Greetings. Welcome to the Aehr Test Systems fiscal 2026 First Quarter Financial Results Conference Call. A question and answer session will follow the formal presentation. Anyone should require operator assistance during the conference. Please note, this conference is being recorded. I will now turn the conference over to your host, Jim Byers of Pondell Wilkinson Investor Relations. May begin.

Thank you, operator. Good afternoon. Welcome to Aehr Test Systems' first quarter fiscal 2026 financial results conference call. But 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 Systems issued a press release announcing its first quarter fiscal 2026 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 Aehr Test Systems' 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 statement. These factors are discussed in the company's most recent periodic and current reports filed with the SEC and are only valid as of this date, and Aehr Test Systems undertakes no obligation to update the forward-looking statements. Now with that said, I'd like to turn the conference call over to Gayn Erickson, President and CEO.

Thanks, Jim. Afternoon, everyone, and welcome to our first quarter fiscal 2026 earnings conference call. I'll begin with an update on exciting markets Aehr Test Systems is targeting for semiconductor test and burn-in with an emphasis on how these markets seem to share a common thread of market growth related to the massive expansion of data center infrastructure and AI. After that, Chris will provide a detailed review of our financial performance, and finally, we'll open up the floor for your questions. Although we started with the typical low first quarter revenue, consistent with the last few years, and actually higher on both top and bottom lines in Wall Street analyst consensus, we're pleased with our start to this fiscal year. We had revenue from several market segments and strong momentum in sales and customer engagement in both wafer level and packaged part test and burn-in of artificial intelligence or AI processors. Again, although we did not provide guidance for the quarter, our first quarter results surpassed analyst consensus estimates for both the top and bottom lines. We saw continued momentum in the qualification and production burn-in of packaged parts for AI processors, which is fueling sales growth in our new Sonoma ultra-high power package part burn-in systems and consumables. During the quarter, our lead production customer, a leading hyperscaler, placed multiple follow-on volume production orders for Sonoma Systems, requesting shorter lead times to support higher than expected volumes as they accelerate the development of their own advanced AI processors. This customer is one of the premier large-scale data center providers and has already outlined plans to expand capacity for this device and introduce new AI processors over the coming year to be tested and burned in on our Sonoma platform at one of the world's leading test houses. We're…

Thank you, Gayn, and good afternoon, everyone. Looking at our Q1 performance, results exceeded analyst expectations for both revenue and profit. First quarter revenue was $11 million, a $16 million from $13.1 million in the same period last year. It is important to note that last year's Q1 benefited from a very strong consumables revenue quarter, which makes direct comparisons challenging. This quarter's revenue was primarily driven by demand for our FOX CP and XP products. In Q1, we shipped multiple FOX CP single wafer test and burn-in systems, featuring an integrated high power wafer prover for new high volume application involving burn-in and stabilization of new devices for our lead customer in the hard disk drive industry. Contact revenues, including WaferPaks for wafer level burn-in business, and beams and bips for our packaged part burn-in business, totaled $2.6 million and made up 24% of our total revenue in the first quarter, significantly lower than $12.1 million or 92% of the previous year's first quarter revenue. As we have discussed in the past, this consumable business is ongoing even when customers are not purchasing capital equipment for expansion. We feel that this revenue will continue to grow both in terms of absolute value but also as a percentage of our overall revenue over time. Non-GAAP gross margin for the first quarter was 37.5%, down from the 54.7% year over year. The decline in non-GAAP gross margin was mainly due to lower sales volume and a less favorable product mix compared to the previous year, which included a higher volume of higher margin WaferPaks. Also, our products shipped this quarter included lower margin probers and an automated aligner, both manufactured by third parties and sold as part of our overall product offerings. Non-GAAP operating expenses in the first quarter were $5.9…

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Christian Schwab, your line is live. Please go ahead.

Great. That sounds like a much better connection. So, Gayn, you know, as we kinda get into the second half of the year, and kind of these more open-ended growth opportunities in AI that you've talked about in particular. You know, when do you think we'll see a material improvement in bookings to drive revenue down the road? Well, that sounds an awful lot like guidance again here. But so what we believe and what we've tried to communicate in our previous calls as well is that you know, our lead our first AI Waveflow earning production customer we anticipate that they will need additional capacity that would be both bookings and revenue for this year. And that could be more than last year, and and we won't put a a a top on that. So know, the question is timing of that. We're we're not sitting on an order. We didn't get it yet and just put it in our pocket. But as that order comes in, we typically will announce those within, you know, a couple of business days or so. What we are seeing is additional wafer level customer engagements. It's pretty interesting that kinda span from processors and ASIC Okay. So and I'm sorry? Okay. Hold on. That was a oh, oh, can you hear me okay? Oh, wow. Alright. I can hear you again. Okay. Alright. So I'll I'll assume that Christian is is on mute or something that he can hear me as well. So we're we're seeing it across several different groups from hyperscalers, AI processors, kind of across the board. And it's interesting. We had direct people that have come in saying, that's what they're interested in. We have people that are talking to us about Sonoma for their because their current customer is already doing, qualifications and are looking to do burn in for the first time and are looking to be their package and also now exploring the wafer level side of things. So these generally do take some time. And, you know, so I would probably guess these tend to be more second half, this being the '26 for us. But, you know, I at this point, we're just scrambling as fast as we can to address all the requests and requirements. And keeping our head down to to focus on them. On the package parts, same thing. Both additional calls and additional processes that are being put on our system and its enhancements to the Sonoma. As well as we've got customer interest to do additional production customers know, with and without the fully automated integration of the of the pick and place handler that bolts right onto the front of Sonoma. So I think it's ongoing and very interesting, and we're just really happy to have this number of engaged and active customers. Operator, can you hear us?

Yes. I can hear you. Are you ready for next question?

Yeah. Christian, do have any other questions, or was there Seems a little abrupt this time. Yeah. Have a question coming from Christian Schwab. Christian, your line is live. Go ahead, please.

Yeah. That's best. Sorry about that, Gayn. I was telling you I could hear you, but it wasn't working. So we we have, you know, a few customers here currently. You talked about, you know, a bunch of more customers coming in there. As we look to the end of your fiscal year, do you have a target number of customers that you think you'll be in the process of shipping to by then or shipping to barely shortly afterwards. That's a good question in terms of targets. Actually, we do have some discrete quantity targets. In fact, some of the KBOs, are the bonus structures for our officers, are based upon not only numbers, but specific targeted AI customers. I'm really giving a lot of insight, but I would say in plural. For additional package part and also for wafer level. So you know, at this point, we're not really limiting ourselves, but we're just trying to be cautious about oversetting expectations either in terms of the timeline of it. But it's actually one of the things that was interesting that really came to fruition, and I've apologize if I said this before on the last call, is I'm starting to also understand a of things going on. One of them that was kinda new is there are many of the ASIC suppliers in particular, and there's some evidence with within the you know, the GPU or just a processor supplies themselves. They don't do a production burn in like you think about it, like using one of our tools. They're doing it at system level, like, as in the rack. So these processors are getting all the way to the end and then they're simply running them in rack form, sometimes at elevated temperatures and sometimes not. To…

So I I feel the latter is the easy out. To say that I comp they're I'm confident they'll come. I think timing it is can both be, you know, a lot more guidance than than we're we're providing right now. But there's also just some of these evaluations as we prove it the customers can actually start contemplating how how many and when they would want to install them. You know, the the the new evaluation, I think we already alluded to it. It's for a processor that is expected to go into volume production. At the end of next year or in the '26 is through May '26. If you talk about calendar twenty six, there's a lot of opportunities in play that need to play out that would be production for both wafer level as well as package. So it's not that far away. I mean, even something that seems like is one year away in our space, there's a lot of work that needs to be done to actually ramp a customer to be one year out. And so, we'll keep you know, we'll keep focused on this thing as we get little closer. We'd hope to give you answers. To to be candid, this will probably feel like you know, you'll hear enthusiasm and we think we're winning, and, you know, the customer has gotten good results. Those will be early indicators. And then, you know, we're gonna surprise everyone with a large production order. Not unlike what happened with the first wafer level system. Except for some of these customers are just significantly bigger.

Great. Thank you. No other questions. Thank you.

Thanks, Christian.

Thank you. Your next question is coming from Jed Dorsheimer. Jed, your line is live. Please go ahead.

Hey, Gayn. You have Mark Schuter on for Jed Dorsheimer. Congrats on the success in this quarter and the announcements and for the AI customers. Mean, that's great. Can you give us a little color? And how should we think about the engagement in the qualification cycle for these customers? Do you need, like, a new product cycle to occur? Like, do need to slide in between Blackwell and Rubin? And if you can give us a little bit of what's it what's it like in the room with the customers, the tenor of these guys risk aversion? Or is the overwhelming demand spur some willingness to to try a new equipment like Aehr Test Systems?

Oh, that's actually there's a there's a lot in there. That those are good ones. Alright. So let me talk about sort of the qualification process. So far in the engagements that we've had so far, we don't need a new product. K? So we are doing some things depending on the pitch of their probe cards. Which we call our WaferPaks, they we may need to do some things specifically for that. We have some design for testability features that we have been touting to our customer base. That allow them, you know, very short lead time high volume, low cost wafer packs. We can also supply them at higher cost and a little bit longer lead time if they don't hit those DFT targets. We've got some of both. And so, like, one of the engagements, they they we made a conversation related to them about their pitch of their devices. And we're like, wow. You know, you happen to choose a pitch on these so many pins. That's driving the cost of your wafer pack up. They're like, well, why didn't you tell me before? And they kinda joke because they hadn't talked to us. Before. And they're like, well, this will be no problem to cut in for our next generation. We're just gonna have to live with it on the current one. So, you know, they're they're engaged with us in kind of a roll up the sleeves working. The qualification, in some cases, is just validating that we can do the same type of and power delivery as we've done with the other processors. On their devices. I think customers I get it. They're they're kind of like, I it's hard to imagine that we can really pull this off, you know, if they…

Gayn, all that color is very helpful. Thank you. To dig in a bit around that last part of the Sonoma versus Fox products, what are the what's the gating factor of why customers are going first with the Sonoma and not right to wafer level burn-in? What needs to be proven out for wafer level burn-in? Yeah. For for those customers? And and how you know, I'm assuming there's there's a sales cycle there of you'd like to start with SNOMA and then push people to wafer level burn-in. So how does that transition go?

Yeah. You know, the way we look at it is we say we're we're just neutral. If you wanna do package part, or you wanna do wafer level, we love you both. K? It's it's not easy to just go you know, talk someone out or whatever is they're used to. So in this case, we don't have to. We just say, listen. We think we make the best machine for qualification reliability of your complex packages with Sonoma. Can test all the processors, HBM, and all the chipsets inside of it in a single pass during your calls. If you want, we'll do it in in production as well. And we're now adding automation to it. But if you'd like to kinda go to the next step, you could do take the high failing devices out of there, and do a wafer level burning of them before you put them in those packages. And our data would suggest you don't need to burn them in again. But, you know, if you still need a little bit of urine, that may be fine. But it you don't wanna have the mass yield loss Some of these processors have four and eight CPU chips in them. Right? Process yeah. Compute chips. And have another, you know, six or eight HBM stacks on it. Just the COWAS substrate is extremely expensive and rare. And so, you know, it makes sense to go to wafer level, but you know, to be candid, one year ago, twelve months ago, we had didn't even have the first order. There was not one machine in the world that could do a wafer level burn-in of an AI processor. K? None. We're the only ones, and we now have just, you know, shipped our first systems And, you know, we're at the front end of this thing. I understand people are sort of in a doubting mode. Let us prove it to them. And I for those that are on the call, if you have a processor, we can you can sit down with us under nondisclosure. We can get tell you which exact specific files we need and we can do a paper benchmark and give you an answer within a couple of days. As to the feasibility of your devices. And so far, we have not found one that we haven't been able to test that we've been given that detailed data of. So I'm sure there are some out there. But for now, we're on a roll. Okay.

Much appreciated.

Thank you. Your next question is coming from Bradford Ferguson. Bradford, your line is live. Please go ahead.

Hello, Gayn. I'm curious about the cost to wait till you get to the motherboard or the package part. Or the final part. We were talking about silicon carbide, you could have twenty four or forty eight sick devices on on launch in one inverter, And, you know, then the whole inverter's bad, and maybe that's maybe that's a a a thousand or $2,000, but you know, the retail price on these Nvidia is what? For $40,000?

Well, rumor is they have really high margins. And I'd love it if the customers would give me credit for their sales price. They really only give me credit for their cost, but fair enough. But their cost is significantly higher than any silicon carbide module ever would be. Fair enough. Yeah. I mean, it's you know? And and by the way, the the to me, the craziest thing is how many people are doing it at the rack level. Like, you're you're talking about all the way at the computer level side of things. And burning it in. And, you know, obviously, a a failure there is you know, some a lot more expensive than it would be all the way back at wafer level. So you wanna move with in our industry, we prefer to shift left. You want it to go as far left in the process as possible because it's way more cost effective In this case, we had the first two steps in the left side, wafer level. And when it's just the module level before that module is then put actually into the system level, where you'd start to see all of the power supplies and everything else on it. You know, like the black the like a g v 200 module itself. And then you'd and then you'd certainly, before it goes over to super micro or to gal or something in some main frame wrap. So, you know, one thing to put in perspective, and I don't think this is the value proposition yet, but it's it is interesting. We know that people are doing this burn in half the rack level. Or the computer level? K? When you're in the computer level, basically, what burn in does is you're basically applying…

And and so you mentioned a the high high bandwidth flash. I'm hearing from some systems makers that they're they're focused on burning more just because of how expensive the it is to you know, scrap the whole motherboard or whatever. Do do you have any kind of end to high bandwidth memory, or is it mainly the high bandwidth flash?

Yeah. I mean, we talked at kind of our first our belief was that the engagements and the interest was first on the HP yeah. On the flash side of things. There is some things There's discussions on the DRAM side of things. I mean, people are really scrambling to try and solve that. Through all kinds of mechanisms. And I I I won't get in all the technological things that we understand, You know, there's very different implications when you talk about Micron Samsung, and Hynix and what they do and how they stack their memories and how they test them. And burn them in. That have know, kind of key differentiating features amongst themselves that make test interesting. We have a pretty good insight to that. I'm not gonna talk about it publicly. But that makes that interesting. Bottom line is you know, high bandwidth memory and then eventually high bandwidth flash, needs to be burnt in. And needs to have a cycle and stress to remove that somehow, or it's gonna show up as it has been in the processors, in the AI stacks. You know? And that, you know, that's widely known and understood and you know, NVIDIA came out last what, six months ago, yelled at everybody and said, you need to figure out how to burn these things in before you ship them to me. We're sick and tired of it. So, you know, I'm not I'm not creating rumors. Those are those are widely understood reports. And so right now, what we're seeing in the test community is sort of, you know, people overuse, you know, the Wild West, but there's just people scrambling for good ideas on how to address this and running as fast as they can. And, you know, it…

On silicon carbide, the sub be my last one. Thank you for your generosity. On Semi, I think one reason for their success is how aggressively they adopted Aehr Test Systems, Fox XP Systems. And, you know, we have a a pretty large bankruptcy that happened with you know, one of their competitors. Is there some kind of risk for the other chip makers if they don't take if they don't take burn in more seriously that it could spell issues for them.

So let me answer it this way. I have been invited to be a keynote speaker I've spoken at multiple technical conferences around the world until carbide and galvanitride conferences. I've sat on several panels, and I have been very almost emotional in some of those discussions. Because we have seen the test and burn in data of more almost all of the wafers in the world. K? That's pretty bold. K? Certainly more than anyone by far K? Everybody would like to think that they are special. And their devices are just so much better than everybody else The reality is that these devices fail during burn in, that represent the actual duty cycle or what called the mission profile of electric vehicles. What that means is if you do not burn them in, it is our belief the data that we have, they will fail during the life of the car. Period. We've talked about that. I've I think I've quoted several times. Whatever you do, it is my opinion. Never buy an electric vehicle that didn't have burn in. For something in the, you know, six to eighteen hours depending on the size of the engine and things like that. And there are OEM suppliers that have the data. Have failed customers who tried to qualify without doing an extensive burn in and kicked them out. And there have been very large suppliers that have lost in the industry because of quality and reliability. So my my call to arms for everybody is there's no reason not to do wafer level burn in or package part if you know, if you don't wanna go with us. Whatever you do, don't skip it. And we now with our 18 wafer system, even at high voltage, K. So we've extended the capability with more cape capabilities The cost of test at high voltage on our system with a capital depreciation of five years, etcetera, is about 0.5¢ per die on an eight inch silicon carbide inverter wafer. Per hour. You can do twenty four hours of burn in for 12¢ a day. And we have been very clear with that. To all the OEMs, and they understand it. And so they drive for a level of quality that they can measure directly on our tools from their suppliers. And I think there is a difference between the people that have adopted a high level of quality and reliability in their market share. And all I'll say is, you know, I think ON Semiconductor has done an incredible job you know, In 02/2019, I think the year before, they had done $10,000,000 in silicon carbide, and they're now, you know, kinda neck and neck for market leadership. And they have won well more than their fair share of the industry across the and I'm just repeating what they have said, across Europe, The US, Japan, and even China. They have done really, really well, and I commend them for that.

Thank you. Your next question is coming from Larry Chlebina. Larry, your line is live. Please go ahead.

Hi, Gayn. The news today on the AMD, hookup with OpenAI Mhmm. Does that does that accelerate your evaluation process that you have with that second process, or will that put more pressure on getting that done?

I we have not talked to the level of detail to determine who it is. We've given up hints. That it's amongst the top suppliers of AI. They it's not one of the ASIC guys. So I I'm gonna try and avoid being more specific. I will restate we are in conversation with every one of the suppliers, and I will then say including those guys. K? So my interpretation of that is you know, it it honestly just sort of warms my heart to see the different people's commitment to the different types of processors. I mean, I without going into whether they are or could or might already be a customer or not, One thing about AMD is and and we've used that again, not as an endorsement to them. We've used them as one of the examples because their, MI three twenty five has eight processor chips in addition to, like, think, at least that many HBM stacks. Plus a chipset. In one substrate. If there's anyone that I would be doing wafer level burn in, they would be amongst them. Okay? But, you know, for exam you know, right now, we provide opportunities for our customers including the likes of those guys, to buy our tools for their their burden requirements for qualifications, either themselves or to use it at one of the many test houses that have our systems. To use our systems for package part burn in for the lowest cost alternative to things like system level test systems that are being used out there. And if the most advanced process would be to do wafer level burn in over time. So you know, I won't comment on anything more than that. Sorry, Larry. But No, sir. You know, I think I in general, you know, I think good news for the processor market is generally good for us right now.

The optical IO opportunity, is that going to involve actually new machines instead of upgrading existing machines? Is that that transition gonna happen here shortly, or is they have more machines that they're they're gonna

The forecast includes both. So Okay. More upgrades and more new machines.

They're be running out of machines upgrade, don't they? Sooner or later. Right?

Yeah. But there's also a scenario where they also have a bunch of products on the current machines. That haven't that haven't gone away. And so know, it's sort of, you know, while you're upgrading these systems, they're backwards compatible. So you can still use the old WaferPaks and everything on them. But, nevertheless, there it's both. And then the other thing, and it's subtle, and those don't know so we we introduced a couple years ago a a front end to the Fox systems that allow you for fully hands free operation with a WaferPak aligner. So you can come up to that with FUPS, in this case, with 300 millimeter, both overhead or AGV, automatic ground vehicles with an e 86 compliant port, that allows you to not even come and touch the machine. And the wafers can run around on the fab, and they can run a burden cycle then move on and go to the next step of test. And So you can you can you can upgrade them with the automation as well then? Exactly. So we took what so we actually took their tools that they had bought in the past with our older 300 millimeter fabs of, like, memory big AI processors, you know, even these silicon photonics you kinda wanna do it But, you know, that's the best way of doing it. Full automation. If they don't if they want offline, they can do that too with us.

On this HBF opportunity, is this a different company other than who you've been working with for Nope. A year and a half What's that? Same same company.

Just Same company. Requirements.

Okay. Yep. I mean, is there do you expect anything to break loose on the original enterprise flash application, or is this gonna continue on

It's yeah. It kinda feels like this is I was gonna say trumping it, but that that word means something different these days. This it feels like they're they're this is such an enormous opportunity to the flash guys. That it's sort of like, you know, the shiny bright light. That may actually be better for us. I'm not sure it's better in terms of near term, like, like, you know, the opportunity is as fast. We'll see. But they could know, they could configure a system. The the new system configuration is superset of the old requirements. And so we had already worked on previous one. And we're working on an updated proposal to show them how they could build blades in our system that could do both their old devices and the new ones. So maybe that'll help it be better I think it is, but you know, it's always interesting when things change. But the one thing none of their old tools will work with this HP Flash.

No. I think so.

Yep. So that's you know, maybe that's a good thing for us. Right?

Alright. That's all I had. I'll see you, tomorrow, I guess.

Thanks, Larry. And Larry's just alluding to we're gonna be over we're here in at semicon. In Arizona, Semicon West, and there's the CEO Summit. That Chris alluded to. Although, Chris, I don't know if you knew this. You were breaking up And it sounds like we had operator problems with the operator connection. The new one is been a lot better. So sorry about that too. To folks that are on the line. Operator, any other call any other questions?

Yeah. I'm showing there are no further questions in queue at this time, and I'd now like to hand the floor back to management. For closing remarks. Thank you.

You know, I I was I I meant to try and work this in. I'm gonna do one little other thing. So the other one we haven't talked about, and maybe next call, we'll spend a little bit more time on. We we did a deep dive last time on the AI side of things. This time was more of an update on on things. There's other products that we have, and one of the things I wanna highlight is the activities that we have within PackagePart outside of AI. Turns out that with the Intel acquisition, they have a low power and a medium power system called Echo and Tahoe that we've been shipping a lot of systems kinda quietly in the background. And recently, we've had some customers I think, edged on egged on by some competitors that were saying, oh, there isn't even doing that stuff anymore, and that's just not true. These products are beloved by the customers for their software, their flexibility, and they did a really good job. In fact, those products were the products that honestly took care out of the packaged fire burn in market because the products were just better than ours. And, you know, we still love those. And if you come on our floor, you'll see them being built right alongside of your Sonoma systems and our Fox systems as well. So I just a message out to our customers We still love you. There's we're we're still committed to supporting those products. And we have way more manufacturing capacity than Intel ever did. So don't be timid. We're happy to continue to ship as we have. And we'll we'll we'll give the investors a little bit more insight. On some of the systems we're building right now, some of the applications that they're going into, that are also another part of this overall shift of all semiconductors needing more and more reliability tests from qualifications to burn in. So with that, I thank everybody, and we appreciate your your time and putting up with a little bit of the stuff going on with the call. We'll work on that and make sure we do better next time. And we appreciate you. Thank you now. Goodbye.

Thank you. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you once again for your participation.