Good day ladies and gentlemen and welcome everyone to the FormFactor's Fourth Quarter 2016 Earnings Conference Call. On today's call are Chief Executive Officer, Mike Slessor; and Chief Financial Officer, Mike Ludwig. Before we begin, Jason Cohen, the company's General Counsel will remind you of some important information.

Thank you. Today the company will be discussing GAAP P&L results and some important non-GAAP results intended to supplement your understanding of the company's financials. Reconciliations of GAAP to non-GAAP measures and other financial information are available in the press release issued today by the Company and on the Investor Relations' section of our Web site. Today's discussion contains forward-looking statements within the meaning of the Federal Securities Laws. Examples of such forward-looking statements include those with respect to the anticipated effects and benefits of the completed merger between FormFactor and Cascade Microtech, projections of financial and business performance, future macroeconomic conditions, business momentum, business seasonality, the anticipated demand for products, our future ability to produce and sell products, the development of future products and technologies, and the assumptions upon which such statements are based. These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed during this call. Information on risk factors and uncertainties is contained in the most recent filing on Form 10-K with the SEC for the fiscal year ended 2015, and our other SEC filings, which are available on the SEC's Web site at www.sec.gov and in our press release issued today. Forward-looking statements are made as of today February 8, 2017, and we assume no obligation to update them. With that, we will now turn the call over to FormFactor's CEO, Mike Slessor.

Thank you, Jason, and thank you everyone for joining us today. FormFactor delivered a solid fourth quarter to close 2016 with strong momentum. As you have seen from our press release earlier today, we posted fourth quarter financial results at the high-end of our guidance range. For the year overall, we grew revenues by 36% and non-GAAP earnings per share by 32% driven by our midyear acquisition of Cascade Microtech and continued market share gains in our core businesses. As we start 2017, our increased product and market diversification is enabling us to benefit from broad-based strength in semiconductor industry demand. At the same time we are also capitalizing on some FormFactor specific market gains. Both of these factors are boosting our business over the seasonal softness we have historically experienced in the first quarter and are reflected in the go-forward guidance we are providing today. With this unseasonably strong start to the year but still very limited visibility into the second half we expect to deliver between $480 million and $500 million of revenue in 2017 driven by line of sight growth opportunities in each of our target markets. As you know, during 2016 our largest foundry and logic probe card customer doubled their demand for FormFactor products to support both increased wafer test intensity and the continued release of multiple 14 and 10 nanometer designs. To meet this demand in less than one quarter we added the equivalent capacity of the number five probe card supplier in the industry, an achievement that can only be executed on a foundation of significant scale and resources. We expect these positive underlying trends to continue and plan to operate at these increased production levels for this key customer through 2017. In addition to this structural demand increase in the microprocessor space…

Thank you, Mike. And good afternoon. As you saw from our press release, our fourth quarter results were a second consecutive group win [ph] of the financial strength of combining Cascade Microtech and FormFactor. Total FormFactor non-GAAP revenues for Q4 2016 of $124.5 million increased $0.9 million compared to our third quarter. Probe card segment revenues of $98.6 million decreased $4.1 million in the fourth quarter or 4% while system segment revenues increased $5 million or 24% to $25.9 million. Within the probe card segment, foundry and logic revenues of $68.4 million decreased $6.7 million or 9% compared to our third quarter due primarily to the expected demand normalization from our significant microprocessor customer. Mobile processor, automotive and engineering probe applications were strong contributors in the fourth quarter while RF probes were approximately 10% lower than Q3 due to seasonal softness. Foundry and logic revenues comprised 55% of total company revenues in the fourth quarter. DRAM product revenues were $24.1 million, an increase of 8% compared to the third quarter as we saw the demand environment continue to strengthen throughout the fourth quarter. DRAM revenues comprised less than 20% of total company revenues for the second consecutive quarter. Flash revenues of $6.1 million for the fourth quarter increased $0.8 million from the third quarter driven by 3D NAND and node flash design wins. Turning to our system segment, non-GAAP revenues of $25.9 million in Q4 increased $5 million compared to Q3 as revenues were strong across all wafer sized platforms showing meaningful increases in both, the 150 and 200 millimeter platforms and maintaining a robust revenue level from the 300 millimeter platform. Fourth quarter GAAP gross margin was $40.3 million or 32.5% of revenues compared to $27.2 million or 22.1% of revenues for the third quarter. GAAP cost of goods…

[Operator Instructions] Our first question for the day comes from the line of Craig Ellis from B. Riley. Your line is open.

Thanks for taking the question and congratulations on the strong results and outlook. I wanted to ask first, just a clarification question on gross margin in the fourth quarter; on the surface it looks like there are some segment positives with systems being up so much but it's the issue that the interest segment dynamics in foundry and the rise in DRAM more than offset the rise in systems Michael.

Yes, I think that's a good way to look at it. Again, the mix was something that from our perspective was not as favorable in Q4 as it was in Q3.

Okay, that's helpful. And then a near-term and a longer term question related to revenues. In the near-term, can you just recap -- as we look at the first quarter some of the positives and negatives; we're at about $123 million to $124 million for the third consecutive quarter but do you expect revenues to be somewhat similar across the four main segments or are there notable gives and takes? And then the longer term question, to pull your guidance and it's very helpful to get that $480 million to $500 million view but at the midpoint it looks like that would average about $122.5 million per quarter which is about where the business is running. So the question on the long-term side is, is the view that we're at really peak demand levels overall for the business and its entirety or is it more that the lack of visibility in the back half of the year really precludes the company from being more aggressive about revenues from where we stand today?

Craig, it's Mike Slessor. I'll take that question and I'll actually -- I mean answer it in reverse, and talk to the full year and then we'll focus in on the first quarter. You know, our providing full year guidance we are hampered significantly by lack of visibility into the second half. Obviously given the commentary we have the results we're providing and those of our peers, the semiconductor industry is entering 2017, running at a pretty healthy demand levels. The flipside of that is you know, although we're confident about the first quarter, have some visibility into the second quarter; like many of our peers as we move into the second half we really have a lack of visibility. Assuming the momentum continues, I think we're going to be in a position to continue to deliver significantly improved performance but from where we stand and trying to create an expectation for the year and help people understand the business; as I said, we really are hampered by a lack of visibility into the second half. So that maybe answers the longer term question, I hope. If not, we can do a follow-up. If we move to the first quarter, I think by and large at a high level we expect the fundamental components of revenue as we're now a more diversified probe card and system supplier supplying more of the overall test and measurement base; there is little puts and takes in each of our segments but I think you can think about Q1 as it currently is shaping up as pretty similar to Q4 from a mix perspective. There is a couple of [indiscernible] to that. Certainly from our perspective as DRAM continues to strengthen with both 18 nanometer ramps and 20 nanometer new design releases as customers now utilize the equipment that was installed in the second half of 2016. Our DRAM concentration is likely to go up a little bit in the first quarter. Given the momentum we see that maybe a trend of persistence to the second quarter as well but we'll have to see. So from a short-term perspective, I think the first order I'd call the mix, pretty similar fourth quarter to first quarter with the caveat that DRAM is a little bit stronger.

And that's very helpful Mike, thank you for that. And then my last question then I'll let others jump is regarding some of the comments on foundry. Encouraging to see participation at 10 nanometer foundry around midyear. Can you help us understand the materiality of that potential business for FORM foreman and how that opportunity might ramp as we look either at the back half of the year or a time period that would be reasonable for the engagement they have there.

Right. Well and to provide a little more color on this, as I said in the prepared remarks we're now supplying to both major 10 nanometer foundries. And you know, it's pretty limited way to the foundry that we've now added here in the first quarter. 10 nanometer, obviously a node that's pretty specific to one of the key fabulous companies in the overall ecosystem. And so our exposure to their overall wafer and design demand is relatively limited and focused on 10 nanometer and essentially one design. So with all that background, this represents a big milestone for us. To be actually participating in production, now all the major foundries. But it's a little early for us to be sizing the impact of this business. We're on the very initial part of -- sort of planning for this business with what's a new customer for FormFactor, working our way through that, demonstrating not just our technology which we've been demonstrating for the past several years but demonstrating our ability to execute and ship quality products on time. And so as a consequence, again it's a little early for us to size the overall opportunity except to say that over the long-term we expect it to be significant and an important step forward for FormFactor.

That's very helpful. Thanks Mike, and good luck.

Thank you. Our next question comes from the line of Patrick Ho from Stifel. Your line is open.

Hi this is Brian [ph] calling in for Patrick. Thanks for letting me ask a few questions and congratulations on the results. In terms of the revenue synergies, can you elaborate on where you're beginning to see some initial successes in leveraging the combined company's strengths and whether that factors in at all into your full year outlook?

So I'm assuming Brian -- Mike Slessor again. I'm assuming you're asking about revenue synergies between the old Cascade and the old FormFactor products; is that --

That's right.

Okay, just wanted to be sure we're talking right. In the short-term, as you know, one of the initial integration steps we took was to combine the sales teams and the field teams, our customer facing teams, both for efficiency but we also undertook some cross-training to hope that we would be able to get some revenue synergies of at least cross-selling efficiencies out of that. I wouldn't call any of those results material at this point, we -- as you probably know, the sales cycles for many of our products are relatively long, even though the lead times are relatively short. And as a consequence, I wouldn't say in our either Q1 guidance or our view of the full year that we've contemplated significant or material revenue synergies. One of the longer term things however, that we did discuss in the prepared remarks was the combination of technologies that we're going to apply some R&D dollars to here in 2017. We see some technology elements that when put together offer some really compelling product opportunities, both from a capability standpoint which will allow us to grow revenue but also from an internal manufacturing efficiency standpoint call it, so lead time, cycle time cost, [indiscernible], elements like that. So in the very short-term, the cross-selling of the existing product; yes there is a little bit going on but the longer term opportunity really around bringing together some technology roadmaps and technology elements and we've made the commitment in our 2017 plan to invest some R&D in there so that we can improve revenue growth and gross margin over the standalone entities.

Great, that's really helpful. One other question for me; in a healthy 2017 environment where indications are that memory test capacity could increase 15% to 20% plus and given your outlook that you just provide -- is there any reason to think that your DRAM sales could not retest prior peak levels in sort of the mid $30 million range?

Well, so there is a bunch of different elements running around through that. I think the mid $30 million for DRAM revenue -- I think is stretched from where we currently sit and where we understand the demand profile for some of our key customers. I think you're going to test my memory a little bit but I think if we go back to some of those peak levels; there were more DRAM customers, more direct manufacturers and even though we've gone through DRAM cycle here back then there were significantly more volatile cycles and so the highs were higher and the lows were lower. I think mid 30's is probably a stretch to answer your question directly but certainly growing off -- I believe we did $24 million in revenue off 2014. Somewhere in between there I think is the right way to think about the peak revenues for DRAM assuming all of the bit growth, test capacity, wafer start growth trends you alluded to, stay intact and the industry stays healthy and behaves itself in 2017.

Okay, great. Thank you.

Thank you. Our next question comes from the line of Edwin Mok from Needham & Company. Your line is open. Edwin, we're not getting any audio from your line, please check your mute button.

Sorry about that. So just thanks to my question. So first one, just go back to your guidance and your commentary might around -- you know, somebody gross driver. Just curious -- just to be really clear, you know, the new incremental $10 million, [indiscernible] your opportunity and also the option around of auto market. I assume very little contribution from that to get to your $480 million to $500 million. And if they materialize a lot faster than that could be upside. If they don't then it would have driven downside to that range.

So Edwin, Mike Slessor again. There is a lot of puts and takes underneath the assumptions associated with us trying to help you see our full year $480 million to $500 million revenue expectation. There are some assumptions associated with the 10 nanometer opportunity in that, there are some assumptions similar at what we talked about on the last conference call of some automotive growth. There are also equivalent assumptions about us growing some of the other areas of our business like the engineering systems business. So simply put, I think there is a lot of puts and takes and assumptions in there. Again, we're a little bit hampered by -- in fact a lot hampered by limited visibility into the second half; and so I'm not trying I casket as a set of assumptions that consist of a bunch of level line things and then adding the 10 nanometer foundry and some of other opportunities on top of it. I think confidence about the current period, pretty good visibility through the first half but again hampered by a lack of second at visibility which I think is true throughout the industry.

Okay. Actually I'm going talk to -- going back to your commentary around planning cycle. You mentioned that you expect to increase R&D spending for developing these new products; would that increase an argue spending? Do you still expect to hit the same kind of cost synergy targets so that actually impacts your cost synergy target.

Yes, Edwin this is Mike Ludwig. We are absolutely committed to achieving the $10 million to $12 million of synergies and the 18 to 24 months. Again, primarily focused on the SG&A expenses, we do believe that there are compelling R&D investments that -- you know, Mike talked about, they can accelerate future revenue growth and reduce our cost, improve our margins and we'll need to increase our R&D spending. As he said, a little bit to achieve those benefits but again we're committed to leveraging the OpEx structure as we have demonstrated in the past and we believe that we'll be able to manage our quarterly non-GAAP OpEx cost to $35 million to $37 million range at current revenue levels that we communicated today and throughout 2017.

Okay, that's very helpful. Lastly, just -- you know last year you have a large microprocessor -- customer will ramp a lot for you guys. And just -- I guess a near-term and for a long-term question right; I think going to prepare why you said that that business seem sustainable. Just curious, are you seeing any seasonality going through one Q? Does that bake into your guidance and for the full year should we expect that customer to have a similar level of business and that's assuming your full year target?

Well, just to clarify or repeat the prepared remarks. Again, you know our largest foundry and logic customer, we did see a significant increase in demand from them that after some bumps in in the first quarter a year ago we managed to get to that level and produce fairly officially at that level. Based on our discussions with that customer and obviously there is many interactions and close coupling between us as a supplier and that customer. We expect to continue to operate at what we've been calling this double demand level. So if I go back to 2015, we doubled demand for that customer, doubled output for that customer going into 2016. We expect 2017, at least on an annual basis to be by and large equivalent from a revenue basis to 2016. The mix underneath that changes a little bit and you know, I'll starting to sound like a broken record but all by the same caveat on our collective lack of visibility in the second half whether it's our customers ourselves or our peers. But that's the assumptions we're operating with and that's what we're planning and have committed to do.

Great. Last question, just to squeeze in -- you mentioned you're rationalizing a product roadmap. Does it have any impact on yourselves?

No. Essentially as we went through some of the detailed product planning and looking at the roadmap that identified some of these opportunities that we have to essentially put the technologies of the former Cascade Microtech and former FormFactor together. We also identified some redundancies and places where R&D dollars were being applied and effort was being applied to essentially address the same chunk of market. And so those were things that were terminated, they were not bearing any -- producing any significant revenue; in fact I don't think they were producing any revenue at this point.

Great, that's all I have. Thank you.

Thank you. Our next question comes from the line of Tom [ph] from DA. Your line is open.

Yes, good afternoon. First getting back to the new product that you alluded to. Are those essentially redesigned products that are lower cost higher margin; are they completely new products to serve new end markets?

There is -- the two examples that we're aggressively moving forward on are a common example of each type. One is an area where by combining some of the FormFactor men's technologies with some of the Cascade RF technologies were able to address a slice of the market that we really weren't competitive in before. And so that opens up a new chunk of served available market, still within the production progress phase but an area where we didn't really compete. So that's increasing our opportunity, our available market and the ability for us to go after a chunk that we really weren't competitive in before.

So that's similar to the -- the vector that you created a few years ago then?

Yes. From increasing our opportunity in our truly served market inside the $1 billion probe card market, I think that's true. Okay, the second one is an example where we found some technology that allows us to both simplify and increase the performance while reducing the cost of some of our mainstream foundry and logic products. Not all of our mainstream foundry logic product but you know, some pieces of technology that allow us to do a better job of serving in market we serve today, a market in which we compete today. And so we expect that some of these improvements will allow us to be more competitive and either gain a little bit of share but certainly improve our cost structure and gross margins. So examples of both in the decisions we've made.

Okay, great. And then now that you have the increased portfolio of products and end markets. What is your view on seasonality at this point?

Obviously a relevant question given Q4 and our current view of Q1; I think there is a couple of ways to look at it. When we look inside isolated businesses and I'll use our RF production probe that's an example where we're really tied to demand for probe cards to test bar and saw filters, that's very much a midyear event and has a great deal of calendar seasonality and we see that in that business right now as we talked about in the prepared remarks. DRAM historically has had some calendar seasonality to it; obviously the industry is operating completely out of phase with that today. I think some of those things are being driven by a more mature industry that has some more diverse demand drivers and when we map that onto our revenue, certainly that helps damp some of the isolated seasonality we have in businesses like RF production probe. But we still see some of the seasonality elements in each of the individual businesses. Having said that, you know, part of the strategy we continue to run in each of our businesses and I talked about this in the prepared remarks for our production growth is that we want to continue to diversify even these individual businesses to help smooth out whether it's calendar seasonality or in the market device release driven cyclicality; all of those things we want to become a bigger and more diversified supplier and to some extent have each of them damp each other out, so that we have a more consistent business.

Okay. And then finally when you look at the transition of both your foundry and lot of customers going from 14 to 10 nanometers, is there a difference in revenue opportunity for you or is it strictly just driven by wafer starts?

Well, assuming the number of designs per wafer star stays grey and it's truly driven by wafer starts. We talked about this dynamic a little bit in the past but there is kind of a second order effect associated with yields that any time customers move to a new node, the yields are typically lower and as a consequence for a given number of good die out, they need more wafers and therefore need to test more die and probe cards. So there is a little bit of a born effect associated with the move to new nodes but it tends to be one that's not persistent; it's just associated with the lower yields and the yield ramp of a new note.

Okay, thank you.

Thank you. Our next question comes from the line of Christian Schwab from Craig-Hallum Capital. You line is open.

Great quarter guys. So can you quantify for us the potential revenue opportunity on a yearly basis that overtime driven by DRAM and millimeter wave in the automotive sector that you talked about?

So Christian, Mike Slessor again. A really good question and one that we are still getting our arms around internally. Obviously automotive as they end the market, so our customer is customer. It's really driving significant use of silicon and as a consequence, gathering more and more attention of our customers and driving some interesting opportunities for us. We're still given that it's one step removed from our customers. We're still actively trying to understand the size of the opportunity and how it impacts us but it's one that looks to be pretty significant and one that fits pretty well with form factor strength. If you think about the quality requirements that the automotive industry has that plays well to our electrical test capabilities the accuracy of what FormFactor strength. If you think about the quality requirements that the automotive industry has, that plays well to our electrical test capabilities, the accuracy of what FormFactor does. There is also some interesting [indiscernible] associated with things like temperature ranges that play well to FormFactor's fundamental technology strengths associated with men's and the way we do design. So simple answer to your question is we don't yet quite have a size for the individual markets we drive in; sorry, play on words there. We would be participated, but we know it could be significant based on what our customers are telling us and we view it as a pretty good fit to some of our core strengths.

Okay. Have you -- I'm sure you probably have on some testing boxes of the old Cascade but there is a lot of hope that you know, as get to 4.5G and unwaited -- you know 4.9G and eventually to 5G, then a lot of those applications in next-generation networks could be millimeter wave based. Have you guys had any opportunity to think about that or is that something that we need to get a little bit closer to or is that something that I'm wrong on and really it's never going to benefit you?

No I think it's a much longer term opportunities and say millimeter wave in automotive; but it's something that we're having very active discussions with leading customers on right now. What I will say is, you know 5G proper sort of 5G and the 60 gigahertz kind of band, it is really a 2020, 2021 kind of event but there is a lot of preparation going on in the customer base. Anytime our customers move to those kind of frequencies, that's going to be a big opportunity for us given the RF capabilities that we have in production probe. You know, you've seen the growth of our RF production growth business driven by the bond saw filters in handsets as those frequencies went up and as those – I'll call it performance requirements went up, that drove customers to start to utilize our technology. We see a very similar trend in 5G but it's a wave out there.

Okay, that's fair. And then my last question has to do with 2018 because why not -- you gave us 2017 guidance. You know, A) you know all things being consistent in the world if there is such a thing. Would you expect that to be a growth year? And if so, what would be the three most important things for us to monitor that would cause that to occur?

Okay, so 2018 for -- you know, sort of -- I'll talk about it from a year two to two years from now, that kind of timeframe. Given the caveat you provided or the boundary conditions you provided and on all things being equal, I think one of the fundamental assumptions needs to be that the industry continues to grow and the industry stays healthy. Remember as the leading supplier of probe cards and the leading supplier of engineering systems with high need of share in those two markets, our growth is definitely tied to the overall industry growth. We've demonstrated the ability to grow the industry but we need to help the industry. And for 2018 to be a growth year, we probably need memory overall, both DRAM and NAND to continue to be the healthy environments they are today, where customers are investing and customers are making money. I think so industry needs to stay healthy, memory in general needs to continue on the trajectory, it's on. I think the other pieces for us associated with 2018 being a growth year are some of the opportunities that we've outlined in previous calls and in today's call. Certainly breaking into and serving the world's largest 10 nanometer foundry is a significant step forward for us. We have to execute on that, we have to turn that into more than just a single node single product kind of opportunity. And then finally, I think some of the trends you talked about in the last question associated with 5G in and around millimeter wave; would be starting to bear fruit in the 2018 timeframe in particular; the millimeter wave automotive radar application. So again, given our diversification and footprint across the industry, there could be a lot of different things but where I see things today those are probably things to keep your eyes.

Excellent. No other questions. Thank you.

Thank you. Our next question comes from the line of -- please excuse me, he removed himself. [Operator Instructions] I'm seeing no other questioners in the queue at this time. So I'd like to turn the call back over to management for closing comments.

Thank you for joining us today. And to our shareholders, thank you for your support through 2016 and in the future. I'd also like to take this opportunity to publicly thank the worldwide employees at FormFactor for the hard work that has fundamentally transformed our company and launched our evolution from a probe card supplier into a Test and Measurement leader. Today having successfully combined FormFactor and Cascade Microtech, we're in a significantly stronger position than we were one year ago with the benefit of increased scale, more diversified market drivers and leading products. Paving the way for additional improvements in growth and profitability. Thanks again.

Ladies and gentlemen, thank you again for your participation in today's conference. This now concludes the program and you may now disconnect at this time. Everyone have a great day.