PDFS earnings call analysis

NASDAQ:PDFS Q4 2025 Earnings Call Transcript Generated on 6/6/2026 Operator | Conference Call Operator: Good day, everyone, and welcome to the PDF Solutions, Inc. conference call to discuss its financial results for the fourth quarter and year-end 2025, ending Wednesday, December 31, 2025. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star-1-1 on your telephone. As a reminder, this conference is being recorded. If you have not yet received a copy of the corresponding press release, it has been posted to PDF's website at www.pdf.com. Some of the statements that will be made in the course of this conference are forward-looking, including statements regarding PDF's future financial results and performance, growth rates, and demand for its solutions. PDF's actual results could differ materially. You should refer to the section entitled Risk Factors on page 16 through 30 for of PDF's annual report on Form 10-K for the fiscal year ended December 31, 2024, and similar disclosures in subsequent SEC filings. The forward-looking statements and risks stated in this conference call are based on the information available to PDF today. PDF assumes no obligation to update them. Now I'd like to introduce John Kabarian, PDF's President and Chief Executive Officer, and Adnan Raza, PDF's Chief Financial Officer. Mr. Kabarian, please go ahead. John Kabarian | President and Chief Executive Officer: Thank you for joining us on today's call. If you've not already seen our earnings press release and management report for the fourth quarter and full year, please go to the investor section of our website where each has been posted. 2025 was a transformative year for PDS. In my prepared remarks, I will summarize our current positioning, key achievements in the year, and our major goals. I will also comment on the near-term business climate and our expectations for 2026. After Adnan's remarks on our financial results, we will take your questions. As we discussed last December in our users conference, there are semiconductor industry trends that have established PDF's opportunity today and in the future. I see manufacturing processes both in the way for FAB and assembly are creating more complex 3D structures. IC companies have moved from providing components to systems. The complexity of system manufacturing, particularly of 3D components, is driving the customers to look for new ways to characterize, analyze, and control production. As the industry rapidly scales to over $1 trillion in revenue, it is building manufacturing operations around the world. To operate effectively, these facilities need the collaboration of engineers and systems from the entire ecosystem of suppliers, factory operators, and customers. In our industry, this means moving from a people-centric approach to an AI-driven collaboration. Finally, the chip industry is a critical driver for AI and increasingly needs to benefit from AI to keep up with the demand. These drivers, 3D manufacturing, supply chain complexity, and AI present a significant opportunity for PDF to reinvent itself again. In the first half of this decade, PDF solutions growth stemmed from our transition to an analytics platform provider. Since 2020, the company grew at approximately 20% compound annual growth rate and expanded its growth margins from the mid-60s to the mid-70s, and its operating margins from basically break-even to 20%. As we enter 2025, we believe the trends that enabled our growth as an analytics platform were accelerating greatly because of the impact AI is having on the IC industry. This acceleration meant that our customers needed us to evolve from providing an analytics platform primarily used by each of our customers independently to increasingly becoming a platform for AI driven collaboration, both across the enterprise and across the supply chain. Our actions in 2025 spoke to our conviction of this vision. For our customers to leverage AI to drive collaboration within their organization and across the industry, they needed orchestration systems to enable aligning operational processes, sharing data, and driving coordinated actions. In 2025, we signed multiple contracts with our customers to deploy our Sapiens Manufacturing Hub, including a contract in the fourth quarter. Sapiens Manufacturing Hub, initiated from our partnership with SAP, enables collaborations between engineering, manufacturing operations, and finance. As our customers drive AI collaboration to their suppliers and customers, they need a secure connectivity layer. And in 2025, we acquired SecureWise, the leading connectivity platform that connects equipment vendors to the fabs. Under our stewardship, we recommitted to the core SecureWise customers, for example, closing an eight-figure contract with one of the leading equipment suppliers. We also began expanding applications with foundry customers, closing an eight-figure contract with a multinational IC manufacturing company to enable collaboration across their enterprise. As we further integrate SecureWise with our DEX network at OSATS, we are expanding collaboration to include the Fabless. While orchestration enables larger data sets and the need to operate near real time, we realized it was important to also reinvent analytics. Our customer's challenge includes aligning, storing, and leveraging data to make decisions, often driven by AI. we undertook reinventing three critical components of Accentio. First, we are enhancing our data model to support new use cases where the Accentio database would be used for applications beyond the native analytics it provides. Second, we are integrating an AI operations platform for data science within Accentio so customers can use the PDF solutions platform to build and deploy their AI pipeline. Third, we are releasing Accenture Scalable Analytics, which is designed to enable engineers to interact with datasets that previously could only be processed in batch. Progress on all three of these initiatives was demonstrated in 2025. In the third quarter, we announced a large eight-figure contract for Accenture Enterprise that included advanced database AI operation capabilities and scalable analytics. Also in the third quarter, we announced that we licensed the source code for Tiber AI Studio, which was previously known as Converge.io from Intel, and began selling it as Accenture Studio AI. Accenture Studio AI is designed to enable AI scientists to use the data in Accenture as they develop and deploy pipelines at scale and across the SecureWise network to their suppliers. This is particularly valuable for our customers that have multiple test insertions, as is the case with advanced packaging. In Q4 at our users conference, we announced Xentio Scalable Analytics. We demonstrated the ability for engineers and algorithms to interact with datasets that were previously only possible to process in batch. Intel spoke about the advantages of Xentio Enterprise and Xentio Scalable Analytics at the same conference. Finally, to collaborate and populate an analytics system and AI models, our customers need data. In that regard, in 2025, we expanded our Symmetrix connectivity business, achieving record runtime license revenues. Also, in the second half of the year, we shipped two E-Probe inspection machines to a manufacturing site for one of our customers. In conjunction with our FHIR and Accentio software, This enables customers to ramp and control production of advanced 3D products through an application we call Direct Scan. This customer is now able to improve production control and yields by identifying new production issues in line using the Direct Scan system. So, while we started the decade as a provider of analytics platform that benefited from the unique data generated from our characterization vehicle test chips, we ended 2025 having greatly expanded our platform to include our orchestration layer in our manufacturing solutions while reinventing the core analytics platform. As a result, we achieved record total revenue in 2025, 22% growth over the previous year, and grew our growth in net margins as we benefited from scale. Our goals for the next phase of PDF Solutions growth are to establish orchestration analytics and the data component of our platform across the industry. As we discussed at our analyst day, we believe this will enable us to continue to grow at 20% CAGR while expanding our margins. As we begin 2026, we see a market whose need for AI-driven collaboration is accelerating. Activity with customers has been at an elevated level across our Fabless, Fab, and Equipment customers. We see opportunities in logic and advanced memory for our characterization vehicle and direct scan systems, including both in R&D and manufacturing. We expect to nearly double the number of E-Probe machines in the field this year. From an IDM and Fabless perspective, we anticipate increased customer activity, particularly in the second half of the year, as we release more capabilities building on and expanding Accenture Scalable Analytics and Studio AI. Given our strong portfolio of SecureWise and Symmetrix products for equipment control, connectivity, and remote access, we anticipate continued growth within our equipment customers. As a result, and even without the benefit from the inorganic growth that we experienced in 2025, We anticipate 2026 revenues to grow consistent with our 20% long-term growth target. I want to thank customers, employees, contractors, and stockholders that helped the company achieve its success in 2025. I look forward to working with all of you to make 2026 even better. Now we'll turn the call over to Adnan for more detailed comments on our results. Adnan Raza | Chief Financial Officer: Adnan. Thank you, John. Good afternoon, everyone. Good to speak with you again today. We are pleased to review the financial results of the full year and the fourth quarter of 2025. As John said, we posted our earnings release and a management report in the investor relations section of our website. We expect to file our annual report on Form 10-K with the SEC by the end of February, after our 2025 audit is complete. As a result, all financial results described in this call should be considered preliminary and are subject to change to reflect any necessary adjustments or changes and accounting estimates that are identified prior to the time we file our 10-K. Please note that all the financial results we discuss in today's call will be on a non-GAAP basis, and a reconciliation to GAAP financials is provided in the materials on our website. We are pleased to again report record quarterly and annual total revenues. We finished the year strong with Q4 total revenues of $62.4 million versus $50.1 million in the same quarter a year prior. We are pleased that our total revenues for the quarter grew 25% year-over-year, ahead of our long-term growth rate target model. For the full year 2025, we generated record total revenues of $219.0 million versus $179.5 million in 2024, a 22% year-over-year increase and consistent with our guidance for the full year. As you will recall at our analyst day in December, 2025, we previewed plans for a new presentation of revenues, breaking the total into platform and volume based. For a different insight, we also disaggregate total revenue into two different categories of recurring and upfront. Further description of these categories is provided in our 8K file today. Platform revenue for the fourth quarter was 52.5 million. and up 20% versus platform revenue a year prior, driven primarily by contributions from booking the new contract that John spoke about. Volume-based revenue for the quarter was $9.9 million, up 58% versus volume-based revenue a year prior, driven primarily by gain share and secure wise. On an annual basis, our platform revenue was $181.0 million, up 15% on a year-over-year basis, while volume-based revenue of $38 million was up 70% year-over-year, driven by patterns similar to what we saw during the last quarter of the year. Recurring revenue for the fourth quarter was $61.1 million, up 62% versus the same period prior year, and for the year was $205.1 million, up 41% year-over-year. driven primarily by CV systems for the leading edge and SecureWise. Our upfront revenue was down annually for the comparable quarter and full year basis, driven primarily by the fact that in the fourth quarter of 2024, we had completed a CapEx direct scan system sale. 2025 was an important year for PDS Solutions on many fronts. We completed our largest acquisition ever of SecureWise, finalized the licensing of Tibber AI Studio to combine with our recently announced product, Accenture Studio AI, and shared our product progress and roadmap during users group and analyst day conference. We're thankful to the many customers who spoke about PDF's breadth of product lines and the strategic relevance to their organizations. On the booking side, we also are pleased that during the year, we were able to book new deals for Sapiens Manufacturing Hub, a large deal for Accenture Analytics, and a SecureVise deal with a new customer. We also shipped four direct scan systems during the year to our customers, expanding their use of these tools into manufacturing. We are pleased that we ended the year with $254 million of backlog while delivering on strong revenue growth of 22% for the full year. For the fourth quarter, our gross margin came in at 77%, operating margin was 24%, and we reported EPS of 30 cents per share. On a full year basis, our gross margin came in at 76%, operating margin was 21%, and we reported EPS of 94 cents. It is worth noting that we exceeded our prior long-term target model of 75% gross margin and 20% operating margin for 2025 on a full year basis with the reported 76% gross margin and 21% operating margin. As you will recall, we recently revised upwards both of our target margin targets to 77% for gross margin and 27% for operating margin at our analyst day in December 2025. Turning to operating expenses. we managed to grow our operating expenses at a slower pace than our revenue growth for both the last quarter and full year basis, which allowed us to expand our operating leverage. On a full year basis, we grew our R&D expenses by 23%, primarily from direct hires and subcontractor spend, while managing SG&A spend growth to 14%, with better focus on pre-sale spending. We continue to believe we can grow the needed R&D investments and manage SG&A spend such that with revenue scale, we continue to expand our operating margins towards our target model. For the full year 2025, we reported EPS of 94 cents a share and EPS growth of 12% versus prior year EPS of 84 cents per share. During the year, we generated positive operating cash flow of approximately 24 million and spent approximately 33 million on CapEx. primarily related to our direct scan systems, and 0.2 million on share buybacks. We also spent approximately 130 million on the acquisition of SecureWise, funded with a combination of 70 million debt and balance sheet cash. We expect to spend an approximately similar amount on CapEx during 2026 compared to 2025, and expect to generate increased levels of operating cash flows during 2026 compared to 2025 as we grow our revenues and expand our margins. Turning to the balance sheet, we ended 2025 with cash and equivalents and short-term investments of approximately $42 million. Our ending debt balance is approximately $68 million, reflecting the amortization payments during the year. We are pleased with another year of positive operating cash flow generation consistent with our history. paying down our debt and funding the capex while growing our quarter over quarter cash balance. In summary, we are proud of our performance in 2025 and over the long term remain committed to our target long term model we set at our analyst day in December of 20% year over year total company revenue growth rate, 77% gross margin and 27% operating margin. Now turning to our financial outlook, For 2026, we look forward to another year of growth. To reiterate John's comments in our press release, for the full year, 2026, we expect the annual growth rate of our total revenue to be consistent with our 20% target model. With that, I'll turn the call over to the operator to commence the question and answer session. Operator? Operator | Conference Call Operator: Thank you, Mr. Raza. Ladies and gentlemen, if you have a question at this time, please press star 11 on your telephone. If you're using a speakerphone, please lift the handset before asking a question. Please wait one moment for our first question. Our first question comes from Blair Abernathy with Rosenblatt Securities. Your line is open. Blair Abernathy | Analyst, Rosenblatt Securities: Hi, gentlemen. Nice quarter. John Kabarian | President and Chief Executive Officer: Thank you, Blair. Blair Abernathy | Analyst, Rosenblatt Securities: I just wanted to, maybe we could just start with the DFI. So just to level set, Adnan, you said four direct scan systems were shipped in the year 2025. Was that correct? Adnan Raza | Chief Financial Officer: Yeah, correct. Consistent with what we had spoken throughout the year. You're absolutely right. Four were shipped during 2025. Blair Abernathy | Analyst, Rosenblatt Securities: Okay. And so what – and then John's comments about – Adnan Raza | Chief Financial Officer: to you know have two times as many in the field this coming year is that so is that eight or is or what is the total field count today I guess is the question yeah remember we had also done a capex sale so total in the field today is six so when we think about next year you should you know contextualize John's comment with that and you know John said nearly that many so that's the way I would think about it got it got it okay Blair Abernathy | Analyst, Rosenblatt Securities: And then on the CapEx spend, so it looks like in your supplemental, it's around 32.8, just under $33 million in 2025. So how has that come in over 26? Is it front-end loaded? Just kind of some sense of, and what are you using it for? Adnan Raza | Chief Financial Officer: yeah we'll try to manage it evenly during the year this year as you saw there was a little bit of an uplift towards the end of the year but next year we think it's probably even in between a quarter is there a little bit of variation maybe towards the middle of the year that's possible as we look to place some orders in advance but even but give us some room towards the middle of the year okay and is um does that i mean is that positioning you for 27 is that is that what what this is doing and i guess Blair Abernathy | Analyst, Rosenblatt Securities: I know you don't want to give guidance for 27 at all, but should we think of it as this is going to be the level for a while, or just give us some sense of how much is going to be required? John Kabarian | President and Chief Executive Officer: I'll take that one, Blair. Obviously, a lot of the capital that we spent in the second half of last year was for machines we expect to ship in the first half of this year. The machines are disproportionately now on subscriptions, and we hope to maintain that again this year. So, you know, as we modeled out our, you know, long-term targets that we provided in December, we thought, okay, even if we stay at this level but keep machines on subscriptions, you get this install base of machines over time that all contribute. So we kind of built out, assuming we stayed at this capital level and could sustain our growth. We obviously will look to increase our penetration in the market. But, you know, because of the subscription model, it becomes a workable model over time with this approach. Blair Abernathy | Analyst, Rosenblatt Securities: Got it. Got it. Great. Okay. And then just if I could just over on the SAP relationship, I think you mentioned there's another deal. John Kabarian | President and Chief Executive Officer: there just just how is that going and and sort of what what are your expectations for next year from from that partnership yeah so you know we continue when we meet with customers we see increased needs for orchestration as I said in my prepared remarks for folks to be able to you know truly apply more automation more AI to their to their operations You really need those connections between the major systems. No one's going to build the perfect database that has all information from their financial systems, their operations systems, their engineering. And then that whole purpose of sapience is the world, you want a consistent way when you, let's say, do costing from a finance perspective, how you look at machine time on the equipment. So you need to be able to define these orchestrations and the way you take very complex data in the operations side and summarize it for finance and vice versa. So, you know, we continue to work with SAP and increasingly we're talking with the system integrators as well. And you probably saw, you know, some of them present at our user conference around ways we can jointly market that solution. But why we like it is it, you know, it gives another reason why folks want to keep engaged with us on the Accentio side You know, if you listen to one of the speakers at our user conference, they talked about, well, if, you know, one part of the organization is using Accentio, then it makes sense to use Sapiens because one-third of the data, you know, if you say the engineering data is in Accentio, the operations data in their MES system and the finance data in ERP, then you kind of have a kind of one-third of it already kind of taken care of for free, quote-unquote. So, you know, through our partnership with SAP and the SIs, we expect to kind of build on our install base and engineering to get to the other parts of our customer organization. If you look at the contracts for Sapiens, they typically are part of the finance team's spend and the contracts for Accenture are typically the engineering team or operations team spend. So it allows us to kind of touch and tap into another part of the organization. And we do expect selling throughout this year, just to summarize. Blair Abernathy | Analyst, Rosenblatt Securities: Okay. Okay, great. Maybe just one quick one for you, Adnan. How should we be thinking about your balance sheet, your debt levels over the next couple of years? you know, comfortable with the debt where it is? Are you looking at sort of paying it down again? What should we be modeling there for capital allocation? Adnan Raza | Chief Financial Officer: Good question. Yeah. So, look, I mean, the debt is structured at good rates. B, with the interest rate cuts, that's helping. C, we are a cash generating history entity on the operating cash flow side. And we've been careful about where we needed to make the investments. I mean, Q3 to Q4, you saw us build the cash. So naturally, we will pay off the required amortization levels of the debt. But beyond that, I think we're going to carefully balance, of course, the spend on the CapEx and also try to build back the cash balance and the balance sheet before we start to think about any massive payback on the debt. But of course, our goal remains that we get out of the debt situation. We've had a history of not having the debt, and we'd like to get back there. So prioritizing with the other priorities and getting back to a a healthy gas level, and then beyond that, start paying debt, I think, with the expanding margins positions as well to start heading in that direction. Blair Abernathy | Analyst, Rosenblatt Securities: Okay, great. Thanks for the call. Thanks, guys. Operator | Conference Call Operator: Thank you. Our next question comes from Clark Wright with DA Davidson. Your line is open. Clark Wright | Analyst, DA Davidson: Thank you. First off, great quarter. We'd love to understand a little bit more about the new methodology around describing revenue. partially around your expectations for growth on the volume based revenue going forward? And how should we think about the cross selling opportunity of secure wise as we think about normalized levels going forward in 2026? Adnan Raza | Chief Financial Officer: Sure, maybe I'll take the beginning part and, you know, have john jump in on the second pieces. So look, many of you have been talking to us about trying to understand the business a little bit more. So that was partly the motivation for breaking it out into versus the upfront. And then secondly, on the platform versus volume-based, if you think back to over the last five years, the business has evolved. Prior to when we did the Symmetrix acquisition, the business was probably more platform-based. So as we acquired Symmetrix and as we now have acquired SecureVise, and over the years, we've also enjoyed and continue to enjoy the Gainshare, it made sense. to count those three pieces of Symmetrix, largely the three pieces of obviously full definitions in the 8K, but largely the three pieces of Symmetrix, SecureWise, and Gainshare in our volume-based revenue, which is another way to think about it is it's revenue in order to our benefit based on customers' own changes in their business, and we're happy to get that. So that's the recurring versus upfront, and then the platform versus the volume. Yeah. John Kabarian | President and Chief Executive Officer: So I think just, you know, also it kind of helps you think a little bit, you know, uh, the volume revenue is typically not in our backlog. We don't have a backlog for gain share or runtime licenses or the data usage on, um, uh, on, uh, secure wise. So, you know, we thought it would give some visibility on the part of the business that's really tied to our customer success with our products. Or if you think about those three elements, uh, and, uh, The other one gives you kind of an understanding about the part of the business that kind of is related to the backlog. We used to break out IYR and analytics, but then IYR became such a small percentage of the business, we felt it wasn't very instructive for the shareholders, I guess stockholders. So that kind of gives you the first answer clock, if that's adequate. I can go on to your question about the cross-sell on SecureWise, if you like. Clark Wright | Analyst, DA Davidson: Yeah, I mean, that's helpful. I would love to understand just going forward, just given the fact that it grew largely because of the Shakirwise piece, how much of that should we be thinking about the Shakirwise versus what the organic growth rate is of that business? Adnan Raza | Chief Financial Officer: Yeah, we're not breaking out within those pieces. Look, I mean, if you go back and do the calculations, you'll see platform revenue for us over the last many quarters, even that we are sharing in the supplementals. has been north of 80%. The recurring revenue is north of 90%. So it's definitely above those levels. Overall, we'll continue to make sure that the business performs on an aggregate basis. John Kabarian | President and Chief Executive Officer: But I think a little bit of the growth on the volume-based Clark was gain share was up quite substantially in 2025 over 2024. And yes, you had the contribution from SecureWise. And actually, as I said in my prepared remarks, We had record runtime revenue, licensed revenues for some metrics as well. So fundamentally, because the industry is, you know, at a relatively elevated level, all three of those things were contributing pretty meaningfully to that growth number. It wasn't just SecureWise. Got it. You know, I think SecureWise is part of it, but not all of it at all, nowhere near. So then I think to get to your second question on cross-sell, There's quite a few things we're doing. If you look at our runtime licenses and SDKs for Symmetrix business, we give the equipment company a development kit so they can use our libraries and software embedded in their equipment to control the screens, the operacy, the communication with the factory execution systems, and the communication with the factory analytics systems, often things like Accentio. SecureWise also provides an agent that runs on the equipment that allows for remote communication and full control of what data is shared between the equipment through the factory to the equipment vendor that the factory controls. The factory decides which engineer is able to see what data, which knobs are allowed to change on the tool, what data goes to the factory at what cadence, the equipment vendor at what cadence. So the first obvious thing that we're doing is including the SecureWise agent in the Symmetrix software development kit. Just to put it in perspective, in 2024, I don't remember the numbers, 2025, over 8,000 tools shipped with SecureWise Symmetrix connectivity. And that's more tools than any single equipment vendor shipped. And it grew in 2025 over 2024. So this means that the Securilize agent will be available on a lot of equipment. That's a big value to our FAB customers who want to be able to use this stuff, and they're hoping the equipment comes preconfigured. So if you look at the contract we signed in the second or third quarter with the eight-figure contract with the FAB, one of the things they saw was, hey, you're already working with all these equipment vendors. You can make sure the equipment comes into our factory, at least the new equipment, and pre-installed, that will then save us time and effort. So that's the first place. The second piece that we're seeing is Securwise is in virtually every 300-millimeter factory in the world with a couple of exceptions in China. So I would say 99.9 something or 99.5 or whatever it is of fabs in the world, 300-millimeter fabs in the world. But a lot of equipment vendors don't have access to it, and a lot of the fab engineers can't use it. And now... because a lot of our customers are building FABs around the world, they also need to have remote connectivity and the audit capabilities that SecureWise provides. So we're going back and making it available to the FABs themselves. And these are these contracts that we're signing that help the FABs also take advantage of the system. It's another cross-sell opportunity. And then thirdly, as I said in my prepared remarks, a lot of our equipment customers are now starting to sell into the assembly facilities and the OSATs as the advanced packaging becomes more sophisticated. The fabulous companies also want to be able to get more data than just their tester logs from the OSATs themselves. And the OSATs are running now operations around the world, too, as they're being asked to stand up factories in Arizona and Japan and other places. So now we're starting to connect. We're going through and integrating DEX onto SecureWise, which was our network for the OSATs. Because SecureWise has a lot of advanced capabilities that DEX did not have and making it available to that community as well. And that's the third and the longer pole in the tent because that's involving deploying at OSATs and integrating of our two products. So that kind of gives you just what we're doing with the product so far. Clark Wright | Analyst, DA Davidson: No, that's super helpful. And the only follow-up I have is just to write, you made a comment during the prepared remarks around logic and memory. and the role that PDF can continue to play where we're seeing significant bottlenecks that look like there's no end to. We'd love to understand how PDF is continuing to build its value proposition for specifically that client base. John Kabarian | President and Chief Executive Officer: Yeah, so I think, you know, we've for a long time been involved in the advanced logic fabs, and we continue on that. We do see a number of activities this year, and even some you know, for test vehicles and direct scan E-probe, even in some more mature nodes that you would consider slightly more mature on the logic side as people are trying to expand capacity. On the memory side, we've been engaged in a couple of pilots with customers on DRAM, and we expect that to ramp up this year with at least, you know, one or two of those companies as we see very positive results. And I think as the DRAM is also becoming more and more 3D, they're also doing both DRAM and flash bonding of wafers, wafer-to-wafer bonding, the need to be able to do an electrical inspection is increasing. So we do see a number of opportunities there as well. Overall, we believe manufacturing in semiconductors is increasingly strategic for countries. So it creates the need to put factories in many countries and around the world, and the demand for semiconductors is quite substantial. The characterization capability, the direct scan, the secure-wise networking capability, and the analytics will increasingly become important to our customer base. I think we've had a lot of really exciting conversations with customers in this first month and a week or whatever this year around new opportunities for our systems. Blair Abernathy | Analyst, Rosenblatt Securities: Awesome. Thank you. Operator | Conference Call Operator: Thank you. As a reminder, to ask a question, please press star 11. Operator | Conference Call Operator: And that's star 11 to ask a question. At this time, there are no more questions. Ladies and gentlemen, this concludes the program. Operator | Conference Call Operator: Thank you for joining us on today's call. jsPDF 3.0.3 D:20260606090341-00'00'

NASDAQ:PDFS Q3 2025 Earnings Call Transcript Generated on 6/6/2026 John Kibarian | President and Chief Executive Officer: year as investments were ahead of the growth they enabled. We expect the profits generated from these investments in 2025 will enrich our balance sheet in 2026 and beyond. Finally, I encourage you all to attend our Analyst Day and Users Conference. There you will see our customers, partners, and PDF folks talk about the needs and opportunities for AI and analytics in manufacturing. We are honored to have Mike Campbell, SVP of Qualcomm, Aziz Safa, Corporate VP of Intel, Tom Caulfield, Exec Chairman of Global Foundries, and Jean-Marc Cherie, CEO of STMicro, among others, share their perspectives. Now I'll turn the call over to Adnan. Adnan? Adnan Raza | Chief Financial Officer: Thank you, John. Good afternoon, everyone. Good to speak with you all again today. We're pleased to review the financial results of the third quarter and to bring you up to date on the progress of the business. We posted our earnings release and management report on the investor relations section of our website. Our Form 10Q has also been filed with the SEC today. Please note that all of the financial results we discuss in today's call will be on a non-GAAP basis, and a reconciliation to GAAP financials is provided in the materials on our website. As you saw from our press release, with our Q3 results, we achieved another record for quarterly revenue. our bookings for this quarter totaled over $100 million as a result of multiple large deals signed across our product portfolio of Leading Edge, Xencio, and SecureWise. During the third quarter, our bookings were greater than the prior two quarters combined. On a year-to-date basis, for the three-quarter period, our bookings were 49% higher than the comparable period of last year. With the contracts John mentioned, as well as additional business closed in the quarter, we ended Q3 with backlog of 292 million, which is 25% higher than last quarter and 22% higher than the same period a year ago. We are pleased that we were able to grow our backlog while delivering record quarterly revenue. Our total revenue for the Q3 period came in at $57.1 million. or 10% higher than last quarter, and 23% higher on a year-over-year basis. Our analytics revenue came in at $54.7 million, or 12% higher versus the prior quarter, and 22% higher on a year-over-year basis. The growth in analytics compared to the prior quarter was driven by business from leading-edge customers and equipment software. Integrated yield ramp revenue was 4% of total revenue in Q3 and was lower by 0.5 million compared to the prior quarter and up on a year-over-year basis by 0.8 million. On gross margin, we reported 76%, or slightly ahead of last quarter, and down 1% versus last year's comparable quarter, which had meaningful perpetual software revenue in that quarter. As you will recall, our long-term target for gross margin is 75%. We're pleased that we were able to be ahead of that target for this quarter. Our operating expenses in Q3 grew 3% compared to the prior quarter, primarily due to spend related to development improvements for our platform and increased variable compensation accruals due to strong results. On EPS, we were able to deliver 25 cents per share for the quarter our strongest quarter for the year. For the first three quarters of 2025, our EPS of 64 cents is now six cents ahead of the comparable period of last year. We generated positive operating cash flow of 3.3 million this quarter and 6.7 million for the first nine months of this year. We ended the quarter with cash, cash equivalents, and short-term investments of approximately 35.9 million. compared to the prior quarter's ending cash balance of approximately $40.4 million. We repurchased $0.2 million of our stock this quarter at a per share price of $19.55 per share. During the quarter, we invested $6.3 million in CapEx, which is lower than the $8.5 million in Q2 and the $8.2 million in Q1 of this year. 2025, has been an important investment for us, like John said, as we use significant cash on the acquisition of SecureWise and related integration expenses, while only benefiting from a partial year of ownership. During the year, we also invested in building E-Pro machines to meet customer demand in 2025 and 2026, without the benefit of full subscription run rate return on the investment within the year. Now, with two additional machines shipped and going through qualification on a subscription model, as well as the integration costs of the SecureWise acquisition largely behind us, we anticipate cash to grow over the next year. Given the strong business activity, the growth in our backlog, and the customer opportunities in front of us, we reaffirm our prior guidance of 21% to 23% annual revenue growth range for this year. As we get ready for our analyst day and user conference on December 3rd, we look forward to sharing more details about our long-term targets for the next phase of PDF growth with you at that time. We are also thankful to our customers and partners for supporting the growth we delivered this quarter and look forward to growing sequentially again in Q4. With that, I'll turn the call over to the operator to commence the Q&A session. Operator? Conference Operator | Operator: Thank you, Mr. Raza. Ladies and gentlemen, if you have a question at this time, please press star 11 on your telephone. If you're using a speakerphone, please lift the handset before asking a question. Please wait a moment for our first question. Our first question comes from the line of Blair Abernethy from Rosenblatt. Please go ahead. Blair Abernethy | Analyst, Rosenblatt Securities: Good afternoon, gentlemen. Good afternoon. Nice quarter. I just wanted to just I want to ask you a little bit about the BFI. I see that you managed to ship two more machines. The machines that are under the lease model, when does that start to generate revenue? Is that at some point next year or does that start to happen this year? Adnan Raza | Chief Financial Officer: Yeah, we are going through the deployments and qualifications of those machines. As you know, those can take anywhere from one quarter or a little bit plus or minus on that timeframe. So given that we have shipped, we expect within the next quarter or the quarter after, depending on the timing of those qualifications and the customer acceptances, to start converting and generating the revenue. Blair Abernethy | Analyst, Rosenblatt Securities: Okay, great. And how does the pipeline of opportunities look for DFI right now? John Kibarian | President and Chief Executive Officer: Quite strong, actually. This is John. We do... We do have other places where we would like to be able to ship machines. That's why, if you didn't notice, we did spend some on CapEx this quarter, in part to continue building machines, which we expect shipping in the first quarter of this coming year. We are hoping to squeeze in one more shipment this year, but it may be tight, just given the timing and what we're doing to bring up the machines already. So quite strong across countries. a handful of customers. It's not a huge market for eProbes, but there's probably between 5 and 10 customers in the world. And we do have probably closer to 5 where we are actively engaged in discussion. Blair Abernethy | Analyst, Rosenblatt Securities: Okay, great. And then just on the secure-wise, you want a large contract there at this point. How is the go-to-market there? I know that you've had it... for a couple of quarters, just kind of a sense of how that is building. John Kibarian | President and Chief Executive Officer: Sure. Yeah, we actually had at Semicon, right after Semicon West and Phoenix this year, we had a little what's called Connected Summit. Because in the past, the SecureWise team had had a users conference in conjunction. What was different about that was we had not just equipment companies come, but also fab companies attend. And in that conference, Intel presented how they are using SecureWise as their standard connectivity platform for both internally as well as to support the equipment vendors. We had felt that the way SecureWise had been run, it really only focused on the needs of the equipment vendors. And when we, you know, because of our DEX network, because of our work with the fabs and just our general footprint, which as I said in my prepared remarks goes from everything from wafer makers through to system companies. We thought connectivity to the fabs was actually desired by lots of folks. In fact, when we announced that acquisition, the first congrats I got was from one of our largest fabless customers who was very intrigued with the ability to get remote access at the OSATs and fabs. And so the Intel contract was a way of us saying, okay, we're going to provide base capability on every machine at Intel. They announced that they're going to put this on every machine, front end, back end, and test facilities. for their use as well as to make it available for some modest level of usage at every equipment vendor. When we talked to the equipment vendors that use SecureWise, one of their laments was not SecureWise itself, but the fact that they were not able to get it on every factory in the world. Even if it was actually already installed at some factories, that factory may not give a specific equipment vendor access. Maybe only the largest equipment vendors in the world typically got access at every factory in the world. And the smaller equipment vendors didn't feel like they were getting access but they would very much like it. They knew it makes them a lot more efficient, both for human-level collaboration as well as for AI-driven collaboration. So now that we've had this company in our hands for the product in our hands for maybe seven months now, if I think about it, what we started doing is selling it much more broadly into the fabs as well as into the equipment vendors, creating collaboration across them, which is what I talked about at Semicon West, And we've started piling it at the OSATs and really merging it with our DEX network because the security and some of the features that SecureWise enables are very desirous more broadly. So it becomes an integral part. Really, within the first quarter, we were selling combined contracts. If you look at that first contract that we announced in Q2, which is really now that it's been announced, was effectively the Intel contract. And we see a lot more of that coming down the pipe. Blair Abernethy | Analyst, Rosenblatt Securities: Okay, that's great. I'll jump back on the queue. Thanks, guys. Teleconference System | Automated Prompt: Again, if you would like to ask a question, press star 11 on your telephone. Conference Operator | Operator: Our next question comes from the line of Clark Wright from DA Davidson. Please go ahead. Clark Wright | Analyst, D.A. Davidson: Hi, thank you. Quick question is around the customer concentration. mix. You know, customer A that you guys referenced year over year went from 19% to 38%. I'd love to understand kind of, you know, how you're winning bigger and as well as how you're looking at using SecureWise as a potential point of the spear to expand the overall customer base. John Kibarian | President and Chief Executive Officer: Yeah, that's a great question. You know, if you look at our business, really, we kind of think about it in three categories. There is the fabs, they tend to buy almost everything from us. You know, if you look at just a discussion I had around SecureWise, as well as the test vehicles, the e-probes, Accentio, et cetera. And those are very large contracts, typically multiple contracts with the same account, and hence you see the customer concentration. It's really not off of one contract, but off many contracts that gets those customers. They represent typically, you know, between 40% and 50% of our business at any given quarter, just looking at how things work. The Fablesson system companies are around 35% to 45% of our business, and that's about 100 and something, 150-ish companies. We are seeing more interest in AI on Accentio, the Accentio Cloud, the SecureWise connectivity, and some of what we call orchestration products, sapience products. We've had a number of wins over this past year. and continue to drive business there. And then lastly, about 15%, and we think in the long-term closer to 20%, are the equipment vendors. We have about 200 of them with the acquisition of SecureWise that certainly grows our business with those customers. And they have access, they have desire for the same access points that the fab list is. So the way we think about it over the long-term clock, you can think about fab customers as a nexus point. and they run factories and they control the data, but they need collaboration with their customers to get qualified and their equipment suppliers to be able to reach effective use of the machines that they purchase and put into use in their factories. And so Securilize, as you pointed out, is the point of that sphere because it allows us the collaboration across a number of those customers. And the Accenture contract that we did this quarter It has an element with regard to SecureWise because they want to be able to reach their customers through SecureWise on the Accenture platform from a collaboration standpoint. So this is how we see PDF becoming a platform for the industry rather than a platform for each individual company. And SecureWise is a very important element to that. Clark Wright | Analyst, D.A. Davidson: Awesome. Thank you. Appreciate that, Keller. And then just as it relates to the announcement made in the end of September around the landmark contract, you reaffirmed your guide for this year. Is there anything we should be considering as it relates to kind of the 2026 picture and what you can say so far around how that deal potentially sets up the company for kind of the next leg of growth? John Kibarian | President and Chief Executive Officer: Yeah, we haven't given guidance for 2026 yet, and we'll do that as we get through Q4 and do our Q4 call. But obviously, as we grow backlog, you asked the question about other, we do see a number of other opportunities on the horizon for the company over the next couple of quarters. We hope to have a strong 2026 on top of a very good bookings 2025. Awesome. spk08: Thank you for that. Teleconference System | Automated Prompt: Our next question comes from the line of Gus Richard from Northland Capital Markets. Conference Operator | Operator: Please go ahead. Gus Richard | Analyst, Northland Capital Markets: Yeah, thanks for taking the questions. I'm just curious on the systems you're sending to the production site, how many tools per batch do you think the customer is going to need? John Kibarian | President and Chief Executive Officer: Yeah, I think it's early to say, Gus. Obviously, we've put two in the first site. Two is a good number because at least as these things are used in mission critical manufacturing, if one were to go down, you would want to be able to at least route critical material to the other. So I think very rarely would it be one. I think the minimum number is two. And then the question is, you know, with any inspection capability, you know, how much of the dance card can you fill up? What we've noticed as we've installed machines around the world is it gets very quick to get these things filled to very high utilizations, in part because they can see things that are very hard to see or maybe nearly impossible with other systems. So we'd like to go beyond the two, but right now we think two. Gus Richard | Analyst, Northland Capital Markets: Okay, so these are... near production, but not necessarily in line, not, you know, there's not... No, I didn't say that. John Kibarian | President and Chief Executive Officer: Those are your words. No, I said the reason why they want to is if one goes down, they want to be able to continue production, right? Gus Richard | Analyst, Northland Capital Markets: Okay. I just want to get, I just want to get it clear. And then of the, you have several systems going out, you know, end of this year, beginning of next, you know, or I just want to understand, are these evaluation systems or are they for revenues? John Kibarian | President and Chief Executive Officer: There's a mix. It'll be a mix, the next set of machines. There'll be a couple on eval, and the remainder will be revenue machines. Gus Richard | Analyst, Northland Capital Markets: Okay. I think that's it for me. Thanks so much. Conference Operator | Operator: Thank you. Once again, if you would like to ask a question, press star 11 on your telephone. Once again, if you would like to ask a question, press Start 11 on your telephone. Okay, we have a follow-up question from Blair Abernethy from Rosenblatt. Please go ahead. Blair Abernethy | Analyst, Rosenblatt Securities: Oh, hi. John, I just wanted to follow up on the Cyber AI Studio. Can you just – you said there's – 100 or so customers for that. I'm just wondering if you can give us some sense of the timeline of when that can go to market with the Accenture platform, i.e., when is the integration sort of ready for customers? John Kibarian | President and Chief Executive Officer: Sure. And I said actually hundreds of users. It's actually a very, very small number of customers, Blair. But thanks for asking that clarification. We will have a integration at the end of this quarter. We actually signed this contract quite a long time ago, but due to timing of other contracts, we needed to wait before we could announce it. And we had had discussions with them going all the way back to 2024 around this opportunity. We had evaluated it in early Q1. As you can imagine, we were pretty busy in early Q1 because we're also closing SecureWise. And then signed contract towards the end of Q1. then executed some activities in Q2 and announced in Q3. But we do, so as a result, we've been working with this code base for, you know, since all of Q3 and into Q4, and we expect to release some first level of integration with Accentio at the end of this quarter for some early access customers. Blair Abernethy | Analyst, Rosenblatt Securities: Okay, great, great. And then just on the Accentio analytics side, business. What is the, you know, what's the renewal book look like as we kind of head in to the end of 2025 here versus last year? And, you know, are you, you know, and maybe, maybe in recent contract signings, what sort of any, any changes in the term length of Accentio contracting? John Kibarian | President and Chief Executive Officer: Yeah. Up, Typically, term lengths are three years. There are some that go as long as five and some that are short as one or two. A book is quite robust. The eight-figure contract we signed this last quarter was probably one of, if not the largest, standalone Accentio MA contract in the history of the company. as other larger contracts tended to have test operations or other components included in there. What we are seeing, and we're going to talk about this at our user conference, customers really want to have a scalable AI-first analytics capability. We're going to show our roadmap and what we're doing to have analytics with AI first, and what that means in terms of parallelization, The advances we're making around how to get to very large data sets interactively, they want the human interactivity with data still, but they want to be able to operate on data where you've got a million parameters and 10 million data points. And you really can't do that with conventional business intelligence tools, right? If you look at Accentio or any of the tools out there, you're limited by the compute. And we're going to show what we're doing to break through that problem Studio AI is an element to that, a very critical element to that, because even when you're interacting with a million parameters, you need to use AI methods to screen and to tell you what part of that data set you should look at. And so what we'll demonstrate in December is ways of being able to operate interactively, leverage AI first, and work with data sets that you really couldn't do in anything but a batch mode in the past. by leveraging basically a native AI approach and a natively parallel approach. You can think of a lot like moving algorithms from CPUs to GPUs. You get to scale with compute. What we will show is how you can leverage GPUs and other computing elements in an interactive analytics capability. And we are hearing from our customers that this is what is desired. We have a number of renewals that are coming up this year, and it primarily next year, that I think will benefit from this capability. Blair Abernethy | Analyst, Rosenblatt Securities: Okay, great. John Kibarian | President and Chief Executive Officer: That's my teaser for the conference. Blair Abernethy | Analyst, Rosenblatt Securities: Yeah, okay, excellent. The other question I just had was around Sapient. Anything to report there or any progress with the partnership with SAP? John Kibarian | President and Chief Executive Officer: Yeah, we've got a number of activities going on on Sapient's platform. We do expect to announce something related to Sapiens in Q4 in terms of additional customer business. And you'll see us announce something in the Sapiens family at our user conference that's really building on top of Sapiens some capability targeted to the Fabelson system company that we expect to announce at our user conference. Blair Abernethy | Analyst, Rosenblatt Securities: Okay, excellent. Thanks very much, John. Conference Operator | Operator: Our next question comes from the line of Clark Wright, DA Davidson. Please go ahead. Clark Wright | Analyst, D.A. Davidson: Awesome. Thank you. Appreciate the time. Any findings from Semicon West in terms of how the end markets are in the health of those sound relative to the beginning of the year or your expectations? John Kibarian | President and Chief Executive Officer: Yeah, Clark, that's a great point. It was an interesting Semicon, I think, because it's the first time Semicon West was not in San Francisco. People couldn't go in and out. You were kind of stranded in Phoenix. So there was a lot more informal conversations. And we did meet with also a lot of our, not just our equipment customers, but I would say our fabless customers and a lot of our fab customers. And what we've heard were a few things. Yeah, the build-out on AI is continuing to go on. All the equipment customers participating in advanced packaging, everything around advanced nodes, On the logic side, I do see, and on the DRAM side, I do see a pretty rosy outlook for 2026. I do think they're in a pretty strong position. Are customers selling into automotive, industrials, and communications? The ones with very differentiated products do seem to be talking about a robust 2026. I think that's still a mixed bag. There are customers in that sector that have some challenges to work through. But I would say for the first time, the kind of ones that have very differentiated products are much more bullish. So I would say you start seeing kind of a more broad base of enthusiasm within the customer base than I would say three months ago or six months ago, where it was really limited to just the people on the very advanced nodes and advanced packaging. So I do think it was more broad, I would say not fully broad to everybody, but definitely more broad in terms of positiveness than where it was three or six months ago. And then lastly, I would say our fabulous customers, as they are becoming more and more embracing advanced packaging, are recognizing they're becoming a manufacturer. And that means ability to communicate with the OSAT customers more complex test data feed forward and other test flows. We had a lot of dialogues with customers on that topic and how can they effectively become more aware of what's going on in manufacturing. In the past, they would order a wafer from the foundry and once they hit wafer sort, there wasn't a lot to worry about. But now they've got everything from operationally make sure they have organic substrates available and manage the supply chain of the production, post the wafer sort, as well as having many more test insertion points and needing to be efficient in how they leverage. And we've heard a lot of dialogue from customers in that regard. And I think that will be a growing area as we move from just the very few high-valued, not terribly high-volume chips driving advanced packaging today to a much broader set of customers trying to leverage these advanced packaging test flows. Clark Wright | Analyst, D.A. Davidson: Got it. Thank you. And then in terms of metrics and kind of the shadow backlog, I know last quarter you kind of referenced the fact that tens of millions there. Has that upticked as well sequentially? John Kibarian | President and Chief Executive Officer: Yeah, as I said in my preparative remarks, we had a very strong quarter. We referred to it as revenue because the booking and the revenue happened in the same quarter on the runtime licenses with Securilize. In other words, we get designed in on the SDK requirements, And then they ship. What we noticed, as I said in my prepared remarks, at the end of 2024, and we see it again this year, is more equipment is shipping with our software than with any of the proprietary software systems that the companies build. And I think that's really giving our software the reputation of being very robust and very applicable. A lot of our equipment companies that used to be on the front end are now trying to bring in tools to the back end. Our software is already proven in back end assembly facilities that our tester companies are doing much more sophisticated system-level tests with more robots, and our software is very proven with that capability too. So we do see a fair amount of activity, design activity, in some of the customers evaluating our SDK. Net, when you look at our runtime licenses, Q3 was very significant. It was a good quarter for us, very good quarter for us. We don't get a lot of visibility, so we hope to sustain that in Q4. We don't have as much visibility because we only see it when they ship. But overall, while quarter-by-quarter may be difficult to predict, on an annual-by-annual basis, the trend is quite positive as more and more equipment ships with our software, and they use our software for more functionality, which means they buy more of the Symmetrix modules. Conference Operator | Operator: Thank you. That was super helpful. Our next question comes from the line of country winner, Samji Capital. Please go ahead. spk04: Hi, good afternoon, guys. I wanted to maybe follow up on, I think you touched on it a little bit in the last answer, but, you know, notice that, you know, two of your partners in the test space, you know, VanTest and Paradigm, you know, both posted very strong results and outlooks. And you've talked in the past about advanced tests and the complexity around tests being, you know, a strong secular driver for the company. Can you maybe elaborate a little bit on what you're seeing and how the opportunity for us, you know, is it coincident with as they see strong shippings, does our bookings or opportunities lag theirs and sort of, you know, any other, you know, color you could provide? John Kibarian | President and Chief Executive Officer: Sure, Andrew. Thank you for the question. Yeah, you're right. It tends to lag. We see that, by the way, with our yield ramp business over the years, too, and kind of my prepared remarks saying we've seen lots of people building out 3D production and test and assembly, and now they're trying to figure out how to get a good return on a lot of these investments. We see that. That's part of what's driven our characterization vehicle on ePro bookings. over this year, and a lot of our evals that are ongoing, our folks recognize they've got to get a return on what they've just put on the ground. So we would expect on the advanced test for advanced packaging, we will also lag our partners in that regard. The biggest application we see, and we've got a number of pilots going on with customers, is data feed forward. And what this means is they have, as there's many more packaging steps. They have a lot of test insertion points. So they test more than once at wafer sort, more than once at final test, and once at system level test. There's multiple wafer sort tests, multiple test points at package, even sometimes as part of the package flow, and then finally system level test. And they do these at different temperatures and different conditions for these very large data center chips. The nature of that is they want to feed forward data Typically, they take the raw data, run an AI model, extract features, and send it downstream to another test insertion point. And as the data is coming off that test, they will use that as a basis to decide to test more or test less. Our original strategy on this, Andrew, was to not be in the modeling business at all, but provide them the infrastructure for kind of orchestrating the data up and down the supply chain We've got pilots ongoing with that. We actually have customers deployed using that on tens of tools now over a year in production across multiple OSATs. And even that customer has come back to us and said, hey, we need capability to be able to build and maintain the models, not just move the data around. And that was really the Tiber AI Studio. I forget the name right. We thought our customers would be able to do that on their own or there were systems to do that on their own. But the reality is there's a lot of friction to getting that work done too. And so the integration with Accenture Studio AI with Accenture Model Ops is to help them not only run the model in production, but manage the model through the build and through the lifecycle in their central servers. So I don't think this is a one-quarter bang and everything's going great. Andrew, we're going to see win by win by win with customers. But I would say we have a handful of pilots going on in data feed forward at this point. We've got some in production already, and we do anticipate that to becoming an increasingly important part of our Accentio test business. spk04: Okay. And would you think that would be like a 2026 sort of timeline? John Kibarian | President and Chief Executive Officer: Yeah. I mean, the majority of that business impact will be in 2026 and beyond. This year, there may be some additional contracts won, but the revenue impact will be de minimis. spk04: Okay. And then Following just, I want to clarify something. So the two tools, two DFIs that were shipped and are in the process of qualification, you know, it sounded like the way you described it, you know, they could get qualified this quarter or maybe not. Is it then fair to say that, you know, Adnan, I think in the past you've talked about multiple ways to get the guidance. you guys feel comfortable with the guidance even if these tool qualifications slip into Q1? Adnan Raza | Chief Financial Officer: Yeah, Andrew, exactly. I mean, anytime we're looking at a quota, particularly when we're speaking to comments such as the ones that we put in my prepared remarks about sequential growth for Q4 and also both in John's and my remarks about the reaffirmation of the 21% to 20% guidance, you're absolutely right. We're thinking about this and then other ways to get there. So, Look, if the timing happens this quarter, great, but like John said, there's many other opportunities we're working on across the product platform portfolio that we have. John Kibarian | President and Chief Executive Officer: And then maybe... This is a little bit of commentary. The timing on qualification would be towards the end of the quarter in any case, so the in or out is not a tremendous amount. spk04: Okay, so again, the qualification of those tools regardless would be more of a tailwind to 2026, you know, the earlier question about, you know. Correct. And then maybe just a little more color on, I mean, obviously you talked about, you know, rough engage with five customers or potential customers on BFI. You know, how, you know, is there memory customers involved? in that bucket or are we still primarily focused on logic and it's been its logic, you know, is it, you know, you have two sort of other customers that have accepted tools. Are they looking at, you know, what your lead customer has done and, you know, the conversations around sort of a similar broader deployment along those lines? John Kibarian | President and Chief Executive Officer: Yeah, it's a, It's actually all of the above. With our existing customers, we see interest in more machines as they see the value, including the value of putting these in manufacturing and using these to monitor lines. With new customers that are in the same area as our earlier customers, maybe at different feature sizes, but logic manufacturers, we started getting a ongoing pilots with customers where they're sending us wafers and showing them what you can do. And it is a very unique capability. So we're able to show usually within a wafer or a few what you could see that's hard to see elsewhere. And then lastly, as I've said throughout the year, we have interested in doing pilots on DRAM for just about 12 months now, maybe 13 months. And by sending wafers to our facility here in California, And we're getting ready to be able to ship. I think the limiter on shipping is really us, not at least one of those customers, being in a position to ship given what we've been doing to bring up these machines and manufacturing this year. And at the engineering level, there's a lot of similarities to what we're doing in the logic side, but it's very, very different process technology if it's memory versus a logic technology. also exploiting the unique capability of the machine and the software. spk04: Okay. And then just lastly on the Tiber, so just to be clear, like, so it didn't, we didn't, didn't come over with existing revenue. Listen, the press release, it said something about like supporting customers, you know, through this transition, anything that contributes will be going out and selling once the integration is complete? John Kibarian | President and Chief Executive Officer: Yeah, that's correct. The majority of the customers were not in semiconductors. Some have interest for us to support, and we are talking to only a very small handful about having them be supported on the standalone version of the product. Obviously, we licensed this from Intel. Intel itself was an internal user of the product. For them, we will offer to support it both ways, both standalone and with Accentio. There's a lot of value getting it integrated in Accenture for a semiconductor customer. Because it didn't really support any visualization of the data, the model, the results, just really visualization on running the models and algorithms. So Accenture, and you didn't have a database for storing the data set you want to use. And then once you're done, you want to be able to store all of that information. So you could always go back and recreate it, and Accenture has... capability for that, model registration, things like that. So, you know, I think for that, the user base, which is primarily at Intel, that was in semiconductors and using it, I think it's quite advantageous for them to use the integrated version. For the small number of non-semiconductor customers, they may use the standalone version. spk08: Okay, great. Teleconference System | Automated Prompt: Thank you. Once again, if you would like to ask a question, press star 11 on your telephone. spk08: There are no further questions. Teleconference System | Automated Prompt: Ladies and gentlemen, this concludes the program. Thank you for joining us on today's call. jsPDF 3.0.3 D:20260606090343-00'00'

NASDAQ:PDFS Q2 2025 Earnings Call Transcript Generated on 6/6/2026 Operator | Conference Call Host: Good day everyone and welcome to the PDF Solutions Inc. conference call to discuss its financial results for the second quarter conference call ending Monday, June 30, 2025. At this time all participants are in listen-only mode. After the speaker's presentation there will be a question and answer session. To ask a question during the session you will need to press star 1-1 on your telephone. As a reminder this conference is being recorded. If you have not yet received a copy of the corresponding press release it has been posted to PDF's website at .pdf.com. Some of the statements that will be made in the course of this conference are forward looking, including statements regarding PDF's future financial results and performance, growth rates, and demand for its solutions. PDF's actual results could differ materially. You should refer to the section entitled risk factors on pages 16 through 30 of PDF's annual report on form 10k for the fiscal year ended December 31, 2024 and similar disclosures in subsequent SEC filings. The forward looking statements and risks stated in this conference call are based on information available to PDF today. PDF assumes no obligation to update them. Now I'd like to introduce John Cabarian, PDF's President and Chief Executive Officer, and Adnan Raza, PDF's Chief Financial Officer. Mr. Cabarian, please go ahead. John Cabarian | President & Chief Executive Officer: Thank you for joining us on today's call. If you've not already seen our earnings press release and management report for the second quarter, please go to the investor section of our website where each has been posted. We achieve record revenue in the quarter and establish groundwork for continued growth. Given our innovative products, which align well with the trends of 3D processing and advanced nodes, complex packaging and test flows, and increased use of AI to streamline operations, we anticipate revenue growth of 21 to 23 percent for the year reaffirming our guidance. Significant bookings in the quarter were primarily for enterprise-wide solutions, including SecureWise, Sapiens, and Accentio, and for characterization infrastructure. Sapiens and Accentio bookings in Q2 were driven primarily by Fabulous and IDM as analytics is increasingly becoming important to them as they have a growing need to like manufacturing operations to ERP. Characterization bookings in the quarter were tied to customers deploying CV infrastructure to develop and ramp new nodes with particular strength for the solution in Asia. As is typical, Symmetrix bookings in the quarter were primarily due to equipment vendors utilizing more runtime licenses, particularly our more advanced tool control and communications modules. With respect to DFI, we have previously talked about shipping at least four E-PROBE tools with two contributing to revenue this year. So far this year, we have installed and qualified the tool machines we shipped in Q1 as subscription upgrades with incremental revenue. Overall, demo, install, and engineering activities with customers are at a high level, and we anticipate meeting our goals for DFI this year with shipping another two tools contributing to additional revenue. Our first full quarter with SecureWise showed strong bookings benefiting from PDF's position in the semi-contra industry. While SecureWise is deployed at all at Fab's, in fact nearly all 300 million of Fab's in the world, primary customers historically have been the equipment OEMs so they can provide support to their Fab customers. However, as the Fab owners themselves have more distributed operations, they wish to get the benefit of remote access to tools and data. Thus we felt that SecureWise would enable our Fab customers and eventually our Fabless customers to have secure remote operations. We refer to this as the foundation layer of the supply chain orchestration element of the PDF platform. Sapience Manufacturing Hub and Dex are other elements we put in the supply chain orchestration category. As our customers deploy analytics and AI, they increasingly need to connect to other enterprise applications such as SAP and across organizational boundaries to the tools processing their chips. Our supply chain orchestration products enable this. Last quarter we validated this perspective as a large IDM entered into a contract to deploy SecureWise across the majority of their tools at their internal Fab's test and assembly facilities. This is intended to enable both internal usage as well as allow equipment vendors the ability to remotely access their tools to improve support for the IDM. The benefit to this customer's higher productivity of their engineering effort and operations while having superior auditing and accounting of all activities on the tools. Moreover, they can get better support from their equipment vendors. For the equipment vendors, they can be more responsive when issues occur and by purchasing additional capabilities from PDF, they can provide additional services. We are pleased that in such a short time, customers have validated SecureWise as a network for the IC manufacturing ecosystem to facilitate collaboration and AI in manufacturing. At the Intel Foundry Direct Connect event, we were able to highlight collaboration and how PDF has moved from a capability used internally at customers to an industry-wide platform that enables new ways to work. I was invited to share the stage with Intel's CEO and talk about their strategy for Foundry. My comments were about collaboration to achieve great yields and operational metrics. Over the years, we have delivered multiple modules of Accentio and characterization vehicles to customers. With the DexNodes, we started to connect the modules we delivered to Fabus and IDMs out to their OSAT suppliers to improve test. Now with SecureWise and Sapience, we are able to connect enterprises together, linking equipment vendors to the fabs where the tools are installed or Fabus to the fabs and OSATs that manufacture for them. We believe this is crucial to achieve greater yields, in part because to deploy AI, you need automated connectivity between the data, tools and enterprise software systems. We believe PDF is very well positioned to deliver this to our customers as they partner with their suppliers and customers. Recently, we also announced that PDF's user conference and analyst day will be held this December. You will see our customers and PDF folks talk about the PDF platform and the impact it's going to have on their performance. Through 2024, we have consistently grown revenue, gross margins and EPS every year. With a 20% CAGA for revenue, while expanding gross margins from 63% to 74%, and EPS from a loss of 2 cents to a profit of 84 cents. In our conference, we will describe how we plan to build on this performance. We look forward to seeing many of you there. I want to thank all of the PDF customers, employees and contractors for their effort during the second quarter. Now we'll turn the call over to Adnan, who will review the finances and provide his perspective on our results. Adnan. Adnan Raza | Chief Financial Officer: Thank you, John. Good afternoon, everyone, and good to speak with you all again today. We are pleased to review the financial results of the second quarter and to bring you up to date on the progress of the business. Please note that all of the financial results to discuss in today's call will be on a non-GAAP basis and a reconciliation to GAAP financials is provided in the materials on our website. For Q2, our total revenues were a record 51.7 million, up 24% on a -over-year basis and up 8% versus the prior quarter. For the first half of this year, our revenues also grew 20% on a -over-year basis versus the comparable first half of last year. We achieved our long-term target of revenue growth of 20% for the six-month -to-date period and exceeded it for this quarter. Our analytics revenue were also a record 48.8 million, up 28% from the same quarter of last year. We benefited this quarter from a characterization deal, first full quarter of SecureWise revenues, a new SecureWise deal signed during the quarter, another meaningful booking for Sapiens Manufacturing Hub and contributions from Accentia Renewals. We see additional opportunities to leverage cross-selling across the elements of our PDF platform and to expand the strategic relevance of PDF with our customers. During the second quarter, revenue contribution from integrated yield ramp came in at 2.9 million compared to 3.5 million of the same quarter of last year, driven primarily by the reduction in fixed fee as we completed the engagement and are now in the gain share period. Given the bookings momentum this quarter, we again grew our backlog and ended the quarter with 233 million of backlog. It is worth mentioning that we do not include potential future Symmetrix runtime licenses or gain share revenues in our future amounts. Based on what we can see in our deal pipeline, we see an opportunity to strongly grow bookings momentum and therefore our backlog for the second half of this year. We reported gross margins of 76% for Q2, higher than the 75% long-term gross margin target we shared during our analyst day. On a -to-date basis, our gross margin is now 76%, again higher than our target 75% long-term gross margin. On the operating expense side, our expenses for the quarter were up, however they grew at a lower rate than our revenue growth rates, primarily driven by personnel-related expenses. The controlled growth in spend allowed us to expand our operating margin to 19%, higher than both last quarter as well as the same quarter of year ago. For the six-month period, our operating margin of 18% are up meaningfully versus 14% of the same period a year ago. We continue to believe we are on the right path to 20% operating margin, which is our target. For EPS, we reported a profit of 19 cents for the quarter, which for the six-month period also grew 18% on a -over-year basis compared to the first half of last year. We ended the quarter with cash and cash equivalents of $40.4 million compared to $54.1 million of the prior quarter. We consumed operating cash flow for the quarter, however we generated positive operating cash flow for the -to-date period of six months. For the quarter itself, we used $8.5 million in CAPEX spend primarily for EPROM machine bills as a result of increased customer demand. As we look to the rest of the year and based on the bookings momentum in our deal pipeline discussed earlier, we reaffirm our prior guidance of revenue growth in the range of 21% to 23% for full year 2025 compared to the prior full year 2024. With the first half of the year completed at 20% revenue growth rate, we expect the second half of the year to grow higher than 20% versus a strong comparable period of last year. With that, let me turn the call over to the operator for Q&A. Operator. Operator | Conference Call Host: Thank you, Mr. Araza. Ladies and gentlemen, if you have a question at this time, please press star 1-1 on your telephone. If you're using a speakerphone, please lift the handset before asking a question. One moment for our first question. Our first question comes from the line of Blair Abernethy from Rosenblatt Securities. Blair Abernethy | Analyst, Rosenblatt Securities: Good afternoon, gentlemen. Operator | Conference Call Host: Hi, Blair. Blair Abernethy | Analyst, Rosenblatt Securities: Hello. Hi. Good job in the quarter. I guess a couple things for me. Just first off, it's good to see some traction with Sapiens. Maybe you can give us a little more color on that. Sounds like you had a win in the quarter. Is that a new customer? And has this come through your relationship with SAP? Just trying to understand how that product is doing. John Cabarian | President & Chief Executive Officer: Yeah, it is an existing customer. I think we have 350 customers in the chip industry at this point, so almost everybody is an existing customer at some level, except for maybe newer entrants in China. The first couple of Sapiens contracts we signed were with factory operations, foundries or factory operations sides of IDMs. This was on the product side of an IDM, so product codes also have to manage the supply chain. As they effectively add more and more advanced packaging, more complex manufacturing flows, they've got as much need for visibility and connecting the supply chain to their ERP systems. As I said, to get better productivity, more agility, and ultimately apply AI and ML, you really need to have that automation. As we've done pilots on AI and ML, a lot of things that customers bump into, it's like, wait a minute, I need to know where my material is going if I want to go and affect a downstream test based on upstream data, for example. This is first product code type customer. We're very excited about that. We think there are more, and we think there will be a synergy ultimately, although not with this initial contract, with the SecureWise network and the Dex network out to the supply chain itself. As it's deployed, it's really looking at static data. We think over time it's going to be able to more dynamically in the field. Lastly, you asked a question about the SAP connection. Many of these relationships have got SAP involved in it. This one did as well come through initial SAP discussions. Blair Abernethy | Analyst, Rosenblatt Securities: Okay, great. Then just over to the SecureWise acquisition. Sounds like that has gone well with an additional win. Can you just update us as to where you are in terms of integration of the business, but also the products? John Cabarian | President & Chief Executive Officer: Yeah, that's a great question, Blair. On the business, we've been moving over systems, as you know, as a carve out. We have an expectation to get that completed in September. We're well along our way on that. Some of the new employees you see out of this month, this quarter, were people that were contractors prior to March 30th or whatever, that are now employees from the SecureWise folks that we brought that were not originally in the SecureWise part of Telet, but in the Telet part of Telet that was now brought over us as employees. We're moving well along the way on the integration. We've been cross-training the sales teams. That's been ongoing. We've already started doing things like installing SecureWise on Dex nodes at OSATs and doing internal testing on integration of SecureWise and Dex and having the teams meet on what we can do associated with that. If you really think about it, what SecureWise gives you is a broader set of functions once you're at the factory. Dex gives you the function to be able run an AIML model or a rule and stream test data off. It's a richer set of functions. Dex has more compute at the node than SecureWise typically does. Then the pipe from the factory back to the consumer of the data. With SecureWise, it's completely off the internet and a completely double encrypted channel. It's, I think, the most unique capability out there in the industry. Dex really was using primarily the cloud infrastructure to do that transmission. So now we're able to offer customers an upgraded or more secure way of communicating or getting their data to and from their OSATs. Already a couple of fabulous customers have reached out to us to understand what that means. I think in this environment, you could never be too secure. Blair Abernethy | Analyst, Rosenblatt Securities: Yeah, yeah, excellent. One last one for me and I'll see the line here. Just adding on the CAPEX. Just looking back, your CAPEX spending a year ago was sort of running four and a half, five, five a quarter. Stepped up in Q1 and again this quarter sort of eight and a half million. What should we be expecting for CAPEX spend on a run rate basis? Adnan Raza | Chief Financial Officer: Yeah, good question. So look, just like John said, we are pleased with the opportunities we're seeing. You've seen in John's comments even sounding stronger about the opportunities that lie ahead of us. And the candidates for that reason, we stepped up on the CAPEX where we see an opportunity to engage on the EPRC side with the multiple customers. From this point on, we feel we can manage the CAPEX to either these levels or just a bit below. But we'll do our best. Obviously, it's going to be balanced by as new opportunities come up that we see, then we'll decide to make the appropriate spend. But the first half of the year is probably a good proxy of a high number proxy for the second half of the year. So at this level or slightly below is what we would expect for the second half of CAPEX. Blair Abernethy | Analyst, Rosenblatt Securities: Okay, great. Thank you. Operator | Conference Call Host: Thank you. Ladies and gentlemen, if you have a question at this time, please press star 11 on your telephone. If you're using a speakerphone, please lift the handset before asking a question. One moment for our next question. Our next question comes from the line of Gil Luria from DA Davidson and Company. Gil Luria | Analyst, DA Davidson & Company: Hi, this is Clark right on for Gil Luria. I wanted to quickly just ask on maybe some of the China exposure and the recent developments that we've seen just in terms of this potential disruption in this space. We'd love to kind of understand how you guys are positioned to maybe capitalize on this disruption or so the risk that potentially imposes on growth going forward. John Cabarian | President & Chief Executive Officer: Sure. Thanks, Gil. That's a good question. China is an important part of the market has been will be China is building out its own infrastructure. We've been in China since 2006 and we anticipate staying there. That said, we are very careful about bifurcating. In fact, starting in about 2017, bifurcated a lot of our China operations from the rest of the operations in the company. The pandemic accelerated that because we no longer could fly people around. And we run China pretty autonomously. We see continued investment in fabs. Our business tends to lag the capital equipment folks because they buy equipment that they realize they need test vehicles and systems to be able to ramp up notes. And so you kind of see that in our numbers right now. And a sizable fraction of our revenue is really just coming out of China is really just royalties, gainshare from past notes, you know, from past deployments that will continue. Even if China were to be for some reason, the US and China were to shut completely shut off, we would see a revenue stream out of there for many, many years to come just off royalty payments, gainshare payments off past deployments. So that relatively insulates us from short term shocks between the two countries. We think we've done a very good job at separating the way we operate the two organizations, our customers in the West, really want us to not use our employees from China and our Chinese customers don't want us to use Western employees as well. So runs relatively independently these days. And I think given our long history there, we're able to do that pretty effectively. We do believe China will be a meaningful producer, particularly on the trailing edge notes for years to come. So it's an important market for us to participate in. Gil Luria | Analyst, DA Davidson & Company: Thanks for that added clarity. Appreciate it. Operator | Conference Call Host: Thank you. One moment for our next question. Our next question comes from the line of Christian Schwab from Craig Hallam Capital. Hey, great. Thanks for Christian Schwab | Analyst, Craig Hallam Capital: taking my question. You know, we've been talking about Intel for a little while and it sounds like you know, you're mentioning a little bit more in the prepared comments. Can you just give us a rough idea of where we stand with that customer? And, and, you know, either on a revenue basis or what inning we're in and how fast that potentially could ramp or how big it could be over say a multi-year timeframe? John Cabarian | President & Chief Executive Officer: Yeah, of course, you know, Christian, we're always very careful about being respectful of customers confidentiality. And part of the reason why you saw it on this conference call, and us to directly call out Intel and not in the past is because they had us up on stage on their event. So at that point, it's like, you know, they, they moved first. So, you know, the problem is over on, you know, we mentioned it today. They are important customer to us that we think they're important company in the industry overall. And they have been a significant customer for us. And we expect them to be a significant, potentially more significant customer going forward, as you probably noticed from the remarks on stage there, but their CEO, you know, the technology that PDF provides is increasingly becomes important as they open up their manufacturing to others, and even the way they manufacture their own products. So we do expect an improving outlook on our business with them moving forward, as well as an improving business with other customers as well. But we do think they will be on dollar value of growing customer. Christian Schwab | Analyst, Craig Hallam Capital: Right. And then it seems like the last few conference calls, you know, we've gotten pulled through, you know, regarding our partnership with SAP, but we have other partnerships and which we haven't, you know, heard a lot about lately. Is there something going on that's specific to, you know, customer need that that we're seeing SAP partnerships and pull ins and business because of that, versus say other people, like advantage that we've had for quite some time now? John Cabarian | President & Chief Executive Officer: Yeah, so that's a great question. And I think, well, I try to put in my prepare box and I guess I do good job, as I could have. Yeah, I think everybody knows you've got to get your data all in one place and aligned. And that was Accentio. And you need to be able to talk to the testers. That's been our partnership with the Advent Test, and that partnership does go on. But I think what, you know, even the most savvy customers probably don't always haven't, didn't really factor when they started having data scientists and AI people start developing and deploying AI models was the need to orchestrate the enterprise. In other words, if I'm going to use AI to be more efficient in tests on some very complex package for an AI chip, I need to know where the material is being shipped, which OSAT is going to, when is it going to be on that tester? So I know when to, when the AI knows when to send a model over. Well, that information typically in your ERP or your MES system. So we're seeing customers who are really starting to get to deploy models at scale or, you know, in production, realize they need to go back and look at how do they orchestrate, you know, the connection between their engineering and their other operations. And, you know, right now we still think that that's going on relatively through conventional internet out to their OSAT suppliers. Our SecureWise acquisition is because we think they will ultimately want to do that in a very secure way. One of the features SecureWise has is when you ship a software update down to a piece of equipment, the factory gets to decide what virus scans are run on that software before it's installed. Well, I think factories are going to get more and more wise about, hey, wait a minute, my father's customer shipping down a model. And I'd like that, code basically, I'd like that code to be scanned. And SecureWise will increasingly be important. So that's why we really highlighted what we're doing with SAP and what we're doing with SecureWise because we think the early adopters as they start to deploy AI more in their operations are going to find increasingly needs. And that's why you're seeing it in our numbers. And we think in our selling activity, and it will build on the things we've done with the tools, like what we've been doing and continue to do with AdventTest, and what we're continuing to with Accentio in terms of AI and overall data alignment. Christian Schwab | Analyst, Craig Hallam Capital: Great. Thank you for that. No other questions. Thanks. Operator | Conference Call Host: Thank you. Ladies and gentlemen, if you have a question at this time, please press star 1-1 on your telephone. If you're using a speakerphone, please lift the handset before asking a question. One moment for our next question. Our next question comes from the line of Blair Abernethy from Rosenblatt Securities. Blair Abernethy | Analyst, Rosenblatt Securities: Hi, guys. I just wanted to follow up on just looking through your Q10 and the China revenue. So China looks like it was around a little over 12 million this quarter. It's pretty up pretty substantially from Q1 of last year. I think it was 7 million. In fact, year to date, it's almost double out of that market. I know you touched on a little bit, John, just maybe a little more color on what's changed in the China environment and sort of you feeling that's sustainable and we sort of bottomed out there. John Cabarian | President & Chief Executive Officer: Yeah, it is up this quarter. It will probably not stay at this level. In the next couple of quarters, it will come down a little bit from this. In part, it's really coming up for two reasons. One is just volume shipments on customers and two, increase deployments of CVs, characterization vehicle infrastructure and extencio. In part, what we think is going on is folks bought a lot of equipment. There's always rumors about, well, some of it's not being used yet. We see them starting to run vehicles and put things to use. I kind of touched on this a little bit. I think with Christian's question, we believe they are starting to put up capacity at meaningful volumes and that means they've got to get to decent yields on test vehicles and eventually that does mean gain share in royalties. Blair Abernethy | Analyst, Rosenblatt Securities: Okay, great. And then just back on the extencio platform, maybe you could touch on just a little bit on what the renewal landscape looks like there in the back half of the year and what, just curious about module penetration, sort of adding on modules, expanding existing implementations. John Cabarian | President & Chief Executive Officer: Yeah, so we do anticipate a number of expansions the second half of this year, some which are very significant in size and usually they involve additional modules. I would say the guide, the analytics, the AI that kind of crawls through your data and looks through trends and stuff that we have a number of pilots ongoing with customers, a lot of really positive results. We like to point out to customers, for the ones that are using our we can track how much of the data their engineers look at and usually it's a relatively low percentage of the total data that they collect and test. And so with guide analytics, you're effectively using the AI to crawl through all the data sets. I always say to executives, you fund a certain level of engineering and you want to make sure that those engineers are looking at the most important and most significant things going on in manufacturing. So we do expect a relatively good, strong renewal situation the second half of the year, an expansion situation for Accentio, a fair amount of that including AI, primarily in guide analytics and then test operations around AI for test. Those are probably the two biggest drivers on top of the core renewals and expansions around the core renewals. Blair Abernethy | Analyst, Rosenblatt Securities: Okay, great John. And you haven't touched on ML Ops at all. How is that doing? John Cabarian | President & Chief Executive Officer: Yeah, I say AI for test, that really is the ML Ops capability. We're going to have another, I mean stay tuned to this channel, we'll have another couple of significant announcements around what we're doing on ML Ops coming out over here in the next month or so. And you know, so ML Ops is a big piece of this. Guide analytics is built from our ML Ops itself, you know, but it's an ML that we deploy. It's basically a PDF diagnostics whereas ML Ops for test is something the customer builds and deploys themselves. Blair Abernethy | Analyst, Rosenblatt Securities: Okay, okay, great. Thanks very much. Operator | Conference Call Host: Thank you. Ladies and gentlemen, if you have a question at this time, please press star 1-1 on your telephone. If you're using a speakerphone, please lift the handset before asking a question. Okay. At this time, there are no more questions. Ladies and gentlemen, this concludes the program. Thank you for joining us on today's call. jsPDF 3.0.3 D:20260606090345-00'00'