PDF Solutions, Inc.

Good day, everyone, and welcome to the PDF Solutions, Inc. conference call to discuss its financial results for the first quarter conference call ending Sunday, March 31, 2024. At this time, all participants are in a 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 11 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 PDS'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 PDS's future financial results and performance, growth rates, and demand for its solutions. PDS's actual results could differ materially you should refer to the section entitled Risk Factors on pages 16 through 36 of PDF's annual report on Form 10-K for the fiscal year ended December 31st, 2023, and similar disclosures in subsequent SEC filings. The forward-looking statements Enrique stated in this conference call are based on information available to PDFs today. PDF assumes no obligation to update them. Now I'd like to introduce John Kebarian, PDS's President and Chief Executive Officer, and Adnan Raza, PDS's Chief Financial Officer. Mr. Kebarian, please go ahead.

Thank you for joining us on today's call. If you've not already seen our earnings press release and management report for the first quarter, please go to the investor section of our website where each has been posted. The first quarter was a strong start to our year. Business activity continues to be robust as our products and solutions are well aligned with the larger trends driving the IC industry. Before Adnan discusses the financials in detail, I have some comments to make about the events in the first quarter and our perceptions of the market in the second quarter and for the remainder of the year. Building on a strong Q4, Q1 bookings were again up over the previous quarter, which continues to build backlogs. When we look at the nature of the business in Q1, we see that bookings and pre-sales activities were driven by the alignment between larger macro trends in the industry and our product development investments. I will describe three of these. First, AI is driving strong demand for advanced logic processes that leverage 3D transistors like nanosheets and 3D interconnects such as backside power. In the quarter, our largest booking, was with a new customer deploying our systems, including DFI, CVs, and Accentio to accelerate the development and manufacturing of advanced two nanometer logic. Second, customers are driving digital transformations to achieve more efficient operations. Our systems from Accentio Cloud, Accentio Test Operations, and Sapiens Manufacturing Hub are gaining increased attention from our customers for this workload. Bookings in the quarter include cloud customer expanding Accenture usage, and pre-sales activities include a number of customers evaluating a Sapiens manufacturing hub as part of the SAP S4 HANA deployment. Third, customers are accelerating their use of AI and machine learning to achieve their yield and operational targets. In Q4, we announced our MLOps system that enables engineers to build AI models and publish them in manufacturing, both at the factories they own, as well as their partners facilities via our DEX network. Customers report to us that they are mastering the ability to train AI models, but the challenges are to deploy them in the field, monitor their performance, and act on the results. Our MLOps system was designed for these challenges. It leverages Accenture Cloud, DEX, and test infrastructure. In the first quarter, we started running MLOps pilots with our lead customers. Overall, we believe the strong engagement we have with customers is due to our investments in our E-Probe DFI systems, our SMH digital platform for manufacturing, and our MLOps for testing of complex system and package products. I know many of you are curious about progress with our DFI and E-Probe. Utilization of the tools in the field is extremely high. We believe because its unique ability in seeing 3D yield issues. In February, we said we anticipated a third customer starting to deploy DFI, and we would ship a third tool to our lead customer. The contract we signed this past quarter brings us a new customer for the E-Probe. We also remain on track to ship our third tool to our lead customer this quarter. Given this acceleration of our 2024 goals for DFI, we are now looking to accelerate our manufacturing, as we believe demand is quite strong for this solution. Our results have occurred while the industry is at an unusual time. Government investments have resulted in outside capital spending in parts of the world. Demand for some chips has been very weak, while silicon for AI has been strong. That said, we believe the industry is starting to see a general improvement due to the metrics we track about its health. As we look to our runtime license sales, which track our equipment customer shipments, we see improvements when compared to Q4 of last year. This, as well as our strong bookings in Q4 of last year and Q1 of this year, suggest customers expect stronger business as they go through the year. We are pleased with the business activity in the quarter as it demonstrates the strength of our strategy and investments. Consistent with our comments in the February call, we expect the first half of the year to be flat year over year, with the second half of the year getting back to our growth target of 20%. I want to thank all the PDF employees and contractors for their efforts during the call, during the first quarter, sorry. Now I'd like to turn the call over to Adnan, who will review the finances and provide his perspective on our results.

Thank you, John. Good afternoon, everyone. Good to speak with you again today, and I hope all of you and your families are well. We are pleased to review the financial results for the first quarter of 2024. As mentioned, our earnings release and a management report are posted in the investor relations section of our website. Our Form 10Q was also filed with the SEC today. Please note that all of the financial results we discuss in today's call are on a non-GAAP basis. and a reconciliation to gap financials is provided in the materials on our website. We're excited about the booking momentum during the quarter, especially the meaningful multi-year leading-edge booking with a new customer. Our backlog ending the first quarter was $262 million, or approximately $32 million higher compared to our prior quarter ending backlog of $230 million. Total revenues for the first quarter were $41.3 million, up slightly versus the prior year, and up slightly on a sequential basis as well. Analytics revenue came in at $38.5 million, an increase of 6% year-over-year. On a year-over-year basis for the quarter, our IYR business was down, driven by lower fixed fee and gain share. However, the growth in analytics allowed us to be slightly up for total revenue versus prior year period. Like John said, for our Accenture products, we continue to engage with customers on opportunities we are seeing for the digital transformation initiatives and deploying the Accenture platform across their manufacturing operations. For our leading edge solutions, we are emboldened by the booking with the new customer, which encompasses our broader offerings, including CB infrastructure, DFI, and Accenture software. We're starting to see opportunities for further expansion over the coming years with continued investment in the DFI system. For our Symmetrix products, we saw growth in runtime licenses versus the prior quarter and remain cautiously optimistic. Taken as a whole, we believe our portfolio product offerings provides us the opportunities for strategic engagement with customers for our analytic solutions. IYR revenue came in at $2.8 million for the quarter. and was down compared to 4.4 million of prior year period, primarily driven by lower time spent on fixed fee projects and lower gain share. We remain optimistic about the IIR business in the longer term as eventual customer product shipment volumes increase. Our gross margin for the first quarter came in at 72% versus 75% for Q1 last year and flat versus 72% of Q4. On a year-over-year basis, our cost of sales was driven by the lease accounting treatment for the DFI hardware, increased personnel costs, and increases in cloud costs. Our operating margin for the first quarter came in at 12%, versus 19% for the year-ago same period, and 15% for the prior sequential quarter. On a year-over-year basis, we were able to better manage and reduce our R&D expenses, while our SG&A expenses increased as we utilized our technical resources and added sales and marketing headcount to support the pre-sales and sales activities with our customers. Net income for the quarter totaled $5.7 million or $0.15 per share, both essentially similar to Q4, however lower on a year-over-year basis. Turning to the balance sheet, we ended the quarter with cash, cash equivalents, and short-term investments of $123 million, compared to $136 million at the end of the prior quarter. with the change primarily driven by $7 million of share buybacks completed during the first quarter, annual bonus payout for calendar year 2023, and CapEx expenses to support the build out of our DFI systems that John talked about. We have also adopted a new larger $40 million share buyback program. Overall, we're pleased with the new leading edge booking during the quarter, rose in our backlog, and are excited by the opportunities we're seeing in our pipeline. As we look to the rest of the year, we remain committed to our prior guidance of flat revenues for the first half of this year, with the revenue growth returning to our 20% long-term target for the second half of the year, both compared to the respective prior year periods. With that, let me turn the call over to the operator for Q&A.

Thank you, Mr. Raza. And ladies and gentlemen, if you do have a question at this time, press star 11 on your telephone. If you're using a speakerphone, please lift the handset before asking a question. Again, that is star one one to get in the queue. One moment while we compile the Q&A roster. And our first question comes from the line of Blair Abernethy with Rosenblatt Securities. Please proceed.

Thank you. Hi, guys. Thanks for taking the question. John, just wondering if you can expand a little bit on the DFI market traction you're seeing there. This new customer, I assume this is the second customer. It looks like one machine now. What sort of is the size and scope of that opportunity with that customer over the over the next few years? And secondly, are there other pilots ongoing now, or sort of what do you see in terms of activity with other potential customers for DFI?

Sure, Blair. So as you know, we talked about our lead customer, right, who had two machines, and now we will ship a third. We started in Q4 a manufacturing evaluation with the customer, a second customer. That was a non-paying evaluation at this point. That is ongoing quite well. We feel very good about that one as well. And then this past quarter, we signed a contract with a third customer. And for all of them, rather than speak about any one specific one, what we believe is the following. The yield loss for these advanced technologies is very much due to the conduction between layers or underneath the surface of the wafer. conventional inspection is to shine a light and look at the surface of the wafer for a defect. So you obviously can't see something that is going down below the surface of the wafer, like a contact that's open or short in the gate all around structure. So this voltage contrast or using an electrical test method has always been desirous, but the issue has been you could never see enough on the wafer. The throughput was so slow, you can't see what's going on, and you don't know enough about the design to know what matters and what doesn't matter, what could be a defect and what's not. What's unique about what we've done with DFI is the software first knows what's in the design, so it knows where to look, and it has a simulation model of what to expect. It drives the machine to look there. It's measuring billions. In fact, what we'll ship later on this quarter, over 10 billion features in an hour. So it's seeing huge statistics. And then it's an analytics problem on the other side of that. Okay, 20 sales, that's still, you know, less than, let's say it's less than a failure in a billion and fractions of a failure billion. What's unique about that from a design perspective, that whole end to end capability is what is embedded in the DFI with the pro. And, you know, I think the question for customers and what they've told me is, hey, if this can really do this, we would use these in production, right? And we hear that from multiple customers. And then the market would be significant for this, right? Right now, the market for e-beam inspection in and of itself is hundreds of millions of dollars, but it's been primarily used in the early stages of yield ramp because once you improve the process to a certain level, Typically, the sensitivity of the machine isn't good enough. What we've been able to demonstrate with the E-Probe and the roadmap for how much it's evolved is that it's able to see quite a lot of silicon, and hence it can see things as the process is maturing. And that's really the question mark. How far can we push this? How much can we prove you can use this in manufacturing? If that were the case, it would look a lot more like the optical inspection business than the E-beam inspection business today. But that's an unproven thing. And then lastly, to answer your question around pilots, we do have a number of other requests for customers on pilot wafers and demonstration capabilities outside of the three that we discussed. And we are slowly opening up the aperture to take on a little bit more of this work. But obviously, we really want to succeed at everywhere we go.

That's great. Thanks for the call, John. Really appreciate it. And just second question, just over on the battery manufacturing side, the Lantern technology acquisition you made last year, any update on that in the market?

Yes. So we've been engaged with a couple of lead customers on some pilots. Those are ongoing. They look promising. We think we understand what are common issues. And again, it's one of those things, can the engineering achieve what the customer is looking for in terms of analytics. And the biggest thing there is around AI for extracting critical issues off their inline data.

Okay, great. Thank you.

Thank you. One moment for our next question. And it comes from the line of Gus Richard with Northland. Please proceed.

Yes, thanks for taking the question. Congratulations on the new customer. That was a rapid addition. I was just wondering, the relative size of that contract relative to the size of the one you booked a couple years ago with, you know, the contract that included DFI and other services, you know, could you give sort of an order of magnitude? Is it, you know, capital size or what? It's comparable. Yes. Okay. Wow. And then, can you talk a little bit about how quickly you can ramp DFI manufacturing to meet increased demand? I think the plan is for three or four systems this year. And, you know, how rapidly can you ramp that into next year?

Sure. Yeah. Our original plan was really to effectively commit two more machines this year, and now we've actually committed those. So that's, you know, we were planning on building three or four machines, but the build completions would be into next year. We're looking to do now, as I said in my prepared remarks, Gus, is accelerate that, pull in them as much as we can. We have, of course, pre-ordered some long lead items and been somewhat thoughtful about, you know, in anticipation of success. And then accelerate the build beyond that number. It's too early for us to really say, you know, what we would be able to commit to because we're still working with our suppliers. But we do want to be able to meet customer demand if it materializes the way that, you know, we hope it will. You know, we still have a lot of work to do there too. So, you know, I think at this point it's kind of a wait and see. Gus, we can't promise you that we're going to build more. than we originally committed. We think we have some flexibility there. We hope to, at least at the end of this year or early next year, to squeeze in a little bit more. And then we expect to have a more steeper manufacturing ramp in 2025. That we have more flexibility on, obviously, because there's plenty of time there.

Right. And just, you know, are you at this point contemplating, you know, outsourcing the manufacturing of the equipment? It is outsourced.

today. I mean, we don't, you know, up till now, we've done final QA and assembly here in the States, and we review it, but all of our production is offshore. And we have the ability to just, you know, if we want to not ever land them back here and complete final QA at the producers.

Okay, so then what's Is the long lead time items the limiter to a more rapid ramp in, like, the next year? Correct. Okay.

Obviously, the technology in this thing is not simplistic, and it's not off the shelf, right? It's pretty bespoke stuff, right?

So, you know, refresh my memory as to, you know, typical lead times for your longest lead time item for the tool.

Well, I think what we've been able to do this first quarter, I really applaud the team, is take items that did not have a deterministic lead time, right? In other words, the suppliers would build them, then we would test them, and then we would send them back because they didn't meet spec or, you know, you would start more material than you needed just to get out a small amount with relatively poor yields. And what do you know, a company that's kind of predicated on manufacturability, you know, we went back and worked on a lot of that with our suppliers. and get the manufacturing yields up to get the times to be deterministic. So you could put an order in and in a fixed number of months get a subsystem out that actually meets requirements. So I think we've been working through that in this first quarter. I feel really great about the results the team achieved on that. And we're re-rolling that up to say, okay, now where can we take slack out of our overall build schedule? Because our build schedule had a lot of

uh slack time in it to comp for you know some components that were basically undetermined you could order and you didn't know when you're going to get them got it got it understand and then just switching to the you know the software side of the world the extensio i know you're working on some large enterprise deals and i'm you had some potential for some rather you know eight figure deals i i believe and i was just wondering you know, our customers beginning to come out of the fog and start getting closer to, you know, committing to orders and, and, you know, sort of where is that funnel look? What does that funnel look like today?

Yeah. So, you know, we did have some, I would say seven figures contracts last quarter. This quarter, I do see this quarter, the next quarter, it's always hard to pick timing, whether it's going to be Q2 or Q3. We do have a number of larger opportunities out there and they are, you know, I, I, Chose my words around Accenture Cloud, Accenture Test Operations, and the Sapiens Manufacturing Hub. A lot around customers' digital transformations. This seems to be one critical area for the customers. So the SAP connection is an important one for a lot of this work and all of these contracts. And we're part of an overall larger engagement in those cases. So it's a little bit trickier for us to have clear visibility. But we feel pretty good over the next couple of quarters to see you know, will be larger contracts, what's the total size of them and how they break up? I think, of course, it's early, but we do feel engagement quite strong with the comps.

Got it. Got it. Thank you so much for answering the questions. I'll jump back in the queue.

Thank you. One moment for our next question, please. And it's from the line of William Jallison with GA Davidson. Please proceed.

Good afternoon, and thank you for taking my questions. For the first one, I wanted to start out by asking you about the core Accentio business. What sort of trends are you seeing in customer behavior with respect to adopting incremental Accentio modules or their usage trends of the software overall? I'm curious what you're seeing there.

Sure. Yeah, so I think there's basically three places where we see you know, I think common access. So cloud customers evaluating and looking at test. Cloud customers looking at the guided analytics AI module, right? So automate, more automation on the way they're doing analytics. And then I would say our larger customers really looking at the Accentio and Sapiens connection between SAP and their factories. And those are, you know, kind of the way I answered Gus's question and my prepared remarks, well, we're all around those, basically, those three capabilities. That's what we see. We look at that as, A, customers trying to kind of change their digital platform, digital transformation, some of them call that. That often starts with an S4 HANA deployment, and then it's how they get kind of real-time feeds from the manufacturing. That tends to have an impact on tests. and the DEX networks and things like that because a lot of their supply chain isn't in their control. So the test operations is a piece of that. And, of course, it starts at the cornerstone of the cloud. So, you know, like I said, after cloud it ends up being Guided Analytics, test operations, and the SMH, you know, SAP connection. And those are all ongoing now. We had stuff close in the quarter Q1 related to some of those. And we have stuff in the pipeline Q2 and Q3 on those activities as well.

Okay, great. And then as a follow-up to dive a little bit deeper into that, with respect to the model ops pilots currently going on, can you talk about how you expect customers to ultimately uptake model ops and how – It affects PDF monetization overall of that Accentio business.

Yeah, that's a question we're learning as we go well. But what we think so far is the following. It does drive our, you know, test ops. So if you notice my preparer model ops primarily around testing for advanced packaging. So multiple test insertion points, data feed forward, predictive, binning, all the things around being more able to make sure the chiplet you put in the package is going to really be there, be at the performance levels you need, and then make sure that the testing is efficient because they've added so many test insertion points. They're trying to be as efficient as possible with their tests. So this has been a lot of the engagement on the pilots. Almost all the pilots are in that area right now. all related to typically advanced packaging and chiplets. That will drive model ops deployment, which basically is tied to the number of machines that they deploy model ops on. So it scales with the capacity of the deployment. And it also has kind of a follow-on effect, because then you need more cloud, you need more analytics on the other side, and more of the ML training capability in the cloud as well. We think what we'll close first is the stuff around the moving data around and the ML ops as deployed. That's why in my prepared remarks, I talked about the challenges of being able to monitor, maintain, and act on the models. And over time, as they get more and more sophisticated, we think it will also have an impact on our general cloud business as they drive more compute, roll out more models, manage larger data sets, and do more complex things. I would say overall, the industry is really relatively simplistic in what they're doing in AI models today.

Great. Thank you for that, John.

Thank you. And ladies and gentlemen, as a reminder, if you do have a question, simply press star 1 1 to get in the queue. One moment for our next question. And it comes from Christian Schwab with Craig Hallam Capital. Please proceed.

Hey, good evening, guys. So if we take the DFI eventually and move it in as a production tool, what would you charge for that versus the way that you're kind of charging customers to use it as what I guess I would call more of a research and development tool?

Yeah, that's a great question, Christian. I think we're still working in active dialogue with the customers on this right now. Today, we charge the whole thing as a bundled subscription. And the customer gets quite a deal, because we actually manage the uptime on the machine. We manage the spare parts. We provide the entire software stack for the application layer. We've said we've opened to selling the machine piece itself, and that's on a capital purchase basis. And there would still be potentially then a subscription on all the analytics and systems that drive the machine and drive the data off it, particularly for the product level inspection. So there are ways where we could make it less capital intensive for us and maybe more conventional for the customers. We've had dialogues with customers around that point. I don't think we have anything that is set in stone at this point. And I think as we've gone through that, we've learned a lot about just our subscription business and how we've priced that. I think we did that in a way that made it very, very, very easy for the customer to get into the machines and see the value that's there. While they're relatively meaningful subscriptions, when you consider the total value, I think it's quite a good deal.

And should we assume that if you sold them as a piece of capital equipment that an ASP would be $4 to $5 million? Is that still fair?

No, I think that would probably be much lower than where you'd expect them to be on a capital basis.

Okay, okay. And then on a capital, you know, I guess my last question is, if it was used in production... do you have an idea yet of how many tools would be needed, you know, based on wafer starts per month with, you know, every 10,000, 50,000, a hundred thousand, whatever. Um, have you done the work to, to know how many would, would, would be needed?

You know, um, I think we don't really know that answer yet, Christian. But what I can tell you is the following. When we first started doing this many years ago, even before the last couple of years, all of the customers that we talked to, they said, you need eBeam a lot in the first one or two years of development. Then once you get to a certain defect density, you can't see anything anymore. So everyone was very comfortable with the subscription because they didn't think you would see defects for very long. But the reality is we've proven with the capability that, you know, especially as we've done further revs of the machine, right? So, you know, the first one we shipped, we called it a 250. Then we shipped last year a 350. This year we'll ship a 450. These are getting incrementally faster and faster and faster, really due to the software layer. And, you know, we know overall what the market is in terms of defect densities, and we think we're very unique in being able to see these 3D problems, even as customers are getting to pretty good yields. So, you know, that's why I think customers' early idea about how long you would need an eBeam tool and, you know, what's turning out to be the case is, I think, surprising the industry overall. And, you know, that was our original thesis, so it's nice to see it come true, but we didn't know it would when we started.

Okay, great. No other questions. Thanks, Hans.

Thank you. Thank you. One moment for our next question, please. And it's from Gus Richards with Northland. Please proceed.

Yes. Thank you for asking me. Just one more question. And I kind of want to be clear, you know, there's three buckets for DFI, process bring up, product bring up, and then there's infab in production. And the cost... conversations you're having with at least one or more of your customers, does that include the third bucket where you're talking to them about production tools?

So, you know, I think people are asking about that, Gus. People have used eBeams historically for test vehicles and process bring-up, SRAMs, and very simple structures in the product where they know what's there where the quote-unquote nuisance rate is low. I think what customers have been surprised, and we see this already in the way we've engaged with the customers across at least a couple of them so far, the E-Pro is very, very good at looking at product. So now you can bring up each new chip, each new design, and see via open issues, complex issues, because it is very targeted at where it lands the beam. You can even sequence the landing of the beam, so turn on areas and look in other areas. It's very, very sophisticated in the way it can work. And so I think customers now have themselves getting around the heads that it can be very powerful for product bring-up. They are asking us about the third application as well. And now, of course, because we've deployed this on very advanced nodes that are just getting to production now, Now we're starting to begin those engagements. That pilot that we announced in Q4 of last year was really around the manufacturing question. Okay, can you really run one of these things in manufacturing? That was their question. And we've seen, of course, across the fleet, the uptime data and the consistency data, and we feel pretty good that, you know, again, e-beam tools tend to be like Formula One cars. And customers would question, okay, can you really run one of these things? And we've seen our uptime data, and we feel pretty good about it. So we'll have to go and answer that third question. People are asking it now. I think they're pretty comfortable now with the second question. You can do product inspection, even at relatively mature yields, as you bring in new products, and I think that's a very new application for EV.

Got it. All right. Very helpful. Thanks. That's it for me.

Thank you. One moment for our next question. And it's coming from the line of William Jellison with DA Davidson. Please proceed.

Thank you for taking the follow-up. Adnan, I wanted to ask you with respect to gross margin during the quarter, my impression was that much of the year-over-year drag was related to that lease accounting for the DFI that you mentioned. And so the question that springs from that is, if DFI accelerates and becomes a bigger part of PDX growth into the future, does that change at all the way you think about the long-term greater than 75% target?

Yeah, thanks very much for asking that question. So look, now with multiple machines shipped into the market, we are actually getting quite better. And the team has been doing a great job about managing the costs over the longer term, especially as we think of some of these early orders that we're starting to look at that we are placing with our vendors. So feeling pretty good about the machine side of it as well, being able to not hurt our 75% gross margin targets that we have set. Well, yes, the last two quarters, some of the Margin was lower compared to our gross margin targets, but as the revenue ramps to the rest of the second half of the year, we certainly expect to be getting back to our target gross margin model, particularly by the time we're ending the year. I think we're starting to think that the 75% gross margin and the 20% operating margin targets that we had set for the year seemed like they would be achievable ending the year.

That's great. Thank you, Adnan.

Thank you. One moment for our next question, please. And he's from Andrew Wiener with Samjo Management. Please proceed.

Hi, good afternoon, guys. Good afternoon, Andrew. I wanted to follow up on Kristen and Gus's questions, I guess. The first is with respect to the potential, and I realize, you know, you're still evaluating it as a model, but the idea of selling the tool and then, you know, charging a license for the analytics and the, you know, and the design, et cetera, and the software. It sounds like you believe, you know, and I don't want to give away anything from a pricing strategy perspective, but you believe relative to sort of other e-beam tools or inspection tools and then sort of the software that's required to manage them, that perhaps our initial subscriptions were underpricing the overall value in part because we need to prove that it works and drive adoption. Is that a fair sort of, you know, interpretation of your earlier comments?

Yeah, I mean, and also the machine got a lot more capable. So from that first generation we shipped in 2022 to today, it's about 16 times faster. Because of the software, because of the capability of getting smarter about the design, There's a lot on the software side and the control system side that make that possible. There is changes to the machine, too, to basically take advantage of what the software does. But that software, you know, improvements to the software, improvements to the machine to take advantage of the software have made it quite a different experience than we think it continues to be. You know, so yeah, then you can go and look at where it is Performance-wise, it competitively in the marketplace, and we feel pretty good there.

Okay. And then second, I realize we're not ready to put a fine point yet on what the number of units or sort of market sizing. But, you know, if I take your earlier comments of, you know, eBeam being a market in the hundreds of millions of dollars, and then I take your response to Gus's question about, you know, that we sort of prove it or we're in the process of proving that you can not only use it to bring up a process, but you could actually use it to bring up sort of each individual design or each individual product. It somewhat suggests that you believe at minimum the market for E-Probe or DFI is larger than the current E-Beam market. And then the question obviously would be, how much larger, and that would be somewhat dependent upon sort of the proof of getting into manufacturing. Is that a fair comment?

It's fair, Andrew, yeah. I mean, I think the conventional uses of EV, there's more than just voltage contrast. They use it for, you know, fine feature inspection, right? And the number I was quoting was the inspection market, not the review market, and not the CD market or the overlay markets or all the other ways that people use e-beam tools, just the e-beam inspection market. And we focused primarily so far on the logic producers, right? And a lot of e-beam goes into memory, right? So you've got to go and slice that all up a little bit and then say, okay, can you make the market for logic voltage contrast bigger if you can do product and not just early vehicles. Yeah, I think that's true. How much bigger that is in the regular, the whole market, or is it bigger in the whole market? Well, that depends a little bit more about how relevant what we're doing is to the memory customers, you know, et cetera. So, you know, that's why, yeah, I'd like some wiggle room there, Andrew, because I think we're still really digesting all that. I think, you know, we are feeling pretty comfortable that we, you know, this will be an important part of PDS business, and we think it can be an important part of the subscription for PDS on a subscription basis for PDF's business.

Okay. And then, lastly, I just wanted to sort of make sure I understand. So, we're planning to ship this quarter a third tool to our leading customer. I think, you know, on prior calls or, you know, prior public comments, you talked about shipping sort of another tool in the fall. Was that always intended for the customer who signed the current contract? And is that sort of the timing of when you'd expect to ship that tool?

Yeah, so that is that customer. We are set up now where we can help them in this stage, being able to use the machines in our facility as they go through this year. And then at the end of this year, potentially could slide into early next year if they're not ready. That machine would move from our site to their site. as they transition their status, right? So what I think what we're able to get done here was the ability to start supporting them sooner than later this year, right?

Okay. And then the comments about trying to pull forward, you know, potentially availability of tools, you know, into late 24 is, you know, is that, you know, mostly for, pilot sort of evaluations, or are you seeing actual, you know, sort of customer interest in, you know, installing a commercial, you know, tool in their facilities?

Customers are asking us now, Andrew, about availability of additional capacity, which we really, you know, I wouldn't say they've come and said we want to buy one now. We're saying, okay, if I wanted to buy one, what would it take? as, you know, I think we would want to go to take advantage of those opportunities. We're looking at what we can do. Obviously, if you've got an instantaneous supply chain, it gives you maximum flexibility, right? And anyone that's taking control theory knows the longer the feedback loop, the more likely you go out of control, right? So it deludes us to figure out how to shorten all of that for maximum business flexibility and also because customers are asking about it. And we think the way we thought about the supply chain should give us some advantages. I think historically people said, oh, PDS is not a manufacturer. There's some disadvantages to that. And, you know, go ask a fabulous company if not having us out is an advantage or a disadvantage. I think most of the fabulous companies would tell you that they're quite happy with being fabulous. And I think similarly here, we think there's ways that we can be, you know, we can leverage the way that we operate to maximize flexibility.

And I guess the last question around that is, The customer is doing the manufacturing evaluation. I think you thought you might know by the end of this year sort of if it's a go or no go. Have they given any indication whether if it's a go, they would require additional tools?

Yes.

And I assume the answer is yes, they would require additional tools?

Yes, they would. Yeah. No, that's the purpose of a manufacturing evaluation, right?

Okay. No, that's what I thought. I just wanted to confirm. Okay, great. Thank you, guys.

Thank you. And ladies and gentlemen, as a reminder, to ask a question, simply press star 1-1. Well, at this time, there are no more questions. Ladies and gentlemen, this concludes the program. Thank you for joining us on today's call.