10-Q: Aehr Test Systems Reports Q2 Loss Amid EV Slowdown

Aehr Test Systems reported a significant net loss and revenue decline for the second quarter and first half of fiscal 2026, primarily due to softness in electric vehicle demand, despite strong growth in AI-related system sales.

Summary

• Revenue for the three months ended November 28, 2025, decreased by 27% to $9.884 million, compared to $13.453 million in the prior year period.
• Net loss for the three months ended November 28, 2025, was $(3.230) million, or $(0.11) per basic and diluted share, a significant increase from $(1.028) million, or $(0.03) per share, in the prior year.
• For the six months ended November 28, 2025, revenue decreased by 22% to $20.853 million, down from $26.572 million in the prior year.
• Net loss for the six months ended November 28, 2025, was $(5.314) million, or $(0.18) per basic and diluted share, compared to $(368) thousand, or $(0.01) per share, in the prior year.
• Gross profit for the three and six months ended November 28, 2025, decreased by 53% and 50% respectively, with gross margin falling to 25.7% and 30.0% from 40.1% and 47.0% in the prior year periods.
• The decline in revenue was primarily driven by lower shipments of contactors due to ongoing softness in demand for electric vehicles, which saw contactors revenue decrease by $14.6 million for the six-month period.
• This was partially offset by an increase in systems revenue of $8.3 million for the six-month period, reflecting increased demand from customers in AI-related applications and other markets.
• Cash and cash equivalents increased to $30.835 million as of November 28, 2025, from $24.529 million as of May 30, 2025.
• Net cash provided by financing activities increased significantly to $9.619 million for the six months ended November 28, 2025, primarily due to $9.4 million net proceeds from a common stock public offering.
• The company recognized an income tax benefit of $1.214 million and $1.966 million for the three and six months ended November 28, 2025, respectively, primarily due to quarter-to-date and year-to-date losses in the United States.
• Restructuring charges resulted in a net credit of $0.213 million for the three months ended November 28, 2025, due to an early lease termination agreement, partially offsetting prior workforce reduction costs.
• An Employee Retention Credit (ERC) refund of approximately $1.3 million, net of a $0.3 million service fee, was recognized as other income during the six months ended November 28, 2025.

Sentiment

Score: 4

Explanation: The company experienced significant declines in revenue and gross profit, leading to a widened net loss, primarily due to softness in the EV market. While there's strong growth in AI-related systems and an improved cash position from a capital raise, the overall financial performance for the period is poor, and ongoing IP litigation in China adds uncertainty. The strategic positioning in AI is a long-term positive, but current results are concerning.

Positives

• Systems revenue increased by $8.3 million for the six months ended November 28, 2025, driven by increased demand from customers in AI-related applications and other markets.
• Revenue from Europe and Middle East significantly increased to $4.006 million for the six months ended November 28, 2025, from $185 thousand in the prior year, reflecting demand outside the electric vehicle market.
• Revenue from the United States increased to $6.754 million for the six months ended November 28, 2025, from $3.984 million in the prior year, also driven by demand outside the electric vehicle market.
• Net cash used in operating activities improved by $2.040 million for the six months ended November 28, 2025, compared to the prior year, driven by decreases in prepayments and unbilled receivables, and lower inventory cash outflows.
• Net cash provided by financing activities increased by $9.131 million, primarily due to $9.4 million in net proceeds from a public offering of common stock.
• Cash and cash equivalents increased by $6.306 million from May 30, 2025, to November 28, 2025, strengthening liquidity.
• Shareholder class action and derivative lawsuits alleging misleading statements and breaches of fiduciary duties were voluntarily dismissed or dismissed without prejudice, resolving significant legal overhangs.
• Shareholders approved an increase of 2.5 million shares for the 2023 Equity Incentive Plan and 300,000 shares for the 2006 Employee Stock Purchase Plan, providing flexibility for employee compensation and retention.

Negatives

• Total revenue decreased by 27% for the three months and 22% for the six months ended November 28, 2025, compared to the prior year periods.
• Net loss significantly widened to $(3.230) million for the three months and $(5.314) million for the six months ended November 28, 2025, compared to smaller losses in the prior year periods.
• Gross profit decreased by 53% for the three months and 50% for the six months, with gross margin declining by 14.4 and 17.0 percentage points, respectively, due to lower revenue, overhead absorption, product mix, and higher costs.
• Contactors revenue decreased by $5.1 million for the three months and $14.6 million for the six months, primarily due to ongoing softness in demand for electric vehicles.
• Revenue from Asia decreased by 22% for the three months and 55% for the six months, largely due to the softness in electric vehicle demand.
• Research and development expenses increased by 31% for the three months and 26% for the six months, primarily due to higher employment-related costs and project expenses, contributing to the operating loss.
• The company's intellectual property infringement claims against Suzhou Semight Instruments Co., Ltd. were dismissed by the Suzhou Intermediate Peoples Court in December 2025, requiring an appeal.

Risks

• The company is subject to concentrations of credit risk with individual customers, with Customer A accounting for 58.8% of three-month revenue and 56.8% of gross accounts receivable as of November 28, 2025.
• The ongoing softness in demand for electric vehicles significantly impacts contactor revenue, which could continue to affect overall financial performance.
• The outcome of the intellectual property litigation in China is uncertain, and the company is unable to predict the likelihood of success or estimate the potential financial impact, despite filing appeals.
• The company's warranty obligation is affected by product failure rates, material usage, and service delivery costs, and actual costs differing from estimates could require revisions to the warranty liability.
• The semiconductor industry is subject to rapid technological advancements and market shifts, requiring continuous investment in R&D and adaptation to new demands like AI and electrification.
• Higher tariffs on imported parts following recent government policy changes contributed to decreased gross margin for the six months ended November 28, 2025, indicating ongoing trade policy risks.

Future Outlook

The company anticipates continued growth in semiconductor demand driven by generative artificial intelligence (AI) and the accelerating electrification of transportation and global infrastructure. These macro-trends are expected to increase performance, reliability, safety, and security requirements for semiconductor devices, driving the need for comprehensive test and burn-in solutions. The company's FOX-P systems and Incal product lines are positioned to address these evolving market needs, particularly for AI accelerators, GPUs, HPC processors, and high-power devices.

Management Comments

• 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.
• 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 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.

Industry Context

The semiconductor industry is experiencing a dual trend: a slowdown in certain segments like electric vehicles, which negatively impacted Aehr's contactor sales, and robust growth in emerging areas such as generative AI and high-performance computing. Aehr's strategic focus on advanced wafer-level and package-level burn-in systems, particularly its Sonoma line for ultra-high-power burn-in testing, positions it to capitalize on the increasing reliability and performance demands of AI accelerators and other mission-critical applications. The company's mixed results reflect this industry bifurcation, with strong systems growth in AI-related applications partially offsetting the EV-driven decline.

Comparison to Industry Standards

• NA

Corporate Governance

Legal Proceedings

• A putative shareholder class action lawsuit (Lucid Alternative Fund, LP v. Aehr Test Systems, Inc.) alleging materially false and misleading statements regarding earnings guidance was voluntarily dismissed by the lead plaintiff on May 16, 2025.
• Two shareholder derivative complaints alleging breaches of fiduciary duties were consolidated and subsequently dismissed without prejudice on June 9, 2025.
• The company filed a complaint on October 16, 2024, with the China Suzhou Intermediate Court against Suzhou Semight Instruments Co., Ltd. for infringement of two patents related to wafer burn-in and reliability test systems, seeking injunctive relief and damage compensation.
• Suzhou Semight Instruments Co., Ltd. filed petitions for invalidation against the two Chinese patents on November 15 and December 6, 2024; decisions upheld part of the claims, and infringement proceedings resumed.
• In December 2025, the Suzhou Intermediate Peoples Court issued a first-instance judgment dismissing the company's IP infringement claims due to insufficient evidence, which the company appealed on January 4, 2026.

Stakeholder Impact

• Shareholders: Experienced significant net losses and diluted earnings per share, but also saw an increase in cash from a public offering and the resolution of shareholder lawsuits. The ongoing IP litigation in China presents a risk.
• Employees: Workforce reduction implemented in the prior quarter, but increased share reserves for equity incentive plans could benefit employee compensation and retention.
• Customers: Continued product development (e.g., FOX-CP system) and expanded product portfolio (Incal acquisition) aim to meet evolving needs in AI and electrification, but softness in EV demand impacts certain customer segments.
• Suppliers: Purchase obligations to certain suppliers, with some products being unique and having non-cancellation provisions, indicating ongoing commitments.
• Creditors: Improved cash position from financing activities strengthens the company's liquidity and ability to meet short-term obligations.

Next Steps

• Continue to vigorously pursue legal remedies in the intellectual property infringement cases in China by appealing the first-instance judgment received in December 2025.
• Evaluate the effect of new accounting pronouncements (ASU 2023-09, ASU 2024-03, ASU 2025-05) on future disclosures and financial statements.
• Monitor and manage the remaining $30.0 million available under the ATM offering program for potential future capital raises.

Key Dates

Recommendation

Aehr Test Systems reported significantly weaker financial results for the quarter and six months, with substantial declines in revenue and gross profit, and a widened net loss. This was primarily driven by a slowdown in the electric vehicle market, impacting contactor sales. However, the company demonstrated strong growth in its systems revenue, particularly in AI-related applications, indicating strategic positioning in a high-growth sector. The successful dismissal of shareholder class action and derivative lawsuits removes a legal overhang, and a recent capital raise has bolstered the company's cash position. The ongoing IP litigation in China, with an initial unfavorable ruling, introduces new uncertainty. Given the mixed signals of poor current financial performance offset by strategic market alignment, improved liquidity, and resolved domestic legal issues, a 'Hold' recommendation is appropriate. Investors should monitor the progress in AI-related sales, the resolution of the China IP litigation, and any recovery in the EV market.

Keywords

semiconductor test equipment, burn-in systems, wafer contactor, AI accelerators, electric vehicles, silicon carbide, FOX-P systems, Incal Technology, semiconductor reliability, Q2 earnings, 10-Q filing