Q3 2023 Aehr Test Systems Earnings Call
Hello, and welcome to the Air Test systems fiscal 2023 third quarter financial results Conference call all participants will be in listen only mode.
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Please note. This event is being recorded I would now like to turn the conference over to Jim Byers of N. K R. Investor Relations. Please go ahead.
Thank you operator, good afternoon, and welcome to Air Test systems third quarter fiscal 2023 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 close Air Test issued a press release.
<unk> third quarter fiscal 2023 results.
That release is available on the company's website at <unk> Dot com.
This call is also being broadcast live over the Internet for all interested parties and the webcast will be archived on the Investor Relations page of 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 and are test systems undertakes no obligation to update the forward looking statements.
And now with that I'd like to turn the call over to gain Erickson President and CEO .
Thanks, Tim Good afternoon, everyone and welcome to our third quarter fiscal 'twenty three earnings call. I. Appreciate you guys joining us today, let's.
Let's start with a quick summary of the highlights of the quarter and the continued momentum we're seeing in the semiconductor wafer level test and burn in market then Ken will go over the financials in more detail and after that we'll open up the lines to take your questions Aaron.
<unk> had another great quarter in Q3 with revenue and net income ahead of consensus estimates, we finished the quarter with record bookings for a single quarter of $33 3 million and a strong backlog of $31 $6 million at the end of the quarter.
Our effective backlog, which includes all of our orders received since the end of the quarter or since March 1st.
The beginning of the fourth quarter or $41 million.
Our total bookings for the fiscal year to date is already $72 $5 million.
Let me start with the increasing momentum were seeing in wafer level test and burn in for Silicon carbide.
Companies are adding significant capacity in silicon carbide semiconductors to address the incredible forecasted demand, particularly for the electric vehicle and electric vehicle charter markets.
Silicon carbide market for electric vehicles, and its supporting infrastructure requirements are growing at a tremendous rate.
Forecast from William Blair estimate that the silicon carbide market for devices and electric vehicles alone such as traction Inverters and onboard Chargers is expected to grow from 119006 inch equivalent silicon carbide wafers for Evs in 2021 to more than $4 1 million six inch equivalent wafers.
In 2030, representing a compound annual growth rate of 48, 4%.
This equates to almost 35 times larger in 'twenty 30 than in 2021.
Also six inch equivalent silicon carbide wafers for other markets such as solar industrial and other electrification infrastructure are expected to grow to at least another 3 million wafers by 2030.
This expands our silicon carbide test in market test and burn in market even more.
During the quarter, our second major silicon carbide semiconductor customer moved from an initial Fox N P dual wafer test and burn in system of ours used for engineering and device qualification to purchasing their first Fox XP systems to be used for production test and burn in other silicon carbide wafers.
Last week, we announced a follow on order from this customer for production quantities of our of our wafer pack full wafer contactor, which will begin shipping this quarter to be used with these systems into production. We believe this customer who serves several significant markets, including the electric vehicle industry as well as other industrial applications will purchase a large number of our Fox.
XP systems to meet their publicly announced significant increase in plant capacity and revenue growth over the next several years until the end of the decade.
These systems include our new very high voltage channel module option, enabling high temperature reversed bias or <unk> as it's known in the industry testing of silicon carbide devices, using our proprietary wafer pack contractors, which include patented anti arcane capability that is necessary so by avoid high voltage.
Electrical arcing between devices are between devices in the streets on the wafer this solves a key challenge with high voltage wafer level test and burn in.
These systems were also purchased with our new fully integrated and automated wafer pack aligner, which will begin shipping this fiscal quarter. We're in right now.
As I've noted before adding automation to our Fox production systems to our new Aligner gives our wafer level test and burn in offering even greater value and opens up several large incremental markets to air such as high volume processors and chipsets with integrated Photonics Transceivers high volume memory devices, and also high volume high mix devices.
Requiring extremely high reliability at a 100% burn in such as automotive Microcontrollers and sensors.
We have the new all automated wafer pack aligner us here at our facility in Fremont going through customer benchmarks and completing system integration with our fully integrated Fox XP multi wafer test and burn in system. So customers can come in and see the liners and action.
We also had several potential new customers come in to see the automated wafer pack aligner is in operation.
Our lead Silicon carbide customer continued to ramp up their production and their use of our Fox XP production systems and wafer pack contractors during the quarter. We received a 25 million dollar order for a significant number of additional Fox XP wafer level test and burn in systems scheduled to ship over the next six to seven months to meet their increased capacity.
For producing silicon carbide devices for electric vehicles, Chargers and electrification and infrastructure.
Earlier this month month, we also announced a $6 $7 million follow on order for wafer packs from them representing about half of the total wafer pack full wafer contactor is needed for these Fox XP systems.
Each of these Fox XP systems has the capacity to test and burn in 18 full wafer zip devices at a time.
Now, let me tell you about our benchmarks and engagements with prospective new customers.
We also continue to make great progress with our previously announced benchmarks and engagements. We continue to work closely with one of the largest silicon carbide players in the world on a large wafer level benchmark and qualification. We're excited that this qualification continues towards successes the company finishes their internal processes to complete the.
Vacation.
As with our other large silicon carbide customers. We expect this silicon carbide supplier to require significant past capacity of wafer level test and burn in systems to meet the fast growing demand for silicon carbide devices and electric vehicles over the next decade.
We understand that this has taken a long time, but we're confident that this will result in success for both them and their test and using our Fox wafer level systems and wafer packs for their volume production.
We also had a very productive quarter in terms of new customer engagements, which has continued into this quarter and even multiple new customer potential customers visiting there just this week with essentially all COVID-19 related restrictions behind us throughout the world are customer facing meetings and our progress on new customer.
Our opportunities has grown substantially.
Since last quarter's conference call three additional companies currently making silicon carbide devices decided to move forward with full wafer level evaluations and are directly to purchase our systems.
We're seeing companies shift from long term road maps to near term execution other product and production plans for silicon carbide devices and are internalizing the critical need for long wafer level test and burn in times as such some companies that we had only met with briefly in the past are coming to us with their wafer designs.
Asking for quick feasibility studies quotations and lead times it's.
It's unbelievably exciting time in the silicon carbide industry and the markets that silicon carbide semiconductors our survey.
In addition to our momentum in Silicon carbide, we're now engaged with several gallium nitride semiconductor suppliers ranging from radio radiofrequency or RF devices to power devices. Since our last call. We also received a firm commitment from a very large multinational semiconductor supplier to move forward.
With a full wafer level of evaluation of the gallium nitride devices.
This evaluation includes our new high voltage option for doing the critical H <unk> stress needed for gallium nitride MOSFET and amplifiers.
We believe gallium nitride will be a significant market driven by some of the very some very high volume applications, such as RF amplifiers consumer electronic power converters, and Chargers solar power and burgers and charger and converter applications in both standard and electric vehicles feedback from companies.
Has been that several of these applications will require production burn in to meet the applications critical quality and reliability needs.
With our proven and Fox XP wafer level burn in system solution, and it's cost effective ability to test thousands of devices in parallel and up to nine wafers at a time with the high voltage capability option. We believe we are well positioned to capitalize on this opportunity and believe gallium nitride can expand our total addressable market.
In a meaningful way.
In just the last two months I've personally met with over a dozen companies across Europe . The U S and Asia and demand is extremely strong across the world.
We've had questions about China since COVID-19 restrictions have quote eased.
From our perspective, the customer pull has been much greater for our solutions outside of China. So far.
Having said that we've recently seen activity pick up at several of the larger silicon carbide suppliers and electric vehicle producing companies in China, it's becoming clearer to them that wafer level burn in is critically important to remove the infant mortality early failures of silicon carbide devices before they are put into modules and.
For certain before installing them into an inverter or drive unit or heaven forbid the electric vehicle itself.
Each individual silicon carbide, MOSFET, which acts as an electrical switch has a failure rate of typically as much as 1% or more during the stress test burn in conditions that correlate to the actual use in conditions in time that these devices are expected to endure or the life of the electric vehicle. This is referred to in the auto industry as the mission profile.
This profile is equivalent to several hundred thousand driving miles and the time the electric vehicle would be running to drive that far including idle time et cetera semiconductor suppliers in critical applications, such as Silicon carbide, MOSFET say Houston, the drive unit and Burger of electric vehicles must not only prove to the auto suppliers or OEM.
Since our call that their devices will lap for last for the life of the mission profile, but they must also show how they will ensure production test screening to remove devices that will or are likely to fail.
This is where production burn in comes in.
Our solutions can apply industry standard and our custom customers custom stress conditions, such as high and low negative voltages at elevated temperatures to induce failures on week devices without damaging good devices.
We do this on every device up to thousands of devices on a time on every wafer with a 100% and traceability.
We then test up to 18 wafers at a time in a single pass on a single Fox XP system.
This parallelism is literally unprecedented no company has ever done this before air test nor is anyone else doing. This today, we are a significant number of patents that protect key technical features and functionality of this solution and we believe any other company that tries to build something like our solution or any company use.
In such a solution would be violating our intellectual property and patents, we maintain our patents across the world, including major semiconductor and automotive supplier hubs, such as the United States, Germany, Italy, Korea, Japan, Singapore, and even China.
Our wafer parallelism and price point leads to an unprecedented low test cost for whole wafer test and burn it.
Our capital depreciation rates of less than five U S dollars per hour per wafer on a full wafer of silicon carbide MOSFET to be used in electric vehicle and burgers are chargers are customers can cost effectively apply bernann stress condition to weed out early life failures and to stabilize the threshold.
Two of these devices for use in power modules for up to 24 hours or more without driving up their cost of the devices.
And the yield improvement of removing the failure before they're put into the power modules actually lowers their overall manufacturing cost.
Our Fox wafer level test and burn in solution with our proprietary wafer pack full wafer contactor are a fantastic fit for the silicon photonics semiconductor market and we're hearing this directly from customers and potential customers.
Now, let me move onto Silicon Photonics semiconductor Brennan and stabilization as a reminder to clarify those not familiar with silicon photonics.
Is what the industry calls the devices, where both electrical semiconductor integrated circuits are combined with photonics, our light based transmitters and receivers.
The classic initial device was a device that integrated in optical transceiver with an integrated circuit into a fiber optic transceiver component.
This technology was heralded as a way to massively increase the manufacturing capacity and to significantly lower the cost of fiber optic communication transmission and Datacenters in server farms.
This was considered a major breakthrough and was key to long term data bandwidth and to lower power data centers has really only been proven over the last several years, the pandemic actually slowed down or even stop the initial production ramps of customers at these devices, but is now picking back up as a viable and lower cost alternative.
To the higher cost discrete transceivers built over the last 20 years.
We continue to be very enthusiastic about this market, especially as it looks to expand beyond just being used for fiber optic transceivers to becoming an embedded market that integrates the fiber optic technology into other devices, such as chipsets and processors themselves.
Multiple market leaders, including companies like Intel AMD, Nvidia and others have publicly discussed their investments to integrate silicon photonics transceivers into their microprocessors graphics processors and chipsets.
While we believe this transition is still several years out. We also believe it represents an enormous opportunity for air test with our unique position of having a proven and cost effective multi wafer solution for testing and burning and stabilizing silicon photonics devices at a massive scale, while still in wafer form.
We are currently today testing 150 millimeter 200 millimeter as well as 300 millimeter photonics based wafers with our current Fox wafer level test and burn in systems at customers today.
We also have provided customers with our Fox NP and XP systems, using our dye packs for testing simulated die in photonics modules.
We're beginning to see the front end of this opportunity with a strong recovery of silicon photonics from the weakness we saw during the pandemic are currently have systems installed at over a half a dozen dozen customers for 100% test and burn in our silicon photonics devices used in <unk> infrastructure data and telecommunications Transceivers and a few additional applications.
Yet to be introduced as the market expands we believe there'll be more business for both engineering and characterization qualification of devices upfront as well as for production wafer level test and burn it.
Over the next several years, we believe silicon photonics will become a significant market for wafer level test and burn in and could become as large or larger than silicon carbide later in the decade.
To conclude.
<unk>, we're very encouraged by the continued positive momentum and expanding growth opportunities, we see with our current and prospective customers and continued to be very confident in the guidance. We've shared for revenue of at least $60 million to $70 million for our current fiscal year that ends may 31, which represents growth of at least 18% to 30% year over year and revenue.
Growth of between 35 and 75% in the second half of this fiscal year compared to the first half of the year.
We also remain confident that our bookings will grow faster than revenue this fiscal year as the ramp in demand for silicon carbide and electric vehicle increases setting us up for strong momentum heading into our fiscal 'twenty two that begins in June .
Lastly, before I turn the call over to our CFO , Ken I want to announce that after 15 years with Air Test Ken has indicated his intention to retire from the company after finishing this fiscal year and after the fiscal year reporting period.
Ken has been our CFO and VP of finance since 2015 and has been an amazing contributor and a great partner to me during a key phase in <unk> development and growth Ken and I have discussed this and we felt this is actually a pretty good time for this and it's a great time for a new CFO to come on board to help air with a tremendous growth opportunity and plans.
Ahead of us.
<unk> has engaged a professional recruiting firm and Ken has already provided help to the board and me to find an exceptional finance executive and will provide assistance and support when it candidates identified we're very confident that this change when it happens will be a seamless transition.
With that let me turn it over to you can and then we'll open it up for questions.
Thank you Jane and good afternoon, everyone. As gain noted we had another solid quarter in Q3 with strong sequential and year over year growth in our revenue and net income meeting analyst estimates in both the top and bottom lines. We also reported record quarterly bookings and a strong backlog in addition, with over $9 million already booked.
<unk> in the first month of the quarter, we now have an effective backlog of $41 million.
Looking at our financial results in more detail net sales in the third quarter were $17 2 million up 16% sequentially from $14 8 million in the second quarter and up 13% from $15 3 million in the third quarter last year. The sequential increase in net sales from Q2 includes an increase in systems revenue of two.
$5 million and customer service revenues of 278000.
This was partially offset by a decrease in wafer pack and <unk> revenues of 308000.
These consumables revenues accounted for 37% of our total revenue compared to 45% of revenue in the preceding second quarter.
Customers typically purchase our Fox systems, and wafer packs at separate times and also staggered their delivery.
Still our contactor revenue growth, both with increased installations of our systems and also with the increase with the installed base customers purchase new contactor with new wafer where device designs not just with new system capacity put in place.
Gross profit in the third quarter was $8 9 million or 51, 6% of sales.
One eight percentage points from a gross profit of $7 9 million or 53, 4% of sales in the preceding second quarter.
Gross profit of $6 4 million or 41, 9% of sales in the third quarter of the previous year.
Last year's fiscal third quarter gross profit includes the impact of the $1 million adjustment for excess and obsolete inventory related to legacy products. Excluding the impact of this adjustment gross margin in the third quarter last year was 48, 6%.
The variance in gross margin from prior quarter included a negative impact of one four percentage points due to product mix shift.
And another negative one two percentage points due to the last quarter's favorable freight and tariff costs warranty provision and inventory reserves. This was partially offset by <unk> eight percentage point benefit due to a decrease in overhead costs to cost of goods sold resulting from higher revenue levels in the quarter and an increase in cap.
<unk> of cost to inventory.
With a relatively fixed manufacturing overhead benefits gross margin are recognize while revenues grow.
non-GAAP net income in the third quarter was $4 7 million or <unk> 16 per diluted share, which was a strong 27, 5% of revenues.
This compares to non-GAAP net income of $4 5 million or 16% 16 per diluted share in the preceding second quarter and non-GAAP net income of $3 1 million or <unk> 11 per diluted share in the third quarter of fiscal 2022.
non-GAAP net income excludes the impact of stock based compensation.
Operating expenses in the third quarter were $5 1 million, an increase of 656000 or 15% from $4 4 million in the preceding second quarter and up 941000, or 23% from $4 1 million in the third quarter of the previous year.
The increase from the preceding second quarter includes increases in SG&A of $375000, primarily due to employment related expenses and an increase in R&D of $281000 related to increased spending on development programs.
The increased SG&A includes increases in head count salaries recruiting fees and also commissions bonuses and profit sharing based on increased bookings revenues and profits.
During the quarter the company increased its worldwide sales and marketing effort marketing efforts with the addition of three senior sales executives.
We are already seeing positive impacts of those additions and are very excited to have these sales professionals already making an impact.
The increase in R&D is primarily due to costs associated with development programs for our new automated wafer pack aligner and our very high voltage channel module in bipolar voltage channel module.
Our new very high voltage channel model module option enables high temperature reverse biased testing of silicon carbide devices, using our proprietary wafer pack contractors, which include patented anti arcing capabilities and it is necessary to avoid high voltage electrical arcing between devices or between devices in the streets and the wafer that can be under.
200, microns and distance this solves a key challenge with high voltage wafer level test and burn.
We continue to invest in R&D to enhance our existing market, leading products and to introduce new products to maintain our competitive advantages and to expand our applications and addressable markets. These R&D programs include enhancements that we believe increase our competitive advantage in all our key target markets, including Silke.
Carbide in gallium nitride power semiconductors, silicon photonics, and other photonics semiconductors mobile two D and three D sensing devices and memory and data storage semiconductors.
Turning to the balance sheet for the third quarter, we finished the quarter with a very strong balance sheet, our cash cash equivalents and short term investments were $42 8 million at February 28 up $6 2 million from $36 6 million at the end of the preceding second quarter and up $10 7 million from $32 million at the end of the third.
Quarter of fiscal 2022.
We continue to invest excess cash and short term investments to take advantage of increases in interest rates.
Interest income in the third quarter was 374000 up from just $1000 in the third quarter last year.
As noted in our prior 8-K filing we were not impacted by the closure of Silicon Valley Bank, we hold over $39 million of our cash cash equivalents and short term investments at Morgan Stanley .
Highly regarded banking institution and only maintain our operating accounted SBB.
The SBB closure did not impact our customers' employees or vendors and we continue to operate without any interruptions or impact to our operations.
During the quarter, we announced an at the market offering of up to $25 million in shares of the company's common stock on the open market.
As of quarter end. The company received gross proceeds of $7 3 million on the sale of 208917 shares at an average price of $34 78 per share.
$17 7 million remains available under the ATM.
Under the terms of the ATM equity distribution agreement the company may not sell shares during the company's closed trading windows. When it is deemed the company may be in possession of material nonpublic information.
Also the company only plans on selling shares against the ATM during open trading windows and when it believes it would provide the best source of capital with minimum dilution to existing shareholders.
Working capital at February 28 was $67 2 million.
This represents an increase of $12 4 million from Q2, and an increase of $18 2 million from Q3 of the prior year inventories.
Inventories at the end of the third quarter were $21 6 million, an increase of $3 6 million from the preceding quarter.
And up $6 5 million from the third quarter of fiscal 2022, we're increasing inventory to support our backlog and our near term revenue projections and to ensure adequate supply to meet current customer and future market demands.
Our highly differentiated Fox family of systems allows us to purchase material that is leveraged across many customers and markets. This provide us confidence in our ability to meet the significant market opportunities without having to purchase unique material that is only fell to one customer or one market.
During the quarter, we renewed our lease for our corporate offices and manufacturing facilities. The amendment extends the term of the lease for a period of 86 calendar months commencing on August one 2023 and includes an option for the company to further extend the lease for one additional period of five years after the expiration date.
With this renewal the company recorded rate recorded operating lease right of use assets of $5 7 million with corresponding short and long term operating lease liabilities.
We finished the quarter with record bookings for a single quarter of $33 3 million backlog as of February 28th was $31 6 million compared to $15 5 million at the end of the preceding second quarter and $26 9 million at the end of the third quarter last year.
Our effective backlog, which includes all orders since the end of the third quarter is $41 million.
Total bookings for the fiscal year to date, including the over 9 million received in March is $72 5 million exceeding our total bookings of $62 2 million for the full prior fiscal year.
Now turning to our outlook for 2023 fiscal year, which ends on May 31 2023.
We are confident in the company's growth trajectory and our unique capabilities and product offerings to meet customer demands as such we are reiterating our previously provided guidance for full year total revenue of at least $60 million to $70 million.
Representing growth of at least 18% to 38% year over year with strong profit margins similar over the last year.
We continue to expect bookings to grow faster than revenues in fiscal 2023 as the ramp in demand for silicon carbide in electric vehicles increases and we build momentum going into fiscal 2024.
We expect to provide guidance for fiscal 2024 during our July earnings call.
Lastly, looking at the Investor Relations calendar Airtest will participate in three investor conferences over the next months next few months, we will be meeting with investors virtually at the Oppenheimer emerging growth conference on May 11 in person at the Craig Hallum Institutional Investor Conference, taking place in Minneapolis on May 31, and we will.
Be presenting and meeting with investors in person on June six at the William Blair growth conference taking place in Chicago, We hope to see some of you at these conferences.
Before I turn it over to the operator for questions I'd like to add to gains earlier comments regarding my pending retirement.
With the market opportunities increase in customers and customer engagements and the expected growth for air test moving forward. This is an excellent time and opportunity for new CFO to build their team and take the company to the next level of greatly valued the last 15 years with their test and I. Appreciate the opportunities is presented as <unk>.
I'll stay on as CFO until a suitable replacement can be found and I will also ensure that a clean and successful transition takes place before I leave I know that my wife, who retired a couple of years ago actually is excited for that to happen as soon as possible. So we can move on to the next chapter in our lives.
This concludes our prepared remarks now we are ready to take your questions. Operator. Please go ahead.
Thank you very much.
I will begin the question and answer session.
I'll ask a question you May press Star then one on your telephone keypad.
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Jonathan The question queue. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Today's first question comes from Christian Schwab with Craig Hallum Capital Group. Please go ahead.
Hey, guys. Thanks for taking my questions Ken Congratulations.
I'm retiring well deserved.
The opportunity to go spin pretax.
People you love good for you.
So I just have a few.
Quick question. Thank you for all the clarity that you gave a gain.
Just as far as it relates to the customer.
Because the large customer.
Would you expect production orders in your next fiscal year from them.
We've actually announced a total of four customers in silicon carbide so far.
We expect production orders from all of them during the next fiscal year.
That answers my question. Thank you and then on Silicon Photonics.
Current customers when would you anticipate.
The first meaningful orders from from that new area is that something that could happen as soon as next fiscal year or is that a two to three years out.
So I mean, we think that based on some of the customer forecast that we're seeing that we're actually going to see just call a rising tide of the previous just the transceiver business I mean candidly we.
We're seeing the same forecast they told US back in 19 that they plan to buy in 'twenty and didn't when Covid happened. So we think there'll be a rising tide of that I think maybe more importantly, what you're trying to get to is when is that next big wave.
We've already seen some purchases.
And are doing.
Early qualification work on some of those new types of products.
And we think that that can continue on.
Next year as well I think the over under is really when do we start to see the front end of any meaningful production and right now were still kind of assuming it's going to be out a.
A couple of few years, but it.
It could turn quickly and theres been some news.
Out there in the.
The internet and some of the company, making announcements et cetera, So we're really close to it.
We have the products I mean, we can based on what customers are telling us we can test those devices in each of the different wafer forms or even simulated die with what we have today and with the new automated aligner, we can even do it with more automation and hands free et cetera. So I think we're really well positioned and what we're doing as well.
Focusing to be.
That engineering tool to begin with and be the plan of record. If you will when they go to production and then as we get a little closer we'll see but.
I don't know I, probably wouldnt put a lot of.
Revenue expectations for next year, but there certainly will be some okay.
Okay, Great and then you know the expansion of opportunity.
Domestic Chinese.
<unk> provided us with silicon carbide.
Is that something where you would expect a substantial shipments to occur.
Maybe next fiscal.
Fiscal year or is that something where negotiations and get to know you has just started.
We'll see I mean for clarity. We currently believe there is a.
You know pretty reasonable or significant way I use that word a lot but.
We're getting a lot of purchases, we think for our systems for companies that serve the China market that are not in China. So there we already are doing that today, we know that that's going to grow.
I think there's not all silicon carbide for China is going to be built in China for example, okay.
We are also talking to suppliers in China as well as Oems in China. So, we're we're kind of making our way up the food chain. If you will with several conversations with tier ones and Oems.
Which is people that are close to this.
Realize that is a completely new thing prior.
Prior to Covid, none of the automotive guys.
Talk to the semiconductor guys right. They all work with tier ones and then the tier ones bought from the semiconductor guys, but with all the craziness that went on with supply chain automotive guys, who realize they need to go directly to and talk to the semiconductor guys well, we're taking a step further they're talking to us.
So.
There is another way of creating clarity around what we offer the traceability and the confidence in our solution et cetera and.
So I think we have.
Several oars in the water in China, having said that we're very confident in next year and how things are going and candidly without China being a significant portion of it I would say that would be upside to our plans.
Great. So I just wanted to be clear when you're talking about China.
And car by you were talking you know about the six I think I wrote.
Customers.
That is Chinese domestic producers.
More than likely for Chinese domestic demand.
Hi, Greg It's my belief by the way I'm not sure I've ever said six when I talk about 60 was silicon photonics type of people that we're currently in but.
If there is if there are six big players in China that are saying theyre going to be in silicon carbide I believe you.
Got it.
It is my belief that those companies are most likely targeting the Chinese domestic domestic to them markets.
But having said that a lot of Chinese automotive suppliers today are buying.
Silicon carbide from the companies outside of China.
And so we think that we can play in China, both with non domestic suppliers, but also domestic suppliers over time.
Domestic to China, if you will right.
Correct correct, great. Thank you for that and just a quick one last quick question.
On the.
As we.
As far as backlog is concerned would you expect kind of similar.
Similar to where you know trajectory is last year, we did have a very strong.
You know February .
February quarter of <unk>.
Backlog, we worked through some of that.
And then enter the next fiscal.
Fiscal year with it with a very strong idea of what the year will look like.
You know where are we going to enter that do you believe with a really strong backlog number too early to tell.
Yes.
Exactly what the next year.
We havent been doing a lot of it we really don't give quarterly guidance, but then if you'd give annual guidance on top of three quarters, its pretty clear what the quarter is I realize but thats still revenue focus.
The reality is is that I see I see things picking up there is there is not a dwell there there seems to be a lot of people accelerating their plans right now we're having we're putting out a lot of quotes theres a lot of people asking for lead times on top of each other and.
I believe we'll go into next year with a lot more visibility than even last year.
Having said that it will be distributed across a much larger number of customers, which I guess, there's some averaging going on in terms of that it's not all or nothing with one or two customers, but we also think that the large customers are going to continue to buy so.
I don't know how many different ways I can describe our optimism but.
Hum.
Erez I mean people are really recognizing the value that we add and are seeking us out in addition to us knocking on all the right doors and I'm Super enthusiastic about heading into next year.
Fabulous no other no other questions. Thanks again, okay.
Thanks Christian.
The next question comes from Jed <unk> with William Blair. Please go ahead.
Hey, Thanks for taking my question.
Ken.
Echo the congrats.
Thanks Jed.
I guess first question gain.
Or maybe Ken maybe you want to take the either one but the guide and kind of reiterating the numbers suggest a pretty wide variance at this stage in the game $17 million to $27 million.
And I know that there were two tools with the.
We werent.
That you Werent sure whether or not you get the Rev rec to fall into the quarter.
But I'm wondering is that the only thing that sort of.
Kind of the difference that $10 million or is there something else that you can probably provide a bit more color on.
That's a big chunk in for folks that are there are test along with most I think all capital equipment companies have revenue recognition policies related to when you can score revenue and that is different than when you get paid by the way.
Our policy I think is very conservative if we have a new product, particularly to a new customer, but if we have a brand new product that has never been proven are installed and accepted by the customer we.
We simply don't take revenue for it until that milestone, even though we know it's working here its been completely proven out et cetera, but until the customer actually signs off on it we won't score revenue recognition and we gave that as a pretty big heads up going and that's why there's a lot more detail than normal and candidly.
We'll probably be pulling back on detailed related to things. It's just to make sure that our shareholders understand that we've got some some pretty large revenue number of things that are shipping during the quarter, but may or may not score revenue.
Several multimillion dollar tool that misses by a few days and it's pretty easy what I wanted to make sure that and I'll be explicit even though it has just been implied we're just talking about whether it comes in in Q4 Q1.
No.
That's the that's the bulk of it we also have a lot of new wafer pack designs.
These are new customer wafers.
I think we have almost 20.
Right now 20 designs of wafer packs that are in process. Those designs are all like the timing of when those first one ship et cetera. It sounds so much revenue recognition just with the timing, but those all are expected to then go into volume production as well into next year. So there's some of that to that adds up.
I mean, we're not trying to be coy, we I'll tell you. We've tried it over how do we rediscover where we're at but that that's a realistic range of where we think we're still at and again, we have not lost any deals.
Not we don't we've not identified any new competitors that are threatening or more threatening to us.
We are momentum has picked up in terms of customer enthusiasm.
But there is still as a public company or still have this quarterly milestone thing and like how do you how do you describe it so.
Comfortable with the numbers there is some variation in there.
Probably going to come down in the last week or two for us to know exactly where it ends up and if it not it'll probably already scored by the time, we have our earnings call in July So we'll see how it goes sorry about that.
No.
Color is helpful. So thank you.
I guess, if you could just help me reconcile just two moving parts inventory not surprisingly ticked up.
As you talked about in terms of ramping some of these products but.
Customer deposits dropped off on the balance sheet I was wondering if you could just provide a bit more color.
There is that a timing issue or.
How should we read those too.
Vectors, if you will.
Yes.
<unk>.
Good observation and good sleuthing.
So we actually have.
Taken with some specific terms and conditions with customers. There are circumstances, where we did not take down payments.
It is a pretty good threshold contractually for them to actually do that I have also at times on a brand new product with a new customer.
Wave the down payment to begin with because it's a little odd to tell them. We guarantee it's going to work and then at the same time be holding their money.
And candidly if people are pushing back harder and harder on some of those deposits can I think a lot of it is that they can earn a lot more money on that too but.
There's a little bit of examples where some of the backlog is not all at a deposit and that's what you're saying.
Got it and then last question for me just as we run through.
Yes.
The announced but not names customers, which.
I think.
He serves there's four of them at this point, but.
The second one that you that you've talked about I think previously you have said.
Is not <unk>.
Publicly announced their intention into silicon carbide is a major step.
Semiconductor provider they they have at this point put out an announcement in.
Silicon carbide I, just want to make sure that that is correct.
I believe they have not they have still not said there and I should go look again, but at least about a week ago, they still hadn't so still quiet.
Okay very interesting.
Thanks Jed.
The next question is from Dillon Battle with semi analysis. Please go ahead.
Hey.
Again, great quarter.
I'm going to ask about the aligner, because I'm, having I'm, having trouble with the new automated line or how does that impact revenue how does that impact the <unk>.
Gross number time right now we have the manual liner and I think.
When I visited a month ago, you told me more like three three sort of <unk>.
Fox system.
Systems can get.
Configure are treated by one aligner, but the automated aligner is the one to one how should I think about you know what is the penetration of the automated aligner that youre going to sell and develop.
Versus the manual liners overtime, Okay, Everything's Gonna go automated or yeah, alright, so for clarity, we actually make today, we we bacon and sell two types of the liners, we've actually had an automated aligner for years installed in multiple customers and we also have what.
We call a manual line or the automated aligner allows you to walk up with the wafer pack and a FOUP of wafers or cassette of wafers and then it will automatically take away for put it into a wafer pack and then <unk>.
Present that wafer pack in a patch form we call. It. So it's actually now this cartridge that you can place into our system up to 18 of them. For example, okay. That's an automated aligner. We also make Emmanuel liner, which is a really cool tool that we had internally developed that customers came and said we want them and.
And they allow you to do a very quick.
Alignment process, it's still sort of a proprietary sequence, but a user can be trained to do that and it's great for engineering, but people actually use it for production as well.
It is something that has the interaction of the operator follows a certain sequence, but you can very repeatedly and consistently do that for both engineering and production.
Manual tends to be more operator intervention.
Automated you just push a button, okay. We have developed a new automated aligner.
It's really considered our fourth generation, we've been working on it now solidly for over three years.
And it's the one we said that we begin shipments on this fiscal quarter, we have already taken multiple customer orders for it okay. Interestingly the way we designed it for those people and at least in our company. Now. This is one of my passionate babies if you will.
Very well.
Then I'm going to say, how well thought out it is but the team really did a good job of thinking through all of our learnings over this and we know I think more about wafer level burn in than anyone else in the world.
And one of the subtle things that are not so subtle.
It can be in what we call a standalone mode.
Where you can have feed it cassettes of wafers and it'll automatically align wafers and then put them into a cart and so you can load up a cart with 18 wafers in that cart then can be moved over to one of our systems you opened the door and you put 18 wafers and close the door and hit go.
Okay. So it's more automated than our current one which only does one wafer pack at a time. This can actually move the wafer packs around and load up a cart.
But in that case, its offline and you can share amongst multiple.
Fox XP systems that exact same aligner can also dock to NXP and instead of a cart and back it has an XP it back and it will open and close each of the blades and allow you to have a continuous flow of 18 wafers at a time in.
In this very small footprint now some companies feel passionate that thats, the only way to go and some companies think nope I want them offline.
And candidly, we don't argue with them.
Whichever way you want is fine with us, but if you feel you need automation. We got you covered if you feel I'd like to do it manually I wanted to feed theres different reasons people do it we have that covered as well and in fact, we've taken orders for both so and you can interchange them. If you wanted to you could take a man and automated aligner Thats standalone.
And we can adapt it probably in a day or so and move it and have an XP Doc up to it. So it's really well thought out it's one product at a worst across multiple customers it will work across.
100 millimeter wafers for RF Gan devices and like those.
Those types of 150 millimeter type devices from Gan and Silicon carbide.
200 millimeter Gan silicon carbide, and Silicon Photonics type devices, 300 millimeter silicon photonics memory devices large scale micro controllers and other processors. So it's.
It's a very flexible system that we're really proud of.
I hope that helps.
So I don't see that gain the topic of Rev Rec.
Yes, absolutely we do have the automated a liners that we have not recognized revenue yet because they have not been accepted at the customers. So those fall into the same criteria that you had talked about earlier in our Rev. Rec policy.
Thank you thank you Ken.
And by the way.
Okay, sorry, just one more thing and a customer that places an order for an integrated system with both the XP and the aligner.
If we ship DXP ahead of time, and then upgrade it we still don't recognize the XP revenue.
Okay. So because we because we have a continuation of that until those are liners are accepted and that's.
Right now that's what's got a lot of this stuff related to well Windsor revenue going to happen is they're going to be Q4 or Q1, okay.
Yeah.
Sorry go ahead.
Should I think about this as a way to increase tool utilization from.
From the company that kind of like it a lot or does it or more so is it.
And while it does increase your you know the Fox XP utilization Theres also theyre paying a bit more for the you know the one to one would be a liners that are automated and made it directly to the equity how should how should I think about that for you and your revenue going forward right. Because there just isn't a cheap thing right. It is it is an increased cost and revenue per sort of X P that you deploy.
It has some efficiencies advantages by being integrated that offset the fact that you would have one of them per system versus maybe one per three or four.
Got it.
It allows and I actually even choosing not to go into all those competitive reasons candidly, but there are absolutely advantages to being integrated.
By contrast, two well doesn't it drive some of the ASP.
There's also companies that are passionate about not wanting to have any manual operations in their factory and not having wafer packs moving around and other people that are passionate that that is the best way to do it and so we just offer that to them I would tell you that that you could make the argument that it that there are similar.
Alert and cost of test.
And one just has the advantage of automation. The other one has an advantage of potentially some flexibility and test times and fungibility of tools across the floor.
Okay.
One last little comment I wanted to hone in on and thank you for the answer is it's you mentioned again a couple of times you Havent talked about Gan too much in the past is the burn in.
Are you thinking that the burn in times are going to be long for Gan is the customers that are doing silicon carbide. Some of them are you now or at least the major companies are doing gander as well do you think that they would use the word they used a lot of Vernon there as well.
Sorts of applications, yet could you talk about that a bit more I think that's what's shifted if you would kind of look at the bread crumbs over the last couple of quarters I think maybe two quarters ago I've mentioned again for the first time, maybe last quarter I said, Hey, we're starting to talk to some people about it we now have people specifically describing.
Requirements for production burn in and test times that are significant that make it an attractive market for us.
That includes it seems more obvious for the automotive guys, but theres actually other applique applications as well that would require production burn in the way to interpret that as these devices have an infant mortality rate that exceeds the applications need okay.
By the way one of the things. We brought up is is there are devices that had been shipping in the industry for decades that still have production burn in even though they have high infant mortality rates by using their production burn in you can weed out those devices and ship it into the application and example of that would be DRAM.
Right. So DRAM one of the most commoditized product set has been around since 19.
<unk>, if you will and air test was one of the market leaders and what put US on the map was building production DRAM for burn in systems, they are still being burnt in.
So it doesn't always go away and what we're seeing is silicon carbide silicon Photonics. These compound semiconductors are kind of a hot spot both in terms of applicability for new applications, driving things like electric vehicles or or fiber optic communications, but also need this infant mortality.
The rate and seem very susceptible to the desire for wafer level burn in because the devices are going to be put in multi chip modules with other devices.
So.
It's the Gan devices, specifically are being.
Put into automotive applications. There are people for power and we've even seen RF people talk to us about wanting a production Vernon. So it's the first time, we're getting that message out and we now have.
Engagements with several of them one of them has already given us trying to move forward with the wafer level burn in application for a lung test and burn in application they need.
Anything else you good alright.
I think we lost Dillon.
I think we did the next alright.
The next question comes from Matt Winthrop with Equitable research Darrin, if you would like to rejoin the queue. You May Press Star then one.
Yeah.
I just want again I just wanted to once again congratulate you on all of the effort and thank you my friend because I have so many happy and successful clients based on the due diligence I did and the tenacity and and go get a ship that you have led this company and I am just so tickled pink that you're doing great keep up the good work.
And your thank you guys.
You beat your PR guys by the way.
Jim buyer I think don't get enough.
Congratulations, but they've been diligent on this too so I just wanted to thank you and you know what if you walk around this building there is a lot of happy proud people here because it's theirs.
It's funny, we we all believed it everybody has been working their butts off like if we build it they will come and we all just believed in our hearts that this would play out.
For Heaven's sake, sometimes it works out and we're seeing it's not just a silicon I think silicon carbide will go down as the one thing that was sort of the one that really pushed the industry over two widely adopt wafer level burn in but then it's Glenn we're already seen people, saying well if you use it for that can I use it for this as well.
So it's been a long time coming and we have a long way to go it's really exciting work and you've also changed forever conversation at Thanksgiving dinner to difference between silicon carbide and Gan stuff, but anyway go back to work he bought keep on plug in thank you.
Oh, Thank you had said huh, okay I appreciate it.
Yeah.
At this time there are no further questions in the queue and I'd like to turn it back to management for closing remarks.
Alright, well I really appreciate folks everyone's time here and we're really excited to be serving our customers will just as we have always offered if you folks happen to be in.
In town here in the Bay area in Fremont, California manufacturing floor is just a buzzing we'd love to host you and answer any questions for you and we look forward to seeing many of you at some of the conferences that are coming up and then if not we'll have a chance to talk to you at our next call as we talk about our next.
Fiscal year. Thank you very much bye bye.
The conference has now concluded thank you for participating in today's presentation you may now disconnect.
Okay.
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