PDF Solutions Inc (PDFS) 2022 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the PDF Solutions Inc. conference call to discuss its financial results for the third quarter ending Wednesday, August 31, 2022. (Operator Instructions) If you have not yet received a copy of the corresponding press release, it has been posted to PDF's website at www.pdf.com. Some of the statements that will be made in the course of the conference are forward-looking, including statements regarding PDF's future financial results and performance, growth rates and demand for its solutions. PDF's actual results could differ materially. You should refer to the section entitled Risk Factors on Pages 17 through 30 of PDF's annual report on Form 10-K for the fiscal year ended December 31, 2021, and similar disclosures in subsequent SEC filings. The forward-looking statements and risks stated in this conference call are based on information available to PDF today. PDF assumes no obligation to update them. Now I'd like to introduce John Kibarian, PDF's President and Chief Executive Officer; and Adnan Raza, PDF's Chief Financial Officer. Mr. Kibarian, please go ahead

Thank you for joining us on today's call. If you've not already seen our earnings press release, management report and 10-Q for the third quarter, please go to the Investors section of our website where each has been posted. I will start the discussion by providing commentary on the third quarter and early part of the fourth quarter. From there, I'll provide our impressions of the current state of the semiconductor industry, the situation in respect to geopolitical factors and the potential impact of the general economy on our business. I will conclude with our expectations for PDF business for the remainder of the year before handing the call over to Adnan for a more detailed financial update.

On our last quarter's call, we expressed our confidence in the second half of 2022 bookings. We pointed out that protracted nature of some of our large multi-element engagements with customers would mean that, that bookings would be lumpy and generally stronger in the second half than the first half. The third and early fourth quarter bookings show that we are realizing that prediction. Notable invents include bookings of Symmetric's on-time licenses were near all-time highs, even as our equipment partners continue to experience part shortages that limited some of their shipments.

Bookings of Exensio in the quarter included an 8-figure contract with a large integrated device manufacturer to renew cloud-hosted manufacturing analytics for a number of additional years and to add deployment of test operations for both the customers' internal test floors and multiple Olsets, which enables this customer to leverage the platform benefits. And at the beginning of the fourth quarter, we booked a multiyear renewal for characterization and DFI infrastructure and for services for a customer using PDF systems on the leading itch. The last contract enables our customers' engineers to use on the cloud Exensio Analytics and our software for IP hardening and design manufacturing co-optimization as well as characterization vehicle test chips and our DFI systems on-premise. The contract term is through 2027. And while the total value of the contract is the largest in our history. It is also just the minimum commitment by the customer. Outlined in the contract is a mechanism that allows the customer to order additional elements such as additional cloud capacity or additional eProbe tools on a subscription basis. Revenue in the quarter was a significant step-up over Q2, and Adnan will go through the details.

This included additional revenue from organic growth and gain share at 28-nanometer volumes devices at multiple customers, particularly in China, and grew substantially for the third quarter. Gain share from the most significant 28-nanometer contract runs through the end of the decade and is not subject to any current geopolitical restrictions. A year ago, when our legacy gain share contracts ended, we felt that Q3 2021 would be the bottom for gainshare revenue, and we expected to see a rebound. For years, we have said that we expect to gain shown 28-nanometer, particularly in China, would increase at some point.

We are pleased to see the increase this year. Turning to partnerships. We continue to increase activity. As you may have seen, Advent has announced their app store with 4 Extensio apps already available. We anticipate releasing additional apps to the Adventus store in the fourth quarter this year and early next year. We booked additional licenses for our first integrated product, Dynamic Paymetric Test, or DPT, that was originally released in 2021. With the success of DPT and these new apps available for the ACS Edge box, we believe our relationship with Avantus will continue to progress. You may have also seen that Exensio is now featured on the Manufacturing Intelligence section of the Amazon website, covering AWS solutions for high-tech electronics and semiconductors. Overall, we anticipate our investments in strategic collaborations will bear more fruit in the coming years. With strong bookings in extensio, Symmetrix connectivity, characterization and DFI systems as well as continued progress with our partners, the third quarter demonstrated PDF Solutions' broad value and strategic relevance across the IC ecosystem. From equipment companies to system manufacturers, PDS data analytics platform is becoming ubiquitous in the IC industry. Moreover, our strong bookings in the year so far means we will end 2022 with strong backlog. Remember that our backlog does not include gain share, Symmetric's onetime licenses or overage charges for Exensio usage.

When factoring in our expectations for these as well as our committed backlog, we expect to enter 2023 in our strongest position ever. Now let me turn to our perspective on the geopolitical situation, IC industry and the general economy. As many of you have seen, as of October 7, the U.S. government placed restrictions on U.S. entities and persons from supporting leading-edge logic, DRAM or flash facilities in China that are not owned by multinationals. We have been studying these regulations closely and have worked with outside counsel and the U.S. government for clarification. In addition to any potential impact on our ability to sell or support our products and services, we believe these new regulations may impact our customers inChina that are developing advanced nodes and change their buying habits. In the lease, it may delay some buying decisions on their part. As a result, and although our current business is not immediately impacted significantly, we are being conservative in estimating the potential impact on our future business in 2023 at this time. There is a silver lining here, and you see it in our revenue from China this year when compared to last. China revenue in the third quarter of this year is up 80% over last year's comparable quarter, primarily due to symmetrics licenses, Exensio and gain share even after adjusting for onetime gain share in Q3.

Moreover, PDF has been in China since 2006, and particularly through the pandemic, has built out a team that can support and serve our customers locally. We have not had any U.S. expats in China since 2018. Hence, while there may be restrictions on some of our products, we anticipate our Chinese customers investing less in the leading-edge technologies and more in 28 and above as well as in taboentities moving to production. We therefore expect that we will have important products we can sell them complete with fully local support. We believe China is an important market for PDF to continue to serve while ensuring full compliance with the U.S. rules and regulations. As for the IC industry and general economy, it is clear that our customers to varying degrees, whether they are in the equipment, foundry, starless or system business, either experiencing or anticipating a slowdown.

At the same time, the economic slowdown is occurring, chips access passed in the U.S. and other countries, and there are big movements in supply chain with customers expanding capacity globally. As a result, it is a particularly active time in the industry with both benefits for and pressures on our business. So far, the benefit greatly outweighed the pressures. We believe this is due in part to the choices we have made over the years that have made the business more resilient. This is the evidence that PDF Solutions is well on the way to becoming the platform of choice for advanced data and analytics solutions for the IC ecosystem. I want to thank our employees for their commitment to the company, our customers and their colleagues, which has helped us thrive through the COVID lockdown, grow through the chip shortage, navigate the geopolitical landscape and the chip supply corrections. With a large backlog, a strong PDF team located around the world, valued products and services and committed customers, we expect to continue success in driving adoption of our solutions. Now I'll turn the call over to Adnan for a review of the financials, after which we will open the call for your questions. Adnan?

Thank you, John. Good afternoon, everyone. Good to speak again with you today, and I hope all of you and your families are keeping safe. We are pleased to review the financial results of the third quarter and to bring you up to date on the progress of the business. We have posted our earnings release and management report on the Investor Relations section of our website. Our Form 10-Q has also been filed with the SEC today. Please note that all of the financial results we discuss on today's call will be on a non-GAAP basis, and a reconciliation to GAAP financials is provided in the materials on our website. Financial results for the third quarter of 2022 were strong and continued our momentum with record revenue and solid year-over-year performance. It is worth noting that with the Cymetrix acquisition, which closed in 2020, this year 2022 will reflect an entirely organic revenue growth year versus last year. We are pleased to report that third quarter total revenue was $39.9 million, up 35% from the comparable quarter last year and up 15% versus the prior quarter of Q2 this year. Our strong results were positively impacted by 4 factors. First, our 2022 bookings through today surpassed our full year 2021 bookings. The largest deal for the third quarter was a multiyear $10-plus million Extensio deal with revenue recognition over time, which we believe has the opportunity to expand over the contract term and sets us up well for renewal from future elevated levels. Q4 bookings through today exceed $100 million and will be recognized over multiple years. Including this, bookings for the second half of the year are already 2x larger than bookings for the first half of the year. Second, we experienced onetime increases this quarter in customer reported gainshare shipments of approximately $2 million related to customer production rates earlier in the year. Third, our Exensio business also had onetime services-related revenues recognized this quarter, which were significantly smaller than the onetime increases in gainshare I just mentioned. Fourth, our gain share during Q3 was more than 3x the gain share in the year-ago quarter, even after adjusting for the onetime gain share in the quarter.

While quarter-to-quarter, we may experience fluctuations due to customer production driven by 2 factors, internal constraints and end market demands. Over the longer term, we expect Gainshare to be a strong contributor to our results through the end of the decade. Turning to the components of our revenue. Analytics revenue was up 21% to $32.9 million in Q3 this quarter versus same quarter last year and was up 6% sequentially versus prior quarter of this year. Across the board, we are pleased with the strong year-over-year growth from all pieces of our analytics platform, Exensio Analytics leading edge and symmetric connectivity. IRR revenue for the quarter was $7 million, a strong increase of 196% for the same quarter on a year-over-year basis and 97% versus Q2 of the year. All this said, we look at 2023, we remain cautious about the macro, geopolitical and regulatory environment and continue to evaluate the various restrictions, especially U.S.-China relations. On expenses, our combined spend from cost of sales and operating expenses for the quarter was up $1.9 million over the last quarter, driven primarily by increases in headcount to support our growing business, some cloud costs and small increases in travel expenses as we visit customers. Our gross margin for the quarter of 72% benefited from the onetime high-margin gain share during this quarter. As we have said before, while we have a strong focus on managing expenses from quarter-to-quarter, we will make the necessary investments to enhance our technological capabilities and competitive position to further cement the strategic relevance of our data analytics platform. We are pleased with the positive $0.20 of non-GAAP EPS reported this quarter as a result of a combination of both items, strong revenues and minimum expenses. For the year-to-date through Q3, we have now generated $0.41 of non-GAAP EPS. We look forward to Q4 and delivering on a strong year. Given the strong bookings growth, we expect to close this year with record backlog, meaningfully above last year's level. We also track uncontracted backlog of what we internally call shadow backlog, which is not reported in our committed backlog numbers and encompasses estimates for gainshare, symmetrics licenses and overages on Exensio cloud usage. While strong backlog will position us well for the coming years with multiple macroeconomic and regulatory changes, we are evaluating our models for 2023, and we'll provide an update on the next earnings call concluding fiscal year 2022 results. Turning to the balance sheet. We ended the quarter with cash, cash equivalents and short-term investments of approximately $116 million.

Please stand by while we reconnect your presenters. Again, please hold the line while we try to reconnect our presenters you may proceed.

Are we back on?

Yes, you may proceed.

Great. Sorry about that after 80 something of these I've done. This is the first time that's ever happened to us. So I apologize for the drop. I hope all of Adnan's prepared remarks were communicated, then we can go right to Q&A. We weren't really paying attention when we got dropped off.

(Operator Instructions) I'll turn the call back over to our presenters for any additional or closing comments.

.Are you sure about that? Is there anybody actually dialed in right now? Because when we dropped off where they dropped off as well. I've also done 80 something of these, and I've never had a call with no questions. So...

Yes. We have about we have quite a few participants we didn't lose anyone else when your line disconnected. And for (inaudible)

Allow me, there were 5 more paragraphs when my line dropped. But I don't know if anyone can listen. Do we know if other listeners are on the call.

Yes, there are. You're in (inaudible).

Okay. Maybe we confirm that by going to Q&A. And then as we confirm that, then we will just repeat the script, the last piece. So maybe you can open up the Q&A session and see if anyone a question.

Absolutely. (Operator Instructions) Andrew, your line is open. Can you confirm you can hear us?

Yes. I can hear you.John Adnan can you hear me?

We're here, Andrew.

Okay. Well, first of all, you got cut off when you were starting to talk about the cash on the balance sheet so I don't know what was in the prepared remarks after that, but that's when I got off at the...

No. And there's only one paragraph left after which may be worthwhile repeating. So if you would allow me, I'll just read it off quickly, Andrew, just to kind of keep the continuation going, and then I'll turn it back to you as a first question. So just to finish it off, and thank you, everybody else for your patience. Turning to the balance sheet. We ended the quarter with cash, cash equivalents and short-term investments of approximately $116 million in no debt. Now turning to forecast for the full year revenue for 2022, we believe we can close out 2022 with year-over-year growth rates approaching 30%, purely organically, which would be better than the 26% year-over-year growth we delivered for 2021.

We believe we are at the start of a multiyear growth cycle for PDF and our stockholders, where we've established our data analytics collection and connectivity platforms and are starting to garner attention and recognition from the leading cloud infrastructure players, ERP leaders and semiconductor test software and hardware platforms. And then we turn to questions. Andrew, if you're still there back to you, then thanks for your patience.

(Operator Instructions) Andrew, do you have a question?

Yes. John... Can you hear me?

Yes, we can. Can you hear. us... Andrew,

Andrew please proceed.

Hello? Jon?

We can hear you. We can hear you.

Okay. Sorry about that. So on the last call, you talked about having identified I think PLF a valuable application of DFI and that sort of your initial customer was usage has noticeably risen and you sort of addressed some enthusiasm for selling either additional tools and driving sort of further adoption and commercialization. Just perhaps you could give us a little bit more of an update, did that deal in that you signed in early Q4? Did that include an additional machine? And any other sort of color you could provide on that would be great.

Sure, Andrew. Yes. And the contract that we described in that we signed in early Q4 does include and it's actually the piece of it is these applications, a particular one that we talked about on the last call for design for inspection in the eProbe does include Eprobeshipment in the contract. As I said in the prepared remarks, it also includes the ability to consume additional machines as negotiated in the terms of the contract as well. So they have the ability to expand beyond what is minimally committed in the contract also. And that's why I spoke with some confidence on the last call. And as I said in prepared remarks, these are very large significant contracts that bookings tend to be lumpy. So 1 8-figure contract closed in the quarter in Q3. And the other contracts that we talked about, the total bookings value for the other contracts in excess of $100 million in Q4, that was signed in the early part of Q4.

Second, that 8-figure, I think IDM expensing deal sounded like it was both (inaudible) to work internally as well as at their OSAT. Is this I think you've talked in the past about sort of trying to secure some like deep thread customers for to really ramp or expand the DEX networks at OSATs to create this sort of virtuous ability to share information throughout the ecosystem. Is that involved here? Is this am I reading too much into that?

No, you're correct, Andrew. Yes, this does include both support for their internal test floors, which is a closed world as well as PDF supporting fully DEX nodes as their OSATs run on PDFs environment so that they as well as others can enjoy real time access to their test flow. And as well as some other contracts that we've been doing, that some of which we'll talk about in the future, expand the network of DEC nodes, and I think it give customers more real-time access to their data around the world.

And then I guess maybe the last question I had was, obviously, great to see the strength in the bookings through this call. What are you seeing activity-wise sort of as you look through the balance of the quarter? Is there still strong demand? Is there going to change in behavior at all?

Yes. It's been obviously, the fourth quarter start up very strong. We still have a number of contracts in discussion, negotiation with customers, and we expect we are not done yet for the quarter. We're not sending everyone home on holiday in November 10 or whatever it is today. So there's enough there's quite a bit to get done for the remainder of the year. We do see a lot of activity on the part of our customers and desire to move forward. Obviously, we're not immune to and not oblivious to the the slowdown in the chip industry overall and the economy. But so far, it's been very good for us and continues to be.

We just don't know what that means for 2023. We could look at it and say, "Well, it's great. Everything is going to be super great, when you click out and say, "Okay, the goal economy is going to be bad. And at this point, we have no we have no reason to change our own outlook internally. I don't know how you guys are all going to build your models, but I don't know under what data you could use to meaningfully move models up or down in this environment because it's there's been a lot of local things that are quite good for us. And when you look in the general market and say, there's a lot of troubling things out there geopolitically and general economy anyway.

(Operator Instructions) We'll now hear from Thomas Diffely. D.A Davidson.

Yes, it turns out that I pressed star like 20 times and the last time it finally worked. So there was a little something wrong with the system getting to go. I'm sure there's probably others that have been pushing Star 1s as well. Yes. Anyway, John, I was wondering if you could just give us a little bit more of your view of how the geopolitical restrictions are going to impact you in kind of the mid and long term. I know there's a lot of cross currents that are going on right now, but just from a just a big picture point of view...

Yes. So from a big picture perspective, Tom, we've been trying to square the circle. Of course, there's specific things with respect to our products, which ones what we can and can't do in China and how we can operate in China. And there's a number of layers to that. Not only do the products need to have no U.S. content, but also the way you operate that needs to be in situations where you don't have U.S. people involved. If you're going to work with ABC factories, what we called ABC advanced node factories. We believe most of our activity with customers is not on leading edge, but actually on trailing edge facilities, fabless companies accessing trailing-edge fabs and other parts of the supply chain. And so when we looked at our forecast out in for bookings in 2023 and '24, we think some of the things that were associated with leading edge probably won't happen because for a variety of reasons. not the least of which they can't get equipment to do what they need to do. And at the same time, we see customers accelerating what they're doing on trailing edge nodes in China. And so we think it's going to change their buying behavior, which is kind of what we put in my prepared remarks. And we think we have plenty to sell them on those nodes and capabilities.

So kind of irrespective of what we are able to do with leading-edge fabs, it doesn't really matter very much. We think most of the market for us in China will be on the mature nodes in 2023. And then what we don't know is just how will the buying patterns change in China. Obviously, U.S. has been very aggressive with these restrictions. We don't know how the Chinese government will react and what that means. And so it gives us a moment of pause just to think, okay, we don't really even whether we have even if we have customers that want to buy and we have things that we can sell them and ways of delivering, et cetera, we don't know what it really means over the long term. So the short medium term, it's been quite good for us on 28 nanometers, we talked about the gain share on Exensio usage, et cetera. When we look further out, we're going to assess what really is going to happen. I think it's very hard to forecast the future in this regard.

Okay. That's very helpful. When you look at the mature nodes, is it across the board of the mature nodes? Or is there a particular sector like power or silicon carbide that's really driving a lot of that activity level right now?

Data is across the board there. They have a big effort on electrification of automobiles in China. So you do see a lot on the high-voltage stuff going on in China. You see also 28-nanometer in microcontrollers and in IoT of things and stuff like that and everything in between. So we do see quite a bit of activity with customers across many product families that are not subject to U.S. restrictions at this time.

Okay. And then moving over to the gain share. It sound like there was about a $2 million onetime piece of that. Was that just for work done in prior quarters? Is it a catch-up period as well? Or is there something more to it?

Yes. First of all, we are happy that, that gainshare number is much higher than we expected. And overall, it helps the trend compared to Q3 of last year for what we are seeing. So yes, I think the right way to think about it is on a year-to-date basis in terms of progress. And yes, it's related to later reporting from the customer, particularly some of those customers were experiencing some co-related shutdowns. So from a reporting standpoint, they're caught up with the reporting during this quarter.

Okay. But it looks like if you take out that $2 billion, you're...

Production inside 2022, right, that they caught up on reporting in Q3 in part because I think some of their ability to operate their offices during the covid shutdowns.

Okay. But if you take out the $2 million, you're still -- you're showing some nice growth in that line item.

Yes. I mean Q3, just for that particular customer and of itself, even if you took out the onetime adjustments it was a very respectable growth compared to Q1 and Q2 of this year. So overall from this customer, we're starting to see the volumes ramp up similar to what John said earlier, that is trailing edge volumes that we see picking up.

Great. And then finally, obviously, nice to see the Advantest offer the DPT come out. How many such projects do you have that are going to do you think rolling out over the next several years?

Well, certainly, it's hard to forecast, Tom. But I can say over the next couple of quarters, we expect to put out a number of additional applications for Advantest that you'll see us announce. And there's also other activities with Siemens testing productization going on work with clean sulfone productization on work there, activities with SAP and the productization of the integration of analytics with ERP systems. So each one of these partnerships, when we take them on, we make a commitment on the development side, not just the kind of marketing and press release side of it. And so there will be products associated at least one product associated with each one of these releases. And in the case of Advent test, where we have the most work going on. We are already at the 4 on the website plus DPT and a handful more of them in the next couple of quarters, so we'll quickly be approaching 10 apps across just for them.

Great to hear... Okay. Well, thank you both for your time today...

Next is from Auguste Richard of Northland.

I think I'd be, Tom, on the number of times I hit STAR 1. Real quick on this new contract you've got a part of it is DFI. It sounds like it is a subscription service or are you shipping a tool? And sort of what does that do to the availability of DFI tools after this transaction?

Sure. It does include shipping the tool. As I said in my prepared remarks, Exensio and our IP hardening software, we call templatize, our design manufacturing optimization software we call fire. Those are available on the Exensio Cloud, so they access that from the cloud. But obviously, the characterization vehicles and the DFI infrastructure needs to be on-premise. And so those are on-premise and that will ship. That will, of course, reduce will take -- we have fewer machines that we could ship. To be candid with you, Gus, we have really only a couple that we could truly ship to customers at this point beyond what we're committed to in 2023. And we also we're very careful to make sure we've got customers really fully getting maximum value of what we shipped and moving appropriately. We think there's plenty of revenue growth on the way we've structured the business so that we can make sure we support the customer well and they get the full leverage of the capability. I think we're well on the way to making that work with this existing installed base as well as being able to take on additional customer.

Got it. And then on the 8-figure deal that was an existing customer, it sounds like it was a new contract. Could you give me a sense if they were at a certain run rate? How much did it increase in this new contract? And then do you have other ones like it teed up?

Yes. Specific to how much it increased. It was in the tens of percent. The specific number, I don't know off the top of my head. It is an expansion on all their test floors. It is a movement to the cloud for the infrastructure from a very distributed on-premise deployment. It also includes the ability for them to expand into advanced AI and analytics, connections to their ERP and other things that are upsells as well as expansions on number of testers and cloud capacity, et cetera. So while it is a big deal on it is, I think, the largest contract with the exception of Advantest that we've ever closed for Exensio, it has the ability to grow pretty substantially. Secondly, do we have others like this? Yes, almost all of our customers many of the customers, I should say, all many of our customers that are on Exensio cloud or on their manufacturing analytics are starting to see the potential of connecting their cloud to the edge with our Dexnotes and edge capability, as ability for them to get higher operational efficiency on their manufacturing assets, better product quality and better product yields. And in this case, we were able to demonstrate that to the customer, and we really spiked about the commitment they made to Exensio, and we are engaged with other customers on similar expansions. Some of them are partway through their contract. This is a customer that was at the end of their time-based licenses. So it all got done as one renewal. Other customers, you may see them just tack on contract value, but the annual recurring run rate will be similar in size, if not larger.

Okay. So this was a transition from TBL to perpetual?

No, to cloud.

To cloud, rather.

Yes, not perpetual.

Yes. Yes, yes. My bet. And then last one for me. On the deferred revenue line, it was up quite a bit sequentially. And I was just wondering what that was related to.

Yes. I mean part of it is going to be billings that happened within the quarter. We have some big customers, one of them that John mentioned related to Advent test, right? So when we the billing, then the deferred revenue will move up because of that, and then we'll work our way through consuming that. Of course, some of the bookings number, if they've been built, we'll also start to reflect on that. So overall, it's the billings related impact that you will start to see in the deferred revenue, which we're happy about.

Thanks, Gus sorry about the (inaudible).

It happens.

(Operator Instructions) Next we'll hear from Christian Schwab of Hallum Capital Group.

So just a quick question, maybe it was in the prepared comments. I know we talked about greater than $100 million in bookings. I think last quarter, you said your backlog was at $184 million. Do you have an updated number for us?

Yes. We put it in the filing. It's about $185 million, which, by the way, yes, it's only up about $1 million or so, but the reality is the fact that we had a record revenue quarter and still were able to incrementally move up the backlog is something that makes us.

And the $100 million of bookings that we discussed on the call, Christian, you might have missed was for Q4. So it's what Adnan is referring to is the value at the end of Q3. So you would take that booking and make it additive to that backlog number.

Excellent. Okay. Perfect. That's where I was slightly confused. And then I appreciate, I think in the beginning of the prepared (inaudible), I think you guys were going to wait one more quarter to given the situation in China and slowdown in dislocations, certain high-volume markets that the semiconductor industry is facing. That being said, we started the year thinking that we were at 20% to 25% business. We're going to end up at 30%. We've added new partners. We've just talked about big huge deals, and we talked about the huge bookings as they're going to happen in Q4. I mean as a baseline, I assume it's safe for us to still think about 20% to 25% for 23...

Yes. I mean, at this point, Christian, we really we are we normally would give this perspective in our February call, and we still want to and that would be in the year where there's kind of more visibility. This is a pretty crazy year. I jokingly said I like our house. I'm not sure about the neighborhood. When you just look around, we don't know how that stuff isn't going to affect us at some point. So far, it hasn't. We had obviously a great year on the progress we had a great year. So we are just being cautious. If I were we're not changing our internal models. I don't know why someone would change the models on the outside yet until we get a little further along. It's very easy to just go back and change them because I understand what you're talking about, it's all -- when you look at our SAT pattern, it's very positive and it's easy to get excited. But at this point, prudence maybe to not change things until we understand more about the world.

Great. And then my last question is just for the clarity on China. So you have limited exposure on leading-edge memory of your PodryLogic customers where a lot of -- well, where the government has stopped the ability of U.S. companies to work with. Did I hear that correct, first? And roughly, of your Chinese exposure, speaking nationalistically, not non-Chinese manufacturers have facilities there who already have received licenses. But nationalistic Chinese-based companies, do you have a rough estimate of your exposure to the leading edge?

Yes, we do. We believe that we're relatively insulated from the leading edge on that piece. And we do -- but we do look at a place where our own team had forecasted selling into leading-edge facilities that we have to go back and look at. I think the bigger factor than whether we can sell or not and what we can do or not is if you can't get lithography systems, if you can't get etches, if you can't get deposition tools, and there's not a lot of data analyzed and there's nothing you can run a vehicle through. So we think that's going to change, and we're already seeing the way customers are reacting a little bit. We believe they're going to pivot a lot more to mature nodes where their ability to execute is on fettered-- and they're able to execute, as you can see, by nature of our gainshare report this quarter. So we expect that naturally, the market is going to pivot that way. We're still waiting to see. That would be very good if that happened. We're still waiting to see. But we -- these are practical business folks over there -- they're going to tilt that wind mills if they can't execute

right... Thank you for that. I think a lot of people agree you'll just take the wafer starts and move it to where they can access the front-end equipment. They're not going to stop making biconductors. Great. Great. All right. Perfect. No other questions.

(Operator Instructions) And we'll now hear from Blair Abernethy of Rosen blatt.

Nice quarter, guys. Adnan, I just wondered if you could just go back for a moment just before you were cut off in your prepared remarks, you started talking about the shadow backlog estimates versus your, I guess, your RPO was $185.4 this quarter. Can you just give us a little more insight into how you're looking at that? And just any way you could size it for us.

Yes. Look, I mean, I'll tell you explain a little bit more about what we think that goes into the shadow backlog and what it is. In terms of sizing, what we're doing today is frankly just starting to talk to you all about this. Hopefully, the future analyst there or something like that, we can talk a little bit more about the sizing that would be our desire. But in terms of how we measure backlog, it is and reported in our filings, it is the contracted number that we have from customers, right? But what is not included are the pieces that we alluded to, which is what we call shadow backlog, which is really the gain share that would come in the future periods, which could also be the second piece of run-time licenses for symmetrics where we just get a customer order and fulfill it within the quarter. And then the third piece, of course, is the overages from Exensio. Even on the third piece, we started to get some of those pieces in. And if you look at each one of those, let's strike at each one of those. And on the gainshare side, there are customers with whom we have contracts all the way to the end of the decade. On the run-time licenses side, even if the world was to fall apart, there's an argument we said, okay, there are a certain number of customer shipments that would happen. It sounds like they would be 0. So some estimates would be fair to think about. And similarly, on Exensio usage as that platform is becoming more relevant, more present and broadly adopted within the organization, we have seen the usage go up, so we expect that we'll be able to (inaudible).

Maybe I can provide a little bit of like market depth to that answer. So if you just look at gain share, we put in our backlog estimate 0. Yes, as we said, the customer surprised us in Q3 with a substantial number. We know it's not going to 0 in Q4. And as Adnan said, those contracts run out through some of them run up through the end of the decade. So in our own model, we started to just go through and say, okay, what would be a likely value per quarter over the next 7 years for that contract and then layer that in for the other contracts. We used to do better in the old days. We had it for a while because we've just gotten so disappointed with the uptake on gain share in China that we stopped looking at it similarly with the runtime licenses. The way we work on symmetrics is we sell a design kit, software design kit development kit that the customer then embeds our software with their equipment. We don't put in the backlog any estimate for them selling equipment. But they sold our runtime licenses last quarter were obviously millions of dollars. And so the next quarter, they're going to sell something, right? And that's -- and once it's designed into the equipment, they're not going to take it out right? So for that equipment to like in all likelihood, every time they sell equipment, there will be a runtime license that will come our way. We've started to put some estimates on that, assuming a certain shelf life for a piece of equipment and up and down markets, et cetera. And again, it's similar in magnitude to where we think about the gain share number. And then lastly, in our Exensio contracts, if customers want to use more storage or want to be able to load data faster or connect more testers, often, there are overage charges in the contracts. Again, but since those are not committed, those don't go into our backlog. And now we're starting to see customers go over and us build them. So we're starting to understand a little bit about the overage. That's we're not the newest in, right? We've not been at the cloud business so long. We're just still learning that one the most I would say that was one we had the least understanding. The other 2, we're starting to understand a little bit better. And that's kind of the nature of the shadow backlog. It's not an insignificant number. and we'll start to quantify it for you all into next year.

That's really helpful. Just and one other just sort of question just on renewals. I guess if we're looking at Cymetrix customers, as an example, in particular, what's the renewal profile look like? Is it for next year? Is it fairly evenly spread out? Or is it kind of more back-end loaded? And what kind of expansion or pricing opportunities you have on some of your renewals?

Yes. I can try to answer that a little bit more broadly. I mean there is -- there are renewals every year. I don't know that we've seen like a particular pattern to it yet in terms of 1 year over the next or 1 quarter over the next. So I don't know if we could really give you an answer on the profile from that perspective. As far as -- so far on the expense renewal year, the average contract value per year has gone up pretty substantially. I talked about them on the call, the last few quarters, but they're in the tens of percent at least on our annual recurring run rate increases usually pretty substantial. We are still quantifying that to get enough of a sample size that you can kind of draw an inference. The for some metrics specifically since you asked about that, Blair. There's really 2 elements on backlog there. One is the software development kits used to be perpetuals more and more. We're selling those on time-based licenses. So those are becoming TBLs too. That is a smaller part of the cymetrixrevenue, the larger part of the Cymetrix revenue is those run-time licenses, which are perpetual licenses we recognized upon the customers accepting the license to put on equipment to sell. There's been a growing backlog on that over these last few quarters, including in the third quarter, we believe as customers, as I said in my prepared remarks, are not able to ship all the equipment they would have liked to have shipped in the quarter, probably due to the chip shortage. But that backlog as a percentage of the total quarterly revenue is not like the Exensio business, where backlog is much greater than quarterly revenue because it represents most contracts are 2 or 3 or 4 years on like, backlog at any given time is a very substantial part of the Exensio more than exceptional quarterly revenue many times over.

Okay. Great. Thanks very much, guys...

At this time, there are no further questions. Ladies and gentlemen, this concludes the program. Thank you for joining us today.