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 Monday, March 31st, 2025. 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 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 demands 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 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 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 Razov, PDF's Chief Financial Officer. Mr. Kabarian, 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. As we entered 2025, we expected a customer environment where some would be recovering from a relatively weak 2024, while others would be continuing momentum into this year. Given our strong 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 anticipated growth of 21 to 23% for the year, albeit with growth being lumpy quarter over quarter due to E-Probe sales model driving more variability in revenues. Consistent with our expectations, the first quarter was a strong start to our year, with the second largest revenue quarter in our history topped only by Q4 of last year, which benefited from an E-Probe sale. Significant bookings in the quarter were primarily for enterprise-wide solutions. Sapiens Manufacturing Hub Enterprise, which is designed to connect enterprise applications such as SAP, MES, and engineering analytics, drove a meaningful percentage of bookings as a large customer moved from a pilot that began in 2024 to a contract for full deployment. Accenture bookings were driven primarily by Fabless and OSATs for offline analytics and test operations. The trend of more complex test flows and advanced packaging are strong drivers for this solution. Symmetrix bookings were strong as equipment vendors utilized more runtime licenses as they increased shipments, particularly of our more advanced tool control and communication modules. Securewise, which closed late in the quarter, contributed less than one month of revenues. Gainshare drove the IYR revenue growth as new fabs and process nodes under contract began to deliver revenues. We expect IYR revenues to continue to improve during this year overall based on this trend. With respect to DFI, we previously talked about shipping at least four ePROPS tools this year, with some of them contributing to revenue in the year. In fact, this past quarter, we shipped two tools, which is a great start to exceeding our goal of four system ship. We anticipate one of those SHIP systems has the potential to contribute incremental revenue growth this year. Overall, demo, install, and engineering activity with customers is at a very high level and we anticipate meeting or exceeding our goals for DFI this year. In the quarter, we also completed the acquisition of SecureWise. Now with just about two months operating together, things are going well. We have been meeting with equipment companies, Fabless, Foundries, and OSATS to discuss SecureWise and how we believe it fits into our overall platform. Based on these meetings and our internal discussions, we are refining plans for integration with our platform. In particular, Customers see benefits of integrating SecureWise with our DEX nodes at the OSATs, as advanced packaging and test requires more collaboration between OSATs, stylists, foundries, and equipment vendors. Customers also want to see tighter integration between Symmetrix and SecureWise, so equipment vendors can more easily enable collaboration and manage AI ML systems in the field. Overall, it's a strong start to the year, both in terms of our traction with customers and our product development. Now I'd like to make a few comments about our view on the industry and opportunities for our business going forward. Since the start of April, tariffs have taken center stage. Semiconductors have been a focus of many governments all over the world for the last few years, so the industry leaders have become accustomed to adjusting to frequent shifts in the regulatory environment. So far, we have not seen any noteworthy change in customer behavior with us as a result of tariffs. Most of our software business, including SaaS, is generally not impacted by tariffs. For the E-Probe, tariffs could impact the cost of components shipped into the U.S. However, at this point, we believe it will have only modest impact on our financial results. Given our progress in Q1, and despite the macro uncertainty, we reconfirm our revenue growth estimate for the year to be in the range of 21 to 23 percent when compared with 2024. I want to thank all the PDF customers, employees, and contractors for their efforts during the first quarter, including our new SecureWise colleagues. Now we'll turn the call over to Adnan, who will review the financials and provide his perspective on our results. Adnan?

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 2025. 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 GAAP financials is provided in the materials on our website. We are pleased with multiple important milestones achieved during the quarter. We announced and closed the $130 million acquisition of SecureWise and signed a large deal for Sapiens Manufacturing Hub Enterprise Platform with a new customer as a result of our continued partnership with SAP. As John said, on the Accenture side, our bookings this quarter also came from many customers spread across multiple Accenture software modules. On the equipment side, Symmetrix products continue to be strong. and we benefited from less than one month of SecureWise revenues as well. Our backlog ending this quarter was approximately $227 million, growing slightly compared to the prior quarter. Total revenues for the first quarter were $47.8 million, up 16% versus the same quarter of last year. Analytics revenue came in at $42.5 million, an increase of 10% year-over-year, and was lower compared to the prior quarter, mainly due to the E-Prove sale in Q4. On a year-over-year basis, our Q1 IYR revenue was up meaningfully by 86%, or $2.5 million, driven by the start of a new gain share from a customer engagement we completed during the quarter. Overall, when we think about our business over the last few years, We are pleased with the progress towards establishing us as the leading independent data analytics platform optimized for the semiconductor industry. Our customer base is spread across three key areas of fabless, fabs, and equipment companies. We serve these three customer groups with optimized solutions, respectively mapped to a product portfolio addressing existing nodes, leading edge nodes, and connectivity software. we have built our offerings on top of a robust, scalable, and secure analytics platform specifically designed for the semiconductor industry and are making the platform smarter with machine learning and AI offerings such as MLOps. Our gross margin for the first quarter came in at 77% versus 72% in the prior quarter and 72% for the same quarter of last year, driven this quarter by increased strength in gain share. Our cost of sales this quarter were also lower compared to prior quarter wherein we sold an Epro machine. Our operating margin for the first quarter came in at 18% versus a similar 18% for the prior quarter and 12% for the same quarter a year ago. We are pleased that on a dollar basis, we generated $8.6 million of operating profit this quarter compared to $8.8 million in the prior quarter that had the benefit of the Epro machine. Compared to the last quarter, we grew our R&D slightly by 1% and our SG&A by 6% this quarter, with the increase in SG&A driven by increased sales and marketing from customer pre-sales activities. Net income for the quarter totaled $8.1 million, or 21 cents per share, compared to $5.7 million, or 15 cents per share, in the same quarter a year ago, or up approximately 40%. for each of net income and EPS on a year-over-year basis. Turning to the balance sheet, we ended the quarter with cash, cash equivalents, and short-term investments of $54 million, compared to $115 million at the end of the prior quarter, with the change primarily driven by approximately $61 million for the SecureWise acquisition, $8 million for CapEx, primarily for E-Probe machines, and offset by positive operating cash flow of $9 million for the quarter, even after the annual bonus payout, which happens during Q1. In terms of balance sheet changes to finance the SecureWise acquisition, besides the aforementioned approximately $61 million of cash from our balance sheet, we took on bank debt of approximately $70 million via a combination of a revolving credit facility and a term loan, both structured for a five-year term. As we look to the rest of the year, we remain committed to our prior guidance of revenues for this year to grow in the range of 21% to 23% on a year-over-year basis, which is ahead of our long-term growth rate target of 20% annual revenue growth. With that, let me turn the call over to the operator for Q&A. Operator?