Earnings Call: Q1 2020

May 6, 2020

Thank you, and welcome everyone to FormFactor's 1st Quarter 2020 Earnings Conference Call. On today's call, our Chief Executive Officer, Mike Slessor and Chief Financial Officer, Shai Shahar. Before we begin, Jason Korn, the company's General Counsel will remind you of some important information. Today, the company will be discussing GAAP P and L results and some important non GAAP results intended to supplement your understanding of the company's financials. Reconciliations of GAAP to non GAAP measures and other financial information are available in the press release issued today by the company. And on the Investor Relations section of our website. Today's discussion contains forward looking statements within the meaning of the federal securities laws. Examples of such forward looking statements include those with respect to the projections of financial and business performance, future macroeconomic conditions, the impact of the COVID-nineteen pandemic, the impact of regulatory changes, the anticipated demand for products, customer requirements, 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 contained in our most recent which are available on the SEC's website at www.sec.gov and in our press release issued today. Forward looking statements are made as of today, May 6, 2020, and we assume no obligation to update them. Also, as an aside, Since this is an entirely remote earnings call for us, please bear with us on any audio delays or issues. With that, we will now turn the call over to FormFactor's CEO, Mike Sweesser. Thanks, Jason. Thank you everyone for joining us today. Before we begin our results and outlook, I want to recognize and thank Fisher's employees for their effort, dedication, and persons during the COVID-nineteen Our global quickly reacted to a variety of government directives that immediately shifted focus to replan manufacturing operations to restart our Calleverde and factories, all in closely with our customers. Our key products were and quickly delivered. Their performance demonstrates agility and resilience, and I'm extremely proud of our team. Our first quarter had 2 distinct parts, a strong 1st weeks followed by 2 weeks where our ability to produce and ship products was substantially reduced. You'll recall that we was 1st quarter outlook range on 18th, following their culture in place orders and the shutdown of our Livermore in San Diego sites, including all metering operations. Subsequent to Oregon and California statewide orders also impacted our Beaverton and Carlsbad operations, but through the exact for essential infrastructure business and development of a set of on-site employee features, we restarted production at each site in the final days of the quarter. Will review details of the first quarter results, but it's noteworthy that the avalanche of unexpected form factor delivered result clearly validate our target financial model. Viewing the quarter on an annualized basis, we delivered $643,000,000 of revenue at 46% gross margin, with $1.32 of non GAAP earnings per share and $110,000,000 of free cash flow. Taken together with our fourth quarter, these results demonstrate achievement of our target financial model and we plan to update our model later this year, when overall conditions have settled. Our 1st quarter revenue contained a strong mix of foundry and logic probe cards, consistent with the commentary we provided on our February 5 earnings call. This demand was broad based standing both 10 and 14 nanometer microprocessor designs, multiple foundry 5 and 7 nanometer mobile and hyper its compute designs, along with a variety of 5G enabling RS filter and antenna devices. DRAM probe card revenue was down in the first quarter during an expected digestion period, several sequential quarters of record shipments. We are currently working closely with each of the DRAM manufacturers on noose. Mobile and commercial designs on both the wall and 1Z nanometer nodes. These designs are expected to be in volume in the second half 2020. Our engineering systems delivered steady results in what it played the seasonally weakest quarter Customers continue to engage form factor to solve toughest electrical and opts and measurement challenges in R&D. As an example, we delivered our ultra low noise 300 meter automated system to a lead foundry to help the mix. 3 nanometer development, build improvement. FormFactor's results demonstrate the resilience diversified leadership position, probe cards and engineering services. That leadership again documented in VLS Durchased annual survey of the probe card market, where form factors 13% annual growth in 2019, outpaced 9% market growth in the same period. This market growth is in sharp contrast to 20 nineteen's decline in semiconductor capital equipment spending, and provides an additional proof point of the consumable nature of probe card demand. As a reminder, probe cards are a consumable that is specific to each new chip design. And so demand is generated from both node transitions and the release of new chip designs on existing nodes. FormFactor's market share gains to 32% of the Advanced probe card market are driven by themes we've discussed before. Namely the increase in test complexity associated with advanced packaging schemes like chiplets and heterogeneous integration. The high interconnect densities and challenging electrical test performance requirements in advanced packaging applications continues to be a space where form factors differentiated MEMS probe technology provides significant cost of ownership and performance advantages. In view of the continued uncertainty regarding COVID-nineteen restrictions in the region where form factor and our suppliers operate, we are not providing a formal outlook range this quarter and will instead provide insight into near term demand first and supply constraints. As I mentioned, quarter results were limited by capturing capacity constraints through shutdowns and by a lack of customer demand. At present, we modified factory operations to run social distancing requirement. The capacity constrained situation continues, and we expect persist at least through the second we continue to experience robust and for foundry and logic probe card with steady demand for memory cards and engineering systems, extending the same basic theme of the first quarter. We've maintained close and transparent communication with our customers. Starting with our factory shutdown, through the restart and then in the limited production phase to ensure we are focused on being to their highest priority products and designs. Operations team continues to systematically resolve both internal flyer constraints steadily increasing throughput and capacity to best meet customer production and design release schedules. Our present view of the various output constraints limits 2nd quarter factory output to approximately 10% below the overall first quarter output. Although our visibility is even more limited than usual, demand for form factors design specific consumables and R and D driven products would be expected to produce sequential Thank you, Mike, and good afternoon. Foam Factory's 1st quarter revenues were $161,000,000, a 10% sequential decrease from our Q4 'nineteen record high revenue and a 22% year over year increase. These are impressive results, especially in light of the impacts of COVID-nineteen, which included a temporary shutdown of our California factories for the last 2 weeks of the quarter. These results are a testament of our team's focus on the agility necessary to deliver for our customers, while safeguarding employees and supporting our supply chain partners during a period of unprecedented challenges. As Mike noted, they are also compelling evidence of our ability to perform at our long term target financial model levels, across nearly all lines revenues were $135,000,000 in the first quarter, a decrease of $19,000,000 or 12% from Q4 2019. System segment revenues were $26,000,000 in Q1, an increase of 0.6000000 dollars or 2% from Q4 2019, with strong sales of our advanced 300 millimeter systems. Within the probe card segment, robust demand for foundry and logic continued. With revenue increased 1% from Q4 to $106,000,000, comprising 66% of total company revenue in Q1. Up from 59% in the 4th quarter. DRAM revenues were $25,000,000 in Q1, a decrease of $18,000,000 from the 4th quarter, and or 15% of total quarterly revenue as compared to 24% in the 4th quarter. DRAM demand was down in large part due to customers absorbing purchases made in several recent peak revenue quarters. Flash revenues of $4,300,000 in Q1 were $1,000,000 lower during the 4th quarter and were 2.7% of total revenue in Q1. Similar to the 2.9% in Q4. We continue to expect Flash revenue to be lumpy from quarter to quarter. GAAP gross margin for the first quarter of 2020 was $67,000,000 or 41.9 percent of revenues. 30 basis points higher than $7,000,000 of GAAP to non GAAP reconciling items, which we outlined in our press release issued today and in the reconciliation table available on the installation section of our website. We had $800,000 of reconciling items in the 4th quarter related to the acquisition of FRT, that did not reoccur in Q1. On a non GAAP basis, gross margin for the first quarter was $74,000,000, or 46.1 percent of revenues, 40 basis points higher than the 45.7 percent non GAAP gross margin in Q4. Mainly as a result of higher system segment gross margin. Our probe cut segment gross margin was 45.1% in the 1st quarter, a small decrease of 30 basis points compared to 45.4% in Q4. The decrease from Q4 was a result of lower volume, partially offset by more favorable product mix and lower performance based compensation. Our Q1 Systems segment grew margin was 51.2% as compared to 48% in the 4th quarter. The increase of 320 basis points was driven mainly Our GAAP operating expenses were $49,000,000 for the first quarter, $1,600,000 lower than in the 4th quarter. The decrease in 1st quarter GAAP to non GAAP reconciling items from $6,800,000 in Q4 to $6,200,000 in Q1 is mainly due to lower stock based compensation. Non GAAP operating expenses for the first quarter were $43,000,000, or 26.6 percent of revenues compared to $44,000,000 or 24.5 percent of revenues in Q4. The decrease of $1,000,000 is mainly due to lower performance based compensation and lower travel expenses, partially offset by the impact typical beginning of the year benefits recent. Company non cash expenses for the first quarter included $7,300,000 for the amortization of intangible assets, $5,600,000 for stock based compensation and depreciation of $4,600,000. Stock based compensation was $500,000 lower than in Q4, due to the timing of annual grants. GAAP net income for the first quarter was $16,000,000 or $0.20 per fully diluted share, compared to GAAP net income of $19,000,000 or $0.24 per fully diluted share in Q4. The non GAAP effective tax rate for the first quarter of 2020 was 17.6% similar to 17.3% in Q4. And within the range of 15% to 20% estimated rate for the year as we communicated in our previous earnings call. As a reminder, our cash tax until we fully utilize our remaining U. S.-based NOLs and R and D credits. 1st quarter non GAAP net income was $6,000,000 or $0.33 per fully diluted share compared to $32,000,000 or $0.41 per fully diluted share in Q4. Moving on to the balance sheet and cash flows. As you would expect, we are especially focused on cash flow management at this time. We generated $28,000,000 of free cash flow These brings our free cash flow over the trailing 12 months to $110,000,000 and takes our total cash and investments to $243,000,000 at the end of the quarter. Almost 9% of these cash and investment balances are in the U S. The sequential decrease in free cash flows in the first quarter was mainly a result of lower revenue and profitability and an increase in investment in capital expenditures. We have 2 term loans on our balance sheet, totaling $45,000,000. The first loan related to the acquisition of Cascade Microtake in 2016, had a remaining balance of $24,000,000 at quarter end, and it is expected to be fully repaid by the end of June 2020. The second loan is a 3 year 1,000,000 denominated loan. We took to fund the FRT acquisition in Q4, twenty nineteen. Utilizing low euro based interest rate to optimize our cost of capital. The remaining balance of this loan as of the end of the 1st quarter was 1,000,000. We spent $13,400,000 on principal and interest payments on these 2 term loans during the quarter. At quarter end, our total cash balance exceeded the debt balance by $198,000,000, an increase of $32,000,000. While paying down these term loans remain our first priority for using cash, we continue to invest in R&D and capital expenditures that support our organic growth. As part of our multi year plan. M and A also continues to be an important part of our strategy and we intend to continue to investigate opportunities to deploy capital and acquire leadership positions that expand our served markets as we did with acquisition of FRT last year. We invested $12,000,000 in capital expenditures during the first quarter of 2020 compared to $6,600,000 in Q4. The increase in CapEx in the first quarter is part of our multi year plan to support the demand for our products that we anticipate over the medium to long term. We will continue to be very disciplined in our spending as part of aligning our expenses with customer demand. While rationing capital that is not directly related to additional capacity or technology development. Our liquidity position and capital structure are solid and together with our disciplined approach to spending and our flexible cost structure, we retained significant resilience to weather and economic downturn. In light of our recent results and to better align our target financial model with growth in the markets we serve, we plan to hold a webcast strategy update for the investment community later this year at which we will update our long term model. We will provide more details closer to the event. Turning to our Q2 outlook. Although we are not providing a formal outlook given the continued uncertainties related to COVID-nineteen, I can share some things for you to consider when thinking about our second quarter financial performance. We are continuing to experience capacity limitations with adjustments to factory operations that implement social distancing and other safety measures. While demand appears to remain strong, we are output constrained. Capacity challenges will negatively impact our revenue and gross margins in Q2. As Mike noted, absent these capacity constraints we would have expected sequential growth in Q2. Based on our current assessment of capacity constraints, we expect expect Q2 revenue will be lower than Q1 by approximately 10%. This estimate is subject to considerable uncertainty, of course. With the evolving COVID-nineteen classes and its broader potential impacts. Given the uncertainties, we are not providing an outlook range for gross margin or EPS for the with that, let's open the call to questions. As you can imagine we are not in the same room. Our first question comes from the line of Tom Diffely with D. A. D. A. D. A. D. Your line is open. Yes, good afternoon. Thanks for the color. So, Mike, I'm curious when you talk about the the constraints for manufacturing, is that purely just manufacturing capacity issues or are you having supply chain issues as well as getting the parts and pieces? Yeah, good question, Tom. And before I address, that particular one, I understand the fidelity of my prepared remarks wasn't great. So for all the participants, we've distributed the written script for you as well. So apologies there, but hopefully we get better information transferred here. Your question really the answer to your question is both. There are continue to be constraints both internal to form factor as well as through our supply chain. There as you can imagine, our supply chain is global in nature. And so different government directives have had impact with different suppliers in different regions at different times, starting with China early in the quarter. Our operations team has done a great job of resolving those conflicts, revolving those constraints as well as continuing to add capacity to the internal form factor operations distancing measures. Okay, great. And then you talked about demand being strong, but is there relative strength between the logic and memory size of your business from a demand point of view? Prepared remarks, we tried to detail it for you. Really continued strength in foundry and logic. 1st quarter DRAM revenues were relatively weak. Coming off a very strong 2019 where we had several sequential record quarters. Our customers are digesting those record shipments. And at the same time, we're seeing very strong activity in foundry and logic, both in the microprocessor space, the foundry space and the RF space. I think this is a good example of form factors overall diversification strategy playing out to find a way to be able to balance as each of these segment demands go up and down. Okay. Thanks. And then finally for Shai, when you're not giving gross margin guidance, I understand But when you look at the additional costs brought on by COVID-nineteen, is there some way to quantify what the near term impact will be? So I think when we think about gross margin, we need to think about what are the main drivers there, right? And it's true that we do have some additional costs related to COVID-nineteen, like additional cleaning and stuff, but it seems that most impact gross margin are as in previous quarters, 1st of all, product mix. This change from quarter to quarter and this will continue to have the biggest impact. And then the second item will be volume, as you noticed in Q1 versus Q4, Q4, Q1 volume was lowered in Q4, and it did have some impact that was offset by product mix in a way. And of course, operational excellence, right? Our team are doing excellent job in executing even in these challenging times. So I know I didn't quantify exactly for you, but these are the main things that impact the gross margin and will continue to impact in Q2. Okay. Thank you. Thank you. Thank you. Our next question comes from the line of Tayann Goelner with Sidoti. Your line is open. First question, just for Shai. On the OpEx. And I remember you gave the guidance probably last quarter in the range of per quarter. I know we don't give a formal guidance now, but I'm just wondering will this still be a reasonable range for us to look into 2020? Yes, that's a great question. As you saw in Q1, went down $1,000,000. This is, although we added a full quarter of FRT versus on like, 2 a half months in Q4. And we had the annual benefit reset in Q1 that also impacts Q1 and usually Q2. And and and that the main reason for that decrease is less travel, which is of course in this term, in this environment is as an impact. And the performance based compensation, a portion of our expenses is tied directly to our performance. And move up and down with it. So that's why you saw a decrease in Q2. If I'm thinking about the rest of the year, I think about the trends, right? We continue to control these expenses. A portion of which will be impacted by performance based. I suspect in Q2, we're still going to see less travel. And I think we're going to see R and D and impacted as well a little bit because some projects just cannot be done from home, right? You have to in the lab to perform that work. And so, Q1 is a good estimate, but includes lower annual benefits sorry, higher annual benefits and lower performance based compensation as compared to previous quarters. And this factor will continue to impact the next quarters. Okay. Thank you, Shay. And the follow-up would be for Mike. Mike, when we look at the foundry and the logic, it's really high, very high. And on the other hand, DRAM is lower. As I know, you mentioned customers that digesting the previous purchase. I'm just wondering how should we really think about for 2020, where the founder and the logic will still be at the signal level? And when will the DRAM go back to the higher level due to the kind of non transition and the new technologies. Thank you. Let me start with DRAM. I think one of the interesting things right now is we're very actively engaged with the major DRAM manufacturer on new design designs are expected to be in half of the year according to current cash schedules. So I think we're in a period for preparing for the next ramp of DRAM, we look forward to the end of the year. Obviously, there's obvious tremendous caveats around traffic conditions and the memory, but that's the way we currently use things. I think foundry, the strength right now, all of the patients we're getting, again, our customers, are that that strength is going to it's fairly broad based and processors, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G, 5G this foundry and logic demand continue to be robust out the balance of 20.20. Again, obviously, there's a caveats associated with macroeconomic impact of 2019. For now, that's the way we see things. Thank you. Our next question comes from the line of Craig Ellis with B. Riley. Your line is open. Yes. Thanks for taking the question and congratulations on your execution in a challenging environment. The first question I wanted to ask is really just to clarify maybe I'll direct this to Shai as we look at the revenue level that was reported versus the initial guidance the variance being due to shelter in place issues impacting manufacturing. How did that impact revenues on an end market basis? Was it more concentrated in one area or the other? Or was it about equally distributed on a percent base across DRAM, foundry and logic and band, etcetera. Sure. So first of all, the factories that were impacted were mainly in California and then later in Beaverton. And so the factories in Germany were not impacted. So the impact on the systems business was not that big. So most of the impact or almost basically all of it came from the probe card business. And within that market, our factories in California, I'll leave them all some of the cars that they serve all these markets. I don't know if we can take these couple of weeks that the factory was shut down. And try to extrapolate on what was exactly the impact on each one of these. The factories are also feeding each other. Got it. Okay. So then it would be tough to tease apart for the for the second quarter impact given the 10% impact to supply. Let me move on and ask Mike a question. So, Mike, it seems like one of the things that's happening is that there is some supply constraint in system. And I don't know if that's occurring beyond form factor. But can you just help us understand what's going on at the customer level? Are customers just finding a way to operate with less probe card supply in the near term? Or is there some share shift either way? What's going on downstream you at the customer level, given that we have fewer probe cards available in the first half of the year than what we were thinking a couple of months ago. Yes. And I think that's a good overall observation, Craig, in the, if you look at the major probe card supplier, form factor and our competitors were all living in regions that have been some affected by this pandemic and government responses. So there is a constraint on overall probe card supply. I would say that it's been a very active of discussions with our customers. And they're being with other pieces of supply chain as well. So the reactive prioritization activity that's ongoing continues to this day, shifting design priority and moving things up and down our priority to make sure we're doing the best job we can of supporting them. And it's my view that that's going on throughout the industry, both in probe cards and in capital equipment. That's helpful. Thank you. And then lastly, if I could, Shay, can I just come back to you, since our view on the 2nd quarter is impacted by some near term supply constraints? What do you need to see from the operational teams and more broadly to be comfortable that output can be back at optimal levels exiting 2Q. If you could just give us a shortlist of 2 or 3 things, it would be real helpful. Thank you. So we are now impacted by government orders. We have some capacity constraints mainly related to social distancing. We're also putting some measures in place to make sure employees are safe. We're getting better and better at it. We are shifting tools around the fab and the rest of the factories to make some room for social distancing and increase capacity. So it's an ongoing process. We're getting better at it. And, I expect the output to improve, but there's still a lot of uncertainties, right? We are still, even though we're still halfway through the quarter, our lead times remember relatively short and the different government guidelines change and evolve? And we're also working very hard with our supply chain partners to make sure we secure what we need to continue and produce and we make great progress there as well. Thank you. Our next question comes from the line of Chris Sankar with Cowen and Company. Your line is open. Mike, you had like really strong revenues from China. I was trying to figure out can you just try to segment it between domestic and multinational and between LogicFoundry and DRAM? Sure. And to people recently, over the past several quarters, diner revenue has been about $0.10 of the total company. As Chris notes, that's for mix of, multinationals that operate in who are our major customers and mistakes. That mix dates back and forth according to the outstanding cycles. So I'm not sure I'd want to try and segment it. Does the same thing. Although, recently, with the memory has been quite strong from a movie perspective, again, from the multinationals and the So like you and the rest of the world, a pretty good blend between all segments, although recently The memory has been quite strong. Got it. All right. Fair enough, Mike. And then as a follow-up, on your supply constraint, your typical lead times are probably like half a quarter. So, are you with the supply constraints, are you seeing lead times stretch out. And if supply does come back to normal in the end of Q2, should we see a snapback in Q3 because of pent up demand? So, I mentioned lead times obviously the second quarter did a little bit, if only because of lowered overall capacity, have in our competitors have. So in general probe card lead time have extended here in the quarter. I think it's a realistic assumption to think things are going to immediately snap back. I think we're operating under the assumption the loosening frictions is going to be a little more visual. And we will continue to need to opt with some measure of social distancing in our factories, which obviously reduces our overall throughput. Even as we add the through CapEx and long term measures, to try and assess this demand. So I don't view it as a snapback. We're going to gradually build capacity to meet this demand. As we go through Our next question comes from the line of Quinn Bolton with Needham. Your line is open. Hey guys, just wanted to follow-up on that last question. As you build out capacity, is any of that clean room capacity City, which may be more capital intensive or are you experiencing spacing issues in the clean room? Yeah, Quinn. Certainly, some of the things we've confronted and begun to resolve are spacing issues and footprint issues in the variety of clean rooms we operate, whether they be our men's fab or the assembly area. We are deploying cash on increasing our fit and making sure you mentioned that we're spacing those out. To the best possible ability people are separated from each, a lots of work by the ops teams and optimizing existing footprint and find will get additional space to the cleanroom areas, which no to our capital intensive. And so you do have to find additional space for clean room. How long does it take to sort of install and equip that additional cleanroom space? I mean, is that something you can do in a quarter's time, or does that typically take multiple quarters? It sort of depends on the magnitude. We've at least up till to take existing labs inside their footprint and that does require some capital investment. But as we've discussed with you in the past, we're getting pretty close to breaking our overall capacity limitations. And as we look forward to sharing a new target model and a longer term strategy, that'll be part of the overall discussion. Got it. Got it. And then, Mike, it seems, you guys significantly upside at Q4 and back around the end of the year, you you sort of thought that that strength was perishable and you were able to capture that demand. It certainly looks like demand environment remained pretty robust, albeit your output constrained in the near term. Can you talk about does it feel like the demand environment has now fundamentally improved or do you think that some of the fact through the drove the upside late last year and in Q1, do they just continue, but they're still temporary in nature, for instance, your largest CPU customer running 2 nodes at fairly high volumes. I mean, is that now more sustainable? Do you still think it's sort of rare in nature. Well, I think some of these trends do appear to be a little more sustainable than we might have thought in the fourth quarter. The fact you look at what we delivered in Q1, even missing in good part, the last part of the quarter. Packaging with 5 Gs that are driving fundamentally more spend in test, and preferentially, as you saw in the VLSI research results, market share gains for form factor and the leaders in the industry, because there's only a few people who can really serve these advanced nodes, and the requirements associated with things like testing chiplets, testing the high frequencies of a 5G front end. These are some pretty stringent requirements. As that momentum continue, these things are a little more nimble than we might have thought back in And then I guess sort of a final question, just that foundry strength, I think historically, you'd seen concentration in the foundry business. Is part of that sustainable demand really reflective of you gaining additional customers out side, your kind of your lead foundry end customer? Yes. It's a certain point. We've talked about our business become more diversified over time. Several years ago, by applications. So lots of mobile, but lots of performance compute now as well. And multiple fabless customers across a variety of designs. So much less lumpy, much less concentrated And that continues to be one of the long term growth opportunities for form factors continued Ladies and gentlemen, please standby. Operator, we couldn't hear you. Everybody, can you please stay on the line while we try Yes. Sluster is back. Apologies again. K. Shai's back. Can you hear me? Yes. Our next question comes from the line of Kristen Schwab with Craig Hallum. Your line is open. Great. Thanks. Mike, I just want to make sure that that we're not Q2's revenue due to capacity constraint. Isn't lost revenue? Is that something you would expect to recoup maybe as soon as Q3? Depending upon social distancing and kind of movement controls. Is that fair? Well, I think there is some level of demand, that will continue into the third quarter. There's some longer term initiatives and projects where key customers are increasing capacity and really investing in capacity around some of these key designs initiatives. Some of the 5G investment is probably one of them. So I think there is some element with lead time extensions that we talked about earlier in the call, where, you are going to see some of this demand spillover into Q3. Now that obviously cannot last indefinitely. And we want to make sure that we're doing everything we can to add capacity to serve the elements that could be perishable demand. And so trying to add capacity, continue to reduce our lead times. And even in a socially distant manufacturing environment, get this back to the output levels we were at in, in the fourth quarter and in portions of the first quarter. Great. And then Another question for you. We're hearing a lot of more positive chatter about the micro LED markets then maybe we would have said 90 to 180 days ago. Are you seeing any positive movement on your side in that market yet? That's an application in a market where we've been very engaged with some of the leading developers of the technology. If you recall, we started talking about it a few years ago in serving basically serving it with our systems business. We've continued to see activity there, but as with most of our systems business, I don't know that we're, really going to see a lot of volume production business from that. We're exposed some of it in the probe card business. And we are seeing initial activity there. But for example, you're not going to see the ramp of it from us like you might from some of the assembly equipment providers in the space who will undergo significant growth when it really ramps. So continued steady good evolution, but more in enabling the R and D and next generation of it. Okay, great. And then lastly, not to potentially spoil the new target model, but Since our market share is so close to our target model, is that, were you surprised that your ability to get to 32% share exiting 2019? And any color you could share with us regarding future aspirations? Yes. Well, I think their market share We do expect that there's continued gains to be made in our served markets. Obviously, you end up saturating at some point given the industry's need for multiple suppliers and to keep things balanced. So we do think there are still share gains to add from the overall 32% level. Maybe looking at it a different way. This is one of the reasons why we're so focused on deploying the cash we generate from our leadership positions to buy companies like FRT who lead in growth areas that extend our served addressable market. So I think there are continued share gains to packaging and the 5G drive preferential share gains for us. But I also think it's one of the reasons why M and A is such an important part of our overall strategy. Great. No other questions. Thank you. Thank Our next question comes from the line of Brian Chin with Stifel. Your line is open. Execution. And, Mike, I think we need to upgrade you to 5G. My first question here, In terms of maybe shipment linearity, can you give us a sense sort of what that looked like in Q1 and also how to think about it in Q2? And sorry, I didn't quite catch this, but it's did sound like you were shut down for most of the final 2 weeks of the first quarter. You still achieved the low end of your original guidance range, which I know you retracted, but essentially it sounds like you would have exceeded that range. You had the those measures not taking place? So I'll take that, Brian, and good to hear from you. I think it's it will not be accurate to extrapolate 11 weeks of a strong over 13 weeks of full quarter and assume linearity. That's not how our business has been operating we did it with several quarters that the 1st month or 2nd month was stronger and stronger than the 3rd month and vice versa. So I wouldn't take our results divide by 11 and multiply by 13 and assume we wouldn't, be out of the range. I think we'll be, we would have been at the high end of preliminary outlook range as we stated and you confirmed. Going into the second quarter, we started up our restarted the fact in the beginning of the quarter. As you can imagine, we started slow, putting new measures in place, increasing current capacity slowly. Even in Q2, again, I would look at linearity and try to understand how the quarter will look like. Okay. Fair enough. I appreciate that color, Shay. Yes, stay with supply here for another question. In terms of that 10% lower output in Q2, is this pegged to an underlying assumption for shelter in place measures being listed in the associated and affected region. Is this a swing factor or does graduating to higher output has more to do with these sort of creative efficiencies and maybe perhaps mix that you've referenced? Yes, Brian, it's Mike again. It's more of the latter. We are not expecting sort of the I think somebody used a snapback analogy. We're not expecting or assuming in the outlook we provided that we're going to be free of social distancing measures in our factories or on-site or visiting customers anytime in the second quarter. That may be an overly pessimistic or conservative view, but it's the one we're taking now, just to make sure we're able to make realistic commitments to our customers and then be able to deliver on those commitments. So if if we do find a situation where government restrictions are completely lifted and equally importantly, we feel confident and our employees feel confident in the lifting of those restrictions, then I think there probably is some upside. They into this. But the assumptions we're working with right now is that we're essentially under the same restrictions for the balance of the second quarter and able to gradually improve things inside that set of restrictions and mandates. Got it. That's That's helpful. And then shifting to demand, maybe for DRAM specifically, do you see the DRAM industry migrating support away from mobile towards supporting more PC server wafers. So what is the net effect or product I guess, of your revenue outlook for this segment, if that's the case. And I guess talking about the designs that you referenced in DRAM, Are they more pin to no transitions? More has to do about the migration of wafers, maybe the PCE server stronger markets or things like GDDR6? Anything you could be descriptive on would be helpful. Sure. I think like most people who operate in the design specific space. We have seen a tactical shift by the DRAM manufacturers of wafer starts from mobile to server and particular, but also PC DRAM. That obviously has generated a little bit of incremental demand for some of the PC server designs that we serve, but probably a 0 sum game against the mobile designs that were originally planned. When I talked about the heavy design activity right now that will feed second half twenty twenty volume designs, that spread out pretty evenly between graphics, mobile, and PC Server. So I think In the short term, certainly, our customers adapted pretty quickly to go serve the non mobile demand. The longer term design roadmaps haven't changed much, I don't think, looking forward to the 2nd part of the year. Thank you. We have a follow-up question from the line Craig Ellis with B. Riley. Your line is open. Yes. Thanks for taking the follow-up questions. Mike, I wanted to cycle back on a topical issue call. So just reflecting on some of the key themes here versus 3 months ago, obviously, shelter in place in the crisis is 1, but that's not the question. It seems like one of the things that's really starting to happen with the business is 5G is starting to become a more meaningful incremental driver to probe card demand and customer engagement for you now than it was say 3 or 6 months ago. So one, is that true? And 2, if it is, can you provide us some color with how you see 5G as an incremental driver playing out over the business as we look through the back half of this year and 2021? Yes. So I think 5G for form factor certainly is, creating some momentum, not just around our RF probe card business. But more broadly, when you think about a 5G handset and as a reminder, form factors exposure really is to the handset side of because of the large number of units there and not so much the infrastructure side. When you look at the content increases, not just in the RF front end driven by 5G, but, more DRAM, more NAND, a more complex display, clearly a more complex applications processor, the overall move to 5G on the handset manufacturers roadmaps is driving a a real growth opportunity for form factor. When we look at it, we feel like we're relatively well positioned in both the RF with people, customers as well as the digital portion of it and of course, the memory portion of it. So I think your observation that 5G is becoming a bigger part of our overall business and driving a more substantial position for form factor in the overall supply chain, probably a fair observation. Now, the timing of these 5G handset launches, I think, is pretty up in the air at this point. We've seen some handset manufacturers push some initial ones out. I think there's still some uncertainty, but over the longer term, there's no question this is a very strong positive tailwind for form factors business. And that's helpful. Then the follow-up question was in reference to a comment made around VLSI. They had a report that identified market share and congrats to form for its strong performance there. But I think they also had a forecast for industry growth that was somewhere around 6% to 7.5% on a compound basis over the next 3 to 4 years. So with form factor having executed some very interesting tuck in deals recently transformative deals a few years ago, is it reasonable to think that if the company can maintain its execution on inorganic growth that that at least mid to high single digit growth would be possible for the company or are there things that you're seeing your served markets that would argue for, for growth that would be a discount to that? Well, I think overall, the growth you mentioned about our served market in the probe card space is really a function of some of the themes we've talked about in the past where probe cards are designed specific consumable. And so as customers change designs, whether it be a node change or a move from DDR4 to DDR4 to DDR5, these are things that drive probe card demand. And I think that's why you're seeing this high single digit long term growth. It's quite a bit more stable than, semiconductor capital equipment spending. As we look at form factor strategy, it has both capitalizing on that organic growth of the market in which we lead. But also the inorganic piece, in markets where we want to serve that really are nicely adjacent to the overall probe carton engineering markets. So I think it's reasonable to expect we'll continue to execute organically against this market growth amplifying our leadership position, but also then taking the cash we generate there, and acquiring leadership positions in new pieces serve market to keep the growth going. Thank you. I'm showing no further questions in the queue. I would now like to hand the call back over to Mike Slessor for closing remarks. Thank you again, everyone, for joining us today. Apologies for some of the technical difficulties if if we need to follow-up with you and schedule something to make sure that we get your questions answered please reach out to Stan and our IR department to do that. Thanks again and stay safe. Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect.