FormFactor (NASDAQ:FORM), a key supplier of testing equipment used to manufacture semiconductors, reported its third-quarter results on Wednesday. As expected, the company posted year-over-year declines in revenue, gross margin, and profits. But management was finally able to forecast year-over-year growth in the upcoming quarter thanks to easier comparisons.

FormFactor's third-quarter results: The raw numbers

Metric

Q3 2018

Q3 2017

Year-Over-Year Change

Revenue

$135 million

$143.7 million

(6.1%)

Non-GAAP net income

$19.6 million

$25 million

(22%)

Non-GAAP earnings per share

$0.26

$0.34

(24%)

Data source: FormFactor. Non-GAAP = adjusted. 

What happened with FormFactor this quarter?

  • FormFactor's revenue of $135.5 million was slightly above the middle of management's guidance range. 
  • Non-GAAP gross margin was 43.7%. That represents a year-over-year slide of 80 basis points. However, on the call with investors, management touted its ability to offset that weakness with "good operating expense control."
  • Non-GAAP EPS of $0.26 came in at the high end of guidance.
  • Free cash flow was $13 million for the period. 
A person in a clean-room suit looking at a semiconductor

Image source: Getty Images.

What management had to say

CEO Mike Slessor acknowledged that FormFactor reported weak results, but he continued to boast about his company's strong competitive position: "As we anticipated, FormFactor's third-quarter 2018 results were comparable to our second quarter on the top and bottom lines. We continued to benefit from broad-based customer demand and our leadership position across our served markets in advanced probe cards and engineering systems."

Looking ahead

Management noted that the upcoming quarter is seasonally weak. It also stated that the industry as a whole remains volatile. In spite of those challenges, the company's year-over-year comparables are finally low enough to allow it to forecast growth:

Metric Q4 2018 Guidance Range  Q4 2017 Actual Year-Over-Year Change at Midpoint
Revenue $132 million to $140 million $131.9 million 3%
Non-GAAP EPS $0.23 to $0.29  $0.24 8%

Data source: FormFactor. 

As usual, Slessor ended his commentary on the conference call with positivity and reaffirmed the company's goal to realize its long-term financial targets of $650 million in revenue and $1.50 in non-GAAP EPS:

We remain excited about our markets and our position in the industry, and are committed to achieving our target financial model. As the share leader in our served markets, we are not immune to short-term industry demand volatility. But we are demonstrating an ability to weather this volatility. Our engagements in early customer innovation and [research and development] through our engineering systems business, transitioning into production volumes with our consumables probe card business, is a powerful model that sets the stage for continued leadership, driven by growth in advanced packaging, mobile data, and automotive applications.

Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.