FormFactor Inc. 2026 Q3 Earnings Call

Thank you. Today, the company will be discussing GAAP P&L results and some important non-GAAP results intended to supplement your understanding of the company's financials. Reconciliations of GAAP to non-GAAP measures and other financial information are available in the press release issued today by the company and on the investor relations section of our website. Today's discussion contains forward-looking statements within the meaning of the federal securities laws. Examples of such forward-looking statements include those with respect to the projections of financial and business performance, future macroeconomic and geopolitical conditions, the benefits of acquisitions and investments, including the ramp-up of manufacturing facilities, anticipated industry trends, potential disruptions in our supply chain, the impacts of regulatory changes, including tariffs and changes in export controls, the anticipated volatility in demand for products, our ability to develop, produce, and sell products, and the assumptions upon which such statements are based.

These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed during this call. Information on risk factors and uncertainties is contained in our most recent filing on Form 10-K with the SEC for the fiscal year ended December 27, 2025, and in our other SEC filings which are available on the SEC's website at www.sec.gov, and in our press release issued today. Forward-looking statements are made as of today, October 28, 2026, and we assume no obligation to update them. With that, we will now turn the call over to FormFactor CEO, Mike Slessor.

Thanks for joining us today. During the third quarter, FormFactor again grew revenue, gross margin, and earnings per share, with each metric exceeding the high end of our outlook range. These results continue a theme you've seen from us for the past year, namely broad-based growth and demand from our diversified leadership position at the intersection of high-performance compute and advanced packaging, and our ability to serve this demand by producing more output from our existing manufacturing footprint. On a year-over-year basis, we grew quarterly revenue close to 40%, within essentially the same manufacturing footprint. Our fourth-quarter outlook extends this trend. Although we are now reaching the limits of our ability to extract more output from our existing manufacturing footprint, we're also bringing our new Farmers Branch factory online.

We recently qualified the assembly and test portion of this new facility, and only a few days ago, shipped the first production unit to a leading customer. We celebrated these milestones last week together with almost 200 customers, suppliers, partners, employees, and government officials at a ribbon-cutting event that formally launched our nearly 300,000 square foot facility. Over the course of 2027, our top priority is the ramp-up of Farmers Branch. We will ramp as quickly as we can while ensuring we both sustain the efficiency improvements we have demonstrated in the last year and maintain the market-leading product quality that is one of FormFactor's foundational competitive advantages. Aric will provide more details on the status and plans for Farmers Branch later in the call. Earlier this month, we announced the expansion of our longstanding partnership with Teradyne, one of the world's leading automated test equipment, or ATE, suppliers.

Together with our multiyear partnership with Advantest, this announcement formalizes the collaboration and partnership between FormFactor and both market-leading ATE suppliers. The goal of these collaborations is to speed up the development, validation, and high-volume production of next-generation semiconductor applications, enabling high-performance compute, like high-bandwidth memory and co-packaged optics. These partnerships also reinforce and solidify the open ecosystem market structure that provides our mutual customers with full probe card ATE interoperability, enabling customers to select the optimum probe card and ATE combination for their specific chip architectures and designs. Turning now to segment and market details. Foundry & Logic was one of the key drivers of our third quarter growth, increasing 10% sequentially on the expected broad-based strength across multiple applications. We expect continued demand growth and breadth in the current fourth quarter.

In this market, we are building on our established positions in PCs, mobile, data center CPUs, and networking, while adding new growth vectors like GPUs and hyperscaler custom ASICs. Specifically, during the third quarter, we shipped probe cards to the world's leading foundry for a single GPU design in multimillion-dollar volumes. Building on this successful qualification and initial ramp, we are well-positioned to meaningfully grow share in this important part of the Foundry & Logic market in 2027, with Farmers Branch providing the required capacity.

Looking ahead in Foundry & Logic, the accelerating trends of higher speed interfaces, greater power density, and increasingly complex advanced packaging chiplet architectures for next generation GPUs and custom ASICs are increasing probe card performance requirements. These higher performance requirements make FormFactor's advanced MEMS probe technology a requirement for cost-effective production test, and we are building the foundation to achieve share gains in 2027 across a diverse set of GPU and custom ASIC designs. Our exposure to multiple customers and applications provides us with several ways to participate in the growth of high-performance compute and shows the benefits of our diversification strategy, reducing reliance on any single customer, program, or architecture to drive our revenue and growth. Turning to DRAM probe cards, third quarter revenue was, as expected, essentially unchanged from the record levels of the second quarter, but the mix shifted significantly.

This mix shift was also expected, with HBM revenue declining and DDR5 revenue increasing as our customers moved their wafer start mix to more DDR designs to capture the profit opportunity provided by significant DDR market price increases. Since probe cards are specific to each customer chip design, our DRAM probe card mix tracks these dynamic customer product shifts, and we expect these quarter-to-quarter shifts between DDR and HBM to continue so long as the current bit-constrained DRAM market conditions persist. Another important point related to this mix shift is at the same time we achieved record DRAM probe card revenues with a DDR5-heavy and HBM-light product mix, we delivered record gross margin performance. Compared to the FormFactor of years past, this is evidence of a very different profitability profile, demonstrating the impact of the successful execution of several DRAM probe card manufacturing cost reduction programs.

The net result is improved DRAM probe card gross margins, which in turn lessen the dependence of our company-level gross margins on product mix. Turning now to our Systems segment. Systems delivered a record quarter, growing 20% sequentially on accelerating demand for our TRITON system for co-packaged optics, or CPO applications. This accelerating demand has been evident in the steady increase in our expectations for this business in 2026. We started the year expecting between $10 million and $20 million of TRITON revenue, and now expect upwards of $30 million in 2026. In tandem with this growing CPO business, we're also serving demand for additional photonics applications, such as CPO's close cousin, near package optics, or NPO, as well as pluggable devices. This beyond CPO application coverage is the result of our intentional focus on developing the world's leading optical probing technologies applicable across a wide range of photonics applications.

In this case, we've prioritized building leadership in Test Insertion One, which ensures known good die, or KGD, of the photonic integrated circuit, or PIC. Both CPO and NPO architectures require KGD PICs before they are combined with the electronic ICs to form the optical module in scaleup and scale-out network switches. As a result, FormFactor benefits from broader photonics adoption, whether it be CPO or NPO. Part of our leadership position in photonics probing stems from the acquisition of Keystone Photonics a year ago. As we've discussed, Keystone's innovative and differentiated optical probe technology enables high-efficiency optical coupling to our customers' photonic devices, in much the same way our advanced MEMS probes provide best-in-class electrical connectivity to our customers' chips.

To maximize our competitive advantage from this acquisition, we've made the decision to more tightly integrate the Keystone team and technologies into FormFactor with an exclusive focus on enhancing FormFactor's development and delivery of the world's leading photonics probing solutions. We believe the exciting growth in CPO, NPO, and pluggables represents the very early stages of widespread adoption of photonics in the broader semiconductor industry. Traditional copper interconnect is reaching physical limits in speed, heat, and energy consumption, and photonics provides a fundamentally more efficient way to transmit data within and between data centers using light instead of electricity. FormFactor's ideally positioned to help lead tests for this new area, as our lab-to-fab strategy has produced a decade-long first-mover advantage paired with key customer and partner relationships.

Before turning the call over to Aric, I want to once again thank the global FormFactor team for continuing to demonstrate remarkable agility and perseverance in navigating the current challenging supply environment, quickly resolving internal and external constraints to again grow in the third quarter. With our recent qualifications and Farmers Branch coming online, we are well-positioned to accelerate our growth as test intensity and complexity continue to rise at the intersection of high-performance compute and advanced packaging. The midpoint of our fourth quarter outlook puts us on track to exceed $1 billion of revenue in 2026, and we are excited to cross this important milestone for FormFactor on the way to the $1.6 billion revenue level and $5 of non-GAAP earnings per share of our target model. Aric, you are up. Thank you, Mike, and good afternoon.

Q3 was another strong quarter for FormFactor. We delivered non-GAAP gross margin of 56.5% and non-GAAP earnings per fully diluted share of $1.04 on our fourth consecutive quarter of record revenues. Revenue levels close to 40% higher than the same quarter a year ago. These results continue the operating story we discussed last quarter, addressing broad-based demand by driving higher output from our existing manufacturing footprint through improved cycle times, yields, and operating efficiency. Revenue increased 9% sequentially, while non-GAAP operating expenses fell by approximately 250 basis points as a percentage of revenue. Combined with record revenue, these improvements produced strong operating leverage across the P&L. Non-GAAP gross margin increased 320 basis points sequentially to 56.5%.