Yahoo Finance FormFactor Inc (FORM) (Q1 2024) Earnings Call Transcript Highlights: Navigating Market ...
Q1 Revenue: $168.7 million, a 0.3% sequential increase and a 0.8% year-over-year increase.
Q1 Non-GAAP Gross Margin: 38.7%, down 3.4 percentage points from Q4.
Q1 Non-GAAP EPS: $0.18, $0.01 below the midpoint of the outlook range.
DRAM Revenue: $45.9 million in Q1, up 27.9% from Q4.
Foundry & Logic Revenue: $86.8 million in Q1, up 3.6% from Q4.
Flash Revenue: $4 million in Q1, down from Q4.
System Segment Revenue: $32 million in Q1, down from Q4.
Q1 GAAP Gross Margin: 37.2%, a decrease from 40.4% in Q4.
Q1 GAAP Net Income: $21.8 million, or $0.28 per fully diluted share.
Q1 Free Cash Flow: $19.7 million, a significant increase from negative $0.3 million in Q4.
Q2 Revenue Outlook: Expected to be $195 million, approximately $25 million higher than Q1.
Q2 Non-GAAP Gross Margin Outlook: Expected to be 45%.
Q2 Non-GAAP EPS Outlook: Expected to be $0.31.
Release Date: May 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
FormFactor Inc (NASDAQ:FORM) reported Q1 revenue near the top end of the outlook range provided in February.
Significant sequential step-up in demand expected in Q2, primarily driven by strength in DRAM and foundry & logic probe cards.
Recent organizational and talent changes aimed to enhance capability to develop and introduce highly differentiated products.
Achieved doubled quarterly run rate HBM revenue levels in Q1 earlier than expected, indicating rapid acceleration of HBM capacity and output.
Received the Intel EPIC Program Distinguished Supplier Award for 2024, marking the third consecutive year of recognition.
Negative Points
Non-GAAP EPS for Q1 fell short of the midpoint due to lower-than-expected gross margins, primarily from a weaker product mix and higher warranty costs.
Product mix in the systems segment was weaker than expected, with fewer high-complexity thermal systems shipped.
Consolidated non-GAAP gross margins decreased due to less favorable product mix in both segments and higher-than-expected warranty expense.
GAAP operating expenses increased due to higher stock-based compensation and transaction costs related to the sale of China operations.
Visibility into future quarters remains limited, making it challenging to predict long-term performance accurately.
Q & A Highlights
Q: Hi there. Good afternoon. Congratulations on the results. Sorry, just to first get a clarification because I don't know if I heard this correctly, but can you mind going back over what the implied growth is for the three main areas, foundry & logic, DRAM, and systems in Q2 relative to the guide? And also, on Q1, with HBM being a bigger component of the mix, why was that also a less favorable mix even on the memory side of that revenue in Q1? A: Sure. So regarding your first questions, we said that with $195 million being the midpoint of the outlook range, we expected about $25 million increase quarter over quarter of which $15 million is foundry & logic and $10 million is DRAM, and the rest is relatively flat. These are the big movers. And regarding your questions on gross margin in HBM -- yeah, so HBM is indeed a relatively higher gross margin product for us, but it's still a DRAM product. And DRAM, as we said many times before, has a relatively low gross margin or lower gross margin than foundry & logic. So we had less favorable mix between the markets even within the markets. And also, the systems business had a lower gross margin than usual at 45%, 46%, while our target market for systems is to be around 50% or low 50% gross margin. So if you put all of this together, and as the warranty expenses that were unusual in Q4 -- in Q1, that's why we ended up with gross margin lower than that. With Q2, the $195 million, we are very encouraged to see the gross margin going to 45% at the midpoint of the range, even with DRAM and HBM or higher DRAM and HBM mix than before.
Q: Okay. That's helpful. And then I guess for my follow-up, there might be two parts to this. But I guess, firstly, it's not often that you have a step-up of this magnitude Q-on-Q. I guess the first part of this question is, are there constraints and some unfulfilled demand that maybe that you have in the second quarter that gives you some of that visibility I think that you referenced in the release on Q3 and the second part of that? Maybe can we unpack a little bit about the sequential pickup in foundry & logic? Yeah, obviously, not the best overall demand. But clearly, you're seeing a premium on growth here tied to maybe the mix and advanced packaging. Can you maybe, Mike, talk about what you're seeing foundry basis, logic basis, and just the breadth of that and what? Maybe unpack that a little bit. Thanks. A: Yeah, absolutely. Let me take the second part of the question first, and then we can parse out some of the foundry & logic growth. We didn't leave anything on the table in Q1. This has been a fairly rapid step-up in demand. And it's fairly concentrated among HBM, microprocessor applications, and the usual midyear mobile application processor. But if we if we take a look at the foundry & logic piece, it is interesting. Our customers in foundry & logic haven't had great earnings reports. But if you think about how they manufacture and their overall cycle times and flow, as they release new designs, most of them on advanced packaging platforms to this process, they have to get the tooling and the probe cards in place several months, often even several quarters in advance of them shipping and realizing revenue for the parts. So we're going to, in any kind of our new product ramp, lead our customers, be ahead of our customers in time in the demand and revenue. And so I think that partially helps explain. You also alluded to another piece. A lot of the step-up in the second quarter is associated with new designs in HBM, in microprocessor applications, and in mobile applications that are all being architected on advanced packaging platforms, whether it's die stacking in TSVs in HBM, whether it's Foveros in the microprocessor space. All of these things, as we said in the past and reiterated today, drive higher test intensity and higher test complexity. So the spending on test for these new designs is going up to make sure that the yields are high in these advanced packaging process.
Q: Hi, good afternoon, Mike, Shai. I mean, the guidance reminds probably everybody on what's happened in fourth quarter '19. That was also pretty significant at the similar time of the cycle. So maybe my question here, last time, your fourth quarter in [ID] were need the [cautious], right? You are saying, well, maybe some of this strength was a little bit transient while it turns out it was not. It was actually quite sustaining. This time, you didn't mention anything about [camdian] or anything. So I want to get a sense how sustainable that close to $200 million per quarter level you're going to see in June. What's the line of sight into second half of this year? Maybe more importantly, I think it [don't] feel like you flag about microprocessor in (inaudible) areas you're going to see in Q2. And what's the sustainability of the probe card demand microprocessor going into Q3 and Q4? Thanks. A: Thanks, Charles. It's Mike. I'll take that. I think a couple of comments. First of all, remember that our business operates on very short lead times well within a quarter. And so visibility into the third quarter and beyond the second half in general really isn't there for us. The other comment I'll make about the second quarter strength is it's fairly concentrated in a few applications and customers. HBM, obviously, a highlight. We talked about the microprocessor strength and some strength in mobile. But if I think about automotive, general DRAM, flash, some of the other parts of mobile like RF, they're pretty much flat. And so it's not like we're seeing a broad-based recovery here. We're seeing some real strength and momentum in some of the areas where we are over-indexed and intentionally so because of our strategy. So I can't -- I don't have any hard visibility into the second half. But if you think about the position we're in in HBM and microprocessors, especially driven by the move to advanced packaging and a lot of these areas, we feel pretty comfortable with continuing to grow secularly with the industry. The only other caution I would add is often when we've seen a quarter of heavy spending by one customer or two customers on specific designs that ramp, we can see a digestion period for a subsequent quarter. But I think we're all expecting continued HBM growth when you look at the recent comments from the hyperscales on data center investments in AI that's directly tied to that. And at some point here, we are going to see some PC refresh cycle. I think all of you on the call have different opinions of when that
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
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