FormFactor, Inc. Bounces Back

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Semiconductor probe card manufacturer FormFactor (FORM +0.76%) got off to a rough start to the year. In its first quarter earnings release, the company reported a steep drop in both revenue and profits, causing its stock to fall drastically. At the time, management emphasized that the problems that caused the poor results were temporary, and they said that the full-year results still looked bright.

FormFactor had its first chance to redeem itself when it reported second-quarter earnings on Aug. 2. Let's take a closer look at the company's numbers to see if its growth story appears back on track.

FormFactor Q2: The raw numbers

Data source: FormFactor. 

FormFactor's results represent a strong turnaround from its tough first quarter. Revenue of $83.1 million came in ahead of management's guidance range of $76 million to $80 million and was also well ahead of analysts' expectations. These results were quite impressive, especially since they did not include any contribution from the Cascade Microtech acquisition that was completed just before the end of the quarter.

FormFactor saw strong demand in both of its main business lines during the period. Foundry and logic revenue, which was formerly called SoC, came in at $57.9 million, up 60% over the prior quarter. The company's DRAM products also saw strong demand: Revenue of $24.2 million was up 48% over the first quarter.

The solid top-line results allowed the company to have an impressive performance on the bottom line, too. Non-GAAP EPS of $0.13 came in at the high end of management's range of $0.10 to $0.14, and it was also comfortably ahead of the $0.11 that Wall Street was looking for.

However, while the company recorded an $8 million quarterly profit, FormFactor's actual net cash position fell by $68.8 million during the period. The primary difference between the two figures is attributable to the closing of the Cascade Microtech acquisition. Absent those one-time charges, the company's cash usage would have only been $1.5 million. At quarter's end, FormFactor's cash balance stood at $119 million.

What management had to say

FormFactor CEO Mike Slessor was very pleased with the company's quarterly performance, and he reiterated his bullishness on the company's future potential:

Our strong revenue result -- the highest level since 2007 -- reflects our solid execution as we doubled our Foundry and Logic shipments for a key customer and experienced improvement in our DRAM business. In addition, we completed the acquisition of Cascade Microtech, to create a more valuable industry player, with a larger addressable market, extended product breadth, greater diversification, and new growth opportunities.

Looking ahead

CFO Mike Ludwig offered a lot of positive commentary on the call about the company's prospects heading into the third quarter:

We see continued strength of probe card revenues from our significant microprocessor customer, the beginning of the typical midyear mobile application processors and modem release cycles, and improving DRAM demand environment, mitigated by some seasonal softness in the handset filter demand. Engineering systems demand is expected to remain steady and benefit from the strong order flow generated in the first half of 2016.

Given that backdrop and the inclusion of the Cascade Mircotech numbers, management is forecasting strong growth in the third quarter. Revenue is projected to grow to $118 million to $126 million, representing a growth rate of at least 79%. Gross margin is also expected to improve again, with management guiding for it to land between 40% and 44%. That should allow non-GAAP EPS to grow to $0.17 to $0.23 -- a huge increase from the $0.06 that it recorded in the year-ago period. 

This report will likely go a long way toward rebuilding investors' confidence that the company's growth story is back on track.