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…

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…

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…

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…

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…

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.