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FormFactor (FORM) Tops Q2 Earnings Estimates, Lags Revenues

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FormFactor Inc. (FORM - Free Report) reported second-quarter adjusted earnings of 33 cents per share, which beat the Zacks Consensus Estimate of 27 cents. The figure remained flat sequentially but increased 57.1% year over year.

Revenues increased 14.4% from the year-ago quarter but decreased 1.8% sequentially to $157.8 million.

The top line was driven by strong demand for both Foundry & Logic probe cards. Customer node transitions and new design releases also aided revenues.

However, the top line missed the Zacks Consensus Estimate by 0.7%.

Management continues to expect strong demand for Foundry & Logic probe cards in the near term due to acceleration of 5G handset pilot production and persistent spending on work from home infrastructure.

Notably, management expects strength in DRAM in the near term as key customers begin to ramp new server and mobile designs on the one-Y and one-Z nanometer nodes.

During the quarter, the company completed the acquisition of the probe card assets of Advantest Corporation. The deal will enable FormFactor to enhance its position in the probe card market.

FormFactor, Inc. Price, Consensus and EPS Surprise

FormFactor, Inc. Price, Consensus and EPS Surprise

FormFactor, Inc. price-consensus-eps-surprise-chart | FormFactor, Inc. Quote

Quarter Details

Probe card segment revenues were $134 million for the second quarter, down less than 1% from the first quarter.

Within the probe card segment, Foundry & Logic sales (accounting for 69% of its total revenues) increased 3% on a sequential basis to $109 million.

Revenues for DRAM products (12% of revenues) were $19 million, reflecting a decrease of $6 million from the first quarter.

Flash revenues (3.4% of revenues) were $5.4 million, up on a sequential basis.

Systems revenues for the second quarter were $24 million, down approximately 8% sequentially. The decrease was mainly due to lower sales to universities and institutions that were impacted by the COVID-19 pandemic.

Operating Details

On a non-GAAP basis, gross margin expanded 150 basis points (bps) year over year but contracted 30 bps sequentially to 45.8%. The sequential decrease was mainly due to lower gross margin in the Systems segment.

Non-GAAP operating expenses were $41.1 million for the second quarter, up from $39.6 million in the prior-year period. The increase was due to higher R&D investments.

Balance Sheet & Cash Flow

At second quarter-end, cash and cash equivalents, as well as marketable securities were $261.1 million compared with $239.4 million in the first quarter.

Cash flow from operations was $43.1 million versus $39.3 million in the first quarter. Free cash flow was $18.6 million, down from $27.6 million in the first quarter.

Guidance

FormFactor expects third-quarter 2020 revenues between $170 million and $182 million. The Zacks Consensus Estimate for revenues is currently pegged at $160.7 million.

On a non-GAAP basis, the company projects gross margin within 44-47% and earnings in the band of 30-38 cents per share. The Zacks Consensus Estimate for earnings per share is pegged at 31 cents.

Zacks Rank & Stocks to Consider

Currently, FormFactor carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader technology sector include Dropbox (DBX - Free Report) , MercadoLibre, Inc. (MELI - Free Report) and Analog Devices (ADI - Free Report) . While both Dropbox sports a Zacks Rank #1 (Strong Buy), Analog Devices and MercadoLibre carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Both Dropbox and MercadoLibre are scheduled to report quarterly earnings on Aug 6. Analog Devices is set to release quarterly results on Aug 19.

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