PDFS - Earnings call transcript Q1 2019

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Operator

Good day, ladies and gentlemen, and welcome to the PDF Solutions, Incorporated conference call to discuss its financial results for the first quarter ended Sunday, March 31, 2019. [Operator Instructions].

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. differ could results actual materially. PDF's

year to You stated available to subsequent on them. Form SEC PDF entitled XXXX, in fiscal Factors today. filings. information The and conference section XX should XX-K similar through risks update in the on this refer on Pages report XX Risk annual call to obligation XX, based statements the PDF of disclosures December no ended forward-looking assumes for and PDF's are

John PDF's please Financial President introduce Executive to and Christine Chief Chief like PDF's Officer Officer. I'd Now Kibarian, go and Russell, Kibarian, Mr. ahead.

John Kibarian

and you, everyone. Thank welcome,

website If report each posted. seen presentation already please has our management first the release our fiscal quarter, and Investors you where have for the go been earnings not to press of section

end-to-end for to from to is new PDF analytics manufacturing is semiconductor controlling to to customers control and is facilitated evolving reliability, for being choice objective in evolution be unique foresight, our provider silicon more ramping yield, PDF's the to what This across ability will and of Our industry. our operational the even of nodes, being production. important happen products. by important quality, see lifetime semiconductor effectiveness the

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of achieved. levels of the the the new is because enabled processes that can measurement system Foresight and is automated industry possible, machine even large PDF And be for PDF's for processes, because by DFI capability foresight By applying learning Vehicle and has, new often petabytes the unique datasets and of materials AI Characterization to leverage. but technology. does not the industry, productivity Exensio's

we areas. progress made During four quarter, the in

and state-of-the-art first customers to products. new measurement processes, materials, in generating The our insights into their deploying aid was systems

the X.X end-to-end was contracts signing Exensio, platform. of new software number of manufacturing for second a The our

fourth and unprecedented provide designed with the capabilities The in cloud Exensio's additional performance, a to deliver Mosaic, earlier offering, third our was is the with customers' announced our accelerating us them which acquisition while more AI as scalability through market recent was to Stream of enabling And today. acquiring semiconductor software move to proven service.

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from the as this high Interest at bodes providers, well leading-edge pilots positive multiple future. we technical is [indiscernible]. as accelerating. DFI is early logic feedback that first the demonstration installation, Beyond well We're activity believe for for getting

those our applications of outside getting feedback also and leading-edge logic, promising. potential first are on also are We customer

we shipped electrical Our production memories, additional goal MRAM, of next-generation as the the include XXX+. as for system, critical test the very for while also converting In DFI first installation, XXXX. at remainder pdFasTest reRAM, newest as valuable into capabilities to for business man. pilots logic, also characterizing as we PCM, well vertical This for leading-edge get and qualification of our second non-volatile achieving XXXX a half system, QX, has our such

As customers at in paper. able characterization a the in embedded IEDM IEDM, PDF's the With was PCM of to customers automotive, to demonstrate what learning. their XXX need achieve tests. can is channels, before is only engineering I've the ability leader optimizing parallel achieve for This STMicroelectronics, capability technologies important XXX+ of they value mentioned for cycles to often fast who acknowledged do where on bench in

activity revenue. Exensio, DFI, ratable the to analytics year recognized business quarter, we start which business, is subscription solutions includes over and in revenue Analytics Vehicle Characterization of on was Moving and strong XX% on technology. in our basis to had a our or a the again

majority encouraging, Contracts quarter growing adoption the the the our As demonstrate Exensio. of vast in in the of bookings signed was it well. quarter as

[indiscernible] capability, new the and deliver characterizing primarily In servers QX, additional IDMs, bookings deployment; Here some Exensio are other pilots cloud. other at a started Vehicle for of components; with services Vehicles that historic an deploying data Characterization system our offering This through acquisition additional analytic perspective, colo the possible analytics examples of the This finally, leads both that end-to-end customers IDM had for foundry. in big for demonstrate signing cloud Exensio better, QX. a driven version process for additional facility. pilot is pilot time topic, through an deployments; next value deploying significant cloud ran we for company interest integration delivered analog deployment including more my capability and to engagements our have customer of an and advanced Exensio ability one integrated our hosted tools; opportunity The customer; are Exensio-Control Characterization enterprise Exensio-Yield additional in and These engagement in Japanese and a of case SaaS analytics extension by licenses big at This we our a large Interest X-nanometer data on capability. the more to An cloud Exensio. significantly the that a for U.S. complete providers. recall renewals customers. Syntricity. the several company to to provides in a Exensio-Yield a contracts. an of cloud From grew for through conventional leverage for and us

for cost deployments advantage version AI ability capabilities customers' data and This known us and take the overall to our they are techniques of new us them time cloud of our which opportunity now, deployment. may accelerate of to data. to value and machine to added services be and is As the interoperability. the gives the in realize customers scalability, include look learning eventually, also characterization to data. reduce with Cloud data amounts large and big of of AI offerings, show for has of the enables Exensio. Exensio, well AI our advantage on-premise it the incremental development Exensio cloud of PDF issue leverage

Stream brings enabling to available to featured engineers Stream's waste achieve Mosaic. benefits Through wrangling. make industry. helped cloud, data quality an us have. we necessarily customers, on operations, quoted and to in can customers Stream to a improvement the focused a at customer As prediction AI we shared vision bring yield effort Stream Early data capability acquisition the describing we customers Nvidia algorithm of to This foresight higher can reliability website. and be on so needing of found the product company the that our to in was lower without move quality. review, cost. manufacturing same our semiconductor was how customers are used improve as costs the Semiconductor we can our their

thrilled to as are Exensio have AI such Stream of PDF. new, The team We Stream. platform innovative architected take from algorithms, as those part been of advantage to has the

on our that more monetizing to new evolution from in us to as such Stream. enables software, model Our subscription efficiently ratable capitalize technology

we As XXXX, thesis remainder remains intact. our the of look original year the to for

customer on These continued further interest indicates in ratable model, a DFI. which customers utilizing We Exensio opportunities. of level adoption a software, capabilities our will high and enhance our be feedback a all Vehicles, our expect Characterization will of Customer SaaS basis. to provided our analytic through

foundation. We With turn will our are that, change Christine, and progress this about will models Ratable on who that the excited we've in review business made I quarters, over over not performance. on will financial building Christine? focused to call the remain QX. years, we

Christine Russell

you, have in financials Most our will of our Thank you seen earnings release. John.

a results the our of report I'll in comments quarter, comments focus Investor key management In regarding the of and addition, section posted with areas. the few PDF we my on website so financials a for Relations

results All quarter are million, to the of Starting comp, was amortization non-GAAP and restructuring a our results revenue, our non-GAAP GAAP charges. the one-time of release Please GAAP that revenue and quarter. and financial which on reconciliation. from call provide to this a refer we basis, press excludes on for with intangibles, prior first stock-based X% $XX.X increase

a revenue the from million, quarter. million. revenue million, prior was Solutions lower increase Gainshare of $X million $XX.X by sequential $X.X was $X.X

for from higher-margin production over As include This in John software. the getting solutions we're to shifting XX% again our base mentioned, at a eProbe traction deployments leading was XXX the DFI demonstrates of revenue installed revenue. analytics revenue foundry. Notable

an revenue We The also European foundry. from to gainshare revenue significant at Exensio shipment semiconductor deployment one was booked a due lower company. volumes major at lower

time load uniformly, This our make gainshare request While their they customers ships. to their balance relatively when shipments lumpy. can customers

margin and and million lowered prior was factors. Now, of non-GAAP were which $X.X $X.X from turning gross improvement cost sales attributable was cost to The million, resulting quarter. cost the several of margin, sales to gross down

and our a investment. royalty model, to with expected margin consulting time our yields offset initial business a the gainshare compared growing expanding software which to a former future higher was at First, business

revenue of resolve revenue reduction sales the gross X, for an We revenue marketing services also contract. amendment consulting for amendment the XXXX for continue cost that first invested and from business, during IYR cessation additional offset We amendment. is our quarter, under and and thus which This in is in with which in came headcount to as R&D improved reduced costs. associated primarily and early are a profit conjunction and sales. to that as business there in X this connection year. margin quarter, XXX% lower we margin, in announced we major The at DFI reduces software the foundry no with revenue quarter revenue of gross We'll increases receive the in of gainshare was XXX% is received by the customer there. the this made margins the well, headcount from beginning as the

we and difference will the and net to the going resource was such, is in other levels Those time-based focus margin do for companies, improvement gross margin our so up should strategic As to time, associated our continue range. content This gross XX% software outcome to Over software by expected in realignment. with XX% the forward. the driven from evolution on software accounted to licensing. drift really

$X.X Non-GAAP is quarter. the Now, which were expenses million million, operating higher operating than expenses. $XX.X fourth

in sequentially. and the As the focused R&D business by software have on total spending development and I sales marketing, our invested particular, mentioned, support cost R&D skills. declined. still but In and spending marketing Combining and is business. quarter, bringing and first the to lower In resources we marketing expenses, sales of total we $XXX,XXX and resourcing sales added net operating we to in

commission The the due in very better during we spending This and perspective, up bookings. with time-consuming comp on small that have fourth locations In of with was to force and This a lower a In of software traditional individuals staffing U.S. were typically addition, reduction compensated in decline and XXXX. We're quarter to to number OpEx are headcount. the enact XXXX the number reductions. model. is combination commissions in bookings. because a finishing linked of tied base to who total initiative more net the outside started complex of we paid substantially sales we XXXX, put increased traditional had to and representatives aligns base our

we mentioned John acquired earlier Mosaic. Stream announced we and As today,

cloud brought team small and the Although initiative. purchase disclosing to add we're price, Stream XXXX during we to our plan group, headcount this on support and not the from to

our used compared in turning of use a was attention $X.XX. line, posted to outstanding to the Shares labor million eProbe cash, to non-GAAP were from bottom $X.X by per turn in was to partially XXX $X.X XX.X for $XXX,XXX the was sheet. profit earnings buyback. material offset quarter. million and machines. at QX the And to now used Non-GAAP EB million in million. compared the end which balance new used $XXX,XXX $XX.X stock a we Cash The build ESPP. $XX.X million cash Now, QX prior was our loss share million, proceeds continue We QX of QX. for of of for in to of our We $X.X cash we'll

That time million models to year, I are second a new resulted XXX my to in prior ratably reason As in is the starting up we report primary new both an have XXX concludes showing the customer that days of major We $XX.X converts the booking, $X.X receivable extensive prior of quarter. in to results. an to noted, compared important to of from deployment recently represented days a were accounts during investment. this those by remarks. QX, quarter EB foundry. eProbes DSOs the deployed accounts the revenue deliver quarter. DSO. That increase caught which we investment our hope return prepared for million Accounts on one Two in

Before XXth. over on Q&A, Callan of XXnd, three this we the XXth, Minneapolis to Riley Beverly in Those some there. for May in relations Conference the investor call on the turn mention operator month. conferences to May go and conference May. now see We'll some want to the investor be Craig-Hallum May I in New the meetings one-on-one B. in hope Conference any York at and activities holding you are Operator? to questions. on Technology I Hills presenting We'll

Operator

[Operator Instructions].

CJS Our first Securities. John from Tanwanteng from question comes

Jonathan Tanwanteng

X-nanometer bit the of that a the expect you and on in resolution little year? more the the of and How you the foundry how the Christine, detail give a that, with ceased settlement us activity? can much know, rest much quarter, you do was benefit

Christine Russell

amendment $X.X revenues we of contract, Well, we additional to the that the contract, and was will to receiving related terms the don't our disclose the of with million the amendment year. be customer; rest that

Jonathan Tanwanteng

that, does tail it does or off? Okay, it make to sense annualize

Christine Russell

be not be but to concluded all in lumpy, be all the ratable. It's of be it will It going XXXX. necessarily will bit will XXXX, a little by and it end

Jonathan Tanwanteng

thank Okay, color the And more bit on gainshare just then, a in quarter. you. the little

that you forward to expect match on going delivery Do mentioned to lumpy based was semiconductor client? schedules the customers. that up it from and that demand You with normalize

Christine Russell

deliver they're We seldom the don't count royalties necessarily ratably, gainshare and on even. gainshare pay our who to very customers

has and can always history I variable. look think our you back on been very see that gainshare

subject our we who at would reported take customers just gainshare certain going it's would so customers I their that the So to my but demands remarks, linear to like as have we're time, have as don't in our production, think to shipment take noted to us. sometimes to they want the to of are a

Jonathan Tanwanteng

to are the Any enough. Is able color so the fair more be Asian lab measured reach performance the foundry? it XXX on ramp-up at How the standard far? soon Okay, of going series performance? to you

John Kibarian

models facility expect and understand meet things, that and a manufacturing basically it types on scanning Yes, through be our reports. we then, QX but we in for to generating QX, their the best for schedule have then qualification meaning to ourselves targets as of Yes, it John. I'll information. it do will last same the usage series we're will from will year This additional the same that more is And that, be our to a of in the we standpoint, wafers released. John. set take lab use not quarter, so They scanned get how in of that

to to it our be target. done was which be expect QX, work we throughout So original this

Operator

comes Richard Capital question next Markets. from Northern Gus from Our

Auguste Richard

amendment in an you quarter? impact current $X.X was to million That clarification. said was it of the the that point a contract, Just

Christine Russell

Yes.

Auguste Richard

you And were market Got showing leading-edge market, Would then, another think interest I or some memory DFI in the mentioned be outside John, of you seeing that it. logic. interest? that is there is

John Kibarian

been pushed has to never at up really do to There from and very down We're What huge of of being scale. that finding small EB technologies. those in in be the currents that's Right? know, other memory you that, hundreds leakage and being important. take was seen able with microamps in precision are able be along markets. then some see tends good are And very picoamp one the leakage where lots to billions You know, that at measuring a foundry a couple sensing before being you an about know, can leakage then further time. you with we a of DFI to logic, currents leading-edge in them us reasonable machine, is and of Asia what the than millions the market -- demonstrated a into memory on understand for besides really we're markets structures of

use where important. as a can for it also You sensing [indiscernible] technologies, shape structure and leakage and currents model are structure

time know, these things, ways imagined. like pdFasTest positive feedback so really some we're could you once experiencing now that -- be in telling And the they you hadn't it finding we've of any showing it the start to it's we're XXX, like customers, start right really used you original memory built And market. you one

Operator

Our Schwab next Craig-Hallum. question from comes from Christian

Unidentified Analyst

on This me questions. for couple letting a Thanks Christian. is for ask Tyler

could could you if So, scale or expenses on was there's of any this it more any wondering it, revenue acquisition, provide first, with associated I us. the that give you color if

John Kibarian

Sure.

actually, were revenues opportunity. you a all, headcount for $X a revenue You the $X able know, significant business before you they're acquired down revenue very -- feel, $X by Each and we Because some do We of series with that a represented more math bought those multiplier-wise, to use have for U.S. year pilot total assets of standpoint, cost being single know, that. the a [indiscernible] a to million acquisitions, small, deployment you we than one way back and of had them a Exensio really they go own. subsequently, they PDF. KINESYS. production million That's our one can a of of in the subsequently getting XXXX, and were when so not we costs small Exensio really AI revenue and be deployments like be, what all customers. the think even were you really real Exensio to and standpoint, standpoint, acquisition, Stream Yet, of Forbes you is them. the know, and it what to bolting comes and our of from make know, these We data larger it, folks their order with From you I a one customer, right? systems, something know, were you XX% being opportunity of the first on of can was Stream, Syntricity, kind aligned. would from the it lot a part way generate million, four quoted they on look, loaded to data if you but able while all that wrangled than Mosaic, associated effort [indiscernible] does platform, consequential. on them a the know, from onto then lot made will companies, more right, leading digit,

customers right, the You pointed users. Exensio And Qualcomm, that 'XX us single at that. know, out database XXXX of have User Qualcomm a the to at number our was tell the that we keynote Conference, or biggest speaker

customers have therefore and datasets analyzable. huge our are that So aligned,

a a like top to Stream perch And hard being without scale something really getting time to that. of sit able on has like

relatively So can believe top even it's revenue. substantially, though insignificant perch, of grow Stream it quite today that amount putting of on we we a by actually

Unidentified Analyst

lumpy that's kind down solutions Last to the the year declines revenue somewhere great, And the more to this That's is the you be was believe true? gainshare between than going going I down of and segment be going offset pretty the for would understand gainshare you said QX, it's then, is quarter. still piece quarter, this this year. and still to thanks. Do assuming rest of But meaningfully. it be year quarter

John Kibarian

said year. I first that, Yes, in did so year the that my intact. QX prepared last quarter -- thesis believe after our remains We for still after the than we more remarks, we

Operator

from Our Tom Davidson. comes from D.A. next Diffely question

Thomas Diffely

and you Maybe IMIR doing first, well there sales fairly support, more that a transformation question is base. that on do front? or from through your employee Are with to to you're transaction the on the the service

John Kibarian

are Yes, is we Tom, this that. through Greatly, John.

hire new with in are As incremental we some we Christine on we other lot certain to that remarks and felt the we had what we said and some By geographies like in And on But, did one we're you do large had for done do -- and people folks needed, working we transition prepared areas, large, to and improve we is that We did field cloud seeing and will skills that we operations. done. that folks some folks on see work did we example, a activity the where things. re-target do her have know, were that hires. thing skills let where field targeted go, new make and getting work by Exensio of we some our that the transition areas of will that. in

Thomas Diffely

now EB of the the do is guess you to you with to have vein, entertain with, I limited to people provide support or and for capacity the have it the right XXX clients what same clients Okay, tools You know, new in kind them? by tool?

John Kibarian

Tom. it's Yes, great question, a

important don't You to at our engineering too because, we're make stage this spread you out, know, trying trying thinly. always super know, things is engineering prove we to we're so resources sure

look You on, we've this at has been if PDF very invested journey you significantly. know,

companies, can them DFI new customer significantly. well, think quite use has we help quickly. very As our now, I lead the And invested

value the the initial outsized is there methodology of tool. in So

new look in there we of as machine. IP the So licensing at on -- as for top customers, the value we acquire business is models

business we've rate machines. that build we by so is know, you at make So, working which not yet our we can't are done to -- I our limited this that -- say it

Operator

question from CJS We John have Tanwanteng Securities. follow-up a from

Jonathan Tanwanteng

do feel XXXX? shipping the XXXX mentioned in in remarks, your on on of worse DFI machines the activity Given or prepared you expectation more better you and into

John Kibarian

ship We about feel our to year. this ability better

Jonathan Tanwanteng

also, an for a extension And you mentioned characterization. at X-nanometer foundry

John Kibarian

for system company. a It's

Jonathan Tanwanteng

me? Excuse

John Kibarian

It X-nanometer. was for to for characterize a the new system company foundry

Jonathan Tanwanteng

I'm figure one? American company, out Asian an new trying be. okay. it, that just to an Got deployment that X-nanometer where would Is

John Kibarian

know, well, so though -- unfortunately these -- going disclose much leading-edge betting know, wouldn't a these fortunately, man, U.S. logic don't John. continent, I were unfortunately in there's not you Yes, the activity on if I days, this we on betting on be things, as you

Jonathan Tanwanteng

got for dollars the do growth, in Okay, And quarter-over-quarter, it. or you much a how did year-over-year Exensio either have ballpark or it absolute quarter?

John Kibarian

we not have that Yes, broken out yet.

through communicating going. we collect and be going a about information overall how we business data, lot more As is the the to more we're get analytics year, more as

have build stage, know, a own track at know, this our you, starting you this, to to we be record -- You of with we're candid John.

we be a You two historical didn't we have could closely, communicative lot the on. get we of few very will we that years really really out didn't of quarters. ago, data more But so it we track know, next work as

Jonathan Tanwanteng

other you on a hood, factors steady there are bit then, Okay, the just quarter, that Stream operating some and or or Mosaic level expenses Christine, enough. about? salesforce, And that fair we to should think to hold with in the the additional expect increase maybe just under did

Christine Russell

I you increase to should a small those amount. think expect

to And salespeople marketing to our in skills. put sales a commission bring in robust incent some bookings. As some I development investing in have mentioned, also we we more skills, are place in business

expenses also can a see deployment, the You cloud adding few more Mosaic additional of to around expect the to kind some additional Stream around expenses and team.

Jonathan Tanwanteng

of the OpEx at outlook what expected got from different Okay, for that it. Mosaic? ex any QX, Stream you end Is

Christine Russell

isn't. it No,

Operator

Richard, Markets. Capital a Gus have We question follow-up Northern from

Auguste Richard

a two just on more follow-ups DFI. Yes,

First now customers of established your have many product [indiscernible] all, or how structures product? in

John Kibarian

one head. Gus, them have in so over I or are structures over DFI have there off know, maybe XXX of happened, have or that X and the well numbers node my [indiscernible] top tape-outs I or believe don't X on X know I another. the You

Auguste Richard

Okay, and X so tape-outs customers. XXX X or

John Kibarian

Yes.

Auguste Richard

a a of be this And of in some market, up then, memory Is serviced to those shipping they market XXX and order there terms the with sensor running? them get you for in and year? could potential

John Kibarian

Yes, applications think I something now, there for have some is, it's definitive we well both as those. yet. don't Yes, exploring answer as we're logic Gus. a

has So only market we've on done in XXX. work far, been actually the the the memory

Auguste Richard

in interest is Okay, the so XXX? there customer

John Kibarian

yes. Oh,

Operator

questions. [Operator there no Instructions]. more this At are time,

John Kibarian

Thank you forward talking Goodbye. quarter. again to you look We next everyone.

Operator

this and program. for gentlemen, Ladies Thank concludes the today. you joining us

PDF Solutions (PDFS) 4 May 192019 Q1 Earnings call transcript