AEHR TEST SYSTEMS

Previous wording

There have been no material changes to our critical accounting policies and estimates during the three months ended August 29, 2025, compared to those discussed in our Annual Report on Form 10-K for the fiscal year ended May 30, 2025.

Current wording

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.

Previous wording

Discussion of Results of Operations for the Three Months Ended August 29, 2025 compared to the Three Months Ended August 30, 2024

Current wording

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

Previous wording

For the three months ended August 29, 2025, revenue decreased by $2.2 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 $9.5 million, partially offset by an increase in systems revenue of $6.7 million and an increase in service revenue of $0.6 million.

Current wording

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.

Previous wording

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 August 29, 2025, compared to the same period in the prior year, revenue decreased in Asia 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.

Current wording

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.

Previous wording

Gross profit decreased by $3.4 million for the three months ended August 29, 2025, compared to the same period in the prior year, primarily due to lower revenue levels. Gross margin decreased by 20.1 percentage points primarily due to a change in product mix, higher assembly and warranty costs, increased tariffs on imported parts following recent government policy changes, and amortization of acquired intangible assets.

Current wording

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.

Previous wording

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 $0.5 million for the three months ended August 29, 2025, compared to the same period in the prior year. The increase was primarily driven by higher employment-related costs, including stock-based compensation, which resulted from increased headcount.

Current wording

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.

Previous wording

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 ended August 29, 2025, compared to the same period in the prior year, as higher stock-based compensation was partially offset by lower legal fees.

Current wording

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.

Previous wording

Restructuring charges incurred for the three months ended August 29, 2025 primarily related to a workforce reduction implemented to better align our resources with our business needs. For further explanation of our restructuring charges, see Note 10, Restructuring Charges, in Notes to Condensed Consolidated Financial Statements.

Current wording

For further explanation of our restructuring charges, see Note 10, Restructuring Charges, in Notes to Condensed Consolidated Financial Statements.

Previous wording

Interest and Other Income (Expense), Net

Current wording

Interest and Other Income, Net

Previous wording

Interest and other income (expense), 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 $0.5 million for the three months ended August 29, 2025, compared to the same period 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. Other income (expense), net, increased by $1.1 million for the three months ended August 29, 2025, 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 three months ended August 29, 2025. For further explanation of the ERC, see Note 11, Employee Retention Credit, in Notes to Condensed Consolidated Financial Statements.

Current wording

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.

Previous wording

For the three months ended August 29, 2025, the Company recognized $0.8 million income tax benefit, primarily driven by year-to-date losses in the United States. For the three months ended August 30, 2024, income tax expense was primarily due to taxable income in the United States and in profitable foreign subsidiaries.

Current wording

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.

Previous wording

Cash, cash equivalents, and restricted cash were $24.7 million as of August 29, 2025, compared to $40.8 million as of August 30, 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.

Current wording

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.

Previous wording

Net Cash Flows Provided by (Used in) Operating Activities

Current wording

Net Cash Flows Used in Operating Activities

Previous wording

The $2.7 million decrease in cash flows from operating activities for the three months ended August 29, 2025, compared to the same period in the prior year, was driven primarily by a lower income (loss) before income tax (benefit), a decrease in cash provided by deferred revenue due to timing of customer deposits and revenue recognition, an increase in cash used to pay down accounts payable, and a decrease in cash provided by collection of accounts receivable due to the lower revenue, partially offset by a decrease in cash used in inventory purchase due to anticipated lower customer demand, a decrease in cash used in prepaid expenses and higher non-cash charges including stock-based compensation expense and depreciation and amortization.

Current wording

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.

Previous wording

Net cash used in investing activities decreased by $9.4 million for the three months ended August 29, 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 three months ended August 30, 2024, partially offset by a $1.2 million increase in cash spending on property and equipment, primarily related to office renovation.

Current wording

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.