Aehr Test Systems Q3 FY2021 Earnings Call

Good day, and welcome to the Aehr Test Systems Third Quarter Fiscal 2021 Financial Results Conference 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 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 at 4 o’clock p.m. Eastern Aehr Test issued a press release announcing its third quarter fiscal 2021 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 that are based on current information and estimates that 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 the results to differ materially from those in the forward-looking statements are discussed in the company’s most recent periodic and current reports filed with the SEC. These forward-looking statements, including guidance provided during today’s call are only valid as of this date and Aehr Test Systems undertakes no obligation to update the forward-looking statements. Now, with that said, I’d like to turn the conference call over to Gayn Erickson, President and Chief Executive Officer. Gayn?

Thanks, Jim, and good afternoon to those joined us on today’s conference call and also listening online. Ken will go over our third quarter financial results later in the call, but first, I will spend a few minutes providing some details on the quarter and the improved business momentum that we’ve started to see. Then I will discuss what we see in the near-term and talk a little bit about next fiscal year. And following our remarks, we will open up the lines for your questions. During the third quarter, we began to see signs of recovery from several customer production ramp delays and push-outs of forecasted orders that we experienced related to COVID-19. We saw a significant increase in activity with both current and new customer engagements as business conditions began to improve, resulting in improved bookings and revenue for the quarter. Our $8 million in bookings generated in the third quarter is our highest bookings quarter in over a year and we are glad to have 2020 behind us. These bookings include two significant customer orders for our FOX-XP test cells during the quarter. One of these orders came from an existing customer for a partially populated FOX-XP multi-wafer test and burn-in system and multiple WaferPak contactors to begin volume production of their high-performance silicon photonics devices. This customer is a major supplier of fiber optic transceivers in the data center interconnect markets and is our fifth customer in the silicon photonics space that’s using our FOX-P platform for production. They are moving to silicon photonics integration to address higher performance and lower cost needs in the market, and are transitioning from our FOX-NP system that they used for initial production burn-in and stabilization to our production XP system to meet their high-volume production forecast. This FOX-XP system is only partially loaded with blades and allows the customer to fill in the system by simply adding in additional blades or wafers of capacity as needed. They chose this option to align with their planned wafer capacity expansion. The other FOX-XP test cell order was from a new customer to Aehr who is a supplier of sensors to a major mobile device manufacturer, who is currently a customer of Aehr Test. This initial order totaled $4.3 million and included a single FOX-XP test system, a set of FOX DiePak carriers and a fully automated DiePak loader/unloader. This test cell is for a test and burn-in application for a critical new mobile device and includes a new class of FOX DiePak carriers and automated DiePak loader/unloader. I will talk about this new DiePak in a few minutes. During the quarter, we began shipping against this order and expect to complete shipments in this fiscal quarter we are right in now. We continue to expect follow-on orders from this customer for additional DiePaks and system capacity to address the production needs for this device. The increased business activity we saw at the start of the third quarter includes existing customers as they focus on increasing their production capacity and particularly as the data center and 5G infrastructure-related silicon photonics optical transceiver market is starting to recover. Multiple customers have completed upgrades of their facilities to accommodate expected deliveries of our FOX systems in the near future. In addition, we are seeing new customer investigations and evaluations for wafer-level burn-in with multiple silicon carbide customers and over a dozen silicon photonics laser stabilization applications. We are also seeing evaluations for both wafer-level burn-in and package part burn-in for automotive devices. These discussions have significantly increased as potential customers believe COVID-19-related travel restrictions are expected to lessen substantially over the next several months. While the customer delays we’ve experienced have been frustrating to say the least, it’s important to note that we’ve not lost a single deal, we’ve not seen new competitive solutions introduced nor have any of our customers indicated any change to their plans to ramp their production using Aehr’s systems and consumables. This has really been about timing and when customers resume their plans that were clearly interrupted by the COVID-19 pandemic impacts. Our strong bookings this quarter is evidence of the increased momentum we are starting to see with our existing, as well as new customers. Let me touch on a few of the markets where we are seeing this traction starting to take place. Let me start with silicon photonics. We continue to hear from our customers, as well as analysts and shareholders that follow the fiber optic infrastructure markets for data centers and 5G, that business is starting to return after a significant hit during COVID. We heard from our customers that companies like Facebook, Amazon and Google were simply not doing their planned expansions and upgrades during COVID even with all the pressure for more data and more bandwidth. As business conditions improve, we believe we will see a strong increase in investment in the space due to pent-up demand. Aehr’s solution is unique in its ability to test and stabilize or burn-in whole silicon and other compound semiconductor wafers containing devices before they are singulated and packaged individually or integrated into a fiber optic transceiver. These transceivers are used in data centers and as data center interconnections, as well as 5G infrastructure connections. Our solution has been proven to be an enabler for whole wafer processing that significantly lowers the cost of manufacturing. In the case of silicon photonics, the laser devices are bonded directly to a silicon-based device that has all the logic multiplexing and de-multiplexing and other high-speed communication subsystems all integrated into a single silicon-based integrated circuit. Our solution actually makes it feasible to burn-in integrated silicon photonics devices while still in wafer form without adding cost to the transceiver printed circuit board and other mechanical infrastructure of the final transceiver module, and that has both yield and significant cost savings. This becomes critical in particular at communication speeds greater than 100 gigabit transceiver bandwidths. Several large players in the market are working on direct optical-to-optical switches, which will further simplify the deployment of greater-than-100-gigabit transceivers at the data center and data center interconnect levels. Silicon photonics transceivers are much less expensive to build and much more scalable for quantity and capacity due to wafer-level processing. Analysts see silicon photonics as a catalyst to higher growth and deployment of fiber optic communication across all data center layers as it becomes significantly more cost effective and there’s enough capacity to displace copper-based coaxial cables in data centers. Per Yole Research, the silicon photonics market is expected to grow at a compound annual growth rate of 42% between 2019 and 2025 to a $3.6 billion annual market. And we believe that the industry will transition to wafer-level or singulated die for this critical manufacturing step, which is where our FOX-P products stand alone as the most cost-effective solution in the market. Now let me talk about silicon carbide. Our lead customer for silicon carbide continues to forecast significant additional capacity needs. As such, we expect them to add a significant number of our FOX-XP systems over the next few years. They are a leading supplier of semiconductor devices with a significant customer base in the automotive semiconductor market and are using our FOX-XP system for high-volume production burn-in and infant mortality screening of silicon carbide devices at wafer level for electric vehicle power modules. This customer has told us they plan to significantly increase their capital investment in the silicon carbide business this year, which most certainly would include burn-in equipment that would drive FOX wafer-level systems and WaferPak sales to them. Silicon carbide continues to be promising as a key growth driver for Aehr. For those who are not familiar with the nature of silicon carbide, it’s a very impressive material for high power and particularly high voltage devices for applications such as electric and hybrid electric vehicle powertrains and electric vehicle charging infrastructure. These devices reduce power loss by as much as 78%, which has essentially changed the entire market dynamic. With this development, we see most, if not every automotive company that’s working on electric vehicles moving to silicon carbide-based powertrain and charging systems in the near future. The challenge with silicon carbide is that it’s known to have high infant mortality rates. However, after reliability burn-in and screening like that offered by Aehr’s FOX product solutions, these defects can be completely removed to provide extremely reliable devices for these mission-critical applications. Aehr is able to provide a complete solution for one of the key reliability screening tests on entire wafer devices, basically all of them at one time, while testing and monitoring every device for failures during the burn-in process to provide critical information on those devices. This is an enormously valuable capability as it allows our customers to screen devices that would otherwise fail after they are packaged into multi-die modules where the yield impact is 10 times or even 100 times as costly. A critical capability that only our solution can provide in the market today is the ability to test 100% of up to 2,000 or more die on a wafer in a single insertion, while providing 100% traceability of pass/fail results of each device, including exactly at what time in the test and burn-in cycle the device failed. Our systems are normally able to test 100% of the devices on 4-inch, 6-inch, 8-inch and 12-inch wafers, but we can test and burn-in 18 wafers at a time in a single FOX-XP system, thus significantly reducing the cost of test and burn-in. We are engaged with multiple new potential customers in silicon carbide. In addition to the very large opportunity for silicon carbide with our lead customer, we are very excited to report that a new potential customer that produces silicon carbide power devices has asked us to demonstrate our full wafer-level burn-in solution on their silicon carbide wafers, including putting the system on their manufacturing floor to demonstrate our capabilities. This customer is currently a large player in silicon carbide right now and we are confident that we can prove to them that our solution will catch 100% of their infant mortality failures that otherwise would show up at their customer. Additionally, we expect to move to wafer-level evaluations with other potential customers in the next few quarters as we are currently engaged in detailed and very promising discussions with several other major suppliers of silicon carbide. We have invested in a special clean room at our facility that houses each of our tools, including our FOX-XP multi-wafer system, our FOX-NP dual-wafer system and our FOX-CP single-wafer system. This allows us to run many customer wafers at the same time, making it easy to do multiple evaluations in parallel particularly in a COVID social distancing world. We anticipate that silicon carbide wafer-level burn-in will become the industry standard for low cost and 100% traceability for burn-in and reliability screening. Aehr’s FOX-XP system has very unique capabilities that are a great fit for silicon carbide reliability and burn-in test backed by significant patents and experience with the unique challenges of wafer-level burn-in test systems and contactors. This creates a barrier to entry that we believe will enable us to capture multiple key companies and significant market share in the silicon carbide space in the next year or two. Hold on for just a second. Darn, my headset was dying, and I am not going to let it go out. Let me continue. The silicon carbide semiconductor device market is growing at a tremendous rate with unit growth of high power devices expected to grow at over 50% CAGR from 2019 to 2025. When we look at the total available market opportunity for silicon carbide and silicon photonics wafer-level and singulated die test, we see approximately $250 million of needed capacity including consumables based on total wafer starts, yields and test times. Now I have mentioned WaferPak several times. These WaferPaks and our DiePaks are Aehr proprietary full wafer and singulated die-in-module contactors that are consumables and that work with our FOX family of test systems. We are also seeing increased orders for our WaferPaks from existing customers in the silicon carbide and silicon photonics segments for their installed base of FOX multi-wafer test systems. Towards the end of our fiscal third quarter and into our fourth quarter so far, we have received multiple orders for new designs and added capacity for volume production tests of silicon carbide semiconductors for electric vehicles and electric vehicle chargers, as well as silicon photonics devices for data center and 5G infrastructure fiber optic transceivers. We are forecasting additional orders for our WaferPak and DiePak consumables during the remainder of the current fiscal year and from our installed base of customers. As we have noted before, Aehr’s proprietary test and burn-in solutions include these customized WaferPaks and DiePaks that are needed not only for new system orders, but also for each new design win or each new device added to production test. As we increase our installed base to FOX systems with current and new customers, particularly with the NP and XP multi-wafer and singulated die/module test and burn-in systems, we expect our consumables business will continue to grow in absolute value and as a percentage of our total sales. Over the long term, we expect these recurring consumable sales to account for up to half or even more of our total overall revenue. During the quarter, we successfully demonstrated and began shipments of a new solution using our standard XP high volume production system and FOX-NP systems, but with a new class of DiePak that’s going to be a great addition to our product family. This new DiePak is capable of handling extremely small devices and also very high power density devices, with higher parallelism than ever thought possible before. The new solution also includes a fully automated pick-and-place handling system that automatically loads and unloads these new DiePaks and transfers them to and from carts. This new class of DiePak can handle devices down below less than 2 millimeter by less than 2 millimeter by less than 1 millimeter which is incredible. The size of such a device is small enough to rest on the tip of a pen or a pencil. We will send out to investors a photo of a device of this size sitting on the tip of a person’s finger to show how small it is. I do want to note for anyone that sees this, this photo is absolutely not our customer’s device. I want to make sure that’s perfectly clear. But it is of a similar size to a type of device that our new DiePaks can handle. Devices this small are extremely hard to handle and particularly in any kind of parallelism. Often a discrete device this small is handled with special handling equipment and a tester that can only test one device at a time. This new FOX-XP system and DiePak solution is capable of testing very complex die and modules in addition to them being tiny. For example, the capabilities and features that are being used today in production on these micro-scale type modules include the ability to individually read every device ID, read digital or analog temperature sensors, have device power supplies on every single die that’s continuously logging, an individual program of current drivers which is critical for optical transmitters and receivers, as well as programmable voltage and current limits, a read back of independent photo diodes internal or external, which are part of or integrated into our DiePak photo diodes and programmable current and voltage levels per device, as well as programmable pulse widths. These are features never thought in a burn-in and test system with massive parallelism on our systems. This new FOX-XP system and DiePak solution is configured with up to nine high-power blades that can each test and burn-in up to 1,024 devices at a time. Each device is thermally controlled via conduction as the device makes direct contact with a thermally controlled surface that provides a superior or in the case of these tiny devices possibly the only way to effectively cool these devices compared to an air-controlled chamber. Our new DiePak auto loader can automatically pick and place tiny or large devices from industry-standard gel-pak trays to our DiePaks, visually inspect every single device, read device barcode information if it’s available and track every single device of data from our FOX production systems to place the devices into different physical output bins. Watching the loader handle these tiny devices is really incredible and it can load and unload devices at thousands of devices per hour. We believe this solution further sets us apart from any other company in the industry. Let me talk about package parts for just a minute as well. Recently, we have been receiving and responding to requests for information about the planned introduction of our new package part burn-in system, which is under development and has very high-voltage test capabilities. We continue to see indications of renewed demand for package part burn-in applications, particularly from customers seeking high-voltage capability and expect to generate additional new opportunities with this new product introduction as we head into our fiscal year calendar 2022. With our increasing customer visibility, including facility improvements that customers have made to install our tools on their test floors, we continue to expect orders from the customers that told us they would ramp in the first half of our fiscal year. We expect — I apologize — we have had — people that had told us they were going to ramp actually in the second half of our fiscal year that we are in right now, when you read through that we missed that. We expect to end our fiscal year with a strong year-over-year growth in our bookings. Unfortunately, the timing of some orders were delayed causing this to come in short of our revenue expectations for this fiscal year. Importantly, we expect this positive bookings momentum will continue, which will drive revenue growth in the next fiscal year. Looking forward this quarter and into our fiscal 2022 that begins June 1st, we feel our outlook is very promising, with forecasts from current customers for ramping silicon carbide for electric vehicles and electric vehicle chargers, silicon photonics for data center and 5G infrastructure, 2D, 3D and other mobile sensors and Flash memory devices. We also expect to announce new customer bookings and shipments particularly in silicon carbide and other automotive devices during this calendar year. For the fiscal fourth quarter ending May 31, 2021, Aehr expects revenue to be at least $7 million, a 33% sequential increase from the third quarter and to be profitable for the fiscal fourth quarter. With that, let me turn it over to Ken to review our financial results in more detail, provide an update on our guidance and then we will open up the line for questions. Go ahead, Ken.

Thank you, Gayn. Good afternoon, everyone. As Gayn noted, during our fiscal third quarter, we began to see signs of recovery from the several customer production ramp delays and push-outs of forecasted orders that we experienced related to COVID-19. We saw significantly increased activity with both current and new customer engagements as business conditions began to improve, resulting in improved revenue and strong bookings of $8 million for the third quarter, our highest bookings quarter in over a year. These improved results, along with the growing demand for silicon carbide and silicon photonics gives us increased optimism that our products are poised to serve larger and growing market opportunities, and that we will continue to see improving financial results as we move through the remainder of this calendar year. Turning to a review of our financials, net sales in the third quarter were $5.3 million, up 213% from $1.7 million in the preceding second quarter and down 14% from $6.1 million in the third quarter the previous year, which as you recall, was our last reported full quarter before COVID-19. The sequential increase in net sales from the preceding Q2 reflects an increase of $3.4 million in wafer-level burn-in revenues and $163,000 in customer service revenues. The increase in wafer-level burn-in revenues is primarily due to an increase in system revenues of $2.3 million and an increase in WaferPak/DiePak revenues of $1.1 million. The decrease from Q3 last year includes a decrease in wafer level burn-in revenues of $867,000, with customer service revenues remaining flat. The year-over-year decrease in wafer level burn-in revenues was primarily due to a decrease in WaferPak/DiePak revenues of $1.2 million, partially offset by an increase in system revenues of $297,000. There were no package part system revenues in Q3 2021, Q2 2021 or Q3 2020. Non-GAAP net loss for the third quarter was $464,000 or $0.02 per diluted share and includes a warranty charge of $299,000 related to a voluntary replacement of a component to improve long-term reliability of our systems. This compares to non-GAAP net loss of $1.7 million or $0.07 per diluted share in the preceding quarter and non-GAAP net income of $452,000 or $0.02 per diluted share in the third quarter of the previous year. The non-GAAP results exclude the impact of stock-based compensation. On a GAAP basis, net loss for the third quarter was $735,000 or $0.03 per diluted share and includes a warranty charge. This compared to GAAP net loss of $2 million or $0.08 per diluted share in the preceding quarter and GAAP net income of $245,000 or $0.01 per diluted share in the third quarter of the previous year. Gross profit in the third quarter was $1.9 million or 36% of sales, up $1.5 million, compared to gross profit of $377,000 or 22% of sales in the preceding second quarter and down from gross profit of $3 million or 49% of sales in the third quarter the previous year. The increase in gross margin from the preceding Q2 is primarily due to a decrease in unabsorbed overhead cost to cost of goods sold due to higher revenue levels in Q3 2021 and favorable direct material margins related to non-recurring engineering revenue recognized in Q3 2021. The decrease in gross margin from Q3 last year is primarily due to an increase in warranty costs as a percentage of sales in Q3 2021 and an increase in unabsorbed overhead costs to cost of goods sold due to lower revenue levels in Q3 2021. The increase in warranty costs resulted in a 6-percentage-point decrease in gross margin from prior year. The impact of unabsorbed overhead resulted in a 3-percentage-point decrease in gross margin from prior year. Because our manufacturing overhead costs are relatively fixed we scale very well. As our revenues grow the increases flow to the bottom line and our margin percentages are favorably impacted. Our product mix also impacts our gross margin percentage. Looking at our results from Q3 last year, about half our revenue came from higher margin WaferPak/DiePaks and we recognized gross margins of 49% and we are profitable on just $6.1 million in revenues. As noted earlier, during the quarter the company recognized a charge to warranty of $299,000 related to a voluntary replacement of a component to improve long-term reliability of our systems. This had a significant impact on our gross margins in the third quarter. Without this warranty impact gross margins in Q3 2021 would have been above 42% of sales, much improved from the 36% we reported. With improved revenue levels and a relatively fixed labor and overhead, we expect gross margins above 45% of sales with a good mix of product and consumable sales. Operating expenses in the third quarter were $2.5 million, up $225,000 or 10% from $2.3 million in the preceding second quarter. Expenses were down $190,000 or 7% from $2.7 million in the third quarter of the last year. As I have noted on past calls, we have taken significant actions over the past year to control spending, reduce costs and lower our breakeven. Starting in Q1, we implemented temporary cost reduction initiatives across the company due to the customer order push-outs and delays in production ramps we experienced. These cost reductions have resulted in total cost savings of over $1 million in the first nine months of fiscal 2021. With customer service activity and business improving, we eliminated the pay reductions for non-officers at the start of Q3. The 30% pay reductions for our executive staff remain in place. The sequential increase in operating expenses from the second quarter is primarily due to an increase in employment-related expenses as a result of eliminating pay reductions for non-officers. The decrease in expenses from Q3 last year is primarily due to a decrease in SG&A of $248,000, which includes a decrease of $155,000 in the U.S. and a decrease of $109,000 at our German and Japan subsidiaries. The decrease in the U.S. reflects a decrease in employment, travel and trade show expenses, resulting from cost reduction measures taken in response to the COVID pandemic. The decrease in SG&A at our Japan and German subsidiaries is due to restructuring actions taken to move to a sales rep/distributorship model in these regions. SG&A was $1.6 million for the third quarter, up $142,000 from the preceding second quarter and down $248,000 from the prior-year third quarter. R&D expenses were $903,000 for the third quarter, up $83,000 from the preceding quarter and up $58,000 from the prior-year third quarter. Turning to the balance sheet for the third quarter, our cash and cash equivalents were $4.7 million at February 28, 2021, up from $3.4 million at the end of the preceding quarter and included borrowings of $1.4 million under our line of credit. Accounts receivable at quarter end was $2.7 million, an increase of $1.3 million from the preceding quarter related to the increase in revenue Q3 compared to Q2 and a decrease of $996,000 from the fourth quarter of fiscal 2020. Inventories at February 28th were $8.3 million, down $718,000 from $9.1 million at the preceding quarter end. Property and equipment was $617,000, compared to $683,000 at the preceding quarter end. Customer deposits and deferred revenue short-term and long-term were $667,000, up from $75,000 the preceding quarter end related primarily to the increase in backlog from the prior quarter. Our current and long-term debt of $1.7 million is related to funds we received during the fourth quarter of the last fiscal year under the Paycheck Protection Program or PPP. The company applied for forgiveness of the PPP loan on November 6, 2020. While the SBA has 90 days to review and approve the application, it is our understanding that the SBA has experienced delays in their review and this delay is not an indication of issues with the application or a likelihood that the loan forgiveness would be denied. Bookings in the third quarter totaled $8 million and included orders for two FOX-XP test sales. Over $4.5 million in revenues were recognized in Q3 2021 related to the $8 million in bookings showing how quickly we can turn orders into revenue. Backlog at February 28th was $3.7 million, up $2.7 million from the end of the preceding second quarter. Effective backlog which includes backlog at the end of the fiscal third quarter plus orders since the end of the third quarter is $5.3 million. Now turning to our outlook for fiscal 2021. As Gayn mentioned, with our increasing customer visibility we continue to expect orders from the customers that projected a ramp in the latter half of our current fiscal year. Unfortunately the timing of these orders has been delayed and we believe this caused us to come short in our original expectations for this fiscal year. However, we expect to enter our fiscal year with strong year-over-year growth in bookings and for our fiscal fourth quarter ending May 31st, Aehr expects revenue to be at least $7 million, a 33% sequential increase from the third quarter and be profitable for the fourth fiscal quarter. Again, the growing demand for silicon carbide and silicon photonics gives us increased optimism that our products are poised to serve larger and growing market opportunities, which gives us confidence that we will continue to see improving financial results as we move through the remainder of the calendar year. Lastly, looking at the Investor Relations calendar, Aehr Test will be participating in two investor conferences in June. We will be meeting with investors virtually at the Craig-Hallum Institutional Investor Conference on June 2nd and also at the 13th Annual CEO Summit taking place on June 15th. We hope to see some of you virtually at these conferences. This concludes our prepared remarks. We are now ready to take your questions. Operator, please go ahead.

Thank you. We’ll take our first question from Christian Schwab of Craig-Hallum Capital Group.

Hey. Thanks, guys. Gayn, at length you talked about the huge opportunities in silicon photonics and silicon carbide. Can you tell us how much revenue you would anticipate doing in those markets in fiscal year 2021? And can you give us any projections or ranges of potential outcomes of what that business could grow to in two years to three years?

Okay. So, we historically have not broken down revenue by segment, and I think maybe that’s something we can look at for year-end. Part of that is just triangulating all the different events. Although, honestly, if we go back and look at each of the press releases, we probably could add it up. We are also, obviously, one of the challenges we have had has been providing appropriate guidance given all the uncertainties and our plans are not to give guidance for next year until the following earnings release, and it would still be my assumption that we will tell our investors as best we can what we understand about the market. Having said that, I do think that while we expect to have a good year in silicon photonics, I think absolute revenue growth year-over-year from this year to next and I think silicon carbide is likely to be higher. Meaning our growth in silicon carbide will be higher than our growth in silicon photonics. And I think it’s very likely that silicon carbide revenues will be higher, if not substantially higher, than the silicon photonics revenues. So you add up all those things and we are definitely feeling optimistic about year-over-year growth. But let’s also be fair: the first few months of this fiscal year were weak and we are not excited about what they were. We were excited about the continued communication with the customers, what they are telling us in terms of the value of our products, what they are telling us about their ramps and how we fit into that, and how we are basically unique in how we fit into that. But we are on the edge of our seats like all other shareholders waiting for those orders to turn into bookings and then into revenue, and we have the capability and capacity to address those needs. So I hope I gave a little bit of color, but I do think we will see year-over-year growth in both. I think silicon carbide will see stronger growth and be higher as a percentage of our total revenue than silicon photonics. There’s a lot going on in silicon carbide, and the unit growth, the test times and the uniqueness of what we have, I think, is going to parlay into significant market share in that space.

Okay. Thank you. Your original guidance for this year was $25 million to $28 million and then we saw obviously challenges, COVID-19-related push-outs from customers. That kind of started last quarter and we were still quite optimistic for the back-half of the year until now. So when we look at next fiscal year and your commentary, Gayn, that there are no lost opportunities, they’ve just been pushed out or delayed. If we kind of have “normal conditions or normalizing conditions” if you will, is there any reason why you can’t be doing $25 million to $28 million? I know you are not giving guidance. But is there — what are the obstacles for you to recover that revenue plus the growth that we just talked about in photonics and silicon carbide? It seems to me you should be able to do $25 million, $28 million next year, it just got pushed out the year… is that fair or am I thinking about that wrong?

Sure. So maybe let me see if I can do this in a couple of ways. In general, there’s no reason from an infrastructure capacity or supply chain standpoint at this point that we wouldn’t be able to do those revenues and more, just from our ability to supply. Related to the markets themselves, I actually feel we have more market opportunities going into next year. We have now seen, albeit only a couple more, silicon photonics customers transition to production. But I feel we now have five folks that are in production to address the market. The part that I — and I have tried to communicate subjectively and objectively as best I can — is that last summer when we saw some of the softening of the silicon photonics forecasts, it made no sense to us. How is it that data centers are slowed down when everyone’s on Zoom and the whole deal? It wasn’t until really the fall when we started to see that the transceiver companies, our customers, were all reporting soft quarters because the data center folks weren’t actually buying and doing those upgrades. So, while it didn’t seem intuitive, it was the case that the Amazons and others were not buying, so our customers were not placing orders for new equipment. Now we are hearing from folks that those ramps are coming back this summer or so. Will they double count? I don’t know that. I am not sure it’s obvious they will simply resume where they left off and continue to grow from there. On silicon carbide, if you just look at where it was a year ago and consider the push to electric vehicles and charging infrastructure, many companies are making massive investments to redirect capacity, fab capacity and infrastructure towards silicon carbide to go after that. As we head into next year, we actually have more customers in production and more product offerings and configurations applicable to silicon carbide than we had before, and so I feel very good about it. I am optimistic, but cautious. COVID restrictions have clearly slowed down customer orders and that’s extremely frustrating for our shareholders and me as a shareholder, too. We’re doing everything we can to convert the current momentum into bookings and revenue. I do think we will be in better shape by year end.

Great. Thanks. No other questions. Thank you.

Thank you. We will take our next question from John Fichthorn with Dialectic Capital.

Hey, John.

Hey. Thanks for taking my call. So, I guess, my first question is really, I’d love some clarity on the ramp, because you have talked a lot about silicon carbide and silicon photonics. And you might have reversed that in one of your answers, you said, I think, silicon photonics would be higher in revenue next year than silicon carbide.

No. I apologize. I believe it’s silicon carbide that will be higher in revenue.

Will be higher in revenues, not just growth for silicon photonics. I want to make sure. I just want some clarity on that. So if you could give us some clarity on the growth rate though of your 2D/3D sensor order that you got that kind of kicked off the quarter that everybody is excited about. Is that part of your backlog? Is there continued growth in that order book or was that kind of a one and done?

We started shipping that in Q3. We got the order in Q3. We started shipping it, and then we believe we will complete the shipment of that initial order this quarter. I am quite confident we will complete the shipment of that initial order this quarter. We do believe that there will be additional capacity of DiePaks and system level capacity for that moving forward. The timing and quantities are something we will be a little cautious about. I have been somewhat cautious about that particular application because there have been many variations in roadmaps and ramps that have surprised us in the past. Based on what I have been told by the customer, I do believe there will be more business.

Great and thank you. We have had conversations before and maybe — or maybe it was on your conference call — where you basically said it’s almost impossible for you guys to stick around in the $20 million to $30 million revenue run rate. Like, if we take the number of customers you have in production, which I’d love to hear a little clarity on how many guys are actually in production that are Tier 1 customers, how many Tier 2 customers are in production? Like, if you just take those numbers and you say, gosh, a Tier 1 customer is kind of $5 million to $10 million or whatever the range is, Tier 2 is this, it’s almost hard for us to do $20 million to $30 million and yet kind of here I come, I have got another year of $20 million to $30 million and I am looking at another year of $20 million to $30 million. Like, is there a breakout or was your original read wrong? Like, give me some thoughts on how you think your real market opportunity is in the near-term, medium-term?

Yes. I mean I definitely — we have not predicted very well in this environment, and this feels like we just lost a year. But there is a breakout. Vernon, our VP of Sales, and I have decades of experience and we focus on the basics of product-market fit and customer penetration. We typically focus on winning one or two big players, then expand from there. We have been fortunate to have lead customers across mobile, silicon photonics and now silicon carbide. These are major customers that validate our products and the word spreads. That’s how we gain market share. We did invest in an application center — putting all our tools into a clean room to run multiple customer demos in a secure environment — which has helped accelerate evaluations, especially during COVID. When COVID happened, a lot of activity that would have converted to bookings was delayed. We focused on existing customers who already knew us and could buy more equipment, but many of those forecasts were pushed out. The recent activity pickup in the last two to three months is encouraging; it’s the weeklies and calls like the one I had this morning that tell us customers are coming back. So, while we were overly optimistic earlier in the year about timing, the underlying customer demand and the number of customer engagements give me confidence that as we move out of these delays the company can grow beyond the $20 million to $30 million range by continuing to capture market share with customers that themselves are growing.

Yes. You have given kind of customer accounts, some idea of funnel pipeline in the past. Can you give us how many Tier 1 customers do you have? How many customers are in production? How many conversations you — however you want to classify it? If you could give us some clarity, that would be great and then I will…

I don’t have the exact numbers in front of me and I am careful about being too specific because of customer confidentiality. But to give you a feel: we have several current customers I’d call Tier 1 — two, three, or four of them — that themselves could be buying $4 million, $5 million, $6 million, or even $10 million a year. Then we have maybe a half dozen other customers that are Tier 2 or smaller right now. In terms of actually in production on our FOX tools, the new FOX-P XP systems now have five silicon photonics customers that are actually shipping products to their customers off of our tools. We currently have one lead customer in silicon carbide that’s in production. In the mobile sensor space, we have several companies that are suppliers to a big mobile supplier. Some of these are in production; others are sampling. I hope that gives you a feel. This is in addition to our historical installed base where we had a handful of customers using our FOX products including Flash memory that are still using our products in production.

Great. And now I will make this my closing remark which is, if you are at that inflection and you are seeing this activity it all sounds great. But we want to see activity from insiders and this Board has been granted shares. You have been granted shares. You said you are a big shareholder. You are a big share getter. We are big shareholders and we have been big share buyers. And it’s hard, you have — there’s been 12 months of a lack of credibility here, maybe years, this Board and this management team. And if we don’t see you guys on the tape buying stock, I just don’t know how else to measure your conviction. So I would encourage everybody to once again reach into their pocket like the rest of the shareholders on this call and buy some stock. And otherwise, I really — I wish you the best of luck and I hope this is the year of the breakout. So thank you.

Thank you. Thank you, John.

Thank you. We will take our next question from Larry Chlebina with Chlebina Capital.

Hey, Larry.

Hey, Gayn. A follow-up question on the $4.3 million order for the sensor: that’s being done for the end customer, is that correct?

I think the way we described it, it is a supplier of that sensor to the end customer. I don’t know that we got into the exact detail publicly.

So the…

That particular one is a different deal from the one we announced last year related to silicon photonics with an OSAT. That specific one we announced last year — at the end of May — was a silicon photonics customer who bought a system and worked with an OSAT to build their silicon photonics devices, and that customer has now moved from an NP to an XP. Related to the mobile sensor order, I’ve been intentionally vague because of nondisclosure agreements with that customer.

Okay. So is this end product commercialized already in the marketplace or is it intended to go to market and that’s why you are not sure about capacity?

I’m going to decline to go into those specifics for that customer. I can tell you it’s a really cool device and very interesting and unbelievably small.

Okay. So does that have anything to do with this new DiePak design? What caused you to develop a new DiePak?

Yes. We identified this concept with customers under nondisclosures. DiePaks have evolved to handle very small micro-probing capabilities similar to our WaferPaks so we can contact tiny dies with electrical pads that have no pins. Instead of testing a whole wafer, DiePaks handle individually singulated die and modules and provide thermal control and electrical contact in parallel. They are unique and address a number of new component styles that are lidless with no external pins, making handling and contacting difficult. We will provide more detail over time, but that new DiePak was part of the $4.3 million initial order.

So that DiePak was part of that $4.3 million order. That was the motivation to develop it, okay. Now I get it. Switching to silicon carbide, you have a potential new customer that has asked you to demonstrate on-site. Is that correct? You said you would take their wafers in your facility to test and then move it to their site?

Yes. Our plan is to take wafers and run evaluations in our facility and then potentially move the system to their facility if they want an on-floor demonstration. If they want to go directly into production they might want an XP; if they want a trial NP is easier to ship. We’ll see how they proceed.

Given COVID restrictions to get into certain facilities, will vaccination status or local rules affect your ability to run these on-site demos?

Each region has different COVID restrictions. For example, to install a system in Taiwan right now, there are strict requirements including quarantines that add significant overhead. I personally believe vaccines will help and restrictions will subside, but most customers are thinking summer for substantial easing, not 30 days. Until we actually see those changes, international travel and access to customer sites will remain more complicated and have slowed some evaluations and orders.

One more: the CP customer, where does that stand? Is it still in the pipeline?

It is still in the pipeline. A couple months ago they were buying spares for it and the tool is being used around the clock. They have simply delayed their project by about a year because of COVID. We don’t have an updated ramp date to share, but the tool is operating and in use.

Last question: I was looking at spot memory prices today and I was shocked at how strong they were, especially DRAM going back up significantly. Does that appetite translate to an opportunity for your memory project? Any feedback there?

We have seen some healthy signals in the Flash space. Many companies in the broader semiconductor test equipment market have had strong years selling more of existing testers. But many new product investigations were put on hold during COVID. Aehr introduced new products targeted at emerging markets and those saw delays in orders as customers postponed new equipment purchases. Now we are beginning to see those evaluations and orders resume in the markets we target.

Got it. Okay. Good luck.

Thanks, Larry.

Thank you. And we will take our last question from Raghu Karin with Karin Capital.

Hi. Thank you very much. I have a general question. I understand new business is difficult to get approved, new tools, I understand. The industry as a whole is scrambling to increase capacity worldwide and they are producing at highest capacity levels. You have a legacy business yourself because you are not a new player and you are only talking about carbide and photonics. This is new stuff. What happened to your legacy business? Where is it? If you see your presentation and what you put on your website, you show many customers worldwide. What are they doing? They are not doing anything? Everybody is increasing capacity. Something is not right. You are guarding wrong or something. This is not only you. This has been going on for few quarters at least. You have a certain expectation. COVID is everywhere. Everyone is booming. Only you are thinking unfortunately that you lost a year. There is something here, which I want you guys to have internally some critical assessment of what is going on. Because this is your best chance. The operator said this is the last question. So you tell really what’s going on in your assessment?

Let me try to describe it. Prior to COVID, in late 2019 and early 2020, we had made a substantial transition from package part business, which had historically run about $2 million to $3 million a quarter, to our new wafer-level products. Our FOX-P family is relatively new, with initial system shipments and production ramps occurring within the last 18 months. We were just beginning to see our lead customers move to production on FOX-XP and other FOX-P products when COVID hit. Our legacy business — package part burn-in and related services — became quite small during COVID because many customers paused new investments and evaluations. So our revenue mix shifted to the newer products, which were then impacted by the global delays and travel restrictions caused by COVID. Other large suppliers with many established products across many customers continued to benefit from existing installed bases and broader spending. We, by contrast, were in the middle of a transition to new products and new customers and that made us more sensitive to the timing delays. I hope that helps explain the difference. We are seeing legacy package part activity come back recently, but the big growth opportunity we’re pursuing is wafer-level burn-in for silicon photonics and silicon carbide and that transition was disrupted by COVID timing delays. We believe those markets will resume and accelerate.

Yes. Pretty clear. Thank you.

Okay. And I think operator you had suggested to do it there and I think just time wise, we are a little over that kind of the typical one-hour allotted that we do. So, let me just say thank you for everybody for attending the call. As always, we will make ourselves available for calls with you. I used to always invite people, if you are in town, swing by, but we are still kind of limiting that a little bit ourselves. But if you are a customer, you are welcome to come by. We will figure it out. But other than that appreciate your time and we will talk to you at the next call as well. Bye-bye now.

This concludes today’s call. Thank you for your participation. You may now disconnect.