FormFactor, Inc.

Thank you and welcome everyone to FormFactor's fourth quarter 2023 earnings conference call. On today's call are Chief Executive Officer Mike Slesher 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 gap P&L results and some important non-gap 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 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 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 physical year ended December 31, 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, February 7, 2024, and we assume no obligation to update them. With that, we will now turn the call over to FormFactor CEO, Mike Thresser.

Thanks, everyone, for joining us today on FormFactor's fourth quarter earnings call. FormFactor's fourth quarter results were in line with the outlook we provided last November. Compared to that outlook, moderately higher revenue and gross margins were offset by a higher tax rate. producing non-GAAP EPS at the midpoint of the range. As we enter 2024, we continue to operate in an overall demand environment that remains similar to the levels we experienced during the past year, and we expect first quarter results to be similar to those achieved in recent quarters. The relatively stable aggregate demand across our combined served markets is a benefit of FormFactor's diversification strategy and sets us apart from our direct competitors. FormFactor has a broad lab-to-fab product portfolio across Foundry and Logic, DRAM, and Flash probe cards, together with our system segment products. This unique portfolio enables us to compete for business across diverse demand pools at all major customers, producing relatively consistent top-line results, as we've demonstrated for the past four quarters, and which we expect again in the current quarter. Customer investment in growing areas driven by generative AI, like high bandwidth memory and co-packaged silicon photonics, is helping offset the impact of areas that are presently at cyclically low levels, like mobile handsets and PCs, and those entering cyclical downturns, like automotive and industrial. The stability also enables form factor to keep investing in R&D for new product innovation and competitive differentiation. especially in our product roadmap for advanced packaging applications like chiplets and tiles, high bandwidth memory, and co-packaged optics. It also enables us to invest in capacity and other strategic initiatives designed to produce market share gains and above industry revenue and profit growth when the industry returns to growth, which will enable FormFactor to achieve and then surpass the levels of our current target financial model. Because of the strength and stability of our balanced product portfolio, we can make these investments while maximizing quarterly profitability and protecting our strong balance sheet throughout prolonged periods of industry softness. Turning now to segment level details, DRAM probe cards are an area of current strength, and we expect first quarter DRAM revenue to approach the peak levels experienced in 2021. DRAM strength is being driven by two factors. First, And perhaps surprisingly, we're experiencing strong demand generated by new DDR5 DRAM designs as customers prepare for high volume production when the eventual DRAM upturn arrives. This provides insight into the unique characteristics of probe card demand. Since probe cards are a device-specific consumable customized to each individual chip design, early production activity for these new DDR5 designs is driving demand for new probe cards. albeit at lower overall levels and with somewhat greater short-term volatility than we might expect to see in a full-scale cyclical upturn. The second factor behind our strong DRAM outlook is the continuing acceleration in demand from multiple customers for probe cards to test high-bandwidth memory, or HBM. Together with the headline-grabbing GPUs, HBM is a key enabler for generative AI, and we are forecasting nearly 50% sequential growth in our HBM probe card business in the first quarter. HBM offers a great example of how advanced packaging is driving form factors results. As we've mentioned in the past, advanced packaging applications like HBM produce both higher test intensity, which expands the number of probe cards required per good die-out, and higher test complexity, which raises the performance requirements for each probe card. Each HBM chip is a stack of eight, 12, or even 16 individual DRAM die assembled with advanced packaging processes, such as through silicon vias and hybrid bonding. To ensure high yields of the stack DRAM chip, customers probe and test each component DRAM die prior to stacking, and probe and test the multi-die DRAM stack at various points during the assembly process, leading to a substantial increase in the overall probe card intensity for good die out. In addition, the technical requirements for HBM tests are significantly more advanced than for standard unstacked BRAM products, involving higher test speeds and more challenging thermal scaling specifications. FormFactor's MEMS-based smart matrix probe card architecture meets these advanced requirements, providing significant value to our customers and differentiation for FormFactor. We believe our superior performance capabilities will drive both market share and profitability gains as HBM continues to grow, driven by the accelerating adoption of generative AI. Shifting to Foundry and Logic probe cards, our largest business, We experienced the expected sequential reduction in the fourth quarter as key customers digested the significant third quarter shipments of probe cards for a major tile-based client PC design and two major high-performance compute designs in the foundry space. We expect similar demand levels for Foundry and Logic probe cards in the current quarter, as customers continue to closely manage their output now that inventories have stabilized at healthy levels in high unit volume end markets like client PC and mobile. Looking further ahead, the adoption of advanced packaging processes like chiplets and tiles by major Foundry and Logic customers continues to accelerate as they seek to advance their roadmaps in the face of a slowing Moore's Law. As in high bandwidth memory, advanced packaging in Foundry and Logic applications again demands both higher test intensity and higher test complexity. The positive impact of this trend, together with the potential for increased compute power in PCs and handsets to support AI at the edge, will drive significant growth in the Foundry and Logic probe card market. As anticipated, we experienced a sequential reduction in system segment revenue in the fourth quarter, mainly due to the sale of our FRT metrology business. The systems business continues to be driven by strong demand for our market-leading test and measurement products for early development of applications like co-packaged silicon photonics and quantum computing. More broadly, systems is an important element of our diversification strategy. as spending in this segment is primarily driven by customer innovation and R&D budgets and is not directly correlated with semiconductor production activity. Copackaged optics enabled by silicon photonics remains an important and exciting driver for FormFactor's current systems and future probe card businesses. The transition of silicon photonics from early R&D to low-volume production continues, and we have now installed a CM300 silicon photonics system at the world's leading foundry to support low-volume production, as well as serve as a platform for the co-development of the enhancements needed for high-volume electrical and optical tests of co-package optics. As production volumes increased over the next several years, our product modem wrap delivers both systems and consumable probe cards to test these electro-optical devices and improve yields, enabling our customers to seamlessly transition from the lab to the fab. Finally, earlier today we announced an agreement to divest our subsidiaries in China to Grand Junction Semiconductor, together with a long-term exclusive distribution and partnership agreement. This transaction is designed to adjust our operational strategy in the region in light of export controls that have caused our China revenues to decline over the past several quarters. In closing, we continue to operate efficiently and prudently in what we see as a relatively stable demand environment across our diversified product and technology portfolio. Longer term, we remain excited and confident in the growth prospects for FormFactor and the industry overall, driven by the fundamental trends of semiconductor content growth and exciting innovations like HBM, chiplets, and co-packaged silicon photonics. These are trends where FormFactor is well positioned as an industry and technology leader, and we're confident that our investments in R&D and capacity position a 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.