Q4 2021 FormFactor Inc Earnings Call

Thank you and welcome everyone to form factors fourth quarter 2021 earnings Conference call on today's call are Chief Executive Officer, Mike <unk>, and Chief Financial Officer, Shai Shahar before we begin Stan Finkelstein the companies.

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 also 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 maintenance of the federal Securities laws.

Examples of such forward looking statements includes also with respect to the projections of financial and business performance.

Future macroeconomic conditions.

The benefits of acquisitions and investments in capacity and new technologies.

The impacts of the COVID-19 pandemic.

We anticipated industry trends.

So option in our supply chain.

The impact of regulatory changes.

And then anticipated demand for our products, our ability to develop produce and sell products.

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 filings on Form 10-K with the SEC for a physical year ended 2020 and in our other SEC filings, which are available on the SEC's website at Www Dot SEC.

Golf and in our press release issued today.

Forward looking statements are made as of today February 2nd 2022, and if I assume no obligation to update them.

Does that we will now turn the call over to form factors CEO , Mike <unk> Mike.

Thanks, everybody for joining us today.

<unk> posted record results in the fourth quarter delivering revenue of over $200 million for the first time in company history with non-GAAP earnings per share at the high end of our outlook range.

Capped a record 2021 that produced over three quarters of $1 billion in revenue and over $150 million of non-GAAP operating income.

To take this opportunity to thank the worldwide form factor team for their perseverance and dedication to produce these outstanding results.

As we start 2022 and the year of the Tiger, we continue to benefit from solid demand across all of our served markets and probe cards and engineering systems and we're excited about the important role, we're playing with enabling innovation and growth in the semiconductor industry.

In addition to our record financial results. We were recently recognized by Newsweek for our ESG leadership as one of America's most responsible companies.

In addition to an environmental and social focus form factors overall ranking was supported by a high score in corporate governance.

Driving form factors ESG performance to a world class level has become a major focus for our leadership team and board of directors in recent years and we're very proud to have been recognized for these efforts.

Like many manufacturing companies, we continue to face a variety of supply chain and broker channels.

Long term investments in automation and vertical integration helped us mitigate the effect of these headwinds, enabling us to deliver strong results throughout 2021.

However, the recent spread of the Omicron variant has caused labor shortages in our U S factories really weeks of 2022 and is partially responsible for the sequential reduction in revenues in our first quarter outlook.

We are also experiencing extended lead times for some of our products primarily in the systems segment caused by delayed deliveries for specific sub components and sub systems from certain suppliers.

Our team remains focused on actively managing and resolving these challenges both by working closely with our current suppliers and rapidly qualifying and ramping new suppliers.

Minimizing impacts to our supply chain and labor availability is especially important in view of our capital investment to meet growing customer demand.

As we previewed in our October earnings call, we begin customer shipments from our new liver more manufacturing center in the fourth quarter and the shipments contributed to our record quarterly revenue.

We are gradually increasing capacity in livermore to meet customer demand by adding both tools and labor.

We're also expanding other facilities across our global manufacturing network, which will create the capacity to meet and then exceed the $850 million revenue of our current target financial model.

Turning now to segment and market level details.

Foundry and logic probe cards, our largest business was responsible for most of the sequential growth in the fourth quarter tracking to our seasonal pattern. It has been in place for the past few years.

Consistent with that seasonality you expect to see a slight decrease in overall first quarter foundry and logic revenues with a reduction in RF probe cards, partially offset by strong foundry demand.

This foundry shrink provide some real time insight into the differences between the demand drivers for consumables like probe cards.

Capital equipment like automated test equipment.

As we often note probe cards are a consumable specific to each new chip design and so we benefit from both node transitions and the release of new designs on existing nodes and.

In the first quarter, our foundry business is being driven by the second component the release of new designs on existing nodes as we enable reuse of our customers' installed base of testers to test new chip designs, primarily in high performance compute applications.

Our expectation for continued long term growth in the foundry and logic probe card market is one of the primary drivers of our ongoing capacity expansions custom.

Customers are investing in both leading edge capacity is evident from record levels of wafer fab equipment spending.

And early stage innovative advanced packaging architectures, like <unk>, <unk> and <unk> fabric.

To help offset the slowing of front end driven Moore's law.

As we've discussed in the past these chips, where tile based integration schemes drive both higher test intensity, which expands the number of probe cards required per wafer out and test complexity with widens form factors competitive advantage.

Together, both these dynamics create tailwind for long term foundry and logic probe card demand.

Turning to DRAM.

Demand for DRAM probe cards in the fourth quarter sustained near the high levels of the second and third quarters as customers continued to release and ramp multiple new designs and volume.

Did you expect a moderate sequential decrease in DRAM revenues in the first quarter. After several quarters of these near record levels.

New design activity with each of the major DRAM manufacturers continues to be strong with a diverse mix of new DDR forward and DDR five designs in both mobile and PC server applications and we expect this new design activity will continue to sustain healthy DRAM demand from each of our customers.

<unk> ability to absorb these short term fluctuations in demand from each of our customers served markets and specific applications within these markets as a result of our long term initiatives to be a diversified market leader supplying all major semiconductor markets and manufacturers and it remains a key.

Tenant of our operational strategy.

Our engineering systems business also delivered record results in the fourth quarter with revenue of nearly $40 million and we continue to experience sustained demand in the first quarter.

This demand is driven primarily by the adoption of FRP optical metrology tools and advanced packaging applications, along with continued customer investments in engineering progress to enable industry innovation in <unk> Cmos architectures like gate, all around and optical applications like Silicon photonics.

In addition, we recently launched an exciting new program to offer HPV state of the art cryogenic test tools and capabilities as a service, enabling quantum computing developers to rapidly and cost effectively characterized a few bits and resonators.

Using form factors cryostat innovative probe sockets adapted from our market, leading probe card business customers can utilize this service to dramatically accelerate development cycles with no upfront capital investment.

Let me close by noting that with a solid demand and increased capacity to meet that demand.

Well, along the path to achieve the target financial model, which delivers $2 of non-GAAP earnings per share on $850 million of revenue.

Our leadership position in our attractive served markets paired with our differentiated strategy and disciplined execution will.

Will drive continued growth and share gains as we progress towards our target model and beyond.

Shai over to you.

Thank you, Mike and good afternoon.

As you saw in our press release and as Mike mentioned Q4 represented a strong finish to a great year.

We concluded the year with record quarterly and annual revenues and record quarterly non-GAAP operating profit and pre tax income achieved who are opening our new manufacturing center during the quarter.

Fourth quarter revenues were above our outlook range and non-GAAP EPS was a value end of the range. While non-GAAP gross margin was at the low end of the day.

Form factors fourth quarter revenues were $205 million, an 8% sequential increase from Q3, and an increase of 4% year over year.

And contributor to a total fiscal 2021 revenues of $770 million and 11% increase compared to 2020.

Probe card segment revenues were $166 million in the fourth quarter, an increase of $11 million or 7% from Q3.

The increase was driven by higher revenues in older markets, we serve with the biggest increase in foundry and logic revenues.

System segment revenues were a record $39 million in Q4, an increase of $4 million or 11% from the third quarter, mainly as a result of higher sales of 300 millimeter systems and cryogenic probes for quantum obligations, partially offset by lower thermal systems revenues.

We the probe card segment within the probe card segment foundry and logic revenues increased by $9 million from Q3 to $114 million in the fourth quarter, comprising 56% of total company revenues slightly higher than the 55% in the third quarter.

DRAM revenues were $40 3 million Boes in Q4, <unk> $4 million or 1% higher than the third quarter and were 20% of total quarterly revenues as compared to 21% of revenues in the third quarter.

Flash revenues of $11 6 million Boes in Q4 were $1 $2 million higher than in the third quarter and were 6% of total revenues in Q4 same as in Q3.

GAAP gross margin for the fourth quarter was 43, 7% of revenues as compared to 42, 2% in Q3.

Cost of revenues included $1 $3 million of GAAP to non-GAAP reconciling items, which we outlined in our press release issued today and in the reconciliation table available in the Investor Relations section of our website.

On a non-GAAP basis gross margin for the fourth quarter was 44, 3% within our outlook range, reflecting lower gross margins in both segments and 170 basis points lower than the 46% non-GAAP gross margin in Q3.

Gross margin improvement remains an area of focus.

As a reminder, we expect gross margins will fluctuate from quarter to quarter, mainly as a result of changes in product mix.

Our probe card segment gross margin was 44, 1% in the fourth quarter, a decrease of 100 basis points compared to 45, 1% in Q3.

The difference was mainly due to a less favorable product mix and higher wafer processing expenses related to production flow timing, partially offset by lower indirect material spending.

Our Q4 systems segment gross margin was 45, 5% 460 basis points lower than the 51% gross margin in the third quarter.

This decrease is due to a less favorable product mix and year end inventory adjustments.

As we've said previously we expect our systems segment gross margin to range between the high <unk> to low <unk>.

Our GAAP operating expenses were $58 million for the fourth quarter $1 million higher than in the third quarter.

non-GAAP operating expenses for the fourth quarter were $49 7 million.

While 24, 2% of revenues as compared with $48 5 million or 25, 5% of revenues in Q3.

The $1 $2 million increase relates mainly to higher marketing travel and sales commissions expenses in line with the increases in revenues and business activity.

Company noncash expenses for the fourth quarter included $7 8 million for stock based compensation $2 $4 million for the amortization of acquisition related intangible and depreciation of $6 5 billion all levels similar to the third quarter.

non-GAAP operating income for the fourth quarter was 41 million, a company record and $2 $3 million higher than the third quarter.

GAAP net income for the fourth quarter was $26 million or.

<unk> 33 per fully diluted share compared to $20 5 million.

<unk> per fully diluted share in Q3.

The non-GAAP effective tax rate for the fourth quarter was 16, 7%.

220 basis points lower than the 18, 9% in Q3.

This brings our 2021 full year non-GAAP effective tax rate to 18, 2% within our anticipated non-GAAP effective tax rate of 15% to 20%.

As a reminder, our annual cash tax rate is expected to remain at 6% to 8% of non-GAAP pretax income until we fully utilize our remaining U S based R&D credits.

Fourth quarter non-GAAP net income was $34 7 million or.

Or <unk> 44 per fully diluted share compared to $31 6 million or <unk>.

<unk> per fully diluted share in Q3.

The fourth quarter's non-GAAP net income was second only to the fourth quarter of 2020.

Moving to the balance sheet and cash flows we.

We generated $24 million of free cash flow in the fourth quarter compared to $14 million in Q3.

In 2021 free cash flow to $74 million.

In a year that included a significant investment in capital expenditures of $60 million to $70 million.

We had total cash and investments of $280 million at the end of the quarter.

The fourth quarter $10 million sequential increase in free cash flow with flex with decreased investment of $5 million in working capital and a $5 million decrease in capital expenditures.

As of the end of the fourth quarter, we had two term loans remaining on the on our balance sheet sort of $24 million.

We invested $15 million in capital expenditures during the fourth quarter compared to $20 million in Q3.

This brings our year to date Capex was $67 million just below our previously communicated range of $70 million to $80 million.

This investment chiefly related to the capacity expansion with Libre remote manufacturing center, which went online during the fourth quarter as expected.

In 2022, we expect to continue to invest in increasing capacity to meet customer demand.

Accordingly, 2022 Capex.

Len.

Planned to be between 60 and $80 million.

As a reminder, we expect capex to return to the three 5% to 4% of revenues in our target financial model. After we conclude this capacity expansion.

No significant share repurchases were made during the fourth quarter and full year ended we purchased just over 620000 shares with an average purchase price of $48.62 under a two year $50 million share repurchase plan.

This brings our total share repurchases under this plan to about <unk>, 8% of our outstanding shares.

Main purpose of the plan is to offset dilution from stock based compensation as at year end $26 million remained available for future repurchases.

Turning to 2022 first quarter non-GAAP outlook.

As Mike mentioned, we expect a seasonal decline mainly in foundry and logic revenues and a moderate decrease in DRAM revenues.

These factors result in a Q1 revenue outlook in the range of $188 million to $200 million.

non-GAAP gross margin for the first quarter is expected to be in the range of 44% to 47%.

On a more favorable product mix, partially offset by higher input costs and legal expenses.

At the midpoint of these outlook ranges you expect Q1 operating expenses to be higher in Q4 by approximately $1 million.

Mainly due to annual benefits.

We shouldn't or hiring.

Accordingly, non-GAAP earnings per fully diluted share for Q1 is expected to be between 35 and <unk> 43.

A reconciliation of our GAAP to non-GAAP Q1 outlook is available on the Investor Relations section of our website and press release issued today.

With that let's open the call for questions operator.

Yes.

As a reminder, task a question. Please press star one on your telephone to withdraw your question press the pound key please standby.

While we compile the Q&A roster.

Our first question comes from the line of Brian Chin of Stifel. Your line is open.

Okay Alright.

Hi, Good afternoon, nice <unk> results and thanks for letting us ask a few questions.

Maybe the first question just housekeeping wise, how large is the <unk> revenue impact from the labor and component constraints you referenced.

Yes, Brian its Mike.

If you look at the midpoint, it's down roughly $10 million.

I'd split that basically in half between supply chain and labor constraints that we've experienced early in the quarter.

And the other half being the seasonality, we typically see Q4 to Q1 in foundry and logic and we see directionally have seen larger seasonality down ticks in that Q4 to Q1. There is some element of it but as I said the foundry piece of the business is quite strong so again $10 million down at the midpoint.

Put in about half between constraints and demand seasonality.

Okay.

Very helpful.

And then maybe an observation.

And then maybe the foundry logic part of the business, but.

And <unk> the company is bringing a record quarterly revenue even as revenue to your largest customer it looks like it's down 30, 35%, 40% from its run rate maybe in 2020.

That seems like a positive I guess from a timing perspective.

When would you anticipate that logic devices dealt with seven nanometer process technology that rely on significant heterogeneous die integration. When do you think that could be more of a certain part of the revenue stream.

So it's a great observation, Brian and one that I do.

I do want to emphasize with Stifel.

We've talked about some of the 2020 run rates for that customer probably not being at sustainable levels at least for us there.

Their 10 nanometer 10 nanometer manufacturing model.

Did you see in the second half of 'twenty, one we did come back to some more.

More normalized levels, but if you look at it a little bit further to heterogeneous integration chipboard strategies or tile strategies.

Those definitely are raising test intensity, which is going to require more probe cards per wafer out.

That for US right now is a very significant R&D activity, but I wouldn't expect it to significantly help with revenue until maybe late this year or early early into 2023.

If you look at the usual.

Delay or lag between customer product releases in the probe card demand you can see theres a couple of quarters in there and so although again, a very active part of our R&D engagement with that customer and all leading customers in the foundry and logic space.

I do expect it to be a late in the year early 'twenty three.

<unk> to revenue.

Got it.

And then maybe just one step back question, Mike before I hop off.

If you were to carve out the the advanced foundry and logic part of the probe card market, so that kind of isolate on that Sam.

What do you think the market CAGR might be for that over the next two year horizon.

So it's an interesting question because there's components of some real structural tailwind there.

But some also unpredictable headwinds that we've obviously dealt with over the last couple of years. The most recent being the omicron issues to start 2022.

You look at the overall probe card market.

Really a high single digit grower.

The that piece the high end foundry and logic, I think thats, where the biggest tail winds are and although they are difficult to quantify with the different puts and takes associated with <unk>.

Hi, Nwfp spend some of the advanced packaging adoption heterogeneous integration adoption that we just touched on.

I do think theres the potential for that sub segment.

Outgrows.

The single digit growth as appropriate market and we've seen that in a couple of recent years. Fortunately, it's our biggest market and one in which we do.

Okay, Great. That's helpful. Thanks, so much.

Thank you once again to ask a question. Please press star one and you touched on telephone again Thats star one on your Touchtone telephone to ask a question.

Our next question comes from the line of Krish Shankar of Cowen <unk> Company your.

Your question please.

Yeah, Hi, Thanks for taking my question I actually have three of them too Mike.

If the fed comments, you mentioned that the.

Supply constraint impact of the systems business, but not the probe card.

Make sure I heard that right and if that is the case and I understand probe side of the consumables, but with some of the front end equipment folks are having issues with constrained and then shipping it to your customers.

Does that if at all.

Probe card demand.

Yes, it may impact.

Part of the demand and the seasonal downtick, we're seeing here in Q1, it's obviously hard to tell at the moment.

If the customers don't have the front end capacity in place to produce wafers qualify them and ramp new designs, they're not going to need probe cards.

As discussed in the past, we typically lag the WMC spending and install by somewhere between two and four quarters, depending on customer yield ramp and the details of that so any delays in WMC.

Are going to result in delays in the overall probe card space, having said that there was enough dws's stand in capacity added across the industry in 2021 that led to some strong demand in the back half of the year that led to the record results and continued pretty good momentum here into 2022.

Super helpful and then.

I do understand like most of your probe cards that I'm, leading edge is there. If you say lagging edge is like say a protein a 16 nanometer and above and I know I think one of your foundry customer fully in house brokers the lagging edge.

What did you say your probe card revenue split is between leading and lagging edge, a leading and mature nodes.

Gosh.

That's a tough one that we'd probably have to get back John I don't want to guess on my feet, but youre right. The majority of our revenues are driven by leading edge nodes and new designs ramping on most of the hedges. The one significant exception is things like.

The automotive industry, we do have a reasonable business for microcontrollers.

In specialty chips in automotive that are obviously fabs on trailing edge nodes that is a probe card manufacturer sort of in between the front end of the backend Austin, we don't have a ton of visibility onto the specifics of the node unless it's a very significant design, where theres a lot of visibility from the customers.

Got it fair enough and then a final question for Shai.

I mean.

The target model you laid out in 2020, <unk> hundred 62 loss in earnings clearly it looks like you are.

Sure.

All of this.

Between then and now obviously the foundry logic WC.

But the amount of meaningfully moved higher so I'm just kind of curious.

<unk> million dollars to above EPS as to the target we feel good about exceeding that.

So we feel very comfortable with the target model, we put in place and the progress we made so far.

We are not there yet right and making great progress with probably the leader in Q in Q4, and as we get closer to the model. If we run a couple of quarters run rate, which is close to this run rate will provide an update on the model similar to what would be the a year ago, when we got closer to achieving the previous.

Model.

Got it fair enough. Thanks, Charlie Thanks, Mike.

Thank you.

Thank you. Our next question comes from Charles <unk> of Needham <unk> Company. Your line is open.

Yes.

Good afternoon, and thank you for taking my question.

Mike maybe my first question.

A little bit about your indirect customer.

Paul.

Your seasonality pattern here.

I think over the last couple of weeks, we did hear guests some vivo got heard because no migration apple being delayed by one year, but we also there are some other semiconductor device companies seeing pull ins at Apple.

Field.

Inventory.

I did hear use that foundry seems to be strong and you did highlight the HV PC strength I don't know if thats really coming from your indirect customer facing direct customer not on the mobile side are you seeing some of the pooling effect as well or do you see a slightly different seasonality pattern.

Thank you.

Yes, I think it's an important piece to our business understand and that's why I took the time to make the point in the prepared remarks.

Probe card demand is driven by new designs and.

If they are on existing nodes that drives probe card demand is around new nodes that obviously drives probe card demand. So you can often see these local dislocations.

Between our consumables business and capital equipment businesses, they're very closely related for example.

If I look at the foundry strength at present.

As I said, it's primarily associated with HBC high performance compute there are mobile elements to it.

No question about it.

I think if I were to draw a single dominant theme to it it is high performance compute in the foundry segment.

Which is not too surprisingly given the rapid innovation and some of the very interesting chip designs, you see ramping through that ecosystem.

Got it.

Maybe the next question.

On your supply chain.

I think.

You did provide some quantitative commentary thank you for that.

I wanted to ask.

If you can provide some directional color in terms of the supply chain impact and what Youre seeing right now is that more impacting.

On the cost side of the business or the systems side of the business.

Yes, it's definitely more impacting the system segment.

And it's pretty targeted things pretty.

Pretty targeted sub components from a handful of suppliers and when you get to the fundamental root cause of what's causing those suppliers to push out their deliveries to us somewhat ironically it comes back to the semiconductor shortage or at least electronic component shortages.

Our team has done a very good job of working with existing suppliers and qualifying new suppliers, but as with many other <unk>.

Semiconductor companies and semiconductor supply chain companies.

We are constrained in a couple of places that is having an impact on the lead time at present.

Again very focused in the systems segment, we've managed to.

Avoid any impact in the probe card segment and continue to be very focused on doing that.

But.

It's such an active part of managing the business and managing any semiconductor supply chain business right now.

That is a big part of management's attention.

Got it and maybe my last question, a little bit switching to longer term view I wanted to ask you about the DRAM, obviously <unk> is a big driver for your probe card business.

But assuming you have some visibility into what probe cards are really supporting DDR for and what our Muni supporting DDR. Five are you seeing the crossover in terms of either the volume or dollar value.

<unk> updated transitions on water DDI by income from car demand yet if you haven't seen it that do you expect you will see that this year.

My last question. Thank you.

Yes, I think we're pretty close to what do you want to call. It a crossover or parity between DDR for DDR five I've been quite surprised at.

The longevity of Edr for some of these previous architecture transitions, our DRAM customers who've gone through have been pretty discontinue its almost like a node transition where we went from DDR three to DDR four there was a big shift in design activity and most new designs all of a sudden became DDR four.

Not the case here at present with the <unk> transition, there's still a lot of designs on DDR floor.

I don't know, whether that's associated with some of their related ecosystem pieces.

<unk> different other.

Peripheral chips, so that sort of thing, but it is an interesting observation that we're hovering right around parity from a new design perspective between <unk> and <unk>.

Thank you Mike desktop Amit. Thank you alright, thanks Charles.

Thank you. Our next question comes from Craig Ellis B Riley Securities. Your line is open.

Yes, thanks for taking the questions. The first one is just a clarification and understanding.

Some of.

Issues that are at play in the first quarters outlook around supply chain and labor issues.

I think Mike I heard you say that if we look at.

Change in revenue about half of that is.

Supply chain related things.

I'm hearing from this call that supply chain has some issues on the system side and then some labor issues.

The question is this.

Do you feel like you have good visibility to.

Getting better supply dynamics with some of the things that are impacting systems.

With respect to some of the things that are more labor related when do you think you would have staffing back where you want it to be it's just something that persist through the first quarter or should you have that largely behind you by the time you get into the into the second quarter.

Yes.

Let me address a couple of aspects of that question, let's parse it into supply chain and labor separately. So on the supply chain side, yes approximately.

Well half of half of the impact a quarter of the impact is associated with sub components supply in the systems business.

These are things that as I said, our supply chain team continues to work to find alternatives to work with existing suppliers to make sure that we mitigate.

The overall impact of those shortages and keep our commitments to customers and keep lead times down as best we can.

The other component and this is primarily in the probe card side.

Is labor shortages in the early part of the quarter, primarily due to the quarantine requirements associated with <unk>. Obviously, a lot of people, we have primarily a U S manufacturing west coast footprint, a lot of people were either infected or had a close contact and our safety policies require even if you don't test positive.

If you live with somebody who had been in close contact with somebody who test positive youre not allowed in the factory and so that took a significant chunk of labor capacity.

Months of January it does seem to consistent with the communities around us improved.

Rather dramatically over the past week or so.

But if I am trying to play forecaster for Covid infection rates I don't have a very good record and I'm not sure I'd want to lean into that one too far we're trying to keep our workforce as safe as we can assuming there is no new variance among us that takes out a significant fraction of the workforce. It feels like most of that's behind us.

But the last two years have taught us anything it's that predictions for the.

At the end of the pandemic tend to be a bit difficult to make.

Yes, absolutely that's the case.

Second question was just on the DRAM business.

Company was opportunistic picking up share.

In the third quarter and clearly the business is strong and you talked about the strength you're seeing in DDR three excuse me DDR foreign DDR five with.

With each manufacturer. The question is this how do you feel about share at present, an issue of look out over the course of 2022 are there opportunities for further share gain in the DRAM market.

Yeah, I think it's like the high end foundry and logic market.

It's essentially a market where.

There is two primary suppliers us and in DRAM Japanese company.

We did manage to gain some share over the past year on our key competitor and I think theres the opportunity at least to hold that share if not gain some more some of those share gains are specific to the kind of devices and the test strategies that our customers are releasing and ramping.

We've talked a lot in the past about mix in DRAM in two touchdown versus one that's down configurations Theres a lot of subtleties in where form factor has competitive advantage, but I think.

The share gains we've been able to achieve and execute on in 2021, I am optimistic that over the long term, we're going to be able to hold those and hopefully push them forward.

Yeah makes sense and then lastly for me before I hop back in the queue.

This is at least the second call.

That you've mentioned quantum computing and some opportunities in the systems business can you just talk about how material that opportunity is now and.

What you think might be possible over the next couple of years.

Yes.

Quantum for us.

A long term play and by long term I mean outside the $850 million target model and achievement of that but it was fundamental to the acquisition, we made of HPV, Colorado, a little over a year ago. The reason, we did that was because we had major customers coming to us.

Really asking us to help them.

<unk> out strategies build tools build capability to test. These quantum computing devices now the subtlety here. The difficulty here is that most of these quantum computing devices have to operate at very very low temperatures and very well controlled environment, So close to absolute zero.

And things like.

Essentially no magnetic fields, so that drives some very specialized test requirements.

A pretty natural fit to our engineering systems business and an exciting long term opportunity for us to enable this nascent industry and it's a few years off no question about it I would not expect to see.

Significant impact on our financials over the next couple of years, but again, it's one of the longer term. That's we're making to continue to drive growth in Sam expansion for form factor and just to finish the point as part of the reason why we introduced this.

Test as a service.

We announced earlier this week we.

We're really helping this nascent industry get the characterization and testing done quickly while learning side by side with them and monetizing.

Both the acquisitions that we made and the capabilities that we have at terminal.

Yes, and then if I could just ask a follow up to that the systems related.

$39 million in the quarter is the best number that I can see going back six to eight quarters and I think the best ever I Didnt catch from the prepared comments, what contributed to such a high level and.

And I.

I think we're seeing things.

Is off a little bit in the first quarter from guidance, but.

But what's the potential for for us to be moving maybe to a new higher level of system sales. So it's closer to the $40 million range per quarter versus low to mid thirties.

Yes, I touched on a little bit in the prepared remarks, but it's worth expanding on.

That level of the system segment being up around $40 million.

Really has three primary factors.

One is.

A lot of strength in the core engineering probe business.

AG minted by some strength in the thermal piece of that business are foundry and logic customers are dealing with trying to test devices with very high power density hundreds of watts.

And dissipate the power out of that and so there's some real technical need there that were solving a problem.

But the other piece on top of that is the benefit of the acquisitions we've made.

To a lesser extent because as I just told you, but there is a positive impact there we've seen some nice growth out of the FRP optical metrology business as their tools get adopted for advanced packaging applications.

The systems business operating.

Around the 40 million dollar level as a consequence of legacy systems being nice and strong because of the industry innovation and yield improvement along with some good benefit from the acquisitions that we've made over the past couple of years.

Got it thanks, Mike.

Thanks, Greg.

Thank you.

Thank you. Our next question comes from Christian Schwab of.

Craig Hallum Capital your question please.

Hey, guys.

Just a quick follow up on DRAM.

What should we think about DRAM growth in calendar 'twenty two.

Given we will have new designs on DDR, five and probably continuation of new designs on existing nodes.

But DRAM was especially strong this year.

Can you give us a framework of kind of growth expectations there.

Yes, I would.

Go back and think about we've talked about potential growth in the at the high end foundry and logic probe card market.

If you look at the overall probe card market in kind of a mid to high single digit CAGR.

We don't expect DRAM to outgrow that significantly and there are several reasons for that.

One is our customers tend to do a pretty good job of constraining their overall spend.

And driving their cost of test using things like <unk> ability to test the whole wafer ones to drive test cost down. So we don't expect to see a lot of market growth there really the place as we've talked about both.

Both on this call and on previous calls and associated with our model.

Real growth is coming from foundry and logic probe cards, a lot of investment there and a lot of complexity in intensity increases that are driving up our customer spend as they try and make sure that they're yielding good parts, especially as they go into these chips with style products.

That's great.

Great segue into your.

Historically at least this year.

Your third largest customer.

Do we have a path or a visibility for them to be a more consistent 10% customer.

Throughout calendar 'twenty two.

Give us some direction.

How we should be thinking about that I know we've talked about.

That customer in the past previously.

Maybe being able to scale materially higher can you just give us an update on that.

Sure Yes.

Reiterating our expectations for that customer we do believe we can get them up to something like $100 million a year end noise.

The challenges with them, appearing as a 10% customer as we continue to grow the business quite substantially and so is the bar to get our 10% list continues to grow.

Their business continues to be pretty seasonal.

We do expect.

First quarter strength as I mentioned in the prepared remarks, and I think it's.

Indicative of higher test intensity on some of these advanced high performance compute designs.

Really drive a higher probe card spend but I would also expect seasonality to continue as they prepare for second half ramps for some of these things by buying probe cards in the first half and qualifying everything and making sure they're ready.

Okay. So typical seasonality kind of two to last year kind of is.

Customer.

Stronger in the first half and not quite as strong in the second half is that right.

Yes.

Within striking distance of being 10% in most quarters, sometimes on the list sometimes not.

Okay perfect.

Thanks, guys no other questions.

Thanks Christian.

Thank you. Our next question comes from Amanda <unk> of Citi. Please go ahead.

Thanks can you talk a little bit about the competitive environment that youre seeing in logic and foundry and have there been any shift.

Over the last 12 months either.

At intolerant at TSMC as the dynamics change a little bit businesses.

Yes, I think so we talked about the competitive dynamics I think with Craig's question in in DRAM foundry and logic, a similar market you've got two very strong lead suppliers.

Yes.

A privately held Italian company.

And they've shown some good growth I think they've done a good job in continuing to execute and achieve a strong second supplier position that a lot of these key customers.

But I wouldn't characterize it as a fundamental change in the competitive dynamics I think there are going to be ebbs and flows in market share as things go through different transitions, but fundamentally.

The probe card market is no different than some of the other markets like etch and depth probably not lithography.

We're two credible suppliers are going to be competing designed to design and node to node.

Four different opportunities different share gains and I think it's a relatively healthy competitive environment, not just the DRAM and foundry and logic as well.

Maybe just talk a little bit about.

On the M&A strategy going forward. It seems like you have quite a nice portfolio Thats helped out a lot of growth happening recent acquisition should propel growth through 2020, sorry in 2023 rally.

Is there additional appetite for M&A near term or do you think that portfolio pretty well right now.

Yes.

Definitely an appetite for more M&A, that's a key component of our strategy.

Primarily focused in extending our served markets. We think we can in our existing served markets continue.

Continue to execute drive leadership position and drive share gains. We don't think we want to spend M&A dollars there partially because of the dual supplier dynamics I talked about previously, but if you look in the systems segment and some of the related consumables segment. I think there are some attractive pieces of served market.

We do want to be taking the dollars that we're generating from operations.

Things like the probe card business and deploying them in buying leadership positions in new pieces of served market.

The recent acquisitions we've done.

I talked about <unk> growth for optical metrology and advanced packaging applications. A great example of us taking some of that capital deploying it to buying some strong technology. Some good products and then driving them through the form factor customer relationships and overall.

Industry stance.

Get good growth out of those acquisitions, that's a theme that we're going to continue to execute to.

Perfect. Thank you.

Thanks Man.

Thank you again to ask a question. Please press star wanting a touchstone telephone again Thats star one.

Some telephone to ask a question.

Our next question comes from the line of Tom definitely of D. A Davidson your line is open.

Yes, good afternoon, and thanks for the question so Mike.

Quick question on the DRAM market. When you look at potential growth going forward is it more impacted by capacity adds new wafer starts or by node transitions or the changing from the models DDR, Florida DDR five what's the biggest driver of.

Gains going forward.

Yes, I think as wafer starts.

If you look at the way DRAM now works.

The node transitions are shrinks don't offer our customers very much bit growth and so the way they are driving big growth is essentially through new wafer starts.

Put more wafers through a DRAM fab youre going to need more probe cards and so I think that's the fundamental driver of demand, having said that as we've talked about a little bit earlier in the session. We don't see a lot of growth in the DRAM probe card market. Our customers are pretty good at squeezing cost out of DRAM test on a per.

Wafer per bit basis, so that we some growth there mostly driven by wafer starts, but we don't expect it to be anything like the growth associated with foundry and logic and the move to chip let style architectures.

Okay that makes sense, so I guess looking at the foundry logic market. It seems like every week, we hear about several more $10 billion fabs going up all over the world.

Is there a rule of thumb that a $10 billion fab or 20000 wafer start fab would drive X amount of probe card business on an annual basis.

Yes, not really because it is different.

Customers have different test strategies.

And you see this in our revenue makeup.

Maybe not obviously, but if there were a simple rule of thumb you.

You wouldn't see such a large variance between customers that are driving large amounts of wafer start demand through things. So I think it depends on customer depends on that customer's test strategy.

But.

To your point all of this.

Foundry and logic high end foundry and logic fab capacity coming online.

Going to have to test those wafers irrespective of what their test strategy is whether it's.

Hi, wafer test intensity or a moderate wafer test intensity strategy and so I think as these fabs continued to build out this is a long term positive.

For the overall industry and for Us certainly.

Okay. Thanks, that's helpful.

And then when I look at.

It looks to be something like $50 million to $100 million of incremental spending capex going on over the next year.

2021, 2022 for the new facility.

What's the impact on Cogs and Opex for the increased spending.

Yes, so you might recall that we actually purchased the building.

In the new manufacturing certainly even more this really helps with the amortizing most of the experience on over a longer period of time. So we don't expect that amortization in growing the line was going to be a significant impact and it is built into the 47%.

That model.

So I'm going to be big and we take that into consideration.

Alright.

You said, it's on schedule can you give us a sense for what percentage fill that is or how much more capacity there is to expand that over the next several years.

I think the way to look at it. So we purchased the entire building its about 100000 square foot.

Now, we build the clean room, and some offices around it et cetera on behalf of the building.

In Q4, we had tools in the building.

Started manufacturing and producing revenue.

In December so some some.

<unk> contribution in Q4 revenue, but not a lot.

This building what we have now will help us to get to achieve the $850 million and beyond.

As.

Mike mentioned in the prepared remarks, and we are in the process of formalizing our plans for the next level.

The second half of the building additional capacity expansion that we need to in other parts of the world, they're executing process of formularies.

Great well. Thank you both for your time today.

Thank you.

Thanks, John .

Thank you. Our next question comes from David Duley of Steelhead Securities. Your line is open.

Thanks for taking my question a couple as far as the <unk>.

Wafer fab equipment business, let's say growth around 15% in 2022, what do you think the growth rate of your probe card business will be or what do you think your form factors growth rate will be with that kind of WSB number.

Yes, again it can be.

Talked about in the past it's difficult to tie specific WSI stands to probe card spends because customers do have.

Different test strategies that you've seen over the years that wf fee increases do result, directionally increases and probe card spend not too surprisingly as we talked about with Toms question more wafers out means more probe cards and so more spend there.

There's different correlations you can look at over time, and it's different for different segments very different for DRAM as it is for high end foundry logic, but I do think the market growing.

This overall high single digit growth rate is not a bad blended growth rate for the probe card market tends to be less volatile than capital equipment. Both on the upside which is obviously the situation. We're in now and the downsides as we've seen in the past.

So what I was really trying to get at is what you think your growth rates go ahead Ian.

The answer is high single digits is the best guess at this point.

Yes, I think so.

For those of you that followed us for a long time, you know that visibility is a challenging part of this business. We continue to drive lead times and cycle times down so that we're able to meet customer demand essentially racing wafers through the fab.

And so beyond.

Even the current quarter visibility can be a challenging thing, but you look at all of the spending and investment that's going on in increasing leading edge capacity and.

And obviously directionally, whether it's 2022 or 2023 for our business more probe cards are going to be required.

Okay, you've touched on this earlier, but.

I'm just curious.

With the delay of three nanometers at TSMC from 2022 to 2023.

I would imagine that would have been a nice bump in revenue for you guys that it happened. This year is there some sort of way we can quantify the impact of that delay I realize that theres going to be a lot more designs on five nanometers or four nanometers.

But maybe just when you look at the overall impact how do you look at it.

Form factor.

Yeah, I don't think it has that big an impact for us.

If you look at these well orchestrated well planned node transitions customers are still releasing new designs on the existing nodes as you say five or four.

It's a good part of the strength here in Q1.

One of the things that does happen when you go to a new node, especially a new node with substantially lower yields is the probe card intensity does go up the test intensity does go up at least initially because customers.

One <unk>.

They are operating at lower yields due to start more wafers to get more good diode and test those die in treatment.

But also they are testing a lot of different aspects of the chip to try and improve their yield and so a new node.

It's not a huge difference maybe call it 10% to 20% in overall test intensity, but there is a slight uplift I think the far more interesting thing to look at for US is the fact that designs continue to release on nodes like five nanometer and 40 nanometer continuing to drive a pretty healthy.

Business at least in the first part of that.

One final clarification from me is if you kind of think about high single digits with the overall growth rate.

For for form factor.

Assuming is it a good assumption to think that the foundry logic business would be low double digits in the DRAM business and the other stuff would be helpful.

Below that high single digit rate.

Yes, I think if you go back and read between the lines of some of the questions. We've talked through in this session.

Clear that we have higher expectations for foundry and logic, you can sub segment as a whole bunch of different ways, but.

But I think at its core that segment or that market. As we report it is very likely to grow faster than the overall probe card market.

Thank you.

Okay.

Thank you at this time I would like to turn the call back over to Max Lessor for closing remarks.

Great. Thanks, everyone for joining us today.

We're looking forward to a strong 2022, and hopefully seeing you again in person at some point during the year.

This concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

Okay.

[music].

No.

Yes.

Sure.

[music].

[music].

[music].

Thank you and welcome everyone to form factors fourth quarter 2021 earnings Conference call on today's call are Chief Executive Officer, Mike <unk>, 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 also financial information are available in the press release issued today by the company.

And then the Investor Relations section of our website.

Today's discussion contains forward looking statements.

The maintenance of the federal Securities laws.

Examples of such forward looking statements includes also with respect to the projections of financial and business performance.

Future macroeconomic conditions.

The benefits of acquisitions and investments in capacity and new technologies.

The impacts of the COVID-19 pandemic.

Anticipated industry trends.

There are disruptions in our supply chain.

The impact of regulatory changes.

The anticipated demand for our products, our ability to develop produce and sell products.

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 S. E. T Force physical year ended 2020 and in our other SEC filings, which are available on the SEC's website at Www Dot FCC.

Golf and in our press release issued today.

Forward looking statements are made as of today February 2nd one and 'twenty two antibody assume no obligation to update them.

Is that where the knowledge owns the call over to form factors CEO , Mike <unk> Mike.

Thanks, everybody for joining us today.

One factor posted record results in the fourth quarter delivering revenue of over $200 million for the first time in company history with non-GAAP earnings per share at the high end of our outlook range.

This capped a record 2021 that produced over three quarters of $1 billion in revenue and over $150 million of non-GAAP operating income.

I'd like to take this opportunity to thank the worldwide form factor team for their perseverance and dedication to produce these outstanding results.

As we start 2022 and the year of the Tiger, we continue to benefit from solid demand across all of our served markets and probe cards and engineering systems and we're excited about the important role we play in enabling innovation and growth in the semiconductor industry.

In addition to our record financial results. We were recently recognized by Newsweek for our ESG leadership as one of America's most responsible companies.

Shouldn't you, an environmental and social focus form factors overall ranking was supported by a high school and corporate governance.

Driving form factors ESG performance to a world class level has become a major focus for our leadership team and board of directors in recent years and we're very proud to have been recognized for these efforts.

Like many manufacturing companies, we continue to face a variety of supply chain and broker channels.

Our long term investments in automation and vertical integration helped us mitigate the effect of these headwinds, enabling us to deliver strong results throughout 2021.

However, the recent spread of the Omicron Varian has caused labor shortages in our U S factories in the early weeks of 2022 and is partially responsible for the sequential reduction in revenues in our first quarter outlook.

We are also experiencing extended lead times for some of our products primarily in the system segment caused by delayed deliveries for specific sub components and sub systems from certain suppliers.

Our team remains focused on actively managing and resolving these challenges by working closely with our current suppliers and rapidly qualifying and ramping new suppliers.

Minimizing impacts to our supply chain and labor availability is especially important in view of our capital investments to meet growing customer demand.

As we previewed in our October earnings call, we begin customer shipments from our new liver more manufacturing center in the fourth quarter and the shipments contributed to our record quarterly revenue.

We are gradually increasing capacity and deliver more to meet customer demand by adding both tools and labor.

We're also expanding other facilities across our global manufacturing network, which will create the capacity to meet and then exceed the $850 million revenue of our current target financial model.

Turning now to segment and market level details.

Foundry and logic probe cards, our largest business was responsible for most of the sequential growth in the fourth quarter tracking to our seasonal pattern. It has been in place the past few years.

Consistent with that seasonality, we expect to see a slight decrease in overall first quarter foundry and logic revenues with a reduction in RF probe cards, partially offset by strong foundry demand.

This foundry strength provide some real time insight into the differences between the demand drivers for consumables like probe cards and.

And for capital equipment like automated test equipment.

As we often note probe cards are a consumable specific to each new chip design and so we benefit from both node transitions and the release of new designs on existing nodes and.

In the first quarter, our foundry business is being driven by the second component the release of new designs on existing nodes as we enable the use of our customers' installed base of testers to test new chip designs, primarily in high performance compute applications.

Our expectation for continued long term growth in the foundry and logic probe card market is one of the primary drivers of our ongoing capacity expansions.

Customers are investing in both leading edge capacity is evident from record levels of wafer fab equipment spending.

And early stage innovative advanced packaging architectures, like <unk>, <unk> and <unk> fabric.

To help offset the slowing of front end driven Moore's law.

As we've discussed in the past these chips for Tayo basically integration schemes drive both higher test intensity, which expands the number of probe cards required per wafer out and test complexity with widens form factors competitive advantage.

Together, both these dynamics create tailwind for long term foundry and logic probe card demand.

Turning to DRAM.

Demand for DRAM probe cards in the fourth quarter sustained near the high levels of the second and third quarters as customers continued to release and ramp multiple new designs and volume.

Did you expect a moderate sequential decrease in DRAM revenues in the first quarter. After several quarters of these near record levels.

New design activity with each of the major DRAM manufacturers continues to be strong with our diverse mix of new DDR forward and DDR five designs in both mobile and PC server applications and we expect this new design activity will continue to sustain healthy DRAM demand from each of our customers.

<unk> ability to absorb these short term fluctuations in demand from each of our customers served markets and specific applications within these markets as a result of our long term initiatives to be a diversified market leader supplying all major semiconductor markets and manufacturers and it remains a key.

Key tenants of our operational strategy.

Our engineering systems business also delivered record results in the fourth quarter with revenue of nearly $40 million and we continue to experience sustained demand in the first quarter.

This demand is driven primarily by the adoption of FRP optical metrology tools and advanced packaging applications, along with continued customer investments in engineering programs to enable industry innovation and new Cmos architectures like gate, all around and optical applications like silicon photonics.

In addition, we recently launched an exciting new program to offer HDD state of the art cryogenic test tools and capabilities as a service, enabling quantum computing developers to rapidly and cost effectively characterized a few bps and resonators.

Using form factors cryo stats with innovative probe sockets adapted from our market, leading probe card business customers can utilize the service to dramatically accelerate development cycles with no upfront capital investment.

Let me close by noting that with a solid demand and increased capacity to meet that demand.

Well along the path to achieve the target financial model to deliver $2 of non-GAAP earnings per share on $850 million of revenue.

Our leadership position in our attractive served markets paired with our differentiated strategy and disciplined execution will.

We will drive continued growth and share gains as we progress towards our target model and beyond.

Shai over to you.

Thank you, Mike and good afternoon.

As you saw in our press release and as Mike mentioned Q4 represented a strong finish to a great year.

We concluded the year with record quarterly and annual revenues and record quarterly non-GAAP operating profit and pre tax income achieved while opening our new manufacturing center during the quarter.

Fourth quarter revenues were above our outlook range and non-GAAP EPS was a valley end of the range, while non-GAAP gross margin was at the low end of that.

Form factors fourth quarter revenues were $205 million, an 8% sequential increase from Q3, and an increase of 4% year over year.

And contributed to a total fiscal 2021 revenues of $770 million and 11% increase compared to 2020.

Probe card segment revenues were $166 million in the fourth quarter, an increase of $11 million or 7% from Q3.

The increase was driven by higher revenues in older markets, we serve with the biggest increase in foundry and logic revenues.

System segment revenues were a record $39 million in Q4, an increase of $4 million or 11% from the third quarter, mainly as a result of higher sales of 300 millimeter systems and cryogenic probes for quantum obligations, partially offset by lower thermal systems revenues.

We the probe card segment within the probe card segment foundry and logic revenues increased by $9 million from Q3 to $114 million in the fourth quarter.

Comprising 56% of total company revenues slightly higher than the 55% in the third quarter.

DRAM revenues were $40 3 million Boes in Q4, <unk> $4 million or 1% higher than the third quarter and were 20% of total quarterly revenues as compared to 21% of revenues in the third quarter.

Flash revenues of $11 $6 million in Q4 were $1 $2 million higher than in the third quarter and were 6% of total revenues in Q4 same as in Q3.

GAAP gross margin for the fourth quarter was 43, 7% of revenues as compared to 42, 2% in Q3.

Cost of revenues included $1 $3 million of GAAP to non-GAAP reconciling items, which we outlined in our press release issued today and in the reconciliation table available in the Investor Relations section of our website.

On a non-GAAP basis.

Gross margin for the fourth quarter was 44, 3% within our outlook range, reflecting lower gross margins in both segments and 170 basis points lower than the 46% non-GAAP gross margin in Q3.

Gross margin improvement remains an area of focus.

As a reminder, we expect the margins will fluctuate from quarter to quarter, mainly as a result of changes in product mix.

Our probe card segment gross margin was 44, 1% in the fourth quarter, a decrease of 100 basis points compared to 45, 1% in Q3.

The difference was mainly due to a less favorable product mix and higher wafer processing expenses related to production flow timing, partially offset by lower indirect material spending.

Our Q4 systems segment gross margin was 45, 5% 460 basis points lower than the 51% gross margin in the third quarter.

This decrease is due to a less favorable product mix and year end inventory adjustments as.

As we've said previously we expect our systems segment gross margin to range between the high <unk> to low <unk>.

Our GAAP operating expenses were $58 million for the fourth quarter $1 million higher than in the third quarter.

non-GAAP operating expenses for the fourth quarter were $49 7 million.

Or 24, 2% of revenues as compared with $48 5 million or.

25, 5% of revenues in Q3.

The $1 $2 million increase relates mainly to higher marketing travel and sales commissions expenses in line with the increases in revenues and business activity.

Company noncash expenses for the fourth quarter included $7 8 million for stock based compensation $2 $4 million for the amortization of acquisition related intangible.

And depreciation of $6 5 billion.

Levels similar to the third quarter.

non-GAAP operating income for the fourth quarter was 41 million, a company record and $2 $3 million higher than the third quarter.

GAAP net income for the fourth quarter was $26 million or.

<unk> 33 per fully diluted share compared to $20 5 million or <unk>.

<unk> per fully diluted share in Q3.

The non-GAAP effective tax rate for the fourth quarter was 16, 7%.

220 basis points lower than the 18, 9% in Q3.

This brings our 2021 full year non-GAAP effective tax rate to 18, 2% within our anticipated non-GAAP effective tax rate of 50% to 20%.

As a reminder, our annual cash tax rate is expected to remain at 6% to 8% of non-GAAP pre tax income.

Fully utilize our remaining U S based R&D credits.

Fourth quarter non-GAAP net income was $34 7 million or.

Or <unk> 44 per fully diluted share compared to $31 6 million or <unk>.

<unk> per fully diluted share in Q3.

The fourth quarter's non-GAAP net income was second only to the fourth quarter of 2020.

Moving to the balance sheet and cash flows.

We generated $24 million of free cash flow in the fourth quarter compared to $14 million in Q3.

Bringing 2021 free cash flow to $74 million.

In a year that included a significant investment in capital expenditures of $67 million.

We had total cash and investments of $280 million at the end of the quarter.

With fourth quarter $10 million sequential increase in free cash flow reflects decreased investment of $5 million in working capital and $5 million decrease in capital expenditures.

As of the end of the fourth quarter, we have two term loans remaining on the on our balance sheet sort of $24 million.

We invested $15 million in capital expenditures during the fourth quarter compared to $20 million in Q3.

This brings our year to date capex to $67 million just below our previously communicated range of $70 million to $80 million.

This investment chiefly related to the capacity expansion in our Levered more manufacturing center, which went online during the fourth quarter as expected.

In 2022, we expect to continue to invest in increasing capacity to meet customer demand.

Accordingly, 2022 Capex explicitly.

Thank you.

As planned to be between 60 and $80 million.

As a reminder, we expect capex to return to the three 5% to 4% of the revenues in our target financial model. After we conclude these capacity expansion.

No significant share repurchases were made during the fourth quarter and full year ended we purchased just over 620000 shares with an average purchase price of $48 62.

Under our two year $50 million share repurchase plan.

This brings our total share repurchases under this plan to about 0.8% of our outstanding shares.

The main purpose of the plan is to offset dilution from stock based compensation as of year end 2000 $6 million remained available for future repurchases.

Turning to 2022 first quarter non-GAAP outlook as Mike mentioned, we expect the seasonal decline mainly in foundry and logic revenues and a moderate decrease in DRAM revenues.

These factors result in a Q1 revenue outlook in the range of $188 million to $200 million.

non-GAAP gross margin for the first quarter is expected to be in the range of 44% to 47%.

On a more favorable product mix, partially offset by higher input costs and labor expenses.

At the midpoint of this outlook ranges, we expect Q1 operating expenses to be higher in Q4 by approximately $1 million mainly.

Mainly due to annual benefits and additional hiring.

Accordingly, non-GAAP earnings per fully diluted share for Q1 is expected to be between 35% to 43.

A reconciliation of our GAAP to non-GAAP Q1 outlook is available on the Investor Relations section of our website and press release issued today.

With that let's open the call for questions operator.

Yes.

As a reminder to ask a question. Please press star one on your telephone to withdraw your question press the pound key.

Standby.

While we compile the Q&A roster.

Our first question comes from the line.

Ryan Chin of Stifel. Your line is open.

Okay.

Hi, Good afternoon, nice <unk> results and thanks for letting us ask a few questions.

Maybe the first question just housekeeping wise, how large is the <unk> revenue impact from the labor and component constraints you referenced.

Yes, Brian its Mike.

If you look at the midpoint, it's down roughly $10 million.

I'd split that basically in half between supply chain and labor constraints that we've experienced early in the quarter.

And the other half being the seasonality, we typically see Q4 to Q1 in foundry and logic and we see directionally have seen larger seasonality down ticks in that Q4 to Q1. There is some element of it but as I said the foundry piece of the business is quite strong so again $10 million down at the midpoint.

And about half between constraints and demand seasonality.

Okay, that's fair.

Very helpful.

And then maybe an observation.

Maybe the foundry logic part of the business, but.

And <unk> the company is bringing a record quarterly revenue even as revenue to your largest customer it looks like it's down 30 35, 40% from its run rate maybe in 2020.

It seems like a positive I guess from a timing perspective.

When would you anticipate that logic devices dealt with seven nanometer process technology that rely on significant heterogeneous integration. What do you think that could be made more of a certain part of the revenue stream.

So it's a great observation, Brian and one that I do.

I do want to emphasize with Stifel.

We talked about some of the 2020 run rates for that customer probably not being at sustainable levels at least for us there.

Their 10 nanometer 10 nanometer manufacturing model.

Did you see in the second half of 'twenty, one we did come back to some more.

More normalized levels, but if you look at it a little bit further to heterogeneous integration shiflett strategies or tile strategies.

Those definitely are raising test intensity, which is going to require more probe cards per wafer out.

That for US right now is a very significant R&D activity, but I wouldn't expect it to significantly help with revenue until maybe late in this year or early early into 2023.

If you look at the usual.

Delay or lag between a customer product releases in the probe card demand you can see theres a couple of quarters in there and so although again, a very active part of our R&D engagement with that customer and all leading customers in the foundry and logic space.

I do expect it to be a late in the year early 'twenty three.

Extra living.

Got it.

And then maybe just one step back question, Mike before I hop off.

If you were to carve out the the advanced foundry and logic part of the probe card market, so that kind of isolate on that Sam.

What do you think the market CAGR might be for that over the next two year horizon.

Yeah. So it's an interesting question because there's components of some real structural tailwind there.

But some also unpredictable headwinds that we've obviously dealt with over the last couple of years. The most recent being the omicron issues to start 2022.

You look at the overall probe card market.

Really a high single digit grower.

The that piece the high end foundry and logic, I think thats, where the biggest tail winds are in all of those are difficult to quantify with the different puts and takes associated with high nwfp spend some of the advanced packaging adoption heterogeneous integration adoption that we just touched.

John .

I do think theres the potential for that sub segment.

It grows.

It's a single digit growth of the probe card market and we've seen that in a couple of recent years. Fortunately, it's our biggest market and one in which we do.

Okay, Great. That's helpful. Thanks, so much.

Thank you once again to ask a question. Please press star one on your Touchstone telephone again Thats Star one on your Touchtone telephone to ask a question.

Our next question comes from the line of Krish Shankar of Cowen <unk> Company your.

Your question please.

Hi, Thanks for taking my question I actually have three of them too Mike.

The fed comments, you mentioned that the <unk>.

Apply constraints impacted the systems business, but not the probe card I want to make sure I heard that right and if that is the case and I understand throughput of the consumables, but if some of the front end equipment folks are having issues with constrained and then shipping it to your customers.

How does that if at all impact probe card demand.

Yes.

They impact.

Part of the demand and the seasonal downtick, we're seeing here in Q1, it's obviously hard to tell at the moment.

But if the customers don't have the front end capacity in place to produce wafers qualify them and ramp new designs, they're not going to be progress.

We've discussed in the past, we typically lag the Wi Fi spending and install by somewhere between two and four quarters, depending on customer yield ramp and the details of that so any delays in WMC are going to result in delays in the overall probe card step having said that there was enough W.

<unk> stand in capacity added across the industry in 2021 that led to some strong demand in the back half of the year that led to the record results and continued pretty good momentum here into 2022.

Got it Super helpful and then.

I do understand like most of you broke out that I'm, leading edge is there.

You say lagging edge is like say, a 14 or 16 nanometer and above and I know I think one of your foundry customer fully in house brokers the lagging edge.

What did you say your probe card revenue split is between leading and lagging edge, a leading and mature nodes.

Gosh.

Thats a tough one that we'd probably have to get back John I don't want to guess on my feet, but you are right. The majority of our revenues are driven by leading edge nodes and new designs ramping on those leading edge nodes. The one significant exception is things like.

The automotive industry, we do have a reasonable business for Microcontrollers and.

In specialty chips in automotive that are obviously fabs on trailing edge nodes. It is a probe card manufacturer sort of in between the front end and the backend Austin, we don't have a ton of visibility onto the specifics of that node unless it's a very significant design, where theres a lot of visibility from the customers.

Got it fair enough and then a final question for Shai.

I mean, the target model you laid out in 2020, <unk> hundred 62 loss in earnings clearly it looks like you are.

And between then and now obviously the foundry logic WC.

But the amount of <unk>.

Meaningfully moved higher so I'm just kind of curious.

$50 million to above EPS assists in the target.

Feel good about exceeding that.

So we feel very comfortable with the target model, we put in place and the progress we've made so far.

We are not there yet right and making great progress with the fact that we didn't in Q in Q4, and as we get closer to the model. If we run a couple of quarters run rate, which is close to this run rate will provide an update on the model similar to what we did a year ago, when we got closer to achieving the previous.

Model.

Got it fair enough. Thanks, Charlie Thanks, Mike.

Thank you Victor.

Thank you. Our next question comes from Charles <unk> of Needham <unk> Company. Your line is open.

Good afternoon, and thank you for taking my question.

Mike maybe my first question.

A bit about your indirect customer.

<unk>.

Your seasonality pattern here.

I think over the last couple of weeks, we did hear some people got heard because I know Mike ratio Apple being delayed by one year, but we also because there are some other semiconductor device companies seeing pull ins at Apple.

<unk> built.

Inventory.

I did hear us that the foundry seems to be strong and you did highlight the HV PC strength I don't know if thats really coming from your indirect customer facing direct customer not on the mobile side are you seeing some of the pooling effect as well or do you see a slightly different seasonality pattern.

Thank you.

Yes, I think it's an important piece to our business understand and that's why I took the time to make the point in the prepared remarks.

Probe card demand is driven by new designs and.

If they are on existing nodes that drives probe card demand is there on new nodes that obviously drives probe card demand. So you can often see these local dislocations.

Between our consumables business and capital equipment businesses, they're very closely related for example.

If I look at the foundry strength at present.

As I said, it's primarily associated with HBC high performance compute there are mobile elements to it.

No question about it.

I think if I were to draw a single dominant theme to it it is high performance compute in the foundry segment.

Which is not too surprisingly given the rapid innovation and some of the very interesting chip designs, you see ramping through that ecosystem.

Got it.

Maybe the next question.

On your supply chain I think got it.

You did provide some quantitative color. Thank you for that.

I wanted to ask.

If you can provide some direction or color in terms of the supply chain impact and what you are seeing right now is that more impacting.

On the cost side of the business or the system side of the business.

Yes, it's definitely more impacting the system segment.

And it's pretty targeted things pretty.

Pretty targeted sub components from a handful of suppliers and when you get to the fundamental root cause of what's causing those suppliers to push out their deliveries to us somewhat ironically it comes back to the semiconductor shortage or at least electronic component shortages.

Our team's done a very good job of working with existing suppliers and qualifying new suppliers, but as with many other <unk>.

Semiconductor companies and semiconductor supply chain companies.

We are constrained in a couple of places that is having an impact on lead time at present.

Again very focused in the systems segment, we've managed to.

Avoid any impact in the probe card segment and continues to be very focused on doing that.

But.

As such an active part of managing the business and managing any semiconductor supply chain business right now.

As it is a big part of management's attention.

Got it and maybe my last question, a little bit switching to longer term view I wanted to ask you about the DRAM, obviously <unk> is a big driver for your probe card business.

But assuming you have some visibility into what probe cards are really supporting DDR for and what our Muni supporting five are you seeing the crossover in terms of either volume or dollar value.

Update a transition from deep water DDI fire in terms of the probe card demand yet if you haven't seen it that do you expect you'll see that this year.

My last question. Thank you.

Yes, I think we're pretty close to what do you want to call it a crossover or parity between DDR for DDR five.

I've been quite surprised at.

The longevity of Edr for some of these previous architecture transitions, our DRAM customers have gone through have been pretty discontinue its almost like a node transition. There. We went from DDR three to DDR four there was a big shift in design activity and most new designs all of a sudden became DDR for that.

Not the case here at present with the <unk> transition or there's still a lot of designs on DDR floor.

I don't know whether thats associated with some of their related ecosystem pieces.

<unk> different other.

Peripheral chips, so that sort of thing, but it is an interesting observation that we're hovering right around parity from a new design perspective between <unk> and <unk>.

Thank you Mike that's all for me. Thank you alright, thanks, guys.

Thank you. Our next question comes from Craig Ellis B Riley Securities. Your line is open.

Yes, thanks for taking the questions. The first one is just a clarification and understanding.

Some of.

Issues that are at play in the first quarter outlook around supply chain and labor issues.

I think Mike I heard you say that if we look at.

Change in revenue about half of that is.

Supply chain related things and I think I'm hearing from this call that supply chain has some issues on the system side and then some labor issues.

The question is this.

Do you feel like you have good visibility to it.

Getting better supply dynamics with some of the things that are impacting systems.

With respect to some of the things that are more labor related when do you think you would have staffing back where you want it to be it's just something that persist through the first quarter or should you have that largely behind you by the time you get into this into the second quarter.

Yes.

Let me address a couple of aspects of that question, let's parse it into supply chain and labor separately. So on the supply chain side, yes approximately.

Well half of half of the impact of the quarter. The impact was associated with sub component supply in the systems business.

These are things that as I said, our supply chain team continues to work to find alternatives to work with existing suppliers to make sure that we can.

To mitigate.

The overall impact of those shortages and keep our commitments to customers and keep lead times down as best we can.

The other component and this is primarily in the probe card side.

Is labor shortages in the early part of the quarter, primarily due to the quarantine requirements associated with obviously a lot of people, we have primarily a U S manufacturing west coast footprint, a lot of people were either infected or had a close contact and our safety policies require even if you don't test positive.

If you live with somebody who have been in close contact with somebody who tests positive youre not allowed in the factory and so that took a significant chunk of labor capacity.

Month of January it does seem to consistent with the communities around us improve.

Rather dramatically over the past week or so.

But if I'm trying to play forecaster for Covid infection rates I don't have a very good record and I'm not sure I'd want to lean into that one too far we're trying to keep our workforce as safe as we can assuming there is no new variance among us that takes out a significant fraction of the workforce. It feels like most of that's behind us.

But the last two years have taught us anything it's that predictions for the.

The end of the pandemic tend to be a bit difficult to make.

Yes, absolutely that's the case.

Second question was just on the DRAM business.

Company was opportunistic picking up share.

In the third quarter and clearly the business is strong and you talked about the strength you're seeing in DDR three excuse me DVR foreign DDR five with.

With each manufacturer. The question is this how do you feel about share at present and as you look out over the course of 2022 are there opportunities for further share gain in the DRAM market.

Yes, I think it's like the high end foundry and logic market.

It's essentially a market where.

There's two primary suppliers us and in DRAM Japanese company.

We did manage to gain some share over the past year on our key competitor and I think theres the opportunity at least to hold that share if not gain some more some of those share gains are specific to the kind of devices and the test strategies that our customers are releasing and ramping.

We've talked a lot in the past about mix in DRAM in two touchdown versus one that's down configurations Theres a lot of subtleties in where it's one factor has competitive advantage, but I think the.

The share gains we've been able to achieve and execute on in 2021, I am optimistic that over the long term, we're going to be able to hold those and hopefully push them forward.

That makes sense and then lastly for me before I hop back in the queue.

This is at least the second call.

That you've mentioned quantum computing and some opportunities in the systems business can you just talk about how material that opportunity is now and what.

What you think might be possible over the next couple of years.

Yes.

Quantum for us really.

A long term play and by long term I mean outside the $850 million target model and achievement of that.

But it was fundamental to the acquisition, we made of HPV, Colorado, a little over a year ago. The reason we did that is because we had major customers coming to us.

They're really asking us to help them.

<unk> out strategies build tools build capability to test. These quantum computing devices now the subtlety here. The difficulty here is that most of these quantum computing devices have to operate at very very low temperatures and very well controlled environment, So close to absolute zero.

And things like.

Essentially no magnetic fields, so that drives some very specialized test requirements.

A pretty natural fit to our engineering systems business and an exciting long term opportunity for us to enable this nascent industry, but it's a few years off no question about it I would not expect to see.

Significant impact on our financials over the next couple of years, but again, it's one of the longer term. That's we're making to continue to drive growth in Sam expansion for form factor and just to finish the point as part of the reason why we introduced this.

Test as a service.

We announced earlier this week we.

We're really helping this nascent industry get the characterization and testing done quickly while learning side by side with them and monetizing.

Both the acquisitions that we made and the capabilities that we have at circle.

Yes, and then if I could just ask a follow up to that the systems related.

$39 million in the quarter is the best number that I can see going back six to eight quarters and I think the best ever I Didnt catch from the prepared comments what contributed to such a high level.

I think we're seeing things ease off a little bit in the first quarter from guidance, but.

But what's the potential for for us to be moving maybe to a new higher level of system sales. So it's closer to the $40 million range per quarter versus low to mid thirties.

Yes, I touched on a little bit in the prepared remarks, but it's worth expanding on.

That level of the systems segment being up around $40 million.

It really has three primary factors.

One is.

A lot of strength in the core engineering probe business.

Augmented by some strength in the thermal piece of that business are foundry and logic customers are dealing with trying to test devices with very high powered entities hundreds of watts.

And dissipate the power out of that and so there's some real technical need there that we're solving that problem.

But the other piece on top of that is the benefit of the acquisitions we've made.

HDD to a lesser extent because as I just told you, but there is a positive impact there.

We've seen some nice growth out of the FRP optical metrology business as their tools get adopted for advanced packaging applications. So the systems business operating.

Up around $40 million level as a consequence of legacy systems being nice and strong because of the industry innovation and yield improvement along with them.

Good benefit from the acquisitions that we've made over the past couple of years.

Got it thanks, Mike.

That's great.

Thank you.

Thank you. Our next question comes from Christian Schwab of Craig Hallum Capital. Your question. Please.

Hey, guys.

Just a quick follow up on DRAM.

What should we think about DRAM growth in calendar 'twenty two.

Given we will have new designs on DDR, five and probably a continuation of new designs on existing nodes.

But DRAM was especially strong.

This year.

Can you give us a framework of kind of growth expectations there.

Yes, I would.

Go back and think about we've talked about potential growth in the at the high end foundry and logic probe card market.

If you look at the overall probe card market in kind of a mid to high single digit CAGR.

We don't expect DRAM to outgrow that significantly and there are several reasons for that.

One is our customers tend to do a pretty good job of constraining their overall spend.

And driving their cost of test using things like <unk> ability to test the whole wafer ones.

To drive test cost down so we don't expect to see a lot of market growth there really the place as we've talked about.

Both on this call and on previous calls and associated with our model.

Our real growth is coming from foundry and logic probe cards, a lot of investment there and a lot of complexities intensity increases, which are driving up our customer spend as they try and make sure that they're yielding good parts, especially as they go into these chips with style products.

That's great.

Great segue into your.

You know historically at least this year.

Your third largest customer.

Do we have a path or a visibility for them to be a more consistent 10% customer.

Throughout calendar 'twenty two.

Give us some direction.

How we should be thinking about that I know we've talked about.

That customer in the past previously.

Maybe being able to scale materially higher can you just give us an update on that.

Sure Yes.

Reiterating our expectations for that customer we do believe we can get them up to something like $100 million a year end noise one of the challenges with them, appearing as a 10% customer as we continue to grow the business quite substantially and so is the bar to get our 10% list continues to grow.

Their business continues to be pretty seasonal.

We do expect.

First quarter strength as I mentioned in the prepared remarks, and I think it's.

Indicative of higher test intensity on some of these advanced high performance compute designs.

It really drive a higher probe card spend but I would also expect seasonality to continue as they prepare for second half ramps for some of these things by by both starts in the first half and qualifying everything and making sure.

Okay. So typical seasonality kind of two to last year kind of as a customer.

Stronger in the first half and not quite as strong in the second half is that right.

Yes, and sort of within striking distance of being 10% in most quarters, sometimes on the list sometimes not.

Okay perfect.

Thanks, guys no other questions.

Thanks Christian.

Thank you. Our next question comes from Amanda Scotty of Citi. Please go ahead.

Thanks can you talk a little bit about the competitive environment that youre seeing in logic and foundry and have there been any shift.

Over the last 12 months either.

At Intel where at TSMC as the dynamics change a little bit businesses.

Yes.

So we talked about the competitive dynamics I think with Craig's question in in DRAM foundry and logic, a similar market <unk> got two very strong lead suppliers.

Yes.

Privately held Italian company.

And they've shown some good growth I think they've done a good job in continuing to execute and achieve a strong second supplier position that a lot of these key customers.

But I wouldn't characterize it as a fundamental change in the competitive dynamics I think there are going to be ebbs and flows in market share as things go through different transitions, but fundamentally.

The probe card market is no different than some of the other markets like etch and dep, probably not lithography.

There two credible suppliers are going to be competing designed to design and node to node.

Four different opportunities different share gains.

It's a relatively healthy competitive environment, not just the DRAM and foundry and logic as well.

Maybe just talk a little bit about.

The M&A strategy going forward. It seems like you have quite a nice portfolio of adult out a lot of growth happening recent acquisitions and say propel growth for 2020, sorry in 2023.

Is there additional appetite for M&A near term or do you think that portfolio is pretty well right now.

Yes.

<unk> appetite for more M&A is a key component of our strategy.

Primarily focused in extending our served markets. We think we can in our existing served markets continue.

Continue to execute drive leadership position and drive share gains. We don't think we want to spend M&A dollars there partially because of the dual supplier dynamics I talked about previously, but if you look in the systems segment and some of the related consumables segment. I think there are some attractive pieces of sort of market.

We do want to be taking the dollars that we're generating from operations.

Things like the probe card business and deploying them in buying leadership positions in new pieces of certain market.

The recent acquisitions we've done.

I talked about <unk> growth for optical metrology and advanced packaging applications. A great example of us taking some of that capital deploying it to buying some strong technology. Some good products and then driving them through the form factor customer relationships and overall.

Industry stance.

Get good growth out of those acquisitions, that's a theme that we're going to continue to execute to it.

Perfect. Thank you.

Thanks Man.

Thank you again to ask a question. Please press star one and you touched on telephone again Thats Star one.

Some telephone to ask a question.

Our next question comes from the line of Tom <unk> of D. A Davidson your line is open.

Yes, good afternoon, and thanks for the question so Mike.

Quick question on the DRAM market. When you look at potential growth going forward is it more impacted by capacity adds new wafer starts or by node transitions or the changes from the models DDR, Florida DDR five what's the biggest driver of.

Gains going forward.

Yes, I think as wafer starts.

If you look at the way DRAM now works.

The node transitions are shrinks don't offer our customers very much bit growth and so the way they are driving big growth is essentially through new wafer starts.

Put more wafers through a DRAM fab youre going to need more probe cards and so I think that's the fundamental driver of demand, having said that as we've talked about a little bit earlier in the session. We don't see a lot of growth in the DRAM probe card market. Our customers are pretty good at squeezing cost out of DRAM test on a per.

Wafer per bit basis, so there'll be some growth there, mostly driven by wafer starts, but we don't expect it to be anything like the growth associated with foundry and logic and the move to chip let style architectures.

Okay that makes sense, so I guess looking at the foundry logic market. It seems like every week, we hear about several more $10 billion fabs going up all over the world.

Is there a rule of thumb that $10 billion fab or 20000 wafer start fab would drive X amount of probe card business on an annual basis.

Yes, not really because it is different.

Customers have different test strategies.

And you see this in our revenue makeup.

Obviously, but if there were a simple rule of thumb you.

You wouldn't see such a large variance between customers that are driving large amounts of wafer start demand through things. So I think it depends on customer depends on that customer's test strategy.

But.

To your point all of this.

Foundry and logic high end foundry and logic fab capacity coming online.

Going to have to test those wafers irrespective of what their test strategy is whether it's.

Hi, wafer test intensity or a moderate or wafer test intensity strategy and so I think as these fabs continued to build out this is a long term positive.

The overall industry and for Us certainly.

Okay. Thanks, that's helpful.

And then when I look at.

It looks to be something like $50 million to $100 million of incremental spending capex going on over the next year.

2021, 2022 for the new facility.

What's the impact on Cogs or opex from the increased spending.

Yes.

Might recall that we actually purchased the building.

In the new manufacturing certainly lever more this really helps with the amortizing most of the experience on over a longer period of time. So we don't expect that amortization in growing the line was going to be significant impact and it is buildings with a 47% target model. So.

So I'm going to be big and we take that into consideration.

Alright.

You said, it's on schedule can you give us a sense for what percentage filled it is or how much more capacity there is to expand out over the next several years.

I think the way to look at it. So we purchased the entire building its about 100000 square foot.

Now, we build the clean room, and some offices around it et cetera, only half of the building.

In Q4, we had tools in the building.

Started manufacturing and producing revenue.

Started in December so some some contribution in Q4 revenue, but not a lot.

This building what we have now will help us achieve the $850 million and beyond.

As Mike mentioned in the remarks, and we are in the process of formalizing our plans for the next level.

The second half of the building additional capacity expansion that we need to.

In other parts of the world, they're executing process of formulary.

Great well. Thank you both for your time today.

Thank you.

Thanks, John .

Thank you. Our next question comes from David Duley of Steelhead Securities. Your line is open.

Thanks for taking my question a couple as far as the.

The wafer fab equipment business, let's say grows around 15% in 2022, what do you think the growth rate of your probe card business will be or what do you think your form factors growth rate will be with that kind of W. FTE number.

Yes, again it can be.

You talked about in the past it's difficult to tie specific WSI stands to probe card spend because customers do have.

Arent test strategies.

<unk> seen over the years that <unk> increases do result, directionally increases and probe card spend not too surprisingly as we've talked about with Toms question more wafers out means more probe cards and so more spend there.

There's different correlations you can look at over time, and it's different for different segments very different for DRAM as it is for high end foundry and logic, but I do think the market growing.

Kind of this overall high single digit growth rate is not a bad blended growth rate for the appropriate market tends to be less volatile than the capital equipment. Both on the upside which is obviously the situation. We're in now and the downsides as we've seen in the past.

So what I was really trying to get at is what you think your growth rate is going to be youre being answer is high single digits with the best guess at this point.

Yes, I think so.

For those of you that followed us for a long time, you know that visibility is a challenging part of this business. We continue to drive lead times and cycle times down so that we're able to meet customer demands essentially racing wafers through the fab.

And so be it.

<unk>.

Even the current quarter visibility can be a challenging thing, but you look at all of the spending and investment that's going on in increasing leading edge capacity.

And obviously directionally, whether it's 2022 or 2023 for our business more probe cards are going to be required.

Okay, you've touched on this earlier, but.

I'm just curious.

With the delay of three nanometers at TSMC from 2022 to 2023.

I would imagine that would've been a nice bump in revenue for you guys. If it had happened. This year is there some sort of way we can quantify the impact of that delay I realize that theres going to be a lot more designs on five nanometers of 40 nanometers.

But maybe just when you look at the overall impact how do you look at it for form factor.

Yeah, I don't think it has that big an impact for us.

If you look at these well orchestrated well planned node transitions customers are still releasing new designs on the existing nodes as you say five or four.

That's a good part of the strength here in Q1.

One of the things that does happen when you go to a new node, especially a new node with substantially lower yields is the probe card intensity does go up the test intensity does go up at least initially because customers.

One <unk>.

They are operating at lower yields due to start more wafers to get more good diode and test those die and straighten out but also they are testing a lot of different aspects of the chip to try and improve their yield and so a new node.

It's not a huge difference maybe call it 10% to 20% in overall test intensity, but there is a slight uplift I think the far more interesting thing to look at for US is the fact that designs continue to release on nodes like five nanometer on 40 nanometer continuing to drive a pretty healthy.

Business at least in the first part of that.

One final clarification from me is if you kind of think about high single digits as the overall growth rate.

For for form factor.

I'm assuming is it a good assumption to think that the foundry logic business would be low double digits in the DRAM business and the other stuff would be helpful.

Hello that high single digit rate.

Yes.

Go back and read between the lines of some of the questions we've talked through in this session.

It is clear that we have higher expectations for foundry and logic you can sub segment, there's a whole bunch of different ways, but.

But I think at its core that segment or is that market. As we report it is very likely to grow faster than the overall market.

Thank you.

Okay.

Thank you at this time I would like to turn the call back over to Max Lessor for closing remarks.

Great. Thanks, everyone for joining us today.

We're looking forward to a strong 2022, and hopefully seeing you again in person at some point during the year.

Okay.

This concludes today's conference call. Thank you for participating you may now disconnect.