PDF Solutions (NasdaqGS:PDFS) Q3 2025 Earnings Call November 06, 2025 05:00 PM ET Speaker1Good day, everyone, and welcome to the PDF Solutions conference call to discuss its financial results for the third quarter conference call ending Tuesday, September 30, 2025. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press Star 11 on your telephone. As a reminder, this con ...

Group 1: Company Overview - PDF Solutions (PDFS) shares increased by 15.2% to close at $25.96, with trading volume significantly higher than usual [1] - The stock has gained 13.3% over the past four weeks, indicating strong momentum [1] - The company is experiencing robust revenue growth driven by innovative solutions such as secureWISE, Sapience, and Exensio, along with increased adoption of AI and analytics in semiconductor manufacturing [1] Group 2: Financial Performance Expectations - PDF Solutions is expected to report quarterly earnings of $0.25 per share, unchanged from the same quarter last year [2] - Revenue is projected to be $56.6 million, reflecting a 22% increase compared to the year-ago quarter [2] Group 3: Market Trends and Stock Performance - Trends in earnings estimate revisions are strongly correlated with near-term stock price movements, suggesting that monitoring these trends is crucial for assessing stock strength [3] - The consensus EPS estimate for PDF Solutions has remained unchanged over the last 30 days, indicating stability in earnings expectations [4] - The stock currently holds a Zacks Rank of 3 (Hold), suggesting a neutral outlook [4]

Financial Data and Key Metrics Changes - The company achieved record revenues of $51.7 million for Q2, representing a 24% year-over-year increase and an 8% increase compared to the previous quarter [13][81]. - For the first half of the year, revenues grew by 20% year-over-year, meeting the long-term target of 20% revenue growth [14][82]. - Gross margins for Q2 were reported at 76%, exceeding the long-term target of 75% [15][84]. - The operating margin improved to 19% for Q2, up from the previous year [16][84]. - Earnings per share (EPS) for the quarter was $0.19, reflecting an 18% year-over-year growth for the first half of the year [17][85]. Business Line Data and Key Metrics Changes - Analytics revenue reached a record $48.8 million, up 28% from the same quarter last year, driven by characterization deals and the first full quarter of SecureWise revenues [14][82]. - Revenue contribution from integrated yield ramp decreased to $2.9 million from $3.5 million in the same quarter last year, attributed to the completion of fixed fee engagements [15][83]. - The backlog at the end of the quarter was $233 million, indicating growth momentum in bookings [15][83]. Market Data and Key Metrics Changes - Characterization bookings were particularly strong in Asia, with significant demand for solutions related to new node development [5][73]. - The company noted that a sizable fraction of revenue from China is derived from royalties and gain share from past deployments, which is expected to continue despite geopolitical tensions [40][108]. Company Strategy and Development Direction - The company anticipates revenue growth of 21% to 23% for the full year 2025, reaffirming prior guidance [4][18]. - The integration of SecureWise is progressing well, with expectations to complete system transitions by September [28][95]. - The company is focusing on enhancing supply chain orchestration through products like SecureWise and Sapient, which connect manufacturing operations to ERP systems [6][75]. Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's position to capitalize on trends in AI and advanced manufacturing processes [4][11]. - The company is optimistic about the growth opportunities in the semiconductor industry, particularly with the increasing demand for analytics and AI solutions [4][10]. - Management acknowledged the importance of the Chinese market while emphasizing a bifurcated operational strategy to mitigate risks [39][108]. Other Important Information - The company has consistently grown revenue, gross margins, and EPS from 2020 to 2024, with a 20% compound annual growth rate (CAGR) for revenue [12][80]. - The upcoming user conference and Analyst Day in December will showcase the impact of the PDF platform on the industry [11][79]. Q&A Session Summary Question: Can you provide more details on the traction with Sapient? - The recent contract was with an existing customer, focusing on the product side of an IDM, highlighting the need for visibility in supply chain management [22][92]. Question: How is the integration of SecureWise progressing? - The integration is on track for completion in September, with ongoing cross-training of sales teams and initial installations at OSATs [28][95]. Question: What is the expected run rate for CapEx spending? - The company anticipates managing CapEx at current levels or slightly below, depending on new opportunities that arise [32][101]. Question: How is the company positioned regarding potential disruptions in China? - The company has maintained a bifurcated operational strategy in China, allowing for continued revenue streams from past deployments despite geopolitical tensions [40][108]. Question: What is the outlook for the partnership with Intel? - Intel is expected to become a more significant customer, with the technology provided by the company becoming increasingly important as Intel opens its manufacturing to others [46][47].

Financial Data and Key Metrics Changes - Total revenues for Q1 2025 were $47.8 million, up 16% year over year [13] - Analytics revenue was $42.5 million, an increase of 10% year over year, but lower compared to the prior quarter due to eProbe sales [13] - IYR revenue increased significantly by 86% year over year, driven by new gainshare contracts [13] - Gross margin for Q1 was 77%, compared to 72% in the prior quarter and the same quarter last year [15] - Operating margin remained stable at 18%, with net income totaling $8.1 million or $0.21 per share, up approximately 40% year over year [16] Business Line Data and Key Metrics Changes - Significant bookings were driven by enterprise-wide solutions, particularly the Sapiens Manufacturing Hub [5] - Exensio bookings were primarily from Fabless and OSATs for offline analytics and test operations [5] - Symmetric's bookings were strong as equipment vendors increased shipments of advanced tool control and communication modules [5] Market Data and Key Metrics Changes - The company noted that tariffs have not significantly impacted customer behavior, particularly in the software business [9] - The semiconductor industry remains focused on advanced nodes and complex packaging, which are strong drivers for the company's solutions [4][9] Company Strategy and Development Direction - The company anticipates revenue growth of 21% to 23% for the year, despite macroeconomic uncertainties [10] - The integration of SecureWise is expected to enhance collaboration between OSATs, fabless foundries, and equipment vendors [8] - The company is refining plans for integration with its platform to leverage AI and machine learning capabilities [8] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the recovery of customers from a weak 2024 and noted strong demand for advanced processing solutions [4] - The company is optimistic about the potential for incremental revenue growth from shipped systems and ongoing customer engagements [6][10] - Management highlighted the importance of flexibility and nimbleness for customers in the current uncertain environment [70][72] Other Important Information - The company completed the acquisition of SecureWise for $130 million, which is expected to be accretive to earnings and operating margins [12][54] - The backlog at the end of the quarter was approximately $227 million, showing slight growth compared to the prior quarter [13] Q&A Session Summary Question: Details on revenue guidance and analytics growth - Management confirmed that overall expectations are in line with initial guidance, with meaningful growth anticipated in IYR due to a low base [20] - Advanced node capabilities are expected to drive analytics growth, with increased enterprise customer engagement [21][22] Question: Sales and marketing expense allocation - The company is investing in sales and marketing to support a wider product portfolio and enhance customer engagement [25][26] Question: SecureWise integration plan - Customers appreciate the security features of SecureWise, and the integration is expected to enhance collaboration across the supply chain [32][34] Question: Update on partnerships and potential contracts - The company has ongoing revenue from partnerships, including with Advantest, and anticipates growth in these relationships [61][62] Question: Capital allocation strategy - The company prioritizes debt reduction while remaining open to share buybacks when opportunities arise [78][80] Question: Gross margin profile of SecureWise - SecureWise is a highly recurring revenue business, expected to be accretive to overall gross margins [81][84]

Financial Data and Key Metrics Changes - Total revenues for the first quarter were $47.8 million, up 16% year over year [14] - Analytics revenue was $42.5 million, an increase of 10% year over year, but lower compared to the prior quarter [14] - IYR revenue increased significantly by 86% year over year, driven by new gainshare from customer engagement [14] - Gross margin for the first quarter was 77%, compared to 72% in the prior quarter and the same quarter last year [15] - Operating margin for the first quarter was 18%, consistent with the prior quarter and up from 12% year over year [16] - Net income for the quarter totaled $8.1 million, or $0.21 per share, up approximately 40% year over year [16] Business Line Data and Key Metrics Changes - Significant bookings were primarily for enterprise-wide solutions, particularly for Sapient's Manufacturing Hub Enterprise [5] - Exensio bookings were driven by Fabless and OSATs for offline analytics and test operations [5] - Symmetric's bookings were strong as equipment vendors utilized more runtime licenses [5] - SecureWise contributed less than one month of revenues, with expectations for IYR revenues to improve throughout the year [6] Market Data and Key Metrics Changes - The company anticipates growth of 21% to 23% for the year, despite macroeconomic uncertainties [11] - The semiconductor industry remains focused on advanced nodes and complex packaging, with no significant changes in customer behavior due to tariffs [10] Company Strategy and Development Direction - The company aims to establish itself as the leading independent data analytics platform optimized for the semiconductor industry [15] - Integration plans for SecureWise are being refined to enhance collaboration between OSATs, fabless foundries, and equipment vendors [8] - The company is focusing on enhancing its product offerings with machine learning and AI capabilities [15] Management's Comments on Operating Environment and Future Outlook - Management noted that the customer environment is mixed, with some recovering from a weak 2024 while others maintain momentum [4] - The company remains optimistic about its growth trajectory, reaffirming revenue growth estimates for the year [11] - Management highlighted the importance of flexibility and nimbleness for customers in the current uncertain environment [70] Other Important Information - The company completed the acquisition of SecureWise for $130 million, which is expected to be accretive to earnings and operating margins [13][55] - The company ended the quarter with cash and short-term investments of $54 million, down from $115 million due to the acquisition [17] Q&A Session Summary Question: Details on revenue guidance and analytics growth - Management confirmed that overall expectations are in line with initial guidance, with meaningful growth anticipated in IYR due to a low base [20][21] Question: Sales and marketing expense increase - The increase in sales and marketing expenses is aimed at enhancing engagement across a wide variety of product offerings and supporting ongoing pilots converting into bookings [24][26] Question: SecureWise integration plan - Customers appreciate the security features of SecureWise, and the integration is expected to enhance collaboration and operational efficiency [32][34] Question: Pipeline for Sapient Manufacturing Hub - Management expects to close additional contracts for SMH enterprise this year, driven by new workflows and AI capabilities [41] Question: DFI systems shipment details - Both shipped DFI systems were to existing logic customers, with expectations to ship additional systems in the second half of the year [46][47] Question: Challenges in analytics growth - Management noted that new innovations take time to be digested, and the complexity of deployments can delay substantial bookings [51][52] Question: Capital allocation strategy - The company prioritizes debt reduction while remaining open to share buybacks when opportunities arise [78] Question: SecureWise gross margin profile - SecureWise is a highly recurring revenue business, and its acquisition is expected to be accretive to overall gross margins [81][83]