Greetings. Welcome to the Aehr Test Systems Fiscal 2025 Second 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. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Jim Byers of PondelWilkinson Investor Relations. You may begin.

Thank you, operator. Good afternoon, and welcome to Aehr Test Systems second quarter fiscal 2025 financial results conference call. With me on today's call are Aehr Test Systems' President and Chief Executive Officer, Gayn Erickson; and CFO, Chris Siu. Before I turn the call over to Gayn and Chris, I'd like to cover a few items. This afternoon, after market close, Aehr Test issued a press release announcing its second 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 in the Investor Relations page of the Aehr Test 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. Now with that, I'd like to turn the conference call over to Gayn Erickson, President and CEO.

Thanks, Jim. Good afternoon, everyone, and welcome to our second quarter fiscal '25 earnings conference call. Thanks for joining us today. I actually have a number of topics that I'm going to go through. I'll try and get through them quickly. We've had a lot of inbound request for information and to clarify all the different markets that we have been expanding into, particularly, a lot of questions around the AI side. So, I thought I would spend a little bit of time just making sure to bring everybody up to speed and kind of normalize what everybody understands about that. So bear with me as I go through this. Chris will then cover some details related to our financials a little bit shorter than normal to make up for my longer portion of this thing and then we'll open up for questions. I'll start with a brief overview of the quarter's key highlights and share updates on the key markets we're targeting for our semiconductor test and burn-in, including notable progress in those new markets. We're excited to share the significant progress we've made on the key objectives we outlined at the start of the fiscal year, particularly, expanding our product reach into additional large and fast growing markets. Our market diversification into sectors such as artificial intelligence, processors, gallium nitride power semiconductors, data storage devices, silicon photonics integrated circuits and flash memory is driving new opportunities to attract customers and drive revenue growth. This progress includes our wafer level burn-in solutions and also the success we're achieving with the new semiconductor package part test and burn-in product lines we acquired through our acquisition of Incal Technology that we closed last August. This acquisition has led to the acceleration of our market diversification with particular success and leverage expanding…

Thank you, Gayn. Good afternoon, everyone. The company recognized bookings of $9.2 million in the second quarter of fiscal 2025 compared to $16.7 million in the first quarter of fiscal 2025. At the end of the quarter, our backlog was $12.4 million. In the first six weeks of the third quarter of fiscal 2025, we received $14.2 million in additional bookings. This growth was driven primarily by the first AI processor customer, utilizing our high power FOX-XP solution for wafer level production test and burn-in of AI processors, which we announced in December. With these recent bookings, our effective backlog has now reached $26.6 million. Turning to our Q2 performance, which included a full quarter of the financial results from the Incal acquisition. We faced a challenging environment due to overall softness in the silicon carbide power semiconductor market. Second quarter revenue totaled $13.5 million, a 37% decline compared to $21.4 million in Q2 last year. A significant portion of this revenue was driven by demand for our WaferPaks and Sonoma ultra-high power systems acquired from the Incal acquisition, which support high-volume production tests and burn-in of AI processors. WaferPak revenues came in at $8.6 million, accounting for 64% of our total revenue in the second quarter, an increase from 43% in the same period last year. This highlights the important role of our WaferPaks as a key source of recurring revenue for our business. Additionally, system sales from our Sonoma and Tao packaged (ph) part burn-in products made a substantial contribution to our second quarter revenue. We are excited to see the significant progress we've made to incorporate the Incal products into our product portfolio to address the AI market opportunities. We believe our strategy to expand Aehr's product offerings to diversify into sectors beyond silicon carbide applications such…

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] And the first question comes from Christian Schwab with Craig-Hallum. Please proceed.

Hey. Good afternoon, guys. So again, thank you for all the detail on all the different market opportunities. I guess the question really only has one question. It's a question we get all the time is, we've been at $65 million, $70 million here for three years, and what year is kind of the inflection point of long-term sustainable growth? You kind of ended with a summary of all that and you felt confident long-term sustainable growth. I'm just wondering do we start seeing a strong top line growth rate next fiscal year, fiscal year '26 and beyond? And if we do, what does that top line growth rate look like? That's it. Thank you, Gayn.

All right, Christian. Well, as you know and maybe not everyone else knows as well or understand, we have yet to give multi-year forecasts, which is kind of going to feel a little less than what you were asking for. But let me at least try and put it in perspective as well. We had been, if you go back and look at multiple quarters, we've been talking about some of these other markets and alluding or being very direct about some of the expansion, whether it be us talking about the investments in the silicon photonics, our initial engagement with customers in GaN, a year and a half ago that said we were evaluating them for production use in hopes that it would prove out that they need production burn-in, which we've now determined have, engagements with the flash memory, and we even -- we were a little more guarded about it. But about a year ago, if you look at the notes, I was referring to another exciting application for a high power application for wafer load burn-in we were engaged in, which was actually the leading edge of the AI stuff. Those were the markets that we saw driving our revenue but candidly, most of the energy was, of course, about the silicon carbide in EV. We saw those markets easily driving for as we talked about AI, these could be $100 million a year number same and flash memory is probably the largest among it and DRAM larger than that. There are enormous opportunities in this space kind of as a whole in semiconductors. But of course, we were seeing this year-over-year growth of 40%, 50% for silicon carbide, and that seemed to be where the focus was. So I've always tried to balance, particularly with…

Great. Thank you for that, Gayn. No other questions. Thank you.

Thanks, Christian.

Up next, we have Jed Dorsheimer with William Blair. Please proceed.

Hi, yes. Thanks for taking my questions. Gayn, despite the miss, backlog looks pretty strong. So I'm just wondering, were there any tools on the shipping dock? Is this more of a timing issue? Is I'm guessing that it is, but I'm just curious if you could add any more color and then I have some follow-up questions.

Yeah. They were on the shipping dock and very much so. Yeah. We were quite frustrated. I don't want to get into it. This isn't the first nor the last time. We had -- I'll just say one or more customers gets kind of now down the tube asking for some concessions and things that just seem quite unreasonable. Recognizing it was the end of our fiscal quarter and we dug our feet in at the same time. But it's very interesting that here several weeks after the quarter or even right afterwards and now it's like, hey, I need you to ship ASAP. So we're still working on that expectation management with our customers around that. But yeah, these are -- they're both orders for immediate shipments because we had pre-built them into it. And had we -- had either one of those orders ahead of time, the -- our quarterly number would have been significantly higher, but it just moved into this quarter.

Got it. And thanks for the color. Maybe to Christian's previous question to just -- but framed a little bit differently. If I kind of read the tea leaves in terms of all of the market details that you provided at the beginning, it sounds like the hard disk drive, I think for the HAMR process product or platform, that's the biggest near-term driver of the business beyond ex-silicon carbide and that -- but your -- you've got a lot of different irons in the fire around AI and even HBM. So am I misunderstanding? I'm just trying to understand sort of near-term drivers that then potentially lead to inflection on future growth.

So we've never given a lot of clarity on what the hard disk drive application is. I'll just leave it at that, not confirming or denying, okay? But realistically, if you look at our -- so if you go through the numbers of our -- just by the numbers, we did what, 26 something. We have 26 something in backlog. We have 75% almost to the dime of revenue scored and/or backlog of the $70 million. So we have like $16 million, $17 million to go, I think wherever the math is. We've identified what those customer opportunities are. There is upside and downside to kind of each one of those like some of them could push out, etc. So, it's always a challenge to try and put a number around it. You guys think this is easy, it's not with the granularity of our stuff, but near-term, we've got some silicon carbide orders in our expectation for Q4 with some new customers. We've got more AI production, both in packaged part and wafer level burn-in. I think both of those -- all three of those are probably bigger than the hard disk drive one in the near term. Over the next several years as they ramp out, the hard-disk drive business looks to be like a really attractive and there's some variation on some of the stuff we can't get into with respect to the forecast. But we're pretty happy with that and they're very happy with us about that application. Flash for sure is kind of bigger than everything. Although, maybe the AI stuff will end up being bigger than flash, we'll see how it plays out, but that's a year out. And we're not alluding to a timing of when the DRAM stuff comes, but it's a…

Got it. One last question for me and then I'll jump back in the queue, and maybe it's for Chris here. Just margins -- gross margin took a steep decline. I'm assuming that that's a mix-shift from the WaferPaks to the Incal systems Sonoma, but I'm just curious, do you expect this to -- do you expect to be at these levels you mentioned in backlog that you have some silicon carbide, I'm assuming some WaferPaks there. How should we think about the normal margin levels as you certainly -- to achieve your $70 million would imply a getting a pretty big bump in revenues. How should we think about that for the rest of the year?

Yeah. So, you're correct, Jed. So as we talked about it before, the Incal products, the gross margins is a little bit lower than what we have in legacy Aehr Test Systems and WaferPaks. So the order you can think about it is the WaferPaks always has the best gross margin and then the Aehr Test Systems and then will be the Incal system. So, it really depends on the product mix even within Incal because…

The Incal consumables have a low…

Yeah. Consumables have consumables have lower too.

The other piece we haven't given a ton of -- I think we may have said in early discussions around the Incal acquisition. So, we're at a good point right now. We, of course, do all these live and you don't hear the construction in the background, but we're doing our remodel here, adding a huge amount of capacity -- capability out on the floor, cleanroom space, etc., before we move the Incal products over. They're only a few miles down the road, but that whole team and the manufacturing will be in here we think completed by the end of our fiscal year. So, it's only a few months out. That facility is also burdening our cost-of-sales too. So that comes off our books about a year and a half. That's about $0.5 million a year or something like that too. So, we'll get some goodness out of this thing. We don't really focus our energy on the goodness through -- of the Incal merger. Mostly it's the revenue opportunities and the customers, but there will be some operational efficiencies as well.

Great. Thanks for the color. I'll jump back in the queue. Thanks, guys.

Thank you, Jed.

[Operator Instructions] The next question comes from Tom Diffely with D.A. Davidson. Please proceed.

Yeah. Good afternoon, and thanks for the question. Gayn, curious what your view is of the Chinese market for silicon carbide if you're not successful in your patent infringement case. Is there still a market there for you?

That's a good question. Yes, I guess. I mean, there's kind of two things. One of them is the patent infringement case against these guys and the other one is our competitiveness, and obviously, the trade-related things between the US and China, particularly kind of recently. Those are -- they're harder to get your finger on. The system and -- I want to be careful too much that system. That system that we've named in our 10-Q, etc., it's not very -- it's not very good. I know that's kind of pretty directed. We've had feedback from customers that it wasn't -- it's not working very well. It has repeatability issues. It can't really do what we do. We have parallels advantage. We have number of wafers. We have automation. We have a lot of capability, but nevertheless, we're not just going to put up with people trying to encroach on us and step on patents that we have in China provided by the Chinese patent office, and so we're not going to put up with it. So there's two things. There's a legal aspect of this thing and then there's just the flat-out competitiveness. And we have a team of people in China. I think we've already talked about. I think we had 14 customers in China. Over time one of them is wafer. The rest of their packaged part from Aehr Test. So, we've done business in China for a long time. It's not our plan to change. There's just some of the uncertainties related to how it's just trade things that make it a little harder to put your finger on and we're just trying to be open with that with people.

Okay. So maybe to summarize, if a worst-case scenario, they're able to get away with whatever they've copied on their tool, you feel like you still have a pretty strong competitive advantage for both reliability and productivity versus their system as it is?

We do. You always have to be careful because people have roadmaps and we have roadmaps too. I don't want to get too carried away with that, but yeah, that is the case. And again, it's very focused on silicon carbide. It has issues even testing gallium nitride. It doesn't do power semiconductors. So it's kind of a specific niche target at something, but nevertheless, we're taking it seriously, at least in China.

Okay. And then your concern over the orders this year is the concern that you lose them competitively, or that they get pushed out?

Well, there's always -- I worry about a lot of stuff, Tom, but in general, when we were trying to describe China, we have some -- we have a production system in our plans, at least in those numbers. We also have other opportunities and things like that too but an ASP of our wafer low burn-in systems except WaferPak is several million dollars. And so if something happens and there's some regulatory thing that slows us down or precludes us or something, I don't know really how to handicap that. That's a new one for me. There's always the -- they still bias, but they don't take it by May. That's kind of the normal thing we've been dealing with. I mean, I think a lot of people understand. I mean, a lot of our shareholders are experts in semiconductor -- semiconductor tap. I mean, semiconductors are in a downturn right now. I mean outside of AI, there's a lot of -- it's tough out there in automotive customers, etc. And so as those of us that have been here for a long time, this too shall pass. And if you look at it in the scheme of a couple, few year window, it always gets better. So sometimes we wake up and things have been pushed out. You get a couple of -- a call from your customer and say, oh, can you help us with pricing because we're struggling. And you're like, you are 50 times larger than I am. Like, I'm not sure I can help you with your numbers, but we're here for you kind of thing. So there's just some of that in the background.

Yeah. Okay. And maybe one last question on the flash market. When you look at the opportunity for you specifically, is that going to be driven by a technology change here in the chip or the package, or what do you think really starts that market for you?

Yeah. I mean, flash memory as -- actually, Tom, as you know from my history and HP Agile at Verage (ph) running the memory business there for many, many years. People refer to as a treadmill. You get on it and you always have to keep going because the customers every two, three years are shipping more bits at the same price so they have to look at ways to be more and more cost-effective. That's true in their process equipment, the front end equipment, and their back end equipment and test equipment. So there are things specifically on the NAND flash roadmap that in addition to just cost disconnects, meaning I've got to ship way more flash memory in four years than I am today and my revenue is not going to be up 4X, how do I do it more cost-effectively? So that's sort of a commercial requirement. And there's also technical issues and I was pretty specific in there to be clear. These NAND devices are 3D stacked. They're not actually stacked. They're just printed several -- there's, I mean, NAND guys are out there, but they're all talking about 200 layered NAND. What that ends up being is you end up having way more power per device to think of like a 200-story building, and the amount of light -- when you light up the light on the first floor, that takes certain power, but when you have light on 200 floors, you have 200 floors of lights on. When you go to test, there are some test methodologies whereby you can do things by testing multiple floors at a time. But when you do that, all the energy is used as if you're lighting up all those floors, whereas in normal application, you're reading writing data only on one floor at a time. So the actual device in its application is using one-two hundredth (ph) of the power, but you could do test methodologies to test 20 floors at a time but then you need 20 times the power. That's a thermal problem. That's a tester resource problem. Those are things we're really good at. So I'm trying to give you some hints there as to what's going on. So there's some technical disconnects that we are looking to address as well as the commercial side on the NAND side. And by the way, DRAM, I'll go into that too. Just the whole HBM is super dynamic and people are -- there's so many things going on with respect to because DRAM also needs to be burnt in. So how are you doing that again before you put it into an HBM stack onto a CoWoS package along with an AI processor? So I like where we're at right now. We're -- there's a lot of vectors pointing towards us right now.

Great. Appreciate the color. Thanks, Gayn.

Thanks, Tom.

[Operator Instructions] The next question comes from Larry Chlebina with Chlebina Capital. Please proceed.

Hi, Gayn. I've got a question on your recent $10 million win on the GPUs for the accelerator. I know you said that the potential market with the packaged part would be over $100 million a year down the road, but I'm looking at the wafer level portion of it. If I -- you said that, that customer was not NVIDIA, not the big guy. It has over 90% market share. So assuming it's the second-largest, which is I think around 5%, and the $10 million represented two machines, that would be like 30 -- possibly 40 million XPs we're just doing the GPUs. Is that the right way to look at that?

Okay. So I don't want to help you with who the customer might be. So anyone listening, I'm ignoring you on that one, Larry. Yeah. The numbers are really big. You don't have to try very hard to fall-out of bed and hit $100 million number, and I was -- what I'm trying to prove that. But this gets into available, addressable timing of this, it could be a lot bigger there.

Right. Well, that's not really what I'm getting at. I'm actually, getting at the next component on the accelerator, the HBM high-bandwidth memory. The current 12 stack -- eight -- 12 stacks. If you do the math on the silicon involved, it's about 6 times the silicon in the GPUs currently, and they're talking about going to 16 high stacks later this year with a roadmap to get to 24 high stacks next year, which would be 12 times the silicon. My point is with your fine-pitch WaferPak it just seems like you ought to have a ready our very interested bunch of potential customers wanting to see if you could help them on yield issues that as they stack higher and higher, you could address that and help them out.

Yeah. When we talked a couple of years ago, and imagine DRAM and what was going on, I would have and certainly did say that we thought that was something probably more towards the end of the decade because companies just weren't that motivated to try and figure out how to do DRAM wafer level burning compared to what they were doing and it's maybe it would take something else. And now you look at AI, which most of us weren't even talking about two years ago, right, and you look at these and it's like, wow, are you motivated now? So I agree with you in terms of the motivation to put in the DMT and local contest modes and to try and address this issue.

I think the part of the reason why HBM is more expensive than the GPUs is probably terrible yields that they're experiencing, and hopefully, you can help model on that.

Well, that on each stack, if you will, or each individual die, and then just -- I always have to remind people, the reason you do production burn-in is because things fail. It's not to make you feel good. As soon as they stop failing, you would stop doing it. So when I state, oh, people are doing a production burn-in of these devices, you have to recognize that means there is a non -- there is a material number of failures that they do not want to ship to their customer. Every one of those takes out all those HBM stacks in the CoWoS subsidy plus the package. So it's -- our whole premise about things moving to multi-chip modules that we've been touting for the last five, six, seven years with the kind of leading-edge of what's going on with wafer-level. At that time, we were struggling. You'll be like, okay, which devices is that going to look like, and we kept saying coming and because of Moore's Law is failing or sales has fallen down, you now need to put multiple devices together and you need stack them up and put them side-by-side in order to get the functionality that used to just be done with the strength of a wafer. So yeah, more vectors heading in our way there.

Assuming this comes to pass, would you be able to handle all that demand through the capacity or potential capacity in Fremont? Is that even possible, or well…

No. If you -- for those that haven't attended us, especially with our new facility upgrades that we're doing right here, we have -- I mean the manufacturing capacity I have here is bigger than I had at Veracy. So people might be shocked at that. So, there's always ways of doing it. Keep in mind, we use subcontract manufacturers. In most cases, we have multiple suppliers of every subsystem. We're -- in many cases like one of the hard things is your print circuit boards and your assemblies, that could be increased 100-fold if you needed without actually impacting our resources. So even though we do assembly test here, what we do is just a small piece to control the final assembly and quality before it ships and we have some other tricks up our sleeves. So right now, I have more capacity than demand by a lot and we could increase our capacity significantly if we needed to for different market opportunities. And when we bring customers through, by the way, that is very obvious when they want -- when they come in and look at our facility, they kind of go, wow, okay. This is not -- this is not your typical burning company in terms of the capacity we have.

Well, you got a great opportunity. So I'll be looking forward to seeing you accomplish them, and good luck.

Thank you, Larry. Thank you.

Thank you.

Okay. I'm showing no further questions in the queue. I'd like to turn it back to management for any closing remarks.

Okay. Thank you, operator. Everyone, I appreciate your time here. I know we try to cover a lot of detail. I hope to see you at one of the investor conferences, or if you want, please get in contact with our IR folks so we can set up the follow-up meeting to discuss your questions further. So then we'll see you next time.

This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.