PDF Solutions, Inc. Stock

Good day, everyone, and welcome to the PDF Solutions, Inc. conference call to discuss its financial results for the second quarter conference call ending Tuesday, June 30, 2026. [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 the 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 ending December 31, 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 Kibarian, PDF's President and Chief Executive Officer; and Adnan Raza, PDF's Chief Financial Officer. Mr. Kibarian, 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 Investors 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 next quarter and the remainder of the year. The second quarter built on a strong Q1, providing great 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 bookings, customer activity and our product development during the quarter.

From a bookings perspective, secureWISE and DirectScan systems led the way with 8-figure contracts for each. We achieved a number of 7-figure contracts for Exensio products and services, including with hyperscalers and photonics companies as the growth in the AI ecosystem continues to be strong.

Finally, Cimetrix bookings were at a record high on top of a very strong Q1 as the equipment industry continues to be robust. Overall, across all products, the strong bookings resulted in building backlog while supporting meaningful revenue growth for the first half of the year compared with the previous year. Adnan will provide revenue details in his prepared remarks.

During the quarter, we placed 3 new eProbe e-beam inspection machines with customers. This includes 2 with new customers, one of which is in evaluation and the other of which is a 5-year subscription. The third is to a new factory for an existing customer as part of a previously signed contract. These 3 machines, along with the machines shipped in Q1, means we are 2/3 of the way to our goal for the year.

The new customer is using DirectScan on a more mature process node compared to the other DirectScan customers and for 5 years, carrying them well into mass production. We feel this contract is important as it demonstrates the value of DirectScan approach in mature nodes.

We believe the large SecureWise booking with an existing customer reaffirms secureWISE's availability in virtually all 300-millimeter fabs around the world and for many more years. While it was an 8-figure contract and the largest in the history of SecureWise that we are aware of, the contract value is at minimum and both the customer and we anticipate building from this space. With this contract in place, we have now refreshed the largest SecureWise contracts as well as expanded the business to provide SecureWise services to front-end fabs and back-end test and assembly facilities.

Our industry thrives from collaboration between suppliers and customers. In the future, more of that collaboration will be AI agent-driven. SecureWise is well positioned to be the cornerstone of an agentic collaboration across the industry. 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 DirectScan systems as customers look to develop advanced processes and nodes.

We anticipate that this activity will result in strong bookings in this category as the year progresses. Overall, it was a strong Q2 and first half of the year, both in terms of our traction with customers and our product development.

Now let's turn to our perspective on the environment. The investment in semiconductors continues to be driven by the unprecedented build-out of AI data centers. The unique element of this cycle is how AI is transforming not just the demand for semiconductors, but also how engineering and production is being executed. While it's debatable where we are in the semiconductor demand cycle, it is clear to me that we are in the very early stages of AI transformation of semiconductor manufacturing and engineering. All participants in the semiconductor supply chain will need to leverage AI agents to be more nimble, innovative and cost effective.

As the semiconductor industry continues to evolve, opportunities for open dialogue and peer-to-peer learning are more important than ever. PDF Solutions CONNECT conference is designed to bring together members of the community to share insights, discuss challenges and explore technologies and innovations shaping our industry's future, including recent developments from PDF Solutions. The event will be held October 15 and 16 in San Francisco during SEMICON West week.

Looking towards the second half of the year, we see increased opportunities across the entire product portfolio. With that optimism and our progress in the first half of the year, we reconfirmed 20% year-over-year revenue growth for this year. 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 the financials and provide his perspective on our results. Adnan?

Thank you, John. Good afternoon, everyone, and good to speak with you all today. We're happy 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 we 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 $61.5 million, up 19% on a year-over-year basis. For the first half of this year, our revenues grew 22% on a year-over-year basis versus the comparable first half of last year due to contributions from multiple products. We are pleased with the revenue growth we saw compared to last year and remain committed to our long-term revenue growth rate target of 20%.

Our platform revenue this quarter was $49.1 million, up 14% versus Q2 of last year and up 24% for the 6-month year-to-date period versus comparable period of last year. We benefited this quarter from the DirectScan booking that John talked about, which is with a new non-leading-edge customer. Our ending backlog includes a meaningful amount of revenue left in this contract, which will be recognized over the years to come. Our volume-based revenue increased 45% versus Q2 of last year, driven by strong gain share and the strength in Cimetrix runtime licenses.

From a bookings perspective, John spoke about the multiple 8-figure and 7-figure deals booked during the quarter, which were across multiple products in the PDF platform. Our business activity with equipment customers was strong, including both secureWISE and Cimetrix. Our total backlog grew to $271 million this quarter, up 10% versus last quarter and up 16% versus Q2 of last year.

Based on what we can see in our pipeline, we anticipate strong bookings momentum for the second half of the year and expect to grow our backlog as we exit this year. It is worth noting as a reminder that we do not include potential future Cimetrix runtime licenses or gainshare revenues in our backlog, and our backlog would be even higher if we included some estimates of these highly probable future amounts.

We reported gross margin of 73% for Q2, which was lower versus Q1 of this year due in part to the higher perpetual software licenses in Q1. We expect our gross margin to increase next quarter towards the higher levels we have seen during the prior quarters, and we have line of sight to our long-term gross margin target model of 77%. Our operating expense for the quarter were up only 5% versus same quarter of last year, mainly to support the increases in R&D expenses, offset by better management in our SG&A resources.

We delivered operating margins of 22% or about 300 basis points higher than the same quarter of last year due to disciplined spend even with the lower gross margins this quarter. We remain committed to our 27% target operating margin model communicated in December. For EPS, we reported profit of $0.27 for the quarter, which was up 42% versus the same quarter of last year and up 49% for the year-to-date comparable period.

Turning to the balance sheet. We ended the quarter with cash and cash equivalents of $114.9 million compared to $31.2 million of prior quarter and outstanding debt of $67.5 million.

During the quarter, we helped Advantest exit their equity stake at a more than 2x return for their investment in PDF shares via a follow-on equity offering, and we're thankful to them for their continued partnership. As part of the equity offering, we sold approximately 1.9 million primary shares and added $81.8 million to our balance sheet.

During the quarter, we generated operating cash flow of $16.4 million and utilized $14.1 million towards CapEx, mainly for eProbe tools to meet the demand we are seeing and to order some of the longer lead time items as we look to future shipments. For each of the next 2 quarters, we expect to spend incrementally higher CapEx than Q2. For the full year, we expect the average quarterly CapEx similar to Q2. The increased CapEx year-over-year is in part due to higher component costs we're seeing to meet the customer demand that John spoke about for the DirectScan systems.

Given the strength of our business, we expect to grow our cash balances this year and end the year at higher ending cash balance compared to Q2, while we also bring down our debt balance via scheduled payments. 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 of 20% for full year 2026 compared to the prior full year 2025.

With that, let me turn the call over to the operator for Q&A.

[Operator Instructions] Our first question comes from the line of Clark Wright with D.A. Davidson.

Roughly a year ago, you noted that the target audience for DirectScan systems was 5 to 10 customers. Based on the conversations you're having today with prospects, has that group expanded?

Yes, it's a good question, Clark. Thank you. We do think it's expanding. That's -- in my prepared remarks, I mentioned that we saw value for a customer that was developing a more mature node. And we do see other customers like them that are developing more mature nodes. And we have been working with them for a while.

This contract was a significant contract for us. It kicked off in the second quarter. And we do see besides them, expansion there as well as expansion with other customers. It does increase the aperture. How much broader it is, I don't know, but it's definitely bigger than what we thought.

Got it. And then it was great to see the acceleration in backlog growth this quarter. Can you talk about the source of growth? And if this is primarily coming from your large existing customers or if there's a broadening across the customer base?

Yes. So some of it is from the new customers, as I alluded to on that DirectScan contract, which contributed to backlog, as Adnan said in his prepared remarks. But also, usually, a good chunk of it is existing customers. As I said, the large 8-figure secureWISE contract was with an existing equipment company extending out for a number of years, their use of the system at a minimum level with growth on top of that.

Got it. And then last one for Adnan. Just could you help me better understand just the components that drove the gross margin contraction this quarter, if we should think about current levels being the run rate for the rest of the year? Or if we should think about expansion back to more of the 1Q levels?

Yes, absolutely. So I think I said this in the prepared remarks, but really, Q1 had some perpetual software licenses, and that is really what drove the difference for this quarter. I also mentioned in the remarks that for the next quarter, we expect the margins to be reverting back to the levels that we are historically used to.

But I think more important than anything, if you remember when we raised our gross margin and operating margin targets, we said that we expect this new target to be achieved at a faster pace than what we took for the last ones. And recall, the last ones took us 2 years. So as long as we're inside of that time window, that remains our goal. And the last comment I made on the call in the prepared remarks is that we have a line of sight to the 77% target model. So stay tuned.

Our next question comes from the line of Blair Abernethy with Rosenblatt Securities.

Nice quarter, guys. John, I'm just wondering on the -- first off, on the secureWISE, to get an 8-figure contract there is pretty impressive. How are you thinking about the market opportunity now for secureWISE that you've had it for a year or so? And just how big do you think that TAM could be?

Yes. We -- when we acquired it, our thesis was that they had really only monetized the equipment vendors. They fundamentally installed all the front-end fabs and then charge the equipment vendors for access. You saw last year, we did -- and it came out at our user conference, a large contract with Intel that standardized on secureWISE.

And they spoke at our user conference that they would make secureWISE available to any equipment vendor that wanted to have remote access at Intel, and they continue to talk about that at their events with equipment vendors about the importance of getting remote connectivity and superior support. They provide a minimal level through that contract.

And then if the customer wants to transmit lots of data -- the equipment vendor wants to transmit lots of data and provide more AI-driven solutions, then they direct the equipment vendor to us. So this has been a great way to us to convince every equipment vendor remote access is possible because Intel has made that possible.

Now with this contract we signed this last quarter, took a very significant customer of ours on the equipment side and commit across all 300-millimeter fabs for a number of years. So that communicates to the equipment industry and secureWISE will be available at any front-end fab that you're going to. Intel also -- as well as other customers started making it available in the back-end test and assembly.

So if you look at what we've done, we started to demonstrate that there is a secureWISE application with the fabs themselves, right? That was in the Intel contract for their own internal use. There is, of course, an expanding capability at the equipment vendors because we are demonstrating that it is becoming a standard that you can count on in most places. And we're extending it into the back end because the production is getting more complex.

We think, as I said in my prepared remarks, ultimately, more and more of that activity on the secureWISE network will just be agents. It won't necessarily be humans. Already, the majority of the revenue comes from data transmission across the network, which is really a key part of the AI pipeline. So how much bigger we think it can grow at least at the company growth rate over these next few years, at least at that level.

Okay. Great. And then just turning over to the DFI. Just maybe talk about the pipeline there, how it's shifted and there's an eval you said in one of the machines that we shipped this quarter. How are you thinking about the ramp there in terms of getting to contracted revenue?

Yes. So we -- I think we've had a very good dialogue with that customer. We know what kinds of things they want to see the machine do. They selected the machine because they thought it had some very unique capability. It is -- this is getting us into the memory market, which is an important step, expansion into the more mature nodes, expansion into memory, we'll look at geographic expansion as we get further through this year, early next year.

So how quickly it converts, I think these things typically take close to a year to convert. So I'm not going to go and speculate on when it will convert, but -- or if it will convert, but we do see this as an important beachhead for us.

Okay. And then in terms of your CapEx, you -- just -- Adnan, I wonder if you -- I didn't catch all of that. Did you say that you sort of felt that the run rate we're seeing for Q2 is going to be the average for the year? Is that...

Yes. Let me clarify that. So 2 comments, 2 parts. One, that we expect for Q3 and Q4, the CapEx to incrementally be higher compared to where it was for Q2. And then you look at the whole year CapEx and just look at an average quarterly amount, the math would say it's similar to where we were in Q2 of this year.

So net-net, spending a little bit more. But I think the key thing to take away is, look, with the strength of bookings, with the strength in the business, even with this CapEx, we are looking to grow cash from the levels of Q2. So that's something we feel good about.

Our next question comes from the line of Christian Schwab with Craig-Hallum.

It's Ben Taxdahl on for Christian here. A lot of my questions were answered, but just one on the eProbe business. We're on target to hit 6 this year, it seems like. Is there -- what's the visibility looking like into '27? And could we ship another 6? Or how can I kind of think about that?

Yes. Well, it's a little -- I mean, we are having dialogues with customers about that now, Ben. I don't know that we're ready to go and communicate what we think 2027 would look like. We have been working with our supply chain to both optimize time that it takes to bring things out, so we have more flexibility. Capacity, we feel pretty good about. We think that they're able to build at a level higher than this. So we feel like we're not limited from a capacity standpoint yet.

And a little bit on supply, the biggest issue has just been around time line and supply chain, as we alluded to costs, particularly around the computing element of the solution, keep going up on the computing side. So we're doing some things there around how do we drive our cost to be a little bit more effective given where memory prices are going and other things like that. So hopefully, by later this year, we'll be able to communicate our targets for 2027 in terms of what we think production will be. But there's potential that we could produce more if we needed to. But for sure, there's the leverage there.

[Operator Instructions] At this time, there are no more questions. Ladies and gentlemen, this concludes the program. Thank you for joining us on today's call. You may now disconnect.

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.

[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 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 31, 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 Kibarian, PDF's President and Chief Executive Officer; and Adnan Raza, PDF's Chief Financial Officer. Mr. Kibarian, 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 Investors 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, Exensio and Cimetrix products were particularly strong. Exensio's strength was primarily from larger deployments, including an enterprise-wide deployment for Exensio Test at a large IDM. Cimetrix 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 1 eProbe in the quarter and anticipate that machine to begin contributing to revenue in Q2.

Our capital investments in eProbe was meaningful in the quarter as we build additional machines to support our goal of shipping 6 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 Exensio 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 8 of the 9 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 PDF's 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 the 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 the 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 10-Q 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 Exensio Test Operations booking to help our customer manage geographically distributed operations, an Exensio 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 were $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, Exensio 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 a 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 2 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 2025 and 25% for Q1 of 2026, we are happy to note that we are making faster progress towards our long-term target 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 eProbe systems and fulfilling the customer demand we have spoken about. Given the demand we are seeing, we expect to increase our CapEx spend 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 closed, 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?

[Operator Instructions]

Our first question comes from the line of Blair Abernethy from Rosenblatt Securities.

Nice quarter. I just wanted to -- John, just maybe if you could give us a little more color on how you're doing with the eProbe, particularly around new customers. What's that pipeline looking like? And you said you're on track for about 6 shipments this year. How much of that is like net new customers?

We expect about 1/3 of them to end up at net new customers and the others to be repeat orders on existing customers. And maybe not all of them directly contributing to revenue this year, one of them may end up being -- will be a demo machine. So probably 5 of the 6 will be revenue generating, 1 will be demo, 2 will be at new customers. The other 4 should be at existing customers, at least as it looks now.

Okay. And looking ahead to 2027, I know, it's only May here, but how are you thinking about how the pipeline is developing for next year?

Yes, it's a great question. We do see quite a bit of interest. We are trying to build as many additional machines as we can, right? We've committed to 6. We are looking to do -- see what we can do about additionals. We do have interest to be able to ship additional demo machines and it is gated by our ability to -- how we look at executing. But what we don't get to this year, we will start serving next year.

Okay. Great. And then just on the secureWISE, how is that pipeline developing on that side of the business now that you've had it for a year?

Yes. So a couple of things have happened. First of all, as I mentioned in my prepared remarks, we started making -- providing service directly to the fabs. What we found was fabs also have people all around the world. And the security features that secureWISE provides, the ability to have a log of who was looking at what data when and what machine when auditable for a couple of years is very valuable even when it's within the same company. So starting last year, we started selling to the fabs.

At our user conference, Intel talked about how they standardize on secureWISE. What that's also done has gotten a lot of the equipment vendors who -- when we bought the company, the largest equipment vendors of the world were the heaviest users of data for secureWISE and also the biggest customers because they had developed the most services, usually related to AI, that provided value by taking the data from the machines, analyzing it at headquarters and providing back updated models and value-added capabilities.

But every equipment customer wants to be able to do that, company wants to be able to do that. And I think the Intel announcement gave a number of other equipment companies the realization that this was going to become more available. And so we've started picking up and have quite a deep pipeline to expand the business with, what I would say is, secureWISE classic, the business with equipment vendors. Also, we've been picking up more business with the fabs.

And as I said in my prepared remarks more recently, as we look at the OSATs and the fabless and even the foundries as they go out to those facilities, we start getting interest in people connecting front-end to back-end as advanced packaging becomes more important, back-end packaging to the fabless as the testing and production is becoming more important. So we've got pilots ongoing to bring secureWISE out to that part of the community too, leveraging on the fact that we already had DEX services there, which was our own historical system, to many of the OSATs as well. So it's been a natural extension to bring the secureWISE additional capabilities it provides out to that part of the market. And now we're going into that. So that's kind of our big activity for the second year of our stewardship of the product.

And our next question comes from the line of Clark Wright from D.A. Davidson.

Awesome. Well, I would just like to start maybe the question for Adnan here around the CapEx guidance that you provided with the step-up that we saw in 1Q. Could we maybe parse through if that's demand-driven, where you're seeing CapEx upfront in order to supply eProbe systems later this year? Or if there's anything that's more related to the long-term objectives of that business?

Yes. I think as you have heard in our prior remarks and us confirming today, 1 out of the 6 machines that we targeted for this year getting shipped. If you look at our installed base that we've spoken about, 6 machines through the end of last year and then shipping 6 this year, that's a meaningful step-up that we're trying to get to this year. And that spend is to make sure that we are positioned well to meet that demand. Somewhat of it is, starting to think about the future, but it's mostly related to the current demand that we are needing to meet for this year.

Got it. And then additionally, last year, 53% of revenue came from the top 3 customers based on your disclosures in the 10-K. Can you provide any color on the conversations you're having right now? You referenced numerous times the points around demand and interest. How do you expect these large relationships to grow this year? And if there's any upside potential opportunities within that customer base?

Sure. Always our business, the largest bookings have -- it's an 80-20 rule, right? The top 20% drive a high percentage of the bookings volume typically. And we expect that again this year. You are correct that it is broadening in terms of the number of types of customers. Before we had secureWISE, very few of the equipment companies were in our top 20 list. Now we have equipment companies in the top 5 list, and that is growing quite meaningfully.

Also, we see with what we're doing with Exensio, a lot of opportunity to expand in the, I would say, the core fabless and merchant semiconductor IDM list. So we do expect this year the bookings to broaden out. We do have a couple of customers that are very large -- significant customers that we do expect renewal bookings this year too. So the exact ratio, Clark, I'm not so sure about, but I think the volume of bookings this year will have a mix of maybe weighted a little bit more in terms of numbers of newer significant customers. In terms of dollars, probably the repeat customers may be some of the bigger dollar amounts.

Got it. That's helpful. And then one last thing, as I was going through the Q, I just wanted to kind of understand the margin implications. It looks like Gainshare and Advantest revenues were down year-over-year. And just trying to understand if the margins we see today would benefit from increased share there or if you're not expecting any additional Gainshare revenue going forward, at least on the growth side?

Yes. So the volume-based part of the business is at least in our control, how volumes -- how customers ship volumes, how much data they use and how much wafers they ship. And so that is relatively volatile. We don't put that in our backlog, right? Yet we know it's always going to be there. It does always -- when that's significant, it does really help with our gross margin.

So Obviously, to achieve the 76% gross margin that we achieved this quarter, while that number was down, really speaks to the overall scale of the business overall and why our confidence and why we believe we can meet or exceed the 77% long-term target, maybe in shorter time than the typical 3-plus years that people would typically set for a long-term target and recognize we just set that target in December. So I mean, the way we looked at it was we know people will start -- we will be shipping. We will start seeing those volume-based numbers go back up. And as they come back up as well as the scale in the rest of the business, we do expect to meet and exceed our gross margin targets.

Our next question comes from the line of Christian Schwab from Craig-Hallum.

This is Ben Taxdahl on for Christian Schwab here. Great quarter. I just want to go back to those targets and tracking a little bit earlier than expected. I know you just mentioned it's early still, but I mean, could we kind of expect this getting to those targets to be a '27 event? Or could it be a little bit longer?

So if you look, you know, our 2023 targets were 20% revenue growth, 75% gross margin, 20% operating margin. And within 2 years by 2025, really just in Q4 of 2025, we exceeded all those numbers, I believe. It was the first year that we exceeded them. We then set new targets for, again, 20% revenue growth, but now on a much bigger base. 77% gross margin and 27% operating margin. So I think people were surprised at the big jump up in operating margin going from 20% to 27%, while gross margins were going from 75% to 77%.

And that was in part because as we start getting scale, we felt that, the R&D leverage you start getting becomes significant. The G&A leverage you start getting becomes significant. And now if you look at the first couple of quarters, right, we're now at, let's say, 24%, 25% on that operating number. So we've made reasonable progress to that 27%. We're at 76%. So we've made some progress from 75% to 77%. We're starting to get there as well. And we do think we can get there sooner than the typical 3 years and probably sooner than we did the last time. How much sooner? We're not quite ready, Ben, to say how much sooner. We'll see how the remainder of the year progresses. But we're super confident that this will come in strong and quickly. It's not going to take us typical 3 years for a long-term model.

Okay. Great. And then one question, one more on ePro. You talked about the 6 this year. How many -- I mean, where could that be in '27, '28? Or how big of an opportunity could this be over a multiyear period? A little bit more color on that.

Yes. It's a question that we're getting our own hands on. What I can tell you, Ben, is right now, the majority of the machines are subscribed, and we expect them to stay subscribed over that time period anyway. And what that means is that, it's not like a capital purchase where we have to go and start from zero every quarter. We build from that base. So our base exiting last year was 6 machines, but 5 of the 6 on a subscription. We expect to end this year with approximately double that on a subscription basis. So about 10 of the 12, one in demo and one that was purchased.

So that means that we keep on building that foundation. If we can sustain a slight modest growth in the number of machines we ship each year, we can get substantially more revenue growth right, than that because they -- all of them -- all the previous machines are still -- or the majority of the previous machines are still contributing revenue. So we do believe as you look out over '27 and '28, even if all we do is maintain this level, it is -- the eProbe continues to be a very important part and growing part of the business.

Now we think the total market for e-beam has been talked about by others, is the fastest-growing inspection product category in the front end because so many of the nature, so many of the defects are now 3-dimensional in nature, and e-beam is the most efficient way to look at 3D defects. And we feel we have a very unique capability there. So the overall market is quite substantial. Depending on who you listen to, it's on the order of $1 billion market. You'd have to flip that to a subscription market versus a perpetual market. So you might look at that a little bit differently if you model that on a subscription basis. But it would stack up over time. And it is a meaningful market.

And our next question is a follow-up question from the line of Clark Wright from D.A. Davidson.

Hi there, just wanted to jump back in and just ask one on the leading-edge players and your relationships with those. I know during the Investor Day, that was a point of emphasis that you were making from a go-to-market perspective. Could you provide any update on the initiatives that you're putting in action in order to gain share with those fab players in the broader ecosystem?

Yes. Sure, Clark. I mean, a few things. I think the previous question that Ben had about the eProbe is a significant part of it. There's a big emphasis there. The eProbe tie-in to design is increasingly important for our customers. I'd like to understand exactly what the -- when the eProbe find things, exactly what about the design made that interacted with the process. So some AI capabilities that we're building into the eProbe for that. Customers love that because the eProbe has to grok the entire design, not just the layer it's looking at, but how that layer is connected to every other layer.

Secondarily, in my prepared remarks, I talked a little bit about AI integration with Exensio and the releases that we're making this year. One of the targeted areas is the ability to interpret and understand the data coming off our test vehicles. Our test vehicles are the most -- in the industry, probably the most widely used and very detailed. And they have thousands of experiments in them. And of course, the engineer has to know how to go through and look through all of that. And obviously, you can see how AI could play a very important role there to find the critical signals, interpret that, tie it into layout.

So the way that we're going back and showing customers why they want to do more with our vehicles and systems is in part that AI integration with the Exensio module that does -- called Exensio Characterization that does the interpretation of the CV data, the characterization vehicle data. Sorry, for all the PDF acronyms there. And so that is a big piece of what we're doing in terms of driving from a product innovation standpoint.

And then lastly, of course, partnerships in the industry, collaborations are always places where our systems turn out to be very valuable because you're able to share data, share analytics, understand how to work together, whether that's secureWISE, the characterization vehicles, Exensio itself. These are all points of systems that we provide to customers that are looking to collaborate. In this environment, more and more collaboration is needed. And so it's a great selling environment for us for that capability on the leading edge.

[Operator Instructions] At this time, there are no more questions. Ladies and gentlemen, this concludes the program. Thank you for joining us on today's call.

Good day, everyone, and welcome to the PDF Solutions, Inc. conference call to discuss its financial results for the fourth quarter and year-end 2025 ending Wednesday, December 31, 2025. [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 demand for its solutions. PDF's actual results could differ materially. You should refer to the section entitled Risk Factors on Page 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 the information available to PDF today. PDF assumes no obligation to update them.

Now I'd like to introduce John Kibarian, PDF's President and Chief Executive Officer; and Adnan Raza, PDF's Chief Financial Officer. Mr. Kibarian, 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 fourth quarter and full year, please go to the Investors section of our website where each has been posted.

2025 was a transformative year for PDF. In my prepared remarks, I will summarize our current positioning, key achievements in the year and our major goals. I will also comment on the near-term business climate and our expectations for 2026. After Adnan's remarks on our financial results, we will take your questions.

As we discussed last December in our Users Conference, there are semiconductor industry trends that have established PDF's opportunity today and in the future. IC manufacturing processes, both in the Wafer Fab and Assembly are creating more complex 3D structures. IC companies have moved from providing components to systems. The complexity of system manufacturing, particularly of 3D components is driving the customers to look for new ways to characterize, analyze and control production.

As the industry rapidly scales to over $1 trillion in revenue, it is building manufacturing operations around the world. To operate effectively, these facilities need the collaboration of engineers and systems from the entire ecosystem of suppliers, factory operators and customers. In our industry, this means moving from a people-centric approach to an AI-driven collaboration.

Finally, the chip industry is a critical driver for AI and increasingly needs to benefit from AI to keep up with the demand. These drivers, 3D manufacturing, supply chain complexity and AI present a significant opportunity for PDF to reinvent itself again. In the first half of this decade, PDF Solutions growth stemmed from our transition to an analytics platform provider. Since 2020, the company grew at approximately 20% compound annual growth rate and expanded its gross margins from the mid-60s to the mid-70s and its operating margins from basically breakeven to 20%.

As we enter 2025, we believe the trends that enabled our growth as an analytics platform were accelerating greatly because of the impact AI is having on the IC industry. This acceleration meant that our customers needed us to evolve from providing an analytics platform primarily used by each of our customers independently to increasingly becoming a platform for AI-driven collaboration, both across the enterprise and across the supply chain.

Our actions in 2025 spoke to our conviction of this vision. For our customers to leverage AI to drive collaboration within their organization and across the industry, they needed orchestration systems to enable aligning operational processes, sharing data and driving coordinated actions. In 2025, we signed multiple contracts with our customers to deploy our Sapience Manufacturing Hub, including a contract in the fourth quarter. Sapience Manufacturing Hub initiated from our partnership with SAP enables collaborations between engineering, manufacturing operations and finance.

As our customers drive AI collaboration to their suppliers and customers, they need a secure connectivity layer. And in 2025, we acquired secureWISE, the leading connectivity platform that connects equipment vendors to the fabs.

Under our stewardship, we recommitted to the core secureWISE customers, for example, closing an 8-figure contract with one of the leading equipment suppliers. We also began expanding applications with foundry customers, closing an 8-figure contract with a multinational IC manufacturing company to enable collaboration across their enterprise. As we further integrate secureWISE with our DEX network at OSATs, we are expanding collaboration to include the fabless.

While orchestration enables larger data sets and the need to operate near real time, we realized it was important to also reinvent analytics. Our customers' challenge include aligning, storing and leveraging data to make decisions often driven by AI. We undertook reinventing 3 critical components of Exensio.

First, we are enhancing our data model to support new use cases where the Exensio database would be used for applications beyond the native analytics it provides.

Second, we are integrating an AI operations platform for data science within Exensio, so customers can use the PDF Solutions platform to build and deploy their AI pipeline.

Third, we are releasing Exensio Scalable Analytics, which is designed to enable engineers to interact with data sets that previously could only be processed in batch.

Progress on all 3 of these initiatives was demonstrated in 2025. In the third quarter, we announced a large 8-figure contract for Exensio Enterprise that included advanced database AI operation capabilities and scalable analytics. Also in the third quarter, we announced that we licensed the source code for Tiber AI Studio, which was previously known as cnvrg.io from Intel and began selling it as Exensio Studio AI.

Exensio Studio AI is designed to enable AI scientists to use the data in Exensio as they develop and deploy pipelines at scale and across the secureWISE network to their suppliers. This is particularly valuable for our customers that have multiple test insertions as is the case with advanced packaging.

In Q4, at our Users Conference, we announced Exensio Scalable Analytics. We demonstrated the ability for engineers and algorithms to interact with data sets that were previously only possible to process in batch. Intel spoke about the advantages of Exensio Enterprise and Exensio Scalable Analytics at the same conference.

Finally, to collaborate and populate an analytics system and AI models, our customers need data. In that regard, in 2025, we expanded our Cimetrix Connectivity business, achieving record runtime licensed revenues.

Also, in the second half of the year, we shipped 2 eProbe inspection machines to a manufacturing site for one of our customers. In conjunction with our Fire and Exensio software, this enables customers to ramp and control production of advanced 3D products through an application we call DirectScan. This customer is now able to improve production control and yields by identifying new production issues in line using the DirectScan system.

So while we started the decade as a provider of analytics platform that benefited from the unique data generated from our Characterization Vehicle test chips, we ended 2025 having greatly expanded our platform to include our orchestration layer and our manufacturing solutions while reinventing the core analytics platform. As a result, we achieved record total revenue in 2025, 22% growth over the previous year and grew our gross and net margins as we benefited from scale.

Our goals for the next phase of PDF Solutions growth are to establish orchestration, analytics and the data component of our platform across the industry. As we discussed at our Analyst Day, we believe this will enable us to continue to grow at 20% CAGR while expanding our margins.

As we begin 2026, we see a market whose need for AI-driven collaboration is accelerating. Activity with customers has been at an elevated level across our fabless, fab and equipment customers. We see opportunities in logic and advanced memory for our Characterization Vehicle and DirectScan systems, including both in R&D and manufacturing. We expect to nearly double the number of eProbe machines in the field this year.

From an IDM and fabless perspective, we anticipate increased customer activity, particularly in the second half of the year as we release more capabilities building on and expanding Exensio Scalable Analytics and Studio AI.

Given our strong portfolio of secureWISE and Cimetrix products for equipment control, connectivity and remote access, we anticipate continued growth within our equipment customers. As a result, and even without the benefit from the inorganic growth that we experienced in 2025, we anticipate 2026 revenues to grow consistent with our 20% long-term growth target.

I want to thank customers, employees, contractors and stockholders that helped the company achieve its success in 2025. I look forward to working with all of you to make 2026 even better.

Now I'll turn the call over to Adnan for more detailed comments on our results. Adnan?

Thank you, John. Good afternoon, everyone. Good to speak with you again today. We are pleased to review the financial results of the full year and the fourth quarter of 2025.

As John said, we posted our earnings release and a management report in the Investor Relations section of our website. We expect to file our annual report on Form 10-K with the SEC by the end of February after our 2025 audit is complete. As a result, all financial results described in this call should be considered preliminary and are subject to change to reflect any necessary adjustments or changes in accounting estimates that are identified prior to the time we filed our 10-K. Please note that all the financial results we 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.

We are pleased to again report record quarterly and annual total revenues. We finished the year strong with Q4 total revenues of $62.4 million versus $50.1 million in the same quarter a year prior. We are pleased that our total revenues for the quarter grew 25% year-over-year, ahead of our long-term growth rate target model. For the full year 2025, we generated record total revenues of $219.0 million versus $179.5 million in 2024, a 22% year-over-year increase and consistent with our guidance for the full year.

As you will recall, at our Analyst Day in December 2025, we previewed plans for a new presentation of revenues, breaking the total into Platform and Volume-based. For a different insight, we also disaggregate total revenue into 2 different categories of Recurring and Upfront. Further description of these categories is provided in our 8-K filed today.

Platform revenue for the fourth quarter was $52.5 million and up 20% versus Platform revenue a year prior, driven primarily by contributions from bookings -- booking the new contracts that John spoke about. Volume-based revenue for the quarter was $9.9 million, up 58% versus Volume-based revenue a year prior, driven primarily by Gainshare and secureWISE.

On an annual basis, our Platform revenue was $181.0 million, up 15% on a year-over-year basis, while Volume-based revenue of $38 million was up 70% year-over-year, driven by patterns similar to what we saw during the last quarter of the year.

Recurring revenue for the fourth quarter was $61.1 million, up 62% versus the same period prior year. And for the year was $205.1 million, up 41% year-over-year, driven primarily by CV systems for the leading edge and secureWISE.

Our Upfront revenue was down annually for the comparable quarter and full year basis, driven primarily by the fact that in the fourth quarter of 2024, we had completed a CapEx DirectScan system sale.

2025 was an important year for PDF Solutions on many fronts. We completed our largest acquisition ever of secureWISE, finalized the licensing of Tiber AI Studio to combine with our recently announced product Exensio Studio AI and shared our product progress and road map during Users Group and Analyst Day conference. We're thankful to the many customers who spoke about PDF's breadth of product lines and the strategic relevance to their organizations.

On the bookings side, we also are pleased that during the year, we were able to book new deals for Sapience Manufacturing Hub, a large deal for Exensio Analytics and a secureWISE deal with a new customer. We also shipped 4 DirectScan systems during the year to our customers, expanding their use of these tools into manufacturing. We are pleased that we ended the year with $254 million of backlog while delivering on strong revenue growth of 22% for the full year.

For the fourth quarter, our gross margin came in at 77%. Operating margin was 24%, and we reported EPS of $0.30 per share. On a full year basis, our gross margin came in at 76%, operating margin was 21%, and we reported EPS of $0.94. It is worth noting that we exceeded our prior long-term target model of 75% gross margin and 20% operating margin for 2025 on a full year basis, with the reported 76% gross margin and 21% operating margin. As you will recall, we recently revised upwards both of our target margin targets to 77% for gross margin and 27% for operating margin at our Analyst Day in December 2025.

Turning to operating expenses. We managed to grow our operating expenses at a slower pace than our revenue growth for both the last quarter and full year basis, which allowed us to expand our operating leverage. On a full year basis, we grew our R&D expenses by 23%, primarily from direct hires and subcontractor spend while managing SG&A spend growth to 14% with better focus on presale spending. We continue to believe we can grow the needed R&D investments and manage SG&A spend such that with revenue scale, we continue to expand our operating margins towards our target model.

For the full year 2025, we reported EPS of $0.94 a share and EPS growth of 12% versus prior year EPS of $0.84 per share. During the year, we generated positive operating cash flow of approximately $24 million and spent approximately $33 million on CapEx, primarily related to our DirectScan systems and $0.2 million on share buybacks. We also spent approximately $130 million on the acquisition of secureWISE, funded with a combination of $70 million debt and balance sheet cash. We expect to spend an approximately similar amount on CapEx during 2026 compared to 2025 and expect to generate increased levels of operating cash flows during 2026 compared to 2025 as we grow our revenues and expand our margins.

Turning to the balance sheet. We ended 2025 with cash and equivalents and short-term investments of approximately $42 million. Our ending debt balance is approximately $68 million, reflecting the amortization payments during the year. We are pleased with another year of positive operating cash flow generation consistent with our history, paying down our debt and funding the CapEx while growing our quarter-over-quarter cash balance.

In summary, we are proud of our performance in 2025 and over the long term, remain committed to our target long-term model we set at our Analyst Day in December of 20% year-over-year total company revenue growth rate, 77% gross margin and 27% operating margin.

Now turning to our financial outlook. For 2026, we look forward to another year of growth. To reiterate John's comments in our press release, for the full year 2026, we expect the annual growth rate of our total revenue to be consistent with our 20% target model.

With that, I'll turn the call over to the operator to commence the question-and-answer session. Operator?

[Operator Instructions] Our first question comes from Blair Abernethy with Rosenblatt Securities.

Nice quarter. Just wanted to -- maybe we could just start with the DFI. So just to level set, Adnan, you said 4 DirectScan systems were shipped in the year 2025. Was that correct?

Yes, correct. Consistent with what we have spoken throughout the year, you're absolutely right, 4 were shipped during 2025.

Okay. And so what -- so -- and then in John's comments about have 2x as many in the field this coming year. Is that -- so is that 8? Or what is the total field count today, I guess, is the question?

Yes. Remember, we had also done a CapEx sale. So total in the field today is 6. So when we think about next year, you should contextualize John's comment with that. And John said nearly that many. So that's the way I would think about it.

Got it. Got it. Okay. And then on the CapEx spend, so it looks like in your supplemental, you said it's around $32.8 million, just under $33 million in 2025. So is that -- how has that come in over '26? Is it front-end loaded? Just kind of some sense of -- and what are you using it for?

Yes, we'll try to manage it evenly during the year. This year, as you saw, there was a little bit of an uplift towards the end of the year. But next year, we think it's probably even. In between a quarter, is there a little bit of variation maybe towards the middle of the year? That's possible as we look to place some orders in advance. But even give us some room towards the middle of the year.

Okay. And is -- does that -- I mean, is that positioning you for '27? Is that what this is doing? And I guess, I know you don't want to give guidance for '27 at all, but do we -- should we think of it as this is going to be the level for a while? Or just give us some sense of how much is going to be required.

Yes. I'll take that one, Blair. So yes, we -- obviously, a lot of the capital that we spent in the second half of last year was for machines we expect to ship in the first half of this year. The machines are disproportionately now on subscriptions, and we hope to maintain that again this year.

So as we modeled out our long-term targets that we provided in December, we thought, okay, even if we stay at this level, but keep machines on subscriptions, you get this installed base of machines over time that all contribute. So we kind of built out assuming we stayed at this capital level and could sustain our growth. We obviously will look to increase our penetration in the market. But because of the subscription model, it becomes a workable model over time with this approach.

Got it. Got it. Great. Okay. And then just if I could, just over on the SAP relationship. I think you mentioned there's another deal there. Just how is that going? And just sort of what are your expectations for next year from that partnership?

Yes. So we continue when we meet with customers, we see increased needs for orchestration, as I said in my prepared remarks, for folks to be able to truly apply more automation, more AI to their operations, you really need that those connections between the major systems. No one is going to build the perfect database that has all information from their financial systems, their operation systems, their engineering.

And then the whole purpose of Sapience is the world -- you want a consistent way when you, let's say, do costing from a finance perspective that how you look at machine time on the equipment. So you need to be able to define these orchestrations in the way you take very complex data in the operations side and summarize it for finance and vice versa. So we continue to work with SAP. And increasingly, we're talking with the system integrators as well. And you probably saw some of them present at our Users Conference around ways we can jointly market that solution.

But why we like it is it gives another reason why folks want to keep engaged with us on the Exensio side. If you listen to one of the speakers at our Users Conference, they talked about, well, if one part of the organization is using Exensio, then it makes sense to use Sapience because 1/3 of the data, if you say the engineering data is in Exensio, the operations data in their MES system and the finance data in ERP, then you kind of have kind of 1/3 of it already kind of taken care of for "free."

So through our partnership with SAP and the SIs, we expect to kind of build on our installed base and engineering to get to the other parts of our customer organization. If you look at the contracts for Sapience, they typically are part of the finance team's spend and the contracts for Exensio are typically the engineering team, our operations team spend. So it allows us to kind of touch and tap into another part of the organization. And we do expect selling throughout this year, just to summarize.

Okay. Great. Maybe just one quick one for you, Adnan. Just -- so how should we be thinking about your balance sheet, your debt levels over the next couple of years? Should we -- are you comfortable with the debt where it is? Are you looking at sort of paying it down again? What sort of what should we be modeling there for capital allocation?

Good question. Yes. So look, I mean, the debt, A, is structured at good rates; B, with the interest rate cuts, that's helping; C, we are a cash-generating history entity on the operating cash flow side. And we've been careful about where we needed to make the investments. I mean, Q3 to Q4, you saw us build the cash.

So naturally, we will pay off the required amortization levels of the debt. But beyond that, I think we're going to carefully balance, of course, the spend on the CapEx and also try to build back the cash balance on the balance sheet before we start to think about any massive payback on the debt.

But of course, our goal remains that we get out of the debt situation. We never had a -- we've had a history of not having the debt, and we'd like to get back there. So prioritizing with the other priorities and getting back to a healthy cash level and then beyond that, start paying debt, I think, with the expanding margins positions us well to start heading in that direction.

Our next question comes from Clark Wright with D.A. Davidson.

First off, great quarter. Would love to understand a little bit more about the new methodology around describing revenue and partially around your expectations for growth on the Volume-based revenue going forward? And how should we think about the cross-selling opportunity of secureWISE as we think about normalized levels going forward in 2026?

Sure. Maybe I'll take the beginning part and have John jump in on the second piece. So look, many of you have been talking to us about trying to understand the business a little bit more. So that was partly the motivation for breaking it out into the Recurring versus the Upfront.

And then secondly, on the Platform versus Volume-based, if you think back over the last 5 years, the business has evolved. Prior to when we did the Cimetrix acquisition, the business was probably more platform -- was more platform-based. So as we acquired Cimetrix. And as we now have acquired secureWISE and over the years, we've also enjoyed and continue to enjoy the Gainshare.

It made sense to count those 3 pieces of Cimetrix, largely the 3 pieces of obviously full definitions in the 8-K, but largely the 3 pieces of Cimetrix, secureWISE and Gainshare in our Volume-based revenue, which is -- another way to think about it is it's a revenue that will [indiscernible] to our benefit based on customers' own changes in their business, and we're happy to get that. So that's the Recurring versus Upfront and then the Platform versus the Volume.

Yes. So I think just also it kind of helps you think a little bit. The Volume revenue is typically not in our backlog. We don't have a backlog for Gainshare or on time licenses or the data usage on secureWISE. So we thought it would give some visibility on the part of the business that's really tied to our customers' success with our products, if you think about those 3 elements. And the other one gives you kind of an understanding about the part of the business that kind of is related to the backlog. Just we used to break out IYR and analytics, but then IYR became such a small percentage of the business. We felt it wasn't very instructive for the shareholders, like stockholders. So that kind of gives you the first answer, Clark, if that's adequate.

And I can go on to your question about the cross-sell on secureWISE, if you like.

Yes. I mean that's helpful. Just would love to understand just going forward, just given the fact that it grew largely because of the secureWISE piece, how much of that should we be thinking about secureWISE versus what the organic growth rate is of that business?

Yes, we're not breaking out within those pieces. Look, I mean, if you go back and do the calculations, you'll see Platform revenue for us over the last many quarters even that we are sharing in the supplemental has been north of 80%. The Recurring revenue is north of 90%. So it's definitely above those levels. Overall, we'll continue to make sure that the business performs on an aggregate basis...

I think a little bit of the growth on the volume base, Clark, was Gainshare was up quite substantially in 2025 over 2024. And yes, you had the contribution from secureWISE. And actually, as I said in my prepared remarks, we had record runtime revenue licensed revenues for Cimetrix as well.

So fundamentally, because the industry is at a relatively elevated level, all 3 of those things were contributing pretty meaningfully to that growth number. It wasn't just secureWISE. I think [indiscernible] part of it, but not all of it at all or nowhere near.

So then I think to get to your second question on cross-sell, there's quite a few things we're doing. If you look at our runtime licenses and SDKs for Cimetrix business, we give the equipment company a development kit, so they can use our libraries and software embedded in their equipment to control the screens, the operator, the communication with the factory execution systems and the communication with the factory analytics systems, often things like Exensio.

So secureWISE also provides an agent that runs on the equipment that allows for remote communication and full control of what data is shared between the equipment through the factory to the equipment vendor that the factory controls, the factory decides which engineer is able to see what data, which knobs are about to change on the tool, what data goes to the factory at what cadence -- the equipment vendor at what cadence. So the first obvious thing that we're doing is including the secureWISE agent on -- in the Cimetrix software development kit.

Just to put it in perspective, in 2024, I don't remember the numbers 2025, over 8,000 tools shipped with Cimetrix Connectivity. And that is -- that's more tools than any single equipment vendor shipped. And it grew in 2025 over 2024. So this means that the secureWISE agent will be available on a lot of equipment. That's a big value to our fab customers who want to be able to use this stuff, and they're hoping that the equipment comes preconfigured.

So if you look at the contract we signed in the second or third quarter -- second quarter with an 8-figure contract with the fab, they were one of their things they saw was, hey, you're already working with all these equipment vendors. You can make sure the equipment comes into our factory, at least the new equipment, preinstalled that will then save us time and effort. So that's the first place.

The second piece that we're seeing is secureWISE is in virtually every 300-millimeter factory in the world with a couple of exceptions in China. So I would say 99.9 something or 99.5 or whatever it is the fabs in the world, 300-millimeter fabs in the world. But a lot of equipment vendors don't have access to it and a lot of the fab engineers can't use it. And now because a lot of our customers are building fabs around the world, they also need to have remote connectivity and the audit capabilities that secureWISE provides. So we're going back and making it available to the fabs themselves. And these are these contracts that we're signing that help the fabs also take advantage of the system. It's another cross-sell opportunity.

And then thirdly, as I said in my prepared remarks, a lot of our equipment customers are now starting to sell into the assembly facilities and the OSATs as the advanced packaging becomes more sophisticated. The fabless companies also want to be able to get more data than just their tester logs from the OSATs themselves. And the OSATs are running our operations around the world, too, as they're being asked to stand up factories in Arizona and Japan and other places. So now we're starting to connect -- we're going through and integrating DEX onto secureWISE, which was our network for the OSATs because secureWISE has a lot of advanced capabilities that DEX did not have and making it available to that community as well. And that's the third and the longer pole in the tent because that's involving deploying at OSATs and integrating of our 2 products.

So that kind of gives you just what we're doing with the product so far.

No, that's super helpful. And then the only follow-up I have is just around -- you made a comment during the prepared remarks around logic and memory and the role that PDF can continue to play where we're seeing significant bottlenecks that look like there's no end to. Would love to understand how PDF is continuing to build this value proposition for specifically that client base.

Yes. So I think we've, for a long time, been involved in the advanced logic fabs, and we continue on that. We do see a number of activities this year and even some for test vehicles and DirectScan, eProbe, even in some more mature, I think nodes that you consider slightly more mature on the logic side as people are trying to expand capacity.

On the memory side, we've been engaged in a couple of pilots with customers on DRAM. And we expect that to ramp up this year with at least 1 or 2 of those companies as we see very positive results. And we -- I think as the DRAM is also becoming more and more 3D, they're also doing both DRAM and flash bonding of wafers, wafer-wafer bonding, the need to be able to do an electrical inspection is increasing. So we do see a number of opportunities there as well.

Overall, we believe manufacturing in semiconductors is increasingly strategic for countries. So it creates the need to put factories in many countries and around the world, and the demand for semiconductors is quite substantial. The characterization capability, the DirectScan, the secureWISE networking capability and the analytics will increasingly become important to our customer base. I think we've had a lot of really exciting conversations with customers in this first month and a week or whatever this year around new opportunities for our -- for our systems.

[Operator Instructions] At this time, there are no more questions. Ladies and gentlemen, this concludes the program. Thank you for joining us on today's call.

So for those on the broadcast, just letting you guys know we are now live in session.

Okay. So we're live. So I want to thank everyone for either attending on the webcast or coming in person. We do really appreciate that. And also for those of you that flew in from out of town or from -- drove down from the city or whatever, we do really appreciate any level of commute that you made. It's not easy to get around these days. And I think some of you came from the East Coast and maybe you -- [indiscernible], so that's a positive side of that.

We're going to go through our Analyst Day briefing. We do this every 2 years. So the last one was 2023. And I will start it off. Adnan will pick it up, probably go over the parts of the slides that you really want to see anyway. And then we'll get back into Q&A, and Kimon, Adnan and I will answer.

So basically, themes for today. Hopefully, you thought if you're attending here this morning, and I think it's relevant to both our investors and our customers. The semiconductor industry is evolving into this 3D era, I call it. I mean -- and we are looking to be a $1.1 trillion industry by 2030, if you look at the semi numbers or handheld numbers of IDMs. And we think when you look at that, that means the industry does need a unified analytics platform. You probably saw with the discussions we had in the meetings today about what we're doing with secureWISE and generally the way that we're looking at the orchestration products.

Our mental model many years ago, we started on this idea of putting Exensio in the cloud first around 2019, we first started attending -- bringing that out to customers. At that time, I thought was once you get the system in the cloud, you want to then make it usable by everybody else. And if you noticed, we hired our first partnership person, Bill Lee, I think, is in the audience, and to start our partnership program in 2020 because it's like, okay, once you've gone through the trouble of getting your manufacturing data in the cloud, then you want to start using it with other systems. And we then evolved that to then think about how do you then access the tools that we operate on. That was why we acquired Cimetrix, why we started thinking about the partnerships with folks like Advantest and Teradyne and how you actually can work with the tools first in test, but then more broadly across the entire test platform.

And then with secureWISE, what we realized was you could have great stuff going on in the fab and at the floor and you got great stuff in the cloud, but if these 2 can't talk, then you can't get stuff done. And secureWISE really was another piece. And our mental model in all this is that eventually, PDF becomes a platform for the industry. And every customer has their own instance and their own capability, but it's connected to every other. And you saw that in Aziz' presentation, if you attended this morning, where their vision about why they went with Exensio and PDF was because they know a lot of the fabless customers they covet also use it. And they could provide a better level of connectivity between themselves and their customers if they can both communicate on Exensio. And that's really getting us to why we think the reaffirmation that the industry does need a unified analytics platform.

And today, we are the largest independent analytics platform business out there, not attached to something else. And we think we're growing in industry relevance. So these are the themes for today. We'll talk about what that means for our stakeholders a little bit later.

These numbers are from IBS and Handel. This shows about a 10% CAGR. This morning, I showed at 12% if you go back to a little different time period. But in the end, whatever it is, it does mean about a $1.1 trillion business, where 67% of all silicon really is related to AI, but not just AI in the cloud, greatly in the edge. And that's where most of the growth actually is. And when we see this with our customers, it is a tale of 2 worlds. Our customers that are not as exposed to what's going on in AI are growing less fast than our customers that are.

Tonight, the fireside chat speaker is going to be Tom Caulfield, who is a great speaker and a great friend. And Tom pointed out -- like I've heard Tom point out a number of times, it took our industry about 60 years to achieve a $500 billion in scale. And in the next decade, we will achieve the next $500 billion of scale, right? And that's pretty staggering. And it gets, as I said this morning, through 3 different -- really big different things that we think have to come in. One is innovations in 3D; a much, much more complex supply chain; and leveraging AI to drive efficiency in manufacturing.

3D, again, as I said this morning, it's important to remember this, it is not just in the packaging world, it is also very much in the front-end factories. I know we talked a little bit about wafer-to-wafer stacking for backside power. But also if you look at 3D NAND, 3D DRAM, everything is looking at more applications for wafer stacking in the back of the room here is SW Sun, who's also a good friend of ours. And SW really what he did at XMC was really the first wafer-to-wafer stacking on vertical NAND. And I think that innovation is happening across the industry. That really does mean the way you think about manufacturing is changing greatly.

These 2 drivers are a big part of the drivers of our innovation on what we do on characterization that includes the e-beam capability, what we do on data feed forward and the analytics capability because you have a lot more sharing across the production flow.

I think our industry always felt like we were not appreciated kind of the roving danger field of the world, the chip industry was never appreciated that much, right? And now we are strategic. And what does that mean? That meant governments started investing in facilities and factories. It also means that governments have a lot to say about the supply chain. One of the things that we see is increasingly important for our customers is the way we manage and handle data and data governance. Most of our customers sell around the world, most of our customers have people around the world, and most of our customers have operations around the world. That means how we store and protect their data and what protections we have on individuals for the European engineers or employees is different than their Japanese ones or their American ones or their Asian ones in China and also data governance. When you look at secureWISE and providing a network, data coming off tools in China often has to stay resident in China on that network, even though it's coming -- it's being shared between an OEM and a factory. And this is, increasingly for us, we think, something where PDF is building a capability, and more and more important, a point of differentiation.

Lastly, when you look at what's going on, because we're looking at building fabs around the world, it really is a huge step backwards from what the industry was doing. For the last 60 years, we concentrated production in a smaller number of sites, and that gave you the most economic leverage. And then for a variety of reasons, access to markets, as I said, access to human capital, access to energy, factories are being built around the world. And it's not cost effective, I think. When this first started happening, the founder of TSMC, Morris Chang, was quite vocal about the fact that it won't work. The economics will be terrible. And that's in part because capital costs, labor costs are higher, but it's also just because it goes against what we've all known about manufacturing, which is the learning curve, the person with the biggest volume goes down the learning curve fast, faster and first and with lower cost has the best ability to continue to compete. And our industry has lived well in that way. And now we're asking our industry to do something very different.

There is AI, though, and there are ways now to get a lot more information out of the same amount of data than you had in the past. And we think this is super important for our customers because of the talent shortage, because of the ability -- the requirement to have smaller facilities located around the world and because of just the complexity, the systemic complexity of what they're trying to build.

When I look at the room, I know some of you have been shareholders for quite a while. So really, for some of you and for certainly us, we start out really building on that first pillar, what you do for characterization. That started with our test vehicle for the characterization vehicle infrastructure. And we monetize that, if you remember on the gainshare business model, we would deploy the system and then charge a royalty based on the yield the customer ended up achieving. We've repurposed that capability and expanded it to include the electron beam in-line ability to measure product directly and put that as part of a subscription, much like the rest of the infrastructure. And we expanded it starting around the 2010s to include Exensio and the ability to start doing analytics for fabless customers and the product groups inside the IDMs.

So if you look at our largest customer, part of the customer base, our 2 largest components of our customer base are the equipment vendors themselves and the fabless and system companies and the product groups inside the IDMs. So I think lots of folks always think about PDF for manufacturing, and we have a lot of fab customers and most of the fabs use our systems. But there are not that many fab owners in the world. The majority of our customer base is actually the vendors that supply equipment to them and the consumers of materials produced at their factories.

Recently, starting around 2021, as we started getting the cloud systems up and the partnership started building, Tim and I worked very closely with SAP in those early 2, 3 years to just to find out how could you start bringing a real-time view of manufacturing into the hands of the finance teams. How do you have a more accurate understanding of costs? When you have an RMA, how can you react more quickly and more thoughtfully? And this is really the Sapience manufacturing hub, which we then blossomed into this portfolio of supply chain orchestration. I think earlier today, they made reference to Sapience supply chain hub, manufacturing hub. And we will be demonstrating Supply Chain Hub, which is the newest member of that category. I think over in the room Nick to our left -- to my left, to your right. And there's some presentations about that tomorrow. But we recognize that orchestration goes on not just within the customer's organization, but across the industry. And the secureWISE network is enabling us to make that possible.

Our customer base spans the ecosystem. I think what's very unusual about PDF, a lot of things are unusual about PDF. But one of them is just the breadth of customers. I go back to when we were a yield ramp-focused customer and supplier in 2009, I remember meeting with then Chief Procurement Officer and Chief Information Officer of TSMC, a guy named Steve Tso. And he says to me, John, what's going to happen in your company? You have 3 customers left in the world. You have Samsung, us and Intel. That's it. 3 customers. Who else is going to buy from you guys? And I thought about that quite a bit. We thought about that a lot. And if you look actually from 2009 to 2014, we made almost no acquisitions. We really just thought about what did that mean. What we realized is you concentrated manufacturing capacity, you've had an explosion of the number of equipment vendors that were out there supplying them and the number of product companies that are using it.

And I think when the slides were shown this morning, you saw the talk around application-specific silicon and more and more application-specific silicon. And we thought everyone is ultimately going to be responsible for yield and manufacturing. And we could really look at this as a different way. If we changed our products around, we could really think about the market more broadly. And today, you see the outcome from that. We really span the entire ecosystem because everyone is responsible for manufacturing these days. The equipment is so complex. Without the help of equipment vendors, the factories couldn't use them. The designs are so complex that just to understand the test programs and what they mean, the fabless seem to be intimately involved with what's going on in the front-end fabs and the test floors and up and down the supply chain.

We really appreciate the feedback we've gotten from customers this morning. Mike Campbell talked about that a little bit. But over the years, at our different user conferences, we've had different customers say different things about us and kind of put these quotes here. But what we try to be as a trusted partner for our customers, one of the slides I showed in 2023 was the last 25 years of changes in compute environment from Unix systems and Windows and Linux systems and CPUs to GPUs. And then what do we do to help customers move their workflows forward while the underlying IT layer changes. And when you think about these manufacturing assets that are being built around the world, these fabs will last 30 years.

For a long time, what we did in our industry is we built the fab, we installed the software and then we changed nothing, changed nothing on the software, run the same MES system, run the same software for as long as you can. And that's like saying your brain is never going to get smarter. What AI has done for our customer base has got them to start thinking, well, wait a minute, I could get smarter over time. I could use analytics to make -- so I can get more out of this factory to run this factory differently. So this trust is really important to us because to us, earning their trust means that we can begin the dialogue of how we can help them use software in more innovative and sophisticated ways to get more value out of the assets that they own. And that was kind of why, at the end of my talk this morning, the call to action was around, let's look at all the waste that's still in this industry and how do we help drive a lot more opportunity out of that waste.

As I said earlier, we began partnering around 2020. If you look before that, we didn't really see partnerships as being all that important, again, because when the focus was just bringing up the yield ramp, there was really no time to work on a partnership. As we started moving customers to the cloud, we just thought more and more ways that partnerships were important. And this is a subset of partner with. We continually look for new ways to expand the partnerships. Kimon is a super big proponent of this inside the company that even if you say, well, don't we compete with this company on this or that, the most important thing is to deliver more value to our customers through partnerships, which is also why we're very focused on standards.

And today, when you look at the company and the scale that we've achieved, while we're, let's say, $200 million business today, the scale of our -- and our reach in the industry is quite broad. We manage quite a lot of data. We transmit exabytes of data across the secureWISE network. And we start -- and we provide enterprise capability on what we do on the cloud and more and more what we're doing with standards bodies. I showed here SOC 2 and ISO 27001, but we also are supporting NIST2 and CRA and many of the European standards as well for our European customers. And this is a growing piece of what we're doing with this whole platform.

I was meeting with one of the secureWISE customers that's a large equipment vendor. And they brought their CISO to the meeting. I thought it was going to be interesting. I wonder how -- what tough questions he's going to ask. And the person presented what we're doing on standards around the world for secureWISE and Exensio Cloud. And the guys stopped and said, wait a minute. So if we're using you guys for these things, I don't -- I can just refer to you when I go get my CRA certification in the EU. I don't need to go and worry about that. And the answer was yes. And this is increasingly an important point of differentiation for our customers. We are making sure our customers can trust our systems out to the edge when we talked about the fabless work and the encryption out to the edge, and they can understand that we're going to stay on top of the standards that are required so they're able to take advantage of the systems. And it greatly reduces their need to work on this stuff.

So I want to provide a little bit of context when we go through TAM numbers for us and how we think about the business. So I talked about a $1.1 trillion semiconductor industry. And if you would go back to 2019 or 2018, we really didn't serve the capital equipment industry. So our market opportunity was the manufacturing portion of the IC industry. And if you say the IC industry is roughly a 50% gross margin industry, then you say at a $500 billion size in 2020 or so, there was about a $250 billion manufacturing business where software could add value. And then we add on top of that the capital equipment business because that's increasingly a customer base for us.

Today, if you look at -- you kind of project forward to 2030, you take the portion of that $1.1 trillion industry that is manufacturing oriented and add on to it the capital equipment piece. We think this is the customer base that we sell into. That is not our market opportunity. That's just the customer base we sell into.

We think the addressable market for us, which has doubled over the last 4 years, will again more than double over the next 7 years. As software for manufacturing becomes increasingly important, the manufacturing volumes go up -- to the right-hand side of this chart -- and the need for more and more complexity and analytics continues to go up.

When you look at how we've grown our business kind of -- that's why we put the left-hand side of this chart up. It doesn't mean that we bring the products to market the same way or the same capability. What's core and has always been core in PDF was taking a system view to manufacturing to understand the design aspects, the process technology aspects, the manufacturing and the equipment aspects and how those integrate together. That was, as I just said this morning, PDF stood for portable document format.

But what we show here is the way that we've layered on more and more capability reusing and then from a combination of reuse, development and acquisition to create new ways of helping customers capture the value in manufacturing. So today, still important is our characterization vehicle capability and the ability to characterize next-generation nodes. That continues to be important. We've enhanced that with what we've done on the DirectScan program.

Layering on top of that, starting in the 2010, was really the way of having Exensio combine process control information, testing operations, offline manufacturing analytics to enable the customers to really look end-to-end at their data. That was really the next foray. Starting around 2019, customers started migrating that to the cloud, at least for the central and offline analysis capabilities. And that continues to be a very important piece of our business. Around 2020, we started adding the ability to give tools and capabilities to the equipment vendors. So the equipment vendors could be able to add more value to their customers, provide more AI-driven solutions, more analytics capabilities. And with that, we started recognizing the need on supply chain orchestration.

For a couple of reasons. As I said, most of our customers can't deliver value without crossing organizational boundaries. They need to get from their organization to their supplier or their equipment supplier to their customer. So orchestration increasingly became important. We see that as a significant growth vector for us over the next 5 years.

And then maybe it was lost on some folks when Said presented. But when you think about -- and we've been in the AI business for many years, in machine learning and analytics. When you think about how you look at large language models, agentic flows and how you bring that to manufacturing, guardrails are really super important. What -- as Said pointed out this morning, what is hallucination is also imagination. I think my wife is a super linear thinker, I'm kind of a scatterbrained kind of guy. I think I get more creativity of being kind of like all over the place sometimes because you see connections between things. And when you let things hallucinate, you get that kind of creativity stuff sometimes wrong. When you kind of go on a very linear flow, you kind of get repeatability, which is what manufacturing is all about.

What we're doing with orchestrations and why orchestrations and workflows are so important in the next generation of our products is really around enabling customers to turn that dial between creativity and predictability. And that's why we see the next phase for what we're bringing to the customer base, really an AI-driven manufacturing flow and why we think it's so important for our customers and as a result, hopefully for our business.

So that kind of gives you the update of how we're thinking about the business strategy and what's going on. Now I'm going to turn it over to Adnan, who's going to talk about the part that you really all sat here for anyway. So I was kind of like -- that was the preacher before the cookies at church. Thanks, Adnan.

Thanks, John. So when I was thinking about the transition about how to come in at this point into the presentation, yesterday, I had a different idea. But this morning, for those of you that heard John's talk, he talked about how parents always evaluate you on an integral function basis.

So the point of this was to present a 10-year view to the investors. Yes, it's sort of a report card. I understand investors' past performance is not indicative of future results, but everybody, even after those statements, will ask what have you done for me lately. So this is a perspective on what we have done over the last 10 years. And really, if you think about it, kind of years 6 through 10 going backwards was where the transition was happening for us to the analytics space.

If you recall back in 2019-2020 time frame is when we started to break out with our 2019 Analyst Day, the breakout of revenue into analytics and IYR. It made sense for them. Today, we'll present some other perspectives as well later in this discussion, so we'll go there.

What has happened over the last 5 years is business growth. If you go back and think about the Analyst Day that we did in 2023, there were 3 long-term target in respect of the market target growth rates or target model metrics that we had set for us. One was on the revenue growth rate about 20%. This is 19.5%. Kimon and I had lots of discussion about it doesn't round to 20%, we left it at 19.5%. That's one metric here.

But look, a lot of this is not just a function of, okay, industry happened. Yes, there are things happened along the way. For example, in 2020, we acquired Cimetrix. That was at the tail end of 2020. So initially, when we posted the 2021 numbers, of course, the curiosity was, well, you posted this 26% growth rate in 2021, but it was helped by Cimetrix. Acknowledged. But the following year, 2022, again, against the backdrop of a strong industry, we were able to post 34% purely organic growth rates. And along the way, why this has happened is because we've done some things.

I mean John and Kimon have a relationship with who's who of the people in this industry. You've seen the names mentioned, you've seen people talk. I think one of the things that we did was we came together as a team, especially as our number of customers expanded. And in 2020, started to think how do we take a relook at our bookings and how we approach customers. So I remember we formed this exact booking meeting that we started to do on Monday looking at who are the key customers, where we start, who can unlock the ball and kind of move that deal forward. And between a few of us, legal, finance, product as well as John and Kimon relationships, we really made a difference in terms of the booking rates. If you go back, you'll see a big jump there. So that's our report card through 2024.

2025, as you know, we've guided and reaffirmed in the press release today, the growth rates that we had talked about earlier in the earnings call as well of 21% to 23% growth rate with the acquisition, of course, of the secureWISE that we did in this part of the -- earlier part of this year as well.

So within that, if you zoom in and say, okay, from 2020, and this one -- last slide was through 2024, and this one is through trailing 12 months of the Q3 of this year, it's been a 20% CAGR during this time frame. But again, within that, what was happening was we were going away from IYR and moving towards the analytics. 2019 is the time where we started to offer some of the cloud solutions. So typical 3-year deals, 2022 is when those came up for renewals. You've heard us talking, for example, Q3 call last year about how some of the customers' usage rates we were able to expand as those deals have renewed. So what's been driving within the total growth of the 20% has really been the analytics growth at a much faster CAGR at 29%.

You can see the numbers on the bottom right as far as how analytics has contributed. And frankly, why we're thinking of another different cut back to 2019 when we presented the Analytics IYR, the business has transitioned to now 94-ish percent on the analytics. So that was some of our thinking why we present to you a couple of different cuts today as well.

The other 2 metrics of the 3, one was revenue growth that I talked about earlier. But the other 2 metrics that we talked to you about in 2023 Analyst Day were gross margin kind of the horizontal lines of these charts. 2023 targets were 75% and then the operating margin target for -- operating margin target of 20%. And if you look at our progression over those years, it's pretty remarkable where we have come from. The non-GAAP gross margins on the left side from the low 60s to now in the middle of that -- slightly exceeding that range at 76%, which is why we're here at the Analyst Day. So to John's point, we'll see some of the cookies for later. And then, of course, on the operating margin side, we're just kind of inching up to it, but getting there where it makes sense to start talking about some of the new things that we will today. We're pretty pleased with this transition. And actually, if you think even more on the operating margin side, the fact that we've gone from a negative all the way to the plus 20% range.

Okay. So this is one perspective we wanted to share with you on revenue. Historically, like I said, we used to report it as analytics versus IYR. To us, as you heard the word platform ubiquitously today. To us, it made sense to start looking at the revenue on a platform revenue breakout versus the volume. And I'll explain that in a second. The left top chart, we put it as reference. Really, to me, the interesting part is the annual and the kind of TTM patterns, if you will. And let me explain the characteristics of the right side in a second. But if you think about it, right, total growth rate from $149-ish million to the $207 million. But within that, what's interesting is the platform growth rate that has gone from $120 million to $170 million or so.

So what is platform? Platform is everything that you know of and classically expect within PDF. It's a SaaS software that we sell. It's the term-based licenses, it's perpetual, as well as the DFI and CV systems, right? The reason -- when we separate out the volume-based revenue and that we include 3 things: the Cimetrix runtime licenses and secureWISE and gainshare. To us, the reason why we call it volume-based is it's directly tied to the customer shipments or production output.

For example, Cimetrix runtime licenses. We go through a validation cycle, as John talked about earlier, of the software development kit, having the customer validate the software for their tool shipments. But really, the revenue on the Cimetrix runtime license is going to come when the customer is going to ship their equipment. Similarly, on the secureWISE, the data component of it, if the customer is going to use more data, that's what's going to enroll to our benefit. Lastly, similarly on the gainshare side, we do the fixed fee part of the work, and then we benefit when the customer will do gainshare.

Now the interesting part about all these 3 is these 3 are high-margin contributions to our business. Really, if you think about it in all 3 cases, we have done the work in the platform side as well to get to enjoy that. If you think about the Cimetrix run time, we did the software development kit work, which we think of as formation -- as part of our platform revenue. secureWISE has a software piece that provides the connectivity that's also in our platform revenue piece. Same thing for gainshare. We do the fixed fee work with the customer, and that forms part of our platform revenue, which will then benefit us as the customer produces higher and higher volumes in the volume-based revenue side.

This is another cut. A lot of you have been asking us about recurring versus upfront revenue, and I'll describe it in a second. Again, quarterly data on the left top side, annual data on the bottom left side. But really what's interesting to me is the first bar, which is a recurring portion of the revenue of $140 million and then the last bar, which is $180 million.

When I explain on the right side, I'll explain why. So let's just get there. On the recurring revenue side, again, like investors would know and expect software companies to include, we obviously have the SaaS piece, the software piece, maintenance and services that we have as well as well as the DFI and CV systems and we sell them on a subscription basis. We also, of course, have the Cimetrix software pieces, the Cimetrix business itself as well as secureWISE and gainshare.

Legal would be happy and wanted me to say this, I will say this. And within our recurring, those last 3 pieces, the Cimetrix, the secureWISE and the gainshare are -- you call them reoccurring businesses. Similar to the thinking that we read through the last slide, runtime licenses and the customers will ship more will get benefit more of that. And similarly for secureWISE as well as gainshare. But to us, these are businesses that will reoccur. And if you look at a little bit of a wider time horizon, they start to look like recurring businesses. We won't expect them to go to 0. Sure. In between some years, there might be some ups and downs, and that will cause the way we are measuring recurring revenue to have some different pattern. But over the long term, hence, I point out to the starting and the ending points on the left side, they will have a pattern and a characteristic that we like.

If you go back and do the math, you will see that it's about 80% of our total revenue is of a recurring nature. So today, $207 million LTM basis on a revenue company doing about $180-plus million in recurring revenue.

In the upfront revenue section, just to highlight, it's on the slide, but again, no surprise what you would expect. It's the 3 pieces of perpetual software. And when we do a CapEx sale with the DFI systems, which we have done, and then also certain of the IP licenses where we'll use some of the technology and license it to the customers.

So the other question that everybody has asked us, especially as we've taken out debt, especially as we've increased our CapEx rate is what is the return on the DFI business? Obviously, we've got 4 machines out there with 3 customers. And we've talked about how a subscription model is useful. So we thought it would be interesting to share some perspective as we look at our current deals and as we look to our future deals that we're engaging with customers on as to what sort of a return on the machine cost can we expect over the lifetime of the machine.

And looking at it a few different ways, actually, we did even what our pricing would be versus what the customer might push us to. And we looked at those 2 different ways, and we're coming back with a number of saying, looking at our machine cost investment, we believe there is a 5-plus x return on that investment over the lifetime, which, to us, is pretty compelling and is exactly the reason why we have invested and continue to invest in that business. Of course, recently, we managed the CapEx, as you saw in the most recent quarter as well.

And candidly, the machine subscriptions are a strategic shift. If you think about it, this is an industry, as you all know in this room, that is used to getting these machines on a CapEx basis. But to us, there was many benefits that made sense why subscription should happen. It provides the customers the ability to upgrade the machine a few years in. We've already had some occurrences of that as we've talked about in the earnings calls as well as for us, as a software company, it makes our revenue be more of a recurring nature, which is exactly what we like as well.

And people said, okay, this transition is going to be hard. I remember John making a comment that just kind of clicked to me at that time, was AWS. Of course, they're selling you hardware, but it is on a subscription basis. Behind that, they have hardware. So it's no different than that. Yet, it still requires a transition analogous to what the cloud industry went to where people used to have on-prem hardware or used to buy their own hardware and then eventually got comfortable today that we are seeing massive amounts of investments in the CapEx space.

So what does all that mean? Most recent quarter, if you go and look, we talked about a backlog number of $290-plus million. And coming from the 2020 number of $100-plus million, it's a pretty good growth rate. Remember, during this time period, I also talked about how revenue had grown at about 20%. But what we like to see is, sure, there might be patterns that might -- maybe we don't like it from a quarter-to-quarter. But over the long term, we generally like our backlog to be growing faster than our revenue. That, to us, is what creates a long-term sustainable business. It's also a testament to the relationship that you're building with the customers. They're willing to sign up larger long-term deals with you. I'm pretty pleased about where that stands today.

Global geographic revenue distribution, I think this is all numbers everybody can read. But if you look kind of the last 3 years, I think one pattern that's interesting to note is if you look at the bottom 2 colors, which is the U.S. and Japan, they were about 60%. And if you look at kind of what's happened over the last year, 2024, and even the trailing 12 months, we've managed to distribute that. So it's a little bit not as much a percentage as it used to be in the U.S., but it's more like 40-20 between U.S. and Japan. Obviously, people are -- people have seen our engagement with some of the key Japanese customers as well as our eProbe shipments that have been talked about. So it's been good to see that growth happening, not just in the U.S., but also in other parts of the world.

This is a statistic slide you all know, but that kind of require ourselves, it's important to put. Left part of slide, we talked about over the last 5-ish years or so, we spent about $272 million. If you break that up and think about what categories, largely speaking, 2/3 of it was spent on acquisitions. Obviously, we did the Cimetrix acquisition, which was a smaller one at about $35 million size. And then most recently, we did the secureWISE acquisition, which was $130 million plus. So about 2/3 of that total on the M&A and investments. Of the remaining 1/3, it's also about a 2/3 split in CapEx and the remaining portion of about the 1/3 roughly, we spent on share repurchases.

Balance sheet, on the right side, John has made the comment in the last earnings call that as we progress through the next year, we expect our cash position to improve. Doubling on that, as we pay down the debt because part of it has the amortization of -- amortized debt payment, that should create some expansion on a net cash level for us as well.

All right. Last slide. This is probably the cookie slide. Let's walk through it a little bit. The first column is the prior targets that we had set in the 2023 Analyst Day. Today, we are revising those targets and putting in new long-term targets for our company. Obviously, much discussion, much debate, much planning that goes into it. But let's just walk through it.

Look, I think John has talked about -- let's go step by step. John has talked about the industry growing at 10%. If you go back and even look at our history, we've grown ahead of the industry. That's where we aspire to be. And that's why the bottom comment is there that if the industry is projected to grow at about 10%, we would expect that we would be able to deliver a 20% revenue growth rate for our business as a long-term target model. That's where we felt comfortable.

On the gross margin side, we're upping it to 77%. And the number there was chosen carefully in terms of greater than 77%. And some of you could go back and say, okay, you've come close to that number a few slides ago, we've talked about 75%, even 76-ish percent. We think there is opportunity there, but we wanted to be careful and commit to you a 77-plus percent number and hopefully kind of go from there against that metric. Where we're doing the bigger change is on the operating margin side, 20% going to greater than 27%. For us, as we're starting to see scale, we are starting to see some of that leverage benefit the bottom line. If you look at the last quarter, at 23% operating margin, it's something that felt good to us going from the negatives that we had 5 years ago. And as we look forward to the future, we believe that whether it's G&A or whether it's S&M, we can have the scale advantages come through while still allowing us the dollars to invest in the R&D line to manage that spend and grow it to serve the opportunities. You heard Said talk about the 100-plus people that he's had working on the new Exensio platform, so excited about that.

So I think in terms of targets, those are the new ones to take and pretty excited about what that does. And of course, with that, what that benefits the rest of the financial statements as well over the years to come.

With that, and the last cookie, I think we will open it up to questions.

Mics, correct? Mics in the back. Do we have a microphone for folks?

We have one here.

We got 2 mics.

Yes.

Are there any questions that folks want to ask in the room? Sure, go ahead.

So you talked about the subscription model and the lifetime revenue increases by 5x. Why can't I just purchase...

No. What we're looking at is if we look at what we spend to build a machine, what's the lifetime return on the machine? And what we -- when we did all this analysis, we did this analysis looking at both a customer buying the machine and depreciating over 7 years, a customer subscribing to the machine. And we set up the economics where actually the economics over a 7-year time period is cheaper to the customer than the customer purchasing the machine. And you look at the 7-year cost of ownership, and of course, they've got to put the capital upfront versus the machine cost over time.

We are -- that's greater than 5x is invariant whether the customers purchase the machine or subscribe the machine. They're invariant whether the customers do. We make it a little bit more economically advantageous to them if they subscribe because we think we can deliver better value over the lifetime. But frankly, we have some customers who buy them. We have some customers that subscribe them. I think he was a little bit off on the number of machines in the field. I think the number is more like 6 or 7 actually, but over a few sites. But in the end, that 5x is just a return on the capital and you factor not just the machine, but the software drives, the services it drives, all the value that gets created off that machine spend.

I just wanted to ask you, this morning, there was quite a few product -- enhancements product releases announced for 2026, mostly coming GA in '26. What sort of has you most excited with these? And what do you think has the most near-term impact on the...?

I love all my children. But the one that I'm very, very excited about is what we're doing on scalable analytics. I don't think anyone in the data analytics business, not just in semiconductors, really rethought what you need to do to make it so you can start operating on super wide data sets and super huge data sets. And was it back in 2019, Said, Kimon and I talked about this as we were doing the next plan for the next decade of Exensio. We said, okay, we're going to keep going with a classic BI tool on top of Cassandra through the remainder of this decade, the coming decade, but we think we need to start thinking about what's beyond that. And so we challenged Said, and around 2023, they kicked off this effort around what could you really do? If you just thought about -- we had put Spark, which is a parallel compute layer on top of Cassandra back in 2017. And it worked okay for batch jobs, but you couldn't make it interactive because there's no persistence of what you were doing interactively.

And the way you store the data in the database to get the efficiency and speed that Aziz was talking about isn't the way you want to analyze it. So starting in 2023, they're like, wait a minute, what if we pull the data out, put it into another data frame a little bit different, Python-centric and operate in parallel with the data and give the user interactive experience. Like why bring 20 million data points to a customer to put up on a screen that's 4 million pixels. You're not going to see it anyway, right? So that's kind of crazy. So they started rethinking all of that. And by the end of '23, early '24, we realized that what would work. And they then kicked off this effort. And it's been quite enough Aziz said, over 100, I think he needs to understand the number because he doesn't want -- I have to get too upset on how much we put on that thing. I think that really has a way of just changing the way analytics is done.

I think it is the first system out there in the world that really has this third layer. It's not just a BI tool attached to a database. It is really this scalable compute layer. I think it will do much like what moving programs to parallel computes like GPUs and other hardware environments, it gives that same ability to scale. I think it's super valuable.

Question in the back.

All right. Following up on that, can you maybe put it in the context of the share of wallet opportunity that it gives you relative to what you've had before with some of your larger customers if you combine what they can do with scalable analytics, Sapience, consumption? I mean, how has that changed your kind of per-customer level revenue opportunity?

I think it's early just to figure that all out. But what I will say is the following. I mean you saw Aziz talk this morning. One of the super frustrations for us providing Exensio to the marketplace was always -- they always had internal storage anyway. He talked about the systems they built around Teradata and Exadata. And there's tremendous cost in those systems and not -- and in the end, they pull the data into Exensio for the analytics and capabilities.

So we really want to be able to go back and say, we could build an enterprise-class system they could use broadly. And their commitment to Exensio that they signed earlier this year, as I said, it really is the largest -- he said it in the meeting today, the largest single deployment in Exensio out there. When it gets to full scale, it will be substantially larger. And it is also -- if you look at what they're -- they also will talk today or tomorrow about using secureWISE as their standard for communicating between their edge and their fabs and their equipment suppliers as well as their fabless customers. They talked about the way that bridges to -- between their data and customers, fabless customers that are using Exensio so they could communicate with them as well.

And they also talked about what they're doing about connecting Exensio manufacturing data to their enterprise through Sapience capability. Overall, that is the single largest software deployment we have in the world by a substantial amount. And we think they are not -- I mean, they are unique in the scale that they have, but there's a lot of other customers that we see spend really significant dollars trying to build these central data stores that we think Exensio and scalable analytics would be a lot more valuable to that.

A big factor in Intel making that choice was scalable analytics. They've been working with us on this over the last 9 months, and I think very excited about what that could do. So we think it's quite substantial for really taking our analytics to the next stage for our business. But we don't have enough data points that I could go and say it's going to give you an X.

But I think what you can say is we've expanded from being predominantly a company that supports engineering analysis to being more relevant to financial operations, but also engineering operations with the new tools and making that data available not within the -- just within the organization, but the ability to integrate across the organization. So we're seeing interest from IT groups, interest from manufacturing operations and product operations, the work with SAP getting more involved with the financial operations. So it's letting us grow vertically, if you will, within a company from a customer base over time, not just horizontally across the industry in our traditional engineering space. Sorry, [indiscernible].

That's okay, Kimon.

Another follow-up on the same subject. But probably the most impressive thing I heard today was Mike Campbell saying, this is our tool, this is the industry's tool. And like, yes, PDF sells it to us, but it's the industry's tool.

Absolutely.

So it's just a little bit of a disconnect. I feel like you guys are kind of underselling the opportunity here with the 20% number, that it's 20% plus the creativity of the industry to leverage this layer that you guys are supplying to do more stuff and for you guys to come up with a way to monetize more on that network. So why am I wrong about that?

So yes, thank you for the question, Jeff. Yes, we are honored that customers see us as a tool for our industry. We always -- Kimon and I have always seen ourselves as stewards of this business, right? We were the founders -- two of the founders. But this business is a business that our shareholders own and that our customers depend on and that our employees depend on. And we are stewards to make it more valuable for, first and foremost, our customers because they're the ones that drive everything.

We thought really long and hard around the growth rates. I mean, to be candid with you, when Handel first started talking to me about a $1 trillion industry by 2030, I was like, Handel, man, you happen to be around by saying that you're just putting that number out there. It seems farcical to me. And now as I've seen it actually evolve, it's like, oh, maybe this actually can really happen. So we've been -- we didn't want to lean too far on the growth rates because a lot has to happen, not just from our perspective, but for the industry overall. And we do want to be more important to our customers. We do want to make sure we're adding more value to our customers, but that's like giving the eye of the beholder. They have to tell us that by their commitment and what they do with us. That was why Aziz talked about what they were doing with standardizing and replacing internal systems.

So I think it's a great responsibility that we need to take super seriously. We would like to win that across more and more of the customers and be more and more of the tool for the industry. We're happy if we can outgrow another. We're not looking to say that's the ceiling on where we're going.

I mean long term, the belief is there needs to be a standard in the industry for cross collaboration and spin. We're subscale today. Everyone is. You look at it, and it's sort of like the joke from the depression, I can't remember it was perhaps Mark or someone else, how do you go broke? Slowly then all at once. I think the growth in this industry is the same. The growth is going to be slow and then you're going to start seeing a flywheel effect as it goes. When did that point occur? Hard to determine. We think we're well positioned, but it's an opportunity. It's not a guarantee for sure.

And you got to appreciate how Kimon can do a joke they've done after the beginning.

My joke was going to say we're only 20% of because Mike is cheap, but Mike's in the room, so I can't use that joke.

Clark Wright with D.A. Davidson. You said in your prepared remarks, John, that the majority of growth in the semi industry is really going to come from that AI component. How does PDF look to increase exposure to some of these key players in the manufacturing of AI-related hardware?

Yes, that's a great question, Clark. [indiscernible] is actually, I think that the next phase of AI growth is a broadening out phase. So we're seeing this -- over the last few years, most of the hyperscalers have become customers of PDF. I think not just relying on GPUs, but also building out special purpose systems like the TPUs and other capabilities. Our customers -- I think I saw earlier today, one of our users from [indiscernible], Peter [indiscernible], right. And they are building an edge processor for audio. That's when you talking the Google Alexa devices, it's the one that's processing. AI is going to start showing up in many -- our MCU customers are all looking at it. Edge devices are all looking at it. I think one of our customers was talking about their success in AR/VR as well as the Google guys, the Qualcomm guys on Snapdragon and AR/VR and what's going on there.

So we expect it to be a much more broader part of the business. Part of our strategy on all of this is we serve the entire industry. We're not here to pick who's going to be successful or not. We sell to all of them. Some of them, they realize beyond what their expectations are in their business, and we grow with them and some don't, and we will participate broadly. But we don't -- we do look at things like, okay, what are we doing on advanced memories. This is an area that talked about, what are we doing on co-package optics. Each of these things we look and say, what do we need to make sure our capability is good. But then within that category, we just try to sell to everybody and whoever awareness that they win, it's going to be on their brilliance, and we're just going to be a participant of it.

Got it. And if we think about unlocking additional budget, can you help kind of describe that process? Because if I think about it in my conversations I have with customers today, some of the in-house solutions that are already existing that companies use to solve some of these analytics problems, where do you see the ability for you to displace some of those and continue to gainshare over time?

Yes. Aziz touched on that in his talk. And I think when Kimon and I were to talk about like our frustrations over the years, we would provide Exensio, primarily engineers. We've always sold to engineers and product and test engineering teams. And then we have customers, they would hire a Chief AI Officer, Chief Data Officer, and they start setting up a data lake system, right? And then they would spend $100 million between software suppliers and the system integrators and build the system, and it doesn't deal with the edge and all the action in our business is what goes on the edge.

So we felt like we were communicating with the CIOs and the IT organizations, the finance organizations, the point that Kimon was making. And a big part of the reason why Kimon was so passionate about the partnership with SAP was it got us to start talking to different parts of the organization.

I think a lot of what happened at Intel was the finance organization decided to use Sapience and the connection between manufacturing and their business process. So if that's there, why not use Exensio more broadly in manufacturing because they're going to be pulling the data out anyway, it takes out one of the -- now I have to worry about the MES system, right? And if I just use your stuff, heck goes away to support them anymore. It's the same data model.

So the broadening out of the platform has helped us get to more touch points in the customer base inside the customer, which is allowing us to maybe be looked at differently. We think we have a lot to prove to the customers to be trusted in that way. So we're not here to say this is a stamp and repeat. We think there's work to do. But that broadening out of the touch points from the customer is really important.

John, actually, for Adnan, just on the margins, 2 questions here. So where do you see the best opportunities over the next couple of years to move that op margin line 7 points. That's pretty significant. And how long is that going to take you? And also, just as in regards to the DFI, which you're still, in some cases, selling out right versus leasing, there's a different margin structure with that margin impact. Is there a bottom end on the margins that you are going to try and protect, I guess, is what I'm thinking about if you have that volatility in the top line?

Yes. I'd like to answer those in the sequence. So look, in terms of target margins, it's long term, and we chose those very carefully. Similar to the last time when we did this presentation in 2023. But if you go back and look at it, say, we have 2 years later and we're almost clicking in, I'm not saying that we're promising anything close to that. But usually, when people think about long-term targets, it's 3 to 5 years on average. So somewhere in that window, near that window is where we would like to be in terms of the time line.

In terms of where do you add scale, look, there's naturally some synergies and scale efficiencies that you would expect in the G&A line. That's one.

Second, on the sales and marketing spend, you -- many of you have heard us talk about how there is an opportunity that we are working to optimize, and we see opportunities there. I mean, candidly, we brought together the Exensio sales team, the Cimetrix sales team and the secureWISE. And with some of these initiatives that -- some of these discussions that you saw with the presentation from Aziz, you can start to see that there's a need to have one team for a client where you can present a portfolio of solutions rather than 3 different teams. So it's educating the sales team, educating the apps team and trying to create efficiencies there, that is another opportunity that we see.

Thirdly, in the R&D side, I think there's opportunity there for us to provide the dollars that is needed for growth for the opportunities that we are seeing and then still be able to drop to the bottom line. So it's a combined effect of those 3 and again, over that time frame.

Yes, I think what's baked in there, if I could just -- we anticipate revenue growth. We know we need to scale R&D, and we will continue to scale R&D. But we don't think we need to scale G&A and sales and marketing at the rate that we scale revenue or R&D. If you look at the last few years, we've been very much investing in those areas. We felt like when we switched from being a yield ramp company to a platform subscription company, we were very, very light on sales and marketing. So we needed to invest heavily because we really had 2 sales guys when it was an business PK&K. Yes, it wasn't needed. Well, we needed to change that. That meant a lot of invest. We don't think we need to continue to sustain that investment at the rate that it was growing as faster, in some cases, some years faster than revenue, right? So we think we can meter down that growth rate substantially and let more of the growth in revenue go to the bottom line.

On the gross margin side, we rest the numbers there in part because we don't know a lot on how the [indiscernible] will impact gross margins. We do know when we look at Exensio Cloud Analytics, BI tools waste compute, massively waste compute because they're, by and large, semicon programs. They, by and large, are in-memory database systems. And so many cores get wasted. And what -- the reason why Said is able to show what he's able to show today is because you're using every core, right? You're using every core maximally. So we know for our compute customers, and part of Aziz's excitement when he looked at this was like, wow, you can be a lot more efficient on compute spend, right?

So we do think for our cloud customers, there's leverage on the compute side because you just start using all the cores that we're basically wasting. And also by decoupling the parallel compute from the Cassandra node, it gives you a way to get efficiencies on the storage side, too. So there's some leverage there, too, in the way that we thought the product that we think would give us some upside there. But there's all this down headwinds that are out there in the business, too.

Just wanted to talk a little bit deeper on the R&D spend side. I mean you guys have put in some rails either by acquisition or by building that were not easy things to do that took real investment for whoever made that investment, you guys or the company you acquired. Now you're going to have AI at some point helping with coding quite a bit. I mean, is that rational with what you do? I'm not sure that you guys are tied to coding, but is it going to -- and so it implies that this scaling R&D budget is going to be more towards new products and new capabilities [indiscernible].

Yes, that's a great point. So I think if you get a chance, go look at the product costing demo that the team is doing, I think it's probably in the room next door, Mike Norga that did that. Our team started working with generative AI techniques on coding. And what they started figuring out was very small teams, a mix of product folks, apps folks and developers and actually create virtual team members.

So you have an agent that's writing requirements, an agent that's writing out test elements. You effectively build -- you scale out your team with virtual team members that are doing the same functions you do in a regular software development process, but they're virtual. And you've got a human that's working with them in each of those characteristics. And what he's been able to build, we put him in a small team on product costing because we knew we needed that for some of our Sapience customers by the middle of 2026. And they built stuff out.

They got much further along within a quarter, right? And it was really around that innovation. And yes, when we think -- we still expect to grow our R&D spend to grow more than we're growing our G&A and sales and marketing expense. But we think we'll get a significant boost in productivity and the way we develop product because of what we're able to do with AI. And I wouldn't like arguably by coding, but it's really quite a bit different in the way that they're thinking about it. And the team, we did a lot of innovation, a lot of trial and error on that throughout later 2024 and 2025, and the rate of improvement in the tools and systems that we use is just staggering to the team. What they'll tell me is, John, what I was doing -- what I did last week, I couldn't have done 3 weeks ago or 3 months ago, right? But the capability is really improving, and it's really changing the way we're doing product development.

I can attest we're spending on those tools.

John, just one question. So with the subscription model, say, Exensio, you do plan to give regular updates like Tesla, they will upgrade the FLD every year or so. Netflix will give me new movies every week. So that's part of your model and that's included in your development so customers can expect regular updates from you?

Correct. Yes. And actually, that's one of the big differences between what we do on the sale of the eProbe and the subscriptions, the way the software gets smarter, too, on that as well, what Fire can do in looking at layouts and what Exensio can do on the other side of it in terms of identifying things. And the big shift on Exensio Cloud was the ability to make it more efficient to push updates. When we move customers to the cloud, the update got a lot more efficient, and we could get them -- it's super frustrating when you see customers running on the 2-year-old version of the code, you're thinking, well, I could have made the same money just flying everyone in R&D just running it out for the next 2 years.

But you're only going to change it that rate. And really, there is a need for that. That's part of my motivation around AI for manufacturing. If we're going to run lots of factories all around the world, we've got to get smarter, continually smarter. And that means continual updates. That's not -- and that was a big piece of the reason why we acquired secureWISE because our equipment vendors want to deliver more value to their customers. And the only way they're going to do that and get a subscription business to be able to continually provide updates as well.

[indiscernible]

The more value given to the customer, the more you see. And they expect -- I mean, very early on, one of our first customers was Toshiba, and a great friend of mine says this guy Kukumo-san, I know really well. And Kukumo-san was telling me, John, you have to understand, every year, I have to make the chip cheaper. You've got to give me more for the same money. If you want more money, you've got to do even more than that. And we understand that. That is part of the nature of the business. You've got to really be delivered. But it's -- as I showed earlier, it's an opportunity-rich environment. You look at the amount of money we waste as an industry.

Do you have plans to expand into silicon life cycle management and basically, you'll have more opportunity to engage with automotive and health care and data center.

Yes. So the question about silicon life cycle management. So for those of you that aren't aware, so the idea is, and I think it's really clever, putting agents on the chip, keep track of the data of the chip over the life, have the chip phone home, provide that data and enable ability to work with that.

One of our partners was proteanTecs. If you look on our slide, proteanTecs is a leader in that space and continue to work with them. We believe our capability and enablement is very important for that overall capability. The difficult part is getting the information from the chips in the field back to the chip supplier. And we don't know how to solve that for our customers. And if you can't solve that piece for the customers, right, then it's really kind of -- the rest of it is hard for us to envision.

So partnering with folks like proteanTecs, we're happy to do this. Siemens also some really unique capability from a UNIX company they acquired out of the U.K. maybe 10 years ago. We partnered with them as well. We partnered with analog bits over the years. They have some capability as well. Around the analytics, once the data comes back, we are trying to enable that. But the real value piece is how do you get that data home from the chips in the field, and we haven't seen a way to solve that problem. It's a much -- the great thing about secureWISE is the ecosystem of semiconductor manufacturing, it's hundreds, hundreds of fabs and test facilities and OSATs, if not millions and billions and trillions.

So the phone home capability is contained. We could tackle that for our customers in this space. That silicon life cycle management dream means you got to tackle that problem for the chip industry. It's above our pay grade right now.

I think the core for PDF and the customer base is being that central point of manufacturing data in that center of truth and bringing in if they get field data, as they talked about in the previous session, people running AI models, how do you attack the version of an AI model run on a chip back into the database and perhaps the output. So 2 years later, you can do analysis if you have a field repair. But the agents themselves on the chip, the phone home capability from the Tesla, et cetera, these aren't areas where I think we're going to be providing the expertise in the industry.

Yes. This may be a dumb question. In terms of analytics, are you just enabling your customers to provide their own analytics? Or are you able to offer some analytic solutions yourself? And I ask this question because this is a story issue of data ownership, even though the data is hosted on your platform, you don't necessarily own the data.

Correct.

I mean the customer owns the data. So by definition, customer has to provide the analytics. Do I have that correct?

It both happened. We've analyzed our test vehicle data over the last 30 years. And so we have a fair amount of expertise in analyzing data and building analytics to do different capabilities. And we do make that available to our customers. But you're 100% right. The real details, like there was a whole bunch of [indiscernible] Teradyne and us talked about data feed forward. The reality is in the audience for folks that know 10x more than us and our equipment suppliers about data feed forward and what they need to do. Mike kind of touched on that in his talk.

And so a lot of the value gets delivered as here's a platform. Here are some starter algorithms that you can work with. And you can then build them, you can take them and use them in many different ways. And 90% of the customers take what we provide that's generic and then take it the next quantum leap ahead of that. And that's why Said talked about flexibility in the platform being so super important in what we do. We don't look to be the like single-stop shop. We're going to tell you how to do your analysis, but we are going to provide you a pretty rich toolkit from which you can build stuff.

I mean, simply put, we provide AI models, another simple -- more simple algorithm analytics. Customers either import or build models within our system, and we also support third parties, right? Our belief is, especially in this AI world, no company is going to have the cornerstone on the best algorithms, the best understanding for every situation. We are the trusted platform we would like to be for that repository of data, but we need to enable the customers to use it and integrate it with other data sources that serve their needs.

Can you guys talk about where you are from a supply chain perspective on the eProbe tools and just sort of the balance between supply and demand? And also maybe touch on the DRAM opportunity.

Sure.So we are ramping up our ability to produce. We expect to be able to double what we did last -- in 2025 and 2026. Most of what we can produce in the first half of the year, I think all of what we can produce in the first half of this year, we think -- we believe we know where they go between revenue-generating machines as well as machines that are eval or demo machines.

With respect to DRAM, we've been working with a couple of vendors on that. We do expect to be able to ship to at least one of them in the first quarter of this year. That's why one of the machines will be an eval capability machine. And yes, we are -- I think we're pretty mindful of not getting over our skis too far on this. We do want to make sure we have -- everything that's out there in the field runs in very high utilization rates. We're very mindful about that because then we know that we can absorb more. And when we put -- when the customers had one machine, we started a second machine, the second machine gets a 90-plus percent utilization very quickly. So we know that there is untapped demand. We have been providing under that demand, somewhat constrained by manufacturing and somewhat constrained by making sure we start opening up the aperture to customers and market opportunities.

We'll get the back first and then come back over here. Are we supposed to open up the call -- questions for people on the call now?

I'm going to ask another DFI one, kind of a multipart one. The way you talked about it today, the direct scan, the combination with Tiber and Exensio, is that added capability? It was new to me. I didn't know how new that combination was. And just more importantly, as you talk about the added throughput that you've achieved, how do we think about what the SAM is at this point? And have we learned much last part on how you're going to sell these machines relative to the one you sold in the fourth quarter. Recently, they've been more the traditional lease model. What do you know today about the mix of how that will go?

Yes. Look, so I bought an electric car, and then I regretted it instantly because you should just lease electric cars because the rate of improvement and change is so incredibly fast that why would you want to own these things. And I think that's actually going on in e-beam. And we designed it with the ability to upgrade along the way. And a lot of that is because the gentleman on phone asked the question around the software getting smarter.

The integration of the layout software, actually even IP on the chip, original idea had that. We still work with customers on that. There's a lot of dead space inside chips, you could put interesting structures there. And the analytics to know not just the measurement result, but all the fields around the design attributes, that was kind of understood from the beginning, right?

I always said to the team, if what we're trying to do is be a better capital equipment company in the capital equipment industry, we should just stop it now because we have to think about it from a system perspective and do it very differently for it to be a value. So that holistic view was always there. I don't think we ever -- I think the difference is Kimon and I presented it before to the investor community. And this time, we had internal team present it. So probably that helps a fair amount because I think he could present it thoroughly and better than you did.

Subscription versus purchase, as I said to them upfront, we try to make it economically slightly advantageous for the customer to subscribe because we think that there's value to them being able to get upgrades and support it that way. And frankly, at our scale, 1 this quarter, 1 next quarter. No, 2 this quarter, 1 next quarter, it's so lumpy, it drive our shareholders up the wall, right? So we'd like to make it as smooth as possible that does short -- it doesn't mean you get as much money upfront. But I think over the long term, I think it's more aligned with how we operate and more aligned with the system view and more aligned to the comment he made around about the Exensio time-based licenses.

The things should get better over time, much like your Tesla gets better over time. The DirectScan application gets better over time, mostly with software, but in some cases, with hardware as well.

So how will the market respond to it? And will it stay that way or not? I don't know. I think one of the things that we learned when we were super dogmatic about the IYR business model, I don't know that we did ourselves a service by being sold out of the box. So we thought to ourselves like our customers are orders of magnitude bigger than us. We show them multiple models. We let them decide. And I think so far, I think there is definitely parts of the organization that I think finds that hard to digest. But when you sit and think about it rationally and you show the economics, it actually kind of makes a lot of sense, especially in a part of the market where there's a huge rate of change, which I think they just go right now. But I know what it will be forever.

The SAM?

The SAM, if you look overall, I think ASML at the Analyst Day, ASML -- one of the best Analyst Day out there. I love what we do the Analyst Day stuff. We talked about additional wafer starts per year. When we back that out, we think there's somewhere around $800 million to $1 billion spent on e-beam inspection per year, roughly around now. That's assuming a certain attach rate per 10,000 wafer starts of wafers and an e-beam inspector. I think that's actually going up, there are more inspectors per wafer start. So if you see in the flat rate, it's in that range. And then we think about half of that is voltage contrast based and the other half is fine feature inspection. So that would be $400 million to $500 million is your kind of voltage contrast-based inspection. I don't know if that's accurate or not.

And then what fraction of that is DirectScan useful for? I think we're still learning that inside that $500 million voltage contrast-based inspection as that you say. And if you flip it to a subscription, how would that look? Because that's looking at the -- if you sold that on a capital basis, what would it look like, which is what the market does today.

It is -- I think Oliver Patterson from Intel gave a nice chat, right? I mean I don't think it's -- a chef wants multiple knives and not a Swiss Army knife, right? If you really want to be a Michelin star chef, you have multiple knives, you don't have a Swiss Army knife. I think early on, the e-beam tools were Swiss Army knives. I think they are evolving to be more like a chef's knife. And you talked about multi-beam machines, there's a value and a place for those. What we are doing with DirectScan, we think there's a value in a place for them. I can tell you that when we look -- I always tell our teams when we used to do yield ramps and we still do working with customers, any engineer that tells me the yield loss mechanisms are random. I know it's a bad engineer. There's nothing that's random that goes on in the factory. It's always systematic. You just haven't figured out what the -- there will be a part that fluctuates like the butterfly flapping its wings in Mexico, causing a storm in San Francisco. There's always some kind of a stochastic behavior to it, but there's a deterministic element. You need to figure that out.

And so the whole idea behind DirectScan was there's always a deterministic element to it, and you need to be able to go figure that out. And the power that it unleashes when you understand the connection to layout is very, very valuable. But when we talk to the engineers that use it, what they love, and Oliver hit on it a little bit, is after it finds all the spots of the defects, it goes back and takes an image and it goes back and tells you what the layout is. So you know what one scan on the wafer, this is what fails, this is what its failure rates were versus the other more generic layout patterns, and this is what drove those layout patterns. Now by the way, here's a picture in case you don't believe me because it doesn't take a picture to figure out where the failures are. It is just a one pixel measurement.

So that packaging up, we think, is valuable. It's a more system view. But what fraction of that $500 million would represent much more than what we're selling to now. So that's enough.

Any other comments or questions? I think we're getting in between people and drinks. So I do -- first of all, I want to thank everyone for attending. Also, many of you are shareholders for a number of years, and we do really appreciate your support and your confidence in the business, and some customers are in the audience as well, and we appreciate them as well. As I said earlier, Kimon and I see this -- we see ourselves as stewards of this business. We are stewards of your shares of our customers' products and tools that they use and our employees' paychecks. And so we're really honored to have the opportunity to be in these roles as long as we have. We both gained and lost a lot of our time here. But we continue to try to make it a better business. And we always appreciate the feedback. As Mike said earlier, every feedback is a gift. So thank you.

Good day, everyone, and welcome to the PDF Solutions, Inc. Conference Call to discuss its financial results for the third quarter conference call ending Tuesday, September 30. [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. 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 would like to introduce John Kibarian, PDF's President and Chief Executive Officer; and Adnan Raza, PDF's Chief Financial Officer.

Mr. Kibarian, 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 third quarter, please go to the Investors section of our website, where each has been posted.

Bookings in the third quarter were strong as we continue to realize the benefits from our investments in product development and customer support. As we announced in the September press release, we signed an extension contract with a large customer that involves bringing our characterization vehicle infrastructure, Exensio characterization software and eProbe machines to their manufacturing sites as well as expand usage at their R&D site.

The eProbe machines under this contract are provided under a subscription. Expanding beyond the machines they have in their R&D facility, we now have shipped 2 additional machines that are in the process of being installed at their first production site. Also in the quarter, we announced that we licensed Tiber AI Studio from Intel.

With this license for source code, we are integrating the Tiber AI Studio's award-winning data science operations platform directly into Exensio. Tiber AI Studio enables engineers to build and manage hundreds of thousands of AI models. Coupled with Exensio's existing ModelOps, which enables model deployment in the fab and test floors, this integration is designed to enable engineers to use Exensio to both train models as well as deploy them.

On a stand-alone basis, Tiber AI Studio already had hundreds of users. As we talk with our customer base, we are hearing the same message. They have great proof of concepts using AI, but scaling and maintaining large deployments remains elusive. We believe the integration of Tiber AI Studio with Exensio, which we call Exensio Studio AI is an important capability required to close this gap.

Among the Exensio contracts signed in the quarter, notably, we signed an 8-figure contract with a large IC manufacturer. We are honored this customer selected Exensio as their data analytics platform, the primary repository of manufacturing data and the platform on which to integrate their internal systems using Exensio's big data APIs.

As part of this contract, they will leverage Exensio Studio AI to manage their AI deployments in production. We also closed an 8-figure contract for secureWISE with one of the largest equipment OEMs in the world, which extends and expands their existing licensing.

Finally, contributions to revenue from our Cimetrix connectivity and control software were the strongest since the acquisition closed at the end of 2020. Historically, the large equipment OEMs make their own control and connectivity software, however, as our market share has expanded and more equipment is now -- as our market share has expanded, more equipment is now shipped with our software installed on it than internally developed software of any single equipment vendor.

This means, our software -- our customers enjoy software that is proven across more applications in the fab, test floor and assembly facilities. As we integrate Cimetrix, secureWISE and AI-enabled monitoring, we aim to enable equipment vendors to more easily deliver smart tools and value-added subscription services.

Now, I'd like to turn to the environment. The industry is making significant investments in 3D manufacturing in front-end fabs and packaging facilities as well as product design. There is an increased geographic diversification of manufacturing locations. As those investments are ramping up, we see customers working to make the new processes, products and facilities economically viable.

It is well understood that diversifying manufacturing comes with the risk of driving up production costs and slowing innovation. We see AI-driven collaboration as a critical capability to enable cost-effective and efficient manufacturing in many of these new locations.

Last month, we were invited to present our vision of AI-driven collaboration at SEMICON CEO Summit in Arizona. My comments, which appear to resonate with the audience, outlined how the industry can leverage our secureWISE network, Sapience orchestration products, and Exensio AI to collaborate with their customers and suppliers. We have also noticed that our equipment, fab and fabless customers are looking for ways to move from human-driven collaboration to AI-driven collaboration, in part to enable more efficient production around the world. As we look to Q4, we are preparing for our users conference and Analyst Day.

Since 2020, when we acquired Cimetrix, and began the journey to be a comprehensive analytics platform for the industry, we have driven results equal, or exceeding the long-term revenue growth, non-GAAP gross margins, and non-GAAP operating margin goals we set in 2019, and also have exceeded the revised goals we established in 2023.

Before 2020, we had approximately 150 customers that were primarily fabs and fabless. We had few equipment companies and almost no cloud suppliers as customers. Today, we have over 370 customers, including most of the equipment industry and multiple cloud providers. It is a unique customer base as we bring analytics capabilities to every aspect of the semiconductor supply chain.

Today, our cloud systems manage petabytes of data and secureWISE network transmitted exabytes. Our systems are used to control tens of thousands of tools. We believe the success we've achieved to date is due in large part to the relentless investments, including the acquisition of secureWISE and the build-out of our eProbe machines, both of which required us to use our balance sheet this year as investments were ahead of the growth they enabled. We expect the profits generated from these investments in 2025 will enrich our balance sheet in 2026 and beyond.

Finally, I encourage you all to attend our Analyst Day and Users Conference. There you will see our customers, partners and PDF folks talk about the needs and opportunities for AI and analytics and manufacturing.

We are honored to have Mike Campbell, SVP of Qualcomm; Aziz Safa, Corporate VP of Intel; Tom Caulfield, Exec Chairman GlobalFoundries; and Jean-Marc Chery, CEO of STMicro, among others, share their perspectives.

Now, I'll turn the call over to Adnan. Adnan?

Thank you, John. Good afternoon, everyone. Good to speak with you all again today. We are pleased to review the financial results of the third quarter and to bring you up to date on the progress of the business. We posted our earnings release and management report on the Investor Relations section of our website.

Our Form 10-Q has also been filed with the SEC today. Please note that all of the financial results we 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.

As you saw from our press release, with our Q3 results, we achieved another record for quarterly revenue. Our bookings for this quarter totaled over $100 million, as a result of multiple large deals signed across our product portfolio of leading-edge Exensio and secureWISE.

During the third quarter, our bookings were greater than the prior 2 quarters combined. On a year-to-date basis, for the 3-quarter period, our bookings were 49% higher than the comparable period of last year. With the contracts John mentioned as well as additional business closed in the quarter, we ended Q3 with backlog of $292 million, which is 25% higher than last quarter and 22% higher than the same period a year ago.

We are pleased that we were able to grow our backlog while delivering record quarterly revenue. Our total revenue for the Q3 period came in at $57.1 million or 10% higher than last quarter and 23% higher on a year-over-year basis. Our Analytics revenue came in at $54.7 million or 12% higher versus the prior quarter, and 22% higher on a year-over-year basis.

The growth in Analytics compared to the prior quarter was driven by business from leading-edge customers and equipment software. Integrated Yield Ramp revenue was 4% of total revenue in Q3 and was lower by $0.5 million compared to the prior quarter and up on a year-over-year basis by $0.8 million.

On gross margins, we reported 76%, or slightly ahead of last quarter, and down 1% versus last year's comparable quarter, which had meaningful perpetual software revenue in that quarter. As you will recall, our long-term target for gross margin is 75%. We're pleased that we were able to be ahead of that target for this quarter.

Our operating expenses in Q3 grew 3% compared to the prior quarter, primarily due to spend related to development improvements for our platform and increased variable compensation accruals due to strong results. On EPS, we were able to deliver $0.25 per share for the quarter, our strongest quarter for the year.

For the first 3 quarters of 2025, our EPS of $0.64 is now $0.06 ahead of the comparable period of last year. We generated positive operating cash flow of $3.3 million this quarter and $6.7 million for the first 9 months of this year. We ended the quarter with cash, cash equivalents and short-term investments of approximately $35.9 million compared to the prior quarter's ending cash balance of approximately $40.4 million. We repurchased $0.2 million of our stock this quarter at a per share price of $19.55 per share.

During the quarter, we invested $6.3 million in CapEx, which is lower than the $8.5 million in Q2 and the $8.2 million in Q1 of this year. 2025 has been an important investment for us, like John said, as we use significant cash on the acquisition of secureWise and related integration expenses while only benefiting from a partial year of ownership.

During the year, we also invested in building eProbe machines to meet customer demand in 2025 and 2026, without the benefit of full subscription run rate return on the investment within the year. Now with 2 additional machines shipped and going through qualification on a subscription model as well as the integration cost of the secureWISE acquisition largely behind us, we anticipate cash to grow over the next year.

Given the strong business activity, the growth in our backlog and the customer opportunities in front of us, we reaffirm our prior guidance of 21% to 23% annual revenue growth range for this year. As we get ready for our Analyst Day and user conference on December 3, we look forward to sharing more details about our long-term targets for the next phase of PDF growth with you at that time.

We are also thankful to our customers and partners for supporting the growth we delivered this quarter and look forward to growing sequentially again in Q4. With that, I'll turn the call over to the operator to commence the Q&A session. Operator?

[Operator Instructions] Our first question comes from the line of Blair Abernethy from Rosenblatt.

Nice quarter. I just -- I wanted to just ask you a little bit about the BFI. I see that [indiscernible] more machines. The machines that are under the lease model, when does that start to generate revenue? Is that some point next year? Or is that first half of this year?

Yes. We are going through the deployment and qualifications of those machines. Blair, as you know, those can take anywhere from 1 quarter or a little bit plus or minus on that time frame. So given that we have shipped, we expect within the next quarter or the quarter after, depending on the timing of those qualifications and the customer acceptances to start converting and generating the revenue.

Okay. Great. And how does the pipeline of opportunities look for the DFI right now?

Quite strong, actually. This is John, Blair. We do have other places where we would like to be able to ship machines. That's why if you did notice, we did spend some on CapEx this quarter in part to continue building machines, which we expect shipping in the first quarter of this coming year. We are hoping to squeeze in one more shipment this year, but it may be tight, just given the timing and what we're doing to bring up the machines already.

So quite strong across a handful of customers. It's not a huge market for eProbes, but there's probably between 5 and 10 customers in the world, and we do have probably closer to 5 where we are actively engaged in discussion.

Okay. Great. And then just on the secureWISE, you won a large contract there this quarter. How is that -- how is the go-to-market there now that you've had it for a couple of quarters? Just kind of a sense of how that is building.

Sure. Yes. We actually had -- at SEMICON, right after SEMICON last in Phoenix this year, we had a little, what we called Connected Summit because in the past, the secureWISE team had had our users conference in conjunction. What was different about that was we had not just equipment companies come, but also fab companies attend. And in that conference, Intel presented how they are using secureWISE as their standard connectivity platform for both internally as well as to support the equipment vendors.

We had felt that the way secureWISE had been run, it really only focused on the needs of the equipment vendors. And when we -- because of our DEX network, because of our work with the fabs and our -- just our general footprint, which, as I said in my prepared remarks, goes from everything from wafer makers through to system companies, we thought connectivity to the fabs was actually desired by lots of folks.

In fact, when we announced that acquisition, the first congrats I got was from one of our largest fabless customers, who was very intrigued with the ability to get remote access at the OSATs and fabs. And so the Intel contract was a way of us, saying, okay, we're going to provide base capability on every machine at Intel. They announced that they're going to put this on every machine front end, back end and test facilities for their use as well as to make it available for some modest level of usage at every equipment vendor.

When we talk to the equipment vendors that use secureWISE, one of their elements was not secureWISE itself, but the fact that they were not able to get it on every factory in the world, even if it was actually already installed at some factories, that factory may not give a specific equipment vendor access, maybe only the largest equipment vendors in the world typically got access at every factory in the world, and the smaller equipment vendors didn't feel like they were getting access, but they would much -- very much like it. They knew it makes them a lot more efficient, both for human-level collaboration as well as for AI-driven collaboration.

So now that we've had this company in our hands for the product in our hands, for maybe 7 months now, if I think about it, what we started doing is selling it much more broadly into the fabs as well as into the equipment vendors, creating collaboration across them, which is what I talked about at SEMICON West.

And we started piloting it at the OSATs and really merging it with our DEX network because the security and some of the features that secureWISE enables are very desirous, more broadly. So it becomes an integral part really within the first quarter, we were selling combined contracts, if you look at that first contract that we announced in Q2, which is really now that it's been announced, was effectively the Intel contract. And we see a lot more of that coming down the pipe.

[Operator Instructions] Our next question comes from the line of Clark Wright from D.A. Davidson.

Quick question just around the customer concentration mix. Your Customer A that you guys referenced year-over-year went from 19% to 38%. I'd love to understand kind of how you're winning bigger and as well as how you're looking at using secureWISE as a potential point of the spear to expand the overall customer base?

Yes, that's a great question. If you look at our business, really, we kind of think about it in 3 categories. There is the fabs. They tend to buy almost everything from us. If you look at just the discussion I had around secureWISE as well as the test vehicles, the eProbe, Exensio, et cetera. And those are very large contracts, typically multiple contracts with the same account. And hence, you see the customer concentration. It's really not often of one contract, but of many contracts that gets those customers.

They represent typically between 40% and 50% of our business in any given quarter, just looking at how things work. The fabless and system companies are around 35% to 45% of our business, and that's about 100-something, 150-ish companies. We are seeing more interest in AI on Exensio, the Exensio Cloud, the secureWISE connectivity and some of the what we call orchestration products, Sapience products.

There, we've had a number of wins over this past year and continue to drive business there. And then lastly, about 15%, and we think in the long term, closer to 20% are the equipment vendors. We have about 200 of them with the acquisition of secureWISE that certainly grows our business with those customers. And they have access -- they have desire for the same access points that the fabless did.

So the way we think about it over the long-term clock, you can think about fab customers as a nexus point. And they run factories and they control the data, but they need collaboration with their customers to get qualified, and their equipment suppliers to be able to reach effective use of the machines that they purchase and put into use in their factories.

And so secureWISE, as you pointed out, is the point of that spear because it allows us the collaboration across a number of those customers. And the Exensio contract that we did this quarter, it has an element with regard to secureWISE because they want to be able to reach their customers through secureWISE on the Exensio platform from a collaboration standpoint. So this is how we see PDF becoming a platform for the industry rather than a platform for each individual company. And secureWISE is a very important element to that.

Awesome. Appreciate that color. And then just as it relates to the announcement made in the end of September around the landmark contract, you reaffirmed your guide for this year. Is there anything we should be considering as it relates to kind of the 2026 picture and what you can say so far around how that deal potentially sets up the company for kind of the next leg of growth?

Yes. We haven't given guidance for 2026 yet, and we'll do that as we get through Q4 and we do our Q4 call. But obviously, as we grow backlog, you asked a question about other, we do see a number of other opportunities on the horizon for the company over the next couple of quarters. We hope to have a strong 2026 on top of a very good bookings 2025.

Our next question comes from the line of Gus Richard from Northland Capital Markets.

I'm just curious on the systems you're sending to the production site. How many tools per fab do you think the customer is going to need?

Yes. I think it's early to say, Gus. Obviously, we've put two in the first site. Two is a good number because at least as these things are used in mission-critical manufacturing, if one were to go down, you would want to be able to at least route critical material to the other. So I think very rarely would it be one? I think the minimum number is two. And then the question is, with any inspection capability, how much of the dance card can you fill up?

What we've noticed as we've installed machines around the world is it gets very quick to get these things filled at very high utilizations in part because they can see things that are very hard to see or maybe nearly impossible with other systems. So we'd like to go beyond the two, but right now, we think two.

Okay. So these are near production, but not necessarily in line, not -- there's not...

Not in product, that's in your words. No. I said the reason why they want to is if one goes down, they want to be able to continue production, right?

Okay. I just want to get it clear. And then of the -- you have several systems going out end of this year, beginning of next. I just want to understand, are these evaluation systems or are they for revenue?

These are mix. It will be a mix and then the next set of machines. There'll be a couple on eval and the remainder will be revenue machines.

[Operator Instructions] We have a follow-up question from Blair Abernethy from Rosblat.

John, I just wanted to follow up on the Hybrid AI studio. Can you just -- you said there's 100-or-so customers for that. I'm just wondering if you can give us some sense of the time line of when that can go to market with the Exensio platform, i.e., when is the integration sort of ready for customers?

Sure. And I said actually hundreds of users. It's actually a very, very small number of customers, Blair. And -- but thanks for asking that clarification. We will have an integration at the end of this quarter. We actually signed this contract quite a long time ago, but due to timing of other contracts, we needed to wait before we could announce it. And we had had discussions with them going all the way back to 2024 around this opportunity, we had evaluated it in early Q1.

As you can imagine, we were pretty busy in early Q1 because we're also closing secureWISE and then signed contract towards the end of Q1, then executed some activities in Q2 and announced in Q3, but we do -- so as a result, we've been working out with this code base for -- since all of Q3 and into Q4, and we expect to release some first level of integration with Exensio at the end of this quarter for some early access customers.

Okay. Great. Great. And then just on the Exensio Analytics business, what is the -- what's the renewal book look like as we kind of head into the end of 2025 here versus last year? And are you -- and maybe in recent contract signings, what sort of any changes in the term length of Exensio contract?

Yes. Typically, term lengths are 3 years. There are some that go as long as 5 and some that are short as 1 or 2. Our book is quite robust. The large contract we signed, the 8-figure contract we signed this last quarter was probably one of, if not the largest, stand-alone Exensio MA contract in the history of the company, as other larger contracts tended to have test operations or other components included in there. What we are seeing, we're going to talk about this at our user conference.

Customers really want to have a scalable AI-first analytics capability. We're going to show our road map and what we're doing to have kind of analytics with AI-first, and what that means in terms of parallelization, the advances we're making around how to get to very large data sets interactively. They want the human interactivity with data still, but they want to be able to operate on data where you've got 1 million parameters and 10 million data points. And you really can't do that with conventional business intelligence tools, right? If you look at Exensio or any of the tools out there, you're limited by the compute.

And -- we're going to show what we're doing to break through that problem. Studio AI is a very -- is an element to that, a very critical element to that because even when you're interacting with 1 million parameters, you need to use AI methods to screen and to tell you what part of that data set you should look at. And so what we'll demonstrate in December is ways of being able to operate interactively, leverage AI first and move -- work with data sets that you really couldn't do anything, but a batch mode in the past by leveraging basically a native AI approach and a natively parallel approach.

You can think of a lot like moving algorithms from CPUs to GPUs, you get to scale with compute. What we will show is how you can leverage GPUs and other computing elements in an interactive analytics capability. And we are hearing from our customers that this is what is desired. We have a number of renewals that are coming up this year, and primarily next year that I think will benefit from this capability.

Okay. Perfect. Great. Yes, excellent. The other question I just had was around Sapience. Anything to report there or any progress with the partnership with SAP?

Yes. We've got a number of activities going on, on Sapience contracts. We do expect to announce something related to Sapience in Q4 in terms of customer -- additional customer business. And you'll see us announce something in the Sapience family at our user conference that's really building on top of Sapience some capability targeted to the fabless and system company that we expect to announce at our user conference.

Our next question comes from the line of Clark Wright, D.A. Davidson.

Awesome. Appreciate the time. Look, any findings from SEMICON West in terms of how the end markets and the health of those sound relative to the beginning of the year or your expectations?

Yes. Clark, it's a great point. It was an interesting SEMICON, I think, because it's the first time SEMICON West was not in San Francisco, people couldn't go in and out. You're kind of stranded in Phoenix. So there was a lot more informal conversations. And we did meet with also a lot of our -- not just our equipment customers, but I would say our fabless customers and a lot of our fab customers. And what we heard were a few things. Yes, the build-out on AI is continuing to go on.

All the equipment customers participating in advanced packaging, everything around advanced nodes, on logic side do see and on the DRAM side, do see a pretty rosy outlook for 2026. I do think they're in a pretty strong position. Our customers selling into automotive, industrials and communications, the ones with very differentiated products do seem to be talking about a robust 2026, I think that's still a mixed bag. There are customers in that sector that have some challenges to work through, but I would say for the first time, the kind of ones that have very differentiated products that are much more bullish.

So I would say you start seeing kind of a more broad base of enthusiasm within the customer base, than, I would say, 3 months ago or 6 months ago, where it was really limited to just the people on the very advanced nodes and advanced packaging.

So I do think it was more broad, not fully, I would say, not fully broad to everybody, but definitely more broad than where it was in terms of positiveness than where it was 3 or 6 months ago. And then lastly, I would say, our fabless customers as they are becoming more and more embracing advanced packaging are recognizing they're becoming a manufacturer. And that means ability to communicate with the OSAT, more complex test data feed forward and other test flows. We had a lot of dialogues with customers on that topic and how can they effectively become more aware of what's going on in manufacturing.

In the past, they would order a wafer from the foundry. And once they hit wafer sort, there wasn't a lot to worry about. But now they've got everything from operationally make sure they have organic substrates available and manage the supply chain of that -- of the production post the wafer sort as well as having many more test insertion points and needing to be efficient in how they leverage. And we've heard a lot of dialogue from customers in that regard. And I think that will be a growing area, as we move from just the very few high-valued, not terribly high-volume chips driving advanced packaging today to a much broader set of customers trying to leverage these advanced packaging test flows.

Got it. And then in terms of Cimetrix and kind of the shadow backlog, last quarter, you kind of referenced the fact that tens of millions there, has that upticked as well this sequentially?

Yes. As I said in my prepared remarks, we had a very strong quarter. We referred to it as revenue because the booking and the revenue happened in the same quarter on the runtime licenses with secureWise. In other words, we get designed in on the SDK and then they ship. What we noticed is, as I said in my prepared remarks, at the end of 2024, and we see it again this year, is more equipment is shipping with our software than with any of the proprietary software systems that the companies build. And I think that's really giving our software the reputation of being very robust and very applicable.

A lot of our equipment companies that used to be on the front end are now trying to bring in tools to the back end. Our software is already proven in back-end assembly facilities. Our tester companies are doing much more sophisticated system-level tests with more robots, and our software is very proven with that capability, too. So we do see a fair amount of activity, design activity in some of the customers evaluating our SDK. Net, when you look at our runtime licenses, Q3 was very significant. It was a good quarter for us, a very good quarter for us.

We don't get a lot of visibility. So we hope to sustain that in Q4. We don't have as much visibility because we only see it when they ship. But overall, while quarter-by-quarter may be difficult to predict on an annual basis, the trend is quite positive as more and more equipment ships with our software, and they use our software for more functionality, which means they buy more of the Cimetrix modules.

Our next question comes from the line of Andrew Wiener, Samjo Capital.

I wanted to maybe follow up on, I think you touched on it a little bit in the last answer, but I noticed that 2 of your partners in the test space, Advantest and Teradyne both posted very strong results and outlooks. And you've talked in the past about Advantest and the complexity around test being a strong secular driver for the company. Can you maybe elaborate a little bit on what you're seeing and how the opportunity for us? Is it coincident with -- as they see strong shippings, does our bookings or opportunities lag theirs and sort of any other color you could provide?

Sure, Andrew. Thank you for the question. Yes, you're right, it tends to lag. We see that, by the way, with our yield ramp business over the years, too. And kind of my prepared remarks saying we've seen lots of people building out 3D production and test and assembly with -- and now they're trying to figure out how to get a good return on a lot of these investments.

We see that with -- that's part of what's driven our characterization vehicle and eProbe bookings over this year and a lot of our evals that are ongoing are folks recognizing they've got to get a return on what they've just put on the ground. So we would expect on the advanced test for advanced packaging, we will also lag our partners in that regard.

The biggest application we see, and we've got a number of pilots going on with customers is data feed forward. And what this means is they have -- as there's many more packaging steps, they have a lot of test insertion points. So they test more than once at wafer sort, more than once at final test and once at system-level test. There's multiple wafer sort tests, multiple test points package, even sometimes as part of the package flow. And then finally, system-level test. And they do these at different temperatures and different conditions for these very large data center chips.

The nature of that is they want to see forward data. Typically, they take the raw data, run an AI model, extract features and send it downstream to another test insertion point. And as the data is coming off that test, they will use that as a basis to decide to test more or test less.

Our original strategy on this, Andrew, was to not be in the modeling business at all, but provide them the infrastructure for kind of orchestrating the data up and down the supply chain. We've got pilots ongoing with that. We actually have a customer deployed using that on tens of tools now over a year in production across multiple OSATs. And even that customer has come back to us and said, "Hey, we need capability to be able to build and maintain the models, not just move the data around." And that was really the Tiber studio -- Tiber AI Studio, I forget the name, right.

We thought our customers would be able to do that on their own, or there were systems to do that on their own, but the reality is there's a lot of friction to getting that work done, too. And so the integration with Exensio Studio AI with Exensio ModelOps is to help them not only run the model in production, but manage the model through the build and through the life cycle in their central servers.

So I don't think this is a 1-quarter bang and everything is going great. Andrew, we're going to see win by win by win with customers, but I would say we have a handful of pilots going on in data feed forward at this point. We've got some in production already, and we do anticipate that to becoming an increasingly important part of our Exensio test business.

Okay. And would you think that would be like a 2026 sort of time line?

Yes. I mean, the majority of that business impact will be in 2026, to be honest. This year, there may be some additional contracts won, but the revenue impact will be de minimis.

And then following just -- I want to clarify something. So the 2 tools -- 2 DFIs that were shipped and are in the process of qualification, it sounded like the way you described it, they could get qualified this quarter, or maybe not. Is it then fair to say that, Adnan, I think in the past, you've talked about multiple ways to get to guidance. You guys feel comfortable with the guidance, even if there -- these tool qualifications slip into Q1?

Yes, Andrew, exactly. I mean, any time we're looking at a quarter, particularly when we're speaking to comments such as the ones that we put in my prepared remarks about, sequential growth for Q4, and also both in John's and my remarks about the reaffirmation of the 21% to 22% guidance, you're absolutely right. We're thinking about this and then other ways to get there. So look, if the timing happens this quarter, great, but like John said, there's many other opportunities we're working on across the product platform portfolio that we have.

And then maybe...

this is a little bit our timing. The timing on qualification would be towards the end of the quarter in any case. So the in or out is not a tremendous amount.

Okay. So again, the qualification of those tools regardless would be more of a tailwind to 2026 versus the earlier question about, correct. And then maybe just a little more color on -- I mean, obviously, you talked about rough engaged with 5 customers or potential customers on DFI. How -- is there memory customers in that bucket? Or are we still primarily focused on logic? And to the extent it's logic, is it -- you have 2 sort of other customers that have accepted tools? Are they looking at what your lead customer has done and the conversations around sort of a similar broader deployment along those lines?

Yes. It's actually all of the above. So with our existing customers, we see interest in more machines as they see the value, including the value of putting these in manufacturing and using these to monitor lines. They -- with new customers that are in the same areas our earlier customers, maybe at different feature sizes, but logic manufacturers. We do -- we started getting ongoing pilots with customers where they're sending us wafers and showing them what you can do. And it is a very unique capability.

So we're able to show usually within a wafer or a few what you could see that's hard to see elsewhere. And then lastly, as I've said throughout the year, we have interested in doing pilots on DRAM for just about 12 months now, maybe 13 months. And you got by sending wafers to our facility here in California. And we're getting ready to be able to ship.

I think the limiter on shipping is really us not at least one of those customers being in a position to ship given what we've been doing to bring up these machines and manufacturing this year. And at the engineering level, there's a lot of similarities to what we're doing in the logic side, but it's very, very different process technology, if it's memory versus a logic technology. But also exploiting the unique capability of the machine and the software.

Okay. And then just lastly on the Tiber. So just to be clear, like -- so it didn't -- we didn't come over with existing revenue. But in the press release, it said something about like supporting customers through this transition. Anything you -- sort of that contributes will be going out and selling once the integration is complete?

Yes, that's correct. The majority of the customers were not in semiconductors. Some have interest for us to support. And we may -- we are talking to only a very small handful about having them be supported on the stand-alone version of the product. Obviously, we licensed this from Intel. Intel itself was an internal user of the product. And for them, we will support it -- offer to support it both ways, both stand-alone and with Exensio. There's a lot, a lot of value getting it integrated in Exensio for a semiconductor customer, because it didn't really support any visualization of the data, the model, the results, just really visualization on running the models and algorithms.

So Exensio and you didn't have a database for storing the data set you want to use. And then once you're done, you want to be able to store all of that information, so you could always go back and recreate it, and Exensio has capability for that model registration and things like that.

So I think for that -- the user base, which is primarily at Intel, that was in semiconductors and using it, I think it's quite advantageous for them to use the integrated version. For the small number of non-semiconductor customers, they may use a stand-alone version.

[Operator Instructions] There are no further questions. Ladies and gentlemen, this concludes the program. Thank you for joining us on today's call.