FormFactor, Inc.

Thank you, and welcome, everyone, to Form Factor's third quarter 2021 earnings conference call. On today's call are Chief Executive Officer Mike Slessor and Chief Financial Officer Shai Shahar. Before we begin, Jason Cohen, the company's general counsel, will remind you of some important information. Thank you.

Today, the company will be discussing GAAP P&L results and some important non-GAAP results intended to supplement your understanding of the company's financials. Reconciliations of GAAP to non-GAAP measures and other financial information are available in the press release issued today by the company and on the investor relations section of our website. Today's discussion contains forward-looking statements within the meaning of the federal securities laws. Examples of such forward-looking statements include those with respect to the projections of financial and business performance, future macroeconomic conditions, the benefits of acquisitions and investments in capacity and new technologies, the impacts of the COVID-19 pandemic, our supply chain, the impacts of regulatory changes, the anticipated demand for products, our ability to develop, produce, and sell products, and the assumptions upon which such statements are based. These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed during this call. Information on risk factors and uncertainties is contained in our most recent filing on Form 10-K with the SEC for the fiscal year ended 2020 and in our other SEC filings, which are available on the SEC's website at www.sec.gov and in our press release issued today. Forward-looking statements are made as of today, October 27, 2021, and we assume no obligation to update them. With that, we will now turn the call over to FormFactor's CEO, Mike Slessor.

Thanks, Jason, and thank you, everyone, for joining us today. FormFactor delivered solid results in the third quarter, again recording the second highest revenue in company history, with gross margins at the high end of our outlook range. Together with sustained operating expense control, these factors resulted in non-GAAP earnings per share above the high end of our outlook range. We continue to benefit from strong demand from FormFactor's diversified set of market-leading semiconductor tested measurement products, and with our added production capacity now coming online, we're well positioned in the current quarter to deliver sequential growth. Like many companies in the semiconductor industry, we're facing a variety of supply chain and labor challenges. Our long-term investments in automation and vertical integration have helped reduce the effect of these headwinds, and we've thus far successfully navigated these issues with minimal impact. We do expect this situation to persist into next year, and our team remains focused on actively resolving these challenges. Minimizing impact for supply chain is especially important as our capacity investments start coming online. Tool installations and qualifications are now underway in our new Livermore Manufacturing Center, which remains on track to deliver initial customer shipments in the current quarter. We're excited to be on the cusp of commissioning this new flagship facility, which will remove a growth constraint we've operated under for almost two years. helping us to reach the $850 million revenue of our target financial model. I'd like to provide some detail behind our sequential improvement in gross margins, as it provides insight into the importance of the design-specific product mix within each of our served markets. As you can see from the supplemental materials posted on our website, and as Shai will review later, third quarter revenue by segment and market was very similar to the second quarter. yet we delivered 160 basis point improvements in gross margins. The largest single factor in this improvement was a more favorable product mix within specific markets. As we've noted in the past, probe cards are consumable specific to each customer chip design, and the custom nature of each probe card design drives a different manufacturing cost and selling price. For example, two DRAM probe cards configured to test two different customer chip designs can produce significantly different gross margins because of the details of the probe card and tester configuration like the difference between a one touchdown configuration versus a two touchdown configuration. Consequently, two quarters with similar revenues in each segment and market can and often do result in substantially different gross margins depending on the specific probe card shift to produce that revenue. This variability is inherent to FormFactor's broadly diversified design-specific consumables business. And since we serve major applications at all the leading customers in the semiconductor industry, delivering probe cards to test hundreds of different chip designs each month, we expect to continue to see quarterly fluctuations of gross margin around the long-term trend line, expanding to the 47% of our target financial model. Turning now to segment and market-level details. Foundry and Logic probe cards, our largest business, performed at levels in the third quarter comparable to the second quarter, with an expected seasonal reduction in mobile application processor demand, offset by an increase in microprocessor demand, and sustained strong growth in 5GRF applications. With 2021's large Foundry and Logic wafer fab equipment investments now coming online at our customers, we're experiencing increasing demand for leading-edge Foundry and Logic probe cards, Along with their capacity additions, our customers are adding innovative advanced packaging architectures like EMIB, Foveros, and 3D Fabric to their roadmaps to help offset the slowing of front-end-driven Moore's Law. As we've discussed in the past, these chiplet or tile-based integration schemes drive both higher test intensity, which expands the number of probe cards required per wafer out, and test complexity, which widens form factor's competitive advantage. With lead times of less than a quarter, short-term visibility remains challenging as always, but the combination of significant customer capacity increases paired with their adoption of advanced packaging creates long-term demand for form factors probe card products. Demand for DRAM probe cards in the third quarter sustained near the high levels of the second quarter, and we expect comparable strength in the current quarter. As in Foundry and Logic, we experienced demand shifts between different customers and different chip designs across multiple DDR4 and DDR5 designs in both mobile and PC server applications. FormFactor's ability to absorb these short-term fluctuations in demand from any one customer is the result of our long-term initiative to be a diversified market leader supplying all major DRAM manufacturers and remains a key tenant of our operational strategy in all of our served markets. Our engineering systems business also delivered good results in the third quarter, with gross margins at 50% for the first time since early 2020. A highlight of the quarter was the shipment and installation of multiple FRT high-performance, multi-sensor, 300-millimeter optical metrology tools to a single foundry customer for advanced packaging applications. Advanced packaging is a key driver for all of Ford's business, as our customers begin to adopt chiplet-style integration strategies, to generate new test and measurement requirements. The FRT tool's ability to quickly, accurately, and non-destructively measure and control critical dimensions, film thicknesses, and surface topologies on chiplet-to-chiplet interfaces is key to improving and maintaining advanced packaging assembly yields. Let me close by noting that with an accelerating demand outlook, Increased capacity to meet that demand and good execution on both short- and long-term gross margin improvements were well on the path to the target financial model we unveiled last year that delivers $2 of non-GAAP earnings per share on $850 million of revenue. Test and measurement is clearly gaining importance in the semiconductor industry, driven by powerful trends including 5G, advanced packaging, and memory content growth. Our leadership position in these attractive markets, paired with our differentiated strategy and disciplined execution, will drive continued growth and share gains as we progress towards our target model. Shai, over to you.