Q2 2022 Aehr Test Systems Earnings Call

January 6, 2022

Good day and welcome to the Air Test systems second quarter fiscal 2022 financial results call. Today's conference is being recorded at this time I would like to turn the conference over to Mr. Jim Byers of M. K R. Investor Relations. Please go ahead Sir.

Thank you operator, good afternoon, and welcome to Aircastle systems second quarter fiscal 'twenty two financial results Conference call with me on today's call are Air Test Systems', President and Chief Executive Officer gain Ericsson and Chief Financial Officer, Ken Spink.

Before I turn the call over to gain and Ken I'd like to cover a few quick items. This afternoon right. After market closed their test issued a press release announcing its second quarter fiscal 2022 results.

That release is available on the company's website at <unk> Dot 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.

I'd like to remind everyone that on today's call management will be making forward looking statements. Today that are based on current information and estimates and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those in the forward looking statements.

These factors that may cause results to differ materially from those in the forward looking statements are discussed in the company's most recent periodic and current reports filed with the SEC.

These forward looking statements, including guidance provided during today's call are only valid as of this date in their 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 gain Erickson President and CEO.

Thanks, Ken Good afternoon, everyone and thank you for joining us for our second quarter fiscal 'twenty two earnings conference call.

We hope that everyone is off to a great new year and are healthy and managing through these historic times with COVID-19.

Also I do want to apologize in advance that either lingering dry cough after recovering from Covid myself spoke with the holidays. While I was fully vaccinated had one of those that had the breakthrough case and I'm happy to say that I'm, feeling fine and fully recovered from what little symptoms I had.

Let's start with a quick summary of the highlights of the quarter and momentum we're experiencing in the semiconductor wafer level test and burn in market.

And then Ken will go over the financials.

Financial to detail then we'll open up the lines to take your questions.

The second quarter were happy to announce our second consecutive quarter of record bookings and solid results for revenue or bottom line our balance sheet.

And we finished the quarter with new record.

For bookings in a single quarter of $29 $170.

This follows the previous quarter, where we set a record of $27 million.

Revenue for Q2 was $9 6 million a sequential sequential increase of 70% over the first quarter and up over 470% year over year are.

Our backlog at quarter end was $36 1 million, which is our highest backlog on record for the company.

With our strong backlog and the incredible performance of our manufacturing and supply chain team as well as the great job. Our suppliers are doing in ramping to meet the significant uptick in revenues, we're confident and and are reiterating our previously provided guidance for full year total revenue of at least $50 million for the fiscal year ending may 31, two.

'twenty two.

This equates to fiscal 'twenty, two revenue, which is three times that of last year's full year revenue.

Our projected revenue of $35 million or more for the second half of this fiscal year is over $2 three times, our revenue for the first half of the fiscal year.

Today I'm going to go into detail on the silicon carbide and silicon photonics market segments of our business let.

Let me start with a discussion on the silicon carbide test and burn in market, which is being driven substantially by anticipated growth in electric vehicles.

We continue to see very strong interest and an increase in inbound request for information on our solutions for wafer level test and burn in our silicon carbide devices.

Particularly for use it directly in support of the electric vehicle market.

Now for those who have not followed are let me describe the market opportunities for silicon carbide test and burn in.

Silicon carbide devices are used in solid state power conversion of electric vehicles. Some would say, it's an enabling technology to electric vehicles.

Silicon carbide MOSFET are used in converting alternating current or AC to direct current D C needed to charge batteries that store the power in the electric vehicles.

And the same devices, although higher current empower are used to convert the DC power in the battery pack back to AC to power the engine.

The AC to DC conversion is the onboard raw for battery charger and the D. C back to AC is referred to as the traction and Burger.

Theres, one traction Burger per engine, so far a car like most Tesla model S is exit trees as well as the Ford F 150 lightning.

Likely to engines, and therefore to traction and burgers.

A typical traction in Burger today uses 48 silicon carbide MOSFET to address the current and number of phases needed.

Typical six inch silicon carbide semiconductor wafer today has about 500 of these high current MOSFET and so yield about 10 engines per.

Per wafer with perfect meal yields and they do not get perfect yield.

Every silicon carbide supplier agrees that these MOSFET must go through an extended stress test called Vernon to remove the extrinsic or infant mortality failures to get to the quality rely required to meet automotive standards.

In addition companies use burn in to stabilize the threshold voltages of the devices, particularly for use in modules, where the devices are gains in parallel.

This burn in step can be done in the final package form of discrete packages, but looking ahead. The industry is moving mostly to multi die modules.

The modules are more efficient require less cooling and are easier to integrate into your burger. The downside is that these modules contain many individual die that are all assembled into modules when customers burn in these modules. The failure of a single die that caused the entire module to fail, reducing the production yield.

Not only is the cost of the module packaging more expensive, but the other di which could include up to 10 or more die per module are discarded.

The combination of the industry move into modules and this Congress implications are burning in a package part versus wafer or die level is great for us out there, where we have a clearly differentiated solution for full wafer level test and burn in of these devices.

Our Fox XP wafer level burn in system can test up to 18 wafers at a time with 100% of the devices being tested and burned in parallel at the same time.

This is an extremely cost effective and scalable solution for high volume manufacturing of a critical reliability stepped in the manufacturing process.

Have qualified this to eliminate the extrinsic failure as seen on the silicon carbide devices and it has been validated by multiple electric vehicle manufacturers so far.

During this last quarter, we received a follow on $19 4 million dollar order for our Fox XP wafer level test and burn in systems from our lead silicon carbide customer.

This order was then followed by a $7 $6 million order for wafer packs that are the consumable if you will.

That makes contact between our Fox XP system.

Specific wafers.

This wafer pack order is actually not enough to fully populate the systems. They order. So we are expecting additional follow on wafer pack orders for these production Fox XP systems.

These systems and wafer packs are being used to test and burn in MOSFET devices and traction and voters in electric vehicle motor controllers as well as both onboard and off board electric vehicle Chargers.

Customer a major automotive semiconductor supplier with a significant customer base in the automotive semiconductor market continues to forecast significant additional system and wafer pack purchases over the next several years to meet the silicon carbide market growth.

In addition to a very strong backlog and forecast from a leap silicon carbide customer. We're currently engaged in discussions and or valuations with several other silicon carbide suppliers regarding their wafer level test and burn in needs.

This includes all of the current large silicon carbide suppliers and a number of companies both large and small that intend to enter the silicon carbide market.

The new entrants are actually quite interesting to us several are starting from a greenfield without any installed base of test your burn in equipment and are looking to air for advice on the best solutions for them to meet the critical quality and reliability needs of the electric vehicle as well as other silicon carbide markets.

Multiple industry forecasters and analysts expect the market for silicon carbide devices to grow at a compound annual growth rate of <unk> of more than 30% over the next decade, driven by demand from the electric vehicle market and other applications.

It is more and more clear that silicon carbide is becoming the industry standard for electric vehicle powertrain conversion and the traction and burgers as well as for the Onboarding onboard battery Chargers for Evs chess.

Tesla was the first to move to silicon carbide over the historical IGT high voltage silicon based devices as the silicon carbide devices promise to be more efficient, which translated into larger longer range and faster charging times two of if not the most important buying criteria for electric vehicles.

Their introduction in the model III Tesla consensus adopted silicon carbide and all of their vehicles and most of the new electric vehicles across the industry will start with silicon carbide as the solution of choice for the power conversion electronics.

While no one can completely predict the exact growth rate of the electric vehicle automobile market. There is no doubt that every car company in the world and many new companies are committed if not dedicated to new Evs in volume production in.

An example of how SaaS forecast or changes that just recently Ford announced that all of them nearly double its production capacity of its upcoming electric F 150 lightning pickup truck to 150000 vehicles a year finally in mid 2023 and response to enormous customer demand.

The industry forecasters and analysts also appear to be converging on the idea that the typical electric vehicle will have more than one electric engine and traction in Burger as electric vehicles with two or more engines are being marketed with longer ranges and faster charging times two of the most critical features in the electric vehicle market.

What this means to areas that there'll be more silicon carbide devices forecasted per average vehicle than we saw only a few months ago.

Forecasts from Canaccord Genuity estimate that the silicon carbide market for just devices in electric vehicles, such as the traction and burgers and onboard Chargers will require 4 million six inch equivalent wafers to meet demand in 2030, and another 4 million wafers for electrification infrastructure industrial.

Rail and photovoltaic power devices.

This is incredible when you realize that this year the entire market is expected to ship fewer than 150000 wafers to meet the automotive electric vehicle market.

This represents a growth of over 25 times. The current wafer capacity just for the in vehicle devices, and then double that for the entire silicon carbide market.

One going into so much detail here is that folks like Canaccord genuity are making the point that the industry has only yet.

Has only at even announced capacity plans to meet this demand much less put it in place. So let me make sure that they do not have enough capacity, even announced to meet this in.

In place they are forecasting that the announced capacity is somewhere near 2 million wafers and yet the total capacity or maybe two to four I think versus the total capacity is over 8 million wafers of demand.

We're seeing multiple companies come forth then approach air with a message that they are entering the market because there simply is not enough capacity out there to meet demand and there is plenty of room for newcomers.

Now think back on my comment about new companies, not having been installed base or bad habits of using packaged part burn in systems to test or <unk> or silicon carbide devices that means that we may have to talk them out of <unk>.

Stay tuned on our progress with a broader array of customers than just the current top companies.

Again remember last year.

Current companies that address the silicon carbide market only shipped about 2% of the wafers needed against the total demand either by the end of the decade.

Kent.

All of the companies today, including the big ones are only 2% of the total demand so stay tuned to find out about the new companies entering the market.

Now having highlighted that new players are not to be ignored we have announced that we do have at least one currently large silicon carbide supplier that has moved to automate for evaluation and benchmarking of airs Fox XP multi wafer system for testing and burning in their silicon carbide wafers.

We feel these benchmarks have demonstrated the value Eric can provide and also validate our solution for screening that extrinsic for early life failures had we had predicted by looking at the actual failures of their devices on their wafers.

Were now being asked to do more tests and experiments and run more wafers, which we're happy to work with them on.

Without getting into too much detail I do want to say that companies all have their own internal processes and timelines for evaluating and qualifying a new tool and not all companies move at the same pace one thing Thats for sure every company. We talk to is it a combination of excited and scared the size of the ramp expected to meet.

The electric vehicle market, particularly in the second half of this decade.

Some companies are driving to meet this demand sooner than others.

I do want to be clear that independent of different companies timelines. We expect that we will add several new silicon carbide customers that will ramp into production with our solution by next fiscal year as they look to capitalize on the rapidly expanding silicon carbide market.

We are ramping our Fox multi wafer test and burn in systems and full wafer pack capacity.

Wafer wafer pack capacity to meet this upcoming silicon carbide market opportunity, which we believe will grow significantly over the next decade or more.

We really are only at the very beginning of this ramp is electric vehicles accounted for a small percentage share of the overall market last year and are expected to be over 30% of total vehicles sold by 2030.

We provide a very cost effective solution for testing and burning in the silicon carbide devices, and we're confident in our ability to capitalize on the expected growth in the silicon carbide market over the next several years and for many years beyond that.

So let me turn to the Silicon Photonics stabilization and burn in market. So in addition to our success in the Silicon carbide applications. We continue to see strengths of signs of strengthening in the silicon Photonics test and burn in market as our Fox multi wafer systems and wafer packs provide a very cost effective and scalable solution for bermingham.

In the optical lasers and stabilizing their output power, while also removing any extrinsic early failures.

Silicon Photonics describes photonics systems that use silicon as an optical medium and can be made using existing semiconductor fabrication techniques are critical manufacturing step is a stabilization step where energy is used by applying high temperatures in electric power to burn in the optical lasers and stabilized.

Their output power.

<unk> Air is able to do this critical step while the devices are still in wafer form before theyre simulated input into a modular system.

Our system, using our Fox multi wafer systems and wafer packs.

Provides a very cost effective and scalable solution for this critical step while also removing any extrinsic or early life failures.

Silicon Photonics devices address the <unk> and data center infrastructure industry as well as several other key markets and Youll research predicts that the silicon Photonics transceiver market alone will reach $4 $6 billion in 2026 with a caterer a 25% between 2021 and 2020.

Six.

Several companies, including Intel and Cisco Cisco have proven it is possible to create hybrid devices in which the optical and electronic components are integrated onto a single microchip and the first products in volume production are being used for fiber optic transceivers Houston, the datacom and telecom infrastructure such as data centers.

And <unk> communications.

But in addition, there have been many technical presentations and public announcements about silicon photonics and co packaged opex optics being integrated with <unk> and Gpus from companies, such as Intel and Nvidia as a means for keeping on track with Moore's law by using optical interconnects to provide faster data transfer.

Both between and within Microchips.

We believe that the market for silicon Photonics will expand beyond being used for only fiber optic transceiver photonic integrated circuits and we will start to be used in high end processor applications.

Intra chip as well as interchange communications within the next few years.

During the last few months, we received orders from our current silicon photonics customer for six additional Fox NP wafer level test and burn in systems to support the characterization and product qualification of new types of photonics based devices in wafer form.

This customer is expected to purchase new sets of wafer pack full wafer contactor has to be used with these systems.

That's the applications end market for Silicon Photonics based devices continued to grow we expect this customer to continue to increase the capacity in the future.

Several other customers addressing the silicon photonics market have also forecast additional fox systems as well as wafer pack the dye pack contactor capacity needs over the next 12 months.

These include needs to address incremental incremental production capacity as well as capacity to address new customer and new product qualification and engineering.

Again, as the only supplier of a commercially available and cost effective solution for testing and burning in the silicon photonic devices in wafer form. We're also very confident in our ability to capitalize on the expected growth in the silicon photonics market over the next several years.

Before turning it over to Ken Let me summarize where we're at.

We remain very focused on serving the very large market opportunities. We see ahead, which include the significant opportunity for test and burn in of Silicon carbide devices for electric vehicles, and electrification infrastructure Silicon Photonics devices for data center, <unk> infrastructure, and <unk> and <unk> sensors for mobile and wearable.

<unk>.

With our record bookings and the strength of our semiconductor test and burn in solutions, we're confident in our ability to deliver significant revenue growth and are reiterating our guidance of at least $50 million in revenue for the fiscal year ending may 31.

This represents revenue in the second half, which is two three times that of the first half.

As we have discussed in the past and are proving now air has the manufacturing infrastructure and supply chain in place to ramp to significantly higher revenue levels.

We have been ordering long lead components persistence and wafer packs, particularly for the enormous opportunity we see for silicon carbide that is gaining momentum and we have been able to maintain reasonable lead times to meet customer requests our supply chain is holding up to the increase in demand and we're ramping all of our sub suppliers to meet the customer bookings and forecasts.

We are seeing.

<unk> has a very robust supply chain with world class subcontract manufacturers and subsystems of our test systems contractors wafer pack aligner and die pack handlers.

These are very mature subcontractors that has successfully supplied these subsystems to air for years in all cases, the suppliers have capacity well in excess of air historical shipments and the ability to ramp significantly higher as well.

We are very confident in our ability to meet the customer forecasted demand plus considerable upside.

As we discussed and anticipated at the beginning of the COVID-19 pandemic are tests has emerged a stronger company with more production customers more markets and applications and higher value products than we had before the start of the pandemic.

With our record bookings and the strength of our semiconductor test and burn in solutions as well as the positive response, we are getting from multiple new potential customers in the silicon carbide space, we're confident in our growth forecast and ability to meet them. The hard work we've put in over the past several years is paying off for our customers our financials and our shareholders and we're excited about.

The large market opportunities ahead and for the future of their test systems.

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.

Thank you, Dave and good afternoon, everyone. As gain noted we had another solid quarter for Q2 with our second consecutive quarter of record bookings strong sequential growth in revenue and our highest backlog on record at quarter end.

Looking at our financial results net sales in the second quarter were $9 6 million up 70% sequentially from $5 6 million in the preceding first quarter and up 471% from $1 7 million in the second quarter of the previous year.

The sequential increase in net sales from the preceding first quarter includes an increase in wafer pack <unk> revenues of $4 1 million. This was partially offset by a decrease in system revenues of 125000.

The increase from Q2 last year includes an increase in wafer pack <unk> revenues of $3 $44 3 million and an increase in system revenues of $3 6 million customer service revenues were flat for both periods wafer.

Wafer pack and die Pac revenue comprised over half, 53% or $5 $1 million of our total revenue in the second quarter.

We also had a record number of wafer packs and <unk> shipped during the quarter, reflecting growth in the consumables piece of our business as well as our ability to scale and meet customer demand.

non-GAAP net income for the second quarter was $1 4 million or <unk> <unk> per diluted share. This compares to a non-GAAP net loss of 414000 or <unk> <unk> per diluted share in the preceding first quarter, which include included the impact excludes the impact of forgiveness of $1 7 million in loans.

From the Paycheck protection program that we received in fiscal year 2020.

Our non-GAAP net loss of $1 7 million or <unk> <unk> per diluted share in the second quarter of fiscal 2021.

The non-GAAP results also exclude the impact of stock based compensation in all periods reported.

Stock based compensation cost of $718000 in Q2, 'twenty to reflect a significant increase from $588000 in the preceding quarter and 257000 in the prior year second quarter.

This increase was primarily due to $246000 and stock awards accrued in Q2, 'twenty two related to exceeding stretch goals for fiscal year 2022 key business objectives and over 200000 in expense.

Related to the employee stock purchase plan due to increased employee contributions in new enrollments.

While these noncash expenses exceeded our plan. It is good to have such problems where stretch goals are being exceeded.

And we recognize and appreciate the hard work of all of our employees who help achieve these goals.

On a GAAP basis net income for the second quarter was 717000 or <unk> <unk> per diluted share compared to GAAP net income of 696000 or <unk> <unk> per diluted share in the preceding first quarter.

Which includes the impact of the PPP loan forgiveness.

And a GAAP net loss of 2 million or <unk> <unk> per diluted share in the second quarter of the previous year.

Gross profit in the second quarter was $4 5 million or 47% of sales up from gross profit of $2 3 million or 40% of sales in the preceding first quarter.

And up from gross profit of 377000 or 22% of sales in the second quarter of the previous year.

The increase in gross margin for both the preceding first quarter and Q2 of the last year is primarily due to a decrease in unabsorbed overhead costs to cost of goods sold due to higher revenue levels in Q2 'twenty two.

As noted in prior calls we scale very well as manufacturing overhead remains relatively fixed as revenues increase.

The benefit in labor and overhead was partially offset by unanticipated cost impacting cost of goods related to tariffs and broker related premiums paid to resolve short term semiconductor shortages. In addition, we increased freight charges, we incurred increased freight charges on many items, particularly.

<unk> for items shipping historically by Ocean.

Due to the shortage in ocean freight capacity with shipments into the U S. We were required to ship by air.

And one example, we are seeing an increase in freight costs for our chambers by over $40000 per chamber to ship them by air from one of our suppliers in Asia to the U S.

While this appears temporary.

We do not see this reducing materially anytime soon.

Good news is our suppliers are able to meet the demand, but we're certainly feeling it and higher shipping costs.

Operating expenses in the second quarter were $3 8 million, an increase of 528000 or 16% from $3 $3 million in the preceding first quarter and up $1 5 million or 64% from $2 3 million in the second quarter of the previous year.

SG&A in the second quarter was $2 5 million, an increase of 536000 from $2 million in the preceding first quarter and up 988 from $1 5 million in the prior quarter of the prior year second quarter.

The increase in the prior quarter includes an increase in employment costs of 348000.

The increase from the prior year second quarter included an increase in employment costs of 745000 and the.

The increase in employment cost.

<unk> salary increases related to races.

Provided to employees during fiscal 2020 to higher commissions and incentive payments related to increased bookings and key bonus objectives and stock based compensation costs related to our employee stock purchase plan due to new participants to the plan and employee contribution increases in addition to the increase in employment cost.

The company recognized an increased travel costs and consulting costs during the quarter.

R&D in the second quarter was $1 3 million unchanged from the preceding first quarter.

And up 493000 from 820000 in the second quarter of the prior year.

The increase in R&D from the prior year included an increase in employment cost of 427000 and the.

The increase in employment cost.

Included salary increases related to raises provided to employees during fiscal 2022.

Incentive payments related to key business objectives, and stock based compensation costs related to our employee stock purchase plan due to new participants to the plan.

An employee contributions increases.

In addition to the increase in employment costs. The company recognized an increase in contractor costs and RMB deemed materials related to new R&D program initiatives during fiscal 2022.

We continue to invest in R&D to enhance our existing market, leading products and introduce new products to maintain our competitive advantages and expand our applications and addressable markets.

Turning to the balance sheet for the second quarter.

Our cash and cash equivalents were 35 million at November 32021 up $28 5 million from $6 5 million at the end of the preceding quarter.

During the quarter, we completed a successful capital raise that netted $24 million in cash to the company.

A total of $1 7 million shares were issued through the offering at an average price of $14 73 per share. These proceeds provide additional working capital to serve the very large market opportunities. We see ahead.

In addition, we generated year to date cash flow from operations of $5 2 million in fiscal 2022.

Yeah.

Accounts receivable at quarter end was $7 4 million.

Up from $4 3 million.

At the preceding quarter and due to the impact of higher revenue levels.

Inventories at November 30th were $13 million, an increase of $2 million from the preceding quarter and $4 2 million from Q4 'twenty one.

The increase in inventories to support our existing backlog and to prepare to fulfill expected future orders a significant portion of the inventory increase is due to semiconductor components, which we have been ordering and stocking up on to meet the anticipated demand we see from the markets we address.

This is critical as we ordered these long in advance and have been able to continue to provide reasonable if not best in class lead time to customers in an environment, where most semiconductor test companies are quoting up to 52 week lead times on their equipment.

Property and equipment was 661000 compared to 676000 at the preceding quarter end customer.

Customer deposits and deferred revenue short term and long term were $10 3 million, an increase of $6 8 million from the preceding quarter and $10 million from Q4, 'twenty one related to the increase in 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 outstanding on our Paycheck protection program or PPP loan.

Bookings in the second quarter were $29 1 million, our highest quarterly bookings on record. This is our second consecutive quarter of record bookings and is up from $27 million in the preceding quarter.

Including the announced orders since the beginning of the fiscal third quarter. Our total bookings for the fiscal year to date is over $52 million backlog as of November 30 was $36 1 million our highest backlog on record. This is up from $16 6 million at the end of the preceding first quarter and up from $1 one.

Million at the end of the second quarter last year.

Now turning to our outlook for fiscal 2022 year, which ends on May 31, 2022, with a record bookings and the strength of our semiconductor test and burn in solutions.

We are confident in our ability to deliver significant revenue growth for the year and our growth opportunities over the next several years for fiscal 2022, ending May 31, 2022, we are reiterating our previously provided guidance for full year total revenue of at least $50 million, which would represent revenue of three <unk>.

<unk> that of last fiscal year.

While the increase in gross revenues on a relatively fixed manufacturing overhead will increase gross margins. This benefit is partially being offset and.

Temporarily.

With the noted increase in freight and tariff costs as well as the additional non cash based.

Noncash stock based compensation expense from our equity incentive plans related to exceeding stretch goals.

Still we expect our full year GAAP net profit, which included the $1 7 million benefit from the PPP loan forgiveness would be above $10 $5 million or 20% of revenues.

Lastly, looking at the Investor Relations calendar next week, we will be presenting and meeting with investors virtually at the 24th annual Needham Virtual growth conference on Wednesday January 12.

Hope to see some of you virtually at the conference.

This concludes our prepared remarks, we are now ready to take your questions. Operator. Please go ahead.

Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad and Purion Speaker phone please make sure that.

If I can just turned off to allow your signal to reach our equipment again that is star one to ask a question or a pause for just a moment to allow everyone an opportunity to signal for questions.

And we will go first to Christian Schwab of Craig Hallum Capital Group.

Congratulations.

Have a great quarter and.

In continuation of strong bookings.

Thanks Bruce.

Dan I was just wondering if you could give us just a little bit of help me with a little bit of clarity on the silicon carbide, we talked about a large you know silicon carbide supplier.

Who is in evaluation and then and then we talked about.

Several new silicon carbide customers that will ramp into production so.

Is that.

<unk>.

Minimum of three customers you know that could be close at hand.

Or is it.

Are you referring to.

The.

The large silicon carbon supplier when you talk about several customers. So it wasn't clear to me.

Alright, let me, let me try and folks.

Yes.

One of the challenges that we're dealing with right now is and we've made statements like talking to all of the suppliers and then some.

The subtlety here is when you are talking to all of the players. There's always this balance of trying to maintain.

How competitive information and where they are at and not giving too much information about one player versus the other and so sometimes.

Sometimes my.

I guess indirect and all is just related to that because obviously my key customers listen in on this thing as well and we have pretty.

Clear non disclosures and things in place that we always have to try and muddy it as best we can but when you are talking some of these deals and large deals in the discrete in the southern I know that gets difficult. So let me try and add a little bit of color as well so just for clarity.

The industry.

Market forecasters that talk out there generally referred to the largest suppliers in the space.

Traditionally have been.

S T had the number one position.

And then Infineon and Cree now will speed or others, and then on semiconductor that kind of came out of nowhere and people know that on semiconductors, one of our top 10% customers.

<unk> are generally thought of by most people as the current larger players in this space. In addition to that you have Mitsubishi in Rome that historically were kind of filled out the top six.

We have some level if not a deep level of engagement with all of the above.

And we certainly are in conversations with all top four of them, including one of them being our biggest lead customer.

What we have done is we have been involved and I generally refrigerated at least one benchmark there's different levels of engagements and discussions, but we're clearly doing on wafer.

Measurements and all for one of those is a new potential customer of ours.

The data is quite compelling and is giving us results consistent with what we told them, we would show them and expect and they've actually asked for additional testing and clarification, some more wafers et cetera, and we're happy to oblige.

It is our expectation and our offer to all of the suppliers out there pretty much all the big guys that we will be happy to demonstrate on wafer for them.

And what I have tried to allude to and I.

Set it in a lot of different ways.

Quite interesting to see the difference in pace between all the different companies.

And it isn't necessarily how big you are it's just maybe how aggressive management is about commitment to new capacity or just changes et cetera.

One thing that historically is true in general in the test business and I've been doing this all my life.

Is that.

Being the installed base has its advantages.

Usually pretty hard to just displace someone that's not to say that we can't displace them nor are we can't displace all of them, but if there were companies that were shipping a lot of silicon carbide before we got there by definition. They are using another tool and may have in fact convince their customers that their quality associated with that is good enough.

So as we go to ship the customer not only do we have the dynamic of shifting them away from their current installed base, but they have to convince their customers. The reason, they're switching is because the new tool is better and that is our intention to do that great company.

Companies that are brand new to the space, Okay, who are entering or have very little market share.

Actively nothing approved and they don't have to necessarily talk to their customers out of one thing and then do something else also companies that are entering the market space right now in many cases like on its very public about this.

Is entering based upon quality and reliability and their modules.

Very differentiated solution and I imagine if you they were our customer it's a little easier to work with them. Because I've also stated every single company that we had talked to has stated they are getting into wafer level burn in there moving from package to wafer level now.

Companies that we're talking to that are not in silicon carbide are saying theyre, starting with wafer level burn. It. There's no reason to switch so one of the challenges that I have and I'm kind of frustrated as well at times.

The pace at which companies will go through their evaluations to identify what the best move it for them and just one thing that I tried to make pretty clear is that yes. The large customers are really important and they are very important and we're going to cover them all.

Intention to win as many if not all of them if at all possible, but having said that the combined capacity of all of them.

All six of those last year.

It's still only 2% of the forecasted need.

In 2030.

The largest of them yes.

It's only 2% of the market share.

At the end of decade, so if you're the market leader or not if youre not anticipating growing your business by 10 apps Youre.

Youre not going to have 20% market share.

So the real key is which companies are growing their silicon carbide business, the most and making sure that we align with them. So.

You mentioned six companies there's also think.

Four maybe five more I apologize.

<unk> been going through this right now so far so about another half a dozen companies that have come forward and are talking about new silicon carbide capacity in fabs that are going in so there's a lot of activity that's going on.

Part of the challenge is how do you bet on which horses do you bet on our current strategy as we're betting on all of them.

We have the capacity and sales I'd say, one thing that is frustrating.

I can promise not to complain and whine about COVID-19, but it is very real the travel restrictions are still real I mean, we have companies in.

Companies Pearl in Japan.

In China, and Korea, and Taiwan and Southeast Asia.

Have not been able to even go to either because.

Sure restrictions or very extreme restrictions that would preclude us from going in and making sales calls. So we're having to do all this stuff over zoom and things like that it's not it's not as easy.

And we kind of thought Vernon I, we're pretty happy we've got to travel around Europe and the U S.

Earlier this fall and then that came to a stop to so it is something that is slowing us down but.

We're making the bet and we were a little bit I know people will use this but we'd like to try to sell shovels to everyone. It's really hard to pick with the market leaders are but I do believe that.

We're going to have an opportunity to win more than our fair share and win.

We're a company and by the way, they're going to be companies that are irrelevant. Even next year 2023, let's say that will be significant and $24 25, and so part of this is trying to play the long game, but make sure that we don't keep lose track of the fact that some of this.

Smaller players or the new entrants may end up being significant market leaders.

Three four years out I hope that helps.

That does help gain and then just a follow.

So up on the on the piece of it.

Evaluation of the customers in the press release, you talked about adding several new silicon carbine customers that will ramp into production by next fiscal year.

So I assume that means that by the end of May of 2022, there'll be a couple of other customers ramping it am I reading that correctly.

I would no I apologize if thats, how I wrote it in.

No the intent was not to push it all the way out but.

I wouldn't say, we expect several companies to be ramping into production by the dismay.

I intended to imply by next or through next fiscal year. So by next May.

Now that's not to suggest that.

We couldnt get a customer or even make shipments by many that's not the intent, but I probably wouldn't describe that as ramping into production anyhow, but I think.

We were we kind of we're repairing two before over the next 18 months, we said that before I am just trying to tighten that up a little as to what we're thinking but we do believe by our next fiscal year, which we call fiscal 'twenty three which ends in may at the end of May of 'twenty three that we would expect to be adding several new customers.

Right and then production is different from like potential initial or would you would you anticipate seeing orders from other customers.

Here in the first half of <unk>.

This calendar year that will lead into.

More quote unquote.

Yep Yep.

It is fair.

I guess it would surprise me, it's most likely that any new customer will start by order, even one before they will order multiple and there might be a three to six months break in between perhaps I mean, it was longer than that to begin with I feel like it will move faster but.

So in that sense, there is sort of a timing.

Is it.

It's certainly possible that we could be getting our first customer orders before the end of this fiscal year.

I also want to hedge my bet a little bit in terms of if we did move does that mean, we have bought the production of these key customers I would say that it's definitely not the case one thing that is kind.

Kind of surprised me a little bit is on NII.

And I know I don't I don't want to get too carried away with specific customers, but there are some companies that were out there that we're talking about this expansion new fabs that were going in 2022.

Six months ago, I was like Oh, My Gosh, we got to hurry hurry hurry, we're going to Miss the ramp.

Bought from us yet theyre going to be ramping.

January of 2022, we're going to Miss out that's just not the case I mean, those same companies are now, saying well, we're going to be sampling in 2022, so they barely even need a production tool by the end of 2022.

No.

Part of this is just trying to understand what's really going on out there and make sure that we're not missing anything that specific customer. For example, we don't feel we're missing we're still talking to them et cetera.

They're not on a timeline you were not looking for a solution to be installed.

This quarter for example, so.

I think theres a little bit of this challenge of trying to guess exactly when people are going to be ordering.

And the timing of that is obviously pretty important because if you.

You're in the stock before that that's good and if you are out when those orders are now obviously that's bad.

On.

I tried my best to try and get an estimate of what's going on again I'll give you at least the windows that I expect not only will people have bought their first orders, but we'll start to see orders that would be ramping into production by the end of next may.

Great and then I guess my last question just as it relates to Silicon photonics.

And in the packaging technology changes et cetera.

And <unk> technologies have you guys had a chance I know you guys kind of previously talked about how large you thought the potential tam could be over time if everybody.

<unk>.

The silicon carbide customer.

And it was 37 million cars sold by 2030 have you guys been able to do any work behind the scenes in silicon photonics to say.

No.

A range of potential revenue outcomes to the company could be kind of X to y.

Two to three years.

Good.

Candidly I don't think we have really good numbers on that yet.

And we'll be working with that and doing the best we can.

There is not actually anyone forecasting that yet publicly so obviously anything we would know about that through non disclosures with customers and stuff that you have to wait for somebody to talk about it publicly.

It's to US right now we see it as you know.

A rising tide in an area, we have a great very fast boat.

If you want to call it that.

So just in general the physics are such that it makes sense to have to be thinking about stabilization. It makes sense to be doing wafer level. So many of the bets that we've made for those folks that have followed us for.

A number of years.

We make these back to basically anticipate major waves.

It's tough to make calls and look for market opportunities that don't exist.

But this would be one of them. This would be an example, where.

You can see why people are going towards this.

I didn't mention it in my prepared remarks remarks, but one of the things that I was I guess, just surprise that or I don't know shocked us write words, but the folks that really get into the technical details related to why silicon Photonics makes sense long term for these intra chip communications or these chip to chip communications in these multi.

<unk> modules or in the packaging technology that Intel has talked about publicly is that certainties or search.

Cereal to Deserialize high speed gigabit channels are nearing the end of their physics, so basically today.

You can go get a <unk> channel that's.

100 <unk>.

20, gigabit or something like that or I think 104 or something like that is it sort of the standard that's out there right now and you can buy that from Xilinx FPGA is on our tools actually run through these channels. Okay high speed digital cereal channels that are running down copper interconnects chip to chip now that you don't run very.

<unk> and <unk>.

It only run a meter or something like that but.

But there are nearing apparently the physical limitations that an electrical signal in elektron can travel in a copper media.

Okay, and what that means is that someone has said that as soon as 200 gigabit or like two generations from now.

You will not be able to make an electrical signal go any faster period, it's at the end of its from.

The whole concept of photonics, which a photon number like a light beam. If you remember for those of us that when the physics the whole debate about electromagnetic radiation or light is it a particle or is it a wave.

In a particle of article has mass and as such can only go so fast.

As a wave does not have mass and part of the whole argument is one of the reasons that a electronics electromagnetic radiation or light photons can't really mass is that can it can travel faster than the mass can travel. So what that shows up that is all of a sudden we're testing silicon photonics.

Devices today that we're burning amend that are 200, 400 800 gigabit devices. Okay. So you are able to get transmission speeds that just get started at 800 gigabit alright.

At 100 gigabit.

Let me just as electrical engineer and kind of in this space, what's exciting is that.

As we look out 10, 20 years from now or five years or even three years people like Nvidia and Intel are talking about having chips with integrated silicon photonics on their processors and their gpus, even a couple of years out.

So it's pretty exciting to see what that looks like and I do know that other companies are making big investments in the testing of it.

We've been making investments in the burn in of it.

And we hope that that will play out as we get a little bit more clarity, we'll be sharing that with you folks.

Still we're just trying to get our arms around it.

Hope that helps.

Helps gain thanks no. Other question. Thank you.

Thank you.

And we will go next to John Cooper will go needs of investors.

Good afternoon.

Two quick financial questions one.

I'm confused why your property plant and equipment, which was.

Gone down in 12 months, given the amount of <unk>.

Foot youre putting through.

So youre spending nothing on the factories or what what.

Why is that why or why is property gone from 700, plus $600000 with CUNY by hit by.

By any stretch of imagination.

Yes.

Jane Let me address that yes, we closed the year out or excuse me a quarter out in November 30th at 661000 compared to $6 76, like we talked about even if you compare to the last year of $6 77.

It's remained relatively flat keep in mind, we depreciate.

$100000, we'll call it in depreciation per quarter. So we're actually adding equipment and were just happened to offset the ads with the amount of depreciation that's getting recognized also a key that we like to say that allows us to scale as we use contract manufacturers.

<unk> doing final assembly and test and having the capacity that we have here in our 51000 square foot facility that allows us to really grow without having to add capital. So that's a great benefit that we havent a great opportunity we have.

Now he's gone from five six in Q1 to nine six in Q2 youre going to have to go to <unk>.

<unk> five in 'twenty one.

It exceeds your 50.

Even with that you will not need to add any hiccup property plant and equipment to your facility.

Very little.

Okay.

Next question.

Again, and you want to say something.

Oh I was going to say I have a couple of engineers that are asking me to buy some really fancy test equipment right now that are listening, but it still won't tip number.

Hi.

Now gross margin went from.

<unk> 41 to <unk> 47 in Q1 to Q2.

So your revenue is going to explode in Q3, and then even further in Q4, what kind of gross margin goal that we have here as we get up to these big numbers like over $20 million I realize youre here.

Your shipping costs have gone up some but we're talking such huge numbers.

Relative to what we've been we had increased six points.

Q2, what's going to happen in Q3, and four and the gross margin side.

Gross margins just to reiterate what I had mentioned in our last call. We expect as we grow to our $50 million a year end number to get gross margins up to 50%. So we're at 47% now we've talked about there being <unk>.

Impact for some unanticipated costs and we still see those cost.

Even though we call the temporary still impacting us for at least the next quarter or potentially the next all the way through our fiscal year end. However, I still believe that we expect to show gross margins in each of those quarters approaching 50% I wouldn't say, it's going to be 50% next quarter, but probably Q4.

Okay.

Yeah.

Okay. Thank you.

I got my questions answered thank you.

Thanks, Sean Thanks.

Thanks, John.

I'm sorry.

And we'll go next to Colin.

Semi analysis.

Hey, Joe.

Hey, Thank you I have two questions. The first one is that some of the analysis has tracked southern firms in China investing over $100 million in two <unk> inclusive of the seven over $1 billion in silicon carbide materials and device manufacturing and its basically all Greenfield you talked a lot about the syntactic wins and traction.

In the U S, Japan, and Europe, but what are doing to penetrate China silicon carbide burn in test market given it's.

Potentially going to be just as large as the U S. CEO.

Yeah.

Okay, well I'll take that one.

Fairly at a high level and I actually specifically prepared comments mentioned customers with the plural as in China.

Yes, there is actually a number of companies in China that are talking about greenfield silicon carbide fabs.

Of which.

I guess I think it's notable reached out to us.

Okay, So our kind of marketing.

Messaging and our reputation is getting out there. So I know at least one if not two of them called us and we'd not even heard of them before for what that maybe that scary too but.

They are contacting us and talking to us about their capacity and its pretty significant now we do have systems, we have burn in systems in China, We actually last quarter announced our first wafer level burn in.

The first box.

System that was going to be being installed into China. In addition to a fairly large customer base of packaged part burn in systems, and we do have infrastructure and people their thing, Kevin because it's particularly difficult to travel in and out of China right now so we.

We have the ability from a sales perspective, we have ability from a applications and a support perspective to support folks in China and the companies that have been talking to us are actually near where people are which actually helps as well.

So we're working on until it.

That's awesome to hear my other question is regarding on device <unk> Dot illuminator switch will grow incredibly pervasive. If you are a big believer in the Medicare artificial reality virtual reality. These devices can use VIX lasers, and you've told us about Vernon test for those in the past.

<unk> and <unk>.

It hit us on the burn in test market for these lasers for 200 G 400, Jacob packaged optics, but can you update us on the burn in test market for sensor applications and potential given how pervasive the mid of meta versus could be.

Okay. So actually lidar when I think of light or think of the automotive side of things. The Dod illuminator as I think of what's on certainly on iphones and things like that or.

Consumer electronics or heads.

Heads up displays or ABB or kind of things right. So we're actually talking with both of those we've got some activities going on with Lidar.

Out in time, but.

I will say, we've got our toes in that right now.

One lead customer.

Related to Dodd eliminator, so I mean actually one of our lead customer our very first customer on the Fox.

P system that we have now.

Parlayed into number of others I think people understand that they were a 10% customer early on which was apple.

But we do we are using that tool in <unk> sensing in mobile applications a number of them.

It's always been an interesting thing for us and we have quite a.

I'm a pretty optimistic Guy. This is an area, you'll see a little bit of a cloud over and that is most of the time the Dod illuminated the pixel arrays.

People are able to deal with what I'll call sampling theyre, not doing 100% burn in and Theyre not necessarily aging them, whereas in the communication application on the pixel they do 100% burden. So a 100% burn in to age it might take 24 to 48 hours, but if youre actually only sampling.

And youre not trying to age it.

You might do that for several hours and certainly not 24 hours, but if you're only sampling a few percent then all of a sudden the market size is not as big.

Today, so far most of that has played out that way because the amount of time.

That the illuminator is actually on and particularly with facial recognition and security access type points. It's a very very small amount of time I mean, if it's only on for milliseconds. Even if you looked at your phone 100 tonnes a day, it's only on for hundreds of milliseconds. So in the entire life it might only be on for three.

<unk> hundred <unk> or something.

So in reality that isn't even enough to notice that the thing is actually the cane like but in a VIX solar array for communications, that's a big problem.

So the one thing that people have talked about it when you go into the gaming and the other applications or certainly automotive lidar the decay of that would be a problem and because it's in continuous use and so we continue to keep our fingers and that some of those deals are fantastic they've got great margin. They just haven't had the volume to them yet.

But we're still involved in those and believe that if some of the applications proved to need capacity that will be a great vendor already qualified and certainly have the manufacturing capacity to meet their needs.

Hope that helps.

Thank you so much.

Operator, do we have others and we will move next to Willard Brown Otter Creek investments.

Hi, Great quarter, you did exactly what you said you would do.

I have a question.

Honestly.

$9 6 million in revenues in the quarter, how many customers did that did you have.

We typically arent, giving that but I think it would be fair to say it was quite dominated by one lead customer in silicon carbide, just by the announcements that we made although it probably was made up of.

Total yet up to get down to it services and things like that but certainly a dozen or more customers, but so.

Absolutely fair to say that our lead customer in Silicon carbide is is dominating our revenue right now.

So as we go forward.

Into the third and fourth quarter, and then into fiscal 'twenty three.

What kind of ideas do you have I understand this market could.

Explode, but what kind of ideas do you have as the number of customers that you will serve in a given quarter.

And you know one of the one of the.

The problems here is concentration.

I don't think that's the big problem here because of your technology.

But it's something I think about so if you go <unk>.

For several quarters.

Are we looking at more of a dispersed customer base.

Yes, let me get that.

I mean I think.

It is absolutely fair to point out that no matter how on concentrating we get we're still concentrated by most message on my previous company, which was <unk>. It was bought by advanced test for about $1 billion in 2011.

We were doing six $7 million to $800 million a year, but I'll tell you every single year, two or three customers accounted for 30% 40% of the revenue.

In the semiconductor world, it's very typical to have a fairly high concentration if you've got it.

If you need 20 customers to get to 90%.

Youre doing pretty good.

The reality is there's more concentration of semiconductor companies than they were certainly when I started in my career. So we have to build a business model around the fact that.

We would aspire to be able to have 20 customers make up 90% of our revenue, but most of the industry. That's the high concentration.

But.

I will not be surprised if we continuously have a 20% 30% customer.

But even over the next decade, because even if we have customers.

Very typical that one might be ramping.

More than the others now having said that from a manufacturing planning perspective were actually betting a little bit different than that and that is seldom do you see or how.

Have I seen where our market is so uniform.

And so clear on what the discontinuity and what the ramp it.

As this.

We saw in flash memory is one online experiences where every company was growing every single company could not supply enough and so you have to have be able to supply to everybody.

That doesn't mean, we're when everybody, but what I mean by that is its not like youre going to see one customer ramp one year and then the next customer. The next most of that most customers over the next decade are going to have to ramp every single year to keep up with the demand.

Come in conclusion also.

So.

Sure.

So we have we have.

As we've done deep dives with our customers we have in almost every case at least two suppliers put every critical sub system.

So the ones that we had single suppliers, we've done some pretty spectacular things to make sure that we have buffers in there, but we are not fully activating our second suppliers, but we're ramping both primary and second suppliers like Mad right now because they have to have the bandwidth to be able to react to it and it's not just total.

But also within reasonable short lead times because the reality is we think that companies are going to get to a point where it's like.

At some point someone I'm sure will have something that will compete with us and if they do we want to be able to bleed based upon being the industry experts the industry standard we can lift all the companies that are already counting on us and also be the people that can supply and short lead times.

But.

We're still going to have concentration.

Don't bet against that.

So here's my second question and then my last question, but it's a really tough one and it's really tough because of what appears to be.

Mindboggling the expansion of the products that you supply and that is the total addressable market I've tried to do this.

I've gone through the number of wafers that are going to be a.

Are going to be needed and then okay. How many air systems do we throw in there I don't know how to do the math.

Basically what the problem is.

So.

How do I look at that.

Well I mean, we block through the mouth several different ways and.

Let me do it a little bit briefly without filling in the numbers. Let me just how to calculate and then I'll give you a rule that's been working quite well so.

Figure out how many cars are going to be built and how many engines or it's going to be in a guarantee it will be at least one engine in them. Okay right. A year now so people were assuming that every card had one engine.

And most people work.

There'll be at least 30 million cars a year built by the end of the decade exactly.

The car engine needs about 50 devices, it's actually 48 plus him onboard staff.

And a wafer today for those type of devices contest about habits about 500 devices on it or 10 engines.

So you just go through the math and say, okay, if we need 30 million cars.

And our wafer can give you 10 of those cars per wafer if theres one engine on it.

And then you start looking at burn in times in test times, and there have been people that had talked it ranges from six hours or 12 hours with 24 hours or 48 hours and we've talked about people would hope to get to 24 hours right now.

Sure.

And then you can give some estimate but we ended up doing is there was a couple of people that it doesn't and I think it's still a very conservative rule of thumb and that is for every million cars.

Better shift youre going to need at least eight of our systems in the world either from us or somebody else can keep in mind. These are 18 wafer systems.

Okay and with the order up.

It's something on the order of a system with all the weight per package and everything else being maybe 4 million Bucks apiece, Okay, you need about $32 million worth.

That's a way of looking at it.

And I wonder if they will hold up under pressure and there is there is it.

It's easy to say Thats conservative.

It's still a big number.

I appreciate it very good job for them.

Okay. Thank you.

And maybe one or two performing we can be quicker is there other folks and we have a question from Mark Gomes of pipeline.

Okay.

Hey, Dan Thanks for taking the call.

You talked about the sampling going on at potential new customer is that the.

Is that the typical process that we should be looking for as you go down the path you've been great about giving us visibility into how your pipeline looks publicly.

And.

And things of that nature I'm wondering if you could just briefly walk us through what the process is to getting to the point they sample.

Do they have to do internal wrangling qualification negotiation with them I mean, what's the process that lead to the finish line.

Generally speaking and that should be typically.

Our test equipment burn in systems in our history.

Our process from the time, you first talk to somebody until they might place a first order is probably minimum <unk>.

Nine months.

I mean, one we used one example, where our lead silicon carbide customer we talk to them in February.

They we were on wafer doing benchmarks with them in the summer they were shipping wafers that we were building for them.

Two sample with their customers and we actually installed the system in November.

<unk>.

Shifting to them in November.

Now to be careful.

Fair and not to advertise that we do this with very often or at all anymore. I think they gave us the order of couple of days before we shipped it to that's pretty rare, but nevertheless, that's how it played out.

And that I think would be fair to say that was moving pretty quick.

We've had a discussion going on with another silicon carbide customer for over a year and they are still taking data.

So.

It's kind of it kind of can depend this is not typically this isn't a 30 day process and historically what people will do two whenever they start they've been bringing in our system and then they'll start doing qualifications.

Both internally and with their customers and then they will ramp so I think it's also reasonable to imagine that.

The time between the first system in the next system oftentimes is a minimum of a quarter or two.

As well so there is.

There is a link to this and I know that that can be frustrating to me sometimes.

But you also don't want to drop the ball nor do you want to.

Guessed wrong.

There's just there's.

It's interesting I said it in my prepared remarks, and I mean, it I mean, I've had conversations with executive management for Silicon carbide customers and they are literally like <unk> with the.

The forecast that their customers are telling them in 2026.

There is so much bigger than what they've built they've spent 10 years or five years building, what they've done and these customers are saying these ridiculous.

<unk> numbers.

Three years from now and they are like how in the heck are we going to do this.

Right. So there are both excited but also just frightened about it and so a lot of my conversations with companies are less about when they can get the first tool and.

And how many they could get.

When they get around to it it's a very interesting comment and say listen you're jumping the gun and you need to abate by the first one first of all like listen.

I have no intention of buying the system from you you would not be able to meet the capacity needs.

It's pretty fun.

It's a fun place to be.

Right course, now Youre looking at those incumbents, obviously, they have processes in place by which they test systems.

Our research indicates that yours would.

It would be superior to what most if not all of them are using it.

At present.

But you know obviously too.

Place those existing systems would be prohibited because they.

Money at that so I would assume is it safe to assume that anything that you would do with the existing.

Vendor would be.

For future capacity.

That's usually easier I mean, it's sort of.

It's kind of hard to compete with free there are things for technical reasons like if youre going to put these devices into a module.

There is no package to put them and so your packaged part burn in doesn't do you any good.

Incremental might not only be capacity, but it might be type of device.

But a company that might be increasing capacity of their package part devices discrete devices.

As well as modules may choose to move.

Need more capacity for other modules and then shift the other capacity towards the excess package part or something like that so but generally speaking.

It's pretty bold to think you're just going to displace what they have that I've seen it done.

Okay, and do you feel that there is any potential roadblocks or pushed back to the idea of running multiple.

Processes in parallel right they have anything.

Saturday sales and profit.

Alright.

Very specifically people wouldn't would actually intend to do that.

The way a discrete component that is in a package you can go find them on digitally I usually have one with me al pointed out.

Hold it in my hand there.

There is still a market for those and discrete package and you can put it on our packaged part burn in like one of my systems.

It's not crazy actually we think it's cheaper at wafer level, we've shown that in customers epic agreed to it but it's getting a cheaper than free.

So people would just continue to do package part burn in why not that's fine.

But there.

There is.

Scale ability perspective, if this if this market stays at package part theyre going to need literally thousands of packaged part burn in systems. So those guys are just declined 2% of the 2030 market they need to grow 50 times.

So if they have packaged part burn in systems and they didn't go to wafer level theyre going to need to buy 50 times as many packaged part burn in systems too.

So it's another way of thinking about it and so in that commercial disconnect. We call it where it's like Wow, you're going to have to go write a check to somebody for $20 million of the package part burn in systems.

If you buy my machine, it's 12 million bucks to wafer level, and it's getting more scalable and by the way you get disadvantaged because you can also do put them into modules and you'd get the yield advantage et cetera. So there is a value proposition and a sales pitch there simply to displace our lead customer has only had shifted away from packaged part.

Yeah.

They're moving everything to wafer it's just cheaper.

So.

Hey, I appreciate the insight.

You've been fantastic and guiding us through all of this your easy Gotta get behind Thanks, a lot.

Thanks Mark.

Okay.

And we'll take our last question from Larry <unk>.

Capital.

Larry go ahead, I'm glad you're safe and sound from Covid.

With me too thank you.

I have three quick questions if I could.

<unk> sales that you you have been announcing recently for silicon photonics.

Lead customer large customer in that area.

Are they buying.

The MPS versus xps, because they have a multitude of applications.

As E&P with its flexibility.

Cost effective enough.

It actually makes more sense, if you stack them up.

And use zoom instead of NXP.

What's going on there.

I'm going to be a little vague here, but just at least say no they're buying them for engineering characterization and early qualification.

Now companies could use an NP member in MP contest to wafers at a time.

So I guess in certain applications in wafers a lot of devices, but these are being used in qualification engine characterization because they're easy you could do quick changeovers, you don't have to you can run them at different.

Each of the N piece can be a different temperature as each of the positions can be a different configurations.

The flexibility for it.

They are just sort of bite sized they're cheaper than the production system.

But.

These are the scale up so it might be to think that.

That's for the same application or the different applications all.

All I've said is that they are different applications.

And I really don't want to do.

Okay, Okay, and well either way.

We don't know yet exactly what that will look like.

Intentions of not forecasting what production may or may not be or anything else, but I'm.

Im very excited about what.

What theyre doing right now so right.

You have an update anything on the CP.

Business for data soon.

And it works.

Larry we don't so folks that are joining in on that I'm familiar with it we announced a CP is a single wafer system that we announced to our customer we referred to it in a.

Extremely high volume application and they bought one system. So it can't be that high volume that that customer has continued to communicate to us on a fairly long period basis every three to six months.

Ramp of that product line continues to be delayed and what I heard was it was listen given COVID-19 and other things they sold everything they can build I.

I think one of the updates I heard was even last may and I think I would have said this in one of those calls.

Hold everything up for a year or more so it's our understanding that they are still fully committed to whatever those new products are going to be which we really know what they are but we are very vague about it.

It's just out in time.

I think I think Vernon and team are supposed to be getting an update again.

During the first quarter or something.

But they are still using the tool every single day 24 hours a day.

And doing all this characterization and preproduction and early runs and things like that and it's believed to be the tool of record they've just clearly have not ramped yet.

Okay do you have a target date when you plan on reducing your automated XP, what I'm, calling the X P H.

So I have had some conversations mostly off of this because of competitive reasons, but just as a reminder, I told people that if you're investing in there you are investing in some level of automation.

And as Larry calls that he's got his own name for it but.

We will.

I'm trying to think what I wanted to say here.

It'll be something that we'll be introducing and shipping certainly this calendar year, let me just leave it at that.

Did you say it'll be shipping this calendar year.

Yes.

See you soon.

Yes.

And is that automation or youre going to make it so it's adaptable to existing xp's, if somebody wanted to upgrade.

Yes.

So there'll be adaptable.

And then lastly.

Once the once that has launched do you anticipate providing that tool.

An evaluation basis too.

Memory potential memory Comber immediately.

The idea of it.

Yes.

You emphasized immediately and you have to be there for a little bit I'd love to I'd love to introduce it to a memory customer and not make any predictions on that yet okay, but one of the things that we do think that that is a critical aspect for it is that that.

Tool with.

It is important to the memory guys, but we also think it's important to other areas by the way I think it would be important to the non <unk>.

Silicon the non fiber optic transceivers silicon photonics business.

I think it would be important to some of the high volume Silicon carbide.

Is that or talking about like charter operations.

I think it'll be kind of more important when the 200 millimeter silicon carbide kicks in because theres more levels of automation for how the wafers are moved around and things like that so there's a number of applications that that would fit towards.

And sort of stay tuned and I know you always hit me up on that so and I'm always sort of vague but.

I don't want to get too carried away with talking about that yeah. Okay.

Alright, that's all I have.

Good job.

Hey, operator, I think we better ended there I know we've got some follow on calls and stuff with people that have setup and as always folks. If you do want to set up calls as follow on MK are folks can help us with setting those up and we do do that.

Kind of usually fill up the week afterwards with it so it would be happy to set those up to folks.

Do want to thank everybody for joining us please stay healthy and safe one thing I do want to add is that if you guys do not already do this.

We had been using kind of as our primary block we do use Linkedin.

And are tested publishing maybe two to three articles a week, including primary content things that talk about our products or and then we direct things towards market.

Industry announcements stuff that we think are pertinent to our space.

Got a lot of activity in silicon carbide, but also silicon photonics and Youll see some other things as well. So I would encourage you to go ahead and go connect with US on Linkedin and go back. If you just knew in gold scroll back always because we've been putting on content pretty aggressively for several months now and it's a great way to keep them.

In connection with us.

And with that I appreciate your time, and we'll look forward to talking to you next quarter and for those that are going to be at the D. A Davidson, we'll see those folks next week as well take care Bye bye.

Yeah.

This concludes today's call. Thank you for your participation you may now disconnect.

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<unk>.

Sure.

Thank you operator, and good afternoon, and welcome to <unk> test systems second quarter fiscal 'twenty two financial results Conference call with me on today's call are <unk> test Systems', President and Chief Executive Officer gain Ericsson and Chief Financial Officer, Ken Spink.

Before I turn the call over to gain and Ken I'd like to cover a few quick items. This afternoon right aftermarket closed their test issued a press release announcing its second quarter fiscal 2022 results at.

These factors that may cause results to differ materially from those in the forward looking statements are discussed in the company's most recent periodic and current reports filed with the SEC.

These forward looking statements, including guidance provided during today's call are only valid as of this date and <unk> 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 gain Erickson President and CEO.

Thanks, Tim Good afternoon, everyone and thank you for joining us for our second quarter fiscal 'twenty two earnings conference call.

We hope that everyone is off to a great new year and are healthy and managing through these historic times with COVID-19.

Also I do want to apologize in advance that either lingering dry cough after recovering from COVID-19 myself over the holidays.

That was fully vaccinated in one of those that had the breakthrough case and I'm happy to say that I'm, feeling fine and fully recovered from what little symptoms I had.

Let's start with a quick summary of the highlights of the quarter and momentum we're experiencing in the semiconductor wafer level test and burn in market.

And then Ken will go over the financial.

<unk> in detail then we'll open up the lines to take your questions.

The second quarter were happy to announce our second consecutive quarter of record bookings and solid results for revenue or bottom line our balance sheet.

And we finished the quarter with new record.

For bookings in a single quarter of $29 $1 million.

This follows the previous quarter, where we set a record of $20 7 million.

Revenue for Q2 was $9 6 million a sequential sequential increase of 70% over the first quarter and up over 470% year over year.

Backlog at quarter end was $36 1 million, which is our highest backlog on record for the company.

With a strong backlog and the incredible performance of our manufacturing and supply chain team as well as the great job. Our suppliers are doing the ramping to meet the significant uptick in revenues, we're confident and and are reiterating our previously provided guidance for full year total revenue of at least $50 million for the fiscal year ending May 31 2000.

'twenty two.

This equates to fiscal 'twenty, two revenue, which is three times that of last year's full year revenue.

Our projected revenue of $35 million or more for the second half of this fiscal year is over two three times our revenue for the first half of the fiscal year.

Today I'm going to go into detail on the silicon carbide Silicon photonics market segments of our business let.

Let me start with a discussion on the silicon carbide test and burn in market, which is being driven substantially by anticipated growth in electric vehicles.

We continue to see very strong interest and an increase in inbound request for information on our solutions for wafer level test and burn in our silicon carbide devices.

Particularly for use it directly in and in support of the electric vehicle market.

Now for those who have not followed Eric let me describe the market opportunities for Silicon carbide test and burn in.

Silicon carbide devices are used in solid state power conversion of electric vehicles. Some would say, it's an enabling technology to electric vehicles.

Silicon carbide MOSFET are used in converting alternating current or AC to direct current D C needed to charge batteries that store the power in the electric vehicles.

These same devices, although higher current empower are used to convert the DC power in the battery pack back to AC to power the engine.

The AC to DC conversion is the onboard are off for battery charger and the D. C back to AC is referred to as the traction and Burger.

Theres one traction Burger per engine, so far like most Tesla model S is accessed and threes as well as the Ford F 150 lightning.

Likely to engines, and therefore to traction and burgers.

A typical traction in Burger today uses 48 silicon carbide MOSFET to address the current and number of phases needed.

Typical six inch silicon carbide semiconductor wafer today has about 500 of these high current MOSFET and so yield about 10 engines per.

Per wafer with perfect meal yields and they do not get perfect yield.

Every silicon carbide supplier agrees that these MOSFET <unk> must go through an extended stress test called Vernon to remove the extrinsic or infant mortality failures to get to the quality rely required to meet automotive standards and.

In addition companies use burn in to stabilize the threshold voltages of the devices, particularly for use in modules, where the devices are gains in parallel.

This burn in step can be done in the final package form and discrete packages, but looking ahead. The industry is moving mostly to multi die modules.

The module is a more efficient require less cooling and are easier to integrate into the <unk> Burger. The downside is that these modules contain many individual die that are all assembled into modules when customers burn in these modules the failure of a single die what caused the entire module to fail, reducing the production yield.

Not only is the cost of the module packaging more expensive, but the other di which could include up to 10 or more die per module are discarded.

The combination of the industry moving the modules in this conflict implication of burning in a package part versus wafer or die level is great for us. It here, where we have a clearly differentiated solution for full wafer level test and burn in of these devices.

Our Fox XP wafer level burn in system can test up to 18 wafers at a time with 100% of the devices being tested and burned and in parallel at the same time.

This is an extremely cost effective and scalable solution for high volume manufacturing of a critical reliability step in the manufacturing process.

Have qualified this to eliminate the extrinsic failure as seen on the silicon carbide devices and it has been validated by multiple electric vehicle manufacturers so far.

During this last quarter, we received a follow on $19 $4 million order for our Fox XP wafer level test and burn in systems from our lead silicon carbide customer.

This order was then followed by a $7 $6 million order for wafer packs that are the consumable if you will.

That makes contact between our Fox XP system.

Specific wafers.

This wafer pack order is actually not enough to fully populate the assistance. They order. So we are expecting additional follow on wafer pack orders for these production Fox XP systems.

These systems and wafer packs are being used to test and burn in MOSFET devices, and traction and voters and electric vehicle motor controllers as well as both onboard and off board electric vehicle Chargers.

In addition to a very strong backlog and forecast from our lead silicon carbide customer. We're currently engaged in discussions and our valuations with several other silicon carbide suppliers regarding their wafer level test and burn in needs.

This includes all of the current large silicon carbide suppliers and a number of companies both large and small that intend to enter the silicon carbide market.

<unk> was the first to move to silicon carbide over the historical IGT high voltage silicon based devices as the silicon carbide devices promise to be more efficient, which translated into long longer range and faster charging times two of if not the most important buying criteria for electric vehicles.

Since their introduction in the model III Tesla sense adopted silicon carbide and all of their vehicles and most of the new electric vehicles across the industry, we will start with silicon carbide as the solution of choice for the power conversion electronics.

An example of how SaaS forecast or changes that just recently <unk> announced at nearly double its production capacity of its upcoming electric F 150 lightning pickup truck to 150000 vehicles year. Finally in mid 2023 and response to enormous customer demand.

The industry forecasters and analysts also appear to be converging on the idea that the typical electric vehicle will have more than one electric engine and traction and burner as electric vehicles with two or more engines are being marketed with longer ranges and faster charging times two of the most critical features in the electric vehicle market.

What this means to areas that there'll be more silicon carbide devices forecasted per average vehicle than we saw only a few months ago.

Rail and photovoltaic power devices.

This is incredible when you realize that this year the entire market is expected to ship fewer than 150000 wafers to meet the automotive electric vehicle market.

This represents a growth of over two five times. The current wafer capacity just for the in vehicle devices, and then double that for the entire silicon carbide market.

Im going into so much detail here is that folks like Canaccord genuity are making the point that the industry has only yet.

Has only at even announced capacity plans to meet this demand much less put it in place. So let me make sure that they do not have enough capacity, even announced to meet this in.

In place Theyre forecasting that the announced capacity is somewhere near 2 million wafers and yet the total capacity or maybe two to four I think versus the total capacity is over 8 million wafers of demand.

We're seeing multiple companies come forth and approach are with a message that they are entering the market because there simply is not enough capacity out there to meet demand and there is plenty of room for newcomers.

Now think back on my comment about new companies, not having been installed base or bad habits of using packaged part burn in systems to test, our <unk> or silicon carbide devices that means that we may have to talk them out of <unk>.

Stay tuned on our progress with a broader array of customers than just the current top companies.

Again remember last year.

Current companies that address the silicon carbide market only shipped about 2% of the wafers needed against the total demand either by the end of the decade.

Kent.

All of the companies today, including the big ones are only 2% of the total demand so stay tuned to find out about the new companies entering the market.

We feel these benchmarks have demonstrated the value Eric can provide and also validate our solution for screening not extrinsic early life failures, and we had predicted by looking at the actual failures of their devices on their wafers.

Were now being asked to do more tests and experiments and run more wafers, which we're happy to work with them on.

Without getting into too much detail I do want to say that companies all have their own internal processes and timelines for evaluating and qualifying a new tool and not all companies move at the same pace one thing Thats for sure every company. We talk to is a combination of excited and scared the size of the ramp expected to meet.

The electric vehicle market, particularly in the second half of this decade.

Some companies are driving to meet this demand sooner than others.

We are ramping our Fox multi wafer test and burn in systems and full wafer pack capacity full.

Wafer wafer pack capacity to meet this upcoming silicon carbide market opportunity, which we believe will grow significantly over the next decade or more.

We provide a very cost effective solution protesting and burning in the silicon carbide devices, and we're confident in our ability to capitalize on the expected growth in the silicon carbide market over the next several years and for many years beyond that.

So let me turn to the Silicon Photonics stabilization and burn in market. So in addition to our success in the Silicon carbide applications, we continue to see strengths of <unk>.

The strengthening in the Silicon Photonics test and burn in market as our Fox multi wafer systems and wafer packs provide a very cost effective and scalable solution for burning in the optical lasers and stabilizing their output power, while also removing any extrinsic early failures.

Their output power.

<unk> Air is able to do this critical step while the devices are still in wafer form before theyre simulated input into a modular system.

Our system, using our Fox multi wafer systems and wafer packs.

Provides a very cost effective and scalable solution for this critical step while also removing any extrinsic or early life failures.

<unk> Silicon photonics devices address the <unk> and data center infrastructure industry as well as several other key markets and Youll research predicts that the silicon Photonics transceiver market alone will reach $4 6 billion in 2026 with a cager a 25% between 2021 and 2020.

Six.

Several companies, including Intel and Cisco Cisco have proven it is possible to create hybrid devices in which the optical and electronic components are integrated onto a single micro chip and the first products in volume production are being used for fiber optic transceivers Houston, the datacom and telecom infrastructure such as data centers.

And <unk> communications.

Both between and within Microchips.

This customer is expected to purchase new sets of wafer pack full wafer contactor has to be used with these systems.

That's the applications end market for Silicon Photonics based devices continued to grow we expect this customer to continue to increase the capacity in the future.

Several other customers addressing the silicon photonics market have also forecast additional fox systems as well as wafer pack the dye pack contactor capacity needs over the next 12 months.

These include needs to address incremental incremental production capacity as well as capacity to address new customer and new product qualification and engineering.

Again, as the only supplier of a commercially available and cost effective solution for testing and burning in the silicon photonics devices in wafer form. We're also very confident in our ability to capitalize on the expected growth in the silicon photonics market over the next several years.

Before turning it over to Ken Let me summarize where we're at.

<unk>.

This represents revenue in the second half, which is two three times that of the first half.

As we have discussed in the past and are proving now air has the manufacturing infrastructure and supply chain in place to ramp to significantly higher revenue levels.

We are seeing.

<unk> has a very robust supply chain with world class subcontract manufacturers on subsystems of our test systems contractors wafer pack aligner and die pack handlers.

These are very mature subcontractors that has successfully supplied these subsystems to Eric for years in all cases, the suppliers have capacity well in excess of Eric historical shipments and the ability to ramp significantly higher as well, we're very confident in our ability to meet the customer forecasted demand plus considerable upside.

As we discussed and anticipated at the beginning of the COVID-19 pandemic Airtest has emerged a stronger company with more production customers more markets and applications and higher value products than we had before the start of the pandemic with a record bookings and the strength of our semiconductor test and burn in solutions as well as the positive response, we are getting.

Multiple new potential customers in the silicon carbide space, we're confident in our growth forecast and ability to meet them the.

Our hard work, we put in over the past several years is paying off for our customers our financials and our shareholders.

We're excited about the large market opportunities ahead and for the future of their test systems.

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.

The increase from Q2 last year includes an increase in wafer pack <unk> revenues of $3.

$4 3 million and an increase in system revenues of $3 6 million customer service revenues were flat for both periods.

Wafer pack and Deepak revenue comprised over half, 53% or $5 $1 million of our total revenue in the second quarter.

We also had a record number of wafer packs and <unk> shipped during the quarter, reflecting growth in our consumables piece of our business as well as our ability to scale and meet customer demand.

From the Paycheck protection program that we received in fiscal year 2020.

And non-GAAP net loss of $1 7 million or <unk> <unk> per diluted share in the second quarter of fiscal 2021.

The non-GAAP results also exclude the impact of stock based compensation in all periods reported.

Stock based compensation cost of $718000 in Q2, 'twenty to reflect a significant increase from $588000 in the preceding quarter and 257000 in the prior year second quarter.

This increase was primarily due to $246000 and stock awards accrued in Q2, 'twenty two related to exceeding stretch goals for fiscal year 2022 key business objectives and over 200000 in expense.

Related to the employee stock purchase plan due to increased employee contributions in new enrollments.

While these noncash expenses exceeded our plan. It is good to have such problems where stretch goals are being exceeded.

And we recognize and appreciate the hard work of all of our employees who help achieve these goals.

On a GAAP basis net income for the second quarter was 717000 or <unk> <unk> per diluted share compared to GAAP net income of 696000 or <unk> <unk> per diluted share in the preceding first quarter.

Which includes the impact of the PPP loan forgiveness.

And a GAAP net loss of 2 million or <unk> <unk> per diluted share in the second quarter of the previous year.

Gross profit in the second quarter was $4 5 million or 47% of sales up from gross profit of $2 3 million or 40% of sales in the preceding first quarter.

And up from gross profit of 377000 or 22% of sales in the second quarter of the previous year.

The increase in gross margin from both the preceding first quarter and Q2. The last year is primarily due to a decrease in unabsorbed overhead costs to cost of goods sold due to higher revenue levels in Q2 'twenty two.

As noted in prior calls we scale very well as manufacturing overhead remains relatively fixed as revenues increase.

<unk> for items shipping historically by Ocean, where due to the shortage in ocean freight capacity with shipments into the U S. We were required to ship by air.

And one example, we are seeing an increase in freight costs for our chambers by over $40000 per chamber to ship them by air from one of our suppliers in Asia to the U S.

While this appears temporary.

We do not see this reducing materially anytime soon.

Good news is our suppliers are able to meet the demand, but we're certainly feeling it and higher shipping costs.

SG&A in the second quarter was $2 5 million, an increase of 536000 from $2 million in the preceding first quarter and up 988 from $1 5 million in the prior quarter of the prior year second quarter.

The increase in the prior quarter includes an increase in employment costs of 348002.

The increase from the prior year second quarter included an increase in employment costs of 745000 and the.

The increase in employment cost.

<unk> salary increases related to races.

The company recognized an increased travel costs and consulting costs during the quarter.

R&D in the second quarter was $1 3 million unchanged from the preceding first quarter.

And up 493000 from 820000 in the second quarter of the prior year.

The increase in R&D from the prior year included an increase in employment costs of 427000 and the.

The increase in employment costs.

Included salary increases related to raises provided to employees during fiscal 2022 higher incentive payments related to key business objectives and stock based compensation costs related to our employee stock purchase plan due to new participants to the plan.

<unk> contributions increases.

In addition to the increase in employment costs. The company recognized an increase in contractor costs and are in the materials related to new R&D program initiatives during fiscal 2022.

We continue to invest in R&D to enhance our existing market, leading products and introduce new products to maintain our competitive advantages and expand our applications and addressable markets.

Turning to the balance sheet for the second quarter.

Our cash and cash equivalents were 35 million at November 32021 up $28 5 million from $6 5 million at the end of the preceding quarter.

During the quarter, we completed a successful capital raise that netted $24 million in cash to the company.

In addition, we generated year to date cash flow from operations of $5 2 million in fiscal 2022.

Yeah.

Accounts receivable at quarter end was $7 4 million.

Up from $4 3 million at.

At the preceding quarter and due to the impact of higher revenue levels inventories at November 30 were $13 million, an increase of $2 million from the preceding quarter and $4 2 million from Q4 'twenty one.

Property and equipment was 661000 compared to 676000 at the preceding quarter end customer.

Customer deposits and deferred revenue short term and long term were $10 3 million, an increase of $6 $8 million from the preceding quarter and $10 million from Q4, 'twenty one related to the increase in backlog from prior quarters.

Million at the end of the second quarter last year.

Now turning to our outlook for fiscal 2022 year, which ends on May 31, 2022, with a record bookings and the strength of our semiconductor test and burn in solutions.

<unk> that of last fiscal year.

While the increase in gross revenues on a relatively fixed manufacturing overhead will increase gross margins. This benefit is partially being offset and temporarily.

With the noted increase in freight and tariff costs as well as the additional non cash based.

Noncash stock based compensation expense from our equity incentive plans related to exceeding stretch goals.

Still we expect our full year GAAP net profit, which included the $1 7 million benefit from the PPP loan forgiveness would be above $10 $5 million or 20% of revenues.

Lastly, looking at the Investor Relations calendar next week, we will be presenting and meeting with investors virtually at the 24th annual Needham Virtual growth conference on Wednesday January 12, we hope to see some of you virtually at the conference.

This concludes our prepared remarks, we are now ready to take your questions. Operator. Please go ahead.

Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad and Purion Speaker phone. Please make sure that you have.

Just turned off to allow your signal to reach our equipment again that is star one to ask a question or a pause for just a moment to allow everyone an opportunity to signal for questions.

And we will go first to Christian Schwab of Craig Hallum Capital Group.

Congratulations.

Have a great quarter and.

Continuation of strong bookings.

Thanks for your time.

Again I was just wondering if you could give us just a little bit of help me with a little bit of clarity on the silicon carbide, we talked about a large you know silicon carbide supplier.

Who is in evaluation and then and then we talked about.

Several new silicon carbide customers that will ramp into production so.

Is that.

No.

A minimum of three customers, even though they could be close at hand.

Or is it are you referring to.

The.

The large silicon carbine supplier when you talk about several card customers. So it wasn't clear to me.

Alright, let me, let me try and folks.

Yes.

One of the challenges that we're dealing with right now is and we've made statements like talking to all of the suppliers and then some.

The subtlety here is when you are talking to all of the players theres always that balance of trying to maintain.

How competitive information and where they're at and not giving too much information about one player versus the other and so sometimes my.

Indirect and all is just related to that because obviously my key customers listen in on this thing as well and we have pretty.

Clear non disclosures and things in place that we always have to try and muddy it as best we can but when you are talking some of these deals and large deals in a discrete in the southern I know that gets difficult. So let me try and add a little bit of color as well so just for clarity.

The industry.

Market forecasters that talk out there generally referred to the largest suppliers in the space.

Traditionally have been S. T had the number one position.

And then in Permian and Cree now will speed or others, and then on semiconductor that kind of came out of nowhere and people know that on semiconductor is one of our top 10% customers.

<unk> are generally thought of by most people as the current larger players in this space. In addition to that you have Mitsubishi in Rome that historically were kind of filled out the top six.

We have some level if not a deep level of engagement with all of the above right and we certainly are in conversations with all top four of them, including one of them being our biggest lead customer.

What we have done is we've been involved in I generally refrigerate at least one benchmark there's different levels of engagements and discussions, but we're clearly doing on wafer.

Measurements and all for one of those is a new potential customer of ours and the data is quite compelling and is giving us results consistent with what we told them, we would show them and expect and they've actually asked for additional testing and clarification, some more wafers et cetera, and we're happy to oblige.

It is our expectation and our offer to all of the suppliers out there pretty much all the big guys that we will be happy to demonstrate on wafer for them.

And what I have tried to allude to and I said.

Set it in a lot of different ways.

Quite interesting to see the difference in pace between all the different companies.

And it isn't necessarily how big you are it's just maybe how aggressive management is about commitment to new capacity or changes et cetera.

One thing that historically is true in general in the test business and I've been doing this all my life.

Is that.

Being the installed base has its advantages, it's usually pretty hard to just displace someone that's not to say that we can't displace them or we can't displace all of them, but if there were companies that were shipping a lot of silicon carbide before we got there by definition. They are using another tool and may have in fact convinced their custom.

<unk> that the quality associated with that is good enough. So as we go to ship the customer not only do we have the dynamic of shifting them away from the current installed base, but they have to convince their customers that the reason, they're switching is because the new tool is better and that is our intention to do that okay compass.

Companies that are brand new to the space, Okay, who are entering or have very little market share.

Is entering based upon quality and reliability and their modules.

Very differentiated solution and imagine if you they were our customer it's little easier to work with them. Because I've also stated every single company that we have talked to has stated they are getting into wafer level burn in there moving from package to wafer level now.

Companies that we're talking to that are not in silicon carbide are saying they are starting with wafer level burn. It. There's no reason to switch so one of the challenges that I have and I'm.

Kind of frustrated as well at times.

The pace of which companies will go through their evaluations.

To identify what the best move for them and just one thing that I tried to make pretty clear and there is that yes.

Customers are really important and they are very important and we're going to cover them, where it's our intention to win as many if not all of them if at all possible, but having said that the combined capacity of all of them.

All six of those last year.

It's still only 2% of the forecasted need.

In 2030.

The largest of them yes.

It's only 2% of the market share at the end of decade. So if you are the market leader or not.

Not anticipating growing your business by 10 apps Youre.

Youre not going to have 20% market share.

So the real key is which companies are growing their silicon carbide business, the most and making sure that we align with them. So.

I mentioned six companies there's also think.

Four maybe five more I apologize.

Vernon I have been going through this right now so far so about another half a dozen companies that have come forward and are talking about new silicon carbide capacity in fabs that are going in so there's a lot of activity that's going on.

Part of the challenge is how do you bet on which horses do you bet on our current strategy as we're betting on all of them.

We have the capacity and sales I'd say, one thing that is frustrating.

Tried and promise not to complain and whine about COVID-19, but it is very real the travel restrictions are still real I mean, we have companies in.

Companies.

In Japan, and China, and Korea, and Taiwan and Southeast Asia.

Have not been able to even go to either because.

Pure restrictions or very extreme restrictions that would preclude us from going in and making sales calls. So we're having to do all this stuff over zoom and things like that it's not it's not as easy.

And we kind of thought Vernon I, we're pretty happy we've got to travel around Europe and in the U S.

Earlier this fall and then that came to a stop to sell.

So it is something that is slowing us down, but I think we're making our bets and we were a little bit I know people overuse this but we'd like to try to sell shovels to everyone. It's really hard to pick with the market leaders are but I do believe that.

We're going to have an opportunity to win more than our fair share and win.

Number of companies and by the way, they're going to be companies that are irrelevant. Even next year 2023, let's say that will be significant in 'twenty four 'twenty five.

So part of this is trying to play the long game, but make sure that we don't keep lose track of the fact that some of the smaller players or the new entrants may end up being significant market leaders 234 years out I hope that helps.

That does help gain and then just a follow up on the on the pace of evaluation of the customers in the press release, you talked about adding several new silicon carbide customers that will ramp into production by next fiscal year.

So I assume that means that by the end of May of 2022, there'll be a couple of other customers ramping it am I reading that correctly.

I would know.

That's how I wrote it in.

No the intent was not to push it all the way out but.

I wouldn't say, we expect several companies to be ramping into production by decimate.

I intended to imply by next or through next fiscal year. So by next May.

Now that's not to suggest that.

We couldnt get a customer or even make shipments by many that's not the intent, but I probably wouldn't describe that as ramping into production anyhow, but I think.

Right and then production is different from like potential initial or would you would you anticipate seeing orders from other customers.

Here in the first half of <unk>.

This calendar year.

Lead into Ma.

More quote unquote.

Yep.

It is fair.

I guess it would surprise me, it's most likely that any new customer will start by order, even one before they will order multiple and there might be three to six months break in between perhaps I mean, it was longer than that to begin with I feel like it will move faster but.

So in that sense, there is sort of a timing.

Is it.

It's certainly possible that we could be getting our first customer orders before the end of this fiscal year.

I also want to hedge my bet a little bit in terms of if we did move does that mean, we have blocked the production of these key customers I would say that it's definitely not the case one thing that is kind.

Kind of surprised me a little bit is on.

And I know I don't I don't want to get too carried away with specific customers, but there are some companies that were out there that we're talking about this expansion of new fabs that were going in in 2022.

Six months ago, I was like Oh, My Gosh, we got to hurry hurry hurry, we're going to Miss the ramp there.

Bought from us yet theyre going to be ramping.

So.

Part of this is just trying to understand what's really going on out there and make sure that we're not missing anything that specific customer for example, we don't feel we're missing.

We're talking to them et cetera.

They're not on a timeline you were not looking for a solution to be installed.

This quarter for example, so.

I think theres a little bit of this challenge of trying to guess exactly when people are going to be ordering and the timing of that is obviously pretty important because if you.

You're in the stock before that that's good and if you are out when those orders are announced obviously thats bad.

I tried my best to try and get an estimate of what's going on again I'll give you at least the window that I expect not only will people have bought their first orders, but we'll start to see orders that would be ramping into production by the end of next may.

Great and then I guess my last question just as it relates to Silicon photonics.

And in the packaging technology changes et cetera.

And in a chip technologies have you guys had a chance I know you guys kind of previously talked about how large you thought the potential tam could be over time if everybody.

<unk>.

The silicon carbide customer.

And it was 37 million cars sold by 2030 have you guys been able to do any work behind the scenes in silicon photonics to say.

No.

A range of potential revenue outcomes to the company could be kind of X to y.

Two to three years.

Yes.

Candidly I don't think we have really good numbers on that yet.

And we'll be working with that and doing the best we can.

There is not actually any when forecasting that yet publicly so obviously anything we would know about that through non disclosures with customers and stuff that you have to wait for somebody to talk about it publicly.

It.

To us right now we see it as.

A rising tide.

An area, we have a great very fast about you know.

If you want to call. It that also just in general the physics are such that it makes sense to have to be thinking about stabilization. It makes sense to be doing wafer level. So many of the bets that we've made for those folks that have followed us for.

A number of years, we make these back to basically anticipate major waves.

It's tough to make calls and look for market opportunities that don't exist.

But this would be one of them. This would be an example, where.

You can see why people are going towards this.

I didn't mention it in my prepared remarks remarks, but one of the things that I was just surprised that or I don't know shocked us write words, but the folks that really get into the technical details related to why silicon Photonics makes sense long term for these intra chip communications or these chip to chip communications in these multi <unk>.

<unk> modules or and the packaging technology that Intel has talked about publicly is that certainties or search cereal to decentralized.

Speed gigabit channels are nearing the end of their physics, so basically today.

You can go get a <unk> channel that's.

101.

20, gigabit or something like that.

I think one O form when a lead or something like that is it sort of the standard that's out there right now and you can buy that from Xilinx FPGA is R&R tools actually run <unk> channels, Okay high speed digital cereal channels that are running down copper interconnects chip to chip now that you don't run very far and not only run a meter or something like that.

But there are nearing apparently the physical limitations that an electrical signal in elektron can travel in a copper media.

And what that means is that someone has said that as soon as 200 gigabit or like two generations from now.

You will not be able to make an electrical signal go we need faster period, it's at the end of its from.

The whole concept of photonics, which a photon remember like a light beam. If you remember for those of us that when the physics the whole debate about electromagnetic radiation or light is it a particle or is it away.

And a particle of article have mass and as such can only go so fast.

As a wave does not have mass and part of the whole argument is one of the reasons that a electronics electromagnetic radiation and light photons can't really have NAS is that can it can travel faster than the match can travel. So what that shows up that is all of a sudden we're testing silicon photonics.

Devices today that we're burning amend that are 200, 400 800 gigabit devices. Okay. So you are able to get transmission speeds that just get started at 800 gigabit alright.

At 100 gigabit.

Let me just as electrical engineer and kind of in this space, what's exciting is that.

So it's pretty exciting to see what that looks like and I do know that other companies are making big investments in the testing of it.

We've been making investments in the burn in of it.

And we hope that that will play out as we get a little bit more clarity, we'll be sharing that with you folks.

So we're just trying to get our arms around it.

Hope that helps.

Helps gain thanks no. Other question. Thank you.

Thank you.

And we will go next to John Cooper will go needs of investors.

Okay.

Hey, good afternoon.

Two quick financial questions one.

I'm confused why your property plant and equipment, which was has gone down in 12 months given the amount of <unk>.

What youre putting through.

So youre spending nothing on the factories or what what.

Why is that why or why is property gone from 700, plus $600000 with Q&A, but by.

By any stretch of imagination.

Yes, So let me gain let me address that yes, we closed the year out or excuse me a quarter out in November 30th at 661000 compared to $6 76, like we talked about even if you compare to the last year of $6 77.

It's remained relatively flat keep in mind, we depreciate.

Test and having the capacity that we have here in our 51000 square foot facility that allows us to really grow without having to add capital. So that's a great benefit that we havent a great opportunity we have.

Now he's gone from five six in Q1 to nine six in Q2 youre going to have to go to <unk>.

15, five in 'twenty one.

It exceeds your 50.

Even with that you will not need to add any hiccup property plant and equipment for your facility.

Very little.

Okay.

The next question.

Again, do you want to say something here.

I was going to say I have a couple of engineers that are asking me to buy some really fancy test equipment right now that are listening, but it still won't impact number.

Hi.

Now gross margin went from.

41% to 47 in Q1 to Q2.

So your revenue is going to explode in Q3, and then even further in Q4, what kind of gross margin goal that we have here as we get up to these big numbers like over $20 million I realize you are here.

Youre shipping costs have gone up some but we're talking such huge numbers.

Relative to what we've been we increased six points.

In Q2, what's going to happen in Qs, three and four and the gross margin side.

Gross margins just to reiterate what I had mentioned in our last call. We expect as we grow to our.

$50 million a year end number to get gross margins up to 50%. So we're at 47% now we've talked about there being.

Impact for some unanticipated costs and we still see those cost.

Okay.

Okay. Thank you.

I got my questions answered thank you.

Thanks, Sean.

Thanks, John.

I'm sorry.

And we'll go next to Joan of semi analysis.

Hey, Joe.

In the U S, Japan, and Europe, but what is it they're doing to penetrate China silicon carbide burn in test market given it's potentially.

Potentially going to be just as large as the U S.

Okay.

Okay, well I'll take that one.

At a high level and I actually specifically prepared comments mentioned customers with the plural as in China.

Yes, there is actually a number of companies in China that are talking about greenfield silicon carbide fabs.

Of which.

I guess I think it's notable reached out to US okay. So our kind of marketing.

Messaging and our reputation is getting out there. So I know at least one if not two of them called us and we'd not even heard of them before for what that maybe that scary too but.

The first box.

System that was going to be being installed into China. In addition to we have a fairly large customer base of packaged part burn in systems, and we do have infrastructure and people their thing, Kevin because it's particularly difficult to travel in and out of China right now so we.

So we're working on it.

That's awesome to hear my other question is regarding on device <unk> Dot illuminator switch will grow incredibly pervasive. If you are a big believer in that net of various artificial reality virtual reality. These devices can use VIX lasers, you've told us about Vernon test for those in the Paas.

<unk> and <unk>.

Okay. So actually lidar when I think of light or think of the automotive side of things. The Dod illuminator as I think of what's on certainly on iphones and things like that work.

Consumer electronics or heads.

Heads up displays or ABB or kind of things right. So we're actually talking with both of those we've got some activities going on with Lidar.

Out in time, but.

I'll say, we've got our toes in that right now.

With one lead customer and related to Dodd eliminator, So actually one of our lead customer our very first customer on the Fox.

P system that we have now.

Parlayed into number of others I think people understand that they were a 10% customer early on which was apple.

But we do we are using that tool in <unk> sensing in mobile applications a number of them.

It's always been an interesting thing for us and we try to.

I'm a pretty optimistic Guy. This is an area, you'll see a little bit of a cloud over and that is most of the time, the Dod illuminator isn't the pixel arrays.

People are able to deal with what I'll call sampling they are not doing 100% burn in and theyre not necessarily aging.

In the communication application with the pixel they do 100% burden, so a 100% Vernon into age it might take 24 to 48 hours, but if youre actually only sampling and youre not trying to age it you.

You might do that for several hours and certainly not 24 hours, but if you're only sampling a few percent then all of a sudden the market size is not as big.

Today, so far most of that has played out that way because the amount of time.

The illuminator is actually on and particularly with facial recognition and security access type points is a very very small amount of time I mean, if it's only on for milliseconds. Even if you look at your phone 100 tonnes a day, it's only on for hundreds of milliseconds. So in the entire life it might only be on for three.

<unk> hundred <unk> or something.

So in reality that isn't even enough to notice that the thing is actually the cane like but in a VIX solar array for communications, that's a big problem.

Were still involved in those and believe that if some of the applications proved to need capacity that will be a great vendor already qualified and certainly have the manufacturing capacity to meet their needs.

Hope that helps.

Thank you so much.

Operator, do we have others and we will move next to Willard Brown Otter Creek investments.

Hi, Great quarter, you did exactly what you said you would do.

I have a question.

Out of the.

$9 6 million in revenues in the quarter, how many customers did the.

Did you have.

Total yet up to get down to it services and things like that but certainly a dozen or more customers.

So.

Absolutely fair to say that our lead customer in Silicon carbide is is dominating our revenue right now so as we go forward into the third and fourth quarter and then into fiscal 'twenty three.

What kind of ideas do you have I understand this market could.

Explode, but what kind of ideas do you have as the number of customers that you will serve in a given quarter and.

One of the one of the.

The problems here is concentration.

I don't think that's the big problem here because of your technology, but it's something I think about so if you go forward several quarters.

Or are we looking at more of a dispersed customer base.

Yes, let me just.

With that I mean I think.

It is absolutely fair to point out that no matter how.

Concentrated we get we're still concentrated by most methods.

My previous company, which was <unk>. It was bought by advanced test for about $1 billion in 2000.

We were doing six $7 million to $800 million a year, but I'll tell you every single year, two or three customers accounted for 30% 40% of the revenue.

In the semiconductor world, it's very typical to have a fairly high concentration if you've got it.

If you need 20 customers to get to 90%.

Youre doing pretty good.

The reality is there's more concentration of semiconductor companies than they were certainly when I started in my career.

So we have to build a business model around the fact that.

We would aspire to be able to have 20 customers make up 90% of our revenue, but most industry. That's the high concentration.

<unk>.

I will not be surprised if we continuously have a 20% 30% customer.

But even over the next decade, because even if we have 10 customers.

Very typical that one might be ramping more than the others now having said that from a manufacturing planning perspective were actually betting a little bit different than that and that is solid and do you see or have I seen where our market is so.

No uniform.

So clear on what the discontinuity and what the ramp it.

As this.

In Flash memory is one of my experiences where every company was growing every single company could not supply enough and so you have to have be able to supply to everybody.

That doesn't mean, we're when everybody, but what I mean by that is its not like youre going to see one customer ramp one year and then the next customer. The next most of the most customers over the next decade are going to have to ramp every single year to keep up with the demand.

When you come in conclusion also.

No.

Yeah.

So we have we have.

As we've done deep dives with our customers we have in almost every case at least two suppliers put every critical quality systems and so the ones that we had single suppliers, we've done some pretty spectacular things to ensure that we have.

<unk> in there, but we are not fully activating our second suppliers, but we're ramping both primary and second suppliers like Mad right now.

They have to have the bandwidth to be able to react to it and it's not totally.

But also within reasonable short lead times because the reality is we think that companies are going to get to a point where it's like.

But.

We're still going to have concentration.

Don't bet against that.

So here's my second question and then my last question, but it's a really tough one and it's really tough because.

What appears to be.

A mindboggling expansion of the products that you supply and that is the total addressable market I've tried to do this so I've gone through the number of wafers that are going to be or you don't.

Going to be needed and then okay. How many air systems do we throw in there I don't know how to do the math.

Especially I believe what the problem is.

And so.

How do we look at data.

Well I mean.

We block through the mouth several different ways and let.

Let me do it a little bit briefly without filling in the numbers. Let me just you guys how to calculate and then I'll give you a rule that's been working for us so.

Figure out how many cars are going to be built and how many engines. So it's going to be and I guarantee it will be at least one engine in them. Okay right. A year now so people were assuming that every card had one engine.

And most people were.

There'll be at least 30 million cars a year built by the end of the decade exactly.

Car engine needs about 50 devices, it's actually 48 plus him onboard staff.

And a wafer today for those type of devices contest about habits about 500 devices on it or 10 engines.

So you just go through the math and say, okay. If we need 30 million cars okay.

Okay and the wafer can give you 10 of those cars per wafer if theres one engine on it.

And then you start looking at burn in times in test times, and there have been people that had talked it ranges from six hours or 12 hours or 24 hours or 48 hours and we've talked about people would hope to get to 24 hours right now okay.

And then you can give some estimate but we ended up doing is there was a couple of people that it doesn't mess and I think it's still a very conservative rule of thumb and that is for every million cars.

Better shift youre going to need at least eight of our systems in the world either from us or somebody else and keep in mind. These are 18 wafer systems.

Okay and with.

The order up something.

Something on the order of a system with all the weight per package and everything else being maybe 4 million Bucks apiece, Okay, you need about $32 million worth.

That's that's a way of looking at it.

And I Wonder if it holds up under pressure and there is there is it's easy to say Thats conservative.

But it's still a big number.

I appreciate it very good job for them.

Okay. Thank you.

And maybe one or two more mailing be quicker is there are there folks and we have a question from Mark Gomes with pipeline.

Okay.

Hey, Dan Thanks for taking the call.

You talked about the sampling going on at the potential new customer is that the.

Is that the typical process that we should be looking for as you go down the path you've been great about giving us visibility into how your pipeline looks publicly.

And.

And things of that nature I'm wondering if you could just briefly walk us through what the process is to getting to the point where they sample.

Do they have to do internal wrangling qualification negotiation with what's the process that lead to the finish line. Thanks, Okay, generally speaking and that should be typically.

Our test equipment burn in systems in our history.

Our process from the time, you first talk to somebody until they might place a first order is probably minimum <unk>.

Nine months.

I mean, one we used one example, where our lead silicon carbide customer we talk to them in February.

They we were on wafer doing benchmarks with them in the summer they were shipping wafers that we were building for them.

Two sample with their customers and we actually installed the system in November.

Yes.

Our ship it to them in November.

Now to be.

Fair and not to advertise that we do this with very often or at all anymore. I think that gave us the order of couple of days before we ship that too that's pretty rare, but nevertheless, that's how it played out.

And that I think would be fair to say that was moving pretty quick.

We've had a discussion going on with another silicon carbide customer for over a year and they are still taking data.

So.

Internally and with their customers and then they will ramp so I think it's also reasonable to imagine that.

That the time between the first system in the next system oftentimes is a minimum of a quarter or two.

As well so there is.

There is a link to this and I know that that can be frustrating to me sometimes.

But you also don't want to drop the ball nor do you want to.

Guessed wrong.

Yes, it's interesting I said it in my prepared remarks, and I mean, it I mean, I've had conversations with executive management for Silicon carbide customers and they are literally like <unk> with the.

The forecast that their customers are telling them.

2026.

There is so much bigger than what they've built they've spent 10 years or five years building, what they've done and these customers are saying these ridiculous my numbers.

Three years from now and Theyre like how in the Heck are we going to do this.

So there are both excited but also just frightened about it.

So a lot of my conversations with companies are less about.

When they can get the first tool.

And how many they could get.

When they get around to it it's a very interesting comment and say listen you're jumping the gun and you need it by the first one first of all like listen.

I have no intention of buying the system from you you would not be able to meet the capacity needs.

It's pretty fun.

It's a fun place to be.

Right course, now Youre looking at those incumbents, obviously, they have processes in place by which they test systems.

Our research indicates that yours would.

It would be superior to what most if not all of them are using it.

At present.

But you know obviously too Rick.

Place those existing systems would be prohibited because they sunk.

Money at that so I would assume is it safe to assume that anything that you would do with the existing.

Vendor would be.

For future capacity.

That's usually easier I mean, it sort of.

It's kind of hard to compete with free there are things for technical reasons like if youre going to put these devices into a module.

There is no package to put them and so your packaged part burn in doesn't do you any good.

Incremental might not only be capacity, but it might be type of device.

But a company that might be increasing capacity of their package part devices discrete devices.

As well as modules may choose to move.

Need more capacity for other modules and then shift the other capacity towards the excess packaged part or something like that so but generally speaking it is.

Pretty bold to think you're just going to displace what they have but I've seen it done.

Okay, and do you feel that there is any potential roadblocks or pushed back to the idea of running multiple.

Processes in parallel right they have an existing.

Saturday sales and profit.

Alright.

Very specifically people wouldn't would actually intend to do that.

By the way a discrete component that is in a package you can go find them on digitally I usually have one with me al pointed out.

Hold at my hand.

There is still a market for that and if it's in the discrete package and you can put it on our packaged part burn in like one of my systems.

It's not crazy actually we think it's cheaper at wafer level, we've shown that in customers epic greed to it but it's again not cheaper than free.

So people would just continue to do packaged part burn in why not that's fine.

<unk>.

There is scale.

Scale ability perspective, if this if this market stays at package part theyre going to need.

Literally thousands of packaged part burn in systems. So those guys are just declined 2% of the 2030 market they need to grow 50 times.

So if they have packaged part burn in systems and they didn't go to wafer level theyre going to need to buy 50 times as many packaged part burn in systems too.

So it's another way of thinking about it and so in that commercial disconnect. We call it where it's like Wow, you're going to have to go write a check to somebody for $20 million with a packaged part burn in systems.

If you buy my machine, it's 12 million Bucks and its wafer level and it's getting more scalable and by the way you get disadvantaged because you can also do put them into modules and you'd get the yield advantage et cetera. So there is a value proposition and a sales pitch there simply to displace our lead customer has only had shifted away from packaged part.

They're moving everything to wafer it's just cheaper.

So.

Hey, I appreciate the insight.

You've been fantastic and guiding us through all this year easy gotta get behind thanks, a lot.

Thanks Mark.

Okay.

And we will take our last question is from Larry Athena of AR capital.

Yeah.

Larry go ahead, I'm glad you're safe and sound from Covid.

Me too thank you.

I have three quick questions if I could.

The E&P sales that you you've been announcing recently for silicon photonics.

Customer large customer in that area.

Are they buying the MPS versus xps, because they have a multitude of applications, whereas E&P with its flexibility.

Cost effective enough work.

It actually makes more sense, if you stack them up.

And use zoom instead of NXP.

What's going on there.

I'm going to be a little vague here, but I'll just at least say no they're buying them for engineering characterization and early qualification.

Now companies could use an <unk> member and MP contest to wafers at a time.

So I guess in certain applications of wafers a lot of devices, but these are being used in qualification engine characterization because they're easy you can do quick changeovers, you don't have to you can run them at different.

Each of the N piece can be a different temperature as each of the positions can be a different configurations.

The flexibility for it.

They are just sort of bite sized.

Cheaper than the production system.

But.

Easier to scale up so am I to think that.

That's for the same application or are they different applications.

All I've said is that they are different applications.

I really don't want it.

Okay. Okay.

Either way.

We don't know yet exactly what that will look like and intentions of not.

Forecasting what production may or may not be or anything else, but I'm very excited about this that what theyre doing right now so right.

You have an update anything on the CP.

Business for data soon.

And it works.

Larry we don't so folks that are joining in on that I'm familiar with it.

Now stay CP is a single wafer system that we announced to our customer we referred to it.

What I heard was it was listen given COVID-19 and other things they sold everything they can build.

I think one of the updates I heard was even last may and I think I would have said this in one of those calls.

Sold everything up for a year or more so it's our understanding that they are still fully committed to whatever those new products are going to be which we really know what they are but we are very vague about it.

It's just out in time.

I think I think Vernon and team were supposed to be getting an update again.

During the first quarter or something.

But they are still using the tool every single day 24 hours a day.

And doing all this characterization and preproduction and early runs and things like that and it's believed to be the tool of record they've just clearly have not ramped yet.

Okay do you have a target date when you plan on reducing your automated XP, what I'm, calling the X P H.

And as Larry calls that he's got his own name for it but.

We will.

I'm trying to think what I wanted to say here.

It'll be something that we'll be introducing and shipping certainly this calendar year, let me just leave it at that.

Did you say it'll be shipping this calendar year.

Yes.

Are you seeing.

Yes.

And is that automation or youre going to make it so it's adaptable to existing xp's, if somebody wanted to upgrade.

Yes.

So there'll be adaptable.

And then lastly.

Once the once that has launched do you anticipate providing that tool on a valuation basis to them.

Our memory potential memory Comber immediately is it.

The idea of it.

Yes.

Emphasized immediately we have to be there for a little bit I'd love to give I'd like to introduce it to a memory customer and not make any predictions on that yet okay.

One of the things that we do think that that is a critical aspect for it is.

Tool with.

It is important to the memory guys, but we also think it's important to other areas by the way I think it would be important to the non <unk>.

Silicon the non fiber optic transceivers silicon photonics business.

I think it would be important to some of the high volume Silicon carbide.

Is that or talking about like charter operations.

And sort of stay tuned and I know you always hit me up on that so and I'm always sort of vague but.

I don't want to get too carried away with talking about that yeah. Okay.

Alright, that's all I have the good job alright.

Kind of usually fill up the week afterwards with it so it would be happy to set those up to folks.

Do want to thank everybody for joining us please stay healthy and safe one thing I do want to add is that if you guys do not already do this.

We had been using kind of as our primary block.

We do use Linkedin.

And Air Test is publishing maybe two to three articles a week, including primary content things that talk about our products or and then we direct things towards market.

Industry announcements stuff that we think are pertinent to our space.

In connection with us.

Yeah.

This concludes today's call. Thank you for your participation you may now disconnect.

Q2 2022 Aehr Test Systems Earnings Call

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