Aehr Test Systems reported its Q2 fiscal 2025 earnings, revealing a miss on both revenue and earnings per share (EPS) forecasts. The company posted an EPS of $0.02, falling short of the $0.03 forecast, and reported $13.5 million in revenue against a $15 million expectation. Following the announcement, Aehr's stock plunged 17.2% in aftermarket trading, closing at $13.24.
Key Takeaways
- Aehr Test Systems missed EPS and revenue forecasts for Q2 2025.
- The company's stock dropped 17.2% in aftermarket trading.
- Despite the miss, Aehr reaffirmed its fiscal 2025 guidance.
- New market expansions and a first AI processor customer were announced.
- Legal challenges and reduced gross margins pose ongoing challenges.
Company Performance
Aehr Test Systems experienced a challenging quarter, with a 37% decline in revenue compared to the same period last year. The company's net income also fell significantly, from $6.7 million in Q2 last year to $700,000 this quarter. Despite these setbacks, Aehr continues to push into new markets, securing its first AI processor customer and expanding into silicon photonics and hard disk drives.
Financial Highlights
- Revenue: $13.5 million, down 37% year-over-year.
- Earnings per share: $0.02, down from $0.23 in Q2 last year.
- Gross Margin: 45.3%, compared to 51.6% the previous year.
- Backlog: $26.6 million, with $9.2 million in bookings for Q2.
Earnings vs. Forecast
Aehr Test Systems reported an EPS of $0.02, missing the forecast of $0.03 by 33%. Revenue also fell short of expectations at $13.5 million compared to the $15 million forecast. This marks a significant miss, contrasting with last year's stronger performance.
Market Reaction
Following the earnings announcement, Aehr's stock price fell sharply by 17.2% in aftermarket trading. This decline reflects investor disappointment in the earnings miss and the company's reduced financial performance compared to last year.
Outlook & Guidance
Despite the earnings miss, Aehr reaffirmed its fiscal 2025 guidance, projecting total revenue of at least $70 million and a non-GAAP net profit of 10% of revenue. The company anticipates significant contributions from AI processors and is exploring opportunities in DRAM and HBM testing.
Executive Commentary
CEO Gayne Erickson emphasized the company's strategic focus, stating, "We're not pivoting away from silicon carbide, but rather are generating what we see are the growth in the other market opportunities." He also noted the potential of the AI processor market, estimating it could surpass $100 million annually in the future.
Q&A
During the earnings call, analysts inquired about the timing issues affecting quarter-end shipments and challenges in the Chinese silicon carbide market. The company confirmed its manufacturing capacity to support future growth and explored potential in flash memory and HBM testing.
Risks and Challenges
- Continued legal issues in China could impact operations.
- Decreased gross margins may affect profitability.
- Market volatility and competition in new sectors pose challenges.
- Supply chain disruptions could hinder growth plans.
- Economic pressures may affect customer demand and spending.
Full transcript - Aehr Test Systems (AEHR) Q2 2025:
Conference Operator: Please note this conference is being recorded.
I will now turn the conference over to your host, Jim Byers of Pondo Wilkinson Investor Relations. You may begin.
Jim Byers, Investor Relations, Pondo Wilkinson Investor Relations: Thank you, operator. Good afternoon, and welcome to Aehr Test Systems' Q2 fiscal 2025 financial results conference call. With me on today's call are Aehr Test Systems' President and Chief Executive Officer, Gayne Erickson and CFO, Chris Hsu. Before I turn the call over to Gayne and Chris, I'd like to cover a
Gayne Erickson, President and CEO, Aehr Test Systems: few
Jim Byers, Investor Relations, Pondo Wilkinson Investor Relations: items. This afternoon after market close, Aehr Test issued a press release announcing its Q2 fiscal 2025 results. That release is available on the company's website at air.com. This 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 Aehr Test website. I'd like to remind everyone that on today's call, management will be making forward looking statements today that are based on current information and estimates and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those in the forward looking statements.
These factors that may cause results to differ materially from those in the forward looking statements are discussed in the company's most recent periodic and current reports filed with the SEC. These forward looking statements, including guidance provided during today's call, are only valid as of this date and Aehr Test Systems undertakes no obligation to update the forward looking statements. Now with that, I'd like to turn the conference call over to Gayn Erickson, President and CEO.
Gayne Erickson, President and CEO, Aehr Test Systems: Thanks, Jim. Good afternoon, everyone, and welcome to our Q2 fiscal 2025 earnings conference call. Thanks for joining us today. I actually have a number of topics that I'm going to go through. I'll try and get through them quickly.
We've had a lot of inbound requests for information and to clarify all the different markets that we have been expanding into, particularly a lot of questions around the AI side. So I thought I would spend a little bit of time just making sure to bring everybody up to speed and kind of normalize what everybody understands about that. So bear with me as I go through this. Chris will then cover some details related to our financials, a little bit shorter than normal to make up for my longer portion of this thing and then we'll open up for questions. I'll start with a brief overview of the quarter's key highlights and share updates on the key markets we're targeting for our semiconductor test and burn in including notable progress in those new markets.
We're excited to share the significant progress we've made on the key objectives we outlined at the start of the fiscal year, particularly expanding our product reach into additional large and fast growing markets. Our market diversification into sectors such as artificial intelligence processors, gallium nitride power semiconductors, data storage devices, silicon photonics integrated circuits and flash memory is driving new opportunities to attract customers and drive revenue growth. This progress includes our wafer level burn in solutions and also the success we're achieving with the new semiconductor package part test and burn in product lines we acquired through our acquisition of Intel (NASDAQ:INTC) Technology that we closed last August. This acquisition has led to the acceleration of our market diversification with particular success and leverage expanding our total available market in AI Processors. We're pleased to report meaningful progress in our efforts to penetrate the high power processors market, including artificial intelligence or AI Processors, graphics processor units or GPUs and application specific integrated circuits or ASICs AI Processors and Accelerators.
These advancements include wins in both wafer level burn in and package part burn in applications. Let me start with our new success with the AI processes for wafer level test and burn in. Last month, we are thrilled to announce a major milestone for us, securing our 1st AI processor customer for wafer level burn in. After successfully demonstrating the performance and throughput of our systems at our headquarters here in California, this innovative AI customer selected our new high power FOX XP (NASDAQ:XP) solution for production wafer level test and burn in of their AI processors. This includes initial volume production orders for multiple high power FOX XP systems and our proprietary WaferPak contactors, which enable full wafer contact for testing and burning in of AI processors in wafer form before system integration.
This achievement represents a significant technological and commercial breakthrough for Aehr, significantly expanding the market potential for our FOX XP wafer level test and burn in systems. AI processor burn in is a significant opportunity for Aehr. AI processors have tens of 1,000,000,000 to even greater than 200,000,000,000 transistors on a single semiconductor die. Transistors act as the fundamental building block functioning as an electronic switch to control the flow of electrical current, essentially representing the on and off states necessary for processing information on digital circuits, allowing for the creation of complex logic operations within the single chip by combining numerous transistors together. Large complex processors have always been subject to the challenge of early failure rates that are higher than the application requires.
Companies like Intel, AMD (NASDAQ:AMD) and NVIDIA (NASDAQ:NVDA) have always had many of their products and for some companies, all of their processors require a production burn in for screening out early failures. This is also the case for AI processors and ASICs. Companies use test and burn in systems to qualify a new process and AI processor design to determine the device's early failure rates, intrinsic and steady state failure rate over time and also how long the devices will last before they begin to fail due to the end of life wearouts. This is really where our acquisition of N CALP plays a huge role in our strategy for AI processors as the Sonoma ultra high power package for test and burn in system is extremely good for this qualification application. I'll also talk about Sonoma in more detail later.
During the semiconductor qualification process, customers characterize the failure rates over time for a given device and then implement a production burn in to effectively accelerate and induce the early failures so that these devices can be screened out and not shipped to customers. In the case of wafer level burn in and screening, they can remove the devices before they're packaged with other processors and high bandwidth DRAM memory or HBM into very expensive packages using substrates like co ops packaging from TSMC. Once you understand that AI processors need production burn in and then you look at devices such as Hopper or Blackwell from NVIDIA or the AMD Instinct MI325X GPU accelerator, it becomes intuitively obvious why customers would like to move this production burn in step to wafer level if they can to avoid throwing away very expensive packages and the remaining good processors in HBM. With Aehr providing the first ever solution for wafer level burn in in an AI processor in partnership with this customer and their outsourced assembly and test or OSAT partner, we have shown that our high power FOX XP multi wafer systems and proprietary wafer pack contactors can be a viable solution for testing and burn in of AI processors in wafer form to avoid having to burn in these devices in package or system form where the cost of test and the cost of yield loss due to failing devices during burn in is much more expensive and impactful to overall manufacturing yield.
We've already shown the solution working at our facility in California and will begin shipping the production systems and wafer packs already this month. The systems will have a very visible footprint at the OSAT they will be installed and used at, and we're working together on marketing this wafer level production burn in capability to other AI processor suppliers in partnership with this OSAT as I speak. Now let me turn to the package part test and burn in level of AI processors using our new Sonoma system. During the Q2, we secured our 1st production AI processor customer for package part burn in, receiving initial volume production orders for multiple Sonoma ultra high power systems. This customer is a large scale data center hyperscaler, providing computing power and storage capability to millions of individuals and organizations worldwide.
System shipments have already commenced to their OSAT contract manufacturer doing test and burn in for them in Asia. Again, this is for production burn in screening of all devices shipped screen out early failures. This customer was and continues to use the Sonoma system for process and device qualification as I detailed a few minutes ago. The Sonoma system is a system that combines high parallelism of ultra high power devices under tests or DUTs with very high current high performance power supplies that allow many voltage zones ranging from multiple core power zones to many other lower power zones on the same device. Very flexible digital test resources per device, individually controlled liquid cooling of each device under test and what we feel is the world's best software and user interface for device testing and debug for device qualification and reliability testing and bring up.
I have personally heard from multiple customers that they often use the Sonoma system to debug the test patterns of their devices and use this data to feedback to their multimillion dollar ATE systems from the likes of Advantest and Teradyne (NASDAQ:TER). We have a large and growing installed base of Sonoma systems around the world at test labs, OSATs and IDMs used for this qualification and reliability testing of new devices and semiconductor process nodes. What is new is this is the first customer and it's a large one that is purchasing Sonoma for their volume production needs for test and burn in of their AI processors. This is an area where the combination of in Cal and Air was very well received by customers as in Cal simply did not have the support infrastructure worldwide as Air does to support the needs of production customers, nor did they have the manufacturing capacity that we do to build a large number of systems for production customers. We see significant potential to expand our package bar test and burn in business in the rapidly growing AI semiconductor market with our ultra high power Sonoma product line and already have a team working on multiple enhancements to address both qualification and production test and burn in needs of a wide range of AI processor suppliers, test labs and OSATs.
Aehr is now able to offer our customers both the ability to do production wafer level burn in of their AI processors and accelerators as well as reliability qualification and production burn in at the package part level with our Sonoma system. Aehr Test Systems is the only company in the world offering the flexibility to customers of both wafer level and package level test and burn in solutions for AI processors. We estimate that the combined market for wafer level and package part reliability test and production burn in of AI processors will surpass $100,000,000 annually in the future. The AI semiconductor processor market is growing very fast. According to the SMS insider, the AI chip market size was valued at over $60,000,000,000 in 2023 and is expected to grow to over $600,000,000,000 by 2,032, a 10x increase and a CAGR of almost 30% over that period.
The types of processors and applications for AI processors or processors with AI focus is also expanding rapidly from the historical general purpose GPU based processors used for LLM generation and inference to application specific integrated circuits aimed at specific accelerator functions in data centers and hyperscalers and edge AI processor used in autonomous vehicles, robotics and security. These devices and their applications demand extremely high quality, reliability and security. With our comprehensive product portfolio for reliability test and burn in of AI semiconductors, we feel Aehr is poised to capture a meaningful share of this market. Now let me talk about the expansion into our gallium nitride market. Last week, we're excited to announce another exciting milestone with our first gallium nitride or GaN semiconductor production order.
This customer is a leading automotive semiconductor supplier and a key player in the gallium nitride power semiconductor market. We're thrilled to have received their initial production purchase order, marking their commitment to advancing volume production wafer level burn in other GaN devices using our FOX XP platform. This achievement expands our production wafer level burden market for power semiconductors beyond silicon carbide applications used in electric vehicles, data center power conversion and solar to now include GaN, a high performance compound semiconductor optimized for mid power applications such as data centers, solar energy, automotive systems and consumer electronics and PCs. Over the past 12 months, we've collaborated with this lead customer using our FOX NP system, leading to their purchase of multiple wafer pack reference designs on a diverse set of GaN applications. GaN offers a much broader application range than silicon carbide and is poised for significant growth in the coming decade.
While the largest market segment for silicon carbide, about 70%, is for the electric vehicle and EV charging infrastructure markets, GaN is very diversified and is not dominated by EVs or autos. With many more end use applications, there are many more customers and broader market for GaN semiconductor suppliers than for SiC with our fewer EV and charging customers, but are at higher volume per customer than the average customer for GaN suppliers. With an expected compound annual growth rate, CAGR exceeding 40%, the GaN market is projected to surpass $2,000,000,000 in annual device sales by 2029 according to YOEL Group. Additionally, Frost and Sullivan estimates GaN Semiconductors will account for over 10% of the worldwide power semiconductor as soon as 2028. This transformative technology represents a significant growth opportunity for Aehr's wafer level test systems and waferPak full wafer contactor, positioning us to capitalize in the expansion of GaN market.
My next topic is silicon photonics, which continues to show signs of market adoption for chip to chip communication and for optical networking switching. We remain very enthusiastic about the silicon photonics market, particularly for the new application of silicon photonics integrated circuits for use in optical chip to chip communication that we see as a significant market opportunity for our products. Last year, we shipped a new high power configuration of our FOX XP system to our lead customer for a new family of silicon photonics integrated circuits aimed at optical chip to chip communication. This system with our proprietary wafer pack full wafer contactors allows for testing over 8,000 high power optical devices in parallel on each of 9 wafers before they're singulated and placed into a fiber optic transceiver for data center and telecommunications infrastructure or for placement and co package optics for optical chip to chip communication. Multiple companies, including AMD, NVIDIA, Intel, TSMC and GlobalFoundries (NASDAQ:GFS) have announced product roadmaps for devices using optical chip to chip communication with the new announcements in just the last week coming out of Taiwan on new silicon photonics based ICs by TSMC and NVIDIA.
The new FOX XP system configuration with higher power wafer packs enables production test of up to 3,500 watts of power per wafer and up to 9 full wafers in parallel. It also includes Aehr Test latest chamber configuration, which has a smaller overall footprint and is compatible with Aehr's new WaferPak auto aligner that provides our customers with fully automated material handling, enhanced reoperation of 6 to 12 inches wafers using industry standard wafer cassettes and FOOFS and can also support mobile robot and overhead transfers of wafers in those FOOFS. This is a system that we leverage for the production system wafer level burn in of AI processors as well. We've designed a number of new wafer packs for engineering and initial samples for this lead customer of our high power silicon photonics solution this fiscal year. These are very impressive devices with significant improvements in size, power and data rates that we feel are likely to ramp to production in time to address the chip to chip optical communications market opportunity.
The hard disk drive market is another opportunity for ARIES wafer level test and burn in systems. And we're excited about our opportunity for production burn in and stabilization of devices used in hard disk drives using our FOX CP systems and WaferPak contactors. Our lead customer for this application is ramping this year and has told us they will purchase multiple production systems from us over the next few quarters to support their planned production rollout and ramp. This customer first announced back in 2019 prior to the COVID-nineteen pandemic initially purchased our FOX CP single wafer test and burn in solution to support the qualification and early test stages of this new product aimed at the enterprise and data center markets. We view the data storage market both for hard disk drives and flash based semiconductor solid state disk drives as significant growth opportunities for our systems.
These markets have applications with devices made up of multiple die in complex structures or multiple die stacked on top of each other before they are put into higher level packages or systems. These devices require exceptionally high levels of quality and long term reliability of the die before they are put into the packages or systems, which aligns perfectly with the capabilities of our wafer level test and burn in systems. And speaking of solid state disk drives and NAND flash memory, we're making steady progress on our ongoing benchmarking project with a major flash memory supplier to evaluate the benefits of using our FOX XP solution for wafer level test and burn in other flash memory devices. This application is for 100% test and burn in of devices to be used in mission critical applications such as enterprise storage. As part of this evaluation, we're advancing the development of a low cost, high pingaon, fine pitch MEMS based wafer pack for full wafer contact of all NAND devices on a 300 millimeter wafer, including support for high density 3 d NAND technology supporting up to greater than 200 layers.
One of the key challenges with addressing the new devices on customers' NAND roadmap is that not only is there a significantly higher number of die per wafer, but the power per die and therefore power per wafer to test these wafers has increased significantly. Support for high power wafer testing is something that Aehr is particularly good at with our FOX XP multi wafer test and burn in systems and wafer packs. This new wafer pack design is also capable to support DRAM testing should customers choose to pursue DRAM burn in in the future. We aim to complete the proof of concept phase in a few months, enabling us to advance this benchmark to either production solution evaluation or secure a commitment from the customer to develop a production test cell. This would position us to generate our first revenue from this NAND opportunity as early as our next fiscal year.
We believe this represents the leading edge of a significant opportunity for our solutions for semiconductor memories with the NAND flash market being the key initial focus. Looking ahead, we see long term potential to expand the DRAM wafer level test and burn in, further broadening our market reach. So you'll notice that I led with the new market opportunities, but we'll now provide an update on silicon carbide wafer level test and burn in, a market that in fact was almost 90% of Aehr's revenue last year. Aehr also continues to expand its presence in silicon carbide power semiconductor market, a critical sector for power conversion for electric vehicle traction inverters, charging infrastructure and a range of industrial data center and infrastructure applications. Based on recent market forecasts and large suppliers of silicon carbide semiconductors, growth in silicon carbide sales outside of China should remain challenging before recovering in calendar 2026.
We believe we're well positioned in this market as we have a large customer base and are currently engaged in benchmarking efforts with multiple potential new silicon carbide customers around the globe, including in China. While we remain cautiously optimistic about the opportunities in China, we also recognize the geopolitical, trade and intellectual property risks associated with this market. Recently, we filed a lawsuit in China against a local supplier for intellectual property infringement. This action relates to features of products by that company targeted wafer level burn in silicon carbide devices that we believe infringe on Aehr's intellectual property and patents granted to Aehr by the Chinese Patent Office. Our current fiscal year forecast includes contemplated orders and revenue yet to be booked for silicon carbide wafer level burn in systems and wafer packs destined for silicon carbide manufacturers in China.
It is important to bring this to our shareholders' attention as recent trade related developments in the U. S. And the emergence of competitive offerings in China that we believe infringe on our intellectual property have heightened the risk associated with bookings and revenue from Chinese customers. As we look at the composition of our total revenue for this fiscal year, silicon carbide is expected to account for less than half of our total revenue as we've seen our expansion into additional other markets capture real market share gains. AI processors, including wafer level and packaged parts, could comprise as much as 40% of our total revenue this fiscal year, up from effectively 0 revenue last year.
GaN, hard disk drives, silicon photonicsintegrated circuits and other semiconductor package part revenues will comprise about another 20% of revenue. We're not pivoting away from silicon carbide, but rather are generating what we see are the growth in the other market opportunities while not seeing the growth in silicon carbide this year like we saw last year. According to recent market research from companies such as YOL, the estimated revenue for silicon carbide semiconductors in 2024 was around $2,500,000,000 and expected to reach $10,000,000,000 by the end of the decade, a 4x increase. To put this into perspective, the semiconductor market is projected to grow from about $600,000,000,000 overall in 'twenty four to over $1,000,000,000,000 by the end of this decade. So silicon carbide will be about 1% of the overall semiconductor market by 2,030.
Air's innovative solutions are poised to capitalize on this growth in the overall semiconductor market by addressing the critical reliability needs of next generation applications and leveraging key megatrends shaping the semiconductor industry. Reliability has become a critical priority across a wide range of industries, including combustion and electric vehicles, data centers, electrification of the world's infrastructure and a wide range of artificial intelligence applications. Factors such as smaller semiconductor geometries, the increase in adoption of compound and optical semiconductors semiconductors and the complexities of ensuring semiconductor reliability on ever increasing power and performance of semiconductors and advanced packaging are driving the demand for wafer level and package part test and burn in systems. Air solutions are instrumental in reducing early operational failures and ensuring long term device performance in these rapidly advancing markets. With strong customer engagements, expanding market opportunities and innovative products designed to meet the volume demands, we're optimistic as we move into the second half of our fiscal year and maintain our previously stated financial guidance for the fiscal year.
As we've stated before, though given the nature of our business with our high average selling prices of a single production system and a set of wafer packs, our quarterly revenue can experience significant variability as system orders anticipated by the quarter end are delayed by even a few days. This was the case in last quarter and one of the key reasons we do not provide quarterly guidance. In the case of both our new GaN and wafer level AI customers, both requested us to pre build systems that we fully expected to ship to them within the quarter. However, the purchase orders were not finalized until after the quarter ended. Looking ahead and above the quarter to quarter variations, we're excited about the current and emerging market opportunities for our products, which not only position us for a successful fiscal year, but also lay a solid foundation for long term sustainable growth in years ahead.
Lastly, and before I turn it over to Chris, it's with great sadness that we acknowledge the passion of Ovi Rachudri, our EVP of Research and Development, who lost his battle with cancer last month. On behalf of everyone at Aehr Test, we extend our deepest sympathies to his family. Obi's friendship, leadership and the tremendous contribution to Aehr Test will always be remembered and cherished. It was an honor to work alongside Obi and he'll be deeply missed. In the interim, Don Richmond, our CTO who previously held this role before Obi joined us a year and a half ago had stepped in and assumed Obi's responsibilities at Aehr and would continue in this capacity until further notice.
With that, let me turn it over to Chris and then we'll open up the lines for questions.
Chris Hsu, CFO, Aehr Test Systems: Thank you, Gayn. Good afternoon, everyone. The company recognized bookings of $9,200,000 in the Q2 of fiscal 2025 compared to $16,700,000 in the Q1 of fiscal 2025. At the end of the quarter, our backlog was $12,400,000 In the 1st 6 weeks of Q3 of fiscal 2025, we received $14,200,000 in additional bookings. This growth was driven primarily by the 1st AI processor customer, utilizing our high power FOX XP solution for wafer level production tests and burn in of AI processors, which we announced in December.
With this recent bookings, our effective backlog has now reached $26,600,000 Turning to our Q2 performance, which included a full quarter of the financial results from the Inco acquisition. We faced a challenging environment due to overall softness in the Sacron Carbide Power Semiconductor market. 2nd quarter revenue totaled $13,500,000 a 37% decline compared to $21,400,000 in Q2 last year. A significant portion of this revenue was driven by demand for our WaferPaks and Sonoma Ultra high power systems acquired from the Inco acquisition, which support high volume production tests and burn in of AI processors. WaferPak revenues came in at $8,600,000 accounting for 64% of our total revenue in the Q2, an increase from 43% in the same period last year.
This highlights the important role of our WaferPaks as a key source of recurring revenue for our business. Additionally, system sales from our Sonoma and tile package part burning products made a substantial contribution to our 2nd quarter revenue. We're excited to see the significant progress we made to incorporate the In Cal products into our product portfolio to address the AI market opportunities. We believe our strategy to expand Air's product offerings to diversify into sectors beyond silicon carbide applications such as AI, gallium nitrile power conversion and other sectors will drive revenue growth in the future. Non GAAP gross margin for the Q2 was 45.3% compared to 51 0.6% in the same period last year.
The decline was primarily due to a lower overall revenue level compared to Q2 last year, partially offset by a favorable product mix of higher margin wafer packs. Non GAAP operating expenses in the Q2 were $5,900,000 a 19% increase from $5,000,000 in Q2 last year. The year over year increase is primarily due to incorporating a full quarter of INKAL's operating expenses into our financial results as well as higher legal and professional services fees. We expect to incur higher legal fees in the next few quarters as we vigorously protect our intellectual property rights in China and defend the class action and derivative complaints in the United States. In Q2, we recorded income tax benefits totaling $217,000 Non GAAP net income for the 2nd quarter, which excludes the impact of stock based compensation, acquisition related costs, the acquisition related fair value adjustment to inventory and the amortization of intangible assets was 700,000 dollars or $0.02 per diluted share for the Q2.
This compares to non GAAP net income of $6,700,000 or $0.23 per diluted share in the Q2 of fiscal 2024. Now turning to the balance sheet. At the end of Q2, our cash, cash equivalents and restricted cash totaled $35,200,000 down from $40,800,000 at the end of Q1. During the quarter, we used $5,900,000 in operating cash flows, primarily to pay our suppliers and service providers. With a strong balance sheet, we continue to invest in scaling our business and pursuing new market opportunities.
We have no debt and continue to allocate excess cash to money market funds. In the Q2, we earned $228,000 in interest income. On October 15, 2024, we filed a new S-three registration statement with the Securities and Exchange Commission to support potential future financing needs. The new S-three shelf filing for $100,000,000 was approved by the SEC on October 25 and is good for 3 years. Looking ahead to the remainder of fiscal 2025, which ends on May 30, 2025, we are reaffirming our previously provided guidance.
As Gay noted, we expect total revenue of at least $70,000,000 with a non GAAP net profit before taxes of no less than 10% of revenue. Lastly, looking at the Investor Relations calendar, Airtaz will be participating virtually in the Needham Growth Conference on Thursday, January 16, 2025. We look forward to connecting with many of you during this event. This concludes our prepared remarks. We're now ready to take your questions.
Operator, please go ahead.
Conference Operator: Thank you. And the first question comes from Christian Schwab with Craig Hallum. Please proceed.
Christian Schwab, Analyst, Craig Hallum: Hey, good afternoon, guys. So Gabe, thank you for all the detail on all the different market opportunities. I guess the question really only have one question. It's a question we get all the time. We've been at $65,000,000 $70,000,000 here for 3 years.
And what year is kind of the inflection point of long term sustainable growth? You kind of ended with a summary of all that. You felt confident long term sustainable growth. I'm just wondering, do we start seeing strong top line growth rate next fiscal year, fiscal year 'twenty six and beyond? And if we do, what does that top line growth rate look like?
That's it. Thank you again.
Gayne Erickson, President and CEO, Aehr Test Systems: All right, Christian. Well, as you know and maybe not everyone else knows as well or understand, we have yet to give multiyear forecasts, which I know kind of feel a little less than what you were asking for. But let me at least try and put it in perspective as well. We had been to go back and look at multiple quarters. We've been talking about some of these other markets and alluding or being very direct about some of the expansion, whether it be us talking about the investments in the silicon photonics, our initial engagement with customers in GaN a year and a half ago that said we were evaluating them for production use in hopes that it would prove out that they need production burn in, which we've now determined to have engagements with the flash memory.
And we even we were a little more guarded about it, but about a year ago, if you look at the notes, I was referring to another exciting application for a high power application for way below burning we were engaged in, which was actually the leading edge of the AI stuff. Those were markets that we saw driving our revenue. But candidly, most of the energy was of course about the silicon carbide and NEB. We saw those markets easily driving for as we talked about AI, these could be $100,000,000 a year number, same and flash memory is probably the largest among it and DRAM larger than that. There are enormous opportunities in the space kind of as a whole in semiconductors.
But of course, we were seeing this year over year growth of 40%, 50% for silicon carbide and that seemed to be where the focus was. So I've always tried to balance, particularly with our customers that still really need us for their silicon carbide ramps and their fabs they're putting in. We're not abandoning in the silicon carbide. I think we have the most competitive solution, the best roadmap as well to continue to meet customers' needs. And we'll see that growth.
We think that silicon carbide still has a lot of legs on it as we still anticipate 30% of electric vehicles by the end of the decade of total vehicles being electric vehicles. It's just by contrast to all the craziness that was going on a year and a half ago, it seems quite more disappointing. So I think silicon carbide has a chance to grow next year from this year. I think the other markets for sure have a chance to grow year over year. We're still getting our arms around it and doing some introductions as we're taking the in cal package for burn in production system and marketing around the world and at the same time having conversations with customers about the wafer level.
And we'll hopefully be able to give you more insight as to what that looks like. And of course, we'll provide our annual guidance in our July release, which will summarize the fiscal year and as we head into fiscal year 2020 6.
Christian Schwab, Analyst, Craig Hallum: Great. Thank you for that gain. No other questions. Thank you. Thanks, Christian.
Conference Operator: Up next, we have Jed Dorsheimer with William Blair. Please proceed.
Jed Dorsheimer, Analyst, William Blair: Hi. Yes. Thanks for taking my questions. Gayne, despite the miss, backlog looks pretty strong. So I'm just wondering, were there any tools on the shipping dock?
Is this more of a timing issue? I'm guessing that it is, but I'm just curious if you could add any more color and then I have some follow-up questions.
Gayne Erickson, President and CEO, Aehr Test Systems: Yes, they were on the shipping dock and very much so. Yes, we were quite frustrated. I don't want to get into it. This isn't the first nor the last time we had, I'll just say 1 or more customers because kind of narrowed down the 2 asking for some concessions and things that just seem quite unreasonable recognizing it was the end of our fiscal quarter and we dug our feet in at the same time. But it's very interesting that here several weeks after the quarter or even right afterwards and now it's like, hey, I need you to ship ASAP.
So we're still working on that expectation management with our customers around that. But yes, these are they're both orders for immediate shipments because we had pre built them into it. And had we had either one of those orders ahead of time, our quarterly number would have been significantly higher, but it just moved into this quarter.
Jed Dorsheimer, Analyst, William Blair: Got it. And thanks for the color. Maybe to Christian's previous question just but framed a little bit differently. If I kind of read the tea leaves in terms of all of the market details that you provided at the beginning, it sounds like the hard disk drive, I think for the HAMR process product or platform, that's the biggest near term driver of the business beyond ex silicon carbide and that, but your you've got a lot of different irons in the fire around AI and even HBM. So am I misunderstanding?
I'm just trying to understand sort of near term drivers that then potentially lead to inflection on future growth.
Gayne Erickson, President and CEO, Aehr Test Systems: So we've never given a lot of clarity on what the hard disk drive application is. I'll just leave it at that. No confirming or denying, okay. But realistically, if you look at our so if you go through the numbers of our just by the numbers, we did what 26 something, we have 26 something in backlog. We have 75% almost to the dime of revenue scored and or backlog of the $70,000,000 So we have like $16,000,000 $17,000,000 to go, I think, whatever the math is.
We've identified what those customer opportunities are. There's upside and downside to kind of each one of those down like some of them could push out, etcetera. So it's always a challenge to try and put a number around it. You guys think this is easy, it's not with the granularity of our stuff. But near term, we've got some silicon carbide orders in our expectation for Q4 with some new customers.
We've got more AI production both in package part and wafer level burn in. I think both of those all three of those are probably bigger than the hard disk drive 1 in the near term. Over the next several years as they ramp out, the hard disk drive business looks to be like really attractive and there's some variation on some of the stuff we can't get into with respect to their forecast, but we're pretty happy with that and they're very happy with us about that application. Flash for sure is kind of bigger than everything, although maybe the AI stuff will end up being bigger than Flash. We'll see how it plays out, but that's a year out.
And we've not we're not alluding to a timing of when the DRAM stuff comes. But it's pretty full plate. You guys, we're still you hear it all the time. We're still doing benchmarks. I mean, Vernon and I will tell you, we've won customers that haven't placed orders yet for silicon carbide.
It's a very interesting market with and all the dynamics that are going on in there. Winners and losers and market share shifts between customers, between the customers' customers, different model years that we have a lot of insight into and the implications of both China and also just cars going to modules versus discrete devices. There's just a lot of moving parts. But I try and use this eightytwenty rule. Verna and I talk about Verna is our VP of Sales for people that don't know.
We try to talk about this all the time. We can't wake up every day and spend 80% of our time in silicon carbide. We've spent a ton of energy. We've got these great solutions. We've won these benchmarks.
The customers need us to be there. But most of the days we wake up, we're focusing on these other market opportunities where we can really have an impact. And we'll let Adel, our VP of Operations or COO deal with manufacturing capacity, just take the orders and ship them because we certainly bought the inventory against what we really believed a forecast was going to be there last year, bought the inventory against those forecasts from verbal forecast from customers that have pushed out, we still think are going to come. Got it. One last question for me
Jed Dorsheimer, Analyst, William Blair: and then I'll jump back in the queue and maybe it's for Chris here. Just margins gross margin took a steep decline. I'm assuming that that's mix shift from the wafer packs to the In Cal systems Sonoma. But I'm just curious, do you expect this to do you expect to be at these levels you mentioned in backlog that you have some silicon carbide? I'm assuming some wafer backs there.
How should we think about the normal margin levels as you certainly to achieve your $70,000,000 would imply getting a pretty big bump in revenues. How should we think about that for
Christian Schwab, Analyst, Craig Hallum: the rest of the year?
Chris Hsu, CFO, Aehr Test Systems: Yes. So you're correct, Jed. So as we talked about it before, the in CAL products, the gross margins is a little bit lower than what we have in legacy air test systems and wafer packs. So the order you can think about it is the WaferPak always has the best gross margin and then the AirTest systems and then would be the InCal system. So it really depends on the product mix even within INKAL because
Gayne Erickson, President and CEO, Aehr Test Systems: In the
Chris Hsu, CFO, Aehr Test Systems: INKAL and consumables have lower too.
Gayne Erickson, President and CEO, Aehr Test Systems: Yes, the other piece we haven't given a ton of I think we may have said in early discussions around the INKAL acquisition. So we're at a good point right now. We, of course, do all these live and you don't hear the construction in the background, but we're doing our remodel here, adding a huge amount of capacity capability out on the floor, clean room space, etcetera, before we move the in Cal products over. They're only a few miles down the road. But that whole team and the manufacturing will be in here.
We've been completed by the end of our fiscal year. So it's only a few months out. That facility is also burdening our cost of sales too. So that comes off our books by 1.5 years. That's about $500,000 a year or something like that too.
So we'll get some goodness out of this thing. We don't really focus our energy on the goodness through of the INKAL merger. Mostly it's the revenue opportunities of the customers, but there will be some operational efficiencies as well.
Jed Dorsheimer, Analyst, William Blair: Great. Thanks for the color. I'll jump back in the queue. Thanks guys.
Chris Hsu, CFO, Aehr Test Systems: Thank you, Chad.
Conference Operator: The next question comes from Tom Diffely with D. A. Davidson. Please proceed.
Tom Diffely, Analyst, D.A. Davidson: Yes, good afternoon and thanks for the question. Again, curious what your view is of the Chinese market for silicon carbide if you are not successful in your pet infringement case. Is there still a market there for you?
Gayne Erickson, President and CEO, Aehr Test Systems: That's a good question. Yes, I guess. I mean, there's kind of 2 things. One of them is the patent infringement case against these guys and the other one is our competitiveness. And obviously, the trade related things between the U.
S. And China, particularly kind of recently, those are they're harder to get your finger on. The system and I want to be careful too much. That system that we've named in our 10 Q, etcetera, it's not very good. I know that's pretty directed.
We've had feedback from customers that it wasn't it's not working very well. It has repeatability issues. It can't really do what we do. We have parallel to advantage. We have number of wafers.
We have automation. We have a lot of capability. But nevertheless, we're not just going to put up with people trying to encroach on us and step on patents that we have in China provided by the Chinese Patent Office. And so we're not going to put up with it. So there's 2 things.
There's a legal aspect of this thing and then there's just the flat out competitiveness. And we have a team of people in China. I think we've already talked about it. I think we had 14 customers in China over time. One of them is wafer, the rest are packaged part from AirTest.
So we've done business in China for a long time. It's not our plan to change. It's just some of the uncertainties related to just trade things that make it a little harder to put your finger on, and we're just trying to be open with that with people.
Tom Diffely, Analyst, D.A. Davidson: Okay. So maybe to summarize, if worst case scenario, they're able to get away with whatever they've copied on their tool, you feel like you still have a pretty strong competitive advantage for both reliability and productivity versus their system as it is?
Gayne Erickson, President and CEO, Aehr Test Systems: We do. We do. You always have to be careful because people have roadmaps and we have roadmaps too. I don't want to get too carried away with that. But yes, that is
Christian Schwab, Analyst, Craig Hallum: the case.
Gayne Erickson, President and CEO, Aehr Test Systems: And again, it's very focused on silicon carbide. It has issues even testing gallium nitride. It doesn't do power semiconductors. So it's kind of a specific niche target at something. But nevertheless, we're taking it seriously, at least in China.
Tom Diffely, Analyst, D.A. Davidson: Okay. And then your concern over the orders this year is the concern that you lose them competitively or that they get pushed out?
Gayne Erickson, President and CEO, Aehr Test Systems: Well, there's always I worry about a lot of stuff, Tom. But in general, when we were trying to describe China, we have some we have a production system in our plans, at least in those numbers. We also have other opportunities and things like that too. But an ASP of our waiver load burden systems, we set the waiver packs is several $1,000,000 And so if something happens and there's some regulatory thing that slows us down or precludes us or something. I don't know really how to handicap that.
That's a new one for me. There's always the they still buy us, but they don't take it by May. That's kind of the normal thing we've been dealing with. I mean, I think a lot of people understand, I mean, a lot of our shareholders are experts in semiconductor, semiconductor tapped. I mean, semiconductors are in a downturn right now.
I mean, outside of AI, there's a lot of it's tough out there in automotive customers, etcetera. And so as those of us that have been here for a long time, this too shall pass. And if you look at it in the scheme of a couple of few year window, it always gets better. So sometimes we wake up and things have been pushed out. You get a call from your customer and say, oh, can you help us with pricing because we're struggling.
And you're like, you are 50 times larger than I am. I'm not sure I can help you with your numbers, but we're here for you kind of thing. So there's just some of that in the background.
Tom Diffely, Analyst, D.A. Davidson: Yes. Okay. And maybe one last question on the flash market. When you look at the opportunity for you specifically, is that going to be driven by a technology change either in the chip or the package? Or what do you think really starts that market for you?
Gayne Erickson, President and CEO, Aehr Test Systems: Yes. I mean flash memory as actually, Tom as you know from my history in HP (NYSE:HPQ) Agile at Verage running the memory business there for many, many years. It's people refer to it as a treadmill. You get on it and you always have to keep going because the customers every 2, 3 years are shipping more bits at the same price. So they have to always look at ways to be more and more cost effective.
That's true in the process equipment, the front end equipment and their back end equipment and test equipment. So there are things specifically on the NAND flash roadmap that in addition to just cost disconnects, meaning I've got to ship way more flash memory in 4 years than I am today and my revenue is not going to be up for x, how do I do it more cost effectively. So that's sort of a commercial requirement. There's also technical issues and I was pretty specific in there to be clear. These NAND devices are 3 d stacked.
They're not actually stacked. They're just printed several there's I mean, NAND guys are out there, but they're all talking about 200 layer NAND. What that ends up being is you end up having way more power per device to think of like a 200 story building and the amount of light when you light up the light on the 1st floor that takes certain power, but when you have light on 200 floors, you have 200 floors of lights on. When you go to test, there are some test methodologies whereby you can do things by testing multiple floors at a time. But when you do that, all the energy is used as if you're lighting up all those floors.
Whereas in normal application, you're reading and writing data only on one floor at a time. So the actual device in its application is using onetwo hundredth of the power. But if you could do test methodologies to test 20 floors at a time, but then you need 20 times the power, That's a thermal problem. That's a tester resource problem. Those are things we're really good at.
So I'm trying to give you some hints there as to what's going on. So there's some technical disconnects that we are looking to address as well as the commercial side on the NAND side. And by the way, DRAM, I'll go into that too. Just the whole HBM is super dynamic and people are there's so many things going on with spectrum because DRAM also needs to be burnt in. So how are you doing that again before you put it into an HBM stack onto a COOS package along with an AI processor.
So I like where we're at right now. We're there's a lot of vectors pointing towards this right now.
Tom Diffely, Analyst, D.A. Davidson: Great. Appreciate the color. Thanks, Ken.
Gayne Erickson, President and CEO, Aehr Test Systems: Thanks,
Conference Operator: Tom. The next question comes from Larry Shlobena with Shlobena Capital. Please proceed.
Larry Shlobena, Analyst, Shlobena Capital: Hi, Gaine. I got a question on your recent $10,000,000 win on the GPUs for the accelerator. I know you said that the potential market with the package part would be over $100,000,000 a year down the road. But I'm looking at the wafer level portion of it. If I you said that that customer was not NVIDIA, not the big guy, it has over 90% market share.
So assuming it's the 2nd largest, which is I think around 5% and the $10,000,000 represent 2 machines, that would be like 30, possibly 40 XPs for just doing the GPUs. Is that the right way to look at that?
Gayne Erickson, President and CEO, Aehr Test Systems: Okay. So I don't want to help you with who that customer might be. So you are listening, I'm ignoring you on that one, Larry. Yes, the numbers are really big. You don't have to try very hard to fall out of bed and hit $100,000,000 number.
And I was we're not trying to poo poo that. But this gets into available, addressable timing of this, it could be a lot bigger than that.
Larry Shlobena, Analyst, Shlobena Capital: Right. Well, that's not really what I'm getting at. I'm actually getting at the next component on the accelerator, the HBM, high bandwidth memory. The current 12 stack, 8, 12 stacks, if you do the math on the silicon involved, it's about 6 times the silicon in the GPUs currently. And they're talking about going to 16 high stacks later this year with a roadmap to get to 24 high stacks next year, which would be 12 times the silicon.
My point is with your fine pitch wafer pack, it just seems like you ought to have a ready, very interested bunch of potential customers wanting to see if you could help them on their yield issues that as they stack higher and higher, you could address that and help them out
Gayne Erickson, President and CEO, Aehr Test Systems: a lot. Yes, we talked a couple of years ago and imagine DRAM and what was going on. I would have been certainly did say that we thought that was something probably more towards the end of the decade because companies just weren't that motivated to try and figure out how to do DRAM wafer level burning compared to what they were doing. And it's maybe it would take something else. And now you look at AI, which most of us weren't even talking about 2 years ago, right?
And you look at these and it's like, wow, are you motivated now? So I agree with you in terms of the motivation, put in the DMT and low contest modes and then try and address this issue.
Larry Shlobena, Analyst, Shlobena Capital: I think the part of the reason why HBM is more expensive than the GPUs is probably the terrible yields that they're experiencing. And hopefully, you can help them out on that.
Gayne Erickson, President and CEO, Aehr Test Systems: Well, that's on each stack, if you will, or each individual die. And then just I always have to remind people, the reason you do production burn in is because things fail. It's not to make you feel good. As soon as they stop failing, you would stop doing it. So when I state, oh, people are doing a production burn in of these devices, you have to recognize that means there is a non there is a material number of failures that they do not want to ship to their customer.
Every one of those takes out all those HBM stacks in the co op subsidy plus the package. So it's our whole premise about things moving to multi chip modules that we've been touting for the last 5, 6, 7 years with kind of the leading edge of what's going on with wafer level. At that time, we were struggling. You'll be like, okay, which devices is that going to look like? And we kept saying they're coming.
And because of Moore's Law is failing or sales, it's falling down, you now need to put multiple devices together and stack them up and put them side by side in order to get the functionality that used to just be done with the shrink of a wafer. So yes, more vectors heading our way, Larry.
Larry Shlobena, Analyst, Shlobena Capital: Assuming this comes to pass, would you be able to handle all that demand through the capacity of potential capacity in Fremont? Is that even possible or Well,
Gayne Erickson, President and CEO, Aehr Test Systems: if you for those that haven't attended us, especially with our new facility upgrades that we're doing right here, we have I mean, the manufacturing capacity I have here is bigger than I had at Veracy. So people might be shocked at that. So there's always ways of doing it. Keep in mind, we use subcontract manufacturers. In most cases, we have multiple suppliers of every subsystem.
We're in many cases like one of the hard things is your printed circuit boards and your assemblies. That could be increased a 100 fold if you needed without actually impacting our resources. So even though we do assembly test here, what we do is just a small piece to control the final assembly and quality before it ships and we have some other tricks up our sleeves. So right now, I have more capacity than demand by a lot and we could increase our capacity significantly if we needed to for different market opportunities. And when we bring customers through, by the way, that is very obvious when they walk.
When they come in and look at our facility, they kind of go, wow, okay. This is not this is not your typical burning company in terms of the capacity we have.
Larry Shlobena, Analyst, Shlobena Capital: Well, you got great opportunities. I'll be looking forward to seeing you accomplish them. Good luck.
Gayne Erickson, President and CEO, Aehr Test Systems: Thank you, Larry. Thank you. Thank you.
Conference Operator: Okay. I'm showing no further questions in the queue. I'd like to turn it back to management for any closing remarks.
Gayne Erickson, President and CEO, Aehr Test Systems: Okay. Thank you, operator. Everyone, I appreciate your time here. I know we tried to cover a lot of detail. I hope to see you at one of the investor conferences.
Or if you want, please get in contact with our IR folks so we could set up a follow on meeting to discuss your questions further. Until then, we'll see you next time.
Conference Operator: This concludes today's conference and you may disconnect your lines at this time. Thank you for
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