FormFactor, Inc.

Thank you, and welcome, everyone, to FormFactors' first quarter 2023 earnings conference call. On today's call are Chief Executive Officer Mike Slessor and Chief Financial Officer Shai Shahar. Before we begin, Stan Finkelstein, the company's VP of Investor Relations, 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 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 in new technologies, the impacts of global, regional, and national health crisis, including the COVID-19 pandemic, anticipated industry trends, potential disruptions to our supply chain, the impacts of regulatory changes, including the recent US-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 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 end of 2022 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, May 3, 2023, and we assume no obligations to update them. With that, we will now turn the call over to FormFactor CEO, Mike Schlepper.

Thanks, everyone, for joining us today. FormFactor's first quarter revenue was comparable to the fourth quarter's, exceeding our outlook range due to shipments pulled in from the second quarter. We also generated significant sequential improvement in gross margin and profitability, achieving results at the top end of their ranges. In the second quarter, we anticipate similar results, as we executed against the demand environment that remains relatively stable at diminished levels. While this cyclical downturn continues, we're carefully balancing short-term results and long-term investments with discipline cost control to preserve quarterly profitability and protect our strong balance sheet. We continue to invest in R&D for new product innovation and competitive differentiation, as well as in the long lead time facilities and equipment components 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 trough, positioning form factor to achieve and then surpass the levels of our current target financial model. Turning now to segment level details, In our largest business, Foundry and Logic Probe Cards, revenue increased significantly in the first quarter as we benefited from multiple technology-driven wins at major Foundry and IDM customers. We expect some moderation in Foundry and Logic demand in the second quarter as customers digest these recent shipments in their initial production ramps of five nanometer and three nanometer mobile application processors, tile-based QIUM microprocessors, and high-performance compute chips. Advanced packaging processes like Foveros and 3D Fabric are increasingly being adopted on these leading-edge foundry and logic chips, providing an exciting opportunity for form factor. As we've noted in the past, these integration schemes drive both higher test intensity, which expands the number of probe cards required for good die-out, and higher test complexity, which raises the performance requirements for each probe card. Probe card architectures like FormFactor's MEMS technology are essential to meeting these challenging performance requirements at a compelling cost of ownership, while also fulfilling the short delivery lead times that our customers' rapid and dynamic production ramps require. In memory, as expected, we experienced weak first quarter demand for both DRAM and flash probe cards, as each of the major memory manufacturers reduced wafer starts to consume elevated inventory levels. However, even at these lower production levels, each of our major memory customers continues to advance the roadmaps with new design activity and innovations like DDR5 and third generation high bandwidth memory, which are driving a modest expected sequential increase in second quarter DRAM revenue. This provides insight into the unique characteristics of probe card demand. Since probe cards are a consumable specific to each customer's individual chip designs, early low volume production activity for new DDR5 and HBM designs is generating demand for new probe cards, albeit at lower volume levels than we typically see in a cyclical upturn. This new design activity extends beyond DRAM and is broad-based across our customer base and serve markets. As a result, FormFactor's design engineering teams are currently operating at full utilization as we work with customers' test engineering teams to adapt our MEMS probe card architectures to their upcoming new chip designs. These diverse design projects span 3 nanometer processors, RF bond saw filters, and HBM DRAM, and foreshadow demand acceleration for form factor when the industry returns to growth and these new designs ramp in volume. Similar to Foveros and 3D Fabric in Foundry and Logic, The growth of HBM is an exciting opportunity in the DRAM market as well, as the die stacking advanced packaging process increases both test intensity and test complexity of HBM products compared to standard single die DRAM architectures. This in turn increases both the number and complexity of probe cards required for good die out. HBM is also a key enabler for generative artificial intelligence. with one of our major DRAM customers recently stating they expect their HBM sales to increase more than 50% this year, with expectations for further growth next year because of AI applications need for this higher speed memory. With ProbeCard lead times of typically less than a quarter, our visibility remains very limited, but we continue to be encouraged by the relatively stable overall demand for our products, along with the strong new design activity we're supporting across the industry. As is evident from the details of our outlook, we are experiencing underlying quarter-to-quarter shifts in spending between customers and markets, but our broadly diversified lab-to-fab product portfolio across Foundry and Logic, DRAM, and Flash probe cards, together with our system segment products, enables us to compete for business across these diverse demand pools at all major customers, producing the relatively stable overall top-line results we've demonstrated for the past several quarters and expect again in the second quarter. Shifting now to systems, our systems business continues to deliver strong results, with revenue and gross margin at near-record levels again in the first quarter, and our second-quarter outlook assumes record revenue. This strength is driven by our market-leading test and measurement products for early development of applications like silicon photonics, quantum computing, and advanced packaging metrology. Silicon photonics is an important and exciting driver in this segment. Our turnkey electro-optical measurement systems, built on our CM300 and Summit 200 engineering probers, are tightly integrated with subsystems from leading partners like Keysight Technologies and PI. Together with FormFactor's electrical probe cards, these systems are enabling our customers to rapidly characterize, analyze, and debug new silicon photonics devices in early development and pilot production. Independent market research forecasts a 30-plus percent growth rate for silicon photonics devices over the next several years, driven by the data center speed and power efficiency improvements that derive from co-package optics. And FormFactor is well-situated to capitalize on this opportunity as silicon photonics undergoes the transition from the lab to the fab. Finally, we continue to manage export restrictions in serving domestic China semiconductor customers. As a U.S.-based supplier with significant exposure to the leading edge foundry and memory technologies and customers affected by recent U.S.-China export controls, these regulations are a headwind in all of our businesses. We believe this U.S.-China trade headwind will persist over time and 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. I'd like to close by reiterating that in the short term, we're encouraged by the stabilization of demand across our diversified product and technology portfolio in the first half of 2023. Over the longer term, we remain excited and 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 and silicon photonics. These are trends where form factor is well positioned as an industry and technology leader, and we're confident that our commitment to invest in R&D and capacity will position form factor to emerge from the current cyclical 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.