Q3 2022 Aehr Test Systems Earnings Call
[music].
Please standby we are about to begin.
Good day and welcome to the Air Test systems third quarter fiscal 2022 financial results call Today's conference is being recorded.
I'd like to turn the conference over to Jim Byers of M. K R. Investor Relations. Please go ahead Sir.
Thank you operator, good afternoon, and welcome to Air Test systems third quarter fiscal 2022 financial results Conference call.
With me on today's call are test systems, President and Chief Executive Officer gain Ericsson and Chief Financial Officer kind of thing.
Before I turn the call over to Ken and game I'd like to cover a few quick items. This afternoon right. After market close Air Test issued a press release announcing its third quarter fiscal 2020 to resolve.
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 at 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.
Those 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 are test systems undertakes no obligation to update the forward look.
Statements.
Now that said I'd like to turn the call over to gain Erickson President and CEO .
Thanks, Tim Good afternoon, everyone and thanks for joining us for our third quarter fiscal 'twenty two earnings conference call, 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 in detail.
Then we'll open up the lines to take your questions.
Third quarter revenue was $15 $3 million, our highest quarterly revenue on record. This is a sequential increase of 59% over the second quarter and up 190% year over year. We also generated non-GAAP net income of $4 $1 million and ended the quarter with a strong $26 $9 million in backlog and our.
Effective backlog, which includes all orders announced since the end of the quarter is over $30 million.
We continue to see very strong interest and demand for wafer level test and burn in the silicon carbide devices and enormous growth potential for errors unique solutions to test and burn in devices to support the worldwide electrification movement in electric vehicles power conversion and power generation and storage infrastructure.
During the quarter four additional companies provided detailed wafer layouts to air for their silicon carbide wafers as part of their evaluation of using airs Fox XP systems, and wafer pack contractors for wafer level burn in of their devices to meet the electric vehicle market and electrification infrastructure markets. We have provided those customers.
With the data confirming that we believe we can test their wafers and provided proposals and lead times to meet their needs. This includes another major supplier of Silicon carbide devices, who has now committed to and on wafer benchmark and asked us to put our system on their test floor to demonstrate our capabilities.
This is now the second of the top four silicon carbide customers and that's beyond our current lead silicon carbide considered to be one of the top four to engage with us and what we call on wafer benchmarking of their actual wafers.
We have now made several proposals to customers to place orders to lock in lead times of our Fox systems and wafer packs and then Aaron will provide on wafer evaluations and validation for them within the lead time of those systems.
And just the last few weeks, we met with multiple companies in both the U S and Europe face to face and are very encouraged by the positive feedback we received about their forecast for wafer level burn in needs and our expectations for winning this capacity with those prospective customers.
This included very productive meetings with a major supplier of silicon carbide that is already currently doing on wafer benchmarking and burn and optimization investigations with our Fox system and wafer packs today.
It's apparent that wafer level burn in will become the standard for silicon carbide devices and based upon customer feedback. We continue to believe that era is unique in our ability to meet the cost and volume production needs of this market.
Last quarter, we said that we believe will add several new customers that will be ramping into production by the end of our fiscal 'twenty, three which ends may 31, 'twenty twenty-three I'm often asked by investors about whether I more or less confident about our forecasted last time I can go ahead and answer that question before someone else.
Or ask sorry, the answer is yes, and feeling more confident actually even much more confident that we will add new customers that will be ramping into production by next may.
We continue to work closely with our lead Silicon carbide test and burn in customer and earlier. This month, we announced the follow on orders from them for additional wafer pack contractors that reflect multiple new silicon carbide device designs. They are building to be qualified by their customers along with several silicon carbide devices now qualified and ramping into volume production.
To meet demand for electric vehicles.
This customer continues to forecast the need for additional capacity to meet their goal of achieving a major market share of the silicon carbide market. We continue to expect significant additional system in wafer pack purchases from them over the next several years and so at the end of the decade.
The silicon carbide semiconductor test and burn in market is being driven substantially by anticipated growth in electric vehicles and the combination of the industry moving to multi die modules and the cost implications are burning in our packaged part versus at wafer or die level is a significant opportunity for error and this is 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 in parallel at the same time.
It provides an unprecedented unit per hour cap capacity for wafer level test and burn in.
Wafer level test and burn in is becoming the preferred way to do the required stressed and reliability testing referred to as quote Vernon to remove the extrinsic early life failures needed to meet the market requirements for reliability.
The reality is this burn in is really a stress test to weed out week devices that would otherwise fail later on such as accurate installed in an electric vehicle.
This can result in a walk come about what.
Where they are EV will simply not operate in the driver than anyone else in the vehicle will need to work hard.
The need to remove these failures before they're packaged into multi die module is critical to reducing the manufacturing cost impact from yield loss having.
Having devices failed during Vernon at module level, if theyre not burned in at wafer level before being put into the modules is extremely costly and reduces customer overall output capacity.
Even a small 1% yield loss can have an 8% yield loss impact on an eight die module.
We have seen modules being designed right now with as many as 32 silicon carbide die in them and it's very clear to those customers that screening out the failures of the diet before they're put into the module is the only way to go.
We're also seeing a major trend to do a test process that we call stabilization of key parametric specifications, such as the threshold voltage, which is a voltage at which an individual device turns on or the on resistance, which is the forward and reverse reverse resistance of the device when turned on and is a key parameter related to <unk>.
Power loss or in Burger efficiency.
Companies are now driving to only put matched b T. H Rds on parts in the same modules as a way to increase efficiency and reliability of the modules.
This is another key driver for the shift to why customers are driving towards wafer level burn in it's also important to understand that this stabilization is not something that is believed to be able to be done with short Barnett types.
It actually increases the opportunity for wafer level burn end market.
With the most cost effective solution in the market to address this significant opportunity. We believe that Erik can achieve a significant perhaps dominant share of the silicon carbide wafer level burn in market.
Forecast from Canaccord, Genuity estimate that the silicon and silicon carbide market for devices and electric vehicles, such as tracks and burgers and onboard Chargers as well as the off board charging stations used for electric vehicle charging is expected to grow from fewer than 150006 inch equivalent wafers of capacity.
Built in 2021 to more than 4 million wafers built in 2030 to meet the more than 30 million electric vehicles anticipated to be built per year by that.
This projected demand for just electric vehicle related silicon carbide wafers represents at least a $1 billion market opportunity for our wafer level test and burn in systems and consumables over the next eight years.
Canaccord also forecast an additional capacity need a more than $4 million more silicon carbide wafers.
Made in 2030 to meet the demand in 2034, other electrification infrastructure industrial and photovoltaic power devices.
In our recent customer visits were now seeing demand surface for the wafer level burn in the silicon carbide devices beyond electric vehicles.
And we believe it's likely to become a significant market opportunity for <unk> test as well.
Moving to some other markets. We're also seeing a recovering and strengthening the silicon photonics test and burn in market, reflecting the coast post Covid recovery, that's driving devices to meet <unk> and datacenter infrastructure buildup several customers addressing the silicon photonics market have forecast additional Fox system and wafer Packard iPad contact.
The capacity needs from us over the next 12 months.
In addition to the silicon carbide and Silicon Photonics markets that are strong drivers for our business during the quarter. We received an additional an initial order from a current Fox XP customer for our proprietary direct carriers for a new optical sensors.
Representing alright.
We're getting some feedback here.
Alright, thanks, sorry about that folks so.
We received an additional order from a current XP customer for our proprietary <unk> carriers for a new optical sensor device era.
Presents a new application for our Fox XP system. This customer is a supplier of sensors to a major mobile device.
Personal computer and consumer electronics manufacturer. This is the first order of dye packs for this device, which is expected to move to production and will require additional dye pack carriers and may also require additional fox XP system production capacity.
Now turning to our historical packaged parts business as we emerged from this two year pandemic. It has become clear that the forecasts we saw from packaged part customers heading into the pandemic are not holding up on the other side.
We now believe that material, we had purchased against the customer forecasts at the time is likely not to be needed anytime soon as a result, we're taking a $1 million one time charge in fiscal Q3 for excess and obsolete material related to these products, primarily ABTS configurations and packaged part burn in products.
In addition, discussions with customers such as Silicon carbide, Silicon photonics and memory about products to address their packaged part needs are met with a whole home attitude that quickly turns to request for more information about our Fox wafer level burn in systems.
The increased interest in demand, we're seeing for wafer level burn in.
We are turning our focus to a full attention and doubling down on our efforts in the near term to fully capitalize on the substantial opportunity for our Fox full wafer test and burn in systems and consumables.
This includes several new R&D enhancements to our Fox P family of products that include Fox test system hardware and software features to expand the application space of our systems enhancements to our wafer packs to address higher power and higher voltage applications and upgrades to our roadmap for wafer pack of liners that we provide with our solutions, including the ability.
To meet the high volume capacity and full automation requirements, we see with several customers we're engaged with today.
We plan to be publicly announcing these new enhancements over the next couple of quarters.
So I've had lots of questions about how our supply chain is holding up.
As I've noted in past calls are has the manufacturing infrastructure and supply chain in place to ramp to a significantly higher revenue levels. For example, this year, we will ship three times, what we did last year and we're just getting started we have been ordering long lead components for systems and wafer packs, particularly for the enormous opportunity we see for silicon carbide that is gaining more.
I'm.
There are many integrated circuits used in our system that currently have greater than 12 month lead times.
Our aggressive purchasing of IC components that began last February last year of 2021 is really paying off.
With a few bumps in the road our supply chain is holding up very well to the increase in demand and growth.
And we've been able to maintain reasonable lead times to meet customer requests.
Air has a very robust supply chain with world class subcontract manufacturers and subsystems are test systems Contactor is wafer pack aligner Sendai APAC handlers. These are very mature subcontractors that have successfully supplied the systems to air for years in all cases, the suppliers have capacity well in excess of era's 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.
So lastly, I'm excited to announce today the appointment of a gentleman named Medill engineer as Chief operating officer and Air Test.
A deal has built a career in operations and supply chain and it's been in the semiconductor and medical equipment field for over 20 years. He started his career with semiconductor equipment company KLA Tencor, where he spent 11 years and also work to coherent and ketubah in positions of increasing responsibility in manufacturing manufacturing engineering, new product introduction in <unk>.
Apply chain.
Recently, he was the head of operations at T can a Swiss company manufacturing medical test and diagnostic tools devices and solutions, where he oversaw operations for T. Cans primary site in the U S for manufacturing located in San Jose.
The deal has a bachelor's degree in chemical engineering from T. K T.
In the graduate Certificate management Science and engineering from Stanford.
In his role as C O O adult with focus on continuing to ramp our supply chain manufacturing as well as increases in infrastructure to meet anticipated demand.
We're certainly pleased with our record revenue in Q3 and forecast the Finn to finish the fiscal year with our highest annual revenue on record and a deal will be working to continue to ramp our ability to meet the needs of the silicon carbide Silicon photonics, Judy and <unk> sensors and other markets to support further growth momentum.
We welcome him to air test and look forward to his contribution.
In closing, we're very excited about the unprecedented and inbound interest in expanding growth opportunities, we're seeing with a significant number of new potential customers that are evaluating the unique capabilities and cost effectiveness of our Fox P. Multi wafer test and burn in systems for their test and burn in needs. We remain very focused on serving the several.
Large market opportunities, we see ahead and are confident in our growth forecast and ability to meet them.
For the fiscal year. This one we're in right now ending may 31st of 2022, Eric reiterating its previously provided guidance for full year total revenue of at least $50 million and to be profitable consistent with our operating model.
Given our revenue in fiscal Q3 of $15 3 million reported just today totaling over $35 million for the first three quarters.
That equates to a fiscal Q4 revenue of at least $19 5 million, which would equate to another solid and record revenue quarter for air test with that let me turn it over to Ken to review, our financial results and guidance in more detail and we will open up the lines for questions.
Again, good afternoon, everyone.
As <unk> noted we had a strong financial performance in Q3, which included our highest quarterly revenue on record solid non-GAAP net income and a healthy backlog of $26 9 million at quarter end.
Looking at our financial results net sales in the third quarter were a record $15 3 million, which is up 59% sequentially from $9 6 million in the preceding second quarter and up 190% from $5 3 million in the third quarter of the previous year. The sequential increase in net sales from the preceding second quarter.
Includes an increase in system revenues of $3 4 million and wafer pack AIPAC revenues of $2 3 million.
Customer service revenues were down 82000.
The increase from Q3 last year includes an increase in wafer pack to AIPAC revenues of $5 5 million and an increase in system revenues of $4 7 million.
Customer service revenues were down 217000.
Wafer pack and Deepak revenue comprise nearly half $7 4 million or 49% of our total revenue in the third quarter.
Third quarter shipments were more than double the total number of wafer packs and die packs shipped in all of last fiscal year. This is our second consecutive quarter of record wafer pack and <unk> shipments and reflects the 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 third quarter was $4 1 million or <unk> 14 per diluted share, which excludes the impact of $880000 and stock based compensation and 1 million, one time charge for excess and obsolete inventory.
This compares to non-GAAP net income of $1 5 million or <unk> <unk> per diluted share, which excludes the impact of 718000 and stock based compensation in the preceding second quarter and a non-GAAP net loss of 360000 or <unk> <unk> per diluted share, which excludes the impact of 271000 and stock based compensation.
In the third quarter of fiscal 2021.
The increase in stock based compensation compared to prior year is primarily due to stock awards of 278000 accrued in Q3 22 related to exceeding stretch goals for fiscal 2022 key business objectives and revenue targets and an increase of 346000 and 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 of our stretch goals are being exceeded and we recognize and appreciate the hard work of our employees who help achieve these goals.
Excess and obsolete inventory reserves of $1 million were taken in Q3 22, primarily related to packaged part burn in product inventory as well as some legacy Fox inventory.
We believe that this is a one time adjustment and we're very happy with our inventory levels to support the significant opportunity we see in wafer level test with our Fox family of products and consumables.
On a GAAP basis net income for the third quarter was $2 2 million or <unk> <unk> per diluted share and compares to GAAP net income of 717000 or <unk> <unk> per diluted share in the preceding second quarter and a GAAP net loss of 735000 or <unk> <unk> per diluted share in the third quarter of the previous year.
Gross profit in the third quarter was $6 4 million or 42% of sales the 1 million charge for excess and obsolete inventory taken in Q3 had a seven percentage point impact on our gross margin.
Excluding the impact of this onetime charge.
Margin for the third quarter was 49% up compared to gross profit of $4 5 million or 47% of sales in the preceding second quarter and up from gross profit of $1 9 million or 36% of sales in the third quarter of the previous year.
Excluding the impact of the onetime charge the increase in gross margin from both the preceding second quarter and Q3 of last year is primarily due to a decrease in unabsorbed overhead cost to cost of goods sold.
For the third quarter labor and overhead as a percentage of sales improved by one four percentage points from the preceding second quarter and 12 four percentage points from Q3 last year due to the efficiencies gained with the increase in revenue and a relatively fixed manufacturing overhead.
While third quarter gross margin percentage compares favorably to the preceding second quarter and Q3 last year. The company continues to recognize cost impacting cost of sales related to the semiconductor shortage and challenging purchasing environment. In addition to increased direct material cost as a percentage of sales freight.
And tariff increases from our business model related to supply chain issues.
We're finally, starting to see some of the shipping cost come back down. So we think that these will ultimately settle down to previous levels.
Operating expenses in the third quarter were $4 1 million, an increase of 339000 or 9% from $3 8 million in preceding second quarter, and up $1 6 million or 63% from $2 5 million in the third quarter of last year.
The increase from the prior year Q3 is primarily due to the elimination of cost reduction initiatives put in place during fiscal 2021.
SG&A in the third quarter was $2 6 million an increase of 123000 from $2 5 million in the preceding second quarter and up 969 from $1 6 million in the prior year third quarter.
The increase from the preceding second quarter includes an increase in employment cost of $143000 due to higher incentive payments related to bonus objectives and stock compensation costs related to restricted stock bonuses and our employee stock purchase plan.
Due to new participants to the plan and employee contribution increases the increase from prior year third quarter.
<unk> included an increase in employment costs of 731000.
The increase in employment cost.
<unk> head count increases salary increases for employees during fiscal 2022.
Commissions and incentive payments related to bookings.
Revenues in key bonus objectives, and stock compensation costs related to stock bonuses.
And our employee stock purchase plan due to new participants to the plan and employee contribution increases.
Yeah.
R&D in the third quarter was $1 5 million up 216000, compared to $1 3 million in the preceding second quarter.
And up 626000 from 903000 in the third quarter of the prior year.
The increase in R&D from the preceding second quarter includes an increase in employment cost of 136000.
Due to higher incentive payments related to bonus objectives and stock compensation costs related to stock bonuses and employee stock plan purchase plan due to new participants to the plan and employee contribution increases. In addition to the increase in employment cost the company recognized increases in professional consulting and project materials related to R&D program initiatives.
During fiscal 2022.
The increase from prior year third quarter included an increase in employment costs of 463000, and the increase in employment costs included head count increases salary increases for employees during fiscal 2022 hiring.
Higher incentive payments related to key bonus objectives and stock compensation cost related to stock bonuses and 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 increase in consulting costs and R&D project materials related to 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 third quarter, our cash and cash equivalents were $32 million of February 28 down 3 million from $35 million at the end of the preceding quarter.
And up $27 4 million from $4 6 million at the end of the fourth quarter of fiscal 2021.
The increase from Q4, 'twenty, one, including the impact of $24 million in net proceeds from our successful ATM offering in the second quarter of fiscal 2022.
Excuse me.
Accounts receivable at quarter end was $8 5 million.
Up from $7 4 million at the preceding quarter and due to the impact of higher revenue levels.
Inventories at February 28.
And were $14 2 million, an increase of $1 1 million from the preceding quarter end and $5 3 million from Q4 'twenty one.
To support our strong backlog.
As gained indicated we've been ordering long lead components for systems and wafer packs to ensure adequate supply to meet customer lead times and forecast.
Property and equipment were 776000 compared to 661000, the preceding quarter end.
Customer deposits and deferred revenue short term and long term were $6 3 million a decrease of $4 million from the preceding quarter and an increase of 6 million from Q4, 'twenty one related to changes in our backlog from prior quarter.
The company has no debt. This compares to 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 book.
Bookings in the third quarter were $6 million, including orders announced after quarter end or year to date bookings total over $59 million back.
Backlog as of February 28 was $26 9 million compared to $36 1 million at the end of the preceding quarter.
And up from $3 7 million at the end of the third quarter last year.
That backlog, which includes backlog at February 28, and all orders announced since the end of quarter. The third quarter is over $30 million.
Now turning to our outlook for fiscal 2022, which ends on 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 times that of last fiscal year and be our highest annual revenue on record.
We expect to be profitable for the fiscal year at these revenue levels based upon our operating model, excluding the impact of the onetime excess and obsolescence charge and the impact of increased stock compensation and bonus costs associated with exceeding stretch goals for fiscal 2022 key business objectives and revenue targets.
Lastly, looking at the Investor Relations calendar Airtest will be participating in three investor conferences over the next few months.
We will be meeting with investors virtually at the Oppenheimer emerging growth conference on May 10, and also at the Craig Hallum Institutional Investor Conference Virtual conference on June one and.
And we will be presenting and meeting with investors in person at the LD Micro Invitational conference taking place in Los Angeles June seven through June 9th we hope to see some of you at these conferences.
This concludes concludes our prepared remarks, we're now ready to take your questions. Operator. Please go ahead.
Thank you.
I'd like to ask a question. Please signal by pressing star one on your telephone keypad and if you are using speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Again press Star one to ask a question.
And we will go first to Christian Schwab.
Craig Hallum Capital group.
Hey, guys congratulations on another solid quarter and thank you for.
The continued clarity.
On the projected Tam over the next few years, but an update on the <unk>.
On the customers but.
My question comes from you know.
You said it in your prepared comments gain as well.
You know as well as in the press release.
Im trying to understand where your conviction comes from.
Maybe it comes from you know the dialogue with the next four customers that you've talked to other than you know that that has become apparent that wafer level burn in will become the standard for silicon carbide devices.
Pretty big statement.
Thanks Christian.
I actually heard of a few things in that question just sort of Where's my conviction coming from.
I mean to be fair.
Throw it out there.
Our orders are not we're not setting records with orders for the quarter, so, whereas the whereas the strength and conviction and confidence coming from it's a combination of several things but it's.
It is from direct conversation with customers.
<unk> seen their forecasts seem there tension related to the capacity that they're going to be bringing on.
This year next year and into the decade and then.
Talking to them even personally so what I said, we were traveling in the U S and Europe .
Included me I personally got to be in front of a large number of customers and it was a very consistent thread. It was like you go from one to the other end, it's very clear within the industry that the silicon carbide, absolutely positively has this extrinsic failure rate, which is the infant mortality that through.
Burn in through stress test you can remove the failures and hit the needs of the end market.
He is widely understood its now being clear to whats called the tier ones or tier zeroes tier zero has been Oems or the car manufacturers, who are specifically talking about burdening requirements of silicon carbide, including conversations related to wafer level, which I've heard from customers directly it's like a firm.
<unk> ever like you'd never have those conversations people are very clear about the requirements because they do not want to get this into a car. They don't want it to be in their car because of the failure implications of having that inverter fail with just a single silicon carbide shorting during our regular run so everybody is clear it's Vernon I've heard.
<unk> multiple specific statements with some real data behind that burden is not going away. We had some investors call and say, hey, and Ive heard that in the past there.
There are devices that Brennan starts and then they go away and I always remind them that do.
DRAM and microprocessors have been burnt in for 30, 40 years that Hasnt gone away not all devices ever get out of burn in.
Certain devices Silicon Photonics based devices microprocessors DRAM NAND today for any kind of commercial applications Silicon carbide, absolutely is going to continue to burn in the debate is not whether it's for tenants, where you burned or Dan do you burn it in at package or or module or do it at wafer level.
I was on some customer visits some of which were brand new customers and it was if.
So when it got in there before us and told them about our products. They were reiterating exactly what we've been talking about the necessity of these.
These gates stress tests as a way to both weed out if mortality, but to stabilize the threshold voltages and rds on the amount of hours that are needed to actually burn that in and how youre going to do it cost effectively and so.
That's what I'm hearing and.
You get it directly from the customers and then you see it in the news every day about the pole that's going on just.
Every car manufacturer all the things that are going on all the infrastructure GM is going to have 30 cars by 2025, it's like Fords building an F 150 for Heaven Sakes, That's electric vehicle based and then you have I don't want to get into the politics of what's going on in the crisis in the world but.
If you thought people were running away from their dependency upon gasoline oil in internal combustion engines before it's even getting more extreme and so.
It's certainly one of the most exciting times of my career.
And we.
We think we can help we've heard customers say you are absolutely unique in what you do.
Please just make sure you can ramp and meet our needs. So that's where my conviction is coming from and it's coming firsthand from looking at <unk>.
Big and small customers.
Are out there and.
If you don't hear it in my voice.
You don't know me very well very it is a really exciting time.
Great I appreciate that gain and then just a quick follow up on that then.
As you add these dialogue with your <unk>.
Customers and you and the concern is about being able to be in a position to bring up.
A material amount of.
Or product or systems for them you know quickly.
Has the conversation about payment terms.
No change yeah.
Any way you know.
Should we continue to assume.
That leading customers will put a substantial amount of cash down or prepaid Cogs in essence, if you will has there been any.
Is there any dialogue.
You know what.
The four customers you highlighted in the press release.
Different than the way that it's been give me numbers.
Well I can I can answer that honestly, but as so as I always have to remind people that we have on these calls not only investors we have key customers and we have.
Potential wanna be competitors and other things too, but we have stated very publicly with people we have agreements with our large customers today that has all of them. If you look at our 10% customers that we have publicly announced due to SEC requirements that includes the likes of Intel Apple ft on semiconductor Ti.
We have had and continue to have downpayment requirements from them and we have agreed to do the same with other customers.
Honestly it hasnt been that big of a deal I know this is interesting and certainly the financial communicate would understand this.
Now that we have cash in the bank people are less worried about giving us down payments.
It's sort of like.
Our bankers are really happy to give us great terms on money right now when we don't need it but.
That hasnt been an issue.
And if it comes up we'll have a conversation about that but.
Yes that hasnt been an issue so far.
Great.
Congrats on a great year.
Thanks, Greg Thank you.
And we'll go next to Tom definitely of D. A Davidson.
Yeah. Good afternoon. Thank you very much so again I would like to talk a little bit about the sales cycle and in particular when you look at the four new customers that gave you wafer Lee of <unk>.
Assume that so you can build your wafer packs to start the testing process, but more just I guess where is this in the sales cycle and how long would you expect it to.
Take to get the orders after this.
Okay.
You know what.
It's a very.
With a valid question and it's very kind of partner right. Now. So if you look at what we had been touting a couple of years ago is we have actually demonstrated to our lead customer at the time, our ability to do an amazing thing and that was not only test an entire wafer silicon carbide devices, but be able to tell them with 100% comp.
<unk> everything about the device and when it actually fail during burn in and then we can test 18 of them quite frankly, when we said that to then there was a reasonable level of disbelief.
And we said we will show you we'll prove it to you as soon as we did they immediately as we have told people said can you start shipping the wafers, while I order one until you build me one.
And technically that's how the process went as we have gone around to other customers, particularly during COVID-19 . We actually had this sort of marketing campaign that said listen I know you can't travel et cetera send us your wafer will do a benchmark for you.
As people with money like well where are you we actually have been talking about another large supplier who has been doing a benchmark with us now for a while they have actually continued to do optimization, we can't get into all the details, but I can tell you is actually going very well.
And then we just specifically pointed out that another one of the big ones. The big four we have one of them Theres three other big ones has now move forward and said listen we want you to test wafers, we want you to put our system on their floor.
What we have shifted to candidly is custom.
Customers for the most part are questioning us at all there.
They're kind of I believe you tell me about your lead times. So this idea that I need to prove it to them along the way, while we are still perfectly comfortable doing that.
Still like well, okay, if I do that and it takes you eight weeks to show me, a wafer or something and then I order wins, what's that look like so the conversation is starting to shift towards well maybe out of buy a system and then I will demonstrated along the way and so.
I think that's a more reasonable.
Thing to move towards there may be still customers that want us to demonstrate it first and then order a system afterwards with whatever lead times and we're perfectly happy to do that I mean, everybody would like order sooner but.
Quite frankly, I think we're going to see more shift towards customers. They place the order we will guarantee its fees.
Feasibility, we do that all the time anyhow.
I mean, if it didn't work, we would not charge them for it.
So we always put our money where our mouth is that has never been a change with any order we've ever taken and then it'll shift towards maybe you lead with an order in the benchmark goes along the way. So we think thats appropriate thing to do particularly as we go forward as people start looking at that ramps to meet the needs.
Needs in 'twenty three 'twenty four 'twenty five in particular I mean, there's there's some big numbers that are coming on starting next year and it's like well how many systems do you need I'm going to need to start allocating capacity to you I'm not just going to do it on a forecast youre going to need to give me some commitments et cetera. So we're going to start driving for.
Kind of long lead orders and commitments from customers, including new customers and thats going to have to be a shift so that people can count on us.
So stay tuned for that I mean next quarter.
We'll announce obviously the year end, but we will give guidance for the year and we hope to be able to have nailed down some agreements and other things with customers. So we will be able to give some more clear resolution.
Throughout the year and what what.
And what next year looks like.
I hope that helps.
Yeah, No absolutely and you gave some nice clarity on some of the lead times for things like Ics and how you've kind of got ahead of that.
I'm curious are you doing any other pre building of these systems ahead of what could be a very strong year.
We are.
We are we actually so.
Our supply chain is I'd say by many peoples.
Mark it's pretty complicated I'm very we're very familiar with it I've been doing this my whole life. It's very similar to other <unk> systems. You have large enclosures you have printed circuit boards you have sub assembly mechanicals, we do all of those through subcontract manufacturers in the tools come in and they get assembled and tested here it out the door and we always invite shareholders or cut.
<unk>, who want to come visit us we have we'd be happy to show you our manufacturing floor.
So all of that comes in we are honestly, we're not trying to be.
I'm looking across we're actually in the same room for the first time for our candidate for these conferences.
Not being cheap right now where were buying ahead on material to ensure we do not have we're not caught and so we're capturing chambers work happening interiors, where cafe and thermal systems, we're capturing printed circuit boards. The right now the most critical thing in our lead time is that when the components are coming and we put them on printed circuit boards to ship the final CIS.
<unk> and we're kind of hand to mouth on that right now and we think we're going to start catching up during this quarter. It actually have some additional buffer, but so far for the most part we've been able to meet even the poll and requirements of some of our customers are probably more than what's reasonable but of course, you know everybody would like steps a little bit sooner. So.
We're stocking up and Thats why it shows up in our inventory. So we've got we've kind of shifted our previous inventory all over into now Fox related inventory instead of the old packaged part and some other things. So if you go out there and you look at all the dollars are all Fox related and the Fox P family and wafer packs and <unk> are all <unk>.
Shippable good revenue.
And then of course, we still have dry powder in the bank. Thanks to everybody on the ATM raise that we did to actually allow us to buy more as necessary. So and then we are I've said, we started buying components last February I'm buying parts out through next next summer right now.
And I know everybody would like to know how many I'm not going to tell you but.
But it's certainly enough to exceed reasonable expectations of our revenue.
No.
That's that's a good thing.
Maybe just a last question on this topic.
When you look at.
The system, the Fox family of systems.
Pretty uniform across customers, there's not a lot of customization and so there's not a big risk of not being different.
Different customers.
Yes every one of my customers uses the same chamber. They all use the same what we call blades with slight variations that are.
Actually it can be reconfigured here they are.
I'll use the same which we call channel module controllers, which is the base system for power and communication and then they use variations of what we call channel modules in each of the customers is some combination of three channel modules today, we're actually working on a couple of different flavors of them they themselves share like 75% of the components of the same so.
The family in this platform to be able to kind of mix and match and kind of configure to order it.
Was a critical strategy for us we knew that when we came up with that and built this new family and it is really paying off right now because.
I don't care, what I'd tell you, we can never forecast exactly what's going to happen. So what you do is you build a product line to where within.
A wide range of forecasts you can still meet the customers' needs and we're actually proving that as we go we've had some drop in orders from our silicon Photonics customer. We basically take took capacity that we hit we're building ahead on some silicon carbide capacity reconfigured it and shipping it to the silicon photonics customers.
Right and just one question for Ken from a modeling point of view, how do you view the steady state level of the stock based comp.
That's an excellent question.
As I spoke about we had a significant increase in stock based comp this actually this fiscal year, including $880000. This.
This quarter.
For the fiscal year I would not plan on having that significant of an amount.
Yes.
Yes gains tried to have me state a specific amount I don't want to locked into any specific dollars.
Tom it's not going to go down to where it was before anytime soon just because of the way some of the stock works right now.
But.
I guess, it's good problems to have but.
Yes.
If they are real numbers right now.
And a key item is that as the relative bonuses keep in mind that the when we developed our compensation plans at the beginning of the year. It was based upon revenue levels of $28 million.
And then we actually had thresholds to and we've exceeded based upon this year the highest thresholds we will be adjusting our numbers up for next year and as gain and I chatted about earlier ratcheting up if you will have seen it up and if we exceed it next year.
Investor base will be very good if we take our forecast and double it again, we might actually have excess we might have some more again and that would be a wonderful problem to have so yeah.
Yeah understood. Thank you and congratulations on the nice momentum.
Thanks, Paul Thanks, Tom.
And we'll move next to Jon Gruber of Makena.
<unk>.
Hey, John .
Doug.
John you're on mute.
Got it.
Not able to hear you.
Please pickup your handset or depress your mute function. So that we can hear you.
Our primary move on let's make sure we come back to John Okay.
Thank you.
Because I always like getting beat up about where are the orders from John So I don't want to Miss out on my quarterly.
Okay go ahead.
And we'll go next to Don Patel from my analysis.
Again, thanks for having me on I wanted to start on one of your.
Comments on the earlier question.
Specifically on automotive customers.
You mentioned.
A lot of these automotive and industrial companies are becoming hyper aware of semiconductors and so they have been reaching out deeper into their supply chain will started working directly with that.
I heard a chance when previously they may not have.
And you mentioned that.
Wafer level burn in an automotive.
Automotive customer potentially heading.
Brian .
And do you think that these automotive customers can start demanding wafer level burn in and then drive sales of your product.
I hope so.
The way we the way we're looking at this is that we're trying to provide.
Our customers the industry in the last quarter actually we just attended this Big conference called Power America, which is an industry comfort of about 60 companies, helping to drive silicon carbide in electrification. It was a fantastic meeting of of companies I had a chance to meet and rub elbows with.
And one of the critical things that every day.
It's one of the critical things with Silicon Carbide. In addition to actually capacity is quality.
It's like capacity quality, how do I get quality effects out how to go out there and then what are the tones I hear is it's sort of a rising tide.
Maybe I have shared this before we had a direct customer of ours directly talk to us and they said listen.
We think the world of your system. We think you should go tell so and sell about it.
That's your competitor he goes I don't care, because they they have issues with their product and.
If they if they have issues in the industry that could impact that.
Give it tarnish the reputation of all of us and so there's this awareness and people rolling up their sleeves like listen yes, they don't have to differentiate necessarily on which tool. They use just as long as everybody. Please do not ship these things without going to burn it and so there is an awareness in the industry that we're trying to help enable.
We also think that there is evidence that so we know for a fact.
Many of the devices that are being used our system what end customer goes too okay and.
And we know that that customer is involved in signing off on the qualification and the quality burden and so that eventually could show up as they buy from other companies as well and sort of an expectation and at least it's our expectation that if anybody goes to a VW or a mercedes or a tesla or aneel.
Name it and so by the way, we're doing wafer level burn in and they say and its air and they say that's great. We're familiar with that check the box it would be great. If they can say Oh are you using are that would be an aspiration for us but at this point, we just want to be known as the one that you can count on.
One.
To ship quality products, if you follow our processes use our wafer packs and our procedures grew actually qualifying your devices and that would be a good thing.
Great.
Hey.
Hey, I wanted to ask another question.
Guarding the.
The wafer packs and sort of the reoccurring revenue stream there right.
My understanding is that they are accustomed to each sort of wafer or die configuration rate design or wafer configuration.
Wanted to ask a lot of these probe card form factor I spoke about.
Low yielding products demanding more intensive probe card usage.
And you've previously described the wafer contactor sort of similarly to.
What a probe card is.
So we haven't talked about is low yield.
Obviously that increases the need to do burn in but as companies look to more complex.
Sure.
<unk> designs and Ali.
Lot of other designs.
The wafer level burn in demand could pick up even more per wafer or do you think that sort of zip around that you've previously mentioned the amount of time that each wafer and burn in.
And then.
Yes.
Yeah, Let me, let me try to answer that for some reason I had this quote that's coming back about Reagan, saying I won't let the age of my opponent get in the way or something like that I'm not going to I don't want form factors statement that they said people have to use a lot more theres probe cards as some indication of quality.
They're actually a fantastic company I know, Mike and those folks really well.
So it's a little different so in their most semiconductor devices today with the exception of memories and those being used in burn in the test times. It is measured in seconds often two seconds.
And so every two seconds you actually what you called touchdown and you actually touch the device with the needles and you make an electrical test low speed high speed D. C. Whatever it is then you move to the next device and you test. The next one so every couple of seconds. The needle is moving I wouldnt want to quickly do the math in my head, but that's a lot of touchdowns per day.
For example, 60.
60 seconds time, 60 minutes times 24 divided by two somebody do that math for me Greg.
Probe cards are often.
Specified or or differentiated based upon how many touchdowns. They can make before they wear out they actually scrub off a little bit of metal every time, they touch at some micron level and so after maybe one.
100000 touchdowns, they might wear out or 200000 touchdowns, and if you get.
1000 touchdowns, a day, maybe 200 days later it wears out with me on that okay.
So were actually similar we have the same I'd say quality levels and in fact, our probe cards are probably more robust.
Then than many others. They are also not quite as high frequency and some other things. They are designed to go up much higher temperature than the average probe card does so we'll do ours up to 150 degrees Celsius versus many probe cards can only go to $85 100 or 125.
Nevertheless, we still lost 100000 touchdowns, but keep in mind that I mean, I just had a conversation with a customer. This morning, who was asking me about the life of their wafer packs if they buy it from us and they haven't estimated burn in time of 48 hours.
So I just told them well, it's going to last about 100000, insertions, which is 200000 days.
I'm pretty sure that even your automotive device when they were last set box. So they don't really wear out.
Instead, it will last the life of the device and so the key is how often will they change to a smaller device or a new die size or something and right now in silicon carbide Theres a lot of turnover.
People are going to Gen. One gen. Two gen. Three gen. Four to 150 millimeter 200 millimeter wafers and when they do that they end up with new wafer packs or probe cards. So we're right now thinking that maybe about every four years or so there will be a turnover more of the devices then of the probe card wearing out or the wafer pack.
And so and you need one wafer pack with each tester blade in a tester. So keep in mind, the Fox XP configured for Silicon Carbide Gate is 18 wafers at a time you also need 18 wafer packs.
So you buy a system.
You buy 18 wafer packs that gets you a 18 wafer test cell.
And then every four years you might buy another 18 wafer packs. So over about 10 years, you buy three sets of wafer packs and one hardware that might that might.
Might be.
The way of looking at that helps.
Thank you that's very helpful and gives me some napkin math to try and do or maybe it's a more in depth.
Lastly, I wanted to ask you about.
Yes.
Automotive Lidar market, you know last quarter, we talked about smartphones that they are sensors.
That's all I would ask you about automotive Lidar, you know, they're very expensive high cost high reliability requirements right because they go on automotive do you have any visibility into whether <unk> can start requiring wafer level burn in like other photonics applications.
Yes.
Spoken about in the past.
Can you just talk about that thank you.
Not really.
Yes, we have some visibility of it we can't really talk much about it but we are talking to.
We do have some information under non disclosures related to it there does appear to be some reasons to consider the lidar to do Vernon and also some applications of value of doing it at wafer level I think the jury is still out in my mind.
<unk>.
We're working on some stuff right now.
In that space.
No.
We will see it is not clear exactly how that volume would turn what that would turn into yet.
We do know is that lidar or the mirror itself like all optical emitters.
Have some infant mortality okay.
And therefore, it may want to go through a burn in or a stress test to weed out the infant failures and that also they have what they call it stabilization issue, which means that their output.
Intensity case with time during the first 24 to 48 hours.
In certain applications like communications that intensity decay is extremely critical it's why all the silicon photonics guys do Vernon.
On Lidar, it's not as clear same as <unk> facial recognition the intensity drop may not be as significant in that application. So it may be more to do with the.
The infant mortality, so we will see but I would I would not count on that being a big driver for our business right now, but I might be wrong.
Great. Thanks, Let me have a good day.
Okay.
Hey, John did you.
Try and get back in again.
And let's see if we're able to hear John at this time.
Your line is open if you have a question at this time.
Yes.
Yes can you hear me sorry, I, yes, we.
Okay.
And congratulations on the commentary of this.
Two two new guys ready to go ready to roll here I mean is.
What do you really stick leasing it will take to get the first of the two here to come over the goal line.
While they're both they're both a little different I can't get into a lot of it.
They.
They both have a balance of short and.
Longer.
One and two year goals of intercepting capacity.
And.
They're kind of coming at this a little different again I can't get into all of that but where I think we've got.
What has demonstrated a very good working relationship at the executive level of both of them and I believe we can help them and I believe they think we can help them as well and so we're just trying to be an impedance match and make sure that we're addressing what their needs are.
The guy been communicating what our capacities are and.
No.
We think that.
Yes.
I mean, I personally think that we're going to end up with them being customers as well.
My attorneys always warn me about saying that stuff, but that's what I think yes.
And second of all of our gross margin was.
Lower than the first two quarters what.
Or what would you attribute that to I think it was 41 something.
Yes, so John I think I touched on that a little bit we actually took an <unk> provision for our legacy products of a little over $1 million, which had us. So that was one that that was in that number yes.
Wise, they're finally not were at $49.
Okay, Yeah, Yeah right in line with what we expect.
So then they were pretty decent and so don't forget that okay. Thank you.
Youre welcome.
And at this time I would like to turn the call back to <unk> management.
Alright, well, thank you everybody and actually this is great. Because we did have some feedback from folks to try and see if we can kind of aim for one hour that worked out great. This time, we will try and continue to be as concise as we can in our prepared remarks and as always if people have questions. Please follow back up with us directly or with MK IR will be happy to set up the phone.
Call for follow up conversations we are excited about Q4 looking forward to seeing some of you folks at some of the conferences and.
Closing the loop with you on year end I guess here in July as how long ways out and giving guidance towards next year, which ought to be exciting take care bye bye.
And this concludes today's call. Thank you for your participation you may now disconnect.
Yeah.
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