FormFactor, Inc. (NASDAQ:FORM) Q3 2022 Earnings Conference Call October 26, 2022 4:25 PM ET Company Participants Stan Finkelstein - Vice President, Investor Relations Mike Slessor - Chief Executive Officer Shai Shahar - Chief Financial Officer Conference Call Participants Brian Chin - Stifel Charles Shi - Needham Krish Sankar - Cowen Craig Ellis - B. Riley David Duley - Steelhead Hans Chung - D.A. Davidson David Silver - CL King Operator Welcome everyone to FormFactorÂ's Third Quarter 2022 Earnings Conferen ...

SFORMFACTOR™ Investor Presentation September 2022 Forward-Looking Statements; Non-GAAP Financial Measures 2 This presentation contains forward-looking statements within the meaning of the U.S. Securities Exchange Act of 1934 and the Securities Act of 1933. The forward-looking statements include statements concerning, among other things, our future business model and strategies, our financial model and structure, market and market share growth, industry trends, customer demand and growth opportunities. In so ...

SFORMFACTOR™ Investor Presentation September 2022 Forward-Looking Statements; Non-GAAP Financial Measures 2 This presentation contains forward-looking statements within the meaning of the U.S. Securities Exchange Act of 1934 and the Securities Act of 1933. The forward-looking statements include statements concerning, among other things, our future business model and strategies, our financial model and structure, market and market share growth, industry trends, customer demand and growth opportunities. In so ...

Financial Data and Key Metrics Changes - FormFactor reported second quarter revenues of $204 million, a 3.4% sequential increase and an 8.4% year-over-year increase [21] - GAAP gross margin for Q2 was 46.3%, down from 47.8% in Q1, while non-GAAP gross margin was 47.4%, a decrease of 160 basis points from 49% in Q1 [23] - Non-GAAP net income for Q2 was $36.8 million or $0.46 per fully diluted share, compared to $38.7 million or $0.49 per fully diluted share in Q1 [26] Business Line Data and Key Metrics Changes - Probe card segment revenues reached a record $167.7 million in Q2, up 4.8% from Q1, primarily driven by higher Foundry & Logic revenues [21] - Foundry & Logic revenues were a record $122 million in Q2, a 7.3% increase from Q1, comprising 60% of total company revenues [22] - Systems segment revenues were $36 million in Q2, a decrease of 2.7% from Q1 [21] Market Data and Key Metrics Changes - The anticipated reduction in Foundry & Logic demand is attributed to global macroeconomic uncertainty and inflation, leading to changes in customers' wafer start and design release roadmaps [10] - Despite the expected decline in Foundry & Logic revenues, steady demand for DRAM and flash probe cards is anticipated to partially offset this decline [17] Company Strategy and Development Direction - The company aims to maintain its position as a diversified supplier in the semiconductor and electronics industry, focusing on multiple market segments to better amortize fixed costs [15][16] - Continued capital investments are planned to support long-term growth, with a target of achieving $2 of non-GAAP earnings per share on $850 million of revenue [18] Management's Comments on Operating Environment and Future Outlook - Management views the reduction in Foundry & Logic demand as a short-term response to changing market conditions rather than a structural change [12] - The company remains confident in the long-term growth prospects driven by semiconductor content growth and advanced packaging trends [18] Other Important Information - The company executed a stock buyback program, purchasing 1.2 million shares for a total of $45 million during the second quarter [29] - Capital expenditures for the year are expected to be between $60 million and $80 million, focusing on capacity expansion [28] Q&A Session All Questions and Answers Question: Can you provide insight into the weakness in Foundry & Logic demand? - Management noted that the weakness is due to multiple sources of reduced demand from customers in both mobile and compute segments, with changes in wafer start plans impacting probe card demand [34] Question: What is the outlook for gross margins given the current environment? - Management indicated that the expected decrease in gross margins is due to a less favorable product mix and higher manufacturing costs, but they remain committed to achieving their long-term gross margin target of 47% [31][46] Question: How does the company view the current demand environment for DRAM? - Management expressed confidence that DRAM probe card demand remains stable, with ongoing design activity and new releases contributing to demand [57] Question: What is the company's strategy regarding capital expenditures amidst current market conditions? - Management confirmed that they believe the current headwinds are temporary and are continuing with planned capital investments to maintain industry leadership [43] Question: How does the company assess the long-term growth prospects in the semiconductor industry? - Management remains optimistic about the long-term growth driven by advanced packaging and semiconductor content growth, despite short-term volatility [67]

Investor Presentation June 2022 Forward-Looking Statements; Non-GAAP Financial Measures 2 This presentation contains forward-looking statements within the meaning of the U.S. Securities Exchange Act of 1934 and the Securities Act of 1933. The forward-looking statements include statements concerning, among other things, our future business model and strategies, our financial model and structure, market and market share growth, industry trends, customer demand and growth opportunities. In some instances, you ...

Investor Presentation June 2022 Forward-Looking Statements; Non-GAAP Financial Measures 2 This presentation contains forward-looking statements within the meaning of the U.S. Securities Exchange Act of 1934 and the Securities Act of 1933. The forward-looking statements include statements concerning, among other things, our future business model and strategies, our financial model and structure, market and market share growth, industry trends, customer demand and growth opportunities. In some instances, you ...

SFORMFACTOR™ Investor Presentation April 2022 Forward-Looking Statements; Non-GAAP Financial Measures 2 This presentation contains forward-looking statements within the meaning of the U.S. Securities Exchange Act of 1934 and the Securities Act of 1933. The forward-looking statements include statements concerning, among other things, our future business model and strategies, our financial model and structure, market and market share growth, industry trends, customer demand and growth opportunities. In some i ...

Part I [Business](index=4&type=section&id=Item%201%3A%20Business) The company provides essential test and measurement technologies for the semiconductor industry through its Probe Cards and Systems segments - FormFactor provides essential test and measurement technologies for the entire semiconductor product lifecycle, from research and development to high-volume production[14](index=14&type=chunk) - The company operates in two reportable segments: the **Probe Cards segment** (including probe cards and analytical probes) and the **Systems segment** (including probe stations, metrology, thermal, and cryogenic systems)[16](index=16&type=chunk) Major Customer Revenue Concentration (Quarterly) | Customer | Q4 2021 | Q3 2021 | Q2 2021 | Q1 2021 | Q4 2020 | Q3 2020 | Q2 2020 | Q1 2020 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Intel Corporation** | 16.7% | 20.8% | 16.3% | 28.1% | 29.3% | 25.6% | 36.1% | 36.2% | | **Samsung Electronics Co., LTD.** | 13.8% | 12.9% | 14.7% | * | 12.5% | 10.6% | * | * | | **Taiwan Semiconductor Manufacturing Co., LTD.** | * | * | 11.0% | 11.5% | * | 10.6% | * | * | | **Micron Technology, Inc.** | * | * | * | * | * | 10.1% | * | * | *Note: * indicates less than 10% of revenues.* - As of December 25, 2021, the company had **2,293 full-time employees**, with 1,690 in the Probe Cards Segment, 407 in the Systems Segment, and 196 in corporate functions[77](index=77&type=chunk) [Risk Factors](index=12&type=section&id=Item%201A%3A%20Risk%20Factors) The company faces risks from intense competition, customer concentration, supply chain disruptions, and international operations - The company faces intense competition which may lead to price reductions, reduced gross margins, or **loss of market share**[80](index=80&type=chunk) - A substantial majority of revenues are derived from the sale of **probe card products**, increasing susceptibility to market shifts or customer satisfaction issues in this specific product line[86](index=86&type=chunk) - A small number of customers account for a significant portion of revenues; in fiscal 2021, **two customers represented a combined 31.8% of total revenues**[87](index=87&type=chunk) - The **COVID-19 pandemic** continues to pose risks to operations, supply chains, and expenses, with potential for disruptions in manufacturing and productivity[111](index=111&type=chunk)[114](index=114&type=chunk) - **International sales represent 84% of revenues** in fiscal 2021, exposing the company to risks such as foreign laws, trade barriers, political instability, and currency fluctuations[123](index=123&type=chunk) [Unresolved Staff Comments](index=25&type=section&id=Item%201B%3A%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments as of the report filing[150](index=150&type=chunk) [Properties](index=25&type=section&id=Item%202%3A%20Properties) The company operates a mix of owned and leased facilities globally, with headquarters in Livermore, California - The corporate headquarters is in Livermore, California, comprising a campus of five buildings (one owned, four leased) totaling approximately **259,000 square feet**[151](index=151&type=chunk) Major Company Facilities | Location | Principal Use | Segment | Square Footage | Ownership | | :--- | :--- | :--- | :--- | :--- | | Livermore, CA, USA | Manufacturing, HQ, R&D | Probe Cards | 259,144 | Owned/Leased | | Beaverton, OR, USA | Sales, Mfg, R&D | Probe Cards | 98,946 | Leased | | Thiendorf, Germany | Sales, Mfg, R&D | Systems | 54,361 | Leased | | Baldwin Park, CA, USA | Manufacturing | Probe Cards | 44,000 | Leased | | Boulder, CO, USA | Manufacturing, R&D | Systems | 34,133 | Leased | [Legal Proceedings](index=27&type=section&id=Item%203%3A%20Legal%20Proceedings) The company is not currently involved in any material legal proceedings - The company was not involved in any material legal proceedings as of the end of the fiscal year[154](index=154&type=chunk) [Mine Safety Disclosures](index=27&type=section&id=Item%204%3A%20Mine%20Safety%20Disclosures) This section is not applicable to the company's operations - Mine safety disclosures are not applicable[155](index=155&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=27&type=section&id=Item%205%3A%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's stock trades on Nasdaq, with an active repurchase program and no current plans to issue dividends - The company's common stock is listed on the Nasdaq Global Market under the symbol **"FORM"**[157](index=157&type=chunk) - No cash dividends have been declared, and the company does not currently intend to pay dividends[158](index=158&type=chunk) - In October 2020, the Board authorized a **$50.0 million stock repurchase program** set to expire on October 28, 2022; as of December 25, 2021, **$26.0 million remained available** for repurchases[159](index=159&type=chunk)[161](index=161&type=chunk) 5-Year Cumulative Total Return Comparison | Company/Index | Dec 31, 2016 | Dec 25, 2021 | | :--- | :--- | :--- | | **FormFactor, Inc.** | $100.00 | $397.41 | | **S&P 500** | $100.00 | $233.41 | | **RDG Semiconductor Composite** | $100.00 | $413.36 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%207%3A%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Fiscal 2021 revenue grew 11.0% to $769.7 million, driven by strong DRAM and Systems demand, with net income rising to $83.9 million Fiscal Year 2021 vs 2020 Key Financials | Metric | Fiscal 2021 | Fiscal 2020 | Change (%) | | :--- | :--- | :--- | :--- | | **Revenues** | $769.7M | $693.6M | +11.0% | | **Gross Profit** | $322.8M | $287.9M | +12.1% | | **Gross Margin** | 41.9% | 41.5% | +0.4pp | | **Operating Income** | $98.0M | $83.8M | +17.0% | | **Net Income** | $83.9M | $78.5M | +6.9% | | **Diluted EPS** | $1.06 | $0.99 | +7.1% | Revenues by Market (Fiscal 2021 vs 2020) | Market | 2021 Revenue (M) | 2020 Revenue (M) | Change (%) | | :--- | :--- | :--- | :--- | | **Foundry & Logic** | $435.8 | $446.2 | (2.3)% | | **DRAM** | $156.0 | $109.7 | 42.2% | | **Flash** | $41.4 | $25.8 | 60.4% | | **Systems** | $136.4 | $111.9 | 21.9% | | **Total** | **$769.7** | **$693.6** | **11.0%** | - The increase in **DRAM revenues** was driven by strong market demand and increased sales to several customers; the increase in **Systems revenue** was driven by acquisitions (HPD) and higher sales of metrology and thermal sub-systems[194](index=194&type=chunk)[196](index=196&type=chunk) Cash Flow Summary | Cash Flow Activity | Fiscal 2021 (M) | Fiscal 2020 (M) | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $139.4 | $169.3 | | **Net cash used in investing activities** | ($124.7) | ($98.9) | | **Net cash used in financing activities** | ($47.2) | ($30.9) | - During fiscal 2021, the company repurchased **622,400 shares** of common stock for **$24.0 million** under its authorized stock repurchase program[241](index=241&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=42&type=section&id=Item%207A%3A%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company manages foreign currency and interest rate risks through derivative instruments like forward contracts and swaps - The company uses currency **forward exchange contracts** to hedge a portion of its foreign currency denominated exposures[245](index=245&type=chunk) - Interest rate risk from term loans is managed via an **interest-rate swap agreement** that converts floating-rate debt to a fixed rate[247](index=247&type=chunk) - A hypothetical **100 basis-point (1%) change in interest rates** would affect the fair value of the company's investment portfolio by approximately **$0.1 million**[248](index=248&type=chunk) [Financial Statements and Supplementary Data](index=42&type=section&id=Item%208%3A%20Financial%20Statements%20and%20Supplementary%20Data) This section incorporates the company's consolidated financial statements and supplementary data into the report - The consolidated financial statements and supplementary data are included as part of the Annual Report on Form 10-K[249](index=249&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=42&type=section&id=Item%209%3A%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants - There were no disagreements with accountants on accounting and financial disclosure[250](index=250&type=chunk) [Controls and Procedures](index=42&type=section&id=Item%209A%3A%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and internal control over financial reporting were effective - Management, including the CEO and CFO, concluded that the company's **disclosure controls and procedures were effective** as of December 25, 2021[251](index=251&type=chunk) - Management concluded that the company's **internal control over financial reporting was effective** as of December 25, 2021, and this assessment was audited by KPMG LLP[254](index=254&type=chunk)[255](index=255&type=chunk) - No material changes were made to the internal control over financial reporting during the fourth quarter of fiscal 2021[252](index=252&type=chunk) [Other Information](index=43&type=section&id=Item%209B%3A%20Other%20Information) There is no other information to report in this section - None[258](index=258&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=44&type=section&id=Item%209C%3A%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This section is not applicable to the company - None[259](index=259&type=chunk) Part III [Directors, Executive Officers, and Corporate Governance](index=45&type=section&id=Item%2010%3A%20Directors%2C%20Executive%20Officers%2C%20and%20Corporate%20Governance) Information regarding directors, officers, and governance is incorporated by reference from the 2022 Proxy Statement - Information is incorporated by reference from the 2022 Annual Meeting of Stockholders proxy statement[261](index=261&type=chunk) [Executive Compensation](index=45&type=section&id=Item%2011%3A%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the 2022 Proxy Statement - Information is incorporated by reference from the 2022 Annual Meeting of Stockholders proxy statement[262](index=262&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=45&type=section&id=Item%2012%3A%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership is incorporated by reference from the 2022 Proxy Statement - Information is incorporated by reference from the 2022 Annual Meeting of Stockholders proxy statement[263](index=263&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=45&type=section&id=Item%2013%3A%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related transactions and director independence is incorporated by reference from the 2022 Proxy Statement - Information is incorporated by reference from the 2022 Annual Meeting of Stockholders proxy statement[264](index=264&type=chunk) [Principal Accountant Fees and Services](index=45&type=section&id=Item%2014%3A%20Principal%20Accountant%20Fees%20and%20Services) Information on accountant fees is incorporated by reference from the 2022 Proxy Statement - Information is incorporated by reference from the 2022 Annual Meeting of Stockholders proxy statement[265](index=265&type=chunk) - The company's independent registered public accounting firm is **KPMG, LLP**[265](index=265&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=46&type=section&id=Item%2015%3A%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements, auditor's report, and all exhibits filed with the Form 10-K - This section provides an index of the Consolidated Financial Statements and all exhibits filed with the Form 10-K[268](index=268&type=chunk)[269](index=269&type=chunk) [Form 10-K Summary](index=46&type=section&id=Item%2016%3A%20Form%2010-K%20Summary) No summary is provided in this section of the report - None[270](index=270&type=chunk) Consolidated Financial Statements [Consolidated Balance Sheets](index=53&type=section&id=Consolidated%20Balance%20Sheets) Total assets grew to $1.02 billion in 2021, while total liabilities decreased, boosting stockholders' equity to $815.8 million Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 25, 2021 | Dec 26, 2020 | | :--- | :--- | :--- | | **Total Current Assets** | $524,039 | $487,074 | | Cash and cash equivalents | $151,010 | $187,225 | | Marketable securities | $125,055 | $67,810 | | Goodwill | $212,299 | $212,761 | | **Total Assets** | **$1,020,520** | **$963,217** | | **Total Current Liabilities** | $148,754 | $154,571 | | **Total Liabilities** | **$204,740** | **$219,133** | | **Total Stockholders' Equity** | **$815,780** | **$744,084** | [Consolidated Statements of Income](index=54&type=section&id=Consolidated%20Statements%20of%20Income) Fiscal 2021 revenues reached $769.7 million, driving net income to $83.9 million, or $1.06 per diluted share Consolidated Statement of Income (in thousands, except per share data) | Metric | Fiscal 2021 | Fiscal 2020 | Fiscal 2019 | | :--- | :--- | :--- | :--- | | **Revenues** | $769,674 | $693,616 | $589,464 | | **Gross Profit** | $322,767 | $287,920 | $237,496 | | **Operating Income** | $98,038 | $83,788 | $49,662 | | **Net Income** | $83,924 | $78,523 | $39,346 | | **Diluted EPS** | $1.06 | $0.99 | $0.51 | [Consolidated Statements of Cash Flows](index=57&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Cash from operations was $139.4 million in fiscal 2021, with a year-end cash balance of $155.3 million after investments and financing Consolidated Statement of Cash Flows (in thousands) | Cash Flow Activity | Fiscal 2021 | Fiscal 2020 | Fiscal 2019 | | :--- | :--- | :--- | :--- | | **Net cash provided by operating activities** | $139,364 | $169,256 | $121,048 | | **Net cash used in investing activities** | $(124,741) | $(98,922) | $(66,352) | | **Net cash used in financing activities** | $(47,199) | $(30,935) | $(6,578) | | **Net (decrease) increase in cash** | $(35,756) | $43,161 | $47,391 | | **Cash, cash equivalents and restricted cash, end of year** | $155,342 | $191,098 | $147,937 | [Notes to Consolidated Financial Statements](index=60&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies, acquisitions, debt, segment performance, and significant customer concentrations [Note 4—Acquisitions](index=68&type=section&id=Note%204%E2%80%94Acquisitions) This note details the purchase price allocations for the HPD, Baldwin Park, and FRT acquisitions from 2019 and 2020 - Acquired High Precision Devices, Inc (HPD) on October 19, 2020, for **$16.9 million**, generating **$5.9 million in goodwill** and **$11.5 million in intangible assets**[389](index=389&type=chunk)[394](index=394&type=chunk) - Acquired the probe card assets of Advantest Corporation (Baldwin Park) on July 30, 2020, for **$35.0 million**, resulting in **$5.9 million in goodwill** and **$13.6 million in intangible assets**[403](index=403&type=chunk)[406](index=406&type=chunk)[408](index=408&type=chunk) - Acquired FRT GmbH on October 9, 2019, for **$26.9 million** (net of cash), which included a $22.2 million cash payment and $6.5 million in contingent consideration, generating **$11.1 million in goodwill**[415](index=415&type=chunk)[420](index=420&type=chunk) [Note 5—Debt](index=73&type=section&id=Note%205%E2%80%94Debt) As of year-end 2021, total debt was $24.4 million, consisting of term loans for the FRT acquisition and a building purchase - The CMI Term Loan of **$150 million**, entered into in 2016, was **fully paid off** on June 30, 2020[429](index=429&type=chunk)[433](index=433&type=chunk) Outstanding Term Loans as of Dec 25, 2021 | Loan | Original Amount | Outstanding Balance | Interest Rate | Maturity | | :--- | :--- | :--- | :--- | :--- | | **FRT Term Loan** | $23.4M (EUR) | $7.9M | EURIBOR + 1.75% | 2022 | | **Building Term Loan** | $18.0M | $16.5M | LIBOR + 1.75% | 2035 | [Note 16—Segments and Geographic Information](index=89&type=section&id=Note%2016%E2%80%94Segments%20and%20Geographic%20Information) The Probe Cards segment generated $633.3 million in 2021 revenue, with Taiwan being the largest geographic market at 24.2% Segment Performance (Fiscal 2021, in thousands) | Segment | Revenues | Gross Profit | Gross Margin (%) | | :--- | :--- | :--- | :--- | | **Probe Cards** | $633,281 | $279,873 | 44.2% | | **Systems** | $136,393 | $65,834 | 48.3% | | **Corporate and Other** | N/A | $(22,940) | N/A | | **Total** | **$769,674** | **$322,767** | **41.9%** | Revenues by Geographic Region (Fiscal 2021) | Region | % of Total Revenues | | :--- | :--- | | **Taiwan** | 24.2% | | **China** | 21.2% | | **South Korea** | 16.0% | | **United States** | 15.9% | | **Asia-Pacific** | 11.5% | | **Europe** | 5.7% | | **Japan** | 4.7% | | **Rest of World** | 0.8% |

SFORMFACTOR™ Investor Presentation February 2022 Forward-Looking Statements; Non-GAAP Financial Measures 2 This presentation contains forward-looking statements within the meaning of the U.S. Securities Exchange Act of 1934 and the Securities Act of 1933. The forward-looking statements include statements concerning, among other things, our future business model and strategies, our financial model and structure, market and market share growth, industry trends, customer demand and growth opportunities. In som ...

FormFactor, Inc. (NASDAQ:FORM) Q4 2021 Earnings Conference Call February 2, 2022 4:25 PM ET Company Participants Mike Slessor - President and Chief Executive Officer Shai Shahar - Chief Financial Officer Stan Finkelstein - VP of Investor Relations Conference Call Participants Brian Chin - Stifel Krish Shankar - Cowen & Company Charles Shi - Needham and Company Craig Ellis - B. Riley Securities Christian Schwab - Craig Hallum Amanda Scarnati - Citi Tom Diffely - D.A. Davidson David Dooley - Steelhead Securit ...