FormFactor, Inc.

thank you and welcome everyone to form factors second quarter 2022 earnings conference call on today's call our chief executive officer mike slesser and chief financial officer shai shahar before we begin stan finkelstein the company's vice president of investor relations will remind you of some important information thank you today is a company

We'll 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 and geopolitical 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 physical year ended 2021 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, July 27, 2022, and we assume no obligation to update them. With that, we will now turn the call over to FormFactor's CEO, Mike Schleser.

Thanks, everyone, for joining us today. FormFactor again posted strong results in the second quarter, delivering the second highest quarterly revenue in company history and again exceeding the non-GAAP gross margin of our target financial model. Together with good operating expense control in the current inflationary environment, This produced earnings per share at the high end of our outlook range. The second quarter financial results and overall themes were similar to the first quarters as major customers continued to release and ramp new designs to meet demand for their products, driving strong results in our probe card business in both Foundry and Logic and DRAM. Customers also invested in their technology roadmaps with development of innovations like gate all-around transistors, advanced packaging, silicon photonics, and quantum computing, driving solid results in our systems business. During the second quarter, we made a small but important acquisition to augment our capabilities as a key supplier in the emerging quantum computing market, buying the dilution refrigerator product line of JanusULT. Dilution refrigerators are a key enabler for the operation of quantum computers, being capable of tooling qubits to the ultra-low sub-10 millikelvin temperatures required for operation of superconducting quantum computers. This acquisition makes FormFactor the largest commercial dilution refrigerator supplier in the United States, strengthening and expanding our position with key customers as the leading supplier of not just test and measurement products, but also now enabling infrastructure for quantum computing. Turning now to our third quarter outlook. Our sequentially weaker outlook is due primarily to reduced demand for Foundry and Logic probe cards from several major customers in both mobile and compute applications. As these customers adapt to the changing conditions in their end markets, driven by global macroeconomic uncertainty and inflation, They're changing their short-term wafer start and design release roadmaps by delaying selected new design releases, and in some cases reducing their volume RAM plans for specific chip designs already in production. As a reminder, probe cards are a consumable specific to each new chip design, and so changes to production volumes of individual chip designs also change the number of probe cards required to manufacture that specific design. As Shai will discuss in detail, this reduction in anticipated founder and logic demand results in a significant reduction in forecasted third quarter gross margins and earnings. We view this reduction in founder and logic probe card demand as a short-term response by our customers to changing conditions in their end markets and not a structural change in our business. Lead times for probe cards remain less than a quarter, and although the past several years have been characterized by universally robust and growing demand across all probe card segments and end markets, changes like this are not uncommon in times of rapidly changing industry conditions as customers adapt their production plans to match short-term fluctuations in their product-specific demand profile. We continue to view Foundry and Logic as an exciting long-term growth driver for FormFactor. Customers are investing in both leading-edge capacity, as evident from continued wafer fab equipment spending, and early-stage innovative advanced packaging architectures like EMIB, Foveros, and 3D Fabric. As we've noted 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 raises the performance requirements for the probe card. Advanced probe card architectures like FormFactor's MEMS technology are essential to meet these challenging technical requirements at a compelling cost of ownership, with a short delivery lead time needed to support our customers' rapid and dynamic production ramps. For these reasons, despite the anticipated third quarter pause in the steady and gradual progress we've made towards our target financial model, we're continuing our planned capital investments and remain committed to our target financial model and the strategy that underpins it. The main tenet of this strategy is our expanding position as a diversified supplier to the broader semiconductor and electronics industry, with defensible leadership positions serving multiple consumables and equipment market segments. Over the past few years, while each of these segments has delivered robust demand and growth, We've been consistent in our beliefs that our markets are cyclical, with each market unlikely to deliver robust growth every quarter. Operating in multiple segments with a diversified set of demand drivers allows us to better amortize our fixed cost structure, including manufacturing overhead, facilities, and global customer support infrastructure. The segment span also provides the broadest set of technology and manufacturing capabilities in our served markets, offering significant value to our customers and competitive advantage for form factor. Our third quarter outlook offers a proof point to the value of serving multiple market segments, as we anticipate that the expected reduction in founder and logic demand will be partially offset by growth in the system segment, with steady demand for DRAM and flash probe cards. We remain committed to gross margin improvement in all of our product lines, so that this diversification strategy is fully effective in mitigating the impact of these product mix shifts on both revenue and profitability. I'd like to close by affirming that we remain confident in the long-term growth prospects for the industry overall, driven by the fundamental trends of semiconductor content growth and advanced packaging. These are trends where FormFactor is well positioned as an industry and technology leader, And we're confident that our resilience and agility will drive continued growth and share gains as form factor progresses towards our target model that delivers $2 of non-GAAP earnings per share on $850 million of revenue and beyond. Shai, over to you.