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

Thank you, operator. Good afternoon, and welcome to Aehr Test Systems' second 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 close Aehr Test issued a press release announcing its second quarter fiscal 2022 results. That release is available on the company's website at aehr.com. This call is being broadcast live over the internet for all interested parties and the webcast will be archived on the investor relations page of the company's website. I'd like to remind everyone that on today's call management will be making forward-looking statements today that are based on current information and estimates and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. These factors that may cause results to differ materially from those in the forward-looking statements are discussed in the company's most recent periodic and current reports filed with the SEC. The forward-looking statements, including guidance provided during today's call are only valid as of this date and Aehr Test Systems undertakes no obligation to update the forward-looking statements. And now with that said, I'd like to turn the call over to Gayn Erickson, President and CEO.

Thanks, Jim. Good afternoon, everyone, and thank you for joining us for our second quarter fiscal '22 earnings conference call. We hope that everyone is off to a great New Year and is healthy and managing through these historic times with COVID-19. Also, I do want to apologize in advance that I have a lingering dry cough after recovering from COVID myself over the holidays. While I was fully vaccinated and one of those that had the breakthrough case, I'm happy to say I'm feeling fine and fully recovered from what little symptoms I had. Let's start with a quick summary of the highlights of the quarter and the momentum we're experiencing in the semiconductor wafer level test and burn-in market. In the second quarter, we're happy to announce our second consecutive quarter of record bookings and solid results for revenue, our bottom line, our balance sheet, and we finished the quarter with a new record for bookings in a single quarter of $29.1 million. This follows the previous quarter where we set a record of $20.7 million. Revenue for Q2 was $9.6 million, a sequential increase of 70% over the first quarter and up over 470% year-over-year. Our backlog at quarter-end was $36.1 million, which is our highest backlog on record for the company. With our strong backlog and the incredible performance of our manufacturing and supply chain team, as well as the great job our suppliers are doing in ramping to meet the significant uptick in revenues, we're confident and are reiterating our previously provided guidance for full year total revenue of at least $50 million for the fiscal year ending May 31, 2022. This equates to fiscal '22 revenue, which is three times that of last year's full year revenue. Our projected revenue of $35 million or more for the second half of this fiscal year is over 2.3 times our revenue for the first half of the fiscal year. Today, I'm going to go into detail on the silicon carbide and silicon photonics market segments of our business. Let me start with a discussion on the silicon carbide test and burn-in market, which has been driven substantially by anticipated growth in electric vehicles. We continue to see very strong interest and an increase in inbound requests for information on our solutions for wafer level test and burn-in of silicon carbide devices, particularly for use directly in and in support of the electric vehicle market. For those who have not followed Aehr, let me describe the market opportunities for silicon carbide test and burn-in. Silicon carbide devices are used in solid-state power conversion of electric vehicles. Some would say it's an enabling technology to electric vehicles. Silicon carbide MOSFETs are used in converting alternating current or AC to direct current DC needed to charge batteries that store the power in the electric vehicles. Then the same devices, although of higher current and power, are used to convert the DC power in the battery pack back to AC to power the engine. The AC to DC conversion is the onboard or off-board battery charger, and the DC back to AC is referred to as the traction inverter. There's one traction inverter per engine. For a car like most Tesla Model Ss, Xs, and 3s, as well as the Ford F-150 Lightning, there are likely two engines and therefore two traction inverters. A typical traction inverter today uses 48 silicon carbide MOSFETs to address the current and number of phases needed. A typical six-inch silicon carbide semiconductor wafer today has about 500 of these high-current MOSFETs and can yield about 10 engines per wafer with perfect yield, but they do not achieve perfect yield. Every silicon carbide supplier agrees that these MOSFETs must go through an extended stress test called burn-in to remove the extrinsic or infant mortality failures to get to the quality required to meet automotive standards. Additionally, companies use burn-in to stabilize the threshold voltages of the devices, particularly for use in modules where the devices are used in parallel. This burn-in step can be done in the final package form in discrete packages. However, the industry is moving mostly to multi-die modules. The modules are more efficient, require less cooling, and are easier to integrate into an inverter. The downside is that these modules contain many individual die that are all assembled in the modules. When customers burn in these modules, the failure of a single die will cause the entire module to fail, reducing production. Not only is the cost of the module packaging more expensive, but the other dies, which could include up to 10 or more die per module, are discarded. The combination of the industry moving to modules and this confluence of the implications of burn-in in a packaged part versus wafer or die level is great for us at Aehr, where we have a clearly differentiated solution for full wafer level test and burn-in of these devices. Our FOX-XP wafer level burn-in system can test up to 18 wafers at a time, with 100% of the devices being tested and burned in parallel at the same time. This is an extremely cost-effective and scalable solution for high-volume manufacturing of a critical reliability step in the manufacturing process. We have qualified this to eliminate the extrinsic failure seen on the silicon carbide devices, and it has been validated by multiple electric vehicle manufacturers so far. During this last quarter, we received a follow-on $19.4 million order for FOX-XP wafer level test and burn-in systems from our lead silicon carbide customer. This order was then followed by a $7.6 million order for WaferPaks that make contact between our FOX-XP system and the device-specific wafers. This WaferPak order is actually not enough to fully populate the systems they ordered. So we are expecting additional follow-on WaferPak orders for these production FOX-XP systems. These systems and WaferPaks are being used to test and burn in MOSFET devices and traction inverters in electric vehicle motor controllers, as well as both onboard and off-board electric vehicle chargers. This customer, a major automotive semiconductor supplier with a significant customer base in the automotive semiconductor market, continues to forecast significant additional system and WaferPak purchases over the next several years to meet the silicon carbide market growth. In addition to a very strong backlog and forecast from our lead silicon carbide customer, we're currently engaged in discussions and evaluations with several other silicon carbide suppliers regarding their wafer level test and burn-in needs. This includes all of the current large silicon carbide suppliers and a number of companies, both large and small, that intend to enter the silicon carbide market. The new entrants are interesting to us, as several are starting from a greenfield without any installed base of test or burn-in equipment and are looking to Aehr for advice on the best solutions for them to meet the critical quality reliability needs of the electric vehicle and other silicon carbide markets. Multiple industry forecasters and analysts expect the market for silicon carbide devices to grow at a compound annual growth rate or CAGR of more than 30% over the next decade, driven by demand from the electric vehicle market and other applications. It is becoming clear that silicon carbide is becoming the industry standard for electric vehicle powertrain conversion and the traction inverters, as well as for the onboard and off-board battery chargers for EVs. Tesla was the first to move to silicon carbide over the historical IGBT high-voltage silicon-based devices since silicon carbide devices promised to be more efficient, translating into longer range and faster charging times—two of, if not the most important buying criteria for electric vehicles. Since their introduction in the Model 3, Tesla has since adopted silicon carbide in all of their vehicles, and most new electric vehicles across the industry will start with silicon carbide as the solution of choice for the power conversion electronics. While no one can completely predict the exact growth rate of the electric vehicle market, there is no doubt that every car company in the world, and many new companies, are committed, if not dedicated, to new EVs and volume production. An example of how fast forecasts change is that just recently Ford announced it will nearly double its production capacity of its upcoming electric F-150 Lightning pickup truck to 150,000 vehicles a year by mid-2023, in response to enormous customer demand. The industry forecasters and analysts also appear to be converging on the idea that a typical electric vehicle will have more than one electric engine and traction inverter, as electric vehicles with two or more engines are being marketed with longer ranges and faster charging times—two of the most critical features in the electric vehicle market. What this means for Aehr is that there will be more silicon carbide devices forecasted per average vehicle than we saw only a few months ago. Forecasts from Canaccord Genuity estimate that the silicon carbide market for just devices in electric vehicles such as traction inverters and onboard chargers will require 4,000,000 six-inch equivalent wafers to meet demand in 2030, and another 4 million wafers for electrification infrastructure, industrial, and photovoltaic power devices. This is incredible when you realize that this year the entire market is expected to ship fewer than 150,000 wafers to meet the automotive electric vehicle market. This represents a growth of over 25 times the current wafer capacity just for the in-vehicle devices and then double that for the entire silicon carbide market. The point I want to emphasize is that industry players have only yet even announced capacity plans to meet this demand, much less put it in place. We’re seeing multiple companies approach Aehr with a message that they are entering the market because there simply is not enough capacity out there to meet demand. There's also plenty of room for newcomers. Now think back on my comment about new companies not having an installed base or bad habits of using packaged or burn-in systems to test their IGBT or silicon carbide devices, which we may need to help them with. Stay tuned on our progress with a broader array of customers than just the current top players. Again, remember last year, companies that address the silicon carbide market only shipped about 2% of the wafers needed against the total demand required by the end of the decade. All of the companies today, including the major players, only represent 2% of the total demand. So stay tuned to find out about the new companies entering the market. Having highlighted that new players are not to be ignored, we have announced that we do have at least one large silicon carbide supplier currently engaged in on wafer evaluation and benchmarking of Aehr's FOX-XP multi-wafer system for testing and burn-in of their silicon carbide wafers. We feel these benchmarks have demonstrated the value Aehr can provide and validate our solution for screening of expensive or early life failures, as we had predicted by looking at the actual failures of their devices on their wafers. We're now being asked to conduct further tests and experiments involving more wafers, which we're happy to do. Without getting into too much detail, I do want to highlight that companies all have their own internal processes and timelines for evaluating and qualifying the new tool, and not all companies move at the same pace. One thing is for sure: every company we talk to is a combination of excited and scared about the size of the ramp expected to meet the electric vehicle market, particularly in the second half of this decade. Some companies are more proactive in trying to meet this demand sooner than others. I want to be clear that independent of different companies' timelines, we expect to add several new silicon carbide customers that will ramp into production with our solutions by next fiscal year as they look to capitalize on the rapidly expanding silicon carbide market. We are ramping our FOX multi-wafer test and burn-in systems and WaferPak capacity to meet this upcoming silicon carbide market opportunity, which we believe will grow significantly over the next decade or more. We are only at the very beginning of this ramp as electric vehicles accounted for a small percentage share of the overall market last year and are expected to be over 30% of total vehicles sold by 2030. We provide a very cost-effective solution for testing and burning in these silicon carbide devices, and we're confident in our ability to capitalize on the expected growth in the silicon carbide market over the next several years and for many years beyond that. Now let me turn to the silicon photonics stabilization and burn-in market. 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 as our FOX multi-wafer systems and WaferPaks provide a very cost-effective and scalable solution for burning in the optical lasers and stabilizing their output power while also removing any extrinsic or early life failures. Silicon photonics describes photonic systems that use silicon as an optical medium and can be made using existing semiconductor fabrication techniques. A critical manufacturing step is a stabilization step where energy is used by applying high temperatures and electric power to burn in the optical lasers and stabilize their output power. Aehr is able to perform this critical step while the devices are still in wafer form using our FOX multi-wafer systems and WaferPaks. This provides a very cost-effective and scalable solution for this critical step while also removing any extrinsic or early life failures. Today, silicon photonics devices address the 5G and data center infrastructure industry as well as several other key markets. Yole research predicts that the silicon photonics transceiver market alone will reach $4.6 billion in 2026, with a CAGR of 25% between 2021 and 2026. Several companies, including Intel and Cisco, have proven it is possible to create hybrid devices in which the optical and electronic components are integrated onto a single microchip, and the first products in volume production are being used for fiber optic transceivers used in the datacom and telecom infrastructure, such as data centers and 5G communications. In addition, many technical presentations and public announcements have highlighted silicon photonics and co-packaged optics being integrated with MPUs and GPUs from companies like Intel and Nvidia as a means to keep pace with Moore's Law by using optical interconnects to provide faster data transfer both between and within microchips. We believe the market for silicon photonics will expand beyond being used only for fiber optic transceiver photonic integrated circuits and will begin to be employed in high-end processor applications and intra-chip as well as inter-chip communications within the next few years. During the last few months, we received orders from our current silicon photonics customer for six additional FOX-NP wafer level test and burn-in systems to support the characterization and product qualification of new types of photonics-based devices in wafer form. This customer is expected to purchase new sets of WaferPak for wafer contactors to be used with these systems. As the applications and market for silicon photonics-based devices continue to grow, we anticipate that this customer will continue increasing capacity in the future. Several other customers addressing the silicon photonics market have also forecast additional FOX systems as well as WaferPak or DiePak contactor capacity needs over the next 12 months. These include needs to address incremental production capacity as well as capacity to address new customer and new product qualification and engineering. Again, as the only supplier of a commercially available and cost-effective solution for testing and burn-in in silicon photonic devices and wafer form, we're also very confident in our ability to capitalize on the expected growth in the silicon photonics market over the next several years. Before turning over to Ken, let me summarize where we're at. We remain very focused on serving the large market opportunities ahead, which includes a significant opportunity for test and burn-in of silicon carbide devices for electric vehicles, electrification infrastructure, silicon photonics devices for data center and 5G infrastructure, and 2D and 3D sensors for mobile and wearable devices. With our record bookings and the strength of our semiconductor test environment solutions, we're confident in our ability to deliver significant revenue growth and are reiterating our guidance of at least $15 million in revenue for the fiscal year ending May 31. This represents revenue in the second half that is 2.3 times that of the first half. As we discussed in the past and 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 seeing. Aehr has a robust supply chain with world-class subcontract manufacturers of our test systems, contactors, WaferPak aligners, and DiePak handlers. These are very mature subcontractors who have successfully supplied these subsystems to Aehr for years. In all cases, the suppliers have capacity well in excess of Aehr's historical shipments and the ability to ramp significantly higher as well. We are confident in our ability to meet customer forecasted demand plus considerable upside. As we discussed and anticipated at the beginning of the COVID-19 pandemic, Aehr Test has emerged as a stronger company with more production customers, more markets and applications, and higher value products than we had before the start of the pandemic. 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 forecasts and ability to meet them. The hard work we have put in over the past several years is paying off for our customers, our financials, and our shareholders. We're excited about the large market opportunity ahead and for the future of Aehr Test Systems. With that, let me turn it over to Ken to review our financial results and guidance in more detail before we open up the line for questions.

Thank you, Gayn, and good afternoon everyone. As Gayn noted, we had another solid quarter for Q2, with our second consecutive quarter of record bookings, strong sequential growth in revenue, and our highest backlog on record at quarter-end. Looking at our financial results, net sales in the second quarter were $9.6 million, up 70% sequentially from $5.6 million in the preceding first quarter, and up 471% from $1.7 million in the second quarter of the previous year. The sequential increase in net sales from the preceding first quarter includes an increase in WaferPak and DiePak revenues of $4.1 million, which was partially offset by a decrease in system revenues of $125,000. The increase from Q2 last year includes an increase in WaferPak and DiePak revenues of $4.3 million and an increase in system revenues of $3.6 million. Customer service revenues were flat for both periods. WaferPak and DiePak revenue comprised over half—53% or $5.1 million of our total revenue in the second quarter. We also had a record number of WaferPaks and DiePaks shipped during the quarter, reflecting growth in the consumables piece of our business as well as our ability to scale and meet customer demand. Non-GAAP net income for the second quarter was $1.4 million or $0.05 per diluted share. This compares to a non-GAAP net loss of $414,000, or $0.02 per diluted share in the preceding first quarter, which excludes the impact of forgiveness of $1.7 million in loans from the Paycheck Protection Program that we received in fiscal year 2020 and a non-GAAP net loss of $1.7 million, or $0.07 per diluted share in the second quarter of fiscal 2021. The non-GAAP results also exclude the impact of stock-based compensation in all periods reported. Stock-based compensation costs of $718,000 in Q2 '22 reflect a significant increase from $588,000 in the preceding quarter and $257,000 in the prior year second quarter. This increase is primarily due to $246,000 in stock awards accrued in Q2 '22 related to exceeding stretch goals for fiscal year 2022 key business objectives, as well as over $200,000 in expenses related to the employee stock purchase plan due to increased employee contributions and new enrollments. While these non-cash expenses exceeded our plan, it is good to have such problems where stretch goals are being exceeded. We recognize and appreciate the hard work of all of our employees who helped achieve these goals. On a GAAP basis, net income for the second quarter was $717,000, or $0.03 per diluted share, compared to GAAP net income of $696,000, or $0.03 per diluted share in the preceding first quarter, which includes the impact of the PPP loan forgiveness, and a GAAP net loss of $2 million or $0.08 per diluted share in the second quarter of the previous year. Gross profit in the second quarter was $4.5 million or 47% of sales, up from gross profit of $2.3 million or 40% of sales in the preceding first quarter, and up from gross profit of $377,000 or 22% of sales in the second quarter of the previous year. The increase in gross margin from both the preceding first quarter and Q2 of last year is primarily due to a decrease in unabsorbed overhead costs to cost of goods sold due to higher revenue levels in Q2 '22. As noted in prior calls, we scale very well as manufacturing overhead remains relatively fixed as revenues increase. The benefit in labor and overhead was partially offset by unanticipated costs impacting cost of goods related to tariffs, and broker-related premiums paid to resolve short-term semiconductor shortages. In addition, we incurred increased freight charges on many items, particularly for items shipping historically by ocean, where due to the shortage in ocean freight capacity, we were required to ship by air. In one example, we are seeing an increase in freight costs for our chambers by over $40,000 per chamber to ship them by air from one of our suppliers in Asia to the U.S. While this appears temporary, we do not see this reducing materially anytime soon. The good news is our suppliers are able to meet the demand, but we are certainly feeling the impact of higher shipping costs. Operating expenses in the second quarter were $3.8 million, an increase of $528,000 or 16% from $3.3 million in the preceding first quarter and up $1.5 million or 64% from $2.3 million in the second quarter of the previous year. SG&A in the second quarter was $2.5 million, an increase of $536,000 from $2 million in the preceding first quarter, and up $988,000 from $1.5 million in the prior quarter of the prior year second quarter. The increase from the prior quarter includes an increase in employment costs of $348,000. The increase from the prior year second quarter included an increase of employment costs of $745,000. The increase in employment costs included salary increases related to raises provided to employees during fiscal 2022, higher commissions and incentive payments related to increased bookings and key bonus objectives, and stock-based compensation costs related to our employee stock purchase plan, due to new participants in the plan and employee contribution increases. In addition to the increase in employment costs, the company recognized increased travel costs and consulting costs during the quarter. R&D in the second quarter was $1.3 million, unchanged from the preceding first quarter, and up $93,000 from $820,000 in the second quarter of the prior year. The increase in R&D from the prior year included an increase in employment costs of $427,000. The increase in employment costs included salary increases related to raises provided to employees during fiscal 2022, higher incentive payments related to key business objectives, and stock-based compensation costs related to our employee stock purchase plan, due to new participants and increased employee contributions. In addition to the increase in employment costs, the company recognized an increase in contractor costs and the materials related to new R&D program initiatives during fiscal 2022. We continue to invest in R&D to enhance our existing market-leading products and introduce new products to maintain our competitive advantages and expand our applications and addressable markets. Turning to the balance sheet for the second quarter, our cash and cash equivalents were $35 million at November 30, 2021, up $28.5 million from $6.5 million at the end of the preceding quarter. During the quarter, we completed a successful capital raise that netted $24 million in cash for the company. A total of 1.7 million shares were issued through the offering at an average price of $14.73 per share. These proceeds provide additional working capital to serve the large market opportunities we see ahead. In addition, we generated year-to-date cash flow from operations of $5.2 million in fiscal 2022. Accounts receivable at quarter end was $7.4 million, up from $4.3 million at the preceding quarter end, due to the impact of higher revenue levels. Inventories at November 30 were $13 million, an increase of $2 million from the preceding quarter end and $4.2 million from Q4 '21. The increase in inventory is to support our existing backlog and to prepare to fulfill expected future orders. A significant portion of the inventory increase is due to semiconductor components, which we have been ordering and stocking up on to meet the anticipated demand we see from the markets we address. This is critical as we ordered these long in advance and have been able to continue to provide reasonable, if not best-in-class, lead times to customers in an environment where most semiconductor test companies are quoting lead times of up to 52 weeks on their equipment. Property and equipment was $661,000, compared to $676,000 at the preceding quarter end. Customer deposits and deferred revenue, short term and long term, were $10.3 million, an increase of $6.8 million from the preceding quarter and $10 million from Q4 '21, related to the increase in backlog from prior quarters. The company has no debt. This compares to our May 31, 2021 fiscal year end, where we had $1.4 million outstanding on our line of credit and $1.7 million outstanding on our Paycheck Protection Program or PPP loan. Bookings in the second quarter were $29.1 million, our highest quarterly bookings on record. This is our second consecutive quarter of record bookings and is up from $20.7 million in the preceding quarter. Including the announced orders since the beginning of the fiscal third quarter, our total bookings for the fiscal year-to-date is over $52 million. Backlog as of November 30 was $36.1 million, our highest backlog on record, which is up from $16.6 million at the end of the preceding first quarter and up from $1.1 million at the end of the second quarter last year. Now turning to our outlook for fiscal 2022 year, which ends on May 31, 2022. With our record bookings and the strength of our semiconductor test and burn-in solutions, we are confident in our ability to deliver significant revenue growth for the year and our growth opportunities over the next several years. For fiscal 2022 ending May 31, 2022, we are reiterating our previously provided guidance for full-year total revenue of at least $50 million, which would represent revenue three times that of last fiscal year. While the increase in gross revenues on a relatively fixed manufacturing overhead will increase gross margins, this benefit is partially being offset temporarily with the noted increase in freight and tariff costs, as well as the additional non-cash stock-based compensation expense from our equity incentive plans related to exceeding stretch goals. Still, we expect our full-year GAAP net profit, which includes the $1.7 million benefit from the PPP loan forgiveness, to be above $10.5 million or 20% of revenues. Lastly, looking at the investor relations calendar, next week, we will be presenting a meeting with investors virtually at the 24th Annual Needham Virtual Growth Conference on Wednesday, January 12. We hope to see some of you virtually at the conference. This concludes our prepared remarks. We are now ready to take your questions.

Thank you. We will now go to Christian Schwab of Craig-Hallum Capital Group.

Congratulations on a great quarter and continuation of strong bookings. Gayn, I'm just wondering if you could give us just a little bit of clarity on the silicon carbide. We talked about a large silicon carbide supplier who's in evaluation, and then we talked about several new silicon carbide customers that will ramp into production. Is that a minimum of three customers that could be close at hand? Or are you referring to the large silicon carbide supplier when you talk about several customers? It wasn't clear to me.

All right, let me try. Folks, one of the challenges that we're dealing with right now is, we've made statements about talking to all of the suppliers, and then some. The subtlety here is, when you're talking to all of the players, there's always this balance of trying to maintain competitive information and not giving too much about one player versus the other. And so sometimes my, I guess, indirection and all is just related to that, because obviously, my key customers listen in on this thing as well. We have pretty clear non-disclosures and things in place. So we always have to try and muddle it as best we can. But when you're talking about some of these deals, especially the really large deals, I know that gets difficult. So let me provide a little more context as well. For clarification, market forecasters generally refer to the largest suppliers in this space as FT, who has the number one position, Infineon, who is a significant player, and Cree—now Wolfspeed is another. Then there's ON Semiconductor who has come out of nowhere, and people know that ON Semiconductor is one of our top 10% customers. Historically, the top companies in the space include Mitsubishi and ROHM that make up our top six. We have some level, if not a deep level, of engagement with all of the above. We certainly are in conversation with all four of them, including one being our biggest lead customer. What we have done is we've been involved in, I generally refer to, at least one benchmark; there are different levels of engagements and discussions, but we're clearly doing wafer measurements for one of these as a new potential customer. The data has been compelling and is giving us results consistent with what we told them we would show them and expect. They've actually asked for additional testing and clarification on some additional wafers, etc., and we’re happy to oblige. We expect to showcase our tool for them. What I have tried to convey, and it's definitely true, is the difference in pace between the different companies. It isn't necessarily about their size but rather how aggressive management is regarding their commitment to new capacity. Consequently, there is a lot of activity and interest in the industry as companies are preparing to ramp up due to anticipated demand. These new companies might not have a test or burn-in infrastructure, but they are motivated to make these investments. They are conscious of delivering better-quality products that consistently meet automotive standards. I can assure you that we're actively engaging with all prospective partners for evaluating our technology at a level that is both professional and mutually respectful.

That does help, Gayn. Just one follow-up on the pace of evaluation of customers. In the press release, you talked about adding several new silicon carbide customers that will ramp into production by next fiscal year. So I assume that means by the end of May of 2022, there will be a couple of other customers ramping. Am I reading that sentence correctly?

I apologize if that wording caused confusion. The intent was not to push it all the way out. But I wouldn’t say we expect several companies to be ramping into production by this May. I intended to imply by next fiscal year, which ends in May 2023. That’s not to suggest we couldn't get a customer or even make shipments by May. That's not the intent. But I probably wouldn't describe that as ramping into production anyhow. However, we do believe that during our next fiscal year, we would expect to add several new customers.

Right, it would and then production is different from like, potential initial. Would you anticipate seeing orders from other customers here in the first half of this calendar year that would lead into more real capacity?

It's fair to say we might be seeing our first customer orders before the end of this fiscal year. I would expect that any new customer will start by ordering one before they will order multiple. There might be three to six months break in between, perhaps. It’s possible to see that orders could come in relatively soon because we did not rush timelines before; however, I do want to hedge expectations a little bit, just in case the timelines extend. The sheer volume of production capacity being forecasted by our potential customers is quite ambitious, and we need to ensure we don't miss anything on our end.

Great, and then I guess my last question, just as it relates to silicon photonics, and the packaging, technology changes, etc., and inter-chip technologies. Have you guys had a chance—I know you guys kind of previously talked about how large you thought the potential TAM could be over time, if everybody were a silicon carbide customer, and there were 30 million cars sold by 2030. Have you guys been able to do any work behind the scenes in silicon photonics to say, a range of potential revenue outcomes to the company could be kind of x to y in two to three years?

Candidly, I don't think we have really good numbers on that yet. We'll be working on that, doing the best we can. There are not many publicly available forecasts related to that yet. So anything we would know would be through non-disclosure agreements with customers and insights from technical discussions. Right now, we believe it's a rising tide with strong potential in an area where we have an exciting and capable technology solution. It’s really about being proactive to anticipate the major waves and changes. It’s challenging to project all market opportunities as we navigate them, but this is definitely a space that has significant promise.

That helps, Gayn. Thanks. No other questions. Thank you.

Thank you.

And we'll go next to Jon Gruber, Gruber & McBaine Investors.

Hey, good afternoon. I have two quick financial questions. One, I'm confused why your property, plant, and equipment have gone down in 12 months given the amount of throughput you're putting through it. So you're spending nothing on the factories? Why has property plant decreased from $700,000 plus to $600,000, which is by any stretch of the imagination?

Let me address that. We closed the quarter out at $661,000 compared to $676,000. Even if you compare to the last year of $677,000, it remains relatively flat. Keep in mind we depreciate about $100,000 in depreciation per quarter. So we're adding equipment, and we're just offsetting the adds with the amount of depreciation we are recognizing. Also, keep in mind we use contract manufacturers. Doing final assembly and test allows us to grow without having to add significant capital, and that's a considerable benefit for us.

You've gone from $5.6 million in Q1 to $9.6 million in Q2. You're going to have to go to $15.5 million and $21 million to see your $50 million. Even with that, you will not need to add any property plant equipment to your facility?

Very little.

My next question?

I have a couple of engineers that are asking me to buy some really fancy test equipment right now that are listening, but it still won't tap this number.

Gross margin went from roughly 41% to 47%, Q1 to Q2. Now your revenue is going to explode in Q3, and then even further in Q4. What kind of gross margin goal do we have here as we get up to these big numbers like over $20 million? I realize your shipping costs have gone up some, but we're talking such huge numbers relative to what we've been. We increased six points in Q2. What's going to happen in Q3 and Q4 in gross margins?

Just to reiterate what I mentioned in our last call, we expect as we grow to our $50 million year-end number to reach gross margins of up to 50%. We are at 47% now. We've talked about there have been impacted by some unanticipated costs, which are still around. We expect we will show gross margins in each of those quarters approaching 50%. I wouldn't say it's going to be 50% next quarter, but probably in Q4.

Okay, thank you. I got my questions answered. Thank you.

Thanks, Jon.

Thanks, Jon.

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

Hey, Dylan.

Hey, thank you. I have two questions. The first is that SemiAnalysis has tracked seven firms in China investing over $100 million and two hovering close to about $1 billion in silicon carbide materials and device manufacturing. You talked a lot about the fantastic wins and traction you have in the U.S., Japan, and Europe. But what is Aehr doing to penetrate the China silicon carbide burn-in test market given it's potentially going to be just as large as the U.S. or Europe?

I will take that one fairly at a high level. I specifically noted customers with a plural as in China. Yes, there are a number of companies in China that are talking about greenfield silicon carbide fabs. We have received inquiries and interest from them. So our marketing and our messaging are certainly getting out there. I know at least one, if not two of them, reached out to us, and we had not even heard of them before. That may be concerning, but they are indeed contacting us to talk about their capacity, and it’s pretty significant. We have systems; burn-in systems in China have already been installed. We last quarter announced our first wafer level burn-in or a box system being installed into China, in addition to a fairly large customer base of packaged fab burn-in systems. Moreover, we have the coverage and infrastructure in place and people there, which makes communication smoother, especially since traveling in and out of China is particularly difficult right now. So we are working on it.

That's awesome to hear. My other question is regarding device liners and DoD illuminators, which will become incredibly pervasive if you're a big believer in the metaverse and augmented reality. Can you provide an update on the burn-in test market for sensor applications and the potential, given how pervasive the native metaverse could be?

When discussing LiDAR, think of the automotive side of things. The DoD illuminators I think of would typically be used in devices like iPhones, or in consumer-type electronics or augmented/virtual reality devices. We're engaged with both applications. We’re actively working with one company in LiDAR. We have early discussions and engagements happening, and I can say we certainly have our fingers in that area. As for DoD illuminators, our lead customer—our very first customer on the FOX-P system has parlayed into others. They have been a major customer of ours—namely Apple. We are utilizing our tools in 2D, 3D sensing in mobile applications, but it’s important to note that most of the time, the DoD illuminators and pixel arrays are able to deal with what we call sampling rather than complete burn-in. They aren’t necessarily aging them as we would in a process where full burn-in is crucial. We continue to keep an eye on those opportunities as they develop, and expect that as applications continue to expand, our presence will grow through our existing engagements.

Thank you so much.

Operator, do we have others?

And we will move next to Willard Brown of Otter Creek Investments.

Hi, and great quarter. You did exactly what you said you would do.

Thank you.

I had a question. Out of the $9.6 million in revenues in the quarter, how many customers did you have?

We typically aren't giving that, but I think it would be fair to say it was quite dominated by one lead customer in silicon carbide just by the announcements that we made, although it probably was made up of a dozen or more customers. However, it is fair to say our lead customer in silicon carbide is dominating our revenue right now.

As we go forward into the third and fourth quarter and then into fiscal '23, what kind of ideas do you have? I understand this market could explode. But what kind of ideas do you have for the number of customers you will serve in a given quarter? One of the problems here is concentration. I don't think that's the big issue given your technology, but it's something I think about. If you look several quarters ahead, are we looking at a more dispersed customer base?

Absolutely. It is fair to note that we will still operate in a market that has some concentrated revenue streams. My previous company saw similar patterns, where we dealt with two or three customers that accounted for a significant portion of the revenue. The reality is that high concentration is typical in the semiconductor industry. We need to build a business model that allows us to have around 20 customers making up 90% of our revenues, but that remains a challenge. But it does mean I won't be surprised if we continuously see a significant amount of our revenue coming from a small number of key customers. However, we're betting on the fact that most customers over the next decade will have to ramp at the same time to meet demand. We have engaged deeply with our customers and have protections in place to ensure reliability in our supply chain. We recognize the need to load our second suppliers in tandem with our primary suppliers to accommodate higher demand.

So here's my second question and my last question because it’s a tough challenge. The total addressable market seems to be expanding rapidly. I've gone through the number of wafers that will be needed. And then okay, how many Aehr systems do we throw in there? What are your thoughts on that?

We have walked through the math several different ways. Let me give you a brief overview. To estimate how many cars will be built and how many engines each car would have – you can estimate that at least one engine per vehicle. A year and a half ago, people assumed that every car would have only one engine. Most people are estimating that by the end of the decade, there will be over 30 million cars built each year. Each car engine needs about 50 devices or so; that is, 48 plus some onboard components. As for the current wafer—a six-inch silicon carbide semiconductor wafer holds about 500 devices, enough to supply around ten engines. If you multiply the number of cars by the number of devices per car, you can ascertain demand for testing and manufacturing equipment. We've noted that as more electric vehicles emerge in the market, we extrapolate that manufacturers will need a considerable amount of equipment to scale production effectively.

I appreciate it. Very good job, gentlemen.

Thank you. Operator, I think we better end it there. I know we have some follow-on calls set up after this. It's always a pleasure to engage with everyone. Please stay healthy and safe. I want to remind everyone to connect with us on LinkedIn, as we publish content two to three times a week regarding our products, market announcements, and industry insights. There's much activity in silicon carbide and silicon photonics that we're excited about. We look forward to sharing more updates with you. Thank you for joining the call, and I look forward to connecting again next quarter. Take care.

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