Aehr Test Systems (NASDAQ:AEHR) Q1 2027 Earnings Call

0:07 At this time, all participants are placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to hand the floor over to your host, Todd Curley of Pondell Wilkinson. Sir, the floor is yours.

0:22 Thank you, Operator. Good afternoon, everyone, and welcome to Ehr Test Systems' first quarter fiscal 2027 financial results conference call. Joining me on today's call are Gayn Erickson, Air Test President and Chief Executive Officer, and Chris Siu, Chief Financial Officer. This afternoon, following the market close, Air Test issued a press release announcing its first quarter fiscal 2027 results. The release is available on the company's website at air.com. Today's call is being webcast live and a replay will be available on the investor relations page of the company's website. Before we begin, I'd like to remind everyone that management will make forward-looking statements today that are based on current information and estimates.

1:07 These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. Factors that could cause such differences are discussed in the company's most recent periodic and current reports filed with the SEC. Forward-looking statements, including guidance provided during today's call, are valid only as of today's date and AIR undertakes no obligation to update them. Now I'd like to turn the conference call over to Gayn Erickson, President and Chief Executive Officer. Gayn?

1:41 Thanks, Todd. Good afternoon, everyone, and thank you for joining us. I'll begin with a brief overview of our first quarter highlights and provide an update on the key customer programs and markets driving our business. With a focus on the strong demand we're seeing in the AI and data center infrastructure markets, Chris will then review our financial results and outlook before we open the call for questions. We delivered an outstanding start to fiscal 2027 with record quarterly revenue, strong bookings, and significant progress across several major AI semiconductor customer programs. First quarter revenue was a record $33.0 million, increasing 200% year over year and 75% sequentially. Non-GAAP net income was $9.4 million, up 163% sequentially, reflecting the operating leverage in our business as revenue scales.

2:35 These results demonstrate expanding AI production demand and our ability to meet customer capacity requirements. Bookings totaled $46.7 million, representing a book-to-bill of 1.4%. Our effective backlog, including bookings received after quarter end, reached $109.3 million as of November 1st. Based on our strong first quarter performance, substantial backlog, and visibility in the customer production requirements, we're raising our fiscal 2027 revenue outlook to $150 million, compared with our previous guidance range of $130 million to $150 million. This represents 200% revenue growth over fiscal 2026 and reflects our growing confidence in the production ramps and customer programs supporting our business.

3:26 We expect non-GAAP net income of at least 20% of revenue for the full fiscal year. Chris will provide additional details on our financial outlook. Demand continues to accelerate across both wafer level and package level burn-in, driven by increasing semiconductor complexity, power requirements, and deployment and mission critical applications. As devices become more advanced, the need for comprehensive test and burn-in is becoming essential to ensure reliability and performance, which is driving growing adoption of our solutions across multiple markets. For AIR, this is translating into expanding production demand from existing customers and new opportunities to qualify our solutions on additional devices with both those customers and new customers.

4:15 Starting with our wafer-level burn-in business, demand for our Fox wafer-level burn-in solutions is accelerating. Our lead AI processor production customer continues to expand capacity. In August, we announced a $22 million follow-on order for multiple systems consisting of fully automated Fox XP systems with integrated wafer pack auto liners and full sets of proprietary wafer pack full wafer contactors. We are executing against this customer's capacity expansion plans and are encouraged by its forecast for additional capacity in both the short and long term. We've also made significant progress with a major supplier of AI accelerators, CPUs, and network processors that successfully completed a benchmark evaluation last quarter.

5:02 This customer has decided to purchase a fully configured XP wafer-level burn-in test cell for installation at one of its key outsourced semiconductor assembly and test, or OSAP, partners in Taiwan, where the system will be evaluated in a high-volume production environment using the same device that was successfully tested in last quarter's benchmark. Installation is planned for early calendar 2027, with a decision regarding high-volume production anticipated within several months following installation and validation. We believe this customer represents one of the largest potential burn-in system opportunities AIR has ever pursued with significant potential across multiple product lines and across multiple manufacturing locations.

5:48 This engagement represents an important step toward broader adoption of wafer-level burn-in for advanced AI processors, as well as deployment of our wafer-level burn-in solutions across multiple products and product lines for a single customer. As these advanced processes are integrated into expensive multi-type packages that include other processors, high bandwidth memory, and other components such as electrical and optical IO chips, identifying early life failures before final assembly can provide significant cost and reliability benefits. There's also a growing trend that some devices that customers are working on may require production burn-in screening at the wafer level as infant mortality failures of certain devices may simply not be able to be screened effectively at the package level.

6:38 In silicon photonics, we received additional production orders from multiple customers for fully automated Fox XP systems used to burn in photonic integrated circuits for high-speed optical interconnects and data center applications. We believe broader adoption of optical interconnects, including emerging co-packaged optics architectures will create additional demand for wafer-level reliability screening. In silicon carbide, additional wafer pack orders and increased utilization of installed Fox systems point to improving demand. We have direct evidence from EV automotive suppliers that companies using our wafer-level burn-in systems are being seen as preferred vendors for their quality and reliability screening. Increasingly, we see that companies performing reliability screening through wafer-level burn-in see it as a real differentiator in their markets.

7:31 We also continue to pursue gallium nitride and other power semiconductor applications where reliability screening has proven to be critical to their end markets as well. GAN has much broader application space than silicon carbide does today and has proven to be much harder to screen for early life failures. We feel we are the market leader in this area and have added two additional production customers in the last six months. In memory, we remain engaged with major manufacturers on next-generation wafer-level burn-in, and flash opportunities are progressing more slowly than expected because of limited incremental manufacturing capacity and also the timing of new high bandwidth flash architecture volumes. Separately, emerging high bandwidth memory architecture for D-REB with more complex logic in the base die may create wafer-level burn-in opportunities before integration into advanced memory packages.

8:27 These engagements continue and AIR continues to feel these are long-term opportunities for us. Now let me turn to package level. Our Sonoma high-power package level burn-in business is also expanding. We're shipping and installing more than a dozen systems per month to support our lead hyperscale customers production ramp for its first AI processor using Sonoma. Our expanded manufacturing capacities are supporting this delivery pace. The same customer's second AI processor has successfully completed qualification on Sonoma. As announced in October, we received follow-on orders for additional systems, burn-in modules, and software enhancements to support initial production sampling and an anticipated production ramp in calendar 2027.

9:16 Importantly, the customer forecast that this second processor will ultimately reach higher production volumes than its first processor currently in production on Sonoma. This processor requires greater power and more sophisticated thermal management, including multiple independently controlled thermal zones within a single package. We're also advancing evaluations of our Sonoma high power systems with additional AI processor suppliers and hyperscale customers for both engineering qualification and potential high volume production applications. These engagements include bringing up processors here at AIR as well as at customers facilities here and in the US and in Asia. These processors include data center focused processors for training and inference as well as very high volume edge based processors for mission critical real time inference applications.

10:11 We continue to see package level applications driving our business in addition to the growth in wafer level. On our consumable business, Complementing our system sales, our proprietary wafer pack contactors and Sonoma burn-in modules support customers' ongoing production requirements and new device introductions. We currently expect these products to represent about 35% of our fiscal 27 revenue. As our installed base expands across AI processors, silicon photonics, silicon carbide, gal nitride applications, We see further opportunities for these engineering qualification and production driven purchases. I also want to highlight an important change in the profile of our business that may not be fully apparent from the individual customer programs we've discussed.

11:03 Historically, AIR had only a handful of customers with the potential to generate significant production orders. Today, we see that potential across more than a dozen customers. spanning AI processors, silicon photonics, silicon carbide, gallium nitride, and other applications. This represents meaningful diversification, not only across customers and then markets, but also across both our Fox wafer level burn-in and Sonoma package level burn-in platforms. Individual customer orders and production ramps can still vary significantly from quarter to quarter. but we now have a much broader range of customer and production opportunities contributing to our growth outlook. We believe this breadth reduces our dependence on the timing of any single customer program and positions AIR for more diversified, sustainable long-term growth.

11:57 Importantly, this expanding customer base combined with the increased number of devices being qualified production and growing installed base of our systems is creating multiple opportunities for additional revenue growth beyond our fiscal year. To support expanding demand, we've increased our manufacturing capabilities, including in Southeast Asia. These investments are supporting our current customer production ramps and providing capacity for additional growth. We continue to work closely with suppliers to meet customer delivery requirements. We're also planning further manufacturing expansion and targeted investments in engineering, customer support, and sales to support growth beyond fiscal 2027. Our priorities remain delivering on existing production commitments and advancing additional customer programs through qualification and validation.

12:51 Before turning the call over to Chris, I'd like to welcome Vijay Rao to our Board of Directors. Vijay brings 30 years of technology industry experience and deep expertise in hyperscale data center infrastructure, including AI accelerators, high performance memory, and optical networking. His understanding of semiconductor reliability requirements will be valuable as we expand our presence in AI and data center applications. To close, our record revenue, strong quarterly bookings, record effective backlog, and expanding customer opportunities have strengthened our confidence in the year ahead. With existing customers increasing production, additional AI processor programs advancing toward commercialization, and a significantly broader pipeline of opportunities across both our wafer level and package level burn-in platforms, we believe AIR is exceptionally well positioned for continued growth in fiscal 2027 and beyond.

13:52 Our focus remains on executing against existing production commitments, expanding our installed base, and converting additional qualification programs into long-term production business. With that, I'll turn it over to Chris.

14:05 Thank you, Gayn, and good afternoon, everyone. Our first quarter results reflect strong execution against expanding customer demand with record first quarter revenue, bookings that exceeded revenue, and significant operating leverage as we continue to scale our business. Importantly, we increased quarter end backlog to approximately 101 million despite substantial shipments during the quarter. And our effective backlog reached 109.3 million, providing substantial visibility into our fiscal 2027 outlook. I'll begin with a brief update on our manufacturing capacity, followed by a review of bookings and backlog First quarter financial results, cash flow and balance sheet, and our pre-updated fiscal 2027 outlook.

14:53 During the first quarter, we continued expanding our manufacturing and customer support capabilities to meet growing demand. In addition to expanding our Fremont operations, we began shipping Sonoma systems from an existing contract manufacturer in Southeast Asia. This operation adds capacity for more than 20 additional Sonoma systems per month. giving us greater flexibility to support growing customer production requirements. During the quarter, we shipped multiple Sonoma systems from this facility to the Taiwan-based OSET, supporting our lead hyperscale customer, and the ramp proceeded smoothly. This asset-light manufacturing approach allowed us to increase production capacity and responsiveness without a comparable increase in infrastructure or capital spending.

15:43 We are also expanding our local support capabilities in Taiwan.

15:47 Following the signing of a new lease in Hsinchu, we added customer service resources and planned selective hiring in sales and customer support as wafer-level and package-level burn-in programs moved toward higher production volumes. Turning to bookings and backlog, first quarter bookings totaled 46.7 million, an increase of more than 300%. from 11.4 million in the prior year quarter. The increase was driven primarily by orders for FOX waver-level burning systems, waver pack contactors, and auto aligners supporting AI processor and silicon photonics applications. Quota and backlog was 100.9 million, up from 80.6 million at the end of fiscal 2026.

16:35 Importantly, We increased backlog to above 100 million despite recognizing 33 million in revenue during the quarter, reflecting strong new order activity. Including 8.4 million in additional bookings received after quarter end, effective backlog reached 109.3 million as of November 1st. This substantial backlog, combined with our expanding manufacturing capacity and visibility into existing production programs, provides a strong foundation for our updated fiscal 2027 revenue outlook. First quarter revenue was a record $33 million, increasing 200% from $11 million in the prior year quarter and 75% sequentially.

17:23 The result exceeded consensus expectations and reflected strong execution across both package level and waiver level burning programs. Revenue included Sonoma system shipments to our lead hyperscale customer in Taiwan, multiple FOXP system shipments, including a FOXXP system and wafer pack auto aligners to our lead AI processor customer, and FOXMP system shipments to customers in the power semiconductor market. Revenue from contactors and related products, including wafer packs for wafer level burn-in and burn-in modules and burn-in boards for package-level burn-in totaled $13.5 million or 41% of total revenue. This compares with $2.6 million or 24% of revenue in the prior year quarter, representing more than five-fold growth.

18:18 This is an important component of our business model. As our installed base expands and customers increase production volumes or introduce new devices, We expect additional demand for proprietary contactors, wafer packs, beams, and bibs. These repeat purchases complement system sales and provide opportunities for ongoing production-driven revenue, although the percentage of total revenue will vary quarter to quarter based on product mix and shipment timing. Non-GAAP growth margin was 48.5% compared with 37.5% in the prior year quarter. and improvement of 11 percentage points. The improvement primarily reflected higher sales volumes and a more favorable product mix.

19:05 The prior year quarter included a higher proportion of lower margin third party probers and an automated aligner upgrade sold as part of our complete solutions. Non-GAAP operating expenses were 7.8 million compared with 5.7 million in the prior year quarter. The increase primarily reflected additional research and development investments, including engineering headcounts and materials supporting AI-related programs. These investments are focused on specific opportunities, including wafer-level burn-in validation for a major AI processor customer, next-generation package level burn-in programs, and memory-related development. While non-GAAP operating expenses increase approximately 36% year-over-year, Revenue increased 200%, demonstrating significant operating leverage as we scale.

19:59 We recorded an income tax benefit of 0.3 million, resulting in an effective tax rate of negative 3.7%. The benefit primarily reflected discrete tax items, including disqualifying dispositions from stock options and excess tax benefits from the vesting of restricted stock units. Non-GAAP net income was $9.4 million or $0.28 per diluted share, compared with $0.2 million or one penny per diluted share in the prior year quarter. Sequentially, non-GAAP net income increased 163%. Non-GAAP net income excludes stock-based compensation and acquisition-related adjustments.

20:44 Turning to cash flow and our balance sheet. Cash used in operating activities was 3.1 million during the first quarter. We ended the quarter with 105.1 million cash, cash equivalents and restricted cash, compared with 116.5 million at the end of fiscal 2026. Operating cash flow reflected working capital investments, including purchases of long lead item, long lead time components to support anticipated AI relay production demand and customer Delivery Schedules. These investments are intended to ensure we have the materials needed as production volumes increase. Importantly, we remain debt-free and our strong liquidity position provides flexibility to fund these investments while supporting continued growth.

21:36 Turning to our fiscal 2027 outlook, based on our strong first quarter performance, substantial backlog, expanded manufacturing facilities, We are raising our full-year revenue outlook to $150 million compared with our previous guidance range of $130 million to $150 million. This outlook represents 200% year-over-year revenue growth or triple fiscal 2026 revenue. We continue to expect non-GAAP net income of at least 20% of revenue for the full fiscal year. Our increased outlook reflects current backlog, anticipated demand from existing production ramps and delivery schedules.

22:22 With expanded manufacturing capacity, a strong balance sheet, and a substantial backlog, we believe we're well positioned to execute against our full-year outlook while investing in growth opportunities beyond fiscal 2027. Before we open the call for questions, I would like to mention that AIR plans to meet with investors at the NYC CEO Summit on December 15th. We look forward to seeing some of you there. That concludes our prepared remarks. Operator, we're now ready to take questions. Certainly. Everyone at this time will be conducting a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time.

23:07 We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. and once again, if you have any questions or comments, please press star one on your phone. Your first question is coming from Christian Swab from Craig Hallam Capital Group. Your line is live.

23:28 Congrats guys on a great quarter and outlook. Gayn, I want to come back to your commentary regarding the new wafer level benchmark and your commentary saying that you'll have an idea for whether they put in high volume orders, it sounds like sometime in the first half of calendar 27. And in particular, your commentary about the largest opportunity ever pursued by the company. I'm just wondering if you can give some relative color about the range of revenue potential that you're referring to there. Okay.

24:11 So beyond just the It's the tone that's coming in from them and other customers, particularly related to their new devices that are coming out. And I mean, like coming out in 27 and 28, like kind of near term, even 27, where the new processors, there's sort of a whole new generation of different types of flavors of processors that are going out there. And I'll talk generically. My intention is trying not to be too specific about anyone. So anything I say, I could point to two or more customers that are saying the same thing. But there are things where there are processors that are coming out that are described as a single processor, like a single chip, if you will. But embedded in that chip might be four AI accelerator chips.

25:05 There could be 12 stacks of high bandwidth memory, another four or eight optical or electrical IO interconnect chips. That's in the near term. There's devices that are out there that have been being talked about publicly that have 12, 16 compute chips inside. The other thing is there's a shift going on with respect to just the sheer number of CPUs versus the accelerators. and combinational CPU accelerator infrastructure devices that are very interesting. And so the complexity is going up and it turns out as you mix even the same devices in the package, the burning challenges are very high because all of the devices run at different thermal levels and power levels based upon the physics of the process. And so once you put them together into the same substrate with the same heat sink, it becomes difficult or actually impossible to get the device to the optimum screening temperature because the one next to it is hotter or colder.

26:15 And so we're able to isolate the dye at the wafer level and maintain every single device at the exact same burn-in condition in terms of temperature and voltage and current that is not even feasible to do on package-level burden systems, not ours, not anybody's. So that whole tone of like, you know, hey, this is really important to us, and then instead of referring to one device under test that might be on Sonoma, it might be four devices or eight devices that are, so the actual quantity is higher. So we put some numbers together just to, you know, to help people understand If you look at one of our systems, our system is a nine wafer for the AI configuration, let's say.

27:03 For every million units shipped in a calendar year, that system would need to test, you would need somewhere between five and ten of our systems per million units per year. And that assumes pure linearity, meaning it ships the same about the first day of the year is the last day of the year. And keep in mind that's times nine, so that's 45 to 90 wafers of capacity. And if you multiply that times our ASPs that can range, including the consumables, six, seven plus million dollars, it's 35 to $70 million for each million units. If you look at the accelerator markets that we have been seeing, Accelerator markets in 2027 alone are somewhere around 25 million units or so total. This is between the GPUs of NVIDIA and AMD and the TPUs and other ASICs from everybody.

28:05 And the CPUs are double that. So the numbers are staggering and sobering for us. So why we keep pounding the drum and talking about all the infrastructure that we're putting in place to be able to ship tens of these systems per month, for example, is because of these numbers. Now, are we going to win them all? Someday, maybe, but that's not what we're aiming for. But you pick off one, two, three high runners, and these are big numbers. You get a customer who's saying, I would like to consider this for all my devices or most of my devices or every device you could do it. And all of a sudden, it becomes the biggest deal you've ever looked at before. So that's where those numbers come from.

28:50 Fantastic. Thank you for that clarity. And just a quick follow up on the silicon carbide with the improving demand and preferred vendor customer status, et cetera. Can you remind us what your revenue to silicon carbide was? in fiscal year 26 and a level of expectations that is reasonable to assume in fiscal year 27?

29:19 Yeah, we always just did overly simplified as saying of the $50 million we did in FY26, it was less than 10% or thereabouts. It's about 10% in carbide. If I blur Gann and silicon carbide, sometimes I do that with power semis, but it was the silicon carbide was that. That by contrast to, you know, silicon carbide was 90% of our revenue a couple years earlier. So, you know, it was only about $10 million. And I think we already announced a $7 million order. I think we've already got orders maybe bigger than that already. So, silicon carbide is going to grow this year. We've had some recent meetings with customers that are hopeful and optimistic. As I could say, I'm sort of in that we've put the investments in place.

30:08 We have the infrastructure. We know how to build these things in high volume, both the systems and the wafer packs. So I'll just denounce them when they come in. But it does appear that everybody's utilization is about full. And there's people talking about continuing up the ramp of silicon carbide, mostly, again, for the traction inverters for EVs. some of the charging infrastructure of EVs and solar. And on the horizon more is all the data center stuff. Doesn't feel like yet that's really high volumes for, you know, in the immediate near term, but that's coming as well.

30:47 Great. Thank you for that. No other questions. Thanks, Chris. Thank you. Thank you. Your next question is coming from Jed Dorsheimer from William Blair. Your line is live.

31:00 Hey guys, congratulations, great quarter, nice to see this breakout. Gayn, maybe just, I think, and I could be wrong here, but I think previously you had mentioned the linearity of revenues, or maybe it was Chris in terms of weighted to front half. I'm just wondering whether or not that holds true in the context of raising the full year guide to the 150 plus million. How do you expect that linearity through the year?

31:34 Well, we kind of a couple months in, a month in or so into the quarter, customers started coming back and saying, hey, I know I scheduled them into your second quarter. Can you pull them in? In fact, that's kind of everybody right now, ship as quickly as you can. So we were able to smooth some things out a little bit by bringing in Q1. but I mean if you just do the math if you say you're 150 and we did 33 you've got 120 ish something like that left yeah okay so that's math um it feels like it's going to you know each quarter of that three will grow a little bit and so you can sort of smooth them out but it feels you know this quarter will be a little bit more than last and we think the following quarter higher than that and then the fourth quarter maybe the highest of the year we'll see um but A lot of this, too, is interesting, and we just raised our guidance. I don't want to get ahead of ourselves, but there are real potentials, both in terms of potential demand and our ability to ship as we head into the second half. So, I mean, we're feeling really good about the year and candidly heading into the following year as well.

32:46 Okay. Yeah, I just wanted to add for the second. For the second quarter, we will still be a very strong quarter. For us, especially, we have commitment to deliver our systems to our hyperscale customers. And that's all in backlog. That's all in backlog. Q2, we need to ship it all. If not all of them, most of it. So we still have a very strong quarter in the second quarter.

33:12 That's helpful. And Chris, you bring up a good point. I mean, a book to build of 1.4 is great, but you've typically, particularly because you've been more of a turns business. As you kind of operate at these new levels and maybe gain, you know, your perspective on this, are you seeing any areas of, you know, areas of your supply chain that that are giving you any pause or in terms of operating at, say, this level or, you know, you're talking about numbers that are much, much larger and, you know, around this benchmark customer, if they go, you know, how are you thinking about shoring up the resilience of your supply chain? And then I have one more.

33:58 So we've already been doing that. I mean, you know, we were talking up a storm a year ago about adding capacity and and it seemed a little odd that we were adding all this capacity if we're only doing $50 million for the year. And the answer was we could anticipate what they were saying and we were putting the infrastructure in place. So doing 33 million in the first quarter, 3X what it was the year before same quarter, we're already doing really well against it. Now, candidly having said that, we think we put infrastructure in place to be able to do above 150 and I'm pressing on the team to be able to put a lot more than that in place for the following year or maybe even pull in. So there are ways that we are working with our subcons.

34:43 We do final assembly here of our wafer level systems. We can do final assembly of the package level systems at one of our subcons entirely now. Those are all shipping directly to our hyperscaler. will continue to do the final assembly of wafer level here for the foreseeable future, but the subcons are doing more and more of the subassemblies. So, you know, today we have X hours to do a completion of a whole wafer level burn-in system here. By the end of the year, I think we're down to one-third or so of that, which would allow us to do 3X the capacity, if you will, kind of number. So we're continuing to move on all of those fronts. and we're also spending money. We're putting money down with suppliers and making sure we're buying long lead items and additional aligners and things like that to have some buffer so that we can also ship very quickly.

35:43 Last question for me. That's helpful. Thank you, Gayn. Just around the benchmark customer, and the wafer level burn-in. It does seem like an escalation to purchase one of your systems and move it over to Asia. Do you have any expectation in terms of what that qualification process would look like that moves towards a PO? How should we be thinking about that?

36:19 We do. We have, I'd say, almost all of the final details on what we call a statement of work between the two companies that make it very clear what is required and needed. And we were, I think, pushing on them too to push on us to ensure that what's in there makes it qualified as a real production system too. You know, units per hour, uptime, all of those normal things you'd see with production. You know, I think for them, it was like, okay, you were able to do it here in Fremont. That's great. But will you be able to do it under the scrutiny of our OSATs and, you know, in a volume production? We already know what that looks like.

37:04 I mean, whether maybe we haven't shared all the details along the way, but we actually have Fox Systems installed in Taiwan. They happen to be very captive. I can't really go into it, but customers that have bought it and really locked it up for their specific requirements. So we know what high volume looks like on these, but this will be the first for them to really see it. And, you know, a lot of people are still just sort of getting their arms around the concept that you can actually test nine wafers with several thousand watts a piece at a time and do that in high volume production, hands-free environment. and when they see that, the lights sort of go on like, well, how many things I could do that with? So good idea what it looks like. We have a Gantt chart on the schedule. There's a lot of details that are working through that need to be done to make sure that they get the facility in place and all that's part of the reason it will take, we will be able to ship it till the beginning of the year. It's actually their stuff. And we have some work to do.

38:04 There's some things that we've shown them during the benchmark. that were prototyped, if you will, and validated. But we need to just show that in volume production configuration. There are some features that we can upgrade or install base to. And they'll be seeing that for the first time in high volume production. So there's always a lot of work. I don't want anyone to think that this stuff is easy to do. But, you know, around January, February, March, they'll have seen the data, should be able to be making some decisions around their capacity planning. We'll be working with them on their forecasts and which devices they would want to go first on. And, you know, we're optimistic and hopeful and we're going to try really hard. You know, we met directly with them face to face.

38:54 I have in the last, you know, one week. and we heard directly from their management that this is really important. They really want this to work. So that's usually a good sign.

39:08 Awesome. I'll jump back in queue. Congrats again. Thanks. Thank you, Jed. Thank you. Your next question is coming from Max Michaelis from Lake Street. Your line is live.

39:23 Hey, Max. Sorry about that. Sorry about that. I was on mute, guys. Just first question, you guys snuck it into the prepared remarks talking about consumables revenue mix. I think you said it was 35% for fiscal year 27 is the expectation. What was that in fiscal year 26? And I can't remember if you guys have shared sort of a long-term target, but if you have thought about that, I guess as of recently, can you share what you expect that to be in the future?

39:50 Yeah, 26, if I recall correctly, that's in the 20s. but for the long-term model we always think about around the 30 percent that's kind of the what we discussed but obviously you know this year Q1 was you know exception of 41 percent but for FY27 we're looking at something like around 35.

40:14 There are scenarios where it could be 50 percent and our business is strong. I want to say that is a part of the I guess pros and cons of being in the consumable business proprietary to our things is that as you have an installed base of say a thousand blades or a thousand wafers of capacity, every one to, you know, one to three years as new devices come out, they'll buy all new sets of wafer packs. So for maybe a thousand wafers of capacity out there, which would be, you know, a hundred-ish of our systems, let's say, it's times nine, so, you know. You would get maybe 300 wafer packs, even though they didn't buy new systems that year. So over time, that number adds to currently about one third of every sale is wafer packs, two thirds is systems.

41:04 So when you think 30%, you're like, oh, that's just a good growth year, not a lot of rebuy. And that is somewhat true. So as we start to see that infrastructure. In fact, that's the first indicator. The silicon carbide guys in the last year and a half have only been buying wafer packs. And right now they're leading with more forecasts for more wafer packs or more consumables. So maybe it could be 50%. And again, it could be 50% because you're having a bad year for systems and it's all that. But I'm talking even in a good year, it could be 50%.

41:39 Yeah, I can double check for you, Max, while you keep asking.

41:44 Yeah, next question. Go ahead.

41:45 Perfect, perfect, yeah, that was great. And then last question here. I mean, awesome guide, and you blew numbers out of the water. This quarter took out, it's up to the high end of the range from last quarter, so at $150 million. Looking out to the last three quarters, it's about $117 million to get there. You got about $109, $110 in the backlog right now. Really only calling for $7 million of orders. Help me out if I'm thinking about this wrong, but it feels like it's almost conservative that you guys are only going to get $7 or $8 million of orders by the end of, I mean, whatever the lead time is. So help me out there. Is there anything capacity supply chain that you guys are more conservative about or help me out there? I think we're trying to be conservative.

42:26 Yes, that's the fair. I mean, that is not, that currently, that's currently not supply limited, meaning we can ship more than that. That is current customers' orders and when they say they would like it shipped. I'd say for the most part across the board. And so, you know, they do schedule things, they anticipate it. And so we could get additional orders and still ship it this year. And, you know, we just thought 150 is a pretty nice, clean number for us to be conservative at this point.

43:06 Perfect. That's it for me, guys. Thank you.

43:09 Max, to answer your question, wafer packs or contactless revenue was 29% last year.

43:14 Thanks, guys. Thanks, Max. Thank you. Thank you. Your next question is coming from Kevin Gerrigan from Jefferies. Your line is live.

43:31 Hey, guys. Let me echo my congrats on the great results. Once this benchmark customer is fully up and running with wafer-level burn-in, do you expect that to accelerate adoption with other customers? Are there any potential customers that are just waiting until they see additional customers adopt wafer-level burn-in before they go online?

43:53 I believe that this customer has very, very high visibility. And let me be clear, that imposes upside-end risk, right? We're really excited about what we've shown them. being able to do the proof of concept and everything here and validate it before we go. They have given us new devices. So far, we've been able to look at and say we can test all of them. I'm sure that maybe they'll give us one we can't. But for the most part, I think they're trying to help us along too, let's say. But I think it's not just them. What we're seeing is there's more and more buildup and chatter in the industry and on the rags and the trade shows talking about wafer level burning. And I think it's funny sometimes people talk about wafer level burning as a test insertion. And yet we're the only ones that can do it.

44:52 So they talk about like as a segment, but we're really the only ones doing it right now. And people are giving us that. So I think that this absolutely has the potential of As this goes well, other people will be even less concerned. Now, to be fair, the very first wafer-level burning customer that we did is also an AI accelerator supplier. They're using TSMC wafers. TSMC was involved in the qualification and the buyout process of what that looks like. And they, we believe, have been very visible to other customers who are aware of it. Either they walk by it at the OSATs or they're just aware of it.

45:38 And there have been even some rumors about them going up and publicly talking about it that I'm not ready to verify yet right now. But they're very happy with us and we're a partner to them. So that itself has helped. In fact, there's some potential that they are the ones that caused the new benchmark customer to take interest once they understood that they were able to do it. So they all feed on each other, not dissimilar to some of the stuff that was gone on silicon carbide before obviously the EVs sort of just went quiet, right? We were starting to win everything.

46:18 Yep, got it, got it. Okay, yeah, that makes a ton of sense. Thanks for that, Gayn. And then, Chris, just on gross margins, they stepped up to 48.5% this quarter. How should we think about that going forward? I mean, is that kind of sustainable? And what are kind of the puts and takes there?

46:35 Yeah, I would say for the entire year FY27, that's the right range. Obviously, we're going to have variations between quarters, and especially Q2, we're going to ship a lot of Sonoma systems to our hyperscale customers. So Q2 would probably be lower than what we presented in Q1. But for the year, it would be plus or half a percentage, plus or minus.

47:05 Okay, perfect. Thanks a lot, guys, and congrats again on the results.

47:09 Thank you. Thanks, guys. Thank you. Your next question is coming from Edward Yang from Oppenheimer. Your line is live.

47:17 Hey, Gayn. Hey, Chris. Congrats on the nice quarter, and thanks for taking my question. My first one just on this benchmark AI processor opportunity seems to be progressing very nicely. But can you help us understand the pacing with the Taiwan installation not planned until early next year? Was this timetable consistent with your expectations?

47:41 Yeah, pretty close. I mean, I think it's within maybe 30 days or so of what we were originally thinking. So I think that's pretty consistent. We've been meeting with them regularly, working through, looking at wafer pack designs on multiple different devices. Part of it was we weren't even sure which device they wanted to do the production benchmark or production evaluation on. They chose the one that we did the original benchmark on. but we weren't even sure if it was going to be that one or one of the others and so I think we're working through that and you know things take time. People are very busy right now as you can imagine and you know in the background we're fully committed to work through these things.

48:34 Some of the stuff I alluded to and I'm just not going to go into the detail here related to some of the new features that we have in the system that we've actually patented and I haven't gone, you know, without NDAs, we're just not talking about some of those features. We're just, we're implementing those in the background and doing it. So their schedule hasn't slowed us down on that at all. But again, I would think, you know, somewhere in that first couple few months of the quarter, they'll have seen enough to trigger kind of next steps. Maybe it'll go sooner, we'll see. But If we can be successful at this and they continue to engage with us on the different devices they're talking about, that's fantastic.

49:24 Perfect. And for my follow-up, Just on competition, you know, one of the larger system level test suppliers recently introduced what they call, you know, AI burning capabilities. It doesn't seem really comparable to what AIR offers, but, you know, maybe talk us through how their approach differs from, you know, Fox's accelerated live screening. Okay.

49:50 Well, they're within... So, first of all, as everybody understands what they're... When people talk about screening and burn-in, all semiconductors are tested. They're tested good from bad, and they may be tested for how good they are, speed grade or whatever. And there's platforms out there, the two dominant platforms for all the AI high-performance computing platforms are the 93,000 from Advantest. I'll always remind people that that came from my old company from HB Agile at Verigy. One of the greatest acquisition ever was when they bought Veragy because it's done so well for them. And the Ultraflex from Teradyne, who's been gaining market share.

50:36 But those are the two players. If you told me it was 99%, I'd believe you. All testing is done at a package level. When the device is good at the very end, A customer will take that, put it into a computer, put that into a rack, and then ship it to the end customer data center. But what they're finding is those devices would fail early, days, weeks later. So what first was happening is the data center, the suppliers of the racks, you know, Computer Micro and Super Micro and these guys, they would actually do a burn-in of the rack, run it for a week. to screen out infant mortality, they would call it, of the processors that were failing.

51:24 And there were public comments by Jensen and others to say, listen, and a big white paper that was done by Meta that talked about the failures that were happening in the data centers and how the people needed to implement burden and screening. These are techniques that have been used for years and years with the likes of Intel and AMD for screening their processors. But all of the new processor companies were fabulous going through TSMC and didn't have any of the infrastructure in place. And so people are scrambling, what do I do? Because I don't want to do it at the rack level. So one of the first things they did is they actually looked at what are called SLT machines. So in addition to the final test systems I described from the Vaughn test in Teradyne, There's another insertion called an SLT insertion which for all intents and purposes is to boot up the device in its native application.

52:19 Think of the on its own motherboard. And there's companies like Han Precision, Chroma, AEM, Teradyne has just introduced one which is what I think you're alluding to with their Titan. I think Titan or Triton, I forget which one, platform, which is an SLT machine, which is at speed, high speed, intended to look and feel like the actual application. And that has, you know, they have great thermals on it and they have ATE performance, but done for a specific insertion. Now, you could do a burn-in on that thing. They typically are very expensive platforms. that have high-speed digital signals, et cetera. But one of the challenges is the burning condition for accelerating these infant mortalities is not the same as the user mode.

53:10 We actually bring the devices up to much higher temperatures than they run in the normal user environment to basically strain them and age them. So within three hours, we might make the device look like it's several months old or more. And we can correlate to screen out those infant mortality rates by bringing the devices up to very high voltages and very high temperatures extremely accurately and basically precisely age them three months, not three years. Okay. So we don't want to wear them out. And so that's what we do with our burn-in insertion. But there have been several companies out there that have talked about trying to use SLT derivatives, system level test derivatives, to try and do the burn-in.

53:58 When we're engaged in package-level burn-in deals right now, which there's a number of them going on, people are not talking to us about the SLT alternatives. They're looking for what they would call a real burn-in system like Sonoma that's aimed at addressing those high voltages and high temperatures and massive parallelism at low cost. So we think we have the best package-level burn-in system on the market with Sonoma. but to be fair, there are other customers out there, other companies that make them. And in some cases, one of the challenges is they might make one for their own use and they might have an advantage because they have some costs because they build it themselves. They may not be able to hit our performance, but maybe they're willing to make some of the other technical trade-offs. So in package level, Vernon, we actually see that business growing and growing. And we think that the real competition isn't really an SLT machine.

54:52 But more interestingly, The real competition to package level is the Fox system from us. The wafer level system provides capabilities both technically, we can do things at wafer level that nobody including us can do at package level. And that, we're proving that to customers through these benchmarks, which would get a customer to want to shift from package level to wafer level. And in that case, the only alternative unless you want to violate our IP and we ferociously will defend it, is to try and use a standard probe or an ATE system coming down and trying to test as many devices as you can at a time to try and get the cost effectiveness down. So what we're able to do is we're often testing a quarter of a wafer at a time of all the processors, which people think is nuts, considering that the 93K and the Ultraflex are typically testing one device at a time.

55:47 So we're testing one quarter of all the dye in parallel on nine wafers at a time. Sometimes, by the way, we may test one eighth or something, but we're able to do that very cost effectively. And by doing it at wafer level, the cost of test at wafer level is a fraction of the yield improvement by moving it to wafer level. So we think that ultimately that's where people will shift. It's exciting and scary as you throw a party and what happens if every single person comes, but that's kind of where we're at. We have a great front row seat using the Sonoma platform to have a conversation about people's next generation devices that in some cases they say, you know what, we need to go to Fox by the time that part comes out.

56:34 We're playing with a different set of deck of cards, if you will, than our competitors are.

56:42 Thank you for that detailed answer. Appreciate it. You're welcome. Thank you, Ed. Thank you. Our next question is coming from Larry Klebina from Klebina Capital. Your line is live.

56:55 Hi, Gayn. You mentioned that you're getting an opportunity on the HBC memory, and I think I heard you say via the base die of the HBC stacks. Did I hear you correctly?

57:10 Yeah, on a high-performance memory, HBM, yeah, the HBM DRAM, there's a, one of the features of the high HBM standard to the JETIC standard, and there's new devices coming out that are even outside of the normal JETIC standard, where the DRAM devices are stacked on top of a logic interface chip that is done on a high-speed logic process, so like a TSMC would build it, and then a Micron or a Hynix would build the DRAM and put it on top of that, for example, or Samsung. And that's a high-speed interface and other logic including some built-in self-test features, but that device itself is subject to needing to be screened and burnt in and have some sort of infant mortality because if it fails later, you might have 12 DRAM dye on top of it.

58:03 You know, $500 or $1,000 worth of dye.

58:08 Right. And is that base dye opportunity, is that coming through the paid evaluator? Is that one of the opportunities down the road?

58:21 We've heard about this opportunity from several different Flavors of Suppliers. How's that? Okay.

58:30 You also, at the CEO Summit at Semicon West, you were telling us about this breakthrough that you had in being able to control the temperature of each device on the wafer within a half a degree centigrade, which is phenomenal. And that breakthrough involves a super-duper new wafer pack that you developed that you recently patented. Will this next step in the pay-to-value wader, will that involve that full complement of nine super-duper wafer packs? What are you calling them?

59:07 Super-duper wafer packs. No. We've been calling it the dye TC for dye temperature control. Right. And it has the ability to actually independently manipulate the thermals of each of the dye under test at the wafer level. which is nuts. People have never even contemplated that before. And it's integrated into our wafer pack and custom designed for each of the wafers under test. So it's a pretty cool feature.

59:39 And that will be in that full production system that you're going to start the first of the year in the evaluation?

59:50 Yes, it will be.

59:52 Okay. Well, that seems like

59:56 So you got it right.

1:00:20 It may be the opposite. If I describe it differently, it may be even more impactful. So if you go into thermal runaway, what happens when these devices heat up, they actually drop their resistance, which draws more current, and then they heat up at the square of the current. You can see the problem. When they heat up, they drop more resistance, drop more current. In our world, that's called thermal runaway. The device immediately within milliseconds or seconds will go into thermal runaway and burn itself up and actually burn up. Okay, that's bad. Okay. So you're saying we can avoid doing that. That is true. But what's actually more critically important, if you look at some of these packages that are coming out, they may have multiple dye inside, but they're all tied to the same substrate.

1:01:05 The dye don't all burn in and have the same leakages. So they're all going to generate different power and different heat, self-heating. The way people will do that is they actually self, they'll look at the hottest dye and and control the temperatures on that one to avoid it from going into thermal runaway. But when they do that, the coldest dye isn't at the burning condition. And their customers are like, well, what are we going to do? So that device is actually not burnt in optimally. So that infant mortality or that failure rate will sneak through all the way to the data center.

1:01:45 So that customer is actually paying for a burn-in and actually isn't getting it on the full package. So still suffering infant mortality failures in use, even though we're paying for it.

1:02:00 And if you take that to an extreme, which isn't that far out in time, you just simply won't be able to have an effective burn-in. And you're just going to have to say, well, I'm going to have failures in the data center. and some people say, you know what? Those data centers are gonna be a long ways away and you can't have failures, right? And so, you know, we start using the term internally here, you know, terrestrial data centers are a lot easier than some of the new ones that are coming up. And you start looking at these real time edge inference devices where the failure is literally life and death, okay? and so we're getting to these scenarios where you have to do the burn-in and people are like, but how are we going to do it?

1:02:48 Right? And so it's a great time to be in the burn-in business.

1:02:53 It sounds like your wafer level burn-in system with your SuperDuper or DITC wafer pack ought to be a slam dunk. I agree with you. Well, How do you sell it? Get it sold.

1:03:11 Sell it.

1:03:12 All right. Good job. That's all I had. Thanks, Larry. Thank you. That concludes our Q&A session. I'll now hand the conference back to management for closing remarks. Please go ahead.

1:03:27 All right. Thank you, operator. And thank you, everybody. We really appreciate you guys joining in for this. This has been an interesting one. We were avoiding Election Day tomorrow so didn't anticipate being opposite of Apple. So we appreciate those that are listening in or catching up afterwards. And as always, if you have any questions, please get in touch with the IR, Chris or I, and we'll be happy to respond to you as fast as we can. Thank you very much. Bye-bye. Thank you. Everyone, this concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.