Good day ladies and gentlemen, and welcome to the Aehr Test Systems, First Quarter Fiscal 2022 Financial Results Call. Today’s conference is being recorded. At this time, I’d turn the conference over to Mr. Jim Byers of MKR Investor Relations. Please go ahead.

Thank you, operator. Good afternoon and welcome to Aehr Test Systems’ first quarter fiscal ‘22 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 right after market closed, Aehr Test issued a press release announcing its first quarter fiscal ’22 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 in 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 CEO.

Thanks, Jim. Good afternoon, everyone, and welcome to our first quarter fiscal ’22 earnings conference call. Thanks for joining us today. Ken, could you make sure you're muted over there? Thank you. Let's start with a quick summary of the highlights for the quarter and the strong business momentum we're experiencing, and then I'll give an update on our expectations for increased revenue growth this fiscal year. We're off to a strong start for fiscal ’22, finishing the quarter ending August 31 with record bookings for a single quarter of $20.7 million. Since the end of the quarter we have announced an additional $19.4 million in bookings, bringing our total bookings for the fiscal year to over $40 million as of today's date. Our strong bookings include several sizable orders received over the past few months from our lead silicon carbide Test and Burn-in customer for our FOX-XP wafer level test and burn-in systems and full wafer, WaferPak Contactors to support testing silicon carbide devices for electric vehicles. Each of these silicon carbide-focused XP systems is configured to test 18 silicon carbide wafers in parallel, in the footprint of a single test wafer, test solution, while contacting and testing 100% of the devices in parallel on each wafer. This Fortune 500 customer is a major automotive semiconductor supplier, and we continue to work closely with them to achieve their test and burn-in requirements and capacity needs. They continue to forecast orders for additional FOX systems and WaferPaks this fiscal year and a significant number of systems and WaferPaks over the next several years, driven by electric vehicle semiconductor test and burn-in demand. We're seeing very strong demand across the industry for wafer level burn-in of silicon carbide devices and continue to ramp our FOX multi-wafer testing burn-in systems and full wafer, WaferPak to meet the silicon carbide market opportunity, which we believe is only just beginning. We're currently in detailed discussions with multiple major silicon carbide suppliers regarding their wafer level test and burn-in needs. This includes at least one potential customer that has moved on to wafer evaluation and benchmarking of various FOX-XP multi-wafer systems for test and burn-in of their silicon carbide wafers. We believe we will add several new silicon carbide customers over the next 18 months that will ramp into production on our solutions. Silicon carbide power semiconductors have emerged as the preferred technology for electric power conversion and control of the electric engines in what are called traction inverters as well as the on-board electric vehicle battery chargers. Our FOX family of products are cost-effective solutions for ensuring the critical quality and reliability of devices in these markets, and we anticipate that wafer level test and burn-in will become the industry standard for quality and reliability screening of silicon carbide devices. Aehr’s FOX-XP solution allows for one of the key reliability screening tests to be completed on an entire wafer filled with devices, testing all of them at one time, while also 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. With the most cost-effective solution in the market to address this opportunity, we believe that Aehr has the chance to achieve a significant, perhaps dominant market share for silicon carbide wafer-level burn-in. In addition to the devices in electric vehicles, the energy infrastructure market that includes charging stations, wind farms, and solar panels in both solar farms and for individual homes and businesses, all are markets that are consuming more silicon carbide devices than electric vehicles today and are growing at a rapid rate over the next decade. We believe it is very clear that this infrastructure is going to need to grow to support the electric vehicle demand. Many countries, including the United States, are putting in place government subsidies and infrastructure for these charging stations, wind farms, and solar farms to be installed to support a greener, more sustainable, and reduced carbon emission world. The silicon carbide power semiconductor device market is expected to increase over 500% between 2020 and 2026, growing at a compound average growth rate or CAGR of 36% to $4.5 billion according to Yole Research’s latest forecast. A report from Deloitte forecasted that the total electric vehicle industry will likely grow at a CAGR of 29% yearly from 2020 to 2025, before reaching 31.1 million vehicles by 2030 and securing approximately 32% of the total market share for new car sales. Market research firm Exawatt estimates that the total market for silicon carbide wafers for power semiconductors just for electric vehicles in 2021 will be 130,000 150 mm equivalent wafers and the total market will exceed 1.23 million, 150 mm equivalent wafers by 2030. These stats highlight the tremendous opportunity Aehr Test has in front of it with its wafer-level test and burn-in solution for electric vehicle semiconductors. In addition to our success in the silicon carbide applications, we continue to see signs of strengthening in the silicon photonics test and burn-in market. During this quarter, we received and shipped our first order to China for our FOX solution for production testing of silicon photonics devices, expanding our customer base for silicon photonics with this new customer that serves international as well as China markets. Several other customers addressing the silicon photonics market have also forecast additional FOX system and WaferPak or DiePak contactor capacity needs this fiscal year. These include needs to address incremental production capacity, as well as capacity to address new customer and new product qualification and engineering. Silicon photonics devices address the 5G and data infrastructure industry, as well as several other key markets, and Yole Research predicts that the silicon photonics market will grow at a 36% CAGR from 2020 to 2025. Our customers are using FOX wafer-level solutions for 100% test and burn-in rather than just quality and reliability sampling of their integrated silicon photonics devices, as this step is used to stabilize devices before they are integrated into the fiber optic transceivers modules. Silicon photonics laser transmitters, like other photonics devices, have a characteristic where their admitted output light power decays with time before it stabilizes its output power. This decay can be an issue for high-speed transmission bandwidth and our devices with multiple lasers transmitting different wavelengths or multichannel transmission, which is very typical in 5G infrastructure and data centers. Our FOX systems allow our customers to test all the devices on their wafer at one time using our proprietary WaferPak contactors, up to 2,000 watts of power per wafer. This energy, plus added thermal energy up to 150 °C allows the stabilization to happen very quickly, in hours or days rather than weeks or months. And our solutions are a very cost-effective way to do this at the wafer or simulator die level before putting this into the full fiber optic module or system. We currently have five silicon photonics customers that are shipping silicon photonics-based products to their customers using our FOX solution. We see a significant opportunity for growth as we expand these customers and add additional new silicon photonics customers. Additionally, for the first time, companies are making public announcements of adding optical transmission and reception to semiconductors, beyond just the silicon use for this combined silicon laser transparent optical detection receivers used in discrete fiber optic transceiver modules. Companies like Intel and Nvidia are talking about integrating fiber optic transceivers into their core and graphics processor units or CPUs and GPUs. This is very exciting, and we believe this presents an enormous opportunity for Aehr Test with our unique position of having a cost-effective and proven multi-wafer solution for testing and burning-in or stabilizing silicon photonics devices at a massive scale while still in the wafer form. Stay tuned for more news on this in future calls. We also continue with multiple programs using our FOX systems for production test and burn-in of new devices for 2D and 3D sensors for mobile devices. These devices include some really exciting new applications and even completely different functionality than has been seen before. I wish I could talk more about these devices, but our NDAs are extremely clear and preclude us from discussing specific details about these programs and products. However, what I can say is we expect to see meaningful bookings and revenue from these programs this fiscal year and continue to be optimistic about this market space into the future. With all the growth opportunities starting to gain momentum, let me quickly touch on our supply chain. On our last call, I noted that given all the issues with semiconductor shortages and rising costs and material costs and lengthened lead times across many industries, there had been reasonable concerns about our supply chain and ability to meet capacity needs for systems and contactors. As we are proving now, Aehr has the manufacturing infrastructure and supply chain in place to ramp to significantly higher revenue levels. We have been ordering long lead components for systems and WaferPaks, particularly for the enormous opportunity we see for silicon carbide that is gaining momentum, and we have been able to maintain reasonable lead times to meet customer requests. Our supply chain is holding up to the increase in demand, and we're ramping all of our sub-suppliers to meet the customer bookings and forecasts we are witnessing. Aehr has a very robust supply chain with world-class contract manufacturers on the subsystems of our test systems, contactors, WaferPaks, aligners, and DiePak handlers. These are very mature subcontractors that have successfully supplied these subsystems to Aehr for years. In all cases, these suppliers have capacity well in excess of Aehr’s historical shipments and the ability to ramp significantly higher as well. We are very confident in our ability to meet the customer forecasted demand, plus considerable upside. As we discussed and anticipated last year during the beginning of the COVID-19 pandemic, Aehr Test has emerged a stronger company, with more production customers, more markets and applications and higher value products than we had before the pandemic started. With our record bookings and the strength of our semiconductor test and burn-in solutions, as well as the positive response we are getting from multiple new potential customers in the silicon carbide space, we are confident in our growth and are raising our guidance for revenue for the year. The hard work we put in over the past several years is finally starting to pay off for our customers, our financials, and our shareholders, and we're excited about the large market opportunities ahead and the future for Aehr Test Systems. For fiscal year 2022, ending May 31 of next year, we are raising our previously provided guidance for full-year total revenue by approximately 80% to at least $50 million, which is over three times our revenue from last fiscal year. With that, let me turn it over to Ken to review our financial results and updated guidance in more detail before we open up the line for questions.

Great! Thank you, Gayn, and good afternoon everyone. As Gayn noted, we're off to a strong start for fiscal 2022. We finished the first quarter with record bookings for the company, a single quarter of $20.7 million, and since the end of the quarter we've announced an additional $19.4 million in bookings, bringing our total bookings for the fiscal year to over $40 million as of today. Looking at our financial results, net sales in the first quarter were $5.6 million, down 26% sequentially from $7.6 million in the fourth quarter and up 181% from $2 million in the first quarter last year. The sequential decrease in net sales from the preceding fourth quarter reflects a delay in receiving orders and time to ship during the quarter. Our fiscal Q2 will have much higher revenue and reflect profitability consistent with our operating model. The fiscal Q1 revenues reflect a decrease in wafer-level burn-in revenue of $1.5 million and customer service revenues of $473,000. The decrease in wafer-level burn-in revenue is primarily due to a decrease in WaferPak, DiePak revenue of $1.6 million. System revenues were flat. The increase from Q1 last year includes an increase in wafer-level burn-in revenue of $3.4 million and customer service revenue of $231,000. The increase in wafer-level burn-in revenues is primarily due to an increase in system revenues of $3.1 million and an increase in WaferPak, DiePak revenue of $325,000. Non-GAAP net loss for the first quarter was $414,000 or $0.02 per diluted share, which excludes the impact of forgiveness of $1.7 million in loans from the Paycheck Protection Program which we received in fiscal year 2020. This compares to non-GAAP net income of $870,000 or $0.04 per diluted share in the preceding fourth quarter, and non-GAAP net loss of $2 million or $0.09 per diluted share in the first quarter of fiscal 2021, which excluded the impact of a non-cash net gain of $2.2 million and a tax benefit of $215,000 related to the closure of Aehr’s Japan subsidiary during the quarter. The non-GAAP results also exclude the impact of stock-based compensation in all periods reported. On a GAAP basis, net income for the first quarter was $696,000 or $0.03 per diluted share, which includes the impact of loan forgiveness of the PPP loans. This compares to GAAP net income of $567,000 or $0.02 per diluted share in the preceding fourth quarter and GAAP net income of $107,000 or $0.00 per diluted share in the first quarter last year, which included the gain related to closure of the Japan subsidiary. Gross profit in the first quarter was $2.3 million or 40% of sales, down from gross profit of $3.5 million or 46% of sales in the preceding fourth quarter, and up from gross profit of $227,000 or 11% of sales in the first quarter last year. The decrease in gross margin from the preceding quarter is primarily due to an increase in unabsorbed overhead costs to cost of goods sold due to higher revenue levels in Q4, which accounted for a 3 percentage point decrease in gross margin, and an increase in other costs of goods sold of just over 2 percentage points due to freight costs related to inventory purchases and an increase in warranty costs as a percentage of sales. As I noted before, 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, such as we saw in Q4 fiscal 2021 with 46% gross margin on $7.6 million in revenue. The increase in gross margin compared to Q1 of last year was primarily due to a decrease in unabsorbed overhead costs, cost of goods sold due to higher revenue levels in Q1, ‘22 accounting for a 21.5% improvement in gross margin. Operating expenses in the first quarter were $3.3 million, an increase of $341,000 or 12% from $2.9 million in the preceding fourth quarter and up $860,000 or 36% from $2 million in the first quarter of last year. It is important to note that cost reduction initiatives put in place during the last fiscal year, fiscal 2021, including mandatory vacation days, shutdown days, and executive staff pay reductions were removed during the fourth quarter of fiscal 2021 ending May 31, 2021 contributing to the increase in operating expenses. SG&A in the first quarter was $2 million, an increase of $49,000 from $1.9 million in the preceding fourth quarter and up $439,000 from $1.5 million in the preceding year first quarter. The increase from the prior year is primarily due to an increase in employment related expenses of $374,000 due to elimination of cost reduction initiatives in place during the first quarter last year. R&D in the first quarter was $1.3 million, an increase of $292,000 from $1 million in the preceding fourth quarter and up $421,000 from $900,000 in the first quarter of the prior year. The sequential increase in R&D includes an increase in consulting of $176,000, $61,000 in employment related expenses, and $68,000 in R&D and project materials. The increase in R&D from prior year includes an increase in consulting of $184,000, $158,000 in employment related expenses, and $99,000 R&D project materials. We continue to invest in R&D to enhance our existing market leading products and introduce new products to maintain our competitive advantages and expand our applications in addressable markets. Now turning to the balance sheet for the first quarter, our cash and cash equivalents were $6.5 million as of August 31, up $1.9 million compared to $4.6 million at the end of the preceding quarter. Accounts receivable at quarter end were $4.3 million, down from $5.2 million at the preceding quarter end, due to the impact of lower revenue levels and timing of collections compared to the prior quarter. Inventories at August 31 were $10.1 million, up compared to $8.8 million at the preceding quarter end. With the strong business momentum and the increased orders, we've been increasing our inventories to fill current orders and expected future orders. Property and equipment stood at $676,000 compared to $677,000 at the preceding quarter end. Customer deposits and deferred revenue, both short-term and long-term, were $3.4 million, an increase of $3.1 million compared to $288,000 at the preceding quarter end due to increased backlog. We expect customer deposits to increase substantially, reflecting the down payments associated with recently announced bookings. Borrowing under our line of credit was zero as of Q1 ’21 compared to $1.4 million at Q4 ’21. As of Q4 ’21, we issued $1.7 million in current portion of long-term debt related to the Paycheck Protection Program or PPP loan. This past June, we received notice from Silicon Valley Bank, that the Small Business Administration had forgiven the loan and accrued interest and now we show zero debt. As I noted earlier, bookings in the first quarter were $20.7 million, a record for the company in a single quarter. Since the end of the first quarter, we have announced an additional $19.4 million in bookings, bringing our total bookings for the fiscal year to over $40 million as of today. Backlog as of August 31 was $16.6 million, up from $1.6 million at the end of the preceding fourth quarter and $1.2 million at the end of the first quarter last year. Effective backlog, which includes backlog at August 31 and orders announced since the end of the first quarter, is over $36 million. Now turning our outlook to the fiscal 2022 year, as Gayn noted, we're off to a strong start with our strong bookings and backlog. With our record bookings, the demand for our solutions and the positive response we're getting from multiple new potential customers in the silicon carbide space, we are confident in our growth opportunities and our rising guidance for the revenue for the year. For our fiscal 2022 year ending May 31, 2022, we are raising our previously provided guidance for full-year total revenue of greater than $28 million by almost 80% to at least $50 million, which is over 3x last fiscal year's revenue. We expect to be profitable for the fiscal year at these revenue levels consistent with our operating model.

Thank you. We'll take our first question from Christian Schwab with Craig-Hallum Capital Group. Please go ahead.

Thank you. Hey guys! Congratulations on a very robust outlook. Gayn, just sort of for clarity, I think last time you were really excited about silicon carbide. We had the lead customer, we had one person evaluation. It sounds like we've got another potential customer there or even more than that. Can you give us clarity on whether you are working with two others so far? Any directional help would be great.

Okay. Yeah, let me make a stab at that. Obviously, I know the answer here. It's a very small community as it turns out. What I will stick to my guns on is we're talking with all the major suppliers, and we're explicitly going to try and muddy the water. I know that doesn't help with shareholders exactly, but due to competitive reasons, we're trying not to disclose where people are in their benchmark selection and ordering. But I'm feeling very good about our conversations and I will continue to give you updates. It may come more in the form of when the orders are booked and a lot less about exactly when all the orders are coming. I apologize for that, but as we started to put this script together, we started to realize that if we get too specific about it, anyone who may or may not be as far along could glean some insight that we have to be very careful about. Sorry about that.

No, I think that's a fair response. As you are talking to the different customers though in all the other major players, is there any reason for us to assume that as they choose you, their initial ramp in order patterns would not be or would be potentially positive or less than your first customer who's now your main customer. In other words, when they start, were they similar?

Yes, again, I want to be a little careful. What I've said in the past, and I think it's still, it's sort of the generic process by what I have seen in my 30 some years doing this is that very often what happens is a customer will go through an evaluation, maybe order one or two systems. Keep in mind that even one of our multi-wafer systems can test 18 wafers worth of capacity compared to someone else who might buy maybe one at a time. Although you can get partially loaded systems to begin with if you needed. But it’s been my expectation that there'd be probably one system that goes through kind of a final qualification, and then it probably jumps to multiple systems, perhaps some smaller number before higher volume. The spin in it right now that's a little different is that it's relatively where I've seen this a few times in my whole history where you have so many customers at the same inflection point. Where there’s sort of a mad dash to go after all these electric vehicles and put this capacity in place, which creates a different dynamic, which I think it's fair. It may speed up the process and get customers to move quicker once they have convinced themselves that we can do the job, and that once they’ve seen our prices, quite frankly, we are perhaps more likely than I've seen in recent years for somebody to start placing larger system orders. Now obviously, one of the other pieces of this thing is always how many wafers are they building per week? And there are different capacity levels, but all of them are relatively large. I have shared this in the past. I will go so far as to say this – our lead customer, our customer states that they're probably about the fourth largest in the space and not even half as large as the next largest. So each of the larger companies that we're talking to is building considerably more wafer starts per week, and if you were to assume similar test times, you can imagine they would buy as much or more along the way. Test times are always going to be one of the big debates. Everybody likes to think of how they can keep their test times down based on different quality levels, etc. and it gets a little difficult for us to talk about it. Historically, we've done our market modeling at something maybe near 24 hours per day for a burn-in on a wafer. There will certainly be examples that will be higher or lower, I’ll leave it at that. But you start going through the math times, the number of wafer starts and you can see that it's a pretty significant opportunity for us. So it's the real deal Christian, and we're really excited about it, and most of our time we're focusing on putting the infrastructure and the supply chain and material in place to be able to take advantage of it. Hope that helps.

That's really helpful Gayn. A popular question that I get asked a lot is on the competitive front. You know as we move to the adoption of silicon carbide, not only for electric vehicle transmission, but also obviously for charging stations. And you know if they are not using wafer-level burn-in test from Aehr Test, is there any other substantial competitor that you can bump into that you are talking to, these leading OEMs or is there an internal technology that they may be debating between yours and theirs? Any clarity for investors I think would be very helpful.

That's a good one. And obviously, you always want to be a little careful getting too carried away. We are talking about all your competitors or competitive advantages etc., but this one's a little easier than normal. For clarity, silicon carbide was shipping products before we shipped our first wafer-level burn-in system into that market. So just so we're clear, this market has been around for years technically, but it really started to take off when Tesla introduced their Model 3 with a silicon carbide traction inverter in it, and then quickly shifted all of their products to it. Because the notability of it, being able to give an extended range or theoretically smaller battery life. That has completely turned the market on edge and created an opportunity along with the acceleration of electric vehicles for basically everybody's pushing for silicon carbide because of the advantages and the efficiency performance advantages of going to that, right. At that time, obviously, they were doing something and what I want to make sure is it's widely known and discussed at all – in the industry and across the board that all silicon carbide customers have an infant mortality issue, and what that means is these devices tend to fail in their first so many hours of operation. And if that gets all the way through to the car, this inverter MOSFET fails, you basically get out of your electric car and you walk home. So they have to do this burn-in, but the nice thing about silicon carbide is while it does have a high infant mortality through a relatively straightforward process of burn-in, you can actually weed out those infant mortalities and it's extremely robust. Those infant mortalities were all weeded out with what's referred to as a package part burn-in system. And what that is, is they were put into their modules or the discrete packages, they were burned-in and the devices that failed were thrown away. The big difference is, is what we did, it first introduced with our lead customer was the movement of those devices burn-in from package or module where there may be eight or 10 devices in a single package to the wafer level and did it not only cost-effectively but cheaper than actually doing it at package part. In addition to that, you got the yield improvements of not having to throw away the devices for the cost of the package, but also the devices that would share the same package. If you have eight devices, one fails, you throw away the other seven. So that combination is really what kind of went crazy and while we don't specifically talk about that lead customer in the same sentence, they are known to have gone out and write papers and talk about the differentiation that they've had with the wafer-level burn-in with pictures of our testers in it. They are on the market right now, differentiating themselves against their competitors because they believe that they have a more robust, higher quality process for weeding out infant mortality and shipping a higher quality module, as well as discrete than anybody else. And a good part of that, they specifically talk about is wafer-level burn-in and that's us. So other customers have figured this out, but they're still doing package part burn-in. So the discussions we're having with them in many cases is to move from package to wafer. Now, is there any other way to do wafer-level burn-in? The primary way to do it is, you could take an ATE system, put it on a wafer prober with a probe card and test the wafer and it's my belief that there are many companies that could do that. The difference is an ATE system might be $0.25 million to $0.50 million or even $1 million per wafer. The wafer prober itself is about $350,000 per wafer and the probe cards you know could be $50,000 or $100,000 let’s say. Because to the math, and you might be upwards of $1 million per wafer for the test capacity, but it's in the footprint of about the size of a Prius, a Toyota Prius. So if you need to go and test 500 wafers a day, you're going to need 500 Priuses of footprint in your wafer fab, which is extremely difficult to do, and it quite frankly is so expensive, it's even more expensive than the yield loss of just doing it, the packaged part. Our key differentiation, quite frankly, is our system is architecturally different and unique and in the same footprint of that same Toyota Prius, we test 18 wafers at a time. We do that at a price point that's a fraction of the competition, that’s vetted as cheaper than package part burn-in and significantly cheaper than any other alternative for wafer level, and that's our key differentiation. And right now, we've made an enormous investment in this platform over the last decade, and particularly with the last handful of years. We have IP and patents protecting that capability, both in the tester and the proprietary contactor that enables it, and we intend to defend it. But in the meantime, we're running as fast as we can to try and capture as many customers as possible to get ourselves further qualified into the OEMs; that's what all these guys call the automobile suppliers. Once you're qualified into the OEM, it's extremely difficult to shift, because people do not like to change their quality processes once it's qualified into an automotive supplier. So that's our strategy. It's now out there and that's our plan and I think we're in a really good position for it. Hope that helps.

Yeah, thanks for that clarity Gayn and congrats on the strong outlook. Those are all the questions I had. Thank you.

Thanks Christian.

We'll take our next question from Tom Diffely, D.A. Davidson. Please go ahead.

Yes, good afternoon and thanks for the question. So Gayn, I really appreciate the last question you answered, they are very important to the overall thesis here. But I'm curious, you know in the past when we've had these burning testers, one of the big issues has been ultimately that the companies, the customers have been able to significantly reduce their testing, just go do some really light sample testing over time. It sounds like silicon carbide at this point needs to be 100% tested and burned in. Is there anything on the horizon that could change that, because that is you know one of the biggest drivers of this market for you right now?

Okay, so as I understand and we've had some very deep dives even recently again with some PhDs and folks on the reliability of this space, the physics of the way these planar and trench-based MOSFETs are designed and built into the silicon carbide substrates are such that they really do have these defects that need to be screened out and there's no belief by any of them that that's going to go away. Interestingly as people go to Gen 2, Gen 3, Gen 4, which is what they refer to as shrinks if you will, it turns out as the devices get smaller the defect issues actually intensify. Whereas historically sometimes just things got smaller, maybe there were less defects because of defect density, that's not the case here. And so as the generations go on, it becomes maybe more important or certainly more – and they require more time to do it. I have not heard a single person talk about sampling. I personally reviewed the test data, and I would tell you there's no data to support these things are anywhere near or have any projections to do sampling. The defects are high enough. You would not want to be in a car that has not gone through burn-in on these devices. Now, the second thing is test times, and I will tell you there are a lot of folks out there that hire a full-time pay trying to figure out unique tricks and things and how do I stress devices and twist and turns and temperatures to try and reduce test time, and it's fully our expectation that customers will reduce their test times over time, particularly of mature designs, but perhaps as is historically the case with all burn-in over the last 40 years. New devices will start up with longer test times and as they mature, they will get lower. The big difference is they are never going to go to zero. In fact, they are never going to go to really short test times, and so it's our expectation that this will be a nice strong market for many, many years.

Well, okay, great. That's good to hear. And then maybe Ken, if I could ask a month-ling question. You know do you have a target model out there today? Can you give us a sense for what the current breakeven level is and what maybe some incremental margins might be above and beyond that level?

Yes, absolutely Tom. So, just to kind of reiterate what we talked about at the last call, when we originally gave guidance of $28 million in revenue and said hey, we'd be profitable, you can imply that that's our breakeven and is consistent with what we've talked previously. And also from a model standpoint, I think we talked about previously, is with every incremental dollar of revenue, about $0.50 on the dollars falls to the bottom line. So a simple model can basically say, hey, if you take our forecasted $50 million in revenues, compare that to the $28 million that we originally guided to, there's an incremental $22 million in revenue, and say $0.50 on the dollar that goes to the bottom line. It's reasonable to forecast us coming in at profitability and net income about $11 million. And from a gross margin standpoint, we also talked at our $28 million breakeven gross margin we were forecasting about 45%, and because of our relatively fixed overhead, as revenues increase, that expected gross margin will increase up to basically 50% gross margin on the incremental for gross margin.

Okay, great. And just one housekeeping. On a tax basis do you have significant NOLs at this point to work off?

Unfortunately, yes. We have very significant NOLs that we have available to us. We report those in our 10-Ks every year if you want to go look at some of the details. And in terms of expiration dates on those, those will be available to us for quite some time.

Alright, for those folks that are online, that didn't catch the look-up table on that, NOLs and Net Operating Losses. We have for several years been running at a loss, much of that related to the investments we're making in this new system. What that does from a tax basis is it allows us to use that against future profits, so that profits that would come in, for example, as $11 million, would have the effect of being tax-free in the United States. So that's what that means. Other than that, you're very clear Ken, you don’t wiggle room around on that operating margin and I completely agree with you.

Thanks Tom. Any other questions? No, I appreciate your time. Thank you.

No problem.

We'll take our next question from Mike Dooling with Jacaranda Partners. Please go ahead.

Hi! Jacaranda Partners, Southern California. We specialize in large macro demand trends, both with venture as well as equities. So a question on the – you know this massive increase in revenue, do you have some target, gross margin assumptions that you look for say in fiscal ’22 or ‘23?

Hey Mike, welcome to – or was it Jack? Or was it Mike with Jack? I’m sorry.

No, it's Mike. I'm in Southern California. Jacaranda is a tree that has a Spanish name. So people just say Jacaranda, yeah.

Welcome to our call here. I know that you just got this. Ken was talking about kind of the simple model scale. You can start looking at say, 50% to the bottom line. We have talked in the past that around material margins etc., but we generally take – run our material margins somewhere around maybe 65%, including the manufacturing overhead and direct labor, warranty charges, etc. that gets us somewhere near 50%. I think it's a very healthy way to run this and it's respectful if you will, even with our customers and their ramps. And I think we have communicated that even quite frankly with some customers as we've done some deep dives on our financials, looking at how customers do deep dives on our capacity and capability of doing it and I think that's a good model going forward. Now having said that, our fixed overhead is pretty small and so the company, well theoretically has exponentially growth. You continue to get closer and closer to actually 50% to the bottom line, but for now I think that's a good model. As you look out at $50 million, $60 million, $80 million, $100 million or so, to just think of that $22 million breakeven and 50% to the bottom line thereafter.

Right. And then on lead customers, you know besides EZs, I mean is there some testing that goes on in non-EZ, because obviously there's tons of semi’s in non-EZ others and what other addressable markets do you have; data centers as an example. So just a little comment on your target markets outside of EZs and the EZ structure.

Sure Mike, and I think maybe we could take some more time to spend with you and I’d encourage you to look at some of the past calls. We tend to deep dive on a per call basis into different markets. But you know our key large markets, I mean in general automotive has been a rising tide if you will that's raising all ships as people have increased the content in it. And it's obviously more intuitive to think that semiconductors need to be pretty reliable within an automotive and that is true, and we have seen that in our package part burn-in systems and we have some other wafer-level related opportunities that are related to microcontrollers and memories and other things, in particular, those that might end up in automotive, so there's a broader stroke. Kind of the big waves if you will, and that's a term that we've been using. It's something I inherited from my previous companies that we were a part of, and that is the big one would be not just electric vehicles, which has lots of components, but the power control systems inside of it related to silicon carbide. Obviously, the conversion, which is both the onboard and off-board and high voltage, what they call level 3 chargers are a huge opportunity that's driving a lot. Interestingly, solar and other applications are also driving silicon carbide, and I've been meeting with some executives. I've actually met with executives of a couple of companies just recently, and the conversation is about just how ubiquitous silicon carbide seems to be going as it attacks the traditional markets of superjunction FETs and IGBTs. So, I probably could nerd out with you and talk a little bit more, but there are a number of applications and of course we did talk about silicon photonics in the data center, and then through the mobile sensors as other things that are driving our business particularly this year. I hope that helps.

Yes, well with the robust anticipated revenue gains and profitability and a pretty healthy balance sheet, it's just – I'm curious why you filed for – you know I think it's up to a $25 million offering. I mean, I assume your free cash flow will be strong, but is it just working capital for this huge increase in revenue, or why do you need money?

Alright, well Mike, I'll tell you what. Let me field that. I actually apologize, because I took the time to write it down a little bit. It's not to say it was rehearsed, but I've been encouraged to be very careful about how I talk about these things. But nevertheless, I mean many questions have surfaced around why we were raising capital at this time, and I think the answer is really a combination of three things: I mean with our confidence in winning multiple customers and particularly in silicon carbide, but also they will have test and burn-in deals in other markets. We're actively purchasing semiconductors and other long lead components that normally are pretty short lead times, and we're doing that to show we have significant capacity and upside to meet the customer forecast and opportunities. We actually started doing this at the beginning of the year and have continually increased the spending based upon the increased confidence. So we're doing that outside of backlog, right? So as an example, because of the spending we had earlier this year, before we had orders from this lead customer, we understood what their forecast were. It's allowed us to not only meet their significant increase in orders but also meet or exceed the requested ship dates. Our spread over the next nine months is their requested ship dates? In fact, quite frankly right before they ordered it, they have had them spread out over 12 months, then they dropped in I think three more systems, and then they pulled them in three months, and we were able to acknowledge all those ship dates, right. So not only can we do that over the next nine months, but we actually still have material and capacity to meet other customer needs and opportunities, and that's critical, because new customers that we've been talking to have already specifically asked us about our lead times and our capacity and our confidence in being able to meet their capacity needs during next calendar year and beyond. Our strategy and portfolio of the FOX-P family is important. When we talk about a family, it's a big deal, it’s a platform. And what it does, it allows us to purchase materials on subsystem in the inventory and then configure these to order, allowing us the flexibility in using the inventory to meet multiple customer configurations and not have the risk of sitting on inventory that’s specific to one customer or market. Our FOX-XP systems that we are shipping for 3D sensors and mobile phones and silicon photonics devices for data centers and silicon photonics devices are all mix and match, right. So it allows us to mix and match the electronics to configure this system using basically common things like the thermal chamber and these blades, which is the basic tester per wafer that includes all the thermal trucks and conduction cooling mechanism for the electronics. There's a controller and sensors and other infrastructure. And then we take what we call our channel module electronics that we can purchase in stock and simply configure this to a customer order. The key thing right now is keeping ahead of the game with purchasing and buffing the semiconductors and so far it's working out really well.

The supply chain chaos that we keep reading about in semi’s, you were kind of ahead of the game I guess and built up your inventory, so you're not as impacted as auto manufacturers are and…

Thank heaven, we did. I mean given the visibility and my conversations with other customers right now, it's important. I’m actually going to continue on, because it's not just that. There are two other items that we're doing and Ken alluded to that. I mean we're investing in research and development, not only maintaining our competitive advantage and differentiation, but also to expand the addressable market with new enhancements in these, so. We're also doing some cost down or assurance of supply projects to ensure we maintain our competitiveness as well, to ensure that we can meet the needs inside of the program showing development. I think I need to make sure the investor knows that when you're investing in an area, assure that we're working on some great products and enhancements in R&D and obviously we can't talk for competitive reasons about an IP, about things that we're working on, but part of the funds are applied to the programs and material need to build these initial prototypes, office systems and beta customer units, and we'll be talking more about that over the next three quarters. And then the third one and this is a real one. Although we continue to and get down payments on all large system and contact orders, that includes these orders that we just received, and that provides us with a buffer to meet large customer orders, it's fair that customers and shareholders will love to see Aehr have a stronger balance sheet and it helps to provide them with insurance that we’re in this for the long haul, and not only all the wherewithal, but the means to meet significant ramps in customer demand. This is particularly true with the silicon carbide state as I personally met the top executives at several silicon carbide companies just recently to discuss their forecast and how we can meet their capacity needs and this has come up. I met them face to face, like two of them, and they both expressed their added comfort in response to our public announcement, and our ability to raise a little capital to provide a buffer to meet the market potential silicon carbide test component and that's very real.

I assume that with the announcement of the quarter, the restrictions on discussing the offering are listed, and so will we be hearing a few more details in the next couple of days?

You know the basic process around the ATM as it gives you an opportunity to offer stock at appropriate times; it's certainly our intent not to put any pressure and to be, I guess thoughtful in exactly how we would do it. Mechanically, we would announce quarterly basis if and when we did any raises to an ATM at that time, and we'll be consistent with all of the rules and guidelines that the SEC has put in place and that's really all I can talk about. I apologize Mike…

This quarter that we're talking about, this was not a factor, but the next quarter, it would be, so we'd know at the end of this current quarter if you’d sold 400,000 shares or whatever.

Yes. We would report out quarterly, so each of the next several quarters or years until such time as it has been completed, we would give announcements, if and when sold…

Why do you want to do that instead of just have an offering, clean it up and get it done?

There's been a lot of discussion around that and certainly this is – we think this is an effective way and a very inexpensive way for us to do it without having to take a haircut and provide those discounts to shareholders that want to come onboard. So with a lot of discussion we determined that this is probably the best process for us.

Okay, thank you for your time. I'm a new shareholder. So I appreciate connecting with you.

Excellent! Thank you, Mike.

We'll take our next question from Matt Winthrop with Aegis Capital. Please go ahead.

Hey Gayn! How are you, sir?

I’m really good, sir.

Fantastic! I'll keep it brief. You know I love following your guidance, sort of beat you up, but congratulations my friend. You know I've been – I'm a retail guy, I'm not an analyst, but I know a lot about the business. I’ve been with this for at least three years, plus more in the past, but god bless you. You’re doing great, fantastic! Your IR guy is great. Just keep your nose down and keep doing what you're doing man, and we will see a $20 and $300 million in sales in a couple of years.

Thank you, Matt. I appreciate the confidence and I'm happy to work hard for you guys. Okay?

We'll go next to Larry Chlebina with Chlebina Capital. Please go ahead.

Good afternoon. I'll be quick. Gayn, your release states that this fiscal year you expect meaningful sales in 2D and 3D sensor applications. Is that going to be similar to that $4.3 million project that you had last year? Is that kind of what we're talking about or is it something different? Is it a follow-on to that project? Could you put a little more color on it?

Yes, let me give a little color. I mean, we historically have gotten follow-on business annually that's you know a reasonable amount, in both follow on projects that happen every year and new ones. And quite frankly, last year those programs did not go to production and we didn't see a lot. We saw the early ramp or what was it, like a $4 million deal, and then it didn't complete yet. It is our expectation that that will move into production, there will be more capacity this year, and we also have another program that we're working on. So I have – for those folks that have followed this story for a while, they know that there have been times that I sit on the edge of my seat and talk about just how awesome it's going to be and just the sea of testers that the 2D, 3D sensor might potentially buy, and quite frankly it hasn't worked out that way. While it's been good, high margin, quality business and that customer is very dependent upon us and we love them a lot, you know the dollars have been fairly I guess reasonable and nothing crazy. I still believe there is upside to this customer. We do know that one of the projects we're working on has a likelihood and is still being told to be actually done for 100% burn-in and it may not be a really, really high volume, but because it's 100% burn-in we'll make it higher. We also know that if some of the programs that were on that we’re sampling had been 100% burn-in, they would be massive. So what I'm going to do is I'm just going to stick to my knitting and when you get those orders, I will let you know, but I'm kind of sick of forecasting how great it might be because it has really burned into that much. But we do believe that it'll be material to our even current forecast and we do expect it. So I hope that helps. I know it's pretty elusive, but we’ve not lost any of those deals and they actually just shipped it out in time and we're expecting them at least this year to come in.

Okay. The CP business for the datacenter, that project, that's still out there or any updates on that?

Got it! Good one, Larry. You have to go back a little ways on that. That customer is still using that one tool consistently. They've actually been doing some things on the side a little bit, and they – about once a year for us, about two or three years we get our program pushed out another year. But I will tell you, there's an entire team of people that are still working on that particular product, that they would be using that and we believe significantly more systems has continued to move laterally and did not get released to production yet. I heard from the public statements, and again no one knows who it is and no one's guessed yet, is that they just simply were full with everything else going on through COVID and chose to push out that big program. So it's still there and we're – we just will probably get a heads up six to nine months when they turn that thing back on, and then I'll probably start to talk more about it, but they are still dependent upon it and use it every day and bizarrely our testers do break and we normally have the ability for the tester to self-diagnose and you can fix it really quickly, but this happens to be a customer that's pretty well locked down in COVID, and so it's been sort of a challenge. So we've been doing some interesting things with them, with applications, alongside other customers, where with certain customers we're now using these Microsoft HoloLens, which allows you to virtually be there. So you can actually put them on and if we're unable to get on-site immediately, they can simply point to something that we can help them diagnose the problem faster than we can even get on a plane. So, there's been some things we've actually enhanced through this craziness of COVID, but I'll tell you what, it's still – from a sales process, it's nowhere near as fun as being in front of them. I just got back from almost a two-week trip in front of multiple large silicon carbide customers in particular, along with some other wafer-level applications and I'll tell you what, I miss it. It was fantastic! Probably one of the best trips I've been on in well, perhaps ever. And so I’m – it's glad to be back on the road again and I’ll tell you what, planes aren’t full and hotels have lots of room for you. So I was able to travel comfortably?

That's good news. On this recent $19.4 million deal, my interpretation, although it was for Aehr’s XP’s were going to be delivered over the course of the next nine months, is it the hope that those would be delivered within this fiscal year, because it's going to be pretty close. And then the second question is, as that gets closer, I'm assuming your WaferPak that would be associated with that would then ship with them and then, so that order with the WaferPak would actually be closer to what, $30 million plus. Is that kind of the way to think about that?

Yeah, that's exactly right actually. You have all of it right, except for one thing. They actually currently are not forecasting all of them inside our fiscal year, even though we could. We've got a little of them straddling out into next fiscal year based upon their requirements. So that also is for us too, because we have additional capacity for other customers. But yes, they have not ordered the WaferPak for those systems yet and they will…

Yup, I got it. So then the final question, it looks like with your raise and the cash flow generated from all this business that's piling up, you're going to end the fiscal year close – in excess of $40 million in cash. Ken, is that your expectation in that ballpark close to it, give or take?

So if we act upon all of the drawdown, the ATM as per its entire $25 million with our existing cash balance, it will be very close to that amount.

So Gayn, now with the flush balance sheet, we talked to the past you had goals of developing an automated XP that would be applicable towards a memory project, memory fab. Is that your expectation that you will pursue that and launch that product? And then the follow on, is that – will that be applicable to silicon carbide as we scale up and particularly a potential customer that is in the process of building what's being held as the biggest silicon carbide fab in the world? I will be interesting if you could offer an automated system, whether that would be an advantage to a customer right there.

The advantage or disadvantage of being on cell phones is you can't see my big smile on my face right now. But listen, I think you're hot on the trail there Larry and as I’ve said in the past, I always have done it, toning it down a little bit about knowing too much about my roadmap. But I have specifically talked about things that we're doing for enhancements for automation and I will let you know that dollars that are being as part of this raise and as part of our cash flow that we’re doing will be spent towards that project in general. That project does in fact – is applicable to silicon carbide, as well as could be applicable to flash memory and the couple of other applications we're talking to customers about.

Good. And so on a memory fab, and I know that you have mentioned this in the past that you had opportunities, but weren’t in a position to pursue it, but one of your – somebody else did and it didn't work out so well. But anyway, that potential on a fab, roughly how many units, automated units, XP units would be needed for typical memory fab; it's quite substantial isn’t it?

If customers, for example in the DRAM space were to shift from package part to wafer level and assuming their test times did not change, they would stay the same and move it to that, a typical DRAM fab could take somewhere between 60 and 100 FOX-XP systems with 18 wafers at a time, so the capacity is in enormous. The flash memory is slightly bigger. There are fewer of those fabs, but what I always do as a caveat, while we are putting investments in it, I would ask customers or shareholders, please do not buy because you think we're going to have significant or material revenue in that space in the near term, but I will let you know we are working on that.

Alright. Well, good job. It’s been a long time covering and congratulations.

Thanks, Larry. Appreciate all your support over the years.

We'll go next to Jon Gruber with Gruber & McBaine. Please go ahead.

Hey John!

Good afternoon, Congratulations on this! Hey! I just had a golf lesson by the way, but I listened to the whole thing. My question is, when are we going to get an announcement on the base business an order from Intel, TI, Silicon Optics. You only been announcing silicon optics – I mean, excuse me silicon carbide. When do we get some of the base business guys to step up? When do you think that – when are we going to get some orders on the base business?

We can never make you happy, John, boy I’ll tell you. Yeah, I've got some of that going out too. I tried to allude to some of the base business with respect to our silicon carbide customers, and then we had a little on the last month, although it's nice to get something into a new region like China. We do believe that there will be more and across a couple of different customers at least. There's also opportunities to win more customers in that space, and we certainly expect to see more 2D and 3D sensors as we were just describing. And there's some other base business that honestly was very quiet during the downturn that we experienced, I mean during the COVID, and so that will be coming, John. I also think that the reality is there's some customers right now being on us pretty significantly related to capacity and benchmarks related to silicon carbide, and so I also want to make sure that we're appropriately focused on the right opportunities, but stay tuned John.

Okay, so since it's – you reported your quarter and your 10-Q is out, your quarterly is out soon. Will the amount you raise in the ATM be in that Q? Because you said you were not in the end-to-end recorders, and we’re here at the quarter and you’ve announced the quarter today.

I think without directly answering that, I believe the SEC requirement is, if we had raised any of it through the ATM at that time, it would be – have to be announced at that time. That's correct.

Yes, it’s a material item. We would do it as a subsequent event in our 10-Q.

Okay, okay. So did you do some I hope?

I haven't answered that question yet John.

You are a sneaky guy. And I like those Larry questions, you guys got $40 million order and boy, a lot of big orders coming. Wow! Thank you very much. Keep up the good work.

Thank you, John. I appreciate it.

And I show there's no further questions at this time. I would like to turn the conference back to management for any additional or closing remarks.

Alright, well I really appreciate everybody's time. It’s a nice long conference call here and we’re really excited about your attendance. We actually think we might have had a record number of folks attending our call this time, and that's encouraging too. Really appreciate everybody. We'll be out here working hard for all the investors and we'll look forward to talking to you and again at the next call. Have a nice day! Bye-bye.

Ladies and gentlemen, this concludes today's conference. We appreciate your participation. You may now disconnect.