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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 Form 10-Q
 
(Mark one)
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 2024
Or 
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to            
 
Commission file number: 000-50307
 
FormFactor, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3711155
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
 
7005 Southfront Road, Livermore, California 94551
(Address of principal executive offices, including zip code)
 
(925) 290-4000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section12(b) of the Act:
Title of each class
Trading Symbol(s)
 Name of each exchange on which registered
Common stock, $0.001 par valueFORM Nasdaq Global Market
 ______________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes   No 
 
Indicate by check mark whether the registrant submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of the Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated FilerAccelerated FilerNon-accelerated Filer
Smaller Reporting CompanyEmerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No  

As of May 1, 2024, 77,170,041 shares of the registrant’s common stock, par value $0.001 per share, were outstanding.




FORMFACTOR, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 30, 2024
INDEX

 
   
 
   
 
   
  
 
  
 
  
  
  
  
  
Item 5.
Other Information
  
 

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PART I - FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
FORMFACTOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
 March 30,
2024
December 30,
2023
ASSETS 
Current assets:  
Cash and cash equivalents$186,296 $177,812 
Marketable securities162,863 150,507 
Accounts receivable, net of allowance for credit losses of $501 and $501
96,407 102,957 
Inventories, net108,774 111,685 
Restricted cash5,865 1,152 
Prepaid expenses and other current assets28,291 29,667 
Total current assets588,496 573,780 
Restricted cash2,220 2,309 
Operating lease, right-of-use-assets28,543 30,519 
Property, plant and equipment, net of accumulated depreciation205,772 204,399 
Goodwill199,653 201,090 
Intangibles, net12,297 12,938 
Deferred tax assets80,007 78,964 
Other assets2,810 2,795 
Total assets$1,119,798 $1,106,794 
LIABILITIES AND STOCKHOLDERS’ EQUITY 
Current liabilities: 
Accounts payable$65,995 $63,857 
Accrued liabilities37,716 41,037 
Current portion of term loan, net of unamortized issuance costs1,083 1,075 
Deferred revenue17,519 16,704 
Operating lease liabilities8,245 8,422 
Total current liabilities130,558 131,095 
Term loan, less current portion, net of unamortized issuance costs13,041 13,314 
Long-term operating lease liabilities23,432 25,334 
Deferred grant18,000 18,000 
Other liabilities11,017 10,247 
Total liabilities196,048 197,990 
 
Stockholders’ equity: 
Common stock, $0.001 par value:
 
250,000,000 shares authorized; 77,241,118 and 77,376,903 shares issued and outstanding
77 77 
Additional paid-in capital857,326 861,448 
Accumulated other comprehensive loss(6,765)(4,052)
Accumulated income73,112 51,331 
Total stockholders’ equity923,750 908,804 
Total liabilities and stockholders’ equity$1,119,798 $1,106,794 
 
The accompanying notes are an integral part of these condensed consolidated financial statements. 
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FORMFACTOR, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
 Three Months Ended
 March 30,
2024
April 1,
2023
Revenues$168,725 $167,448 
Cost of revenues105,987 106,370 
Gross profit62,738 61,078 
Operating expenses:  
Research and development28,627 28,245 
Selling, general and administrative33,079 32,742 
Total operating expenses61,706 60,987 
Gain on sale of business20,271  
Operating income21,303 91 
Interest income, net3,156 1,276 
Other income, net520 23 
Income before income taxes24,979 1,390 
Provision for income taxes3,198 48 
Net income$21,781 $1,342 
Net income per share: 
Basic $0.28 $0.02 
Diluted$0.28 $0.02 
Weighted-average number of shares used in per share calculations:  
Basic 77,452 77,066 
Diluted78,490 77,255 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
Three Months Ended
March 30,
2024
April 1,
2023
Net income $21,781 $1,342 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments(2,283)832 
Unrealized gains (losses) on available-for-sale marketable securities(198)603 
Unrealized losses on derivative instruments(232)(43)
Other comprehensive income (loss)(2,713)1,392 
Comprehensive income$19,068 $2,734 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except shares)
(Unaudited)
 Shares of
Common
Stock
Common
Stock
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Income
(Deficit)
Total
Three Months Ended March 30, 2024
Balances, December 30, 202377,376,903 $77 $861,448 $(4,052)$51,331 $908,804 
Issuance of common stock under the Employee Stock Purchase Plan197,014 — 4,948 — — 4,948 
Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax78,957  (1,840)— — (1,840)
Purchase and retirement of common stock through repurchase program(411,756) (17,398)— — (17,398)
Stock-based compensation— — 10,168 — — 10,168 
Other comprehensive loss— — — (2,713)— (2,713)
Net income— — — — 21,781 21,781 
Balances, March 30, 202477,241,118 $77 $857,326 $(6,765)$73,112 $923,750 
Three Months Ended April 1, 2023
Balances, December 31, 202276,914,590 $77 $844,842 $(5,578)$(31,056)$808,285 
Issuance of common stock under the Employee Stock Purchase Plan210,055 — 5,024 — — 5,024 
Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax17,378  (387)— — (387)
Stock-based compensation— — 8,716 — — 8,716 
Other comprehensive income— — — 1,392 — 1,392 
Net income— — — — 1,342 1,342 
Balances, April 1, 202377,142,023 $77 $858,195 $(4,186)$(29,714)$824,372 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Three Months Ended
 March 30,
2024
April 1,
2023
Cash flows from operating activities:  
Net income $21,781 $1,342 
Adjustments to reconcile net income to net cash provided by operating activities: 
Depreciation7,193 7,576 
Amortization640 2,378 
Reduction in the carrying amount of right-of-use assets1,415 1,690 
Stock-based compensation expense10,405 9,290 
Deferred income tax benefit(1,293)(145)
Provision for excess and obsolete inventories3,146 4,973 
Gain on sale of business(20,271) 
Other adjustments to reconcile net income to net cash provided by operating activities176 278 
Changes in assets and liabilities:
Accounts receivable6,466 (15,926)
Inventories(4,926)1,375 
Prepaid expenses and other current assets1,224 1,009 
Other assets17 (55)
Accounts payable4,948 (1,819)
Accrued liabilities(1,963)(10,209)
Other liabilities1,085 319 
Deferred revenues4,499 (6,046)
Deferred grant 18,000 
Operating lease liabilities(1,530)(1,721)
Net cash provided by operating activities33,012 12,309 
Cash flows from investing activities:  
Acquisition of property, plant and equipment(13,436)(19,701)
Proceeds from sale of business21,275  
Purchases of marketable securities(37,472)(27,311)
Proceeds from maturities and sales of marketable securities25,813 33,473 
Net cash used in investing activities(3,820)(13,539)
Cash flows from financing activities:  
Proceeds from issuances of common stock4,948 5,024 
Purchase of common stock through stock repurchase program(17,334) 
Tax withholdings related to net share settlements of equity awards(1,840)(387)
Payments on term loan(266)(259)
Net cash provided by (used in) financing activities(14,492)4,378 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(1,592)(276)
Net increase in cash, cash equivalents and restricted cash13,108 2,872 
Cash, cash equivalents and restricted cash, beginning of period181,273 112,982 
Cash, cash equivalents and restricted cash, end of period$194,381 $115,854 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 30,
2024
April 1,
2023
Non-cash investing and financing activities:
Decrease in accounts payable and accrued liabilities related to property, plant and equipment purchases$2,567 $3,755 
Operating lease, right-of-use assets obtained in exchange for lease obligations 727 
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net$1,423 $7,391 
Cash paid for interest100 106 
Operating cash outflows from operating leases2,305 2,191 
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents$186,296 $112,360 
Restricted cash, current5,865 1,207 
Restricted cash, non-current2,220 2,287 
Total cash, cash equivalents and restricted cash$194,381 $115,854 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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FORMFACTOR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Note 1 — Basis of Presentation and Significant Accounting Policies
 
Basis of Presentation
The accompanying condensed consolidated financial information of FormFactor, Inc. is unaudited and has been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). However, such information reflects all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. The condensed consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and the notes thereto included in our 2023 Annual Report on Form 10-K filed with the SEC on February 23, 2024. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.
 
Fiscal Year 
We operate on a 52/53 week fiscal year, whereby the fiscal year ends on the last Saturday of December. Fiscal 2024 and 2023 each contain 52 weeks and the three months ended March 30, 2024 and April 1, 2023 each contained 13 weeks. Fiscal 2024 will end on December 28, 2024.

Significant Accounting Policies
Our significant accounting policies have not changed during the three months ended March 30, 2024 from those disclosed in our Annual Report on Form 10-K for the year ended December 30, 2023.

Reclassifications
Certain immaterial reclassifications were made to the prior year financial statements to conform to the current year presentation.

New Accounting Pronouncements
ASU 2023-09
In December 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The ASU includes requirements that an entity disclose specific categories in the rate reconciliation and provide additional information for reconciling items that are greater than five percent of the amount computed by multiplying pretax income by the applicable statutory income tax rate. The standard also requires that entities disclose income before income taxes and provision for income taxes disaggregated between domestic and foreign. This ASU is effective for annual periods beginning after December 15, 2024, with early adoption permitted. We have not yet determined the impact of this standard on our financial statements.

ASU 2023-07
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” The ASU includes requirements that an entity disclose the title of the chief operating decision maker (“CODM”) and on an interim and annual basis, significant segment expenses and the composition of other segment items for each segment's reported profit. The standard also permits disclosure of additional measures of segment profit. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, on a retrospective basis, with early adoption permitted. We have not yet determined the impact of this standard on our financial statements.

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Note 2 — Concentration of Credit and Other Risks

Each of the following customers accounted for 10% or more of our revenues for the periods indicated:
Three Months Ended
March 30,
2024
April 1,
2023
Intel Corporation15.7 %20.0 %
SK Hynix Inc.15.5 *
Samsung Electronics., LTD.12.4 *
43.6 %20.0 %

At March 30, 2024 and December 30, 2023, two customers accounted for 19.0% and 13.5% and two customers accounted for 17.8% and 11.0% of gross accounts receivable, respectively.

Note 3 — Inventories, net

Inventories are stated at the lower of cost (principally standard cost, which approximates actual cost on a first in, first out basis) or net realizable value.
 
Inventories, net, consisted of the following (in thousands):
March 30,
2024
December 30,
2023
Raw materials$61,228 $50,808 
Work-in-progress28,753 39,336 
Finished goods18,793 21,541 
$108,774 $111,685 

Note 4 Divestitures

China Operations Divestiture
On February 7, 2024, the Company entered into a definitive agreement to sell its China operations to Grand Junction Semiconductor Pte. Ltd. (“Grand Junction”) for $25.0 million in cash, subject to customary purchase price adjustments, and establish an exclusive distribution and partnership agreement to continue sales and support of our products in the region. The following subsidiaries were included as part of the divestiture: Microprobe Hong Kong Limited, FormFactor Technology (Suzhou) Co. Ltd., Cascade Microtech Singapore Pte, Ltd, and FormFactor International (Shanghai) Trading Co., Ltd. These entities supported the Probe Cards and Systems segments.

On February 26, 2024, we closed on the sale of the operations in China to Grand Junction and received total consideration of $21.1 million, net of cash transferred and transaction expenses, and after customary adjustments for indebtedness and changes in net working capital. The disposition of the China operations did not meet the criteria to be classified as a discontinued operation in the Company’s financial statements because the disposition did not represent a strategic shift that had, or will have, a major effect on the Company’s operations and financial results.

The following table summarizes the fair value of the sale proceeds received in connection with the divestiture, which are subject to further post-closing adjustment (in thousands):
February 26, 2024
Gross purchase price$25,000 
Estimated working capital adjustment
(151)
Cash transferred to the buyer at closing(2,743)
Direct costs to sell(986)
Fair value of sale consideration, net$21,120 

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The carrying amount of net assets associated with the China operations was approximately $1.2 million. The major classes of assets and liabilities sold consisted of the following (in thousands):
February 26, 2024
ASSETS
Accounts receivable, net$1,174 
Inventories, net3,729 
Other current assets391 
Total current assets5,294 
Property, plant and equipment, net1,283 
Goodwill1,117 
Other assets3,029 
Total assets$10,723 
LIABILITIES
Deferred Revenue$3,739 
Other current liabilities1,546 
Other liabilities4,283 
Total liabilities$9,568 

As a result of the divestiture, the Company recognized a pre-tax gain of $20.0 million. The Company recorded an income tax liability associated with the divestiture of approximately $3.3 million.

FRT Divestiture
On September 18, 2023, the Company announced entry into a definitive agreement to sell its FRT Metrology (“FRT”) business to Camtek Ltd. (“Camtek”) for $100 million in cash, subject to customary purchase price adjustments. The Company acquired FRT GmbH in fiscal 2019 for total consideration of $24.4 million, net of cash acquired. Headquartered in Bergisch Gladbach, Germany, the FRT business is a leading supplier of high-precision metrology solutions for the Advanced Packaging and Silicon Carbide markets, and was part of the Company's Systems segment.

On November 1, 2023, we closed on the sale of the FRT business to Camtek and received net cash proceeds of $100.1 million, net of cash transferred and transaction expenses, and after customary adjustments for indebtedness and changes in net working capital. The disposition of the FRT business did not meet the criteria to be classified as a discontinued operation in the Company’s financial statements because the disposition did not represent a strategic shift that had, or will have, a major effect on the Company’s operations and financial results.

The following table summarizes the fair value of the sale proceeds received in connection with the divestiture (in thousands):
November 1, 2023
Gross purchase price
$99,100 
Working capital adjustment
4,266 
Cash transferred to the buyer at closing(2,049)
Direct costs to sell(1,225)
Fair value of sale consideration, net
$100,092 

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The carrying amount of net assets associated with the FRT business was approximately $26.8 million. The major classes of assets and liabilities sold consisted of the following (in thousands):
November 1, 2023
ASSETS
Accounts receivable, net$7,738 
Inventories, net6,446 
Other current assets635 
Total current assets14,819 
Intangibles, net6,897 
Goodwill10,660 
Other assets1,612 
Total assets$33,988 
LIABILITIES
Current liabilities$4,300 
Other liabilities2,856 
Total liabilities$7,156 

As a result of the divestiture, the Company recognized a pre-tax gain of $73.3 million. The Company recorded an income tax liability associated with the divestiture of approximately $6.0 million.

Note 5 Goodwill and Intangible Assets

Goodwill by reportable segment was as follows (in thousands):
Probe CardsSystemsTotal
Goodwill, as of December 31, 2022$178,424 $33,020 $211,444 
Reduction - FRT divestiture (10,660)(10,660)
Foreign currency translation 306 306 
Goodwill, as of December 30, 2023178,424 22,666 201,090 
Reduction - China divestiture(1,055)(62)(1,117)
Foreign currency translation (320)(320)
Goodwill, as of March 30, 2024$177,369 $22,284 $199,653 

We have not recorded goodwill impairments for the three months ended March 30, 2024.

Intangible assets were as follows (in thousands):
March 30, 2024December 30, 2023
Intangible Assets GrossAccumulated
Amortization
NetGrossAccumulated
Amortization
Net
Existing developed technologies $159,341 $148,642 $10,699 $159,593 $148,445 $11,148 
Customer relationships47,945 46,816 1,129 48,022 46,712 1,310 
Trade name7,779 7,710 69 7,808 7,728 80 
In-process research and development400  400 400  400 
$215,465 $203,168 $12,297 $215,823 $202,885 $12,938 

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Amortization expense was included in our Condensed Consolidated Statements of Income as follows (in thousands):
 Three Months Ended
 March 30,
2024
April 1,
2023
Cost of revenues$449 $831 
Selling, general and administrative191 1,547 
$640 $2,378 

The estimated future amortization of definite-lived intangible assets, excluding in-process research and development, is as follows (in thousands):
Fiscal YearAmount
Remainder of 2024$1,921 
20252,330 
20261,630 
20271,630 
20281,630 
Thereafter2,756 
$11,897 

Note 6 Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):
March 30,
2024
December 30,
2023
Accrued compensation and benefits$21,562 $20,073 
Accrued income and other taxes7,412 8,205 
Accrued warranty3,668 3,177 
Employee stock purchase plan contributions withheld1,829 4,263 
Other accrued expenses3,245 5,319 
$37,716 $41,037 

Note 7 — Fair Value and Derivative Instruments

Whenever possible, the fair values of our financial assets and liabilities are determined using quoted market prices of identical securities or quoted market prices of similar securities from active markets. The three levels of inputs that may be used to measure fair value are as follows:
Level 1 valuations are obtained from real-time quotes for transactions in active exchange markets involving identical securities;
Level 2 valuations utilize significant observable inputs, such as quoted prices for similar assets or liabilities, quoted prices near the reporting date in markets that are less active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3 valuations utilize unobservable inputs to the valuation methodology and include our own data about assumptions market participants would use in pricing the asset or liability based on the best information available under the circumstances.

We did not have any transfers of assets or liabilities measured at fair value on a recurring basis to or from Level 1, Level 2 or Level 3 during the three months ended March 30, 2024 or the year ended December 30, 2023.

The carrying values of Cash, Accounts receivable, net, Restricted cash, Prepaid expenses and other current assets, Accounts payable, and Accrued liabilities approximate fair value due to their short maturities.

No changes were made to our valuation techniques during the first three months of fiscal 2024.

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Assets and Liabilities Measured at Fair Value on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis were as follows (in thousands): 
March 30, 2024Level 1Level 2Total
Assets:
Cash equivalents:
Money market funds$116,991 $ $116,991 
U.S. treasuries999  999 
Commercial paper 2,991 2,991 
117,990 2,991 120,981 
Marketable securities:
 U.S. treasuries62,579  62,579 
 U.S. agency securities 11,629 11,629 
 Corporate bonds 75,880 75,880 
 Commercial paper 12,775 12,775 
62,579 100,284 162,863 
Foreign exchange derivative contracts 61 61 
Interest rate swap derivative contract 2,170 2,170 
Total assets$180,569 $105,506 $286,075 
Liabilities:
Foreign exchange derivative contracts$ $(220)$(220)
Total liabilities$ $(220)$(220)

December 30, 2023Level 1Level 2Total
Assets:
Cash equivalents:
Money market funds$110,980 $ $110,980 
U.S. treasuries4,581  4,581 
115,561  115,561 
Marketable securities:
U.S. treasuries45,837  45,837 
U.S. agency securities 10,003 10,003 
Corporate bonds 81,350 81,350 
Commercial paper 13,317 13,317 
45,837 104,670 150,507 
Foreign exchange derivative contracts 284 284 
Interest rate swap derivative contract 1,989 1,989 
Total assets$161,398 $106,943 $268,341 
Liabilities:
Foreign exchange derivative contracts$ $(30)$(30)
Total liabilities$ $(30)$(30)
 
Cash Equivalents
The fair value of our cash equivalents is determined based on quoted market prices for similar or identical securities.

Marketable Securities
We classify our marketable securities as available-for-sale and value them utilizing a market approach. Our investments are priced by pricing vendors who provide observable inputs for their pricing without applying significant judgment. Broker pricing is used mainly when a quoted price is not available, the investment is not priced by our pricing vendors or when a broker price is more reflective of fair value. Our broker-priced investments are categorized as Level 2 investments because fair value is based on similar assets without applying significant judgments. In addition, all investments have a sufficient trading volume to demonstrate that the fair value is appropriate.
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Unrealized gains and losses were immaterial and were recorded as a component of Accumulated other comprehensive loss in our Condensed Consolidated Balance Sheets. We did not have any other-than-temporary unrealized gains or losses at either period end included in these financial statements.

Interest Rate Swap
The fair value of our interest rate swap contract is determined at the end of each reporting period based on valuation models that use interest rate yield curves as inputs. For accounting purposes, our interest rate swap contract qualifies for, and is designated as a cash flow hedge. The hedged risk is the interest rate exposure to changes in interest payments attributable to changes in our variable-rate interest over the interest rate swap term. The changes in cash flows of the interest rate swap are expected to exactly offset changes in cash flows of the variable-rate debt. Cash settlements, in the form of cash payments or cash receipts, are recognized as a component of interest expense. The cash flows associated with the interest rate swaps are reported in Net cash provided by operating activities in our Condensed Consolidated Statements of Cash Flows and the fair value of the interest rate swap contracts are recorded within Prepaid expenses and other current assets and Other assets in our Condensed Consolidated Balance Sheets.

Foreign Exchange Derivative Contracts
We operate and sell our products in various global markets. As a result, we are exposed to changes in foreign currency exchange rates. We utilize foreign currency forward contracts to hedge against future movements in foreign exchange rates that affect certain existing foreign currency denominated assets and liabilities and forecasted foreign currency revenue and expense transactions. Under this program, our strategy is to have increases or decreases in our foreign currency exposures mitigated by gains or losses on the foreign currency forward contracts in order to mitigate the risks and volatility associated with foreign currency transaction gains or losses.

We do not use derivative financial instruments for speculative or trading purposes. For accounting purposes, certain of our foreign currency forward contracts are not designated as hedging instruments and, accordingly, we record the fair value of these contracts as of the end of our reporting period in our Condensed Consolidated Balance Sheets with changes in fair value recorded within Other income, net in our Condensed Consolidated Statement of Income for both realized and unrealized gains and losses. Certain of our foreign currency forward contracts are designated as cash flow hedges, and, accordingly, we record the fair value of these contracts as of the end of our reporting period in our Condensed Consolidated Balance Sheets with changes in fair value recorded as a component of Accumulated other comprehensive loss and reclassified into earnings in the same period in which the hedged transaction affects earnings, and in the same line item on the Condensed Consolidated Statements of Income as the impact of the hedge transaction.

The fair value of our foreign exchange derivative contracts was determined based on current foreign currency exchange rates and forward points. All of our foreign exchange derivative contracts outstanding at March 30, 2024 will mature by the first quarter of fiscal 2025.

The following table provides information about our foreign currency forward contracts outstanding as of March 30, 2024 (in thousands):
CurrencyContract PositionContract Amount
(Local Currency)
Contract Amount
(U.S. Dollars)
Euro DollarBuy26,916 $29,357 
Japanese YenSell2,471,086 16,388 
Korean WonBuy3,168,510 2,357 
Taiwan DollarSell93,654 2,925 

Our foreign currency contracts are classified within Level 2 of the fair value hierarchy as they are valued using pricing models that utilize observable market inputs.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
We measure and report our non-financial assets such as Property, plant and equipment, Goodwill and Intangible assets at fair value on a non-recurring basis if we determine these assets to be impaired or in the period when we make a business acquisition. There were no assets or liabilities measured at fair value on a nonrecurring basis during the three months ended March 30, 2024 or April 1, 2023.

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Note 8 — Warranty
We offer warranties on certain products and record a liability for the estimated future costs associated with warranty claims at the time revenue is recognized. The warranty liability is based upon historical experience and our estimate of the level of future costs. While we engage in product quality programs and processes, our warranty obligation is affected by product failure rates, material usage and service delivery costs. We regularly monitor product returns for warranty and maintain a reserve for the related expenses based upon our historical experience and any specifically identified failures. As we sell new products to our customers, we must exercise considerable judgment in estimating the expected failure rates. This estimating process is based on historical experience of similar products, as well as various other assumptions that we believe to be reasonable under the circumstances. We provide for the estimated cost of product warranties at the time revenue is recognized as a component of Cost of revenues in our Condensed Consolidated Statement of Income.

Changes in our warranty liability were as follows (in thousands):
Three Months Ended
March 30,
2024
April 1,
2023
Balance at beginning of period$3,177 $4,199 
Accruals2,729 1,390 
Settlements(2,238)(1,717)
Balance at end of period$3,668 $3,872 

Note 9 — Property, Plant and Equipment, net

Property, plant and equipment, net consisted of the following (in thousands):
March 30,
2024
December 30,
2023
Land$17,124 $17,124 
Building and building improvements46,375 46,526 
Machinery and equipment 289,291 286,215 
Computer equipment and software46,701 46,866 
Furniture and fixtures 7,513 7,490 
Leasehold improvements 90,913 91,063 
Sub-total 497,917 495,284 
Less: Accumulated depreciation and amortization (361,869)(358,021)
Net, property, plant and equipment 136,048 137,263 
Construction-in-process69,724 67,136 
Total$205,772 $204,399 

Note 10 — Stockholders’ Equity and Stock-Based Compensation

Common Stock Repurchase Programs
On May 20, 2022, our Board of Directors authorized a two-year program to repurchase up to $75.0 million of outstanding common stock to offset potential dilution from issuance of common stock under our stock-based compensation programs. During fiscal 2022 and fiscal 2023, we repurchased and retired 1,700,893 shares of common stock for $56.4 million and 504,352 shares of common stock for $18.6 million, respectively, utilizing the remaining shares available for repurchase under the program.

On October 30, 2023, our Board of Directors authorized an additional two-year program to repurchase up to $75.0 million of outstanding common stock, with the primary purpose of offsetting potential dilution from issuance of common stock under our stock-based compensation programs. This share repurchase program will expire on October 30, 2025. During fiscal 2023 we repurchased and retired 32,020 shares of common stock for $1.2 million. During the three months ended March 30, 2024, we repurchased and retired 411,756 shares of common stock for $17.4 million (including excise tax accrued), and as of March 30, 2024, $56.4 million remained available for future repurchases.

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Our policy related to repurchases of our common stock is to charge the excess of cost over par value to additional paid-in capital once the shares are retired. The net share repurchases are subject to a 1% excise tax under the Inflation Reduction Act. The excise tax incurred reduces the amount available under the repurchase programs, as applicable, and is included in the cost of shares repurchased in the Condensed Consolidated Statement of Stockholders Equity. All repurchases were made in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended.

Restricted Stock Units
Restricted stock unit (“RSU”) activity under our equity incentive plan was as follows:
UnitsWeighted Average Grant Date Fair Value
RSUs at December 30, 20232,165,729 $35.85 
Awards granted16,253 42.26 
Awards vested(122,498)30.65 
Awards forfeited(5,431)33.90 
RSUs at March 30, 20242,054,053 36.16 

Performance Restricted Stock Units
We may grant Performance RSUs (“PRSUs”) to certain executives, which vest based upon us achieving certain market performance criteria. There were no market based PRSUs granted during the three months ended March 30, 2024. PRSUs are included as part of the RSU activity above.

Employee Stock Purchase Plan
Information related to activity under our Employee Stock Purchase Plan (“ESPP”) was as follows:
 Three Months Ended
 March 30, 2024
Shares issued197,014 
Weighted average per share purchase price$25.11 
Weighted average per share discount from the fair value of our common stock on the date of issuance$(13.66)

Stock-Based Compensation
Stock-based compensation was included in our Condensed Consolidated Statements of Income as follows (in thousands):
Three Months Ended
March 30,
2024
April 1,
2023
Cost of revenues$1,928 $1,910 
Research and development2,613 2,372 
Selling, general and administrative5,864 5,008 
Total stock-based compensation$10,405 $9,290 
 
Unrecognized Compensation Costs
At March 30, 2024, the unrecognized stock-based compensation was as follows (dollars in thousands): 
Unrecognized ExpenseAverage Expected
Recognition Period
in Years
Restricted stock units$40,890 1.84
Performance restricted stock units9,170 1.83
Employee stock purchase plan1,055 0.34
Total unrecognized stock-based compensation expense$51,115 1.80

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Note 11 — Net Income per Share

The following table reconciles the shares used in calculating basic net income per share and diluted net income per share (in thousands):
Three Months Ended
March 30,
2024
April 1,
2023
Weighted-average shares used in computing basic net income per share77,452 77,066 
Add potentially dilutive securities1,038 189 
Weighted-average shares used in computing diluted net income per share78,490 77,255 
Securities not included as they would have been antidilutive 1,121 

Note 12 — Commitments and Contingencies

Leases
See Note 13, Leases.

Contractual Obligations and Commitments
Our contractual obligations and commitments have not materially changed as of March 30, 2024 from those disclosed in our Annual Report on Form 10-K for the year ended December 30, 2023.

Legal Matters
From time to time, we are subject to legal proceedings and claims in the ordinary course of business, the outcomes of which cannot be estimated with certainty. Our ability to estimate the outcomes may change in the near term and the effect of any such change could have a material adverse effect on our financial position, results of operations or cash flows.

Note 13 — Leases

We lease real estate space under non-cancelable operating lease agreements for commercial and industrial space, as well as for a portion of our corporate headquarters located in Livermore, California. Our leases have remaining terms of 1 to 11 years, and some leases include options to extend up to 20 years. We also have operating leases for automobiles with remaining lease terms of 1 to 3 years. We did not include any of our renewal options in our lease terms for calculating our lease liability as the renewal options allow us to maintain operational flexibility and we are not reasonably certain we will exercise these options at this time. The weighted-average remaining lease term for our operating leases was 4 years as of March 30, 2024 and the weighted-average discount rate was 4.64%.

The components of lease expense were as follows (in thousands):
Three Months Ended
March 30,
2024
April 1,
2023
Lease expense:
Operating lease expense$2,130 $1,952 
Short-term lease expense60 157 
Variable lease expense810 746 
$3,000 $2,855 


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Future minimum payments under our non-cancelable operating leases were as follows as of March 30, 2024 (in thousands):
Fiscal YearAmount
Remainder of 2024$9,037 
20259,084 
20267,651 
20277,222 
20283,903 
Thereafter1,401 
  Total minimum lease payments38,298 
Less: interest(6,621)
  Present value of net minimum lease payments31,677 
Less: current portion(8,245)
  Total long-term operating lease liabilities$23,432 

Note 14 — Revenue

Transaction price allocated to the remaining performance obligations: On March 30, 2024, we had $11.3 million of remaining performance obligations, which were comprised of deferred service contracts, extended warranty contracts, and contracts with overtime revenue recognition that are not yet delivered. We expect to recognize approximately 73.3% of our remaining performance obligations as revenue in the remainder of fiscal 2024, approximately 21.9% in fiscal 2025, and approximately 4.8% in fiscal 2026 and thereafter. The foregoing excludes the value of other remaining performance obligations as they have original durations of one year or less, and also excludes information about variable consideration allocated entirely to a wholly unsatisfied performance obligation.

Contract balances: The timing of revenue recognition may differ from the timing of invoicing to customers. Accounts receivable is recorded at the invoiced amount, net of an allowance for credit losses. A receivable is recognized in the period we deliver goods or provide services or when our right to consideration is unconditional. A contract asset is recorded when we have performed under the contract but our right to consideration is conditional on something other than the passage of time. Contract assets as of March 30, 2024 and December 30, 2023 were $5.3 million and $3.8 million, respectively, and are reported on the Condensed Consolidated Balance Sheets as a component of Prepaid expenses and other current assets.

Contract liabilities include payments received and payments due in advance of performance under a contract and are satisfied as the associated revenue is recognized. Contract liabilities are reported on the Condensed Consolidated Balance Sheets at the end of each reporting period as a component of Deferred revenue and Other liabilities. Contract liabilities as of March 30, 2024 and December 30, 2023 were $18.7 million and $18.0 million, respectively. During the three months ended March 30, 2024, we recognized $6.5 million of revenue that was included in contract liabilities as of December 30, 2023.

Costs to obtain a contract: We generally expense sales commissions when incurred as a component of Selling, general and administrative expense, as the amortization period is typically less than one year.

Revenue by category: Refer to Note 15, Operating Segments and Enterprise-Wide Information, for further details.

Note 15 — Operating Segments and Enterprise-Wide Information

Our CODM is our Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire company. We operate in two reportable segments consisting of the Probe Cards segment and the Systems segment. The following table summarizes the operating results by reportable segment (dollars in thousands):
Three Months Ended
March 30, 2024April 1, 2023
Probe CardsSystemsCorporate and OtherTotalProbe CardsSystemsCorporate and OtherTotal
Revenues$136,701 $32,024 $ $168,725 $127,328 $40,120 $ $167,448 
Gross profit 50,791 14,506 (2,559)62,738 43,623 20,746 (3,291)61,078 
Gross margin37.2 %45.3 %37.2 %34.3 %51.7 %36.5 %

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Operating results provide useful information to our management for assessment of our performance and results of operations. Certain components of our operating results are utilized to determine compensation along with other measures.

Corporate and Other includes unallocated expenses relating to amortization of intangible assets, inventory and fixed asset fair value adjustments due to acquisitions, share-based compensation, and restructuring charges which are not used in evaluating the results of, or in allocating resources to, our reportable segments.

Certain revenue category information by reportable segment was as follows (in thousands):
Three Months Ended
March 30, 2024April 1, 2023
Probe CardsSystemsTotalProbe CardsSystemsTotal
Market:
Foundry & Logic$86,768 $ $86,768 $101,562 $ $101,562 
DRAM45,896  45,896 19,890  19,890 
Flash4,037  4,037 5,876  5,876 
Systems 32,024 32,024  40,120 40,120 
Total$136,701 $32,024 $168,725 $127,328 $40,120 $167,448 
Timing of revenue recognition:
Products transferred at a point in time$135,641 $28,784 $164,425 $126,678 $36,710 $163,388 
Products and services transferred over time1,060 3,240 4,300 650 3,410 4,060 
Total$136,701 $32,024 $168,725 $127,328 $40,120 $167,448 
Geographical region:
South Korea$50,672 $45 $50,717 $19,572 $1,203 $20,775 
United States35,596 10,170 45,766 24,641 13,090 37,731 
Taiwan27,179 2,698 29,877 38,897 1,432 40,329 
China8,686 6,927 15,613 18,476 8,623 27,099 
Europe3,528 5,321 8,849 3,426 6,000 9,426 
Japan4,347 4,195 8,542 7,136 3,841 10,977 
Singapore3,516 1,242 4,758 3,200 2,140 5,340 
Malaysia1,608 255 1,863 10,324 946 11,270 
Rest of the world1,569 1,171 2,740 1,656 2,845 4,501 
Total$136,701 $32,024 $168,725 $127,328 $40,120 $167,448 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Cautionary Statement Regarding Forward-Looking Statements
 
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Securities Exchange Act of 1934 and the Securities Act of 1933, which are subject to risks and uncertainties. The forward-looking statements include statements concerning, among other things, our business strategy, financial and operating results, gross margins, liquidity and capital expenditure requirements and impact of accounting standards. In some cases, you can identify these statements by forward-looking words, such as “may,” “might,” “will,” “could,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend” and “continue,” the negative or plural of these words and other comparable terminology.

The forward-looking statements are only predictions based on our current expectations and our projections about future events. All forward-looking statements included in this Quarterly Report on Form 10-Q are based upon information available to us as of the filing date of this Quarterly Report on Form 10-Q. You should not place undue reliance on these forward-looking statements. We have no obligation to update any of these statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from those expressed or implied by these statements, including risks related to general market trends, the benefits of acquisitions and investments, our supply chain, uncertainties related to global, regional or national public health-related crises and the impact of our responses to them, the interpretation and impacts of changes in export controls and other trade barriers, military conflicts, political volatility and similar factors, our ability to execute our business strategy and other risks discussed in the section titled “Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended
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December 30, 2023 and in this Quarterly Report on Form 10-Q. You should carefully consider the numerous risks and uncertainties described under these sections.
 
The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the accompanying notes contained in this Quarterly Report on Form 10-Q. Unless expressly stated or the context otherwise requires, the terms “we,” “our,” “us” and “FormFactor” refer to FormFactor, Inc. and its subsidiaries.

Overview

FormFactor, Inc., headquartered in Livermore, California, is a leading provider of essential test and measurement technologies along the full semiconductor product lifecycle — from characterization, modeling, reliability, and design de-bug, to qualification and production test. We provide a broad range of high-performance probe cards, analytical probes, probe stations, thermal systems, and cryogenic systems to both semiconductor companies and scientific institutions. Our products provide electrical information from a variety of semiconductor and electro-optical devices and integrated circuits from early research, through development, to high-volume production. Customers use our products and services to accelerate profitability by optimizing device performance and advancing yield knowledge.

We operate in two reportable segments consisting of the Probe Cards segment and the Systems segment. Sales of our probe cards and analytical probes are included in the Probe Cards segment, while sales of our probe stations, thermal systems and cryogenic systems are included in the Systems segment.

We generated net income of $21.8 million in the first three months of fiscal 2024 as compared to $1.3 million in the first three months of fiscal 2023. On February 26, 2024, we completed the sale of our China operations and established an exclusive distribution and partnership agreement to continue sales and support of our products in the region (the “China Transaction”). As a result of the China Transaction, we received estimated net consideration of $21.1 million and the China Transaction resulted in an estimated gain of $20.0 million, subject to customary adjustments for changes in net working capital and similar items.

The increase in net income in the first three months of fiscal 2024 compared to the first three months of fiscal 2023 was primarily due to the $20.0 million estimated gain recognized from the China Transaction. Apart from this gain, the semiconductor industry weakness that began in the third quarter of fiscal 2022 continued into fiscal 2024, impacting most markets within our Probe Cards segment. Furthermore, due to the sale of our FRT Metrology business in the fourth quarter of fiscal 2023, our Systems segment revenues were impacted due to the decreased metrology system sales.

Critical Accounting Estimates

Management’s Discussion and Analysis and Note 2, Summary of Significant Accounting Policies, to the Consolidated Financial Statements in our 2023 Annual Report on Form 10-K describe the significant accounting estimates and significant accounting policies used in preparation of the Consolidated Financial Statements. Actual results in these areas could differ from management’s estimates. During the three months ended March 30, 2024, there were no significant changes in our significant accounting policies or estimates from those reported in our Annual Report on Form 10-K for the year ended December 30, 2023.

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Results of Operations
 
The following table sets forth our operating results as a percentage of revenues for the periods indicated:
 Three Months Ended
 March 30,
2024
April 1,
2023
Revenues100.0 %100.0 %
Cost of revenues62.8 63.5 
Gross profit37.2 36.5 
Operating expenses:  
Research and development17.0 16.9 
Selling, general and administrative19.6 19.5 
Total operating expenses36.6 36.4 
Gain on sale of business12.0 — 
Operating income12.6 0.1 
Interest income, net1.9 0.7 
Other income, net0.3 — 
Income before income taxes14.8 0.8 
Provision for income taxes1.9 — 
Net income12.9 %0.8 %

Revenues by Segment and Market
 Three Months Ended
 March 30,
2024
April 1,
2023
 (In thousands)
Probe Cards$136,701 $127,328 
Systems(1)
32,024 40,120 
$168,725 $167,448 
(1) During the fourth quarter of fiscal 2023, we completed the sale of our FRT Metrology business. As a result, metrology systems revenue will not recur in future periods. We generated no metrology systems revenue during the three months ended March 30, 2024, compared to $4.1 million during the three months ended April 1, 2023.

Three Months Ended
March 30,
2024
% of RevenuesApril 1,
2023
% of Revenues$ Change% Change
(Dollars in thousands)
Probe Cards Markets:
Foundry & Logic$86,768 51.4 %$101,562 60.6 %$(14,794)(14.6)%
DRAM45,896 27.2 19,890 11.9 26,006 130.7 
Flash4,037 2.4 5,876 3.5 (1,839)(31.3)
Systems Market:
Systems(1)
32,024 19.0 40,120 24.0 (8,096)(20.2)
Total revenues$168,725 100.0 %$167,448 100.0 %$1,277 0.8 %
(1) During the fourth quarter of fiscal 2023, we completed the sale of our FRT Metrology business. As a result, metrology systems revenue will not recur in future periods. We generated no metrology systems revenue during the three months ended March 30, 2024, compared to $4.1 million during the three months ended April 1, 2023.

Foundry & Logic The decrease in Foundry & Logic product revenue for the three months ended March 30, 2024, compared to the three months ended April 1, 2023, was driven by continued weakness in demand in the semiconductor industry,
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especially in the personal computer and mobile sectors, that has resulted in decreased unit sales across the majority of our major customers.

DRAM The increase in DRAM product revenue for the three months ended March 30, 2024, compared to the three months ended April 1, 2023, was driven by increased demand for high bandwidth memory (“HBM”) chips utilized in generative artificial intelligence applications.

Flash The decrease in Flash product revenue for the three months ended March 30, 2024, compared to the three months ended April 1, 2023, was driven by lower customer production activity and demand for our products.

Systems The decrease in Systems market revenue for the three months ended March 30, 2024, compared to the three months ended April 1, 2023, was driven primarily by the absence of sales of our metrology systems from our FRT Metrology business, which was sold in the fourth quarter of fiscal 2023, and decreased sales of cryogenic systems. The decrease in Systems revenue from sources not associated with metrology systems was $4.0 million, or 11.0%, for the three months ended March 30, 2024, driven primarily by timing of demand for our cryogenic systems.
Revenues by Geographic Region
Three Months Ended
March 30,
2024
% of RevenuesApril 1,
2023
% of Revenues
 (Dollars in thousands)
South Korea$50,717 30.1 %