FormFactor, Inc.

Today's call are Chief Executive Officer Mike Schleser and Chief Financial Officer Shai Shahar. Before we begin, Stan Ficklestein, 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 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 crises, 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 end of December 30, 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 as of today, February 5th, 2025, and we assume no obligation to update them. With that, we will now turn the call over to form factor CEO, Mike Slessor.

Thanks, everyone, for joining us today. As expected, form factor reported sequentially lower fourth quarter revenue, gross margin, and non-gap earnings per share, driven by the forecasted reduction in Foundry and Logic probe card revenue. This was partially offset by growth in DRAM probe card revenue, which set a third consecutive quarterly record. Like most broad-based equipment and consumable suppliers to the semiconductor industry, FormFactor's fourth quarter and full year 2024 results reflect two very different market dynamics. On the one hand, the explosive growth of generative AI and high bandwidth memory, which more than quadrupled over 2023 and added $100 million in revenue for FormFactor. On the other hand, lackluster demand persisted in important high unit volume markets like client PCs and mobile handsets. This overall theme is continuing in the first quarter of 2025, and we expect sequential reductions in demand for both non-HBM DRAM probe cards and systems. As we move through 2025, we do expect an overall increase in demand for form factors products, and I'll provide some more details on these growth areas later. Before diving into segment and market level details, I'd like to highlight two significant strategic developments that further strengthen FormFactor's leadership position in enabling the adoption of advanced packaging. Earlier today, we announced that together with MBK Partners, the largest private equity firm in North Asia, we're acquiring FICT Limited, a leading supplier of complex multi-layer organic substrates and printed circuit boards to semiconductor test and high-performance computing customers. This acquisition will solidify FormFactor's access to FICT's technologies and products, which are an important component of our advanced probe guards. And early last month, we announced technology partnership and share purchase agreements with Advantest Corporation, the market leader in automated test equipment. These agreements build upon a multi-year collaboration between our companies, including FormFactor's 2020 purchase of Advantest probe card assets and the announcement last November to partner in developing wafer-level test cells for high-volume manufacturing of the silicon photonics integrated circuits used in co-package optics. With the rapid adoption of advanced packaging, wafer-level test is increasingly important to leading-edge semiconductor manufacturers, especially for their high-performance compute devices powering generative AI applications. Our expanded partnerships with FICT and Advantest provide a platform to accelerate innovation and strengthen collaboration across the test and assembly supply chain, enabling us to work more closely together to meet the challenging technical and operational requirements driven by advanced packaging and high performance compute. Now let's turn to market and segment level details. As I mentioned, in the fourth quarter, we again delivered record DRAM probe card revenue with solid DDR5 demand paired with sequential growth in HBM. HBM increased to approximately half the record quarterly DRAM revenue, and we expect similar HBM levels in the first quarter. In the first quarter, we continue to experience the normal period of digestion following record mid-2024 shipments of probe cards for HBM3 and HBM3e production designs. In addition, we now have a significant contribution from a second HBM customer, along with growing volumes of HBM4 designs. As a reminder, since probe cards are a device-specific consumable that's customized to each individual customer chip design, Production ramps of new chip designs generate demand for new probe cards, and the transition to new HBM4 designs will produce significant growth for DRAM probe card demand as this ramp begins in the middle part of 2025. We also expect some reduction in demand for non-HBM probe cards during the current first quarter, caused primarily by the recent further tightening of export controls, which limit our ability to ship probe cards for advanced node DRAM designs to China. As we discussed in the past, these export controls are a structural headwind that will continue to reduce our ability to serve customers in this region. Shifting to the Foundry and Logic probe card market, we experienced the anticipated fourth quarter reduction from the levels of the second and third quarter, and for the first time in many years, did not have a Foundry and Logic manufacturer as a 10% customer. In the first quarter, we expect Foundry and Logic demand to be similar to the fourth quarter. as high unit volume end markets in which form factor has a strong competitive position, like mobile handsets and client PCs, remain weak. Like most industry participants, our view is that these end markets will return to growth at some point in 2025. However, we have very limited visibility to the specific timing of the eventual recovery in either client PCs or mobile handsets because the lead times of our products are typically less than a quarter. In the interim, we remain vigilant in managing our cost structure to maximize profitability at these reduced revenue levels, while retaining sufficient capacity to ensure we can respond rapidly to meet customer demand when growth in Foundry and Logic returns. The lower level of Foundry and Logic probe card demand, combined with robust levels for DRAM probe cards, produce a challenging product mix. And it's this DRAM-rich mix that is largely responsible for gross margins well below our target gross margin of 47% at $850 million of annual revenue. Although we do expect growth to return to the Foundry and Logic market, at the same time, we're executing multiple initiatives in both DRAM and Foundry and Logic to mitigate this mixed effect and improve our gross margins. In DRAM, we've refreshed our product roadmap to include a new cost competitive architecture for non-HBM applications, which will be launched later this year, while also extending the differentiated high speed and temperature scaling performance of our smart matrix platform in HBM applications. In Foundry and Logic, we continue to expand and diversify FormFactor's market position both through new customer qualifications in client PC and server applications and through new products that improve our competitive position in high-performance compute GPU applications. We've made progress on both fronts recently and have now met all technical performance requirements in our qualification for a focused application with a fabulous microprocessor manufacturer and expect to complete the qualification in the first half of 2025. Turning to our systems segment, we delivered the expected sequential increase in fourth quarter revenue, nearing the record levels of mid-2023, which included the FRT business we divested in the fourth quarter of 2023. Systems growth is driven by the rapid innovation of our customers in areas like quantum computing and high-performance compute, with development programs that require high-performance measurement systems like our CM300 lab probers and IQ3000 cryogenic probers. One of the exciting opportunities in the high-performance computing space is co-package optics using silicon photonics as our customers transition from development in the lab to pilot production volumes in the fab. This is a key area of focus in our systems business, and we're leveraging our leadership position from the lab space, where we have an installed base of over 100 systems worldwide, to the production arena, where we now have multiple systems installed in leading customers' production facilities. We expect Copackage Optics to begin to ramp in volume later this year and into 2026 as it offers compelling data center energy efficiency benefits, helping address one of the major economic and environmental challenges for the compute industry and providing a new growth vector for both our systems and probe card businesses. In closing, we're continuing to strengthen FormFactor's industry and competitive position, both through development of differentiated products and through partnerships with leaders like Advantest and FICT. These internal and external initiatives are especially important and exciting as we meet the challenges of increased test intensity and higher test complexity associated with the adoption of advanced packaging in applications like high-bandwidth memory and co-package optics. Successful execution of these and other initiatives will allow 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.