FormFactor(US:FORM)2025-10-29 21:27Financial Data and Key Metrics Changes - The company reported Q3 2025 revenues of $202.7 million, with non-GAAP gross margins at 41%, up 250 basis points from 38.5% in Q2 2025 [23][24] - GAAP gross margins for Q3 were 39.8%, compared to 37.3% in Q2 [25] - Non-GAAP EPS for Q3 was $0.33, exceeding the high end of the outlook range of $0.21 to $0.29 [24][30] - Free cash flow in Q3 was $19.7 million, a significant improvement from negative $47.1 million in Q2 [26] Business Line Data and Key Metrics Changes - In the DRAM Probecards segment, there was double-digit sequential growth in Q3, primarily driven by HBM [10] - The systems segment also saw a sequential revenue increase in Q3, with expectations for further growth in Q4 [15] Market Data and Key Metrics Changes - The company expects continued growth in HBM revenue, with Q4 HBM revenue anticipated to be similar to Q3 levels [10] - Demand in the foundry and logic probecard market was weaker in Q3, with expectations of similar demand levels in Q4 [12] Company Strategy and Development Direction - The company is focused on improving profitability to achieve a target model of 47% non-GAAP gross margins [6][19] - Initiatives include rapid gross margin improvement actions and long-term structural initiatives, such as developing differentiated new products and ramping up the new Farmers Branch facility [8][17] - The company aims to expand its market share in advanced packaging and high-performance compute sectors [9] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about achieving sequentially higher revenue and gross margins in Q4, building on Q3 performance [6] - The company is addressing challenges such as tariffs and supply chain disruptions while focusing on operational efficiency [19][28] Other Important Information - The company plans to invest between $140 million and $170 million in the Farmers Branch facility over 2026, which is expected to improve gross margins beyond the current target model [27][63] - The company has initiated a share repurchase program to offset dilution from stock-based compensation [27] Q&A Session Summary Question: Insights on HBM growth and Probecard intensity - Management noted that the transition to HBM4 is expected to increase test intensity and complexity, driving growth in Probecard demand [34] Question: Contribution of tactical versus structural improvements to gross margin - Management indicated that both tactical and structural improvements are contributing to the gross margin roadmap, with ongoing benefits expected from restructuring actions [36][38] Question: Impact of CPU and GPU customer ramps on foundry and logic - Management acknowledged the potential for significant revenue impact from CPU and GPU customer ramps, although quantification is challenging at this stage [42][43] Question: Revenue growth drivers in Q4 - Management clarified that revenue growth in Q4 is expected to be driven by a mix of legacy DRAM and improvements in operational efficiency [46][47] Question: Timing of capacity increase from Farmers Branch facility - Management expects initial capacity from the Farmers Branch facility to come online late in 2026, with the majority in 2027 [48] Question: HBM revenue specifics for Q3 - Management confirmed that HBM revenue for Q3 was approximately $40 million, with expectations for growth in Q4 driven by HBM4 [53] Question: Status of CPU customer revenue - Management acknowledged that a major CPU customer did not contribute significantly in Q3 but emphasized the importance of the long-term partnership [56] Question: ASIC projects contribution and updates - Management highlighted ongoing engagements with major hyperscalers in the custom ASIC space, with some revenue contribution in Q3 [60]