Q2 2024 PDF Solutions Inc Earnings Call
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Operator: Good day everyone, and welcome to the PDF Solutions Inc conference call to discuss its financial results for the second quarter ending Sunday, June 30, 2024. At this time, all participants are in a 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 conference is being recorded.
Speaker Change: Good day, everyone and welcome to the PDF Solutions, Inc Conference call to discuss its financial results for the second quarter Conference call ending Sunday June 30th 'twenty 'twenty four.
Speaker Change: This time, all participants are in a 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 one on your telephone.
As a reminder, this conference is being recorded.
Unknown Executive: If you have not yet received a copy of the corresponding press release, it has been posted on PDF's website at www.pdf.com. Some of the statements that will be made in the course of this conference are forward-looking, including statements regarding PDF's future financial results and performance, growth rates, and demand for its solution. PDF's actual results could differ materially. You should refer to the section entitled Risk Factors on pages 16 through 36 of PDF's annual report on Form 10-K for the fiscal year ended December 31st, 2023, and similar disclosures in subsequent SEC files, for the statements and risks stated in this conference call are based on information available to PDF today. No obligation to update them. Now, I'd like to introduce John Kibarian, PDF's President and Chief Executive Officer, and Adnan Raza, PDF's Chief Financial Officer. Mr. Kibarian, please go ahead, sir.
Speaker Change: If 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.
Speaker Change: Some of the statements that will be made in the course of this conference are forward looking including statements regarding pdf's future financial results and performance growth rates and demand for its solutions pdf's actual results could differ materially.
Speaker Change: You can refer to the section entitled Risk factors on pages 16 to 36 of Pdf's annual report on Form 10-K for the fiscal year ended December 31, 2023, and similar disclosures in subsequent SEC filings.
Speaker Change: The forward looking statements and rich stated in this conference call are based on information available to PDF today.
Speaker Change: P D L assumes no obligation to update them.
Speaker Change: Now I'd like to introduce John Gbari M Pdfs, President and Chief Executive Officer, and Aetna lots of Pdf's Chief Financial Officer.
Speaker Change: Mr. Borja. Please go ahead Sir.
John Kibarian: Thank you for joining us on today's call. If you've not already seen our earnings press release and management report for the second quarter, please go to the investor section of our website, where each is posted. Before Adnan discusses the financials in detail, I have some comments to make about our observations for the second quarter and our view of the market for the remainder of the year. Our bookings in the second quarter were lower than in the strong Q1.
Speaker Change: Thank you for joining us on today's call if you've not already seen our earnings press release and management report for the second quarter. Please go to the investors section of our website, where each has been posted.
Speaker Change: Before odds-on discusses the financials in detail I have some comments to make better observations for the second quarter and our view for the market for the remainder of the year.
Speaker Change: Our bookings in the second quarter were lower than the strong Q1.
John Kibarian: Due to the nature of some of the larger contracts, we expect lumpiness in any given quarter and therefore find it meaningful to look at a rolling average. Since our book could start improving in Q4 last year, we've been building backlog which will support our future growth. The bookings in the quarter were mostly with customers that are either starting to deploy new systems like safety and manufacturing hub and MLops or expanding the usage of our platform.
Speaker Change: Due to the nature of some of the larger contracts, we expect lumpiness in any given quarter and therefore find it meaningful to look at a rolling average.
Speaker Change: Since first bookings started improving in Q4 of last year, we've been building backlog, which will support our future growth.
Speaker Change: The bookings in the quarter, mostly with customers that are either starting to deploy new systems like sapiens manufacturing hub and ml ops or expanding their usage of our platform in both cases, we anticipate many of these contracts to be two expansion business in the future.
Speaker Change: Notable deals in the quarter include a law.
Speaker Change: Large contract for extensive process control for advanced logic fab.
Speaker Change: Contract for initial deployment of Sap's manufacturing hub.
Speaker Change: For a large logic manufacturer who's doing a significant a C. P. S 400 deployment.
John Kibarian: Successful completion of this initial phase is expected to result in a follow-on, much larger, more significant multi-year license for SMH, tying all their manufacturing to ERP systems to facilitate new levels of productivity. That same customer, having already deployed extensive and advanced packaging, is also entering into a contract with us in the quarter to pilot an extensive for way for Fabian O'Litton. We closed our first contract for Emma Lops, an AI-based product we announced in Q4 of last year.
Speaker Change: Successful completion of this initial phase is expected to result in follow on much larger them.
Speaker Change: More significant multi year license for us image, tying all their manufacturing to ERP system.
Speaker Change: To facilitate new levels of productivity.
Speaker Change: That same customer having already deployed extensive and advanced packaging is also entering into a contract with us in the quarter two pilot accenture for wafer fab analytics.
Speaker Change: Yeah.
Speaker Change: We closed our first contract for MLR Ops, and then area based product, we announced in Q4 of last year.
John Kibarian: This contract is for a large Falvus customer that is beginning their journey to deploy AI for testing products. We anticipate that successful application of AI for this will result in their expanding the use of AI for most of the tests.
Speaker Change: This contract is for a large fabless customer that is beginning their journey to deploy AI for tests testing of products.
Speaker Change: We anticipate successful application of AI.
Speaker Change: For this.
Speaker Change: Hughes will result, and they are expanding the use of AI for most of the test.
John Kibarian: A number of customers have also expanded Accentier Closies. While increasing the annual run rate of these contracts, these expansions also set up for larger renewals, some of which we anticipate occurring in the next few quarters. Finally, bookings for Symmetrix connectivity runtime licenses showed modest improvements in Q2 over Q1, as our customers' equipment shipments increased. Overall, given a strong backlog in our business model, where most of our revenue is typically relatively recognized, we continue to deliver strong results in revenue and earnings.
Speaker Change: A number of customers also expanded Cynthia cloud usage, while increasing the annual run rate of these contracts. These expansions also set up for a larger renewals some of which we anticipate occurring in the next few quarters.
Speaker Change: Finally bookings for symmetric connectivity runtime licenses showed modest improvements in Q2 over Q1 as well.
Speaker Change: Our customers' equipment shipments increase.
Speaker Change: Overall, given our strong backlog and business model, where most of our revenues typically ratably recognized we continue to deliver strong results in revenue and earnings.
John Kibarian: We were pleased with the business results in the quarter as it demonstrates the strength of our business. Turning to DFI, as we stated before, we have two machines at one customer and another machine at a second customer. A third is a right to send us away for this year, for us to analyze the e-promotioning and opportunity while they build their new fast. The machine will be shipped to them when the fab is ready.
Speaker Change: We were pleased with the business results in the quarter as it demonstrates the strength of our business model.
Speaker Change: Turning to D F I S.
Speaker Change: As we stated before we have two machines at one customer and another machine or a second customer.
Speaker Change: The third is the right to send US wafers. This year for you for us to analyze on the publishing and our facility while they build their new fab.
Speaker Change: The machine will be shipped to them when the time is right.
John Kibarian: For the first two customers, usage in Q2 was very high. What is clear is that the direct scan application of the E-Pro has very unique capabilities that we believe are valuable in bringing up logic product yields and eventually to control production of those products.
Speaker Change: For the first two customers usage in Q2 was very high.
Speaker Change: What is clear is that the direct scan application of Ebro has very unique capabilities that we believe are valuable and breaking up logic product yields and eventually to control production of those products.
John Kibarian: In both cases, we've begun discussions about expanding the number of machines. We anticipate those discussions may take the next couple of quarters to conclude. Now let me turn to discuss our view of the environment and our perspective on the second half of the year. As we talk with customers, our customers tell us about their business. Some are experiencing weakness, while others are growing. As a result, we believe that for the overall semiconductor market, growth will be unevenly distributed. It won't be the case that a rising tide lifts all boats.
Speaker Change: And both are called three begun discussions about expanding the number of machines. We anticipate those discussions may take the next couple of quarters to conclude.
Speaker Change: Now, let me turn to discuss our view on the environment and our perspective on the second half of the year.
Speaker Change: As we talk with customers our customers about their business some are experiencing weakness while others are growing.
Speaker Change: As a result, we believe that for the overall semi market growth will be unevenly distributed it won't be the case that a rising tide lifts all boats.
John Kibarian: With that said, our engagement with customers remains high, driven by fabs developing advanced logic processes such as two nanometer, fabless customers deploying advanced test control software, often with AI and ML to augment conventional test methodologies, and companies engaged in digital transformations, attempting to leverage data, whether that is IBM, Star Wars, Foundries, and Equipment Gen. Given these trends and strong customer engagement, we continue to expect revenue growth for the second half of the year to be about 20% over the same period a year ago.
Speaker Change: With that said are engaging with customers remains high driven by <unk>.
Speaker Change: Advanced logic processes, such as two nanometer. So all of those customers deploying advanced test control software often with AI ml to augment conventional test methodologies and companies engaged in digital transformations attempting to leverage data.
Speaker Change: That is IBM, Starbucks foundries that equipment vendors.
Speaker Change: Given these trends and strong customer engagement, we continue to expect revenue growth for the second half of the year to be about 20% over the same period a year ago.
John Kibarian: I want to thank all of PDF's employees and contractors for their efforts during the first half of the year. Now I'll turn the call over to Adnan, who will review the financials and provide his perspective on our results.
Speaker Change: I want to thank all the PDF employees and contractors for their efforts during the first half of the year.
Speaker Change: I will turn the call over to our non who will review the financials and provide his perspective on our results.
Adnan Raza: Thank you, John. Good afternoon, everyone, and good to speak to you all again today. We are pleased to review the financial results of the second quarter and to bring you up-to-date on the progress of the business. Our Form 10-Q has also been filed with the SEC today. Please note that all of the financial results we discuss in today's call will be on a non-GAAP basis, and a reconciliation to GAAP financials is provided in the materials on our website.
Speaker Change: Thank you John Good afternoon, everyone and good to speak with you. All again today, we're pleased to review the financial results of the second quarter and to bring you up to date on our progress of the business.
Speaker Change: Our Form 10-Q has also been filed with the SEC today. Please note that all of 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.
Adnan Raza: For Q2, our total revenue was 41.7 million, essentially flat versus the same period a year ago and up slightly versus the prior quarter. Analytics revenue was up 3% to $38.1 million this quarter, versus $37.1 million for the second quarter of 2023, and represented 91% of total revenues this. The growth in our analytics for having you came from increased usage and revenue on your nose by our extensive customers, as well as an update in our semetrics on time license.
Speaker Change: For Q2, our total revenue was $41 $7 million essentially flat versus the same period, a year ago and up slightly versus the prior quarter.
Speaker Change: Analytics revenue was up 3% to $38 $1 million this quarter versus $37 1 million for the second quarter of 2023 and represented 91% of total revenues this quarter.
Speaker Change: The growth in our analytics revenue came from increased usage and upsized renewals by our access to your customers as well as an uptick in our metrics aren't kind of licenses.
Adnan Raza: As John said, we're excited about the level of engagement with our customers during the quarter, including extensive adoption by a leading-edge fab customer, expansion of extensive deployment by multiple merchant semiconductor customers, extension with a cloud provider for the internal use of Accentio, and an additional win on the Sapiens manufacturing hub with our partner SAP. We're also pleased with the engagement activity for our DFI system and EEPROM machine, and you will see us investing further to continue to address market needs.
Speaker Change: As John said very excited about the level of engagement with our customers during the quarter, including extensive adoption by a leading edge fab customer expansion of Accenture deployment multiple merchant semiconductor customers.
Speaker Change: Tension with a cloud provider for their internal use of accident year and an additional win on the Cps manufacturing hub with our partner at AAP.
Speaker Change: We're also pleased with the engagement activity for our <unk> system in April of machine and you will see us investing further to continue to address the market needs.
Adnan Raza: During the second quarter, revenue contribution from integrated yield ramp was 3.5 million, down 0.9 million or 21% compared to the same quarter a year ago, driven by lower gain share from our Asian customers as a result of the low volume. We're pleased with our backlog, which grew in the first half of this year from 229.8 million at the end of December 23 to 243.2 million at the end of this quarter. The trends John and I have been discussing and the level of customer engagement leads us to believe we will grow our backlog in the second half of the year as well. We report gross margins of 75% for the quarter. Up, where's this boat?
Speaker Change: During the second quarter revenue contribution from integrated yield ramp was $3 5 million down $9 million or 21% compared to the same quarter a year ago, driven by lower gained share from our Asian customers as a result of the low volumes.
Speaker Change: We are pleased with our backlog, which grew in the first half of this year from $229 8 million at the end of December 2003 to $243 2 million at the end of this quarter.
Speaker Change: <unk>, John and I have been discussing and the level of customer engagement leads us to believe we will grow our backlog in the second half of the year as well.
Speaker Change: We reported gross margins of 75% for the quarter up versus both 72% for the last quarter and 74% for the same quarter of the prior year.
Adnan Raza: 72% for the last quarter and 74% for the same quarter of the prior year. We are pleased with our gross margin performance for the quarter, which is in line with the long-term target financial model we shared at our analyst day and user conference last year. On the operating expense side, our expenses for the quarter were slightly down versus the prior quarter, driven by better utilization of our headcount resources, primarily in R&D, while SG&A expense was essentially flat compared to the prior quarter.
Speaker Change: We are pleased with our gross margin performance for the quarter, which is in line with the long term target financial model, we shared at our analyst day in user conference last year.
Speaker Change: On the operating expense side, our expenses for the quarter was slightly down versus the prior quarter driven by better utilization of our head count resources, primarily in R&D, while SG&A expense was essentially flat compared to the prior quarter.
Adnan Raza: For EPS, we reported a profit of $0.18 for the quarter, improving from the $0.15 we reported for the prior quarter. We ended the quarter with cash and cash equivalents of $118 million, compared to $123 million for the prior quarter. We generated a small operating cash flow for the quarter. During the quarter, we used cash primarily for investment to support the development of our DFI system to address the market need and the build of additional machines we mentioned earlier.
Speaker Change: For EPS, we reported a profit of 18 cents for the quarter improving from the 15th we reported for the prior quarter.
Speaker Change: We ended the quarter with cash and cash equivalents of $118 million compared to $123 million for the prior quarter, we generated a small operating cash flow for the quarter. During the quarter, we used cash primarily for investment to support the development of our DSI system to address the market need and the build of additional Ms.
Speaker Change: <unk> you mentioned earlier.
Adnan Raza: As we look to the rest of the year, we remain committed to our prior guidance for the year, with revenue growth returning to our 20% long-term target for the second half of the year compared to the matching prior year. With that, let me turn the call over to the operator for Q&A. Thank you, Mr. Raza. Ladies and gentlemen, if you have a question at this time...
Speaker Change: As we look to the rest of the year, we remain committed to our prior guidance for the year with revenue growth returning to our 20% long term target for the second half of the year compared to the matching prior year period.
Speaker Change: With that let me turn the call over to the operator for Q&A.
Operator: Ladies and gentlemen, if you have a question at this time, please press star 1-1 on your telephone. If you're using a speakerphone, please lift the handset before asking a question. Please stand by for our first question. Our first question comes from a line of Blair Abernethy, with Welles and Black Securities, Yelaine's open.
Speaker Change: Thank you Mr. Roswell.
Speaker Change: Ladies and gentlemen, if you have a question at this time. Please press star one on your telephone.
Speaker Change: You're using a speaker phone please lift the handset before asking your question.
Speaker Change: Please standby for your first question.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Our first question comes from the line of Blair Abernethy with Western Blot Securities. Your line is open.
Blair Abernethy: Thanks, nice quarter guys, and Albert. Just two questions, I guess, for me, one on the DFI and the other one on the MLOps system. So on the DFI, and you talked to me at length about it last quarter, I just want to see what sort of progress you see as having advanced or changed over the quarter. And what is your manufacturing plan looking like? I see that CapEx is stepping up to give us some sense of, you know, the ramp up in capacity to be able to deliver equipment on the DFI and then on the MLOps.
Blair Abernethy: Alright, Thanks, nice quarter guys.
Speaker Change: Albert.
Albert: Just two.
Blair Abernethy: Two questions I guess for me.
Speaker Change: One on the DSI and the other one on the <unk> system. So on the DSI you talked at length about it last quarter I just wanted to see what sort of what do you see as having.
Speaker Change: Advanced or changed over the quarter and what is your manufacturing plan looking like I see the Capex is stepping up to give us some sense of.
Speaker Change: The ramp up in capacity to be able to deliver deliver equipment on the ESI and then on the MLR MLR ops system can you just give us some sense of how big are these transactions it seems like it's.
Speaker Change: From the time of the introduction of the product to actual sales are pretty short selling cycle, just maybe talk a little bit about that.
John Kibarian: Sure. So on the E-Probe. How is it all done in the quarters?
Speaker Change: Sure so on.
Speaker Change: E probe.
Speaker Change: It also in the quarter as I said in my prepared remarks fair usage was very high both customers and we started.
Speaker Change: We have a pretty good customer base and the Davos community too and so at least we started hearing from the community about how they've been seeing the results to its very because the machine is very good at.
Speaker Change: And the relationship between the design and the manufacturing Nielsen most inspection tools just understand you.
Speaker Change: You compare one inspection resolved to another to find problems, let's understand where it is on the design. So they are able to therefore the manufacturer can talk to the designer's about what specific design capabilities are seeing et cetera, I think thats probably right.
John Kibarian: This understands where it is on the design. So they're able to, therefore, the manufacturer can talk to the designers about what specific design capabilities they're seeing, etc. I think that's probably why they've communicated with their customer base about it. So it's always good when you hear it from our customer's customers. And, you know, as we've had discussions, I think we're starting to get some understanding or indication from at least the first two customers about what would be the potential number of machines they need.
Speaker Change: They've communicated with the customer base about it.
Speaker Change: So that's always good when you're here.
Speaker Change: From our.
Speaker Change: Our customer's customer.
Speaker Change: Yeah.
Speaker Change: Whereas we've had dialogues I think we're starting to get some understanding our indication from.
Speaker Change: At least the first two customers about what would be the potential number of machines they need.
John Kibarian: We don't think in the short term we can meet both of their needs. They will probably, it will probably spread out throughout all of 2025 in order for us to, if they were both to come in at, you know, what they say, and there's a lot of ifs there. So we're not going to get too far ahead of ourselves, but we are, as you can see from our CapEx buildup, trying to mitigate as much as possible, you know, contingencies around being able to respond to demand.
Speaker Change: We don't think in the short term we can meet.
Speaker Change: Both of their needs.
Speaker Change: They will probably it will probably spread out.
Speaker Change: Throughout all of 2025.
Speaker Change: Order for Us to me if they were both to come in.
Speaker Change: What they say and there is a lot of ifs there so I'll start go and get.
Speaker Change: Too far ahead of ourselves, but we.
Speaker Change: We are as you can see from our Capex buildup.
Speaker Change: Trying to mitigate.
Speaker Change:
Speaker Change: As much as possible.
Speaker Change: Contingencies around being able to respond to demand.
Speaker Change: And.
Speaker Change: You know.
John Kibarian: You know, the typical lead time for machines like this is quite long, so, you know, we're trying to do our best to pull it in, but, you know, you can pull it off in a matter of a couple of months; you can't go and make this in, you know, an instant. So I think the lead time for this is not much different from the lead times for other machines of similar complexity, which are, you know, nine So, you know, we are... We are very excited about where we are right now.
Speaker Change: Their typical lead time for machine like this is quite long so.
Speaker Change: So we're trying to do our best upon them, but you can put in a matter of a couple of months you can't go and make us.
Speaker Change: Instant.
Speaker Change: So I think there'll be transplants are not much different than the lead times for other machines or similar complexity, which as you know in.
Speaker Change: In nine months to a year kind of like timeframe.
Speaker Change:
Speaker Change: We are.
Speaker Change: We are very excited about where we are right now we do think.
John Kibarian: We do think, besides the opportunities with these customers, we think it speaks more broadly. We've had a lot of criminal requests in memory and other areas around pilots because of this kind of unique capability of the machine to kind of know exactly where it is in the design and apply appropriate stimulus on each part of the design. So, you know, that's kind of my answer on the on the DFI E-Probe. If I move on to the MLOps.
Speaker Change: Besides the opportunities with these customers we think it speaks more broadly we've had a lot.
Speaker Change: Criminal requests.
Speaker Change: In memory and other areas around pilot because it was kind of unique capability of the machine.
Speaker Change: Kind of.
Speaker Change: No exactly where it is in the design and apply appropriate stimulus on each part of the design.
Speaker Change: So.
Speaker Change: That's kind of my answer on the on the <unk>.
Speaker Change: So I'll move on to the MLR ops.
John Kibarian: Again, we're seeing with customers as they do more and more advanced packaging. There are many more test insertions that they want to be able to feed models extracted from earlier test results into later tests to get better. Better performance, better test time, better quality screening, etc.
Speaker Change: What we're seeing with customers as Theyre doing more and more advanced packaging. There is many more test insertions and they wanted to be able to feed.
Speaker Change: Models extracted from earlier test results.
Speaker Change: Up into.
Speaker Change: Later tests to get better.
Speaker Change: Better performance.
Speaker Change: Better test time, better quality screening et cetera.
John Kibarian: And this was the first application for this. This is a customer we started working with. You know, it seems very short since the announcement, but we started working with this customer before the announcement, as we were getting close. It was a kind of early lead customer. The initial deployment is on a relatively small number of testers. That's why I said it's really only a small portion of their total production. And as we believe, as you would roll it out across a larger number of testers, as they would apply it to more and more products, I mean, it could be a relatively meaningful contract.
Speaker Change: And this has been the first application for this this is a customer we started working with <unk>. It seems very short from announcement, but we started working with this customer before the announcement as we were getting close it was a kind of an early lead customer. The initial deployments on a relatively small number of testers. That's why I said, it's really only a small portion of their total production.
John Kibarian: At this stage, it is a modest contract. It's not super huge. But it is, you know, again, on what would amount to being a couple percent of their testers and really a very complex product, I want to prove this methodology works out for them. I expect them to roll it out on more as they gain success with AI at testing.
Speaker Change: We believe as you would roll it out across a larger number of task forces that would apply to more and more products. It.
Speaker Change: It could be a relatively meaningful contract at this stage. It is it is a modest contract it's not super huge but it is again I would say on what would amount to being cognizant of their testers in early.
Speaker Change: A very complex product I wanted to prove that this methodology works out for them I expect them to roll it out on Morris.
Speaker Change: Again success with AI.
Speaker Change: Test.
John Kibarian: Okay, great. Thanks for the color, John.
Speaker Change: Uh huh.
Speaker Change: Okay great.
Speaker Change: Thanks for the color John and maybe just to add on just following on the DIY comments, what should we expect in Capex going forward I know you've got lots of cash but.
Blair Abernethy: And maybe just Adnan, just following on the DFI comments, what should we expect in CapEx going forward? I know you've got lots of cash, but you know, $5.3 million this quarter, and typically you've been running two to three million a quarter. What should we be looking for there? Yeah, very reasonable.
Speaker Change: $5 $3 million this quarter, typically <unk> been running $2 million to $3 million a quarter what should we be.
Adnan Raza: Yeah, a very reasonable question. To be honest, when we were ramping up DFI many quarters ago, we were also spending more than we had in the quarters before this one. So look, I mean, for the next couple of quarters, at least we think CapEx probably stays at similar levels. You know, as John said, this is a pretty unique time for us with the engagement with multiple customers on the leading edge, and we want to be making sure that we are well positioned to take advantage of that opportunity.
Speaker Change: Or are there reasons look like then.
Speaker Change: To be honest, when we were ramping up <unk>.
Speaker Change: And many quarters ago, we were also spending more than what we have in the quarters before this one so look I mean for the next couple of quarters at least we think capex probably stays at similar levels.
Speaker Change: As John said this is a pretty unique time for us with the engagements with multiple customers are leading edge and what are we making sure that we are well positioned to take advantage of that opportunity is probably similar to where we thought you to come in as a fair estimate I think the thing to keep in mind also.
Adnan Raza: So probably similar to where we saw Q2 come in as a fair estimate. I think the thing to keep in mind also is, look, we have been operating cash flow positive for a long, long time, and we intend to stay that way as well. And, you know, in between the other uses of cash flow from time to time as the opportunities present are going to relate to, for example, share purchases, which we have done, for example, in Q1.
Adnan Raza: We have been operating cash flow positive for a long long time, and we intend to stay that way as well in between the other uses of cash will do from time to time as the opportunities present.
Speaker Change: I can relate to for example share purchases, which we have done for example in Q1.
Blair Abernethy: Okay, great. Thanks very much, guys.
Speaker Change: Okay, great. Thanks, very much guys.
Speaker Change: Sure.
Operator: Please stand by for our next question. Our next question comes from the line of Gus Richard with Northland Capital Markets. Your line is open.
Speaker Change: Thank you.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the lineup Gus Richard with Northland Capital markets. Your line is open.
Auguste Richard: Yes, thanks for taking the question. A nice quarter.
Gus Richard: Yes, Thanks for taking my question nice quarter.
Gus Richard: Sounds like you've got an exciting outlook I was just wondering on the DSI and your engagement to customers.
John Kibarian: It sounds like you've got an exciting outlook. I was just wondering about the DFI and your engagement with your two customers. Um, what is the use case? Is it yield ramp? Um, is it, you know, bringing up a new product? Or is it actually in fab in production?
Speaker Change: What is the use cases are Youll grant is.
Gus Richard: Ed.
Speaker Change: Bringing up a new product.
John Kibarian: Or is it actually in fab in production.
John Kibarian: Yeah, so far, because it's been applied to Dury Advance Notes, Gus. It's been used for bringing up notes and bringing up specific products, so each product uses a process a little differently; the design layouts are different. We used to refer to these things in the industry as systematics or something unique about the design, but now the process windows are so tight, there's always something specific about every design. So, they've been, I think, across a couple of customers using it on many different designs as they come into a node. We believe that... Yeah.
John Kibarian: Yeah.
Speaker Change: Yes, so so far because it's been applied very advanced nodes gas.
Speaker Change: It's been used for bringing up notes and bringing up specific products. So.
Gus Richard: Each product uses the process a little definitely the design layouts are different.
Speaker Change: Yeah, we would use to refer to these things in the industry as a systematic or something unique about the design, but now the process window fossil tight theres always something specific about every design. So they've been I think a cost.
John Kibarian: A couple of customers using it on many different designs as they come into a note.
John Kibarian: Alright.
We believe that.
John Kibarian: <unk>.
John Kibarian: Even though the initial use is there, you tape out many designs in production for a long time. So it's going to give you a first kind of use level, even in a production fab, not just a development fab. And we seem to hear that from the customer base. And over time, we believe it will result in a control application as well, just because these marginalities, the process windows are so tight, the need to monitor will remain.
John Kibarian: Yes.
Speaker Change: Even though the initial uses there you tape out many designs in production for a long time. So it is kind of give you a first kind of use level even in a.
Speaker Change: Production side, not just the development fab.
Speaker Change: And we seem to hear a lot from.
John Kibarian: The customer base and over time, we believe it results in a control application as well just because.
John Kibarian: This.
John Kibarian: The marginality is the process windows are so tight.
Speaker Change: Need to monitor will remain so early on I think what's been happening over the last six months has been really around bringing our products I think as you transition into.
John Kibarian: So early on, I think, you know, what's been happening over the last year or six months has been really around bringing out products. I think as you transition into 2025, I suspect that it ends up being not just bringing out products but controlling the technology.
John Kibarian: 2025 I suspect.
John Kibarian: It ends up being not just to bring up the products, but to control the technology.
Auguste Richard: I'll stick with DFI; can you add a little more color to your build plans for next year, and I'm assuming that the CapEx, because you effectively lease these products, the spending on building the tools of the various assemblies and with your subcontractors is
Speaker Change: Got it and then I'll.
Auguste Richard: Tsi.
Auguste Richard: Can you add a little more color to your build plans for next.
Auguste Richard: Next year and I'm, assuming that the capex because you effectively lease these products.
Speaker Change: Spending on building the tools.
Speaker Change: Various assemblies and whats your sub cons is excellent capex.
John Kibarian: Yeah, so build plans, we are ramping up to be able to build more somewhere. I think somewhere between four and eight a year would be a reasonable assumption about what we would do in the short term. Are you on a four quarter basis?
Bill: Yes, so bill.
Speaker Change: Build plans.
John Kibarian: We are ramping up to be able to build.
Speaker Change: More summer.
John Kibarian: Think somewhere between four and eight a year would be.
John Kibarian: A reasonable assumption about what we were doing a short terms.
Speaker Change: You're on a four quarter basis.
John Kibarian: We believe our suppliers have the ability to do more than that. I'm, We have to build more, but I think this is maybe our next escape point. In terms of the, you're right that we've been, the machines have been provided on a subscription basis. So it is capital, it's CAP, it's CAPEX for us. Um, yeah.
Speaker Change: We believe our supply so the ability to do more than that.
John Kibarian: We have to build more but I think this is maybe our next away point.
John Kibarian: In terms of.
John Kibarian: You are right that we.
John Kibarian: Machines have been provided on a subscription basis.
John Kibarian:
John Kibarian: It is capital its cap, it's capex for us.
John Kibarian: Over time, I think both of us may find we may adjust the business model of customers at some point, and the machine may be purchased, and the software is subscribed. On top of that, I think there's still some, You know, our customers are a factor of hundreds to thousands times larger than us. So we're going to listen to them about what's the best way to work with them in the business. But, you know, I think over time, the capital may come off our balance sheet if they were to purchase them, particularly if the control application is there.
John Kibarian: Yes.
John Kibarian: Over time I think both.
John Kibarian: You may find.
John Kibarian: We may adjust the business model of customers at some point.
John Kibarian: The machine may be purchased in the software subscribed.
John Kibarian: Top of that I think theres still some.
Speaker Change: Flexibility on both the customer's mind and our mind about what's the optimal way it kind of gets back to your first question Gus if youre going to run it forever.
John Kibarian: The life of the node, where they prefer to purchase the equipment subscribing software that may be the case.
John Kibarian: Yes.
John Kibarian: Our customers are a factor of us.
John Kibarian: Hundreds of thousands times larger than us so we're going to listen to them about what's the best way to work with them in the business, but I think.
John Kibarian: Overtime, the capital May come off our balance sheet, if they were to purchase them, particularly if the control applications there.
Auguste Richard: Got it. And then the last one for me is on MLOps. You know, clearly, there's an expansion of tiplets and, you know, multi-die packaging, if you will. And I was just wondering, are those two related? And if so, are you starting to see increased interest at OSOTs?
Speaker Change: Got it and then the last one for me is on the MLR.
Sidney: Clearly there is some expansion of triplets Sidney.
Speaker Change: The die packaging, if you will and I was just wondering are those two related and if so is it.
Speaker Change: Are you starting to see increased interest at <unk>.
John Kibarian: They said in my prepare-in-box player usage was very high at both customers, and we started, you know, we have a pretty good customer base in the Dallas community too. And so, at least we started hearing from the Dallas community about how they've been seeing the results too. It's very because the machine is very good at understanding the relationship between the design and the manufacturing yields, and most... Inspection tools just understand that you compare one inspection result to another to find problems.
John Kibarian: They are related. The interest is coming from the product companies. The know-how about, you know, chiplet matching is really the responsibility of the Salvos company or the product group because they own the test program. And I know how to build a model to interpret that result effectively. And I know how to, let's say, reduce test time downstream or add additional tests or match chiplets better, so you get an overall system performance that's better. This is one of the motivations, you know, for this customer, as well as others that we've discussed with.
Speaker Change: They are related the interest is coming from the product companies.
Speaker Change: No how about.
John Kibarian: Chip lit matching is really that's the responsibility of the.
John Kibarian: <unk> company, because our the product group because they own the test program.
Speaker Change: I don't know how to interpret that how to build a model to interpret that result effectively.
John Kibarian: And I know how to let's say reduce test time downstream or add additional to us our match chip lives better.
John Kibarian: So you got an overall system performance that's better.
John Kibarian: This is one of the motivations for this customer as well as others that we have dialogue with.
John Kibarian: It is also making us go back and look at our dex network. You know, we've made an investment in having our machines at the OSAPs connected to their testers so they can push data from the cloud. And MLOps really allows them to manage all of that data traffic up and down their manufacturing flow in order to initiate the running of models that let's say extract features for upstream tests to be ready downstream so they can combine that. Extracted feature from the upstream test with the testing that's going on real time to make, let's say, a bidding decision or sub-bending decision, et cetera.
John Kibarian: It is also.
John Kibarian: Having us go back and look at our decks network, we've made an investment in having our machines at the Osaka connected to their customers.
John Kibarian: So they can push data from the cloud and that really allows them to manage all of that data traffic up and down.
John Kibarian: Their manufacturing flow in order to tie ins.
John Kibarian: Initiate running of models that let's say.
John Kibarian: That features for upstream tests to be ready downstream. So they can combine that.
John Kibarian: Extracted feature from the upstream test with the testing Thats going on real time to make let's say a bidding decision our sub bidding decision et cetera. So yes, you're right that it is very much related to chip, let's and.
John Kibarian: Complexities on testing as a result of that.
Speaker Change: <unk> has an important role to play because you need to integrate with their mes systems customers need to be integrated with the SAP system, because they need to know where the chips are going there.
John Kibarian: Before where the data needs to be.
John Kibarian: So it does bring up the overall system requirements that are needed.
John Kibarian: But the.
Speaker Change: The buyer.
Speaker Change: User of it is really still a established community more than me with that today I think they will stay that way too.
Auguste Richard: Okay. All right. That's it for me. Thanks so much. Thank you.
John Kibarian: Okay, Alright, that's it for me thanks, so much.
Operator: Ladies and gentlemen, as a reminder to ask the question, please press star 11 on your telephone. Please stand by for our next question. Our next question comes from the line of Kristen Schwab with Craig Hollum. Your line is open.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, as a reminder to ask a question. Please press star one on your telephone.
Operator: Please standby for our next question.
Operator: Our next question comes from the line of Christian Schwab with Craig Hallum. Your line is open.
Christian Schwab: Thanks for taking my question. So, can you give us an update? You've been working with a meaningful semiconductor producer who's now going through, You know, a tremendous mess, for lack of any other description. Can you kind of give us an update of what the revenue opportunity over a multi-year time frame could be with that customer now that things and production could be readjusted?
Kristen Schwab: Thanks for taking my question. So can you give us an update.
Speaker Change: <unk> been working with for some time.
Christian Schwab: Right.
Christian Schwab: A meaningful semi conductor producer who is now going through.
Christian Schwab: A tremendous masks for lack of any other descriptions.
Speaker Change: I think give us an update as well.
Speaker Change: What the revenue opportunity over a multiyear timeframe.
Speaker Change: So it would be with that customer now.
Speaker Change: <unk> production could be.
Christian Schwab: Readjusted.
John Kibarian: Yeah, so Christian, thank you for the question. We're always very respectful of our customers.
Christian Schwab: Yes.
Christian Schwab: Christian Thank you for the question.
John Kibarian: Respectful of our customers.
John Kibarian: Sure.
John Kibarian: Sure.
John Kibarian:
John Kibarian: Proprietary information.
John Kibarian: Yes.
Speaker Change: What's going on I think has given customers. So we won't comment on specific customer per say, but I can tell you in general, though our technology is used to make to help customers be more efficient and more effective.
John Kibarian: We always are mindful of the economic situation every customer is going through and think about.
Speaker Change: What's the best way to work with them, but often our technology is very important for customers to drive transformation and so we look at these as opportunities often for us and the customer would be more effective in how they use our systems and often adults.
John Kibarian: Over a larger business with us over the longer term sometimes.
Speaker Change: You don't know what the short term it does do and that's true for every case when we're in these situations.
John Kibarian: In general our technology is very important for being much more efficient in manufacturing and I think.
John Kibarian: Our track record of being instrumental for customers and change management is quite long.
Christian Schwab: So, put another way, do you think this opens up an expansion of opportunity where things could happen faster than previously expected?
Speaker Change: So put another way do you think this opens up an expansion of opportunity where it could have been.
Christian Schwab: Faster than previously expected.
John Kibarian: You know, um, customers that are trying to move to advanced nodes, I think the complexity of the technology is opening up opportunities. When customers are really looking for that to happen now, and often when customers are going through transformations, they're looking for that to happen now, I believe our systems are increasingly valuable for those customers. So we look for ways to be able to deliver value, mindful of the fact that when customers are challenged economically, we also have to think sharper penciles and think of how to be flexible as well.
Christian Schwab: Yeah.
John Kibarian: Alright customers.
John Kibarian: Customers that are trying to move to advanced nodes.
John Kibarian: I think the complexity of the technology is opening up opportunities.
John Kibarian: When customers are really looking for that to happen now and also our customers are going through transformations. They are looking for that to happen now I believe our systems are increasingly valuable for those customers.
John Kibarian: So we look for ways to be able to deliver value mindful of the fact that.
Speaker Change: When customers are challenged economically we after all sorts of thing sharpen our pencils and think a hobby.
John Kibarian: Flexible as well.
Christian Schwab: Fantastic. Great. No other questions. Thank you.
John Kibarian: Yes, Jeff Great no other questions. Thank you.
Operator: Please stand by for our next question. Our next question comes from the line of William Jellison with D. A. Davison. Your line is open.
Speaker Change: Thank you.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of William Jellison with D. A Davidson your line is open.
William Jellison: Good afternoon. Thanks for taking the question. I wanted to start out by asking, amongst your existing Accentio customer base, what you're seeing with respect to trends of adopting the next incremental module for them? What are you seeing amongst those folks?
William Jellison: Good afternoon, thanks for taking the question.
William Jellison: I wanted to start out by asking amongst your existing <unk> customer base, what youre seeing with respect to trends.
Speaker Change: <unk> the next incremental module for them.
Speaker Change: Are you seeing amongst those folks.
John Kibarian: Yeah, that's a great question. Well, thank you for the question.
Speaker Change: Yeah, that's a great question and thank you for the question Mike.
Speaker Change: In my prepared remarks, I talked about drivers for the business and two of them really kind of point to the.
John Kibarian: In my prepared remarks, I talked about drivers for the business, and two of them really kind of point to the drivers that we see at customers... You know, the first one I talked about a little earlier was more automation on the test. That MLOps opportunity is, you know, one that I've described a lot of times, as I said in my preparatory remarks, it's really being much more sophisticated in test and application, going from applying rules to applying models, usually ML-based models or AI models, to be ready for chiplet production, more efficient in driving quality, etc. The second issue I labeled broadly in my preparatory remark is digital transformations.
John Kibarian:
Speaker Change: The drivers that we see our customers.
John Kibarian: No.
John Kibarian: First of all I talked about a little earlier.
John Kibarian: More automation on test.
John Kibarian: That MLR opportunity is one that I described a lot of times as I said in my prepared remarks.
John Kibarian: Really being much more sophisticated test and applying going from applying rules to applying modest usually ml based models. The AI models to be ready for chip production.
John Kibarian: And we really see, and that's really driving two aspects of our business, the SMH, the Safety and Manufacturing Hub, which has really got, you know, the Accenture database inside it, is the way of connecting this, you know, as our partner SAP says, the shop floor to the top floor. When customers want to transform their business, they want to be able to act on whatever AI and ML they apply. Our customers that have been deploying ML models, one of the things they realize is, I need to know from my ERP system where this wafer is going to go if I need to send the data downstream to an OSAT, who's going to be testing the package test. So that connection to the ERP system is important for the financial team to be able to get. So that second opportunity is that SMH piece.
John Kibarian: More efficient and driving quality et cetera, the second labeled broadly in my prepared remark as digital transformations, and we really see basically.
John Kibarian: That's really driving two aspects of our business the estimation of Sap's manufacturing hub rally, which has really got the.
Speaker Change: The extent to your database and fight it is.
John Kibarian: Is the way of connecting.
John Kibarian: Our partners SAP. He says the shop floor to the top floor when customers wanted to transform their business. They want to be able to act on whatever AI ml, they apply or customers that are deploying ml models. One of the things that recognizes I need to know from my ERP system, whereas this way if we're going to go if I need to send the data down.
John Kibarian: Stream, two I noticed that who's going to be testing the package test so that connection to the ERP system is important for the financial team to be able to get.
John Kibarian: Real information and more predictability and better understanding on their economics, but it's also important for the engineering operations team in order to be able to.
Speaker Change: Add more automation typically with AI and their production plus so.
Speaker Change: The second.
John Kibarian: We see quite a big opportunity for SMH. And then thirdly, you know, I said that a lot of customers were expanding their cloud offering. One of the things that some of the customers have talked to us about as they begin this journey is the first thing they realize: you need to get all your data in one place. You need to be able to have that data aligned up and down the manufacturing supply chain because if you want to apply machine learning models, you need to. You know, most of 80% of your time is often wrangling data and getting it put together.
John Kibarian: Our opportunity is that SMH piece, we see quite a big opportunity for us in age and then thirdly I.
Speaker Change: <unk> said that a lot of customers who are expanding their cloud offering.
John Kibarian: And if you do that with scripts and munging in the typical data science way, it's hard to then put it online. And it becomes very, Depending on the engineer or person that built the model, if you have first organized your data, sometimes people refer to this as a data lake or lake warehouse or different words for it. Then you have a way of building the AI and ML. We've had the expansion contracts that we talked about in this quarter, where customers are really more and more relying on Accentio to provide more functionality there in terms of orchestrating and managing data.
John Kibarian: Things that some of the customers talk to us about.
John Kibarian: They began this journey is the first thing they realized you need to get all your data in one place.
John Kibarian: Need to be able to have that data lined up and down the manufacturing supply chain. Because if you want to apply ml models you need us most of it 80% of your time is often wrangling data and getting it put together and if you do that.
Speaker Change: With Scripps.
John Kibarian: Munching than a typical data science, where it's hard to then put it online and it becomes very.
John Kibarian: Dependent on the engineer a person that built the model. If you had first orchestrate data sometimes people refer to this as a data lake or Lake Weyerhaeuser different words for it then you have a way of them building, the AI and ml and we've had the expansion contracts that we've talked about this quarter were.
Speaker Change: Customers really more and more relying on <unk> to provide more functionality there in terms of orchestrating and managing data. The enel ops product takes advantage of that rally and it makes that much much easier.
John Kibarian: The ML Ops product takes advantage of that, really, and it makes that much, much easier. And so it's these three things where we see, I'd say, the majority of our customer base really working. One, OK, apply ML to the test. Two, OK, I need to orchestrate my engineering operations with my financial operations. And then three, in order that the foundation layer, before I can do any of that, I better have all my data for engineering and manufacturing organized in a central location with a common API so I can build any of those things. And those are really the three places where we see opportunity customers.
John Kibarian: And so it's like these three things, where we see I'd say the majority of our customer base really working one okay play another test to okay I need to orchestrate My engineering operations with my financial operations and then three.
John Kibarian: Foundation, Larry if I can do any of that I better have all my data French for engineering and manufacturing organized in a central location with a common API. So I can build in any of these things and most of all the three places where we see opportunity with customers.
William Jellison: Great, thank you, and then as a follow-up. With respect to DFI, is it still the case that on the revenue generation side of the machines, it tends to scale over time? For example, from the moment you ship a machine, revenue generation starts out very small, and as the activity scales on that machine over time, it increases. Is that still the way you view it? Yeah, I think look, I mean, one thing to keep in mind.
Speaker Change: Great. Thank you and then as a follow up.
William Jellison: With respect to DSI is it still the case that on the revenue generation side of the machines that it tends to scale over time that from the moment you ship a machine the revenue generation starts out very small and as the activity scales on that machine over time.
Speaker Change: It increases is that still the way you view it.
Adnan Raza: Yeah, I think, look, I mean, one thing to keep in mind is our DFI engagements aren't just about just the tool itself. So it's a combination of software and it's a combination of hardware. And maybe even within the software, there are many pieces of software. Obviously, we've talked about the FHIR module, the FHIR software, for example, which is used to inform our tool about the analytics that will be performed based on the design. And then there's obviously the other analytics software.
Speaker Change: Yes, I think look I mean, one thing to keep in mind is our <unk> engagements are just ever above just the tool itself. So it's a combination of software and it's a combination of the hardware.
Adnan Raza: And I've, even within the software Theres many pieces of software obviously, we've talked about the.
Adnan Raza: Fire <unk> fire software for example, which is used to inform our tool about the analytics that there'll be performed based on the design and then there's obviously the other analytic software so depending on the usage of those some pieces may be accelerated for example, if the machine is in the early stage, perhaps that one gets accelerated we have talked about the <unk>.
Adnan Raza: So depending on the usage of those, some pieces may be accelerated. For example, if the machine is in the early stage, perhaps that one gets accelerated. We have talked about the lease treatment of the machine that can happen with some contracts. However, look, I mean, on the longer term, our goal is always that the customer's usage of the whole system grows over time. And that is why some of the past contracts, if they've been done, have been on a token basis, such that we expect the customer to be using them, and hopefully, we are providing them with more value over time and, therefore, growing that opportunity.
Adnan Raza: These treatment of the machine that can that can happen with some contract. However, look I mean on a longer term. Our goal always is that the customers' usage of the whole system growth over time and that is why some of the past contracts that we have been done have been on a total basis, such that we expect the customer to be utilizing and hopefully we are providing.
Adnan Raza: More value over time, and therefore growing that opportunity.
Adnan Raza: Okay.
Speaker Change: Great. Thank you.
Operator: Please stand by for our next question. Our next question comes from the line of Andrew Wiener with Sam Joe Management. Your line is open.
Speaker Change: Thank you.
Speaker Change: Please standby for our next question.
Andrew Wiener: Um, John, you referenced, hey, you referenced, in the beginning of the call, you know, the I guess to lead DFI. I understand you refer to those customers, but I think, you know, one of those two is actually a manufacturing evaluation. And, you know, they're not currently a DFI customer per se. But given what you described as sort of conversations about, you know, potentially deploying multiple additional machines, is it fair to say that the evaluation is going well, and that our sort of confidence level that that will convert into a paying VFI customer has increased?
Speaker Change: Our next question comes from the line of Andrew Wiener with Sam Joe Management. Your line is open.
Speaker Change: Good afternoon.
John Andrew: John Andrew.
Andrew Wiener: Hey, you referenced in the beginning of the call.
Andrew Wiener: I guess to Lee DSI.
Andrew Wiener: You referred to there as customers, but I think one of those two is actually it's a manufacturing evaluation and they are not currently at ESI customer per se.
Andrew Wiener: Sure.
Andrew Wiener: But given what you described as sort of conversations about.
Speaker Change: Potential lead deploying multiple additional machines.
Speaker Change: Is it fair to say that that evaluation is going well and that our sort of confidence level that that will convert into a paying DSI customer has increased.
John Kibarian: Yeah, that would be correct, Andrew. We shipped the machine at the end of last year, and it came up at the beginning of this year. The second quarter was a very heavy usage period, as I said in my prepared remarks, and we saw good results there. They did as well.
Andrew Wiener: Yes.
Speaker Change: Correct Andrew.
John Kibarian: We shipped the machine at the end of last year.
John Kibarian: Came up beginning of this year, our second quarter was a very heavy usage period as I said in my prepared remarks.
John Kibarian: And.
John Kibarian: We saw good good results there they did as well.
Speaker Change: Yes, I think that really speaks to just.
John Kibarian: I think that really speaks to just the value the machine can create. With a lot of hurdles we still have to get over and both customers, we're not, by any means, able to just sit back here. There's a lot of work to be done, but we've gotten very positive feedback from that customer, and yeah, our confidence is increasing.
Speaker Change: The value of the machine can create with lot of hurdles, we still has to get over and both customers that were not by any means.
John Kibarian: It will just sit back here theres a lot of work to be done, but we've gotten very positive feedback from that customer.
John Kibarian: Yes, our confidence is increasing.
Andrew Wiener: Okay, and then I just wanted to clarify when you said, There's a couple people asked about your capacity, and you referenced a comment about not being able to support them. And I realized, you know, these are, you know, conversations, not orders yet, but, you know, sort of support for the two lead customers. I'll call the evaluation when a customer would need it, is that meaning within sort of the current four to eight, that would be too little?
Speaker Change: Okay, and then just wanted to clarify.
Andrew Wiener: When you said.
Speaker Change: There's a couple of people asked about your capacity and your reference to comment about not being able to support and I realize it yet either.
Speaker Change: These are conversations not orders, yet, but yes, sir support what the two lead customers.
Andrew Wiener: And are you contemplating ways to be able to produce more than eight? You know, I'm just sort of trying to, you know, I realize this isn't a revenue forecast or an order forecast, but I'm just trying to get a sense of sort of what the demand is, you know, these couple of customers are talking about, and what you're talking about from a perspective of what type of capacity you might want to have in 25.
Andrew Wiener: Quality evaluation when a customer.
Andrew Wiener: It would need is that.
Andrew Wiener: Meaning within sort of the current 4% to a that would be too little and are you contemplating ways to be able to produce more of the eight I'm just sort of trying to.
Andrew Wiener: I realize this isn't a revenue forecast or an order forecast, but im just trying to get a sense of sort of what the demand.
Andrew Wiener: These couple of customers are talking about and what you are talking about from a perspective of what type of capacity you might want to have in 'twenty five.
John Kibarian: Yeah, so they've both given us ranges, and if it was both on the low end of the range, then I think we would be okay. If they were on the middle of the range, we're probably a little short.
Speaker Change: Yeah. So they have both given us ranges.
John Kibarian: And.
John Kibarian: It's always on the both from a low end of the range that I think we would be okay.
John Kibarian: And if it's on the higher end of the range, we probably have a bigger issue. And we're also mindful of the fact that we have customers that are asking for evals and potential demo machines, etc. That, you know, as we see a number of interesting applications in memory and in other logic manufacturers, so we need to have some slack in that capacity. If we just did everything that was good for them, then maybe we won't have a way to expand our business in 2026. So we have to be somewhat thoughtful about, you know, kind of making sure we've got it. So, you know, even under kind of their modest,
John Kibarian: If there are in the middle of the range, we're probably a little short and if all the hardware lines require a bigger issue and we're also mindful of the fact that we.
John Kibarian: Have customers that are asking for ehealth and potential demo machines et cetera.
John Kibarian: As we see a number of interesting applications in memory and other logic manufacturer. So we.
John Kibarian: We need to have some slack in that capacity. If we just did everything that was good for them that maybe we don't have a way of expanding our business in 2026, so we have to be somewhat thoughtful about.
John Kibarian:
John Kibarian: Kind of making sure we've got.
John Kibarian: Our ability to.
John Kibarian: <unk> out in the marketplace, so even under kind of their modest.
John Kibarian: The low end of their requirements, where I think we'd be pretty okay. We've also got to look a little bit of where we would be in terms of being able to do manufacturing evaluation cetera, we've kind of also.
Speaker Change: Squeezed ourselves internally to support the three customers, we're supporting right now and so we don't really have much capacity as we would like necessarily internally for.
John Kibarian: <unk>.
John Kibarian: Demos with other customers and some other things right now so we're a little bit hamstrung.
John Kibarian: So yes.
John Kibarian: We are looking to see what we could do to increase that number we will make that decision as we get through this year to see how things.
John Kibarian: Kind of build out with the customer base.
John Kibarian: Could decide they don't want to do it right. So you never know.
John Kibarian: We've got we've got to keep a lot of contingencies there.
Andrew Wiener: Has there been any conversations with the third customer that you haven't shipped the tool to yet, but I guess you're running wafers internally as to what their demand could look like or would look like? I mean, I know in the past you've talked about sort of most customers who are going to be using it in any real volume would likely want at least a second tool just for redundancy purposes. Thank you.
John Kibarian: Okay.
Andrew Wiener: Any conversations with the third customer that you haven't shipped a tool to yet, but I guess youre running wafers internally.
Speaker Change: As to what their demand could look like or what it looked like I mean, I know in the past you've talked about sort of most customers who are going to be using it on any real value in that.
Andrew Wiener: Any real volume would likely want at least a second tool chest.
Speaker Change: So our redundancy purposes.
Andrew Wiener: We've not have very many conversations with them about that yet Andrew It is something we need to do as we kind of think about 2025 and beyond.
Speaker Change: So it will be small during the second half of this year, we've been pretty busy in the second quarter just in the early third quarter, just kind of understanding the first two.
Andrew Wiener: And then for some of those other applications you're talking about, you know, whether it's other logic players or memory, are they actually currently shipping you any sort of, you know, wafers so that you can, you know, run internally to demonstrate capabilities? Or is it more of a, you know, right now sort of technical conversation?
Speaker Change: And then for some of those other applications you are talking about whether it's other logic players are memory or they actually currently shipping you any sort of wait for so that you can.
Andrew Wiener: Run internally to demonstrate capabilities or is it more right now sort of technical conversations.
John Kibarian: Yeah, we have at least one customer that I know off the top of my head that's already shipped us wafers for memory applications. We have others that are interested in doing that. But we are mindful of bandwidth, right? So we're trying to kind of swap them in a way that we don't take our eye off the lead customers. But yes, we've already got memory wafers and are starting to show them results.
John Kibarian: Yes.
John Kibarian: But at least one customer that I know at the top of my head Thats already shipped us wafers in the memory applications. We have others that are interested in doing that.
John Kibarian: Our we are mindful of bandwidth right. So we're trying to kind of swap them anyway.
John Kibarian: We don't take our eye off.
John Kibarian: Lead customers, but yes, we've already gotten memory wafers.
John Kibarian: Starting to show them results.
Andrew Wiener: Okay, and then maybe shifting gears over to MLOps. I know that the first area of focus was, you know, the test application, and you had a number of pilots. Just maybe, give us a little more color on sort of how you see things, you know; are you taking on more pilots now? Or are you waiting for more pilots to convert to, like, commercial, you know, engagements and then going to use that as sort of proof points?
John Kibarian: Okay, and then maybe shifting gears over to MLR ops I know that the first area of focus was the test application.
Andrew Wiener: And you had a number of pilots.
Andrew Wiener: Yeah.
Andrew Wiener: Just maybe.
Andrew Wiener: Give us a little more color on sort of how you see.
Andrew Wiener: Are you taking on more pilots now or are you waiting for more pilots to convert to like commercial engagements and then going to use that as sort of proof points too.
Andrew Wiener: to go out to other potential customers. And then maybe the third piece of that is, I think you touched on the idea of getting all the data in one place and then being able to build machine learning or AI-based applications.
Andrew Wiener: Go out to other potential customers.
Andrew Wiener: And then maybe the third piece of that is.
Speaker Change: I think you touched on the idea of getting all the data in one place and then being able to build machine learning or AI based applications for which ml ops, yes.
Speaker Change: The enabler is there any consideration to.
Speaker Change: Making efforts to put MLR sort of in the hands of customers and let them sort of try to figure out how to best use it and develop their own use cases.
John Kibarian: Yeah, it's a great question, Andrew. So, yeah, it kind of goes like this, I can keep them all if you'd be part of the question I had.
Andrew Wiener: Yes, that's a great question, Andrew So yes, it kind of go.
Andrew Wiener: I can keep them.
Andrew Wiener: Three part question I had so.
Andrew Wiener: Yes, there are other pilots.
John Kibarian: Im going with customers.
Andrew Wiener: Parts of the industry.
Speaker Change: We are also taking a step back and looking at saying okay. What.
Speaker Change: How could we make it better what can we do that would make things more effective for our customers and theres really two parts to MLR as the operations around orchestrating your data. So you can build models.
Speaker Change: And then there is managing it once you're out in the field and the most the biggest challenge and I want Vegas, one of the bigger challenges for that is in the test world because.
John Kibarian: Customers use one company to do a wafer sort test, a different company to do a package test, a third company to do kind of a card level test, and many of our Fabless customers are effectively becoming kind of system companies, right, because they're making entire cards or even systems at this point. So managing that data flow, once you have a model, monitoring the production, the test production results, and so they can put in rules when they want to trigger a model update or change, etc., that's really the problem that MLOps solves for them, both those problems.
Speaker Change: Customers use one company to do wafer sort test a different company to do.
John Kibarian: Package test a third company to do kind of a card level testing many of our fabless customers are effectively becoming kind of system companies, because theyre, making entire cards or even systems at this point, so managing that data flow once we have a model.
John Kibarian: Monitoring the production of test production results.
John Kibarian: So they can put in rules when they want to trigger a model update or.
John Kibarian: Change et cetera, that's what really the problem of MLR solves for them that.
John Kibarian: We think the second one is the stickier one for the long term, and we want to, Okay, look, you take a step back and say, okay, how can we enhance that? How can we make that better for customers? So there's an activity going on there.
John Kibarian: Both of those problems, we think the second one is that stickier one of our long term and we want to.
John Kibarian: Look you take a step back and say, okay. How can we enhance that how do we make that better for customers. So there is activity going on there and then the third question you asked around putting it in the hands of the customer the whole intention on MLR is exactly that.
John Kibarian: And then the third question you asked about putting it in the hands of the customer, the whole intention of MLOps is exactly that. They can use our environment and build their own models. They can use the stuff that we provide, kind of default, you know, example models. Or they can use a different system.
John Kibarian: They can use our environment and build their own models or they can use the stuff that we provide kind of default example, valves. They can use a different system. They can orchestrate the data makes sense here.
John Kibarian: They could orchestrate the data in Accentio, pull it out from the APIs, use a different system, you know, from anybody to build their own models, and then publish that model back through MLOps throughout their manufacturing. So they don't even need to use our learning environment if they don't want to.
John Kibarian: Pulled out from the API used a different system.
John Kibarian: Anybody to build their own models and then.
John Kibarian: Published that model back through MLR throughout their manufacturing flow. So there is a need to use our learning environment. If they don't want to and we designed but those three levels of flexibility in mind, because the market really has all three of those types of engineers out there that are really early adopters that are built around flows for doing model building, but they don't.
John Kibarian: And we designed it with those three levels of flexibility in mind because the market really has all three types of engineers out there. They're the really early adopters that have built their own flows for doing model building, but they don't want to manage the day-to-day 24-7, make sure all the systems are up, and you can get a model anywhere you need to, wherever there's a test showing up. That's not something you want to hire expensive data scientists and spend your money on. You want software systems to manage that for you.
John Kibarian: Want to manage the day to day 24, seven make sure.
John Kibarian: All the systems are up and you can get a model anywhere you need to wherever there is a test showing up that's not something you want to take expense of data scientists and <unk>.
John Kibarian: Spend your money on you want software systems to manage that for you and that's what <unk> does.
John Kibarian: And that's what MLOps does. There are customers that are, let's say, earlier in their journey, and they're happy to use our environment, but they want to build their own models because they have know-how about their products, they've got experience with model building, etc. That's kind of like using a little bit more of the system. And the third case is, okay, PDF has a normally defined pipeline for test time reduction or quality screening; let me just tune that. Let me take that default model and tune it to my application.
John Kibarian: This.
John Kibarian: Customers that are let's say.
John Kibarian: Earlier in their journey and their <unk>.
John Kibarian: Happy to use our environment, but I want to build their own models, because they've got no how about their products they've got experienced model building et cetera.
John Kibarian: Kind of like using a little bit more of a system in the third cases, Okay. PDF has already defined pipeline for our test time reduction are quality screening, let me just to not let me take that default model and two it to my application in those three capabilities exist in the product today.
John Kibarian: And those three capabilities exist in the product today, and that's something you'll see us enhance. If you were to attend Semicon at our booth, we had some smaller startup companies that were doing ML talks at our booth because we are also looking at how we can work with the broader community. We're not trying to have the corner on modeling at all. We want to help, you know, lots of people in the world bring models to production.
John Kibarian: And that's something you'll see us enhance if you were to have attended summit con.
John Kibarian: Our booth we had.
John Kibarian: Some smaller start up companies that are doing ml talk at our user at our booth. Because we are we are also looking at how we can work with a broader community. We're not trying to have a corner on modeling at all.
John Kibarian: That help.
John Kibarian: Lots of people on the road bring models production.
Andrew Wiener: Um, and I guess maybe my last question is whether we made any progress on any of the battery pilots, you know, made that acquisition in that space.
John Kibarian: Okay.
Speaker Change: I guess, maybe my last question is there have you made any progress on any of the battery pilots.
Andrew Wiener: We made that acquisition in that space.
John Kibarian: Yeah, so we've been working with battery manufacturers and also battery consumers, and we kicked off a pilot or are kicking off a pilot this month. I think actually it was a week or so after, similar to what we did with the E-Probe, customers sent us a sample material. We showed them in our lab what the image pipeline could do, how much information they could get about their battery's cathode and anode. And now we're installing that software and system at a manufacturer. So both the manufacturer and the consumer of that battery can work together to identify production control.
Speaker Change: Yeah. So.
John Kibarian: We've been working with.
John Kibarian: Battery manufacturers and also battery consumers kicked off a pilot.
John Kibarian: Our kicking off a pilot this month I think actually it's been a week or so after similar to what we did with the <unk> probe.
Speaker Change: Customer sent us a sample material.
John Kibarian: We showed them in our lab.
John Kibarian: <unk> image pipeline could do how much information they can get about.
John Kibarian: There.
John Kibarian: Battery cathode and anode.
John Kibarian: And now works.
John Kibarian: Installing that software and system auto manufacturer so both the manufacturer and the consumer of that battery can work together.
John Kibarian: Two identify production control.
John Kibarian: So that pilot will kick off now. It's an achievement that we got from the kind of at www.admanraza.com and proving that the software can keep up with it at that level. So we're at, I think, the next milestone right now. We're very excited about it.
John Kibarian: That pilot will kick off now.
John Kibarian: Achievement that we got from the kind of.
John Kibarian: Page, where it's really just material in our lab, the very small amount of material as you can imagine and all of that to a production environment, where there's noise in there.
John Kibarian: It's not.
Speaker Change: This vibration and Youre looking youre running meters per second of <unk>.
John Kibarian: Cathode and anode films.
John Kibarian: And proving that the software can keep up with it at that level. So I think that the next milestone right now we're very excited about it.
Andrew Wiener: Okay, great. Thank you. Thank you. As a reminder, ladies and gentlemen,
Speaker Change: Okay, great. Thank you.
Operator: As a reminder, ladies and gentlemen, that's star 11 to ask the question. At this time, there are no more questions. Ladies and gentlemen, this concludes the program. Thank you for joining us today. Have a wonderful day.
Andrew Wiener: Thank you.
Speaker Change: As a reminder, ladies and gentlemen that star one to ask a question.
Operator: At this time there are no more questions.
Operator: Ladies and gentlemen, this concludes the program.
Operator: For joining us today have a wonderful day.
Operator: Okay.
Operator: [music].
John Kibarian: We've not had very many conversations with them about that yet, Andrew, but it is something we need to do as we kind of think about 20, 25, and beyond. So it will be something we do in the second half of the year. We've been pretty busy in this second quarter, just in the early third quarter, just kind of understanding the first two.
John Kibarian: In both cases, we anticipate many of these contracts to lead to expansion business in the future. Notable deals in the quarter include a large contract for Accenture Process Control for an advanced logic file and a contract for Initial Deployment of Sapience Manufacturing Hub for a large logic manufacturer who's doing a significant SAP S4 HANA deployment.
Auguste Richard: So, yeah, you were right that it is very much related to chiplets and complexities in testing as a result of that. The OSATs have an important role to play because you need to integrate with their MES systems. Customers need to be mitigated with their SAP system because they need to know where the chips are going and, therefore, where the data need to be sent. So it does bring up the overall system requirements that are needed, but the buyer and the user of it are really still the fabulous community more than the OSOT today. I think it'll stay that way too. Okay.
John Kibarian: So, yes, there are other pilots on going with customers in different parts of the industry. But we are also taking a step back and looking at saying, okay, how can we make it better? What could we do that would make things more effective for customers? And there are really two parts to MLops. There's the operations around orchestrating your data so you can build models. And then there's managing it once you're out in the field. And the biggest challenge, not the biggest, one of the bigger challenges for that is in the test world, because