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FormFactor Posts Top-Line Growth, but Isn't Out of the Woods Just Yet

By Brian Feroldi - Aug 1, 2019 at 1:24PM

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The semiconductor supplier's revenue and profits headed in opposite directions, and management sees more of the same ahead.

FormFactor (FORM -3.11%), a supplier of testing equipment to the semiconductor industry, reported its second-quarter results on Wednesday.

As predicted, revenue growth decelerated from the previous quarter, but it came in at 1.9%, which was at the high end of guidance. That's where the good news ended. Gross margin slipped during the quarter and operating costs grew at a faster pace than revenue. The net result was a 21% drop in adjusted net income and a slightly bigger pullback in earnings per share.

FormFactor's second-quarter results: The raw numbers


Q2 2019

Q2 2018



$138 million

$135.5 million


Non-GAAP net income

$16.1 million

$20.4 million






Data source: FormFactor. Non-GAAP = adjusted. EPS = earnings per share.

What happened with FormFactor this quarter?

  • Revenue of $138 million was at the high end of management's guidance range. It matched the consensus estimate on Wall Street.
  • Non-GAAP gross margin declined by 160 basis points to 44.3%. 
  • Non-GAAP EPS of $0.20 was also at the top end of management's guidance.
  • Free cash flow was strong and grew 48% to $29.9 million. 
  • While Non-GAAP EPS was down 22%, the result came in two cents higher than what market watchers had predicted.
  • Cash balance was $179 million while total debt dropped to $46 million.
Semiconductor on top of graph paper

Image source: Getty Images.

What management had to say

CEO Mike Slessor seemed pleased with the company's performance in spite of the difficult operating environment:

FormFactor delivered sequential and year-over-year revenue growth during the second quarter, resulting in strong cash generation and robust profitability. These results further validate our broadly diversified leadership positions in attractive consumables and R&D [research and development]-driven markets, which are less volatile than capital equipment.

Looking ahead

Slessor stated: "Despite limited visibility, we continue to be encouraged by the broad-based strength in our served markets. As a result, we again expect to deliver sequential revenue growth and strong profitability in the third quarter."

Here's the guidance that is being shared with investors:

Metric Q3 2019 Guidance Range  Q3 2018 Actual Change at Midpoint
Revenue $137 million to $145 million $135 million 4.4%
Non-GAAP EPS $0.18 to $0.24  $0.26 (19%)

Data source: FormFactor.

For context, Wall Street was expecting $137.7 million in revenue for the third  quarter and $0.21 in EPS, so while this guidance is disappointing in absolute terms, it is better than expected.

Investors bid up FormFactor's stock by double digits in early morning trading following the earnings release. The stock was up roughly 9.6% around 1 p.m. Thursday. That enthusiasm is likely attributable to the better-than-expected quarterly results and guidance. However, FormFactor's forecast calls for another year-over-year decline in profits, which suggests that the company still has some work to do before it can return to bottom-line growth.

While current market conditions are not favorable, Slessor remains convinced that the company will be able to reach its long-term financial goals once the cycle turns:

We continue to take advantage of our stable revenue stream to make investments to solidify our roadmap, capabilities and competitive advantage, especially in the areas that enable long-term growth, like advanced packaging and 5G. These drivers will enable us to achieve our target financial model, growing the top line to $650 million, while delivering $1.25 of non-GAAP EPS and $110 million of free cash flow, once broad-based market growth returns to the semiconductor industry.

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