PDF Solutions Inc 2026 Q2 Earnings Call

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 is then posted. For today's call, I will provide a summary of the past quarter, our perspective on the environment, and outlook for the next quarter and the remainder of the year. The second quarter built on a strong Q1, providing great progress on our objective to position PDF Solutions as the leading commercial data analytics and mission-critical platform for the semiconductor industry. This was visible in the bookings, customer activity, and our product development during the quarter. From a bookings perspective, secureWISE and DirectScan systems led the way with eight-figure contracts for each.

We achieved a number of seven-figure contracts for Exensio products and services, including with hyperscalers and photonics companies, as the growth in the AI ecosystems continues to be strong. Finally, Cimetrix bookings were at a record high on top of a very strong Q1 as the equipment industry continues to be robust. Overall, across all products, the strong bookings resulted in building backlog while supporting meaningful revenue growth for the first half of the year compared with the previous year. Adnan will provide revenue details in his prepared remarks. During the quarter, we placed three new eProbe e-beam inspection machines with customers. This includes two with new customers, one of which is an evaluation, and the other of which is a five-year subscription. The third is to a new factory for an existing customer as part of a previously signed contract.

These three machines, along with the machine shipped in Q1, means we are two-thirds of the way to our goal for the year. The new customer is using DirectScan on a more mature process node compared to the other DirectScan customers, and for five years, carrying them well into mass production. We feel this contract is important as it demonstrates the value of DirectScan approach in mature nodes. We believe the large secureWISE booking with an existing customer reaffirms secureWISE's availability in virtually all three-dimensional fabs around the world and for many more years. While it was an eight-figure contract, and the largest in the history of secureWISE that we are aware of, the contract value is a minimum, and both the customer and we anticipate building from this base.

With this contract in place, we have now refreshed the largest secureWISE contracts, as well as expanded the business to provide secureWISE services to front-end fabs and back-end test and assembly facilities. Our industry thrives from collaboration between suppliers and customers. In the future, more of that collaboration will be AI agent-driven. secureWISE is well-positioned to be a cornerstone of an agentic collaboration across the industry. Selling activity was very high across all aspects of the semiconductor industry, from hyperscalers to equipment vendors. We did see significant activity in our characterization and DirectScan systems as customers look to develop advanced processes and nodes. We anticipate that this activity will result in strong bookings in this category as the year progresses. Overall, it was a strong Q2 and first half of the year, both in terms of our traction with customers and our product development.

Now let's turn to our perspective on the environment. The investment in semiconductors continues to be driven by the unprecedented build-out of AI data centers. The unique element of this cycle is how AI is transforming not just the demand for semiconductors, but also how engineering and production is being executed. While it's debatable where we are in the semiconductor demand cycle, it is clear to me that we are in the very early stages of AI transformation of semiconductor manufacturing and engineering. All participants in the semiconductor supply chain will need to leverage AI agents to be more nimble, innovative, and cost-effective. As the semiconductor industry continues to evolve, opportunities for open dialogue and peer-to-peer learning are more important than ever.

PDF Solutions CONNECT Conference is designed to bring together members of the community to share insights, discuss challenges, and explore technologies and innovations shaping our industry's future, including recent developments from PDF Solutions. The event will be held October 15th and 16th in San Francisco during SEMICON West Week. Looking towards the second half of the year, we see increased opportunities across the entire product portfolio. With that optimism and our progress in the first half of the year, we reconfirm 20% year-over-year revenue growth for this year. I want to thank all of PDF customers, employees, and contractors for their efforts during the quarter. Now I'll turn the call over to Adnan, who will review the financials and provide his perspective on our results.

Adnan? Thank you, John. Good afternoon, everyone, and good to speak with you all today.

We are happy to review the financial results of the second quarter and to bring you up to date on the progress of the business. 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. For Q2, our total revenues were $61.5 million, up 19% on a year-over-year basis. For the first half of this year, our revenues grew 22% on a year-over-year basis versus the comparable first half of last year due to contributions from multiple products. We are pleased with the revenue growth we saw compared to last year and remain committed to our long-term revenue growth rate target of 20%.

Our platform revenue this quarter were $49.1 million, up 14% versus Q2 of last year and up 24% for the six-month year-to-date period versus comparable period of last year. We benefited this quarter from the DirectScan booking that John talked about, which is with a new non-leading-edge customer. Our ending backlog includes a meaningful amount of revenue left in this contract, which will be recognized over the years to come. Our volume-based revenue increased 45% versus Q2 of last year, driven by strong Gainshare and the strength in Cimetrix runtime licenses. From a bookings perspective, John spoke about the multiple eight-figure and seven-figure deals booked during the quarter, which were across multiple products in the PDF platform. Our business activity with equipment customers was strong, including both secureWISE and Cimetrix.

Our total backlog grew to $271 million this quarter, up 10% versus last quarter and up 16% versus Q2 of last year. Based on what we can see in our pipeline, we anticipate strong bookings momentum for the second half of the year and expect to grow our backlog as we exit this year. It is worth noting as a reminder that we do not include potential future Cimetrix runtime licenses or Gainshare revenues in our backlog, and our backlog would be even higher if we included some estimates of these highly probable future amounts. We reported gross margin of 73% for Q2, which was lower versus Q1 of this year, due in part to the higher perpetual software licenses in Q1.

We expect our gross margin to increase next quarter towards the higher levels we have seen during the prior quarters, and we have line of sight to our long-term gross margin target model of 77%. Our operating expense for the quarter were up only 5% versus same quarter of last year, mainly to support the increases in our R&D expenses, offset by better management in our SG&A resources. We delivered operating margins of 22%, or about 300 basis points higher than same quarter of last year due to disciplined spend, even with the lower gross margins this quarter. We remain committed to our 27% target operating margin model communicated in December. For EPS, we reported profit of $0.27 for the quarter, which was up 42% versus the same quarter of last year and up 49% for the year-to-date comparable period. Turning to the balance sheet.

We ended the quarter with cash and cash equivalents of $114.9 million, compared to $31.2 million of prior quarter, and outstanding debt of $67.5 million. During the quarter, we helped Adventus exit their equity stake at a more than 2x return for their investment in PDF shares via a follow-on equity offering, and we're thankful to them for their continued partnership. As part of the equity offering, we sold approximately $1.9 million primary shares and added $81.8 million to our balance sheet. During the quarter, we generated operating cash flow of $16.4 million and utilized $14.1 million towards CapEx, mainly for eProbe tools to meet the demand we're seeing and to order some of the longer lead time items as we look to future shipments. For each of the next two quarters, we expect to spend incrementally higher CapEx than Q2.