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FormFactor's Revenue and Profits Rise but Guidance Indicates a Tough Quarter

By Brian Feroldi - Feb 8, 2018 at 6:19PM

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Management expects that the current quarter is going to be challenging.

FormFactor (FORM -1.95%), a supplier to the semiconductor industry, reported its fourth-quarter results on Wednesday, Feb 7. As expected, revenue and profits both increased on a year-over-year basis. However, management stated that customer order lumpiness is going to cause the company's growth to head in the wrong direction in the current quarter.

FormFactor's fourth-quarter results: The raw numbers

Metric

Q4 2017

Q4 2016

Year-Over-Year Change

Revenue

$131.9 million

$123.9 million

6.4%

Non-GAAP net income

$18.0 million

$14.4 million

25%

Non-GAAP earnings per share

$0.24

$0.20

20%

Data source: FormFactor. GAAP = generally accepted accounting principles. Non-GAAP = adjusted. 

What happened with FormFactor this quarter?

  • Revenue of $131.9 million was slightly ahead of the midpoint of management's guidance range. 
  • Non-GAAP gross margin was 41.8% for the period, which came up well short of guidance. Management blamed the result on ramping costs related to next-generation technology and product mix.
  • Non-GAAP EPS of $0.24 came in at the lower end of management's guidance range.
  • The company generated free cash flow of $23.5 million.
  • FormFactor spent $8 million on buying back stock.
  • Its cash balance at the quarter's end was $142 million.
  • CFO Mike Ludwig announced that he is retiring in early March. The search for a replacement has started. Ludgwig has been CFO since 2011.

Zooming out to the full-year 2017, here's how FormFactor's numbers shook out:

  • Revenue grew 43% to $548 million.
  • Non-GAAP net income increased 179% to $89.4 million.
  • Non-GAAP EPS soared 147% to $1.21 per share.
  • The company generated free cash flow of $72 million.
Semiconductor on top of graph paper

Image source: Getty Images.

What management had to say

CEO Mike Slessor kept his commentary brief in the company's earnings release: "FormFactor delivered another solid quarter of revenue and profitability to finish off a strong 2017, with our market leadership position enabling us to capitalize on strong overall industry demand."

Looking ahead

While the company's fourth-quarter numbers were decent, management doesn't expect the good times to continue into the first quarter:

Metric Q1 2018 Guidance Range  Q1 2017 Actual Year-Over-Year Change at Midpoint
Revenue $112 million to $120 million $128.8 million (9.9%)
Non-GAAP gross margin 40% to 43% 42.6% (1.1%)
Non-GAAP EPS $0.12 to $0.18  $0.24 (37.5%)

Data source: FormFactor.

On the company's call with analysts, Slessor provided more details about the weak guidance. He stated that the year-over-year declines are largely attributable to a 90-day delay in 10-nanometer production probe card demand from FormFactor's largest customer, Intel.

"At present, the available data continue to indicate that probe card shipments will begin to ramp in the second quarter to support their 10-nanometer node with that same data indicating record shipments to this customer in the second half of the year," he said.

He also stated that the company is working to reduce short-term manufacturing capacity for Intel's products in order to minimize its overall cost impact, and assured investors that production capacity can ramp up quickly once demand finally returns.

Slessor knew that this update wasn't going to sit well with investors, so he did his best to end his prepared remarks on a high note: "While we are disappointed about the sequential decrease in quarterly revenues to start 2018, we remain confident that this will be another growth year for FormFactor as we continue to realize our line of sight opportunities in advanced packaging, mobile data and automotive applications. In addition, we expect to continue to make progress toward our target financial model to deliver $650 million of revenue and $1.50 of non-GAAP earnings per share."

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