FormFactor, Inc.

Thank you and welcome everyone to FormFactor's second quarter 2024 earnings conference call. On today's call, our 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 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 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 impact of global, regional, and national health crises, including the COVID-19 pandemic, anticipated industry trends, potential disruption 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 and the December 30th, 2023, 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 us of today, July 31st, 2024, and we assume no obligation to update them. With that, we will now turn the call over to FormFactor CEO, Mike Slater.

Thanks, everyone, for joining us today. FormFactor's second quarter revenue, non-GAAP gross margin, and non-GAAP EPS all exceeded the midpoint of the outlook range we provided in May. The expected strength in our probe card business drove second quarter results as we recorded sequential increases in all three probe card markets. DRAM probe card revenue reached record levels, with revenue from high bandwidth memory, or HBM, doubling for the third consecutive quarter to nearly 75% of our DRAM revenue. In the current third quarter, we're experiencing steady overall demand for form factors products, as we continue to make progress towards our target financial model. Our second quarter results and third quarter outlook illustrate the unique value of FormFactor's diversification strategy, which differentiates us from our direct competitors with a broad lab-to-fab product portfolio across Foundry and Logic, DRAM, and Flash probe cards, together with our system segment products. This portfolio enables us to compete for business across diverse demand pools at all major customers, producing relatively stable results during last year's downturn and the top line growth we're delivering this year. Our revenue growth is being driven by exposure to expanding areas like high bandwidth memory and DRAM probe cards and co-packaged silicon photonics and systems. enabling FormFactor to grow even as we await refresh cycles in important high unit volume end markets that drive Foundry and Logic probe card spending, like mobile handsets and client PCs. FormFactor's third quarter outlook also demonstrates several unique features of probe card demand. As we often note, probe cards are consumable that's specific to each new chip design, meaning we benefit from both technology node transitions and from the release of new designs on existing nodes. Together with our broad market and customer exposure, this produces a more stable demand profile than the more volatile demand cycles that characterize capital equipment. This difference is particularly evident in the current environment, as form factor stable third quarter outlook contrasts sharply with the sequentially weaker third quarter outlooks offered by several companies in the test and assembly capital equipment sector. Turning now to market and segment level details, as I noted, we set a record for DRAM probe card revenue in the second quarter, driven by the sequential doubling of high bandwidth memory revenue layered on top of steady DDR5 new design activity. To put HBM's torrid growth into perspective, in the first half of 2024 alone, we doubled the HBM revenue we delivered in all of 2023. In addition, our second quarter HBM revenue is greater than form factor's total quarterly DRAM revenue in each quarter of 2023. This activity is a direct result of the large hyperscaler investments in generative AI infrastructure and our customers' corresponding ramps of HBM capacity and output. HBM, which is a stack of eight, 12, or even 16 individual DRAM dye assembled with advanced packaging processes like through silicon vias and thermal compression bonding continues to offer a powerful example how advanced packaging is driving our current results. It also foreshadows our long-term opportunity as we benefit from the increased test intensity and increased test complexity that is inherent in advanced packaging architectures. In the third quarter, demand for DRAM probe cards continues to be robust, and we expect a slight increase in revenue from the second quarter record. We do, however, expect a shift in our DRAM product mix, with sequential increase in DDR5 shipments and a reduction in HBM shipments. We've mentioned in the past that our customers often have one to two quarter periods of digestion following a strong quarter of shipments. With lead times of less than a quarter, our short-term visibility remains challenging as always, but given our customers' continued strong investment in HBM capacity, we expect the third quarter pause in HBM growth will represent a temporary digestion phase, and the growth will resume in one to two quarters. Shifting to the Foundry and Logic probe card markets, we delivered the expected second quarter sequential growth, driven by the seasonal ramp of new mobile application processor designs and stronger probe card demand for client PC and server microprocessor designs. In the current third quarter, we expect Foundry and Logic demand and product mix to be similar to that achieved in the second quarter. Advanced packaging processes like Foveros and Coaos are being increasingly used to architect Foundry and Logic chip designs. As with HBM and DRAM, This disaggregation of a chip into subcomponent chiplets, or tiles, increases both test intensity and test complexity compared to an equivalent monolithic chip. The increase in test intensity is driven by the need for our customers to probe and test each component chiplet prior to stacking, and then to probe and test the multi-chiplet stack at various points during the assembly process. The resulting increase in probe card use per good die out is the same dynamic that is driving the strong probe card spending by our customers for HBM DRAM and is the source of relatively strong mid-year founder and logic demand despite the lack of recovery and important end markets like mobile handsets and PCs. At the same time, the technical requirements for probe cards for Foundry and Logic designs built using advanced packaging processes are significantly more demanding than for standard unstacked products involving higher test speeds and more challenging thermal and power specifications. As we've seen with HBM and DRAM, our differentiated ability to meet these performance requirements will drive both market share and profitability gains as the adoption of advanced packaging in Foundry and Logic continues. In the system segment, we expect a slight sequential increase in third quarter revenue as customers continue to engage us to solve the most complex electro-optical test and measurement challenges in areas like quantum computing and co-packaged silicon photonics. In co-packaged optics, which is poised to revolutionize chip-to-chip communication in the data center by significantly reducing power consumption at high data rates, We're collaborating with key customers in the early stages of the lab-to-fab transition from R&D to low-volume production. In these collaborations, customers are deploying FormFactor's turnkey electro-optical measurement systems, built on our CM300 and Summit 200 engineering probers, together with our proprietary Pharos optical probes. These highly differentiated optical probes enable either surface or edge coupling to the photonic dye, with unrivaled coupling efficiency, providing our customers with higher yields and shorter test times. As silicon photonics matures and moves to high-volume production in the coming years, we expect that our leadership positions in combined electrical and optical tests will provide a new growth vector for both our systems and probe card businesses. In closing, we're excited about both our strong second quarter results and our solid third quarter outlook. as the accelerating adoption of advanced packaging drives increased demand across form factor's lab-to-fab product portfolio. Longer term, we're confident in the growth prospects for form factor in the industry overall, driven by the fundamental trends of semiconductor content growth and advanced packaging innovations like HBM, chiplets, and co-packaged silicon photonics. As is evident from our recent results and outlook, these are trends where form factor is well-positioned. We're confident that our investments in R&D, capacity, and talent will further enhance form factor's market leadership. This will enable us to achieve and then surpass our target model that delivers $2 of non-GAAP earnings per share on $850 million of revenue. Shai, over to you.