Core Insights - Aehr Test Systems, Inc. (NASDAQ: AEHR) has experienced an 85% increase in its share price due to receiving two follow-on orders for Sonoma packaged part burn-in systems from a leading AI company [1] Company Summary - Aehr Test Systems has secured significant orders that indicate strong demand for its products in the AI sector [1] - The company's recent performance reflects a positive market response and potential growth opportunities in the technology space [1]

Group 1 - The options for Aehr Test Systems (NASDAQ: AEHR) are noted to be illiquid, with January 2027 call options indicating a projected stock price movement of approximately 70% over the next 17 months, which may be considered low [1] - The author has been contributing to investment analysis since 2011, focusing on value investing, and has a background in the financial industry since 1999, witnessing significant market events such as the dot-com bubble [1]

Core Viewpoint - Aehr Test Systems has received a follow-on order from a large AI hyperscaler for additional test systems, indicating strong demand for its semiconductor testing equipment in the AI market, which has led to a significant increase in its stock price by 37.5% [1][2][3] Group 1: Company Developments - Aehr Test Systems specializes in test-and-burn-in equipment that allows chipmakers to stress test semiconductors before they are integrated into final products [1] - The company has received an order for six additional Sonoma test systems from a major AI hyperscaler, reflecting the growing demand for its equipment in the AI sector [3] - The CEO of Aehr expressed satisfaction with the increased orders from the hyperscaler, highlighting the value of their systems for AI processor production and the strengthening relationship with this customer [3] Group 2: Market Context - The AI chip market has emerged as a new opportunity for Aehr, driven by the high heat dissipation requirements of AI chips, contrasting with its traditional focus on high-intensity applications like electric vehicles [2] - Despite a challenging fiscal year with a 10% revenue decline and losses, the recent orders from the AI hyperscaler suggest a potential turnaround for Aehr, especially if the electric vehicle market recovers [5][7] - Aehr's stock remains over 50% lower than its all-time high from 2023, indicating potential for growth as demand for AI testing systems increases [8]

Part I [Business Overview](index=3&type=section&id=Item%201.%20Business) Aehr Test Systems provides semiconductor test solutions for AI, EVs, and data centers, expanding into high-power packaged part burn-in with the Incal acquisition - Aehr Test Systems provides test solutions for semiconductors, including wafer-level, singulated die, and packaged part burn-in and stabilization, serving mission-critical applications like **AI compute data centers, electric vehicles, and data infrastructure**[20](index=20&type=chunk)[22](index=22&type=chunk) - The company's product portfolio includes the **FOX-P™ family** for wafer and singulated die testing, and **packaged part burn-in systems** (Sonoma, Tahoe, Echo) acquired through Incal Technology, Inc., enhancing capabilities for **AI accelerators, GPUs, and HPC processors**[20](index=20&type=chunk)[22](index=22&type=chunk)[53](index=53&type=chunk) Full Wafer Contact Product Line Net Revenues (Fiscal Years 2023-2025) | Fiscal Year | Net Revenues (Millions) | % of Total Net Revenues | | :---------- | :---------------------- | :---------------------- | | 2025 | $39.2 | 66% | | 2024 | $64.6 | 98% | | 2023 | $63.5 | 98% | Packaged Part Product Line Net Revenues (Fiscal Years 2023-2025) | Fiscal Year | Net Revenues (Millions) | % of Total Net Revenues | | :---------- | :---------------------- | :---------------------- | | 2025 | $19.8 | 34% | | 2024 | $1.6 | 2% | | 2023 | $1.4 | 2% | Revenue Concentration from Five Largest Customers (Fiscal Years 2023-2025) | Fiscal Year | % of Net Revenues | | :---------- | :---------------- | | 2025 | 77% | | 2024 | 93% | | 2023 | 97% | - The company's backlog increased to **$15.2 million** at May 30, 2025, from **$7.3 million** at May 31, 2024, representing product orders scheduled for shipment within 12 months[59](index=59&type=chunk) - Aehr Test Systems holds **131 active patents** across multiple countries, with expiration dates ranging from 2025 to 2045, and relies on proprietary software and trade secrets to maintain its competitive position[66](index=66&type=chunk) EV and Power Semiconductor Revenue as % of Total Revenue (Fiscal Years 2023-2025) | Fiscal Year | % of Total Revenue | | :---------- | :----------------- | | 2025 | 41% | | 2024 | 92% | | 2023 | 85% | [Risk Factors](index=11&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks including high customer concentration, intense competition, technological change, supply chain disruptions, and intellectual property litigation Revenue Concentration from Five Largest Customers (Fiscal Years 2023-2025) | Fiscal Year | % of Net Sales | | :---------- | :------------- | | 2025 | 77% | | 2024 | 93% | | 2023 | 97% | - The company's business is significantly driven by demand for **silicon carbide semiconductor devices**, particularly in the **electric vehicle market**, making it vulnerable to slowdowns in this sector[89](index=89&type=chunk) - The semiconductor equipment industry is **intensely competitive**, with larger manufacturers and new entrants posing threats due to greater resources and continuous product improvements, leading to potential price competition and margin pressure[91](index=91&type=chunk)[93](index=93&type=chunk) - The company is exposed to **cybersecurity threats**, including computer viruses, data breaches, and phishing schemes, which could lead to business disruption, data loss, or unauthorized access to intellectual property[100](index=100&type=chunk) - **Global supply chain issues**, including shortages of critical components and manufacturing capacity, could delay customer order fulfillment and increase costs, adversely impacting business and operating results[116](index=116&type=chunk) Net Sales Attributable to International Customers (Fiscal Years 2023-2025) | Fiscal Year | % of Net Sales | | :---------- | :------------- | | 2025 | 70% | | 2024 | 95% | | 2023 | 86% | - The company's common stock has experienced **substantial price volatility**, with prices ranging from **$6.27 to $54.10** during the two-year period ended May 30, 2025[131](index=131&type=chunk) - The company depends significantly on **key personnel**, including its President and CEO, and its success relies on its ability to attract, retain, and motivate highly skilled technical, management, sales, and marketing employees[134](index=134&type=chunk) [Unresolved Staff Comments](index=19&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments from the SEC [Cybersecurity](index=19&type=section&id=ITEM%201C.%20Cybersecurity) The company implements a cybersecurity risk management program based on the NIST framework, with Board oversight and COO leadership - The company maintains a **cyber risk management program** employing the **NIST Cyber Security Framework (CSF)** to assess, identify, and manage material cybersecurity threats[139](index=139&type=chunk) - The Board of Directors, specifically the Audit Committee, oversees information security risks, receiving regular briefings from the Chief Operating Officer on cyber risks, threats, and security system strengthening projects[144](index=144&type=chunk) - The Chief Operating Officer leads the enterprise-wide cybersecurity strategy and chairs the Cybersecurity Incident Response Team, consulting with experts to protect intellectual property and devices[145](index=145&type=chunk) [Properties](index=20&type=section&id=Item%202.%20Properties) The company's primary facilities are in Fremont, California, with additional leased offices in Germany and the Philippines, and a recently vacated Incal office - The company's principal administrative and production facilities are located in Fremont, California, in a **51,289 square foot building**, with the lease extended to September 2035[146](index=146&type=chunk) - The company also leases a **492 square foot sales and support office** in Utting, Germany, and a **6,458 square foot facility** in Clark Freeport Zone, Pampanga, Philippines[146](index=146&type=chunk) - The Incal office in Fremont, California, acquired through the acquisition, was vacated in May 2025 to consolidate the company's California operations[146](index=146&type=chunk) [Legal Proceedings](index=20&type=section&id=Item%203.%20Legal%20Proceedings) Shareholder lawsuits were dismissed, and the company filed an IP infringement complaint in China, currently suspended pending patent validity rulings - A shareholder class action lawsuit and two derivative complaints filed against the company and its executives in December 2024 were dismissed in May and June 2025, respectively, with the company believing the claims were without merit[132](index=132&type=chunk)[133](index=133&type=chunk)[313](index=313&type=chunk) - The company filed an **intellectual property infringement complaint in China** in October 2024, alleging infringement of two patents related to wafer burn-in systems; the proceedings are currently suspended pending validity rulings on the patents[314](index=314&type=chunk)[319](index=319&type=chunk) [Mine Safety Disclosures](index=21&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=21&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on NASDAQ, experienced volatility, and no cash dividends are anticipated, with shares issued for the Incal acquisition - The company's common stock trades on the **NASDAQ Capital Market** under the symbol "**AEHR**"[4](index=4&type=chunk) Common Stock High and Low Sale Prices (Fiscal Years 2024-2025) | Fiscal Year | Quarter Ended | High Price ($) | Low Price ($) | | :---------- | :----------------- | :------------- | :------------ | | 2025 | August 30, 2024 | 21.44 | 9.83 | | | November 29, 2024 | 17.41 | 10.64 | | | February 28, 2025 | 18.76 | 9.30 | | | May 30, 2025 | 10.45 | 6.27 | | 2024 | August 31, 2023 | 54.10 | 33.72 | | | November 30, 2023 | 53.06 | 21.57 | | | February 29, 2024 | 30.50 | 14.54 | | | May 31, 2024 | 18.63 | 10.19 | - As of July 15, 2025, **29,915,061 shares** of common stock were outstanding[6](index=6&type=chunk) - The company has not paid cash dividends and does not anticipate doing so, preferring to retain future earnings for business expansion[152](index=152&type=chunk) - On July 31, 2024, **552,355 shares** of common stock were issued for an aggregate fair value of **$9.4 million** in connection with the acquisition of Incal Technology, Inc.[153](index=153&type=chunk) [Reserved](index=22&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section reviews the company's financial performance, including revenue, gross margin, operating expenses, and liquidity, along with critical accounting policies [Overview](index=23&type=section&id=Overview) Aehr Test Systems provides semiconductor test solutions, with revenue from systems, contactors, parts, services, and non-recurring engineering charges - Aehr Test Systems provides test solutions for semiconductor devices in wafer level, singulated die, and package part form, driven by increased quality and reliability needs in applications like **electric vehicles, AI, and data infrastructure**[155](index=155&type=chunk) - The product portfolio includes the **FOX-P family** for wafer and singulated die testing, and **packaged part burn-in solutions** from the Incal acquisition, targeting high-power **AI accelerators, GPUs, and HPC processors**[156](index=156&type=chunk)[157](index=157&type=chunk) - Revenue sources include sales of **FOX-P systems, WaferPak Aligners and DiePak Loaders, WaferPak Contactors, DiePak Carriers, packaged parts burn-in systems, test fixtures, upgrades, spare parts, service contracts, and non-recurring engineering charges**[158](index=158&type=chunk) [Critical Accounting Policies and Estimates](index=23&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) The company's financial reporting relies on key accounting policies for revenue recognition, inventory valuation, income taxes, business combinations, and asset impairment - Revenue is recognized following a **five-step process**, allocating transaction price to distinct performance obligations based on standalone selling prices, with revenue for systems and spares recognized at shipment/delivery and services over time[162](index=162&type=chunk)[164](index=164&type=chunk) - Inventory is valued at the **lower of cost or net realizable value**, with write-downs for estimated obsolescence or unmarketable inventory based on future demand and market conditions[166](index=166&type=chunk)[167](index=167&type=chunk) - Income tax provision involves assessing the recoverability of deferred tax assets, with a valuation allowance recorded if recovery is not more likely than not; the company released its entire valuation allowance in **fiscal 2024**[169](index=169&type=chunk) - Business combinations require significant estimates for fair values of acquired assets and liabilities, including intangible assets like **developed technology, customer relationships, and trade names**[170](index=170&type=chunk) - Goodwill is assessed for impairment annually or when circumstances indicate, comparing fair value to carrying value. Long-lived assets are evaluated for impairment when triggering events occur, comparing undiscounted cash flows to carrying value[171](index=171&type=chunk)[173](index=173&type=chunk) [Results of Operations](index=24&type=section&id=Results%20of%20Operations) Fiscal 2025 saw a revenue decrease due to EV market softness, lower gross margin, increased operating expenses from the Incal acquisition and restructuring, and a reduced income tax benefit - The company changed its fiscal year to end on the Friday nearest May 31, effective June 1, 2024[175](index=175&type=chunk) Revenue (Fiscal Years 2023-2025) | Year Ended | Revenue ($ thousands) | YoY Change ($ thousands) | YoY Change (%) | | :--------- | :-------------------- | :----------------------- | :------------- | | May 30, 2025 | 58,968 | (7,250) | (10.9%) | | May 31, 2024 | 66,218 | 1,257 | 1.9% | | May 31, 2023 | 64,961 | - | - | - Revenue decreased in fiscal 2025 primarily due to **softness in power semiconductor demand for electric vehicles**, partially offset by increased packaged parts burn-in product revenue from the Incal acquisition[176](index=176&type=chunk) Revenue by Geography (Fiscal Years 2023-2025) | Year Ended | Asia ($ thousands) | US ($ thousands) | Europe ($ thousands) | Asia % of Total | US % of Total | Europe % of Total | | :--------- | :----------------- | :--------------- | :----------------- | :-------------- | :------------ | :---------------- | | May 30, 2025 | 37,095 | 17,673 | 4,200 | 62.9% | 30.0% | 7.1% | | May 31, 2024 | 58,076 | 3,532 | 4,610 | 87.7% | 5.3% | 7.0% | | May 31, 2023 | 55,609 | 9,289 | 63 | 85.6% | 14.3% | 0.1% | - Fiscal 2025 saw a significant decline in Asia revenue due to power semiconductor softness, offset by **strong growth in the United States** driven by the **artificial intelligence market**[180](index=180&type=chunk) Gross Profit and Margin (Fiscal Years 2023-2025) | Year Ended | Gross Profit ($ thousands) | Gross Margin (%) | YoY Gross Profit Change ($ thousands) | YoY Gross Profit Change (%) | | :--------- | :------------------------- | :--------------- | :------------------------------------ | :-------------------------- | | May 30, 2025 | 23,933 | 40.6% | (8,610) | (26.5%) | | May 31, 2024 | 32,543 | 49.1% | (203) | (0.6%) | | May 31, 2023 | 32,746 | 50.4% | - | - | - Gross margin decreased by **8.5 percentage points** in fiscal 2025 due to amortization of acquired intangibles, fair value adjustment to inventory, an inventory variance charge, lower system shipments, and product mix changes[182](index=182&type=chunk) Research and Development Expenses (Fiscal Years 2023-2025) | Year Ended | R&D Expenses ($ thousands) | % of Total Revenues | YoY Change ($ thousands) | YoY Change (%) | | :--------- | :------------------------- | :------------------ | :----------------------- | :------------- | | May 30, 2025 | 10,463 | 17.7% | 1,744 | 20.0% | | May 31, 2024 | 8,719 | 13.2% | 1,585 | 22.2% | | May 31, 2023 | 7,134 | 11.0% | - | - | - R&D expenses increased in fiscal 2025 due to severance benefits, higher employee costs, stock-based compensation from increased engineering headcount, and additional expenses from the Incal acquisition[184](index=184&type=chunk) Selling, General and Administrative Expenses (Fiscal Years 2023-2025) | Year Ended | SG&A Expenses ($ thousands) | % of Total Revenues | YoY Change ($ thousands) | YoY Change (%) | | :--------- | :-------------------------- | :------------------ | :----------------------- | :------------- | | May 30, 2025 | 18,283 | 31.0% | 4,537 | 33.0% | | May 31, 2024 | 13,746 | 20.8% | 1,509 | 12.3% | | May 31, 2023 | 12,237 | 18.8% | - | - | - SG&A expenses increased in fiscal 2025 primarily due to additional expenses from the Incal acquisition, higher legal and professional service fees, and increased stock-based compensation[186](index=186&type=chunk) - Restructuring charges of **$864 thousand** were incurred in fiscal 2025, primarily related to the closure of the Incal office[189](index=189&type=chunk)[190](index=190&type=chunk) Interest and Other Income, Net (Fiscal Years 2023-2025) | Year Ended | Interest Income, Net ($ thousands) | Other Income (Expense), Net ($ thousands) | Total ($ thousands) | YoY Change ($ thousands) | YoY Change (%) | | :--------- | :--------------------------------- | :---------------------------------------- | :------------------ | :----------------------- | :------------- | | May 30, 2025 | 1,401 | (15) | 1,386 | (994) | (41.8%) | | May 31, 2024 | 2,388 | (8) | 2,380 | 1,138 | 91.6% | | May 31, 2023 | 1,245 | (3) | 1,242 | - | - | - Interest and other income, net, decreased in fiscal 2025 due to lower average cash balances from the Incal acquisition and lower yields from money market investments[191](index=191&type=chunk) Income Tax Expense (Benefit) (Fiscal Years 2023-2025) | Year Ended | Income Tax Expense (Benefit) ($ thousands) | YoY Change ($ thousands) | YoY Change (%) | | :--------- | :--------------------------------------- | :----------------------- | :------------- | | May 30, 2025 | (381) | 20,317 | (98.2%) | | May 31, 2024 | (20,698) | (20,758) | N.M. | | May 31, 2023 | 60 | - | - | - The company recognized an income tax benefit of **$0.4 million** in fiscal 2025 due to year-to-date operating losses in the United States, a significant decrease from the **$20.7 million benefit** in fiscal 2024 which was primarily due to the release of a valuation allowance[194](index=194&type=chunk) [Liquidity and Capital Resources](index=26&type=section&id=Liquidity%20and%20Capital%20Resources) Cash and equivalents decreased in fiscal 2025 due to cash used in operations and investing activities, including the Incal acquisition - Cash, cash equivalents, and restricted cash decreased to **$26.5 million** as of May 30, 2025, from **$49.3 million** as of May 31, 2024[195](index=195&type=chunk) Net Cash Flows (Fiscal Years 2023-2025) | (In thousands) | May 30, 2025 | May 31, 2024 | May 31, 2023 | | :------------- | :----------- | :----------- | :----------- | | Operating activities | $(7,400) | $1,756 | $10,011 | | Investing activities | $(16,067) | $17,251 | $(18,656) | | Financing activities | $625 | $139 | $7,322 | | Effect of exchange rate changes | $13 | $(41) | $(37) | | Net increase (decrease) | $(22,829) | $19,105 | $(1,360) | - Cash flow used in operating activities in fiscal 2025 was **$7.4 million**, a **$9.2 million decrease** from fiscal 2024, primarily due to lower adjusted net income, slower accounts receivable collection, and increased unbilled receivables[198](index=198&type=chunk) - Net cash used in investing activities was **$16.1 million** in fiscal 2025, driven by the **$11.1 million acquisition of Incal** and **$4.2 million in property and equipment spending**[200](index=200&type=chunk) - Net cash provided by financing activities was **$0.6 million** in fiscal 2025, mainly from proceeds from employee stock plans, compared to **$0.1 million** in fiscal 2024 and **$7.3 million** in fiscal 2023 (which included **$6.8 million** from an "At-the-Market" offering program)[202](index=202&type=chunk) [Off-Balance Sheet Financing](index=27&type=section&id=Off-Balance%20Sheet%20Financing) The company has not engaged in any off-balance sheet financing arrangements or established special purpose entities - The company has not entered into any off-balance sheet financing arrangements and has not established any special purpose or variable interest entities[203](index=203&type=chunk) [Contractual Obligations](index=27&type=section&id=Contractual%20Obligations) As of May 30, 2025, the company's unconditional purchase obligations with remaining terms exceeding 12 months are not material - As of May 30, 2025, the company's unconditional purchase obligations with a remaining term in excess of 12 months are not material[204](index=204&type=chunk) [Recent Accounting Pronouncements](index=27&type=section&id=Recent%20Accounting%20Pronouncements) The company adopted ASU 2023-07 and is evaluating ASU 2023-09 and ASU 2024-03 for future financial statement impacts - The company adopted **ASU 2023-07, Segment Reporting**, on June 1, 2024, which requires incremental segment information disclosures[268](index=268&type=chunk) - The company is evaluating **ASU 2023-09, Income Taxes**, effective for fiscal years beginning after December 15, 2024, which expands income tax disclosures[269](index=269&type=chunk) - The company is evaluating **ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures**, effective for fiscal years beginning after December 15, 2026, which requires more detailed expense information[270](index=270&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=29&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) As a Smaller Reporting Company, the company is not required to provide disclosures under Item 7A - As a Smaller Reporting Company, Aehr Test Systems is not required to provide quantitative and qualitative disclosures about market risk[206](index=206&type=chunk) [Financial Statements and Supplementary Data](index=30&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents audited consolidated financial statements, including balance sheets, statements of operations, cash flows, and comprehensive notes [Report of Independent Registered Public Accounting Firm](index=31&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) BPM LLP issued an unqualified opinion on the financial statements, highlighting inventory valuation as a critical audit matter due to management's demand forecasts - BPM LLP issued an **unqualified opinion** on the consolidated financial statements for the three years ended May 30, 2025[209](index=209&type=chunk) - A critical audit matter was identified regarding **inventory valuation**, specifically adjustments for excess or obsolete inventory, due to the significant management judgment in forecasting product demand and the auditor's effort in evaluating these assumptions[215](index=215&type=chunk)[216](index=216&type=chunk)[217](index=217&type=chunk) [Consolidated Balance Sheets](index=32&type=section&id=Consolidated%20Balance%20Sheets) Total assets increased to $148.5 million in May 2025, driven by inventories, property, goodwill, and intangibles, with corresponding increases in liabilities and equity Consolidated Balance Sheet Highlights (May 30, 2025 vs. May 31, 2024) | (In thousands) | May 30, 2025 | May 31, 2024 | | :------------------------- | :----------- | :----------- | | Cash and cash equivalents | $24,529 | $49,159 | | Accounts receivable | $14,191 | $9,796 | | Inventories | $41,997 | $37,470 | | Total current assets | $88,778 | $97,848 | | Property and equipment, net| $8,969 | $3,253 | | Goodwill | $10,719 | $- | | Intangible assets, net | $10,781 | $- | | Deferred tax assets, net | $19,114 | $20,773 | | Total assets | $148,508 | $127,912 | | Accounts payable | $6,728 | $5,332 | | Accrued expenses | $6,020 | $3,366 | | Total current liabilities | $15,638 | $10,508 | | Total liabilities | $25,637 | $16,319 | | Total shareholders' equity | $122,871 | $111,593 | [Consolidated Statements of Operations](index=33&type=section&id=Consolidated%20Statements%20of%20Operations) The company reported a net loss of $3.9 million in fiscal 2025, a significant decline from prior years, driven by decreased revenue and higher operating expenses Consolidated Statements of Operations Highlights (Fiscal Years 2023-2025) | (In thousands, except per share data) | May 30, 2025 | May 31, 2024 | May 31, 2023 | | :------------------------------------ | :----------- | :----------- | :----------- | | Revenue | $58,968 | $66,218 | $64,961 | | Gross profit | $23,933 | $32,543 | $32,746 | | Total operating expenses | $29,610 | $22,465 | $19,371 | | Income (loss) from operations | $(5,677) | $10,078 | $13,375 | | Income (loss) before income tax | $(4,291) | $12,458 | $14,617 | | Income tax expense (benefit) | $(381) | $(20,698) | $60 | | Net income (loss) | $(3,910) | $33,156 | $14,557 | | Basic net income (loss) per share | $(0.13) | $1.15 | $0.52 | | Diluted net income (loss) per share | $(0.13) | $1.12 | $0.50 | [Consolidated Statements of Comprehensive Income (Loss)](index=34&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) The company reported a comprehensive loss of $3.9 million in fiscal 2025, reflecting the net loss adjusted for other comprehensive income items Consolidated Statements of Comprehensive Income (Loss) Highlights (Fiscal Years 2023-2025) | (In thousands) | May 30, 2025 | May 31, 2024 | May 31, 2023 | | :---------------------------------------- | :----------- | :----------- | :----------- | | Net income (loss) | $(3,910) | $33,156 | $14,557 | | Net change in cumulative translation adjustment | $32 | $(20) | $(33) | | Net change in unrealized gain (loss) on investments | $- | $17 | $(17) | | Comprehensive income (loss) | $(3,878) | $33,153 | $14,507 | [Consolidated Statements of Shareholders' Equity](index=35&type=section&id=Consolidated%20Statements%20of%20Shareholders'%20Equity) Shareholders' equity increased to $122.9 million in May 2025, influenced by stock issuances for acquisition and employee plans, and stock-based compensation Consolidated Statements of Shareholders' Equity Highlights (May 31, 2024 vs. May 30, 2025) | (In thousands) | May 31, 2024 | May 30, 2025 | | :------------------------------------------------- | :----------- | :----------- | | Total Shareholders' Equity | $111,593 | $122,871 | | Issuance of common stock for business acquisition | $- | $9,381 | | Issuance of common stock under employee plans | $1,807 | $1,409 | | Shares repurchased for tax withholdings | $(1,596) | $(784) | | Stock-based compensation | $2,701 | $5,150 | | Net income (loss) | $33,156 | $(3,910) | [Consolidated Statements of Cash Flows](index=36&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Cash used in operating activities was $7.4 million in fiscal 2025, with significant cash outflow for investing activities, resulting in an overall cash decrease Consolidated Statements of Cash Flows Highlights (Fiscal Years 2023-2025) | (In thousands) | May 30, 2025 | May 31, 2024 | May 31, 2023 | | :------------------------------------------------- | :----------- | :----------- | :----------- | | Net cash provided by (used in) operating activities | $(7,400) | $1,756 | $10,011 | | Net cash provided by (used in) investing activities | $(16,067) | $17,251 | $(18,656) | | Net cash provided by financing activities | $625 | $139 | $7,322 | | Net increase (decrease) in cash | $(22,829) | $19,105 | $(1,360) | | Cash, cash equivalents and restricted cash, end of year | $26,480 | $49,309 | $30,204 | [Notes to Consolidated Financial Statements](index=37&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) These notes detail accounting policies, balance sheet items, the Incal acquisition, goodwill, intangible assets, income taxes, leases, retirement plans, and other financial disclosures - The company's significant accounting policies include **revenue recognition, inventory valuation, business combinations, impairment of goodwill and long-lived assets, and income taxes**[239](index=239&type=chunk) Inventories (May 30, 2025 vs. May 31, 2024) | (In thousands) | May 30, 2025 | May 31, 2024 | | :------------------------ | :----------- | :----------- | | Raw materials and sub-assemblies | $30,644 | $22,410 | | Work in process | $9,263 | $13,593 | | Finished goods | $2,090 | $1,467 | | Total Inventories | $41,997 | $37,470 | - On July 31, 2024, the company acquired Incal Technology, Inc. for approximately **$22.2 million**, consisting of cash, common stock, and escrow payable, resulting in **$10.7 million in goodwill** and **$12.0 million in identifiable intangible assets**[282](index=282&type=chunk)[286](index=286&type=chunk)[287](index=287&type=chunk) Purchased Intangible Assets, Net (May 30, 2025) | (In thousands) | Gross | Accumulated Amortization | Net | | :------------------------ | :-------- | :----------------------- | :-------- | | Developed technology | $9,130 | $(634) | $8,496 | | Trade names | $1,050 | $(88) | $962 | | Customer relationships | $810 | $(61) | $749 | | Non-compete agreements and others | $1,010 | $(436) | $574 | | Total | $12,000 | $(1,219) | $10,781 | - The company reversed its entire **$21.9 million valuation allowance** against deferred tax assets in fiscal 2024, concluding that these assets are more likely than not to be realized[295](index=295&type=chunk) - The company's operating lease right-of-use assets and liabilities increased in fiscal 2025 due to the exercise of a five-year extension option for its Fremont facility lease, ending in September 2035[304](index=304&type=chunk) - The company terminated its ESOP plan in fiscal 2025 and began providing a discretionary matching contribution to its 401(k) Plan, totaling **$0.3 million** in fiscal 2025[310](index=310&type=chunk)[341](index=341&type=chunk) Stock-Based Compensation Expense (Fiscal Years 2023-2025) | (In thousands) | May 30, 2025 | May 31, 2024 | May 31, 2023 | | :------------------------ | :----------- | :----------- | :----------- | | Cost of sales | $737 | $330 | $331 | | Research and development | $1,476 | $639 | $706 | | Selling, general and administrative | $2,949 | $1,549 | $1,711 | | Net effect on net income (loss) | $5,162 | $2,518 | $2,748 | - In the fourth quarter of fiscal 2025, the company initiated a restructuring plan, incurring **$0.9 million** in charges primarily related to asset impairments, contract termination, and facility exit costs from the closure of the Incal office[342](index=342&type=chunk)[343](index=343&type=chunk) - A subsequent event, the enactment of the One Big Beautiful Bill Act on July 4, 2025, is being evaluated for its impacts on the company's financial statements, including tax provisions and deferred tax assets/liabilities[351](index=351&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=51&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) There have been no changes in or disagreements with accountants on accounting and financial disclosure [Controls and Procedures](index=51&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded disclosure controls and internal control over financial reporting were effective, excluding the recently acquired Incal Technology, Inc. - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of May 30, 2025[353](index=353&type=chunk) - Management concluded that internal control over financial reporting was effective as of May 30, 2025, excluding Incal Technology, Inc., which was acquired on July 31, 2024, and constitutes **31.5% of consolidated revenue**[354](index=354&type=chunk) - Incal Technology, Inc. will be included in the assessment of internal controls over financial reporting in the fiscal year 2026 annual management report[354](index=354&type=chunk) [Other Information](index=51&type=section&id=Item%209B.%20Other%20Information) The company changed its fiscal year-end, adopted amended bylaws, and the CEO established a Rule 10b5-1 trading arrangement - The company changed its fiscal year-end from May 31 to a **4-4-5 fiscal calendar** ending on the Friday closest to May 31, effective June 1, 2024, to better align financial reporting with operational cycles[356](index=356&type=chunk)[357](index=357&type=chunk) - Amended and Restated Bylaws were adopted on February 24, 2025, including advance notice provisions for director nominations and other stockholder meeting business[358](index=358&type=chunk) - On May 14, 2025, President and CEO Gayn Erickson adopted a **Rule 10b5-1 trading arrangement** for the sale of up to **291,088 shares** of common stock until May 14, 2027[359](index=359&type=chunk) [Disclosure Regarding Foreign Jurisdiction that Prevent Inspections](index=52&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdiction%20that%20Prevent%20Inspections) This item is not applicable to the company Part III [Directors, Executive Officers and Corporate Governance](index=52&type=section&id=Item%2010.%20Directors,%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance, including the insider trading policy, is incorporated by reference - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2025 Annual Meeting of Shareholders Proxy Statement[362](index=362&type=chunk) - The company has adopted an insider trading policy to promote compliance with insider trading laws, rules, and regulations[363](index=363&type=chunk) [Executive Compensation](index=52&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the company's 2025 Annual Meeting of Shareholders Proxy Statement - Executive compensation information is incorporated by reference from the 2025 Annual Meeting of Shareholders Proxy Statement[364](index=364&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=52&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information on security ownership of beneficial owners and management is incorporated by reference from the company's 2025 Annual Meeting of Shareholders Proxy Statement - Security ownership information for beneficial owners and management is incorporated by reference from the 2025 Annual Meeting of Shareholders Proxy Statement[365](index=365&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=52&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions,%20and%20Director%20Independence) Information on certain relationships, related transactions, and director independence is incorporated by reference from the company's 2025 Annual Meeting of Shareholders Proxy Statement - Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2025 Annual Meeting of Shareholders Proxy Statement[366](index=366&type=chunk) [Principal Accountant Fees and Services](index=52&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information regarding principal accountant fees and services is incorporated by reference from the company's 2025 Annual Meeting of Shareholders Proxy Statement - Information on principal accountant fees and services is incorporated by reference from the 2025 Annual Meeting of Shareholders Proxy Statement[367](index=367&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=53&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists financial statements and a comprehensive array of exhibits, including organizational documents, equity agreements, and certifications - The report includes financial statements as per Item 8 and a list of exhibits[369](index=369&type=chunk) - Exhibits include **Restated Articles of Incorporation, Amended and Restated Bylaws, various equity incentive plans and award agreements, lease agreements, offer letters for executive officers, and certifications**[370](index=370&type=chunk)[372](index=372&type=chunk) [Form 10-K Summary](index=54&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item refers to the Form 10-K Summary, which includes the company's policy for recovery of erroneously awarded compensation - Item 16 refers to the Form 10-K Summary, which includes the company's policy for recovery of erroneously awarded compensation, effective August 14, 2023[374](index=374&type=chunk) [SIGNATURES](index=55&type=section&id=SIGNATURES) The Annual Report on Form 10-K was signed on July 28, 2025, by the President and CEO, CFO, and other directors - The Annual Report on Form 10-K was signed on July 28, 2025, by Gayn Erickson (President and CEO) and Chris P. Siu (Executive Vice President of Finance and CFO), along with other directors[377](index=377&type=chunk)[380](index=380&type=chunk)

Core Insights - Aehr Test Systems' shares surged over 20% following new orders for its AI processor testing solutions [1] - The recent orders come shortly after a cautious earnings report, indicating quicker-than-expected resolution of order delays [2] - The identity of the "world-leading hyperscaler" customer remains speculative, with potential candidates including Google and Microsoft [3] Company Developments - Aehr's CEO expressed cautious optimism regarding financial guidance for 2026, citing tariff-related uncertainties affecting order placements [2] - The new orders represent a significant increase, more than doubling the number of production systems with the identified customer [3] - Aehr is diversifying away from the struggling silicon carbide wafer-level burn-in test solutions market, which is primarily driven by electric vehicle demand [5] Market Outlook - The shift towards AI-driven markets is expected to enhance Aehr's long-term growth prospects [6] - Despite current challenges in the EV sector, there is an anticipation of a rebound in investment, positioning Aehr favorably for future growth [6]

Company Overview - Aehr Test Systems specializes in test and burn-in systems for integrated circuits, including the ABTS and FOX product families, as well as wafer probing and packaging solutions for logic, memory, and photonic devices in the semiconductor equipment industry [4] - The company generates revenue primarily from the sale of proprietary test systems, consumables, and related services to semiconductor manufacturers [5] - Aehr Test Systems targets global semiconductor manufacturers and integrated circuit producers seeking advanced reliability and quality assurance solutions [5] Financial Performance - As of July 2025, the market capitalization of Aehr Test Systems is $441.6 million [3] - The company reported a revenue of $59.0 million for the trailing twelve months (TTM) [3] - The net income for the same period is a loss of $3.91 million [3] - The one-year price change for the company's stock is -14.49% [3] - Year-to-date performance as of July 16, 2025, shows a decline of -11.1% [2] Recent Developments - CEO Gayn Erickson disposed of 4,518 shares valued at $62,619 to cover the exercise price of vested stock or tax liabilities, which does not constitute a sale of stock [1][6] - Post-transaction, Erickson holds 272,511 shares, valued at approximately $3.8 million [2] - The transaction is linked to the vesting of restricted stock units, indicating that Erickson's stock holdings will increase [7] Market Position and Future Outlook - Aehr Test Systems has successfully diversified its revenue streams by entering new markets such as gallium nitride (GaN) semiconductors and artificial intelligence processor burn-in markets, moving away from a heavy reliance on the silicon carbide (SiC) Wafer Level Burn In (WLBI) market [8] - The company is expected to benefit from a potential return to growth in the SiC WLBI market as the electric vehicle market improves [9][10]

Core Insights - Aehr Test Systems experienced significant stock volatility in 2025, with a 22.2% decline in the first half, following a 56% drop in the first quarter and a subsequent 77.4% rise in the last quarter of the half-year [1][2]. Financial Performance - The company's financial year ends on May 30, and for the fiscal year 2024, the silicon carbide (SiC) wafer-level burn-in (WLBI) market accounted for 90% of its sales [2]. - In fiscal year 2025, SiC WLBI revenue dropped to less than 40% of total revenue, indicating a significant shift in the company's revenue sources [4]. Market Dynamics - ON Semiconductor, a key customer, has faced a sales slowdown, reflecting a broader downturn in the SiC market, particularly in the electric vehicle (EV) sector, influenced by high interest rates and a correction from previous EV spending booms [3]. - The weakening EV market negatively impacted Aehr's growth prospects in the SiC WLBI market during the first three months of fiscal 2025 [4]. Strategic Developments - A turnaround in Aehr's stock occurred after the third-quarter earnings report in April, where management announced plans to expand into new markets, projecting that 35% of revenue would come from the artificial intelligence (AI) processor burn-in market [5]. - The company has secured four customers contributing over 10% of revenue, with three of these being in new markets, including gallium nitride (GaN) semiconductor supply for the automotive sector [5]. Customer Base and Future Outlook - Aehr has identified a major hyperscaler as a first production AI customer in the packaged part burn-in (PPBI) market, with notable customers including Microsoft, Google, Nvidia, ON Semiconductor, and Infineon [7]. - Management believes that AI end markets could be 3 to 5 times larger than traditional SiC markets, which is driving optimism and strength in the current stock price [8].

Core Viewpoint - Aehr Test Systems, Inc. (AEHR) is being highlighted as a potential investment opportunity due to its efforts in diversifying revenue streams and the prospect of returns [1] Company Analysis - The company has initiated a strategy to diversify its revenue streams, which is seen as a positive move for potential growth [1] - The analysis is backed by the author's extensive experience in financial markets and institutions, providing a solid foundation for the investment thesis [1] Market Context - The focus is on mid and small-cap companies, indicating a niche market that may present undervalued investment opportunities [1]

Core Viewpoint - Aehr Systems (NASDAQ: AEHR) reported disappointing Q4 results, primarily due to tariff uncertainties and significant declines in sales [1] Financial Performance - The Q4 numbers revealed sharp declines in sales, which negatively impacted investor sentiment [1] Outlook - The article suggests a need for a detailed analysis of the numbers and comments on the future outlook for the company [1]

Financial Data and Key Metrics Changes - The company reported revenue of $59 million for the fiscal year, down 11% year-over-year [46] - Non-GAAP gross margin for the full year was 44%, compared to 49.6% in the prior year [46] - Non-GAAP net income for the fiscal year was $4.6 million, or $0.15 per diluted share, down from $35.8 million, or $1.21 per diluted share, in the previous year [46] - Fourth quarter revenue totaled $14.1 million, a 15% decrease compared to $16.6 million in Q4 last year [47] - Non-GAAP gross margin for Q4 was 34.7%, down from 51.5% in the same period last year [49] Business Line Data and Key Metrics Changes - AI processor burn-in now accounts for over 35% of total revenue, up from 0% last year [47] - WaferPak revenues were $4.2 million, representing 30% of total revenue in Q4 [48] - Sales of packaged part burn-in systems accounted for 44% of Q4 revenue [49] Market Data and Key Metrics Changes - The company has diversified its revenue sources, with silicon carbide devices making up less than 40% of revenue this fiscal year, down from over 90% last year [8] - The company is expanding into new markets, including gallium nitride power semiconductors and silicon photonics integrated circuits [29][33] Company Strategy and Development Direction - The company aims to increase research and development investments to support product enhancements and expand its AI customer base [40][55] - The focus for the upcoming fiscal year includes securing and executing orders across various market verticals, with expectations of order growth [41] - The company has completed the integration of InCal, which is expected to create synergies and reduce facility costs by over $800,000 per year [44] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term outlook despite temporary withdrawal of financial guidance due to tariff-related uncertainties [41][54] - The company anticipates growth opportunities in diverse markets, particularly in AI processors and gallium nitride power semiconductors [54] Other Important Information - The company has no debt and continues to invest excess cash in money market funds [52] - The class action claims against the company were voluntarily dismissed, with no related proceedings currently pending [53] Q&A Session Summary Question: Clarification on customer list in investor deck - The updated customer list reflects current customers from the InCal package part burn-in side of the business, not prospects [58][60] Question: AI market potential compared to silicon carbide - The AI market is expected to be significantly larger than the silicon carbide market, with estimates suggesting it could be three to five times larger [63][66] Question: Gross margin decline explanation - The decline in gross margin is attributed to a mix issue, with lower-margin packaged part systems contributing to the overall decrease [72][73]