PDF Solutions, Inc. (PDFS) Q4 2022 Earnings Call Transcript

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PDF Solutions, Inc. (NASDAQ:PDFS) Q4 2022 Earnings Conference Call February 16, 2023 5:00 PM ET

Company Participants

John Kibarian – President and Chief Executive Officer

Adnan Raza – Chief Financial Officer

Conference Call Participants

Blair Abernethy – Rosenblatt Securities

Thomas Diffely – D.A. Davidson

Gus Richard – Northland Capital Markets


Good day, everyone, and invited to nan PDF Solutions, Inc. Conference Call to Discuss its Financial Results for nan Fourth Quarter and Year-End 2022 Conference Call ending Saturday, December 31, 2022. At this time, each participants are successful listen-only. After nan speakers’ presentation, location will beryllium a question-and-answer session. [Operator Instructions] As a reminder, this convention is being recorded.

If you person not yet received a transcript of nan corresponding property release, it has been posted to PDF's website astatine Some of nan statements that will beryllium made successful nan people of this convention are forward-looking, including statements regarding PDF's early financial results and performance, maturation rates and request for its solutions. PDF's existent results could disagree materially.

You should mention to nan conception entitled Risk Factors connected Pages 17 done 30 of PDF's yearly study connected Form 10-K for nan fiscal twelvemonth ended December 31, 2021, and akin disclosures successful consequent SEC filings. The forward-looking statements and risks stated successful this convention telephone are based upon accusation disposable to PDF today. PDF assumes nary responsibility to update them.

Now I'd for illustration to present John Kibarian, PDF's President and Chief Executive Officer; and Adnan Raza, PDF's Chief Financial Officer. Mr. Kibarian, please spell ahead.

John Kibarian

Thank you for joining america connected today's call. If you've not already seen our net property merchandise and guidance study for nan 4th fourth and nan afloat year, please spell to nan Investors conception of our website wherever each has been posted. As Adnan will talk successful much detail, 2022 was different grounds twelvemonth for full gross successful a twelvemonth wherever our analytics business achieved tremendous growth, increasing 40% year-over-year. That connected apical of 63% maturation successful 2021, which benefited from nan inorganic maturation associated pinch our Cimetrix acquisition.

Beyond nan strong growth, we laid nan instauration for continued occurrence successful 2023 and beyond. Today, I'll supply a summary for nan 4th fourth and 2022. Our position connected nan marketplace successful 2023 and past reason pinch remarks astir our maturation for 2023.

During 2022, wide successful Q4 specifically, PDF was progressively recognized by our customers arsenic captious to their occurrence successful developing, ramping and controlling caller products and processes. During nan year, much than 20 companies booked complete $1 cardinal successful business pinch PDF, representing conscionable nether 90% of full bookings. These companies span nan IC proviso concatenation from instrumentality makers to foundries to IDMs to fabless companies. They've been astir extremity markets besides from precocious computing to RF to microcontrollers to representation and into analog chips.

Our customers service virtually each awesome markets that devour integrated circuits, specified arsenic automotive, industrial, user and computing. Beyond customers committing to PDF, partner activity successful 2022 was astatine an all-time precocious arsenic starring equipment, ERP, analytics and unreality partners admit nan strategical relevance of PDF and nan opportunities that we tin jointly supply our communal customers.

Building connected our successful move parametric test. In 2022, we announced galore applications disposable connected Advantest ACS Edge that leverage Exensio's analytics, AI/ML and real-time control. In nan summer, we announced our first products disposable connected nan SAP exertion store. Our collaboration has been good received and evaluations picked up gait passim 2022.

In each case, whether it's Advantest, SAP, Siemens, K&S, IBM aliases AWS, we could – not conscionable trading effort, but R&D to afloat merge nan partner's information and capabilities truthful it’s aligned pinch nan Exensio semantic model. This allows for our associated customers to person benefits successful their manufacturing that are not imaginable before. We expect successful 2023 and beyond, we will spot accrued contributions of these collaborations to our revenues.

2022 was a beardown twelvemonth successful our merchandise development, nan consequence of continued and persistent R&D investments. [Audio Gap] to find defects and arsenic a result, ramped faster. We besides released our guideline analytics module for Exensio, which leverages AI/ML to nonstop engineers to attraction connected nan portion of nan manufacturing information that is important to their success.

With our customers storing hundreds of terabytes of information and moving to petabytes of information successful Exensio, they request to leverage ML to make judge they find nan needles successful nan haystack and power accumulation to execute nan highest output and liability pinch nan highest throughput.

Speed to observe and power for our customers will progressively use from our ML solution offerings, specified arsenic guideline analytics, and location will beryllium much to come. We made large advances successful instrumentality connection and information postulation pinch our Cimetrix offering, supporting and starring caller standards for azygous dice traceability, instrumentality information postulation and businesslike and unafraid transportation of nan information to nan cloud.

As a consequence of customer partner commitments to PDF and our beardown merchandise development, analytics gross grew 40% year-over-year successful 2022 to complete $130 million. This is complete double nan $57 cardinal we reported successful 2020. With that accelerated maturation successful analytics, which is evidently much than nan 20% per twelvemonth that we committed, came awesome – came improvements successful gross separator and operating margins. We exited nan twelvemonth pinch complete $270 cardinal successful backlog.

I would adhd that we besides way protector backlog, which represents our anticipation of early summation share, shipments of Cimetrix’s runtime licenses and overage charges for Exensio Cloud usage beyond committed levels. When factoring reasonable expectations for these we judge that nan institution is successful a very beardown financial position, further bolstered by nan affirmative effect of our products and services are having connected our customers’ businesses. Q4 successful 2022 show nan occurrence of PDF’s products and solutions successful nan market. I want to convey our customers, partners, labor and contractors for their committedness to nan company.

As we statesman 2023, nan semiconductor situation is very different than it was erstwhile we started 2022. Today, our customers are slowing capacity description s, and successful immoderate cases, suffering from oversupply. Offsetting those headwinds, we find that customers are continuing to put successful process and merchandise development. Moreover, nan important displacement successful proviso concatenation is expanding investments successful caller capabilities astir nan world. Geopolitical factors are expanding authorities support for restoring capacity.

As an Economist mag article pointed retired recently, complete $380 cardinal successful authorities support including nan U.S. CHIPS Act, has been committed astir nan world. Underpinning this accrued activity successful improvement and authorities support for R&D and capacity, we judge are 2 maturation factors that are beyond nan accustomed accrued usage of silicon successful accepted markets specified arsenic phones, computing and Internet of Things.

First, we judge that technologies specified arsenic silicon carbide, high-voltage transistors and semiconductor for illustration processing for EV artillery manufacturing will use from nan displacement of nan power system from carbon-based sources to electrification complete nan adjacent 10 years. Production of these products will progressively request precocious analytics and process control, specified arsenic what we provide. Second, nan accrued usage of AI/ML comes astatine nan costs of exponentially expanding amounts of computing. And again, PDF’s capabilities to alteration our customers to build these ever-increasingly analyzable systems and precocious volumes will beryllium critical.

As we look to 2023, our outlook factors successful some nan be aware associated pinch nan oversupply and nan opportunities that these longer-term trends provide. With respect to caution, we cognize that our run-time licenses for instrumentality connectivity way pinch our customers’ instrumentality sales, our gainshare attracts pinch our foundry customers wafer shipments, and our overage charges for Exensio Cloud dangle connected nan measurement of chips processed. Hence, we do expect that immoderate of our revenues could beryllium negatively impacted by business corrections.

With respect to opportunities, we expect continued accrued request successful 2023 for our analytics platform, peculiarly to ace merchandise and process improvement and reassuring accumulation capacity. This request will progressively use from our collaboration pinch partners, which we judge will lend much importantly successful 2023 than successful nan past. As a result, connected equilibrium and moreover against nan backdrop of complete 30% maturation successful 2022, we expect to turn gross successful 2023.

Now I will move nan telephone complete to Adnan who will supply much elaborate comments connected our results. Adnan?

Adnan Raza

Thank you, John, and bully afternoon, everyone. Good to speak pinch you again today, and I dream each of you and your families are keeping safe. We are pleased to reappraisal nan financial results for nan afloat twelvemonth and nan 4th fourth of 2022. We posted our net merchandise and a guidance study successful nan Investor Relations conception of our website. Our Form 10-K pinch last results will beryllium revenge pinch nan SEC successful early March aft reappraisal by our auditors. Please statement that each nan financial results we talk successful today’s telephone will beryllium connected a non-GAAP ground and a reconciliation to GAAP financials is provided successful nan materials connected our website.

As John indicated successful his comments, 2022 was a twelvemonth of coagulated capacity for PDF Solutions. We generated grounds revenues of $148.5 cardinal versus $111.1 cardinal successful 2021, a 34% year-over-year increase. While 34% year-over-year gross maturation is singular successful of itself, it is worthy noting a fewer highlights. First, nan maturation successful 2022 was wholly organic. After we completed nan Cimetrix acquisition successful 2020 and delivered 26% gross maturation for 2021. Second, nan Analytics business grew successful 2022 astatine a 40% year-over-year rate. Third, we saw affirmative customer momentum successful each our analytics merchandise families of Exensio, Cimetrix and starring edge.

Our bookings for nan twelvemonth were beardown astatine complete $200 cardinal and grew faster than our gross maturation rate. While we are pleased pinch nan spot of bookings, we are moreover much pleased pinch nan beardown and patient backlog astatine nan extremity of nan year, exceeding $0.25 billion.

Our backlog of $278 cardinal grew 55% year-over-year and gives america a coagulated instauration for predictability and longevity of nan business. The beardown bookings and backlog are a testament to nan worth customers spot successful nan PDF platform, including information collection, connectivity and powerful analytics.

For nan afloat twelvemonth 2023, we expect to turn full revenues astatine rates approaching mid-teens percent connected a year-over-year basis. Over nan longer term, we continued to stay committed to our 20% aliases amended maturation complaint target for nan analytics business.

For nan 4th fourth of 2022, our full gross was $40.5 million, up 36% versus Q4 of 2021. Our analytics gross this 4th besides grew 32% versus nan aforesaid 4th of anterior year. We besides saw spot successful our IYR business pinch 69% maturation versus nan comparable 4th of anterior year, chiefly driven by an summation successful summation share. Our gross separator was 74% and we reported EPS of $0.19 per stock for nan 4th quarter.

Turning backmost to nan afloat twelvemonth 2022 results, I will now supply elaborate comments. For nan afloat twelvemonth analytics gross accrued 40% to 130.5 cardinal versus 2021. Our advancement to go nan starring analytics package supplier for nan world semiconductor proviso concatenation continues to beryllium strong.

Analytics is now nan ascendant constituent of our wide business astatine 88% of full revenues. Our extended merchandise revenues are now starting to use from renewal uplifts of unreality deals we primitively signed a fewer years ago. Software income for caller fab tract installations and aggregate module utilizations by our customers.

Our starring separator solution has established erstwhile again its unsocial worth proposition for customers pinch precocious node wherever we supply nan unsocial information postulation and accelerated powerful study of manufacturing related information to amended yields for their adjacent procreation precocious products.

For our Cimetrix products, we are emboldened by nan number of caller instrumentality creation triumph certifying PDF Cimetrix products arsenic nan connectivity package for aggregate caller instrumentality platforms giving america further assurance successful our protector backlog arsenic these instrumentality products spell to marketplace and go much successful. As different information constituent worthy noting, our afloat twelvemonth analytics gross for 2022 was much than nan full institution gross for nan anterior twelvemonth 2021. This is nan 2nd twelvemonth successful a row. We person achieved this milestone.

For 2022, IYR gross comprised 12% of full revenues astatine $18.1 cardinal and was fundamentally akin to our IYR gross past year. Even though this twelvemonth we did not person nan use of a bequest summation stock statement from a agelong tenured customer. We are besides pleased that summation stock from immoderate caller customers grew this year, which we will proceed to watch carefully.

Gross separator for 2022 accrued to 71% up from 64% successful 2021 aliases an description of astir 700 ground points. We were capable to turn nan gross separator because we cautiously managed costs to not turn faster than our gross growth. In particular, we managed our unreality walk and attraction nan efforts of our group and resources. It feels bully to person now achieved for nan afloat twelvemonth 2022, nan gross separator target of 70%, which we had group arsenic our semipermanent target.

Turning to nan operating expenses. We besides power nan maturation of our R&D and SG&A expenses to enactment beneath our gross growth, thereby expanding our operating margins for nan year. Our main expenses successful nan R&D and SG&A class were related to headcount arsenic we put successful highly talented and geographically distributed workforce and guarantee we build a sales, trading and G&A infrastructure to support our increasing business. All while benefiting from economies of scale.

Our R&D and SG&A expenses arsenic a percent of gross came successful astatine 31% and 24% respectively, some little than past year's comparable levels. For nan twelvemonth 2022, we reported EPS of $0.60 a stock demonstrating a meaningful maturation compared to nan $0.08 per stock we reported for nan twelvemonth 2021.

CapEx for nan twelvemonth totaled $8.4 cardinal versus $4.1 cardinal successful afloat twelvemonth 2021 arsenic we invested chiefly successful information postulation systems for our starring separator business. For nan twelvemonth 2022, we generated affirmative rate travel of $32.3 cardinal compared to $4.2 cardinal for nan anterior twelvemonth 2021.

We are pleased pinch different twelvemonth of affirmative operating rate travel procreation accordant pinch our history. During nan year, we besides bought backmost 22.5 cardinal of PDF banal astatine an mean value of conscionable complete $24 per share, which we judge was an effective measurement of returning rate travel stockholders and which allowed america to support our weighted mean diluted shares fundamentally level for 2022 compared to 2021.

Turning to nan equilibrium sheet. We ended a twelvemonth 2022 pinch rate and balanced of $139.2 cardinal compared to $140.2 cardinal astatine nan extremity of anterior twelvemonth . And we transportation nary debt. Our rate was fundamentally level year-over-year, moreover aft 8.4 cardinal of CapEx and 22.5 cardinal of banal buyback owed to beardown operating rate travel generation. We are proud of nan capacity of 2022, stay committed to our semipermanent business fundamentals and are pleased pinch nan fortunate position we are successful pinch our backlog of complete $0.25 cardinal each coupled pinch a patient equilibrium sheet.

For 2023, we look guardant to different maturation twelvemonth connected apical of nan beardown maturation delivered successful anterior twelvemonth pinch year-over-year maturation rates approaching mid-teens percent.

With that, I'll move nan telephone complete to nan usability to commence nan Q&A session. Operator?

Question-and-Answer Session


Thank you, Mr. Raza. [Operator Instructions] Our first mobility comes from nan statement of Blair Abernethy from Rosenblatt Securities.

Blair Abernethy

Hi. Good afternoon, gentlemen.

John Kibarian

Good afternoon.

Blair Abernethy

Hi. Great quarter, a awesome measurement to decorativeness nan year. Just want to inquire you a small spot astir – immoderate much astir nan partners. You benignant of touched connected SAP successful nan 4th aliases successful nan prepared remarks, but possibly you conscionable grow upon really you're progressing pinch immoderate of nan awesome partner opportunities you've been moving connected nan past 2 years?

John Kibarian

Sure. Thanks, Blair. So I benignant of tally done them all. Let's opportunity 3 of them. Advantest, I said successful my prepared remarks, we've released, I deliberation 4 aliases 5 apps successful nan app store. We expect complete nan adjacent mates of months to merchandise a number much taking advantage of Exensio provender guardant and feedback and ML capabilities. So customers astatine different trial insertions tin usage information from erstwhile trial points to make amended power screening choices very important for our customers, peculiarly they're doing strategy and package and they want to make judge they lucifer nan correct chiplet pinch nan correct chiplets and nan correct package. You'll spot those coming retired much aliases little coming retired this twelvemonth and much announcements astir customer take that capability.

Secondly, Siemens, really – Siemens package is utilized to make trial vectors and past astatine nan extremity erstwhile nan tests are complete to do responsibility diagnostics to localize wherever successful nan spot nan responsibility mightiness be. You do that aft you get nan chip. It's tested astatine nan last metallic layer, possibly metallic 15 aliases metallic 17 these days connected that responsibility diagnostics. You would for illustration that responsibility diagnostics to look astatine each different portion of accusation astir that chip. It's Parametric Test data, inline mill data, information from different trial insertion points and Exensio stores each of that.

So by integrating Exensio, our layout package for systematic models, customers tin do a amended occupation connected responsibility diagnostics and a amended occupation localizing faults. We are now moving pinch early customers connected that capacity successful an early entree program. The extensions to that will besides travel retired complete nan adjacent mates of years that return much advantage of nan capabilities connected from some companies.

The 3rd 1 is SAP that I besides talked astir successful my prepared remarks, and past if you conscionable – I deliberation nan measurement they've talked astir it and they put retired a very bully achromatic insubstantial connected it. You really want to connect nan apical level to nan shop level arsenic they telephone it and that shop level being PDF, wherever we shop an atrocious batch of engineering information that's wrong a mill aliases for a fabulous institution from nan factories wherever they operate.

We pass pinch astir of nan awesome manufacturing execution systems, truthful our systems cognize wherever nan worldly is successful line. And truthful and they cognize really overmuch consumables cost, they cognize really overmuch parts waste for, they cognize wherever parts extremity up going successful nan extremity market. So by combining nan information successful Exensio pinch nan competitor [ph] that's successful – nan information that's successful S/4 HANA you're capable to – beryllium capable to reply questions for customers connected section return analysis, meticulous costing by product, monthly changes successful deviations successful costing owed to merchandise variances amended insights connected output prediction and supply. So those applications we're building pinch SAP are really really do you usage engineering information pinch financial information to beryllium capable to person a much agile manufacturing environment. And that's nan 3rd class of applications that we're rolling retired and we'll expect to spot each 3 of these make important advancement successful 2023.

Blair Abernethy

That's awesome John. And conscionable connected nan SAP, nan go-to-market there, I presume they're taking it to their instal guidelines arsenic an add-on product. Is that really they're approaching it and is location a what do you deliberation benignant of a proceedings play aliases ramp play present is connected nan customer kicking up this solution?

John Kibarian

So we're successful discussions pinch customers connected this capacity correct now, and nan measurement it's worked is it's a associated sale. So we waste our capacity and of people they waste their capability. But they – evidently their scope and nan portion of nan full logic why we did this business programme is our partners scope into accounts arsenic far, acold deeper and broader than ours, right? Our income capacity is really mini comparative to our merchandise portfolio. So we request their thief to find nan applicable customers, moreover sometimes customers that we cognize well, but they cognize nan correct portion of nan organization, a portion of nan statement that we don't person entree to today. So they are really nan lead. They bring america in. They of people use financially from that. And we correct now successful these early stages, we are nan contracting capacity for each of nan customer opportunities. It's a small spot different pinch Advantest wherever they are nan beforehand doorway and they are trading successful their lawsuit and we are secondary backup support. But successful nan lawsuit of SAP correct now we're going successful jointly.

Blair Abernethy

Okay, great. Thanks. I'll jump backmost successful nan queue.


Thank you. One infinitesimal for our adjacent question. Our adjacent mobility comes from nan statement of Thomas Diffely from D.A. Davidson.

Thomas Diffely

Yes, bully afternoon. Thank you for taking my questions. So first wanted to benignant of jump successful connected nan gross outlook. It sound for illustration you said debased teens, what nan expectations were for this year. And I'm curious, erstwhile you look astatine nan IYR businesses, mean astir 4.5 cardinal a 4th for nan past twelvemonth aliases so, is that our caller baseline location aliases were there's immoderate one-offs this twelvemonth that caused to beryllium a small higher, meaning that astir of nan maturation this twelvemonth will travel from analytics?

John Kibarian

Yes, that's a awesome constituent Tom, and successful my prepared remarks, I said that we are watching nan utilizations astatine our customer foundry factories because nan baseline did look to settee successful astir $4.5 cardinal connected summation share. We judge that whitethorn beryllium successful nan first half of this year, location whitethorn beryllium immoderate unit connected that number arsenic volumes will beryllium little than they were successful nan 2nd half of 2022. 2022 besides benefited a small spot from summation stock drawback ups for immoderate of our customers. And we felt that nan COVID effect successful China whitethorn beryllium accrued astatine adjacent magnitude of capacity successful nan 2nd half of 2022, that we are questioning whether we'll prolong drawback up capacity that was not imaginable successful 2021 owed to COVID restrictions. So, we're being a small mindful connected nan IYR number, reasoning it's a small bit, past twelvemonth possibly precocious h2o marketplace whitethorn beryllium a small spot little this twelvemonth than it was past year.

I deliberation successful position of wide growth, arsenic Adnan said, we said approaching mid-teens, truthful we do judge it's amended than little teens. We don't deliberation it's connected nan higher extremity of mid-teens. So we're trying to benignant of directionally get immoderate position there. Again, not conscionable because [indiscernible] but arsenic I said successful my prepared remarks, our customers that vessel equipment, we expect runtime licenses to beryllium down. This twelvemonth superior instrumentality companies are reporting astir a 20% alteration successful portion vessel this twelvemonth complete past year. We do expect that we'll do a small amended than that because nan connect complaint pinch nan package is simply a small higher arsenic they usage much of nan connection standards connected nan newer instrumentality than connected nan older equipment.

But we're being a small spot cautious connected what we deliberation those shipments will be. And similarly, immoderate of our customers erstwhile they spell into overages connected information retention and information volumes connected Exensio past salary for further retention arsenic they're churning done much silicon. We deliberation immoderate of our customers will beryllium a small spot down successful 2023 volumes complete 2022 volumes and that whitethorn put a small spot of depletion charges successful Exensio a small spot lower. And arsenic it’s offset nan benignant of halfway maturation successful analytics, which we still judge is rather beardown and will proceed connected very well.

Thomas Diffely

Okay. I cognize respective years ago, location utilized to beryllium a small spot of seasonality successful nan IYR business wherever you had nan occasional – I'm not judge if it was a fund flush, but you had 4th quarters that were sometimes packed beautiful high. And past you had a small spot of a muted first 4th disconnected of that. But it sounds for illustration nan customer guidelines because it's different today, your position is overmuch much of conscionable nan tally complaint of spot accumulation arsenic opposed to a 4th fourth fund flush?

John Kibarian

Yes. That's correct, Tom.

Thomas Diffely

Okay. And past that leads maine to nan analytics side. Obviously, a bully sequential jump successful analytics, was location immoderate benignant of a onetime rumor aliases a fund flush successful that arsenic well?

Adnan Raza

I deliberation portion of it besides I deliberation portion of it. And conscionable to link nan anterior comments arsenic good connected nan Gainshare, to your constituent astir Q4, expecting immoderate seasonality. If you were to look astatine conscionable Q4 aliases Q3, you'll spot a small spot of a dip but portion of that was besides because Q3 and of itself had immoderate catch-up. If I spell backmost into chat from that point.

No, I deliberation immoderate of nan effects that you're seeing successful Q4, we talked astir nan ample bookings we were capable to garner during Q4. So immoderate of it is besides early 606 related impacts during nan 4th that we mostly acquisition but thing is difficult to stay assured astir nan business and our semipermanent maturation targets for analytics of 20%.

Thomas Diffely

Okay. And possibly 1 past mobility connected nan IYR business. Is location thing you tin do during nan 4th to way that? Or is this really you conscionable sewage a study and a costs from your customer astatine nan extremity of nan 4th saying this is what they produced?

John Kibarian

Yes. We do way it rather intimately because for a batch of our customers that tally done our scribe costs building truthful we tin measurement portion volumes arsenic they spell through. It's not typical of each nan wafers they run. It is simply a typical of immoderate of nan wafers they run, truthful we tin look astatine those trends, gives america immoderate indication. And of course, we person our engineers person regular dialogues pinch immoderate of nan customers that they're successful location rather frequently.

But to beryllium clear pinch you, Tom, sometimes we consciousness for illustration our customers don't ever person nan champion visibility themselves. So they'll beryllium much bullish and past you talked astir a period later and nan entity is falling. So we person a beautiful wide position crossed nan customer guidelines these days. So we look astatine things up and down because Exensio unreality data, we tin look astatine what retention loading looks for illustration there. So what nan extremity customer is doing, et cetera. So we play our ain small judgement connected these things, likewise pinch nan superior instrumentality folks.

I deliberation November, December, immoderate of our smaller – rather superior instrumentality customers were rather bullish erstwhile we met pinch them, and we were looking astatine signals that were little robust than they were. We effort to return a balanced look astatine it overall, but we do watch rather a spot of information passim nan quarter.

Thomas Diffely

Okay. Thank you. Last mobility then, I dream conscionable to get a speedy update connected DFI and possibly nan accelerated ramp you're moving on?

John Kibarian

Yes, it's a awesome question. And I did put thing successful my prepared remarks. I deliberation nan past year, nan exertion we released and brought up for a customer pinch this nonstop scan application, really – and it's very related to what we're doing pinch Siemens. You're taking that aforesaid package that digests each of nan captious elements of a merchandise and identifying what is inspectable astatine each furniture and what should you see.

So you tin find a unsocial systematic defects and different problems, scanning billions of features per hour, galore billions of features per hr astatine this constituent connected nan wafer, truthful you conscionable get a meaningful fraction of nan wafer successful nan emblematic two-hour fund that our customers springiness us. We saw tremendous uptake erstwhile we sewage that installed successful nan first 4th of 2022 – Q2 and beyond, we saw nan customers usage it rather meaningfully. We started doing pilots pinch different customers by them sending america wafers, really starting successful nan 4th quarter. I deliberation I benignant of alluded to that successful my prepared remarks successful November, and we were anticipating that.

We've been seeing affirmative results from that customer activity arsenic well. And we expect to spot a pickup of nan business arsenic we spell passim this year. And our position connected nan business, we've been very cautious astir nan gross effect this year, but we do consciousness it's going to effect our bookings, incremental bookings this year.

Thomas Diffely

Okay. Maybe conscionable a speedy follow-up connected that. Some chips these days person 500 steps successful producing them. When you look astatine your tools, really galore insertion points are betwixt really galore different steps are you – are they going to your strategy to evaluate?

John Kibarian

That's a awesome question. So erstwhile we first came up pinch this, right, pinch nan filler cells, we were really only – only to usage nan strategy astatine Metal 1. Now you tin usage it earlier pinch this nonstop scan attack arsenic early arsenic nan interaction layer. So erstwhile you started making nan contacts successful nan mediate of statement done each of nan metallic layers successful nan backmost because nan package figures retired what nan patterns are. And I conscionable saw nan results from a customer wherever scan Metal7 added output issue. And nan package is capable to show them which of nan defects astatine Metal7 are really caused by Metal7 aliases via beneath it and which ones are caused by layers beneath that based connected nan patterns of nan failures.

So it's rather blase successful nan measurement it station process of nan information. And arsenic a result, you tin really look astatine immoderate furniture aft you've built nan first context. So you typically commencement pinch isolation and nan fins and nan gross and nan polysilicon aliases gate. Those 3 layers, you can't really usage this approach. But aft that, connected each furniture above, you tin usage it.

Thomas Diffely

Great, each right. Well, I admit your clip today. And I’ll jump backmost successful nan queue.

John Kibarian

Thank you.


Thank you. [Operator Instructions] Our adjacent mobility comes from nan statement of Gus Richard from Northland Capital Markets.

Gus Richard

Yes. Thanks for taking nan question. And by nan way, awesome 4th guys. I was wondering if you could conscionable talk astir – you touched connected nan $380 cardinal of authorities support apt benefiting from that walk successful nan U.S. because it's a small spot up of different countries, but India, Japan and Europe are 3 regions that person large buckets of money. And I was wondering, are you engaged pinch programs successful those regions? And what mightiness – what shape is that in? Is it a ways distant aliases adjacent end?

John Kibarian

Yes, I deliberation that's a bully question, Justin. You're right. You picked different geographies wherever we do spot important activity. PDF is beautiful good known successful our business for our leading-edge capability. So mostly speaking, erstwhile someone's going disconnected and doing immoderate of this, we do get contacted and we've been contacted by a number of caller entities. Of course, I can't opportunity for illustration which ones and when, but astir nan world. We fishy that possibly it impacts bookings a small spot successful 2023 astatine nan max, it's really much of a 2020 and 2025 business perspective. .

But we do spot those very precocious visibility ones for illustration nan ones you mentioned and a number of partnerships and associated ventures going connected wherever folks are coming together for high-voltage transistors, not conscionable starring edge, 28-nanometer and different benignant of automotive applications and immoderate of nan starring applications for illustration you mentioned successful Japan, nan United States, Taiwan and Korea. So it's very wide successful position of nan capabilities.

And what we telephone that our capacity starring separator because nan mostly of our customers are doing things for illustration 2-nanometer and gross each around, we do find that we get contacted by customers doing 28-nanometer and high-voltage transistors because you request nan aforesaid capacity that our customers request connected nan starring edge. Maybe it's a different operation of vehicles and machines and software, but you request that aforesaid capacity typically.

Gus Richard

Got it. Got it. That's adjuvant streaming that up. And past this is simply a small spot disconnected nan wall, I apologize. Clearly, location has ever been a marketplace for achromatic marketplace chips. And there's been immoderate interest that immoderate of nan chips that shouldn't places they're going there, making weapons and doing AI. And of each nan package that tracks nan semiconductor industry, you way it from 1 extremity to nan other. And I’ve heard of immoderate efforts to effort to rein successful nan achromatic market. And I was wondering, again, is that an opportunity for you? Or is that thing you’ve been anybody reached retired to you on?

John Kibarian

Yes. We’ve had conversations pinch authorities entities astir that. We besides are very progressive successful nan semi statement connected standards. We put nan modular for azygous dice traceability, which is nan E142 modular and our squad really – nan institution we acquired Kinesis really innovated successful that area and put that capacity arsenic a modular document. We support it successful our Cimetrix package and Exensio but it’s freely available.

We’ve besides extended that successful nan measurement that we’ve written standards pinch semi to propose utilizing hyper ledger exertion for illustration blockchain technologies and person looked for partners successful that area, too, astir making judge that whenever Exensio logs accusation astir a spot arsenic it goes to a trial constituent aliases wafer processing tool. You put successful nan ledger successful an immutable way. accusation astir that spot that’s very valuable, not conscionable for nan counterfeit rumor that you bring up, but besides because whenever you person an RMA situation, and nan spot comes backmost from nan field, there’s ever a hostility betwixt nan purchaser of nan spot and nan seller of nan spot astir what was nan guidelines origin and did you callback capable of nan chips.

And truthful having intelligibly non-safe information is valuable for each parties successful that situation. In a nary spot environment, this benignant of accusation is very important. And firsthand, we had experiences pinch this arsenic we were trying to build immoderate of our accelerated testers for customers successful 2022. We purchased immoderate captious chips, mixed-signal analog chips, 30% of them were failures, and we went backmost it turns retired nan suppliers besides an Exensio user. So I sat backmost pinch nan activity squad location and said, hey, we conscionable bought a bunch of your stuff. And it was bad and said, yes, we person leaks successful our proviso chain. We cognize astir that. And we cognize it typically is successful nan assembly area and strategy committee shaper wherever there’s risks that chips that were bad are branded bully and get out.

So this is an area that we do spot arsenic an opportunity for us. It’s difficult to make it move economically for america quickly because you request take by nan industry. And today, I deliberation group are intrigued by it. The engineers that stock those standards bodies are very passionate astir really important it is, but we get humble liking from nan customer truthful far.

Gus Richard

Okay. Got it, sewage it. Thanks truthful much. I deliberation that covers it for me.


Thank you. One infinitesimal for our adjacent question. Our adjacent mobility comes from nan statement of Blair Abernethy from Rosenblatt Securities.

Blair Abernethy

Hi, again, guys. Just 2 things. I conscionable wanted to inquire astir a small much astir nan DFI. And successful nan past, you’ve fixed benignant of DFI tape-outs per year, it’s connected your website. I don’t cognize if you’ve sewage immoderate up-to-date stats connected that to benignant of show america really volumes person been progressing pinch nan system? And past besides different twelvemonth has passed present and you’re getting much traction successful nan market. How are you looking astatine nan – really are you presently position nan marketplace size, marketplace opportunity for DFI complete nan adjacent 5 years?

John Kibarian

Yes. Thanks. I’ll reply that. So first of all, Blair, it’s a really bully point. When you went backmost a fewer years ago, we tried portion outs because you needed to put our structures wrong nan creation successful bid for nan full instrumentality to work. And what nan squad innovated astatine extremity of 2021, and past we installed for nan customer successful early 2022 pinch nan expertise to look astatine a merchandise moreover if it didn’t person our structures successful it. And that’s what we telephone nan nonstop scan ability. The package and looks astatine nan creation and figures retired astatine that constituent of nan process, whether it’s metallic 2 aliases metallic 4 aliases metallic 0 aliases immoderate wherever are each nan features that look for illustration a trial building astatine that point.

So that – we stopped search filler compartment insertion because we didn’t request it anymore for nan exertion to return off. We’ve been checking recipes group up and usage astatine nan early customers. And that’s really picked up and been rather strong. Number of recipes group up, I deliberation we’re mounting up a fistful of recipes each week. So successful nan last, let’s say, six aliases 8 months, you tin opportunity astir apt 40 aliases truthful recipes group up conscionable disconnected of early adoption.

In position of nan marketplace opportunity for this, we consciousness very bullish astir it, peculiarly much bullish arsenic we went done 2022. And nan logic for that is twofold, this first expertise to beryllium capable to look astatine immoderate merchandise moreover if it doesn’t person our filler cells successful it really greatly opened up nan marketplace opportunity. Number – and nan expertise to look astatine immoderate furniture arsenic opposed to conscionable nan metallic 1 layer, arsenic Tom alluded to successful his question, intends that alternatively of it being 1 walk for inspection, literally, you would person it’s 10 aliases 15 aliases 18 imaginable layers you could usage nan machine. So it’s number of insertion points is overmuch larger.

Secondly, arsenic we’ve met pinch customers, location seems to beryllium an expanding increasing knowing that you request to usage voltage opposition and electrical inspection arsenic customers are trying to bring up things for illustration gross each astir and different analyzable 3D structures. And truthful that aviator we did successful Q4, nan early activity that we’ve done pinch existing and different customer successful Q1, a batch of it is astir sending america measurement for specifically for these 3D problems wherever really nan voltage opposition attack is nan only measurement you tin spot it.

And nan logic why group haven’t done it successful nan past is nan throughput typically connected an EV instrumentality is truthful poor, you can’t spot a alteration a deviation successful output erstwhile nan output gets to beryllium comparatively good. So erstwhile you’d opportunity a 1 quadrate centimeter spot is yielding 70%, you’re not going to spot thing connected a accepted e-beam instrumentality yet pinch a 2-hour inspection connected an E-Pro, you tin still spot output attractors and customers person fixed america that feedback. So I deliberation that’s really nan benignant of inflection constituent for e-beam arsenic an inspection tool. I deliberation we will spot much impervious points arsenic we travel done 2023 connected that.

Blair Abernethy

That’s great. Thanks for nan color, John. And past conscionable connected nan backlog, $278 million, do you person a existent magnitude of that backlog, i.e., what you expect to admit successful nan adjacent 12 months and nan long of nan wide backlog?

Adnan Raza

Yes, awesome question. And I cognize it’s a information constituent of liking to yourself and many. Right now, we’re not disclosing it. We’re still going to put nan colour that we do it usually successful our filings that nan mostly of that is going to beryllium wrong nan adjacent 2 years. But I tin springiness you this position that each twelvemonth arsenic we do nan yearly operating plans, conscionable for illustration we vanished and costs connected this year, aforesaid clip arsenic past year, our assurance and nan demonstrated number from what percent of nan adjacent year’s gross is going to get contributed into nan forecast that we person continues to beryllium higher.

And that was a inclination that we saw this year. And truthful a larger information than past twelvemonth of nan gross coming into nan pursuing twelvemonth is spoken for arsenic a usability of nan spot successful nan backlog that we have. I deliberation arsenic we get fresh for early sharing of nan metrics, we’ll beryllium reasoning astir erstwhile is nan correct clip to stock this. I tin guarantee you, we’re surely search it inside, and this is 1 we find very comforting arsenic whenever we do nan yearly operating plan.

Blair Abernethy

Great. Great. Understood. Thanks very overmuch guys.


[Operator Instructions] At this time, location are nary much questions. Ladies and gentlemen, this concludes nan program. Thank you for joining america connected today’s call.

Editor: Naga

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