FormFactor, Inc. 2021 Q1 SEC Filing Summary
Business Context and Reporting Period
FormFactor provides semiconductor test and measurement technologies, including probe cards, analytical probes, probe stations, metrology systems, thermal systems and cryogenic systems. The company operates through Probe Cards and Systems segments.
This unaudited Form 10-Q covers the 13 weeks ended March 27, 2021, compared with the 13 weeks ended March 28, 2020. Fiscal 2021 ends December 25, 2021. Results are not necessarily indicative of full-year performance.
Financial Performance and Position
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $186.6 million | $160.8 million | Up 16.1% |
| Gross profit | $76.7 million | $67.4 million | Up 13.8% |
| Gross margin | 41.1% | 41.9% | Down 0.8 percentage points |
| Operating income | $22.6 million | $18.4 million | Up 22.9% |
| Operating margin | 12.1% | 11.5% | Up 0.6 percentage points |
| Net income | $19.6 million | $15.9 million | Up 23.5% |
| Diluted EPS | $0.25 | $0.20 | Up $0.05 |
| Effective tax rate | 14.0% | 15.1% | Down 1.1 percentage points |
Probe Cards revenue was $158.9 million, up 18.0%, while Systems revenue was $27.7 million, up 6.5%. Probe Cards revenue included Foundry & Logic of $113.4 million, DRAM of $33.9 million and Flash of $11.6 million. Customer concentration remained significant: Intel represented 28.1% of revenue and Taiwan Semiconductor Manufacturing represented 11.5%.
Cash flow from operations was $32.4 million, compared with $39.3 million in the prior-year quarter. Investing cash outflow was $39.9 million, including $13.5 million of capital expenditures and $26.5 million of net purchases of marketable securities. Financing cash outflow was $3.8 million, including $2.4 million of term-loan principal repayments and $5.7 million of share repurchases.
Cash, cash equivalents and restricted cash totaled $178.3 million at March 27, 2021. Cash and marketable securities totaled approximately $267.7 million, compared with $255.0 million at December 26, 2020. Working capital was $351.5 million, up from $332.5 million at year-end 2020.
Total term loans were approximately $31.7 million, consisting of $14.4 million under the FRT Term Loan and $17.3 million under the Building Term Loan. The company stated that existing liquidity and operating cash flow should fund working capital and scheduled debt repayments for at least the next twelve months.
Material Changes Versus the Prior Comparable Period
- Revenue increased primarily from higher Foundry & Logic, DRAM and Flash demand, including contributions from the Baldwin Park and High Precision Devices acquisitions.
- First-quarter 2020 included factory shutdowns of almost two weeks at certain locations because of COVID-19; those shutdowns did not recur in the first quarter of 2021.
- Gross margin declined because of less favorable product mix and manufacturing-cost absorption, including higher sales of lower-margin Flash probe cards and lower-margin Systems product mix.
- Operating expenses increased 10.6% to $54.1 million. Research and development rose 13.1% and selling, general and administrative expense rose 8.4%, primarily from higher headcount, facilities, project materials, depreciation, amortization and stock-based compensation.
- Net income and operating margin improved despite lower gross margin because of higher revenue and operating-expense leverage.
- Operating cash flow declined despite higher earnings, largely reflecting a $9.9 million increase in inventories and changes in accrued liabilities.
- The company repurchased 136,402 shares for $5.7 million during the quarter; $44.3 million remained available under the $50 million program.
- Goodwill increased to $214.2 million, while net intangible assets declined to $48.8 million, principally reflecting amortization and acquisition-related accounting.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide a clear quantitative revenue, earnings or margin forecast. Management expects available liquidity and operating cash flow to satisfy requirements for at least the next twelve months, but notes that future capital needs may vary and additional financing may not be available on favorable terms.
Management reported that manufacturing sites continued operating at production levels comparable to pre-pandemic levels, subject to safety constraints. COVID-19 remains a sustained risk because renewed outbreaks, government restrictions or supply-chain disruption could affect manufacturing, product development, customer support, demand, liquidity and financial results.
Other significant risks include customer and market concentration, reliance on certain sole-source suppliers, semiconductor industry cyclicality, product-mix volatility, foreign-exchange and interest-rate exposure, export controls and trade barriers, acquisition integration and valuation assumptions, and changing demand in Flash markets.
The company completed the purchase-price allocation for the Baldwin Park acquisition during the quarter. Accounting for the October 2020 HPD acquisition remained open, subject to finalization of fair value and certain deferred-tax items. No goodwill impairment was recorded. The company also implemented an ERP system in January 2021 for two factories and stated that it is monitoring related internal controls.
The filing reports no material legal proceedings, no off-balance-sheet arrangements and no material changes to previously disclosed risk factors. Remaining performance obligations were $6.3 million at March 27, 2021, with approximately 74.5% expected to be recognized during the remainder of fiscal 2021.
Facts Investors Should Verify
- Whether revenue growth is sustainable after the favorable comparison with COVID-related factory shutdowns in Q1 2020.
- Whether gross margin recovers from the 41.1% level as product mix, factory loading and material costs change.
- The durability of demand from Foundry & Logic, DRAM and Flash customers and the effect of customer concentration.
- Inventory growth, supply-chain conditions and the risk of excess or obsolete inventory.
- Integration results and purchase-accounting finalization for Baldwin Park and HPD, including goodwill and intangible-asset impairment risk.
- Future capital expenditures, debt repayments and the pace of share repurchases relative to operating cash generation.
- COVID-19 developments, export controls, trade restrictions and semiconductor-industry cyclicality.
- Effects of the new ERP implementation on transaction processing and internal control effectiveness.