FORMFACTOR INC (FORM)·Q1 2025 Earnings Summary

Executive Summary

• Q1 2025 revenue was $171.4M, down 9.6% q/q but up 1.6% y/y; GAAP gross margin was 37.7% and non-GAAP gross margin 39.2%. Non-GAAP diluted EPS was $0.23 at the high end of the outlook range .
• Results beat Wall Street consensus: revenue $171.4M vs $170.0M* and non-GAAP EPS $0.23 vs $0.19*, both above midpoints; FCF was $6.3M as higher CapEx weighed on cash conversion .
• Q2 2025 guidance calls for double-digit sequential growth: revenue $190M ±$5M, non-GAAP GM ~40% ±150 bps, and non-GAAP EPS $0.30 ±$0.04; management noted a mid-single-digit million revenue headwind and ~1ppt GM impact from tariffs .
• Strategic moves underpin long-term positioning: acquisition of a 20% minority stake in FICT (advanced probe card components), Taiwan service center capacity expansion, and EVOLVITY 300 system launch; Board authorized a new $75M share repurchase .

What Went Well and What Went Wrong

What Went Well

• Probe Cards resilience in Foundry & Logic: Q1 Foundry & Logic revenue grew to $85M (+$2M q/q), lifting mix to ~49.8% of company revenue, supporting gross margin relative to the midpoint of guidance .
• HBM trajectory intact with diversification: continuing shipments for HBM3E, increasing HBM4 sampling, and a growing contribution from a second HBM customer to support expected DRAM probe-card rebound in Q2 .
• Systems margin mix improvement: Systems gross margin rose to ~44.5% (from 40.8% in Q4) on favorable product mix and lower manufacturing spend, with CPO demand set to ramp from lab to pilot production .

What Went Wrong

• DRAM weakness (non-HBM) and China export controls: DRAM revenues fell to $48.9M (−$14.4M q/q), with export restrictions limiting shipments of advanced node DRAM probe cards to China .
• Tariffs created quantifiable headwinds: management baked in a mid-single-digit million revenue reduction and a ~1ppt non-GAAP gross margin impact in Q2 due to import costs and customer tariffs, adding uncertainty to operating plans .
• Free cash flow compression: Q1 FCF was $6.3M (vs $28.8M in Q4) driven by lower operating cash flow and higher CapEx ($18.6M vs $7.7M in Q4), while total cash and investments declined on the FICT investment .

Financial Results

Core Financials vs Prior Periods

Actual vs Wall Street Consensus (S&P Global)

Values retrieved from S&P Global.*

Segment Breakdown

Note: Q4 2024 values are calculated from Q1 commentary on sequential changes .

KPIs

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “We expect to deliver double-digit sequential revenue growth… driven primarily by hyperscalers’ continued investments in generative AI… increased demand for high-bandwidth memory DRAM probe cards and co-packaged optics test systems” .
• “HBM… represents a much larger portion of the total silicon area and wafers produced… higher test intensity… raises the performance requirements of each probe card” .
• “We estimate mid-single-digit million dollar reduction in revenues and a 1 percentage point reduction in gross margins due to the impact of tariffs” .
• “We… surpass our target model that delivers $2 of non-GAAP earnings per share on $850 million of revenue” .

Q&A Highlights

• Tariffs quantification: Management confirmed an estimated mid-single-digit million reduction in Q2 revenue and ~1ppt GM impact, with examples of multinational China customers outside FTZ affected; inputs from Japan/Germany subject to import tariffs .
• DRAM/HBM mix: Non-HBM (DDR5/LPDDR5) steady at ~$20M/qtr; Q2 sequential growth guided to come largely from HBM, including HBM3E volumes and HBM4 acceleration; second HBM customer contribution rising .
• HBM3E→HBM4 transition timing: Crossover expected late 2H 2025; HBM margins better than commodity DRAM but below Foundry & Logic margin profile .
• GPU/advanced probe cards: Qualification underway at a major GPU customer's foundry; strong position in switches and CPO; potential multi-headed opportunity (switch, CPO, GPU) .
• Systems visibility: Better line-of-sight to trends (e.g., CPO pilot production) despite limited unit volume forecasting; rapid innovation compresses ramp timelines .

Estimates Context

• Q1 2025 beat: Revenue $171.356M vs $170.025M*; non-GAAP diluted EPS $0.23 vs $0.19* .
• Q2 2025 posted: Revenue beat $195.798M vs $190.174M*; non-GAAP EPS miss $0.27 vs $0.30* .
• Forward estimates: Q3 2025 consensus revenue ~$200.0M*, EPS ~$0.249*; Q4 2025 consensus revenue ~$210.3M*, EPS ~$0.35* (company guided Q3: $200M ±$5M non-GAAP, GM 40% ±1.5%) .

Values retrieved from S&P Global.*

Key Takeaways for Investors

• Q1 print was solid vs consensus, driven by Foundry & Logic resilience and Systems margin mix; DRAM non-HBM softness and China export limits weighed, but HBM remained a structural growth driver .
• Q2 guidance calls for double-digit sequential growth, led by HBM and Foundry & Logic, with explicit tariff headwinds included—indicating prudent outlook construction .
• HBM roadmap and customer diversification are catalysts: HBM3E volumes plus HBM4 sampling in 2H25 and a second HBM customer ramp support sustained DRAM probe-card demand .
• Systems transition to production CPO is a medium-term driver; multiple systems shipping to support pilot production for a leading customer, broadening revenue drivers beyond probe cards .
• Strategic supply chain positioning via FICT stake and Taiwan service expansion reduces execution risk in advanced packaging and supports margin over time .
• Cash conversion moderated on elevated CapEx; watch FCF trajectory as revenues rebound and CapEx normalizes through year, and note $75M repurchase program partially offsets SBC dilution .
• Narrative that moves the stock near term: confirmation of HBM4 timing, tariff clarity, and evidence of advancing GPU probe-card qualifications—each can drive estimate revisions and multiple expansion if margins hold .