Greetings. Welcome to the Aehr Test Systems Fiscal 2025 First Quarter 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’ First Quarter Fiscal 2025 Financial Results Conference Call. With me on today's call are Aehr Test Systems President and Chief Executive Officer, Gayn Erickson, and CFO, Chris Siu. Before I turn the call over to Gayn and Chris, I'd like to cover a few quick items this afternoon after the market closed. Aehr Test issued a press release announcing its first quarter fiscal 2025 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 Aehr's website. I'd like to remind everyone that on today's call, management will be making forward-looking statements today that are based on current information and estimates and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. These factors that may cause results to differ materially from those in the forward-looking statements are discussed in the company's most recent periodic and current reports filed with the SEC. 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 I'd like to turn the conference call over to Gayn Erickson, President and CEO.

Thanks Jim. Good afternoon everyone and welcome to our first quarter fiscal 2025 earnings conference call. Thanks for joining us today. Just as a heads up, we do these live and I managed to have a cough with a little bit of a tickle, so I don’t think I'm going to be able to get through all of this without coughing, but if I'm good I'll hit the mute button and you won't catch them, but I apologize if I cough in the middle here. I'd like to start with a quick summary of the highlights of the quarter and spend some time giving an update on what we're seeing across the key markets, areas addressing semiconductor test and burn-in, including increasing traction in some new markets. I also plan to spend a little time on our latest expansion in the burn-in market with our acquisition of Incal Technology this last quarter. Then Chris will go over the financials in more detail and after that we'll open up the lines to take your questions. We finished the first quarter with revenue and non-GAAP net income ahead of consensus estimates and are off to a good start to our fiscal year. Silicon carbide wafer level burn-in test systems and full wafer contactors are poised to be a key contributor to revenue this year. But we're also forecasting material bookings and revenue contributions from several other markets this fiscal year, as we're successfully executing on our strategy to expand our test and burn-in products into other large and fast growing markets such as artificial intelligence processors, gallium nitride power semiconductors, hard disk drive components, and flash memory devices. My plan is to cover each of these markets beginning with the wafer level test and burn-in for silicon carbide devices. We've been seeing a stabilization and increasingly positive discussions within the silicon carbide power semiconductor market over the past quarter. The silicon carbide market continues to feel like a typical new technology adoption cycle, which often starts with early enthusiasm and rapid growth projections from early adopters, followed by a period of adjustment and slower growth, and a bottoming of that growth before higher growth resumes to new highs. Electric vehicle suppliers are clearly moving towards silicon carbide and integrated modules, combining silicon carbide MOSFETs into single packages to meet the industry's power, efficiency, and cost-effectiveness demands. Some EV suppliers are shifting to integrated modules that contain up to 32 or more devices in a three-phase inverter module. Due to the need for extensive testing and burn-in of these devices to ensure reliability for mission-critical applications such as EVs, the benefits of conducting the screening at the wafer level before integrating them into modules are very clear. The process improves yields, reduces costs, and this is driving demand for wafer level burn-in, an area where Aehr Test stands as the low-cost leader with a proven solution for this critical testing. In recent weeks, Aehr has presented at several industry shows, including the PowerUp Conference in Italy three weeks ago, as well as the ISES Power Semiconductor and the ICSCRM conferences in the US over the past two weeks. The overall message from these conferences is that EV manufacturers are standardizing on modules with some even moving towards entire integrated inverter systems supplied by the semiconductor companies themselves instead of the traditional tier 1 suppliers of the past who served as a middleman. The key takeaway from these trade conferences, as well as conversations with EVs and auto OEMs, is the critical importance of the testing and burn-in process to eliminate early life failures that would otherwise occur once these devices are integrated into inverters or full drive units in electric vehicles. Silicon carbide suppliers have varying opinions and standards when it comes to quality, leading to significant shifts in market share as some suppliers struggle to meet the integration and quality demands of EV manufacturers. For Aehr, this presents a positive opportunity as the market shifts towards suppliers that are capable of delivering integrated systems and high-quality products. We're making steady progress on our previously announced benchmarks and engagements with new silicon carbide device and module suppliers. We're confident that we will add several new silicon carbide customers this year, establishing our solution as their tool of record for volume production. Additionally, silicon carbide is gaining traction in applications beyond electric vehicles, such as solar, industrial, and data centers, which will expand our addressable markets. We're highly optimistic about our silicon carbide business and expect it to gain momentum over the next few quarters. Our silicon carbide customers are forecasting capacity expansion needs in calendar 2025, with several anticipating purchases of one or two systems in early 2025, followed by production volumes in the second half of the year and ramping further into 2026. Separate from incremental system capacity increases, we continue to see strong demand for our Fox WaferPak full wafer contactors for silicon carbide and other markets for our installed base of FOX-XP and FOX-NP wafer level test and burn-in systems, driven by a record number of new device designs started this past quarter. These designs are expected to lead to additional WaferPak purchases for engineering qualification, as well as to volume production orders as they advance to production. We had another solid quarter for WaferPak sales generating over $12 million in revenue from WaferPaks alone in the first quarter. Now let me move on and discuss our progress with test and burn-in in gallium nitride power semiconductors. We're now in negotiations with our first gallium nitride customer, or GaN customer, for volume production wafer level test and burn-in of their devices. We've been working closely with them, and over the past year, they have purchased and we have delivered a significant number of WaferPaks to successfully qualify a wide range of GaN device types aimed at multiple different markets, including consumer, industrial, and automotive. In addition, we had increased discussions and engagements with multiple potential new GaN suppliers about their needs. The data collected from multiple GaN companies shows that these devices will need burn-in to meet the requirements of many of the markets they're targeted for, particularly industrial and automotive applications. We believe GaN is a significant up-and-coming technology for power semiconductors. With a forecasted compound annual growth rate of more than 40%, to over $2 billion in GaN devices sold annually by 2029, GaN has the potential to be a significant market opportunity for Aehr's wafer level solutions. It's also interesting to note that several of our current and prospective customers value the fact that Aehr can provide proven test and burn-in capabilities that successfully address both silicon carbide and the GaN devices. The testing of each is quite different; however, we can address the requirements of each market with the unique proprietary features and capabilities in the same system on our FOX platform. We continue to make investments in our platform with new capabilities and enhancements that enable us to provide value to these customers, expand our markets, and maintain our leadership position as a low-cost proven solution. So moving on to the artificial intelligence processor market. Last quarter we announced that an AI accelerator company committed to evaluating our FOX solution for wafer level test and burn-in of high-power processors. This evaluation is very far along at our Fremont facility where multiple wafers are being tested using our proprietary WaferPaks and new high-power FOX-XP and NP systems which provide up to 3,500 watts of power delivery and thermal control per wafer. We are delivering over 2,000 amperes of current to a single 300 millimeter wafer, allowing us to burn in a large number of processors in parallel with our proprietary test modes. This company is working closely with us to be able to use the FOX-XP system for wafer level production burn-in of their processors, which would prove to be more cost-effective and significantly more scalable than doing the screening later in their manufacturing process. We think this presents a significant opportunity to displace the current package and system level tests for AI processes 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. This evaluation is progressing very well, and once we demonstrate successful wafer level test results and throughput, we anticipate they will adopt our high-power FOX-XP systems for production of their next generation AI processors beginning this fiscal year. As we've noted before, based on the production forecast, we believe they could potentially be more than a 10% customer for us this fiscal year alone. Turning to our acquisition of Incal. During the quarter, we announced and completed our acquisition of Incal Technology, expanding our product portfolio to include Incal's highly acclaimed packaged part reliability burn-in and test solutions, particularly its ultra-high power capabilities for AI processors, GPUs, and high-performance computing processors. These advanced high-power capabilities, combined with Aehr's industry-leading lineup of wafer-level test and reliability solutions, position us strongly to capitalize on the significant and rapidly growing opportunities in the AI Semiconductor market. This acquisition greatly expands our addressable market, enabling us to provide a comprehensive turnkey solution for reliability and testing from engineering to high volume production in the rapidly growing AI semiconductor market. We're excited to bring the combined strengths of both companies to market as we begin engaging with Incal's customers, including many AI industry leaders. Customer feedback on this acquisition has been overwhelmingly positive, with several meetings held over the past few weeks where some customers indicated increased forecasts for engineering qualification, as well as for volume production. Last month, we were pleased to announce the first volume production orders for Incal's new Sonoma ultra-high-power semiconductor test and burn-in solution for testing AI processors. These orders were placed by a large-scale data center hyperscaler that provides computing power and storage capacity to millions of users worldwide today. We've also had many customers express interest in Incal's medium power Tahoe system, which is being used today across multiple market applications for both qualification and volume production. This includes multiple medical companies that use the Tahoe system's special capabilities for production test and burn-in of devices in critical medical device applications. This speaks to the special capabilities of these systems and the quality of their hardware and software to meet the critical traceability requirements of the US Food and Drug Administration. The integration with Incal is progressing well, and employees from both companies have been very positive about the combination. We have already shipped several systems since the acquisition, and with Incal being just down the road from us, we plan to consolidate personnel and manufacturing into Aehr’s much larger Fremont facility by the end of the fiscal year. As we've mentioned before, we're underway with an upgrade and remodeling of our Fremont headquarters this year, and are ensuring our facility infrastructure meets the needs of both companies. So turning to the hard disk drive market, last quarter we also announced a key customer in the hard disk drive space that is now forecasting a production ramp up starting this fiscal year for a new high-volume data storage device application. This customer is finalizing their capacity requirements and we expect this ramp to drive orders for multiple FOX-CP production systems and WaferPak contactors, with shipments likely occurring in the second half of this fiscal year. As we've noted before, they could even be a 10% customer for us as well. As some of you may recall, this is a major customer that we announced in 2019 pre-COVID that purchased our FOX-CP, our single wafer test and burn-in solution for wafer level test and burn-in for their devices in this very high-volume application for the enterprise and data center market. We see the data storage market along with various devices supporting the global 5G expansion as new growth opportunities for our systems, as these markets require devices with exceptionally high levels of quality and long-term reliability. And lastly, let me talk about the NAND Flash Memory Market. We're excited about the ongoing progress of our benchmark with a leading flash memory manufacturer we announced last quarter. This benchmark is aimed at assessing the potential of our FOX-XP solution for wafer level test and burn-in of their flash memory devices. This evaluation focuses on providing 100% test and burn-in for devices intended for high-reliability applications such as enterprise storage. We're currently developing a new high-pin count fine pitch WaferPak that can support flash memory requirements but can also support DRAM testing, should customers choose to pursue DRAM burn-in in the future. Our objective remains to complete the proof-of-concept by the end of this fiscal year, positioning us to secure a commitment from this customer to develop a production test cell with the potential to contribute to revenue in our fiscal 2026, which begins next June. As I've noted before, we believe this is the front end of an exciting and potentially enormous opportunity for our solutions and we see the NAND flash market as a key market opportunity with long-term potential to also move into DRAM wafer level test and burn-in. With all these customer engagements, market opportunities and the products to address them, we're very optimistic about the year ahead, and we are reaffirming our financial guidance for revenue growth and profitability for the year. With that, let me turn it over to Chris before we open up the line for questions.

Thank you, Gayn. Before I turn to a review of our financial results, I'd like to note that over the past 12 months, Aehr has invested financial and human resources in improving our own infrastructure to support the continued growth of our business. We recently went live with a new enterprise resource planning system in September that will provide more sophisticated functionalities and capabilities to support decision-making and compliance. We expanded our policies and procedures in various functions to provide more internal control and structure. We have made improvements in our supply chain and engaged with contract manufacturers that offer more value-added quality components and services to support our growth. I would like to thank our teams for their dedication and strong execution. With a more robust infrastructure in place, we're more ready than ever to support both our organic and inorganic growth. Also, as Gayn noted, the integration of our Incal acquisition, which closed on July 31, is progressing well. Our plan is to consolidate personnel and manufacturing into Aehr's Fremont facility by the end of the fiscal year, with the upgrade and remodeling of our Fremont headquarters underway. We are ensuring our facility infrastructure meets the needs of both companies. Now turning to our Q1 performance, which included one month of financial results from the Incal acquisition. Our Q1 results exceeded analysts' consensus on both the top and bottom lines. Under the current challenging market and macroeconomic environment, first quarter revenue was $13.1 million, down 36% from $20.6 million in Q1 last year. Demand for our WaferPaks contributed to the majority of our total revenue in the first quarter. WaferPak revenues came in at $12.1 million and accounted for 92% of our total revenue in the first quarter, significantly higher than 55% of the prior year's first quarter revenue. WaferPak revenues continue to represent a significant recurring revenue stream for our business. As our customers continue to utilize the available installed base of FOX-XP systems for new customer design wins, and purchase additional new WaferPaks from Aehr to test and burn-in these new devices. Non-GAAP gross margin for the first quarter came in at 54.7% compared to 48.7% year-over-year. The increase in non-GAAP gross margin was primarily due to a favorable product mix of higher margin WaferPaks. Non-GAAP operating expenses in the first quarter were $5.5 million, essentially flat compared to $5.4 million in Q1 last year. We incurred income tax expense in Q1 and our effective tax rate was 18.9%. Non-GAAP net income for the first quarter, which excludes the impact of stock-based compensation, acquisition-related costs and amortization of intangible assets acquired through the Incal acquisition was $2.2 million or $0.07 per diluted share for the first quarter compared to non-GAAP net income of $5.2 million or $0.18 per diluted share in the first quarter of fiscal 2024. Our backlog as of Q1 was $16.6 million. Now turning to our cash flows and the balance sheet. We generated $2.4 million in operating cash flows in Q1. Our cash, cash equivalents and restricted cash were $40.8 million at the end of Q1, down from $49.3 million at the end of Q4 last year, resulting from the $10.6 million of our cash on hand used to fund the acquisition of Incal technology during the quarter. We have 0 debt and continue to invest our excess cash in money market funds. Interest income earned during this high-interest rate environment was $681,000 in the first quarter, up 17% from the second quarter last year. Our previous S3 registration statement, which was filed in September 2021, expired recently. Since we did not sell any shares through the ATM offering during the open trading window in August, about $42.7 million of ATM debt could have been sold under the previous S3 was not utilized. As part of our good corporate governance practices, we plan to file a new S3 with the Securities and Exchange Commission soon to support potential future financing needs. Once approved, the new S3 self-filing will be good for three years. Now turning to our outlook for the current fiscal 2025 that ends on May 30, 2025. As Gayn mentioned, we're reaffirming our previously provided guidance for the fiscal year of total revenue of at least $70 million and net profit before taxes of at least 10% of revenue. We expect approximately 85% of our forecasted annual revenue to come from wafer level burn-in and around 15% from packaged part burn-in driven by our acquisition of Incal. Lastly, looking at the Investor Relations calendar, Aehr Test will meet with investors at the LD Micro Main Event in Los Angeles on Tuesday, October 29, and then the following month, we will participate in the Craig-Hallum Alpha Conference in New York on Tuesday, November 19. Then on Tuesday, December 17, we are heading back to New York City to attend the NYC Summit. After the New Year, we participate virtually at the Needham Growth Conference on Thursday, January 16, 2025. We hope to see some of you at these conferences. This concludes our prepared remarks. We're now ready to take your questions.

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

Hi. This is Christian. Gayn, can you provide additional commentary on the silicon carbide, especially regarding the two additional customers this year? Are these customers ones you've been working with in the past? And alongside that, can you give us an idea of how you would anticipate that ramping in the near term and then over time? I mean, could they become as material as your current largest customer in silicon carbide?

Okay. Sure. Yes, it's actually some of the same story from some of the folks that we anticipated would have bought their first systems last spring, but the ramps and decision timelines have pushed. So I'd say 2 or 3 of those are actually sort of the same guys that are just kind of a year later. But there are also 2, I think in our forecast that are highly likely to occur that were not anticipated last year and have come online over the last three to six months, engaged in paper benchmarks and other financial considerations that are looking very good. So I wouldn't ask you to go and say I'm going to win six new customers, but there is the potential for it. The interesting thing is what it feels like from probably their end markets; everybody seems to be talking about putting like first tools in place somewhere between the end of this year to maybe spring time frame to around May, kind of within our fiscal year, which we think that wind feels like it could be one or two systems. And then they ramp into the fall based upon a number of the EV data center, even maybe some potential solar wins that are driving capacity by that time. That aligns with the physical buildings. One of the things that went on a year ago is there was excitement around how fast everything would be adopted. I see a land of dirt, and that building is not going to ship MOSFETs next year. I don't know what people are thinking, but it's too aggressive. Now the forecast seems to align with the physical buildings with the OEMs describing which cars they're going into, and they are still forecasting those cars moving forward. And this includes OEMs that include China, other Asian markets, Korea, the US, and particularly European suppliers. So I hope that helps to explain it.

I guess it still wasn't clear to me about five or six potential customers, can you provide any real color on that?

Yes, the size. You're right. I forgot to say that. I didn’t actually mean to drop that. So I would say one of the things that – and you heard it in my prepared remarks, we have tested enough wafers. I mean we've tested more silicon carbide customers' wafers than anyone by far to where we have a huge cross-section of data, and we just simply make the statement that if you want to do automotive quality down to sub-part per million failure rates of these things, you need to do an extended burn-in, not just a simple screen that's measured in hours. And I would say that each of the customers we're talking to right now, that's what they're saying. They're all referring to these extended multi-hour burn-in times, anywhere from six to 12 hours, and even up to 24 hours initially. Our burn-in times would be consistent with the automotive specifications and have been reiterated by the OEMs as a critical requirement. So with that, you can do the same modeling that we did before, which is, okay, it's a wafer fab. It has 4,000 wafer starts per week, let's say, and you multiply it by the burn-in time with 18 wafers. These are customers that have the potential to buy significant volumes perhaps even as big as our biggest customer to begin with. We also believe that our largest customer is doing extremely well in the market and is going to grow substantially, both in capacity and design wins over the next several years. So they seem to be doing very well in the market.

On the AI processor opportunity, I know last quarter, you highlighted that this is not short-term, but can you provide some color there given that a 10% customer is significant, but that only translates to around $7 million worth of sales? What is your outlook on that opportunity?

Yes. So we can track the units. We understand the test time. We know it's 100% burn-in. We can track failures and see what's going on, and there are some interesting tricks being discussed there. So the data is all supporting the capability and feasibility of doing wafer-level burn-in. We can now see through the Incal acquisition where we are testing a large number of AI processors. You can see what they're testing and why they're testing it. No one's getting out of burn-in of AI processors anytime soon. We haven't shared more specific customer details yet; however, we did simply say it's not NVIDIA because it would be unfair to imply that. But it’s a revenue-generating AI processor company today. It's currently different from any of Incal’s customers. That doesn't help you much because I still haven’t disclosed who they are either. But we've actually had one conversation with one of the Incal customers currently testing AI processors on their systems. They leaned forward and were very interested to learn more about our wafer-level burn-in, which is not surprising to us. We think that there will be a mix, and we’re not picking sides. There are advantages to moving AI processors and ultimately DRAM to wafer level, but there are also challenges depending on customer and test modes. We can serve them with the package part burn-in capabilities of Incal. Our entire strategy has been focused on the massive increase in semiconductors, many of which are becoming less reliable, showing up in more applications where reliability is important. We have a front row seat to this shift and we see huge opportunities ahead.

Thank you. No further questions.

Okay, thanks. Operator? We caught him sleeping, hello?

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

Hi. Thanks for taking the questions, Gayn and Chris. I appreciate the clarity. Chris, thanks for the breakdown for the year. Regarding the Aehr business, I haven’t seen any press release wins previously, and I see that you did on the WaferPak that flowed through this quarter. However, in the $16 million of backlog, could you provide any further detail on the contribution of that mix? I understand there haven’t been any press releases to give an idea of what that constitutes.

I will pass on that for now. I understand your question. Notably, this is the first quarter in eight quarters where we didn’t provide the effective backlog. We faced challenges with that. The only press release we issued this quarter concerned the Sonoma production system, which we defined as six systems. However, we felt that disclosing the backlog details could suggest that a large portion was attributed to that, so we chose not to reveal it to avoid giving competitors any data. I apologize for that, but I can share that a significant portion of the backlog comes from Incal, which has a strong forecast and usually a six-month lead time. Everything for this quarter is accounted for in the backlog, with some of next quarter's already included for them, whereas Aehr usually operates with much shorter lead times. This leads to less visibility, and while they might be in a better position than us, customers do appreciate our shorter lead times.

Got it. That’s helpful. In the current quarter, do you see a move towards a more balanced mix with respect to system revenue, leaving Incal aside?

Yes, for sure. Yes, and there is a shift towards non-SiC systems too, which is pretty exciting. We have always been about silicon carbide, but we are also achieving traction in other markets.

What’s your attach rate on the automated aligners with the systems? Do you see that as increasing?

We were discussing that today. It's still a mix. Customers are forecasting systems with manual aligners. I personally prefer the automated aligner, but it costs a little more. You can have an automated aligner that is offline to feed multiple chambers, or you can have an automated aligner integrated with the system. Several customers are forecasting fully integrated aligners for light-out operations. By contrast to two years ago when it was all manual, I feel that more than half would shift to automated aligners but still have some customers that are inquiring about manual aligners.

Got it. And I know I’m asking a lot here, but what is the mix for your silicon carbide visibility or expectations between 150 millimeter versus 200 millimeter?

We have a lot of 200-millimeter wafers that we're testing today. Anyone making a 200-millimeter silicon carbide wafer has been tested in this facility, most likely on our equipment. Our data seems consistent with what's out there; 200-millimeter wafers are coming out. However, the dominant is still the 150-millimeter wafers. We think the 200-millimeter will become more common, particularly in 2025. From our system's perspective, we can test all sizes of wafers, and the WaferPak can work with any of them. We can design for any of the wafer sizes, so it’s not a critical issue for us.

Historically, new customers have tended to purchase a FOX-NP for evaluation before switching over to the XP. We haven’t seen many NPs leave the docks. So what are your expectations on the ramp of these new customers, both in silicon carbide and in other applications?

I think four of the next five customers start with XPs. They are skipping the NP in some cases. I could be wrong, but they co-exist. Yes, and Vernon has some quotes out to customers stating that people are choosing to go right to an XP.

Is that because you've been testing their wafers in-house, leading to greater comfort around the process?

Both, honestly. We're testing their wafers, and some of those customers, we've been testing for a long time. We've done full characterization and process control. So they kind of skip ahead and say, let’s go, we know we’re ready. The level of comfort has a lot to do with it.

Hi, Gayn. How are you, sir?

I’m good sir. Congratulations on all the excitement in your outlook. I had a quick question. I was looking at last quarter's release, and you always point out a customer or a large customer of ours without mentioning names. There was this sentence regarding optical I/O or co-packaged optics for companies like NVIDIA, AMD, and Intel that have had discussions. You usually don’t reference names like that and haven’t in years. Can you expound on that? Is that from the new acquisition of Incal or what? The context is that silicon photonics is more than just integrating a laser onto a piece of silicon. It involves building the entire photonics engine for communication. Companies like IBM and Intel have been at this for 20 to 30 years because silicon or electrical transmission can only go so fast. We have reached a point where there is a bandwidth limitation, and the increase in demand for capacity necessitates optical communication, which has been a long-held desire in the industry. We are now seeing roadmaps where major players like Intel, AMD, and NVIDIA are discussing optical I/O for chip-to-chip communication. I’m not suggesting they are our direct customers, but they are significant players. We view this as an exciting opportunity, and based on the direction of AI and optical market adoption, we are ready to capitalize on that shift.

Thank you, sir.

It looks like we have no further questions in queue. I would like to turn it back to management for closing remarks.

Folks, thank you very much. I really appreciate it for people joining in. As always, if you're in the vicinity, we invite you to come by. It’s a little hectic around here right now as we’re doing some construction and upgrades, but we still love to host you. If not, we may see you at one of the trade shows or investor conferences, and we look forward to updating you on the quarter at next quarter’s event. Take care.

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