FormFactor, Inc.

Thank you and welcome everyone to FormFactor's fourth quarter 2021 earnings conference call. On today's call are Chief Executive Officer Mike Slessor and Chief Financial Officer Shai Shahar. Before we begin, Stan Fickelstein, the company's VP of Investor Relations, will remind you of some important information.

Thank you. Today the company will be discussing their 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 in the investor relations section of our website. Today's discussion contains forward-looking statements within the meanings 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 in new technologies, the impacts of the COVID-19 pandemic, anticipated industry trends, the disruption in 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 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, February 2nd, 2022, and we assume no obligation to update them. With that, we will now turn the call over to FormFactor's CEO, Mike Schleser. Mike?

Thanks, everybody, for joining us today. FormFactor posted record results in the fourth quarter, delivering revenue of over $200 million for the first time in company history with non-gap earnings per share at the high end of our outlook range. This caps a record 2021 that produced over three-quarters of a billion dollars in revenues and over $150 million of non-GAAP operating income. And I'd like to take this opportunity to thank the worldwide form factor team for their perseverance and dedication to produce these outstanding results. As we start 2022 in the year of the tiger, we continue to benefit from solid demand across all our served markets in probe cards and engineering systems, and we're excited about the important role we're playing in enabling innovation and growth in the semiconductor industry. In addition to our record financial results, we were recently recognized by Newsweek for our ESG leadership as one of America's most responsible companies. In addition to an environmental and social focus, FormFactor's overall ranking was supported by a high score in corporate governance. Driving FormFactor's ESG performance to a world-class level has become a major focus for our leadership team and board of directors in recent years. and we're very proud to have been recognized for these efforts. Like many manufacturing companies, we continue to face a variety of supply chain and labor challenges. Our long-term investments in automation and vertical integration have helped us mitigate the effect disease had on us, enabling us to deliver strong results throughout 2021. However, the recent spread of the Omicron variant has caused labor shortages in our U.S. factories in the early weeks of 2022, and is partially responsible for the sequential reduction in revenues in our first quarter outlook. We are also experiencing extended lead times for some of our products, primarily in the system segment, caused by delayed deliveries for specific subcomponents and subsystems from certain suppliers. Our team remains focused on actively managing and resolving these challenges, both by working closely with our current suppliers and rapidly qualifying and ramping new suppliers. Minimizing impacts to our supply chain and labor availability is especially important in view of our capital investments to meet growing customer demand. As we previewed in our October earnings call, we began customer shipments from our new Livermore Manufacturing Center in the fourth quarter, and these shipments contributed to our record quarterly revenue. We are gradually increasing capacity in Livermore to meet customer demand by adding both tools and labor. We're also expanding other facilities across our global manufacturing network, which will create the capacity to meet and then exceed the $850 million revenue of our current target financial model. Turning now to segment and market level details, Calendar and Logic Probe Cards, our largest business, was responsible for most of the sequential growth in the fourth quarter, tracking to a seasonal pattern that has been in place the past few years. Consistent with that seasonality, we expect to see a slight decrease in overall first quarter foundry and logic revenues, with a reduction in RF probe cards partially offset by strong foundry demand. This foundry shrink provides some real-time insight into the differences between the demand drivers for consumables, like probe cards, and for capital equipment, like automated test equipment. As we often note, probe cards are a consumable specific to each new chip design, and so we benefit from both node transitions and the release of new designs on existing nodes. In the first quarter, our foundry business is being driven by this second component, the release of new designs on existing nodes, as we enable reuse of our customers' installed base of testers to test new chip designs, primarily in high-performance compute applications. Our expectation for continued long-term growth in the Foundry and Logic probe card market is one of the primary drivers of our ongoing capacity expansions. Customers are investing in both leading-edge capacity, as evident from record levels of wafer fab equipment spending, and early-stage innovative advanced packaging architectures like EMIB, Foveros, and 3D Fabric 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 route, and test complexity, which widens form factor's competitive advantage. Together, both these dynamics create tailwinds for long-term foundry and logic probe card demand. Turning to DRAM, Demand for DRAM probe cards in the fourth quarter sustained near the high levels of the second and third quarters as customers continued to release and ramp multiple new designs in volume. We do expect a moderate sequential decrease in DRAM revenues in the first quarter after several quarters at these near record levels. New design activity with each of the major DRAM manufacturers continues to be strong with our diverse mix of new DDR4 and DDR5 designs in both mobile and PC server applications. And we expect this new design activity will continue to sustain healthy demand from each of our customers. FormFactor's ability to absorb these short-term fluctuations in demand from each of our customers, serve markets, and specific applications within these markets is a result of our long-term initiative to be a diversified market leader supplying all major semiconductor markets and manufacturers. and it remains a key tenet of our operational strategy. Our engineering systems business also delivered record results in the fourth quarter with revenue of nearly $40 million, and we continue to experience sustained demand in the first quarter. This demand is driven primarily by the adoption of FRT optical metrology tools in advanced packaging applications. along with continued customer investment in engineering probers to enable industry innovation in new CMOS architectures like gate all around and optical applications like silicon photonics. In addition, we recently launched an exciting new program to offer HPD state-of-the-art cryogenic test tools and capabilities as a service, enabling quantum computing developers to rapidly and cost-effectively characterize their qubits and resonators. Using form factors cryostats with innovative probe sockets adapted from our market-leading probe card business, customers can utilize this service to dramatically accelerate development cycles with no upfront capital investment. Let me close by noting that with a solid demand outlook and increased capacity to meet that demand, we are well along the path to achieve the target financial model that delivers $2 of non-GAAP earnings per share on $850 million of revenues. Our leadership position in our attractive served markets paired with our differentiated strategy and disciplined execution will drive continued growth and share gains as we progress towards our target model and beyond. Chai, over to you.