AEHR Earnings - looking good. Call at 2pm

Investment Analysis Clubs Saul’s Investing Discussions
1

ER came out at 4pm

Highlights:
q4 revenue: 22.3M (guide: 22.01)
FY24 outlook: “over $100M” which would be > 50% y/o growth
Backlog was $24.5M at end of FY23, and they state that current backlog (“effective backlog” is now $39.7M).

This means that they’ve increased their backlog 62% in the 42 days since FY23 ended. This likely in large part is stemming from their public statements made last month about acquiring a new customer, a “multinational industrial conglomerate”.

Note that forecasts for FY24 were about 104.6M - so… will the market “hate” this guide because “over $100M” is seemingly less than $104.6?

I would say probably not. Why?!?

There is only one analyst covering AEHR that contributed to that estimate.

One.

Singular.

I expect several coverage initiations to occur in the coming days/weeks.

Conference call is at 2pm and I’ll update with any relevant info I glean.

41 Likes
2

Guiding 90% increase in EPS too which is great. Still an expensive stock - forward PE is already around 45 with the after hours move, but congrats to all the holders so far. Hope they continue to expand their customer base in FY2024

17 Likes
3

$AEHR Conference Call q4-23
Date: July 13, 2023 17:00 EDT

Very Brief Synopsis:

First 50% of call re-stating already released data and extensive description of products, market opportunity, and technology.

Will have significant presentations at semiconductor conference on Tue Aug 22nd and then again a week later at investor’s meeting at another conference (Tue Aug 29th).

They have zero debt.

They have ample capacity amid an increasingly large market opportunity as the customer base expands and current customers expand and execute their growth projections.

Customer concentration:
FY23: 2 customers > 10% (one right at 10%, the other at 79%) so clearly this is a risk and also one debated to a great extend here, there and everywhere.

They expect to have “3 or 4” customers generating > 10% of revenues in FY24. They see this as expansion of new customer business rather than any weakness from their main customer.

FY24 Revenue:
Of the “> $100M in rev”, they expect a roughly 40/60 split in terms of realizing this during the first H1 2024 vs. H2.

A reminder that they just don’t give quarterly guidance as there is a fair bit of ‘lumpiness’ to the revenue and their visibility is inherently impeded by the cumulative lack of visibility that their customer’s have.

There was at least some revenue not yet recognized with respect to products shipped in FY23 (they don’t recognize the revenue until the product is “accepted” by the customer which I gather is not physical receipt so much as confirmation/testing that the product is functional).

There was a lot of discussion about visibility of FY24 revenue. I personally thought they were very objective, appropriately transparent, and honest. The tone, to me, was that they were baited to embellish or be defensive, and I thought they handled the pressure very skillfully giving me a lot of confidence.

They openly stated it is “still too early” to refine beyond “> $100M” because it is predicated on the sincerely and execution of customer’s stated plans.

They emphasized that their backlog and unrealized revenue from under-the-wire q423 shipments was very reassuring in terms of providing them the confidence to guide at least $100M. They stated “we don’t need any miracles” to hit that target and emphasized again that they have “considerable upside in capacity” which was about as close to a tell (for me at least) that they’re sandbagging.

I didn’t catch any info about margins, etc. so will need to wait for transcript releases, SEC filings, etc.

47 Likes
4

Great summary. Rob already covered most of the key points I jotted down from the call. Overall, management sounded really confident and optimistic.

After one of the analyst questions, they started their reply by saying “I thought you were going to ask why we are such big sandbaggers” because the setup to the questions essentially talked through some of the numbers and why $100m can be viewed a very conservative.

I think one of the analysts claimed that Aehr’s 79% customer expects to grow 300% in coming years (correct me if I heard that wrong). I’m not sure if that would necessarily translate into 300% more revenue for Aehr from them, but at 79% of the most recent year’s $65m revenue (or $51m from that customer last year), if there is a +300% growth in revenue from that customer (big “if”), that would mean their $51m from that customer would grow to more than $200m. That could be several years away as I don’t know where the analyst was referencing the 300% from…it might have been a 5 year (or more) estimate. But in relation to Aehr’s total revenue guide for next year right now is $100m, that’s a pretty huge number if they can keep their business and grow it accordingly.

Also, if you factor in the comment by management that they expect to have 3 to 4 customers that are 10%+ of revenue next year. I assume that last year’s $51m customer is going to grow next year, let’s just guestimate to $60m next year (or was there something one off that we don’t expect to be as high next year?). So with potentially 3 more 10% customers doing at least $10m (10% of the $100m FY guide), they are already just about at next year’s $100m forecast…just from four customers.

And it doesn’t sound like they are going to be constrained, capacity wise, any time soon. As Rob noted, one of the quotes that also stood out to me was when they said there is “considerable upside in terms of capacity” (beyond what they have already guided for).

All sounds pretty good. This one may be a lumpy ride from quarter to quarter depending what expectations are throughout the year, but I think this will be a fun one to follow and I’m really glad for the suggestion and discussion about Aehr here

-mekong

50 Likes
5

I also thought it was a very strong quarter and the potential of this company is becoming ever clearer to me. I also thought the guide was strong. Revenue growth of at least 54% and net profit (exceptionally strong imo) of 28% of “at least $100m” - so at least $28m in GAAP net profit next year, up from $14.5m this year so about double.

However as with all of our companies it’s all about trying to figure out where they are going to end and how durable their growth is likely to be. What stood out for me was the concrete data points that we can now put together to get a sense of that. And the conclusion is very strong.

So let’s focus on the SiC market first. AEHR have to make disclosures about their customer concentration in their 10-K, and from that and today’s call we can derive the following for what I believe is Onsemi, their largest customer:

2021 2022 2023
AEHR Revenue 16.6 50.8 65
Onsemi % of that 23% 82% 79%
Testing revenue from Onsemi 3.8 41.7 51.4
Growth yoy 991.0% 23.3%

If we add the $13.7m wafer packs sold just after year-end to them to the 2023 number above, then the Onsemi revenue comes closer to $65m and the yoy growth to 56%. I think this is closer to the truth given how close to year-end that landed.

Onsemi did the following in the the SiC market over the past couple of years:

In the first half of 2021 Onsemi did not have any mention of SiC in their investor presentations. In the second half of 2021 and first half of 2022 the message was of them positioning and investing in SiC as follows:

Screenshot 2023-07-14 at 14.24.47
Screenshot 2023-07-14 at 14.24.471920×987 121 KB

And from the latest Q1 2023 presentation Onsemi positions SiC very prominently and emphasises that they are poised to win, and that they had a number of important customer wins - including Tesla, VW, etc as follows:

Screenshot 2023-07-14 at 14.22.30
Screenshot 2023-07-14 at 14.22.301920×975 141 KB

Source: Onsemi Q1 2023 investor prezzo

So, let’s call it $60-65m of testing revenue to AEHR from Onsemi after really only a year or so of them investing in, focusing on, and ramping SiC production.

And in the call the CEO told us that they have landed 4 more SiC customers in the year!!. So call it another 4 times $60m of revenue per annum after a year or two of those four ramping up, plus the $60m from Onsemi and we’re at $300m of SiC revenue for AEHR two or so years from now.

And then there’s the ongoing work to land

“one of the largest silicon carbide players in the world on a large wafer level benchmark and qualification for automotive and other markets.”

This customer hasn’t landed yet, but

“They have told us that their plan is to move all new production capacity to wafer level burn-in and away from packaged part burn-in.”

So once this one lands - and it is one of the biggest in the world - there will be 6 SiC customers significantly contributing to revenue, whereas this year there was only 1 customer doing so - Onsemi. And Onsemi is planning to significantly expand SiC production further.

So, by my rough back of the matchbox calcs, in two or three or so years, SiC alone could be good for, call it $300m to $400m of revenue for AEHR. At current EV of call it $1.1bn, that’s a 3x or 4x forward revenue multiple and roughly 10-15x forward P/E if we work on 28% net margin like in their guide (very, very rough, yes - but it just shows to me that the price is not exorbitant at these levels).

But that’s not the whole story, as there are multiple additional markets coming.

Moving on to one of the other markets for their products and the other big news of the day, at least for me. The CEO made explicit that he expects the silicon photonics semiconductor burn-in and stabilization market to be the big one for them after SiC. Silicon photonics are used in a variety of things, including in AI applications. This quote specifically was new, and important imo:

“We believe silicon photonics can become a significant market for wafer level test and burn-in and could become as large or larger than the silicon carbide market for our products later in this decade.”

I think the numbers were good, but the commentary about the future was the most exciting.

I certainly won’t be selling!

-WSM
(long AEHR)

48 Likes
6

Good discussion. By all accounts, this looks like a really strong quarter.

I have a few questions I want to pose to the bulls since I am still very new to this company and trying to understand it better.

First, there seems to be a consensus that the $100M guidance is very conservative and expectations are for this to be exceeded by a fair margin. It sounds like management is quite optimistic which is further driving this belief but I went back and looked at the Q4 guidance provided last July and saw Aehr provided the following -

“For the fiscal year ending May 31, 2023, Aehr expects total revenue to be at least $60 million to $70 million”

Sure enough, Aehr hit this guide smack in the middle at $65M. Obviously, this is just one example from last year but I have grown accustomed to seeing the full year guidance increased each quarter by the SaaS contingent. Aehr is a very different type of business but I thought it was interesting they fell right in the middle of their full year guide.

This is good to see, but it does give me a bit of hesitation in thinking the $100M guidance is sandbagged. It is worth noting that management calls for at least $100M instead of a range, but past earnings do not seem to indicate a history of large beats.

Given this, what do you believe is a realistic expectation? I do think there is a lot more upside if they can blow this out of the water and end up somewhere closer to $120-130M.

Secondly, I found it somewhat concerning that bookings & backlog actually decreased sequentially.

Here is Q3:

  • Bookings were $33.3 million, the highest quarterly bookings in the Company’s history.

  • Backlog as of February 28, 2023, was $31.6 million. Effective backlog which includes all orders received since the end of the third quarter is $41 million.

Here is Q4:

  • Surprisingly no mention of bookings in the highlights, but they did say bookings reached a record of $78.3 million, which is up from $72.5 million last quarter.

  • Backlog as of May 31, 2023, was $24.5 million. Effective backlog, which includes all orders received since the end of the fourth quarter, is $39.7 million.

I am sure there is a lot of lumpiness in these metrics as they depend on the timing of revenue recognition but I was a bit surprised to see this. It feels like their backlog is heavily touted as a strong indicator of future growth so I wasn’t expected to see these figures actually decrease.

It does appear that some seasonality is in play as Q3 bookings/backlog also outpaced Q4 for Aehr last year as well. Is this something worth flagging as a potential concern or just business as usual for Aehr?

Lastly, I noticed Aehr included the following paragraph in their press release which detailed the size of the market for wafer level burn-in products. Bolding is mine.

“The market forecast for wafer level burn-in products is significant. William Blair estimates that the total available market for wafer level burn-in products for silicon carbide alone will be over $400 million by 2027. We believe Aehr has the potential to capture a significant portion of that market based on the level of silicon carbide engagements we have with customers across the globe."

This gives me a bit of pause with regards to their growth durability if this is the TAM they are currently playing in. I know there are additional products such as silicon photonics and gallium nitride they are excited about but those seem a few years off.

So the way I am looking at it, is they expect to produce $100M+ in revenue this year, which I am assuming is all related to SiC. Meanwhile, the total market is forecasted to be ~$400M, meaning they have already captured ~25% of the market for SiC testing.

Am I thinking about this correctly? If so, this would indicate they have already captured a large portion of this market and the total opportunity is rather small. Surely I must be missing something here? Perhaps the market for selling the FOX testing machines is $400M and then the WaferPak/DiePak consumables are in addition to this?

Apologies if these are novice level questions but I am trying to get a better grip on this company and look at all sides of the coin.

Rex

22 Likes
7

thats my concern as well…

these machines last 10+ years… may be even 20 years…
the “consumables” or “blades” part is really about new chip introduced by customer… they are few (2 to 10) per year per customer… they can not overcome drop in capex sell…

all in all, this one has very high likelyhood of climbing a mountain and falling off the cliff…

I remember 3D printing boom like this ~10 years back… all the promise in the world… real application in real life… but capex spend can only go so far

5 Likes
8

I believe you’re missing that this market is growing like crazy. Tesla itself is on a 50% CAGR path in terms of vehicle quantities, and other OEMs are jumping on the EV bandwagon.

And that’s before considering other markets in which AEHR participates.

7 Likes
9

I would be careful of conflating all EVs with SiC. Tesla itself came out to say they’re reducing SiC use in its mass market models by up to 75%

6 Likes
10

Certainly, however this market forecast predicts the TAM will grow to over $400 million in 2027, so I would assume it is already taking this massive growth into the forecast.

From there, how much more growth is reasonable to expect? Perhaps you are extremely bullish and predict it will triple from there to $1.2B by 2030. This is still small fries in my mind.

Regardless, if Aehr can grow revenues from $100M to $400M+ over the next few years, the stock will undoubtedly do well. I am just surprised to see how small the market is overall.

3 Likes
11

In the cc, AEHR noted that William Blair forecasts demand for SiC wafers to grow from 220,000 in 2022 to over 4.5 million in 2030. More than 20x. That’s a 45% CAGR.

Not sure there’s a direct correlation with AEHR’s revenue for testing those, but it is encouraging.

That said, there are a ton of risks. I’ve taken a lot of profit today, so this is once again a small (sub-5%) position for me. Still…if we want big long term gains, they’re not going to come from companies that are already well known and understood. We might get 20% returns from Zscaler and Crowdstrike and BILL and AXON (my top 4 holdings) over the next several years, 30% if we’re super lucky and trade them fortuitously. Same goes for Snowflake and Samsara and Datadog if we can get them at the right price…at current prices, personally I expect the return on these to be less than that (though I own 2 of these 3). But if we want to shoot for more, we’ll need to find companies like AEHR.

Bear

37 Likes
12

I have been an inactive poster for a long time, mostly because I have realized that when I have something to say, if I wait a while someone else usually says it, and often better. For example, I was going to post about the backlog actually decreasing, but then MajorFool20 said it, so no need.

I have owned this stock since Feb 22 - I took a small stake based on Seeking Alpha info and it just grew itself. It has been a great run; I am holding, and I am hoping there will be more of the same.

That said, despite waiting, I haven’t seen anybody post the numbers that we used to post back in the day, where we examined these stocks growth ongoing. Here are the last couple of years:

REVENUES Q1 Q2 Q3 Q4 YEAR
2022 5.6 9.6 15.3 20.3 50.8
2023 10.7 14.8 17.2 22.7 65.4
YOY Growth
2023 91.1 54.2 12.4 11.8 28.7
QoQ Growth
2022 n/a 71.4 59.4 32.7
2023 -47.3 38.3 16.2 32.0

What this shows me is that realized growth is meh especially for such a small stock and very, very lumpy. And this quarter is barely better than a year ago’s.

So we are left with the story of potential explosive growth and the company’s history of meeting its guide. Re: the story - I am very excited about this story, that’s why I bought in to begin with. And let’s assume they meet their numbers - that will be awesome. Let’s say we believe in this industry growing - awesome too. I don’t argue with any of it.

But I do want to point out that at this point, unless I am mistaken (and I have been, so please correct me if I am), AEHR is about future expectations and hope, rather than delivery. And since I have been burned by my belief in stock’s stories before (Upstart, ouch!) I trimmed a bit and want to see them deliver before I add to this position.

32 Likes
13

  1. Tesla pioneered mass market use of SiC in its Model 3 inverters in 2017. Since SiC is more efficient than the previous IGBTs, it seems everyone has shifted or is shifting to SiC use. Here’s an article claiming a 7% increase in overall efficiency for the vehicle: /www.powerelectronicsnews.com/silicon-carbide-sic-inverter-extends-ev-range-by-over-7

  2. Here’s an article describing how Tesla will probably reduce SiC use: Tesla's Plan to Reduce SiC Usage in Lower-End Vehicles by 75%

Currently, higher-end models of Tesla vehicles come with 48 SiC devices, but the new powertrains aim to use just 12. While this may seem like Tesla is moving away from SiC, it should be stated that the next line of powertrains being developed targets lower-end markets with vehicles with reduced performance…

According to Aher Test Systems, the announcement from Tesla may not be as dire for the SiC industry as many believe. They stated that while the number of SiC devices may reduce by 75%, the die size will likely increase, resulting in the same number of wafers being produced…

Finally, it is believed that the current use of SiC devices in higher-range vehicles will not change, thus ensuring the success of SiC in the automotive industry.

We don’t know today what percentage of Tesla vehicles are produced with SiC that were tested with AEHR equipment, so it’s hard to know where this will go. But, it seems clear that the overall SiC market is on the rise, and not in a small way.

32 Likes
14

Customer concentration is one that has been much-discussed on this board, as has the high multiples. I’m not too worried about either one at the moment. I guess the latter worries me a bit more, but as Saul points out, they are adding customers and entering new markets. So is it execution that worries you? Or something else?

3 Likes
15

I’m sure you don’t need my help to come up with more risks – specifically, some risks it probably has that companies with subscription revenue don’t have, some risks that it has as a small cap that mid/large caps don’t, some risks that widget companies have that software companies don’t, some risks that a company that had just $65m in revenue last year has that companies with hundreds of millions of revenue don’t have, some risks due to their success being tied to SiC for now (unless/until one of their other bets pays off), some risks due to the lumpiness of orders and deliveries, some risks due to supply chain…etc etc etc.

As I said, I think this company may be our best opportunity right now. And I hold shares. But it would be silly to think that it’s not risky.

Bear

22 Likes
16

I DO need your help as I’m less experienced than you at investing. I remember you as one of the few voices of caution during 2021 UPST mania (if only I had listened.) You also helped me make money instead of losing it on PLTN. So—thanks!

6 Likes
17

Here’s an honest question @philiproth. What do you see as the main pros and cons when considering AEHR and how do you interpret them? Then what questions do have beyond that?

That lead in could help better frame the conversation. After all, discussing the specific merits of companies like AEHR is what the board is about.

6 Likes
18

Growth lumpy? Yes.
Growth meh in f2023? Yes.
AEHR about future expectations? Yes.

And hope? Here’s where I would quibble a bit. If revenue for the past 8 quarters were all we had, you’d be right. It grew 28% YoY. But let’s not forget that in f2022, revenue tripled. Let’s also not forget that the f2024 guide is for a huge acceleration to at least 50% growth, even before any potential beats. So it’s not like we should look at this as a 28% grower.

Also, “hope” makes it sound like the guide and other future expectations (next several years) aren’t really supported by anything concrete. To the contrary, we have plenty of information from the company and the industry. I feel like a lot of people miss this: Saul has always tried to teach us to follow the numbers, but to also pay attention to the tone from mgmt and any clues they give about what’s coming…and just in general, to listen to how the business is doing. To exemplify this, please refer to the absolute master class @wsm007 provided in this post: Aehr is a different kind of company - #3 by wsm007

Bear

23 Likes
19

Pros: small market cap, massive projected growth in revenues, driven by new customers and new markets; seemingly strong and (appropriately) cautious management. little-to-no competition.

The competition question is most interesting to me as I haven’t seen it discussed here. Watching the first CEO interview highlighted here by @JabbokRiver42 it sounded like they have no competition, though the CEO didn’t explicitly say that. This article seems to suggest that some companies do their own testing. A Japanese company called Advantest might be a competitor, but I’m not clear if they sell the same products in the same markets.

Cons: I guess just that the stock has run up a lot, growth stocks in general have run up a lot and they still need to execute. Probably the biggest con for me is that this is a highly technical industry I know essentially nothing about. A big reason that my largest positions–by a lot–are PGY and SOFI is that I feel I understand the businesses a lot better.

12 Likes
20

Hey Bear (@PaulWBryant) - is there a way to close this thread (but leave it available for reading) so that we can consolidate discussions about AEHR on another thread (ideally, the one that Saul started).

As the OP of this thread I tried to see if there was exactly that option, but I couldn’t locate one.

5 Likes