SEC Filing | FormFactor, Inc.

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form-20210925

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark one)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 25, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 000-50307

FormFactor, Inc.

(Exact name of registrant as specified in its charter)


Delaware						13-3711155
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

7005 Southfront Road, Livermore, California 94551

(Address of principal executive offices, including zip code)

(925) 290-4000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $0.001 par value

FORM

Nasdaq Global Market

______________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of the Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):


Large Accelerated Filer	☒	Accelerated Filer	☐

Non-accelerated Filer	☐	Smaller Reporting Company	☐

Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 28, 2021, 78,207,417 shares of the registrant’s common stock, par value $0.001 per share, were outstanding.

FORMFACTOR, INC.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 25, 2021

INDEX


Part I.	Financial Information

Item 1.	Financial Statements (Unaudited):

	Condensed Consolidated Balance Sheets as of September 2 5 , 2021 and December 26, 2020	3

	Condensed Consolidated Statements of Income for the three and nine months ended September 2 5 , 2021 and September 2 6 , 2020	4

	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 2 5 , 2021 and September 2 6 , 2020	5

	Condensed Consolidated Statement of Stockholders' Equity for the three and nine months ended September 2 5 , 2021 and September 2 6 , 2020	6

	Condensed Consolidated Statements of Cash Flows for the nine months ended September 2 5 , 2021 and September 2 6 , 2020	8

	Notes to Condensed Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35

Item 4.	Controls and Procedures	35

Part II.	Other Information	35



Item 1A.	Risk Factors	35









Item 6.	Exhibits	36

Signatures		37

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

FORMFACTOR, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)


	September 25, 2021		December 26, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	153,781	$	187,225
Marketable securities	110,898		67,810
Accounts receivable, net of allowance for doubtful accounts of $214 and $248	105,807		107,603
Inventories, net	115,104		99,229
Restricted cash	2,019		1,904
Prepaid expenses and other current assets	18,892		23,303
Total current assets	506,501		487,074
Restricted cash	1,674		1,969
Operating lease, right-of-use-assets	36,669		30,756
Property, plant and equipment, net of accumulated depreciation	140,098		104,103
Goodwill	213,293		212,761
Intangibles, net	39,195		59,147
Deferred tax assets	67,231		66,242
Other assets	1,930		1,165
Total assets	$	1,006,591	$	963,217

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	64,925	$	62,045
Accrued liabilities	54,625		55,342
Current portion of term loans, net of unamortized issuance costs	9,213		9,516
Deferred revenue	23,275		20,964
Operating lease liabilities	7,962		6,704
Total current liabilities	160,000		154,571
Term loans, less current portion, net of unamortized issuance costs	17,742		24,978
Deferred tax liabilities	4,264		5,346
Long-term operating lease liabilities	32,401		27,996
Other liabilities	5,794		6,242
Total liabilities	220,201		219,133

Stockholders’ equity:


Common stock, $0.001 par value:
250,000,000 shares authorized; 78,207,219 and 77,437,997 shares issued and outstanding	78		78

Additional paid-in capital	892,303		903,838
Accumulated other comprehensive income	1,700		5,886
Accumulated deficit	(107,691)		(165,718)
Total stockholders’ equity	786,390		744,084
Total liabilities and stockholders’ equity	$	1,006,591	$	963,217

The accompanying notes are an integral part of these condensed consolidated financial statements.

FORMFACTOR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 25, 2021		September 26, 2020		September 25, 2021		September 26, 2020
Revenues	$	189,964	$	177,996	$	564,676	$	496,573
Cost of revenues	109,745		101,247		331,468		286,267
Gross profit	80,219		76,749		233,208		210,306
Operating expenses:
Research and development	26,026		22,878		75,526		65,064
Selling, general and administrative	30,940		31,834		91,434		82,282
Total operating expenses	56,966		54,712		166,960		147,346
Operating income	23,253		22,037		66,248		62,960
Interest income	121		249		463		1,310
Interest expense	(151)		(193)		(447)		(682)
Other expense, net	58		299		36		141
Income before income taxes	23,281		22,392		66,300		63,729
Provision (benefit) for income taxes	2,784		(499)		8,273		4,479
Net income	$	20,497	$	22,891	$	58,027	$	59,250
Net income per share:
Basic	$	0.26	$	0.30	$	0.75	$	0.78
Diluted	$	0.26	$	0.29	$	0.73	$	0.75
Weighted-average number of shares used in per share calculations:
Basic	77,869		77,029		77,643		76,436
Diluted	79,029		78,809		79,190		78,534

The accompanying notes are an integral part of these condensed consolidated financial statements.

FORMFACTOR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 25, 2021		September 26, 2020		September 25, 2021		September 26, 2020
Net income	$	20,497	$	22,891	$	58,027	$	59,250
Other comprehensive income (loss), net of tax:
Translation adjustments and other	(1,511)		1,867		(3,258)		2,231
Unrealized gains (losses) on available-for-sale marketable securities	(62)		(148)		(290)		349
Unrealized gains (losses) on derivative instruments	(323)		302		(638)		558
Other comprehensive income (loss), net of tax	(1,896)		2,021		(4,186)		3,138
Comprehensive income	$	18,601	$	24,912	$	53,841	$	62,388

The accompanying notes are an integral part of these condensed consolidated financial statements.

FORMFACTOR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands, except shares)

(Unaudited)


	Shares of Common Stock	Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total

	Nine Months Ended September 25, 2021
Balances, December 26, 2020	77,437,997	$	78	$	903,838	$	5,886	$	(165,718)	$	744,084
Issuance of common stock under the Employee Stock Purchase Plan	378,584	—		9,809		—		—		9,809
Issuance of common stock pursuant to exercise of options	100,000	—		844		—		—		844
Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax	910,838	1		(19,602)		—		—		(19,601)
Purchase and retirement of common stock through repurchase program	(620,200)	(1)		(23,950)		—		—		(23,951)
Stock-based compensation	—	—		21,364		—		—		21,364
Other comprehensive loss	—	—		—		(4,186)		—		(4,186)
Net income	—	—		—		—		58,027		58,027
Balances, September 25, 2021	78,207,219	$	78	$	892,303	$	1,700	$	(107,691)	$	786,390

	Three Months Ended September 25, 2021
Balances, June 26, 2021	77,454,800	$	77	$	894,062	$	3,596	$	(128,188)	$	769,547
Issuance of common stock under the Employee Stock Purchase Plan	149,800	—		4,744		—		—		4,744

Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax	602,619	1		(14,341)		—		—		(14,340)

Stock-based compensation	—	—		7,838		—		—		7,838
Other comprehensive loss	—	—		—		(1,896)		—		(1,896)
Net income	—	—		—		—		20,497		20,497
Balances, September 25, 2021	78,207,219	$	78	$	892,303	$	1,700	$	(107,691)	$	786,390

The accompanying notes are an integral part of these condensed consolidated financial statements.

FORMFACTOR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands, except shares)

(Unaudited)


	Shares of Common Stock	Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total

	Nine Months Ended September 26, 2020
Balances, December 28, 2019	75,764,990	$	76	$	885,821	$	(659)	$	(244,241)	$	640,997
Issuance of common stock under the Employee Stock Purchase Plan	485,566	—		7,875		—		—		7,875
Issuance of common stock pursuant to exercise of options	205,769	1		1,712		—		—		1,713
Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax	927,169	1		(15,383)		—		—		(15,382)

Stock-based compensation	—	—		16,551		—		—		16,551
Other comprehensive income	—	—		—		3,138		—		3,138
Net income	—	—		—		—		59,250		59,250
Balances, September 26, 2020	77,383,494	$	78	$	896,576	$	2,479	$	(184,991)	$	714,142

	Three Months Ended September 26, 2020
Balances, June 27, 2020	76,501,459	$	77	$	898,069	$	458	$	(207,882)	$	690,722
Issuance of common stock under the Employee Stock Purchase Plan	173,975	—		3,809		—		—		3,809
Issuance of common stock pursuant to exercise of options	100,000	—		844		—		—		844
Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax	608,060	1		(11,583)		—		—		(11,582)

Stock-based compensation	—	—		5,437		—		—		5,437
Other comprehensive income	—	—		—		2,021		—		2,021
Net income	—	—		—		—		22,891		22,891
Balances, September 26, 2020	77,383,494	$	78	$	896,576	$	2,479	$	(184,991)	$	714,142

The accompanying notes are an integral part of these condensed consolidated financial statements.

FORMFACTOR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended
	September 25, 2021		September 26, 2020
Cash flows from operating activities:
Net income	$	58,027	$	59,250
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	19,256		14,491
Amortization	16,362		20,249

Reduction in the carrying amount of right-of-use assets	5,412		4,294
Stock-based compensation expense	21,585		16,774


Provision for excess and obsolete inventories	11,621		9,763
Non-cash restructuring charges	1,592		—

Gain on contingent consideration	(95)		(3,771)
Other adjustments to reconcile net income to net cash provided by operating activities	1,627		(977)
Changes in assets and liabilities:
Accounts receivable	1,157		5,712
Inventories	(30,335)		(18,566)
Prepaid expenses and other current assets	3,631		(5,619)

Other assets	(333)		219
Accounts payable	1,488		18,054
Accrued liabilities	(6,951)		4,754
Other liabilities	47		272
Deferred revenues	2,000		3,806
Operating lease liabilities	(5,654)		(4,496)
Net cash provided by operating activities	100,437		124,209
Cash flows from investing activities:
Acquisition of property, plant and equipment	(51,353)		(41,887)
Acquisition of business, net of cash acquired	—		(34,999)
Proceeds from sale of a subsidiary	—		82

Purchases of marketable securities	(114,898)		(29,721)
Proceeds from maturities and sales of marketable securities	71,275		50,330
Net cash used in investing activities	(94,976)		(56,195)
Cash flows from financing activities:
Proceeds from issuances of common stock	10,647		9,588
Purchase of common stock through stock repurchase program	(23,951)		—
Tax withholdings related to net share settlements of equity awards	(12,643)		(15,382)
Payment of contingent consideration	(3,873)		—
Proceeds from term loan	—		18,000
Principal repayments on term loans	(7,049)		(41,098)
Payment of term loan debt issuance costs	—		(78)
Net cash used in financing activities	(36,869)		(28,970)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(2,216)		1,262
Net increase (decrease) in cash, cash equivalents and restricted cash	(33,624)		40,306
Cash, cash equivalents and restricted cash, beginning of period	191,098		147,937
Cash, cash equivalents and restricted cash, end of period	$	157,474	$	188,243

The accompanying notes are an integral part of these condensed consolidated financial statements.

FORMFACTOR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended
	September 25, 2021		September 26, 2020
Non-cash investing and financing activities:
Increase in accounts payable and accrued liabilities related to property, plant and equipment purchases	$	4,684	$	3,041
Increase in accrued liabilities related to tax withholdings related to net share settlements of equity awards	6,952		—
Operating lease, right-of-use assets obtained in exchange for lease obligations	11,699		1,549

Supplemental disclosure of cash flow information:
Cash paid for income taxes, net	$	6,795	$	7,475
Cash paid for interest	496		683
Operating cash outflows from operating leases	6,420		5,566

Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	153,781	$	185,368
Restricted cash, current	2,019		1,477
Restricted cash, non-current	1,674		1,398
Total cash, cash equivalents and restricted cash	$	157,474	$	188,243

The accompanying notes are an integral part of these condensed consolidated financial statements.

FORMFACTOR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 — Basis of Presentation and New Accounting Pronouncements

Basis of Presentation

The accompanying condensed consolidated financial information of FormFactor, Inc. is unaudited and has been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). However, such information reflects all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. The condensed consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and the notes thereto included in our 2020 Annual Report on Form 10-K filed with the SEC on February 22, 2021. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.

Fiscal Year

We operate on a 52/53 week fiscal year, whereby the fiscal year ends on the last Saturday of December. Fiscal 2021 and 2020 each contain 52 weeks and the nine months ended September 25, 2021 and September 26, 2020 each contained 39 weeks. Fiscal 2021 will end on December 25, 2021.

Significant Accounting Policies

Our significant accounting policies have not changed during the nine months ended September 25, 2021 from those disclosed in our Annual Report on Form 10-K for the year ended December 26, 2020.

New Accounting Pronouncements

ASU 2019-12

In December 2019, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, “Income Taxes (Topic 740),” which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. We adopted ASU 2019-12 on a prospective basis on December 27, 2020, the first day of fiscal 2021. The adoption did not have a material effect on our consolidated financial position, results of operations or cash flows.

ASU 2020-04

In March 2020, the FASB issued ASU 2020-04, “Referenced Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The ASU provides temporary optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued. In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848),” which permits entities to apply optional expedients in Topic 848 to derivative instruments modified because of discounting transition resulting from reference rate reform. ASU 2020-04 became effective upon issuance and may be applied prospectively to contract modifications made on or before December 31, 2022. ASU 2021-01 became effective upon issuance and may be applied on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020 or prospectively for contract modifications made on or before December 31, 2022. The Company has not yet applied the relief afforded by these standard amendments and is currently assessing contracts that will require modification due to reference rate reform to which these standard amendments may be applied.

Note 2 — Concentration of Credit and Other Risks

Each of the following customers accounted for 10% or more of our revenues for the periods indicated:


	Three Months Ended				Nine Months Ended
	September 25, 2021		September 26, 2020		September 25, 2021		September 26, 2020
Intel Corporation	20.8	%	25.6	%	21.7	%	32.4	%
Samsung Electronics., LTD.	12.9	%	10.6	%	10.5	%	*
Taiwan Semiconductor Manufacturing Co., LTD.	*		10.6	%	*		*
Micron Technology, Inc.	*		10.1	%	*		*

	33.7	%	56.9	%	32.2	%	32.4	%

*Represents less than 10% of total revenues.

At September 25, 2021, one customer accounted for 19.3% of gross accounts receivable. At December 26, 2020, two customers accounted for 15.3% and 13.7% of gross accounts receivable, respectively.

Note 3 — Inventories, net

Inventories are stated at the lower of cost (principally standard cost, which approximates actual cost on a first in, first out basis) or net realizable value.

Inventories, net, consisted of the following (in thousands):


	September 25, 2021		December 26, 2020
Raw materials	$	55,352	$	48,122
Work-in-progress	41,638		30,806
Finished goods	18,114		20,301
	$	115,104	$	99,229

Note 4 — Acquisitions

High Precision Devices, Inc. Acquisition

On October 19, 2020, we acquired HPD for total consideration of $16.9 million, net of cash acquired of $1.7 million, which included an adjustment for changes in working capital. The acquisition was accounted for using the acquisition method of accounting. The acquisition price was allocated to the tangible and identified intangible assets acquired and liabilities assumed as of the closing date of the acquisition based upon their respective fair values, including an amount for goodwill representing the difference between the acquisition consideration and the fair value of the identifiable net assets. The fair values assigned to the assets acquired and liabilities assumed were based on management’s assumptions as of the acquisition date. We subsequently made certain immaterial adjustments within the measurement period to the acquisition price allocation as a result of finalization of our valuation of identifiable assets and liabilities. See Note 5, Goodwill and Intangible Assets, for the changes

in identified intangible values and goodwill. The final allocation of the assets acquired, including goodwill and intangibles, and liabilities assumed for the purchase is as follows (in thousands):


	Amount
Cash and cash equivalents	$	1,680
Accounts receivable	1,017
Inventories	3,047
Property, plant and equipment	669
Operating lease, right of use assets	2,554
Prepaid expenses and other current assets	916
Tangible assets acquired	9,883
Deferred revenue	(2,529)
Accounts payable and accrued liabilities	(1,268)
Operating lease liabilities	(2,554)
Deferred tax liabilities	(2,400)
Total tangible assets acquired and liabilities assumed	1,132
Intangible assets	11,520
Goodwill	5,908
Net Assets Acquired	$	18,560

The intangible assets as of the acquisition included (in thousands):


	Amount		Weighted Average Useful Life (in years)
Developed technologies	$	7,500	10.0
Customer relationships	3,600		5.0
Order backlog	200		0.5
Trade names	220		5.0
Total intangible assets	$	11,520	8.2

Baldwin Park Acquisition

On July 30, 2020, we acquired the probe card assets of Advantest Corporation for total consideration of $35.0 million. The acquisition was accounted for using the acquisition method of accounting. The acquisition price was allocated to the tangible and identified intangible assets acquired and liabilities assumed as of the closing date of the acquisition based upon their respective fair values including an amount for goodwill representing the difference between the acquisition consideration and the fair value of the identifiable net assets. The fair values assigned to assets acquired and liabilities assumed were based on management's assumptions as of the acquisition date. We subsequently made certain immaterial adjustments within the measurement period to the acquisition price allocation as a result of finalization of our valuation of identifiable assets and liabilities. See Note 5, Goodwill and Intangible Assets, for the changes in identified intangible values and goodwill. The final

allocation of the assets acquired, including goodwill and intangibles, and liabilities assumed for the purchase as follows (in thousands):


	Amount
Accounts receivable	$	4,365
Inventories	2,727
Property, plant and equipment	9,053
Operating lease, right of use assets	519
Prepaid expenses and other current assets	56
Tangible assets acquired	16,720
Accounts payable and accrued liabilities	(743)
Operating lease liabilities	(519)
Total tangible assets acquired and liabilities assumed	15,458
Intangible assets	13,600
Goodwill	5,942
Net assets acquired	$	35,000

The intangible assets as of the acquisition date included (in thousands):


	Amount		Weighted Average Useful Life (in years)
Developed technologies	$	8,800	10.0
Customer relationships	4,400		3.0
In-process research and development	400		N/A
Total intangible assets	$	13,600	7.7

Note 5 — Goodwill and Intangible Assets

Goodwill by reportable segment was as follows (in thousands):


	Probe Cards		Systems		Total
Goodwill, gross, as of December 28, 2019	$	172,482	$	26,714	$	199,196
Addition - FRT GmbH Acquisition	—		975		975
Addition - Baldwin Park Acquisition	5,590		—		5,590
Addition - HPD Acquisition	—		4,654		4,654
Foreign currency translation	—		2,346		2,346
Goodwill, gross, as of December 26, 2020	178,072		34,689		212,761
Addition - Baldwin Park Acquisition	352		—		352
Addition - HPD Acquisition	—		1,254		1,254
Foreign currency translation	—		(1,074)		(1,074)
Goodwill, gross, as of September 25, 2021	$	178,424	$	34,869	$	213,293

We have not recorded goodwill impairments for the nine months ended September 25, 2021.

Intangible assets were as follows (in thousands):


	September 25, 2021						December 26, 2020
Intangible Assets	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Developed technologies	$	173,160	$	148,518	$	24,642	$	176,265	$	137,754	$	38,511
Customer relationships	51,514		37,885		13,629		52,488		33,378		19,110
Trade names	8,110		7,586		524		8,162		7,363		799
Order backlog	1,958		1,958		—		2,227		1,900		327
In-process research and development	400		—