SEC Filing | FormFactor, Inc.

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form-20220924

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 24, 2022

☐ 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 27, 2022, 77,025,103 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 24, 2022

INDEX


Part I.	Financial Information

Item 1.	Financial Statements (Unaudited):

	Condensed Consolidated Balance Sheets as of September 2 4 , 2022 and December 25, 2021	3

	Condensed Consolidated Statements of Income for the three and nine months ended September 2 4 , 2022 and September 2 5 , 2021	4

	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 2 4 , 2022 and September 2 5 , 2021	5

	Condensed Consolidated Statement of Stockholders' Equity for the three and nine months ended Septem ber 2 4 , 2022 and September 2 5 , 2021	6

	Condensed Consolidated Statements of Cash Flows for the nine months ended September 2 4 , 2022 and September 2 5 , 2021	8

	Notes to Condensed Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32

Item 4.	Controls and Procedures	32

Part II.	Other Information	33



Item 1A.	Risk Factors	33

Item 2.	Unregistered Sales of Equity Securities and use of proceeds	33







Item 6.	Exhibits	34

Signatures		35

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

FORMFACTOR, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)


	September 24, 2022		December 25, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	120,602	$	151,010
Marketable securities	130,991		125,055
Accounts receivable, net of allowance for credit losses of $190 and $195	110,497		115,541
Inventories, net	132,029		111,548
Restricted cash	1,263		2,233
Prepaid expenses and other current assets	20,932		18,652
Total current assets	516,314		524,039
Restricted cash	1,840		2,099
Operating lease, right-of-use-assets	31,508		35,210
Property, plant and equipment, net of accumulated depreciation	163,384		146,555
Goodwill	209,105		212,299
Intangibles, net	28,208		36,342
Deferred tax assets	67,775		61,995
Other assets	4,229		1,981
Total assets	$	1,022,363	$	1,020,520

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	75,021	$	57,862
Accrued liabilities	46,328		50,836
Current portion of term loans, net of unamortized issuance costs	2,734		8,931
Deferred revenue	31,974		23,224
Operating lease liabilities	7,699		7,901
Total current liabilities	163,756		148,754
Term loans, less current portion, net of unamortized issuance costs	14,653		15,434
Deferred tax liabilities	2,232		3,623
Long-term operating lease liabilities	27,858		31,009
Other liabilities	5,562		5,920
Total liabilities	214,061		204,740

Stockholders’ equity:


Common stock, $0.001 par value:
250,000,000 shares authorized; 77,265,099 and 78,240,506 shares issued and outstanding	77		78

Additional paid-in capital	843,453		898,945
Accumulated other comprehensive loss	(17,899)		(1,449)
Accumulated deficit	(17,329)		(81,794)
Total stockholders’ equity	808,302		815,780
Total liabilities and stockholders’ equity	$	1,022,363	$	1,020,520

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 24, 2022		September 25, 2021		September 24, 2022		September 25, 2021
Revenues	$	180,869	$	189,964	$	581,950	$	564,676
Cost of revenues	118,656		109,745		331,144		331,468
Gross profit	62,213		80,219		250,806		233,208
Operating expenses:
Research and development	26,549		26,026		82,000		75,526
Selling, general and administrative	31,637		30,940		97,949		91,434
Total operating expenses	58,186		56,966		179,949		166,960
Operating income	4,027		23,253		70,857		66,248
Interest income	709		121		1,147		463
Interest expense	(152)		(151)		(463)		(447)
Other income, net	1,041		58		1,784		36
Income before income taxes	5,625		23,281		73,325		66,300
Provision for income taxes	1,274		2,784		8,860		8,273
Net income	$	4,351	$	20,497	$	64,465	$	58,027
Net income per share:
Basic	$	0.06	$	0.26	$	0.83	$	0.75
Diluted	$	0.06	$	0.26	$	0.82	$	0.73
Weighted-average number of shares used in per share calculations:
Basic	77,245		77,869		77,796		77,643
Diluted	77,688		79,029		78,492		79,190

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 24, 2022		September 25, 2021		September 24, 2022		September 25, 2021
Net income	$	4,351	$	20,497	$	64,465	$	58,027
Other comprehensive loss, net of tax:
Translation adjustments	(7,348)		(1,511)		(13,902)		(3,258)
Unrealized losses on available-for-sale marketable securities	(674)		(62)		(2,425)		(290)
Unrealized losses on derivative instruments	(881)		(323)		(123)		(638)
Other comprehensive loss, net of tax:	(8,903)		(1,896)		(16,450)		(4,186)
Comprehensive income (loss)	$	(4,552)	$	18,601	$	48,015	$	53,841

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 24, 2022
Balances, December 25, 2021	78,240,506	$	78	$	898,945	$	(1,449)	$	(81,794)	$	815,780
Issuance of common stock under the Employee Stock Purchase Plan	316,861	—		10,457		—		—		10,457
Issuance of common stock pursuant to exercise of options	6,000	—		42		—		—		42
Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax	713,554	1		(15,564)		—		—		(15,563)
Purchase and retirement of common stock through repurchase program	(2,011,822)	(2)		(73,476)		—		—		(73,478)
Stock-based compensation	—	—		23,049		—		—		23,049
Other comprehensive loss	—	—		—		(16,450)		—		(16,450)
Net income	—	—		—		—		64,465		64,465
Balances, September 24, 2022	77,265,099	$	77	$	843,453	$	(17,899)	$	(17,329)	$	808,302

	Three Months Ended September 24, 2022
Balances, June 25, 2022	77,194,733	$	77	$	860,584	$	(8,996)	$	(21,680)	$	829,985
Issuance of common stock under the Employee Stock Purchase Plan	159,219	—		4,812		—		—		4,812

Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax	479,478	1		(11,321)		—		—		(11,320)
Purchase and retirement of common stock through repurchase program	(568,331)	(1)		(19,149)		—		—		(19,150)
Stock-based compensation	—	—		8,527		—		—		8,527
Other comprehensive loss	—	—		—		(8,903)		—		(8,903)
Net income	—	—		—		—		4,351		4,351
Balances, September 24, 2022	77,265,099	$	77	$	843,453	$	(17,899)	$	(17,329)	$	808,302

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 income	—	—		—		(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 CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended
	September 24, 2022		September 25, 2021
Cash flows from operating activities:
Net income	$	64,465	$	58,027
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	21,189		19,256
Amortization	7,056		16,362
Reduction in the carrying amount of right-of-use assets	5,900		5,412
Stock-based compensation expense	21,873		21,585
Deferred income tax benefit	(6,881)		(873)
Provision for excess and obsolete inventories	16,078		11,621
Non-cash restructuring charges	710		1,592
Gain on contingent consideration	—		(95)
Other adjustments to reconcile net income to net cash provided by operating activities	3,356		2,500
Changes in assets and liabilities:
Accounts receivable	1,654		1,157
Inventories	(33,023)		(30,335)
Prepaid expenses and other current assets	(2,016)		3,631
Other assets	(117)		(333)
Accounts payable	17,613		1,488
Accrued liabilities	(5,035)		(6,951)
Other liabilities	276		47
Deferred revenues	3,776		2,000
Operating lease liabilities	(5,826)		(5,654)
Net cash provided by operating activities	111,048		100,437
Cash flows from investing activities:
Acquisition of property, plant and equipment	(39,024)		(51,353)
Acquisition of business	(3,350)		—
Purchases of marketable securities	(80,249)		(114,898)
Purchase of promissory note receivable	(1,000)		—
Proceeds from maturities and sales of marketable securities	71,610		71,275
Net cash used in investing activities	(52,013)		(94,976)
Cash flows from financing activities:
Proceeds from issuances of common stock	10,499		10,647
Purchase of common stock through stock repurchase program	(73,478)		(23,951)
Tax withholdings related to net share settlements of equity awards	(15,564)		(12,643)
Payment of contingent consideration	—		(3,873)

Principal repayments on term loans	(6,421)		(7,049)

Net cash used in financing activities	(84,964)		(36,869)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(5,708)		(2,216)
Net decrease in cash, cash equivalents and restricted cash	(31,637)		(33,624)
Cash, cash equivalents and restricted cash, beginning of period	155,342		191,098
Cash, cash equivalents and restricted cash, end of period	$	123,705	$	157,474

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 24, 2022		September 25, 2021
Non-cash investing and financing activities:
Increase in accounts payable and accrued liabilities related to property, plant and equipment purchases	$	341	$	4,684
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	3,457		11,699

Supplemental disclosure of cash flow information:
Cash paid for income taxes, net	$	9,911	$	6,795
Cash paid for interest	455		496
Operating cash outflows from operating leases	6,670		6,553

Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	120,602	$	153,781
Restricted cash, current	1,263		2,019
Restricted cash, non-current	1,840		1,674
Total cash, cash equivalents and restricted cash	$	123,705	$	157,474

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 2021 Annual Report on Form 10-K filed with the SEC on February 18, 2022. 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 2022 and 2021 contain 53 weeks and 52 weeks, respectively, and the nine months ended September 24, 2022 and September 25, 2021 each contained 39 weeks. Fiscal 2022 will end on December 31, 2022.

Significant Accounting Policies

Our significant accounting policies have not changed during the nine months ended September 24, 2022 from those disclosed in our Annual Report on Form 10-K for the year ended December 25, 2021.

Reclassifications

Certain immaterial reclassifications were made to the prior year financial statements to conform to the current year presentation.

New Accounting Pronouncements

ASU 2021-08

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The new guidance requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with Accounting Standards Codification 606, “Revenue from Contracts with Customers,” as if it had originated the contracts. The Company elected to early adopt on a prospective basis during the second quarter of fiscal 2022. The adoption did not have a material effect on the Company's Consolidated Financial Statements.

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 24, 2022		September 25, 2021		September 24, 2022		September 25, 2021
Intel Corporation	17.0	%	20.8	%	19.7	%	21.7	%
SK Hynix Inc.	10.7		*		*		*


Samsung Electronics., LTD.	*		12.9	%	*		10.5	%
	27.7	%	33.7	%	19.7	%	32.2	%

At September 24, 2022, one customer accounted for 18.1% of gross accounts receivable. At December 25, 2021, one customer accounted for 13.8% of gross accounts receivable.

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 24, 2022		December 25, 2021
Raw materials	$	61,312	$	57,673
Work-in-progress	48,439		35,935
Finished goods	22,278		17,940
	$	132,029	$	111,548

Note 4 — Acquisition

Woburn Acquisition

On June 9, 2022, we acquired the assets of the dilution refrigerator product line of American ULT Cryogenics, formerly d/b/a JanisULT (“Woburn”), for total consideration of $3.4 million. This acquisition adds cryogen-free dilution refrigerators capable of cooling to sub-10 millikelvin to our product portfolio, which is required for operation of superconducting quantum computers.

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. The fair values assigned to assets acquired and liabilities assumed were based on management’s assumptions as of the reporting date. Goodwill represents the excess of purchase price over the fair value assigned to the assets acquired and liabilities assumed and is allocated to the HPD reporting unit within the Systems reportable segment. The identified intangible asset, developed technology, has a useful life of three years.

Our purchase accounting remains open as of the reporting date, with the purchase price preliminarily allocated to acquired assets and liabilities assumed that are subject to change as more information becomes available. The primary areas of the purchase price allocation that are not yet finalized relate to the valuation of inventories, developed technology intangible asset, and residual goodwill. The preliminary fair value of assets acquired, including goodwill and intangibles, and liabilities assumed for the purchase as follows (in thousands):


	Amount
Accounts receivable	$	178
Inventories	7,041
Property, plant and equipment	479
Prepaid expenses and other current assets	117
Other assets	28
Tangible assets acquired	7,843
Deferred revenue	(5,513)
Accounts payable and accrued liabilities	(30)
Total tangible assets acquired and liabilities assumed	2,300
Developed technology intangible asset	500
Goodwill	550
Net assets acquired	$	3,350

Note 5 — Goodwill and Intangible Assets

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


	Probe Cards		Systems		Total
Goodwill, 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	—		(2,068)		(2,068)
Goodwill, as of December 25, 2021	178,424		33,875		212,299

Addition - Woburn Acquisition	—		550		550
Foreign currency translation	—		(3,744)		(3,744)
Goodwill, as of June 25, 2022	$	178,424	$	30,681	$	209,105

We have not recorded goodwill impairments for the nine months ended September 24, 2022.

Intangible assets were as follows (in thousands):


	September 24, 2022						December 25, 2021
Intangible Assets	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Existing developed technologies	$	169,246	$	148,916	$	20,330	$	172,259	$	148,784	$	23,475
Customer relationships	50,316		43,094		7,222		51,270		39,254		12,016
Trade name	7,835		7,579		256		8,054		7,603		451
Backlog	—		—		—		1,896		1,896		—
In-process research and development	400		—		400		400		—		400
	$	227,797	$	199,589	$	28,208	$	233,879	$	197,537	$	36,342

Amortization expense was included in our Condensed Consolidated Statements of Income as follows (in thousands):


	Three Months Ended				Nine Months Ended
	September 24, 2022		September 25, 2021		September 24, 2022		September 25, 2021
Cost of revenues	$	824	$	858	$	2,420	$	11,453
Selling, general and administrative	1,530		1,604		4,636		4,909
	$	2,354	$	2,462	$	7,056	$	16,362

The estimated future amortization of definite-lived intangible assets, excluding in-process research and development, is as follows (in thousands):


Fiscal Year	Amount
Remainder of 2022	$	2,307
2023	6,944
2024	4,393
2025	4,062
2026	3,011
Thereafter	7,091
	$	27,808

Note 6 — Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):


	September 24, 2022		December 25, 2021
Accrued compensation and benefits	$	23,398	$	29,706
Accrued income and other taxes	11,835		8,086
Accrued warranty	3,806		2,805
Employee stock purchase plan contributions withheld	1,979		4,693
Accrued restructuring charges	—		2,478
Other accrued expenses	5,310		3,068
	$	46,328	$	50,836

Note 7 — Restructuring Charges

On September 25, 2021, we adopted restructuring plans to improve our business effectiveness and streamline our operations by consolidating certain manufacturing facilities for both the Probe Cards segment and the Systems segment. This included plans to consolidate or relocate certain leased locations in the United States to other locations in the United States, Germany and Asia. As a result of these changes to certain work locations, we have incurred personnel-related costs to sever, relocate, or retain select employees. Additionally, this included plans to adjust capacity for certain product offerings, which resulted in contract termination costs and receipt of inventories ultimately deemed to be impaired to satisfy contract obligations. We expect the actions defined under these plans will be largely completed by the end of December 2022, except facilities charges which may extend beyond that time.

These plans are expected to result in FormFactor recording restructuring and other charges in the aggregate amount of approximately $10.5 million to $12.6 million, estimated to be comprised primarily of $1.0 million to $1.2 million of severance and employee-related costs, $1.5 million to $1.9 million in contract and lease termination costs, $7.5 million to $8.5 million in inventory impairments, and $0.5 million to $1.0 million of cost related to impairment of leasehold improvements, facility exits, and other costs. Approximately $8.7 million to $9.7 million is expected within the Probe Cards segment and $1.8 million to $2.9 million is expected within the Systems segments.

The Company has recognized restructuring and other charges to date in the aggregate amount of $11.2 million, comprised of $1.2 million of severance and employee-related costs, $1.5 million in contract and lease termination costs, $