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 Tuesday, March 31, 2026. 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 this session, you'll 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 call 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 10-K for the fiscal year ended December 31st, 2025, 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 Reza, 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. For today's call, I will provide a summary of the past quarter, our perspective on the environment, and outlook for the remainder of the year. The first quarter was a good start to the year as we made solid progress on our objective to position PDF Solutions as the leading commercial data analytics and mission critical platform for the semiconductor industry. This was visible in the nature of the bookings, business activity, and our product development during the quarter. From a bookings perspective, Xsensio and Symmetrix products were particularly strong. Xsensio's strength was primarily from larger deployments, including an enterprise-wide deployment for Xsensio tests at a large IDM. Symmetrix's booking strength came in part from our larger customers placing orders for runtime licenses in anticipation of additional machine shipments in future quarters. Total revenues were up 26% compared to Q1 of the prior year. Adnan will provide revenue details in his prepared remarks. We shipped one E-Probe in the quarter and anticipate that machine to begin contributing to revenue in Q2. Our capital investments in E-Probe was meaningful in the quarter as we build additional machines to support our goal of shipping six machines this year. Selling activity was very high across all aspects of the semiconductor industry, from hyperscalers to equipment vendors. We did see significant activity in our characterization and DFI business as customers look to develop advanced processes and products. We anticipate that this activity will result in strong bookings in this category as the year progresses. Development of our new AI-enabled Accentio analytics systems that we announced at our users' conference in December 2025 remained on track in Q1, and we anticipate beta release in the third quarter. Customer interest has been very high for this capability. In the quarter, we celebrated our first anniversary with SecureWise as a part of PDF Solutions. Our SecureWise system provides secure end-to-end remote access and monitoring for manufacturing equipment enabling the equipment companies to provide better support and advanced services for the equipment installed at fabs all over the world. During the past year, we invested in R&D to improve the product and services, expanded the customer base to include fab owners, not just equipment makers, and now we're expanding the network into the OSATs and fabless. As collaboration in the chip industry moves from being driven by humans to being led by AI, we believe that remote connectivity enabled by SecureWise will increasingly be important. Customer enthusiasm for our stewardship of SecureWise has been super. Overall, it was a strong start to the year, both in terms of our traction with the customers and our product development. Now let's turn to our perspective on the environment. I believe this is my 100th quarterly conference call with investors. And as I reflect on my tenure, having the honor and opportunity to serve our stockholders, customers, and employees, I realize that this is the most interesting time that I've ever seen for the industry and PDF in particular. I don't say that lightly. And in fact, I've never said that before. Over the years, we have experienced many semiconductor cycles. Each time we are told this one is different. I have little doubt that this cycle can overshoot like all the past ones. What is different this time is how AI is changing so dramatically the way engineering is being performed everywhere. A recent business trip in Asia this past quarter highlighted that for me. What I found interesting was that in eight of the nine customer meetings, the CEO attended. and he was very interested in learning how AI is being used in R&D and manufacturing across the industry from PDS vantage point. The inference that I drew from this is that executives realize that AI is having the most profound effect on how companies operate and may result in changing the nature of the industry and hence companies. These CEOs see PDF as a leader in bringing AI to manufacturing, and they want to understand our perspective on the transformation that is happening and our vision for manufacturing, product and test engineering, and yield ramp as a result of AI. What this means for PDF is that this is the most interesting business environment we have experienced in our 25 years as a listed company. As the PDF platform transitions from a system used within a company to increasingly an AI and analytics platform used across the industry, we believe we can deliver and capture more value as we help our customers seize on the opportunities that our platform can provide them. This is resulting in deeper collaborations with our customers and ultimately can result in larger engagements with them. Given our progress in Q1, We reconfirm our total year-over-year revenue growth for this year to be consistent with our 20% long-term target. I want to thank all the PDF customers, employees, and contractors for their efforts during the quarter. Now I'll turn the call over to Adnan, who will review finances 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're pleased to review the financial results for the first quarter of 2026. 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 the results of Q1, with multiple large bookings during the quarter. We secured a double-digit million-dollar Accenture test operations booking to help our customer manage geographically distributed operations, an Accenture renewal with a large fabless customer for better analytics, and a booking for fab control software for a large fab customer in Asia. We ended the quarter with a backlog of 246 million. up 9% versus the same quarter of last year. Total revenue for the first quarter was $60.1 million, up 26% versus the same quarter of last year. Our platform revenue was $50.9 million for the quarter, or up 36% versus the same quarter of last year. Driven by strength in our leading edge solutions, Accenture software, and one complete quarter of SecureWise revenues. Volume-based revenue for this quarter was $9.2 million or down 12% versus the same period of last year, primarily due to lower gain share. Our gross margin for the first quarter came in at 76% versus 77% last quarter, driven by small increase in cost of revenue with a smaller revenue base as expected. Our operating margin for the first quarter came in at 25%. versus 24% for the prior quarter and 18% for the same quarter a year ago. We are pleased that on a dollar basis, we generated approximately $15 million of operating profit this quarter, slightly higher than operating profit during last quarter, and 75% higher than the $8.6 million operating profit in the same quarter of last year. We remain cognizant of our long-term target operating margin of 27% and continue to make meaningful progress towards that goal. Before we updated our long-term targets in December 2025, we had achieved our prior long-term targets set in 2023 within two years of setting those prior targets. As we reflect on our current target model of 27% operating margin and achievement of 24% during Q4 of 2035 and 25% for Q1 of 2026, we are happy to note that we are making faster progress towards our long-term targets than the last time. Net income for the quarter totaled $12.6 million or $0.31 per share, compared to $8.1 million or $0.21 per share in the same quarter a year ago, or up 56% for net income and 48% for EPS on a year-over-year basis. We anticipate improvements in EPS as we approach the long-term model due to the scale the business is achieving, as our costs to operate the business are rising slower than our revenues. Turning to the balance sheet, we ended the quarter with cash, cash equivalents, and short-term investments of $31 million, compared to $42 million at the end of the prior quarter, with the change primarily driven by approximately $10 million used for CapEx needs, related primarily to building ePROP systems and fulfilling the customer demand we have spoken about. Given the demand we're seeing, we expect to increase our cap expense for this year versus last year, balanced by customer collections, such that we expect to grow our cash balance over the coming quarters, particularly the second half of the year. After the quarter close, we also expanded our revolving credit facility and have $30 million of unused revolver credit facility now available for use by the company as needed. As we look to the rest of the year, We reiterate our expectation that 2026 revenue will grow year over year consistent with our 20% long-term revenue growth target and that we will make meaningful progress towards our long-term target margin operating models of 27% with gross margin of 77%. With that, let me turn the call over to the operator for Q&A. Operator?