Image source: Getty Images.

FormFactor (FORM -8.35%) reported results for its fiscal third quarter after the market closed on Thursday, Oct. 27. This was the first full quarter following the closing of its $352 million acquisition of Cascade Microtech, so market watchers were expecting huge year-over-year gains in both revenue and profits during the period.

Let's take a closer look at FormFactor's results to see how the newly combined company is performing.

FormFactor Q3: The raw numbers


Q3 2016

Q3 2015



$123.3 million

$65.9 million


Non-GAAP net income

$15.9 million

$3.3 million


Non-GAAP earnings per share




Data source: FormFactor.

As expected, FormFactor's top line took a significant leap forward. Total revenue of $123.3 million grew 87% over the year-ago period, and also came in at the high end of management's guidance range. On a non-GAAP (adjusted) basis, gross margin came in at 43% and EPS was $0.22, both of which was fit neatly within the company's projections.

Revenue from FormFactor's probe card segment -- which includes foundry and logic (formerly called SoC), DRAM, and flash -- was $102.7 million, up 24% sequentially. Management said that foundry and logic revenues grew by 30% thanks entirely to the Cascade acquisition. The company also noted strength in flash, but that was offset by an 8% decline in DRAM product sales. Revenue from the company's system segment -- which includes sales of all other product categories -- came in at $20.9 million for the quarter. 

Management stated that the company has already achieved cost synergies from the deal, noting $5 million in savings during the quarter.

Free cash flow generation was $16 million in the period, but acquisition costs totaled $26.2 million. As a result, the company's cash balance actually dipped by $11 million sequentially. Total cash at quarter-end stood at $108 million, while the company's debt balance stood at $146.7 million.

What management had to say

Mike Slessor, FormFactor's CEO, reaffirmed his belief that the combined companies are better together than apart, noting:

These results are the product of continued strength in FormFactor core probe card business, combined with the growing probe card and engineering systems businesses from Cascade Microtech. As we have said previously, the FormFactor-Cascade Microtech combination provides us with scale and diversification, which accelerates our earnings growth. The results of our first quarter operating as a combined company support this thesis. 

Looking ahead

In the fourth quarter, CFO Mike Ludwig stated that demand in the company's probe card segment is expected to decline slightly sequentially, though he believes that sales in the system segment will remain stable. The company is projecting that revenue from the two segments combined will land between $116 million and $124 million.

Management believes that FormFactor's non-GAAP gross margin will remain strong during the quarter, which is why it forecast a range of 41% to 45%. It also expects the company to realize another $1.4 million in cost savings thanks to planned reduction in selling, general, and administrative expenses.

However, management warned that the fiscal fourth quarter will include an extra week this year, which could result in up to $2.4 million of incremental expenses with limited benefits to revenue. As a result, management is projecting that non-GAAP fully diluted EPS will land between $0.15 and $0.21. By comparison, Wall Street was expecting $0.22 in EPS for the fourth quarter, which explains why shares are selling off in Friday's early-morning trading session.

Aside from the timing issue that is expected to cause a blip in next quarter's profits, FormFactor's results suggest that the company is already seeing big financial benefits from the acquisition. As long as management can continue to deliver on its promises, I suspect that long-term shareholders are likely to make out just fine from here.