FORMFACTOR INC

Previous wording

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Securities Exchange Act of 1934 and the Securities Act of 1933, which are subject to risks and uncertainties. The forward-looking statements include statements concerning, among other things, our business strategy, financial and operating results, gross margins, liquidity and capital expenditure requirements and impact of accounting standards. In some cases, you can identify these statements by forward-looking words, such as “may,” “might,” “will,” “could,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend” and “continue,” the negative or plural of these words and other comparable terminology.

Current wording

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Securities Exchange Act of 1934 and the Securities Act of 1933, which are subject to known and unknown risks and uncertainties. The forward-looking statements include statements concerning, among other things, our business strategy (including the influence of anticipated trends and developments in our business and the markets in which we operate), financial and operating results, gross margins, liquidity, operating expenses, products, projected costs and capital expenditure requirements, research and development programs, sales and marketing initiatives, competition and impact of accounting standards. In some cases, you can identify these statements by forward-looking words, such as “may,” “might,” “will,” “could,” “should,” “expect,” “plan,” “anticipate,” “believe,” “continue,” the negative or plural of these words and other comparable terminology.

Previous wording

The forward-looking statements are only predictions based on our current expectations and our projections about future events. All forward-looking statements included in this Quarterly Report on Form 10-Q are based upon information available to us as of the filing date of this Quarterly Report on Form 10-Q. You should not place undue reliance on these forward-looking statements. We have no obligation to update any of these statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from those expressed or implied by these statements, including risks related to general market trends, the benefits of acquisitions and investments, our supply chain, uncertainties related to global, regional or national public health-related crises and the impact of our responses to them, the interpretation and impacts of changes in export controls and other trade barriers, military conflicts, political volatility and similar factors, our ability to execute our business strategy and other risks discussed in the section titled “Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 30, 2023 and in this Quarterly Report on Form 10-Q. You should carefully consider the numerous risks and uncertainties described under these sections.

Current wording

The forward-looking statements are only predictions based on our current expectations and our projections about future events. All forward-looking statements included in this Quarterly Report on Form 10-Q are based upon information available to us as of the filing date of this Quarterly Report on Form 10-Q. You should not place undue reliance on these forward-looking statements. We have no obligation to update any of these statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from those expressed or implied by these statements, including risks related to general market trends, the benefits of acquisitions and investments, our supply chain, uncertainties related to public health-related crises, the interpretation and impacts of changes in export controls, tariffs and other trade barriers, military conflicts, political volatility and similar factors, our ability to execute our business strategy and other risks discussed in the section titled “Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 28, 2024 and in this Quarterly Report on Form 10-Q. You should carefully consider the numerous risks and uncertainties described under these sections.

Previous wording

We generated net income of $59.9 million in the first nine months of fiscal 2024 as compared to $6.5 million in the first nine months of fiscal 2023. Beginning in the second quarter of fiscal 2024, certain areas of the semiconductor industry strengthened, increasing demand in most markets within our Probe Cards segment, particularly with demand for high bandwidth memory (“HBM”) chips utilized in generative artificial intelligence applications, ramp of new mobile application processor designs, and demand for client PC and server microprocessor designs. While we experienced growth in total revenues during the first nine months of fiscal 2024, our Systems segment revenues were negatively impacted due to the absence of metrology system sales during the first nine months of fiscal 2024 as a result of the sale of our FRT Metrology business in the fourth quarter of fiscal 2023. Additionally, the increase in net income was partially attributable to the $20.3 million gain recognized from the completion of the sale of our China operations and establishment of an exclusive distribution and partnership agreement to continue sales and support of our products in the region (the “China Transaction”).

Current wording

We generated net income of $6.4 million in the first three months of fiscal 2025 as compared to $21.8 million in the first three months of fiscal 2024. The decline in net income is mainly attributable to the $20.3 million gain recognized during the first quarter of fiscal 2024 from the sale of our China operations that also established an exclusive distribution and partnership agreement to continue sales and support of our products to that region (the “China Transaction”).

Previous wording

Management’s Discussion and Analysis and Note 2, Summary of Significant Accounting Policies, to the Consolidated Financial Statements in our 2023 Annual Report on Form 10-K describe the significant accounting estimates and significant accounting policies used in preparation of the Consolidated Financial Statements. Actual results in these areas could differ from management’s estimates. During the nine months ended September 28, 2024, there were no significant changes in our significant accounting policies or estimates from those reported in our Annual Report on Form 10-K for the year ended December 30, 2023.

Current wording

Management’s Discussion and Analysis and Note 2, Summary of Significant Accounting Policies, to the Consolidated Financial Statements in our 2024 Annual Report on Form 10-K describe the significant accounting estimates and significant accounting policies used in preparation of the Consolidated Financial Statements. Actual results in these areas could differ from management’s estimates. During the three months ended March 29, 2025, there were no significant changes in our significant accounting policies or estimates from those reported in our Annual Report on Form 10-K for the year ended December 28, 2024 except for the addition of a policy related to Equity Investments.

Previous wording

Foundry & Logic —The increase in Foundry & Logic product revenue for the three and nine months ended September 28, 2024, compared to the three and nine months ended September 30, 2023, was driven by the ramp of new mobile application processor designs and stronger probe-card demand for client PC and server microprocessor designs.

Current wording

Foundry & Logic —The decrease in Foundry & Logic product revenue for the three months ended March 29, 2025, compared to the three months ended March 30, 2024, was driven by weaker probe-card demand for client PC and server microprocessor designs.

Previous wording

DRAM —The increase in DRAM product revenue for the three and nine months ended September 28, 2024, compared to the three and nine months ended September 30, 2023, was driven by increased demand for HBM designs utilized in generative artificial intelligence applications and increased demand for commodity DRAM designs, particularly DDR5.

Current wording

DRAM —The increase in DRAM product revenue for the three months ended March 29, 2025, compared to the three months ended March 30, 2024, was driven by increased demand for HBM designs utilized in generative artificial intelligence applications as well as increased demand for other non-HBM DRAM designs, particularly DDR5.

Previous wording

Flash —The increase in Flash product revenue for the three and nine months ended September 28, 2024, compared to the three and nine months ended September 30, 2023, was driven by increased customer production activity and demand for our products.

Current wording

Flash —The decrease in Flash product revenue for the three months ended March 29, 2025, compared to the three months ended March 30, 2024, was driven by decreased customer production activity and demand for our products.

Previous wording

Changes in revenue by geographic region for the three and nine months ended September 28, 2024, compared to the three and nine months ended September 30, 2023, were primarily attributable to changes in customer demand, shifts in customer regional manufacturing strategies, particularly with our large multinational customers, product sales mix, and impacts from trade restrictions. Specifically, the changes in revenue by geographic region was attributable to the following:

Current wording

Changes in revenue by geographic region for the three months ended March 29, 2025, compared to the three months ended March 30, 2024, were primarily attributable to changes in customer demand, product sales mix, and impacts from trade restrictions.

Previous wording

Probe Cards—For the three and nine months ended September 28, 2024, gross profit and gross margins increased compared to the three and nine months ended September 30, 2023, primarily due to greater revenues and a more favorable absorption of costs on higher production volumes. This was partially offset by an unfavorable product mix with a higher concentration of lower-margin DRAM sales and a lower concentration of higher-margin Foundry & Logic sales. For the three and nine months ended September 28, 2024 compared to the corresponding period in the prior year, DRAM revenue was up from 21.4% and 21.0% of Probe Card sales to 35.0% and 34.5% of Probe Card sales, and Foundry & Logic revenue was down from 75.1% and 75.4% of Probe Card sales to 62.4% and 62.6% of Probe Card sales. In general, our DRAM products have lower margins than our Foundry & Logic products.

Current wording

Probe Cards—For the three months ended March 29, 2025, gross profit and gross margins increased compared to the three months ended March 30, 2024, primarily due to a more favorable product mix.

Previous wording

Systems —For the three and nine months ended September 28, 2024, gross profit and gross margins decreased compared to the three and nine months ended September 30, 2023, primarily as a result of lower revenues and a less favorable absorption of costs on lower production volumes, and a less favorable product mix, in part related to the divestiture of the FRT Metrology business.

Current wording

Systems —For the three months ended March 29, 2025, gross profit increased while gross margins decreased compared to the three months ended March 30, 2024, primarily as a result of greater revenues with a more favorable absorption of costs on higher production volumes, more than offset by an increase in manufacturing spending.

Previous wording

Corporate and Other —Corporate and Other includes unallocated expenses relating to stock-based compensation expense, amortization of intangible assets, inventory and fixed asset fair value adjustments due to acquisitions, and restructuring charges, net, which are not used in evaluating the results of, or in allocating resources to, our reportable segments. For the three months ended September 28, 2024, the Corporate and Other gross loss increased compared to the three months ended September 30, 2023, primarily from the an increase in stock-based compensation expense and restructuring charges that were partially offset due to the absence of amortization expense associated with our FRT Metrology business, which was sold during the fourth quarter of fiscal 2023. For the nine months ended September 28, 2024, the Corporate and Other gross loss decreased compared to the nine months ended September 30, 2023, primarily from the absence of amortization expense associated with our FRT Metrology business, which was sold during the fourth quarter of fiscal 2023.

Current wording

Corporate and Other —Corporate and Other includes unallocated expenses relating to stock-based compensation expense, amortization of intangible assets and fixed asset fair value adjustments due to acquisitions, and restructuring charges, net, which are not used in evaluating the results of, or in allocating resources to, our reportable segments.

Previous wording

Overall —Gross profit and gross margins fluctuate with revenue levels, product mix, selling prices, factory loading, and material costs. For the three and nine months ended September 28, 2024, compared to the three and nine months ended September 30, 2023, gross profit and gross margins have increased primarily as a result of more favorable absorption of costs and lower inventory excess and obsolescence reserves, partially offset by an unfavorable product mix, as described above.

Current wording

Overall —Gross profit and gross margins fluctuate with revenue levels, product mix, selling prices, factory loading, and material costs. For the three months ended March 29, 2025, compared to the three months ended March 30, 2024, gross profit and gross margins have increased primarily as a result of greater revenues with a more favorable absorption of costs on higher production volumes, a more favorable product mix, partially offset by an increase in manufacturing spending, as described above.

Previous wording

Research and development expenses in the three months ended September 28, 2024 increased compared to the corresponding period in the prior year primarily due to increased employee compensation costs from higher performance-based compensation and increased general operational costs, partially offset by lower compensation costs from decreased headcount as a result of the sale of our FRT Metrology business in the fourth quarter of fiscal 2023 and the China Transaction in the first quarter of fiscal 2024, lower project material costs, and lower stock-based compensation expense.

Current wording

Research and development expenses in the three months ended March 29, 2025 decreased compared to the corresponding period in the prior year primarily due to slightly lower project material costs and general operational costs on higher revenues.

Previous wording

Selling, general and administrative expenses increased in the nine months ended September 28, 2024 compared to the corresponding period in the prior year. The drivers of the increase for the nine month period were increased employee compensation costs from higher performance-based compensation, increased commissions expense from increased revenues, increased consulting fees from the China Transaction in the first quarter of fiscal 2024 and increased general operating expenses, partially offset by lower amortization expense from significant intangible assets becoming fully amortized.

Current wording

Selling, general and administrative expenses increased in total for the three months ended March 29, 2025 compared to the corresponding period in the prior year, but decreased slightly as a percent of revenues. The drivers of the increase for the three month period were increased restructuring charges from operating efficiency initiatives and increased commissions expense from increased revenues, partially offset by lower general operating expenses from decreased headcount, lower consulting fees from the China Transaction in the first quarter of fiscal 2024 and lower stock-based compensation expense.

Previous wording

Interest income is earned on our cash, cash equivalents, restricted cash and marketable securities. The increase in interest income for the three and nine months ended September 28, 2024 compared with the corresponding period of the prior year, was attributable to higher invested balances.

Current wording

Interest income is earned on our cash, cash equivalents, restricted cash and marketable securities. The increase in interest income for the three months ended March 29, 2025, compared with the corresponding period of the prior year, was attributable to higher invested balances.

Previous wording

Interest expense primarily includes interest on our term loan, interest rate swap derivative contracts, and term loan issuance costs amortization charges. The interest expense for the three and nine months ended September 28, 2024 was effectively flat compared to the corresponding periods in the prior year. This stability is due to our interest rate swap, which fixes the interest rate on our long-term debt.

Current wording

Interest expense primarily includes interest on our term loan, interest rate swap derivative contracts, and term loan issuance costs amortization charges. The interest expense for the three months ended March 29, 2025 was effectively flat compared to the corresponding periods in the prior year. This stability is due to our interest rate swap, which fixes the interest rate on our long-term debt.

Previous wording

Provision for income taxes reflects the tax provision on our operations in foreign and U.S. jurisdictions, offset by tax benefits from tax credits and the foreign-derived intangible income deduction. Our effective tax rate may vary from period to period based on changes in estimated taxable income or loss by jurisdiction, changes to the valuation allowance, changes to U.S. federal, state or foreign tax laws, changes in stock-based compensation expense/benefit, future expansion into areas with varying country, state, and local income tax rates, and deductibility of certain costs and expenses by jurisdiction. The decrease in our effective tax rate for the three months ended September 28, 2024 compared to the corresponding period in the prior year was primarily driven by stock-based compensation expense/benefit impacts on the provision for income tax expense. The increase in our effective tax rate for the nine months ended September 28, 2024 compared to the corresponding period in the prior year was primarily driven by higher taxable U.S. income during fiscal 2024.

Current wording

Provision for income taxes reflects the tax provision on our operations in foreign and U.S. jurisdictions, offset by tax benefits from tax credits and the foreign-derived intangible income deduction. Our effective tax rate may vary from period to period based on changes in estimated taxable income or loss by jurisdiction, changes to the valuation allowance, changes to U.S. federal, state or foreign tax laws, changes in stock-based compensation expense/benefit, future expansion into areas with varying country, state, and local income tax rates, and deductibility of certain costs and expenses by jurisdiction. The increase in our effective tax rate for the three months ended March 29, 2025 compared to the corresponding period in the prior year was primarily driven by effective tax rate impacts the China Transaction had on the prior year.

Previous wording

Our working capital increased to $485.6 million at September 28, 2024, compared to $442.7 million at December 30, 2023.

Current wording

Our working capital decreased to $427.2 million at March 29, 2025, compared to $473.8 million at December 28, 2024.

Previous wording

Our cash, cash equivalents and marketable securities totaled approximately $354.5 million at September 28, 2024, compared to $328.3 million at December 30, 2023. Based on our historical results of operations, we expect that our cash, cash equivalents, and marketable securities on hand, and the cash we expect to generate from operations, will be sufficient to fund our short-term and long-term liquidity requirements primarily arising from: research and development, capital expenditures, working capital, outstanding commitments, and other liquidity requirements associated with existing operations. However, we cannot be certain that our cash, cash equivalents, and marketable securities on hand, and cash generated from operations, will be available in the future to fund all of our capital and operating requirements. In addition, any future strategic investments and significant acquisitions may require additional cash and capital resources. To the extent necessary, we may consider entering into short and long-term debt obligations, raising cash through a stock issuance, or obtaining new financing facilities, which may not be available on terms favorable to us. If we are unable to obtain sufficient cash or capital to meet our needs on a timely basis and on favorable terms, our business and operations could be materially and adversely affected.

Current wording

Our cash, cash equivalents and marketable securities totaled approximately $299.0 million at March 29, 2025, compared to $360.0 million at December 28, 2024. Based on our historical results of operations, we expect that our cash, cash equivalents, and marketable securities on hand, and the cash we expect to generate from operations, will be sufficient to fund our short-term and long-term liquidity requirements primarily arising from: research and development, capital expenditures, working capital, outstanding commitments, and other liquidity requirements associated with existing operations. However, we cannot be certain that our cash, cash equivalents, and marketable securities on hand, and cash generated from operations, will be available in the future to fund all of our capital and operating requirements. In addition, any future strategic investments and significant acquisitions may require additional cash and capital resources. To the extent necessary, we may consider entering into short and long-term debt obligations, raising cash through a stock issuance, or obtaining new financing facilities, which may not be available on terms favorable to us. If we are unable to obtain sufficient cash or capital to meet our needs on a timely basis and on favorable terms, our business and operations could be materially and adversely affected.

Previous wording

Net cash provided by operating activities consists of net income for the period, adjusted for certain non-cash items and changes in certain operating assets and liabilities. Net cash provided by operating activities for the nine months ended September 28, 2024 was attributable to net income of $59.9 million and net non-cash expenses of $32.0 million, partially offset by the increase in net working capital of $10.3 million. The cash used in net working capital is related to increased accounts receivable, net, of $13.3 million, increased inventories of $7.6 million, decreased accounts payable of $8.8 million, and decreased operating lease liabilities of $5.3 million, largely offset by increased accrued liabilities of $7.4 million, other liabilities of $9.3 million, and deferred revenue of $7.9 million. The non-cash expenses consisted of depreciation, amortization, stock-based compensation, and the provision for excess and obsolete inventories, partially offset by the $20.6 million gain on sale of business and deferred income tax benefits.

Current wording

Net cash provided by operating activities consists of net income for the period, adjusted for certain non-cash items and changes in certain operating assets and liabilities. Net cash provided by operating activities for the three months ended March 29, 2025 was attributable to net income of $6.4 million and net non-cash expenses of $23.7 million, partially offset by the increase in net working capital of $6.6 million. The cash used in net working capital mainly related to increased inventories of $10.2 million and lowered accrued liabilities of $7.9 million, partially offset by increased accounts payable of $10.5 million and decreased accounts receivable, net, of $6.3 million. The non-cash expenses consisted of depreciation, amortization, stock-based compensation, and the provision for excess and obsolete inventories.

Previous wording

Net cash used in investing activities for the nine months ended September 28, 2024 primarily related to $30.8 million in property, plant and equipment purchases and $15.5 million in net purchases of marketable securities, partially offset by $21.6 million cash provided by the sale of businesses.

Current wording

Net cash used in investing activities for the three months ended March 29, 2025 primarily related to $67.2 million used to acquire our equity investment in FICT and $18.6 million of property, plant and equipment purchases, partially offset by $1.1 million in net proceeds from the maturities and sales of marketable securities.

Previous wording

Net cash used in financing activities for the nine months ended September 28, 2024 primarily related to $37.2 million used to purchase common stock under our stock repurchase program, $18.0 million used to pay tax withholdings for net share settlements of employee stock awards, partially offset by $9.7 million received from issuances of common stock under our employee stock purchase plan.

Current wording

Net cash used in financing activities for the three months ended March 29, 2025 primarily related to $22.1 million used to purchase common stock under our stock repurchase program, $2.1 million used to pay tax withholdings for net share settlements of employee stock awards, partially offset by $21.6 million received from issuances of common stock in a private placement and under our employee stock purchase plan.

Previous wording

The Building Term Loan bears interest at a rate equal to the applicable SOFR rate, plus 1.86% per annum. Interest payments are payable in monthly installments over a fifteen-year period. The interest rate at September 28, 2024, before consideration of the interest rate swap discussed in the next paragraph, was 7.07%. As of September 28, 2024, the balance outstanding pursuant to the Building Term Loan was $13.6 million.

Current wording

The Building Term Loan bears interest at a rate equal to the applicable SOFR rate, plus 0.1145%, plus 1.75% per annum. Interest payments are payable in monthly installments over a fifteen-year period. The interest rate at March 29, 2025, before consideration of the interest rate swap discussed in the next paragraph, was 6.19%. As of March 29, 2025, the balance outstanding pursuant to the Building Term Loan was $13.1 million.

Previous wording

On March 17, 2020, we entered into an interest rate swap agreement to hedge the interest payment on the Building Term Loan for the notional amount of $18.0 million, and an amortization period that matches the debt. As future levels of LIBOR over the life of the loan are uncertain, we entered into this interest-rate swap agreement to hedge the exposure in interest rate risks associated with movement in LIBOR rates. This agreement was amended on May 19, 2023 to replace the benchmark reference rate LIBOR with SOFR to match the Building Term Loan agreement (as amended). After the amendment, the interest rate swap continues to convert our floating-rate interest into a fixed-rate at 2.75%. As of September 28, 2024, the notional amount of the loan that is subject to this interest rate swap is $13.6 million.

Current wording

On March 17, 2020, we entered into an interest rate swap agreement to hedge the interest payment on the Building Term Loan for the notional amount of $18.0 million, and an amortization period that matches the debt. As future levels of LIBOR over the life of the loan are uncertain, we entered into this interest-rate swap agreement to hedge the exposure in interest rate risks associated with movement in LIBOR rates. This agreement was amended on May 19, 2023 to replace the benchmark reference rate LIBOR with SOFR to match the Building Term Loan agreement (as amended). After the amendment, the interest rate swap continues to convert our floating-rate interest into a fixed-rate at 2.75%. As of March 29, 2025, the notional amount of the loan that is subject to this interest rate swap is $13.1 million.

Previous wording

On October 30, 2023, our Board of Directors authorized an additional two-year program to repurchase up to $75.0 million of outstanding common stock, with the primary purpose of offsetting potential dilution from issuance of common stock under our stock-based compensation programs. This share repurchase program will expire on October 30, 2025. During fiscal 2023, we repurchased and retired 32,020 shares of common stock for $1.2 million. During the nine months ended September 28, 2024, we repurchased and retired 889,683 shares of common stock for $37.2 million, and as of September 28, 2024, $36.6 million remained available for future repurchases.

Current wording

On October 30, 2023, our Board of Directors authorized a two-year program to repurchase up to $75.0 million of outstanding common stock, with the primary purpose of offsetting potential dilution from issuance of common stock under our stock-based compensation programs. On March 29, 2025, our Board of Directors approved an increase to the repurchase program, authorizing the repurchase of an additional $1.6 million shares. During fiscal 2024, we repurchased and retired 1,309,635 shares of common stock for $53.3 million. During the three months ended March 29, 2025, we repurchased and retired 665,000 shares of common stock for $22.1 million, utilizing the remaining shares available for repurchase under the program.

Previous wording

On May 20, 2022, our Board of Directors authorized a two-year program to repurchase up to $75.0 million of outstanding common stock to offset potential dilution from issuance of common stock under our stock-based compensation programs. During fiscal 2022 and fiscal 2023, we repurchased and retired 1,700,893 shares of common stock for $56.4 million and 504,352 shares of common stock for $18.6 million, respectively, utilizing the remaining shares available for repurchase under the program.

Current wording

On April 24, 2025, our Board of Directors authorized an additional program to repurchase up to $75.0 million of outstanding common stock, also with the primary purpose of offsetting potential dilution from issuance of common stock under our stock-based compensation programs. The share repurchase program will expire on April 24, 2027.

Previous wording

(1)Represents our minimum interest payment commitments at 7.07% per annum, excluding the interest rate swap described in Debt, above.

Current wording

(1)Represents our minimum interest payment commitments at 6.19% per annum, excluding the interest rate swap described in Debt, above.

Previous wording

The table above excludes our gross liability for unrecognized tax benefits and our deferred grant. The gross liability for unrecognized tax benefits was $50.3 million as of September 28, 2024. The timing of any payments which could result from these unrecognized tax benefits will depend upon a number of factors and, accordingly, the timing of payment cannot be estimated. The deferred grant was $18.0 million as of September 28, 2024, and consists of cash received from a California Competes Grant awarded from the California Governor's Office of Business and Economic Development. The timing of any potential repayments is dependent upon a number of factors, including the number of employees and capital investments within California over the 5-year term. Accordingly, the timing of any repayment cannot be estimated.

Current wording

The table above excludes our gross liability for unrecognized tax benefits and our deferred grant. The gross liability for unrecognized tax benefits was $52.1 million as of March 29, 2025. The timing of any payments which could result from these unrecognized tax benefits will depend upon a number of factors and, accordingly, the timing of payment cannot be estimated. The deferred grant was $18.0 million as of March 29, 2025, and consists of cash received from a California Competes Grant awarded from the California Governor's Office of Business and Economic Development. The timing of any potential repayments is dependent upon a number of factors, including the number of employees and capital investments within California over the 5-year term. Accordingly, the timing of any repayment cannot be estimated.