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FORMFACTOR INC 10-K Analysis & Summary – 2/21/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

FormFactor, Inc.

Filing date:

02/21/2025

TLDR:

FormFactor, Inc.’s 10-K filing for fiscal year 2024 shows revenue growth driven by HBM demand, but a decrease in Systems revenue due to the sale of the FRT Metrology business. The company faces risks including cyclicality in the semiconductor industry and customer concentration.

ELI5:

FormFactor makes tools to test computer chips. They made more money overall because of increased demand for chips used in AI, but one part of their business sold less. They face risks because the chip industry goes up and down, and they rely on a few big customers.

Accession #:

0001039399-25-000023

Published on

Analyst Summary

  • Total revenue increased by 15.2% from $663.1 million in fiscal 2023 to $763.6 million in fiscal 2024.
  • Probe Cards revenue increased by 25.7% from $497.9 million to $626.0 million.
  • Systems revenue decreased by 16.7% from $165.2 million to $137.6 million, primarily due to the FRT Metrology business sale.
  • Gross profit increased from $258.6 million in fiscal 2023 to $307.9 million in fiscal 2024.
  • Gross margin increased from 39.0% in fiscal 2023 to 40.3% in fiscal 2024.
  • The company’s cash, cash equivalents, and marketable securities totaled $360.0 million at December 28, 2024, compared to $328.3 million at December 30, 2023.
  • Gross Profit Margin: 40.3% (2024) vs. 39.0% (2023).
  • Operating Profit Margin: 8.5% (2024) vs. 12.4% (2023).
  • Net Profit Margin: 9.1% (2024) vs. 12.4% (2023).
  • Return on Assets (ROA): 6.1% (2024) vs. 7.4% (2023).
  • Return on Equity (ROE): 7.3% (2024) vs. 9.1% (2023).
  • Basic Earnings Per Share (EPS): $0.90 (2024) vs. $1.06 (2023).
  • Diluted Earnings Per Share (EPS): $0.89 (2024) vs. $1.05 (2023).
  • Current Ratio: 4.61 (2024) vs. 4.38 (2023).
  • Quick Ratio: 3.84 (2024) vs. 3.52 (2023).
  • Cash Ratio: 2.74 (2024) vs. 2.50 (2023).
  • Debt-to-Equity Ratio: 0.21 (2024) vs. 0.22 (2023).
  • Debt-to-Assets Ratio: 0.17 (2024) vs. 0.18 (2023).
  • Interest Coverage Ratio: 156.0 (2024) vs. 197.57 (2023).
  • Inventory Turnover: 4.29 (2024) vs. 7.24 (2023).
  • Days Sales Outstanding (DSO): 49.75 days (2024) vs. 56.67 days (2023).
  • Days Payable Outstanding (DPO): 49.84 days (2024) vs. 57.54 days (2023).
  • Asset Turnover: 0.67 (2024) vs. 0.60 (2023).
  • Price-to-Earnings Ratio (P/E): 39.31
  • Price-to-Book Ratio (P/B): 2.88
  • Price-to-Sales Ratio (P/S): 3.57
  • Enterprise Value to EBITDA (EV/EBITDA): 26.11
  • Revenue Growth: 15.16%
  • Net Income Growth: -15.51%
  • EPS Growth: -15.09%

Opportunities and Risks

  • Competition: Increased competition in the semiconductor test equipment market.
  • Technological Change: The need to innovate and keep pace with technological developments in the semiconductor industry.
  • Customer Concentration: A substantial portion of revenues is derived from a small number of customers.
  • Cyclicality: The semiconductor industry is cyclical and subject to wide fluctuations in product supply and demand.
  • Supply Chain: Reliance on sole-source or limited-source suppliers for components and materials.
  • International Operations: Operational, economic, financial, and political risks associated with conducting business internationally.
  • Cybersecurity: Risks related to disruptions, security breaches, or compromises of electronic data systems.
  • Climate Change: Potential negative effects of climate change and related regulations on the business.
  • Strategic focus on high-growth areas like HBM for AI applications positions it well for future growth.

Potential Implications

Stock Price

  • A P/E ratio of 39.31 is relatively high, suggesting investors have high expectations for future earnings growth.
  • A P/B ratio of 2.88 suggests the market values the company at nearly three times its book value.
  • A P/S ratio of 3.57 indicates how much investors are willing to pay for each dollar of the company’s sales.
  • An EV/EBITDA ratio of 26.11 is relatively high, suggesting the company may be overvalued compared to its earnings before interest, taxes, depreciation, and amortization.

FormFactor, Inc. (FORM) SEC Filing Report – 10-K for Fiscal Year Ended December 28, 2024

Executive Summary

This report analyzes FormFactor, Inc.’s 10-K filing for the fiscal year ended December 28, 2024. Key findings include revenue growth driven by increased demand for HBM chips used in AI applications, a decrease in Systems segment revenue due to the sale of the FRT Metrology business, and a complex risk profile including cyclicality in the semiconductor industry and increasing trade tensions. The company’s financial performance shows improved gross margins due to higher revenues, but also highlights risks related to customer concentration and reliance on sole-source suppliers. Overall, the company appears to be navigating a dynamic market with both opportunities and challenges.

Company Overview

FormFactor, Inc. is a leading provider of electrical and optical test and measurement technologies for the semiconductor industry. The company operates in two segments: Probe Cards and Systems. Its products are used in various stages of semiconductor manufacturing, from research and development to high-volume production. The company’s customers include semiconductor manufacturers, universities, and research institutions.

Detailed Analysis

Management’s Discussion and Analysis (MD&A)

Management highlights the strengthening momentum driven by HBM demand for AI applications. The sale of China operations and the FRT Metrology business are discussed, impacting revenue and profitability. The MD&A emphasizes the importance of innovation and collaboration with customers to meet evolving industry demands.

Financial Statement Analysis

Revenue

Total revenue increased by 15.2% from $663.1 million in fiscal 2023 to $763.6 million in fiscal 2024.
Probe Cards revenue increased by 25.7% from $497.9 million to $626.0 million.
Systems revenue decreased by 16.7% from $165.2 million to $137.6 million, primarily due to the FRT Metrology business sale.

Segment Fiscal 2024 (USD Millions) Fiscal 2023 (USD Millions) Change (%)
Probe Cards 626.0 497.9 25.7
Systems 137.6 165.2 -16.7
Total 763.6 663.1 15.2

Gross Profit and Margin

Gross profit increased from $258.6 million in fiscal 2023 to $307.9 million in fiscal 2024.
Gross margin increased from 39.0% in fiscal 2023 to 40.3% in fiscal 2024.
The increase in gross margin was primarily due to higher revenues and more favorable absorption of costs on higher production volumes.

Segment Fiscal 2024 (USD Millions) Fiscal 2023 (USD Millions)
Probe Cards Gross Profit 259.0 185.4
Probe Cards Gross Margin 41.4% 37.2%
Systems Gross Profit 59.5 84.7
Systems Gross Margin 43.2% 51.3%
Total Gross Profit 307.9 258.6
Total Gross Margin 40.3% 39.0%

Operating Expenses

Research and development expenses increased by 5.3% from $115.8 million in fiscal 2023 to $121.9 million in fiscal 2024.
Selling, general, and administrative expenses increased by 6.6% from $133.0 million in fiscal 2023 to $141.8 million in fiscal 2024.

Liquidity and Capital Resources

The company’s cash, cash equivalents, and marketable securities totaled $360.0 million at December 28, 2024, compared to $328.3 million at December 30, 2023.
The company expects its cash, cash equivalents, and marketable securities on hand, and the cash it expects to generate from operations, will be sufficient to fund its liquidity requirements for at least the next 12 months.

Risk Factors

The filing outlines several key risk factors, including:
Competition: Increased competition in the semiconductor test equipment market.
Technological Change: The need to innovate and keep pace with technological developments in the semiconductor industry.
Customer Concentration: A substantial portion of revenues is derived from a small number of customers.
Cyclicality: The semiconductor industry is cyclical and subject to wide fluctuations in product supply and demand.
Supply Chain: Reliance on sole-source or limited-source suppliers for components and materials.
International Operations: Operational, economic, financial, and political risks associated with conducting business internationally.
Cybersecurity: Risks related to disruptions, security breaches, or compromises of electronic data systems.
Climate Change: Potential negative effects of climate change and related regulations on the business.

Uncommon Metrics

The filing does not explicitly highlight uncommon metrics. However, the discussion of revenue concentration by customer and geographic region provides valuable insights into the company’s market dependencies.

Conclusion and Actionable Insights

FormFactor, Inc. demonstrates solid financial performance with revenue growth and improved gross margins. However, the company faces significant risks, including cyclicality in the semiconductor industry, customer concentration, and reliance on sole-source suppliers.

Overall Assessment

The company’s strategic focus on high-growth areas like HBM for AI applications positions it well for future growth. However, investors should carefully consider the risk factors outlined in the filing.

Recommendations

Monitor customer concentration and diversification efforts.
Track developments in the semiconductor industry and the company’s ability to innovate.
Assess the impact of international trade tensions and export regulations on the company’s operations.
Evaluate the company’s risk management strategies related to cybersecurity and supply chain disruptions.

Financial Ratio and Metric Analysis

Note: All calculations are based on the provided data. Industry comparisons are based on general knowledge as a financial analyst and publicly available data. A specific source will be listed if used.

Profitability

  • Gross Profit Margin

    • Ratio/Metric: Gross Profit / Revenue = $307,923 / $763,599 = 40.3%
    • Trend: 40.3% (2024) vs. 39.0% (2023). Percentage Change: (40.3 – 39.0) / 39.0 = 3.33%
    • Industry: The semiconductor industry has a wide range of gross profit margins. FormFactor’s gross profit margin of 40.3% is comparable to other companies in the semiconductor industry.
  • Operating Profit Margin

    • Ratio/Metric: Operating Income / Revenue = $64,780 / $763,599 = 8.5%
    • Trend: 8.5% (2024) vs. 12.4% (2023). Percentage Change: (8.5 – 12.4) / 12.4 = -31.45%
    • Industry: An operating profit margin of 8.5% is below average for the semiconductor industry.
  • Net Profit Margin

    • Ratio/Metric: Net Income / Revenue = $69,614 / $763,599 = 9.1%
    • Trend: 9.1% (2024) vs. 12.4% (2023). Percentage Change: (9.1 – 12.4) / 12.4 = -26.61%
    • Industry: A net profit margin of 9.1% is below average for the semiconductor industry.
  • Return on Assets (ROA)

    • Ratio/Metric: Net Income / Total Assets = $69,614 / $1,146,215 = 6.1%
    • Trend: 6.1% (2024) vs. $82,387 / $1,106,794 = 7.4% (2023). Percentage Change: (6.1 – 7.4) / 7.4 = -17.57%
    • Industry: An ROA of 6.1% is below average for the semiconductor industry.
  • Return on Equity (ROE)

    • Ratio/Metric: Net Income / Total Stockholders’ Equity = $69,614 / $947,768 = 7.3%
    • Trend: 7.3% (2024) vs. $82,387 / $908,804 = 9.1% (2023). Percentage Change: (7.3 – 9.1) / 9.1 = -19.78%
    • Industry: An ROE of 7.3% is below average for the semiconductor industry.
  • Earnings Per Share (EPS)

    • Ratio/Metric:
      • Basic: $0.90
      • Diluted: $0.89
    • Trend:
      • Basic: $0.90 (2024) vs. $1.06 (2023). Percentage Change: (0.90 – 1.06) / 1.06 = -15.09%
      • Diluted: $0.89 (2024) vs. $1.05 (2023). Percentage Change: (0.89 – 1.05) / 1.05 = -15.24%
    • Industry: EPS varies widely within the semiconductor industry.

Liquidity

  • Current Ratio

    • Ratio/Metric: Total Current Assets / Total Current Liabilities = $605,128 / $131,345 = 4.61
    • Trend: 4.61 (2024) vs. $573,780 / $131,095 = 4.38 (2023). Percentage Change: (4.61 – 4.38) / 4.38 = 5.25%
    • Industry: A current ratio of 4.61 is considered healthy, indicating the company has sufficient liquid assets to cover its short-term liabilities.
  • Quick Ratio (Acid-Test Ratio)

    • Ratio/Metric: (Total Current Assets – Inventories) / Total Current Liabilities = ($605,128 – $101,676) / $131,345 = 3.84
    • Trend: 3.84 (2024) vs. ($573,780 – $111,685) / $131,095 = 3.52 (2023). Percentage Change: (3.84 – 3.52) / 3.52 = 9.09%
    • Industry: A quick ratio of 3.84 is considered strong, suggesting the company can meet its short-term obligations even without relying on inventory sales.
  • Cash Ratio

    • Ratio/Metric: (Cash and Cash Equivalents + Marketable Securities) / Total Current Liabilities = ($190,728 + $169,295) / $131,345 = 2.74
    • Trend: 2.74 (2024) vs. ($177,812 + $150,507) / $131,095 = 2.50 (2023). Percentage Change: (2.74 – 2.50) / 2.50 = 9.60%
    • Industry: A cash ratio of 2.74 is very high, indicating a strong ability to meet short-term obligations with cash and near-cash assets.

Solvency/Leverage

  • Debt-to-Equity Ratio

    • Ratio/Metric: Total Liabilities / Total Stockholders’ Equity = $198,447 / $947,768 = 0.21
    • Trend: 0.21 (2024) vs. $197,990 / $908,804 = 0.22 (2023). Percentage Change: (0.21 – 0.22) / 0.22 = -4.55%
    • Industry: A debt-to-equity ratio of 0.21 is relatively low, indicating the company relies more on equity than debt financing.
  • Debt-to-Assets Ratio

    • Ratio/Metric: Total Liabilities / Total Assets = $198,447 / $1,146,215 = 0.17
    • Trend: 0.17 (2024) vs. $197,990 / $1,106,794 = 0.18 (2023). Percentage Change: (0.17 – 0.18) / 0.18 = -5.56%
    • Industry: A debt-to-assets ratio of 0.17 suggests a conservative capital structure with a relatively small proportion of assets financed by debt.
  • Interest Coverage Ratio (Times Interest Earned)

    • Ratio/Metric: Earnings Before Interest and Taxes (EBIT) / Interest Expense = ($64,780 + $418) / $418 = 156.0
    • Trend: 156.0 (2024) vs. ($82,756 + $421) / $421 = 197.57 (2023). Percentage Change: (156.0 – 197.57) / 197.57 = -20.99%
    • Industry: An interest coverage ratio of 156.0 is extremely high, indicating the company can easily cover its interest expenses.

Activity/Efficiency

  • Inventory Turnover

    • Ratio/Metric: Cost of Revenue / Average Inventory = $455,676 / (($101,676 + $111,685) / 2) = 4.29
    • Trend: 4.29 (2024) vs. $404,522 / (($111,685 + $0) / 2) = 7.24 (2023). Percentage Change: (4.29 – 7.24) / 7.24 = -40.75%
    • Industry: An inventory turnover of 4.29 indicates the company sells its inventory approximately 4.29 times per year.
  • Days Sales Outstanding (DSO)

    • Ratio/Metric: (Accounts Receivable / Revenue) * 365 = ($104,294 / $763,599) * 365 = 49.75 days
    • Trend: 49.75 days (2024) vs. ($102,957 / $663,102) * 365 = 56.67 days (2023). Percentage Change: (49.75 – 56.67) / 56.67 = -12.21%
    • Industry: A DSO of 49.75 days indicates the average number of days it takes the company to collect payment from its customers.
  • Days Payable Outstanding (DPO)

    • Ratio/Metric: (Accounts Payable / Cost of Revenue) * 365 = ($62,287 / $455,676) * 365 = 49.84 days
    • Trend: 49.84 days (2024) vs. ($63,857 / $404,522) * 365 = 57.54 days (2023). Percentage Change: (49.84 – 57.54) / 57.54 = -13.38%
    • Industry: A DPO of 49.84 days indicates the average number of days it takes the company to pay its suppliers.
  • Asset Turnover

    • Ratio/Metric: Revenue / Total Assets = $763,599 / $1,146,215 = 0.67
    • Trend: 0.67 (2024) vs. $663,102 / $1,106,794 = 0.60 (2023). Percentage Change: (0.67 – 0.60) / 0.60 = 11.67%
    • Industry: An asset turnover of 0.67 indicates the company generates $0.67 in revenue for every $1 of assets.

Valuation

Note: The stock price at the time of reporting (FORM – 2025-02-21) is $35.38.

  • Price-to-Earnings Ratio (P/E)

    • Ratio/Metric: Stock Price / EPS = $35.38 / $0.90 = 39.31
    • Industry: A P/E ratio of 39.31 is relatively high, suggesting investors have high expectations for future earnings growth.
  • Price-to-Book Ratio (P/B)

    • Ratio/Metric: Market Cap / Book Value of Equity = (77,114,633 * $35.38) / $947,768,000 = 2.88
    • Industry: A P/B ratio of 2.88 suggests the market values the company at nearly three times its book value.
  • Price-to-Sales Ratio (P/S)

    • Ratio/Metric: Market Cap / Revenue = (77,114,633 * $35.38) / $763,599,000 = 3.57
    • Industry: A P/S ratio of 3.57 indicates how much investors are willing to pay for each dollar of the company’s sales.
  • Enterprise Value to EBITDA (EV/EBITDA)

    • Ratio/Metric:
      • Market Cap = 77,114,633 * $35.38 = $2,727,447,989.54
      • Total Debt = $13,314,000
      • Cash and Equivalents = $190,728,000
      • EV = $2,727,447,990 + $13,314,000 – $190,728,000 = $2,550,033,990
      • EBITDA = Operating Income + Depreciation + Amortization = $64,780,000 + $30,321,000 + $2,582,000 = $97,683,000
      • EV/EBITDA = $2,550,033,990 / $97,683,000 = 26.11
    • Industry: An EV/EBITDA ratio of 26.11 is relatively high, suggesting the company may be overvalued compared to its earnings before interest, taxes, depreciation, and amortization.

Growth Rates

  • Revenue Growth

    • Ratio/Metric: (Current Revenue – Previous Revenue) / Previous Revenue = ($763,599 – $663,102) / $663,102 = 15.16%
    • Industry: A revenue growth rate of 15.16% is strong, indicating the company is expanding its sales.
  • Net Income Growth

    • Ratio/Metric: (Current Net Income – Previous Net Income) / Previous Net Income = ($69,614 – $82,387) / $82,387 = -15.51%
    • Industry: A net income growth rate of -15.51% is negative, indicating the company’s profitability has decreased.
  • EPS Growth

    • Ratio/Metric: (Current EPS – Previous EPS) / Previous EPS = ($0.90 – $1.06) / $1.06 = -15.09%
    • Industry: An EPS growth rate of -15.09% is negative, indicating the company’s earnings per share have decreased.

Other Relevant Metrics

  • Share Repurchase Program

    • During the period October 27, 2024 – November 23, 2024, the company repurchased 419,952 shares at an average price of $38.50, totaling $16,168,152.
    • The maximum amount that may yet be purchased under the plans or programs is $20,455,378 as of November 23, 2024.
  • Cumulative Total Return

    • FormFactor, Inc.: Increased from $100.00 on December 28, 2019, to $176.34 on December 28, 2024.
    • S&P 500 Index: Increased from $100.00 to $197.02 over the same period.
    • S&P Semiconductors Select Industry Index: Increased from $100.00 to $242.18 over the same period.
  • Gain on Sale of Business

    • The company recognized a gain on the sale of a business of $20,581,000 in Fiscal 2024, compared to $72,953,000 in Fiscal 2023.
  • Stock-Based Compensation

    • Stock-based compensation expense was $39,763,000 in Fiscal 2024, compared to $38,616,000 in Fiscal 2023.

Commentary

FormFactor’s financial performance in 2024 shows a mixed picture. Revenue grew by 15.16%, indicating strong sales expansion, but profitability metrics such as operating profit margin, net profit margin, ROA, ROE, and EPS all declined, suggesting increased costs or reduced efficiency. The company maintains a very strong liquidity position with high current, quick, and cash ratios. While revenue increased, net income decreased, indicating potential challenges in cost management or pricing strategies.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️