Operator: Thank you, and welcome, everyone, to FormFactor's Second Quarter 26 Earnings Conference Call. On today's call are Chief Executive Officer, Mike Slessor and chief financial officer, Aric McKinnis. Before we begin, Stan Finkelstein, the company's VP of Investor Relations will remind you of some important information.

Stan Finkelstein: Thank you. Today, the company will be discussing GAAP P&L results and some important non GAAP 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 investments, including the ramp up of manufacturing facilities, anticipated industry trends, potential disruptions in our supply chain, the impacts of regulatory changes, including tariffs, and changes in export controls, the anticipated volatility in demand for products, our ability to develop produce, and sell products, and the assumptions upon which such statements are based. Those statements are subject to known and unknown risks 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 the SEC for the fiscal year ended December 27, 2025 and in our other SEC filings, which are available on the SEC's website at www.sec.gov and in our press release issued today. Forward looking statements are made as of today, July 29, 2026, and we assume no obligation to update them.

Operator: With that, we will now turn the call over to FormFactor's CEO, Mike Slessor.

Michael D. Slessor: Thanks for joining us today. FormFactor's second quarter revenue, gross profit and earnings per share set all time records. And we achieved 2 important milestones on the path to the new target model we introduced in May. First, we surpassed $1 billion annual revenue run rate. And second, we exceeded a 50% gross margin. In the current third quarter, we expect to deliver sequential increases in both revenue and profitability as we extend our run of record results. Over the past 4 quarters, we have grown revenue by more than 30%, increased non GAAP gross margin by 1.5 thousand basis points and has tripled our non-GAAP earnings per share. These improvements are the product of a multiyear effort to create and expand FormFactor's unique position at the intersection of high performance compute and advanced packaging. While simultaneously strengthening the company's execution to enhance profitability and drive operating leverage. Our second quarter results and third quarter outlook show a clear path to our new target model. Looking further ahead, our Farmers Branch site is on track to come online in the fourth quarter of this year and ramp throughout 2027. Providing increased capacity at a structurally lower cost. This will in turn enable us to accelerate revenue growth and generate additional profitability and operating leverage. Aric will discuss our current operational performance and future plans later in the call. The breadth of demand we saw during the quarter is particularly encouraging with strength in major growth initiatives like high bandwidth memory and co-packaged optics, powering sequential revenue increases in both the probe cards and system segments. This broad participation reflects the diversification strategy we have discussed for years and demonstrates the value of serving all major semiconductors and semiconductor customers and applications rather than concentrating on any single segment customer, or application. Currently, most of the manufacturing activity at this intersection of HPC and advanced packaging is occurring in Taiwan. FormFactor's important role in this region is evident in our supplemental materials. Second quarter revenue from Taiwan grew sequentially by more than 30%, and the world's leading foundry was again a greater than 10% customer. Yesterday, we announced the expansion of our multiyear partnership with Keystone Micro, a provider of semiconductor manufacturing and test services based in Zhubei, Taiwan. This latest step expands FormFactor's regional footprint in Taiwan, improving our local assembly and service capabilities and our responsiveness in supporting the exceptionally steep ramps of complex devices like GPUs, and custom ASICs. Turning now to segment and market details. In DRAM probe cards, we delivered the expected sequential growth from the first quarter to set another record in this business. With increased HBM4 demand paired with sustained demand in DDR applications. HBM comprised approximately 2-thirds of our overall DRAM revenue. Driven by 2 customers continued adoption of FormFactor's differentiated SmartMatrix full-wafer contactor technology in high speed HBM4 applications. 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 CoWoS, and Intel's EMIB. Where stacked die test insertions ensure a known good HBM stack before it is combined with costly GPUs or custom ASICs. Our second quarter results show the impact of FormFactor's competitive advantage and the resulting market share gains as pin 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. In the current third quarter, we are forecasting DRAM revenues to be comparable to the record second quarter. But with a significant underlying shift from HBM to DDR. As you have heard recently from all our major DRAM customers, the supply environment continues to be extremely constrained. And our customers are shifting their wafer start mix to DDR designs to capture the profit opportunity provided by significant DDR price increases. Since probe cards are specific to each customer chip design, we expect DRAM mix to track these dynamic customer product shifts while these unusual end market conditions persist. Shifting now to the foundry and logic probe card market. As expected, second quarter foundry and logic demand increased significantly over the first quarter. This increase was driven primarily by growth in probe cards for data center CPU applications. Building on continued strength in networking applications, initial momentum in hyperscaler custom ASICs, and steady demand in PC and mobile. In the current quarter, we expect continued growth in foundry and logic probe card revenue, driven by broad incremental demand across our served application space in this market. Compared to a quarter ago, the trend of increasing CPU compute intensity to enable agentic AI use cases is now broadly appreciated and is resulting in increased probe card demand for data center CPU designs. FormFactor has opportunities to benefit from this trend in several ways. First, our long term relationship and strong incumbent market share with a leader in data center CPUs. Second, an expanding relationship with the world leader in high performance compute. As our strong position in networking, expands into supporting their GPU and CPU product lines. And third, our successful qualification and subsequent multiple design wins at a large fabless XPU customer. Each of these 3 customer relationships is in a different stage. But together, they represent a broad based opportunity for FormFactor to serve growing CPU demand. They also provide an excellent example of the value of FormFactor's long held diversification strategy. We are being a key supplier to all major customers for growing applications like CPUs, provides us with broad exposure, to the overall growth trend. Turning to our systems segment. Systems revenue nearly doubled sequentially in the second quarter albeit off an unusually weak first quarter. This growth was driven by 2 components. 1, a recovery in our core engineering prober business and second, and more significantly, by accelerating growth in co-packaged optics or CPO. A quarter ago, we forecasted our 2026 CPO revenues to reach the high end of the $10 million to $20 million range we communicated at the start of the year. We now expect to exceed that range by the end of the third quarter, and to significantly exceed the $20 million level for the year overall. This acceleration is driven by 2 factors. First, the growing volumes of CPO chips planned for later this year and second, our leadership in the all important test insertion 1, which ensures known good die on the photonic integrated circuit or PIC wafer before it is combined with the electrical integrated circuit. Or EIC to form the optical module in scale up and scale out network switches. The rapid year-to-date range growth of our CPO business is an exciting development. Which we believe represents the very early stages of wide adoption of silicon photonics in the broader semiconductor industry. Traditional copper interconnect is reaching physical limits in speed, heat, and energy consumption, and photonics provides a fundamentally more efficient way to transact data within and between data centers by using light instead of electricity. FormFactor is ideally positioned to help lead tests for this new of the semiconductor industry as our lab to fab strategy has produced a decade long first mover advantage paired with key customer and partner relationships. Before turning the call over to Aric, I want to thank the global FormFactor team as they continue to demonstrate remarkable agility in navigating the challenging supply environment by quickly resolving internal and external constraints. This agility helped deliver double digit sequential growth in the second quarter, and we expect to grow again to another record in the current third quarter. We are well positioned as test intensity and complexity continue to rise at the intersection of high performance compute and advanced packaging, and are excited to be making good initial progress on the path to our new target model that commits to double revenue and more than double profitability by 2030. Aric, you are up.

Aric McKinnis: Thanks, Mike. Good afternoon. Q2 was another strong quarter for FormFactor. We delivered our third consecutive quarterly revenue record. And drove additional non GAAP gross margin expansion to 53.3%. Demonstrating significant operating leverage and making progress on the priorities we discussed last quarter and at our Investor Day in May. At our Investor Day, we introduced our new target model with a goal of doubling revenues to $1.6 billion. Achieving 55% on a non-GAAP gross margin and more than doubling non GAAP earnings per share to $5 per share by 2020. The current strong demand environment combined with our continued focus on operational execution drove measurable gains towards the new target model in Q2. Non GAAP gross margin increased 34 basis points sequentially and up nearly 15 percentage points as compared with Q2 of last year. Similarly, non GAAP EPS increased by nearly 50% sequentially to $0.82 per share. And more than tripled as compared with Q2 of last year. The quarter over quarter improvement in non GAAP gross margins is driven by several factors. Approximately 1-third of the improvement is from baseline cost reductions that are durable in nature. 1-third is driven by the $32 million or approximately 14% quarter-over-quarter increase in revenues. And the remaining 1-third represent items that we do not expect to recur. Such as IEPA tariff refunds, and precious metal reclaim from our Baldwin Park site shutdown. Announced early in Q2. Product mix remained strong in Q2, driven by factors like record HBM revenue within DRAM. Excluding the timing items and mix favorability, we believe baseline non GAAP gross margins have improved to around 51% at these Q2 volumes. The combination of higher volumes and more efficient cost structure is enabling us to convert strong demand into higher gross profit and operating income. We have taken several measures to increase output in the short term, even as we prepare for the ramp Farmers Branch starting at the end of 2026. Gains in output have been primarily achieved through yield and cycle time improvement. Even as we see more constraints across the supply chain at current production levels. Our Farmers Branch site expansion remains on track to ramp starting at the end of 2026 and continue to ramp over the course of 2027 and 2028. Bringing this capacity up on time and on budget remains a key focus. As it will enable our next phase of growth and gross margin expansion. Stepping through our results in a bit more detail. Q2 2026 revenues of $258.2 million came in $18.2 million above the midpoint Of our Q2 outlook range of $235 million to $245 million and we are up $32.1 million, or about 14%, from Q1. Systems segment revenues made a significant recovery, reaching a new record of $48.5 million in Q2 2026. Up $20.6 million, or 74%, from Q1. GAAP gross margin for the second quarter was 50.7%, up from 38.4% in Q1. Cost of revenues included $6.7 million of GAAP to non GAAP reconciling items. Primarily related to stock based compensation amortization of intangibles and restructuring charges. Details of the GAAP to non GAAP reconciling items are outlined in our press release issued today and in the reconciliation table available on the Investor Relations section of our website. Q1 GAAP gross margins had included $18.8 million of restructuring costs that did not recur in Q2. On a non GAAP basis, gross margin for the second quarter was 53.3%, 34 basis points higher than Q1 and 32 basis points above the high end of our Q2 outlook range. was 54.4%, driven primarily by higher factory utilization manufacturing spending discipline, and improved yields. System gross margin increased to 48.5% driven primarily by higher volumes and favorable mix. Our GAAP operating expenses were $73.1 million for the second quarter. Up from Q1 but down as a percentage of revenue. On a non GAAP basis, operating expenses were $65.7 million or 25.4% of revenue. Compared to $62 million or 27.4% of revenue in Q1. This 200-basis point sequential improvement in OpEx as a percent of revenue demonstrates operating leverage across the P&L. And is the result of continued spending discipline even as we grow, invest in key R&D programs, and fund the Farmers Branch expansion. In Q2 operating expenses were $4.9 million of preproduction ramp costs for Farmers Branch. GAAP net income for the second quarter was $56.2 million or $0.71 per fully diluted share. Up from GAAP net income of $20.4 million or $0.26 per fully diluted share in the previous quarter. The increase was driven primarily by higher revenue higher gross margin, and lower restructuring related costs. Second quarter non GAAP net income was $65 million or $0.82 per fully diluted share. Up from $44.5 million or $0.56 per fully diluted share in Q1. The GAAP effective tax rate for the second quarter was 11.1%. And the non GAAP effective tax rate for the second quarter was 16.2%. Moving to the balance sheet and cash flows. We delivered free cash flow in the second quarter of $52.6 million, compared to $30.7 million in Q1. This increase in free cash flow was driven primarily by higher cash flows from operations, Cash flows from operations were $61.8 million in Q2, up $16.8 million from Q1. Driven primarily by higher net income partially offset by working capital investments to support these higher operating levels. At quarter end, total cash and investments were up $40.8 million to $349 million We continue to expect that the cash CapEx for Farmers Branch and capacity additions will be between $140 million and $170 million in 2026. Preproduction ramp costs are recorded as a component of G&A, and are expected to now be around between $25 million and $30 million in total in 2026. With about $12 million incurred to date for Q2 and about $7 million expected in the current third quarter. Once production ramp begins, the cost currently recorded in G&A will become part of the cost of goods sold on a go forward basis. Upon completion of the ramp to the initial target capacity, which is expected by the beginning of 2028, We expect Farmers Branch to be accretive to gross margin. Associated with our investment in Farmers Branch, we secured certain incentives from both the state of Texas and the City of Farmers Branch That we expect will partially offset the associated expenditures. Among others, these incentives include a $24.2 million grant from the Texas Semiconductor Innovation Fund. Designated to fund capital expenditures upon meeting certain criteria. Overall, we continue to expect that we are largely self funding the investment in Farmers Branch. From increased profitability more efficient cost structure, and cash flow from operations. During the second quarter, we did not repurchase any shares. At the quarter end, authorization of $70.9 million remains available for future repurchases under the April 2025, $75 million 2 year buyback program. That is intended to offset dilution from stock based compensation. In the short term, we are continuing to prioritize our deployment of cash to accelerate the ramp of our new manufacturing site in Farmers Branch. Turning to the third quarter non GAAP outlook. We expect Q3 revenues of $270 million, plus or minus $10 million At the midpoint of this revenue range, we expect non GAAP gross margin of 54% plus or minus 150 basis points. The increase from the Q2 baseline of 51% described earlier to Q3 outlook is driven primarily by items that are not expected to recur specifically $7 million to $9 million or about 300 basis points in IEPA tariff refunds that we expect to receive in the current third quarter. These refunds represent the return of tariffs paid starting in 2025 and through the beginning of 2026. Prior to these tariffs being ruled unlawful. The benefits of marginally higher Q3 revenue volumes are expected to be offset by less favorable product mix in DRAM. As Mike mentioned earlier. At the midpoint of the outlook range, we expect Q3 non GAAP operating expenses to be $70 million, plus or minus $2 million. including about $7 million in preproduction ramp costs for Farmers Branch. Our Q3 non GAAP effective tax rate is expected to be between the range of 15% to 19%. Non GAAP earnings per fully diluted share for Q3 is expected to be $0.86, plus or minus $0.09 A reconciliation of our GAAP to non GAAP Q3 outlook is available on the Investor Relations section of our website. And on our press release issued today. As demonstrated by our Q2 results, and our Q3 outlook, we are already making meaningful progress towards our new target model we shared in May. As we capitalize on the strong secular trends at the intersection of high performance compute and advanced packaging. Our differentiated products are driving demand in areas like high speed test of HBM memory, and traction in new addressable markets like co packaged optics. These growth vectors combined with our focus on execution, cost discipline, and the timely ramp of additional capacity in Farmers Branch, have resulted in good operating leverage in our Q2 results and chart an encouraging path into the future. With that, let's open the call for questions. Operator?

Operator: As a reminder, to ask a question, you will need to press star 1 on your telephone. To remove yourself from the queue, you may press star 1 again. Please limit yourself to 1 question and 1 follow-up to allow everyone the opportunity to participate. Please standby while we compile the Q&A roster. Our first question comes from the line of Krish Sankar of TD Cowen. Your line is open, Krish.

Krish Sankar: Yeah. Hi. Thanks for taking my question, and congrats on a very strong results and impressive gross margins. I had a clarification on the question. Aric, on the clarification, did you say that 51% or 53% gross margin is the new baseline? And as Farmers Branch comes online, it is going to be more accretive, so should we assume as these revenue levels go higher, the gross margins will be better than 53%?

Aric McKinnis: Hi. Yes. Thank you for your question. Just to clarify what I said, the actual gross margins for the quarter were 53.3%. That included some items that we do not think are recurring. They were some tariff refunds and things like that reclaim from precious metals, for example. Those things will not recur. So the recurring or sustainable element of gross margins, we believe, is more like 51% at the current volumes and mix. So we expect that is the new baseline that you should be thinking about. Does that answer your question?

Krish Sankar: Yes. And that incorporates even Farmers Branch when it comes online.

Aric McKinnis: So that is the current baseline with our current operating footprint. We do expect that Farmers Branch, as it comes online, will be accretive to current gross margin. Perfect.

Krish Sankar: Awesome. And then a quick follow-up for Mike. Mike, it is kind of impressive to see, like, TSMC being a greater than 10% customer I am just wondering, is some of the and, like, last 4 years NVIDIA think that is mostly networking chips. I am just wondering, does Rubin and CPO for NVIDIA come under TSMC or would it be under NVIDIA? And what is the status of the Rubin qual?

Michael D. Slessor: Yeah. Let me address that 1 first, Krish. There really is no component of GPU business in the second quarter results for this greater-than-10% customer. As we said in the past, we expect this to be a second half event for us. And we are on track. We are qualified as we have shared with you. And our shipping production units for revenue here in the third quarter. The CPO piece does flow through that greater-than-10% customer So it is in many cases with the combination of the fabless foundry ecosystem you recognize revenue in different places depending on the market segment, even depending on the individual product line. They have. Awesome.

Krish Sankar: Thanks a lot, Mike. Appreciate it. Congrats, Aric.

Michael D. Slessor: Thank you.

Operator: Our next question comes from the line of Matthew Prisco of Cantor. Please go ahead, Matthew.

Matthew Prisco: Hey, guys. Thanks for taking my question. I guess first on foundry logic, can you provide some more color on the breadth of the strength you are seeing there today? And then I know you highlighted the kind of agentic AI driving the CPU demand. How are you thinking about that as a potential upside source versus your target model? that was outlined, you know, only a couple months ago now? Thanks.

Michael D. Slessor: Yeah. So the strength as we went from Q1 to Q2 in Foundry and Logic, as we said on the call, primarily associated with an uptick in CPU demand from 1 of our historically strong customer. But as we look at our opportunity in the CPU space, which we do view, as a longer term opportunity, there is a couple of different ways that we are exposed to that. As I mentioned, the growing relationship with the leader in high performance compute They have obviously, is starting to participate in the CPU business. And remember, we are qualified and now competing for share with the large fabless CPU manufacturer. So a great example of where we are diversifying and sort of no matter how the CPU market share landscape shakes out between our customers, we feel like we at least have the opportunity to participate. All of those relationships are in different phases. So you know, if it all hits today, it will have different components for us. But, again, a good example of our goal to be a broad-based supplier to all the leaders in the industry.

Matthew Prisco: Got it. that is helpful. And then maybe on the supply side, the efficiency is obviously coming in much better than we had expected. How do we think about your ability to continue driving efficiencies from here within the current footprint through the end of the year, maybe into 2027 as well? And then maybe more importantly, Farmers Branch coming online in Q4. Ramping through next year. How do we think about the timing of the revenue contribution there? How meaningful can that be over the next few quarters?

Aric McKinnis: Yeah. We are very excited about the output we have been able to drive out of our existing footprint. And just to reiterate, that was driven in large part by the transformation that we have done in our global operations team, really thinking and doing different and we see those benefits being driven primarily from yield and cycle time improvements. As you can tell by our most recent results and also by our outlook for next quarter, we have been pretty successful. And we intend to continue to push on those levers through the end of the year. In advance of Farmers Branch starting to ramp. In Q4. The initial targeted capacity of Farmers Branch is roughly equivalent to our California Probe Card footprint today. So we expect that will come online over the course of the year but should contribute meaningful capacity to the extent the demand is there. Thank you.

Operator: Our next question comes from the line of Craig Ellis of B. Riley Securities. Please go ahead, Craig.

Craig Ellis: Yes. Thanks for taking the questions. And let me start by recognizing the stellar execution in the quarter. Nice job, team. Mike, I will start with DRAM since there have not been there. I think 3 or 4 quarters ago, we all wondered if some of the legacy formats like DDR 4 and 5 would come back, and here they are. Can you help us understand how long-lived do you see some of the strength that you talked about for Q3 and how we should properly think about the DRAM business from here given that it does seem to have at least some near term legs?

Michael D. Slessor: Yeah. Well, the DRAM overall, both HBM and DDR 5 is a pretty dynamic marketplace. Both for our customers and for us. And as we said, we see a pretty significant mix shift in Q3. Although the top line DRAM revenue is expected to be pretty similar to Q2, we expect the mix to shift towards DDR quite significantly. That really in conversations with our customers is a rational reaction. To the pricing they are seeing in the market where they can generate more profit by starting DDR5 wafers. Surprisingly, than they can in HBM4 wafers. And so I think there is gonna be a very adaptive and dynamic environment where they are and you have heard this from them in recent earnings calls. They are gonna adapt their product mix to maximize their profit opportunity. And that is given the probe cards are a device specific consumables, As they change their wafer start mix, we are gonna see our mix change correspondingly. Thanks for that.

Craig Ellis: And then the follow-up question goes back to a point you made in your prepared in your prepared comments around the breadth of demand. And it is really brought home by the fact that on the greater-than-10% customer list, the ones disclosed in the Q, you have many big customers beyond that. totaled 35% of revenue. So 65% of revenue comes from those not at 10% in the quarter. The question is this. As we think about the business opportunities from here, and I think you have alluded to competing for business at a fabless CPU supplier, and you talked about other in the second half at a leading GPU supplier. How many opportunities are there like that? Can you give us your Pareto list and help us the timing that those could come into the model? Thank you.

Michael D. Slessor: Yeah. So there is there is a bunch of different opportunities, and I will ground people back in what we said at our investor day in early May. The segments and the customers we are operating in where we plan to gain more than half of the increase in the addressable market between now and 2030, they are pretty familiar places. Right? it is things like GPUs. it is things like co-packaged optics. Custom ASICs. You know, in addition, when we look at expanding our HBM business, for example, coming back to DRAM, I made the point that we are seeing strong adoption now from 2 major customers And so there is broadening and diversification and share gains. You are seeing the early innings of what we told you was gonna happen at the Investor Day. You are seeing the early innings here in Q2 results. And the Q3 guidance. that is helpful. Thanks, Mike.

Operator: Thank you. Next question comes from the line of Elizabeth Sun of Citi. Please go ahead, Elizabeth.

Elizabeth Sun: Hi. Thanks for taking my question, and congrats on the good result. I guess my first question is on the CPO side. Mike, you talked about CPO is total CPO revenue expected to cross over $20 million by Q3 and another step up in Q4. I am just wondering for the CPO revs throughout the year, is it increasingly higher quarter over quarter? And ultimately, how much revenue can you do for this year in CPO?

Michael D. Slessor: Yeah. it is a it is an interesting question. Right? So to ground everybody, you know, we came into the year. We said we were expected to do between $10 million and $20 million in CPO revenue. And today, we have upped that we are gonna expect to do $20 million by the end of Q3 this quarter. You know, how much more on top, we do in Q4 for the full year is kind of an open question right now. We are seeing some significant acceleration in this business, but it is new technology. it is new technology for our customers. it is new technology for us. So we certainly expect to be above $20 million for the year The magnitude of that is a little tricky to judge right now. What I will say, you know, all of these new technology programs, they always have acceleration digestion phases. Right now, we are seeing strong acceleration and a reminder that this is a significant market. You know, we told you at Investor Day that our piece of that served market is about $400 million by 2030. Right now, accelerating pretty hard towards that.

Elizabeth Sun: Got it. that is good to know. And second question is on the HBM side. For from the competition perspective. You are pretty strong at 2 HBM customers, so I would like to ask how about the share dynamics at the third-biggest HBM customer? And also, 1 of your foundry logic probe card peers has been pretty vocal about talking about getting into the HBM market. So I am just curious how do you see the competition environment going forward in, like, say, HBM4e and going forward.

Michael D. Slessor: Yeah. And this is 1 where I will try not to get too deep in the weeds, but it is important to understand sort of the subsegments in applications in HBM overall. Where we are really doing very well and now have strong share at 2 major DRAM manufacturers, HBM manufacturers, is on the high speed stack die test. Essentially, final test for the HBM stack where our customers ensure that it is good before it gets shipped to the foundry to be packaged together with GPUs and custom ASICs. that is a very high performance insertion and 1 where we have very strong share. there is lots of competition, for example, in the core die insertions and other places, which are a lot like you know, regular DRAM wafer sort. So our differentiation, our share continue to be quite strong at these high value high speed final test insertions and we are continuing to partner with all the customers, all 3 of them, although our share is stronger at 2 of them right now. To advance that capability and differentiation as speeds continue to increase and stack heights continue to increase as we move from HBM4 to HBM4e to HBM5. Got it. Thanks, Mike.

Operator: Thank you. Our next question comes from the line of David Duley of Steelhead Securities.

David Duley: Thanks for taking my question. I guess congratulations on being able to get a lot more out of your current factory footprint. And I think at your Analyst Day, you showed, a chart with cycle time improvements, you know, I believe the goal is getting to, like, 60% cycle time improvement, something like that. I was wondering if you could share with us any metrics now, that you have had several quarters of improving output from the factory is how much you have lowered your cycle times or how much you have improved your yields. Any sort of metric about where you are on your journey would be most helpful.

Aric McKinnis: Yeah. Thanks for your thanks for your question. We do not typically share those sorts of metrics in these forums, but in general, what I can say is that the drivers that we expect to really chart our path forward for gross margins That remain consistent with what we discussed at our investor day and the target model that we laid out. So we still expect to drive the majority of the improvements from volume operational excellence, and more transformation innovation. I believe that we are on track with that. If you look at where we are on more of a stabilized or a normalized basis at 51%. We see appropriate contribution from all of those vectors.

David Duley: So you know, are you halfway on your journey to 60% improvement in cycle times or 3 quarters? I do not have the chart in front of me, but there was a chart at your analyst day that kind of implied, you know, you were significantly along. I think at that time, you were you would improve cycle times by 25%.

Aric McKinnis: So I would say And sorry. Go ahead. Go ahead. Yeah. I would say I would say again, we are we are you are on track. If you look at a high level, the implied revenue run rate for our Q3 outlook, which starting to get close to something like a $1.1 billion run rate. And if you look at our gross margin trajectory from where we were at our Investor Day at 49%, looking at 51% as a normalized level at the current revenue and mix, I think we are we are aligned. We are on track. We are on the journey. We are very happy about the performance to date. No significant changes in our expectations. Okay.

David Duley: The second question is, you know, there is been a lot of chatter now with, I think, a third hyperscale customer kinda ramping into volume. Could you just take a step back and remind us, you know, where you are in servicing, you know, I guess, the 3 customers now that are you know, somewhat significant? And, you know, how big do you think the TAM for hyperscaler probe cards is.

Michael D. Slessor: So hyperscaler custom ASICs, and I am going to do the same thing Aric did and take you back to the investor day. This is 1 of the key growth initiatives for us. We are with all the hyperscalers. And some of them are further along certainly in their in their ASIC programs having released multiple parts. Some of them are early on. We do have revenue in the second quarter, and we have updated you on some design wins earlier. But I think the big discontinuity is still to come here. When these custom ASICs require an advanced MEMS probe. Looks like the next generation of something like a Google TPU is going to require an advanced MEMS probe because of the power and speed requirements it runs at. And if you remember, for those of you who followed us for a while, exactly the same thing happened with GPUs. 2, 3, 4 years ago, where historically, they would use legacy probe cards pseudo MEMS technology, all of a sudden, these chips crossed the performance threshold where they needed advanced MEMS probe card. We are engaged with all the hyperscalers. On working through the development right now for those next generation devices. And I do not think you will see significant revenue contributions here in 2026. But certainly into 2027 as those parts ramp, we expect to be a key supplier in those ecosystems. Okay. Thank you.

David Duley: Just 1 follow-up on our earlier question about broadening out in the foundry and logic space. You have talked in great detail about the CPU segment. Is there any other broadening out You know, I imagine you might see some GPU in the foundry business maybe some improvement in industrial and automotive. Maybe talk about the 2 or 3 largest needle movers for the continued strength in foundry and logic.

Michael D. Slessor: Yeah. And it really revolves around high performance compute and advanced packaging. Remember, we are pretty levered to the leading edge. Probe cards and wafer tests are most valuable for our customers where yields are low and packaging costs are high. And HPC and advanced packaging is the nexus of those things. Automotive and industrial, although we have some exposure, pretty spotty and nowhere near as significant growth driver as even from a SAM perspective, from an available market perspective, nowhere near as significant as HPC and AI. So in terms of growth opportunities, again, I will take you back to the Investor Day the different elements of GPUs, custom ASICs, CPO, those are the things really driving. Well, those are some pretty good drivers. Congratulations on nice results. Thanks, David.

Operator: Our next question comes from the line of Dennis Pimentel of Needham and Company. Your line is open, Dennis.

Dennis: Great. Thank you very much. So perhaps a question on the CPO adoption outlook. I think initially, you had said that it was going to be a 2020 story, but now you are seeing more acceleration. So are we perhaps expecting the timeline to accelerate a little bit Are we maybe gonna see more volume hit sometime in 2027? There have been changes about that?

Michael D. Slessor: I would not say there is changes, Dennis. What I would say is there is acceleration here in the very short Sorry. We are having some audio problems. Give us a second. Let me try that again now. Okay, we are good. Okay. So I would not say there is, you know, a significant pull in or change in our view. If I point you to the 2030 target model, we said our served market is about 400 million there. We are seeing some rapid adoption right now, but very early in this, right? We talked about $20 million in 2026, which we now expect to achieve that by the end of the third quarter. And as I said in response to an earlier question, we would expect to obviously go above $20 million in the year overall. Having said that, it gets pretty difficult to forecast out. You know, there is lots of variables in this, both overall CPO adoption by our customers, but then also yields, test time, some very real variables that go into the adoption rate. Having said that, we are really excited about the opportunity. Right? We have got a strong position in insertion 1. We are partnered with the leaders in this in this overall ecosystem. And serving all of the different customer ecosystems and architectures. Expect it to grow significantly, granularizing it or making it granular enough to go quarter by quarter through 2027, I think, is probably a bridge too far at this point. But strong growth business and a great opportunity for us.

Dennis: Yeah. No. Thanks for that. That was a lot of great detail. Maybe for my follow-up, we can talk about a longer term question in terms of GPU tests. So previously, these products were not tested with the MEMS based probe cards, but, you know, there may be some move towards that. How does that road map look for now? Have there been any changes or any acceleration in terms of when MEMS-based probe cards could be adopted? Is there any particular product that you can discuss that, you know, may adopt it soon rather than later?

Michael D. Slessor: Yeah. GPUs have fully adopted advanced MEMS probe cards. And you see that you know, that happened probably 2 generations ago. It really is driven by the power and speed requirements of testing these GPUs. The immense amount of current has to go in and out of the parts at some significant speeds. And really the only way to do that is an advanced MEMS probe technology. there is only a handful of us in the industry that can produce that technology. Right now, it is primarily our competitor's business, but as we have updated everyone, we are now qualified and shipping production units here in the third quarter, we expect that business to grow. And as I fast-forward to ASICs, in response to a previous question, custom ASICs are undergoing that transition to advanced MEMS probe technology right now. And so, you know, GPUs are a nice history lesson for how this happened. But exciting that custom ASIC transition is in front of us as well.

Dennis: Great. that is it for me. Thank you very much.

Operator: Thank you. Our next question comes from the line of Christian Schwab of Craig Hallum. Your line is open, Christian.

Christian Schwab: Hey. Great quarter. Can you give us some idea on the fab list CPU customer where you are market share is today and where you think it can go over time?

Michael D. Slessor: Yeah. So we have updated people on the multiyear journey to get qualified, which we are qualified, and gain share there. And we have now won a couple of designs. As we said in the past, it is gonna take a while. Right? For a couple of reasons. 1, this is a brand-new customer for us. Unlike some of the opportunities that involve, like, GPUs that involve existing customers, but a new app application, those can move relatively quickly. When you are introducing yourself to a brand new customer supply base, that takes a little bit longer. But we are happy with the progress there and the exposure. The other reason it is gonna take a little while is because things are very capacity constrained across the industry. And, you know, as we ramp things up, we wanna be thoughtful about the commitments we make, both to existing customers and new customers And that is probably until Farmers Branch comes online, gonna be a little bit of a governor on our market share growth there as well. But good position, executing well, I would characterize it as low single digit market share at this point, but with a whole lot more opportunity in front of us.

Christian Schwab: Great. Thank you. And then just 1 last question. Here on gross margins. I know it is your Analyst Day You expect you expected Farmers Branch, I believe. To drive gross margin accretion by 2028 and beyond. Just as we think about you know, exiting this year in gross margins for, 2027, should we assume some gross margin improvement due to lower cost manufacturing base, etcetera? In 2027? Do you or do you really think that will just all come in 2028?

Aric McKinnis: I think we are primarily counting on them seeing that sort of improvement and accretion from Farmers Branch. Fully in 2020. The reason why is that as you know, ramps like this come with some measure of inefficiency. We expect to see some of that through next year as we ramp the site. That said, we are planning to be as efficient as possible You know, 1 element of that is completing the ramp as quickly as possible. So combining it to the course of a year to complete the ramp to initial capacity. And then we are planning to largely offset those inefficiencies through the operational effectiveness improvements that you have seen us making, some of which that you have already seen. Expect that to largely offset some of these headwinds as we ramp the site. What remains clear to us is that we need this capacity. it is coming online very timely. And we think it is very important to support the growth that we see in our current addressable market. Great.

Christian Schwab: No other questions. Thank you.

Operator: Thank you. I would now like to turn the conference back to Mike Slessor for closing remarks. Sir?

Michael D. Slessor: Thanks again, everyone, for joining us today. As usual, we are going to be attending some late summer and early fall conferences and hope to see you there and answer your questions about FormFactor. Until then, stay safe and take care.

Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.