It has been about a month since the last earnings report for FormFactor (FORM). Shares have lost about 16.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is FormFactor due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

FormFactor Q4 Earnings Miss Estimates, Revenue Up Y/Y

FormFactor delivered fourth-quarter 2024 adjusted earnings of 27 cents per share, missing the Zacks Consensus Estimate by 6.90%. The bottom line increased 35% from the year-ago quarter.

Revenues of $189.5 million missed the Zacks Consensus Estimate by 19% and increased 12.7% year over year. The rise was driven by continued strength in the DRAM probe-card business, which surged 77.2% year over year.

However, FormFactor reported an 8.9% sequential decline in fourth-quarter revenues due to reduced Foundry & Logic probe-card sales.

FormFactor’s Segmental Details

Probe card revenues were $150.6 million, up 18.6% year over year.

Foundry & Logic revenues (44% of the total revenues) were $83.3 million, down 0.6% year over year.

DRAM revenues (33.6% of the total revenues) were $63.6 million, up 77.2% year over year. Strong demand drove a third consecutive record-setting quarter for DRAM probe-card revenues.

Flash revenues (2% of the total revenues) were $3.7 million. The reported figure fell 49.3% year over year.

Systems revenues (20.7% of the total revenues) were $39.2 million, down 4.9% year over year.

Revenues generated from Malaysia, Taiwan, China, the rest of the world, South Korea and Europe increased 66.7%, 45.4%, 43.3%, 40.7%, 26.5% and 1.1%, respectively, year over year.

However, revenues from the United States, Singapore and Japan declined 26.6%, 16.9% and 11%, respectively, year over year.

FORM’s Operating Results

In the fourth quarter of 2024, the gross margin contracted 190 basis points (bps) year over year to 40.2%.

Non-GAAP operating expenses increased 7% year over year to $55.2 million. As a percentage of revenues, operating expenses were down 150 bps year over year to 29.1%.

The non-GAAP operating margin compressed 40 bps year over year to 11%.

FormFactor’s Balance Sheet & Cash Flow

As of Dec. 28, 2024, cash and cash equivalents, and marketable securities were $360.0 million compared with $354.5 million as of Sept. 28, 2024.

Cash generated from operating activities was $35.9 million in the reported quarter, up from $9.2 million in the previous quarter.

The free cash flow was $28.8 million in the reported quarter compared with $20 million in the previous quarter. This increase was led by higher operating cash flows, primarily driven by greater non-cash expenses of $8 million, a $10.2-million reduction in working capital outflows and a $1.3-million decrease in capital expenditure.

FORM’s Q1 Guidance

FormFactor is facing headwinds due to weaker demand in high-volume markets like client PCs and mobile handsets. The expected sequential decline in demand for non-HBM DRAM probe cards and Systems further reinforces a cautious outlook for the first quarter of 2025.

FORM expects first-quarter 2025 revenues of $170 million (+/- $5 million). 

The company expects a non-GAAP gross margin of 38% (+/- 1.5%).

On a non-GAAP basis, FORM expects earnings of 19 cents (+/- 4 cents) per share.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

The consensus estimate has shifted -59.81% due to these changes.

VGM Scores

Currently, FormFactor has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise FormFactor has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

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This article originally published on Zacks Investment Research (zacks.com).

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