GlobeNewswire Inc | Oct 28, 2020 04:01PM EDT

October 28, 2020

Company Delivers Q3 Revenue and Gross Margin at High End of Outlook Range, Expects Continued Momentum in Q4;Acquires High Precision Devices, Inc., Expanding Cryogenic Thermal Control and Test Expertise

LIVERMORE, Calif., Oct. 28, 2020 (GLOBE NEWSWIRE) -- FormFactor,Inc. (Nasdaq: FORM) today announced its financial results for the third quarter of fiscal 2020 ended September26, 2020. Quarterly revenues were $178.0 million, an increase of 12.8% compared to $157.8 million in the second quarter of fiscal 2020, an increase of 26.6% from $140.6 million in the third quarter of fiscal 2019.

-- Revenue at high end of outlook range, close to Company record; Non-GAAP EPS above outlook range -- Demonstrated diversified revenue profile, with four semiconductor industry leaders comprising ten-percent customers -- Continued to add production capacity and increase factory output to meet sustained strong demand

Our third quarter results demonstrate FormFactors continuing progress, as we scale to meet customers robust demand for our products, said Mike Slessor, CEO of FormFactor, Inc. Despite the challenges posed by COVID-19, we steadily improved the efficiency of both our internal operations and external supply chain, allowing us to deliver results nearly matching our all-time-record fourth quarter of 2019.

The Company also announced that it acquired High Precision Devices, Inc. (HPD) shortly after the end of the third quarter. Based in Boulder, Colorado, HPD brings world-class cryogenic thermal control and test expertise that augment FormFactors existing capabilities and products. The ability to control and manage testing from near absolute zero to hundreds of degrees centigrade is a differentiating capability in semiconductor testing, and HPD expands FormFactors leading portfolio of engineering system test and measurement capabilities.

We are pleased to welcome to HPDs team to FormFactor and are excited about adding their expertise, technologies, and products in cryogenic test and measurement, an area that is evolving rapidly with revolutionary applications like quantum computing said Dr. Mike Slessor, CEO of FormFactor.

Third Quarter Highlights

On a GAAP basis, net income for the third quarter of fiscal 2020 was $22.9 million, or $0.29 per fully-diluted share, compared to net income for the second quarter of fiscal 2020 of $20.5 million, or $0.26 per fully-diluted share, and net income for the third quarter of fiscal 2019 of $8.3 million, or $0.11 per fully-diluted share. Gross margin for the third quarter of 2020 was 43.1%, compared with 41.9% in the second quarter of 2020, and 39.3% in the third quarter of 2019.

On a non-GAAP basis, net income for the third quarter of fiscal 2020 was $30.7 million, or $0.39 per fully-diluted share, compared to net income for the second quarter of fiscal 2020 of $25.8 million, or $0.33 per fully-diluted share, and net income for the third quarter of fiscal 2019 of $17.3 million, or $0.22 per fully-diluted share. On a non-GAAP basis, gross margin for the third quarter of 2020 was 46.7%, compared with 45.8% in the second quarter of 2020, and 43.5% in the third quarter of 2019.

A reconciliation of GAAP to non-GAAP measures is provided in the schedules included below.

Free cash flow for the third quarter of fiscal 2020 was $37.2 million, compared to free cash flow for the second quarter of fiscal 2020 of $18.6 million, and free cash flow for the third quarter of 2019 of $25.6 million. A reconciliation of net cash provided by operating activities to free cash flow is provided in the schedules included below.

Stock Repurchase Program

The Company's Board of directors has authorized a $50.0 million share repurchase program to help offset dilution from share issuances related to stock-based compensation. The Company intends to purchase share in the open market. The share repurchase program will expire on October 28, 2022.

Outlook

Dr. Slessor added, As reflected in our fourth-quarter outlook, we anticipate remaining on our current positive trajectory for a strong finish to 2020.

For the fourth quarter ending December 26, 2020, FormFactor is providing the following outlook*:

GAAP Reconciling Non-GAAP Items**Revenue $178 million to $190 ? $178 million to $190 million millionGross Margin 40% to 43% $7 million 44% to 47%Net income per $0.19 to $0.27 $0.16 $0.35 to $0.43diluted share

*This outlook assumes consistent foreign currency rates.**Reconciling items are stock-based compensation, restructuring charges, acquisition related expenses and amortization of intangibles.

We posted our revenue breakdown by geographic region, by market segment and with customers with greater than 10% of total revenue on the Investor Relations section of our website at www.formfactor.com. We will conduct a conference call at 1:25p.m. PDT, or 4:25p.m. EDT, today.

The public is invited to listen to a live webcast of FormFactors conference call on the Investor Relations section of our web site at www.formfactor.com. A telephone replay of the conference call will be available approximately two hours after the conclusion of the call. The telephone replay will be available through November 4, 6:30 p.m. Pacific Time, and can be accessed by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international) and entering confirmation code 4879487. Additionally, the replay will 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, non-GAAP earnings per fully-diluted share, non-GAAP gross margin, non-GAAP operating expenses and non-GAAP operating income, that are adjusted from the nearest GAAP financial measure to exclude certain costs, expenses, gains and losses. Reconciliations of the adjustments to GAAP results for the three and nine months ended September26, 2020 and for outlook provided before, as well as for the comparable periods of fiscal 2019, are provided below, and on the Investor Relations section of our website at www.formfactor.com. 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 Financial Measures 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 metrology and inspection, characterization, modeling, reliability, and design de-bug, to qualification and production test. Semiconductor companies rely upon FormFactors 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 Companys 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 federal securities laws, including with respect to the Companys future financial and operating results, the Companys plans, strategies and objectives for future operations. These statements are based on managements 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 Companys 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 regarding future financial and operating results, customer demand, conditions in the semiconductor industry, and growth opportunities, and other statements regarding the Companys 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: changes in demand for the Companys products; customer-specific demand; the speed of customer implementation of new technologies; industry seasonality; risks to the Companys realization of benefits from acquisitions and investments in capacity; changes macro-economic environments; events affecting global and regional economic conditions and stability such as Brexit, infectious diseases and pandemics (such as the current COVID-19 pandemic), military conflicts, political volatility and similar factors, operating separately or in combination; and other factors, including those set forth in the Companys 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. We are operating in an environment with especially substantial uncertainties arising from the COVID-19 pandemic, including with respect to its current and future impact on our operations, workforce, manufacturing capacity, customer demand, supply chain, macroeconomic environment and other important aspects of our business. In addition, there are increasingly restrictive export regulations being adopted in the U.S., including recently published amendments to export regulations that may substantially restrict or condition our sales in China with considerable uncertainty regarding the ultimate interpretation and implementation of these rules. No assurances can be given that any of the events anticipated by the forward-looking statements within this press release 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 INCOME(In thousands, except per share amounts) (Unaudited)

Three Months Ended Nine Months Ended September 26, September 28, September 26, September 28, 2020 2019 2020 2019Revenues $ 177,996 $ 140,604 $ 496,573 $ 410,835 Cost of revenues 101,247 85,286 286,267 247,644 Gross profit 76,749 55,318 210,306 163,191 Operating expenses:Research and 22,878 20,096 65,064 59,893 developmentSelling, generaland 31,834 25,887 82,282 77,354 administrativeTotal operating 54,712 45,983 147,346 137,247 expensesOperating income 22,037 9,335 62,960 25,944 Interest income 249 724 1,310 1,988 Interest expense (193 ) (422 ) (682 ) (1,539 )Other income, 299 226 141 223 netIncome before 22,392 9,863 63,729 26,616 income taxesProvision(benefit) for (499 ) 1,584 4,479 5,906 income taxesNet income $ 22,891 $ 8,279 $ 59,250 $ 20,710 Net income per share:Basic $ 0.30 $ 0.11 $ 0.78 $ 0.28 Diluted $ 0.29 $ 0.11 $ 0.75 $ 0.27 Weighted-averagenumber of sharesused in per sharecalculations:Basic 77,029 75,280 76,436 74,749 Diluted 78,809 77,291 78,534 76,763

FORMFACTOR,INC.NON-GAAP FINANCIAL MEASURE RECONCILIATIONS(In thousands, except per share amounts)(Unaudited)

Three Months Ended Nine Months Ended September 26, September 28, June 27, September 26, September 28, 2020 2019 2020 2020 2019GAAP Gross $ 76,749 $ 55,318 $ 66,167 $ 210,306 $ 163,191 ProfitAdjustments: Amortizationofintangiblesand inventory 5,495 4,707 5,174 16,419 14,137 fair valueadjustmentdue toacquisitionStock-based 962 1,117 901 2,800 3,031 compensationRestructuring ? ? ? ? 258 chargesNon-GAAP $ 83,206 $ 61,142 $ 72,242 $ 229,525 $ 180,617 Gross Profit GAAP Gross 43.1 % 39.3 % 41.9 % 42.4 % 39.7 %MarginAdjustments: Amortizationofintangiblesand inventory 3.1 % 3.3 % 3.3 % 3.3 % 3.4 %fair valueadjustmentdue toacquisitionStock-based 0.5 % 0.9 % 0.6 % 0.6 % 0.7 %compensationRestructuring ? % ? % ? % ? % 0.1 %chargesNon-GAAP 46.7 % 43.5 % 45.8 % 46.3 % 43.9 %Gross Margin GAAPoperating $ 54,712 $ 45,983 $ 43,674 $ 147,346 $ 137,247 expensesAdjustments: Amortizationofintangiblesand inventory (1,547 ) (1,372 ) (1,528 ) (4,588 ) (6,111 ) fair valueadjustmentdue toacquisitionStock-based (4,547 ) (5,387 ) (4,741 ) (13,974 ) (14,057 ) compensationRestructuring ? (22 ) ? ? (199 ) chargesGain oncontingent 71 ? 3,700 3,771 ? considerationAcquisitionrelated (334 ) (247 ) ? (369 ) (247 ) expensesNon-GAAPoperating $ 48,355 $ 38,955 $ 41,105 $ 132,186 $ 116,633 expenses GAAPoperating $ 22,037 $ 9,335 $ 22,493 $ 62,960 $ 25,944 incomeAdjustments: Amortizationofintangiblesand inventory 7,042 6,079 6,702 21,007 20,248 fair valueadjustmentdue toacquisitionStock-based 5,509 6,504 5,642 16,774 17,088 compensationRestructuring ? 22 ? ? 457 chargesGain oncontingent (71 ) ? (3,700 ) (3,771 ) ? considerationAcquisitionrelated 334 247 ? 369 247 expensesNon-GAAPoperating $ 34,851 $ 22,187 $ 31,137 $ 97,339 $ 63,984 income

FORMFACTOR,INC.NON-GAAP FINANCIAL MEASURE RECONCILIATIONS(In thousands, except per share amounts)(Unaudited)

Three Months Ended Nine Months Ended September September June 27, September September 26, 28, 2020 26, 28, 2020 2019 2020 2019GAAP net $ 22,891 $ 8,279 $ 20,469 $ 59,250 $ 20,710 incomeAdjustments: Amortizationofintangiblesand inventory 7,042 6,079 6,702 21,007 20,248 fair valueadjustmentdue toacquisitionStock-based 5,509 6,504 5,642 16,774 17,088 compensationRestructuring ? 22 ? ? 457 chargesGain oncontingent (71 ) ? (3,700 ) (3,771 ) ? considerationAcquisitionrelated 334 247 ? 369 247 expensesIncome taxeffect of (4,970 ) (3,812 ) (3,265 ) (10,994 ) (10,137 )non-GAAPadjustmentsNon-GAAP net $ 30,735 $ 17,319 $ 25,848 $ 82,635 $ 48,613 income Non-GAAP netincome per share:Basic $ 0.40 $ 0.23 $ 0.34 $ 1.08 $ 0.65 Diluted $ 0.39 $ 0.22 $ 0.33 $ 1.05 $ 0.63

FORMFACTOR,INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)(Unaudited)

Nine Months Ended September September 26, 28, 2020 2019Cash flows from operating activities: Net income $ 59,250 $ 20,710 Selected adjustments to reconcile net income to net cash provided by operating activities:Depreciation 14,491 12,644 Amortization 20,249 20,248 Stock-based compensation expense 16,774 17,088 Provision for excess and obsolete inventories 9,763 8,046 Gain on contingent consideration (3,771 ) ? Other activity impacting operating cash flows 7,453 4,642 Net cash provided by operating activities 124,209 83,378 Cash flows from investing activities: Acquisition of property, plant and equipment (41,887 ) (14,242 )Acquisition of business, net of cash acquired (34,999 ) ? Proceeds (purchases) of marketable securities, net 20,609 (25,898 )Other activity impacting investing cash flows 82 93 Net cash used in investing activities (56,195 ) (40,047 )Cash flows from financing activities: Proceeds from issuances of common stock 9,588 7,672 Proceeds from term loan debt 18,000 ? Payment of term loan debt issuance costs (78 ) ? Tax withholdings related to net share settlements (15,382 ) (7,898 )of equity awardsPrincipal repayments on term loans (41,098 ) (18,750 )Net cash used in financing activities (28,970 ) (18,976 )Effect of exchange rate changes on cash, cash 1,262 (161 )equivalents and restricted cashNet increase in cash, cash equivalents and 40,306 24,194 restricted cashCash, cash equivalents and restricted cash, 147,937 100,546 beginning of periodCash, cash equivalents and restricted cash, end of $ 188,243 $ 124,740 period

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

Three Months Ended Nine Months Ended September September June 27, September September 26, 28, 2020 26, 28, 2020 2019 2020 2019Net cashprovided by $ 41,762 $ 28,002 $ 43,108 $ 124,209 $ 83,378 operatingactivitiesAdjustments: Cash paid 210 350 182 683 1,128 for interestAcquisitionrelatedpayments in 334 ? ? 369 ? workingcapitalCapital (5,144 ) (2,782 ) (24,693 ) (41,887 ) (14,242 )expendituresFree cash $ 37,162 $ 25,570 $ 18,597 $ 83,374 $ 70,264 flow

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

September December 28, 26, 2019 2020ASSETS Current assets: Cash and cash equivalents $ 185,368 $ 144,545 Marketable securities 56,100 76,327 Accounts receivable, net of allowance for doubtful 96,946 97,868 accounts of $222 and $222Inventories, net 94,616 83,258 Restricted cash 1,477 1,981 Prepaid expenses and other current assets 21,687 15,064 Total current assets 456,194 419,043 Restricted cash 1,398 1,411 Operating lease, right-of-use-assets 29,320 31,420 Property, plant and equipment, net of accumulated 97,528 58,747 depreciationGoodwill 220,757 199,196 Intangibles, net 37,937 57,610 Deferred tax assets 71,464 71,252 Other assets 1,009 1,203 Total assets $ 915,607 $ 839,882 LIABILITIES AND STOCKHOLDERS? EQUITY Current liabilities: Accounts payable $ 62,903 $ 40,914 Accrued liabilities 44,026 36,439 Current portion of term loans, net of unamortized 9,120 42,846 issuance costsDeferred revenue 13,670 9,810 Operating lease liabilities 6,555 6,551 Total current liabilities 136,274 136,560 Term loans, less current portion, net of 26,874 15,639 unamortized issuance costsDeferred tax liabilities 5,682 6,986 Long-term operating lease liabilities 26,794 29,088 Other liabilities 5,841 10,612 Total liabilities 201,465 198,885 Stockholders? equity: Common stock, $0.001 par value: 250,000,000 shares authorized; 77,383,494 and 78 76 75,764,990 shares issued and outstandingAdditional paid-in capital 896,576 885,821 Accumulated other comprehensive income (loss) 2,479 (659 )Accumulated deficit (184,991 ) (244,241 )Total stockholders? equity 714,142 640,997 Total liabilities and stockholders? equity $ 915,607 $ 839,882

About our Non-GAAP Financial Measures:We believe that the presentation of non-GAAP net income, non-GAAP earnings per fully-diluted share, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income 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, non-GAAP earnings per fully-diluted share, non-GAAP gross margin, non-GAAP operating expenses, and non-GAAP operating income 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, non-GAAP earnings per fully-diluted share, non-GAAP gross margin, non-GAAP operating expenses, and non-GAAP operating income 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, non-GAAP fully-diluted earnings per share, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, by adjusting GAAP net income, GAAP earnings per fully-diluted share, non-GAAP gross margin, non-GAAP operating expenses, and non-GAAP operating income to remove the impact of certain items and the tax effect, if applicable, 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, earnings per fully-diluted share, gross margin, operating expenses, or operating income 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, non-GAAP earnings per fully-diluted share, non-GAAP gross margin, non-GAAP operating expenses, and non-GAAP operating income 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 Non-GAAP Financial Measure Reconciliations" and Reconciliation of Cash Provided By Operating Activities to Free Cash Flow included in this press release.

Source: FormFactor, Inc.

FORM-F

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