Q3 2024 PDF Solutions Inc Earnings Call
Good day, everyone and welcome to the P. P. F. <unk> Solutions, Inc Conference call to discuss its financial results for the third quarter Conference call ending Monday September 30th 2024 at this time all participants are in a listen only mode.
After the 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 P. D. S. Its website at Www Dot P. D F. A dot com some of the statements that will be made in the course of this conference are forward looking statements, including statements regarding P. D. S. This feud.
Financial results and performance growth rates and demand for its solutions Pdf's actual results could differ materially you should refer to the section entitled risk factors on pages 16 through 36 of P. D. S and now report on Form 10-K for the fiscal year.
Ended December 31st 2023, and similar disclosures in subsequent SEC filings. The forward looking statements I'm Rich stated in this conference call are based on information available to P. D F. Today.
Speaker Change: D. S assumes no obligation to update them now I'd like to introduce John Cadbury in P. D S as president and Chief Executive Officer, and Adnan Raza, Bds's, Chief Financial Officer, Mr. Gabelli them. Please go ahead.
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 third quarter. Please go to the Investor section of our website, where each has been posted.
John Cadbury: Before discussing the financials in detail I have some comments to make about our observations from the third quarter, our view of the market and our business prospects for the remainder of the year.
John Cadbury: Bookings for the third quarter were driven by customers continuing to buy <unk>.
John Cadbury: The metrics connectivity software excel.
John Cadbury: <unk> sales include a large cloud customer renewing at a 50% increase in your.
John Cadbury: Revenue due to the continued growth and usage as well as a number of customers deploying accenture for process control.
John Cadbury: Advanced front end logic.
John Cadbury: Packaging and high voltage semiconductor manufacturing fabs drove the increase in process control licenses.
John Cadbury: This is consistent with our perspective of where investments are being made in the industry.
John Cadbury: Improvements in equipment runtime licenses, a symmetric connectivity was relatively broad based.
John Cadbury: Our integrated yield ramp business was weak in Q3 as wafer volumes were low and new contracts were slower to sign.
John Cadbury: We believe that both situations will likely improve over the next few quarters.
John Cadbury: Yeah.
John Cadbury: Turning to design for inspection execution.
John Cadbury: Turning to design for inspection execution during the quarter I am pleased to report continued great results.
John Cadbury: The new probe manufacturing evaluation at our second customer is proceeding well.
John Cadbury: The customer and PDF team believes that the evaluation can be completed ahead of schedule.
John Cadbury: This speaks to the unique capabilities of the solution and the robustness of our hardware deployment.
John Cadbury: Sure.
John Cadbury: Utilization at our initial customer for your probe direct scan for two machines in place remains high.
John Cadbury: While exact timing is always a challenge to predict we anticipate both customers impacting our bookings over the next quarters.
John Cadbury: As our confidence in <unk> volume and logic increased we began exploring applications in memory R&D and production.
John Cadbury: In Q3 evaluations of the advantages of direct scan on memory was very promising with the customer reporting that sensitivity and throughput advantages, we're over 10 times superior than conventional methods.
John Cadbury: The impending completion of the manufacturing evaluation continued application development at our lead customer and new applications in memory increase our confidence in the <unk> business.
John Cadbury: As evidenced by a ramp in capital spending this year, we anticipate the April being a driver of revenue growth in Q4, and having a meaningful positive impact on our 2025 and beyond.
John Cadbury: Now a few comments on our view of the environment and our perspective on the fourth quarter and beyond.
John Cadbury: As we've talked with customers about their business some are experiencing weakness while others are growing.
John Cadbury: Consistent with our view last quarter, we believe our business will be driven by Fabs developing advanced logic processes, such as two nanometer fabless customers deploying advanced test control software often with AI ml to augment conventional test methodologies.
John Cadbury: And companies engaged in digital transformation attempting to leverage data, whether that is ibms fabless foundries or large equipment companies.
So while we anticipate an industry, where they will not be a rising tide lifting all boats. We believe we can extend the momentum we've begun in Q3 for continued growth in Q4.
John Cadbury: And while it's too early to comment on specific numbers for 2025, we expect robust growth than wholesale.
John Cadbury: Yeah.
I do want to remind folks about our one day AI executive workshop in San Francisco on December 12.
John Cadbury: The day after the I Tripoli IDM conference.
John Cadbury: We are bringing together a great collection of customers industry experts and PDF folks to talk about the advances.
John Cadbury: In the application of AI for semiconductor manufacturing driven in part by our new model Ops got analytics, and our Accenture analytics platform.
John Cadbury: I invite you all to attend.
Speaker Change: I want to thank all of the PDF employees and contractors for their efforts during the year, let's have a great Q4, so we can deliver another record year.
Now I will turn the call over to <unk>, who will review the financials and provide his perspective on our results.
Speaker Change: Thank you John Good afternoon, everyone. Good to speak with you all again today.
Speaker Change: Pleased to review the financial results of the third quarter and to bring you up to date on the progress of the business.
Speaker Change: We posted our earnings release and management report on the Investor Relations section of our website.
Speaker Change: Our Form 10-Q has also been filed with the SEC today. Please note that all of the financial results. We discuss on today's call will be on a non-GAAP basis and a reconciliation to GAAP financials is provided on the materials on our website.
Speaker Change: Financial results for the third quarter of 2024 came in strong.
Speaker Change: Our bookings for the nine months of 2024 have now exceeded our bookings for the full year of 2023.
Speaker Change: We ended the quarter with a backlog of approximately $240 million essentially flat from last quarter, even with the record revenues delivered this quarter.
Speaker Change: Our total revenue for Q3 came in at $46 4 million, which is 11% higher versus the prior quarter of this year and 10% higher versus the same quarter of last year. We are pleased with this strong performance in total revenues.
Speaker Change: Bite of the decline in integrated yield ramp revenue.
Speaker Change: Our analytics revenue came in at $44 8 million, which was 17% higher versus the prior quarter and 13% higher versus the same quarter of last year.
Speaker Change: Analytics comprised 96% of revenue for the quarter.
Speaker Change: The strength in analytics revenue this quarter compared to last quarter was driven by all elements of our analytics platform.
Speaker Change: As John said, we're pleased with the level of engagement with our analytics customers. One example of where it was a multi year eight figure renewal, where we were able to increase the annual spend rate by approximately 50%, primarily driven by increased usage and licenses to customers deploying.
Speaker Change: As more people inside their organization that rely on accident year for yield analytics and manufacturing improvements.
Speaker Change: For our symmetric connectivity product, we saw a slight improvement in runtime licenses during Q3 compared to the prior quarter with strong year over year growth.
Speaker Change: Integrated yield ramp revenue was 4% of total revenues in Q3.
Speaker Change: <unk> was lower by $1 9 million compared to the prior quarter and $1 2 million compared to the same quarter of the prior year.
Speaker Change: Overall, we are pleased with the growth rate, we delivered for analytics total revenues for the quarter and continued engagement with our customers across our analytics platform.
Speaker Change: On gross margin, we reported an unusually strong 77% gross margin for Q3 rich.
Speaker Change: Which benefited from onetime perpetual software license deals during the quarter.
Speaker Change: While we are pleased with this result for the next quarter, we expect gross margin to revert towards what we have been seeing during the first half of this year driven by a shift in the mix of our product offerings.
Speaker Change: As announced at our Analyst day in October we remain committed to our long term gross margin target of 75% and making progress towards that over the coming quarters.
Speaker Change: Our operating expenses in Q3 grew compared to the prior quarter, primarily due to increased investments in sales and marketing and R&D to support our future growth.
Speaker Change: On EPS, we were able to deliver 25 per share for the quarter, our strongest quarter for the year.
Speaker Change: Turning to the balance sheet, we ended the quarter with cash cash equivalents and short term investments of approximately $120 million incrementally higher compared to the prior quarter's ending cash balance of approximately $118 million.
Speaker Change: This quarter, we used a portion of our positive operating cash flow for investments and the <unk> tool as well as investment in a private company, where we see opportunities to partner for the benefit of our leading edge enterprise customers.
Speaker Change: After achieving year over year revenue growth for the third quarter of 10% for total revenues and 13% for analytics revenue.
Speaker Change: We expect year over year total revenues in Q4 to grow in line with our long term revenue growth target of 20%.
Speaker Change: We are also thankful to our customers and partners for supporting the growth uplifted delivered this quarter and look forward to growing sequentially in Q4.
Speaker Change: With that we'll turn the call over to the operator to commence the Q&A session operator.
Speaker Change: Thank you, Mr Raza, and ladies and gentlemen, if you do have a question at this time press Star one one on your telephone and wait for your name to be announced if you are using a speaker phone. Please lift the handset before asking a question. Please wait one moment for our first question.
Speaker Change: Again that is star one line. If you do have a question. Our first question is from Blair Abernethy with Rosenblatt Securities. Please proceed.
Hi, guys nice quarter.
Speaker Change: Good to see the growth coming back there.
Speaker Change: I just wanted to ask a couple of questions.
Speaker Change: John just on the DSI.
Speaker Change: Just we've talked about that's really number one and number two what are you seeing out there in terms of.
Speaker Change: Pipeline of opportunity beyond the first couple of customers there.
Sure. That's a great question. Thank you so as you know we.
He has also a third customer that is part of an overall integrated package.
Speaker Change: That's that subscription includes accenture vehicles, and many other systems I didn't talk about that customer this quarter, but we do expect that customer proceed.
Speaker Change: For the.
Speaker Change: My prepared comments I also talked about memory application.
Speaker Change: And.
Speaker Change: We have.
Speaker Change: Seeing really great results there, we do see that as another growth vector for the systems and when we look back at logic.
Speaker Change: As I said in my prepared remarks.
Speaker Change: Both the first two customers.
Speaker Change: Continue to see more and more applications more and more types of problems as the customers develop more three D.
Speaker Change: Processes, So gate all around as <unk> contacts and vehicle three D backside powers <unk>, so more and more of these <unk> of these new.
Speaker Change: The features they're bringing out an advanced process nodes.
Speaker Change: <unk> integration in <unk> yield problems and so the machine is uniquely capable of.
Speaker Change: Looking at three D on product and understanding exactly.
Speaker Change: Where it is in the product and also being able to make sure. It only excites the elements of the product.
Speaker Change: Person wants to excite to capture the correct failure mechanism, that's really a lot of where the unique capability is.
Speaker Change: So we expect more applications within logic and now we're starting to see applications within memory.
Speaker Change: Okay, great. Thank you.
Speaker Change: Just on your.
Speaker Change: Capex year to date looks like around 12 million.
Speaker Change: A lot from them yet.
Speaker Change: Last year double the year before.
Speaker Change: Should we be thinking about in terms of capex levels going forward.
Speaker Change: Look I mean, I think I've learned how to connect with you I think we're feeling pretty good about the progress with EFI platform and that you probably engagements I've had obviously, having a few machines with one customer and another one with another customer.
Speaker Change: The evaluation Thats going on with the third one and then John alluding to these memory applications being positive all give us confidence to start to think about okay. If we had to serve the needs of these customers were issued Gar order and pipeline be obviously, we're going to be careful in terms of looking at what are the longer lead times versus the shorter ones as we have talked to you before.
Speaker Change: But.
Speaker Change: We see we see increased levels of Capex.
Speaker Change: We have started to see some of that translate into revenue and we are seeing this quarter in growth and we hope to continue that trend. So I think on the Capex side, you should see some increased level from us even from where we are today.
Speaker Change: Okay, Okay, great and just one last one.
Speaker Change: Sorry to jump back in the queue.
Speaker Change: SG&A step up in Q3 here.
Speaker Change: First half of the year is that.
Speaker Change: Should I be thinking with that as I thought of a new level or is.
Speaker Change: Or are there some onetime items in there.
Speaker Change: Yes, there is.
Speaker Change: Most of the increase almost all of the increase is on the sales and marketing side G&A. We are careful about managing it and of course, we report as a combined SG&A level, but on F&I I think youll see incremental <unk>.
Speaker Change: Expense, if anything we're focused on kind of.
Speaker Change: Trying to maximize the SRM spend that we have and making the best out of that.
Speaker Change: Our investments into the future in the next quarter or so that we're thinking about it earlier, probably more on the R&D side than on the SG&A side.
Speaker Change: Okay, great. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question is from the line of Gus Richard with Northland Capital markets. Please proceed.
Speaker Change: Yes, thanks for taking my questions and congratulations on the good results.
Speaker Change: Could you talk a little bit about that perpetual license deal that you had in the quarter Im assuming thats a one time.
Speaker Change: It looks like.
Speaker Change: No.
Speaker Change: Yes.
Speaker Change: Incremental gross margin at like 90% I'm, just trying to reconcile those two things.
Speaker Change: Sure.
Speaker Change: As I said in my prepared remarks actually the largest bookings in the quarter were related to <unk>.
Speaker Change: Cloud.
Speaker Change: Renewals and new.
Speaker Change: <unk>.
Speaker Change: Total cloud deals, but they don't drive very much incremental revenue in the quarter.
Speaker Change: We have some customers that have legacy contracts on process control typically because they will buy that on a perpetual basis.
Speaker Change: With capital purchases typically and that drove incrementally.
Speaker Change: More perpetual license revenue in this quarter.
Speaker Change: That's something that we've known about for quite a while there is a couple of customers out there that have legacy contracts on that stuff and they tend to be.
Speaker Change:
Speaker Change: The pilots.
Speaker Change: With their their capital or build outs.
Speaker Change: Related to advanced logic and advanced packaging.
Speaker Change: Because you need more process control and advanced packaging and it did drive the gross margin improvement in the quarter.
Speaker Change: As you said.
Speaker Change: Yes, basically yes.
Speaker Change: High percentage of legacy customers was notes support a lot of legacy handholding, it's pretty much just license revenue.
Speaker Change: Most of the kind of onetime licenses on some metrics with basically all.
Speaker Change: All right.
Speaker Change: Got it and so you've got you know.
Pretty decent sequential growth.
Speaker Change: Just given the 20% year on year you talk about.
Speaker Change: What's practical.
Speaker Change: Actual license.
Speaker Change: I expect to repeat and then just wondering if you could give a little color on that.
What's filling the gap in the fourth quarter in terms of the increase in revenue.
<unk> are coming back.
Speaker Change: Starting to recognize some yes.
Speaker Change: So I think there is a three.
Speaker Change: Three vectors there for as we look into Q4.
Speaker Change: Number one there is as I said in my prepared remarks, we do expect improvement in the IRR.
Speaker Change: Drawing too.
Speaker Change: Customer contracts a little bit.
No.
Speaker Change: Wafer fees from what we see reported from the customers.
Speaker Change: Number two.
Speaker Change: We do expect probably the bigger piece.
Speaker Change: DSI as I said in my prepared remarks customer completing earlier than we expected.
Speaker Change: The anticipated b.
Speaker Change: Evaluation is it.
Speaker Change: Chinas Matt.
Speaker Change: All of the criteria soon.
Speaker Change: Unexpected and then number three.
As I said earlier at the largest bookings were really actually related to cloud and that tends to have a longer tail impact on over the next few quarters that will contribute but it didn't do very much in Q3, but nothing.
Speaker Change: So those three drivers will basically build out in Q.
Speaker Change: Q4 and beyond.
Speaker Change: We do expect some modest improvement in runtime licenses on the metric side as well.
Speaker Change: From what we see in customers.
Speaker Change: Runtime licenses, whereas <unk> has a very significantly year over year and seem to be building as we go through the year, that's a lesser of a driver at all in terms of total dollars.
Speaker Change: Got it that's helpful.
Glenn: This is Glenn let me start with the easiest way to look at this.
Glenn: Have you sized the voltage contrast market and.
Glenn: Given the <unk> probe.
Speaker Change: How much do you think it expands that market.
Speaker Change: Comes into.
Speaker Change: Production.
Speaker Change: They could Houston tab.
Speaker Change: And how much do you think.
Speaker Change: Memory potential memory, adding to the applications.
Speaker Change: Sort of expand the market opportunity for you.
Speaker Change: Any sizing you give would be helpful.
Speaker Change: Sure Yes.
Speaker Change: Thank you.
Speaker Change: You can go and look at reports, but E beam inspection business has been.
Speaker Change: And over.
Speaker Change: North of a $5 billion number.
Speaker Change: Not clear in my head right now.
Speaker Change: But I think when you talk to folks everyone expects it to grow when I was meeting with a customer recently.
Speaker Change: I'll say with more three D problems, even DRAM is going to <unk>. If you look at it these days.
Speaker Change: <unk>.
Speaker Change: Voltage contrast, increasingly becomes important relative to see in line, what's going on with the products.
Speaker Change: So we expect that.
Speaker Change: The E beam and voltage contrast in particular.
Speaker Change: Business on the inspection side to outgrow the overall inspection market.
Speaker Change: But even folks that other.
Speaker Change: People that have other product in the market and the executive team to see to say the same thing. So I think everyone expects that number to grow pretty substantially faster than the rest of the market and the.
Speaker Change: Part of you being that we think is most valuable is that voltage contracts because of the <unk> nature of defects. There are also applications that are growing that are really.
Speaker Change: Weighted to image imaging.
Speaker Change: Historically, the biggest piece of.
Speaker Change: E beam business has actually been memory not logic.
Speaker Change: And we.
Speaker Change: We started with logic I think in part because of the.
Speaker Change: The complexity of being able to navigate around product and all of the software PDF had that made.
Speaker Change: Inspecting product possible.
Speaker Change: Sure.
Speaker Change: Hi at high throughput.
Speaker Change: All the software we have around stimulating and.
Speaker Change: Similarly, voltage contrast, and actually knowing how to direct the machine where exactly to what we call that points Ken.
Speaker Change: So we had started in logic, but ultimately the market in memory will be probably very significant overtime, which one is larger Gus I think thats hard to say because looking backwards.
Yeah.
Yoki can only collect the dots if you look backwards.
Speaker Change: I think you missed.
Speaker Change: I read the world is going right. So the.
Speaker Change: The future of logic will be things like backside power and see fats and all these things are three dimensional issues. So the need for voltage contrast in logic. We think will go up at the same time. Your memory is also going <unk>.
Speaker Change: They need their will also increase so overall, we think.
Speaker Change: <unk> will be well over $1 billion inspection market.
Speaker Change: The piece that voltage contracts, we expect to be the largest piece of it.
Speaker Change: And the fraction that.
Speaker Change: What we're seeing today by saying that.
Speaker Change: The appropriate application both in memory and logic, we don't really have to worry about which of those two is bigger.
Speaker Change: Actually span basically both.
Speaker Change: End market applications.
Speaker Change: Got it thanks Super helpful.
Speaker Change: Operator another question.
Speaker Change: Yes, I'm going to remind our audience that if they have a question simply press star one on your telephone.
Speaker Change: One moment for our next question.
Speaker Change: We have a follow up from the line of Blair Abernethy from Rosslyn <unk> Securities.
Speaker Change: Hi, guys just wanted to drill in a bit more John on the macro environment.
Speaker Change: Where youre seeing.
Speaker Change: Yes.
Speaker Change: Tracking any recovery in the last quarter and I would say also specifically.
Speaker Change: What are you guys seeing in the <unk>.
Speaker Change: The China market.
Speaker Change: It was it's down sort of fairly.
Speaker Change: Significantly for you guys from a year ago and prior I'm, just kind of want to see.
Speaker Change: How are you feeling with that that end market.
Yes.
Speaker Change: In general as I said in my prepared remarks, we just say it's a mixed bag. So if you look at are what drove our revenue this quarter. It was clearly advanced packaging advanced logic.
Speaker Change: Some high voltage semi.
Speaker Change: Semiconductors.
Speaker Change: Equipment going into those broad more broadly, but we did see an awful lot of backend equipment I didn't say that I didn't say that in the prepared remarks I thought it was kind of a muddled trend there but for sure you can see some.
Speaker Change: Demand in those areas.
Speaker Change: <unk>.
Speaker Change: Those tend to have a bigger impact.
Speaker Change: Outside of China, right events logic, and advanced packaging most of that activity is going on in Taiwan.
Speaker Change: Lesser extent Korea, and the U S.
Speaker Change: Do you see that shift in our geographic.
Speaker Change: The breakdown on revenue.
Speaker Change: Looking out we did see we did report that <unk> was weak and wafer volumes week, that's greatly influenced by China.
Speaker Change: We did see weakness in China overall.
Speaker Change: In terms of just.
Speaker Change: Hi.
Speaker Change: Sure.
Speaker Change: Wafer fees coming out of Fabs and volume.
Speaker Change: That said.
Speaker Change: We've seen continued heightened investment there and we do.
Speaker Change: You see new fab treats coming online new nodes coming up.
Speaker Change: New engagements on advanced development for them, what would be considered maybe not advanced by.
John Cadbury: John Chinese standards so.
John Cadbury: So we do expect that piece of business to recover we don't think its.
John Cadbury: Sure.
Loss per.
John Cadbury: Way shape or form.
John Cadbury: And as we look into 2025.
John Cadbury: For that part of the market. We do think it would also be a mixed bag. There we do expect some consolidation within the customer base.
John Cadbury: When I was chatting with folks in that country I think.
John Cadbury: Theres been kind of a Cambrian period of lots of new species and at some point.
John Cadbury: The total number of animals may increase, but the diversity of species may decrease and I think youre going to see that over there over the next year.
Speaker Change: Okay great.
Speaker Change: The other question Idose distributors around.
Speaker Change: Partnership, particularly with SAP.
Speaker Change: Any progress to report on that one.
Speaker Change: So we have critical deployments with them ongoing we were featured at their <unk>.
Speaker Change: <unk> meeting back in.
Speaker Change: October I believe it was in Seattle.
Speaker Change: We met with a number of our mutual customers and you'll see them.
Speaker Change: They were on a panel with me at the GSA and Youll see them at our AI conference as well.
Speaker Change: There is a number of selling activity is going on with them and us and a number of things we're doing on the development side, because as we look at the future of deploying AI for our customers. When you want to operationalize it tying what knowledge you have about the products and the ERP system with what's going on on the <unk>.
Speaker Change: <unk> four is very important.
Speaker Change: So.
Speaker Change: Besides the impact it has for.
Speaker Change: We believe a number of these deployments some that are ongoing and moving quite well.
Speaker Change: We do expect it to drive it would be relevant to a lot of our AI deployments as well.
Speaker Change: Okay, great. Thanks for that and one last quick one I'm not sure if there's anything.
Speaker Change: <unk> just in terms of the on the batteries manufacturing sector of your landfill.
The acquisition last year.
Speaker Change: The thing to note there.
Speaker Change: Yes were in deployment.
Speaker Change: Some battery manufacturers working with the car companies that.
Speaker Change: Our working with the <unk>.
Speaker Change: Battery producers, so really that linkage between the car company.
Speaker Change: Battery manufacturer really leveraging our AI around being able to really high speeds detect.
Speaker Change: The variability in the manufacturing process at run time and those pilots are ongoing we'll see as we finished this year. What they result in terms of our expectations for 2025, but we are quite pleased with the technology progress.
Speaker Change: Great that's.
Speaker Change: That's great thanks, very much John.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of William Galison with D. A Davidson. Please proceed.
William Galison: Good afternoon, and thanks for taking my question first.
William Galison: The first one that I wanted to ask was if you could provide an update on some of the pilot programs you have been running and ml ops and how those have been going and what sort of progress you've seen thus far is that product enters the market.
Speaker Change: Sure, Yeah, and I'm going to talk about this.
William Galison: Workshop.
William Galison: And we did talk earlier this year about the first customers. We've now got a number of pilots ongoing with other customers mostly around this kind of complex test flows are using upstream information to make better predictions about downstream tests are actually our downstream make better predictions. So these are things like.
William Galison: Understanding virtual bernann insertion touch points outlets can I.
William Galison: In AI do the effect predict the burden result in nearby skip the burn in step or minimize it or change it or reduce it.
Really around matching.
If I know the result, wafer sort can I predict what this just look what looked like an inside the package and therefore assign it to <unk>.
William Galison: No other triplets that results in a better overall system performance at the package level. So there's a couple of them ongoing there in that kind of category those kind of categories virtual insertion points predictive insertion points and they really leverage really the benefits of them lots, which is that ability to span not a single.
William Galison: Test point, but multiple test insertion points and take upstream.
William Galison: It is extracted from upstream data.
William Galison: Make better access of downstream.
William Galison: Data and testing.
Speaker Change: Great. Thank you John and then the follow up question.
Speaker Change: If.
Speaker Change: Our correctly in the prepared remarks, it sounds like PDF made a small investment.
Speaker Change: Private company during the quarter I was wondering if you could provide any more color on what that was.
Speaker Change: Yeah, absolutely I'll speak to the numbers and then I'll, let John talk about the qualitative aspects, which I alluded to that its related to the success of our leading edge customers, but yes, it's a $2 million investment in a convertible note. We felt the technology was quite differentiated sometimes there.
Speaker Change: There is an opportunity to look at purchasing companies. There are sometimes there is an opportunity to see if you can find them for the next phase of growth, particularly if their engagements with customers that you deem important as well. So this was one of those situations, where it made sense for us to support the next phase of growth for the next milestone and.
Speaker Change: It was a small enough investment for us that with the convert we negotiated the terms that I think if the success happens we're well positioned.
Speaker Change: I'll speak to the technical side of it.
Speaker Change: As I said in the prepared remarks, a blur right.
Speaker Change: Future, leading edge businesses. They are all three D. They're all all of the innovation goes on at the electrical behavior of the systems. We've had a test vehicle business. That's super excellent at that Supervalu of customers about the probe brings that in line and this is another way of exploring our software stack.
Speaker Change: To understand information about the design the connection to see our partnership in connection with Siemens to understand the relationship between the design layout the test.
Speaker Change: <unk>.
This lets us get additional insight and information.
Speaker Change: It is more on the physical measurement side, but it links with our software stack.
Speaker Change: <unk> also potentially.
Speaker Change: Potentially very soon.
Speaker Change: Synergistic with the program.
Speaker Change: Great. Thanks for taking my questions.
Speaker Change: Okay. Thanks.
Speaker Change: Thank you. Our next question comes from the line of Christian Schwab with Craig Hallum Capital Group. Please proceed.
Speaker Change: Hey, guys most of the questions I had.
Speaker Change: Were answered but.
Speaker Change: We did.
Speaker Change: As far as 25 outlook I think you guys said you felt positive or.
Speaker Change: Should we anticipate anything different than operating that you're.
Speaker Change: Minimal youre, 20% long term growth target is that the way we should be thinking about it.
Speaker Change: Yeah, we didn't give a specific number obviously, we said when we talked about this year, we said the second half of the year, which set us up for <unk>.
Speaker Change: 20% growth you can see our Q4 number so you can kind of see where we're heading right.
Speaker Change: Sure.
Speaker Change: Christian.
Christian Schwab: Alright, I'm talking about calendar 'twenty five so now that we're back.
Christian Schwab: We think our Q4 is more representative of how we're thinking about 2025, then we think of 2024 on average.
Christian Schwab: The first half of it was flat.
Christian Schwab: So.
Christian Schwab: The blended average for 2024 is less than our 20% growth target, but as we look at 2025. My words were robust because we feel like 2024 leaves us on that growth number and we expect to be in.
Christian Schwab: ZIP code or better as we go into 2025.
Speaker Change: Fantastic no other questions. Thank you.
Speaker Change: Thank you and as a reminder that is star one one if you do have a question.
Speaker Change: We have a question from the line of Andrew Wiener with Sam Joe Management. Please proceed.
Andrew Wiener: Good afternoon guys.
Andrew Wiener: Andrew.
Andrew Wiener: Hey.
Speaker Change: I wanted to follow back up on your comments around ESI it sounds like you're making good progress with the.
The lead customer and <unk>.
Speaker Change: Customary during the manufacturing of valuation.
Speaker Change: Yes.
Speaker Change: Obviously further along in the year and add non referred to Capex spending.
Speaker Change: And the long lead items, just curious last quarter, you sort of framed either what you thought the potential demand could be from those customers and or at least what we were planning to have capacity to potentially ship.
Speaker Change: Throughout.
Speaker Change: The balance of this year and into 'twenty five.
Speaker Change: You could sort of update that given what you've learned over the last sort of three or four months.
Speaker Change: Yeah.
I think by and large from a demand standpoint, we feel.
Speaker Change: Pretty good about where we are we expect to be in the same range. So it's going to be in that I forget the exact numbers, we gave out but I think it was in the.
Four to eight range, if I remember correctly.
Speaker Change: In terms of shipments, we do believe pretty comfortable about that area about that range.
Speaker Change: We will keep on monitoring our ability to build and ship.
Speaker Change: As we go through this year right. We don't have all the material that we would need to make that number yet we don't have those things built in we don't have the timing setup. So we went up to we've got.
Speaker Change: Unlike.
Speaker Change: Standing up the cloud there is more orchestration required, but we think the demand is out there for that range.
Speaker Change: Okay and that would be essentially from those two lead customers and then.
Speaker Change: So you got to the higher end, perhaps an initial memory customer is that the way to think about it.
Speaker Change: Yes.
Speaker Change:
Speaker Change: Yes that would be correct.
Speaker Change: Andrew.
Speaker Change: Additional.
Speaker Change: E valves that we probably should think about.
Speaker Change: We really don't have.
Speaker Change: I think if we could put eval machines at other places like we do with the manufacturer in Utah, we would probably accelerate growth.
Speaker Change: We do need to factor.
Speaker Change: As we think about our supply chain.
Speaker Change: <unk>.
Speaker Change: Because people have a lot of questions I think.
Speaker Change: The manufacturing eval I think people.
Speaker Change: The customer was able to see the results from our lab and wondered if you install a machine and a real facility and you run real ought to do it in real time does it actually really work and can we use it.
Speaker Change: And Thats why they were able to finish quickly because.
Speaker Change: We felt pretty confident that the physics, where are the same around the globe. So if we start the machine and that would result in sales more quickly.
Speaker Change: Let's see knock in knock out what we believe it is on a path to do that so we would probably want to add some capacity to expand that program.
Speaker Change: We think about the year.
Speaker Change: Okay, and then you referenced.
Speaker Change: Again, the early completion of the manufacturing evaluation.
Speaker Change: Without putting you on the spot to get into too much of the details.
Speaker Change: Yes.
Speaker Change: Rooming you meet the criteria is the intention to convert that tool in Q, a revenue generating tool at the customer or does it need to be taken back and any upgrades or anything like that done in order to convert that to revenue.
Speaker Change: Yes, without getting into the specifics Andrew we would expect it to convert to revenue sooner than a standard situation.
Speaker Change: Okay.
Andrew Wiener: And then I'm just curious separately following up on the battery side question.
Andrew Wiener: I haven't gotten far enough in understanding the capabilities.
Andrew Wiener: Our systems and sort of customer needs.
Andrew Wiener: If the evaluations go well.
Andrew Wiener: Is what the opportunity could be I mean, I'm, not saying the first contracts, but sort of in general if one thinks about battery line doing X number of batteries and generating X number of revenue.
Andrew Wiener: <unk>.
Andrew Wiener: Or is it more like <unk> that sort of tool and software based system, just trying to think about what it could mean.
Speaker Change: Yes, I think we're still trying to figure that out herself, Andrew but well what we what we realized going all the way back a couple of years ago to the first pilots. We did we were quite surprised at.
Speaker Change: When you compare.
Speaker Change: Battery with semi customers find us because they said okay. What software is used for semiconductor manufacturing that's a sophisticated.
Speaker Change: Manufacturing line to improve yields how would that apply to us and we went in when we started deploying and what we found was the data collection rate on the equipment sensors is actually much more simplistic than what you would get off of.
Speaker Change: Capital equipment tool in the finance I've, even a back end test assembly facility in fab. So that we felt there was an opportunity there and then.
Speaker Change: <unk>.
Speaker Change: They collect a lot of images.
Speaker Change: But they do almost nothing with them and.
Speaker Change: And part of that is just all around how fast the line moves and.
Speaker Change: Therefore quickly any data you get off.
Speaker Change: Our sensor are offered imager, how quickly you'd have to turn that into a control chart and operate.
Speaker Change: It's much much faster than semiconductors that things are moving at meters per second.
Speaker Change: We talk about the problem moving the wafer at 10 millimeters per second right. This is moving at many meters per second right. So its a whole different scale of <unk>.
Speaker Change: Data generation rate.
Speaker Change: And how it was a very very fast AI pipeline for being able to process and create.
Speaker Change: Alarms based on real information and we're trying to see how valuable that is first of all the customers want to believe that this will actually working to realign. So that's what we're doing right now and then if it does really work okay, how do they use that.
Speaker Change: To control their line better.
Speaker Change: Yes.
Speaker Change: There is a lot of reasons why it should be very valuable because.
Speaker Change: A lot of your unlike semiconductors, where most of your cost of capital the cost of the chip is depreciation of capital. Most of your cost is consumables. So running in line even for a few minutes longer before you take action is actually quite expensive as a percentage of your capital rebuild costs.
Speaker Change: There's reasons why it should be valuable we are trying to work through all those things over these next.
Speaker Change: Amongst the nice thing about it is the cycle times are so much faster material.
Speaker Change: In days and weeks not months and years so.
Speaker Change: Your ability to see the benefit of the in line.
Speaker Change: Data.
Speaker Change: Modeling an alarming.
Speaker Change: Quicker so that has helped us get learning cycles faster, but I suspect. It's a 2025 initial customers and then we will get some understanding about what that means.
Speaker Change: So we made that investment we didn't think that we are going to be.
Speaker Change: Quick.
Speaker Change: It was a small investment that was a little bit of a moon shot.
Speaker Change: Along those lines, John but as you're doing these pilots are you seeing them deploying our values.
Evaluating other systems or.
Speaker Change: Is it.
Speaker Change: Yeah.
Speaker Change: Sort of.
Speaker Change: Out of the box.
Speaker Change: Approach of looking at your solutions.
Speaker Change: Yes, it would be sort of a completely new way of sort of approaching.
Speaker Change: Manufacturing process.
Speaker Change: Great Great question, Andrew we're still trying to understand that too.
Speaker Change: We.
Speaker Change: When we did our own surveys we didn't think there was anything else out there that was quite like what.
Speaker Change: They had and we thought given our experience.
In semiconductor manufacturing and how important it is to always say shift to the left move upstream any ability to predict downstream problems.
Speaker Change: And we knew that was super important in our industry, we felt like it would be important in their industry and we were quite surprised at how late they get information.
Speaker Change: Relative to the production flow for this industry. So it seemed like there wasn't.
Speaker Change: The other alternative that was quite like what they have there is in line data collection, but it's quite simplistic.
Speaker Change: And there is both the combination of inline and sophisticated that we saw.
Speaker Change: And that's why we.
Speaker Change: Effectively started putting our toe in the water with this acquisition, but I am.
Speaker Change: Personally I was scratching my head on this.
Speaker Change: Any manufacturing person.
Speaker Change: <unk>.
Speaker Change: It's intuitive you always want to get the best predictor you can as early as you can in the process.
Speaker Change: Yeah.
Speaker Change: And.
Speaker Change: So we would think that this would have been something others would be doing but we don't know of another one out there it's quite like what what this team has built.
Speaker Change: Okay, and then maybe my last question.
Speaker Change: I know you pointed out advance test is sort of an area of strength.
Speaker Change: Yes.
Speaker Change: Can you talk a little bit about sort of what youre doing now with.
Speaker Change: Fantastic Teradyne and.
Speaker Change: How youre working with them to capture that opportunity versus sort of going directly to the customers.
Speaker Change: Yes.
Speaker Change: Ralph certain amount of direct work with customers right.
Speaker Change: A lot of what we're doing with them. They have particularly in had been test case has brought a lot of compute.
Acs.
Speaker Change: Two the sitting with the tester that enables more sophisticated AI.
Speaker Change: And.
Speaker Change: Our.
Speaker Change: The standard way that models are run.
Speaker Change: When they are one of the tests are the very lightweight often rules because you don't want to.
Speaker Change: Over load.
Speaker Change: The process of running the test program with a very very computationally intensive model.
Speaker Change: What those edge boxes enable us and enable us to bring a much more sophisticated.
Speaker Change: And our model or even some elements of design automation information to the edge.
Speaker Change: With a certain level of security.
Speaker Change: Because of the way they are architected.
Speaker Change: <unk>.
Speaker Change: Work with the customers and so a lot of what we've been doing with them is coming up with ways that with their software and hardware stack and ml ops and our other capabilities you are able to enable more.
Speaker Change: More sophisticated control test point the reason why that's needed when you look at advanced packaging.
Speaker Change: Testing, many triplets that wafer store instead of just one chip and you maybe have three test insertions for each so forth giblets pre test insertion. That's 12 tests that wafer sort and then you've got test points in final test as well as multiple ones.
Speaker Change: We've packaged it.
Speaker Change: So there's a lot of value being able to take information for upstream and predict downstream or be a make a more informed decision downstream and a lot of what we're doing with them is really looking at as you put more additional algorithms at the edge how does that.
Speaker Change: How does that benefit the customer and their test.
Speaker Change: What can you do beyond a simple or a thinner model.
Speaker Change: And this is true for both of them.
Speaker Change: Okay, great. Thank you.
Speaker Change: Thank you.
Speaker Change: As a reminder, that is star one one easier to ask a question.
Speaker Change: Alright at this time and they are no more questions, ladies and gentlemen, this concludes the program.
Speaker Change: For joining us today's call.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: [music].