FormFactor (FORM) Beats Q3 Earnings & Revenue Estimates

FormFactor Inc. (NASDAQ:FORM) reported better-than-expected third-quarter 2017 results.

Adjusted earnings of 34 cents surpassed the Zacks Consensus Estimate by 1 cent, while revenues of $144 million beat the same by $4 million.

On a year-to-date basis, the company’s shares have gained almost 62.5%, outperforming the industry’s growth of 32.1%.

Management said that the company will continue to witness strong demand for DRAM probe card, driven by strength in data center, mobile and automotive content growth. During the quarter, FormFactor delivered strong shipments of 200 and 300 millimeter platforms. Moreover, the mobile sector gained strength in the quarter, primarily due to foundry, logic and DRAM probe cards.

Let’s check out the numbers.

Revenues in Detail

Revenues were $143.7 million in the third quarter, declining 0.2% sequentially but increasing 16.6% year over year. It was within the company’s guidance range of $136-$144 million.

The improvement was driven by continued strength in the FormFactor Foundry and logic as well as DRAM core probe card business.

Revenues by Market Segments

Foundry & Logic revenues (58% of the total second-quarter revenue) were $81.9 million, reflecting a decrease of 7.7% from the prior quarter but an increase of 9.1% from the year-ago quarter.The sequential decline was due to reduction in revenues from a customer who utilizes the company’s probe cards in advance packaging applications at leading edge nodes. However, the company continued to witness strength in the data center in the third quarter.

Reported revenues for DRAM products were $32.4 million, reflecting an increase of 2.9% sequentially and 45.3% year over year and driven by continued robust demand.

Flash revenues were $5.2 million, reflecting an increase of 271.4% from the previous quarter but a decrease of 1.9% from the year-ago period.

Systems revenues were up 9% sequentially, driven by increase in 200 and 300 mm platform shipments.

Margins

Reported gross profit was $57.6 million, up from $27.2 million in the year-ago quarter. Gross margin of 40.1% was up 1,800 basis points (bps) year over year. The increase was attributed to higher revenues and a favorable product mix.

On a non-GAAP basis, gross margin was 44.5%, declining from 47.6% in the second quarter.

Operating expenses (research and development & selling, general and administrative) were $43.3 million, reflecting an increase of 7.7% year over year. As a percentage of sales, both research and development & selling, general and administrative expenses decreased.

As a result, operating margin of 9.9% was up significantly from the year-ago quarter.

Balance Sheet

FormFactor exited the quarter with cash (comprising cash and cash equivalent, and marketable securities) of $134.9 millioncompared with $130 million reported in the prior quarter. Cash from operations was $17.6 million in the third quarter compared with $24.5 million in the prior quarter. Free cash flow was $21.4 million in the third quarter.

4Q Guidance

Management expects fourth-quarter 2017 revenues to be in the range of $126-$134 million.The Zacks Consensus Estimate is pegged at $131.9 million. On a GAAP basis, the company projects gross margin of 38-41% and fully diluted income per share of 7-13 cents.

On a non-GAAP basis, gross margin is expected to be in the range of 43-46% and earnings per share are projected in the range of 24-30 cents. The Zacks Consensus estimate is pegged at 27 cents.

Zacks Rank and Other Stocks to Consider

Currently, FormFactor carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader technology sector are NVIDIA Corporation (NASDAQ:NVDA) and SMART Global Holdings, Inc. (NASDAQ:SGH) , each sporting a Zacks Rank #1 (Strong Buy), while Applied Materials, Inc. (NASDAQ:AMAT) , carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings per share growth rate for NVIDIA Corporation, SMART Global and Applied Materials is projected to be 11.2%, 15.0% and 17.1%, respectively.

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