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FormFactor, Inc. Reports 2020 Third Quarter Results

Company Delivers Q3 Revenue and Gross Margin at High End of Outlook Range, Expects Continued Momentum in Q4;
Acquires High Precision Devices, Inc., Expanding Cryogenic Thermal Control and Test Expertise

LIVERMORE, Calif., Oct. 28, 2020 (GLOBE NEWSWIRE) -- FormFactor, Inc. (Nasdaq: FORM) today announced its financial results for the third quarter of fiscal 2020 ended September 26, 2020. Quarterly revenues were $178.0 million, an increase of 12.8% compared to $157.8 million in the second quarter of fiscal 2020, an increase of 26.6% from $140.6 million in the third quarter of fiscal 2019.

  • Revenue at high end of outlook range, close to Company record; Non-GAAP EPS above outlook range
  • Demonstrated diversified revenue profile, with four semiconductor industry leaders comprising ten-percent customers
  • Continued to add production capacity and increase factory output to meet sustained strong demand

“Our third quarter results demonstrate FormFactor’s continuing progress, as we scale to meet customers’ robust demand for our products,” said Mike Slessor, CEO of FormFactor, Inc. “Despite the challenges posed by COVID-19, we steadily improved the efficiency of both our internal operations and external supply chain, allowing us to deliver results nearly matching our all-time-record fourth quarter of 2019.”

The Company also announced that it acquired High Precision Devices, Inc. (HPD) shortly after the end of the third quarter. Based in Boulder, Colorado, HPD brings world-class cryogenic thermal control and test expertise that augment FormFactor’s existing capabilities and products. The ability to control and manage testing from near absolute zero to hundreds of degrees centigrade is a differentiating capability in semiconductor testing, and HPD expands FormFactor’s leading portfolio of engineering system test and measurement capabilities.

“We are pleased to welcome to HPD’s team to FormFactor and are excited about adding their expertise, technologies, and products in cryogenic test and measurement, an area that is evolving rapidly with revolutionary applications like quantum computing” said Dr. Mike Slessor, CEO of FormFactor.

Third Quarter Highlights

On a GAAP basis, net income for the third quarter of fiscal 2020 was $22.9 million, or $0.29 per fully-diluted share, compared to net income for the second quarter of fiscal 2020 of $20.5 million, or $0.26 per fully-diluted share, and net income for the third quarter of fiscal 2019 of $8.3 million, or $0.11 per fully-diluted share. Gross margin for the third quarter of 2020 was 43.1%, compared with 41.9% in the second quarter of 2020, and 39.3% in the third quarter of 2019.

On a non-GAAP basis, net income for the third quarter of fiscal 2020 was $30.7 million, or $0.39 per fully-diluted share, compared to net income for the second quarter of fiscal 2020 of $25.8 million, or $0.33 per fully-diluted share, and net income for the third quarter of fiscal 2019 of $17.3 million, or $0.22 per fully-diluted share. On a non-GAAP basis, gross margin for the third quarter of 2020 was 46.7%, compared with 45.8% in the second quarter of 2020, and 43.5% in the third quarter of 2019.

A reconciliation of GAAP to non-GAAP measures is provided in the schedules included below.

Free cash flow for the third quarter of fiscal 2020 was $37.2 million, compared to free cash flow for the second quarter of fiscal 2020 of $18.6 million, and free cash flow for the third quarter of 2019 of $25.6 million. A reconciliation of net cash provided by operating activities to free cash flow is provided in the schedules included below.

Stock Repurchase Program

The Company's Board of directors has authorized a $50.0 million share repurchase program to help offset dilution from share issuances related to stock-based compensation. The Company intends to purchase share in the open market. The share repurchase program will expire on October 28, 2022.

Outlook

Dr. Slessor added, “As reflected in our fourth-quarter outlook, we anticipate remaining on our current positive trajectory for a strong finish to 2020.”

For the fourth quarter ending December 26, 2020, FormFactor is providing the following outlook*:

    GAAP   Reconciling
Items**
  Non-GAAP
Revenue   $178 million to $190 million     $178 million to $190 million
Gross Margin   40% to 43%   $7 million   44% to 47%
Net income per diluted share   $0.19 to $0.27   $0.16   $0.35 to $0.43

*This outlook assumes consistent foreign currency rates.
**Reconciling items are stock-based compensation, restructuring charges, acquisition related expenses and amortization of intangibles.

We posted our revenue breakdown by geographic region, by market segment and with customers with greater than 10% of total revenue on the Investor Relations section of our website at www.formfactor.com. We will conduct a conference call at 1:25 p.m. PDT, or 4:25 p.m. EDT, today.

The public is invited to listen to a live webcast of FormFactor’s conference call on the Investor Relations section of our web site at www.formfactor.com. A telephone replay of the conference call will be available approximately two hours after the conclusion of the call. The telephone replay will be available through November 4, 6:30 p.m. Pacific Time, and can be accessed by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international) and entering confirmation code 4879487. Additionally, the replay will be available on the Investor Relations section of our website, www.formfactor.com.

Use of Non-GAAP Financial Information:

To supplement our condensed consolidated financial results prepared under generally accepted accounting principles, or GAAP, we disclose certain non-GAAP measures of non-GAAP net income, non-GAAP earnings per fully-diluted share, non-GAAP gross margin, non-GAAP operating expenses and non-GAAP operating income, that are adjusted from the nearest GAAP financial measure to exclude certain costs, expenses, gains and losses. Reconciliations of the adjustments to GAAP results for the three and nine months ended September 26, 2020 and for outlook provided before, as well as for the comparable periods of fiscal 2019, are provided below, and on the Investor Relations section of our website at www.formfactor.com. Information regarding the ways in which management uses non-GAAP financial information to evaluate its business, management's reasons for using this non-GAAP financial information, and limitations associated with the use of non-GAAP financial information, is included under “About our Non-GAAP Financial Measures” following the tables below.

About FormFactor:

FormFactor, Inc. (Nasdaq:FORM), is a leading provider of essential test and measurement technologies along the full IC life cycle – from metrology and inspection, characterization, modeling, reliability, and design de-bug, to qualification and production test. Semiconductor companies rely upon FormFactor’s products and services to accelerate profitability by optimizing device performance and advancing yield knowledge. The Company serves customers through its network of facilities in Asia, Europe, and North America. For more information, visit the Company’s website at www.formfactor.com.

Forward-looking Statements:

This press release contains forward-looking statements within the meaning of the “safe harbor” provisions of the federal securities laws, including with respect to the Company’s future financial and operating results, the Company’s plans, strategies and objectives for future operations. These statements are based on management’s current expectations and beliefs as of the date hereof, and are subject to a number of risks and uncertainties, many of which are beyond the Company’s control, that could cause actual results to differ materially from those described in the forward-looking statements. These forward-looking statements include, but are not limited to statements regarding future financial and operating results, customer demand, conditions in the semiconductor industry, and growth opportunities, and other statements regarding the Company’s business. Forward-looking statements may contain words such as “may,” “might,” “will,” “expect,” “plan,” “anticipate,” and “continue,” the negative or plural of these words and similar expressions, and include the assumptions that underlie such statements. The following factors, among others, could cause actual results to differ materially from those described in the forward-looking statements: changes in demand for the Company’s products; customer-specific demand; the speed of customer implementation of new technologies; industry seasonality; risks to the Company’s realization of benefits from acquisitions and investments in capacity; changes macro-economic environments; events affecting global and regional economic conditions and stability such as Brexit, infectious diseases and pandemics (such as the current COVID-19 pandemic), military conflicts, political volatility and similar factors, operating separately or in combination; and other factors, including those set forth in the Company’s most current annual report on Form 10-K, quarterly reports on Form 10-Q and other filings by the Company with the U.S. Securities and Exchange Commission. We are operating in an environment with especially substantial uncertainties arising from the COVID-19 pandemic, including with respect to its current and future impact on our operations, workforce, manufacturing capacity, customer demand, supply chain, macroeconomic environment and other important aspects of our business. In addition, there are increasingly restrictive export regulations being adopted in the U.S., including recently published amendments to export regulations that may substantially restrict or condition our sales in China with considerable uncertainty regarding the ultimate interpretation and implementation of these rules. No assurances can be given that any of the events anticipated by the forward-looking statements within this press release will transpire or occur, or if any of them do so, what impact they will have on the results of operations or financial condition of the Company. Unless required by law, the Company is under no obligation (and expressly disclaims any such obligation) to update or revise its forward-looking statements whether as a result of new information, future events, or otherwise.

FORMFACTOR, INC. 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)

  Three Months Ended   Nine Months Ended
  September 26,
2020
  September 28,
2019
  September 26,
2020
  September 28,
2019
Revenues $ 177,996      $ 140,604      $ 496,573      $ 410,835   
Cost of revenues 101,247      85,286      286,267      247,644   
Gross profit 76,749      55,318      210,306      163,191   
Operating expenses:              
Research and development 22,878      20,096      65,064      59,893   
Selling, general and administrative 31,834      25,887      82,282      77,354   
Total operating expenses 54,712      45,983      147,346      137,247   
Operating income 22,037      9,335      62,960      25,944   
Interest income 249      724      1,310      1,988   
Interest expense (193 )   (422 )   (682 )   (1,539 )
Other income, net 299      226      141      223   
Income before income taxes 22,392      9,863      63,729      26,616   
Provision (benefit) for income taxes (499 )   1,584      4,479      5,906   
Net income $ 22,891      $ 8,279      $ 59,250      $ 20,710   
Net income per share:              
Basic $ 0.30      $ 0.11      $ 0.78      $ 0.28   
Diluted $ 0.29      $ 0.11      $ 0.75      $ 0.27   
Weighted-average number of shares used in per share calculations:              
Basic 77,029      75,280      76,436      74,749   
Diluted 78,809      77,291      78,534      76,763   


FORMFACTOR, INC. 
NON-GAAP FINANCIAL MEASURE RECONCILIATIONS
(In thousands, except per share amounts)
(Unaudited)

  Three Months Ended   Nine Months Ended
  September 26,
2020
  September 28,
2019
  June 27,
2020
  September 26,
2020
  September 28,
2019
GAAP Gross Profit $ 76,749        $ 55,318        $ 66,167        $ 210,306        $ 163,191     
Adjustments:                  
Amortization of intangibles and inventory fair value adjustment due to acquisition 5,495        4,707        5,174        16,419        14,137     
Stock-based compensation 962        1,117        901        2,800        3,031     
Restructuring charges —        —        —        —        258     
Non-GAAP Gross Profit $ 83,206        $ 61,142        $ 72,242        $ 229,525        $ 180,617     
                   
GAAP Gross Margin 43.1    %   39.3    %   41.9    %   42.4    %   39.7    %
Adjustments:                  
Amortization of intangibles and inventory fair value adjustment due to acquisition 3.1    %   3.3    %   3.3    %   3.3    %   3.4    %
Stock-based compensation 0.5    %   0.9    %   0.6    %   0.6    %   0.7    %
Restructuring charges —    %   —    %   —    %   —    %   0.1    %
Non-GAAP Gross Margin 46.7    %   43.5    %   45.8    %   46.3    %   43.9    %
                   
GAAP operating expenses $ 54,712        $ 45,983        $ 43,674        $ 147,346        $ 137,247     
Adjustments:                  
Amortization of intangibles and inventory fair value adjustment due to acquisition (1,547 )     (1,372 )     (1,528 )     (4,588 )     (6,111 )  
Stock-based compensation (4,547 )     (5,387 )     (4,741 )     (13,974 )     (14,057 )  
Restructuring charges —        (22 )     —        —        (199 )  
Gain on contingent consideration 71        —        3,700        3,771        —     
Acquisition related expenses (334 )     (247 )     —        (369 )     (247 )  
Non-GAAP operating expenses $ 48,355        $ 38,955        $ 41,105        $ 132,186        $ 116,633     
                   
GAAP operating income $ 22,037        $ 9,335        $ 22,493        $ 62,960        $ 25,944     
Adjustments:                  
Amortization of intangibles and inventory fair value adjustment due to acquisition 7,042        6,079        6,702        21,007        20,248     
Stock-based compensation 5,509        6,504        5,642        16,774        17,088     
Restructuring charges —        22        —        —        457     
Gain on contingent consideration (71 )     —        (3,700 )     (3,771 )     —     
Acquisition related expenses 334        247        —        369        247     
Non-GAAP operating income $ 34,851        $ 22,187        $ 31,137        $ 97,339        $ 63,984     

FORMFACTOR, INC. 
NON-GAAP FINANCIAL MEASURE RECONCILIATIONS
(In thousands, except per share amounts)
(Unaudited)

  Three Months Ended   Nine Months Ended
  September 26,
2020
  September 28,
2019
  June 27,
2020
  September 26,
2020
  September 28,
2019
GAAP net income $ 22,891      $ 8,279      $ 20,469      $ 59,250      $ 20,710   
Adjustments:                  
Amortization of intangibles and inventory fair value adjustment due to acquisition 7,042      6,079      6,702      21,007      20,248   
Stock-based compensation 5,509      6,504      5,642      16,774      17,088   
Restructuring charges —      22      —      —      457   
Gain on contingent consideration (71 )   —      (3,700 )   (3,771 )   —   
Acquisition related expenses 334      247      —      369      247   
Income tax effect of non-GAAP adjustments (4,970 )   (3,812 )   (3,265 )   (10,994 )   (10,137 )
Non-GAAP net income $ 30,735      $ 17,319      $ 25,848      $ 82,635      $ 48,613   
                   
Non-GAAP net income per share:                  
Basic $ 0.40      $ 0.23      $ 0.34      $ 1.08      $ 0.65   
Diluted $ 0.39      $ 0.22      $ 0.33      $ 1.05      $ 0.63   

FORMFACTOR, INC. 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

  Nine Months Ended
  September 26,
2020
  September 28,
2019
Cash flows from operating activities:      
Net income $ 59,250      $ 20,710   
Selected adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation 14,491      12,644   
Amortization 20,249      20,248   
Stock-based compensation expense 16,774      17,088   
Provision for excess and obsolete inventories 9,763      8,046   
Gain on contingent consideration (3,771 )   —   
Other activity impacting operating cash flows 7,453      4,642   
Net cash provided by operating activities 124,209      83,378   
Cash flows from investing activities:      
Acquisition of property, plant and equipment (41,887 )   (14,242 )
Acquisition of business, net of cash acquired (34,999 )   —   
Proceeds (purchases) of marketable securities, net 20,609      (25,898 )
Other activity impacting investing cash flows 82      93   
Net cash used in investing activities (56,195 )   (40,047 )
Cash flows from financing activities:      
Proceeds from issuances of common stock 9,588      7,672   
Proceeds from term loan debt 18,000      —   
Payment of term loan debt issuance costs (78 )   —   
Tax withholdings related to net share settlements of equity awards (15,382 )   (7,898 )
Principal repayments on term loans (41,098 )   (18,750 )
Net cash used in financing activities (28,970 )   (18,976 )
Effect of exchange rate changes on cash, cash equivalents and restricted cash 1,262      (161 )
Net increase in cash, cash equivalents and restricted cash 40,306      24,194   
Cash, cash equivalents and restricted cash, beginning of period 147,937      100,546   
Cash, cash equivalents and restricted cash, end of period $ 188,243      $ 124,740   

FORMFACTOR, INC. 
RECONCILIATION OF CASH PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW
(In thousands)
(Unaudited)

  Three Months Ended   Nine Months Ended
  September 26,
2020
  September 28,
2019
  June 27,
2020
  September 26,
2020
  September 28,
2019
Net cash provided by operating activities $ 41,762      $ 28,002      $ 43,108      $ 124,209      $ 83,378   
Adjustments:                  
Cash paid for interest 210      350      182      683      1,128   
Acquisition related payments in working capital 334      —      —      369      —   
Capital expenditures (5,144 )   (2,782 )   (24,693 )   (41,887 )   (14,242 )
Free cash flow $ 37,162      $ 25,570      $ 18,597      $ 83,374      $ 70,264   

FORMFACTOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited) 

  September 26,
2020
  December 28,
2019
ASSETS      
Current assets:      
Cash and cash equivalents $ 185,368      $ 144,545   
Marketable securities 56,100      76,327   
Accounts receivable, net of allowance for doubtful accounts of $222 and $222 96,946      97,868   
Inventories, net 94,616      83,258   
Restricted cash 1,477      1,981   
Prepaid expenses and other current assets 21,687      15,064   
Total current assets 456,194      419,043   
Restricted cash 1,398      1,411   
Operating lease, right-of-use-assets 29,320      31,420   
Property, plant and equipment, net of accumulated depreciation 97,528      58,747   
Goodwill 220,757      199,196   
Intangibles, net 37,937      57,610   
Deferred tax assets 71,464      71,252   
Other assets 1,009      1,203   
Total assets $ 915,607      $ 839,882   
       
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current liabilities:      
Accounts payable $ 62,903      $ 40,914   
Accrued liabilities 44,026      36,439   
Current portion of term loans, net of unamortized issuance costs 9,120      42,846   
Deferred revenue 13,670      9,810   
Operating lease liabilities 6,555      6,551   
Total current liabilities 136,274      136,560   
Term loans, less current portion, net of unamortized issuance costs 26,874      15,639   
Deferred tax liabilities 5,682      6,986   
Long-term operating lease liabilities 26,794      29,088   
Other liabilities 5,841      10,612   
Total liabilities 201,465      198,885   
       
Stockholders’ equity:      
Common stock, $0.001 par value:      
250,000,000 shares authorized; 77,383,494 and 75,764,990 shares issued and outstanding 78      76   
Additional paid-in capital 896,576      885,821   
Accumulated other comprehensive income (loss) 2,479      (659 )
Accumulated deficit (184,991 )   (244,241 )
Total stockholders’ equity 714,142      640,997   
Total liabilities and stockholders’ equity $ 915,607      $ 839,882   

About our Non-GAAP Financial Measures:
We believe that the presentation of non-GAAP net income, non-GAAP earnings per fully-diluted share, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income and free cash flow provides supplemental information that is important to understanding financial and business trends and other factors relating to our financial condition and results of operations. Non-GAAP net income, non-GAAP earnings per fully-diluted share, non-GAAP gross margin, non-GAAP operating expenses, and non-GAAP operating income are among the primary indicators used by management as a basis for planning and forecasting future periods, and by management and our board of directors to determine whether our operating performance has met certain targets and thresholds. Management uses non-GAAP net income, non-GAAP earnings per fully-diluted share, non-GAAP gross margin, non-GAAP operating expenses, and non-GAAP operating income when evaluating operating performance because it believes that the exclusion of the items indicated herein, for which the amounts or timing may vary significantly depending upon our activities and other factors, facilitates comparability of our operating performance from period to period. We use free cash flow to conduct and evaluate our business as an additional way of viewing our liquidity that, when viewed with our GAAP results, provides a more complete understanding of factors and trends affecting our cash flows. Many investors also prefer to track free cash flow, as opposed to only GAAP earnings. Free cash flow has limitations due to the fact that it does not represent the residual cash flow available for discretionary expenditures, and therefore it is important to view free cash flow as a complement to our entire consolidated statements of cash flows. We have chosen to provide this non-GAAP information to investors so they can analyze our operating results closer to the way that management does, and use this information in their assessment of our business and the valuation of our company. We compute non-GAAP net income, non-GAAP fully-diluted earnings per share, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, by adjusting GAAP net income, GAAP earnings per fully-diluted share, non-GAAP gross margin, non-GAAP operating expenses, and non-GAAP operating income to remove the impact of certain items and the tax effect, if applicable, of those adjustments. These non-GAAP measures are not in accordance with, or an alternative to, GAAP and may be materially different from other non-GAAP measures, including similarly titled non-GAAP measures used by other companies. The presentation of this additional information should not be considered in isolation from, as a substitute for, or superior to, net income, earnings per fully-diluted share, gross margin, operating expenses, or operating income in accordance with GAAP. Non-GAAP financial measures have limitations in that they do not reflect certain items that may have a material impact upon our reported financial results. We may expect to continue to incur expenses of a nature similar to the non-GAAP adjustments described above, and exclusion of these items from our non-GAAP net income, non-GAAP earnings per fully-diluted share, non-GAAP gross margin, non-GAAP operating expenses, and non-GAAP operating income should not be construed as an inference that these costs are unusual, infrequent or non-recurring. For more information on the non-GAAP adjustments, please see the table captioned “Non-GAAP Financial Measure Reconciliations" and “Reconciliation of Cash Provided By Operating Activities to Free Cash Flow” included in this press release.

Source: FormFactor, Inc.

FORM-F

Investor Contact:
Stan Finkelstein
Investor Relations
(925) 290-4321
ir@formfactor.com

 

 

Logo 2017 FormFactor.jpg

 

Source: FormFactor, Inc.