FormFactor, Inc. (FORM) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary suggests positive sentiment with projections of revenue growth, gross margin expansion, and strategic partnerships. The Q&A section reveals operational improvements, strategic focus on CPO, and optimism for future growth despite some constraints. The Farmers Branch expansion and Advantest partnership add further potential. Overall, the company's strong financial performance and optimistic guidance, along with strategic initiatives, indicate a positive stock price movement.
Key Financial Performance
Revenue Q1 '26 revenues of $226.1 million, up $1.1 million above the midpoint of the Q1 '26 outlook range of $220 million to $230 million. This represents record quarterly revenue, driven by increased demand in probe cards for networking applications and DRAM probe cards.
Non-GAAP Gross Margins Improved by 500 basis points from Q4 '25 to 49%, exceeding the midpoint of the Q1 '26 outlook by 400 basis points. This improvement was driven by operational improvements, higher volumes, and cost-saving measures.
GAAP Gross Margins 38.4% in Q1 '26, down 380 basis points from 42.2% in Q4 '25. The decrease was due to restructuring-related costs of $21.5 million.
Non-GAAP Net Income $44.5 million in Q1 '26, up from $36.6 million in Q4 '25. This increase was driven by higher gross margins and operational improvements.
GAAP Net Income $20.4 million in Q1 '26, down from $23.2 million in Q4 '25. The decrease was driven by restructuring-related costs, net of tax, of $17.6 million.
Free Cash Flow $30.7 million in Q1 '26, down from $34.7 million in Q4 '25. The decrease was driven by higher capital expenditures and restructuring-related cash payments.
Cash and Investments $303 million at the end of Q1 '26, up $28.1 million from the previous quarter. This increase was driven by operational cash flow and disciplined spending.
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Operating Highlights
Probe cards for networking applications: First-quarter growth in probe cards for networking applications caused a leader in high-performance compute to become a 10% customer for the first time. Continued growth is expected in Foundry & Logic probe-card revenue, driven by Data Center CPU applications and networking.
SmartMatrix full-wafer contactor technology: Incremental growth in DRAM probe cards is driven by increased adoption of SmartMatrix technology, enabling testing of HBM stacks at high speeds.
Flatiron dilution refrigerator: Introduced a new benchtop millikelvin platform to simplify quantum device development and validation.
Triton production-test system: Ramping production for co-packaged optics applications, with expected 2026 revenues at the high end of $10 million to $20 million.
High-performance compute and advanced packaging: Leadership position in these areas is driving growth, with significant contributions from probe cards for high-bandwidth memory and newer foundry and logic opportunities.
Data Center CPU applications: Growth in Foundry & Logic probe-card revenue is linked to increasing CPU compute intensity in AI-inference use cases.
Co-packaged optics (CPO): Accelerating ramp of Triton system for CPO, driven by growing volumes of CPO chips and leadership in test insertion processes.
Gross margin improvements: Achieved 47% non-GAAP gross margins at $850 million annual revenue run-rate through operational effectiveness and financial discipline.
Farmers Branch site expansion: Expected to come online later this year, providing increased capacity and lower costs for future revenue growth and gross margin expansion.
Manufacturing efficiency: Improved yields, reduced cycle times, and better workforce deployment have driven significant operational improvements.
Diversification strategy: Positioned to capitalize on unexpected demand for CPU probe cards and building market share with major customers.
Silicon photonics and co-packaged optics: Integration of Keystone Photonics acquisition to define a leading roadmap in electro-optical probe cards.
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Risk or Challenges
Macroeconomic and Geopolitical Conditions: The company acknowledges potential risks from macroeconomic and geopolitical conditions, which could impact financial and business performance.
Regulatory Changes and Tariffs: The company faces challenges from regulatory changes, including tariffs. Although some relief was noted, tariffs continue to adversely impact gross margins, with potential future uncertainties around recoverable amounts.
Supply Constraints in DRAM: The DRAM market remains supply-constrained, leading to dynamic shifts in wafer-start mixes, which could impact the company's ability to meet demand effectively.
Operational Footprint Limitations: The company is nearing the limitations of its current operational footprint, which could moderate profitability improvements until the Farmers Branch site comes online.
Farmers Branch Expansion Risks: The success of the Farmers Branch site expansion is critical for future growth and gross margin improvements. Delays or budget overruns could adversely impact the company's strategic objectives.
Product Mix and Volume Shifts: Shifts in product mix and volumes could impact gross margins, requiring ongoing operational focus and discipline to sustain profitability.
Seasonal Demand Variability: The Systems segment experienced seasonal reductions in demand, which could pose challenges in maintaining consistent revenue streams.
Customer-Driven Priority Changes: Changes in customer-driven priorities within quarters have caused timing-related impacts on financial performance, which may introduce variability in results.
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Guidance & Outlook
Revenue Expectations: The company expects to set a revenue record in the second quarter of 2026, driven by growth in DRAM probe cards, Foundry & Logic probe cards, and Systems segment. Q2 revenues are projected to be $240 million, plus or minus $5 million.
Gross Margin Projections: Non-GAAP gross margins for Q2 2026 are expected to be 49.5%, plus or minus 150 basis points. The company anticipates further gross margin expansion with the ramp-up of the Farmers Branch site in 2027.
Capital Expenditures: Cash CapEx for the Farmers Branch site is expected to be between $140 million and $170 million in 2026. Pre-production ramp costs and G&A will be between $20 million and $25 million.
Market Trends and Segment Performance: The company anticipates continued growth in DRAM probe cards, driven by increased demand for HBM applications and SmartMatrix technology. Foundry & Logic probe-card revenue is expected to grow, supported by demand in Data Center CPU applications, networking, PC, and mobile. Systems segment revenue is projected to accelerate, with 2026 CPO revenues expected at the high end of the $10 million to $20 million range.
Operational Changes: The Farmers Branch site is expected to come online later in 2026, providing increased capacity and structurally lower costs, enabling future revenue growth and gross margin expansion.
Strategic Plans: The company plans to introduce a new target financial model and strategic priorities at the May 11, 2026, Investor Day. This includes long-term growth opportunities and operational initiatives.
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Shareholder Return Plan
Share Repurchase Program: During the first quarter, we did not repurchase any shares. At quarter end, authorization of $70.9 million remains available for future repurchases under the $75 million 2-year buyback program that was approved and announced in 2025. We are committed to our share repurchase program as a tool to offset dilution from stock-based compensation over the 2-year period of the program. In the short term, we have prioritized our deployment of cash to accelerate the ramp of our new manufacturing site in Farmers Branch.
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Key Q&A
Q:Why does the company break out NVIDIA as a 10% customer separately instead of rolling it under TSMC?
A:The company reports customers crossing the 10% threshold based on who places the purchase order and pays the invoice. NVIDIA is associated with networking, and the company is making progress on GPU qualification, expecting $20 million in revenue in the second half.
Q:How much of the near-term growth is driven by NIC or ASP relative to units, given the constraints?
A:The gross margin improvement to 49% is primarily due to cost reductions in COGS, not pricing or ASP. Some customers pay expedite fees, but pricing is not a major driver. The operations team has improved yields and cycle times to optimize within constraints.
Q:Can you provide more detail on the drivers of the 510 basis point gross margin increase quarter-over-quarter?
A:Approximately 400 basis points were driven by durable and transitory items. Durable improvements include faster savings from restructuring actions (100 basis points) and lower tariff rates (100 basis points). Transitory improvements relate to timing and prioritization of certain products, which are not expected to persist.
Q:What is the breakout of the foundry logic business and the company's ability to service CPU demand given supply constraints?
A:The company does not break down foundry and logic quantitatively. CPU demand increased as expected, and the company is running at high utilization. Operations have improved efficiency, and active dialogues with customers help manage demand despite capacity constraints.
Q:Will the main IDM customer return to more than 10% of revenues later this year, and what is the recovery profile?
A:The IDM customer was not a 10% customer in Q4 or Q1 but may approach that threshold in Q2. While CPU demand is improving, the company does not expect revenues to return to 2022 highs but is optimistic about future growth as the customer executes its turnaround plan.
Q:Are revenues capped near $240 million until the new facility ramps later this year?
A:The company has been incrementally increasing output through efficiency improvements and believes there is still room for further optimization. However, significant revenue increases beyond $240 million may require the new facility's capacity.
Q:How much of the current operational improvements will be leveraged into the new Farmers Branch facility?
A:The company intends to leverage all current operational improvements, including better cycle times and yields, into the new facility. The new tools and consolidated site are expected to enhance these gains further.
Q:What is the seasonality and future revenue potential of the networking business?
A:The networking business has some seasonality, with first-half strength and second-half softness. However, strong demand and active customer dialogues may offset seasonality, providing additional opportunities.
Q:What is the impact of low-power DDR on the legacy DRAM market and the company's business?
A:Low-power DDR could extend the life of legacy DRAM formats, potentially filling in seasonal gaps. However, probe card demand depends on new design releases and ramps, making the impact dynamic and design-specific.
Q:What is the target revenue capacity for the Farmers Branch facility, and when will it impact revenues?
A:The initial target capacity is roughly equivalent to the existing California footprint (about 60% of the current probe card business). Production will start at the end of this year, with a ramp over 2027.
Q:What is the progress and timeframe for monetizing the Advantest partnership?
A:The partnership is most prominent with CPO and the Triton system. The company views the test ecosystem as open and collaborates with various suppliers, including Advantest and Teradyne, to solve customer problems. Specific monetization timelines were not provided.
Q:What is the company's focus and revenue potential for CPO insertion points?
A:The company is focused on insertion one, which involves optical probing of the PIC. This foundational technology can be applied to other insertions. The company will provide more details on CPO revenue potential at its Investor Day.
Q:What is driving HBM probe card revenue growth in Q2, and what is the long-term outlook?
A:HBM revenue growth in Q2 is driven by a second customer adopting Smart Matrix technology for at-speed stack tests. The company aims to be a leading supplier to all three DRAM manufacturers and has grown its HBM business by over 50% year-over-year.
Q:What is the company's strategy for CPO partnerships beyond insertion one?
A:The company focuses on an open ecosystem and is open to collaborating with partners like Teradyne for other CPO insertions. However, the primary focus remains on insertion one due to its foundational importance.
Q:Review of Unclear Management Responses
A:Management avoided providing specific quantitative details on the breakout of the foundry logic business, the exact revenue potential for CPO, and the monetization timeline for the Advantest partnership. Additionally, they did not clarify the exact capacity constraints or provide a detailed recovery profile for the IDM customer.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI inference
ASIC
CPU probe
Center CPU
DRAM probe
Farmers Branch
FormFactor model
Foundry Logic
HBM DDR
HBM stack
Insertion
Investor Day
Logic probe
PIC
SmartMatrix
card networking
design win
development
die
engagement
focus
foundation
foundry
intersection
networking application
packaging process
parallelism
process TSMC
record
result model
share gain
silicon photonics
test insertion
volatility
wafer
world
FORM Transcript
FormFactor, Inc. (FORM) Q1 2026 Earnings Call Transcript
Positive5-4
The earnings call summary suggests positive sentiment with projections of revenue growth, gross margin expansion, and strategic partnerships. The Q&A section reveals operational improvements, strategic focus on CPO, and optimism for future growth despite some constraints. The Farmers Branch expansion and Advantest partnership add further potential. Overall, the company's strong financial performance and optimistic guidance, along with strategic initiatives, indicate a positive stock price movement.
FormFactor, Inc. (FORM) Q4 2025 Earnings Call Transcript
Positive2-4
The earnings call summary indicates strong financial performance, optimistic guidance, and strategic investments in growth areas like AI and data centers. Despite tariff headwinds, the company is focused on sustainable cost improvements and capacity expansion. Management's confidence in meeting demand and the potential for market share gains in the DRAM and AI markets further support a positive outlook. Given the company's market cap and the positive catalysts, a stock price increase of 2% to 8% is expected over the next two weeks.
FormFactor, Inc. (FORM) Q3 2025 Earnings Call Transcript
Positive10-29
The earnings call summary and Q&A indicate a positive outlook. Strong growth is expected in HBM and DRAM, with significant revenue contributions from custom ASICs and networking silicon. Gross margins are improving, and the Farmers Branch facility will enhance future margins. Despite some uncertainties, such as the impact of CPU and GPU ramps, the overall sentiment is optimistic. The market cap suggests a moderate reaction, leading to a likely positive stock price movement in the next two weeks.
FormFactor, Inc. (FORM) Q2 2025 Earnings Call Transcript
Unknown7-30
The earnings call reveals mixed signals: while there is strong revenue growth and optimistic guidance, challenges like negative free cash flow, tariff impacts, and margin pressures persist. The Q&A highlights management's focus on long-term growth in AI and semiconductor sectors, but also exposes uncertainties in market trends and gross margins. The market cap suggests moderate volatility, leading to a neutral prediction for stock price movement.
FORM Slides
FORM Report
Frequently Asked Questions
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