Q4 2022 PDF Solutions Inc Earnings Call
Yeah.
Good day, everyone and welcome to the PDF Solutions, Inc Conference call to discuss its financial results for the fourth quarter and year end 2022 conference call ending Saturday December 31st 2022 at this time all participants are in listen only.
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 one one on your telephone.
As a reminder, this conference is being recorded.
You have not yet received a copy of the corresponding press release. It has been posted to Pdf's website at Www Dot P. D F dotcom.
Some of the statements that will be made in the course of this conference are forward looking.
These statements regarding pdf's future financial results and performance.
Both rates and demand for it solutions.
Pdf's actual results could differ materially you should refer to the section two.
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. The forward looking statements and risks stated in this conference call are based.
Upon information available to PDF today P.
But assumes no obligation to update them.
Now I'd like to introduce John Berrien, Pdf's, President and Chief Executive Officer, and Roger Pdf's, Chief Financial Officer. Mr. Berrien. 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 industrial section of our website, where each has been posted.
As Don will discuss in more detail 2022. It was another record year for total revenue in a year, where our analytics business achieved tremendous growth.
And 40% year over year.
That on top of 63% growth in 2021, which benefited from an inorganic growth associated with us the matrix acquisition.
Beyond the strong growth we've laid the foundation for continued success in 2023 be at.
Today I'll provide a summary for the fourth quarter and 2022.
Our perspective on the market in 2023, and then conclude with remarks about our growth for 2023.
During 2022 overall in Q4, specifically PBF was increasingly recognized by our customers is critical to their success and developing ramping in controlling new products and processes.
During the year.
More than 20 companies booked over $1 million in business with PDF, representing just under 90% of total bookings. These.
These companies span the ICC supply chain from equipment makers to foundries to ibm's to Fabless companies.
We spend most end markets also from advanced computing to RF to Microcontrollers to memory analog chips.
Our customers serve virtually all major markets that consume integrated circuits, such as automotive industrial consumer and computing.
Beyond customers committing to PDF partner activity in 2022 was at an all time high.
Leading equipment ERP analytics and cloud partners appreciate the strategic relevance of P. D F and the opportunities that we can jointly provide our mutual customers.
Building on our successful dynamic parametric test in 2022, we announced numerous applications available on Adventist Acs edge that leveraged <unk> analytics.
All in real time control.
In the summer, we announced our first products available on the S&P application store.
Our collaboration has been well received and evaluations picked up pace throughout 2022.
In each case, whether it's been tough.
Siemens can us IBM or AWS, we could not just marketing effort, but R&D to fully integrate the partner's data and capabilities. So does align with accenture semantic model.
This allows for our joint customers do have benefits in their manufacturing that are not possible before.
We anticipate in 2023 and beyond we will see increased contributions of these cabo collaborations to our revenues.
2022 was a strong year and our product development. The result of continued and persistent R&D investments.
For example, we released the direct scan application for our <unk> system.
This enables our customers to use design information for direct electrical inspection on their most critical parts of the.
Chip to find defects in the.
And as a result ramp faster.
Okay.
We also released our guide your analytics module for <unk>, which Leverages AI ml to direct engineers to focus on the part of the manufacturing data that is important to their success.
With our customer storing hundreds of terabytes of data and moving to Petabytes of data and <unk>, they need to leverage ml to make sure. They find the needles in the haystack and control product production to achieve the highest yields and reliability with the highest throughput.
Speed to detect and control for our customers will increasingly benefit from our ml solution offerings, such as got analytics and there'll be more to come.
We made big advances in tool communication and data collection, what are symmetric symmetric offering supporting them, leading new standards for single Die traceability tool data collection and efficient and secure transfer of the data to the cloud.
As a result of customer partner commitments to PDF and a strong product development analytics revenue grew 40% year over year in 2022 to over $130 million.
This is over double the 57 million we reported in 2020.
Without the ARPA growth in analytics, which is obviously more than the 20% per year that we committed came impressive became improvements in gross margin and operating margins.
We exited the year with over $270 million in backlog.
I would add that we also track shadow backlog, which represents our expectations of future gained share shipments of symmetric runtime licenses and overcharges for extensive cloud usage beyond committed levels.
When factoring reasonable expectations for these we believe that the company is in a very strong financial position further bolstered by the positive impact of our products and services are having on our customers' businesses.
Q4 in 2020 to demonstrate the success of Pdf's products and solutions in the market I want to thank our customers partners employees and contractors for their commitment to the company.
As we begin 2023, the semi country environment is very different than it was when we started 2022.
Today, our customers are show are slowing capacity expansions and in some cases suffering from oversupply.
Offsetting those headwinds we find we find that customers are continuing to invest in process and product development.
Moreover, the significant shift in the supply chain is increasing investments in new capabilities around the world.
Geopolitical factors are increasing government support for restoring capacity.
As an economist magazine article pointed out recently over $380 billion in government support, including the U S. Chips Act has been committed around the world.
Underpinning this increased activity in development and government support for R&D and capacity. We believe our two growth factors that are beyond the usual increased use of silicon and conventional markets such as phones computing internet of things.
First we believe that technologies, such as Silicon carbide high voltage transistors and semi cultural like processing for EV battery manufacturing will benefit from the shift of the energy economy from carbon based sources to electrification over the next 10 years.
Production of these products will increasingly need advanced analytics and process control such as what we provide.
Second the increased use of AI ml content, the cost of exponentially increased increasing amounts of computing and again pdfs capabilities to enable our customers to build these ever increasingly complex systems and high volumes will be critical.
As we look through 2023, although what factors in both the caution associated with the oversupply and the opportunities that these longer term trends provide.
With respect.
To caution.
We know that our runtime licenses for equipment connectivity track with our customers' equipment sales our gain share tracks with our foundry customers' wafer shipments.
And our overcharges for Accenture cloud depend on the volume of chips processed hence.
Hence, we do expect that some of our revenues could be negatively impacted by business correction.
With respect to opportunities. We anticipate continued increased demand in 2023 for our analytics platform, particularly to superb product and process development and reassuring production capacity.
This demand will increasingly benefit from our collaboration with partners, which we believe will contribute more significantly in 2023 than in the past.
As a result.
And even though that even against the backdrop of a 30% growth in 2022, we expect to grow revenue in 2023.
Now I will turn the call over to <unk>, who will provide more detailed comments on our results.
Thank you John and good afternoon, everyone could speak with you again today and I Hope all of you and your families are keeping safe. We are pleased to review the financial results for the full year and the fourth quarter of 2022.
We posted our earnings release and management report in the Investor Relations section of our website. Our Form 10-K with final results will be filed with the SEC in early March after review by our auditors.
Please note that all the financial results are discussed 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 John indicated in his comments 2022 was a year of solid performance for PDF solutions, we generated record revenues of $148 5 million versus $111 1 million in 2021 at 34% year over year increase while 34% year over year revenue growth as a remark.
It will in of itself it is worth noting a few highlights.
First the growth in 2022 was entirely organic after we completed the symmetric acquisition in 2020 and delivered 26% revenue growth for 2021.
Second the analytics business grew in 2022 at a 40% year over year rate.
Third we saw positive customer momentum in all our analytic product families of accenture to metrics and leading edge.
Our bookings for the year were strong at over $200 million and grew faster than our revenue growth rate.
While we are pleased with the strength of bookings were even more pleased with the strong and healthy backlog at the end of the year exceeding our quarter $1 billion.
Our backlog of $278 million grew 55% year over year and gives us a solid foundation for predictability and longevity of the business.
Our strong bookings and backlog are a testament to the value customers see in the PDF platform, including data collection connectivity and powerful analytics.
For the full year 2023, we expect to grow total revenues at rates approaching mid teens percent on a year over year basis.
Over the longer term, we continue to remain committed to our 20% or better growth rate target for the analytics business.
For the fourth quarter of 2022, our total revenue was $40 5 million up 36% versus Q4 of 2021.
Our analytics revenue this quarter also grew 32% versus the same quarter of prior year.
We also saw strength in our <unk> business with 69% growth versus the comparable quarter of prior year, primarily driven by an increase in gain share.
Our gross margin was 74% and we reported EPS of <unk> 19 per share for the fourth quarter.
Turning back to the full year 2000 credited to our results I will now provide detailed comments.
For the full year analytics revenue increased 40% to $135 million versus 2021.
Our progress to become the leading analytics software provider for the global semiconductor supply chain continues to be strong analytics is now the dominant component of our overall business at 88% of total revenues.
Our extensive product revenues are now starting to benefit from renewal uplift of cloud deals. We originally signed a few years ago software sales for new fab site installations, and multiple module utilization by our customers.
Our leading edge solution has established once again its unique value proposition for customers with advanced nodes, where we provide a unique data collection and fast powerful analysis of manufacturing related data to improve yield for their next generation advanced products.
For our symmetric products, we are emboldened by the number of new equipment design wins certifying PDF the metrics product connectivity software for multiple new equipment platforms, giving us further confidence in our shadow backlog as these equipment product go to market and become more successful.
As another data point worth, noting our full year analytics revenue for 2022 was more than the total company revenue for the prior year 2021.
This is the second year in a row, we have achieved this milestone.
For 2022, <unk> revenue comprised 12% of total revenues at $18 1 million and was essentially similar to our <unk> revenue last year, even though this year. We did not have the benefit of a legacy gain share contract from a long tenured customer.
We're also pleased that gateway for new customers grew this year, which we will continue to watch carefully.
Gross margin for 2022 increased to 71% up from 64% in 2021 or an expansion of approximately 700 basis points.
We're able to grow the gross margin because we carefully managed costs did not grow faster than our revenue growth in particular, we manage their cloud spend and focus the efforts of our people and resources.
It feels good to have now achieved for the full year 2022, the gross margin target of 70%, which we had set as our long term target.
Turning to the operating expenses, we also control the growth of our R&D and SG&A expenses to stay below our revenue growth, thereby expanding our operating margins for the year.
Our main expenses in the R&D and SG&A category related to head count as we invest in a highly talented and geographically distributed workforce and ensure we build our sales marketing and G&A infrastructure to support our growing business.
All while benefiting from economies of scale.
Our R&D and SG&A expenses as a percentage of revenue came in at 31% and 24% respectively, both less than last year's comparable levels.
For the year 2022, we reported EPS of 60 cents, a share demonstrating a meaningful growth compared to the eight per share we reported for the year 2021.
Capex for the year totaled $8 4 million versus $4 1 million in full year 2021, as we have invested primarily in data collection systems for our leading edge business.
For the year 2022, we generated positive cash flow of $32 3 million.
Compared to $4 2 million for the prior year 2021.
We are pleased with another year of positive operating cash flow generation consistent with our history.
During the year, we also bought back $22 5 million of PDF stock at an average price of just over $24 per share, which we believe was an effective way of returning cash to our stockholders and which allowed us to keep our weighted average diluted shares essentially flat for 2022 compared to 2021.
Turning to the balance sheet, we ended the year 'twenty <unk>, two with cash and equivalents of $139 2 million compared to $142 million at the end of prior year and the carrying no debt.
Our cash was essentially flat year over year, even after $8 4 million of Capex and $22 5 million of stock buyback due to strong operating cash flow generation.
We are proud of the performance of <unk> to remain committed to our long term business fundamentals and are pleased with the fortunate position we are in with our backlog of over a quarter billion.
All coupled with a healthy balance sheet.
We're trying to phase III, we look forward to another growth year on top of the strong growth delivered in the prior year with year over year growth rates approaching mid teens percent.
With that I'll turn the call over to the operator to commence the Q&A session operator.
Thank you Mr Ray Zhang ladies and gentlemen, if you have a question at this time. Please press star one one on your telephone.
You're using a speaker phone please lift the handset before asking a question. Please wait one moment for our first question.
Our first question comes from the line of Blair Abernethy from Rosenblatt Securities.
Hi, good afternoon gentlemen.
Good afternoon.
Alright.
Great quarter, and great way to finish the year just wanted to ask you a little bit.
About.
It's more about the partners you sort of touched on SAP.
In the quarter, but in the prepared remarks, but maybe just expand upon how you're progressing with some of the major partner opportunities you've been working on the last few years.
Sure. Thanks Blair.
So I'll kind of run through them all.
Let's say three of them Advantest I said in my prepared remarks, we released I think.
Four or five absolutely App store, we expect over the next couple of months to release, a number more taking advantage of <unk> feed forward and feedback and ml capabilities so customers that.
Different test insertions can use data from previous test points to make better control screening choices are very important for our customers, particularly out of doing system in package and they want to make sure. They match the right <unk> the right Giblets and the right package.
You will see those.
Coming out more of those coming out this year and more announcements about customer adoption of that capability, Secondly, Siemens really Siemens <unk>.
Software is used to generate test vectors and then at the end when the tests are complete to do fault diagnostics to localize where in the chip default might be you do that after you get the chip.
Tested the final metal layer, maybe metal 15 or 17 these days.
Hello, Matt fault diagnostics, you would like that for diagnostics to look at every other piece of information about that chip. Its parametric test data in line factory data data from other test insertion points and.
In Accenture stores all of that so by integrating <unk> our layout software for systematic models and <unk> customers can do a better job on fault diagnostics and a better job localizing thoughts. We are now working with early customers on that capability and an early access program.
Yes.
Extensions to that will also come out over the next couple of years to take more advantage of.
<unk>.
The capabilities from both companies the third one is SAP.
I also talked about in my prepared remarks, and then if you just.
I think the way Dave.
Talked about it and they put up a very nice white paper Amit.
But you really want to attach the top floor to the shop floor as they call it.
Shop floor, being PDF, where we store an awful lot of engineering data.
Inside the factory or for a Fabless company from the factories, where they operate.
We communicate with most of the major manufacturing execution systems. So our systems know where the material is in line.
And so and they know how much consumables cost today know how much.
<unk> sell for they know where parts end up going in the end market. So by combining the data in <unk> with the competitor Thats. The Davidson Honda S. As for Hana you are able to be able to answer questions for customers.
Yield return analysis accurate.
Costing byproduct.
Monthly changes in deviations and costing due to product variances better insights on your prediction and supply. So those are applications. We're building with SAP or really how do you use engineering data with financial data to be able to have a more agile manufacturing environment and that's the third category of applet.
Patients that were rolling out and we'll expect to see all three of these make significant progress in 2023.
That's great John just on the SAP.
The go to market there I assume they're taking it to their installed base as an add on product is that how they're approaching it in and as you know is.
Is there a yes.
What do you think sort of a trial period of ramp period here is on the customer taking up the solution.
So we're in discussions with customers on this capability right now and the way it's worked because its a joint sales. So we sell our capability and of course they saw their capability.
But obviously their reach in the part of the whole reason why we did this partnership program with our partners reach into accounts as far far deeper and broader than ours right. Our sales capacity is really small relative to our product portfolio. So we need their help to find the relevant.
Our customers, even sometimes customers that we know well, but they know the right part of the organization are the organization that we don't have access to today. So they are really the lead.
Bring us and they of course benefit financially from that and we.
Right now in these early stages, we are.
Our contracting capability.
<unk> 48 for each of the customer opportunities, it's a little bit different with advent tests, where they are at the front door.
They are selling in their case, where secondary backup support but in the case of SAP right now were going and jointly.
Okay, great. Thanks, I'll jump back in the queue.
Okay.
Thank you one moment for our next question.
Our next question comes from the line of Thomas <unk> from D. A Davidson.
Yes. Good afternoon. Thank you for taking my questions.
So first wanted to kind of jump in on the revenue outlook. It sounds like you said low teens the expectations were for this year and I'm curious when you look at the <unk> businesses.
Average about $4 $5 million a quarter for the last year or so is that our new baseline there or.
Were there some one offs this year that tech has to be a little higher meaning that most of the growth this year coming from analytics.
Yes, that's a great point comment in my prepared remarks, I said that.
We are watching the utilization at our customer foundry factories, because the baseline did seem to settle in around $45 million on gain share we believe that that may be.
In the first half of this year there may be some pressure on that number as volumes Walt.
The lower than they were in the second half of 2022 and 2022 also benefited a little bit from gained share.
Catch ups for some of our customers and we felt that the <unk>.
Covid impact in China, maybe.
Kris that's fair amount of capacity in the second half of 2022 that were questioning whether well sustained catch up capacity that.
It was not possible in 2021 due to covet restrictions.
So we're being a little mindful on the highway on number of thinking it's a little bit.
Yes.
Last year, maybe a high water mark maybe a little bit lower this year than it was last year I think in terms of overall growth as our non said we set approaching mid teens. So we do believe it's vital.
Our teams, we don't think its on the higher end of mid teens.
Yes.
So we're trying to kind of directionally give some perspective there.
Again, not just because we gained share piece, but as I said in my prepared remarks.
Our customers that ship equipment, we expect one time licenses to be down.
Capital equipment companies are reporting about a 20% decrease in units shipped this year over last year.
We do expect that we'll do a little better than that because.
The attach rate with the software is a little higher as they use more of the communication standards on the newer equipment that on the older equipment, but we're being a little bit cautious on what we think those shipments will be and similarly, some of our customers when they go into overages on data storage and data volumes on <unk>.
And then pay for additional storage is that churning through more silicon, we think some of our customers will be a little bit down in 2023 volumes over 2022 volumes that may put a little bit of <unk>.
Assumption charges and Accenture are a little bit lower.
And has this case offset the kind of core growth in analytics, which we still believe is quite strong and will continue on.
Well.
Okay, I know several years ago, there used to be a little bit of seasonality in the IRR business, where you had the occasional unless you have the budget flush, but you had fourth quarters that were sometimes tax pretty high and then you had a little bit of that.
Muted first quarter after that but it sounds like the customer base, because it's different today year view as much more of just.
The run rate of chip production as opposed to a fourth quarter budget flush.
Yes, that's correct Tom.
Okay, and then that leads me to the analytics side, obviously, a nice sequential jump in analytics was there any kind of a one time issue or budget flush in that as well.
Yes, I think part of it also has a part of it and just to connect the prior comment as well on the gain share why to your point about Q4 expected to seasonality. If you were looking at just Q4 over Q3, Youll see a little bit of a David part of that was also because Q3 and of itself had some catch up.
Go back and discuss it but at that point.
I think some of the effect that youre seeing in Q4.
You talked about the large bookings we were able to garner during Q4. So some of it is also early.
606 related impacts during the quarter that would be generally experience but.
Difficult still remain confident about the business and our long term growth targets for analytics of 20%.
Okay, and maybe one last question on the Iot business is there anything you can do during the quarter to track that or is this really you just get a report and the payment from your customer at the end of the quarter, saying this is what they produced.
Yes, we do track it quite closely because.
First of all a lot of our customers that run through our scribe cost structure. So we can measure unit volumes as they go through it's not representative of all the wafers. They run it isn't representative of some of our first day Ron. So we can look at those trends gives us some indication and of course, we are.
Our engineers have daily dialogues with.
From the customers as they are and Theyre quite frequently.
Yes.
But to be counted.
We feel like our customers don't always have the best visibility themselves. So there'll be more bullish and then you talked about months later in the Sky is falling so.
Yes.
Have a pretty broad perspective across the customer base. These days.
Look at things up and down because of our extensive cloud data, we can look at what storage loading looks like.
So lumpy and customers doing.
So we play around little judgment on these things similarly, with the capital equipment folks.
Inc.
November December as some of our smaller quick capital equipment customers were quite bullish when we met with them and we were looking at signals that were less robust than they were.
We tried to take a balanced look at it.
Overall.
But we do watch quite a bit of data throughout the quarter.
Thank you and our last question then I was hoping just to get a quick update on ESI and maybe the accelerated ramp youre working on.
Yes, it's a great question and I did put something in my prepared remarks, I think the past year.
Applications, we released <unk> brought up for customer was this direct scan application really and it's very related to what we're doing with Siemens youre, taking that same software that.
Digest all of the key critical elements of our product and identifying what as inspector bought each layer and what should you see so you can find a unique systematic.
Defects and other problems Skinny Bill.
<unk> features per hour many billions of features per hour at this point.
On a wafer scanner meaningful fraction of the wafer and the typical to our budget that our customers gave us we saw tremendous uptake when we got that installed in the first quarter of 2000.
R 22, 2020, Q2 and beyond we saw the customers use it.
Quite meaningfully.
Doing pilots with other customers provide them sending us wafers.
Really starting in the fourth quarter, I think I kind of alluded to that in my prepared remarks.
November .
That we were anticipating that.
And seeing positive results from that.
That customer activity as well and we expect to see a pickup of the business as we go throughout this year and R. R.
Perspective on the business, we've been very cautious about the revenue impact this year, but we do feel it's going to impact our bookings as incremental bookings this year.
Maybe just a quick follow up on that some chips. These days has 500 steps and producing them.
When you look at your tools, how many insertion points are between how many different steps are you are they.
Going into your system to evaluate.
That's a great question. So when we first came up with us right.
With the fill ourselves we were really only.
You only have to use the system.
Metal one now you can use it earlier with this direct scan approach as early as the contact layers. So once you started making the contacts in middle of line through all of the metal layers and the dock because of software figures out what the patterns are and I just saw the results from our customer were.
Again, some of the metal <unk>.
The issue and the software is able to tell them, which of the defects that metal sudden are really caused by not all some of our content via below it and which ones are caused by letters below that.
Just on the patterns of failures. So it's quite sophisticated in the way of profit post process of the information as a result, you can really look at any later after you've built the first contacts so you typically start with <unk>.
Isolation, and <unk> and the gate polysilicon are among those.
Those three first three layers you can't really use this approach, but after that on every layer of budget to use it well okay.
Great Alright, well I appreciate your time today and I'll jump back into queue.
Thank you.
Thank you.
As a reminder to ask a question. Please press star one one on your telephone if you're using a speaker phone. Please lift the handset before asking a question.
Our next question comes from the line of Gus Richard from Northland Capital markets.
Yes, thanks for taking our question and by the way great great quarter guys.
I was wondering if you could just talk about you've touched on the $380 billion.
Our government support.
Yes.
You'd likely benefiting from that spend in the U S. Because it's a little bit ahead of.
Other countries, but India, Japan, and Europe are three regions have big buckets of money.
I was wondering are you engaged with programs in those regions.
You know what.
Mike.
What stage is that an easy way.
Ways away or near year end.
Yes, I think Thats a good question because youre right you pick other geographies, where we do see significant activity.
PDF is pretty well known in our business for our leading edge capability. So generally speaking when someone's going off and doing some of this we do get contacted and we've been contacted by a number of new entities of course, I can't say like which ones and when.
But around the world.
We suspect that maybe it impacts bookings a little bit in 2023 at the Max It's really more of a 2024 and 2025.
Business perspective, but.
But we do see.
Very high visibility ones like the ones you mentioned in a number of partnerships and joint ventures going on where folks are coming together.
High voltage transistors.
Leading edge.
28 nanometer and other kind of.
Automotive applications and some of the leading edge applications like you mentioned in Japan, the United States, Taiwan and Korea.
So it's very broad in terms of the capabilities in our what we call that our capability leading edge because the majority of our customers are doing things like two nanometer and gate all around we do find that.
We get contacted by customers doing 28 nanometer high voltage transistors, because you need the same capability that our customers need on a leading edge, maybe it's a different mix of vehicles and machines and software, but that same capability typically.
Got it got it.
Helpful framing that up and then just a little bit off the wall I apologize.
Clearly there has always been a market for black.
Market chips.
And there's been some concern that.
Some of the chipset shouldnt.
Places, they're going they're making weapons.
Doing AI.
And of all the software that tracks the semiconductor industry you bracket.
Brackett from one end to the other.
I've heard of some efforts to try to rein in the black market and I was wondering again is that an opportunity for you or is that something you've been.
Anybody reached out to you on.
Yes, we've had conversations with government entities around that also.
We are very active in the semi.
<unk> organization on standards, we put the standard for single Die Traceability, which is the $1 42 standard on our team really a company we acquired kinesis really innovated in that area and put that capability as a standard document we supported and are symmetric software and <unk>.
But it's really available we've also extended that and the way that we've written standards.
Semi to propose using larger hydroelectric technology like blockchain technologies and look for partners in that area too around making sure that whenever extensive logs information about a chip as it goes through a test point, our wafer processing tool.
<unk> you.
Put in the ledger.
Immutable way information about that chip.
That's very valuable not just for the.
Conor finished that you bring up but also because whenever you have an RMA situation and the chip comes back from the field, there's always attention between the buyer of the chip and a solid wood chip about what was the root cause and did you recall enough of the chips and so having.
Having clearly non fake data is valuable for all parties in that situation.
No Trust environment. This kind of information is very important and firsthand we have experiences with us as we were trying to build some of our fastest us for customers. In 2022, we purchased some critical chips mixed signal analog chips, 30% more failures than when we went back now it turns out the suppliers also an extensive user.
Is that back with the leadership team there and said Hey, you know, we just bought a bunch of stuff in there was bad and they said Oh, yes, we have leaks in our supply chain, we know about that.
We know it typically is.
In the.
Assembly area and system Board manufacturing, where theres the risks that chips that were bad are labeled good and get out. So this is an area that we do see as an opportunity for us.
It's hard to make it move.
Economically for us quickly because you need adoption by the industry.
Today, I think people are intrigued by it the engineers that sure those standards bodies are very passionate about how important it is but we get modest interest from the customers so far.
Okay got it got it. Thanks, so much that I think that covers it for me.
Thank you one moment for our next question.
Our next question comes from the line of Blair Abernethy from Rosenblatt Securities.
Hi, guys again guys just.
Two things.
Just wanted to ask about a little more.
DSI.
In the past, you've given sort of DSI tape outs per year, it's on your website.
I don't know if he's got any up to date stats on that to sort of show us how.
How volumes have been progressing with the system and then also.
Another year has passed here and you are getting more traction in the market. How are you looking at the.
How are you currently view the the.
Market size market opportunity for DSI over the next five years.
Yes, Thanks, I'll answer that so so first of all it's a really good point.
When you went back a few years ago, we track tape outs, because you needed to put our structures inside the design in order for the whole machine to work.
And what the team innovated.
End of 2021, and then we installed for the customer in early 2022 with the ability to look at our product even if it didn't have our structures on it.
And that's what we call the direct scan ability ability the software it looks at the design and figures out.
That part of the process, whether its metal to metal for our metal zero or whatever where are all the features that looked like a test structure at that point.
So we stopped tracking.
Solar cell insertion, because we didn't need it anymore for the application to take off we've been checking recipes setup and.
Usage at the early customers and that's actually picked up and then quite quite strong number of recipe set up I think we're setting up a handful of Sep's every week, so and the last let's say six or eight months, you can say, probably 40 or so recipes setup just off of.
Early early adoption.
In terms of the market opportunity for this.
We feel very bullish about it but particularly more bullish as we went through 2022.
And the reason for that is.
Is twofold first ability to be able to look at any product even if it doesn't have asked ourselves and it really currently opened up the market opportunity.
Number two and the ability to look at any layer as opposed to just the metal one layer as Tom alluded to in his question means that instead of there being one Pos.
Four.
Inspection literally you would have.
10, or 15 or 18 potential lenders you could use that.
Use the machine so it's it's.
Number of insertion points is much larger secondly, as we've met with customers there seems to be an increasing growing understanding that you need to use voltage contrast, and electrical inspection as customers are trying to bring up things like gate all around.
And other complex <unk> structures.
So.
The pilot we did in <unk>.
Q4, the early.
The work that we've done with an existing customer in Q1, a lot of it is around starting on slide for specifically for these three D problems, where really the voltage contrast approach is the only way you can see it and the reason why people haven't done it in the past is the throughput typically on an E beam machine is so poor you can't see.
A change.
Deviation in yield once the yield gets to be.
Relatively good so once you would say.
One square centimeter chip is yielding 70% youre not going to see anything on a conventional ABB machine yet with a two hour inspection on an X on a knee problem you can still see yield detractors.
And customers are giving us that feedback so I think thats really the.
Kind of a.
Inflection point for E beam inspection tool.
I think we will see more proof points as we come through 2023 on that.
That's great. Thanks for the color John .
And then just.
On the back on the backlog.
278.
Do you have.
The current amount of that backlog I E. What you expect to recognize.
In the next 12 months.
The overall backlog.
Yes, great question and I know, it's a data point of interest to yourself in may.
Right now we are not disclosing it we are still going to put the color that we do normally in our filings, but majority of that is going to be within the next two years, but I can give you. This.
Active that every year as we do the annual operating plan just like Refinished and got done. This year same time last year, our confidence and the demonstrated number from what percentage of next year's revenue is going to get contributed into the forecast that we have continues to be higher and that was a trend that we saw this year.
So larger portion than last year.
Of the revenue coming into the following year is spoken for as a function of the strength in the backlog that we have I think as we as we get ready for our future sharing of the metrics.
We'll be thinking about when is the right time to share. This I can assure you we're certainly tracking it inside and this is one we find very comforting.
Whenever we do the annual operating plan.
Great great understood. Thanks, very much guys.
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