Greetings. Welcome to the Aehr Test Systems’ Fiscal 2024 Fourth Quarter and Full-Year Financial Results Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to your host, Jim Byers at MKR Investor Relations. You may begin.

Thank you, operator. Good afternoon and welcome to Aehr Test Systems’ Fiscal 2024 Fourth Quarter and Full Year 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 items. This afternoon, right after the market closed, Aehr Test issued a press release announcing its fiscal 2024 fourth quarter and full year results. That release is available on the company's website at aehr.com. There were two other announcements issued today, and those are also posted to the company's website. This call is being broadcast live over the Internet for all interested parties, and the webcast will be archived on the Investor Relations page of the company's website. I'd like to remind everyone that on today's call, management will be making forward-looking statements that are based on current information and estimates 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 are discussed in the company's most recent periodic and current reports filed with the SEC. These forward-looking statements, including guidance provided during today's call, are only valid as of this date, and Aehr Test Systems undertakes no obligation to update the forward-looking statements. And now with that said, I'd like to turn the conference call over to Gayn Erickson, President and CEO. Gayn?

Thanks, Jim. Good afternoon everyone and welcome to our fiscal 2024 fourth quarter and full year earnings conference call. Thanks for joining us today. I'll start with a quick summary of the highlights of the fiscal fourth quarter and full year we just completed in May and spend some time giving an update on the key markets areas addressing for semiconductor wafer level test and burn-in, including some new emerging opportunities. I also want to go over the exciting news we announced today with the acquisition of Incal Technology, which has some incredible products addressing the ultra-high power semiconductor market, including a significant number of AI processor makers. Then Chris will go over the financials in more detail and provide our guidance for the new fiscal year. After that, we'll open up the lines to take your questions. Starting with our financial results, as we reported in our pre-announcement last week, our full year revenue and net income results exceeded our previously provided guidance and surpassed analyst consensus. Although we saw customer pushouts of silicon carbide devices due to slower electric vehicle demand in the second half of our fiscal year, we still achieved another record for annual revenue for Aehr of $66.2 million. On the bottom line, GAAP net income was $33.2 million or $1.12 per share, which includes a tax benefit resulting from the release of the company's full income tax valuation allowance of approximately $20.8 million recognized in the fourth quarter. Chris will talk more about that. This past year, wafer level test and burn-in of the silicon carbide power semiconductors used in electric vehicles or EVs were a key driver of our business. And we anticipate that market will continue to be a key contributor to revenue in the current fiscal year. We're also seeing traction with several emerging opportunities for our test and burn-in solutions in new target markets and expect bookings and revenue across a much broader range of customers and markets this fiscal year. These new target markets include quality, reliability, and production test and burn-in of artificial intelligence processors, wafer level burn-in of flash memory devices used in solid-state disk drives, burn-in of semiconductors used in hard disk drive magnetic read/write heads, wafer level burn-in of gallium nitride power semiconductors used in data centers and solar power conversion, and stabilization and burn-in of silicon photonics integrated circuits used for optical I/O communication between chipsets and processors. I'll cover at least a little on each of these key markets, beginning with wafer level test and burn-in for silicon carbide devices. We continue to have a high level of confidence in this market which remains an enormous opportunity for Aehr. While most forecasters are saying that the inflection point for silicon carbide and electric vehicles is now the second half of 2025 into 2026, from our many meetings with semi-suppliers, tier-ones, and electric car companies themselves, it's even more clear now that silicon carbide is the plan of record for electric vehicles and preferred over IGBT. Virtually every car manufacturer is designing new electric vehicles with silicon carbide modules, which absolutely need reliability testing and burn-in to screen out failures that otherwise will show up in the life of the vehicle. Burn-in of the die at the wafer level before the modules, before they're put into modules is significantly more cost-effective with much higher yield than doing this at the module level. We believe we're in a strong position to win more than our fair share of this business, as we believe we have the industry-leading wafer-level burn-in solution. This past year, we engaged with a significant number of new silicon carbide device and module suppliers related to their anticipated capacity needs and we remain engaged with these and all major players in the market, including many in China. We continue to make great progress with our previously announced benchmarks and engagements and believe these potential customers are committed to wafer-level burn-in to meet their requirements for known-good die for die sales and for their power modules. The silicon carbide market continues to be an enormous opportunity for us, and we're seeing more and more auto suppliers that are committed to silicon carbide in their EVs as well as roadmaps that are based on modules for their electric motor power inverters. We're also seeing growing demand for silicon carbide devices beyond the EV market, such as solar, data centers, and other industrial applications for power conversion. We remain very enthusiastic and believe we're well positioned to continue to grow our business in silicon carbide and expect to receive first orders from a significant number of additional silicon carbide customers by the end of this fiscal year. Today we announced that we received over $12 million or $12.7 million in orders from one of our silicon carbide customers for WaferPak for wafer contactors to be used for production needs for wafer-level burn-in and screening of the silicon carbide devices for the EV market. We're excited about our continued partnership with this customer and to receive these orders to help them meet their needs for new device designs. As these orders illustrate, when our customers win new designs from their customers or they change device designs, wafer patterns, or sizes, these customers need to order new WaferPak contactors from Aehr to fulfill these design changes. This consumable type of revenue grew in fiscal 2024 for us, representing 57% of total revenue as systems orders growth slowed but new designs and variety of devices increased, causing incremental WaferPak sales on the install base. As we look ahead, we believe that silicon carbide remains a very large market opportunity for Aehr, as more and more EV manufacturers adopt silicon carbide, and we believe we're well positioned to continue to capture market share. We expect to add a significant number of silicon carbide customers both this fiscal year and the next fiscal year, as silicon carbide ramps in the second half of 2025 and into 2026. Now let me talk about the AI processor market. Last month, we announced we're working with an AI accelerator company to move their AI processor test and burn-in to wafer-level and have secured a commitment from them to evaluate our FOX Solution for production level test and burn-in of their high power processors. This company recognizes the potential of the significant benefits of production test and burn-in of their accelerators while still in wafer form before they're integrated into the end application product, which would prove to be more cost-effective and significantly more scalable than doing the screening later in their manufacturing process. We think this is an amazing opportunity to displace the current package and system-level tests for AI processors for large language model development, and we believe we can meet this enormous challenge with the current capabilities of our new high power FOX-XP system with up to 3,500 watts per wafer testing. We're working on this benchmark as I speak in the lab right now and expect to complete the evaluation in the next couple of months. Upon successful demonstration of wafer-level test results and throughput, we expect they will utilize our new high-power FOX-XP systems for the production of their next generation AI processors, starting this fiscal year. The rapidly growing AI market is still in the early stages, and we see a significant opportunity in this market for our FOX wafer-level production systems as I just discussed. However, in addition given the unique challenges of testing very high power devices related to AI processors, there's a very real need for a significant amount of engineering qualification and process development, as well as a significant new opportunity for production reliability screening at the package part level. AI semiconductors are amongst the highest power consumption devices in the entire semiconductor industry, with power levels of recent devices up to a thousand watts or more, well beyond typical processors. These power levels open a new market that requires unique test solutions. I'm personally very excited and proud to announce today our acquisition plans for Incal Technology, a manufacturer of highly acclaimed reliability test and burn-in solutions of a wide range of semiconductor devices and markets. They have a particularly strong new product family of ultra-high-power test solutions for AI accelerators, graphics and network processors, and high-performance computing processors. Their ultra-high-power package for our test capabilities, combined with Aehr's industry-leading lineup of wafer-level test and reliability solutions, uniquely position us to fully capitalize on the rapidly growing opportunity within the AI semiconductor market, as a turnkey provider for reliability and testing that spans from engineering to high-volume production. Incal is in a unique position with intimate knowledge and working relationships with a significant number of AI industry leaders, providing a front row seat to the technology needs of those customers. They're shipping systems today for use by a broad range of companies, with many of these companies projecting needs to move to high volume production level burn-in of these devices. Both Aehr and Incal believe there's a tremendous opportunity to grow this business substantially. Incal has world-class system hardware and software architectures and customers that have a high degree of customer loyalty for their products. Aehr brings worldwide sales and support infrastructure, as well as high-value manufacturing capacity and capabilities that together we feel will quickly address customer demand for the very high global growth rate of AI and other high-power semiconductors. We also bring R&D resources, technology and processes, and the financial resources to be able to enhance and accelerate new needs that customers may ask for. This unique combination strongly positions us to capitalize on the significant opportunity within the AI market. Interestingly, we share several subcontract manufacturers and have similar supply chains as well as our strategy for in-house assembly and final testing of our systems. I have known the founders and management team for a very long time, including their CEO, Alberto Salamone, who has been in the test and burn-in business for many years and who will be joining Aehr as an Executive Vice President to lead our package part burn-in business. Incal is located less than four miles away from Aehr’s headquarters here in Fremont, California, with all employees located at that facility. This makes combining the two companies simpler and straightforward. We believe that between wafer level and package part, the reliability test and burn-in market for AI processors exceeds $100 million annually. And with this combined product portfolio, we have the opportunity to capture a meaningful share of this market within this fiscal year. So moving on to the NAND flash memory market. We've been in discussions for several years with multiple flash memory companies related to our FOX wafer-level test and burn-in systems. These companies have provided us feedback on the definition and capabilities required for a next-generation wafer level test and burn-in system for their high-volume production roadmap. This included feedback on our systems, WaferPaks, and particularly on our automation using our new fully automated WaferPak Aligner. We see the NAND flash market as a key market opportunity for our systems and WaferPaks with long-term potential to also move into DRAM wafer-level test and burn-in. This last quarter, we secured an engagement from one of the major flash memory suppliers to evaluate the FOX-XP system with our proprietary WaferPak full wafer contactors for wafer-level test and burn-in of their flash memory devices. This application is for 100% test and burn-in of devices to be used in high-reliability applications such as enterprise storage. This is a benchmark that's going to take us throughout the fiscal year to complete and includes the development of a new high-density WaferPak for production wafer-level burn-in a 300 millimeter NAND wafers. We see this as a multi-year opportunity and expect to have preliminary results and feedback during this fiscal year. Our goal is to come to an agreement for a customer-specific development of a test cell with the potential for revenue contribution in our fiscal 2026 that begins next June. We're very excited to have accomplished this critical goal this past year and believe this is the front end of an exciting and potentially enormous opportunity for our solutions. Another interesting market opportunity is the hard disk drive market. One of the new market opportunities for wafer level burn-in is semiconductors used in hard disk drives for data storage. Some of you may recall that in 2019, prior to the COVID-19 epidemic, we announced an order and shipment of our FOX-CP, which is our single wafer testing reliability solution for logic memory and photonics devices. This was a key win with a major customer who purchased a system for wafer-level test and burn-in devices in a very high volume application for the enterprise and data center market. They had forecasted to ramp into production over several years, but the pandemic impacted their plans. After a multi-year product development and qualification process and impact due to COVID-19, this customer, who we've now disclosed in the hard disk drive space, has introduced their product and is now forecasting the production ramp to begin in our current fiscal year, most likely in the second half. We believe this will drive orders for multiple CP production systems and WaferPaks and could even be a 10% customer for us this year. Alright, turning to the Silicon Photonics burn-in market. Within the silicon photonics market, we shipped the first order from a major silicon photonics customer for new high power configuration of the XP system late in our third fiscal quarter. This new configuration expands our market opportunity by enabling cost-effective volume production tested wafers of next-generation photonic ICs that are targeted for use in the new optical I/O or co-packaged optics market. Nvidia, AMD, and Intel are examples of companies that have all discussed the potential for adding optical chip-to-chip communication for performance improvement and power savings for AI processors and high-performance computing chips. Optical I/O has the potential to be a game changer for semiconductors, as it breaks the bottleneck of data transmission bandwidth limitations of electrical I/O. These next generation silicon photonics-based integrated circuits can require two to four times as much power for full wafer test burn-in and stabilization. Aehr's new high-power system configuration can be used to test and burn up to nine of these new optical I/O device wafers at a time, up to 3,500 watts of power per wafer. This is absolutely unique in the market as we're not aware of any other solution that can test even one of these wafers in a single touchdown, much less nine of them at a time like we can. While the timing of these devices and volume ramps are not clear, we're watching this market very closely to ensure that we have the products and solutions available to meet the needs of our customers for this potentially significant market application. Now let me lastly talk about the GaN market opportunity. This past year, we announced our first order for a FOX wafer level test and burn-in system for gallium nitride or GaN devices. While silicon carbide will be the semiconductor material choice for EV traction inverters, GaN is expected to gain significant penetration in the onboard charging market, as well as other automotive, solar, and data center power conversion applications. We're working with several of the GaN market leaders and received a significant number of WaferPak orders throughout the year for gallium nitride reliability test and qualification of our systems. We have now received our first forecast for wafer-level production burn-in systems to be delivered during this fiscal year. We continue to be encouraged by this market and believe it will be significant in market size for semiconductors and has the potential to be a solid market opportunity for Aehr Solutions. Looking ahead we expect fiscal 2025 to be an exciting year for Aehr. Silicon Carbide is poised to be a key contributor to revenue again this year, but we also expect bookings and revenue from across a much broader range of customers and markets, as I discussed. We have a lot of opportunities in front of us and we look forward to reporting on our progress throughout the fiscal year. With that let me turn the call over to Chris before we open up the line for questions.

Thank you, Gayn. Good afternoon, everyone. On today's call, I will summarize our results for fiscal year 2024, as well as the fourth quarter and then I will provide our guidance for fiscal year 2025. Starting with the full year results, we reported record revenue of $66.2 million, up 2% year-over-year. Our full-year GAAP gross margin was 49.1% compared to 50.4% in the prior year. Our full-year non-GAAP net income increased to a record $35.8 million, or $1.21 per diluted share, which includes the impact of a tax benefit resulting from the release of the company's full income tax valuation allowance of approximately $20.8 million, compared to non-GAAP net income of $17.3 million or $0.59 per diluted share in fiscal 2023. In fiscal 2024, we generated $1.8 million in operating cash flows. Our annual bookings in fiscal 2024 were $49 million compared to $78.3 million in the prior fiscal year. The decrease was mainly due to customer push-outs of forecasted orders related to silicon carbide devices due to slower electric vehicle demand in the second half of our fiscal year. Our backlog as of the end was $7.3 million with $13.5 million in bookings received in the first six weeks of the first quarter of fiscal 2025. We now have an effective backlog of $20.8 million. Looking at our financial results for the fourth quarter, total revenue was $16.6 million, down 25% from $22.3 million in Q4 last year. WaferPak revenues were $12.4 million and accounted for 75% of total revenue in the fourth quarter, which is significantly higher than the 38% of total revenue in the prior year Q4. WaferPak revenues continue to represent a significant revenue stream for our business due to the strong demand for new WaferPak designs from our existing and new customers as they win new designs and look to meet their market requirements. GAAP gross margin for the fourth quarter came in at 50.9%, down from 51.5% in Q4 last year. The decrease in gross margin is primarily due to lower revenue, resulting in a higher overhead absorption rate and lower manufacturing efficiencies. Operating expenses in the fourth quarter were $5.9 million, consistent with $5.8 million in Q4 last year. The slight year-over-year increase is primarily driven by increased headcount-related expenses to support our R&D programs and G&A requirements, which were partially offset by lower professional fees. 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. During Fiscal 2024, we invested significant resources to augment the features and performance of our automated WaferPak Aligner and developed a new high-power configuration of our FOX-XP system for volume production wafer-level burn-in and stabilization of next-generation silicon photonics integrated circuits. At the end of the fourth quarter, we released a full income tax valuation allowance and recorded deferred tax assets and a tax benefit of $20.8 million. We will release this valuation allowance as we believe it is more likely than not that the company will realize the deferred tax assets. Non-GAAP net income for the fourth quarter, which includes the impact of the tax benefit mentioned earlier but excludes the impact of stock-based compensation and acquisition-related costs, was $24.7 million or $0.84 per diluted share for the fourth quarter compared to non-GAAP net income of $6.9 million or $0.23 per diluted share in the fourth quarter of fiscal 2023. Moving to the balance sheet. We finished the year with a strong cash position. Our cash and cash equivalents were $49.2 million at the end, up slightly from our cash and short-term investments of $47.9 million at the end of Q4 last year. With a solid balance sheet, we'll fund the acquisition of Incal Technology using our cash on hand and common stock. We'll continue to invest in scaling our business, entering new markets, and supporting new opportunities. We generated $1.2 million in operating cash flows during the quarter. We have zero debt and continue to invest our excess cash in money market funds. Interest income earned during this higher interest rate environment was $592,000 in the fourth quarter compared to $487,000 in the same quarter last year. As of the end of Q4, the remaining amount available under the previously announced $25 million ATM offering was $17.7 million. We did not sell any shares during fiscal 2024. It remains our plan to only sell shares against this ATM offering at times and prices that are most advantageous to our shareholders and to the company. Today we announced that we have changed the company's fiscal year-end from May 31 to a fiscal calendar ending on the Friday closest to May 31st. The first fiscal year under the new financial calendar began on June 1st, 2024, and will end on May 30th, 2025. Our first quarter in fiscal 2025 will end on August 30th, 2024. This change is expected to improve the comparability of the company's financial results between periods. Now turning to our outlook for the current fiscal 2025. For the fiscal year ending on May 30th, 2025, we expect total revenue of at least $70 million, which includes the acquisition of Incal Technology. As we mentioned earlier, we released a full income tax valuation allowance and recorded deferred tax assets in the fourth quarter of fiscal 2024. Beginning in the first quarter of fiscal 2025, we expect to incur income tax expenses. For fiscal 2025, we expect a net profit before taxes of at least 10% of revenue. Lastly, looking at the investor relations calendar, Aehr Test will be meeting with investors virtually at the Needham Fifth Annual semiconductor and semi-cap conference on Wednesday, August 21st. And then the following week, we'll be meeting with investors in person on Tuesday, August 27th, at the Jefferies Technology Summit taking place in Chicago. We hope to meet some of you at these conferences. This concludes our prepared remarks. We are now ready to take your questions. Operator, please go ahead.

Thank you. At this time, we will be conducting a question-and-answer session. First question comes from Christian Schwab with Craig-Hallum. Please proceed.

Hey, congratulations guys on the acquisition. Gayn, if you look at the Incal acquisition, I assume that the company is a growth company. Can you give us an idea of approximately how much revenue of the $70 million is Incal?

One of the challenges is that we need to finalize the acquisition first. They generated around $12 million over the past year. With that same run rate, we’re looking at fluctuations of around $1 million or $2 million. We are adopting a cautious approach, but if you consider those figures, roughly $1 million per month from the time of closing seems reasonable. This ties into our overall strategy. There are several customers they have been working with, and we believe our involvement will assist them in their manufacturing plans. We've therefore made a conservative forecast based on their current run rates around $70 million, and we anticipate growth from there. Overall, we are taking a cautious stance for now and will gather more insights following our customer visits in the coming weeks.

No, that's fair. Thank you. As you mentioned on the silicon carbide side that you would expect to qualify this fiscal year with a number of companies in China, given their increased presence in the silicon carbide market and ability to maybe lower prices faster than others and gain further share, how many customers by the end of the fiscal year would you hope to be engaged with?

I hope to have fewer customers because we currently have a lot of engagements. Once they become customers, we tend to focus less on engagement. You’re probably asking how many customers we are adding now. I can't provide an exact number, but we have set some internal targets. Our current forecast and sales funnel suggest that there are well over a dozen qualified silicon carbide players who are not yet our customers. This number might approach two dozen if we consider all potential candidates. As we discussed last year, there are definitely more inquiries about China. We are engaging with several Chinese suppliers and hope to add one or more of them as customers in the next year and a half. I’m cautious about the timeline because some companies are planning to increase capacity in the second half of 2025. We’re working to determine when the first tools can be installed, which could still lead to a win for us if they are installed in the fall. However, aligning everything with our fiscal year timeline is a bit challenging at the moment.

Okay, that's fair. Thank you for that clarity, Gayn. And then my last question, on the AI Accelerator large language model, can you give us an idea if you're successful there on the new customer? How big could that be?

Yeah, we're trying to get our arms around that as well. It's a little weird to talk about who it is or who it isn't, but I've actually just, and this might get me in trouble someday, but it's not Nvidia. I've been trying to be pretty clear with people because it's just not fair. I guess at some point, if Nvidia ever goes with us, now what am I going to say? But they are a revenue-generating company today. They have customers, they're doing very well. It's pretty exciting. There's some discussion about being able to go public with them once we have successfully demonstrated it. They really would have a huge benefit by moving their system level test and burn-in to wafer level. And I can't decide who's more excited about this, if it's us or them, with them cheering us on to please hopefully make this work for them. This is an interesting one because we are doing some pretty unique things that I'll just share a little bit about, but I'm also holding things to my chest because of competitive reasons. I just don't want to give away any of our secrets. But the idea to actually be putting, I mentioned 2,000 – 3,000 watts on a wafer, 3,500 watts on a wafer. If you're actually close to this technically, you would know that all AI processors at these geometries are, in lithographies, are all 1 volt or they're about parts. What that means is if you're going to do 3,000 watts, you're putting 3,000 amps onto a wafer. Okay, people's head spin with this, the idea of putting 1,000 amps much less 2 or more 1,000 amps on a wafer. And so what we're doing is quite novel, and we're using the FOX-XP system that we shipped first to optical AI. At the last quarter, we mentioned that we were working on something else on the side, stay tuned, but that's what we were alluding to. The development of that system in terms of the power, being able to put that much power out and remove that much power because you have to remove it all through the wafer itself is totally novel. How we deliver that power for optical I/O is actually interestingly a little higher voltage and lower current, whereas in the AI it's higher current and lower voltage. But the thermal challenges are the same. So we have a lot of confidence through that. We're working through that with this right now. And where I walked in just now was talking to the apps guys. They're working on this on multiple wafers right now with multiple WaferPaks. So it looks encouraging. And stay tuned. I've got my fingers crossed that we can work through all this stuff. And the customer is hoping and cheering us on to make it work.

Great, thanks, Gain. I'll get back in the queue and let some other people ask questions. Thank you.

Okay, thank you.

The next question comes from Jed Dorsheimer with William Blair. Jed, please proceed.

Hi. Yeah, thanks for taking my question. And, Gayn, congrats on the acquisition. I guess just from a framing perspective, is it fair to say that next year is largely going to be driven off of silicon carbide, maybe a little bit in gallium nitride, and is you invest in some of these other very interesting and high-volume markets?

Our current forecast takes a conservative approach to silicon carbide. I believe we could achieve over 30% from new customers in emerging markets within that $70 million figure. For the hard disk drive application, I mentioned it might represent about 10%. The AI production forecast also stands at 10% of the $70 million. However, flash memory isn't expected to generate revenue this year, but we aim to secure an order for next year. For GaN, with the production capacity we've been shown, that could also represent around 10% or more. So, we have three separate areas each contributing about 10%, and none of them involve silicon carbide. There are probably more that I’m forgetting. Within our customer base, some clients we anticipated closing this year have postponed, but the fabs are progressing. We believe we can secure that initial wave, with several of those clients likely obtaining a single production or even multiple production systems by May. Silicon carbide remains strong, and we expect more diversity beyond just the six customers we currently have, as only two of them represent 10% customers. We anticipate more customers becoming significant to us as the leading-edge fabs come online in 2025 and 2026.

Thank you for the information. Could you help clarify my understanding? Based on your mention of $12 million with two months at $1 million, that indicates $10 million for Incal. This implies that the core business guidance for a conservative or lower-performing year is around $60 million at the low end. However, if the operating income is immediately additive, as you've indicated, are you making a substantial investment in operating expenses that would reduce EBIT by about 6 percentage points, or is there something else affecting the gross margin?

I would say that the impact is mainly related to gross margin. We have made incremental investments in expenses, some of which were made in anticipation of significantly higher revenue this year. These investments included additional infrastructure in sales support for our ongoing sales activities. However, these efforts need to lead to actual orders. We are now quite diversified in the number of high-level engagements, but those engagements must materialize; otherwise, the expenditures won't yield benefits. There's a clear association of direct sales costs with this strategy. Additionally, our forecast this year differs from last year due to a changing mix of customers, including some new clients we're engaging with both directly and through local representatives. They have a higher upfront commission structure. We have incurred substantial external commissions of around $700,000 to $800,000, which, while seemingly in line with previous revenues, actually comes from new customers in new markets, which has created some challenges for us. It's a worthwhile investment, but still a factor to consider. Furthermore, we've incurred some legal costs related to the acquisition, and there are some profit-sharing arrangements and other items that vary from year to year. We are definitely investing in R&D this year, particularly in the wafer-level burn-in product line, and also looking at additional investments in packaging, which we will discuss more as we finalize the deal. We recently began our planning for R&D programs, and while initiatives like the automated aligner and enhancements in the silicon carbide roadmap are progressing well, we are also addressing customer needs across various capabilities. The majority of our R&D resources this year are focused on other markets we have mentioned, including areas such as GaN, hard disk drives, flash memory, and AI, all of which contribute incrementally to our platform. It’s exciting to see us allocate more energy toward these additional markets.

Got it. This leads me to my final question. Given these changes and as you expand into these other areas, have you noticed a shift? I would assume that once you cover those additional investments, your contribution margin will decrease. How does that leverage appear? Is it at $80 million or $100 million? What is your strategy for returning to a 20% operating margin or higher?

You know, you all have developed your models. If you believe that our operating expenses will remain roughly the same this year, it makes sense that they increased, but our revenues did not. We've established the necessary infrastructure to continue growing and return to our previous run rate of over $100 million without additional expenses. I would advise caution in reducing projections, but if you consider similar gross margins along with incremental revenue, you can connect the dots regarding when we might return to 20% or even 25% plus net profits before tax.

Got it. I'll jump back in the queue. I appreciate it. Thank you.

Okay, the next question comes from Jon Gruber with Gruber McBaine. Please proceed.

Jon, that's you. He just misspelled your name, mispronounced your name a little bit.

Yeah, yeah, I mean good presentation, a lot of prospects, but what I don't understand is with the acquisition, all these prospects, you get flash memory 30% in new things, the disk drive, why is there no revenue growth excluding the acquisition?

I believe you have a good understanding. Generally speaking, it's important to consider some numbers, and that's a reasonable approach. The main issue is the delays we noticed regarding the silicon carbide ramps, which we anticipated would show strong demand. However, our current forecasts are somewhat subdued. Multiple customers are expected to purchase one or two systems, with not many large orders. For instance, if we focus on the leading silicon carbide clients, all of them have lowered their expectations this year. There has been speculation about how significant the impact would be on us and whether we can sustain our growth despite their slow year, which is expected to be followed by a strong one. I think it's prudent to communicate this situation. If we witness stronger performance in the second half that exceeds our cautious forecasts, we will adjust our guidance accordingly.

Thank you.

Okay. Thanks, Jon.

Okay. The next question comes from Matt Winthrop with Equitable. Please proceed.

Hey guys, how you doing, Gayn?

I'm good, thanks, Matt.

Sort of on a global basis, I have never seen a company turn or you turn as excited 180 degrees from how bullish you were the last two calls. Is there anything you could put your finger on? Are cycles shorter, were you guys super lucky? Had a lot of things in the fire that all started to turn? What do you attribute to much more upbeat and such a rapid sort of positive, at least potentially positive outlook going forward?

Geez, Matt, I feel like I'm always a pretty optimistic and upbeat guy, so.

Listen to what else we call.

Well, that's an interesting perspective. I know you mean it in a professional context, but personally, I sensed that in January and February, we had customers that led us to forecast more than we initially communicated. While nobody thought our forecast of $100 million was conservative, I did. Customers were anticipating new fabs, but by November and December, things started to wobble, causing some hesitation, and they held off on purchases. We had completed benchmarks and expected orders from customers two, three, or four months prior, but those orders were pushed out. This situation reflects the typical technology adoption cycle, which has a pattern of accelerating, then declining, before picking up again. When it first declines, it can be alarming, leading people to believe that it's over. A year and a half ago, our business model was influenced by the expectation that 30% of cars would be EVs by 2030. Initially, there was skepticism about this figure, but by fall, many were convinced it would occur much sooner and that the percentage would exceed that estimate. Yet, we remained cautious because we saw potential fabs still in the ground, despite the excitement around EVs. Even our customers' enthusiasm shifted to pessimism, causing some gloom. However, when I speak to our customers' customers, or OEMs, I'm having direct discussions about aspects like burn-in times, quality, and reliability. They are actively working towards improving quality and some are even planning to produce their own silicon to meet their standards. It's fascinating to witness the large-scale factories being established, predominantly outside the US. The market penetration in the US is likely to be lower compared to regions like Korea, Europe, and especially China. Conversations with major OEMs in Japan, Korea, China, and Europe reveal that they are serious about the shift to EVs. While it may not reach 30% immediately, the transition to electric vehicles is on the horizon, instilling confidence in the strength of our business. There's growing evidence supporting the necessity for extended burn-in testing times in this context. Our narrative centers on the semiconductor industry's growth from $600 billion to over $1 trillion by the end of the decade, necessitating enhanced reliability testing. As compound semiconductors gain traction—such as silicon carbide and gallium nitride—and more memory types like stacked memory and flash are utilized in SSDs and AI processors, burn-in testing becomes increasingly important. With the rise of heterogeneous integration and multi-chip modules, there's a push for wafer-level burn-in, especially amid current packaging challenges. So, it's clear to me that this is a favorable situation, not just temporary. We're in a strong position characterized by demand for our differentiated products, ample manufacturing capacity, and inventory to meet needs. I'm optimistic about our future.

That in my mind is a fantastic answer. Keep on plugging. We'll keep watching. I appreciate everything you do again.

Thanks Matt. Thank you.

Okay, the next question comes from Tom Diffely with D.A. Davidson. Please proceed.

Yes, good afternoon. Thanks for the question. Gayn, curious, when you look at the book of business you had a year ago when there's a $100 million you thought you would get for the year versus where you are today. I assume most of that was Silicon Carbide and a lot has been pushed out. So I guess the first part of the question is how far have some of these programs been delayed or pushed out? Obviously, some of them look like they're about a year behind schedule. And then the second part of the question is, have they all been pushed out or have some of them been canceled?

It seems like most of the programs have been pushed out. Looking back at my forecast from last year, I had several significant clients planning to make purchases in the spring. One client faced challenges developing products, another did well with their package due to customer demand, while another experienced delays. There were also two additional clients that were in the evaluation phase but decided against moving forward because they postponed their fabs. Essentially, the expected revenue projections shifted over time, with amounts like $10 million, $20 million, and $15 million now delayed. However, every one of these clients remains committed to wafer-level burn-in and modules, even as their fab capacities have been rescheduled. What they communicated to the industry last year has certainly been pushed further out. Most of these fabs have been reiterated and re-announced, though some clients might have extended their timelines even more. If you consider the Original Equipment Manufacturers in regions like Korea, Japan, and Europe, their ramp-up schedules were always slated for 2025 or 2026, and it seems early electric vehicle initiatives are just preliminary efforts to gauge the market. Their major programs are still on track, but the timelines are tightening. I believe that most of these projects are about a year to a year and a half delayed, and I expect them to return. However, the outlook has changed; no one is projecting a 60% market penetration by the end of the decade anymore, with numbers leaning more towards 30%, which still represents a substantial market for us.

Yeah. Okay. And then the second question would be, think back to a year ago again. And when you think about the car makers themselves, are they all still on the silicon carbide path or have some of them decided to stick with silicon a little bit longer?

I believe car manufacturers are increasingly favoring silicon carbide compared to a year ago. For example, many cars have multiple engines. In the past, it was common knowledge that Tesla used IGBT for the front engine and silicon carbide for the back engine. If a car had a single engine, it was always silicon carbide; if it had two, it used silicon carbide in the back and IGBT in the front. Just to clarify, IGBT is silicon. These components have different properties. My Model S has two silicon carbide inverters. We've received feedback from OEMs indicating that they now prefer silicon carbide, especially since costs have decreased and availability has increased. While I cannot disclose certain details due to NDAs, I found it surprising how much preference the Chinese OEMs expressed for silicon carbide. Although there are still models using IGBT for a second engine, the trend is shifting towards silicon carbide across more modules. Overall, I see a stronger conviction for silicon carbide and more focus on modules than we did a year ago.

Great. All right. I appreciate the perspective and thanks for the time.

Thanks, Tom.

Okay. We have a follow-up coming from Christian Schwab with Craig Hallum. Please proceed.

Great. Thanks. Let's have a quick follow-up, Gayn. We did hit China in silicon photonics. Whether you expect those to be revenues in fiscal ‘25 or ‘26?

Okay, yeah. So I think we have forecasts for China – well, yeah, I guess I just said it – we have forecasts for China in this year. And silicon photonics, I think we have some as well. Pretty conservative assumptions right now. Yeah, like I don't think we have it assumed to be a 10% this year. Could it be? Sure. But the problem with the silicon photonics, at least the optical I/O, is, and again, obviously there's more than I can share, so I draw this pretty clean, but those companies that would drive that roadmap hold those cards close to their chest. Right, they're not out, there's no market. You tell me what Nvidia, AMD, Intel is going to do, and the other AI processors, and I'll tell you what the optical I/O market will look like. And they're not talking publicly about it. So we know a little bit more than we can share. We'll just watch and we'll have to be careful being the canary to let everybody know what's going on. But if people start announcing optical I/O, chip-to-chip, you can just think to yourself that's good for us. And China right now is all silicon carbide customers. They have GaN too, by the way. Their current engagements are all silicon carbide today. By the way, a couple more things on China, a little bit more color for people, okay? To us, China is not all one market. And I know people are listening to this, okay? There are companies that are going to build extensions and do things in China that are say not Chinese companies, right? And they're very protective of their IP and they want to be very careful with it. And so if you sell to them outside of China and they want you to build in China, we love those guys, right? That's not the same even though it would be in China. Second is that we have companies that are OEMs today that are using our products. Well, they use silicon carbide that's built on our product and they know it. They drive the test times, they know what's going on, et cetera, they have a high preference for our equipment and they've talked about potentially dual sourcing in China, okay? Well, in that case, they said, hey, we want to use your system because we like the same capabilities and all. Well, we like those guys a lot as well. There's other companies that are actually building products themselves. Think of trains and planes or cars, and they want to build silicon carbide. What I can tell you is those companies are so paranoid and so acutely aware of the relationship between burn-in times and quality that they are like, I will dictate a specific burn-in process at a specific quality, it's really important to me. And I like what your system does and it matters. I like those guys, right? There's other guys that are saying, I'd like to buy a bunch of systems from you, I've tried some stuff locally, I'm not sure how well it works, blah, blah, blah. I'm like, well, how many systems are you talking about? If you want to buy a bunch from me, I like that a lot. It just makes me a little nervous about, you know, overall IP concerns there. And then we have companies that say, I'd like to buy an engineering system. Yeah, we're not interested. I mean, there's a spread. If you're committed to us and you can show us some preference and show us that you're willing to help us protect our IP, even though we have patents all over the place, you get preferential treatment, if you will. So enough on China. I hope that helps give you a little more clarity though.

That does. And then my last question was just a means of potential clarity. You talked about OpEx being flat and aggregate year-over-year because you overspent this year. Does that include Incal or is that a comment on your business?

My operating expenses this year are higher than last year's. If you look at the numbers, you might notice approximately $3 million to $3.5 million that seems to be missing. This increase is due to several areas of expenditures. Additionally, we are spending more on finance and other areas related to SOX compliance. We have added expenses in research and development, legal, and commissions, as well as increased staffing in sales and some additional finance costs. There are also some bonuses that contribute to these figures.

Okay, I guess just for clarity, again, for Incal, how much should we assume is their quarterly OpEx?

All right, we haven't done that yet.

Well, right now, the forecast or outlook, we have already included them in the calculation, in the forecast, yeah, in the model right now.

Basically, it's a relatively small company. We’ve mentioned this before, but as our headcount increases, they have about 24 employees. They have a lease for the next couple of years located nearby. We haven't discussed potential synergies, as those won't come from people. However, over time, we may not need the second building and similar considerations. But we are not in a position where we need to make any drastic cuts or expense reductions. Instead, we're planning to invest more with them.

Okay, got it. I got it. Thanks, Gayn. Thanks for the added clarity.

Thank you. One last round for folks, Pete. Anyone else with a raised hand?

The next question comes from Shahar Cohen with Lucid Capital. Please proceed.

Hi guys. Congrats for the amazing turnaround and the specification into other than silicon. A question about Incal. So first, how much of their current revenue is from their legacy advantage sub-manufacturing, if you can disclose. And to what there's a normal family, which as I read in the websites, is that the one that's supposed to do the high-Watt testing, is that already used in testing of AI application, and is that already used by NVIDIA and leading to major revenue growth in the last year or so as one should expect? Or do you expect them to grow significantly in 2025 versus 2024 calendar year?

Okay. All right, Shahar, you've done your homework. So you're going to make me back up and let people know, try and catch up with you a little bit. All right, so Incal is made up of two sources of revenue. They have a test and burn business, which is made up of really three families of burn-in systems. Low power, medium power, and high power. Their Alpine line of systems is their low power, Tahoe is their mid power, Sonoma is high power. They're all fully compatible from a software perspective. They all have a similar hardware and software architecture, but a very unique platform concept that I think from a tester guide. The Alpine system uses indiscernible test electronics and power supplies that are shared over multiple burn-in boards and multiple devices on each burn-in board, making it one of the lowest cost, most cost-effective burn-in systems on the market. We struggled to ever compete with that product line before. Their Tahoe system is a mid-power system, candidly similar in many of the features to our old ABTS system or our current ABTS system, but it has power supplies and pin electronics that power each burn-in board for more capability and more power with individual temperature control and amazing software. And Sonoma uses, again, similar pin electronics and power supplies, but per device, allowing them to actually, locally generate extremely high currents within millimeters of the device, very similar to how the application works, which is one of its key differentiators. And that allows them to be able to be used for these really high-powered like AI devices. The Sonoma is in fact what has really been growing for them. They have multiple customers on each of their platforms and there is revenue in all three of those segments even within our fiscal year going forward and we're currently committed to meeting the needs of those customers. We have no plans to abandon any of those roadmaps. Their Tahoe system has a strong growth trajectory, likely to see accelerating growth in the upcoming calendar year.

Got you. So thank you very much for the call. Really helpful. Any more color you can provide on the Sonoma growth rate maybe that was or maybe expected?

We're currently maintaining our position on this for now. I want to clarify that we're not trying to be vague. Our goal is to meet with all our customers and develop those relationships further. We will likely provide more information in the future. Generally, we don't provide extensive forecasts for our various product lines due to competitive considerations. However, this is an area both companies are eager to support. Additionally, we have several Tahoe customers inquiring about production volume, indicating strong interest in our mid-power and high-power systems, which have been experiencing growth. We hope to help accelerate that growth.

Okay, One last question. On the flash memory opportunity, I tried getting you on this at the CEO Summit as, is the opportunity in a new fab or is it possibly in an existing fab since it requires higher power than maybe existing systems can handle.

This was probably one of the many questions you asked me that I said I can't answer till I answer for everybody, huh? So I think I can see both. Generally speaking, people think about making big changes when it's time to do a new fab, right? So it's an easier cut to think about the new fabs that are coming online between DRAM and Flash over the next, you know, four, five, six, seven years. However, having spent, you know, 20 years of my life building memory testers, I know every five years I was replacing the memory tester I sold them five years ago, which sounds crazy, but you get to a point where through parallelism or power or capability you can't even use the old tool. And this is true with a lot of ATE systems today. Like, you know, I was part of, you know, HP, Agilent, VeriGY. We were acquired by Avantis. Avantis has the 93,000 platform now that we designed in HP back in the late ‘90s. And today those 93k's are fully compatible. People will have made, have hundreds and hundreds of these on their floor, but they'll buy a new board that goes into that machine each year to meet new capabilities. So in some ways, we built our platform similar, like the FOX system. The FOX, the very first FOX system we built was for flash memory, right? And people that know our history know that at the time it was like we were too small and a little too risky and Along came a couple of companies that said, you know what, we're willing to look the other way on your risk because what you have is novel and unique and I need it. One of them happened to be one of the biggest phone manufacturers in the world for facial recognition. And another one was what now is the biggest silicon photonics company in the world for their platform. That part laid into multiple different customers, multiple different applications, silicon carbide, now GaN, and these other applications where people are interested in using it, but memory is still a core target for us and we think that we can get into that. My install base, those customers have critical technical needs going forward in their roadmap that is going to require them to make changes. The equipment they have will not work. And at that point, we could displace seemingly perfectly good systems in their fabs with new ones that are better. So I think it can be

The greater if it be both.

Me too. I'll take one right now. I'll take, you know, we're excited. This is a big deal to us that this, people don't make this commitment lightly. And all, by the way, there's another one. We're talking about expenses. I'm going to spend some money on this flash development this year. It's expensive, what we're going to be doing. And we're going to build up some WaferPaks, we're going to be doing some technology, we're going to do some prototyping, we're going to put a bunch of manpower on it. We may not make a dime this year and it will be all that OpEx money worth then. Because this, I think this market needs it, I think flash first, then DRAM, and I think we are in a great position architecturally to be able to address that. And so any one of those deals is enormous.

Well it's worthwhile doing this for sure. Alright thanks Gayn, have a good night.

Thanks, Larry.

There are no further questions in queue.

Alright folks thank you very much. I know that we ran a little longer than normal. We really appreciate everyone's time. We'll figure out how to make these as concise as possible as our story is no longer focused on a narrow market or a two and a couple of few customers. So we'll find our way to be able to summarize and make it easier to digest. But we are really excited about this, excited to head into the new year. And we welcome our new friends from Incal. We're throwing a lunch for them in a couple of days, and we're excited to host them to come over and meet the crew. And we'll keep you guys updated on a quarterly basis. Have a good one, and take care.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.