Good day, and welcome to the Aehr Test Systems Third Quarter Fiscal 2022 Financial Results Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jim Byers of MKR Investor Relations. Please go ahead, sir..

Thank you, operator. Good afternoon, and welcome to Aehr Test Systems' third quarter fiscal 2022 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 Ken and Gayn, 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 2022 results. That release is available on the company's website at aehr.com.

This call is being broadcast live over the internet for all interested parties and the webcast will be archived on the investor relations page of the 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 said, I'd like to turn the call over to Gayn Erickson, President and CEO..

Thanks, Jim. Good afternoon, everyone, and thanks for joining us for our third quarter fiscal ‘22 earnings conference call. Let's start with a quick summary of the highlights of the quarter and momentum we're experiencing in the semiconductor wafer level test and burn-in markets, then Ken will go over the financials in detail.

Then we'll open up the lines to take your questions. For the third quarter, revenue was $15.3 million, our highest quarterly revenue on record. This is a sequential increase of 59% over the second quarter and up 190% year-over-year. We also generated non-GAAP net income of $4.1 million and ended the quarter with a strong $26.9 million in backlog.

And our effective backlog, which includes all orders announced since the end of the quarter, is over $30 million.

We continue to see very strong interest in demand for wafer level test and burn-in the silicon carbide devices and enormous growth potential for Aehr's unique solutions to test and burn-in devices to support the worldwide electrification movement and electric vehicles, power conversion and power generation and storage infrastructure.

During the quarter, four additional companies provided detailed wafer layouts to Aehr for their silicon carbide wafers as part of their evaluation of using Aehr's FOX-XP systems and wafer pack contactors for wafer level burn-in of their devices to meet the electric vehicle market and electrification infrastructure markets.

We have provided those customers with the data confirming that we believe we can test their wafers and provide their proposals and lead times to meet their needs.

This includes another major supplier of silicon carbide devices, who has now committed to an on-wafer benchmark and asked us to put a system on their test floor to demonstrate their capabilities.

This is now the second of the top four silicon carbide customers and that's beyond our current lead silicon carbide considered to be one of the top four to engage with us in what we call on-wafer benchmarking of their actual wafers.

We have now made several proposals to customers to place orders to lock in lead times of our FOX systems and wafer packs. And then Aehr will provide on-wafer evaluations and validations for them within the lead time of those systems. In just the last few weeks, we met with multiple companies in both the U.S.

and Europe face-to-face and are very encouraged by the positive feedback we received about their forecasts for wafer level burn-in needs and our expectations for winning this capacity with those prospective customers.

This included very productive meetings with a major supplier of silicon carbide that is already currently doing on-wafer benchmarking and burn-in optimization investigations with our FOX system and wafer packs today. It's apparent that wafer level burn-in will become the standard for silicon carbide devices.

And based upon customer feedback, we continue to believe that Aehr is unique in our ability to meet the cost and volume production needs of this market. Last quarter, we said that we believe we'll add several new customers that will be ramping into production by the end of our fiscal '23, which ends May 31, 2023.

I'm often asked by investors about whether I'm more or less confident about our forecast than last time, I can go ahead and answer that question before someone else answers or asks sorry, the answer is yes, I'm feeling more confident, actually, even much more confident that we will add new customers that will be ramping into production by next May.

We continue to work closely with our lead silicon carbide test and burn-in customer.

And earlier this month, we announced follow on orders from them for additional wafer pack contactors that reflect multiple new silicon carbide device designs they're building to be qualified by their customers, along with several silicon carbide devices now qualified and ramping into volume production to meet demand for electric vehicles.

This customer continues to forecast the need for additional capacity to meet their goal of achieving a major market share of the silicon carbide market. We continue to expect significant additional system and wafer pack purchases from them over the next several years and through the end of the decade.

The silicon carbide semiconductor test and burn-in market is being driven substantially by anticipated growth in electric vehicles. And the combination of the industry moving to multi-die modules and the cost implication of burn-in in a package part versus at wafer or die level is a significant opportunity for Aehr.

And this is where we have a clearly differentiated solution for full wafer level test and burn-in of these devices. Our FOX-XP wafer level burn-in system can test up to 18 wafers at a time, with 100% of the devices being tested and burned in parallel at the same time.

It provides an unprecedented unit per hour cap capacity for wafer level test and burn-in. Wafer level test and burn-in is becoming the preferred way to do the required stress and reliability testing referred to as “burn-in” to remove the extrinsic or early life failures needed to meet the market requirements for reliability.

The reality is this burn-in is really a stress test to weed out weak devices that would otherwise fail later on, such as after it's installed in an electric vehicle. This can result in a Walk Home come event where the Aehr EV will simply not operate and the driver and anyone else in the vehicle will need to walk home.

The need to remove these failures before they're packaged into multi-die modules is critical to reducing the manufacturing cost impact from yield loss. Having devices failed during burn-in at module level, if they're not burned in at wafer level before being put into the modules is extremely costly and reduces customer overall output capacity.

Even a small 1% yield loss can have an 8% yield loss impact on an eight die module. We have seen modules being designed right now with as many as 32 silicon carbide die in them. And it's very clear to those customers that screening out the failures of the die before they're put into the module is the only way to go.

We're also seeing a major trend to do a test process that we call stabilization of key parametric specifications such as the threshold voltage, which is the voltage at which an individual device turns on or the on resistance, which is the forward and reverse resistance of the device when turned on and is a key parameter related to power loss or inverter efficiency.

Companies are now driving to only put matched VTA to RDS on parts in the same modules as a way to increase efficiency and reliability of the modules. This is another key driver for the shift to why customers are driving toward wafer level burn-in.

It's also important to understand that this stabilization is not something that is believed to be able to be done with short burn-in times and actually increases the opportunity for wafer level burn-in market.

With the most cost-effective solution in the market to address this significant opportunity, we believe that Aehr can achieve a significant, perhaps dominant share of the silicon carbide wafer level burn-in market.

Forecasts from Canaccord Genuity estimate that the silicon carbide market for devices and electric vehicles such as traction inverters and onboard chargers as well as the offboard charging stations used for electric vehicle charging, is expected to grow from fewer than 150,000 6-inch equivalent wafers of capacity built in 2021 to more than 4 million wafers built in 2030 to meet the more than 30 million electric vehicles anticipated to be built per year by then.

This projected demand for just electric vehicle-related silicon carbide wafers represents at least a $1 billion market opportunity for our wafer level test and burn-in systems and consumables over the next eight years.

Canaccord also forecasts an additional capacity need of more than 4 million more silicon carbide wafers made in 2030 to meet the demand in 2030 for other electrification, infrastructure, industrial and photovoltaic powered devices.

In our recent customer visits, we're now seeing demand surface for the wafer level burn-in and silicon carbide devices beyond electric vehicles. And we believe it's likely to become a significant market opportunity for Aehr Test as well.

Moving to some other markets, we're also seeing or recovering and strengthening the silicon photonics test and burn-in market, reflecting the post-COVID recovery that's driving devices to meet 5G and data center infrastructure build up.

Several customers addressing the silicon photonics market have forecast additional FOX system and WaferPaK or DiePak contactor capacity needs from us over the next 12 months.

In addition to the silicon carbide and silicon photonics markets, there are strong drivers for our business, during the quarter, we received an initial order from a current FOX-XP customer for our proprietary DiePak carriers for a new optical sensor device [Technical Difficulty]. We're getting some feedback here. Sorry about that, folks.

So we received an additional order from a current XP customer for proprietary DiePak carriers for a new optical sensor device. It represents a new application for our FOX-XP system. This customer is a supplier of sensors to a major mobile device, personal computer and consumer electronics manufacturer.

This is the first order of DiePaks for this device which is expected to move to production and will require additional DiePak carriers and may also require additional FOX-XP system production capacity.

Now turning to our historical package parts business, as we emerge from this two-year pandemic, it has become clear that the forecasts we saw from package part customers heading into the pandemic are not holding up on the other side.

We now believe that material we had purchased against the customer forecasts at the time is likely not to be needed anytime soon. As a result, we're taking a $1 million one-time charge in fiscal Q3 for excess and obsolete material related to these products, primarily ABTS configurations and packaged part burn-in products.

In addition, discussions with customers such as silicon carbide, silicon photonics and memory about products to address their package part needs are met with a ho-hum attitude that quickly turns to requests for more information about our FOX wafer level burn-in systems. With the increased interest in demand we're seeing for wafer level burn-in.

We are turning our focus to full attention and doubling down on our efforts in the near-term to fully capitalize on this substantial opportunity for our FOX full wafer test and burn-in systems and consumables.

This includes several new R&D enhancements to our FOX P family of products that include FOX test system hardware and software features to expand the application space of our systems, enhancements to our WaferPak’s to address higher power and higher voltage applications, and upgrades to our roadmap for WaferPak aligners that we provide with our solutions including the ability to meet the high volume capacity, and full automation requirements we see with several customers we're engaged with today.

We plan to be publicly announcing these new enhancements over the next couple of quarters. So I've had lots of questions about how our supply chain is holding up. As I've noted in past calls, Aehr has the manufacturing infrastructure and supply chain in place to ramp to significantly higher revenue levels.

For example, this year, we'll ship three times what we did last year, and we're just getting started. We have been ordering long lead components for systems and WaferPak’s, particularly for the enormous opportunity we see for silicon carbide that is gaining momentum.

There are many integrated circuits used in our system that currently have greater than 12-month lead times. Our aggressive purchasing of IC components that began last February of last year of 2021 is really paying off.

With a few bumps in the road our supply chain is holding up very well to the increase in demand and growth that we've been able to maintain reasonable lead times to meet customer requests. Aehr has a very robust supply chain with world-class subcontract manufacturers and subsystems or test systems contactors, WaferPak aligners and DiePak handlers.

These are very mature subcontractors that have successfully supplied the systems to Aehr for years. In all cases, the suppliers have capacity well in excess of Aehr's historical shipments, and the ability to ramp significantly higher as well. We're very confident in our ability to meet the customer forecasted demand plus considerable upside.

So lastly, I'm excited to announce today the appointment of a gentleman named Adil Engineer as Chief Operating Officer at Aehr Test. Adil has built a career in operations and supply chain and has been in the semiconductor and medical equipment field for over 20 years.

He started his career with semiconductor equipment company KLA-Tencor where he spent 11 years and also worked at Coherent and [Katiba] [ph] in positions of increasing responsibility in manufacturing engineering and new product introduction and supply chain.

Most recently he was the head of operations at Tecan a Swiss company manufacturing medical test and diagnostic tools, devices and solutions, where he oversaw operations for Tecan’s primary site in the U.S. for manufacturing located in San Jose.

Adil has a bachelor's degree in Chemical Engineering from TKIET and the graduate certificate management science and engineering from Stanford. In his role as COO, Adil will focus on continuing to ramp our supply chain manufacturing as well as increases in infrastructure to meet anticipated demand.

We're certainly pleased with our record revenue in Q3 and forecast to finish the fiscal year with our highest annual revenue on record. And Adil will be working to continue to ramp our ability to meet the needs of the silicon carbide, silicon photonics, 2D and 3D sensors and other markets to support further growth momentum.

We welcome him to Aehr Test and look forward to his contribution.

In closing, we're very excited about the unprecedented inbound interest and expanding growth opportunities we're seeing with a significant number of new potential customers that are evaluating the unique capabilities and cost effectiveness of our FOX-P multi-wafer test and burn-in systems for their test and burn-in needs.

We remain very focused on serving the several large market opportunities we see ahead and are confident in our growth forecasts and ability to meet them.

For the fiscal year, this one we're in right now ending May 31 of 2022 Aehr's reiterating its previously provided guidance for full year total revenue of at least $50 million and to be profitable consistent with our operating model.

Given our revenue in fiscal Q3 of 15.3 million reported just today totaling over $30.5 million for the first three quarters that equates to fiscal Q4 revenue at least 19.5 million, which would equate to another solid and record revenue quarter for Aehr Test.

With that, let me turn it over to Ken to review our financial results and guidance in more detail and we'll open up the lines for questions..

Good afternoon, everyone. As Gayn noted we had a strong financial performance in Q3, which included our highest quarterly revenue on record, solid non-GAAP net income and a healthy backlog of 26.9 million at quarter end.

Looking at our financial results, net sales in the third quarter were record 15.3 million, which is up 59% sequentially from 9.6 million in the preceding second quarter and up 190% from 5.3 million in the third quarter of the previous year.

The sequential increase in net sales from the preceding second quarter includes an increase in system revenues of 3.4 million and WaferPak and DiePak revenues of 2.3 million. Customer service revenues were down 82,000.

The increase from Q3 last year includes an increase in WaferPak and DiePak revenues of 5.5 million, and an increase in system revenues of 4.7 million. Customer service revenues were down 217,000. WaferPak and DiePak revenue comprised nearly half 7.4 million or 49% of our total revenue in the third quarter.

Third quarter shipments were more than doubled the total number of WaferPaks and DiePaks shipped in all of last fiscal year. This is our second consecutive quarter of record WaferPak and DiePak shipments and reflects the growth in the consumables piece of our business, as well as our ability to scale and meet customer demand.

Non-GAAP net income for the third quarter was 4.1 million or $0.14 cents per diluted share, which excludes the impact of $880,000 in stock-based compensation and 1 million one-time charge for excess and obsolete inventory.

This compares to non-GAAP net income of 1.5 million or $0.05 per diluted share, which excludes the impact of 718,000 in stock-based compensation in the preceding second quarter, and a non-GAAP net loss of 360,000 or $0.02 per diluted share, which exclude the impact 271,000 in stock-based compensation in the third quarter of fiscal 2021.

The increase in stock-based compensation compared to prior year is primarily due to stock awards of 270,000 accrued in Q3 '22 related to exceeding stretch goals for fiscal 2022 key business objectives and revenue targets.

And an increase of 346,000 in expense related to the employee stock purchase plan due to increased employee contributions and new enrollments.

While these non-cash expenses exceeded our plan, it is good to have such problems where stretch goals are being exceeded and we recognize and appreciate the hard work of our employees who help achieve these goals.

Excess and obsolete inventory reserves of 1 million were taken in Q3 '22 primarily related to package part burn-in product inventory, as well as some legacy FOX inventory.

We believe that this is a one-time adjustment and we're very happy with our inventory levels to support the significant opportunity we see in wafer level tests with our FOX family of products and consumables.

On a GAAP basis, net income for the third quarter was 2.2 million or $0.08 per diluted share, and compares to GAAP net income of 717,000, or $0.03 per diluted share in the preceding second quarter, and a GAAP net loss of 735,000 or $0.03 per diluted share in the third quarter of the previous year.

Gross profit in the third quarter was 6.4 million, or 42% of sales. The 1 million charge for excess and obsolete inventory taken in Q3 had a seven percentage point impact on our gross margin.

Excluding the impact of this one-time charge, gross margin for the third quarter was 49% up compared to gross profit of 4.5 million or 47% of sales in the preceding second quarter and [indiscernible] gross profit of 1.9 million or 36% of sales in the third quarter of the previous year.

Excluding the impact of the one-time charge, the increase in gross margin from both the preceding second quarter and Q3 of last year is primarily due to a decrease and unabsorbed overhead cost a cost of goods sold.

For the third quarter labor and overhead as a percentage of sales improved by 1.4 percentage points from the preceding second quarter, and 12.4 percentage points from Q3 last year, due to the efficiencies gained with the increase in revenue and a relatively fixed manufacturing overhead.

While third quarter gross margin percentage compares favorably to the preceding second quarter and Q3 last year, the company continues to recognize cost, impacting cost of sales related to the semiconductor shortage and challenging purchasing environment.

In addition to increased direct material cost as a percentage of sales, freight and tariff increases from our business model related to supply chain issues. We're finally starting to see some of the shipping costs come back down so we think that these will ultimately settle down to previous levels.

Operating expenses in the third quarter were 4.1 million and these increase of 339,000 or 9% from 3.8 million in preceding second quarter and up 1.6 million or 63% from 2.5 million in the third quarter of last year. The increase from the prior year Q3 is primarily due to the elimination of cost reduction initiatives put in place during fiscal 2021.

SG&A in the third quarter was 2.6 million, an increase of 123,000 from 2.5 million in the preceding second quarter, and up 969,000 from 1.6 million in the prior year third quarter.

The increase from the preceding second quarter includes an increase in employment costs of 143,000 due to higher incentive payments related to bonus objectives and stock compensation costs related to restricted stock bonuses and our employee stock purchase plan due to new participants to the plan and employee contribution increases.

The increase in prior year third quarter included an increase employment cost of 731,000.

The increase in employment costs included headcount increases, salary increases for employees during fiscal 2022, higher commissions and incentive payments related to bookings, revenues and key bonus objectives and stock compensation costs related to stock bonuses and our employee stock purchase plan due to new participants to the plan and employee contribution increases.

R&D in the third quarter was 1.5 million, up 216,000 compared to 1.3 million in the preceding second quarter and up 626,000 from 903,000 in the third quarter of the prior year.

The increase in R&D from the preceding second quarter includes an increase in employment costs of 136,000 due to higher incentive payments related to bonus objectives, and stock compensation costs related to stock bonuses and employee stock plan, purchase plan due to new participants to the plan and employee contribution increases.

In addition to the increase in employment costs, the company recognized increases in professional consulting and project materials related to R&D program initiatives during fiscal 2022. The increase from prior year third quarter included an increase in employment costs of 463,000.

The increase in employment costs included headcount increases, salary increases for employees during fiscal 2022. Higher incentive payments related to key bonus objectives, and stock compensation costs related to stock bonuses and our employee stock purchase plan due to new participants to the plan and employee contribution increases.

In addition to the increase in employment costs, the company recognized an increase in consulting costs and R&D project materials related to R&D program initiatives during fiscal 2022.

We continue to invest in R&D to enhance our existing market, leading products and introduce new products to maintain our competitive advantages and expand our applications and addressable markets.

Turning to the balance sheet for the third quarter, our cash and cash equivalents were 32 million at February 28, down 3 million from 35 million at the end of the preceding quarter and up 27.4 million from 4.6 million at the end of the fourth quarter of fiscal 2021.

The increase from Q4 21 included the impact of 24 million in net proceeds from our successful ATM offering in the second quarter of fiscal 2022. Accounts receivable at quarter end was 8.5 million, up from 7.4 million at the preceding quarter end due to the impact of higher revenue levels.

Inventories at February 28 were 14.2 million an increase of 1.1 million from the preceding quarter end and 5.3 million from Q4 21 to support our strong backlog. As Gayn indicated we've been ordering long lead components for systems and WaferPak's to ensure adequate supply to meet customer lead times and forecasts.

Property and equipment were 776,000 compared to 661,000 in the preceding quarter end. Customer deposits and deferred revenue short-term and long-term were 6.3 million, a decrease of 4 million from the preceding quarter and an increase of 6 million from Q4 21, related to changes in our backlog from prior quarter. The company has no debt.

This compares to May 31, 2021 fiscal year end where we have 1.4 million outstanding on our line of credit and 1.7 million outstanding on our paycheck protection program or PPP loan. Bookings in third quarter were 6 million, including orders announced after quarter end, our year-to-date bookings totaled over 59 million.

Backlog as of February 28, was 26.9 million, compared to 36.1 million at the end of the preceding quarter and up from 3.7 million at the end of the third quarter last year. Effective backlog which includes backlog at February 28 and all orders announced since the end of third quarter is over 30 million.

Now turning to our outlook for fiscal 2022, which ends on May 31, 2022, we are reiterating our previously provided guidance for full year total revenue of at least 50 million, which would represent revenue of 3x that of last fiscal year and be our highest annual revenue on record.

We expect to be profitable for the fiscal year at these revenue levels based upon our operating model, excluding the impact of the one-time excess and obsolescent charge, and the impact of increased stock compensation and bonus costs associated with exceeding stretch goals for fiscal 2022 key business objectives and revenue targets.

Lastly, looking at the investor relations calendar, Aehr Test will be participating in three investor conferences over the next few months. We'll be meeting with investors virtually at the Oppenheimer Emerging Growth Conference on May 10, and also at the Craig-Hallum Institutional Investor Virtual Conference on June 1.

And we will be presenting and meeting with investors in person at LD Micro Invitational Conference taking place in Los Angeles June 7 through June 9. We hope to see some of you at these conferences. This concludes our prepared remarks. We're now ready to take your questions. Operator, please go ahead..

Thank you. [Operator Instructions] And we will go first to Christian Schwab of Craig-Hallum Capital Group..

Thank you, guys. Congratulations on another solid quarter and thank you for the continued clarity not only on the projected TAM over the next few years, but an update on the customers. But my question comes from, you said in your prepared comments, Gayn, as well -- as well as in the press release.

I’m trying to understand where your conviction comes from. Maybe it comes from the dialogue with the next four customers that you've talked to other than on that it's become apparent that wafer level burn-in will become the standard for silicon carbide devices is a pretty big statement..

Thanks, Christian. I actually heard a few things in that question just sort of where's my conviction coming from? I mean, to be fair, I'll throw it out there. Our orders are not -- were not setting records with orders for the quarter. So how - where's the strength and conviction and confidence coming from. It's a combination of several things.

But it is from direct conversation with customers, seeing their forecasts, seeing their tension related to the capacity that they're going to be bringing on, this year, next year and into the decade and then, talking to them even personally. So when I said we were traveling in U.S. and Europe, it included me.

I personally got to be in front of a large number of customers. And it was a very consistent thread, it was like you go from one to the other.

And it's very clear within the industry that the silicon carbide absolutely positively has this extrinsic failure rate, which is the infant mortality, that through burn-in, through stress test, you can remove the failures and hit the needs of the end market. It is widely understood.

It's now being clear to what's called the Tier 1s or Tier 0s; Tier os been OEMs or the car manufacturers who are specifically talking about burn-in requirements of silicon carbide, including conversations related to wafer level, which I've heard from customers directly is like a first ever, like you never have those conversations, people are very clear about the requirements because they do not want to get this into a car.

They don't want it to be in their car because of the failure implications of having that inverter fail with just a single silicon carbide shorting during a regular run. So everybody is clear, it's burn-in. I've heard multiple specific statements with some real data behind that burn-in is not going away.

We've had some investors call and say hey, I've heard that in the past, their devices that burn-in starts and then they go away. And I always remind them that, DRAM and microprocessors have been burnt in for 30, 40 years and that hasn't gone away. Not all devices ever get out of burn-in.

Certain devices, silicon -- photonics base devices, microprocessors, DRAM, NAND today for any kind of commercial applications, silicon carbide absolutely is going to continue to burn-in, the debate is not whether it's burnt in, where you burnt it in, do you burn it in at package or module or do it at wafer level.

I was on some customer visits, some of which were brand-new customers, and it was if someone had gotten there before us and told them about our products. They were reiterating exactly what we've been talking about the necessity of these gates stress tests as a way to both weed out infant mortality, but to stabilize the threshold voltages and RDS on.

The amount of hours that are needed to actually burn that in, and how you're going to do it cost effectively. And so, that's what I'm hearing and you get it directly from the customers, and then you see it in the news every day about the poll that's going on, just, every car manufacturer, all the things that are going on, all the infrastructure.

GM is going to have 30 cars by 2025. It's like, Ford's building an F150 For heaven's sakes, that's electric vehicle based. And then you have, I don't want to get into the politics of, what's going on in the crisis in the world.

But, if you thought people were running away for their dependencies upon gasoline, oil and internal combustion engines before, it's even getting more extreme, and so it's certainly one of the most exciting times of my career. And we think we can help.

We've heard customers say, you are absolutely unique in what you do, please just make sure you can ramp and meet our needs. So that's where my conviction is coming from and it's coming firsthand from looking at big and small customers that are out there. And if you don't hear my voice, you don't know me very well.

I'm very - it's a really exciting time..

Great. I appreciate that, Gayn. And then just a quick follow-up on that then as it is -- as you have these dialogue with your customers and you, and the concern is about being able to be in a position to ramp material amount of a product or systems for them, quickly.

Has the conversation about payment terms, changed in any way, should we continue to assume that leading customers will put a substantial amount of cash down or prepaid COGS, in essence, if you will? Is there any dialogue or change with, say, the four customers you highlighted in the press release that different than the way that honest and giving it first?.

Well, I can answer that, honestly. But also, as I always have to remind people that we have on these calls, not only investors, we have key customers, and we have potential want to be competitors and other things, too. But we have stated very publicly with people, we have agreements with our large customers today, that is all of them.

If you look at our 10% customers that we have publicly announced due to SEC requirements that includes the likes of Intel, Apple ST, On Semiconductor, TI, okay? We have had and continue to have down payment requirements from them, and we have agreed to do the same with other customers. Honestly, it hasn't been that big of a deal.

I know this is interesting, and certainly, the financial communicate would understand this. Now that we have cash in the bank, people are less worried about giving us down payments because it's sort of like our bankers are really happy to give us great terms on money right now when we don't need it.

But that hasn't been an issue, and if it comes up, we'll have a conversation about that, but yes, that hasn't been an issue so far..

Great. Thanks. Congrats on a great year. Thanks..

Thanks, Christian. Thank you..

And we'll go next to Tom Diffely of D.A. Davidson..

Hey, Tom..

Yes, good afternoon. Yes, thank you very much. So Gayn, I would like to talk a little bit about the sales cycle. And in particular, when you look at the four new customers that gave you wafer layoffs, I assume that so you can build your WaferPaks to start the testing process.

But I'm more interested I guess in where is this in the sales cycle, and how long would you expect it to take to get to orders after this?.

Okay. You know what, it's a very -- a valid question, it's very kind of pertinent right now.

So if you look at what we had been touting a couple of years ago is we have actually demonstrated to our lead customer at the time, our ability to do an amazing thing, and that was not only test an entire wafer of these silicon carbide devices, but be able to tell them with 100% confidence, everything about the device and when it actually failed during burn-in.

And then we could test 18 of them. Quite frankly, when we said that to them, there was a reasonable level of disbelief. And we said, we'll show you, we'll prove it to you.

Soon as we did, they immediately, as we have told people, said, can you start shipping me wafers while I order one until you build me one, and technically, that's how the process went.

As we have gone around to other customers, particularly during COVID, we actually have this sort of marketing campaign that said, listen, I know you can't travel, et cetera, send us your wafer, we'll do a benchmark for you.

And as people were wondering like, well, where are you, we actually have been talking about another large supplier who has been doing a benchmark with us now for a while, they've actually continued to do optimization, we can't get into all the details, but that I can tell you is actually going very well.

And then we just specifically pointed out that another one of the big ones, the big four, we have one of them. There's three other big ones, has now moved forward and said, listen, we want you to test wafers. We want you to put a system on their floor. What we have shifted to, candidly, is customers for the most part aren't questioning us at all.

They're kind of, I believe you, tell me about your lead times. So this idea that I need to prove it to them along the way while we are still perfectly comfortable doing that, they're still like, well, okay, if I do that, and it takes you eight weeks to show me a wafer or something, and then I order, when is it -- what's that look like.

So the conversation started to shift towards, well, maybe ought to buy a system, and then I will demonstrate it along the way. And so I think that's a more reasonable thing to move towards.

There may be still customers that want us to demonstrate it first and then order a system afterwards with whatever lead times, and we're perfectly happy to do that. I mean, everybody would like order sooner. But quite frankly, I think we're going to see more shift towards customers, they place the order, we will guarantee its feasibility.

We do that all the time anyhow. I mean if it didn't work, we would not charge them for it. So we always put our money where our mouth is. That has never been a change with any order we've ever taken and then it will shift towards maybe you lead with an order and the benchmark goes along the way.

So we think that's an appropriate thing to do, particularly as we go forward, as people start looking at their ramps to meet the EV needs in '23, '24, '25 in particular. I mean, there's some big numbers that are coming on starting next year.

And it's like, well, how many systems do you need, I'm going to need to start allocating capacity to you, I'm not just going to do it on a forecast, you're going to need to give me some commitments, et cetera.

So we're going to start driving for kind of long lead orders and commitments from customers, including new customers, and that's going to have to be a shift so that people can count on us. So stay tuned for that.

I mean next quarter is where we'll announce, obviously, the year-end, but we'll give guidance for the year, and we hope to be able to have nailed down some agreements and other things with customers. So we'll be able to give some more clear resolution throughout the year and what next year looks like, okay? I hope that helps..

Yes. No, absolutely. And you gave some nice clarity on some of the lead times for things like ICs and how you kind of got ahead of that.

I'm curious, are you doing any other prebuilding of these systems ahead of what could be a very strong year?.

We are. We are. We actually -- so our supply chain is -- I'd say by many people's knot is pretty complicated. I'm very familiar with it. I've been doing this my whole life. It's very similar to other ATE systems. You have large enclosures, you have printed circuit boards, you have sub-assembly mechanicals.

We do all those through subcontract manufacturers and the tools come in and they get assembled and tested here and out the door. And we always invite shareholders or customers who want to come visit us, we -- we'd be happy to show you our manufacturing floor. So all of that comes in.

We are -- honestly, we're not trying to be -- I'm looking across, we're actually in a same room for the first time for a while, Ken and I for these conferences. I'm not being cheap right now. We are buying ahead on material to ensure we do not have -- we're not caught.

And so we're capturing chambers, we're capping interiors, we're capping thermal systems. We're capturing prided circuit boards. Right now, the most critical thing in our lead time is that when the components are coming in, we put them on printed circuit boards to ship the final systems.

And we're kind of hand them out on that right now, and we think we're going to start catching up during this quarter to actually have some additional buffer.

But so far, for the most part, we've been able to meet even the pull-in requirements of some of our customers, probably more than what's reasonable, but of course, everybody would like stuff a little bit sooner. So we're stocking up, and that's why it shows up in our inventory.

So we've got -- we've kind of shifted our previous inventory all over into now FOX-related inventory instead of the old package part and some other things. So if you go out there and you look at all the dollars, they're all FOX-related in the FOX-P family and WaferPaks and DiePaks are all shippable good revenue.

And then, of course, we still have dry powder in the bank, thanks to everybody on the ATM raise that we did to actually allow us to buy more as necessary. So -- and then we are -- I said we started buying components last February. I'm buying parts out through next summer right now.

And I know everybody would like to know how many, I'm not going to tell you, but it's certainly enough to exceed reasonable expectations of our revenue. So that's a good thing..

Okay.

Maybe just a last question on this topic, when you look at the systems, the FOX family of systems, it's pretty uniform across customers, there's not a lot of customization, and so there's not a big risk of not being fungible for a lot of different customers?.

That's right. Yes, every one of my customers uses the same chamber. They all use the same what we call blades with slight variations that are -- that actually can be reconfigured here.

They all use the same, which we call the channel module controllers, which is the base system for power and communication and then they use variations of what we call channel modules. And each of the customers is some combination of three channel modules today. We're actually working on a couple of different flavors of them.

They themselves share like 75% of the components are the same. So the family and this platform to be able to kind of mix and match and kind of configure to order is -- was a critical strategy for us.

We knew that when we came up with that and we built this new family, and it is really paying off right now because I don't care what I tell you, we can never forecast exactly what's going to happen. So what you do is you build a product line to where within a wide range of forecasts, you can still meet the customers' needs.

And we're actually proving that as we go. We've had some drop-in orders from our silicon photonics customer. We basically took capacity that we were building ahead on some silicon carbide capacity reconfigured it and shipping it to the silicon photonics customer..

Great. And just one question for Ken.

From a modeling point of view, how do you view the steady-state level of stock-based comp?.

That's an excellent question. As I spoke about, we had a significant increase in stock-based comp this -- actually this fiscal year, including $880,000 this quarter. For the fiscal year, I would not plan on having that significant of an amount. Yes. Gayn is trying to have me state a specific amount. I don't want to lock into any specific dollar..

Yes. Hey, Tom, it's not going to go down to where it was before anytime soon just because of the way some of the stock works right now. It's -- but I guess it's good problems to have, but it's the real numbers right now..

And the key item is that is the relative bonuses. Keep in mind that at the -- when we developed our compensation plans at the beginning of the year, it was based upon revenue levels of $28 million. And then we actually had thresholds to -- and we've exceeded based upon this year, the highest thresholds.

We will be adjusting our numbers up for next year. And as Gayn and I chat about earlier --.

Ratcheting up, would be --.

Ratcheting up. And if we exceed it next year, the investor base will be very, very, rewarded..

Yes. If we take our forecast and double it again, we might actually have excess, we might have some more again, and that would be a wonderful problem to have, so..

Yeah, no, understood, and thank you, and congratulations on the nice momentum..

Thanks, Tom..

Thanks, Tom..

And we'll move next to Jon Gruber of Gruber & McBaine..

Hey Jon. Jon, you are on mute. .

Jon, we're not able to hear you. Please pick up the handset or depress the mute function so that we can hear you..

Operator, may we move on? Let's make sure we come back to Jon, okay?.

Thank you..

Because I always like getting beat up about where the order is from Jon. So I don't want to miss out on my quarterly -- okay, go ahead..

And we'll go next to Dylan Patel of SemiAnalysis..

Hey Gayn, thanks for having me on. I wanted to focus on, on one of your comments on the earlier question, specifically on automotive customers.

You mentioned -- so a lot of these automotive and industrial companies are becoming hyperaware of semiconductors, and so they've been reaching out deeper into their supply chains and started working directly with snaps and the supplier for the chips, one previously they may not have.

And you mentioned that about wafer level burn-in as an automotive customer potentially having brought that up.

Do you think that these automotive customers could start demanding wafer level burn-in and then that drive sales of your product?.

I hope so. The way we're looking at this is that we're trying to provide our customers, the industry -- in the last quarter, actually, we just attended this big conference called PowerAmerica, which is an industry conference of about 60 companies helping to drive silicon carbide and electrification.

It was a fantastic meeting of companies I had a chance to meet and rub elbows with. One of the critical things that every -- it's one of the critical things with silicon carbide in addition to actually capacity is quality. I mean it's like capacity, quality, how do I get quality effects out, how do I try to go out there.

And then one of the tones I hear is it's sort of a rising tide. Maybe I've shared this before, we had a direct customer of ours directly talk to us and they said, listen, we think the world of your system, we think you should go tell so and so about it. It's like that's your competitor.

He goes, yes, I don't care because they have issues with their product. And if they have issues in the industry, that could impact or give -- tarnish the reputation of all of us.

And so there's this awareness and people rolling up their sleeves, like listen, they don't have to differentiate necessarily on which tool they use, just long as everybody please do not ship these things without going through burn-in. And so there's an awareness in the industry that we're trying to help enable.

We also think that there's evidence that -- so we know for a fact many of the devices that are being used in our system, what end customer goes to, okay? And we know that, that customer is involved in signing off on the qualification and the quality burn-in.

And so that eventually could show up as they buy from other companies as well in sort of an expectation. And at least it's our expectation that if anybody goes to a VW or Mercedes or a Tesla or a Neo or name it, and says, by the way, we're doing wafer-level burn-in and they say, and it's Aehr, and they say, that's great.

We're familiar with that, check the box. It would be great if they could say, oh, are you using Aehr that would be an aspiration for us. But at this point, we just want to be known as the one you can count on to ship quality products.

If you follow our processes, use our WaferPaks and our procedures for actually qualifying your devices, and that would be a good thing. Hope, you are on mute..

Great. And then I wanted to ask -- hey, I wanted to ask another question specifically regarding the WaferPaks and sort of the reoccurring revenue stream there, right? So my understanding is that they're accustomed to each sort of wafer or die configuration, right, design or wafer configuration.

So I wanted to ask -- so a lot of these probe card companies such as FormFactor spoke about low-yielding products demanding more intensive probe card usage. And you've previously described the WaferPaks contactor sort of similarly to what a probe card is in some ways.

And so silicon carbide has a low yield, and obviously, that increases the need to do burn-in.

But as these companies move to more complex or transistor or trans design, there always sort of other designs, do you think that the wafer level burn-in demand could pick up even more per wafer or do you think they'll sort of stick around that? You previously mentioned the amount of time that each wafer is burned in.

And then how long do you think that --.

Yes, let me try and answer that for some reason, I have this quote that's coming back about Reagan saying, I won't let the age of my opponent get in the way or something like that. I'm not going to -- I don't want FormFactor's statement that they said people have to use a lot more, there's probe cards as some indication of quality.

They're actually a fantastic company. I know Mike and those folks really well. So it's a little different.

So in their most semiconductor devices today with the exception of memories and those being used in burn-in, the test time is measured in seconds, often two seconds, okay? And so every two seconds, you actually, what you call, touch down, you actually touch the device with the needles and you make an electrical test, low-speed, high-speed DC whatever it is.

Then you move to the next device and you test the next one. So every couple of seconds, the needle is moving.

I wouldn't want to quickly do the math in my head, but that's a lot of touchdowns per day and, for example, okay, 60 seconds times 60 minutes times 24, divided by 2, somebody do that math for me, okay? Probe cards are often specified or differentiated based upon how many touchdowns they can make before they wear out.

They actually scrub off a little bit of metal every time they touch at some micron level. And so after maybe 100,000 touchdowns, they might wear out or 200,000 touchdowns. And if you get 1,000 touchdowns a day, maybe 200 days later, it wears out. You're with me on that? Okay? So we're actually similar.

We have the same, I'd say, quality levels, in fact, our probe cards are probably more robust than many others. It's out there also not quite as high frequency and some other things. They're designed to go at much higher temperature than the average probe card does.

So we'll do ours up to 150 degrees Celsius versus any probe cards can only go to 85 or 100 or 125. But nevertheless, we'll still last 100,000 touchdowns. But keep in mind that, I mean, I just had a conversation with a customer this morning, who was asking me about the life of their WaferPaks if they buy it from us.

And they have an estimated burn-in time of 48 hours. So I just tell them, well, it's going to last about 100,000 insertions, which is 200,000 days. I'm pretty sure that even your automotive device will never last that long. So they don't really wear out, instead, it will last the life of the device.

And so the key is how often will they change to a smaller device or a new die size or something. And right now, in silicon carbide, there's a lot of turnover. People are going to Gen 1, Gen 2, Gen 3, Gen 4 to 150-millimeter, 200-millimeter wafers. And when they do that, they end up with new WaferPaks or probe cards.

So we're right now thinking that maybe about every four years or so, there will be a turnover, more of the devices than of the probe card wearing out or the WaferPak. And so -- and you need one WaferPak with each tester blade in a tester. So keep in mind that FOX-XP configured for silicon carbide gate is 18 wafers at a time. You also need 18 WaferPaks.

So you buy a system, you buy 18 WaferPaks, that gets you an 18-wafer test cell. And then every four years, you might buy another 18 WaferPaks. So over about 10 years, you buy three sets of WaferPaks and one hardware, something like that, might be a way of looking at it, that helps..

Thank you. That's very helpful and gives me some napkin math to try and do or maybe some more in-depth math. Lastly, I wanted to ask about the automotive LiDAR market.

Last quarter, we talked about smartphones and AR sensors is, all I would ask you about automotive LiDAR, they're very expensive, high cost, high reliability requirements, right, because they go in automotive.

Do you have any visibility into whether LiDAR could start requiring wafer-level burn-in like other photonics applications that you've spoken about in the past? And can you just talk about that? Thank you..

Not really. So yes, we have some visibility of it. We can't really talk much about it, but we are talking to -- we do have some information under nondisclosures related to it. There does appear to be some reasons to consider the LiDAR to do burn-in and also some applications of value of doing it at wafer level.

I think the jury is still out in my mind, but we're working on some stuff right now in that space, okay? So we'll see. It's not clear exactly how that volume would -- what that would turn into yet.

What we do know is that LiDAR or the emitter itself like all optical emitters have some infant mortality, okay, and therefore, may want to go through a burn-in or a stress test to weed out the infant failures.

And that also they have what they call a stabilization issue, which means that their output intensity decays with time during the first 24 to 48 hours. In certain applications like communications, that intensity decay is extremely critical. It's why all the silicon photonics guys do burn-in.

On LiDAR, it's not as clear, same as 2D, 3D facial recognition, the intensity drop may not be as significant in that application. So maybe more to do with the infant mortality. So we'll see, but I would not count on that being a big driver for our business right now, but I might be wrong..

Great, thanks. Hope, you have a good day..

Okay.

Did we -- hey, Jon, did you try and get back in again?.

And we'll see if we're able to hear, Jon, at this time. Mr. Gruber, your line is open if you have a question at this time..

Yes. Yes. Can you hear me? Yes, sorry, I moved up..

Yes, we can. We can, Jon..

Hey congratulations on the commentary of the two new guys ready to roll here.

I mean is -- what do you really strictly think will take to get one the first of the two here to come over the goal line?.

Well, they're both a little different. I can't get into a lot of it. They both have a balance of short and longer 1 and 2-year goals of intercepting capacity. And they're kind of coming out this a little different. Again, I can't get into all of that.

But we're -- I think we've got what has demonstrated a very good working relationship at the executive level of both of them. And I believe we can help them, and I believe they think we can help them as well.

And so we're just trying to be an impedance match and make sure that we're addressing what their needs are, being the guy, being communicating what our capacities are. And we think that, yes, I mean I personally think that we're going to end up with them being customers as well.

My attorneys always warn me about paying that stuff, but that's what I think..

Yes. And secondly, gross margin was lower than the first two quarters.

What would you attribute that to, I think it was 41% something?.

Yes. So, Jon, I think I touched on that a little bit. We actually took an E&O provision for our legacy products of a little over $1 million, which had a --.

That was in that -- that was in that number?.

Yes, that's in there. Otherwise, they're fine..

We're at 49% excluding that..

Okay, yes..

Yes. Right in line with what we expect..

So then they were pretty decent then. So forget that. Okay. Thank you..

You're welcome..

And at this time, I would like to turn the call back to Aehr Test management..

All right. Well, thank you, everybody. And actually, this is great because we did have some feedback from folks to try and see if we can kind of aim for one hour. That worked out great this time. We'll try and continue to be as concise as we can in our prepared remarks.

And as always, if people have questions, please follow back up with us directly or with MKIR, we'll be happy to set up a phone call for follow-up conversations. We are excited about Q4, looking forward to seeing some of you folks at some of the conferences and closing the loop with you on year-end, I guess, here in July.

It's a long way out and giving guidance towards next year, which ought to be exciting. Take care. Bye-bye..

And this concludes today's call. Thank you for your participation. You may now disconnect..