Q3 2022 PDF Solutions Inc Earnings Call
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Please standby we're about to begin.
Good day, ladies and gentlemen, and welcome to the PDF solutions incorporated conference call to discuss its financial results for the third quarter, ending Wednesday August 31st 2022.
At this time all participants are in a listen only mode. Later, we will conduct a question and answer session for which instructions will be given at that time.
If you need assistance during the conference. Please press Star then zero on your telephone keypad.
As a reminder, this call 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 Dot PDF dotcom.
Some of the statements that will be made in the course of the conference are forward looking including statements regarding pdf's future financial results and performance growth rates and demand for it solutions P.
Pdf's actual results could differ materially you should refer to the section entitled risk factors on pages 17 through 30 of Pdf's annual report on Form 10-K for the fiscal year ended December 31st 2021, and similar disclosures and.
Subsequent SEC filings.
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 Hibernian, Pdf's, President and Chief Executive Officer.
And none of the lesser Pdf's Chief Financial Officer.
Mr. <unk>. Please go ahead.
Thank you for joining us on today's call.
You've not already seen our earnings press release management report and 10-Q for the third quarter. Please go to investors section of our website, where each has been posted.
I will start the discussion by providing commentary on the third quarter and early part of the fourth quarter.
From there I'll provide our impressions of the current state of the semiconductor industry the situation with respect to geopolitical factors.
The impact of the general economy on our business.
I will conclude with our expectations for business for the remainder of the year before handing the call over to <unk> for more detailed financial update.
On our last quarter's call, we expressed our confidence in the second half of 2022 bookings.
We pointed out that protracted nature of some of our larger multi element engagements with customers would mean that that bookings would be lumpy and generally stronger in the second half than the first half.
The third and early fourth quarter bookings show that we are realizing that prediction.
Notable investments include.
Bookings of symmetric onetime licenses were near all time highs, even as our equipment partners continued to experience part shortages that limited some of their shipments.
Bookings are extensive.
Quarter included an eight figure contract with a large integrated device manufacturer to renew cloud hosted manufacturing analytics, a number of additional years into deployment of test operations for both the customers internal task force multiple all sets, which enabled this customer to leverage the platform benefits.
And at the beginning of the fourth quarter, we booked a multiyear renewal for characterization and <unk> infrastructure and for services for a customer using PDF systems on the leading edge.
The last contract enables our customers engineers to use on the cloud accent video analytics and our software for IP hardening and design manufacturing co optimization as well as characterization vehicle test chips and our <unk>.
Hi systems on premise, but.
Contract terms through 2027.
The total value of the contract is the largest in our history.
It is also just the minimum commitment by the customer.
Oh it was when the contract is a mechanism that allows the customer to order additional elements such as additional cloud capacity or additional epo tools on a subscription base.
Revenue in the quarter was a significant step up over Q2, and our double go through the details.
This included additional revenue from organic growth and to ensure our 28 nanometer volumes at multiple customers, particularly in China.
It grew substantially for the third quarter.
Gained share from the most significant 28 nanometer contract runs through the end of the decade and is not subject to any current geopolitical restrictions.
A year ago, when our legacy games, you have contracts and it we felt that Q3 2021 would be the bottom for gain share revenue and we expect it to see a rebound for years. We have said that we expected gains on 28 nanometer, particularly in China will increase at some point.
We are pleased to see.
The increase this year.
Turning to partnerships, we continue to increase activity.
As you may have seen.
Vince has announced their app store with Forks sets you up already available we anticipate releasing additional apps to the augmented store in the fourth quarter. This year and early next year.
We booked additional licenses for our first integrated product dynamic parametric test or <unk> that was originally released in 2021.
With the success of D. P T.
These new apps available for the Acs edge box, we believe our relationship with advertisers will continue to progress.
You May have also seen that expense here is now featured on the manufacturing intelligence section of the Amazon website, covering AWS solutions for high Tech electronics and semiconductors.
Overall, we anticipate our investments in strategic collaborations will bear more fruit in the coming years.
With strong bookings and it makes sense to you some metrics connectivity characterization and DSI systems.
As well as continued progress with our partners the third quarter demonstrated PDF solutions broad value and strategic relevance across the IC ecosystem from.
From equipment companies the system manufacturers Pds data and analytics platform is becoming ubiquitous in the IC industry.
Moreover, our strong bookings in the year. So far means we will end 2022 with strong backlog.
Remember that our backlog does not include gained share some metrics onetime licenses, our overage charges for Excelsior usage.
When factoring in our expectations for beef as well as our committed backlog, we expect to enter 2023 and our strongest position ever.
Now, let me turn to our perspective on the geopolitical situation.
Industry and the general economy.
As many of you have seen as of October 7th the U S government placed restrictions on U S entities and persons from supporting leading edge logic, DRAM or flash facilities in China, but are not owned by multinationals.
We have been studying these regulations closely and I've worked with outside counsel in the U S government for clarification.
In addition to any potential impact on our ability to sell our support our products and services. We believe these new regulations that may impact our customers in China that are developing advanced notes and change their buying habits.
And believe it may delay some buying decisions on their part.
As a result.
Although our current business is not immediately impacted significantly we are being conservative in estimating the potential impact on our future business and in 2023 at this time.
There is a silver lining here.
And you see it in our revenue from China. This year when compared to last China revenue in the third quarter of this year is up 80% over last year last year's comparable quarter, primarily due to symmetric licenses <unk> and gained share even after adjusting for onetime gained share in Q3.
Moreover, PDF has been in China, since 2006, and particularly through the pandemic has built out a team that can support and serve our customers locally.
We have not had any U S expats in China since 2018.
Hence while there may be restrictions on some of our products, we anticipate our Chinese customers investing less in the leading edge technologies and more than 28 and above.
Well as improbable sensitive moving to production.
We therefore expect that we will have important products, we can sell them.
Sure.
Play with fully local support we believe China is an important market for PDF to continue to serve while ensuring full compliance with the U S. Walter regulations.
As for the <unk>.
Industry in general economy. It is clear that our customers to varying degrees, whether they are equipment foundry fabless or system business.
Experience seeing or anticipating a slowdown.
At the same time, the economic slowdown is occurring chips access passed in the U S and other countries and there are big movements in supply chain with customers expanding capacity globally.
As a result, it was a particularly active time in the industry with both benefits for and pressures on our business. So far the benefit greatly outweighed the pressures.
We believe this is due in part to the choices we have made over the years.
That have made the business more resilient.
This is the evidence that PDF solutions as well on the way to becoming the platform of choice for advanced data and analytics solutions for the IC ecosystem.
I want to thank our employees for their committed commitment to the company our customers and their colleagues, which has helped us drive through the Covid lockdown growth through the chip shortage navigate the geopolitical landscape and the chip supply corrections.
With a large backlog a strong PDF team located around the world value products and services and committed customers. We expect to continue success in driving adoption of our solutions.
Now I'll turn the call over to <unk> for review of the financials after which we will open the call for your questions.
Thank you John Good afternoon, everyone. Good to speak again with you today and I Hope all of you and your families are keeping safe.
I'm pleased to review the financial results of the third quarter and to bring you up to date on the progress of the business. We have 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 on today's call will be on a non-GAAP basis and a reconciliation to GAAP financials is provided in the materials on our website.
But as our results for the third quarter of 2022 were strong and continued our momentum with record revenue and solid year over year performance. It is worth noting that with the matrix acquisition, which closed in 2020. This year 2022 will reflect an entirely organic revenue growth.
Versus last year.
We are pleased to report that third quarter total revenue was $39 9 million up 35% from the comparable quarter last year and up 15% versus the prior quarter of Q2. This year. Our strong results were positively impacted by four factors.
First our 2022 bookings through today surpass our full year 2021 bookings.
Larger deal for the third quarter was a multiyear 10 plus million dollar expense, you'll deal with revenue recognition over time.
We believe has the opportunity to expand over the contract term and sets us up well for renewal from future elevated levels.
Q4 bookings through today exceed $100 million.
And will be recognized over multiple years, including this bookings for the second half of the year are already two times larger than bookings for the first half of the year.
Second we experienced one time increases this quarter in customer reported gain share shipments of approximately $2 million related to customer production periods earlier in the year.
Third our extensive business also had onetime services related revenue is recognized this quarter, which was significantly smaller than the one time increases in gain share I just mentioned.
Fourth our gain share during Q3 was more than three times the gain share in the year ago quarter, even after adjusting for the onetime gain share this quarter, while quarter to quarter, we may experience fluctuations due to customer production driven by two factors internal constraints and.
End market demand over the longer term, we expect to gain share to be a strong contributor to our results through the end of the decade.
Turning to the components of our revenue analytics revenue was up 21% to $32 9 million in Q3 this quarter versus same quarter last year was up 6% sequentially versus prior quarter of this year.
Across the board we are pleased with the strong year over year growth from all pieces of our analytics platform.
Cynthia analytics, leading edge and some metrics productivity.
Our revenue for the quarter was $7 million at <unk>.
<unk> increase of 196% for the same quarter on a year over year basis, and 97% versus Q2 of the year.
All of this is that we looked at 2023, we remain cautious about the macro geopolitical and regulatory environment and continue to evaluate the various restrictions, especially U S. China relations.
Our combined spend from cost of sales and operating expenses for the quarter was up one 9 million over the last quarter, driven primarily by increases in head count to support our growing business, some cloud cost and small increases in travel expenses as we visit customers.
Our gross margin for the quarter of 72% benefited from the one time high margin gain share during this quarter as we have said before while we have a strong focus on managing expenses from quarter to quarter, we will make the necessary investments to enhance our technological capabilities.
And competitive position to further cement the strategic relevance of our data analytics platform.
We are pleased with the positive 20 of non-GAAP EPS reported this quarter as a result of a combination of both items strong revenues and management of expenses.
For the year to date through Q3, we have now generated 41 of non-GAAP EPS, we look forward to Q4 and delivering a strong year.
Given the strong bookings growth, we expect to close this year with record backlog meaningfully above last year's level.
We also track on contracted backlog or what we internally call Shadow backlog, which is not reported in our committed backlog numbers and encompasses estimate for gained share some metrics licenses and over this on <unk> cloud usage.
While strong backlog will position us well for the coming years with multiple macroeconomic and regulatory changes we are evaluating our models for 2023 and will provide an update on the next earnings call concluding fiscal year 2022 results.
Turning to the balance sheet, we ended the quarter with cash cash equivalents and short term investments of approximately 116 million.
Please stand by while we reconnect our presenters.
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Again, please hold the line, while we try to reconnect your presenters.
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You May proceed.
Hello, how are we back on.
Yes, you May proceed great sorry about that after it is something of these I've done. This is the first time that's ever happened to us So I apologize for the drop I hope all of ordinance.
Our prepared remarks were communicated then we can go right to Q&A, we weren't really paying attention when we got dropped off.
Hello, If you would like to ask a question simply press the star key followed by the digit one on your telephone keypad.
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As a reminder, its star one if you'd like to ask a question or make a comment.
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Okay.
And it appears there are no questions at this time I'll turn the call back over to our presenters for any additional or closing comments are you sure about that.
Is there anybody actually dialed in right now because when we dropped off where they dropped off as well.
Also done 80, something of these and I've never had a call with no questions.
Yes, we have.
We have about.
We have quite a few participants when we didn't lose anyone else when your line disconnected.
Okay.
There were five more power Ross when my line dropped.
But I don't know if anyone can listen do we know if.
Other listeners on the call.
Yes, there are youre in income.
Okay, maybe we confirm that by going to Q&A and then confirm that then we will just repeat the script. The lobbies. So maybe you can open up the Q&A session and see if any other questions.
Absolutely again.
Star one to ask a question or make a comment.
If someone can signal just to confirm you can hear us.
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Again star one.
Andrew Your line is open can you confirm you can hear us.
Yes, I can hear you.
Hello can.
Jeremy I agree a hair under.
Okay, well first of all.
You got cut off when you were Todd starting to talk about.
The cash on the balance sheet.
Okay. So I don't know.
Our prepared remarks after that but that's what I got off of lease.
No and if it was only one paragraph left after which may be worthwhile repeating so if you'll allow me I'll just read it off quickly Andrew just to kind of keep the continuation going and then I'll turn it back to you as the first question.
So just to finish it off and thank you everybody else for your patients.
Turning to the balance sheet, we ended the quarter with cash cash equivalents and short term investments of approximately $116 million and no debt now turning to forecast for the full year revenue for 2022, we believe we can close out 2022 with year over year growth rate approaching 30% purely organically, which would be better than the 26% year over year growth. We delivered for 2021, we believe.
We are at the start of a multiyear growth cycle for PDF and our stockholders, where we've established our data analytics collection and connectivity platform and are starting to garner attention and recognition from the leading cloud infrastructure players ERP leaders and semiconductor test software and hardware platform and then we turn to questions.
Batteries are so they're back to you then thank you for your patience.
And again its star one to ask a question Andrew do you have a question.
Yes.
Hello, Jonathan can you hear me.
Yes, we can.
Can you hear us Andrew.
Hello.
Jeremy Andrew Andrew Please proceed.
Hello.
John We can hear you we can hear you okay.
Hey, sorry about that.
So on the last call you.
<unk> talked about having identified.
CLO.
Our valuable application of D F I and that sort of your initial customer.
Usage has.
Noticeably risen.
You sort of have some enthusiasm for.
Yes.
Selling either additional tools and driving sort of are there adoption or commercialization.
Perhaps you could give us a little bit more of an update did that deal.
In.
That you signed in early Q4 does that include an additional machine.
And any other sort of color you could provide on that would be great.
Sure Andrew.
The contract that we described.
That we signed early Q4 does include and.
And it's actually a big piece of it is these applications in particular, one that we talked about on the last call for.
Our design for inspection on the program does include a probe shipment in the contract.
And as I said in the prepared remarks. It also includes the ability to <unk>.
Consume additional machines.
Negotiated in the terms of the contract as well so they have the ability to expand.
Expand beyond what is minimally committed in the contract also.
And that's why I spoke with some confidence on the last call and as I said in prepared remarks. These are very large significant contracts that bookings tend to be lumpy. So one eight figure contract closed in the quarter in Q3, and one and the other contracts that we talked about the total bookings value for the other contracts in excess of a 100 million in Q4.
Those signed in the early part of Q4.
Second that eight figure I think IBM <unk> deal sounded like it was both.
Work internally as well as outdoor hosed SaaS.
It is this.
I think you've talked in the past about China.
Trying to secure some like beachhead customers for yes, it's really ramped up or expand the <unk> networks.
At <unk>.
You have to create this sort of virtuous.
Ability to.
Sure information throughout the ecosystem.
That involved here is this.
My reading too much into that.
Correct Andrew.
Yes. This does include both support for their internal.
First floors, which.
It's a closed world as well as PBS supporting fully decks nodes.
Their oath that run on Pdf's environment, so they as well as others can enjoy real time access to their <unk>.
Tests.
As well as some other contracts that we've been doing that.
Some of which we'll talk about in the future.
And the network of Dex node, and I think give customers more real time access to their data around the world.
And then I guess, maybe the last question I had was.
You know obviously, great to see the strength in the bookings through this call.
What are you seeing activity wise, you know sort of as you look through the balance of the quarter or is there still.
Gil.
Strong strong demand and a change in behavior at all.
Yes, yes, yes.
Obviously, the fourth quarter start up very strong we still have a number of.
Contracts in discussion negotiation with customers can we expect you are not done yet for the quarter were not sending everyone home on holiday in November 10th or whatever it is today. So there's enough there's a quite a bit to get done for the remainder of the year. We do see a lot of activity in that part of our customers and desire to move forward.
Obviously, we're not.
You too.
Not oblivious to the short.
Right.
The slowdown in the chip industry overall in the economy, but so far it's been very good for US and continues to be we just don't know what that means for 2023, you could look at it and say well that's great everything to be Super great. When you click on the general economy is going to be bad at this point, we have no clue.
We have no reason to change our own outlook internally I don't know how you guys are all going to build your models, but I don't know under what data you could use to meaningfully move models up or down in this environment. Because it's there's been a lot of local things that are quite good for us and when you look at the general market and said you know there's a lot of.
Troubling things out there geopolitically and drama comedy anyway.
Okay. Okay, great. Thank you.
Yes.
As a reminder, star one if you would like to ask a question or make a comment.
Signal by pressing star one at this time.
We will now hear from Tom <unk> D. A davidson.
Yes, Hello, good afternoon, and it turns out that the press star one like 20 times in the last nine finally works. So there was something wrong with the system getting to go.
I'm sure, there's probably others that have been pushing star ones as well.
Yes.
Anyway, John I was wondering if you could just give us a little bit more of your view of how the geopolitical restrictions are going to impact you in kind of a digital long term.
I know, there's a lot of cross currents going on right now, but just from a just a big picture point of view.
Yeah.
So from a big picture perspective, Tom we've been trying to square that circle.
Of course, there's the specific things with respect to our products, which one what we can and can't do in China, and how we can operate in China. There's a number of layers to that not only did the products need to have no U S content, but also the way you operate that needs to be in situations, where you don't.
I don't have a U S people involved if youre going to work with ABC factories, when we called ABC advanced node factories, we believe most of our activity with customers is not on leading edge, but actually on trailing edge facilities.
Fabulous companies accessing trailing edge fabs.
And other.
Other parts of the supply chain.
And so when we looked at our forecast out in 'twenty for bookings in 2023 and 24, we think some of the things that were associated with leading edge, probably won't happen because for a variety of reasons.
Not the least of which they can't get equipment to do what they need to do.
Uh huh.
At the same time, we see customers.
Accelerating what theyre doing on trailing edge nodes in China, and so we think it's going to change their buying behavior, which is kind of what we put in my prepared remarks.
We think we have plenty to sell them.
On those notes and capabilities, so kind of irrespective of what we are able to do with leading edge fabs. It doesn't really matter very much. We think most of the market for us and China will be on the mature nodes.
In 2023, and then what we don't know is just.
How will the buying patterns change in China.
U S has been very aggressive with these restrictions.
We don't know how the Chinese government will react and what that means and so.
It gives us a moment of pause just to think okay. We don't really even whether we are even if we have customers that want to buy and we have things that we can sell them in ways of delivering et cetera.
We don't know what it really means over the long term.
Short and medium term, it's been quite good for us.
On 28 nanometers, we talked about the gain share on <unk>.
Cynthia usage et cetera.
Yeah, we look further out.
We're going to assess what really is going to happen I think it's very hard.
To forecast the future in this regard because okay.
That's very helpful. When you look at the mature nodes is it across the board of the mature nodes or is there a particular sector like power silicon carbide, that's really driving a lot of that activity level right. Now it is across the board. There you know they have a big effort on order on electrification of automobiles in China. So you do see a lot on the high voltage stuff.
Going on in China, you see also 28 nanometer in Microcontrollers in Iot, if things and stuff like that and everything in between.
So we do see quite a bit of activity with customers across many product families that are not subject to.
U S restrictions at this time.
Okay, and then moved over to the gain share it sounds like there was about a $2 million one time piece of that.
That just for work done in prior quarters, it's a catch up period, well or is there something more to it yeah.
First of all we were happy that that entire number is much higher than we expected and overall it helped the trend compared to Q3 of last year, but what we're seeing so yeah I think the right way to think about it as on a year to date basis in terms of progress and yes. It related to it later reporting from the customer, particularly some of those customers are experiencing some COVID-19 related shutdowns and so forth.
Our reporting standpoint, they're there.
Caught up with the reporting during this quarter.
Okay, but it looks like even if you take out that 2 billion euro.
Go ahead with your production inside 2022 right.
Caught up on reporting in Q3 in part because I think some of their ability to operate their offices during the COVID-19 shutdowns, okay, but if you take out the $2 million is still showing some nice growth in that line item.
Yes, I mean Q3, just for that particular customer in of itself. Even if you took out the one time adjustments.
Very respectable growth compared to Q1 and beauty Q2 of this year so.
Overall from desktop probably starting to see the volumes ramp up similar to what Jon said earlier that it's.
Trailing edge volumes that we see picking up.
Great and then finally, obviously nice to see the advantest offer the DPT come out how many such projects do you have.
Do you think rollout over the next several years.
Oh, sorry, yes, it's hard to forecast.
But I can say over the next couple of quarters, we expect to put out a number of additional applications for advent tests that you will see us announce and there's also other activities with you know.
Siemens Hudson.
Our product position going on work with Kulicke and cell phone product position on work their activities with the SAP and the prioritization of the integration of.
Analytics with ERP systems. So each one of these partnerships can we take them on we make a commitment on the development side not just the kind of marketing.
And press release side of it and so they.
There will be products associate or at least one product associated with each one of these.
Releases in the case of advent tests, where we have the most work going on.
We are already at.
For on the website plus DPT in a handful more of them. The next couple of quarters that will quickly be approaching 10 apps.
Apps.
Across just for them.
That's great to hear okay, well. Thank you both for your time today.
Next we'll hear from Gus Richard of Northland.
Yes.
Thanks for taking my question I think I'd be Tom on the number of times I hit Star one.
Okay.
Real quick on on this new contract you got it you know part of it and see it.
Like it is a subscription service or are you shifting a tool and sort.
Sure.
What does that do to the availability of EFI tools.
After this transaction.
Sure.
Does include shipping the tool as I said in my prepared remarks, <unk> and our IP.
Hardening software we call templates are.
Our design manufacturing co.
Patient suffering Cal fire those were a bit up on the extensive cloud so they access that from the cloud, but obviously the characterization vehicles.
<unk> infrastructure needs to be on premise and so those are on premise and that will ship that will of course reduce.
While fewer machines that we could ship.
With you guys. So we have really only a couple that we could truly shipped to customers.
At this point beyond what we're committed to it.
In 2023 and.
We also were very careful to make sure we've got customers really fully getting maximum value of what we shipped.
And moving.
Moving appropriately we think theres, a plenty of revenue growth and the way we've structured the business. So that we can make sure we support the customer well they get the full leverage off the capability I think we're well on our way to making that work.
With this existing install base as well as being able to take on additional customer.
Got it and then on the <unk>.
A secret deal.
That was an existing customer.
Unlike with the new contract could you give me a sense of.
They were at a certain run rate how much did it increase in this new contract and then do you have other ones like it teed up.
Yeah.
Yeah.
Yeah specific to how much of increase it was in the tens of percent of the specific number I don't know.
Off the top of my head it.
Is <unk>.
Expansion on all their test floors.
It is a movement to the cloud for the infrastructure.
From a very distributed on premise deployment.
It also includes the ability for them to expand into.
Advanced AI and analytics.
Connections to their ERP and other things that our upsells as well as the expansions on number of testers.
Capacity et cetera.
While it isn't as big a deal on it is I think the largest contract with the exception of <unk>.
I'd been tested we've ever close for <unk>. It has the ability to grow pretty substantially.
Secondly, do we have others like this yes, almost all of our customers.
Many of the customers I should say all the customers that are on accenture cloud or on their manufacturing analytics are starting to see the potential of connecting their cloud to the edge with.
Our.
<unk> notes in etch capability is the ability for them to get higher.
Operational efficiency on their manufacturing assets, better product quality and better product yields and in this case, we're able to demonstrate that to the customer and we're really psyched about the commitment they made to accent here, we are engaged with other customers on similar.
Expansion some of them are partway through their contract. This is a customer that was at the end of their time based licenses. So it all got done it's one renewal other customers you may see them just tack on.
Yeah.
Contract value.
Annual recurring run rate will be similar in size if not larger.
Okay. So this was a transition from T b L to perpetual.
Cloud.
<unk> cloud rather.
Not perpetual yes, yes, yes.
Got it.
And then last one for me.
On the deferred revenue line it was up quite a bit sequentially and I was just.
Wondering what that was related to.
Yeah, I mean part of it is going to be billings that happened within the quarter.
You have some big customers one of them that John mentioned related to advent tests right there wouldn't be the billings and the deferred revenue will move up because of that and then we'll work our way through consuming that of course some of the bookings number if there'd been build will also start to reflect on that so.
Overall, it's the it's the billings related impact that youll start to see in the deferred revenue, which we're happy about.
Got it alright, thanks, so much thanks.
Thanks, guys, sorry about the foods.
When it happens.
Again star one to ask a question next we'll hear from Christian Schwab of Hallum Capital Group.
Hey, guys. So I'm just a quick question maybe it was in the prepared comments I know, we talked about a greater than $100 million in bookings I think last quarter. You said your backlog was at 184 billion do you have an updated number for us.
Yes, we put it in the filing it's about $185 million, which by the way, yes, it's only up about $1 million or so but the reality is the fact that we had a record revenue quarter and still we're able to incrementally move up the backlog is something that makes sense and the $100 million.
I'll keep it brief.
On the call Christian you might Miss was it for Q4 so it's.
What I meant is referring to is the value at the end of Q3. So you would take that booking and make it additive to that.
Backlog number.
Excellent Okay, perfect, that's where it is it fair slightly confused.
And then Brad you know I appreciate I think.
Beginning of the prepared comments I think you guys were going to wait one more quarter to you know given the situation.
Situation in China.
Slowdown of dislocations certain high volume market that the semiconductor industry is facing.
That being said you know we started the year thinking that you know where you are.
20% to 25%.
We're going to end up at 30%.
We've added new partners, we've just talked about big huge deals.
And you talked about bookings.
<unk> you are going to happen in Q4.
I mean as a baseline I assume it's safe for us, we still think about 20% to 25%.
23.
Yeah I mean.
At this point because we really we are we normally would give us a perspective in our February call and we still want to.
That would mean in the year, where they kind of more visibility. This is a pretty crazy year.
You know I jokingly said I like our house I'm not sure about the neighborhood.
You know when you just look around we don't know how that's how that stuff isn't going to affect us at some point so far it hasn't had obviously a great year on the process to have a great year. So we are just being cautious if I were you.
We're not changing our internal models I don't know why someone would change your models on the outside yet until we get a little further along its very easy to just go back and change that might because I understand what you're talking about at all when you look at our stock pattern, it's very positive and it's easy to get excited.
But.
At this point.
It's may be to not change things until we understand more about the world.
Great and then my last question is just a further clarity on China. So you have limited exposure.
Leading edge.
Memory or foundry logic customers, where a lot of Oh, well, where the government has stopped the ability of.
You have companies to work with did I hear that correct first.
Roughly you know.
Your Chinese exposure.
Peaking nationalistically you know not.
Chinese manufacturers have facilities, there who already.
But nationalistic Chinese based companies.
Do you have a rough estimate of your.
<unk> to the leading edge.
Yeah, we do.
<unk>.
We believe that we're relatively.
Insulated from from the leading edge on that piece and we do but we do look at places where our own team had forecasted selling into leading edge facilities that we have to go back and look at I think the bigger factor than whether we can sell or not and what we can do or not.
If you can't get lithography systems, if you can't get answers.
If you can't get deposition tools and Theres not a lot of data to analyze and there's nothing you can run the vehicles through so.
We think that's going to change and we're already seeing the way customers are reacting a little bit we believe theyre going to pivot a lot more to a mature nodes where their ability to execute is unfettered and theyre.
They are able to execute as you can see by nature of our gain share report this quarter. So we expect that.
And actually the market is going to pivot that way, we're still waiting to see that would be very good if that happened.
We're still waiting to see.
We know these are practical business folks over there we go.
Theyre going to tilt that windmills, if they can if they can execute.
Alright, that's good alright buying habits.
Alright.
Thank you for that I think a lot of people agree they'll just take the wafer starts to end.
And move into where they can get access to front end equipment, they're not going to stop making like get doctors.
Great.
Great Alright, perfect no other questions. Thank you.
Christian.
As a reminder, if you'd like to ask a question or make a comment.
Star one at this time.
And we will now hear from Blair Abernethy of Rosenblatt.
Thanks, very much and nice quarter guys.
And then I was just wondering if you could just go back for a moment.
Just before you were cut off in your prepared remarks, you started talking about the shadow backlog estimates versus your.
I guess your appeal was 185 point for this quarter can you just give us a little more insight into how youre, how youre looking at that and just just.
Any way you could size it for us.
Yeah look I mean, I will tell you explain a little bit more about.
What we think that goes into the shadow backlog and what it is in terms of sizing what we're doing today is frankly, just starting to talk to you all about this.
Hopefully the future analyst day, or something like that we can talk a little bit more about the sizing that would be our desire, but in terms of how we measure backlog. It is and reported in our filings. There is the contracted number that'd be happier customers right, but what is not included are the pieces that you alluded to which is what we call shadow backlog, which is really the gain share that could come into future periods.
We could also be the second piece of runtime licenses for some metrics, where we just get a customer order and fulfill it within the quarter and then the third piece of course is the overages.
It makes sense to you.
Even though the third piece or started to get some of those pieces and and you know if you look at each one of those.
Strike at each one of those and then the gain share side their customers with whom we have contracts all the way through the end of the decade on the royalty licenses side, even if the world was to fall apart. There's an argument. If you said okay. There are certain number of customer shipments that would happen. It felt like there would be zero. So some estimate it would be fair to think about and similar to what extent do you use it as a platform is becoming more relevant.
More present and broadly adopted within the organizations. We have seen the usage go up so we expect that they'll be able to do much more but maybe I can provide a little bit of like a market depth to that answer. So if you just look at gain share we put in our backlog estimate zero, yes, as we said the customer surprised us in Q3 with substantial number we know it's not going to zero in Q4 and as I.
And until those contracts run out through some of them run out to the end of the decade. So in our own model. We started just go through and say, okay, what would be a likely value per quarter over the next seven years for that contract that contract and then layer that in for the other contracts.
Houston down in the old days, we had it for a while because we've just gotten so disappointed with the uptake on gained share in China that we.
Stopped looking at it suddenly what the runtime licenses the way we work on symmetric says we sell a design kit software design kit development kit that the customer that embeds, our software with their equipment.
We don't put in the backlog any estimate for them selling equipment, but they sold.
Our runtime licenses last quarter, where obviously millions of dollars and so the next quarter, they're going to sell something right.
Once its designed into the equipment, they're not going to take it out right. So for that equipment to life in all likelihood every time they sell equipment. There will be a one time license that will come our way we've started to put some estimates on that assuming a certain shelf life for a piece of equipment and up and down markets et cetera, and again similar in magnitude to what.
We think about the gain share number and then lastly, and our extensive contracts if customers want to use more storage or wanted to be able to load data faster or connect more testers often there are there are.
Overage charges and the contracts again, but since those are not committed does not go into our backlog and now we're starting to see customers go over and us build them. So we're starting to spend a little bit about the yoga because thats the one where the newest in right. We have not been at the cloud business. So long. We're just still learning that wasn't the most I would say that was one where you had the least.
I understand I mean.
Yeah, we're starting to understand a little bit better and that's kind of the nature of the shadow backlog.
An insignificant number.
Yeah, we'll start to quantify it for you all.
Until next year.
That's really helpful. Thank you very much.
And one other question.
Just on renewals and I guess, if we're looking at that metrics.
Metrics customers as an example.
Yeah.
In particular, what's the renewal profile looks like is it fair for next year or is it fairly evenly spread out or.
Is it kind of more backend loaded and what what kind of.
Expansion or pricing opportunities do you have on some of your renewals.
Yeah, I could tell you.
Let me try to answer that a little bit more broadly I mean, there is there are renewals every year I don't know that we've seen like a particular pattern to it yet.
In terms of one year over the next or one quarter over another.
Hum.
Yes, I don't know that we could really give you an answer on the profile from that perspective.
As far as so.
So far on the extent to your renewal peer.
No.
Average.
Our contract value per year has gone up pretty substantially I talked about them on the call.
The last few quarters, but they are in the tens of percent at least.
Annual recurring run rate increases.
Usually pretty substantial.
We are still quantifying that to get enough of a sample size and you can kind of draw an inference.
Yes.
Symmetric specifically since you asked about that Blair.
There's really two elements on a backlog there one is the software development kit development kits are used to be perpetual as more and more we are selling those on time based licenses. So those are becoming TBS too that is a smaller part of the symmetric revenue the larger part of its metrics revenue as those one time licenses, which.
Perpetual licenses will be recognized upon the customers.
Accepting the license to put on equipment to sell there's been a growing backlog on that over these last few quarters, including in the third quarter. We believe as customers as I said in my prepared remarks are not able to ship all the equipment. They would have liked to ship in the quarter, probably due to the chip shortage, but that that backlog as a percentage of the total quarterly <unk>.
<unk> is not like the extent of your business, where backlog is much greater than quarterly revenue because it represents the most contracts are two or three or four years on like so.
Backlog at any given time is a very substantial part of the country.
Martin exceptional quarterly revenue many times over.
Okay, great. Thanks, very much guys.
Yeah.
At this time there are no further questions, ladies and gentlemen.
This concludes the program. Thank you for joining us today.
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