FormFactor, Inc. 2021 Form 10-K Summary
Business context and reporting period
FormFactor provides semiconductor test and measurement products, including probe cards, analytical probes, probe stations, metrology systems, thermal systems and cryogenic systems. It operates through Probe Cards and Systems reportable segments. The filing covers the 52-week fiscal year ended December 25, 2021, compared primarily with the 52-week year ended December 26, 2020; it is an annual filing rather than a quarterly filing.
Key financial metrics
| Metric | Fiscal 2021 | Fiscal 2020 | Change |
|---|---|---|---|
| Revenue | $769.7 million | $693.6 million | Up 11.0% |
| Gross profit | $322.8 million | $287.9 million | Up 12.1% |
| Gross margin | 41.9% | 41.5% | Up 0.4 percentage points |
| Operating income | $98.0 million | $83.8 million | Up 17.0% |
| Operating margin | 12.7% | 12.1% | Up 0.6 percentage points |
| Net income | $83.9 million | $78.5 million | Up 6.9% |
| Diluted EPS | $1.06 | $0.99 | Up 7.1% |
| Operating cash flow | $139.4 million | $169.3 million | Down $29.9 million |
- Probe Cards revenue was $633.3 million, up from $581.7 million; Systems revenue was $136.4 million, up from $111.9 million.
- Probe Cards gross margin declined to 44.2% from 45.2%, while Systems gross margin increased to 48.3% from 46.3%.
- Revenue by market was $435.8 million from Foundry & Logic, $156.0 million from DRAM, $41.4 million from Flash and $136.4 million from Systems.
- International revenue represented 84% of total revenue. Taiwan, China and South Korea together accounted for 61.4% of revenue based on ship-to location.
- Cash, cash equivalents and marketable securities totaled approximately $276.1 million at year-end, compared with $255.0 million a year earlier. Working capital was $375.3 million.
- Year-end total debt was $24.4 million before $0.1 million of unamortized issuance costs, consisting of the FRT Term Loan and Building Term Loan.
- Capital expenditures were $66.5 million. Net cash used in investing activities was $124.7 million, and net cash used in financing activities was $47.2 million.
- The company repurchased 622,400 shares for $24.0 million during fiscal 2021, with $26.0 million remaining under the authorization. No cash dividends were declared.
Material changes versus the prior comparable period
- Revenue growth was driven by higher DRAM, Flash and Systems sales, partly offset by a 2.3% decline in Foundry & Logic revenue caused by lower demand from two major customers.
- DRAM revenue increased 42.2%, Flash revenue increased 60.4% and Systems revenue increased 21.9%.
- Gross margin benefited from lower amortization of acquisition-related intangibles, but Probe Cards margin was pressured by product mix, unfavorable manufacturing variances, higher material costs and wafer expenses.
- Research and development expense increased 13.4% to $100.9 million, and selling, general and administrative expense increased 7.6% to $123.8 million, primarily reflecting acquisitions, compensation and higher stock-based compensation.
- The effective tax rate increased to 14.8% from 7.8%, partly because significant one-time tax benefits recorded in fiscal 2020 did not recur.
- Operating cash flow declined because higher operating levels required greater investment in receivables and inventories. Inventories increased to $111.5 million from $99.2 million.
- Property, plant and equipment increased to $146.6 million from $104.1 million, reflecting elevated capital investment, including the Livermore building purchase and other equipment spending.
Guidance, outlook, commentary and risks
- Management stated that available cash, marketable securities and expected operating cash generation should be sufficient for anticipated operating, capital expenditure, working capital and debt requirements, while noting that future acquisitions or strategic investments could require additional financing.
- Management expected DRAM demand and new-design activity to remain healthy through fiscal 2022, but stated that Flash revenue remains highly variable. The filing does not provide formal consolidated fiscal 2022 revenue or earnings guidance.
- COVID-19 had limited overall disruption during fiscal 2021, but continued to affect supply chains, staffing, manufacturing and customer operations. Management described the pandemic and related semiconductor supply constraints as ongoing risks.
- On September 25, 2021, the company adopted restructuring plans to consolidate or relocate certain facilities and adjust capacity. Aggregate restructuring and other charges were estimated at approximately $6.0 million to $9.0 million, with substantial completion expected by the end of December 2022, although some facility charges may extend beyond that date. Fiscal 2021 restructuring charges totaled $4.1 million in the income statement, with $2.5 million accrued at year-end.
- Inventory valuation is a significant judgment area. Inventory write-downs were $15.5 million in fiscal 2021, and KPMG identified evaluation of excess and obsolete inventory as a critical audit matter.
- Two customers, Intel and Samsung, accounted for 31.8% of fiscal 2021 revenue. Customer concentration, order timing, cancellations and semiconductor industry cyclicality may cause material revenue volatility.
- Additional significant risks include competition and pricing pressure, rapid technology change, reliance on sole- or limited-source suppliers, manufacturing yields, export controls and U.S.-China trade restrictions, foreign currency exposure, cybersecurity, natural disasters, talent retention and potential restructuring or impairment charges.
- The company reported no material legal proceedings, no environmental violation notices, and effective disclosure controls and internal control over financial reporting as of December 25, 2021. KPMG issued unqualified audit opinions on the financial statements and internal controls.
Important facts for investors to verify
- Reconcile the 11.0% revenue growth with the decline in Foundry & Logic sales and determine the sustainability of DRAM and Systems growth.
- Assess whether lower Probe Cards margins from product mix, material costs and manufacturing variances persist.
- Monitor inventory levels, the $15.5 million inventory write-down and the assumptions supporting future consumption estimates.
- Track completion and total cost of the facility-consolidation restructuring, including the estimated $6.0 million to $9.0 million range.
- Evaluate exposure to the top customers, international markets, export controls and semiconductor industry cycles.
- Verify liquidity after capital expenditures, share repurchases, lease commitments, taxes and scheduled debt payments. The filing reports $71.1 million of lease and debt contractual payments, excluding unrecognized tax benefits, and $35.7 million of unrecognized tax benefits with uncertain payment timing.