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FormFactor, Inc. Reports Second Quarter Results

Company delivers another record quarter, provides guidance for continued strength in 2H’17

/EIN News/ -- LIVERMORE, Calif., Aug. 02, 2017 (GLOBE NEWSWIRE) -- FormFactor, Inc. (Nasdaq:FORM) today announced its financial results for the second quarter of fiscal 2017 ended July 1, 2017. Quarterly revenues were $144.0 million, up 12% from $128.8 million reported in the first quarter of fiscal 2017 and up 73% from $83.1 million for the second quarter of fiscal 2016. 

“FormFactor delivered a second consecutive quarter of record revenue and expanded earnings driven by strong momentum across all our businesses,” said Mike Slessor, CEO of FormFactor, Inc. “We continue to benefit from diverse demand drivers across our Probe Cards and Systems segments. We remain focused on executing on this demand, and delivering operational leverage throughout our P&L. Our structurally profitable financial model continues to deliver strong earnings growth and cash flow generation.”

Second Quarter Highlights

On a GAAP basis, net income for the second quarter of fiscal 2017 was $17.6 million, or $0.24 per fully-diluted share, compared to net income for the first quarter of fiscal 2017 of $5.2 million, or $0.07 per fully-diluted share, and net income for the second quarter of fiscal 2016 of $36.9 million, or $0.61 per fully-diluted share. The results for the second quarter of fiscal 2016 included a net benefit of $33.2 million associated with the closing of the acquisition of Cascade Microtech, or $0.55 per fully diluted share, including a one-time tax benefit of $43.9 million.

On a non-GAAP basis, net income for the second quarter of fiscal 2017 was $29.2 million, or $0.40 per fully-diluted share, compared to net income for the first quarter of fiscal 2017 of $17.3 million, or $0.24 per fully-diluted share, and net income for the second quarter of fiscal 2016 of $8.0 million, or $0.13 per fully-diluted share. A reconciliation of GAAP to non-GAAP net income and net income per share is provided in the schedules included below.

Free cash flow for the second quarter of fiscal 2017 was $21.2 million, compared to free cash flow for the first quarter of 2017 of $15.4 million, and free cash flow for the second quarter of 2016 of $(3.1) million.  A reconciliation of net cash provided by (used in) operating activities to free cash flow generation is provided in the schedules included below.

Outlook

Dr. Slessor added, “In the strong current semiconductor environment, we continue to benefit from our more broadly diversified set of products and customers, especially in serving the end markets of data center, mobile and automotive.  As we execute on our current business, and realize our line of sight growth opportunities, we are increasingly optimistic about demand for the remainder of this year. Following stronger than anticipated revenues in the first half of 2017, we now expect revenues for the second half to approximate those of our first half.”

For the third quarter ending on September 30, 2017, FormFactor is providing the following guidance*:

  U.S. GAAP   Reconciling Items**   Non-GAAP
Revenue $136 million to $144 million     $136 million to $144 million
Gross Margin 38% to 41%   $7 million   43% to 46%
Net income per diluted share $0.12 to $0.18   $0.17   $0.29 to $0.35
*This guidance assumes consistent foreign currency rates.
**Reconciling items are stock-based compensation and amortization of intangibles and integration expenses.


We have posted our revenue breakdown by region and market segment 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 recording of the conference call will be available approximately two hours after the conclusion of the call. The recording will be available by telephone through August 4, 2017, 7:30 p.m. PDT, and can be accessed by dialing (855) 859-2056 (domestic) or +1 (404) 537-3406 (international) and entering confirmation code 40855002. The recording will also 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 (loss) and non-GAAP earnings per fully-diluted share that are adjusted from the nearest GAAP financial measure to exclude certain costs, expenses and gains. Reconciliations of the adjustments to GAAP results for the three and six months ended July 1, 2017, as well as for the comparable periods of fiscal 2016, are provided below. 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 Net Income (loss) and Adjustments” 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 Private Securities Litigation Reform Act of 1995, including with respect to the Company’s future financial and operating results, the Company’s plans, strategies and objectives for future operations, and the anticipated benefits of the acquisition of Cascade Microtech. 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 concerning gross margins and profitability; future financial and operating results; benefits of the acquisition of Cascade Microtech; the ability of the Company to drive growth and expand customer and partner relationships; the plans, strategies and objectives of the Company for future operations; the expected development, performance, market share or competitive performance relating to the Company’s products and services; 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: failure of the Company to realize the anticipated benefits of the acquisition of Cascade Microtech; the Company’s ability to remain in compliance with the terms of its debt financing; changes in demand for the Company’s products; industry seasonality; risks to the Company’s ability to realize operational efficiencies; changes in the market, 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 OPERATIONS 
(In thousands, except per share amounts) 
(Unaudited)
       
  Three Months Ended   Six Months Ended
  July 1, 2017   June 25, 2016   July 1, 2017   June 25, 2016
Revenues $ 143,976     $ 83,083     $ 272,805     $ 136,694  
Cost of revenues 82,209     57,656     163,467     101,475  
Gross profit 61,767     25,427     109,338     35,219  
Operating expenses:              
Research and development 18,542     11,133     35,956     21,982  
Selling, general and administrative 23,602     14,030     46,431     26,546  
Restructuring and impairment charges, net 44     6,910     313     6,910  
Total operating expenses 42,188     32,073     82,700     55,438  
Operating income (loss) 19,579     (6,646 )   26,638     (20,219 )
Interest income 93     99     160     216  
Interest expense (1,162 )   (11 )   (2,337 )   (11 )
Other income (expense), net 107     (302 )   (292 )   (616 )
Income (loss) before income taxes 18,617     (6,860 )   24,169     (20,630 )
Provision (benefit) for income taxes 1,040     (43,744 )   1,407     (43,714 )
Net income $ 17,577     $ 36,884     $ 22,762     $ 23,084  
Net income per share:              
Basic $ 0.24     $ 0.62     $ 0.32     $ 0.39  
Diluted $ 0.24     $ 0.61     $ 0.31     $ 0.39  
Weighted-average number of shares used in per share calculations:              
Basic 72,200     59,572     71,821     59,001  
Diluted 73,539     59,988     73,185     59,639  



FORMFACTOR, INC.
RECONCILIATION OF NON-GAAP NET INCOME
(In thousands, except per share amounts) 
(Unaudited)

       
  Three Months Ended   Six Months Ended
  July 1, 2017   June 25, 2016   July 1, 2017   June 25, 2016
GAAP net income $ 17,577     $ 36,884     $ 22,762     $ 23,084  
Adjustments to reconcile GAAP net income to Non-GAAP net income:              
Stock-based compensation 3,390     1,541     6,692     4,275  
Restructuring and impairment charges, net 44     6,910     313     6,910  
Acquisition and integration related expenses 419     3,795     1,007     5,796  
Amortization of intangibles 7,934     2,767     16,474     5,537  
Contingencies         (206)      
Income tax valuation allowance release     (43,938 )       (43,938 )
Income tax effect of non-GAAP adjustments (130 )       (557 )    
Non-GAAP net income $ 29,234     $ 7,959     $ 46,485     $ 1,664  
               
Non-GAAP net income per share:              
Basic $ 0.40     $ 0.13     $ 0.65     $ 0.03  
Diluted $ 0.40     $ 0.13     $ 0.64     $ 0.03  
               
Weighted-average number of shares used in per share calculations:              
Basic 72,200     59,572     71,821     59,001  
Diluted 73,539     59,988     73,185     59,639  



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

       
  Three Months Ended   Six Months Ended
  July 1, 2017   June 25, 2016   July 1, 2017   June 25, 2016
Net cash provided by (used in) operating activities $ 24,478     $ (558 )   $ 42,281     $ (3,590 )
Adjustments to reconcile GAAP cash provided from operating activities to free cash flow:              
Cash paid for interest on debt 994         2,010      
Capital expenditures (4,294 )   (2,522 )   (7,759 )   (3,633 )
Free cash flow $ 21,178     $ (3,080 )   $ 36,532     $ (7,223 )



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

(Unaudited)

       
  July 1,
 2017
  December 31, 2016
ASSETS      
Current assets:      
Cash and cash equivalents $ 107,817     $ 101,408  
Marketable securities 22,156     7,497  
Accounts receivable, net of allowances for doubtful accounts of $299 and $298 91,710     70,225  
Inventories, net 64,951     59,806  
Restricted cash 4     106  
Refundable income taxes 1,092     1,391  
Prepaid expenses and other current assets 13,001     14,276  
Total current assets 300,731     254,709  
Restricted cash 768     1,082  
Property, plant and equipment, net of accumulated depreciation and amortization of $248,390 and $241,943 45,667     42,663  
Goodwill 189,192     188,010  
Intangibles, net 111,779     126,608  
Deferred tax assets 3,302     3,310  
Other assets 1,959     2,600  
Total assets $ 653,398     $ 618,982  
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current liabilities:      
Accounts payable $ 43,179     $ 34,075  
Accrued liabilities 33,444     30,184  
Current portion of term loan 18,380     12,701  
Income taxes payable 167     442  
Deferred revenue 9,452     5,305  
Total current liabilities 104,622     82,707  
Long-term income taxes payable 1,046     1,315  
Term loan, less current portion 104,506     125,475  
Deferred tax liabilities 4,070     3,703  
Deferred rent and other liabilities 4,548     4,726  
Total liabilities 218,792     217,926  
Commitments and contingencies      
Stockholders’ equity:      
Common stock and capital in excess of par value 839,824     833,412  
Accumulated other comprehensive income (loss) 507     (3,740 )
Accumulated deficit (405,725 )   (428,616 )
Total stockholders’ equity 434,606     401,056  
Total liabilities and stockholders’ equity $ 653,398     $ 618,982  


About our Non-GAAP Net Income (loss) and Adjustments:
We believe that the presentation of non-GAAP net income, non-GAAP earnings per fully-diluted share 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 and non-GAAP earnings per fully-diluted share 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 and non-GAAP earnings per fully-diluted share 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 and non-GAAP fully-diluted earnings per share by adjusting GAAP net income and GAAP earnings per fully-diluted share to remove the impact of certain items and the tax effect 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 or earnings per fully-diluted share 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 and non-GAAP earnings per fully-diluted share 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 non-GAAP Net Income” included in this press release.

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

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