Earnings Call Transcript - AEHR Q4 2022

Operator, Operator

Good day, and welcome to the Aehr Test Systems Fiscal 2022 Fourth Quarter and Full Year Financial Results Conference Call. All participants will be in a listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Jim Byers of MKR Investor Relations. Please go ahead.

Jim Byers, Investor Relations

Thank you, operator. Good afternoon, and welcome to Aehr Test Systems' fiscal 2022 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, Ken Spink. Before I turn the call over to you Ken and Gayn, I'd like to cover a few quick items. This afternoon right after market closed Aehr Test issued a press release announcing its fiscal 2022 fourth quarter and full year results. That release is available on the company's website at aehr.com. This call is being broadcast live over the internet for all interested parties and the webcast will be archived on the investor relations page of the company's website. And 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 from the forward-looking statements are discussed in the company's most recent periodic and current reports filed with the SEC. These forward-looking statements, including guidance provided during today's call are only valid as of this date and Aehr Test Systems undertakes no obligation to update the forward-looking statements. And now with that said, I'd like to turn the call over to Gayn Erickson, President and Chief Executive Officer.

Gayn Erickson, CEO

Thanks, Jim. Good afternoon everyone and welcome to our fiscal 2022 fourth quarter and full year earnings conference call. Thank you for joining us today. Let’s start with a quick summary of the highlights of the quarter and fiscal year and the momentum we're experiencing in the semiconductor wafer level test and burn-in markets. And then Ken will go over the financials in detail. After that, we'll open up the lines to take your questions. We're pleased to report very strong growth for fiscal 2022 with record revenue for both the fourth quarter and full year. Total revenue for fiscal 2022 was $50.8 million, our highest annual revenue on record and more than three times last year's revenue. We also had record bookings for the year at $60.2 million. Importantly, we're seeing significant leverage in our operating model, as evidenced by the strong profit for the fiscal year. We also improved our balance sheet significantly with our year ending cash position of $31.5 million and no debt. Let me go ahead and start and talk about the wafer level test and burn-in markets, especially for silicon carbide for electric vehicles, where a lot of excitement is happening. Our strong revenue growth in fiscal 2022 was driven by the demand for our wafer level test and burn-in solutions, particularly for wafer level stress and stabilization of silicon carbide devices for use directly in the electric vehicle market. The silicon carbide market for electric vehicles and its supporting infrastructure requirements are growing at a tremendous rate with Canaccord Genuity estimating that wafer capacity will increase from 150,000 6-inch wafers in 2020 to over 4 million 6-inch equivalent wafers in 2030 to meet the electric vehicle market alone. This represents growth of over 25 times the wafer starts just for electric vehicles. They also forecast another 4 million 6-inch equivalent wafers to address other markets, such as industrial and solar power conversion. Our lead customer for silicon carbide wafer level burn-in made significant investments in their silicon carbide production throughout this past fiscal year. Today we're excited to announce that we received $12.8 million in new orders from them for multiple FOX-XP systems, a high-volume production wafer pack aligner and a small number of WaferPAK full wafer contactors to meet their increased production capacity needs for silicon carbide-based power semiconductors for the electric vehicle market. All of this is expected to ship by the end of our fiscal third quarter ending February of 2023. This adds to the backlog of systems that we're shipping to them this fiscal quarter. In addition to the system capacity order, we expect significant subsequent orders for wafer packs needed for the system orders announced today, and they will ship at approximately the same time as the systems. We have continued to optimize the shipment and installation processes of our FOX-XP systems, with the last system shipped to them installed and released fully into production within eight days after we shipped it out of our factory, and that includes international shipping. We're excited to see them continue their ramp, and we expect significant additional system and wafer pack purchases from them over the next several years and to the end of the decade, as they strive to be a market-leading supplier of silicon carbide devices. Aehr Test provides a highly unique and cost-effective solution for applying the stress test across every device on an entire wafer before they are singulated into packages or multi-chip modules. This allows our customers to burn-in every single device at a lower cost than they could in any other form due to our ability to contact thousands of devices on a single wafer and test 18 wafers in a single system with our FOX-XP multi-wafer test and burn-in system and proprietary FOX Full Wafer Contact WaferPAKs. Silicon carbide-based devices such as MOSFETs, which stands for Metal Oxide Semiconductor Field Effect Transistors, are extremely efficient, rugged, and reliable semiconductors that are used in power conversion to charge batteries and in battery electric vehicles as well as in engine controller traction inverters that drive the electric engines in EVs. Industry-leading semiconductor suppliers like our lead silicon carbide customer tout key differentiators of silicon carbide over the silicon-based IGBTs, which are insulated gate bipolar transistors that include higher system-level efficiency due to greater power density, lower power loss, higher operating frequency, and increased temperature operation. This translates into a higher driving range on a single charge, smaller battery sizes for traction inverters, and faster charging times for onboard chargers. These silicon carbide-based traction inverters were first used by Tesla in their Model 3 electric vehicle sedan. Tesla then converted all their electric vehicle engine controller traction inverters from silicon-based to silicon carbide-based MOSFETs. Forecasters like Canaccord Genuity, Yield Development, and Exawatt believe that most traction inverters will be silicon carbide-based within the next several years. One of the biggest concerns of current and prospective electric car buyers is range anxiety—the fear of running out of energy before reaching a charging station. As some of you may have seen, just recently, an all-electric Mercedes Benz drove 747 miles without recharging, significantly outperforming every electric vehicle on the market today. This ultra-long-range electric car called the Vision EQXX was sponsored by ON Semiconductor, and it highlights the significant progress being made to address these concerns with the use of silicon carbide traction inverters among other features. Silicon carbide MOSFETs are tested to ensure they meet technical performance and specifications at wafer level before the devices are singulated and then again in package or multi-chip module form before they're shipped to customers. However, the extrinsic failure rate or the early life failure rate of silicon carbide is much too high for mission-critical applications such as the traction inverters or even the onboard chargers of the EVs. As such, all silicon carbide MOSFET suppliers apply what is known as a stress test or burn-in test to every device to induce early life failures within hours, rather than years, to weed out the devices that would otherwise fail in vehicles. We are currently engaged in discussions with most other current and future silicon carbide suppliers. The major silicon carbide companies expect that most EV traction inverters will move to multi-chip modules. As such, they have told us that they must move to wafer level stress and burn-in to remove the extrinsic failures before they put these known good dies into multi-die modules to meet their cost, yield, and reliability goals for these modules. Aehr's unique low-cost multi-wafer level test and burn-in solution provides the test electronics and device contactor technology that enables contact to 100% of all devices on a single wafer and the handling and alignment equipment to provide a total turnkey single vendor solution to meet the critical test and stress requirements. Our benchmarks and evaluations with prospective new silicon carbide customers continue with very good momentum. We've recently completed a wafer stress benchmark with yet another large supplier of silicon carbide, with excellent results. They have told us that the FOX platform is the only solution that can scale to meet the production capacity needed to address the silicon carbide device growth, particularly for electric vehicle applications. This is in addition to our previously announced engagement with another large silicon carbide supplier, with whom we've been working closely over the last year to correlate and qualify the FOX system to displace their current production reliability screening test and burn-in systems. The results of that benchmark also met a key milestone this last quarter, and we believe that we will successfully complete their correlation process over the coming months, which will allow them to move forward with our FOX solution. We expect both of these companies to implement the FOX platform solution into their manufacturing production flow. In addition to the benchmarks with these two large silicon carbide companies, we have been approached by several more silicon carbide suppliers to evaluate our FOX-XP systems to meet their production needs for traction inverters, onboard chargers for electric vehicles, and also for other applications such as electric commuter train engine controllers, photovoltaic power conversion, and other industrial applications. As a result of all these positive evaluations, we believe that we will receive orders from at least several new silicon carbide customers and begin shipping systems to meet their production capacity by the end of our current fiscal year that ends May 31, 2023. With major production releases and ramps and many new electric vehicles from every automotive supplier in the world, and many new electric vehicle-focused players entering the market in 2024 and 2025, there is a significant industry ramp needed to expand silicon carbide production to meet the forecasted needs of these electric vehicles over the next few years and through the end of the decade and beyond. Now moving to other markets, we're seeing a continued recovery and strengthening in several key wafer level test and burn-in market segments after the last two years of softness related to COVID-19. This includes Silicon Photonics devices for data center and 5G infrastructure, 2D and 3D sensors for mobile and wearable devices, and a new high-volume application for data storage on the horizon. Specifically for silicon photonics, during the COVID-19 shutdowns, the data centers such as Facebook, Google, and Amazon did not upgrade their data centers from copper-based links to fiber optic communication links as originally planned. The silicon photonics market had been forecasted to have a 30% to 40% cumulative average growth rates for the last few years and through to the end of the decade. However, they ended up being flat over the last two years due to COVID-19, with no growth at all. We're fortunate enough to work with the market leader and several other key players in the space who all qualified our solution in 2019. However, if they're not growing, they're not buying test systems to meet their increased needs. At the IMEC technology forum last week, Silicon Photonics was described as an industrial reality in the critical path of data centers and AI scaling, and that advanced CMOS processing and heterogeneous integration will be necessary to address the silicon photonics scaling challenges. We have been told by several of our customers, including elite customers, that wafer level burn-in and stabilization plays a key role in enabling silicon photonics mass production. Our lead silicon photonics customer that is one of the world's largest semiconductor manufacturers continues to use Aehr for wafer level burn-in and stabilization of their silicon photonics wafers. During the last year, they added a significant number of additional FOX NP systems to support the characterization and product qualification of new photonics-based devices. This customer is expected to purchase new sets of wafer packs to be used with these systems, as the applications and market for silicon photonics-based devices continue to grow. We expect this customer, as well as our other customers in the space, to continue to increase their capacity in the future. In just the last month, we received WaferPak orders for new devices from a couple of our Silicon Photonics customers. We're expecting customers to resume buying in the current fiscal 2023 and 2024. Several customers addressing the silicon photonics market have forecasted additional FOX systems and WaferPAK or DiePAK contactor capacity needs over the next twelve months. We expect to see a nice recovery in this market segment sometime over the next year or two, based on what we're being told by our customers. We continue to see new programs for our FOX XP solution for 2D and 3D optical sensors. Last year, we saw yet another device for a new application that we feel would drive our consumables business and possibly require incremental system capacity this fiscal year. We continue to be optimistic that this market segment has significant potential over time, and we continue to meet our lead customers and their sub-cons needs while playing an important role in their test and reliability supply chain. Our new customer in a very high-volume application for data storage devices that purchased the FOX-CP single wafer production test and burn-in system essentially went dormant during the COVID-19 shutdowns. They have begun to show signs of recovery and restarting their planned production capacity ramp, which feels like it will begin later this fiscal year or next fiscal year at the latest. We continue to believe that this will drive a significant number of FOX-CP systems. Now let me spend a few minutes talking about our R&D investments in manufacturing and supply chain. We continue to make investments in our FOX Full Wafer and Singulated Die Test and burn-in solutions. Last year, we shifted resources away from a planned new package part test system to focus on our FOX products. This year, Aehr will be releasing several test system enhancements that will extend our market leadership of our FOX products for full wafer test and burn-in. These include added voltage ranges, increased parallelism per wafer, new burn-in and stress conditions, and a new fully automated FOX WaferPAK aligner configured to fully integrate with our FOX-XP multi-wafer systems to enable hands-free operation. We believe that this will become more important over time for widespread adoption of wafer level burn-in for multiple markets beyond the markets we address today. As I've noted before, despite a few bumps in the road, our supply chain is holding up extremely well to the increase in demand and growth. We've been able to maintain reasonable lead times to meet customer requests. We're very confident in our ability to meet the customer forecasted demand plus considerable upside. I also want to emphasize that we purchased additional material and have a supply chain in place to significantly grow beyond our revenue guidance for the fiscal year. We will have better visibility in the second half of the fiscal year on exactly what that looks like. Once we get closer to understanding the actual capacity needs and requests of our customers, we'll provide an update. We're very encouraged by the positive momentum we're seeing with current and prospective customers and anticipate multiple new customers will begin placing orders and taking shipments to meet the enormous needs of silicon carbide devices used in the electric vehicle market over the next decade. We also see a recovery beginning this year in other key market segments, including silicon photonics and 2D and 3D sensors, and another new market opportunity for data storage on the horizon. If current and/or new customers increase their forecasts and are designed to pull in orders, we have significant uptake capacity to meet their needs. This provides us with the confidence that we can meet a significant upside in revenue shipments as customer demand pulls in. We believe we will add several new silicon carbide customers that will be ramping into production by the end of our fiscal 2023 that ends next May. This is in addition to a significant additional investment and capacity by our current lead customer for our silicon carbide wafer level burn-in solution. For the fiscal year ending May 31, 2023, Aehr expects total revenue to be at least $60 million to $70 million with strong profit margins similar to last fiscal year. Aehr also expects bookings to grow faster than revenues in fiscal 2023 if the ramp and demand for silicon carbide and electric vehicles increases exponentially throughout the decade. With that, let me turn it over to Ken to review our financial results and guidance in more detail before we open up the line for questions.

Ken Spink, CFO

Thank you, Gayn and good afternoon everyone. As Gayn noted, we're pleased to report record revenue for both the fourth quarter and full fiscal year. Our fiscal 2022 revenues of $50.8 million were more than 3x last year's annual revenue. In addition to record revenue, we finished the year with record bookings and strong growth in our profit margin. We also finished the year with a solid balance sheet with cash of over $31 million and working capital of $49 million. Looking at our financial results in more detail, fourth quarter net sales were $20.3 million, up 33% sequentially from $15.3 million in the preceding third quarter and up 166% from $7.6 million in the fourth quarter of the previous year. These record Q4 revenues reflect our capacity to increase revenues. We shipped over $10 million for revenue in the single month of May, which really shows our ability to scale and meet customer demand even in the near term. WaferPAK and DiePAK revenues comprised 45% or $9.2 million of our total revenue in the fourth quarter. This is our second consecutive quarter of record WaferPAK, DiePAK shipments reflecting the growth in the consumables piece of our business. Non-GAAP net income for the fourth quarter was $6.5 million, or $0.23 per diluted share, which excludes the impact of stock-based compensation. This compares to non-GAAP net income of $4.1 million or $0.14 per diluted share in the preceding third quarter, which excludes the impact of stock-based compensation, and a $1 million one-time charge for excess and obsolete inventory, and non-GAAP net income of $930,000, or $0.04 per diluted share in the fourth quarter of fiscal 2021, which excludes the impact of stock-based compensation. On a GAAP basis, net income for the fourth quarter was $5.8 million, or $0.20 per diluted share, compared to GAAP net income of $2.2 million or $0.08 per diluted share in the preceding third quarter, and GAAP net income of $567,000, or $0.02 per diluted share in the fourth quarter of the previous year. Gross profit in the fourth quarter was $10.5 million or 52% of sales, compared to gross profit of $6.4 million or 42% of sales in the preceding third quarter and gross profit of $3.5 million or 46% of sales in the fourth quarter of the previous year. During the preceding third quarter, the company recognized a charge of $1 million related to reserves for excess and obsolete inventory on legacy parts, which represented a 6.7 percentage point impact on third quarter gross margins. Excluding the impact of this charge, gross margin in Q3 was $7.4 million, or 49% of sales. The increase in gross margin from both the preceding third quarter and Q4 last year is primarily due to a decrease in unabsorbed overhead costs relative to cost of goods sold related to higher revenue levels in Q4. Because our manufacturing overhead costs are relatively fixed relative to revenue levels, our gross margins increased significantly with increasing revenues as our fixed costs are basically spread over larger revenues. As Gayn noted, with the high revenue we're generating, we're seeing significant leverage in our operating model to our bottom line, as evidenced by the strong growth in gross profit. Operating expenses in the fourth quarter were $4.6 million, an increase of $507,000 or 12%, from $4.1 million in the preceding third quarter and up $1.7 million or 58%, from $2.9 million in the fourth quarter last year. SG&A in the fourth quarter was $3 million, an increase of $381,000 from $2.6 million in the preceding third quarter, and up $1.1 million from $1.9 million in the prior year fourth quarter. The increase in SG&A expense from the preceding third quarter included an increase in employment costs of $275,000, primarily due to higher incentive payments related to bonuses for exceeding revenue and profitability targets. The increase from the prior year fourth quarter included an increase in employment costs of $768,000. The increase in employment costs included an increase in headcount, salary increase for employees during fiscal 2022, higher commissions and incentive payments related to bookings, revenues, and profitability, and stock compensation costs related to stock bonuses and/or employee stock purchase plan. In addition to the increase in employment costs, the company recognized increases in travel and entertainment and shareholder relations costs. R&D in the fourth quarter was $1.7 million, up $126,000 compared to $1.5 million in the preceding third quarter, and up $626,000 from $1 million in the fourth quarter of the prior year. The increase in R&D from the preceding third quarter includes an increase in employment costs of $198,000, due to higher incentive payments related to bonus objectives. This was partially offset by a decrease in professional consulting of $78,000 as Q3 '22 included milestone payments related to R&D program initiatives during fiscal 2022. The increase in the prior year fourth quarter included an increase in employment costs of $618,000. This increase included an increase in headcount, salary increases for employees during fiscal 2022, higher incentive payments related to bonuses for exceeding revenue and profitability targets and stock compensation costs related to stock bonuses and our employee stock purchase plan. We continue to invest in R&D to enhance our existing market-leading products and to introduce new products, maintain our competitive advantages, and expand our applications and addressable markets. Now turning to the results for our full fiscal year, net sales for fiscal 2022 were a record $50.8 million, up 206% from net sales of $16.6 million in fiscal 2021. For the full fiscal 2022, system revenues accounted for 50% of total revenues, compared to 44% in fiscal 2021. WaferPAK and DiePAK consumable revenues accounted for 45% of total revenues in 2022, compared to 35% of revenues in fiscal 2021. Customer service revenues accounted for 5% of revenues in fiscal 2022 compared to 21% of revenues in fiscal 2021. Non-GAAP net income for fiscal 2022 was $11.7 million or $0.42 per diluted share, which excludes the impact of stock-based compensation, a $1 million adjustment taken in the third quarter for excess and obsolete inventory and forgiveness of the $1.7 million paycheck protection program loan received in fiscal 2020. This compares to non-GAAP net loss of $3.2 million or $0.13 per diluted share, which excludes the impact of stock-based compensation and a non-cash net gain of $2.2 million and tax benefit of $215,000 related to the closure of Aehr’s Japan subsidiary in the first quarter. On a GAAP basis, net income for the fiscal year was $9.5 million, or $0.34 per diluted share. This compares to GAAP net loss of $2 million or $0.09 per diluted share in fiscal 2021. Gross profit for fiscal 2022 was $23.7 million or 47% of net sales, excluding the impact of the $1 million excess and obsolescence provision in Q3, gross margin for fiscal 2022 was 49%. This is up from gross profit of $6 million, or 36% of net sales in fiscal 2021. Excluding the impact of the one-time charge, the increase in gross margin percentage of fiscal 2022 compared to 2021 is primarily due to a decrease in unabsorbed overhead costs related to cost of sales, associated with higher revenue levels in fiscal 2022. Operating expenses in fiscal 2022 were $15.9 million. SG&A was $10 million in fiscal 2022, up from $6.6 million in fiscal 2021. The increase in SG&A includes an increase in employment costs of $2.6 million, resulting from the elimination of cost reduction initiatives implemented in fiscal 2021, higher commissions and incentive payments related to increased bookings, revenues, and profitability, stock compensation costs related to stock bonuses and our employee stock purchase plan, and an increase in headcount. In addition to the increase in employment costs, the company recognized increases in travel and entertainment, shareholder relations, and consulting costs. R&D expenses were $5.8 million in fiscal 2022, up from $3.7 million in fiscal 2021. The increase in R&D includes an increase in employment costs of $1.7 million, professional consulting of $331,000, and project materials of $155,000. The increase in employment costs included an increase in R&D headcount salary increases for employees during fiscal 2022, higher incentive payments related to bonuses for exceeding revenue and profitability targets, and stock compensation costs related to stock bonuses and our employee stock purchase plan. The increase in headcount, consulting costs, and project materials is related to R&D program initiatives during fiscal 2022. Turning to the balance sheet for the fourth quarter, our cash and cash equivalents were $31.5 million at May 31, 2022, down $536,000 from $32 million at the end of the preceding quarter, and up $26.9 million from $4.6 million at the end of the fourth quarter of fiscal 2021. The increase from fiscal 2021 includes $24 million in net proceeds from our successful ATM offering in the second quarter of fiscal 2022. Accounts receivable at quarter end was $12.9 million, up from $8.5 million at the preceding quarter end due to the impact of higher revenue levels. Inventories at May 31 were $15 million, an increase of $899,000 from the preceding quarter end and up $6.2 million from Q4 '21 to support our expected fiscal 2023 growth. As Gayn indicated, we have been ordering long lead components for systems and WaferPAKs to ensure adequate supply to meet customer lead times and forecasts. Property and equipment was $1.2 million compared to $776,000 in the preceding quarter end. Customer deposits and deferred revenue, both short-term and long-term, were $2.5 million, a decrease of $3.8 million from the preceding quarter end and an increase of $2.2 million from Q4 '21 related to the changes in our backlog from prior quarters. The company has no debt. This compares to our May 31, 2021 fiscal year end, where we had $1.4 million outstanding on our line of credit and $1.7 million on our Paycheck Protection Program loan. Bookings in the fourth quarter were $4.4 million. Backlog as of May 31 was $11.1 million compared to $26.9 million at the end of the preceding third quarter, and $1.6 million at the end of the fourth quarter last year. Effective backlog, which includes backlog as of May 31 and all orders since the end of the fourth quarter, is $25.5 million. Now turning to our outlook for the coming fiscal year, for our fiscal 2023 year ending May 31, 2023, we expect full year total revenue to be at least $60 million to $70 million, with a strong profit margin similar to last year. We also expect bookings to grow faster than revenues in fiscal 2023 as the ramp in demand for silicon carbide and electric vehicles increases exponentially throughout the decade. Lastly, looking at the investor relations calendar, Aehr Test will be meeting with investors virtually at the Needham Semiconductor and Semi Cap one on one conference on August 25. We hope to see some of you virtually at the conference. This concludes our prepared remarks. We're now ready to take your questions.

Operator, Operator

Thank you. We will now begin the question-and-answer session. And our first question will come from Christian Schwab with Craig-Hallum Capital Group. Please go ahead.

Christian Schwab, Analyst

Hey, guys, congratulations on a strong start to the fiscal year and outlook for next. Gayn, when you guys are talking about several more customer orders, can you help us understand, should we be assuming that this is going to come from kind of the major European and American silicon carbide manufacturers like STM or Wolfspeed, or is there an opportunity to get into some of the newer Chinese manufacturers that are ramping as well?

Gayn Erickson, CEO

So even in our prepared remarks, we have talked about it. I think it started a few quarters ago, we talked about a benchmark with one of the other major suppliers of silicon carbide today that we think we can complete. That benchmark had a really key milestone achieved last quarter that bodes really well. We think we can complete the correlation results over the coming months, and we are expecting to get orders from them. We also mentioned last quarter that we had indications from another large customer wanting to do a wafer benchmark. We were actually able to complete that. We presented them with the correlation and test results recently, and we were pleased with how that's going and believe that we can advance that along further. Those were two of the large silicon carbide players today, new players that are not current customers. We believe they will be part of their production plans. As a reminder, there are others. Reviewing our funnel, we have a significant number of players talking about getting into silicon carbide. Many of them have announced their plans, and there are large and small players. Many big players have not yet announced their plans, but have approached us with their very real plans for entering the silicon carbide market. Additionally, Canaccord Genuity has been pointing out that the current announced plans by all major silicon carbide suppliers only supplies about half of the electric vehicle needs by the end of the decade. We welcome all these new players because existing players cannot meet all the demand as they go from 1x to 25x output by the end of the decade.

Christian Schwab, Analyst

Great. And then, Gayn, when we talk about wafer starts in silicon carbide for the electrification of the automotive industry, have you guys know yields are substantially different potentially, by different customers. But for every—can you give us an idea, or if you've been able to finalize yet or not have enough data for every 25, or 50,000 wafer starts, if there was a customer using you, how much capital equipment they would need to buy?

Gayn Erickson, CEO

Okay. I'm going to answer it in a couple of different ways. First of all, we get a front-row seat on people's yield, and I can’t discuss that publicly. When you look at Canaccord, they're taking their yield assumptions into account. It's widely known that the yield of silicon carbide devices isn't extremely high; let's call it that. But it's also not radically low. So I'm not going to answer that directly. If you look at gross die per wafer before yielding, a lot of data points are out there because suppliers sell singulated dies. Commonly, for an inverter in an electric vehicle, approximately 350 to 400 gross dies per 150 millimeter wafer are reported. Additionally, transitioning to 200 millimeter will begin by the end of the decade, and significantly more dies per wafer result from that. We estimate about 500 die per wafer for 6-inch equivalent wafers, rounding up. It's also known that there are about 48 dies per inverter. Some silicon carbide suppliers used numbers like four engines per wafer, with high ends of perhaps eight to ten. You can start looking at how many wafers are needed to supply a single engine vehicle. For instance, the Model 3 is typically sold with two engines. The rolling use is that manufacturers’ average engines per car will change over time. Ultimately, the demand is likely high enough.

Christian Schwab, Analyst

Great. And then into my last question, again, kind of on the wafer start side. Others are projecting that silicon wafers for the automobile industry will have to at least triple over a three-year timeframe to potentially hit the penetration rates that are expected. So, as we look at your leading customer, and let's assume they grow with the industry and their market share remains, is it reasonable to believe they couldn't be at least three times larger than they've been over the last 12 to 14 months of orders?

Gayn Erickson, CEO

Yes. That being said, our lead customer was around a 10% customer last year, meaning they moved from a distant player to a sixth or seventh place position among competitors. Today, they’re up to a significant share and making significant commitments. For instance, they just announced substantial investments towards a new facility for silicon carbide production. There will be a high demand for major players like this, which will drive the growth. Some companies, such as ST, are also expanding capacity and hope to sustain their market share. It is important to understand that it will take new players, and we view this period as a land grab—a lot of new entrants are emerging. We are actively adding resources in sales and marketing to reach and serve more customers.

Christian Schwab, Analyst

Yes, sounds exciting. Congrats again on a great year. No other questions. Thank you.

Gayn Erickson, CEO

Thanks, Christian.

Operator, Operator

Our next question will come from Larry Chlebina with Chlebina Capital Management. Please go ahead.

Larry Chlebina, Analyst

I have a quick question. Your anticipated additional sales, I think you mentioned automating the XPs going forward. Last August, you had a sale to your lead silicon carbide customer for an automated aligner. Is that going to revenue anytime soon or did you already ship it?

Gayn Erickson, CEO

Yes, it is going to revenue anytime soon. We're actually able to convert that order into our next-generation automated aligner. That new aligner is available in both what we call a standalone or an integrated form. Some customers want to share an aligner across multiple systems, while others prefer to integrate it. In fact, the order that we announced today is the second order for that system, and those aligners will ship over the next months, including the second one by the end of February.

Larry Chlebina, Analyst

Is the second order you mentioned, the same one in the press release for the 12.8 million?

Gayn Erickson, CEO

That's correct, yes.

Larry Chlebina, Analyst

Is it your intention for your lead silicon carbide customer to fully automate all of the XPs that they eventually receive?

Gayn Erickson, CEO

Not at this time, no. They are convinced they want an offline solution due to the extended burn-in times and how they use the tools. We offer the flexibility to accommodate all customers, depending on their needs.

Larry Chlebina, Analyst

Some potential new silicon carbide customers may be fully automated, is that the expectation?

Gayn Erickson, CEO

I believe that is true, that's correct.

Larry Chlebina, Analyst

What are you calling this new fully automated XP system?

Gayn Erickson, CEO

We haven't named that system yet. We'll announce the name later this year.

Larry Chlebina, Analyst

Is it your expectation to get this capability in the field soon? There was initial application for memory, specifically flash memory for stack die applications. What's the expected timeline?

Gayn Erickson, CEO

We've had design reviews with key memory suppliers, but COVID impacted those discussions. We feel that opportunities might renew soon as they look to ramp their production capacity.

Larry Chlebina, Analyst

Is there the opportunity for a joint venture with another ATE testing company to incorporate their testing with your burn-in process?

Gayn Erickson, CEO

There isn't an ATE product out there that has the level of density and power management to fit into our XP. That's one differentiator we offer is that we are able to fit complex systems into compact spaces. I wouldn’t recommend one ATE supplier to build a tester designed for our system. However, partnerships might be considered with customers working on their test developments.

Larry Chlebina, Analyst

Thank you. That’s all I had.

Gayn Erickson, CEO

Thanks, Larry.

Operator, Operator

Our next question will come from Dylan Patel with SemiAnalysis. Please go ahead.

Dylan Patel, Analyst

Hey, thanks for taking my question. I want to ask about this test intensity situation. Many other test firms discuss the correlation of lower yields requiring higher test intensity. Right now, silicon carbide yields aren't exemplary even at the best firms, but they're anticipated to improve. My understanding of your solution is that it’s unique; you test regardless of how low or high yields are. Is this accurate? Could you explain the durability of demand even if yields reach multiple nines eventually?

Gayn Erickson, CEO

Yes. There is indeed a correlation between low yielding devices and reliability needs for burn-in tests. But the failure mechanisms are distinct. The original cause of yield in devices isn't necessarily related to burn-in. Burn-in tests induce failures due to energy through heat and voltage, which you cannot predict; you need a stress test. Meanwhile, some high-yield devices still require 100% burn-in. An example is DRAM, which has very high yield but still mandates burn-in to eliminate defects. Current silicon carbide companies predict that burn-in will be essential for some time as well.

Dylan Patel, Analyst

Thank you for that. I also wanted to ask about the burn-in process for silicon photonics. Where is the burn-in happening specifically? Is it occurring on the indium phosphide wafer where the lasers are made, or once they're bonded onto the silicon photonics wafer?

Gayn Erickson, CEO

We currently have examples where customers want to perform burn-in on a substrate before bonding. However, most current customers are conducting burn-in once the devices are already bonded on the wafer.

Dylan Patel, Analyst

Thanks, that makes sense. Just to wrap up, with travel back to normal, have you been able to visit some of those major prospective clients in Asia, such as in China or South Korea? Do you think that will move the needle on customer orders?

Gayn Erickson, CEO

Yes, we're opening up in Europe and certain customers. Travel to Asia is improving, although China is still iffy. We believe this will positively influence our customer engagements.

Dylan Patel, Analyst

Thank you for the time, looking forward to next time.

Operator, Operator

Our next question will come from Bradford Ferguson with Halter Ferguson Financial. Please go ahead.

Bradford Ferguson, Analyst

Hi, my clients are now 1% holders of your company now as shareholders. I was curious, why are the serious silicon carbide makers not creating their own wafer level burn-in systems? What's protecting you? Is it the 18 wafers at a time; is it the aligner? Or the loader?

Gayn Erickson, CEO

There are significant protections in place. Our systems have a large number of patents making it a challenge to enter this market. Although testing wafers is common in the semiconductor industry, doing so in an affordable way is challenging. Our system is prober-leder, which means we don't utilize standard probers or probe cards. There's a significant technological barrier to build an effective burn-in solution.

Bradford Ferguson, Analyst

Okay. Does the FOX system handle 200 millimeter wafers today?

Gayn Erickson, CEO

Yes, we support all wafer sizes, including 200 millimeter, in volume production.

Bradford Ferguson, Analyst

Is there a concern as several major players create new fabs dedicated to silicon carbide and gallium at 40% growth, while EV rates are anticipated to grow at 100%? Why is there a more conservative growth outlook?

Gayn Erickson, CEO

Mainly, it's the timing of orders, not if they will arrive. Our forecasts are ambitious since we did not lose clients. New orders haven't materialized as quickly as we anticipated. Our projections will focus on their growth because an increase in automotive orders may potentially push demand.

Bradford Ferguson, Analyst

With your revenues growing by $5 million last quarter but COGS only rising $1 million, does this indicate a potential for 60% gross margin going forward?

Gayn Erickson, CEO

Yes, you are correct. Our margins are improving as we scale, and we expect continued upward momentum in our profit margins.

Bradford Ferguson, Analyst

Thank you very much.

Operator, Operator

Our next question will come from an unidentified analyst with Constitution Research. Please go ahead.