FormFactor, Inc.

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, anticipated industry trends, potential disruptions in our supply chain, the impacts of regulatory changes, including tariffs and changes in export controls, the recent U.S.-China trade restrictions, the anticipated 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 of the SEC for the fiscal year ended December 28, 2024, 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. Four recruiting statements are made as of today, April 30th, 2025, and we assume no obligation to update them. With that, we will now turn the call over to Forum Factor CEO, Mike Schleser.

Thanks, everyone, for joining us. As expected, FormFactor reported sequentially lower first quarter revenue and profitability due to anticipated reductions in demand for both DRAM probe cards and systems. In the current second quarter, we expect to deliver double-digit sequential revenue growth with increases across all our major served markets and segments and corresponding increases in gross margin and earnings per share. This anticipated second quarter revenue growth is driven primarily by Hyperscaler's continued investments in generative AI, which is producing increased demand for high bandwidth memory DRAM probe cards and co-package optics test systems, paired with moderate growth in Foundry and Logic probe cards for new chip designs in important high unit volume end markets, specifically PCs and mobile handsets. We see no indication that these second quarter demand increases are driven by tariff-related acceleration of orders. If anything, our sequential growth outlook is tempered by the uncertainty created by the current tariff situation, and SHI will provide estimates of both revenue and gross margin reductions from specific tariffs. As a reminder, we manufacture approximately 80% of our revenue in the United States, and therefore face a direct cost impact from tariffs on goods we import from non-U.S. suppliers. In addition, when we ship our products to countries such as China that have tariffs applied to goods that originate in the U.S., our U.S. manufactured products now bear a higher cost for our customers. This is causing some customers to work with us to reevaluate their supply chains and cross-border logistics processes. We're taking a wait and see approach as we evaluate various tariff scenarios before committing to any significant changes to our manufacturing footprint and supply chain. The notable exception is China where recent tariff increases on top of escalating US export controls have driven a continued reduction in our revenue from that region. This further validates our proactive decision in 2023 to divest our China operations and to focus on other opportunities and regions. Now let's turn to market and segment level details. In DRAM probe cards, we experienced the expected first quarter reduction in revenue from the record level of the fourth quarter. This was due primarily to lower non-HBM demand caused by further tightening of export controls, which limited our ability to ship probe cards for advanced ODRAM designs to China. In the current second quarter, we expect DRAM probe card revenue to return to record levels with sequential growth in HBM applications layered on top of steady demand in DDR5 and LPDDR5 applications. The strength in our HBM probe card demand is driven by three factors. One, continued shipments of probe cards for existing HBM3e designs running in high volume. Two, Increasing shipments for new HBM4 designs, which as you've heard recently from our customers, are being sampled and are expected to begin ramping in volume in the second half of 2025. And three, a growing contribution from a second HBM probe card customer as we further diversify and grow our leadership position in HBM applications. HBM still comprises a small but growing portion of the total DRAM bits produced by our customers. However, because of their stacked die architecture with 8, 12, or even 16 individual DRAM die, HBM represents a much larger portion of the total silicon area and wafers produced. Further, because HBM has increased test intensity, which expands the number of probe cards required for good die out, and higher test complexity, which raises the performance requirements of each probe card, HBM represents a significant part of overall test and probe card spending by DRAM customers. A recent third-party estimate placed HBM probe card intensity at almost 1%. That is, customers are spending nearly 1% of their HBM revenues on probe cards, a probe card intensity double that of the broader semiconductor industry. We believe these increases in test intensity and test complexity will continue to produce both market share and profitability gains for form factor as HBM and advanced packaging continue to grow, driven by the accelerating adoption of generative AI. Shifting to the Foundry and Logic probe card market, consistent with our outlook, first quarter demand in this market was essentially comparable to the fourth quarter. In the current second quarter, we're forecasting stronger Foundry and Logic demand driven by typical seasonal ramps of major mobile application processor designs and a family of client microprocessor designs. As with HBM and DRAM, advanced packaging continues to drive both higher test intensity and test complexity in the Foundry and Logic market with a variety of new and challenging technical requirements for testing high-performance compute chips. Along with form factor proprietary MEMS probes and high throughput automated assembly robots, a key enabling component for advanced foundry and logic probe cards is complex multi-layer organic substrates. In the first quarter, together with MBK partners, we completed the acquisition of FICT Limited, the world's leading supplier of these multi-layer organic substrates. This acquisition solidifies form factors access to this important enabling technology and does so in a more capital efficient, lower risk and faster way than either an outright acquisition or internal development have some of our competitors have chosen to pursue. Returning to tariffs for a moment, as I mentioned earlier, we have no specific indications that this sequentially stronger foundry and logic outlook is due to tariff related pull-ins. And in fact, since probe cards have short lead times and are a device-specific consumable specific to each individual customer chip design, it's unlikely that customers would run the risk of having excess probe card inventory across numerous chip designs only to mitigate a potential future tariff. Turning to our system segment, the reduced first quarter revenue was consistent with our outlook, and we now expect moderate sequential growth in the current quarter. System growth is driven by our customers' rapid innovation in areas like quantum computing and high-performance compute, with development programs that require leading-edge measurement systems like our CM300 lab probers and IQ3000 cryogenic probers. Copackaged optics, or CPO, using silicon photonics is one of the key drivers of the expected second quarter and longer-term growth in the systems business. Several of our customers have recently announced the insertion of CPO into their product roadmaps to take advantage of its compelling power and speed advantages in data center applications. Our multi-year collaboration with these customers has produced form factor systems, software, and optical probes that rapidly and accurately test the photonic IC, or PIC, chips that are the heart of the co-package optics engine. This, in turn, has strengthened our leadership position in the silicon photonic lab space, where we have an installed base of over 100 systems worldwide. We're now extending that leadership to the production arena, and in the second quarter, plan to ship multiple systems to a single customer to support pilot production of the world's first high-volume copackage optics photonic integrated circuit. Although market estimates vary widely at this early stage of production and adoption, we expect CPO to be a significant midterm growth driver for form factor systems and probe card businesses. In closing, we continue to strengthen form factor's industry and competitive position, both through development of innovative and differentiated products and through partnerships with leaders like FICT, even as we deal with tariff headwinds. These internal and external initiatives are especially important and exciting as we meet the challenges of increased test intensity at higher test complexity associated with the adoption of advanced packaging in applications like high bandwidth memory and co-package optics. Successful execution of these and other initiatives will allow us to achieve and then surpass our target model that delivers $2 of non-gap earnings per share on $850 million of revenue. Shai, over to you.

Thank you, Mike, and good afternoon. As you saw in our press release, Q1 revenues were $171.4 million, $1.4 million above the midpoint of our outlook range, and non-GAAP gross margin of 39.2% was near the high end of the range. These, together with OPEX slightly lower than the midpoint of the outlook, resulted in a non-GAAP EPS of 23 cents at the high end of the outlook range. First quarter revenues decreased 9.6% from the fourth quarter and increased 1.6% year-over-year from our Q124 revenues. ProbeGuard segment revenues were $136.5 million in the first quarter, a decrease of $13.8 million, or 9.2%, from the fourth quarter. The decrease was driven by lower DRAM and FLASH revenues, partially offset by higher Foundry and Logic revenues. System segment revenues were $34.8 million in Q1, a $4.4 million decrease from the fourth quarter, and comprised 20.3% of total company revenues, down from 20.7% in the fourth quarter. Within the prop credit segment, Q1 Foundry and Logic revenues were $85 million, a $2 million, or 2.4%, increase from the fourth quarter. Partner & Logic revenues increased to 49.8% of total company revenues compared to 44% in the fourth quarter. DRAM revenues were $48.9 million in Q1, $14.4 million or 22.8% lower than the record fourth quarter and decreased to 28.5% of total quarterly revenues as compared to 33.4% in the fourth quarter. Within DRAM, HBM revenues decreased $3 million from $32 million in Q4 to $29 million in the first quarter. Flash revenues of $2.4 million in Q1 were down $1.3 million from the fourth quarter and were 1.4% of total revenues in Q1 as compared to 1.9% in Q4. Gap gross margin for the first quarter was 37.7% as compared to 38.8% in Q4. Cost of revenues included $2.6 million of GAAP to non-GAAP reconciling items, which we outlined in our press release issue today and in the reconciliation table available in the investor relations section of our website. On a non-GAAP basis, gross margin for the first quarter was 39.2%, one percentage point lower than the 40.2% non-GAAP gross margin in Q4, and 1.2 percentage points above the midpoint of our outlook range. The decrease as compared to Q4 is driven by lower non-GAAP gross margins in the probe card segment. The increase as compared to the midpoint of our outlook range is attributable mostly to a more favorable product mix. Our probe card segment gross margin was 37.8% in the first quarter, a decrease of 2.2 percentage points compared to 40% in Q4. The decrease from Q4 is mainly a result of decreasing revenues. Our Q1 system segment gross margin was 44.5%, an increase of 3.7 percentage points compared to 40.8% gross margin in the fourth quarter. The increase from Q4, despite the decrease in revenues, was mainly a result of a more favorable product mix and lower manufacturing spend. Our gap operating expenses were $61.3 million for the first quarter as compared to $66 million in the fourth quarter. Non-GAAP operating expenses for the first quarter were $50.2 million, or 29.3% of revenues, as compared with $55.2 million, or 29.1% of revenues in Q4. The $5 million decrease relates mainly to lower performance-based compensation and facility expenses, partially offset by higher costs from annual benefits reset at the beginning of the year. Company non-cash expenses for the first quarter included $9.8 million for stock risk compensation, $0.7 million for the amortization of acquisition-related intangibles, and depreciation of $8.2 million, all similar to the fourth quarter. GAAP operating income was $3.3 million for Q1 as compared to the GAAP operating income of $7.9 million in Q4. Non-GAAP operating income for the first quarter was $16.9 million compared with $20.9 million in the fourth quarter, a decrease of $4 million, or 19.2%. This reduction in operating income is due to lower revenues combined with lower gross margins, partially offset by the decrease in operating expenses. Gap net income for the first quarter was $6.4 million, or $0.08 per fully diluted share, compared with a gap net income of $9.7 million, or $0.12 per fully diluted share in the previous quarter. The non-GAAP effective tax rate for the first quarter was 14.7%, similar to the fourth quarter, and at the low end of the previously communicated range for the year of 14 to 18%. First quarter non-GAAP net income was $18 million, or $0.23 per fully diluted share, down from $21.3 million, or $0.27 per fully diluted share in Q4. Moving to the balance sheet and cash flow. We generated free cash flow of $6.3 million in the first quarter, compared to $28.8 million in Q4. The main reasons for the decrease were operating cash flows that were $12.4 million lower than in Q4, primarily driven by lower profitability and greater outflows for working capital of $8.2 million, and CapEx that was $10.9 million higher than in Q4. we invested $18.6 million in capital expenditures during the first quarter compared to $7.7 million in Q4. We continue to expect capex of $35 to $45 million in 2025. And as Mike mentioned, we are evaluating our capital investment plans in light of the evolving geopolitical and tariff environment. At quarter end, total cash and investments were $302 million, a decrease of $64 million from Q4. The main reasons for the decrease were the $67 million paid for the investment in FICT, partially offset by free cash flows of $6.3 million and cash received from the issuance of common stock in the amount of $21.6 million, including the $15 million received from issuance of 335,000 shares to Advantest. At the end of the first quarter, we had one term loan with a balance totaling $13 million. Regarding stock buyback. During the first quarter, we used $22.1 million to repurchase shares, utilizing the remaining funds under the existing buyback program. We fully utilized this two-year plan approximately seven months ahead of its expiration date, and our Board of Directors has approved a new two-year $75 million share repurchase program. The main purpose of our share repurchase program continues to be offset dilution from Starbase Compensations. Turning to the second quarter non-GAAP outlook, we expect a significant increase in revenues in Q2 to $190 million plus or minus $5 million, with an increase in all major markets we serve, most notably in HBM DRAM and Foundry and Logic. This increase in revenues is expected to result in a higher non-GAAP gross margin of 40% plus or minus 150 basis points. At the midpoint of these outlook ranges, we expect Q2 operating expenses to be $52 million, plus or minus $2 million, approximately $2 million higher than in Q1, mainly due to higher performance-based compensation. Non-GAAP earnings for fully diluted share for Q2 is expected to be $0.30, plus or minus $0.04. This Q2 outlook includes an estimated mid-single-digit million-dollar reduction in revenues, and a 1 percentage point reduction in gross margins due to the impact of tariffs. A reconciliation of our GAAP to non-GAAP Q2 outlook is available on the Investor Relations section of our website and in our press release issued today. With that, let's open the call for questions. Operator?