PDF Solutions, Inc.

Good day everyone and welcome to the PDF Solutions Inc. conference call to discuss its financial results for the second quarter conference call ending Monday, June 30, 2025. At this time all participants are in listen-only mode. After the speaker's presentation there will be a question and answer session. To ask a question during the session you will need to press star 1-1 on your telephone. As a reminder this conference is being recorded. If you have not yet received a copy of the corresponding press release it has been posted to PDF's website at .pdf.com. Some of the statements that will be made in the course of this conference are forward looking, including statements regarding PDF's future financial results and performance, growth rates, and demand for its solutions. PDF's actual results could differ materially. You should refer to the section entitled risk factors on pages 16 through 30 of PDF's annual report on form 10k for the fiscal year ended December 31, 2024 and similar disclosures in subsequent SEC filings. The forward looking statements and risks stated in this conference call are based on information available to PDF today. PDF assumes no obligation to update them. Now I'd like to introduce John Cabarian, PDF's President and Chief Executive Officer, and Adnan Raza, PDF's Chief Financial Officer. Mr. Cabarian, please go ahead.

Thank you for joining us on today's call. If you've not already seen our earnings press release and management report for the second quarter, please go to the investor section of our website where each has been posted. We achieve record revenue in the quarter and establish groundwork for continued growth. Given our innovative products, which align well with the trends of 3D processing and advanced nodes, complex packaging and test flows, and increased use of AI to streamline operations, we anticipate revenue growth of 21 to 23 percent for the year reaffirming our guidance. Significant bookings in the quarter were primarily for enterprise-wide solutions, including SecureWise, Sapiens, and Accentio, and for characterization infrastructure. Sapiens and Accentio bookings in Q2 were driven primarily by Fabulous and IDM as analytics is increasingly becoming important to them as they have a growing need to like manufacturing operations to ERP. Characterization bookings in the quarter were tied to customers deploying CV infrastructure to develop and ramp new nodes with particular strength for the solution in Asia. As is typical, Symmetrix bookings in the quarter were primarily due to equipment vendors utilizing more runtime licenses, particularly our more advanced tool control and communications modules. With respect to DFI, we have previously talked about shipping at least four E-PROBE tools with two contributing to revenue this year. So far this year, we have installed and qualified the tool machines we shipped in Q1 as subscription upgrades with incremental revenue. Overall, demo, install, and engineering activities with customers are at a high level, and we anticipate meeting our goals for DFI this year with shipping another two tools contributing to additional revenue. Our first full quarter with SecureWise showed strong bookings benefiting from PDF's position in the semi-contra industry. While SecureWise is deployed at all at Fab's, in fact nearly all 300 million of Fab's in the world, primary customers historically have been the equipment OEMs so they can provide support to their Fab customers. However, as the Fab owners themselves have more distributed operations, they wish to get the benefit of remote access to tools and data. Thus we felt that SecureWise would enable our Fab customers and eventually our Fabless customers to have secure remote operations. We refer to this as the foundation layer of the supply chain orchestration element of the PDF platform. Sapience Manufacturing Hub and Dex are other elements we put in the supply chain orchestration category. As our customers deploy analytics and AI, they increasingly need to connect to other enterprise applications such as SAP and across organizational boundaries to the tools processing their chips. Our supply chain orchestration products enable this. Last quarter we validated this perspective as a large IDM entered into a contract to deploy SecureWise across the majority of their tools at their internal Fab's test and assembly facilities. This is intended to enable both internal usage as well as allow equipment vendors the ability to remotely access their tools to improve support for the IDM. The benefit to this customer's higher productivity of their engineering effort and operations while having superior auditing and accounting of all activities on the tools. Moreover, they can get better support from their equipment vendors. For the equipment vendors, they can be more responsive when issues occur and by purchasing additional capabilities from PDF, they can provide additional services. We are pleased that in such a short time, customers have validated SecureWise as a network for the IC manufacturing ecosystem to facilitate collaboration and AI in manufacturing. At the Intel Foundry Direct Connect event, we were able to highlight collaboration and how PDF has moved from a capability used internally at customers to an industry-wide platform that enables new ways to work. I was invited to share the stage with Intel's CEO and talk about their strategy for Foundry. My comments were about collaboration to achieve great yields and operational metrics. Over the years, we have delivered multiple modules of Accentio and characterization vehicles to customers. With the DexNodes, we started to connect the modules we delivered to Fabus and IDMs out to their OSAT suppliers to improve test. Now with SecureWise and Sapience, we are able to connect enterprises together, linking equipment vendors to the fabs where the tools are installed or Fabus to the fabs and OSATs that manufacture for them. We believe this is crucial to achieve greater yields, in part because to deploy AI, you need automated connectivity between the data, tools and enterprise software systems. We believe PDF is very well positioned to deliver this to our customers as they partner with their suppliers and customers. Recently, we also announced that PDF's user conference and analyst day will be held this December. You will see our customers and PDF folks talk about the PDF platform and the impact it's going to have on their performance. Through 2024, we have consistently grown revenue, gross margins and EPS every year. With a 20% CAGA for revenue, while expanding gross margins from 63% to 74%, and EPS from a loss of 2 cents to a profit of 84 cents. In our conference, we will describe how we plan to build on this performance. We look forward to seeing many of you there. I want to thank all of the PDF customers, employees and contractors for their effort during the second quarter. Now we'll turn the call over to Adnan, who will review the finances and provide his perspective on our results. Adnan.

Thank you, John. Good afternoon, everyone, and good to speak with you all again today. We are pleased to review the financial results of the second quarter and to bring you up to date on the progress of the business. Please note that all of the financial results to discuss in today's call will be on a non-GAAP basis and a reconciliation to GAAP financials is provided in the materials on our website. For Q2, our total revenues were a record 51.7 million, up 24% on a -over-year basis and up 8% versus the prior quarter. For the first half of this year, our revenues also grew 20% on a -over-year basis versus the comparable first half of last year. We achieved our long-term target of revenue growth of 20% for the six-month -to-date period and exceeded it for this quarter. Our analytics revenue were also a record 48.8 million, up 28% from the same quarter of last year. We benefited this quarter from a characterization deal, first full quarter of SecureWise revenues, a new SecureWise deal signed during the quarter, another meaningful booking for Sapiens Manufacturing Hub and contributions from Accentia Renewals. We see additional opportunities to leverage cross-selling across the elements of our PDF platform and to expand the strategic relevance of PDF with our customers. During the second quarter, revenue contribution from integrated yield ramp came in at 2.9 million compared to 3.5 million of the same quarter of last year, driven primarily by the reduction in fixed fee as we completed the engagement and are now in the gain share period. Given the bookings momentum this quarter, we again grew our backlog and ended the quarter with 233 million of backlog. It is worth mentioning that we do not include potential future Symmetrix runtime licenses or gain share revenues in our future amounts. Based on what we can see in our deal pipeline, we see an opportunity to strongly grow bookings momentum and therefore our backlog for the second half of this year. We reported gross margins of 76% for Q2, higher than the 75% long-term gross margin target we shared during our analyst day. On a -to-date basis, our gross margin is now 76%, again higher than our target 75% long-term gross margin. On the operating expense side, our expenses for the quarter were up, however they grew at a lower rate than our revenue growth rates, primarily driven by personnel-related expenses. The controlled growth in spend allowed us to expand our operating margin to 19%, higher than both last quarter as well as the same quarter of year ago. For the six-month period, our operating margin of 18% are up meaningfully versus 14% of the same period a year ago. We continue to believe we are on the right path to 20% operating margin, which is our target. For EPS, we reported a profit of 19 cents for the quarter, which for the six-month period also grew 18% on a -over-year basis compared to the first half of last year. We ended the quarter with cash and cash equivalents of $40.4 million compared to $54.1 million of the prior quarter. We consumed operating cash flow for the quarter, however we generated positive operating cash flow for the -to-date period of six months. For the quarter itself, we used $8.5 million in CAPEX spend primarily for EPROM machine bills as a result of increased customer demand. As we look to the rest of the year and based on the bookings momentum in our deal pipeline discussed earlier, we reaffirm our prior guidance of revenue growth in the range of 21% to 23% for full year 2025 compared to the prior full year 2024. With the first half of the year completed at 20% revenue growth rate, we expect the second half of the year to grow higher than 20% versus a strong comparable period of last year. With that, let me turn the call over to the operator for Q&A. Operator.