Good day, ladies and gentlemen, and welcome to the Aehr Test Systems First Quarter Fiscal 2022 Financial Results Call. Today's conference is being recorded. At this time, I turn the conference over to Mr. Jim Byers of MKR Investor Relations. Please go ahead.
Call. Thank you, operator. Good afternoon, and welcome to Aehr Test Systems' Q1 fiscal 2022 financial results conference call. Is with me on today's call are Aehr Test Systems' President and Chief Executive Officer, Gain Erickson and Chief Financial Officer, Ken Spink. Is open.
Before I turn the call over to Gaen and Ken, I'd like to cover a few quick items. This afternoon, right after the market closed, Aehr Test issued a press release announcing its is 1st quarter fiscal 2022 results. That release is available on the company's website at air.com. Call is being broadcast live over the Internet for all interested parties and the webcast will be archived in the Investor Relations page of the company's website. Is open.
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 are subject to a number of risks and uncertainties that could cause actual results to differ materially from those in the forward looking statements. Call. 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 is today and Aehr Test Systems undertakes no obligation to update the forward looking statements. And now with that said, I'd like to turn call over to Ujjain Erickson, President and CEO.
Thanks, Jim. Good afternoon, everyone, and welcome to our Q1 fiscal 2022 earnings conference call. Thanks for joining us today. Hey, Ken, I think if you could make sure you're muted over there. Thank you.
Let's start with a quick summary of the highlights of the quarter and the strong business momentum we're experiencing, and then I'll give an update on our expectations for increased revenue growth this fiscal year. We're off to a strong start for fiscal 2022, finishing the quarter ending August 31 with record bookings for a single quarter of $20,700,000 is recorded. Since the end of the quarter, we have announced an additional $19,400,000 in bookings, bringing our total bookings for the fiscal year to over $40,000,000 is available as of today's date. Our strong bookings include several sizable orders received over the past few months from our lead silicon carbide test and burn in customer is for our FOX XP wafer level test and burn in systems and full wafer pack contactors to support testing of silicon carbide devices for electric vehicles. Is available on
our website. Each of these silicon carbide focused XP
systems is configured to test 18 silicon carbide wafers in parallel is in the footprint of a single test wafer test solution, while contacting and testing 100% of the devices in parallel on each wafer. Is available for the Q1. This Fortune 500 customer is a major automotive semiconductor supplier and we continue to work closely with them to achieve their test and burn in requirements and capacity needs. Is recorded. They continue to forecast orders for additional FOX systems and wafer packs this fiscal year and a significant number of systems and wafer packs will be announced over the next several years, driven by electric vehicle semiconductor test and burn in demand.
We're seeing very strong demand across is the industry for wafer level burn in of silicon carbide devices and continue to ramp our FOX multi wafer testing burn in systems and full wafer wafer packs to meet the silicon carbide market opportunity, which we believe is only just beginning. Is open. We're currently in detailed discussions with multiple major silicon carbide suppliers regarding their wafer level test and burn in needs. Is available at the end of the call. This concludes at least one potential customer that has moved on to wafer evaluation and benchmarking of ARRIS FOX XP multi wafer system for testing burning of their silicon carbide wafers.
We believe we will add several new silicon carbide customers over the next 18 months that will ramp into production on our solutions. Silicon carbide power semiconductors have emerged is recorded as the preferred technology for the electric power conversion and control of the electric engines and wire controlled traction inverters, as well as the onboard electric vehicle battery chargers. Our FOX family of products are cost effective solutions for ensuring the critical quality and reliability of devices in this market, and we anticipate that wafer level test and burn in will become the industry standard for quality and reliability screening of silicon carbide devices. Is available. Aer's FOX XP solution allows for one of the key reliability screening tests to be completed on an entire wafer full of devices, is testing all of them at one time, while also testing and monitoring every device for failures during the burn in process to provide critical information on those devices.
Is an enormously valuable capability as it allows our customers to screen devices that would otherwise fail after they are packaged into multi die modules, is where the yield impact is 10x or even 100x as costly. With the most cost effective solution in the market to address this opportunity, is available on the call. We believe that Aehr has the chance to achieve a significant, perhaps dominant market share for silicon carbide wafer level burden. In addition to the devices and electric vehicles, the energy infrastructure market that includes charging stations, wind farms and and solar panels in both solar farms and for individual homes and businesses, all are markets that are consuming more silicon carbide devices than electric vehicles today is now open. And are growing at a rapid rate over the next decade.
We believe it is very clear that this infrastructure is going to need to grow to support the electric vehicle demand. Is available. Many countries, including the United States, are putting in place government subsidies and infrastructure for these charging stations, wind farms and solar farms is to be installed to support a greener, more sustainable and reduced carbon emission world. The silicon carbide power semiconductor device market is is expected to increase over 500% between 20202026, growing at a compound average growth rate is recorded for CAGR of 36 percent to $4,500,000,000 according to Yole Research's latest forecast. Is open and a report from Deloitte forecasts that the total electric vehicle industry will likely grow at a CAGR of 29% yearly from 2020 to 2025 is before reaching 31,100,000 vehicles by 2,030 and securing approximately 32% of the total market share for new car sales.
Market research firm Exelot estimates that the total market for silicon carbide wafers for power semiconductors just for electric vehicles in 2021 will be 130,150 millimeter equivalent wafers and the total market will exceed 1,230,000 is 150 millimeter equivalent wafers by 2,030. These stats highlight the tremendous opportunity Aehr Test has in front of it with its wafer level test and burn in solution for electric vehicle semiconductors. In addition to our success in silicon carbide applications, is recorded. We continue to see signs of strengthening the silicon photonics test and burn in market. During the quarter, we received and shipped our first order to China for is a box solution for production tested silicon photonics devices, expanding our customer base for silicon photonics with this new customer that serves international as well as China markets.
Is available. Several other customers addressing the silicon photonics market have also forecasted additional FOX system and WaferPak or DiePak contactor capacity needs this fiscal year. Is available. These include needs to address incremental production capacity as well as capacity to address new customer and new product qualification and engineering. Is available on our website.
Silicon photonics devices address the 5 gs and data infrastructure industry as well as several other key markets. Is in the field of research predicts that the silicon photonics market will grow at a 36% CAGR from 2020 to 2025. Is available. Our customers are using FOX wafer level solutions for 100% test and burn in rather than just quality and reliability sampling of their integrated silicon photonics devices, is available as this step is used to stabilize devices before they're integrated into the fiber optic transceiver modules. Silicon photonics laser transmitters, is, like other photonics devices, have a characteristic whether emitted output light power decays with time before it stabilizes its output power.
Is available. This decay can be an issue for high speed transmission bandwidths and our devices with multiple lasers transmitting different wavelengths or multichannel transmission, which is very typical in 5 gs infrastructure and data centers. Our FOX systems allow our customers to test all the devices on their wafer at one time is using our proprietary WaferPak contactors up to 2,000 watts of power per wafer. This energy plus added thermal energy up up to 150 C temperature allows this stabilization to happen very quickly in hours or days rather than weeks or months. Is available and our solutions are very cost effective way to do this at the wafer or singulated die level before porting this into the full fiber optic module or system.
Is open. We currently have 5 silicon photonics customers that are shipping silicon photonics based products to their customers using our FOX solution. Is a significant opportunity for growth as we expand these customers and add additional new silicon photonics customers. Additionally, for the first time, companies are making public announcements about optical transmission and reception to semiconductors is beyond just the silicon used for this combined silicon laser transmitter and optical detection receivers used in discrete fiber optic transceiver modules. Is a conference call.
Companies like Intel and NVIDIA are talking about integrating fiber optic transceivers into their core and graphics processor units or CPUs and GPUs. Is very exciting and we believe an enormous opportunity for Aehr Test with our unique position of having a cost effective and proven multi wafer solution for testing and burning in is recorded. We also continue with multiple programs using our FOX systems for production test and burn in of new devices is for 2 d and 3 d sensors for mobile devices. These devices include some really exciting new applications and even completely different functionality than has ever has been seen before. I wish I could talk more about these devices, but our NDAs are extremely clear and preclude us from talking at all about these programs and products.
Is available. However, what I can say is we expect to see meaningful bookings and revenue from these programs this fiscal year and continue to be optimistic about this market space into the future. Is open. With all the growth opportunities starting to gain momentum, let me quickly touch on our supply chain. Is on our last call, I noted that given all the issues with semiconductor shortages and rising costs and material costs and lengthening lead times across many industries, is available.
There have been reasonable concerns about our supply chain and ability to meet capacity needs for systems and contactors. As we are proving now, Aehr has the manufacturing structure and supply chain in place to ramp to significantly higher revenue levels. We have been ordering long lead components for systems and wafer packs, is a very strong quarter for the enormous opportunity we see for silicon carbide that is gaining momentum and we have been able to maintain reasonable lead times to meet customer requests. Is our supply chain is holding up to the increase in demand and we're ramping all of our sub suppliers to meet the customer bookings and forecast we are seeing. Is available on the call.
Aehr has a very robust supply chain with world class subcontract manufacturers on subsystems of our test systems, contactors, wafer pack aligners and DiePak handlers. Is open. These are very mature subcontractors that have successfully supplied these subsystems to Aehr for years. In all cases, these suppliers have capacity well in excess of Aer historical shipments and the ability to ramp significantly higher as well. We are very confident in our ability to meet the is customer forecasted demand plus considerable upside.
As we discussed and anticipated last year during the beginning of COVID-nineteen pandemic, is now available at the Investor Relations website. Is recorded. With our record bookings and the strength of our semiconductor test and burn in solutions, as well as the positive response we're getting from multiple new potential is in the silicon carbide space. We are confident in our growth and are raising our guidance for revenue for the year. The hard work we is ahead and the future for Aehr Test Systems.
For fiscal year 2022, ending May 31 next year 2022, we are raising our previously provided guidance for full year total revenue by approximately 80% to at least $50,000,000 is over 3 times our revenue from last fiscal year. With that, let me turn it over to Ken to review our financial results and updated guidance in more detail before we open up the line for questions.
Great. Thank you, Gain, and good afternoon, everyone. Is available. As Gay noted, we're off to a strong start for fiscal 2022. We finished the Q1 with record bookings for the company a single quarter of 20,700,000 conference call.
And since the end of the quarter, we've announced an additional $19,400,000 in bookings, bringing our total bookings for the fiscal year to over $40,000,000 as of today. Is open. Looking at our financial results, net sales in the Q1 were $5,600,000 down 26% sequentially from $7,600,000 in the 4th quarter is up 181 percent from $2,000,000 in the Q1 last year. The sequential decrease in net sales from the preceding 4th quarter reflects a delay in receiving orders and time to ship during the quarter. Our fiscal Q2 will have much higher revenue and reflect profitability consistent with our operating model.
The fiscal Q1 revenues reflect a decrease in wafer level burn in revenue of $1,500,000 and customer service revenues of $473,000 The decrease in wafer level burn in revenue is primarily due to a decrease in waferPakdiepieck revenue of 1,600,000 system revenues were flat. The increase from Q1 last year includes an increase in wafer level burn in revenue of $3,400,000 and customer service revenue of $231,000 The increase in wafer level burn in revenues is primarily due to an increase in system revenues of $3,100,000 and an increase in WaferPak DiPack revenue of $325,000 Non GAAP net loss for the Q1 was 414,000 or $0.02 per diluted share, which excludes the impact of forgiveness of $1,700,000 in loans from the Paycheck Protection Program, call, which we've received in fiscal year 2020. This compares to non GAAP net income of 870,000 or $0.04 per diluted share in the preceding 4th quarter and non GAAP net loss of $2,000,000 or $0.09 per diluted share in the Q1 of fiscal 2021, conference, which excluded the impact of a non cash net gain of $2,200,000 and a tax benefit of $215,000 related to the closure of Aeris Japan subsidiary during the quarter. The non GAAP results also exclude the impact of stock based compensation in all periods reported.
Call is on a GAAP basis, net income for the Q1 was $696,000 or $0.03 per diluted share, which excludes the impact which includes the impact of loan forgiveness of the PPP loan. This compares to GAAP net income of 567,000 or $0.02 per diluted share in the preceding 4th quarter and GAAP net income of $107,000 or $0.00 per diluted share in the Q1 last year, which included the gain related to the closure of the Japan subsidiary. Gross profit in the Q1 was $2,300,000 or 40% of sales, down from gross profit of $3,500,000 or 46% of sales in the preceding 4th quarter and up from gross profit of $227,000 or 11% of sales in the Q1 last year. The decrease in gross margin from the preceding quarter is primarily due to an increase in unabsorbed overhead cost to cost of goods sold due to higher revenue levels in Q4, which accounted for a 3 percentage point decrease in gross margin and an increase in other cost of goods sold of just over 2 percentage points due to freight costs related to inventory purchases and an increase in warranty cost as a percentage of sales. Is.
As I've noted before, because our manufacturing overhead costs are relatively fixed, we scale very well. Is as our revenues grow, the increases flow to the bottom line and our margin percentages are favorably impacted, such as we saw in Q4 fiscal 2021 with 46 percent gross margin on $7,600,000 in revenue. The increase in gross margin compared to Q1 of last year is is primarily due to a decrease in unabsorbed overhead costs, cost of goods sold due to higher revenue levels in Q1 2022 accounting for a 21.5% improvement in gross margin. Operating expenses in the Q1 were $3,300,000 an increase of $341,000 or 12 percent from $2,900,000 in the preceding 4th quarter end up $860,000 or 36 percent from $2,000,000 in the Q1 of last year. Is important to note that cost reduction initiatives put in place during the last fiscal year fiscal 2021, including mandatory vacation days, shutdown days and executive staff pay reductions were removed during the 4th Q1 of fiscal 2021 ending May 31, 2021, is contributing to the increase in operating expenses.
SG and A in the Q1 was $2,000,000 an increase of $49,000 from $1,900,000 in the preceding 4th quarter and up to $439,000 from $1,500,000 in the preceding year Q1. The increase from the prior year is primarily due to an increase in employment related expenses of $374,000 due to elimination of cost reduction initiatives in place during the Q1 last year.
Is recorded. R
and D in the Q1 was $1,300,000 an increase of 292,000 from $1,000,000 in preceding 4th quarter and up $421,000 from $900,000 in the Q1 of the prior year. The sequential increase in R and D includes an increase in consulting of $176,000 $61,000 in employment related expenses and $68,000 in R and D project materials. Is recorded. The increase in R and D from prior year includes an increase in consulting of $184,000 $158,000 employment related expenses and 99,000 R and D project materials. We continue to invest in R and D to enhance our existing market leading products and introduce new products to maintain our competitive advantages and expand our applications in addressable markets.
Is now turning to the balance sheet for the Q1. Our cash and cash equivalents were $6,500,000 at August 31, up $1,900,000 compared to $4,600,000 at the end of the preceding quarter. Accounts receivable at quarter end were $4,300,000 down from $5,200,000 at is proceeding quarter end due to the impact of lower revenue levels and timing of collections compared to the prior quarter. Is inventories at August 31 were $10,100,000 up compared to $8,800,000 in the preceding quarter end. With the strong business momentum and the increased orders, We've been increasing our inventory as we prepare to fulfill current orders and expected future orders.
Property and equipment were 670 is $6,000 compared to $677,000 at the preceding quarter end. Customer deposits and deferred revenue short term and long term were $3,400,000 an increase of $3,100,000 compared to $288,000 at the preceding quarter end due to increased backlog. We expect customer deposits to increase substantially reflecting the down payments associated with recently announced bookings. Is borrowing under our line of credit was 0 as of Q1 2021 compared to $1,400,000 at Q4 2021. Is recorded.
As of Q4 2021, we issued $1,700,000 in current portion of long term debt related to the Paycheck Protection Program or PPP loan. This past June, we received notice from Silicon Valley Bank that the Small Business Administration had forgiven the loan and accrued interest and now we show 0 debt. Is. As I noted earlier, bookings in the Q1 were $20,700,000 a record for the company in a single quarter. Since Since the end of the Q1, we have announced an additional $19,400,000 bookings, bringing our total bookings for the fiscal year to over $40,000,000 as of today.
Is Backlog as of August 31 was $16,600,000 up from $1,600,000 at the end of the preceding 4th quarter and $1,200,000 at the end of The Q1 last year. Effective backlog, which includes backlog at August 31 and all orders announced since the end of the first quarter is over $36,000,000 Now turning our outlook to the fiscal 2022 year. Is available. As Gayn noted, we are off to a strong
start with our strong bookings
and backlog. With our record bookings, the demand for our solutions and the positive response we are getting from multiple new is potential customers in the silicon carbide space, we are confident in our growth opportunities and our rising guidance for the revenue for the year. Is recorded. For our fiscal 2022 year ending May 31, 2022, we are raising our previously provided guidance for is full year total revenue of greater than $28,000,000 by almost 80% to at least $50,000,000 which is over 3 times last fiscal year's revenue. We expect to be profitable for the fiscal year at these revenue levels consistent with our operating model.
Lastly, looking at the Investor Relations calendar. Our Annual Shareholders Meeting will be held on Tuesday, October will be available to join via webcast for all interested parties. We will also be participating in several investor conferences in the next few months. Is on November 16, we'll be participating in the Craig Hallum Alpha Select Conference taking place virtually. And in December, we'll be participating in the CEO Summit is taking place in San Francisco on December 8 and the D.
A. Davidson Semicap Laser and Optical Conference taking place virtually on December 15.
Is open. We hope to see some of you virtually or in person at these events.
This concludes our prepared remarks. We are now ready to take your questions. Operator, please go ahead. Call.
Thank
please make sure the mute function
on your phone is turned off so the signal can be read by our equipment.
Is open. We'll take
our first question from Christian Schwab with Craig Hallum Capital group. Please go ahead.
Thank you. Hey, guys. Congratulations on a very robust outlook. Is just a point of for clarity, I think last time when we talked about silicon carbide, we had the lead customer, we had 1 person evaluation. It sounds like we've got another potential customer there or even more than that.
Can you give us a clarity of are you working with is
2 others so far or
any directional help there would be great.
Is open. Okay. Yes, let me make a stab at that. Obviously, I know the answer here. It's a very small community as it turns out.
What I will can help with shareholders exactly, but due to competitive reasons, we're trying not to click off is where people are in their benchmark selection and ordering. But I am feeling very good is about our conversations and I will continue to give you guys updates. It may come more in the form of when the orders are is looking then a lot of heads up exactly when all the orders are coming. I apologize for that. But as we started to put this script together, we start to realize that if we get too specific about it, anyone who may or may not be as far along could It's going to be some insight that we have to be very careful about.
Sorry about that.
No, I think that's a fair response. Is As you're talking to the different customers though and all the other major players, is there any reason for us to assume if they chose you that their initial ramp in order turns would not be or would be potentially, possibly or less than your first customer who is now your lead customer. In other words, when they started April, they were similar amount gain, you know what I'm saying?
Yes. You know what, again, I want to be a little careful. What I've said in the past and I think it's still it's sort of the generic process by is what I have seen in my 30 some years doing this is very often what happens is a customer will go through an evaluation, will be order 1 or 2 systems. Keep in mind that even one of our multi wafer systems has 18 wafers worth of capacity compared to someone else who can buy is so maybe one at a time. Although you can get partially loaded systems to begin with if you needed, but it'd be my expectation that there'd be probably one system.
It goes through kind of a final qualification and then it probably jumps to multiple systems, perhaps is some smaller number before higher volume. The spin in it right now that's a little different is that it's, I guess, relatively rare.
Is I've seen this a few times in my
whole history where you have so many customers at the same inflection point is where there's sort of a mad dash to go after all these electric vehicles and put this capacity in place, which creates a different dynamic, which is I think it's fair, may speed up the process and get customers to move quicker is Once they have convinced themselves that we can do the job and that once they've seen our prices, quite frankly, is we are perhaps more likely than I've seen in recent years for somebody to start placing larger system orders. Is now obviously one of the other pieces of this thing is always that how many wafers are they building per week. And is open. There are different capacity levels, but all of them are relatively large. I have shared this in the past.
I will go so far as to say this. Our lead customer South states that they're probably about 4th largest in the space and not even half as large as the next largest. So each of the larger companies that we're talking to is building considerably more wafer starts per week. Is open. And if you were to assume similar test times, you can imagine they would buy as much or more along the way.
Is test times are always going to be one of the big debates. Everybody likes to think of how they can keep their test times down based upon different quality levels, etcetera. And it gets a little difficult for us to talk about it. But historically, we've done our market modeling at something is maybe near 24 hours per day for a burn in on a wafer. There will certainly be examples that will be higher or lower.
I'll leave it at that. Is open. But you can you start going through the math times the number of wafer starts and you can see that it's a pretty significant opportunity for us. Is open. So, it's the real deal, Christian, and we're really excited about it.
And most of our time, we're focusing on is putting the infrastructure and the supply chain and material in place to be able to take
advantage of it. Hope
that helps.
That's really helpful, Gabe. A popular question that I get asked a lot is on the competitive front. Is open. As we move to the adoption of silicon carbide, not only for electric vehicle transmission, but also is obviously for charging stations. And if they're not using wafer level burden test from air test, is open.
Is there any other substantial competitor that you bump into when you're talking to these DD OEMs? Or is there an Internal Technology that they may be debating between yours and theirs. Any clarity for investors I think would be very helpful.
That's a good one. And obviously, you always want to be a little careful getting is too carried away. We're talking about all your competitors or competitive advantages, etcetera, but this one's a little easier than normal. For clarity, silicon carbide was shipping products before we shipped our 1st wafer level burn in system into that market. Is open.
So just so we're clear, this market has been around for years technically, but it really started to take off when Tesla introduced their Model 3 with a silicon carbide traction inverter in it and then quickly shifted all of their products to it is because of the notability of it being able to give an extended range or theoretically smaller battery life. That has completely turned the market on edge and created an opportunity along with the acceleration of electric vehicles for basically everybody's pushing is for silicon carbide because of the advantages and the efficiency performance advantages of going to that, okay. At that time, obviously, they were doing something. And what I want to make sure is it's widely known and discussed at all in the industry and across the board that all silicon card by customers have an infant mortality issue. And what that means is these devices tend to fail in their first so many hours of operation.
Is available. And if that gets all the way through to the car, if this inverter MOSFET fails, you basically get out of your electric car and you walk home. Is. So they have to do this burn in, but the nice thing about silicon carbide is while it does have a high infant mortality through a relatively straightforward process of burn in, you can actually weed out those infant mortalities and it's extremely robust. Those infant mortalities were all weeded out with what's is referred to as a package part burn in system.
And what that is, is they were put into their modules or the discrete packages, they were burned in and the devices that failed were thrown away. Is the big difference is what we did at first introduced with our lead customer was the movement of those devices is Vernon from package or module where there may be 8 or 10 devices in a single package to the wafer level is And did it not only cost effectively, but cheaper than actually doing it at package part. In addition to that, you got the yield improvements I'm not having to throw away the devices for the cost of the package, but also the devices that would share the same package. If you have 8 devices, one fails, you throw away the other 7. So that combination is really what kind of went crazy.
And while we don't specifically talk about that lead customer in is the same sentence. They are known to have gone out in white papers and talk about the differentiation that they've had with the wafer level burn in with pictures of our testers in it. Is available. They are on the market right now differentiating themselves against their competitors because they believe that they have a more robust, higher quality is a process for weeding out infant mortality and shipping a higher quality module as well as discrete than anybody else. And a good is part of that they specifically talk about is wafer level burn in and that's us.
So other customers have figured this out, They're still doing package bar burn in. So the discussions we're having with them in many cases is to move from package to wafer. Is now is there any other way to do wafer level burn in? The primary way to do it is you could take an ATE system, put it on a wafer prober is available with a probe card and test the wafer, and it's my belief that there are many companies that could do that. The difference though is an is a $250,000 to $500,000 or even $1,000,000 per wafer.
The wafer prober itself is about is $350,000 per wafer and the probe cards, dollars 50,000 to $100,000 let's say. You go through the math and you might be upwards of $1,000,000 is per wafer for the test capacity, but it's in the footprint of about the size of a Prius, a Toyota Prius. So if you need to go and test 500 wafers a day and you're going to need 500 Prius' footprint is in your wafer fab, which is extremely difficult to do and it quite frankly is so expensive, it's even more expensive than the yield loss is just doing it at package port. Our key differentiation, quite frankly, is our system is architecturally different and unique. And in the same footprint is available on the call.
Of that same Toyota Prius, we test 18 wafers at a time. And we do that at a price point that's a fraction of the competition, is such that it is cheaper than packaged part burn in and significantly cheaper than any other alternative for wafer level. Is available. And that's our key differentiation. And right now, we've made an enormous investment in this platform over the last decade, in particular over the last is a handful of years.
We have IP and patents protecting that capability, both in the tester is in the proprietary contractor that enables it and we intend to defend it. But in the meantime, we're running as fast as we can is to try and capture as many customers as possible, get ourselves further qualified into the OEMs. That's what is the all these guys call the automobile suppliers. Once you're qualified into the OEM, it's extremely difficult to ship Because people do not like to change their quality processes once it's qualified into an automotive supplier. So that's our strategy.
Is now out there and that's our plan and I think we're in a really good position for
it. Hope that helps.
Yes. Thanks for that clarity, Andy, and Congrats on the strong outlook. Those are all the questions I had. Thank you.
Thanks, Christian. Is
open. We'll take our next question from Tom Diffely with D. A. Davidson. Please go ahead.
Is open.
Yes, good afternoon and thanks for the question. So, again, really appreciate the last question you answered, very important is to the overall thesis here. But I'm curious, in the past when we've had these burn in testers, one of the big issues has been ultimately that is the company's the customers have been able to significantly reduce their testing, just go to some really light sample testing over time. Is. It sounds like silicon carbide at this point needs to be 100% tested and burned in.
Is there anything on the horizon that could Change that because that is one of the biggest drivers of this market for you right now?
Okay. So as I understand and we've had some is open. We've had some very deep dives even recently again with some PhDs and folks in the reliability of this space. Is the physics of the way these planar and trench based MOSFETs are designed and built into the silicon carbide substrates are such that they really do have these defects that need to be screened out and there's no is a belief by any of them that that's going to go away. Interestingly, as people go to Gen 2, Gen 3, Gen 4, which is how what they refer to as shrinks, if you will, is open.
It turns out as the devices get smaller, the defect issues actually intensify. Whereas is a very strong quarter. Historically, sometimes as things got smaller, maybe there was less defects because of defect density. That's not the case here. And so as the generations go on, it conference call may be more important or certainly more it may require more time to do it.
I have not heard a single person talk about sampling. Is open. I personally reviewed the test data and I would tell you there's no data to support these things could or anywhere near or have any projections to do sampling. The defects are high enough, you would not want to be in a car that has not gone through burning on these devices. Now the second thing is test times.
And I will tell you there are a lot of folks out there is now full time paid trying to figure out unique tricks and things and how do I stress devices and twists and turns and temperatures to try and reduce test time. Is open. And it's fully our expectation that customers will reduce their test times over time, particularly of mature designs, is a conference call. But perhaps as is historically the case with all burn in over the last 40 years, new devices will start off with longer test times and as they mature, they will get lower. Is the big difference is they're never going to go to 0.
In fact, they're never going to go to really short test times. And so it's our expectation that this will be a nice strong market for many, many years.
Well, okay, great. That's good to hear. And then maybe Ken, if I could ask a modeling question. Do you have a target model out there today? Or
Can you give
us a sense for what the current breakeven level is and what maybe some incremental margins might be above and beyond that level?
Yes, absolutely, Tom. So just to kind of reiterate what we talked at the last call when we originally gave guidance of $28,000,000 in revenue and said, hey, we would be profitable. You could imply that that's our breakeven and it's consistent with what we've talked previously. And also from a model standpoint, I think we talked about previously is with every incremental dollar of revenue about $0.50 on the dollar falls to the bottom line. So is a simple model can basically say, hey, if you take our forecasted $50,000,000 in revenues, compare that to the $28,000,000 that we originally guided to, there's an incremental $22,000,000 in revenue and say $0.50 on the dollar that goes to the bottom line.
Is reasonable to forecast us coming in at profitability and net income about 11,000,000 is open. And from a gross margin standpoint, we also talked at our $28,000,000 breakeven gross margin, we were forecasting about 45%. Is And because of our relatively fixed overhead as revenues increase that expected gross margin will increase is up to basically 50% gross margin on incremental for gross margin.
Is open. Okay, great. And just one housekeeping on a tax basis, do you have significant NOLs at this point to work off? Is
open. Unfortunately, yes, we have very significant NOLs that we have available to us. We report those in our 10 ks every year, if you want to go to look at some of the details. And in terms of expiration dates on those, those will be available to us for quite some time.
All right. For those that are online I didn't catch the look up table on that. NOLs are net operating losses. We have for several years been running at a loss, much of that is related to the investments we're making in this new system. What that does from a tax basis is it allows us to use that against future profits.
So that profits that would come in, for example, in his $11,000,000 would have the effect of being tax free in the United States. Is open. So that's what that means. Other than that, you're very clear, Ken, you don't wiggle room around on our operating margin and all. And I completely agree with you.
Is open. Thanks, Tom. Any other questions?
No, I appreciate your time. Thank you.
No problem.
We'll take our next question from Mike Dooling with Jacaranda Partners. Please go ahead.
Is open. Hi. Jack Aranda Partners, Southern California. We specialize in large macro demand trends, is both the venture as well as equities. So question on is This massive increase in revenue, is.
Do you have some target gross margin assumptions that you look for, say, in is fiscal 2022 or 2023.
Hey, Mike, and welcome to or was it Jack Or is it Mike? With Jacques, I'm sorry.
No, it's Mike. I'm in Southern California. Jacaranda is a tree, but it has a Spanish name. Is open. So if you could just say, Jack, around the
Welcome to our call here. I know that is You just caught this was Ken was talking about kind of the simple model. As you scale, you could start looking at, say, 50% to the bottom line. We have talked in is passed that around material margins, etcetera, but we generally take run our material margins somewhere around maybe 65%, including the manufacturing overhead and direct labor, warranty charges, etcetera, that gets us somewhere near 50%. I think it's a very healthy way to run this is open.
And it's respectful, if you will, even with our customers and their ramps. And I think we have communicated that even quite frankly to some customers as we've done some deep dives on our financials, looking at how customers do dives on our capacity, capability of doing it. Is. And I think that's a good model going forward. Now having said that, our fixed overhead is pretty small.
And so today, the company will theoretically has exponentially growth. You continue to get closer and closer to actually 50% to the bottom line. But is. For now, I think that's a good model as you look out at $50,000,000 $60,000,000 $80,000,000 $100,000,000 or so to just think of that $22,000,000 breakeven and 50% to the bottom line thereafter.
Right. And then on is lead customers, besides EVs, I mean, is there there's some is testing that goes on in non EV autos because obviously there's tons of semis in non EV autos. Is open. And what other addressable markets you have? Data centers as an example?
So just a little is a comment on your target markets outside of EVs and the EV structure.
Sure, Mike. And I think maybe we could take some more time to spend with you and I'd encourage you to look at some of the past calls. We tend to deep dive on a per call basis into for markets, RT, large markets, I mean, in general, automotive has been a rising tide, if you will, that's raising all ships is as people have increased the content in it. And it's obviously more intuitive to think that semiconductors need to be pretty reliable within an automotive and that is true. And we have seen that in our packaged part burn in systems and we have some other wafer level related opportunities that are related to micro of controllers and flash memories and other things, in particular those that might end up in automotive.
So there's a broader stroke. The kind of is the big waves, if you will, that's a term that we've been using. It's something I inherited from my previous company that we were part of. And that is the big one would be not just is this electric vehicle, which has lots of electronic components, but the power control systems inside of it is related to silicon carbide. Obviously, the conversion, which is both the onboard and off board and high voltage, what they call Level 3 chargers are a huge opportunity that's driving a lot.
Interestingly, solar and other applications are is also driving silicon carbide and I've been meeting with some executives. I've actually met with executives of a couple of companies just recently
is open. And the conversation is about
just how ubiquitous silicon carbide seems to be going as it attacks is the traditional markets of superjunction, vets and IGBTs. So I probably can nerd out with you and talk is a little bit more, but there's a number of applications. And of course, we did talk about silicon photonics in the data center
and
then 2 d, 3 d mobile sensors has other things that are driving our business, particularly this year. I hope that helps.
Yes. Well, with the robust is anticipated revenue gains and profitability and a pretty healthy balance sheet. It's just I'm is curious why you filed for, I think it's up to $25,000,000 offering. I mean, I assume your free cash flow will be strong, but is it just working capital for this is a huge increase in revenue or why do you need money?
All right. Well, Mike, I'll tell you what, let me field that. I actually apologize because is I took the time to write it down
a little bit. That's not to say
it was rehearsed, but I've been encouraged to be very careful about how I talk about these things. But nevertheless, I mean, there's many questions that surfaced around why we're raising capital at this time. And I think the answer is really a combination of three things. I is with our confidence in winning multiple customers and particularly in silicon carbide, but also global test and burn in deals in other markets, is, we're actively purchasing semiconductors and other long lead components that normally are pretty short lead times. Is And we're doing that to assure we have significant capacity and upside to meet the customer forecast and the opportunities.
We actually started doing this at the beginning of the year is And have continually increased the spending based upon increased confidence. So we're doing that outside of backlog, is open. So as an example, because of the spending we had earlier this year, before we had orders from this lead customer, but again, we understood what their forecasts were, has allowed us to not only meet their significant increase in orders, but also meet or exceed their requested ship dates. Our spread over the next 9 months is their requested updates. In fact, quite frankly, right before they ordered it, they were they had been spread out over 12 months.
Then they dropped in, is I think 3 more systems and then they pulled them in 3 months and we were able to acknowledge all those ship dates, okay. So not only can we do that over the next is 9 months, but we actually still have material and capacity to meet other customer needs and opportunities. And that's critical because new customers that we've been talking to have already specifically has asked us about our lead times and our capacity and our confidence in being able to meet their capacity needs during next calendar year and beyond. Is open. So our strategy and portfolio of the FOX T family is important.
We talk about a family. It's a big deal. It's a platform. And what it does, it allows us to purchase material and subsystems into inventory and then configure these to order to allow us the flexibility in using the inventory to meet multiple call customer configurations and not at the risk of seeing an inventory that's specific to one customer or market. Our FOX XP systems is available on our website that we are shipping for 3 d sensors in mobile phones and silicon photonics devices for data centers lines will configure the system using basically common things like the thermal chamber and these blades, which is the basic tester for wafer that includes all the thermal trucks and is a production cooling mechanism for the electronics.
There's a controller and sensors and other infrastructure. And then we take what we call a channel module electronics is that we can purchase in stock and simply configure this to a customer order. The key thing right now is keeping ahead of the game with purchasing and buffering the semiconductors is Jason, so far it's working out really well. And when you started to find the supply chain
chaos that we keep reading about in and semis, you were kind of ahead of the game, I guess, and built up your inventory. So you're not as is active as auto manufacturers are and other people
in Europe. And thanks, Kevin, we did. I mean, given the visibility is in my conversations with other customers right now is important. By the way, I'm actually going to continue on because it's not just that. There's has 2 other items that we're doing and Ken alluded to that.
I mean, we're investing in research and development, not only maintain our competitive advantage is a differentiator, but also to expand the addressable market with new enhancements in the system, okay? We're also doing some cost down or assurance and supply projects to ensure we'll maintain our competitiveness as well to ensure that we can meet the needs. And some of the programs are in development. Is open. I think I need to make sure the investor knows that when you're investing in there, you're assured that you're we're working on some great products and enhancements in R and D.
And is open. Obviously, we can't talk for competitive reasons about NIP, about things that we're all working on, but part of the funds will be applied to the programs is a material need to build and these initial prototypes, alpha systems and beta customer units, and we'll be talking more about that over the next three quarters. Is. And then the third one, and this is a real one, although we continue to and get down payments is on all large system and contact orders that includes these orders that we just received and that provides us with a buffer to meet large customer orders. Is clear that customers and shareholders will love to see Aer have a stronger balance sheet and it helps to provide them with insurance that we're in this for the long haul is not only the wherewithal but the means to meet significant ramps in customer demand.
This is particularly true with the silicon carbide space as I personally met with top executives at
is available at Stellos Silicon Carbide Companies
just recently to discuss their forecast and how we can meet their capacity needs, and this has come up. Is face to face like 2 of them and they both expressed their added comfort in response to our public announcement And our ability to raise a little capital to provide a buffer to meet the market potential so it can carbide test and burn in. Is open. And I that's very real. So we need to
be informed about that. I assume that with the announcement of the quarter, the restrictions on discussing the offering are lifted. And so will we be hearing a few more details in
the next couple of days? Is open. The basic process around the ATM is it gives you an opportunity to offer stock at is at appropriate times. It's certainly our intent not to put any pressure and to be, I guess, thoughtful in exactly how we would do it. Is Mechanically, we would report out quarterly basis if and when we did any raises through an ATM at that is time and will be consistent with all of the rules and guidelines that the SEC has put in place, and that's really all I can talk about.
I apologize, Michael.
Is this quarter that we're talking about, this was not a factor, but the next quarter, it would be. So we'd know at the end of this current quarter, If you had sold 400,000 shares or whatever?
Yes, we would report out is quarterly. So each of the next several quarters or years until such time as it has been completed, we would give announcements is If and when we sold it.
Do you do that instead of just have an offering and clean it up and get it done?
There's been a lot of discussion around that. And certainly, this is we think this is an effective way and very inexpensive way for us to do it without having is to take a haircut and provide those discounts to shareholders that want to come on board. So With a lot of discussion, we've determined that this is probably the best process for us.
Okay. Thank you for your time. I'm a new shareholder, so appreciate connecting with it.
Is open. Excellent. Thank you, Mike.
We'll take our next question from Matt Winthrop with Aegis Capital. Please go ahead.
Is open. Hey, Gaye. How are you, sir?
I'm really good, sir.
Fantastic. I'll keep it brief. I love following a guy who sort of beats you up, is. Congratulations, my friend. I've been I'm a retail guy, I'm not an analyst, but I know a lot about the business.
Been with this for at least 3 years is plus more in the past, but God bless you. You're doing great, fantastic. Your IR guy is great. Just keep your nose down, keep doing what you're doing, man. We will see you at $20 and $300,000,000 in sales in a couple
of years.
Thank you, Matt. Appreciate has confidence and I'm happy to work hard for you guys, okay? Call.
We'll go next to Larry Sciazzini with Sciazzini Capital. Please go ahead. Is
open. Good afternoon. I'll be quick. Again, your release states that this fiscal year you expect is meaningful sales in 2 d and 3 d sensor applications. Is that going to be similar to that $4,300,000 project that You had last year.
Is that kind of what we're talking about or is it something different? Is it a follow on to that project? Could Could you put a little more color on that?
Yes, Larry.
Yes, let me give a little color.
I mean, we historically have gotten follow on business is annually, that's a reasonable amount, in both follow on projects that happen every year and new ones. Is And quite frankly, last year, those programs did not go to production and we didn't see a lot. We saw the early ramp of what was it like a $4,000,000 deal. And then it didn't complete yet. It is our expectation that that will move into production.
There will be more capacity this year. Is. And we also have another program that we're working on. So I have for those folks that have followed this story for a while, they know that is available. There have been times that I sit on the edge of my seat and talk about just how awesome it's going to be and just the sea of testers that is the 2D3D sensor might potentially buy.
And quite frankly, it hasn't worked out that way. While it's been good, high margin is quality business and that customer is very dependent upon us and we love them a lot. The dollars have been fairly, is, I guess, reasonable and nothing crazy. I still believe there is upside to this customer. Is open.
We do know that one of the projects we're working on has the likelihood and is still being told to be actually done for 100% burn in. It may not be a really, really high volume, but because is 100% burn in, we'll make it higher. We also know that if some of the programs that we were on that we're sampling had been 100% burn in, they would be massive. Is open. So what I'm going to do is I'm just going to stick to my knitting and when we get those orders, I will let you know, but I'm kind of is forecast and how great it might be because it has really turned into that much, but we do believe that it will be material to our is even current forecast, and we do expect it.
So I hope that helps. I know it's pretty elusive, but we've not lost any of those deals. And they actually just shipped out in time and we're expecting them at least this year to come in. Is open.
Okay. The CP business for the data center, that project, is that still out there or any updates on that?
Yes, that's is a good one, Larry. You got to go back a little ways on that. That customer is still using that one tool consistently. Is they've actually been doing some things on the side a little bit and they about once a year for the last, what, 2 or 3 years, we get, oh, program pushed out another year. Is I will tell you there's an entire team of people that are still working on that, that particular product that they would be using that and we believe has significantly more systems, has continued to move laterally and did not get released to production yet.
Is what I heard from their public statements, and again, no one knows who it is and no one's guessed yet, is that they just simply is full with everything else going on through COVID and chose to push out that big program. So it's still there and we're is We just we'll probably get a heads up of 6 to 9 months when they turn that thing back on and then I'll probably start to talk more about it. But They're still dependent upon it and use it every day and bizarrely that almost sounds funny. We have not had the system have one issue. Is open.
And why, so bizarrely, our testers do break and we normally have the ability for the tester to self diagnose and you can fix it really quickly. Is. But this happens to be a customer that's pretty well locked down in COVID. And so it's been sort of a challenge. So we've been doing some interesting things is with them with applications along with other customers where with certain customers we're now using these Microsoft Halo lenses, which allows you to virtually be there.
Investor can actually put them on. And if we're unable to get on-site immediately, they can simply point to something that we can help them is diagnosed a problem faster than we can even get on a plane. So there's been some things we've actually enhanced is through this craziness of COVID, but I'll tell you what, it's still in from a sales process, it's nowhere near as fun as being in front of them. Is open. I just got back from almost a 2 week trip in front of multiple large silicon carbide customers in particular along with some other wafer level applications.
Is open. And I'll tell you what, I miss it.
It was fantastic, probably one of the best trips I've been on in is well, perhaps ever. And so I'm it's glad to be back on the road again. And tell you what, is planes aren't full and hotels have lots of room for you. So I was able to travel comfortably.
Is open. That's good news. On this recent $19,400,000 deal, my interpretation of it was for Bayer XPs that were going to be delivered over the course of the next 9 months is the hope that those would be delivered within this fiscal year because it's going to be pretty close. Is. And then the second question is, as that gets closer, I'm assuming your wafer packs that would be is associated with that would then ship with them and then so that order with the wafer packs Would actually be closer to what $30,000,000 plus is that kind of the way to think about that?
No, that's exactly right, Yes, all of it right except for one thing. They actually currently are not forecasting all of them inside our fiscal year, Even though we could, we've got a little of them straddling out into next fiscal year based upon their requirements. So that also is for us too because we have additional capacity for other customers. But yes, they have not ordered the wafer packs for those systems yet And
they will. Yes, I got it. So then the final question, it looks like with your raise and the cash flow generated is from all this business that's piling up. You're going to end the fiscal year close in excess of $40,000,000 in cash. Ken, is that Your expectation in that ballpark, close to it, give or take.
So is? Yes. If we act upon all of the drawdown the ATM for its entire $25,000,000 with our existing cash Balance will be very close to that amount.
So gain now with that flush balance sheet, we've talked in the past, you had Our goals of developing an automated XP that would be applicable towards A memory project, a memory fab. Is that your expectation that you will pursue that And launch that product. And then the follow on is that would that be applicable to silicon carbide as the scale up, particularly is a potential customer that is in the process of building what's being held as the biggest silicon carbide fab in the world. It'd be interesting if you could offer an automated system, whether that would be an advantage to a customer like that.
The advantage or disadvantage of being on cell phones is you can't see my big smile on my face right now. But listen, I think you're You're hot on the trail there, Larry. And as I have said in the past, I always have to tone you down a little bit about knowing too much about my darn roadmap. But is open. I have specifically talked about things that we're doing for enhancements for automation.
And I will let you know that dollars that are being is as part of this raise and as part of our cash flow that we're doing will be being spent towards those project in general. That project does in fact is applicable to silicon carbide as well as could be applicable to flash memory and a couple of other applications we're talking to customers about.
Is open. Good. And so on a memory fab, and I know that you have mentioned this in the past that you had opportunities, but we're in a position to pursue it. But somebody else did and it didn't work out so well. But anyway, that potential on a fab, is Roughly how many units, automated units would XP units would be needed for a typical memory fab.
It's quite substantial, isn't it?
Is open. If customers, for example, in the DRAM space were to shift from package part to wafer level is open. And assuming their test times did not change, they would stay the same and moved it to that. Is a typical DRAM fab could take somewhere between 60 and 100 FOX XP systems with 18 wafers at a time. Is open.
So the capacity is enormous. The flash memory is slightly bigger. There are fewer of those fabs. Is open. What I always do as a caveat, while we are putting investments in it, I would ask customers or is open.
Shareholders, please do not buy because you think we're going to have significant or material revenue in that space in the near term, but I will let you know we are working on that.
Is open.
All right. Well, hey, good job. It's been a long time coming and congratulations.
Is open.
Thanks, Larry. Appreciate all your support over the years.
We'll go next to John Gruber with Gruber MacBain. Please go ahead.
Good afternoon. Congratulations. Hi. I just had a golf lesson by the way. But I listened to the whole thing.
My question is, when are we going to get an announcement on the base business, an order is Intel, TI, Silicon Optics. You only been announcing silicon optics, I mean, excuse me, silicon carbide. Is When are we going to get some of the base business guys to step up? When do you think that when are we going to get some orders on the base business?
Is open. We can never make you happy, John. Boy, I'll tell you. Yes, I've got some of that going on too. I tried to allude is to some of the base business with respect to our silicon carbide customers.
I mean, we had a little one last month, although it's nice to get something into a new region like China. Is open. We do believe that there will be more and across a couple of different customers at least. There's also opportunities to win more customers in that space. Is open.
And we certainly expect to see more 2d, 3d sensors as we were just describing. And there's some other base business that honestly was very quiet is during the downturn that we experienced, I mean, during COVID. And so, they'll be coming, John. I also think that the reality is, is there's some customers right now beating on us pretty significantly related to capacity and benchmarks is currently related to capacity and benchmarks related to silicon carbide. And so I also want to make sure that we're appropriately focused on the right opportunities.
Is. But stay tuned, John.
Okay. Since it's you report your quarter and your 10 Qs out, I mean, is Your quarterly is out soon. Will the amount you raised in the ATM be in that Q? Is Because you said you announced at the end of every quarters and we're here in the quarter. So you've announced the quarter
is Without I think without directly answering that, I believe the SEC requirements is, if we had raised any of it to the ATM at that time, it would be have to be announced at that time. That's correct. Yes. It's a material item.
We would do it as a subsequent event in our 10 Q.
Yes. Okay. So did you do some, I hope?
Is open. I haven't answered that question yet, John.
You're a sneaky guy.
Is open. And I like those worthy questions. A $40,000,000 order and boy, a
lot of big orders coming. Wow. Thank you very much.
Keep up the good work.
Thank you, Carla.
Is recorded. And I'm sure there's no further questions at this time. I would like to turn the conference back to management for any additional or closing remarks.
Is open.
All right. Well, I really appreciate everybody's time. It's a nice long conference call here and we're really excited about your attendance, we actually, I think, might have had a record number of folks attending our call this time, and that's encouraging too. Really is open. Appreciate everybody.
We'll be out here working hard for all the investors and we look forward to talking to you again at the next call. Have a nice day. Bye bye.
Is ladies and gentlemen, this concludes today's conference. We appreciate your participation. You may now disconnect.