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Formfactor, Inc. Reports 2019 Second Quarter Results

LIVERMORE, Calif., July 31, 2019 (GLOBE NEWSWIRE) -- FormFactor, Inc. (Nasdaq: FORM) today announced its financial results for the second quarter of fiscal 2019 ended June 29, 2019. Quarterly revenues were $138.0 million, up 4.4% from $132.2 million in the first quarter of fiscal 2019, and up 1.9% from $135.5 million in the second quarter of fiscal 2018.

“FormFactor delivered sequential and year-over-year revenue growth during the second quarter, resulting in strong cash generation and robust profitability,” said Mike Slessor, CEO of FormFactor, Inc. “These results further validate our broadly diversified leadership positions in attractive consumables and R&D-driven markets, which are less volatile than capital equipment.”

Second Quarter Highlights

On a GAAP basis, net income for the second quarter of fiscal 2019 was $6.9 million, or $0.09 per fully-diluted share, compared to net income for the first quarter of fiscal 2019 of $5.5 million, or $0.07 per fully-diluted share, and net income for the second quarter of fiscal 2018 of $9.1 million, or $0.12 per fully-diluted share. Gross margin for the second quarter of 2019 was 40.1%, compared with 39.7% in the first quarter of 2019, and 41.5% in the second quarter of 2018.

On a non-GAAP basis, net income for the second quarter of fiscal 2019 was $16.1 million, or $0.21 per fully-diluted share, compared to net income for the first quarter of fiscal 2019 of $15.2 million, or $0.20 per fully-diluted share, and net income for the second quarter of fiscal 2018 of $20.4 million, or $0.27 per fully-diluted share. On a non-GAAP basis, Gross margin for the second quarter of 2019 was 44.3%, compared with 44.1% in the first quarter of 2019, and 45.9% in the second quarter of 2018.

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

Free cash flow for the second quarter of fiscal 2019 was $29.9 million, compared to free cash flow for the first quarter of fiscal 2019 of $14.9 million, and free cash flow for the second quarter of 2018 of $16.8 million. A reconciliation of net cash provided by operating activities to free cash flow is provided in the schedules included below.

Outlook

Dr. Slessor added, “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.”

For the third quarter ending on September 28, 2019, FormFactor is providing the following outlook*:

 GAAP Reconciling Items** Non-GAAP
Revenue$137 million to $145 million  — $137 million to $145 million
Gross margin38% to 41% $6 million 32% to 45%
Net income per diluted share$0.05 to $0.11 $0.13 $0.18 to $0.24

*This outlook assumes consistent foreign currency rates.
**Reconciling items are stock-based compensation, restructuring charges and amortization of intangibles.

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 1:30 p.m. PDT, or 4:30 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 telephone replay will be available through August 2, 7:30 p.m. Pacific Time, and can be accessed by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international) and entering confirmation code 6388634. Additionally, 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 earnings per fully-diluted share, and non-GAAP gross margin, 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 six months ended June 29, 2019 and for outlook provided before, as well as for the comparable periods of fiscal 2018, 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 IC 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, 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 hereof, 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; the speed of customer implementation of new technologies; industry seasonality; risks to the Company’s ability to realize operational efficiencies; changes macro-economic environments; 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. No assurances can be given that any of the events anticipated by the forward-looking statements 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.


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

 Three Months Ended Six Months Ended
 June 29, 2019 June 30, 2018 June 29, 2019 June 30, 2018
Revenues$138,018  $135,509  $270,231  $253,799 
Cost of revenues82,666  79,291  162,358  152,452 
Gross profit55,352  56,218  107,873  101,347 
Operating expenses:       
Research and development20,074  19,675  39,797  37,721 
Selling, general and administrative26,283  25,232  51,467  48,681 
Total operating expenses46,357  44,907  91,264  86,402 
Operating income8,995  11,311  16,609  14,945 
Interest income684  326  1,264  583 
Interest expense(522) (910) (1,117) (1,877)
Other income (expense), net81  50  (3) (462)
Income before income taxes9,238  10,777  16,753  13,189 
Provision for income taxes2,290  1,654  4,322  1,941 
Net income$6,948  $9,123  $12,431  $11,248 
Net income per share:       
Basic$0.09  $0.12  $0.17  $0.15 
Diluted$0.09  $0.12  $0.16  $0.15 
Weighted-average number of shares used in per share calculations:       
Basic74,478  73,157  74,483  72,991 
Diluted76,189  74,533  76,061  74,427 


FORMFACTOR, INC.
RECONCILIATIONS OF GAAP ACTUALS TO NON-GAAP ACTUALS
(In thousands, except per share amounts)
(Unaudited)

 Three Months Ended Six Months Ended
 June 29, 2019 June 30, 2018 June 29, 2019 June 30, 2018
GAAP Gross Profit$55,352  $56,218  $107,873  $101,347 
Adjustments:       
Amortization of intangibles4,711  5,138  9,430  10,295 
Stock-based compensation964  813  1,914  1,733 
Restructuring charges138  —  258  — 
Non-GAAP Gross Profit$61,165  $62,169  $119,475  $113,375 
        
GAAP Gross Margin40.1% 41.5% 39.9% 39.9%
Adjustments:       
Amortization of intangibles3.4% 3.8% 3.5% 4.1%
Stock-based compensation0.7% 0.6% 0.7% 0.7%
Restructuring charges0.1% —% 0.1% —%
Non-GAAP Gross Margin44.3% 45.9% 44.2% 44.7%
        
GAAP operating expenses$46,357  $44,907  $91,264  $86,402 
Adjustments:       
Amortization of intangibles(2,368) (2,032) (4,739) (4,069)
Stock-based compensation(4,325) (3,315) (8,670) (6,151)
Restructuring charges(88) —  (177) — 
Non-GAAP operating expenses$39,576  $39,560  $77,678  $76,182 
        
GAAP operating income$8,995  $11,311  $16,609  $14,945 
Adjustments:       
Amortization of intangibles7,079  7,170  14,169  14,364 
Stock-based compensation5,289  4,128  10,584  7,884 
Restructuring charges226  —  435  — 
Non-GAAP operating income$21,589  $22,609  $41,797  $37,193 
        
GAAP net income$6,948  $9,123  $12,431  $11,248 
Adjustments:       
Amortization of intangibles7,079  7,170  14,169  14,364 
Stock-based compensation5,289  4,128  10,584  7,884 
Restructuring charges226  —  435  — 
Income tax effect of non-GAAP adjustments(3,443) 3  (6,325) (422)
Non-GAAP net income$16,099  $20,424  $31,294  $33,074 
        
Non-GAAP net income per share:       
Basic$0.22  $0.28  $0.42  $0.45 
Diluted$0.21  $0.27  $0.41  $0.44 


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

 Six Months Ended
 June 29, 2019 June 30, 2018
Net income$12,431  $11,248 
Selected adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation8,289  6,893 
Amortization14,169  14,364 
Stock-based compensation expense10,584  7,884 
Provision for excess and obsolete inventories5,304  4,593 
Other activity impacting operating cash flows4,711  (14,924)
Net cash provided by operating activities55,488  30,058 
Cash flows from investing activities:   
Acquisition of property, plant and equipment(11,460) (8,545)
Proceeds (purchases) of marketable securities, net(1,066) 1,542 
Other activity impacting investing cash flows(56) 41 
Net cash used in investing activities(12,582) (6,962)
Cash flows from financing activities:   
Proceeds from issuances of common stock3,870  4,754 
Tax withholdings related to net share settlements of equity awards(2,157) (2,453)
Principal repayments on term loan(18,750) (21,250)
Net cash used in financing activities(17,037) (18,949)
Effect of exchange rate changes on cash, cash equivalents and restricted cash279  (58)
Net increase in cash, cash equivalents and restricted cash26,148  4,089 
Cash, cash equivalents and restricted cash, beginning of period100,546  92,726 
Cash, cash equivalents and restricted cash, end of period$126,694  $96,815 

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

 Three Months Ended Six Months Ended
 June 29, 2019 June 30, 2018 June 29, 2019 June 30, 2018
Net cash provided by operating activities$34,850  $20,736  $55,488  $30,058 
Adjustments:       
Cash paid for interest476  791  778  1,617 
Capital expenditures(5,432) (4,714) (11,460) (8,545)
Free cash flow$29,894  $16,813  $44,806  $23,130 


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

 June 29,
 2019		 December 29,
2018
ASSETS   
Current assets:   
Cash and cash equivalents$124,810  $98,472 
Marketable securities52,071  50,531 
Accounts receivable, net of allowance for doubtful accounts of $189 and $18571,289  95,333 
Inventories, net83,852  77,706 
Restricted cash818  849 
Refundable income taxes524  1,260 
Prepaid expenses and other current assets14,282  13,669 
Total current assets347,646  337,820 
Restricted cash1,066  1,225 
Operating lease, right-of-use-assets33,274  — 
Property, plant and equipment, net of accumulated depreciation of $270,566 and $263,10254,436  54,054 
Goodwill189,121  189,214 
Intangibles, net53,404  67,640 
Deferred tax assets77,279  77,301 
Other assets1,343  968 
Total assets$757,569  $728,222 
    
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current liabilities:   
Accounts payable$26,252  $40,006 
Accrued liabilities29,500  27,731 
Current portion of term loan, net of unamortized issuance cost of $93 and $16033,657  29,840 
Deferred revenue7,198  4,941 
Operating lease liabilities6,203  — 
Total current liabilities102,810  102,518 
Term loan, less current portion, net of unamortized issuance cost of $0 and $2912,500  34,971 
Deferred tax liabilities2,339  2,355 
Long-term operating lease liabilities31,173  — 
Other liabilities4,645  8,214 
Total liabilities153,467  148,058 
    
Stockholders’ equity:   
Preferred stock, $0.001 par value:   
10,000,000 shares authorized; no shares issued and outstanding—  — 
Common stock, $0.001 par value:   
250,000,000 shares authorized; 74,691,781 and 74,139,712 shares issued and outstanding75  74 
Additional paid-in capital875,024  862,897 
Accumulated other comprehensive income159  780 
Accumulated deficit(271,156) (283,587)
Total stockholders’ equity604,102  580,164 
Total liabilities and stockholders’ equity$757,569  $728,222 


About our Non-GAAP Financial Measures:
We believe that the presentation of non-GAAP net income, non-GAAP earnings per fully-diluted share, non-GAAP gross margin, 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 earnings per fully-diluted share, and non-GAAP gross margin 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 earnings per fully-diluted share, and non-GAAP gross margin 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 fully-diluted earnings per share, and non-GAAP gross margin, by adjusting GAAP net income, GAAP earnings per fully-diluted share, and GAAP gross margin 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, earnings per fully-diluted share, or gross margin prepared 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 earnings per fully-diluted share, and non-GAAP gross margin 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 “Reconciliation of GAAP Net Income to Non-GAAP Net Income,” "Reconciliation of GAAP Gross Margin to Non-GAAP Gross Margin," and “Reconciliation of Cash Provided By Operating Activities to Free Cash Flow” included in this press release.

Source: FormFactor, Inc.
FORM-F

Investor Contact:
Stan Finkelstein
Investor Relations
(925) 290-4321
ir@formfactor.com

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