Aehr Test : Quarterly Report for Quarter Ending November 28, 2025 (Form 10-Q)

About this update from Aehr Test Systems

Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion of our financial condition and results of operations contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact may be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "could," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential", "target" or "continue," the negative effect of terms like these or other similar expressions. Any statement concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects, and possible actions taken by us or our subsidiaries, which may be provided by us are also forward-looking statements. These forward-looking statements are only predictions. Forward-looking statements are based on current expectations and projections about future events and are inherently subject to a variety of risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from those anticipated or projected. All forward-looking statements included in this document are based on information available to us on the date of filing and we further caution investors that our business and financial performance are subject to substantial risks and uncertainties. We assume no obligation to update any such forward-looking statements. In evaluating these statements, you should specifically consider various factors, including the risk factors set forth in Item 1. "Business" and Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended May 30, 2025, filed with the Securities and Exchange Commission on July 28, 2025. All references to "we", "us", "our", "Aehr Test", "Aehr Test Systems" or the "Company" refer to Aehr Test Systems. Overview We are a leading provider of test solutions for testing, burning-in, and stabilizing semiconductor devices in wafer level, singulated die, and package part form, and have installed thousands of systems worldwide. The rapid advancement of generative artificial intelligence (AI) and the accelerating electrification of transportation and global infrastructure represent two of the most significant macro-trends impacting the semiconductor industry today. These transformative forces are driving enormous growth in semiconductor demand while fundamentally increasing the performance, reliability, safety, and security requirements of the devices used across computing and data infrastructure, telecommunications networks, hard disk drive and solid-state storage solutions, electric vehicles, charging systems, and renewable energy generation. As these applications operate at ever-higher power levels and in increasingly mission-critical environments, the need for comprehensive test and burn-in has become more essential than ever. Semiconductor manufacturers are turning to advanced wafer-level and package-level burn-in systems to screen for early-life failures, validate long-term reliability, and ensure consistent performance under extreme electrical and thermal stress. This growing emphasis on reliability testing reflects a fundamental shift in the industry-from simply achieving functionality to guaranteeing dependable operation throughout a product's lifetime, a requirement that continues to expand alongside the scale and complexity of next-generation semiconductor devices. We have developed and introduced several innovative products including the FOX-P family of test and burn-in systems and FOX WaferPak Aligner, FOX WaferPak Contactor, FOX DiePak Carrier and FOX DiePak Loader. The FOX-XP and FOX-NP systems are full wafer contact and singulated die/module test and burn-in systems that can test, burn-in, and stabilize a wide range of devices such as leading-edge silicon carbide-based and other power semiconductors, 2D and 3D sensors used in mobile phones, tablets, and other computing devices, memory semiconductors, processors, microcontrollers, systems-on-a-chip, and photonics and integrated optical devices used in artificial intelligence. The FOX-CP system is a low-cost single-wafer compact test solution for logic, memory and photonic devices and the newest addition to the FOX-P product family. The FOX WaferPak Contactor contains a unique full wafer contactor capable of testing wafers up to 300mm that enables Integrated Circuit manufacturers to perform test, burn-in, and stabilization of full wafers on the FOX-P systems. The FOX DiePak Carrier allows testing, burning in, and stabilization of singulated bare die and modules up to 1,024 devices in parallel per DiePak on the FOX-NP and FOX-XP systems up to nine DiePaks at a time. In connection with the acquisition of Incal Technology, Inc. ("Incal"), our product portfolio further expanded to include packaged parts burn-in solutions for the full range of power and complexity of integrated circuits. Incal's product lines feature the Sonoma series for ultra-high-power burn-in testing, the Tahoe series for medium-power reliability burn-in, and the Echo series for low-power and high parallelism testing. The Sonoma line, with its ultra-high-power capabilities, is specifically designed to address the reliability and burn-in needs of the burgeoning demand for AI accelerators, graphics processing units ("GPUs"), high-performance computing ("HPC") processors, and devices that can reach over a thousand watts of power per device. The Tahoe and Echo lines for medium-power and low-power burn-in solutions, respectively, target logic, system on a chip ("SoC"), and mixed-signal devices employed in mobile communications, mobility, medical, military, aerospace, and data center applications. These systems are frequently used by independent test and burn-in labs, as well as semiconductor manufacturers. Our net revenue consists primarily of sales of FOX-P systems, WaferPak Aligners and DiePak Loaders, WaferPak contactors, DiePak carriers, Sonoma systems, Tahoe systems, Echo systems, test fixtures, upgrades and spare parts, service contracts revenues, and non-recurring engineering charges. Our selling arrangements may include contractual customer acceptance provisions, which are mostly deemed perfunctory or inconsequential, and installation of the product occurs after shipment, transfer of title and risk of loss. 20 Critical Accounting Estimates Our discussion and analysis of our financial condition and results of operations are based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these Condensed Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, assumptions and judgments, including those related to customer programs and incentives, inventories, and income taxes. Our estimates are derived from historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Those results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. For a discussion of the critical accounting policies, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates" in our Annual Report on Form 10-K for the fiscal year ended May 30, 2025. There have been no material changes to our critical accounting policies and estimates during the six months ended November 28, 2025 compared to those discussed in our Annual Report on Form 10-K for the fiscal year ended May 30, 2025. Results of Operations Discussion of Results of Operations for the Three and Six Months Ended November 28, 2025 compared to the Three and Six Months Ended November 29, 2024 Revenues Three Months Ended Six Months Ended November 28, November 29, Percent November 28, November 29, Percent (Dollars in thousands) 2025 2024 Change 2025 2024 Change Revenues $ 9,884 $ 13,453 (27 )% $ 20,853 $ 26,572 (22 )% For the three months ended November 28, 2025, revenue decreased by $3.6 million, compared to the same period in the prior year, primarily driven by lower shipments of contactors due to the ongoing softness in demand for electric vehicles. Contactors revenue decreased by $5.1 million, partially offset by an increase in package-level burn-in systems revenue of $1.6 million, driven by increased demand from customers in AI-related applications. For the six months ended November 28, 2025, revenue decreased by $5.7 million, compared to the same period in the prior year, primarily driven by lower shipments of contactors due to the ongoing softness in demand for electric vehicles. Contactors revenue decreased by $14.6 million, partially offset by an increase in systems revenue of $8.3 million, reflecting increased demand from customers in AI-related applications and other markets, and an increase in service revenue of $0.6 million. Revenue by Geography Three Months Ended Six Months Ended November 28, November 29, Percent November 28, November 29, Percent (Dollars in thousands) 2025 2024 Change 2025 2024 Change Asia $ 7,617 $ 9,825 (22 )% $ 10,093 $ 22,403 (55 )% United States 1,942 3,462 (44 )% 6,754 3,984 70 % Europe and Middle East 325 166 96 % 4,006 185 N.M. Total revenues $ 9,884 $ 13,453 (27 )% $ 20,853 $ 26,572 (22 )% Asia as a percentage of total revenues 77.1 % 73.0 % 48.4 % 84.3 % United States as a percentage of total revenues 19.6 % 25.7 % 32.4 % 15.0 % Europe and Middle East as a percentage of total revenues 3.3 % 1.3 % 19.2 % 0.7 % N.M.-Not meaningful On a geographic basis, revenues represent products that were shipped to or services that were performed at our customer locations. For the three months ended November 28, 2025, compared to the same period in the prior year, revenue decreased in both Asia and the United States primarily due to the ongoing softness in demand for electric vehicles. For the six months ended November 28, 2025, compared to the same period in the prior year, revenue decreased in Asia primarily due to the ongoing softness in demand for electric vehicles, which was partially offset by increases in FOX-P systems sold in the United States, Europe and Middle East, driven by customer demand outside of the electric vehicle market. 21 Gross Margin Three Months Ended Six Months Ended November 28, November 29, Percent November 28, November 29, Percent (Dollars in thousands) 2025 2024 Change 2025 2024 Change Gross profit $ 2,545 $ 5,400 (53 )% $ 6,264 $ 12,478 (50 )% Gross margin 25.7 % 40.1 % 30.0 % 47.0 % Gross profit decreased by $2.9 million for the three months ended November 28, 2025, compared to the same period in the prior year, primarily due to lower revenue levels. Gross margin decreased by 14.4 percentage points primarily due to lower overhead absorption as a result of lower manufacturing production, a change in product mix, higher assembly and warranty costs, and increased freight expenses. Gross profit decreased by $6.2 million for the six months ended November 28, 2025, compared to the same period in the prior year, primarily due to lower revenue levels. Gross margin decreased by 17.0 percentage points primarily due to lower overhead absorption as a result of lower manufacturing production, a change in product mix, higher assembly and warranty costs, increased freight expenses, and higher tariffs on imported parts following recent government policy changes. Research and Development Three Months Ended Six Months Ended November 28, November 29, Percent November 28, November 29, Percent (Dollars in thousands) 2025 2024 Change 2025 2024 Change Research and development $ 2,972 $ 2,276 31 % $ 5,821 $ 4,637 26 % As a percentage of total revenues 30.1 % 16.9 % 27.9 % 17.5 % Research and development expenses consist primarily of compensation and benefits for product development personnel, outside development service costs, travel expenses, facilities cost allocations, and stock-based compensation charges. Research and development expenses increased by $0.7 million and $1.2 million, respectively, for the three and six months ended November 28, 2025, compared to the same periods in the prior year. The increase was primarily driven by higher employment-related costs, including stock-based compensation, resulting from increased headcount and higher project-related expenses. Selling, General and Administrative Three Months Ended Six Months Ended November 28, November 29, Percent November 28, November 29, Percent (Dollars in thousands) 2025 2024 Change 2025 2024 Change Selling, general and administrative $ 4,434 $ 4,637 (4 )% $ 9,151 $ 9,195 (0 )% As a percentage of total revenues 44.9 % 34.5 % 43.9 % 34.6 % Selling, general and administrative expenses consist primarily of compensation and benefits for sales, marketing and general and administrative personnel, legal and accounting service costs, marketing communications costs, travel expenses, facilities cost allocations, and stock-based compensation charges. Selling, general and administrative expenses remained consistent for the three months and six months ended November 28, 2025, compared to the same periods in the prior year, as higher stock-based compensation was partially offset by lower professional service fees and lower accrual for bonuses. Restructuring Charges Three Months Ended Six Months Ended November 28, November 29, Percent November 28, November 29, Percent (Dollars in thousands) 2025 2024 Change 2025 2024 Change Restructuring charges $ (213 ) $ - N.M. $ 6 $ - N.M. As a percentage of total revenues (2 )% 0.0 % 0.0 % 0.0 % N.M.-Not meaningful There was a recovery of previously expensed restructuring charges for the three months ended November 28, 2025 primarily related to the early termination of the Incal lease, which resulted in a net credit of $0.2 million. 22 For the six months ended November 28, 2025, restructuring costs associated with a workforce reduction implemented during the three months ended August 29, 2025 to better align our resources with our business needs were partially offset by a credit recognized during the three months ended November 28, 2025 resulting from the early termination of the Incal lease. For further explanation of our restructuring charges, see Note 10, Restructuring Charges, in Notes to Condensed Consolidated Financial Statements. Interest and Other Income, Net Three Months Ended Six Months Ended November 28, November 29, Percent November 28, November 29, Percent (Dollars in thousands) 2025 2024 Change 2025 2024 Change Interest income, net $ 194 $ 228 (15 )% $ 373 $ 909 (59 )% Other income, net 10 40 (75 )% 1,061 14 N.M. Interest and other income, net $ 204 $ 268 (24 )% $ 1,434 $ 923 55 % N.M.-Not meaningful Interest and other income, net, primarily consists of interest income, foreign currency transaction exchange gains and losses and other non-operating income and expense. Interest income, net, decreased by $34,000 and $0.5 million for the three and six months ended November 28, 2025, respectively, compared to the same periods in the prior year, primarily driven by lower interest income earned on a lower average cash balances and lower yields from our investments in money market funds. For the six months ended November 28, 2025, other income, net, increased by $1.0 million, compared to the same period in the prior year, primarily attributable to the Employee Retention Credit ("ERC") refund of $1.3 million received, net of a $0.3 million third-party service fee incurred in connection with the filing of the ERC claims during the six months ended November 28, 2025. For further explanation of the ERC, see Note 11, Employee Retention Credit, in Notes to Condensed Consolidated Financial Statements. Income Tax Benefit Three Months Ended Six Months Ended November 28, November 29, Percent November 28, November 29, Percent (Dollars in thousands) 2025 2024 Change 2025 2024 Change Income tax benefit $ (1,214 ) $ (217 ) 459 % $ (1,966 ) $ (63 ) N.M. N.M.-Not meaningful For the three and six months ended November 28, 2025, the Company recognized an income tax benefits of $1.2 million and $2.0 million, respectively, primarily driven by quarter-to-date and year-to-date losses in the United States. For the three and six months ended November 29, 2024, the income tax benefit was also primarily related to quarter-to-date and year-to-date losses in the United States. Liquidity and Capital Resources Cash, cash equivalents, and restricted cash were $31.0 million as of November 28, 2025, compared to $35.2 million as of November 29, 2024. We believe that our existing cash resources and anticipated funds from operations will satisfy our cash requirements to fund our operating activities, capital expenditures and other obligations for the next twelve months. Six Months Ended November 28, November 29, (In thousands) 2025 2024 Change Operating activities $ (1,453 ) $ (3,493 ) $ 2,040 Investing activities (3,659 ) (11,133 ) 7,474 Financing activities 9,619 488 9,131 Effect of exchange rate changes on cash, cash equivalents and restricted cash (2 ) (3 ) 1 Net increase (decrease) in cash, cash equivalents and restricted cash $ 4,505 $ (14,141 ) $ 18,646 23 Net Cash Flows Used in Operating Activities The $2.0 million increase in cash flows from operating activities for the six months ended November 28, 2025, compared to the same period in the prior year, was driven primarily by decreases in prepayments to vendor and in unbilled receivables, lower cash outflows for inventory purchases, and higher non-cash charges including stock-based compensation expense, partially offset by a higher loss before income tax benefit. Net Cash Flows Used in Investing Activities Net cash used in investing activities decreased by $7.5 million for the six months ended November 28, 2025, compared to the same period in the prior year. The decrease was primarily due to the $10.6 million payment to acquire Incal during the six months ended November 29, 2024, compared to a $1.8 million escrow release related to the acquisition during the current period. This decrease was partially offset by a $1.3 million increase in cash spending on property and equipment, primarily related to an office renovation. Net Cash Flows Provided by Financing Activities Net cash provided by financing activities increased by $9.1 million for the six months ended November 28, 2025, compared to the same period in the prior year, primarily driven by net proceeds of $9.4 million from the issuance of common stock under the Company's ATM offering program. Off-Balance Sheet Agreements We do not have any off-balance sheet arrangements, investments in special purpose entities or undisclosed borrowings or debt. There have been no material changes in the composition, magnitude or other key characteristics of our contractual obligations or other commitments as disclosed in the Company's Annual Report on Form 10-K for the year ended May 30, 2025. 24

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