FORM — FormFactor, Inc.

Summary of FormFactor's Q4 2025 Earnings Call

1. Key Financial Results and Metrics

• Q4 2025 Revenue: $215.2 million, at the high end of guidance ($205 million to $215 million).
• GAAP Gross Margin: 42.2%, up from 39.8% in Q3; Non-GAAP Gross Margin: 43.9%, a 290 basis points increase from 41% in Q3.
• GAAP Net Income: $23.2 million ($0.29 per diluted share), up from $15.7 million ($0.20 per diluted share) in Q3.
• Non-GAAP Net Income: $36.6 million ($0.46 per diluted share), up from $25.7 million ($0.33 per diluted share) in Q3.
• Free Cash Flow: $34.7 million, compared to $19.7 million in Q3.
• Operating Expenses: $67.3 million, down 340 basis points year-over-year as a percentage of revenue.

2. Strategic Updates and Business Highlights

• Gross Margin Improvement: Achieved a cumulative improvement of 540 basis points in gross margins over the past two quarters, with expectations for an additional 110 basis points in Q1 2026.
• Capacity Expansion: The Farmers Branch site is expected to come online later in 2026, providing increased capacity at lower costs.
• Market Position: Strong demand in DRAM, particularly in HBM applications, with expectations for continued growth driven by increased test intensity and complexity.
• Acquisition: Acquired Keystone Photonics to enhance optical test capabilities, aligning with growth in co-packaged optics and quantum computing.

3. Forward Guidance and Outlook

• Q1 2026 Revenue Guidance: Expected to be $225 million +/- $5 million.
• Gross Margin Guidance: Anticipated to be 45% +/- 150 basis points, with a 200 basis point impact from tariffs.
• Long-term Goals: Target model gross margins of 47% at an $850 million annual run rate, excluding tariff impacts.

4. Bad News, Challenges, or Points of Concern

• Tariff Impact: Continued 200 basis point headwind from tariffs, with ongoing efforts to mitigate this through customs drawbacks.
• Market Dynamics: The company is navigating a competitive landscape with peers also seeking to expand capacity, which could impact market share gains.
• Operational Challenges: While gross margin improvements have been strong, future improvements may occur at a slower pace, and the company faces uncertainty regarding customer demand fluctuations.

5. Notable Q&A Insights

• Gross Margin Drivers: Management highlighted that the recent gross margin improvements are primarily due to operational efficiencies rather than pricing strategies.
• DRAM Market Growth: Strong expectations for DRAM growth, particularly in HBM applications, with significant opportunities for market share gains at major customers.
• GPU and Custom ASIC Qualification: Progress in qualifying GPU probe cards is ongoing, with revenues expected in the second half of 2026. The custom ASIC segment is already generating multimillion-dollar revenues.
• Capacity Constraints: Management expressed confidence in meeting customer demand but acknowledged that the current manufacturing facility is nearing its output ceiling until the Farmers Branch site is operational.

This summary encapsulates FormFactor's strong performance in Q4 2025, strategic initiatives for growth, and the challenges ahead as they navigate market dynamics and operational improvements.