FormFactor, Inc.

Thank you and welcome everyone to FormFactor's first quarter 2026 earnings conference call. On today's call are Chief Executive Officer Mike Slesher and Chief Financial Officer Eric McInnes. Before we begin, Stan Ficklestein, the company's Vice President of Investor Relations, will remind you of some important information.

Thank you. Today's company will be discussing gap P&N results and some important non-gap 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 subsequent integration, anticipated timeline for and benefits from farmers' branch, anticipated industry trends and volatility, the impact of regulatory changes, including tariffs, the anticipated volatility in demand for our products, our ability to develop, produce, and sell products and meet ongoing demands, advancements of artificial intelligence impact on industry and demand, and the assumptions upon which such statements are based. These statements are subject to known and unknown risk 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 physical year ended December 27, 2025, and in our other SEC filings, which are available on the SEC's website at www.sec.gov. Forward-looking statements are made us of today, April 29, 2026, and we assume no obligation to update them. With that, we will turn now the call over to form factor CEO, Mike Schleser.

Thanks for joining us today. FormFactor's first quarter revenue grew sequentially to another all-time record, with gross margin and earnings per share significantly above the high end of our outlook range. In the current second quarter, we expect to again set a revenue record and deliver sequential increases in both gross margin and earnings per share, extending the momentum that began in the second half of last year. These outstanding results exceed our target model on a quarterly run rate basis, and our current quarter outlook is expected to cap a string of results that validate the model on an annualized basis. We're proud to have delivered on this commitment, and at our upcoming investor day at the NASDAQ market site on May 11, members of FormFactor's executive leadership team will introduce our next target model, along with the strategic priorities, long-term growth opportunities, and operational initiatives that underpin it. We're also encouraged by how these financial results were achieved. We continue to benefit from our leadership position at the intersection of high performance compute and advanced packaging, two powerful trends transforming the semiconductor industry. Our growth is fueled both by strength in familiar areas like probe cards for high bandwidth memory and accelerating contributions from newer foundry and logic opportunities like networking. The first quarter growth in probe cards for networking applications caused the leader in high performance compute to become a 10% customer for the first time. And we're continuing to build our relationship with this leading customer in not only networking, but also probe cards for GPUs and systems for co-package optics. Operationally, these results represent a significant improvement from the execution challenges that previously limited our performance. While the pace of profitability improvement will moderate as we approach the limitations of our current footprint, later this year we expect our farmers branch site to come online, providing increased capacity with structurally lower costs. It will in turn create the foundation for future revenue growth and gross margin expansion. Eric will discuss our current operational performance in future plans later in the call. Turning now to segment and market level details, In DRAM probe cards, we delivered the expected sequential growth from the fourth quarter to reach another record, with increased demand in HBM applications paired with sustained demand in DDR applications. As you've heard recently from our major DRAM customers, the environment continues to be supply constrained in DRAM overall, and we expect our customers to dynamically shift their wafer start mix between a variety of HBM and DDR designs to maximize their opportunity. Since probe cards are specific to each customer chip design, we expect our DRAM mix to correspondingly shift between HBM and DDR while these unusual end market conditions persist. We're again forecasting record revenue in DRAM probe cards in the current quarter, driven by another step up in HBM demand. Most of this incremental growth is coming from a second customer's increased adoption of form factor's differentiated smart matrix, full wafer contactor technology. SmartMatrix provides a unique combination of high parallelism productivity and high speed performance, enabling our customers to test hundreds of completed HBM stacks simultaneously at the 10 gigabit plus IO data rate of HBM4. This capability is critical in advanced packaging processes like TSMC's COOS, where stack die test insertions provide the final test for the HBM stack before it's combined with GPUs or custom ASICs. Our second quarter outlook shows the impact of form factor's competitive advantage and the resulting market share gains as P&IO speeds and overall stack bandwidth for HBM continue the relentless increase as the industry progresses from HBM3 to HBM4 and then on to HBM5. Shifting now to the founder and logic probe card market, as expected, First quarter Foundry and Logic demand increased significantly over the fourth quarter, driven primarily by growth in probe cards for networking applications. In the current quarter, we expect continued growth in Foundry and Logic probe card revenue, driven primarily by incremental strength in data center CPU applications, building on top of continued strong demand in networking, as well as steady demand in PC and mobile. This data center CPU probe card demand is directly linked to the newly appreciated trend of increasing CPU compute intensity in AI inference use cases. This offers a powerful example of the value of form factors diversification strategy, as we strive to be a leading supplier to all major customers. In this case, we benefit from having put ourselves in a position to capitalize on unexpected demand for CPU probe cards from one of our long-term major customers. As we shared last quarter, we've continued to partner closely with this customer to support turnaround initiatives in their core business, as well as in their effort to become a leading foundry. In addition, Intel recently awarded us the 2026 Epic Supplier Award, recognizing our world-class commitment to continuous improvement, collaboration, and performance excellence. At the same time, as in HBM, we're successfully executing our strategy to be a top supplier to all the leading customers in the industry, as we continue to build the foundation for market share gains at a large, fabulous XPU customer. Specifically, we've now been awarded a second design, building off our successful qualification and initial design win. In addition, our production qualification in leading edge GPU applications at the world's largest foundry is nearing completion, with preparation now underway for second half volume shipments and production support. Finally, as an additional component of FormFactor's expanding high performance compute exposure, we continue to grow our custom ASIC business following a multi-million dollar design win in deepening engagement with several hyperscalers and their ASIC design partners. Turning to our system segment, in the first quarter we experienced the expected seasonal reduction in demand. In systems, our focus continues to be two-pronged. One, executing on the growth opportunity in co-package optics, and two, helping customers solve the challenges of building scalable and commercially viable quantum computers. Staying with quantum for the moment, in the first quarter, we announced the Flatiron Dilution Refrigerator, a new benchtop millikelvin platform designed to simplify optical and electrical measurements. and accelerate quantum device development, characterization, and chip scale validation. In CPO, we're building on our decade-long R&D engagement with leading customers in their development of silicon photonics in CPO, and are now beginning to ramp our Triton production test system co-developed with Advantest and Tokyo Electron. This ramp is accelerating, and we now expect 2026 CPO revenues to come in at the high end of the $10 to $20 million range we've previously communicated. This acceleration is driven by two factors. First, the growing volumes of CPO chips planned for later this year. And second, our leadership in the important test insertion one, which ensures known good die on the photonic integrated circuit or PIC wafer. Insertion 1 is proving to be a cost-effective and production-ready solution to ensure high yields of CPO modules built with advanced packaging processes like TSMC's COOP. Because of cost and complexity challenges, other test insertions like Insertion 2, after stacking the electrical die on the PIC, are proving to be difficult for customers to implement in production. Finally, we've successfully integrated our fourth quarter acquisition of Keystone Photonics, and our teams are collaborating to define and execute the world-leading silicon photonics and co-package optics probing roadmap. This includes electro-optical probe guards, which offer the promise of higher parallelism and higher throughput for our customers, as we bring together our technology leadership in both electrical and optical probing. Before turning the call over to Eric, I want to thank the Global Form Factor team. Achieving our target model is the result of their resilience in implementing multi-year investments in technology leadership, talent, customer focus, and operational execution. We're well positioned as test intensity and complexity continue to rise at the intersection of advanced packaging and high-performance compute, and we're excited to share our vision for the future of Form Factor at our May 11th Investor Day.

Eric? You're up.

Thank you, Mike, and good afternoon. Over the past three quarters, one of our top priorities has been to increase gross margins and deliver on our commitment to our target model of 47% non-GAAP gross margins at $850 million in annual revenues. We're proud to say that in Q126, we achieved this target on a run rate basis, but we're even prouder of how we achieved it. driving what we believe are durable gross margin improvements through operational effectiveness and financial discipline. The actions we took included, first, deploying our workforce and existing manufacturing footprint more effectively, which included the restructuring actions announced in early Q1. Second, driving improvement in manufacturing yields in key process areas. Third, innovating to reduce manufacturing spending And lastly, reducing cycle times and key manufacturing operations. Even as we executed on record demand, we remained focused on driving improvements in these critical areas. This is the type of discipline that we believe is fundamental to driving sustainable financial results. Thanks to the form factor team's focused execution, we generated additional operating leverage on sequentially higher demand levels. driving even better progress than expected and a cumulative improvement of more than 1,000 basis points in gross margins over the last three quarters. At the midpoint of our Q2 guide, we expect to generate another 50 basis points of expansion. We believe the bulk of the improvements in gross margins are durable in nature, driven by improved operational effectiveness as well as discrete changes in our cost structure. We expect these fundamental improvements will help us to profitably navigate the impact of inevitable shifts in product mix and volumes. Non-GAAP gross margins improved by 500 basis points from Q4-25 and exceeded the midpoint of our first quarter outlook by 400 basis points. As expected, continued operational improvements and higher volumes drove an approximately 100 basis point improvement from Q4-25 that we believe is durable in nature. The overperformance against Q1 expectations is about half related to timing items and half related to durable improvements. The timing items of about 200 basis points are primarily driven by changes in customer-driven priorities within the quarter. This element may be transitory as driven by timing. The remaining overperformance of 200 basis points was split about 50-50 between first faster realization of cost savings from our first quarter restructuring action, and second, unexpected relief from tariffs, as IEPA tariffs were discontinued and replaced by lower Section 122 tariffs during the quarter. These improvements are likely durable in nature. We continue to drive the unit cost of our products down, in part enabled by increasing output from our existing infrastructure. Our exposure to fast-growing markets that Mike described is generating demand that requires more output. As reflected in our record quarterly revenue in Q4-25, again in Q1-26, and now in our outlook for Q2, we are manufacturing at levels that would not have been possible even one quarter earlier. Improvements in cycle times, yields, and how we deploy our workforce, in addition to reducing unit costs and improving gross margins, are enabling us to get more out of each tool process and site by ensuring more good product out and better fungibility of our workforce. Our farmers branch site expansion is the next key priority and the project is on track and expected to begin to come online later this year and to ramp over the course of 2027. Bringing up this capacity on time and on budget is a key focus over the coming months as it will enable the next phase of growth and gross margin expansion beyond our current target model. The trajectory of gross margin improvement and attainment of our target model is now evident, but our journey is not over. While we are optimistic about our ability to continue to drive profitable growth and believe we will continue to drive incremental improvements throughout 2026, we recognize that sustaining the progress that we have made will require ongoing focus and discipline. Further, we expect future gains to be achieved at a more moderate pace as incremental improvements require both more effort and more time than the rapid progress to date. We're excited to share our longer-term view at our May 11 investor day. Q126 revenues of $226.1 million came in $1.1 million above the midpoint of the Q126 outlook range of $220 to $230 million. Gap gross margins for the first quarter We're 38.4%, down 380 basis points from 42.2% in Q4. Cost of revenues included $23.9 million of GAAP to non-GAAP reconciling items, of which $21.5 million related to our Q126 restructuring action announced on January 5. Details of the GAAP to non-GAAP reconciling items are outlined in our press release issued today and in the reconciliation table available in the investor relations section of our website. On a non-GAAP basis, gross margins for the first quarter were 49%, 510 basis points higher than the 43.9% we achieved in Q4, and 250 basis points above the high end of our Q126 outlook range. This increase in non-GAAP gross margins was driven primarily by improvement in the probe card segment which were up 603 basis points to 50.5%, partially offset by the decrease in our system segment, which declined 350 basis points to 38% on seasonally softer demand, and as we transition to production of our Triton system for co-packaged optics applications, as Mike described. Our gap operating expenses were $70.1 million for the first quarter, down slightly as a percent of revenue, from the prior quarter and a decrease of 470 basis points from the same period in the prior year. Included in Q126 operating expenses were $7.1 million of expense related to the pre-production ramp of Farmer's Branch. Despite the incremental spending, the decrease as a percent of revenue demonstrates continued spending discipline across the P&L, even as we drive innovation through R&D and fund the Farmer's Branch expansion. Gap net income for the first quarter was $20.4 million, or 26 cents per fully diluted share. Down from gap net income of $23.2 million, or 29 cents per fully diluted share in the previous quarter. The decrease was driven by restructuring related costs, net of tax of $17.6 million incurred in Q1. First quarter non-gap net income was $44.5 million, or 56 cents per fully diluted share. up from $36.6 million or 46 cents per fully diluted share in Q4. The GAAP effective tax rate for the first quarter was 2.1% and the non-GAAP effective tax rate for the first quarter was 16.1%. Moving to the balance sheet and cash flows. We had free cash flows in the first quarter of $30.7 million compared to $34.7 million in Q4. The $4 million decrease in free cash flow was driven by greater capital expenditures and lower cash flows from operations. The decrease in cash flows from operations, which were down about $1 million from the prior quarter to $45 million in Q1, is driven primarily by higher working capital needs driven by our growth and $4.1 million in cash paid related to restructuring actions. At quarter end cash and investments, were up $28.1 million to $303 million. We continue to expect that cash capex for Farmer's Branch will be between $140 million and $170 million in 2026. Pre-production ramp costs in GNA will be between $20 and $25 million. Upon completion of the ramp to initial target capacity, we expect Farmer's Branch to be accretive to gross margins. Associated with our investment in Farmers Branch, we secured certain incentives, which we expect will partially offset these expenditures. Among others, incentives include about $24 million in cash grants designated to fund capital expenditures upon meeting certain criteria. During the first quarter, we did not repurchase any shares. At quarter end, authorization of $70.9 million remains available for future repurchases under the $75 million two-year buyback program that was approved and announced in April 2025. We are committed to our share repurchase program as a tool to offset dilution from stock-based compensation over the two-year period of the program. In the short term, we are prioritizing our deployment of cash to accelerate the ramp of our new manufacturing site in Farmer's Branch. Turning to the second quarter non-GAAP outlook. We expect Q2 revenues of $240 million, plus or minus $5 million. This increase in revenues and the impact of continued gross margin improvement initiatives described earlier are expected to result in a higher non-GAAP gross margin of 49.5%, plus or minus 150 basis points. As a reminder, we continue to see an adverse impact to gross margins from tariffs, despite recent reductions in the amount paid. We have assumed around 140 basis points of tariffs in our outlook for Q2. We have paid substantial IEPA-based tariffs since they were put in place in 2025, and we expect some or all may be refundable in the future due to the Q1 26 Supreme Court ruling. Consistent with the county rules, we did not record a recovery of these amounts in Q1 and have not assumed recovery in our Q2 26 outlook. We are actively monitoring developments in this rapidly evolving space. If the amounts we previously paid are deemed recoverable, we could receive a refund of $9 to $11 million in tariffs previously recorded in cost of goods sold. At the midpoint of our outlook range, we expect Q2 non-GAAP operating expenses to be $65 million, plus or minus $2 million. Our Q2 non-GAAP effective tax rate is expected to be within the range of $15 to 19%. Non-GAAP earnings per fully duated share for Q2 is expected to be $0.61, plus or minus $0.04. A reconciliation of our GAAP to non-GAAP Q2 outlook is available in the investor relations section of our website and in our press release issued today. As demonstrated by our Q2 results and our Q2 outlook, we have now achieved our current target model. We believe we have more room to run in driving operating leverage, underpinned by our initiatives to improve our structural costs, increase capacity, and expand our leadership position in the fast-growing markets that Mike described. We look forward to sharing our new target financial model and key elements of our strategy at our planned investor day in a little under two weeks. With that, let's open the call for questions. Operator?

Certainly, and our first question comes from the line of Brian Chin from Stifel. We ask that you please limit yourself to one question and one follow-up.

Hi there. Good afternoon, and congratulations on the really good results. Maybe first question. NVIDIA, 10% customer. Other than the nice ring that it has to it, can you explain why you break this out separately versus rolling up under TSMC? And also... How much roughly of this is networking versus GPU related, and what does that suggest, or what does this suggest for your market share of this SAM for new existing platforms?

Yeah, Brad, it's Mike. I'll take that one. With all customers, as we report them as when they cross the 10% threshold as we're required to, it's based on who's placed the PO and who's paying the invoice. And so in this case, you see we have two 10 percent customers in this quarter. And as I described on the call, you know, the second 10 percent customer is associated with networking. We're still making excellent progress on the GPU qualification. As I said, we're now reaching the final stages of that and expect essentially the 20 million in revenue we've described in the second half. We're now investing in preparing the capacity and local support for that. Those POs we would expect to come from the foundry, just different business models in different part of a fabulous customer's business.

Got it. That makes sense. I'll leave CPO for the next questioner. But one thing I want to ask you about, Mike, is that you've talked about the production ceiling that you're kind of working with until farmers branch comes online. You know, good sequential growth, kind of in line with the midpoint Q1, you know, further growth ahead of our models for Q2. I usually don't ask this, but I'm kind of curious how much of your near-term revenue growth is being driven maybe by mix or ASP relative to just units, given the constraints you're operating on and maybe your ability to optimize, you know, within those constraints.

Yeah, so it's a great question, Brian, and it ultimately comes down to ASP versus volume. And as Eric went through in his prepared remarks, he provided a pretty clear bridge that show the gross margin improvement up to the 49% level is really based on cost reduction on COGS. Now, it's split on things that we believe are durable and things that we think are temporary. But pricing and ASP is not a major factor in that. We've always run a business where customers will definitely compensate us for value. Typically, that's been performance of our products, cost of tests that we produce, reductions in cost of tests that are produced. And in this case, there are some isolated incidents where customers are willing to pay expedite fees for a certain design because that offers the value in this capacity-constrained environment. But pricing really is not a driver of the gross margin improvement. It's COGS reductions. and our operations team continuing to improve yields and cycle times and get more out of the existing footprint. How far that can run, we'll see, but so far they've done a fantastic job.

All right. Thanks, and nice job. Thank you. And our next question comes from the line of Matthew Prisco from Cantor. Your question, please.

Hey, guys. Thanks for taking the question. So given the gross margin strength, I'd just like to dig in a little bit there. I know you listed out a few drivers, but can you perhaps just offer some more detail on how each of those drivers contributed to that 510 basis point increase quarter of a quarter? And as we look forward over the last couple of quarters, it's going to be better than expected. So how much more juice is there to squeeze with these current drivers ahead of that farmer's branch ramp? Thanks.

Yeah, so as mentioned in the prepared remarks, The 510 basis points, roughly 400 basis points were driven by a mix of durable and what I call transitory items. And if I break those down, the durable piece is really related to faster realization of savings from our restructuring action. So we thought the expenses were going to be a little bit higher, and we ended up being able to do better than that. as we executed on that restructuring action, those changes are, it was about 100 basis points in the quarter, and those changes are going to persist, those savings will persist as we move forward, permanent in nature. The other 100 basis points of that 50% of the 400 basis points, so the other 100 basis points, is really related to tariffs. The new tariff construct that we're operating under just has lower weighted average tariff rates, and so that's resulting in a savings for us. We do continue to pay tariffs today. It still continues to be a headwind, but as long as the current framework is in place, we expect those savings to also be durable in nature. The piece that is transitory in nature really relates to timing items, both on spend and and also in terms of just prioritization of certain products that we were producing within the quarter. Those were decisions that were made in the quarter and were not included in our original outlook. We think those things are temporary and will flip around as we move forward, primarily mix and cost timing items. And so we don't expect those to necessarily persist going forward. Now we do expect those to be replaced by durable improvements as we move forward into next quarter, into Q2. So as you can see by our outlook, we are still expecting sequentially up. That is because even though we have some of the improvement we saw in Q1, even though some of that goes away, it is replaced by other improvements, and those are primarily related to the full quarter impact of our restructuring actions and the savings associated with that. Also, volume is a factor as we move from $226 million to $240 million in revenues.

Thanks. And then maybe on the Foundry logic side, that business obviously coming in better than expected. Can you help give us the breakout of that business as it stands today, kind of between that networking, smartphone, PC, all the different moving parts within it? And As you talked about kind of the agentic AI driving that CPU demand, how do you think about your ability to service that demand given the constraints on supply? Are you pulling short of demand today, or is there some kind of workaround where you can actually supply these incremental parts?

Thanks. Yeah, Mike, I'll take that one. We don't break Foundry and Logic down other than qualitatively in some of these different drivers as we go sequentially forward, as we've done this quarter with the CPU demand that you talked about. The step up in Q1 was expected if you go back and parse our comments from the last call and write about where we thought it would be. Now, part of that's the answer to your second question. We are running at very, very high utilizations. And basically, you know, if you look at the Q1 revenue results, we came in pretty close to the midpoint of the guidance. And that's a reflection of some of the constraints we have. The operations team, as you can tell from our outlook, we're stepping up, again, pretty significantly sequentially, has continued to squeeze, I think you called squeeze more juice out of things. That's true on the revenue side as well. One of the reasons gross margins are improving is we're producing more out of the same fixed cost footprint by and large. There's a tremendous amount of leverage when we do that. Now, we're working closely with customers on their demands. Visibility is still a challenge in this business with lead times right around mostly shorter than a quarter. But this is an area where we've got a more active dialogue going with customers to make sure we're planning for whatever we can produce so that we're meeting their needs in surprise demand like this, the CPU agentic AI drivers.

Thank you, and our next question comes from the line of Krish Sankar from TD Cowan. Your question, please.

Hey, guys. Congrats on the great results. This is Eddie for Krish. I'd like to follow up on the same question regarding CPUs. Your main IDM customer remains less than 10% of revenues, and for the past two quarters, the demand outlook for CPUs have meaningfully improved. I wonder, do you expect later this year for that customer to return to more than 10%? And if we look at the revenues, they're still like 40%, 50% below their peak in 2022. I wonder how you think about the recovery profile from that customer going forward. Thank you.

Yeah, and if you look, obviously, you know, this issue of 10% customers, you know, that customer was not a 10% customer in Q4, nor was it in Q1. With some of the CPU demand, they'll be pretty close in Q2. I don't know whether they'll quite make the line, but they're going to be bumping back up again. Of course, the other thing that's going on is we're making the absolute revenue threshold to hit 10% larger as we grow the overall top line for form factor. So, you know, will it return to the 2022 highs? I don't think so just based on some of this strength in CPUs. But as they continue to execute their turnaround plan, as they continue to make progress in the foundry business, especially associated with their advanced packaging technology, given the strong relationship that we have with them, I referenced the award that they gave us earlier this year, we're certainly hopeful that we can return and even exceed the peaks of 2022.

Got it. Thank you, Mike. And a follow-up, I mean, it seems you have these meaningful demand drivers, whether it's from NVIDIA, from the IDM customer, from HPM, but your revenues seem, correct me if I'm wrong, are they capped near that $240 million level until you guys ramp your facility later this year? I'm just wondering how to think about September and December revenues. Should we expect like from that 240 million, or you think there are some optimization techniques that can take us 10 to 20 million more than that? Thank you.

Yeah, I'll take that question. As you can see from our Q1 results and our outlook, we've been able to now execute on 225 million in the Q1 quarter, and then looking forward to next quarter, 240. I think if you were to back a quarter off of each of those, go a quarter before that, we probably couldn't have produced at those levels. We've been real time driving efficiency improvements in terms of cycle times and yields in our sites, and I think that is very much real time increasing our output out of our existing sites. So it's very closely related to these efficiency improvements that we're making, and it remains to be seen how much more of that we can drive. I do believe that there is still room for improvement, and we're gonna continue to strive to make those improvements as we move through the remainder of 2026. To the extent we're successful in that, that will, we expect to be able to continue to incrementally increase our output over the coming quarters. Thank you, guys.

Thank you, and our next question comes from the line of Craig Ellis from B. Reilly Securities. Your question, please.

Yeah, thanks for taking the question, and congratulations on the really strong execution, guys, both on the top line and gross margin. I wanted to start just by following up on the last question. So we've done a really good job over the last couple quarters tuning the knobs with our operations to drive significantly greater capacity, and we're doing that with better yields, and that's helping to give us much better gross margin. How much of what you're doing at current facilities is going to be leverageable in the farmers branch when you ramp that up late this year and next year?

Our intent is to leverage all of that work. It's really fundamentally improving how we run our manufacturing processes. And I think that moving a portion of our manufacturing and having the benefit of new tools, we will only improve in those areas in terms of cycle times and yields with some of the additional capability we get from a new tool set. So we definitely intend to preserve the gains that we have made and, in fact, build on them as we get access to newer equipment sets and a site that is more consolidated, if you will, that allows greater fungibility of our resources.

Okay, that's helpful, Eric. And then the follow-up question is regarding the networking business. So interesting to see big green there on the 10% customer list. My question is this. As we think about that customer and the revenues that it's now driving, how do we think about how this most recent quarter performed relative to the trend lines that you all have been seeing and what you expect from that customer? Is there a seasonal sine wave that goes along with that demand? Or how do we interpret where revenues could go from here given what you've seen in the past and what your expectations would be? Thank you.

Yeah, I'll address the seasonality part, Craig. There is going to be some seasonality in that business. You've seen it reflected in our HBM business, which obviously feeds into that customer's overall supply chain. First half heavy, second half a little bit lighter, although some of the product releases are starting to blend together. So I would expect some seasonality. Having said that, if we look at the overall demand environment, it's pretty clear from an external perspective that the second half continues to be pretty strong, right? We've got, as I said, in response to the CPU question, more active conversations with our customers because they understand there's capacity constraints, not just for us, but for our competitors as well. And so I think there's other opportunities that we can take advantage of, even if there is some seasonality around the annual cadence of these high performance compute events. product releases, if you will.

That's really helpful, Mike, and if I could sneak in one more. We're seeing more low-power DDR designing into certain AI systems going forward. It would seem like that could give legs to the kind of the legacy DRAM market that the company has served, not making it as as probe card intensive as HBM, but at least extending the life of different formats that might have had a different sine wave. What does that mean for form? Is that right? Or is it not something that can benefit the business?

I think it depends, right? The real details of how our customers, and I referenced this earlier in the call, shift their wafer start mix between HBM and DDR, primarily DDR5, but some legacy DDR4, as you allude to, in the mix is going to be really a pretty dynamic situation. You know, the chairman of one of our largest customers a few weeks ago publicly said that they're now getting better margins out of the DDR business than they are of the HBM business. And I think you're going to see all three major DRAM manufacturers optimize their mix around this in this overall bit capacity constrained market. So there definitely is remembering that probe card demand is driven by new design releases and ramps of those specific designs. Each probe card is specific to a customer chip design. There's a lot of devil in the details, but there is the potential for that to fill in some of the seasonality goals.

Thanks, Mike.

Thank you. And as a reminder, ladies and gentlemen, if you do have a question at this time, please press star 1-1 on your telephone. Our next question comes from the line of Christian Schwab from Craig Hallam. Your question, please.

Hey, congrats, guys, on a great quarter. I just have one quick question. Can you remind me, I can't find it in my notes, what is the target revenue capacity on a yearly basis that you're putting on in farmer's market?

Yeah, just a reminder on the timeline. So we are initially starting production that site at the end of this year and we intend to ramp over the course of 2027 to the initial target capacity. Approximate sizing of the initial target capacity is something equivalent, more or less equivalent to our existing California footprint. You can think of that as maybe 40% of our, I'm sorry, a little bit more than that. Yeah, roughly 60% of our existing ProCards business today. So a pretty substantial capacity. What I think is probably more More relevant is our ability to bring that capacity online modularly over time. So we're going to target initial capacity and then make sure that we're monitoring the outside environment. We're going to talk a bit more about this in our investor day on May 11th and should be able to provide some more details around it then.

Great. No other questions. Thank you.

Thank you. And our next question comes from the line, Dennis Pashtun from Needham & Company. Your question, please.

Much appreciated. Thank you. So to start, could you maybe give us an update on your advanced test partnership? Kind of what's the progress there and what is the timeframe to monetize on that partnership?

Yeah, I think the partnership with Advantest, we've talked about it as being most prominent with CPO, the Triton system. Over the years, we've co-developed with them and Tokyo Electron. But I wouldn't characterize it too much differently than our partnerships with a variety of other suppliers in the industry. We work very closely every day with Advantest's competitor, Teradyne, because fundamentally, we believe that the test ecosystem needs to be an open ecosystem. We've trained our customers to rely on that for business continuity. We've all developed interface standards. So I think the CPO momentum that both of us and Avantest have talked about, I think is an example where this co-development together with partners in AT and probers and other instrumentation really produce a system that's useful for solving an important customer problem. So a great result of that partnerships. We've got partnerships similar to this all over the place.

Great. Thank you. And then another question on farmer's branch. So if I understood correctly, so you expect to replace basically most, if not all of your California capacity with the capacity in Texas, right? Which will be about 60% of it. If that's correct, so when do you expect kind of revenue to start hitting the top line from farmers branch? Kind of what's going to be the first quarter that hits and then when do you think you'll hit full capacity in that facility?

Yeah to clarify. It's not a replacement. We're expanding our available capacity and As I mentioned in my in my response earlier we intend for that ramp to happen over the course of 2027 so pretty pretty fast ramp timeline and with the first initial capacity coming on here at the end of the year at the very end. So not much impact to this year.

And that's it for me. Thank you very much. Thank you. And our next question comes to the line of David Dooley from Steelhead Securities. Your question, please.

Yeah, thanks for taking my question. I guess the first one is you mentioned – your code developed tool in the Triton there for, I think, CPO insertion number. You mentioned insertion number. Will that be the vast majority of your TAM opportunity in CPO? Is that one particular step? I think there's like four insertion points and then a couple of like final test things. So can you just kind of explain that? you know, where you think most of your TAM and revenue would come from CPO? Is this insertion you're referring to or a different one? And then what is your total expectation for CPO revenue perhaps in 2027?

Yeah, so David, I'll try to parse that in different ways. You know, we're in the very early innings of CPO, right? This is the initial production ramp. We are focused on insertion one for a couple of reasons. One, it represents the sort of the foundational optical probing technology that's going to be needed in any of the insertions. If you think about any of the insertions, you have to be able to optically probe the device. It's just insertion one essentially is exclusively focused on that. There's a little bit of electrical probing there, but it's really the optical probing step. So we're going to be able to port that technology, if you will, across all the other insertions. I do expect, and I think most Industry participants who are really in this game expect the test spending between different insertions to move around as a function of yield, as a function of product mix from our customers. So we have active conversations on all of these different insertions with various partners and with customers. We've just chosen in the initial ramp to really focus on insertion one, and that's turned out to be a good bet, right, as you can tell from us raising our outlook for 2026. the the sort of revenue opportunity with cpo i'm going to punt to investor day we're going to spend some time talking about why we're differentiated the different insertions and the longer term opportunity because i think it fits pretty well in the context of the next target model that we're going to share for you yeah just as a follow-up on insertion number one that's where you're basically you know

optically probing the PIC or the optical part, which is like super important, right? Because you're going to team that up with an electronic part later on. And, you know, once you package it together, if the PIC doesn't work or, you know, if that part doesn't work, then, you know, real cheap part breaks the, you know, the co-packaged expensive part. So don't you feel like this is the most important step for you to address?

Again, it goes back. So I'm not going to, you know, I'm certainly not going to argue with you, given where we've focused our R&D resources and the momentum we're seeing. But imagine a scenario where, you know, you've got very, very high yields. Our customers have very, very high yields on the pick wafer. Now, I think you can infer that's probably not the case now. And for a while, as a new technology ramps, there's going to be a yield learning curve. But that's one of the reasons why we're continuing to pay attention to all the other insertions. And again, I can't overstress the idea that any insertion is going to require optical probing. So if you get it right at insertion one, you've got the toughest part of the problem solved for any of the other insertions.

Okay, final thing for me is, could you just elaborate? I think you mentioned that most of your growth in HBM pro card revenue in Q2 is going to come from a new customer base. adopting a new application. Could you just elaborate a little bit more on what you said and what the opportunity is? Thank you.

Yeah, what I said was for Q2, we do expect HBM to grow to another record. And really, this comes from a second customer increasing their adoption of our smart matrix technology for the at-speed stack test. This has been one of the staples of our HBM differentiation. And we're now seeing some more significant adoption from the two other customers, other than our primary driver customer. And we see this as central to our differentiation in the HBM space.

Thank you.

Thank you. And our next question comes from the line of Elizabeth Sun from Citi. Your question, please.

Hi, thanks for taking the question. Congrats on the results. So first on the follow-up on the HBM question earlier, we talked about the second customer increasing adoption in Q2. So I'm just wondering on the third HBM customer, are you expecting to gain share as well going down the road?

Elizabeth, in the long term, consistent with our strategy that we've articulated basically since I got here, We want to be a leading supplier to all customers in the industry. So that's an initiative. Now, clearly there's some prioritization and choices going on given not just the production volume, but how thinly our, and the whole industry's R&D resources are stretched. So longer term, it's a question of timeframe, right? Longer term, yes, we expect to be a leading supplier to all three DRAM manufacturers for these at-speed DRAM tests. And I think this is a nice, you know, sort of validation of that here in the second quarter. The other thing I wanted to make sure I snuck in here was if you look at the growth in HBM, you know, from the first half of 2025 to the first half of 2026, if you take the mid pointer guide, we've grown our HBM probe card business by more than 50%. It's a great example of the increase in test intensity, test complexity. Now in the second quarter, a little bit more of a contribution from a second customer for this highly differentiated at-speed test.

And on the CPO side, other than insertion one, are you also working with a similar group of partners, or are you working with other partners as well, like Teradyne or other probers, testers, providers?

Yeah, so to be clear, the bulk of our work is on insertion one, as you might imagine. We're very focused on that because that's the foundational here and now opportunity that we must execute on. I'll go back to what I've said before on this call and in other settings. We believe in the open ecosystem. And so a partner like Paradigm wants to focus together with us and make sure that we've got a compelling solution for some of the other insertions. We'll certainly engage in that discussion. There's some details of resourcing and different relationships that need to be figured out as we do that. But the fundamental principle is we all need to operate in an open ecosystem to be as successful as we can and enable our customers to take on these significant technology challenges. Great. Thanks, Mike.

Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Mike Slesher for any further remarks. Great.

Thank you very much for joining us today. We're really excited to share the future of form factor now that we've achieved our target financial model, share with you the next target model, and really the fundamental operating principles, development initiatives, and growth areas that underpin that next target model for form factor. Hope to see you on May 11th, either live in New York or we'll be webcasting the event as well. Until then, take care.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.