FormFactor, Inc. Kicks Off 2017 on a High Note

By Brian FeroldiMarketsFool.com

The trend toward connectivity is helping to drive volume growth in the semiconductor industry. In turn, companies that supply products to semiconductor manufacturers are also witnessing growing demand. That includesFormFactor (NASDAQ: FORM), a leading provider ofprobe cards that are used to test semiconductor chips and wafers.

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Coming into Wednesday's first-quarter earnings report, investors were expecting FormFactor to post another strong quarter of revenue and profit growth thanks to last year's massive Cascade Microtech acquisition. Let's take a closer look at the company's first-quarter results to see how it performed during the period.

Image source: Getty Images.

FormFactor Q1: The raw numbers

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Data source: FormFactor.

What happened with FormFactor this quarter?

  • FormFactor's eye-popping revenue growth is still largely a result of last year's Cascade Microtech acquisition. Sequentially, revenue was up 4%. This figure was above the high end of management's guidance range.
  • On a non-GAAP (adjusted)basis, gross margin was 42.6% for the period. That is a 20-basis-point improvement over the prior quarter.
  • On a GAAP basis, FormFactor's net income was $5.2 million, or $0.07 per share.
  • On a non-GAAP basis --which excludes items like stock-based compensation and restructuring charges -- net income was $17.3 million, or $0.24 per share. This figure was also a penny better than the top end of management's prediction.
  • Cash generation during the first quarter was $13 million. That represents a sharp reversal from the year-ago period where the company consumed $400,000 in cash.
  • Free cash flow was $15.5 million.

What management had to say

Mike Slessor, FormFactor's CEO, said that the company's strong start to the year was owed to "robust demand from all our customers."

He also expressed belief that the company is in a great position to keep delivering strong results and drive shareholder value:

Mike Ludwig, FormFactor's CFO, also reaffirmed that the company is "on track" to realize the $10 million to $12 million of annual cost savings that were promised as part of the Cascade Microtech deal.

Looking ahead

During its call with investors, management stated that FormFactor is benefiting from strong end-market demand for semiconductors. They believe that this demand will stay robust for quite some time thanks to continued data center buildout, strong consumer demand for mobile devices, and increased semiconductor usage by automakers.

In response to that optimism, the company offered up following guidance for the second quarter 2017:

Data source: FormFactor.

This forecast compared favorably to the $127 million in revenue and $0.23 in EPS that market watchers were expecting.

FormFactor's strong start to the year and upbeat guidance caused traders to significantly bid up the company's stock once trading started in the morning following this announcement. With revenue, margins, and profits expected to rise from here, it is easy to understand why investors are feeling good about this company's prospects.

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Brian Feroldi has no position in any stocks mentioned. The Motley Fool recommends FormFactor. The Motley Fool has a disclosure policy.