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FormFactor (FORM) Q1 Earnings Beat Estimates, Revenues Miss

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FormFactor Inc. (FORM - Free Report) reported first-quarter adjusted earnings of 17 cents per share, beating the Zacks Consensus Estimate by a penny. Also, earnings increased 29.2% year over year.

Revenues decreased 8.5% from the year-ago quarter to $118.3 million but lagged the Zacks Consensus Estimate of $121 million. The figure was within the company’s guidance of $112-$120 million.

Weak demand from the company’s largest customer and the delay in 10 nm production probe card demand impacted its first-quarter revenues.

However, management is optimistic that probe card shipments to this customer will begin to ramp up in the second quarter of 2018. FormFactor expects record shipments to this customer in the second half of 2018.

The company's shares have lost 10.2% in the past 12 months, underperforming the industry’s gain of 4.4%.

Quarter Details

Foundry & Logic revenues (49% of the revenues) decreased 15% on a sequential basis at $58.4 million. The decline was attributable to the anticipated lower revenues from the company’s largest customer.

During the quarter, FormFactor witnessed sequential increase in shipments of a new design to a foundry, which utilizes probe cards and advanced packaging applications at leading edge nodes. Moreover, probe card for RF applications increased in the first quarter.

Revenues for DRAM products (26% of the revenues) were $30.3 million, down 5%sequentially. Management stated that despite weak results, DRAM demand environment was robust in the quarter. Technology node transitions and a strong datacenter demand environment continued to positively impact probe card demand.

Flash revenues were $6.2 million, down sequentially. Almost half of the flash revenues were from NAND flash applications.

Systems revenues declined sequentially in the first quarter. The sequential decline in this segment was due to a decrease in station revenues, offset by record sales of thermal subsystems.

Operating Details

On a non-GAAP basis, gross margin expanded 70 basis points year over year to 43.3%. The increase was primarily due to a favorable product mix and lower warranty costs, partially offset by a negative impact of a stronger euro.

Non-GAAP operating expenses, including ERP implementation costs, were $36.6 million, up $0.6 million from the prior quarter. The increase was due to higher R&D investments, and ERP integration and implementation costs, partially offset by lower performance-based compensation.

Balance Sheet & Cash Flow

As of Mar 31, 2018, cash (comprising cash and cash equivalent as well as marketable securities) was $142.1 million compared with $141.4 million as of Dec 30, 2017.

Cash from operations was $9.3 million compared with $26.5 million in the fourth quarter. Free cash flow was $6.3 million, up from $23.5 million in the last reported quarter.

Guidance

FormFactor expects second-quarter 2018 revenues between $130 million and $138 million. The Zacks Consensus Estimate for revenues is currently pegged at $128.2 million.

On a non-GAAP basis, the company projects gross margin within 42-45% and earnings in the band of 20-26 cents per share. The Zacks Consensus Estimate for earnings is pegged at 24 cents.

FormFactor, Inc. Price, Consensus and EPS Surprise

 

FormFactor, Inc. Price, Consensus and EPS Surprise | FormFactor, Inc. Quote

Zacks Rank & Stocks to Consider

Formfactor carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the technology sector are SMC Corporation (SMCAY - Free Report) , carrying a Zacks Rank #1 (Strong Buy), while Etsy, Inc. (ETSY - Free Report) and Littelfuse, Inc. (LFUS - Free Report) , both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings per share growth rate for SMC Corporation, Etsy and Littelfuse is projected at 13.7%, 18% and 12%, respectively

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