FormFactor (NASDAQ:FORM), a leading supplier to the semiconductor industry, reported its first-quarter results on Wednesday.

Revenue growth accelerated sequentially and reached the double-digit mark for the first time in a while. Better yet, the sales leverage allowed the company to produce strong results on the bottom line. Unfortunately, the flurry of good news was overshadowed by management's call for tough times ahead. 

FormFactor's first-quarter results: The raw numbers

Metric

Q1 2019

Q1 2018

Year-Over-Year Change

Revenue

$132.2 million

$118.3 million

11.8%

Non-GAAP net income

$15.2 million

$12.7 million

20%

Non-GAAP earnings per share

$0.20

$0.17

18%

Data source: FormFactor. Non-GAAP = adjusted.

What happened with FormFactor this quarter?

  • Revenue of $132 million was at the high end of management's guidance range. 
  • Non-GAAP gross margin expanded 80 basis points to 44.1%. 
  • Non-GAAP EPS of $0.20 was at the high end of guidance.
  • Free cash flow was $14.9 million, a substantial jump from the $6.3 million produced in the year-ago period.
Man in clean room suit looking at semiconductor

Image source: Getty Images.

What management had to say

CEO Mike Slessor stated that he was quite happy to produce financial results that were at the high end of its guidance range. "This performance was driven by a combination of steady overall demand and good execution, augmented by particularly strong mix-related gross margins in our engineering systems segment," he said.

On the conference call with Wall Street, Slessor added some detail about the broad spending trends in the industry:"Over the last four quarters, a period during which semiconductor capital equipment spending has fallen by 20% or more, FormFactor's revenue has been largely stable, varying within a range of only 6%. Our diversified opportunity set provides us multiple demand drivers and revenue opportunities with each of our underlying customers, segments, and markets experiencing individually fluctuating demand levels." 

Check out FormFactor's latest earnings call. 

Looking ahead

Management stated that current demand trends are "steady" and that the company expects to post sequential revenue growth in the upcoming quarter. However, FormFactor predicts that its product mix won't be as favorable and that it faces a headwind with its tax bill. When combined, management expects that its year-over-year comparisons won't be great:

Metric Q2 2019 Guidance Range  Q2 2018 Actual Year-Over-Year Change at Midpoint
Revenue $131 million to $139 million $135.5 million (1%)
Non-GAAP EPS $0.15 to $0.21  $0.27 (33%)

Data source: FormFactor.

While the current market conditions are not favorable, Slessor stated that the company will continue to make investments in R&D to solidify its leadership position. He also reaffirmed this belief that it will still be able to reach its long-term financial targets eventually: "When market growth returns, as the market share leader we can capitalize on our growth and execute further shared gains from our line of sight opportunities in advanced packaging, mobile data, and automotive applications. These gains will enable us to achieve our target financial model, growing the top line to $650 million while delivering $1.25 of non-GAAP of EPS and $110 million of free cash flow."