FormFactor(FORM) - 2021 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - First quarter revenues were $187 million, a 5.3% sequential decrease from the record Q4 revenue and a 16% year-over-year increase [24] - Non-GAAP gross margin recovered to 45% of revenues, 160 basis points higher than the 43.4% in Q4 [28] - GAAP net income for Q1 was $19.6 million or $0.25 per fully diluted share compared to $19.3 million or $0.24 per fully diluted share in Q4 [33] Business Line Data and Key Metrics Changes - Probe card segment revenues were $159 million in Q1, a decrease of 2.2% from Q4, driven by lower foundry and logic revenues [24] - Systems segment revenues were $28 million in Q1, a decrease of 20% from Q4, but gross margin improved significantly to 49.3% [19][30] - Foundry and logic revenues decreased by $9.3 million from Q4 to $113.4 million in Q1, comprising 61% of total company revenues [25] Market Data and Key Metrics Changes - DRAM revenues were $34 million in Q1, a slight decrease from Q4, but strong demand is expected to continue [25][26] - Flash revenues increased to $11.6 million in Q1, up from 3% to 6% of total revenues [26] - The company expects a sequential reduction in foundry and logic demand in Q2 due to specific timing of customer design releases [8] Company Strategy and Development Direction - The company is aggressively executing planned capacity and technology investments to capitalize on future opportunities in the semiconductor industry [10] - The focus is on advanced packaging and 5G technologies, which are driving increased complexity in probe card requirements [78] - The company aims to achieve a target financial model of $2 of non-GAAP earnings per share on $850 million of revenue [22] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about continued strong demand for advanced probe cards, despite expected lower demand in foundry and logic [39] - The anticipated product mix shift from foundry and logic to DRAM is expected to pressure gross margins [13] - Management highlighted the cyclicality and variability in market demand, emphasizing the importance of a broad set of opportunities [15] Other Important Information - The company generated $19 million of free cash flow in Q1, down from $31 million in Q4, reflecting changes in working capital [36] - The effective tax rate for Q1 was 18.6%, within the anticipated annual non-GAAP effective tax rate of 15% to 20% [34] - The company expects capital expenditures for the year to be between $80 million to $100 million [37] Q&A Session Summary Question: Impact of high material costs on gross margins - Management acknowledged that high material costs began impacting gross margins in Q1, with more significant effects expected in Q2 [43] Question: Expected demand from customers' capacity investments - Management indicated that increased capacity investments by customers would lead to higher demand for advanced probe cards, typically lagging by two to three quarters [45] Question: DRAM revenue expectations - Management expects DRAM revenues to sustain high levels in Q2, but noted that margins could be lower due to product mix shifts [50][66] Question: Long-term growth outlook for probe cards - Management suggested that the previous growth assumptions may be conservative given the rapid increase in wafer fab equipment investments [58] Question: Capacity constraints and new opportunities - Management confirmed that the company is still facing capacity constraints but is working to expand capacity through ongoing investments [97]