FORM — FormFactor, Inc.

Summary of FormFactor Q1 2026 Earnings Call

1. Key Financial Results and Metrics

• Revenue: Q1 2026 revenue reached $226.1 million, exceeding the midpoint of the guidance range ($220 million to $230 million).
• Gross Margin: GAAP gross margin was 38.4%, down from 42.2% in Q4 2025. Non-GAAP gross margin improved to 49%, up 510 basis points from Q4 2025.
• Net Income: GAAP net income was $20.4 million ($0.26 per diluted share), down from $23.2 million ($0.29 per diluted share) in Q4 2025. Non-GAAP net income rose to $44.5 million ($0.56 per diluted share), up from $36.6 million ($0.46 per diluted share) in the previous quarter.
• Free Cash Flow: Generated $30.7 million, down from $34.7 million in Q4 2025, attributed to increased capital expenditures and restructuring costs.
• Cash Position: Cash and investments increased to $303 million, with no share repurchases during the quarter.

2. Strategic Updates and Business Highlights

• Market Position: FormFactor continues to benefit from strong demand in high-performance compute and advanced packaging, particularly in DRAM probe cards for high bandwidth memory (HBM) and networking applications.
• Customer Expansion: A notable customer, NVIDIA, became a 10% customer, contributing to revenue growth. The company is also expanding relationships with other major customers in various segments.
• Operational Improvements: Significant enhancements in manufacturing efficiency, cycle times, and yield have contributed to gross margin improvements. The Farmers Branch facility is on track to come online later in 2026, expected to provide increased capacity and lower costs.
• Systems Segment: The company is focusing on co-package optics (CPO) and quantum computing, with expected revenues from CPO projected to be at the high end of the $10 million to $20 million range for 2026.

3. Forward Guidance and Outlook

• Q2 2026 Guidance: Projected revenue of $240 million (±$5 million) and non-GAAP gross margin of 49.5% (±150 basis points). Non-GAAP earnings per share expected at $0.61 (±$0.04).
• Long-term Growth: The company plans to share a new target financial model at the upcoming Investor Day on May 11, 2026, which will outline strategic priorities and growth opportunities.

4. Challenges and Points of Concern

• Gross Margin Decline: The GAAP gross margin decreased from the previous quarter, indicating potential challenges in maintaining profitability amidst operational costs.
• Tariff Impact: Ongoing tariffs continue to affect gross margins, with approximately 140 basis points of adverse impact expected in Q2. The company is monitoring potential recoveries from previously paid tariffs.
• Capacity Constraints: Current production capacity limits growth until the Farmers Branch facility is operational, which may cap revenue near the projected $240 million level until ramp-up occurs.

5. Notable Q&A Insights

• Customer Dynamics: The company clarified that the identification of customers crossing the 10% revenue threshold is based on purchase orders and invoicing, which may lead to fluctuations in reported customer contributions.
• Operational Constraints: Management acknowledged that while they are optimizing existing capacity, significant growth will depend on the new facility coming online.
• Market Trends: There is a noted shift in customer demand towards low-power DDR designs, which could extend the life of legacy DRAM markets, though the impact on probe card demand remains uncertain.
• Future Revenue Potential: Management expressed optimism about sustaining growth and profitability, citing ongoing operational improvements and strong demand across various segments.

Overall, FormFactor's Q1 2026 results reflect strong operational execution and strategic positioning in the semiconductor market, despite facing challenges related to capacity and tariffs.