AEHR TEST SYSTEMS

Aehr Test Systems is a leading provider of test solutions for testing, burning-in, and stabilizing semiconductor devices in wafer level, singulated die, and package level, and has installed thousands of systems worldwide. Mission critical applications are driving increased quality, reliability, safety, and security needs of semiconductors, including artificial intelligence, High Performance Compute data centers, E-mobility, electric vehicle charging infrastructure, solar and wind power, data and telecommunications infrastructure, and solid-state memory storage. The semiconductor equipment industry is intensely competitive, with significant competitive factors including price, technical capabilities, quality, flexibility, automation, cost of ownership, reliability, throughput, product availability and customer service.

The Company faces competition from established competitors and potential new entrants, many of which have greater financial, engineering, manufacturing and marketing resources. The FOX wafer-level and singulated die/module test and burn-in systems and package level burn-in systems face competition from larger systems manufacturers that have significant technological know-how and manufacturing capability. Some users of the Company's systems, such as independent test labs, build their own burn-in systems, while others, particularly large IC manufacturers in Asia, acquire burn-in systems from captive or affiliated suppliers. The WaferPak products are facing and are expected to face increasing competition, and several companies have developed or are developing full-wafer and single-touchdown probe cards. The Company believes that to remain competitive it must invest significant financial resources in new product development and expand its customer service and support worldwide.

The Company generates revenue primarily from 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. Revenue for systems and spares is recognized at a point in time, generally upon shipment or delivery and evidenced by transfer of title and risk of loss to the customer. Revenue from services is recognized ratably over time as the customer simultaneously receives the benefit of the services over the contractual period, which is generally one year or less. The Company sells its products primarily through a direct sales force and in certain international markets through independent distributors.

The FOX-XP test and burn-in system, introduced in July 2016, is designed for devices in wafer, singulated die, and module form that require test and burn-in times typically measured in hours to days, and can test and burn-in up to 18 wafers at a time. The FOX-NP is a low-cost entry-level system configurable with up to two slot assemblies per system compared to up to 18 slot assemblies in the FOX-XP system. The FOX-CP is a low-cost single-wafer compact test and reliability verification solution for logic, memory, power and photonic devices, optimal for test times ranging from minutes to a few hours. The FOX WaferPak Contactor contains a unique full wafer contactor capable of testing wafers up to 300mm. The FOX DiePak Carrier allows testing, burn-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. Net revenues of full wafer contact product lines, systems, WaferPak Contactors and services for fiscal 2026, 2025, and 2024 were $31.5 million ¹, $39.2 million ², and $64.6 million ³, respectively, and accounted for approximately 63% ⁴, 66% ⁵, and 98% ⁶ of the Company's net revenues in fiscal 2026, 2025, and 2024, respectively.

The package level test and burn-in systems include 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 is specifically designed to address the reliability and burn-in needs of AI accelerators, GPUs, HPC processors, and devices that can reach levels of power as high as 1600 or more watts, and is available in its standard configuration which supports up to 88 devices with independent test resources per chamber. Net revenues of package level product lines, systems and services for fiscal 2026, 2025, and 2024 were $18.5 million ⁷, $19.8 million ⁸, and $1.6 million ⁹, respectively, and accounted for approximately 37% ¹⁰, 34% ¹¹, and 2% ¹² of the Company's net revenues in fiscal 2026, 2025, and 2024 respectively.

During fiscal 2026, the Company worked with a long time established subcontractor to do final integration and test of its Sonoma package level test and burn-in systems, and during its fourth fiscal quarter signed off on the qualification of direct shipments of Sonoma systems to customers. Net cash provided by financing activities was $97.2 million ¹³ in fiscal 2026, primarily driven by net proceeds of $97.4 million ¹⁴ from the issuance of common stock under the Company's ATM offering program. The Company held 125 active patents as of May 29, 2026 ¹⁵, with expiration date ranges from 2028 to 2045, and had over 100 additional United States patent applications and foreign patent applications pending.

Revenue decreased by $9.0 million ¹⁶ in fiscal year 2026 compared to fiscal year 2025, primarily due to a $19.9 million ¹⁷ decrease in wafer-level contactor revenue driven by significantly lower shipments reflecting continued softness in demand related to electric vehicles, partially offset by a $10.4 million ¹⁸ increase in wafer-level burn-in systems revenue primarily from customers in the silicon photonics market. Gross profit decreased by $6.3 million ¹⁹ in fiscal year 2026 compared to fiscal year 2025, and gross margin decreased by 5.3 percentage points ²⁰ primarily due to higher assembly and warranty costs, increased freight expenses, and higher tariffs on imported parts. Net cash used in operating activities was $3.3 million ²¹ in fiscal 2026, compared to $7.4 million ²² in fiscal 2025.

The Artificial Intelligence and Inference processor market is experiencing a significant surge, driving demand for machine learning and AI applications, and the Company expects the need for burn-in to become increasingly important as AI processors' distinct architecture of die-to-die interdependency and increased memory size create a unique opportunity for the Company to apply enabling wafer level test and burn-in technology and package level burn-in. The silicon photonics market is experiencing rapid growth in device deployment as data centers and 5G networks expand, and the Company's solution enables burn-in at the wafer level before dicing and packaging, delivering both higher yields and significant cost savings. The Company sees the GaN market as a potentially significant growth driver for its FOX systems and WaferPak full wafer contactors, particularly for automotive, photovoltaic and other industrial applications where burn-in appears to be critical.

Within Dynamic Random Access Memory, the Company sees a particularly compelling opportunity in High Bandwidth Memory, the stacked memory architecture increasingly used alongside GPUs and AI accelerators, and believes this represents a significant long-term growth opportunity for its wafer-level test and burn-in solutions as HBM adoption accelerates with the growth of AI infrastructure. The Company also views emerging developments in the data storage and memory markets as new opportunities for its systems, including semiconductors used in solid state disk drives for data storage using NAND flash semiconductor memory devices, where the NAND flash memory market performs 100% test and burn-in on devices used in mission-critical applications such as enterprise storage.

Gross margin decreased by 5.3 percentage points in fiscal 2026 compared to fiscal 2025 primarily due to higher assembly and warranty costs, increased freight expenses, and higher tariffs on imported parts following government policy changes. Gross margin decreased by 8.5 percentage points ²³ in fiscal 2025 compared to fiscal 2024 primarily due to the amortization of certain acquired intangible assets, the acquisition related fair value adjustment to inventory, an inventory variance charge, lower system shipments leading to reduced manufacturing efficiencies, and a change in product mix.

The Company assembles its products from components and parts manufactured by others, and relies on subcontractors to manufacture many of the components and subassemblies used in its products. Final assembly and testing are performed at the Company's principal manufacturing facility located in Fremont, California. During fiscal 2026, the Company worked with a long time established subcontractor to do final integration and test of its Sonoma package level test and burn-in systems, and during its fourth fiscal quarter signed off on the qualification of direct shipments of Sonoma systems to customers, which significantly increases the total manufacturing capacity of the Company.

Research and development expenses were $12.6 million ²⁴ in fiscal 2026, $10.5 million ²⁵ in fiscal 2025, and $8.7 million ²⁶ in fiscal 2024. The Company historically has devoted a significant portion of its financial resources to research and development programs and expects to continue to allocate significant resources to these efforts. Capital expenditure decreased by $2.9 million ²⁷ in fiscal 2026 compared to fiscal 2025, primarily related to office renovation expenditures incurred during fiscal 2025. The Company did not repurchase any of its common stock in the open market during the fiscal year ended May 29, 2026 because the Company does not have a stock repurchase plan, and the Company has not paid cash dividends on its common stock or other securities and does not anticipate paying any cash dividends in the foreseeable future.

During fiscal 2025 and fiscal 2026, the Company's operating performance was negatively affected by continued softness in demand in electric vehicle power semiconductors. Changes in U.S. tariff policies, retaliatory trade measures taken by other countries and resulting trade wars have adversely affected, and may continue to adversely affect, the Company's business, financial condition, and results of operations. Since the second half of fiscal 2025, global tariff announcements had created uncertainty in the global economy that impacted customer demand and orders.

Approximately 59% ²⁸, 70% ²⁹, and 95% ³⁰ of the Company's net sales in fiscal 2026, 2025, and 2024, respectively, were attributable to sales to customers for delivery outside of the United States. Geopolitical tensions involving the United States, China and Taiwan, or changes in U.S., Chinese, Taiwanese or other foreign trade policies, tariffs, export controls, sanctions, technology-transfer restrictions or diplomatic relations, could adversely affect the Company's ability to sell products in certain foreign markets, support customers, obtain materials or components, or compete effectively.

The Company generates a large portion of sales from a small number of customers, with sales to the five largest customers accounting for approximately 70% ³¹, 77% ³², and 93% ³³ of net sales in fiscal 2026, 2025, and 2024 respectively, and the loss of a significant customer could materially and adversely affect the business. The semiconductor equipment industry is intensely competitive, and the Company faces competition from established competitors and potential new entrants with greater financial, engineering, manufacturing and marketing resources. The Company relies on increasing market acceptance for its FOX and Sonoma systems, and failure to achieve increased market acceptance would have a material adverse effect on future operating results. Changes in U.S. tariff policies and retaliatory trade measures have adversely affected and may continue to adversely affect the Company's business, financial condition, and results of operations, with approximately 59% of net sales in fiscal 2026 attributable to customers for delivery outside the United States. The Company depends on subcontractors and sole-source suppliers for several components, and any delay, interruption or termination of a supplier relationship could adversely affect the ability to deliver products.

Management's message emphasizes that decarbonization, generative AI and digitalization are driving increased quality, reliability, safety, and security needs of semiconductors used across multiple applications, including electric vehicles, electric vehicle charging infrastructure, solar and wind power, computing, data and telecommunications infrastructure, and solid-state memory and storage, and that this trend is driving additional test requirements, incremental capacity needs, and new opportunities for Aehr Test products and solutions. The Company concluded as of May 29, 2026 that a valuation allowance against its U.S. deferred tax assets was not required, placing significant weight on positive evidence supporting future taxable income including the expectation of a return to profitability in fiscal 2027, projected improvement in cumulative pretax income position by fiscal 2027, and revenue projections supported by substantial backlog and visibility into near-term customer demand. The Company's backlog at May 29, 2026 was $80.6 million ³⁴ compared with $15.2 million ³⁵ at May 30, 2025.