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 guidance ($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.
• Net Income: GAAP net income was $20.4 million ($0.26 per share), down from $23.2 million ($0.29 per share) in Q4. Non-GAAP net income rose to $44.5 million ($0.56 per share), up from $36.6 million ($0.46 per share) in Q4.
• Free Cash Flow: Generated $30.7 million, down from $34.7 million in Q4 due to higher capital expenditures and restructuring costs.
• Cash and Investments: Increased to $303 million, up by $28.1 million.

2. Strategic Updates and Business Highlights

• Record Revenue Growth: Achieved record revenue in probe cards, particularly in high bandwidth memory (HBM) and networking applications.
• Customer Expansion: A new customer (NVIDIA) became a 10% customer, contributing to probe card sales, especially in networking.
• Operational Improvements: Significant enhancements in manufacturing efficiency, yielding a cumulative gross margin improvement of over 1,000 basis points over the last three quarters.
• Farmers Branch Expansion: The new manufacturing site is on track to begin operations by the end of 2026, expected to enhance capacity and reduce costs.
• CPO and Quantum Initiatives: Continued focus on co-packaged optics (CPO) and quantum computing, with expected revenues in 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) with non-GAAP gross margin expected to be 49.5% (±150 basis points).
• Long-term Growth: Anticipated continued improvements in gross margins and operational efficiency, with a focus on sustainable financial results.
• Investor Day: A new target financial model and strategic priorities will be presented on May 11, 2026.

4. Bad News, Challenges, or Points of Concern

• Declining GAAP Margins: GAAP gross margins decreased from the previous quarter, indicating potential volatility in profitability.
• Tariff Headwinds: Continued adverse impacts from tariffs, although recent changes have provided some relief. The company has assumed around 140 basis points of tariffs in Q2 guidance.
• Capacity Constraints: Current operational limitations may cap near-term growth until the Farmers Branch site becomes operational, potentially limiting revenue growth to the projected $240 million level until late 2026.
• Market Volatility: The semiconductor industry remains subject to macroeconomic and geopolitical uncertainties, which could impact demand.

5. Notable Q&A Insights

• Customer Dynamics: The distinction between customers and their contributions to revenue was clarified, with NVIDIA's role as a new significant customer highlighted.
• Operational Efficiency: Management emphasized that gross margin improvements were primarily driven by cost reductions rather than ASP increases, indicating a focus on operational excellence.
• Future Capacity: The Farmers Branch facility is expected to significantly enhance capacity, but the ramp-up will take time, with initial production beginning at the end of 2026.
• CPO Revenue Potential: The company is focused on insertion 1 for CPO, which is seen as foundational for future growth, with expectations for revenue growth in this segment discussed for 2027.

Overall, FormFactor reported strong financial results for Q1 2026, driven by operational improvements and strategic customer expansions, while also highlighting challenges related to tariffs and capacity constraints. The upcoming Investor Day is anticipated to provide further clarity on long-term growth strategies.