FormFactor, Inc.

Thank you, and welcome everyone to FormFactor's fourth quarter 2022 earnings conference call. On today's call, our Chief Executive Officer, Mike Flesher, 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 gap panel results and some important non-gap results. intended to supplement your understanding of the company's financials. The considerations 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 Security Source. Examples of such forward-looking statements includes 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 the new technologies, the impact of global regional and national health crisis, including the COVID-19 pandemic, anticipated industry trends, potential disruptions in our supply chain, the impacts of regulatory changes, including the recent U.S.-China trade restrictions, 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 risk 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 end of 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, February 8th, 2023, 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. As anticipated, FormFactor's fourth quarter revenue and profitability were down sequentially from the third quarter. That said... revenue exceeded the outlook range and non-GAAP earnings per share were above the midpoint. Gross margin was below the midpoint due to larger than expected end of year excess and obsolete inventory charges. The revenue upside compared to our October outlook was primarily driven by our ability to ship products to certain domestic China customers in compliance with new export controls, which also drove stronger than expected DRAM probe guard and systems revenues in the quarter. As we start the first quarter of 2023, we're experiencing similar overall demand to the fourth quarter, with moderately stronger demand for Foundry and Logic probe cards offset by weaker demand for both DRAM and flash memory probe cards. At the same time, our systems business continues to run at record levels. We expect a significant increase in profitability in the first quarter on revenue levels similar to the fourth quarter from gross margin improvement driven by two factors. First, the full quarter benefit of our October restructuring, and second, the return to typical excess and obsolete inventory costs. With probe card lead times typically less than a quarter, our visibility remains very limited, but we are encouraged by the first quarter stabilization of demand for our products as customers invest in innovations like new chip designs and advanced packaging. These customer investments are producing steady demand, even in the face of industry-wide weakness in high unit volume end markets, like mobile handsets and client PCs, along with export restrictions in serving domestic China semiconductor customers. As we are a U.S.-based supplier, with significant exposure to the leading-edge foundry and memory technologies in customers affected by recent U.S.-China export controls, These regulations are a headwind in all of our businesses. FormFactor continues to take all necessary steps to ensure full compliance with the new rules by holding shipments and support as required. As additional information has emerged regarding the scope of these regulations, our local China team has worked closely with customers and our trade compliance team to enable permitted shipments to certain customers. I'd like to recognize this team for their outstanding work, which enabled us to ship more than we initially expected to domestic China customers in the fourth quarter. We expect to continue this level of domestic China shipment activity in the first quarter. Overall, we believe this US-China trade headwind will persist over time, as we do not anticipate any relaxation of advanced semiconductor export controls. This, of course, provides a strong incentive for domestic China customers to onshore their supply base and de-emphasize foreign suppliers like FormFactor to ensure their business continuity. Even as we navigate through this trade issue and the industry's current cyclical weakness, we believe the core tenets of FormFactor's strategy remain firmly in place. These core strategic tenets are first, sustained long-term semiconductor content growth, in both consumer and enterprise applications. Second, the industry's relentless investments in new technology and capacity. And third, the device-specific consumable nature of advanced probe cards, which when combined with our customers' innovation-driven investments in engineering systems, have historically resulted in less volatile demand cycles than wafer fabrication equipment. Consequently, we remain committed to achieving our target financial model and continue to invest in both R&D for new product innovation and competitive differentiation, as well as in the long lead time facilities and equipment portions of our capacity increase plans. These investments are designed to produce market share gains and above industry revenue and profit growth when we emerge from the current cyclical downturn, positioning form factor to achieve and even surpass the levels of our current target financial model. Turning now to segment-level details, in Founder and Logic Probe Guards, our largest business, we see moderate strengthening in the first quarter, driven primarily by pilot production ramps for new mobile application processor designs, together with stronger demand in our microprocessor business. Although customers are still burning off the excess inventory of processors, modems, and RF chips in the channel, they're also investing in early production of innovative new chip designs that will ramp in volume once this inventory is consumed. This provides insight into the unique characteristics of probe card demand. Since probe cards are a device-specific consumable that is specific to each individual customer chip design, This early production activity for these new chip designs is driving demand for new probe cards, albeit at lower overall levels than we'd expect to see in a cyclical upturn. As an example, we continue to ship probe cards to support pilot production of a major chiplet-based client CPU product, despite the well-documented weakness in end-market client PC demand, because customers continue to innovate to differentiate their future product roadmaps. As we noted in the past, chiplet-based advanced packaging processes like Foveros and 3D Fabric are an exciting opportunity for form factor. These integration schemes drive both tire test intensity, which expands the number of probe cards required per wafer out, and higher test complexity, which raises the performance requirements for the probe card. Advanced probe card architectures like form factors MEMS technology are essential to meet these challenging technical requirements at a compelling cost of ownership, while also meeting the short delivery lead times needed to support our customers' rapid and dynamic production ramps. Turning to memory probe cards, we expect first quarter sequential weakness in both DRAM and flash probe card demands. driven by extremely weakened market conditions for both DRAM and flash chips that are causing our customers to reduce the magnitude and speed of their new product RAMs. Despite this memory and market softness, each of our customers continues to release and validate new chip designs, like high-density DDR5 DRAM, to drive their roadmap forward. As in Foundry and Logic, this new design activity is driving demand for new probe cards specific to each one of these new memory chip designs, but at low levels aligned with the reduced output levels announced by each of our major memory customers. In the systems business, we expect the first quarter to sustain the strong momentum which produced record revenue in both the third and fourth quarters of 2022. This strength partially offsets some of the downturn-driven softness in the production probe card business, highlighting the financial benefits of our lab-to-fab diversification strategy. The strategic benefits of the systems business are also significant, as we partner with leading customers in their R&D labs to advance the industry state-of-the-art with innovations like gate-all-around transistors, advanced packaging, silicon photonics, and quantum computing. We're also working with key customers on advancing high-power applications like silicon carbide and gallium nitride as the semiconductor industry enables the widespread electrification of the automotive industry. Finally, Ray Link, one of our directors, has notified us that he will not stand for re-election at this year's annual meeting of stockholders. Ray has been a valuable member of our board. and has provided many useful insights both to me personally and to our management team. I'd like to thank Ray for his nearly seven years of service to form factor and wish him well in all his future endeavors. I'd like to close by reiterating that in the short term, we're encouraged by the stabilization of demand for our products in the first quarter. In the longer term, we remain confident in the growth prospects for form factor in the industry overall. driven by the fundamental trends of semiconductor content growth and innovations like advanced packaging. These are trends where FormFactor is well positioned as an industry and technology leader, and we're confident that our resilience and commitment to invest in R&D and capacity will position FormFactor to emerge from the current downturn a stronger and leaner competitor, enabling us to achieve our target model that delivers $2 of non-GAAP earnings per share on $850 million of revenue. Shai, over to you.