PDF Solutions Inc (PDFS) 2024 Q1 法說會逐字稿

Good day, everyone, and welcome to the PDF Solutions Inc conference call to discuss its financial results for the first quarter conference call, ending Sunday March 31, 2024. (Operator Instructions) As a reminder, this conference is being recorded. If you have not yet received the 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 this conference are forward-looking, including statements regarding PDF's future financial results and performance growth rates and demand for its solutions.

PDF'S actual results could differ materially. You should refer to the section entitled Risk Factors, on pages 16 through 36 of PDF's annual report on Form 10-K for the fiscal year ended December 31st, 2023, and similar disclosures in subsequent SEC 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 and management report for the first quarter, please go to the investor section of our website where each has been posted. The first quarter was a strong start to our year. Business activity continues to be robust as our products and solutions are well aligned with the larger trends driving the IC industry.

Before I discuss the financials in detail, I have some comments to make about the events in the first quarter and our perceptions of the market in the second quarter and for the remainder of the year. Building on a strong Q4, Q1 bookings were again up over the previous quarter, which continues to build backlog.

When we look at the nature of the business in Q1, we see that bookings and presales activities were driven by the alignment between larger macro trends in the industry and our product development investments. I'll describe three of these.

First, AI is driving strong demand for advanced logic processes that leverage 3D transistors like manner sheets and 3D interconnects such as backside power. In the quarter, our largest booking was -- with a new customer deploying our systems, including DFI, CVs and Exensio to accelerate the development and manufacturing of advanced two nanometer logic.

Second, customers are driving digital transformations to achieve more efficient operations. Our systems from extensive cloud, Extensio test operations and Sapiens manufacturing hub are gaining increased attention from our customers for this workload. Bookings in the quarter include cloud customer, expanding Accential usage and pre-sales activities include a number of customers evaluating a Sapiens manufacturing hub as part of the SAP S4 Honda deployments.

Third, customers are accelerating their use of AI and machine learning to achieve their yield and operational targets. In Q4, we announced our ML Ops system that enables engineers to build AI models and publish them in manufacturing, both at the factories they own as well as their partners' facilities yard via our decks network. Customers report to us that they are mastering the ability to train AI models, but the challenges are to deploy them in the field monitor their performance and act on the results.

Our MLOps system was designed for these challenges and leverages the Extensio Cloud decks and test infrastructure. In the first quarter, we started running MLOps pilots with our lead customers. Overall, we believe strongly engaged -- we believe the strong engagement we have with customers is due to our investments in our ePRO DFI systems, our SNH digital platform for manufacturing and our MLOps for testing of complex system-in-package products.

I know many of you are curious about progress with our DFI and ePRO. Utilization of the tools in the field, there's extremely high. We believe because of its unique ability in seeing 3D yield issues. In February, we said we anticipated a third customer starting to deploy DFI, and we would ship a third tool to our lead customer. The contract we signed this past quarter brings us a new customer for the ePRO. We also remain on track to ship a third tool to our lead customer this quarter. Given this acceleration of our 2024 goals for DFI, we are now looking to accelerate our manufacturing as we believe demand is quite strong for this solution.

Our results have occurred while the industry isn't an unusual time. Government investments have resulted in outside capital spending in parts of the world. Demand for some chips has been very weak, while silicon for AI has been strong.

That said, we believe the industry is starting to see a general improvement due to the metrics we track about itself. As we look to our runtime license sales, which track our equipment customers shipments, we see improvements when compared to Q4 of last year.

This as well as our strong bookings in Q4 of last year and Q1 of this year suggest customers expect stronger business as they go through the year. We are pleased with the business activity in the quarter as it demonstrates the strength of our strategy and investments. Consistent with our comments in the February call, we expect the first half of the year to be flat year-over-year with the second half of the year getting back to our growth target of 20%.

I want to thank all the PDF employees and contractors for their efforts during the call, during the first quarter time.

Sorry now like to turn the call over to Adnan, who will review the finances and provide his perspective on our results.

Thank you, John, and good afternoon, everyone. So to speak with you again today, and I hope all of you and your families are well. We are pleased to review the financial results for the first quarter of 2024. As mentioned, our earnings release and management report are posted in the Investor Relations section of our website. Our Form 10-Q was also filed with the SEC today.

Please note that all of the financial results we discuss in today's call are on a non-GAAP basis and a reconciliation to GAAP financials is provided in the materials on our website. We are excited about the booking momentum during the quarter, especially the meaningful multiyear leading edge booking with a new customer.

Our backlog ending the first quarter was $262 million are approximately $32 million higher compared to our prior quarter ending backlog of $230 million. Total revenues for the first quarter were $41.3 million, up slightly versus the prior year and up slightly on a sequential basis as well. Analytics revenue came in at $38.5 million, an increase of 6% year-over-year. On a year-over-year basis for the quarter, our IYR business was down driven by lower fixed fee and gainshare.

However, the growth in analytics allowed us to be slightly up for total revenue versus prior year period. Like John said, for our extensive products, we continue to engage with customers on opportunities we are seeing for the digital transformation initiatives and deploying the extensible platform across our manufacturing operations.

For our leading edge solutions, we are emboldened by the booking with a new customer, which encompasses our broader offerings, including CV infrastructure, DFI and Exensio software. We're starting to see opportunities for further expansion over the coming years with continued investment in the DFI system.

For our Symmetrix products, we saw growth in runtime licenses versus the prior quarter and remain cautiously optimistic. Taken as a whole, we believe our portfolio of product offerings provides us the opportunities for strategic engagements with customers for our analytics solutions.

IYR revenue came in at $2.8 million for the quarter and was down compared to $4.4 million of prior year period, primarily driven by lower time spent on fixed fee projects and lower gainshare. We remain optimistic about the IYR business in the longer term as eventual customer product shipment volumes increase.

Our gross margin for the first quarter came in at 72% versus 75% for Q1 last year and flat versus 72% of Q4. On a year-over-year basis, our cost of sales was driven by the lease accounting treatment for the DFI hardware, increased personnel costs and increases in cloud costs.

Our operating margin for the first quarter came in at 12% versus 19% for the year ago same period and 15% for the prior sequential quarter. On a year-over-year basis, we were able to better manage and reduce our R&D expenses, while our SG&A expenses increased as we utilized our technical resources and added sales and marketing headcount to support the presales and sales activities with our customers. Net income for the quarter totaled $5.7 million or $0.15 per share, both essentially similar to Q4, however, lower on a year-over-year basis.

Turning to the balance sheet, we ended the quarter with cash, cash equivalents and short term investments of $122 million compared to $136 million at the end of the prior quarter. With the change, primarily driven by $7 million of share buybacks completed during the first quarter, annual bonus payout for calendar year 2023, and CapEx expenses to support the build-out of our DFI systems that John talked about. We've also adopted a new larger $40 million share buyback program.

Overall, we were pleased with the new leading booking during the quarter, growth in our backlog and are excited by the opportunities you're seeing in our pipeline. As we look to the rest of the year, we remain committed to our prior guidance of flat revenues for the first half of this year with revenue growth returning to our 20% long-term target for the second half of the year, both compared to the respective prior year periods.

With that, let me turn the call over to the operator for Q&A.

Thank you, Mr. Raza. (Operator Instructions)

Blair Abernethy, Rosenblatt Securities.

Thank you. Hi, guys, thanks for taking the question. John, just wondering if you can expand a little bit on the DFI market traction you're seeing there. Is this new customer -- I think this is the second customer of the -- you looks like one machine now, what sort of is the size and scope of that opportunity with that customer over the next few years? And secondly, are there other pilots ongoing now or sort of what do you see in terms of activity with other potential customers for DFI?

Sure, so as you know, we talked about our lead customer, right, who had two machines in our ownership of third. We started in Q4 a manufacturing evaluation with the customer, second customer, that was a non patent evaluation at this point. That is going quite well. We feel very good about that one as well. And then this past quarter, we signed a contract with a third customer and for all of them I don't speak about any one specific.

What we believe is the following the yield loss for these advanced technologies, is very much due to the conduction between layers or underneath the surface of the wafer. Conventional inspection is to shine a light and look at the surface of the wafer for a defect. So you obviously can't see something that is going down below the surface of it, unlike via or contact that's open, our short indicate all around structure.

So this voltage contrast or using an electrical test method has always been desirous, but the issue has been you could never see enough on the wafer -- [throughput] was so slow. You can't see what's going on and you don't know enough about the design to know what matters and what doesn't matter, what is it could be a defect and what's not? what's unique about what we've done with DFI is the sulfur first knows what's in the design. So it knows where to look and has a simulation model, what do you expect? It drives the machine to look there it's measuring billions, but will ship later on this quarter over [10 billion] features in an hour.

So it's seeing huge statistics and then its own analytics problem on the other side of that, okay, 20 sales that's still less than -- let's say it's less than [500 billion] and functions, but probably [500 billion], what's unique about that from a design perspective? That whole end to end capability is what is embedded in the DFI with the ePRO.

And I think the question for customers and what they've told me is, hey, if this can really do this, we would use these in production, right, we hear that from multiple customers and then that the market would be significant for this, right.

Right now, the market for e-beam inspection in and of itself is hundreds of millions of dollars, but it's been primarily used in the early stages of your ramp because once you improve the process to a certain level, typically the sensitivity of the machine isn't good enough. What we've been able to demonstrate with the problem the roadmap for how much it evolves, is that it's able to see quite a lot of silicon. And hence, it can see things as the process is maturing.

And that's really the question mark, how far can we push this, how much can we prove you can use us in manufacturing? If that were the case, it would look a lot more like the optical inspection business than the e-beam inspection business today, but that's an unproven thing.

And then lastly, to answer your question on pilots, we do have a number of other requests for customers on pilot wafers and demonstration capabilities outside of the three that we've discussed. And we are slowly in opening up the aperture to take on a little bit more of this work. But obviously, we really want to succeed it everywhere we go.

That's great. Thanks for the color, John, really appreciate it. And just second question, just over on the battery manufacturing side, the Lantern technology acquisition you made last year, any update on that in the market?

Yes. So we've been engaged with a couple of lead customers on some pilots those are ongoing. They look promising. We think we understand what are common issues. And again, it's one of those things, can the engineering achieve what the customer's looking for in terms of analytics and the biggest thing there is around AI for extracting critical issues of their in-line data.

Okay, great. Thank you.

Gus Richard, Northland.

Yes, thanks for taking the question. Congratulations on the new customer, that was a rapid addition. I was just wondering on the relative size of that contract relative to the size of the one you booked a couple of years ago with the contract included DFI and in other services, could you give sort of an order of magnitude? Is it (multiples speakers) what is this comparable?

Yes.

Okay. Well, and then can you talk a little bit about how quickly you can ramp on DFI manufacturing to meet increased demand? I think the plan is for three or four systems this year and how rapidly can you ramp that into next year?

Sure. Yeah, original plan was really to effectively commit two more machines this year and now we've actually committed. So that -- we were planning on building three or four machines, so they would the builds completions would be into next year.

We're looking to do now, as I said in my prepared remarks, Gus, accelerate that pull in them as much as we can. So we had, of course, pre-ordered some long lead items and been somewhat thoughtful about in anticipation of success. And then accelerate the build beyond that number. It's too early for us to really say what we would be able to commit to because we're still working with our suppliers.

But we do want to be able to meet a customer demand if it materializes the way that we hope it well. We still have a lot of work to do there too. So I think at this point, it's kind of a wait and see because we can't promise you that we're going to build more than we originally committed. We think we have some flexibility that, we hope to be -- at least at the end of this year, early next year, just squeezing a little bit more. And then we expect to have a more steeper manufacturing ramp in 2025. That we have more flexibility on, obviously because there's plenty of time there.

Right. And just, are you at this point contemplating outsourcing the manufacturing of the equipment --

It is outsourced today. I mean, we don't -- up till now, we've done final QA and assembly here in the States and we review it. But all of our production is offshore and we have the ability to just -- if we want to not ever land and back here and complete final QA at the producers.

Okay. So then what is the long lead time items, the limiter to a more rapid ramp in like-for-like next year? Okay.

Obviously, the technology and this thing is not simplistic and it's not off the shelf, right, it's pretty disposed stuff, right?

So refresh my memory as to typical lead times for your longest lead time item for the tool?

Well, I think what we've been able to do this first quarter, I really applaud the team is take items that did not have a deterministic lead time, right. In other words, they were customers, suppliers would build them, then we test them and then we would send them back because they didn't meet back or you would start more material than you needed just to get out a small amount with relatively poor yields and what do you know, a company that's kind of predicated on manufacturability, we went back and embarked on a lot of those our suppliers and got the manufacturing yields up get the times to be deterministic.

So you could put in a lot of overhead and fixed number of months, again, have some system out that actually meets requirements. So I think we've been working through that in this first quarter. I think I feel really great about the results the team achieved on that. And we're re-rolling that up say, okay, now, where can we take slack out of our overall build schedules? because our build schedule had a lot of slack time in it, too. So comps for some components that were basically undetermined, you could have and you didn't know when you're going to get them.

Got it. Understand. And then just switching to the software side of the world that the Extesio, I know you're working on some large enterprise deals and you had some potential for some for other eight-figure deals, I believe. And I was just wondering are customers beginning to come out of the fog and start getting closer to committing to orders and sort of where does that funnel look, what does that funnel look like today?

So we did have some, I would say, seven figure contracts last quarter. This quarter, I do see -- this quarter, the next quarter. It's always hard to pick timing where they're going to be Q2 or Q3. We do have a number of larger opportunities out there and they are -- I chose my words around Exensio cloud, Extensio test operations in the Sapiens manufacturing hub, a lot around customers' digital transformations, this seems to be one critical area for the customers of that SAP kind of connection is an important one for a lot of this work and all of these are contracts.

That are part of an overall larger engagement in those cases. So it's a little bit trickier for us to have clear visibility, but we feel pretty good over the next couple of quarters to see what will be larger contracts, what's the total size of them and how they break up? I think, of course, it's early, but we do feel engagement quite strong with the comps.

Got it. I'll thank you so much for answering the questions. I'll jump back in the queue.

William Jellison, DA Davidson.

Good afternoon and thank you for taking my questions. For the first one, I wanted to start out by asking you about the core Exensio business. What sort of trends are you seeing in customer behavior with respect to adopting incremental Extensio modules or their usage trends of the software overall? I'm curious what you're seeing there?

Sure. So I think there's basically three places where we see a common [Extensio]. So cloud customers evaluating and looking at tests. Cloud customers looking at [guided] analytics, AI module, right? So automate more automation on the weather, doing analytics. And then I would say our larger customers really looking at the Extensio and Sapiens connection between SAP and their factories. And those are kind of the way I answered Gus's question and my prepared remarks as well.

We're all around those, basically, those three capabilities. That's what we see. We look at that as a customer's trying to kind of change their digital platform, the digital transformation, some of them call that, that often starts with an S4 Honda deployment and then it's a hub they get kind of real-time feeds from the manufacturing, that tends to have an impact on test because the Dex networks and things like that because a lot of their supply chain isn't in their control. So the test operations is a piece of that. And of course, it starts with the cornerstone of the cloud.

So it's like I said, after cloud, it ends up being guided analytics, test operations in the SMH SAP connection. and those are all ongoing how we've had stuff closed in the quarter, Q1 related to some of those, and we have stuff in the pipe in Q2 and Q3 on those activities as well.

Okay, great. And then as a follow up to dive a little bit deeper into that with respect to the model Ops pilots currently going on. Cay you talk about how do you expect customers to ultimately uptake, model apps and how it affects PDF's monetization overall of that Extensio?

Yeah, that's a question, we're learning as we go well. But what we think so far as the following. It does drive our test Ops. So as you know in my prepared remarks would model us primarily around testing for advanced packaging. So multiple test insertion points.

Data is feed forward, predictive building, all the things around being more able to make sure the chiplet you put in the package is going to really be there, you'd be at the performance levels you need and then make sure that testing is efficient because they did not have somebody test insertion points. They're trying to be as efficient as possible with their tests.

So this is the bandwidth, a lot of the engagement on the pilots, almost all the parts are in that area right now. All related to advanced -- typically advanced packaging and chiplets. That will drive model Ops, deployment which basically is tied to the number of machines that they deploy model Ops on. So it scales with the capacity of the deployment.

And it also has kind of a follow-on effect because then you need more cloud, you need more analytics on the other side and more of the ML training capability in the cloud as well. And we think, but we'll close versus the stuff around the moving data around and the MLOps as deployed, that's why in my prepared remarks, I talked about the challenges of being able to monitor and maintain and act on the models.

And over time as they get more and more sophisticated, we think it will also have an impact on our general cloud business as they drive more compute, go up more models, manage larger datasets and do more complex things. I would say, overall, the industry is really relatively simplistic and what they're doing in AI models today.

Great. Thank you for that, John.

Sure.

Christian Schwab, Craig-Hallum Capital.

Hey, good evening, guys. So if we used -- if we take the DFI eventually and move it in as a production tool, what would you charge for that versus the way that you're kind of charging customers to use it is what I guess I would call more of an research and development tool?

Yeah, that's a great question, Christine. I think we're still working and active dialogue with the customers on this right now. Today, we charged the whole thing as a bundled subscription and the customer gets quite a deal because we actually manage the uptime on the machine, we manage spare parts, we manage -- we provide the entire software stack for the application layer.

If we suddenly delve into selling the machine piece itself, that's on a capital purchase basis and then would still be potentially than a subscription on all the analytics and systems that drive the machine and drive the data off and particularly for the product level inspection.

So there are ways where we could make it less capital intensive for us and maybe more conventional for the customers. We've had dialogues with customers around that. I don't think we have anything that is set in stone at this point.

And I think as we've gone through that, we've learned a lot about just our subscription business and how we a prioritizing. We did that in a way that made it very, very, very easy for the customer get into the machines and see the value that's there, right, their relatively meaningful subscriptions when you consider the total of I think it's quite a good deal.

And should we assume that if you saw them as a piece of capital equipment that an ASP would be [$4 billion] to [$5 billion]. Is that still fair?

I think that would probably be much lower than where you'd expect them to be on a capital basis.

Okay. And then on a capital -- I guess my last question is, if it was used in production, do you have an idea yet of how many tools would be needed based on wafer starts per month, every [10,000], [50,000] and [100,000] whatever. And have you done the work to know how many would be needed?

I think, we don't really know that answer yet, your question but what I can tell you is the following, right, when we first started doing this many years ago, all right, even before the last couple of years, all of the customers that want to talk to this a unique e-beam, a lot in the first one or two years of development, then once you get to a certain defect density, you can't see anything, anymore.

So everyone was very comfortable with the subscription because they didn't think you'd see it. You would see defects for very long. But the reality is we've proven with the capability that especially as we've done further rather than machine, I'd say the first and we shifted covenant 250 than we shipped last year 350, this year, we'll ship it 450.These are getting incrementally faster and faster and faster, really due to the software layer.

And we know overall where the market is in terms of defect densities and we think we're very unique in being able to see these 3D problems even as customers are getting to pretty good yields. So that's why I think customers early idea about how long you would need an e-beam tool and what's turning out to be the case. It's I think, surprising the industry overall, and that was our original thesis. So it's nice to see it come true, but we didn't know when we started.

Okay, great. No other questions. Thanks, John.

Thank you.

Gus Richard, Northland.

Yes, thank you for askin me one more question. And I kind of want to be clear on the three buckets for DFI process bring up -- product bring up and then there's in fab in production and the conversations you're having was at least one or more of your customers, does that include the third bucket where you're talking to them about production tools?

So I think the people are asking about that, Gus. People have used e-beam historically for test vehicles and process bring up, as [RAMs] and very simple structures in the product where they know what's there or they, quite important nuisance rate as well. I think what customers have been surprised and we see this already in the way we've engaged with the customers at least a couple of them so far, the ePRO is very, very good at looking at product.

So now you can bring up each product -- each new chip, each new design and see via open issues, complex issues because it is a very targeted and where it lands the beam, you can even sequence the landing of the beam, so turn on areas and look in other areas. It's very, very sophisticated in the way it can work. And so I think customers now themselves getting on the head that it can be very powerful for product bring up.

They are asking us about the third application as well, and now, of course, because we deployed to some very advanced nodes that are just getting to production now. Now we're starting to begin those engagements that pilot that we announced in Q4 of last year was really around the manufacturing question, okay. Can you really run one of these things in manufacturing, that was their question.

And we've seen, of course, by the across the fleet, the uptime data and the consistency data. And we feel pretty good that again, e-beam tools tend to be like Formula One cars, right, and the customer's are questioned, okay, can you really run one of these things? And we've seen a time date and we feel pretty good about it. So we'll have to go and answer that.

Third question, people are asking it now. I think they're pretty comfortable now with the second question. You can do product inspection, even as ultimately mature yields as you bring in new products and I think that's a very new application for EV.

Got it. All right. Very helpful. Thanks. That's it for me.

William Jellison, DA Davidson.

Thank you for taking the follow-up. Adnan, I wanted to ask you with respect to gross margin during the quarter. My impression was that much of the year-over-year drag was related to that lease accounting or the PFI that you mentioned, and so the question that springs from that is is DFI accelerate and becomes a bigger part pediatric growth in the future? is that change at all the way you think about the long term greater than 75% target?

Yeah, thanks very much for asking that question. So look, now with the multiple machines shipped into the market, we are actually getting quite better and the team has been doing a great job about managing the costs over the longer term, especially as we take on some of these advanced at these early orders that we're starting to look at that we are placing with our vendors.

So feeling pretty good about the machine side of it as well, being able to not hurt our 75% gross margin targets that we have said, will. Yes, the last few quarters, some of the margin was lower compared to our gross margin targets. But as the revenue ramps through the rest of the second half of the year, we certainly expect to be getting back to our target gross margin model, particularly by the time we are ending the year. I think we're starting to think that the 75% gross margin in the 20% operating margin target that we had set for the year seemed like that would be achievable ending the year.

That's great. Thank you, Adnan.

Andrew Wiener, Samjo management.

Hi, good afternoon, guys.

Good afternoon. Andrew,

I wanted to follow up on Christian and Gus's questions I guess. The first is with respect to the potential and I realize you're still evaluating it as a model, but the idea of selling the tool and then charging a license for the analytics in the -- and the design, et cetera, and the software, it sounds like you believe -- and I don't want to give away anything from a pricing strategy perspective, but you believe relative to sort of other e-beam tools or inspection tools and then sort of the software that's required to manage them, that perhaps our initial subscriptions were underpricing the overall value in part. But that's we need to prove that it works and drive adoption. Is that a fair sort of interpretation of your earlier comments?

Yeah, I mean, and also the machine got a lot more capable. So from that first generation we shipped in 2022 to today, it's about 16 times faster. It is a because of the software, because of the capability of getting smarter about the design, there's a lot of the software side and the control system side that make that possible.

There is changes to the machine too to basically take advantage of what the software does. For that software -- improvements in the software, improvements for the machine to take advantage of software have made quite a different experience than we think it continues to be.

So, yes, then you can go and look at where it is performance wise competitively in the marketplace, and we feel pretty good there.

Okay. And then second, I realize we're not ready to put a fine point yet on what the number of units are sort of market sizing. But if I take your earlier comments of e-beam being a market in the hundreds of millions of dollars and then I take your response to Gus's question about that we sort of prove it or we're in the process of approving that. You can not only use it to bring up a process, but you could actually use it to bring up sort of each individual design or each individual product.

It sort of -- somewhat suggests that you believe at minimum the market for eProbe or DFI is larger than the current EV market and then the question obviously would be how much larger and that would be somewhat dependent upon sort of the proof of getting into manufacturing. Is that a fair comment?

It is fair, Andrew, yeah, I mean, I think look, there's a -- the conventional uses of EV. There's more than just voltage contrast, they use it for fine feature inspection, right? And the number I was quoting was inspection market, not the review market and not the CV market or the overlay market, all the other ways that people use using tools like just the e-beam inspection market.

And we focused primarily so far in the logic producer side and a lot of it even goes into memory, right? So you've got to go in and slice that all up a little bit and then say, okay, for the -- can you make the market for logic, this contrast bigger, if you can do product and not just early vehicles, yeah, I think that's true, how much bigger that is in the regular, the whole market or is it bigger than the wholemarket? Well, it depends a little bit more about how relevant what we're doing is to the memory customers, et cetera.

So I guess, I'd like some wiggle room there, Andrew, because I think we're still really digesting all that. I think we are feeling pretty comfortable that this will be an important part of PDF's business, and we think it can be an important part of the subscription for PDF's on a subscription basis for PDF's business.

Okay. And then lastly, I just wanted to sort of make sure I understand. So what planning to ship this quarter, a third tool to our leading customer, I think on prior calls or prior public comments you talked about shipping sort of another tool in the fall. Was that always intended for the customer who signed the current contract? And is that sort of the timing of when you'd expect to ship that tool?

Yeah, so that is that customer. We are set up now where we can help them in this stage of being able to use the machines in our facility as they go through this year. And then at the end of this year, potentially could slide into early next year if they're not ready. That machine would move from our site to their site as they transition their status. So but I think what we're able to get done here was ability to start supporting them sooner than a later this year, right.

Okay, and then the comments about trying to pull forward potentially availability of tools into late '24. Is that -- mostly for pilot sort of evaluations or are you seeing actual sort of customer interest in installing a commercial tool in their facilities?

Customers are asking us now, Andrew of unavailability of additional capacity, which we really -- I would say that commentary we want to buy one now. Let's say, okay, if I wanted to buy one, what would it take and as of -- I think we would want to go to take advantage of that.

Those opportunities we are looking at what we can do, how does it get instantaneous supply chain gives you maximum flexibility, right? And any of us taking control, then knows a lot of the feedback loop, the more likely you go out of control, right.

So it deludes us to figure out how to shorten all of that for maximum business flexibility and also because customers are asking about it. And we think the way we thought about the supply chain should give us some advantages. I think historically people said, oh, PDF's not a manufacturer, there's some disadvantages to that, and go ask a fabless company, if not having aside as an advantage or disadvantage.

I think most of the fabless companies would tell you that they're quite happy with being fables. I think certainly share, If we think there's great that we can be -- we can leverage the way that we operate to maximize flexibility.

And I guess the last question around that is on the customers doing the manufacturing evaluation. I think you thought you might know by the end of this year on the sort of if it's a go or no-go, I'm have they given any indication whether it's a go they would require additional tools?

Yes.

And then I assume the answer is yes, they would require additional tools.

Yes, I would, yeah. That's the type of manufacturing evaluation, right?

Yeah. Okay. That's what I thought. I just wanted to confirm. Okay, great. Thank you, guys.

(Operator Instructions) At this time, there are no more questions. Ladies and gentlemen this concludes the program and thank you for joining us on today's call.