Greetings. Welcome to the Aehr Test Systems Fiscal 2025 Third 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 of PondelWilkinson Investor Relations. You may begin.

Thank you, operator. Good afternoon and welcome to Aehr Test Systems third 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 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, after the market closed, Aehr Test issued a press release announcing its third quarter fiscal 2025 results. That release is available on the company's website at aehr.com. This call is being broadcast live over the Internet for all interested parties and the webcast will be archived on the Investor Relations page of the Aehr 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 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 and other issues, are only valid as of this date and Aehr Test Systems 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 our third quarter fiscal 2025 earnings conference call. Thanks for joining us today. I'll begin with a few opening comments, and then I'd like to spend some time discussing tariffs and Aehr's perspective on the near and long-term implications, as this topic is obviously on everyone's mind. We received many inquiries seeking answers regarding this matter. I'll then provide a brief overview of the quarter’s key highlights and share updates on the primary markets that Aehr targets for semiconductor testing and burn-in, including the significant progress we've made so far this year in new markets. After that, Chris will deliver a detailed review of our financial performance, and finally, we'll open up the floor for your questions. We're pleased to report third-quarter revenue growth and solid bookings and backlog and that we exceeded market financial forecast consensus for both revenue and bottom-line for the quarter. We're particularly excited by the significant progress we've made in expanding into additional key markets and unlocking new opportunities to attract customers and drive revenue growth. Recent wins have helped us meaningfully diversify beyond silicon carbide and into high growth markets like AI processors with our industry-leading wafer level and package part test and burn-in solutions. Okay, so tariffs. Currently, it appears that the actions and announcements from the U.S. Administration regarding tariffs are dominating the news cycle. At this time, we do not believe that the impact of the tariff announcements made by the U.S. Administration last week will significantly affect Aehr directly. However, we're looking at the near-term secondary effects on our current and potential new customers along with the uncertainty this quarter regarding possible pauses or delays in customer orders, shipments, or supply chain delivery delays or disruptions. Our immediate goal is to assess the impact on a customer-by-customer basis and communicate this to them quickly to remove any uncertainty or risk, so that they do not slow down or delay any orders. We already have on hand the material needed for shipments of our wafer level burn-in and package part burn-in systems over the next couple of quarters. For wafer level burn-in systems, it's much longer than that. For consumables, such as our wafer packs for wafer level burn-in and burn-in boards and modules for our packaged part burn-in systems, these are quick turn items with material purchased and built to order. We're already redirecting these materials and looking to drop ship finished goods from our subcontractors, as well as shifting assembly and test of our wafer packs to one of our international locations as needed to minimize tariffs and avoid any possible supply chain disruption. We also have wafer pack aligners on hand to buffer us from any tariff noise for several quarters. For the high-power probers for our FOX-CP for our hard disk drive customer, the probers come from Japan, and we may look to drop ship directly from Japan to this customer so as to not even have to consider the U.S. tariff implication. However, give it a couple of days and we may have a new tariff number with Japan or it may be zero. I provide this detail to help our customers and shareholders understand that we do have a robust supply chain and have put thought into the resiliency of our shipments for customers so they can count on us. Again, we do not believe the impact on margins or demand will be significant for Aehr or on customer demand over time. But the challenge is not being able to control near-term secondary effects on our current and potential new customers, such as possible near-term delays in customer orders or requested delivery dates, given the unknown potential tariff implications on their products or supply chain. I'll be happy to answer any additional questions on tariffs as best I can in the Q&A section. Okay, now on to running our business and to meet the needs of our customers, shareholders, and stakeholders. We have been laser-focused on the initiatives we set out to expand our total addressable markets, diversify our customer base, and develop new products, capabilities, and capacity to grow the business moving forward. I'll cover this in more detail, but we believe that the total available market for these target wafer level and package part burn-in markets we are addressing this year plus the added flash memory wafer level burn-in that we're working on has an addressable market of over $500 million in systems alone, plus another $500 million in consumables and wafer and device handling equipment by 2027. We are excited by the significant progress we've made this year in expanding into new key markets and unlocking new opportunities to attract customers and drive revenue growth, particularly in diversifying our markets and customers beyond our revenue concentration last fiscal year with silicon carbide wafer level burn-in. Silicon carbide wafer level burn-in accounted for over 90% of our business in fiscal 2024. While this year, it's tracking to less than 40%. With artificial intelligence processors burn-in representing over 35% of our business in just the first year. For the third quarter, we had four customers representing over 10% of revenue, and three of these are new customers and markets for Aehr. Wafer level burn-in for AI processors, package part burn-in for qualification and ongoing process monitoring of AI processors, and wafer level burn-in of gallium nitride semiconductors. If you look at bookings, yet another customer and market, hard disk drive components accounted for over 15% of bookings. We are very excited about our expansion into new customers and markets, while at the same time, we believe we're well positioned to continue to grow our business in the silicon carbide wafer level burn-in market. For AI processors during the quarter, we qualified, received orders for, and shipped the world's first wafer level burn-in systems specifically designed for AI processors. Our new high power FOX-CP wafer level burn-in system can test up to nine 300-millimeter AI processor wafers simultaneously. This new customer ordered multiple XP systems and sets of Aehr proprietary WaferPak full wafer contactors for installation at their OSAT/Test House, which is the offshore or Outsourced Assembly and Test House. Aehr has worked with this OSAT/Test House for many years, including working on wafer level burn-in silicon photonics devices and optical sensors on our FOX systems and on package part burn-in of AI processors and ASICs on our Sonoma ultra-high-power test and burn-in systems. Aehr is the only company on the market that offers both the wafer level burn-in system as well as a package part burn-in system for both qualification test and production screening and burn-in of AI processors. Another new market for Aehr is adding the production side of package part burn-in for AI processors in addition to the processor qualification burn-in. We've now shipped multiple Sonoma production burn-in systems this year to a world-leading hyperscaler for production package part burn-in of their AI application-specific processors and expect to complete the installations on this initial order by the end of the current quarter. We've also successfully integrated the Sonoma system from the acquisition of InCal Technology last August into Aehr's engineering and manufacturing operations, which has enabled us to scale our output to two to three times the previous record shipment volume. In addition to AI-related orders and installations for wafer level burn-in and package part burn-in this quarter, Aehr achieved several other key milestones. We expanded into production wafer level burn-in for gallium nitride power semiconductors. We secured our first high-volume production orders for the new wafer level burn-in in hard disk drives. We completed production qualification of our new high-power multi-wafer system for wafer level burn-in of silicon photonics devices used in co-package optics and optical IO devices, and we made significant progress on proof-of-concept work with a leading flash memory supplier on a new wafer level burn-in system for high-volume production of next-generation flash memory devices. Let me expand on each of these for just a moment and then come back to silicon carbide. I believe our most significant achievement so far this year is the successful validation of our new high-power FOX-XP wafer level burn-in system, which can test up to nine 300-millimeter wafers simultaneously with a power output of up to 3,500 watts per wafer. The key lies in delivering 1,000 amps of current to and from each wafer while maintaining precise voltages and thermally controlling these wafers to prevent thermal runaway. We achieve this by running bidirectional logic and memory test patterns on each device, ensuring accurate burn-in conditions and traceability, including reading device IDs and on-wafer temperature sensors for every device. This customer has told us that they're very excited about our system and that no other product on the market has the capability or capacity to test their wafers like our system. They've ordered multiple FOX-XP systems and sets of Aehr proprietary wafer pack contactors and have already completed the first system installation and will complete the installations of all of the systems from this first order this quarter at the customer's OSAT, one of the largest OSATs in the world. As I mentioned, Aehr has worked with this OSAT/Test House for many years, including working on the wafer-level burn-in silicon photonics devices and optical sensors on our FOX systems and on package part burn-in of AI processors and ASICs on our Sonoma ultra-high-power test and burn-in systems. We believe that allowing customers to test and burn in their processors at the wafer level before packaging them into multi-chip arrangements with other processors and memory adds significant value. We're confident that we're not only years ahead in this technology, but we also hold critical IP and patents around the world to safeguard our wafer level burn-in technology and solutions. The cloud accelerator semiconductor market is experiencing explosive growth. UBS estimates that revenues in 2024 will exceed $120 billion, and the market is growing at a cadre of over 30%. These devices are currently burned in almost entirely at the system level, where a failed device during burn-in is significantly more expensive than at the wafer level. It is not just the cost of the advanced packaging that matters, but also the expense of co-packaged memory as well as customers shifting to multiple processors within the same package. An annual capital test budget of 2% to 5% of revenue is typical in the semiconductor testing industry, implying a budget of $3 billion to $9 billion for overall testing in 2024. The potential for a solution that can do test and burn-in screening of devices while still in wafer form is remarkable, and Aehr is the first and only company in the world to demonstrate and successfully achieve this for production burn-in at the wafer level. I'm very proud of our team for this achievement with AI wafer level burn-in. Simultaneously, the finance, R&D, and manufacturing teams did an incredible job integrating InCal technology into Aehr. Within months, they ramped up production to levels that InCal may never have been able to reach to meet the demand from AI processor companies for the qualification and production of their devices. Aehr has shipped more InCal package part burn-in systems in the past nine months than InCal had shipped in the previous three years. Great job to the combined team. Let's keep it up as we ramp these new customers into volume production with these systems. We're also already developing multiple enhancements to increase power, cooling, parallelism, and add automation to meet the needs of the AI processor market in the future. I'm very pleased with the customer feedback on these enhancements so far. We also shipped our first FOX XP high power multi-wafer production system with high voltage to a world-leading gallium nitride power semiconductor supplier this quarter. The system is installed and configured with our fully automated integrated wafer pack aligner, which can test 6-inch and 8-inch wafers and can even be configured for future 12-inch or 300-millimeter GaN wafers. While the system is installed for volume production of GaN devices, it is also configured to test silicon carbide wafers in the same system by simply changing the wafer pack for wafer contactors. GaN is a new and exciting semiconductor technology with high value applications such as automotive power conversion, solar inverters, and solid-state transformers and breakers. We're thrilled to have been selected as the production solution for this company, which is one of the largest suppliers of power and automotive qualified semiconductors in the world. Another exciting market opportunity we're making significant progress on is the hard disk drive market. This quarter, we received orders for multiple FOX-CP single wafer production test and burn-in systems with an integrated high-power wafer prober for the burn-in and stabilization of new devices and hard disk drive heads. We're excited to finally start this production ramp after several years of working with this company on qualification and process development. This order arrived later than we expected. However, the customer is requesting shipment of all the systems as soon as possible and has already requested a forecast for when we can ship additional systems. Lastly, I want to update you on our flash memory proof-of-concept project that we've been working on this year. As noted in earlier calls, we're collaborating with one of the world's leaders in flash memory to demonstrate the capability and cost-effectiveness of our FOX-XP platform for high volume production testing and burn-in of the flash memory wafers. Our goal has been to demonstrate this over the next quarter, and we're on track. We're setting up the test cell and new wafer packs with a high density fine pitch probe head during the upcoming month. This is very exciting as we believe Aehr has the ability to successfully demonstrate how we can achieve a high density, high power, and fully automated test cell, enabling us to advance to the next development phase. That next phase involves collaborating to develop a next-generation test system specifically tailored to meet this customer's needs and future requirements. Stay tuned for more updates on this demonstration and the potential for the NAND wafer level testing and burn-in market. To provide perspective, the NAND market in 2025 is expected to exceed $80 billion according to Yole Group. Again, using the 2% to 5% rule of thumb for the budget for overall testing of semiconductor devices annually translates to a capital and expense budget in 2025 of between $1.6 billion and $4.2 billion. Another way of looking at it is that a 1% yield improvement on the $80 billion market amounts to $800 million. New technologies in NAND are driving new requirements for wafer level burn-in to address the manufacturing and negative yield implications of testing these NAND devices in package or system level test. It's easy to see why the potential for the market for wafer level burn-in for NAND is substantial. Okay. So now let me close with the silicon carbide wafer level burn-in market. The silicon carbide market continues to be a large opportunity for Aehr, and as I noted earlier, we believe we're well positioned to continue to grow our business in this market. Recently, we've noticed some signs of improvement in the utilization rates of our installed base of wafer level burn-in systems for silicon carbide. Demand for silicon carbide remains significantly driven by electric vehicles and has even further strengthened its presence in the EV market due to lower prices and better supply availability. Battery electric vehicles are still expected to be over 30% of all vehicles shipped in 2030 worldwide. Simultaneously, silicon carbide devices are gaining traction in other markets, such as power infrastructure, solar, and various industrial applications. According to market research firm Yole Group, despite a temporary slowdown in battery electric vehicle shipments, the silicon carbide market continues on a robust long-term growth trajectory. Yole projects that the power silicon carbide market will exceed $10 billion by 2029, driven by a strong rebound expected in 2026, along with a compound annual growth rate of nearly 20% from 2024 to 2029. In response to this growing demand, we've expanded our wafer level burn-in offering for silicon carbide to support high voltage testing across up to 18 wafers on a single system, doubling the capacity of our industry-leading nine wafer FOX-XP system. We've already received our first order for this 18 wafer high voltage system as an upgrade to a customer's existing FOX-XP configuration. This enhancement further strengthens our technical and cost advantages for silicon carbide testing and is also highly applicable to high volume production of GaN devices, an important capability for customers working on both types of wide bandgap compound semiconductors. Now here's some more details I mentioned I would say on our available market assumptions. According to market researcher, Verified Market Research, which aligns with Aehr internal forecast based on customer and other data from Yole, UBS, and other market forecasters, the burn-in test systems market for semiconductors is estimated to grow from approximately $750 million in 2024 to over $1.2 billion in 2030, a CAGR of 9%. This is for systems alone, not the consumables such as our wafer packs or handling equipment such as our aligners, probers, or auto loaders for package part burn-in. Historically, semiconductor burn-in consumables are up to three times the annual spending on burn-in systems. By 2027, the burn-in systems total addressable market is forecasted to be $1 billion, and we estimate that just for the new systems purchased in 2026 and 2027, the consumables and handling equipment are at least another $1 billion. In this total addressable market, our AI and high-performance computing processors, other microprocessors, DRAM, flash, optical, and compound semiconductors. DRAM and MPUs are interesting in that the top MPU company and one of the top three DRAM companies make their own burn-in equipment, so this is not included in the system total addressable markets. With the introduction of our new products in compound semiconductors, both wafer level and package for AI and high-performance computing processors, and our target to enter the flash wafer level burn-in market, Aehr addresses over half of this total addressable market. We believe that we can address over $500 million of this total addressable market in 2027 for systems alone. And since Aehr provides turnkey solutions for handling and consumables, we address another $500 million annually for a total of $1 billion total addressable market. The largest portion of this is clearly the AR market, followed by the flash market, with GaN and SiC silicon photonics and hard disk drive optical devices rounding out the total addressable market. Obviously, we're very excited about all of these opportunities for growth. Now let me close it out and hand it over to Chris. Looking ahead, with our $45 million in revenue and $22 million in backlog to date this fiscal year, our customer forecast and our success in adding new markets and customers, we feel very good about our business. We've already surpassed $66 million in combined revenue and orders this fiscal year. Currently, we do not believe that the impact of the tariff announcements made by the U.S. administration this week will significantly affect Aehr directly. However, considering the secondary effects on our current and potential new customers, along with the uncertainty this quarter regarding possible delays or pauses in customer orders, shipments, or supply chain delivery delays, we're temporarily withdrawing our guidance for this fiscal year, which ends May 30, and we'll reassess our guidance policy as clarity develops. We're encouraged by the increasing number of engagements with both current and potential customers, as well as the long-term growth potential across our diverse target markets. Our strategic expansion in the high growth sectors, including artificial intelligence processors, gallium nitride power semiconductors, data storage devices, silicon photonics integrated circuits, and flash memory opens up new opportunities to attract customers and drive revenue growth.

Thank you, Gayn. Before reviewing our financial results, I would like to provide an update on the integration of our InCal acquisition, which closed last July. Our plan to consolidate personnel and manufacturing into Aehr's Fremont facility is progressing well, and we remain on track to complete the integration by the end of this fiscal year on May 30. As part of this effort, we have upgraded various systems and added new cleanrooms to our remodel Fremont headquarters to ensure the infrastructure supports the needs of both organizations. We'll be shutting down the InCal facility no later than the first quarter of fiscal 2026. Since the acquisition, Aehr has committed significant financial and human resources to successfully integrate InCal into our operations. We have completed the migration of InCal's financial, HR, and manufacturing functions into Aehr Systems. In addition, we have finalized the transfer and documentation of all product designs, source code, and work instructions for assembly and testing into Aehr release processes. I want to extend my sincere thanks to both teams for their dedication and outstanding execution throughout this integration. Turning to our Q3 performance, which included a full quarter of the financial results from the InCal acquisition. Our Q3 results exceeded the analyst consensus on both the top and bottom lines. While we faced a challenging environment marked by continued softness in the silicon carbide power semiconductor market, we were encouraged by our success in penetrating the artificial intelligence market, with AI processors burn-in now representing over 35% of our business this year. During the third quarter, we had four customers representing over 10% of total revenue, and two of these customers are new customers targeting the AI market. Revenue for the third quarter totaled $18.3 million, a 142% increase compared to the $7.6 million in Q3 last year. The significant year-over-year revenue growth was driven primarily by the shipments of our new high-power FOX-XP solution for wafer-level production test and burn-in of AI processors delivered to our first AI processor customer, which we announced in December. In addition, we are pleased with the significant progress we've made integrating products from our acquisition of InCal into our product portfolio to address the AI market opportunities. System sales from our Sonoma, Tahoe, and AGCO package part burn-in products made a strong contribution to our third quarter revenue. We believe our strategy to broaden Aehr's offerings and diversify behind silicon carbide applications is beginning to show positive results, both operationally and financially. WaferPak revenues were $5.9 million, accounting for 32% of our total revenue in the third quarter, a decrease from 63% in the same period last year. The company recognized bookings of $24.1 million in the third quarter of fiscal 2025 compared to $9.2 million in the second quarter of fiscal 2025. Our backlog at the end of the quarter was $18.2 million. Since the end of the third quarter of fiscal 2025, we have received $3.6 million in additional bookings. With these recent bookings, our effective backlog now stands at $21.8 million. Non-GAAP gross margin for the third quarter was 42.7% compared to 42.5% in the same period last year. The overall change in gross margin was flat, primarily due to a much higher overall revenue level than in Q3 last year, offset by a less favorable product mix and one-time items. Even though our revenue in the third quarter was much higher than that in the same period last year, our non-GAAP gross margin was lower than expected due to certain one-time charges to our cost of revenue. After we upgraded our ERP from our legacy system to Oracle NetSuite, our new ERP allowed us to account for standard costs in inventory more precisely and revised certain accounting estimates, which resulted in a one-time charge in the third quarter. Additionally, we incurred high manufacturing overhead due to under-absorption as we had lower utilization of our manufacturing capacity due to the renovation of our Fremont manufacturing facilities. Non-GAAP operating expenses in the third quarter were $6.3 million, reflecting a 34% increase from the $4.7 million in Q3 last year. This year-over-year rise is primarily attributed to the inclusion of InCal's operating expenses in our financial results, along with higher legal and professional service fees. We anticipate incurring additional legal expenses in the upcoming quarters, as we strive to protect our intellectual property rights in China and defend against the class action and derivative complaints in the United States, which we believe lack merit. Non-GAAP net income for the third quarter, excluding the impact of stock-based compensation, acquisition-related costs, the fair value adjustment to inventory related to the acquisition, amortization of intangible assets, and the accelerated severance benefits paid to an executive who passed away unexpectedly in December was $2.0 million or $0.07 per diluted share. This compares to a non-GAAP net loss of $888,000 or negative $0.03 per diluted share in the third quarter of fiscal 2024. Turning to our balance sheet. At the end of Q3, our cash, cash equivalents, and restricted cash totaled $31.4 million, down from $35.2 million at the end of Q2. During the quarter, we used $1.6 million in operating cash flows, primarily to pay our suppliers and service providers. We have no debt and continue to invest excess cash in money market funds. In the third quarter, we earned $270,000 in interest income. As Gayn mentioned, considering the secondary effects of the tariff announcements on our recent and potential new customers, along with the uncertainty this quarter regarding possible pauses or delays in customer orders, shipments, or supply chain delivery delays, we are temporarily withdrawing our guidance for our current fiscal 2025 year ending May 30, and we'll reassess our guidance policy as clarity develops. Looking ahead to fiscal 2026, we are encouraged by the growing number of engagements with both current and potential customers, as well as the long-term growth potential across our diverse target markets. Our strategic expansion into high-growth sectors, including artificial intelligence processors, gallium nitride powered semiconductors, data storage devices, silicon photonics integrated circuits, and flash memory opens new opportunities to attract customers and drive revenue growth.

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

This is Tyler on behalf of Christian. Thanks for letting us ask a couple of questions here. So maybe first to start on the tariffs and the uncertainty here. I guess, any color on maybe which end markets you are seeing maybe the most potential impact or most potential uncertainty being caused on the near-term here.

We have prepared a variety of options, and that's a great question. It's not strictly about the market; it sometimes involves customers and different regions. For instance, we have a hard disk drive customer whose systems are headed to a location outside the U.S. This includes a prober that we've worked with a supplier to develop specifically for this need. The companies producing probers are primarily based in Japan and Korea, and they are currently facing tariffs. If the prober were to arrive at the port tomorrow, it would incur a tariff. If it arrives on Friday, it might not. So, I think people are hesitant and considering waiting to see how things unfold. I believe there is a perception that paying a tariff doesn't guarantee a refund. However, we are also exploring tariff drawbacks, which historically allow for recovering a significant portion of paid duties when we import, assemble, and then export items. There are suggestions that the intermediaries involved in this process take a fee. We are addressing that as well. In the meantime, we plan to drop ship the probers directly to that customer after the first one, which is affected by this situation. This is somewhat related to the timing of our fiscal year-end, and we may need to reassess our approach. It’s a tactical concern. After a few days of consideration, Chris and I thought it might be better to allow for another week for things to stabilize before this call. Most of the materials we currently possess are not subject to any tariffs unless shipped to another party that imposes higher tariffs. I went to bed last night thinking Europe might raise their tariffs, but today they announced no changes. It's challenging to navigate these developments, and I don't believe anyone is urgently trying to resolve these issues in the coming weeks considering everyone’s schedules. I feel we can manage this situation. It's also important to keep in mind that the tariffs we face on inbound materials only apply to the materials themselves, and we need to add our markup or margin when shipping. So, a 10% tax on the material isn't equivalent to a 10% increase in the final price. That clarifies our position.

I appreciate that. That's a bunch of really great color. So I guess following up on that, then giving those comments around uncertainty around additional orders and timing of when customers might demand shipments, you had $18 million in backlog exiting the quarter, $22 million effective since then, would it be reasonable or erring on the conservative side, at least a reasonable to think that you probably won't even ship all of the backlog you currently have on hand in the quarter? Or is that not a great way to think about it.

One of the key points is that if we decide not to provide guidance, we genuinely can't offer any. However, I will address your question directly. Some of the backlog will not be shipped this quarter because it involves multiple systems for the hard disk drive customer, and we plan to ship only one, as mentioned last quarter. The current estimate is that we might ship one, possibly a second one this quarter, but not all of them, as some are already scheduled for later. Additionally, we have various customer forecasts for shipments this month or quarter that haven’t been ordered yet, which raises the question of whether those will materialize. We have some materials in hand, and some are on the way. I wish it were simpler, but if it were, I would provide updated guidance. There’s both potential for upside and downside here, and I apologize for not being clearer. It’s important to acknowledge that we missed the target, albeit slightly. It could be very close, potentially shipping next week, which poses a challenge for us as a public company. I wouldn't worry if we were private, but my main concern is ensuring our customers receive their shipments on time. A delay of even one day on May 30 is significant to us as a public entity. What I’m referring to here is mainly timing issues. Customers who are already ordering often take six months to a year to qualify their orders. For instance, we've collaborated with the GaN, hard disk drive, and AI customers for over a year. They are fully qualified and committed. The challenge now is ensuring they receive their equipment on time with minimal duties or tariffs.

All right, I appreciate that, that’s great color. No, let's move on past the tariffs. So as we think about next year in growth, you've diversified your revenue nicely away from silicon carbide maybe at least rank order. It sounds like silicon carbide is expected to continue to recover, we would expect to see growth there. But maybe AI is going to be the primary growth driver, as we look out the next year or two? Just any color kind of rank ordering and where you expect to see the growth from your more diversified end markets going forward.

Yes, we are feeling optimistic about next year. There is clearly evidence that silicon carbide will return to capital equipment growth and increase capacity. Additionally, we are noticing a transition from low-voltage gate testing to high-voltage testing, which we’ve achieved by collaborating with several OEMs and EV suppliers focused on quality for their customers. This may lead existing customers to upgrade their equipment, contributing to WaferPak revenues. We believe we can generate revenue from our current customer base through both WaferPaks and system upgrades, as well as from additional capacity. A few customers who have chosen us have yet to purchase their initial systems because they have postponed some developments, but it appears that, according to Yole, they will begin operating in 2026 and 2027. Our fiscal year has affected some timelines. Regarding GaN, we are quite excited about our progress. We have qualified a significant number of designs for automotive and industrial applications, which are now entering production. We are hopeful about their capacity and growth needs. We are also in discussions with several other customers, including our silicon photonics customer, who is now considering ramping production this year with very high power systems. We upgraded their fleet to accommodate this, which requires new wafer packs and system upgrades. This progress on the silicon photonics side is encouraging. We anticipate growth in package part burn-in qualification due to the emergence of new high-power devices that will drive demand in production burn-in. We have observed our first customer ramping up production with a prominent OSAT, and we have successfully shipped all the systems, completing this quarter. They are starting their initial ramp, and we believe they will require more systems. We are also working on enhancements.

That’s great. All right. That’s all for us, thanks Gayn.

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

Hi, thanks for taking my question. So Gayn, I don't want to ask you a bunch of questions you don't want to answer. Just I guess, first one, just on the balance sheet. I'm curious, AR, your accounts receivable jumped up quite a bit. Is that just from InCal? Is there a change in terms? Could you just talk about what was going on there? Because I saw that positively, inventories actually came down while revenues grew. So I'm just wondering about the receivables seem to jump out. And then I got a follow-up.

Yes. So we also have an unbilled receivable in our receivable balance that we were able to recognize revenue that cannot be yet. But I think by now, we have sent out the invoice at this point.

There were shipments toward the end of the last month of the quarter, which is not unusual. We may have had a special arrangement with one of our customers regarding billing at the final shipment or something similar in the first tool. I wouldn't read too much into this. We have to be sensitive as we have customers listening. We typically require down payments; however, in cases with short lead times, we may work with the customer by billing them 30% initially and then following up with the remainder two weeks later, which is not always the best approach. We aim for balance in these situations. Generally, we want to ensure that customers are invested when placing orders for these systems. But there are no concerns or issues here.

Okay. Regarding the AI processing aspect in burn-in, could you elaborate on the value proposition and provide more details? What needs to be accomplished for this? Has it transitioned from research and development to commercial use? Even though the size and scale of the orders may be comparable to those of silicon carbide for these customers, do you believe it has advanced beyond that? What indicators are you looking for to determine when to begin ramping up production in a sustainable manner?

I understand your question and I'll do my best to answer it while summarizing it as I go. If you're asking whether this is similar to an NPI prototype trial that hasn't really advanced, that's not accurate. We have mentioned before that the customer we’re working with is conducting a burn-in at the system level, which is a late stage in the process, almost at the product level. The issue with system level tests is that they occur late in development, making it challenging to identify processing implications. This requires sophisticated equipment for the burn-in to detect failures. In system level tests, various components like memory and processors coexist, and I need to be cautious about revealing too much because of competitive interests. The customer has indicated that they might disclose more publicly in the future. Burn-in essentially involves applying heat and stress to devices to uncover any early failures without damaging them. The goal is to find the right balance to expedite this process while avoiding damage. Each device has different optimal burn-in temperatures; for instance, flash memory might be best at 85 degrees, DRAM at 105 degrees, and so on. If different components are housed together, it creates a dilemma on the ideal burn-in temperature. Running a processor at the right temperature could damage DRAM, and if you set the environment at a higher temperature suited for one component, others could fail. Usually, systems operate at around room temperature but during burn-in, you're pushing it to much higher temperatures, which could ruin the system as a whole. To mitigate this, you might have to burn devices at much lower temperatures, extending the burn-in time significantly. If we perform the burn-in at the wafer level, we can maintain the optimal temperature for memory and prevent issues, thus reducing overall burn-in time. This is essential because when you later integrate the device into a system, it won't fail. It's a significant advancement. We're currently testing various components in the Sonoma systems, and it’s more effective to handle testing at the wafer level. Until now, this approach was unprecedented. Now, we have the necessary technology and resources to manage testing at the wafer level cost-effectively, providing a viable alternative to traditional system or package-level burn-in tests. And if you're interested in package level burn-in tests, I can offer those through our Sonoma systems. I hope this clarifies things.

It does. What is the stability of the power over that duration? That seems like it would be a critical feature in terms of maintaining a tight tolerance.

Yes, being able to regulate and deliver power to each device on the wafer individually is one of the key advantages. In traditional burn-in systems from our competitors, bulk power supplies are used, providing the same voltages to all devices, which leads to inefficiencies since each device requires a different voltage. The Sonoma system allows us to program the power for each device being tested individually. We can read the device ID, adjust our power settings, and optimize the burn-in process for that specific device. This capability is not commonly found in packaged part burn-in systems, but it's what we offer with Sonoma. We also apply similar principles at the wafer level. There are additional techniques we've implemented that are not publicly disclosed, and we've even filed patents for some of these innovations. Our wafer-level burn-in system includes features that traditional wafer probing environments cannot offer, enabling effective testing of these devices. Interacting with our customers has been rewarding as they often express surprise over our capabilities. For instance, many doubt wafer-level burn-in feasibility because some cores might draw significant current, like 100 amps or more. To work around power supply limitations, you'd typically need to parallel multiple connections. However, this can lead to probe card damage if one device shorts out. Initially, many customers believe our approach is impossible, fearing that shorts during burn-in would ruin their probe cards. Yet, our wafer-level burn-in systems include protective features that prevent such failures. In the nine months we've been developing this AI and discussing wafer-level burn-in, we haven't burned a single pin, which is remarkable. Many are astonished by this. There are some non-intuitive and distinct aspects to our system that we are excited about. It's an exciting market.

All right. Well, listen, that's it for me. I'll jump back in queue. Thanks, Gayn, for the additional color.

Okay. The next question comes from Larry Chlebina with Chlebina Capital. Please proceed.

Hi, Gayn. When was the first AI processor XP implemented? Was that with the auto aligner? When did it start operating at that OSAT?

That's a good question. We had it up and running here first. Those who have visited us know we have these test cell labs, which we are upgrading. We were actually shipping wafers out of our facility here. The first one is now up and running, and we'll have the rest completed this quarter, in the next few weeks.

But it was running at the OSAT, when?

We haven't just always said it's up and running now.

In Q3, we previously only provided disclosure at the end of the year, but I would estimate it to be over 20%.

It's going to be in the Q but that's all right. Gayn, is there any product launch on your flash customer that they're particularly wanting to use your systems on? I know this is an enterprise application. I see these big SSDs coming up later this year that have around 123 terabytes of data capacity, which if you calculate it, each one consumes about a wafer and a half of NAND to fit into that 2.5-inch form factor SSD. Is there a product like that that they are interested in using your system to improve the yields, considering they are stacking a bunch of diodes? Is that the motivation?

I want to clarify that this is the third time we've addressed the topic indirectly, so I need to be cautious about our customers. We've spoken to multiple NAND customers, but not all of them for certain geographical reasons. However, there is a common trend emerging among these customers and in the industry if you pay attention. Overall, revenues are on the rise after being down for the previous two years, but wafer capacity is not increasing. There aren't many new NAND fabs being established, and while capacity utilization may be going up, the density of the bins is increasing. This results in more density per wafer. As this happens, the testing methods will either require more time or increased power to manage it effectively. Additionally, there are various technologies available, some involving stacked layers, which are now reaching hundreds of layers. This can be likened to a high-rise building with a lobby floor containing the logic for the interface, while the floors above store the data. Some might have different views on this, but it applies to a single device. Those devices are then stacked into a package like an SSD. Moreover, in memory technology, the dies are becoming taller, while the footprint in the XY dimensions is becoming smaller, meaning the die count per wafer is increasing. The strategy for gaining density involves making the footprint of the design smaller while increasing its height. However, this poses challenges regarding parallel operation and power, which are critical for our new requirements. Another significant development is in hybrid bonding, which I’m mentioning for the first time on this call. Hybrid bonding involves creating the logic I/O on one wafer and all the data storage on another, then gluing them together with this bonding process. This allows for a smaller and faster lobby floor because it can utilize CMOS technology without needing to create a memory cell. Meanwhile, a different technology can be employed for the memory cells, which might not perform well for I/O speed, allowing us to increase the overall height. Thus, we can enhance the structure by separating the NAND cells from the lobby floor I/O, and this bonding process is akin to TSV bonding used in other technologies.

For the flash memory component of that, right?

There are some technological issues affecting the infrastructure. These represent opportunities because it doesn't involve simply adding new fabs. You might question the rationale behind investing in a lot of new equipment. The key point I want to highlight is that these disruptions can significantly alter your processes, and it's not limited to just one company; it would impact all of them.

I was just looking at one of those SSD drives and the amount of NAND that they consume for a reasonable expectation on sales of those drives, you worked that number backwards and it seems like they would need something like $70 million worth of your equipment, just process those wafers in order to improve the yield that they get as they stack all those dies on top of each other into that small package.

Yes, that was the point I was making in my prepared remarks. There are a few ways to look at this. If you're generating $80 billion a year from NAND sales and the technology is evolving to enhance competitiveness and increase production, what level of investment would that entail? It's worth noting that if you're not necessarily allocating all your budget towards new capital equipment, your testing budget might increase. Therefore, spending $80 million, as you mentioned, is quite reasonable.

It was pretty astounding that one customer, one flash memory customer on one product could require that kind of spend in order to get the yields where they have to get them.

Yes, that was the point I was making in my prepared remarks. I'm not trying to overcomplicate things, but if you are spending $80 billion and increasing your NAND sales by that amount each year while your technology is evolving to enhance your competitiveness and increase your BIBs, what kind of expenditures are you making? It's noteworthy that you might not be allocating all of that budget to new capital equipment; your testing budget could be larger. Therefore, the ability to spend $80 million, as you mentioned, makes complete sense.

Last question real quick. There's a long-term customer of yours that's ramping up on a 3D packaging facility in New Mexico. And they're assembling 3 to 5 chiplets onto a subchip. And I don't know, I think the throughput of that facility eventually will be at least $25 billion worth of product. At what point do you go to that customer and say you're already in that fab on the optical side. At what point do you say, hey, what would you spend if I could improve your yields, some of the things you said earlier, if I could improve your overall yield 3% on those heterogeneous chips. What would they spend to achieve that going forward? I mean, every year, you spend it once. Won't they spend like $300 million to get that capability. I know you'd be testing all the incoming component wafers before they get singulated and put it in the chiplets, but is that a hell of an opportunity for you guys?

I haven't mentioned our systems in New Mexico or confirmed anything specific, as I want to be cautious with potential customers. However, it's clear that someone pursuing those business activities would be of interest to us. We have about six or seven optical customers focused on silicon photonics, with one being our lead customer for several years. We've collaborated with these customers to develop a high-power silicon photonics-based system, which we qualified and shipped for the first time last year. They spent the past year on various engineering trials and are now discussing ramping production. These new optical devices are designed for chip-to-chip or chiplet applications, which is very promising. If we succeed with our current plans, it could lead to additional opportunities with our existing customers or new ones. Just a reminder, our tools primarily focus on wafer level until our recent InCal acquisition. This aligns with semiconductor megatrends expected to reach $1 trillion, where reliability issues are increasingly problematic due to line widths and the complexities of compound semiconductors. These new technologies are being integrated into multi-chip modules and critical devices like automotive applications, data centers, and high-cost AI processors. This situation presents a significant opportunity for pre-packaging burn-in stress testing of these devices. The burn-in market is more promising now than ever, enabling capabilities that weren't possible before. We're consistently acquiring new customers and markets, and I often say that within a year, we'll see more growth. If you know of specific contacts, I have successfully received orders through introductions from shareholders in the past. Thank you.

That would be a big one. All right, thanks for the time.

Okay. Your last person in queue is Charles Tow, Private Investor. Please proceed.

Hi, good morning. Good afternoon. Thanks for taking my question. I think my first question has been asked by Larry. So my second question is, again, if everything is on track, when do you expect to receive mass production orders from the flash memory company you are currently working with?

Yes, that is a good question. We've been focusing on increasing our visibility this year, which can be risky with competitors listening in. We have spent the year developing our low-cost test cell technology centered around the WaferPak carrier. This innovation should lower costs while enabling higher power and density. If we complete this successfully, which we’re aiming for in the next quarter, we intend to partner with the customer for the next step, which involves co-developing a test system for their machine. We anticipate this process will take about a year, although it could take longer. Therefore, we don't expect to see volume orders until the following year. So, we’re about a year away from that, but if I was told that I would be receiving volume orders and generating revenue in our fiscal 2027, which starts in June 2026, I would consider that fantastic.

Yes, how large do you envision the size?

The market is estimated to be $80 billion this year, with a growth rate of about 10% to 20% for revenue. BIBs are seeing a growth of around 40%. Looking ahead two years, the market could reach approximately $100 billion. If we consider the key customers, there are around 5 to 6 significant ones. H1 accounts for about 20%, although that figure might be slightly lower. Their spending is substantial, and the potential cost savings they could achieve is also significant. To optimize their yield, there's a considerable market opportunity. The total available market I've mentioned includes $500 million for tests and another $500 million for consumables. Flash memory could represent at least 10%, if not more, of that overall market.

Okay, thank you.

Okay. I show no further questions in the queue. I'd like to turn the floor back to management for any closing remarks.

Thank you all for joining today. Before we wrap up the call, I want to mention an important personnel update. I am pleased to announce that Didier Wimmers is joining our team as the Executive Vice President of Engineering. He will be taking over for Avi, who, as we announced earlier, passed away unexpectedly last year. Didier is an outstanding addition to Aehr, bringing decades of experience in leading engineering teams in the semi-test sector. He is well-known in the ATE space and previously led Schlumberger ATE for many years. He also managed the engineering team at FormFactor, one of the largest semiconductor test probe card companies globally. I have had the opportunity to work with FormFactor for many years in my memory experience, and that is where I first met Didier, so I’ve known him for almost 20 years. He is an exceptional leader with extensive knowledge in ATE and wafer probing, making him a fantastic manager. He has a unique enthusiasm for the field, and we are thrilled to have him on our team, especially with his background in ATE system-level testing and burn-in systems. Furthermore, if any of you are in the Bay Area and would like to visit, we can arrange something. Our facility renovation is nearing completion, and we are about a month away from being finished. The employees are excited about the general remodel we've done, and we have also significantly upgraded our manufacturing area and clean room labs. These improvements will enhance our manufacturing capacity for our new packaged part systems and WaferPaks, which will be consolidated here in the next few months, likely around Q1 or this summer. I appreciate all the encouragement I've received during these challenging times. Many are excited about our projects as we navigate the current market conditions. As always, I believe that this too shall pass. Thank you for your support, and we look forward to speaking with you next quarter.

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