser. But there's also burn-in opportunities. And this is, as you know, because you've asked a lot of questions over the quarters, a lot of the play with bringing up the new aligner was not just silicon carbide. The silicon carbide guys stream wave for level burn-in for processors, automotive microcontrollers, and memory, we think for sure it's just too high volume. You can't be handling WaferPaks and walking them between a car and a thing. So that's what we did for we're thrilled to death, and the systems - the systems are working really well. We're getting really good feedback. We got another customer in here today. I know that's teasing and they're super impressed with it, and we're just pretty proud of it.

Another customer that you say for what market?

I didn't say that.

I know - how did you describe them? I'm sorry, I miss...

I just said another customer that's in here looking at it, and they're very excited, and they gave us some very good feedback.

I thought you mentioned what market they're in. So Obviously, Taiwan Semi would be serving AMD and NVIDIA. That's why I was asking. I know you mentioned in the past that they're interested, I would think it would come through Taiwan Semi. That's why I was interested in that. So you kind of led me to my last question. As you say, the XP was developed initially for memory, the lack of the automation held it back. Now that it's fully accepted and it's in the marketplace, when are you going to get an evaluation tool to our big U.S. memory maker that's planning on building several fabs in the U.S.

As we've alluded to, and we are serious about it, we are actively pursuing the memory space again. We have had conversations and design reviews, not with everybody, but some of the folks that are candidly closer proximity, but not only on it, and that continues on, including with some meetings over the next few weeks. It's a little awkward, but shareholders need to sort of understand. We actually have financial bonuses tied to every executive and its staff to get into memory. That includes me and every one of my staff members. They are multiyear plans, but we're always getting in the memory. That has been my passion. That's what the tester was originally designed for, and we're not giving up.

Well, you're the memory guys. So you’re going to make it happen. So - great to see the progress. Hopefully, hopefully exceed your goals. It looks like it's possible if everything comes together, so we'll be paying attention.

Thanks, Larry.

Thank you, guys.

Thank you.

The next question is a follow-up from Dylan Patel with SemiAnalysis. Please go ahead.

No question at this time, sorry. Mishmash the phone.

That's okay.

This concludes our question-and-answer session. I'd like to turn the conference back over to Gayn Erickson for any closing remarks.

Thanks, operator. I really appreciate everybody for joining us on the call again and spending an hour with us. And as always, we make ourselves available as much as we can. I will tell you, we are traveling like crazy right now, but we're trying our best to get to everybody. We do have our shareholders meeting on the 23rd that generally, like a lot of shareholders, they're not that exciting or anything. But we do have them here. We will be here with executives to do Q&A, and we typically will throw a smock on you and walk you through the manufacturing area. So if you can, and want to join us, just give us a heads up and we'd love to meet you there. And with that, we'll turn it back over and take care, we will all talk to you next quarter. Bye-bye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.