Good day and welcome to the Aehr Test Systems' First Quarter Fiscal 2021 Financial Results Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Jim Byers of the MKR Investor Relations. Please go ahead, sir.

Thank you, operator. Good afternoon and welcome to Aehr Test Systems' first quarter fiscal 2021 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 Gayn and Ken, I'd like to cover a few quick items. This afternoon Aehr Test issued a press release announcing its first quarter fiscal 2021 results. That release will be 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 conference call over to Gayn Erickson, President and Chief Executive Officer. Gayn?

Thanks, Jim. Good afternoon to everyone on today's call and those listening online. Ken will discuss our first quarter financial results later, but first, I’d like to share some insights into the challenges we faced this quarter and how we addressed them. Afterward, I will talk about our current situation and why we believe we are moving in a positive direction. We will then take your questions. As we expected during our last earnings call, the first quarter's financial results were affected by the tough global business environment caused by the COVID-19 pandemic and delays in forecasted customer orders for FOX-P systems and consumables over the past six months. This was evident with customers in data centers and certain 5G applications involving silicon photonics transceivers, as well as delays in automotive devices and sensors for mobile devices. These customers believe the delays are temporary and will need additional system capacity and consumables later in the fiscal 2021 year. Most of our revenue forecast for this year comes from current customers who have already qualified our systems and consumables for production use. This includes follow-on orders from our silicon photonics clients, anticipated production ramp-up, our new silicon carbide customer from last year, and additional orders from our expanding installed base of FOX wafer level and singulated die and module test system consumables. Consumables sales from our FOX WaferPaks and DiePaks comprised nearly 50% of our revenue last year, and we expect them to be a significant revenue contributor again this year. We are maintaining our full-year revenue expectations and anticipate that most of our orders and revenues will be back-end loaded this fiscal year. It's also crucial to highlight that a significant portion of this anticipated revenue is based on commitments from current customers who have already planned their production and informed us of their purchases. I want our shareholders to understand that we acknowledge the financial challenges of fiscal Q1, but we also experienced events and successes during the quarter that give us optimism about the business moving forward. In Q1, we shipped and successfully installed the FOX-NP full wafer test and burn-in system for initial production and stabilization for a new customer who is a global leader in communication transceivers for data centers, telecom, and 5G infrastructure. This customer plans to transition to our FOX-XP wafer level testing burn-in systems this fiscal year to meet their volume production forecasts, and we expect their growth to continue for several years. We classify this customer as a Tier 1 customer, defined as a client capable of spending $6 million to $10 million or more annually on our systems and consumables. In our last call, we mentioned closing an initial order with the world's largest Outsourced Semiconductor Assembly and Test supplier. During the first quarter, we initiated an initial marketing and sales campaign with this customer for the FOX-P product family, including Aehr WaferPaks and DiePaks for production testing, burn-in, and reliability screening of devices at full wafer, singulated die, and module levels. This campaign has already led to several new customer engagements. They requested to remain unnamed publicly for now as they see their entry into the silicon photonics assembly packaging and test space as a strategic move. They aim to capture market share from key target customers before announcing their competitive advantage of offering a comprehensive solution, including full wafer level test and burn-in prior to assembling silicon photonics engines into transceiver modules. We expect to publicly announce this partnership in due time. We also expanded the deployment of the FOX-XP for silicon carbide devices during the quarter. We secured multiple new device design wins and completed the initial production release of several new silicon carbide devices using our FOX-XP system for high volume production burn-in and early failure screening at wafer level for electric vehicle power modules. They forecast the need for additional FOX-XP system capacity and consumables this fiscal year and beyond. A unique capability of our solution is the ability to test 100% of the die on a wafer in a single insertion, providing full traceability of pass and fail results, including the exact time failures occur during the test and burn-in cycles. This feature is essential for building customer confidence in eliminating early life failures before shipping. Our systems can test all devices on 4, 6, 8, and 12-inch wafers and can handle 18 wafers at a time in one FOX-XP system. We estimate the total market opportunity for silicon carbide and silicon photonics wafer level and singulated die testing to be around $250 million, including consumables. The silicon carbide semiconductor device market is expanding rapidly, with unit growth for high power devices projected to exceed a 50% CAGR from 2019 through 2025 according to Yole Research. We continue to engage with over a dozen potential customers. In Q1, our roster of Tier 1 and Tier 2 customers considering our products for upward market growth applications, like silicon photonics and silicon carbide production burn-in, grew further. Additionally, we're noticing new applications and devices in the mobile sensor sector, which could present further opportunities late in fiscal 2021 and into 2022. As previously mentioned, we’re starting to see forecasts for increased demand for packaged part burn-in applications, especially from customers seeking high voltage capabilities, reflecting a shift towards higher voltages and new requirements in automotive devices. We anticipate resuming bookings from certain existing Aaer customers this fiscal year, as well as new opportunities stemming from our planned introduction of a new packaged part burn-in product with high voltage test capabilities. However, we remain cautious in our packaged part burn-in forecasts, as this segment appears heavily affected by delays linked to COVID-19 in customer evaluations. Recently, two customers have postponed their anticipated need for additional systems to our next fiscal year, which serendipitously aligns with the timing of our new system availability. Nonetheless, we see a significant demand for high voltage capabilities in both wafer level and packaged part testing as a promising growth opportunity for Aehr and expect to welcome several new customers, including both Tier 1 and Tier 2 level clients for packaged part burn-in this fiscal year and next. While COVID-19 has presented real challenges, including travel restrictions and overall customer caution, which have delayed some production ramps, we believe there will be no long-term adverse effects on Aehr, the demand for our products, or the appeal of the key markets we serve. We maintain our confidence that we will emerge from this global pandemic stronger, with more production customers, more applications, and higher value products. Our main customers are active in some of the fastest-growing markets, including data centers, 5G infrastructure, sensors, smartphone and tablet technologies, electric and hybrid vehicles, and data storage and computing—all integral to keeping the world connected. Therefore, we believe there will be strong demand for our products this year and beyond. As we progress through fiscal 2021, we remain optimistic about growth opportunities for our systems and consumables within our existing customer base, as well as in expanding the number of clients using the FOX product line. We expect notable growth in both top and bottom lines moving forward, driven by lower fixed operating costs and significantly higher margin products and services. Before I hand the call over to Ken for a more in-depth look at our financial results, I would like to take a moment to express gratitude to John Schneider for his contributions as a Board member since 2015. Earlier this month, we announced John's retirement and appointment of Geoffrey Scott to our Board of Directors as his replacement. Geoff has been a significant investor in Aehr for some time and is actively involved with the company's management. He brings valuable insights into investor relations, corporate banking, and capital markets and will take over John's roles on the Audit Committee, Corporate Governance, and Nominating Committee. We welcome him aboard. Now, I'll turn it over to you, Ken, and we’ll then open the lines for questions.

Thank you, Gayn, and good afternoon, everyone. As Gayn noted, our first quarter financial results reflect the impact of the challenging global business environment around the COVID pandemic and customers who delayed forecasted orders for our FOX systems and consumables during the past six months. These customers have indicated the delays are temporary and that they will require the additional system capacity and consumables later in our current fiscal year. As such, we expect our fiscal year orders and revenues to be backend loaded. At the same time, we discussed on our last earnings call, we have taken actions to control spending. In our fourth quarter, we completed the restructuring to strengthen our sales capabilities and reduce our costs. These actions, including closing our Aehr Test Systems Japan subsidiary and moving to a sales rep distributorship model in Japan and Germany, resulted in permanent savings of approximately $120,000 per quarter. We believe these enhancements will improve our efficiency and materially increase our sales activity and bookings going forward and increase our penetration of key customers in our targeted markets. As we have shifted to higher margin, highly differentiated systems and consumables, these changes also position us for success with sales of our current products, as well as additional new products planned for introduction this year. We have also implemented temporary cost reduction initiatives. These actions reflect prudent short-term cost reductions in response to the decrease in order and shipment activities in Q4 '20 and Q4 '21, and our commitment to managing cash and expenses as we weather through these challenging times. These temporary cost saving measures resulted in savings of over $200,000 in operating expenses in Q4 and over $350,000 in savings in Q1 '21. As we announced in our 8-K filing earlier this month, starting in the current second quarter, we expanded our cost reduction initiatives to include a 30% pay reduction in officers' salaries, an increase in mandatory shutdown days and reduction in employees. These cost reduction measures are expected to result in savings of over $550,000 per quarter. Including the permanent and temporary cost reduction measures, Aehr's revenue breakeven decreased by approximately $4.5 million per year. It is important to note that, even with these cost controls in place, our operational capacity and bandwidth have not been negatively impacted and our main focus continues to be growing our revenue base within the large market opportunities that Gayn mentioned earlier. Now turning to the financial results. Net sales in the first quarter were $2 million, down from $3.8 million in the preceding fourth quarter and $5.5 million in the first quarter of the previous year. The sequential decrease from the preceding Q4 reflects a decrease of $1.6 million in wafer level burn-in revenues and a $195,000 in customer service revenues. This was primarily due to a decrease in WaferPak DiePak revenues of $2.4 million which was partially offset by an increase in wafer level burn-in system revenues of $801,000. The decrease from Q1 last year reflects a decrease of $3.1 million in wafer level burn-in revenues and $365 million in customer service revenues. This was primarily due to a decrease in wafer level burn-in system revenues of $2.1 million and a decrease in WaferPak DiePak revenues of $1 million. There were no packaged part system revenues in Q1'21, Q4'20 or Q1'20. Non-GAAP net loss for the first quarter was $2 million or $0.09 per diluted share compared to non-GAAP net loss of $720,000 or $0.03 per diluted share in the preceding quarter, and a non-GAAP net loss of $214,000 or $0.01 per diluted share in the first quarter of the previous year. The non-GAAP results for Q1'21 include the impact of stock-based compensation expense, and a $2.4 million adjustment related to the closure of our Japan subsidiary. This adjustment includes a $2.2 million cumulative translation adjustment, a non-cash item, representing the cumulative impact of exchange rate fluctuations held on our subsidiary books, which was released to income due to the dissolution and liquidation of our Japan subsidiary in Q1 and a tax benefit of $215,000 related to the closure. On a GAAP basis, net income for the first quarter was $107,000 or $0.00 per diluted share compared to a GAAP net loss of $2.9 million or $0.13 per diluted share in the preceding quarter, and a GAAP net loss of $413,000 or $0.02 per diluted share in the first quarter of the previous year. Gross profit in the first quarter was $227,000 or 11% of sales compared to a gross loss of $93,000 or 2% of sales in the preceding fourth quarter and gross profit of $2.3 million or 41% of sales in the first quarter of the previous year. The increase in gross margin from the preceding quarter is due to the impact of the $1.6 million excess and obsolescence inventory provision during Q4'20, accounting for a 44 percentage point impact in gross margin in the quarter. Gross margin was unfavorably impacted in Q1'21 due to higher unabsorbed overhead costs due to low revenue levels in Q1'21 compared to Q4'20 and Q1 last year; and an increase in direct material costs as a percentage of sales due to a change in mix from wafer level — excuse me, WaferPak DiePak revenues to system revenues in Q1'21. Operating expenses in the first quarter were $2.4 million, down $334,000 from $2.7 million in the preceding fourth quarter and down $286,000 from the first quarter last year. The decrease in operating expenses from the preceding Q4 quarter is primarily due to restructuring charges of $220,000 in Q4'20 and a decrease in employment-related expenses from cost reduction initiatives implemented during the middle of Q4'20. The decrease from Q1 last year is primarily due to a decrease in employment-related expenses from cost reduction initiatives implemented starting in the middle of Q4'20. SG&A was $1.5 million for the first quarter, and a decrease of $160,000 from $1.7 million in the preceding fourth quarter and down $294,000 from $1.8 million in the prior year first quarter. The decrease from Q4 and Q1 of last year is due primarily to a decrease in employment-related expenses from the cost reduction initiatives previously mentioned. R&D expenses were $900,000 in the first quarter, up slightly compared to $854,000 in the preceding fourth quarter and flat compared to $892,000 in the prior year first quarter. Turning to the balance sheet for the first quarter. Our cash and cash equivalents were $6.3 million at August 31st, up $880,000 compared to $5.4 million at the end of the preceding quarter. Accounts receivable at quarter end was $1.1 million, down from $3.7 million at the preceding quarter end due to the impact of lower revenue levels in the quarter. Inventories at August 31st were $8.1 million, up slightly compared to $8 million at the preceding quarter end. Property and equipment was $622,000 compared to $663,000 at the preceding quarter end. Customer deposits and deferred revenue, short-term and long term, were $406,000, an increase of $214,000 compared to $192,000 at the preceding quarter end. Our current and long-term debt of $1.7 million is related to funds received during the fourth quarter under the Paycheck Protection Program or PPP, which we announced in an 8-K filing in late April. The PPP loan is intended to be forgiven, subject to any provisions of the CARES Act. And we've just been notified that our bank is now accepting applications for loan forgiveness under the PPP program. We expect to complete the application process shortly. Bookings in the first quarter totaled $672,000. Backlog at August 31st was $1.2 million compared to $2.5 million at the end of the preceding fourth quarter and $3.6 million at the end of the first quarter of the previous year. Now turning to outlook for fiscal 2021. For the fiscal 2021 year ended May 31, 2021, we are reiterating our guidance for full year total revenue of between $25 million and $28 million, which would represent growth between 12% and 26% year-over-year and to be profitable for the year. Lastly, a couple of updates on the Investor Relations front. Our Annual Shareholders' Meeting will be held on Tuesday, October 20th, and we'll be available to join via webcast for all interested parties. Then in November, we will be participating in the Craig-Hallum Alpha Select Virtual Investor Conference on November 17th. We hope to see some of you virtually at the conference. This concludes our prepared remarks. We are now ready to take your questions.

We'll take our first question in queue. This comes from Christian Schwab, Craig-Hallum Capital Group. Please go ahead.

Gayn, can you help us understand the applications or the specifics, I guess, I kind of missed it in the prepared comments about the customer commitments, for the meaningful revenue over the next 2 to 3 quarters to get to our target revenue range for the year? Can you walk us through some of the commitments that you feel very confident about?

Sure. I haven't completely thought through how to express this since some customers are unique and their needs are fairly obvious. I'll try to keep it general to protect the confidentiality of our specific customers. To start, in the silicon photonics market, most of our customers have clearly expressed intentions to increase their production capacity throughout the year, indicating growth in the market. The silicon photonics market has a compound annual growth rate of approximately 40% in terms of revenue, possibly even higher in unit growth for the silicon photonics transceivers. Just to remind you, these are essentially fiber optic transceivers widely used in data centers and long-haul telecommunications, playing a significant role in the 5G infrastructure. Overall, this segment is experiencing growth. Many have noted that with the current downturn and COVID situation, data consumption is skyrocketing as more people rely on data centers and virtual platforms like Zoom. However, some companies in the sector, such as Ciena, have mentioned slowdowns in data center operations. We are aware of specific delays in the 5G infrastructure builds, primarily due to the absence of vendors on-site for upgrades. Consequently, our customers have expressed that they cannot place orders until they receive confirmation from their end customers. A significant portion of the budgeting comes from major players like Amazon, Google, Facebook, Apple, and Microsoft. Within those companies, we are aware of certain delays affecting data centers and upgrades, but they have reassured us that these are short-term delays and not long-term issues. They are working on organizing vendor access and other logistics. Regarding silicon carbide, the situation feels a bit different. It seems that progress is being made quite aggressively. We've observed some slowdowns on the customer evaluation side due to travel restrictions, but the majority of our revenue guidance remains focused on existing customers and not dependent on new customer acquisitions. Therefore, while new customer wins are affected, they won't impact our revenue for this year. We expect our current customers to ramp up production, and they have been specific about their expectations. We also see ongoing facility upgrades and preparations for new tools with adequate visibility into that process. Lastly, in the mobile sector, our end customers and their clients have experienced some obvious delays. Introductions that typically happen this time of year have been postponed without much notice, as that's inherently confidential. So when orders are delayed, we can infer that timelines are being pushed out. We anticipate some of this will continue throughout the year. Nevertheless, they are also forecasting capacity requirements, with some potential new opportunities that could add to revenues by the end of this year or into next fiscal year 2022. I hope this clarifies things for you.

Yes, just a little bit potential further clarity. So you would expect the majority of the revenue to come from silicon photonics? Is that correct? Or am I thinking about that wrong?

No, I would say that the majority comes from silicon photonics, silicon carbide, and mobile sensors. We haven't discussed certain details; in fact, I didn't mention them during the conference call. A couple of years ago, we acquired a major customer that we vaguely referred to as a significant data center, high-volume application, or data storage project. There are reasons for our lack of specifics, which will eventually be revealed. However, that program faced delays due to various COVID-related factors affecting its rollout. We currently forecast that Aehr will have systems deployed by the end of this fiscal year. It’s a combination of these elements, and they are likely ranked in that order in terms of revenue contribution. Each of these segments could account for 10% or more of our overall forecast, even the smallest one.

Okay. Fabulous. And then lastly, what happens if COVID-related travel restrictions remain in place through a few more quarters? Any way for us to figure out how that would impact your business? Or do you believe that most of those negative impacts are behind you, and that's why you're confident in reiterating previous guidance for the year?

Thanks, Christian. We had a few other people ask about this question, so I quickly wrote down some notes before the call to ensure I cover everything clearly. First, not all customers are affected by the travel restrictions. We have resources locally that allow us to manage some situations or have found ways around the restrictions. For example, we've sent our application and service teams to certain locations that had 14-day quarantines, both internationally and within the U.S. While working remotely is similar to what we usually do over the phone and computers, the main challenge comes from the employees' burden. Fortunately, the impact of the quarantine has been manageable. Our employees are dedicated and continue working every day until they can access customer sites. In many cases, we have local resources available, allowing us to install systems without disruption. We've always been able to support customer systems remotely, so this has not changed. For urgent matters that require factory responses, we address them immediately instead of traveling. Customers have mentioned delays in their ramp-up plans but anticipate these will happen later this year. It’s essential to note that circumstances may change, but I see customers adapting to a new normal and planning for ramps and installations despite the restrictions. Initially, the situation was different, with complete lockdowns and uncertainty regarding protocols for site visits. Now, we have established protocols that allow vendors and customers to visit our sites, and business continues to progress differently than it did just a couple of months ago. I am more concerned about new customer evaluations being impacted, but our current fiscal year heavily relies on our existing customers, which provides us some cushion. We are also implementing some innovative strategies in presales. Before COVID-19, we initiated a new demo center at our Fremont headquarters to efficiently demonstrate our tools in real applications, given the high volume of customer requests. This setup enables us to conduct customer benchmarks for wafer-level burn-in and other evaluations at our site or through devices they send us. We specifically had success with our initial silicon carbide customer last year, who requested testing of their wafers after seeing our benchmarks. They sent us wafers for production use while we built their system, allowing us to continue testing without them ever visiting our facilities. This success has encouraged us to extend similar offerings to other customers, and we have added additional testing stations since the COVID outbreak to handle more benchmarks simultaneously. We are launching a new program to encourage remote benchmarking, utilizing video conferencing and demonstrations. This shift may lead to a permanent change in our operations, as it proves to be more cost-effective and efficient for everyone involved. We expect companies to adapt to ongoing restrictions through next year, and we're well aware that COVID-19 is not going away entirely. Our customers are looking for ways to continue their business plans and not just delaying growth until after the pandemic. This perspective has been shared with us, and I believe many customers will indeed pursue their plans despite the ongoing challenges.

Our next question in queue comes from Larry Chlebina with Chlebina Capital. Please go ahead.

Gayn, you mentioned that there are two methods for testing silicon carbide wafers. The first one was apparently the easiest, and that method is currently being used by your lead customer for that application. Are you testing the second method to debug it and ensure your system will work for that process?

Okay, Larry, let me recap that for everyone who may not be as familiar. Silicon carbide is an advanced semiconductor device known for its ability to handle thousands of volts efficiently, unlike traditional semiconductors, which are limited to tens of volts. A significant milestone was when Tesla used silicon carbide discrete FETs in their Model 3, which resulted in a remarkable 20% to 30% increase in the car's range. This development has greatly impacted the electric vehicle and hybrid electric vehicle industries, prompting most manufacturers to transition to silicon carbide as quickly as possible, despite the limited supply and capacity available. Interestingly, while silicon carbide is very reliable in the long term, it does exhibit a high infant mortality rate, meaning a larger percentage of devices may fail early during initial usage. However, once past that phase, they demonstrate significantly lower failure rates compared to other components and higher efficiency. This is beneficial for us as it creates a demand for our testing equipment to identify and eliminate those early failures, ensuring increased reliability. Regarding the high-performance field-effect transistors, they have a simple design, and there are two established methods to ensure their reliability. One method applies medium high-voltage to the gate while grounding the other channels, which effectively identifies failures, while the second method involves applying very high voltage of over 1,000 volts while isolating the device to prevent conduction for an extended duration. We've observed that our customers generally fall into two distinct categories, each employing one of the methods for production but not both. Our initial customers are primarily adopting the gate bias approach and have produced white papers supporting its benefits. We're also in discussions with other customers interested in the high-voltage method for both singulated die and standard package applications. Many customers currently face challenges with packaged parts and are on the lookout for innovative solutions. They express a need for a packaged part burn-in system, although this has its own trade-offs. Conversely, several customers are requesting solutions that operate at the wafer level or with singulated die, as their devices are typically assembled in module form without packaging until several die are combined. We have received requests for high-power, high-voltage burn-in systems alongside inquiries for solutions at the wafer level. There are specific challenges involved in wafer-level tests, but we are brainstorming unique ideas and designs for testing that we believe can address these issues. I invite any interested customers to reach out to us under confidentiality; we are eager to share our methodologies for achieving high-voltage testing at the wafer level, as we believe that many customers will benefit from this technical insight. We aim to have these solutions ready for production customers later this year, although they are not currently included in our forecast, just to clarify. We're actively working on this.

So Gayn, did I hear you say that another approach, a possible approach for that higher voltage application could be the singulate the dies first and roll them in a DiePak configuration? Is that one of the options?

Yes. And a really cool option at high-voltage up to 2,000 volts, yes, on a FOX system. That's right.

So why don't you make a deal with one of these guys and build a DiePak for them and prove it to them?

We're making progress on it. As I mentioned earlier, we have a program in place that's part of this effort. We are specifically reaching out to certain customers to engage them in a partnership. So…

Of the non-silicon carbide targeted customers, how many do the reverse bias high-voltage approach? And how many do the low voltage?

So far, there are about 10 key players we're aware of, though there are smaller ones as well. We know what roughly half of them do. However, some of the smaller companies haven't yet informed us of their preferences. I'm not exactly sure why that is. Normally, I would travel to meet them, which I can't do right now. I definitely feel the impact of this situation, but we are in contact with some of the larger companies.

So you didn't answer the question, though. Of the known approaches...

Of the ones I know, I know 3 that are gate and 2 that are reverse, so far.

So possibly, it could be half and half or maybe even more of the low voltage and less of the high-voltage, am I right?

Correct. One of the major players in the high-voltage reverse segment has specifically inquired about gate technologies and has considered implementing them due to their additional benefits. However, they have already completed their qualification with automotive customers for reverse technologies, making it challenging to change their qualification process. We have a few significant automotive customers, and one of our primary customers is working with several of them. Achieving qualification through wafer-level burn-in, which has already been accomplished, should provide support. We are also looking at ways to convey to the industry that this is a legitimate qualification process.

So, I mean, you proved that one, with your current customer, it just seems like it's such an incredible benefit in terms of not only efficiency and throughput, but also savings from having to throw away modules that have a defect in them. And you're screening the module before the die.

I totally agree. Yes, I completely agree.

I'm really surprised. You secured your current customer a year ago, and now, a year later, you still haven't acquired any additional customers in that area. I find that difficult to grasp, especially when the benefits are so evident.

I think some of that is very fair, and we've been having discussions about what we've done. For example, in terms of silicon carbide, there are three main areas where it's being developed. Firstly, there are customers in the U.S., with Cree being the most notable, located along the East Coast. Secondly, in Europe, Italy and Germany are significant hotspots for silicon carbide, along with Japan. It's important to note that we've decided to completely shut down our sales offices in Japan, and the entire sales management team has retired, with their roles now filled by representatives. We're also very pleased to have a strong representative in Germany who covers Northern Europe, and we've seen some recent interest from our representative in Italy and France in this space as well.

In your LD presentation, you mentioned that you were conducting trials with other silicon carbide customers? Is that correct?

I want to be cautious about discussing competitive matters, but it's more accurate to say that our conversations with those customers are focused on trials rather than on wafer-related issues.

The PPP loan has two components. It's not due for two years, with the first payment not required within six months from the loan origination. This is why it's categorized as both short-term and long-term from a GAAP standpoint. However, we expect to receive loan forgiveness for the full amount of $1.7 million. The portal at our bank for applying for the forgiveness opened up to us yesterday. Our plan is to have that amount forgiven, and we hope it will be removed from our balance sheet close to our next reporting period.

That was my next question. Lastly, has the CP status gain slipped significantly? I think you mentioned last quarter that it would be in the second half. It hasn't slipped any further since then, has it? Or...

It has not. We have completed some work for that customer. We had planned to execute a fairly straightforward upgrade. We sent all the equipment in advance, but at the last moment, the customer informed us that they needed to shut down and vendors were not allowed in the building at that time. It’s not a critical situation, as it’s not impacting their production. If it were critical, they would have permitted us to enter. This is an example where we haven’t proceeded with the installation. However, based on our current understanding from them, they will require additional tools later this year, and the ramp-up process is expected to begin over a two-year period.

Okay. One last quick question on silicon carbide. Everyone involved is really excited about its potential. However, what is its current status in terms of wafer starts? Do you have an idea of where it stands today compared to the projections of around 0.5 million wafer starts per year in four years? This would suggest that fully capturing that business would require approximately 160 XPs to manage it all, assuming a 48-hour burn-in. But what is its current standing? Is it still relatively smaller or…?

I want to be cautious about your numbers since I don't have them in front of me, but your calculations are generally correct. The forecast for wafers over the next few years is substantial and will require many XPs. Although I don’t have the exact details at the moment, Yole Développement likely has the most accurate estimates. There are definitely products that have been released and we can confirm that our systems are being used by a well-known customer in the electric vehicle sector. We are actively engaging with customers in other released applications as well, and there are numerous applications being developed for new electric and hybrid vehicles. There are extensive evaluations and qualifications taking place. Our customers, and those we are in discussions with, have the capacity and will begin ramping up production this year, many of which are larger than we are. What's interesting about this market is when you analyze silicon carbide companies by their revenues, from top to bottom, including ST and Cree, and further down to ROHM and ON Semiconductor, you see a pattern. In terms of applications, silicon carbide is replacing other power modules, and it's much more efficient. The efficiency is such that it’s hard to envision selling an IGBT in those applications in the next two to three years. The real opportunity lies with power module companies; those with established businesses in silicon carbide are valued at $1 billion to $2 billion. Companies entering the silicon carbide market can transition their customers from substantial business in silicon to silicon carbide. Market leaders are trying to understand the pace of this transition, and while our customers are part of this ecosystem, they also have leverage to negotiate with suppliers regarding whether to use IGBTs or silicon carbide. They are currently supplying the market for electric vehicles, making this transition particularly intriguing.

The real driver, though, for your equipment, for your process is the module. Discretes isn't a big driver. But if they go wafer-level burn-in with your system, they'll use it for the discrete parts also, right?

I believe that's fair. And I think that's the right way of looking at it. The module is so overwhelmingly advantageous to do at a wafer level. But we've heard from other customers that there's advantages to doing it anyhow once you get there, right? So like our customer, we believe, are shipping products that are going into discrete components having done wafer-level burn-in already.

The application for silicon carbide in modules is fairly new, isn't it, in terms of certainly the automotive. In other words, the first application that you cited with Tesla on a Model 3, that was with discrete products, right?

It was. They put, I think, 8 of them in the module.

It wasn't as clear or beneficial to implement wafer-level burn-in until you began ramping up on modules. Is that correct?

It is. I think you're in the early stages of an overwhelming ramp.

Yes, exactly. And that's what I'm getting at. You need to start addressing these issues now. The Model 3 has been available for years, but the modules are the key factor, and that's a recent development. Therefore, it seems logical that you should be actively working on these challenges. That’s all I have to say.

I will reach out to several of our investors, and Larry, I recognize that you have a strong understanding of silicon carbide, and we have customers with portfolios in that area that we are involved with. I have personally done this, and I know it’s unusual to discuss publicly. If you connect me with a silicon carbide customer, we will ensure that the benchmarking is very cost-effective, if not free. One of the challenges is gaining their attention. We had intended to participate in four or five shows this year, but all of them have been canceled, and not even as virtual events. It really caught us at an inconvenient time. Once we can, I’ll treat you to dinner.

Our next question in queue comes from John Fichthorn, Dialectic Capital. Your line is open. Please go ahead.

Yes. I have a few questions, and I'll keep it brief. First, it seems you've lowered your breakeven quarterly to about $4.5 million. Is that correct? If so, do you have any EBITDA guidance for when you meet your targets for the year?

So I'll let Ken answer. The first question is straightforward, which is yes, but I don't think we've provided that guidance.

Gayn, I'd like to jump in here. We've reduced our breakeven by $4.5 million. Our breakeven is not $4.5 million. And just kind of walk through where...

I meant your breakeven is around $4.5 million a quarter, not $4.5 million annually. However you want to break that down.

Absolutely. So kind of talk about it quarterly. I think I've said before that our breakeven historically, based upon our fixed run rate structure and our average margin is a little over $6.5 million a quarter, or a little bit over $26 million a year. And that's what we said in the past. With these cost reduction initiatives, reducing that $26.5 million or $6.5 million a quarter down, or $700,000 a quarter in spending, that gets our breakeven per quarter down about $5.5 million a quarter or about $22 million a year.

And that's a GAAP number?

That is a GAAP number, correct.

I was considering an adjusted EBITDA figure, but that's okay. If you achieve $28 million, then the excess should contribute to the bottom line, correct?

Yes. And again, so you talked about EBITDA. We actually did a cash breakeven. If you take a look at what our stock comp is, you can pull out our depreciation expenses, which are right off of our SEC filings and our reporting. You can see that if you look at cash breakeven, that brings us significantly under $19 million a year or right about $4.9 million per quarter revenue for a cash breakeven.

So I thought somewhere you guys had said you had 2 dozen new kind of customers in the pipeline before. And this press release said 1 dozen. I'm just wondering if, I don't know, if I'm just misremembering or whether you lost a dozen people in your pipeline.

We haven't lost a dozen people, and I understand that we may not have clearly stated two dozen before. There seems to be some confusion. We mentioned well over a dozen and specifically referenced over a dozen in relation to silicon photonics and silicon carbide. I want to clarify that during a review with our sales team last week, I found the number is actually over two dozen. It's a lengthy list, and while some customers have put their activities on hold, we have a significant funnel of opportunities. We're actively engaged with well over a dozen customers, and there are more beyond that. I believe if the COVID situation hadn't occurred, we would be facing challenges with all the activities, potentially needing to add application engineers and other resources. I want to acknowledge Vernon for his proactive efforts in setting up the applications center and implementing various processes that enable us to conduct more benchmarks simultaneously. We are currently collaborating with customers on benchmarks, despite the challenges posed by COVID, and it seems like we are now moving forward.

Well, I can't wait to complain about you being too swamped with business and not being able to keep…

Yes. That would be nice.

I noticed you mentioned several new wins and commitments in the OSAT business and other areas. Were these already included in your annual operating plan for this year, or are they additional opportunities? Should I expect that your year could have even more potential upside? How should I interpret this?

So certainly the OSAT win we installed was part of our plan and anticipated. It simply brings additional positivity. There are new customers from last quarter that I’m not including in our projections. I want to be cautious in stating that they’re not part of our plan, as it would feel like a failure if one drops out and another comes in. Obviously, we...

We don't know what your plan is anyway. We just have your guidance. So I'm curious.

The only thing I want to highlight is that on the mobile side, we consistently receive new consumables each year. It has been a few years since we significantly expanded our capacity, but we continue to introduce new consumables annually with various design updates. We are still planning for this. New opportunities have emerged that could allow us to expand our capacity, as there are new applications that could provide additional benefits not currently accounted for in our plans. These could also help mitigate any potential risks. That's the only detail I've mentioned specifically. For those who have been following, I tend to be cautious about getting too optimistic, as we've previously experienced situations where we anticipated significant growth that didn't materialize. I prefer to surprise everyone when an order comes in and casually mention that we expected it all along. For the moment, I can say that there are some opportunities available. It seems we may see some delays in our fiscal year and into the next year, but overall, I'm quite excited about it.

Great. And consumables this year, I don't know if you broke it out, but roughly, I don't care how wide a range you give me, what will consumables be as a percentage of revenues?

I believe it's closer to roughly one-third this year, though that could change. Last year exceeded our expectations with a run rate of 50% because we didn't ship any systems in Q4, which contributed to a higher percentage. Additionally, one of our lead customers was purchasing systems without WaferPaks, and they eventually caught up. Normally, the hardware to consumable mix would be around one-third of the business. However, as the installed base continues to buy only consumables, like we've observed with some of our older FOX products that haven't purchased a system in some time, that percentage will increase. We anticipate that in a normal steady state year, consumables will surpass 50% of our business.

Great. So this is my last question, and it's not a question. It's a comment. Actually, no, I have a question then a comment. When does the window open for insider buying after you guys have released earnings? Is it kind of the standard 48 or 72 hours?

We have not announced when our windows open for insiders, and we're not going to do it at this point in time.

I appreciate John's contributions to the Board, and I wish Geoff success in representing shareholders, as he holds a significant share of 660,000 according to your proxy. I'm glad to see a shareholder on the Board. However, I have concerns about Rhea and Mario, who have been on the Board for 40 years and have witnessed a $30 million cash reduction and a more than 90% decline in the stock price since the IPO. It seems they have not purchased any stock in the open market. Many shareholders, including myself, have experienced losses due to the fluctuations in share price, which is quite frustrating since we take risks with our investments while the Board members receive their compensation, including salary and benefits. In my experience on three public boards over the past year, I've learned that every public company board member should invest their own money in the companies they serve. If they are not willing to put their own capital at risk, they should step down from the Board. I'm invested in this company because I believe in its potential and have risked capital from friends and family. Yet it appears that the Board does not find it worth their time to invest alongside us. As a shareholder, I find this offensive. If I do not see Board members starting to buy stock and the company fails to deliver results, I will reconsider my stance as a shareholder. Thank you for your efforts, and I sincerely hope for your success moving forward.

We'll take our last question from Marty Kotan, Chipchat. Please go ahead.

Hello, Gayn. Hello, Ken. I have three questions. One pertains to the closure of the Japan office. There are some savings associated with that, which are clear. It has been replaced by a sales representative, who incurs costs. My question is whether we see the costs of the sales representatives reflected somewhere, or will that information come to light later? In other words, are we only seeing the costs associated with closing the Japan office without accounting for the net costs, as there are typically commissions to pay for sales representatives?

Yes. And that's true. That is true, and that is true of other regions that we have sales reps today. And that's true in the European region as well as in Japan going forward. So we do have arrangements with those sales representatives. I don't think we have any distribution networks where they buy and resell. So it is paid as a commission, it will show up in SG&A cost or cost of sales. And so yes, it's not free, but at least it is tied directly to revenue shipments as opposed to the opposite. And we think that within a normal revenue range and including some significant growth, we're going to be thrilled to death to pay them those commissions.

Yes, I'm completely in favor of paying commissions. I'm just curious about the savings from one action. The question is whether we see the savings or the costs associated with the representative, which we have to pay, and they do earn their income. But it sounds...

We do not have any fixed cost relationships with them, so they are only compensated based on their success. I want to clarify that while we do save money, if things go exceptionally well, there is a possibility we might pay them more than we would have directly. I would be pleased with that outcome, but it is not the reason behind our decision. The reality is that customers in the silicon carbide sector, particularly those at the wafer level, have different needs and require more testing. We believe we needed to adopt a new approach to reach those customers. This shift is not primarily about cost-saving; instead, it is about implementing a better strategy and setting higher expectations for sales, especially since we have seen minimal sales in those areas up until now. We have been actively working on this, but it has not been easy to wind down operations in Germany and Japan. This process has taken us well over a year to complete.

Yes. Okay. Second question is, Gayn, earlier in your presentation, you iterated a list of applications or like data centers, mobile communications, automobile. And then you also talked about new prospects, companies that they're not regular customers yet, but they are considering the FOX system. Could you make a comment that's, say, separating the prospects, what percentage might represent 100% production test, which you're going to sell a lot of machines? And what percentage might represent sampling tests or engineering applications? And the reason for this was...

Actually easy. So it's actually easy compared to historically.