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FormFactor, Inc. Reports 2022 Third Quarter Results

Announces Operational Restructuring to Align Cost Structure with Weaker Demand

LIVERMORE, Calif., Oct. 26, 2022 (GLOBE NEWSWIRE) — FormFactor, Inc. (Nasdaq: FORM) today announced its financial results for the third quarter of fiscal 2022 ended September 24, 2022. Quarterly revenues were $180.9 million, a decrease of 11.3% compared to $203.9 million in the second quarter of fiscal 2022, and a decrease of 4.8% from $190.0 million in the third quarter of fiscal 2021.

  • As anticipated, third quarter revenue, gross margin and profitability were down sequentially, chiefly due to the expected reduction in Foundry & Logic probe card demand
  • To better align FormFactor’s cost structure with these reduced demand levels, which are now expected to extend well into next year, the Company has implemented an operational restructuring during the fourth quarter of 2022
  • Systems Segment’s record third quarter revenue expected to continue in the fourth quarter, highlighting benefits of lab-to-fab diversification strategy and positive impact of recent tuck-in acquisitions

“We expect the current cyclical downturn in demand, which impacted FormFactor’s third quarter revenue and profitability, to extend well into next year,” said Mike Slessor, CEO of FormFactor, Inc. “To preserve profitability at the revenue run rates we believe are likely to prevail until the downturn ends, we have announced decisive steps to better align FormFactor’s cost structure with these temporarily reduced demand levels.”

Third Quarter Highlights

On a GAAP basis, net income for the third quarter of fiscal 2022 was $4.4 million, or $0.06 per fully-diluted share, compared to net income for the second quarter of fiscal 2022 of $30.2 million, or $0.38 per fully-diluted share, and net income for the third quarter of fiscal 2021 of $20.5 million, or $0.26 per fully-diluted share. Gross margin for the third quarter of fiscal 2022 was 34.4%, compared with 46.3% in the second quarter of fiscal 2022, and 42.2% in the third quarter of fiscal 2021.

On a non-GAAP basis, net income for the third quarter of fiscal 2022 was $18.3 million, or $0.24 per fully-diluted share, compared to net income for the second quarter of fiscal 2022 of $36.8 million, or $0.46 per fully-diluted share, and net income for the third quarter of fiscal 2021 of $31.6 million, or $0.40 per fully-diluted share. On a non-GAAP basis, gross margin for the third quarter of fiscal 2022 was 39.0%, compared with 47.4% in the second quarter of fiscal 2022, and 46.0% in the third quarter of fiscal 2021.

A reconciliation of GAAP to non-GAAP measures is provided in the schedules included below.

GAAP net cash provided by operating activities for the third quarter of fiscal 2022 was $24.2 million, compared to $42.6 million for the second quarter of fiscal 2022, and $34.3 million for the third quarter of fiscal 2021. Free cash flow for the third quarter of fiscal 2022 was $15.5 million, compared to free cash flow for the second quarter of fiscal 2022 of $28.3 million, and free cash flow for the third quarter of 2021 of $14.4 million. A reconciliation of net cash provided by operating activities to non-GAAP free cash flow is provided in the schedules included below.

Outlook

Dr. Slessor added, “Our sequentially weaker outlook is due to three primary factors; one, the new US-China trade restrictions announced on October 7th; two, weaker DRAM probe card demand; and three, further softness in Foundry & Logic probe card demand, with specific weakness in RF probe cards. These factors notwithstanding, we remain confident in the long-term growth prospects for the industry overall, driven by the fundamental trends of semiconductor content growth and innovations like advanced packaging.”

For the fourth quarter ending December 31, 2022, FormFactor is providing the following outlook*:

    GAAP   Reconciling Items**   Non-GAAP
Revenue   $155 million +/- $5 million    —   $155 million +/- $5 million
Gross Margin   27% +/- 1.5%   $9 million   33% +/- 1.5%
Net income per diluted share   ($0.22) +/- $0.03   $0.25   $0.03 +/- $0.03

*This outlook assumes consistent foreign currency rates.
**Reconciling items are stock-based compensation, restructuring charges, and amortization of intangibles, inventory, and fixed asset fair value adjustments due to acquisitions.

We posted our revenue breakdown by geographic region, by market segment and with customers with greater than 10% of total revenue on the Investor Relations section of our website at www.formfactor.com. We will conduct a conference call at 1:25 p.m. PDT, or 4:25 p.m. EDT, today.

The public is invited to listen to a live webcast of FormFactor’s conference call on the Investor Relations section of our web site at www.formfactor.com. A telephone replay of the conference call will be available approximately two hours after the conclusion of the call. The replay will be available on the Investor Relations section of our website, www.formfactor.com. 

Use of Non-GAAP Financial Information:

To supplement our condensed consolidated financial results prepared under generally accepted accounting principles, or GAAP, we disclose certain non-GAAP measures of non-GAAP net income, non-GAAP net income per basic and diluted share, non-GAAP revenue, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses and non-GAAP operating income, that are adjusted from the nearest GAAP financial measure to exclude certain costs, expenses, gains and losses. Reconciliations of the adjustments to GAAP results for the three and nine months ended September 24, 2022, and for outlook provided before, as well as for the comparable periods of fiscal 2021, are provided below, and on the Investor Relations section of our website at www.formfactor.com. Information regarding the ways in which management uses non-GAAP financial information to evaluate its business, management’s reasons for using this non-GAAP financial information, and limitations associated with the use of non-GAAP financial information, is included under “About our Non-GAAP Financial Measures” following the tables below.

About FormFactor:

FormFactor, Inc. (Nasdaq: FORM), is a leading provider of essential test and measurement technologies along the full semiconductor product life cycle – from characterization, modeling, reliability, and design de-bug, to qualification and production test. Semiconductor companies rely upon FormFactor’s products and services to accelerate profitability by optimizing device performance and advancing yield knowledge. The Company serves customers through its network of facilities in Asia, Europe, and North America. For more information, visit the Company’s website at www.formfactor.com. 

Forward-looking Statements:

This press release contains forward-looking statements within the meaning of the “safe harbor” provisions of the federal securities laws, including with respect to the Company’s future financial and operating results, and the Company’s plans, strategies and objectives for future operations. These statements are based on management’s current expectations and beliefs as of the date of this release, and are subject to a number of risks and uncertainties, many of which are beyond the Company’s control, that could cause actual results to differ materially from those described in the forward-looking statements. These forward-looking statements include, but are not limited to, statements regarding future financial and operating results, customer demand, conditions in the semiconductor industry, and growth opportunities, and other statements regarding the Company’s business. Forward-looking statements may contain words such as “may,” “might,” “will,” “expect,” “plan,” “anticipate,” and “continue,” the negative or plural of these words and similar expressions, and include the assumptions that underlie such statements. The following factors, among others, could cause actual results to differ materially from those described in the forward-looking statements: changes in demand for the Company’s products; customer-specific demand; market opportunity; anticipated industry trends; the availability, benefits, and speed of customer acceptance or implementation of new products and technologies; manufacturing, processing, and design capacity, goals, expansion, volumes, and progress; difficulties or delays in research and development; industry seasonality; risks to the Company’s realization of benefits from acquisitions, investments in capacity and investments in new electronic data systems and information technology; reliance on customers or third parties (including suppliers); changes in macro-economic environments; events affecting global and regional economic and market conditions and stability such as infectious diseases and pandemics, military conflicts, political volatility and similar factors, operating separately or in combination; and other factors, including those set forth in the Company’s most current annual report on Form 10-K, quarterly reports on Form 10-Q and other filings by the Company with the U.S. Securities and Exchange Commission. We continue to operate in an environment with substantial uncertainties arising from global, regional and national health crises such as the COVID-19 pandemic, including with respect to their impact on our operations, capacity, customer demand, and supply chain, as well as the macroeconomic environment. In addition, there are varying barriers to international trade, including restrictive trade and export regulations, dynamic tariffs, trade disputes between the U.S. and other countries, such as the recent US-China restrictions, and national security developments or tensions, that may substantially restrict or condition our sales to or in certain countries, increase the cost of doing business internationally, and disrupt our supply chain. No assurances can be given that any of the events anticipated by the forward-looking statements within this press release will transpire or occur, or if any of them do so, what impact they will have on the results of operations or financial condition of the Company. Unless required by law, the Company is under no obligation (and expressly disclaims any such obligation) to update or revise its forward-looking statements whether as a result of new information, future events, or otherwise.

Investor Contact:

Stan Finkelstein
Investor Relations
(925) 290-4321
[email protected] 

FORMFACTOR, INC. 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)

  Three Months Ended   Nine Months Ended
  September 24,
2022
  June 25,
2022
  September 25,
2021
  September 24,
2022
  September 25,
2021
Revenues $ 180,869     $ 203,907     $ 189,964     $ 581,950     $ 564,676  
Cost of revenues   118,656       109,538       109,745       331,144       331,468  
Gross profit   62,213       94,369       80,219       250,806       233,208  
Operating expenses:                  
Research and development   26,549       28,317       26,026       82,000       75,526  
Selling, general and administrative   31,637       33,406       30,940       97,949       91,434  
Total operating expenses   58,186       61,723       56,966       179,949       166,960  
Operating income   4,027       32,646       23,253       70,857       66,248  
Interest income   709       300       121       1,147       463  
Interest expense   (152 )     (119 )     (151 )     (463 )     (447 )
Other income, net   1,041       551       58       1,784       36  
Income before income taxes   5,625       33,378       23,281       73,325       66,300  
Provision for income taxes   1,274       3,136       2,784       8,860       8,273  
Net income $ 4,351     $ 30,242     $ 20,497     $ 64,465     $ 58,027  
Net income per share:                  
Basic $ 0.06     $ 0.39     $ 0.26     $ 0.83     $ 0.75  
Diluted $ 0.06     $ 0.38     $ 0.26     $ 0.82     $ 0.73  
Weighted-average number of shares used in per share calculations:                  
Basic   77,245       77,897       77,869       77,796       77,643  
Diluted   77,688       79,210       79,029       78,492       79,190  


FORMFACTOR, INC. 
NON-GAAP FINANCIAL MEASURE RECONCILIATIONS
(In thousands, except per share amounts)
(Unaudited)

  Three Months Ended   Nine Months Ended
  September 24,
2022
  June 25,
2022
  September 25,
2021
  September 24,
2022
  September 25,
2021
GAAP Revenue $ 180,869     $ 203,907     $ 189,964     $ 581,950     $ 564,676  
Adjustments:                  
Amortization of deferred revenue fair value adjustments due to acquisitions               57             260  
Non-GAAP Revenue $ 180,869     $ 203,907     $ 190,021     $ 581,950     $ 564,936  
                   
GAAP Gross Profit $ 62,213     $ 94,369     $ 80,219     $ 250,806     $ 233,208  
Adjustments:                  
Amortization of intangibles, inventory and fixed asset fair value adjustments due to acquisitions   1,241       1,139       1,545       3,548       13,598  
Stock-based compensation   1,022       734       1,392       2,834       3,806  
Restructuring charges   6,060       454       4,322       6,653       4,490  
Non-GAAP Gross Profit $ 70,536     $ 96,696     $ 87,478     $ 263,841     $ 255,102  
                   
GAAP Gross Margin   34.4 %     46.3 %     42.2 %     43.1 %     41.3 %
Adjustments:                  
Amortization of intangibles, inventory and fixed asset fair value adjustments due to acquisitions   0.6 %     0.5 %     0.8 %     0.6 %     2.4 %
Stock-based compensation   0.6 %     0.4 %     0.7 %     0.5 %     0.7 %
Restructuring charges   3.4 %     0.2 %     2.3 %     1.1 %     0.8 %
Non-GAAP Gross Margin   39.0 %     47.4 %     46.0 %     45.3 %     45.2 %
                   
GAAP operating expenses $ 58,186     $ 61,723     $ 56,966     $ 179,949     $ 166,960  
Adjustments:                  
Amortization of intangibles   (1,567 )     (1,526 )     (1,604 )     (4,654 )     (4,909 )
Stock-based compensation   (6,973 )     (5,624 )     (6,528 )     (19,039 )     (17,779 )
Restructuring charges   (114 )     (127 )     (311 )     (415 )     (777 )
Gain on contingent consideration                           95  
Acquisition related expenses                           (209 )
Non-GAAP operating expenses $ 49,532     $ 54,446     $ 48,523     $ 155,841     $ 143,381  
                   
GAAP operating income $ 4,027     $ 32,646     $ 23,253     $ 70,857     $ 66,248  
Adjustments:                  
Amortization of intangibles, inventory and fixed asset fair value adjustments due to acquisitions   2,808       2,665       3,149       8,202       18,507  
Stock-based compensation   7,995       6,358       7,920       21,873       21,585  
Restructuring charges   6,174       581       4,633       7,068       5,267  
Gain on contingent consideration                           (95 )
Acquisition related expenses                           209  
Non-GAAP operating income $ 21,004     $ 42,250     $ 38,955     $ 108,000     $ 111,721  


FORMFACTOR, INC. 
NON-GAAP FINANCIAL MEASURE RECONCILIATIONS
(In thousands, except per share amounts)
(Unaudited)

  Three Months Ended   Nine Months Ended
  September 24,
2022
  June 25,
2022
  September 25,
2021
  September 24,
2022
  September 25,
2021
GAAP net income $ 4,351     $ 30,242     $ 20,497     $ 64,465     $ 58,027  
Adjustments:                  
Amortization of intangibles, inventory and fixed asset fair value adjustments due to acquisitions   2,808       2,665       3,149       8,202       18,507  
Stock-based compensation   7,995       6,358       7,920       21,873       21,585  
Restructuring charges   6,174       581       4,633       7,068       5,267  
Gain on contingent consideration                           (95 )
Acquisition related expenses                           209  
Income tax effect of non-GAAP adjustments   (3,017 )     (3,071 )     (4,571 )     (7,813 )     (12,650 )
Non-GAAP net income $ 18,311     $ 36,775     $ 31,628     $ 93,795     $ 90,850  
                   
GAAP net income per share:                  
Basic $ 0.06     $ 0.39     $ 0.26     $ 0.83     $ 0.75  
Diluted $ 0.06     $ 0.38     $ 0.26     $ 0.82     $ 0.73  
                   
Non-GAAP net income per share:                  
Basic $ 0.24     $ 0.47     $ 0.41     $ 1.21     $ 1.17  
Diluted $ 0.24     $ 0.46     $ 0.40     $ 1.19     $ 1.15  


FORMFACTOR, INC. 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

  Nine Months Ended
  September 24,
2022
  September 25,
2021
Cash flows from operating activities:      
Net income $ 64,465     $ 58,027  
Selected adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation   21,189       19,256  
Amortization   7,056       16,362  
Stock-based compensation expense   21,873       21,585  
Provision for excess and obsolete inventories   16,078       11,621  
Non-cash restructuring charges   710       1,592  
Gain on contingent consideration         (95 )
Other activity impacting operating cash flows   (20,323 )     (26,319 )
Net cash provided by operating activities   111,048       100,437  
Cash flows from investing activities:      
Acquisition of property, plant and equipment   (39,024 )     (51,353 )
Acquisition of business   (3,350 )      
Purchase of promissory note receivable   (1,000 )      
Purchases of marketable securities, net   (8,639 )     (43,623 )
Net cash used in investing activities   (52,013 )     (94,976 )
Cash flows from financing activities:      
Purchase of common stock through stock repurchase program   (73,478 )     (23,951 )
Proceeds from issuances of common stock   10,499       10,647  
Tax withholdings related to net share settlements of equity awards   (15,564 )     (12,643 )
Payment of contingent consideration         (3,873 )
Principal repayments on term loans   (6,421 )     (7,049 )
Net cash used in financing activities   (84,964 )     (36,869 )
Effect of exchange rate changes on cash, cash equivalents and restricted cash   (5,708 )     (2,216 )
Net decrease in cash, cash equivalents and restricted cash   (31,637 )     (33,624 )
Cash, cash equivalents and restricted cash, beginning of period   155,342       191,098  
Cash, cash equivalents and restricted cash, end of period $ 123,705     $ 157,474  


FORMFACTOR, INC. 
RECONCILIATION OF CASH PROVIDED BY OPERATING ACTIVITIES TO NON-GAAP FREE CASH FLOW
(In thousands)
(Unaudited)

  Three Months Ended   Nine Months Ended
  September 24,
2022
  June 25,
2022
  September 25,
2021
  September 24,
2022
  September 25,
2021
Net cash provided by operating activities $ 24,247     $ 42,646     $ 34,282     $ 111,048     $ 100,437  
Adjustments:                  
Cash paid for interest   161       131       157       455       496  
Acquisition related payments in working capital                           209  
Capital expenditures   (8,908 )     (14,510 )     (20,031 )     (39,024 )     (51,353 )
Free cash flow $ 15,500     $ 28,267     $ 14,408     $ 72,479     $ 49,789  


FORMFACTOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited) 

  September 24,
2022
  June 25,
2022
  December 25,
2021
ASSETS          
Current assets:          
Cash and cash equivalents $ 120,602     $ 136,395     $ 151,010  
Marketable securities   130,991       129,919       125,055  
Accounts receivable, net of allowance for credit losses   110,497       107,726       115,541  
Inventories, net   132,029       143,475       111,548  
Restricted cash   1,263       2,102       2,233  
Prepaid expenses and other current assets   20,932       17,447       18,652  
Total current assets   516,314       537,064       524,039  
Restricted cash   1,840       1,802       2,099  
Operating lease, right-of-use-assets   31,508       33,499       35,210  
Property, plant and equipment, net of accumulated depreciation   163,384       157,814       146,555  
Goodwill   209,105       212,357       212,299  
Intangibles, net   28,208       30,872       36,342  
Deferred tax assets   67,775       65,059       61,995  
Other assets   4,229       3,980       1,981  
Total assets $ 1,022,363     $ 1,042,447     $ 1,020,520  
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable $ 75,021     $ 60,927     $ 57,862  
Accrued liabilities   46,328       54,835       50,836  
Current portion of term loans, net of unamortized issuance costs   2,734       4,725       8,931  
Deferred revenue   31,974       31,255       23,224  
Operating lease liabilities   7,699       7,843       7,901  
Total current liabilities   163,756       159,585       148,754  
Term loans, less current portion, net of unamortized issuance costs   14,653       14,915       15,434  
Deferred tax liabilities   2,232       2,909       3,623  
Long-term operating lease liabilities   27,858       29,511       31,009  
Other liabilities   5,562       5,542       5,920  
Total liabilities   214,061       212,462       204,740  
           
Stockholders’ equity:          
Common stock   77       77       78  
Additional paid-in capital   843,453       860,584       898,945  
Accumulated other comprehensive loss   (17,899 )     (8,996 )     (1,449 )
Accumulated deficit   (17,329 )     (21,680 )     (81,794 )
Total stockholders’ equity   808,302       829,985       815,780  
Total liabilities and stockholders’ equity $ 1,022,363     $ 1,042,447     $ 1,020,520  

About our Non-GAAP Financial Measures:

We believe that the presentation of non-GAAP net income, non-GAAP net income per basic and diluted share, non-GAAP revenue, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income and free cash flow provides supplemental information that is important to understanding financial and business trends and other factors relating to our financial condition and results of operations. Non-GAAP net income, non-GAAP net income per basic and diluted share, non-GAAP revenue, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses, and non-GAAP operating income are among the primary indicators used by management as a basis for planning and forecasting future periods, and by management and our board of directors to determine whether our operating performance has met certain targets and thresholds. Management uses non-GAAP net income, non-GAAP net income per basic and diluted share, non-GAAP revenue, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses, and non-GAAP operating income when evaluating operating performance because it believes that the exclusion of the items indicated herein, for which the amounts or timing may vary significantly depending upon our activities and other factors, facilitates comparability of our operating performance from period to period. We use free cash flow to conduct and evaluate our business as an additional way of viewing our liquidity that, when viewed with our GAAP results, provides a more complete understanding of factors and trends affecting our cash flows. Many investors also prefer to track free cash flow, as opposed to only GAAP earnings. Free cash flow has limitations due to the fact that it does not represent the residual cash flow available for discretionary expenditures, and therefore it is important to view free cash flow as a complement to our entire consolidated statements of cash flows. We have chosen to provide this non-GAAP information to investors so they can analyze our operating results closer to the way that management does, and use this information in their assessment of our business and the valuation of our Company. We compute non-GAAP net income, non-GAAP net income per basic and diluted share, non-GAAP revenue, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses, and non-GAAP operating income, by adjusting GAAP net income, GAAP net income per basic and diluted share, GAAP revenue, GAAP gross profit, GAAP gross margin, GAAP operating expenses, and GAAP operating income to remove the impact of certain items and the tax effect, if applicable, of those adjustments. These non-GAAP measures are not in accordance with, or an alternative to, GAAP, and may be materially different from other non-GAAP measures, including similarly titled non-GAAP measures used by other companies. The presentation of this additional information should not be considered in isolation from, as a substitute for, or superior to, net income, net income per basic and diluted share, revenue, gross profit, gross margin, operating expenses, or operating income in accordance with GAAP. Non-GAAP financial measures have limitations in that they do not reflect certain items that may have a material impact upon our reported financial results. We may expect to continue to incur expenses of a nature similar to the non-GAAP adjustments described above, and exclusion of these items from our non-GAAP net income, non-GAAP net income per basic and diluted share, non-GAAP revenue, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses, and non-GAAP operating income should not be construed as an inference that these costs are unusual, infrequent or non-recurring. For more information on the non-GAAP adjustments, please see the table captioned “Non-GAAP Financial Measure Reconciliations” and “Reconciliation of Cash Provided by Operating Activities to non-GAAP Free Cash Flow” included in this press release.

Source: FormFactor, Inc.
FORM-F

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