Good afternoon, and welcome to the Aehr Test Systems Fiscal 2024 First Quarter Financial Results Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Jim Byers of MKR Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, and welcome to Aehr Test Systems first quarter fiscal 2024 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, Chris Siu. Before I turn the call over to Gayn and Chris, I'd like to cover a few quick items. This afternoon, right after market close, Aehr Test issued a press release announcing its fiscal 2024 first quarter financial results. That release is available on the company's website at aehr.com. This call is also being broadcast live over the Internet for all interested parties, and the webcast will be archived on the Investor Relations page of the company's website. I'd like to remind everyone that on today's call, management will be making forward-looking statements that are based on current information and estimates 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 could cause actual results to differ materially from 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 undertakes no obligation to update the forward-looking statements. Now I'd like to turn the conference call over to Gayn Erickson, President and CEO.

Thanks, Jim. Good afternoon, everyone, and welcome to the first quarter fiscal 2024 earnings conference call. Thanks for joining us today. Let's start with a quick summary of the highlights of the quarter and the continued momentum we're experiencing in the semiconductor wafer level test and burn-in markets. Then Chris will go over the financials in more detail. We finished the first quarter with solid revenue of $20.6 million and non-GAAP net income of $5.2 million, the strongest first quarter in our history, which has historically been our seasonally softest quarter. With this, we're off to a very good start to our fiscal year, and we're reaffirming our expectation to grow fiscal full-year revenue by at least 50% to over $100 million and profit by over 90% year-over-year growth to at least $28 million. During the quarter, we had record shipments of our FOX WaferPak Contactors in both revenue and units, with revenues reaching well over 50% of total revenues for the quarter. We're also very pleased with the continued stream of new designs for WaferPaks we're seeing. Our new design volume has tripled over the last nine months as we're seeing more and more electric vehicles coming online with their own specific device designs for inverters and onboard chargers. As a result, our customers are buying additional WaferPak Contactors for these new designs, highlighting the recurring revenue part of our business. As we've noted before, our proprietary WaferPak Contactors are needed with our FOX wafer level test and burn-in systems to contact with the individual die on the wafer and are designed specifically for a given device. As our customers win new designs from their customers, Aehr eventually secures orders for new WaferPaks to fulfill these new wins. With each new design, our customers will need enough new WaferPaks to meet the volume production capacity need for those new devices. With the increase in WaferPak designs, we've been adding resources in both our U.S. and Philippines operations to expand our already successful application and support team there. We're also continuing to add capability and capacity in the Philippines to meet the support needs of our growing installed base in Asia. Another key highlight is that we've now received customer acceptance of both configurations of our new fully automated FOX WaferPak aligner, which allows hands-free operation of WaferPak handling and alignment and is available either as a stand-alone unit or fully integrated with our FOX-XP multi-wafer systems. We recognized revenue for the stand-alone WaferPak aligners in the first quarter. After the close of the quarter, we received customer acceptance and sign-off of the aligners integrated with our FOX-XP systems. The integrated aligners are integrated with FOX XP systems equipped with two key test system enhancements introduced over the last year. These FOX XPs include our new bipolar voltage channel model option for both positive and negative gate biased stress and burn-in, as well as our very high voltage channel module option, the VHP channel model option, which, together with our proprietary WaferPaks and new inert gas control option for the FOX XP enable high-temperature reverse bias testing up to 2,000 volts at wafer level for silicon carbide and gallium nitride high-voltage semiconductors that are used in power converter applications such as electric vehicle traction inverters and onboard chargers. Acceptance and production release of these FOX XPs with the integrated aligners and the associated revenue recognition provide a solid start to our second quarter revenue and pave the path for revenue recognition immediately upon all future shipments of these products to this customer and forecasted shipments to additional customers this fiscal year. We're excited to have announced last month yet another new customer in silicon carbide. This is our sixth customer for silicon carbide wafer level burn-in. This new customer is a U.S.-based multibillion-dollar semiconductor supplier that serves several markets, including automotive, community, consumer, energy, industrial, and medical markets. After conducting a detailed financial evaluation of Aehr and Aehr's FOX family of products, including multiple on-site visits to Aehr's application lab, this new customer purchased an initial FOX NP system, WaferPak aligner, and multiple WaferPaks for engineering qualification and small lot production of their silicon carbide power devices. This system is also configured with our new bipolar voltage and very high voltage options that enable new advanced test and burn-in capabilities for silicon carbide power semiconductors. This customer has indicated that as their production capacity increases, they intend to quickly move to our FOX-XP multi-wafer testing burn-in systems for high-volume production. In addition to the automotive electric vehicle device market opportunity, this customer is also focusing on the enormous opportunity for silicon carbide power devices in industrial, solar, and other power applications. Including this newest customer, the last two announced customers have selected our systems primarily for applications other than electric vehicles, which include industrial, solar, and commuter electric trains. This further extends our application space beyond the enormous opportunity we see in silicon carbide for electric vehicle traction inverters and onboard and offboard chargers. These additional applications expand our market opportunity beyond the 4.5 million 6-inch equivalent silicon carbide wafers that William Blair forecast will be needed per year by 2030 just for electric vehicles. These new applications are driving an additional 2.8 million 6-inch equivalent wafers annually by 2030 to address industrial, solar, electric trains, energy conversion, and other applications. It's also interesting to note that these last two customers did not need to see their wafers tested on our system before they move forward to purchase from us. This need for testing before purchase was essentially a requirement with our early customer engagements, but it's clear that many of our potential new customers have become much more comfortable moving forward with Aehr simply on our assurances that our solution will perform as committed. This allows the customers to accelerate their time to market. Having said that, we're happy to engage with customers either way. If they want to see their wafers tested first, we're happy to work with them. We have yet to lose a prospective customer after demonstrating our test and burn-in capabilities on their wafers. In fact, we've never lost a head-to-head evaluation to a competitive product since introducing our FOX-NP and XP configured with the silicon carbide and gallium nitride test resources. Let me move on to our pipeline of prospective new customers for silicon carbide wafer level burn-in. In the last few weeks, we've attended two international conferences in Europe, and I personally met with more than a dozen companies in the silicon carbide market that are not currently using our solutions. We also met with all six of our current silicon carbide customers. These face-to-face meetings included multiple meetings with one of the market leaders in silicon carbide that we've been doing significant automotive qualification of wafer level burn-in for well over two years. Candidly, this is the longest and most extensive sales and benchmarking process I've ever experienced in my entire 30-plus-year career. The good news is that we've made even more progress in the last few months with a very large number of wafers being run at our facility, followed by multiple meetings to review the data. Based on everything we've heard, our data, cost of ownership, and products, including our new fully automated WaferPak Aligner, particularly in the integrated configuration, they're all meeting their needs. We continue to feel confident that this customer will move forward with us using the FOX-XP multi-wafer solution for their high-volume needs, including initial purchase orders and system shipments this fiscal year. Our meetings also included face-to-face meetings with potential new silicon carbide companies who have now told us that they intend to place their first purchase orders with us over the next several months, including some that want us to ship systems, WaferPaks, and aligners to them this fiscal year. In the next few weeks, we'll also be meeting with a significant number of potential new customers as well as end users of silicon carbide devices in Asia as we're seeing increasing activities and opportunities heating up there. I can tell you, it's a very exciting time in the silicon carbide and electric vehicle markets right now, and we've never been busier. Let me add some further color on the silicon carbide market opportunity. A recent report from UBS forecast that the total silicon carbide market will be close to $8 billion in 2025, and for 30% of that total will be industrial applications. While the primary opportunity is still serving the electric vehicle automotive market, the industrial segment represents a material amount of dollars and a significant market opportunity. The report also focuses on the progression of electric vehicle batteries from 400 volts to 800 volts, which is the level generally recognized by the industry at which silicon carbide is mandatory to get the range and recharging speed consumers are demanding. Devices used in the traction inverters for 800-volt DC battery systems actually operate up to almost 1,200 volts AC. At this voltage, the devices will experience electrical arcing when tested at 1,200 volts under normal testing environments, which creates a very real problem for conventional testers on wafer probers and probe cards. At such high voltages, the 1,200 volt bias to the device will actually create an electrical arc through the air or on a wafer even if surrounded by 100% nitrogen. This is basically how a spark plug works. However, this spark actually damages the devices permanently. Aehr's proprietary WaferPaks have individual chambers that encapsulate each wafer and allow us to control the temperature, gas makeup, and pressure within this chamber on each wafer. Our proprietary gas and pressure control option allows us to test and burn-in an entire wafer up to 2,000 volts without arcing or damaging the wafer. By contrast, competitive systems using standard wafer probers see arcing in as little as 900 volts, which makes it impossible to do high-voltage reverse bias test and burn-in at the wafer level for devices aimed at these new 800-volt battery vehicles. Per UBS, in 2023, 91% of the batteries sold in electric vehicles are forecasted to be 400 volts and only 9% are 800 volts. But by 2026, UBS expects the percentage of 800-volt battery cars to be above 30%, which is why it appears so many silicon carbide suppliers are timing their major ramps to be in the 2025 to 2026 timeframe. So in the next couple of years, we expect Aehr to benefit from both an increased number of electric vehicles being sold and a significant increase in silicon carbide needing our solution for those electric vehicles. We're also in extensive engagements with multiple gallium nitride suppliers. Gallium nitride is similar to silicon carbide in that both of these semiconductor compounds are considered wide bandgap semiconductors that are able to withstand high-voltage applications more directly than silicon. Gallium nitride semiconductor material has characteristics that make it optimal for lower power converter applications such as consumer power converters, solar microinverters, and industrial motor controllers as compared to silicon carbide, which is optimal for higher power, higher voltage applications such as traction inverters in electric vehicles, trucks, trains, and converters using charging infrastructure and storage. One of our prospective gallium nitride customers is also a company that we've been doing automotive qualification work for their silicon carbide devices. They became very interested when we introduced them to the new higher voltage options, including the bipolar voltage for gate stress and the very high voltage for drain stress capability. They really love that we offer both a low-cost, small footprint FOX-NP for their engineering and new product introduction needs, but also a fully compatible FOX-XP system for high-volume production, including a hands-free integrated WaferPak aligner. Interestingly, in this case, the gallium nitride group of this company evaluated our system and has decided to move forward with us faster than the silicon carbide group that we've been working with for nearly three years. Stay tuned for our announcements on this in the near future. We're also engaged with another large gallium nitride supplier that is already a major supplier of IGBT and silicon carbide devices and has decided to move forward with an on-site evaluation. We have agreed to place a FOX-NP system on their floor for a defined period of time, and they've already ordered multiple WaferPaks that are not contingent on any evaluation terms for acceptance. We're very excited about this prospect as well as the opportunity to showcase our capabilities to the GaN team with the silicon carbide team watching closely. This company, which is one of the largest automotive semiconductor suppliers in the world, could very likely be one of the largest, if not the largest gallium nitride semis supplier in the world. The gallium nitride market is another potentially significant growth driver for our wafer level solutions, particularly for automotive and photovoltaic applications, where burn-in appears to be critical for meeting the initial quality and reliability needs of those markets. Many forecasters believe that the gallium nitride device market will be larger than silicon carbide due to its much larger applications base in terms of power chargers for everyday use, data centers, solar, and industrial applications. While we're not yet certain how big this market could be for Aehr's wafer level test and burn-in systems, we will be working with several key players in this space this year to form a better determination. While we do expect to recognize some revenue for systems, WaferPaks, and aligners for gallium nitride applications this fiscal year, we continue to expect a significant majority of our revenue to come from silicon carbide. Now let me move around to silicon photonics wafer-level and singulated die/module burn-in market. We continue to be very enthusiastic about this market, which includes the current photonics transceiver market used in data and telecommunications and the upcoming application of silicon photonics integrated circuits for use in optical chip-to-chip communication, which we see as a major market opportunity. As we discussed on our previous call, we received our first order last May from a current major silicon photonics customer for a new volume production FOX-XP multi-wafer test and burn-in system for use for their very high-power silicon photonics device wafers. This system is configured to enable cost-effective production tests of up to nine full wafers in parallel and up to 3,500 watts of power per wafer. The original application for this system with silicon photonics devices for fiber optic transceivers used in data centers and data and telecommunication networks. There's now been discussion about using this system for multi-chip modules embedded with processors for chip-to-chip optical communication. This customer is one of the world's largest semiconductor manufacturers, and we expect to receive orders for additional production systems as they increase production of these devices. While we believe it will likely be several years before we see significant revenue generated from this optical chip-to-chip communications market, this order from our lead silicon photonics customer and their request for an accelerated shipping date is encouraging and provides some data to suggest that this market opportunity could happen sooner. Our FOX wafer level test and burn-in solution with our proprietary WaferPak full wafer contactors are a great fit for the silicon photonics semiconductor market. These next-generation silicon photonics-based integrated circuits can require up to 2x to 4x as much power for full wafer test burn-in and stabilization. Our FOX new production system configuration, which can be used to test and burn in these new optical I/O devices, expands the market opportunity of the FOX-XP system even further. The power and functionality of lasers used to transmit data are critically important to the performance of the communication channel and Aehr Solutions not only weed out early life failures but also improve the performance of the device to what the photonics industry refers to as stabilization. During the first day or two of normal operation, the laser output characteristics change in an exponentially decaying manner and must be stabilized until the decaying stops before the final product can be tuned to meet its performance specification. Aehr can do this across an entire wafer for fully integrated photonics integrated circuits with embedded or attached laser emitters. These fully integrated circuits with lasers are reportedly the highest performance and level of integration possible, which is optimal for integrating into a package along with a microprocessor, graphics processor, or artificial intelligence processor for optical chip-to-chip communication. Aehr currently has six customers using our systems for the production test of silicon photonics devices. Five use our NP and XP systems for wafer level test and burn-in, and one uses both NP and XP systems for engineering and production burn-in of individual singulated die and modules using our proprietary DiePaks. We're watching this market very closely and are working with some of the leaders in silicon photonics to ensure that we have the products and solutions available to meet their needs for this potentially significant market application. To conclude, we're encouraged by the continued positive momentum we're seeing for silicon carbide in electric vehicles and are also very excited about the expanding growth opportunities we're seeing in several additional markets with current and prospective customers. For the fiscal year ending May 31, 2024, we're reiterating our previously provided guidance for total revenue to be at least $100 million, representing growth of over 50% year-over-year, and GAAP net income of at least $28 million, representing earnings growth of greater than 90% year-over-year. We look forward to updating you on our progress throughout the fiscal year. Now with that, let me turn it over to Chris before we open up the line for questions.

Thank you, Gayn. Good afternoon, everyone. We're pleased to announce another strong quarter for Aehr Test Systems after record fiscal 2023. On today's call, I will summarize our results for the fiscal first quarter. We exceeded the consensus on both our top and bottom line. First-quarter revenue was $20.6 million, up 93% from $10.7 million in Q1 of last year. Strong demand for our WaferPaks contributed to a significant year-over-year increase in revenue in the first quarter. WaferPak and DiePak consumables revenue accounted for 55% of our total revenue in the first quarter compared to just 5% of revenue in the prior year quarter. As we have noted before, customers typically purchase our FOX systems ahead of WaferPaks and subsequently stack up purchases of WaferPaks. We're seeing continued momentum for new WaferPak designs with existing and new customers to meet their customer and market requirements. Non-GAAP net income, which excludes the impact of stock-based compensation, was $5.2 million or $0.18 per diluted share for the first quarter. This compares to non-GAAP net income of $1.3 million or $0.05 per diluted share in the first quarter of fiscal 2023. Bookings in the first quarter were $18.4 million, up from $15.2 million in the preceding Q4 and down slightly by 4% from $19.1 million in the first quarter of fiscal 2023. Included in our Q1 bookings are announced orders for additional WaferPak contactors of $60 million from our lead silicon carbide customer. Backlog as of quarter-end was $22.3 million, up 14% from a year ago, with $1.7 million bookings received primarily from a new U.S. customer that we announced previously. In the first four weeks of the second quarter of fiscal 2024, we now have an effective backlog of $24 million. GAAP gross margin for the first quarter came in at 48.4%, up from 42% in Q1 last year. The increase in gross margin reflects a favorable product mix of higher-margin WaferPaks. Also contributing to the increase in gross margin in the first quarter was the overall higher revenue level compared to Q1 last year. Operating expenses in the first quarter were $5.9 million, up 45.8% from $4 million in Q1 last year. The year-over-year increase is primarily due to previously noted increased headcount-related expenses to support our worldwide sales and marketing efforts and our R&D programs. Our investments in sales and marketing staff continue to have a positive impact on expanding our customer engagement and marketing reach to support revenue growth. The increase in R&D is primarily due to costs associated with development programs for augmenting features and performance of our new automated WaferPak aligner, which enable new advanced tests and burn-in capabilities for silicon carbide and gallium nitride power semiconductors on the Aehr FOX-XP wafer level test and burn-in systems. The first order for our standalone automated aligner was shipped during Q4 fiscal 2023 and was accepted by our customer in the first fiscal quarter. We continue to invest in R&D to enhance our existing market-leading products and to introduce new products to maintain our competitive advantages, and expand our applications and addressable markets. Turning to the balance sheet. We continue to generate healthy cash flow and finished the quarter with a strong cash position. Our cash and cash equivalents increased to $51 million at the end of Q1, up 6% from our total cash, cash equivalents, and investments balance of $47.9 million at the end of Q4. We generated $3.9 million in operating cash flow during the quarter, while also investing in inventory to support our growth strategy in fiscal 2024. We have zero debt and continue investing our excess cash in money market funds or short-term investments to take advantage of favorable interest rates in the current macro environment. Interest income earned in the first quarter was almost $600,000 compared to $121,000 in the first quarter last year. In Q3 of last year, we announced an ATM at-the-market offering of up to $25 million in shares of the company's common stock on the open market. We received gross proceeds of $7.3 million on the sale of 209,000 shares in fiscal 2023. We did not sell any shares during our fiscal Q1. As of the end of the first fiscal quarter of 2024, the remaining amount available under the ATM offering was $17.7 million. It is our expectation that we will sell shares against this ATM offering during this fiscal year at times and prices that are most advantageous to our shareholders and to the company. Now turning to our outlook for the current fiscal 2024 that ends on May 31, 2024. We continue to believe in the company's growth trajectory as our differentiated products and technologies continue to attract and win new customers who design more cost-effective and more efficient wafer level test and burn-in solutions. As Gayn mentioned, we are reaffirming our previously provided guidance for full year total revenue to be at least $100 million, representing growth of over 50% year-over-year and GAAP net income of at least $28 million, representing earnings growth of greater than 90% year-over-year. Lastly, looking at the Investor Relations calendar, our Annual Shareholders' Meeting will be held on Monday, October 23, at the company headquarters in Fremont, California at 5 PM. If you're interested in attending, we appreciate an RSVP if possible, so we can plan for attendance accordingly. Please feel free to contact myself or Jim Byers of MKR, our Investor Relations firm, to let us know. We will also be participating in a couple of investor conferences in the next few months. On November 16, we'll be participating in the Craig-Hallum Alpha Select Conference taking place in New York. And on December 12, we'll be back in New York to participate in the 12th Annual NYC Summit. We hope to see some of you at these conferences. This concludes our prepared remarks. We're now ready to take your questions.

We will now begin the question-and-answer session. Our first question is from Christian Schwab with Craig-Hallum Capital Group. Please go ahead.

Hi, good afternoon, guys. Gayn, on the gross margin in the quarter at 48.5% with WaferPaks at greater than 50% of revenue, I would assume the gross margin would have been a little bit better than that. Is there something going on there for that?

Yes. So if you remember, historically and actually consistently, our aligners have been among our lowest margin products. They are fully our IP, but we have contracted to have them completely built external to our facility here. And I wouldn't call them pass-through because it's not that, but they tend to be on the lower end of the margin. So we had a couple of aligners, the automated aligners in there, and that kind of offset that by a couple of few points, I think. So as our business increases, and we start to see it candidly, as we see more customers wanting to actually do an integrated aligner with every system, that will have some. But generally, overall, it still sort of normalizes our systems level of margins. But I think if you went through the math, that's where that came from.

And as far as mix on a go-forward basis, would you anticipate the remainder of the year returning back to north of 50%? Or is that going to be tremendously mix dependent quarter-to-quarter?

Yes. No. So that's right. So we're still targeting 50% above the margin for the year, and that's what we're looking at.

Okay. Great. And then regarding future orders from different customers, I think you talked about meeting with your six current customers and new customers. Just as we think about backlog to support the $100 million of revenue, when should we assume potentially your third major customer coming in as well as numerous other customers? I think you said over the next few months, you anticipated that. I'm just trying to get follow-up to that.

We're trying to do our best to give you kind of plenty of heads up on those, and I will tell you that our ability to guess the customers is not perfect either. But just a little bit, so of our current six customers, I mean, more than half of them, certainly, our top two largest customers. We're expecting orders for both bookings and shipments during this year. I think more than half of the six customers are all going to have bookings and revenue shift within the year and then a number of new customers as well. And we kind of alluded to, both with the GaN related and the large benchmark. I'm feeling really good. It's kind of hard to put our finger on it. We probably shouldn't tell you exactly when they're going to come anyhow, but we're certainly trying to give you enough hands. I think everybody, and we're certainly clear here, a $24 million backlog with, what, $20 million in the bank. We've got a lot of turns and a lot of turns expected this year to do the $100 million, and we don't expect to finish the year with zero backlog either. For those that have come and seen our facility, and we're always really pretty open about that. And if you haven't planned it, if there's no other excuse to come for our shareholders' meeting, besides the glass of wine and hors d'oeuvres, you can see our manufacturing floor, but it is bustling right now. And that is where a lot of the inventory is going, et cetera, in anticipation of leading times, candidly, continue to be world-class shorter than anybody else while we continue to increase capacity.

That's great, Gayn. Thank you for that color. As far as the new customers then, I know you've talked previously about having multiple customers this year at 10%. So obviously, it probably appears we have at least two, but should we anticipate three or four? Or is it just too early to tell?

Chris and I were just going through that this morning again. Right now, we're right at 3% or 4%. We certainly believe 3%. And there's like I think there was like 4% or 5% that are all in the 3% to 6% that anyone might be able to poke their head up or something. So I mean, from a diversity standpoint, we're all excited because of how many customers, but let's not kid ourselves. We don't have hundreds of customers and never will in this space, but we'll definitely have a much more diverse number of customers, which is nice. But we'll stick to the 3% to 4%. It's not clear how we would get to 5% necessarily. We don't call out the 5% customers, but we might have a good chunk of those too.

Great. I don't have any other questions at this time. Thanks, Gayn.

Okay. Thanks, Christian.

Thank you.

The next question is from Jed Dorsheimer with William Blair. Please go ahead.

Hi, thanks. Hi, Gayn and Chris. I guess, first question, I just wanted to dig in. Christian touched on it, but just on the WaferPak aligners, the standalone that were recognized in the quarter versus, and congratulations on getting the fully integrated systems signed off. Should I look at that as taking your effective backlog and subtracting the bookings so that the quarter would have been $6 million greater had those signed off in the quarter? Is that the right way to look at that? Or how would you suggest that?

Yes. I mean as we got a little closer, we kind of anticipated that we didn't really specific. We weren't even sure that the second one was going to book, I won't get into all this, I wouldn't have scored for revenue. So I guess, theoretically, we could have pulled in one and the other one was already in our plans, whether we told you or not in our second quarter. I mean, between the two of them, I think it's closer to $8 million or so.

Got it. So to be clear, you sold these integrated systems, of those two systems at the same customer, which I think Chris mentioned is a U.S. customer, that the aligners were recognized in the August quarter, but the rest of the two systems went into September. I just want to make sure I have that correct.

No. And I'm not sure everyone else is going to be able to follow along with it. The way our revenue recognition works, which is very consistent with the industry and we're always very open, is that when we have a brand new product that has never been accepted or released into production with a customer before. We will not score revenue on it or anyone like it until candidly, the first one is accepted, and I won't get into a perfunctory and all that. But it turns out the first customer shipments were what we call a stand-alone aligner and it went to our lead customer who has been accepting XPs all along. So the only thing deferred, if you will, was the revenue for those two aligners. So when they accept it, they were just the two aligners. The weird thing is, on the second lead customer, second large customer that had the systems, the XP and the aligner were bolted together. The XP also had those new enhancements. So Ken, our previous CFO, and Chris was on board as well, we drew a circle around those and said, the whole thing isn't accepted until it's all accepted, which is a little weird. Basically, once the aligner was accepted, then the XP and the aligner, it was all accepted at the same time. Both of them triggered, and they're both released and working now.

Yes. To add to that, so that means going forward, whether they're manual auto aligners or integrated aligners we don't need to wait for - or whether they have the new options or anything, it just ships and we score revenue when we ship going forward.

Well, that's better than I expected. So nice. I guess second question is just on this long courtship with this potential large customer. Any more details on sort of, I know it's the longest in your history Gayn in three years sounds like a long time for that process. Is there any more details you can provide on sort of what is, is the next step a large order. Is that what we should expect? And I ask that kind of also in the context of your capacity, as you're adding these customers, I know you talked about low lead times, but if you saw a large 20, 30, 40, whatever that number system type order, I would assume that, that changes things in a good way.

Yes. I mean, generally speaking, even if customers talk about ordering lots upfront, my experience has been, it's normally met with one or a small number of systems, say, for production to begin with and then a little bit of absorption. That might change here because they're running out of time. And they've done way more evaluations than I've seen in the past. So I think that has a chance to collapse itself. There are also engineering systems involved, et cetera. So I'm not sure I want to perfectly carve it because I might end up being wrong, but engineering systems, first production systems, quantities, perhaps we may get quantities with longer lead times because it's getting pretty serious with companies now. They're putting real capital in place, putting fabs in place, making commitments to these very significant ramps that are happening in the automotive guys in '25, '26. They don't want to be cut short. My message, I guess, to my customer is listening, I mean, we are able to ship more than anybody else. We literally can ship up to, call it, 50, 80, 100 testers, call it, wafers or blades of capacity a month, we are shipping more per month than the combined number of installed base of every other competing alternative has ever shipped. But there's still a scenario where please get your orders in so that we can continue to make sure that we can address everybody's needs. But I'd just reiterate, obviously, we're expecting significant amounts of orders in the fiscal year to be able to turn to make $100 million and then without zero backlog, and we're sticking to our guns there.

Got it. Last question for me. Chris, on the 300 basis point decline in gross margin. You answered this question that Christian asked in terms of mix shift or gain you did. But operating margins dropped by 500 basis points. Is there something else that drove the incremental $200 million? Or is that just the aligners that in mix shift that contributed the extra of contraction there?

Yes, it's really primarily on the aligners that decreased the margin here.

Okay. I'll say...

I'm going to give a little bit more color. We haven't talked about this. In our agreement with respect to the CM that was building these things for us, we actually had some NRE charges in there. They're not necessarily directly tied to cost of sales, but they were timed with the timing of it. So the first units actually have a higher incremental cost to us than I think the ones going forward now. I think the first four or five units had that. So anyhow, it was worse than would be expected if that helps.

It does. Sorry, one last one. What percentage was your largest customer in the quarter?

Number one customer is 88%. It's very high.

The next question is from Dylan Patel with SemiAnalysis. Please go ahead.

Hi. Thanks for taking my question. I wanted to ask about how I think through the number of wafers per tester, right? So there's all the various different configurations that you've sort of options you've had for various different customers. Some people want to do the bipolar voltage channel modules, and some people want to do high voltage, some people want to go negative. I'm curious, can you sort of outlay how to think through what is the test time for these various systems, for various options? And then sort of how many can be tested for FOX XP, right, because some of these are 9 per system versus 18. I would love to hear that sort of rationale.

Well, as I describe this, I simply want you to listen in terms of just the simple math because mostly what I'll describe as a simple math. But obviously, the piece is, well, what is customers A, B, and C's test time. And I want to give a little bit of color on that when I'm done. From a simple math perspective, the NP systems have two wafers. They're usually used for engineering. If you want to do small lot production, you can test two wafers at a time. So if your test time was 24 hours, you would get two wafers per day off of that. If your test time or call it, cycle time is 12 hours, you could get four wafers a day off of them. The XP, which is fully compatible blades, which are effectively that each tester uniquely can test a wafer has either 9 or 18, following the same math, you would either get 9 or 18 wafers a day at 24 hours or 2x that at 12 hours or 4x that at six hours. So I'm not trying to be coy, but that's the way of thinking about the capacity off of it. Now, the real debate is and the discussion is, well, what's the test time? Well, if you get into the what's called the backup curve of reliability, and if you go type in bathtub curve and reliability, you can find all kinds of articles out there to talk about it. Basically, when a device is first manufactured, all semiconductor devices, as soon as they are functionally good, have a likelihood of failure at that point in time. As time goes on, the likelihood that they fail actually decreases. This was observed a long time ago and is very consistent across all semiconductor processes. So what that looks like is the likelihood of failure drops as time goes, and then at some point, it stops dropping, and it's the bottom of the bathtub curve. 20 years from now, they start failing again, and that's the other end of the bathtub curve. What's important is depending on the expectation of the customer or the application is whether or not the failure rate upon shipment is good enough. If it's too high, you do things like stress and burn-in, which is what we supply to decrease and move it down the curve, the higher the quality, the more screening or burn-in you need to do to move it down the curve. And that is generally energy and time. So an example we've tried to use in certain applications like the inverter of the automobile, probably the highest reliability requirement out there because on an inverter, it might have 12 or 24 chips in a single module or 48 in a single inverter on the Tesla, for example. The requirement is that none of those 144 chips fail during the whole life of the car, okay? There's also chips, say, somewhere else in the power onboard charter, there's only three chips. These three chips have the same requirement. They can't fail in the life of the car. But there's only three of those versus 144. So by the very nature of that, the onboard charger perception-wise could be burnt in less if you want to 'get away with it.' This was a huge topic at the conferences the last two weeks in Europe at the power semiconductor and the Executive Summit on power semiconductors, and reliability was a huge discussion, and that is what is the reliability requirement of the automotive space. Last week was that Hyundai had a recall of cars. The cars were 2015 and older, and they had to recall 3.5 million cars because 22 cars had some brake leakage event that caused a fire and 22 overheating. That 44 cars out of 3.5 million that had an event and then recalling 3.5 million cars that are over 10 years old, okay? So what is the failure rate okay for an EV that's going to last 10 years or longer? And if you said, well, 44 out of 1 million is not bad. 44 out of 3.5 million required every one of those cars to be recalled. So we get into this whole discussion, and I get kind of passionate about it, like what's the right number? You know what, companies don't all have the same expectations of quality. We get a pretty frontline view. I can tell you, sometimes it upsets me. Not everyone is the same. Here's my opinion: I wouldn't drive a car that had less than 12 to 24 hours of burn-in of the silicon carbide, right? I wouldn't do it. So it's important. That's why we use these numbers. Today, we have set burn-in times on average across the industry are more than 12 hours. We think over time, they will get down to that. We will see. But it's going to be the car manufacturers that dictate that, and I can tell you, we've met with a number of them, and we're meeting with more in the next two weeks. They are very opinionated about what's needed. I've never heard one of them not demand a high level of burn-in for their automotive parts. Now that's very clear in the automotive space. So enough of my high horse here, Dylan. I'm sorry I let you up like that, but I hope that gives you some clarity.

That's great. And then I kind of wanted to clue in on a question or a statement that you had in the sort of the prepared remarks, which was you're seeing more electric vehicles with their own specific design for inverters. Are you saying that like XYZ, major auto OEM will want a specific inverter design from their supplier and then that's going to require a different chip design or different device design than someone else? Or I assume that everyone would have pretty similar designs for the inverters. Would that mean that there's more sort of XP or sorry, WaferPak aligners or sorry, WaferPak because of this?

Yes. And I know more than I can share, but I still don't think I know everything in this space around this. But yes, people with seemingly the same power are dictating specific requirements of the chip size. It gets into thermal trade-offs, voltage trade-offs, power trade-offs, and acceleration trade-offs, how much power you have on hand, what kind of efficiency you have. I'm actually kind of surprised that even the same automotive supplier will dictate multiple different flavors. The next automotive guy won't buy the same ones. So I'm sure it drives our customers crazy because I'm sure they way rather everybody buy one. There's probably some element where they don't want to commoditize it either, though. If they all made exactly the same chip, then maybe the customers would commoditize everything faster. The net is, for us, there are more and more WaferPak designs. I know I said a specific call automotive, but candidly, a lot of the new industrial designs, there's a much broader array of those too, and those designs have been increasing, too.

So in the past, I think it might have even been like a year ago, you mentioned that sort of you'd expect people to change WaferPak maybe every two to three years or designs every two to three years. Do you think that still remains the case? Or do you think that people will have to have more WaferPaks relative to, say, an XP can fit 18 or 9 of them, they might have more than that 18 or 9 because there are three or four different designs across their third of major customers, and then they might have to switch them out more often. I'm just trying to get a sense of that.

So I'm pretty sure I would have said because I remember I probably was pricing three or four years. I think two to three might be aggressive, but we weren't sure. We know like in memory, for example, every like 18 months to 24 months, the probe cards are all swapped out. But that's probably the most extreme. Generally speaking, automotive lasts longer. The issue with silicon carbide is it's in the sort of infant phase where people are going Gen 2, Gen 3, Gen 4, Gen 5. As those happen, there is more evolution. To me, if you can look at it over 15 years, my guess is there is more activity in the next five to seven years than there will be in the back half of seven years. But for sure, we're going to see customers with more than one WaferPak per blade like an 18-blade or 18 tester XP. If you ask me in three years to what do I think? I bet you for every WaferPak that's in the system, there are a couple on the shelf that wouldn't shock me just how they will do it to meet customer demand.

Thank you so much.

Thanks Dylan.

The next question is from Larry Chlebina with Chelbina Capital. Please go ahead.

Hi, Gayn.

Hi, Larry.

Sorry, I'm looking at my notes. Can you expect a follow-on order from the recently accepted fully automated XPs? They use those machines almost four months. Wouldn't they be needing some more capacity here soon?

I think they're going to buy more systems, and we're going to ship them within our fiscal year. Yes.

And then the three-year long development company that you referred to that you said they were going to go with GaN first before silicon carbide. Is that what I heard? Is that correct?

I kind of stitch myself into a little bit of a ...I didn't give myself much wiggle room... It prepares that way, yes.

And if it goes that way, would you expect them to start with an NP first and then progress through an XP or they jump right to an XP? Do you have a sense there?

Yes, I would think it would be an NP first.

Yes.

Okay. On the optical IO, the customer that asked for accelerated delivery, should we see our model plan on fiscal year to the February quarter? I think you spelled out that it was going to be in the calendar first quarter. But does that mean should we assume that it will definitely happen in the February quarter fiscal...

I don't know yet. I mean, they had originally talked about and we acknowledged the order for Q1, which could have been through a March shipment. Recently, they were like, sooner the better. So we're just trying to pull it in.

So you're in charge of that; we should figure on the February quarter then?

That's what we're working on, but they're listening too. So we're trying our best to pull it in. It's awesome. I mean, it's coming along really nicely. There are a couple of things that we're still working through from a qualification and thermal uniformity and things. But the system is being built up. We're actually building it in the integrated configuration. It will not be docked to our new aligner, but it can easily be docked to it. So it's being configured in the new configuration that will allow it for - to just be rolled up against the new aligner.

So it can go in and fully automate in front end. Is that what you're -

All they have to do is buy the aligner, and we can bolt on a 300-millimeter front-end on this thing, overhead transport or robotics, and it's fully integrated into a high-volume manufacturing floor.

Excellent, really exciting. We've seen articles written that Taiwan Semi is pursuing something similar optical I/O. And would they be sneaky enough to be accessing your XP - do you place an XP in Taiwan to do their stabilization and reliability testing versus coming to you directly?

You know what - sometimes when you ask me a question, I'll just ignore you, but they are not right now. I don't want people to be left with the opinion that they are. But I think the folks - it's pretty interesting. We're trying to read up, and we're talking to key players in the space. AMD, Intel, and NVIDIA have all been sort of pounding this drum. It seems like it's been picking up on this. TSMC and Global Foundries, in particular, want to play. They want to be a part of this. It's very interesting when you start thinking that it's not just the chip-to-chip that makes silicon photonics. In the chip itself, there are bolt-ons firing around inside on big bus planes that are transmitting these multi-gigabyte buses. What semiconductor will look like in a decade versus what they do now is going to drastically change based upon silicon photonics. For us, not only are our processors burnt in, in general, but our focus really has been on this product has been on the burn-in of the fiber-optic transceiver, the integrated laser. There are also burn-in opportunities. As you know, because you've asked a lot of questions over the quarters, a lot of the play with bringing up the new aligner was not just silicon carbide. The silicon carbide guys stream wave for level burn-in for processors, automotive microcontrollers, and memory; we think for sure it's just too high volume. You can't be handling WaferPaks and walking them between a car and a thing. So that's what we did for we're thrilled to death, and the systems - the systems are working really well. We're getting really good feedback. We got another customer in here today. I know that's teasing, and they're super impressed with it, and we're just pretty proud of it.

Another customer that you say for what market?

I didn't say that.

I know - how did you describe them? I'm sorry, I miss...

I just said another customer that's in here looking at it, and they're very excited, and they gave us some very good feedback.

I thought you mentioned what market they're in. So obviously, Taiwan Semi would be serving AMD and NVIDIA. That's why I was asking. I know you mentioned in the past that they're interested, I would think it would come through Taiwan Semi. That's why I was interested in that. So you kind of led me to my last question. As you say, the XP was developed initially for memory; the lack of the automation held it back. Now that it's fully accepted and it's in the marketplace, when are you going to get an evaluation tool to our big U.S. memory maker that's planning on building several fabs in the U.S.?

As we've alluded to, and we are serious about it, we are actively pursuing the memory space again. We have had conversations and design reviews, not with everybody, but some of the folks that are candidly closer proximity, but not only on it, and that continues on, including with some meetings over the next few weeks. It's a little awkward, but shareholders need to sort of understand. We actually have financial bonuses tied to every executive and its staff to get into memory. That includes me and every one of my staff members. They are multiyear plans, but we're always getting into memory. That has been my passion. That's what the tester was originally designed for, and we're not giving up.

Well, you're the memory guys. So you're going to make it happen. So great to see the progress. Hopefully, hopefully exceed your goals. It looks like it's possible if everything comes together, so we'll be paying attention.

Thanks, Larry.

Thank you, guys.

Thank you.

This concludes our question-and-answer session. I'd like to turn the conference back over to Gayn Erickson for any closing remarks.

Thanks, operator. I really appreciate everybody for joining us on the call again and spending an hour with us. And as always, we make ourselves available as much as we can. I will tell you, we are traveling like crazy right now, but we're trying our best to get to everybody. We do have our shareholders' meeting on the 23rd that generally, like a lot of shareholders, they're not that exciting or anything. But we do have them here. We will be here with executives to do Q&A, and we typically will throw a smock on you and walk you through the manufacturing area. So if you can, and want to join us, just give us a heads up, and we'd love to meet you there. With that, we'll turn it back over and take care, we will all talk to you next quarter. Bye-bye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.