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FormFactor (FORM) Earnings Beat in Q3, Revenues In Line

FormFactor Inc.FORM reported third-quarter 2016 earnings of 19 cents, which beat the Zacks Consensus Estimate by 4 cents.

Revenues

Revenues of $123.0 million were up 48.0% sequentially and 86.8% year over year.

The improvement was driven by continued strength in the FormFactor core probe card business as well as the growing probe card and engineering systems businesses from Cascade Microtech.

Also, revenues were in line with the Zacks Consensus Estimate and within the company's guidance of $118-$126 million.

Revenues by Geography

Asia Pacific contributed 28.6% to third-quarter revenues (up 103.5% sequentially and 70.0% year over year); North America accounted for 32.2% (up 25.3% sequentially and 288.2% year over year); South Korea brought in 14.3% (flat sequentially but down 16.6% year over year); Europe/Middle East contributed 13.4% (up 36.4% sequentially and 85.4% year on year); and Japan accounted for the remaining 11.5% (up 213.3% sequentially and 182.0% year on year).

Revenues by End User

Foundry & Logic revenues were $75.1 million, up 29.7% from the prior quarter and 105.8% from the year-ago quarter.

Reported revenues for DRAM products were $22.3 million, down 7.9% sequentially and 18.9% year over year.

Flash revenues were $5.3 million, up 430.0% from the previous quarter and 178.9% from the year-ago period.

Systems revenues were $20.6 million in the third quarter.

Margins

Non-GAAP gross profit was $52.0 million, up from $27.5 million last quarter. Gross margin was up 909 bps sequentially and 1,003 bps year over year. The increase was attributed to higher revenues and a favorable product mix.

Operating expenses adjusted for restructuring, acquisition, amortization, integration and asset impairment charges came in at $37.2 million, 79.8% higher sequentially and 79.1% year over year. Operating margin of 12.0% was up both sequentially as well as year over year.

Pro-forma net income was $13.4 million in the third quarter compared with $0.58 million in the year-ago quarter.

On a GAAP basis, net loss in the third quarter was $14.2 million (or loss of 20 cents) compared with net loss of $2.5 million (loss of 4 cents) in the year-ago period.

Balance Sheet

FormFactor exited the quarter with cash (comprising cash and cash equivalent, and Marketable securities) of $107.4 million, down from $118.3 million reported in the prior quarter.

Free cash flow was $16 million in the third quarter versus cash usage of $1.5 million in the second quarter. Free cash flow was generated from stronger operating results of the combined companies and a good collection of accounts receivable.

4Q Guidance

Management expects fourth-quarter 2016 revenues in the range of $116-$124 million. The Zacks Consensus Estimate is pegged at $120.9 million. On a GAAP basis, the company projects gross margin of 29-33% and fully diluted loss per share of 11 cents to 5 cents. On a non-GAAP basis, gross margin is expected at 41-45% and earnings per share are projected at 15-21cents. Cash flow is expected to be positive $11 million to $13 million, excluding acquisition-related payments.

FORMFACTOR INC Price, Consensus and EPS Surprise

FORMFACTOR INC Price, Consensus and EPS Surprise | FORMFACTOR INC Quote

Our Recommendation

FormFactor is an original equipment manufacturer of automated wafer probe cards used in the semiconductor integrated circuit manufacturing process. The company reported a decent quarter with the top line matching the Zacks Consensus Estimate and the bottom line beating the same.

In June, the company completed the acquisition of Oregon-based Cascade Microtech to expand further into the semiconductor testing space. The merged entity will gain a leading position in the semiconductor testing market by leveraging its resources to expand into newer markets.

The combined entity will achieve significant cost and revenue synergies supported by an expanded product portfolio, a bigger customer base and better infrastructure.

FormFactor carries a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include Ambarella AMBA , Broadcom Limited AVGO and Silicon Motion Technology Corp. SIMO , each carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Ambarella, Inc. delivered a positive earnings surprise of 62.75%, on average, in the trailing four quarters.

Broadcom Limited delivered a positive earnings surprise of 7.00% in the trailing four quarters.

Silicon Motion Technology Corp. delivered a positive earnings surprise of 12.85% in the trailing four quarters.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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