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SEC filingFormFactor's net income declined due to prior-year gain on China sale; revenue slightly down with gross margin pressured by tariffs.
For the nine months ended September 27, 2025, FormFactor reported revenue of $569.8 million, down 0.7% from $574.1 million in the prior-year period. Gross profit declined 6.9% to $218.1 million, with gross margin contracting from 40.8% to 38.3%. The margin compression was primarily due to higher manufacturing costs, including increased tariffs, and an unfavorable product mix, particularly in the Probe Cards segment. Operating income fell sharply to $33.6 million (5.9% margin) from $56.8 million (9.9% margin), as operating expenses declined less than gross profit. Net income decreased to $31.1 million from $59.9 million, largely attributable to the absence of a $20.3 million gain on the sale of China operations recognized in the prior year. The effective tax rate rose to 21.9% from 11.2%, driven by changes in jurisdictional income and the implementation of the One Big Beautiful Bill Act.
Probe Cards revenue decreased 2.2% to $465.0 million, with Foundry & Logic falling 6.8% due to weaker probe-card demand for client PC and server microprocessors. DRAM revenue increased 6.1% (and 13.3% in Q3 alone), driven by strong demand for high-bandwidth memory used in generative AI applications, partially offset by non-HBM weakness from trade restrictions with China. Flash revenue declined 3.5% over the nine months but grew 15.9% in Q3 on increased customer production. Segment gross margin for Probe Cards dropped to 39.1% from 41.8%, impacted by higher manufacturing costs and tariffs.
Systems revenue grew 6.5% to $104.8 million, with increases in cryogenic systems, probe stations, and thermal systems. Q3 revenue rose 1.5% driven by thermal systems and probe stations, partially offset by declining cryogenic sales. Systems gross margin for the nine months decreased to 42.0% from 44.2%, due to unfavorable mix from higher sales of lower-margin products, though Q3 margins improved slightly on higher volume.
Management did not provide explicit revenue or earnings guidance. However, they highlighted strategic investments: the purchase of a manufacturing site in Farmers Branch, Texas for $55 million, with expected total cash expenditures of $140-$170 million in fiscal 2026, and production ramp expected late in Q4 2026. The company also noted the impact of the OBBBA tax law, which repealed capitalization of domestic R&D and reduced deductions, providing a tailwind for the effective tax rate. No other forward-looking metrics were disclosed in the MD&A.
Operating cash flow of $69.4M exceeded net income of $31.1M, indicating solid cash generation from operations. Key non-cash add-backs included depreciation/amortization ($28.2M), stock-based compensation ($28.7M), and a $9.9M provision for excess inventory. However, working capital consumed $41.1M, driven by a $28.1M increase in accounts receivable and a $13.9M build in inventories. Capex of $92.3M (133% of CFO) more than tripled from $30.8M, reflecting heavy investment in property, plant and equipment. This led to negative free cash flow of $22.9M, a sharp reversal from $50.8M in the prior period. Share repurchases of $26.2M were reduced from $37.2M, but still consumed 38% of CFO. Overall, cash flows show aggressive investment and deteriorating free cash flow despite operational profitability.